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November 18, 2019

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Supreme Court Update: Taggart v. Lorenzen (No. 18-489), Fort Bend County v. Davis (No. 18-525), Azar v. Allina Health Services (No. 17-1484), Mont v. United States (No. 17-8995)

Greetings, Court fans!

As promised, we’re back with summaries of the four decisions the Court handed down earlier this week. There’s a lot to get through, so we’ll proceed right to it.

First up, in Taggart v. Lorenzen (No. 18-489), a unanimous Court provided helpful guidance to anyone who wants to try to collect a debt in violation of a bankruptcy court’s discharge order: You can only be held in civil contempt if “there is no fair ground of doubt” as to whether the discharge order barred your conduct. In doing so, the Court resolved conflicting standards in the lower court about the intent standards for holding creditors in contempt when their actions violate a bankruptcy court order.

The petitioner, Bradley Taggart, was sued in Oregon state court by former business partners who claimed he violated the business’s operating agreement. While that case was pending, Taggart filed for bankruptcy. The bankruptcy court later issued an order discharging Taggart’s prebankruptcy debts pursuant to 11 U.S.C. § 727. Shortly afterwards, Taggart’s former partners won a judgment against him in the state court action. What followed was a dispute not about the judgment itself, but rather about the partners’ pursuit of $45,000 in attorney’s fees in the state court action that they claimed were incurred when Taggart “returned to the fray” to continue litigating the case after filing his bankruptcy petition (citing the standard from a Ninth Circuit case). Taggart responded by turning to the federal courts, arguing that his partners were violating the discharge order by seeking attorney’s fees and should be held in contempt. After failing to convince the bankruptcy court, Taggart prevailed in an appeal to the district court, which held that he had not “returned to the fray” and thus could not be pursued for attorney’s fees.

The issue then became whether Taggart’s partners should be held in civil contempt for violating the discharge order. The bankruptcy court applied a standard akin to strict liability, holding the partners in contempt because they were “aware of the discharge” and “intended the actions which violated it.” But the Ninth Circuit later vacated the contempt order, applying a much more forgiving standard, under which a creditor cannot be held in contempt so long as he or she has a “good faith belief” that the discharge order does not apply to his or her claim, regardless of whether that belief is reasonable.

In a unanimous opinion authored by Justice Breyer, the Court vacated the Ninth Circuit’s decision and took the middle ground. It held that a court may “impose civil contempt sanctions when there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order.” A bankruptcy court’s power to issue and enforce its orders is “obviously transplanted” from the law of injunctions, and a court may enforce an injunction through civil contempt unless there is “a fair ground of doubt as to the wrongfulness of the defendant’s conduct.” Importantly, this standard is objective. Parties’ subjective beliefs that they are complying with a bankruptcy order will not insulate them from being held in civil contempt, though subjective good faith may be relevant to determining the appropriate sanction. But lest its holding be read too broadly, the Court also expressly rejected the bankruptcy court’s strict liability standard. The scope of discharge orders is often open to reasonable disagreement, and a strict liability standard would cause creditors to be overly cautious and frequently seek advance determinations from federal courts, leading to undue costs and delays. The Court concluded that “objectively reasonable” standard, in contrast, “strikes the careful balance between the interests of creditors and debtors.”

Continuing with unanimity, Fort Bend County v. Davis (No. 18-525) returned to a topic where the Court has repeatedly tried to clarify the law in recent years: the difference between jurisdictional rules versus non-jurisdictional rules. In this instance, a unanimous Court held that Title VII’s EEOC charge-filing requirement is non-jurisdictional (and hence waivable), rather than a nonforfeitable jurisdictional requirement. Our colleagues in Labor Benefits and Employment have already provided a thorough summary of the decision, but for those of you who want a quick rundown, read on.

Lois M. Davis completed an intake form with the Equal Employment Opportunity Commission (“EEOC”), claiming she had been subject to sexual harassment and retaliation while working for Fort Bend County, Texas. She was later terminated for refusing to show up to work on a Sunday, based on a church commitment. Davis went back to the EEOC, but she never formally amended her EEOC charge, instead simply writing “religion” on an intake questionnaire used by the EEOC. After receiving a right-to-sue letter, she sued. Fort Bend prevailed on the merits in summary judgment, but the Fifth Circuit reversed as to her religious discrimination claim. Back in the district court, Fort Bend argued for the first time that the courts lacked subject-matter jurisdiction over Davis’s religious discrimination claim, because she had never appropriately filed a religion-based claim with the EEOC before suing. The district court agreed with the County, but the Fifth Circuit again reversed, holding that the EEOC exhaustion process was non-jurisdictional and have been waived by Fort Bend’s failure to raise it for roughly five years. The Supreme Court granted cert to resolve a split among the circuits over whether Title VII’s EEOC exhaustion requirement is jurisdictional.

Writing for a unanimous Court, Justice Ginsburg acknowledged that the Court’s previous decisions have sometimes been “less than meticulous” when discussing Title VII’s charge-filing requirement, sometimes describing it as a “jurisdictional” requirement. But the difference between jurisdictional and non-jurisdictional rules is important, because rules of the latter type can be waived or forfeited if not timely raised. To determine which side of the line Title VII’s EEOC exhaustion requirement falls, Justice Ginsburg noted three circumstances where a statutory requirement may be classed as jurisdictional: where Congress incorporates the rule into a jurisdictional statute, such as the amount-in-controversy requirement for diversity jurisdiction; where “‘a long line” of Supreme Court decisions “left undisturbed by Congress” has referred to a prescription as jurisdictional; and where Congress has “clearly stated” that a prescription “counts as jurisdictional.” Title VII’s EEOC charge-filing requirement fits into none of these categories. Instead, the statutory requirements speak to parties’ procedural obligations rather than a court’s jurisdiction. The charge-filing requirement is therefore a non-jurisdictional procedural rule, subject to forfeiture if it is not timely raised.

Our third case of the week is Azar v. Allina Health Services (No. 17-1484), where a nearly unanimous Court held that the Department of Health and Human Services violated the Medicare Act by changing the way it calculated Medicare payments to hospitals without going through notice-and-comment rulemaking.

Medicare Part A (one part of “Original Medicare”) pays hospitals directly for providing care to Medicare patients. To encourage hospitals to serve low-income patients, the government makes additional Medicare payments to hospitals that serve a “disproportionate number” of these patients. These additional payments are calculated by dividing the percentage of time a hospital spends caring for patients who were entitled to income support under the Social Security Act by the percentage of time the hospital spends caring for payments entitled to benefits under Medicare. This is called a hospital’s Medicare fraction, and the greater the fraction, the greater the additional payment.

In 1997, Congress created a new type of Medicare, Medicare Part C, which pays beneficiaries’ insurance premiums instead of paying hospitals directly. This raised the question of whether Medicare Part C payments should be included in calculating a hospital’s Medicare fraction. Originally, HHS ignored Part C payments, but in 2004 it issued a rule (after notice-and-comment rulemaking) that Part C payments would be counted in the denominator of the Medicare fraction. That rule was later vacated—for reasons we need not discuss—only to be reissued in 2013. HHS wanted to use this same method to calculate Medicare fractions for 2012, but it couldn’t rely on the 2013 rule, because that new rule was only issued prospectively. So the agency just did it: When it calculated the Medicare fractions for every U.S. hospital for 2012, it included Part C payments without any justification or explanation. Various hospitals sued, arguing that the agency couldn’t implement this substantive change without notice-and-comment rulemaking. The D.C. Circuit, in an opinion by then Judge Kavanaugh, sided with the hospitals. The Court granted cert, though not all Justices agreed on exactly what was the question before them. 

With Justice Kavanaugh sitting out for obvious reasons, seven of his colleagues affirmed his ruling. Justice Gorsuch’s opinion for the majority turned largely on minor textual differences between the Medicare Act and the Administrative Procedure Act (“APA”). Administrative law buffs are well familiar with the APA’s distinction between “substantive rules,” which must go through notice-and-comment rulemaking, and “interpretive rules,” which need not. The Medicare Act (which is not subject to the APA) uses a slightly different formulation, requiring notice and comment for any “rule, requirement, or other statement of policy” that “establishes or changes a substantive legal standard” regarding the payment of services. The government argued this standard simply incorporated the APA’s distinction: After all, the phrase “substantive rule” of the APA sounds a lot like the “change in a substantive legal standard” of the Medicare Act. The majority disagreed, for several reasons. Chief among them, the Medicare Act’s included “statements of policy” among the agency actions that could change a substantive legal standard and require notice and comment. Under the APA, by contrast, statements of policy were, by definition, interpretive rules. This, as well as other subtle points, suggested that Congress’s use of a slightly different formulation in the Medicare Act was deliberate, requiring a broader set of regulatory pronouncements to go through notice-and-comment rulemaking under the Medicare Act than would be the case under the APA. There the Court stopped. That is to say, it did not flesh out just what a “change in a substantive legal standard” means. That was so because the government had only argued that the D.C. Circuit was wrong because it had interpreted the Medicare Act to not incorporate the APA’s standard. Having concluded that this holding was correct, the Court saw it unnecessary to define in detail what the Medicare Act’s different standard required, viewing that question as not properly before the Court.

Justice Breyer, joined by no one, dissented (marking his second lone dissent on a statutory-interpretation question this term). His dissent can largely be summarized as “horseshoes and hand grenades”: In making notice-and-comment rulemaking a requirement of the Medicare Act (something Congress didn’t get around to doing until the 1980s), Congress used terms that are a pretty good approximation of the APA’s distinction between substantive and interpretive rules. The simplest interpretation of what Congress intended, then, was that it meant to codifying the APA standard in the Medicare Act. Justice Breyer saw further support for his reading in the history of the statute and the legislative history. (Unlike most other statutory-interpretation opinions this term, the majority actually addressed Justice Breyer’s legislative-history arguments on their substance, finding the history too ambiguous to carry much weight.) Lastly, Justice Breyer worried that departing from the APA’s standards would be too big a burden for HHS: The Medicare Act is complex, and requiring everything that amounts to a substantive legal change to go through notice-and-comment rulemaking would be an insurmountable burden on the agency. He ended with a plea to Congress to provide more clarity if it disagrees with the Court’s holding.

Finally, in Mont v. United States (No. 17-8995), the Court answered a question that had divided the Circuits (not to mention the Nine): Whether a convicted criminal’s period of supervised release is tolled during the period of pretrial detention for a new criminal offense. The federal statute governing supervised release, 18 U.S.C. § 3624(e), provides that “[a] term of supervised release does not run during any period in which the person is imprisoned in connection with a conviction for a Federal, State, or local crime, unless the imprisonment is for a period of less than 30 consecutive days.” The basic question in the case, then, is whether a person in pretrial detention “is imprisoned in connection with a conviction” for a crime. In an unusual 5-4 decision (with Ginsburg joining the conservatives in the majority and Gorsuch joining the liberals in dissent), the Supreme Court answered, “yes,” so long as the period of pretrial detention is ultimately credited as “time served” for the new offense after conviction.

The facts of the case, while complicated, may help illuminate the question. In short, Mont was released from a federal prison on March 6, 2012, with five years of supervised release left on his sentence. But he did not perform particularly well on release. In March 2015, he was arrested on state drug charges, and released on bond. Then, in June 2016, he was arrested again on new state charges, and his original state bond was revoked. He was therefore incarcerated in county jail, while awaiting trial on both state charges. In October 2016, he entered into a plea on all the state charges in exchange for a recommended six-year sentence. While he was awaiting sentencing pursuant to his plea, Mont filed a written admission in the federal court acknowledging that he had violated his supervised release “by virtue of his conviction following guilty pleas to certain felony offenses” in state court. He sought a hearing on the supervised-release violations at the federal court’s “earliest convenience,” but the court postponed the hearing several times to await the state sentencing. On March 21, 2017 (about two weeks after his original period of federal supervised release was supposed to end), the state court sentenced Mont to six years’ imprisonment, but credited the roughly ten months that he had already been incarcerated pretrial. When the federal court scheduled a hearing on Mont’s acknowledged violation of supervised release, Mont objected that the court no longer had jurisdiction to revoke his release based on the fact that the original five-year term had already expired. The District Court concluded that it retained jurisdiction because it had noticed the hearing and issued a summons before the term expired. It revoked his supervised release and sentenced him to a further term of 42 months, consecutive to his state sentence. On appeal, the Sixth Circuit affirmed on alternate grounds (because there was no evidence of the summons in the record), holding that when a defendant is ultimately convicted of the offense for which he was held in pretrial detention, and the period of pretrial detention is credited as time served toward his sentence, then the pretrial detention is “in connection with” a conviction and tolls the period of supervised release.

The Supreme Court affirmed, largely for the same reason. Justice Thomas wrote for the majority, joined by the Chief and Justices Ginsburg(!), Alito, and Kavanaugh. Thomas reasoned that, “sensibly read,” the phrase “is imprisoned in connection with a conviction” includes pretrial detention later credited toward another sentence for a new conviction. The term “imprisoned,” itself, is broad enough to cover pretrial detention and the phrase “in connection with” bears a broad interpretation. And when a period of pretrial detention is credited toward the sentence that results from a conviction, then it is not just connected to the conviction but directly tied to it. Although section 3524(e) uses the present tense—“is imprisoned”—that doesn’t preclude a retrospective application. After all, the statute provides that tolling should occur “unless the imprisonment is for a period of less than 30 consecutive days,” and “there is no way for a court to know on day 5 of a defendant’s pretrial detention whether the period of custody will extend beyond 30 days.” Thomas saw nothing “odd” or unworkable about making the tolling determination retrospectively.

Justice Sotomayor led the charge for the dissenters, joined by Breyer, Kagan, and Gorsuch. In her view, “a person ‘is imprisoned in connection with a conviction’ only while he or she serves a prison term after a conviction.” The primary textual clue for that conclusion is the clause’s use of the present tense. “In normal usage, no one would say that a person ‘is imprisoned in connection with a conviction’ before any conviction has occurred, because the phrase would convey something that is not yet—and indeed, may never be—true: that the detention has the requisite connection to a conviction.” Under general principles of statutory construction, not to mention the Dictionary Act, words used in the present tense can include the future as well as the present, but generally not the past. The majority’s retrospective approach, Sotomayor argued, cannot be squared with the present-tense language of section 3624(e). She rejected Thomas’s argument about the 30-day calculation requiring a retrospective approach, because the “30-day minimum creates no anomalies if the statute is read to toll supervised release only during detention following a conviction.” The difficulties inherent in predicting how long pretrial detention will last simply support the conclusion that “Congress never intended to force district courts to grapple with them in the first place.” If “imprison[ment] in connection with a conviction” is limited to imprisonment after a conviction, there is no problem. Justice Sotomayor further noted that the majority’s construction was not necessary to preserve the power of district courts to revoke supervised release. Another provision of the statute permits a district court to extend its revocation power if it issues a warrant or summons while the term of supervised release is running. (Indeed, the district court purported to have done that here, but there was no evidence of it in the record.) “The majority’s overly broad reading of the tolling provision is thus unnecessary as well as a distortion of the clear statutory text.”

Justice Sotomayor attempted to show why this case is a big deal (and indeed it is for Mont, who ended up with an additional 3.5 year prison term). But given that a district court can easily extend its revocation authority anyway, it’s not clear how impactful the decision will be on defendants or courts. Of undoubtedly more interest to many readers is the line-up in this case. In criminal cases, there is often a pragmatist/formalist split, and we’ve certainly seen cases where the pragmatist Justice Breyer swaps places with formalists like Scalia, Thomas, or Gorsuch. But that doesn’t really explain the line-up in Mont, where both sides made pragmatic and textualist arguments, and it was Ginsburg, not Breyer, who flipped. As many have noted, this is the second 5-4 decision in a row where Ginsburg and Thomas have joined forces in the majority. Could a new alliance be forming? No. The answer is no.

That gets us up to speed for now. We expect several more decisions Monday, as the Court works through the 27 remaining cases that must be decided over the next three weeks.

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Tadhg Dooley Litigation lawyer Wiggin Dana
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 an Associate 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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