Supreme Court Update: Armour v. Indianpolis (11-161) and Elgin v. Department of the Treasury (11-45)

June 14, 2012 Supreme Court Update

Greetings, Court fans!

While we hold our collective breath for the Court's decisions on the health care law and other headline grabbers, the Justices continue to churn out decisions on the other remaining cases of the Term. Today we bring you Armour v. Indianapolis (11-161), an interesting application of rational basis review to a not-so-interesting subject (tax assessments for municipal sewer projects), and Elgin v. Department of the Treasury (11-45), holding that the Civil Service Reform Act provides the exclusive avenue to judicial review of federal employees' challenges to adverse employment actions, even when employees argue that a federal statute is unconstitutional.

Rational basis review trumped cries of "no fair!" in Armour v. Indianapolis (11-161). For several decades, under an Indiana statute known as the "Barrett Law," Indianapolis imposed the cost of sewer improvements on the benefited lot owners. The lot owners could pay the entire assessment immediately, or under 10-, 20-, or 30-year installment plans. In 2005, the City adopted a new system partially financed by bonds, which lowered individual lot owners' costs. In connection with the new system, the City announced that it would forgive all amounts still owed under the Barrett Law. The City did not provide refunds for those who had already paid, however. This particularly rankled a group of homeowners who had paid their assessments in full just the year before. They paid $9,278, while their less-prompt neighbors paid between $309 and $928, depending on the plan they chose. The paid-in-full homeowners asked the City for a partial refund equal to the smallest forgiven installment debt, approximately $8,000. The City denied the request, writing that "while [the cutoff date] might seem arbitrary to you, it is essential for the City to establish this date and move forward with the new funding approach." The paid-in-full homeowners then brought suit in Indiana state court, arguing in relevant part that the City's actions violated the Equal Protection Clause. The trial court granted summary judgment in their favor and the intermediate appellate court affirmed, but the Indiana Supreme Court reversed. The Indiana Supreme Court found that the City's distinction between those who had already paid and those who had not was "rationally related to its legitimate interests in reducing its administrative costs, providing relief for property owners experiencing financial hardship, establishing a clear transition from [the Barrett Law to the new system], and preserving its limited resources."

The Court affirmed, 6-3. Justice Breyer wrote for the majority, joined by Justices Kennedy, Thomas, Ginsburg, Sotomayor, and Kagan. The Court found that rational basis review applied, and that Indianapolis' distinction survived such review. Rational basis review applied because the City's distinction did not involve a fundamental right or suspect classification, or discriminate against out-of-state commerce or new residents. Thus, it would not run afoul of the Equal Protection Clause so long as there was "a rational relationship between the disparity of treatment and some legitimate governmental purpose." The Court found that the City's distinction had a rational basis: the City wanted to avoid the cost of administering Barrett Law collections after the switch to the new system, as well as the cost of processing refunds for the complaining homeowners – or worse, for all paid-in-full homeowners across the City's more than 20 other Barrett Law projects. The City could not have given everyone refunds without taking funds from other programs or finding additional revenue. Rational basis review requires deference to reasonable underlying legislative judgments where "ordinary commercial transactions" are at issue. Pointing to amnesty programs involving mortgage payments, taxes, and parking tickets, the Court observed that the City's distinction between past payments and future obligations was "a line well known to the law."

The Court brushed aside the homeowners' challenge to one of the City's other rationales for its distinction, which the Indiana Supreme Court appeared to accept: ameliorating financial hardship on lower income homeowners. The Court held that it "need not consider this argument" because the administrative cost rationale was sufficient to show a rational basis for the City's distinction. Indeed, under rational basis review, legislatures are not required to articulate any reason to support a classification; the "burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it." The Court also rejected the homeowners' reliance on Allegheny Pittsburgh Coal Co. v. Commission of Webster Cty. (1989). In that case, the Court struck down a county tax assessor's practice of determining property values as of the time of the property's last sale, finding that it had no rational basis because it violated state laws requiring equal valuation. Here, the City followed state law in apportioning the cost of its Barrett Law projects equally; the law didn't say anything about equal treatment under forgiveness programs. In the Court's view, adopting the homeowners' view would "risk transforming ordinary violations of ordinary state tax law into violations of the Federal Constitution."

The Chief dissented, joined by Justices Scalia and Alito. The Chief acknowledged that courts give great leeway to taxing authorities: "But every generation or so a case comes along when this Court needs to say enough is enough, if the Equal Protection Clause is to retain any force in this context." In the dissenters' view, this was such a case. Although Indiana law promised neighboring homeowners that they would be treated equally when paying for sewer hookups, the petitioners ended up paying between 10 and 30 times more than their neighbors. The equal protection violation was plain. The dissenters scoffed at the City's "administrative cost" excuse. Refunding the petitioners' money would total just $300,000 out of an annual city budget of approximately $900 million. Even if the City had to send refunds to all paid-in-full homeowners in all the other open Barrett Law projects, city employees would simply need to "cut the checks and mail them out." In any event, the Court had never before held that avoidance of administrative burden could justify grossly disparate tax treatment. That's because the Equal Protection Clause does not provide that no State shall "deny to any person within its jurisdiction the equal protection of the laws, unless it's too much of a bother." The dissenters similarly rejected the City's alternative excuse – which the Court "wisely" did not embrace – that "it would have been fiscally challenging to issue refunds." "‘Fiscally challenging' gives euphemism a bad name," the Chief chided. "One cannot evade returning money to its rightful owner by the simple expedient of spending it."

Turning now to Elgin v. Department of the Treasury (11-45), the Military Selective Service Act ("MSSA") requires all 18- to 25-year-old male citizens and permanent-resident aliens to register for the draft. Another statute, 5 U.S.C. § 3328, bars anyone who knowingly and willfully fails to register from federal employment. When lead petitioner Michael Elgin was discharged by his federal employer under § 3328, he appealed his removal to the Merit Systems Protection Board ("MSPB"), arguing that the statute is an unconstitutional bill of attainder and unconstitutionally discriminates on the basis of sex when read in combination with the MSSA. An administrative law judge dismissed his appeal, stating that an employee is not entitled to MSPB review of agency action based on an absolute statutory bar to employment, and that the MSPB lacked jurisdiction because it had no authority to determine the constitutionality of a statute. Elgin joined other petitioners in a federal suit in the District of Massachusetts, again raising his constitutional challenges. Addressing a challenge to its jurisdiction, the District Court held that the Civil Service Reform Act ("CSRA") – which established a comprehensive system for review of employment actions taken against federal employees and which establishes the right to a MSPB hearing – did not preclude it from hearing the claims because the MSPB had no authority to address the constitutionality of § 3328. The First Circuit reversed, holding that challenges to an employee's removal are not exempt from the CSRA simply because the employee argues that the statute underlying that removal is unconstitutional.

The Court affirmed, addressing two questions: (1) whether the CSRA precludes employees from bringing original actions in district courts; and (2) if so, whether that is true even where the MSPB cannot adjudicate the underlying claim. In a majority opinion written by Justice Thomas and joined by the Chief and Justices Scalia, Kennedy, Breyer, and Sotomayor, the Court answered yes to both questions. Addressing the first, the Court – after noting that the CSRA affords petitioners a right to appellate review of MSPB decisions in the Federal Circuit – first considered whether it was "fairly discernable" that Congress intended the CSRA to preclude federal district court jurisdiction over the petitioners' claims. Noting the "painstaking detail with which the CSRA sets out the method for covered employees to obtain review of adverse employment actions," the majority held that it was, indeed, fairly discernible that Congress intended to deny those employees an avenue of review in district court. Addressing the second question, the majority also found no textual or structural support for an exception to CSRA exclusivity where a petitioner challenges the constitutionality of a federal statute. It likewise found that exclusivity served the purpose of the CSRA, which replaced an "outdated patchwork of statutes and rules" that allowed for challenges of agency employment actions in district courts across the country. By providing for review by the MSPB and appeal to the Federal Circuit, the CSRA aimed to avoid inconsistent decisionmaking and duplicative judicial review. Without deciding whether the MSPB in fact lacked authority to adjudicate the constitutionality of a statute, the Court determined that it did not matter because the Federal Circuit's jurisdiction on appeal assured review of constitutional claims.

Justice Alito dissented, joined by Justices Ginsberg and Kagan. He noted that the petitioners' facial constitutional challenges are "a far cry" from the fact-specific employment disputes that Congress intended to channel through the MSPB. And he argued that ultimate Federal Circuit review of facial constitutional claims did nothing to "cure the oddity of requiring such claims to be filed initially before the MSPB, which can do nothing but pass them along unaddressed, leaving the Federal Circuit to act as a court of first review, but with little capacity for factfinding." Under the majority's formulation, "petitioners should file their claims with the MSPB, which must then kick the claims up to the Federal Circuit, which must then remand the claims back to the Board, which must then develop the record and send the case back to the Federal Circuit, which can only then consider the constitutional issues." The dissent found it difficult to believe that Congress would intend to impose exclusive administrative review in a context that "breeds inefficiency and creates a procedural framework that is needlessly vexing."

This brings us up-to-date with all the Court's decisions and orders so far, but more are surely on their way. Stay tuned!

Kim & Jenny

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