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Supreme Court Update: Liu v. Securities & Exchange Commission (No. 18-1501), Department of Homeland Security v. Thuraissigiam (No. 19-161)

Greetings, Court Fans!

It’s the penultimate day (okay, night) of June, and there are still eight or nine decisions outstanding (depending on consolidations). Unless tomorrow is one of the most extraordinary decision days in the Court’s history, it looks like the term will be extending into July for the first time in . . . long enough that we don’t care to look it up. The Nine did make some progress today, though, handing down three decisions, including two of the most anticipated of the term—June Medical Services v. Russo (No. 18-1323), reaffirming much of the Court’s recent abortion jurisprudence and striking down Louisiana laws that could have forced the closure of all but one abortion clinic in the state; and Seila Law LLC v. Consumer Financial Protection Bureau, No. 19-7, holding that the CFPB’s leadership by a single individual removably only for cause violates the separation of powers, but severing that provision from the remainder of the statute creating the Bureau. Both of those cases resulted in fractured 100+-page sets of opinions. A bit more straightforward was the Court’s 5-4 decision in Agency for International Development v. Alliance for Open Society (No. 19-177), in which the conservative majority upheld rules requiring foreign affiliates of domestic groups receiving federal funding to have an explicit policy opposing prostitution and sex trafficking against a First Amendment challenge. We’ll have summaries of all three of today’s decisions later in the week. But first, we owe you a couple from last week.

First up, in Liu v. Securities & Exchange Commission (No. 18-1501), the Court took up a question it declined to decide three years ago: whether the SEC can obtain disgorgement in a civil action for violation of federal securities laws. Lower courts have long assumed that the SEC can order disgorgement, but the Supreme Court hadn’t weighed in. In Kokesh v. SEC (2017), the Court held that disgorgement qualifies as a “penalty” for purpose of the applicable statute of limitations, but it didn’t actually decide whether disgorgement was a permissible form of “equitable relief” that the Commission could pursue in the first place.

An enterprising couple, Charles Liu and Xin Wang, decided to press the issue. They solicited funds from foreign nationals, purportedly for the purpose of constructing a cancer-treatment center. But in fact Lieu and Wang appropriated much of the money themselves. The SEC investigated and brought a civil action against them seeking disgorgement of all the money they’d “raised.” Liu and Wang argued that the scheme’s legitimate business expenses should be deducted from any disgorgement, but the District Court, and the Ninth Circuit, disagreed. The Supreme Court then granted cert to decide whether 15 U.S.C. § 78u(d)(5), which permits the SEC to pursue “equitable relief” on behalf of investors, permits disgorgement beyond a defendant’s net profits from wrongdoing.

Writing for an 8-justice majority (all but Thomas), Justice Sotomayor concluded that “disgorgement,” as properly understood and applied, does qualify as “equitable relief”—that is, relief that was “typically available” in equity. Examining lots of old treatises, Sotomayor found that equity practice has long authorized courts to strip wrongdoers of their ill-gotten gains, and not merely in cases involving breach of trust or fiduciary duty, as Petitioners had argued. However, equity courts also restricted the disgorgement remedy, in order to avoid transforming it into a penalty. Thus, disgorged funds could not exceed a wrongdoer’s own net profits after deducting legitimate expenses, and they must be directed toward wronged victims. In addition, courts in equity typically pursued disgorgement only from individuals who were directly engaged in wrongdoing, and not on a joint-and-several liability theory. Sotomayor found that Congress had incorporated these equitable principles into § 78u(d)(5), but acknowledged that courts had often crossed the boundaries of equity by depositing disgorged funds with the Treasury instead of funneling them to harmed investors, by imposing joint and several liability, and by failing to deduct even legitimate business expenses. However, she rejected Petitioners’ argument that the Court in Kokesh had effectively eliminated disgorgement by addressing it in the context of statutes of limitations for “penalties.”

Liu and Wang “briefly argued” that the disgorgement award in their case violated the principles of equity Justice Sotomayor had catalogued. However, because the parties focused more on the broader question whether any form of disgorgement may be ordered and did not fully brief the narrower questions, the Court declined to decide them. But Justice Sotomayor went on for several more pages to “discuss principles that may guide the lower courts’ assessment of these arguments on remand.” First, she rejected the SEC’s argument that equity permits it to use disgorged profits for purposes other than compensating victims (for example funding an Inspector General, or creating a fund for compensation of whistleblowers). She allowed, however, that there could be occasions—particularly where specific victims are not identifiable—where an order directing funds to the Treasury may in fact be for the benefit of victims and therefore consistent with equitable principles. Second, the SEC’s practice of seeking disgorgement under a joint-and-several liability theory should be avoided unless there is proof of concerted wrongdoing. Finally, Sotomayor stressed that legitimate business expenses should be deducted from a disgorgement order. She and the majority left it to the lower courts, however, to apply these three principles to the facts of Liu and Wang’s case.

Justice Thomas was the lone dissenter. He avoided all of this boundary drawing around disgorgement by simply concluding that disgorgement is a 20th Century invention and therefore not properly characterized as equitable relief. In Thomas’s view, equity demands precision in what remedies are available, and the majority’s confusing line drawing was anything but precise. Moreover, an equitable remedy must be a one recognized by the English Court of Chancery at the time of this country’s founding; Thomas’s historical recounting of the development of disgorgement showed that it was not. Accordingly, he concluded that disgorgement is not a remedy available to the SEC under § 78u(d)(5).

Next up, in Department of Homeland Security v. Thuraissigiam (No. 19-161), the Court upheld the expedited removal process for certain noncitizens created by the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA), which limits the review that a federal court may conduct on a petition for a writ of habeas corpus. Expedited removal allows an immigration judge to make the immediate decision to deport a person without a hearing if the person was apprehended within 100 miles of a border and if he cannot prove he’s lived in the country for more than two weeks. A person can avoid expedited removal, however, if he can demonstrate to an asylum officer a “credible fear of persecution.” If the applicant satisfies the asylum officer, he is entitled to “full consideration” of his asylum claim. If not, he can appeal to an immigration judge, but IIRIRA §1252(e)(2) prohibits review of the credible-fear determination by an Article III court.

Vijayakumar Thuraissigiam is a Sri Lankan national who was apprehended just 25 yards after crossing the southern border. An asylum officer rejected his credible-fear claim and an Immigration Judge affirmed. He then filed a petition for habeas corpus, asserting for the first time a fear of persecution based on his Tamil ethnicity and political views. He therefor requested a new opportunity to apply for asylum. (He did not seek release from custody; only another opportunity to seek asylum.) The District Court dismissed his petition, but the Ninth Circuit reversed, holding that §1252(e)(2) violates the Suspension Clause and the Due Process Clause to the extent it prohibits review of Thuraissigiam’s petition.

The Supreme Court reversed. Writing for the 7-Justice majority, Justice Alito observed that the Suspension Clause guarantees the rights protected by the Great Writ as it existed in 1789, when the Constitution was adopted. At that time, habeas provided a means to seek release from unlawful detention. Since Thuraissigiam did not seek release from custody, only another opportunity to obtain asylum, his claims fell outside the scope of the writ as it existed in 1789. Alito rejected Thuraissigiam’s (and the dissent’s) arguments that the Suspension Clause guarantees a broader habeas right. Pre-adoption British and American cases involving aliens using habeas to remain in a country in fact only showed that the habeas court could release the alien; whether the alien was permitted to remain in the country was a question of immigration law, not habeas relief. Other later cases, Alito concluded, interpreted the Habeas Corpus Act of 1867, not the Suspension Clause. And still more recently, the Court’s decision St. Cyr v. INS did not involve use of the writ to get a second chance at an asylum application, but instead reaffirmed the availability of the writ as a vehicle to challenge detention. Alito similarly rejected the Thuraissigiam’s argument that §1252(e)(2)violates the Due Process Clause. The Court has long recognized that, as concerns aliens seeking initial entry, “the decisions of executive or administrative officers, acting within powers expressly conferred by Congress, are due process of law.” While it is true that Thuraissigiam had made 25 yards into U.S. territory, he was still a newly arrived noncitizen detained at the border. Therefore, he only had the same due-process rights as one seeking initial entry—namely, an asylum hearing, which he was provided. In sum, the expedited removal process violated neither the Suspension Clause nor the Due Process Clause.

Justice Thomas filed a concurring opinion, expanding on the original meaning of the Suspension Clause. In Thomas’s view, writ of habeas corpus, as understood in 1789, guaranteed freedom from discretionary detention, and nothing more. The Suspension Clause, therefore, merely prohibited statutes that would grant the executive the power to detain without bail or conduct a trial based on mere suspicion of a crime. The expedited removal process, therefore, did not violate the Suspension Clause, as originally understood.

Justice Breyer, joined by Justice Ginsburg, concurred in the judgment, emphasizing that the Court’s decision was a narrow one. While he agreed that §1252(e)(2) is not unconstitutional as applied to Thuraissigiam—who was detained just 25 feet from the border, almost immediately after crossing, and who sought essentially a review of factual determinations, not legal conclusions. But he stressed that the Court’s decision, confined to an as-applied challenge by Thuraissigiam, should have no bearing on whether the Suspension Clause permits Congress to “close the courthouse doors” in other situations and to other individuals.

Those three opinions took up about 58 pages of the court’s decision. The remaining forty were filled by a strenuous dissent, penned by Justice Sotomayor and joined by Justice Kagan. Sotomayor accused the majority of “flouting” more than a century of precedent and “purg[ing] an entire class of legal challenges to executive detention.” Conducting an exegesis of habeas and due-process history, Sotomayor began by arguing that Alito’s originalist view of habeas is wrong because it fails to consider surrounding context. The lack of a specific application of the writ in the immigration context in 1789 was a result of the country’s open-border policy at the time, which remained until the rise of the modern federal immigration scheme in the 20th century. Viewed in context, Sotomayor argued the true meaning of habeas corpus has always been to prevent the executive from creating arbitrary administrative schemes to detain individuals—which is exactly what Thuraissigiam complained of. Sotomayor went on to criticize Alito’s suggestion that Thuraissigiam’s “unlawful status independently prohibits him from challenging the constitutionality of the expedited removal proceedings.” The Due Process Clause, she argued, protects all persons, regardless of immigration status. The Court reached its decision, she concluded, “only by downplaying the nature of respondent’s claims, ignoring a plethora of common-law immigration cases from a time of relatively open borders, and mischaracterizing the most relevant precedents from this Court.” While the majority further justified its decision in practical terms—pointing to perceived abuses and vulnerabilities in the asylum system—Sotomayor insisted that the political branches are well equipped to deal with those problems without the judiciary abdicating its “minimal, yet crucial” role: to ensure that the laws passed by Congress are consistent with the limits of the Constitution.

That’s all for today. But with at least eight decisions remaining, you can expect to keep hearing from us throughout the week, and possibly next. Stay tuned!

© 1998-2020 Wiggin and Dana LLPNational Law Review, Volume X, Number 183

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About this Author

Tadhg Dooley Appelate Attorney Wiggin Dana New Haven, CT
Partner

Tadhg is a Partner in the firm’s Litigation Department, where his practice focuses on appellate and complex civil litigation. He has extensive experience handling appeals in state and federal courts throughout the country and has obtained favorable results for a diverse range of clients, from federal prisoners to foreign presidents, big companies to small towns. Among other recent successes, Tadhg helped a municipality overturn a $6.8 million verdict in the Connecticut Appellate Court, and helped a dental practice overturn a $3.7 million verdict in the Georgia Supreme Court. Tadhg has also...

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David Roth Litigation lawyer Wiggin Dana
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David is Counsel in Wiggin and Dana’s Litigation Department and a member of the firm’s Appellate, Art and Museum Law, and Intellectual Property Litigation practice groups. He has assisted insurers, universities, large companies, cultural institutions, and sovereign nations in a variety of complex civil litigation and appeals. Representative matters include trademark, copyright, and patent cases; insurance class-actions; art-ownership disputes; and high-stakes business litigation. David has also represented private individuals and companies in several criminal matters and internal investigations.

David received his J.D. from the Yale Law School, where he was a Notes Editor for the Yale Law Journal. He earned an M.A. in Classics from the University of Virginia and a B.S. in Classics from the University of Oregon.

Before joining the firm, David held a clerkship with Judge Christopher Droney of the United States Court of Appeals for the Second Circuit.

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