Free Minds & Free Markets


Mostly law professors, blogging on whatever we please since 2002 · Hosted by The Washington Post, 2014-2017 · Hosted by Reason 2017 · Sometimes contrarian · Often libertarian · Always independent

"Indictment: Man Behind Cyberattacks Was Working for Wichita Lawyer"

Federal prosecutors have indicted two men for attacking Leagle (an online repository of court opinions), RipOffReport (a consumer gripe site), and (the site of a law firm that sometimes represents RipOffReport).

The Justice Department reports on this indictment:

A Wichita lawyer and a computer software engineer were charged [Tuesday] in a federal indictment alleging they were responsible for cyberattacks on web sites that posted information critical of the lawyer's work, U.S. Attorney Stephen McAllister said.

Wichita Attorney Bradley A. Pistotnik, 62, and David Dorsett, 36, Wichita, Kan., co-founder of a company called VIRAL Artificial Intelligence, are charged with five counts of computer fraud and two counts of conspiracy. In addition, Pistotnik is charged with three counts of making false statements to the FBI.

The indictment alleges Pistonik and Dorsett are responsible for cyberattacks on, and The indictment alleges Dorsett filled the web site's in-boxes with threats.

One of the emails read: "Remove this page and we stop" and "if you don't remove it we will begin targeting your advertisers and explain that this will stop happening to them once they pull their ads from or kills this page."

The indictment [also] alleges that when an FBI agent questioned Pistotnik he made false statements ....

Pistotnik responded to a KWCH-TV media query by saying,

We have been aware of these allegations for more than two years. We conducted our own investigation and shared our findings with the U.S. Attorney. We have had no request for follow-up, and we consider the matter closed. We are surprised the matter has resurfaced. We denied the allegations then and now.

Wichita press accounts suggest that Pistotnik is well-known as a local lawyer. I've seen no indication of just which case on the attack was meant to get taken down, but it might have been In re Pistotnik (Kan. 1993):

This is an original proceeding in discipline filed [in 1992] by the Office of the Disciplinary Administrator against Bradley A. Pistotnik, an attorney admitted to the practice of law in Kansas. Two formal disciplinary complaints ... were brought against Pistotnik based on a pattern of repeated criminal offenses and on his conduct in connection with a personal injury action....

IT IS ... ORDERED that Bradley A. Pistotnik be and he is hereby suspended from the practice of law in the State of Kansas for a period of one year ....

Relatedly, some months ago a federal jury convicted a different man for a different but similar attack; here's the press release from when he was indicted:

A Seattle man has been charged in a federal indictment, returned late yesterday, with one count of knowingly causing the transmission of a command to a protected computer, announced U.S. Attorney John Parker of the Northern District of Texas (NDTX).

Kamyar Jahanrakhshan, aka "Kamyar Jahan Rakhshan," "Andy or Andrew Rakhshan," "Andy or Andrew Kamyar," and "Kamiar or Kamier Rakhshan," 37, of Seattle, Washington, was arrested late last month in the Western District of Washington (WDWA) on a related federal criminal complaint, filed on July 29, 2016, in the U.S. District Court for the NDTX. He made his initial appearance before a U.S. Magistrate Judge in federal court in the WDWA on July 26, 2017, and was detained. The U.S. Magistrate Judge set Rakhshan's identity hearing in WDWA on August 14, 2017, after which, Rakhshan should be transported to Dallas to appear in a federal court in the NDTX.

The indictment alleges that between December 30, 2014 and January 25, 2015, Jahanrakhshan knowingly caused the transmission of a program, information, code, and command, and, as a result of such conduct, intentionally caused a denial of service attack on the website without authorization to a protected computer causing a loss of at least $5,000 during a one-year period.

Short Circuit: A roundup of recent federal court decisions

Caligula, Ryan Gosling, and the Miracle on Ice.

Please enjoy the latest edition of Short Circuit, a weekly feature from the Institute for Justice.

Friends, the Federal Energy Regulatory Commission enables energy companies to seize land from property owners—on a vast scale—while evading judicial review. Which is egregious, say Robert McNamara of IJ and David Bookbinder of the Niskanen Center in The Wall Street Journal.

New on the podcast: No suing TSA screeners, state protections against unreasonable searches, and FERC's incentives to approve pipelines. Click here for iTunes.

  • Six times, Judicial Watch submits FOIA requests for Secret Service records. Six times, Secret Service fails to respond within statutory deadline. Six times, Judicial Watch sues in court, and Secret Service immediately produces the requested records. D.C. Circuit (with a concurrence and over a dissent): Given these prolonged, unexplained delays, Judicial Watch may be entitled to an injunction compelling the agency to comply with FOIA in the future.
  • State and federal regulations often incorporate standards set by private organizations. (For instance, if you're operating a tank barge with a liquid overfill protection system, you're going to need to know what the National Fire Protection Association has to say on the topic.) Copies of the standards cost anything from $25 to $200, but Public.Resource.Org scans them and puts them on the internet for free (and often makes them easier to read). Copyright infringement? D.C. Circuit: Private ownership of documents necessary to determine legal standards raises serious constitutional concerns. But we need not address that issue, as we find that publication of the standards may be fair use—and therefore allowed even if the standards are copyrighted. Concurrence: Ah, the Caligula model.
  • Two women make "a grotesque number of false statements" about prominent scientist. One even travels around the world to hand out leaflets (containing calumnies) at conferences where the scientist is to speak. Jury: Pay $3.5 mil for defamation. District court: Also you're enjoined from ever repeating six particular statements in any medium for any purpose. First Circuit: Go ahead and pay, for the most part. But, over a dissent, we vacate the district court's permanent injunction. The First Amendment doesn't allow such prior restraints.
  • When tenants fail to pay gas bills, Philadelphia's municipal utility allows debts to pile up for years without notifying landlords, then puts a lien on the property—effectively making the landlords liable for the debt. When landlords complain, the utility tells them to file a complaint with a state agency that has no jurisdiction to address their complaints. Third Circuit: No due process problem here.
  • Man files lawsuit under False Claims Act against manufacturer of batteries for use in intercontinental ballistic missile launch controls, asks for $30 mil, settles for $1.7 mil. What follows is—in the trial court's words—a "hellish" dispute over the man's attorneys' fees. Third Circuit: We feel you; the order reducing requested fees is affirmed in almost every respect.
  • Abortion clinic challenges Texas law that regulates the disposal of fetal remains, prohibits their being dumped in the trash or sewer. In discovery, clinic demands documents from the Texas Conference of Catholic Bishops regarding any communication it had with Texas officials about the passage of the law and internal documents relating to abortion. Trial court orders the documents produced on an unusually expedited schedule. Fifth Circuit: Which raises a slew of First Amendment issues (free exercise, establishment clause, free speech, association, and petition claims), but we'll leave those to the side for now and resolve this based on the burden to the bishops (who aren't a party to the case). Reversed (over a vigorous dissent and troubled concurrence).
  • In wake of housing crisis, a new federal agency that "supervises" lenders Fannie Mae and Freddie Mac forces them to turn their profits over to the U.S. Treasury instead of investors. Fannie & Freddie investors: We want our money back! The whole agency is unconstitutional because it has a single director who can only be fired by the president "for cause." And even if the agency is constitutional, the "profit sweep" regulation violates the statute. Fifth Circuit (per curiam, divided): The profit sweep rule is legal, but the agency is "unconstitutionally insulated from executive control." Citing the Constitution's "revolutionary" separation of powers design, "[t]he Framers were not tinkerers; they upended things." Judge Willett, dissenting in part: The profit sweep rule is also unlawful.
  • Disgruntled moviegoer: I want my money back for seeing Ryan Gosling's 2011 movie Drive! The trailer tricked me into thinking Drive would be exciting; instead it had a boring "art house" pace! Also, I think the movie has a subliminal anti-Semitic message because of the Jewish mobsters. Sixth Circuit: You lose. (Spoiler alert: Here is the final scene of Drive.)
  • South Carolina officials want to charge a federal prisoner with state crimes, so they file a "detainer"—a request that the federal prison alert the state before releasing the prisoner. The Interstate Agreement on Detainers Act creates procedures for resolving detainers quickly, but South Carolina has let this one linger for years. Prisoner files a habeas petition (without counsel). Sixth Circuit: Unfortunately, although the prisoner filed in the right court, he named the wrong official, so he has to start over.
  • After his release from federal prison, man suffering from chronic pain obtains prescription for legal-in-Minnesota medical marijuana. Feds: Which violates the conditions of his supervised release. District court: Not going to send him back to prison, but no more marijuana. Eighth Circuit: Affirmed.
  • St. Paul, Minn. police receive word that a man has a gun outside a bar in a rough area of town; they show up in force, point guns at occupants of car outside the bar, none of whom match the description of the suspect. (Turns out the suspect was inside the bar, and he had a hammer.) An officer takes an occupant of the car to ground by means of an arm-bar takedown. District court: Which could be excessive force, even though the occupant did not suffer any permanent injuries. Eighth Circuit: Indeed. No qualified immunity.
  • St. Louis police beat up pedestrian who walked away from them. He spends six days in city jail (and gets a chest X-ray) before being transferred to Perry County, Mo. jail (80 miles away) because of traffic warrant there. After a week, he's taken to the hospital. Yikes! He's got facial fractures, bleeding in his brain and his kidneys are near failure. (All charges against him are dropped. He turns out not to have had contraband or been under the influence.) Jury: Two St. Louis officers are liable for $600k. Eighth Circuit: Evidence of excessive force is ample; no need to reconsider the award.
  • In Ferguson-Florissant, Mo. school board elections, voters get one vote for every school board seat—but a voter can't use, say, three eligible votes on the same candidate. From 2000 through 2015, white candidates win 59.5 percent of the time, while black candidates win just 20.8 percent of the time—even though whites and blacks make up roughly equal shares of the voting-age population (per the 2010 census). District court: There's no allegation of intentional discrimination, but the electoral process does afford black voters fewer opportunities to elect their preferred candidates. District court again: To remedy that, "plumping" will be allowed: Voters can vote more than once for the same candidate. So, if there are three seats up for grabs, voters can vote up to three times for their preferred candidate. Eighth Circuit: Affirmed.
  • Los Angeles County all-female jail has policy of shackling mentally ill women for their "recreation" time, and officers often leave women naked and chained to their cell doors for hours without access to food, water, toilet. Ninth Circuit: Given all of the "uncontroverted evidence" of the above, the district court should not have told the jury to defer to jail officials' claims that the shackling was necessary because of "overcrowding" and "understaffing." Juries may only be instructed to defer to jail officials if there is evidence the policy is security based. (Bonus: This is the same jail that shackled women during childbirth. Super bonus: In 2017, the defendant, now-former Sheriff Lee Baca, was sentenced to three years in prison for obstructing an FBI investigation into widespread abuses by LA county jails.)
  • Wagoner County, Okla. man suffering psychotic episode declines to drop kitchen knife; police shoot him with pepperballs. He charges the officers, whose tasers fail, so they shoot him with bullets. He doesn't die. Can he sue? The Tenth Circuit says no.
  • Eleventh Circuit: In 1980, the Soviet hockey team hadn't lost an Olympic game since 1968 and had, just a few weeks before the Lake Placid Games, soundly defeated the U.S. by a score of 10–3. But, a miracle on ice! The U.S. wins gold. Indeed, says Judge Rosenbaum: "Our history contains many such stories of triumphs over long odds." But the instant case, which has naught to do with hockey, "is not one of those."
  • And in en banc news, the Eleventh Circuit will not reconsider its decision that Title VII does not permit gays and lesbians to bring discrimination claims against employers. Dissenting from denial of review, Judge Rosenbaum likens the precedent the panel relied upon to "an Edsel with a missing engine."

In 2016, Louisiana officials forced Metairie salon owner Lata Jagtiani to fire her two most experienced eyebrow threaders—Ushaben Chudasama and Panna Shah—because they weren't licensed estheticians. But come on! The state's mandatory 750 hours of esthetics training, which costs thousands of dollars, doesn't include any threading instruction. Nor would any training be necessary; threading, an ancient grooming technique that uses only a single cotton thread to remove unwanted hair, is perfectly safe as long as commonsense sanitation practices are observed. So the three women challenged the licensing law under the Louisiana Constitution, and this week—victory! The Louisiana State Board of Cosmetology created a specialty permit for threading, and Ushaben and Panna are back to work after passing a simple sanitation test and registering with the state. Click here to read more.

The Mismatch Effect: A Danger for Students of All Races

A very interesting article from Prof. Robert Steinbuch (Arkansas / Little Rock).

Say that you apply to many schools, including some where other students have much better predictors (chiefly test scores and grades from earlier institutions) than you. And you get in! Maybe it was affirmative action (whether based on race, socioeconomic status, or something else), maybe it was a preference because your relatives had gone to the same school, maybe it was something in your admission essay, maybe it was just luck. Either way, you're thrilled.

Might you have reason to be less thrilled, and actually not want to go to this highly ranked school? (Conversely, might the school reconsider its policy that led you to be let in?) If the predictors are actually reasonable predictors (and apparently grades and test scores tend to be reasonable predictors), then you can expect you'll end up lower in the class at the new school than you might be at some other school, precisely because the other students are better than you. The advantage of having a more prestigious degree might be counteracted by the disadvantage of having a less prestigious class rank. But might you end up getting a worse education, being less likely to graduate, and being less likely to pass any professional licensing exams (such as the bar) that you might be expecting to take?

That's the debate about the "mismatch effect," which I've followed over the years (though from a distance); it has mostly focused on whether race-based affirmative action causes problems (such as lower black bar passage rates) as a result of this effect, but it can also be relevant to many students of all races. I was first exposed to it because of the work of my UCLA School of Law colleague Rick Sander, and Robert Steinbuch at Arkansas / Little Rock has been working in it as well; Rob has been kind enough to pass along these thoughts on the subject:

As much as we have discussed the "mismatch effect" -- what takes place when students with academic credentials noticeably lower than their peers learn less as a consequence of that intellectual estrangement -- I believe that we still haven't fully appreciated its negative consequences. We know that mismatched law-school graduates, on average, fare far worse on the bar exam than their non-mismatched peers. And we've generally thought of the harmful mismatch effect as impacting racial minorities, because they're often admitted with dramatically lower standardized-test scores than their peers. But the negative effects of mismatch on non-minorities have been overlooked: this second set of harms often remains hidden because these students are only a small percentage of a relatively large demographic group. Nonetheless, we should consider them as well when we analyze the scope of the mismatch problem.

[I.] Measuring "Low" LSAT Scores

No measurement of intelligence and skill is perfect, but standardized exams increasingly do a good job. So, in 2018, it should be unsurprising that law-school graduates with low Law School Admission Test (LSAT) scores generally perform far more poorly on bar exams than those with high scores. What constitutes a "low" score, though, requires some discussion.

LSAT scores range from 120 to 180. The consumer-advocacy group Law School Transparency says that law-school applicants with LSAT scores below 150 are engaging in a perilous endeavor: a score of 147 to 149 presents a high risk for bar failure; a score of 145 to 146, a very high risk; and a score under 144, an extreme risk. Therefore, students with an LSAT score of, say, 149 will on average perform less well on the bar exam than students with, say, 165 -- all else being equal.

Beyond this easy to apply static view is a more dynamic model that posits that students' relative LSAT scores as compared with those of their law-school classmates is a reliable predictor of bar passage -- perhaps even more reliable than absolute LSAT scores. This mismatch theory posits that students with, say, a 155 will perform differently depending on where in the class they fall (i.e., how selective a law school they attend). In particular, the further students are below the bulk of the class, the more they suffer from "fish out of water" syndrome -- i.e., the more they're "mismatched." And that estrangement itself negatively affects bar performance.

[II.] Mismatch at UALR

Analysis of a large dataset containing information on graduates from the law school at which I teach, the University of Arkansas at Little Rock, Bowen School of Law, demonstrates that LSAT scores of students enrolled at the school (1) solidly predicted bar passage, and (2) varied significantly in relation to ethnicity.

Although color-blind admissions should produce roughly 25 percent of both Whites and African Americans in each LSAT-score quartile, over two-thirds of graduating African Americans were admitted with LSAT scores in the bottom quartile, as contrasted with only 16 percent for White students. (For more details, see the recent article I coauthored: Steinbuch and Love, Color-Blind-Spot: The Intersection of Freedom of Information Law and Affirmative Action in Law School Admissions, 20 Tex. Rev. L. AMPERSAND Pol. 1 (2016)). Although almost exactly a quarter of White students were admitted in the top quartile of LSAT scores (as expected), remarkably, only one percent of enrolled African Americans fell into the top quartile of LSAT scores. Predictably, this led to dramatic differences in bar passage: 80 percent of Whites passed the bar (the first time), while only 60 percent of African Americans did.

Given that the African-American cohort in our dataset on average had much lower LSAT scores than the bulk of the student body, it's fair to conclude that this cohort overall was mismatched. This profile dominated because affirmative-action considerations are designed to consider factors beyond traditional credentials and explains why debates on how to deal with poor bar-passage rates often focus on race-based admissions. However, the ensuing discussion often misses that, while on average Whites will not be mismatched because they have such a large population -- putting many at or above the mean of the class, the number of Whites who are mismatched could easily equal or exceed that of any other racial group.

[III.] A Closer Look at Mismatch's Consequences

Since mismatch effects likely impact students of all races -- indeed, maybe more White students than those in any individual minority cohort -- we should think much more carefully about how to discuss the process of law school admissions and bar passage in the context of race. Mismatch certainly says something important about race-based admissions, but it has much more to tell us.

Indeed, for schools that are not at the top echelon, the absence of race-based admissions might not eliminate the mismatch effect, because at least some of those schools will likely still admit mismatched students, irrespective of race, to fill otherwise empty tuition-producing seats. (It is possible, though, that some White mismatched students are admitted in some instances as cover for low-scoring minorities. If true, then mismatched admissions would drop in a color-blind process. Further study is necessary to determine this.)

A closer look at the UALR data highlights the dramatic increase in negative outcomes for graduates who were mismatched on LSAT scores. Logistic regression produced an odds ratio for LSAT scores that explained that the odds of a UALR graduate failing the bar exam increased by nearly seven percent (p = 0.0023) for each single-point decrease in LSAT score.

We can further see in the chart below just how heavily African Americans are mismatched in the dataset when we break down the bottom quartile in four roughly equal sized sub-groups. As was the case when looking at all quartiles, even within the bottom quartile, the number of African Americans dramatically grows as the LSAT scores drop. Even though there are nine times as many Whites as Blacks in the UALR dataset, the very lowest end of the LSAT-score band has twice the absolute number of African Americans as it does Whites. That remarkable divergence is overwhelmingly attributable to race-based admissions decisions, which explains the White-Black bar-pass disparity even within the lowest quartile.

Segmented LSAT Scores for Bottom Quartile of UALR Data

LSAT 148

LSAT 147

LSAT 146-45

LSAT < 145

African American

n = 3

100% pass

n = 2

100% pass

n = 10

50% pass

n = 20

35% pass


n = 32

75% pass

n = 24

66.67% pass

n = 26

69.23% pass

n = 10

40% pass

However, even though Whites in the bottom quartile had a far higher pass rate than Blacks, there are almost 50 percent more Whites in this category who failed the bar exam than Blacks. Thus, although Whites viewed as one group across quartiles weren't mismatched -- given their right-sided distribution overall -- far more Whites than Blacks in the bottom quartile failed the bar exam. For these White graduates, the negative consequences that flowed from being mismatched is likely not ameliorated by the realization that their cohort is generally not mismatched or that they didn't receive race-based admission preferences.

[IV.] How Disclosure Might Shrink Mismatch's Negative Consequences

So, what's the solution to poor bar-passage rates that result from schools consciously admitting mismatched students of all races? Some suggest that newly conceived remedial programs can offset the considerable headwinds faced by LSAT-score-impaired students. Others recommend cabining the now-overwhelming influence of race in admissions, so that it returns to its once-envisioned role as a tie-breaker.

As advocates battle over these competing approaches, I offer a modest proposal: informing students of their individual likelihood of success, as predicted with some strength by LSAT scores. With little effort, law schools could disclose their individual bar-passage rates broken down by LSAT scores on an annual basis. This would permit far more meaningful decision-making by students: it would allow prospective students to have a much better sense of where they stand before they attend law school.

Of course, prospective students may seek this information today -- but, sadly, institutions have been less than transparent about this kind of admissions data. Indeed, I had to sue my school under the Arkansas Freedom of Information Act to get some of it. When circumstances or individuals conspire to prevent the market from providing material information to consumers, we have the best case for requiring disclosure. Such disclosure is the most benign form of regulation, because it simply affords consumers the opportunity to make better informed decisions.

A Bad Argument on Birthright Citizenship

A former Trump advisor thinks an Executive Order could end birthright citizenship. A federal judge appointed by President Trump explains why he's wrong.

Michael Anton is best known for penning the infamous, pseudonymous "Flight 93 Election" essay justifying conservative support for Donald Trump. After the 2016 election, Anton briefly joined the Trump Administration as a national security advisor. Now Anton is a research fellow at Hillsdale College and aspiring pundit.

In a recent Washington Post op-ed, Anton takes issue with birthright citizenship -- the principle that those born within this country are citizens of the United States -- and argues that President Trump could unilaterally end the practice of recognizing the citizenship of children born to illegal immigrants on U.S. soil. He is wrong on both counts -- as one of Trump's own judicial appointees would be happy to explain.

The Fourteenth Amendment provides, in relevant part, "All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States . . ." According to Anton,

the amendment specifies two criteria for American citizenship: birth or naturalization (i.e., lawful immigration), and being subject to U.S. jurisdiction. . . . The framers of the 14th Amendment added the jurisdiction clause precisely to distinguish between people to whom the United States owes citizenship and those to whom it does not. Freed slaves definitely qualified. The children of immigrants who came here illegally clearly don't.

Whatever Anton believes the Fourteenth Amendment "clearly" does or does not provide for, scholars who have examined the history have largely reached the opposite conclusion. Among those who have researched the subject is James Ho, former Texas Solicitor General and Counsel to the Senate Judicairy Committee, now a judge on the U.S. Court of Appeals for the Fifth Circuit appointed by President Trump.

As Ho explained in this 2007 op-ed the argument that the "subject to the jurisdiction thereof" language of the 14th Amendment excludes those born in the U.S. to illegal immigrants is based upon a faulty interpretation.

When a person is "subject to the jurisdiction" of a court of law, that person is required to obey the orders of that court. The meaning of the phrase is simple: One is "subject to the jurisdiction" of another whenever one is obliged to obey the laws of another. The test is obedience, not allegiance.

The "jurisdiction" requirement excludes only those who are not required to obey U.S. law. This concept, like much of early U.S. law, derives from English common law. Under common law, foreign diplomats and enemy soldiers are not legally obliged to obey our law, and thus their offspring are not entitled to citizenship at birth. The 14th Amendment merely codified this common law doctrine.

Members of the 39th Congress debated the wisdom of guaranteeing birthright citizenship — but no one disputed the amendment's meaning. Opponents conceded — indeed, warned — that it would grant citizenship to the children of those who "owe [the U.S.] no allegiance." Amendment supporters agreed that only members of Indian tribes, ambassadors, foreign ministers and others not "subject to our laws" would fall outside the amendment's reach.

Anton's arguments to the contrary are based upon a selective (mis)reading of the relevant debates. The language "subject to the jurisdiction thereof" does not exclude the children of illegal immigrants, but those of foreign diplomats and the like. The former, whether they arrived here lawfully or overstayed a visa, are obligated to comply with U.S. law. The latter are not.

As Ho noted in another op-ed, the Supreme Court has repeatedly reaffirmed this understanding of birthright citizenship.

In 1898, the court held that a U.S.-born child of Chinese immigrants was entitled to citizenship. In United States v. Wong Kim Ark, it held that the "14th Amendment affirms the ancient and fundamental rule of citizenship by birth within the territory . . . including all children here born of resident aliens."

The court reiterated this view in Plyler v. Doe (1982). The majority held—and the dissent agreed—that the 14th Amendment extends to anyone "who is subject to the laws of a state," including the U.S.-born children of illegal aliens. Likewise, in INS v. Rios-Pineda(1985), the court again unanimously agreed that a child born to an undocumented immigrant was in fact a U.S. citizen.

"The court has ruled only that children of legal residents are citizens," Anton claims, citing Wong Kim Ark, ignoring plain statements in subsequent cases making clear the "subject to the jurisdiction thereof" langauge applies to legal and illegal immigrants alike. (For a more complete explanation of the actual meaning of this clause, see this longer Green Bag article by Ho on the subject.)

Undeterred, Anton argues that Congress retains the power to deny citizenship to those born in U.S. territory to unlawful immigrants. Further, Anton maintains that if Congress won't act, the President can simply refuse to recognize the citizenship of such individuals by Executive Order, courts be damned.

Anton ends his piece: "Judges faithful to their oaths will have no choice but to agree" with a presidential decree refusing to recognize birthright citizenship. At least one federal judge -- a judge appointed by President Trump no less -- would beg to disagree.

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Can Unions Be Sued For Janus Claims?

Surprising fallout from the Supreme Court's decision on agency fees

Last month the Supreme Court held in Janus v. AFSCME that it is unconstitutional for the states to require public employees to pay labor unions if they choose not to become members (these payments were called "agency fees"). There has been plenty written about what this means for the future of public sector unions and what might happen next. But it turns out that there is another important question: what about the agency fees that unions had been collecting before Janus? Are unions liable for collecting them? Can they be forced to pay them back?

A series of lawsuits have been recently brought in seven states arguing that unions are liable, and now subject to quite significant liability. Noam Scheiber has a story in the New York Times about the suits, (and the lawyer bringing the suits, a former law professor and former Texas solicitor general, Jonathan Mitchell):

Even before the Supreme Court struck down mandatory union fees for government workers last month, the next phase of the conservative legal campaign against public-sector unions was underway.

In March, with the decision looming, lawyers representing government workers in Washington State asked a federal court to order one of the state's largest public-employee unions "to disgorge and refund" fees that nonmembers had already paid. Similar lawsuits were filed in California, New Jersey, New York, Pennsylvania, Minnesota and Ohio.

The complaints could upend the legal system by arguing that states and private parties like unions face liability even though they followed the law as it existed at the time. They could also cost unions hundreds of millions of dollars. ...

I'm quoted in the story (saying "If I were the unions, I'd be really nervous"), but I thought I'd say a little more here. As it happens, Eugene and I are co-writing an article about Janus (to be posted online and discussed here very soon) that discusses this possibility. Here is an adapted exerpt of what we say in the draft:

Janus makes it likely that unions can be sued for agency fees they collected in the past. The case for liability has three key steps.

First, Janus equally to conduct before it was decided as it does to conduct in the future. Under standard retroactivity doctrine, Supreme Court decisions are taken to state the true law as it has always been, rather than to change the law. The black letter rule is now:

When this Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate our announcement of the rule.

This means that courts must treat the involuntary collection of agency fees before Janus as unconstitutional.

Second, even though unions are themselves private organizations, not the government, they can still be sued under for constitutional violations because of the way they used the power of the state to collect money. They key precedent is a Supreme Cour case called Lugar v. Edmondson Oil. In Lugar, the Court allowed lawsuits against private debt collectors because they had made use of an unconstitutional state statute that allowed the attachment of property without due process. Even though the debt collectors were private, they could be sued because they had used an unconstitutional statute passed by the state, and had "invok[ed] the aid of state officials to take advantage of state-created attachment procedures."

Union collection of agency fees appears to be analogous. Just as with debt collection statutes, there were state statutes allowing the union to collect agency fees, and state officials who would deduct the fees from employee paychecks or otherwise make sure that the employees paid up. Even though they weren't responsible for the existence of the unconstitutional policy, they decided to make use of it, and used state power to do so. So the unions are likely to be liable under the same theory.

Third, unions do not have the qualified immunity defense that is available to government Section 1983 defendants. Most government officials have a qualified immunity defense when they were doing something that was thought to be constitutional at the time. But in a sequel to Lugar, called Wyatt v. Cole, the Supreme Court said that private entities do not get the same kind of defense.

Wyatt featured lawsuits against private parties who had made use of unconstitutional replevin, garnishment, or attachment statutes, much like in Lugar. But in Wyatt the Court said that even though the private parties could be sued for unconstitutional conduct, they didn't have the qualified immunity defense that the government would have.

Those three rules together mean that unions are likely to be liable for their pre-Janus conduct, for better or worse.

Moreover, since Janus requires non-members to "affirmatively consent" to all agency fees the damages could be substantial. The only sure limit on such suits is the statute of limitations, which varies by state and is generally 2-3 years.
The unions might have various defenses to mitigate the damages. In Wyatt, the Court reserved the possibility that private parties could make a separate "good faith" defense distinct from qualified immunity, and some lower courts have recognized such a doctrine. And it is a common intuition that such retroactive liability is quite unfair.
But unions should not be too confident that they will have such a defense against Janus suits. First, this good faith defense has never been endorsed by the Supreme Court, and there is little clear authority for it. If one of the cases makes it to the Court, there is no guarantee that the Justices will recognize this defense.

Second, these particular suits may make the Court particularly unsympathetic to such a defense. The Court's opinion in Janus specifically noted that "public-sector unions have been on notice for years regarding this Court's misgivings about Abood" and opined that, since 2012, "any public-sector union seeking an agency-fee provision in a collective-bargaining agreement must have understood that the constitutionality of such a provision was uncertain." So the courts may well conclude that unions were knowingly gambling on the continued validity of Abood, and therefore cannot complain about their losses.

I'm sure there will be more to say about these suits as things develop -- and we'll have much more to say about Janus and the First Amendment itself, quite soon.

Four Blue States File Dubious Lawsuit Against Cap on Federal Tax Deduction for State Tax Payments

The lawsuit contends that the Constitution requires a federal tax deduction for "all or a significant portion" of state income tax payments.It relies on badly flawed constitutional arguments to try to prop up a badly flawed policy.

I support many of the lawsuits filed by blue states and localities against the federal federal government, such as those seeking to protect "sanctuary cities" against federal coercion and commandeering. But I cannot say the same for the suit recently filed by the states of New York, Massachusetts, Maryland, and New Jersey which seeks to invalidate a provision of the 2017 GOP tax reform law imposing a cap on federal tax deductions for state and local tax payments. Previously, taxpayers could deduct all state and and local income and property taxes from their federal tax returns. Under the new, law the State and Local Tax (SALT) deduction is capped at $10,000. This measure is likely to disproportionately affect wealthy people who live in states with high state income taxes (most of them blue states). For that reason, it's understandable that the blue state plaintiffs are unhappy about the change. But their legal argument against the new policy borders on the absurd. Moreover, it is ironic that progressives are defending a tax deduction that overwhelmingly benefits wealthy people and relatively affluent states, at the expense of poorer parts of the country.

In their recently filed complaint, the states argue that the cap on SALT deductions violates "the Tenth Amendment and foundational principles of federalism." They argue not only that the 2017 cap is unconstitutional, but that the federal government has a general obligation to exempt "all or a significant portion of state and local taxes" from the federal income tax. The problem with this argument is simple: nothing in the text or original meaning of the Constitution supports it. To the contrary, the Sixteenth Amendment gives Congress a general power to power "to lay and collect taxes on incomes, from whatever source derived." There is no mandated exemption for income used to pay state or local taxes. There is also no support for the states' position in Supreme Court precedent, or in the American constitutional tradition more generally.

The states point to various statements by framers and ratifiers of the Sixteenth Amendment indicating that the Amendment was not intended to impinge on the rights and powers of state governments. But none of these statements indicate that the federal government was required to create an exemption for state and local tax payments. The absence of such an exemption in no way diminishes states' powers to raise their income taxes as high as they want, although it might, of course, increase political resistance to high state tax rates.

It is also notable that the four states stop short of claiming that all state tax payments must be exempted, and merely claim that a "significant portion" must be. It is hard to say what qualifies as a "significant portion," and the states fail to explain why $10,000 isn't "significant" enough. Even among affluent taxpayers with incomes over $100,000 per year, the average claimed SALT deduction (among those who claimed it at all) was only $12,300 in 2014. The new cap of $10,000 sure seems like a "significant portion" of that, at least to me. And, of course, few if any taxpayers with incomes below $100,000 are likely to exceed the cap.

The states also argue that the new law undermines "equal sovereignty" of states because it disproportionately hits blue states with relatively high income tax rates. This disproportionate effect is surely present. But similar disproportionate impacts occur with pretty much any tax deduction formula. The very existence of the SALT deduction negatively affects poorer states and those with lower state tax rates, because it forces them to bear a higher proportion of the total federal tax burden. In a diverse nation with states that have a wide range of policies, almost any federal tax deduction will disproportionately benefit some states at the expense of others.

Admittedly, blue states are not the only ones who have advanced extremely dubious arguments in recent litigation against federal policies. Badly flawed as they are, the blue state claims in the SALT case are probably no worse than the ridiculous severability argument advanced by twenty red states (and now, also, the Trump administration) in the currently ongoing Obamacare case. But the bad behavior of many red states and Trump does not justify that of these blue states (or vice versa).

Legal considerations aside, it is unfortunate that some progressives are defending a policy that effectively creates a federal subsidy that mostly benefits the wealthiest residents of the wealthiest states. Only those who itemize their tax deductions (as opposed to taking the standard deduction) can even use the SALT deduction at all, and only about 30% of households (mostly affluent ones) did so in 2013. That figure is likely to decline greatly when the 2017 law takes effect, because - among other things - it doubles the standard deduction. The remaining itemizers will be an even more affluent group than the previous ones. Even under pre-2017 law, some 75% of the benefits of the SALT deduction went to households earning over $100,000 (median household income was about $57,000 in 2016). The states with relatively high state tax rates that get the lion's share of the benefits from SALT are mostly relatively affluent themselves, compared to other states.

Perversely, the SALT deduction undermines both efficiency and equality at the same time. It effectively creates a federal subsidy for high state and local tax rates, thereby skewing state governments' incentives. From an equity point of view, the subsidy overwhelmingly helps the wealthiest residents of some of our wealthiest states, thereby shifting a higher percentage of the federal tax burden to poorer people and regions of the country.

If the Republicans created a special tax deduction that benefits wealthy residents of wealthy areas at the expense of the rest of the country, liberal Democrats would (rightly) line up to condemn it. Yet the SALT deduction the blue states seek to restore to its former level does exactly that. The 2017 GOP tax bill has significant flaws, most notably its long-term fiscal irresponsibility. But the Republicans were right to cut the SALT deduction. Indeed, it might have been even better to eliminate it entirely.

Blue state governments understandably fear that cuts in the SALT deduction might lead some affluent taxpayers to leave for states with lower taxes, thereby reducing tax revenue. But there is much they can do to expand their tax base without relying on special federal tax deductions for the wealthy. For example, they could cut back on the restrictive zoning rules that artifically inflate housing prices and cut off large numbers of middle and lower class people from valuable job opportunities. As experts across the political spectrum have argued, doing so would enormously benefit poorer Americans - and greatly increase economic growth and tax revenue for blue states.

Mark Zuckerberg Speaks Out Against Removing Holocaust-Denying Speech

Indeed, Facebook shouldn't set itself up as the arbiter of historical truth (or scientific truth or moral beliefs) -- and doing that even as to Holocaust denial would just yield pressure for much more.

Facebook's Mark Zuckerberg has been getting flak the last couple of days because of his arguments against removing Holocaust-denying speech from Facebook. He was asked in the interview why Facebook wouldn't take down conspiracy theory sites, such as those that say the Sandy Hook shooting didn't happen, and he brought up Holocaust denial as an analogy:

Okay. "Sandy Hook didn't happen" is not a debate. It is false. You can't just take that down?

I agree that it is false.

I also think that going to someone who is a victim of Sandy Hook and telling them, "Hey, no, you're a liar" — that is harassment, and we actually will take that down. But overall, let's take this whole closer to home...

I'm Jewish, and there's a set of people who deny that the Holocaust happened.

I find that deeply offensive. But at the end of the day, I don't believe that our platform should take that down because I think there are things that different people get wrong. I don't think that they're intentionally getting it wrong, but I think-

In the case of the Holocaust deniers, they might be, but go ahead.

It's hard to impugn intent [he may have meant "impute intent" -EV] and to understand the intent. I just think, as abhorrent as some of those examples are, I think the reality is also that I get things wrong when I speak publicly. I'm sure you do. I'm sure a lot of leaders and public figures we respect do too, and I just don't think that it is the right thing to say, "We're going to take someone off the platform if they get things wrong, even multiple times." (Update: Mark has clarified these remarks here: "I personally find Holocaust denial deeply offensive, and I absolutely didn't intend to defend the intent of people who deny that.")

What we will do is we'll say, "Okay, you have your page, and if you're not trying to organize harm against someone, or attacking someone, then you can put up that content on your page, even if people might disagree with it or find it offensive." But that doesn't mean that we have a responsibility to make it widely distributed in News Feed. I think we, actually, to the contrary- ....

I think Zuckerberg had it largely right even before the "clarification":

[1.] My sense is that many people who repeat historical falsehoods -- whether silly conspiracy theories about recent events, or broader historical nonsense -- sincerely believe them.

Obviously, I can't point to statistical studies (nor can people on the other side), since one can't just do a survey asking, "When you deny the Holocaust, are you deliberately lying?" But based on my sense of human nature, people genuinely believe all sorts of bunk. And especially given that expressing such views will often yield massive social opprobrium, the people who say them are often true-believer fanatics, not rational liars.

True, some of the speakers might be deliberately lying for political reasons -- e.g., to use even knowingly false Holocaust denial as a means of implying that Jews or Israelis have gotten undeserved sympathy or slack. And even many of those who sincerely believe the denial may be especially open to such beliefs because of their preexisting anti-Semitism. But I agree that it's hard to tell a speaker's intent, and some speakers may in fact be sincerely (even if unreasonably) getting this wromg rather than "intentionally getting it wrong."

Now of course one might argue that intent doesn't matter here, and certain speech should be removed from Facebook regardless of the speaker's intent. I'll turn to that shortly.

But many (not all, but many) calls to suppress "fake news," "hate speech," and the like stress that they're not trying to restrict sincere discussion or suppress honest mistakes, but are aimed at deliberate lies. (In American law, that sort of argument goes all the way back to the Sedition Act of 1798.) Indeed, that is often a way of suggesting that the proposed restrictions, government-imposed or otherwise, are modest and narrow, and indeed that they would leave it possible for anything to be discussed so long as it's done without knowing falsehoods. I think Zuckerberg was right to point out that even Holocaust deniers (or Sandy Hook deniers or whoever else) are sometimes not intentionally lying, and that it's very hard for Facebook to sort the liars from the fools.

[2.] But why not have Facebook just remove Holocaust denial because it's wrong? After all, Facebook is not the government; it's not bound by the First Amendment.

Because of course it's not just about Holocaust denial. As we saw from the interview, we see the same calls for suppressing conspiracy theories about current events. We can equally easily see calls for suppressing speech that the influential view as "conspiracy theories," but might prove to have at least some (and perhaps much) truth to it. Likewise for history: If Facebook censors Holocaust denial, many will ask: Why not speech that is perceived as denying the Ottoman World-War-I-era genocide of Armenians, or dissenting views about whether the killings were deliberate genocide? Leading historian Bernard Lewis was actually fined by a French court for arguing that the killing happened, but that -- unlike with the Holocaust during World War II -- it was not part of a deliberate campaign of extermination by the Turks.

Likewise, many will ask: What about speech that conveys what they see as falsehoods about white settlers' actions towards American Indians? Speech that conveys what they see as falsehoods about Poles' behavior during World War II? What about what they see as dangerous falsehoods about science, such as about the causes and social effects of homosexuality, or about how we should characterize people's desire to be treated as a gender that is different from their biological sex?

And what about speech that might have even more direct harmful effects? Many will ask: What about speech that spreads falsehoods about vaccination, or about what foods to eat or not to eat, in a way that can cause physical illness and death? Some condemn Holocaust denial because it may lead to more anti-Semitism and from there to physical harms to Jews -- but bad health choices can of course cause physical harms, too. What about speech that they view as "global warming denialism"?

Facebook would then have to choose. It could come up with a long list of forbidden viewpoints about history, science, morality, and so on. Or it could treat Holocaust denial as somehow special -- which of course many will perceive as treating Jews and the historic crimes against them as special -- which I think would only exacerbate the offense felt by groups that think (and the historical accounts that are understandably especially important to them) that they are not being treated equally.

Censorship breeds censorship envy, and that's true of private suppression by massively influential platforms such as Facebook as well as of governmental censorship. And censorship envy can lead not just to more censorship, but more feelings of insult and injury as a result of decisions not to censor. (For similar reasons, I don't think that such businesses should generally ban supposed "hate speech," but I think the problem is even more severe when they start to police historical claims and not just advocacy of behavior or slurs and insults.)

[3.] Now of course these judgments about what is true and what is false are commonplace when it comes to individual publications. The New York Times -- or for that matter Reason or The Volokh Conspiracy -- isn't going to evenhandedly publish submissions from everyone regardless of their views. Even sites that deliberately try to let a hundred flowers bloom (and not just in a Maoist sense) distinguish flowers from weeds. They might make errors in their editorial judgments, but their readers expect them to exercise some quality control; indeed, that is one reason why readers read them. Indeed, we expect publications not just to exclude outright falsehoods, but also a wide range of material that they view as insufficently thoughtful, unclear, too one-sided (for those publications that specialize in more objective presentations), or in general written by people who don't know what they're talking about.

But I think Facebook, Twitter, and the like promote themselves not as publications, but as platforms -- as places for the public to speak. They don't screen for quality or credentials, nor do people look to them (as to the pages, rather than the newsfeeds) as reliable sources or reliable screeners.

They also include vastly more speech than a newspaper does, on a much greater range of topics, in a much greater set of languages, dialects, and genres (e.g., parody, humor, sarcasm, and the like, often not obvious to outsiders). And they also often have a much larger share of their particular market than do typical news or opinion outlets (especially these days).

This doesn't make them legally obligated to allow speech they disapprove of, and I'm not saying they should be so legally obligated. But I do think that there are many more costs, both to public debate and to the companies themselves, from their setting themselves up as arbiters of what speech is historically false, or, as they would then be pressured to do, scientifically false or morally wrong. And on balance, I think, the costs -- the costs of thus encouraging such massive and massively powerful economic organizations to also exercise power over political debate, historical discussion, scientific arguments, and more -- much exceed the benefits.

The Department of Education’s Obama-Era Initiative on Racial Disparities in School Discipline: Wrong for Students and Teachers, Wrong on the Law (Part 2)

The Obama Administration took the position that Title VI regulations issued in 1966 turned a statute that prohibits intentional discrimination only into one that presumptively prohibits actions that have a disparate impact based on race, color or national origin. If so, that's an extraordinary extension of the statute. Too extraordinary, given that everything or nearly everything has a disparate impact on some protected group.

A week or so ago, I posted on the final version of my article (with Alison Somin) entitled The Department of Education's Obama-Era Initiative on Racial Disparities in School Discipline: Wrong for Students and Teachers, Wrong on the Law.

As the title suggests, the article makes two arguments: (1) The Obama Administration's aggressive application of disparate impact theory to school discipline has been bad for students and teachers; and (2) The policy also goes beyond the scope of the federal government's authority.

The first post was intended to give the reader a taste of the policy arguments. Giving the reader a taste of the legal arguments may take two or three posts (starting with this one).

First, the Obama Department of Education did not even claim that Title VI itself imposes disparate impact liability. In Alexander v. Sandoval (2001), the Court made it clear it does not. It stated, "[I]t is similarly beyond dispute—and no party disagrees—that [Title VI] prohibits only intentional discrimination."

Instead, the Obama Department of Education's argument was based on a couple of Title VI regulations promulgated in 1966. It argued that these regulations impose a general rule against actions that have a disparate impact. My article responds that (1) If the Obama Department of Education was right about the proper interpretation of those regulations, then, by analogy to City of Boerne v. Flores, they were beyond the scope of the powers of the Executive Branch; and (2) As a matter of textual analysis, the Obama Department of Education is wrong about the proper interpretation of those regulations. They were not intended to impose general liability for disparate impact.

I'll get to all that. But in this post, I just want to make a preliminary point: Everything or nearly everything has a disparate impact on some protected group.

It's easiest to make the point with Title VII, since that provision of covers not just race, color, and sex, but also religion and national origin (and there are a lot religions and national origins):

It is no exaggeration to state that there is always some protected group that will do comparatively poorly with any particular job qualification. As a group, men are stronger than women, while women are generally more capable of fine handiwork. Chinese Americans and Korean Americans score higher on standardized math tests and other measures of mathematical ability than most other ethnic groups. Subcontinent Indian Americans are disproportionately more likely to have experience in motel management than Norwegian Americans, who are more likely have experience growing durum wheat. African Americans are [disproportionately represented] in many professional athletics . . . . Unitarians are more likely to have college degrees than Baptists.

Some of the disparities are surprising. Cambodian Americans are disproportionately likely to own or work for doughnut shops and hence are more likely to have experience in that industry when it is called for by an employer. The reasons behind other disparities may be more obvious: Non-Muslims are more likely than Muslims to have an interest in wine and hence develop qualifications necessary to get a job in the winemaking industry, because Muslims tend to be non-drinkers.

(Citations omitted.)

I used to offer a $10,000 check to the favorite charity of anyone who could specify a job qualification that actually had excluded some job candidates that would not have a disparate impact on some group. I have never had to pay a penny. Even right-handedness is substantially more common among ethnic groups that consider left-handedness something that children must be trained out of.

Title VI is a little tougher for my point, since it applies only to race, color, and national origin. Nevertheless, there are a lot of national origins out there, so if disparate impact liability were to apply to Title VI through its regulations, it would make an extraordinary range of decisions by funding recipients presumptively a violation:

For example, in the education context, a university that considers the Math SAT score of an applicant for admission gives Korean-Americans and Chinese-Americans an advantage while disadvantaging many other racial and national origin groups. A college that raises its tuition has a disparate impact on Cajun-Americans, Haitian-Americans, and Burmese-Americans, all groups that have below-average median household incomes.

Similarly, a high school that decides to invest in a basketball team rather than a baseball team has a disparate impact on Latinos, who, on average, are shorter than African-Americans and whites, given that height is an indicator of success for male youth basketball players. And if a "Little Beirut" neighborhood is further from a given high school campus than most neighborhoods, and that school decides to build a tennis court where part of the parking lot used to be, the loss of that parking may have a disparate impact on the Lebanese-American students who have to drive to school, as it would any community far from the school campus.

There is no end to it. A university that gives college credit to students who can pass a foreign language exam has a disparate impact on Irish-Americans, Scottish-Americans, and Anglo-Americans, since they are unlikely to have a language other than English spoken in the home. Even a teacher who decides to seat students in alphabetical order will have a disproportionate effect on Chinese-American students. Chinese surnames are more likely to start with W, X, Y, or Z, which would place such students disproportionately toward the back of the classroom.

(Citations omitted.)

Two arguments are often made as to why disparate impact liability isn't that terrible. With Title VII, the EEOC takes the position that it doesn't ban (or at least the agency won't take notice of) job qualifications where the protected group qualifies at a rate of at least 80% of the highest group's rate. Tiny disparate impacts don't count. Such a rule could be applied in the Title VI context too (where it would be just as arbitrary). The problem is that disparate impacts that fail the "80%" rule for some group are by no means rare. They are the rule, not the exception. Even with such a rule in place (and it was made up out of thin air) it will still be so that everything or nearly everything has a disparate impact. Since employers and recipients of federal funds never know who will be applying for a job or for admission, etc., it means they will always be treading on thin ice. Government agencies will thus always have the discretion to rule their actions out of bounds. That's an extraordinary level of discretion.

The second argument is that disparate impact liability only makes actions that have a disparate impact presumptively a violation. It is always possible to rebut the presumption by proving "necessity." But do we really want to live in a society in which the actions of recipients of federal funding under Title VI are always (or almost always) subject to a demand by a government agency that they be "justified" by necessity? That's extraordinary--especially for an underlying statute that prohibits only intentional discrimination.

I will write next time about why it's too extraordinary. Such a regulation would be beyond the scope of the Executive Branch's powers.

California Supreme Court Removes Question on Splitting Up State from November Ballot

The initiative could be reinstated for the 2020 election, however, if the Court concludes that its inclusion does not violate California law.

The proposed California partition plan that voters would have considered had not Proposition 9 been removed from the state's November ballot.The proposed California partition plan that voters would have considered had not Proposition 9 been removed from the state's November ballot.

Earlier today, the California Supreme Court ordered the removal of a referendum initiative from the state's November ballot, that would have allowed Californians to vote on breaking up the state into three parts. The court issued a unanimous order removing Proposition 9 from the ballot because "a substantial question has been raised regarding the proposition's validity and the 'hardships from permitting an invalid measure to remain on the ballot outweigh the harm potentially posed by delaying a proposition to a future election" (quotation marks omitted). The court will now consider challenges to the legality of the referendum question. If those challenges are rejected, it will return to the ballot in 2020. Even if it is put back on the ballot in 2020 and passes, Congress would have to agree before the plan to break up California into three states could go into effect.

Although I think the partition plan might well be a good idea, I don't have any strong view on whether Proposition 9 is a legally permissible use of California's initiative process. Perhaps the plaintiffs in this case are right to argue that breaking up the state amounts to a "revision" of the state Constitution, and not a mere "amendment," and therefore cannot be done by referendum. Even more plausible is the argument that the initiative must be structured as a constitutional amendment rather than a mere statute, as Proposition 9 is. A statutory initiative requires fewer signatures to get on the ballot than a constitutional one. It would, at the very least, be somewhat strange, if a state could be broken up through a statute alone, as opposed to an amendment (or a "revision") to the state constitution. But it is worth noting, as initiative sponsor Tim Draper does in his filing in this case, that California's current boundaries are themselves set by statute, rather than in the state constitution, and so perhaps can be amended by statute.

While the plaintiffs may well be right about the legality of Proposition 9, I am somewhat skeptical that the right way to deal with this question is to postpone any possible vote on the intiative, as opposed to considering the issue now, and then - if necessary - voiding the result of the vote in the event that the initiative is approved. If the people vote on an initiative that turns out to be unconstitutional, the only significant harm is likely to be a modest waste of time and resources (one that will be smaller still if the voters reject the initiative). If, on the other hand, the initiative was actually legal, postponing the vote on it for two years inflicts the considerably greater harm of forcing the vote to be held at a different time and under potentially very different circumstances. If it passes, implementation would be delayed by two years, which itself is a potentially significant harm.

The Court also had the option of simply deciding the case on the merits within the next few weeks, in time to remove the question from the ballot, if necessary, but also in time to keep it on, if its legality is upheld. This is, in fact what the plaintiffs challenging the initiative asked the justices to do, in a petition that notes the Court would have some five weeks to decide the case, before the August 13 deadline for sending November election materials to the printer. A month should be enough time to consider the legal issues involved. Both state and federal courts have decided comparable issues on an accelerated schedule in the past.

It is possible that I would reach a different conclusion if I studied California precedent on what qualifies as "harm" in this context, more closely. I certainly do not claim to be an expert on that subject. But, at this point, it seems to me that the court got this issue wrong. The potential harm of delaying a valid vote seems greater than any harm likely to come from holding an invalid one that courts would need to strike down after the fact, if it passes. Even more importantly, the Court likely had enough time to decide the case on the merits before the August 13 deadline, which would have avoided both the harm of postponing a vote on a valid initiative for two years, and that potentially created by passing an invalid one.

Be that as it may, Californians will not get to vote on partitioning the state until at least 2020, if ever.

Second Amendment Injunction Against California Ban on Large-Capacity-Magazines Kept in Place by Ninth Circuit

The panel concludes that the district court didn't abuse its discretion in issuing the injunction -- though the decision is non-binding.

In Duncan v. Becerra, a federal district court had issued a preliminary injunction blocking the enforcement of California's ban on magazines that fit more than 10 rounds, pending a full trial on the merits. Today, the Ninth Circuit upheld this, in a 2-1 nonprecedential decision, though one that heavily deferred to the lower court's judgment, and didn't prejudge the final result after a trial is held and the final judgment is issued and appealed.

The majority opinion was written by Judge Randy Smith, joined by visiting District Judge Deborah Batts; the dissent was written by Judge Clifford Wallace. For those who watch such matters, both Judges Smith and Wallace are Republican appointees, as is Judge Roger Benitez, whose decision is being affirmed here; both Judges Smith and Wallace are known as solid conservatives (I can't speak to Judge Benitez). But the deciding vote on the panel, in favor of upholding the lower court's decision protecting Second Amendment rights, was cast by a judge who sits in Manhattan, was appointed by President Clinton, and is said to have been "the nation's first openly LGBT, African-American federal judge."

Here is an excerpt from the majority:

The district court did not abuse its discretion by granting a preliminary injunction on Second Amendment grounds....

The district court did not abuse its discretion by concluding that magazines for a weapon likely fall within the scope of the Second Amendment. First, the district court identified the applicable law, citing[, among other cases,] Jackson v. City & County of San Francisco (9th Cir. 2014). Second, it did not exceed its permissible discretion by concluding, based on those cases, that (1) some part of the Second Amendment right likely includes the right to bear a weapon "that has some reasonable relationship to the preservation or efficiency of a well regulated militia"; and (2) the ammunition for a weapon is similar to the magazine for a weapon, Jackson, 746 F.3d at 967 ("'[T]he right to possess firearms for protection implies a corresponding right' to obtain the bullets necessary to use them." (quoting Ezell v. City of Chicago (7th Cir. 2011)))....

Here, in its intermediate scrutiny analysis, the district court correctly applied the two-part test outlined in Jackson. The district court concluded that a ban on ammunition magazines is not a presumptively lawful regulation and that the prohibition did not have a "historical pedigree." Next, the district court concluded ... that section 32310 infringed on the core of the Second Amendment right, but ... that intermediate scrutiny was the appropriate scrutiny level. The district court concluded that California had identified four "important" interests and reasoned that the proper question was "whether the dispossession and criminalization components of [section] 32310's ban on firearm magazines holding any more than 10 rounds is a reasonable fit for achieving these important goals." ...

The district court did not abuse its discretion by concluding that sections 32310(c) and (d) did not survive intermediate scrutiny. The district court's review of the evidence included numerous judgment calls regarding the quality, type, and reliability of the evidence, as well as repeated credibility determinations. Ultimately, the district court concluded that section 32310 is "not likely to be a reasonable fit." California articulates no actual error made by the district court, but, rather, multiple instances where it disagrees with the district court's conclusion or analysis regarding certain pieces of evidence. This is insufficient to establish that the district court's findings of fact and its application of the legal standard to those facts were "illogical, implausible, or without support in inferences that may be drawn from facts in the record." United States v. Hinkson, 585 F.3d 1247, 1251 (9th Cir. 2009) (en banc). In reviewing the district court's grant of a preliminary injunction, we cannot "re-weigh the evidence and overturn the district court's evidentiary determinations—in effect, to substitute our discretion for that of the district court." ...

The district court did not abuse its discretion by granting a preliminary injunction on Takings Clause grounds. First, the district court ... outlined the correct legal principles. Second, the district court did not exceed its discretion by concluding (1) that the three options provided in section 32310(d) (surrender, removal, or sale) fundamentally "deprive Plaintiffs not just of the use of their property, but of possession, one of the most essential sticks in the bundle of property rights"; and (2) that California could not use the pol ce power to avoid compensation.

And here's one from Judge Wallace's dissent:

The majority concludes the district court did not abuse its discretion in concluding California's large-capacity magazine (LCM) possession ban did not survive intermediate scrutiny on the ground that the district court's conclusion was based on "numerous judgment calls regarding the quality, type, and reliability of the evidence." The problem, however, is that the district court's "judgment calls" presupposed a much too high evidentiary burden for the state. Under intermediate scrutiny, the question is not whether the state's evidence satisfies the district court's subjective standard of empiricism, but rather whether the state relies on evidence "reasonably believed to be relevant" to substantiate its important interests. So long as the state's evidence "fairly supports" its conclusion that a ban on possession of LCMs would reduce the lethality of gun violence and promote public safety, the ban survives intermediate scrutiny....

The district court is correct that a physical appropriation of personal property gives rise to a per se taking. But here, LCM owners can comply with § 32310 without the state physically appropriating their magazines. Under § 32310(d)(1), an LCM owner may "[r]emove the large-capacity magazine from the state," retaining ownership of the LCM, as well as rights to possess and use the magazines out of state. The district court hypothesized that LCM owners may find removal to be more costly than it is worth, but such speculation, while theoretically relevant to the regulatory takings inquiry, does not turn the compulsory removal of LCMs from the state into a "physical appropriation" by the state....

There's a lot more—the opinion is fairly long for a nonprecedential decision—and you can read it all here. Thanks to Charles Nichols for the news about the decision coming down.

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Ninth Circuit Upholds Preliminary Injunction Against Magazine Confiscation in California

The courts continue to block a California law to confiscate magazines over 10 rounds.

Today the Ninth Circuit Court of Appeals upheld a federal district count injunction against a California law to confiscate firearms magazines that hold over 10 rounds. The Ninth Circuit's 2-1 opinion is here, and the dissent is here. My analysis of the 2017 district court opinion is here.

Background: In 2016, California voters enacted an initiative that, among other things, dispossessed magazine owners of their property. Possession of firearms magazines over 10 rounds was forbidden. Current owners of magazines required to turm them over to the government, or to a gun store, or destroy the magazines, or move them out of state. The ban was to take effect on July 1, 2017.

In late June 2017, Federal District Judge Roger Benitez (S.D. Calif.) issued a preliminary injunction against the confiscation. He found that the plaintiffs had established a liklihood that they would succeed on the Second Amendment and Fifth Amendment claims (the latter involving taking of property without just compensation). The case is Duncan v. Becerra, since Xavier Becerra is Attorney General of California. The case is being litigated by Michel Associates, the leading firearms law firm in California.

Issue on appeal: In an appeal of a preliminary injunction, the appellate court reviews the district court's injunction for "abuse of discretion." The appellate judges "determine only whether the district court correctly distilled the applicable rules of law and exercised permissible discretion in applying those rules to the facts at hand." The 2-1 appellate panel held that the district court had not abused its discretion, and so the preliminary injunction was upheld.

The majority opinion was written by Judge N.R. Smith, who was nominated to the 9th Circuit in 2005 by President Bush, and confirmed in 2007. Judge Deborarh A. Batts joined the opinion. She was appointed to the Southern District of New York in 1994 by President Clinton, is now on senior status, and was sitting on the panel by designation. The dissent was written by Judge John Clifford Wallace; he was appointed in 1972 by President Nixon, and has been on senior status since 1996.

Rationale: For the majority, this seemed to be an easy case. The district judge had correctly found that prohibiting magazines over 10 rounds implicates the Second Amendment right, as other courts have done. (Indeed, as nearly every court to consider the issue has done.)

The next question was whether the district court had applied the correct legal test. The district court had applied one test based on the straightforward language of Heller (which prohibits bans on arms that "in common use" and "typically used by law-abiding citizens for lawful purposes"). The district court also applied a means-end balancing test, namely intermediate scrutiny. The result was the same under either test.

According to the Ninth Circuit, the district court had correctly followed the rules of Second Amendment intermediate scrutiny created by the Ninth Circuit. Because magazine bans are not traditional in the U.S., the government had the burden of proving that the ban was lawful.

The district court finding that the government had failed to carry its burden of proof was not an abuse of discretion. "The district court's review of the evidence included numerous judgment calls regarding the quality, type, and reliability of the evidence, as well as repeated credibility determinations." The district court had concluded that magazine confiscation was not a good fit for any of the government's proferred interests.

On appeal, "California articulates no actual error made by the district court, but, rather, multiple instances where it disagrees with the district court's conclusion or analysis regarding certain pieces of evidence. This is insufficient to establish that the district court's findings of fact and its application of the legal standard to those facts were 'illogical, implausible, or without support in inferences that may be drawn from facts in the record.'"

In a 2015 case, a different three-judge panel of the Ninth Circuit had upheld a district court's decision not to grant a preliminary injunction against a similar confiscation law enacted by a Bay Area town. Fyock v. Sunnyvale, 779 F.3d 991 (9th Cir. 2015). Although the evidence in the Fyock and Duncan cases have some differences, the key point was that neither decision by the district judges in those cases as an "abuse of discretion. Rather, the decision to grant or not grant the preliminary injunction was based on the district judges' reasonable discretion in weighing the evidence before them. When a preliminary injunction is being appealed, the only job for the appellate judges is see if there is an abuse of discretion; the appellate judges are not supposed to re-weigh the evidence. The fact that two district judges saw similar evidence and came to different conclusions does not mean that either judge is guilty of abuse of discretion.

The dissent: The majority wrote that Judge Wallace's dissent was improperly reweighing the evidence. For example, Judge Wallace wrote that the confiscation law could be upheld based on some statistics supplied by one of Michael Bloomberg's organizations. Yet the district court had specifically explained why those statistics lacked reliability and credibility: they were "incomplete studies from unreliable sources upon which experts base speculative explanation and predictions."

Like the Second Circuit in another magazine ban case, Judge Wallace seemed to favor a very weak standard of intermediate scrutiny review for Second Amendment cases: as long as the government could provide some evidence, that was sufficient--notwithstanding the other side's evidence showed that the government evidence is flawed or unpersuasive. (My analysis of the Second Circuit case is here.)

Fifth Amendment takings: The majority found no abuse of discretion in the district court's decision on the Fifth Amendment Takings Clause. The statute obviously deprived the plaintiffs of their property. The fact that the State was exercising its police power did not grant the State an exemption from the Takings Clause.

The dissent pointed out that the plaintiffs could still retain their magazines by moving them out of state, so there was no physical taking. The majority pointed out that even if the plaintiffs could retain ownership, the new statute forbade them to retain possession.

Next steps: While the preliminary injunction appeal was in progress, District Judge Benitez has kept the case moving forward. Judge Wallace wrote that "The district court is to be commended for following our constant admonition not to delay trial preparation awaiting an interim ruling on the preliminary injunction....The district court has properly proceeded with deliberate speed towards a trial, which will allow it to decide this case with a full and complete record and a new review. ... I credit the district court for ensuring the case did not stall awaiting disposition of this appeal."

Attorney General Becerra has the option of petitioning the full Ninth Circuit for an en banc rehearing. Such petitions typically take at least several months. By the time an en banc court was assembled, with time for pro/con briefing and oral argument, the preliminary injunction issue might be moot, since the district court by then would have issued a final ruling. But Ninth Circuit en banc can be very hostile to the Second Amendment, as Justices Thomas and Gorsuch observed in dissenting from denial of certiorari in a Ninth Circuit en banc case nullifying the right to bear arms. So a speedy en banc reversal of today's decision is not out of the question.

My brief: Joseph Greenlee and I submitted an amicus brief to the Ninth Circuit. The brief argued that the correct standard of review is the one from Heller: bans on arms "in common use" that are "typically used by law-abiding citizens for lawful purposes" are categorically unconstitutional. The brief provided data showing that magazines over 10 rounds meet this standard, as the standard has been elucidated by various lower courts.

Conversely, Heller allows bans on arms that are "dangerous and unusual." Magazines over 10 rounds (especially, handgun magazines of 11-21) are the opposite of unusual. They are the standard magazines for many common firearms. If the California law had been limited only to non-standard magazines (e.g., a 35-round aftermarket magazine for handguns), the analysis might be different.

Nor are all magazines over 10 rounds "dangerous," especially when compared to handguns. Handguns are about 1/3 of the gun supply, but they are used in about 2/3 of gun crime. In contrast, so-called "large" magazines are used in mass shootings (the only types of crimes for which the Attorney General attempted to justify the ban) in the same proportion that they exist in the overall supply of magazines (about half).

Heller did not assert that handguns are in fact superior to long guns for self-defense; rather, Heller was based on the fact that handguns are often the chosen means for self-defense by law-abiding citizens. Likewise, magazines over 10 rounds are commonly chosen for self-defense, and the Second Amendment precludes the government from second-guessing common self-defense choices. There are good reasons for law-abiding citizens to have such magazines, because the defender's reserve ammunition capacity can be decisive in whether or not criminal attackers prevail.

"No Prison Time for ... Day-Care Provider Who Tried to Hang Toddler"

Minnesota state judge Jay Quam took the view that her actions stemmed from a "perfect storm of factors unlikely to ever be repeated."

So reports Paul Walsh (Minneapolis Star-Tribune); the sentence was 10 years of probation, with credit for the 20 months she spent in jail before trial:

A judge pointed to a "perfect storm" of circumstances Monday when he spared prison for a Minneapolis home day-care operator who attempted to hang a toddler in the basement before fleeing in her minivan and leaving a trail of mayhem, seriously injuring two people.

Nataliia Karia, 43, abandoned a possible insanity defense and pleaded guilty in February to attempted murder in connection with the hanging of the boy from a noose ....

The 16-month-old survived after a parent dropping off a child intervened and took the noose from the boy's neck.

Karia also admitted before Hennepin County District Judge Jay Quam to third-degree assault for striking a pedestrian, another driver and a bicyclist as she fled in her minivan. She was snatched from a Minneapolis freeway overpass, ready to jump, and taken into custody....

In deciding against prison time, Quam agreed with the assessment by doctors that Karia was "a low risk" to reoffend. He called her actions "the perfect storm of factors unlikely to ever be repeated." ...

Karia, who fought back tears and low sobs throughout the hearing, read a statement in Russian spelling out in great detail the abuses she alleges her husband inflicted upon her and her children since they arrived to the United States from Ukraine in 2006. She said he hit and threatened to kill her, drove the family into financial ruin, forced her to work despite her psychological struggles and prevented her from getting medical attention.

Judge Rescinds His Order That Had Required L.A. Times to Alter Story

The Times had published material from a plea agreement that was supposed to be sealed, but had been erroneously released by the court.

Ken White (Popehat), who attended this morning's hearing, reports; for more on the original order and the legal landscape surrounding it, see this post of mine from two days ago:

Yesterday I wrote about how United States District Judge John F. Walter issued an illegitimate prior restraint order against the L.A. Times, ordering it not to publish — and to depublish — information derived from a plea agreement made available on PACER, the federal court's docketing system. This morning Judge Walter held a hearing on the issue. I attended. Judge Walter vacated the order ....

Judge Walter explained that he had determined that defendant John Saro Balian's plea agreement should have been filed under seal, but that an error by a docketing clerk led to it being captioned as under seal but nevertheless available on PACER. He explained that he had been informed of the issue on Saturday July 14th, and that he was "terribly concerned" that Mr. Balian or his family would be subjected to physical harm if the information became public. He didn't specify the information, but from context it's perfectly clear: the plea agreement shows that Mr. Balian has agreed to cooperate against other figures in the investigation, who include the Mexican Mafia and Armenian crime families. Judge Walter said that he found that he found that prior restraint was justified because the harm threatened was "great and certain," based in part on his own experience trying gang and organized crime cases. As convention requires, he described himself as a strong proponent of the First Amendment, but said that that the circumstances justified the order, particularly because at the time he issued the order it wasn't clear how the Los Angeles Times reporter got the plea agreement.

Judge Walter explained that circumstances had now changed: he now knew how the plea agreement got out, had determined that it wasn't through misconduct by the press, noted that the government and defense had now had the opportunity to protect the defendant and his family, and noted that the information was now public. He therefore denied the request for a longer-term order and vacated his prior order, and said the Times could print what it wanted. But he didn't leave it without harsh criticism of the Times. He suggested that the reporter should have waited for an order from him rather than running the story once she heard the defense protest that the plea agreement should have been under seal. He suggested the Times was wrong to run information about a document that it knew was intended to be under seal — he described it as "exploiting an honest mistake by a docketing clerk." ...

Ken has much more, including about the judge's criticisms of the Times, and why Ken thinks those criticisms are misguided, and in particular why the defendant-safety rationale is unsound; read the whole (not very long) post, but here's a sample:

Balian's lawyer and Judge Walter suggested that the story about the cooperation agreement put Balian in danger by notifying gangs that he was [cooperating]. This is utter nonsense. As I explained yesterday, multiple factors in the public record already strongly suggested that Balian was cooperating. He was a dirty [cop] pleading guilty to helping criminal organizations, he agreed to delay indictment for weeks, and he waived indictment and pleaded guilty early in the case to an information rather than an indictment. All of those factors suggest cooperation to anyone knowledgeable about federal criminal procedure.

Judge Walter's response to that point ... was that "an inference or suspicion is not the same as knowing." That might be true for a court, but criminal organizations don't have high standards of legal proof to decide you're a cooperator. The Mexican Mafia does not wait for admissible proof establishing clear and convincing evidence. As Balian's case shows, these gangs have law enforcement sources. They are experienced with the justice system. They have lawyers experienced with the justice system. If the defense, government, and Court were not already assuming that the Mexican Mafia thought Balian was cooperating and protecting him accordingly, they were being wantonly reckless with his life. Moreover, the mere act of ordering a newspaper to depublish a story served to emphasize the cooperation far more widely and loudly than any newspaper story could have....

I can add one small procedural detail: The Times had also filed an emergency petition with the U.S. Court of Appeals for the Ninth Circuit, asking it to vacate the order. (The petition is likely moot now that the district court has already done the job.) The petition was filed under seal, and Balian's response was also labeled as being under seal. But I noticed last night that it actually appeared unsealed in the Ninth Circuit's electronic records system. (It has since been resealed, though it might now be unsealed given the district court's order.) The same erroneous publication problem that happened in District Court, then, repeated itself in the Ninth Circuit -- just a reminder of how imperfect sealing procedures can be.

Where are all my Twitter followers?

Episode 226 of the Cyberlaw Podcast

In Episode 226 of The Cyberlaw Podcast, I'm deep in the Cologado wilderness, and the News Roundup team (Brian Egan with Matthew Heiman, Jim Lewis, and Dr. Megan Reiss) muddles through without him.

Matthew and Jim discuss Friday's indictment of 12 Russian GRU personnel by the Department of Justice and Special Counsel Mueller. Matthew explains that, while we shouldn't expect extradition proceedings to take place any time soon (or ever), DOJ has a theory for pursuing these types of indictments in selected cases. I weigh in by Twitter, bemoaning somewhat surprisingly (given the source) that the indictments reflect a poor interagency coordination process and a lack of appreciation for diplomacy. From Jim's perspective, these indictments are about as good as diplomacy is going to get on this issue…

Matthew walks through the continued bipartisan work in the Senate on the Secure Elections Act, which would facilitate information sharing amongst the states on election threats and take other steps in an attempt to improve election cybersecurity. Matthew explains that federalism may well end up limiting what can be done (or what Congress will agree to do) on this issue.

Megan weighs in on Commerce's announcement on Friday that it lifted the Denial Order against ZTE after ZTE paid an additional $1.4 billion in penalties and took other steps pursuant to the new settlement agreement reached in June. Megan forecasts continued pressure on ZTE from Capitol Hill, even if the additional penalties against ZTE are generally seen as significant. Jim thinks that the US government's approach to ZTE is shortsighted and may end up harming national security interests down the road.

Megan and Jim also discuss the efforts of another Chinese company – the video surveillance camera company Hikvision – to fight back against US government concerns related to espionage. We ask ourselves: is there anything that a Chinese company can do to rebut US espionage and related concerns? And Jim weighs in on the "state of the state" of the 2015 "no commercial cyberespionage" handshake agreement between the US and China, which the State Department confirms is the rare international deal entered into under President Obama that has not yet been ripped up by President Trump.

Elsewhere, Matthew explains why Twitter follower numbers dropped precipitously last week after Twitter's latest attempts to clean up suspicious accounts. (Justin Bieber and Katy Perry were hit hard, but my account may be down to zero.) Luckily, Jim has some practical tips for maintaining one's Twitter follower numbers.

And finally, Jim weighs in on a workmanlike GAO report on the Committee on Foreign Investment in the United States, the Department of Defense, and national security concerns – which concludes, among other things, that (1) technology transfers should be an area of concern for the US government and (2) the US government is poorly situated to identify the areas of technology transfer that should be of concern. Over to you, Congress!

I prerecorded the interview of Woody Hartzog, author of Privacy's Blueprint: The Battle to Control the Design of New Technologies, and a professor of law and computer science at Northeastern. Woody's thesis is that traditional privacy law has focused unduly on notice and consent, yielding unreadable privacy notices and consents that mean nothing but have great legal impact. Instead, he suggests a focus on how platforms design their user interfaces, borrowing from consumer protection and products liability law. My skeptical of the open-ended nature of the obligations Woody would like Silicon Valley to undertake, but they both at least agree that designers and government are surprisingly well-matched bedfellows.

Download the 226th Episode (mp3).

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As always, The Cyberlaw Podcast is open to feedback. Be sure to engage with Stewart on social media: @stewartbaker on Twitter and on LinkedIn. Send your questions, comments, and suggestions for topics or interviewees to Remember: If your suggested interviewee appears on the show, we will send you a highly coveted Cyberlaw Podcast mug!

Federal Court Holds FHFA Unconstitutional

A divided panel of the U.S. Court of Appeals for the Fifth Circuit concludes that the Federal Housing Finance Agency violates the separation of powers.

Today the U.S. Court of Appeals for the Fifth Circuit issued its opinion in Collins v. Mnuchin, in which a divided panel, in a per curiam opinion, concluded that the Federal Housing Finance Agency (FHFA) is unconstitutional.

The panel consisted of Chief Judge Carl Stewart and Judges Catharina Haynes and Don Willett. Judge Haynes joined the opinion for the court in its entirety. Chief Judge Stewart agreed with the opinion's conclusion that the FHFA's actions were authorized by statute, but dissented on the constitutional holding. Judge Willett disagreed on the statutory holding, but joined the panel opinion's conclusion that the FHFA is unconstitutional.

Here is how the per curiam opinion for the court begins:

A decade ago, the United States was engulfed in perhaps the worst financial crisis since the Great Depression. Toxic mortgage debt had poisoned the global financial system. Hoping to reverse a national housing-market meltdown, Congress passed the Housing and Economic Recovery Act of 2008 ("HERA"), Pub. L. No. 110-289, 122 Stat. 2654 (codified in various sections of 12 U.S.C.). Among other things, HERA created a new independent federal entity—the Federal Housing Finance Agency ("FHFA")—to oversee two of the nation's largest financial companies, government-chartered mainstays of the U.S. mortgage market: the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").

Since their inception, these twin mortgage-finance giants have always been government-sponsored entities ("GSEs"). But Fannie and Freddie are also private corporations with private stockholders, and many investors are disenchanted with the Federal Government's management. This case is the latest in a series of shareholder challenges to an agreement between the FHFA, as conservator to Fannie and Freddie, and the Treasury Department. Under the 2012 agreement, Treasury provided billions of taxpayer dollars in capital. In exchange, Fannie and Freddie were required to pay Treasury quarterly dividends equal to their entire net worth. This exchange is known as the "net worth sweep," and aggrieved investors are unhappy with the bailout terms.

Plaintiffs–Appellants Patrick J. Collins, Marcus J. Liotta, and William M. Hitchcock (collectively "Shareholders") are Fannie Mae and Freddie Mac shareholders. They sued the FHFA and its Director, as well as Treasury and its Secretary, arguing that the agreement rendered their shares valueless. They contend that Treasury and the FHFA (collectively the "Agencies") exceeded their statutory authority under HERA and that the agreement was arbitrary and capricious under the Administrative Procedure Act, 5 U.S.C. § 706(2)(A) ("APA"). They also claim that the FHFA is unconstitutionally structured in violation of Article II, §§ 1 and 3 of the Constitution because, among other things, the agency is headed by a single Director removable only for cause, does not depend on congressional appropriations, and evades meaningful judicial review. The district court dismissed the Shareholders' statutory claims and granted summary judgment in favor of the Agencies on the constitutional claim.

Because we find that the FHFA acted within its statutory authority by adopting the net worth sweep, we hold that the Shareholders' APA claims are barred by § 4617(f). But we also find that the FHFA is unconstitutionally structured and violates the separation of powers. Accordingly, we AFFIRM in part and REVERSE in part.

Chief Judge Stewart's opinion begins:

The constitutional issue presented by the Shareholders—whether the FHFA's structure impermissibly inhibits the President's ability to oversee and remove the Director consistent with his Article II obligation to "take care that the laws are faithfully executed"—does not lend itself to a clear-cut answer. As the panel majority's opinion states, Congress may mix and match a number of "features of independence" when crafting an independent agency's internal structure, subject of course to constitutional limitations set both within the Constitution's text and by Supreme Court precedent. These features include: placing formal constraints on the President's removal power through the use of "for-cause" removal restrictions, establishing a multimember leadership structure, subjecting agency heads to fixed terms of service, mandating that an agency be composed of a bipartisan leadership team, exempting the agency from the standard appropriations process, and granting the agency unilateral litigation authority. See P.C. Opn. at pg. 28; see also Free Enter. Fund v. Pub. Co. Accounting Oversight Bd, 561 U.S. 477, 588 app. D (2010) (Breyer, J., dissenting). And Congress has used these features in several different combinations. Importantly, neither the presence nor absence of any given feature is dispositive of the agency's viability under Articles I and II and separation-of-powers principles.

The Supreme Court's Article II removal precedent, although sparse, has only rejected Congress's attempts to fashion independent agencies on two occasions. The first was in Myers v. United States, 272 U.S. 52, 60 (1926), in which Congress attempted to simultaneously limit the President's removal power and increase its own authority over the agency by conditioning the President's removal power on the Senate's advice and consent. This form of appropriation and aggrandizement was deemed violative of the Constitution's separation of powers. The second was in Free Enterprise Fund, which presented an "extreme variation on the traditional good-cause removal standard" by doubly insulating members of Public Company Accounting Oversight Board with two layers of for-cause removal protection. PHH Corp. v. Consumer Fin. Prot. Bureau, 881 F.3d 75, 89 (D.C. Cir. 2018) (en banc). These cases and others within the Supreme Court's body of Presidential removalpower precedent establish, as the panel majority explains, that Congress's use and construction of independent agencies is subject to constitutional limitations, the outer boundary of which is the President's domestic executive authority under Article II.

Notwithstanding my agreement with this fundamental principle of law, I conclude that the FHFA's structure does not reach that boundary and therefore does not impinge on the President's oversight and removal authority. My reasoning substantially mirrors that of the D.C. Circuit's en banc majority opinion in PHH Corporation, which concluded that the CFPB's similar structure does not exceed constitutional constraints on the agency's makeup. Thus, and for reasons expressed by the en banc majority in PHH Corporation, I respectfully dissent from the panel majority opinion's conclusion that the FHFA's structure unconstitutionally restricts the President's removal power under Article II.

Judge Willett's opinion begins:

Desperate times breed desperate measures. Exhibit A is the Housing and Economic Recovery Act of 2008 ("HERA"), enacted after the United States housing bubble burst and triggered a massive mortgage-security and generalcredit crisis. Nobody disputes that Congress created the Federal Housing Finance Authority ("FHFA") amid a dire financial calamity. The situation, both domestic and international, was grim and worsening quickly:

• housing market—melting down
• national economy—circling the drain
• global financial system—teetering on collapse

The FHFA was cast as a silver bullet, a super-agency endowed with farreaching regulatory authority to stanch the bleeding and to restore liquidity to the U.S. housing and financial markets.

But contrary to how other federal courts have so far ruled on this issue (including this court's opinion today), Congress did not vest the FHFA with unbounded, unreviewable power. The FHFA—like any agency—is restrained by the four corners of its enabling statute: "An agency literally has no power to act . . . unless and until Congress confers power upon it." Every agency requires a defined statutory basis for its actions. Absent a valid delegation of authority, an agency's actions are dubious at best, and contrary to bedrock constitutional principles at worst. Exigency does not justify conferring nighunchecked power on an agency insulated from judicial review. Expedience does not license omnipotence.

This case concerns whether the net worth sweep falls within the scope of the FHFA's statutory authority as conservator. To answer the question before us, we need only look to HERA's plain text. And it is our duty to ensure that the FHFA operates squarely within the bounds of its statutory authority.

Regrettably, the majority opinion does otherwise. The upshot is a lucrative limbo: Mortgage-finance giants Fannie Mae and Freddie Mac are forever trapped in a zombie-like trance as wards of the state, bled of their profits quarter after quarter in perpetuity. In rejecting the Shareholders' statutory claims, the majority opinion embraces the views of our sister circuits, adopting "the same well-reasoned basis common to those courts' opinions." But what the majority opinion finds convincing, I find confounding.

With respect I dissent.

We can expect a petition for rehearing en banc or a petition for certiorari to follow in due course.


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