The Supreme Court deals with jurisdiction, liability and privileges in corporate cases (2023)

Jan 6, 2023 – The Supreme Court's 2022 term is off to a slow start. The Court ended the calendar year without issuing an opinion on any dispute, which had not happened for more than a century. The rate of issuance of certificates, which has already been falling, is also at a record low. While the Court recently won an average of nearly 60 grants through early January, only 51 cases are on the agenda for the 2022 term so far.

That sleepy start makes the second half of the semester even busier. Over the next six months, the court will make decisions on important issues, including affirmative action on college admissions, scrutiny of elections by the state legislature, and the intersection of free speech and anti-discrimination laws. The court will also decide a number of important issues affecting companies, including where they can be sued, what they can be held liable for, and how to contact their lawyers.

Mallory v. Norfolk Southern Railway Co. could have a significant impact on where the companies can be sued. The Due Process Clause in the 14th Amendment limits the jurisdiction of the courts over the defendant. If the jurisdiction does not have general personal jurisdiction over a defendant (for corporations, this is the place of incorporation or principal place of business), it must have specific personal jurisdiction: the corporation must be involved in the activities that gave rise to the claims. A defendant can also consent to jurisdiction, and Mallory is testing the limits of what constitutes consent.

Pennsylvania law provides that any corporation that registers there to conduct business consents to the general jurisdiction within the state. Relying on that implied consent law, Mallory, a former Norfolk Southern employee, sued the Virginia-based Pennsylvania Railroad for alleged exposure to carcinogens through his work for the company in Virginia and Ohio. Norfolk Southern argued that there was no personal jurisdiction and that Pennsylvania's implied consent law violated due process. The Pennsylvania Supreme Court agreed, and the United States Supreme Court granted certification.

The parties' arguments in this case pit historical notions of personal liability against the modern realities of a mobile economy. Emphasizing the history of consent-by-record laws, Mallory urges judges to keep Pennsylvania's statute consistent with the original understanding of the 14th Amendment. Norfolk Southern argues that consent-by-record laws were a solution to a problem that, thanks to the framework developed by the Court of Justice in its 1945 decision, International Shoe Co. v. now deprecated activities in any state, regardless of your consent.

Questions at the November hearing suggested that the judges' views on Mallory may be divided and ideologically confused. Chief Justice John Roberts and Justice Elena Kagan appeared to agree with Norfolk Southern's argument that International Shoe has superseded previous cases in which consent-by-registration laws were upheld. But Judge Ketanji Brown Jackson suggested that both avenues of personal jurisdiction could co-exist, and Justices Sonia Sotomayor and Neil Gorsuch questioned whether Norfolk Southern's consent to these facts was actually coerced.

Meanwhile, Justices Samuel Alito and Brett Kavanaugh raised concerns about the potential practical implications of Mallory's position, which could change the landscape of jurisdiction by subjecting companies to lawsuits wherever they do business.

Regardless of what the court ultimately decides, Mallory will likely have a significant impact on companies and where they can be sued.

While Mallory addresses the state's power to bring defendants to justice, the court will also consider questions about the state's ability to regulate behavior in other states.

The National Council of Pig Farmers v. Ross includes a constitutional challenge to California's Proposition 12, a ballot initiative that requires farms to meet certain criteria before their pork can be sold in the state.

Farmers and hog producers say the law violates the dormant commerce clause, the theory that states cannot interfere with Congress's constitutionally granted powers over interstate commerce. Because California imports more than 99% of its pork, those challenging Proposition 12 argue that the law unconstitutionally discriminates against interstate commerce by "transforming the statewide pork industry."

But supporters of Proposition 12 say the alleged impact is exaggerated. They say Proposition 12 is not unlike many laws that states routinely pass to regulate quality and safety standards. They argue that continuing this challenge would dramatically expand the scope of the dormant commerce clause in a way that would undermine states' sovereignty.

Justices have verbally disagreed on where to draw the line when it comes to allowing states to impose political preferences on the rest of the country. For more than two hours, they peppered lawyers with hypotheses about state laws ranging from banning the picking of fruit by undocumented workers or goods made by vaccinated workers to requiring that firewood be treated with certain pesticides. And when some states enact competing laws, such as one requiring union workers to make products and another prohibiting the use of union labor in manufacturing, companies would be forced to choose between markets to sell their chosen products. This, several judges feared, would allow the kind of "economic balkanization" that the commerce clause was intended to prevent.

Time will tell if the court will ultimately address these broader issues or settle the case in a more limited fashion, relegating the case to the lower courts for further factual development on whether Proposition 12 will truly wreak nationwide havoc on the hog industry, a question that the lower courts asked. dismissal because they rejected the plaintiff's action in the challenge phase.

In addition to questions about which states regulate conduct within each other's territories, the Court faces questions about the extent to which the United States can regulate conduct abroad.

In the case of Abitron Austria GmbH v. Hetronic International, Inc., the court will consider whether the Lanham Act, which protects US trademarks against infringement, applies only to foreign sales.

After a dispute over trademarks of radio remote controls used to operate heavy machinery, a jury awarded Hetronic International $90 million in damages for Lanham Law violations by Abitron Austria GmbH, despite only 3% of Abitron's global sales have a significant impact on the US. . 10th US Circuit Court of Appeals upheld the ruling, ruling that the Lanham Act applies to Abitron's foreign sales because those sales ended up affecting Hetronic's cash flow in the United States.

Abitron sought certiorari and asked the Supreme Court to consider how the Lanham Act applied to foreign conduct.

US law generally only applies at the national level, unless otherwise clearly stated by Congress. In the absence of such a clear statement, courts often have to decide whether a given application of the law is domestic or extrastate. The application of a law is domestic, and therefore permissible, if the conduct relevant to the substance of the law, the primary concern of Congress in passing the law, occurred in the United States.

The question at Abitron is how this framework relates to the Lanham Law. Abitron claims that the Lanham Act only applies domestically and only when American consumers are confused, not, as in this case, when the confusion occurs abroad. Hetronic contends that the Lanham Act is extraterritorial and covers violations of foreign rights that have significant domestic implications. The court agreed to a balance and will hear the case on March 1.

The court's final decision will have obvious implications for the scope of potential liabilities companies may face under the Lanham Act for foreign sales. The 10th Federal Court ruling reveals significant foreign behavior that could exponentially increase damage payments.

This case could also have broader implications, affecting the Court's broader framework for assessing extraterritoriality and potentially creating a ripple effect on other laws affecting business abroad.

As companies await the ramifications of these and other important matters in court, many will be eager to speak with a lawyer. But another case on the court's docket could affect those communications: On January 9, the court will hear In re Grand Jury, a case about the scope of attorney-client privilege for multipurpose communications containing a mix of legal and business issues. . appendix.

This case stems from the Justice Department's criminal investigation into an unidentified law firm client. In response to a grand jury subpoena, the law firm produced more than 20,000 pages, but withheld communications containing legal advice on the client's taxes. The US Court of Appeals for the Ninth Circuit upheld a federal district court's contempt order, ruling that the attorney-client privilege protects multipurpose communications only when the primary purpose of the communication is to provide legal advice.

The decision of the 9th Federal Court of Justice implies a tripartite division in terms of attorney-client confidentiality. Three other circuits - 2nd, 5th and 6th - also limit the privilege to communications whose main objective is legal advice. 7. The US Circuit Court of Appeals goes further, at least in the tax context, and finds that the attorney-client privilege does not protect cross-functional communications about tax advice.

But in a 2014 ruling by then-Justice Kavanaugh, the US Court of Appeals for the District of Columbia took a broader approach that expanded the privilege when providing legal advice was an essential purpose of the communication.

Along with the anonymous law firm, several friends are urging the court to review the D.C. accept circuit. A more restrictive test is in keeping with modern business realities and legal practice and will make it more difficult for lawyers to communicate with their clients, since most communications have multiple purposes. The United States claims that D.C. The circuit is very permissive and would facilitate too aggressive information shielding.

While the court may limit its decision to the tax context, it may also broaden the scope of the attorney-client privilege. Either way, their decision is likely to affect how lawyers communicate with their corporate clients and whether they need to separate legal advice from other business conversations.

Regardless of the outcome of this and other cases, one thing seems likely: in the coming months, the 2022 term decisions will give companies much to talk about with their lawyers.

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