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Trump's travel ban, cake bakers and gerrymandering make for a busy Supreme Court session
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Category: Supreme Court, travel ban, same-sex marriage, retail sales, gerrymandering

Trump's travel ban, cake bakers and gerrymandering make for a busy Supreme Court session

05.04.18

As we near the end of the Supreme Court’s term, the Court has a number of momentous cases left to decide, and a quick peek into several of those cases is in order.

While these potential blockbusters do not directly involve financial services institutions, they raise fundamental questions about the relationship between the government and the people in this country and, for that reason, should be of interest to all.

Moreover, the ramifications of these cases could extend to the financial services sector in important ways.

WATCH: Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission

One of the most closely watched cases is Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission, No. 16-111, which presents a question about the meaning of cake.

More to the point, Masterpiece Cakeshop requires the Court to decide whether a state’s non-discrimination statute that would compel a cake maker to bake a cake for a same-sex wedding violates the cake maker’s First Amendment rights. The plaintiff, who is the owner of the Masterpiece Cakeshop near Denver, Colorado, refuses to design custom cakes that conflict with his sincerely held religious beliefs.

This case arose when a same-sex couple sought his cake-making services for their upcoming wedding. The cake maker refused to design the cake, citing his religious beliefs relating to the traditional definition of marriage, prompting the state to inform him that, under Colorado law, if he was going to design cakes for opposite-sex couples, he also must design cakes for same-sex couples.

Justice Kennedy is viewed as the swing vote in this case, which represents something of a shift in the legal battle over so-called gay rights — from questions relating to substantive and equal protection rights under the Fourteenth Amendment toward religious freedom challenges under the First Amendment.

Gill v. Whitford, No. 16-1611, involves a fundamental challenge to the redistricting plan in Wisconsin, which was designed by the state’s Republican-controlled legislature. The challengers contend that the new districts are the result of partisan gerrymandering, or the practice of drawing district lines to favor one party over the other, and are therefore unconstitutional under the First and Fourteenth Amendments.

With respect to the former, the legal theory is that partisan gerrymandering constitutes disfavored treatment for certain groups of voters based on their political views, which are protected by the First Amendment. The Fourteenth Amendment claim challenges the gerrymandering on the theory that it deprives the disfavored groups — i.e., the ones that get strategically squeezed by the line-drawing — of the equal protection of the laws.

Because partisan gerrymandering is a fact of life in many states, this case has the potential, if the justices side with the challengers, to turn the process of districting upside down. 

WATCH: Trump v. Hawaii

The mainstream media’s attention, as far as the Supreme Court is concerned, undoubtedly will be consumed by Trump v. Hawaii, No. 17-965. The primary question there, as readers know, is whether the President’s “travel ban” order, which prohibits entry into the country by foreign nationals from certain countries, either is a permissible act of executive power or is instead a violation the First Amendment’s Establishment Clause. Hotly disputed in this case is whether the President’s comments about the contemplated ban during the 2016 presidential campaign — for example, calling for a “Muslim” ban — should be considered in determining whether the order constitutes impermissible religious discrimination. Justice Kennedy again represents the likely swing vote in this case.

Having addressed perhaps the three biggest non-financial services cases left to be decided by the Court this Term, we now return to a case that was previewed several months ago and was recently argued — Lucia v. SEC, No. 17-130.

As banking and financial services professionals are aware, the SEC has the authority to execute and enforce the federal securities laws, and it generally can proceed with enforcement actions either through a suit in federal court or through in-house administrative proceedings over which administrative law judges, or “ALJs,” preside.

Mr. Lucia, an investment professional who was charged by the SEC in an administrative enforcement proceeding and was hit with a lifetime ban from appearing before the SEC, has challenged the constitutionality of the way the SEC picks its ALJs. His argument is that, under the Constitution, “Officers of the United States,” if not nominated by the President and confirmed by the Senate, must be appointed by the “Heads of Departments.”

Mr. Lucia argues that the SEC’s ALJs, who wield immense power over banking and financial services professionals, are Officers of the United States by virtue of their authority and that the ALJs, therefore, must be appointed by the “Head” of the SEC. But the ALJs are not so appointed; in fact, the ALJs are appointed in a bureaucratic process that results in SEC staff picking from a list of three candidates provided by the Office of Personnel Management.

Mr. Lucia thus argues that any administrative rulings from the ALJs were invalid as a result of the failure to follow the instructions provided in the Constitution. The case has significant implications for how federal administrative agencies operate, as ALJs are in place across a broad spectrum of agencies, including, for example, the Occupational Safety and Health Administration and — most pertinent to readers of this publication — the Consumer Financial Protection Bureau.

At oral argument last week, the justices appeared divided.

One of the arguments on which the challenger, Mr. Lucia, relies is that the Appointments Clause provides political accountability. That is, he says, the Constitution envisions that the Head of the SEC ultimately should be held accountable for the decisions and actions of the ALJs. Indeed, Chief Justice Roberts speculated that, should an ALJ go rogue, the SEC would say “Don’t blame us. We didn’t do it.” And the President would say “Don’t blame me. I didn’t appoint them.”  

But Justice Kagan pointed out that subjecting the process to the more politically charged appointments method outlined in the Constitution may have the detrimental effect of putting political pressure on the ALJs to conduct proceedings in ways that would be palatable to the political appointees above them. The current process, she hinted, allows the ALJs a measure of insulation from political pressures. In any event, this case is about the meaning of the Appointments Clause, and the various policy views relating to the wisdom of political accountability are secondary.

A tax case — South Dakota v. Wayfair, Inc., No. 17-494 — also will be of interest to the financial community.

Here, the question is whether a precedent from 1992, which said that the Constitution’s Commerce Clause prohibits a state from requiring out-of-state retailers that do not have a physical presence in the state to collect sales tax on sales to its residents, should be overruled.

Put another way, the question is whether South Dakota can force Wayfair, Inc., an online retailer of home furniture and décor, to collect sales taxes on sales to South Dakotans. Clearly, the case has implications beyond South Dakota where a win for South Dakota surely would result in other states taking steps to require all out-of-state retailers to collect and remit to the state tax.

The economic impact of such a change in the law cannot be identified with precision, with the retailers suggesting to the Court that under the status quo the lost revenue for the states, collectively, is as low as $8 billion, while South Dakota contends that the states, collectively, are missing out on $34 billion in revenue. Regardless, the way retailers do business, and especially tax planning, across the country will change markedly if the Court sides with South Dakota and overrules its 1992 precedent. (Full disclosure: Waller attorneys filed a Brief of Amicus Curiae in support of respondents in South Dakota v. Wayfair which is available here.)

Decisions in all cases are expected by the end of June.

Charles W. Prueter is a trial and appellate lawyer at Waller Lansden Dortch & Davis, LLP, in Birmingham. He can be reached by email at charles.prueter@wallerlaw.com. Comments and questions are welcome.



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