New Process Steel, L.P. v. NLRB (08-1457), Stop the Beach Renourishment, Inc. v. Florida Dep't of Environmental Protection (08-1151), City of Ontario v. Quon (08-1332), Schwab v. Reilly (08-538) and Dillon v. United States (09-6338)

June 22, 2010 Supreme Court Update

Greetings, Court fans!

The June deluge continues, with the Court releasing four more decisions today. But this Update will bring you more on New Process Steel, L.P. v. NLRB (08-1457), as well as the other four decisions issued last Thursday: Stop the Beach Renourishment, Inc. v. Florida Dep't of Environmental Protection (08-1151), where the Court concluded that Florida did not "take" private property in violation of the Fifth and Fourteenth Amendments when it added sand to restore certain beaches; City of Ontario v. Quon (08-1332), finding that the City's search of an employee's text messages sent on an employer-provided pager did not violate the employee's Fourth Amendment rights; Schwab v. Reilly (08-538), concluding that a bankruptcy trustee's failure to object to a debtor's facially permissible claimed exemptions did not preclude the trustee from later challenging the debtor's estimated market value of the property claimed exempt; and Dillon v. United States (09-6338), limiting the reach of United States v. Booker by affirming the Sentencing Commission's ability to impose what are effectively mandatory sentencing guidelines – but only in the context of retroactive sentence reductions.

First, here's the full story on New Process Steel, L.P. v. NLRB, where a slim majority of the Court appears to have invalidated nearly 600 National Labor Relations Board ("Board") decisions issued during a roughly two year period when the Board had only two members, instead of five. How did we get to that point? In 1947, the Taft-Hartley Act amended § 3(b) of the National Labor Relations Act ("NLRA") to: increase the size of the Board from three to five members; increase the quorum requirement for Board action from two to three members; permit the Board to delegate its authority to a group of no less than three members; and allow the delegee group to act based on a quorum of two. Unfortunately, the appointment process is political and can be rough going. In 2007, the Board had only four members and expected two more vacancies at the end of December. In an attempt to preserve the Board's authority, effective December 28th, the four existing Board members delegated all of the Board's powers to a delegee group of three members, composed of the two members whose terms were not expiring and one whose term was expiring. Three days later, the third member's term expired, leaving only two members of the Board and the delegee group. But those two members continued to hear and decide cases on behalf of the Board based on their belief that a proper quorum of the Board had made a valid delegation to a three member delegee group, which could continue to function as long as it maintained a group quorum of two. A number of Courts of Appeals accepted this argument, including the Seventh Circuit in this case, but the D.C. Circuit disagreed, causing a circuit split and prompting the Court to grant cert. Proving that there is no safety in numbers, the Court agreed with the outlier D.C. Circuit – concluding that the two members did not have authority to hear and determine cases on behalf of the Board.

Justice Stevens authored the Court's opinion, joined by the Chief, Scalia, Thomas and Alito (quite an odd grouping!). In the majority's view, the best reading of the text and structure of the statute required that a delegee group maintain a membership of three in order to exercise the delegated authority of the Board. Given the fact that the Taft-Hartley Act's purpose was to increase the size of the Board, and that § 3(b) only permits delegation to "a group of three or more members," it would make no sense to allow an indefinite end run around this structure by allowing a delegation to a group of three that existed only momentarily (here for three days), with the result that a group of two members would then possess the full authority of the Board through the back door of the delegee group quorum provision forever. Justice Kennedy, known for taking a practical approach, dissented, along with Justices Ginsburg, Breyer and Sotomayor. While they agreed that operating with only two members was "not ideal," they believed that the plain terms of the statute permitted this result. The initial four member board had valid authority to delegate to the short-lived three member delegee group, which in turn only had to have two members to satisfy the group quorum requirement and continue to function. The group quorum requirement expressly authorizes a delegee group to function with less than three members and there is no textual basis to treat a two member quorum caused by vacancy on the Board differently from a two member quorum caused by conflict of interest, or some other reason. Indeed, the NLRA provides that "[a] vacancy in the Board shall not impair the right of the remaining members to exercise all f the powers of the Board. . . ." (To which the majority would respond: Absolutely, unless you have three vacancies, in which case, you haven't met the three member Board quorum and delegee group requirements.)

Next, in Stop the Beach Renourishment, Inc. v. Florida Dep't of Environmental Protection, the Court considered the thorny topic of judicial takings – including whether they exist at all, and if so, whether one occurred when the Florida Supreme Court concluded that Florida lawfully could restore eroded beaches by filling in submerged land abutting private property, thus creating additional state-owned land in between privately owned oceanfront property ("littoral property" to use the proper lingo) and the ocean. Before we wade in further, we need a short primer on some esoteric Florida property law. Florida owns in public trust the submerged land beneath navigable waters and the foreshore. Generally, the boundary between private littoral property and state-owned land is the mean high-water line. Littoral owners have certain rights, including rights to access the water, to uninterrupted contact with the water, and – particularly relevant here – to receive accretions (gradual deposits to and growth in the land) to the littoral property. Accretions thus expand littoral property, moving the private property line farther seaward. Avulsions, on the other hand, are changes in the land that occur suddenly, and Florida's caselaw has made clear, that avulsions do not belong to the land owner. Thus, when there is a sudden change to the land (via, for example, a hurricane), the property line remains the former mean high-water line, and the state owns the newly-created land seaward of that line.

Florida enacted the Beach and Shore Preservation Act ("Act") in order to authorize and fund efforts to restore and maintain beaches by depositing additional sand. Under the Act, when a project is undertaken, Florida sets a fixed "erosion control line" at the existing high-water line. This line then constitutes the boundary between littoral and state-owned property rather than the fluctuating high-water line. As a result, additional accretions to the land no longer belong to the littoral owner, but to the State. Petitioner, a non-profit association of littoral owners bordering one such project, brought an administrative challenge to the Florida Department of Environmental Protection, which approved the permits for the project. The Florida Court of Appeals agreed with Petitioner that the project constituted an unlawful taking in violation of the Fifth and Fourteenth Amendments because it eliminated the littoral owners' rights to accretions and to have their property directly contact the ocean. The Florida Supreme Court reversed, concluding that the property owners did not own the property that was allegedly taken because the State's addition of sand was an "avulsion," which meant that it belonged to the State, not the littoral owners. The Petitioner sought rehearing on the ground that the Florida Supreme Court's decision constituted a judicial taking by altering the littoral owners' property rights. Rehearing was denied.

Every Justice (except for Stevens, who did not participate) agreed that there was no taking here based on a straightforward application of Florida law. Led by Justice Scalia, the Court explained that under long existing Florida caselaw, the State had a right to fill its submerged land and this right took priority over the littoral owners' right to directly contact the water. Florida caselaw also made clear that this fill then constituted an avulsion, with the newly emerged land belonging to the State. Therefore, Petitioner could not prove that there was an established property right that the State had taken. While every Justice agreed that this was not a taking, not every Justice agreed that a judicial ruling could ever constitute a taking. Justice Scalia, joined by the Chief, Thomas and Alito argued that a judicial ruling could constitute a taking because the Fifth Amendment, on its face, does not differentiate based on the type of government actor. Therefore, if property rights are "established," they cannot be revised (as opposed to clarified) by a Court without raising Fifth Amendment concerns. Justice Kennedy, joined by Justice Sotomayor, concurred in part and in the judgment to express their view that the Court should not at this time resolve the issue of whether a judicial decision can constitute a taking and to note concerns about the potential ramifications of such a holding. Kennedy would apparently prefer to review judicial decisions allegedly confiscating established property rights through the lens of the Due Process Clause . . . at least for now. Justice Breyer, joined by Justice Ginsburg, also concurred in part and in the judgment. Though they did not rule out the possibility of recognizing judicial takings, like Kennedy, they would put aside the issue for another day (when the decision was truly necessary to the judgment) since embracing such claims would clearly involve federal courts very significantly in issues that are, at heart, matters of state law. Unlike Kennedy, however, Breyer and Ginsburg proposed no additional framework for reviewing such claims.

We turn now to a very current issue: workplace privacy in the electronic era. The Court's decision in City of Ontario v. Quon sidestepped the critical question of whether a government employee has a reasonable expectation of privacy in text messages transmitted on an employer-issued pager, leaving the proper test for a Fourth Amendment violation in this context unsettled. But every member of the Court easily agreed that even assuming that a public employee has a reasonable expectation of privacy in such text messages, the City's search in this instance did not violate the Fourth Amendment.

The Ontario Police Department ("OPD") provided pagers to its officers for job-related use. The OPD's contract with Arch wireless allowed for a limited number of characters to be sent via text messages per month; additional characters would be subject to additional charges. The OPD had a written policy providing that employees had no expectation of privacy with respect to emails written on employer-provided computers and warned that emails were subject to monitoring. While the written policy did not explicitly cover text messages, the OPD informed officers that text messages would be treated the same as emails. Soon after the pagers were distributed, Jeff Quon, a police sergeant in the OPD, exceeded the character limits. A superior reminded him that texts were subject to audit, but indicated that he didn't intend to audit texts for personal use, but would instead allow employees to pay for any monthly overages. Quon and other employees paid for overages for a number of months after that, but the OPD eventually tired of being a "bill collector." To determine whether the existing character limit on the pagers needed to be increased – both to ensure that employees were not being forced to pay for work-related texts and for the City to avoid paying for personal communications – the City examined two month's worth of Quon's texts. After redacting texts sent in his off-duty hours, the City determined that roughly seven-eighths of Quon's on-duty texts were personal (some sexually explicit), which violated the City's rule against pursuing personal matters while on-duty. Quon was disciplined.

Quon, along with those with whom he had been exchanging texts, then filed suit against the City, the OPD and others (collectively "the City") for violating his Fourth Amendment right to privacy. The district court applied a two-step test developed by a plurality of the Supreme Court in O'Conner v. Ortega (1987) to address Fourth Amendment claims in the employment context. Under that test, a court first considers the operational realities of the workplace, on a case-by-case basis, to determine whether the employee has a reasonable expectation of privacy. Only if there is a reasonable expectation of privacy would a court then go on to consider whether the employer's intrusion was nonetheless reasonable. Applying this test to Quon's circumstances, the district court concluded that Quon had a reasonable expectation of privacy in his text messages. The district court then asked the jury to determine whether the City had conducted the search to determine the efficacy of the character limit policy (reasonable in the court's view) or to snoop into how Quon used his pager (unreasonable in the court's view). The jury concluded that the City performed the search for the former purpose, resulting in a win for the City. But the victory did not last long. On appeal, the Ninth Circuit found the City's search unreasonable because there were less intrusive means of determining whether the character limits were appropriate.

The Court reversed, in an opinion by Justice Kennedy. The Court declined to endorse or overrule the O'Connor plurality's test. Acknowledging that the Court was avoiding the question of whether Quon's expectation of privacy was justifiable, Kennedy noted that "prudence counsels caution" in the face of evolving technologies and changing workplace norms. Instead, Kennedy focused on the relatively narrow question of whether the search was reasonable. He first determined that the City's search satisfied the O'Connor legitimacy standard – it was "conducted for a ‘noninvestigatory, work-related purpose[] or for the investigatio[n] of work related misconduct.'" Kennedy then concluded that the search was reasonable: it was "efficient," "expedient," and not "excessively intrusive." Furthermore, because the City reasonably believed that Quon likely had only a limited privacy expectation (if any), the City had reasonably assumed that the search would not intrude on personal matters. Kennedy swiftly dismissed the Ninth Circuit's decision as at odds with controlling precedent in that the Fourth Amendment does not require the government to use the least intrusive means and such a hindsight-based approach would be unworkable as a court will nearly always be able to come up with a different approach it believes would have been better.

Two Justices filed separate concurrences. Justice Stevens concurred to remind readers that, in addition to the plurality and Scalia's concurrence in O'Connor, Justice Blackmun's O'Connor dissent—joined by Justices Brennan, Marshall, and Stevens – also provided an approach to determining an employee's expectation of privacy, which he considered still viable. Justice Scalia, on the other hand, lambasted the majority opinion for its "[t]he-times-they-are-a-changin'" discussion as an unnecessary. Prophesying, with some merit, that lawyers and courts will focus on the privacy discussion in the majority's opinion more than the narrow holding, Scalia also chided the Court for improperly buttressing the O'Connor plurality's two-step analysis – with which he, of course, continues to disagree.

The question presented in the next case, Schwab v. Reilly, boils down to this: when a Chapter 7 debtor plays "hide the ball" as to the market value of property she wants to keep, and the trustee does not timely object even though it's fairly clear the debtor is hiding the ball, does the debtor get to keep the property? The Court answered: No. Some background bankruptcy basics: When a debtor files for bankruptcy under Chapter 7, all of the debtor's assets become property of the estate, to be distributed by the trustee to the debtor's creditors. The Bankruptcy Code permits the debtor to claim certain property as "exempt" from the estate, but places a cap on the dollar value of some types of exemptions. The trustee and other parties in interest must object to any claimed exemptions no later than 30 days after a required creditors' meeting. In this case, Reilly filed for bankruptcy after her catering business failed. She filled out a form to exempt her kitchen equipment, and claimed the maximum amount she could claim under two exemption provisions, $10,718 total. Under the next column on the form, "Current Market Value of Property Without Deducting Exemptions," she also wrote $10,718. The Trustee learned from an appraiser that the equipment could be worth up to $17,200, but did not object to Reilly's claimed exemptions within the 30-day deadline. Instead, after the deadline had passed, he moved for permission to auction the equipment, with the aim of returning $10,718 to Reilly and distributing any excess value to her creditors. Reilly argued that the Trustee had forfeited the estate's right to the equipment by failing to object to her claim: the Trustee should have known that she was claiming the full market value of the property, since she had written that the current market value was $10,718, and that she was claiming $10,718. Reilly stressed that she needed all the equipment to start a new business, and added that it had great sentimental value for her because it was a gift from her parents. The Trustee took the position that he had no problem with her claimed exemption of $10,718 per se, and thus had no obligation to object to it, but that he had every right to auction off the equipment and give her just the $10,718 the Code allowed her to exempt. The bankruptcy court, district court, and Third Circuit sided with Reilly, but the Court agreed with the Trustee.

Justice Thomas wrote for the Court, divided 6-3 along no discernible ideological lines. Justice Thomas' analysis involved a parsing of the Code much too intricate to replicate here. Bankruptcy practitioners will want to review the decision more closely. For the rest of us, the Court's parting admonition should suffice: "Where, as here, it is important to the debtor to exempt the full market value of the asset or the asset itself, our decision will encourage the debtor to declare the value of her claimed exemption in a manner that makes the scope of the exemption clear, for example, by listing the exempt value as 'full fair market value (FMV)' or '100% of FMV.' Such a declaration will encourage the trustee to object promptly to the exemption if he wishes to challenge it and preserve for the estate any value in the asset beyond the relevant statutory limits." Justice Ginsburg, joined by the Chief and Breyer, dissented. The dissenters attached Reilly's handwritten itemized list of exemptions -- 1 coffee maker, 2 soup tureens, a 3-bay sink, etc -- to illustrate that it should have been obvious to the Trustee that Reilly intended to claim the equipment in its entirety. Moreover, according to the dissenters, bankruptcy petitioners generally understood that the time for objecting to a debtor's claimed exemptions is the time for objecting to a debtor's valuations. In fact, valuation objections were the most common type of objection to claimed exemptions. Permitting a trustee to come in with a challenge and threat of auction any time before the conclusion of the bankruptcy casts a cloud of uncertainty over debtors: how will they know if they will be allowed to keep an asset they might need in order to start a new business or move to a new city? Postscript: Earlier on in the case, Reilly indicated that she would rather dismiss her bankruptcy filing than be forced to part with the equipment. Although it decided the question at hand against her, the Court noted that the lower courts were not foreclosed from "entertaining on remand, procedural or other measures that may allow Reilly to avoid auction of her business equipment." Perhaps someone or something will save Reilly's coffee maker and soup tureens from the auction block.

Finally, in Dillon v. United States, the Court provided a modest limitation on the scope of United States v. Booker. Justice Sotomayor, writing for a 7-1 Court (Justice Alito took not part in this decision), looked to the text and purpose of the relevant statute to find that Booker does not apply to retroactive Sentencing Guidelines amendments that reduce the base offense level. In short, Dillon affirmed the Sentencing Commission's ability to impose what are effectively mandatory Sentencing Guidelines—but only in the context of implementing retroactive sentence reductions.

In 1993, Percy Dillon was convicted of, inter alia, crack and powder cocaine offenses, and he was sentenced to the bottom of the Sentencing Guidelines for his base offense level (approximately 27 years imprisonment). The sentencing judge described the term as "entirely too high for the crime [Dillon] had committed," but the judge believed himself bound by the then-mandatory sentencing guidelines. In 2005, the Court rendered the Guidelines advisory by invalidating what were then the only two mandatory provisions of the Sentencing Reform Act. In 2007, the Sentencing Commission, recognizing the disparity between the sentences for crack and powder cocaine, made a retroactive Guideline amendment that reduced the base offense level associated with crack cocaine. Although 18 U.S.C. § 3582(c) provides that a federal court "may not modify a term of imprisonment once it has been imposed," § 3582(c)(2) creates an exception "in the case of a defendant who has been sentenced to a term of imprisonment based on a sentencing range that has subsequently been lowered by the Sentencing Commission." When this occurs, the court may reduce the term of imprisonment "if such a reduction is consistent with" applicable Commission policy statements. The relevant policy statement to § 3582(c)(2) – United States Sentencing Commission, Guidelines Manual § 1B1.10(b)(2) (Nov. 2009) – prohibits courts from reducing a term of imprisonment below the minimum of an amended sentencing range, except to the extent that the original term was below the then-applicable range. In response to the Guidelines amendment, Dillon filed a pro se motion for a sentence reduction asking for both the two-level reduction provided in the revised Guidelines and for further reduction at the court's discretion. The District Court reduced his sentence to the new minimum standard set by the revised Guidelines, but it found that Booker did not apply to § 1B1.10 and so it was not authorized to use its discretion to impose an even lower sentence. The Third Circuit affirmed, as did the Court, in an opinion by Justice Sotomayor.

In finding that Booker does not apply to §1B1.10, Sotomayor looked to the text and purpose of § 3582(c)(2). First, Sotomayor concluded that, "by its terms," § 3582(c)(2) "does not authorize a sentencing or resentencing proceeding. Instead it provides [only] for the ‘modif[ication of] a term of imprisonment.'" In support of this reading, Sotomayor noted that the provision applies to a limited number of individuals and that Congress delegated the power to craft such policy statements to the Sentencing Commission. Sotomayor clarified that § 3582 establishes a two step process for applying retroactive sentencing reductions: A court must first determine whether a sentencing reduction is consistent with the policy statement and then, if and only if the original court imposed a term of imprisonment below the Guidelines range, the court may apply §3582(c)(2) to impose a comparably lowered term under the revised range. Second, Sotomayor turned to the scope and purpose of § 3582(c)(2). Finding it to be "a congressional act of lenity," Sotomayor determined that Booker and, by extension, Dillon's Sixth Amendment rights were not implicated because a judge at a § 3582(c)(2) hearing would never increase an individual's sentence. As an aside, Sotomayor dismissed the Ninth Circuit's holding in United States v. Hicks, 472 F.3d 1167, 1170 (2007) and Justice Stevens' dissent's reasoning that, under Booker, the Guidelines may not simultaneously include advisory and mandatory provisions. In closing, Sotomayor concluded that the District Court appropriately avoided reconsideration of aspects of Dillon's original sentence that were not affected by the Guidelines amendment.

In his 21-page lone dissent to a 14-page opinion, Stevens deplored what he viewed as the Court's divergence from the goal of Booker and subsequent case law -- that Congress would prefer that the Guidelines not have any mandatory or binding effect rather than having some provisions that were mandatory and others that were advisory. Stevens also questioned the constitutionality of the Sentencing Commission's attempt to evade Booker's constraints by making a policy, rather than a Guideline, mandatory. (In a footnote, Sotomayor excused the Court from responding to Stevens' separation-of-powers discussion since it was not briefed by the parties.) Finally, Stevens lamented the effects of the Court's holding on individuals like Dillon.

I'll be back again soon with more decisions and orders as we make our way through the final days of the Term.


From the Appellate and Complex Legal Issues Practice Group at Wiggin and Dana
For more information, contact Kim Rinehart or any other member of the Practice Group at 203-498-4400