Publications

Greetings, Court Fans!

The Court’s been fairly busy over the last week-plus, issuing seven opinions and a number of notable orders. Unfortunately, we’ve also been fairly busy, and now must dig out of a seven-opinion hole. We’ll do that in two parts, making our way through four decisions today and the remainder next time.

So, read on for summaries of:

• DeVillier v. Texas (No. 22-913), in which the Court unanimously vacated a Fifth Circuit order holding that the Fifth Amendment’s Takings Clause does not provide a right of action for takings claims, while declining to hold (yet) that the Takings Clause is self-executing;
• Sheetz v. County of El Dorado (No. 22-1074), another land-use case in which another (mostly) unanimous Court (the same one, in fact) held that the Takings Clause applies to both legislative and administrative permit conditions, rejecting a California state court’s holding that the former could never constitute unlawful “exactions” of money;
• Bissonnette v. LePage Bakeries Park St. (No. 23-51), in which still another unanimous Court held that an exemption to the Federal Arbitration Act for “transportation workers” applies whether or not the workers are employed in the transportation industry;
• Macquarie Infrastructure Corp. v. Moab Partners (No. 22-1165), in which the Court held that SEC Rule 10b–5(b), which makes it unlawful to omit material facts in connection with the buying or selling of securities, does not apply to “pure omissions”—i.e., omissions that may be material but whose absence does not render the “statements made” misleading.

And stay tuned for summaries of:

• Rudisill v. McDonough (No. 22-888), a tricky statutory-construction case in which a 7-2 majority held that veterans who qualify for benefits under two overlapping “GI Bills”—in this case the Montgomery GI Bill Act of 1984 (covering service between 1985 and 2030) and the more generous Post-9/11 Veterans Educational Assistance Act (covering service on or after September 11, 2011)—can use either bill, in any order, up to the statutory 48-month benefits gap;
• Muldrow v. City of St. Louis (No. 22-193), another 7-2(ish) opinion in which the majority held that, while an employee challenging a job transfer under Title VII must show that the transfer caused some harm with respect to an identifiable term or condition of employment, the harm need not be significant, while Justice Alito and Thomas concurred only in the judgment; and
• McIntosh v. United States (No. 22-7386), in which the Court held that a district judge’s failure to comply with Federal Rule of Criminal Procedure 32.2(b)(2)(B)’s requirement to enter a preliminary order of forfeiture in advance of sentencing does not bar the judge from ordering forfeiture at sentencing, subject to harmless-error principles on appeal.

We’ll start with two cases arising under the Fifth Amendment’s Takings Clause, in each of which the Court squarely rejected lower-court rulings limiting redress, but refused to go as far as requested by the petitioners.

First, in DeVillier v. Texas (No. 22-913), the Court granted cert to decide whether “a person whose property is taken without compensation [may] seek redress under the self-executing Takings Clause even if the legislature has not affirmatively provided them with a cause of action.” If that notion of “self-execution” rings a bell, you may be thinking back a few weeks to Trump v. Anderson (2024), where one of the key questions was whether Section Three of the Fourteenth Amendment is self-executing—meaning it automatically disqualified President Trump from holding office to the extent he “engaged in insurrection or rebellion”—or instead requires some separate enforcement mechanism, like an act of Congress. The Court in Anderson unanimously held that Section Three cannot be enforced by individual states, and a five-Justice majority held (or at least strongly suggested) that the clause can only be enforced through Congressional action under Section Five of the Fourteenth Amendment.

DeVillier presented a different twist on the self-execution question, as the Court had already held, in Knick v. Township of Scott (2019), that the Takings Clause is self-executing insofar as “a property owner acquires an irrevocable right to just compensation immediately upon a taking.” But it remained unclear after Knick whether that substantive right can be enforced (as a procedural matter) through the Takings Clause itself or only through other recognized causes of action, like 42 U.S.C. § 1983. Though it would appear that the Court granted certiorari in DeVillier to decide that very question, it appears that its desire to provide an answer waned sometime between when cert was granted and the Court’s unanimous, but fairly cursory, opinion was released.

Before we engage in baseless speculation about the reasons for the punt, perhaps it would help to know what the case is about. Richard DeVillier is one of over 100 property-owners who filed inverse-condemnation claims against the State of Texas due to flooding caused by the State’s erection of a 3-foot-tall barrier along the median of Highway 10, running from Houston to Beaumont. The State erected the barrier so that the south side of Highway 10 could serve as a flood-evacuation route. But its effectiveness meant that properties on the north side of the highway effectively served as a de facto reservoir for stormwater during major storms like Hurricane Harvey in 2017 and Tropical Storm Imelda in 2019. DeVillier and the other property owners sued (separately) in Texas state court, alleging that Texas had taken their property without just compensation by effectively using it to store stormwater. The State removed the actions to federal court, where they were consolidated into a single proceeding raising inverse-condemnation claims under both the Texas Constitution and the Fifth Amendment’s Takings Clause. The State then moved to dismiss the federal claim (even though it served as the basis for removing to federal court in the first place), arguing that there is no cause of action arising directly under the Takings Clause. The District Court denied the motion, holding that a property owner can sue directly under the Takings Clause, but the Fifth Circuit reversed, holding in a one-paragraph opinion that “the Fifth Amendment Takings Clause … does not provide a right of action for takings claims against a state.”

The Supreme Court vacated the Fifth Circuit’s judgment. But it did not go so far as to affirm the District Court’s conclusion that property owners can sue directly under the Takings Clause. Writing for a unanimous Court, Justice Thomas observed that constitutional rights are typically invoked defensively and “do not typically come with a built-in cause of action to allow for private enforcement in courts.” The plaintiffs argued that the Takings Clause is an exception to that general rule, pointing to decisions recognizing that it is “self-executing.” But those decisions, Thomas noted, provided only a “substantive rule of decision for the equitable claims” that were raised. They don’t establish that the Takings Clause itself creates a cause of action for damages, a legal remedy. Thomas ultimately concluded that “[o]ur precedents do not cleanly answer the question whether a plaintiff has a cause of action arising directly under the Takings Clause.” And—even though that would appear to have been the reason the Court granted cert here in the first place—he went no further. Thomas observed that the underlying premise of the question presented is “what would happen if a property owner had no cause of action to vindicate his rights under the Takings Clause.” But that premise “does not hold” because “Texas state law provides a cause of action by which property owners may seek just compensation against the State.” As the State explained at oral argument, its “state-law inverse-condemnation cause of action provides a vehicle for takings claims based on both the Texas Constitution and the Takings Clause.” Since DeVillier and the other property owners would be able to pursue their Fifth Amendment claims through Texas’s state-law cause of action, Thomas concluded that the case “does not present the circumstance in which a property owner has no cause of action to seek just compensation.”

Normally, when the Court learns new information undercutting the premise upon which it granted cert, it “DIGs” the case—dismisses the petition as improvidently granted. But that’s not what happened here. Instead, the Court vacated the Fifth Circuit’s judgment, remanded for further proceedings, and specifically instructed that, “[o]n remand, DeVillier and the other property owners should be permitted to pursue their claims under the Takings Clause through the cause of action available under Texas law.” So what’s going on here? Well, we don’t know! It’s conceivable that some Justices who were willing to conclude that the Takings Clause is self-executing and provides its own cause of action, became a bit more reluctant to wade into that thicket after Trump v. Anderson brought self-execution to the fore. But it also appears that the Justices were genuinely unaware that DeVillier could use Texas’s state-law cause of action to bring a federal takings claim—a concession that the State only made at oral argument. While that concession undermined the premise of the QP, dismissing the petition due to Texas’s “bait and switch” (as Justice Sotomayor characterized it during argument) would only harm DeVillier by leaving the Fifth Circuit’s judgment in place. So in the end, DeVillier will go down as the rare signed SCOTUS opinion that does little more than decide the particular case between the parties. We’ll have to wait for a similar case to arise in a state that does not provide a cause of action for federal takings claims to get the answer to the question originally presented here.

The Court took another half step toward a more broadly enforceable Takings Clause in Sheetz v. County of El Dorado (No. 22-1074), holding (again unanimously) that there is no “legislative exception” that precludes property owners from pursuing takings claims for “exactions” (i.e., unfair conditions) imposed through legislation, as opposed to executive action. But here again, the Court was content to answer the easy question unanimously, and put off more difficult questions for another time.

The Court has long recognized that governments can place conditions on land-use permits without running afoul of the Takings Clause, and can even require landowners to give up property (through easements) or pay a fee as a condition to receiving a permit, so long as the condition furthers a legitimate health-and-safety type purpose. In a pair of Rehnquist-era cases, Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994), the Court established a two-part test for determining whether a condition is permissible under the Takings Clause: First, the condition must have an “essential nexus” to the government’s land-use interest; and, second, the permit condition must have “rough proportionality” to the development’s impact on the land-use interest. But Nollan and Dolan arose in connection with conditions imposed by executive or administrative action—e.g., the California Coastal Commission’s requirement that James and Marilyn Nollan grant a public easement through their property as a condition to receiving a permit to build a larger house on their oceanfront property. Some lower courts have treated conditions imposed by legislation differently.

George Sheetz owns property—alas, not a mid-Atlantic chain with surprisingly tolerable food and coffee—in El Dorado County, a rural area of California near the Nevada border. He and his wife applied for a building permit to construct a prefabricated house. As a condition of receiving the permit, the County required Sheetz to pay a $23,420 “traffic impact fee,” which was part of a “General Plan” enacted by the County Board of Supervisors to address increasing demand for public services spurred on by new development. The fee amount was determined by a rate schedule that considered the location and type of development. Sheetz paid the fee under protest and obtained his permit, then filed suit in state court arguing that the fee amounted to an unlawful “exaction” in violation of the Takings Clause because it did not satisfy the Nollan/Dolan standard. The California courts ruled against Sheetz, concluding that Nollan and Dolan only apply to permit conditions imposed on an ad hoc basis by administrators, not to fees, like this one, “imposed on a broad class of property owners through legislative action.” In so holding, the California courts perpetuated a state-court split over whether the Takings Clause applies differently to legislative and administrative/executive conditions on land-use permits.

The Supreme Court unanimously resolved that split in Sheetz’s favor, holding that “the Takings Clause does not distinguish between legislative and administrative permit conditions.” Writing for the Court, Justice Barrett stressed that “[n]othing in the constitutional text, history or precedent supports exempting legislatures from ordinary takings rules.” The Takings Clause itself refers to “acts” without distinguishing legislative acts from executive or administrative acts. As a historical matter, “legislation was the conventional way that governments exercised their eminent domain power” both before and after the Founding, so it would make little sense for the framers of the Fifth or Fourteenth Amendments to have exempted legislative exactions from the scope of the right. And while Nollan and Dolan addressed administrative acts, neither those decisions nor any others have distinguished among the branches of government in applying the Takings Clause. In short, “there is no basis for affording property rights less protection in the hands of legislators than administrators. The Takings Clause applies equally to both.”

As Justice Barrett pointed out in her opinion, there was “radical agreement” that legislative exactions are not exempt from constitutional scrutiny. Even the parties agreed on that point by the time oral argument rolled around. As a result, the argument focused largely on related disputes, including the validity of the traffic-impact fee and whether a legislative condition imposed on a broad class of properties must be tailored with the same degree of specificity as ad hoc conditions that are targeted to particular developments or uses. Barrett declined to wade into these collateral questions, though (or even determine whether they were preserved), as they were not addressed in the lower courts.

In two separate concurrences, Justice Gorsuch (writing alone) and Justice Kavanaugh (joined by Justices Kagan and Jackson) stressed that the question of tailoring has not previously been decided. Justice Gorsuch—a staunch property-rights proponent dating back to his days on the Tenth Circuit in Colorado—argued that “nothing in Nollan, Dolan, or today’s decision supports distinguishing between government actions against the many and the few any more than it supports distinguishing between legislative and administrative actions.” Justice Kavanaugh, in turn, wrote to stress that the Court’s decision “does not address or prohibit the common government practice of imposing permit conditions, such as impact fees, on new developments through reasonable formulas or schedules that assess the impact of classes of development rather than the impact of specific parcels of property.”

Finally, Justice Sotomayor (joined by Justice Jackson) penned a third concurrence on a separate issue, pointing out that, while legislative conditions are not exempt from scrutiny under Nollan and Dolan, there is “an important threshold question to any application of Nollan/Dolan scrutiny: whether the permit condition would be a compensable taking if imposed outside the permitting context.”

Moving on from the Fifth Amendment, Bissonnette v. LePage Bakeries Park St. (No. 23-51) addressed a different preoccupation of the Supreme Court: enforcing the Federal Arbitration Act. The FAA generally provides that arbitration agreements are enforceable in federal court. However, it includes an exemption, found in § 1: “[N]othing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The Court has long recognized that the exemption in § 1 is limited to “transportation workers,” but it has recently been called upon to define the scope of that term. In Southwest Airlines v. Saxon (2022), the Court declined to adopt an industrywide approach that would exempt any employee in the “transportation industry,” instead holding that the exemption applies only to those who are “actively … engaged in transportation of … goods across borders.” Bissonette picks up that string in the context of delivery drivers laden with precious cargo: Wonder Bread.

Neil Bissonette is a franchisee–distributor for Flowers Foods, Inc., the second largest producer of “packaged bakery foods” in the country. (And yes, it’s flagship product is Wonder Bread.) Like other distributors, Bissonette contracted with Flowers to obtain exclusive rights to market and distribute Flowers’s goods in a particular geographic territory (Connecticut, as it happens). As part of the Distributor Agreement, Bissonnette agreed to arbitrate “any claim, dispute, and/or controversy” with Flowers. In 2019, Bissonnette and another distributor, Wojnarowski, brought a putative class action claiming that Flowers had underpaid them in violation of state and federal law.

The District Court dismissed the case because Bissonnette and Wojnarowski had a “much broader scope of responsibility” under the Distributor Agreement than merely delivering bread, belying the claim that they were equivalent to a “truck drivers.” The Second Circuit affirmed on an alternative basis, concluding that § 1 exempts only “workers involved in the transportation industries,” and Bissonnette and Wojnarowski “are in the bakery industry.” Subsequently, the Supreme Court issued its decision in Saxon, rejecting an “industrywide approach” to defining exempt employees under § 1. The Second Circuit therefore granted panel rehearing, but it then adhered to its initial conclusion, holding that an individual is a “transportation worker” only if he or she works in an industry that “pegs its charges chiefly to the movement of goods or passengers,” and that both Flowers and its distributors made their dough from bread, not transportation services. As this decision conflicted with a post-Saxon decision of the First Circuit, the Supreme Court granted cert to resolve the conflict.

Writing for a unanimous Court, Chief Justice Roberts resolved the split against the Second Circuit’s view: a transportation worker need not work for a company in the “transportation industry” in order to be exempt under § 1 of the FAA. The Chief rejected the Second Circuit’s “predominant source of commercial revenue” test, noting that applying it would often turn on “arcane riddles” about the nature of a company’s business. “For example, does a pizza deliver company derive its revenue mainly from pizza or delivery?” He likewise rebuffed Flowers’s argument that there must be an implied transportation-industry requirement or else the § 1 exemption would swallow the rule, since “virtually all products move in interstate commerce.” As the Court held in Saxon, to qualify as transportation workers, workers “must at least play a direct and necessary role in the free flow of goods across borders.” That qualification sufficiently narrows the scope of the definition.

Although the Court rejected the Second Circuit’s “transportation industry” test, it did not go on to apply its own standard to the nature of the petitioners’ work. Instead, it remanded for further proceedings, which could include consideration of the alternative ground addressed by the District Court, as well as Flowers’s alternative argument that Bissonnette and Wojnarowski are not “engaged in foreign or interstate commerce” within the meaning of § 1 because they deliver baked goods only in Connecticut.

Finally (for now), in Macquarie Infrastructure Corp. v. Moab Partners (No. 22-1165), the Court addressed the scope of SEC Rule 10-b(5), which makes it unlawful to omit material facts that would be necessary to make “statements made” in a securities filing not misleading.

Petitioner Macquarie Infrastructure Corporation owned a subsidiary that stored a type of fuel oil. In 2016, the United Nations’ International Maritime Organization adopted a regulation that imposed certain restrictions on the sulfur content of fuel oil. Over the following years, Macquarie did not disclose information related to this fuel regulation in its public-offering documents. Then, in 2018, Macquarie announced a drop in contracts for its subsidiary due to a decline in the fuel oil market. After that announcement, Macquarie’s stock dropped significantly. Moab Partners, L.P. sued Macquarie and certain of its officers, claiming that Macquarie had violated SEC Rule 10b-5(b) by failing to disclose information about the fuel regulation. Moab relied on Item 303 of SEC Regulation S-K, which requires the disclosure of “known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.” The District Court dismissed Moab’s complaint for failure to state a claim, but the Second Circuit reversed, concluding that Moab had alleged a duty to disclose information about the fuel regulation under Item 303, and that the Item 303 violation sufficed to support Moab’s claim under Rule 10b-5(b).

The Supreme Court vacated, holding that “[p]ure omissions are not actionable under Rule 10b-5(b).” Rather, to support a claim, an omission must somehow render affirmative statements misleading.  Writing for a unanimous Court, Justice Sotomayor distinguished between “pure omissions,” which are not independently actionable, and “half-truths,” which may be. A pure omission occurs “when a speaker says nothing, in circumstances that do not give any particular meaning to that silence.” By contrast, a half-truth occurs when a speaker makes “representations that state the truth only so far as it goes, while omitting critical qualifying information.” Sotomayor read the plain text of Rule 10b-5(b) to cover only half-truths, and not pure omissions, because the rule requires the identification of affirmative “statements made” before a determination of whether other facts are necessary to render those statements “not misleading.” Sotomayor rejected Moab’s policy arguments, finding that they would read the words “statements made” out of Rule 10b-5(b) and effectively shift the focus the rule from fraud to affirmative disclosure. Moreover, even if private parties cannot sue for pure omissions, they can still bring claims based on misleading half-truths, and the SEC can police other violations of its own regulations.