Court Finds Corporate Transparency Act Unconstitutional and Unenforceable as to NSBA Members

On March 1, 2024, the U.S. District Court for the Northern District of Alabama ruled that the Corporate Transparency Act (“CTA”) is unconstitutional.[1] The CTA requires many U.S. entities to disclose their individual beneficial owners in a report filed with the U.S. Treasury. The CTA statute was enacted in 2021.[2] Its implementing regulations require many entities formed in 2024 to report beneficial ownership information within 90 days of formation.[3] The CTA requires many entities formed prior to 2024 to report beneficial ownership information by January 1, 2025.[4]

The federal court’s ruling arose in the context of a constitutional challenge by plaintiffs the National Small Business Association (“NSBA”) and one of its individual members, Isaac Winkles. In granting summary judgment for the plaintiffs, the court held that:

  • the Commerce Clause, the Necessary and Proper clause, the taxing power, and the U.S. government’s authority over foreign affairs and national security do not provide sufficient authority for the Corporate Transparency Act (“CTA”), and the CTA is unconstitutional as a result; and
  • the U.S. government is enjoined from enforcing the CTA as to the NSBA and Isaac Winkles.

The court did not issue a nationwide injunction barring the U.S. government from enforcing the law against other entities within the scope of the CTA’s reporting requirements.

On March 11, 2024, the U.S. Government filed a notice of appeal of the court’s ruling.[5]  The same day, the Financial Crimes Enforcement Network (“FinCEN”), which is the U.S. Treasury bureau that administers the CTA, stated that it will continue to implement the CTA while complying with the court’s order.[6]

FinCEN clarified that it is not currently enforcing the CTA against two categories of persons:

  • individual plaintiff Isaac Winkles and reporting companies for which he is a beneficial owner; and
  • the NSBA and its members as of March 1, 2024.

FinCEN stated, “[o]ther than the particular individuals and entities subject to the court’s injunction [. . .] reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.”[7]

[1] https://www.govinfo.gov/content/pkg/USCOURTS-alnd-5_22-cv-01448/pdf/USCOURTS-alnd-5_22-cv-01448-0.pdf.

[2] National Defense Authorization Act for Fiscal Year 2021, Pub. L. 116-283, div. F, title LXIV, § 6403 (adding 31 § U.S.C. 5336), available at: https://www.govinfo.gov/content/pkg/PLAW-116publ283/pdf/PLAW-116publ283.pdf.

[3] 31 C.F.R. § 1010.380.

[4] Id.

[5] https://fincen.gov/sites/default/files/shared/54_Notice_of_Appeal.pdf

[6] https://fincen.gov/news/news-releases/updated-notice-regarding-national-small-business-united-v-yellen-no-522-cv-01448

[7] Id.

Federal Court Strikes Down the Corporate Transparency Act as Unconstitutional

On March 1, 2024, the federal judge presiding over the lone case testing the validity of the Corporate Transparency Act (CTA) struck down the CTA as unconstitutional. As we have explained, through the CTA, Congress imposed mandatory reporting obligations on certain companies operating in the United States, in an effort to enhance corporate transparency and combat financial crime. Specifically, the CTA, which took effect on January 1, 2024, requires a wide range of companies to provide personal information about their beneficial owners and company applicants to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). More than 32.5 million existing entities are expected to be subject to the CTA, and approximately 5 million new entities are expected to join that number each year. By mid-February, approximately a half million reports had been filed under the CTA according to FinCEN.

The CTA’s enforceability is now in doubt. In National Small Business United d/b/a National Small Business Association v. Yellen, the Honorable Liles C. Burke of the United States District Court for the Northern District of Alabama held that the CTA exceeded Congress’s authority to regulate interstate commerce, and that the CTA was not necessary to the proper exercise of Congress’ power to regulate foreign affairs or its taxing power. The Court issued a declaratory judgment—stating that the CTA is unconstitutional—and enjoined the federal government from enforcing the CTA’s reporting requirements against the plaintiffs in that litigation. A nationwide injunction, which would have raised its own enforceability concerns, was not included in the Court’s ruling.

The Court focused on three aspects of the CTA. First, the Court highlighted that the CTA imposes requirements on corporate formation, which is traditionally left to state governments as matters of internal state law. Second, the Court observed that the CTA applies to corporate entities even if the entity conducts purely intrastate commercial activities or no commercial activities at all. Third, the Court concluded that the CTA’s disclosure requirements could not be justified as a data-collection tool for tax officials as that would raise the specter of “unfettered legislative power.”

What the Decision Means for Entities Subject to the CTA

The Court’s decision creates uncertainty on entities’ ongoing obligations under the CTA. Although the Court purported to limit its injunction to the parties in the litigation before it, the lead plaintiff in the suit is the National Small Business Association (NSBA). In its opinion, the Court held that the NSBA had associational standing to sue on behalf of its members. Based on precedent, this means the Court’s injunction likely benefits all of the NSBA’s over 65,000 members. If so, the government is prevented from enforcing the CTA’s reporting requirements against any entity that is a member of the NSBA.

Regardless of membership in the NSBA, however, the Court’s declaratory judgment that the CTA is unconstitutional also raises serious doubts about the government’s ability to enforce the CTA’s reporting requirements. This could amount to a de facto moratorium on CTA enforcement, depending on the government’s view of the decision.

What Happens Next

The government will likely appeal this decision, but the Court’s injunction and declaration will remain in effect unless a stay is granted. To receive a stay, the government will first likely need to file a motion in the district court, which will consider (1) how likely it is that the government will succeed on appeal; (2) whether the government will be irreparably harmed without a stay; (3) whether a stay will injure other parties interested in the litigation; and (4) whether a stay would benefit the public interest. If the district court denies a stay, the government will be able to seek a stay from the Atlanta-based United States Court of Appeals for the Eleventh Circuit.

The government has 60 days to appeal, though it will likely file its appeal sooner given the grant of an injunction and decision’s far-reaching consequences. The grant or denial of stay should be resolved in the coming weeks, but the timing of any final decision from the Court of Appeals is uncertain. In 2023, the median time for the Eleventh Circuit to resolve a case was over 9 months. However, the key deadline by which tens of millions of companies otherwise must file their initial report under the CTA is January 1, 2025.

As Foretold, California’s New Forced Speech Laws Are Being Challenged

Last year, I commented on the likely unconstitutionality of two California laws compelling forced speech:

The California legislature has of late adopted the tactic of driving behavior by compelling speech. SB 253 (Wiener), for example, compels disclosure of greenhouse gas emissions and SB 261 (Stern) requires disclosure of climate-related financial risks. Both of these requirements clearly compel speech arguably in contravention of the First Amendment to the U.S. Constitution. Rumsfeld v. Forum for Academic and Institutional Rights, Inc., 547 U.S. 47, 61 (2006) (“Some of this Court’s leading First Amendment precedents have established the principle that freedom of speech prohibits the government from telling people what they must say.”).

I had previously noted that SB 253 was very similar to an earlier bill that did not make it into law.

Yesterday, the Chamber of Commerce of the United States of America and several others filed suit in the Central District Court challenging these laws. In its complaint, the plaintiffs allege that the “State’s plan for compelling speech to combat climate change is unconstitutional – twice over.” The plaintiffs urge the court to apply “strict scrutiny” to both laws because they compel speech about a controversial subject – climate change. If the court applies strict scrutiny, the bills would be presumptively unconstitutional and may be upheld only by proof that they are narrowly tailored to serve compelling state interests. That is an exceedingly high hill to climb.

Because both bills quite obviously violate basic free speech rights, the question arises whether the authors knew or were grossly negligent in not knowing of the constitutional infirmities of the legislation. In 2020, I wrote Senator Wiener, the author of SB 253, that SB 260, “abridges free speech rights guaranteed by the U.S. and California Constitutions”. At the time, I was distressed that the legislative analyses for SB 260 failed to mention the constitutional infirmities of the bill. See Legislators Again Kept In Dark About Constitutional Infirmities Of Climate Corporate Accountability Act and Legislators Again Kept In Dark About Constitutional Infirmities of Climate Corporate Accountability Act.

For more news on California Free Speech Laws regarding Climate Change, visit the NLR Environmental, Energy & Resources section.

Parody of Iconic Sneaker Isn’t Entitled to Heightened First Amendment Protection

The US Court of Appeals for the Second Circuit upheld a temporary restraining order and preliminary injunction enjoining use of a trademark and trade dress associated with an iconic sneaker design over a First Amendment artistic expression defense. Vans, Inc. v. MSCHF Product Studio, Inc., Case No. 22-1006 (2d Cir. Dec. 5, 2023) (per curiam). This case is the first time a federal appeals court has applied the Supreme Court of the United States’ recent decision in Jack Daniel’s v. VIP Products, which clarified when heightened First Amendment protections apply to expressive uses of another’s trademark and trade dress.

MSCHF Product Studio is a Brooklyn-based art collective known for provocative works that critique consumer culture. It sells its works in limited releases during prescribed sales periods called “drops.” It promoted and sold a shoe called the “Wavy Baby,” which is a distorted, corrugated version of the iconic black-and-white Vans Old Skool sneaker. MSCHF claimed that the product was a commentary on consumerism in sneakerhead culture and that the Wavy Baby shoes were not meant to be worn but were instead “collectible work[s] of art.”

MSCHF promoted the shoes using the musician Tyga. Vans sent MSCHF a cease-and-desist letter and a week later filed a six-count complaint in federal court, including a claim for trademark infringement under the Lanham Act. The following day, Vans filed a motion for a temporary restraining order, seeking to have the court enjoin the sale of the Wavy Baby shoes. Nevertheless, MSCHF proceeded with its pre-planned drop of the Wavy Baby sneakers and sold 4,306 pairs of the Wavy Baby in one hour.

About a week later, after oral argument on the temporary restraining order (TRO) motion, the district court granted Vans’s motion. The district court concluded that Vans would likely prevail in showing a likelihood of consumer confusion and rejected MSCHF’s contention that the Wavy Baby was entitled to special First Amendment protections because it was an artistic parody. MSCHF appealed.

The Second Circuit held the appeal in abeyance pending the Supreme Court’s Jack Daniel’s decision. In that case, Jack Daniel’s sued the maker of a squeaky dog toy that resembled the iconic whiskey bottle and used puns involving dog excrement in place of the actual language of the Jack Daniel’s label. In a unanimous decision, the Court clarified that special First Amendment protections (as used in the Rogers test for expressive works that incorporate another’s trademark) do not apply when a trademark is used as a source indicator—that is, “as a mark.”

The Second Circuit concluded that the Jack Daniel’s case “forecloses MSCHF’s argument that Wavy Baby’s parodic message merits higher First Amendment scrutiny” because, even though the product is a parody, the Rogers test does not apply if the mark is also used as a source identifier. The Second Circuit drew a direct parallel between Wavy Baby and the punning dog toy in the Jack Daniel’s case, noting that in both cases the infringing product evoked the protected trademark and trade dress of the target to benefit from the “good will” developed by the source brand. Hence, the Court held that the district court did not err in applying the traditional likelihood-of-confusion analysis rather than the speech-protective Rogers test.

Practice Note: An alleged infringer of a trademark may claim that its product is artistic expression to trigger the heightened First Amendment protections offered by filters such as the Rogers test. However, after Jack Daniel’s, courts are more likely to regard such defenses with skepticism unless the allegedly infringing work falls into a more canonical category of artistic expression such as a film, television show, song or video game.

This article was authored by Karen Gover.

Supreme Court Upholds State Courts’ Power of Judicial Review Over Election Matters

On June 27, 2023, the United States Supreme Court upheld a decision by North Carolina’s highest court holding that the North Carolina legislature went too far in gerrymandering voting district maps. The Court affirmed the authority of state courts to review the decisions of state legislatures on election matters, rejecting the “independent state legislature theory.” The theory, taken to its extreme, is that no branch of state government can question a state legislature’s decision regarding any federal election.  The ruling is an encouraging sign for states like Arizona, Illinois, and Michigan, where independent redistricting commissions have created, or are creating, new maps intended to represent non-partisan, or less partisan, boundary drawing and citizen-driven ballot initiatives to protect voters’ rights.

The plaintiffs in Moore v. Harper, 600 U.S. ___ (2023), were groups and individuals challenging North Carolina’s 2021 congressional districting map, which they viewed as unacceptable gerrymandering, created to favor Republican candidates. The legislative defendants asserted that in creating the new map, they had exercised the authority established by the “Elections Clause” in Article I, Section 4 of the United States Constitution that provides that state legislatures shall prescribe, “the Times, Places and Manner of” federal elections. Although North Carolina judges had found the new map to be “a partisan outlier intentionally and carefully designed to maximize Republican advantage in North Carolina’s Congressional delegation,” the legislative defendants argued the map was beyond the reach of judicial review. The Supreme Court had to decide whether “the Elections Clause insulates state legislatures from review by state courts for compliance with state law.” Moore, slip opinion at p 11.

Writing for the majority, Chief Justice John Roberts began the analysis by citing our country’s long-standing legal tradition of judicial review of the constitutionality of legislative acts. The majority opinion noted the 1787 decision in Bayard v Singleton, where the North Carolina Supreme Court found a law banning British loyalists from challenging property seizures was unconstitutional. The opinion goes on to review many decades of decisions where courts have considered the “interplay between state constitutional provisions and a state legislature’s exercise of authority under the Elections Clause.” Moore, slip opinion at p 15.

Looking at the other side of the case, the Court examined the legislative defendants’ arguments about the impact of the Election Clause. Rejecting Justice Clarence Thomas’s dissent, Roberts addressed the concept known as “independent state legislature theory” which contends that, “because the Federal Constitution gives state legislatures the power to regulate congressional elections, only [the Federal] Constitution can restrain the exercise of that power.” Id at 18. The historical references supporting this theory are debunked in the Moore decision, and many commentators have stated the decision in Moore slams the door on the extreme view that state legislative acts around federal elections are not subject to review by state courts.

The Moore decision, however, refers to a need to balance competing interests: “Although we conclude that the Elections Clause does not exempt state legislatures from the ordinary constraints imposed by state law, state courts do not have free rein.” Moore, slip opinion at p 26.  The opinion goes on to note:

We do not adopt these or any other test by which we can measure state court interpretations of state law in cases implicating the Elections Clause… We hold only that state courts may not transgress the ordinary bounds of judicial review such that they arrogate to themselves the power vested in state legislatures to regulate federal elections.

Id. p 28-29. It therefore remains to be seen how difficult it will be to challenge state legislatures in their future attempts at partisan district drawing in state courts.  Paying homage to the Supreme Court decision in Bush v Gore, it also leaves open the question of when federal courts may find that a state court has transgressed the “ordinary bounds of judicial review.” And, Moore leaves the Court’s holding in Rucho v Common Cause, 139 S Ct 2484 (2019) that partisan gerrymandering claims brought in federal court are not justiciable because they present a political question beyond their reach.

Nevertheless, taken in the context of other decisions reached this term, such as the Alabama districting case implicating the Voting Rights Act (Allen v Milligan), the recent decision in Moore gives comfort to many traditionalists who have been increasingly fearful of sudden and/or extreme changes to norms in American jurisprudence.

Click Here for More Election Law News at the National Law Review.

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Supreme Court to Consider First Amendment Protection for Parody Dog Toy

The Supreme Court of the United States has agreed to consider the scope of protection afforded by the First Amendment to commercial parody products that feature the unauthorized use of another party’s trademark(s). Jack Daniel’s Properties, Inc. v. VIP Products LLC, Case No. 22-148 (Supr. Ct. Nov. 21, 2022) (certiorari granted). The questions presented are as follows:

  1. Whether humorous use of another’s trademark as one’s own on a commercial product is subject to the Lanham Act’s traditional likelihood-of-confusion analysis, or instead receives heightened First Amendment protection from trademark-infringement claims.
  2. Whether humorous use of another’s mark as one’s own on a commercial product is “noncommercial” under 15 U.S.C. § 1125(c)(3)(C), thus barring as a matter of law a claim of dilution by tarnishment under the Trademark Dilution Revision Act.

This is the second time Jack Daniel’s has filed a petition for certiorari in connection with this case. The Supreme Court first considered the matter in January 2021, following the US Court of Appeals for the Ninth Circuit’s decision to vacate and remand the district court’s finding of trademark infringement, reverse the judgment on dilution and uphold the validity of Jack Daniel’s trademark and trade dress rights.

The case then returned to the district court, which granted summary judgment to VIP Products. The Ninth Circuit affirmed and then Jack Daniel’s filed its second petition for certiorari.

The Supreme Court will seek to settle the long-standing split amongst the US Courts of Appeal regarding the proper analysis for parody in trademark infringement and dilution claims and the scope of protection afforded to it via the First Amendment.

For more Supreme Court and Litigation News, click here to visit the National Law Review.

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Is The End Of FINRA Drawing Nigh?

The Financial Industry Regulatory Authority, aka FINRA, is a non-profit Delaware corporation.  It was formed in 2007 by the combination of the National Association of Securities Dealers, Inc. and the regulatory arm of the New York Stock Exchange, Inc.  FINRA is a self-regulatory organization that primarily regulates securities broker-dealers.

Professor Benjamin P. Edwards recently reported that a complaint has been filed in Florida challenging the constitutionality of FINRA.  The lawsuit filed by two broker-dealers alleges:

However, FINRA’s current structure and operations, particularly in light of the transformation of the organization over the course of the last two decades, contravene the separation of powers, violate the Appointments Clause of the United States Constitution (the “Constitution”) and constitute an impermissible delegation of powers. Because it purports to be a private entity, FINRA is unaccountable to the President of the United States (the “President,” or “POTUS”), lacks transparency, and operates in contravention of the authority under which it was formed.  It utilizes its  own in-house tribunals in a manner contrary to Article III and the Seventh Amendment of the Constitution and deprives entities and individuals of property
without due process of law.

The plaintiffs are seeking, among other things, declaratory and injunctive relief.

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The FTC Seemingly Thumbs Its Nose at the Supreme Court

Despite the Supreme Court’s recent 6-3 ruling in West Virginia v. EPA that regulatory agencies must have “clear congressional authorization” to make rules pertaining to “major questions” that are of “great political significance” and would affect “a significant portion of the American economy,” and the import of that ruling to the area of noncompete regulation, the Federal Trade Commission (FTC) and National Labor Relations Board (NLRB) announced yesterday that they are teaming up to address certain issues affecting the labor market, including the regulation of noncompetes.

In a Memorandum of Understanding (MOU) issued on July 19, 2022, the FTC and NRLB shared their shared view that:

continued and enhanced coordination and cooperation concerning issues of common regulatory interest will help to protect workers against unfair methods of competition, unfair or deceptive acts or practices, and unfair labor practices. Issues of common regulatory interest include labor market developments relating to the “gig economy” and other alternative work arrangements; claims and disclosures about earnings and costs associated with gig and other work; the imposition of one-sided and restrictive contract provisions, such as noncompete and nondisclosure provisions; the extent and impact of labor market concentration; the impact of algorithmic decision making on workers; the ability of workers to act collectively; and the classification and treatment of workers. (Emphasis added.)

Accordingly, the purpose of the MOU is “to facilitate (a) information sharing and cross-agency consultations on an ad hoc basis for official law enforcement purposes, in a manner consistent with and permitted by the laws and regulations that govern the [FTC and NLRB], (b) cross-agency training to educate each [agency] about the laws and regulations enforced by the other [agency], and (c) coordinated outreach and education as appropriate.”

This follows the Biden Administration’s July 9, 2021 Executive Order in which it “encourage[d]” the FTC to “consider” exercising its statutory rulemaking authority under the FTC Act “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” Nothing concrete has yet come of that Executive Order, although the MOU perhaps represents the next stage of the FTC’s “consider[ation]” of the issue. As we previously reported, FTC Chairwoman Lina Khan recently told the Wall Street Journal that regulating noncompetes “falls squarely in [the FTC’s] wheelhouse,” and she has never been shy about sharing her view that noncompetes should be banned nationwide and that the FTC has the authority to do so. This view does not appear to have changed despite the Supreme Court’s decision in West Virginia v. EPA.

Only time will tell what, if any, action the FTC takes with respect to regulating noncompetes, but if it does take steps to ban or otherwise limit noncompetes nationwide under Section 5 of the FTC Act, there will no doubt be litigation challenging those regulations. And you can bet that the Supreme Court’s decision in West Virginia v. EPA will be front and center in any such challenge. Indeed, according to Law360, U.S. Chamber of Commerce Executive Vice President and Chief Policy Officer Neil Bradley said that the MOU shows Chairwoman Khan’s vision for the FTC “goes well beyond what is provided in law and what was envisioned by Congress.” Chairwoman Khan does not seem too perturbed by the prospect of challenges to the FTC’s authority in this regard, however, and seems intent on moving forward despite the Supreme Court’s admonition.

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Five Administrative Law Takeaways From Recent Supreme Court Decisions

The US Supreme Court’s decisions of late have been consequential. While headline-grabbing decisions deal with religious liberties, privacy, and gun control, the Court’s impact on administrative law will have major consequences as well. Administrative law decisions stemmed from cases involving how the executive shaped policy related to climate change, health care, immigration, and public health. Administrative actions are tied together by procedural rules derived from the constitutional separation of powers and the federal Administrative Procedure Act (APA).

Below, we discuss five major trends derived from this term’s decisions related to administrative law and the separation of powers:

  1. The “major questions doctrine,” and how it can limit executive-branch authority;
  2. How spending can be used to shape behavior in situations where executive-branch authority might otherwise be limited;
  3. The fate of “Chevron deference” – i.e., the judiciary’s willingness to defer to the executive branch’s interpretations of statutes agencies are tasked to administer;
  4. What discretion executive agencies have to change policies, and what steps they need to defend such changes; and
  5. When the Supreme Court will intervene in cases that are moot or which otherwise lower court decision-making might simplify the Court’s resolution of involved issues.

Major Questions Doctrine

The facts that would support a “major questions” analysis of executive actions became clearer with this term’s decisions. The doctrine drove decisions in major cases related to climate change and public health – NFIB v. OSHA, dealing with the federal vaccine mandate, and West Virginia v. EPA, which addressed greenhouse gas regulations. In sum, the Court says that administrative actions with significant economic and political impact require a close look at authorizing legislation to determine if Congress has authorized the action taken.

Some background on these cases. NFIB v. OSHA – decided first – grappled with whether OSHA exceeded its authority when it sought to require certain employers and their employees to receive a COVID-19 vaccine or be subject to frequent testing requirements. (We discussed this case individually in-depth here.) OSHA based its mandate on its authority to relate workplace hazards. Because the vaccine mandate for businesses with over 100 employees would impact roughly 84 million Americans, the Supreme Court accepted that it was a “major question” that involved “great economic and political significance” and therefore was subject to the major questions doctrine. Accordingly, the executive branch was required to point to specific authority supporting the mandate. Because the executive branch could not point to where Congress gave them the power to enforce a vaccine mandate, the Court overturned it.

This decision either reaffirmed the importance of checks and balances or demonstrated that the “major questions doctrine” could be used to prevent the executive branch from flexibly using “old” public health law to address novel issues associated with an airborne pandemic.

The “major questions doctrine” appeared next in West Virginia v. EPA, which we discussed here. To address the issue of climate change, US Environmental Protection Agency (EPA) developed the Clean Power Plan to address carbon dioxide emissions from power plants that relied on owners shifting from fossil fuels to zero-emitting fuels in 2015. This required closures of fossil fuel generating stations and significant investments from the electric generation sector. After the Supreme Court stayed the Clean Power Plan, the Trump Administration proposed a different rule that mandated actions solely at the fossil fuel-fired units and, simultaneously, declared that the Clean Air Act did not authorize the far-reaching legal rationale of the Clean Power Plan.

After addressing some unique procedural issues, which we will discuss below, the Court characterized the Clean Power Plan as effectively remaking the national energy markets. Applying the major questions doctrine, the Court held that such a broad change to the energy sector required a clear congressional mandate, which was not present in the Clean Air Act. In a concurrence, Justice Gorsuch argued that deferring to agencies on matters of great economic or political significance would amount to “Permitting Congress to divest its legislative power to the Executive Branch. . .”

How Spending Can Be Used to Shape Behavior

Whereas the two decisions above illustrate limits on executive power, in Biden v. Missouri, the Supreme Court allowed the executive branch to use spending to compel COVID vaccinations of employees in certain medical establishments. A vaccine mandate in this context was consistent with past policies because Medicare and Medicaid facilities are routinely forced to follow protocols to receive funding.

Clearly, one takeaway from Biden v. Missouri is that the executive is not without power to influence private behavior, so long as spending is involved. The Court found that in the healthcare space, it would be counterintuitive for effective administration of a “facility that is supposed to make people well to make them sick with COVID-19.”

The Fate of the Chevron Doctrine

A third issue worth discussing is the fate of the “Chevron doctrine.” Our takeaway is that the “Chevron” doctrine may have little force at the Supreme Court level, even if parts of its analysis live on. We base this conclusion on the fact that both American Hospital Association v. Becerra and West Virginia v. EPA feature limited deference to the executive vis-à-vis the courts. But, neither case discusses Chevron at all. Why?

The “Chevron doctrine” has been fundamental to modern administrative law while existing in a policy-wonk backwater. The Chevron doctrine was born in the 1984 Supreme Court decision Chevron v. National Resources Defense Council. It provides federal agencies with the ability to interpret the statutes they are tasked to administer without heavy-handed court intervention. Under the traditional Chevron analysis, courts will defer to the federal agency when the relevant statute is ambiguous, and the agency’s interpretation is reasonable.

Two major cases seemed to ignore the doctrine, however:

  • In Becerra, the Court signaled some unwillingness to find statutes “ambiguous.” Becerra involved the US Department of Health and Human Services’ interpretation of the Medicare statute governing hospital reimbursement rates. While the DC Circuit Court of Appeals below found significant ambiguity in the highly technical statute, a unanimous Supreme Court disagreed and held that the plain language of the statute clearly precluded the agency’s interpretation. The fact that the Supreme Court found clarity where the DC Circuit saw ambiguity suggests that the Court has significantly raised the bar for the level of ambiguity necessary for it to adopt an agency’s interpretation.
  • Where Becerra limited the impact of Chevron based on the text of the statute, West Virginia v. EPA established an entire class of cases where Chevron will not apply based on the practical impact of the regulation. By embracing the “major questions doctrine” discussed above, the Court signaled that it will not defer to federal agencies on novel issues unless Congress clearly stated an intent to delegate to the agency. The Court focused on the sweeping impact of EPA’s proposed emissions regulations, in stark contrast to the DC Circuit’s textual analysis of the statutes at issue (and also to the Court’s own textual analysis in Becerra).

While it appears that the Chevron doctrine may currently be gathering cobwebs at the Supreme Court level, it remains to be seen what will happen at the district and appellate levels. Maybe the Chevron doctrine will continue to exist as a sorting mechanism below — scholars have noted that Chevron was far more likely to determine outcomes in the lower courts. But at the very least, the Supreme Court has given federal judges powerful tools to avoid deferring to agency interpretations where they are so inclined.

How and When Agencies Can Change Preexisting Policies

A fourth issue worth highlighting may be found in Biden v. Texas, which involves the Biden Administration’s rescission of the Trump Administration’s Remain in Mexico policy.

First, some policy background: Government agencies have broad discretion in setting and changing policies so long as they follow the appropriate procedures. Generally, these procedures are set forth in the APA, a statute that we discuss with great regularity. Under the APA, the executive’s decisions can only be justified or challenged based on the agency’s administrative record. The regulated community can sometimes request that the Court look beyond the administrative record by showing that the agency acted in bad faith or in a procedurally improper manner. The Court’s last significant decision in this area – Department of Commerce v. New York, which we summarized here – evaluated the Commerce Secretary’s attempts to add a citizenship question to the 2020 census. In Department of Commerce, extra-record discovery revealed that the Secretary planned to add the question all along and had, in fact, solicited the request for the question from the US Department of Justice (DOJ). The Supreme Court determined that the Voting Rights Act rationale was “contrived” and affirmed the lower court’s decision to bar the US Department of Commerce from asking the question.

Regarding this case: Biden v. Texas, which involved the Biden Administration’s rescission of the Trump Administration’s “Remain in Mexico” immigration program – also called the Migrant Protection Protocols (MPP) – evaluated whether the Biden Administration acted appropriately when it rescinded the program. Some background on Biden v. Texas:

  • In January 2019, the US Department of Homeland Security (DHS) began to implement MPP. Under MPP, certain non-Mexican persons arriving by land from Mexico were returned to Mexico to await the results of their immigration cases. After it took office, the Biden Administration first suspended the program and later terminated it.
  • Texas and Missouri challenged the rescission on the grounds that it violated federal immigration law as well as the APA. A Texas federal court accepted the states’ arguments on the grounds that immigration law required DHS to either detain arrivals in the US or in contiguous territory – as MPP did – and that DHS lacked the resources necessary to house arrivals in the US, so a program like MPP was required by statute. The district court entered an injunction requiring the government to “enforce and implement MPP in good faith until such a time as it has been lawfully rescinded in compliance with the APA and until such a time as the federal government has sufficient detention capacity to detain all aliens subject to mandatory detention under [immigration law] without releasing any aliens because of a lack of detention resources.”
  • On appeal, the Secretary of DHS released a second explanation for terminating MPP and sought to vacate the injunction. The appellate court affirmed the lower court’s analysis that the injunction was required and rejected DHS’s second explanation for why the program should be terminated on the grounds that it did not constitute a new or separately reviewable “final agency action,” which triggers APA review.

The Court upheld the rescission of MPP on two grounds: first, because federal immigration law used the word “may” in defining what DHS may do regarding confining persons arriving over land from Mexico. “May” gives the government discretion and establishes contiguous-territory return such as was required by MPP as a tool that the agency “has the authority, but not the duty” to use. Congress could have – but did not – construct the immigration provisions to require MPP.

Additionally, upholding the program required the Court’s consideration of DHS’s during-litigation explanation for why the program should be terminated. The Court accepted the during-litigation explanation because it constituted a wholly new explanation of why the MPP should be terminated. The during-litigation explanation explained that it “superseded” and “rescinded” the earlier termination and then offered “new reasons” that had not been included in the prior rescission. Both the pre-litigation and during-litigation memoranda were separate “final agency actions.”

Finally, because DHS did not rest on its pre-litigation MPP termination, it was permitted to provide additional justifications for its actions, so long as the agency complied with APA-imposed requirements for taking “new” actions. The Court rejected the states’ charge that there was a “significant mismatch between” the rescission and DHS’s explanation for it. DHS’s “ex-ante preference for terminating MPP – like any other feature of an administration’s policy agenda – should not be held against” its actions. Accordingly, DHS’s rescission of MPP was upheld.

An Increase in Procedurally Irregular Case Resolutions? 

A final trend we wanted to highlight is that the Supreme Court appears increasingly willing to wade into disputes at earlier procedural phases than would be typical. Historically, nearly every Supreme Court case has made it to the Court having been fully and finally resolved in lower federal courts. (To be sure, there are some exceptions – most notably the limited class of cases for which the Supreme Court has original jurisdiction, which involve mainly disputes between the states or disputes between ambassadors.) This term, the Court was increasingly willing to wade into disputes which were either arguably moot or have not yet completed their run through lower courts. Three examples:

  • Mootness. In West Virginia v. EPA, during the pendency of litigation, the Biden Administration indicated it would not enforce the regulations at issue and instead would pursue a new rulemaking. The Court found that EPA’s representation that “voluntary cessation does not moot a case” unless it is “absolutely clear that the allegedly wrongful behavior could not be expected to recur.” For the government to moot the case, it would have to suggest that it would not re-impose limitations based on generation shifting – something that it did not do.
  • No lower court finding regarding jurisdiction. In Biden v. Texas, four of the nine justices signed a dissent indicating that lower courts should review whether federal courts had “jurisdiction or authority to enjoin or restrain the operation of” certain immigration laws in light of the Court’s recent decision in Garland v. Aleman Gonzalez, which addressed similar issues. While a majority of the court favored reaching a merits decision, four members of the Court favored remanding the case to lower courts for an evaluation of how Aleman Gonzalez might alter jurisdictional issues in the case.
  • The Court’s Use of its “Shadow Docket.” In Ardoin v. Robinson, the Supreme Court, in an unsigned order with no explanation, reinstated a district voting map in Louisiana that has previously been deemed discriminatory and harmful to minority voting rights. This case was decided under what has been coined the Supreme Court’s “shadow docket” because it refers to cases decided outside normal procedural regularity: off the regular docket, without oral arguments or written briefs, and before lower courts have fully and finally decided the issue. The Court’s use of its “shadow docket” appears to be occurring with increasing frequency. As the Court is likely to remain polarized next term, we may see additional consequential decisions at the “shadow docket” phase then.

This was clearly a major term with significant decisions in many areas, including administrative law. The Court’s next arguments begin in October. We will keep an eye out for new cases relevant to administrative law.

© 2022 ArentFox Schiff LLP

Supreme Court Expands State Criminal Jurisdiction in Indian Country

In a 5-4 opinion issued Wednesday in Oklahoma v. Castro Huerta, No. 21-429, the Supreme Court expanded the authority of States to exercise criminal jurisdiction over non-Natives in Indian country without tribal consent or congressional authorization, upending a long-standing basic principle of Federal Indian Law and striking a blow to tribal sovereignty. Under federal law, “Indian country” has been interpreted as including Indian reservations, dependent Indian communities, Indian allotments, In Lieu sites (land outside reservation boundaries meant to replace lost Indian lands), and tribal trust lands. The majority opinion in Castro-Huerta, written by Justice Brett Kavanaugh, held that States presumptively have “inherent” jurisdiction over crimes committed in Indian country and “do not need a permission slip from Congress to exercise their sovereign authority,” dismissing the Court’s prior statements to the contrary as non-binding dicta. After concluding States presumptively have criminal jurisdiction in Indian country, the majority found that the General Crimes Act, 18 U.S.C. 1152, did not preempt that jurisdiction for crimes committed by non-Natives against Natives in Indian country. As a result, States now have concurrent criminal jurisdiction with the federal government to prosecute crimes committed by non-Natives against Natives in Indian country.

Castro-Huerta involved the prosecution of Defendant Victor Manuel Castro-Huerta, who was convicted in an Oklahoma State court of a crime against a Native child. Following the Supreme Court’s landmark decision in McGirt v. Oklahoma, 140 S. Ct. 2452 (2020), in which the Court concluded much of Oklahoma is Indian country, Castro-Huerta successfully argued that the State lacked jurisdiction to prosecute him because he committed his crime in Indian country. The State appellate court’s decision in Castro-Huerta’s favor followed the interpretation of the General Crimes Act that has prevailed since the statute’s 1948 reenactment. Under that interpretation, only the federal government has authority to prosecute non-Native individuals who commit crimes against Native individuals in Indian country.

Arguing before the Supreme Court, Oklahoma claimed that the prevailing interpretation is incorrect, and the majority agreed. The Court began its analysis by describing the details of Castro-Huerta’s crime and noting that of the 2 million people who live in Oklahoma, “the vast majority are not Indians.” Op. at 2. The Court also noted that Castro-Huerta had accepted a plea agreement with the federal government for a 7-year sentence followed by removal from the United States (he was in the United States unlawfully), receiving, in effect, a 28-year reduction in his sentence. Op. at 3. The majority stated that his case “exemplifies a now-familiar pattern in Oklahoma in the wake of McGirt” in which non-Indian criminals have received “lighter sentences in plea deals negotiated with the Federal Government” or have “simply gone free.” Op. at 3-4.

Citing the United States Constitution and prior Supreme Court decisions for the proposition that Indian reservations are “part of the surrounding State” and subject to State jurisdiction except as forbidden by federal law, the majority concluded that an “overarching jurisdictional principle dating back to the 1800s” is that “States have jurisdiction to prosecute crimes committed in Indian country unless preempted.” Op. at 5-6.

The majority then considered whether the State’s authority to prosecute non-Native v. Native crimes in Indian country had been preempted under the “ordinary principles of federal preemption” or because “the exercise of state jurisdiction would unlawfully infringe on tribal self-government.” Op. at 7. The majority found that the plain text of the General Crimes Act did not expressly provide for exclusive federal jurisdiction. Op. at 7-14. It then rejected Castro-Huerta’s argument that Public-Law 83-280 and similar statutes through which Congress authorized certain States to exercise jurisdiction in Indian country demonstrated Congress’s understanding that States presumptively lack such authority. The majority reasoned that, despite what Congress might have assumed, the question had not yet been decided and the statutes in question lacked language preempting State jurisdiction. Op. at 16-18. The statutes also provided for civil jurisdiction and State jurisdiction over Natives, in addition to criminal jurisdiction over non-Natives, so they were not entirely redundant.

Turning next to whether the exercise of State jurisdiction under the General Crimes Act would unlawfully infringe on tribal self-government, the majority applied the “Bracker balancing test,” which weighs tribal, federal, and state interests, and is generally used to determine whether a state tax is preempted when assessed against a non-Native on tribal land. The majority concluded that the Bracker factors supported State jurisdiction, dismissing any tribal preference for federal jurisdiction as irrelevant to the Court’s analysis, Op. 19 n.6, Op. 20 n. 7. Concluding the State’s inherent jurisdiction had not been preempted, the majority noted in its holding that, “Unless preempted, States may exercise jurisdiction to prosecute crimes committed by non-Indians against Indians in Indian country,” and this “applies throughout the United States,” including on Indian allotments. Op. 24 n.9.

In a scathing dissent, Justice Gorsuch, joined by Justices Breyer, Sotomayor, and Kagan, pushed back against the majority’s opinion, suggesting any future analysis would need to consider the specific context of each tribe, its treaties, and relevant laws. Dissent at 40-41 n.10. The dissent, appealing for a legislative fix, accused the majority of ignoring history, congressional action, precedent, and tribal sovereignty, and usurping “congressional decisions about the appropriate balance between federal, tribal, and state interests.” Dissent at 38.

© 2022 Van Ness Feldman LLP