January 23, 2025 | Volume 32, Issue 5
This Report summarizes opinions issued on January 15, 2025 (Part I); and cases granted review on January 10, 2025 (Part II).
Opinions
Royal Canin U.S.A., Inc. v. Wullschleger, 23-667.
The Court unanimously held that in a case that has been removed to federal court on the basis of federal-question jurisdiction, “[w]hen an amendment excises the federal-law claims that enabled removal, the federal court loses its supplemental jurisdiction over the related state-law claims.” Respondent Anastasia Wullschleger sued petitioner Royal Canin U.S.A. in state court alleging state consumer protection and factually intertwined FDCA claims. She asserted that the “company sells [a] product with a prescription not because its ingredients make that necessary, but solely to fool consumers into paying a jacked-up price.” Royal Canin removed the case to federal district court based on Wullschleger’s federal claims. In response, Wullschleger amended her complaint to excise any trace of her federal claims. She then petitioned the district court to remand the case to state court. Her petition was denied, but the Eighth Circuit reversed and remanded, finding that Wullschleger’s amendment eliminated any basis for federal jurisdiction. In an opinion by Justice Kagan, the Court affirmed.
The Court prefaced its opinion by noting that in Mine Workers v. Gibbs, 383 U.S. 715 (1966), it held that a federal court may exercise supplemental jurisdiction over state claims that derive from the same “nucleus of operative fact” as federal claims. This led to Congress codifying that supplemental-jurisdiction rule in 28 U.S.C. §1367. Turning to this case, the Court observed that §1367 does not distinguish between cases removed to federal court and those that were originally filed there. Therefore, whatever outcome the text of §1367 says about original cases it says about removed cases as well. The Court then observed that in Rockwell Int’l Corp. v. United States, 549 U.S. 457 (2007), it ruled that in original cases, when a plaintiff amends her complaint to withdraw the federal claims, she divests the federal court of jurisdiction. Because that same rule must apply in removed cases, when Wullschleger amended her complaint to withdraw the federal claims, it divested the district court of jurisdiction over her remaining state-law claims.
The Court went on to note that this outcome comports with the three contexts in which supplemental jurisdiction over state-law claims is discretionary under §1367 as being ill-suited for federal jurisdiction. In the amended complaint, the federal claims are not just subordinate to the state-law claims as in §§1367(c)(1) and (2) but completely gone. And unlike claims that are dismissed as provided in §1367(c)(3), no appellate court may revive the federal claims excised through a proper amendment. The Court observed that §1367(c)’s silence as to an amended complaint devoid of federal claims indicates that §1367(a) does not extend supplemental jurisdiction over such a complaint.
The Court then pulled out a simple rule from Rockwell that “explains a host of jurisdictional outcomes”: federal courts “look to the amended complaint to determine jurisdiction.” The Court noted that this rule comports with Congress’s usual view that an amended pleading can affect jurisdiction. It also follows courts’ familiar approach that jurisdiction flows from the operative pleading, such as when amendments destroy or create diversity of parties. Finally, the Court acknowledged that Rockwell included a footnote which said that “when a defendant removes a case to federal court based on the presence of a federal claim an amendment eliminating the original basis for federal jurisdiction generally does not defeat jurisdiction.” The Court here dismissed that sentence as dicta that, upon further analysis, was incorrect.
E.M.D. Sales, Inc. v. Carrera, 23-217.
The Court unanimously held that the preponderance-of-the-evidence standard governs when an employer seeks to prove that an employee is exempt from the minimum-wage and overtime-pay provisions of the Fair Labor Standards Act (FLSA). The FLSA guarantees covered workers a federal minimum wage and generally requires overtime pay when a covered employee works more than forty hours per week. The Act exempts various categories of employees from these requirements, recognizing that imposing minimum wage and overtime pay would be impractical or inappropriate for some jobs. One such exempted category is anyone employed “in the capacity of outside salesmen.” Several sales representatives who work for E.M.D. Sales, a company that distributes international food products, sued the company, alleging that E.M.D. violated the FLSA by failing to pay them overtime. E.M.D. argued that it did not have to pay these employees overtime because they fell within the outside-salesman exemption. Following a bench trial, the district court concluded that E.M.D. failed to demonstrate “by clear and convincing evidence” that the employees qualified as outside salesmen. The court therefore ordered E.M.D. to pay the employees overtime wages and liquidated damages. The Fourth Circuit affirmed, following circuit precedent that required employers to prove the applicability of the FLSA exemptions by clear and convincing evidence. In an opinion by Justice Kavanaugh, the Court reversed and remanded.
The Court recognized that, in 1938, when Congress enacted the FLSA, the default standard of proof in American civil litigation was the preponderance-of-the-evidence standard. This standard has remained the default standard of proof in American civil litigation since then. The Court noted three circumstances in which a deviation from the preponderance standard has been warranted. The first is when a statute establishes a heightened standard of proof. The second is when the Constitution requires application of a heightened standard of proof. And the third circumstance arises “when the government seeks to take unusual coercive action―action more dramatic than entering an award of money damages or other conventional relief―against an individual.” Price Waterhouse v. Hopkins, 490 U.S. 228, 253 (1989) (plurality opinion). Finding that none of these circumstances were applicable here, the Court concluded that “the default preponderance of the evidence standard governs when an employer seeks to prove that an employee is exempt under the Fair Labor Standards Act.“ The Court then rejected “the employees’ policy-laden arguments for a heightened standard when an employer seeks to show that an employee is exempt.”
Justice Gorsuch, joined by Justice Thomas, concurred in the opinion, but wrote to emphasize that, as in other contexts, where the Constitution or Congress does not provide a particular standard of proof, courts should find the appropriate standard by “examining the legal backdrop against which Congress has legislated.” The concurrence noted that in civil cases, these background legal principles typically require proof by a preponderance of the evidence.
Cases Granted Review
Becerra v. Braidwood Management, Inc., 24-316.
The Court will resolve whether the Fifth Circuit erred in holding that the structure of the U.S. Preventative Services Task Force (Task Force) violates the Constitution’s Appointments Clause, U.S. const. Art. II, §2, Cl. 2, and in declining to sever the statutory provision that it found to unduly insulate the Task Force from the Secretary of Health & Human Services’ supervision. Under the Affordable Care Act, health insurance issuers and group health plans must cover preventative services given an “A” or “B” rating by the Task Force without imposing any cost-sharing requirements on patients. 42 U.S.C. §300gg-13(a)(1). Congress has separately mandated that members of the Task Force and their recommendations “shall be independent and, to the extent practicable, not subject to political pressure.” 42 U.S.C. §299b-4(a)(6). A group of individuals and two small businesses (respondents) filed suit in federal district court contending that the Task Force’s structure violates the Appointments Clause because (in their view) the Task Force members are principal officers of the United States who have not been appointed by the President with the advice and consent of the Senate. The district court granted summary judgment in favor of the plaintiff-respondents, finding that the Task Force members “have no superior” because the Secretary “neither directs nor supervises” the Task Force or its members. The Fifth Circuit affirmed. 104 F.4th 930.
In Edmond v. United States, 520 U.S. 651 (1997), the Court defined “inferior officers” as “officers whose work is directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate[ ].” The Fifth Circuit reasoned that the Task Force members fall outside that definition because §299b-4(a)(6) immunizes their work and recommendations from direction and supervision by the Secretary. While the court of appeals acknowledged that the Secretary may remove Task Force members at will, it interpreted the language in §299b-4(a)(6) as mandating that the Task Force be free from outside control. It noted that “the Task Force cannot be ‘independent’ and free from ‘political pressure’ on the one hand, and at the same time be supervised by the HHS Secretary, a political appointee, on the other.” The court of appeals declined to sever §299b-4(a)(6), finding that its absence would not “empower” the Secretary to review and possibly reject Task Force “A” and “B” recommendations.
In its petition, the United States argues first that the Task Force members serve as inferior officers because they are subject to removal at will by the Secretary. Pointing Edmond’s analysis, it argues that unrestricted removability of an officer by someone other than the President is strong and likely dispositive evidence of inferior-officer status. Second, the United States argues that the court of appeals misconstrued §299b-4(a)(6). It argues that the provision simply seeks to ensure that the members exercise their own judgment, without regard to the organizations or professions in which they serve and free from influence of outside pressures. Finally, to the extent that §299b-4(a)(6) can be read as insulating the Task Force, the United States contends that the proper course is to sever the unconstitutional provision as the Court did in United States v. Arthrex, Inc., 594 U.S. 1 (2021). It noted that in Arthrex, severing the provisions shielding review of patent judges’ decisions by the Director of the Patent and Trademark Office permitted such review through the Director’s general power and duties and resolved the constitutional issue. Thus, under the Arthrex logic, after severing the improper portions of §299b-4(a)(6), the Secretary’s longstanding authority to supervise and direct the Public Health Service’s functions provides for appropriate review of Task Force members’ recommendations.
Respondents agree that certiorari is warranted, but dispute that the court of appeals erred. First, respondents argue that removability is only one factor in determining whether an officer is principal or inferior and that the aforenoted statutes preventing supervision and direction renders the Task Force members principal officers. Second, respondents argue that, despite the United States’ interpretation of §299b-4(a)(6), an Appointments Clause violation would remain because, as inferior officers, the Task Force members were improperly appointed by the Director of the Agency for Healthcare Research and Quality and not the head of the Department, the Secretary. Third, respondents argue that severing §299b-4(a)(6) would not render Task Force members “inferior officers” because the Secretary could not review the Task Force’s failure to recommend coverage of other services or items. Finally, respondents imply that severability is outside the Court’s power and would not redress their Article III injuries.
Department of Education v. Career Colleges and Schools of Texas, 24-413.
At issue is whether the Higher Education Act of 1965 (the Act) authorizes a Department of Education rule that allows the assessment before default, in administrative proceedings and on a group basis, of borrower defenses to repayment obligations based on misconduct of the borrower’s school. Pursuant to §455(h) of the Act, the Secretary of Education “shall specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan made under this part, except that in no event may a borrower recover from the Secretary, in any action arising from or relating to a loan made under this part, an amount in excess of the amount such borrower has repaid on the loan.” 20 U.S.C. §1087e(h). In 2022, the Department of Education announced a new rule that, among other things, specified several categories of acts or omissions (e.g., misconduct by the school) that a borrower can assert as a defense to repayment and provided that a borrower can obtain a loan discharge based on those asserted defenses in an administrative proceeding if certain criteria are met. The rule also reinstated a process that had previously allowed the Department of Education to consider submissions of a common defense among similarly situated borrowers on a group basis.
Five months after the 2022 rule’s promulgation, respondent, a trade association for Texas-based, for-profit higher education institutions, filed suit against the Department of Education and the Secretary of Education in federal district court to challenge the borrower defense and another provision of the rule. Respondent moved for a preliminary injunction, which the district court denied. The Fifth Circuit reversed and enjoined the challenged provisions of the rule on a universal basis. 98 F.4th 220. In granting the preliminary injunction, the Fifth Circuit held that the Department of Education lacked authority to review requests for an administrative discharge based on a borrower’s defense to repayment and to discharge a borrower’s loan when the Department finds the defense to be valid. The court construed §455(h) to permit borrowers to assert a defense to repayment of a loan only after collection proceedings have been instituted. Thus, it did not authorize the issuance of a regulation that describes “affirmative” defense claims that “borrowers can assert against schools to avoid their obligations.” The court also held that the Department’s administrative procedures, as enunciated in the rule, to assess borrower defenses and seek recoupment for discharged loans from the relevant schools were likely unlawful. The court noted that the plain text of the Act authorizes the Secretary of Education only to promulgate regulations. It does not grant him the power to adjudicate cases based on its regulations. And the court viewed §455(h)’s reference to a borrower recovering “in any action arising from or relating to a loan” to include only a lawsuit brought in court. The court further declared that the portions of the rule that reinstated procedures to consider similarly situated borrowers as a group were not statutorily authorized and were inconsistent with the Federal Rules of Civil Procedure, which govern class actions in federal court.
In their petition, the Department of Education and Secretary of Education assert that the Fifth Circuit’s conclusion rests on illogical and overly narrow readings of the statutory text. According to petitioners, the Department has historically interpreted §455(h) to authorize it to discharge a loan, if a borrower so requests, without first having to default on the loan. Petitioners argue that such an interpretation is consistent with the plain meaning of “defense” when interpreted in context, with the general principles of contract law, and with the statute’s history. And petitioners assert that the Act clearly empowers the Department of Education to assess borrower defenses in administrative proceedings invoked at the borrower’s request. Petitioners contend that this is evidenced by Congress’s mandate that the Department conduct a pre-deprivation hearing before disclosing a borrower’s past-due loan to credit reporting agencies or attempting to collect on the loan through wage garnishment or payment offsets. On the group-claims issue, petitioners note that Congress gave the Department broad authority to promulgate regulations to administer and operationalize the student loan program and to “compromise, waive, or release any right, title, claim, lien, or demand” the Secretary has acquired in administering student loans. Petitioners contend that, under this authority, the Department is empowered to resolve borrower-defense claims, and to do so on a group basis for similarly situated borrowers.
Commissioner of Internal Revenue v. Zuch, 24-416.
The Court will resolve whether a 28 U.S.C. §6330 proceeding becomes moot when there is no longer a live dispute over the proposed levy that gave rise to the proceeding. Congress enacted §6330 to provide a mechanism for pre-deprivation review of an Internal Revenue Service levy to collect unpaid taxes. Pursuant to §6330, a taxpayer is entitled to notice and an opportunity for a hearing before the IRS Appeals Office before the IRS proceeds with a proposed levy on her property. At that hearing, the taxpayer may raise “any relevant issue relating to the unpaid tax or the proposed levy,” and may also challenge “the existence or amount of the underlying tax liability” if the taxpayer “did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.” If a hearing officer determines that the proposed levy may go forward, the taxpayer may petition the tax court for review of that decision.
In 2013, the IRS sent respondent a notice and demand for payment of unpaid taxes from 2010. After she failed to pay, the IRS sent her a notice of intent to levy on her property to collect her unpaid taxes. Respondent requested a pre-levy hearing before the appeals office pursuant to §6330. At that hearing, respondent challenged the proposed levy and her underlying tax liability, claiming that she had prepaid the tax. The appeals office sustained the levy, ruling that $50,000 in estimated taxes prepaid by respondent and her then-husband had already been applied to his account and so could not be applied to her account. Respondent petitioned the tax court for review of that decision. While the issue was being litigated over several years, the IRS withheld tax refunds owed to respondent and applied them to what it claimed the respondent owed, satisfying the balance in full. When the IRS determined that respondent’s outstanding tax balance had been paid, it filed a motion to dismiss as moot the pre-levy proceeding before the tax court. It explained that it no longer intended to pursue the proposed levy since the underlying liability had been paid. In April 2022, the tax court granted the motion and dismissed respondent’s §6330 case. The Third Circuit disagreed that respondent’s case was moot and remanded for the tax court to resolve whether respondent was entitled to the $50,000 estimated tax payments that the IRS had allocated to her then-husband. 97 F.4th 81.
The Third Circuit ruled that the tax court has jurisdiction to review setoffs in a §6330 proceeding. And it concluded that the IRS’s use of setoffs here to satisfy respondent’s disputed liability was invalid and violated mootness principles. The court also held that a §6330 proceeding does not become moot even though the IRS no longer seeks to levy on a person’s property. The court noted that where, as here, a taxpayer asserts a claim under §6330(c)(2)(b), the tax court still has jurisdiction to review a person’s “underlying tax liability,” even if “the levy is no longer being enforced or the tax is satisfied.” This is because §6330(c)(2)(B) provides taxpayers with a mechanism to assert a challenge to such liability independent from any issue relating to an unpaid tax or proposed levy. The court noted that §6330 is not directed towards helping the IRS collect taxes via lien or levy. Instead, the statute “provides taxpayers a forum to challenge a lien or levy and accounts for different circumstances in which that need may arise―including the circumstance in which the taxpayer had no opportunity to challenge her underlying liability.” According to the Third Circuit, construing the statute more broadly to allow a taxpayer to challenge her underlying tax liability, even after the IRS ceases collection, comports with the text of §6330, supports the statute’s overall objective, and is consistent with due process principles.
In its petition, the Commissioner of Internal Revenue adopts the view of the Fourth and D.C. Circuits. He argues that the tax court’s review of the IRS Appeals Office’s decision in a §6330 proceeding is limited to whether the office properly sustained or rejected the proposed levy. Thus, according to the Commissioner, if a proposed levy becomes moot, a taxpayer cannot use a §6330 proceeding to independently challenge the existence or amount of her underlying tax liability. The Commissioner contends that the statutory text of §6330(c)(2)(B) dictates that such a challenge can be made only in connection with a challenge to the proposed levy. The Commissioner also argues that the Third Circuit erred in reasoning that a §6330 proceeding is not moot because the IRS’s setoffs were invalid. He points out that the tax court is a court of limited jurisdiction. And he argues that nothing in §6330 grants the tax court jurisdiction to review the IRS’s exercise of authority under §6402(a) to credit a taxpayer’s overpayments against her tax liability.
NAAG Center for Supreme Court Advocacy Staff
- Dan Schweitzer, Director and Chief Counsel
- Sianha Gualano, Supreme Court Fellow
- Nicole Nixon, Supreme Court Fellow
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