Tag: Supreme Court

Insider Trading: The Unknowable Crime

Under our criminal justice system, ignorance of the law is no defense.  But what if the law is undefined?  Or what if it seems to change with every new case that’s brought?  What if unelected judges (with life tenure) started to invent crimes, piece by piece, case by case?  Holding people accountable for knowing the law is just only if the law is knowable, and only if those creating the law are accountable to the people. 

On Friday, Cato filed an amicus brief in Salman v. U.S. that is aimed at limiting the reach of just such an ill-defined, judicially created law. “Insider trading” is a crime that can put a person away for more than a decade, and yet this crime is judge-made and, as such, is ever-changing. Although individuals may know generally what is prohibited, the exact contours of the crime have remained shrouded, creating traps for the unwary.

The courts, in creating this crime, have relied on a section of the securities laws that prohibits the use of “any manipulative or deceptive device or contrivance” in connection with the purchase or sale of a security. The courts’ rationale has been that by trading on information belonging to the company, and in violation of a position of trust, the trader has committed a fraud.  The law, however, does not mention “insiders” or “insider trading.”  And yet, in 2015 alone, the Securities and Exchange Commission (SEC) charged 87 individuals with insider trading violations.  

Broadly speaking, insider trading occurs when someone uses a position of trust to gain information about a company and later trades on that company, without permission, to receive a personal benefit.  But what constitutes a “benefit”?  The law doesn’t say.

Left to their own devices, the SEC has pushed the boundaries of what constitutes a “benefit,” making it more and more difficult for people to know when they are breaking the law.  In the case currently before the Court, Bassam Salman was charged with trading on information he received from his future brother-in-law, Mounir Kara, who had, in turn, received the information from his own brother, Maher.  The government has never alleged that Maher Kara received anything at all from either his brother or Salman in exchange for the information.  The government has instead claimed that the simple familial affection the men feel for each other is the “benefit.”  Salman’s trade was illegal because he happens to love the brothers-in-law who gave him the inside information.

Under this rationale, a person who trades on information received while making idle talk in a grocery line would be safe from prosecution while the same person trading on the same information heard at a family meal would be guilty of a felony.  Or maybe not.  After all, if we construe “benefit” this broadly, why not say that whiling away time chit-chatting in line is a “benefit”?    

No one should stumble blindly into a felony.  We hope the Court will take this opportunity to clarify the law and return it to its legislative foundation.  Anything else courts tyranny. 

Murr v. Wisconsin: When the Government Redefines Property Rights in Order to Avoid Paying Just Compensation

In 1960, the Murr family purchased a 1.25-acre lot (Lot F) in a subdivision on the St. Croix River in Wisconsin. They built a recreation cabin on the lot. Three years later, the family decided to purchase an adjacent 1.25 acre lot (Lot E) as an investment. The family did not build on Lot E, and the parents later gave their children the property. When the children began to look into selling Lot E, the government said that they couldn’t. Why? Because regulations passed after both lots were purchased require a bigger “net project area” (the area that can be developed) than either lot had by itself. Because the lots were commonly owned, the government combined them into one unit and, consequently, prohibited the development or sale of what was once Lot E.

Combining the lots essentially eviscerated the independent value that Lot E once had. The Murrs filed suit against Wisconsin and St. Croix County, arguing that the governments’ action violated the Fifth Amendment Takings Clause by depriving the Murrs of the value of the property (Lot E) without just compensation. Regulatory takings cases like this one are analyzed under the Penn Central test, which applies its three factors to “the parcel as a whole,” thus making the definition of “the whole parcel” highly relevant and even determinative, as it was here. The governments’ defense in the Murr case is a tricky mathematical manipulation: By considering Lot E and Lot F together, the government argues that the taking is not unconstitutional because it affects only half of “the parcel.” But, the Murrs argue, if Lot E is analyzed individually, then the government took the whole thing.

Defining “the parcel as a whole” has been a long-disputed issue, so the Murrs, represented by the Pacific Legal Foundation, sought, and received, Supreme Court review after the Wisconsin Supreme Court declined to hear the appeal from the Wisconsin Court of Appeals, which is a pretty unique way for the Court to take a case. This gives property rights advocates hope that the Supreme Court will bring some clarity to the muddied waters that are the Penn Central test’s three factors. The government should not be allowed to combine lots simply because they have a common owner, and it should especially not be allowed to do so in order to avoid paying the “just compensation” required by the Fifth Amendment. The Cato Institute has filed a brief in support of the Murrs urging the Court to clarify Penn Central. Although the Court has attempted in a few other cases to clarify its test, it remains unclear what the factors even mean, how they are to be measured, how they relate to one another, and how they are to be weighted. Despite, or perhaps because of, the muddled nature of the test, the government wins the vast majority of regulatory takings cases.

Adopting a bright-line rule here in the narrow context of determining what constitutes “the parcel as a whole” would bring some clarity to the Penn Central test and help protect property rights. Any rule permitting the combination of adjacent parcels would exacerbate Penn Central’s problems by leaving the lower courts to determine when combination is permissible and when it is not. Already the lower courts disagree on this issue, leading to greater uncertainty and less protection for property rights. This destabilizes property owners’ reliance interests and discourages property investment. State and local governments across the country have been using the vagueness of Penn Central to facilitate taking private property without just compensation. By clarifying the “parcel as a whole,” the Court can curtail one type of eminent domain abuse.

Friedrichs Decision Is a Blow Against Educational Excellence

Today, an evenly divided Supreme Court affirmed a lower court’s decision in Friedrichs v. California Teachers Association to permit unions to continue charging nonmembers “agency fees” to cover collective-bargaining activities that the union supposedly engages in on their behalf. About half the states require agency fees from public-sector workers who choose not to join a union.

Not only do agency fees violate the First Amendment rights of workers by forcing them to financially support inherently political activities with which they may disagree (as my colleague Ilya Shapiro and Jayme Weber explained), but the unions often negotiate contracts that work against the best interests of the workers whose money they’re taking. For example, union-supported “last-in, first-out” rules and seniority pay (as opposed to merit pay) work against talented, young teachers. Moreover, a teacher might prefer higher pay to tenure protections, or greater flexibility over rigid scheduling rules meant to “protect” them from supposedly capricious principals.

Supreme Court Rejects Nebraska & Oklahoma Marijuana Suit against Colorado

This morning the Supreme Court declined to take up a lawsuit by the states of Nebraska and Oklahoma challenging Colorado’s Amendment 64 measure that legalized the sale and use of marijuana. Not just medical marijuana, but recreational use as well.

We detailed the arguments involved in the case last year:

The Nebraska/Oklahoma argument: because the federal government, through the Controlled Substances Act, has banned marijuana, states are not allowed to contradict that ban by creating a regulatory framework for legalization.  Further, Colorado’s official regulation of recreational marijuana imposes a nuisance burden on surrounding states due to an alleged increase in drug trafficking.  While Nebraska and Oklahoma disclaim any intent to force Colorado to “re-criminalize” marijuana, the suit argues that Colorado’s official efforts to regulate the legal marijuana industry bring the state into conflict with federal and international drug laws.

Colorado’s response: there is no conflict.  Federal marijuana prohibition is still in effect, and the decision not to prioritize enforcement in states that legalize marijuana came from the federal government, not Colorado.  If Nebraska and Oklahoma object to the manner in which the federal government is discharging its law enforcement duties in Colorado, they should be suing the federal government.  Colorado’s regulation of the marijuana industry is within its prerogatives under the CSA. As to the nuisance claim, Colorado argues that mere policy differences between states that don’t directly injure the sovereignty of other states are not actionable nuisances.

The legal basis for the lawsuit has been questionable from the beginning, with legal commentators both challenging its merits and pointing out the irony in two of America’s “reddest” states taking a legal posture that overruns state sovereignty in favor of federal power.

And, of course, if prohibition states are concerned with the costs, they could always legalize and regulate marijuana themselves and spare their justice systems the immense costs of prohibition.  

Today’s result is not surprising, especially after the Obama Administration urged the court to decline the case, and the outcome fits with our analysis of the case’s prospects in 2014:

Will the Supreme Court accept this case for review? That’s impossible to predict. However, the constitutional argument being advanced by Nebraska and Oklahoma is weak and so would likely fail. Just because the federal government enacts a law against marijuana, it does not follow that all the states have to enact laws against marijuana. And just because the federal police (FBI and DEA) have grown accustomed to having state and local police conduct marijuana raids and arrests, it does not follow that the local authorities can’t stop doing that. So long as the local police are not arresting or threatening to arrest federal agents for trying to enforce the federal law, there is no “conflict.” Thus, the Supremacy Clause does not come into play.

Today’s action at the Supreme Court amounts to a big boost to the marijuana legalization movement, which continues to gather strength and momentum.

For those interested in a deep dive into the legal issues, check out the Cato Policy Analysis by Robert A. Mikos, On the Limits of Federal Supremacy: When States Relax (or Abandon) Marijuana Bans.

Congress Can Deny Barack Obama the Power to Replace Justice Scalia

Senate Majority Leader Mitch McConnell (R-KY) responded to the sudden death of Supreme Court Justice Antonin Scalia with a press release saying, “this vacancy should not be filled until we have a new President.” Republican presidential candidates Ben Carson, Sen. Ted Cruz (TX), and Sen. Marco Rubio (FL) agree. Hillary Clinton spoke for many Democrats: “The Republicans in the Senate and on the campaign trail who are calling for Justice Scalia’s seat to remain vacant dishonor the Constitution. The Senate has a constitutional responsibly here that it cannot abdicate for partisan political reasons.” Conor Friedersdorf says the no-vote stratagem is “illegitimate” because “the Senate does have an obligation to fulfill its ‘advice and consent’ obligation….A preemptive rejection of any possible Supreme Court appointment is self-evidently in conflict with that obligation.” Clinton and Friedersdorf are wrong. Senators have every right to advocate not holding a vote on an Obama appointment, and not to hold a vote.

Clinton and Friedersdorf are overlooking the “consent” part of “advice and consent.” Consent means the Senate is under no obligation whatsoever even to hold a vote on any presidential appointment. The Senate’s obligation is to do what the Senate wants, and only what the Senate wants. Those are the rules. To try to hold senators to a different rule is to try to change the rules on them–and people tend to resent that. Everyone is free to disagree with the positions individual senators or the Senate as a whole take on individual nominations or prospective nominations. But there is no question that senators individually or collectively can deny their consent to any actual or prospective nomination for any reason–just as the American people can vote for whomever they want, for whatever reason they want.

Indeed, President Obama isn’t even entitled to nominate a replacement for Justice Scalia–or at least, Congress can deny him that right. The Constitution gives Congress the power to decide how many seats there are on the Supreme Court. In 1789, there were only six. Given sufficient congressional support (i.e., veto-proof majorities in both chambers), Congress could reduce the number of Supreme Court justices from the current nine to eight. McConnell, Cruz, and Rubio could propose doing so right now. It seems strange to criticize senators who are merely expressing in what circumstances they will withhold their consent when Congress has the power to deny the president the ability to fill this vacancy entirely by itself eliminating this vacancy.

At the same time Democrats turn a blind eye to President Obama repeatedly ignoring constitutional limits on his power, they claim Republicans would dishonor the Constitution if they use powers the Constitution clearly grants them. That is unlikely to dissuade Senate Republicans from delaying a vote on Scalia’s successor until 2017. Nor should it. For more on this topic, please read this by my colleague Ilya Shapiro at Forbes.

Scalia’s untimely passing was a gut punch. I didn’t agree with him all the time. But I agree with Trevor Burrus about him. RIP.

RIP: Was Justice Scalia the Last Great Supreme Court Justice?

Justice Antonin Scalia died today. It is a profound loss to the Court, the nation, and to the study of law. Everyone should mourn his loss, no matter which side of the political spectrum they are on.

Yet, due to Scalia’s divisiveness, there will no doubt be many uncouth tweets, posts, and op-eds in the coming days from those who disagreed with him more often than not. While there are other justices on the “conservative” side of the Court, Scalia’s pugnacious and often vituperative opinions have a way of either getting under your skin (if you disagree) or making you triumphantly raise your fist in the air (if you agree). In my opinion, Scalia was not only finest writer ever to sit on the Court, he was one of the best rhetoricians in history.

In the coming days, we will see many reactions from across the political spectrum. I predict, and hope, that many of Scalia’s ideological opponents will give the man the respect he deserved. And perhaps that, more than anything, will be the testament to his enduring legacy. By any objective measure, Scalia is among the greatest justices in our history. With his penetrating logic and his colorful wit, Scalia was the most forceful and visible advocate for originalism, a theory of constitutional interpretation that was derided when he ascended to the bench and is now, for both liberals and conservatives, mainstream.

During law school, many of my classmates would comment on their intense dislike for Scalia. I always responded by pointing out how many opinions he had published in our textbooks. Those opinions weren’t just in there because they were comparatively fun to read, which is true, but because a Scalia opinion has a way of clarifying the legal questions at issue. They are perfect pedagogical devices. 

Antonin Scalia, Revolutionary

Justice Scalia, who was marking his 30th year on the Supreme Court, is indisputably the most influential jurist of my lifetime (and probably longer than that). He reoriented the study and practice of constitutional law towards the meaning of the actual Constitution and the interpretation of statutes toward their actual text. Originalism and textualism simply wouldn’t exist in a way worthy of their names without him.

But that’s not the only way in which he revolutionized the law. His writing style—clear, direct, and with obvious personality—blew fresh air through often staid and technocratic jurisprudence. He knew that he was writing not just for legal experts, but for the ages. There’s a reason that his opinions get reprinted in law school casebooks even when he’s not in the majority.

In coming days, we’ll see plenty of analyses of Scalia’s “greatest hits,” and there were plenty, whether you agree with him or not. I especially appreciate his opinion for the Court in District of Columbia v. Heller (2008), which confirmed that the Second Amendment protects an individual right. (And note that the dissenting justices pushed back on originalist grounds.) I especially regret his concurring opinion in Gonzales v. Raich (2005), where the Supreme Court authorized the federal government’s regulation of (marijuana) plants that people grow in their backyard for their own consumption. But agree with him or not in any particular case, you cannot deny his impact.

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