Court Briefs

Will Marks: Well, that's right, Kannon, and it will be argued April 20th. And it presents a fundamental question about the scope of the SEC’s Civil Enforcement Authority.

So the SEC has the authority to seek the equitable remedy of disgorgement, which takes away a wrongdoer's ill-gotten gains. The question here is whether the SEC may seek disgorgement in a civil enforcement action, even when it hasn't shown that the alleged wrongdoing caused any financial harm to investors.

Masha Hansford: This sounds a lot like a follow-on to the Liu v. SEC case in 2020, where the court held that disgorgement is an available remedy, but limited it to certain circumstances.

Will Marks: Yeah, that's exactly right. So the question there was whether disgorgement was a penalty or an available equitable remedy. The court held that it was an available equitable remedy, but that it had to be awarded only based on the limits, traditionally from equity on equitable remedies.

And so here the question really is, and the whole debate between the parties, is whether harm to investors was actually a traditional equitable requirement in order to disgorge a defendant of ill-gotten gains.

Now, this case is particularly important because it will expand or limit the scope of the SEC’s enforcement authority. If the SEC doesn't have the authority to seek disgorgement, absent a showing of harm to investors, then anytime there's no such harm, even when somebody who violates SEC regulations or securities laws makes a significant amount of money from the violation, the SEC won't be able to disgorge that profit. They would only be able to seek civil penalties.

By contrast, if the SEC can seek disgorgement in these contexts without showing harm to investors, then really disgorgement is available anytime there's a violation of an SEC regulation or securities law.

Kannon Shanmugam: And certainly from Liu, I think it's fair to say that the current court has a certain degree of skepticism about broad disgorgement remedies. Not to put you on the spot, Will, but do we think that trend is going to continue?

Will Marks: So it's not exactly clear. There was a recent criminal decision where the court seemed to question the requirement that you needed to show pecuniary harm to a victim in order to have fraud.

And so you may think here that the court will say pecuniary harm to a third party just isn't a requirement of equity. The whole point of the equitable remedy of disgorgement is that the wrongdoer shouldn't keep the benefits of his gain.

But hard to say because you're right, Liu definitely seemed like the court was wanting to limit the SEC's authority. And we've seen from other contexts that the court has showed some skepticism toward agency enforcement power.

Kannon Shanmugam: Great, thanks, Will. Well, and another area that has been a relatively hot area on the Supreme Court's docket has been arbitration, specifically questions concerning the interpretation and application of the Federal Arbitration Act.

Will, this year the court has a case with a bit of a twist. It actually involves one of the most significant exemptions from the Federal Arbitration Act, and that's a case called Flower Foods v. Brock.

Will Marks: That's right. So this is a really important arbitration case being argued on March 25th. And it presents the question whether the Federal Arbitration Act applies to protect employment arbitration agreements with last mile delivery drivers.

And so normally when you think about the Federal Arbitration Act, it applies to employment agreements just like it would any other arbitration agreement. And it says that those employment arbitration agreements are enforceable just like any other contract.

But there's an exception in the Arbitration Act that says that its protections don't apply to employment agreements for transportation workers who are engaged in foreign or interstate commerce.

Now, here we're talking about last mile delivery drivers. And what I mean by that is these are individuals who work for interstate companies who may ship goods from one state into a distribution facility in another state. And then the delivery driver goes to that distribution facility, picks up the goods, and then delivers them entirely in the state.

So that particular worker is never crossing state lines, but the goods themselves are. And so the question is, does that worker work in interstate commerce within the meaning of this transportation exception?

Masha Hansford: So this seems like a really tough argument for the employers, because the normal way you think about the Commerce Clause, the last mile drivers definitely are engaged in economic activity that substantially affects interstate commerce. Why isn't that just enough?

Will Marks: So the wrinkle here is that the FAA was enacted in 1925. And if you go back at the time, the Supreme Court's conception of the Commerce Clause was much narrower than it is today.

This is before the famous switch in time that saved the nine, before the Supreme Court adopted the Substantial Effects Test. And it was at a time when the Supreme Court and Congress thought that its authority, federal legislative authority, did not extend to economic activity that was completely within a state.

And so there were questions about whether Congress had the authority to regulate employment contracts when the employment was all within one state rather than crossing state lines.

Now, as you can imagine, this is a big point of debate between the parties. The parties dispute what Congress's and the Court's view of the Commerce Clause actually was in 1925.

There's some reason to believe the petitioner says that Congress did not believe that its authority would reach these type of intrastate employment agreements.

On the other hand, the respondent, the plaintiff in the case, says that actually Congress did think it had this authority as long as the worker working inside one state was essentially the last leg in an interstate journey for a product.

So that's really one of the big disputes the Court is going to have to work out here.

Masha Hansford: So that's really fascinating because the Commerce Clause is an area where the jurisprudence really has changed over time. And this needing to take a snapshot of what it was like in 1925 and use that to resolve an issue that has huge significance today is just such a fun combination of history and doctrine. I'll be really curious to watch how the Supreme Court deals with that.

Will Marks: Yeah, it's really a fascinating case. And it's obviously significantly important for a number of different types of businesses, from food delivery, logistics, retail, e-commerce. Any company that hires last mile delivery drivers and uses employment arbitration agreements with those drivers should be very interested in this case.

Now, if we're in a scenario where the Court rules that these agreements are enforceable and the transportation worker exception doesn't apply, then these agreements will be enforceable under the FAA just like other arbitration agreements.

By contrast, if the Court rules that the exception does apply here, then largely employers are going to have to rely on state arbitration acts to enforce these types of arbitration agreements. And those may well not be as protective of arbitration as the federal act is.

Kannon Shanmugam: Well, great. And the last case we wanted to mention today is Monsanto Company v. Durnell. This is one of the many cases coming out of allegations that Monsanto's weed killer Roundup causes certain types of cancer.

And, Masha, as the case comes to the Supreme Court, it seems to present the issue of whether or not these sorts of claims can go forward at all.

Masha Hansford: That's right. So, Kannon, this is a case that's going to be argued on April 27.

And the plaintiff in this case alleges that he sprayed Roundup for years to remove weeds from his community garden. Eventually, he developed non-Hodgkin's lymphoma. And he sued in Missouri State Court. He got a jury trial and received a jury verdict in his favor. And his theory was that Monsanto failed to warn him that Roundup causes the type of cancer that he has.

And Monsanto responds that those claims should be preempted because the Environmental Protection Agency, the EPA, has approved a specific label for Roundup and has not required a cancer warning.

And so I think this will be a really important case about the scope of preemption where federal law specifically chooses not to impose a particular requirement.

And I think in addition to watching the results in this case, which as you said, Kannon, is really significant just given the volume of these Roundup cases, I'm also curious to see how broadly the court decides the issue.

I think it could be quite narrow. There is a prior precedent under the specific statute at issue, the Federal Insecticide, Fungicide, and Rodenticide Act. And it could really limit its decision to that context.

It could be a little bit broader and focus on cases where there's a pre-approved label. And that would capture both these EPA cases, but also FDA cases and some other contexts.

And I think the broadest possibility that either in its holding or at least in language in the decision, the Supreme Court will kind of shed light on this interplay about a federal choice not to impose a requirement and a state's choice to impose that requirement or to allow the imposition of that requirement through its tort system.

And I think that broadest category is potentially incredibly significant. That type of preemption argument just comes up time and time again for the business community across a whole range of contexts.

Kannon Shanmugam: And the stakes in this case are high for Monsanto and its parent company, Bayer. As was reported recently, Bayer has entered into a multi-billion dollar settlement of a number of these cases with the plaintiffs.

As I understand it, that settlement does not cover the Supreme Court case. So that case will obviously go ahead and we'll have a bearing on all of the cases outside the settlement.

Well, with that, we're just about done with today's episode. I want very briefly to mention just a few cases on the court's docket that we here at Paul, Weiss are involved in. And because we are involved as litigants, I'll just briefly describe the questions that are presented in those cases.

The first is a case that's actually going to be argued next week. That's Havana Docks Corporation v. Royal Caribbean Cruises. It's a case involving the scope of the Helms-Burton Act, a statute that creates a cause of action for damages against companies and others that traffic in property confiscated by Cuba at the time of the Cuban Revolution. And the question is whether cruise lines that did business in Cuba contravened that statute.

In addition, we at Paul, Weiss are involved in another case, Cisco Systems v. Doe. That's a case that'll be argued in April. And it is the latest case in a line of cases before the Supreme Court presenting the question of whether or not aiding and abetting liability is available under federal statutes. Here are two federal statutes, the ATS and the TVPA.

And finally, we're also indirectly involved in a case, Montgomery v. Caribe Transport II, which is a case presenting the question of whether or not state common law claims can go forward against freight brokers for negligently selecting motor carriers or drivers who then get into accidents, whether or not those claims are preempted under a federal statute, the F4A.

So a lot of really interesting business cases on the Court's docket.

But for now, that wraps up today's episode of Court Briefs. We hope you enjoyed the episode.

And as always, if you would like some more information about Paul, Weiss's Supreme Court and appellate litigation practice, please visit us at our website, which is paulweiss.com. And please do subscribe to Court Briefs wherever you listen to your favorite podcasts.

But for now, thanks for listening today. And we look forward to being with you on a future episode. Goodbye.