The Supreme Court granted certiorari today in two cases of interest to the business community:
Administrative Law--Arbitrary and Capricious Agency Action--Indecency on Television. Under 47 U.S.C. § 503(b)(1)(D), the Federal Communications Commission (FCC) is authorized to impose forfeiture penalties for violations of 18 U.S.C. § 1464, which makes it unlawful to "utter any obscene, indecent, or profane language by means of radio communication." The FCC first exercised this authority against indecent (as opposed to obscene) speech in response to Pacifica Radio's infamous 1975 broadcast of comedian George Carlin's "Filthy Words" monologue. At the time, the FCC noted the distinction between pervasive use of expletives, which might amount to indecency, and "fleeting" or "isolated" expletives, which could not amount to indecency (particularly in the context of a live broadcast, which a broadcaster has limited ability to edit). The FCC applied this distinction in subsequent cases for nearly 30 years. More recently, in investigating a complaint about a broadcast of the 2003 Golden Globes awards, at which the musician Bono stated that an award he had received was "really, really, fucking brilliant," the FCC changed course and reversed its own Enforcement Bureau, determining that certain individual words are presumptively indecent and profane, however fleeting or isolated their use. In FCC v. Fox Television Stations, Inc., No. 07-582, the Supreme Court granted certiorari to decide whether the FCC acted arbitrarily and capriciously by failing to provide an adequate explanation for this change in policy.
The case is of clear and direct importance to all broadcasters regulated by the FCC and to any other organization with an interest in broadcast standards. The Court's decision may also clarify the broader question of when an administrative agency's actions are arbitrary and capricious under the Administrative Procedure Act (APA), and what the proper level of judicial scrutiny is. The decision may therefore be significant to any entity regulated by federal agencies with an interest in the manner in which the agencies can permissibly change their policies.
In 2006, the FCC issued an Omnibus Order (Order) that applied its new policy to some 30 broadcasts over a three-year period, seeking to clarify its approach to the broadcast of "fleeting" expletives. The respondent broadcasters sought review in the Second Circuit. After a voluntary remand during which the FCC revised the Order, a divided panel of the Second Circuit held that the Order was arbitrary and capricious under the APA, because the FCC had "failed to articulate a reasoned basis for [its] change in policy." 498 F.3d at 447.
Absent extensions, which are likely, amicus briefs in support of the petitioners will be due on May 8, 2008; amicus briefs in support of the respondents will be due on June 9, 2008. Any questions about the case should be directed to Dan Himmelfarb (202-263-3035) in our Washington, D.C. office.
FAA--Subject Matter Jurisdiction Over Petitions To Compel Arbitration. The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., provides that a party "aggrieved by the alleged failure, neglect, or refusal of another to arbitrate" may file a petition to compel arbitration "in any United States district court which . . . would have jurisdiction" over "the subject matter of a suit arising out of the controversy between the parties." 9 U.S.C. § 4. The Supreme Court granted certiorari in Vaden v. Discover Bank, No. 07-773, to address two questions: (1) whether a federal court has jurisdiction over a petition to compel arbitration when the federal question is raised, not in the petition itself, but by the underlying claims potentially subject to arbitration; and (2) if so, whether a counterclaim can provide such jurisdiction when the counterclaim raises state-law claims that are completely preempted by federal law.
This case addresses a split among the circuits over whether, in considering whether federal subject-matter jurisdiction exists over petitions to compel arbitration, a federal court may look to the nature of the underlying dispute. The decision will be important to all businesses that seek to enforce arbitration agreements in federal court.
In 2003, respondent Discover Financial Services (DFS) sued petitioner Betty Vaden in state court for failure to pay her credit-card balance. Vaden counterclaimed for herself and on behalf of a putative class, alleging that DFS had imposed unlawful finance charges, fees, and interest, and had breached its contract, in violation of Maryland law. DFS and respondent Discover Bank then filed a petition in federal district court to compel arbitration of Vaden's counterclaims. The district court ordered arbitration, and Vaden appealed. In Discover Bank v. Vaden, 396 F.3d 366 (4th Cir. 2005), the Fourth Circuit held that subject-matter jurisdiction over a petition to compel arbitration may be established when the dispute underlying the arbitration petition presents a federal question. The court then remanded the case to the district court with instructions to determine whether Vaden's counterclaims presented a federal question.
On remand, the district court held that federal subject-matter jurisdiction existed, after concluding that Discover Bank, a state-chartered, federally insured bank, rather than DFS, was the real party in interest, and that Vaden's counterclaims were therefore completely preempted by the Federal Deposit Insurance Act ("FDIA"), 12 U.S.C. § 1811 et seq. Vaden again appealed, and a divided panel of the Fourth Circuit affirmed.
Discover Bank v. Vaden, 489 F.3d 594 (4th Cir. 2007).
The Fourth Circuit agreed that Discover Bank was the real party in interest with respect to Vaden's counterclaims and that the FDIA completely preempted those counterclaims. Explaining that "[c]omplete preemption is an exception to the well-pleaded complaint rule" (id. at 599), the Fourth Circuit held that the underlying dispute presented a federal question and thus that there was subject-matter jurisdiction over the petition to compel arbitration. The district court's decision to order arbitration was therefore upheld. The dissenting judge argued that (1) under the well-pleaded complaint rule, a counterclaim cannot present a federal question; (2) it is improper to apply the complete-preemption doctrine outside the removal context; and (3) contrary to the Fourth Circuit's earlier holding in Vaden, federal-question jurisdiction must be apparent on the face of the petition to compel arbitration, and cannot be determined by reference to the nature of the underlying dispute. Id. at 608-13 (Goodwin, J., sitting by designation).
Absent extensions, which are likely, amicus briefs in support of the petitioner will be due on May 8, 2008; amicus briefs in support of the respondents will be due on June 9, 2008. Any questions about this case should be directed to Archis Parasharami (202-263-3328) in our Washington, D.C. office.
On March 3, the Supreme Court invited the Solicitor General to file a brief expressing the views of the United States in Amschwand v. Spherion Corp. No. 07-841, which presents the question whether a participant or beneficiary in an ERISA health benefits plan may sue for the insurance benefits that would have been available but for a violation of a plan administrator's duty.
In addition to the business cases described above, the Court today agreed to decide one non-business case in which Mayer Brown represents the petitioner pro bono. In Negusie v. Mukasey, No. 07-499, the Court will decide whether asylum is available to a refugee who was compelled, against his will by threats of death or torture, to assist or take part in persecution of other persons. Mayer Brown represents the petitioner in conjunction with the Yale Law School Supreme Court Clinic. Mayer Brown attorneys Andy Pincus and Charles Rothfeld helped found and are co-directors of the Clinic, which provides clients with pro bono representation before the United States Supreme Court.