May 23, 2024 | Volume 31, Issue 12
This Report summarizes opinions issued on May 9 and 16, 2024 (Part I).
Opinions
Consumer Financial Protection Bureau v. Community Financial Services Ass’n of America, Ltd., 22-448.
By a 7-2 vote, the Court held that Congress’s manner of funding the Consumer Financial Protection Bureau (CFPB) satisfies the Appropriations Clause. In response to the 2008 financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB as an independent financial regulator within the Federal Reserve System. Unlike most federal agencies that must ask Congress for renewed funding annually, Congress provided the CFPB a standing funding source outside the ordinary annual appropriations process. It may draw from the Federal Reserve System the amount its director deems “reasonably necessary to carry out” the Bureau’s duties subject to an inflation-adjusted cap of twelve percent of the Federal Reserve System’s total operating expenses.
In 2017, the CFPB promulgated a regulation focused on high-interest consumer loans, known as the Payday Lending Rule. Two trade associations challenged the rule, arguing that the CFPB’s funding violates the Appropriations Clause, which states that “[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The district court found no violation. The Fifth Circuit reversed and concluded that, to maintain the separation of powers, the Appropriations Clause affirmatively requires Congress to use its power over fiscal matters. “By giving the Bureau a ‘self-actualizing, perpetual funding mechanism,’ . . . Congress in effect abandoned this obligation.” The Fifth Circuit therefore held that the CFPB’s funding mechanism violates the Appropriations Clause. In an opinion by Justice Thomas, the Court reversed and remanded.
The Court found that the Constitution’s text, the history behind the that text, and congressional practice immediately following ratification all demonstrate that appropriations “need only identify a source of public funds and authorize the expenditure of those funds for the designated purpose to satisfy the Appropriations Clause.” The Court went through the clause’s history to support the “source-and-purpose” understanding of appropriations. Starting with the text of the Constitution, and looking at Framing-era dictionaries, the Court found that at the time of ratification “appropriations were understood as a legislative means of authorizing expenditure from a source of public funds for designated purposes.” Next, the Court delved into the historical evolution leading to the Appropriations Clause, beginning with Parliamentary England and proceeding through colonial governments. As to Parliamentary England, the Court found that “Parliament did not micromanage every aspect of the King’s finances. Not all post-Glorious Revolution grants of supplies were time limited.” As to colonial governments, the Court concluded that while “appropriations needed to designate particular revenues for identified purposes . . . early legislative bodies exercised a wide range of discretion.” The Court then found that the practice of the First Congress emphasized this understanding: early “appropriations displayed significant variety in their structure.” For example, Congress “allowed” customs collectors and the Post Office “to indefinitely fund themselves directly from revenue collected.” The First Congress simply “adhered to the minimum requirements of an identifiable source of public funds and purpose.” And, the Court found, the CFPB’s funding statute has those requisite features, for the statute “authorizes the Bureau to draw public funds from a particular source . . . [a]nd, it specifies the objects for which the Bureau can use those funds.” Thus, the Court found that “requirements of the Appropriations Clause are satisfied.”
The Court rejected three arguments advanced by the trade associations as attempts “to build additional requirements into the meaning of an ‘Appropriatio[n] made by Law.’” The trade associations asserted that the CFPB’s funding does not constitute a valid appropriation made by law because the agency, rather than Congress, determines the amount. The Court, however, pointed out that Congress did determine the amount by imposing a statutory cap. The Court next refuted the trade associations’ argument regarding time limits, emphasizing that the Constitution allows Congress to enact standing appropriations. In that regard, the Court noted that the Constitution explicitly states the duration of appropriations only for supporting an army but not other purposes. Lastly, the Court rejected any assertion that CFPB’s funding mechanism destroys the separation of powers, noting that the “phrasing and location” of the Appropriations Clause in the Constitution demonstrate that it was a limit on Congress’s power of the purse and not the source of that power.
Justice Kagan filed a concurring opinion that Justices Sotomayor, Kavanaugh, and Barrett joined. Justice Kagan highlighted that while the majority’s determination that “[t]he CFPB’s funding scheme, if transplanted back to the late-19th century, would have fit right in . . . that the same would have been true at any other time in our Nation’s history.” She noted that “[f]or over 200 years now, Congress has exercised broad discretion in crafting appropriations” and “[a]ll the flexibility and diversity evident in the founding period has thus continued unabated, making it ever more obvious that CFPB’s funding accords with the Constitution.” Thus, Justice Kagan wrote to add that while “the Appropriations Clause’s text and founding-era history support the constitutionality of the CFPB’s funding . . . so too does a continuing tradition.” She concluded that “[t]he way our Government has actually worked, over our entire experience, thus provides another reason to uphold Congress’s decision about how to fund the CFPB.”
Justice Jackson also filed a concurring opinion. She emphasized that “[t]he statute that Congress passed to fund the [CFPB] easily meets the Appropriations Clause’s minimal requirements.” She stated that there is no reason to go further than the clause’s text. Justice Jackson pointed out that separation of powers “applies with just as much force to the Judiciary,” and Congress designed the CFPB’s funding scheme to protect the Bureau from the “risk that powerful regulated entities might capture the annual appropriates process.” Justice Jackson stated that the trade associations’ arguments would require the Court to “find unstated limits in the Constitution’s text” and “undercut the considered judgments of a coordinate branch about how to respond to a pressing national concern.”
Justice Alito filed a dissenting opinion, which Justice Gorsuch joined. Justice Alito rejected the Court’s historical account and found, based on his own historical narrative, that “centuries of historical practice show that the Appropriations Clause demands legislative control over the source and disposition of the money used to finance Government operations and projects.” According to Justice Alito, the Appropriations Clause is aimed to “ensure that the people’s elected representatives monitor and control the expenditure of public funds and the projects they finance.” But he said that CFPB’s “unprecedented combination of funding features affords it the very kind of financial independence that the Appropriations Clause was designed to prevent.” Thus, those unprecedented features of CFPB’s funding scheme mean that CFPB is not financially accountable to Congress in the way the Appropriations Clause demands. Stated Justice Alito, “[t]here are times when it is our duty to say simply that a law that blatantly attempts to circumvent the Constitution goes too far. This is such a case.”
Culley v. Marshall, 22-585.
In a 6-3 decision, the Court held that, in civil forfeiture cases involving personal property, due process “requires a timely forfeiture hearing” but “does not also require a separate preliminary hearing.” Petitioners Halima Culley and Lena Sutton separately loaned their vehicles to other individuals. The borrowers were arrested for drug crimes and petitioners’ vehicles were seized incident to arrest. Within two weeks of the vehicles’ initial seizure, Alabama filed forfeiture complaints. Eventually, each petitioner successfully raised the “innocent owner” defense under Alabama law and recovered her vehicle. In the meantime, however, petitioners separately filed suit in federal district court seeking damages under 42 U.S.C. §1983. They asserted that the state had violated their “due process rights by retaining their cars during the forfeiture process without holding preliminary hearings.” The district courts dismissed petitioners’ complaints. The Eleventh Circuit “consolidated the two cases and affirmed.” The court “agreed with the . . . district courts that a timely forfeiture hearing affords claimants due process and that no separate preliminary hearing is constitutionally required.” In an opinion by Justice Kavanaugh, the Court affirmed.
The Court held that it was bound by its previous decisions in United States v. $8,850, 461 U.S. 55 (1983) (involving currency); and United States v. Von Neumann, 474 U.S. 242 (1986) (involving a seized vehicle). In $8,850, the Court―citing Barker v. Wingo, 407 U.S. 514, 530 (1972)―set forth a four-factor test to assess whether the length of delay between seizure of real property and a civil forfeiture hearing has violated the dispossessed property owner’s due process rights. Those factors include: “the length of the delay, the reason for the delay, whether the property owner asserted his rights, and whether the delay was prejudicial.” In Von Neumann, citing $8,850, the Court held “that a timely ‘forfeiture proceeding without more, provides the post[-]seizure hearing required by due process’ to protect” the dispossessed owner’s property interest in his vehicle. In other words, due process concerns are satisfied by the owner’s “‘right to a forfeiture proceeding’ that meets the $8,850 timeliness test.” These cases, the Court explained here, “held that a timely forfeiture hearing satisfies due process in civil forfeiture cases,” and provided the standard to assess the timeliness of these hearings. The Court added that “[a] timely forfeiture hearing protects the interests of both the claimant and the government. And an additional preliminary hearing of the kind sought by petitioners would interfere with the government’s important law-enforcement activities in the period after the seizure and before the forfeiture hearing.”
The Court noted that this prior precedent was supported by the Nation’s historical forfeiture practices. For instance, “[s]ince the Founding era,” state and federal statutes “have authorized the Government to seize personal property and hold it pending a forfeiture hearing, without a separate preliminary hearing.” Although “some States have recently enacted laws requiring preliminary hearings in civil forfeiture cases,” this “do[es] not support a constitutional mandate for preliminary hearings in every State.” (Emphasis added.) Finally, the Court noted that its decision does not preclude the states and Congress from providing the dispossessed owner with additional process in civil forfeiture cases. Instead, the Court was simply “address[ing] the baseline protection of the Due Process Clause.”
Justice Gorsuch issued a concurring opinion, which Justice Thomas joined. Although he agreed with the majority’s reasoning and repudiation of petitioners’ claims, Justice Gorsuch “also agree[d] with the dissent that this case leaves many larger questions unresolved about whether, and to what extent, contemporary civil forfeiture laws can be squared with the Constitution’s promise of due process.” Civil forfeiture laws like those of Alabama are relatively new. They generally include a low bar for government agencies to succeed in forfeiture; law enforcement agencies increasingly depend on them “as a source of revenue”; and any delays in allowing property owners to contest forfeiture disproportionately burden the poor and others who are least likely to defend their own interests. As a result, Justice Gorsuch said, present-day forfeiture laws do not appear to be connected to, or entirely justified by, historical forfeiture laws. The larger questions posed by Justice Gorsuch were not, however, implicated in this case. But “in future cases, with the benefit of full briefing, [he hoped the Court] might begin the task of assessing how well the profound changes in civil forfeiture practices we have witnessed in recent decades comport with the Constitution’s enduring guarantee that ‘[n]o person shall . . . be deprived of life, liberty, or property, without due process of law.’”
Justice Sotomayor issued a dissenting opinion, which Justices Kagan and Jackson joined. In addition to disagreeing with the Court’s substantive conclusion regarding the due process requirements in this context, Justice Sotomayor considered such a holding unnecessary. Specifically, she explained, the Court’s holding “sweeps far more broadly than the narrow question presented.” Justice Sotomayor would have, instead, “decided only which due process test governs whether a retention hearing is required and left it to the lower courts to apply that test to different civil forfeiture schemes.” If the Court had restricted itself to the question presented, the lower courts would have been free to address the various “abuses of the civil forfeiture system,” which Justice Sotomayor asserted are many (e.g., forfeiture is untethered to criminal prosecution; law enforcement has financial incentives to seize property and delay its return; forfeiture has an adverse impact on marginalized groups).
Justice Sotomayor went on to argue that the Court’s reliance on $8,850 and Von Neumann and on historical practice were incorrect, resulting in a “deeply flawed” decision. First, she said, the Court in $8,850 and Von Neumann “had no cause or reason to address” the issue in this case, nor was it ever contemplated therein. Specifically, $8,850 and Von Neumann involved whether the forfeiture processes were timely, whereas the present case involves a claim of constitutionally mandated preliminary forfeiture hearings. Second, “[w]ith the sole exception of the Eleventh Circuit, every court of appeals has rejected Von Neumann’s application to state and county civil forfeiture schemes concerning claimants’ cars.” Third, “[t]he [Court’s] categorical rule that due process never requires a retention hearing . . . cannot be squared with the context-specific analysis that this Court’s due process doctrine requires.”
Smith v. Spizzirri, 22-1218.
The Court unanimously held that, “[w]hen a district court finds that a lawsuit involves an arbitrable dispute, and a party requests a stay pending arbitration, §3 of the [Federal Arbitration Act (FAA)] compels the court to stay the proceeding.” As a general matter, the FAA “sets forth procedures for enforcing arbitration agreements in federal court. Section 3 of the FAA specifies that, when a dispute is subject to arbitration, the court ‘shall on application of one of the parties stay the trial of the action until [the] arbitration’ has concluded.” (Emphasis added.) “Petitioners are current and former delivery drivers for an on-demand delivery service operated by respondents. They sued respondents in Arizona state court, alleging violations of federal and state employment laws.” Respondents removed the case to federal court and “moved to compel arbitration and dismiss the suit. Petitioners conceded that all of their claims were arbitrable, but they argued that §3 of the FAA required the District Court to stay the action pending arbitration rather than dismissing it entirely.” The district court ordered arbitration and then, having concluded that it was bound by circuit court precedent, dismissed “the case without prejudice.” The Ninth Circuit affirmed. In an opinion by Justice Sotomayor, the Court reversed and remanded.
According to the Court, the resolution of this statutory interpretation case was clear because the “text, structure and purpose” of the FAA “all point[ed] to the same conclusion.” To begin, §3’s text is plain. It states that a trial court “shall . . . stay the trial of the action until such arbitration has been had . . . providing the applicant for the stay is not in default in proceeding with such arbitration.” (Emphasis added.) The Court reasoned that Congress’s use of the word “shall” in this context (as it has in countless others) “‘creates an obligation impervious to judicial discretion.’” So, “[w]hen §3 says that a court ‘shall . . . stay’ the proceeding, the court must do so.” Moreover, found the Court, §3’s use of the term “stay” is equally plain. Contrary to respondents’ contention, “stay” does not mean to simply cease “parallel in-court litigation,” which the court could do by dismissing a case “without retaining jurisdiction.” Respondents’ interpretation, held the Court, contravenes “the long-established legal meaning of the word stay.” This argument also contradicts the surrounding statutory text, which directs a stay of proceedings “‘until such arbitration has been had in accordance with the terms of the agreement,’ and so long as ‘the applicant . . . is not in default in proceeding with the arbitration.’” Section 3’s assurance “that parties can return to federal court if arbitration breaks down or fails to resolve the dispute” is unavailable “if the court dismisses the suit rather than staying it.”
Next, ruled the Court, the FAA’s structure “confirms[s] that a stay is required” under §3. Specifically, the FAA “‘provid[es] for immediate interlocutory appeals of orders denying―but not of orders granting―motions to compel arbitration.’” That means that, “[i]f a district court dismisses a suit subject to arbitration even when a party requests a stay, that dismissal triggers the right to an immediate appeal where Congress sought to forbid such an appeal.” Such a result would be illogical. Finally, the Court found that the FAA’s purpose likewise confirms that §3 requires a stay. The FAA has “mechanisms for courts . . . to assist parties in arbitration, by, for example, appointing an arbitrator, . . . enforcing subpoenas, . . . and facilitating recovery on an arbitral award.” Considering the district court’s “potential ongoing role,” it just “makes good sense” to keep “the suit on the court’s docket.”
Warner Chappel Music, Inc. v. Nealy, 22-2078.
By a 6-3 vote, the Court held that the Copyright Act does not place a three-year limit on recovery of damages; a copyright owner is entitled to recover damages for any timely claim. Under the Copyright Act’s statute of limitations, 17 U.S.C. §507(b), a copyright owner must bring an infringement claim within three years of accrual. In 1983, Sherman Nealy and Tony Butler formed Music Specialist, Inc. and released one album and several singles. Following the dissolution of their collaboration, Nealy served prison sentences for drug-related charges from 1989 to 2008 and again from 2012 to 2015. Meanwhile, Butler, unbeknownst to Nealy, entered into a licensing agreement with Warner Chappell Music for the Music Specialist catalog. This agreement resulted in Music Specialist’s music being utilized in several popular songs and television shows. In 2018, Nealy sued Warner Chappell for copyright infringement based on licensing activities dating back to 2008. The Eleventh Circuit, where Nealy filed suit, applies the discovery rule to §507(b), under which a claim accrues when “the plaintiff discovers, or with due diligence should have discovered the infringing act.” Warner Chappell accepted that the discovery rule governed the timeliness of Nealy’s claims, but contended that even if Nealy could sue for infringements dating back 10 years, he could only recover damages for those occurring within the last three years. The district court agreed, but the Eleventh Circuit reversed, rejecting a three-year damages bar on a timely claim. In an opinion by Justice Kagan, the Court affirmed.
At the outset, the Court highlighted that its reformulated question presented ―“[w]hether, under the discovery accrual rule applied by the circuit courts, a copyright plaintiff can recover damages for acts that allegedly occurred more than three years before the filling of a lawsuit”―relies on assuming that the discovery rule dictates the timeliness of copyright claims. And because Warner Chappell never challenged the Eleventh Circuit’s use of the discovery rule below, the Court maintained that assumption and confined its review to the disputed remedial issue. Turning to the question it was answering, the Court ruled that the text of the Copyright Act establishes a single three-year timeframe for initiating legal action that commenced (the Court assumed) upon the discovery of the infringement. The Court found that there exists no distinct three-year period for recovering damages. Pointing to the remedial section of the Act, the Court noted that §504(a)-(c) does not contain any qualifiers for liability and does not place a time limit on monetary recovery. Thus, “a copyright owner possessing a timely claim for infringement is entitled to damages, no matter when the infringement occurred.” The Court rejected any reliance on Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014), as establishing a three-year limit on damages. It pointed out that in that case, the Court was “merely describ[ing] how the limitation provision works when a plaintiff has no timely claims for infringement acts more than three years old.” Thus, the Court held that if Nealy’s claims are timely, he may obtain damages for them.
Justice Gorsuch wrote a dissenting opinion, which Justices Thomas and Alito joined. He criticized the Court’s failure to address whether the Copyright Act permits the application of the discovery rule for accrual. He contended that the decision to defer resolving that matter for a future case renders any determinations made by the Court in this case “about the rule’s operational details a dead letter.” Justice Gorsuch emphasized that the discovery rule is not “applicable across all contexts” and that the Copyright Act’s limitations provision does not contemplate a departure from the usual rules. He therefore maintained that a copyright claim arises when the infringing act occurs. And since everyone here agrees that Nealy filed suit more than three years after the infringing acts, “some (if not all) of his claims are untimely.” Justice Gorsuch thus would have dismissed this case as improvidently granted and awaited another case that squarely presented the question whether the Copyright Act authorizes the discovery rule.
Harrow v. Department of Defense, 23-21.
The Court unanimously held that the 60-day deadline in 5 U.S.C. §7703(b)(1)(A) for seeking review in the Federal Circuit of a final decision of the Merit Systems Protection Board is not jurisdictional and is therefore subject to equitable exceptions. If a federal employee receives an adverse personnel action, he can complain to the Merit Systems Protection Board. If the Board rules against him, he may appeal to the Federal Circuit. Section 7703(b)(1) sets forth the time period for such an appeal. Specifically, that section provides that petitions for review “shall be filed” with the Federal Circuit “within 60 days” of the Board’s final order.
In 2013, petitioner Stuart Harrow filed a claim with the Board objecting to his six-day furlough from the Department of Defense. In 2016, an administrative judge upheld the Board’s decision. Harrow sought review by the full Board, but because “the Board lost its quorum, and so its ability to resolve cases,” Harrow’s case was stagnant for five years. Then, in May 2022, “the Board, with a quorum finally restored,” issued its decision “affirm[ing] the administrative judge’s decision.” Harrow filed a late petition for review of the Board’s decision with the Federal Circuit. He attempted to excuse this untimeliness by arguing “extenuating circumstances.” Specifically, he alleged that he never received notification from the Board about its decision because it was sent to his old email address. Instead, he had learned of the decision’s existence through his own internet research. The Federal Circuit dismissed Harrow’s petition for review, holding “that the 60-day statutory deadline is a ‘jurisdictional requirement,’ and therefore ‘not subject to equitable tolling.’” In an opinion by Justice Kagan, the Court vacated and remanded.
The Court explained that many of Congress’s procedural rules governing litigation “read as categorical commands” by using words like “shall.” Courts have, though, sometimes created exceptions to these rules. For example, a court may excuse a party’s noncompliance with an otherwise mandatory procedural rule for “equitable reasons.” An exception to the exception, however, is where the procedural rule is jurisdictional. In such cases, a party’s failure to comply with the rule renders the court without authority to hear the case, “‘even if equitable considerations would support’ excusing its violation.” As a result, the “Court will treat a procedural requirement as jurisdictional only if Congress clearly states that it is.” (Quotation marks omitted.) Under this “approach, most time bars are nonjurisdictional,” even if “the bar is framed in mandatory terms” (e.g., “shall”; “forever barred unless” brought within specific timeframe). This holds true in the present case. Although §7703(b)(1)’s 60-day deadline is phrased in mandatory terms (“shall be filed”), “that fact is ‘of no consequence’ to the jurisdictional issue” because the statute itself does not reference “the Federal Circuit’s jurisdiction, whether generally or over untimely claims.” Thus, held the Court, the 60-day deadline is not jurisdictional.
In coming to this conclusion, the Court rejected the Government’s reliance on 28 U.S.C. §1295 to argue that §7703(b)(1)’s 60-day deadline is jurisdictional. Section 1295 sets forth the various types of cases over which the Federal Circuit has subject-matter jurisdiction. Subsection (a)(9) specifies that the Federal Circuit has jurisdiction over an appeal from a Board decision “pursuant to [§]7703(b)(1).” (Emphasis added.) Focusing on the “pursuant to” language in §1295(a)(9), the Government argued that “only those appeals fully complying with §7703(b)(1)―including its 60-day deadline―fall within the Federal Circuit’s jurisdiction. In that way, the time limit becomes a ‘jurisdictional prerequisite.’” The Court was unpersuaded, noting that “pursuant to” is often used as a synonym for “under,” rather than for “in compliance with.” Indeed, Congress’s repeated use of “pursuant to” in the entirety of §1295 demonstrates that it was not being used in a jurisdictional sense. That is because “[t]he referenced laws” in §1295 “in turn contain a bevy of procedural rules—not only setting deadlines (as in §7703(b)(1)), but also requiring service and other forms of notification, mandating prior government authorization of certain matters, and even compelling the payment of expenses.” And it is “untenable” to conclude that all those procedural rules are jurisdictional. In any event, found the Court, §1295(a)(9)’s usage of the phrase “pursuant to” does not satisfy the Court’s clear-statement test to support the conclusion that the §7703(b)(1)’s 60-day deadline is a jurisdictional bar.
NAAG Center for Supreme Court Advocacy Staff
- Dan Schweitzer, Director and Chief Counsel
- Melissa Patterson, Supreme Court Fellow
- Amanda Schwartz, Supreme Court Fellow
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