Lenders whose loans are secured by condo units will want to pay close attention to the decision in Chase Plaza Condominium Association, Inc. v. JPMorgan Chase Bank, N.A., issued on August 28, 2014 by the D.C. Court of Appeals. Under D.C. Code sec. 42-1903.13, a condo association can foreclose on a condo unit for unpaid assessments and fees, with six months of those assessments having super-priority over any other liens on the condo unit. In this case, Chase Plaza did so foreclose on a unit for failing to pay a little under $10,000 in assessments. At the foreclosure sale, a lone bidder paid $10,000 for the unit. JPMorgan, who held a $280,000 first deed of trust secured by the unit, argued that the foreclosure sale should be voided for not being sold subject to its lien. The trial court granted summary judgment to JPMorgan, and the Court of Appeals, in an opinion by Judge McLeese, reversed. Construing the language of sec. 42-1903.13 and applying traditional principles of foreclosure law, the Court held that a foreclosure sale of a condo unit initiated by a condo association extinguishes all liens, even a first deed of trust, left unpaid after the sales proceeds have been distributed according to lien priority. As a result, JPMorgan, on remand, will be left to argue that the foreclosure sale should be invalidated because the sale price was unconscionably low. Given the potential impact of this decision, we would expect to see a petition for en banc review.
Congratulations to David H. Cox who was named Real Estate Litigation "Lawyer of the Year" for Washington, DC by Best Lawyers in America!
Christopher S. Howell, et al. and Eastern Market Metro Community Association v. District of Columbia Zoning Commission and Stanton-EastBanc, LLC, et al. , No. 13-AA-366 (D.C. Aug. 14, 2014): The D.C. Court of Appeals affirmed the D.C. Zoning Commission’s approval of two large residential, retail and office buildings to be constructed at the Hine Junior High School location, across from Eastern Market Metro Station. The mixed-use plan for the site will include approximately 160 residential units, 61,000 square feet of retail space, office space, a plaza, and underground parking.
On July 28, 2014, the U.S. Court of Appeals for the Fourth Circuit struck down Virginia’s ban on same-sex marriage as unconstitutional, joining a steadily lengthening list of federal courts to have struck down such state-based laws in the wake of the U.S. Supreme Court’s decision in United States v. Windsor. In Bostic v. Schaefer, the Fourth Circuit, in a 2-1 decision authored by Judge Floyd, held that “the right to marry is an expansive liberty interest that may stretch to accommodate changing societal norms,” and found that Virginia’s ban failed to hold up under strict scrutiny. The Court found no merit in the government’s argument that it had a compelling interest to ban same-sex marriage in order to protect heterosexual marriage, noting that “allowing loving, committed same-sex couples to marry and recognizing their out-of-state-marriages will strengthen the institution of marriage.” Similar bans in North Carolina, South Carolina, and West Virginia would also appear to be in the cross-hairs of this decision. Judge Niemeyer dissented, arguing that the majority’s concept of the “right to marry” went far beyond the U.S. Supreme Court’s prior decisions, and that since same-sex marriage is not “deeply rooted in this Nation’s history and tradition” or “implicit in the concept of ordered liberty,” it should not enjoy protection under the Constitution, and Virginia’s ban on same-sex marriage should stand as the will of the people.
Close on the heels of the D.C. Circuit’s opinion, the U.S. Court of Appeals for the Fourth Circuit today issued its opinion in King v. Burwell, unanimously (3-0) upholding the IRS’s application of tax credits to the federal exchanges. Judge Gregory’s opinion applied deference to the IRS’s interpretation under Chevron USA, Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), and held that while there “can be no question there is a certain sense to” the challengers’ plain language argument, the government’s argument that the federal exchanges effectively stepped into the shoes of the state exchanges was “slightly” stronger. Given the apparent ambiguity between the interpretations, the panel held that the IRS was entitled under Chevron to interpret the ambiguity in light of the “broad policy goals of the Act” to extend the tax credits to the federal exchanges. Senior Judge Davis filed a concurrence, stating his view that the plain language of Section 36B unambiguously permitted the IRS’s interpretation. A link to the opinion is here.
In a blockbuster opinion issued on July 22, 2014, a 2-1 panel majority of the U.S. Court of Appeals for the District of Columbia Circuit struck down a key portion of the Affordable Care Act that provided billions of dollars in subsidies to those who purchased health insurance on a federal marketplace. The key provision, Section 36B of the IRS Code, makes tax credits available as a form of subsidy to those who purchase health insurance through state-established exchanges. The provision does not expressly provide tax credits for those who buy insurance through a federally-created marketplace established where a state has opted not to create an exchange. Nevertheless, the IRS applied the tax credits to the federal exchanges. In Halbig v. Burwell, Judge Griffith, joined by Senior Judge Randolph, held “with reluctance” that the plain language and the legislative history of the ACA precluded the application of tax credits to the federal exchanges, and declined to adopt the government’s view that such a construction would create absurd results. The majority acknowledged that its decision “will likely have significant consequences both for the millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly.” Senior Judge Randolph filed a brief concurrence, noting that to enlarge Section 36B’s reach beyond its terms “would be to engage in distortion, not interpretation,” and that “further legislation” was needed to reach the end the government wished. Senior Judge Edwards filed a strident dissent, arguing that the majority’s decision “portends disastrous consequences” for the ACA, and insisting that Section 36B’s ambiguity and function within the ACA permitted the IRS’s application of tax credits to the federal exchange. A link to the opinion, which is surely not the last word on the topic, is here.
On June 30, 2014, the U.S. Supreme Court issued its final two opinions for the 2014 term. The Court will reconvene for the 2015 term on October 6, 2014.
In the long-awaited case of Burwell (formerly Sebellus) v. Hobby Lobby, the Court held, 5-4, that a closely-held for-profit company cannot be compelled to provide coverage under the contraception mandate of the Affordable Care Act, and must be afforded the same accommodation under the Religious Freedom Restoration Act that is already afforded to non-profits. Justice Alito, joined by Chief Justice Roberts and Justices Scalia, Kennedy, and Thomas, put significant limitations on this holding, noting that the accommodation would not be available for any employer who used religious practice as a cover for illegal discrimination, the holding does not consider RFRA’s application to publicly-traded companies, and it only applies to the ACA’s contraceptive mandate. Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, argued that the majority’s decision had “startling breadth” and would allow “commercial enterprises [to] opt out of any law (saving only tax laws) they judge incompatible with their sincerely held religious beliefs.” Justice Ginsburg also argued that RFRA’s application to “persons” should not apply to companies at all. Justice Kennedy filed a concurrence disputing Justice Ginsburg’s interpretation of the breadth of the majority’s opinion. Justices Kagan and Breyer submitted a short, one-paragraph dissent stating merely that they expressed no opinion as to whether for-profit corporations or their owners are “persons” who can bring RFRA claims A link to the opinion is here.
In a narrow opinion, a 5-4 majority of the Court held that “partial public employees” cannot be required under the First Amendment to contribute fees toward a union’s collective bargaining costs. In Harris v. Quinn, Justice Alito (a big day for him), joined by Chief Justice Roberts and Justices Scalia, Kennedy, and Thomas, did not expressly overrule Abood v. Detroit Board of Education, 431 U.S. 209 (1977), which held that state employees who chose not to join a public-sector union may nevertheless be compelled to pay an agency fee to support union work related to the collective bargaining process, but expressed grave concerns about its viability, and declined to extend its rationale to personal care providers who are employed by patients in need of care but are funded by the state. Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, dissented, arguing that the decision in Abood should control the result of this case. A link to the opinion is here.
Arthur D. Burger, Chair of J&C’s Professional Responsibility Group, was appointed by President-Elect William Hubbard, Esq. of the American Bar Association, to a three-year term on the ABA’s Committee on Ethics and Professional Responsibility, which issues formal ethics opinions and suggests amendments to the Model Rules of Professional Conduct. Jackson & Campbell congratulates Art on this well-deserved national recognition of his knowledge and contributions in the field of legal ethics!
The U.S. Supreme Court issued two new opinions on June 26, 2014.
The Court unanimously held that the President’s appointment of three members to the National Labor Relations Board during a three-day Senate recess was improper under the Recess Appointments Clause in NLRB v. Noel Canning. Relying heavily on historical practice, Justice Breyer’s opinion for the Court held that the President can use the recess appointment power during intra-session and inter-session Senate recesses for any vacancy, regardless of when it arises. However, the Court held that “a recess of more than 3 days but less than 10 days is presumptively too short” to trigger the Clause, barring a national catastrophe or other extreme circumstance, and thus the appointments were unconstitutional. The decision also appeared to make it possible for Congress to prevent recess appointments through the use of “pro forma” sessions. The decision also invalidates any rulings made by those appointed members to the NLRB, and may invalidate more from that period. Justice Scalia, joined by Chief Justice Roberts and Justices Thomas and Alito, filed a concurrence arguing that the Clause, by its terms, limits the President’s appointment power further than the Court’s holding. A link to the opinion is here.
The Court also unanimously held in McCullen v. Coakley that Massachusetts’ law imposing a thirty-five-foot buffer zone around abortion clinics violated the First Amendment. The opinion for the Court, by Chief Justice Roberts, ruled that although the buffer zones were content-neutral in application, they were not “narrowly tailored” to further the government’s “legitimate interests” because they “burden substantially more speech than necessary” and the Commonwealth had not attempted less obtrusive alternative methods to address the protesters. The Court also was concerned with how the buffer zones included public sidewalks and streets—traditional areas where free speech enjoys greater protection. As result, buffer zone laws now appear to be presumptively unconstitutional. Justice Scalia, joined by Justices Kennedy and Thomas, concurred in the judgment, arguing that the buffer zones should fail under strict scrutiny as content-based restrictions on speech, and that the majority opinion treats abortion speech—specifically pro-life abortion speech—as a disfavored class. Justice Alito also concurred in the judgment, arguing that the buffer zones were unconstitutional as discriminatory to the pro-life viewpoint. A link to the opinion is here.
The U.S. Supreme Court issued three new opinions on June 25, 2014.
The first big decision of the day is ABC v. Aereo, Inc., in which the Court ruled 6-3 that Aereo’s product—a service that allowed subscribers to watch TV programs over the Internet at the same time as the programs broadcast over the air—violated the Copyright Act. The Court, in a majority opinion by Justice Breyer, held that Aereo’s service was akin to that of cable companies, and thus was a transmission to the public that intruded upon the original broadcaster’s exclusive right to perform the content. The decision thus preserves the NFL’s lucrative broadcasting agreements, while the majority stressed that its decision would not discourage future technological developments in this area. Justice Scalia, joined by Justices Thomas and Alito, dissented, arguing that Aereo’s service was “akin to a copy shop that provides its patrons with a library card,” rather than a cable company, and that Aereo’s rebroadcasting was not a performance because any transmission was solely the result of subscriber action, not Aereo’s. . A link to the opinion is here.
The second big decision was in Riley v. California, where a unanimous Court held that a police officer may not search digital information on a cell phone seized from an arrestee without a warrant. When Riley was arrested for having expired registration tags on his car and was driving on a suspended license, the search incident to his arrest revealed his smart phone, which the officer accessed and discovered terms associated with a street gang. That eventually led to Riley receiving an enhanced sentence for his gang membership. Chief Justice Roberts’ opinion held that a search of an arrestee’s cell phone did not fall under any of the Fourth Amendment exceptions to the requirement of a warrant for a search, and rejected the government’s arguments for a middle-ground position. Justice Alito filed a concurrence indicating an openness to moderation of the Court’s new rule in light of future legislation addressing privacy interests in cell phones. A link to the opinion is here.
Finally, the Court held that a fiduciary of an ERISA employee stock ownership plan is not entitled to a “presumption of prudence” when sued for a breach of fiduciary duty by plan participants. Rather, Justice Breyer’s opinion for a unanimous Court held that such fiduciaries are held to the same standard as other ERISA fiduciaries. However, to state a claim against such fiduciaries, the complaint must allege an alternative action the fiduciary could have taken that was legal and which a prudent fiduciary would not have viewed as more likely to harm the ERISA fund than help it. An allegation that the fiduciary should have known based on publicly available information that the stock was overvalued or undervalued is insufficient to state a claim. A link to the opinion is here.
The U.S. Supreme Court issued three new opinions on June 23, 2014.
Under 18 USC sec. 1344, it is a criminal act to knowingly execute a scheme to (1) defraud a financial institution, or (2) obtain a bank’s property “by means of false or fraudulent pretenses, representations, or promises.” The circuits had split as to whether the government had to prove intent to defraud the bank as part of its case for a violation of the second section. In Loughrin v. United States, a unanimous Court held, in an opinion by Justice Kagan, that no such proof was necessary. In this case, Loughrin stole checks from peoples’ mailboxes and used them to buy merchandise from Target, which he would then return to Target for cash. Although the checks were fraudulent, Loughrin argued that his intent was only to defraud Target, and thus he should not be subject to Sec. 1344(2). The Court rejected that argument, holding that Sec. 1344(2)’s text did not incorporate or superimpose itself over that of (1). Justice Scalia, joined by Justice Thomas, concurred in part, stating that while the statute needed to read in a way to limit its reach to not make every fraudulent check a federal offense, the proper scope should be left to a future case. Justice Alito also filed a concurrence, arguing that the statute already incorporated a mens rea standard—whether the defendant knowingly executed the scheme—and the Court’s opinion confused that issue. A link to the opinion is here.
The Court broadened the ability of a company to defend itself against class action lawsuits for securities fraud in Halliburton Co. v. Erica P. John Fund, Inc. While the Court, in its majority opinion authored by Chief Justice Roberts, rejected Halliburton’s argument that class action plaintiffs should not be able to rely on the presumption that public, material misrepresentations will distort the price of a stock, as set forth in Basic Inc. v. Levinson, 485 U.S. 224 (1988), it did agree that a corporate defendant should be able to present evidence to defeat that presumption at the class certification stage of the litigation. Justice Ginsburg, joined by Justices Breyer and Sotomayor, filed a one-paragraph concurrence noting that the burden of producing such evidence must rest with the corporate defendant, and thus should not be a burden to the securities-fraud plaintiffs. Justice Thomas, joined by Justices Scalia and Alito, concurred in the judgment, arguing that Basic was wrongly decided. While Justice Thomas’ concurrence appears to be more of a dissent, the majority and Justice Thomas all agreed with reversing the Fifth Circuit’s ruling that Halliburton could not introduce its evidence to rebut the Basic presumption until trial. A link to the opinion is here.
When the Court decided in Massachusetts v. EPA, 549 U.S. 497 (2007), that the EPA could classify greenhouse gasses as “pollutants” under the Clean Air Act, even the EPA was unsure how the new scope would play under the existing language of the Act. In Utility Air Regulatory Group v. EPA, a fractured Court allowed the EPA much of the power it claimed to have under the Act since Massachusetts to regulate greenhouse gas emissions, but sternly rebuked it for going beyond that Act’s scope by requiring certain permits for stationary source emitters. Justice Scalia, joined by Chief Justice Roberts and Justice Kennedy, and by Justices Thomas and Alito in part, rejected the EPA’s broadest view of its authority, stating that it “may not rewrite clear statutory terms to suit its own sense of how the statute should operate.” Justice Alito, joined by Justice Thomas, would have gone further and reversed the Court’s ruling in Massachusetts, stating that the Court’s error essentially invited the EPA’s power grab. Justice Breyer, joined by Justices Ginsburg, Sotomayor, and Kagan, would have allowed the EPA to regulate greenhouse gasses as it saw fit. A link to the opinion is here.
The U.S. Supreme Court issued three new opinions on June 19, 2014. Two of the rulings are discussed below; the third ruling, United States v Clarke, is discussed separately on this site by Nancy Kuhn.
The Court narrowed what kinds of processes are patentable in Alice Corporation Pty. Ltd. V. CLS Bank Int’l., and held that a computerized scheme for mitigating settlement risk through the use of a third-party intermediary did not qualify for patent protection. Justice Thomas, for a unanimous Court, held that an intermediated settlement process was an “abstract idea” that was not, in itself, transformative enough by merely introducing computerization to what had already been an economic staple for hundreds of years. Justice Sotomayor, joined by Justices Ginsburg and Breyer, reaffirmed their position that a method of doing business can never be patentable. A link to the opinion is here.
In Lane v. Franks, the Court unanimously held that a public employee who provides truthful sworn testimony, outside his or her ordinary job responsibilities, in response to a subpoena, is protected by the First Amendment. The public employee in this case discovered that another public employee was taking pay but providing no services, and so he fired her and testified against her under subpoena when the FBI brought charges for mail fraud and theft. The whistleblower subsequently lost his job, and he sued alleging retaliation for his testimony. Justice Sotomayor’s opinion for the Court held that the whistleblower’s testimony was a matter of public concern and thus subject to First Amendment protection, even if that testimony concerned his public employment or information he learned during that employment. However, the official who fired the whistleblower still escaped liability—since it was not clear that the whistleblower’s speech was protected at the time he was fired, the official was entitled to qualified immunity, and the suit was dismissed. Justice Thomas, joined by Justices Scalia and Alito, filed a short concurrence noting that the decision in this case did not opine on whether the First Amendment applied to testimony given pursuant to a public employee’s ordinary job duties. A link to the opinion is here.