Skip to main content

Continuing a discussion of the Supreme Court's term

Insider Trading: Big-mouth Bankers and Remote Tippees

As promised, I'll write today of some of SCOTUS' wrestling this term with issues of statutory construction.

In the realm of Labor Law, this was the term of Encino Motorcars v. Navarro, a case that turns on the meaning of an exemption from the Fair Labor Standards Act. This is important, even though the specific category of worker involved may not include very many people, because the New Deal era legislation continues to provide a classification system in a dynamic world of work.

The relevant requirement of the FLSA is that which requires overtime pay  for workers who don't fall within exemptions., and that exempts "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles trucks, or farm implements...." if employed by a dealership primarily engaged in selling said autos or implements.

The specific problem is that auto dealers including the petitioner Encino nowadays employ so-called "service advisors."  As the term implies, these employees consult with customers on service arrangements, trying to keep the customers' coming back regularly to the same shop through the life of the car. The service department, after all, is a big revenue center for most dealerships.

Service advisors don't fit literally into the language quoted above. They are neither salesmen nor partsmen nor mechanics.  But they do seem to fit the spirit of them -- they do much the same work and with pay arrangements quite analogous to those of the exempt salesmen. There was a 1973 decision by a circuit court that treated service advisors as statutory salesmen, and since then the treatment of them as such has been routine.

The petitioners claim that the 9th Circuit decision in this litigation, which broadens the scope of the OT mandate by reading the exemption narrowly, would work an injustice by resulting in large unanticipated liabilities for the country's auto dealerships.


On June 20, Monday, the Court issued an opinion, in which it seemed to be willing to say only that the 9th Circuit had failed to explain itself well, and had relied upon Chevron deference to the Department of Labor. SCOTUS says Chevron does not apply, and it remands so the 9th circuit so  it can "interpret the statute in the first instance." So nothing is really settled about how the statute should be read.

Kennedy wrote the opinion for the court, split 6 to 2.

Ginsburg concurred, writing for herself and Sotomayor. Apparently, they simply wanted to emphasize that if the Department of Labor wants to persuade the federal courts that the statute mandates overtime for these workers, it has to try harder than it did in this case. "We're hoping you do a better job next time, D of L" is the subtext.

Thomas, dissented, joined by Alito. Actually, though this is called a dissent, it is at least as much as a concurrence. Nobody on the court was ready to uphold the 9th Circuit. Thomas was dissenting from the opinion's caution, from its willingness to give the case for mandatory overtime pay another shot in the appellate court.

Another Statute

In intellectual property law, this session will be remembered for Cuozzo Speed Technologies v. Lee, an opinion on the proper interpretation of the America Invests Act (AIA).  Should the patent board construe the claims in an issued patent according to their broadest reasonable interpretation [BRI] or according to their "plain and ordinary meaning [POM]"? This may not sound to a layperson like a huge deal, but to patent attorneys it evidently is.

The patent in question is for a speedometer that shows a driver when he is exceeding the speed limit. It involves a connection to a GPS receiver, and a chip that is programmed with the speed limit of all the nation's roads.

Claim construction is a part of the post-grant review that the AIA authorizes. A party trying to invalidate a patent goes before the Patent Trial and Appeal Board within the Patent and Trademark Office to press these administrative appeals, known as "inter pares review."

This IPR is a much more daunting prospect for a patent holder under the BRI standard than under the POM standard, because under the former they are more likely to be found to have infringed upon the domain of some prior patent, and for that reason to have their patent invalidated.


This case, like Encino, was decided in an opinion issued Monday, June 20th.

The court, speaking through Justice Breyer, came down on the side of the BRI standard rather than POM. It is not unfair to the patent holder, apparently simply because it seems reasonable to the court to think that Congress has burdened the patent holder, formerly known as the patent applicant, with a duty of clarity with respect to the width of the claim.

In this instance, the court does believe that Chevron applies and it is deferring to the Patent Office's own rule-making as the dispositive interpretation of the statutory language. So Chevron deference, although the court seems to be pulling back on it of late, is still with us. Conceivably the Justices released the two cases on the same day in order to make this point, that it is neither pro nor anti Chevron, simply selective about its invocation.

Insider Trading

Finally, in the domain of insider trading law, the next session may be remembered for Salman v. United States, because in this one the Court granted cert.

This case arose via a Citigroup investment banker with a big mouth. The banker talked to his brother about a pending acquisition, and the brother in turn blabbed about this to the defendant, Bassam Yacoub Salman.

The banker (Maher Kara) doesn’t seem to have received much of a benefit – certainly no such suitcase of cash as the bad guys receive in Wall Street themed movies. He has testified that his brother had become a pest, and stopped being such a pest once he, Maher, had told him, Michael Kara, about a pending acquisition. The brothers both cut deals with the government and testified against Salman.

The arbitrariness with which the govt sometimes focuses on the tipper as the Big Bad Wolf and sometimes on the tippee fascinates me. In this case, the government cut a deal with tippers to go after the tippee; in other cases it has done the reverse.

Salman, convicted in the trial court in April 2014, sentenced to three years, appealed, arguing to the  Ninth Circuit that an insider tip to a non-insider can be the predicate of an insider trading charge against the non-insider (or even the next non-insider link on the chain of tipper-tippees) if and only if the original tipper received a personal benefit from making the disclosure.

The circuit court rejected Salman's argument. As to what the Justices think: we will find out next year.

Well before then, indeed on Thursday, I'll pursue this discussion of the court's 2016 term with a few words on the constitutional cases decided on the merits.


  1. This comment has been removed by a blog administrator.


Post a Comment

Popular posts from this blog

England as a Raft?

In a lecture delivered in 1880, William James asked rhetorically, "Would England ... be the drifting raft she is now in European affairs if a Frederic the Great had inherited her throne instead of a Victoria, and if Messrs Bentham, Mill, Cobden, and Bright had all been born in Prussia?"

Beneath that, in a collection of such lectures later published under James' direction, was placed the footnote, "The reader will remember when this was written."

The suggestion of the bit about Bentham, Mill, etc. is that the utilitarians as a school helped render England ineffective as a European power, a drifting raft.

The footnote was added in 1897. So either James is suggesting that the baleful influence of Bentham, Mill etc wore off in the meantime or that he had over-estimated it.

Let's unpack this a bit.  What was happening in the period before 1880 that made England seem a drifting raft in European affairs, to a friendly though foreign observer (to the older brother…

Cancer Breakthrough

Hopeful news in recent days about an old and dear desideratum: a cure for cancer. Or at least for a cancer, and a nasty one at that.

The news comes about because investors in GlaxoSmithKline are greedy for profits, and has already inspired a bit of deregulation to boot. 

The FDA has paved the road for a speedy review of a new BCMA drug for multiple myeloma, essentially cancer of the bone marrow. This means that the US govt has removed some of the hurdles that would otherwise (by decision of the same govt) face a company trying to proceed with these trials expeditiously. 

This has been done because the Phase I clinical trial results have been very promising. The report I've seen indicates that details of these results will be shared with the world on Dec. 11 at the annual meeting of the American Society of Hematology. 

The European Medicines Agency has also given priority treatment to the drug in question. 

GSK's website identifies the drug at issue as "GSK2857916," althou…

Francesco Orsi

I thought briefly that I had found a contemporary philosopher whose views on ethics and meta-ethics checked all four key boxes. An ally all down the line.

The four, as regular readers of this blog may remember, are: cognitivism, intuitionism, consequentialism, pluralism. These represent the views that, respectively: some ethical judgments constitute knowledge; one important source for this knowledge consists of quasi-sensory non-inferential primary recognitions ("intuitions"); the right is logically dependent upon the good; and there exists an irreducible plurality of good.

Francesco Orsi seemed to believe all of these propositions. Here's his website and a link to one relevant paper:

What was better: Orsi is a young man. Born in 1980. A damned child! Has no memories of the age of disco!

So I emailed him asking if I was right that he believed all of those things. His answer: three out of …