by Charles W. Prueter and Brant Biddle
As so often happens, with an end comes new beginnings. The Supreme Court’s 2017–18 term now has come to a close, with no shortage of big cases to consume the attention of Court watchers and the media. And then Justice Anthony Kennedy, long seen as the “swing vote” on the Court, announced his retirement, condemning to relative obscurity much of the case law that came out of the Court in the last several weeks and making way for a newly constituted Supreme Court for the 2018–19 Term. As readers know by now, Judge Brett Kavanaugh has been tapped to replace Justice Kennedy. With a lull in case action this Summer, the Update will provide a special post on the nominee and the confirmation process later this summer, as the effort to get Judge Kavanaugh confirmed gets into full swing. But today, the Update provides the following recaps of recent decisions of which readers should be aware.
The case that grabbed the most headlines on cable news networks this year was Trump v. Hawaii, No. 17-965, which was previewed in past Update. An ever-present issue throughout the existence of the Trump Administration has been the so-called “travel ban,” which has been through several iterations since January 2017. The most recent of those was presented to the Supreme Court this year, with the challengers arguing that the President’s Executive Order restricting the entry of certain foreign nationals amounted unlawful discrimination under federal statutory law (which prohibits discrimination in the allocation of visas based on nationality) and the First Amendment (which prohibits, among other things, discrimination on the basis of religious denomination). The Court, with Chief Justice John Roberts authoring the majority opinion, rejected both challenges, holding that the Executive Order is lawful exercise of presidential power.
With respect to the statutory question, the Court pointed to basic principles of immigration law providing that the President has broad authority to set rules for the initial admissibility of foreign nationals. Only after the boundaries of admissibility have been set, the Court stated, does federal law prohibit discrimination in the allocation of visas.
The core of the challengers’ case was the argument that the Executive Order violated the First Amendment, which provides in part that “Congress shall make no law respecting an establishment of religion.” The challengers contended that the Executive Order violated that First Freedom by targeting Muslims for disfavored treatment, as a majority of the countries covered by the travel ban have Muslim-majority populations. Central to this issue were the many distasteful comments from the President that littered the 2016 presidential campaign. The challengers pointed to these as evidence that the Executive Order was indeed a mere pretext for what the President actually intended — a Muslim ban. The Chief Justice, ever the even-keeled jurist from this writer’s perspective, explained that the legality of the Executive Order must turn on the face of the Order itself, which reflects a “legitimate national security interest” underlying an action in an area in which our laws vest in the President broad discretion. It is notable that, while many consider the outcome of this Executive Order to be in some sense diametrically at odds with the outcomes of the various immigration policy decisions made by President Obama, the legal rationale underlying the actions of both presidents is the same — a fundamental power possessed by the President to set immigration policy.
In his final writing as an Associate Justice of the Supreme Court (this one came after his opinion in South Dakota v. Wayfair, Inc., which is discussed further below), Justice Kennedy authored a separate concurrence in this case, even though he joined the Chief Justice’s opinion in full. Only two pages, his concurrence makes two simple points. First, there are “numerous instances in which the statements and actions of Government officials are not subject to judicial scrutiny or intervention.” This is a reality of our constitutional structure. Indeed, as noted in the below summary of Gill v. Whitford, not all grievances against our various governmental officers and entities in this country are actionable in federal courts. Justice Kennedy’s observation further embodies the same principle as that which animates the Chief Justice’s majority opinion — that is, under fundamental separation of powers principles, some things are left to the Executive alone. The second point in Justice Kennedy’s concurrence is a qualification of the first: “That does not mean those officials are free to disregard the Constitution and the rights it proclaims and protects. The oath that all officials take to adhere to the Constitution is not confined to those spheres in which the Judiciary can correct or even comment upon what those officials say or do. Indeed, the very fact that an official may have broad discretion, discretion free from judicial scrutiny, makes it all the more imperative for him or her to adhere to the Constitution and to its meaning and its promise.” Alas, I doubt that Justice Kennedy’s circumspect admonition reached its intended audience.
Another hot-button case that the Update previously previewed is Gill v. Whitford, No. 16-1611. This case involved a frontal attack on the practice of gerrymandering, which generally speaking involves a state legislature drawing district lines in a way that gives an advantage to the political party then in control. The Update noted previously that, because partisan gerrymandering is a fact of life in many states, this case had the potential, if the justices side with the challengers, to turn the process of districting upside down. Or, on the flip side, if the justices had affirmatively concluded that partisan gerrymandering is a purely “political question” that is not subject to judicial review, there would be no future for litigation challenging these practices in federal court.
But the justices neither sided with the challengers nor implicitly approved of the practice of gerrymandering, instead concluding, through an opinion authored by Chief Justice Roberts, that the challengers lacked “standing” to pursue the case. The doctrine of standing requires that a plaintiff have a personal stake in the outcome of a case. In other words, a citizen cannot go into federal court and sue on a “generalized grievance” — whatever he finds annoying or destructive or unjust. He must show a particular harm that he has suffered and that would be remedied by a judicial decision. Here, the Court concluded that the plaintiffs’ alleged injury was merely a statewide (that is, Wisconsin-wide) injury to their political party, the Democrats, at the hands of the Republican-controlled legislature. Their injury, the Court explained, was not individual and personal in nature. As a result, the Court held that the plaintiffs could not pursue this case, as they asserted only a “generalized grievance against governmental conduct of which he or she does not approve.”
Lest we forget that this is a financial-services focused series, the Update now turns to South Dakota v. Wayfair, Inc., No. 17-494, which also was previewed in a prior Update. Here, the question was whether a precedent from 1992, which said that the Constitution’s Commerce Clause prohibits a state from requiring out-of-state retailers that do not have a physical presence in the state to collect sales tax on sales to its residents, should be overruled. The Court, in an opinion by Justice Kennedy, answered in the affirmative and did in fact overrule that precedent, noting that the “physical presence rule” has “been the target of criticism over many years from many quarters.” The Court reaffirmed that, for a state to require retailers to collect sales taxes, the activity taxed must have a “substantial nexus” with the state but announced new law in explaining that a physical presence is not necessary to demonstrate such a nexus. The Court also noted that the physical presence rule has the effect of creating “market distortions”— putting local businesses and interstate businesses with physical presences at a competitive disadvantage relative to remote sellers without physical presences. Accordingly, the Court concluded that rejecting the physical presence rule was necessary to ensure that artificial competitive advantages are not created by the Supreme Court’s Commerce Clause jurisprudence.
As noted previously, the economic impact of such a change in the law cannot be identified with precision, but the way retailers do business, and especially tax planning, across the country will change markedly now that the Court has authorized states to require remote sellers to collect sales taxes on sales to their residents.
One of the most important separation of powers cases this Term was Lucia v. SEC, No. 17-130, which the Update has discussed twice, in February and again in May, after oral argument. As noted previously, this case casts a spotlight on the SEC’s appointment process for administrative law judges (ALJs). Endowed with all the powers necessary to effectively preside over administrative proceedings against alleged wrongdoers, ALJs serve as a powerful tool for the Commission. Perhaps even too powerful, as the Court found, in an opinion authored by Justice Elena Kagan.
The Appointments Clause requires that any “Officer of the United States” be appointed only by the President, a court of law, or the head of a department. Seizing upon the fact that ALJs are appointed by SEC staffers, rather than by the Commission proper, Mr. Lucia argued that the judgment entered against him by an ALJ was invalid. Justice Kagan agreed.
To qualify as an “Officer,” an official must hold a “continuing” position and “significant authority” to carry out its assigned functions. There was little question that an ALJ’s position is continuing, rather than temporary. More contentious was the question of whether ALJs also possess “significant authority.” The Court found its answer in an earlier case that held that the U.S. Tax Court’s “special trial judges” (STJs) qualify as officers. Finding that STJs are “near-carbon copies of the Commission’s ALJs,” the Court held that an ALJ is an officer to be appointed pursuant to the Appointments Clause. Because there was no Appointments Clause-approved ALJ for the underlying proceeding, the Court further held that Mr. Lucia is entitled to a new hearing before a different, properly appointed official.
As a result of the Court’s decision here, we are likely to see follow-on challenges to decisions and actions of various federal administrative agencies, which is a healthy dynamic. The administrative state is like the Wisteria in my background: It’s often a nice addition, and we enjoy what it brings. But if we are not careful, if we let it grow and grow without imposing limits on its reach, it will take over far more territory than we ever imagined. Lucia reaffirms a limit on the Wisteria. That limit is a simple one: Follow the Constitution.
Finally, American Express had its day in Court this Term in Ohio v. American Express Co., No. 16-1454. As readers may know, due to its superior rewards, American Express tends to attract cardholders who are wealthier and spend more money. Merchants place a higher value on these cardholders, and American Express uses this advantage to recruit merchants — but at a cost to the merchant! When a cardholder uses his American Express to buy something, American Express charges a fee to the merchant, which is typically higher than the fees of competitors Visa and Mastercard. One way that merchants try to avoid those fees, while still enticing American Express’s cardholders to shop at their stores, is by dissuading cardholders from using the card at the point of sale. This practice is known as “steering.” Thus, American Express uses its leverage to prevent steering: If the merchant wishes to accept American Express cards, American Express requires the merchant to agree to an “antisteering” contract, under which the merchant is prohibit from discouraging customers to use their American Express cards.
The question in this case was whether American Express’s model has a substantial anticompetitive effect in the market under federal antitrust law. Justice Clarence Thomas wrote for the Court, which sided with American Express. Justice Thomas concluded that there was no evidence that the price of credit-card transactions in the market was higher than one would expect to find in a “competitive” market — i.e., a market in which American Express did not require merchants to agree to its antisteering contract. As a result, American Express cardholders and merchants alike will continue to engage in transactions for high-dollar items just like they always have — and each merchant still will be contractually bound to refrain from steering a customer toward that Visa in the wallet.
Charles W. Prueter is a trial and appellate lawyer at Waller Lansden Dortch & Davis, LLP, in Birmingham. He can be reached by email at email@example.com. Comments and questions are welcome.
Brant Biddle is a summer associate at Waller Lansden Dortch & Davis, LLP, in Birmingham.