A lot to report, so I’ll get to it!
We got our first opinion! On Tuesday the Court decided Acheson Hotels v. Laufer. This was the case about the self-appointed Americans with Disabilities Act (ADA) “tester,” who scanned hotel websites to see if they made accessibility disclosures. Laufer sued hundreds of hotels for lacking the disclosures on the theory that they had discriminated against her in violation of the ADA. There’s just one problem: there’s no evidence she had any intention of staying at any of the hotels. The question before the Court was whether a person has standing to sue for discrimination if she lacks any intention of visiting the place of accommodation. In other words, does lack of disclosure alone constitute discrimination?
As Justice Barrett wrote, “Laufer ha[d] singlehandedly generated a circuit split” on the issue, causing the Court to grant review. But after it did, the circumstances changed. First, Laufer’s lawyer was suspended for fraudulent behavior, including funneling money to the father of Laufer’s grandchild for work he never performed. After that, Laufer dismissed all of her pending suits, including her suit against Acheson. Second, Acheson remedied its website and the company changed hands, meaning, as Justice Kagan put it at oral argument, the case is now “dead, dead, dead.”
However, in order to determine that a case is moot, courts must usually first determine whether there was jurisdiction in the first place, meaning technically the case was still live and the Court could answer the standing question. Acheson Hotels urged the Court to do so, noting that if it didn’t, it would encourage gamesmanship, whereby plaintiffs abandon their claims once the Court accepts review to avoid adverse precedent. You can read my summary of the oral argument, here.
This week, the Court deemed the case moot and vacated the lower court’s opinion. Justice Barrett wrote the majority opinion, joined by Chief Justice Roberts and Justices Alito, Sotomayor, Gorsuch and Kavanaugh, warning litigants that it may decide similar cases differently in the future should the parties engage in any such gamesmanship. Justice Thomas and Justice Jackson filed concurring opinions, with the former arguing that the Court should have addressed standing because it’s an antecedent to any finding of mootness. Moreover, Justice Thomas doesn’t think the ADA even creates a mere right to information (as opposed to a right to be free from discrimination) in the first place. He summed up Laufer’s lack of injury in this case by quoting Justice Scalia, who once wrote in an opinion, “What’s it to you?” In Justice Thomas’s view, standing “ensures that courts decide disputes over violations of a person’s rights, not a defendant’s compliance with the law in the abstract.”
Justice Jackson, for her part, wrote to say that even if the case was moot, the Court should have explained its decision to automatically vacate the lower court’s opinion. It appears that she would’ve left the opinion below, which was favorable to Laufer, intact.
Looking forward to more opinions as the term rolls on!
Moving along… what happened this week at oral argument?
On Monday the Court heard Harrington v. Purdue Pharma, a dispute that relates to the rise of opioid use in America. You can read Elizabeth’s preview of the case here. In short, the court of appeals greenlit a Chapter 11 bankruptcy reorganization plan for Purdue which released claims against third parties, including the Sackler family, who took billions from Purdue before its bankruptcy and did not file for bankruptcy protection themselves. The United States opposes the settlement because it wants to pursue the Sacklers, but the victims and creditors largely support the settlement. The DOJ argued that the Bankruptcy Code doesn’t allow courts to release third parties from liability without consent from all of the claimants.
Separation of Powers afficionados alert!!! The Major Questions Doctrine came up! Otherwise known as the “Congress doesn’t hide elephants in mouseholes” doctrine, the idea is that where an agency is addressing a question of major political or economic importance, it must point to clear congressional authorization for the power to do so because, well, “Congress doesn’t hide elephants in mouseholes.” MQD is having a moment. It’s been brought up in cases like Biden v. Nebraska (challenging Biden’s student loan forgiveness program), National Federation of Independent Business v. Department of Labor (challenging OSHA’s vaccine mandate), and West Virginia v. EPA (challenging EPA’s attempt to restructure the energy sector).
Despite being pressed repeatedly on the matter, the attorney for DOJ sort of declined to rely on it, instead saying the case could be resolved based on normal canons of statutory interpretation.
The justices seemed troubled that someone (here, DOJ) could blow up a deal that most victims and 50 state attorneys general were satisfied with and that bankruptcy courts have been imposing for decades. And in fact, many victims had insisted on the release out of fear that without it, some parties might jump the line, sue the Sacklers, take all of their money and leave all the other claimants with nothing. No one “wants retribution against the Sacklers” more than the victims, said the attorney for the creditors. “They have no love lost” for the family; but without the release, they feared they’d get nothing.
The attorney for the federal government resisted this argument, saying the victims could actually extract more from the Sacklers if they’d just apply more pressure (despite settlement negotiations having dragged on for years). This led to an extended debate about what scenario would be better for the victims rather than what the Bankruptcy Code allows. Most justices seemed reluctant to axe the widely agreed upon deal on the federal government’s theory the claimants might actually be better off without the release.
Now that I have included the obligatory nod to the MQD (you’re welcome, Elizabeth), I feel liberated to move on to Moore v. United States. Moore involves whether Congress can force shareholders of certain corporations to pay taxes on corporate profits even if they’ve never received a penny of those profits. More specifically, it asks whether the Sixteenth Amendment (authorizing federal income taxes) requires realization of income.
In 2005, Charles and Kathleen Moore invested $40,000 into their friend’s new business KisanKraft, which provides tools to small farmers in India to help them better their lives. In return, they received a 13% share. The company was immediately successful, but never distributed any profits. Instead, it reinvested those profits so the company could continue growing. As a result, the company has grown to operate across India, but the Moores haven’t received a penny. Nor do they expect to; they invested largely for charitable purposes. And they couldn’t force the company to distribute its earning even if they wanted to, since they only hold 13%. Yet due to the “Mandatory Repatriation Tax,” they were forced to pay $15,000 in income taxes based on the corporation’s profits.
It’s all a result of the Tax Cuts and Jobs Act of 2017, which alleviated US corporations that own large stakes in foreign corporations from having to pay taxes on income from those foreign corporations. As part of the Act, Congress imposed a one-time Mandatory Repatriation Tax on individual (rather than corporate) shareholders who own more than 10% of certain foreign corporations. The tax makes the foreign corporation’s accumulated earnings (going all the way back to 1986!) taxable income for the shareholder in 2017. For the Moores, that meant an addition $15,000 in taxes in 2017.
The Moores argue the MRT is unconstitutional because it’s not a tax on income under the Sixteenth Amendment. (This is important because all direct taxes apart from income taxes must be apportioned among the states. Under the Sixteenth Amendment, income taxes need not be apportioned. The MRT is not apportioned, so in order for it to be valid, it must qualify as an income tax.)
In order to be considered “income,” the Moores say, the gain must be realized. Here, Congress is realizing unrealized income, so the MRT does not qualify as an income tax, and is instead a direct tax that must be apportioned among the states.
At oral argument, both sides made essentially the same argument: “our interpretation comports with text and history and the other side’s argument will have disastrous consequences.”
For the Moores, Andrew Grossman argued that the Sixteenth Amendment says that income must be “derived,” and “derived” clearly means “realized.” Moreover, an analysis of use of the word “income” at the time the Sixteenth Amendment was adopted reveals that it was used to mean gains that were realized, not hypothetical or speculative income. If the Court does not rule that realization is required, Grossman said, it will open the floodgates to all sorts of taxes, including wealth taxes or taxes on appreciation in property values.
Solicitor General Prelogar, on the other hand, argued that the text of the Sixteenth Amendment doesn’t use the term “realized,” and many taxes nowadays don’t require it. The Moores’ argument, she says, would therefore imperil a vast amount of taxes, including taxes on partnerships, S-corps, certain insurance gains, and others. Grossman’s response was that those taxes can be distinguished as requiring “constructive realization” and are a far cry from the total lack of realization here.
While Prelogar’s first argument is that realization isn’t even required, she also argued that if it were, it’s satisfied here, since the corporation realized the income. That is, of course, wordplay. The question is whether realization is required as to the taxpayer. Congress can’t just assign realization to third parties willy-nilly.
Some justices suggested that if Congress did assign realization arbitrarily, that’s actually a due process problem. But I happen to agree with the Moores that it’s a Sixteenth Amendment question as well. And practically speaking, as Justice Alito observed, relegating the claim to a due process analysis would mean the Court would use the lowest standard of judicial scrutiny, which is almost nothing at all. Due process would almost certainly mean a loss for the plaintiffs and a win for the government.
Reading the tea leaves, it doesn’t look good for the Moores. Justices Alito and Gorsuch were the most openly skeptical of the government, with Justice Gorsuch at one point remarking that he was struggling to find a limit on what constitutes an income tax and couldn’t find one at all. The government may have done enough fear mongering about the case’s implications for other taxes that the doubtful justices will uphold the MRT but suggest plaintiffs could bring due process cases in the future. Some other thoughts on oral argument in bite-size tweets, here, here, and here.
As a disclaimer, the Cato Institute wrote an amicus brief in the case, available here. And I recently debated Yale Professor Akhil Amar on the National Constitution Center podcast, We the People. Professor Amar had written a brief arguing that none of these arguments matter, because the MRT is actually an indirect tax that need not be apportioned. That wasn’t a big part of the actual case, because everyone pretty much assumed it was a direct tax, but as you can hear from the podcast, Professor Amar feels very strongly about his theory. He also strongly believes that the Founders were not worried about heavy taxation so long as they had representation, that the apportionment requirement was only about slavery, and that anyone who disagrees is engaged in Lochnerism, which he then equates with Plessy v. Ferguson, for which he means to say they are just making up the law (and also possibly racist?).
I tried to channel my inner Sandra Day O’Connor and maintain mental strength and civility throughout, which is no small feat when someone invokes “the full authority of [their] position as Sterling Professor of Law at Yale Law School” to say you are getting it all wrong.
Am I convinced that the Founders had no fear of taxation so long as they had representation? No, I think they very deliberately baked in limits on the taxing power. Am I convinced apportionment was solely about slavery? No, I think it was about making sure that direct taxes were harder to impose to protect economic freedom and liberty more broadly. And do I subscribe to the idea that Lochner was wrong and anybody who disagrees is insane? Absolutely not. I’m with the many very respected scholars who believe that Lochner’s reasoning was correct. Lastly, do I think the only remedy for something like the MRT or a future wealth tax is to “vote the bastards out?” No. I think the Constitution was very deliberately drafted with a distrust of government officials in mind and with the aim of strongly protecting liberty (rather than democracy). But, you be the judge.
Last but not least, on Wednesday the Court considered whether an employer commits sex discrimination any time it forces an employee into a lateral transfer based on sex, even if the position is no lower status or lower paying than the original job. In Muldrow v. St. Louis, the justices seemed hung up on the idea that mere differential treatment is enough to cause an injury, particularly given the possibility that such a ruling would empower employees to march into court even where differential treatment caused minimal or no injury at all.
Interestingly, the Court has much more readily accepted unequal treatment as an injury unto itself in the context of equal protection. For example, people can bring equal protection claims against contracting statutes even if they wouldn’t have won the bid anyway because the injury is the unequal treatment itself. And while Justice Kagan pointed out that some unequal treatment may work to the benefit of women, like pay raises for women only, Muldrow’s lawyer correctly point out that even better treatment often creates stigmatic harm. As an advocate at the ACLU, for example, future-Justice Ruth Bader Ginsburg challenged a law that made it more difficult for widowers to secure social security benefits than women. At oral argument, she noted that gender discrimination almost always works against both sexes, and in fact, anti-female discrimination was historically dressed up as legislation favoring women. This seemed to also be the view of Justice Jackson, who noted that the text of the statute doesn’t require “injury”; rather it prohibits discrimination, which the Court, in Bostock, defined as unequal treatment.
Justice Alito made this insightful observation, which might explain what’s going on in the back of the justices minds:
He later repeated that making any distinction on the basis of a protected class is “morally wrong, but the question is whether it’s the stuff of a district court case.” Muldrow, he said, was insisting there shouldn’t even be a de minimis exception, meaning anyone can come into court for the most innocuous of claims. What would happen if a supervisor always asked one person how their day was and not another similarly situated person? Justice Kavanaugh supplied a response: that’s not a “term, privilege, or condition of employment” covered by the Act. Later, when questioning the attorney for the U.S., Alito seemed to agree: “Would you agree that not everything that happens in the workplace falls within Title VII?”
Justice Alito also asked asked about differential treatment that’s favorable. What if a person was switched from a shift they don’t like to a shift they do like? Justice Sotomayor likewise alluded to cases where there’s a de minimis injury; a person is transferred to an office with different drapery. And some of the hardest questions of the argument were about differential treatment that’s rampant and widely accepted in society: different bathrooms for different genders, or different grooming or dress codes? (This is difficult question, but DOJ supplied the best answer: there is an exception for bona fide business reasons when an employer treats people differently based on sex, and indeed, most of these situations arise in the context of sex, not race. The point is, society simply recognizes that there are legitimate reasons to treat men and women differently in some, though narrow circumstances).
In addition to Justice Kavanaugh’s suggestion that not all of these will be terms, privileges, or conditions of employment, Justice Jackson helpfully added that frivolous lawsuits might be weeded out by the damages component, since discrimination with little injury would produce no damages. That seems right to me, as well as the observation that if the differential treatment is so de minimis, why is someone doing it on the basis of race or sex? Doesn’t the fact of discrimination itself raise the spectre of harm?
As Justice Gorsuch brought up, the purpose of Civil Rights was to root out discrimination, all of it, at least with regards to certain actions in the workplace. Justice Kavanaugh said the Court doesn’t need to define in this case what constitutes a “term, privilege, or condition of employment,” it need only limit actionable discrimination to that context.
Justice Jackson tried to find middle ground: forget about deciding whether injury is always required. We only need decide that transfer on the basis of a protected class always creates an injury.
Another interesting aspect of the cases was Justices Thomas and Barrett’s observation that the government’s argument jeopardized affirmative action programs, since in the government’s view, differential treatment always works an injury. Justice Thomas asked about the viability of programs where employers are trying to diversify the workforce, or say, put more police officers of one race in a certain precinct? The attorney for the United States said there’s plenty of room to diversity without resorting to differential treatment. Everyone seems to have swapped positions here! Isn’t it usually the government arguing the permissiveness of explicitly race-based affirmative action programs, and Justice Thomas leading the charge on the other side? Perhaps he was playing devil’s advocate.
The Court is going on winter break, but Elizabeth and I will have plenty of holiday content in the meanwhile!
Favorite thing of the week:
You’re welcome, Justice Gorsuch! Some AI renderings…