Court Opinions: US Supreme Court Opinions for April 12

Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.

Bissonnette v. LePage Bakeries Park St., LLC

Flowers Foods, Inc. produces and markets baked goods that are distributed nationwide. Neal Bissonnette and Tyler Wojnarowski owned the rights to distribute Flowers products in certain parts of Connecticut. To purchase those rights, they entered into contracts with Flowers that require any disputes to be arbitrated under the Federal Arbitration Act. After Bissonnette and Wojnarowski sued Flowers and two of its subsidiaries for violating state and federal wage laws, Flowers moved to compel arbitration. Bissonnette and Wojnarowski responded they’re exempt from coverage under the FAA because they fall within an exception for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 

The district court dismissed the case in favor of arbitration, concluding Bissonnette and Wojnarowski weren’t “transportation workers.” The 2nd Circuit Court of Appeals ultimately affirmed on the ground that the exemption was available only to workers in the transportation industry, but Bissonnette and Wojnarowski were in the bakery industry. 

The U.S. Supreme Court held a transportation worker need not work in the transportation industry to be exempt from coverage under the FAA. The court has long recognized the exemption under the act is limited to transportation workers. The high court concluded the “linkage” between “seamen” and “railroad employees” is they’re both transportation workers, so it interpreted the class of workers in the residual clause of the act to be limited in the same way.

Here, the Supreme Court noted the 2nd Circuit decided an entity would be considered within the transportation industry if it “pegs its charges chiefly to the movement of goods or passengers” and its “predominant source of commercial revenue is generated by that movement.” 

But the high court explained that test would often turn on arcane riddles about the nature of a company’s services. For example, the court asked: does a pizza delivery company derive its revenue mainly from pizza or delivery? Extensive discovery might be necessary before deciding a motion to compel arbitration, adding expense and delay to every FAA case.

Flowers argued the exemption would sweep too broadly without an implied transportation-industry requirement. Because “virtually all products move in interstate commerce,” Flowers warns that nearly all workers who load or unload goods would be exempt from arbitration. But the act doesn’t define the class of exempt workers in such limitless terms, the Supreme Court noted. Instead, as the court held in Southwest Airlines Co. v. Saxon, a transportation worker is one who is “actively” “ ‘engaged in transportation’ of . . . goods across borders via the channels of foreign or interstate commerce.” 

In other words, the court explained, a transportation worker “must at least play a direct and ‘necessary role in the free flow of goods’ across borders.” The court reasoned these requirements “undermine[ ] any attempt to give the provision a sweeping, open-ended construction,” instead limiting the act to its appropriately “narrow” scope. 

In a unanimous decision, the judgment was vacated and the court remanded the case. 

Macquarie Infrastructure Corp. v. Moab Partners, L. P.

Macquarie Infrastructure Corporation owns a subsidiary that operates terminals to store bulk liquid commodities, including No. 6 fuel oil, a byproduct of the refining process with a typical sulfur content close to 3%. In 2016, the United Nations’ International Maritime Organization formally adopted IMO 2020, a regulation capping the sulfur content of fuel oil used in shipping at 0.5% by 2020. In the ensuing years, Macquarie didn’t discuss IMO 2020 in its public offering documents. In February 2018, Macquarie announced a drop in the amount of storage contracted for use by its subsidiary due in part to the decline in the No. 6 fuel oil market. Macquarie’s stock price fell 41%.

In response, Moab Partners, L. P. sued Macquarie and various officer defendants. Moab alleged, among other things, Macquarie violated Securities and Exchange Commission Rule 10b–5(b) which makes it unlawful to omit material facts in connection with buying or selling securities when that omission renders “statements made” misleading — because it had a duty to disclose the IMO 2020 information under Item 303 of SEC Regulation S–K. Item 303 requires companies to disclose “known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations” in periodic filings with the SEC. 

The district court dismissed Moab’s complaint. The 2nd Circuit Court of Appeals reversed, concluding in part Moab’s allegations concerning the likely material effect of IMO 2020 gave rise to a duty to disclose under Item 303, and Macquarie’s Item 303 violation alone could sustain Moab’s Section 10(b) and Rule 10b–5 claim. 

The U.S. Supreme Court held pure omissions aren’t actionable under Rule 10b–5(b). Rule 10b–5(b) makes it unlawful “[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” In addition to prohibiting “any untrue statement of a material fact,” the rule also prohibits omitting a material fact necessary “to make the statements made . . . not misleading.” This case turns on whether this second prohibition bars only half-truths or instead extends to pure omissions.

The high court found Rule 10b–5(b) covers half-truths, not pure omissions, because it requires identifying affirmative assertions (i.e., “statements made”) before determining if other facts are needed to make those statements “not misleading.”

The Supreme Court unanimously vacated the judgment and remanded the case.

Sheetz v. El Dorado County

As a condition of receiving a residential building permit, George Sheetz was required by the County of El Dorado to pay a $23,420 traffic impact fee. The fee was part of a “General Plan” enacted by the county’s board of supervisors to address increasing demand for public services spurred by new development. The fee amount was not based on the costs of traffic impacts specifically attributable to Sheetz’s particular project, but rather was assessed according to a rate schedule that took into account the type of development and its location within the county. Sheetz paid the fee under protest and obtained the permit. He later sought relief in state court, claiming that conditioning the building permit on the payment of a traffic impact fee constituted an unlawful “exaction” of money in violation of the takings clause. In Sheetz’s view, the U.S. Supreme Court’s decisions in Nollan v. California Coastal Comm’n and Dolan v. City of Tigard required the county to make an individualized determination that the fee imposed on him was necessary to offset traffic congestion attributable to his project. The lower courts for this case ruled against Sheetz based on their view that Nollan and Dolan apply only to permit conditions imposed on an ad hoc basis by administrators, not to a fee like this one imposed on a class of property owners by board-enacted legislation. 

The Supreme Court held the takings clause doesn’t distinguish between legislative and administrative land-use permit conditions. When the government wants to take private property for a public purpose, the Fifth Amendment’s takings clause requires the government to provide the owner “just compensation.” The takings clause saves individual property owners from bearing “public burdens which, in all fairness and justice, should be borne by the public as a whole.” 

The court’s decisions in Nollan and Dolan address the potential abuse of the permitting process by setting out a two-part test modeled on the unconstitutional conditions doctrine. First, permit conditions must have an “essential nexus” to the government’s land-use interest, ensuring the government is acting to further its stated purpose, not leveraging its permitting monopoly to exact private property without paying for it. Second, permit conditions must have “rough proportionality” to the development’s impact on the land-use interest and may not require a landowner to give up (or pay) more than is necessary to mitigate harms resulting from new development. 

The county’s traffic impact fee was upheld based on the view the Nollan/Dolan test doesn’t apply to monetary fees imposed by a legislature, but nothing in constitutional text, history or precedent supports exempting legislatures from ordinary takings rules, the high court noted in its opinion. 

As the parties now agree, conditions on building permits are not exempt from scrutiny under Nollan and Dolan just because a legislative body imposed them. Whether a permit condition imposed on a class of properties must be tailored with the same degree of specificity as a permit condition that targets a particular development is an issue for the state courts to consider in the first instance, as are issues concerning whether the parties’ other arguments are preserved and how those arguments bear on Sheetz’s legal challenge. 

The Supreme Court unanimously vacated the judgment and remanded the case.

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