Kent J. Schmidt

Transcript

Voiceover
Welcome to another episode of the SharkCast on Litigation Risks Management, where we explore why businesses are so frequently sued and how to mitigate and navigate the dangers lurking in these risky waters.  Join us now as we welcome our host, Kent Schmidt, Litigation Partner at the law firm of Dorsey & Whitney.

Schmidt
I am pleased to be joined in the palatial SharkCast studios by Steve Wells, Nick Bullard and Brock Huebner.  Each one of these lawyers is a member of Dorsey’s Appellate Practice group.  This group of lawyers reviews and summarizes US Supreme Court decisions throughout the term and sends e-updates on each decisions as well as orders granting.  So it’s a very helpful update for staying on top of cases coming down from the High Court, and I recommend signing up for this e-update if it would be of any interest to you.  In the time we have on the podcast today, we’re gonna ask each of these three guests to highlight a decision from this last Supreme Court term.  I’ve asked them to select a case that pertains in some way to commercial litigation risk and to address the practical takeaways that in-house counsel might consider going forward.  We will leave for the law school professors and commentators the more esoteric and philosophical debates about what’s going on at the Court and try to make this presentation as pragmatic and practical as possible for those in the trenches dealing with litigation risk management.  So it’s a pleasure to welcome each of you to the SharkCast Podcast.  We have a great deal of ground to cover in a very short amount of time, so let’s get started.  The first of the three cases that we’re going to discuss today is National Pork Producers Council versus Ross.  Which of you three is gonna tackle this interesting new case?

Wells
Hey, this is Steve Wells and I’ll be weighing in on this one.

Schmidt
Let’s begin by hearing what this case is about, including the California law that was challenged in Pork Producers Council.

Wells
Several years ago, the California voters approved Proposition 12, which prohibited, in California, the sale of any whole pork products that were the result of raising pigs in a manner that was cruel, and cruel actually had a statutory definition.  I won’t go into it in great detail, but it essentially proscribed raising pigs in a manner that would prevent them from standing up, prevent them from turning around and raising them in various ways that were contrary to the views of, in all rights, proponents of Prop. 12.

Schmidt
Okay, so here in California we have propositions on the ballot on a regular basis.  We understand a little bit about what Prop. 12 is about.  What was the basis for the constitutional attack on Prop. 12?

Wells
The plaintiffs in this case were industry organizations that raised or sold pork products, so the name plaintiff was National Pork Producers Council.  And the claim here was that this law violated what’s called the Dormant Commerce Clause.  That is a somewhat arcane legal doctrine that results from a provision of the Constitution.  So the US Constitution expressly says that Congress has the right to regulate commerce among the states.  The Supreme Court has decided that the flip side of that is that states don’t have that right.  And so when states try to regulate interstate commerce, either by discriminating against out-of-state economic interests, or by, for example, trying to legislate in a way that would regulate matters outside of the state.  Those cases have been held by the Supreme Court to violate what’s called the Dormant Commerce Clause.

Schmidt
Ultimately, how did the US Supreme Court come down on the Dormant Commerce Clause issue with respect to Prop 12?

Wells
So the issue in this case wasn’t outright discrimination.  The kind of classic example of a Dormant Commerce Clause violation is where a state enacts a regulation that prefers in-state economic interest to out-of-state economic interest.  The State of Michigan, for example, several years ago wanted to protect in-state wine producers.  These are Michigan vineyard owners and Michigan enacted a regulation which allowed in-state wine producers to mail their products to homeowners in Michigan, but prohibited out-of-state vineyard owners from doing the same thing.  And the court said that was purposeful discrimination, you’re obviously protecting an in-state interest at the expense of out-of-state interests.  So the Court in this case was clear to say that’s not what’s going on right here.  What’s going on in this case is that there is no outright, what’s called facial discrimination, because in-state pork producers were treated the same as out-of-state pork producers.  The argument in this case, though, was that because only five percent of the pork that’s eaten in California comes from California, this was really a regulation, a law, that burdened out-of-state pork producers almost exclusively.  And the court had to deal with whether that violates the Dormant Commerce Clause.  The holding was that it does not.  In this case, Justice Gorsuch, who wrote the opinion for the majority, found that what the court really will look to is this purposeful discrimination, is there some way in which the statute or regulation that’s being challenged openly prefers in-state interests over out-of-state interests.  And the Court found this one did not.  The Court recognized that there was a substantial burden, if you will, on other states, because that’s where all the pork producers raised the pigs that yielded pork that ended up in California.  But the Court said that’s not enough, and it went through a sort of lengthy and somewhat arcane explanation of why that’s so, and many of the Justices signed on to the first point, saying yeah, there’s no, there’s no open discrimination here.  But the opinion was fractured about whether you could still make a claim that the Dormant Commerce Clause was violated as a result of a very substantial impact on out-of-state commerce, even if that wasn’t the intent of the statute.

Schmidt
Steve, what would you say is the major take away or the result of this decision from a legal perspective, an industry perspective going forward, particularly as it relates to large states like California and New York that wield the significance of power from the virtue of their population and their markets and their ability to legislate conduct that has an impact nationwide?

Wells
This case was being very closely watched because if the Court had found that laws in California or Texas or New York, states that have a lot of economic heft, if laws there could be challenged under Dormant Commerce Clause because it had a significant effect outside the state, that would have been a very dramatic expansion of the Dormant Commerce Clause.  And what the Court pretty clearly here said is we’re not going to expand the Dormant Commerce Clause that way.  The mere fact that there’s a burden outside of a state, as long as there’s no purposeful discrimination, we’re going to allow that to stand.  And what I would suggest is that the Justices were keenly aware the goose and gander problem here.  If they said that a California regulation that imposed essentially substantial burdens outside the state invalidated a California law, one could imagine the same argument being used to curtail a legislation in Texas, for example, that might relate to abortion that has substantial economic effects outside the state.  And I think the Court did what it should have done here, which is to say we’re not going to take sides on this and we’re not going to expand the law in a way which dramatically gives the Court the power to eliminate state regulation.  So what I think we can expect to see out of this is states with a significant economic power like California, like Texas, like New York, like Florida, enact regulations that the legislatures think is appropriate in those jurisdictions without regard to the impact it may have outside of the boundaries of their state.

Schmidt
Well, that will make compliance with the patchwork of regulations that continue to emerge all the more challenging.  So thank you for that update and for those observations on our first case.  And before we move on to our second case, it seems like when I’m talking about Supreme Court cases involving pork and pigs, you are the one whose name comes to mind.  So this is not your first time to have some involvement at least on a case before the Supreme Court involving pigs.  Can you tell us about your prior experience on that?

Wells
Well, Kent, as it turns out, I know something about pigs and the federal government and the US Supreme Court.  About 10 years ago, I was counsel of record for the National Meat Association, which challenged a California regulation of animal handling, particularly in the pork area, on a different ground.  It was a ground of federal preemption.  So states are constricted from making regulations relating to animal welfare and animal handling and food safety in a number of different ways, other than the Dormant Commerce Clause.  And one way is whether there, if there’s a federal statute that regulates this area, and Congress has decided that it will be the statute that governs, states are not allowed to intrude on federal authority.  So states do not always have a free hand to regulate in this area, and in that case we were successful in arguing that California had gone too far and the Supreme Court invalidated the California animal handling law.

Schmidt
And as I recall, that was a nine – zero decision.

Wells
Happily, yes.

Schmidt
Alright.  Well, let’s turn to our next Supreme Court decision from this last term.  It’s Mallory versus Norfolk Southern Railway Company.  Who’s going to tackle this case?

Bullard
Kent, this is Nick Bullard.  I’m going to tackle this one.

Schmidt
All right, Nick, why don’t you tell us what this case is about?

Bullard
Kent, I think this is the most significant jurisdictional case the Court has decided in the last five to ten years, and it addresses the circumstance under which states can exercise personal jurisdiction over corporate defendants, and Civ. Pro. refresher, personal jurisdiction is basically the power that a court has to call you to come into court, and there’s three general types of personal jurisdiction.  There’s general jurisdiction, which means you can be sued in a state for any reason, even if the lawsuit has no connection to that particular state, and for most corporate entities, that’s the place where the corporation is incorporated and the state where it has its principal place of business.  That’s general jurisdiction.  Then there’s specific jurisdiction, which is the state in which wherever the conduct that gave rise to the suit occurred.  So if I get a car, in a car accident with you, Kent, in California, California courts can call me into California courts to answer for that car accident, that’s specific jurisdiction.  And then there’s a less known and frankly less developed area of jurisdiction, personal jurisdiction by consent.  And that’s actually the particular type of jurisdiction that was at issue in this case.  And the particular issue is okay, well, what happens if you’re a corporate entity and you register to do business in a state like California?  Are you consenting to jurisdiction in California courts?  That’s the important issue that the Supreme Court took up in this Mallory case, and the facts of the case are really simple.  We have a plaintiff, Mr. Mallory, who is a Virginia resident, who sued Norfolk Southern, a Virginia corporation with its headquarters in Virginia, and he was suing about conduct that occurred in Virginia and Ohio.  And so you might think, well, Mr. Mallory probably sued in Virginia, maybe Ohio, but no.  He sued in the state of Pennsylvania.  Why?  Because Norfolk Southern had registered to business in Pennsylvania, and Pennsylvania has a particular statute which is a little bit unique and we can talk about this later, saying if you’re gonna register to do business in our state, Mr. Corporation, you must consent to all suits in front of, in front of Pennsylvania courts.  So the court took up that issue.  Does that type of state statute violate the due process clause of the US Constitution?

Schmidt
What was the decision of the lower courts below, and ultimately was that affirmed by the US Supreme Court?

Bullard
Yeah.  So this bought us way through the Pennsylvania State courts and the, actually the High Court, the High Pennsylvania Court said this was not consistent with the due process clause and invalidated its own state statute and said this is not allowed.  The US Supreme Court, which was surprising to many observers, reversed and said to that, in a highly fractured decision, and I know you said to avoid this sort of philosophical issues, but the fracturing of the Court is really important in this case.  But the short story is, the Court said Pennsylvania may call Norfolk Southern into its courts because Norfolk Southern registered to do business.  And the case was highly fractured.  Four Justices said this is consistent with the Constitution, four said it’s not consistent with the Constitution, and one Justice, Justice Alito, said well, we have this really old case which says this is okay, but I kind of think it’s not, but there’s this case on point so I’m going to say that it’s okay.  So the really narrow holding of the Court is there’s a case from 1916 from the US Supreme Court, which said that if you’re a corporation and you register to do business, you could be called into that state court for any reason.  And so the narrow holding of the case is simply that state statute is consistent with the Constitution, and corporations can be called into their courts.

Schmidt
So if you’re a plaintiff, you now have much greater latitude and opportunities to engage in a little forum shopping and deciding where to sue than you had before, at least with respect to companies that are registered in multiple states, right?

Bullard
Absolutely, and particularly in the state of Pennsylvania, really this case is focused on the particular language of this particular Pennsylvania statute and how broad it was, and my understanding is this statute is actually pretty unique in how broad and saying, hey, if you want to come to do register business here, you will consent to any suit in Pennsylvania State Court.  That’s a little bit unique.  Now other states may copy it, but, you know, my first take away for our listeners is check to see if your business is registered in Pennsylvania, because you’re about to get a ton of lawsuits, particularly personal injury lawsuits in Pennsylvania, because that state has a reputation for being plaintiff friendly, particularly in the personal injury suits, and now if you’re registered to do business there, you can be sued there for any lawsuit.

Schmidt
Well, I’ll just observe also it’s also a pretty significant state for consumer class actions as well.  I mean, obviously, New York and California are the co-leaders of consumer class actions, but we get a lot of claims from Pittsburgh courts and Philadelphia courts as well.  So Pennsylvania does deserve a particular scrutiny.  Well, do you expect that most legislatures will perhaps reexamine their statute and determine that perhaps they now have the green light, and maybe should amend their statutes to allow their courts to have more cases brought in, ostensibly for the benefit of individuals living there?

Bullard
I do expect that’s gonna happen and that’s, you know, the point the dissent drives home is basically the majority has carved a way for states to get around the constitutional constraints.  And why wouldn’t the state, right?  I mean, it brings in, it brings in business in the form of lawsuits, makes your, it gets your courts busy and you, you know, like you said, you arguably protecting your citizens.  So yeah, I would expect there will be, states will amend their statutes to look a lot more like Pennsylvania’s in the years to come.

Schmidt
Any other takeaways that you have that in-house counsel might consider in terms of concrete actions to take in response to this decision, other than checking their Pennsylvania registration?

Bullard
Two other points, one is just more generally, I would check to see where your particular company is registered to do business.  You know, I know sometimes these things can sort of pile up over time, and you could be registered in states, or maybe you no longer need to be registered there.  As this dynamic is changing as states begin amending their laws, check to make sure, do you really need to be registered in the state and if you don’t, maybe it’s a good time to let those registrations expire so you’re not exposed to this risk, that’s point one.  Point two is, you know, make sure that you have feelers out for the legislative activity in these states.  Like I said, the dissent specifically calls out that states are likely to start amending to, you know, to get in line with what Pennsylvania’s doing.  So make sure you’re keeping up with the states that you are registered to do business, what the statute says.  And then third, just more generally, stay tuned to this area of law.  I think what this decision revealed is there is really deep disagreement for the first time in a long time at the Supreme Court about the nature of personal jurisdiction and the constitutional limits.  Many of the Justices indicated what Pennsylvania did may have run into a problem on the Dormant Commerce Clause, actually to off of what Steve was talking about.  I expect there’s gonna be a lot of litigation in this area in the years to come and I’m sure it’ll wind its way up to the Supreme Court, so stay tuned.

Schmidt
Very good summary.  Well, I’m gathering that the last of our three cases is going to be highlighted by Brock.  This case has received quite a bit of press in recent days.  It is called 303 Creative LLC versus Elenis.  For those who haven’t followed the news and the new headlines on this case, Brock, can you tell what this case is about?

Huebner
Thanks, Kent.  On the last day of this Court’s term, the Court announced this decision in 303 Creative v. Elenis.  In this case, Laurie Smith is the owner of a graphic design firm, 303 Creative, and she wanted to expand her business into making custom wedding websites.  However, she had a religious objection to same-sex marriage and didn’t want to design websites for any of those weddings, and she planned to put a notice on her own company website saying that she would not provide those services.  Now she worried that Colorado, because it has a state law prohibiting any discrimination based on protective status, including LGBTQ status, from businesses open to the public.  And Smith worried that if she put this notice on her website and refused to provide her services for same-sex weddings that she would be prosecuted under Colorado’s public accommodations law.  So she affirmatively filed a lawsuit seeking an injunction against any potential use of the law against her business and arguing that her sincere religious beliefs against same-sex marriages meant that any enforcement of the law would violate her First Amendment freedom of speech rights.  Now the 10th Circuit considered her lawsuit and agreed that her custom websites are expressive conduct, even though it’s a business, even though it is written down and not spoken aloud, it is protected by the First amendment.  However, the court ruled that Colorado’s law here was constitutional because it was narrowly tailored to advance Colorado’s interest in avoiding LGBTQ discrimination.  Now, the Supreme Court took up this issue, and Justice Gorsuch authored a six to three opinion reversing the 10th Circuit.  Justice Gorsuch framed the question as an issue of whether the state can force someone who provides expressive services to abandon their conscience and speak the states preferred message instead, and Justice Gorsuch focusing on the importance of a marketplace of ideas in our First Amendment context ruled for the Court that that would violate the First Amendment.  And even speech where society or the Justices themselves may consider unattractive or misguided, is still protected by the First Amendment clause.  Justice Sotomayor, writing for herself, Justice Kagan and Justice Jackson wrote a dissent, criticizing the majority for focusing on the speech issues here at all and saying that public accommodations laws like in Colorado and many other states focus on conduct and not speech.  They’re there to ensure that any business that is open to the public is required to serve all comers.  And to the extent that they regulate speech at all, that is ancillary to their main purpose.  And so the fact that this enforcement was limited on free speech grounds, the dissent found misguided.

Schmidt
So this is a case that doesn’t necessarily, or in any respect, really involve employee rights.  This is a sole proprietor that is operating a business.  But most observers I think would say that 303 Creative will impact employment and non-discrimination issues, Title VII and so forth, particularly in light of another Supreme Court decision this last term, which we don’t have time to go into, Groff versus DeJoy, from a Title VII case handed down recently.  What’s your take on the impact of 303 Creative in the employment context?

Huebner
I think that’s been one of the major questions coming out of this decision is just how broad this holding reaches.  Justice Gorsuch was careful in his majority opinion to write that the Court’s reasoning was limited to the stipulated facts at issue in this case.  However, there’s no apparent limit in the reasoning to say that this is only for sole proprietors of their own businesses.  Rather, the reasoning and protections of free exercise or freedom of speech rights for expressive conduct and expressive businesses could very well extend to those rights when exercised by the employees themselves.  There isn’t necessarily a limit in the Court’s reasoning to say that an employee providing the same expressive conduct as Ms. Smith as a sole proprietor would not find similar protections from enforcement of public accommodations laws in these contexts.

Schmidt
Do you think there are implications for this decision outside of the LGBTQ context, and even outside the employment context?

Huebner
That’s been another focus of the commentaries around this opinion in the weeks since it was issued.  And even in the oral arguments itself, the Justices focused on the broader implications of any ruling in this decision, questioning whether the Court’s holding was limited to LGBTQ rights, or as in a hypothetical provided by Justice Jackson, whether it could extend to racial discrimination.  In the hypothetical, she provided whether a holiday photographer in a mall could prohibit black children from sitting on the lap of Santa because they wanted to project a certain 1950s era imagery in their business.  Others have questioned whether other expressive businesses could find protection under this opinion, whether it be florists or photographers or even headstone makers, whether they could limit their business based on either freedom of speech or freedom of religious-based objections.

Schmidt
Well it will certainly be interesting to follow these cases and the decisions that seek to apply 303 Creative as well as the other cases that we’ve talked about today.  Thanks for your summary on that, Brock.  Now we’d like to turn to a segment of the podcast that we call the Deeper Dive, and would like to learn a little bit more about each one of you in aspects of your life not devoted to following Supreme Court decisions and activity at the High Court and other legal work.  Since we have three guests, we’re gonna be particularly efficient in this aspect of our show.  But here’s the question I’d like to ask each of you, and why don’t we go in order of seniority?  So, Steve, that means you’ll be first.  Here’s the question, what movie or book would you recommend to our listeners, particularly those that may be early in their practice of law or their legal education, or other education for that matter, that you believe has the greatest capacity to inspire us to be better lawyers and/or members of our community, regardless of whether or not the book or movie is about the law or litigation?

Wells
Ken, I’m going to recommend a book that I’m not sure others would find inspirational, but I’m pretty confident they would find hugely insightful.  It’s a book that was written about 10 years ago, maybe 11 years ago, by Jonathan Haidt, and it’s called The Righteous Mind, and it is as insightful today as it was when it was written 10 years ago.  It’s written by a professor who is a social psychologist and who sets out to figure out whether the literature supports a notion that we are hardwired to be Democrats, we’re hardwired to be Republicans.  In other words, is there an evolutionary reason why some people tend to be liberal and Democratic in their outlook or more conservative and Republican in their outlook.  It’s an incredibly useful and insightful book.  It is distinctly nonpartisan, and in fact openly nonpartisan about this, there’s no judgment at all involved.  But it does talk about the psychology of why people lean certain ways when they talk about equality or when they talk about authority, for example, and why evolution has contributed to man’s predilections for certain political philosophies.  It’s just a wonderful book, and I think it tends to diffuse, in my mind, a lot of what causes outrage and sparks division among Americans today.  So I highly recommend it.  The Righteous Mind by Jonathan Haidt.

Schmidt
Well, you’ve certainly piqued my interest.  That sounds like a fascinating topic.  Nick, you’re next.  What’s your recommendation on the book or movie?

Bullard
I’m gonna cheat into a series, a Netflix series.  Hopefully that’s okay.  But by my count, it’s the most entertaining on-screen depiction of what it’s like to be a lawyer.  And that’s Netflix’s Lincoln Lawyer.  So this is, you know, based on the novel similar like the Matthew McConaughey movie, but a series, and season one is out, and there’s Season 2 is coming.  As I said, I think it’s the best on-screen portrayal of what it’s like to be a lawyer, hits on themes of your obligations to be an officer of court and due justice, how to balance work, life and family, mental health issues that lawyers face.  There’s also, it sprinkles in practical tips for the law, which I think is outstanding, and it’s just flat entertaining.  So I highly recommend Lincoln Lawyer on Netflix.  And just to clarify, Kent, I’m not being paid by Netflix in any way to endorse their shows.  But it is a great show and I recommend it to your listeners.

Schmidt
Well, that is encouraging because I usually veer away from any on-screen depiction of lawyers or the legal process, because it’s usually so far removed from reality.  But with that encouragement I’ll have to check that out.  All right, Brock, last but not least, what’s your recommendation for inspiring movie or book?

Huebner
I’ve got another book to recommend.  It’s called Mine! How the Hidden Rules of Ownership Control Our Lives by Michael A. Heller and James Salzman.  This book starts from the conceit that most people’s intuitive understanding of property law is based on concepts that they first encounter on the playground.  Whether that’s first come, first served, possession is 9/10th’s of the law, finders-keepers, and it really breaks down on a lot of those common stories and understandings and shows how they often come into conflict in our day-to-day lives.  And I just found the book fascinating in the real world examples that they provide to really challenge the stories that we tell and are long held assumptions about kind of the basic foundations of legal practice, whether that’s the ambiguity around whether you can recline your seat on an airplane, and how that allows airlines to essentially sell the same space twice.  Or why Netflix password sharing we don’t look at inherently as theft.  We’re more okay with that, or at least many of us are, and Netflix is no longer okay with that.  And then just the control of our own property and the limits of that and how our rights come into conflict with others rights in that respect, and many others.

Schmidt
Again, sounds like a fascinating recommendation, so I hope to check that out, and I’m sure our listeners will give that consideration as well.  Well, that’s all the time we have for today.  Thank you for listening to Shark Cast.  I’m indebted to the extraordinary team at Dorsey for making this podcast and episode possible.  For more resources on this and other litigation risk, go to litigationrisks.com, where more information can be found, including a book on managing litigation risk written by yours truly.  Until next time, my friends, this is yet another reminder that there are a lot of sharks swimming out there in the murky waters, so swim safely.

Voiceover
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