Corporate Accountability

Justices Plot Middle Course on Business

By Brent Kendall

The Supreme Court showed there are limits to the business-friendly reputation it has earned under Chief Justice John Roberts, with the term that ended Monday marked by rulings favoring the middle ground on big issues from securities fraud to environmental regulations.

“There’s been this notion that the court is always going to side with businesses, but the court calls it like it sees it,” said Theodore Boutrous of Gibson, Dunn & Crutcher LLP. “Overall, the court really in multiple respects took smaller steps than in other recent terms. There were fewer sweeping decisions.”

In one of the final decisions of the term on Monday, the justices offered support for business in limited circumstances, ruling that Hobby Lobby Stores Inc. and other closely held firms can cite religious grounds to opt out of a federal health-care law requirement that companies provide contraception coverage to employees.

This term’s business rulings came a year after companies scored several significant victories, including in rulings that made it easier to defeat several types of class-action lawsuits.

In one of the key business rulings of this term, Chief Justice Roberts wrote the court’s opinion in a case involving Halliburton Co. [HAL -0.16%], leaving in place a 26-year legal precedent giving investors the ability to claim damages in securities lawsuits that companies have battled against for decades. That precedent is a cornerstone for investors who file class-action lawsuits alleging companies committed securities fraud.

Corporations had hoped the court would use the case to send many investor class actions to the sidelines. The justices instead bolstered the ability of companies to short-circuit securities lawsuits at early stages, before trial, with six of the court’s nine justices voting against making major changes in the law.

Another of the court’s conservatives, Justice Antonin Scalia, wrote the court’s opinion in a closely watched greenhouse gas case that gave business challengers only some of the relief they sought from an Environmental Protection Agency permit requirement aimed at reducing carbon emissions.

The court ruled the EPA wrongly claimed the power to use a clean-air program to regulate greenhouse gases from smaller emitters like shopping malls and apartment buildings. But the court did allow the EPA to require large emitters like power plants to adopt emissions controls when upgrading their facilities. The court declined to consider broader attacks on the EPA’s authority to regulate greenhouse gases.

Other notable wins for business groups include a ruling for Daimler AG that made it harder to sue foreign corporations in U.S. courts over events that happened abroad, and a decision that invalidated President Barack Obama‘s recess appointments to the National Labor Relations Board. The court, however, avoided a sweeping ruling against the scope of the president’s power to make temporary appointments when the Senate isn’t in session.

“This term has to disprove the myth that the Supreme Court is reflexively pro-business,” said Thomas Goldstein of law firm Goldstein & Russell. While there were “bright spots” for business groups, they didn’t prevail on the biggest legal questions before the court, said Mr. Goldstein, publisher of SCOTUSblog, a blog about the high court.

Neal Katyal, a lawyer with Hogan Lovells and a former acting solicitor general in the Obama administration, said the court’s holdings had a narrower reach across topics on its docket in the 2013-2014 term. “The result was that when businesses, or anyone else, came in and asked for a lot, they didn’t get it,” Mr. Katyal said.

In some cases, business advocates were on the losing end altogether.

The court’s other major environmental ruling of the year revived an EPA program designed to limit power-plant emissions blowing across state lines. Utilities fought the regulations as costly regulatory overreach, but the court said the agency’s approach was fine.

The court’s 6-2 ruling for the EPA could affect about 1,000 power plants that may have to add new pollution controls or scale back operations.

In a case involving the Sarbanes-Oxley corporate governance law, the court in a 6-3 decision favored broad protections for whistleblowers that report fraud. The court said the protections apply to private contractors that serve publicly traded companies and mutual funds. Business advocates had expressed concern such an approach could expose smaller businesses to costly litigation.

Other closely watched matters on the court’s business docket were disputes between businesses, instead of companies battling government agencies or plaintiffs’ lawyers.

In the highest profile of those cases, the court handed the nation’s broadcasters a big win over online startup Aereo Inc. The court’s 6-3 ruling said Aereo’s video streaming service violated the broadcasters’ copyrights, a decision that had the effect of preserving important revenue streams for the networks and caused Aereo to suspend its operations.

Seeking to address concerns raised by software makers and others, the court said its ruling wasn’t intended to discourage the use of newer technologies like cloud computing.

In another business battle, the court used a fight over pomegranate juice to give companies room to sue their competitors over claims of misleading food and beverage marketing. The unanimous ruling allowed pomegranate juice maker Pom Wonderful LLC to proceed with a false advertising lawsuit against Coca-Cola Co., which marketed a Minute Maid “pomegranate blueberry flavored” juice that contained minuscule amounts of pomegranate or blueberry.

The justices said government regulations on juice labeling don’t stand in the way of legal claims like Pom’s.

The court also made clear that it is paying close attention to patent litigation.

The justices took up six patent cases this term and reined in expansive rights for patent holders. One decision, by Justice Clarence Thomas, could give companies new ammunition to challenge weak software patents held by other firms.

All of the court’s patent rulings were unanimous.

Lily Claffee, general counsel of the U.S. Chamber of Commerce, said the organization, which is active in filing briefs in Supreme Court cases, held its ground this term.

“The court relied on established principles to reject the plaintiffs bar’s attempt to expand liability, and the regulatory agencies’ efforts to push the bounds of executive power,” she said.

The Constitutional Accountability Center, a liberal group that has been critical of the court’s pro-business rulings, said corporations again fared well, even if they didn’t get everything they wanted. 

The Chamber of Commerce was on the winning side in most of the cases in which it was involved, said Tom Donnelly, a lawyer with the center.

“The court continued to move the law in a business-friendly direction,” Mr. Donnelly said.