Blawgletter®

Contingent Fees and Taxes for Qui Tam Relators

As the June 16th launch date for The Contingency gets ever closer, Blawgletter post from five years ago offers a preview of the sort of subjects The Contingency will deal with on a more regular basis.

                                                                                                Barry Barnett

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Qui Tam Winner May Deduct Contingent Fee, Tax Court Affirms

Jan. 22, 2010

Blawgletter often handles business cases on a contingent fee basis.  We earn a percentage of the client's recovery. No recovery, no fee.

But guess what?  The client may owe tax on the recovery. Which could of course affect the client's net.  And the Internal Revenue Service may regard the entire recovery -- including the contingent fee that goes to the lawyer -- as taxable income to the client. See Roco v. Commissioner, 121 T.C. 160, 165 (Tax Ct. 2003) (holding that payment to False Claims Act relator for exposing contractor's fraud on the federal government amounted to a "reward" and therefore counted as gross income). Which would reduce the client's net further.

But we got decent news yesterday from the U.S. Tax Court, which ruled on whether another False Claims Act/qui tam relator, Albert D. Campbell, "must include the entire $8.75 million qui tam payment in gross income or is entitled to exclude the $3.5 million attorney's fee payment and thus include only the $5.25 million qui tam payment in gross income." Campbell v. Commissioner, 134 T.C. No. 3 (Tax Ct. Jan. 21, 2010)[, aff'd, 658 F.3d 1255 (11th Cir. 2011)]. Yes, the court held. No surprise there.

But the court went on to decide that Mr. Campbell "may deduct" the contingent fee "as a miscellaneous itemized deduction." Because he testified he paid the fee and corroborated his testimony with the contingent fee agreement between him and his lawyers, the court concluded, Mr. Campbell "has substantiated the payment of the fees" and thus could deduct them. Hooray.

The tax treatment of qui tam proceeds may not apply to other sorts of recoveries -- such as ones that compensate for actual loss. We suggest you get advice from a tax professional.

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Blawgletter adheres to that last suggestion -- "get advice from a tax professional" -- but we also note that at least one court since Campbell v. Commissioner has confirmed its basic ruling. See Bagley v. United States, 963 F. Supp. 2d 982, 1002 (C.D. Cal. 2013) (ruling that "the litigation expenses incurred by Bagley in pursuing his FCA lawsuit as a qui tam relator, may be deducted as ordinary and necessary business expenses incurred for a trade or business"); 

Bonus:

Qui tam relators fared less well when they argued for treating a False Claims Act award as a capital gain rather than ordinary income. See Patrick v. Commissioner, 142 T.C. 124, 130 (Tax Ct. 2014) (rejecting taxpayer Patrick's effort to characterize qui tam award as capital gain after concluding that taxpayer failed to satisfy "sale or exchange" or "capital asset" requirement for capital gain treatment); Alderson v. United States, 1200 (C.D. Cal. 2010) ("Because Alderson's did not hold a property interest in the information he exchanged to the Government, his subsequent recovery of $27 million was not a capital gain.").

Reverse Contingent Fees

In a couple of weeks, Blawgletter will end its eight-year run as my principal law blog.

On Tuesday, June 16, I will launch The Contingency: Insights on Sharing the Risks and Rewards of High-Stakes Business Disputes. You'll get more info on The Contingency, including how to subscribe.

Turning down the lights on Blawgletter will give me a pang of loss, but as Shakespeare said, what's past is prologue. I've wanted to write about things that The Contingency will address for a long time.

Take this early Blawgletter post (on Jan. 5, 2008) -- on "How to Negotiate a Reverse Contingent Fee" as a for-instance. The post has held up pretty well. I'll have more to say about the subject (and others) on The Contingency. But in the meantime, I've copied it below.

                                                                                            Barry Barnett

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How to Negotiate a Reverse Contingent Fee

D. Todd Smith -- master blogger over at Texas Appellate Law Blog -- commented a couple days ago on The Hourly Fee Must Die -- Some More.  He said:

I'm still trying to break free from the billable hour, with increasing success.  From the plaintiff's side, evaluating whether to accept a matter on a contingent fee is fairly straightforward.  But I still haven't settled on the best alternative-fee arrangement when working for the defense. A "reverse contingent" fee perhaps?

Great question, Toddster.

Blawgletter's firm, Susman Godfrey L.L.P., has handled some cases on a reverse contingent fee (RCF) basis.  The agreement with the client calculates the RCF as a percentage of the savings off of a benchmark number.  The benchmark reflects an estimate of the client's possible exposure.

By way of example, if the law firm and client agree that a patent infringement case exposes the client to potential liability of $10 million, the RCF would equal a percentage -- 40 percent, say -- of the difference between $10 million and any lower amount that the client pays in settlement or as a result of a judgment.  If we zero out the plaintiff, our fee totals $4 million -- .4 x ($10 million - $0) = $4 million.

Negotiating an RCF presents unique challenges.  The hardest part probably is arriving at the benchmark number.  The law firm will want to use the plaintiff's demand as the starting point, but the client will prefer to begin at bupkes.  Unless some reliable methodology for assessing exposure exists, the discussions may lead nowhere.

A second barrier to negotiating an RCF results from the fact that the client must come out of pocket to pay the fee.  Fortune 500 companies can do that, but smaller enterprises may lack the necessary liquidity.  A letter of credit or other security could bridge the gap.

The best candidates for RCF arrangements thus are cases that (1) have a track record and (2) involve clients that have the resources to pay the RCF.

Patent litigation springs to mind as a likely occasion to represent a defendant on an RCF basis.  Cisco Systems, for instance, draws its share of patent infringement complaints.  Say Cisco gets a complaint for infringing a patent that the plaintiff already litigated against another company and settled for $X.  The $X could provide a baseline for determining the benchmark in the RCF agreement.

Cisco is a good example, by the way.  Its General Counsel, Mark Chandler, has led the charge against the hourly fee as the principal basis for paying lawyers.  He's worked out a number of creative ways to align the interests of the company with the interests of its lawyers -- including by way of an agreement that had an RCF element in it.  Excellent. 

Fifth Circuit Upholds $25 Million Contingent Fee

Keys to the court house 

The contingent-fee option enables a claimant who has a valuable claim but can't afford hourly fees to hire a lawyer. He pays with a promise to share his recovery with the lawyer in return for the lawyer's sharing the many risks of pursuing a claim -- including the risk of losing (or winning too little), of not collecting from the defendant, and of the effort's costing a lot more than you expected. 

People with plenty of money can agree to pay on contingent-fee basis, too -- and they often do.

A client that won't abide by the contingent-fee agreement represents another kind of danger for the lawyer. A recent decision by the Fifth Circuit will help keep that danger in check, to the benefit of almost everyone.

Family fight

The case that produced the ruling arose from disputes over the fortune of Texas oil legend H. L. Hunt.

Hunt's great-grandson Al Hill, III, and his wife Erin engaged two law firms to represent them in more than a dozen lawsuits. The cases concerned the Hills' claims to assets of two trusts that H. L. Hunt and his wife had set up during the 1930s in the name of their daughter Margaret, who later married Al Hill, Sr., and Haroldson, the oldest son.

The Hills agreed in the engagement letters to pay the law firms full hourly rates for all of their work plus 15 percent of the Hills' "Gross Recovery". But because the Hills did not have the means to pay the hourly fees on a current basis, the contracts allowed them to defer payment until "financially practicable".

Fee fight

A year later, the law firms asked the Hills to pay $3.2 million for their hourly work. The Hills refused. They then fired the firms, which in turn brought arbitration against the Hills under the fee contracts. 

The trust lawsuits at length settled on a basis that yielded $188 million to the Hills.

An arbitration panel heard evidence on the law firms' fee claim for nine days. The panel rejected the Hills' "unconscionability" defense, among others, and awarded the firms their full fees -- $3.2 million for the hourly component and a little more than $25 million for the contingent-fee part.

But when the firms asked the U.S. District Court in Dallas to confirm the award, it refused. The court ruled that Texas ethical rules would deem collecting an hourly fee plus a contingent one unconscionable:

In plain language, this is not simply a contract that was ill-advised when signed, but it is one in which Plaintiffs will receive something for nothing. The contingency fee is a guaranteed fifteen percent payment, on top of the generous hourly rate, for no additional work or risk of nonpayment. The court finds this type of contingency fee particularly troublesome and contrary to well-established Texas precedent. The contingency fee provision therefore results in a windfall that Texas public policy cannot countenance.

Campbell, Harrison & Dagley, L.L.P. v. Hill, No. 3:12–CV–4599–L, 2014 WL 2207211, at *13 (N.D. Tex. May 28, 2014).

The law firms appealed.

Fifth Circuit upholds fee agreement

Reversing, the Fifth Circuit reinstated the arbitration award. Campbell, Harrison & Dagley, L.L.P. v. Hill, 782 F3d 240 (5th Cir. 2015). It held:

The district court misapplied that standard. In particular, it rejected the arbitrators' determination that “the prospect of recovery [was] plenty uncertain”, finding instead that “[t]here was nothing contingent about [the firms'] recovery of their attorneys' fees”. . . . The court specifically rejected the total-fee amount based on its inclusion of the contingency-fee portion. As the court interpreted the fee agreement, the contingency fee constituted an “unearned payment” in the light of the non-contingent nature of the hourly-rate fees, and, as a result, made the fee agreement unconscionable. . . .

 

The arbitrators, on the other hand, specifically determined: recovery of any fees was uncertain; a reasonable attorney could find the fee arrangement reasonable; and the total fee was not unconscionable. (“There is nothing about a relatively high hourly rate schedule, uncertain to time of payment, and/or a relatively low contingent percentage, when the prospect of recovery is plenty uncertain, that should be offensive to a competent lawyer, a reasonable client, or an overall traditional public policy of fairness.”). This determination likewise comports with the plain language of the fee agreement, which allows for payment of the hourly-rate fees “as soon as is financially practicable ”. (Emphasis added.)

 

In rejecting the arbitrators' determinations regarding the uncertainty of recovery, the reasonableness of the total fee, and unconscionability, the court “substitute[d] [its] judgment for that of the arbitrators merely because [it] would have reached a different decision”. . . . As a result, it erred in vacating the contingency-fee-portion of the award and related awards (for the arbitration, the firms' attorney's fees, other fees, expenses, and arbitrators' compensation; and pre-judgment interest on the contingency-fee portion).

Campbell, Harrison & Dagley, L.L.P., 782 F.3d at 245-46 (citations omitted).

Significance

The outcome enhances confidence in contingent-fee agreements and therefore lowers the collection risk that law firms face when entering into contingent-fee arrangements with clients.

That should save clients who live up to their contracts money. Lower risk of collection will translate into contingent-fee percentages that reflect a premium for sharing risk of recovery on the client's claim but do not build in an additional premium for the lawyer's risk of enforcing the fee deal.

Everybody wins. Except of course the defendant.

Judge Posner Rips Class Settlement

Seventh Circuit Judge Richard Posner savaged a district court for approving a class action settlement that paid lead class counsel an $11 million fee while providing class members with benefits worth, in Judge Posner's reckoning, no more than $8.5 million. Eubank v. Pella Corp., No. 13-2091 (7th Cir. June 2, 2014).

The fact that the lead counsel stands in jeopardy, for reasons collateral to the class action case, of losing his law license seems not to have helped his cause.

The opinion has lots of pointers on what not to do in a class action.

Do Plaintiffs Stand a Chance in the Texas Supreme Court -- Part 2

Arbitration good?

The Supreme Court of Texas has made enforcing arbitration clauses super-easy. But what happens if the arbitration produces an outcome that may give the conservative Court pause -- a $125 million award in favor of the claimant, for instance?

A case that the Court decided last week poses that lurking question. And regrettably their honors answered the question in the way you've probably come to expect. See here.

Question about an impression

Does the fact that an arbitrator has begged the lawyers who represent a party in arbitration for business but has gotten none make the arbitrator "evidently partial" to that party? The one whose lawyers have so far stiffed him on his requests for work? Such that a court must vacate the arbitration panel's award in favor of that party?

The Supreme Court of Texas said yes last week. In Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, No. 12-0789 (Tex. May 23, 2014), the 9-0 Court applied an easy-peasy test for unhappy losers to satisfy. They need show only that a non-disclosure "might have conveyed an impression [of the arbitrator's] partiality toward [the lawyers for the winning party] to a reasonable person." Id. at 13.

Did you get that? Might have conveyed an impression of partiality to a reasonable person. Not "would have conveyed" it. Only might have. Possibly could have. Perhaps maybe did. We have our suspicions. I don't like the look of that. We're going to need you to go ahead and come in on Saturday, um-kay.

What about waiver?

The airy-fairiness of that "might have conveyed" rule may or may not bother you. But what do you think about how the Court dealt with a waiver question?

The court of appeals had held that the losing party -- Tenaska Energy -- had waived any complaint because the business-hungry arbitrator had disclosed the fact that the lawyers for the winning party -- Ponderosa Energy -- had tapped him three times before to serve as an arbitrator and that he'd solicited business from their law firm. The court cited the fact that Tenaska also agreed, in writing, that it "knowingly waived any and all conflicts of interest and/or potential conflicts of interest relating to the designation of the members of the Panel in this Arbitration." Id. at 17.

The Court batted the waiver point away by noting that the same writing also represented that the arbitrators had "fully disclosed all conflicts of interest and potential conflicts of interest with respect to the designation of the members of the Panel in this Arbitration". Id. "Because the waiver clause was conditioned on a full disclosure that did not occur, Tenaska has not waived its partiality challenge." Id. at 18.

The Court didn't explain in what way the waiver "was conditioned on a full disclosure". The document didn't use any language that implied that the waiver depended on the accuracy of the "fully disclosed" statement. So it's okay for Tenaska to have fibbed that it "knowingly waived any and all conflicts of interest"?

The Court also put a lot of stress on the fact that the non-disclosing arbitrator solicited work from Ponderosa's lawyers not for himself but on behalf of an Indian firm that he partly owned and helped set up in the U.S. He disclosed that he'd hustled business for the Indian outfit from the law firm but hadn't gotten any.

But, in view of the fact that Ponderosa's lawyer chose him as an arbitrator -- in the same way that Tenaska's lawyers chose another of the three arbitrators, and those two selected a chair person  -- should Tenaska have some kind of obligation to ask questions to find out why Ponderosa thought so highly of him?

Why did they do it?

A Court that routinely rules unanimously in favor of defendants probably doesn't realize just what an echo chamber it has become. The members may beguile themselves with the thought that they would have ruled exactly the same way if the defendant had won the arbitration -- thus saving claimant Ponderosa from having to take a $1.25 million award and getting a fresh shot at the $150+ million that it sought.

Blawgletter does wonder what to make of the fact the Court mentioned that the Ponderosa lawyers converted their fee arrangement from hourly to contingent. Id. at 4-5. What does that signify, if not discomfort with a claimant and its lawyers receiving a big award?

Bottom line

What results from all this? Texas courts go out of their way to compel arbitration, including by non-signatories of agreements that include arbitration clauses, but also go out of their way to vacate awards on grounds that other courts would reject.

We also wonder why the Court didn't mention the Fifth Circuit's en banc opinion on the very same issue. Positive Software Solutions, Inc. v. New Century Mortg. Corp., 476 F.3d 278 (5th Cir.2007) (en banc) (rejecting "mere appearance" of bias test). The Court would have had a very hard time explaining why the arbitrator who disclosed the fact that he'd tried to get business but had so far failed needed also to disclose more particulars about his unsuccessful efforts under the Fifth Circuit test. Maybe that's why.

Photo credit: Sarin Kunthong/Shutterstock.com

Courts Split on Arbitration of Claims Against Lawyers

May a lawyer compel a client to arbitrate a dispute over the lawyer's services?

In upper right-hand corner of the United States, yes. Bezio v. Draeger, No. 13-1910 (1st Cir. Dec. 16, 2013) (applying Maine law).

In the upper left-hand corner, no. Smith v. JEM Group, Inc., No. 11-35964 (9th Cir. Dec. 12, 2013) (applying Washington law).

Bonus:    

May lawyers in a class action case waive their right to federal court review of an arbitration award relating to a fee dispute under section 10 of the federal Arbitration Act? No. Burton v. Class Counsel, No. 11-17718 (9th Cir. Dec. 17, 2013).

Dead Firm May Have Right to Ex-Partners' Hourly Fees

Law Firm X goes belly-up. Its partners flee. They take the hourly cases that they brought in at Law Firm X with them to their new homes at Law Firm Y and Law Firm Z, among other attorney shops. Does what remains of Law Firm X -- its estate in bankruptcy -- have any right to billings that the other firms receive from the post-flight work that the new firms perform on Law Firm X's old hourly cases?

Maybe, the Second Circuit held in Geron v. Seyfarth Shaw LLP (In re Thelen LLP), No. 12-4138-bk (2d Cir. Nov. 15, 2013). The panel ruled that New York law provides a clear answer for contingent-fee cases (the old firm retains the right to the "value" of the case at the time it departs the firm) but not for hourly ones. Noting that hourly cases do have value in the sense that you expect them to produce hourly billings into the future, the court asked the New York Court of Appeals to step in to resolve the question.

Blawgletter sees no compelling reason to treat contingent and hourly cases differently for these purposes. Flat-fee cases and hybrids would seem to fall in the middle. And applying a different rule for hourly cases would seem to assure a muddle for those in-between categories.

ABCs of Fixing Fees

Blawgletter spent half a day this week on a Windy City panel -- lawyers and law firm Chief Pricing Officers -- that talked about the "Anatomy of a Fixed-Fee Negotiation".

We learned that firms have funny names for not charging by the hour. Sobriquets ranged from "alternative" fee arrangements to "appropriate", "tailored", and "preferred" ones.

We also learned that not many people think about the role of risk when they think about fixing a fee up-front.

Our view: nothing else matters.

The sorts of risk we have in mind fall into two groups -- the Risk of Scope Error group and the Risk of Failure group.

Outside lawyers and clients tend to focus on the Scope Error thing. Why? Because they fear that they'll guess wrong about how many billable hours will need to go into the work that the fixed-fee deal covers. The in-house folks worry about paying for more hours than the law firm will in fact devote to the work, and the law firms live in dread of maybe having to work their fingers to the bone on half-pay or worse.

You can do things to reduce the Risk of Scope Error. (Chief Pricing Officers, we suppose, do little else.) You can, for instance, study "metrics" of the Practice of Law in Our Time ("PLOT"). These measures of PLOT, we hear, include "leverage", "utilization", and "realization".

But the Risk of Scope Error will seldom make or break a law firm or GC. If the client ends up paying more than the same work would have cost on an hourly basis, she can still pat herself on the back for fixing her company's legal costs. The law firm can point to the money that came in and congratulate itself for at least keeping the lights on.

By far the bigger issue, in our view, concerns the Risk of Failure. What will the client lose if the case or transaction (or portfolio of cases or transactions) turns out badly? Will the client have to file for bankruptcy? Will the GC lose his job? Will the law firm have to dissolve? Will lawyers suffer deep personal embarrassment and loss of professional prestige?

Talks around fixing fees should, in our view, put these Risks at the forefront. Lawyers ought to think and talk with clients about how much Risk of Scope Error they can stand -- and how much they should charge for sharing part of that Risk with clients.

Lawyers and clients must also spend think-about-it time on the Risk of Failure. You could sort the work into Low, Medium, or High Risk of Failure slots -- or, a la ObamaCare, into Bronze, Silver, Gold, and Platinum. In any event, the pay for sharing the Risk of Failure should go up as the cost of failing rises.

Does the ability to manage both kinds of Risk often reside in the same law firm or lawyer? Does it need to for the PLOT? We'll take a look at that in another post. Bye for now.

False Claims Case Against ITT Wins Reprieve Despite Public Disclosure of Scheme

If you watch a lot of daytime TV, you may have seen lots of ads by for-profit schools. The pitches promise you an awesome job, a lot of pay, more sex-appeal, and even, in some cases, super-human powers.

But did you ever think about the people whose job it is to get you to pony up the fees that put the profit in for-profit? Do you know what they have to go through? The multi-point reviews of their performance? On things like drop-out rates, attitude, team-playerness, professional development, and appearance? Did we mention attitude?

Guess what -- none of that mattered. Only getting the students to do something that paid a fee in fact counted when it came time to put money in your pay packet each month.

A woman who did the job over the course of a decade sued ITT Educational Services under the False Claims Act. She alleged that ITT scammed the feds out of some of the $150 billion that goes to helping people afford higher (post-high school) education. The district court dismissed the case on the ground that an earlier lawsuit had alleged pretty much the same thing. Because the FCA bars suits where someone else already made "public disclosure" of the underlying facts, the court ruled, it had no jurisdiction to hear the suit.

The Seventh Circuit reversed. It held that Debra Leveski based her FCA claim not on the old way ITT did things -- a way that more or less paid bounties on sales -- but on the new way -- which hid the bounties behind a fake evaluation system. That made Ms. Leveski's claim different enough to avoid the public disclosure bar of the FCA in 31 U.S.C. § 3730(e)(4)(A). Leveski v. ITT Ed. Svcs., Inc., No. 12-1369 (7th Cir. July 8, 2013).

Snappy and Bitey Review High Court's 2012-13 Commercial Cases; "Now Is the Time, Cato!"

Snappy reclines. The Empire State Building looms in the mid-distance. Bitey consults his notes. He clears his throat.

Bitey:    The U.S. Supreme Court's summer break started last week, Snaps, and the time has come for us to look at the . . . uh . . . results of the 2012-13 Term for those commercial cases we love so dear.

Snappy:    Polonius said "brevity is the soul of wit." Please model yourself on that maxim.

Bitey:    You mean the guy who talked way too much? Hid behind a curtain? Said "very like a whale"? And took a Hamlet knifing that killed him?

Snappy:    You prove my point by missing it.

Bitey:    Ouch.

Snappy:    You do it to yourself, my dear Bitey.

Bitey:    Anyways, I count 15 Supreme Court cases that involved commercial issues -- the kind of questions that tend to pit Company A against Entity B.

Snappy:    And how did Big Business do against the Little Guy?

Bitey:    Oh, quite well, Your Snappiness. I can tell because those nice liberterian people at the Cato Institute said they "went 15-3" in cases it briefed to the Court this Term! And Cato won all four of the commercial cases it weighed in on. Not to mention the U.S. Chamber of Commerce's National Chamber Litigation Center, which did almost as well, going 6-2.

Snappy:    Did Polonius say anything about the rich getting richer?

Bitey:    I think you mean Andrew Jackson, Snapster.

Snappy:    Not. Have you tallied the results of the 15 cases, pray?

Bitey:    Yes, indeed I have done that.

Snappy:    And?

Bitey:    By my count, big business won 10 ouf of the 15.

Snappy:    That sounds awful. But not horrific? Please tell me the details.

Bitey:    Okie dokie. Here goes. I put the pro-big biz outcomes in red and left the others in black.

Alien torts

Does the Alien Tort Statute, which Congress passed in 1789 to allow "any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States", cover a law-of-nations violation that occurs outside the U.S. (in Nigeria, say)?

No. The ATS will almost never apply to alien torts that take place in an alien nation. Kiobel v. Royal Dutch Petroleum Co., No. 10-1491 (U.S. Apr. 17, 2013) (Cato & Chamber win) (per Roberts, with Scalia, Kennedy, Thomas, and Alito joining; dissent per Breyer, with Ginsburg, Sotomayor, and Kagan joining).

Antitrust

Does the "state-action" doctrine, which bars federal antitrust claims, apply to a Georgia law that gave public hospital authorities the power to buy rival hospitals?

No. The Peach State statute did not make clear that Georgia cared not a fig if anticompetitive effects ensued from using the power in order to squelch competition. FTC v. Phoebe Putney Health Sys., Inc., No. 11-1160 (U.S. Feb. 19, 2013) (per Sotomayor, for a unanimous Court).

May a drug-maker pay a rival not to compete with it on sales of a drug so long as the payor has a patent that on its face gives it the right to stop the rival from competing?

No. Antitrust law may condemn the pact, and allow recovery of damages or other relief, if the deal unduly hurts competition. The bigger the payment to the infringer, the more likely the arrangement harms competition. FTC v. Actavis, Inc., No. 12-416 (U.S. June 17, 2013) (per Breyer, with Kennedy, Ginsburg, Sotoyamor, and Kagan joining; dissent by Roberts, with Scalia, and Thomas joining; Alito recused himself).

Arbitration

Does the federal Arbitration Act bar arbitration clauses that make winning a federal claim too costly for a sane person to pursue?

No. "Too darn bad", says the dissent. Am. Express Co. v. Italian Colors Restaurant, No. 12-133 (U.S. June 20, 2013). (Chamber win) (per Scalia, with Roberts, Kennedy, Thomas, and Alito joining; dissent by Kagan, with Ginsburg and Breyer joining; Sotoyamyor recused herself).

Bankruptcy

Does the bar to discharge in bankruptcy under 11 U.S.C. 523(a)(2)(A) of a claim for "defalcation while acting in a fiduciary capacity" require knowledge or reckless disregard of the improper nature of the bankrupt debtor's conduct?

Yes. You can't prevent discharge of a claim against a fiduciary unless you prove that the fiduciary had a bad intent. Bullock v. BankChampaign, N.A., No. 11-1518 (U.S. May 13, 2013) (per Breyer, for unanimous Court).

Class/Collective Actions

Must a plaintiff who alleges a fraud claim under the Securities Exchange Act of 1934 prove the "materiality" element of the claim in order to obtain class treatment of the claim on behalf of all fraud victims under Rue 23(b)(3) of the Federal Rules of Civil Procedure?

No. Because the answer to the materiality question will apply to all class members alike, Rule 23(b)(3) does not require a court to assess the evidence for and against a finding of materiality and instead defers the question to the summary judgment and trial stages of the case. Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, No. 11-1085 (U.S. Feb. 27, 2013) (Chamber loss) (per Ginsbrug, with Roberts, Breyer, Alito, Sotomayor, and Kagan joining; dissent by Scalia, with Kennedy and Thomas joining).

Does an arbitrator's ruling on whether the parties' contract permits class treatment of claims bind the parties under the federal Arbitration Act?

Yes. Even a dumb ruling by an arbitrator carries the day so long as he ties it somehow to the contract. Oxford Health Plans LLC v. Sutter, No. 12-135 (U.S. June 10, 2013) (Chamber loss) (per Kagan, for unanimous Court).

Does the mootness of a plaintiff's own claim under the Fair Labor Standards Act of 1938 also moot his effort to sue on behalf of others?

Yes. If offering to pay full damages and costs to the plaintiff in fact moots his claim -- a matter of great dispute between the majority and dissenters -- he cannot represent others in a collective action (or, presumably, in a class action). Genesis Healthcare Corp. v. Symczyk, No. 11-1059 (U.S. Apr. 16, 2013) (Chamber win) (per Thomas, with Roberts, Scalia, Kennedy, and Alito joining; dissent by Kagan, with Ginsburg, Breyer, and Sotomayor joining).

Did the plaintiffs' model that proved class-wide damages from Comcast's drive to thwart cable competition in greater Philadelphia prove class-wide damages?

No. The majority read the record to establish that the model did not match the anticompetitive conduct with the resulting harm in all 16 counties. (Blawgletter respectfully begs to differ.) Comcast Corp. v. Behrend, No. 11-864 (U.S. Mar. 27, 2013) (Cato & Chamber win) (per Scalia, with Roberts, C.J., and Kennedy, Thomas, and Alito joining; dissent by Ginsburg and Breyer, with Sotoymayor and Kagan joining).

May a plaintiff defeat removal of a class action case from state to federal court under the Class Action Fairness Act of 2005 by claiming that the amount in dispute falls below the $5 million threshold for removal?

No. The plaintiff cannot bind the absent class members before class certification. Standard Fire Ins. Co. v. Knowles, No. 11-1450 (U.S. Mar. 19, 2013) (Cato & Chamber win).

Copyright

Does the "first sale" doctrine of copyright law defeat claims against U.S. sales of copies that began life overseas? 

Yes. You can import into the U.S. books and copies of other works that someone lawfully made outside the U.S. Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697 (U.S. Mar. 19, 2013) (per Breyer, with Roberts, Thomas, Alito, Sotomayor, and Kagan joining; dissent by Ginsburg, with Kennedy and Scalia joining (Scalia only in part)).

Patent

Did Monsanto "exhaust" its right to stop infringement of its patent on a strain of soybeans when it sold beans that could produce infringing crops in the future?

No. The defendant's "blame the bean" defense did not persuade the Court. Bowman v. Monsanto Co., No. 11-796 (U.S. May 13, 2013) (per Kagan, for a unanimous Court).

Does U.S. patent law allow patents on tests that flag a patient's higher risk of getting cancer by detecting an abnormal gene sequence that influences the cancer risk?

No. You can't patent a law of nature or a process that simply uses a law of nature. Ass'n for Molecular Pathology v. Myriad Genetics, Inc., No. 12-398 (U.S. June 13, 2013) (per Thomas, with Roberts, Kennedy, Ginsburg, Breyer, Alito, Sotomayor, and Kagan joining; Scalia concurred in part and in judgment).

Securities

Does the "discovery rule" stop the five-year statute of limitations from running against the federal government on a civil claim for violation of the Investment Advisors Act?

No. Although private parties may invoke the discovery rule under federal securities law, the feds cannot. Gabelli v. SEC, No. 11-1274 (U.S. Feb. 27, 2013) (Cato & Chamber win) (per Roberts, for unanimous Court).

Trademark

Does a broad promise not to sue for trademark infringement and like state-law claims moot a claim for a judgment declaring the trademark invalid?

Yes. A covenant not to sue can remove any real risk of a lawsuit and therefore moot the dispute. Already, LLC v. Nike, Inc., No. 11-982 (U.S. Jan. 9, 2013) (per Roberts, for unanimous Court; Kennedy concurred, and Thomas, Alito, and Sotomayor joined him).

Snappy:    Thanks, Bitey. I learned a lot! But I get the feeling that plaintiffs did worse than the 10-5 tally suggests. Do you think so?

Bitey:    Absolutement, Snappers. Remember that Cato won all four of its cases, and the Chamber's NCLC lost only two out of eight. The wins will have wider impact than the losses.

The Cato angle reminds me of Inspector Clouseau. Without the humor.