Supreme Court 2018

A client of mine recently asked me what impact Justice Kennedy’s retirement from, and the possible appointment of Judge Brett Kavanaugh to, the U.S. Supreme Court might have on the equipment industry and businesses in general.

James Waite’s Answer:    

That is correct. Justice Anthony Kennedy, a Reagan-era appointee to the U.S. Supreme Court, retired as of July 31, 2018.  Later that month, President Donald Trump nominated as his replacement, U.S. Court of Appeals Judge, Brett Kavanaugh, from a list of possible candidates.  

This could impact the legal landscape of the United States for decades to come for a variety of reasons:

  1. The Supreme Court is the final (top) legal authority in the United States. Its decisions automatically overrule any contrary decisions made by lower courts (e.g., federal, state, county and municipal courts), though in many cases, it also effectively decides cases by refusing to hear them (letting the lower court’s ruling stand) or by remanding (returning) them to a lower court for further consideration of one or more issues;
  2. Under Article 2 of the U.S. Constitution, Supreme Court Justices are nominated by the President, and they must be “confirmed” by majority vote of the U.S. Senate;
  3. Once confirmed, they serve for life or until they are impeached or elect to resign or retire;
  4. Among other things, the Supreme Court rules on questions of “Constitutionality” – whether a given law is enforceable under the U.S. Constitution, and whether to uphold, reverse and/or remand a decision made by a lower federal appellate or district court or state supreme court;
  5. The current maximum number of Justices who can serve on the Supreme Court is nine (9) (Note: That maximum was last tested in 1937 with Franklin Roosevelt’s plan to increase the maximum to 15; the plan was defeated in the Senate, which despite FDR’s immense popularity, was rightly concerned about the potentially disastrous impact such a move might have on the balance of power between the executive and judicial branches);
  6. Although theoretically, Supreme Court Justices interpret the Constitution impartially and without political bias, as a practical matter, their rulings tend to (but do not always) represent their perceived general worldviews (i.e., liberal or conservative).

The current Supreme Court is/was more or less evenly divided, with 4 Justices leaning liberal; 4 Justices leaning conservative; and 1 Justice (Anthony Kennedy) at least as portrayed in some circles, acting as a “swing” vote, sometimes voting with conservatives; sometimes with liberals.  Here is the current breakdown:

Justice: Perceived Viewpoint: Appointed By: Appointed When:
Ruth Bader Ginsburg Liberal Bill Clinton 1993
Sonya Sotomayor Liberal Barack Obama 2009
Elena Kagan Liberal Barack Obama 2010
Stephen Breyer Liberal Bill Clinton 1994
John Roberts Conservative George W. Bush 2005
Clarence Thomas Conservative George H.W. Bush 1991
Neil Gorsuch Conservative Donald Trump 2017
Samuel Alito Conservative George W. Bush 2006
Anthony Kennedy (Retiring) Swing Ronald Reagan 1987

Obviously, the views espoused by Justice Kennedy’s replacement will be disproportionately important, as his successor will likely continue to act as the swing vote with respect to decisions on which the Supreme Court is otherwise evenly divided.  That, however, is far from the end of the analysis.

  1. Remembering that, although the sitting President must nominate Justice Kennedy’s successor, the Senate must confirm the President’s nominee in order for him/her to actually be appointed to the Supreme Court.  The much debated “nuclear option” whereby the ability to effectively require 60 votes for confirmation was eliminated with respect to lower court judges in 2013, and extended to the Supreme Court in 2017, thereby reducing the effective number of votes required to confirm a Supreme Court Justice to 51.  Currently, 51 Republicans and 49 Democrats serve as U.S. Senators, but that doesn’t necessarily mean President Trump’s first choice will automatically be confirmed.  As you might guess, an immense lobbying effort is already underway seeking to influence the Senators’ votes to confirm or reject President Trump’s nominee(s).  That coupled with each Senator’s individual leanings, means they don’t always vote strictly along party lines.  For example, Trump nominee, Neil Gorsuch was confirmed by a vote of 54 to 45, with three Democrats (Heidi Heitkamp of ND, Joe Manchin of W.VA, and Joe Donnelly of IN) voting in favor of his appointment. Breaking with the party line isn’t altogether common in the current polarized political environment, but it does happen periodically.  Thus, although Judge Kavanaugh’s appointment to the Supreme Court is more likely than not to be confirmed, it is not guaranteed.

Effects on Rental Operators:   

The Supreme Court typically considers between 100 and 150 cases each year out of roughly 7,000 requests.  Those cases, of course, can have far-reaching effects on a range of economic and social issues.  It can, therefore, be difficult to predict which decisions will be most impactful for business.  Nonetheless, following are several cases that, in my view, are more likely than most to have a substantial impact on rental operators and/or on business operators generally (Note: These are merely summaries which have been intentionally shortened in an effort to make them useful to the reader):

Case Name: Issue: Potential Impact:
Air and Liquid Systems Corp. v. Devries Whether a defendant in a products liability case can be held liable under maritime law for injuries caused by products that the defendant did not make, sell, or distribute. “Products Liability” cases (those in which a business owner in the “stream of commerce” can be held liable for all damages arising from an alleged product defect) are perhaps the greatest single threat to rental operators because damage claims can be enormous.  A ruling that broadens the already immense net cast by product liability law (which already permits injured plaintiffs to sue every party in the “chain of distribution,” including rental operators) could expose rental and other business operators to more and larger liability claims.
New Prime Inc. v. Oliveira Whether the Federal Arbitration Act applies to an agreement that purports to create an independent contractor relationship in the same manner in which it applies to an employment agreement. The federal arbitration act applies to contracts of employment of transportation workers, but historically, not to independent contractors. However, suits by independent contractors claiming to “actually” be employees under the federal Fair Labor Standards Act (“FLSA”) have become commonplace.  Employers often prefer to arbitrate such claims because doing so can be quicker and less costly than going to trial.  At issue is whether an employer may require arbitration in this type of case (one in which an employee was engaged as an independent contractor, but now claims to be an employee).  A ruling enabling employers to require arbitration instead of going to trial would reduce the potential impact of such FLSA-based lawsuits.
Lamps Plus, Inc. v. Varela Whether a general arbitration agreement in an employment contract can be used to enable an employee to arbitrate on a “class-wide” basis, instead of individually. Class actions are another existential threat to rental companies because class-wide awards (those made to potentially thousands of “similarly-situated” individual claimants against a defendant) can reach tens of millions of dollars.  Thus, any ruling which expands the ability of employees or other parties to seek “class-wide” awards can yield potentially disastrous consequences for rental companies and small businesses generally.
Sturgeon v. Frost. Whether the National Forest Service or a state agency controls the use of state, native corporation and private land located within the boundaries of the National Park System. Federal control over state and privately held lands in or near federal lands and waterways can significantly impact the value of adjacent privately held lands, and obviously, the businesses located on such lands (somewhat similar to EPA control over “navigable waterways” – which might theoretically include diches and ponds).  Consequently, a ruling that reinforces federal control may negatively impact the value of such lands and have a chilling effect on local business development, including, of course, construction projects that require rented equipment.
Timbs v. Indiana. Whether the 8th Amendment’s prohibition on excessive fines applies to states. States may impose severe penalties against individuals and companies for failures to comply with state laws, which might include, for example, licensing and permitting requirements, state-mandated emissions limitations, inspection and reporting requirements, etc.  Such penalties sometimes rise to the level of property (e.g., equipment) forfeitures.  The 8th Amendment to the U.S. Constitution prohibits excessive fines that are grossly disproportionate to the offense.  Thus, a ruling favoring federal control may benefit rental companies and small businesses by enabling them to avoid severe penalties and/or equipment forfeitures under state laws in some cases.
Wayerhauser Co. v. U.S. Fish & Wildlife Service. Whether the US Fish and Wildlife Service can designate private property as critical habitat (and substantially impair its use and its economic value) even though that property is not currently being used as such – even if the FWS ignores the harm to the private property owner in doing so. Federal takings of privately owned property on the “chance” that such property might at some point be useful as wildlife habitat (in this case, the Dusky Gopher Frog, which had not inhabited the property for decades) poses a threat to any business located in or near any form of wildlife – essentially, every business with a physical presence in the U.S.  Both the federal district court and the 5th Circuit Court of Appeals held in favor of the Fish and Wildlife Service.  The private owner of the property is now appealing the case to the Supreme Court. A ruling in favor of the FWS would tend to expand its “arbitrary” power to restrict the use of private property; a ruling against it would tend to restrict that power – significantly.

Obviously, decisions made by the Supreme Court can impact businesses in a variety of ways, both directly and indirectly.  Thus, the makeup of the Court can have a dramatic impact on the U.S. business climate for many years – think of the High Court’s rulings on monopolies (Standard Oil; 1915) and Franklin Roosevelt’s New Deal in the 1930s, and its recent reinterpretation of the Fair Labor Standards Act (broadening overtime exemptions), among others.  A swing vote on the above issues could well alter the balance between business interests and, for example, environmental groups, employees, consumers, and (horrifyingly) class-action plaintiffs’ lawyers.   

But in spite of the current spate of hand-wringing amongst special interest groups, here are a few things to consider:

  1. laws originate with legislatures, not with the Supreme Court;
  2. regulatory enforcement efforts originate with regulators, not with the Supreme Court; 
  3. the Supreme Court’s job is to interpret the constitutionality and enforceability of laws, lower court rulings and regulatory actions; it is not to make laws;
  4. legislatures, lower courts and regulatory authorities have the ability to modify and conform their efforts to the Constitution, if and when laws, rulings and/or regulatory actions are reversed and remanded or deemed unconstitutional; and finally;
  5. consider also that the Supreme Court has remained remarkably balanced between liberals and conservatives since the 1940s. Indeed, the last President to appoint more than two Justices was Ronald Reagan in the 1980s, who actually appointed four, starting with Sandra Day O’Connor in 1981.  That “balancing” may not be as much a result of good fortune and timing as it appears.

In the current situation, if President Trump is successful in appointing a conservative to the Court, the balance would be 5 conservatives to 4 liberals, at least for the near-term – barring a jump from one side to the other, as we saw with Republican Dwight Eisenhower’s appointee, William Brennan in 1957, when he switched from conservative to liberal shortly after his appointment.  Rumblings that Justice Roberts might do something similar, or perhaps become a “swing” vote himself, have not been lost on the legal community.  

And how long might the “near-term” last for this Supreme Court?  No one knows for certain, but conservative Clarence Thomas, who was appointed in 1991, is now 70 years old.  If, for example, he were to retire, or we were to see a Justice pass away as we did, sadly, with Antonin Scalia in 2016, during the next Presidential term – which may see the election of a Democrat, the balance of the Supreme Court could immediately shift to 5 liberals / 4 conservatives, assuming 85-year-old Ruth Bader Ginsburg doesn’t retire first.  

Also, remember that, although popularly portrayed as a “swing” vote, Anthony Kennedy was, himself, a conservative appointee of the Reagan administration. And as the Court’s rulings during the 2017-2018 session suggest (including upholding the most recent travel ban, overturning mandatory non-member public union funding, and overturning two state laws aimed at limiting religious expression), had he not retired, he likely would have continued to at least lean to the right.  Consequently, it would take an extraordinarily conservative, almost “alt-right,” appointee to truly shift the balance of the Supreme Court significantly from what it was immediately prior to Justice Kennedy’s retirement.  Given the political pressure being exerted by the general public, the left and the center-right, that would appear an uphill battle at best.

Ultimately, it may be the very “balancing” mentioned above that has been the greatest benefit of the seemingly fraught Supreme Court selection process.  If it has generated fierce battles over appointments, it has also undoubtedly had a moderating effect both sides of the political aisle.  Though each, when in power, might feel tempted to push ideological limits (think of the multitude of efforts to do everything from limiting voting rights – which could at one time be exercised only by male real estate owners, to criminalizing political speech), each is forced to constrain its impulse to overreach, in part because doing so could compel a current or future Supreme Court to reject not only its present attempt to do so, but possibly also much of its prior work leading up to that effort.  The value of that balancing effect has almost certainly not been lost on the Justices themselves – each of whom makes his/her own decisions about things like when or when not to retire (and during whose administration), undoubtedly factoring into that decision such considerations as “What is best for my country?”

In the final analysis, Supreme Court appointments are immensely important to the United States, the businesses that operate within its borders and the millions of people those businesses employ.  But, as they have since 1791, a great many more factors than mere politics bear on those appointments, not to mention the decisions ultimately rendered by the Court.  Fortunately for us, that Court was created first and foremost to uphold the Constitution, and upon appointment, each Supreme Court Justice takes an oath to faithfully and impartially discharge and perform the duties incumbent upon him/her under that great document. I would venture to guess they will continue to do so, regardless of politics – theirs or others’.  God Bless America.  

James R. Waite, Esq. is a corporate and transactional attorney with over 25 years of experience in buying, selling and leasing businesses, equipment, aircraft and real estate. In that time, Mr. Waite has served as General Counsel, CEO, CFO and COO for companies ranging from airlines to equipment lessors. He wrote the American Rental Association’s book on rental contracts, publishes a monthly article entitled “Legally Speaking” in Rental Management Magazine, and routinely presents at industry association local and national conferences.  Mr. Waite is a veteran of the United States Air Force, has a BBA in Finance from the University of Texas at San Antonio, a Juris Doctor from St. Mary’s University, and an MBA from the Kellogg School of Management at Northwestern University.  He can be reached at (866) 582-2586, or via email at j.waite@wwlegal.net.