Opinion analysis: Justices uphold arbitration exemption for transportation workers in rare victory for arbitration opponents

Opinion analysis: Justices uphold arbitration exemption for transportation workers in rare victory for arbitration opponentsArbitration month at the Supreme Court continued this morning with the unanimous decision in New Prime Inc. v. Oliveira – following by a single week the unanimous decision in Henry Schein v. Archer & White Sales. New Prime, though, is anything but business as usual: Justice Neil Gorsuch’s opinion for a unanimous court rejects a […]

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Opinion analysis: Justices uphold arbitration exemption for transportation workers in rare victory for arbitration opponents

Arbitration month at the Supreme Court continued this morning with the unanimous decision in New Prime Inc. v. Oliveira – following by a single week the unanimous decision in Henry Schein v. Archer & White Sales. New Prime, though, is anything but business as usual: Justice Neil Gorsuch’s opinion for a unanimous court rejects a claim for arbitration for the first time in a string of more than a dozen of the Supreme Court’s cases stretching back more than a decade. Indeed, I doubt the court has rejected such a claim in any previous decision since the turn of the millennium.

Justice Gorsuch with opinion in New Prime Inc. v. Oliveira, and Justice Thomas with opinion in Stokeling v. U.S.

New Prime involves an exception to the rule in the Federal Arbitration Act that obligates courts to enforce arbitration agreements that involve interstate commerce. Specifically, under the “transportation” exclusion in Section 1 of the act, “nothing” in the act applies to “contracts of employment of … seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In this case, all agree that the truck drivers (including respondent Dominic Oliveira) driving trucks for petitioner New Prime are “workers engaged in foreign or interstate commerce.”

The question for the court is whether the lower courts should have sent this dispute to arbitration even though the drivers might work for New Prime as independent contractors rather than as employees. New Prime argued in the lower courts that the exception for “contracts of employment” applies only when the workers are employees; because New Prime endeavors to structure its relations with its drivers so that they are independent contractors rather than employees, New Prime argued that the act should apply notwithstanding the transportation exclusion.

The first question Gorsuch addresses is whether the lower courts should have been considering the exclusion at all. New Prime argues that because its contracts delegate questions of arbitrability to the arbitrator, the lower courts should have allowed the arbitrator to consider the application of the exception in the first instance. That argument should be familiar to readers of this blog – it was the central topic of the decision last week in Henry Schein. As I explained in my discussion of that opinion, the Henry Schein court unanimously reaffirmed the rule that courts must enforce a contract that delegates “gateway” questions about arbitrability to the arbitrator; the specific holding in Henry Schein was that a court must send a case to an arbitrator even if the claim for arbitration strikes the court as wholly groundless.

In this case, however, the Supreme Court is calling for judicial assessment of the objection to arbitration. Gorsuch explains that the provisions of the act obligating courts to stay litigation and compel arbitration (Sections 3 and 4) apply only if the dispute is one to which the act applies under Sections 1 and 2. Because the act “warns that ‘nothing’ in the Act ‘shall apply’ to ‘contracts of employment’” in the transportation sector, “a court should decide for itself whether § 1’s ‘contracts of employment’ exclusion applies before ordering arbitration.” For Gorsuch, “a court must first know whether the contract itself falls within or beyond the boundaries of §§ 1 and 2” before it can “invoke its statutory powers under §§ 3 and 4.” In sum, even if the contract is “crystal clear and require[s] arbitration of every question under the sun, … that does not necessarily mean the Act authorizes a court to stay litigation and send the parties to an arbitral forum.”

It may be, as Gorsuch remarks, that “[n]othing in” that analysis “should come as a surprise.” We would expect, though, perhaps a few words explaining the distinction between this case and the unanimous decision in Henry Schein a week earlier. It’s not difficult to articulate a distinction. The most obvious difference is that the arbitrability dispute in Henry Schein involved interpretation of the contractual agreement, while the arbitrability dispute in New Prime involves the court’s statutory authority. Indeed, Chief Justice John Roberts suggested such a distinction in the oral argument in New Prime (apparently referring back to the Henry Schein argument that the court had heard a few weeks before it heard New Prime).

But what is to explain the absence from the New Prime opinion of any reference to Henry Schein? It might have something to do with the timing of the two opinions. Because New Prime was argued earlier (in October rather than November), it would be natural for Gorsuch’s opinion to omit any reference to Henry Schein – Gorsuch well might have circulated his opinion in New Prime before Justice Brett Kavanaugh circulated his opinion in Henry Schein. But New Prime has a brief concurring opinion from Justice Ruth Bader Ginsburg (more on that below); if the drafting of that concurrence delayed the release of New Prime beyond the release of Henry Schein it is easy to see that Gorsuch might not have thought it worth the effort to go back and amend his opinion to discuss the now earlier-decided Henry Schein matter. The natural person to call for a discussion would have been Kavanaugh (the author of Henry Schein), but he did not participate in New Prime.

In any event, having determined that the scope of the transportation exclusion is a question for the court, Gorsuch turned to that question. For him, the “key to the case” (foreshadowed by his trenchant comments on that subject at the oral argument) is that the statutory reference to “contracts of employment” must bear the meaning that phrase had “at the time Congress enacted the statute” (quoting his own opinion last term in Wisconsin Central Ltd. v. United States). “After all,” he explains, “if judges could freely invest old statutory terms with new meanings, we would risk amending legislation outside the ‘single, finely wrought and exhaustively considered, procedure’ the Constitution commands” (quoting Immigration and Naturalization Service v. Chadha).

Gorsuch notes New Prime’s central argument – that modern usage limits the term “employee” to the traditional “relationship between master and servant” that is antithetical to the independent-contractor relationship New Prime has tried to craft with Oliveira and the other drivers. Gorsuch rejects that argument, though, based on his conclusion that “at the time of the Act’s adoption in 1925 … most people … would have understood § 1 to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.” Among other things, he cites dictionaries indicating that “employment” was not “then a term of art,” but rather “more or less … a synonym for ‘work,’” routinely applied “whether or not the common law criteria for a master-servant relationship happened to be satisfied.” In the same way, detailed footnotes support the view that the same usage pervaded the Supreme “Court’s early 20th-century cases …, [m]any state court cases, … a variety of federal statutes, … [a]nd state statutes too.”

Gorsuch suggests that New Prime’s contrary arguments largely rest on an effort “to shift the debate from the term ‘contracts of employment’ to the word ‘employee.’” Acknowledging an “extended etymological debate” between the parties on exactly when “the words ‘employee’ and ‘independent contractor’ … assumed [their modern] distinct meanings,” as well as “the common root and … intertwined history” of “‘employee’ and ‘employment,’” Gorsuch emphasizes that “[t]he only question in this case concerns the meaning of the term ‘contracts of employment’ in 1925,” a topic he already has examined.

Finally, Gorsuch notes that New Prime, in his view “[u]nable to squeeze more from the statute’s text, … is left to appeal to its policy.” Not surprisingly, he does not deny the vigor of the court’s embrace of a “liberal federal policy favoring arbitration agreements.” In this case, though, the text seems clear enough to persuade all of the justices to reject the claim for arbitration. With a characteristic rhetorical flourish, Gorsuch comments that “[i]f courts felt free to pave over bumpy statutory texts in the name of more expeditiously advancing a policy goal, we would risk failing to take account of legislative compromises essential to a law’s passage.”

Notably, although Ginsburg joined Gorsuch’s entire opinion, she offered a brief concurring opinion summarizing circumstances in which “Congress … may design legislation to govern changing times and circumstances,” suggesting that a rigorous adherence to the meaning of the text at the time of its enactment often might thwart rather than execute congressional intent.

* * *

Past cases linked to in this post:

INS v. Chadha, 462 U.S. 919 (1983)
Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067 (2018)

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Argument transcripts

Argument transcriptsThe transcript of oral argument in Home Depot U.S.A. Inc. v. Jackson is available on the Supreme Court’s website; the transcript in Azar v. Allina Health Services is also available.

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Argument transcripts

The transcript of oral argument in Home Depot U.S.A. Inc. v. Jackson is available on the Supreme Court’s website; the transcript in Azar v. Allina Health Services is also available.

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Argument analysis: When is the government not really the government for immunity from tort liability?

Argument analysis: When is the government not really the government for immunity from tort liability?In Thacker v. Tennessee Valley Authority, the government contends (and the lower courts agreed) that the TVA should be immune from tort liability to shield executive policy-making, even when the TVA is engaged in arguably commercial activity. The petitioner, Gary Thacker, argues that an entirely different analysis applies to the TVA, which Congress has made […]

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Argument analysis: When is the government not really the government for immunity from tort liability?

In Thacker v. Tennessee Valley Authority, the government contends (and the lower courts agreed) that the TVA should be immune from tort liability to shield executive policy-making, even when the TVA is engaged in arguably commercial activity. The petitioner, Gary Thacker, argues that an entirely different analysis applies to the TVA, which Congress has made broadly subject to suit without expressly preserving policy immunity.

Ann O’Connell Adams, assistant to the U.S. solicitor general (Art Lien)

Thacker was boating along the Tennessee River, just when TVA employees accidentally dropped a power line into the water, striking Thacker in the head and killing his companion. Through an unadorned sue-and-be-sued clause, Congress made the TVA subject to suit in tort and contract. Citing the Supreme Court’s 1940 decision in Federal Housing Administration v. Burr, Thacker contends that the TVA, as a federally chartered corporation that markets electrical power, has been “launched … into the commercial world.” Thus, under Burr, the TVA may escape liability only if the lawsuit presents a “grave interference with the performance of a governmental function.”

For its part, the government insists that, even though the TVA is specifically excluded from the Federal Tort Claims Act, which governs other federal government tort suits, the FTCA’s discretionary function exception should be judicially implied here. Under 28 U.S.C. § 2680(a) of the FTCA, the United States is protected from tort liability based on a federal employee’s exercise or failure to exercise a “discretionary function or duty … whether or not the discretion involved be abused.” The government argues that, as a matter of constitutional separation of powers, the discretionary function exception prevents “judicial second-guessing” of any decision that is susceptible to policy analysis, including TVA choices about safety measures.

As Justice Sonia Sotomayor stated at the beginning of Monday’s oral argument, the TVA surely would be entitled to policy immunity for “core government activity.” The question is where to draw a line between protecting the TVA from tort liability when it is engaged in quintessential government functions and holding the TVA accountable for negligence when it acts in a manner similar to other commercial enterprises. While counsel for both sides sometimes approached a categorical answer — that immunity is always or is never available to the TVA — the justices experimented with different tests and proposed varying dividing lines.

Arguing on behalf of Thacker, Franklin Rouse resisted any suggestion that the Federal Tort Claims Act’s discretionary function exception should be read into — or provide any analytical guidance for — the statute that authorizes the TVA to sue and be sued. Rouse contended that, under the Burr test, immunity is granted only when liability imposes a “grave interference” with the TVA’s governmental role — “a different inquiry in kind” from the FTCA’s discretionary function exception.

Franklin Taylor Rouse for petitioners (Art Lien)

Justice Samuel Alito described the TVA as a “hybrid entity,” which “does some things that are purely governmental, and it does some things that are pretty much purely commercial.” For the commercial activities, Alito suggested, it is hard to justify exempting the TVA “from tort liability for every discretionary business decision.” But when the TVA engages in governmental activities, then the “regime” should be the same as that under the FTCA. Justice Elena Kagan similarly offered “a discretionary function light,” under which the TVA would be denied immunity for its “commercial functions,” for which it would be “treated just like any other corporate entity.”

Although Rouse agreed with Alito and Kagan on the outcome, he denied that there is a “line for these entities between commercial and governmental.” Even when acting in a governmental capacity, the TVA remains subject to liability absent a showing of grave interference with its functions.

Chief Justice John Roberts asked whether the TVA would be immune when managing flood control if, by allowing more water through the dam, downstream farms would be damaged, while by keeping water back, upstream farms might be harmed. Rouse argued that the TVA remained subject to liability for flood-control activities under the general statutory authorization for suit against the TVA.

Justice Brett Kavanaugh restated Rouse’s argument as asking the Supreme Court “to simply hold that the right test is Burr, instead of the discretionary function exception.” Rouse allowed that Thacker could “live with that,” noting that the lower courts had bypassed the Burr grave interference test.

Justice Stephen Breyer appeared unsettled by a case-by-case grave-interference test, rather than adhering to “the well-worked-out body of discretionary exception law under the FTCA.” At a later point in the argument, Breyer suggested that the Burr test for a sued-and-be-sued entity like the TVA could be “the equivalent” of the discretionary function exception under the FTCA. Although initially accepting Breyer’s statement, Rouse soon came back to his central point that, although the FTCA discretionary function test and the Burr grave-interference test “may reach the same conclusion,” they are nonetheless “different.”

Arguing for the TVA, Assistant to the Solicitor General Ann O’Connell Adams began with the heart of the government’s case. She contended that discretionary function immunity is “grounded in constitutional separation of powers principles.” For that reason, the TVA enjoys that protection, even absent express statutory provision.

But Adams found no takers on the court for this line of argument. Roberts complained that he could not follow the separation of powers argument. Adams explained that separation of powers was implicated because the courts otherwise would be “second-guessing the discretionary decisions of the Executive Branch.”

Justice Neil Gorsuch picked up the chief justice’s thread by asking whether the government was saying that Congress could not “waive even the executive’s immunity on discretionary functions.” Adams agreed that Congress could do so. But she protested that the general sue-and-be-sued clause for the TVA did not say so, and she asserted that Congress “understood that discretionary-function immunity would survive.” Unpersuaded, Gorsuch said that when the “government wishes to compete in private industry and the commercial world,” we should expect it to “make it clear that it wishes to retain its immunity a little bit more clearly than enacting a statute that says the entity may be sued.”

Sotomayor and Kagan focused on whether the government’s reading means that the TVA’s tort liability would be identical to that for other federal agencies under the FTCA, even though the TVA is expressly taken out of the FTCA. Adams said, “[i]n terms of discretionary decision-making, yes.” But she pointed out there are other procedural requirements in the FTCA that are not imposed against those suing the TVA. Kagan asked Adams for examples of negligence suits that could be brought with respect to “the TVA’s actual operations in running a power company.” Adams acknowledged that she could not provide examples from case law to illustrate such a difference between FTCA liability and TVA liability.

Kavanaugh brought the conversation back to Burr, contending that for sue-and-be-sued entities like the TVA, Burr “sets up what seems to me on its face to be a higher bar or a … narrower exception than the discretionary-function exception because it uses terms like ‘grave interference’ with governmental function.” Adams responded that denying the TVA a discretionary function exception would constitute a grave interference with governmental function. Not satisfied, Kavanaugh again referred to the “high bar” set in Burr and asked whether a “broad discretionary-function exception” is truly necessary “to avoid grave interference with the performance of a governmental function.” Adams stood by her contention that the Burr interference test leads right back to discretionary function immunity for the TVA. She explained that the facts of a particular case may take it outside of immunity under the tests for application of the discretionary function exception — but the Supreme Court declined to accept review on the application question.

Speaking briefly on rebuttal, Rouse characterized the government’s argument as “trying to smuggle in the discretionary function analysis” under the Burr test and constitutional separation of powers. He reiterated his central argument that the FTCA’s discretionary function analysis simply does not apply to the TVA because it was broadly made subject to suit by Congress.

* * *

Past case linked to in this post: F.H.A. v. Burr, 309 U.S. 242 (1940)

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Argument analysis: Quiescent bench dubious about broad fee awards in copyright cases

Argument analysis: Quiescent bench dubious about broad fee awards in copyright casesThe week’s second argument, Rimini Street v. Oracle USA, has the justices considering the scope of fees available to a prevailing party in litigation under the federal Copyright Act. Sitting for the second week without Justice Ruth Bader Ginsburg, the bench was remarkably quiescent. To the extent the justices evinced any strong interest in the […]

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Argument analysis: Quiescent bench dubious about broad fee awards in copyright cases

The week’s second argument, Rimini Street v. Oracle USA, has the justices considering the scope of fees available to a prevailing party in litigation under the federal Copyright Act. Sitting for the second week without Justice Ruth Bader Ginsburg, the bench was remarkably quiescent. To the extent the justices evinced any strong interest in the case, they seemed skeptical about allowing broad fee awards.

The case calls for a reading of Section 505 of the Copyright Act, which defines the recovery of a prevailing party under the act. That provision states: “In any civil action under [the Copyright Act], the court in its discretion may allow the recovery of full costs by or against any party…. [T]he court may also award a reasonable attorney’s fee to the prevailing party as part of the costs.” The problems in understanding that language arise from a general provision in 28 U.S.C. § 1920, which defines a relatively narrow set of “taxable costs” customarily awarded to the prevailing party in federal court. The question for the court here is whether the “costs” described in Section 505 are the narrow set of costs that are taxable under Section 1920 or instead a broader set of costs that would come closer to compensating a party for all of its litigation costs. In this case, for example, the lower court relied on Section 505 to award more than $12 million of nontaxable costs.

The backdrop of the case also involves the so-called “American rule,” under which even a prevailing party ordinarily bears the bulk of its litigation costs, including attorney’s fees. The universal practice in federal courts is to limit any broader recovery, beyond the narrow costs taxable under Section 1920, to cases in which Congress explicitly has authorized a broader award. The issue in this case is whether the language in Section 505 authorizing an award of “full” costs is enough to justify courts in going beyond that standard to award nontaxable costs.

The questioning was remarkably desultory, particularly during the presentation of Mark Perry, who appeared on behalf of the defendant, Rimini, to seek reversal of the broad award of costs. For the most part, the justices blandly asked counsel to respond to the arguments of the other side. Only two of the justices spoke with sufficient incisiveness to suggest a strong perspective on the case.

On the textual question, Justice Elena Kagan was particularly unreceptive to the argument of Paul Clement, representing Oracle and thus seeking to defend the broad award of costs. After Clement agreed with Kagan that the sole basis for the argument was the insertion of the word “full” as a modifier of costs, she retorted, “So we decided a case earlier this year on the basis of the legal proposition that adjectives modify nouns.” Presumably she was referring to the opinion of Chief Justice John Roberts for a unanimous Court in Weyerhauser Co. v US Fish & Wildlife Service. Interpreting a reference to “critical habitat” in that case, Roberts explained:

According to the ordinary understanding of how adjectives work, “critical habitat” must also be “habitat.” Adjectives modify nouns—they pick out a subset of a category that possesses a certain quality. It follows that “critical habitat” is the subset of “habitat” that is “critical” to the conservation of an endangered species.

Applied here, Kagan suggested, that analysis should “kill you…. In other words, ‘full’ can only modify costs as defined in 1920.” Continuing to press the point, she explained:

You said, if [the statute] just said costs, we would all understand that it was the term of art [referring to costs taxable under Section 1920]. And then you say that by adding the word “full,” … you want to use the word “full” to suggest that it’s not the 1920 costs we’re talking about at all. It’s some different kind of costs.

Justice Sonia Sotomayor was similarly unreceptive, though for more practical reasons. For her, the problem with Clement’s reading of Section 505 was that it was “so open-ended that I don’t have a way for judges to exercise their discretion in a reasonable manner.” Ridiculing the likely consequences, she suggested that courts commonly would authorize awards to cover the costs of “the babysitter for the witness who has to come to court” or even “experts like a body language reader.”

Although it probably sheds little light on the likely outcome, I should mention what strikes me as the most interesting part of the argument, an interchange between Perry and Sotomayor early in the argument. Perry was trying to make the point that Clement’s argument would fly in the face of traditional practice in copyright cases, which until this recent dispute arose had not involved an award of nontaxable costs. At one point, he asserted that “[f]rom 1831 to 1976, there are 858 copyright cases awarding costs. Not one case has ever awarded any cost not on a statutory schedule under either state law or federal law.” Sotomayor called him on the assertion, apparently not set out in Perry’s brief: “Could you point me to where in your brief or an amici accounted for those 800 cases?” Perry, clearly armed for the point, explained that “[w]e [had] pointed out in the reply brief that my friends on the other side and all of their amici had not cited a single case on their point. And to confirm that we were right, I went through and had my team read every single one of them.”

I have little reason to think the justices will regard Rimini Street as one of their weightier matters. My strong impression from the argument is that we should expect a consensus limiting the permissible costs to the traditional “taxed” costs set out in Section 1920, and that we should expect an early opinion explaining that result.

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Argument transcripts

Argument transcriptsThe transcript of oral argument in Thacker v. Tennessee Valley Authority is available on the Supreme Court’s website; the transcript in Rimini Street Inc. v. Oracle USA Inc is also available.

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Argument transcripts

The transcript of oral argument in Thacker v. Tennessee Valley Authority is available on the Supreme Court’s website; the transcript in Rimini Street Inc. v. Oracle USA Inc is also available.

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Now available on Oyez: This week’s oral argument audio aligned with the transcripts

Now available on Oyez: This week’s oral argument audio aligned with the transcriptsOyez has posted the aligned audio and transcripts from this week’s oral arguments at the Supreme Court. The court heard argument this week in: Merck Sharp & Dohme Corp. v. Albrecht Obduskey v. McCarthy & Holthus LLP Herrera v. Wyoming Fourth Estate Public Benefit Corp. v. Wall-Street.com Franchise Tax Board of California v. Hyatt  

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Now available on Oyez: This week’s oral argument audio aligned with the transcripts

Oyez has posted the aligned audio and transcripts from this week’s oral arguments at the Supreme Court. The court heard argument this week in:

 

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Now available on Oyez: This week’s oral argument audio aligned with the transcripts

Now available on Oyez: This week’s oral argument audio aligned with the transcriptsOyez has posted the aligned audio and transcripts from this week’s oral arguments at the Supreme Court. The court heard argument this week in: Merck Sharp & Dohme Corp. v. Albrecht Obduskey v. McCarthy & Holthus LLP Herrera v. Wyoming Fourth Estate Public Benefit Corp. v. Wall-Street.com Franchise Tax Board of California v. Hyatt  

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Now available on Oyez: This week’s oral argument audio aligned with the transcripts

Oyez has posted the aligned audio and transcripts from this week’s oral arguments at the Supreme Court. The court heard argument this week in:

 

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Argument analysis: The familiar yet fresh debate in Franchise Tax Board of California v. Hyatt

Argument analysis: The familiar yet fresh debate in <em>Franchise Tax Board of California v. Hyatt</em>Federal courts aficionados have been looking forward to the oral argument in Franchise Tax Board of California v. Hyatt, and the event did not disappoint. The question was whether to overrule the decades-old precedent Nevada v. Hall, which held that states lack sovereign immunity in one another’s courts. The argument largely broke down according to […]

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Argument analysis: The familiar yet fresh debate in <em>Franchise Tax Board of California v. Hyatt</em>

Federal courts aficionados have been looking forward to the oral argument in Franchise Tax Board of California v. Hyatt, and the event did not disappoint. The question was whether to overrule the decades-old precedent Nevada v. Hall, which held that states lack sovereign immunity in one another’s courts. The argument largely broke down according to familiar ideological lines, but the discussion still had verve and creativity, in part thanks to the performances of veteran advocates Seth Waxman and Erwin Chemerinsky. The justices’ engagement may also reflect that this case has become a repeat visitor at the Supreme Court. For example, Justice Stephen Breyer noted that he was so familiar with the relevant historical sources “because we had this case before.”

Erwin Chemerinsky for respondent (Art Lien)

Representing the board, Waxman painted a vivid historical picture. Before the Constitution, the states regarded each other as separate sovereigns who were bound by principles of international law but still imbued with the “raw power” to engage in reprisals. Then the Constitution created a “more perfect Union” in which the states no longer relied on the “wild west of international law.” In particular the states obtained the benefit of sovereign immunity in one another’s courts — which is just the principle that the board needs to prevail in this case. But several justices were skeptical of Waxman’s pat historical account. Justice Sonia Sotomayor led off by asking what constitutional text supported the board’s position, and Breyer soon sparred with Waxman over a series of founding-era cases.

In a comment that may have been partly sarcastic, Justice Samuel Alito noted that “we are all always very vigilant not to read things into the Constitution that can’t be found in the text” and then reiterated Sotomayor’s question about the source of state sovereign immunity. Justice Brett Kavanaugh soon joined in, asking why something that the states supposedly regarded as so important would not have been addressed in the constitutional text. Waxman responded in part by rattling off doctrinal rules based on the Constitution’s structure, without express textual foundation. Chemerinsky, Gilbert Hyatt’s counsel, later countered that when the Constitution aimed to “limit state power, it did so explicitly,” as suggested by the 10th Amendment.

Justice Elena Kagan was alone among the justices in referring to the friend-of-the-court brief filed by Professors William Baude and Stephen Sachs, but she brought it up repeatedly and for an interesting reason. Baude and Sachs essentially agree with Hyatt that Hall was rightly decided, but they couple that conclusion with a claim that Hyatt’s Nevada-court victory should probably be unenforceable in any other states’ courts because of principles traceable to the 19th-century law of judgments. Rather than endorse either half of the Baude-Sachs account, Kagan raised their view as an alternative to the historical narrative that the board put forward. Whereas the board argued that states benefited from the Constitution by obtaining a new sovereign immunity in each other’s courts, Baude and Sachs contend that the states retained their authority not to implement one another’s judgements when those judgments transgress certain international standards. According to Kagan, both of those accounts “are just hypotheses. And what’s the evidence for any of them?” That line of argument allowed Kagan to take advantage of the Baude-Sachs argument while ultimately supporting current practice and meaningful relief for Hyatt.

When he took the podium, Chemerinsky quickly emphasized the historical principles of interstate comity that had helped slash the damages award in Hyatt’s own case. Comity, Chemerinsky argued, offered an alternative way to protect states from abusive litigation. But Sotomayor responded, “I just don’t see comity being enough,” and then pointed to principles of personal jurisdiction as additional help. Later, Chemerinsky noted that the Supreme Court had already created another protection in ruling against Hyatt: During this case’s second trip to the justices, the Supreme Court held that “damages would be limited to the amount that the forum state would be liable.” Breyer also suggested a type of self-help short of physical conflict: If one state started to permit abusive suits, other states might “all start suing” the abusive state, whose “attitude would change.”

Alito eventually posed the basic intuitive challenge that Hyatt confronts: Is it really “plausible that there would be great concern about a state’s being sued in a federal court, which is a more neutral tribunal, but no concern about a state being sued in … the courts of another state?” Chemerinsky answered yes, both because the Framers were focused on potential abuse by the new federal government and because the founding-era states “didn’t want to give up their own power.” But Alito did not seem to agree. And the court has relied on similar intuitions when ruling in favor of state sovereign immunity.

In a more lighthearted exchange, Alito wondered what it would be like “if we had the California republic, which is something some people in California would like.” Alito suggested that if California “overwhelms” Nevada “in every respect,” then state sovereign immunity should play a critical role in protecting the weaker state. Chemerinsky responded that there is in fact a power disparity between the states and that the problem does not actually arise with great frequency.

The argument also featured an interesting debate about what to make of the friend-of-the-court briefs filed by a great majority of states. Waxman pointed out that, all told, 47 states had expressed support for overruling Hall. That impressive display suggests that states generally have use for immunity in one another’s courts. But Sotomayor asked why all those states didn’t simply “move to get the Constitution amended”? The result would be a popular repudiation of Hall somewhat like the 11th Amendment’s repudiation of the 1793 decision Chisholm v. Georgia. Waxman responded that “[o]ur Constitution is not amended lightly” and that similar arguments could have been made against the court’s other structural holdings.

Later, Chemerinsky doubted that “you can equate a brief filed by state attorney generals with the position of state governments,” including the states’ judiciaries and legislatures. And he further suggested that the attorneys general simply “don’t want to have to defend suits” that immunity might block. Chief Justice John Roberts bristled at that idea, saying: “It’s a pretty remarkable assertion that we shouldn’t understand representations of the states’ attorneys general to represent the views of the state.”

Of course, the justices debated the role of stare decisis. Breyer intriguingly suggested that courts’ fidelity to precedent enables lawyers to counsel their clients to obey the law. Otherwise, a client might point to the possibility of a future overruling as a basis for transgressing current legal principles. The upshot is that, “every time we overrule a case, it’s like a little chink in an armor.” In response, Alito asked if the best way to foster public respect for the law is for the court to acknowledge when it has made a “big mistake” and “correct it,” rather than clinging to an old, admitted error.

Kavanaugh was perhaps the most focused on exploring the proper basis for overcoming stare decisis in this case. Early on, Kavanaugh asked if it mattered that the court’s opinion in Hall rested on reasoning inconsistent with later precedents. After all, then-Justice William Rehnquist had dissented in Hall before becoming chief justice and eventually leading the court to expand state sovereign immunity.

In a separate exchange, Chemerinsky suggested that stare decisis required the court to ask, “Is there anything today that’s before the court that it didn’t have when the earlier case was decided?” Kavanaugh was skeptical. In his view, strict adherence to that changed-circumstances principle would have prevented many past overrulings. Instead, Kavanaugh suggested, overruling is proper when a precedent is “egregiously wrong,” has “severe practical consequences,” and generates “no reliance.” Of course, Chemerinsky had already disputed that each of those qualities applied to Hall.

The briefing had exposed several procedural hurdles that might have obstructed the court’s consideration of the sovereign immunity issue, but the justices seemed uninterested in them. Chemerinsky mentioned his law-of-the-case argument a few times, including in the conclusion of his argument. But no justices engaged. And Baude and Sachs’s 11th Amendment concerns likewise went unmentioned.

The argument was lively even though only six justices actively participated. Justice Ruth Bader Ginsburg was absent due to her ongoing medical recovery, and Justice Clarence Thomas was silent in accordance with his custom. Interestingly, Justice Neil Gorsuch also asked no questions, and that choice may reflect the start of a pattern. Last year, Gorsuch was silent in another case that involved a request to overrule precedent — namely, Janus v. American Federation of State, County, and Municipal Employees, Council 31. In Janus, Gorsuch ultimately joined the other conservative justices to overrule a precedent in a 5-4 vote. This case may be headed in a similar direction.

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Argument analysis: The familiar yet fresh debate in Franchise Tax Board of California v. Hyatt

Argument analysis: The familiar yet fresh debate in <em>Franchise Tax Board of California v. Hyatt</em>Federal courts aficionados have been looking forward to the oral argument in Franchise Tax Board of California v. Hyatt, and the event did not disappoint. The question was whether to overrule the decades-old precedent Nevada v. Hall, which held that states lack sovereign immunity in one another’s courts. The argument largely broke down according to […]

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Argument analysis: The familiar yet fresh debate in <em>Franchise Tax Board of California v. Hyatt</em>

Federal courts aficionados have been looking forward to the oral argument in Franchise Tax Board of California v. Hyatt, and the event did not disappoint. The question was whether to overrule the decades-old precedent Nevada v. Hall, which held that states lack sovereign immunity in one another’s courts. The argument largely broke down according to familiar ideological lines, but the discussion still had verve and creativity, in part thanks to the performances of veteran advocates Seth Waxman and Erwin Chemerinsky. The justices’ engagement may also reflect that this case has become a repeat visitor at the Supreme Court. For example, Justice Stephen Breyer noted that he was so familiar with the relevant historical sources “because we had this case before.”

Erwin Chemerinsky for respondent (Art Lien)

Representing the board, Waxman painted a vivid historical picture. Before the Constitution, the states regarded each other as separate sovereigns who were bound by principles of international law but still imbued with the “raw power” to engage in reprisals. Then the Constitution created a “more perfect Union” in which the states no longer relied on the “wild west of international law.” In particular the states obtained the benefit of sovereign immunity in one another’s courts — which is just the principle that the board needs to prevail in this case. But several justices were skeptical of Waxman’s pat historical account. Justice Sonia Sotomayor led off by asking what constitutional text supported the board’s position, and Breyer soon sparred with Waxman over a series of founding-era cases.

In a comment that may have been partly sarcastic, Justice Samuel Alito noted that “we are all always very vigilant not to read things into the Constitution that can’t be found in the text” and then reiterated Sotomayor’s question about the source of state sovereign immunity. Justice Brett Kavanaugh soon joined in, asking why something that the states supposedly regarded as so important would not have been addressed in the constitutional text. Waxman responded in part by rattling off doctrinal rules based on the Constitution’s structure, without express textual foundation. Chemerinsky, Gilbert Hyatt’s counsel, later countered that when the Constitution aimed to “limit state power, it did so explicitly,” as suggested by the 10th Amendment.

Justice Elena Kagan was alone among the justices in referring to the friend-of-the-court brief filed by Professors William Baude and Stephen Sachs, but she brought it up repeatedly and for an interesting reason. Baude and Sachs essentially agree with Hyatt that Hall was rightly decided, but they couple that conclusion with a claim that Hyatt’s Nevada-court victory should probably be unenforceable in any other states’ courts because of principles traceable to the 19th-century law of judgments. Rather than endorse either half of the Baude-Sachs account, Kagan raised their view as an alternative to the historical narrative that the board put forward. Whereas the board argued that states benefited from the Constitution by obtaining a new sovereign immunity in each other’s courts, Baude and Sachs contend that the states retained their authority not to implement one another’s judgements when those judgments transgress certain international standards. According to Kagan, both of those accounts “are just hypotheses. And what’s the evidence for any of them?” That line of argument allowed Kagan to take advantage of the Baude-Sachs argument while ultimately supporting current practice and meaningful relief for Hyatt.

When he took the podium, Chemerinsky quickly emphasized the historical principles of interstate comity that had helped slash the damages award in Hyatt’s own case. Comity, Chemerinsky argued, offered an alternative way to protect states from abusive litigation. But Sotomayor responded, “I just don’t see comity being enough,” and then pointed to principles of personal jurisdiction as additional help. Later, Chemerinsky noted that the Supreme Court had already created another protection in ruling against Hyatt: During this case’s second trip to the justices, the Supreme Court held that “damages would be limited to the amount that the forum state would be liable.” Breyer also suggested a type of self-help short of physical conflict: If one state started to permit abusive suits, other states might “all start suing” the abusive state, whose “attitude would change.”

Alito eventually posed the basic intuitive challenge that Hyatt confronts: Is it really “plausible that there would be great concern about a state’s being sued in a federal court, which is a more neutral tribunal, but no concern about a state being sued in … the courts of another state?” Chemerinsky answered yes, both because the Framers were focused on potential abuse by the new federal government and because the founding-era states “didn’t want to give up their own power.” But Alito did not seem to agree. And the court has relied on similar intuitions when ruling in favor of state sovereign immunity.

In a more lighthearted exchange, Alito wondered what it would be like “if we had the California republic, which is something some people in California would like.” Alito suggested that if California “overwhelms” Nevada “in every respect,” then state sovereign immunity should play a critical role in protecting the weaker state. Chemerinsky responded that there is in fact a power disparity between the states and that the problem does not actually arise with great frequency.

The argument also featured an interesting debate about what to make of the friend-of-the-court briefs filed by a great majority of states. Waxman pointed out that, all told, 47 states had expressed support for overruling Hall. That impressive display suggests that states generally have use for immunity in one another’s courts. But Sotomayor asked why all those states didn’t simply “move to get the Constitution amended”? The result would be a popular repudiation of Hall somewhat like the 11th Amendment’s repudiation of the 1793 decision Chisholm v. Georgia. Waxman responded that “[o]ur Constitution is not amended lightly” and that similar arguments could have been made against the court’s other structural holdings.

Later, Chemerinsky doubted that “you can equate a brief filed by state attorney generals with the position of state governments,” including the states’ judiciaries and legislatures. And he further suggested that the attorneys general simply “don’t want to have to defend suits” that immunity might block. Chief Justice John Roberts bristled at that idea, saying: “It’s a pretty remarkable assertion that we shouldn’t understand representations of the states’ attorneys general to represent the views of the state.”

Of course, the justices debated the role of stare decisis. Breyer intriguingly suggested that courts’ fidelity to precedent enables lawyers to counsel their clients to obey the law. Otherwise, a client might point to the possibility of a future overruling as a basis for transgressing current legal principles. The upshot is that, “every time we overrule a case, it’s like a little chink in an armor.” In response, Alito asked if the best way to foster public respect for the law is for the court to acknowledge when it has made a “big mistake” and “correct it,” rather than clinging to an old, admitted error.

Kavanaugh was perhaps the most focused on exploring the proper basis for overcoming stare decisis in this case. Early on, Kavanaugh asked if it mattered that the court’s opinion in Hall rested on reasoning inconsistent with later precedents. After all, then-Justice William Rehnquist had dissented in Hall before becoming chief justice and eventually leading the court to expand state sovereign immunity.

In a separate exchange, Chemerinsky suggested that stare decisis required the court to ask, “Is there anything today that’s before the court that it didn’t have when the earlier case was decided?” Kavanaugh was skeptical. In his view, strict adherence to that changed-circumstances principle would have prevented many past overrulings. Instead, Kavanaugh suggested, overruling is proper when a precedent is “egregiously wrong,” has “severe practical consequences,” and generates “no reliance.” Of course, Chemerinsky had already disputed that each of those qualities applied to Hall.

The briefing had exposed several procedural hurdles that might have obstructed the court’s consideration of the sovereign immunity issue, but the justices seemed uninterested in them. Chemerinsky mentioned his law-of-the-case argument a few times, including in the conclusion of his argument. But no justices engaged. And Baude and Sachs’s 11th Amendment concerns likewise went unmentioned.

The argument was lively even though only six justices actively participated. Justice Ruth Bader Ginsburg was absent due to her ongoing medical recovery, and Justice Clarence Thomas was silent in accordance with his custom. Interestingly, Justice Neil Gorsuch also asked no questions, and that choice may reflect the start of a pattern. Last year, Gorsuch was silent in another case that involved a request to overrule precedent — namely, Janus v. American Federation of State, County, and Municipal Employees, Council 31. In Janus, Gorsuch ultimately joined the other conservative justices to overrule a precedent in a 5-4 vote. This case may be headed in a similar direction.

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Argument preview: Justices to consider constitutionality of residency requirements for liquor licenses

Argument preview: Justices to consider constitutionality of residency requirements for liquor licensesThe Constitution’s 21st Amendment gives states the power to regulate the distribution of alcohol into and within a state, while a doctrine known as the dormant commerce clause (derived from the Constitution’s commerce clause) bars states from discriminating against interstate commerce. Next week the Supreme Court will hear oral argument in a challenge to a […]

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Argument preview: Justices to consider constitutionality of residency requirements for liquor licenses

The Constitution’s 21st Amendment gives states the power to regulate the distribution of alcohol into and within a state, while a doctrine known as the dormant commerce clause (derived from the Constitution’s commerce clause) bars states from discriminating against interstate commerce. Next week the Supreme Court will hear oral argument in a challenge to a Tennessee law that requires anyone who wants a retail license to sell alcohol in Tennessee to have lived there for at least two years. A federal appeals court ruled that the law violates the Constitution by discriminating against out-of-state residents. Defending the law, a trade association representing the state’s liquor retailers argues that the Constitution treats alcohol differently from other products, giving states broad powers to regulate it.

The case now before the Supreme Court arose when Total Wine – whose website describes it as “the country’s largest independent retailer of fine wine,” committed to both offering “the nation’s best wine selection” and “having the lowest prices” – applied for a license to run a store in Nashville, but couldn’t satisfy the residency requirement because its owners are residents of Maryland. (In the Supreme Court version of the “Six Degrees of Separation” game, one of Total Wine’s founders, David Trone, spent $16 million of his own money in a successful campaign for Congress last year, after an unsuccessful campaign in 2016 that cost him $13 million. Trone now represents Maryland’s 6th congressional district in Congress – which is the subject of a partisan gerrymandering suit in which the Supreme Court will hear oral argument in March.)

At roughly the same time, Doug and Mary Ketchum left their home in Utah after doctors told them that the weather there was bad for the Ketchums’ disabled daughter. The family moved to Memphis to buy a liquor store, using their retirement savings, in the hope that owning their own business would give them more flexibility to care for their daughter.

Tennessee’s Alcoholic Beverage Commission recommended that liquor licenses for both Total Wine and the Ketchums be approved, but the Tennessee Wine and Spirits Retailers Association – a trade association representing the state’s liquor retailers – threatened to sue the commission if it awarded the licenses, citing the residency requirement.

The TABC went to federal district court, asking the judge to rule on whether the two-year requirement is constitutional. Both the state and the retailers argued that it is, but the district court disagreed.

The retailers appealed to the U.S. Court of Appeals for the 6th Circuit. The TABC did not appeal, and it did not participate in the oral argument in the court of appeals, although it did file a brief supporting the residency requirement. Meanwhile, the Ketchums received a liquor license and bought a store in Memphis, while Total Wine opened a 30,000-square-foot store in Knoxville in June 2018.

A divided panel of the 6th Circuit affirmed. It ruled that Tennessee’s two-year requirement discriminates against out-of-state residents and that the state could have achieved its goals of protecting the public welfare using other strategies – for example, requiring retailers to use a general manager who lives in Tennessee or regularly reviewing a retailer’s operations to make sure that it is following state laws. The retailers then went to the Supreme Court, which agreed last fall to hear the case.

In their brief in the Supreme Court, the retailers emphasize that the 21st Amendment gives states “broad latitude” to regulate retail sales of alcohol without violating the dormant commerce clause. They add that the amendment was also intended to give back the powers that states had before Prohibition, including to allow the “states to pursue policies that best fit local values and conditions, and to experiment with different approaches to the difficult problems inherent in regulating the distribution and use of alcohol.”

The retailers argue that the Supreme Court has distinguished between “core” state powers, which are protected by the 21st Amendment against suggestions that they violate the dormant commerce clause, and “non-core” powers, which are not protected. “Core” powers, the retailers explain, include the power to directly regulate sale or use of liquor within the state, while “non-core” powers try to regulate activity outside the state – for example, a ban on alcohol-related TV ads that are broadcast into the state from another state or laws that regulate prices in the state by comparison to prices at which alcohol is sold in other states.

The two-year residency requirement at issue in this case, the retailers stress, is a core power: It directly regulates the sale of liquor within Tennessee, treating out-of-state liquor the same as domestic liquor.

As a practical matter, the retailers continue, the requirement makes sense in several different ways. First, it gives state and local officials enough time to determine whether an applicant has the right character to have a liquor license. Second, it makes it more likely that the applicant will understand the needs of the community in which he plans to sell liquor. “The long-time resident who attends football games on Fridays is less likely to be duped by the drum major’s fake ID on Saturdays,” the retailers suggest. And more broadly, the retailers add, rules that make it harder to open a liquor store are generally good, because less liquor may help to reduce alcohol abuse.

In its brief on the merits, Total Wine begins by stressing that Tennessee effectively has a 10-year residency requirement for people who want to own a liquor store in Tennessee: A first-time applicant must have lived in Tennessee for at least two years, but the one-year license “cannot be renewed unless the individual has been a Tennessee resident for ten years.” Total Wine takes it as a given that the residency requirement violates the dormant commerce clause: As Tennessee itself has acknowledged, the residency requirement prevents out-of-state residents from getting liquor licenses to protect Tennessee sellers from competition. The requirement, Total Wine says, is “so manifestly protectionist” that the state hasn’t enforced it for six years and has only filed a letter in the Supreme Court agreeing with the retailers. Instead, Total Wine observes, the group that is actively defending the residency requirement in the Supreme Court is the retailers themselves, who acknowledge that their right to sue comes from their interest in not having to compete with Total Wine and the Ketchums.

Total Wine questions the rationales that the retailers have offered in defense of the residency requirement. Applicants are not actually required to have any local ties to the community where they will open a store, Total Wine observes; it is enough that they live in Tennessee. “The notion that someone living in Memphis is more in touch with Knoxville than someone living in Asheville, North Carolina, which is 250 miles closer, is silly,” Total Wine posits. And in any event, the store’s general manager and employees who will “actually check IDs and make point-of-sale decisions” will live in the community, Total Wine emphasizes.

Total Wine also points out that Tennessee does not have a similar residency requirement for bars, hotels and restaurants – which, it argues, “forecloses any argument that Tennessee is genuinely concerned about nonresidents’ suitability to own retail alcohol businesses.”

Total Wine and the Ketchums argue that the 21st Amendment doesn’t make the residency requirement constitutional. A primary goal of the dormant commerce clause, they say, is to prevent the states from protecting their own citizens and businesses at the expense of others, and the Supreme Court “has made clear that the Twenty-first Amendment was not intended to save laws that have no purpose other than protecting in-state businesses.”

Total Wine and the Ketchums also press a fallback position. Even if the Supreme Court were to agree with TWSRA, Total Wine suggests, the justices should send the case back for the lower courts to consider whether the residency requirement violates the Constitution’s privileges and immunities clause, which bars a state from treating nonresidents differently from residents. The Ketchums go a step further, noting that Tennessee’s residency requirement also “discriminate[s] against newly-arrived residents of Tennessee itself” – in conflict with the original understanding of the clause, which was to allow newly freed slaves to travel to find work and “be treated equally in their new states of residence” – and they urge the Supreme Court to decide the case on this ground if it disagrees with the 6th Circuit’s reasoning on the dormant commerce clause and the 21st Amendment.

This post was originally published at Howe on the Court.

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