Congressional Court Watcher: Recent Appellate Decisions of Interest to Lawmakers (May 29–June 4, 2023)
Legal Sidebari
Congressional Court Watcher: Recent
Appellate Decisions of Interest to Lawmakers
(May 29–June 4, 2023)
June 5, 2023
The federal courts issue hundreds of decisions every week in cases involving diverse legal disputes. This
Sidebar series selects decisions from the past week that may be of particular interest to federal lawmakers,
focusing on orders and decisions of the Supreme Court and precedential decisions of the courts of appeals
for the thirteen federal circuits. Selected cases typically involve the interpretation or validity of federal
statutes and regulations, or constitutional issues relevant to Congress’s lawmaking and oversight
functions.
Some cases identified in this Sidebar, or the legal questions they address, are examined in other CRS
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Decisions of the Supreme Court
Last week, the Supreme Court issued opinions in three cases where it had heard arguments:
• False Claims Act: A unanimous Court held that the requirement of the False Claims Act
(the FCA) that a defendant act “knowingly” primarily refers to a defendant’s subjective
beliefs at the time of submitting a claim. The Court based its reasoning on the statutory
definition and common-law origins of the term. The Court decided that even if the false
statement concerned an ambiguous legal requirement, and even if an objectively
reasonable person could have adopted the FCA defendant’s (incorrect) interpretation, the
defendant might still have acted knowingly if the defendant thought its claims were
inaccurate at the time of submission (United States ex rel. Schutte v. Supervalu Inc.).
• Labor & Employment: The Supreme Court held that the National Labor Relations Act
(NLRA) did not preempt a company’s tort claims that a union intentionally destroyed the
company’s property during a labor dispute where the union did not take reasonable
precautions to avoid foreseeable danger to that property. The Court recited the National
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Labor Relations Board’s long-standing position that the right to strike under the NLRA is
limited by the requirement that workers take reasonable precautions to protect their
employer’s property from foreseeable, aggravated, and imminent danger. Accepting the
allegations in the company’s complaint as true, the Court reversed a state court’s
dismissal of the tort claims against the union (Glacier Nw., Inc. v. Teamsters).
• Securities: The Supreme Court adopted a narrow reading of Section 11 of the Securities
Act of 1933. The Act requires a company to register the securities it intends to offer to the
public with the Securities and Exchange Commission, and Section 11 authorizes an
individual to sue for a material misstatement or omission in a registration statement when
the individual has acquired “such security.” The Court held that “such security” only
pertains to a security registered under a materially misleading registration statement.
Observing that the plain text of § 11 does not define “such security,” the Court parsed the
statute’s context to determine that § 11 liability extends only to shares traceable to an
allegedly defective registration (Slack Techs., LLC v. Pirani).
Decisions of the U.S. Courts of Appeals
Topic headings marked with an asterisk (*) indicate cases where the appellate court’s controlling opinion
recognizes a split among the federal appellate courts on a key legal issue resolved in the opinion,
contributing to a non-uniform application of the law among the circuits.
• *Bankruptcy: Joining most circuits, the Second Circuit held that two provisions of the
Bankruptcy Code—11 U.S.C. §§ 105(a) and 1123(b)(6)—jointly provide a basis for a
bankruptcy court to approve a Chapter 11 bankruptcy plan allowing nonconsensual, third-
party releases of direct claims against nondebtors. The case here involved Purdue
Pharma’s filing for bankruptcy after costly civil litigation over its introduction of the
opioid OxyContin into the pharmaceutical market. The bankruptcy court authorized the
release of many civil litigation claims against the Sackler family, which owned and
operated Purdue Pharma for decades, contingent upon the family’s agreeing to contribute
billions to the company’s bankruptcy estate to fund settlements with both private litigants
and the federal government. The circuit court set forth a multifactor test for when the
nonconsensual, third-party release of direct claims against nondebtors may be permitted,
and concluded that those factors were satisfied in this case (In re Purdue Pharma, L.P.).
• Bankruptcy: The Eighth Circuit affirmed a bankruptcy court order denying a debtor’s
motion to compel the case trustee to abandon the debtor’s real property. The court held
that a debtor who converts a case from one Chapter of the Bankruptcy Code to another
does not retain any preconversion market appreciation and increases in equity in real
property. Here, the debtor filed a petition under Chapter 13 and two years later converted
the case to one under Chapter 7. The parties disagreed whether the market appreciation
on the debtor’s residence as well as the reduction in the mortgage lien on the residence
during that two-year period inured to the benefit of the debtor or the bankruptcy estate.
The court interpreted Section 348 of the Bankruptcy Code, which concerns the effect of a
conversion on property of the estate held at the time of the petition, but is silent as to
preconversion market appreciation or increases in equity. The court declined to adopt the
debtor’s argument that Congress, in failing to address this scenario, intended for debtors
to retain postpetition and preconversion appreciation and increases in equity (Goetz v.
Weber).
• *Civil Procedure: The Fifth Circuit held that 28 U.S.C. § 1654—which allows parties to
pursue “their own cases” pro se in federal court—does not establish an absolute bar
against parents proceeding pro se on behalf of their minor children, a holding the court
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recognized conflicts with those of 10 other circuits. While the controlling opinion
recognized that § 1654 did not abrogate the common-law rule that typically barred
parents from representing their children pro se, the panel majority concluded that this rule
does not apply if a federal or state law designated a child’s case as belonging to the parent
(Raskin v. Dallas Indep. Sch. Dist.).
• *Civil Procedure: The Eleventh Circuit held that a district court order compelling an
appraisal in an insurance contract dispute and staying proceedings pending the appraisal
is an interlocutory order not immediately appealable under 28 U.S.C. § 1292(a)(1). The
court disagreed with a Seventh Circuit decision, which had found appellate jurisdiction
over an appraisal order without conducting a jurisdictional analysis. The Eleventh Circuit
further held that an order compelling an appraisal is not immediately appealable under
the Federal Arbitration Act. Assuming that the order compelling an appraisal pertained to
an arbitration, the court found no appellate jurisdiction because the order was not a final
decision (Positano Place at Naples I Condo. Ass’n, Inc. v. Empire Indem. Ins. Co.).
• Consumer Protection: The Sixth Circuit reversed the dismissal of an action under the
Telephone Consumer Protection Act of 1991 (TCPA) on Article III standing grounds. The
district court held the plaintiff lacked standing to file the TCPA action because receipt of
a single ringless voicemail (RVM) did not cause a concrete harm sufficient to support a
suit. The court of appeals reversed, holding that the receipt of a single RVM implicated
the plaintiff’s common-law right to seclusion and that this was the type of harm Congress
sought to address when it passed the TCPA (Dickson v. Direct Energy, LP).
• Criminal Law & Procedure: The Eighth Circuit affirmed the dismissal of federal
criminal indictments against the captain and managers of a commercial tour boat that
sank in Table Rock Lake in the Ozarks, killing several passengers. The defendants were
charged under the Seaman’s Manslaughter Statute, 18 U.S.C. § 1115, which punishes
negligence or misconduct by vessel operators leading to death, and 46 U.S.C. § 2302(b),
which sanctions the operation of a vessel in a grossly negligent manner that endangers
another. Looking to the text and history of the statutes, the panel majority held that
Congress enacted them under its power to legislate on matters within the scope of
admiralty and maritime jurisdiction, and that the statutes did not apply to conduct on the
lake because it is not part of navigable waters subject to federal admiralty
jurisdiction. The court implied a potentially different result if the statutes had been
enacted under Congress’s Commerce Clause authority (United States v. McKee).
• *Criminal Law & Procedure: The Ninth Circuit vacated a defendant’s sentence for
conspiracy to distribute methamphetamine where the district court had labeled conspiracy
a “controlled substance offense” under § 4B1.2 of the U.S. Sentencing Guidelines
(USSG). The court confronted the issue of whether to follow the text of § 4B1.2, which
did not provide for inchoate offenses, and the USSG commentary to § 4B1.2 (Application
Note 1), which did. The court declined to defer to the Application Note 1, reasoning that
§ 4B1.2 unambiguously does not include inchoate offenses. The court relied on the
Supreme Court’s decision in Kisor v. Wilkie, which held that courts may not defer to
agency interpretations of their own regulation if the court determines the regulation is not
ambiguous. The Ninth Circuit joins most, but not all, circuit courts that have declined to
defer to Application Note 1 in the aftermath of Kisor (United States v. Castillo).
• *Criminal Law & Procedure: A divided Ninth Circuit panel held that it had jurisdiction
to review a district court’s denial of the appellant’s habeas petition even without a
certificate of appealability (COA), where the petition related to a sentence imposed by the
D.C. Superior Court. Under 28 U.S.C. § 2253(c)(1), a COA must be obtained before a
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habeas petitioner may appeal a federal district court’s denial of a petition “in which the
detention complained of arises out of process issued by a State court.” Splitting with
other circuits, the panel majority held that requirement did not apply here, because the
D.C. Superior Court is not a “state court” under § 2253(c)(1). The majority then
concluded that the district court erred in dismissing the petition on other grounds and
remanded for the lower court to consider the petition’s merits (Elridge v. Howard).
• *Criminal Law & Procedure: The Eleventh Circuit affirmed the convictions and
sentencing of a defendant convicted of Hobbs Act robbery and associated firearms
offenses for his involvement in the robbery of nine businesses. As to sentencing, the court
affirmed a sentencing enhancement based on bodily restraint for three of the nine
robberies. The court declined to follow a Third Circuit decision that would have
counseled against applying the enhancement because that case directly conflicted with
Eleventh Circuit precedent (United States v. Ware).
• *Securities: Sitting en banc, a divided Ninth Circuit affirmed the dismissal of a putative
derivative action filed in federal court against The Gap, Inc. and its directors (Gap)
because a forum-selection clause in Gap’s bylaws provided that the Delaware Court of
Chancery was the sole and exclusive forum for any derivative action. The majority
rejected the plaintiff’s arguments that the forum-selection clause violated the antiwaiver
provision of the Securities Exchange Act of 1934, federal public policy, and Section 115
of the Delaware General Corporation Law. The majority acknowledged that its holdings
created a circuit split with the Seventh Circuit (Lee v. Fisher).
• *Tax: The Fourth Circuit affirmed the U.S. Tax Court’s partial disallowance of a
corporation’s business deduction for bonuses paid to the company’s CEO because the
bonuses exceeded the reasonable allowance for compensation in 26 U.S.C. § 162(a)(1).
The court joined most circuits in applying a multifactor approach that assesses the
reasonableness of compensation under the totality of the circumstances. In so holding, the
court declined to adopt the Seventh Circuit’s independent investor test, which establishes
a rebuttable presumption that an executive’s compensation is reasonable if shareholders
are receiving a sufficiently high rate of return on their equity investment. The court
concluded that the multifactor test is more in line with the Internal Revenue Service (IRS)
regulations that limit compensation deductions to what is “reasonable under all the
circumstances” and that the independent investor test was too narrow (Clary Hood, Inc. v.
Comm’r of Internal Revenue).
• *Tax: The Eighth Circuit decided that the IRS assessment of the fair market value of a
closely held corporation properly identified the corporation’s life insurance policy on a
deceased shareholder as an asset, when policy proceeds were used to redeem the
decedent’s shares. Characterizing its decision as consistent with governing law and
customary valuation principles, the court acknowledged a split with the Eleventh Circuit,
which held in a similar case that life insurance proceeds should not be added to the value
of a corporation for tax purposes (Connelly v. United States).
• Tax: In a case about the tax liability of a couple who claimed boating expenses related to
their chartered yacht as “hobby losses” under 26 U.S.C. § 183(b)(2), the Eleventh Circuit
considered whether § 183(b)(2) expenses are deductible “above-the-line” (reducing gross
income) or “below-the-line” as miscellaneous itemized deductions (reducing adjusted
gross income). The court held that § 183(b)(2) expenses are “below-the-line” deductions.
This classification typically yields a less favorable result for the taxpayer than “above-
the-line” deductions treated as reductions in the taxpayer’s gross income. P.L. 115-97,
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• often referred to as the Tax Cuts and Jobs Act of 2017, suspends such miscellaneous
itemized deductions for the 2018-2025 tax years (Gregory v. Comm’r of Internal Rev.).
Author Information
Michael John Garcia
Michael D. Contino
Deputy Assistant Director/ALD
Legislative Attorney
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