NRA v. Vullo - Unanimous Supreme Court rules government may not engage in "lawfare" against free speech, limiting the expression of opinions by a political organization by deliberating interfering with its relations with other companies or organization

The United States Supreme Court has recently issued one of the most important First Amendment cases in the last decade. (See National Rifle Association v. Vullo (May 30, 2024) no. 22-842).  In this unanimous decision, issued a mere 73 days after it was argued, the United States Supreme Court affirmed a state government may not seek to block the expression of opinions by a political organization by deliberating interfering with its relations with other companies or organizations.  Your author terms this sort of conduct "lawfare" and it is readily-apparent the current regime in the State of New York will do almost anything to silence its political opponents.

When one imagines the legitimate role of a sovereign state, one does not imagine attempting to silence political views the Governor and Attorney General find repugnant, which political views cannot be banned outright due to those pesky restrictions found in the Bill of Rights.  Nonetheless, as Justice Sotomayer cogently explained at pages three to five, the NRA alleged the State of New York did exactly that:

Around that time, [the former superintendent of the New York Department of Finan- cial Services, or NFS] Vullo also began to meet with executives at the insurance companies doing business with the NRA. On February 27, Vullo met with senior executives at Lloyd’s. There, speaking on behalf of DFS and then-Governor Andrew Cuomo, Vullo “presented [their] views on gun control and their desire to leverage their powers to combat the availability of firearms, including specifically by weakening the NRA.” Id., at 221, ¶67. She also “discussed an array of technical regulatory infractions plaguing the affinity-insurance marketplace” in New York. Id., at 199, ¶21. Vullo told the Lloyd’s executives “that DFS was less interested in pursuing the[se] infractions” unrelated to any NRA business “so long as Lloyd’s ceased providing insurance to gun groups, especially the NRA.” Id., at 199–200, ¶21; accord, id., at 223, ¶69 (alleging that Vullo made it clear to Lloyd’s that it “could avoid liability for infractions relating to other, similarly situated insurance policies, so long as it aided DFS’s campaign against gun groups”).1 Vullo and Lloyd’s struck a deal: Lloyd’s “would instruct its syndicates to cease underwriting firearm-related policies and would scale back its NRA-related business,” and “in exchange, DFS would focus its forthcoming affinity-insurance enforcement action solely on those syndicates which served the NRA, and ignore other syndicates writing similar policies.” Ibid., ¶69.

On April 19, 2018, Vullo issued two virtually identical guidance letters on DFS letterhead entitled, “Guidance on Risk Management Relating to the NRA and Similar Gun Promotion Organizations.” Id., at 246–251 (Guidance Letters). Vullo sent one of the letters to insurance companies and the other to financial services institutions. In the letters, Vullo pointed to the “social backlash” against the NRA and other groups “that promote guns that lead to senseless violence” following “several recent horrific shootings, including in Parkland, Florida.” Id., at 246, 249. Vullo then cited recent instances of businesses severing their ties with the NRA as examples of companies “fulfilling their corporate social responsibility.” Id., at 247, 250. 

In the Guidance Letters’ final paragraph, Vullo “encourage[d]” DFS-regulated entities to: (1) “continue evaluating and managing their risks, including reputational risks, that may arise from their dealings with the NRA or similar gun promotion organizations”; (2) “review any relationships they have with the NRA or similar gun promotion organzations”; and (3) “take prompt actions to manag[e] these risks and promote public health and safety.” Id., at 248, 251.2

The same day that DFS issued the Guidance Letters, Vullo and Governor Cuomo issued a joint press release that echoed many of the letters’ statements. The press release included a quote from Vullo “ ‘urg[ing] all insurance companies and banks doing business in New York’” to join those “‘that have already discontinued their arrangements with the NRA.’ ” Id., at 244. The press release cited Chubb’s decision to stop underwriting Carry Guard as an example to emulate. The next day, Cuomo tweeted: “‘The NRA is an extremist organization. I urge companies in New York State to revisit any ties they have to the NRA and consider their reputations, and responsibility to the public.’ ” Id., at 213, Complaint ¶51.

The State of New York therefore targetd "affinity products" in the insurance marketplace and therefore sought to discourage these businesses from doing lawful business with the NRA in order to "weaken" it.  

The NRA sued Vullo in Federal District court.  While the case survived a motion to dismiss in District Court, it did not survive a review of this ruling in the Second Circuit, which held the NRA could not state a First Amendment claim.  

With the assistance of the American Civil Liberties Union, the NRA sought and was granted certiorari by the United States Supreme Court, which found the alleged coercion of other entities, if proven, violates the First Amendment rights of the NRA. Specifically, while Vullo could criticize the NRA, she "could not wield her power, however, to threaten enforcement actions against DFS-regulated entities in order to punish or suppress the NRA’s gun-promotion advocacy." (Id., p. 8.)

As the unanimous court stated clearly, a governmnent official may not use their power to do something indirectly that they may not do directly; namely, punish an entity that does not disassociate itself from a political opponent whose advocacy offends those in power:

To state a claim that the government violated the First Amendment through coercion of a third party, a plaintiff must plausibly allege conduct that, viewed in context, could be reasonably understood to convey a threat of adverse government action in order to punish or suppress the plaintiff ’s speech. See 372 U. S., at 67–68. Accepting the well-pleaded factual allegations in the complaint as true, the NRA plausibly alleged that Vullo violated the First Amendment by coercing DFS-regulated entities into disassociating with the NRA in order to punish or suppress the NRA’s gun-promotion advocacy.

Consider first Vullo’s authority, which serves as a backdrop to the NRA’s allegations of coercion. The power that a government official wields, while certainly not dispositive, is relevant to the objective inquiry of whether a reasonable person would perceive the official’s communication as coercive. See id., at 66–67. Generally speaking, the greater and more direct the government official’s authority, the less likely a person will feel free to disregard a directive from the official. For example, imagine a local affinity group in New York that receives a strongly worded letter. One would reasonably expect that organization to react differently if the letter came from, say, the U. S. Attorney for the Southern District of New York than if it came from an out-of-state school board.

As DFS superintendent, Vullo had direct regulatory and enforcement authority over all insurance companies and financial service institutions doing business in New York. See N. Y. Fin. Servs. Law Ann. §§202, 301. Just like the commission in Bantam Books, Vullo could initiate investigations and refer cases for prosecution. Indeed, she could do much more than that. Vullo also had the power to notice civil charges and, as this case shows, enter into consent decrees that impose significant monetary penalties. (Id., pp. 12-13.)

The suit will therefore be remanded to the United States District Court for the Northern District of New York for further proceedings.

Concurrences

Justice Brown Jackson wrote separately to stress her view that while governmental coercion can implicate the First Amendment, such coercion is not always tantamount to a violation of freedom of speech and other First Amendment rights and that one must analyze whether the coercion does in fact violate a party's right to freedom of speech.  

Justice Gorsuch also wrote separately and posited that while the majority opinions provided "guideposts," there may indeed be a violation of the First Amendment whether or not any guideposts are found.  In other words, the ultimate test is whether the offending action "could be reasonably understood to convey a threat of adverse government action in order to punish or suppress the plaintiff's speech.” (Id., p. 25.)

Analysis 

It is difficult to imagine how Judges Pooler, Chin, and Carney of the Second Circuit could have come to a more wrong decision.  Indeed, the Solicitor General of the United States (a Biden appointee, no less) filed an amicus brief in support of vacating the Second Circuit's opinion. The ease with which Vullo was apparently able to intimidate a sophisticated nationwide entity such as Chubb into terminating a program providing liability insurance to gun owners, a result that no reasonable person could argue would be beneficial to victims of gun violence, is also disheartening.

There should be no doubt, then, that the actions of New York's government, currently led by Governor Kathy Hochel (who could have put a stop to this anti-liberty nonsense by settling this action) were both unconstitutional and blatantly authoritarian.  So much so, in fact, that this should cause grave concern for anyone who lives in, does business with, or even visits New York.  One can imagine such Stalinist abusive tactics being used against, for example, the Sierra Club if they were to lobby against fracking or oil drilling and another state government were to find these actions against the interests of its citizens.  It would be equally odious if such a government would press banks and other financial institutions to cease doing business with the Sierra Club notwithstanding the fact their actions are protected activity under the First Amendment.

Finally, the fact a decision was issued in a timely fashion in a case of such import indicates the Court can move quickly where the outcome is determined by settled Constitutional principles.  It is sad to say that this is not always the case, as the Court often appears to be bogged down by dissenting opinions in cases decided by the vote of one or two justices where the dissenting justices, for want of a better word, simply refuse to acknowledge the clear language of our nation's founding document.

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Short take-away: PAGA action cannot be dismissed solely on manageability grounds

 

Short take-away:  Trial courts do not have inherent power to strike PAGA claims because they are supposedly "unmanageable"

The California Supreme Court has resolved a split of authority between appellate districts as to whether a trial court has inherent power to strike a Private Attorney General Act claim on grounds it is not manageable. (Estrada v. Royal Carpet Mills (January 18, 2024) S274340.)   Such PAGA claims are made under the "Labor Code Private Attorneys General Act of 2004," found at Labor Code section 2698, et seq.

Plaintiff Estrada filed suit, asserting Royalty violated Labor Code provisions requiring that it provide required break and rest periods, as well as seeking PAGA penalties for these Labor Code violations.  Plaintiff filed amended complaints realleging the individual claims as a class action.  The trial judge, the Hon. Randall J. Sherman, of the Orange County Superior Cout, held a bench trial as to the issue of individual vis a vis class claims and, though a class had already been certified, issued an order decertifying the class due to inconsistent individual claims, dismissing the PAGA claim, and entering a judgment of dismissal.

The Fourth District, Division Three, reversed the trial court and the Supreme Court granted review.  Chief Justice Guerrero wrote for a unanimous court and explained:

We now conclude that trial courts lack inherent authority to strike PAGA claims on manageability grounds. In reaching this conclusion, we emphasize that trial courts do not generally possess a broad inherent authority to dismiss claims. Nor is it appropriate for trial courts to strike PAGA claims by employing class action manageability requirements. And, while trial courts may use a vast variety of tools to efficiently manage PAGA claims, given the structure and purpose of PAGA, striking such claims due to manageability concerns — even if those claims are complex or time-intensive — is not among the tools trial courts possess. (Id., p. 2; footnote omitted.)

The Supreme Court explained that while trial courts do have inherent authority to establish procedures where no procedure exists, this does not extend to a broad power to dismiss claims.  Estrada  thus quoted from Weiss v. People ex rel. Dept. of Transportation (2020) 9 Cal. 5th 840, at 865, on this point:

While "[t]here may be cases in which the use of a nonstatutory motion procedure to dismiss a cause of action before trial is called for, . . . courts should be wary of such requests.” (Id., p. 8.)

Therefore, Estrada concluded that the requirement of "manageability" present in class action suits did not apply to PAGA claims. (Id., p. 20-22.)

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2024 California Supreme Court preveiw

2024 brings us the second year of service by California's new Chief Justice

On January 2, 2023, Chief Justice Patricia Guerrero was sworn in as the 29th Chief Justice of California.  She followed former Chief Justice Tani Cantil-Sakauye, who was regarded as a strong leader who brought stability and consistency to the administration of justice.  2024 will therefore be Chief Justice Guerrero's second year of service.

Predictions for 2024

If we were to hazard a prediction as to the ideology and direction of the Court in 2024, we would predict that its stability and consistency would continue.  In fact, there is only one remaining Republican appointee, Justice Corrigan, who was appointed by Governor Schwarzenegger in 2005.

More to the point, given the fact that Mr.  Schwarzenegger hardly governed as a political conservative, it appears the court is entirely moderate to left of center in terms of ideology.  There have been no notable four to three decisions in recent memory and the Court has become known for its unanimous seven to zero decisions. 

Key rulings likely to involve the scope of protections for employees

In 2024 the Supreme Court has already issued an opinion regarding whether a trial court may dismiss a Private Attorney General (PAGA) claim related to meal and rest breaks on "manageability" grounds. (Estrada v. California Commerce Club).  We will discuss Estrada in a future post, but it is worth noting this is not the only case relating to employment pending before the Supreme Court and, indeed, other cases with employment law issues may be granted review.  

The question then becomes:  will counsel for employees continue their recent success?  We will see, and, in the meantime, note that briefs of cases that have or will soon be argued are available here. 

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Update - California Appellate Trends for 2023

Two words come to mind in summing up trends in appellate law for the past year: stability and continuity.  Neither the California Supreme Court nor the six District Courts of Appeal veered off in a totally surprising direction.  Indeed, the Supreme Court issued a relatively modest 55 total majority opinions - this being modest in total number but not necessarily in terms of the breadth of the opinions - for the legal year 2022-2023.

Despite the trend toward stability and continuity, we do have a new Supreme Court Chief Justice, the Hon. Justice Patricia Guerrero.  She was nominated by Governor Newsome as Chief Justice and was elected by the people on November 8, 2023. Justice Guerrero replaces the well-regarded Justice Tani G. Cantil-Sakauye, who served as a Chief Justice for 12 years.  The former Chief Justice spent the last few years navigating the pandemic and the resulting closing and re-opening of our courts and the resulting modifications of California judicial procedure.  

Some relatively straightforward trends continued this year, including strictly holding arbitrators to the relevant standards related to disclosure, bias, misconduct, etc.  The days when trial courts might "rubber stamp" an arbitration award and fail to seriously consider allegations against the arbitrator and the parties would then expect an appellate court to defer to the trial court's confirmation of the arbitration award are largely gone. (See, e.g,., FCM v. Grove Phan, holding an adverse credibility determination based largely upon the need for a translator constituted "bias" by the arbitrator)

California courts are also working through a host of issues related to COVID-19 and coverage.  For example, Endeavor v. HDI Global held that a standard liability policy did not cover losses from the pandemic because there was no "direct" physical loss or damage.

Indeed, this very issue is now pending before the California Supreme Court in Another Planet Entertainment, L.L.C. v. Vigilent Insurance Co., wherein the Ninth Circuit Court of Appeal certified the following question:

Can the actual or potential presence of the COVID-19 virus on an insured’s premises constitute ‘direct physical loss or damage to property’ for purposes of coverage under a commercial property insurance policy?

For a preview of the next term of the California Supreme Court, please see the court's summary of pending cases.

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Short take away - Policy does not cover COVID-19 losses as there is no direct physical loss or damage (Endeavor v. HDI Global)

Short take away - Second District sides with insurer as to much-litigated COVID coverage issues currently before the California Supreme Court

The Second District, Division Two has ruled in favor of an insurance company denying coverage to an entertainment entity for losses from the COVID-19, or SARS CoV-2, virus. (Endeavor v. HDI Global (Sept. 21, 2023) B323865) Endeavor had a commercial liability insurance policy with HDI which required that, for there to be coverage:

(1) there be an “[i]nsured physical loss or damage” to some property, and (2) this physical loss or damage to some property “occur within [1 or 10] statute mile[s] from [Endeavor’s] premises. . . .

Endeavor maintained the inclusion of the phrase "event" in another clause in the policy obviated the requirement that all losses include "physical loss of damage" to tangible property and sued insurer HDI when coverage was denied.  A demurrer challenged Endeavor's entire complaint, and this demurrer was sustained, without leave to amend, by the Hon. Elaine Lu, Judge of the Los Angeles County Superior Court.

Upon appeal Justice Hoffstadt wrote an opinion affirming the trial court and interpreting the policy as requiring not merely an event but also actual physical damage.  As the Endeavor opinion noted at the outset, issues as to whether 1) loss of property, rather than mere loss of use of property, is required for coverage, and 2) whether the absorption of COVID-19 on the surface of the property qualifies for coverage as a "loss," are both currently pending before the California Supreme Court:

This question is one on which the Courts of Appeal have split, and is pending before our Supreme Court in John’s Grill, Inc. v. The Hartford Financial Services Group, Inc. (2022) 86 Cal.App.5th 1195 (John’s Grill), review granted Mar. 29, 2023, S278481, and Another Planet Entertainment, LLC v. Vigilant Ins. Co. (9th Cir. 2022) 56 F.4th 730, request for certification granted Mar. 1, 2023, S277893. Until that Court provides guidance, we side with the vast majority of cases holding that direct physical loss or damage to property, rather than mere loss of the property’s use, is a prerequisite for coverage. We further hold that two of the clauses in the policy here—namely, extension clauses dealing with orders by civil authorities and with impediments to access—do not, by their addition of the word “event,” eliminate the requirement of direct physical loss or damage to property.

Second, has “direct physical loss or damage to property” been sufficiently pled where, as here, the policy holder alleges that the virus that causes COVID-19 has either been deposited onto or “adsorbed” to the surface of the policy holder’s property? The Courts of Appeal have split on this question as well, and that question is pending before our Supreme Court in Shusha, Inc. v. Century-National Ins. Co. (2022) 87 Cal.App.5th 250 (Shusha), review granted Apr. 19, 2023, S278614. Until that Court provides guidance, we side with those cases holding that the ephemeral existence of COVID-19 or its predecessor virus on property does not constitute “direct physical loss or damage to property” as a matter of law. (Id., pp. 2-3.)

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