The Broader Implications of the Court’s Healthcare Decision

Guest post by Professor Jedediah Purdy

Anyone who cares about fairness and good sense in social policy should count Thursday’s decision a victory – as most progressives are doing.

At the same time, we should be clear on this: The Supreme Court, on its own previously announced principles, had no business coming so close to invalidating the ACA.

Justice Roberts saved the constitutionality of a humane and centrist piece of social legislation.  Gutting it would have been radical, and it is striking that four justices would have done so.  Roberts also confirmed the view of the Constitution that made the attack on that law plausible.  That constitutional view is itself radical.  It affirms that the Court belongs at the heart of this issue, and guarantees its future role in similar controversies.

The fact that the Court came so close to gutting the law, and is being celebrated for withholding the knife, is a mark of how far the public has accepted aggressive judicial review of legislation that should not be constitutionally suspect.

Roberts accepted that Congress cannot require individuals to purchase health insurance under its power to regulate interstate commerce.  On his logic, if Congress had this power, it could also require people to buy cars or healthy food – the infamous broccoli example.

This may not matter much in practice.  Roberts upheld the requirement to purchase insurance under the separate Congressional power to tax by interpreting as taxation the fee for not purchasing health care.  The requirement to purchase is unusual policy design, and it is hard to imagine a similar law that could not be written to survive this combined commerce-and-taxation scrutiny.  The ruling on the Commerce power may be mainly symbolic.  For nearly 20 years, the Court’s conservatives have insisted on limits to the Commerce power while not doing much of consequence with those limits.  This opinion may be another of those rhetorical rulings.

That said, consider the way the Roberts opinion invites us to envision the world.  We are governed by politicians who want to force us into gym memberships and stuff broccoli in our faces.  The democratic process is not enough to protect us from such palpably unpopular laws.  We need the Supreme Court, wielding the Constitution, to protect our liberty to spend our money where we like, and not elsewhere.

To accept that these are urgent constitutional concerns, you need a very mistrustful sense of government.  You also need to see consumer liberty as a touchstone of American freedom.  For almost eighty years, constitutional law has assumed that Congress and state legislatures can be trusted to make economic judgments (better trusted than courts, anyway) under democratic scrutiny, and that individual economic freedom is not a constitutional liberty.  To be swayed by the Roberts opinion, you need to squint at the world in quite the opposite way.

The opinion’s rhetorical embrace of Tea Party constitutionalism should worry people who think complex problems like health care unavoidably require complex – and politically possible – solutions.  Congress adopted the individual mandate to deal the insurance companies into the political bargain, as conservative reformers had long urged.  If not for the saving thread of the taxing power, Roberts’s opinion would have left no solution to the health-care crisis that was both politically viable and constitutionally permitted.

The other major part of the Roberts opinion held that the federal government cannot withhold Medicaid funds from states as a punishment for the states’ failing to adopt the ACA’s expansion of Medicaid eligibility to 133% of the federal poverty line.  Roberts argued that the threat to withdraw Medicaid funding is “a gun to the head” that impermissibly coerces the states.  The idea is that, since the federal government cannot directly tell the states which laws to pass, giving them an offer they cannot afford to refuse amounts to dictating their Medicaid legislation.

For many decades, Congress has been influencing state legislation with fiscal carrots and sticks – offering money to fund policies it likes, withholding funds when states don’t pass desired laws.  If you ever wondered why every state sets the drinking age at 21, it’s because they would lose federal highway funds if they set it lower.  The Court has previously made a muted noises about possible limits to this use of Congress’s “spending power” to influence states, but this is the first time it has actually set a limit to that power.  This is a new, and potentially big, roadblock to federal policy-setting.  It intercedes the Court between Congress and the states and guarantees future challenges to spending legislation.

How much it will matter to the ACA’s anti-poverty effect depends on how many states will simply refuse to expand Medicaid, now that they know they can’t lose their existing funding for doing so.  The number may be large, given political hostility to the Act, which would mean more people without health coverage and more people crossing state lines in search of more generous care – part of the reason Congress aimed for uniformity.

Beyond the ACA, the Medicaid expansion ruling signals more aggressive federalism jurisprudence on a new front: limiting Congress’s use of fiscal power to shape uniform national policy.  Both here and in the Commerce Clause ruling, the Court encourages state resistance to federal lawmaking and, especially, litigation that advances new federalism arguments (like the commerce power decision) or presses the edge of old ones (like the spending power ruling).

It is revealing that Justice Scalia’s dissent for four conservatives does not really stake out a different view of the Constitution from Chief Justice Roberts’s.  It mostly exhorts the Chief Justice to apply his principles more exactingly, with less scruple for upholding the challenged law.  The constitutional premises of this opinion represent a conceptual and rhetorical victory for the right.  Time, and the November election, will tell how far that victory will go.

-----
Jedediah Purdy teaches in environmental, property, and constitutional law at Duke Law. He writes about how law interacts with and embodies ideas about freedom, social order, and the human relationship with the natural world, and how these ideas arise and change.

Supreme Court Upholds Obamacare, Narrows Medicaid Provision, and Begins the Dismantling of the New Deal State

The Supreme Court issued its long-awaited decision on the Affordable Care Act this morning, upholding the individual mandate and the remainder of the Act by a slim 5-4 majority, comprised of Chief Justice Roberts and Justices Ginsburg, Breyer, Sotomayor, and Kagan.

The only partial defeat for the government was the Court’s holding that the Medicaid provision – which conditioned federal funds on states’ acceptance of expanded Medicaid coverage – must be interpreted narrowly such that states that refuse to expand their Medicaid programs lose federal funding only for the expansion, but not for the current, unexpanded versions of their programs. In the context of the health care law itself, this was unquestionably a positive ruling. Yet, in its reasoning, the decision must be understood as laying the groundwork for dismantling the New Deal state.

Supporters and opponents of the law waited
outside the Supreme Court building this morning
The opinion surprised Court watchers for two reasons. First, it was Roberts’ vote that mattered, as he and the four liberal-moderate justices voted to uphold the Act, while Kennedy dissented along with Scalia, Thomas, and Alito. (The most common predictions had Kennedy as the swing vote and Roberts joining Kennedy wherever he landed). Second, the majority opinion, written (as universally predicted) by the Chief Justice, upholds the mandate as a tax, based on Congress’ power to “tax and spend.” The four liberal justices joined him in that conclusion, which is thus the law of the land and the part of the opinion binding on the lower courts.

But significantly, while the liberal justices would have also upheld the mandate under the Commerce Clause, the Chief Justice insisted that the mandate was not a valid exercise of Congress’ power to regulate interstate commerce. The four conservative dissenters would have struck down not only the mandate but the entire Affordable Care Act as unconstitutional under the Commerce Clause, and accuses the majority of re-writing the statute by considering the mandate as a tax.


"Roberts gave the conservatives
a very big gift—a ticking time bomb
that could explode in cases down the line."

AFJ President Nan Aron
While the dissenters used some choice words, accusing the majority of “vast judicial overreaching,” the truth is that Roberts has now enshrined the heretofore non-existent distinction between economic “activity” and “non-activity” in the Court’s Commerce Clause jurisprudence. Writing only for himself in that portion of the opinion, his musings on the topic are not binding precedent. Nonetheless, by demonstrating a willingness to narrow Congress’ power to regulate interstate commerce, Roberts has invited further challenges to any number of federal laws and regulations.

An overwhelming majority of federal laws -- from the Civil Rights Act of 1964 to the Fair Labor Standards Act to the Clean Water Act -- were enacted based on Congress’ power to regulate interstate commerce. If our long-standing understanding of the Commerce Clause is upended, all of this is at risk, along with the vision of our society that we have held dear for half a century.

As Justice Ginsburg writes in her opinion, concurring in part and dissenting in part from Robert’s opinion, “[t]he Chief Justice’s crabbed reading of the Commerce Clause harks back to the era in which the Court routinely thwarted Congress’ efforts to regulate the national economy in the interest of those who labor to sustain it.” She writes “[i]t is a reading that should not have staying power.” As we digest the Court’s decision in the weeks to come and look ahead to the very important cases coming before the Court during its next term, Justice Ginsburg’s warning should not be forgotten.

Supreme Court Bars Mandatory Life Sentences for Juveniles

The Supreme Court ruled on Monday in the case of Miller v. Alabama that mandatory life sentences without the possibility of parole for juveniles convicted of homicide are unconstitutional. At the heart of the Court’s opinion is the Eighth Amendment to the U.S. Constitution, forbidding “cruel and unusual punishment.” Significantly, the Court held that states may not require judges to institute life sentences without the possibility of parole, but did not institute a flat ban on such sentences, even though the ramblings of the dissenting justices would suggest otherwise.

The defendants in these consolidated cases were both fourteen years old at the time of their crimes. Kuntrell Jackson was charged with felony murder after a friend shot a store clerk at the video store they were attempting to rob. The evidence is inconclusive as to whether or not Jackson threatened the store clerk, but it is undisputed that he did not pull the trigger. The other defendant, Evan Miller, was the product of an abusive household and multiple foster homes. Miller dealt the decisive blow that killed his mother’s drug dealer while under the influence of drugs and alcohol.

The prosecutor who charged Miller had the option of pursuing the case in juvenile court, but instead tried him as an adult and triggered the mandatory life without parole rule passed by the Alabama legislature. In Alabama and Arkansas, anyone convicted of murder is subject to life without parole, without regard for age or any other potentially mitigating factor. A total of twenty-nine states impose mandatory life without parole sentences on juveniles convicted for murder. As of today, there are more than 2,500 prisoners serving life without parole sentences for crimes they committed as children.

Monday’s historic ruling is the most recent in a line of cases bringing the United States closer – but far from all the way – to conforming with international human rights norms regarding criminal punishment, particularly with regard to children. In Roper v. Simmons (2005), the Supreme Court ruled that it was unconstitutional to impose a capital sentence on a juvenile. Two years ago, the Court ruled in Graham v. Florida that juveniles charged with nonviolent offenses may not be sentenced to life without parole under the Eighth Amendment. Striking down the state laws that impose an automatic life without parole sentence on juveniles tried for murder was a natural next step in this progression.

Writing for the majority, Justice Kagan harkens back to the Court’s reasoning in Roper and Graham, which suggested that none of the goals of criminal punishment – deterrence, incapacitation, retribution, or rehabilitation – could justify sentences for juveniles as harsh as those meted out to adults. Kagan describes important distinctions between juvenile and adult offenders, including juveniles’ “underdeveloped sense of responsibility,” the incomplete development of the behavior-control part of their brains, increased vulnerability to negative influences, and “less fixed” character traits. Highlighting the importance the Court has previously placed on individualized sentencing schemes, she writes, “Mandatory life without parole for a juvenile precludes consideration of his chronological age and its hallmark features – among them, immaturity, impetuosity, and failure to appreciate risks and consequences.” She adds that the mandatory scheme also precludes consideration of a juvenile offender’s home environments, the circumstances of his crime, the ways in which his immaturity can affect the prosecution itself, and the possibility of rehabilitation, which ought to be most relevant when the offender is a child.

Three justices wrote separate dissents supporting the mandatory sentencing laws. Chief Justice Roberts claims that since these sentences are so commonplace, there is no national consensus for striking them down. Essentially, the Chief Justice believes that since too many states have been wrong on this issue the Supreme Court should let these laws stand.

Justice Alito takes us down a slippery slope in his dissent, worrying that the Court’s narrow ruling would serve to free a hypothetical 17-½-year-old who “sets off a bomb in a crowded mall or guns down a dozen students.” This is misleading, since Alito’s teenaged terrorist could still be sentenced to life without parole after today’s ruling. But Alito isn’t the only one on the highest court that seems a little paranoid.

Justice Thomas believes the Eighth Amendment only serves to prohibit “torturous methods of punishment.” He vehemently argues in his dissent that “even accepting the Court’s precedents, the Court’s holding [today] is unsupportable.” It is well-known that Thomas has his own notions of legal precedent, but in this case his skepticism seemed fueled by concerns that echoed Justice Alito’s dissent. Thomas worries that the majority will later impose a flat ban on juvenile life without parole sentences. And perhaps it will, according to the “evolving standards of decency that mark the progress of a maturing society,” an evocative phrase that has become the hallmark of the Court’s Eighth Amendment jurisprudence. It is not surprising that this prospect would horrify Justice Thomas, whose views on the Eighth Amendment suggest that everything but torture should be on the table when sentencing offenders, including juvenile offenders.

For those of us living in the 21st century, however, today’s ruling was a step in the right direction.

Corporate Court Starts Filling Its Docket for Next Term

The Supreme Court’s 2011-12 term, which will end this week with a hotly anticipated ruling on the constitutionality of the Affordable Care Act, has been dubbed the “term of the century” by some legal observers. But at the same time that the Court is issuing landmark rulings on topics from juvenile justice to immigration enforcement to health care reform, the Court is also deciding which cases it will hear next term — accepting a number of cases with tremendous implications for corporate accountability. The Court’s grants of certiorari in these cases are a worrying sign that the Court is prepared to travel even further down the road of stifling corporate accountability.

Here are a few of the corporate cases that the Court agreed to hear next term:

Comcast v. Behrend deals with the ability of plaintiffs to collectively hold cable provider Comcast accountable for violations of antitrust law. As is often the case with class action lawsuits, the theoretical option of each plaintiff to sue individually isn’t a real option, because the financial cost of Comcast’s alleged violations to each individual is a small amount. Unless plaintiffs have the option of proceeding as a class, corporations like Comcast can violate the law without accountability. Comcast argued unsuccessfully before the Third Circuit that the plaintiffs should not be permitted to proceed as a class unless they first made a number of onerous merits showings. However, the Supreme Court — which has recently shown hostility to class action lawsuits in cases like Wal-Mart v. Dukes and AT&T v. Concepcion — may be poised to reverse the Third Circuit and erect additional barriers to corporate accountability through collective consumer lawsuits.

FTC v. Phoebe Putney Health System deals with the question of whether healthcare provider Phoebe Putney Health System can escape federal antitrust liability when it achieves monopoly status through the intervention of the state legislature. The Eleventh Circuit Court of Appeals held that the doctrine of state action immunity, which prevents states from being held liable for violations of federal antitrust law, extends to Phoebe Putney, a private provider of health care services that achieved monopoly status after an agency of the Georgia state government, acting at Phoebe’s behest, purchased Phoebe’s largest competitor and then sold it to Phoebe. A decision by the Supreme Court to affirm the Eleventh Circuit’s opinion in this case would carry dramatic implications for antitrust accountability, allowing private entities to avail themselves of antitrust immunity simply by persuading state agencies to become complicit with them in anti-competitive practices.

Vance v. Ball State University deals with the question of whether an employee who has been the victim of racial harassment in the workplace may hold her employer liable under Title VII of the Civil Rights Act of 1964 if the party engaging in the harassment lackedthe authority to fire or formally reprimand the employee. The plaintiff, Maetta Vance, was the sole African-American employee of Ball State University’s Banquet and Catering Department. Over a period of more than two years, she was subjected to physical abuse and racial taunts by co-workers who formally lacked the authority to fire or reprimand her, but who had been directed to supervise her work. She eventually filed a complaint with the Equal Employment Opportunity Commission, seeking to hold the university vicariously liable for the harassment under a rule that establishes vicarious liability for a supervisor’s violations of Title VII. The Seventh Circuit, however, rejected Vance’s vicarious liability claim. If the Supreme Court affirms this ruling, it will have the effect of allowing employers to escape accountability for failing to prevent sexual and racial harassment in their workplaces, even where, as in Vance’s case, the employer ignored repeated internal complaints that the victim of the harassment filed.

Finally, the Supreme Court accepted a series of cases involving environmental damage caused by corporations. Georgia-Pacific West v. Northwest Environmental Defense Center and Decker v. Northwest Environmental Defense Center both deal with challenges to the Ninth Circuit Court of Appeals’ determination that rainwater runoff from ditches and drainpipes associated with logging roads falls into the category of pollutant sources that require a permit from the Environmental Protection Agency under the National Pollutant Discharge Elimination System. The Ninth Circuit’s ruling has come under heavy attack by the logging industry, which claims that the economic impact of a rule requiring them to pay for pollution of rainwater runoff from industry roads would place too great a burden on their industry.

Additionally, the Court agreed to hear the case of LA County Flood Control District v. Natural Resources Defense Council, which raises a question regarding the interpretation of the Clean Water Act (“CWA”). The Court has previously stated that transfer of water within a single body cannot constitute a “discharge” within the meaning of the act. The LA County Flood Control District case raises the question of whether that precedent can protect the LA County Flood Control District from liability under the CWA for discharging pollutants into the Los Angeles and San Gabriel rivers through the municipal storm sewer system.

Together, these cases raise the possibility that the Court is prepared to bow to corporate pressures to roll back the Clean Water Act’s protections against spoliation of natural resources. The defendants in these cases have taken an extreme position that they should be beyond the reach of the laws and agencies put in place to protect our environment: In the words of one witness in the LA County Flood Control case, they “could not be held accountable even if its discharges “were so polluted with oil and grease that they were on fire as they came out of the system.”

This coming Supreme Court term may not rival the “term of the century” that will draw to a close this week in terms of media attention, but if the cases on the docket are any indication, it will nonetheless be an important term for those who care about corporate accountability. We will see whether the the Court intends to continue down the path that it has traveled in cases like Citizens United v. FEC and AT&T Mobility v. Concepcion, or whether it will turn back the legacy of corporation-friendly rulings that has earned it the moniker the Corporate Court.

Federal Immigration Authority Affirmed

Guest post by Professor Angela Banks

The Supreme Court’s decision in United States v. Arizona affirms the federal government’s supremacy to regulate immigration.  Yet the Court’s opinion left two key legal issues to be decided by lower courts.  First, whether states have the independent authority to detain individuals for immigration crimes and second, whether racial profiling is used to identify unauthorized migrants and whether such profiling is unconstitutional.  Debates about the substance of immigration regulation and what the country’s immigration enforcement priorities should be will continue, but the Court’s opinion makes clear that the authority to establish such substance and priorities rests with the federal government.

The Holding

The Court held that federal law preempted three of the four challenged provisions of Arizona’s Support Our Law Enforcement and Safe Neighborhoods Act (S.B. 1070), and that it was too early to determine if the fourth provision was preempted by federal law.

The three provisions held preempted by federal law were:
  • Section 3, which made failure to comply with federal alien registration laws a state misdemeanor;
  • Section 5, which made seeking or engaging in work by an unauthorized migrant a state misdemeanor;
  • Section 6, which authorized police officers to arrest a person without a warrant if the officer had probable cause to believe that the person committed a public offense that made the person deportable.
Section 2(B) is the one provision that the Court concluded was not preempted.  This is the provision that is best known from S.B. 1070.  Section 2(B) requires police officers to ascertain the immigration status of an individual that the officer stops, detains, or arrests in certain circumstances.  The Court concluded that whether federal law preempted this provision depends on how the provision is actually applied in practice.

Future Litigation: As-Applied Challenges

The application of section 2(B) could conflict with federal law if it causes prolonged detentions for non-immigration offenses or detention for unlawful presence without federal direction or supervision.  The Court stated that “[d]etaining individuals solely to verify their immigration status would raise constitutional concerns.”

Anecdotal evidence from jurisdictions with similar provisions suggests that detention times for non-immigration offenses are routinely prolonged while immigration status is checked.  In minor criminal offense cases when an individual would normally be eligible for bail and released after posting bond, some jurisdictions refuse to set bail for immigrant inmates, prevent them from posting bond, or hold them despite posting bond until Immigration & Customs Enforcement (ICE) has decided whether or not to detain the individual.  During this time period, the individual is not being held subject to an ICE detainer or any other direction from federal officials.

This suggests that the kind of prolonged detention that the Court identified as potentially constitutionally problematic is likely to occur once section 2(B) is implemented.  Yet concluding that such prolonged detention is constitutionally problematic depends on whether state law enforcement officials have the authority to investigate illegal entry and other immigration crimes.  If they have such authority, prolonging detention to investigate the immigration crime may not be constitutionally problematic.  The Court left this question unanswered and it is one that will be litigated in the lower courts.

The implementation of section 2(B) will also raise other constitutional issues like equal protection violations based on racial profiling.  This issue was not before the Court, but it is the issue that has been prominent in public discussions of this case.  Fourteenth Amendment equal protection challenges will be difficult due to the Supreme Court’s decision in United States v. Brignoni-Ponce.  In that case, the Court held that “Mexican appearance” can be one of several factors used to establish reasonable suspicion of unlawful presence.  Racial profiling by Arizona law enforcement officials is currently the subject of federal investigation and we are likely to see additional lawsuits raising this issue.

Debating Immigration Enforcement Priorities

While the Court’s opinion left a number of questions unanswered, one question it resolved was whether states have the authority to establish immigration enforcement priorities.  Throughout the opinion the Court reaffirmed the federal government’s broad authority to regulate immigration, and therefore to set enforcement priorities.  Current debates about unauthorized migration reflect disagreements about how to enforce immigration law and what the enforcement priorities should be.  The Court suggested that resolution of these political issues should be based on a political will that is “informed by searching, thoughtful, rational civic discourse.”  As immigration issues are litigated in courts, debated in legislatures, and discussed in various public forums, it is my hope that our discourse will in fact be searching, thoughtful, and rational.

---

Angela M. Banks is an associate professor at William & Mary School of Law.  Her research interests include immigration, international law, and human rights. 

A video explaining the legal issues before the Court in United States v Arizona is available here. Banks’ scholarship is available here.

Court Refuses to Rehear Campaign Finance Arguments

In a narrow 5-4 decision today the United States Supreme Court strengthened its 2010 holding in Citizens United v. FEC by overturning a century-old Montana state law that bans campaign contributions from corporations due to their corrupting influence on the electoral process. 

By declining to hear arguments on American Tradition Partnership, Inc. v. Bullock and summarily reversing the decision of the Montana Supreme Court to uphold the state's Corrupt Practices Act, the Court signaled the futility of challenging its Citizens United ruling that the political speech of corporations is protected under the First Amendment.
Revealing a sharp divide on the Court, four justices signed a dissent (written by Justice Breyer) saying that the Court should have heard Montana’s case and used it as an opportunity to reconsider Citizens United, or at least to look at the applicability of that decision when applied to the particular circumstances of Montana law.

In February, when urging the Court to accept Montana’s petition for certiorari, Justice Ginsburg wrote:
Montana’s experience, and experience elsewhere since this Court’s decision in Citizens United v. Federal election Comm’n . . . make it exceedingly difficult to maintain that independent expenditures by corporations ‘do not give rise to corruption of the appearance of corruption.’ . . .  A petition of certiorari will give the Court an opportunity to consider whether, in light of the huge sums currently deployed to buy candidates’ allegiance, Citizens United should continue to hold sway.
Justice Breyer echoed her words in the dissent he penned.

Stating his disagreement with the majority opinion in Citizens United, Breyer challenged the Court’s assertion that “independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption” and drew attention to the increasing inability to distinguish between “[m]any corporate independent expenditures . . . [and] direct contributions in their capacity to generate quid pro quo arrangements.”

Breyer and the other dissenters further stated that even were they to accept the holding in Citizens United, they believed the current and historical record and findings of political corruption by corporations in the state of Montana gave the state a compelling interest in maintaining its statute to protect the its electoral processes.
Today’s decision reveals that the Court continues to be polarized by its decision of over two years ago about who can participate in what ways in the electoral process. In addition, it almost certainly means the nationwide debate over Citizens United will remain unsettled.

Scalia Uses Dissent to Deliver Policy and Political Lecture from the Bench

If you think that the Supreme Court is supposed to leave policy and political concerns to the policy-makers and politicians, then your name probably isn’t Antonin Scalia.

In a blistering dissent from the Supreme Court’s decision rejecting much of Arizona’s controversial immigration law, Scalia spends an inordinate amount of time railing against President Obama’s enforcement policies and Congress’ budget, legislative, and appropriation decisions, as well as the politics of immigration enforcement and reform.

Scalia not only characterizes current federal polices as “questionable” or “unwise,” he rails against the way in which laws – even laws not currently at issue in this case! – are enforced:
“The Government complains that state officials might not heed ‘federal priorities.’ Indeed they might not, particularly if those priorities include willful blindness or deliberate inattention to the presence of removable aliens in Arizona.”
He also asks:
“Must Arizona’s ability to protect its borders yield to the reality that Congress has provided inadequate funding for federal enforcement – or, even worse, to the Executive’s unwise targeting of that funding?”
Very few of those things are traditionally considered the domain of the Supreme Court.

Here are some additional points from Scalia’s dissent.
“The Court opinion’s looming specter of inutterable horror – ‘[i]f §3 of the Arizona statute were valid, every State could give itself independent authority to prosecute federal registration violations,’ ante, at 10 – seems to me not so horrible and even less looming. But there has come to pass, and is with us today, the specter that Arizona and the States that support it predicted: A Federal Government that does not want to enforce the immigration laws as written, and leaves the States’ borders unprotected against immigrants whom those laws would exclude. So the issue is a stark one. Are the sovereign States at the mercy of the Federal Executive’s refusal to enforce the  Nation’s immigration laws?”
...

“What I do fear – and what Arizona and the States that support it fear – is that “federal policies” of nonenforcement will leave the States helpless before [the] evil effects of illegal immigration[.]”

...

“The President said at a news conference that the new [DREAM Act] program is ‘the right thing to do’ in light of Congress’s failure to pass the Administration’s proposed revision of the Immigration Act. Perhaps it is, though Arizona may not think so. But to say, as the Court does, that Arizona contradicts federal law by enforcing applications of the Immigration Act that the President declines to enforce boggles the mind.”
If you think some of Scalia’s arguments sound more like policy or political points than analysis of a state law and whether it’s preempted by the Constitution, you’re not alone.

Supreme Court Ruling Hampers Unions’ Political Speech

Guest post by Professor Benjamin Sachs

Until yesterday, it was voters and legislators who got to decide whether they wanted to live in a right-to-work state.  With Knox v. SEIU, the Supreme Court began to assume that decision-making responsibility for the rest of us.  At least when it comes to the public sector, Knox takes a giant step in the direction of holding that any rule requiring employees to pay their fair share of the collective bargaining bill is unconstitutional.  That’s a dramatic departure from prior precedent.  It’s a striking example of judicial activism.  And it’s potentially an existential threat to public sector unions.

The trouble comes primarily from two components of the Court’s opinion.  The first is the Court’s newfound skepticism about the sufficiency of free-rider arguments for First Amendment challenges in the public employment context.  The second is the Court’s new insistence – at least in certain circumstances – on “opt-in” arrangements in the union dues setting.  If there’s any good news about Knox, it’s that most of the worst parts of the opinion are dicta.  That means the case does not give lower courts the latitude to impose a right-to-work regime – one in which any and all mandatory dues payments are illegal – on the nation’s public sector workforce.

But before we get into the opinion in earnest, some brief background is in order.

A good number of states have decided that collective bargaining can be in the interests of the public.  In these states, where public employees vote to form a union, the employer has an obligation to bargain with the union.  But the union also has an obligation – namely, to represent all the workers in the bargaining unit whether or not those workers choose to become union members.  To make sure that each worker pays her fair share of the costs of representation, and to ensure that nobody gets to free ride on the dues paid by others, state governments allow employers to require everybody in the unit pay dues.

On the line: the ability of SEIU (an AFJ member organization)
to engage in political advocacy on behalf of its members.
Over the years, the Supreme Court has crafted a doctrine to structure and police these mandatory dues arrangements.  The basic rule has been this: in order to avoid the free-rider problem, public employers can require that employees pay their fair share of the union’s collective bargaining and contract administration expenses, but, to avoid a compelled political speech and association problem, employees have been given a right to opt out of funding the union’s political program.

That’s the background against which Knox is decided.  And although the Knox holding addresses a particular accounting procedure that SEIU used in California in 2005, the opinion goes far beyond dealing with the SEIU assessment. Reaching beyond what was even briefed or argued in the case, the five-justice majority casts serious doubt on whether a state’s interest in overcoming free riding can any longer justify mandatory dues payments in the public sector – even when it comes to dues payments for collective bargaining and contract administration.  As the Court put it, “free-rider arguments . . . are generally insufficient to overcome First Amendment objections.”

The Knox Court also questions whether, when it comes to the union’s political spending, it is constitutionally sufficient to allow objectors to opt out of paying dues or, instead, whether the union must secure employees’ affirmative opt-in before spending dues on politics.  The Court holds that, with respect to the particular SEIU assessment in this case, an opt-in is constitutionally required.  This is, in itself, a marked departure from the Court’s longstanding rule that opt-outs are constitutionally sufficient.  But here, too, the Court’s language goes beyond what was necessary to rule on the SEIU matter.  As the concurring and dissenting opinions point out, the Court’s reasoning on the constitutional permissibility of opt-out agreements would seem to extend to all mandatory dues arrangements.

To be clear, if opt-in arrangements are the only constitutional ones, that means that all forms of mandatory dues arrangements are unconstitutional.  So, jettisoning the free-rider rationale or striking down opt-out agreements will have the same effect – it’ll be right-to-work in the public sector.

These pieces of the Knox decision are troubling, but the Court’s increasing constitutional skepticism about mandatory union dues raises another set of concerns that demands attention.  In particular, the Court’s concern for avoiding compelled funding of union political speech stands in stark contrast to the lack of concern for compelled funding of corporate political speech.

The contrast is clearest in the public sector.  Here’s how it works:  The vast majority of people who work for the government – state, local and federal employees – are required to make contributions to a pension plan.  Public pensions, moreover, are defined benefit plans, which means that employees don’t have any say in how their mandatory contributions are invested.  Not surprisingly, pension plans invest employee contributions heavily in corporate securities: in 2008, for example, public pensions held about $1.15 trillion in corporate stock.

In Citizens United, of course, the Supreme Court held that corporations have a First Amendment right to fund electoral expenditures with general corporate treasuries, and corporations are taking ample advantage of the opportunity.  So, if you’re a public employee in California or New York or Arkansas (or nearly any other state), it is now a condition of your employment that you make pension contributions that can be used to finance corporate political advertisements.  If the Court means what it says about compelled union political speech and association, it has to see that this compelled corporate political speech and association is similarly unconstitutional.

The problem, though, isn’t restricted to the public sector.  The Supreme Court, in a case called CWA v. Beck, held that the same rules about mandatory union dues that it crafted for public employee apply to private employees.  So, private sector unions are prohibited from spending even one dime of general treasury money on politics when individual employees object to such use.  In contrast to this union rule, however, corporate law permits corporations to spend their assets on politics even in the face of individual shareholder objections.  To put it simply, the law gives employees the right to opt out of funding union political speech, but shareholders get no right to opt out of funding corporate political speech.

This kind of differential treatment of political speakers is inconsistent with the American ideal of treating political speakers equally.  Indeed, imposing stricter rules on unions than corporations may well be a constitutional problem, even in the private sector, unless there’s a valid reason for treating unions and corporations differently in this context.  And although space doesn’t permit me to make the case here, I have argued elsewhere that unions and corporations are analogous in the ways that matter most for this analysis.

In short, taking seriously the arguments in Knox and the Court’s other cases about compelled political speech and association means extending these principles beyond the union context and to the corporate one.  This kind of extension of Knox would not only be faithful to the Constitution, it would help restore some balance to a currently unbalanced compelled speech and association doctrine.

-----

Benjamin Sachs is a professor at Harvard Law School where he teaches labor law, and he is author, most recently, of Unions, Corporations, and Political Opt-Out Rights after Citizens United (Columbia Law Review 2012).  He formerly worked in the SEIU legal department.

The Wal-Mart Decision: One Year Later

- by Greta Foster

On Wednesday, June 20th about fifty people gathered in front of the United States Supreme Court to speak out against the Court's 2011 decision in Wal-Mart v. Dukes, which drastically changed the process by which employees could group together to challenge employment discrimination. The crowd, organized and coordinated by the American Association of University Women, was joined by many organizations including NOW, Alliance for Justice, and National Partnerships for Women and Families. People a block away could hear chants of, “What do we need? FAIR PAY! When do we need it? NOW!”

Betty Dukes joins the crowd outside the Supreme Court building
The crowd was further roused when Betty Dukes, the lead plaintiff in the original case, stepped forward to address the group of protesters.

Although the Supreme Court last year ruled in favor of Wal-Mart and said that the women harmed by the retail giant's discriminatory practices could not band together in a class action, Dukes spoke words of encouragement and triumph to the crowd: “We have to continue to fight to make a stance for righteousness and justice for women everywhere.”

Dukes told supporters that she will remain “determined to stand up, step forward, and speak out.” Recently, she launched her own website, bettydukesvoice.com, to serve as a platform for her advocacy efforts.

Although the rally centered on the anniversary of the Wal-Mart decision, it also served as a platform to present the Equal Employment Opportunity Restoration Act, legislation designed to restore the rights of workers and their ability to stand together to challenge discrimination. The bill was unveiled by Senators Al Franken (D-MN) and Richard Blumenthal (D-CT) and Representatives Rosa DeLauro (D-CT) at a press conference following the rally.


As of Wednesday, June 20 the bill had 22 co-sponsors in the United States Senate and 36 co-sponsors in the United States House of Representatives.

One year after the Wal-Mart decision, Congress is making an effort to correct and amend the challenges imposed by the Supreme Court, organizations continue to fight and build momentum for equality and justice for all workers, and ordinary citizens are taking steps to move on the side of justice. It is uncertain if legislation such as Equal Employment Opportunity Restoration Act or the Paycheck Fairness Act will be enacted by Congress; however, it is certain that the movement will continue to build more support for employee rights and equality under the law.

Corporate Court Sides with Big Pharma in Overtime Pay Case

The Supreme Court gives another example
of how real life isn't like the movies.
In the 2010 romantic comedy Love and Other Drugs, Jamie Randall was a pharmaceutical representative who ensured that the products of his employer, Pfizer, were prescribed more often than its competitors’. He worked hard and, thanks to Pfizer’s revolutionary new treatment for erectile dysfunction, succeeded in replacing many pharmaceutical products with their Pfizer equivalents.

Those who have seen the movie will remember Jamie’s great success upon Viagra’s entry into the market. They might also remember that Jamie was eventually offered a huge promotion.

But for real-life drug rep Michael Shane Christopher, employed by SmithKline Beecham, life has not been so charmed.

Michael, like Jamie, does not actually sell pharmaceutical products directly to patients or to pharmacies. Just like Jamie, his job is to meet with doctors to persuade them to prescribe SmithKline products. Michael, like Jamie, worked long hours to make SmithKline products more competitive in the pharmaceutical market. But unlike Jamie, Michael will never earn the pay he deserves.

Many could consider Michael’s job as a drug rep to be less than admirable. After all, if Love and Other Drugs had an underlying purpose, it was probably to shed light on the pharmaceutical industry’s shady operations.

But federal law does not afford fair pay only to those whose jobs are popular or likable. The Fair Labor Standards Act (FLSA) does not make any employee more deserving than the next, but rather entitles all workers to certain rights and guarantees. That is unless a major drug company decides to argue semantics with the Supreme Court. When that happens, all bets are off.

Enter Christopher v. SmithKline, a Supreme Court decision announced on Monday, June 18, in which SmithKline successfully defined Michael as an “outside salesman” not entitled to overtime pay. Under FLSA, outside salespersons are one of several narrowly-drawn classes of employees exempted from the overtime pay requirement. Congress tasked the Department of Labor with defining those classes, which they did by reaching the outrageous conclusion that salespersons must, in fact, make sales. The Department of Labor argued exhaustively that since a drug rep like Michael does not make sales, he must not be an “outside salesman.” Case closed, right?

Wrong. The Corporate Court disagreed with the Department of Labor and ruled that Michael should be denied overtime pay.

In a narrowly divided 5-4 decision written by Justice Alito, the Court found that the Department of Labor’s definition of an “outside salesman” was invalid because – essentially – it was too obvious. The conservative majority held that, because the agency simply “parroted” the FLSA language, it had no reason to rely on its interpretations.

After hearing oral arguments in this case, it seemed unlikely that the Court would side with SmithKline. Chief Justice John Roberts insisted that, at the end of the day, drug reps “don’t make sales.” Justice Sonia Sotomayor worried that defining drug reps as outside salesmen might serve to exclude all those involved in promotional work from overtime pay.

SmithKline’s counsel Paul Clement, who also argued the challenge to the Affordable Care Act, responded that drug reps “make sales in some sense” and that the Department of Labor’s definitions were “inconsistent with the statute.”

Note to the editors of the Oxford English Dictionary: being a “salesperson” no longer requires making any actual “sales.”

Government sides with oil companies accused of human rights atrocities

In a pending Supreme Court case involving human rights abuses allegedly committed overseas by British and Dutch oil companies, the Obama administration came out last week on the side of corporate interests.

This past Wednesday, the Department of Justice filed a friend-of-the-court brief in Kiobel v. Royal Dutch Petroleum, arguing that U.S. courts:
should not create a cause of action that challenges the actions of a foreign sovereign in its own territory, where the [defendant] is a foreign corporation of a third country that allegedly aided and abetted the foreign sovereign’s conduct.
The Supreme Court heard oral arguments in the case this past February, but just a week later, ordered re-briefing and re-argument on a new, broader question: “Whether and under what circumstances the Alien Tort Statute allows Courts to recognize a cause of action for violations of the law of nations occurring within the territory of a sovereign other than the United States.”

In Kiobel, a group of Nigerian plaintiffs, many of whom have received refugee status in the United States, sued the oil companies for enlisting members of the Nigerian military to torture and kill environmental activists in the Ogoni Region of Nigeria. The plaintiffs sued under the Alien Tort Statute, an 18th century law allowing suits to be brought for egregious international law violations in U.S. federal courts.

Initially, the United States filed a friend-of-the-court brief in support of the human rights victims. Even though the specific question before the court has changed, it is difficult to resolve how in a few short months, the government has demonstrably altered its position 180 degrees.

Marco Simons of EarthRights International exposed the absurdity of the government’s position. On the one hand, the government concedes that suits against foreign actors concerning foreign activity can be brought in U.S. courts for several reasons that benefit a corporation’s bottom line. However, the government is opposed to U.S. courts hearing suits alleging the most heinous of crimes: crimes against humanity, torture, and extrajudicial killing.

For human rights victims who will never receive justice through their domestic courts, the ATS could stand as a symbol of the American judicial system’s concern for universal fairness and justice. But if the Court sides with the oil companies, the federal courthouse doors will be shut to victims of human rights atrocities committed abroad. It is disappointing that the government has decided to support this potential restriction of individual victims’ access to justice.

Experts draw lessons from the Roberts Court's biggest cases

Yesterday, AFJ presented a panel at the 2012 Take Back the American Dream Conference in Washington, DC.

Our panel discussed the growing politicization of the Roberts Court and past and future decisions that will impact almost every major political issue of our time.

Judy Scott speaks at our panel on the Supreme Court
Professor Jeffrey Rosen of GW Law and The New Republic stressed that the forthcoming decision in the case challenging health care reform will be a “moment of truth” for Chief Justice Roberts, saying “…to strike down healthcare reform by a 5-4 vote would represent an irredeemable failure for [Chief Justice Roberts’] vision of bipartisanship.”

Ari Melber of The Nation reminded us that we can learn from the conservative movement’s success in altering the composition of the courts and shifting legal interpretations through political organizing. There is a lot that progressives can do to push forward a progressive set of priorities for the Court, he said, with the right organizing, political frameworks, and pressure.

Judy Scott of the SEIU told the stories of three workers who stood up for their rights in court, only to have the Roberts Court diminish the ability of workers to take collective action. She highlighted last year’s Walmart v. Dukes, saying, “The standard that the Court set put up a major roadblock in the path of workers trying to take on corporate power collectively in the workplace.”

Reverend Barry Lynn of Americans United for the Separation of Church and State spoke about what he called “corporate conscience.” “Under the claim of religious freedom you find a cover for a gigantic new fictional creature called ‘corporate conscience’ and the rights of workers could be given short shrift yet one more time,” he said. He emphasized the need to fill judicial vacancies, and closed by declaring the Supreme Court should “serve as a constraint on the otherwise overarching tyranny of the majority, along with their corporate political allies, and to do it because we are trying to protect the future of ourselves and generations to follow.”

Rick Scott Not Dead, Voter Fraud Not a Threat

Justice Anthony Kennedy last week stayed a Ninth Circuit Court of Appeals ruling that new electoral registration requirements in Arizona are prohibited under federal law. Voters in Arizona, a laboratory for anti-immigrant policies, passed Proposition 200 in 2004, requiring voters to offer proof of citizenship. Opponents immediately identified the proposal as anti-immigrant and a threat to Latino civil rights.

On Wednesday, supporters of Proposition 200 asked Justice Kennedy to stop the Ninth Circuit ruling from coming into effect, at least until the end of this election year (Justice Kennedy is tasked with handling emergency motions from the Ninth Circuit). The Supreme Court has addressed the measure before, allowing it to remain in place through the 2006 midterm elections. But the Court did so without deciding whether or not the requirement was barred by the 1993 Voting Rights Act (VRA). Now that the Ninth Circuit has declared the measure void under the VRA, Justice Kennedy is requesting additional briefs on the matter. The Court may soon have an opportunity to clarify the legality of Arizona’s voting registration requirements. Such a decision would necessarily impact voters in states like Florida, Virginia, and Texas, all of which have passed similar voter ID laws.

Voter ID laws targeted at minority communities have been top policy priorities for certain state legislatures since 2011. Florida Governor Rick Scott is pushing a voter purge, claiming it is necessary to remove non-citizens from voter lists. Although Scott claims that state officials are unlikely to purge legitimate voters, the governor himself was forced to cast a provisional ballot in 2006 when Florida officials mistakenly thought he was deceased. In Wisconsin, where a recent voter ID law has not yet taken effect, many voters were nonetheless required to produce identification during the recent gubernatorial recall election.

The D.C. Circuit Court of Appeals recently upheld the constitutionality of a key provision of the Voting Rights Act, based on the documented efforts to disenfranchise and intimidate minority voters in many places across the country. Because that case, Shelby County v. Holder, squarely addresses the constitutionality of the VRA, the Supreme Court is likely to hear an appeal from the D.C. Circuit’s decision during its 2012-13 term.

In the meantime, given the expedited briefing schedule set by Justice Kennedy, the Court’s review of the Ninth Circuit ruling on Arizona’s voter ID provision could affect voting in the current election cycle in Arizona, and potentially in other jurisdictions with similar voter ID provisions.

While we await word from the Court, it is worth remembering that, as Florida ACLU Executive Director Howard Simon pointed out, there are more shark attacks in Florida than cases of voter fraud.

Watch online: Our all-star panel looks at upcoming Supreme Court cases


Last Friday, Alliance for Justice presented a panel discussion at the annual Netroots Nation conference in Providence, Rhode Island.

Our panel of experts discussed the biggest upcoming Supreme Court cases and took questions from the packed room. The discussion ranged from the healthcare case to affirmative action, and touched on so many big cases and issues that one blog post couldn't possibly do it justice. Fortunately, Netroots Nation now has the video available for online viewing. Watch now:


Watch live streaming video from fstvnewswire at livestream.com


Moderated by AFJ President Nan Aron, our panelists were: Debo Adegbile of the NAACP Legal Defense Fund; Lani Guinier of Harvard Law; and Dahlia Lithwick of Slate. Thanks to our panelists and the wonderful participants of Netroots Nation for making this panel such a huge success!

One Year Later: The Consequences of Arizona Free Enterprise Club v. Bennett

A year ago, during oral arguments in Arizona Free Enterprise Club’s Freedom Club PAC v. Bennett, the conservative justices on the Supreme Court were candidly skeptical of the “matching funds” provision in Arizona’s campaign finance law that Freedom Club PAC was challenging. That provision allowed a publicly-funded candidate in Arizona to match and spend the same dollar amount as a privately-funded opponent up to a certain limit. Justice Antonin Scalia, for example, feared that a wealthy donor might refuse to contribute $10 million to a campaign if a publicly financed opponent would then receive the same amount.

The conservative majority on the Supreme Court saw the matching funds provision as placing a “substantial” burden on donors and privately-funded candidates. Burden or not, the Court’s decision certainly made it easier for big donors to influence elections in states like North Carolina and New Mexico, where a total of three public campaign financing systems – two municipal and one for state-wide judicial elections – have come under scrutiny throughout the past year.

In her Bennett dissent, Justice Elena Kagan eloquently described the requisite chutzpah of a political action committee (or PAC) seeking to reduce the amount of money in elections only when it benefits the other candidate. After all, the public funding provided under Arizona’s campaign finance law was equally available to all candidates. A matching funds provision would level the playing field and create more speech, providing voters with better and more information in an election.

But the majority opinion dismissed those goals, arguing that leveling the playing field is not a good enough reason to curtail the influence of money in politics. One year after the Court struck down Arizona’s matching funds provision, the damage to our democracy is clear.

In North Carolina, super PACs are buying state supreme court seats and a federal district court says there is nothing it can do about it. Although unlimited corporate expenditures in elections are a direct result of the Court's decision in Citizens United v. FEC, a matching funds provision in North Carolina could have countered the effect of these corporate expenditures were it not for Bennett.

A similar challenge in New Mexico threatens to dismantle Albuquerque’s excellent public campaign financing system. New Mexico Turn Around, a conservative PAC, brought an action in federal court to enjoin the city of Albuquerque from enforcing its matching funds provision.

Last December, in Western Tradition Partnership v. Bullock, the Montana Supreme Court upheld a state ban on corporate contributions, citing specific circumstances that make Montana particularly vulnerable to the influence of special interests and big corporations in its elections. North Carolina has joined over 20 states and the District of Columbia in asking the U.S. Supreme Court to deny cert in the Montana case. These states hope to establish among lower courts that there are legitimate state interests at stake in campaign finance reform.

Although the Supreme Court temporarily blocked the Montana ruling, it is has not yet decided whether it will hear oral arguments or issue a summary reversal.

Other courts have also sided with states and cities that hope to prevent corruption through creative provisions in their campaign finance reform laws. The Fourth Circuit Court of Appeals distinguished Citizens United and Bennett when upholding North Carolina’s ban on lobbyists’ campaign contributions.

Similarly, the Second Circuit gave hope to reform supporters when it upheld certain provisions from New York City’s campaign finance reform laws. The Second Circuit affirmed a lower court’s finding that neither Bennett nor Citizens United prevented the City from imposing restrictions on corporate contributions and the matching public funds that would be disbursed as a result. The court distinguished independent expenditures from contributions, finding that the latter could be limited under Citizens United and that the City had a legitimate interest in capping those contributions to prevent actual and apparent corruption.

While there is no doubt that the Bennett decision has been detrimental to our democracy, the Second Circuit’s recent ruling suggests a way to create incentives for smaller contributions and to limit the influence of corporate interests without violating the controlling precedent of Bennett.

Revisiting the Thurmond Rule

Is Strom Thurmond still casting
a shadow over Senate procedure?
His obstructionist maneuvers from 1968
have become part of Senate folk wisdom.
Yesterday, Senate Minority Leader Mitch McConnell (R-KY) announced that Senate Republicans are invoking the “Thurmond rule” to halt the confirmation of any more circuit court judges this year. Should Senator Reid (D-NV) try to schedule a vote on an appellate court judge, the GOP members of the Senate will filibuster the confirmation and deny the nominee a chance to receive an up or down vote.

This means that the 4 circuit court nominees who have been waiting for their votes since March and April would have to stay frozen in the system until at least January 2013 before the Senate would take action to confirm them.

While much press coverage of McConnell's statement takes it as a given that the "Thurmond Rule" is an established fact of the Senate, history paints a much different picture.

The “Thurmond Rule” is a fuzzy, occasional tradition of the Senate, lodged nowhere in the formal or informal rules, which tends to be invoked in presidential election years by members of the party not holding the White House. While the “rule” is mentioned as if it is binding authority, history shows that the Senate in fact continues to confirm judicial nominees well into the fall of election years.

For example, at the end of President Bush's first term in 2004, the Senate confirmed 23 judges in the second half of the year. At the end of President Clinton's first term, 17 judges were confirmed.

Alliance for Justice has prepared a fact sheet on the "Thurmond Rule," which features an informative graph on confirmation rates during election years.

Click to Enlarge


(Note that the Senate is often in recess during nearly all of August so that senators can go home and meet with constituents or campaign for re-election; confirmation rates tend to rise back to March/April levels once the Senate resumes its business in September and October. For example, the Senate was in recess between August 2 through September 6 of 1996, and from July 26 to September 6 of 2004.)

You can download the full fact sheet here.

AFJ at Take Back the American Dream

We’re headed to the annual Take Back the American Dream conference in Washington, DC next week!

Make sure to stop by our exhibit booth, and join us for our panel, “Judicial Wilding: Progressives and the Supreme Court” on Monday, June 18 at 12:15 p.m. Since the healthcare arguments in March, the overtly political nature of the Roberts Court has become a topic of great debate, and this Court is poised to take on almost every single major political issue dividing this country. What does this overt politicization mean for the legitimacy of the Court? What can activists do to help insure the future of American Democracy?

Our panelists at this event will be:
Nan Aron, Alliance for Justice
Rev. Barry Lynn, Americans United for Separation of Church and State
Ari Melber, The Nation
Jeffrey Rosen, The New Republic
Judy Scott, SEIU.


If you're in Washington, we hope you can join us.

Judicial Wilding: Progressives and the Supreme Court
Monday, June 18
12:15p.m.
Washington Hilton Hotel
Jefferson West room.

One Year Later: The Consequences of Janus Capital v. First Derivative Traders

In Janus Capital Group, Inc. v. First Derivative Traders, Inc., a case decided one year ago this month, the Supreme Court hampered the Securities and Exchange Commission (SEC) in its efforts to combat fraud, by deciding that white-collar criminals could devise complex structures of shell corporations to avoid accountability. The decision – part of a growing trend of corporation-friendly 5-4 rulings engineered by the conservative wing of the Court – was ostensibly intended to create a bright-line rule that would clarify the application of important corporate accountability regulations, but has instead confused and divided lower courts and stifled the effectiveness of those checks on corporate practices. This confusion makes it more likely that the issue decided in Janus could end up back before the Supreme Court one day soon. In the meantime, Congress or the SEC can act to repair the damage done to corporate accountability mechanisms by Janus.

According to its drafters, the story behind SEC Rule 10b-5 began with an anecdote that circulated around SEC offices in 1942. A wealthy Boston banker had made a fortune by fleecing his investors, telling them (falsely) that the bank was in dire trouble, purchasing their stock at a sharp discount, and reaping huge profits when, in fact, the bank’s stock quadrupled in value soon thereafter. At the time, the SEC had adopted rules penalizing fraud related to the sale of securities, but no rule existed to penalize securities purchasers who engaged in fraud. Rule 10b-5 changed that, authorizing the SEC, as well as the affected stockholders, to sue buyers or sellers who engaged in securities fraud. Since its adoption, Rule 10b-5 has been described as “the primary vehicle for class actions against public companies based upon allegations of false disclosure and the legal source for the prohibition of insider trading.” The Janus ruling, however, has brought the continued vitality of Rule 10b-5 into question.



The Janus case began with fraudulent allegations in a series of prospectus documents issued by Janus Capital Group (JCG) to its investors, including First Derivative Traders, Inc. (FDT). Specifically, JCG claimed in the prospectus documents that it did not participate in the controversial market manipulation practice known as “market timing.” When it was subsequently revealed that JCG had in fact been secretly engaging in marking timing for the benefit of a select group of well-connected hedge fund managers, its stock plummeted and shareholders, including FDT, lost a fortune.

JCG’s false claims were a clear violation of Rule 10b-5, and FDT, along with several other shareholders, decided to sue. In addition to JCG, they also sued Janus Capital Management (JMT), a JCG subsidiary that managed the mutual funds and to which JCG channeled the profit in the form of management fees. This meant that if FDT sued JCG alone, FDT would not be able to recover its lost profits because virtually all of JCG’s assets were funneled to JCM. This divided corporate structure is a common one for the management of mutual funds, and most view it as a formality alone. The same individuals who issue the mutual funds under the auspices of one corporate entity typically also manage them under another. The New York Times has called this structure “one of the great legal fictions of Wall Street” and “legal ventriloquism,” and has referred to asset-less entities like JCG as “dummy corporations.”

As it turns out, the mutual funds’ divided management structure ended up being the key to the case. The Court’s ruling stated that JMT could not be liable for the fraudulent prospectus statements, because it was technically the asset-less parent company, JCG, that issued them and bore ultimate responsibility for their contents. Therefore, the Court said, JMT did not “make” the fraudulent statements within the meaning of Rule 10b-5. It didn’t matter that JCG and JMT were directed by largely the same group of people, that the sole reason for JMT’s existence was to shield JCG’s assets from liability, or that, by exempting JMT from liability, the Court was effectively ensuring that that the people behind the Janus family of mutual funds would not have to compensate the investors they had defrauded. In short, the Court allowed JCM to manipulate the legal fictions of the corporate form in order to get away with fraud.

In the year since Janus was decided, lower courts have split on their application of its holding to other cases. Some lower courts have come down on the side of minimizing the impact of Janus, usually by finding ways to distinguish its facts from those of cases before them. For example, three months after Janus was decided, a federal district court in Alaska held that Janus’ limitation on liability couldn’t protect other corporate officers who had signed fraudulent SEC disclosure forms. Going even further, a federal district court in New York held that Janus did not prevent a parent company from being held liable under Rule 10b-5 for fraudulent statements issued by a subsidiary corporate entity, where the parent company owned the subsidiary and exercised a degree of control that ensured that the parent company had “control over the content of the message, the underlying subject matter of the message, and the ultimate decision of whether to communicate the message.”

On the other hand, some courts have taken up Janus’ invitation to isolate Rule 10b-5 liability to a single corporate entity. For example, in Hawaii Ironworkers Annuity Trust Fund v. Cole, a federal district court in Ohio took the Janus ruling and ran with it, holding that Janus not only limited Rule 10b-5 liability between corporate entities, but also within a single corporate entity, effectively adopting a “just following orders” defense to securities fraud. Perhaps most alarmingly, a district court in Nebraska has held that the Janus holding narrows the scope not only of private actions for securities fraud, but of SEC-initiated actions, as well. That interpretation ties the hands of watchdog agencies, going even further to ensure that white-collar criminals can avoid both public and private accountability for fraud. The district court’s reasoning runs counter to the reasoning of the Supreme Court in Janus, which was based in part on judicial restraint concerns about expanding the right of individuals to sue under Rule 10b-5, as had been implied by the courts.

During the year since Janus, legal scholars and Court watchers have reacted strongly to the decision. Scholars have commented on the irony that the “bright-line” rule announced in Janus – which was intended to clear up confusion about the application of Rule 10b-5 among the lower courts – has only added to the confusion. They have also noted that the different applications of Janus have created divided authority, with courts of some circuits reading Janus broadly and others reading it narrowly. This creates a risk that corporate defendants will attempt to engage in “forum shopping,” the practice of manipulating procedural technicalities to get cases moved to jurisdictions with law that is more favorable to them.

In the meantime, scholars have also noted ways that Congress and even the SEC itself can limit, or altogether eliminate, the impact of the Janus ruling. For example, the SEC could promulgate new regulations requiring investment advisors, such as the executives at JCM, to sign statements issued by the funds, thus becoming “makers” of the statements within the meaning of Rule 10b-5. The SEC could even just tweak the language of Rule 10b-5, such as by replacing the word “make” with “create.”

It is easy to get lost in the technical complexity of cases like Janus. It is also easy to dismiss the case as insignificant because it seems to affect such a small group of litigants: private plaintiffs filing fraud claims under Rule 10b-5 (although, as we have seen, lower courts have not always confined the holding in this way). But it is important to keep in mind that this case is representative of a larger pattern of corporation-friendly rulings from the conservative wing of the Court.

The ostensible concerns that underlie the majority’s reasoning in Janus—judicial restraint and establishing a clearly defined rule regarding the reach of Rule 10b-5 liability—have been poorly served by the ruling itself, which has only further muddled the judicial understanding of Rule 10b-5 and, on some courts, has set off a fresh wave of conservative judicial activism. Should the issue appear back before the Court, as some scholars believe it is likely to, unwillingness to reconsider its holding would be a sure signal that the Court is interested primarily in stifling the effectiveness of important regulatory checks on fraud, ensuring that white-collar criminals have the opportunity to manipulate the legal fictions of the corporate form to shield their malfeasance from the reach of both federal regulators and their own shareholders.

Court rubberstamps indefinite imprisonment in Guantanamo and the use of torture against an American citizen

The Supreme Court today declined to hear arguments on behalf of Guantanamo Bay detainees seeking release under the habeas corpus doctrine, and on behalf of an American citizen seeking nominal damages for torture he suffered at the hands of the U.S. government. The Court’s denial of cert means that the U.S. government can indefinitely hold detainees even when there have been no formal charges brought against them.

Another of today’s cert denials impedes an American citizen from bringing suit against high-profile Pentagon officials for authorizing years of torture committed on American soil.

Four years ago tomorrow, in Boumediene v. Bush, the Supreme Court held that detainees can challenge their confinement in Guantanamo Bay as a violation of habeas corpus if the government has not identified the charges against them. Yet today, the Court refused to entertain the detainees’ claims that the consistent denial of habeas corpus petitions by the conservative D.C. Circuit Court of Appeals defies the Supreme Court's precedent in Boumediene.

The D.C. Circuit has never ruled in a detainee’s favor and has explicitly criticized the Boumediene majority, seeming to pay greater heed to the dissents by Chief Justice John Roberts and Justice Antonin Scalia. Bush II appointee Judge Janice Rogers Brown wrote in Latif v. Obama, one of the cases at issue in today’s order, that “Boumediene’s airy suppositions have caused great difficulty for the executive and the courts,” and that the decision has “fundamentally altered the calculus of war, guaranteeing that the benefit of intelligence that might be gained — even from high-value detainees — is outweighed by the systemic cost of defending detention decisions.” Brown’s opinion places murky and unsubstantiated government accusations above fundamental habeas corpus rights.

One of the most notable appeals denied today arises from Brown’s infuriating decision in Latif. In that case, the district court granted the habeas corpus petition of Yemeni citizen Adnan Latif, who has been held in Guantanamo since 2002. The circuit court reversed the district court’s decision, because government reports stated that Latif was seeking military training from Al-Qaeda, even though Latif had documented proof that he was seeking medical treatment and religious training in Pakistan and Afghanistan. The circuit court’s decision makes it almost impossible for a detainee to be released, by holding that the burden of proof rests upon the detainee to prove that the government’s intelligence is flawed.

In a vigorous dissent, Judge David S. Tatel contended that relying on the government’s unsupported accounts overwhelmingly tips the balance of justice in the government’s favor and allows appeals courts to reject the factual findings of a district court too easily.

Another notable appeal rejected today comes from American citizen Jose Padilla. Padilla sued for nominal damages of $1 against former Defense Secretary Donald Rumsfeld and other government officials, after being tortured for years in a military prison near Charleston, South Carolina. Padilla, born in Brooklyn, claims that he was shackled in stress positions, was injected with “truth serums,” was subjected to sleep deprivation, and was threatened with death. The Supreme Court declined to hear Padilla’s appeal of the lower court’s dismissal of his claims.

That none of the nine justices dissented to the denial of cert for any of the seven Guantanamo cases signals that the notoriously conservative D.C. Circuit Court is now the court of last resort for Guantanamo detainees. Leaving the detainees’ fate in the D.C. Circuit’s hands is tantamount to allowing the government to detain foreign nationals indefinitely without ever formally charging them or bringing them before a court.

Just as distressingly, by declining to hear the appeals, the Supreme Court is also allowing a rogue lower court to flagrantly ignore its precedent when it finds it to be too “airy.”

By allowing the Padilla decision to stand, the Court is helping to shield government officials from disturbing accusations of torture and rubberstamping its continued use. It is especially troubling that an American citizen can be tortured by Americans, on American soil, and have no recourse in American courts.

DOMA and Prop 8 Cases Inch Toward the Supreme Court

Over the past decade, movement on marriage equality has been in two opposing directions, with some states passing laws to allow same-sex marriage and others passing laws to prohibit such unions. In addition to the legislative strategy, some advocates have pursued a litigation strategy, which has paid increasing dividends as several federal courts have recently ruled that efforts to deny same-sex couples the right to marry are unconstitutional.

In February, the Ninth Circuit struck down California’s Prop 8 (the voter-enacted ban on same-sex marriage) and just a few days ago declined to rehear the case en banc, while at the end of May, the First Circuit ruled DOMA’s section 3 (defining marriage as between one man and one woman) unconstitutional. The Supreme Court is likely to hear at least one of these cases during the term that begins in October, adding same-sex marriage to the long list of political hot button issues on its docket.

DOMA’s two operative paragraphs make it an unusually short yet damaging piece of legislation. The law allows the federal government to deny economic and other benefits to lawfully married same-sex couples and threatens states that recognize same-sex marriage (like Massachusetts) with cuts to programs like Medicaid. DOMA’s Section 3 operates to effectively deny married same-sex couples the rights and benefits that apply to heterosexual couples.

With its unanimous ruling, the First Circuit became the first federal appellate court to rule that DOMA is unconstitutional. Several federal district courts, including California’s Northern District and the Southern District of New York, have also declared DOMA unconstitutional. (The Ninth Circuit will hear oral arguments in yet another DOMA challenge during the week of September 10th).

In its May 31 opinion, the First Circuit looked to the harmful effects of the legislation on states and individual citizens when deciding whether those effects served to advance Congress’ goal of protecting heterosexual marriage. However, the three-judge panel was not as ambitious as the Northern District of California when reviewing DOMA’s constitutionality, calling for “closer than usual” review of its discriminatory effects on same-sex couples rather than applying “heightened scrutiny,” as the court in California did.

It is all but assumed that the losing party in the First Circuit will appeal to the Supreme Court. This is such a foregone conclusion that the First Circuit stayed its decision pending appeal, and seemed to be directing its reasoning toward the “swing justice” – Justice Anthony Kennedy. The unanimous opinion relies heavily on Justice Kennedy’s opinions in Lawrence v. Texas and Romer v. Evans. In Lawrence – involving a Texas anti-sodomy law – the Court warned that moral disapproval alone could not justify criminalizing specific behavior, while Romer stands for the proposition that a state cannot deny an entire class of persons the ability to seek equal protection under the law. It is well-known that lawyers and advocates go to great lengths to sway his pivotal vote, and these are cases in which his vote would almost certainly be pivotal.

When these cases reach the Supreme Court, the goals of DOMA and Prop 8 will be examined in terms of those laws’ effects. While DOMA supporters claim that the law saves the federal government money by denying certain benefits to same-sex couples, the First Circuit said that recent studies suggest otherwise. Furthermore, there is no empirical evidence to support the claim that legalizing same-sex marriage discourages heterosexual marriage. In its relatively modest ruling, the First Circuit said that denying federal benefits to same-sex couples lawfully married in Massachusetts “has not been adequately supported by any permissible federal interest.”

In its opinion, the First Circuit reiterated the status of same-sex couples as a disadvantaged and politically unpopular group. The First Circuit’s ruling illustrates an emerging consensus among courts that the rights of same-sex couples should not be denied without at least some question as to the discriminatory results of laws like DOMA or Prop 8. Even without the level of skepticism in the Northern District of California opinion, the First Circuit still chose to review DOMA under a higher than usual standard.

If the Court hears either or both of these cases, it may decide to rule on a question as narrow as whether the federal government and all states must recognize same-sex marriages performed lawfully under the various state laws, or as broad as declaring any state ban on same-sex marriage unconstitutional. The Court will have a historic opportunity to move the country forward on marriage equality, or to erase the progress that has been made over the last several years.

Toppling the Affirmative Action Apple-Cart

The Supreme Court’s next term could sound the death knell for affirmative action.

The Court will hear arguments in the case of Fisher v. University of Texas at Austin and could use the opportunity to declare affirmative action in the higher education admission process to be unconstitutional. This is the first time that the Court has agreed to hear a higher education affirmative action case since Chief Justice John Roberts was appointed in 2005. However, the Roberts Court has struck down affirmative action plans in other contexts, providing little hope that UT’s affirmative action policy, or the more general principle of affirmative action in public university admissions, will survive the Court’s decision in Fisher.

Nearly ten years ago, then-Justice Sandra Day O’Connor forecast in Grutter v. Bollinger that the need for affirmative action would end in 25 years. Grutter upheld an affirmative action policy at University of Michigan Law School. While O’Connor’s purported expiration date on affirmative action seemed both arbitrary and optimistic, the Court’s willingness to hear Fisher and potentially end affirmative action only nine years after Grutter is even more disheartening.

Abigail Fisher is a white woman who brought suit against the University of Texas after it rejected her for admission. She claims that the university’s consideration of race in the admissions process violates the Fourteenth Amendment’s Equal Protection Clause. The Equal Protection Clause ensures that state governments apply the law equally to all.

Most of UT’s freshman spots go to Texas high school seniors in the top 10 percent of their class who automatically receive admission under a state legislative initiative called the “Top Ten Percent Plan.” The remaining seats go to students who qualify under a multi-factor formula. The UT policy that Fisher is challenging factors an applicant’s status as an underrepresented racial or ethnic minority as a “special circumstance” into that formula.

Fisher first argues that UT’s policy violates Grutter, but argues in the alternative that Grutter should be overruled. Fisher contends that the policy is unconstitutional because it does not meet the strict scrutiny test, which is the highest constitutional burden for a policy to meet. The strict scrutiny standard requires that a race-based policy be narrowly designed to meet a compelling government interest. Additionally, Fisher argues that the Top Ten Percent plan is race-neutral and already achieves diversity. She also claims that her “academic credentials exceeded those of many admitted minority candidates.”

The university contends that its policy meets the strict scrutiny test because it was modeled on and improved upon Grutter, arguments that were successful in the lower courts. The university also argues that the case is moot, because Fisher has already graduated from another university, and UT has offered to refund the modest fees that she paid.

The justices hostile to affirmative action

The Court that will hear Fisher is very different from the Court that decided Grutter and Gratz, the last two higher education affirmative action cases that the Court heard. Significantly, the Court now includes five justices who are generally hostile to affirmative action.

Since Grutter, the conservative Justice Samuel Alito has been appointed to replace Justice O’Connor. Notably, on Alito’s 1985 job application for promotion in the Justice Department, he indicated that he belonged to Concerned Alumni of Princeton, a group actively opposed to the admission of women and minorities, which even published a pamphlet claiming that “racial tensions” caused an upswing in campus crime.

Meanwhile, Chief Justice John Roberts, who replaced former Chief Justice William Rehnquist, has a long history of antipathy toward federal civil rights law. Indeed, prominent Court watchers have suggested that the Roberts Court is determined to press its conservative agenda upon several race-related issues, including the Voting Rights Act.

Significantly, Chief Justice Roberts authored the 2007 decision in Parents Involved in Community Schools v. Seattle School District. In that case, parents successfully challenged a plan that took race into account when assigning students to the city’s high schools in order to increase the schools’ racial diversity. Roberts compared Seattle’s policy to segregation and Brown v. Board of Education.

He wrote:
Before Brown, schoolchildren were told where they could and could not go to school based on the color of their skin. The school districts in these cases have not carried the heavy burden of demonstrating that we should allow this once again—even for very different reasons. . . . The way to stop discrimination on the basis of race is to stop discriminating on the basis of race.
For somewhat different reasons, Justice Clarence Thomas has long opposed affirmative action. In his concurrence in Missouri v. Jenkins, Thomas opined that a Kansas City school district’s desegregation policy to remedy “white flight” to the suburbs was unconstitutional. He took issue with what he saw as “the idea that any school that is black is inferior, and that blacks cannot succeed without the benefit of the company of whites.”

The justices favorable toward affirmative action

It is generally assumed that justices Ruth Bader Ginsburg and Stephen Breyer, and Sonia Sotomayor will probably side with UT and in support of affirmative action.

But Justice Elena Kagan has recused herself, due to the fact that she was Solicitor General when the Justice Department filed a brief in support of UT before the Fifth Circuit.

The other newest justice – Sonia Sotomayor – is known to have a favorable view of affirmative action. This is Sotomayor’s first affirmative action education case since she was elevated from the Second Circuit to replace Justice David Souter in 2009. While on the Second Circuit, Sotomayor was on the three-judge panel that upheld the New Haven Fire Department’s policy of taking race into account when reviewing promotion examinations on which whites received higher average scores in Ricci v. DeStefano. The policy at issue was a voluntary effort by the department to rectify generations of racial exclusivity in hiring. In 2009, just prior to Sotomayor’s elevation, the Supreme Court reversed the Second Circuit’s decision. The Court held that by refusing to certify the examination results in favor of whites, the fire department violated Title VII’s prohibition on intentional employment discrimination. The Court’s holding in Ricci once again illustrates the Court’s disfavoring of racial equality policies.

Sotomayor has also personally experienced the significance of affirmative action. She has called herself a “perfect affirmative action baby” who, despite slightly lower than average admission test scores, excelled at Princeton and Yale, graduating summa cum laude from Princeton and serving as an editor of the Yale Law Journal.

Kennedy, Kennedy, Kennedy!

So, with four presumed votes against the university and three clear votes for it, all attention turns toward Justice Anthony Kennedy (if the Court splits 4-4, the decision of the lower court in UT’s favor stands without precedential effect).

Kennedy dissented in Grutter, opposing the University of Michigan Law School’s affirmative action policy, and joined the majority in Gratz v. Bollinger, rejecting University of Michigan’s undergraduate affirmative action policy. The two cases were decided on the same day in 2003. While the Court eliminated the option of assigning an automatic set of points based on race in Gratz, colleges and universities can consider racial minority status and ethnic identity as a factor when granting admission thanks to Grutter. Despite Kennedy’s Grutter dissent, some still hold out hope that he could vote to uphold the university’s plan in Fisher. His Grutter dissent focused on whether the admission program took “account of race as one, nonpredominant factor” and individually assessed each applicant.

This emphasis on individual assessment also informed Kennedy’s concurrence in Parents Involved. In that case, Kennedy did not think that Seattle’s generalized policy met his “last resort” standard partly because students were not individually evaluated. Yet, his opinion shows that individualized policies that holistically factor in race can meet that standard. Kennedy wrote, “Diversity, depending on its meaning and definition, is a compelling educational goal a school district may pursue” because de facto segregation is still an issue. He responded to Roberts by stating, “The plurality’s postulate that ‘[t]he way to stop discrimination on the basis of race is to stop discriminating on the basis of race,’ is not sufficient to decide these cases.”

Nevertheless, Kennedy is more likely to vote to reject the UT policy and even overturn Grutter. From Grutter to Gratz to Parents Involved, Kennedy has voted against affirmative action education policies time and time again (he also wrote the majority opinion in the firefighters case).

In addition, Kennedy despises minority quotas. In Grutter, he went so far as to reprint a list of the percentages from the law school’s admissions offers, which shows that the percentage of minority offers never fell below 12 percent over 12 years – evidence, to Kennedy, of a quota system. According to his reasoning, quotas signify a lack of individual assessment, and thus the policy did not meet the strict scrutiny standard. Thus, if UT’s policy bears the slightest hint of a quota, Kennedy will likely find grounds to reject it.

The consequences of a pro-Fisher ruling

If the Court were to overturn Grutter and end affirmative action in public higher education once and for all, the effects could be felt far and wide. Let us not forget that there is a reason that affirmative action was developed in the first place. In Justice Thurgood Marshall’s 1978 impassioned separate opinion in Regents of University of California v. Bakke, he wrote,
For it must be remembered that, during most of the past 200 years, the Constitution as interpreted by this Court did not prohibit the most ingenious and pervasive forms of discrimination against the Negro. Now, when a State acts to remedy the effects of that legacy of discrimination, I cannot believe that this same Constitution stands as a barrier.
Many schools, including UT, have expressly incorporated the “Grutter system” into their admission programs, so a reversal of Grutter would constitute an earthquake in university admissions.

And let us remember that affirmative action still matters. Statistics on test scores show performance disparities along racial lines persist and some minorities do benefit from affirmative action policies. Also, considering race as one of many factors in the admission process is a modest way to promote diversity and to enrich the learning environment for all. Broader access to educational opportunities in turn leads to a diverse, and ultimately more effective and productive, workplace.

It is distressing to reflect on the social progress made in American society, education, and the courts, only to watch as conservative political interests on the Court turn back the clock. Like the Greek myth in which Sisyphus must roll the boulder up the hill only to watch it roll back down again, Americans are being left in the lurch by a Court fueled by right-wing politics rather than justice.

Will Fisher prove to be yet another instance of politics over justice? Tune in next term to find out.