2024 saw several important decisions rendered by the Supreme Court of the United States. In this 5 part series, we take a look at some key decisions and the cases that led to those decisions. These are the case summaries decided by SCOTUS that most affect our clients and the courts in which we practice. Case summaries were prepared by Christian & Small summer law clerks Katie Applebaum and Eric Posas along with Partners Sharon D. Stuart and Bill D. Bensinger.
Part 4: Whistleblowers, Preemption, Choice of Law
Whistleblowers
Murray v. UBS Securities, 601 U.S. 23 (decided 2/8/24) – whistleblower must show only that protected activity was a contributing factor to adverse action
With this ruling, the Supreme Court reinforced protections for whistleblowers under the Sarbanes-Oxley Act by not requiring the § 1514A claimant to prove that his employer acted with “retaliatory intent.”
Petitioner Trevor Murray was employed as a research strategist at securities firm UBS in 2011, within the firm’s commercial mortgage-backed securities (CMBS) business. Murray was responsible for reporting on CMBS markets to current and future UBS customers. Securities and Exchange Commission (SEC) regulations required him to certify that his reports were produced independently and accurately reflected his own views. Murray contends that two leaders of the CMBS trading desk improperly pressured him to skew his reports to be more supportive of their business strategies, even instructing Murray to “clear research articles with the desk” before publishing them.
After reporting this “illegal” and “unethical” conduct to his direct supervisor, Michael Schumacher, Murray was told to stay loyal to the trading desk. Murray later informed Schumacher that the situation with the trading desk was getting worse, citing instances where he was left out of meetings and subjected to efforts to skew his research. Schumacher allegedly told Murray that he should just write what the trading desk wanted him to. Shortly after that exchange, Schumacher emailed his supervisor, stating that Murray needed to “be removed from UBS’s head count.” UBS fired Murray in February 2012.
Murray filed a complaint with the Department of Labor alleging that his termination violated §1514A of the Sarbanes-Oxley Act because he was fired in response to his internal reporting about fraud on shareholders. After no response from the Agency, Murray filed an action in federal court. UBS moved for judgment as a matter of law stating that “Murray failed to produce any evidence that Schumacher possessed any sort of retaliatory animus toward him.” The trial court adopted the jury’s verdict, stating that Murray established his §1514A claim and UBS would have fired Murray even if he had not engaged in protected activity. UBS appealed and Murray cross appealed.
The Second Circuit vacated the jury’s verdict and remanded for a new trial, stating the central question was “whether the Sarbanes-Oxley Act’s antiretaliation provision requires a whistleblower-employee to prove retaliatory intent.” The Second Circuit concluded that the jury instruction on the contributing-factor element was erroneous as a matter of law and that whistleblowers must prove retaliatory intent – a holding which directly conflicts with the Fifth and Ninth Circuits, which had rejected any such requirements for § 1514A claims.
The Supreme Court granted certiorari to resolve this disagreement. A whistleblower who invokes 18 U.S.C. § 1514A bears the burden to prove that his protected activity “was a contributing factor in the unfavorable personnel action alleged in the complaint,” 49 U.S.C. § 42121(b)(2)(B)(i), but he is not required to make some further showing that his employer acted with “retaliatory intent.” The Court clarified that the use of “discriminate” in § 1514A does not require retaliatory intent as an additional factor. “Discriminate” is instead used to capture other adverse employment actions not expressly listed in the statute. The Court reversed the judgment of the Second Circuit and remanded the case for further proceedings consistent with the opinion.
This decision protects the whistleblower in cases regarding unfavorable personnel action. Due to the plaintiff-friendly nature of this decision, employers should ensure that they document the legitimate reasons for taking adverse action against employees. The Court’s clarification of the burden necessary for proving an antiretaliation claim under Sarbanes-Oxley better prepares corporations for potential litigation arising from adverse employment actions.
Preemption
Cantero v. Bank of America, N.A., 602 U.S. __ (decided 5/30/24) – test for whether National Bank Act preempts state law
The Supreme Court clarified in this decision that courts must conduct a type of “nuanced comparative” preemption analysis, as necessary under the Dodd-Frank Act and Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996), when determining whether the National Bank Act preempts state law.
In 2010, Alex Cantero obtained a home mortgage loan from Bank of America to purchase a house in Queens Village, New York. In 2016, Saul Hymes and Llana Harwayne-Gidansky similarly obtained a home mortgage loan from Bank of America, a national bank chartered under the National Bank Act, to buy a house in East Setauket, New York. Both mortgage contracts required the borrowers to make monthly deposits into escrow accounts, which Bank of America used to pay the borrowers’ property taxes and insurance premiums when those taxes and premiums came due. Under New York law, when a bank “maintains an escrow account pursuant to any agreement executed in connection with a mortgage” on certain real estate, the bank “shall” pay borrowers interest rates on the balance. Bank of America did not pay interest on the balances held in either escrow account but notified the borrowers that the New York law was preempted by the National Bank Act.
Both plaintiffs brought putative class-action suits against Bank of America in the U.S. District Court for the Eastern District of New York, alleging that Bank of America violated New York law by failing to pay them interest on the balances in their escrow accounts. The District Court decided the two cases together, agreeing with the plaintiffs that New York law required Bank of America to pay interest on the escrow account balances. The District Court ruled that the New York interest-on-escrow law applied to national banks, such as Bank of America, and concluded that neither the National Bank Act nor any other federal laws preempted the New York law.
The Second Circuit reversed, holding that the New York interest-on-escrow law was preempted as applied to national banks. The Second Circuit held that federal law preempts any state law that “purports to exercise control over a federally granted banking power,” regardless of “the magnitude of its effects.” Because the New York interest-on-escrow law “would exert control over” national banks’ power “to create and fund escrow accounts,” the court concluded the law was preempted.
The Supreme Court granted certiorari to consider whether New York’s interest-on-escrow law was preempted as applied to national banks in a manner consistent with the Dodd-Frank Act and Barnett Bank. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 instructs courts on how to analyze the federal preemption of state laws regulating national banks. The Dodd-Frank Act ruled out field preemption, providing that the state law is preempted “only if” the state law (1) discriminates against national banks as compared to state banks; or (2) “prevents or significantly interferes with the exercise by the national bank of its powers,” as determined “in accordance with the legal standard for preemption,” specified in the Court’s decision in Barnett Bank. In Barnett Bank, a national bank wanted to sell insurance in a small town in Florida, but the state prohibited most banks from selling insurance. The Court held that the Florida law was preempted because it “significantly interfered” with the national bank’s ability to sell insurance – a federally authorized power. The Barnett Bank Court did not set out a bright line rule to establish whether the state law preempted the National Bank Act, but the ruling sought to carefully account for and navigate the Court’s prior bank preemption cases.
Applying Dodd-Frank and Barnett Bank, the Supreme Court clarified that a court applying the preemption standard specified in Dodd-Frank must make a practical assessment of the nature and degree of the interference caused by state law. The court must engage in a “nuanced comparative analysis” instead of a “categorical test” when deciding preemption that would regulate national banks. Because the Second Circuit did not analyze this preemption question in a manner consistent with Dodd-Frank and Barnett Bank, the Court vacated and remanded the judgment.
This decision will guide courts in deciding whether a state law preempts any regulations for national banks. It will also allow national banks to better understand the bright line for which laws or regulations are priorities in deciding how to conduct business in the many different states in which they operate.
Choice of Law
Great Lakes Ins. S.E. v. Raiders Retreat Realty Co., 601 U.S. __ (decided 2/21/24) – choice of law provisions in maritime contracts
The Court held that choice of law provisions in maritime contracts are presumptively enforceable as a matter of federal maritime law.
Raiders Retreat Realty, a Pennsylvania business, purchased an insurance policy from Great Lakes Insurance, a company organized in Germany and headquartered in the United Kingdom. The insurance contract included a choice-of-law provision, that, as relevant here, selected New York law to govern future disputes between the parties. Raiders’ boat ran aground near Fort Lauderdale, Florida, years after insuring the boat. Great Lakes denied coverage after Raiders submitted an insurance claim, asserting that Raiders breached the insurance contract by failing to maintain the boat’s fire-suppression system. According to Great Lakes, the breach voided the insurance contract in its entirety, even though the boat’s fire-suppression system did not contribute to the accident.
Great Lakes sued Raiders for declaratory relief in the U.S. District Court for the Eastern District of Pennsylvania, alleging that Raiders breached the insurance contract and that the breach allowed Great Lakes to deny insurance coverage. Raiders responded with contract claims under Pennsylvania law, and Great Lakes asserted that New York law applied under the choice-of-law provision in the parties’ insurance contract. The District Court agreed with Great Lakes and reasoned that federal maritime law regards choice-of-law provisions as presumptively valid and enforceable. The court therefore enforced the parties’ choice-of-law provision and rejected Raiders’ Pennsylvania-law contract claims.
The Third Circuit vacated the lower court’s judgment and held that choice-of-law provisions in maritime contracts are presumptively enforceable as a matter of federal maritime law. However, the choice-of-law provisions must yield to a strong public policy of the State in which the suit is brought – in this case, Pennsylvania. The court remanded for the District Court to consider whether applying New York contract law here would violate Pennsylvania’s public policy and whether Pennsylvania law should apply.
The Supreme Court granted certiorari to resolve a split in the Courts of Appeals regarding the enforceability of choice-of-law provisions in maritime contracts. The Supreme Court disagreed with the Second Circuit and declined Raiders’ argument that the Court should adopt the choice-of-law approach in § 187(2)(b) of the Second Restatement of Conflict of Laws for federal maritime law. Justice Kavanaugh opined that adopting the Restatement would be a poor fit for maritime cases, as it would operate like a general exception for state law that would prevent maritime actors from prospectively identifying the law to govern future disputes. The § 187(2)(b) exception would require parties to litigate in the state which possesses the “materially greater interest” in the dispute, which would create dissimilarity and unpredictability in maritime commerce. Therefore, the Supreme Court held that choice-of-law provisions in maritime contracts are presumptively enforceable as a matter of federal maritime law, with certain narrow exceptions, and no exception to the presumption applies in the case at hand. Subsequently, the Supreme Court reversed the judgment of the Second Circuit.
This decision enhances the power of a contract allowing for choice-of-law provisions to be enforceable, which will lead to predictability in the event of litigation. This will also lead to better established provisions and contracts in maritime commerce because the provisions will ensure that both parties acknowledge the conditions to which they agree when forming the contract. With this decision, the Supreme Court compels courts to prioritize uniformity of laws over state sovereignty and public policy in cases where federal maritime law is well-established.
Part 1: Federal Arbitration/Federal Agency
Part 2: Bankruptcy/SEC Sarbanes Oxley
Part 3: Social Media
Sharon D. Stuart is a founding partner of Christian & Small and has been with the firm since 1993. She devotes her practice to civil trial work and arbitration. She focuses on complex commercial and insurance litigation, and she handles a variety of pharmaceutical and medical device products liability litigation as national, regional or local counsel. Sharon’s trial experience includes a wide range of business tort claims, contract disputes, commercial and insurance fraud and bad faith suits, and wrongful death cases. She has defended dozens of class action lawsuits in areas as diverse as product liability/toxic tort, financial products, insurance, and employment law.
Bill D. Bensinger focuses his practice on commercial dispute litigation, bankruptcy and restructuring litigation. He represents creditors, franchisors, landlords, unsecured creditors’ committees and financial institutions in a wide variety of matters, including preference and avoidance actions, workout transactions and insolvency matters. Bill represents franchisors in bankruptcy, including matters concerning the assumption of franchise agreements, and represents landlords in bank matters concerning the assumption of commercial leases.
Contributors Katie Applebaum and Eric Posas, Christian & Small Summer Law Clerks
About Christian & Small
Christian & Small LLP represents a diverse clientele throughout Alabama, the Southeast, and the nation with clients ranging from individuals and closely held businesses to Fortune 500 corporations. By matching highly experienced lawyers with specific client needs, Christian & Small develops innovative, effective, and efficient solutions for clients. With offices in Birmingham, metro-Jackson, Mississippi, and the Alabama Gulf Coast, Christian & Small focuses on the areas of litigation and business, is a member of the International Society of Primerus Law Firms, and is a Mansfield Rule™ Certified Plus Law Firm. Our corporate social responsibility program is focused on education, and diversity is one of Christian & Small’s core values. Please visit www.csattorneys.com for more information.
No representation is made that the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers.