Supreme Court Update: Henson v. Santander Consumer USA Inc. (16-349), Advocate Health Care Network v. Stapleton (16-74), Honeycutt v. United States, (16-142), Virginia v. LeBlanc (16-1177), and Order List

June 12, 2017 Supreme Court Update

Greetings, Court Fans!

Four new decisions to start the week, including the first ever authored by Justice Gorsuch: Henson v. Santander Consumer USA Inc. (No. 16-349), holding that a company seeking to collect its own debt is not a "debt collector" under the Fair Debt Collection Practices Act. We'll have a summary of that decision below, along with a per curiam AEDPA order and two holdover opinions from last week. We'll be back later this week with summaries of the other three decisions handed down today—namely, Sessions v. Morales-Santana (No. 15-1191), striking down a provision of the Immigration and Nationality Act that treats children of unwed U.S.-citizen mothers differently from children of unwed U.S.-citizen fathers in relation to the transmission of U.S. citizenship to children born abroad; Microsoft v. Baker (15-457), holding that federal appellate courts lack jurisdiction under § 1291 to review orders denying class certification after the named plaintiffs have voluntarily dismissed their claims with prejudice; and Sandoz Inc. v. Amgen Inc. (No. 15-1039), holding that a provision of the Biologics Price Competition Act of 2009 that requires applicants seeking FDA approval of "biosimilars" (biologics that are similar to already-approved biologics) to provide the manufacturer of the already-approved biologic with its application is not enforceable by injunction under federal law (though it may be under state law), and that applicants may provide this notice before obtaining a license from the FDA. (Rest assured, our summary of Sandoz will make slightly more sense of its complicated holding than this preview suggests!)

If Henson v. Santander Consumer USA Inc. (No. 16-349) is recalled by future generations, it will not likely be for its doctrinal significance—if you own a debt, you're not a "debt collector" under the Fair Debt Collection Practices Act—but rather as Justice Neil Gorsuch's first contribution to the United States Reports. In it, Justice Gorsuch stakes out a preliminary claim as both a pure textualist and a call-'em-as-I-see-'em opinion spinner, eschewing conventions (like section divisions and an easily found and quotable holding) on his way to a more folksy riff on why all of the petitioners' arguments, textual and otherwise, are wrong. The set-up is pretty simple. Congress (stirred to action, in Gorsuch's words, by "[d]isruptive dinner-time calls, downright deceit, and more besides") passed the Fair Debt Collection Practices Act in order to deter "wayward collection practices." The statute applies to "debt collectors," a term defined to embrace anyone "who regularly collects or attempts to collect . . . debts owed or due . . . another." The question in this case is whether an entity that purchases another's debt and then attempts to collect it qualifies as a debt collector under this definition. As Gorsuch puts it: "Does the Act treat the debt purchaser in that scenario more like the repo man or the loan originator?" The Fourth Circuit held that the FDCPA does not apply to entities seeking to collect their own debts, even if those debts were originally owed to another.

Writing for a unanimous Court, Justice Gorsuch agreed, focusing primarily and, in the end, exclusively, on the statutory text, particularly the words "owed . . . another." "[B]y its plain terms, this language seems to focus our attention on third party collection agents working for a debt owner—not on a debt owner seeking to collect debts for itself." And there is nothing in the text that suggests it should matter whether the debt-owner originated the debt or, like Santander, the respondent here, purchased it later. Gorsuch proceeded to bat away the numerous textual and policy arguments petitioners raised in an effort to get around that simple conclusion. First, as a matter of pure grammar as well as common usage, Gorsuch rejected petitioners' contention that the statute's use of the past participle, "owed," rather than the present participle, "owing," means that the statute applies to anyone seeking to collect debts that were previously "owed . . . another." Past participles are routinely used as adjectives to describe the present state of a thing—"burnt toast is inedible, a fallen branch blocks the path, and (equally) a debt owed to a current owner may be collected by him or her." What's more, Congress routinely used the word "owed" to refer to present debt relationships in other parts of the statue. Turning to petitioners' policy arguments, Justice Gorsuch allowed that Congress might have intended the FDCPA to apply to entities who purchase defaulted debts for the purpose of collection had it anticipated this would become a cottage industry, but "it is never our job to rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done had it faced a question that, on everyone's account, it never faced." While reasonable people can disagree about whether Congress adequately addressed the downright deceitful, disruptive, dinner-time debt-collection dilemma's dimensions, and whether it should reenter the field and amend its definition, the job of the Court is "to apply, not amend, the work of the People's representatives."

Beyond calling their representatives, the People (or those concerned about debt-collection, anyway) can take heart in two caveat's in Justice Gorsuch's opinion. Because the arguments were unpreserved or inadequately briefed, the Court did not decide whether an entity can qualify as a debt collector if (like Santander here) it regularly acts a third-party collection agent in addition to collecting debts it has purchased or whether a different statutory definition of a "debt collector" as one engaged "in any business the principal purpose of which is the collection of any debts" might cover these types of entities (without covering entities seeking to recover only debts that they themselves originated, which all parties seem to agree is beyond the scope of the FDCPA). So, with any luck, we'll have another Gorsuch debt-collection yarn to unravel for you down the road . . . .

From one much-litigated acronym to another, in Advocate Health Care Network v. Stapleton, No. 16-74, The (Still) Eight interpreted an awkwardly phrased provision of the Employee Retirement Income Security Act (ERISA). ERISA practitioners know that the phrase "awkwardly phrased provision" can be applied to virtually any part of the statute, which is designed to ensure that private employers offering employee-benefits plans, including pension plans, take measures to ensure plan solvency and protect plan participants. But this case concerns the awkwardly phrased exception to ERISA's rules for so-called "church plans."

From its adoption in 1974, ERISA has always exempted from its numerous requirements any plan "established and maintained . . . for its employees . . . by a church." In 1980, Congress amended ERISA to expand this "church plan" exemption, providing that "[a] plan established and maintained for its employees . . . by a church . . . includes a plan maintained by an organization . . . controlled by or associated with a church." (Don't even try comprehending the provision without the ellipses.) For over thirty years, federal agencies responsible for administering ERISA have assumed that the church-plan exception applies to all plans maintained by church affiliates, even if they were not initially established by a church. But, in a trio of recent decisions, the Third, Seventh, and Ninth Circuits held that the exemption only applies if the plan was originally established by a church. Therefore, the lower courts held, pension plans maintained by church-affiliated hospitals, which were established by the hospitals and not the affiliated churches, are not exempt from ERISA's requirements.

The Supreme Court reversed these three circuit court rulings in a unanimous decision written by Justice Kagan. As Justice Kagan saw it, the 1980 amendment involved a "new definitional phrase piggy-backing on the one already existing." So, while the term "church plan" originally "meant only ‘a plan established and maintained . . . by a church'" the 1980 amendment re-defined the term to also include "a plan maintained by a [church-affiliated] organization"—regardless of the plan's origins. "In effect, Congress provided that the new phrase can stand in for the old one as follows: ‘The term ‘church plan' means a plan established and maintained by a church [a plan maintained by a church-affiliated organization].'" (Modifications courtesy of Justice Kagan).

The employees argued that this reading of the statute had to be wrong because it achieved the bizarre result of exempting church-maintained plans only if they are established by churches but exempting affiliate-maintained plans regardless of their origin. The Court was not persuaded. Although this might be an odd result, it was not "an utterly untenable result." After all, the "[e]stablishment of the plan . . . is a one-time, historical event" with "limited functional significance." Therefore, "removing the establishment condition for plans run by [church-affiliated] organizations" did not result in the quality of contextual implausibility that would lead an observer to say "Congress could not possibly have meant that." In short, the straightforward textual analysis prevailed over arguments that Congress could not possibly have meant what it said.

Justice Sotomayor joined the majority opinion, but she also filed a brief concurrence expressing concern about the public policy implications of the Court's ruling. She explained that ERISA's regulations protect employees by ensuring that workers who are promised a defined pension benefit upon retirement will actually receive that benefit. "[B]y holding that ERISA's exemption for "church plan[s]' . . . covers plans neither established nor maintained by a church, the Court holds that scores of employees—who work for organizations that look and operate much like secular businesses—potentially might be denied ERISA's protections." After all, "organizations such as [the health care providers in these cases] operate for-profit subsidiaries, employ thousands of employees, earn billions of dollars in revenue, and compete in the secular market with companies that must bear the cost of complying with ERISA." These hospitals and health care organizations "bear little resemblance" to the "plans established by orders of Catholic Sisters" that Congress wanted to exempt in 1980. "This current reality might prompt Congress to take a different path." We'll have to wait to see if Congress takes up Justice Sotomayor's invitation.

Next up, in Honeycutt v. United States (16-142), the Court resolved a long-standing circuit split on co-conspirators' liability for criminal forfeiture in certain drug offenses. Terry Honeycutt worked as an employee in a Tennessee hardware store owned by his brother, Tony. The store did a suspiciously robust business selling an iodine-based water-purification product, known as Polar Pure, the components of which could be used to manufacture methamphetamine. The Drug Enforcement Agency doubted this was just a coincidence, and the Honeycutt brothers were soon indicted for selling Polar Pure with knowledge or having reason to believe the store's customers would use it to manufacture meth. As part of the prosecution, the government sought a forfeiture money judgment against each brother in the amount of $269,751.98—the store's profits from its sale of Polar Pure—under the Comprehensive Forfeiture Act of 1984, 21 U.S.C. § 853(a)(1), which mandates forfeiture of "any proceeds the person obtained, directly or indirectly, as the result" of drug distribution.

Tony, the storeowner, pled guilty and agreed to forfeit $200,000. Terry went to trial and was convicted of various charges, including conspiracy. Although the government conceded that Terry had no ownership interest in the store—and hence did not personally benefit from the Polar Pure sales—it pursued the forfeiture money judgment against Terry in the amount of $69,751.98, the amount of profits outstanding after Tony's forfeiture payment. The district court declined to enter that judgment based on Terry's status as only an employee. But the Sixth Circuit reversed, holding that because the brothers were co-conspirators, Terry was jointly and severally liable for the proceeds from the conspiracy.

The Supreme Court unanimously reversed (sans Gorsuch), in an opinion by Justice Sotomayor. The Court's opinion focused heavily on the purposes of criminal forfeiture, namely depriving convicted criminals of "ill-gotten gains," returning property to those wrongfully deprived of it, and lessening the economic benefits of crime. Consistent with those purposes, several provisions of the forfeiture statute at issue, 21 U.S.C. § 853, make clear that it only reaches property or money that has been tainted by the crime, such as property the defendant obtained as the proceeds of the offense (the provision under which the government sought forfeiture in Honeycutt's case) or property used to commit it. Indeed, Section 853(p) expressly addressed circumstances under which the government could seek forfeiture of untainted property, and that provision was not satisfied in Honeycutt's case. Holding coconspirators jointly and severally liable, then, would run contrary to the statute's focus on tainted property, because it would result in the forfeiture of untainted property in a great many cases not covered by Section 853(p). While the Supreme Court agreed with the Government that under "bedrock principles of conspiracy liability," coconspirators are legally responsible for each other's foreseeable actions related to the conspiracy, the Court concluded that Congress did not intend to incorporate these principles into Section 853. Accordingly, Honeycutt's lack of ownership interest was determinative. Because none of the $269,751.98 in profits from Polar Pure went to him, requiring him to forfeit $69,751.98 would result in him paying the judgment with money having no connection to the crime. Because Honeycutt never obtained any proceeds from the crime, he could not be held jointly and severally liable for the profits only his brother saw.

Turning to this morning's Orders, the Court issued a swift take-down of the Fourth Circuit in Virginia v. LeBlanc (No. 16-1177), a per curiam decision emphasizing the degree of deference federal courts must give state court interpretations of Supreme Court precedent under the Antiterrorism and Effective Death Penalty Act of 1996 ("AEDPA"). AEDPA, of course, allows a state petitioner federal habeas relief only if the underlying state court ruling on the merits of his claim was "contrary to, or involved an unreasonable application of, clearly established Federal Law, as determined by the Supreme Court." Here, the Virginia Supreme Court held that petitioner Dennis LeBlanc's sentence to life in prison for a rape he committed when he was 16 was not contrary to the U.S. Supreme Court's ruling in Graham v. Florida (2010), which held that the Eighth Amendment prohibits juvenile offenders convicted of nonhomicide offenses from being sentenced to life without parole. The Virginia court reasoned that, while LeBlanc was not eligible for parole in the traditional sense, he could benefit from the State's "geriatric release" program, under which an inmate who has reached the age of 60 (having served ten years) or 65 (having served five years) may apply for conditional release, where the usual parole factors would be applied. Upon federal habeas review, however, the Fourth Circuit concluded that the state court had unreasonably applied Graham because Virginia's geriatric-release program did not provide a meaningful opportunity for juvenile nonhomicide offenders to obtain release based on maturity and rehabilitation.

The Supreme Court reversed. In order for a state court decision to be an unreasonable application of Supreme Court authority, it must be more than "merely wrong"; it must be "so lacking in justification that there was an error well understood and comprehended in existing law beyond any possibility for fair-minded disagreement." This is "meant to be" a difficult standard to meet and it was not met here. The state court's conclusion that the geriatric release program satisfied Graham's requirements was not objectively unreasonable, inasmuch as the program does effectively allow juvenile nonhomicide offenders to be released based upon factors including "demonstrated maturity and rehabilitation." While the Court allowed that "[p]erhaps the next logical step from Graham would be to hold that a geriatric release program does not satisfy the Eighth Amendment," and that there are "reasonable arguments on both sides," it insisted that "[t]hese arguments cannot be resolved on federal habeas review." For now, it sufficed to say that the Virginia court's ruling was not objectively unreasonable in light of current Supreme Court case law.

Finally, the Court granted cert today in Oil States Energy Services v. Greene's Energy Group (No. 16-172), addressing whether inter partes review—an adversarial process used by the patent and Trademark Office to analyze the validity of existing patents—violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.

We'll be back later in the week with summaries of this morning's other decisions.