CONCUSSION LITIGATION LEADING INSURERS TO DISCONTINUE COVERAGE FOR HEAD INJURIES IN FOOTBALL

Photo Credit: Woodruff Health Sciences Center (2017). Emory physicians care for Atlanta Falcons on their journey to the Super Bowl. Available at: http://news.emory.edu/stories/2017/01/emory_docs_head_to_superbowl/ [Accessed 23 Feb. 2019].

By: Catherine Collins

Member, American Journal of Trial Advocacy

Introduction

Recently, ESPN released an article addressing an emerging issue which could potentially endanger the sport of football.[i] The article and coverage on ESPN’s Outside the Lines explains the dissolving insurance market in the contact sports realm regarding coverage for concussions and other head related injuries.[ii] The NFL no longer has general liability insurance covering traumatic head injuries, and only one insurance provider remains in the market for such coverage.[iii]

Proliferating concussion litigation has flooded the courts with class actions of former athletes and their spouses, alleging that the athlete died as a result of those injuries or was seriously impaired by the neglect of proper concussion protocol enacted by sports entities.[iv] One specific progressive brain disease, which has most recently been linked to concussions and head trauma, is chronic traumatic encephalopathy (“CTE”).[v] Though CTE was first described in 1928, it was not until 2005 when a pathologist published evidence of CTE after researching the brain of former Pittsburgh Steeler, Mike Webster.[vi] This brain disease is caused by “repetitive hits to the head sustained over a period of years” and is most often found in military veterans and contact sport athletes.[vii]

As a result of progressive CTE research and litigation surrounding head related injuries, insurance companies have analyzed the risk and exposure of covering concussion and other related head injury claims.[viii] Most insurance companies have discontinued their coverage of those risks.[ix] This discontinuation of coverage has affected businesses, non-profits, and individual’s access to proper insurance covering the defense and settlement of these types of claims in the football realm.[x] Though highly profitable football leagues like the NFL could potentially be able to sustain themselves without this insurance coverage, the lack of insurance has targeted programs not as highly profitable because of their inability to take on the risk associated with concussion liability.[xi] The existence of football may be threatened if the affected parties no longer have the access to necessary insurance.

Concussion-Related Settlements

The NFL has remained in the headlines, as ongoing concussion litigation settlements have been constantly an issue for the League. In In re National Football League Players Concussion Injury Litigation, the plaintiffs alleged that “the NFL had a duty to provide players with rules and information to protect them from the health risks—both short and long-term.”[xii] This class action asserted by former professional football players and widows of former players alleged specific short-term and long-term concussion related injuries, as well the players’ suffering from CTE.[xiii] The case settled, providing $1 billion to the named class of former players and families.[xiv] The court stated that the settlement “is a testament to the players, researchers, and advocates who have worked to expose the true human costs of a sport so many love.”[xv] Indeed, the court acknowledges not only that so many players and fans have a deep passion for football, but also that the emerging underlying issue of CTE and head-related injuries is a high cost related to the sport still being medically and judicially understood.[xvi] 

Additionally, in 2016, a class action was brought against the National Collegiate Athletic Association (NCAA) by athletes alleging concussion and concussion related damages due to the manner in which the NCAA handled these injuries.[xvii] The plaintiffs argued that “the NCAA failed to promulgate and implement the rules and regulations necessary to safeguard student-athletes from sustaining such injuries and to diagnose them properly.”[xviii] Here, the settlement plan is projected that NCAA would pay a total of $75 million, but this settlement does not go to the individual class members.[xix] The settlement proposes NCAA pays $70 million for a Medical Monitoring Program, which “entitles all class members to be screened for symptoms of neurodegenerative diseases multiple times during a fifty-year period . . . in order to assess whether the concussive or subconcussive impacts the individual experienced as a student-athlete may have resulted in a neurologic condition.”[xx] An additional $5 million is expected to be paid as additional funds for concussion research during the first ten years of the Medical Monitoring Period.[xxi]

The Emerging Issue

These recent settlements reveal the development of research and evidence of CTE linked to concussion and concussion-related injuries incurred during a football or contact sport career. CTE is tested by performing a brain tissue analysis, which cannot be performed until after the death of the affected person, thus, it is legally difficult to prove this brain condition while the litigant is still living.[xxii] However, it has been found that the brain deterioration symptoms found to be linked to CTE can be evidenced over a period of years or even decades after the repetitive brain trauma.[xxiii]

As a result of the litigation and developing medical findings, insurance companies have pulled their coverage from amateur sports teams to the NFL.[xxiv] There is only one known insurance company providing coverage.[xxv] There have already been repercussions exhibiting the threat to the sport: Pop Warner, a youth football league, has received a wave of lawsuits over the past few years.[xxvi] Debra Pyka filed suit on behalf of her 25-year-old son, who committed suicide and was posthumously diagnosed with CTE.[xxvii] Pyka’s son had played Pop Warner football for four years when he was younger, and she alleged that CTE played a “substantial factor” in his suicide.[xxviii]   The case settled for less than $2 million.[xxix] Following the lawsuit, AIG discontinued their insurance coverage of Pop Warner regarding neurological injuries.[xxx] Pop Warner’s executive director stated that the company has two options, “[t]he two most obvious are either we go out of business or we declare bankruptcy;” however, currently Pop Warner has Scottsdale Insurance covering them without the exclusion of neurological injuries, but the policy must be renewed each year.[xxxi] The organization continues to be targeted by a CTE-related class actions.[xxxii] Pop Warner and other youth sports league organizations fear that the access to insurance will vanish completely if the litigation continues.[xxxiii]

Not only have youth football leagues been affected by the evaporating insurance market, but junior colleges in Arizona have been forced to end their football programs.[xxxiv] One of the largest community college districts in the country, the Maricopa County Colleges which has 10 schools altogether, eliminated their four football programs.[xxxv] The school district was spending over $1 million on accident and catastrophic insurance premiums, and around one-third of that cost was going toward the district’s four football teams.[xxxvi] After thorough cost analysis, it was recommended to eliminate the sport.[xxxvii] The threat of litigation and the high cost or unavailability of insurance has and will force football programs, especially those not highly profitable, to shut down.


Conclusion

Youth leagues, colleges, and professional leagues all face the threat of litigation regarding head injuries, especially as medicine has refined its research of CTE. Jon Butler, Pop Warner’s executive director stated, “people say football will never go away, but if we can’t get insurance, it will.”[xxxviii] There is no sign that insurance companies will decide to reinstate their coverage for neurological injuries for football and other contact sports. Unless the manner in which the sport is played changes to avoid head collisions altogether, insurance companies will not reenter the market covering head injuries in the sport. Analysts have stated that this issue could affect other contact sports like soccer and hockey, because these sports involve some level of risk regarding head injuries.[xxxix] If insurance companies do not take on the risk, then the risk could potentially be shifted to the players. If there is a way for players to acknowledge and take on their own risk, waiving liability of the league, then the sport could potentially remain afloat. It will be interesting to see how the lack of an insurance market will affect football organizations and how or if the sport will be played in the future.


[i] For the NFL and all of football, a new threat: an evaporating insurance market, ESPN (last visited Feb. 28, 2018), http://www.espn.com/espn/story/_/id/25776964/insurance-market-football-evaporating-causing-major-threat-nfl-pop-warner-colleges-espn.

[ii] Id.

[iii] Id.; An Insurance Crisis Is Quietly Growing For Football In America, National Public Radio (last visited Feb. 25, 2018), https://www.npr.org/2019/01/21/687255649/an-insurance-crisis-is-quietly-growing-for-football-in-america.

[iv] Id.

[v] What Is CTE? Concussion Legacy Foundation (last visited Feb. 27, 2018), https://concussionfoundation.org/CTE-resources/what-is-CTE.

[vi] Id.

[vii] Id.

[viii] ESPN, supra note 1.

[ix] Id.

[x] Concussions and Coverage: Insurance Claims Alleging Long-Term Brain Injuries, Including CTE, American Bar Association (last visited Feb. 28, 2018), https://www.americanbar.org/groups/entertainment_sports/publications/entertainment-sports-lawyer/2017/fall2017/concussions/.

[xi] Id.; ESPN, supra note 1.

[xii] In re Natl. Football League Players Concussion Injury Litig., 821 F.3d 410, 421 (3d Cir. 2016), as amended (May 2, 2016).

[xiii] Id.

[xiv] Id. at 447.

[xv] Id. at 447-48.

[xvi] Id.

[xvii] In re Natl. Collegiate Athletic Assn. Student-Athlete Concussion Injury Litig., 314 F.R.D. 580, 599 (N.D. Ill. 2016).

[xviii] Id.

[xix] Id. at 585.

[xx] Id. at 603-04.

[xxi] Id. at 586.

[xxii] Concussion Legacy Foundation supra note 5.

[xxiii] Id.; In re Natl. Collegiate Athletic Assn. 314 F.R.D. at 591.

[xxiv] Josh Kosman, AIG ends insurance policy against head injuries with NFL, New York Post, https://nypost.com/2016/06/12/aig-ends-insurancy-policy-against-head-injuries-with-nfl/; ESPN, supra note 1; Michal Addady, AIG Won’t Pay For NFL Players’ Head Injuries Anymore, Fortune, http://fortune.com/2016/06/13/aig-nfl/.

[xxv] ESPN, supra note 1.

[xxvi] Id.; Archie v. Pop Warner Little Scholars, Inc., CV16-6603 PSG PLAX, 2017 WL 3084160, (C.D. Cal. May 12, 2017).

[xxvii] Ken Bolson, Pop Warner Settles Lawsuit Over Player Who Had C.T.E., New York Times, https://www.nytimes.com/2016/03/10/sports/football/pop-warner-settles-lawsuit-over-player-who-had-cte.html; Michael Martinez, Pop Warner settles concussion suit filed by former player who committed suicide, CNN, https://www.cnn.com/2016/03/09/us/pop-warner-concussion-lawsuit-settlement-player-suicide/index.html.

[xxviii] Id.

[xxix] Id.

[xxx] ESPN, supra note 1; For the NFL and all of football, a new threat: an evaporating insurance market, ABC News, https://abcnews.go.com/Sports/nfl-football-threat-evaporating-insurance-market/story?id=60446104.

[xxxi] New York Post, supra note 23; ESPN, supra note 1; National Public Radio, supra note 3.

[xxxii] Archie, 2017 WL 3084160 (C.D. Cal. May 12, 2017).

[xxxiii] ABC News, supra note 26; ESPN, supra note 1.

[xxxiv] Id.; ESPN, supra note 1; Anne Ryman, ‘The end of an era and a sad day’ Arizona Western College is latest community college to drop JUCO football, Arizona Central, https://www.azcentral.com/story/sports/2018/12/05/arizona-western-college-eliminate-juco-football-after-2018-season/2219247002/; National Public Radio, supra note 3.

[xxxv] Id.

[xxxvi] Id.

[xxxvii] Id.

[xxxviii] Lyle Adriano, Will insurance destroy America’s favorite sport?, Insurance Business America, https://www.insurancebusinessmag.com/us/news/breaking-news/will-insurance-destroy-americas-favorite-sport-122643.aspx; ABC News, supra note 29; ESPN, supra note 1.

[xxxix] ABC News, supra note 26; ESPN, supra note 1.

WHO’S PAYING? A REVIEW OF RULE 41(D)’S AUTHORIZATION OF ATTORNEY FEE AWARDS

Image: https://silblawfirm.com/wp-content/uploads/2017/07/Recovering-Attorneys-Fees820x400.jpg

By: Will Johnson

Associate Editor, American Journal of Trial Advocacy

Federal Rule of Civil Procedure 41(d) governs situations in which the plaintiff voluntarily dismisses an action and subsequently refiles the same or similar case in a different jurisdiction.[1] In such situations, the rule permits the court to order the plaintiff pay all or part of the costs of the previously dismissed action.[2] Recently, an explosion of litigation concerning Rule 41(d) has left United States Courts of Appeals split on whether the rule allows for the recovery of attorneys’ fees as “costs” of the previously dismissed actions.[3] Typically, attorneys’ fees are not awardable as “costs” to the prevailing party under the so-called “American Rule” unless Congress has carved out an exception to the rule.[4] Notably, four different circuits have established strong stances on the award of attorneys’ fees pursuant to Rule 41(d) within the last two years after a sixteen year period of stagnation.[5] As a result, three prominent interpretations of Rule 41(d) exist, with three courts ruling attorneys’ fees are always awardable as costs,[6] one court ruling attorneys’ fees are never awardable as costs,[7] and four courts finding middle ground by ruling attorneys’ fees are awardable as costs if the underlying substantive statute of the action brought allows for the award of attorneys’ fees.[8] This article explores Rule 41(d) and its intent and provides a survey of each available circuit’s position of the award of attorneys’ fees as “costs” pursuant to Rule 41(d).

RULE 41(d)

The plain text of Federal Rule of Civil Procedure 41(d) provides:

If a plaintiff who previously dismissed an action in any court files an action based on or including the same claim against the same defendant, the court: (1) may order the plaintiff to pay all or part of the costs of that previous action; and (2) may stay the proceedings until the plaintiff has complied.[9]

At its core, Rule 41(d) is intended to discourage forum shopping and vexatious litigation by the plaintiff.[10] Functionally, although the statute uses only the word “costs” and does not explicitly permit attorneys’ fees, courts have noted statutory ambiguity regarding the ambiguity of “costs” and have reached various outcomes: in some cases, statutory provisions of “costs” have been found to not include attorneys’ fees[11]; while in other cases, statutory language allows for the inclusion of attorneys’ fees as “costs,”[12] and others are dependent on if the underlying statutory basis of the suit allows for it.[13] Justifications for the variance in interpretation range from fulfilling the public policy deterrence goals of the rule,[14] to strictly following the statute’s plain language,[15] to reasoning by analogy in light of the treatment of other similarly vague statutes.[16] As one may imagine, finding the pulse of the legislature when determining the definition of “costs” is no easy task.

CIRCUIT OVERVIEW

The Always Awardable Rule

            The Eighth, Tenth, and Second Circuits have adopted what may be termed the “Always Awardable Rule,” which permits the award of attorneys’ fees as costs pursuant to Rule 41(d) at the judge’s discretion.[17] Importantly, the Second Circuit held the purpose of Rule 41(d) would be “substantially undermined were the awarding of attorneys’ fees to be precluded.”[18] The court reasoned Rule 41(d)’s purpose to deter forum shopping and vexatious litigation is unmistakable and undisputed, and that purpose would be handicapped if district courts were barred from assessing attorneys’ fees as costs.[19]

The Never Awardable Rule

            In 2000, the Sixth Circuit became the only circuit court to adopt what may be termed the “Never Awardable Rule” when it found attorneys’ fees are never permissible as costs pursuant to Rule 41(d) in Rodgers v. Wal-Mart Stores, Inc..[20] In total, the Sixth Circuit reasoned because Congress did not explicitly include attorneys’ fees as costs in Rule 41(d), and Congress was not so unambiguous in its drafting as to read in an implicit permission for attorneys’ fees, including attorneys’ fees as “costs” would be to improperly judicially circumvent the intent of the legislature.[21]

The Underlying Statute Rule

            The Third, Fourth, Fifth, and Seventh Circuits have all adopted what may be termed the “Underlying Statute Rule.”[22] Stated simply, the Underlying Statute Rule allows for the recovery of attorneys’ fees as costs pursuant to Rule 41(d) only if the underlying statute in the plaintiff’s original suit allows for the recovery of attorneys’ fees as costs.[23] In choosing to adopt the Underlying Statute Rule, the Third Circuit notably reasoned the Always Awardable interpretation defies the American Rule, that each litigant pay its own attorneys’ fees, too heavily because Rule 41(d) is silent on the award of attorneys’ fees as costs.[24] The court also found issue with the Never Awardable interpretation, reasoning that the drafters of Rule 41(d) had likely vaguely defined the term “costs” for good reason, therefore an “analysis beyond the plain language” was necessary to determine Congress’ intent.[25]

MOVING FORWARD

            The inclusion of attorneys’ fees as “costs” pursuant to Rule 41(d) is an area of law undergoing rapid development. With the addition of four new circuit opinions within the last two years, all but four circuits now have precedential rulings governing the availability of fees under Rule 41(d). Importantly, though, the sister circuits who have ruled on the matter have all adopted bright-line positions that are readily distinguishable from one another. In addition, the lack of stance from the District of Columbia, Ninth, and Eleventh Circuits pose an interesting opportunity for development, as they are particularly influential and may shift the majority balance in one direction. Alternatively, if all three courts agreed on a new rule, they could create a plurality of opinion among the circuit courts, with three different interpretations of the rule holding heavy weight.


[1] Fed. R. Civ. P. 41(d)

[2] Id.

[3] See Horowitz v. 148 South Emerson Associates LLC, 888 F.3d 13 (2d Cir. 2018); Garza v. Citigroup Inc., 881 F.3d 277 (3rd Cir. 2018); Portillo v. Cunningham, 872 F.3d 728 (5th Cir. 2017); Andrews v. America’s Living Centers, LLC, 827 F.3d 306 (4th Cir. 2016); Robinson v. Bank of America, N.A., 553 Fed.Appx. 648 (8th Cir. 2014); Meredith v. Stovall, 216 F.3d 1087 (10th Cir. 2000); Rogers v. Wal-Mart Stores, Inc., 230 F.3d 868 (6th Cir. 2000); Esposito v. Piatrowski, 223 F.3d 497 (7th Cir. 2000); Evans v. Safeway Stores, Inc., 623 F.2d 121 (8th Cir. 1980).

[4] See Runyon v. McCrary, 427 U.S. 160, 185-86 (1976); Alyeska Service Pipeline Co. v. Wilderness Society, 421 U.S. 240, 247 (1975).

[5] See Horowitz v. 148 South Emerson Associates LLC, 888 F.3d 13 (2d Cir. 2018); Garza v. Citigroup Inc., 881 F.3d 277 (3rd Cir. 2018); Portillo v. Cunningham, 872 F.3d 728 (5th Cir. 2017); Andrews v. America’s Living Centers, LLC, 827 F.3d 306 (4th Cir. 2016).

[6] See Horowitz v. 148 South Emerson Associates LLC, 888 F.3d 13 (2d Cir. 2018); Meredith v. Stovall, 216 F.3d 1087 (10th Cir. 2000); Evans v. Safeway Stores, Inc., 623 F.2d 121 (8th Cir. 1980).

[7] Rogers v. Wal-Mart Stores, Inc., 230 F.3d 868 (6th Cir. 2000).

[8] See Garza v. Citigroup Inc., 881 F.3d 277 (3rd Cir. 2018); Portillo v. Cunningham, 872 F.3d 728 (5th Cir. 2017); Andrews v. America’s Living Centers, LLC, 827 F.3d 306 (4th Cir. 2016); Esposito v. Piatrowski, 223 F.3d 497 (7th Cir. 2000).

[9] Fed. R. Civ. P. 41(d).

[10] Simeone v. First Bank Nat’l Assn., 971 F.2d 103, 108 (8th Cir. 1992).

[11] Horowitz, 888 F.3d at 24(referencing Roadway Express, Inc. v. Piper, 447 U.S, 752, 759 (1980); Hines v. City of Albany, 862 F.3d 215, 220-21 (2d Cir. 2017)).

[12] Id. at 24-25 (referencing Andrews, 827 F.3d at 311 n.2.)

[13] Id. at 25 (referencing Marek v. Chesny, 473 U.S. 1, 9 (1985); Adsani v. Miller, 139 F.3d 67, 79 (2d Cir. 1998)).

[14] Id. at 25-26.

[15] Rogers, 230 F.3d at 874.

[16] Esposito, 223 F.3d at 500-01 (citing Marek v. Chesny, 473 U.S. 1, 9 (1985)).

[17] See Robinson v. Bank of America, N.A., 553 Fed.Appx. 648, 649 (8th Cir. 2014); Meredith v. Stovall, 216 F.3d 1087 (10th Cir. 2000); Horowitz v. 148 South Emerson Associates LLC, 888 F.3d 13 (2d Cir. 2018).

[18] Horowitz, 888 F.3d at 25.

[19] Id. (quoting Andrews, 827 F.3d at 309 (internal citations omitted)).

[20] Rogers v. Wal-Mart Stores, Inc., 230 F.3d 868 (6th Cir. 2000).

[21] Id. at 875-76.

[22] See Garza v. Citigroup Inc., 881 F.3d 277, 283-84 (3rd Cir. 2018); Andrews v. America’s Living Centers, LLC, 827 F.3d 306, 311 (4th Cir. 2016); Portillo v. Cunningham, 872 F.3d 728, 738-39 (5th Cir. 2017); Esposito v. Piatrowski, 223 F.3d 497, 501-02 (7th Cir. 2000).

[23] Id.

[24] Garza, 881 F.3d at 281-82 (quoting Baker Botts L.L.P. v. ASARCO LLC, 135 S.Ct. 2158, 2164 (2015) (internal citations omitted)).

[25] Id. (quoting Marek, 471 U.S. at 8).

Attorney Advertising: You Get a Multi-Million Dollar Settlement! You get one too!

Photo Credit: https://www.istockphoto.com/photo/falling-money-on-a-white-background-dollars-rain-3d-illustration-gm678604596-124542593

By:  Sara Rogan

Member, American Journal of Trial Advocacy

In the over 40 years since the seminal case of Bates v. State Bar of Arizona[1] in 1977, attorney advertising has been and continues to be revolutionized. What was once illegal is now prolific. It was estimated by Kantar Media’s Campaign Media Analysis Group that in 2016 alone, attorneys and firms spent almost $771 million on televised advertisements.[2] One firm is estimated to spend roughly $30 million annually on advertising.[3] The Institute for Legal Reform notes that “legal advertising not only appears to be recession-proof, but also politics-proof,” surviving and thriving in a time when other advertisement industries struggle.[4] A well-known Alabama attorney has at least 2,000 billboards employed for his advertisements throughout the state and is becoming a familiar face throughout the southeast.[5] Attorney advertisements take the form of billboards, commercials, displays on websites, and search engine prompts – not to mention all the paraphernalia that contains firm names and logos such as cups, koozies, pens, and notepads. The path is already being paved for attorneys to collect numbers from police reports to solicit their services to people involved in an incident.[6]

A common advertisement tactic for billboards is to show how much past clients have received in a settlement by displaying an exorbitant amount that is quite appealing.[7] However, receiving a large settlement is never a guarantee, as settlements are fact-driven and typically dependent upon a defendant’s assets.[8] One law firm in New York has taken appropriate measures to absolve themselves of future liability by indicating in their disclaimer that “[p]rior results do not guarantee a similar outcome.”[9] Could advertising these unicorn, million dollar settlements result in false expectations for potential plaintiffs? While Bates addressed advertising as a whole, it did not address any “extravagant” claims relating to the legal services.[10]

Understanding the basis and outcome of Bates is critical to addressing the potential issue of advertising today. Attorney advertisements prior to Bates were seemingly limited to listing “the attorney’s name, address, and telephone number, office hours, and the like . . . in the classified section of the telephone directory.”[11] These limitations were imposed for the preservation of the integrity of the profession, the possibility that clients could be misled, precaution in limiting costs for clients, along with several other policy reasons.[12] However, the Supreme Court regarded the permissible information as “scant nourishment.”[13] The Court eventually concluded that the aforementioned restrictions were not “an acceptable reason for the suppression” of such advertisements.[14] Consequently, the Court held that the advertisement in question, a newspaper advertisement displaying the services and fees the attorneys were offering, was permissible.[15] The Court reasoned that the rule barring the advertisement violated the attorneys’ First Amendment rights to Free Speech.[16] The Court nevertheless included a caveat, stating that even though speech in terms of attorney advertising is protected and permissible, it is still subjected to regulation and cannot be “false, deceptive, or misleading.”[17] Since this development, attorney advertising has skyrocketed. However, the Bates holding did not address the legal services themselves and whether or not they were adequate.

In general, this is no general prohibition under the Model Rules of Professional Conduct against advertising or discussing past settlements or judgments.[18] Rubenstein v. Florida Bar[19] elaborated on the issue of attorney advertisements that contained information regarding money a client has received from a past claim.[20] Within the Florida Bar, a task force advocated for a “complete ban on references to past successes or results in attorney advertising” regardless of the manner and method of advertising.[21] This rule evolved over time to restrict content unless the results publicized were “objectively verifiable.”[22] The firm in Rubenstein created some advertisements that allegedly violated that rules imposed by the bar.[23] The court determined that that rules regulating the attorney’s advertising were not enforceable and granted in favor of the attorneys. The court stated that

The Guidelines amount to a blanket restriction on the use of past results in attorney advertising on indoor and outdoor display, television and radio media. The Bar has not demonstrated that the prohibition’s breadth was necessary to achieve the interest advanced, or that lesser restrictions—e.g., including a disclaimer, or required language—would not have been sufficient. The Bar has failed to meet its burden under this prong as well.[24]

Essentially, attorney advertising enjoys a degree of protection offered by the First Amendment as long as it is not “false, deceptive, or misleading”[25] and that includes mentioning past settlements in advertisements.[26] While the legalities have been covered, what about the realities of attorney advertising?

Most lay individuals might not realize that these multi-million dollar settlements are not as common as the billboard they are advertised on. Further, the holding in Rubenstein allowing references to past claim amounts is not uncommon, as this court “joins a majority of states” in deciding that regulations “that completely prohibit attorney advertising of past results violate the First Amendment.”[27] With this trend expanding among a majority of states, the potential for unjustifiable expectations expands correspondingly. Neil Lloyd, who formerly served on the ABA’s Legislation Subcommittee, believes that potential clients are not counting on the settlements advertised but rather are using the advertisements merely to find an attorney and will then conduct additional research.[28] While this is the ideal path, it is also a potentially high burden to place on the public: should attorneys, who understand the legal system better, be more regulated by the bar in their advertisements, rather than depending on the public to protect themselves and make informed decisions?

The court has clearly drawn a line against misleading advertisements, but the issue is deciding at what point an advertisement for a large settlement crosses that line to become misleading. Comment 3 for Rule 7.1 of the Model Rules of Professional Conduct addresses this potential issue.[29] The comment recognizes that referencing a past judgment could be deceptive to future clients if the representation is “presented so as to lead a reasonable person to form an unjustified expectation that the same results could be obtained for other clients in similar matters without reference to the specific factual and legal circumstances of each client’s case.”[30] The comment concludes with the recommendation of including a disclaimer to prevent any liability should a potential client rely on the advertisement as a guarantee for the outcome of their specific case.[31] The CEO of Group Matrix, Richard Sackett, has commented that “[e]veryone wants the practice of law to remain dignified . . . [b]ut the public doesn’t always respond to dignified ads,” indicating that ultimately lawmakers might need to intervene for attorney advertisements comparing their services and results against another, as the bar regulations might be insufficient.[32]

Essentially, if the statement is truthful or “objectively verifiable,”[33] firms and attorneys are not prohibited from saying it in their advertisements.[34] However, the truth can be misleading, as the truth in these instances is fact-specific and not necessarily a guarantee for future clients. Courts are attempting to balance the attorneys’ interests of Free Speech in advertising with the importance of protecting potential clients who, in their vulnerable state, might not realize that advertisements referring to past settlements are simply not as common as attorneys would have them believe. Hopefully over time courts will more clearly define this line for attorneys and firms who engage in advertising.


[1] 433 U.S. 350 (1977).

[2] Victor Li, Legal Advertising Blows Past $1 Billion and Goes Viral, ABA Journal (April 2017), http://www.abajournal.com/magazine/article/legal_advertising_viral_video.

[3] Id.

[4] Ken Goldstein, Trial Lawyer Marketing, Institute For Legal Reform (Oct. 2015), https://www.instituteforlegalreform.com/uploads/sites/1/KEETrialLawyerMarketing_2_Web.pdf.

[5] Kent Faulk, Alexander Shunnarah Legal Empire Built on Thousands of Billboards, TV Spots, Al.com (May 17, 2015), https://www.al.com/news/birmingham/index.ssf/2015/05/alexander_shunnarah_introduces.html.

[6] Natasha Sheth, Need a Lawyer? Check Your Text Messages, ABA Journal (June 27, 2017),https://www.americanbar.org/groups/litigation/publications/litigation-news/top-stories/2013/need-a-lawyer-check-your-text-messages/.

[7] Michael Hristakopoulos, Dan Newlin Got You How Much???, Orlando Sentinel (Aug. 7, 2017), https://www.orlandosentinel.com/opinion/os-ed-stop-dan-newlin-got-me-billboard-campaign-myword-20170807-story.html.

[8] Coulter Boeschen, The “Average” Personal Injury Settlement, All Law,https://www.alllaw.com/articles/nolo/personal-injury/average-settlement.html.

[9] Shanker Law Group, http://www.shankerlaw.com/images/Attorney_Advertising.pdf.

[10] Bates, 433 U.S. at 366.

[11] Id. at 366-67.

[12] Id. at 368, 372, 377.

[13] Id. at 367.

[14] Id. at 379.

[15] Id. at 384.

[16] Bates, 433 U.S. at 384.

[17] Id. at 383.

[18] Rubenstein v. Florida Bar, 72 F. Supp. 3d 1298, 1305 (S.D. Fla. 2014).

[19] 72 F. Supp. 3d 1298 (S.D. Fla. 2014)

[20] Id. at 1304.

[21] Id. at 1316.

[22] Id. at 1302 (quoting Fla. Rules of Prof’l Conduct r. 4-7.13).

[23] Id. at 1304.

[24] Id. at 1318.

[25] Bates, 433 U.S. at 383.

[26] Rubenstein, 72 F. Supp. 3d at 1303.

[27] Pamela Menaker, Court Strikes Florida Rule Preventing Advertising of Past Results, ABA Journal (April 6, 2015), https://www.americanbar.org/groups/litigation/publications/litigation-news/top-stories/2015/court-strikes-florida-rule-preventing-advertising-of-past-results/.

[28] Id.

[29] Model Rules of Prof’l Conduct 7.1 cmt. 3 (2015).

[30] Id.

[31] Id.

[32] Li, supra note 2.

[33] Id. at 1302 (quoting Fla. Rules of Prof’l Conduct r. 4-7.13).

[34] Searcy v. Florida Bar, 140 F. Supp. 3d 1290, 1292 (N.D. Fla. 2015).

Opportunity Hidden in the New Tax Law

Photo Credit: https://www.camoinassociates.com/opportunity-zone-update-find-your-community-interactive-map

By: Alex Townsley

Benjamin Franklin has been credited with once saying, “[I]n this world, nothing is certain except death and taxes.”[1] Americans are reminded of the truth of the latter certainty every year during tax season, but this year, along with the usual pains of preparing one’s taxes, taxpayers are grappling with understanding the effects of the Tax Cuts and Jobs Act of 2017.[2] However, there may be some unexpected relief in the form of a new program called “[O]pportunity [Z]one[s].”[3]

What is an Opportunity Zone? 

In a recent letter to the Treasury Secretary, members from both houses of Congress and political parties described the Opportunity Zones tax incentive as “deliver[ing] transformational impact, including new jobs and higher wages, in low-income areas throughout the country, many of which have been left behind by the national recovery after the Great Recession.”[4] But what is an opportunity zone? In short, an opportunity zone is an economically troubled area that under certain circumstances offers investors preferential tax treatment for new investments in that community.[5] Before an area can be used for this purpose, it must be designated as a “qualified opportunity zone.”[6] I.R.C. § 1400Z-1(a) defines a qualified opportunity zone as “a population census tract that is a low-income community that is designated as a qualified opportunity zone.”[7] To become a designated zone, four criteria must be met: (1) the area must be low income; (2) the area must be nominated by the chief executive officer of the state for opportunity zone status; (3) the chief executive must notify the Secretary of the Treasury of the nomination; and (4) the Secretary of the Treasury must certify the nomination and designate the zone within the consideration time period.[8] Once an opportunity zone has been certified and designated, any investment made in the area through a properly recognized fund is eligible for preferential tax treatment.

Why invest in an Opportunity Zone?

Under the new tax law, capital gains that are invested in qualified opportunity zones can be sheltered from taxation.[9] To make this investment, the funds must be placed in a “qualified opportunity fund” defined as “any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property . . . that holds at least 90 percent of its assets in qualified opportunity zone property . . . .”[10] These opportunity funds are managed by private fund managers with little oversight from the government once established.[11] To ensure the opportunity funds maintain the required 90 percent investment within the opportunity zone, a penalty can be imposed on the fund for each month its assets fall below the threshold.[12]

As an investment vehicle, an opportunity fund can be either a partnership or corporation based on the wishes of the investors.[13] This flexibility, along with the fact that investors need not live in the opportunity zone they wish to invest in, opens the door for taxpayers seeking preferential treatment.[14] Once a fund becomes a qualified opportunity fund, a potential investor can invest in an existing business, real estate, or new projects that fall within a qualified opportunity zone.[15] However, the investment must be made into something acquired after January 1, 2018, and not in something the fund owned prior to that date.[16]

How are Opportunity Zones different from traditional private investment?

Unlike traditional private investment, which may have qualified the investor for a tax credit, the Opportunity Zone program operates under new Internal Revenue Code sections.[17] As a product of these new rules, the capital gain invested is treated differently by the IRS.[18] Unlike previous tax programs targeting the same investors, there is no cap on the amount of capital that can be invested in an opportunity fund.[19] Furthermore, the longer the investments stay in the fund, the greater the tax benefit for the investor.[20]

The Future of Opportunity Zones 

As of now, the reaction to the Opportunity Zone program established by the Tax Cuts and Jobs Act of 2017 has been mixed. This mixed response comes from many factors. The first and foremost of these factors is that the program has yet to be fully examined by tax professionals and investors alike.[21] Despite this uncertainty, over 8,700 qualified opportunity zones have been designated in the country, including zones in all fifty states, the District of Columbia, and five U.S. Territories.[22] Skeptics of the program point to zones in areas that would have attracted investment anyway.[23] Other criticisms include the arguably hard nature of quantifying the benefit gained from opportunity funds.[24] Regardless of where one falls in his opinion of the program, at a minimum, the program highlights areas of the country that are falling behind and creates an opportunity for those communities to thrive again.


[1] Benjamin Franklin’s Last Great Quote and the Constitution, Nat’l Const. Ctr.: Const. Daily (Nov. 13, 2018), https://constitutioncenter.org/blog/benjamin-franklins-last-great-quote-and-the-constitution/.

[2] Darla Mercado, The New Tax Law Has a Bunch of Changes. Here’s What You Need to Know as Filing Season Begins, CNBC (Jan. 28, 2019, 4:41PM), https://www.cnbc.com/2019/01/28/-heres-what-you-need-to-know-about-the-new-tax-law-as-filing-season-begins.html.

[3] See I.R.C. § 1400Z-1(a) (West 2018) (introducing opportunity zones).

[4] Letter from Tim Scott, Senator, United States Senate, et al. to Steven Mnuchin, Secretary, United States Dep’t of the Treasury (Jan. 24, 2019) https://www.scott.senate.gov/imo/media/doc/1.23.19%20Signed%20Opportunity%20Zone%20Letter%20to%20Secretary%20Mnuchin.pdf. 

[5] Opportunity Zones Frequently Asked Questions, IRS (Jan. 11, 2019), https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions.

[6] I.R.C. § 1400Z-1(a) (West 2018).

[7] Id.

[8] I.R.C. § 1400Z-1(b) (West 2018).

[9] Devin Thorpe, Opportunity Zones Investors Receive Needed Guidance for Measurable Impact, Forbes (Feb. 11, 2019, 9:00AM), https://www.forbes.com/sites/devinthorpe/2019/02/11/opportunity-zones-investors-receive-needed-guidance-for-measurable-impact/#732d89b27cc1.

[10] I.R.C. § 1400Z-2(d)(1) (West 2018).

[11] What are Opportunity Zones and How do They Work?, Fundrise, https://fundrise.com/education/blog-posts/what-are-opportunity-zones-and-how-do-they-work#why-created (last visited Feb. 17, 2019).

[12] I.R.C. § 1400Z-2(f)(1) (West 2018).

[13] Opportunity Zones Frequently Asked Questions, IRS (Jan. 11, 2019) https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions.

[14] Id.

[15] Erin Arvedlund, Opportunity Zones: Rules Finally Come Out, and Yup, They’re Complex (But Manageable), The Inquirer (Jan. 7, 2019), https://www.philly.com/business/opportunity-zone-20190107.html.

[16] Id.

[17] What are Opportunity Zones and How do They Work?, Fundrise, https://fundrise.com/education/blog-posts/what-are-opportunity-zones-and-how-do-they-work#why-created (last visited Feb. 17, 2019); See I.R.C. §§ 1400Z-1 to 1400Z-2 (West 2018) (codifying the Opportunity Zone program).

[18] What are Opportunity Zones and How do They Work?, Fundrise, https://fundrise.com/education/blog-posts/what-are-opportunity-zones-and-how-do-they-work#why-created (last visited Feb. 17, 2019).

[19] Sarah O’Brien, Heard the Buzz About Opportunity Zone Funds? Here’s the Skinny, CNBC (Nov. 1, 2018, 10:42 AM), https://www.cnbc.com/2018/10/31/heard-the-buzz-about-opportunity-zone-funds-heres-the-skinny.html.

[20] See I.R.C. § 1400Z-2(b)-(c) (West 2018) (discussing investments made in opportunity zones).

[21] Joshua Pollard, 3 New Hints Emerge on Final Opportunity Zone Rules, Forbes (Feb. 11, 2019, 7:45 AM), https://www.forbes.com/sites/joshuapollard/2019/02/11/3-new-hints-emerge-on-final-opportunity-zone-rules/#27e09282f140.

[22] What are Opportunity Zones and How do They Work?, Fundrise, https://fundrise.com/education/blog-posts/what-are-opportunity-zones-and-how-do-they-work#why-created (last visited Feb. 17, 2019).

[23]Sarah O’Brien, Heard the Buzz About Opportunity Zone Funds? Here’s the Skinny, CNBC (Nov. 1, 2018, 10:42 AM), https://www.cnbc.com/2018/10/31/heard-the-buzz-about-opportunity-zone-funds-heres-the-skinny.html.

[24] Id.

Life After Miller: Retroactive Sentencing and the Rare Juvenile

Photo Credit: Associated Press, apnews.com

Written by: Kimberly Fasking

Member, American Journal of Trial Advocacy

In 2006, Evan Miller was convicted of a crime he had committed just three years prior, at the age of fourteen.[1] He and a friend had robbed, beaten, and killed his mother’s drug dealer after an evening drinking and smoking marijuana with the victim.[2] Miller was convicted of murder, and he was sentenced to life without the possibility of parole, the mandatory sentence in the state of Alabama at the time for such an offense.[3]

Miller’s case made its way up to the Supreme Court of the United States, which had recently been indirectly effectuating progressively more merciful sentencing for juvenile offenders by holding that certain sentences were unconstitutional violations of the Eighth Amendment.[4] In 2005, the Court held that capital punishment for juveniles was unconstitutional and in 2010 held as unconstitutional life without parole for juveniles who committed offenses that did not involve homicide.[5] In Miller’s case, the Court ultimately held that mandatory sentences for juveniles of life without parole, for any offense, violated the Eighth Amendment’s prohibition on cruel and unusual punishment.[6]

The “Rare” Juvenile

Although the Court held that sentencing of juveniles to life without parole was not unconstitutional in all cases, it identified a number of individual factors that should be evaluated during the sentencing process in order to appropriately sentence each juvenile and keep life without parole sentences rare.[7] The Court stated that “the right not to be subjected to excessive sanctions[8] . . . flows from the basic ‘precept of justice that punishment for crime should be graduated and proportioned’ to both the offender and the offense.”[9] In an effort to tailor sentences appropriately to juveniles, the Court stated that courts should recognize that “juveniles have diminished culpability and greater prospects for reform,” and therefore “they are less deserving of the most severe punishments.”[10] The Court further held that, although a life sentence without parole could potentially be appropriately applied to juvenile offenders in homicide cases, the cases where such a sentence would be appropriate were certainly rare, and there were several “Miller factors,” as they came to be known, which a judge would be required to take into account before imposing such a sentence on a juvenile.[11] These factors include age of the offender, his role in the crime, and his background and upbringing.[12] In Evan Miller’s case, these factors could have included his mother’s drug use, the beatings he endured at the hands of his stepfather, his stints in and out of foster care, and his multiple suicide attempts which began at age six.[13]

Retroactive Application and Resentencing

At the time of the decision in Miller, twenty-nine states had laws which mandated life without parole for juveniles convicted of murder.[14] There were more than 2,500 inmates across the country sentenced under these guidelines, 79 of whom were 14 or younger at the time of their sentencing.[15] In 2015, the Alabama Supreme Court held in a 7-2 decision in Ex Parte Williams[16] that Miller did not have to be applied retroactively.[17] The court reasoned that the new rule announced in Miller was procedural and not substantive, and that because only substantive rules must be applied retroactively, juveniles sentenced prior to Miller were not entitled to resentencing.[18] The Supreme Court of the United States later overturned that decision in Montgomery v. Louisiana,[19] holding that “courts must give retroactive effect to . . . substantive rules of constitutional law”[20] such as “rules prohibiting a certain category of punishment of a class of defendants because of their status or offense.”[21] The Court further held that Miller “announced a substantive rule of constitutional law, which, like other substantive rules, is retroactive because it ‘necessarily carr[ies] a significant risk that a defendant faces a punishment that the law cannot impose upon him.’”[22] Juveniles serving mandatory life sentences must either be granted a resentencing hearing which includes evaluation of the “Miller factors” or be allowed to be eligible for parole.[23] Since the Court clarified in Montgomery that Miller should be applied retroactively, there is a backlog of offenders languishing under their unconstitutional sentences while courts and legislatures decide how to proceed.[24] Some juvenile offenders have had their sentences converted due to statute changes or resentencing hearings, while others must petition for and await their hearings.[25]

Moving Forward

While the court in Miller reiterated that sentencing should distinguish between those juveniles who are simply immature and make bad decisions from “the rare juvenile offender whose crime reflects irreparable corruption,” progress in adjusting sentences has varied widely among the states.[26] For instance, Arkansas enacted a new law which banned life without parole sentences altogether for juveniles.[27] Alabama instituted a new sentencing option for juveniles which offered parole after thirty years, but a sentence of life without parole is still available.[28] Iowa’s Governor commuted all juvenile life without parole sentences to sixty years without parole and no credit for time served, but these sentences were also unconstitutional, as they amounted to defacto life without parole sentences for certain offenders.[29] Although parole is technically available in Missouri, the parole board has denied parole to 20 of 23 juvenile offenders.[30] In Louisiana, despite the prohibition on life without parole being a mandatory sentence, over eighty percent of juvenile offenders convicted of homicide have been sentenced to life without parole– a clear contradiction to the Miller court’s holding that the “appropriate occasions for sentencing juveniles to [life without parole] will be uncommon.”[31] It appears that, until the Supreme Court finds a sentence of life without parole unconstitutional in all instances for every juvenile, states will have the discretion to define “uncommon” and “rare” as they please, and some will continue to throw away the proverbial key on their young people forever.


[1] Beth Schwartzapfel, Was Evan Miller “The Rare Juvenile” Who Deserved Life Without Parole?, The Marshall Project, (Mar. 12, 2017, 10:00 PM), https://www.themarshallproject.org/2017/03/12/was-evan-miller-the-rare-juvenile-who-deserved-life-without-parole.

[2] Id.

[3] Kent Faulk, Evan Miller, The Alabama Inmate Whose Case Became Precedent for Juvenile Sentencing, Set for Hearing, AL.com, Mar. 11, 2017, http://www.al.com/news/birmingham/index.ssf/2017/03/evan_miller_the_alabama_inmate.html.

[4] Roper v. Simmons, 543 U.S. 551 (2005) (prohibiting capital punishment for juveniles); Graham v. Florida, 560 U.S. 48 (2010) (prohibiting life without parole for juveniles who did not commit homicide).

[5] Graham, 560 U.S. at 82.

[6] Gretchen Gavett and Sarah Childress, Supreme Court Bans Mandatory Life Terms for Kids: What it Means, PBS, June 25, 2012, https://www.pbs.org/wgbh/frontline/article/supreme-court-bans-mandatory-life-terms-for-kids-what-it-means/.

[7] Kristina E. Music Biro, et. al., Life sentence as constituting cruel and unusual punishment—Life without parole for juveniles, 21A Am. Jur. 2d Crim. Law § 878 (2018).

[8] Miller v. Alabama, 567 U.S. 460, 469 (2012) (quoting Roper, 543 U.S. at 560).

[9] Id. (quoting Weems v. United States, 217 U.S. 349, 367 (1910)).

[10] Id. at 471.

[11] Schwartzapfel, supra note 1.

[12] Sara E. Fiorillo, Note, Mitigating after Miller: Legislative Considerations and Remedies for the Future of Juvenile Sentencing, 93 B.U. L. Rev. 2095, 2107 (2013); see, e.g., Ex parte Henderson, 144 So.3d 1262, 1284 (Ala. 2013).

[13] Schwartzapfel, supra note 1.

[14] Supreme Court Rules Against Mandatory Life without Parole for Children, ACLU (June 25, 2012), https://www.aclu.org/news/supreme-court-rules-against-mandatory-life-without-parole-children?redirect=criminal-law-reform/supreme-court-rules-against-mandatory-life-without-parole-children.

[15] Gavett, supra note 6.

[16] 183 So.3d 220, 222 (Ala. 2015).

[17] Id. at 221.

[18] Id. at 230-31.

[19] 136 S.Ct. 718, 724 (2016).

[20] Id. at 723.

[21] Id. (quoting Penry v. Lynaugh, 492 U.S. 302, 330 (1989)).

[22] Id.  at 724 (quoting Schriro v Summerlin, 542 U.S. 348, 352 (2004)).

[23] Id.

[24] Juvenile Life without Parole Sentences in the United States, Juvenile Sentencing Project, Quinnipiac School of Law, https://www.juvenilelwop.org/wp-content/uploads/June%202017%20Snapshot%20of%20JLWOP%20Sentences_01.pdf, June 28, 2017.

[25] Id.

[26] Miller, 567 U.S. at 479-80 (quoting Roper, 543 U.S. at 573).

[27] 50-state examination, Locked Up for Life, Associated Press,  https://www.ap.org/explore/locked-up-for-life/50-states, July 31, 2017.

[28] Alabama grapples with new juvenile sentencing rule, Associated Press, https://www.montgomeryadvertiser.com/story/news/2017/07/31/alabama-grapples-new-sentencing/524455001/, July 31, 2017, 7:56 AM.

[29] State v. Zarate, 2018 Iowa Sup. Lexis 23, *5-6.

[30] Sharon Cohen and Adam Geller, Parole for young lifers inconsistent across US, Associated Press, https://apnews.com/a592b421f7604e2b88a170b5b438235f, July 31, 2017.

[31] Marsha Levick, 5 Years After Miller v. Alabama, Looking to the States for Justice, https://www.huffingtonpost.com/entry/five-years-after-miller-v-alabama-looking-to-the_us_59554ec3e4b0326c0a8d0ec3, 6/29/17, 3:05 PM ET; Miller v. Alabama, 567 U.S. 460, 479 (2012).

KAVANAUGH’S FIRST OPINION: FURTHER SOLDIFYING THE FEDERAL ARBITRATION ACT

Photo Credit: http://altalaw.ca/areas-of-practice/arbitration/

By: Nick Jackson

Associate Editor, American Journal of Trial Advocacy

INTRODUCTION

In January 2019, Brett Kavanaugh, a newly confirmed justice on the Supreme Court of the United States, delivered his first opinion, one that was unanimously confirmed by the Court.[1] In Henry Schein, Inc. v. Archer and White Sales, Inc.,[2] the Court overturned the Fifth Circuit’s interpretation of the Federal Arbitration Act, stating “arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.”[3] In recent years, arbitration agreements have become a controversial aspect of the American legal system.[4] Accordingly, many individuals have brought forth challenges to contest unfavorable arbitration results.[5] One of the most criticized aspects of arbitration deals with forced arbitration agreements.[6] However, the controversial nature of arbitration agreements has failed to limit their use in industries where the use of arbitration is increasing such as the credit card, banking, insurance, and mobile phones services industries.[7]

Recently, the popularity of arbitration has expanded rapidly.[8] This increase in popularity is largely due to “the judiciary’s modern favorable attitude toward enforcement of arbitration clauses.”[9] However, many legal scholars have criticized the role of arbitration in the American legal system by stating, “the Supreme Court [has] engaged in improper judicial activism by misinterpreting the Federal Arbitration Act of 1926 to create a national rule of arbitration clause enforceability that outstripped any reasonable view of the intent of the enacting Congress.”[10] Controversial nature aside, arbitration agreements have seen a great deal of bi-partisan support from both the conservative wing and the liberal wing of the Supreme Court.[11] The bi-partisan support of arbitration agreements was further solidified when the Court unanimously upheld the Federal Arbitration Act in Henry Schein, Inc. v. Archer and White Sales, Inc.[12]

FACTS

Archer & White Sales, Inc., filed a lawsuit against Henry Schein, Inc. alleging antitrust violations and seeking both money damages and injunctive relief.[13] However, both parties had previously agreed to a contract providing for “arbitration of any dispute arising under or related to the agreement, except for, among other things, actions seeking injunctive relief.”[14] At the district level, Schein asked the district court to refer the case to arbitration; however, Archer & White argued that the Federal Arbitration Act did not apply because it sought injunctive relief.[15] The district court agreed, holding that Schein’s argument for arbitration was “wholly groundless.”[16] Accordingly, the district court denied Schein’s motion to compel arbitration and the Fifth Circuit ultimately affirmed.[17]

ANALYSIS

 In deciding Schein, the Court rejected the Fifth Circuit’s “wholly groundless” argument by first recognizing that under the Federal Arbitration Act, arbitration is a contract and, thus, courts must enforce arbitration contracts according to their terms.[18] Accordingly, the Court held the parties to a contract “may agree to have an arbitrator decide not only the merits of a particular dispute, but also ‘gateway questions of arbitrability.’”[19] Thus, “when the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract even if the court thinks that the arbitrability claim is wholly groundless.”[20]

In challenging the Federal Arbitration Act, Archer & White brought forth four separate arguments which the Court rejected.[21] First, Archer & White contended that portions of the Federal Arbitration Act should be interpreted as stating that courts must always resolve questions of arbitrability.[22] However, following prior precedent, the Court rejected this argument.[23] Second, Archer & White contended the Federal Arbitration Act provides for “back-end judicial review” if an arbitrator has exceeded his or her powers; however, Archer & White sought “front-end review” and, thus, the Court denied to “redesign the Act.”[24] Third, Archer & White contended it would be a waste of resources to hire an arbitrator that ignores the Federal Arbitration Act’s ‘wholly groundless” exception; however, the Court held no such exception exists, stating “[t]his Court may not engraft its own exceptions onto the statutory text.”[25] Lastly, the Court rejected Archer & White’s argument that the exception is necessary to “deter frivolous motions to compel arbitration” by stating arbitrators are already capable of efficiently disposing of frivolous cases and that such motions have not caused issues in circuits not recognizing a “wholly groundless” exception.[26]

CONCLUSION

Controversial nature aside, the Court’s ruling in Schein further solidifies the Federal Arbitration Act and its implications. The bi-partisan support of arbitration agreements was further solidified in this unanimous decision and it further demonstrates that arbitration will likely be a major component of the American legal system for years to come.


[1] Adam Liptak, In His First Supreme Court Opinion, Justice Brett Kavanaugh Favors Arbitration, N.Y. Times(Jan. 8, 2019) https://www.nytimes.com/2019/01/08/us/politics/supreme-court-brett-kavanaugh-opinion.html.

[2] 139 S. Ct. 524 (2019).

[3] Schein, 139 S. Ct.at 526.

[4] See Gregg Bertram, Employment Arbitration: Controversy Unleashed, Pac. ADR Consulting (June, 6, 2018) http://www.pacificadrconsulting.com/employment-arbitration-controversy-unleashed/ (“It is no secret that arbitration has in general become a controversial alternative dispute resolution (ADR) process.”).

[5] Id.

[6] Id.

[7] Jason Cheung, Business use of Arbitration Clauses, LegalMatch (May, 2, 2018) https://www.legalmatch.com/law-library/article/business-use-of-arbitration-clauses.html?formVariant=1.

[8] Symposium, Keeping Arbitrations from Becoming Kangaroo Courts, 8 Nev. L. J. 251, 251 (2007).

[9] Id.

[10] Id.

[11] Stephen J. Ware, The Centrist Case for Enforcing Adhesive Arbitration Agreements, 23 Harv. Negot. L. Rev. 29, 32 (2017).

[12] 139 S. Ct. 524 (2019).

[13] Schein, 139 S. Ct. at 526.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Schein, 139 S. Ct. at 526. (internal quotations omitted).

[20] Id.

[21] Id.

[22] Id.

[23] Id.; First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).

[24] Id.

[25] Schein, 139 S. Ct. at 526.

[26] Id.

Past Posting: New Jersey’s Gamble to End the Professional and Amateur Sports Protection Act

Photo Credit: https://www.goodsportsbooks.com/horse-racing-faq-betting-on-horses-qa/

By: Hunter Hamm, Research and Writing Editor

On May 14, 2018, the United States Supreme Court legalized gambling on individual sporting events. Sports betting is a common form of gambling in the United States, and illegal sports betting is currently estimated to range from $100-$200 billion per year.[1] Traditionally, sports gambling has faced strong opposition in America.[2] Since the nineteenth century, gambling was largely made illegal.[3] Opponents of the practice parallel the introduction of sports betting to that of gateway drugs, introducing “young people with a strong interest in sports” to other types of gambling.[4] Moreover, past corruption created from sports betting has seriously damaged the legacy of professional sports.[5]

Historical Background

Though restrictions on sports betting have gradually loosened, it seemed as if sports betting would be a legalized form of gambling in the United States during the 1990’s.[6] As fear of the growing consensus developed among several federal and state legislatures, they began to take measures to curb the spread of sports betting.[7] One such measure was the Professional and Amateur Sports Protection Act (PAPSA). Ironically, it was a former college and professional basketball player, Senator Bill Bradley of New Jersey, who lead the passage of the Act.[8] Senator Bradley continually “stressed that the law was needed to safeguard the integrity of sports.[9]

PAPSA’s primary constitutional issue was that it prohibited the States from endorsing or “‘authoriz[ing] by law . . . betting . . . on’ competitive sporting events.”[10] However, PAPSA itself did not make sports gambling a federal crime.[11] It allowed the Attorney General and sports organizations to enjoin proposed laws through civil action.[12] When Congress passed PAPSA, the Act allowed several states to continue the practice for a number of years.[13] The Act provided specific exceptions for Nevada casinos, and it had grandfather provisions for sports lotteries or sports pools in three other states.[14] PAPSA also gave New Jersey a one-year window after the passage of the Act to legalize sports gambling “‘in a municipality’ with an uninterrupted 10–year history of legal casino gaming.”[15] As many can guess, the only municipality this could refer to was Atlantic City.[16] The state, however, did not act within this restrictive time-frame, and a decade later the legislature decided to amend its constitution, officially authorizing sports gambling.[17]

Soon after the New Jersey legalized sports betting, many major professional sports leagues brought action in federal court to enjoin the new legislation.[18] Upon learning that there would be a partial repeal of its constitutional amendment, New Jersey enacted the legislation in 2014 that brought this sports betting case to the Supreme Court.[19] The law artfully expressed that the law was not intended to authorize sports betting, which was banned under PAPSA.[20] Instead, it sought to repeal former New Jersey laws that expressly prohibited it.[21] The law was only effective “as to wagers on sporting events not involving a New Jersey college team or a collegiate event taking place in the State.”[22] Additionally, the new law specifically repealed state laws prohibiting sports betting concerning the “placement and acceptance of wagers on sporting events by persons twenty-one years of age or older at a horseracing track or a casino or gambling house in Atlantic City.”[23]

The Case for Sports Betting

The issue decided before the Supreme Court in Justice Alito’s majority opinion was that of the Constitutional concept of dual sovereignty.[24] The petitioners (including the State of New Jersey) argued that PAPSA’s “anti-authorization provision requir[ed] States to maintain their existing laws against sports gambling,” and “any state law . . . permitting sports gambling, including a law totally or partially repealing a prior prohibition [established before PAPSA], amounts to an authorization.”[25] This was a very broad interpretation of the effect of PAPSA. The respondents (including the National Collegiate Athletic Association), however, suggested that for a state to be in violation of the Act, the authorization of sports betting must be narrowly constricted to be “an affirmative action.”[26] Specifically, they alleged that New Jersey had “empower[ed] a defined group of entities, and it endow[ed] them with the authority to conduct sports gambling operations.”[27]

Any order from Congress compelling or coercing the governments of the States to act would be a commandeering of the States’ governments, which is prohibited under the Constitution and Anglo-American case law.[28] The anti-commandeering doctrine “withhold[s] from Congress the power to issue orders directly to the States.”[29] After the states declared their independence, they retained their individual sovereignty.[30] With the passage of the Constitution, the “residuary and inviolable sovereignty” of the States was limited, but it was not abolished.[31] Instead, the federal government and the States are dually sovereign, hence establishing the concept of dual sovereignty.[32] Article VI, clause 2 of the Constitution has made federal law the “Supreme Law of the Land,” effectively allowing federal law to preempt contrary state law.[33] As a check to the preemption of state law, Congress is to act according to the enumerated powers granted in the Constitution, and the States reserve all other legislative power.[34]

The Supreme Court concluded that PAPSA effectively placed state legislatures under the direct control of Congress, contravening the principles set forth by New York v. United States[35] and violating the anti-commandeering doctrine.[36] Analogizing the passage of the Act to an armed takeover of the state legislatures, the majority deemed this Act to be utterly averse to the ideals of dual sovereignty.[37]

The Court reasoned that for PAPSA to preempt state law, (1) “it must represent the exercise of a power conferred on Congress by the Constitution,” and (2) “the PAPSA provision at issue must be best read as one that regulates private actors.”[38] Because the respondents (1) merely “point[ed] to the Supremacy Clause” to justify the Act and (2) PAPSA attempted to regulate the States instead of private actors, PAPSA effectively commandeered the state governments.[39] The respondents’ arguments failed to satisfy the preemption test and therefore violated the principles of the anti-commandeering doctrine.[40] Moreover, because the respondents failed to persuade the Court to uphold any provision of the Act, the Court decided to strike down PAPSA in its entirety.[41]

It is important to note, however, that Congress is still able to regulate sports betting. In reversing the Third Circuit’s holding that the New Jersey law was in violation of PAPSA, the Court noted that “Congress can regulate sports gambling directly, but if it elects not do so, each State is free to act on its own.”[42] While the majority took issue with the PAPSA’s infringement of the Constitutional principles of dual sovereignty, Justice Ginsburg stated in her dissent that Congress still maintains the power to regulate gambling nationwide.[43] Justice Ginsburg believes that it was Congress’s intent to “exercise its authority to regulate commerce by instructing States and private parties to refrain from operating sport’s gambling schemes.”[44] If the majority were to have deleted the alleged commandeering directions, PAPSA would have fulfilled Congress’s goal to “stop[] sport-gambling regimes while making it clear that the stoppage is attributable to federal, not state, action.”[45]

Moving Forward

Since Murphy, over a dozen states have attempted to legalize sports betting.[46] Some professional sports leagues believe that they should receive a cut of the money gambled.[47] “All the pro sports leagues, including the PGA Tour and the NCAA, have been involved.”[48] Dan Spillane, the senior vice president of the NBA and assistant general counsel, recently met with the New York Senate’s Racing, Gaming and Wagering Committee to establish a statutory framework for legalized sports-gambling. [49] Spillane’s concept of the “ideal gambling environment” is one in which the NBA and other professional sports leagues would receive compensation for the commercial value that betting creates and for its associated risks.[50] It is estimated that the leagues can earn up to $2 billion annually from such compensation, which gambling operators are loath to lose.[51] Spillane suggests that the money will be used to invest in compliance and enforcement; however, detractors are deeply opposed to this investment labeling it as a mere “integrity fee.”[52] The NBA disputes the oppositions to integrity fees, claiming that “a larger legal market would create a better margin for casinos.”[53] In the end no matter the how much regulation sports betting will inevitably incur, everyone is going to want a share of the profits. So as for now, it appears that only time will uncover the effects of legalized sports betting in the United States.


[1] Potential for Sports Betting in N.Y. State: Pub. Hearing Before the N.Y. State S. Standing Comm. on Racing, Gaming and Wagering, 2017-2018 Leg. Sess. (N.Y. 2018) (statement of Dan Spillane, Senior Vice President and Assistant General Counsel of the National Basketball Association).

[2] Murphy v. Nat’l Collegiate Athletic Ass’n, 138 S. Ct. 1461, 1469 (2018).

[3] Id. at 1469-70.

[4] Id. at 1469 (citing Sen. Bill Bradley, The Professional and Amateur Sports Protection Act-Policy Concerns Behind Senate Bill 474, 2 Seton Hall J. Sport L. 5, 7 (1992) (“Legalized sports betting would teach young people how to gamble. This, in turn, would lead these children to illegal gambling once they discover that the odds and pay-offs are better.”)).

[5] E.g., id. at 1469-70 & n.17 (“[I]n 1919, professional gamblers are said to have paid members of the Chicago White Sox to throw the World Series, an episode that was thought to have threatened baseball’s status as the Nation’s pastime.”).

[6] Murphy, 138 S. Ct. at 1469-70.

[7] Id. at 1470.

[8] Id.

[9] Id.

[10] Id.

[11] Id. at 1470.

[12] Murphy, 138 S. Ct. 1461 (2018), at 140-71.

[13] Id. at 1471.

[14] Id.; Debra Weiss, Supreme Court strikes down federal law that bans sports betting, ABA Journal (May 14, 2018), http://www.abajournal.com/news/article/supreme_court_strikes_down_federal_law_that_bans_sports_betting.

[15] Murphy, 138 S. Ct. at 1471 n.27 (quotations omitted).

[16] Id.

[17] Weiss, supra note 14.

[18] Murphy, 138 S. Ct. at 1471.

[19] Id. at 1472.

[20] Id.

[21] Id.

[22] Id.

[23] Id.

[24] Murphy, 138 S. Ct. at 1468.

[25] Id. at 1473.

[26] Id.

[27] Id.

[28] See Printz v. United States, 521 U.S. 898, 935 (1997) (“The Federal Government may neither issue directives requiring the States to address particular problems, nor command the States’ officers, or those of their political subdivisions, to administer or enforce a federal regulatory program.”); New York v. United States, 505 U.S. 144, 156 (1992) (“If a power is delegated to Congress in the Constitution, the Tenth Amendment expressly disclaims any reservation of that power to the States; if a power is an attribute of state sovereignty reserved by the Tenth Amendment, it is necessarily a power the Constitution has not conferred on Congress.”).

[29] Murphy, 138 S. Ct. at 1475.

[30] Id.

[31] Id.

[32] Id. (citing Gregory v. Ashcroft, 501 U.S. 452, 457 (1991)).

[33] Id.; see U.S. Const. art. VI, cl. 2 (“This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”)

[34] Murphy, 138 S. Ct. at 1476; see U.S. Const. amend. X (“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”).

[35] 505 U.S. 144, 156 (1992).

[36] Murphy, 138 S. Ct. at 1477; see New York, 505 U.S. at 166-68 (noting that Congress may encourage or withhold incentives from the states through the spending power and the Commerce Clause, but it may not “compel[] States to regulate.”).

[37] Id. at 1478 (“It is as if federal officers were installed in state legislative chambers and were armed with the authority to stop legislatures from voting on any offending proposals.”).

[38] Id. at 1479.

[39] Id.

[40] Id. at 1481.

[41] Id. at 1484.

[42] Murphy, 138 S. Ct. at 1484-85.

[43] See id. at 1489 (Ginsburg, J., dissenting) (“Our case law firmly establishes Congress’ power to regulate purely local activities that are part of an economic ‘class of activities’ that have a substantial effect on interstate commerce.” (quoting Gonzales v. Raich, 545 U.S. 1, 17 (2005)).

[44] Id.

[45] Id.

[46] See, e.g., Ryan Rodenberg, How close is my state to legalizing sports betting? ESPN (May 14, 2018) http://www.espn.com/chalk/story/_/id/22516292/gambling-ranking-every-us-state-current-position-legalizing-sports-betting (discussing the potential for certain states to initiate legislation allowing for sports betting).

[47] Potential for Sports Betting in N.Y. State: Pub. Hearing Before the N.Y. State S. Standing Comm. on Racing, Gaming and Wagering, 2017-2018 Leg. Sess. (N.Y. 2018) (statement of Dan Spillane, Senior Vice President and Assistant General Counsel of the National Basketball Association); Matt Bonesteel, If sports gambling is legalized, the NBA wants in on the profits, Washington Post (January 25, 2018), https://www.washingtonpost.com/news/early-lead/wp/2018/01/25/if-sports-gambling-is-legalized-the-nba-wants-in-on-the-profits/?utm_term=.b4812d5a75dc.

[48] Brian Windhorst, How the NBA, MLB are lobbying states to cash in on sports betting, ESPN (May 14, 2018), http://www.espn.com/nba/story/_/id/22847790/nba-mlb-preparing-profit-supreme-court-ruling-new-jersey-gambling-case.

[49] Matt Bonesteel, Sports gambling ‘integrity fee’ supporters are not doing themselves any favors, Washington Post (May 22, 2018), https://www.washingtonpost.com/news/early-lead/wp/2018/05/22/sports-gambling-integrity-fee-supporters-are-not-doing-themselves-any-favors/?noredirect=on&utm_term=.f2c08c759f32.

[50] Potential for Sports Betting in N.Y. State: Pub. Hearing Before the N.Y. State S. Standing Comm. on Racing, Gaming and Wagering, 2017-2018 Leg. Sess. (N.Y. 2018) (statement of Dan Spillane, Senior Vice President and Assistant General Counsel of the National Basketball Association); Bonesteel, supra note 47.

[51] See Bonesteel, supra note 47 (“That fee would be a massive financial windfall for the leagues, with one estimate by a gaming research firm pegging annual revenue at a collective $ 2billion should states with legalized gambling agree to compensate the leagues.”).

[52] See, e.g., Bonesteel, supra note 49; Windhorst, supra note 48.

[53] Windhorst, supra note 48.