October Term, 2012
June 10, 2013
Today the Supreme Court issued two decisions, described below, of interest to the business community.
Takings Clause—Agricultural Producers—Government Enforcement Actions
Horne v. Department of Agriculture, No. 12-123 (previously discussed in the November 21, 2012, Docket Report)
The Takings Clause of the Fifth Amendment to the U.S. Constitution provides that private property shall not be taken for public use without just compensation. The Agricultural Marketing Agreement Act of 1937 (“AMAA”), 7 U.S.C. § 601 et seq., and its regulations, 7 C.F.R. Part 989, require “handlers” of raisins (i.e., those who process and pack raisins for distribution) to turn over what is often a substantial percentage of the raisins to the federal government before they can sell the remainder on the open market. The AMAA also requires handlers to exhaust all claims and defenses in enforcement actions before the United States Department of Agriculture, with exclusive jurisdiction for review in federal district court. See 7 U.S.C. § 608c(15). Finally, the Tucker Act allows parties seeking compensation from the United States for a taking of their property to bring suit in the Court of Federal Claims. See 28 U.S.C. § 1491(a)(1).
Petitioners are California raisin producers who claim that the AMAA’s requirements constitute a taking in violation of the Fifth Amendment. Because those requirements apply only to handlers and not to producers, petitioners decided to bring their raisins to market directly, without turning over to the Government the share of raisins required by the regulations. The USDA responded by initiating an enforcement action, alleging that petitioners were acting as handlers and therefore had violated the AMAA; the USDA sought an order compelling petitioners to pay an amount equal to the value of the withheld raisins, plus penalties. In the ensuing administrative proceeding, petitioners argued, among other things, that the regulation was invalid as an uncompensated taking. A USDA hearing officer rejected that defense, found petitioners liable, and on petitioners’ appeal within the agency, a judicial officer imposed more than $650,000 in assessments and penalties. After that ruling was upheld by a district court, petitioners appealed to the Ninth Circuit, which held that it lacked jurisdiction to decide their takings claim. The Ninth Circuit held that petitioners were required to pay the penalty and then raise their Takings Clause claim in an action for reimbursement under the Tucker Act. Despite the fact that penalties had been imposed on petitioners on the theory that they were handlers, the Ninth Circuit held that the AMAA’s exhaustion requirement did not apply to petitioners because they claimed to be producers.
In a unanimous opinion by Justice Thomas, the Supreme Court reversed, concluding that the Ninth Circuit had erred in ruling that it lacked jurisdiction to consider petitioners’ takings defense. The Court held that petitioners were raising their takings defense in their capacity as handlers, as that was the only source of liability under the AMAA. The Court also held that petitioners’ takings defense was ripe and could be raised in the enforcement action, instead of by way of a separate Court of Claims action under the Tucker Act, because the AMAA withdraws Tucker Act jurisdiction over a handler’s takings claim. The Court did not, however, decide the takings issue itself, remanding for the Ninth Circuit to do so.
The Supreme Court’s decision in this case is important to agricultural producers and handlers who are subject to regulation under the AMAA, and may have broader implications for any situation in which the Government seeks a monetary remedy that the defendant claims would constitute a taking of its property.
Any questions about the case should be directed to Tim Bishop (+1 312 701 7829) in our Chicago office.
Federal Arbitration Act—Class Arbitration
Oxford Health Plans LLC v. Sutter, No. 12-135 (previously discussed in the December 10, 2012, Docket Report)
In a narrowly-written decision, the Supreme Court held today in Oxford Health Plans LLC v. Sutter, No.12-135, that courts lack authority under the Federal Arbitration Act to vacate an arbitral award authorizing class arbitration when (1) the arbitrator’s decision is based on an arguable effort to construe the arbitration agreement and (2) the parties had agreed that the arbitrator should decide whether the arbitration agreement allows class-wide arbitration. Under those circumstances, the Court held that the FAA’s limited standard of review of arbitral awards precludes a court from correcting any mistakes. Justice Kagan, who wrote the majority opinion, declared that “[t]he arbitrator’s construction holds, however good, bad, or ugly.”
This decision revisits the question whether an arbitrator may construe an arbitration agreement to permit class arbitration when the parties have not expressly agreed to that procedure. The Supreme Court previously addressed the issue in Stolt-Nielsen v. AnimalFeeds International Corp., 130 S. Ct. 1758, 1775 (2010), holding that “a party may not be compelled under the [FAA] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” Today, in Oxford Health Plans, the Court reaffirmed its prior holding that “[c]lass arbitration is a matter of consent,” and that an “arbitrator may employ class procedures only if the parties have authorized them.” But just as the Court had previously declined in Stolt-Nielsen “to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration,” it again declined to reach that issue. Instead, even though the arbitration provision at issue was silent about whether class arbitration was permitted, the Court concluded that because the parties had submitted the interpretation of the agreement to the arbitrator, any error by the arbitrator in construing the agreement to permit class arbitration was not subject to correction on judicial review (because the FAA authorizes only limited judicial review of arbitral awards).
In a footnote, the Court reserved a crucial question that limits the practical consequences of the decision. The Court commented that it “would face a different issue” had Oxford preserved the argument that the availability of class arbitration is a “question of arbitrability,” which is a “gateway” issue for courts, rather than arbitrators, to decide. According to Justice Kagan, “Stolt-Nielsen made clear that this Court has not yet decided whether the availability of class arbitration is a question of arbitrability.” Because Oxford Health Plans had agreed that the arbitrator should decide whether the agreement authorized class arbitration, the Court concluded that the case did not provide a vehicle to decide whether the availability of class procedures falls within the category of questions of arbitrability. The footnote therefore invites parties in future cases to argue that the availability of class arbitration is a threshold issue that should be decided by the courts, not by the arbitrator.
Although joining the majority opinion, Justice Alito also filed a concurrence (joined by Justice Thomas) that provides useful guidance to parties and arbitrators presented with this issue. As Justice Alito explained, when an arbitration agreement is silent with respect to class arbitration, the agreement should generally not be construed to permit class arbitration because of the incompatibility of class procedures with traditional characteristics of arbitration. Justice Alito added that because absent class members have not consented to the arbitrator’s authority, they (as well as the defendant) would be able to advance substantial due-process challenges to any arbitral award entered on a class-wide basis. Consequently, Justice Alito explained, absent class members would need to opt into the class-arbitration proceeding in order to be bound by the arbitrator’s decision.
Because Oxford’s concession was central to the Court’s holding, and because the Court left the door open to obtaining judicial review of the class-arbitration question by framing the question as one of arbitrability, the Court’s ruling is narrow. Equally significant, the problem at issue in Oxford Health Plans is one that is receding: Companies have increasingly included in their arbitration agreements express preclusions of class arbitration. Today’s decision is a reminder that businesses should consider revising any arbitration agreements that remain silent on the issue of class arbitration.
Thus, in the long run, the most significant aspect of the Court’s decision may be Justice Alito’s concurrence, which spotlights the due-process challenges to class arbitrations that proceed under contracts that do not clearly authorize the procedure.
Any questions about the case should be directed to Andrew J. Pincus (+1 202 263 3220), Evan M. Tager (+1 202 263 3240), or Archis A. Parasharami (+1 202 263 3328) in our Washington, DC office.
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