Parents Involved in Community Schools [PICS] v. Seattle School District No. 1 (05-908), Leegin Creative Leather Products, Inc. v. PSKS, Inc. (06-480)

June 29, 2007 Supreme Court Update

Greetings, Court Fans!
The Court issued its final batch of opinions for the Term yesterday – and what a batch it was. The biggest case of the day – as measured by news coverage and the 185 pages of opinions it generated – was the Court's decision in Parents Involved in Community Schools [PICS] v. Seattle School District No. 1 (05-908), in which a 5-4 Court found that Seattle's and Louisville's race-conscious "voluntary integration" school assignment plans were unconstitutional. Less newsworthy, but still quite significant in its own sphere, was the Court's 5-4 ruling in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (06-480) that vertical price-fixing agreements between manufacturers and retailers are no longer per se illegal under antitrust laws, but rather must be judged by the rule of reason. In the final decision of the morning, Panetti v. Quarterman (06-6407), another 5-4 Court blocked, at least for the time being, the execution of a mentally ill Texas man. This Update will cover PICS and Leegin, and we'll be back shortly with Panetti and the other outstanding summaries from earlier in the week. (In the interest of full disclosure, Wiggin and Dana submitted amicus briefs in PICS, in support of the school districts, and in Leegin, in support of Leegin.)
PICS involved challenges by parents and students to two different school assignment plans. Seattle, which had never been subject to a desegregation order but was concerned about de facto segregation due to housing patterns, allowed incoming ninth graders to choose from among the district's high schools. Where schools were oversubscribed, it employed a series of tiebreakers, one of which used race – if a school was not within ten percentage points of the district's overall white/nonwhite racial balance (roughly 40/60), students were assigned to bring the school "into balance." Louisville, which had just emerged from a longstanding court-ordered desegregation plan, adopted a different plan for its elementary schools, requiring them to maintain black student populations of between 15 and 50 percent; students initially were assigned to schools based on geography, but could be reassigned to other schools within the same "cluster" to facilitate integration. The lower courts upheld both plans under strict scrutiny, finding that they were narrowly tailored to achieving a compelling interest in racially diverse schools.
The Court reversed both rulings in a judgment announced by the Chief. There was a full five-Justice majority of the Chief and Justices Scalia, Kennedy, Thomas and Alito for the following holdings. First, the plans must undergo strict scrutiny because they allocate benefits or burdens based on race. Therefore, they must further a compelling interest, and the Court has recognized two: (1) remedying the effects of past de jure segregation, and (2) diversity, which the Court recognized in the context of higher education in the 2003 University of Michigan affirmative action cases (Grutter v. Bollinger, upholding the law school's admissions program, and Gratz v. Bollinger, striking down the undergraduate admissions program). Neither of those rationales applied here: Seattle never had de jure segregation, and Louisville's emergence from court supervision meant that it had eliminated the vestiges of its past discrimination. As for the diversity rationale, the Court emphasized that it had blessed that rationale in the special case of higher education (with its important concern for academic freedom), and that the "diversity" at issue was not focused on race alone but encompassed all factors that make a student body diverse, with each applicant considered as an individual. The Seattle and Louisville plans, by contrast, focused solely and mechanically on race, and an odd, binary notion of race to boot (white/nonwhite or black/nonblack). Second, the plans ultimately had little impact on overall student assignments – not that the Court wished to see more of an impact, but the results strongly suggested that racial classifications were not necessary to achieve the districts' stated goals. Given the psychic and social costs of assigning students by race, and the need for districts to consider alternatives in good faith, the districts could not meet their burden on narrow tailoring.
There was more to the Chief's opinion, but the remainder garnered only the votes of Scalia, Thomas and Alito. The districts had argued that racial diversity, by itself, was a compelling interest due to its educational and social benefits. Noting that this was a disputed issue in the social science, the plurality declined to step into the debate, finding that the plans were not narrowly tailored to achieving these purported benefits because they were directed solely at the illegitimate goal of racial balancing for its own sake, measured only by each district's demographics rather than some diversity target at which the benefits presumably flowed. This rationale had no stopping point (some schools would always be out of balance, as demographics shift over time), and accepting racial balancing as a compelling interest would ensure that race-conscious decisionmaking would always be part of American life. To the extent that the goal is for students to see each other as individuals rather than members of a group, "using means that treat students solely as members of a racial group is fundamentally at cross-purposes with that end." Invoking the plaintiffs' brief in Brown v. Board of Education, the plurality noted that the Fourteenth Amendment "prevents states from according differential treatment to American children because of their color or race," and closed by stating that "[t]he way to stop discrimination on the basis of race is to stop discriminating on the basis of race."
These portions of the Chief's opinion were too much, apparently, for Justice Kennedy, who issued his own concurrence in the judgment. For Kennedy, the districts indeed had identified a compelling interest in diversity, and the plurality should have acknowledged this fact. In Kennedy's view, the districts simply had not proved that their means were narrowly tailored. Louisville had utterly failed to explain how its plan worked in practice, and he construed the ambiguities against the district under strict scrutiny; Seattle did a little better, but it still could not explain its choice of a crude white/nonwhite distinction (in which a 50/50 Asian/white split would be OK, but a four-way split of Asians, blacks, Latinos and whites would not). Kennedy went further, however, explaining his view that the plurality opinion implied an "all-too unyielding insistence that race cannot be a factor," yet the fact remained that despite our best hopes, race often does matter. In particular, he could not accept the plurality's implication that the Constitution requires school districts to ignore de facto resegregation. School districts could pursue diversity by means such as strategic site selection of new schools, drawing attendance zones with an eye to neighborhood demographics, and recruiting students and teachers. What they cannot do – as the districts did here – is classify students based on race and assign them to schools based on that classification.
Justice Breyer wrote a lengthy dissent (77 pages, including appendices – which he read from the bench), which Justices Stevens, Souter and Ginsburg joined, accusing the plurality of breaking "the promise of Brown" and calling the decision one "that the Court and the Nation will come to regret." Breyer began with a lengthy history of the Seattle and Louisville plans, noting that both stemmed from longstanding efforts to remedy real-world segregation that was challenged in lawsuits in both cities (Seattle settled its suit, so there was no court finding of de jure segregation – but Breyer found the de jure vs. de facto distinction "meaningless in the present context" anyway). He then invoked the principal of local control by school districts in the implementation of educational policy, and noted the Court's language in past cases (especially the 9-0 decision in Swann v. Charlotte-Mecklenberg Board of Education (1971)) blessing the idea of voluntary desegregation efforts as within the broad discretionary powers of school authorities. This statement was technically dicta, but it embodied a basic principle of constitutional law that had found wide acceptance, and which distinguished the use of race to exclude from its benign use to include. For the former, strict scrutiny is "fatal in fact," but not so for the latter – a distinction the plurality ignored. Indeed, given the choice, Breyer would apply a "contextual" form of scrutiny, being less than strict though still "careful" in the present case. Purporting to apply strict scrutiny anyway, Breyer would uphold the plans because: (1) they further a compelling interest in remedying past segregation, overcoming adverse educational effects of segregated schools, and producing an educational environment reflecting our pluralistic society that is even more important in elementary and secondary education than it is in higher education; and (2) they are narrowly tailored because they use broad ranges as only one, among other, nonracial aspects of student assignment. Noting that the plurality could not point to a model that would make less use of race and achieve the districts' objectives, Breyer thought the plurality's take on narrow tailoring could never be satisfied. Finally, he thought that the plurality opinion threatened a flood of litigation, as "hundreds" of state and federal statutes and regulations used racial classifications for educational or other purposes. (Justice Stevens also wrote a short dissent, noting that Breyer's dissent was "eloquent and unanswerable," calling the Chief's invocation of Brown a "cruel irony," and claiming that "no Member of the Court that I joined in 1975 would have agreed with today's decision.")
Breyer's dissent clearly struck a nerve – the Chief and Kennedy devoted whole sections of their opinions to responding to it, and Thomas wrote his own concurrence aimed solely at debunking it. For the Chief, Breyer: (1) wrongly ignored the distinction between de jure and de facto segregation, which has been central to the Court's jurisprudence in this area for decades (Breyer replied that the distinction mattered for what the Constitution required districts to do, but not for what it permitted them to do); (2) relied on inapplicable dicta in Swann; and (3) by incorporating a "motives" test for inclusive vs. exclusive uses of race, left judicial resolution open to notions of "benign" that shift over time and would "do no more than move us from ‘separate but equal' to ‘unequal but benign.'" For Kennedy, Breyer's gloss on strict scrutiny looked suspiciously like rational-basis review that would allow racial classifications far and wide. But the real ire came from Thomas, who gave a ringing endorsement of the "color-blind Constitution" that Justice Harlan first invoked in his dissent in Plessy v. Ferguson and to which the Brown plaintiffs pointed. He reiterated that "racial imbalances" were not the same as segregation, and that racial balancing had no stopping point. And he rather pointedly noted that many of Breyer's arguments – such as the need for local control, a focus on the practical effects of school assignment policies, and a desire to avoid a flood of litigation – were the very arguments put forth in the courts by segregationists for decades: "What was wrong in 1954 cannot be right today. . . . [Brown] certainly made clear that state and local governments cannot take from the Constitution a right to make decisions on the basis of race by adverse possession." And while "today's faddish social theories" embrace a distinction between the use of race to include vs. exclude, "if our history has taught us anything, it has taught us to beware of elites bearing racial theories." The Constitution does not allow us to gamble that future social theories will be beneficent.
Turning from race to antitrust, in Leegin the same five justice majority (led by Justice Kennedy this time), overruled a nearly-century old precedent, Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), which held that a vertical agreement between a manufacturer and its distributors to set minimum resale prices (often referred to as a "resale price maintenance agreement" or RPM) was per se illegal. RPMs were barred under Dr. Miles notwithstanding claims by some economists that the agreements could have procompetitive effects in certain circumstances. In overruling Dr. Miles, the Court first explained that the accepted standard for reviewing a practice under section 1 of the Sherman Act is the rule of reason. Per se illegality is reserved for those circumstances in which a practice always or almost always tends to restrict competition. The Court's recent jurisprudence on vertical restraints of trade had "rejected the rationales on which Dr. Miles was based"; namely, the old common law restraint on alienation was formalistic, was not based on "demonstrable economic effect," and was simply outdated. Further, Dr. Miles had equated RPMs with horizontal price fixing (i.e., an agreement between retailers to set prices for the good), but RPMs often are driven by the manufacturer, who wants to guarantee a certain minimum price for its product in order support its brand image or to stimulate additional services to be provided by retailers in connection with the product (such as fancy displays or a help desk). More recent case law has clarified the distinction between vertical and horizontal restraints, recognizing that vertical restraints may have procompetitve justifications, including stimulating interbrand competition and reducing intrabrand competition, eliminating free riders (i.e., the discounter that benefits from the provision of product-related services by the high-end retailer), facilitating new market entrants, and encouraging retailer services that might not otherwise be provided. At the same time, the Court recognized that RPMs have potential anticompetitive consequences that "must not be ignored or underestimated." Because RPMs may have both procompetitive and anticompetitive effects, this is just the type of practice where the rule of reason is appropriate. The majority further rejected the contention that "administrative convenience" (the obvious benefit of Dr. Miles' bright-line rule) could justify per se condemnation, and suggested that courts would develop rules to guide litigation in this area and set roadmaps separating legitimate and illegitimate conduct. In determining whether a practice is invalid under the rule of reason, a court should consider, for example: (1) the number of manufacturers that make use of the practice in a given industry, (2) the source of the restraint (i.e., if retailers were the impetus for the RPM agreement, it smells), and (3) market power.
The majority then trotted through its rationale for why overruling a century-old rule that has been upheld by the Court numerous times was not incompatible with stare decisis. As Kennedy explained, stare decisis is not as significant in antitrust cases because the Sherman Act is treated as a common law statute. Therefore, when respected authorities hold that a change in the law is needed, the Court should act accordingly. It is also significant that the FTC and DOJ recommend that RPMs be judged under the rule of reason, and that the underpinnings of Dr. Miles have slowly been eroded by other cases removing vertical restraints from the per se unlawful framework. Dr. Miles's rule is simply "inconsistent with a principled framework, for it makes little economic sense when analyzed with our other cases on vertical restraints" and would only serve to force manufacturers to engage in "second-best alternatives." Further, though reliance is a serious consideration when overturning so long-established a precedent, that concern is less so here because, for much of the century, the Miller-Tydings Fair Trade Act had allowed states to enact laws permitting RPMs. The repeal of Miller-Tydings in 1975 did not indicate that Congress agreed that RPMs should be per se illegal, it simply meant that Congress no longer believed they should be per se legal.
Though not quite as worked up as in his dissent in PICS, Justice Breyer was noticeably piqued about the Court's overruling Dr. Miles without any legitimate basis (such as a change in circumstances) for departing from such a significant and entrenched statutory precedent – one on which businesses, consumers and Congress (when it repealed Miller-Tydings) have relied. Breyer recognized that, were the Court deciding the case on a clean slate, it might be a close call. As the majority pointed out, there were some circumstances where the procompetitive effects of an RPM might outweigh the negative effects – but how often is this the case? Studies indicate that RPMs generally raise the price of products and are not infrequently anticompetitive. Further, it will be very difficult for courts and juries, as Breyer colorfully put it, "to separate the beneficial sheep from the antitrust goats." Given the likelihood that RPMs will have anticompetitive effects, the administrative benefits of a bright-line rule, and the importance of stare decisis, the dissenters would leave Dr. Miles in place.
We'll be back soon to bring you more decisions. Thanks for reading!
Ken & Kim

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