Publications

Greetings, Court Fans!

After waiting until late January to issue its first signed opinion of the term, the Nine then made us wait another month for the second (and, so it happens, the third and the fourth). That’s still well behind the typical pace: In most terms, we’d expect to have seen upwards of a dozen signed decisions by now. But at least this batch of decisions is a good one: In Cruz v. Arizona (No. 21-846), the Chief Justice and Justice Kavanaugh joined the Court’s three liberals in holding that an Arizona procedural rule was inadequate to preclude federal-court review of a defendant’s constitutional challenge to his death sentence. In Helix Energy Solutions Group v. Hewitt (No. 21-984), a 6-3 Court held that federal overtime laws apply to workers paid on a per-day basis, even if they’re making big bucks. And in Bartenwerfer v. Buckley (No. 21-908), a unanimous Court held that the bankruptcy code’s prohibition on discharging debts obtained by fraud applies regardless of whether the fraud was committed by the debtor or by someone else (in this case, the debtor’s partner).

We’ll start with Cruz. In 2005, an Arizona jury convicted John Montenegro Cruz of murder and sentenced him to death. On direct appeal, he argued that his sentence violated due process, because the trial judge had failed to inform the jury that a life sentence in Arizona would be without parole, as was required by the Supreme Court’s decision in Simmons v. South Carolina (1994). But the Arizona Supreme Court rejected that argument, both in Cruz’s case and in dozens of similar cases, consistently holding that Simmons didn’t apply in Arizona because its parole system worked a bit differently than South Carolina’s. The U.S. Supreme Court wasn’t persuaded. In one of those other cases, Lynch v. Arizona (2016), the Court reaffirmed Simmons and found that the details of Arizona’s sentencing regime were immaterial to that case’s rule.

After Lynch, you’d think Cruz would have a pretty good habeas claim, because the Supreme Court hadeffectively decided that his sentencing violated due process. So he filed a motion for postconviction relief under Arizona Rule of Criminal Procedure 32.1(g). But because this was Cruz’s second Rule 32.1(g) motion—his first had raised other challenges to his conviction (and he couldn’t try to relegate there the Simmons issue, because it had been decided against him on direct appeal)—he could seek postconviction relief only if there had been “a significant change in the law” that would probably be enough to overturn his conviction or sentence. Cruz predictably argued that Lynch was just such a significant change in the law: It overruled previously binding Arizona precedent that had been applied in his case. But the Arizona Supreme Court disagreed, reasoning that Lynch merely reiterated Simmons, and Simmons itself was more than ten years old at the time of Cruz’s trial. True, the Arizona courts (including in Cruz’s own case) had refused to follow Simmons. But that, the Arizona Supreme Court thought, was just a change in the application of Simmons to Arizona, not a change in federal constitutional law. Finding that Rule 32.1(g) barred Cruz’s second petition, the Arizona Supreme Court refused to consider the merits of his claim. The U.S. Supreme Court granted certiorari to consider whether this procedural holding was an adequate basis to prevent review of his federal claim.

Justice Sotomayor, writing for a majority of five (the Court’s three liberals plus the Chief and Justice Kavanaugh) reversed in a short opinion. She began with a primer on the independent and adequate state ground doctrine. Ordinarily, the Supreme Court will not take up a question of federal law (such as whether Cruz’s sentencing violated the due process clause) if a state court rejected the claim on a ground that is independent of the federal question (as this question seemingly was) and adequate to support the judgment. And a state’s adherence to a procedural rule that is “firmly established and regularly followed” is ordinarily adequate. But in “exceptional cases,” a state court may apply a state-law rule in such a novel or unforeseeable way that it is not an adequate basis to preclude review of a federal claim on the merits.

This was such a case. Prior to Cruz’s Rule 32.1(g) motion, Arizona courts had consistently interpreted that rule to allow a successive motion for postconviction relief if there has been a “significant change in the law,” such as when an appellate court overruled previously binding precedent. This seemed to be a textbook example: Lynch overruled Arizona precedent that Simmons didn’t apply in Arizona. In Cruz’s case, the Arizona Supreme Court held that wasn’t enough, reasoning that Rule 32.1(g) required a change in the substance of federal constitutional law, not just a change in how courts applied that law. But Arizona could not identify a single other instance where the overturning of binding Arizona precedent had failed to satisfy Rule 32.1(g)’s “significant change in the law” standard. The Arizona Supreme Court’s rather bizarre interpretation of Rule 32.1(g) in Cruz’s case was thus too novel to be an adequate basis to preclude review of his federal claim, so the Court remanded to the Arizona courts to consider that claim on the merits.

Justice Barrett, joined by Justices Thomas, Alito, and Gorsuch, dissented. In their view, the bar for showing that a state’s procedural rule was inadequate to preclude review of a federal claim was “extraordinarily high,” met only by a decision “so blatantly disingenuous that it reveals hostility to federal rights or those asserting them.” To meet that standard, it is not enough to show that a state court’s decision was not supported by prior precedent; it must be shown that the decision was contrary to materially indistinguishable prior decisions. So while the dissenters agreed that no prior Arizona decision had interpreted or applied Rule 32.1(g) in the way the Arizona Supreme Court had done in Cruz’s case, that novelty alone was not enough: Because the Arizona Supreme Court’s decision was not squarely contrary to prior Arizona cases about the meaning of Rule 32.1(g), the dissenters would find it an adequate ground to support the Arizona Supreme Court’s judgment.

The second case for today, Helix Energy Solutions Group v. Hewitt, asks what it means to be paid on a salary basis under the Fair Labor Standards Act of 1938 (“FLSA”). The case involved Michael Hewitt’s work as a “tool pusher” on an offshore oil rig. Hewitt’s hours were a far cry from 9-to-5. He generally worked 12 hours a day, seven days a week, during each four-week “hitch” on the rig. Then he would take four full weeks off before returning to work. His employer, Helix Energy Solutions Group, paid him a fixed amount for each day he worked, starting at a daily rate of $963 and increasing over the course of his employment. When Hewitt was working, he received a bi-weekly paycheck, and he made over $200,000 annually. But he was never paid overtime, even for weeks when he worked as many as 84 hours. After being fired, Hewitt sued Helix, claiming that he was owed hundreds of thousands of dollars in overtime pay.

The FLSA generally requires overtime pay for employees who work more than 40 hours a week. But that requirement does not apply if the employee is a “bona fide executive,” as defined by agency regulations. The DOL regulations in effect at the time of Hewitt’s work on the oil rig (they’ve since been amended) specified as a general rule that to be an executive, an employee had to perform supervisory duties and be paid on a “salary basis . . . at a rate of not less than $455 per week.” 29 CFR § 541.100(a). A specific rule for employees making at least $100,000 annually similarly provided that an employee counted as an executive if he received “at least $455 per week paid on a salary . . . basis” and performed at least one supervisory duty. Id. § 541.601(b)(1). Because there was no dispute that Hewitt performed supervisory duties on the rig and made over $100,000 annually, the dispositive question for his overtime claim was whether Helix paid him “on a salary basis.”

Two regulations address that question. The one most at issue in this case, Section 541.602(a), says that the salary-basis exemption applies “if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed,” such that the employee will “receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.” The second regulation, Section 541.604(b) says that, if the employee’s compensation is “computed on an hourly, a daily or a shift basis,” the salary-based exemption applies if the employer pays the employee at least $455 each week “regardless of the number of hours, days or shifts worked” and the employee’s actual pay is “roughly equivalent to the employee’s usual earnings” for a “normal scheduled workweek.”

Helix conceded that Hewitt’s compensation did not satisfy Section 604(b)’s test, because Helix had not guaranteed that he would receive weekly pay similar to the amount he usually earned. Instead, Helix argued that Section 602(a) applied, because Helix paid Hewitt over $455 during each two-week pay period that he worked. The District Court agreed and granted summary judgment in Helix’s favor. But the en banc Fifth Circuit reversed, reasoning that because Hewitt’s pay depended on the number of days during the pay period that he worked, it was subject to reduction and thus not predetermined.

The Supreme Court affirmed in a 6-3 decision written by Justice Kagan and joined by the Chief and Justices Barrett, Jackson, Sotomayor, and Thomas. Because Hewitt’s pay fluctuated based on the number of days he worked—such that he could be paid for as little as one workday in a week—the majority concluded he was not salaried under Section 602(a). The regularity of Helix’s pay schedule made no difference: In the context of these regulations, Justice Kagan explained, receiving pay on a weekly basis describes the unit of time for which an employee is paid rather than the frequency with which the employee gets paid. That’s why there are two different provisions governing time-based compensation: Section 602(a) for rates by the week (or more) and Section 604(b) for rates by the day, shift, or hour. Given that Hewitt was paid a daily rate rather than a fixed weekly salary, subsection 604(b) rather than 602(a) applied, and Helix had conceded that it had not satisfied 604(b)’s guaranteed-pay condition. Finally, Helix (and the principal dissent) contended that subsection 604(b) did not apply at all to highly compensated employees such as Hewitt, based on an inference from the amended version of the regulation, which cross-references only subsection 602(a). But as Justice Kagan observed, the version of the regulation in effect when Hewitt worked for Helix drew no such distinction. And in any event, the two subsections fit snugly together in defining the salary-basis requirement for both lower-income and higher-income employees. Because Hewitt was not exempt as an executive under subsection 602(a), he was entitled to FLSA overtime pay.

The Court reached this conclusion over Helix’s objection that dire policy consequences would follow. First, Justice Kagan noted that the regulatory text was clear, which left any overarching policy considerations to the Department of Labor and Congress rather than the courts. Second, she traced how FLSA had long been understood to guarantee overtime pay for non-executive employees regardless of their earning level, such that overtime for high earners was no windfall. Third, she noted that Helix could readily comply with overtime regulations by providing employees such as Hewitt with a guaranteed weekly salary. Finally, she emphasized that the Court’s decision would protect overtime pay for lower-income employees such as nurses, who often work long shifts at irregular hours.

Three justices dissented. The principal dissent, authored by Justice Kavanaugh and joined by Justice Alito, focused on the bottom line rather than the intricacies of the DOL’s regulations. In Justice Kavanaugh’s view, Hewitt was a salaried executive because he was guaranteed to receive at least $963 for any week that he worked. While Hewitt’s pay could vary upward if he worked additional days, Justice Kavanaugh considered Hewitt’s day rate of $963 the requisite “part” of his pay constituting a guaranteed weekly salary. Because Hewitt would be paid a predetermined amount over $455 even if he worked only a single day, Justice Kavanaugh concluded that subsection 602(a)’s requirement was met. (The majority was not persuaded: Justice Kagan termed this argument “a non-sequitur to end all non-sequiturs” founded on an unwillingness to “really look at § 602(a)’s text.”) Moreover, although Helix failed to raise this issue below, Justice Kavanaugh was troubled by what he saw as a discrepancy between FLSA’s exemption of employees who work in a “bona fide executive . . . capacity” and the DOL regulations focused not only on supervisory duties but also on how much an employee is paid and on what basis. He would therefore have reversed and remanded to the Fifth Circuit to consider whether that issue had been forfeited.

Justice Gorsuch, dissenting alone, would have dismissed the case as improvidently granted. As he observed—and Justice Kagan acknowledged—the basis on which the Court ultimately resolved the case was not the question presented in Helix’s petition for certiorari. Instead, Helix had asked the Court to decide whether a worker who qualifies as an executive under the specific rule for highly compensated employees always had to satisfy the guaranteed-pay requirement of subsection 604(b). The Court instead addressed whether Hewitt satisfied the rule for highly compensated employees in the first place; that is, whether Hewitt was paid on a salary basis. (In so doing, as Justice Kagan noted, the Court also answered the question presented: the rule for highly compensated employees can be satisfied under either subsection 602(a) or subsection 604(b).) Yet because that broader question had not been fully briefed (nor had the parties fully briefed Helix’s likely forfeited argument regarding whether the regulations at issue were consistent with FLSA’s text), Justice Gorsuch would have waited for a more suitable opportunity to address those questions.

Our last case for today, Bartenwerfer v. Buckley, shows that excessive use of the passive voice may cost you more than a few points on a high school essay. Congress’s use of the passive voice in the Bankruptcy Code might cost you hundreds of thousands of dollars (if, say, you happen to partner up with a fraudulent house flipper and are held jointly liable for their fraud).

Ordinarily, bankruptcy proceedings allow struggling debtors to discharge debts they can’t pay. But the Bankruptcy Code carves out exceptions for certain kinds of debts that cannot be discharged. One of those exceptions, 11 U.S.C. § 523(a)(2)(A), provides that debtors cannot discharge a debt for money obtained by “false pretenses, a false representation, or actual fraud . . . .”

When Kate Bartenwerfer declared bankruptcy, she sought to discharge various debts, including a large debt she jointly owed with her partner, David, resulting from a failed house-flipping project. David had taken the lead on the project, with Kate “largely uninvolved.” The duo ultimately flipped the house after making attestations that they had disclosed all material facts about the property. But as it turns out, they hadn’t, and the buyer sued, ultimately winning a $200,000 judgment against David and Kate. When the duo later filed for bankruptcy, the home buyer intervened, arguing that they had obtained his money by fraud, so their debt to him could not be discharged under Section 523(a)(2)(A). After some tortured proceedings, the Bankruptcy Court concluded that David had the requisite fraudulent intent for the exception to apply to him, but that Kate could discharge her debt because she did know or have reason to know of David’s fraud. The Ninth Circuit reversed, holding that a debtor who is liable for her partner’s fraud cannot discharge her debt in bankruptcy even if she was not herself culpable.

The Supreme Court unanimously affirmed. In an opinion by Justice Barrett, the Court focused on Congress’s use of the passive voice in Section 523(a)(2)(A). As noted, it precludes discharge of a debt for money “obtained by . . . fraud.” But it doesn’t specify whose fraud. As the Court explained, the “[p]assive voice pulls the actor off the stage.” To put a spin on the Court’s example, one could say that “Tadhg and Dave’s Supreme Court Update was completed through hard work.” But that leaves the identity of the hard-workers obscure. While strangers might assume the “hard work” was Tadhg and Dave’s, those who know Tadhg and Dave would immediately recognize that some nameless crew of uncredited associates must be burning the midnight oil to produce each Update while Tadhg and Dave hogged all the credit. Similarly, when Congress used the passive voice in Section 523(a)(2)(A), it was “agnostic” about who committed the fraud. All that mattered was how the money was obtained. Kate was thus precluded from discharging her debt to the defrauded buyer whose money was obtained by fraud, even if it was David’s fraud.

With that out of the way, the Court rejected a handful of counterarguments. First, the Justices weren’t persuaded by Kate’s argument that exceptions to discharge in bankruptcy must be narrowly construed. When the language of a statute is clear, the Court could not use the principle of narrow construction to artificially narrow an exception’s meaning. Second, the Court saw no merit in Kate’s argument that other discharge exceptions, which required some bad action by the debtor herself, implied the same should be required for Section 523(a)(2)(A). That approach flipped the ordinary rules of interpretation on their head: When Congress uses specific language in some sections of a statute but omits it in another, the omission is generally treated as deliberate.

Next, the Court found support for its interpretation in the history of Section 523(a)(2)(A). Prior versions of the bankruptcy code suggested that the fraud exception applied only when the fraud was committed by the debtor. But in Strang v. Bradner (1885), the Court held otherwise, concluding that the partners of fraudsters could not discharge debts arising out of fraud even if they were not personally responsible. Congress not only didn’t overrule that case, but when it later revised the Bankruptcy Code, it revised this fraud exception to use language that more closely matched Strang’s holding, suggesting congressional ratification of its result.

Finally, the Court rejected Kate’s policy argument that leaving her indebted under these circumstances would be contrary to Congress’s purpose of giving debtors a fresh start through bankruptcy. Section 523(a)(2)(A) “takes the debt as it finds it,” meaning that Kate’s liability for David’s fraud was determined by other sources of law (here California law). There are, of course, many circumstances where an individual has some relation to a fraudster but is not liable for that fraudster’s conduct, such as if one partner in a business acts without authority and outside the scope of the ordinary course of business. But when an otherwise “innocent” person is held substantively liable for a fraud they did not personally commit under the relevant substantive law, Section 523(a)(2)(A) bars the discharge of debt related to that fraud.

Justice Sotomayor wrote a brief concurrence, joined by Justice Jackson. She agreed with the Court’s reasoning but emphasized that she joined the majority with the understanding that the Court’s holding applied only because Kate and David had admittedly entered a partnership, and David committed the fraud while acting within the scope of that partnership. Without that agency or partnership relationship, the result might be different.

Dave and Tadhg