All posts by Troy Moody

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SCOTUS Opinion: Court Limits Immunity Afforded Under The International Organizations Immunity Act Of 1945

Originally, the International Organizations Immunity Act of 1945 (IOIA) granted foreign corporations virtually absolute immunity from suit. In 1952, the State Department adopted a more restrictive view, carving out commercial acts from that immunity. Congress then passed the Foreign Sovereign Immunities Act (FSIA) in 1976, which specifically excepted commercial activity with a sufficient nexus in the United States from the grant of foreign immunity. In Jam v. International Finance Corp. (IFC), a group of farmers and fishermen in India sued IFC for a commercial loan it made to build a coal plant in the Indian state of Gujarat, alleging that the plant caused them harm. IFC, which was designated by executive order as being subject to the IOIA, claimed that Act’s immunity from suit. The D.C. Circuit affirmed the dismissal of the case. Addressing a split between the D.C. Circuit and the Third Circuit on the issue, the Court, in an opinion by Chief Justice Roberts (Justice Kavanaugh recused), reversed, holding that the IOIA’s grant of immunity has since evolved with the passage of FSIA, and thus the exception for commercial activities applied to sever immunity for IFC. Justice Breyer filed a dissent, arguing that the history and circumstances of the IOIA compelled the conclusion that its grant of immunity, in the wake of World War II, was meant to be immutable.

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SCOTUS Opinion: Eighth Amendment Bars Execution Of Defendant Without “Rational Understanding” Of The Reason For Execution

After he was sentenced to death for killing a police officer, Vernon Madison suffered a series of strokes and was diagnosed with dementia. In a prior series of appeals by Madison, the U.S. Supreme Court held that his mere inability to remember his crime did not establish that Madison was incompetent to be executed. When his execution was rescheduled on remand, he appealed again, arguing that his dementia rendered him incompetent to be executed. The state court denied relief, stating only that Madison had failed to show a substantial showing of insanity. The Court, in an opinion by Justice Kagan (Justice Kavanaugh recused), reversed. Clarifying the Court’s prior holdings, the majority stated that the Eighth Amendment requires that a defendant have a “rational understanding” of why he or she is being executed in order to qualify for the death penalty. The majority explained that a defendant’s failure to remember the original crime is not relevant to the standard. However, the Court also held that dementia alone may cause a defendant to lack the requisite understanding, regardless of whether the defendant is also suffering from psychotic delusions or other indicia of insanity. Since the state court did not appear to analyze whether Madison’s dementia rendered him unable to rationally understand why he was being executed, the Court remanded for further consideration. Justice Alito, joined by Justices Thomas and Gorsuch, dissented, arguing that the ruling “made a mockery of our Rules” by answering an issue that Madison never raised in his original petition for appeal. A link to the opinion in Madison v. Alabama is here.

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SCOTUS Opinion: Failure To File Appeal Is Constitutionally Deficient Even After Defendant Signs Appeal Waiver

In Garza v. Idaho, Garza signed two plea agreements for state crimes, each of which included a waiver of his appeal rights. After he was sentenced, Garza told his counsel that he wanted to appeal. His counsel did not file any appeal, telling Garza that his waivers made any such appeal “problematic.” After the deadline to appeal passed, Garza sought postconviction relief in the state court, alleging that his counsel’s performance was deficient under the Sixth Amendment. He cited to Roe v. Flores-Ortega, 528 U.S. 470 (2000), in which the U.S. Supreme Court held that an attorney’s failure to file an appeal when requested by the defendant created the presumption of prejudice. The Idaho Supreme Court denied relief, holding that his appeal waivers contradicted any claim of deficient performance or resulting prejudice, aligning itself with a minority of the courts to consider the issue. The Court, in an opinion by Justice Sotomayor, reversed, holding that the presumption of prejudice established in Flores-Ortega applies regardless of whether a defendant has signed an appeal waiver. First, the majority reasoned that appeal waivers do not automatically bar all appeals—some claims are unwaivable. Moreover, the majority noted that filing a notice of appeal is a “purely ministerial task” for counsel. Even if such an appeal might be “problematic” due to a signed waiver, counsel is obligated to fulfill the defendant’s wishes. Justice Thomas, joined by Justice Gorsuch in whole and Justice Alito in part, dissented, arguing that Garza’s counsel acted reasonably to not file an appeal that would jeopardize the favorable plea agreements Garza signed, and that Flores-Ortega was distinguishable on the facts.

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SCOTUS Opinion: Deadline To Appeal Class Decertification Not Subject To Equitable Tolling

Under Rule 23(f) of the Federal Rules of Civil Procedure, a party has 14 days to file with the federal circuit appeals court a petition for permission to appeal an order certifying or decertifying a class action. In Nutraceutical Corp. v. Lambert, when the district court decertified his class action, Troy Lambert chose to file a motion for reconsideration of that order instead of appeal. When that motion was denied, he filed his petition 14 days later. Nutraceutical objected, arguing that the 14-day deadline had passed since the entry of the original decertification order. The Ninth Circuit ruled that the deadline had tolled due to Lambert’s diligence. The Court, in a unanimous opinion by Justice Sotomayor, reversed. First, the Court recognized that Rule 26(b) specifically states that courts could not extend time to file these class action appeal petitions, thus indicating that the deadline was to be read more inflexibly. The Court also rejected Lambert’s argument that his motion for reconsideration, filed more than 14 days after the decertification order, somehow tolled the deadline, stating that such a motion only “affects the antecedent issue of when the 14-day limit begins to run, not the availability of tolling.”

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SCOTUS Opinion: Judges Cannot Vote On Cases After Death

In Yovino v. Rizo, the Ninth Circuit heard the case en banc (with 11 then-sitting judges) to restate that circuit’s interpretation of the Equal Pay Act. Judge Stephen Reinhardt authored the majority opinion that was joined by six of the judges, including Reinhardt himself. The other five judges filed concurrences that reached a similar result but under different rationales. Therefore, Reinhardt’s view became the new, binding interpretation. However, 11 days before the opinions were released, Reinhardt died. On appeal, the question was whether Reinhardt’s opinion and vote survived his death. The Court, in a unanimous per curiam decision (Justice Sotomayor concurred in the result only), reversed, holding that Reinhardt was “appointed for life, not for eternity,” and thus he had no power to issue a vote or any opinion upon his death. The Court noted that even though the Circuit judges had voted on the issue and drafted their opinions prior to his death, nothing rendered those positions “immutable” prior to public release, as a judge is free to change his or her position at any time prior to such a release. The case was therefore remanded to the Ninth Circuit for reconsideration, presumably with another judge taking Reinhardt’s place. A link to the decision is here.

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Eighth Amendment Applies To State Civil Forfeitures

Tyson Timbs pleaded guilty to dealing in heroin in Indiana, for which the maximum fine was $10,000. The State sought to use civil forfeiture to seize his SUV, which Timbs bought for $42,000, which was allegedly used to move the heroin. The state trial court denied the State’s request as violative of the Eighth Amendment’s protection against excessive fines, but the Indiana Supreme Court reversed, holding that the Amendment only applied to the federal government and not the states. The Court, in a unanimous opinion by Justice Ginsburg, reversed, holding that the Eighth Amendment was properly incorporated against the states through the Fourteenth Amendment’s Due Process Clause. The Court found the evidence “overwhelming” that protection against excessive fines was a “fundamental” right “deeply rooted in this Nation’s history and tradition.” Thus, Indiana’s attempt to take Timbs’ SUV was subject to the constitutional restriction, and likely unconstitutional. Justice Gorsuch, in concurrence, noted that the Privileges and Immunities Clause of the Fourteenth Amendment might be a better vehicle for incorporation of the Bill of Rights against the states. Justice Thomas, concurring the judgment, argued more strenuously in favor of that view, delving deep into the history behind the Eighth Amendment. A link to the opinion in Timbs v. Indiana is here.

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Court Again Finds Man Ineligible For Death Penalty Due To Intellectual Disability

In 2017, the Supreme Court held in Moore v. Texas, 581 U.S. ___ (2017), that the Texas Court of Criminal Appeals used a flawed analysis to determine that Bobby James Moore was not intellectually disabled, and thus eligible to receive the death penalty. In part, the flaw was that the Texas court focused on Moore’s adaptive strengths instead of his adaptive deficits. On remand, the Texas court came to the same conclusion. The Court, in a per curiam opinion joined by six justices, reversed again, holding that there were “too many instances in which, with small variations, [the Texas court] repeats the analysis we previously found wanting, and these same parts are critical to its ultimate conclusion[,]” namely that the Texas court continued to emphasize Moore’s adaptive strengths instead of focusing on his deficits. Chief Justice Roberts, who dissented in the prior decision, concurred this time, stating that since the Texas court “repeated its improper reliance” on evidence that “did not pass muster under this Court’s analysis last time[,]” he joined the majority to reverse. Justice Alito, joined by Justices Thomas and Gorsuch, dissented, argued that the standard given by the Court in 2017 was too vague to help the Texas court, and objected to the Court’s apparent fact-finding. A link to the opinion in Moore v. Texas is here.

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Court Applies Intergovernmental Tax Immunity In Favor Of Federal Retirees

In Dawson v. Steager, West Virginia sought to tax a federal law enforcement retiree’s pension. Under 4 U.S.C. §111, the federal government permits this so long as the state tax does not discriminate on the basis of the source of the compensation, otherwise known as the intergovernmental tax immunity doctrine. However, West Virginia, by statute, did not tax the pensions of its state and local law enforcement retirees. The West Virginia Supreme Court of Appeals held that the state exemption did not violate the immunity doctrine because the exemption applied to a narrow class of state retirees and was not intended to discriminate. The Court, in a unanimous opinion by Justice Gorsuch, reversed, holding that since West Virginia treated federal law enforcement retirees different from state and local ones, its tax violated the immunity doctrine. The Court further noted that the “relevant question under §111 is not whether federal retirees are similarly situated to state retirees who do not receive a tax break; it is whether they are similarly situated to those who do.”

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Arthur D. Burger Will Participate on a Panel at this Spring’s American Bar Association’s 34th Annual Intellectual Property Law Conference

On Friday, April 12, Arthur D. Burger will participate in the American Bar Association’s (ABA) 34th Annual Intellectual Property Law Conference in Arlington, Virginia as part of a panel titled, “Rocks and Hard Places for IP Practitioners.”  The panel will discuss various ethical issues that IP attorneys need to navigate in order to successfully represent their clients.

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In Two Orders, SCOTUS Stays Louisiana Abortion Law, Permits Execution—Both Over Four Dissenters

In June Medical Services, LLC v. Gee, a five-Justice majority (the Chief Justice and Justices Ginsburg, Breyer, Sotomayor, and Kagan) granted a stay of the Fifth Circuit’s mandate upholding a Louisiana law that required abortion providers to have admitting privileges at a hospital. The law is therefore on hold until the Court resolves the petition for certiorari of that mandate. Opponents of the law view it as indistinguishable from the law the Court struck down as an undue burden in Whole Woman’s Health v. Hellerstedt in 2016. Justices Thomas, Alito, Gorsuch, and Kavanaugh would have denied the stay. Justice Kavanaugh separately wrote that since the law included a 45-day transitory period, no stay needed to be granted to preserve the status quo, and any abortion providers that did not obtain admitting privileges during the transitory period could still file an as-applied challenge and seek injunctive relief.

The Court also voted 5-4 to vacate a stay of execution, permitting Alabama death-row inmate Domineque Hakim Marcelle Ray to be executed on February 7. On November 6, 2018, the State scheduled his execution. Ray wanted to have an imam present at his execution, but the warden denied the request. Ray petitioned for relief under First Amendment grounds on January 28, 2019. The Eleventh Circuit stayed his execution, but the majority of the Supreme Court determined that Ray waited too long to make his last-minute plea. Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, dissented, arguing that Ray had a “powerful claim that his religious rights will be violated at the moment the State puts him to death,” and thus should have been heard on the merits. A link to the opinion in Dunn v. Ray is here.

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Arthur D. Burger Will Participate on a Panel at the 2019 American Bar Association’s Annual National Conference on Professional Responsibility

On Thursday, May 31, Arthur D. Burger will participate in a risk management panel with colleagues from Aon Risk Solutions and Hogan Lovells. The panel is a part of the American Bar Association’s (ABA) Annual National Conference on Professional Responsibility in Vancouver, British Columbia and will cover how to evaluate and improve a law firm’s risk management standards and how to address potential conflicts and claims. To learn more about this panel, see the conference agenda on the ABA website.

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Excise Tax on Nonprofits: Executive Compensation

Many tax-exempt organizations will now be required to pay an excise tax on any compensation over $1 million paid to each of their top five employees. That amount of compensation, including end-of-career parachute payments, may be subject to the corporate tax rate, which is currently 21 percent.

Internal Revenue Code section 4960, enacted as part of the Tax Cuts and Jobs Act effective for all tax years beginning on or after January 1, 2017, imposes this tax on applicable tax exempt organizations, excluding compensation payments for the provision of medical services for direct patient care, including veterinary care provided for pets and livestock. The organization is liable for the excise tax, not the employee.

There were many questions associated with the application of the statutory language set forth in §4960, and the Internal Revenue Service recently issued Notice 2019-09 providing interim guidance. The Department of Treasury is expected to issue proposed regulations incorporating and expanding this guidance.

Of particular note is that independent contractors of the tax-exempt organization do not trigger the §4960 tax. Therefore, consultants, board members, outside fundraisers, and similar independent service-providers may receive substantial remuneration without causing the organization to pay the 21 percent excise tax.

Another factor of note is that §4960 operates independently of the other excise taxes applicable to tax-exempt organizations. If an organization’s employee(s)’ compensation triggers the §4960 tax, then it is not determinative as to whether that compensation is an excess benefit subject to tax under §4958. Or, if the organization is a private foundation, the §4960 tax has no impact on whether the self-dealing excise tax under §4941 is applicable. Those determinations are made based independently on “all facts and circumstances”.

When an employee is paid separately by several related organizations, the amounts are combined and if total compensation is over $1 million, the related organizations are liable for the excise tax proportional to their percentage share of the payments.

As with most compensation, if it is subject to a substantial risk of forfeiture and not included in an employee’s taxable income, then it is also not included in the calculation of the §4960 excise tax until the year in which the compensation vests.

The excise tax is also applicable to parachute payments upon termination of employment. The tax is triggered if a highly compensated soon-to-be former employee is to receive a payment contingent on separation from employment, and that payment is more than three times the amount of base pay. If any excess amounts are not payable until a future tax year, the employer may elect to pay the excise tax in the year of separation.

This is a simplified summary of the new provisions. Many of these calculations are dependent upon the specific facts of each tax-exempt organization and of each employee who may trigger the excise tax. Therefore, Jackson & Campbell, P.C. encourages you to consult with your tax advisors on these issues if your organization may be subject to §4960.

This alert is not intended to contain legal advice or to be an exhaustive review of the opinion. If you have any questions about the intricate details of this case, or the interpretation of tax treaties generally, please contact Nancy Ortmeyer Kuhn, Esq. at Jackson & Campbell, P.C.

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Once Sold (Even Under Term Of Confidentiality), An Invention May Not Be Patented

Under the Leahy-Smith America Invents Act, an invention may not be patented if it has been “in public use, sold, or otherwise available to the public before the effective filing date of the claimed invention.” In Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., the issue was whether an invention had been “sold” within the ambit of the Act and if the sale was to a third party that agreed to keep details of the invention secret.

Helsinn manufactured a drug that could be administered in two different doses. It entered into an agreement with another company to market and distribute the doses, but the marketer agreed to keep the dosage amounts secret. Helsinn then applied for patents over the dosage amounts of the drug. The district court held that the drug was not “on sale” under the Act because the sale was not to the public itself, but the Federal Circuit reversed. The Court, in a unanimous opinion by Justice Thomas, affirmed, holding that a “sale” need not be to the public in order to trigger the Act, affirming the Federal Circuit’s longstanding practice of deeming “secret sales” as sufficient to invalidate a patent.

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Virginia Supreme Court: Newly-Acquired Subsidiary Does Not Receive Coverage Under Owner’s Property Insurance

After EPC MD 15, LLC purchased commercial property fire insurance from Erie Insurance Exchange, it purchased another company that owned a separate building on another property. The new subsidiary was not a named insured under the original policy. When that building sustained fire damage, EPC submitted a claim, claiming that the purchase of the subsidiary made the subsidiary’s property “newly acquired property” under the policy. Erie denied coverage. The trial court, on cross-motions for summary judgment, held that the word “acquired” was ambiguous and therefore construed it against Erie, entering judgment for EPC. Erie appealed, and the Virginia Supreme Court, in a unanimous opinion by Justice Kelsey, reversed and entered final judgment in favor of Erie. The Court held that since the subsidiary was always the sole owner of the property, EPC never “acquired” the property, as it only exerted indirect control over the property through the subsidiary. The Court reasoned that EPC’s rationale would cause insurers to be unwittingly responsible for properties while having “no underwriting information necessary to make a risk assessment and established no premium rating on the de facto insured that actually owned the newly acquired property.” A link to the opinion in Erie Insurance Exchange v. EPC MD 15, LLC is here.

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Robbery Is A “Violent Felony” Under Armed Career Criminal Act

The Armed Career Criminal Act provides a 15-year mandatory minimum sentence for anyone who had previously been convicted of three “violent” felonies. The Act defines a “violent felony” as “any crime punishable by imprisonment for a term exceeding one year” that “has as an element the use, attempted use, or threatened use of physical force against the person of another.” In Stokeling v. United States, after Stokeling pleaded guilty to a gun possession charge, he objected to receiving the Act’s sentence because his prior conviction for robbery under Florida law, when he grabbed a woman and tried to remove her necklaces while she held on to them, did not require proof of an element of physical force—merely proof that he overcame the victim’s resistance. The district court agreed with Stokeling and declined to apply the Act, but the Eleventh Circuit reversed. The Court, in a 5-4 opinion by Justice Thomas, affirmed. The Court distinguished the case from Johnson v. United States, 559 U.S. 133 (2010), where mere “touching” was held to be inadequate to rise to the level of “physical force” required under the Act. “Physical force” requires “force capable of causing physical pain or injury,” and force sufficient to overwhelm a victim’s resistance meets that definition. Thus, the Court held that a conviction under Florida’s robbery statute constituted a “violent felony” under the Act, and Stokeling should receive the mandatory minimum sentence thereunder. Justice Sotomayor, joined by Chief Justice Roberts and Justices Ginsburg and Kagan, dissented, arguing that the majority misconstrued Johnson, and that since resistance in a robbery case could be minimal, the force used could also be minimal such that it would not qualify as a “violent felony” under the Act.

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Federal Arbitration Act Does Not Compel Arbitration For Disputes With Interstate Drivers

In New Prime Inc. v. Oliveira, a driver for an interstate trucking company filed a class action claiming that the company denied its drivers lawful wages. The company, citing the mandatory arbitration provision in the driver’s contract, asked the district court to transfer the case to arbitration. The driver argued that the case was exempt under Section 1 of the Federal Arbitration Act, which exempts “contracts of employment” of certain transportation workers. The company responded that the driver was an independent contractor, not an employee, so the Act’s exception did not apply. The district court and the First Circuit agreed with the driver. The Court, in an 8-0 opinion by Justice Gorsuch (Justice Kavanaugh recused), affirmed. First, the Court held that a court must first examine the contract at issue to determine whether Section 1 applied—that was not a determination for an arbitrator to make, even if the contract delegated arbitrability questions to the arbitrator. Second, the Court held that the term “contract for employment” referred to any agreement to perform work, as was the common usage of the phrase when the Act was enacted in 1925, and did not distinguish between employees and independent contractors. Justice Ginsburg wrote a brief concurrence noting that while she agreed with the outcome in this case, that Congress could design legislation to govern changing times and circumstances, rather than stay with a fixed meaning.

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Are Attorneys Conducting Nonjudicial Foreclosures “Debt Collectors?” U.S. Supreme Court To Decide.

On January 7, 2019, the U.S. Supreme Court will hear argument in Obduskey v. McCarthy Holthus, LLP, in which Wells Fargo, through counsel, conducted a nonjudicial foreclosure on Obduskey’s home after he defaulted on a loan. The foreclosure notice did not request that Obduskey make any payments on the debt—it simply set forth the total amount due under the defaulted loan, gave Obduskey 30 days to dispute the amount or Wells Fargo would assume it to be valid, and stated that Wells Fargo’s foreclosure counsel “may be considered a debt collector attempting to collect a debt.” Obduskey responded to the foreclosure notice by disputing the debt. Normally, under the Fair Debt Collection Practices Act, such a response by the debtor would trigger various safeguards under federal law, such as requiring the debt collector to obtain verification of the debt, or a copy of the underlying judgment, and mailing it to the debtor. Wells Fargo’s counsel disregarded the Act and moved forward with foreclosure. The district court ruled that the Act did not apply to nonjudicial foreclosure proceedings, and the Tenth Circuit, citing to a prior ruling by the Ninth Circuit, affirmed. However, the Fourth, Fifth, and Sixth Circuits, along with the Colorado Supreme Court, have held that the Act does apply to nonjudicial foreclosures. The U.S. Supreme Court is therefore primed to resolve the circuit split. A ruling is expected before the Court recesses in June.

For a full transcript of the arguments given before the U.S. Supreme Court in the case of Obduskey v. McCarthy Holthus, LLP, check out the Supreme Court website.

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Court Rejects Cap On Aggregate Attorney Fees Under Social Security Act

Under the Social Security Act, an attorney representing a claimant seeking past-due benefits is limited in the fees he or she may charge. Section 406(a) of the Act capped fees at the lesser of 25 percent of the past-due benefits, or $6,000 in proceedings before the agency. Section 406(b) of the Act capped fees at 25 percent of the past-due benefits for proceedings before a court. Both sections permit the U.S. Social Security Administration to withhold past-due benefits to pay those fees. In Culbertson v. Berryhill, Culbertson represented a claimant in both administrative and court proceedings. He received fees under Section 406(a), but his petition for fees under Section 406(b) was limited to a total cap of 25 percent of the past-due benefits, including what he had received under Section 406(a). Resolving a split among the circuits on the issue, Justice Thomas, on behalf of a unanimous Court, reversed, holding that the fee awards are separate under the plain language of the Act, and thus an attorney who represents a claimant in administrative and court proceedings is entitled to two separate fee awards, each not limited by the other.

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Federal Arbitration Act Forbids Courts From Weighing In On Arbitrability

The Federal Arbitration Act permits parties to enter into contracts agreeing that an arbitrator, rather than a court, will resolve disputes arising out of that contract. However, sometimes there are disputes as to whether a particular claim is subject to arbitration under the agreement. Even when contracts delegate the arbitrability question to an arbitrator, some federal courts had reserved for themselves the power to determine whether a particular claim to arbitrability was “wholly groundless,” rather than allowing the arbitrator to make that decision, causing a circuit split. The Court, in a unanimous opinion by Justice Kavanaugh, held that the Act precluded the courts from making the arbitrability determination, even under the “wholly groundless” standard, where a contract expressly delegates that authority to the arbitrator. The Court declined to determine whether the contract at issue in Henry Schein, Inc. v. Archer & White Sales, Inc. in fact contained such language to delegate arbitrability determinations to an arbitrator, and so remanded the case for further proceedings.

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Court Upholds Qualified Immunity For Officer Responding To Domestic Dispute

In City of Escondido v. Emmons, Officer Craig and Sergeant Toth responded to a call reporting a domestic dispute at a home. After talking to the occupants from outside the home for a bit, one of the occupants exited and tried to brush past Officer Craig. The officer quickly took the man to the ground and handcuffed him. The video of the encounter did not reveal any visible or audible pain on behalf of the arrested man. That man then sued Officer Craig and Sergeant Toth for using excessive force in violation of the Fourth Amendment. The district court dismissed the claim against Sergeant Toth because there was no evidence he used any force against the man, and dismissed the claim against Officer Craig because there was no clearly established law that prohibited him from arresting the man in these circumstances. The Ninth Circuit reversed as to both officers, reinstituting the excessive force claims. The U.S. Supreme Court, in another unanimous per curiam opinion, reversed. First, the Court noted that the Ninth Circuit had “no explanation” for why an excessive force claim should continue against Sergeant Toth, saying it was “quite puzzling” in light of there being no evidence that Sergeant Toth even touched the arrested man. As the Officer Craig, the Court held that officers are entitled to qualified immunity unless there is a clearly established right, defined with “specificity,” that was violated. The Ninth Circuit only generally found a prohibition against the use of excessive force, and did not properly consider whether Officer Craig did anything to violated a clearly established right. The case was remanded accordingly.

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Subsequent SCOTUS Decisions Are Not “Clearly Established Law” For Habeas Petitions

After being convicted by Ohio’s state courts for murder and sentenced to death in 1986, Danny Hill challenged the judgment on the basis that the Eighth Amendment prohibits someone who is “mentally retarded” from receiving a death sentence, as established in Atkins v. Virginia, 536 U.S. 304 (2002). When that failed in the state courts, he filed a federal habeas petition seeking review. The district court denied his petition, but the Sixth Circuit reversed, holding that the U.S. Supreme Court’s ruling in Moore v. Texas, 581 U.S. ___ (2017) governed the standard the Ohio courts should have used for determining whether Hill was mentally retarded and thus immune from the death penalty. In a per curiam decision with no dissents, the U.S. Supreme Court reversed, holding that the Sixth Circuit’s reliance on Moore was misplaced. Under the Antiterrorism and Effective Death Penalty Act of 1996, a federal court can only overturn a state court’s imposition of the death penalty if it “resulted in a decision that was contrary to, or involved an unreasonable application of” SCOTUS precedent that was “clearly established” at the time of the adjudication. Subsequent case law is not considered in that analysis. The Court remanded the case for further consideration solely on the legal standards that were in place at the time of Hill’s denial of relief by Ohio’s state courts. A link to the opinion in Shoop v. Hill is here.

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Tax Treaty Interpretation: Nonjusticiable Political Question?

The U.S. Court of Appeals for the District of Columbia reversed and remanded the lower court’s decision in a case involving the interpretation of the US-Switzerland tax treaty. In Starr International Company, Inc. v. United States, No. 1:14-cv-01593  (D.C. Cir. Dec. 7, 2019), Starr sought a tax refund for a portion of the 30 percent withholding taxes automatically withheld from dividend payments it received attributable to its U.S. stock ownership interests.  Although Starr did not fit within the mechanical tests of Article 22 of the treaty, it requested relief under Art. 22(6) which allows for discretionary relief.

The IRS consulted with the U.S. Competent Authority, but the U.S. Competent Authority failed to consult with its Swiss counterpart, and the IRS denied Starr’s request for a refund of taxes paid. Providing a tax refund requires consultation between both parties to the treaty under Article 22(6). The District Court held that ordering the IRS to pay Starr the requested refund would impinge upon the Executive Branch’s exercise of diplomacy in its consultation with the Swiss competent authority. The appellate court disagreed, and found that the District Court erred in its application of the political question doctrine, citing to Baker v. Carr, 369 U.S. 186 (1962).

In Baker, the Supreme Court set forth various standards, one of which must apply before the political question doctrine applies to allow an exception to federal court jurisdiction. Those standards include:

  1. A textually demonstrable constitutional commitment of the issue to a coordinate political department; or
  2. A lack of judicially discoverable and manageable standards for resolving the issue; or
  3. The impossibility of deciding the issue without an initial policy determination of a kind clearly for nonjudicial discretion; or
  4. The impossibility of a court’s undertaking independent resolution without expressing a lack of the respect due the coordinate branches of government; or
  5. An unusual need for unquestioning adherence to a political decision already made; or
  6. The potentiality of embarrassment from multifarious pronouncements by various departments on one question.

Baker v. Carr, 369 U.S. at 217.

The DC Circuit held that none of those criteria applied and that courts do have the authority and obligation to interpret tax treaties. The appellate court held further that: “a court cannot avoid its responsibility to enforce a specific statutory right merely because the issues have political implications.” Starr, p. 12 slip op. (citing Zivotofsky v. Clinton 566 U.S. 189, 196 (2012))

Thus, the case was remanded back to District Court for further consideration and to allow Starr to pursue its claim for a tax refund. While the Court could not order the U.S. Competent Authority to consult with the Swiss Competent Authority since that is part of the IRS’ deliberative process, it provided several paths for the Court to follow to allow the lower court jurisdiction to render a decision that would be reviewable, rather than the District Court’s position that the issue was “nonjusticiable” and that it was not able to rule on the substance of Starr’s refund claim. Thus, the D.C. Court of Appeals expanded the District Court’s perception of its jurisdiction over tax treaty issues, and confirmed a narrow application of Baker v. Carr, supra, and its progeny.

This alert is not intended to contain legal advice or to be an exhaustive review of the opinion. If you have any questions about the intricate details of this case, or the interpretation of tax treaties generally, please contact Nancy Ortmeyer Kuhn, Esq. at Jackson & Campbell, P.C. 

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Burglary Includes Structures Or Vehicles Adapted To Overnight Accommodation

The criminal defendants in United States v. Sims and United States v. Stitt were both sentenced under the mandatory minimum 15-year prison term provided by the Armed Career Criminal Act, which applies where a defendant had three prior convictions for certain crimes, including “burglary.” Sims and Stitt had each been previously convicted of burglary under state laws, which each defined burglary as including acts against vehicles or structures that were used for “overnight accommodation.” In each case, the district courts held that the Act’s mandatory minimum sentence applied, but the Courts of Appeal for the Sixth and Eighth Circuits both reversed, holding that the states’ inclusion of nonpermanent or mobile structures rendered the definition to be beyond the generic burglary crime contemplated by Congress under the Act. The Court, in a unanimous opinion by Justice Breyer, reversed, holding that the generic concept of burglary covered by the Act extended to any structure that was adapted to overnight accommodation, and there was no reason to exclude vehicles from that scope—particularly given that a person who breaks into a mobile home risks the same potential of a dangerous confrontation as when the person breaks into an apartment or house.

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Court Upholds Challenge To Designation Of A “Critical Habitat”

Under the Endangered Species Act, when an animal is classified as “endangered,” the Secretary of the Interior must then designate the “critical habitat” of that animal for protection. In 2001, the dusky gopher frog was classified as endangered. The Secretary then designated the four areas where the frogs currently lived as critical habitats, along with another area, dubbed “Unit 1,” where the frogs had not lived for decades and had since been changed from an open-air canopy forest (where the frogs must live) to a closed-canopy timber plantation. The designation of Unit 1 as a critical habitat would cause millions of dollars in losses to the owners of Unit 1. Those owners sued in federal court, but the trial court and the Fifth Circuit held that the designation was appropriate, and the Secretary’s decision not to exclude Unit 1 from the designation was not judicially reviewable. The Supreme Court, in a unanimous opinion (sans Justice Kavanaugh) by Chief Justice Roberts, vacated and reversed. First, the Court held that a “critical habitat” must, by extension, also be a currently inhabitable by the endangered animal as a habitat—if the frogs could no longer live in Unit 1 due to the changes made, it would not be a habitat and, thus, could not be a critical habitat. Second, the Court held that the Secretary’s decision not to exclude Unit 1 from the designation was reviewable by the courts, given that the Act explicitly sets forth a cost/benefit analysis for the Secretary to follow and for the courts to evaluate. The Court remanded the case to the Fifth Circuit to reconsider the case anew given these rulings. The opinion in Weyerhaeuser Co. v. U.S. Fish and Wildlife Service can be read here.

| Roy L. Kaufmann

Protect Yourself Against Wire Transfer and Credit Card Fraud

We are seeing two varieties of online fraud, but the good news is securing your information is as easy as a few steps.

The first type of fraud involves fake wiring instructions.

The criminal learns that a transaction is about to occur and sends an email to a title company, bank, buyer, seller, or real estate agent saying that the wiring instructions have changed. The email looks legitimate because the criminal has faked the from address. The email can look like it came from a trusted person whom the recipient knows. The criminal then falsifies the address for the transfer, which is easy to do. The recipient does not double-check the instructions and sends the money to the criminal’s account, usually in another country.

Once an individual sends the money, it is very difficult to recover the funds and speed is of the essence. After 72 hours, most hope is lost – as is the money. Banks can be powerless in assisting in their clients.

How to protect yourself:

  • Do not email wiring instructions or follow instructions emailed to you. Check and double-check the accuracy of the wiring instructions and communicate with the intended recipient or someone you trust at the title company or bank, by telephone.
  • Actively look for scammers. Do not accept any changes to wiring instructions by email. The scammer could send you an email that looks like it is from the title company or bank asking you to send the money to a different account. This could be fake. Call the title company yourself and go over the wiring instructions carefully. There have been cases where the scammer wrote to a real estate agent, who then directed the buyer to send money to the wrong account. Do not trust anyone.
  • Within hours of wiring the money, verify whether the recipient received your wire. If you wait days, you are probably out of luck.

If you become a victim, you must act immediately by following these steps:

  1. Call your bank immediately and
    1. Tell them to issue a SWIFT recall notice
    2. If the wire transfer meets the following criteria, tell your bank to contact the FBI to initiate a Financial Fraud Kill Chain. The FBI Kill Chain is only available if:
      • The wire is $50,000 or more;
      • The wire was international;
      • A SWIFT recall notice has been initiated; and
      • No more than 72 hours has gone by after the wire was erroneously sent

If the bank representative does not know what a FBI Kill Chain is, push until you get a supervisor who does know. The clock is ticking.

  1. Call your local police
  2. Call the FBI yourself. Do not stop at asking your bank to call the FBI.
  3. Report the crime at the FBI’s Internet Crime Complaint Center’s website.

The second involves scammers opening credit cards and obtain loans via impersonation.

The ease with which this can be done online is surprising. The scammer creates an email account with their target’s name, such as MarySmith@hotmail.com. The bank believes that the scammer is Mary, lends the money to the scammer, and then tries to collect money from the actual Mary. Besides the disruption to Mary’s life, her credit history takes a hit and it is difficult to correct it.

How to protect yourself:

  • Ask for credit freezes. There are three credit-reporting agencies. Lenders generally ask those agencies for a credit report before lending money. If you freeze your accounts, the credit agencies will not reply to the lender and the lender will not make the loan. It is the simplest method available to thwart credit fraud, and it’s free.
  • Important notes:
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Court Rules ADEA Applies To All Governmental Entities Regardless Of Size

When two firefighters were terminated to cut costs, they sued under the Age Discrimination Employment Act, alleging they were discriminated against based on their ages. The fire department argued that it did not have enough employees to qualify as an employer under the Act. The Act provides: “The term ‘employer’ means a person engaged in an industry affecting commerce who has twenty or more employees . . . . The term also means (1) any agent of such a person, and (2) a State or political subdivision of a State . . . .”  29 U. S. C. §630(b). The Ninth Circuit held that the statute created two separate groups of employers, the first with a numerosity limitation, and the other (political subdivisions) without one. In Mount Lemmon Fire District v. Guido, the Court, in a unanimous opinion by Justice Ginsburg (with Justice Kavanaugh not participating), affirmed, holding that the words “also means” created a separate and distinct group from the one before. The Court likened the language in the Act to language in the Fair Labor Standards Act that had the same effect.

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Are Business Lunches Entertainment?

The new tax legislation, called the Tax Cuts and Jobs Act (TCJA) eliminated most deductions for client entertainment expenses. Prior law allowed a 50 percent deduction for both meals and entertainment expenses, and so there was no need for businesses to differentiate between the two categories. The newly enacted TCJA eliminated deductions for entertainment, amusement, and recreation expenses, but did not specifically state that business meals were not considered entertainment, amusement, or recreation. After the tax legislation was enacted, there was some murmuring that the elimination of business meals was not what Congress intended.

On October 3, 2018, the Internal Revenue Service issued Notice 2018-76, which clarified the provisions in the TCJA, and set forth new procedures for business meals and entertainment expenses. The new guidelines are as follows:

  1. The meal is deductible if it is “ordinary and necessary” in carrying on the business. For example, creating relationships to gain new business is ordinary and necessary.
  2. The expense is not “lavish or extravagant” under the circumstances. Could that $300 bottle of wine you just ordered be considered excessive?
  3. An employee, or the taxpayer, is present at the “furnishing of the food or beverages” and the food and/or beverages are also provided to a client or business contact.
  4. If the food and/or beverages are provided at an entertainment activity, the expense is still deductible if they are purchased separately, and separate receipts are retained by the business to substantiate the expenses. “[T]he entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.”

The Notice provides several examples, all involving sporting events. If clients, or prospective clients, are taken to a baseball game and the employee separately purchases food and beverages for the group, the expense for the baseball tickets is not deductible but 50 percent of the expense for the food and beverage could be deducted as a business expense. If the event is in a suite where the food is part of the overall cost but not separately stated, there is no deduction allowed. However, if the invoice separately lists the food and beverage, then those separate expenses are deductible at a rate of 50 percent.

Therefore, while those corporate suites are no longer a tax write-off, there are still tax incentives to cultivate business while wining and dining clients. The IRS is not requiring any sort of documentation to ensure that business was actually be discussed over the meal, or at the event, and so there is still some entertainment allowed for businesses and their clients as long as food and/or beverages are part of the event.

| Roy L. Kaufmann

Pending Emergency Legislation to Affect Tax Sales and Recordation Tax on Leases

The Washington, D.C. Council is considering B22-922: Fiscal Year 2019 Budget Support Congressional Review Emergency Act of 2018 which, among many provisions, contains a few changes of interest to real estate practitioners which are found here.

  • Recordation Tax: On leases in excess of 30 years, the Washington, D.C. government may determine the fair market value of the leasehold interest. 42 DC Code 1103(a)(1)(B)
  • Tax Sales:
    • The tax certificate becomes void if the case is dismissed for want of prosecution or if there has been no pleading filed within a year. 47 DC Code 1355(a)(3)
    • A tax must have also appeared on a tax bill for it to form a basis for a tax sale. 47 DC Code 1361(b-1) as revised.
    • Plaintiff must record the tax deed by the later of October 1, 2019 or 30 days after judgment. 47 DC Code 1982(f).

This bill, if passed would be not be permanent law; however conforming permanent legislation often follows.

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Condo Liens Entitled To Super-Priority Status Regardless Of Number Of Months Sought

Under D.C. Code sec. 42-1903.13, liens imposed by a condominium association for up to six months of unpaid condo fees were entitled to super-priority status ahead of all other liens on the condo. In two prior decisions, the D.C. Court of Appeals held that a foreclosure sale under such a super-priority lien necessarily wiped out all other liens of the property, and did not sell subject to those liens, and also held that a condominium could not waive that super-priority status and opt to sell subject to other existing liens. In 4700 Conn 305 Trust v. Capital One, N.A., the Court resolved a question left open: whether a lien for more than six months’ unpaid fees constituted a “split-lien,” wherein six months were entitled to super-priority and the remainder not, or it should be consider a single lien lower in priority than the first mortgage or deed of trust. Again, the Court, through a unanimous opinion by Senior Judge Farrell, held that the protections of the Code could not be waived, and therefore the first six months’ worth of any condo lien must always receive super-priority status, thereby potentially wiping out any first mortgage on the condo. The Court, however, remanded the case back to the trial court to consider in the first instance whether the foreclosure sale could be challenged on equitable or contractual grounds due to its low sale price, indicating that lienholders may have relief available in some instances. It is important to note that the current version of the statute, effective as to foreclosure sales occurring after April 7, 2017, expressly requires the condominium to state whether it is foreclosing pursuant to the six-month super-priority lien, or for more than that lien subject to the first deed of trust. This language would appear to permit a condominium to sell subject to a first deed of trust, although lienholders must be careful given the Court’s prior rulings.

| Roy L. Kaufmann

D.C. Announces New Tax Rates for First-Time Homebuyer

Washington, D.C.’s innovative First Time Homebuyer’s tax rate reduces the recordation tax to .725 percent. The statute is found at Official Code §42-1101(17). The tax rate and value of the property changes from year to year based upon the C.P.I.

Effective on October 1, 2019, the purchase price may not exceed $632,500 and the income for a single-member household may not exceed $147,780.

Income levels for households with more than one member can be found here.