23 June 2011

Almost Summer Vacation

... for the Supreme Court. There was a big dump of cases today, two of which concern writers — albeit somewhat indirectly. There will be more decisions next week, but as there are only four remaining cases it is entirely possible that they could all be issued on Monday — including the long-pending decision in the violent videogames case, which was argued in early November and is the longest-outstanding decision. There will also be an orders list indicating any new grants for hearing in the next term beginning on 03 October 2011.

First up, there's a case involving a clash among commercial interests, privacy rights, and the First Amendment. In Sorrell v. IMS Health, Inc., No. 10–779 (23 Jun 2011) (PDF), the Court held 6–3 that Vermont's prohibition on pharmacies selling drug prescription data that identifies prescribers (doctors) to drug-marketing consultants

(1) implicates the First Amendment so directly that it is subject to heightened scrutiny, and

(2) fails heightened scrutiny as a content- and speaker-based restriction on speech.

Admittedly, this doesn't initially seem to have an awful lot to do with writers. What it does, though, is call into question some of the more outrageous nondisclosure agreements that apply to former government employees (remember, the First Amendment concerns governmental restrictions on speech, not private ones... such as KFC making executives sign an NDA that they won't reveal the "secret herbs and spices" at any time). Leaving aside sensationalist issues like WikiLeaks, this nonetheless presents some interesting possibilities for attacking overreaching NDAs — in particular an NDA asserted against a whistleblower.

That was suitably abstruse, wasn't it? The other case of indirect concern to writers just warms my civil procedure geek heart... and relates back to the pending Borders bankruptcy. This is going to take a little bit more initial explanation; the short version is that the Supreme Court stripped Anna Nicole Smith of her bankruptcy-court victory. (No, I do not ask any pardon whatsoever for that pun.)

Bankruptcy courts are courts of limited jurisdiction. This is primarily because bankruptcy judges are not true federal judges. Article III of the Constitution requires that all federal judges have lifetime tenure and serve on good behavior. Instead, bankruptcy judges serve for limited terms of time, and are usually called "Article I" judges (because they sit on courts established by Congress, not by the Constitution). Indeed, under the 1898 Bankruptcy Act there were no "bankruptcy judges", but there were "bankruptcy referees" with even more limited powers. A few other "courts" have similar problems; for example, "immigration judges" are Article I judges with a specific statutory grant of limited jurisdiction from Congress. In bankruptcy, that specific grant of authority is 28 U.S.C. § 157, which gives bankruptcy judges the power to hear cases that are "core proceedings" (§ 157(b)) or "otherwise related to" (§ 157(c)) a bankruptcy case, after some highly formalist maneuvers that don't matter to anyone but the lawyers actually involved.

Anna Nicole Smith was involved in a long-running dispute with her 88-year-old-husband-of-less-than-a-year's son over her husband's estate plans. Ms Smith (known by her legal name Vickie Lynn Marshall) asserted that the son (E. Pierce Marshall III) interfered with her husband's intent to establish an $88 million trust for her. While that dispute was being heard in a Texas probate court, said husband died; Ms Smith then filed for bankruptcy in California. The California bankruptcy judge determined that the probate matter was a "related" case, heard the matter, and decided in Ms Smith's favor; meanwhile, the Texas probate court (ironically enough, also a court of limited jurisdiction) decided the matter in the son's favor; and further meanwhile, both Ms Smith and her opponent died, so the litigation continued in the names of their estates... and Ms Smith had remarried, so her legal name was now Stern.

This is not the first time this matter has been at the Supreme Court, either.

In any event, there are conflicting rulings in the same matter between a federal court and a state court. Under Article VI, cl. 2 of the Constitution, a federal decision should override a state decision... if, that is, the federal decision was granted by a court that had the jurisdiction to do so. One of the overriding principles of Article III is that federal courts have limited jurisdiction. And thus, this dispute.

The Court first turned to the statute to see if that supplied the answer, but all nine justices agreed that the statutory language of § 157 gives the bankruptcy court the authority to hear the Stern v. Marshall dispute as a core proceding. That, however, does not end the inquiry; just because Congress said so does not mean that the Constitution authorized Congress to say so. And that is where the majority, led by Chief Justice Roberts, differed... by holding that the Constitution does not authorized Congress to bring so-called "core proceedings" — let alone "related cases" — directly within the jurisdiction of non-Article III judges to issue a final judgment. Therefore, the bankruptcy judge's final judgment in favor of Anna Nicole Smith on her interference claim was not merely flawed, but entirely void, because it was issued without jurisdiction... and, therefore, the son's estate gets to rely on the Texas probate decision and claim victory — and the $88 million on top of several hundred million dollars' worth of other assets. Stern v. Marshall, No. 10–179 (23 Jun 2011) (PDF)

Now, then, how might this affect authors? The Borders bankruptcy is one possibility; I emphasize, however, that nobody has (yet, anyway) filed a claim or action in the Borders proceedings that raise this question. Consider, for the moment, Arthur Author's royalties due from BigPublisherInc. AA's royalties are calculated based on the number of copies sold, not on monies received. BPI establishes a special reserve for all royalties due to Borders sales, and does not pay them to AA. AA insists that his contract allows only a "reasonable" reserve against "returns," and that once the books have been sold by Borders outlets they can no longer be "returned" — and that, therefore, BPI's special reserve is unlawful and BPI must pay up right now under the strict terms of the contract. Before today, this would have fallen under § 157; it is, however, a purely state-law dispute between AA and BPI without another basis for federal jurisdiction (unless it exceeds $75,000), so it falls into the constitutional gap identified in Stern. Thus, AA need not consent to having the bankruptcy judge hear this claim as part of the bankruptcy matter, even if BPI tries to remove it from a state court on that basis. Whether it is a good idea for AA to make such a claim is for another time, and depends too much on the particular needs of the parties; the point is that it can/will no longer be involuntarily swept into the bankruptcy proceeding. (Arguably, it would have been tough to do so anyway, as neither AA nor BPI is formally "part of" the Borders bankruptcy proceeding, see Stern, slip op. at 29–34. That wouldn't prevent BPI from trying to do so, nor three circuits from having previously held that such a maneuver would be proper.)