Monthly Archives: September 2015

Buchanan v. Stanships, Inc.

485 U. S. 265

March 21, 1988

A widow and her child sued a cargo ships company (Stanships) for her husband’s wrongful death. She lost, but appealed. Shortly afterward, the ship company successfully filed a motion to be awarded court costs. When the widow did not subsequently renew her request for appeal, Stanships tried to get the case dismissed because the Federal Rules of Civil Procedure required re-filing when a court amends its final judgment.

The Supreme Court slapped down Stanships in an 8-1 per curiam decision. The aforementioned rule only applied when the judgment on the legal merits was altered or amended, not when the totally separate issue of costs was re-examined. A careful parsing of the Federal Rules related to court costs bolstered this conclusion. Thus, the widow could go ahead with her appeal without needing to re-file. Marshall, as always, dissented, and opined that the Court should have heard oral argument before reaching a verdict.

Usually, the Supreme Court is a cold and callous organization which does not care about establishing justice. But on very rare occasions, like in Rose, it will remember the Bible’s warning: “cursed [is] anyone who perverts the justice due to the sojourner, the fatherless, and the widow” (Deuteronomy 27:19). And so, on that beautiful day in March of 1988, eight Justices protected Mercilyn Buchanan against the abusive ship company, just as they had protected Carrie Rose sixteen months earlier. Obedience to God must not be so vanishingly rare, but I suppose a tiny amount of obedience is better than none.

Haig v. Bissonette

485 U. S. 264

March 21, 1988

A bunch of Native American activists decided to occupy the village of Wounded Knee, South Dakota in 1973. U.S. military personnel were eventually brought in to help control the activists, and things got ugly from there. The activists maintained that authorities had breached a federal law (the Posse Comitatus Act), which prohibited the U.S. military from assisting in domestic brawls. They also maintained that violating the Posse Comitatus Act was equivalent to violating the Fourth Amendment. Lower courts agreed, and the case then went to the Supreme Court.

Here’s where it gets weird: by statute, in order to even consider a case, six Supreme Court Justices must be available. After the Court took the case, Rehnquist, O’Connor, Scalia, and Kennedy all ended up recusing themselves, leaving only five other Justices. Thus, in a surreal per curiam paragraph, the Court said that it was impossible to decide the case, and let the lower ruling stand.

Basic Inc. v. Levinson

485 U. S. 224

March 7, 1988

A company known as Basic Inc. made three public denials that it had any plans to merge. But these denials were lies, and it soon merged anyway. Investors who had sold their Basic stock during that time frame sued the company for securities fraud. Under the Securities Exchange act, private investors could recover if they were induced to sell stock due to material misstatements by a company. The Court had to decide whether Basic’s denials were material misstatements.

The Court ruled 4-2 that they were (Rehnquist, Scalia, and Kennedy did not participate). First though, the Court unanimously issued a few parameters for future cases. Blackmun said that something is material if it affects the behavior of a reasonable investor. He rejected the argument that merger talks were not material until finalized, because potential mergers certainly did affect stock prices. But Blackmun also rejected the argument that any lie was material, since some lies truly are harmless in the investing world. He ultimately concluded that courts should look, on a case by case basis, at the probability of the merger, and the importance of the merger.

Then, Blackmun said that the case could go forward with a presumption that the stockholders had been defrauded by the misstatements about the merger. Because stock price is dependent on common knowledge of facts, widely spread lies will result in a stock price which is inaccurate – a sort of fraud on the market. But this presumption was rebuttable – Basic could prove that the misstatements did not actually affect stock price, or that everyone really knew the denials were false.

White, joined by O’Connor, took issue with giving the investors a presumption that they had been defrauded. He objected that the fraud-on-the-market theory was judicial activism, and contrary to the intent of Congress so far as legislative material disclosed. He also did not think that inaccurately priced stock even was a fraud on the market, since stock trading is all about finding over- or under-priced stocks. Finally, White noted that Basic stock actually increased during the time period when the denials were issued, and found it baffling that the investors could even claim to have been ‘defrauded’. He predicted that unscrupulous investors would eventually be able to game the system.

I was immediately sympathetic to Blackmun’s opinion – companies ought to be held accountable for lying to stockholders. Telling the same lie three times felt like something straight out of the Bible! But then I read White’s opinion, and was won over. He was right that the cure prescribed by the majority ended up being worse than the disease. And if it weren’t for all the asinine recusals, his dissent probably would have been the majority opinion too.

Arkansas Best Corp. v. Commissioner

485 U. S. 212

March 7, 1988

A stock buying company (Arkansas Best) bought lots of stock from a successful bank. Later, that bank encountered troubled waters, and the company bought a lot more stock to help the bank stabilize. Finally, the company gave up, and sold most of the bank’s stock. Arkansas Best claimed this selling off was an ordinary loss rather than a capital loss for tax purposes. The IRS disagreed, citing the tax code’s definition of capital assets, and that definition’s short and exhaustive list of exceptions (none of which applied to the stock at issue).

The Supreme Court unanimously backed the IRS (Kennedy did not participate). Marshall rejected the company’s silly attempt to invent a distinction where property acquired for ‘investment’ purposes would be sold for capital loss, but property acquired for ‘business’ purposes would be sold for ordinary loss. The tax code recognized no such distinction. Undaunted, Arkansas Best cited a 1955 decision where corn futures were ruled not a capital asset, even though they fell within none of the statutory exceptions to the general rule. Marshall replied that corn futures were so close to being ‘inventory’ that they fell within the inventory exception, and that, in contrast, the stock was nowhere near any of the exceptions.

I took a course in tax law, and in all honesty, it’s still practically a realm of mystical voodoo to me. It’s comforting that the Supreme Court seems to feel the same way. Their tax cases tend to be unanimous, and very accepting of the lower courts’ logic. While I wish Arkansas Best the best (haha, funny pun, huh?), I can’t really muster an informed opinion about their unanimous loss.

Norwest Bank Worthington v. Ahlers

485 U. S. 197

March 7, 1988

This is a sad case.

A farm in Minnesota ended up more than a million dollars in debt, most of it owed to a bank. The farm tried to declare bankruptcy, but the bank objected under the ‘absolute priority’ rule, which gives creditors with unsecured debt the power to halt a bankruptcy reorganization. The farm tried to get around the absolute priority rule in several ways.

Unanimously, the Court rejected all of farm’s arguments (Kennedy did not participate). White said the farm could not secure the bank’s debt through promises of future labor and payments. Although a 1939 Court case allowed for some more creative ways to secure debtors, future labor was too speculative to qualify for this exception. Congressional debates bolstered this conclusion. White also shot down, as obviously false, a wacky argument that the farmland had no property value to the bank (and that somehow this meant the absolute priority rule did not apply).

Finally, White addressed the elephant in the room: that not allowing the farmers to reorganize and try to give the farm new life was… well, cruel. Cruel or not, the Court felt constrained to obey the provisions of the bankruptcy code. It’s cases like this that really sour me on the entire concept of legal positivism. A truly Biblically minded nation would not have its highest Court rule in such a way. No, a Christian nation would remember the seventh year debt forgiveness in ancient Israel (Deuteronomy 15:1-11), or the parable of the unforgiving debtor (Matthew 18:21-35). My heart goes out the the Ahlers family, who had the misfortune of living in a country that loved money more than mercy.