With just a handful of opinions left to be issued, a rollercoaster of a Supreme Court term is coming to a close. We’ve had massive decisions on sports betting and cell phone searches, along with narrower rulings on partisan gerrymandering and free exercise of religion. But whatever happened to the business cases? In a two-part Supreme Court term review this week, we’re going to look at seven appeals we characterized as having big implications for issuers back in February. We’ll break down what we said then (wisely, we kept predictions to a minimum), explain how the court ruled, and give a bottom-line takeaway.
Here’s part one of our review:
Lucia v. SEC
What we said in February: “[T]his case raises the possibility that the SEC’s administrative law judges (ALJs) have been deciding cases without constitutional authority. The Constitution requires that ‘inferior offices’ be appointed by the president, the courts, or ‘heads of departments.’ ALJs are not appointed by the president or the SEC commissioners, but rather commission staff—putting their authority in question if they are determined to be ‘inferior officers.’”
How SCOTUS ruled: This was a biggie. Delivering on the promise of a dramatic term, the court found that the SEC’s ALJs are in fact “officers” who must be appointed as outlined in the Constitution. Justice Kagan delivered the opinion – a fact that raised eyebrows, even if the opinion did not go as far as the administration wanted it to in removing the independence of ALJs.
Bottom line: TBD. The fallout here is potentially massive, including the voiding of all ALJ decisions. “It may take years before the implications . . . are clear,” SCOTUSblog said, “but at first glance the opinion strikes a major blow at one of the centerpieces of the administrative state.”
South Dakota v. Wayfair, Inc.
What we said in February: “By taking this case, the Supreme Court signaled that it is ready to reconsider its rule that retailers must have a ‘physical presence’ in a state before it is liable for sales tax. It’s a potentially big—if overdue—change in the retail landscape.”
How SCOTUS ruled: In a 5-4 ruling significant enough to send Amazon’s stock tumbling (momentarily, anyway), the court reversed a 1992 ruling that sellers were obliged to collect state sales tax only if they had a warehouse or office in the state.
Bottom line: States can require consumers to pay sales tax on Internet purchases, adding as much as $13 billion to their coffers.
Merit Management Group, LP v. FTI Consulting
What we said in February: “This appeal involves the safe harbor provision of the Bankruptcy Code for settlement payments, which has big implications for securities traders. Bottom line: it will determine whether it will be possible to ‘claw back’ settlement payments made from failed brokerages or banks (for example, Bernard L. Madoff Investment Securities, LLC) or to reverse payouts to shareholders in failed leveraged buyouts (LBOs). Disputes over 546(e) have been increasing in number and value in recent years.”
How SCOTUS ruled: The court didn’t need to do any heavy thinking on this one. It handed down its decision within a month of our February preview – and did so unanimously. The safe harbor provision at issue was meant to shield securities and commodities traders from getting wrapped up in clawback litigation, but the statute allowed a broader reading. Some courts determined that it gave safe harbor status to any settlement transaction that was initially paid to a financial institution, even if the institution only served as a conduit in transferring the settlement to its ultimate beneficiary. The court went with a narrower reading of the safe harbor provision, making it inapplicable when a financial institution merely serves as a conduit for a settlement payment.
Bottom line: Expect bankruptcy clawback litigation to increase.