Ninth Circuit to Decide Transgender Inmate's Right to Sex-Reassignment Surgery; First and Fifth Circuits Have Rejected Similar Constitutional ClaimsPrison healthcare litigation has been on the rise throughout the country. Private healthcare providers for state prison systems are often caught up in class actions or complex injunctive-relief litigation targeting both the provider and the state for alleged shortcomings in the types and adequacy of care provided, matters which are often a function of state funding and policy decisions. In recent years, an increasing number of cases have raised this question: Does the Eighth Amendment of the United States Constitution require prison officials to provide transgender inmates with sex-reassignment (or gender confirmation) surgery?

This constitutional and correctional healthcare issue has divided courts and prison systems. In 2017, after years of litigating the issue, the California Department of Corrections became the first state prison system to provide sex-reassignment surgery to an inmate: Shiloh Heavenly Quine, a convicted killer serving a life sentence. While there is a consensus among correctional healthcare professionals that gender dysphoria constitutes a serious medical need that requires appropriate treatment, most state prison systems continue to resist requests for sex-reassignment surgery.

Federal courts are also split on this issue, and the divide could soon deepen. The U.S. Court of Appeals for the Ninth Circuit is poised to consider the issue in Edmo v. Idaho Department of Correction, an appeal from a federal district court decision requiring prison officials to provide a transgender inmate with gender-confirmation surgery no later than June 13, 2019. Oral argument in Edmo is set for May 16 at the Ninth Circuit courthouse in San Francisco, California.

The Ninth Circuit will take up the issue just after the U.S. Court of Appeals for the Fifth Circuit rejected a transgender inmate’s claim that prison officials must provide sex reassignment surgery or else face liability under the Eighth Amendment for ignoring his serious medical needs (Gibson v. Collier, 2019). In Gibson, Judge James Ho, writing for the majority and relying on the First Circuit’s decision in Kosilek v. Spencer, 774 F.3d 63 (1st Cir. 2014), adopted at blanket rule that “[a] state does not inflict cruel and unusual punishment by declining to provide sex reassignment surgery to a transgender inmate.” In dissent, Judge Rhesa Barksdale criticized the majority for announcing a legal rule that was detached from the proof in the case, and argued that the inmate was entitled to an individualized analysis of his particular medical needs. The Harvard Law Review Blog posted a thorough summary of the Gibson decision.

If the Ninth Circuit affirms the decision that Edmo must receive sex-reassignment surgery, creating a circuit split, the issue could be ripe for review by the Supreme Court. The Supreme Court has not considered a significant Eighth Amendment adequate care case since Brown v. Plata, 563 U.S. 493 (2011), which involved mental healthcare and overcrowding in California’s prison system. As reported by Amy Howe at SCOTUSblog, the court has just agreed to take up the issue of LGBT rights in the workplace under Title VII of the Civil Rights Act. Perhaps high court consideration of transgender rights in prison is not far behind.

The Eleventh Circuit Finds Class Rep Has Standing to Settle a FACTA Class ActionBucking a recent trend and departing from both the Second Circuit’s Katz decision and the Third Circuit’s Kamal decision, the Eleventh Circuit found that a plaintiff had standing to settle a FACTA claim on behalf of a class. This decision—Muransky v. Godiva Chocolatier, Inc.—signals the continuing debate about what Spokeo means for federal statutory damages class actions.

As is now familiar, FACTA (the federal “Fair and Accurate Credit Transactions Act”) prohibits merchants from printing more than the last five digits of a credit or debit card number on any electronically printed receipt provided to the card holder at the point of sale. And Spokeo is the United States Supreme Court decision that holds (among other things) that Congress cannot create Article III standing merely by creating a cause of action.

Muransky claimed a garden-variety FACTA violation: He alleged that Godiva printed the first six and last four digits of his credit card on his receipt. The case mediated, and the parties reached a class-wide settlement that would create a $6.3 million settlement fund to pay around $235 to each class member who submitted a claim form–with $2.1 million to Muransky’s lawyers. About 15% of the class members who received notice made claims, and there were five objectors. The objectors primarily focused on the issue of attorneys’ fees and Muransky’s $10,000 incentive award for serving as class representative, but one objector asserted that Muransky lacked standing. The district court overruled the objections and approved the settlement. Two objectors appealed.

The Eleventh Circuit affirmed the settlement approval. It did so initially on October 3, 2018, but sua sponte vacated its previous opinion and published a new one on April 22, 2019. The major changes all came in the court’s discussion of the standing issue, where the Eleventh Circuit took pains to distinguish the Second Circuit’s opinion in Katz v. Donna Karan Co. In particular, the court disagreed with how Katz allowed evidence that certain FACTA violations did not pose any real threat of identity theft: “We are wary of Katz’s premise that a federal district court may make factual finding that override Congress’s standard for what harm constitutes a concrete injury” and “[w]e do not read Spokeo as giving courts a license to reject the standard set by Congress in favor of judge-found facts at odds with that standard.” Instead, the Eleventh Circuit accepted that ”Congress established the acceptable level of risk at printing five digits,” so a receipt with too many digits plus an allegation of “a heightened risk of identity as a result of Godiva’s FACTA violation… satisfies Article III under the principles Spokeo laid down.”

The Eleventh Circuit also decided that the plaintiff’s standing could arise from the similarity between a FACTA claim and the common law tort of breach of confidence. While acknowledging that “the match is not exact,” the court found that the common law tort was close enough to confer standing. This alternative rationale–arguably dicta–could apply outside of the FACTA context, given the court’s broad language: “A consumer provides a merchant with his credit card number with the expectation that it will remain secret, not least because of the risk of credit card fraud if the merchant reveals it.” The proposition is not self-evident: Have you ever followed the restaurant server to see what he or she does with your credit card when you pay your bill? In any event, how the Eleventh Circuit might apply this apparently sweeping reasoning in the context of a data breach, for example, remains to be seen.

This alternative holding also pits the Eleventh Circuit directly against Kamal from the Third Circuit. That case rejected the analogy to breach of confidence, noting that the harm addressed in such a tort is actual disclosure, not the mere risk of disclosure. We believe Kamal has the better analysis because the disclosure to a third party is essential to resulting harm. Indeed, the Muransky rule could reduce Spokeo’s injury requirement to a mere pleading trick, as it is hard to imagine what species of ephemeral harms could not be reclassified as risk of harms that are recognized to give rise to standing. Muransky justifies its lax standing rule as being deferential to Congress, but Spokeo (as we read it) disallows such deference. If it is true that “where the common law allowed a cause of action to remedy an injury, Congress can create a statutory cause of action to remedy the risk of such an injury,” then standing defenses may come in for rough sledding in the Eleventh Circuit.

We have two main takeaways:

First, the Supreme Court needs to clarify Spokeo. In particular, the Supreme Court will likely need to address what it means for an intangible harm to have a “close relationship” to a traditional harm. The circuits are already divided on that issue, and it should be resolved sooner rather than later (even if not this term, as we hoped).

Second, some of the practical issues of the case may be explained by its procedural posture. Muransky arose from an objection to a class settlement, not a traditional motion to dismiss. As Judge Jordan’s concurring opinion notes, the objector’s challenge to Muransky’s standing raises its own jurisdictional questions: The objector “may lack Article III standing to challenge the Article III challenge of Dr. Muransky.” If the objection to standing had succeeded, the settlement would have been unwound and the consideration made available to the class would not have been paid. Given that the defendant did not challenge standing, nearly 50,000 class members made claims as compared to only a handful of objectors, and given the fact that the objector pressing the standing issue was himself a class-action plaintiffs’ lawyer, the posture of the case may go a long way to explaining the outcome.

We have written before about the utility of class waivers in arbitration agreements as a defense to classwide arbitration. As we previously discussed, the U.S. Supreme Court decided in Stolt-Nielson S.A. v. AnimalFeeds Int’l Corp. that arbitration agreements that were silent on the question of class arbitration could not support the arbitration of class claims. Now, as we predicted, the court has taken the rule of Stolt-Nielson a step further, holding in Lamps Plus, Inc. v. Varela that an arbitration agreement that is ambiguous on the question of class arbitration also cannot support class arbitration under the Federal Arbitration Act (FAA). The 5-4 decision further restricts plaintiffs’ ability to arbitrate class claims that an arbitration agreement prevents them from litigating.

Lamps Plus had agreed with its employee Frank Varela to arbitrate “any and all claims” he might have, including claims arising from a data breach. When Varela sued as a putative class representative of his fellow Lamps Plus employees, Lamps Plus moved to compel arbitration of Varela’s individual claims and to dismiss the lawsuit. The district court granted the motion, dismissed Varela’s lawsuit without prejudice, and ordered the claims to arbitration — but as a putative class arbitration. Lamps Plus appealed to the Ninth Circuit, which affirmed, finding that the arbitration agreement was ambiguous on whether it permitted class arbitration, and construing the ambiguous agreement against Lamps Plus under the time-worn common law principle of “contra proferentum”—i.e., construing ambiguities against the drafter.

The Supreme Court reversed, with Chief Justice Roberts’ majority opinion basing its holding on the policy underlying the FAA that arbitration agreements cover only disputes the parties affirmatively agreed to arbitrate. Arbitration is “strictly a matter of consent,” and parties may agree to arbitrate for a number of different reasons: preference for a more informal forum, increased speed and efficiency, lower costs, the selection of specialized arbitrators to hear specialized disputes. Those benefits go out the window, however, in the context of classwide arbitration, the majority noted, with class arbitration often resembling the litigation it was meant to replace. Further, the court noted, class arbitration raises serious due process issues that may prevent absent class members from being bound to a result unfavorable to them, making class arbitration an unusually danger-prone procedure.

The majority concluded that the issue in Lamps Plus was answered by the reasoning underlying Stolt-Nielson — that silence would not be construed as the parties’ agreement to forgo the benefits of arbitration. For the majority, ambiguity on class arbitrability was also not enough to conclude that the parties had affirmatively agreed to arbitrate class claims: “Neither silence nor ambiguity provides a sufficient basis to conclude that the parties to an arbitration agreement agreed to undermine the central benefits of arbitration itself.” The majority concluded that the FAA, not state law contract rules, provided the rule to determine how an ambiguous arbitration agreement should be construed on this question; therefore, California’s normal contract rule — to construe ambiguous contracts against the drafter — was not applicable.

The four dissenters each wrote separate opinions, with Justices Ginsburg and Kagan each gaining two other votes for their views. Justice Breyer believed the court (and the Ninth Circuit before it) lacked jurisdiction to hear the appeal, since Section 16 of the FAA prohibits appeals from an interlocutory order directing arbitration to proceed. (The majority pointed out that jurisdiction was present under Section 16(a)(3), which permits appeals from final orders with respect to an arbitration under the FAA, and under Green Tree Financial v. Randolph, an order dismissing claims and referring them to arbitration was final and appealable, under 16(a)(3)). Justice Kagan argued that there was ambiguity in the arbitration agreement — which frequently used singular pronouns to refer to Varela (i.e., referring to claims “I may have”) — but she also stated the parties’ agreement to arbitrate “any and all claims” must also include any class claims.For Justice Kagan and the dissenters, that ambiguity should be resolved by resorting to state contract law, and under California contract law, that meant construing it against the drafter, Lamps Plus.

That Lamps Plus is strong medicine was underscored by the ruling, the very next day, in Herrington v. Waterstone Mortgage Corp., where the district court vacated a $10 million + class arbitration award. The plaintiff had prevailed in a class-wide arbitration under the Fair Labor Standards Act against her former employer. The court had previously confirmed the award, and the defendant appealed. The Seventh Circuit remanded for the district court to consider the effect of Epic Systems v. Lewis. On remand, the district court vacated the award, holding that incorporating the AAA arbitral rules is not an “automatic authorization” of collective arbitration, even though those rules contain provisions allowing for class arbitration. Instead, the court relied on the class waiver in the arbitration agreement, and held that the agreement’s specific prohibition of class arbitration overcame any authorization of class action procedures in the AAA rules. The court went on to note that even if the class waiver were ambiguous, Lamps Plus prohibited the court from inferring consent to class arbitration from an ambiguous agreement. This decision is a shot below the waterline for the plaintiff. She (and 175 other employees) prevailed in arbitration and had the award confirmed in federal court. Now, two intervening Supreme Court decisions later, the $10 million arbitration award is vacated. Plaintiff is back to individual arbitration, and the opt-in plaintiffs that joined the arbitration must now either file their own arbitrations or their own lawsuits, if the claims are still timely.

Our previous conclusions from review of the class arbitration issue — that class waivers in arbitration agreements are the best protection against having to defend a class action in arbitration — remain unchanged. Companies wishing to avoid class arbitration should still include explicit class waivers in their arbitration agreements at the first opportunity. But Lamps Plus offers hope for those who have not yet included such waivers, and those sued on old contracts without them.  Class arbitration is a dangerous place for companies, and Lamps Plus makes it less likely that companies will end up in class arbitration without choosing and agreeing to it. That is a win. Lamps Plus also offers a new argument for those who might find themselves defending an attempt at class arbitration under an agreement that is arguably ambiguous on that or any other question. As things stand after Lamps Plus, silence, ambiguity, and explicit waiver are all defenses to class arbitration, significantly narrowing the path for plaintiffs who seek to arbitrate on behalf of a class.