United States: Supreme Court Decision Alert - June 25, 2015

Last Updated: June 26 2015
Article by Richard B. Katskee and Brian D. Netter

Today, the Supreme Court issued two decisions, described below, of interest to the business community.

  • Affordable Care Act—Availability of Tax Credits
  • Fair Housing Act—Disparate-Impact Claims

Affordable Care Act—Availability of Tax Credits

King v. Burwell, No. 14-114 (previously described in the November 7, 2014, Docket Report)

The Patient Protection and Affordable Care Act (ACA) created statewide health insurance exchanges. Individuals who don't have employer-provided insurance are now generally required to obtain qualifying health insurance coverage or to pay a tax penalty. Low-income individuals who do not qualify for Medicaid are entitled to tax credits to subsidize the purchase of health insurance when they acquire that insurance through an exchange "established by the State" under 42 U.S.C. § 18031. 26 U.S.C. § 36B(c)(2)(A)(i) ("Section 36B"). After the Internal Revenue Service (IRS) issued a rule interpreting Section 36B's reference to an exchange "established by the State" to encompass exchanges facilitated by the federal government as well as exchanges set up by states, several groups of plaintiffs filed suit. (Ultimately, 16 states and the District of Columbia set up exchanges; 34 states are served by federally-facilitated exchanges.)

Today, in King v. Burwell, No. 14-114, the Supreme Court upheld the IRS rule by a 6-3 vote, holding that Congress authorized tax credits for individuals in states with federally facilitated exchanges.

The Court's opinion, written by Chief Justice Roberts, is consequential both for its outcome and for its reasoning.

In most statutory interpretation cases, the Court assesses the statutory text and, if it concludes the statute is ambiguous, applies the framework for statutory analysis that was set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)—as the Fourth Circuit did below. Under Chevron, the Court will defer to an agency's interpretation of an ambiguous statute if that interpretation is reasonable. Chevron encourages such deference on the assumption that statutory "ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps."

Here, however, the Court concluded that Section 36B presented an "extraordinary case[]" where it could not properly assume that Congress intended such an implicit delegation to the IRS. The availability of credits through the federally-facilitated exchanges is "a question of 'deep economic and political significance' that is central to [the ACA]," and, "had Congress wished to assign that question to an agency," Congress "surely would have done so expressly." So, rather than defer to the IRS, the Court undertook its own interpretation of Section 36B.

After criticizing Congress's "inartful" drafting, the Court credited the plaintiffs with "strong" arguments about the "plain meaning" of Section 36B standing alone. But the Court found that interpreting the phrase "an Exchange established by the State" to exclude federally facilitated exchanges would have a series of surprising outcomes and would render a series of other statutory provisions ineffectual. As such, the Court found the meaning of Section 36B to be ambiguous.

Given the ambiguity of Section 36B's text, the Court evaluated "the broader structure of the [ACA]." To determine Congress's intent, the Court first looked to the ACA's "statutory scheme," which "compel[led the Court] to reject petitioners' interpretation because it would destabilize the individual insurance market in any State with a [federally-facilitated exchange], and likely create the very 'death spirals'"—a combination of premium increases and market contraction—"that Congress designed the Act to avoid." It was, therefore, "implausible that Congress meant the Act to operate in this manner." The threat of a death spiral could not reasonably be interpreted as evidence "that Congress believed it was offering a deal [the states] would not refuse," because the ACA's provisions allowing for the creation of federally-facilitated exchanges assumed that States might choose not to establish their own exchanges. As such, the Court held that the Government's interpretation of Section 36B—authorizing subsidies in federally facilitated exchanges—must be correct.

The dissent—authored by Justice Scalia and joined by Justices Thomas and Alito—rejected the majority's core premise that Section 36B was ambiguous and found no evidence in the greater statutory context or purpose to support tax credits for plans purchased on the federally-facilitated exchanges. "Rather than rewriting the law under the pretense of interpreting it," the dissent urged, "the Court should have left it to Congress to decide what to do about the [ACA's] limitation of tax credits to state exchanges."

King leaves the IRS's current tax-credit system intact, relieves health insurance providers of threats of market destabilization, and provides greater certainty to employers, whose responsibility to provide health insurance coverage for their employees depends on their employees' access to tax credits. The Court's departure from the Chevron framework suggests that federal agencies' statutory interpretations—including conclusions regarding agency authority to issue regulations—may be more vulnerable to challenge in a variety of other contexts.

In the proceedings before the Court, Mayer Brown filed an amicus curiae brief for America's Health Insurance Plans in support of the Government.


Fair Housing Act—Disparate-Impact Claims

Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., No. 13-1371

Claims of discrimination based on race, sex, or other protected characteristics may rest on a claim of disparate treatment, which requires proof that the defendant had a discriminatory purpose or motive; or of disparate impact, which requires proof that a facially neutral policy or practice has a "disproportionately adverse effect on minorities" and that even if it is justified by a legitimate rationale, the policy or practice serves an interest that could be achieved as effectively through another, less discriminatory means.

The Supreme Court ruled today that lawsuits under the antidiscrimination provisions of the Fair Housing Act may be premised on disparate impact as well as on disparate treatment. But the Court also explained that disparate impact will not automatically invalidate otherwise legitimate policies. In doing so, the Court appears to have raised the bar on the showing necessary to prove a disparate-impact claim, thus providing businesses and government agencies with tools needed to defeat unjustified claims. The decision will prove important to entities subject to the FHA, the Equal Credit Opportunity Act, and other statutes that have given rise to disparate-impact claims.

Under § 805(a) of the FHA, it is unlawful "to discriminate against any person in" making certain real-estate transactions "because of race" or other protected characteristics. This lawsuit challenged certain policies promulgated by the Texas Department of Housing and Community Affairs, alleging that those policies violated § 805(a) because they had a disproportionately negative effect on racial minorities.

The challenged policy involved the distribution by Texas of certain federal tax credits available to real-estate developers that are intended to facilitate the development of low-income housing. Under the challenged scheme, Texas distributed tax credits by using a point system that looked to various criteria, including the project's financial feasibility and the income level of the tenants. The plaintiff, a nonprofit group that assists low-income families seeking affordable housing, challenged Texas's distribution scheme, alleging that it allocated too many tax credits for housing in predominantly minority neighborhoods and not enough in predominantly white suburbs—thus leading to the development of a disproportionate amount of low-income housing in minority neighborhoods.

Texas argued that, to prove an FHA discrimination claim, it was not enough to show that the challenged policy had a disparate impact on members of a minority race. Instead, Texas maintained, the Act requires proof that the defendant acted with discriminatory intent. The district court sided with the plaintiff organization, holding that the FHA does permit disparate-impact claims. The district court further held that, once the plaintiff had made out a prima facie case of disparate impact, the burden shifted to Texas to prove that there were no less-discriminatory alternatives for accomplishing its housing-policy objectives. On appeal, the Fifth Circuit affirmed the district court's holding that the FHA permits disparate-impact claims. But it modified the burden-shifting, concluding that once a defendant demonstrates why a policy is necessary to achieve a nondiscriminatory interest, the plaintiff bears the burden of proving that the interest could be furthered by another practice with a less discriminatory effect. The Supreme Court granted certiorari to address the availability of disparate-impact claims under the FHA.

In today's 5-4 decision authored by Justice Kennedy, the Court held that the FHA does authorize disparate-impact claims. The Court relied on its previous decisions interpreting analogous provisions of Title VII and the Age Discrimination in Employment Act and on Congress's amendment of the FHA with knowledge that every court of appeals to address the issue had recognized the availability of disparate-impact claims. (We expect that defendants facing disparate-impact claims under other statutes, such as the Equal Credit Opportunity Act, will argue that the Court's analysis means that the different statutory language of those laws does not authorize disparate-impact claims.)

The Court in today's opinion went on to recognize that disparate-impact claims may be abused, and that "disparate-impact liability must be limited so employers and other regulated entities are able to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system." The Court therefore emphasized several limitations on the scope of this liability:

  • Reliance on statistical disparities alone is insufficient: "a disparate-impact claim that relies on a statistical disparity must fail if the plaintiff cannot point to a defendant's policy or policies causing that disparity. A robust causality requirement ensures that '[r]acial imbalance . . . does not, without more, establish a prima facie case of disparate impact' and thus protects defendants from being held liable for racial disparities they did not create." Therefore, "[a] plaintiff who fails to allege facts at the pleading stage or produce statistical evidence demonstrating a causal connection cannot make out a prima facie case of disparate impact." This "robust causality requirement" may not be easily satisfied in cases in which the parties offer competing explanations for a challenged disparity. For example, it may "be difficult to establish causation because of the multiple factors that go into investment decisions about where to construct or renovate housing units."
  • "Governmental or private policies are not contrary to the disparate-impact requirement unless they are 'artificial, arbitrary, and unnecessary barriers.'" The Court emphasized that "courts should avoid interpreting disparate-impact liability to be so expansive as to inject racial considerations into every housing decision." Thus, even if the plaintiff can establish a prima facie case showing an "artificial, arbitrary, and unnecessary barrier," "[a]n important and appropriate means of ensuring that disparate-impact liability is properly limited is to give housing authorities and private developers leeway to state and explain the valid interest served by their policies. This step of the analysis . . . provides a defense against disparate-impact liability."
  • Finally, "[r]emedial orders in disparate-impact cases should concentrate on the elimination of the offending practice that 'arbitrar[ily] . . . operate[s] invidiously to discriminate on the basis of rac[e].'" If additional measures are adopted, courts should strive to design them to eliminate racial disparities through race-neutral means.

Justice Thomas filed a dissenting opinion, arguing that the majority's analysis relied on the Court's previous erroneous interpretation of Title VII. Justice Alito also dissented, arguing that the statutory prohibition against discrimination "because of" a prohibited characteristic could only plausibly be read to refer to intentional discrimination. Justice Alito's dissent was joined by the Chief Justice and Justices Scalia and Thomas.

Please visit us at www.appellate.net

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2015. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions