Author: beesquared

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Law Privacy

Search of seized hard drives highlights questions of privacy in a digital age

A federal appeals court in New York has agreed to hear anew an appeal that explores the contours of privacy in a digital age.

At the urging of one of their colleagues, a majority of judges on the 2nd Circuit U.S. Court of Appeals voted on June 29 to rehear an appeal filed by Stavros Ganias, an accountant from Wallingford, Connecticut who was convicted in 2011 of two counts of tax evasion and sentenced to 24 months in prison.

The ruling reopens an appeal decided in June 2014 by three judges of the court, who in a divided ruling vacated Ganias’ conviction after concluding that the government violated his Fourth Amendment rights when it retained files from his lawfully searched computers for more than two-and-a-half years and then searched them again when it later developed probable cause.

The case highlights a difference between searches of books or papers and searches of computers and other electronics, which can hold files that range from the professional to the personal and may encompass far more information about someone from whom the government seizes such devices than the warrant itself authorizes.

In deciding to review the ruling, the majority asked the parties and their allies to address two questions that the court will consider when it convenes for oral argument on Sept. 30.

“(1) Whether the Fourth Amendment was violated when, pursuant to a warrant, the government seized and cloned three computer hard drives containing both responsive and non-responsive files, retained the cloned hard drives for some two-and-half years, and then searched the non-responsive files pursuant to a subsequently issued warrant; and

(2) Considering all relevant factors, whether the government agents in this case acted reasonably and in good faith such that the files obtained from the cloned hard rives should not be suppressed.”

At issue is a prosecution that stemmed from Ganias’ work on behalf of a company that had been hired by the U.S. Army to provide security and maintenance services at a vacant facility in Stratford, Connecticut.

Based on a tip from a confidential source that the contractors had stolen copper wire and other equipment from the facility, in Nov. 2003 investigators from the Army obtained warrants to search several premises, including the offices that housed Ganias’ accounting firm.

There, pursuant to the warrant, the agents made identical copies of the hard drives of Ganias’ computers. Though the imaging also copied Ganias’ personal files—contained in programs such as QuickBooks and TurboTax—the agents assured Ganias they were looking only for materials that tied to the investigation. The following spring, after discovering suspicious payments by the contractor to a business owned by someone who had not reported any income from that business, the Army invited the IRS to join the investigation. Investigators from the Army gave the IRS copies of Ganias’ hard drives so that agents from the IRS could review the evidence.

By December, the agents from both the Army and IRS had extracted the files that tied to their investigation of the contractor. They knew the warrant did not authorize them to review other records retrieved from the hard drives. Still, they retained the files that had nothing to do with the investigation.

For its part, the IRS started to suspect that Ganias had failed to report the contractor’s income properly. In July 2005—about 20 months following the seizure of the hard drives—the IRS broadened its investigation to include possible tax fraud by Ganias. The agent in charge of the investigation did not review Ganias personal financial records, which she knew to be beyond the scope of the warrant.

The following February, the government asked Ganias and his attorney for permission to review Ganias’ personal files that had been copied from the hard drives. After Ganias did not respond, the IRS obtained a warrant to search the images of Ganias’ financial records seized in 2003. Because Ganias had revised the original files shortly after the Army copied the drives in 2003, the original records would not have existed absent the government’s retaining the images.

At trial, Ganias sought to suppress the computer files that became the subject of his appeal. Judge Alvin Thompson of the U.S. District Court in Hartford denied the motion, explaining:

“Here… where the searches and seizures were authorized by a magistrate judge, where government agents scrupulously avoided reviewing files that they were not entitled to review, and where the defendant had an alternative remedy pursuant to [a motion to return property] to avoid the complained of injury, i.e. that the government held his data for too long without returning or destroying it, the defendant has not shown that his Fourth Amendment rights were violated.”

On appeal, the court noted that the framers of the Constitution sought to end the practice of the British of searching the premises of opponents and seizing their papers, books and records indiscriminately pursuant to so-called general warrants. Consequently, the court noted, the Fourth Amendment requires that warrants will be available to the government only on a showing of probable cause and a description of the places to be searched and the items to be seized. According to Judge Denny Chin:

“These Fourth Amendment protections apply to modern computer files. Like 18th Century “papers,” computer files may contain intimate details regarding an individual’s thoughts, beliefs, and lifestyle, and they should be similarly guarded against unwarranted Government intrusion. If anything, even greater protection is warranted.”

The court observed that investigators who carry out a warrant may do so by making mirror images of the information stored on hard drives that the investigators can later review off-site. According to the court, the government must review the material within a reasonable period—there’s no one-size-fits-all rule—and that material is subject to exclusion from evidence when the government seizes items outside the scope of the warrant (a practice that starts to resemble a general warrant) and fails to act in good faith.

In the case of Ganias, the court concluded that the government had overstepped its authority. According to Chin, the government’s retaining Ganias’ records for two-and-a-half years interfered with his rights in those files.

“Without some independent basis for its retention of those documents in the interim, the government clearly violated Ganias’ Fourth Amendment rights by retaining the files for a prolonged period of time and then using them in a future criminal investigation,” wrote Chin, who rejected the government’s contention that it obtained a second warrant to search Ganias’ files.

“If the Government could seize and retain non-responsive electronic records indefinitely, so it could search them whenever it later developed probable cause, every warrant to search for particular electronic data would become, in essence, a general warrant,” he added.

The ruling, which vacated Ganias’ conviction, surfaces a tension between the reasonableness of a search—in this case the length of time the government retains records swept up in a search—and the need for the government to establish that it has not altered evidence in its custody. As the Harvard Law review noted in December:

“Although the court properly found that Ganias’ Fourth Amendment rights had been violated, the decision failed to appreciate the importance of authentication requirements for electronic evidence. As a result, Ganias may unnecessarily complicate prosecutions by potentially creating a perceived ‘right to deletion’—a prescription that federal prosecutors must delete files nonresponsive to a warrant sooner rather than later. The court could have avoided any potentially burdensome effects of this prescription on the evidentiary authentication process had it issued a more narrow ruling merely suppressing the evidence.”

The decision to reexamine the ruling also may tie to a question posed by Orin Kerr, a professor of criminal law and procedure at George Washington University who has commented on the case. “Is the real problem here that the government has over-seized and is taking unfair advantage of having extra stuff available to it, or is the real problem only that too much time has elapsed before the government is taking that advantage?” Kerr wrote in The Washington Post following Chin’s ruling.

Kerr suggests the same facts as Ganias except imagines the government developed probable cause for the second crime days after carrying out the first warrant. “Should that case come out differently?” he asks. “And if it could come out differently, is that because we intuit that the information for the second warrant likely is still… available on the original hard drive or because we think that the government’s seizure did not go on for so long as to become unreasonable?”

The first briefs are due by July 29.

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The unanimous Declaration of the thirteen United States of America

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Sports

Dustin Brown continues to climb

Rafael Nadal lost at Wimbledon Thursday to the 78th-ranked player in the world.

That player happens to be Dustin Brown, a German who stands six feet five with dreadlocks half as long. Brown, 30, dispatched Nadal, a Spaniard who stands six feet one and who is ranked 10th in the world, in four sets. The loss marked the third time in four years that Nadal lost during the tournament’s first week.

Brown, who was raised in Jamaica—his mother is German, his father Jamaican; on Twitter he goes by the handle @DreddyTennis—became one of the 100 best players in the world in 2009, when he reached No. 99, the highest ranking ever for a Jamaican player.

In an interview last year, Nick Kyrgios, an Australian ranked No. 29 in the world, asked Brown what it’s like playing with the dreads.

“For me it makes no difference, I’ve always had long hair,” Brown answered. “I think the last time I cut it was August 1996.”

“That’s insane,” replied Kyrgios. “I was born in 1995. That’s the last time you had a haircut.”

I like Brown’s locks, his game—said to be unorthodox, the better to frustrate opponents—and the VW camper van he used to travel between tournaments early in his career.

Thursday was not the first time that Brown beat Nadal. A year ago, he defeated Rafa in straight sets during the first round of a tournament in Halle, Germany. After the match, Brown recalled his rise through the ranks. “At the start it was awkward,” he told the Guardian. “People didn’t know who I was, everyone was like, ‘Who’s this guy with the camper?’ But after a while, meeting people, playing better, playing doubles, stringing rackets for the guys, you get to know everyone.”

“Call it hustling, grinding, whatever you want… we were all just trying to get on to the big tour,” he added.

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Sports

Phil Jackson, Kris Porzingis and the kids on the 3 train

One night about a week ago I boarded an uptown 3 train at Chambers Street. To my right sat two middle-age men, each accompanied by two boys who appeared to be their sons. One of the boys wore a t-shirt that touted Steph Curry, the all-star point guard for the Golden State Warriors. Another wore Lakers garb. Two wore Knicks jerseys.

About two stops later it occurred to me the six of them likely had come from the Barclays Center, where that evening the NBA staged its annual draft. The first threesome left the train at Penn Station. Their companions at 72nd Street.

After arriving home and consulting Twitter, I realized, at least for the Knicks fans, that the draft had presented something of a referendum on Kristaps Porzingis, a 19-year-old forward whom the Knicks selected as their top pick.

Apparently, the selection of Porzingis proved to be wrenching for some of the Knicks’ faithful, who awaited the draft with a hope that finally, this draft, the first under team president Phil Jackson, would mark the first step in a return to winning. The Knicks finished last season with 17 wins and 65 losses, second-worst in the league and the worst in franchise history.

By wrenching, I mean that some fans who attended the draft booed the selection of Porzingis, despite his standing seven feet one and saying that he wanted to play in New York. ESPN captured one young fan crying as he marked the moment in a selfie.

That’s not to suggest Porzingis doesn’t have game. As a player last season with Cajasol Seville of Spain’s ACB league, Porzingis averaged 10.7 points, 4.8 rebounds and one block in 33 games. He hit 38% of his three-point shots and 54% of his two-point tries. Porzingis averaged 11.6 points, 4.1 rebounds and 1.2 blocks in 16 games of the Eurocup, where he won the “Rising Star Trophy.”

Porzingis’ weakness is said to be defense. He weighs about 233 pounds, which, at his height, suggests he might struggle with the physicality of the NBA. It didn’t help that Carmelo Anthony, the Knicks star forward, reportedly dissed the selection of Porzingis. Anthony later reached out to the rookie, whom Anthony said he “can’t wait” to see play.

The pundits appear to like Porzingis’ game, though questions abound. According to Kevin O’Connor at SB Nation, the Latvian “could end up being the steal of the 2015 NBA Draft” if Porzingis has the work ethic to reach what O’Connor calls his “sky-high potential.”

Writing in the PhillyVoice, Rich Hoffman praised Porzingis’ shooting and athleticism while questioning his defense and ability to pass the ball. “He averaged less than one assist per game in both [Spain and the Eurocup] and reportedly doesn’t look comfortable setting his teammates up,” Hoffman wrote.

“Porzingis is very agile for someone his size,” Rafael Uehara wrote last January on the fan site Upside and Motor, noting that Porzingis can play defense, too. “Energy and length are also how he contributes on the other end… He also clogs passing lanes, picking up steals with regularity.” As for Porzingis’ deficits: dribbles too high (makes him susceptible to having the ball stripped away) and passes poorly while moving (see Hoffman, infra), says Uehara.

Jackson says he’s not worried and compares the Latvian to Paul Gasol, who stands seven feet and played center for Jackson with the Lakers. “[Gasol] was 227 pounds when drafted by Memphis,’’ Jackson told reporters recently. “He said, ‘I was a skinny kid when I came in the NBA, too. It’s not about that. It’s about strength.’”

Of course, the selection matters all the more because of who did the selecting. Jackson won five NBA championships with the Lakers after winning six with the Chicago Bulls. He also won two championships as a player for the Knicks; the first in 1970, followed by another three years later. “I think Phil wanted to make a statement,” a host on ESPN Radio’s afternoon show said Wednesday. “He clearly made it with Kris Porzingis.”

If you had asked me in the 1990s, when Jackson’s Bulls dominated the NBA, whether I could imagine the Zen Master one day taking the top pick in the draft on behalf of the Knicks, I think it would have seemed unthinkable. But there I was, on the 3 train, across from a couple of kids in Knicks jerseys on their way back from Brooklyn where they had witnessed exactly that.

Categories
Law

Justice Scalia’s dissent in marriage ruling. Really?

The Supreme Court’s ruling legalizing same-sex marriage elicited a colorful dissent from Justice Antonin Scalia, who accused the majority of making policy from the bench.

Scalia charged his fellow justices with overstepping their roles as jurists to wade into a matter of social policy that ought to have been resolved by voters and their elected representatives. According to Scalia,

“This is a naked judicial claim to legislative—indeed, super-legislative—power; a claim fundamentally at odds with our system of government. Except as limited by a constitutional prohibition agreed to by the People, the States are free to adopt whatever laws they like, even those that offend the esteemed Justices’ ‘reasoned judgment.’ A system of government that makes the People subordinate to a committee of nine unelected lawyers does not deserve to be called a democracy.”

To allow the question of marriage to be resolved “by a select, patrician, highly unrepresentative panel of nine is to violate a principle even more fundamental than no taxation without representation: no social transformation without representation,” Scalia added.

He later quoted from the majority’s opinion, followed by his inserting a rhetorical “Really?” that evokes a recurring sketch by Seth Myers and Amy Poehler on the “Weekend Update” segment of “Saturday Night Live.”

The lament is one that Scalia returns to from time to time. “The core of Justice Scalia’s judicial philosophy is that judges deciding constitutional cases should discover the answers in external sources: judges must not make value choices,” Erwin Chemerinsky a professor of constitutional law and dean at the University of California Irvine, wrote in a law review article in 2000.

Of course, Justice Scalia is entitled to his philosophy. But that doesn’t make it any easier to reconcile his charges in the marriage decision with the occasions on which Justice Scalia has seemed quite willing, from the bench, to interfere in the “democratic process”—his words—from the dissent in the marriage ruling.

I’m thinking here of Bush v. Gore, the 5 to 4 decision by a majority of the Court in 2000 that ended the counting of votes in a hotly contested presidential election and thereby awarded the White House to George W. Bush.

In that case, the majority—of which Scalia was a member (the opinion was signed “by the Court”)—stopped tries to tally votes in Florida after finding that the recount—with its attempt by officials in the Sunshine State to discern the intent of voters from ballots that voting machines had failed to mark clearly—violated the constitutional right of voters not to be treated arbitrarily in a way that could “value one person’s vote over that of another.”

But what the majority in that case refused to do was to allow the recount to continue, despite efforts by the state, under the supervision of its highest court, to do exactly that. As the majority explained:

“Upon due consideration of the difficulties identified to this point, it is obvious that the recount cannot be conducted in compliance with the requirements of equal protection and due process without substantial additional work.”

Scalia and his fellow members of the majority were unwilling to give the state time to do that additional work, despite it’s potential to determine the outcome of an election, which, you might say, is the incarnation of the democratic process that Scalia otherwise venerates.

Writing in The New Yorker on the tenth anniversary of Bush v. Gore, Jeffrey Toobin addressed this contradiction:

“Bush v. Gore would resonate, in any case, because the Court prevented Florida from determining, as best it could, whether Gore or Bush really won. (Recounts of the ballots by media organizations produced ambiguous results; they suggest that Gore would have won a full statewide recount and Bush would have won the limited recount initially sought by the Gore forces.) But the case also represents a revealing prologue to what the Supreme Court has since become. As in Bush v. Gore, nominally conservative Justices no longer operate by the rules of traditional judicial conservatism.”

For his part, Justice Scalia has told those who take issue with the majority’s ruling in Bush v. Gore to “Get over it.”

That’s what came back to me while reading Justice Scalia’s dissent in Friday’s marriage ruling. Sure, Scalia’s rejoinders can be a delight to read. But his charge that his colleagues in the marriage majority, which, after all, upheld its responsibility to say what the law is, overstepped, might be more credible if Scalia himself were to have followed his own admonition to give the people their say.

Or as Justice Scalia might say: Really?

Categories
Law

The Supreme Court’s ruling on marriage equality

Marriage equality is the law of the land.

By a vote of 5 to 4, the Supreme Court ruled Friday that guarantees of due process and equal protection of law enshrined in the 14th Amendment to the Constitution require states to license marriages between two people of the same sex. “No longer may this liberty be denied to them,” Justice Anthony Kennedy wrote for the majority.

One can imagine the concluding paragraph of the majority’s opinion being read aloud at weddings henceforth. In it, Justice Kennedy writes:

“No union is more profound than marriage, for it embodies the highest ideals of love, fidelity, devotion, sacrifice, and family. In forming a marital union, two people become something greater than once they were. As some of the petitioners in these cases demonstrate, marriage embodies a love that may endure even past death. It would misunderstand these men and women to say they disrespect the idea of marriage. Their plea is that they do respect it, respect it so deeply that they seek to find its fulfillment for themselves. Their hope is not to be condemned to live in loneliness, excluded from one of civilization’s oldest institutions. They ask for equal dignity in the eyes of the law. The Constitution grants them that right.

The judgment of the Court of Appeals for the Sixth Circuit is reversed.

It is so ordered.”

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Law

The Obamacare ruling shows that context matters

The Supreme Court on Thursday ruled that subsidies for health insurance should be available to Americans wherever they reside.

At issue was a section of the Affordable Care Act (ACA) that authorizes tax credits for those who purchase coverage in marketplaces “established by the state.” Four policyholders from Virginia sued, charging that those four words meant the law did not authorize credits for taxpayers in states, like theirs, that rely on the federal health-insurance marketplace. Without subsidies, the petitioners charged, they could neither afford health insurance nor be required by law to purchase it.

That ambiguity presented the Court with the need to interpret the ACA and marked the second time since the law was enacted in 2010 that its fate fell to the justices.

A trial court dismissed the suit after finding that the ACA provided subsidies for plans purchased through either the state or federal exchanges. The 4th U.S. Circuit Court of Appeals affirmed but the Court of Appeals for the D.C. Circuit ruled, in a separate case, that the ACA limited tax credits to state exchanges only.

By a vote of 6 to 3, the Court sided with the 4th Circuit. As Chief Justice John Roberts wrote for the majority:

“If the statutory language is plain, we must enforce it according to its terms. But oftentimes the ‘meaning—or ambiguity—of certain words or phrases may only become evident when placed in context.’ So when deciding whether the language is plain, we must read the words ‘in their context and with a view to their place in the overall statutory scheme.’ Our duty, after all, is to ‘construe statutes, not isolated provisions.'” [citations omitted]

The majority agreed with the petitioners that the language of the phrase at issue was ambiguous, in that one can read it as limited to state exchanges or as applicable to both state and federal exchanges.

The ambiguity prompted the majority to look to the broader structure of the law. Congress put in place subsidies as part of a push to maximize the pool of people who are insured, the majority noted. That lowers premiums by avoiding an alternative whereby only people who need health insurance—those who are less healthy and presumably consume more health care—buy it.

The alternative, which would have denied subsidies to roughly 6.4 million people in 34 states that use the federal exchange, could upend the market for health insurance irreparably. In that event, the Chief Justice wrote:

“One study predicts that premiums would increase by 47 percent and enrollment would decrease by 70 percent… It is implausible that Congress meant the Act to operate in this manner… Petitioners’ arguments about the plain meaning of [the law] are strong. But while the meaning of the phrase ‘an exchange established by the state’ may seem plain ‘when viewed in isolation,’ such a reading turns out to be ‘untenable in light of [the statute] as a whole.’ In this instance, the context and structure of the Act compel us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.” [citations omitted]

Congress passed the ACA “to improve health insurance markets, not destroy them,” wrote Roberts. “If at all possible, we must interpret the act in a way that is consistent with the former, and avoids the latter.

Categories
Law

Fate of Obamacare to turn on four words

The Supreme Court is expected to decide as soon as this week whether a main part of the Affordable Care Act (ACA) can survive.

Four residents of Virginia contend they were forced by the ACA to buy coverage because of subsidies they receive from the federal government. Their appeal rests on the words “established by the state,” a phrase in the law that the challengers say means that only people who buy coverage through marketplaces established by states—not through the federal health care marketplace—qualify for subsidies.

Virginia is among 34 states that use the federal marketplace. Absent the subsidy, the challengers charge they would be neither able nor required to buy health insurance. If the Court agrees, 6.4 million people could lose tax credits that help them afford coverage and, in most instances, keep them on the rolls.

The government calls the interpretation advanced by the challengers strained. Congress never intended to distinguish between federal and state exchanges in setting up subsidies, proponents of the law say.

Instead, the four words at issue constitute a vestige of an assumption—abandoned during the legislative process—that each state would establish an exchange. It later became apparent that some states would decline to set up exchanges, in which case the federal government made coverage available through HealthCare.gov.

More than 11 million Americans have signed up for health coverage since the ACA passed five years ago. In all, 48% of Americans say the law is working well or needs minor improvements, while 50% say it needs to be overhauled or eliminated, according to the latest NBC News/Wall Street Journal poll.  That’s down from December 2013, when 57% of adults said the law needed to be recast.

Not surprisingly, support for the ACA divides along party lines.  A survey last February by the Pew Research Center found that 87% of Republicans opposed the law while 78% of Democrats supported it.

According to the latest Gallup poll, people between the ages of 18 and 29, those who earn less than $24,000 a year, and black and Hispanic voters are most likely to say the law has helped them and their families.

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Finance

Ruling in AIG case adds to the annals of the financial crisis

In September 2008, as the financial system was in free fall, the Federal Reserve Bank of New York loaned AIG $85 billion in return for 79.9% of the company.

Though the loan enabled AIG to avoid bankruptcy, the terms allowed the government to retain its ownership in the insurer even after the company repaid the money. That exceeded the government’s authority, a federal judge has ruled in a lawsuit brought by Maurice “Hank” Greenberg, the company’s former CEO and one of the largest holder’s of AIG’s stock before the takeover.

As Andrew Ross Sorkin noted in the Times, the ruling may leave policymakers less able to bail companies out in the future. At a minimum, the ruling seems likely to cause policymakers to rethink how they address crises to come. For now, the ruling adds to the list of literature about the crisis and constitutes a must-read for anyone who continues to ponder how the financial crisis came to be and who, like I do, remains fascinated by the ripples that reverberate through the economy nearly seven years later.

The problems that precipitated AIG’s inability to borrow money or raise capital in the private sector and culminated in a takeover of the company by the New York Fed had their roots in the combination of low interest rates and risky lending practices by mortgage lenders and banks that bought and securitized loans in the years that preceded the meltdown. As Judge Thomas Wheeler of the US Federal Court of Claims explained in a decision released June 15:

“There were five major causes of the September 2008 financial crisis: (1) the so-called ‘housing bubble’; (2) the floating interest rates of subprime mortgages; (3) the rating agencies misrepresentations of the riskiness of certain securities such as collateralized debt obligations (‘CDOs’); (4) the ‘originate-to-distribute’ business model; and (5) the collapse of the alternative banking system.”

Wheeler recounts how low interest rates led to a surge in the market for housing and spurred banks and others to lend money to borrowers for houses they could not afford. Thereafter, a combination of rising rates and falling home prices that began in 2006 led many borrowers to fall behind on their mortgages or default.

The practice of originating to distribute meant that lenders, rather than hold mortgages on their books as receivables, transferred or sold the loans to entities that would pool the loans and sell securities that entitled their owner to revenues to be paid form the mortgages that made up the pool.

That “increased the amount of money available for housing loans and resulted in a mortgage originator’s paying less attention to a borrower’s credit and making loans without ‘sufficient documentation or care in underwriting’ because the risk of non-payment had been transferred to others,” Wheeler noted.

Of course, these observations echo similar analyses elsewhere. “We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis,” the Financial Crisis Inquiry Commission found in its report, which was published in 2011.

As Wheeler recounts, an alternative banking system—consisting mainly of investment banks and broker dealers that extended credit similar to that extended by traditional banks but in a less regulated setting—emerged to provide short-term loans to companies such as AIG. Compared with traditional banks, which profit from the difference between the cost of funds they borrow and the rate of interest on money they lend—the alternative banking system depended on deals for its profits.

In particular, so-called repurchase agreement or “repo” financing—a major form of lending during the run-up to the crisis—was susceptible to shocks because it had to be renewed daily. According to Wheeler, in the six months that preceded AIG’s collapse, the size of the repo market tumbled 20%, to $3.5 trillion.

By August 2008, AIG faced downgrades to its credit rating that stemmed from volatility in the company’s earnings and a deterioration of its portfolio, which consisted primarily of so-called credit default swaps that became riskier as home loans that backed the securities became more susceptible to default. Even Greenberg and his fellow plaintiffs “concluded that a significant portion of AIG’s 2008 liquidity problems was the result of its failures in risk management,” wrote Wheeler.

Though the rescue of AIG by the New York Fed may have avoided “mass panic on a global scale,” as former Treasury Secretary Timothy Geithner testified at trial, the remedy constituted an illegal exaction, Wheeler ruled. “An illegal exaction occurs when the government requires a citizen to surrender property the government is not authorized to demand as consideration for action the government is authorized to take,” he explained.

For his part, Greenberg vows to appeal the ruling, which awarded the plaintiffs none of the $40 billion in damages they seek. “The inescapable conclusion is that AIG would have filed for bankruptcy, most likely during the week of September 15-19, 2008,” wrote Wheeler. “In that event, the value of the shareholders’ common stock would have been zero.”

In short, the shareholders lose either way. An epitaph, perhaps, for an economy in peril.

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Law

Supreme Court backs ban on Confederate license plates, strikes down Arizona sign law

Two rulings last week by the Supreme Court highlight differences in the protection of speech depending in part on who is speaking and reveal some of the ways the justices assess First Amendment claims.

By a vote of 5 to 4, the Court affirmed, in an appeal by the Texas Division of the Sons of Confederate Veterans, that speech by the government may not be challenged as violating the Constitution. Separately, by a unanimous judgment that stretched across four concurring opinions, the Court invalidated a code adopted by the town of Gilbert, Arizona that governed the display of billboards and outdoor signs.

The rulings “are likely to be analyzed together from here on, to determine how—and whether—they fit into the strong pattern that the modern Court had followed in more or less steadily expanding free-speech rights,” Lyle Denniston observed at Scotusblog. “Indeed, in some ways the outcomes seemed contradictory, and the splintering of the Court added to that appearance.”

In the case from the Lone Star State, the Court reviewed the veterans group’s challenge of a decision about five years ago by the Texas Department of Motor Vehicles Board, which rejected the group’s proposal for a license plate featuring a Confederate battle flag. Comments filed by the public as part of the review process showed that many people considered the design offensive, the board said. (The proposal preceded the massacre at Emanuel African Methodist Episcopal Church in Charleston that, among other things, has renewed calls to remove the Confederate flag from the state capitol.)

Though the trial court backed the board, the 5th Circuit U.S. Court of Appeals reversed, concluding that the board, in declining to approve the design, discriminated against the veterans’ viewpoint in violation of the First Amendment.

The Court disagreed. “When government speaks, it is not barred by the Free Speech Clause from determining the content of what it says,” Justice Breyer wrote for a majority joined by Justices Thomas, Ginsburg, Kagan and Sotomayor. “That freedom in part reflects the fact that it is the democratic electoral process that first and foremost provides a check on government speech.”

A review of the program by which Texas considers proposals for specialty license plates shows that “Texas explicitly associates itself with the speech on its plates” and that someone who displays a message on a license plate issued by the state “likely intends to convey to the public that the state has endorsed that message,” explained Justice Breyer. “If not, the individual could simply display the message in question in larger letters on a bumper sticker right next to the plate.”

The First Amendment applies to government regulation of speech by members of the public, not to speech by the government, the majority noted. Members of the public who disagree with speech by the government have both the freedom to criticize the government’s views and to vote elected officials out of office, the Court explained. Democracy itself “provides a check on government speech,” Justice Breyer noted.

The alternative—subjecting speech by the government to the strictures of the First Amendment—would not work, Justice Breyer noted, adding:

“How could a city government create a successful recycling program if officials, when writing householders asking them to recycle cans and bottles, had to include in the letter a long plea from the local trash disposal enterprise demanding the contrary? How could a state government effectively develop programs designed to encourage and provide vaccinations, if officials had to provide the prospective of those who oppose this type of immunization?”

But specialty license plates do not constitute government speech, countered the dissenters, who likened the plates to a so-called limited public forum, which allows state property to be used by private speakers, such as when a city turns over its municipal auditorium for a candidates’ debate. In those cases, the dissenters noted, the First Amendment prevents the government from discriminating on the basis of viewpoints. As Justice Alito explained:

“The Confederate battle flag is a controversial symbol. To the Texas Sons of Confederate Veterans, it is said to evoke the memory of their ancestors and other soldiers who fought for the South in the Civil War. To others, it symbolizes slavery, segregation, and hatred. Whatever it means to motorists who display that symbol and to those who see it, the flag expresses a viewpoint. The Board rejected the plate design because it concluded that many Texas would find the flag symbol offensive. That was pure viewpoint discrimination.”

The State of Texas has authorized more than 350 specialty license plates, including plates bearing the names of high schools, fraternities or sororities, the Daughters of the American Revolution, a favorite soft drink and a favorite NASCAR driver, Justice Alito observed. Would someone sitting at the side of a highway in Texas, watching the vehicles pass by, “really think that the sentiments reflected in these specialty plates are the views of the State of Texas and not those of the owners of the cars?” he asked. “If a car with a plate that says ‘Rather Be Golfing’ passed by at 8:30 am on a Monday morning, would you think: ‘This is the official policy of the State—better to golf than to work?’”

On the other hand, attempts by the government to regulate speech will be presumed unconstitutional whenever the regulation differentiates among private citizens based on the content of their message. The town of Gilbert, a city of roughly 209,000 people that sits about 22 miles southeast of Phoenix, established rules for the display of outdoor signs based on three categories: those that conveyed so-called ideological messages, those that aimed to influence the outcome of an election, and those that directed people to a gathering of a religious, charitable or nonprofit organization.

At issue was an appeal by the Good News Church, which the town fined for posting between 15 and 20 temporary signs that advertised upcoming services. The signs omitted a date for the assemblies and remained posted for longer than the 13 hour-period that concluded one hour after the services. The town cited the church, which sued.

A trial court sided with the town. The 9th U.S. Circuit Court of Appeals agreed, concluding that the code did not discriminate among displays based on the content of their message.

The Court reversed the ruling. “The restrictions in the Sign Code that apply to any given sign thus depend entirely on the communicative content of the sign,” Justice Thomas wrote in an opinion joined by Justices Roberts, Scalia, Kennedy and Sotomayor. “On its face, the Sign Code is a content-based regulation of speech. We thus have no need to consider the government’s justifications or purposes for enacting the Code to determine whether it is subject to strict scrutiny.”

According to Thomas, the appellate court’s determination that the code did not regulate speech based on the town’s disagreement with any particular message disregarded the need to determine initially whether the law as written avoided distinctions based on the message being conveyed.

In upholding the code, the 9th Circuit had determined that the town’s attempt to regulate signs had nothing to do with the content of their messages. But that overlooked “the crucial first step in the content-neutrality analysis: determining whether the law is content neutral on its face,” Justice Thomas wrote. “In other words, an innocuous justification cannot transform a facially content-based law into one that is content neutral. Thus, a speech regulation targeted at specific subject matter is content based even if it does not discriminate among viewpoints within that subject matter.”

That view went too far, according to Justices Breyer and Kagan, who wrote separately to covey their view. “Regulatory programs almost always require content discrimination,” Justice Breyer noted. “And to hold that such content discrimination triggers strict scrutiny is to write a recipe for judicial management of ordinary government regulatory activity.”

As Justice Breyer noted, the government requires that public companies include certain content in securities filings, that labels for prescription drugs bear the symbol ‘Rx only,” that rules requiring confidentiality of medical records allow a physician to disclosed that a patient has HIV to the patient’s spouse or sexual partner, and that commercial airplane pilots must ensure that each passenger has been advised to fasten his or her seatbelt. According to Justice Breyer:

“The better approach is to generally treat content discrimination as a strong reason weighing against the constitutionality of a rule where a traditional public forum, or where viewpoint discrimination, is threatened, but elsewhere treat it as a rule of thumb, finding it a helpful, but not determinative legal tool, in an appropriate case, to determine the strength of a justification.”

Despite the ruling, three of the four opinions gave little guidance to municipalities, which may be left to wonder how they might regulate the placement of billboards without contravening the Constitution. That fell to Justice Alito, who, in a concurrence joined by Justices Kennedy and Sotomayor, offered some examples of how to regulate outdoor signs other than by reference to the content of the billboards themselves:

“I will not attempt to provide anything like a comprehensive list, but here are some rules that would not be content based:

Rules regulating the size of signs. These rules may distinguish among signs based on any content-neutral criteria, including any relevant criteria listed below.

Rules regulating locations in which signs may be placed. These rules may distinguish between free-standing signs and those attached to buildings.

Rules distinguishing between lighted and unlighted signs.

Rules distinguishing between signs with fixed messages and electronic signs with messages that change.

Rules that distinguish between the placement of signs on private and public property.

Rules distinguishing between the placement of signs on commercial and residential property.

Rules distinguishing between on-premises and off-premises signs.

Rules restricting the total number of signs allowed per miles of roadway

Rules imposing time restrictions on signs advertising a one-time event. Rules of this nature do not discriminate based on topic or subject and are akin to rules restricting the times within which oral speech or music is allowed.”

That’s not to suggest that all regulation of speech that does not encompass content comports with the First Amendment. Rules that set the so-called time, place and manner of speech must be narrowly tailored to serve a legitimate government interest but, as Justice Alito, explained, “need not meet the high standard imposed” on regulations that regulate speech based on its content or the speaker’s viewpoint.

At least some municipalities welcomed the ruling, which impacts most local governments. “Gilbert looks forward to the opportunity to review its own regulations to make necessary changes consistent with the Supreme Court’s decision,” Michael Hamblin, the town’s attorney, said in a statement.