Supreme Court Update: North Carolina Board of Dental Examiners v. Federal Trade Commission (13-534), Kansas v. Nebraska (126, Orig.) and Yates v. United States (13-7451)

February 26, 2015 Supreme Court Update

Greetings, Court fans!

The robed returned to action with this week with decisions in three cases, North Carolina Board of Dental Examiners v. Federal Trade Commission (13-534), on whether state licensing boards enjoy immunity from antitrust laws when they're comprised of market participants; Kansas v. Nebraska (126, Orig.), on the relative rights of Kansas and Nebraska to the waters of the Republican River Basin; and Yates v. United States (13-7451), on how many times three Justices of the United States Supreme Court can make fish puns.

Actually, Yates concerned the interpretation of a portion of the Sarbanes-Oxley Act that that makes it a crime to destroy "any record, document or tangible object" in an attempt to stymie a federal investigation. A fish and game officer caught Yates, a commercial fisherman, with seventy-two undersized red grouper during an offshore inspection. The officer ordered Yates to keep these undersized fish in a crate until he returned to shore. But when Yates docked a few days later, the seventy-two fish in the crate had miraculously grown. Unfortunately for Yates, his ship had a few rats, too, and his crew revealed that Yates had pulled the ol' switcher-seventy-two, throwing the undersized fish overboard and replacing them with seventy-two larger fish from the hold. Yates was later indicted for violating 18 U.S.C. § 1519, which provides that anyone who "knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document or tangible object" to impede a federal investigation can be punished by up to twenty years in prison. Yates was convicted and sentenced to thirty days in jail, and the Eleventh Circuit affirmed his conviction, holding that Section 1519 applies because fish are indeed tangible objects.

A majority of the Court disagreed. Justice Ginsburg, writing for a plurality including the Chief and Justices Breyer and Sotomayor, admitted that, in ordinary speech, someone might say a fish is a "tangible object." But a veritable bouillabaisse of small-fry arguments convinced the plurality that Yates's narrow reading of the statute was better than the government's broad one. First, Section 1519 was drafted in response to corporate scandals (and related destruction of incriminating records) at Enron and Worldcom. This context, the Section's heading ("Destruction, alteration or falsification of records in Federal investigations and bankruptcy"), and its placement near other statutes dealing with obstructing specific (narrow) types of investigations suggested that Section 1519 was not meant to cover the destruction of all physical evidence but only to snag the proverbial paper shredder. The plurality also thought that the government's broad reading would make another obstruction statute, 18 U.S.C. § 1512(c)(1), superfluous. And noscitur a sociis and eiusdem generis, two related principles of statutory construction basically requiring that words grouped together in a statute be interpreted consistently with one another, also supported a narrow reading, since fish are not akin to a "record" or "document" and, try as you may, you just can't "falsify" them. As a result, the plurality concluded that "tangible object" under Section 1519 has a narrow meaning: An object "used to record or preserve information."

Justice Alito concurred in the judgment, but wrote separately to . . . well, you'd really have to ask him. (The dissent called Alito's opinion "a shorter, vaguer version of the plurality's.") Apparently, although Alito agreed that the Government's interpretation of Section 1519 cast too wide a net, he was uncomfortable giving its words a more precise definition, as the plurality did. He did, however, go out on a limb to announce that Section 1519 likely does not apply to the destruction of colonial farmhouses, salamanders, or sand dunes. Or fish, of course.

Justice Kagan, joined by Scalia, Kennedy, and Thomas, found the plurality's analysis . . . fishy. In her view, this should have been an easy win for the Government given the plain meaning of the statute's text. Citing Dr. Seuss (for the first time in Supreme Court history), Justice Kagan observed that "a fish is, of course, a discrete thing that possesses physical form. So the ordinary meaning of the term ‘tangible object' in §1519, as no one here disputes, covers fish (including too-small red grouper)." Since the statute's plain language favored a broad reading, the dissenters found no reason to consider the principles of statutory construction relied on by the plurality and Justice Alito, which should come into play only when the statute's own language is ambiguous. Nevertheless, the dissenters shot down the plurality's arguments like so many fish in a barrel, finding plenty of evidence that Congress intended Section 1519 to apply broadly to the destruction of evidence. What really motivated the majority, Justice Kagan thought, was Section 1519's potential twenty-year penalty for something as innocuous as sending an undersized fish to Davy Jones's Locker. But that problem of overcriminalization (a concern voiced by a broad spectrum of Justices at oral argument) was for Congress, not the Court, to solve.

Yates is an interesting case in its own right (even without the puns), but many readers must be even more interested to learn what, if anything, it reveals about the justices likely votes in another case involving the interpretation of a statute whose plain meaning seems at odds with its purpose and context—King v. Burwell (14-114). That's the case, set for argument next week, which asks whether Obamacare tax-credit subsidies may be extended to coverage purchased through insurance exchanges established by the Department of Health and Human Services, given that the text of the statutory provision at issue on its face appears to limit subsidies to insurance exchanges "established by the State." Will Justice Kagan adopt a hypertextualist position and rule that exchanges established by DHS are necessarily not exchanges "established by the State"? Will Roberts and Alito look instead to context, purpose, and legislative history and conclude that Congress could not have intended to sabotage its own law with what looks to many like a drafting error? Or will they all regard King as a whole different kettle of fish?

Though she may have had more fun with her Yates dissent, Justice Kagan got to pen a winner in Kansas v. Nebraska & Colorado (126, Orig.), a case dealing on the surface with the respective rights of those three states to the waters of the Republican River Basin, but exposing a deeper rift between the justices on the extent of the Court's equitable powers in cases of original jurisdiction.

While Kansas and Nebraska's football rivalry cooled when the Huskers moved to the Big 10 in 2011, the bad blood has continued to boil in the nation's highest court. The dispute is over the States' relative rights under the Republican River Compact, an agreement between Kansas, Nebraska, and Colorado to apportion the "virgin water originating in" the Republican River Basin. Back in 1998, Kansas filed an original action in the Supreme Court alleging that Nebraska had violated the Compact through increased groundwater pumping. The parties eventually entered into a Settlement Agreement, which established mechanisms to accurately measure water use and promote compliance with the Compact. One of these mechanisms, the "Accounting Procedures," set out how the parties would measure consumption due to groundwater pumping. The Accounting Procedures did not count "imported water" (water brought into the Basin through human activity) toward a State's consumption. In 2007, Kansas petitioned the Court for monetary and injunctive relief, arguing that Nebraska had deliberately and substantially exceeded its water allocation. Nebraska admitted liability and agreed to pay actual damages for its overuse, but objected to any additional penalty and further argued that the Settlement Agreement's Accounting Procedures should be reformed to give it credit for water it added to the basin. The Court appointed a special master, who ruled that Nebraska knowingly violated the Compact and therefore should disgorge a portion of its gains in addition to paying damages to Kansas, but also ruled in Nebraska's favor on the question of whether the Accounting Procedures should be reformed to account for imported water.

The Court adopted each of the Special Master's recommendations. Writing for herself, Kennedy, and the three other liberal justices (joined in part by the Chief), Justice Kagan began by invoking some 19th Century authority for the proposition that, when the Supreme Court hears cases of original jurisdiction (i.e. cases between States), it "may regulate and mould the process it uses in such a manner as in its judgment will best promote the purposes of justice." This equitable authority is bolstered in cases like this one, Kagan said, because the Court has long recognized its inherent authority to equitably apportion interstate streams and because compacts like the one at issue here have the effect of federal law. With the Court's expansive authority established, the majority proceeded to the parties' exceptions to the Special Master's report. It agreed that Nebraska's breach of the Settlement Agreement warranted the exceptional remedy of disgorgement, both because Nebraska had acted knowingly and compensatory damages alone would not deter Nebraska from engaging in opportunistic breach. (Nebraska's benefit from the breach exceeded Kansas's loss.) Turning to Nebraska's counterclaim, the majority (like the Special Master) agreed that the Accounting Procedures had the effect of charging Nebraska for "imported water" from the Platte River in conflict with the intent of the parties, if not the letter of the Settlement Agreement. Kansas argued that, even if Nebraska had a point, "a deal is a deal is a deal—and this deal did not include" the reformation of the Settlement Agreement devised by the Special Master. Justice Kagan rejected that argument, again invoking the Court's special powers in cases of original jurisdiction.

The dissent, led by Justice Thomas and joined by Scalia, Alito and (in part) the Chief, took issue with the majority's expansive view of the Court's equitable powers. In the dissenters' view, this was, in essence, a contract dispute and, applying ordinary contract principles, there was no basis for the Court to order disgorgement or to reform the Settlement Agreement. The Chief Justice came out somewhere in the middle. He believed that the Court had the power to order disgorgement but not to reform the Settlement Agreement.

Meanwhile, Justice Scalia, while joining the dissent in full, penned a separate concurrence simply to "note that modern Restatements—such as the Restatement (Third) of Restitution and Unjust Enrichment (2010), which both opinions address in their discussions of the disgorgement remedy—are of questionable value and must be used with caution." In Scalia's view, the Restatements' authors have, over time, "abandoned the mission of describing the law, and have chosen instead to set forth their aspirations for what the law ought to be." Take that, Andrew Kull of BU Law!

In the third decision this week, NC Board of Dental Examiners v. FTC (13-534), the Court held (6-3) that a state-created licensing board composed primarily of practicing dentists (i.e. private participants in the market the Board was supposed to regulate) could not invoke the defense of state-action immunity to an antitrust action brought by the FTC.

We'll tell you more about that case, and whatever else the Court hands down, next time.

Kim and Tadhg