Supreme Court Update: Bank Markazi v. Peterson (14-770) and Heffernan v. City of Paterson (14-1280)

April 28, 2016 Supreme Court Update

Greetings Court Fans!

After the deluge of cases last week, the Court took a breather and issued only one decision this week. However, eagle-eyed Update aficionados may remember that we still owe you one decision from last week. With that in mind, this week we take on two cases about politics, spanning from Iran and compensation for victims of state-sponsored terrorism to the local politics of New Jersey and punishment of political speech.

First up, in Bank Markazi v. Peterson (14-770), the Court addressed Congress's power to authorize specific victims of Iranian-sponsored terrorist attacks to access $1.75 billion in Iranian government money held in a New York bank account. What followed was a veritable smorgasbord of constitutional law: separation of powers, the whispers of bills of attainder, and the Foreign Sovereign Immunities Act. It also touched matters in the political zeitgeist, coming a few months after the U.S. lifted sanctions against Iran, and as Congress considers allowing suits against Saudi Arabia for its alleged role in the 9/11 terrorist attacks.

Iran has a long and well-documented history of sponsoring terrorist attacks. After a slew of such attacks in the 1980s—including the 1983 truck-bombing of U.S. Marine barracks in Beirut—the U.S. officially placed Iran on a list of state sponsors of terrorism. Congress also took action, amending the Foreign Sovereign Immunities Act, which generally protects foreign nations from U.S. lawsuits, to allow suits targeting state sponsors of terrorism. When the plaintiffs in this case filed their individual lawsuits in the D.C. District Court, Iran didn't even bother showing up, and the court entered default judgments against Iran.

But winning a default judgment is far easier than collecting damages from a foreign sovereign. It can be hard enough to find money in the U.S. in an ordinary case. But when the case involves a foreign sovereign, U.S. law grants additional protections to U.S.-based assets, particularly when those assets belong to a foreign nation's central bank.

The victims cleared the first step: they found the money. But it wasn't easy. The N.Y. bank account in question looked like it was owned by a Luxembourgian bank, until it looked like it was owned by an Italian bank, when all along it was really owned by Iran's central bank. When a private investigator uncovered this money laundering, the victims' lawyers asked a N.Y. court to force the bank to turn over the money to satisfy the default judgments. Once its money was at stake, Iran decided to show up to court, arguing that the money couldn't be turned over.

Plaintiffs then went political. Rather than fight it out in court, they returned to D.C. to plead their case to the political branches, where they won again. President Obama blocked money owned by Iran's central bank. In 2012, Congress passed a special statute that made a set of assets (the New York bank account) available to satisfy the judgments in the D.C. cases, which it identified by name and docket number. All that the NY court had to do was determine whether the money was in the U.S., was blocked, and was owned by Iran.

Iran (which has a high regard for constitutions) argued that the new law was unconstitutional because Congress cannot single out one case and dictate the outcome. The Court disagreed. Writing for the majority, Justice Ginsburg (joined by Justices Kennedy, Breyer, Alito, and Kagan, and in large part by Thomas) upheld Congress's power to tip the scales heavily in favor of one side in a pending federal lawsuit, as long as Congress does not flatly announce a winner. Article III prevents Congress from dictating how courts should apply an already existing law to a particular case. The Court also has long admonished Congress not to "prescribe rules of decision to [the Courts] . . . in [pending] cases," United States v. Klein, 13 Wall. 128 (1872). But Congress can amend existing law and have it apply retroactively to pending cases. The majority found that the new law did just that, creating a new legal standard that applied retroactively, nothing more. Congress, it reasoned, did not expressly instruct the courts to reach a specific result. It did not matter that the new law made the results in this case a foregone conclusion, or that the law identified the cases by name and number—the new law resolved 16 cases. Congress has the power, Ginsburg reasoned, to write narrow legislation, especially in the area of foreign affairs. (Justice Thomas did not join the portion of the opinion that the new law can be defended as within Congress's power to legislate regarding foreign affairs and foreign sovereign immunity.)

Chief Justice Roberts, joined by Justice Sotomayor, dissented, finding a violation of separation of powers. He believed any reasonable person looking at the history of the case and the 2012 statute would unquestionably conclude that Congress was deciding the outcome of a pending case. He described the 2012 statute as eliminating "for this case alone . . . each of the defenses standing in [the victim's] way." Roberts explained that "[n]o less than if it had passed a law saying ‘respondent's win,' Congress has decided this case by enacting a bespoke statute tailored to this case that resolves the specific legal disputes to guarantee respondents victory." This law, Roberts explained, left the federal court nothing to do other than ratify Congress's choice to award these assets to the victims' families.

The second case reinforced Bob Dylan's observation that "in Paterson, that's just the way things go." In Heffernan v. City of Paterson (14-1280), the Court addressed a government employee's free speech rights to engage in political activity, but with a twist fit for a law school exam: the employee was not intending to engage in that activity yet his municipal employer thought he was when it demoted him. The plaintiff Jeffrey Heffernan was a police officer in Paterson, NJ, and his supervisors demoted him when he was seen obtaining a campaign sign for a mayoral candidate challenging the incumbent who had appointed the supervisors. Yet, as it turns out, Heffernan (who was the challenger's friend) was getting the sign as a favor for his bedridden mother. He sued under Section 1983, claiming he was deprived of his right to engage in conduct protected by the First Amendment, even if the City police officials were mistaken about his conduct. But as Heffernan was not actually exercising his constitutional rights, the district court and Third Circuit rejected his lawsuit.

Justice Breyer thought otherwise and wrote the Court's opinion reinstating the lawsuit (joined by the Chief and Justices Kennedy, Ginsburg, Sotomayor, and Kagan). He raised the question whether the constitutional "right" is focused on the employee's actual activity or, instead, on the employer's motive based on the supervisor's perception of the activity. Breyer referred to earlier precedent where motive mattered, but that was a case of an employer mistakenly thinking an employee had not engaged in protected speech when he actually had, and the employer did not violate the First Amendment when it dismissed the employee based on the reasonable mistake. Breyer wrote that motive again mattered here in the reverse situation of the employee not engaging in protected conduct but the employer thinking he had. The harmful government policy is what ran afoul of the First Amendment, it caused Heffernan's demotion, and it sent an impermissible message to all employees. The Court, however, did not fully clear Heffernan's path to victory, directing the lower courts to consider in the first instance the legality of the City's alternative explanation for the demotion, that it was pursuant to a neutral policy prohibiting police officers from overt involvement in any political campaign.

Justice Thomas, joined by Justice Alito, dissented. To these Justices, the answer to Breyer's question was simple: the plaintiff conceded he was not engaged in protected First Amendment activity, so the City did not deprive him of his constitutional rights. Tort law (unlike criminal law) does not recognize an attempted violation of rights, and Section 1983 provides a remedy only for violation of rights and not merely for causing harm. The dissenters thought it wrong to allow a plaintiff to seek money damages under Section 1983 when no right was violated.

That's all for now. We'll be back with more coverage as the Court enters its penultimate month of the term.