With just four weeks to go before the end of the Court’s term and nearly three dozen cases yet to be decided, it’s going to be a busy June at One First Street. But this week, the Court took some small steps toward working through the remaining cases, issuing decisions in four argued cases. On Monday, the Court issued three: It unanimously held in Siegel v. Fitzgerald (No. 21-441), that Congress violated the uniformity requirement of the U.S. Constitution’s Bankruptcy Clause by establishing lower fees for bankruptcy cases in two states than in every other state; unanimously held in Southwest Airlines Co. v. Saxon (No. 21-309), that airline employees who load and unload baggage from planes are workers engaged in interstate commerce and so are exempted from the Federal Arbitration Act; and in Gallardo v. Marstiller (No. 20-1263), the Court held 7-2 that states can seek reimbursement of Medicaid benefits paid to Medicaid beneficiaries from settlement payments made to the beneficiary that are set aside for future medical expenses. Then just a few minutes ago, the Court issued its decision in Egbert v. Boule (No. 21-147), where the Court’s six conservatives held that the federal Bivens remedy does not extend to Fourth Amendment excessive-force or First Amendment retaliation claims, over what is effectively a dissent from the Court’s three liberal justices.
We’ll be back later in the week to summarize Egbert and let you know about any further developments. For now, we’ll give you the rundown on Siegel, Southwest Airlines, and Gallardo.
Before turning to the meat of Siegel v. Fitzgerald (No. 21-441), you need a little background on bankruptcy administration. In most judicial districts (88 of 94), the United States Trustee Program oversees bankruptcy administration. However, in six districts, all located in Alabama and North Carolina, judicially appointed bankruptcy administrators perform that role. The U.S. Trustee districts are funded through user fees (largely paid by debtors), while the bankruptcy-administrator districts draw on taxpayer funds. In 2017, after the U.S. Trustee Program began to experience funding issues, Congress passed an amendment to the statute that increased the quarterly fees in the districts overseen by the U.S. Trustee Program. But a parallel increase did not immediately take effect in the districts overseen by bankruptcy administrators (though eventually it did).
The petitioner in Siegel was the trustee of Circuit City, a chain of electronic stores that filed for bankruptcy in a U.S. Trustee-program district. Circuit City was charged the fee increase during the period of time when similarly situated debtors in bankruptcy-administrator districts paid lower fees. The trustee challenged the 2017 amendment as violative of the Bankruptcy Clause of the United States Constitution, which permits Congress to enact “uniform Laws on the subject of Bankruptcies throughout the United States.” The Bankruptcy Court for the Eastern District of Virginia agreed with the trustee, holding that the 2017 amendment violated the Clause’s uniformity requirement. But the Fourth Circuit reversed, finding no constitutional violation. That decision deepened a Circuit split: The Second and Tenth Circuits had already found the 2017 amendment unconstitutional, while the Fourth, Fifth, and Eleventh Circuits had found it permissible.
Writing for a unanimous Court, Justice Sotomayor reversed, agreeing with the Second and Tenth Circuits. Her opinion first rejected the government’s argument that the 2017 amendment did not fall within the scope of the Bankruptcy Clause because it was not a substantive bankruptcy law but rather a law addressed only to the administration of the bankruptcy system. Sotomayor explained that the Bankruptcy Clause’s text did not distinguish “between substantive and administrative laws,” noting that the Supreme Court had repeatedly emphasized the breadth of the Bankruptcy Clause’s language. Sotomayor also concluded that the 2017 amendment was substantive in nature because it “affect[s] the substance of debtor-creditor relations,” as “[i]ncreasing mandatory fees paid out of the debtor’s estate decreases the funds available for payment to creditors.”
Turning next to the question of whether the 2017 amendment was unconstitutionally non-uniform, Sotomayor acknowledged that the uniformity clause allows Congress some flexibility to enact geographically limited bankruptcy laws to target geographically limited problems. But she stressed that the Bankruptcy Clause does not permit “arbitrary geographically disparate treatment of debtors.” Here, there was no “external and geographically isolated need” prompting the nonuniformity; the only actual distinction between debtors in districts subject to the fee increase and debtors in districts not subject to the fee increase was that Congress had chosen to treat them differently. It was Congress’s “own decision to create a dual bankruptcy system funded through different mechanisms in which only districts in two States could opt into the more favorable fee system for debtors.” The fee increase was targeted toward the problem of funding the U.S. Trustee Program, but the fact that that program only operated in 48 out of 50 states resulted from Congress having “arbitrarily separated the districts into two different systems with different cost funding mechanisms.”
Concluding with the caveat that its decision only addressed the constitutionality of the fee increase and not of the dual bankruptcy system itself, the Court remanded the case back to the Fourth Circuit to consider in the first instance the appropriate remedy. That remedy may include refunding the higher fees paid during the period in which the fee increase was unconstitutionally non-uninform.
Next up is Southwest Airlines Co. v. Saxon (No. 21-309), where for the second time in as many weeks, a unanimous Court ruled in favor of a party resisting arbitration. But just like in that case, the Court did so in a way that is unlikely to significantly curtail the enforcement of arbitration clauses outside the specific facts of the case.
Latrice Saxon is a ramp supervisor for Southwest Airlines. She supervises a team of ramp agents, who physically load and unload baggage, airmail, and freight from Southwest airplanes. In her employment contract, she agreed to arbitrate any wage disputes individually. Nonetheless, when she came to believe Southwest was stiffing her and other ramp supervisors on overtime pay, she brought a class action under the Fair Labor Standards Act.
Southwest sought to compel arbitration of the suit under the Federal Arbitration Act (FAA), which generally requires courts to enforce promises to settle disputes in arbitration. Saxon responded by pointing to Section 1 of the FAA, which exempts from the statute “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” But the district court found that Section 1 did not apply to Saxon, construing “workers engaged in interstate commerce” as only those workers involved in actually transporting goods across state lines, not those who merely handled goods transmitted interstate. The Seventh Circuit then reversed, concluding that because Saxon “frequently” loaded and unloaded cargo, she was a “class of worker” engaged in interstate commerce. Because the Seventh Circuit’s interpretation of the statute conflicted with an earlier Fifth Circuit decision, the Court granted cert.
Justice Thomas affirmed for a unanimous Court (with Justice Barrett recused). He began by addressing the Section 1’s “class of workers” phrase. Saxon argued that this language looks to whether someone works in an industry that is engaged in interstate commerce, a focus that would clearly be satisfied by people (like her) employed in the airline industry. But the Court rejected this industry-wide approach in favor of a worker-specific one: What matters is what workers like Saxon do on a day-to-day basis, not what industries their employers are part of.
With that initial issue resolved, the only question was whether people who load and unload cargo from airplanes are “engaged in foreign or interstate commerce.” Thomas quickly concluded that they are, rejecting Southwest’s argument that Section 1’s exemption should be limited to only those workers who physically transport goods across state of international borders. Instead, loading and unloading cargo is as much a part of the transportation of goods across state lines as is flying the plane. But at the same time, the Court dismissed a broader approach urged by Saxon, which would’ve extended Section 1’s exemption to essentially all workers who facilitate the transportation of goods in any way (and so including workers like shift schedulers or the people who design Southwest’s website). Thus, while Saxon herself (and other ramp supervisors) are exempt from the FAA, the Court’s narrow approach to Section 1 limits this exemption to employees whose day-to-day activities are closely related to the channels of interstate commerce.
Our final case of the day—and the only one on which the Justices had any disagreement—is Gallardo v. Marstiller (No. 20-1263). It addressed whether states participating in Medicaid can recoup the cost of providing medical care to Medicaid beneficiaries from settlement payments allocated toward the beneficiary’s future medical care. By a vote of 7-2, the Court held that they can.
The federal Medicaid Act imposes certain requirements on states that participate in the Medicaid program. One of those requirements is that a state must seek reimbursement from liable third parties for a beneficiary’s care and services. At the same time, the Act prohibits states from recovering the cost of medical payments paid out to a beneficiary from the beneficiary’s “property.” This “anti-lien” provision generally protects settlement funds from states’ reimbursement efforts except where this is a statutory exception.
Florida seeks reimbursement of Medicaid benefits through its Medicaid Third-Party Liability Act. That statute directs Florida’s Medicaid agency to seek reimbursement of the full amount of medical assistance paid by the state. To that end, if a beneficiary accepts medical assistance from Medicaid, a lien in the full amount of the medical assistance provided automatically attaches to any settlement payments made to the beneficiary related to an injury that required Medicaid to provide that beneficiary with medical assistance. But the act then limits the amount of settlement proceeds Florida can recover to 37.5% of the beneficiary’s total recovery, an amount that the statute presumes is the portion of any tort recovery devoted to past and future medical expenses.
In 2008, petitioner Gianinna Gallardo was hit by a truck when stepping off a school bus, causing her catastrophic injuries. Through Medicaid, Florida has paid and continues to pay her medical expenses, which so far have amounted to roughly $860,000. Her parents sued various people and entities involved in the accident, ultimately settling the case for $800,000. The settlement agreement allocated roughly $35,000 of that to past medical expenses. It also recognized that some portion of the remaining settlement represented “future medical expenses,” but did not specifically allocate any money to that class of expense.
Under Florida’s statutory formula, the state was presumptively entitled to $300,000 (or 37.5% of her settlement). But Gallardo argued that Florida’s reimbursement should be limited only to the $35,000 allocated to compensation for past medical expenses. Gallardo then brought this lawsuit, seeking a declaration that Florida’s approach violated the Medicaid Act by empowering the state to recover portions of the settlement devoted to future medical expenses, which Gallardo contended were her “property” protected by the Act’s anti-lien provision. The Eleventh Circuit ultimately rejected her argument, concluding that states could seek reimbursement from any part of a settlement allocated to future medical care. But in a related proceeding, the Florida Supreme Court reached the opposite result. To resolve the conflict, the Supreme Court granted cert.
Writing for a majority of seven (all but Justices Breyer and Sotomayor), Justice Thomas agreed with the Eleventh Circuit. He began with the text. As discussed already, the Medicaid Act allows states to seek reimbursement from payments from a liable third party for the medical care of a beneficiary. Nothing in that language was limited to past as opposed to future medical care. Moreover, other provisions of the Medicaid Act did distinguish between already-paid and yet-to-come benefits, suggesting that the lack of such a distinction in this provision was meaningful.
Gallardo (with the support of the United States) argued that several related provisions of the Medicaid Act suggest that when the Act talks about reimbursement, it is only talking about reimbursement from money owed for past medical care. The details on that are a bit technical, and not easily summarized here. But ultimately, the Court was not persuaded these contextual clues overcame the seemingly plain text of the reimbursement provision. Gallardo also contended that the result of Florida’s scheme was unjust, because it would allow the state to share in damages for which it had provided no compensation. But the Court was unmoved by this too, finding that the statute’s plain language trumped these policy arguments.
Justice Sotomayor, joined by Justice Breyer, dissented. In their view, the Court’s approach was backwards. Rather than starting with the Medicaid Act’s reimbursement provision, the place to begin was with Medicaid Act’s default rule prohibiting states from imposing a lien against a Medicaid beneficiary’s property. While the reimbursement provision at issue in this case established an exception to this rule, that exception should be read narrowly and thus does not allow states to reimburse themselves for medical care provided to a beneficiary from a settlement payment providing compensation for other sorts of harm (like lost wages or pain and suffering). According to Sotomayor that was exactly what was happening here: Florida was reimbursing itself for medical care provided to Gallardo from portions of the settlement representing compensation for future-medical care, care for which Florida had not yet (and might never) pay at all. She thus agreed with Gallardo’s (and the United States’) contextual and purpose-based arguments (which again we won’t try to summarize here) for limiting the reimbursement provision to settlement payments set aside for past medical care.
That’s it for today.
Dave and Tadhg