Volume 30, Issue 12
This Report summarizes opinions issued on May 25 and June 1, 2023 (Part I); and cases granted review on June 5, 2023 (Part II).
Part I: Opinions
Sackett v. Environmental Protection Agency, 21-454. By a 5-4 vote, the Court held that the Clean Water Act (CWA) covers wetlands only when they are “as a practical matter indistinguishable from waters of the United States,” that is, “the wetland has a continuous surface connection with that water, making it difficult to determine where the ‘water’ ends and the ‘wetland’ begins.” The CWA, among other provisions, prohibits the discharge of pollutants into “navigable waters,” which includes the “waters of the United States.” Since Congress enacted the CWA in 1972, executive agencies and courts have expanded or contracted its reach by defining “waters of the United States” more or less broadly. In a 1977 amendment, Congress confirmed that the CWA applies to wetlands that are “adjacent” to waters of the United States.
Petitioners bought a parcel of land near Priest Lake in Idaho. They began to fill in the property with dirt and rocks, which are pollutants under the CWA. The EPA notified petitioners that they were violating the CWA because the land contained protected wetlands. The agency demanded remediation and threatened to impose hefty fines if petitioners did not comply. At the time, the EPA defined adjacent wetlands to include those with a “significant nexus to traditional navigable water.” It drew the “significant nexus” requirement from Justice Kennedy’s concurrence in Rapanos v. United States, 547 U.S. 715 (2006). In the EPA’s view, the wetlands on petitioners’ land met this criteria even though they were separated from other bodies of water because they, when lumped together with another nearby wetland, “significantly affect[ed]” the ecology of Priest Lake, which was a traditionally navigable body of water. Petitioners sued the EPA under the Administrative Procedures Act. After lengthy proceedings, the district court entered summary judgment in favor of the EPA. The Ninth Circuit affirmed, endorsing the significant nexus test and holding that the EPA satisfied that standard. In an opinion by Justice Alito, the Court reversed and remanded.
The Court began by tracing the history of the term “waters of the United States” as it had been defined by agencies and occasionally limited by courts. It emphasized the CWA’s powerful enforcement mechanism and the potential burdens that landowners could face in challenging agency designations of wetlands on their property. Turning to the relevant text of the statute, the Court concluded that “waters” generally encompasses “only those relatively permanent, standing[,] or continuously flowing bodies of water” such as “streams, oceans, rivers, and lakes.” (Quotation marks omitted.) This definition matched dictionary definitions and precedent, and also linked back to the statutory focus on “navigable waters.” The Court rejected the EPA’s argument that “waters” necessarily includes wetlands because they are characterized by the presence of water. This argument “proves too much,” said the Court, because the same is true of puddles and other water features that do not fall under the CWA. The Court acknowledged, however, that some “adjacent” wetlands count as waters of the United States because of Congress’ 1977 amendment.
The Court thus turned to what wetlands count as “adjacent” wetlands covered by the Act. The Court concluded that wetlands count as waters in their own right only if they are “indistinguishable” from a qualifying body of water. The majority believed that the term “adjacent” must mean “contiguous” instead of “near” because “[w]etlands that are separate from traditional navigable waters cannot be considered part of those waters, even if they are located nearby.” Moreover, “it would be odd indeed if Congress had tucked an important expansion to the reach of the CWA into convoluted language in a relatively obscure provision concerning state permitting programs. We have often remarked that Congress does not ‘hide elephants in mouseholes[.]’” Elevating the plurality opinion in Rapanos to controlling law, the Court thus held that the CWA applies only to those wetlands that are “indistinguishable from waters of the United States.” To prove this, an agency asserting jurisdiction must show: (1) that an adjacent body counts as “waters of the United States” because it is a “relatively permanent body of water connected to traditional interstate navigable waters,” and (2) “that the wetland has a continuous surface connection with that water, making it difficult to determine where the ‘water’ ends and the ‘wetland’ begins.”
The Court rejected the EPA’s arguments that an adjacent wetland is covered by the CWA if it neighbors and has a “significant nexus” to traditional navigable waters. The Court believed that Congress must use “exceedingly clear language if it wishes to significantly alter the balance between federal and state power and the power of the Government over private property.” The EPA’s interpretation would work such a change without clear authorization or a statutory basis for its test. The nexus approach would create serious vagueness concerns for the CWA’s criminal enforcement provisions. The Court rejected the idea that Congress ratified the EPA’s approach in its 1977 amendment. This, the Court said, would contradict the text of the statute and precedent, and the EPA had not demonstrated “overwhelming evidence of acquiescence” to a well-settled principle. The Court also rejected the EPA’s policy arguments out of hand, claiming that they could not prevail over statutory language and that states could still regulate pollution. Finally, the Court believed that the concurrences’ textual arguments “cannot be taken seriously” because they did not focus on the CWA’s use of the term “waters.”
Justices Thomas issued a concurring opinion that Justice Gorsuch joined. Although they joined the majority’s opinion in full, they wrote separately to say that they would limit the CWA in other ways. In their view, the terms “navigable waters,” “navigable waters of the United States,” and “waters of the United States” gave the government authority only over waters that could be “used as highways of interstate or foreign commerce.” Drawing on precedent and legislation, Justice Thomas stated that Congress’ power to regulate waters historically extended only to keeping the channels of interstate or foreign commerce open. Because the CWA used pre-existing terms of art (like “navigable waters”) to describe its reach, the statute is limited to the types of waters that the federal government historically regulated. Even after the Court expanded its interpretation of the Commerce Clause, those water-specific terms retained their meaning. Justice Thomas insisted that, although the EPA and “a few courts” read the CWA more broadly, their interpretations failed because they were based on legislative history, which could not trump the terms of art used in the statute. These concurring justices claimed that the EPA and Corps of Engineers “flouted” the Court’s decisions and claimed “unbounded breadth of jurisdiction.” They traced these ills to the Court’s post-New Deal interpretation of the Commerce Clause, which “has significantly departed from the original meaning of the Constitution.” And they argued that “[p]erhaps nowhere is this deviation more evident than in federal environmental law, much of which is uniquely dependent upon an expansive interpretation of the Commerce Clause” that “seem[s] to push even the limits of the Court’s New Deal era Commerce Clause precedents.”
Justice Kavanaugh wrote the principal concurring opinion, which Justices Sotomayor, Kagan, and Jackson joined. They agreed that the Ninth Circuit’s “significant nexus” test was wrong and agreed that petitioners’ wetlands were not covered by the CWA. But they rejected the majority’s “continuous surface connection” test. In 1975, the Corps of Engineers interpreted the CWA to apply to wetlands “adjacent to other navigable waters.” Justice Kavanaugh believed that Congress adopted this understanding in 1977 when it amended the act. The Court had previously recognized in several decisions that the CWA applied to adjacent wetlands. And, he wrote, under both the ordinary meaning of the term and longstanding agency interpretations, “adjacent” includes not only contiguous wetlands, but those separated from “covered water only by a man-made dike or barrier, natural river berm, beach dune, or the like.” In the 45 years since Congress amended the CWA, “across all eight Presidential administrations, the Army Corps has always included” wetlands separated by those features.
Justice Kavanaugh asserted that the majority made a “straightforward” mistake by interpreting “adjacent” to mean “adjoining.” Congress used that narrower term elsewhere in the statute, but not when including wetlands. He insisted that there is no statutory basis to interpret “adjacent” narrowly, and doing so ignored legislative history and precedent. And he stated that, although the majority invoked vagueness and federalism concerns, the federal government had long regulated water and Congress unambiguously used a broader term when it included wetlands in the statute. Plus, he observed, noncontiguous wetlands can still affect bodies of water; for example, dikes and berms do not block all water flow. Finally, Justice Kavanaugh argued that, because the new test is “novel and vague,” agencies will struggle to implement it.
Justice Kagan filed a separate opinion concurring in the judgment, which Justices Sotomayor and Jackson joined. They reiterated much of the reasoning in Justice Kavanaugh’s concurring opinion, particularly its textual basis. They then stated that Congress intentionally wrote a broad statute to address a crisis―the nation’s waters were seriously contaminated by dangerous chemicals. Protecting wetlands serves a critical role in the scheme, they said, because they “filter and purify water draining into adjacent bodies of water,” and slow runoff. Wetlands perform this function even when separated by barriers. The concurring justices accused the majority of “shelv[ing] the usual rules of interpretation” because it believed that Congress went too far in protecting the environment. Stated Justice Kagan: “A court may, on occasion, apply a clear-statement rule to deal with statutory vagueness or ambiguity. But a court may not rewrite Congress’s plain instructions because they go further than preferred.” The concurring opinion rejected the majority’s clear statement rule and concluded that Congress satisfied it even if it did apply. In the end, they believed that the Court wrongly “appoint[ed] . . . itself as the national decision-maker on environmental policy.”
Tyler v. Hennepin County, 22-106. The Court unanimously held that when the government retains the excess value of a person’s property, after selling the property because of taxes owed, that constitutes a taking of the excess value. Geraldine Tyler accrued a $15,000 property tax bill (counting penalties and interest) on her one-bedroom condominium in Minneapolis after she vacated the property and moved into an assisted living facility. Acting under Minnesota forfeiture procedures, Hennepin County seized the condo and sold it for $40,000, extinguishing the tax bill and keeping the remaining $25,000 for its own use. Tyler sued, alleging that the County had unconstitutionally retained the excess value of her home in violation of the Takings Clause of the Fifth Amendment and the Excessive Fines Clause of the Eighth Amendment. The district court dismissed the suit for failure to state a claim. The Eighth Circuit affirmed, holding that “[w]here state law recognizes no property interest in surplus proceeds from a tax-foreclosure sale conducted after adequate notice to the owner, there is no unconstitutional taking.” The court also rejected the Eighth Amendment claim, reasoning that the forfeiture was not a fine because it was intended to remedy the outstanding tax delinquency, not to punish Tyler. In an opinion by Chief Justice Roberts, the Court reversed.
The Court first rejected the County’s argument that Tyler did not have standing to bring her Takings Clause claim. The Court held that on the pleadings, Tyler’s assertion that the county illegally appropriated the $25,000 surplus beyond her $15,000 tax debt was sufficient to establish standing. The Court rejected the county’s argument suggesting that because there were mortgage loans and liens above the $40,000 sale of her home, she could not have been harmed by failing to receive the $25,000 surplus. In fact, the Court explained, Tyler could have used that surplus to reduce any encumbrances on her home, for which she would be personally liable.
Turning to the merits, the Court ruled that Tyler had stated a Takings Clause claim. Although the county had the power to legally confiscate and sell Tyler’s home to recover the unpaid taxes, it could not “use the toehold of the tax debt to confiscate more property than was due,” that is, the $25,000 surplus. The Court proceeded to recount centuries of property and tax law and legal precedent, dating back to the Magna Carta of Thirteenth Century England, to demonstrate a longstanding principle that the government may not take more from taxpayers than they owe. This principle persisted through the colonial era, the founding, and passage of the Fourteenth Amendment, and has achieved consensus today as shown by the fact that 36 states and the federal government require that excess value be returned to the taxpayer.
The Court also distinguished Nelson v. City of New York, 352 U.S. 103 (1956), a case involving a city ordinance that permitted the city to foreclose on property to recover a tax. In Nelson, the Court found no Takings Clause violation because the ordinance permitted the property owner to undergo a process by which he or she could recover surplus proceeds from a sale of the property that exceeded the tax due. Here, by contrast, Minnesota’s scheme provides no opportunity for the taxpayer to recover the excess value once title transfers to the government.
Because the Court found a plausible Takings Clause violation, it declined to decide whether there was also an excessive fine claim under the Eighth Amendment. Justice Gorsuch, joined by Justice Jackson, wrote a separate concurring opinion to explain the district court’s errors in its excessive-fines analysis. Justice Gorsuch first criticized the district court’s conclusion that the tax-forfeiture scheme did not have a punitive purpose, but rather a remedial one. He wrote that the primary purpose of a law does not matter so long as there is some punitive aspect to the law. Second, Justice Gorsuch noted the district court’s errors in concluding that the law cannot be punitive because it could confer a windfall upon the property owner where the value of the property is less than the tax owed. This argument fails because, he explained, “punishment remains punishment all the same,” and it has never been held that “a scheme producing fines that punishes some individuals can escape constitutional scrutiny merely because it does not punish others.” And third, Justice Gorsuch rejected the district court’s conclusion that the law is not punitive because it does not turn on the “culpability” of the property owner. He noted that such a law could still be punitive where it serves another goal of punishment such as deterrence.
Glacier Northwest, Inc. v. International Brotherhood of Teamsters Local Union No. 174, 21-1449. By an 8-1 vote the Court held that the National Labor Relations Act did not preempt a tort action brought by a concrete manufacturing company against a union for the actions of striking truck drivers in destroying the company’s property. This case arises from a labor dispute between Glacier Northwest, which sells ready-mix concrete to customers in Washington State, and the International Brotherhood of Teamsters Local Union No. 174, which serves as the exclusive bargaining representative for Glacier’s truck drivers. In 2017, the collective bargaining agreement between Glacier and the union expired, and the parties attempted to negotiate a new deal. Tensions came to a head one morning when the union ordered a sudden work stoppage in the midst of the workday when workers were mixing substantial amounts of concrete, loading batches into ready-mix trucks, and making deliveries. Drivers who were out making deliveries returned their trucks to the warehouses and then walked off the job. Because concrete begins to harden immediately once at rest and the hardened concrete can damage the delivery trucks, this work stoppage had the potential to cause significant damage and loss. Acting quickly, Glacier had nonstriking employees offload some of the concrete and prevent damage to the trucks; but the company did sustain losses of concrete. Glacier sued the union for damages in Washington state court for the torts of conversion and trespass to chattel, alleging that the Union intentionally destroyed the concrete. The union moved to dismiss on the ground that the NLRA preempted the tort claims. The trial court agreed with the union; the appellate court reversed; but the Washington Supreme Court reinstated the trial court’s decision that Glacier’s claims were preempted. It held that the actions alleged were related to a strike and, as such, covered by the NLRA. In an opinion by Justice Barrett, the Court reversed and remanded.
The Court first explicated the NLRA preemption standard commonly referred to as “Garmon preemption” after the Court’s decision in San Diego Building Trades Council v. Garmon, 359 U.S. 236 (1959). Under that standard, states cannot regulate conduct “that the NLRA protects, prohibits, or arguably protects or prohibits”―meaning that “a party asserting pre-emption must advance an interpretation of the [NLRA] that is not plainly contrary to its language and that has not been ‘authoritatively rejected’ by the courts or the [National Labor Relations] Board.” The Court then held that the union did not meet that burden. The Court first explained that while the NLRA protects the right to strike, that right is “not absolute.” The NLRA does not shield strikers who fail to take “reasonable precautions” to protect their employer’s property from “foreseeable, aggravated, and imminent danger due to the sudden cessation of work.” In this case, the Court explained, the drivers’ sudden work stoppage in the midst of loading and delivering perishable concrete put Glacier’s property in “foreseeable and imminent danger.” The union knew of the danger to the concrete and delivery trucks if left to harden, but it nevertheless coordinated with the drivers to initiate a strike and abandon their trucks. Further demonstrating the union’s failure to take reasonable precautions was that it chose to initiate the strike during the workday while the perishable concrete was being delivered rather than, for example, before the workday commenced. And, observed the Court, the union could have instructed the drivers to refuse to load the concrete onto the trucks rather than striking while much concrete was already in the trucks’ drums. In that regard, explained the Court, “the Union’s failure to take even minimal precautions illustrates its failure to fulfill its duty.” Its actions in executing the strike “in a manner designed to compromise the safety of Glacier’s trucks and destroy its concrete” go “well beyond the NLRA’s protection.” (The Court noted that, “[a]fter the Washington Supreme Court affirmed the dismissal of Glacier’s tort claims, the Board’s general counsel issued a complaint alleging that Glacier engaged in unfair labor practices in relation to its labor dispute with the drivers, including by disciplining some of those involved in the strike.” The Court stated that because “[t]he lower courts have not addressed the significance, if any, of the Board’s complaint with respect to Garmon preemption,” it “will not do so in the first instance.”)
Justice Thomas, joined by Justice Gorsuch, wrote an opinion concurring in the judgment mainly to emphasis the “oddity of Garmon’s broad pre-emption regime.” Garmon preemption, Justice Thomas wrote, “goes beyond the usual preemption rule” because it requires analysis relying on prior decisions of an administrative agency, the NLRB, in addition to Supreme Court precedent. Because of this, “the scope of the NLRA’s pre-emption of state-court jurisdiction over state claims is defined—not by the statutory text—but by ‘penumbra[s]’ that wax and wane as the Board develops, or declines to develop, its own carefully insulated common law of labor relations.” Justice Thomas concluded by suggesting that in an appropriate case, Garmon should be reconsidered and the determination of whether the NLRA preempts state law should be returned to normal preemption jurisprudence based solely on court decisions—that is, whether federal law and state law “are in logical contradiction,” such that it is impossible to comply with both.
Justice Alito, joined by Justices Thomas and Gorsuch, also wrote an opinion concurring in the judgment. To Justice Alito, the NLRA did not cover this case simply because the statute does not protect workers “for acts of trespass or violence against the employer’s property.” Because Glacier’s complaint alleges that the Union and its members acted with the improper purpose to harm Glacier’s property, the NLRA simply does not apply, and “[n]othing more is needed to resolve this case.”
Justice Jackson wrote a solo dissenting opinion to explain her view that the NLRA preempts the claims here and that the NLRB should be afforded the first review of those claims before judicial intervention. Justice Jackson first explored a fact that the majority sidestepped: that, after the Washington Supreme Court issued its opinion holding that the lawsuit could not proceed, the NLRB filed an administrative complaint against Glacier for improperly interfering against the Union’s protected striking activities. For her, the NLRB’s complaint “suffices to establish that the Union’s strike conduct is ‘arguably protected’ within the meaning of Garmon” and “should have marked the end of any court involvement in this matter at this time.” She explained her view that a court presented with a complaint from the NLRB should therefore find Garmon “inherently satisfied” because the pending legal action litigated in the courts would interfere with the NLRB’s authority.
Justice Jackson then criticized the majority’s approach of analyzing the factual allegations to determine whether the striking workers took “reasonable precautions” to protect Glacier’s property. This factual inquiry, she maintained, is precisely the kind that Congress has delegated to the NLRB, which is tasked with engaging in expert investigation and analysis regarding what precisely occurred and its consequences. The courts’ “unmistakably modest” role in this scheme is to determine simply whether “it is possible that the union could prevail before the Board”—if so, then the conduct is covered by the NLRA. A court need not and must not determine whether the union should win under an NLRA claim, for that task has been delegated to the Board by Congress. Justice Jackson expressed her fears that the majority’s approach of actually making that fact- and expert-intensive determination “opens up the possibility that courts around the country will now act on bare allegations to generate conflicting results about the contours of the venerated right to strike, which, ironically, was the primary concern that motivated Congress to create the Board in the first place.”
Finally, even using the majority’s analytical approach, Justice Jackson wrote that the alleged conduct here would be covered, and thus the claims preempted, by the NLRA. She began by first refining the definition of the right to strike as used in the NLRA, based on precedent from case law and NLRB adjudications. While the Board has recognized “a narrow duty that arises if a sudden cessation of work risks foreseeable, imminent, and aggravated harm to persons, premises, or equipment,” striking employees “have no obligation to protect their employer’s economic interests when they exercise the right to withhold their labor.” Here, she explained, that narrow exemption was not triggered. The loss of concrete alone, as the majority agreed, was not enough to remove the NLRA protections. Where she and the majority diverged concerned the risk of damage to the cement trucks: for Justice Jackson, the drivers’ returning the trucks upon commencement of the strike demonstrates that the Union did take reasonable precautions to mitigate the risk of damage.
Dupree v. Younger, 22-210. The Court unanimously held that a party who wishes to raise on appeal a purely legal issue resolved at summary judgment need not raise that issue anew in a post-trial motion. Kevin Younger was being held as a pretrial detainee in a Maryland state prison when three corrections officers assaulted him. Younger sued those officers as well as Neil Dupree, a former lieutenant at the prison, for damages for unconstitutional excessive force under 42 U.S.C. §1983. Dupree moved for summary judgment, arguing that Younger had failed to exhaust his administrative remedies as required by the Prison Litigation Reform Act. The district court denied the motion, noting factual disagreements between the parties about whether Younger had adhered to Maryland’s Administrative Remedy Procedure. The court concluded that it “need not resolve [those] disputes” because that there was “no dispute” that the Maryland prison system had internally investigated Younger’s assault, and that this inquiry legally satisfied Younger’s exhaustion obligation.
The case proceeded to a jury trial in which Dupree did not present any evidence related to his exhaustion defense, nor did he invoke exhaustion in his motion for judgment as a matter of law under Federal Rule of Civil Procedure 50(a) during the trial. The jury found Dupree and four of his codefendants liable and awarded Younger $700,000 in damages. Dupree did not file a post-trial motion for judgment as a matter of law under Rule 50(b). He appealed a single issue to the Fourth Circuit: the district court’s rejection of his exhaustion defense at summary judgment. The court of appeals dismissed the appeal based on precedent holding that a claim or defense rejected at summary judgment is not preserved for appellate review unless it was renewed in a post-trial motion. In an opinion by Justice Barrett, the Court vacated and remanded.
The Court began its reasoning by explicating the general rule, established in Ortiz v. Jordan, 562 U.S. 180 (2011), that some interlocutory district court rulings are unreviewable even after final judgment because they are overcome by later developments in the litigation. One such ruling is the denial of summary judgment on sufficiency-of-the-evidence grounds because once the case proceeds to trial, the full factual record developed in court supersedes the record that existed at the time of the summary judgment motion. A district court’s assessment of the facts based on the summary-judgment record becomes “ancient history and [is] not subject to appeal”; fact-dependent appeals must be appraised in light of the complete trial record. Thus, Ortiz holds, a party must raise a sufficiency-of-the-evidence claim in a post-trial motion such as those under Rule 50 to preserve it for appeal. The filing of a post-trial motion under Rule 50 “allows the district court to take first crack at the question that the appellate court will ultimately face: Was there sufficient evidence in the trial record to support the jury’s verdict?”
The Court then explained that it would not extend Ortiz’s holding to cover pure questions of law decided in an order denying summary judgment. The main reason is that “[t]rials wholly supplant pretrial factual rulings, but they leave pretrial legal rulings undisturbed.” In other words, a district court’s resolution is “unaffected by future developments in the case” and “there is no benefit to having a district court reexamine a purely legal issue after trial, because nothing at trial will have given the district court any reason to question its prior analysis.” Thus, the Court explained, a district court’s purely legal conclusions at summary judgment are not “superseded” by later developments in the litigation, and purely legal rulings merge into the final judgment, at which point they are reviewable on appeal. For these reasons, a post-trial motion under Rule 50 is not required to preserve for appellate review a purely legal issue resolved at summary judgment.
Thus, the Court concluded, if a pure question of law, Dupree’s appeal of the district court’s ruling on his exhaustion defense in its denial of summary judgment was appealable, even though he did not raise that defense at trial. The Court did not decide whether that issue is purely legal, but rather remanded for the Fourth Circuit to evaluate in the first instance.
Slack Technologies, LLC v. Pirani, 22-200. The Court unanimously held that a plaintiff suing the issuer of a security under §11 of the Securities Act of 1933 must trace that security to a materially misleading registration statement. The Act generally requires companies to register the securities they issue with the SEC. To do so, a company must file a registration statement containing certain information so that purchasers can make informed decisions. Section 11 of the Act allows purchasers to sue issuers who filed materially misleading registration statements.
Slack started life as a privately held company. It issued stock to its employees and officers. These stocks qualified for an exemption under the Act, so it did not have to register them with the SEC or issue a registration statement. In 2019, Slack became a publicly-traded company on the New York Stock Exchange through a direct listing. Under this mechanism, Slack filed a registration statement and issued 118 million registered shares to the public. Its employees and officers could also immediately sell their 165 million unregistered shares. Fiyyaz Pirani immediately bought 30,000 shares, then another 220,000 in the following months. When the stock price dropped, he filed a class action lawsuit under §§11 and 12 of the Act against Slack, claiming that the company filed a materially misleading registration statement. Slack moved to dismiss Pirani’s complaint because he had not alleged that he could trace his shares “to the allegedly misleading registration statement. For all anyone could tell, he may have purchased unregistered shares unconnected to the registration statement and its representations about the firm’s business and financial health.” The district court denied this motion but certified its order for interlocutory appeal. A divided panel of the Ninth Circuit affirmed. In an opinion by Justice Gorsuch, the Court vacated and remanded.
The Court began with the text §11 of the Act, which allows any purchaser of “such security” to sue for a false or misleading registration statement. The Act does not define “such security” or otherwise contain a “clear referent” to determine its scope. The Court found, however, that context suggests that the securities must be linked to a registration statement: §11 creates liability for misstatements or omissions in “the registration statement” and uses the word “such” elsewhere to narrow the law’s focus. Section 5 of the Act uses “such security” to mean one that must be registered, and §6 limits registration statements to specific identified securities. Section 11 caps damages in certain suits based in part on the value of registered shares alone, which would “make little sense” if unregistered securities could create liability. And, noted the Court, every court of appeals that had considered the issue―including, apparently, the Ninth Circuit before the instant case―had held that the securities “must be traceable to the particular registration statement alleged to be false or misleading.”
Pirani argued that a plaintiff should only be required to show “some sort of minimal relationship” to a misleading registration statement. The Court rejected this proposal as unclear, unmoored in §11’s text, and contrary to the contextual clues noted above. Pirani pointed out that Congress could have used the same language it employed in §5 of the Act if it intended to limit §11’s liability. The Court agreed that Congress could have been clearer, but it also could have expressly provided for Pirani’s reading if it wanted to. The Court rejected Pirani’s argument that it should read the Act broadly to accomplish its purpose. The Act is not as broad as its successor, the Securities Exchange Act of 1934, and Congress could have reasonably chosen to balance §11’s robust enforcement mechanism―it does not require a culpable mental state―with a narrower field of liability. The Court noted in a closing footnote that it was “expressing no views about the proper interpretation of §12 or its application to this case. Nor do we endorse the Ninth Circuit’s apparent belief that §11 and §12 necessarily travel together, but instead caution that the two provisions contain distinct language that warrants careful consideration.”
United States ex rel. Schutte v. Supervalu Inc., 21-1326. The Court unanimously held that liability under the False Claims Act (FCA) depends upon the defendant’s contemporaneous subjective knowledge and beliefs—not to what an objectively reasonable person may have known or believed. Respondents, SuperValu and Safeway, sold prescription drugs. In 2006, Walmart undercut both supermarkets by offering many drugs for $4 a month. In response, they adopted price-match and membership discount programs. Although customers had to opt into these programs, it was generally easy to do so. These programs became popular; allegedly both supermarkets sold the overwhelming majority of their prescriptions at discounted rates. The federal government sets reimbursement rates for medications covered by Medicare and Medicaid at a pharmacy’s “usual and customary” price. When respondents charged the government for those prescriptions, however, they used the full price instead of the discounted one. Petitioners filed suit under the FCA, alleging that respondents knew that their “usual and customary” prices were actually the discounted ones, but hid this and charged the government full price. On summary judgment, the district count found that SuperValu’s claims were false―they did not represent the pharmacy’s “usual and customary” rate. But it granted summary judgment in favor of both supermarkets, finding that they did not act knowingly. The Seventh Circuit affirmed. It relied heavily on Safeco Ins. Co. of America v. Burr, 551 U.S. 47 (2007), a case that interpreted the Fair Credit Reporting Act. Under the Seventh Circuit’s view, “a claim would have to be objectively unreasonable, as a legal matter, before a defendant could be held liable for ‘knowingly’ submitting a false claim, no matter what the defendant thought.” In an opinion by Justice Thomas, the Court vacated and remanded.
The Court described the issue as follows: “If respondents’ claims were false and they actually thought that their claims were false—because they believed that their reported prices were not actually their ‘usual and customary’ prices—then would they have ‘knowingly’ submitted a false claim within the FCA’s meaning? Or is the Seventh Circuit correct—that respondents could not have ‘knowingly’ submitted a false claim unless no hypothetical, reasonable person could have thought that their reported prices were their ‘usual and customary’ prices?” To answer that, the Court first observed that the FCA defines “knowingly” to include circumstances in which a defendant had “actual knowledge of the information,” “acts in deliberate ignorance of the truth or falsity of the information,” or “acts in reckless disregard of the truth or falsity of the information.” These definitions generally track the scienter for common law fraud, which makes sense because the FCA is principally an anti-fraud statute. The Court thus found that the definition of “knowingly” “focus[es] primarily on what respondents thought and believed” at the time they made their claims, not “post hoc interpretations that might have rendered their claims accurate.”
The Court rejected respondents’ arguments defending the Seventh Circuit’s standard. The Court agreed that the term “usual and customary” was unclear. But it was not so ambiguous that they could not “becom[e] aware of a substantial likelihood of the terms’ correct meaning.” According to petitioners, respondents were actually aware of at least an unjustifiably high risk that their discounted rates really were their usual and customary ones. The Court rejected the Seventh Circuit’s reliance on Safeco: that case interpreted a different statute with a different mens rea. Moreover, Safeco, instead of requiring a backwards-looking objective “safe-harbor,” held only that common law recklessness contained an objective standard. Finally, respondents argued that only misrepresentations of fact were actionable at common law and that their alleged misconduct at most misstated the law. The Court assumed without deciding that the FCA incorporated that limitation, but held that the claims here carried an assertion about facts: “[r]ather than saying, ‘this is what ‘usual and customary’ means,’ respondents essentially said, ‘this is what our ‘usual and customary’ prices are.’”
Part II: Case Granted Review
Vidal v. Elster, 22-704. The Court will resolve whether refusing to register a trademark under 15 U.S.C. §1052(c) “violates the Free Speech Clause of the First Amendment when the mark contains criticism of a government official or public figure.” Trademarks identify the source of goods and distinguish them from others on the market. A trademark holder does not have to register a mark with the federal government to use it. But doing so confers various benefits and makes it easier to stop others from infringing on the mark. Section 1052(c) directs the Patent and Trademark Office to refuse to register any mark that “[c]onsists of or comprises a name, portrait, or signature identifying a particular living individual except by his written consent.”
During a 2016 presidential primary debate, Senator Marco Rubio joked that Donald Trump’s hands (and by implication, other portions of his anatomy) were small. In 2018, Steve Elster applied to register the mark “TRUMP TOO SMALL” for use on shirts. He did so to memorialize Rubio’s joke and to criticize the then-President. The Patent Office denied Elster’s application for an unrelated reason and because he had not obtained Trump’s consent under §1052(c). The Office’s Trademark Trial and Appeal Board affirmed the denial under §1052(c). A panel of the Federal Circuit reversed, holding that barring Elster’s application under §1052(c) violated the First Amendment. 26 F.4th 1328. The Federal Circuit acknowledged that the statute did not require viewpoint discrimination or stop Elster from communicating his message. But it viewed the section as a content-based restriction calling for heightened scrutiny. Applying either “‘strict’ or ‘intermediate’ scrutiny,” it held that “the government does not have a privacy or publicity interest in restricting speech critical of government officials or public figures in the trademark context—at least absent actual malice.”
The government argues that the Federal Circuit erred because §1052(c) “is a condition on a government benefit, not a restriction on speech.” Denying a trademark application does not punish the applicant or even stop him from using the mark in commerce; it merely denies the “ancillary benefits that come from registration.” (Quotation marks omitted.) Instead of applying heightened scrutiny to the statute, federal courts should uphold it so long as its conditions are “reasonable and viewpoint-neutral.” (Quotation marks omitted.) The government asserts that §1052(c) satisfies that standard because it is undisputed that it does not call for viewpoint discrimination and because it protects the well-recognized rights to “privacy and publicity that living persons have in the designations that identify them.” Registering such trademarks would, if anything, chill speech because doing so gives mark-holders additional tools to stop others from using the registered mark.
Elster responds that the government’s position is contrary to two recent cases in which the Court struck down similar restrictions on trademarks, Matal v. Tam, 582 U.S. 218 (2017), and Iancu v. Brunetti, 139 S. Ct. 2294 (2019). Although the section does not provide for viewpoint discrimination, it facially requires the office to deny marks based upon their content, which calls for heightened scrutiny. He argues that §1052(c) does not qualify for low scrutiny as a condition on a government benefit because that principle applies only to subsidies and similar programs. Granting Elster’s application would not chill political speech, he argues, because it would only stop others from using the mark as a source identifier in commerce. At most, identifying competing interests would call for intermediate scrutiny. Elster insists that §1052(c) would still be unconstitutional under that standard because it is not narrowly tailored and the right to privacy cannot bar criticism of public officials.
NAAG Center for Supreme Court Advocacy Staff
- Dan Schweitzer, Director and Chief Counsel, (202) 326-6010
- Todd Grabarsky, Supreme Court Fellow
- Van Snow, Supreme Court Fellow
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