Reflections on the Movement in California to Repeal the State’s Ban on Affirmative Action

VIKRAM DAVID AMAR

Illinois law dean and professor Vikram David Amar offers three observations on a measure recently approved by the California legislature that would, if approved by the voters, repeal Proposition 209, the voter initiative that has prohibited affirmative action by the state and its subdivisions since its passage in 1996. Amar praises the California legislature for seeking to repeal Prop 209 and for seeking to do so using the proper procedures, and he suggests that if Prop 209 is repealed, legal rationales for the use of race should be based not only on the value of diversity (as they have been for some time now), but also on the need to remedy past wrongs against Black Americans.

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Agency for International Development v. Alliance for Open Society International, Inc.

Court: US Supreme Court

Docket: 19-177

Opinion Date: June 29, 2020

Judge: Brett M. Kavanaugh

Areas of Law: Business Law, Constitutional Law, Corporate Compliance, Government & Administrative Law

The United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 limited the funding of American and foreign nongovernmental organizations to those with “a policy explicitly opposing prostitution and sex trafficking,” 22 U.S.C. 7631(f). In 2013, that Policy Requirement was held to be an unconstitutional restraint on free speech when applied to American organizations. Those American organizations then challenged the requirement’s constitutionality when applied to their legally distinct foreign affiliates. The Second Circuit affirmed that the government was prohibited from enforcing the requirement against the foreign affiliates. The Supreme Court reversed. The plaintiffs’ foreign affiliates possess no First Amendment rights. Foreign citizens outside U.S. territory do not possess rights under the U. S. Constitution and separately incorporated organizations are separate legal units with distinct legal rights and obligations. The Court rejected an argument that a foreign affiliate’s policy statement may be attributed to the plaintiffs, noting that there is no government compulsion to associate with another entity. Even protecting the free speech rights of only those foreign organizations that are closely identified with American organizations would deviate from the fundamental principle that foreign organizations operating abroad do not possess rights under the U.S. Constitution. The 2013 decision did not facially invalidate the Act’s funding condition, suggest that the First Amendment requires the government to exempt plaintiffs’ foreign affiliates from the Policy Requirement, or purport to override constitutional law and corporate law principles.

Porter, et al. v. Williamson

Court: Supreme Court of Alabama

Dockets: 1180355, 1180634

Opinion Date: June 26, 2020

Judge: Tommy Bryan

Areas of Law: Business Law, Contracts

In appeal no. 1180355, Donald Porter, Marc Porter, Porter Capital Corporation, Porter Bridge Loan Company, Inc., Lowerline Corporation, CapitalPartners Leasing, Inc., and CapitalPartners Leasing, LLC (hereinafter referred to collectively as "the Porter defendants"), appealed a judgment entered in favor of Byron Porter Williamson in his action seeking specific performance of a shareholders agreement that Williamson had entered into with Donald and Marc ("the agreement"). In appeal no. 1180634, Williamson cross-appealed the same judgment seeking prejudgment interest on the full amount of the judgment. The question presented for the Alabama Supreme Court's review was whether the trial court exceeded the scope of Williamson's request for specific performance of the agreement by awarding Williamson a monetary sum representing the value of his interest in the Porter companies based on a valuation process that differed from the valuation process set forth in the agreement. The Porter defendants did not challenge the trial court's determination that Williamson's retirement was a "triggering event" under the agreement that required the Porter defendants to "acquire" Williamson's shares under paragraph 9 of the agreement. They argued only that the trial court awarded relief beyond the scope of a request for specific performance of the agreement. The Supreme Court concurred the trial court's determination of share value used an evaluation process inconsistent with the agreement. The cross-appeal was dismissed and the matter remanded for further proceedings.

Ben-E-Lect v. Anthem Blue Cross Life and Health Insurance Co.

Court: California Courts of Appeal

Docket: A152080(First Appellate District)

Opinion Date: July 2, 2020

Judge: Peter J. Siggins

Areas of Law: Antitrust & Trade Regulation, Business Law, Insurance Law

Ben-E-Lect, a third-party insurance claim administrator, developed a medical expense reimbursement plan; employers could buy a group policy of medical insurance with a high deductible and self-fund to pay for the healthcare expenses employees incurred within the annual deductible or any copay requirement. The practice of employers’ using such plans in conjunction with a high-deductible health plan is called “wrapping.” Ben-E-Lect was the state’s largest third-party administrator for small group employers who wrapped their employee medical policies. Anthem provides fully insured health plans to the California small group employer market. Beginning in 2006, Anthem announced a series of policies that limited wrapping. In 2014, Anthem prohibited wrapping all Anthem plans. Employer groups who used Anthem plans certified they would not wrap Anthem policies, and agents certified they would not advise employers to enter into any employer-sponsored wrapping plan. Ben-E-Lect sued Anthem. The court of appeal affirmed that Anthem’s policy to prohibit wrapping its health insurance products violated the Cartwright Act (Bus. & Prof. Code, 16700); interfered with Ben-E-Lect’s prospective business relationships; and was an illegal, coercive, vertical group boycott under the antitrust rule of reason (Bus. & Prof. Code, 17200), because Anthem told its insurance agents that if they wrapped any Anthem policies they would be subject to termination loss of sales commissions. The court affirmed an award of $7.38 million and an injunction. The trial court considered sufficient evidence of market power and market injury.

MSY Trading Inc. v. Saleen Automotive, Inc.

Court: California Courts of Appeal

Docket: G057093(Fourth Appellate District)

Opinion Date: June 26, 2020

Judge: Raymond J. Ikola

Areas of Law: Business Law, Civil Procedure, Contracts

A "subtle" question concerning entitlement to attorney fees raised by this appeal was one of first impression for the Court of Appeal. In a separate lawsuit filed at Superior Court, plaintiffs obtained a judgment for breach of contract, including an award of attorney fees, against certain entities not parties to the present suit. Plaintiffs filed the present enforcement action against defendants, seeking to hold them liable on the judgment as alter egos of the judgment debtors. Plaintiffs lost against one of the defendants, Steve Saleen (Steve). Steve moved for attorney fees under the contract; the court granted the motion and plaintiffs appeals. Plaintiffs contended this was not an action on the contract and, therefore, fees were unavailable under Civil Code section 1717. Instead, it was an enforcement action. They cited caselaw for the proposition that a judgment on the contract subsumes and extinguishes contractual rights. On the other hand, had plaintiffs included Steve as a defendant in the Superior Court suit, making the exact same alter ego allegations they made to the Court of Appeal, undoubtedly Steve would have been entitled to contractual attorney fees under the doctrine of reciprocity established by Civil Code section 1717 and Reynolds Metals Co. v. Alperson, 25 Cal.3d 124 (1979), even though he was not a signatory on the contract. The Court of Appeal concluded the timing of an alter ego claim (either pre- or postjudgment) was too arbitrary a consideration on which to base the right to attorney fees. "When a judgment creditor attempts to add a party to a breach of contract judgment that includes a contractual fee award, the suit is essentially 'on the contract' for purposes of Civil Code section 1717." The Court therefore agreed with Steve and affirmed judgment.

Roche v. Hyde

Court: California Courts of Appeal

Docket: A150459(First Appellate District)

Opinion Date: July 1, 2020

Judge: Streeter

Areas of Law: Business Law, Civil Procedure

In 2006, Ram’s Gate purchased a Sonoma County winery from the Roches. Ram’s Gate later sued the Roches for breach of contract, fraud, and negligent nondisclosure, claiming they withheld seismic information about the property and made misstatements concerning the ability to build on an existing building pad. Protracted litigation ultimately ended with Ram’s Gate dismissing the action, Roche paying nothing to Ram’s Gate, and Ram’s Gate paying most but not all of Roche’s attorney fees. Roche then brought a malicious prosecution suit against Ram’s Gate, two of its members, and their attorney, Hyde, alleging they withheld documents in discovery that would have proved they knew or should have known the seismic information they claimed was kept from them when they bought the property from Roche. The defendants filed unsuccessful special motions to strike the complaint as a strategic lawsuit against public participation (anti-SLAPP motions). The court of appeal affirmed the denial of the motion under Code Civ. Proc., 425.16(b)(1). A cause of action for malicious prosecution fits by definition into the scope of the anti-SLAPP statute but Roche is likely to succeed on the merits and is now entitled to proceed to trial.

City of Fort Myers General Employees' Pension Fund v. Haley

Court: Delaware Supreme Court

Docket: 368, 2019

Opinion Date: June 30, 2020

Judge: Karen L. Valihura

Areas of Law: Business Law, Corporate Compliance, Mergers & Acquisitions

Towers Watson & Co. (“Towers”) and Willis Group Holdings Public Limited Company (“Willis”) executed a merger agreement with closing conditioned on the approval of their respective stockholders. Although Towers had stronger performance and greater market capitalization, Willis stockholders were to receive the majority (50.1 percent) of the post-merger company. Upon the merger’s public announcement, several segments of the investment community criticized the transaction as a bad deal for Towers and a windfall for Willis. Towers’ stock price declined and Willis’s rose in reaction to the news. Proxy advisory firms recommended that the Towers stockholders vote against the merger, and one activist stockholder began questioning whether Towers’ management’s incentives were aligned with stockholder interests. Also, after announcing the merger, ValueAct Capital Management, L.P. (“ValueAct”), an institutional stockholder of Willis, through its Chief Investment Officer, Jeffrey Ubben, presented to John Haley, the Chief Executive Officer (“CEO”) and Chairman of Towers who was spearheading the merger negotiations, a compensation proposal with the post-merger company that would potentially provide Haley with a five-fold increase in compensation. Haley did not disclose this proposal to the Towers Board. In light of the uncertainty of stockholder approval, Haley renegotiated the transaction terms to increase the special dividend. Towers eventually obtained stockholder approval of the renegotiated merger. The transaction closed in January 2016, and the companies merged to form Willis Towers Watson Public Limited Company (“Willis Towers”). Haley became the CEO of Willis Towers and was granted an executive compensation package with a long-term equity opportunity similar to ValueAct’s proposal. At issue were stockholder suits filed in early 2018. Here, Towers stockholders alleged that Haley breached his duty of loyalty by negotiating the merger on behalf of Towers while failing to disclose to the Towers Board the compensation proposal. The Court of Chancery dismissed the claims, holding that the business judgment rule applied because “a reasonable board member would not have regarded the proposal as significant when evaluating the proposed transaction,” and further holding that plaintiffs had failed to plead a non-exculpated bad faith claim against the Towers directors. To the Delaware Supreme Court, plaintiffs argued the Court of Chancery erred in holding the executive compensation proposal was not material to the Towers Board. To this, the Supreme Court concurred, reversed the Court of Chancery, and remanded for further proceedings.

Christopher W. James Trust v. Tacke

Court: Idaho Supreme Court - Civil

Docket: 47041

Opinion Date: July 1, 2020

Judge: Joel D. Horton

Areas of Law: Business Law, Civil Procedure, Contracts

This appeal arose from a contractual dispute between the Christopher W. James Trust (“the Trust”) and Idaho Mineral Springs, LLC, a water bottling company owned by Helmut Tacke. In 2000, Tacke built Idaho Mineral Springs’ bottling facility on approximately 10 acres of a 374 acre parcel he owned in Lemhi County, Idaho. He installed a high-density polyester pipeline running about eight-tenths of a mile from a spring on the property to the water-bottling plant. From 2000 to 2013, Tacke sold little to no bottled water. By March 2013, Tacke owed on two promissory notes secured by mortgages on the property. That same year, Tacke’s machinery malfunctioned and he needed to obtain new equipment. Tacke negotiated an agreement with Christopher James (“James”), who, with his wife, Debra, were trustees of the Trust and the Firstfruits Foundation (“Firstfruits”), a 501(c)(3) nonprofit foundation. The Agreement called for Firstfruits to pay off the outstanding loans on the property. In exchange, Tacke transferred title to 364 acres of the property, retaining the 10 acres of land where Idaho Mineral Springs’ operations were conducted. The Agreement further provided that the Trust would loan Idaho Mineral Springs $500,000 for two years with a 5% interest rate. Because James expected that the U.S. dollar would depreciate against the Australian dollar and precious metals, the Agreement called for the loan to be repaid in specified quantities of gold, silver and Australian dollars (“the commodity basket”). The Agreement also called for quarterly interest payments of 1.25% based upon the value of the commodity basket. Firstfruits entered into a joint venture with another nonprofit, Youth Employment Program, which sought to develop and manage the 364 acres. A conflict arose between the parties over Tacke’s waterline: Adams removed Tacke’s mainline and replaced it with a new PVC system. Adams reduced the flow to Idaho Mineral Springs from 91 gallons per minute (a discharge rate that Adams believed “could collapse the mainline”) to 30 gallons per minute. Tacke claimed that the new water system prohibited a direct flow of water from the spring to his plant and operated at a dramatically lower pressure than Tacke needed for Idaho Mineral Springs’ operations. Tacke appealed the district court’s ultimate judgment in favor of the Trust for $653,793.40. The Idaho Supreme Court reversed and remanded, finding that the awards of contract damages and prejudgment interest had to be vacated because the Trust failed to prove the value of the commodity basket. The matter was remanded for further proceedings.

Fell v. Fat Smitty's

Court: Idaho Supreme Court - Civil

Docket: 46993

Opinion Date: July 2, 2020

Judge: Moeller

Areas of Law: Business Law, Civil Procedure, Personal Injury

This case arose out of a stabbing that took place outside of an Idaho Falls bar. Steven and Audra Fell were patrons of the First Street Saloon, owned and operated by Fat Smitty’s L.L.C. (Fat Smitty’s). Towards the end of the evening, an altercation took place that resulted in Steven Fell being stabbed by another patron, LaDonna Hall. The Fells filed a complaint against Fat Smitty’s, alleging Fat Smitty’s breached its duty to: (1) warn the Fells, as invitees, of any hidden or concealed dangers in the bar; (2) keep the bar in a reasonably safe condition; and (3) protect the Fells from reasonably foreseeable injury at the hands of other patrons at the bar. The district court granted summary judgment in favor of Fat Smitty’s, ruling that the Fells’ claims were barred by Idaho’s Dram Shop Act because the Fells failed to give Fat Smitty’s timely notice of their claims. The Fells appealed the district court’s grant of summary judgment. Finding no reversible error, the Idaho Supreme Court affirmed.

Nathan v. McDermott

Court: Nebraska Supreme Court

Citation: 306 Neb. 216

Opinion Date: June 26, 2020

Judge: William B. Cassel

Areas of Law: Business Law, Contracts

In this contract and tort action brought by the buyers of a business pursuant to a written purchase agreement the Supreme Court affirmed the judgment of the trial court granting summary judgment for the sellers and dismissing the sellers' agents, holding that the trial court did not err or abuse its discretion. Buyers bought a business from Sellers pursuant to a written purchase agreement. Buyers later bought this action against Sellers and their agents. Sellers counterclaimed for amounts owing under promissory notes. The Supreme Court dismissed the agents under Neb. Ct. R. Pldg. 6-1112(b)(6) and entered summary judgment for Sellers on all claims and counterclaims. The court then denied Sellers' motion for attorney fees. The Supreme Court affirmed, holding (1) undisputed facts supported the summary judgments for Sellers; (2) the complaint stated no claim against the agent; and (3) the trial court did not abuse its discretion in denying attorney fees to Sellers.

Wolf v. Scarnati

Court: Supreme Court of Pennsylvania

Docket: 104 MM 2020

Opinion Date: July 1, 2020

Judge: Wecht

Areas of Law: Business Law, Constitutional Law, Government & Administrative Law, Health Law

On March 6, 2020, in response to the COVID-19 pandemic, Pennsylvania Governor Tom Wolf issued a Proclamation of Disaster Emergency (“Proclamation”) pursuant to 35 Pa.C.S. 7301(c), a provision of the Emergency Management Services Code. This Proclamation activated many emergency resources. Days later, the Governor issued an order closing businesses that were not considered life-sustaining. Four Pennsylvania businesses and one individual challenged the Governor's Order, alleging that it violated the Emergency Management Services Code and various constitutional provisions. On April 13, 2020, in an exercise of its King’s Bench jurisdiction, the Pennsylvania Supreme Court ruled that the Governor’s order complied with both the statute and Commonwealth Constitution. On June 3, 2020, the Governor renewed the Proclamation for an additional ninety days. June 9, 2020, the Pennsylvania House of Representatives adopted a concurrent resolution to order the Governor to terminate the disaster emergency. The matter reached a loggerhead and went again before the Supreme Court. The Court issued an opinion stating "we find it necessary to make clear what this Court is, and is not, deciding in this case. We express no opinion as to whether the Governor’s response to the COVID-19 pandemic constitutes wise or sound policy. Similarly, we do not opine as to whether the General Assembly, in seeking to limit or terminate the Governor’s exercise of emergency authority, presents a superior approach for advancing the welfare of our Commonwealth’s residents." Instead, the Court decided here a narrow legal question: whether the Pennsylvania Constitution and the Emergency Services Management Code permitted the General Assembly to terminate the Governor’s Proclamation of Disaster Emergency by passing a concurrent resolution, without presenting that resolution to the Governor for his approval or veto. To this, the Supreme Court responded "no": "because the General Assembly intended that H.R. 836 terminate the Governor’s declaration of disaster emergency without the necessity of presenting that resolution to the Governor for his approval or veto, we hold, pursuant to our power under the Declaratory Judgments Act, that H.R. 836 is a legal nullity."

Haedge v. Central Texas Cattlemen's Ass'n

Court: Supreme Court of Texas

Docket: 19-0595

Opinion Date: June 26, 2020

Judge: Per Curiam

Areas of Law: Business Law, Contracts, Real Estate & Property Law

The Supreme Court reversed the judgment of the court of appeals reversing the order of the trial court that Petitioners pay $7,000 from a supersedeas bond over losing the underlying appeal and ordering Petitioners to pay $114,280 from the bond, holding that the court of appeals erred in calculating the amount. When Petitioners were ousted from land upon which their cattle grazed, they brought this action challenging the ouster. The trial court granted summary judgment in part for Respondents then, after a trial, rendered judgment that Petitioners take nothing. The trial court allowed Petitioners to suspend the judgment by posting a supersedeas bond, which meant Petitioners could keep their cattle on the leased land during the appeal. The trial court ruled that Respondent was entitled to $7,000 from the bond. The court of appeals reversed, concluding that Respondent should recover $114,280 from the bond, basing its calculation on the expense Petitioners would have incurred if the judgment had not been superseded. At issue was how "loss or damage" is calculated on release of a supersedeas bond under Tex. R. App. 24.2(a)(3). The Supreme Court reinstated the trial court's order, holding that the proper measure is the actual loss Respondent suffered because the judgment was superseded.

Innovative Block of South Texas, Ltd. v. Valley Builders Supply, Inc.

Court: Supreme Court of Texas

Docket: 18-1211

Opinion Date: June 26, 2020

Judge: John P. Devine

Areas of Law: Business Law, Personal Injury

The Supreme Court reversed the judgment of the court of appeals affirming the trial court's award of compensatory damages for Plaintiff on its defamation claim, holding that this was not a case of defamation but, rather, of business disparagement and that there was no evidence for either the award of general damages for Plaintiffs' reputation or the award of special damages connected to one of the allegedly defamatory statements. Plaintiff Valley Builders Supply, inc., sued its former business competitor, Defendant Innovative Block of South Texas, Ltd., alleging that Innovative's disparaging remarks about Valley's products contributed to its demise. Plaintiff submitted only its defamation claims to the jury, and the jury returned a verdict in Plaintiff's favor. The jury awarded general damages for Plaintiff's reputation injury and special damages for lost profits. The court of appeals affirmed. The Supreme Court reversed, holding (1) disparaging the quality or condition of a business's product or service is not, standing alone, defamation per se; (2) no evidence existed to support an award of general damages for harm to Valley's reputation; and (3) the pecuniary loss for which special damages were sought were not cognizable as defamation.