Tag: Supreme Court

The Fourth Amendment Doesn’t Allow Roving Licenses to Detain People Without Probable Cause

This blogpost was co-authored by Cato legal associate David Scott.

Searches and seizures have long been held to be unreasonable under the Fourth Amendment unless supported by probable cause. There are only a few narrow exceptions to that probable cause requirement.

The Supreme Court found one such exception in the 1981 case of Michigan v. Summers, which gave police a limited authority to detain the occupants of premises that were lawfully being searched. The Court justified this limited detention by invoking the need for officers to have “unquestioned command” of the premises and prevent flight should incriminating evidence be found, thus “minimizing the risk of harm to the officers” and facilitating “the orderly completion of the search.”

In 2005, police officers were preparing to execute a search warrant on a home in Wyandanch, New York, when they witnessed Chunon Bailey—who was unaware of the search warrant or its pending execution—exit the home and begin to drive away. Officers followed and subsequently stopped Bailey, detaining him about a mile from the premises to be searched. The government contends that Bailey’s detention was proper pursuant to Summers.

The district court agreed and the U.S. Court of Appeals for the Second Circuit affirmed, holding that the interests expounded in Summers justify the detention of a prior occupant of the premises to be searched so long as the detention is made “as soon as practicable” after identifying “an individual in the process of leaving the premises.” The Supreme Court agreed to review the case and Cato has now joined the ACLU and the New York Civil Liberties Union in filing an amicus brief urging the Court to reverse the Second Circuit.

Our argument is three-fold. First, the Second Circuit’s extension of Summers lacks any limiting principles to the power to detain without probable cause. Without an outer limit, the Summers exception would be applicable to any number of situations in which detention without probable cause is unreasonable. A warrant to search a particular place would be transformed into a roving license to detain any person thought to be associated with that place.

Second, the Second Circuit’s attempt to establish a limiting principle by requiring the detention to occur “as soon as practicable” is insufficient because it has no principled basis and is inconsistent with the underlying values of the Fourth Amendment. Furthermore, the “as soon as practicable” standard provides no clear guidance to officers as to when a detention is permissible.

Finally, the extension of Summers here is unnecessary to ensure that officers maintain “unquestioned command” of the premises during a search: The detention of an individual away from the premises to be searched has nothing to do with police “command” of the premises, but is instead merely a means of holding someone pending the speculative emergence of probable cause.

The Supreme Court will hear argument in Bailey v. United States on October 30.

IRS Can’t Manipulate Tax Code to Generate More Revenue for Itself

This blogpost was co-authored by Cato legal associate Matt Gilliam.

An American energy company called PPL bought one of many state-owned British utilities privatized in the 1980s. In 1997, PPL thus became subject to the UK’s new “windfall tax,” which was based in part on “profit-making value”—the utility’s average annual profit multiplied by an imputed price-to-earnings ratio.

Various American energy companies subject to this tax filed claims with the IRS for a “foreign income tax” credit, which the IRS denied in 2007, asserting that the British tax was not a creditable one under the “foreign income tax” provision of the Internal Revenue Code (Section 901). The IRS claimed that the windfall tax did not satisfy the “predominant character” standard (was not predominantly an income tax) because the British statute used the term “profit-making value” instead of “net income” and “gross receipts,” and the tax rate was defined “as a percentage of an imputed value … rather than directly as a percentage of net income.”

After the federal tax court held that PPL was entitled to the foreign tax credit, the U.S. Court of Appeals for the Third Circuit reversed. Explaining that a tax exemption is a privilege extended by legislative grace, the appellate court held the tax not to be creditable because it reached beyond realized profit and did not tax actual gross revenue. In a different case last year, however, the U.S. Court of Appeals for the Fifth Circuit held that the British windfall tax was indeed creditable because (1) it reached realized income and (2) gross revenue was an inherent part of the calculation. The Fifth Circuit explained that the form and label of the foreign tax are not determinative and that the predominant character standard requires the IRS to analyze the history and intent of a tax to assess whether it tries to reach some net gain.

Cato now joins Southeastern Legal Foundation and Goldwater Institute on an amicus brief in urging the Supreme Court to take PPL’s case because it implicates fundamental issues of property rights, free markets, and the arbitrary exercise of government power—and the circuit split creates uncertainty for American businesses overseas. We argue that taxpayers have the right to be free from double taxation and that here the IRS and Third Circuit improperly disregarded the substance of the windfall tax and applied an overly rigid construction of its terms.

Ultimately, a foreign tax’s form or label cannot mask its substantive character and intent for legal purposes. American businesses operating overseas should be able to rely on a stable, substantive application of U.S. tax law instead of arbitrary interpretations and constructions manipulated to generate payments to the IRS.

The Supreme Court will decide this fall whether to hear PPL Corp. v. Commissioner of Internal Revenue.

What Did the Founders Think About International Law?

Last term, the Supreme Court postponed its decision in Kiobel v. Royal Dutch Petroleum, a case that initially asked whether the Alien Tort Statute—one of our oldest laws (1789), giving federal courts jurisdiction over lawsuits brought by aliens for actions “in violation of the law of nations”—applies to non-natural persons (that is, corporations). Instead, the Court called for further briefing and re-argument on a more basic question: Does the ATS allow U.S. courts to even hear lawsuits for violations of international law on foreign soil?

Cato’s previous brief in this case argued that the ATS must be interpreted in a manner consistent with Congress’s original jurisdictional grant—that is, in accordance with international law as of 1789, which allowed only natural persons to be sued—because courts cannot expand their own jurisdiction.

But the inquiry need not end there, because the Founders understood “the law of nations” to provide a methodology for defining the extraterritorial scope of ATS jurisdiction as well, as we explain in our supplemental Kiobel brief. We argue that the Founders’ understanding of jurisdiction rested on the nexus between territory and sovereignty and that the law of nations as of 1789 recognized a territorial nexus between the state asserting jurisdiction and the claim asserted.

We further argue that the petitioners’—12 Nigerians who sued an oil company and its subsidiaries for various human rights violations committed by Nigerian soldiers in Nigeria—heavy reliance on an analogy to piracy to support their expansive view of extraterritorial jurisdiction is unconvincing because “piracy,” properly understood, occurs on the high seas, in a stateless zone, and involves crimes committed by stateless actors. That the law of nations permits jurisdiction under those unique circumstances does not mean that a U.S. court may assert jurisdiction over conduct occurring entirely within the territory of a foreign sovereign.

Moreover, we note that the Supreme Court has already ruled in Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund (1999) that courts should not resort to “evolving” standards of international law to define the ATS’s extraterritorial scope. Petitioners have no answer for why the Court should not follow Grupo Mexicano or the clear principles of international law as of 1789.

In any event, the supplemental briefs filed by the petitioners, supporting amici, and the United States (which previously supported the petitioners but now argues partially against them) demonstrate the need for a clear, principled methodology regarding all aspects of ATS claims. The law of nations, as understood by the Founders in 1789, provides just such methodological guidance.

The Supreme Court will hear re-argument in Kiobel v. Royal Dutch Petroleum on Oct. 1, the first day of the new term.

Replacing Obamacare: Cato Offers a Positive Solution

Now that the Supreme Court has ruled on Obamacare—the first of many challenges to reach it because, to paraphrase Nancy Pelosi, the more we learn about it, the more constitutional defects we find—the focus of public debate has returned to the policy arena. I’ve stepped to the side here because, as I said all along, I’m a simple constitutional lawyer, not a health care expert.

My colleagues Michael Cannon and Michael Tanner, however, have been doing yeoman’s work in describing what states should and shouldn’t do until we get federal officials willing to excise the Obamacare tumor from the body politic—and what Congress should then do to actually reform our health care system. They’ve collected their (and a few others’) work into a really cool e-book, Replacing Obamacare: The Cato Institute on Health Care Reform.

I’ll let the Mikes expound on their various policy analyses and prescriptions elsewhere, but just wanted to highlight the legal parts:

Chapter 25 - Bill ‘Reforms’ Constitution - Robert A. Levy and Michael F. Cannon

Chapter 26 - The Case against President Obama’s Health Care Reform: A Primer for Nonlawyers - Robert A. Levy

Chapter 27 - Elena’s Nanny State - Michael D. Tanner

Chapter 28 - Obamacare Is Unconstitutional - Roger Vinson

Chapter 29 - HHS v. Florida - Cato’s individual mandate brief before the Supreme Court

Chapter 30 -  Baking Some Humble Pie for Congress - Trevor Burrus

Chapter 31 - The Supreme Obamacare Question - Michael D. Tanner

Chapter 32 - That’s Not a Limiting Principle, Noah Feldman Edition - Michael F. Cannon

Chapter 33 - In Opposing Obamacare, We Were Serious the Whole Time - Ilya Shapiro

Chapter 76 - It Now Falls to Congress - Roger Pilon

Chapter 77 - We Won Everything but the Case - Ilya Shapiro

Chapter 78 - John Roberts, Judicial Pacifist - Ilya Shapiro

Chapter 79 - Health Law a Loser despite Court Victory - Michael F. Cannon

Chapter 80 - Chief Justice Roberts Sold Out the Constitution for Less Than Wales - Ilya Shapiro

Chapter 81 - ObamaCare’s Now a Bigger Mess - Michael D. Tanner

Chapter 82 - If ObamaCare Survives, Legal Battle Has Just Begun - Jonathan H. Adler and Michael F. Cannon

These are white papers, essays, op-eds, blog posts, and even a brief that you may have come across already (and can Google separately), but now you can get them all—along with all the great policy stuff —in one convenient e-book (whose table of contents you can see here).

Government Can’t Censor Book Promotion

This blogpost was co-authored by Cato legal associate Kathleen Hunker.

There’s a fine line between protecting the public from fraud and censoring unorthodox opinions—a line across which the government often stumbles. That was the case in September 2007, when the Federal Trade Commission filed a contempt motion against Kevin Trudeau, author of the best-selling book The Weight Loss Cure “They” Don’t Want You to Know About.

The FTC alleged that Trudeau had misrepresented the contents of his book in several “infomercials” by describing it as “easy” and claiming that dieters, by the end of the regimen, could eat anything they wanted without gaining weight. Despite the fact that Trudeau merely quoted the book when making these statements, the district court upheld the FTC’s findings and smacked Trudeau with a staggering $37.6 million fine. The court also imposed a rare “prior restraint” on speech, demanding that Trudeau post a $2 million bond before running any future infomercials.

The district court imposed these sanctions even though the FTC never proved that Trudeau misled a single consumer or violated any part of the FTC Act. On appeal, the Seventh Circuit affirmed the district court’s decision and ruled that Trudeau’s book promotion constituted misleading commercial speech and was therefore not entitled to any constitutional protection. If left unchallenged, the Seventh Circuit’s ruling would have a dire chilling effect on authors trying to promote their work and could give government officials broad censorial power, in effect permitting the FTC to tax fine through the backdoor what it could never regulate directly (sound familiar?).

Cato has thus filed an amicus brief supporting Trudeau’s request that the Supreme Court take the case and establish a constitutional standard that allows the FTC to protect consumers from fraud while respecting the First Amendment. We argue that courts should apply strict scrutiny to any government actions that restrict or punish advertisements that merely quote and summarize parts of a book (which enjoys full constitutional protection), as Trudeau’s infomercials did.

We note that the Supreme Court has held that commercial speech inextricably intertwined with otherwise protected speech deserves a high degree of First Amendment protection. Moreover, it is well-established that falsity alone may not remove speech from the shelter of the First Amendment.

Free speech loses its vitality when confronted with overzealous regulation; strict scrutiny of would-be government censors would give authors the necessary “breathing space” to publicize their work without the threat of exorbitant fines.

The Supreme Court will decide this fall whether to take the case of Trudeau v. FTC.

States Resist ObamaCare Implementation, Oklahoma Edition

The Washington Post reports:

The Supreme Court may have declared that the government can order Americans to get health insurance, but that doesn’t mean they’re going to sign up.

Nowhere is that more evident than Oklahoma, a conservative state with an independent streak and a disdain for the strong arm of government…

When it comes to health insurance, the effort to sign people up isn’t likely to get much help from the state. Antipathy toward President Obama’s signature health-care overhaul runs so deep that when the federal government awarded Oklahoma a large grant to plan for the new law, the governor turned away the money — all $54 million of it.

The idea that the federal government will persuade reluctant people here to get insurance elicited head-shaking chuckles at Cattlemen’s Steakhouse…

But some in Oklahoma aren’t so sure the population here will be easy to persuade, especially if the state government continues to condemn “Obamacare.”

“If we’re not being cooperative and all the rhetoric is hostile, then that’s going to be a real barrier to providing information to people,” said David Blatt, director of the Oklahoma Policy Institute, a state policy think tank. “There’s a lot of important outreach that needs to happen before January 1, 2014, and it’s going to be extremely difficult to do that when you have state leaders standing there saying, ‘Over our dead bodies.’ ”

Resistance remains strong in other states as well, with some governors promising to opt out of parts of the law.

Wait until states find out that they can block ObamaCare’s employer mandate just by refusing to create an Exchange.

Wisconsin Health Secretary: ‘No Such Thing as a State-Run Exchange’

Dennis Smith directed the Medicaid program for President George W. Bush and was a health care analyst at the Heritage Foundation before becoming Wisconsin Gov. Scott Walker’s (R) secretary of health. The following excerpts are from a [subscription only] article at WisPolitics.com:

In his first extensive interview since a U.S. Supreme Court ruling largely upheld the federal law, the Department of Health Services chief said fed deadlines are likely to change and that the lack of guidance on setting up the exchanges makes any state-run exchange “a fantasy.”

Part of the reason why Smith says Wisconsin hasn’t moved forward with a health exchange plan is because he believes the deadlines will be pushed back.

“We have no other plan that we are taking because we think the reality is the federal government cannot meet its deadlines for implementing PPACA,” Smith said. “No one knows what a federal exchange looks like. The two major components that an exchange is supposed to do, which is determine eligibility and to complete the business transaction to pay premiums to health care plans that millions of Americans are supposed to pick, nobody knows what those look like. The administration has failed to release a credible business plan where objective observers could conclude that they’re going to pull this off.

Smith also said that none of the states currently setting up exchanges would likely meet federal regulations and that there’s “no such thing as a state-run exchange.”

“They were going to be asking for the resumes for the people who sit on the board of overseeing an exchange,” Smith said. “They were micromanaging the governance structure. They didn’t have to do that, they chose to do that. But that’s slowing the process and the decision making.”

The secretary especially pointed to questions on who will be eligible for the exchanges and the appropriate level of tax credits for participants. He claimed the rules on determining accuracy of tax credit payments were too “nonchalant,” and could result in the IRS having to recover thousands of dollars because of potential inaccuracies.

“It’s not that they don’t have answers because they’re withholding it from us, it’s that they don’t have answers because they don’t have answers,” Smith said. “These are critical policy issues, critical technical issues. Again, what are you building if you don’t know who’s eligible? What are you building if you don’t know what the flow is out of the treasury to the health plan?”

…”They have a mess on their hands,” Smith said… “You have to fundamentally say, ‘No, that just isn’t working, we have to go back to the drawing board.’

“And that is not being partisan in the slightest. That is facing reality.”

And that’s from a guy who continues to support the concept of a government-created health insurance exchange.