Supreme Court Update: Knick v. Township of Scott (No. 17-647), NC Dep’t of Revenue v. Kimberley Rice Kaestner 1992 Family Trust (No. 18-457), PDR Network v. Carlton Harris Chiropractic (No. 17-1705), McDonough v. Smith (No. 18-485)
Greetings, Court Fans!
The Nine appear to have settled on four as the ideal number as they lurch toward the end of the term. Just as on Monday, Thursday, and Friday last week, the Court handed down four decisions this morning, bringing the total remaining down to eight. In Iancu v. Brunetti (No. 18-302), involving a designer’s attempt to trademark the word “FUCT,” the Court held that the Lanham Act’s prohibition on registration of “immoral or scandalous” trademarks violates the First Amendment. In United States v. Davis (No. 18-431), the Court held that the last remaining “crime of violence” residual definitions, 18 U.S.C. § 924(c)(3)(B), is unconstitutionally vague. In Food Marketing Institute v. Argus Leader (No. 18-481), the Court held that, where commercial or financial information is both customarily and actually treated as private by its owner and provided to the government under an assurance of privacy, the information is “confidential” within the meaning of the Freedom of Information Act’s Exemption 4. And in Dutra Corp. v. Batterton (No. 18-266), the Court held that a plaintiff in admiralty cannot recover punitive damages on a claim of unseaworthiness. We’ll be back as soon as we can with summaries of these decisions. In the meantime, read on for summaries of Knick v. Township of Scott (No. 17-647), NC Dep’t of Revenue v. Kimberley Rice Kaestner 1992 Family Trust (No. 18-457), PDR Network v. Carlton Harris Chiropractic (No. 17-1705), and McDonough v. Smith (No. 18-485).
There’s been a lot of talk about stare decisis this term (both descriptively and normatively), and Knick v. Township of Scott, Pa. (No. 17-647) is sure to keep the doctrine at the forefront of the public conversation about the Court, as the conservative majority overruled yet another longstanding precedent. This time, in an opinion by the Chief Justice, the Court overruled its decision in Williamson County v. Hamilton Bank (1985), which required a plaintiff bringing a § 1983 claim for unconstitutional takings to first exhaust state and local remedies.
The case arose out of a Township of Scott, Pennsylvania, ordinance that required all cemeteries be kept open and accessible to the public during daylight hours. Petitioner Rose Mary Knick was issued a notice stating that she was violating the ordinance because she did not make the small family graveyard on her 90-acre rural property open to the public. Knick sued in state court on the ground that the ordinance affected a taking of her property, but she did not bring an inverse condemnation action under state law seeking compensation. Subsequently, the Town withdrew the violation notice and stayed enforcement of the ordinance; that caused the state court to dismiss the case because Knick could no longer demonstrate the irreparable harm necessary for equitable relief. Subsequently, Knick filed an action in federal court under 42 U.S.C. § 1983, alleging that the ordinance violated the Takings Clause of the Fifth Amendment. The District Court dismissed her claim under Williamson County, which held that property owners must seek just compensation under state law in the state court before bringing a federal takings claim under § 1983. The Third Circuit affirmed, and Knick brought her case to the Supreme Court, expressly asking it to overrule Williamson County.
The majority accepted Knick’s invitation, overruling Williamson County and holding that a government violates the Takings Clause when it takes property without compensation, and that a property owner may bring a Fifth Amendment claim under § 1983 at that time. Writing for the majority, the Chief explained that Williamson County was poorly reasoned, inconsistent with the general principle that a provision of the Bill of Rights can be enforced under § 1983 without exhausting state remedies, and that it created unintended consequences in its application. Instead, the majority held that that a Fifth Amendment violation vests immediately when there’s a taking without the payment of just compensation, even if there’s a later payment (or the potential of later payment) of compensation. The Chief Justice wrote that Williamson County misunderstood the timing of the Fifth Amendment violation as occurring only when a state or town denies adequate compensation under post-taking procedures. In the majority’s view, after-the-fact compensation is a remedy for the violation that already took place and so a § 1983 action is permitted as of the date of the alleged violation. The majority did not think its holding would actually invalidate regulatory regimes, as opposed to just providing a federal forum for damages, because injunctive relief against the government action would be precluded due to an adequate remedy at law. What appeared to bother the majority most was the Court’s 2005 decision in the San Remo Hotel case, where the plaintiffs followed Williamson County, suing in state court for compensation and reserving a Fifth Amendment claim for a later federal suit if necessary—but when they lost the state-court inverse condemnation claim, the federal courts found the federal claim barred by issue preclusion (collateral estoppel). “The upshot is that many takings plaintiffs never have the opportunity to litigate in a federal forum that § 1983 by its terms seems to provide.”
Justice Thomas, who joined the majority opinion, wrote a short concurrence emphasizing that the government must pay just compensation before or at the time of the taking and rejecting what he called the government’s “sue me” approach to the takings clause (i.e. the idea that a taking hasn’t occurred if there remains the possibility of compensation through state remedies). But, he downplayed the risk that entire regulatory regimes would be invalidated, as injunctive relief is unavailable if there is an adequate remedy at law, and even if relief is available to a specific plaintiff it would not follow that a court could invalidate a regime as to the public generally. As for the available relief, he raised the possibility that an uncompensated taking could be treated not only as a constitutional violation but also a tort, permitting “related common-law tort claims, such as trespass.”
Justice Kagan led the charge for the dissenters (including Justices Ginsburg, Breyer, and Sotomayor), once again castigating the majority for overruling longstanding precedent. In Kagan’s words, “the entire idea of stare decisis is that judges do not get to reverse a decision just because they never liked it in the first instance.” On the merits of the Fifth Amendment question, the dissenters had a very different take on the meaning of the Takings Clause in the Bill of Rights. Unlike other rights, Kagan noted, governmental action does not offend the Constitution until both the action is taken and the property owner is denied just compensation. Williamson County, therefore, was in accord with over a hundred years of precedent that no Fifth Amendment violation even occurs (and so no Section 1983 can be brought) until an available state procedure is used (unsuccessfully) to adjudicate the inverse condemnation claim. The dissenters were greatly concerned that federal courts will now be deluged with claims requiring the interpretation of state-law property rights that should, in the first instance, be decided by the state’s courts. As for the San Remo case applying preclusion principles to the state-court decision, the dissenters suggested a remedy to allow property owners their day in federal court: Congress could amend the federal Full Faith and Credit Statute to loosen preclusion in the context of Fifth Amendment takings claims.
At the end of the day, Knick stands on its own as an important constitutional takings decision, but may well be remembered most as another example of the Roberts Court chipping away at longstanding precedent. Closing her dissent, Justice Kagan quoted from Justice Breyer’s dissent in Franchise Tax Board v. Hyatt (2019), where he fretted that “[t]oday’s decision can only cause one to wonder which cases the Court will overrule next.” “Well, that didn’t take long,” Kagan wrote. “Now one may wonder yet again.” And we may not have to wonder for long, as there are still other precedents on the chopping block this term, including administrative law biggies, Auer v Robbins (1997) and Bowles v. Seminole Rock & Sand (1945).
Speaking of administrative law, while all eyes are on Kisor v. Willkie this week, the Court issued a sleeper decision last week in PDR Network, LLC v. Carlton & Harris Chiropractic, Inc. (17-1705). Though the Court dodged the specific question presented, with a remand for further review, the decision is still likely to makes waves in admin circles, in that it explores topics ranging from the scope of the Hobbs Act, to Chevron deference, to the invalid delegation doctrine.
At issue was a Federal Communication Commission (“FCC”) Order concluding that the term “unsolicited advertisement” as used in the Telephone Consumer Protection Act (“TCPA”) included “any offer of a free good or service.” Petitioner PDR Network, LLC (“PDR”) puts together a physician desk reference regarding the uses and side effects of various prescription drugs. PDR provides the reference to doctors for free; drug manufacturers pay it to be included. PDR sent out a fax to physicians alerting them that they could reserve a new e-book version of the Reference on PDR’s website. Unfortunately for PDR, when Carlton & Harris Chiropractic (“Carlton”) received the fax, instead of signing up for a copy, it brought a putative class action lawsuit against PDR alleging violations of the TCPA—each at $500 a pop. The District Court dismissed the case, agreeing with PDR that the FCC’s interpretation of “unsolicited advertisement” was wrong and simply could not encompass PDR’s free, informational, desk reference. The Fourth Circuit vacated, however, concluding that the Hobbs Act required the District Court to accept the FCC’s interpretation. The Hobbs Act provides that the federal courts of appeals have “exclusive jurisdiction to enjoin, set aside, suspend (in whole or in part), or to determine the validity of” certain “final orders” of the FCC and provides that any “aggrieved party” must bring such a challenge within 60 days after entry of the order in question. All nine Justices voted to vacate the Fourth Circuit’s decision, but not all agreed on what should happen next.
Justice Breyer penned the Court’s decision, joined by the Chief and Justices Ginsburg, Sotomayor, and Kagan. In Breyer’s view, there were two antecedent issues that should be reviewed by the Fourth Circuit before the Supreme Court could answer the question presented. First, the Circuit Court should determine whether the FCC’s Order set forth a legislative or interpretative rule, as the District Court may not be required to adhere to the rule if it is interpretative. Second, even if the Order were considered legislative, the District Court need not defer if the Hobbs Act did not provide PDR a “prior” and “adequate” opportunity for review as required by the Administrative Procedure Act. So, the case now goes back to the Fourth Circuit to answer these questions.
The four remaining Justices would have gone further to hold that the District Court was not bound to apply the FCC’s interpretation in an enforcement proceeding even if the Order was intended to be “legislative” and even if PDR is deemed to have had an adequate opportunity to review. Justice Kavanaugh led the main concurrence in the judgment, joined by Thomas, Alito and Gorsuch. As they explained, there is a presumption in favor of review of agency decisions. Where Congress has truly intended an agency’s interpretation to be unreviewable except through a facial pre-enforcement challenge, it has said so explicitly, as in the Clean Air Act and it has done so rarely and only in instances where the regulated industry was likely to receive notice. It is unrealistic that in this context most individuals and entities affected by the rule would know of it in time to bring such a pre-enforcement challenge, so it would be quite unfair not to permit them to challenge it in the context of a later enforcement proceeding. Indeed, it would raise due process concerns. Thus, they concluded, while the Hobbs Act does provide exclusive jurisdiction to assert facial pre-enforcement challenges to the validity of an FCC Order, it does not bar a district court from declining to apply the FCC’s order in an individual enforcement proceeding. A district court can look at the order and apply appropriate deference (Skidmore or Chevron), but it cannot abdicate its role to interpret the TCPA. The concurring Justices urged that their approach was open to the Circuit Court on remand and should be used in other similar contexts.
Justice Thomas, joined by Gorsuch, wrote a separate concurrence in the judgment. In his view, the Fourth Circuit’s decision rested on a “mistaken—and possibly unconstitutional—understanding of the relationship between federal statutes and the agency orders interpreting them.” If the Hobbs Act in fact barred the district court from even interpreting the TCPA (because it had to accept the FCC’s interpretation—no matter how incorrect), this would violate the Article III’s mandate that only the Judiciary may “say what the law is.” Moreover, to the extent the Hobbs Act purports to require courts to give the power of law to agency pronouncements, it violates Article 1 of the Constitution, which provides that power to the legislature alone. For Justices Thomas and Gorsuch, this case demonstrates the error of the assumption that Congress can constitutionally require federal courts to treat agency orders as controlling law, and as much the same logic underlies Chevron deference, “this case proves the error of that assumption and emphasis the need to reconsider it.” This is not the first time we have seen members of the Court argue against agency deference and it likely will not be the last, not even this week.
The Justices—all nine of them—were much more deferential to precedent in NC Dep’t of Revenue v. Kimberley Rice Kaestner 1992 Family Trust (No. 18-457), which concerned whether the “Due Process Clause prohibits States from taxing trusts based only on the in-state residency of trust beneficiaries.” To cut to the chase, the answer is yes. Or more exactly: yes, yes, yes, yes. Everyone said yes: the state trial court, the state intermediate appellate court, the state supreme court, and finally the U.S. Supreme Court, which affirmed in a short and unanimous opinion written by Justice Sotomayor. Justice Alito said yes, too, writing a concurrence (joined by the Chief and Justice Gorsuch) saying that the main opinion should have been even shorter.
Despite its kumbaya-inducing properties, the case is important to T&E lawyers—and to taxing authorities in some states. Kimberley Rice Kaestner’s dad, a New Yorker, set up a trust for his kids, governed by New York law and overseen by a New York trustee. The trust gave that trustee “absolute discretion” to distribute assets—or to not distribute assets—to the beneficiaries. No beneficiary lived in North Carolina when it was set up, but a few years later Kaestner moved there with her own kids. While she was there, the trustee divvied up the original trust into three sub-trusts. One was just for Kaestner and her kids. It was governed by the original trust agreement, meaning that the out-of-state trustee still didn’t have to give any of the beneficiaries anything. And in the relevant time period, he didn’t. The trust was also administered out of state. North Carolina nevertheless sent a $1.3 million tax bill to the trustee (now in Connecticut, where top T&E lawyers naturally flock). The trust then challenged the constitutionality of the tax, and prevailed at every level.
At the top level, the Supreme Court held that the presence of in-state beneficiaries alone does not empower a State to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand the income and are uncertain to receive it. Taxes, like the exercise of judicial power, are subject to the limits of the Due Process Clause. Out-of-staters can’t be taxed unless they have “minimum contacts” with the jurisdiction,” enough to derive “benefits and protection” from associating with the state. That isn’t happening, the Court held, when an out-of-state settlor establishes a trust, overseen by an out-of-state trustee and administered out-of-state, and where the in-state beneficiary has no power to demand assets from the trust and where the trustee does not disburse assets to the in-state beneficiary.
Narrow enough for you? The Court hopes so. In hewing closely to the odd facts, it set out a little primer on the constitutional history of state taxation of trusts—and then went no further. It’s ok to tax money distributed from a trust to an in-state resident. It’s ok to tax a trust if the trustee is in the state. It’s ok to tax a trust if it’s administered in the state. It’s ok to tax a trust if the settlor was a resident who retained power to dispose of the property. But if an in-state beneficiary had absolutely no “degree of possession, control, or enjoyment of the trust property or a right to receive that property,” the trust can’t be taxed. That begs the question of what degree of possession, control, etc. is enough, but the Court declined to venture further. And if that wasn’t narrow enough, Justice Alito (joined by the Chief and Justice Gorsuch) penned a brief concurrence just “to make clear that the opinion of the Court merely applies our existing precedent and that its decision not to answer questions not presented by the facts of this case does not open for reconsideration any points resolved by our prior decisions.”
Finally, in McDonough v. Smith (18-485), an unusual coalition (seems like we’ve been saying that a lot lately…) joined to hold that the statute of limitations for a fabricated-evidence claim under 42 U.S.C. § 1983 begins to run when the criminal proceedings against that were brought against the plaintiff have terminated in his favor.
McDonough was indicted and withstood two trials for allegedly orchestrating voter fraud involving absentee ballots. He was ultimately acquitted at the end of the second trial. According to McDonough, Smith (who was in charge of the voter fraud investigation) falsified affidavits, coached witnesses to lie and engaged in suspect DNA testing in order to link McDonough to the relevant voter envelopes. McDonough, however, did not bring suit against Smith until just under three years after his acquittal following the second trial. The District Court dismissed McDonough’s claim, concluding that it was untimely because the claim accrued when the false evidence was first used against McDonough to impair his liberty—which occurred when he was arrested and stood for his first trial, well over three years before he brought suit. The Second Circuit agreed.
The Supreme Court, however, reversed. Led by Justice Sotomayor, who was joined by the Chief, and Justices Ginsburg, Breyer, Alito and Kavanaugh, the Court concluded that the limitations period under Section 1983 did not begin to run until McDonough’s acquittal. While the limitations period under § 1983 is a question of federal law, the Court looked to the analogous state tort law for guidance in determining the proper starting point. Malicious prosecution was the tort most similar to the fabricated evidence claim at issue here. And the policy reasons that require a plaintiff to obtain a positive outcome in the underlying litigation before pursuing a malicious prosecution claim applied with equal force to the fabricated-evidence claim here. Moreover, Justice Sotomayor noted, it would cause tremendous difficulties if a criminal defendant were required to bring civil claims against the individual prosecuting him while his prosecution was ongoing.
Justice Thomas, joined by Justices Kagan and Gorsuch, dissented. In their view, the Court should have DIG’d the case (dismissed the writ as improvidently granted). They felt that McDonough failed to adequately pinpoint the constitutional right that was violated via the use of the fabricated evidence. Moreover, “because the constitutional basis for McDonough’s claim is unclear, we are unable to confirm that he has a constitutional claim at all.” Without a better understanding of the basis of the constitutional right abridged, and the elements of proof required, the Court could not properly identify the analogous tort law to determine the proper trigger point and should have passed on the issue altogether.
That does it for opinions for today. We’ve still got six from this morning and last week in the hopper, plus the next batch coming Wednesday, so we’ll be back at you before you know it.
Tadhg and Dave