June 01, 2017 HUMAN RIGHTS

Slamming the Courthouse Door

by Scott L. Nelson

The U.S. Supreme Court has long said that Americans have a “fundamental right of access to the courts.” Tennessee v. Lane, 541 U.S. 509, 433–34 (2004). Exactly what this civil right encompasses, however, is unclear. The Court has invoked it to uphold the application of the Americans with Disabilities Act to state courthouses (id.), require prisons to have law libraries (Bounds v. Smith, 430 U.S. 817 (1977)), and prohibit states from denying divorces to couples who cannot afford court filing fees (Boddie v. Connecticut, 401 U.S. 371 (1971)). For a fundamental right, however, it has received relatively little attention from the Supreme Court.

One might think that, at a minimum, the right would guarantee that a citizen with a cognizable legal claim against another person or entity can take the case to court. Decades of judicial decisions, however, have not given any such content to the right of access to the courts. Rather, corporate interests and proponents of limiting litigation have succeeded in erecting enormous barriers between the judicial system and citizens—particularly those who seek to sue to protect their rights as consumers or employees.

Arbitration

Courts are public, governmental institutions in which impartial judges apply the Rule of Law in deciding disputes, and in which juries decide factual questions in certain kinds of cases.

Under this definition, millions of Americans have lost the right to have access to the courts to resolve the legal disputes they are most likely to experience—disputes with companies that employ them or from which they have purchased goods or services. How have they lost that right? By being compelled to enter into arbitration agreements calling for disputes to be decided by nonpublic adjudicators who are not bound by the Rule of Law or the standards of impartiality applicable to judges, and who operate wholly outside the constraints of the jury system. In only a generation, such arbitration agreements have become ubiquitous, and the average American is likely bound by dozens of them affecting many of his or her most important nonfamilial legal relationships, with lenders, auto dealerships, credit card companies, banks, educational institutions, medical providers, Internet companies, and employers.

Arbitration’s sudden rise to dominance has its roots in the Federal Arbitration Act of 1925 (FAA), 9 U.S.C. §§ 1–16, a law with the modest goal of facilitating enforcement of arbitration agreements entered into at arm’s-length between commercial actors. For the first half century of its existence, the FAA’s impact was modest because of the judicial consensus that it must be read narrowly and applied neither to state-law causes of action nor to many federal claims. Bernhardt v. Polygraphic Co. of America, 350 U.S. 198 (1956); Wilko v. Swawn, 346 U.S. 427 (1953).

In the 1980s and 1990s, the judicial reading of the FAA changed dramatically, and the Act’s impact grew exponentially. The Supreme Court read the FAA’s requirement that courts enforce agreements to arbitrate to apply to statutory claims, overruling earlier contrary decisions. See, e.g., Rodriguez de Quijas v. Shearson/America Express, Inc., 490 U.S. 477 (1989). It also read the FAA’s application to interstate commerce expansively and required state courts to adhere to the Act in cases governed purely by state law. The Court held that the FAA broadly preempts state laws that are “hostile” to arbitration or treat arbitration agreements less favorably than other contracts. See, e.g., Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 264 (1995). And despite an apparently broad exclusion of employment agreements from the FAA’s coverage, the Court read the Act broadly to apply to nearly all employment contracts. Circuit City Stores, Inc. v. Adams, 556 U.S. 247 (2001).

The trend continued into this century, with the Supreme Court routinely rejecting attempts by lower state and federal courts to protect consumers and employees from overreaching arbitration agreements. The Court has acknowledged that most arbitration agreements are contracts of adhesion that consumers and employees have no ability to negotiate, but it has held them enforceable nonetheless, subject only to the limited protections state laws offer against contracts that are substantively unconscionable. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011). It has enforced arbitration agreements in otherwise wholly illegal contracts and even held that arbitrators can be given the power to determine whether an arbitration agreement is enforceable to begin with. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006); Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010). And the Court has held that if an arbitration agreement prohibits class actions, courts must enforce that limitation even if doing so effectively makes it impossible as an economic matter for consumers and employees to enforce rights under state and federal law. American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013).

Freed by the Court to excuse themselves from the civil justice system, companies have done so broadly. As a result, most Americans have no recourse to the courts to resolve the merits of many potential claims. The only judicially cognizable questions in many cases are whether there is an arbitration agreement, whether it covers the claims in question, and whether the agreement is so unfair as to cross the line of unconscionability. A non-negligible number of agreements do cross that line (for example, by requiring arbitration before nonexistent tribunals or purporting to deprive the parties of substantive legal rights). See, e.g., Jackson v. Payday Financial, LLC, 764 F.3d 765 (7th Cir. 2013); Al-Safin v. Circuit City Stores, Inc., 394 F.3d 1254 (9th Cir. 2005). But courts generally enforce arbitration agreements as written, and, in such cases, private arbitrators displace the courts’ function of resolving civil disputes.

No immediate end to this impediment to court access is in view. Although some of the critical Supreme Court decisions have been by 5–4 margins, others have not. Justice Ginsburg’s recent lament that “these decisions have predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful economic interests from liability for violations of consumer-protection laws,” was joined by only one other justice, Sotomayor. DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463, 477 (2015). With the selection of a justice for the current Court vacancy falling to the newly elected president, and with other appointments possible over the next four years, it seems highly unlikely that the Court will soon reverse its view of the FAA.

Administrative rulemaking has the potential to restore consumers’ access to the courts in some areas. The Consumer Financial Protection Bureau has statutory authority to limit use of arbitration agreements in consumer financial transactions and has proposed to prohibit class-action bans in arbitration agreements. Other agencies have recently acted to protect student borrowers, nursing home residents, and pension-plan investors by limiting arbitration. Such efforts face an uncertain fate under the new administration and may be invalidated under the Congressional Review Act or by the courts. However those battles unfold, the status quo is that for many Americans, arbitration agreements render the idea of a fundamental right of access to the courts illusory at best.

Standing

Although arbitration may be the area in which corporate interests have been most successful in impeding access to the courts, there are inherent limits to arbitration’s potential to shut courthouse doors. Arbitration is a matter of contract, and absent a contractual relationship of some kind, there can be no enforceable obligation to arbitrate. In any event, sole reliance on any one obstacle to court access would be an imprudent and unreliable strategy for those seeking to inhibit litigation. The attempt to impose doctrinal barriers to court access thus has not stopped with arbitration.

One of those doctrinal barriers is the law of standing. Lawyers who bring administrative law, civil rights, or constitutional actions against government entities have grown used to contending with the doctrine that Article III prohibits federal courts from hearing a case unless the plaintiff demonstrates that he or she has standing: that is, that he or she has suffered or is about to suffer an “injury in fact” caused by the challenged action and redressable by the remedy sought in the case. Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992). This notion has been so drummed into our heads that we often forget that the current, restrictive view of standing is a relatively new doctrine that rose to prominence in a fairly small number of cases in the 1960s and 1970s (e.g., Sierra Club v. Morton, 405 U.S. 727 (1972)), came to full fruition in the 1980s and 1990s, and has continued to hold sway since.

The barriers the doctrine poses to plaintiffs in administrative and constitutional cases are formidable, but often not insurmountable because many government actions injure identifiable people who demonstrably satisfy the requirements for bringing suit. But in many cases, particularly where the government has acted in ways that threaten rights of large numbers of people, or has failed to follow statutory mandates to protect the public, identifying particular individuals who can show a sufficient likelihood that they will be the ones harmed may be impossible. E.g., Public Citizen, Inc. v. NHTSA, 513 F.3d 234 (D.C. Cir. 2008). In these types of cases, and particularly in regulatory matters, the standing hurdle is asymmetrical: Businesses accusing the government of overregulating can nearly always establish an injury, but members of the public whom regulation is intended to protect often cannot. Defenders, 504 U.S. at 561–62.

Perhaps because of the benefits standing doctrine has provided to their clients’ interests in regulatory cases, industry lawyers in recent years have sought to extend standing doctrine from its traditional sphere of suits against the government to cases where plaintiffs sue private defendants for monetary recoveries. Such matters would once have involved little possible scope for standing arguments, as a plaintiff with a case for actual damages necessarily has a claim of injury proximately caused by the defendant’s conduct, and redressable by the award of damages.

However, as federal and state governments have created new rights of action for consumers, they have expanded definitions of wrongful and in- jurious conduct (for example, practices regulated by the Fair Debt Collection Practices Act (15 U.S.C. §§ 1692e et seq.) or junk faxes and robocalls regulated by the Telephone Consumer Protection Act (47 U.S.C. § 227)) and provided new remedies for that conduct, often in the form of statutory damages not requiring proof of monetizable losses. Some of the early standing case law indicated that the creation of such statutory rights and remedies necessarily gives rise to Article III standing. See, e.g., Warth v. Seldin, 422 U.S. 490, 500 (1975). But other standing decisions, particularly in environmental and other administrative law cases involving “procedural rights” and citizen suits for statutory penalties, could be read to suggest otherwise. See, e.g., Summers v. Earth Island Institute, 555 U.S. 488 (2009); Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U.S. 167 (2000).

As a result, defendants began to argue that plaintiffs suing under a wide range of consumer protection statutes failed to meet their burden of showing injury if they could not demonstrate pecuniary losses. The issue reached the Supreme Court in First American Financial Corp. v. Edwards in the Court’s 2011–12 term. The issue there was whether a plaintiff could pursue a claim for statutory damages for violations of provisions in the Real Estate Settlement Procedures Act (12 U.S.C. § 2601 et seq.) that prohibit title insurers from giving kickbacks to settlement agents. Unable to decide the question, the Court dismissed the case without an opinion on the very last day of the term. First American Financial Corp. v. Edwards, 132 S. Ct. 2536 (2012).

That nondecision left the issue hanging fire, and defendants continued to assert standing arguments in many cases seeking statutory damages for violations of consumer protection laws. The issue reached the Court again last year, in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). This time the issue was whether a plaintiff could pursue a claim based on the Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.) against a website that published false information about him, if he could not prove that the violation harmed him financially.

Again, the Court reached an inconclusive result, in part because of Justice Scalia’s death during the pendency of the case. This time, however, the Court was able to cobble together a majority opinion, but it consisted mostly of generalities about standing and did not actually decide whether the plaintiff had standing.

What the Court said, however, was ample to encourage defendants to continue to challenge plaintiffs’ standing under a wide range of consumer statutes. The Court held that creation of a statutory right and remedy is not alone sufficient to confer standing. The violation must involve some sort of “injury in fact” to the plaintiff—something one might view as harming the plaintiff in some way apart from the existence of the statute. In deciding whether there is an injury, courts should consider similarities between the statutory right and rights traditionally actionable at common law. Courts should also respect Congress’s judgment that proscribed conduct is harmful and must recognize that “intangible” harms and risks of injury may suffice. But Congress doesn’t have final say—as to whether there is an injury for standing purposes.

In light of Spokeo, defendants continue to press standing arguments under a wide variety of statutes, with mixed results. Whether a plaintiff can demonstrate the requisite injury will likely vary from statute to statute and case to case. What is certain is that having to litigate the issue will burden many plaintiffs and prevent a significant number who have valid statutory claims from getting past the starting blocks in court. And, again, the addition of a new justice, or justices, to the Court could raise the barrier even higher.

Class Actions

One of the major innovations of the 1960s and 1970s was the development of the modern class action. A class action permits large groups of plaintiffs to litigate over monetary claims that are too small to be worth the expense of pursuing individually, but that, if the action is successful, will produce an aggregate recovery sufficient to pay the legal fees and expenses incurred in pursuing the case.

By creating incentives for litigating such claims, and by dramatically raising stakes of litigation for defendants, class actions have become a lightning rod for attempts to curtail access to the courts. Thus, over the past two decades, corporate interests have made coordinated legislative and litigation efforts to limit plaintiffs’ ability to maintain class actions.

Legislatively, the centerpiece of these efforts was the Class Action Fairness Act of 2005 (CAFA), 28 U.S.C. § 1332(d). CAFA, the product of an eight-year legislative battle, effectively allows most large class actions involving multistate parties to be removed from state to federal court. Support for the law was largely motivated by the view that state courts were too willing to certify class actions, and the hope that federal courts would prove less hospitable to them.

CAFA itself did not alter class certification requirements or otherwise curtail availability of class actions. Achieving that objective required a complementary litigation strategy to advance a range of theories that would significantly limit class actions. Most of these theories are variations on the theme that differences among class members are too great to allow certification. Through these theories, defendants seek to block class actions if the plaintiffs cannot precisely identify classes in which each member has been subjected to the same illegal conduct and suffered the same injury, and if there are any individual issues affecting any class member’s right to recover.

Defendants achieved significant Supreme Court victories limiting class actions in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), and Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). In Wal-Mart, the Court decertified a nationwide class of women claiming systemic employment discrimination by Wal-Mart. According to the Court, the plaintiffs had not shown that their claims presented a common issue: The circumstances affecting employees across the country were too diverse to hold the class together. In Comcast, the Court decertified an antitrust class action because the plaintiffs had not shown that their proposed classwide approach to calculating damages would yield reliable results.

Neither case, however, was the death blow to class actions that defendants sought. Wal-Mart can almost always be distinguished on its facts and has not prevented plaintiffs who aim a little lower from certifying classes when they demonstrate a common course of illegal conduct affecting the class. And Comcast has not been read to prevent class actions in all cases where damages differ from plaintiff to plaintiff, but only to hold that plaintiffs must present a plan for determining a class’s damages that fits with their theory of the case.

Defendants thus sought another vehicle for a Supreme Court ruling that would broadly limit class actions and thought they had found it in Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016). Tyson was a wage-and-hour case in which employees claimed Tyson had failed to pay them required overtime because it had wrongly excluded certain work activities from their compensable time. Because damages varied from plaintiff to plaintiff, and Tyson had no records of the amount of uncompensated time, the plaintiffs based their damages calculations on representative proof about how much time the uncompensated activities took. These calculations indicated that a small number of workers within the class definition were not entitled to additional pay. Tyson asked the Supreme Court to rule that a class may not be certified where the amounts of damages owed to individual class members differ, that representative proof may not be used to establish damages, and that a class may not be certified if some members lack compensable damages. A ruling for Tyson on any of these points would have dealt a severe blow to class actions because it is rare indeed that all members of a class are identically affected by the defendant’s unlawful conduct.

As it turned out, the Court ruled against Tyson, holding that differences in damages owed individual class members do not necessarily bar class certification, that plaintiffs may use representative proof of damages in a wage-and-hour case, and that, for various reasons, Tyson could not complain that the aggregate verdict for the class included some employees who had no damages. 

However, some aspects of the Court’s ruling were narrow. It rested in part on substantive wage-and-hour law and in part on Tyson’s failure to preserve certain arguments. As a result, defendants continue to assert in other cases that variations in class members’ damages preclude certification, that efforts to determine damages using representative or statistical proof are improper, and that courts may not certify classes including any members who may ultimately be determined to be uninjured. How these arguments may fare in a differently constituted Court remains uncertain.

Defendants have also begun pressing a related argument: that a class may not be certified if all class members are not definitely identifiable at the time of certification. This theory, referred to as “ascertainability,” has not won general acceptance (see Mullins v. Direct Digital, LLC, 795 F.3d 654 (7th Cir. 2015)) because of the impossible burden it would place on plaintiffs, but defendants continue to press it and seek opportunities to take it to the Supreme Court.

So far, however, the litigation half of the attack on class actions has not had the success defendants have hoped for. Certification standards have toughened, but not enough to satisfy opponents of class actions. As a result, a return to the legislative strategy seems likely.

Last year saw a much-ballyhooed hearing of the House Judiciary Committee at which class-action opponents advocated further restrictions on class actions. Their views are embodied in the Fairness in Class Action Litigation Act, which would provide that a federal court may not certify a class unless each member of the class “suffered the same type and scope of injury” as the class representative. H.R. 1927, 114th Cong. (2016). Proof that a class includes no member who does not have exactly the same injury as the named representative would be impossible in most cases. Such legislation would accomplish what a decade of litigation since CAFA’s passage has not: Slam the door on class actions and significantly impede citizens’ access to judicial remedies.

The Fairness in Class Action Litigation Act passed the House of Representatives in 2016 but got nowhere in the Senate. With the slim Republican majority in the incoming Senate, such a radical approach is unlikely to win Senate passage. However, with Republican majorities in both Houses and a Republican president, a substantial effort to enact some legislation limiting class actions is certainly in the cards.

Picking Off Plaintiffs

As an adjunct to attacks on class certification standards, defendants in recent years devised a strategy for nipping many class actions in the bud: making an offer of individual relief to the class representative before the class is certified and then moving to dismiss the entire action on the ground that the offer moots the individual plaintiff’s claim and deprives the court of jurisdiction over the proposed class action.

Pushing this theory to the Supreme Court was an integral part of the defense strategy for emasculating class actions, and the Supreme Court took up the issue last year in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016). A holding by the Supreme Court that an offer of individual relief to a class representative moots the case would have dealt a potential knockout blow to a host of class actions.

The Court did not deal the blow. Ruling 5–4, the Court held that an offer to pay off the named plaintiff does not moot a class action because the offer in itself provides the plaintiff with nothing. However, the opinion left open the possibility that other strategies, such as obtaining a court order allowing the defendant to pay money into the registry of the court for the named plaintiff, might succeed where the offer-of-judgment strategy did not.

The decision kicked off another round of litigation across the country, as defendants seek new ways to achieve what they did not accomplish in Gomez. Under Gomez’s reasoning, a magic elixir allowing a defendant to avoid a class action for the price of paying one individual claim should be unobtainable, but by the time the issue again reaches the Court, the Gomez dissenters’ views may be ascendant. Justice Scalia’s replacement will not tip the balance, as he was one of the four Gomez dissenters, but any additional change in the Court could be decisive. And three members of the Gomez majority (Ginsburg, Kennedy, and Breyer) are over 78 years old.

Allowing defendants to avoid class actions by satisfying only the individual claims of named plaintiffs would be devastating to class actions in many kinds of cases. For now, this obstacle to court access has been avoided, but the price of admission to court now includes having to litigate the issue until it has been definitively resolved. If it is ultimately resolved adversely to plaintiffs, the price in lost access to the courts will be much greater.

Personal Jurisdiction

Personal jurisdiction is a technical subject that rarely comes to the forefront of most lawyers’ attention, but it, too, has emerged as another significant barrier to court access as the Supreme Court has issued major decisions emphasizing limits on courts’ power to exercise jurisdiction over nonresident defendants.

Under longstanding doctrines, courts exercise “general” personal jurisdiction over defendants whose ties to a state are so extensive that due process permits them to be sued there over any claim. Courts may exercise “specific” personal jurisdiction over nonresident defendants who have “minimum contacts” with the state when lawsuits arise out of or are related to those contacts.

In J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. 873 (2011), the Court tightened limits on specific jurisdiction by holding that a company could not be sued in a state where one of its products injured the plaintiff unless it specifically targeted sales at that state. In Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the Court similarly tightened general jurisdiction, suggesting that courts may not exercise general jurisdiction over a company unless it is incorporated or has its principal place of business in the state.

Together, the two decisions sharply limit where injured plaintiffs may sue corporate defendants. U.S. corporations will always be subject to suit in at least one home state, but it may be far from where the defendant’s actions injured the plaintiff. However, there may be no domestic jurisdiction where some foreign corporations can be sued, even if they have deliberately exploited the U.S. market and caused injuries to U.S. citizens.

Since Nicastro and Daimler, corporate defendants have begun arguing that classes of plaintiffs who suffered injuries in different states cannot sue a defendant in one jurisdiction unless they pick the defendant’s home state. They argue that Daimler precludes general personal jurisdiction in any other state, and that Nicastro permits specific personal jurisdiction only over claims by plaintiffs whose injuries arose out of the defendants’ contacts with the forum state. Thus, for example, they argue that a plaintiff whose injury arose from the defendant’s contacts with Nevada cannot join in a case brought in California by plaintiffs whose injuries arose from the defendants’ contacts with California—even though the wrongful conduct and the injuries it caused are identical.

Until Nicastro and Daimler focused attention on personal jurisdiction, defendants had generally not challenged personal jurisdiction over such claims, evidently assuming that either general or specific jurisdiction was available. Now, defendants are seeking to push the new theory to the Supreme Court, even though it has been addressed in only a handful of cases. See Bristol-Myers Squibb Co. v. Superior Court, 377 P.3d 874 (Cal. 2016), petition for certiorari pending, No. 16-466 (U.S. filed Oct. 7, 2016). Success for defendants would further limit injured plaintiffs’ options for pursuing claims against corporations.

Conclusion

In varying degrees, the barriers discussed above, and others, have eroded Americans’ ability to pursue meritorious claims in the courts. Defendants have had their greatest successes in limiting court access through arbitration agreements, but doctrinal developments in each of the other areas have created substantial obstacles. The scope and penetrability of these barriers remain highly contested.

The recent national elections, and their lasting effect on the Supreme Court, will intensify struggles over these issues. Defendants, who have shown great resourcefulness in promoting new barriers to entry to the judicial system, will continue testing new theories. The U.S. House of Representatives is likely to follow suit, subject only to the restraints imposed by the Senate.

For the average person, meanwhile, “I’ll see you in court” may be an increasingly empty threat.

Scott L. Nelson is an attorney at the Public Citizen Litigation Group in Washington, D.C., where he has a pro bono, public interest practice including consumer law, campaign finance regulation, class actions, arbitration, administrative law, regulation of hazardous products and substances, access to government records, energy regulation, environmental law, and Supreme Court and appellate practice.