Topic: Law and Civil Liberties

SCOTUS: Maybe We Broke Securities Law, But Don’t Ask Us To Fix It

Today the Supreme Court missed an opportunity to undo one of its worst corporate-law mistakes of modern times, its 1988 decision in Basic, Inc., v. Levinson that lawyers can file class-action suits on behalf of investors without proving class members’ actual reliance on allegedly fraudulent statements, by presuming the price of the stock was affected. (Colleague Andrew Grossman covered the oral argument in Halliburton v. Erica P. John Fund, Inc. in this space in March.)

In the narrower sense, the Court did unanimously grant relief to defendant Halliburton by recognizing its right to offer proof at an earlier stage that its claimed misstatement had not affected the price of its stock. That’s welcome, and shows that the Court recognizes – maybe even unanimously recognizes – that the current class-action mechanism operates unfairly to pressure defendants to settle at the certification stage, and needs procedural overhaul aimed at fixing that. 

Unfortunately, a six-member majority led by Chief Justice Roberts invoked the doctrine of stare decisis to reaffirm its general holding in Basic, reasoning that it will not inquire whether earlier precedents are wrong, just whether they are so extra-super-wrong as to stand out from the usual run of wrong precedent.  Chief Justice Roberts’s majority opinion makes much of the idea that securities law is statutory and that Congress could therefore alter matters if it chose.

But Justice Thomas, writing in concurrence for himself and Justices Scalia and Alito, has the better logic when he points out that Basic v. Levinson never emerged from an engagement with statutory text at all – it was a product of the Court’s now-discredited “implied private rights of action” period, in which Justices for a while took it upon themselves to invent new civil causes of action from whole cloth. And as with the so-called Pottery Barn rule in government (you break it, you own it) the Court might want to consider taking responsibility for undoing messes that are entirely of its own making.  

EPA’s Loss Is the Separation of Powers’ Gain

At the bottom of the Supreme Court’s decision today tossing out, in large part, the Obama Administration’s greenhouse gas emissions scheme is a stiff dose of constitutional common sense: “When an agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy, we typically greet its announcement with a measure of skepticism.”

Here, skepticism was certainly warranted. At issue was one of the Obama Administration’s earliest efforts to skirt Congress and achieve its major policy goals unilaterally through aggressive executive action.

A bit of background is necessary. The Clean Air Act’s 1970’s-era “Prevention of Significant Deterioration” and “Title V” programs are aimed at the few hundred largest industrial sources of pollution in the country and impose what the Court correctly identified as “heavy substantive and procedural burdens,” far beyond the red tape that most businesses are able to shoulder. To that end, the statute limits regulation to sources that emit more than 100 or 250 tons per year of certain “air pollutants.”

EPA’s trick was to redefine “air pollutant,” as used in those programs, to include carbon-dioxide emissions. Because carbon-dioxide is emitted in large quantities even by smaller sources, that interpretation expanded the number of sources subject to regulation from a few hundred to millions altogether. Regulations that had previously been confined to major power plants, chemical factories, and the like would now apply to retail stores, offices, apartment buildings, shopping centers, schools, and churches. To avoid what even EPA recognized to be an “absurd result,” the agency went on to claim authority to decide exactly which sources have to comply—in other words, the power to choose winners and losers by exempting the vast majority of sources from compliance, for the time being at least. It called this approach “tailoring.” 

The Court, in a lead opinion by Justice Scalia, called it “patently unreasonable—not to say outrageous.” EPA, it held, must abide by the statute: “An agency has no power to ‘tailor’ legislation to bureaucratic policy goals by rewriting unambiguous statutory terms.” And if such tailoring is required to avoid a plainly “absurd result” at odds with congressional intentions, then obviously there is obviously something wrong with the agency’s interpretation of the statute. To hold otherwise, the Court recognized, “would deal a severe blow to the Constitution’s separation of powers” by allowing the executive to revise Congress’s handiwork.

The loss for the administration was not complete. The Court did allow that EPA can regulate greenhouse emissions by newly-built (or substantially modified) sources that would already be subject to PSD or Title V without taking into account their greenhouse gas emissions—known as “anyway sources.” But even this authority, the Court explained, is not “unbounded” and does not authorize to EPA to mandate any manner of efficiency gain.

The Court’s decision may be a prelude of more to come. Since the Obama Administration issued its first round of greenhouse gas regulations, it has become even more aggressive in wielding executive power so as to circumvent the need to work with Congress on legislation. That includes recent actions on such issues as immigration, welfare reform, and drug enforcement. It also includes new regulations for greenhouse gas emissions by power plants, proposed just this month, that go beyond traditional plant-level controls to include regulation of electricity usage and demand—that is, to convert EPA into a nationwide electricity regulator. Today’s decision—as well as one last month by the D.C. Circuit rejecting a nearly identical regulatory gambit by the Federal Energy Regulatory Commission—suggests that this won’t be the last court decision throwing out Obama Administration actions as incompatible with the law. 

Marriage Equality in Michigan, Kentucky, and Tennessee

Having filed amicus briefs in Hollingsworth v. Perry (California’s Prop 8), United States v. Windsor (Defense of Marriage Act), and the cases involving the marriage laws of Oklahoma, Utah, and Virginia in the U.S. Courts of Appeals for the Tenth and Fourth Circuits, respectively, Cato and the Constitutional Accountability Center have filed briefs in three marriage-related cases now before the Sixth Circuit. DeBoer v. Snyder questions Michigan’s constitutional ban on same-sex marriage. Tanco v. Haslem challenges Tennessee’s non-recognition of same-sex marriages, while Bourke v. Beshear does the same in Kentucky. 

DeBoer was originally filed to similarly challenge Michigan’s non-recognition of same-sex marriages, but was later amended to attack the underlying issue of the state’s ban on same-sex marriage all-told. In the wake of the Supreme Court’s ruling in Windsor (striking down part of DOMA), the DeBoar district court ruled in the plaintiffs’ favor. The district court in Bourke then ruled in favor of two couples and their respective children; Kentucky’s attorney general had refused to defend the non-recognition law, so the governor hired outside counsel. Finally, in Tanco, decided this past March, three Tennessee couples were also successful in court. The Sixth Circuit stayed all three rulings pending its own examination of the issues presented.

The Cato-CAC position continues to be what we’ve argued all along: The Fourteenth Amendment promises the equal protection of the laws to all persons. It’s a sweeping guarantee that eliminates class-based discrimination that lacks a strong policy justification (for example, denying driver’s licenses to blind people). Though enacted in response to failures to protect the rights of the newly freed slaves, this guarantee was intended to protect the rights of all persons — as demonstrated textually by its neutral phrasing, extending its protections to “any person.” The amendment’s proponents consciously rejected race-specific language. Indeed, in introducing the amendment, Senator Jacob Howard explained that it “abolish[ed] all class legislation.” The common, public understanding was that the Fourteenth Amendment “[took] from the States the power to make class legislation and to create inequality among their people.”

Both early Supreme Court cases and modern precedent demonstrate that it was understood that the Equal Protection Clause spoke in general terms that were considered comprehensive. The equal right to marry the person of one’s choice is guaranteed by that provision. Even opponents of the Fourteenth Amendment acknowledged the fundamental nature of the right to marry. The modern Supreme Court has recognized this as well, most famously in Loving v. Virginia, as well as in Zablocki v. Redhail and elsewhere. 

Laws that prohibit or refuse to recognize same-sex couples’ marriages therefore violate the constitutional guarantee of equal protection of the laws. They impose badges of inferiority on persons based solely on their class and the harm extends to the children being raised by such couples. No compelling state interest is served by and no constitutionally legitimate rationale can be found in such disparate treatment. Merely invoking “tradition” can’t save a practice from constitutional prohibition — as has been shown in cases involving segregation, sodomy, and speech restrictions. The very purpose of the Fourteenth Amendment was to break the tradition of denying the equal protection of the laws to newly freed slaves and other disfavored groups.

The Sixth Circuit will hear argument in all these cases, along with one out of Ohio (to round out the four states that make up the Sixth Circuit) on August 6.

John Walters, Drugs, and Libertarians

Over at Politico, former Bush administration drug czar and Hudson Institute official, John Walters, has an article titled, “Why Libertarians Are Wrong About Drugs.”  The thrust of the article is that (1) drug policy is one of the political divides between libertarians and social conservatives and that the social conservatives have the better case; and (2) libertarians can support the drug war without surrendering essential tenets of their political philosophy.  In this post, I want to briefly scrutinize some of Walters’ arguments and observations.

Walters tries to set up his article by framing the debate between social conservatives and libertarians fairly, but right away he falters. “Social conservatives,” he writes, “are troubled by drug abuse, especially among the young.” The implication seems to be that libertarians are not troubled by drug abuse–even if it involves minors. That’s unfair to Milton Friedman, who is quoted in that paragraph, and libertarians generally. I don’t think Walters is intentionally trying to mislead readers here, but that statement does expose one of his faulty understandings of libertarianism. The question has never been whether drug abuse is a problem. It is. The question is how best to address that problem.

Next, Walters tries to demonstrate that a basic tenet of libertarianism is inconsistent with reality–at least in the area of narcotics. Here is Walters: “[L]ibertarians argue that the state should have no power over adult citizens and their decision to ingest addictive substances–so long as they do no harm to anyone but themselves…But this harmless world is not the real world of drug use. There is ample experience that a drug user harms not only himself, but also many others.” Walters then cites instances of domestic violence and other criminal acts that were committed by persons under the influence of narcotics. More faulty reasoning

Police Ignorance of the Law Is No Excuse

To execute any search or seizure, a police officer must reasonably suspect that a crime has been or is being committed based on the facts available to him at the time he executes the search or seizure. Under this standard, searches can be lawful even if the officer is mistaken in his understanding of the facts before him, as long as his understanding led him to reasonably suspect criminal activity. But what if the officer is mistaken about whether a particular activity is actually criminal?

Nicholas Heien was driving with a broken taillight in North Carolina when he was pulled over by police who mistakenly believed that state law required two working taillights. Upon receiving consent to search the car—note: you don’t have to agree to such requests!—police found cocaine and charged Heien with drug trafficking. At his trial, Heien sought to suppress the evidence arising out of the search by arguing that the officer never had the reasonable suspicion necessary to pull his vehicle over because having one broken taillight is not illegal. The trial court ruled against him, but the appellate court found a Fourth Amendment violation and reversed. The North Carolina Supreme Court reversed in turn, by a 4-3 vote, holding that an officer’s understanding of the state’s taillight requirements could form the basis for reasonable suspicion because that understanding, while incorrect, was reasonable.

There is considerable disagreement among state and federal courts, so the U.S. Supreme Court took the case to resolve the issue. In a brief filed jointly with the National Association of Criminal Defense Lawyers, the ACLU, and the ACLU of North Carolina, Cato argues that the approach taken by the North Carolina Supreme is inconsistent with the logic that applies to factual mistakes committed by law enforcement and erodes civil liberties, all while undermining police authority and safety. The allowance for mistakes of fact in police evaluation of suspicious conduct is justified because facts can be ambiguous and unique to each circumstance, and officers must make quick evaluations based on their own observation and expertise. In contrast, the law is the same regardless of the particular circumstance to which it is applied, and can be ascertained long before the officer needs to enforce it. Officers have no specialized expertise in evaluating law, while ambiguities in the criminal code are typically resolved (by courts) in favor of criminal defendants, or struck down for vagueness. The burden placed on citizens by our accommodation of officers’ mistakes of fact is justified as a means of avoiding the social cost of unlawful conduct. Lawful conduct imposes no such cost, however, so excusing mistakes of law serves no social purpose.

Chilling Speech Is No Laughing Matter

If a state’s truth ministry has threatened to prosecute you for something you said during an election campaign, can you sue? Of course, said the unanimous Supreme Court, with what would undoubtedly have been a guffaw if one could be conveyed in a legal opinion. While the Court left it to its lesser brethren to deal further with a law that criminalizes making “false statements” – whatever that means: too many Pinocchios? – about political candidates, the satirical graffiti is clearly on the wall for that Buckeye bunkum.

As Cato’s brief alongside P.J. O’Rourke made clear, allegations, insinuations, “truthiness,” smears, and all that other rigmarole have been part and parcel of American political discourse since time immemorial. Indeed political speech – including lies, so long as they’re not defamatory (for which there are clear legal standards) – resides firmly in the throbbing heart of the First Amendment. It’s farcical to think that a legislature could charge a panel of bureaucrats (like the state election commission here) with enforcing some sort of Marquess of Queensberry debate rules.

While standing is often hard to come by, even the most curmudgeonly jurisprudential sticklers can see that political advocates have to be able to challenge a law that restricts political advocacy – one that’s already been used against them, no less! At the end of the day and in the fullness of time, today was a banner morning for free speech and judicial engagement.

Put Off By Constant Drug Tests, Eighth Grader Skips Honor Society

At Susquenita Middle School in Duncannon, Pa., a community 20 minutes north of Harrisburg, an eighth-grader chose to skip the National Junior Honor Society this year, reports Eric Veronikis at PennLive

Leila May was drug-tested once during her fifth grade year, once in sixth grade and three times as a seventh grader because Susquenita School District randomly tests students in grades five through 12 who participate in extracurricular activities and apply for parking permits.

She always tested negative but her parents have tired of the intrusion and embarrassment and her mother Melinda says they’re weren’t willing to sign another consent form. “It’s sad that this is what we had to resort to. It’s ridiculous.”

Twelve years ago, the U.S. Supreme Court ruled 5-4 in Board of Education v. Earls (2002) that schools generally have discretion to impose drug testing on participants in extracurricular activities even without particularized suspicion, on the grounds that such activities are voluntary. It declined to follow an amicus brief in which the Cato Institute and other groups had argued that random suspicionless searches in this instance amount a Fourth Amendment violation, and pointed out that kids who join academic honors groups appear less prone to engage in drug abuse than their peers, not more. Instead the Court extended the reach of a 1995 precedent, Vernonia School Dist. v. Acton, which had approved a similar regime for high school athletes

Even if the courts will not restrain the Susquenita district, common sense should. Stop the madness and let kids be kids.