Supreme Court Update: Trinity Lutheran Church of Columbia v. Comer (15-577), California Public Employees' Retirement System v. ANZ Securities (16-373), and Davila v. Davis (16-6219)

July 3, 2017 Supreme Court Update

Greetings, Court Fans!

This is the way October Term 2016 ends—not with a whimper, but a bang. After eight relatively sleepy months, the last day of the term brought enough excitement to warrant a T.S. Elliot misquote. To be sure, much of the bang came through end-of-term orders and cert grants for OT17, but the final decisions of the term packed something of a punch of their own. In this last Update for OT16, we'll weigh in on Trinity Lutheran Church of Columbia v. Comer (No. 15-577), a significant Free Exercise Clause case; California Public Employees' Retirement System v. ANZ Securities (No. 16-373), a potential sleeper on the subject of equitable tolling and statutes of repose; and Davila v. Davis (No. 16-6219), a habeas case drawing a line on the number of layers of attorney ineffectiveness that can excuse a procedural default.

In a relatively low-key term, Trinity Lutheran Church of Columbia v. Comer (No. 15-577) certainly qualifies as a blockbuster. But just how significant the Court's decision was depends on which of the five opinions accompanying the decision resonates with you. According to the majority, the decision striking down a Missouri policy that prohibited religious organizations from receiving state grants for the purchase of playground surfaces was a simple matter of applying well established precedent to the particular facts of the case. (In fact, four Justices opined that the decision was quite literally limited to religious discrimination in playground surface funding.) But the dissenters saw the decision as nothing less than a wrecking ball aimed at the wall of separation between Church and State.

The Missouri Department of Natural Resources offers state grants to help public and private schools, daycare centers, and other organizations purchase rubber playground surfaces made from recycled tires. When Trinity Lutheran Church applied for such a grant for its preschool and daycare center, it was denied pursuant to a Department policy of categorically disqualifying churches and other religious organizations from receiving grants. That policy, in the Department's view, was compelled by a provision of the Missouri Constitution that provides (in part) that "no money shall ever be taken from the public treasury, directly or indirectly, in aid of any church, sect, or denomination of religion." Trinity Lutheran sued, alleging that the policy violated the Free Exercise Clause of the First Amendment. The District Court dismissed the suit, holding that the Free Exercise Clause does not prohibit the government from withholding an affirmative benefit on account of religion. The Eighth Circuit affirmed. While the Department likely could provide a grant to Trinity Lutheran without violating the Establishment Clause, that did not mean that the Free Exercise Clause compelled it to do so in potential violation of the state constitution.

The Court granted cert way back in January 2016, in time for argument at the end of OT15. But after Justice Scalia died, the case languished uncalendared until after Justice Gorsuch's nomination was announced, when it was set for argument in April. In the meantime, electoral politics threatened to scuttle the whole dispute. The State's new Attorney General campaigned in part on a promise not to defend the policy (though he recused himself after the election when it emerged that he'd done work for Trinity Lutheran in private practice). Then, in April 2017, Missouri's new Governor, Erick Greitens, announced that he had directed the Department of Natural Resources to begin allowing religious organizations to compete for Department grants on equal terms. In light of that announcement, the Court asked the parties to brief whether the case was moot. Ultimately, everyone agreed that the case was not moot because there was a reasonable possibility that the challenged practice could recur in the future. The case therefore proceeded to argument on the last day of the term, with the State's former solicitor general arguing for respondents after the entire current Attorney General's Office recused.

The conspicuous delays in setting Trinity Lutheran for argument certainly suggested that the Court was hoping to avoid a 4-4 summary affirmance. But as it turned out, the vote was much more lopsided, with everyone but Ginsburg and Sotomayor agreeing that the former policy violated the Free Exercise Clause. Writing for the Court, the Chief Justice presented the case as a simple matter of applying existing precedent. The Court "has repeatedly confirmed that denying a generally available benefit solely on account of religious identity imposes a penalty on the free exercise of religion that can be justified only by a state interest of the highest order." And the challenged policy expressly discriminates against otherwise eligible applicants by disqualifying them from receiving a public benefit on the basis of their religious character. Accordingly, the policy imposes a penalty on the free exercise of religion triggering strict scrutiny. "This conclusion," the Chief insisted, "is unremarkable in light of our prior decisions." The Chief distinguished Locke v. Davey (2004), where the Court upheld a Washington state policy of prohibiting public scholarship funds from being used to pursue devotional degrees. In Locke, the petitioner "was not denied a scholarship because of who he was; he was denied a scholarship because of what he proposed to do. . . . Here, there is no question that Trinity Lutheran was denied a grant simply because of what it is—a church." Trinity Lutheran did not propose to use the funds for a religious purpose, only to resurface a playground for a daycare that catered to children of all or no faiths. (Here, the Chief dropped an interesting footnote, joined only by Justices Kennedy, Breyer and Kagan, stating that "[t]his case involves express discrimination based on religious identity with respect to playground resurfacing. We do not address religious uses of funding or other forms of discrimination.") Once subjected to strict scrutiny, the policy could not survive. The only interest the Department advanced was its interest in preserving the separation between church and State, but the Court had already held that the Free Exercise Clause limits that interest. Because everyone agreed that the State could provide playground-surfacing grants to Trinity Lutheran without offending the Establishment Clause, its interest in "skating as far as possible from religious establishment concerns" was insufficient to justify the violation of Trinity Lutheran's Free Exercise Clause rights.

While six Justices (all but Sotomayor and Ginsburg) concurred in the judgment, the Court's decision engendered several separate opinions. Justice Thomas (joined by Gorsuch) wrote separately to criticize the Court's holding in Locke, but approved of the majority's narrow construction of the precedent. He did not, however, approve of the majority's plurality's narrow treatment of its own holding as applying only to playground resurfacing, and so withheld his join from footnote 3. Gorsuch (joined by Thomas) similarly wrote to explain two "modest qualifications" to his join. He doubted that the line the majority drew between religious status and religious use will remain stable. "Does a religious man say grace before dinner? Or does a man begin his meal in a religious manner? Is it a religious group that built the playground? Or did a group build the playground so it might be used to advance a religious mission?" In Gorsuch's view, the Free Exercise Clause does not care about the distinction anyway. It protects the free exercise of religion, not just inward religious belief. For this reason, Gorsuch also refrained from joining the narrowing footnote 3. Justice Breyer, meanwhile, wrote separately to emphasize his agreement with the narrowness of the Court's holding. "Here, the State would cut Trinity Lutheran off from participation in a general program designed to secure or to improve the health and safety of children." In this respect, the case was too close to the hypothetical situation where police and fires services could be withheld from churches out of strict adherence to the separation of church and State. But he saw no need to go any further. "I would leave the application of the Free Exercise Clause to other kinds of public benefits for another day."

But even construed narrowly, the Court's decision went much too far for the dissenters. Joined by Ginsburg, Justice Sotomayor insisted that the case isn't just about playgrounds. "This case is about nothing less than the relationship between religious institutions and the civil government—that is, between church and state." In the dissenters' view, the Court had "profoundly change[d] that relationship by holding, for the first time, that the Constitution requires the government to provide public funds directly to a church." Unlike the rest of the Court, Sotomayor and Ginsburg concluded that any public funding received by a church is necessarily funding for its religious mission. "If [the separation of church and State] means anything, it means that the government cannot, or at the very least need not, tax its citizens and turn that money over to houses of worship. The Court today blinds itself to the outcome this history requires and leads us instead to a place where separation of church and state is a constitutional slogan, not a constitutional commitment." Signaling her strong disagreement with the Court's decision, Justice Sotomayor read her dissent from the bench and concluded (without the usual "respectful" qualification) "I dissent."

The Court's decision in California Public Employees' Retirement System v. ANZ Securities, Inc. (No. 373) lacked the fireworks of Trinity Lutheran, but it may have a much greater impact on day-to-day litigation—certainly the litigation of securities class actions, but potentially other cases besides. By a 5-4 vote, the Court held that § 13 of the Securities Act of 1933 contains a statute of repose, which cannot be equitably tolled.

Section 11 of the Securities Act of 1933 provides a right of action for shareholders against issuers of securities for material misstatements or omissions in a registration statement. But § 13 provides two statutory limits for § 11 suits. They "must be brought within one year after the discovery of the untrue statement or the omission" and "[i]n no event shall any such action be brought . . . more than three years after the security was bona fide offered to the public." In this case, purchasers of Lehman Brothers securities brought a class action § 11 lawsuit against ANZ Securities and others alleging material misstatements and omissions in Lehman's 2007 and 2008 offerings. Petitioner CalPERS (California's public pension fund) was a member of the putative class, but opted out of the class and filed a separate suit in 2011, more than three years after the offerings. CalPERS argued that its suit was not barred because § 13's three-year statute of repose had been tolled during the pendency of the class-action filing , pursuant to American Pipe & Constr. Co. v. Utah (1974). (In American Pipe, the Court held that the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class.) But the trial court, and the Second Circuit, disagreed, holding that American Pipe tolling could not be applied to § 13's statute of repose.

The Supreme Court affirmed, 5-4. Writing for the conservative majority, Justice Kennedy began with a primer on the distinction between statutes of repose and statutes of limitations. While statutes of limitations are designed to encourage plaintiffs to pursue diligent prosecution of known claims, statutes of repose "effect a legislative judgment that a defendant should be free from liability after the legislatively determined period of time." "In light of the purpose of a statute of repose," Kennedy observed, "the provision is in general not subject to tolling." Statutes of repose can be tolled only where the legislature evinces an intent that the statute not provide "complete" repose (e.g. where the statute contains an express exception). But any tolling of a statute of repose must be furnished by the legislature itself; due to their nature and purpose, "statutes of repose are not subject to equitable tolling."

After establishing the rule, deciding the case was just a matter of determining whether § 13's three-year bar is a statute of repose, and whether American Pipe tolling is based in equity or some legislative enactment. The majority concluded that the three-year bar in § 13 is a statute of repose because it runs from the defendant's last culpable act (the securities offering), not from the accrual of the plaintiff's claim. And it concluded that American Pipe tolling derives from the judicial power to promote equity, not the power to interpret and enforce statutory provisions. "The final analysis, then, is straightforward." Because § 13's three-year bar is a statute of repose, it is not subject to equitable tolling. And because the American Pipe rule derives from equity, it cannot extend the three-year period. The majority also rejected CalPERS's alternative argument that it had actually satisfied the statute of repose because the timely filing of the original class action effectively "brought" its "action" within the repose period. "[I]t defies ordinary understanding," Justice Kennedy wrote, "to suggest that [CalPERS's] filing—in a separate forum, on a separate date, by a separate named parry—was the same ‘action'" as the previously filed class action. And if it was, then there would have been no need for the American Pipe doctrine in the first place.

Led by Justice Ginsburg, the dissenters decried the majority's formalistic approach to the tolling of statutes of repose. In their view, the point of a statute of repose was to provide defendants with notice of their potential liability within a fixed period of time. That was accomplished in this case. A class complaint was timely filed against ANZ, providing it with notice of its potential liability. And, under American Pipe, the timely class action complaint "commence[d] the action for all members of the class," including members like CalPERS who later opted out. When CalPERS elected to pursue individually the claims already stated in the class complaint, it simply took control of the piece of the timely filed action that had always belonged to it. "CalPERS' statement of the same allegations in an individual complaint could not disturb anyone's repose, for respondents could hardly be at rest once notified of the potential claimants and the precise false or misleading statement alleged to infect the registration statements at issue." The practical consequence of the Court's contrary decision, Justice Ginsburg warned, would be to provide defendants with an incentive to drag-out precertification proceedings and settlement discussions so as to run out the clock on potential opt outs. That, in turn, would provide class members with an incentive to file protective claims, thereby increasing the costs and complexity of litigation, contrary to the very purpose of the class action mechanism.

Finally (for today and for the term!), in Davila v. Davis (No. 16-6219) the Court took on another doctrine that frequently serves to bar litigation: the doctrine of procedural default in federal habeas cases. Generally, a federal habeas petitioner cannot raise a claim that was not pursued in the state courts, though the Court has recognized some exceptions to the procedural-default rule where the omission owes to ineffective assistance of trial counsel. In Davila, however, the Court put a limit on the number of "nesting" ineffective assistance claims that can excuse a procedural default.

Davila involved a veritable matryoshka doll's worth of IAC claims, all tracing back to petitioner Erick Davila's Texas capital murder trial, where the judge issued a spontaneous jury instruction about transferred intent. Davila's trial-level counsel objected and was overruled. However, Davila's appellate counsel failed to raise the issue on appeal. So did his state habeas counsel, who also (naturally) failed to raise the appellate counsel's failure. Fast forward to Davila's federal habeas case. By the time federal habeas counsel tried to bring up the jury instruction—in the form of an ineffective assistance of counsel claim regarding the appellate counsel's failure to raise it—it was too late. The federal courts held that state habeas counsel's silence created a procedural default.

The Court affirmed, 5-4. Writing for the majority, Justice Thomas explained the general rule, per Coleman v. Thompson (1991 that "attorney error committed in the course of state postconviction proceedings—for which the Constitution does not guarantee a right of counsel—cannot supply cause to excuse procedural default that occurs in those proceedings." He noted the Court's two narrowly drawn exceptions. Martinez v. Ryan (2012) accounted for states that require prisoners to raise ineffective assistance of trial counsel claims at the postconviction, rather than appellate, level. And Trevino v. Thaler (2013) applied to situations where a state's "procedural framework" made it extremely unlikely that such claims could be raised at the appellate level. However, Thomas refused to tack Davila's case onto this line. First, the majority fundamentally disagreed that appellate-level error was "just as concerning" as trial-level error. Compiling Supreme Court precedent praising the criminal trial's "pride of place in our criminal justice system," Thomas attributed Martinez's holding to "the unique importance of protecting a defendant's trial rights." Therefore, Martinez's "equitable concerns" were unique to the trial-level context. At the same time, the Court noted that "at least one court"—the trial court—would review a claim of trial court error. And finally, it was a question of resources: "Adopting petitioner's argument could flood the federal courts with defaulted claims of appellate ineffectiveness," generating "high systemic costs with low systemic benefits."

Not so, according to the dissenters. Because the Constitution guarantees effective assistance of counsel at both trial and during an initial appeal, the dissent—led by Breyer—would have extended the reasoning of Martinez and Trevino to Davila. Breyer was particularly perturbed by the suggestion that those making the alleged errors could serve as gatekeepers, pointing out that appellate counsel cannot raise its own ineffectiveness, and the trial court cannot monitor itself for error. In Breyer's view, "effective trial counsel and appellate counsel are inextricably connected elements of a fair trial," and ultimately, the Court's prior exceptions demand that the Court would "treat like cases alike."

And with that, school's out for the summer. Before we go, a special thanks to our colleagues who helped out during the term: Jeff Babbin, Elana Bildner, Jenny Chou, Ben Daniels, Jonathan Freiman, Ivana Greco, David Norman, and Dave Roth. We'll be back when The Nine are. Until then, Happy Fourth and Happy Summer!