Commissioner of Internal Revenue v. Banks (03-892), Illinois v. Caballes (03-923), Howell v. Mississippi (03-9560) and Bell v. Cone (04-3940

January 24, 2005 Supreme Court Update


Greetings, Court fans!

Before heading off for a month-long recess, the Court hit us with four opinions and an order list. Two of the opinions were per curiam, however, so the Update shouldn't be too daunting.

In Commissioner of Internal Revenue v. Banks, 03-892, 543 U.S. __ (2005), a unanimous Court (minus the Chief, who did not participate) held that whenever a litigant's recovery constitutes taxable income, his income also includes any contingent fee award paid to his attorney. The Sixth Circuit had held that only the net amount Banks received from settling his employment discrimination lawsuit was income. In a second case consolidated with Banks, the Ninth Circuit similarly held that a plaintiff should be taxed only his net jury award and not on the contingent fees paid to his attorney. The Court reversed both rulings in an opinion by Justice Kennedy. The Court held that a contingent-fee agreement is an anticipatory assignment to the attorney of a portion of the client's income from litigation – and a taxpayer cannot avoid taxes by assigning his future gains to someone else. The case turned on control of the income-generating "asset" – Banks' cause of action. While a client may rely on the attorney's special skill, the client retains ultimate dominion and control over his claim – a lawsuit is not a joint venture of which the attorney is a part owner. Also, while the amount of income, if any, that the "asset" will generate may be speculative when the contingent-fee agreement is signed, such is the case with many anticipatory assignments. Banks resolves an issue that has split the circuit courts, but its practical effect will be limited by the American Jobs Creation Act of 2004, which amended the tax code to allow deductions for attorneys' fees paid on any claim involving unlawful discrimination, federal whistleblower statutes, and any federal or state law regarding civil rights or the employment relationship.

Illinois v. Caballes, 03-923, 543 U.S. __ (2005) addressed whether the Fourth Amendment "requires reasonable, articulable suspicion to justify using a drug detection dog to sniff a vehicle during a legitimate traffic stop." Caballes was stopped for going six miles over the speed limit. While the officer was issuing him a warning, another officer appeared with a drug detection dog and circled the car. The dog alerted upon the trunk, which, once opened, revealed marijuana. Caballes' warning ticket for speeding abruptly turned into a 12 year sentence for possession of marijuana. Applying Terry, the Illinois Supreme Court found that the dog sniff violated the Fourth Amendment because it "unjustifiably enlarged" the scope of the routine traffic stop into a drug investigation and therefore fruit of the unlawful dog sniff, the marijuana, was inadmissible.

The Supreme Court disagreed. Justice Stevens, who drafted the majority opinion, explained that, under the Court's decision in United States v. Pace, a dog sniff is not a "search" under the Fourth Amendment because the sniff can only reveal the possession of contraband – and, therefore, cannot compromise any legitimate privacy interest. Thus, where the dog sniff only involves the exterior of a vehicle and does not delay an otherwise lawful traffic stop, it is permissible under the Fourth Amendment.

Justices Ginsburg and Souter dissented. Ginsburg agreed with the Illinois Supreme Court that Terry was applicable and, absent any evidence supporting the conclusion that Caballes possessed drugs, the dog sniff unreasonably expanded the scope of the search. Ginsburg expressed concern that there was no stopping point in the majority's opinion and the decision could lead to widespread use of drug dogs to sniff parked cars and even pedestrians. Souter agreed with Ginsburg's analysis, but wrote separately to express his view that Pace should be revisited because it was founded on the untenable assumption that drug dogs do not err. Because drug dogs are not perfect, it cannot be assumed that the dog sniff will only reveal contraband, it may instead reveal innocent possessions in a person's trunk over which the person has a legitimate expectation of privacy. Both Ginsburg and Souter noted that they might reach a different conclusion if the dog sniff was aimed at detecting bombs or biological weapons that present an immediate danger to human life.

The Court's per curiam decision in Howell v. Mississippi, 03-9560, 543 U.S. __ (2005) provides a lesson in preserving federal issues for appeal. Howell claimed that his Eighth and Fourteenth Amendment rights were violated by the trial court's failure to charge the jury on lesser included offenses in his capital murder case. Howell, however, failed to make clear in the Mississippi Supreme Court that his claim was based on federal, rather than state, law. Before the US Supreme Court, Howell argued that the issue was sufficiently raised because his citations to state cases in turn cited to other state cases that in turn relied on federal law. This "daisy chain" was insufficient to satisfy the Court, which dismissed the case.

In the second per curiam decision of the day, Bell v. Cone, 04-394, 543 U.S. __ (2005), the Court reversed the Sixth Circuit's grant of Cone's habeas petition, finding that the Sixth Circuit did not grant adequate deference to the Tennessee Supreme Court as required by 28 U.S.C. § 2554(d). The Sixth Circuit had granted Cone's petition after concluding that the "especially heinous, atrocious, or cruel" aggravating circumstance, which supported the jury's death sentence for Cone, was unconstitutionally vague. In reversing, the Court explained that the Tennessee Supreme Court had previously adopted a narrowing construction of these terms (the narrowing construction required a finding of "torture" or "depravity of mind," both of which the Court had further defined) and federal courts must presume that the Tennessee Supreme Court applied this narrowing construction when it reviewed Cone's direct appeal, despite the fact that it did not make explicit reference to the narrowing construction. Justice Ginsburg, joined by Souter and Breyer, wrote a concurring opinion merely to stress that the Court did not address the situation in which a State court rules on other grounds and does not directly address the constitutional issue. There, it cannot be presumed, by silence, that the court considered the issue, applied any relevant case law, and rejected the petitioner's contentions.

The Court issued no new cert grants today. It did, however, vacate and remand close to 450 cases for reconsideration in light of Booker/Fanfan. And in one notable denial, Bush v. Schiavo, 04-757, the Court declined to hear Florida Governor Jeb Bush's attempt to reinstate a Florida law that would allow him to keep Terri Schiavo alive with a feeding tube.

That's it for now. We'll be back on February 22nd, when the Court is sure to issue more opinions. Thanks for reading!

Kim & Ken

From the Appellate Practice Group at Wiggin and Dana. For more information, contact Kim Rinehart, Ken Heath, Aaron Bayer, or Jeff Babbin at 203-498-4400