Reforming Privacy Laws to Reflect How We Use Technology

Jhaymesisviphotography CC BY 2.0

Jhaymesisviphotography CC BY 2.0

By: Tiffany Sommadossi

Unsurprisingly, 57% of adults in a recent survey conducted by the Pew Research Center feel insecure sending private information by e-mail. Most Americans may trace their insecurities about data protection to the Snowden disclosures, but since then many have failed to pay attention to the impact outdated statutes, like the Electronic Communications Privacy Act (ECPA), can have on how their information is accessed by the government. Resisting ECPA reform is not to anyone’s advantage – it contributes to confusing jurisprudence and most of all, it leaves us with an illogical patchwork of protection for our electronic communications.

Among other things, ECPA, a 28-year old law, governs how law enforcement accesses mobile-phone data, e-mail, and other electronic communications. Documents stored on the cloud, e-mails older than 180 days, mobile-phone location data, and arguably all opened e-mails are not protected by the warrant requirement laid out in the Store Communications Act (SCA) of ECPA. For instance, law enforcement has to get a warrant to get stored e-mails from someone’s computer, but ECPA allows law enforcement to access, without a warrant, the exact same e-mails when they’re stored with service providers.

There has been call for ECPA reform since as early as 1998. One of the strongest proponents for reform, Senator Patrick Leahy, has stated that ECPA is “outdated from both a national security point of view and from a privacy point of view.” Some hope that Congress will use the lame-duck session to make ECPA reform a reality. Two ECPA bills, the Electronic Communications Privacy Act Amendments Act, S. 607, and the Email Privacy Act, H.R. 1852, both received broad bipartisan support. The House bill has over 270 cosponsors. Both bills suggest almost identical amendments to how electronic communications can be disclosed to law enforcement. The ECPA Amendments Act focuses on heralding in a uniform warrant requirement for all content, regardless of how old the requested e-mails are or whether they’ve been opened. The bill arguable takes the Sixth Circuit’s position in United States v. Warshak, that the Fourth Amendment protects all e-mail, whether it’s five days or five years old.

Part of the problem with ECPA is that it does not accurately take into account how we use data services like e-mail and cloud computing today. Therefore it can’t begin to provide us with the protections we may want. Many criticize ECPA and other technology-affected statutes as being outdated because they don’t incorporate new technologies. However, the problem seems more to be that they don’t reflect how people use technology. Although e-mail has existed since the early 90’s, the way in which we use e-mail to communicate has drastically changed. Using e-mail today is more akin to relying on first-class mail to securely transport all private communications pre-internet.

Also, now we distinguish between the non-content and the content of our communications. In both ECPA reform bills, an administrative subpoena can compel the disclosure of names, addresses, telephone records, and source of payment for the provider’s service (including credit card or bank account number). E-mail subject lines and location data are also non-content. The bills do little to provide the same protections to both the non-content and the content of our communications. Again, this highlights how policymakers are not focusing on how we use technology. Since inboxes are inundated with e-mails on a daily basis, many put revealing details in subject lines or send quick notes in subject lines (rather than put the message in the body of the e-mail). Even as we adopt new ways to use the same technology we risk making laws outdated.

Courts have also found ECPA to be problematic. For instance, the statute has left courts unsure about when to let law enforcement have access to stored location data. The majority of courts have decided that a search warrant is needed, as is the case for real-time cell phone tracking, but this ambiguity in the law unintentionally leaves some Americans with more data protection than others. Even more, the Sixth Circuit—Warshak—is the only federal appellate court thus far to hold that the Constitution protects stored e-mails; most other courts have afforded varying levels of protection depending on whether the e-mail is in transit or in storage.

ECPA further shows its age with respect to extraterritoriality. In the current age where data is stored all over the world, law enforcement should have clear guidelines in how far it can reach to access data. For the first time ever, an American court is deciding whether the U.S. government can assert a right to electronic data stored by a U.S. provider thousands of miles away in a foreign country. The government tried to make Microsoft comply with a request to hand over copies of e-mails stored in its data center in Ireland, but the company refused, arguing that e-mails stored abroad are beyond the reach of the U.S. government under the SCA. Litigation ensued. The government insists that a subpoena can be used to compel the disclosure of opened e-mails, regardless of how old they are. In other words, the government is arguing that it can obtain non-content and content communications without a warrant depending on the age of the e-mail. The SCA does require the government to get some level of authorization before the government can obtain the content of stored communications more than 180 days old—older e-mails can be sought using a subpoena, a court order issued under 18 U.S.C. § 2703(d), or a warrant.

One of the criticisms of allowing a subpoena, with no probable cause requirement, to compel the disclosure of content is that it’d contradict Warshak. Some contend that the court in Warshak held that a warrant is needed to get the content of all e-mails. But do telecommunication companies remove themselves from the protection of Warshak by storing data in overseas data centers? The government does not think there’s much of an extraterritorial question here because when e-mails stored abroad are handed over by a U.S. provider to U.S. government officials in the U.S., then no search or seizure has occurred abroad, and thus no statute has been applied extraterritorially. Also, the government has argued that an ECPA warrant is a hybrid between a subpoena and a warrant, so the location of a warrant recipient is all that matters—as with a subpoena—for purposes of section 2703(a).

Civil liberty groups have applauded ECPA reform as a leap forward in strengthening privacy protections. Yet, the fact remains that in embracing easier and more efficient forms of communications we have relinquished a great deal of control over “our” information and information about us. Our current digital age is driven by the mobility of information, but our laws make us vulnerable when we embrace that mobility. However, the problem is less that that our laws can’t keep up with our ability to constantly invent new technologies, and more that the law will not keep up with our morphing technological behaviors. It would probably take a miracle for an ECPA reform bill to get enacted during the lame-duck session, considering the surprising recent defeat of another privacy bill, the USA Freedom Act. But legislative reforms are needed to guide a national rethinking of what constitutes an invasion of privacy in the digital age.

 

Keystone Pipeline: Crossing Borders and Party Lines?

Trans Canada Keystone Oil Pipeline By: shannonpatrick17 CC BY 2.0

By: Chelsea Morin

After six years of failed attempts made by House Republicans and Democrat blocking efforts, Congress has finally acted together to bring the Keystone XL Pipeline legislation to a vote. The catalyst? A Louisiana Senate runoff election that is set to take place December 6 between Senator Mary Landrieu (D) and Representative Bill Cassidy (R). These Louisiana politicians raced to get the Keystone Pipeline approved because of its popularity among residents and the economic impact that it is expected to have on the state.

As the name denotes, the Keystone Pipeline is a pipeline that would double the flow of heavy tar sands oil, around 830,000 barrels per day, from Canada down to Gulf Coast refineries. The pipeline would be expanded to transport the Canadian crude oil across the United States, meeting the demands of U.S. markets while also providing access to developing domestic oil supplies from Montana and North Dakota.  As a result, U.S. reliance on foreign oil supplies from Venezuela, Mexico, the Middle East, and Africa is expected to decrease. Last year, the State Department issued a report presenting its findings that the pipeline construction would contribute to the U.S. approximately 42,100 jobs, $2 billion in earnings, and increase the U.S. GDP by $3.4 billion. Additionally, the report found that Keystone XL would have little impact on climate change.

The State Department addressed environmental concerns in its report, stating that the corrosiveness of the tar sands oil is not the reason behind past pipeline bursts and leakage. Rather, such issues are caused by faulty valves and seals. To prevent any environmental damage, TransCanada has willingly agreed to 57 new safety procedures and plans to conduct inspections every two weeks on the pipeline to ensure that the valves and seals remain secure. TransCanada is also wholly responsible for any and all damage caused by the pipeline during maintenance and construction, which shows that the potential for neglect is low. Currently, crude oil is transported by rail, barges, and tank trucks – far more dangerous and expensive methods than Keystone XL.

Over the years, many have questioned whether Congress even has the power to approve the pipeline. In a 1968 Executive Order, President Lyndon B. Johnson officially vested the State Department with the permitting authority for “border crossing facilities,” which specifically included oil pipelines. However, Congressional Research Services (CRS) settled this issue and explained that, “if Congress chose to assert its authority in the area of border crossing facilities, this would likely be considered within its constitutionally enumerated authority to regulate foreign commerce.” Congress’s power to regulate foreign nations is found in the Commerce Clause of Article I, Section 8, Clause 3 of the Constitution.

At the state level, Nebraska is also questioning the constitutionality of the pipeline’s approval. A Lancaster County District Judge recently struck down a state law that authorized Nebraska’s Governor Dave Heineman to approve Pipeline XL’s route through the state. In the opinion, the judge declared the Governor’s action “null and void” because the new law unconstitutionally stripped the Nebraska Public Service Commission (“PSC”) of its permitting and routing authority granted to it by the state’s Major Oil Pipeline Sitting Act (“MOPSA”). The judge found that the Legislature could not “divest the PSC of jurisdiction . . . and vest such power in another governmental agency, body of government, or branch of government, except the legislature.” While the Legislature is permitted to enact “specific legislation” that preempts the PSC’s control, it “cannot absolutely and totally abandon or abolish constitutionally conferred regulatory control.”  The law’s defender, Nebraska Attorney General Jon Bruning, plans on appealing the decision. In the meantime, the Nebraska legislature may restore the PSC with the authority to rubber-stamp the route.

On November 14, the House passed the Keystone XL legislation (for the ninth time) that was introduced by Representative Cassidy. The legislation simply provides that TransCanada, a Canadian energy company, “may construct, connect, operate, and maintain the pipeline and cross-border facilities” as described in its application submitted to the State Department in 2012. Over on the Senate side, Senator Landrieu, motivated by the desire to keep her senate seat, brought her identical legislation up for debate, stressing the need for bipartisanship action as well as the pipeline’s economic benefits. On November 18, the legislation fell one vote short of the requisite 60 votes to overcome a filibuster.

Does the bill’s failure in the Senate mark the end of Keystone? As for the President’s approval, Keystone XL’s fate looks anything but hopeful, unless the new Senate is able to secure the requisite 67 votes for the bill’s passage. Regarding the attempts to end-run presidential approval, White House press secretary Josh Earnest told reporters that “[t]he administration . . . has taken a dim view of these kinds of legislative proposals in the past . . . [which] has not changed.”  Sources say that pressure exerted by the environmental activists has been the primary reason for the President’s stance on the pipeline matter. Over the years, President Obama has opposed the pipeline’s development by rejecting permit approval on multiple occasions and lobbying the Senate to reject amendments for the bill’s congressional approval. These actions have infuriated the pipeline’s most avid supporters, which include Republicans, moderate Democrats, oil companies, labor unions, and the Canadian government. Terry O’Sullivan, General President of the Laborer’s International Union of North America, expressed his view that “the project is not just a pipeline, but is a lifeline for thousands of desperate working men and women. The administration chose to support environmentalists over jobs – job-killers win, American workers lose.”

Soon-to-be Senate Majority Leader Mitch McConnell (R – KY), implied that the fight to pass the legislation is far from over. McConnell made it clear that the incoming Republican-led Senate will revisit the legislation as soon as it convenes early next year. Fortunately, the bill is expected to pass with at least 63 votes and supporters are confident that they can muster up the additional 4 votes to secure a veto-proof bill. Keystone XL will provide the U.S. economy with thousands of jobs, contribute billions towards the U.S. GDP, ensure energy security, and serve as a safe method of crude oil transportation. Thus, Keystone XL is more than a political pawn in the hands of legislators –it’s a device that crosses party lines, guaranteeing American jobs with relatively little to no danger to the environment.

Yes Means Yes: California’s New Approach to Sexual Assault on College Campuses

Courtesy of Marcin Wichary

Courtesy of Marcin Wichary

By: Alex Baptiste

California’s new sexual assault law, SB 967, nicknamed the “Yes Means Yes” law, was signed into effect on September 28, 2014 by California Governor Jerry Brown.  It imposes a new standard for determining whether a sexual assault has occurred. The law requires the use of the new “affirmative standard” when investigating sexual assaults and is to be used at all California colleges and universities that receive state funds for financial aid.  Where once there was “no means no,” California now has “yes means yes.” The affirmative consent standard is the first to be enacted as part of state legislation and is regarded as a positive step in protecting a victim’s rights in sexual assault cases.

In 2007, the Department of Justice (“DOJ”) released the findings of a two-year study on sexual violence against women. The study, involving over 5,000 young women, ages 18-25, found that one in five women had been the victim of an attempted or completed act of sexual violence.  In the years that have passed, sexual violence on college campuses remains a major concern of parents, students, and school administrations. Not much has changed.  A 2010 study conducted by the National Violence Against Women Survey corroborated the DOJ study, also finding that one in five women, and one in seventy-one men, have been raped at some point in their life.

California is one of the few states at the front lines of redefining rape and prosecuting sexual assault offenders.  The vast majority of states adhere to the common law principle that once consensual intercourse begins, a man cannot be prosecuted for rape, even if the woman withdraws her consent during the act. However, California is one of seven states to broaden the definition of rape to include the withdrawal of consent.

Prior to SB 967, schools had discretion on the types of investigative methods deemed to be appropriate when reviewing claims of sexual assault. Some of these methods were effective, some were not.  Under the new law however, schools must determine if there was an “affirmative, conscious, and voluntary agreement to engage in sexual activity.”   In case of a question about alcohol-induced consent, the law explicitly states that someone who is drunk, asleep, or incapacitated in any way cannot give affirmative consent.  Furthermore, a “lack of protest or resistance does not mean consent, nor does silence mean consent.”  The law also requires universities to acquire “victim-centered” sexual assault response policies and implement comprehensive programs to prevent assault.

While a “yes means yes” approach may not seem different from “no means no,” the change is more significant than it appears.  Under the previous “no means no” approach, the victim carried the burden to prove they made it clear to their attacker the advances and contact were unwanted.  Now, the victim is given the benefit of the doubt and the accused must show, by a preponderance of the evidence, they had affirmative consent.  In a society that views most rape laws to lay blame on the victim, this slight shift makes a notable impact.

Critics question how this new legislative approach will be more effective than “no means no.”  The National Coalition of Men urged Governor Brown to veto the bill, arguing that the law “presumed the veracity of the accusers and presumes the guilt of the accused.”  Others argue the law tramples an individuals’ due process rights and continues to ignore the reality that sexual assaults are not truly a matter of miscommunication so much as a matter of an aggressor taking what he wants and not caring if consent is given.  There are also concerns because the law makes a history of prior sexual relations irrelevant, that it redefines consent in such a way sexual activity of college couples would technically be considered sexual assaults if affirmative consent is not explicitly given.

Despite the criticism, there is significant support for the “yes means yes” approach.  California’s adoption of this new law challenges other states to enact similar laws to clean up the many issues we hear about on college campuses across the country.  Earlier this month, Harvard Law School professors published an open letter criticizing the university’s newly enacted policies aimed at preventing sexual harassment.  Students of the university have come out in support of changing to an affirmative consent policy. Other universities are also experiencing pressure from their student body to take sexual assault claims more seriously and adopt an affirmative consent policy.

Whether “yes means yes” answers the problems college campuses face when confronted with sexual assault claims remains to be seen.  It seems, however, to be a step in the right direction to fighting the epidemic of sexual assault among young people.  As students and faculty across the country lobby for similar standards and protections, it will be interesting to see how other schools and states rise to the new standard set by California.

Legality of the War Against ISIS: Still Disputable

Courtesy of Karl-Ludwig Poggemann

Courtesy of Karl-Ludwig Poggemann

By: Mahira N. Khan

The Islamic State of Iraq and Syria (ISIS) grabbed the world’s attention for mass murders, public executions, and the recent beheadings of two American journalists and a British aid worker.  ISIS surged through large areas of Iraq and Syria as well as other parts of the Middle East and employs between 20,000 and 31,500 fighters.  Experts agree “they are better organized and more dangerous than al-Qaida.”

President Obama’s war against ISIS is off to a “shaky legal start.”  Since August, Obama enacted two strategies against ISIS, actions that may not be legal.  On September 17, Obama signed a bill into law that gives the US military a “green light” to arm and train “moderate” Syrian rebels to fight against ISIS; one of the two measures the President has taken.  Supporters of the strategy agree more must be done to combat ISIS as it moves quickly through Iraq and Syria.  However, several lawmakers are either skeptical or oppose the plan entirely.  They fear more harm than good as it would involve handing weapons to the groups whose top priority is to topple the Syrian President Bashar Assad.  The Senate initially opposed the plan as well, fearing documented reports of ties between “moderate” rebel forces and ISIS and an accidental arming of ISIS.

Nonetheless, within one month the plan was put into action, and on October 21, ISIS fighters seized “at least one cache” of weapons airdropped by the US after missing its intended recipients.  The lost weapons were “more an embarrassment than a strategic loss,” as ISIS already possesses US weaponry worth millions of dollars that they captured from fleeing Iraqi soldiers.  Currently, Obama’s second plan of action is intensifying.  Along with the support of the Syrian rebels, the President authorized airstrikes over ISIS positions in Iraq and Syria.  The airstrikes have been extreme, while producers of weaponry have reported soaring share prices.

Support for Syrian rebels and airstrikes are attempts at keeping American “boots off the ground.” There are requests for US troops on the ground; however, Obama has not asked Congress for legal authority to formally declare war.  Obama repeatedly cited the 1973 War Powers Resolution this past summer, which held that the President has a 60-day window to conduct hostilities without an act of Congress.  Here however, the 60-day window expired as of October 7.  Absent an explicit authorization by Congress or the War Powers Resolution, wars lose their legality.

The question then is: what legal basis justifies the continued international attacks against ISIS?  The Obama administration points to the 2001 and 2002 Authorization for Use of Military Force (AUMF) to justify the continued military action, insisting no new resolution is required as the AUMF is still applicable because it satisfies the War Powers requirement for “specific authorization” from Congress.  Therefore, “the War Powers Resolution’s 60-day limitation on operations does not apply.”

This justification is “implausible.” The 2001 AUMF requires a nexus to the group responsible for the 9/11 attacks, and the 2002 AUMF was approved for the invasion of Iraq to overthrow Saddam Hussein. Both resolutions pre-date the existence of ISIS.  Supporters of the justification argue that ISIS is comprised of members who were part of the group responsible for the 9/11 attacks, creating the nexus.  However, even this argument is flawed considering ISIS and al-Qaeda are no long affiliated and al-Qaeda publicly renounced any association.  Additionally, airstrikes have extended beyond Iraq and into Syria.  Continued reliance on the 2002 AUMF is flawed.

Legality of the military action is questionable under international law as well. As the US is using force in another country, the operations are lawful, as defined by the UN Charter of which the US is a founding signatory, only if they can be justified under international law.  If: (1) the intervention is authorized by the UN Security Council, (2) it is a clear case of self-defense, or (3) if assistance is requested by the other country’s government, force may be authorized.  Here, it is true that the Iraqi Government requested US assistance in halting the spread of ISIS and to prevent the genocide of Iraqi religious minorities. However in Syria, none of these conditions apply.

Unlike the strikes in Syria, the Obama administration relies on a principle of self-defense to justify attacks in Iraq.  The administration argues ISIS infiltrated Syria to attack Iraq, and although Syria has not formally invited the US, the Iraqi government has.  The administration explained its strikes in Syria in a letter to the U.N., claiming that the US has the right to attack ISIS in Syria to defend Iraq because Syria is “unable or unwilling to prevent the use of its territory for such attacks” and “states must be able to defend themselves, in accordance with the inherent right of individual and collective self-defense.”  The UN stated that the US initiated necessary and proportionate military actions in Syria to “eliminate the ongoing [ISIS] threat to Iraq.”  Therefore, the defense of Iraq, not necessarily Syria, triggers the right to use force against ISIS in Syria.

Arguably, attacks in Iraq are justified under a right to self-defense as ISIS has and continues to conduct armed attacks of sufficient scale by seizing towns and cities, undermining the “territorial integrity” of Iraq.  International law permits non-state actors to carry out armed attacks to defend a country.  In Syria though, lack of action has allowed ISIS to operate with impunity, leading to ISIS’s growth in Syria and expansion into Iraq.  It is critical to the legality of US action that the Syrian regime lack capacity and capability to dismantle ISIS.  That the regime may be willing to tackle ISIS is not enough to prevent Iraq or its allies from invoking the self-defense doctrine.

Without inability and unwillingness, any US action remains illegal under international law. On September 23, the UN Secretary General endorsed US action, noting Syria had over two years to dismantle ISIS and the strikes “took place in areas no longer under the effective control of [Syria].”  Additionally, international law requires any defensive attacks against ISIS be proportionate to the scale of ISIS’s attacks, and any response have a reasonable objective. Further, the response cannot go beyond achieving the objective.  Thus, any airstrikes against ISIS assets, bases, and fighters in Syria must be proportionate, but not necessarily equal, to ISIS’s attacks against Iraq, and the attacks may not go beyond the objective, in this case, to dismantle ISIS.

The legality of US action is uncertain. Iraq has an indisputable right to self-defense against armed attacks by ISIS in Syria, but only if it can be shown the Syrian regime is unwilling or unable to control the threat. This legal right extends to the US as Iraq authorized the US to intervene on its behalf in self-defense given Iraq’s own inability to do so independently.  Obama may have lost legal justification under domestic law, but he might get away with carrying out military action under international law, especially given Syria’s lack of interference with the operations so far.

Corporate Tax Inversions: Another Symptom of a Complex Tax Code in Need of Reform

CC BY 2.0 Chris Tolsworthy

CC BY 2.0 Chris Tolsworthy


By: Stephen Welker

Some of the latest corporate “shenanigans” drawing headlines are corporate tax inversions and an Obama administration bent on their extinction. In July, during an interview with CNBC, President Obama decried corporations who change their official addresses to more tax favorable countries such as Ireland or Bermuda as “gaming the system.” In September, the U.S. Department of Treasury announced new rules to combat corporate tax inversions. These efforts simply mark another insignificant bandage on a hemorrhaging tax system, one which can only be fixed by dramatic reforms in Congress.

What are corporate tax inversions? The Department of Treasury defines them as “transaction[s] in which a U.S.-based multinational restructures so that the U.S. parent is replaced by a foreign parent, in order to avoid U.S. taxes.” The transaction is entirely on paper; it entails no movement of offices, factories, or personnel. But by changing the nationality of the formerly U.S. corporation, it enables much of the corporation and its subsidiaries to avoid U.S. taxes in favor of lower foreign taxes.

Why invert? Simply put, U.S. corporate taxes are too high and reach too much income. After Japan dropped its corporate tax rate to 38.1% in 2012, the United States achieved the distinction of maintaining the highest corporate tax rate (39.1%) in the developed world. Additionally, the U.S. adheres to a widely abandoned system of worldwide taxation which penalizes a U.S. corporation for being American. Most developed countries have embraced a territorial system of taxation where income is generally taxed at its source, conversely the U.S. system – with a few exceptions – taxes income of its citizens wherever it is earned. Under a territorial system, the income earned by a U.S. subsidiary in, say, Germany would pay German taxes on its income. Under the U.S. worldwide system, the U.S. company owes U.S. taxes on that income earned in Germany, above any creditable taxes paid to the German government. Thus, U.S. companies, without gimmicks like inversions, could not avoid the steep corporate rate by moving their business offshore. Notwithstanding politicians’ claims of a corporation’s patriotic duty to pay its fair share, the nature of the U.S. corporate tax regime incentivizes U.S. corporations to invert. It is a question of global competitiveness and good business sense. Even after the Treasury’s efforts to plug the holes, inversions are not going away.

The Burger King example is instructive. Burger King is moving forward with its deal to purchase Tim Hortons Inc., a Canadian company, for $11 billion.  As part of the deal, its headquarters will move to Canada where it will bask in the warmth of Canada’s friendly 26% corporate tax rate.

Since money earned in the United States is taxable income regardless of a corporate’s citizenship, a primary concern of the U.S. government in the case of inversions is active income earned by U.S. corporations’ controlled foreign corporations (“CFCs”). Normally, a CFC does not pay U.S. taxes until its earnings are repatriated into the United States via dividends to its parent U.S. company. This has resulted in perpetual deferral of U.S. taxation by leaving the income outside the United States. Congress recently addressed the deferral problem on a temporary basis by granting a tax holiday. Results were disappointing as far as Congress was concerned, but corporations which took advantage of the holiday saved billions. Corporations cannot count on another tax holiday any time soon, so inversions provide a way to bypass the taxes permanently. By incorporating in a country which does not tax the active income earned of these CFCs, the corporation beats the U.S. system.

If one is left exasperated by the complexity of this tax system which encourages these corporate maneuvers, seemingly bereft of any motive other than tax savings, one is in good company. It is general consensus within Washington that tax reform to reduce complexity has bipartisan support. Unfortunately, those general calls for reform seem to be all Congress can accomplish on this front, opting, instead, for more patchwork legislation. The reasons why are obvious: a complex tax code is an exploitable tax code. Given the choice between a lower corporate rate or avoiding taxes altogether through gimmicks, corporations will shell out money to accounting and tax law firms to get those gimmicks. And Congress, while paying lip service to tax reform ideals, appears all too happy to make sure those gimmicks are always available. Until Congress embraces meaningful reforms to its taxation of international transactions, corporate tax inversions are likely to continue, and we may see more classic American companies spurn their native land for friendlier pastures. Given the financial incentives, I’m not sure we could blame them.

Wellness International Network v. Sharif: A Return to a Formalist Reading of Article III?

Courtesy of Roman Boed

Courtesy of Roman Boed

By: Jeff Elkin

The constitutionality of bankruptcy courts is a recurring and thorny issue implicating the limits of Congress’s power to delegate the judicial power of the United States. This Term, the Supreme Court will write the next chapter in the bankruptcy court saga when it hears Wellness International Network v. Sharif, cert. granted, 134 S. Ct. 2901 (2014).  Sharif challenges the premise, established in Commodities Futures Trading Commission v. Schor, 478 U.S. 833 (1986), that litigant consent can furnish an Article I court’s constitutional authority to issue final judgments in private rights disputes. An Article I court (a.k.a. “legislative court”) is an adjudicatory body statutorily created to implement one of Congress’s enumerated powers, and staffed by officials without life tenure, in good behavior, and protected against salary diminishment.

Schor, including its limits on bankruptcy court jurisdiction, is a functionalist anomaly in the Court’s otherwise formalist Article III jurisprudence,. After a survey of the Court’s bankruptcy court line of cases, this post argues the Constitution demands a formalist reading of Article III prohibiting Article I courts from deciding issues of private rights, regardless of litigant consent.

I. The Supreme Court’s Formalist Bankruptcy Court Jurisprudence

The Bankruptcy Act of 1978 (“Act”), established a nationwide system of specialized courts to handle the flood of claims inherent in a declaration of bankruptcy. These bankruptcy courts were staffed by officials (“bankruptcy judges”) presidentially appointed to fourteen-year terms. They were empowered to decide not only statutorily-defined bankruptcy claims, but also claims by and against the bankruptcy estate that arose in the process. Thus, a bankruptcy court’s jurisdiction included common law contract and tort claims related to the bankruptcy. The bankruptcy courts could also issue stay orders binding on Article III courts exercising concurrent jurisdiction over such claims.

A. Northern Pipeline

In Northern Pipeline Construction Company v. Marathon Pipe Line Co., 458 U.S. 50 (1982), a plurality of the Court struck the Act as an unconstitutional delegation of federal judicial power for two reasons. First, the Act unconstitutionally granted the non-Article III bankruptcy courts power to issue final judgments in claims involving private rights (those centered on common-law rights). This holding relied in part on Crowell v. Benson, 285 U.S. 22 (1932). Crowell held Congress could implement legislation by establishing Article I courts to preliminarily decide certain fact-based issues prior to litigation in the Article III court that would finally decide the case. Crowell established Article I courts are properly conceived as adjuncts to Article III courts. Contrarily, in Northern Pipeline, Congress empowered bankruptcy courts to issue final judgments subject only to the judicial review from an appellate court. Article I courts were only allowed to decide issues of public rights. Public rights disputes are those 1.) to which the federal government is a necessary party or involve the waiver of the federal government’s sovereign immunity, and 2.) which center on rights created by federal statute or regulation. Thus, Congress violated Article III by granting Article I bankruptcy courts power to finally decide private rights disputes.

Second, the Act unconstitutionally granted non-Article III judges power over “essential attributes” of Article III judicial power.  By granting bankruptcy courts power to issue final judgments with res judicata effect on Article III courts and the power to stay proceedings in Article III courts, Congress had made the bankruptcy courts too powerful to be justified as adjuncts. Bankruptcy courts were too similar to Article III courts and unconstitutionally threatened the independence, impartiality, and separate power of the Article III judiciary.

Following Northern Pipeline, Congress tried again by amending the Bankruptcy Act in 1984 to cure the 1978 Act’s constitutional defects.  It 1.) limited bankruptcy courts’ subject-matter jurisdiction and the power of its judgments, and by 2.) linked the bankruptcy courts to district courts in a more emphatically adjunct-like fashion.  However, they remained non-Article III courts as bankruptcy judges continued to lack life tenure in good behavior and protection against salary diminishment.

B. Marshall
In Stern v. Marshall, 131 S. Ct. 2594 (2011), the Court held 5–4 that bankruptcy courts lacked constitutional authority to issue final judgments on state law counter-claims pending in Article III courts. Because bankruptcy judges, for whatever reason, remained non-Article III judges under the amended Act, they remained unable to issue judgments on private rights issues with res judicata preclusive effect on Article III courts.

C. Schor
In CFTC v. Schor, 478 U.S. 833 (1986) the Court considered whether the Commodities Futures Trading Commission, after rightfully establishing jurisdiction over a public rights claim, could issue a final judgment on a private rights cross-claim. The Court, in an opinion by Justice O’Connor, decided 7–2 that it could, as long as the parties consented to it doing so

Until Schor, the Court had hewed a formalist line on the jurisdiction of non-Article III adjudicatory bodies stretching back to Murray’s Lessee v. Hoboken Land & Improvement Co., 59 U.S. 272 (1855). There, the Court first held that the separation of powers prohibited Congress from granting legislative courts jurisdiction over private rights claims. However, the Schor Court broke this precedent by prescribing a functionalist test for determining the constitutionality of non-Article III power. After Schor, a court assessing whether Congress had properly granted Article I courts jurisdiction over private rights considers: 1.) whether Congress thereby impinges on essential attributes of judicial power, 2.) the nature of the rights subject to the delegated jurisdiction, and 3.) Congress’s motivation for doing so.  This test prescribes a normatively-guided inquiry so formless that it amounts to a pro forma, pre-rubber stamp judicial “feelings check” guided by no binding precedent whatsoever.  Post-Schor, kangaroo courts may rise and fall with the level of ephemeral inter-branch harmony.  Thus, Schor is the first step down the slippery slope away from an independent, impartial judiciary.

II. Wellness International
This Term, the Court granted cert in Wellness International Network v. Sharif.  The Court will decide “whether Article III permits the exercise of the judicial power of the United States by the bankruptcy courts on the basis of litigant consent.”  Thus, Schor is up for review.

The Court in Wellness International should eliminate the Schor litigant-consent aberration from its otherwise formalist Article III jurisprudence.  As he did in Marshall, Chief Justice Roberts should lead a charge against Article III functionalism, which the Court has rightfully opposed throughout American history.  If Congress is allowed to continue impinging on Article III courts’ essential functions, the surging passions that course through that fickle Body will — through a series of irrational Acts — subjugate entire categories of rights and to tribunals staffed by like-minded pawns.

The absurdity behind this discussion is that Congress could cure bankruptcy courts’ constitutional defects simply by making them Article III courts.  However, Congress continues obstinately to delegate jurisdiction over private rights to officials susceptible to coercion through threats of firing or pay diminishment by the political branches.  The Court should maintain the judiciary’s independence and impartiality by holding categorically that only Article III judges may adjudicate private rights disputes.