Sunday, November 24, 2013

On Filibusters, Democrats Won't Be Fooled Again

   The Senate Democrats’ decision to abolish the filibuster for presidential appointments except to the Supreme Court cannot be understood without remembering that Democrats played nice back in 2005 and were getting nothing in return from Republicans in 2013.
  Forget the back-and-forth charges of situational hypocrisy. For Democrats, the issue was simple: fool me once, shame on you; fool me twice, shame on me. 
   Democrats held 45 seats in the U.S. Senate in 2005, the first year of President George W. Bush’s second term. That was more than enough to have filibustered any of Bush’s nominees for federal courts under the then-existing 60-vote requirement to cut off debate.
  Admittedly, Democrats had played judicial hard ball in Bush’s first term. John G. Roberts Jr. won confirmation to the D.C. Circuit two years after his nomination and only after Republicans gained control of the Senate after the 2002 elections. And, in the minority, Democrats successfully filibustered Bush’s nomination of Miguel Estrada to the same court.
  Republicans, with a fortified 55-vote majority in 2005, threatened to exercise the so-called “nuclear option” to change Senate rules to allow a simple majority to close debate on judicial nominations. In response, an unusual bipartisan coalition of seven Democrats and seven Republicans — the so-called Gang of 14 — promised out of “mutual respect and confidence” to allow votes on judicial nominees except in “extraordinary circumstances.”
  The Gang of 14’s deal specifically allowed votes on three of Bush’s pending nominees: Janice Rogers Brown (D.C. Circuit), Priscilla Owen (5th Circuit), and William Pryor (11th Circuit). Confirmed with acquiescence from Democrats, all three have proven themselves to be solidly conservative in their judicial decisions.
   Today, Democrats hold a 55-seat majority with Republicans in the minority. The Gang of 14 has dissolved. Four of the moderate Republicans are gone, replaced by three Democrats and a Democratic-caucusing independent. Only three of the GOP senators remain: Susan Collins of Maine, Lindsey Graham of South Carolina, and John McCain of Arizona.
  Gone too is any sense of bipartisanship in the Senate’s Republican caucus — or any sense of limits on the use of the minority’s power to thwart President Obama’s appointment powers. In Obama’s first term, GOP filibusters effectively shut down the National Labor Relations Board and the newly created Consumer Financial Protection Board; Obama circumvented the tactic in January 2012 by filling the posts with recess appointments.
  GOP filibusters also blocked two of Obama’s first-term nominees for federal appeals courts: Goodwin Liu for the Ninth Circuit and Caitlin Halligan for the D.C. Circuit. In those nominations, Republicans at least made the pretense, however unconvincing, of criticizing Liu and Halligan for their legal views.
  Over the past two weeks, however, Senate Republicans took the obstructionist tactic to a new low by blocking votes on Obama’s nominees to fill three vacancies on the D.C. Circuit. The nominees’ qualifications are beyond question: Patricia Millett, former assistant solicitor general and now a big-firm partner; Cornelia (Nina) Pillard, Georgetown law professor and successful Supreme Court advocate; and Robert Wilkins, sitting federal judge and former criminal defense lawyer. Only Pillard could be criticized in the slightest as outside some mythical legal mainstream.
  Republicans argued instead that the D.C. Circuit had no need to fill the three vacancies — a concern they never raised when Bush named four to the court. The real motive was blatantly partisan: they wanted to leave in place the existing balance between four Republican and four Democratic appointees. In fact, the court is not balanced: the six senior judges, all of whom continue to hear cases, include five Republicans and only one Democratic appointee. And none of the Democratic appointees is as far to the left ideologically as several of the Republicans are to the right.
   In three successive Senate votes, only two Republicans — Collins of Maine and Alaska’s Lisa Murkowski — crossed party lines to close debate and allow up-or-down votes on the nominations. McCain and Graham, Gang of 14 alumni, reneged on the 2005 deal, as well as their more recent comments supporting the right of a president to get a Senate vote on his nominees.
   With no hints of greater bipartisanship from the GOP minority in the future, Senate Majority Leader Harry Reid of Nevada decided his patience was exhausted. He brought all but three Democrats along with him in the final 52-48 votes [Nov. 21] that changed the Senate rules to allow a simple majority to give the Senate’s “advice and consent” to a president’s nominees except for the Supreme Court.
   Republicans view the exception as hypocrisy: Democrats, they say, are reserving the right to filibuster a future Republican president’s nomination of an anti-choice justice. But the exception is less important than it looks. Only one Supreme Court nominee has been successfully filibustered in modern times: President Lyndon Johnson’s nomination of Abe Fortas to be chief justice in 1968. Democrats had the votes to filibuster Clarence Thomas in 1991 or Samuel A. Alito Jr. in 2006, but they were unwilling to pay the political cost of vetoing the president’s choices on ideological grounds.
   For now, the change matters mostly to Washington insiders: only one-fourth of Americans even knew about the now discarded 60-vote requirement. Senate Minority Leader Mitch McConnell of Kentucky complained Democrats were exercising “raw power.” And so they were: the power constitutionally entrusted to a Senate majority.

Sunday, November 17, 2013

Securities-Fraud Class Actions at Risk at Supreme Court

  Worldwide Widget looks like a hot stock. The company makes a cutting-edge product in a growing market. All the best-known analysts are saying “buy.” So you buy a big chunk of WW stock for your portfolio.
  Two days later, however, Worldwide admits that the company’s books have been cooked for years: revenues grossly exaggerated and known risks of liability concealed. The stock price dives; a rebound seems unlikely. You sell as fast as you can and take a big loss.
  Worldwide’s “material misrepresentations” amount to securities fraud, and federal law allows you to sue the company for your stock losses. But there’s a catch: fraud cases require plaintiffs to show that they relied on the misstatements at issue. You never read Worldwide’s deceptive 10-K filings. You just put your faith in the market: the rising stock price and recommendations from experts who were reading the 10-K filings.
  Strictly applied, the requirement to prove reliance would leave you and most other investors out of luck. But 25 years ago the Supreme Court adopted a solution for the innocently duped investors: the fraud-on-the-market theory. Under this theory, accepted by economists and courts in the 1980s, all investors can be presumed to have relied on fraudulent misrepresentations when they purchase stock at a price distorted by the misrepresentations.
  The Supreme Court’s precedent-setting decision in Basic Inc. v. Levinson (1988) ushered in the modern securities fraud class action. Business interests criticized it at the time and have kept up the attacks ever since. Now, the Supreme Court’s conservative bloc has set the stage for possibly erasing it from the law books.
  The justices agreed last week [Nov. 15] to hear a case, Halliburton Co. v. EPJ Fund, Inc., 13-317, in which a securities-fraud defendant, backed by the U.S. Chamber of Commerce, is urging the court to overrule or substantially modify the Basic decision. The ruling, lawyers for the Chamber argue in a friend-of-the-court brief, leads to “frivolous strike suits” that “bring more harm than benefits to shareholders.”
  Four of the Roberts Court conservatives — Scalia, Kennedy, Thomas, and Alito — signaled their disquiet with the ruling in separate opinions in an unrelated securities case earlier this year, Amgen, Inc. v. Connecticut Retirement Plans. Troublingly for supporters of the 4-2 decision in Basic, the justices in the majority — Brennan, Marshall, Blackmun, and Stevens — are no longer on the court. (White and O’Connor dissented; Rehnquist, Scalia, and Kennedy did not participate.)
  To be sure, securities-fraud class actions provide only rough justice, if that, for the victims of accounting shenanigans and outright deceptions engaged in by too many stock-issuing companies. A big chunk of any awards or settlements typically go to the lawyers who put the lawsuits together. For various reasons, some shareholders who deserve compensation do not get it, and others are compensated even though they might not deserve it.
  In addition, as Georgetown law professor and securities law expert Donald Langevort has written, the defendant companies foot the bill for about 30 percent of the payouts in such cases — to the detriment of existing shareholders, who have done nothing wrong. Insurance picks up about two-thirds of the costs, while individual defendants — the company officials who actually did something wrong — escape virtually scot-free.
  Realistically, however, private class actions are needed to help police the securities markets. The Securities and Exchange Commission (SEC) lacks the resources to pursue all the securities fraud cases that come to light, and business interests that criticize private securities fraud suits are not leading a campaign to increase the agency’s budget. It is also ironic that the kind of people who advocate privatizing such core government functions as education, prisons, and transportation fail to see the benefits of private enforcement of securities laws.
  Writing for the majority in Basic, Justice Harry A. Blackmun explained that modern securities markets, with “millions of shares changing hands daily,” differ from the kind of face-to-face transactions contemplated in typical fraud cases. “An investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price,” Blackmun wrote. That presumption, he explained, is based on “considerations of fairness, public policy, and probability.”
  The critics see instead, as the Chamber’s lawyers put it, an “unrealistic” economic theory and an “unworkable” legal standard. It is curious to hear business groups and political conservative that glorify the market in other settings argue that stock exchanges are not the “efficient marketplace” that the fraud-on-the-market theory presumes them to be. And the “unworkable” standard under Basic would be even harder to manage if individual investors had to prove specifically that they relied on the allegedly fraudulent misrepresentations in their stock transactions.
  In the new case, the investment fund for the Archdiocese of Milwaukee is accusing Halliburton, the big oilfield services company, of misleading the stock market by minimizing its potential liability in asbestos cases, overstating revenue from construction contracts, and exaggerating the potential benefits of a pending merger. The company says those alleged misstatements did not actually affect the price — a defense that would still be available if the suit is allowed to proceed. But a decision to overrule Basic would gut this case and many others. Business interests would benefit, but individual investors in many cases would be left holding an empty bag.

Monday, November 11, 2013

Religious Liberty and the Ignorant Majority

   Susan Galloway, who is Jewish, and Linda Stephens, an atheist, felt “marginalized” when they had to sit through Christian prayers at the start of meetings of their town board in Greece, N.Y. They complained, but the town supervisor saw no need to change. And at the next meeting the prayer-giver even went out of his way to criticize those who objected to the practice as an “ignorant minority.”
   In reality, the ignorant shoe is on the other feet. The town supervisor and many of the Christian pastors who delivered the opening prayers for the town board were oblivious to the point of ignorance of the limits that Supreme Court precedents and the American tradition of religious freedom place on government-sponsored prayer.
  The arguments from Greece, a midsized suburb of Rochester, reached the U.S. Supreme Court earlier this month [Nov. 6]. The case, Town of Greece v. Galloway, found the justices at least as divided as the townfolk about the use of prayers to open local governmental meetings.
  From one side, Justice Antonin Scalia found the practice not only unobjectionable but even necessary to accommodate the religious rights of the legislators themselves. If citizen legislators invoke the deity before eating, Scalia suggested, they should also be allowed to invoke it before they undertake “a serious governmental task such as enacting laws or ordinances.”
  From the other, Justice Elena Kagan worried that the practice runs afoul of an American principle of equality before the law. “When we relate to our government,” Kagan said, “we all do so as Americans, and not as Jews and not as Christians and not as nonbelievers.”
  The constitutional argument begins with the text of the First Amendment, which commands that Congress pass no law “respecting an establishment of religion, or prohibiting the free exercise thereof.” The use of prayers to open governmental proceedings sits uncomfortably with that text. But prayer advocates note that the same Congress that sent that amendment to the states for ratification also approved the hiring of a Senate chaplain to open its sessions.
  The unbroken, 220-year history of paid congressional chaplains is the strongest argument made by the town and the many religious and politically conservative groups supporting it. Over time, a majority of state legislatures followed suit, including Nebraska in the mid-19th century.
  Contrary to the suggestion of the historical argument, the practice was not without controversy. James Madison, the main author of the First Amendment, later regretted his vote as a member of the House of Representatives in approving the paid congressional chaplains. Occasional controversies emerged through the years, and one — from Nebraska — finally reached the Supreme Court early in the 1980s.
  In Marsh v. Chambers (1983), Nebraska state senator Ernie Chambers objected on Establishment Clause grounds to the paid chaplain for the unicameral legislature. By a 6-3 vote, the court found no constitutional bar to the practice. Relying exclusively on history, the court found that the practice had become “part of the fabric of our society” and was “simply a tolerable acknowledgment of beliefs widely held among the people of this country.”
  Tellingly, the court did not cite the conditions laid out a decade earlier in the so-called Lemon test for judging Establishment Clause cases. In that case, Lemon v. Kurtzman (1971), the court said that government action regarding religion can pass Establishment Clause muster only if has a secular purpose, does not have a primary effect of advancing or inhibiting religion, and does not entangle government wit religion. But the court did note that the Nebraska chaplain, Robert Palmer, described his prayers as “nonsectarian” and that he removed references to Christ after 1980 after a Jewish legislator had complained.
  When Greece’s town supervisor decided to institute opening prayers at board meetings in 1999 —  replacing the previous, uncontroversial practice of a moment of silence — many of the pastors chosen for the honor had no such inhibitions. In the Supreme Court arguments, Kagan quoted to the town’s lawyer, Thomas Hungar, one of the prayers from the town’s meetings with extended explicit references to Christian beliefs. Would that be an acceptable way to open a Supreme Court session, she asked. “I don’t think so,” Hungar replied.
  Under pressure from Scalia, Hungar later backtracked from his concession, but his instinct was correct. Sectarian Christian prayers cross a line that the Establishment Clause requires, even if viewed through a historical lens. As University of Virginia law professor Lois Laycock pointed out in his argument on Galloway’s behalf, the 18th century congressional chaplains did not use their government-provided pulpits to address the divisive theological issues of the day, such as predestination. In a country with increased religious diversity today, the need for prayers to strike ecumenical themes is all the greater.
  Some of the justices — notably, Anthony M. Kennedy — seemed to recoil at the notion of government officials editing prayers. But the court itself in Marsh set out two conditions for legislative chaplains: prayers must not proselytize nor advance or disparage any specific religion. As Laycock noted, courts must have the default responsibility to enforce those lines. The justices may be tempted to keep the court out of this controversy, but only the courts can protect the religious liberties of religious minorities when they are ignored by the religious majority.

Sunday, November 3, 2013

Race-Based Lawyering Misfires at Supreme Court

  Opponents of Michigan’s voter-approved ban on racial preferences in public college and university admissions had an uphill fight in persuading the U.S. Supreme Court to strike it down. But it appears that the Michigan group that has fought the initiative tooth-and-nail for eight years may have weakened its slim chance of victory by playing the race card on game day in front of the justices.
  Thanks to reporting by Tony Mauro of National Law Journal, it is now known why the provocatively entitled Coalition to Defend Affirmative Action, Integration and Immigrant Rights and Fight for Equality By Any Means Necessary made a last-minute switch in the lawyer to argue the case at the Supreme Court. George Washington, the white lawyer who had argued the case before the federal appeals court in Cincinnati, was swapped on the eve of the Oct. 15 argument for Shanta Driver, his African American law partner and fellow leader of the group.
   Mauro reports that Washington and Driver both “mooted” the case that is, rehearsed their arguments before panels of lawyers and law professors in the week before the Oct. 15 arguments. Washington had been listed as the coalition’s attorney on the “hearing list” released by the court on Sept. 28 in advance of its October calendar. But the court was notified on Oct. 14 Columbus Day, a legal holiday that it would be Driver instead.
   As Mauro notes, it is rare one might say unheard of to change lawyers in a Supreme Court case at such a late date. And, on paper at least, Washington appears to have better credentials than Driver for the assignment. Both are Harvard College graduates, but Washington went to Harvard Law School and was first admitted to the bar in 1973. Driver is a 2003 graduate of Wayne State University Law School. Washington has a 6.5 rating from the lawyer-rating service Avvo; Driver is unrated. 
  Why then the switch? Driver herself disclosed the reason in a post-argument pep rally to the coalition’s supporters brought to Washington for a demonstration outside the court. The comments were recorded and posted on YouTube, where Mauro discovered them last week. It was important to have a black lawyer for the case, Driver explained, because only one black lawyer argued before the court in the preceding term: 11 minutes, she elaborated, out of 1,800 minutes of argument time altogether. 
   Driver’s information was correct, as first reported by the Associated Press. The only black lawyer to argue before the court during the 2012-2013 term was Debo P. Adegbile, counsel with the NAACP Legal Defense Fund, who shared argument time with the government in unsuccessfully defending the constitutionality of the Voting Rights Act. But Adegbile, an experienced appellate advocate, acquitted himself well in the argument. Driver, in the estimation of court watchers who attended the Oct. 15 argument, did not.
   Supreme Court advocates carefully rehearse their opening sentence, knowing that they may be interrupted before getting to the next. Driver opened by asking the court to restore the Fourteenth Amendment to its “original purpose” to wit, “to protect minority rights against a white majority.” Justice Antonin Scalia forcefully interrupted to say that the court’s precedents now hold that the Fourteenth Amendment protects all persons.
  When Driver held to her point, Scalia asked the predictable question: “Do you have any case of ours that propounds that view of the Fourteenth Amendment, that it protects only minorities? Any case?” And to that question Driver had no answer: “No case of yours,” she said.
  Off to a terrible start, Driver’s argument did not get much better. She had no direct answer to one question from Justice Samuel A. Alito Jr., prompting both Alito and later Justice Anthony M. Kennedy to chide her for not being responsive. When Chief Justice John G. Roberts Jr. joined the questioning, he easily put Driver into a logical bind, prompting Scalia to accuse her of contradicting herself. For the coalition, the best moment in Driver’s argument came when Justice Sonia Sotomayor summarized her position. “You restated it very well,” Driver replied. 
  Outside afterward, Driver gladly accepted the crowd’s cheered assessment that she “did well.” “I did great,” she said, even as reporters preparing to write their stories inside were shaking their heads at the poor performance. In recapping the session for the crowd, she dismissed Scalia’s gotcha question as “yada, yada, yada.” 
  Driver went on to say that it was important for someone “from the movement” to have made the argument to “help bring the left wing to life . . . make them assert themselves.” Apparently, Driver had missed the point of all the advance stories about the case that it was Kennedy, not the liberal justices, who held the key to any hopes the coalition might have to strike down the Michigan initiative. 
  Driver came to the Supreme Court argument with a two-decade history of organizing and demonstrating in the streets back as far as disrupting a meeting of the University of California Board of Regents in 1995. She is quoted repeatedly in news coverage about the initiative from signature gathering in 2005 up to the present — with rhetoric that is strident and confrontational. There is a place for that, of course, but one place where it does not help and is very likely to hurt is the lawyer’s lectern at the Supreme Court.