Volume 30, Issue 8
This Report summarizes opinions issued on April 14, 18, and 19, 2023 (Part I); and cases granted review on April 17, 2023 (Part II).
The Supreme Court Report is published biweekly during the U.S. Supreme Court Term by the NAAG Center for Supreme Court Advocacy.
Part I: Opinions
New York v. New Jersey, 156 Orig. The Court unanimously held that New Jersey may unilaterally withdraw from the Waterfront Commission Compact. In 1953, New York and New Jersey entered into the Compact to administer the Port of New York and New Jersey, which straddles the border of both states. Each state delegated law enforcement authority over its portion of the Port to the Waterfront Commission of New York Harbor. Over time, most of the activity at the Port shifted to the New Jersey side. In 2018, the New Jersey Legislature authorized the governor to unilaterally withdraw from the Compact. Doing so would dissolve the Commission and each state would assume police responsibility over its portion of the Port. The Commission sued in federal court to prevent this, but the Third Circuit eventually held that New Jersey was immune from suit. When New Jersey again announced its intent to withdraw, New York brought an original action in the Supreme Court. In an opinion by Justice Kavanaugh, the Court held (on cross-motions for judgment on the pleadings) that New Jersey could withdraw from the Compact without New York’s approval.
Although the Compact required both states to consent to any amendments and recognized that Congress could change its terms, it did not mention withdrawal or termination. In the face of this textual silence, the Court turned to background principles of contract law in 1953. The Court found that it was clear then (as it is now) that a contract contemplating “continuing performance for an indefinite time is to be interpreted as stipulating only for performance terminable at the will of either party.” This conclusion was supported by “[p]rinciples of state sovereignty”―the Court would not lightly infer that a state intended to permanently surrender its police power over part of its territory. Finally, both parties agreed that they did not intend for the Compact to be permanent, so it would be strange to assume that each intended to give the other a “perpetual veto of withdrawal.” The Court clarified that its reasoning would not apply to compacts that do not “exclusively call for ongoing performance on an indefinite basis,” such as those “setting boundaries, apportioning water rights, or otherwise conveying property interests.”
The Court rejected New York’s arguments to the contrary. New York claimed that pre-1953 compacts were understood to forbid unilateral withdrawal. But many of the compacts that New York pointed to settled boundaries or allocated water rights instead of “calling for ongoing and indefinite performance”; the United States had taken the opposite view of the law in 1950; and other compacts expressly prohibited unilateral withdrawals, which would have been unnecessary if New York were right. The Court rejected New York’s claim that international law generally prohibits unilateral withdrawals from treaties. And that New York and New Jersey had resolved disputes under the Compact before did not speak to the right of one party to leave it. Finally, the Court rejected the argument that its decision would destabilize other compacts, emphasizing that its reasoning applied only to “a compact that (1) is silent on unilateral withdrawal; (2) calls for ongoing and indefinite performance; and (3) does not set boundaries, apportion water rights, or otherwise convey property interests.”
Axon Enterprise, Inc. v. Federal Trade Commission, 21-86; Securities and Exchange Commission v. Cochran, 21-1239. Without dissent, the Court held that targets of SEC and FTC enforcement actions may bring a constitutional challenge to the agency’s structure or processes without first completing the agency’s administrative proceedings. Congress established the Securities and Exchange Commission and the Federal Trade Commission under the Securities and Exchange Act and Federal Trade Commission Act. The statutes authorize those Commissions to address statutory violations by bringing civil suits in federal district court or by instituting internal administrative proceedings. In an administrative enforcement proceeding, an administrative law judge adjudicates the dispute; the ALJ’s decisions are appealable internally and then subject to judicial review by a federal court of appeals.
The present cases involve respondents to administrative enforcement actions initiated by the Commissions. The first case arose from an SEC enforcement action against Michelle Cochran, a certified public accountant charged with violating auditing standards. The second case arose from an FTC enforcement against Axon Enterprise, a company that makes and sells policing equipment, charged with unfair competition after purchasing its closest competitor. In both cases, the respondents did not wait for the administrative review process to complete. Instead, before the ALJs issued their decisions, the respondents sued in federal district court charging that some fundamental aspect of the respective Commission’s structure, proceedings, or procedure for appointment or removal of ALJs violated the Constitution and that the entire proceeding was therefore unlawful. Both lawsuits were dismissed by the district courts for lack of jurisdiction. In both cases, the district courts held that they were divested of jurisdiction over constitutional challenges to SEC and FTC proceedings because the Acts set forth a process of administrative adjudication followed by judicial review in a federal appeals court. On appeal, the Fifth Circuit reversed while the Ninth Circuit affirmed. In an opinion by Justice Kagan and joined by all other justices except Justice Gorsuch, the Court held that the administrative review schemes set forth by the statutes do not displace district court jurisdiction over the respondents’ constitutional claims.
The Court explained that the statutory creation of administrative review schemes for agency actions can divest district courts of their ordinary §1331 jurisdiction for claims covered by the administrative review scheme. But to determine whether a claim is so covered, the Court looks to whether the particular claims brought were “of the type Congress intended to be reviewed within this statutory structure.” That inquiry is guided by three factors—known as the “Thunder Basin factors,” after the case Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994): (1) whether precluding district court jurisdiction could “foreclose all meaningful judicial review” of the claim; (2) whether the claim is “wholly collateral to [the] statute’s review provisions”; and (3) whether the claim is “outside the agency’s expertise.” When the answer to all three queries is yes, the Court presumes that Congress did not intend to limit district-court jurisdiction. If the factors point in different directions, if they evince an intent from Congress to cover the claim at issue, then the district court’s jurisdiction is limited to exclude review of the claim.
Relying in large part on how the Court applied those factors in Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U.S. 477 (2010), the Court applied the factors to Axon’s and Cochran’s claims, which charged that the Commissions’ administrative review and enforcement processes were constitutionally or structurally defective. The Court held that the first factor weighs in favor of permitting district court jurisdiction over those claims. Although Axon and Cochran could raise their claims via the administrative review process and have those claims reviewed by a federal appellate court, Axon and Cochran would still be subject to the very administrative proceedings they claim are unconstitutional or unlawful and have caused them harm. Even if the federal court agreed with Axon or Cochran upon review of an ALJ decision, that court cannot remedy the alleged injury because the administrative proceedings have already taken place: “Judicial review of Axon’s (and Cochran’s) structural constitutional claims would come too late to be meaningful.” The Court next held that the second factor weighed in Axon and Cochran’s favor because their separation-of-powers claims do not relate to the subject of the enforcement actions, but rather challenge the Commissions’ power and authority to initiate such proceedings at all. The claims thus have nothing to do with the enforcement-related matters the Commissions “regularly adjudicate,” nor do they have anything to do with procedural or evidentiary matters concerning the particular charges the Commissions brought against Axon and Cochran. Thus, their constitutional claims are “collateral” to any order the Commissions could or would issue with regard to the administrative enforcement actions.
Finally, the Court held the third factor weighs in Axon and Cochran’s favor because their claims concerning such constitutional issues as separation of powers and due process are far beyond the Commissions’ “competence and expertise.” In this regard, the Court reaffirmed the principle that “agency adjudications are generally ill suited to address structural constitutional challenges.” Upon finding that all three factors point towards Congress’s intent not to remove the district courts’ jurisdiction over these types of claims, the Court held that a district court would have original jurisdiction to review them. It therefore reversed the judgment of the Ninth Circuit and affirmed that of the Fifth Circuit.
Justice Thomas, though joining the majority opinion in full, wrote separately to express his doubts about the constitutionality of Congress’s “vesting administrative agencies with primary authority to adjudicate core private rights with only deferential judicial review on the back end.” Justice Thomas wrote that “private rights”—the rights to life, liberty, and property, which are rights not dependent on the will of government—can only be adjudicated and divested by Article III courts. On the other hand, “public rights”—governmental privileges such as “benefits or entitlements”—could be taken away by the legislative or executive branches without judicial process. In Justice Thomas’s view, even if an Article III court may eventually review an agency adjudication on private rights, the very fact that an executive agency is involved in the potential divestment of such rights raises constitutional concerns related to separation of powers, due process, and Article III itself. Justice Thomas wrote that the rights at issue in this case—which involved a monetary penalty against Cochran and a requirement that Axon transfer intellectual property to another entity—are core private rights that may be adjudicated only by Article III courts. Thus, he concluded, “In an appropriate case, we should consider whether such schemes and the appellate review model they embody are constitutional methods for the adjudication of private rights.”
Justice Gorsuch, concurring in the Court’s judgment only, wrote that Cochran and Axon’s entitlement to have their claims heard in the first instance by an Article III court flows not from the “Thunder Basin factors,” but rather from 28 U.S.C. §1331, which bestows district courts with original jurisdiction over all cases arising under federal law. For Justice Gorsuch, §1331 provides the entire vehicle for a district court to hear Axon and Cochran’s claims because those claims arise under the Constitution, and the Court has held that §1331 jurisdiction cannot be lost by implication. He therefore rejects the “judge-made, multi-factor balancing test” derived from Thunder Basic. Justice Gorsuch explained that Congress has passed no statute that would limit §1331 jurisdiction from the types of claims at issue here. To the contrary, he found, the Exchange Act and FTC Act permit a party to bring constitutional claims concurrently with a Commission’s enforcement proceeding, rather than stripping district courts of original jurisdiction to hear those types of claims.
Reed v. Goertz, 21-442. By a 6-3 vote, the Court held that the statute of limitations for filing a §1983 action challenging the constitutionality of a state post-conviction DNA testing statute begins to run at the end of the state-court litigation, including the denial of a motion for rehearing. A Texas jury convicted petitioner Rodney Reed of murdering Stacey Stites in 1996. Texas courts upheld his conviction. In 2014, he moved for post-conviction DNA testing of various pieces of evidence, including the murder weapon. The state district court denied his motion in part because he could not show that the evidence had been preserved through an adequate chain of custody, as the Texas DNA statute implicitly required. The Texas Court of Criminal Appeals affirmed and later denied Reed’s motion for rehearing. Reed then sued the state prosecutor in federal district court under 42 U.S.C. §1983, alleging that the DNA statute as construed by Texas courts denied him procedural due process. In affirming the district court’s dismissal, the Fifth Circuit ruled that Reed’s suit was untimely because the two-year statute of limitations began to run when the state district court denied his motion, not when the Court of Criminal Appeals denied his motion for rehearing. In an opinion by Justice Kavanaugh, the Court reversed.
The Court first dealt with Texas’ threshold arguments. It held that Reed had standing because he had alleged “an injury in fact: denial of access to the requested evidence,” and the named defendant (the state prosecutor) had caused this injury. If a federal court found that the Texas statute was unconstitutional, the state prosecutor would be “substantially likely” to abide by the order. Texas asserted sovereign immunity, but Reed sought only declaratory or injunctive relief against a state officer and therefore qualified for the Ex parte Young exception. Finally, the Court rejected Texas’s claim that the Rooker-Feldman doctrine barred his suit. That doctrine “prohibits federal courts from adjudicating cases brought by state-court losing parties challenging state-court judgments.” But Reed did not challenge the state court decisions themselves; he instead attacked the statute they construed.
Turning to the merits, the Court’s precedents left open the possibility (albeit “slim room”) for plaintiffs to raise a procedural due process challenge to post-conviction DNA testing statutes. Statutes of limitations begin to run when a plaintiff has a complete cause of action, which depends upon the nature of the right asserted. Procedural due process claims, held the Court, are complete not when the deprivation of a protected interest occurs, but when the state denies adequate process. And the “[s]tate’s process for considering his DNA testing request” includes “appellate review by the Court of Criminal Appeals,” which in turn “encompasses a motion for rehearing.” Therefore, “Reed’s §1983 claim was complete and the statute of limitations began to run when the state litigation ended—when the Texas Court of Criminal Appeals denied Reed’s motion for rehearing.” The majority buttressed its conclusion by noting that the Fifth Circuit’s rule would encourage wasteful parallel proceedings; plaintiffs who lost in state district court would have an incentive to file a “protective federal §1983 suit” while simultaneously pursuing a state appeal. Moreover, giving state courts a full opportunity to pass on the constitutionality of a statute would “streamline and focus subsequent §1983 proceedings.”
Justice Thomas dissented, believing that the “intertwined principles” of Article III standing and the Rooker-Feldman doctrine barred Reed’s suit. In his view, Reed’s action was, at bottom, a challenge to state court decisions. Yet federal district courts do not have appellate jurisdiction over state courts. And, Justice Thomas continued, because Reed was really challenging the action of state courts, a suit against the state prosecutor would not redress his injury.
Justice Alito, joined by Justice Gorsuch, separately dissented. He agreed that “there is room for debate about exactly when Reed’s DNA testing claim accrued,” but thought the conclusion that it “did not take place until rehearing was denied is clearly wrong.” Even assuming that the claim did not accrue until there was an “authoritative construction” of the statute, that occurred when the Court of Criminal Appeals reached its decision on the merits. Pointing to the Supreme Court’s own treatment of its merits decisions as well as the infrequency with which petitions for rehearing are granted, Justice Alito would have ruled that Reed’s claim was untimely.
Turkiye Halk Bankasi v. United States, 21-1450. The Court held that foreign sovereigns and their instrumentalities are subject to the jurisdiction of federal district courts in criminal prosecutions and that they are not immune from criminal prosecution under the Foreign Sovereign Immunities Act (FSIA). This case arises from a federal indictment of Halkbank, a bank that is majority owned by the Republic of Turkey. Halkbank is accused of laundering billions of dollars of Iranian oil and gas proceeds through the global financial system (including the U.S. financial system) in violation of U.S. sanctions and various federal laws as well as making false statements to federal officials. Two individual defendants have already been convicted in federal court for their roles in the alleged conspiracy, and several other indicted defendants remain at large. Halkbank moved to dismiss the indictment on the grounds that the FSIA affords it immunity from criminal prosecution as an instrumentality of a foreign state. The district court denied the motion, finding no such immunity exists. The Second Circuit affirmed, holding that the district court had subject-matter jurisdiction under 18 U.S.C. §3231. The court further held that even if the FSIA confers immunity to foreign sovereigns and their instrumentalities in criminal proceedings, Halkbank’s charged conduct fell within the FSIA’s exception for commercial activities. In an opinion by Justice Kavanaugh, the Court affirmed in part and vacated and remanded in part.
The Court first affirmed the Second Circuit’s ruling that 18 U.S.C. §3231 confers federal district courts with exclusive original jurisdiction over the “full range of federal prosecutions for violations of federal criminal law,” including against foreign states and their instrumentalities. The Court rejected Halkbank’s “atextual” argument that §3231 was meant to exclude foreign states and their instrumentalities. The Court explained that “scattered references” to foreign states in other parts of the U.S. Code and predecessor statutes does not shrink the jurisdiction of §3231.
The Court next held that the FSIA “does not provide foreign states and their instrumentalities with immunity from criminal proceedings.” The Court explained that the FSIA exclusively addresses civil lawsuits against foreign sovereigns and their instrumentalities, not criminal proceedings. The statute’s text references only civil suits: its first provision “grants district courts original jurisdiction over ‘any nonjury civil action against a foreign state’ as to ‘any claim for relief in personam with respect to which the foreign state is not entitled to immunity.’ 28 U.S.C. §1330(a) (emphasis added); 90 Stat. 2891. The FSIA then sets forth a carefully calibrated scheme that relates only to civil cases.” The Court observed that, “[i]n stark contrast to those many provisions concerning civil actions, the FSIA is silent as to criminal matters. The Act says not a word about criminal proceedings against foreign states or their instrumentalities.” The Court added that context supports its textual reading. “Although the vast majority of litigation involving foreign states and their instrumentalities at the time of the FSIA’s enactment in 1976 was civil, the Executive Branch occasionally attempted to subject foreign-government-owned entities to federal criminal investigation. Given that history, it becomes even more unlikely that Congress sought to codify foreign sovereign immunity from criminal proceedings without saying a word about such proceedings.” (Internal citations omitted.)
The Court concluded that all of this was not offset by 28 U.S.C. §1604, which provides that, “Subject to existing international agreements,” a “foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter.” Concluded the Court, “[w]hen we consider §1604 alongside its neighboring FSIA provisions, it becomes overwhelmingly evident that §1604 does not grant immunity to foreign states and their instrumentalities in criminal matters.” Nevertheless, the Court vacated the Second Circuit’s judgment and remanded to that court to consider in the first instance Halkbank’s arguments that it is still immune to criminal prosecution because of common-law immunity.
Justice Gorsuch, joined by Justice Alito, wrote separately concurring in part and dissenting in part. In their view, the FSIA covers both civil and criminal proceedings. Justice Gorsuch read §1604 as granting immunity broadly to both civil and criminal matters. Nevertheless, Justice Gorsuch concluded, the FSIA’s exception for commercial activities would provide the exemption to sovereign immunity that would permit the prosecution of Halkbank to proceed. Justice Gorsuch criticized the majority’s opening the door for common-law immunity to possibly immunize Halkbank in this case and other foreign states and instrumentalities in others. He explained that this could cause great confusion concerning whether and under what circumstances common law and international law provides for immunity from criminal prosecution. This, Justice Gorsuch stated, overcomplicates and confuses the law on whether foreign states are subject to the jurisdiction of federal court—an issue the FSIA provides “simple rules” for resolving.
MOAC Mall Holdings LLC v. Tranform Holdco LLC, 21-1270. The Court unanimously held that §363(m) of the Bankruptcy Code is not a jurisdictional provision. This case arises from the 2018 Chapter 11 bankruptcy filing of Sears, Roebuck and Co., which self-administered the bankruptcy estate. During the bankruptcy proceedings, Sears agreed to sell most of its assets to respondent Transform Holdco LLC, which the bankruptcy court approved. Included in the assets was the right for Transform to designate assignees to a lease between Sears and any of its landlords. One of the leases eligible for such an assignment was Sears’s lease with petitioner MOAC Mall Holdings, which leases spaces in the Minnesota Mall of America. In 2019, Transform designated the Mall of America lease for assignment to its wholly owned subsidiary; MOAC objected on the ground that Sears had failed to provide adequate assurance of future performance by Transform required by §365 of the Bankruptcy Code. The bankruptcy court disagreed with MOAC and issued an Assignment Order approving the assignment of the lease to Transform.
The Bankruptcy Code permitted MOAC to appeal the Assignment Order, but, under §363(m) of the Code, the effect of a successful appeal is limited and may not invalidate sale or lease of property to good faith purchasers or lessees. Rather than appealing the Assignment Order, MOAC asked for a stay, which the bankruptcy court denied. Because no stay was granted, the Assignment Order became effective, and Sears duly assigned the lease to Transform. MOAC then appealed the Assignment Order to the district court, which initially sided with MOAC, holding that Transform indeed did not satisfy the pertinent §365 adequate assurances provisions. Transform sought rehearing, arguing for the first time (and contrary to prior assurances that it would not raise §363(m)) that §363(m) deprived the district court of jurisdiction to hear the appeal. The district court agreed, finding that precedent required it to dismiss the appeal because §363(m) was jurisdictional. The Second Circuit affirmed. In an opinion by Justice Jackson, the Court reversed.
As an initial matter, the Court held that this case was not moot even though the lease had already been transferred out of the estate via assignment. The Court rejected Transform’s argument that MOAC could not receive any relief because ultimate vacatur of the Assignment Order will not remedy the issue here. Rather, the Court “decline[d] to act as a court of ‘first view,’ plumbing the Code’s complex depths in ‘the first instance’ to assure ourselves that Transform is correct about its contention that no relief remains legally available.”
On the merits, the Court held that that §363(m) is not jurisdictional. The Court first explained the significance of the jurisdictional label: “An unmet jurisdictional precondition deprives courts of power to hear the case, thus requiring immediate dismissal. And jurisdictional rules are impervious to excuses like waiver or forfeiture.” The Court then explained that courts treat provisions as jurisdictional only if Congress “clearly states” as much. Turning to §363(m), the Court found nothing in that provision’s limits that govern a court’s adjudicatory capacity. Section 363(m) limits the ability of an appellate court when ruling on an appeal from a bankruptcy authorization: “Sometimes, the court’s exercise of power may not accomplish all the appellant wishes, because the reversal or modification of a covered authorization may not ‘affect the validity of a sale or lease under such authorization’ to a good-faith purchaser or lessee under certain prescribed circumstances.” All told, the provision’s caveated constraint on the effect of an appellate reversal or modification is not a “clear statement” of a jurisdictional provision. Section 363(m) reads like a statutory limitation, rather than a jurisdictional one. This conclusion, found the Court, is bolstered by the statutory context, in which Congress separated §363(m) from the provisions in the Bankruptcy Code that recognize federal courts’ jurisdiction over bankruptcy matters, and there is no clear link between §363(m) and those jurisdictional provisions.
Part II: Case Granted Review
Culley v. Marshall, Attorney General of Alabama, 22-585. The Court granted certiorari to decide what standard lower courts should apply when determining whether and when “the Due Process Clause requires a state or local government to provide a post seizure probable cause hearing prior to a statutory judicial forfeiture proceeding[.]” Alabama, like many jurisdictions, has a civil forfeiture mechanism under which it may seize and gain title to property connected to certain alleged criminal offenses. The state (through its subdivisions) seized the vehicles of both petitioners. Petitioners both claimed that they were innocent owners, eventually prevailed in the forfeiture proceedings, and recovered their vehicles. But the forfeiture proceedings took months to resolve and they were deprived of their property in the meantime. Both filed suit in federal district court and claimed that the state violated their due process rights by failing to provide them with “a prompt, post-deprivation hearing as to whether [their] automobile[s] should be retained by the State . . . and whether continued impoundment was the least restrictive way for the State to secure its interest in the vehicle[s] during the pendency” of the proceedings. The district courts granted summary judgment for the state on petitioners’ due process claims. The cases were consolidated for appeal in the Eleventh Circuit, which affirmed.
The Eleventh Circuit panel, bound by circuit precedent, held that “a timely merit hearing affords a claimant all the process to which he is due” and that courts should apply the speedy trial analysis from Barker v. Wingo, 407 U.S. 514 (1972), to determine when a merits hearing is untimely. The Barker test considers the length of the delay, the reasons for the delay, the claimant’s assertion of her right to a speedy resolution, and the prejudice caused by the delay. The Eleventh Circuit is the only federal court of appeals to reach this result; the Second, Fifth, and Seventh Circuits have held that courts should apply the three-part test from Mathews v. Eldridge, 424 U.S. 319 (1976), to determine if a state or local government must provide an opportunity to challenge the continued deprivation before a forfeiture hearing. Under that test, courts consider the private interest at issue, the risk of an erroneous deprivation, and the government’s interest.
Petitioners argue that the Court should endorse the majority approach and that they would prevail under the Mathews standard. They note that the Court granted certiorari on an identical question in 2009, but that case became moot because the claimants there recovered their property and were not seeking monetary damages. See Alvarez v. Smith, 558 U.S. 87 (2009). Petitioners argue that they satisfy the Mathews standard because they lost use of their vehicles for more than a year, the risk of innocent owners being erroneously deprived of their property is high, and the government could have required them to post a reasonable bond or taken other action to secure its interest in the property.
Respondents argue that state law already provides claimants a mechanism to get property back before forfeiture hearings (namely, by posting bond equal to double the value of the vehicle) and that no further process is required. They argue that the forfeiture hearing was timely under Barker and that petitioners had waived any claim that they might win under that analysis. Respondents also claim that petitioners could not prevail under Mathews because there is a low risk of wrongful deprivation under existing procedures and the government’s interest in securing property that could be used to prove a criminal violation is substantial.
NAAG Supreme Court Advocacy Center Staff
- Dan Schweitzer, Director and Chief Counsel, (202) 326-6010
- Todd Grabarsky, Supreme Court Fellow
- Van Snow, Supreme Court Fellow
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