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In Bland v. Roberts,1 the Fourth Circuit held that “liking” a politician’s campaign Facebook page constituted protected speech under the First Amendment.2 In doing so, the court resolved an issue of first impression that interconnects First Amendment jurisprudence with social media’s influence on how people express themselves. The six plaintiffs in Bland are former employees of the Hampton, Virginia Sheriff’s Office, run by Sheriff B.J. Roberts. In November 2009, Roberts was pursuing reelection and running against an employee, Jim Adams.3 Plaintiffs alleged that in the summer of 2009, Roberts learned that they each expressed support for Adams’ campaign. One of the plaintiffs expressed his support for Adams by “liking” his campaign’s Facebook page.4 After winning reelection that year, Roberts reappointed 146 of his 159 full-time employees; the six plaintiffs were not reappointed.5 In March 2011, the plaintiffs filed suit in federal district court, alleging Roberts violated their First Amendment rights when he declined to reappoint them due to their support of Adams in the 2009 election.6
In December 2011, Roberts moved for summary judgment, asserting, among other claims, that the plaintiffs had not adequately alleged protected speech under the Constitution.7 The district court granted Roberts’ motion for summary judgment and, regarding the activity on Adams’ campaign’s Facebook page, concluded that “merely ‘liking’ a Facebook page is insufficient speech to merit constitutional protection.”8 The court distinguished “liking” a Facebook page from cases where people posted actual statements on a particular Facebook page; the latter determined by the court to be expressions of constitutionally protected speech.9 The court reasoned that “liking” a Facebook page is neither substantive nor a type of statement that has previously warranted constitutional protection, arguing that it would be improper for a court to infer the significance of simply “liking” Adams’ Facebook page without indicia of a specific statement.10 On appeal, the plaintiffs maintained that the district court erred in granting summary judgment and renewed their allegations that Roberts retaliated against them in violation of their First Amendment rights by choosing not to reappoint them due to their support of his electoral opponent.11 Carter, the plaintiff who “liked” Adams’ campaign Facebook page, specifically argued that his “like” was protected speech.
The First Amendment of the U.S. Constitution sets forth that “Congress shall make no law . . . abridging the freedom of speech.”12 Nevertheless, not all speech constitutes protected speech; in fact, there are particular types of speech that are afforded no protection at all. For example, such protection would not extend to a person who falsely shouts “Fire!” in a theater initiating a panic throughout the crowd, nor would it apply to an individual who solicits another person to commit a specific crime.13 The First Amendment affords the broadest protection to the discussion of public and political issues.14 Indeed, one of the principal purposes of the First Amendment is to protect free discussion of governmental matters.15 Political speech is at the heart of what the First Amendment serves to guard; thus, it is afforded the highest level of constitutional protection and receives unique deference.16
The Supreme Court has acknowledged that although the First Amendment applies only to traditional “speech,” the expressive nature of particular actions should also be afforded protection.17 Expressive conduct, falling within the scope of the First Amendment, must be “sufficiently imbued with elements of communication.”18 The Supreme Court has determined that there are a number of symbolic acts that constitute speech and are thus afforded protection under the First Amendment. In 1969, for example, the Court held that wearing black armbands representing disapproval of the Vietnam War was a symbolic expression protected by the First Amendment.19 Subsequently, in 1974, the Court held that hanging an upside down American flag with a peace symbol affixed on it constituted symbolic speech that fell within the scope of the First Amendment.20 Notably, in 1994, the Court held that a citywide ban on almost all residential signs violated the First Amendment, emphasizing the tradition of expressing political views through signs on one’s residence.21 The Court highlighted a two-part analysis to determine what symbolic speech was afforded constitutional protection: is there “[a]n intent to convey a particularized message,” and “in the surrounding circumstances [is] the likelihood . . . great that the message would be understood by those who viewed it[?]”22
While the conduct in the previously discussed cases is far from an exhaustive record of the Court’s recognition of symbolic speech, it serves to illustrate the Court’s practice of liberally interpreting what constitutes protected speech under the First Amendment. Given this trend, it seems appropriate that, in an era of social media, the Fourth Circuit in Bland held that “liking” a politician’s campaign Facebook page constituted protected speech. Facebook, one of today’s most popular social media platforms, has an estimated 1.19 billion monthly active users and 874 million monthly active mobile users worldwide.23 Facebook’s website serves as an “online social network where members develop personalized web profiles to interact and share information with other members.”24 Facebook users share a variety of information on this website including “news headlines, photographs, videos, personal stories, and activity updates.”25 Users publish such information to their own personal user profiles and the information is then accessible by the users’ “friends,” who are other Facebook users within their online network.26
According to Facebook, more than three billion “likes” and comments are posted on its website every day.27 The “like” button, represented by a “thumbs up” symbol, is a way for Facebook users to indicate to other users that they enjoy something that another user posted on the website.28 When a Facebook user “likes” something on Facebook, that user’s name is published beneath the item and a story is published on the user’s timeline.29 “Liking” a particular Facebook page signifies that the user is connecting to that page; the page will appear on the user’s timeline and the user will appear on the page as a person who “likes” that page.30 Further, when a user “likes” a page it may also appear on the user’s “friend’s” News Feeds and other places on Facebook.31
In Bland, one of the plaintiffs visited Adams’ campaign Facebook page and clicked the “like” button. As a result, his name and picture were added to Adams’ campaign Facebook page, and the campaign Facebook page’s name and Adams’ photo was likewise added to this plaintiff’s profile. “Liking” Adams’s campaign Facebook page served as an announcement to all of the plaintiff’s Facebook “friends” and all Facebook users viewing the campaign Facebook page that this plaintiff supported Adams. The Fourth Circuit held that, in understanding the implications of “liking” the campaign Facebook page, it becomes evident that such conduct qualifies as speech.32 The court explained that on the most rudimentary level, clicking the “like” button creates a published statement that the user “likes” something, which qualifies as a substantive statement.33 Here, in the context of the plaintiff “liking” a political campaign Facebook page, it is abundantly apparent that the “like” indicated that the plaintiff approved of Adams’ candidacy.34 The court held that whether the plaintiff “liked” the political campaign’s Facebook page with the click of a mouse or typed out the same message with individual keystrokes was of no constitutional significance.35 Further, the Fourth Circuit stated that while “liking” Adams’ campaign Facebook page constituted pure speech, it was also symbolic expression.36 The “thumbs up” icon that Facebook associates with “liking” a page conveyed the plaintiff’s endorsement of Adams’ candidacy.37 Thus, the Fourth Circuit held that “liking” a political candidate’s campaign Facebook page communicates to people viewing the plaintiff’s profile or campaign Facebook page that the user approves of and supports the candidate—the Internet equivalent of displaying a political sign on one’s front yard.38
The Internet has undoubtedly increased the public’s ability to access information about political candidates and the issues surrounding their campaigns. Social media, in particular, provides political candidates with an effective and cost-efficient platform, which allows the candidates to reach out to, and gain support from, an ample amount of individuals.39 Social media gives candidates the platform and ability to update their supporters on a moment’s notice and develop personal connections with their constituents.40 Arguably, candidates and elected officials who are not using social media are at a disadvantage to those who are because familiarity breeds trust. Moreover, social media websites, such as Facebook, provide a platform that allows voters to become involved in the political process without having to leave their computer screens. Never before has it been easier for people from every corner of the political sphere—from voter to candidate—to communicate their ideas and opinions.
It is critical that courts be insistent that the breadth of the First Amendment encompasses speech created through the use of modern technologies, as many are using social media as their preferred avenue to express their political views and ideas. Print newspaper, radio, and television have given way to the Internet. Social media websites are changing the nature of political campaigns and speech itself. Websites such as Facebook, Twitter, and YouTube are among the most popular websites used for political speech, conversation, and coordination.41 Although the court in Bland properly determined that “liking” a campaign’s Facebook page constitutes speech within the meaning of the First Amendment, it would be naive to assume that First Amendment issues concerning expression on social media have been resolved. It is more likely that Bland will set the stage for courts to consider, if they have not been doing so already, other aspects of social media that should be afforded constitutional protection under the First Amendment. For instance, if “liking” a campaign’s Facebook page is protected under the First Amendment, does that protection extend to merely “sharing” a campaign’s Facebook page?42 It is probable that Bland will serve as a catalyst and model for courts to broaden, rather than redefine, the concept of protected political speech in an age where social media has become embedded in the political process. While the Fourth Circuit in Bland upheld the Supreme Court’s tradition of broadly construing what constitutes protected political speech (including both pure and symbolic), it is crucial that courts continue to do the same in this era of rapid technological progress.
Josephine Unger, Case Note, Thumbs Up: Fourth Circuit in Bland Determines Facebook “Likes” Are Protected Under the First Amendment, 1 Suffolk U. L. Rev. Online 124 (Dec. 6, 2013), http://www.suffolklawreview.org/unger-bland.
Many have argued that the tax-return preparation industry is behind the licensing curve. The National Consumer Law Center and National Community Tax Coalition have even noted, “[m]ore regulation is required of hairdressers in many states.”1 The Internal Revenue Service (IRS) sought to change this by extending its regulatory reach to tax-return preparers. However, the IRS’s right to regulate this industry is currently being litigated. In Loving v. IRS,2 three paid tax-return preparers, who were not previously subject to IRS regulation, sued the IRS in the United States District Court for the District of Columbia seeking injunctive and declaratory relief. After discussing the district court’s holding in Loving and the parties’ appellate arguments, this Essay analyzes the legal and policy considerations on both sides of the issue. Ultimately, this Essay concludes that the debate surrounding the IRS’s right to regulate paid tax-return preparers will end in regulation. What remains to be seen is whether a regulatory scheme will take effect through judicial blessing or legislative action. Congress has shown an appetite for legislation that would allow the IRS to regulate tax-return preparers. Thus, regardless of Loving’s outcome, tax-return preparers appear destined for regulation, like many other professions.
A brief history of the regulation of “practice” before the IRS is necessary to frame the debate surrounding the regulation of paid tax-return preparers. The United States Department of the Treasury’s (the Treasury) authority to regulate tax professionals dates back to the Horse Act of 1884.3 The Horse Act arose primarily because of concerns regarding fraudulent claims against the government for the value of dead horses and lost property during the Civil War.4 The Act predates the modern income tax by twenty-nine years and its provisions are now codified in 31 U.S.C. § 330:
(a) Subject to section 500 of title 5, the Secretary of the Treasury may—(1) regulate the practice of representatives of persons before the Department of the Treasury; and (2) before admitting a representative to practice, require that the representative demonstrate—(A) good character; (B) good reputation; (C) necessary qualifications to enable the representative to provide to persons valuable service; and (D) competency to advise and assist persons in presenting their cases.5
This legislative grant of regulatory authority spurred the Treasury to publish circulars containing guidance for agents.6 In 1921, those circulars were combined with other statutes into the precursor of the IRS’s modern day Circular 230, entitled “Regulations Governing Practice Before the Internal Revenue Service.” Since 1921, Circular 230 has listed a wide spectrum of qualifications and entrance requirements for determining who may practice before the IRS. From early on, Circular 230 prohibited anyone other than attorneys and Certified Public Accountants (CPAs) from practicing. Revisions in 1951 removed this restriction allowing anyone who passed an entrance examination prepared by the American Institute of Certified Public Accountants (AICPA) to practice. Then, driven by high demand for practitioners, the rules changed again in 1959 to define practitioners as attorneys, CPAs, and anyone who could pass the Special Enrollment Exam developed by the Treasury. Those who can practice by virtue of having passed the enrollment exam are known as Enrolled Agents (EAs). Generally speaking, Circular 230 has remained static for the past fifty-four years in terms of who can practice.7
Before discussing the recent Circular 230 revision that launched the legal battle in Loving, it is important to define practice before the IRS and explain which practitioners were bound by Circular 230’s standards of conduct prior to the 2011 change. The crux of the issue is that Circular 230 defines practice broadly to include return preparation, but defines practitioner narrowly to exclude return preparers who are not attorneys, CPAs, or EAs.8 Practice before the IRS encompasses “all matters connected with a presentation to the Internal Revenue Service or any of its officers or employees relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the Internal Revenue Service.”9 Attorneys, CPAs, and EAs do not make up the entirety of individuals allowed to practice before the IRS. Circular 230 allows for limited practice by unenrolled return preparers. These unenrolled preparers may prepare returns and represent taxpayers during audits of the returns, but may not represent taxpayers during the IRS appeals process.10 The issue is this: both practitioners and unenrolled preparers can practice by filing tax returns, but only practitioners are subject to Circular 230’s standards and sanctions. To provide an example of the type of preparer omitted from coverage, H&R Block, Jackson Hewitt, and Liberty Tax Service are the three largest employers of (primarily) unenrolled preparers.11
The consternation regarding lack of oversight of unenrolled preparers fueled a 2009 IRS study, which described the need for regulation in dramatic fashion.12 Accordingly, in August 2011, the IRS implemented a program to license and regulate paid tax-return preparers who were not already under the purview of Circular 230. The regulatory scheme creates a category of “Registered tax return preparer” (RTRP) in Circular 230’s definition of practitioner.13 This change brought RTRPs into the fold of Circular 230’s standards of conduct and sanctions for violations. In addition, it left unenrolled return preparers grappling with new registration requirements, including a one-time competency exam and fifteen hours of annual continuing education.14 Registration would not change the scope of their ability to practice because RTRPs, like unenrolled preparers before them, may not practice at the IRS appeals level. Under these changes, formerly unregulated preparers now face the double burden of registration requirements and mandatory standards of conduct, including sanctions for improper behavior.
III. Loving v. IRS
A. The District Court’s Decision
The IRS’s RTRP regulations went into effect on August 2, 2011. The following March, Sabina Loving, Elmer Kilian, and John Gambino (collectively, Loving et al.) filed a lawsuit challenging the legality of the new regulations under the Administrative Procedure Act (APA). The APA requires that courts strike down agency action that exceeds the agency’s statutory authority.15 The Supreme Court, in the seminal case of Chevron U.S.A., Inc. v. National Resources Defense Council,16 interpreted the APA using a two-step inquiry. Step one asks whether “the intent of Congress is clear;” or in other words, whether the statute authorizing agency action is ambiguous.17 If ambiguity exists, then step two asks whether the agency based its interpretation “on a permissible construction of the statute.”18 Step two defers to the agency’s interpretation unless it is “arbitrary, capricious, or manifestly contrary to the statute.”19 The Supreme Court’s language in Chevron represents the judiciary’s general policy to avoid substituting a court’s judgment for the reasonable judgment of agencies. Placing Loving into the Chevron framework, the question under step one is whether the authority granted to Treasury under § 330(a)(1) to “regulate the practice of representatives of persons before the Department of the Treasury” express Congress’s unambiguous intent to give the IRS power to regulate unenrolled preparers. The district court in Loving based its decision solely on step one of the Chevron two-step inquiry.20
1. The District Court’s Analysis of § 330
The district court concluded that the IRS’s statutory authority to regulate representatives who practice before it unambiguously did not include tax-return preparers. The court began by dividing a taxpayer’s interaction with the IRS into three potential stages: filing a tax return (“assessment and collection”), auditing the return (“examination”), and appealing the outcome of the audit with the IRS (“appeals”). For the second and third stages, the court explained that an attorney or CPA is typically involved to advocate for the taxpayer. All three stages are, of course, prior to a taxpayer having a dispute that would be litigated in federal court. It is obvious from the court’s description of these three stages of interaction with the IRS that it believes the first step is void of any “representative” feature. The court would engage in statutory analysis to support its conclusion.
The district court explained that although the statute does not define practice or representative, it tells us that representatives “advise and assist persons in presenting their cases.”21 The court reasoned that “[f]iling a tax return would never, in normal usage, be described as ‘presenting a case,’” because when a taxpayer files a tax return, there is no dispute or case to present.22 Thus, the court concluded that the statute’s language unambiguously prohibits the IRS from regulating the practice of unenrolled preparers, and therefore step two of the Chevron inquiry was not applicable. Accordingly, the court granted an injunction against the IRS—mandating a halt to the RTRP program—and refused to grant a motion to stay the injunction pending the outcome of the IRS’s appeal.23
The district court’s analysis stemmed from an earlier decision of the D.C. Circuit, which requires that, absent a definition, the “words of the statute should be read in context, the statute’s place in the overall statutory scheme should be considered, and the problem Congress sought to solve should be taken into account” to determine whether Congress has foreclosed the agency’s interpretation.24 Presenting a case may mean different things depending on the context. Presenting a case for promotion means something different than presenting a case for a not-guilty verdict in a murder trial. The former typically does not involve a legal dispute, while the latter does. The district court, however, stood firm that “[a]t the time of filing, the taxpayer has no dispute with the IRS; there is no ‘case’ to present. This definition makes sense only in connection with those who assist taxpayers in the examination and appeals stages of the process.”25
Yet, the meaning of presenting a case varies with context. Normally, statutory analysis of this kind would examine the legislative history surrounding the adoption of the particular statute. Unfortunately, the Horse Act was adopted twenty-nine years before the codification of the Internal Revenue Code (the Code). In addition, the later substitution of “representatives of persons” for “agents, attorneys, or other persons representing claimants before his department” was part of “An act to revise, codify, and enact without substantive change certain general and permanent laws, related to money and finance, as title 31, United States Code, ‘Money and Finance.’”26 The revisions were a housekeeping effort rather than a change in the underlying law. So, where do we turn for clues as to the meaning of presenting a case in this context? We know that the Horse Act was designed to curb fraudulent claims against the government for the value of property lost during the Civil War.27 The modern equivalent could be fraudulent claims by preparers (on behalf of taxpayers) for reduced tax liability, refund, or entitlement to various government assistance administered through the Code.
2. The District Court’s Broader Statutory Analysis
After concluding that the text of § 330 unambiguously forecloses the IRS’s ability to regulate unenrolled preparers as representatives who practice before the IRS, the district court offered additional statutory support for its holding. Specifically, the court cited the Code’s existing penalty and injunction scheme against unlawful return preparers.28 The court reasoned that giving the IRS the power to impose monetary penalties on unenrolled preparers and revoke their right to file returns would render the existing Code scheme obsolete. Furthermore, the court contended that it is only the existing scheme that represents Congress’s clear intent to punish unlawful preparers. That is, the specific scheme of the Code trumps the more general authority granted to the IRS under § 330.
The district court admitted the weakness in this line of reasoning.29 Indeed, the same overlap of Code penalties with Circular 230 penalties already exists for attorneys, CPAs, EAs, and others enrolled to practice before the IRS. One of the court’s main concerns with the RTRP program is that it would allow the IRS to strip unenrolled preparers of their ability to practice without the procedural protections, such as judicial review, provided in the Code.30 But these protections have already been eliminated for other practitioners without fanfare. The court rightly concluded that the IRS would almost never pursue injunctive relief under the Code when it could get the same result with far less work under Circular 230. But the court ignored that this overlap already exists, regardless of whether Circular 230 covers unenrolled preparers. Return preparation is an activity constituting “practice before the Internal Revenue Service” under Circular 230.31 What probably confused the court is that only practitioners—defined to exclude unenrolled preparers in the pre-2011 version of Circular 230—are subject to penalties and sanctions with respect to unlawful tax returns. In other words, the addition of the RTRP category only extends to unenrolled preparers the overlap of Code penalties and Circular 230 penalties that already exist for credentialed practitioners. In addition, attorneys are subject to regulation in triplicate because they are also governed by the rules of professional conduct. A lawyer who filed an unlawful tax return could be disbarred from practice before the IRS under Circular 230, enjoined from filing tax returns under Code § 7407, and disbarred from practicing law anywhere she has an active license. Unlawful tax-return preparation has always been the target of overlapping penalties, but prior to 2011, only with respect to credentialed preparers.32
B. The IRS’s Appeal
Not surprisingly, given the far-reaching implications of the district court’s decision and the cost the IRS incurred in developing the RTRP program, the IRS appealed the decision to the United States Court of Appeals for the District of Columbia. As previously discussed, the IRS both appealed the decision and filed a motion to defer the injunction pending the outcome on appeal. The court denied the deferral, but clarified that the IRS could proceed with its preparer tax identification number (PTIN) program.33 Effective January 1, 2011, all paid tax-return preparers must obtain a PTIN.34 A preparer must enter her PTIN on any tax return or claim for refund she prepares. Obtaining a PTIN is as easy as applying and paying the fee. The IRS issues PTINs regardless of the preparer’s competency or skill level. Preparers must pay an annual fee to renew their PTINs. The IRS may conduct a federal tax compliance check on a preparer who applies for, or renews, a PTIN. The PTIN requirement continues to apply to all preparers, including unenrolled preparers who are not regulated by the IRS in the wake of the Loving decision.
After the district court’s decision, five former Commissioners of the IRS filed an amicus brief35 with the Court of Appeals for the D.C. Circuit, supporting the IRS’s contention that the statute does not clearly exclude unenrolled preparers from IRS regulation.36 The essence of their argument is that because of the complexity and importance of our tax system, through which the government administers a wide variety of social welfare programs, unenrolled preparers are not simply calculating an individual’s tax liability, but are also presenting the case for entitlement to government assistance. Specifically, the Commissioners disagree with the district court’s assessment that “[f]iling a tax return would never, in normal usage, be described as ‘presenting a case.’” They argue that:
Given the content and scope of the modern Internal Revenue Code, a tax return preparer is no longer merely poring over a box of receipts in green eyeshades (if such a caricature ever described the full role of the tax return preparer). Instead, the preparer must explore with taxpayer-clients critical issues such as health care, child care, family relationships, education goals, home ownership, charitable giving, saving for retirement, and any number of other public policy goals that Congress has decided to address through the Internal Revenue Code.37
The Commissioners’ basis for attaching increased importance to the role of the modern tax-return preparer centers on “refundable credits,” which not only have the potential to wipe out a taxpayer’s tax liability, but also may result in a refund. Their examples of refundable credits include: the earned income credit,38 the child tax credit,39 the health insurance costs credit,40 the first-time homebuyer credit,41 the Making Work Pay credit,42 and the adoption expenses credit.43 The American Opportunity Tax credit also belongs on this list of refundable credits. For tax years 2009 to 2017, up to $1000 of this credit for educational expenses is refundable, subject to income-based eligibility constraints.44 A more detailed explanation of these credits and the difference from a nonrefundable credit will help make the point. The adoption expenses credit was originally enacted in 1996, providing for an initial maximum credit of $5000.45 The credit was adjusted for inflation over the years and was nonrefundable for years 1997 to 2009. For 2010 and 2011 the credit became refundable, with maximum amounts of $13,170 and $13,360, respectively.46 The credit has always been subject to elimination (phaseout) for higher-income taxpayers.47 Imagine a taxpayer with income below the phaseout threshold, who spent $10,000 adopting a child in 2009 and had a tax liability (before applying the credit) of $8000. The credit would eliminate the tax liability. But how much better off would that same taxpayer be if the adoption occurred in 2010? Under the same facts, but with a refundable credit, the taxpayer would receive a $2000 check from the federal government. Under this simplified example, there is a striking difference between a refundable and nonrefundable credit. The Commissioners’ argument is that the government administers social programs through refundable credits, which are offered independent of tax liabilities (at least to the extent of the refundable portion). Accordingly, tax-return preparers are not merely performing a simple calculation of tax liability, but are making the case for entitlement to government assistance in the form of payouts.
Adequate disclosure requirements for certain positions taken on a tax return offer additional support for the argument that the statutory language presenting a case encompasses the filing of a tax return. Indeed, questionable positions on a tax return must be disclosed, explained, and substantiated in order to avoid penalties if the IRS later assesses a tax deficiency. The Code includes penalties against taxpayers and tax-return preparers for the underpayment of taxes resulting from an improper tax return.48 Both parties can avoid penalties by adequately disclosing the questionable position that resulted in reduced tax liability.49 The idea is that if a preparer gives the IRS an honest description of the position, there should not be any penalty on top of additional taxes owed. Noncash charitable contributions fall into the category of questionable positions because of valuation challenges. But determining value is a necessary step to claiming the charitable contribution deduction. The IRS provides Form 8283 to assist taxpayers in substantiating the value of a noncash charitable contribution. For example, a taxpayer who donates a painting worth more than $20,000 to the Metropolitan Museum of Art must obtain a qualified appraisal and attach the appraisal to Form 8283. In addition, the Metropolitan Museum of Art and the appraiser must sign Form 8283 indicating receipt of the painting and the veracity of the appraisal, respectively. A taxpayer who follows all of these steps meets the adequate disclosure requirement to avoid any potential penalty stemming from an IRS audit of the charitable contribution.50 The above process for claiming a noncash charitable-contribution deduction requires tax knowledge beyond the scope of that possessed by the average individual taxpayer. Its complexity goes beyond checking a box or entering a dollar figure. In that regard, the preparer is acting as an advocate for the taxpayer in presenting a case not only to claim the deduction, but also to avoid any penalties that could arise from an IRS audit of the contribution. The case is the detailed substantiation of the value of the artwork. Without the presentation of this case, the taxpayer gets no deduction. Clearly, this function of a preparer goes well beyond simply transferring wages from the Form W-2 Wage and Tax Statement to the Form 1040 U.S. Individual Income Tax Return.
Loving et al. did not object to IRS regulation of unenrolled preparers representing a taxpayer during audit. Rather, their only objection is to the regulation of unenrolled preparers who do nothing but file returns. The curious result of the district court’s holding is that the IRS lacks authority to regulate the preparation of a return, but would somehow be able to impose competency standards if the preparer decided to represent a taxpayer during an audit of that same return. The mechanics of that would be awkward, at best. Would the unenrolled preparer have to take a competency exam before becoming a practitioner and representing the taxpayer during the audit? Would the Circular 230 standards retroactively apply to the preparation of the return in question? For example, practitioners are bound by Circular 230’s prohibition against signing a return containing an unreasonable position.51 If an unenrolled preparer became subject to IRS regulation during an audit of a return, it would follow that she would be bound by this prohibition. So, we would arrive at the same result of the IRS regulating the act of return filing by unenrolled return preparers.
A three-judge panel for the D.C. Circuit heard oral arguments on September 24, 2013.52 For the most part, both sides reiterated their arguments from the initial trial. The attorney representing the IRS, Gilbert Rothenberg, argued that § 330 is ambiguous, while the attorney representing Loving et al., Dan Alban, argued that the statute is clear and excludes return preparers. Alban stressed the distinction between tax compliance and tax controversy, arguing return preparers engage only in the former and thus are not being covered by the statutory language about presenting a case.53 The judges bombarded Rothenberg with questions, leading one commentator to facetiously conclude “Court of Appeals Not Loving IRS Arguments.”54 Clever, and probably true.
Rothenberg could have done a more effective job of advocating for the IRS. He argued that there is a blurred line between professionals performing a tax compliance function and those performing a tax controversy function.55 But he should have attacked Alban’s repeated assertion that the tax compliance function is one of “mandatory self-assessment of one’s tax liability.”56 That could not be further from the truth. At this time, the Code is far too complex for the vast majority of taxpayers to be able to self assess. Indeed, most taxpayers require and seek assistance in complying with their reporting obligations.57 Even more striking, many taxpayers know so little about tax law that they are at the mercy of the assertions and conclusions the preparer makes on their behalf. For these reasons, return preparers do, in fact, “advise and assist persons in presenting their cases.”58
The D.C. Circuit’s panel of presiding judges hammered Rothenberg right out of the gate by asking him why, if the IRS always had the statutory power to regulate return preparers, did it wait 130 years to exercise that power?59 Rothenberg responded that the APA allows an agency’s interpretation of its governing legislation to evolve over time.60 Alban agreed.61 In fact, the Chevron case expressly provides for the evolution of agency decisions and interpretations: “[An] agency, to engage in informed rulemaking, must consider varying interpretations and the wisdom of its policy on a continuing basis.”62 This flexibility appears to authorize the IRS to change its definition of representative, as the increased complexity of the Code and its administration of various government assistance programs requires a tax professional to present a case on behalf of a taxpayer at a much earlier stage in the process than would have been the case historically. The Commissioners cite refundable credits to support their argument for the role of tax-return preparers as advocates. All of these credits are recent additions to the Code. The earned income credit was enacted in 1975 and is by far the oldest of the refundable credits, apart from the credit for excess wages withheld.63 The child tax credit was enacted in 1997,64 the health insurance cost credit was enacted in 2002,65 and all of the other listed credits were adopted (or made refundable) in 2008 or later.66 The recent advent of most refundable credits lends further support to the argument that the IRS’s definitions of representatives and practice should be able to change as the Code and role of return preparers change. It has been less than six years since the adoption of several refundable credits that changed the landscape of tax-return preparation, increasing the role of preparers in helping taxpayers present their case for entitlement to government assistance.
Along the same lines, Alban argued that return preparers cannot be considered representatives because the IRS does not require them to file a Form 2848 Power of Attorney and Declaration of Representative (POA) to act on behalf of the client.67 A POA is required when a tax professional wishes to represent a taxpayer during IRS audit or appeal. Alban’s argument is factually accurate, but ignored the IRS’s ability to change its definition of representative with the changing landscape of tax-return preparation.68 In other words, the fact that the IRS does not currently require a POA for tax-return preparation does not preclude it from later defining representative to include return preparers.
A discussion of legal arguments would not be complete without mentioning step two of the Chevron analysis. Both Loving and the IRS gave short shrift to step two, probably because if the IRS prevails on step one, its victory under step two is almost certain.69 If the court concludes under step one that the meaning of representatives in § 330 is ambiguous, step two gives deference to the IRS’s interpretation. Deference means that the IRS’s interpretation will prevail unless it is “arbitrary or capricious in substance, or manifestly contrary to the statute.”70 “When a challenge to an agency construction of a statutory provision . . . centers on the wisdom of the agency’s policy, rather than whether it is a reasonable choice within a gap left by Congress, the challenge must fail.”71 Indeed, “[i]n such a case, federal judges—who have no constituency—have a duty to respect legitimate policy choices made by those who do.”72 In other words, a reasonable interpretation by the IRS would be upheld under a step-two analysis, despite any policy arguments made by the plaintiffs. That is because the judicial branch is in the business of interpreting the law, not making policy arguments; the latter is left to Congress. This makes sense because if a court upholds the IRS’s interpretation of representatives and Congress disagrees for policy reasons, Congress can simply legislate a different result.
IV. Policy Considerations in Support of Regulation
The district court reiterated the principle that policy considerations cannot override its interpretation of the text and structure of a statute. The court remarked that “[i]n the land of statutory interpretation, statutory text is king.”73 But these considerations are worth exploring. If the IRS loses this battle in the judiciary, it may turn to Congress, where policy arguments are paramount. Indeed, there have been a number of bills introduced in Congress to give the IRS express authority to regulate tax-return preparers.74 The Senate Committee on Finance recently lamented the potential judicial defeat of the RTRP program explaining, “[i]f the IRS does not prevail in its appeal of the Loving case, it will lose an important tool to increase tax compliance and protect taxpayers from unethical tax-return preparers.”75 There is legislative appetite and enthusiasm for return preparer regulation.
A. Consumer Protection
Consumer protection is the argument most frequently made in support of preparer regulation. Prior to enacting the RTRP regulations, the IRS studied preparer compliance, largely by examining “mystery shopper” tests.76 As an example, the Treasury Inspector General for Tax Administration (TIGTA) had its auditors pose as taxpayers and “shopped” twenty-eight unenrolled return preparers, twelve of whom worked for commercial tax-return firms and sixteen of whom worked at or owned a small firm.77 The shopped preparers were asked to prepare a return from one of five scenarios, none of which dealt with complex tax topics. TIGTA summarized the results by breaking out the tax returns into sixteen topics and calculating accuracy on each topic. Accuracy ranged from 0% on business expenses to 100% on wage income, with lots of inaccuracy in between. There was only 60% accuracy on itemized deductions (such as the mortgage-interest deduction), only 50% on education credits, and only 8% on self-employment tax and deduction. The amicus brief filed by the National Consumer Law Center cites even more salacious studies.78 Results include ignoring dividend income in order to increase the tax refund, fabricating a $2000 church donation for a taxpayer who does not attend church, and overstating the time a child lives with the taxpayer in order to receive a dependency exemption.79 All such examples could be compiled into a page-turner of a novel. There is little debate about the existence of fraud in the unenrolled preparer community.
The argument made by opponents of regulation is that the relevant question is not whether there is fraud among unenrolled preparers, but whether there is the same level of fraud among regulated preparers (attorneys, CPAs, and EAs). There is essentially no data in this area, however, because these preparers are already regulated. Yet, in response to the IRS’s strategic plan for fiscal years 2009 to 2013, the TIGTA piloted the Return Preparer Visitation Project in 2010.80 Preparers included attorneys, CPAs, EAs, and unenrolled persons. Participants were selected based on a risk-assessment targeting the filing of schedules with high error potential. The result was the selection of 10,000 preparers based on error potential, not actual errors. These preparers received a letter from the IRS indicating the reason for their selection, describing the potential penalties for inaccurate tax returns, and explaining that the IRS would visit some of the recipients to check for tax compliance. Of the 10,000 receiving the letter, almost 2500 received in-person visits. It is unclear from the TIGTA report how many of the visits uncovered inaccuracies in tax returns. But the report concluded that the program should establish a baseline of accuracy among visited preparers and a mechanism for tracking improvement. So, while there may not be any current data on the accuracy of tax returns filed by credentialed preparers, the IRS has coupled its RTRP program with efforts to improve accuracy from all preparers. Furthermore, the absence of data on the accuracy of credentialed preparers is no excuse for not regulating the well-documented problem of inaccuracy from unenrolled preparers. From a consumer-protection standpoint, it does not make sense to regulate attorneys, CPAs, and EAs, but not unenrolled preparers performing exactly the same task. All taxpayers should be protected from fraudulent preparers. That protection starts with regulation.
The frequent use of tax preparation software by individuals and paid return preparers adds a level of complexity to analyzing the accuracy of tax returns. During the 2009 filing season, individuals filed thirty-two million tax returns using software, and preparers filed over sixty-one million returns using software.81 Currently, the IRS checks software packages to ensure compatibility with its e-filing systems, but there is no evaluation for accuracy.82
The regulation of the software industry should be secondary to the regulation of all preparers. Taxpayers and preparers are the ones who can be penalized for an inaccurate return. The onus is on individual taxpayers and preparers to ensure the accuracy of returns filed using software. Blaming the software is not an acceptable defense against penalties for inaccuracy. Regulating tax-return preparation software is important from the standpoint that consumers should not be paying for faulty software and vendors should not be falsely advertising a flawed product. But legal responsibility for the accuracy of a return ultimately rests with the taxpayer.
B. Compliance Costs
Loving’s chief complaint about the RTRP program is the cost of compliance.83 These costs are both monetary, and inclusive of the opportunity cost of lost business while studying for the competency exam or attending continuing education events. A RTRP would be subject to the following expenses: $116 for the one-time competency exam,84 $34.95 for annual continuing education,85 and $64.25 to obtain and $63 to annually renew a PTIN.86 Yet, the PTIN requirement is mandatory regardless of the fate of the RTRP program. In terms of quantifiable costs, only a one-time fee of $116 and an annual fee of $34.95 remain.
Loving operates her tax-return business in an economically depressed neighborhood on the South Side of Chicago and is concerned about having to pass the RTRP costs on to her low-income clients. For 2012, she anticipated preparing 100 returns.87 In her first year of compliance, this would mean increasing the cost for each return by approximately $1.50. In subsequent years, she would only have to charge an additional thirty-five cents on each return compared to pre-RTRP years. This cost analysis does not include the opportunity cost of time spent studying for the exam or attending continuing education classes. But study time should be minimal for experienced tax-return preparers and continuing education can be completed online, eliminating any travel costs.
Annual compliance costs, as low as $34.95 after the first year, appear very reasonable for the added consumer protection provided by the RTRP program. The program looks like even more of a bargain when you compare it to an attorney or CPA’s initial and annual licensing expenses. Consider Illinois, Loving’s state of residence: An attorney in Illinois who prepares tax returns must pay up to $850 to take the bar exam88 and $63 annually for a PTIN. In addition, she must earn thirty hours of continuing legal education over two years and pay annual member dues that increase with years of practice. The first year of admission is free, the fifth is $112, the tenth is $223, and so on, up to $320 for the twentieth year and beyond.89 Of course, none of this includes the cost of three years of law school that enabled her to sit for the bar exam. A licensed CPA in Illinois who prepares tax returns must pay a one-time academic credential evaluation fee of $175 to sit for the CPA exam, a one-time exam application fee of $120, $729.08 to take the exam,90 and $63 annually for a PTIN. In addition, every three years, she must complete 120 hours of continuing education and pay a $120 license renewal fee.91 Again, this does not include the cost of 150 semester credit hours of college or university study with an accounting concentration or equivalent. By comparison to an attorney or CPA, a RTRP license is a relative bargain.
One final cost-related attack that Loving et al. and their supporters launch against the RTRP program is the lack of a small-business exemption.92 Their argument is that small businesses are less able to bear the costs of the program than commercial chains, such as H&R Block and Jackson Hewitt. While this may be true, small businesses should not be exempted from quality control measures, such as the RTRP program. Consider how absurd it sounds to propose that an attorney who only practices “a little bit of law” should be exempt from going to law school, passing the bar examination, and complying with the professional code of conduct. Small business exemptions are appropriate for tax relief, as with the exemption in the Marketplace Fairness Act of 2013, which prevents states from requiring a remote business with less than one million dollars in remote sales to collect and remit sales and use tax.93 But they are not appropriate in the context of quality control measures.
C. Wiping out Competition
Loving et al. argue that large commercial chains, such as H&R Block, as well as interest groups, such as the AICPA, supported the RTRP program with the goal of eliminating competition.94 While this may be true for H&R Block, the overlap in clientele between unenrolled preparers and CPAs is probably minimal. As a broad generalization, CPAs are likely serving higher-income taxpayers, who seek expertise on more complex tax issues and are willing to pay higher fees. In addition, CPAs engage in many types of work other than tax-return preparation. The same is true of attorneys. While there may be some truth to the notion that tax-return preparation chains, and even EAs, would support the RTRP program in order to wipe out competition, that goal cannot account for the broad reaching support among CPAs, attorneys, and the general public.95
D. Effectiveness of Licensing
Debating the merits of professional licensing is largely pointless because it is the reality for roughly 29% of the U.S. workforce.96 Nonetheless, one of the primary alleged faults of licensing schemes is not present in the RTRP program—that is, required educational credentials and licensing exams do not accurately measure or predict the quality of a practitioner.97 Painful as this may be to admit, this is undoubtedly true for attorneys, where law school education and the bar examination cover a multitude of areas in which the attorney will never practice and may not cover the area in which she will. Even if the exam covers an attorney’s area of practice, it would only be able to address the narrowest of topics in the allotted time. But this fault does not exist with the RTRP competency exam. The exam tests only knowledge required to complete the Form 1040 U.S. Individual Income Tax Return. Every tax-return preparer should know the answers to the questions in order to accurately perform her job. There is a one-to-one correlation between test questions and knowledge needed to perform the job of tax-return preparer.
Though it is difficult to predict the judicial fate of the RTRP program, there are strong legal arguments on both sides. The United States District Court for the District of Columbia concluded that the law favored return preparers. Many commentators believe the Court of Appeals for the D.C. Circuit will reach the same result. But a judicial defeat will not mark the end of preparer regulation. Rather, the battle will then be fought in the legislative arena, where the policy arguments discussed above will carry tremendous weight. With substantial support for regulation from the general public and from Congress itself, perhaps a judicial defeat is exactly what the legislature is waiting for to give the IRS express statutory authority for its RTRP program. Whether through the judiciary or the legislature, regulation is inevitable.
Katherine M. Hetherington, Essay, Regulation of Paid Tax-Return Preparers: A Foregone Conclusion Regardless of the Result in the Loving Case, 1 Suffolk U. L. Rev. Online 105 (Dec. 4, 2013), http://www.suffolklawreview.org/hetherington-loving.
J.D., LL.M. Assistant Professor of Taxation, Robert Morris University. Moon Township, Pennsylvania.
[T]he Secretary of the Treasury may prescribe rules and regulations governing the recognition of agents, attorneys, or other persons representing claimants before his Department, and may require of such persons, agents and attorneys, before being recognized as representatives of claimants, that they shall show that they are of good character and in good repute, possessed of the necessary qualifications to enable them to render such claimants valuable service, and otherwise competent to advise and assist such claimants in the presentation of their cases.
Id. at 258-59. ↩
On the morning of Sunday, April 15, 2007, a Boston police officer was patrolling the streets of Dorchester when he spotted Kempess Sylvain apparently engaged in a sexual act with a prostitute.1 As the officer approached, he saw Sylvain take several small plastic baggies from his coat and place them into his mouth. A search of Sylvain revealed an additional baggie of crack cocaine. He was arrested and charged with possession of cocaine with intent to distribute and a drug violation in a school zone, as the incident occurred within 1000 feet of a childcare center.2 Sylvain—a noncitizen lawfully residing in the United States—pled guilty to simple possession of cocaine and received a suspended sentence. As a result, Sylvain automatically became subject to deportation, as the narcotics offense to which he pled guilty was a removable offense under federal immigration law.3
In 2010, the Supreme Court held in Padilla v. Kentucky that a defendant’s Sixth Amendment right to effective assistance of counsel includes the right to advice on whether pleading guilty carries the risk of deportation.4 In 2011, the Massachusetts Supreme Judicial Court (SJC) ruled in Commonwealth v. Clarke that Padilla applied retroactively to all guilty pleas obtained after April 1, 1997, the date on which Congress implemented the current immigration laws regarding deportation for criminal convictions.5 Clarke opened the door for Sylvain to appeal his conviction and, in 2012, he did. Sylvain alleged that his lawyer failed to advise that he could be deported if he pled guilty and that he would not have done so had he been so informed.6 While Sylvain’s appeal was pending, the Supreme Court decided Chaidez v. United States, which held that Padilla does not apply retroactively under federal law, effectively overruling the SJC’s decision in Clarke.7 Upon hearing Sylvain’s appeal, the SJC diverged from the Supreme Court and held that, as a matter of state law, Padilla applies retroactively under the Sixth Amendment and Article XII of the Massachusetts Declaration of Rights.8
Padilla Rights and the Question of Retroactivity
The Sixth Amendment entitles criminal defendants to effective assistance of counsel in defending the charges against them.9 If defendants fail to receive such assistance, they may seek post-conviction relief under the two-prong test set forth in Strickland v. Washington by proving that: their counsel’s representation fell below an objective standard of reasonableness, and they were prejudiced by their lawyer’s deficient performance such that the result of the proceeding most likely would have been different but for the lawyer’s errors.10 Strickland set a general standard of reasonableness to be applied on a case-by-case basis rather than defining a specific manner in which defense attorneys must advise their clients in any given scenario.11 In Padilla, the Supreme Court interpreted the Sixth Amendment within this construct and held that failing to advise criminal defendants on whether pleading guilty would subject them to deportation amounts to constitutionally deficient representation, thereby satisfying the first prong of the Strickland test.12 The Padilla Court did not, however, expressly address whether this interpretation of Sixth Amendment rights applied retroactively to defendants whose convictions had already become final.
A court ruling that relates to an issue of constitutional criminal procedure applies retroactively only if it relies upon preexisting law. Thus, if a decision announces a “new” rule, then it only applies prospectively and to cases that are on direct review at the time of the decision.13 The Supreme Court first articulated this framework in Teague v. Lane, establishing that a rule is new if it “breaks new ground or imposes a new obligation” on the government or “if the result was not dictated by precedent existing at the time the defendant’s conviction became final.”14 In later cases, the Supreme Court clarified that a result is “dictated by precedent” only if it would have been “apparent to all reasonable jurists” at the time of the decision.15 In other words, a case does not announce a new rule under Teague if it merely applies an already existing principle to a new factual context.16 In 2008, the Supreme Court decided in Danforth v. Minnesota that Teague sets a floor for the retroactive effect of rulings on criminal procedure rather than a ceiling.17 Under Danforth, states reviewing their own criminal convictions are free to adopt their own standards for retroactivity and give broader retroactive effect to court rulings on criminal procedures than would otherwise be available under Teague.18 Indeed, states define crimes, punishments, and procedural rules in a variety of ways; thus, as long as those rules do not violate the U.S. Constitution, they are not limited by an abstract federal interest in uniformity.
In the wake of Padilla, state and federal courts quickly diverged on the question of whether the Supreme Court’s holding constituted a new rule under Teague and applied retroactively.19 In Clarke, the SJC became the first state supreme court to interpret Padilla as having retroactive effect.20 Applying the Teague framework, the SJC held that the Supreme Court had not announced a new rule in Padilla, but merely applied the well-established Strickland standard to a new type of ineffective assistance claim.21 The SJC relied on the Supreme Court’s own characterization of Strickland as a general standard that “provides sufficient guidance for resolving virtually all ineffective-assistance-of-counsel claims.”22 In February of 2013, however, the Supreme Court held in Chaidez that Padilla did announce a new rule of criminal procedure, which therefore did not apply retroactively. The Chaidez Court pointed to the fact that, prior to Padilla, state and federal courts almost unanimously agreed that criminal defense attorneys were not required to advise clients of the immigration consequences of pleading guilty. The Court therefore reasoned that the result in Padilla was not “apparent to all reasonable jurists” prior to the decision.23
Massachusetts Splits From the Supreme Court in Sylvain
In Commonwealth v. Sylvain, the SJC rejected Chaidez and reaffirmed its holding in Clarke, ruling that Padilla did not announce a new rule and therefore applies retroactively to those convicted in Massachusetts after April 1, 1997.24 Additionally, for the first time the SJC expressly announced that Article XII of the Massachusetts Declaration of Rights imposes the same obligation to advise defendants of the potential immigration consequences of pleading guilty as the Sixth Amendment does, and that a defendant’s right to such consultation also applies retroactively.25 Applying Massachusetts’ equivalent of the Strickland standard to Sylvain’s ineffective assistance claim, the SJC decided that his counsel’s representation was constitutionally inadequate, but remanded the case for further findings on whether Sylvain would have actually proceeded to trial had his lawyer properly informed him of the consequences of pleading guilty.26
The SJC arrived at its conclusion by exercising its authority under Danforth to define its own standard—independent of that used by the Supreme Court in Chaidez—to evaluate the retroactive effect of Padilla. After surveying the Supreme Court’s retroactivity jurisprudence, the SJC characterized Teague and its progeny as establishing different definitions for what constitutes a new rule. The SJC rejected the “apparent to all reasonable jurists” standard and adopted what it characterized as the “original” Teague standard—that is, a case announces a new rule only when precedent does not dictate the result.27 Under this narrowed retroactivity framework, the SJC reached the same conclusion as it did in Clarke for the same reasons: Padilla did not announce a new rule because Strickland dictated the result. The SJC asserted that Strickland is a general standard intended to evolve with prevailing professional norms and that Padilla was simply the Supreme Court’s recognition that professional norms now demand that defense counsel advise their clients on the immigration consequences of pleading guilty.
Retroactivity in the Realm of Criminal Law: Finality Versus Fairness
The question of whether to give convicted criminals additional constitutional rights by applying them retroactively poses a conflict between the fundamental values of ensuring the finality of criminal convictions and treating similar defendants the same. Our criminal justice system is premised on the idea that all convictions are final not only to protect the integrity of jury trials, but also to avoid draining the government’s resources by forcing it to continually relitigate cases.28 Some courts have warned that applying Padilla retroactively would open the floodgates to an overwhelming number of appeals by noncitizen convicts, creating an unmanageable administrative burden for courts.29 Moreover, allowing for the retrying of cases from years ago creates the potential for factually guilty defendants to go unpunished because the government is unable prove its case again without the same witnesses available.
On the other hand, considerations of fairness and justice are nowhere higher than when individual liberty and constitutional rights are at stake. Deciding that a criminal defendant on one day is entitled to certain legal advice, but a day earlier would not have been entitled to that same advice, seems unacceptably arbitrary given that such advice may be the difference between remaining in the United States and being deported. Such a result seems even less fair considering that deportation may, in many instances, be a grossly disproportionate punishment for the crime charged.30 Additionally, Strickland remains a high standard that any noncitizen hoping to challenge their conviction under Padilla must still hurdle, which may mitigate the number of frivolous Padilla appeals and the possibility of guilty defendants going free.
In Sylvain, the SJC decided that the concerns over fairness demanded that Padilla rights be made available to all defendants convicted under the current federal deportation laws and outweighed the potential costs of relitigating convictions. In Massachusetts, the most obvious consequence of Sylvain is that noncitizen defendants who pled guilty during the fourteen years before Padilla may now bring ineffective assistance claims if their lawyer did not advise them on the immigration consequences of pleading guilty. Although, as the SJC noted, it was already the norm in Massachusetts to advise defendants on the immigration consequences of pleading guilty, Sylvain reaffirms for the defense bar that the deportation warning given during a plea colloquy does not sufficiently alert defendants to the risks of pleading guilty.31 Thus, defendants may utilize Padilla on both Sixth Amendment and Article XII grounds. A less obvious consequence of Sylvain is that Massachusetts now has a new, albeit largely similar, retroactivity standard under which the SJC will analyze all future rulings on constitutional matters of criminal procedure.32
If nothing else, Sylvain demonstrates the unique balance between state and federal law that defines the United States’ federal system. Massachusetts is the first state to sidestep Chaidez and apply Padilla retroactively as a matter of state law, as the six other state supreme courts to face this issue have all affirmed Chaidez.33 States that have yet to decide the issue may look to Massachusetts, as a case study, on whether the floodgates open and how many constitutionally infirm pleas are remedied that otherwise would not have been. Sylvain could serve as a beacon that leads other states to exercise their authority under Danforth to define their own retroactivity standards and apply Padilla retroactively; particularly in those states that declared Padilla retroactive prior to Chaidez. If Sylvain remains an outlier, it will nevertheless continue to serve as an important reminder of the distinction between the existence of a constitutional right and its procedural availability.
Evan M. O’Roark, Case Note, The Massachusetts Supreme Judicial Court Contravenes United States Supreme Court in Sylvain, Ruling Padilla Rights Apply Retroactively, 1 Suffolk U. L. Rev. Online 98 (Dec. 3, 2013), http://www.suffolklawreview.org/oroark-sylvain.
During the most recent financial crisis, the Obama Administration took what appeared to be a promising initiative to slow down the increasing number of foreclosures occurring throughout the country. The Home Affordable Modification Program (HAMP), which was intended to be a win-win for creditors and debtors, would allow creditors to prevent greater losses associated with a foreclosed loan and allow debtors to keep their home. However, after several years of mediocre success, federal courts have begun to place liability on creditors for their perceived failure to save more homes from foreclosure. Although HAMP itself does not contain a private right of action, federal judges have been quick to use other legal doctrines, such as state consumer-protection and contract law, to hold creditors liable for issues arising during the mortgage-modification process. This Essay attempts to outline the various ways in which courts impose this liability, and offers some suggestions for creditors who wish to avoid liability for their perceived shortcomings.
Although there has been serious discontent concerning the effectiveness of HAMP, with some attorneys going so far as to say that the modification process is “a dismal failure for struggling homeowners,”1 judicial activity is beginning to change debtors’ views of the loan-modification process. Increased pushback from debtors’ attorneys following modification denials are prompting courts to take a closer look at the process used by mortgage lenders in evaluating under-performing loans. Because there is no private right of action under HAMP, courts have created other equitable avenues of liability, including holding lenders and loan servicers liable under state unfair or deceptive trade practices acts and breach of contract claims for violations of HAMP protocols in the modification process. Both federal and state laws concerning mortgage modification, especially in the face of HAMP’s extension, are becoming increasingly relevant to creditors hoping to avoid the ever-increasing reach of liability.2 This Essay will explore the numerous ways by which federal courts have attempted—or are attempting—to expand creditor liability for malfeasance or inaction during the mortgage-modification process, and will propose ways that creditors can avoid liability.
II. Background Information About HAMP
HAMP was an initiative undertaken by the Obama Administration in the midst of the worst financial and foreclosure crises the country had experienced since the Great Depression. Although HAMP was created under the assumption that the mortgage-modification process was a win-win for creditors and debtors by allowing owners to avoid foreclosure and creditors to mitigate the losses that a default would bring, it quickly alienated both parties.3 Neither borrowers nor lenders saw the immediate results that they had hoped for, and the program subsequently received negative reviews from creditors, borrowers, policymakers, and academics.
In the wake of the most recent financial collapse and housing bubble burst, HAMP, which was overseen by the Treasury Department and funded by the Temporary Asset Relief Program, attempted to lower mortgage payments for distressed borrowers.4 This was not, however, a legislative mandate for mortgage modification, but rather an agreement between the Obama Administration and lenders and loan servicers to allow them, pursuant to Treasury guidelines, to modify home loans.5 The federal government provides banks with financial incentives to modify mortgages for eligible borrowers through “Servicer Participation Agreements” (SPAs).6 The goal of the program was to “assist at-risk homeowners by promoting loan modifications and reducing monthly mortgage payments” to stave off an increasing number of foreclosures.7 Nevertheless, since its inception and original implementation, HAMP has produced a great deal of criticism for its perceived failure to effectively help homeowners. Among claims of lender dishonesty8 and excessive⎯possibly intentional⎯convolution of the mortgage-modification process,9 courts have readily shown their eagerness and ability to subject lenders to liability, both legally and in equity, for many perceived shortcomings in the modification process.
III. Potential Liability for Creditors
Although both case law and federal statutes explicitly state that HAMP does not provide a private right of action for debtors who feel mistreated before or during the mortgage-modification process, federal courts have interpreted HAMP to impose liability on creditors through other legal doctrines.10 Courts have expanded their influence in the processing of loan-modification applications by creating a system of mandatory mediation for mortgages in default (complete with judicial sanctions for creditors who do not participate); imposing liability for fraudulent application processing; recognizing private rights of action under state or federal unfair or deceptive trade practices laws; and permitting contractual remedies based upon correspondence between the lender and borrower.
While it is easy to view this as an alarming trend of judicial activism, given the stakes for borrowers and the opportunities litigation provides them, the increased judicial scrutiny is unlikely to recede. Therefore, it is important for mortgage lenders and loan servicers to be fully aware of the various approaches that courts take in different jurisdictions to ensure they can enact comprehensive reforms of their mortgage-modification processes to avoid liability.
A. The Possibility of Mandatory Mediation/Modification
Because HAMP is a contract between the federal government and lenders, it leaves homeowners without privity; therefore, judges cannot force lenders to modify debtors’ mortgages.11 However, fourteen states have adopted some form of mortgage mediation,12 with the Florida Supreme Court even adopting a statewide program13 and individual bankruptcy courts within the state adopting mandatory mediation programs for borrowers who qualify.14 The programs require lenders, under penalty of judicial sanction, to substantially increase the level and effectiveness of their communication with homeowners. Therefore, mortgage lenders are not only “incentivized to attend mediation sessions,” and to “bring required documents to the mediation,” but also to “participate in good faith.”15 In states that have enacted these mandatory mediation programs, failure to participate in good faith, even if a modification cannot be reached, may impair the mortgagee or lender’s right to foreclose.16
B. Liability for Fraudulent Modification Processes
1. Judicial Examination of the Actual Processes Used by Lenders
One of the main criticisms that debtors and their attorneys have made against the mortgage-modification process is that the “programs simply provide homeowners with an opportunity to talk with mortgagees to possibly avoid foreclosure . . . . However, servicers or mortgagees have ignored requests for modification or inconsistently applied modification standards.”17 A number of lawsuits have been filed against lenders claiming that they use flawed or even fraudulent methods during their processing and review of loan-modification requests.18 While courts have been hesitant to employ judicial scrutiny of lender’s internal policies and processes, this may change in the future.19 If recent class-action lawsuits proceed to discovery and lender/loan servicers’ processes are exposed to courts, judges may be willing to permit claims for improper denials once they see the staggering number of such denials, and the lack of oversight of the modification process.
Additionally, some courts will impose obligations of good faith during the mortgage-modification negotiation stage, even if those negotiations do not occur through court-ordered or statutory mediation. This good-faith standard is not mere judicial abstraction, as courts have taken hardline stances against lenders and loan servicers who fail to adequately participate in talks with the mortgagor. In IndyMac Bank F.S.B. v. Yano-Horoski,20 a New York trial court held that if a lender’s conduct is willful or unconscionable and “of such a nature that honest and fair minded folk would roundly denounce” it, then a court may dismiss the lender’s foreclosure action and leave the lender without a cause of action in a court of equity.21 The court’s failure to find that the lender acted in good faith resulted in not only the mortgage debt being canceled, but also the discharge of the recorded mortgage and an award of monetary sanctions to the plaintiff-homeowner.22 The obligation to negotiate in good faith only attaches once the mortgagor or loan servicer begins negotiations, as courts will not read in an implied duty of good faith to negotiate a modification or offer a modification to distressed homeowners.23 Courts are, however, willing to consider abstentions from modification negotiations as a breach of good faith under certain circumstances. For example, courts may find such a breach if mortgage lenders willfully fail to modify mortgages, or borrowers plead that lender or loan servicers instructed employees to falsify documents so that a modification would not have to be processed.24
Additionally, state prosecutors are enforcing procedural-fairness requirements imposed by the recent settlements reached by lenders and the attorneys general of forty-nine states over foreclosure abuses.25 Claiming that the banks did not follow the agreed upon guidelines implemented by the settlement agreement pertaining to “how the banks field and process requests from homeowners trying to modify their mortgages,” New York Attorney General Eric Schneiderman is preparing a lawsuit against Wells Fargo. Bank of America may avoid the same lawsuit, however, by announcing “a series of additional protections that it has adopted after discussions with Mr. Schneiderman’s office.”26 If the claims made by the New York Attorney General are true, then lenders that are parties to the settlement agreement need to be sure that they are in strict compliance with the 302 guidelines adopted by the agreement, otherwise state authorities can impose yet another layer of liability for failure to properly handle mortgage-modification requests.
Servicers and lenders have enjoyed greater success on issues regarding whether borrowers can attack loan-modification processing using the class-action process. The United States District Court for the District of Massachusetts recently declined to certify a class consisting of:
All individuals with home mortgage loans on properties in [state] whose loans have been serviced by Bank of America and who, since April 13, 2009, have entered into a Trial Period Plan Agreement with Bank of America and made all trial payments required by their Trial Period Plan Agreement, other than borrowers to whom Bank of America tendered either:
(a) A Home Affordable Mortgage Agreement sent to the borrower prior to the Modification Effective Date specified in the Trial Period Plan Agreement; or
(b) A written denial of eligibility sent to the borrower prior to the Modification Effective Date specified in the Trial Period Plan Agreement.27
The proposed class action would have consisted of twenty-six classes from twenty-six different states. The court found that the classes would meet the requirements of Rule 23(a) of the Federal Rules of Civil Procedure, consisting of numerosity, commonality, typicality, and adequacy.28 However, the court found that the classes failed to show under Rule 23(b)(3) that the question of law or fact common to class members predominate over any questions affecting only individual members.29
In declining to certify the class, the court reviewed the issues of predominance as related to all the claims alleged by the plaintiffs⎯breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, and unfair or deceptive trade practices. The court’s analysis of the breach of contract claims was the most extensive. With respect to breach of contract, the court favorably cited Young v. Wells Fargo Bank, N.A. ex rel. Option One Mortgage Loan Trust30 for the proposition that a trial period plan (TPP) could plausibly be read to require the servicer to offer a permanent modification if the borrower met the obligations under the agreement.31 However, the court’s critical finding was that the “common question [was] outweighed by the numerous individual questions affecting liability.”32 Particularly individualized questions would arise concerning the borrower-plaintiffs’ compliance with the following requirements cited by the court:
Each borrower had to certify, represent . . . and agree that he was unable to afford his mortgage payments; that he live[d] in the Property and it was his principal residence; that there had been no change in the ownership of the property; that he would provide  documentation for all income; that all the documents and information he had provided were true and correct; and that he would obtain credit counseling if required to do so. In addition, each borrower had to make the required trial payments on a timely basis.33
Despite somewhat holding off the trend of advancing servicer liability, the Massachusetts federal district court made a point that individual questions, rather than class-wide questions, predominate servicing issues related to loan-modification review. This pronouncement is the converse of other courts ruling on cases of individual liability, such as Young and Wigod, which have allowed claims for lender liability under TPPs past the 12(b)(6) stage. The common thread is that situation-specific facts are critical. Moreover, the same situationally specific facts, which are necessary components of a well-pleaded complaint seeking lender liability, also cut against the possibility of creating a class of similarly situated plaintiffs harmed by the loan-modification process.
2. Federal Oversight of the Mortgage-Modification Process Heats Up
Although this Essay is concerned about addressing potential creditor liability that courts have continually increased, it is worth noting that there is a simultaneous, although related, uptick in federal oversight. Recently, federal regulators have begun to increase their oversight of the processes that lenders and loan servicers use during the modification process. The processes subject to oversight include how the companies contacted debtors, the method of evaluation that lender’s used in determining homeowner eligibility for the program, and how the creditor assisted the debtor with questions or procuring missing documents.34 This trend is important not only as an additional source of concern for creditors, but also because debtors’ attorneys are increasingly turning their attention to the processes that creditors employ in determining homeowner eligibility and in customer service departments.35 Failure to meet basic fairness and procedural requirements, such as timely processing of applications, inadequate communication with the debtor, and unexplained denials for modification, can give rise to lender liability and sanctions imposed not only by federal regulators, but by courts as well.
C. Potential Liability Under State Unfair or Deceptive Trade Practices Laws
Creditors, including loan originators and loan servicers, are also liable for actions taken in the mortgage-modification process under state consumer-protection laws. For example, the Nevada Attorney General brought suit against Bank of America under the Nevada Deceptive Trade Practices Act for misleading consumers about “the terms and operations of its mortgage modification and foreclosure processes.”36 Additionally, federal courts will find rights of action for individual debtors by finding a violation of state consumer-protection laws where HAMP regulations have been violated during the mortgage-modification process. This liability under consumer-protection statutes does not only encompass the processes that lenders use to come to a decision, but also extends to post denial actions that they take.37
North Carolina courts are not opposed to debtor’s litigation over mortgage modification, although they have followed the majority rule that HAMP does not create a private right of action.38 However, federal courts in North Carolina have imposed HAMP liability on creditors for their behavior during the mortgage-modification process, reasoning that “violations of a statute designed to protect the public . . . may constitute unfair or deceptive practices under state law, even where the statute violated does not provide for a private right of action.”39 This rationale conforms to the approach used by an increasing number of jurisdictions, in which HAMP violations are explicitly stated to give rise to claims under a state’s unfair or deceptive trade practices act.40 Therefore, lenders and mortgage servicers who fail to follow the HAMP guidelines established by the Treasury Department, such as sending the borrower timely notification of approval for modifications, extending the borrower a TPP Notice,41 or conducting a foreclosure sale on a property before evaluating and determining the borrower’s eligibility under HAMP,42 could face potential liability for their actions.
Although Illinois gave their consumer-protection statutes another name⎯the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA)43⎯federal courts have still found state unfair or deceptive trade practices law to apply in situations involving mortgage modifications. In Boyd v. U.S. Bank, a seminal case in the jurisdiction on this issue, an Illinois federal district court held that violations of HAMP procedures created a sustainable private right of action for debtor-homeowners under the ICFA.44 In Boyd, the defendant-lender failed to consider a homeowner in default for mortgage modification, which violated Treasury Department directives promulgated as guidelines for implementing HAMP.45 Because of this, the plaintiff-borrower suffered damages, including repossession and damage to his credit score.46 This decision is notable not just because it is another instance of creditor liability for failing to follow HAMP procedures, but also because the court held that the scope of relief could possibly be expanded to situations in which the defendant-creditor’s actions are not necessarily deceptive, just unfair.47
North Carolina, Illinois, and Massachusetts48 state court decisions all represent an ever-growing trend of courts seeking to expand creditor liability for violations of HAMP protocols through state consumer-protection laws. As popular sentiment towards lenders and loan servicers continues to sour, and stories about dual tracking49 and improper denials for modifications continue to hit the press, courts will increasingly look to state consumer-protection laws to ensure that mortgage-modification processes accord with federal guidelines. Otherwise, courts will impose liability on lenders and loan servicers in the form of judicial sanctions or impairments on the foreclosure process.
D. Liability for Mortgage Servicers Under State Contract Law
The HAMP mortgage-modification framework provides for government subsidization of lenders’ mortgage modifications if the loan servicers agree to participate in a standardized modification process.50 In order to participate in this program, the loan servicers must execute a SPA.51 These SPAs place rather rigorous demands on loan servicers, who must, among other things: screen borrowers for HAMP eligibility for all properties that are two or more payments behind; proactively solicit these borrowers’ participation in the HAMP program; acknowledge receipt of the original application within ten days; and respond within thirty days with their final decision (or with a request for more information).52
These SPAs do more than just lay out a list of ideal practices for the creditor. They were enacted to directly benefit homeowners who were going through, or who were about to enter, the foreclosure process. Under federal common law, a third party can recover under a contract if it can show that the contract was made for its direct benefit, and that it is an intended beneficiary of the contract.53 Even though an SPA signed by the loan servicer/lender and the government does not expressly say that it was entered into for the benefit of third-party homeowners, courts have been willing to look past recitals that they deem ritualistic.54 In fact, some judges believe there is no ambiguity as to the intended beneficiaries of the SPAs, noting that “there is nothing in the standard-form SPA to suggest that borrowers⎯who were obviously and primarily intended to benefit from the contractual commitments made by servicers . . . ⎯should not be allowed to enforce the [SPA] commitments.”55 Therefore, courts will sometimes permit a HAMP-eligible homeowner’s breach of contract claim predicated on a third-party-beneficiary theory to proceed to trial when the homeowner contacts his servicer and the servicer fails to properly evaluate their mortgage.56
However, the most recent strategy being used to force mortgage lenders to reconsider or reissue a mortgage-modification decision is that the lender, if it puts a borrower on a HAMP trial plan and denies them a permanent modification, violates a direct contract with the homeowners.57 These breach of contract claims are derived from a letter lenders send to borrowers, which often stipulates that if the borrower complies with the trial plan and payment schedule, the servicer will provide them with a permanent HAMP modification.58 Because the expectation of many consumers entering into the trial period was to obtain a permanent modification, many debtors have felt personally slighted and frustrated by lenders who did not grant them a permanent modification after successful completion of the TPP.59 The denial of a permanent modification for a HAMP-qualifying borrower who has successfully completed a TPP is potentially problematic for lenders, as attorneys have brought, and will continue to bring, class-action lawsuits against lenders alleging breach of contract.60
Recently, these claims of breach of a direct contract between the lender and borrower have recently been successful in sustaining a cause of action against lenders for their denial of mortgage-modification requests.61 In a recent decision, the Seventh Circuit Court of Appeals focused on the denial of a permanent modification as a breach of contract, calling it the “heart of [the plaintiff’s] complaint.”62 A significant portion of the court’s decision is dedicated to a thorough analysis of the “contract” formed between Wigod (the plaintiff) and Wells Fargo (the lender), which was alleged to have been formed when Wells Fargo sent Wigod a TPP Agreement.63 The TPP Agreement, which promised permanent modification if Wigod made her payments on time and her representations remained true and accurate, was the main source of the appellate court’s inquiry. After running the TPP Agreement through a standard contractual analysis, including determinations of whether there was a valid offer and consideration,64 the court determined that there were sufficient allegations to support a cause of action under contract law.65 By extending liability to banks who do not give permanent modifications to borrowers who have successfully completed the TPP,66 this decision has tremendous potential to impose liability on banks for denying mortgage-modification proposals, which could exceed the $25 billion paid out in the settlement reached last year with the attorneys general of forty-nine states.
Although Wells Fargo argued that the TPP Agreement was not a contractual offer, as it required further review by Wells Fargo before a permanent modification could be given, the court found that argument was unpersuasive.67 Because the permanent modification was only conditioned on Wigod’s successful completion of two requirements to secure a permanent modification, the court held that the TPP constituted a valid offer because the granting of a permanent modification was conditioned on future action by the promissee.68 Continuing with their contractual analysis, the court found valid consideration to exist, as Wigod “incurred cognizable legal detriments,” including the promise to open new escrow accounts, to undergo credit counseling, and provide accurate financial information.69 Finally, definite terms were found to exist, even though the court recognized that Wells Fargo had some discretion to modify the permanent loan amount. Although the court hints that this would not require the same payments made during the TPP, it appears that at least a good-faith attempt to make a permanent modification, consistent with HAMP-modification guidelines is a prerequisite.70
This approach has not been limited to just the Seventh Circuit, as district courts in a number of other circuits have followed the contractual-based approach laid out in Wigod. More recently, both the First and Ninth Circuits followed the reasoning of the Wigod court in holding that the language of a TPP sent to borrowers created a contractual relationship between a servicer and a borrower.71 Both the Corvello and Young courts noted that they analyzed the TPP documents at issue under relevant state contract law (as opposed to Illinois law, which was the case in Wigod).72
It is also important to note that the procedural posture of Corvello, as well as Wigod, was the 12(b)(6) motion-to-dismiss stage, and both courts were required to unquestioningly accept the plaintiffs’ allegations that they had fulfilled all of their obligations under the TPP.73 For example, the United States District Court for the Northern District of California found that a TPP was backed by sufficient consideration as the debtor expended time and energy and made financial disclosures to fulfill the terms of the TPP.74
IV. Conclusions and Recommendations for Creditors and Loan Servicers
Although a large segment of consumers are angry over the perceived ineffectiveness of the HAMP framework for mortgage modification, it is not a toothless initiative that lenders and loan servicers can ignore. Especially because courts have now had ample opportunity to add their own interpretations of SPAs and rule on modification best practices, creditors—including lenders and loan servicers—face substantial regulatory hurdles and potential liability to consumers for noncompliance with HAMP procedures. From breach of contract claims to unfair or deceptive trade practices lawsuits, lenders and loan servicers must act with caution when entering into the realm of mortgage modification.
First, private creditors and loan servicers for non-Fannie- and non-Freddie-backed loans could streamline the process for debtor-homeowners. The primary way that this could be accomplished is through the adoption of streamlined programs similar to the ones federal regulators introduced for Fannie- and Freddie-backed loans. This streamlined process drastically reduces the documentation requirement for debtors, as it requires only two initial instances of communication.75 Borrowers frequently complain about their inability to get lenders to compile or accept packages, and cite reasons such as changed fax numbers, high staff turnover on staffers working their file, and their inability to secure a confirmation of receipt. The streamlined process drastically reduces the flurry of documents that is initially exchanged between the two parties, which often results in creditors failing to acknowledge timely receipt of the necessary documents, and homeowners not responding to mortgage-modification proposals when asked for an imposing list of documents.76 Hopefully, this type of reform would address some of the most frequently cited problems in the modification process, namely lost documents, inexplicable denials for modifications, and dual tracking.77
While the Consumer Financial Protection Bureau (CFPB) has enacted a new list of rules and restrictions on lenders and servicers who seek to foreclose on properties,78 strict adherence by creditors is not enough. One potential reason for the judicial creation of consumer-protection rules, as they relate to the modification process, could be the lack of perceived transparency or fairness with which creditors treat homeowners. While legalistic adherence to these new best practices is a great way for creditors to shield themselves from liability, merely hiding behind a formulaic checklist will never be enough to stem the tide of judicial activism. Instead, lenders and loan servicers must voluntarily modify and adopt new best practices in “the spirit of consumer protection.”79 This may include hiring additional staff members to overstaff mortgage-modification centers, instituting extra training, or adding additional supervisors for added oversight. Additionally, the retention of outside counsel who can regularly audit mortgage-modification files to check on lender or loan servicer inaccuracies that would have resulted in rejected modifications, could help quell popular ill will. Implementing these safeguards, although somewhat of a costly endeavor, would be a crucial step for lenders to change the public’s opinion that they made empty promises to better assist homeowners in order to secure government bailout funds.
Neil Jonas & Cory Howard, Essay, Avoiding Liability for Mortgage Lenders and Servicers Under HAMP and State Consumer Protection Laws During the Mortgage Modification Process, 1 Suffolk U. L. Rev. Online 83 (Nov. 14, 2013), http://www.suffolklawreview.org/Jonas-Hamp.
Mr. Jonas, a senior associate in the Charlotte office of Rogers Townsend & Thomas, a Columbia, South Carolina based law firm, specializes in representing creditors’ rights during bankruptcy proceedings. Mr. Jonas is a graduate of the Wake Forest University School of Law and holds a B.A. from the University of North Carolina-Chapel Hill.
Mr. Howard is a third-year law student at the Wake Forest University School of Law. Mr. Howard is a 2011 graduate of the George Washington University, from which he holds a B.A. in International Affairs.
Justice Kennedy’s majority opinion in Fisher v. University of Texas at Austin1 on the constitutionality of the University of Texas at Austin’s (the University) affirmative action admissions program appears to have something for everyone. Six other justices who had staked out starkly contrasting positions on affirmative action in the past joined the opinion. The parties to the case each claimed they were pleased with the outcome, and both supporters and opponents of affirmative action hailed the decision a victory for their respective sides of the debate.
In most respects, the Fisher decision dodged the key questions about affirmative action in college admissions: Does the Equal Protection Clause of the U.S. Constitution totally ban consideration of race in college admissions? If not, what types of limited consideration of race are permissible? The Supreme Court refused to decide whether Grutter v. Bollinger,2 which narrowly upheld a very limited use of race in college admissions, is still “good law” after the Court’s change in makeup and subsequent decision in Parents Involved in Community Schools v. Seattle School District No. 1.3 Rather than creating a consensus on affirmative action, which might be inferred from the 7-1 vote, Justice Kennedy’s very narrow opinion left open for another day the resolution of the controversial issues.4 Given the 4-4 split among justices other than Justice Kennedy, it seems inevitable that there will be no definitive pronouncement on affirmative action until there are new appointments to the Court.
In the meantime, Justice Kennedy was able to use Fisher to advance his particular middle-of-the-road approach to become the governing doctrine in affirmative action cases. In Fisher, he acknowledged (as he did in Grutter) that colleges have a compelling interest in a diverse student body, but he significantly narrowed the scope of legitimate consideration of race to attain that goal (which had been the basis for his dissent in Grutter). Without explicitly overruling or disagreeing with the Court’s opinion in Grutter, he effectively turned his dissent in Grutter into a majority opinion in Fisher.
This Essay will explore what was, and what was not, resolved in the Fisher decision, and will look ahead to the next affirmative action case on the Court’s docket—Schuette v. Coalition to Defend Affirmative Action.5 In Schuette, the Court will review the constitutionality of an amendment to the Michigan Constitution that prohibits any consideration of race in public education. That amendment achieves, for the State of Michigan, a total ban on affirmative action.
If the Supreme Court upholds the constitutionality of the Michigan amendment, it would achieve what opponents of affirmative action might consider a “second best” option. That is, the four “conservative” justices were unable in Fisher, and in earlier Supreme Court decisions, to have the Court create a national ban on affirmative action (as part of U.S. constitutional law). Nevertheless, if the Court upholds the Michigan amendment, it would allow for state-by-state bans on affirmative action that would not be subject to Supreme Court review.
II. The Context of Fisher v. University of Texas at Austin
Abigail Fisher, a white female, brought suit against the University after she was denied admission to its undergraduate program. She asserted that the University’s admission criteria, which included consideration of race along with other factors, violated the Fourteenth Amendment’s Equal Protection Clause.6 The district court and the Fifth Circuit Court of Appeals upheld the University’s limited use of race to achieve a diverse student body, based on their readings of the Supreme Court’s decision in Grutter v. Bollinger.
There were several reasons why Fisher’s appeal was not a particularly good vehicle for a broad-brush review of the Court’s affirmative action doctrine. First, the governing precedents of Grutter and Gratz v. Bollinger7 were relatively recent (2003). Second, only eight justices participated because of Justice Kagan’s recusal. Third, there were strong arguments that Fisher’s lawsuit was not justiciable on standing and mootness grounds.8 Finally, the Texas admissions plan included a relatively unusual mechanism, making it much less likely that a ruling would be applicable to most college and graduate school admissions.9
The Supreme Court’s decision to grant review in Fisher despite these factors, led to speculation that the Court might be ready to issue a definitive pronouncement that race can never be considered in order to achieve a diverse student body. There certainly was some basis for that speculation. In prior decisions, four of the justices had endorsed the principle that the Constitution requires the government to be “colorblind”—that is, it can never take race into account in its treatment of individuals. In Grutter and Gratz, Justices Scalia and Thomas wrote and joined in opinions that rejected the University of Michigan’s purported compelling interest in a diverse student body, and concluded that the school could never consider race in its admissions process. In Parents Involved, Chief Justice Roberts wrote the majority opinion, joined by Justices Scalia, Thomas, and Alito, that rejected student-body diversity as a compelling interest in pupil assignments to elementary and secondary schools. The opinion espoused a colorblind approach, which is summarized in the Chief Justice’s concluding sentence: “The way to stop discrimination on the basis of race is to stop discriminating on the basis of race.”10 As shorthand in this Essay, these justices will be referred to as the “conservatives” with respect to affirmative action issues.11
In contrast, there are four justices who had voted against, or were likely to oppose, such a categorical ban on considering race in university admissions. Justices Ginsberg and Breyer supported the limited use of race in both Grutter and Parents Involved. Justices Sotomayor and Kagan were new to the Court since those decisions, but there were clear indicators of their sentiments. For instance, Justice Sotomayor has made public comments indicating her disagreement with Robert’s approach in Parents Involved;12 and Justice Kagan was involved in developing the federal government’s position supporting affirmative action in the lower court litigation of Fisher and in Schuette, which led to her recusal in both cases at the Supreme Court. As short-hand in this essay, these justices will be referred to as the “liberals” with respect to affirmative action issues.
Everyone recognized that Justice Kennedy was going to be the key vote in Fisher and in clarifying the future of affirmative action because of the independent approach he had articulated in the Grutter, Gratz, and Parents Involved cases.13 Justice Kennedy had consistently voted against the use of race as it was employed in those cases, agreeing in the outcome with Justices Scalia and Thomas in Grutter and Gratz, and with the four conservatives in Parents Involved. Nevertheless, in separate concurring and dissenting opinions he staked out an idiosyncratic position—one that left open the possibility of affirmative action under very narrow circumstances.
On the issue of whether diversity was a compelling interest, Justice Kennedy concluded that it could be, both in university admissions and in public school pupil assignment. In this respect, he disagreed with the conservatives. He also disagreed with the colorblind principle that race can never be considered in government action. Instead, he endorsed a very narrow standard for when race is permissible as a means to achieve diversity, and disagreed in each case with the conclusion of the liberals that the affirmative action programs had done so appropriately.
III. Ramifications of the Fisher Decision
In Fisher, the Supreme Court reversed the decision of the Fifth Circuit Court of Appeals that had upheld the University’s admissions process. Justice Kennedy’s majority opinion, on behalf of seven of the justices, concluded that the lower court was too deferential to the University and not did employ a rigorous form of strict scrutiny in reviewing its justification for considering the race of applicants. The Court vacated the Fifth Circuit’s judgment and remanded the case “so that the admissions process can be considered and judged under a correct analysis.”14 While they joined Justice Kennedy’s opinion, Justices Scalia and Thomas wrote separate concurring opinions in which they reiterated the view that they had expressed in their dissenting opinions in Grutter—that the Equal Protection Clause categorically prohibits a state’s use of race in university admissions. Justice Ginsburg was the sole dissenter. She argued that the University had carefully tailored its admission process after the model approved in Grutter. She concluded that Grutter controlled and the Texas plan should be upheld on that basis, without the need for remand to the Court of Appeals.
A. Is Grutter Still Good Law?
One of the intriguing aspects of Justice Kennedy’s majority opinion is how (and why) he maintained “neutrality” about the status of Grutter and its method of analysis. For example, at the outset of the opinion, Justice Kennedy referenced Regents of the University of California v. Bakke,15 Grutter, and Gratz as precedents addressing affirmative action in higher education. While he drew from them to develop his method of analysis, he carefully avoided endorsing or reaffirming them stating, “[w]e take those cases as given for purposes of deciding this case.”16
Later, in analyzing the first step of strict scrutiny—whether the University had a compelling interest in a diverse student body—he maintained that “[a]ccording to Grutter,” the Court should defer to the University’s educational judgment.17 He acknowledged that “[t]here is disagreement about whether Grutter was consistent with the principles of equal protection in approving this compelling interest in diversity,” but he avoided that question by stating, “the parties here do not ask the Court to revisit that aspect of Grutter’s holding.”18 Later, his opinion again backs off from endorsing or rejecting Grutter’s determination about the unavailability of “workable race-neutral alternatives” for a university to achieve diversity, and notes that “the parties d[id] not challenge, and the Court therefore [would] not consider, the correctness of that determination.”19
These assertions that the parties had not asked the Court to revisit Grutter are misleading. Petitioner presented and argued the case as a potential vehicle for reconsidering Grutter. In both the Petition for Certiorari and the Petitioner’s Brief on the Merits, she presented her arguments in the alternative: The Texas admissions plan violates Grutter; but if Grutter is read to permit the Texas plan, then the Court should “reconsider” and “overrule” Grutter.20 The Respondent’s Brief opposed that invitation to revisit Grutter, asserting that “[t]here is no basis to reconsider or overrule [Grutter].”21
Justice Kennedy clearly could have used Fisher as an opportunity to reconsider Grutter, a 5-4 decision in which he was a dissenter. Following the replacement of Justice O’Connor (the author of Grutter) with Justice Alito (who endorsed a colorblind approach in Parents Involved), Justice Kennedy presumably had five votes to write an opinion reversing Grutter if he wanted to. Why did Justice Kennedy go out of his way to maintain this neutrality towards Grutter? The most likely explanation is Justice Kennedy’s moderation in directly overruling precedent, especially when he can achieve his goals through more subtle manipulation of doctrine. The most notable example of this is Planned Parenthood of Southeastern Pennsylvania v. Casey, in which he and Justices O’Connor and Souter authored a joint opinion that declined to overrule Roe v. Wade.22 Nevertheless, in the process they significantly modified the method of analysis in abortion cases (by adoption of the “undue burden” test) in a way that made it easier for states to restrict access to abortions.
In Fisher, Kennedy was able to do much the same. Without explicitly referring to his dissenting opinion in Grutter, he imported the language and standards of that dissent into the Fisher majority opinion and won the endorsement of six other justices. A common theme in both his dissent in Grutter and his majority opinion in Fisher is extensive reliance on Justice Powell’s opinion in Bakke. He began his summary of the governing doctrine in Fisher with an extended discussion of Bakke, just as he did in his dissent in Grutter. In Fisher, he characterized the Grutter decision as having “endorsed the precepts stated by Justice Powell.”23 In his statement of the holding in Fisher, he refers to Bakke as well as Grutter.24 And, the Fisher opinion concludes with a quote by Justice Powell in Bakke.
The reliance on Bakke is most noticeable in the portion of the Fisher opinion in which he stresses the rigorous nature of the “means” test—that is, whether it is necessary for the University to consider race in order to achieve a diverse student body. That was the analytical step in Grutter that was the basis for Justice Kennedy’s dissent. He faulted the majority in Grutter for showing deference to the University of Michigan Law School’s claim of a need to consider race—the very same failing that he found in reversing the Fifth Circuit’s decision in Fisher.
The language that Kennedy used in Fisher (reversing the Fifth Circuit) and in his dissent in Grutter (critical of the majority opinion), are strikingly similar. In both instances he concludes that the standard of strict scrutiny, required by Justice Powell in Bakke and in subsequent decisions, was not rigorously applied, and that deference was inappropriately given to the universities.25
Justice Kennedy’s heavy reliance on Justice Powell’s opinion in Bakke is somewhat surprising because Justice Powell’s opinion was not joined by any other justices, and it predated the majority opinion in Grutter, which was joined by five justices. But, given that his goal was to “tighten up” the level of scrutiny in Grutter (consistent with his dissent), it was helpful to draw on Justice Powell’s strong statements about strict scrutiny. Moreover, Justice Kennedy seems to view himself in the moderate, centrist tradition of Justice Powell, particularly on matters of race. In Bakke, Justice Powell was the single vote in a 4-4-1 split, with the remaining justices divided into liberal and conservative blocs, much the same as Justice Kennedy straddles two blocs on the current Court. Yet, to the credit of Justice Kennedy’s artfully crafted opinion in Fisher, with its caveats and compromises, he was able to garner the support of six other justices.
Returning to the question posed earlier—is Grutter still good law?—Justice Kennedy’s opinion studiously avoids answering that question directly. He neither reaffirms nor challenges Grutter as precedent. But his opinion effectively raises the level of scrutiny to be applied to affirmative action admissions policies, so that what is now good law in Grutter is his dissenting opinion, rather than Justice O’Connor’s majority opinion.
B. Why Remand to the Court of Appeals?
Another intriguing aspect of Justice Kennedy’s opinion in Fisher is the decision to remand the case to the Court of Appeals. After concluding that the Fifth Circuit had not employed a sufficiently rigorous form of strict scrutiny, he declined to apply the proper standard to the Texas admissions scheme. Instead, he chose to send the case back to the lower court “so that the admissions process can be considered and judged under a correct analysis.”26
Given his critique of the Michigan admissions plan in his Grutter dissent, and his articulation in Fisher of the high standard that the state must meet in the means test of strict scrutiny, it seems clear that the Texas plan would not be acceptable to Justice Kennedy. The vast majority of students of color enrolled in the University are admitted pursuant to the state’s “Top Ten Percent Law.”27 Under that law, the top ten percent of graduates from public high schools in Texas are assured admission to a state college, including the University. Because of the demographics of Texas high schools, there is substantial racial and ethnic diversity in the students admitted under the Top Ten Percent Law.28 A very small percentage of minority students are admitted pursuant to the “Personal Achievement Index” (PAI), which is the only factor that considers race (as one of many factors).29 Because the Top Ten Percent Law is an apparently race-neutral means of achieving substantial diversity, it is hard to see how the University can satisfy its burden as set out by Justice Kennedy in Fisher:
Narrow tailoring also requires that the reviewing court verify that it is “necessary” for a university to use race to achieve the educational benefits of diversity. This involves a careful judicial inquiry into whether a university could achieve sufficient diversity without using racial classifications. . . . The reviewing court must ultimately be satisfied that no workable race-neutral alternatives would produce the educational benefits of diversity.30
The University’s argument on this point was that the level of diversity produced by the Top Ten Percent Law was not sufficient to create a “critical mass” of students of color within the student body; therefore, the additional use of race as one factor within the PAI was necessary to achieve that. However, Justice Kennedy strongly rejected the concept of a critical mass as a legitimate goal in his Grutter dissent.31 It is hard to see why he would not have ruled against the University on this point—which he did not reach, of course, because of the decision to remand the issue to the Court of Appeals. It is even clearer that the four conservative justices would have found the use of race by the University to be unconstitutional. They share Justice Kennedy’s rejection of the critical mass argument and definitively reject any consideration of race in earlier affirmative action decisions.32
If Justice Kennedy had five votes to declare the Texas scheme unconstitutional, why did he pull back from doing so? Is there something that he accomplished by leaving that issue open on remand? Something that was more important to him than a definitive ruling on the particular Texas statute? The primary “gain” in deciding to remand is that Justice Kennedy had a chance to bring Justices Breyer and Sotomayor into the majority. If he had invalidated the Texas law, it would have been a stronger anti-affirmative action decision, but it is likely that only the four conservatives would have joined it. Instead, he wrote an opinion that achieved what he wanted in terms of moving doctrine towards his Grutter dissent, and it garnered legitimacy (and possibly more durability) as a result of the support of a coalition of conservatives and liberals.
There was a long delay between the oral argument in October 2012, and the issuance of the decision in June 2013. Clearly, the justices did not come to this decision quickly or easily. Presumably it is the result of quite a bit of back-and-forth, circulating draft opinions, and responding memoranda. Justice Thomas’s extensive concurring opinion, for example, seems out of proportion to the modest majority opinion that ended up being issued. Viewed this way, the final Fisher decision seems like a “truce” in the debate within the Supreme Court about affirmative action. The conservatives accepted the fact that they do not have the votes to establish a per se ban on considering race in university admissions, and were willing to join Justice Kennedy’s opinion as long as Grutter was not reaffirmed, thus leaving its continued validity an open question.
Two of the liberals (Justices Breyer and Sotomayor) were willing to join Kennedy’s opinion because it does not overtly disturb Grutter’s approval of some forms of affirmative action, and it leaves open the question of the validity of the Texas admissions criteria. They presumably saw a benefit from a decision that avoided potential damage to affirmative action. Justice Ginsburg, of course, chose not to join the compromise. She was not satisfied with the neutrality towards Grutter in Justice Kennedy’s opinion, and she disagreed with the remand, wanting a clear affirmation of the Fifth Circuit’s decision upholding the Texas admissions scheme.
How long will this truce hold? Could it endure as long as the twenty-five year “sunset provision” Justice O’Connor suggested in Grutter?33 Given the entrenched positions of the four conservatives and the four liberals, along with the fact that Justice Kennedy has now established his point of view as governing doctrine, nothing is likely to change until there are new appointments to the Court that change the balance of power.
IV. But Wait—Isn’t the Next Affirmative Action Case Already Before the Court?
While the Fisher case was still pending, the Supreme Court granted review of Schuette v. Coalition to Defend Affirmative Action. As the name of the case suggests, it involves affirmative action and an equal protection claim—might it provide a resolution of the issues that were dodged by Justice Kennedy in Fisher? In a word, no. Fisher and Schuette raise distinct constitutional issues and rely on different lines of precedent. A ruling in Schuette will not affect, doctrinally, the “Fisher truce.” However, Schuette does involve an important interpretation of the Equal Protection Clause that has future affirmative action ramifications.
The Schuette litigation arises out of efforts by opponents of affirmative action to use state referenda processes to ban affirmative action as a matter of state constitutional law. The initiative in Schuette—known as “Proposal 2”—was placed on the ballot in Michigan in 2006, and was designed to circumvent the Supreme Court’s decision in Grutter upholding the University of Michigan Law School’s consideration of race in admissions. Section 1 of Proposal 2 provides:
The University of Michigan, Michigan State University, Wayne State University, and any other public college or university, community college, or school district shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.34
Section 2 of Proposal 2, which is not the focus of the Schuette litigation, is a broader prohibition on the consideration of race by the state (not just by colleges and schools). Proposition 2 was styled after California’s Proposal 209, which was ratified by California voters in 1996. The California Supreme Court and the Ninth Circuit Court of Appeals subsequently upheld Proposal 209 after it was challenged on equal protection grounds.
Supporters of affirmative action, asserting that the state constitutional amendment violates the Equal Protection Clause of the Fourteenth Amendment, brought the challenge to Michigan’s Proposal 2. Thus, the equal protection issue in Schuette is the converse of Fisher: In Fisher, the question was whether a state university can choose to take race into account in university admissions, whereas in Schuette, the question is whether a state university can be barred from taking race into account. While both cases involve interpretation of the Equal Protection Clause, they are based on two distinct doctrines within the realm of equal protection.
In Schuette, the Supreme Court is reviewing an 8-7 en banc decision by the Sixth Circuit Court of Appeals that Proposal 2 violates the Equal Protection Clause. That ruling is not based on what the court termed a “conventional” claim of an equal protection violation—that a state law discriminates on the basis of race. Indeed, the essence of Proposal 2’s prohibition, banning any consideration of race, seems totally consistent with the antidiscrimination principle of the Fourteenth Amendment. Instead, the ruling is based on a “political-process” or “political restructuring” doctrine,35 which the Sixth Circuit described as the “Equal Protection Clause’s guarantee that all citizens ought to have equal access to the tools of political change.”36 The Sixth Circuit concluded that by establishing a constitutional barrier to universities considering race in admissions, Proposal 2 burdens a minority group’s ability to achieve its goals in the usual political process.
The underlying doctrine derives from the Supreme Court’s decision in Hunter v. Erickson.37 In Hunter, the Akron City Council had enacted a fair housing ordinance prohibiting discrimination based on race or religion. In response, voters mounted a successful referendum campaign to amend the city charter to repeal that ordinance and to prevent the enactment of any similar law, unless approved in a city-wide referendum. The Court struck down the charter amendment because it created a higher and more difficult political burden—approval by a city-wide referendum—for those who wanted protection from racial discrimination than it did for any other type of housing ordinance, which only needed the support of the City Council. Even though on its face it did not draw distinctions based on race, it was, in effect, “an explicitly racial classification treating racial housing matters differently from other racial and housing matters.”38 The amendment was unconstitutional because “[a] State may no more disadvantage any particular group by making it more difficult to enact legislation in its behalf than it may dilute any person’s vote or give any group smaller representation than another of comparable size.” 39
In Washington v. Seattle School District No. 1,40 the Supreme Court reaffirmed and applied Hunter to invalidate a statewide initiative that prohibited school boards from using busing to achieve racial integration. The Seattle School Board had approved a busing plan to address de facto segregation in the city’s schools. The statewide initiative had the effect of not only invalidating that busing plan, but also of imposing a more onerous political burden on those seeking to promote racial integration than on those seeking to use busing to achieve other (nonracial) policy goals.41
Based on Hunter and Seattle School District, the Sixth Circuit majority in Schuette held that a political enactment deprives minority groups of equal protection when the enactment: “(1) has a racial focus, targeting a policy or program that ‘inures primarily to the benefit of the minority’; and (2) reallocates political power or reorders the decisionmaking process in a way that places special burdens on a minority group’s ability to achieve its goals through that process.”42 The Court concluded that Proposition 2 met both of these criteria. It noted that a student seeking to benefit from a nonracial preference for admission to a state university, such as her family’s alumni connections, can achieve that goal by lobbying the admissions committee, the university leadership, or the school’s governing board; and only as a last resort would she need to seek to amend the state constitution to provide for such a preference:
The same cannot be said for a black student seeking the adoption of a constitutionally permissible race-conscious admissions policy. That student could do only one thing to effect change: she could attempt to amend the Michigan Constitution—a lengthy, expensive, and arduous process—to repeal the consequences of Proposal 2. The existence of such a comparative structural burden undermines the Equal Protection Clause’s guarantee that all citizens ought to have equal access to the tools of political change.43
The dissenters in the Sixth Circuit disputed the application of Hunter and Seattle School District, and accepted the conclusions of the state and federal courts that previously upheld California’s Proposition 209, upon which Michigan’s amendment was based. They criticized the idea of a “constitutional protection for racial and gender preference—a concept at odds with the basic meaning of the Equal Protection Clause, as understood and explained through decades of jurisprudence.”44 They distinguished Hunter as involving the political process implications of repealing a law that required equal treatment based on race; and they contended that it should not be extended to Schuette where the law being repealed requires preferential treatment based on race. Finally, they concluded that Proposition 2 did not reallocate political power in a way that violates equal protection. In their view, voters did not “restructure” the political process, they “employed” it.
V. How Will the Supreme Court Rule in Schuette?
Predicting what the Supreme Court will decide in Schuette is hampered by the fact that none of the current justices have ruled on a political-restructuring equal protection claim. Indeed, the Court has not based a decision on Hunter’s rationale since 1982. In 1969, the Court that decided Hunter by an 8-1 margin was considerably more liberal on racial issues than later Courts. By 1982, when Seattle School District was decided, the Court had begun to shift; that case was decided by a 5-4 vote with Justices Powell and O’Connor, two moderates, in dissent along with Justices Rehnquist and Burger. On the current Court, the votes of the four conservatives seem predictable. Their position—expressed in the Grutter dissents of Justices Scalia and Thomas, and in the majority opinion in Parents Involved on behalf of all four—is that equal protection prohibits any consideration of race. There is no reason to think that they would find that equal protection is violated by a state constitutional amendment that says exactly that.
As to the liberals, Justice Kagan is again recused because of her earlier involvement as Solicitor General. It seems very likely that Justices Ginsburg and Breyer would support the political restructuring argument in Schuette. In addition to their support of race-conscious policies in Grutter, Parents Involved, and Fisher, they joined the Court’s opinion in Romer v. Evans,45 which employed reasoning similar to the political restructuring doctrine. There is less evidence to base a prediction for Justice Sotomayor’s vote because she was not on the Court for Romer, Grutter, or Parents Involved, but there are reasons to suggest she will be supportive of the restructuring argument as well. She has acknowledged the importance of affirmative action in her own career, which allowed her to attend Princeton University as an undergraduate; she has spoken against the colorblind approach of the four conservatives, which would bar affirmative action; and her vote in Fisher indicates her support of diversity in higher education as a compelling interest. In general, her voting has been most closely aligned with Justices Kagan, Ginsburg, Breyer, and Kennedy, and with the exception of Kagan (who was not on the Court at the time), they were all part of the Romer majority.46 Justice Souter, whom she replaced and who also joined the Romer majority, had very high agreement rates with the justices that Justice Sotomayor most often agrees with.47 Thus, on balance, the best prediction for Justice Sotomayor in Schuette is that she will vote to strike down Proposition 2 on the basis of the political restructuring argument.
This leads us again to Justice Kennedy. There is good reason to think that he will again be the key vote. If he sides with the conservatives, it would be a 5-3 decision upholding Proposition 2. If he sides with the three liberals participating in the appeal, the resulting 4-4 split would mean that the Court of Appeals decision striking down the amendment will stand.
What insights do we have about his point of view? There are conflicting signals. One potentially important clue is an opinion by Justice Kennedy—Romer v. Evans—which has been largely overlooked in the Schuette litigation thus far.48 Justice Kennedy’s majority opinion in Romer, which was joined by Justices Ginsburg and Breyer (as well as departed Justices O’Connor, Stevens, and Souter), could be an indicator of his support for the political restructuring doctrine. In Romer, the sequence of events was analogous to what occurred in Hunter, Seattle School District, and Schuette. Local antidiscrimination laws protecting homosexuals were invalidated by a voter referendum that amended the Colorado Constitution. Justice Kennedy’s opinion held that the amendment violated the Equal Protection Clause and, in explaining his reasoning, the language sounded quite similar to that of the political restructuring doctrine:
Amendment 2, in explicit terms, does more than repeal or rescind these provisions. It prohibits all legislative, executive or judicial action at any level of state or local government designed to protect the named class, a class we shall refer to as homosexual persons or gays and lesbians.
. . . .
. . . The amendment withdraws from homosexuals, but no others, specific legal protection from the injuries caused by discrimination, and it forbids reinstatement of these laws and policies.
. . . .
. . . [W]e cannot accept the view that Amendment 2’s prohibition on specific legal protections does no more than deprive homosexuals of special rights. To the contrary, the amendment imposes a special disability upon those persons alone. Homosexuals are forbidden the safeguards that others enjoy or may seek without constraint. They can obtain specific protection against discrimination only by enlisting the citizenry of Colorado to amend the state constitution or perhaps, on the State’s view, by trying to pass helpful laws of general applicability.
. . . .
. . . A law declaring that in general it shall be more difficult for one group of citizens than for all others to seek aid from the government is itself a denial of equal protection of the laws in the most literal sense.49
This language in Romer would seem to indicate Justice Kennedy’s support for the political restructuring doctrine, and for applying it beyond the racial context to sexual orientation. However, one aspect of Justice Kennedy’s opinion in Romer raises a question about this thesis. The Colorado Supreme Court decision that was reviewed in Romer had relied on the restructuring theory, and explicitly on the Hunter and Seattle School District decisions. Yet, Kennedy stated that he was not basing his decision in Romer on that rationale:
[T]he State Supreme Court held that Amendment 2 was subject to strict scrutiny under the Fourteenth Amendment because it infringed the fundamental right of gays and lesbians to participate in the political process. To reach this conclusion, the state court relied on our voting rights cases, and on our precedents involving discriminatory restructuring of governmental decisionmaking, see, e.g., Hunter v. Erickson; . . . Washington v. Seattle School Dist. No. 1 . . . . We granted certiorari and now affirm the judgment, but on a rationale different from that adopted by the State Supreme Court.50
Despite his reliance on reasoning similar to Hunter and Seattle School District, he explicitly distanced his decision from those cases. Why did he do that? It could be a reflection of his disagreement with the political restructuring doctrine, but then why would he write an opinion so closely tracking that rationale? Another possibility is that it was necessary for him to disclaim that basis for the decision in order to gain support from other justices. For example, Justice O’Connor joined his Romer opinion, but she had been a dissenter in Seattle School District. In order to bring her into the majority in Romer, he may have had to include the language disclaiming reliance on Hunter and Seattle School District.
It is also possible that Justice Kennedy’s opinion in Romer is not a clear indicator of his support, or lack thereof, for the political restructuring doctrine, but is instead a reflection of his strong objection to classifications that disadvantage homosexuals. The latter was the basis for his subsequent majority opinions in Lawrence v. Texas and United States v. Windsor, when there were no political restructuring arguments involved.
Another reason to question the likelihood of Justice Kennedy using the political restructuring doctrine to strike down Proposition 2 in Schuette is the fact that Justice Powell wrote the dissenting opinion (on behalf of four justices) in Seattle School District. In his critique of the majority opinion, Powell anticipated the very question raised in Schuette:
The Court’s decision intrudes deeply into normal state decisionmaking. Under its holding the people of the State of Washington apparently are forever barred from developing a different policy on mandatory busing where a school district previously has adopted one of its own. This principle would not seem limited to the question of mandatory busing. Thus, if the admissions committee of a state law school developed an affirmative-action plan that came under fire, the Court apparently would find it unconstitutional for any higher authority to intervene unless that authority traditionally dictated admissions policies. As a constitutional matter, the dean of the law school, the faculty of the university as a whole, the university president, the chancellor of the university system, and the board of regents might be powerless to intervene despite their greater authority under state law.
After today’s decision it is unclear whether the State may set policy in any area of race relations where a local governmental body arguably has done “more” than the Fourteenth Amendment requires. If local employment or benefits are distributed on a racial basis to the benefit of racial minorities, the State apparently may not thereafter ever intervene.51
Given that Justice Kennedy identifies strongly with Powell’s views on race—demonstrated by his reliance on Justice Powell in Grutter and Fisher—and that he purposefully avoided basing the Romer opinion on Hunter and Seattle School District, it could well be that he shares Powell’s concern about the scope of the political restructuring doctrine. The federalism concern underlying Justice Powell’s dissent in Seattle School District is likely to strongly influence Justice Kennedy’s vote in Schuette. He has been protective of state sovereignty and autonomy in other contexts, most notably as a limiting principle for the Federal Commerce Clause power,52 and in this past term’s decision striking down the Defense of Marriage Act.53 While his Fisher decision keeps a space, albeit a narrow one, for affirmative action programs against an equal protection challenge, he is likely to be sympathetic to allowing each state to decide for itself whether it wants to allow or ban affirmative action.
It is likely that the Court will reverse the Sixth Circuit Court of Appeals in Schuette, and will hold that the Equal Protection Clause is not violated by the Michigan constitutional prohibition on affirmative action. Justice Kennedy and the four conservatives will form the majority, with Justices Ginsburg, Breyer and Sotomayor in dissent. However, Justice Kennedy is not likely to reject the political restructuring doctrine completely, which would presumably require overruling Hunter and Seattle School District. He is more likely to write an opinion that distinguishes those decisions, and declines to extend them to control in Schuette.
For example, he could distinguish Hunter, Seattle School District, and Romer (if he wants to address it) on the grounds that they involved state laws that made it politically more difficult for minorities to protect themselves against discrimination, thereby interfering with the core value of nondiscrimination in equal protection. In contrast, Proposition 2 makes it harder for minorities to gain preferential treatment, which arguably runs counter to the core value of nondiscrimination, and which he has said is presumptively unconstitutional unless able to survive strict scrutiny. He might well conclude that a measure that makes it politically more difficult to gain preferential treatment (which is not constitutionally protected) does not offend equal protection principles in the way that Hunter and Seattle School District viewed measures that made it more difficult to protect against racial discrimination (which is constitutionally protected).
If that is the outcome, the net effect of Fisher and Schuette will be that the opponents of affirmative action will not have achieved their primary goal—a national ban based on the U.S. Constitution—but they will be able to lobby for state-by-state prohibitions, without Supreme Court review. Justice Kennedy may have been the key vote that kept affirmative action “alive” (albeit barely) in Fisher, but his support of even that limited form of affirmative action will likely yield in Schuette to his state-sovereignty view of federalism.
Robert H. Smith, Essay, Affirmative Action Survives Fisher (Sort of), but What About Schuette?, 1 Suffolk U. L. Rev. Online 65 (Sept. 29, 2013), http://www.suffolklawreview.org/Schuette-Smith.
Professor of Law, Suffolk University Law School. The author appreciates the helpful comments of Professor Renee Landers, Professor Gerard Clark, and Justice John Greaney on a prior draft of this Essay.
On the other hand, [Justice Sotomayor] said she disagreed with Chief Justice Roberts’s approach to cases concerning racial equality. In a 2007 opinion in a decision limiting the use of race to achieve public school integration, Chief Justice Roberts wrote that “the way to stop discrimination on the basis of race is to stop discriminating on the basis of race.”
That approach, Justice Sotomayor said, was “too simple.”
“I don’t borrow Chief Justice Roberts’s description of what colorblindness is,” she said. “Our society is too complex to use that kind of analysis.”
Having approved the use of race as a factor in the admissions process, the majority proceeds to nullify the essential safeguard Justice Powell insisted upon as the precondition of the approval. The safeguard was rigorous judicial review, with strict scrutiny as the controlling standard. . . . The Court confuses deference to a university’s definition of its educational objective with deference to the implementation of this goal. In the context of university admissions the objective of racial diversity can be accepted based on empirical data known to us, but deference is not to be given with respect to the methods by which it is pursued.
Grutter v. Bollinger, 539 U.S. 306, 388 (2003) (citations omitted), with his majority opinion in Fisher:
The Court of Appeals thus concluded that “the narrow-tailoring inquiry—like the compelling-interest inquiry—is undertaken with a degree of deference to the Universit[y] [of Michigan Law School].”
. . . .
. . . Strict scrutiny does not permit a court to accept a school’s assertion that its admissions process uses race in a permissible way without a court giving close analysis to the evidence of how the process works in practice.
. . . .
. . . The District Court and Court of Appeals confined the strict scrutiny inquiry in too narrow a way by deferring to the University’s good faith in its use of racial classifications and affirming the grant of summary judgment on that basis.
Fisher, 133 S. Ct. at 2420-21 (citations omitted). ↩
The title of Edward Albee’s play, Who’s Afraid of Virginia Woolf?,1 is a pun on the song “Who’s Afraid of the Big Bad Wolf” from Walt Disney’s 1933 cartoon Three Little Pigs.2 At the end of the play, the lead female character, Martha, says to her husband George, “I . . . am . . . George. . . . I . . . am. . . .”3 She is not saying she is afraid of wolves, pigs, Walt Disney, or the famous English novelist, but rather that she is afraid of living life honestly, without illusion.
We all have illusions; the longer we live, the greater the illusions as we simultaneously forget and recreate our past. We then use our new, illusory past to chart a different—and we hope, better—future. Is this realistic, though? Psychologist and Nobel Prize winner in economics Daniel Kahneman thinks not. To Dr. Kahneman, it is a pernicious illusion that we can accurately recall our own past, much less use that past as a guide for future action. For Kahneman:
A general limitation of the human mind is its imperfect ability to reconstruct past states of knowledge, or beliefs that have changed. Once you adopt a new view of the world (or of any part of it), you immediately lose much of your ability to recall what you used to believe before your mind changed.
. . . .
. . . The tendency to revise the history of one’s beliefs in light of what actually happened produces a robust cognitive illusion.4
There is a neurological basis for this simultaneous recreation of a false past as an unreliable aid to an unknowable future: “Brain-imaging studies show that the same brain structures that are engaged when we recollect our past are called upon when we think of the future.”5 From an evolutionary standpoint, the obvious question is: Why this double duty for the brain? A more painful question is: Why would the human species evolve in a way that leads us to live a lie?
In 2011, Tali Sharot published a book called The Optimism Bias: A Tour of the Irrationally Positive Brain, which attempts to answer these questions.6 Her book, like many recent studies in a wide range of fields, makes use of advances in neurological imaging of the brain to study how the brain responds to various cognitive stimuli. Dr. Sharot sought to understand two phenomena. She calls the first the optimism bias, which consists of our tendency to overestimate the likelihood of positive things happening and to underestimate the likelihood of experiencing negative events. Voltaire made fun of this bias in his satire Candide, or Optimism, when he had Candide’s mentor, Dr. Pangloss, constantly repeat Leibniz’s statement that “in this best of all possible worlds . . . all is for the best.”7 Unlike Leibniz, Voltaire took an evidence-based approach, using the 1755 All Saints Day earthquake and the resultant tsunami and fires that all but leveled Lisbon, to question Leibniz’s optimism.8
Dr. Sharot calls the second phenomenon the superiority bias: our tendency to believe we are better than others, seen in a study in which 93% of those answering said they were in the top fiftieth percentile for driving ability.9 This is different from Garrison Keillor’s Lake Wobegon, a place where “all the women are strong, all the men are good looking, and all the children are above average.”10 Unlike the Lake Wobegon effect, where everyone is exceptional, usually we see ourselves as better than others. We tend to think others have illusions, but that we do not.
There are obvious dangers in both the optimism and superiority biases: we misjudge our own abilities and others’ abilities too; bad things can happen that might have been prevented if only we had been clear-eyed about what we faced and if we had been clear-eyed about others. Dr. Sharot’s thesis is that both biases are adaptive and functional: they reduce the stress and anxiety that can prevent us from being able to improve ourselves, permitting us to overcome difficult obstacles or setbacks, and they allow us to take entrepreneurial risks that we otherwise would not.11 President Obama referred to this in his victory speech when, although encouraging his audience to keep their hope in our country’s future, he added that “I’m not talking about blind optimism—the kind of hope that just ignores the enormity of the tasks ahead or the roadblocks that stand in our path.”12
Dr. Kahneman has described the optimism bias as likely “the most significant of the cognitive biases.”13 And it may be significant that it is a characteristic that distinguishes humans from other animals. Outside of short-term, seasonally occurring triggers such as squirrels saving for the winter,14 Dr. Sharot argues that humans, unlike other animals, engage in mental projection into the future,15 whether in the form of abstract strategic planning, as when we play a game of chess, or out of the self-awareness that certain physical steps have to be taken now for the future, such as preparing for a hurricane. Dr. Sharot believes this ability is evolutionary, writing:
While the capacity for both awareness and prospection has clear survival advantages, conscious foresight also came at an enormous price—an understanding that somewhere in the future, death awaits us. This knowledge—that old age, sickness, decline of mental power, and oblivion are around the corner—is less than optimistic. It causes a great deal of anguish and fear. [T]he awareness of mortality on its own would have led evolution to a dead end. The despair would have interfered with daily function, bringing the activities and cognitive functions needed for survival to a stop. Humans possess this awareness, and yet we survive. How?
The only way conscious mental time travel could have been selected for over the course of evolution is if it had emerged at the same time as false beliefs. In other words, an ability to imagine a future had to develop side by side with positive biases. The knowledge of death had to emerge at the same time as its irrational denial.16
Those of you still in law school may doubt this. Those of us nearer our end, do not. Regardless of where you fall on life’s spectrum, Dr. Sharot’s and others’ research points toward possible biological reasons for our tenuous relationship with reality, biological reasons that explain why the human species has evolved in a way that leads us to live a lie. If Dr. Sharot’s thesis is true,17 those of us who advocate an objective, evidence-based approach to decision making face an uphill battle. This is not news, of course, fancy neurological theories aside. Public choice theorists have long argued that special, monied interests exercise disproportionate influence over the political process, including the making of copyright laws. 18 Somewhat less cynical political theorists, like Mancur Olson, have explained the asymmetrical nature of such influence by reference to the nature of collective action, whereby a minority of concentrated interests can repeatedly triumph over a larger, but diffuse majority.19 The defeat this year in the United States of the Stop Online Piracy Act (SOPA)20 by a grassroots effort, and the rejection of the Anti-Counterfeiting Trade Agreement (ACTA)21 by the European Parliament after a similar effort, are evidence that an organized majority can defeat a minority group consisting of concentrated and wealthy industry groups. Whether we should be optimistic about the future based on these successes is unknown, and likely, of course, to be biased.
Behavioral economists and psychologists have argued that our judgment and decision making are a complex mix of rational and irrational factors, with irrational or at least subconscious factors often predominating, even among those who pride themselves on their rationality.22 Here, for example, is a sentence from The Economic Structure of Intellectual Property Law, a book by University of Chicago economist William Landes and Seventh Circuit Judge Richard Posner: “Today it is acknowledged that analysis and evaluation of intellectual property law are appropriately conducted within an economic framework that seeks to align that law with the dictates of economic efficiency.”23 Efficiency, for our purposes, is a rational wealth-maximizing copyright owner, acting in response to rational, incentive-based, but-for copyright laws. Indeed, Landes and Posner added that they are “skeptical that the noneconomic theories of intellectual property have much explanatory power or normative significance . . . .”24 Yet, only four pages later, they concede “neither economic theory nor empirical evidence enables a ringing endorsement of any complete body of intellectual property law . . . .”25
If we cannot find support for all of the parts, can we find support for some of them? In deciding the economically efficient level for protection for the parts, Professor Landes and Judge Posner believe “one would want to classify different forms of intellectual property according to the output likely to be produced with and without the recognition of such a right and grant such recognition only to those forms in which output would be seriously suboptimal without it.”26 In other words, we would have an evidence-based approach, by which we would tailor the amount of particular rights to the need for those rights. I agree completely. Professor Landes and Judge Posner acknowledge, though, that “the empirical studies required to make such a classification have never been undertaken . . . .”27 As I discuss below, since the time this was written, a number of such studies have been undertaken, including one by Professor Jessica Silbey of Suffolk University Law School.
But even if we had such studies, there is reason to believe they would be ignored in favor of theory. Here is what Professor Landes and Judge Posner say about derivative rights: “The case for giving the owner of a copyrighted work control over derivative works is a subtle one. It is not, as one might think, to enable the creator of the original to recoup his cost of expression.”28 They offer a number of alternative reasons for supporting the grant of derivative rights, none compelling, some noneconomic in nature, until they finally settle on minimizing transaction costs.29 This argument, though, commits the logical fallacy of assuming the answer, because it assumes that the copyright owner should have control in the first place. If the copyright owner did not have the right to prevent the creation of unauthorized derivative works, there would be no transaction costs, and thus no costs to minimize. I do not mean to suggest copyright owners should not have control over derivative uses, or at least some of them. I am only pointing out that Professor Landes and Judge Posner are unable to apply their neoclassical rational choice theories to the real world.30 We are left with theories offered without the backing of any empirical evidence.
Professor Landes and Judge Posner’s shortcomings are not as uncommon as we would think, even for such brilliant thinkers. Their mistakes are “predictably irrational.”31 They flow naturally from the way we all make sense of the world, which is through stories. “Thought flows in terms of stories . . . . We learn in the form of stories . . . . We cannot help thinking in terms of stories . . . . [Stories are] the only way we can make sense of the world.”32 Data are fit into preexisting stories we already believe. The data do not make up the stories, but rather are made to fit those stories. As the twentieth-century American Quaker Jessamyn West wrote: “We want the facts to fit the preconceptions. When they don’t, it is easier to ignore the facts than to change the preconceptions.”33 This is not to argue for an absence of beliefs: beliefs, passionately held, are common; the danger comes when the facts belie our beliefs. At that point, we need to follow historian A.J.P. Taylor’s admonition to have “strong views, weakly held.”34 In the debates about the proper level of copyright, beliefs are trumpeted as facts; they are not. And they are very strongly held, crowding out everything which conflicts with those beliefs.
Professor Landes and Judge Posner offer a story, and not a factual description of how either creators or the copyright laws actually function. Their story has two parts: first, that neoclassical economics by itself can explain marketplace behavior, and second, that such behavior is causally related to rational laws. They assert that our laws are a directly causal reason why copyrighted works are created, and why copyright owners and those who use copyrighted works act the way they do. According to this view, incentives in the form of exclusive rights are believed to be but-for reasons behind the creation of new works.35 That Professor Landes and Judge Posner admitted they had no evidence to support their story was not apparently an impediment to them in explaining how, allegedly, copyright laws actually function in practice.
There is evidence to suggest that many works are created without the need for the super-sized incentives that our copyright laws currently provide. The scope of copyright today is vast; in addition to traditional forms of creativity, such as books, music, and motion pictures, our laws protect personal letters, diaries, emails, business works, and advertising, none of which have any need for the incentive of copyright. The explosion in video creativity, seen on YouTube, and in written creativity, seen in web writing, including blogs, has not been driven by the dramatic expansion of exclusive rights; quite the contrary. What was the cause of this new creativity, and what can policymakers do to further encourage and support it? These examples suggest that limitations and exceptions, such as fair use and the safe harbors in the Digital Milennium Copyright Act (DMCA)36 can sometimes be at least as powerful an incentive as rights. New platforms for low-cost distribution are unlocking previously untapped creators. The DMCA safe harbors may turn out to be the most important thing we have done in the last fifteen years to encourage creativity. In any event, the alleged causal, a priori link between strong copyright laws and the creation of creative works is not close to being established, despite the religious fervor with which it is espoused.
In 1945, Belgian experimental psychologist Albert Michotte published his classic book, The Perception of Causality,37 which Amos Tversky and Daniel Kahneman have described as “a compelling demonstration of the irresistible tendency to perceive sequences of events in terms of causal relations, even when the perceiver is fully aware that the relation between the events is incidental and that the imputed causality is illusory.”38
[C]auses are a strange kind of knowledge. This was first pointed out by David Hume, the 18th-century Scottish philosopher. Hume realized that, although people talk about causes as if they are real facts—tangible things that can be discovered—they’re actually not at all factual. Instead, Hume said, every cause is just a slippery story, a catchy conjecture, a “lively conception produced by habit.” When an apple falls from a tree, the cause is obvious: gravity. Hume’s skeptical insight was that we don’t see gravity—we see only an object tugged toward the earth. We look at X and then at Y, and invent a story about what happened in between. We can measure facts, but a cause is not a fact—it’s a fiction that helps us make sense of facts.39
In the field of copyright, there are a number of stories, besides Professor Landes and Judge Posner’s. Here is one, expressed as a syllogism:
Copyright is the basis for creativity[.]
Creativity is the basis for culture[.]
Therefore, copyright is the basis for culture.40
Here is another, again expressed as a syllogism:
Copyright is the basis of a knowledge-based economy.
The knowledge-based economy is the basis for competitiveness.
Therefore copyright is the basis for competitiveness.41
Here is a third, and final story, expressed as a tautology: “[T]he creative industries are those industries dependent on copyright laws and therefore copyright laws are essential to their growth.”42 These three stories set out a causal connection between law and positive consequences. Who would not want such wonderful things to come to pass? But believing in wonderful things is not the same as those wonderful things actually coming to pass, just as believing someone is your true love does not mean that she really is your one-and-only soulmate. Believing that copyright is the basis for culture and for competitiveness does not mean it is. Yet, copyright laws are constantly being passed on the basis that there is a direct, immediate causal relationship in the stories lobbyists and politicians tell, shown by the two syllogisms and the one tautology I just discussed.
How should we approach matters? How should we ensure that the noble goals of copyright laws can be fulfilled? One might use a bottoms-up approach, an approach that creates an empirical record through interviewing actual creators about why they create and how the existence of copyright fits into their creative actions, and centers on examining data about past changes in the law and how those changes correlate to actually achieving the goals of the legislation.
Professor Silbey has done excellent bottoms-up research. Her forthcoming book, Harvesting Intellectual Property: IP Interventions and the Roles of Intellectual Property in Creative and Innovative Work, will provide an extremely useful basis for evidence-based policymaking.43 Lord knows it is long overdue.
In addition to lacking the type of research provided by Professor Silbey, the problems of evidence-based decision making in drafting our copyright laws are twofold. First, does the decision maker have the intelligence or expertise to evaluate whatever evidence there is? I am going to avoid landmines here by assuming the answer is yes, those members of Congress who make copyright policy have the necessary intelligence, but it is unlikely that they have the necessary expertise. This is not a criticism. Our legislators are, by design, generalists. They must vote on a vast array of issues, many of which are both politically charged and complex. In the greater scheme of Congress’s work, copyright issues are small potatoes indeed, compared to the fiscal cliff and the war in Afghanistan, for example. Over time, through committee work, some members of Congress may develop a form of expertise, but in a fast-paced private sector, driven by rapid technological and market changes, past expertise can become quickly outdated. As a result, legislators and their staff must rely on lobbyists. This, of course, comes at considerable peril.
Whether as a result of lobbyists’ partisan slanting or withholding of information, or because the future is always uncertain, legislators must act on incomplete information, under uncertainty. The second problem in evidence-based decision making is the decision maker’s possession of limited data of limited validity. These real-world problems should be cause for concern.
There is a great deal of academic literature on decision making in uncertain circumstances, and how those uncertain circumstances lead to the use of short-hand, intuitive judgments, or, less charitably, guesses.44 Reliance on intuition is not, of course, inherently wrong. Where our intuitive judgments are based on a wealth of past experience and expertise, those judgments may be invaluable. But intuitive judgments can also lead to serious errors, especially where they are utilized to the exclusion of other facts, even objective ones. Moreover, where those judgments are not based on a wealth of past experience and expertise, we should not grace the decision made with the word judgment. Guess is more appropriate.
Daniel Kahneman and Gary Klein wrote a paper together about the different types of judgments, called Conditions for Intuitive Expertise: A Failure to Disagree.45 Klein has written extensively and positively about the use of intuition in decision making; Kahneman has written negatively about it. They collaborated on a joint study and found out they agreed more than they disagreed. They particularly agreed with the late polymath Herman Simon, who described intuition as bringing up memories of previously stored information or experience.46 They rejected a conception of intuition as knowing without knowing. In short, they concluded, as should we, that intuition can form the basis for meaningful judgment only when it is based on solid expertise and solid information.
Now, to finally answer the question posed by the title of this talk: Why are we afraid of evidence-based copyright laws? In addition to the asymmetrical lobbying power of the copyright industries, a fact of political life in the United States for more than 100 years, I think the answer is that evidence is supplanted by stories. Supplanted may be too weak a word; rejected may be more accurate. We reject evidence that does not comport with our story, or as we saw with Professor Landes and Judge Posner, we proceed ahead full steam as if it the evidence were not there, or did not matter.
We cannot have evidence-based policymaking if policymakers refuse to change their minds when confronted with the actual facts, and instead cling to false stories. John Kenneth Galbraith observed that “[f]aced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy” proving that there is no need to change.47 Yet, as my friend, Second Circuit Judge Pierre Leval pointed out to me, “the best way to know you have a mind is to change it.” We can change our minds; we can work around our biases if we are aware of them and if we compensate for their influences on us.48
Hopefully, our copyright laws will change too; not to become weaker or stronger, but rather to become effective, become evidence based, become less an ideological or quasi-religious cause,49 and become more of a tool for doing good and avoiding harm.
Bill Patry, Essay, Who’s Afraid of an Evidence-Based Copyright Law? , 1 Suffolk U. L. Rev. Online 55 (Sept. 18, 2013), http://www.suffolklawreview.org/Copyright-Patry.
Senior Copyright Counsel, Google Inc. The views expressed are solely those of the author. These remarks are based on a lecture delivered on November 8, 2012 as part of the Donahue Lecture Series at Suffolk University Law School.
Described by Justice Alito as “perhaps the most important criminal procedure case that this Court has heard in decades,” the Supreme Court’s decision in Maryland v. King will have far-reaching Fourth Amendment implications.1 In 2008, the Maryland General Assembly passed the Maryland DNA Collection Act, amending a 2002 statute that expanded police authority to collect DNA samples from those arrested for certain offenses.2 Under the statute, samples are collected at the time of arrest, but can only be analyzed once the arrestee has been charged and arraigned.3 Once collected, the DNA sample is immediately processed, submitted to the FBI’s Combined DNA Index System database (CODIS), and compared against other samples.4
The Arrest, the Swab, and the Rape Conviction5
On April 10, 2009, police arrested Alonzo Jay King, Jr. in Wicomico County, Maryland on first- and second-degree assault charges. King’s arrest for a violent crime authorized police to collect a buccal swab DNA sample from him by rubbing a cotton swab on the inside portion of King’s mouth. The Maryland State Police Forensic Sciences Division uploaded the sample to the Maryland DNA database in July, and recorded a “hit” in August, matching King’s DNA to an unsolved rape case from 2003. In that case, a disguised man broke into the home of a fifty-three-year-old woman and raped her while holding a gun to her head. The woman could not identify her attacker, but police were able to collect a sample of the attacker’s semen.
Based solely on the DNA evidence, the Wicomico County grand jury returned an indictment against King for first-degree rape in October. At trial, King filed a motion to suppress the DNA evidence, arguing the Act authorized an illegal search and seizure, which could not survive scrutiny under the Fourth Amendment. After the hearing judge denied the motion to suppress, King was subsequently convicted of first-degree rape and sentenced to life in prison without the possibility of parole. King appealed, but Maryland’s highest court—the Court of Appeals of Maryland—granted certiorari before the intermediate appellate court rendered a judgment.6 The Court of Appeals then reversed, holding that the Act violated the Fourth Amendment. The State appealed to the United States Supreme Court and filed a request for a stay pending the disposition of the writ.7 Chief Justice Roberts granted the stay because the State had established a reasonable possibility that the Court would grant certiorari and a fair prospect that the Court would reverse the decision below.8 On November 9, 2012, the Court granted certiorari and heard oral arguments on February 26, 2013.9
A Brief Look at Balancing the Fourth Amendment and an Arrestee’s Expectation of Privacy
The Fourth Amendment protects people from “unreasonable searches and seizures” without a warrant supported by probable cause that describes with particularity “the place to be searched, and the persons or things to be seized.”10 The Supreme Court incorporated the Fourth Amendment to the states in 1961 by holding that evidence obtained by searches and seizures in violation of the Constitution is inadmissible in state courts.11 There is “no fixed formula” for determining a Fourth Amendment violation; instead, the ultimate question is whether the actions by police were reasonable enough under the circumstances to satisfy the Fourth Amendment’s requirements.12 The basic rule is that warrantless searches are per se unreasonable “subject only to a few specifically established and well-delineated exceptions.”13 In Pennsylvania v. Mimms, the Court stated that lower courts should consider “‘the reasonableness in all the circumstances of the particular governmental invasion of a citizen’s personal security.’”14
Reasonableness may mean that neither a warrant nor probable cause is required in all cases. Individualized suspicion is often required, but the “‘Fourth Amendment imposes no irreducible requirement of such suspicion.’”15 Indeed, the Court has cautioned that individualized suspicion is “not a constitutional floor, below which a search must be presumed unreasonable.”16
In Samson v. California, the Court analyzed the search under a “totality of the circumstances” test by balancing the State’s interest against the parolee’s legitimate privacy expectation.17 Although the defendant in Samson was a parolee, the “totality of the circumstances” analysis would be the same with any suspect in police custody because of a diminished expectation of privacy.18 In the particular case of arrestees, the Court recognized that they have a diminished expectation of privacy, placing them further across the continuum from law-abiding citizens to convicts, probationers, and parolees. Recently, the Court upheld the strip search of an arrestee for a traffic offense as reasonable under this analysis because the government’s interest in safety outweighed the arrestee’s diminished expectation of privacy.19
Although the Court has not discussed buccal swabs in the past, it has recognized other extractions of DNA material—such as drawn blood—as a search.20 In conducting that analysis, however, the Court has also held that if performed appropriately, blood draws are not so invasive as to violate the Fourth Amendment.21 Additionally, courts have allowed law enforcement to collect DNA samples from arrestees when they have “abandoned” or not demonstrated a subjective expectation of privacy as to items that contain their DNA, such as left-behind water bottles or cigarette butts, because this type of DNA collection is not a search in the constitutional sense.22 Neither party to the suit questions that DNA collection is a search in the constitutional sense, but they do diverge on how to characterize this search.23 The lower courts in Mitchell and King held the processing of the DNA sample and creation of the DNA profile in CODIS to be a second search, but disagreed on its constitutionality because of the extensiveness of information that “junk DNA” can provide to the government.24
Two federal appeals courts and one state supreme court previously upheld statutes similar to the Maryland act as permissible under the Fourth Amendment.25 In United States v. Mitchell, the Court of Appeals for the Third Circuit conducted a balancing analysis of the Federal DNA Act and held that collecting a DNA sample was minimally intrusive and did not weigh significantly in the defendant’s favor.26 The court held that the method used to process the DNA, so called “junk DNA,” contained very little information beyond identification, and other safeguards were sufficient to render the search reasonable for Fourth Amendment purposes.27 The Ninth Circuit and the Virginia Supreme Court, like the Third Circuit, have upheld the everyday practice of collecting DNA from arrestees, common to federal law enforcement and twenty-eight states.28
Maryland Creates a Split and Draws the Court’s Attention
In King, the Court of Appeals of Maryland split with these courts and held that the DNA search was unreasonable under the Fourth Amendment.29 The court applied the “totality of the circumstances” test and found for the defendant because King, as an arrestee, was entitled to a presumption of innocence that convicted felons, probationers, and parolees did not receive. Reasoning that the respondent’s expectation of privacy outweighed the State’s interest in using DNA for identification purposes, the court rejected the State’s need for the DNA to identify the defendant because fingerprints and photographs had already adequately identified King. The court rejected the State’s argument that DNA samples are a modern, more accurate form of ink fingerprinting because the vast amount of genetic data that an arrestee’s DNA may contain distinguishes it from a simple fingerprint. Simply put, the court held that a lawful arrest for a crime of violence cannot serve as probable cause for a DNA search of an arrestee.
At oral argument on February 26, 2013, the Supreme Court focused predominantly on the primary purpose of the legislation and the comparison between “DNA fingerprinting” and ink fingerprinting.30 The State and the Solicitor General compared the evolution of speed and accuracy of ink fingerprinting with where “DNA fingerprinting” will likely be, in as few as two years.31 Chief Justice Roberts expressed hesitation to decide a case based on the future possibilities of the technology, but Maryland countered that the technology is already more accurate than ink fingerprinting and can be used to revoke bail if a “hit” comes back from the database.32 Despite heavy reliance by the Maryland Court of Appeals on the presumption of innocence, the justices seemed more interested in the possession of DNA by the government and the speed of processing the samples.
What Is the Initial Inquiry: Per Se Unreasonable or Balancing?
Both Justice Kagan and the respondent indicated that the initial analysis is usually not a balancing of the interests at play, but a requirement that the state meet one of the established Fourth Amendment warrant exceptions because warrantless searches are per se unreasonable.33 In this case, none of the traditional exceptions, such as search incident to arrest or exigent circumstances, would apply. The Court could create a new exception to the warrant requirement for biometric data generally.34 The Court could also attempt to fit this situation into a recognized exception such as a search incident to arrest; however, this is unlikely because the search would not fit into the twin rationales of officer safety or preservation of evidence.35 These outcomes are unlikely, but the Court could find for the State through a straightforward balancing analysis. Warrantless searches are per se unreasonable, but that does not end the inquiry. A balancing of interests determines ultimately whether the government’s actions were reasonable.
DNA identification is in the same place technologically that ink fingerprinting was twenty to thirty years ago, before powerful computer databases or even the Internet existed.36 Both ink fingerprinting and DNA sampling are used for identification, but both also match arrestees to crimes. The test of reasonableness by balancing interests has resulted in the Court holding that warrantless searches without individualized suspicion can still be reasonable in certain circumstances, such as when the privacy interest is minimal, the government’s purpose will be frustrated by requiring a warrant, and safeguards are in place to limit discretion.37 The warrantless “search” of fingerprinting arrestees has never been squarely addressed by the Court, but King conceded that given the widespread use of fingerprinting, the practice is most likely constitutional.38 “DNA fingerprinting” more accurately addresses the governmental interest in properly identifying arrestees, determining whether to detain or release them, and devising methods to best supervise them.39 Finally, the amici curiae brief of the fifty states persuasively argued that collecting DNA samples from arrestees serves the compelling governmental interest in solving crimes because of the number of previously unsolvable cold cases that have been solved by collecting DNA samples from arrestees.40
The State does have a significant interest in accurately identifying arrestees, and DNA collection assists the State in adequately supervising pretrial detainees. The use of DNA also leads to more efficient criminal investigations by eliminating suspects and conserving resources.41 Nevertheless, processing DNA continues long after the arrestee has been identified, so the purpose must also be identification of arrestee involvement in previously unsolved crimes. Although not explored fully in oral arguments, the length of time DNA identification currently takes could be compared with the length of time ink-fingerprinting identification took prior to the incorporation of computer databases.42 The safeguards surrounding the processing and use of the DNA sample constitute a reasonable search under a “totality of the circumstances” analysis because the search is minimal and the DNA processing can only reveal the identity of the arrestee as random numbers. Thus, the only loss of privacy is in being accurately identified, and there is no established, reasonable expectation of privacy in anonymity, especially after an arrest.43
If the Supreme Court decides to uphold the Maryland Court of Appeals and rules “DNA fingerprinting” of arrestees unconstitutional, it would have far-reaching implications because many states and the federal government have enacted similar legislation. The fact that every state—including those without similar legislation—has filed in support of petitioner should not be overlooked. It is unusual for the Court to take up a case that has not been fully vetted in the lower courts. However, the shockwaves that this decision could make by overruling other appellate courts and striking down a widely used practice demonstrate the need to resolve this dispute.
Ultimately, the Samson “totality of the circumstances” balancing test to determine reasonableness is appropriate. The governmental interests in identifying suspects and solving unrelated offenses should be sufficient to outweigh the privacy interest in preventing access to an individual’s genetic code, especially when combined with the safeguards already in place to protect the arrestee’s genetic information. A decision in favor of Maryland could establish that the Samson “totality of the circumstances” analysis to determine reasonableness is the initial inquiry for Fourth Amendment purposes. This outcome could signal that provided a state acts reasonably, a number of activities previously barred by the Fourth Amendment now could be legitimate.
A decision in favor of King, on the other hand, would not only result in massive upheaval of routine law-enforcement practices, but would lead to fewer solved crimes. Such an outcome may also stunt the evolution of DNA identification, the speed of which could eventually match that of ink fingerprinting today. Should the court rule in favor of King, it would also necessarily draw a distinction for the first time between the privacy rights of arrestees and parolees.
Should the Court reverse the Maryland Court of Appeals, the bench will likely carefully narrow the opinion to limit future expansive uses of this information. The Court could require the state to bear the heavy burden of demonstrating that the DNA samples are appropriately handled and only used for identification purposes.
Ultimately, the Court should reverse the Maryland Court of Appeals because on balance the statute is reasonable. The minimal intrusion to the arrestee is offset by the improvement of suspect identification for bail supervision, the important governmental interest in solving crimes, and statutory safeguards. Had a similar case found ink fingerprinting (which does not require individualized suspicion) unconstitutional, many law-enforcement practices that we currently consider normal and routine would not exist, compromising law enforcement’s effectiveness. Striking down statutory DNA identification would cut short future technological advances that could make the use of DNA fingerprinting equivalent to current ink-fingerprinting practice, yet much more effective and accurate.
David C. Soutter, Case Note, Twenty-First Century Fingerprinting: Supreme Court in King to Determine Privacy Interest in Arrestee DNA, 1 Suffolk U. L. Rev. Online 47 (Apr. 22, 2013), http://www.suffolklawreview.org/king-maryland.
This short commentary corrects an erroneous understanding of probabilistic causation in the loss-of-chance doctrine and the damage calculation method adopted in Matsuyama v. Birnbaum.1 The Supreme Judicial Court of Massachusetts is not alone. Many other common law courts have made the same error, including Indiana, Nevada, New Mexico, Ohio, and Oklahoma.2 The consistency in the mistake suggests that the error is the majority rule of damages. I demonstrate here that this majority rule is based on erroneous mathematical reasoning and the fallacy of probabilistic logic.
To be clear, I do not contest the propriety of the loss-of-chance doctrine because the underlying policy sensibly addresses the social problem of medical malpractice inflicted on severely ill patients.3 Without the doctrine, there would be no such thing as medical malpractice for patients who were more likely to not survive the ailment. I only comment on the conceptual understanding of probabilistic causation and the nature of probability-based damage calculation. The essential error in Matsuyama and other courts’ decisions is a misconception of the reference class from which probabilistic causation is calculated. This error undervalues damages in certain types of cases where even after the medical malpractice, the plaintiff still had some residual chance of survival, though she ultimately died, thus begetting the cause of action.
Loss-of-Chance Doctrine and Damage Calculation
The loss-of-chance doctrine applies in medical malpractice actions in which the plaintiff cannot prove traditional “but for” causation because she was likely to die from her ailment even before the negligence. The doctor’s negligence is typically the failure to diagnose the condition or to treat the condition, and as a result the plaintiff suffers the loss of a chance to survive. Under a traditional analysis, as a matter of probability it is more likely than not that the natural ailment killed the plaintiff in each instance, and the doctor would escape liability no matter how egregious the negligence. This situation leads to what scholars have called “recurring misses,” when doctors systematically escape liability for negligent treatment in cases involving severely ill patients.4
Matsuyama presents a typical fact pattern.5 The plaintiff had cancer at the time he was examined by the defendant. The examination failed to detect the cancer. The jury found that at the time of the initial examination, the plaintiff had only a 37.5% chance of survival.6 The defendant’s negligence destroyed that small chance to survive.7 As a matter of probability, he would have succumbed to his natural health condition irrespective of the negligence. Of course, if we had three such plaintiffs in exactly the same condition, the odds suggest that negligence would have killed one of them.8
Common law courts have adopted the loss-of-chance doctrine to provide plaintiffs a remedy in medical malpractice cases.9 Loss of chance is an exception to the traditional causation analysis, and provides an alternative theory of liability for medical malpractice. The doctrine recognizes that a plaintiff’s loss of probabilistic chance to survive should be a cognizable injury.10 Courts provide an award of damages based on this probabilistic loss of chance.
The Supreme Judicial Court of Massachusetts in Matsuyama provides a five-step process for calculating damages.11 The jury must find these facts:
(1) “the full amount of damages allowable for the injury,” without any probabilistic offset;
(2) the probability of survival before the medical malpractice;
(3) the probability of survival after the medical malpractice;
(4) the difference in probabilities between steps (2) and (3); and
(5) the product of the difference in probabilities (4) and the full amount of damages (1).
We can generalize this rule of law with this formula:
The court provides the following numeric example to illustrate the damage calculation: The full value of a wrongful death is $600,000. The patient had a 45% chance of survival before the medical practice. The patient had a 15% chance of survival after the medical malpractice. Based on the reduction of 30% chance of survival, the court suggests that the damage for loss of chance is: 30% (reduction in chance) x $600,000 (full loss) = $180,000 (damages).12
A number of other courts have adopted the same approach toward damage calculations.13 For example, in McKellips v. Saint Francis Hospital, Inc., the Supreme Court of Oklahoma gave this example: The full value of a wrongful death is $500,000. The patient had a 40% chance of survival before the medical malpractice. The patient had a 25% chance of survival after the medical malpractice. Based on the 15% reduction of chance of survival, the court suggested that the damage for loss of chance is $75,000 (= 15% x $500,000).14 Indeed, this method in McKellips has influenced a number of subsequent decisions, including Matsuyama.15
The above damage calculation method is a common approach taken by courts in conceptualizing causation analysis and damage calculation. This approach is wrong. In fact, for reasons explained below, the damages in the above hypotheticals should be $211,765 in the Matsuyama hypothetical16 and $100,000 in the McKellips hypothetical.17
The Matsuyama court and other courts have incorrectly calculated probabilistic causation and the damage calculations derived therefrom. The method of calculation endorsed in these cases is correct only in the special case when malpractice reduced the chance of survival to zero. If the malpractice still left a residual chance of survival (as seen in the hypotheticals above), then as a matter of mathematics and probability, the method of damage calculation adopted by the courts is incorrect.
The Special Case of Zero Chance of Survival
When medical malpractice reduces a less-than-probable chance of survival to zero chance of survival, the proper damage amount is the reduction in the chance of survival multiplied by the full value of the loss. In these cases, the Matsuyama and McKellips method produces the correct result. For example, assume the following: (1) full value of loss is $600,000; (2) the chance of survival before the negligence is 30%; and (3) the chance of survival after the negligence is 0%. The damage calculation is: 30% (reduction in chance) x $600,000 (full loss) = $180,000 (damages).
In calculating the percentage decrease in the probability of survival due to negligence, we first need the reference class (the denominator in the fraction). Logically, the denominator is the number of people who died: The reference class is based on the number of people who died from either the natural ailment condition or the malpractice. This constitutes the 100%—another way to say this is that all deaths are explained as having been caused by a natural condition or by negligence. The numerator is the number of people who died from the negligence, and this fraction calculates the damages based on probabilistic causation.
An easier way to think about this situation in probabilistic terms is to imagine 100 people in the identical position. Irrespective of any negligence, how many of these people would have died naturally from the ailment? Seventy people. How many died from the malpractice? Thirty people. What is the probabilistic causation attributable to the negligent doctor? The answer must be 30%, calculated as 30/100. Thus, the damage calculation based on $600,000 full loss must be $180,000 (= 30% x $600,000).
We can generalize the special case where the negligence reduces the pre-negligence chance of survival to zero (death is certain after the negligence) as the following:
This method is seen in Matsuyama and other cases. In Matsuyama, the damage calculation formula was: J = D x (P — R), but since R = 0 in the special case, the formula reduces to: J = D x P. This method applies only when there is no residual chance of survival. Otherwise, the application of this method is an error as a matter of probability analysis.
The Normal Case of Residual Chance of Survival
When malpractice reduces a less-than-probable chance of survival but there still remains a residual chance of survival after the negligence,18 the proper damage amount cannot be the product of the reduction in the chance of survival and the full value of the loss. For example, assume the exact hypothetical provided in Matsuyama: (1) full value of loss is $600,000; (2) the chance of survival before the negligence is 45%; and (3) the chance of survival after the negligence is 15%, which is the residual chance of survival after the negligence. The damage cannot be $180,000 (= 30% x $600,000) as Matsuyama suggests.
To see why, again imagine 100 people in the plaintiff’s exact situation. How many of these people would have died naturally from the ailment? Fifty-five people, because the plaintiff had a 45% chance of survival before the malpractice. How many would have died from the malpractice? Thirty people, because the doctor reduced the chance of survival from 45% to 15%. How many people would have survived despite the negligence? Fifteen people, because there is still a 15% residual chance of survival after the negligence. Because these 15 people would have survived the natural ailment and the malpractice, they would have no injury and thus no legal claim. How many people would have died in total? Eighty-five people.
The reference class from which probability is calculated must be all injured people, which is 85 people and not 100 people. Of these unfortunate 85 people, 55 died from the natural ailment, and 30 died from the malpractice.
What, then, is the probabilistic causation attributable to the negligent doctor? The answer clearly cannot be 30%. The probabilistic causation attributable to the doctor’s negligence must be: 30/85 = 35.3%. Thus, the damage calculation must be: 35.3% (reduction in chance) x $600,000 (full loss) = $211,765 (damages). The error in the hypothetical resulted in an undervaluation of damages of $31,765.
The Matsuyama decision confirms its error in discussing the specific facts of the case. The plaintiff had a pre-negligence chance of survival of 37.5% and $875,000 full value of damages.19 The plaintiff had a 0% to 5% post-negligence chance of survival.20 The court suggested that the actual post-negligence chance of survival was an important fact that the trial court should have considered, which is correct as a general application of the rule, but the court used an incorrect statistical reasoning to explain why the datum is important. The court opined that a 5% residual chance of survival would cause a 32.5% loss of chance, rather than 37.5%, decreasing damages from $328,125 (= 37.5% x $875,000) to $284,375 (= 32.5% x $875,000).21 As explained above, this is the wrong analysis of the plaintiff’s actual damages. If there is a finding that the plaintiff had a 5% residual chance of survival, the probabilistic causation attributable to the defendant’s negligence would be: 32.5% ÷ 95% = 34.2%. Thus, the damages are: 34.2% x $875,000 = $299,342.
The error in Matsuyama produces only a small difference between the erroneous damages and correct damages because the residual chance was so small. In other cases where the residual chance is large, the difference in damage amounts can be large. Consider this hypothetical: The plaintiff’s pre-negligence chance of survival was 50%, and full damages are $600,000. The defendant’s negligence reduces the chance of survival to only 10%. The damages are $266,667 (= 40% ÷ 90% x $600,000). However, if the defendant’s negligence reduces the chance of survival to only 40%, the damages are $100,000 (= 10% ÷ 60% x $600,000). Thus, the residual chance of survival—which is an indicator of how the negligence took away the chance of survival—matters greatly in the damage calculation.22
We can generalize the rule of law for damage calculation when there is a post-negligence residual chance of survival:
where J = award of damages
D = full damages
P = pre-negligence chance of survival
R = post-negligence residual chance of survival
This formulation takes into account that a percentage of patients survive both the ailment and the negligence, and as a result they are not injured and cannot be plaintiffs. These people must be excluded from the calculation of probabilistic causation.
Note also that the above formula produces the same outcome as the formula used in the special case where there is no residual chance of survival (recall that the formula in the special case is J = D x P). If R = 0, then the following must be true:
Lastly, I note that my formula requires no more additional factfinding or exceptional application of mathematical analysis by juries. The math is basic elementary school arithmetic, and in any loss-of-chance case, juries are still required to find the pre- and post-negligence chance of survival: The variables are still only D, P, and R. As a matter of judicial administration, the only adjustment required is the application of a correctly stated and conceived formula to calculate probabilistic causation and damages.
If courts adopt the loss-of-chance doctrine, and many do, they must award damages based on the probabilistic causal contribution of the defendant’s negligence to the plaintiff’s death. Indeed, courts embrace this concept of probabilistic causation and damages.23 How, then, did the courts err in the analysis? The error in the mathematical logic arises from the choice of perspective on uncertainty. Courts have conceptualized probabilistic causation from an ex ante perspective when in theory they should consider probabilities from an ex post perspective.24
An ex ante perspective views the probability of an uncertain future event, through the concept of expected value. Expected value is the chance of something occurring in the future given various potential outcomes. Probabilities are assigned to the various outcomes. Mathematically, the calculation is simply the sum of the products of probabilities and outcomes: E(x) = P1 X1 + P2 X2 + . . . + Pn Xn where Pi is the probability given an outcome Xi.
The logic of Matsuyama and other cases is apparent. If we consider the potential future outcomes of medical malpractice and calculate an expected value, that calculation would be: E(x) = P1 0 + P2 0 + P3 D where P1 is the probability of survival, P2 is the probability of death from the natural ailment, P3 is the probability of death from the negligence, and P1 + P2 + P3 = 1. Since a plaintiff can recover nothing from surviving or death from natural causes, the expected value of a doctor’s negligence is E(x) = P3 D, which is what courts have adopted as the rule of law on damages.
However, when a person dies, which is a precondition to bringing a medical malpractice claim for loss of chance, we are no longer concerned with various states of future outcomes including the possibility of survival, but instead we are looking back in time to the past. The reference class is the group of dead plaintiffs, and should not include the class of people who survived (this last bit of uncertainty has been resolved). We have a past occurrence of death, and we must assign only two probabilities: P(d1) the probability that death resulted from the ailment, and P(d2) the probability that death resulted from negligence where P(d1) + P(d2) = 1. The residual chance of survival must be taken out of the equation. The causation analysis must answer the question: Given that death occurred, what was the probability that it resulted from the negligence? Damages should follow therefrom.
Robert J. Rhee, Commentary, Loss of Chance, Probabilistic Cause, and Damage Calculations: The Error in Matsuyama v. Birnbaum and the Majority Rule of Damages in Many Jurisdictions More Generally, 1 Suffolk U. L. Rev. Online 39 (Mar. 18, 2013), http://www.suffolklawreview.org/Matsuyama-Birnbaum.
Marbury Research Professor of Law; Co-Director, Business Law Program, University of Maryland Francis King Carey School of Law. I thank my colleagues Andrew Blair-Stanek and Don Gifford for their helpful comments.
On Friday, April 6, 2007, Howard Cotterman and his wife, Maureen, drove across the border from Mexico, seeking reentry to the United States at the Lukeville, Arizona Port of Entry (POE).1 A primary inspection of Cotterman’s passport revealed an alert due to Cotterman’s 1992 conviction for sex offenses involving a minor, and a Customs and Border Protection (CBP) officer conducted a secondary inspection of the Cottermans’ vehicle.2 The CBP officer found two laptop computers and three digital cameras, and he contacted the Immigration and Customs Enforcement (ICE) office in Sells, Arizona for assistance when he discovered that many of the computer files were password protected. Two ICE agents drove from Sells to Lukeville, collected the laptops, and delivered them to a computer forensic examiner at the ICE lab in Tucson late that same night.3
The forensic examiner worked through the weekend, and by the evening of Sunday, April 8, he had discovered approximately seventy-five images of child pornography on Cotterman’s laptop.4 Over the days and weeks that followed, the examiner unlocked hundreds of additional photos and videos of a similar nature, most of them involving the same young girl. The federal government indicted Cotterman on child pornography charges on June 27, 2007.5
Following his federal indictment, Cotterman moved to suppress the evidence collected from his laptop.6 Cotterman argued that federal agents discovered the evidence through an unreasonable, nonroutine border search, as the search failed to meet the heightened standard of suspicion of criminal conduct required for such searches.7 The Government, however, argued that the search of Cotterman’s computer files fell within the routine border-search exception, which does not require a heightened standard of individualized suspicion.8 The district court agreed with Cotterman, granting his motion to suppress and holding that the search failed to meet the requisite heightened standard.9 On appeal, the Ninth Circuit reversed the district court, holding that neither the relocation of Cotterman’s laptop nor the delay necessary to search it fully were unreasonable for a routine border search, given the circumstances of the seizure.10 Now, the Ninth Circuit has reheard the case en banc, with the opinion pending before the court.11
Privacy and National Security: A Delicate Balance
Under the Fourth Amendment, individuals maintain a reasonable expectation of privacy in both their persons and property, and any search or seizure must meet certain standards of reasonableness for seized evidence to be admissible.12 The Fourth Amendment’s protections are not absolute, however, as federal courts have created limited exceptions for warrantless searches.13 The judicially created border-search doctrine gives the government broad authority to conduct searches of persons and property seeking entry at the country’s borders.14 A person seeking entry (or reentry) into the United States abandons the usual expectation of privacy and subjects himself to a routine search of his belongings by government officials.15 National security interests support protecting the integrity of the country’s borders, creating a policy rationale for the lessened standard of suspicion governing searches conducted there.16
The Ninth Circuit has determined that whether a search is routine or nonroutine is largely based on the degree of intrusiveness of the search at the border.17 While a nonroutine border search requires reasonable suspicion of the search’s target, the Ninth Circuit considers the search of a vehicle—even an extensive search—routine and therefore constitutional, despite the absence of any particularized suspicion.18 The Ninth Circuit has embraced an extended border-search doctrine, which furthers the government’s authority to conduct searches away from—but near to—the physical border subsequent to the individual’s seeking entry. However, for these extended border searches to be constitutional, the government must meet the heightened standard of reasonable suspicion.19
The Ninth Circuit has afforded the government broad authority in searching electronic devices while conducting border searches.20 The court previously held that border searches of laptop computers are routine and therefore do not require reasonable suspicion.21 Further extending the border-search doctrine, the Ninth Circuit has included searches taking place at the border’s functional equivalent, not just at the physical border.22
Extended Border-Search Doctrine: How Far Is Too Far?
In Cotterman, the Ninth Circuit’s prior opinion considered the application of the border-search doctrine to laptop computers and other electronic devices. The majority determined that the search of Cotterman’s laptop fell within the border-search doctrine, for which no reasonable suspicion was necessary to conduct the search.23 Although the Government removed the computer from the border to conduct a thorough forensic search, the court reasoned that this did not constitute an extended border search requiring reasonable suspicion.24 The majority also distinguished a computer search from property searches of a highly intrusive, invasive, or destructive nature.25 The Ninth Circuit subsequently reversed the district court’s order granting Cotterman’s motion to suppress and remanded the case to the district court.26
Judge Fletcher dissented, arguing that the court failed to distinguish search from seizure and therefore left open the possibility of the government seizing personal property for days, weeks, or months without any suspicion.27 Judge Fletcher argued instead that the circumstances surrounding the scope of the Government’s lengthy detention of Cotterman’s laptop required individual suspicion. The seizure deprived Cotterman of his possessory interest without any clear limit on the scope of the search, Judge Fletcher wrote, and the search therefore intruded on his reasonable expectation of privacy.28
As the Ninth Circuit acknowledged in Cotterman, the border-search doctrine stands as a crucial exception to the Fourth Amendment’s guarantee against unreasonable searches and seizures.29 Even when balanced against the rights enjoyed by all individuals, the security interests of the sovereign remain paramount, and suspicionless searches are essential to protecting the country’s borders.30 This balancing test creates a necessary tension between national security interests and the personal privacy of individuals subjected to border searches.31 Both the majority and the dissent observed that advances in portable computers and other electronic devices further complicate this balancing test, as the difficulty in accessing encrypted data threatens to make searches increasingly invasive. An otherwise routine border search becomes more intrusive if government officials cannot access property using normal means that fall within the scope of their search authority.32
By granting a rehearing, the Ninth Circuit implicitly acknowledged Judge Fletcher’s concerns about the extent to which the majority’s holding broadened the government’s increasingly unbridled search and seizure power at the border.33 The majority weighed the sovereign’s interests heavily, permitting a lengthy and suspicionless seizure of property despite the constitutional protections of the Fourth Amendment. While that right—freedom from unreasonable searches and seizures—is not absolute, its further erosion would be difficult to halt under the Ninth Circuit’s original opinion, a fact perhaps recognized by the court’s grant of a rehearing.34 The court had insisted on a case-by-case analysis of the reasonableness of a border search, and the majority scoffed at the “parade of imagined horribles” conjured by those who seek to draw a clearer line between the country’s national security interests and an individual’s privacy right.35 Ultimately, the best solution may require congressional action, setting specific limits on the number of hours or days during which an electronic device may be seized pursuant to a routine border search.36
Border searches of laptop computers present relatively new opportunities to obtain vast amounts of personal information concerning those entering the United States. While government officials attempt to take advantage of these search opportunities, continued advances in computer technology will make searches more difficult to conduct, thereby extending the period of time needed for each search.37 The Ninth Circuit’s opinion neither demanded a reasonable-suspicion standard for border searches of laptops nor defined a reasonable period of time in which to conduct them, thus permitting government officials to search a personal computer until they find evidence of a crime regardless of whether there is any individualized suspicion.38 The court sought clarification on both issues upon rehearing.
A Question for the Supreme Court?
Terrorist plots, drug trafficking, and child pornography present scenarios that easily justify broadening the government’s authority to conduct invasive and prolonged searches at the border. Nevertheless, this expansion of the border-search doctrine could submit any traveler’s electronic files to an invasive computer search of unknown duration.39 By finding the detention of a laptop computer reasonable for any duration necessary to conduct a comprehensive search, the Ninth Circuit initially granted the government excessive latitude for conducting border searches.40 If the en banc panel issues an opinion consistent with the original, citizens traveling abroad should carefully consider the contents of their laptops, cell phones, and other devices before bringing them along and subjecting them to an exhaustive search upon return.
The Fifth Circuit has also defined the border-search doctrine broadly, but other courts of appeals have varied when applying the doctrine.41 The Ninth Circuit’s rehearing presented an opportunity to address the proper determination of ‘reasonableness’ under the border-search doctrine, but also pointed to the likelihood of the Supreme Court taking up the issue. National security interests are in conflict with the privacy rights of every international traveler, and while the border-search doctrine has balanced those interests in the past, Cotterman opened wide the floodgates. Anyone entering or reentering the United States with a laptop or other electronic device would find those devices subject to seizure of substantial duration, as well as a search that raises questions about reasonableness. The Supreme Court will likely need to define the scope of the border-search doctrine for the digital age, and the Ninth Circuit’s rehearing en banc sets the stage for that to happen.42
The Ninth Circuit issued their decision in the case on March 8th. It can be found at http://cdn.ca9.uscourts.gov/datastore/opinions/2013/03/08/09-10139.pdf.
Hilary Detmold, Case Note, The Ninth Circuit’s En Banc Rehearing of Cotterman: What’s on Your Laptop?, 1 Suffolk U. L. Rev. Online 32 (Feb. 25, 2013), http://www.suffolklawreview.org/detmold-cotterman.
In Lopez v. Commonwealth,1 police officers sued the Commonwealth of Massachusetts and the Division of Human Resources (HRD), alleging HRD engaged in racial discrimination by creating and administering a multiple-choice examination for candidates seeking promotion to police sergeant that resulted in a disparate impact on minority candidates.2 The plaintiff class included all African-American and Hispanic police officers employed by civil service municipalities throughout Massachusetts who took the police sergeant promotional examination in the years 2005-2008 and were not “reached for promotion.”3 Consistent with the requirements of civil service law, civil service municipalities selected candidates for the police sergeant position based on a certification list created by HRD, which ranks candidates in order of scores on the promotional examination.4 The plaintiffs alleged that they were denied promotional opportunities because municipal employers relied on HRD’s certification list, despite the examination’s discriminatory impact, which caused African-American and Hispanic candidates to rank lower on the list than non-minority candidates, irrespective of equal qualifications.5
Originally, the plaintiffs brought a claim against HRD and their municipal employers, in the United States District Court for the District of Massachusetts, alleging disparate impact race discrimination under Title VII of the Civil Rights Act of 1964 (Title VII).6 The United States Court of Appeals for the First Circuit, however, dismissed the claim against HRD because the division never functioned as the plaintiffs’ “employer,” as required by Title VII, and the court remanded the case to trial against only the municipal employers.7 Not deterred, the plaintiffs proceeded to commence an action in superior court against HRD.8 Originally, the court granted HRD’s motion to dismiss after it found that the Commonwealth did not waive its sovereign immunity, and alternatively, because the plaintiffs failed to state a claim upon which relief could be granted.9 The Massachusetts Supreme Judicial Court disagreed and permitted HRD to be named as a defendant after identifying the legislature’s waiver of the Commonwealth’s sovereign immunity.10 The court further recognized that while three of the claims were properly dismissed, the plaintiffs’ allegation that HRD interfered with the right to be free from discrimination adequately stated an “interference” claim, which protects employees from racial discrimination when considered for promotion, and remanded that claim to superior court.11
I. Discrimination Liability in Massachusetts
Employers are prohibited from making employment decisions based on an employee’s race, color, religion, sex, national origin, age, or non-job-qualification-related disability.12 Title VII is the primary federal statute that prohibits discrimination on the basis of race, color, religion, sex, and national origin.13 Nevertheless, Title VII only applies to “employers,” meaning individuals or entities that fall outside this definition are not liable under the statute for discriminatory actions.14 Massachusetts enacted its own discrimination law, chapter 151B, section 4 of the Massachusetts General Laws, which similarly prohibits employers from hiring, discharging, or otherwise discriminating against employees of a protected class in compensation or terms and conditions of employment, unless justified by a legitimate reason, referred to as a “bona fide occupational qualification.”15
Chapter 151B reaches beyond its federal counterpart and holds more “employers” responsible for discrimination by specifically including “the commonwealth and all political subdivisions” in its definition of “employer.” Therefore, while the Commonwealth or its subdivisions could not be held accountable for discrimination under Title VII, it could be subject to liability under chapter 151B. In addition, some claims under chapter 151B do not require any employer-employee relationship as a prerequisite to liability.
Under both federal and state law, plaintiffs may bring two types of discrimination claims: disparate treatment and disparate impact. Disparate treatment liability arises when an employer intentionally discriminates against an employee or group of employees by treating him or them unequally based on a statutorily forbidden characteristic, such as race, sex, national origin, or age.16 Absent proof of intent, employers may still be liable under a disparate impact theory, which applies when a facially neutral employment practice has a disproportionally negative effect on a statutorily protected group.17 Disparate impact theory recognizes the possibility that some employment practices, including standardized testing, “may in operation be functionally equivalent to intentional discrimination,” although not designed to achieve a discriminatory result.18 Under Title VII, courts impose disparate impact liability to eradicate standardized employment tests that produce discriminatory results and adversely impact hiring and promotion of minority candidates.19 Nevertheless, not all discrimination statutes permit liability under both disparate treatment and disparate impact analysis, and whether both theories are available depends upon the statutory language creating the cause of action.20
Many cities, towns, and municipalities in Massachusetts hire and promote public employees under the civil service merit system.21 Civil service laws protect applicants and employees from unfair treatment and nepotism, and encourage employment decisions based on the qualifications of the job candidate, considering his ability, skills, and experience.22 The merit system requires each candidate to take a competitive examination—either for original appointment or for promotion—which is used by HRD to create a list, in order of exam performance, for the appointing authority to consider.23 While the appointing authority may elect to prepare and administer its own competitive examination, the majority use the examination prepared by HRD.24 When an appointing authority anticipates a promotion or hiring need, it must estimate the number of positions to be filled and request a certification list from HRD reflecting a candidate pool following the “2n+1 formula,” with “n” being the number of positions the appointing authority seeks to fill.25
The appointing authority may only consider candidates who appear on the certification list prepared by HRD, and if the appointing authority elects to “bypass” a higher-ranked candidate in favor of a candidate who appears lower on the list, the authority must send the aggrieved candidate a letter explaining the reasons for the bypass.26
II. Lopez’s Interpretation of Massachusetts Discrimination Law
Lopez v. Commonwealth first acknowledged the Commonwealth’s amenability to suit by recognizing that the legislature waived sovereign immunity under chapter 151B by including the Commonwealth and its instrumentalities in the statutory definition of “person” and “employer.”27 Next, the Massachusetts Supreme Judicial Court analyzed the viability of the chapter 151B claims, and dismissed the claims under sections 4(5) and 4(1), before concluding the plaintiffs could proceed with their interference claim under section 4(4A).28 The plaintiffs failed to sustain a claim under section 4(5), which makes it unlawful for “any person, whether an employer or an employee or not, to aid [or] abet . . . the doing of any of the acts forbidden under [chapter 151B] or to attempt to do so.”29 This claim was fatally flawed because the plaintiffs neglected to assert the primary act of employment discrimination committed by their direct employers, as the principal offenders, that HRD purportedly aided or abetted.30 The claim under section 4(1), which makes it unlawful for an employer to discriminate against individuals in the scope of their employment, did not proceed because the plaintiffs were not directly employed by HRD and the court refused to graft Title VII’s indirect employment theory onto Massachusetts employment discrimination law, which does not recognize such liability.31 The court permitted the interference claim to proceed against HRD after determining that section 4(4A) makes it unlawful for any person, not just the direct employer, “to coerce, intimidate, threaten, or interfere with another person in the exercise or enjoyment of any right granted or protected” by chapter 151B.32 While HRD argued that the actions proscribed by section 4(4A), including interference, contemplate intentional conduct, and the plaintiffs merely alleged HRD knowingly administered a discriminatory examination, the court disagreed and held interference claims may be established by evidence of disparate impact, which is satisfied by proof that the defendant “knowingly interfered with the plaintiffs’ right to be free from discrimination,” and does not require proof of discriminatory intent.33
III. The Hyper-Extension of Disparate Impact Liability
The Supreme Judicial Court ignored statutory intent by entertaining an interference claim against a third party without first requiring proof of discriminatory motive. In order to properly determine the availability of disparate impact liability, the court should have first examined the statutory language of chapter 151A, section 4, as not all discrimination statutes permit a cause of action without proof of discriminatory intent.34 Though alone, the verb “interfere” is arguably ambiguous, when qualified by the preceding verbs—coerce, intimidate and threaten—it is clear that section 4(4A) is aimed at thwarting intentional, purposeful, discriminatory conduct.35 Further, it is difficult to ignore that in other areas of the law, the Commonwealth requires proof of intent before holding unrelated third parties liable for interfering with the rights of others.36
As the dissent reasoned, it is no secret that “statutory language should be given effect consistent with its plain meaning and in light of the aim of the legislature,” and the court’s role is to effectuate the legislature’s purpose.37 Instead, the Supreme Judicial Court exploited the ambiguity in the word “interfere” to achieve a desired result, contrary to legislative intent, and thus far outside the scope of its duty.
By failing to require intent, the Supreme Judicial Court also undercut the authority of the Massachusetts Commission Against Discrimination (MCAD), the administrative agency charged with interpreting and enforcing 151B.38 In 2003, the full commission refused to grant relief under section 4(4A) because an aggrieved party neglected to establish “intent to discriminate,” and announced that “for an individual to be held liable for a violation of M.G.L. c. 151B he must have, at the very least, ‘interfered’ with another’s rights in a manner that was in deliberate disregard of those rights.”39
Rather than delivering this unprecedented opinion, the Supreme Judicial Court should have deferred to the MCAD’s expertise in interpreting and enforcing section 4(4A), one of the antidiscrimination statutes the agency is entrusted to administer. The issue of deference is not novel to the court, as it has previously recognized that it is “particularly appropriate to defer to the MCAD’s interpretation [of chapter 151B] where . . . the legislative policy is ‘only broadly set out in the governing statute.’”40 Even the federal district court, in applying Massachusetts law, heeded the MCAD’s interpretation of “interference” and required intent for a third-party interference claim under section 4(4A).41 It is unclear why the Supreme Judicial Court refused to defer, or even acknowledge the MCAD’s interpretation, as discussed by the dissent. Until the legislature is afforded the opportunity to correct the Supreme Judicial Court’s interpretive error, third-party non-employers are vulnerable to liability for interference discrimination under chapter 151B, section 4(4A), even if they did not intend to discriminate.42
Stephanie Merabet, Case Note, Supreme Judicial Court in Lopez Permits Interference Discrimination Claim Against Third Party Without Proof of Discriminatory Intent, 1 Suffolk U. L. Rev. Online 17 (Feb. 25, 2013), http://www.suffolklawreview.org/merabet-discrimination.
Mass. Gen. Laws Ann. ch. 151B, § 4 (West 2012). According to the law in Massachusetts:
It shall be an unlawful practice . . . [f]or an employer, by himself or his agent, because of the race, color, religious creed, national origin, sex, gender identity, sexual orientation, . . . genetic information, or ancestry of any individual to refuse to hire . . . or to discharge from employment such individual or to discriminate against such individual in compensation or in terms, conditions or privileges of employment, unless based upon a bona fide occupational qualification.
When names have been certified to an appointing authority . . . and the number of appointments or promotional appointments actually to be made is n, the appointing authority may appoint only from among the first 2n + 1 persons named in the certification willing to accept appointment . . . .
Id. at 16. For example, if only one appointment will be made, the appointing authority may only select one of the first three persons named. See id. ↩
See Shafir v. Steele, 727 N.E.2d 1140, 1144 (Mass. 2000) (recognizing intentional tort of interference). The court noted:
the only difference between the torts described in § 766 [of the Restatement] . . . and § 766A is that, under § 766, the tortious conduct causes the third person not to perform, whereas § 766A involves interference preventing the plaintiff from performing his own part of the contract.
Id.; see also Restatement (Second) of Torts § 766A (1979) (defining intentional tortfeasor as one who “interferes with the performance of a contract . . . between another and a third person, by preventing the other from performing the contract”). See generally Leigh-Ann M. Patterson, Shafir v. Steele Recognizes New Tort of Intentional Interference with Plaintiff’s Own Contractual Performance, Bos. B.J., Jan./Feb. 2001, at 14, available at http://nixonpeabody.com/116427 (discussing evolution of MA law and “case of first impression” recognizing intentional tort in MA). ↩
See Woodason v. Norton Sch. Comm., 25 MDLR 62 (2003), aff’d sub nom. Sch. Comm. of Norton v. Mass. Comm’n Against Discrimination, 830 N.E.2d 1090 (Mass. App. Ct. 2005) (setting forth required elements and permissible circumstances of section 4(4A) claim). The MCAD addressed the statutory language in some depth:
While we agree that the word “interfere” does not necessarily require coercion, intimidation or threats, the concept of interference with one’s rights must be construed with some regard for the context of the statutory language within which it appears. In construing the word “interfere,” to give no import to the strong language surrounding it would be misguided.
Id. (emphasis added). ↩