Quorums and conflicts of interest on the Supreme Court

Many readers were puzzled by a statement the Supreme Court released last month “respecting” a long-pending petition for certiorari in a bankruptcy case. The unusual statement, written by two justices, indicated that the court might lack a quorum and seemed designed to urge the lower courts to overturn the judgment in the case without necessitating formal action by the Supreme Court.

The petition, in a case called Deutsche Bank Trust Company Americas v. Robert R. McCormick Foundation, was first filed in September 2016. The case raised several questions, one of which was recently resolved in Merit Management Group v. FTI Consulting. Consideration of the case was presumably delayed while the justices resolved Merit Management, consistent with the usual practice of “holding” petitions involving issues that are currently before the court. In the normal course, the court will resolve “held” petitions within a few days after the principal case is decided. Sometimes the court will deny certiorari, and other times it will issue a “GVR” — an order granting the petition, vacating the judgment below and remanding for further consideration in light of the new decision.

In Deutsche Bank, however, the court did neither. Instead, it has not acted on the petition one way or another; the one-paragraph statement helps explain why. The statement was jointly written — something quite odd in itself — by Justices Anthony Kennedy and Clarence Thomas. Odder still, though, was what it said: The two justices advised that the petition “will be deferred for an additional period of time” in order to “allow the Court of Appeals or the District Court to consider whether to recall the mandate, entertain a Federal Rule of Civil Procedure 60(b) motion to vacate the earlier judgment, or provide any other available relief in light of this Court’s decision in Merit Management Group.” The lower courts might consider such relief, the statement suggested, “given the possibility that there might not be a quorum in this Court.”

To understand the statement, one needs to start with the court’s quorum requirement. Under 28 U.S.C. § 1, as well as the court’s Rule 4, six justices are needed for a quorum. That means that if more than three justices are unable to participate in a case for some reason — such as a conflict of interest that requires recusal — the Supreme Court lacks the power to decide a case. So what happens when there’s no quorum? Well, the law states that “if a majority of the qualified justices shall be of opinion that the case cannot be heard and determined at the next ensuing term, the court shall enter its order affirming the judgment of the court from which the case was brought for review with the same effect as upon affirmance by an equally divided court.” Such orders are rare, but not exceptionally so; just last term, Justice Neil Gorsuch was called upon to enter such an order in a case in which the other eight justices had been named as defendants and thus had to recuse themselves.

But that didn’t happen here, either. Instead, the statement merely noted the “possibility” that a quorum was missing, which is quite unusual. What on earth is going on? Here’s the most likely explanation. The case arises out of the complex bankruptcy of the Tribune Company. The particular dispute before the Supreme Court involves a number of consolidated actions brought by a group of unsecured creditors against a large group of shareholders. The shareholders succeeded in having the actions dismissed; the U.S. Court of Appeals for the 2nd Circuit upheld that dismissal relying on a legal theory that has since been undermined by the Supreme Court’s decision in Merit Management. Normally, this situation would call for a GVR order: The court would send the case back down to the court of appeals, which could decide whether a different result is required in light of Merit Management.

The wrinkle, though, is that the shareholders who won below include an extremely large number of financial companies and retirement plans. Indeed, the brief in opposition to certiorari’s corporate-disclosure statement, listing companies that own 10 percent or more of the stock of the named respondents, is 37 pages long. (That may not be the all-time record, but it is far longer than any disclosure statement I have ever seen.)

Included in that long list of interested corporations are some of the country’s biggest providers of retirement funds, such as Charles Schwab, Vanguard and TIAA. Although we cannot be certain, it’s easy to surmise that the justices who didn’t write the one-paragraph statement — that is, Chief Justice John Roberts, as well as Justices Ruth Bader Ginsburg, Stephen Breyer, Samuel Alito, Sonia Sotomayor, Elena Kagan and Neil Gorsuch — must own stock in, or own mutual funds provided by, one or more of the companies on that 37-page list, giving them a potential conflict of interest.

But that only gets halfway toward solving the mystery. If stock or fund ownership accounts for the absent justices, why didn’t the justices seemingly without a conflict of interest — Kennedy and Thomas — just issue an order affirming the judgment below? Note that the statement said that there was only a “possibility” that the court lacked a quorum. Perhaps some or all of the currently non-participating justices are considering hearing the case regardless of the potential conflict of interest. As the court explained in United States v. Will, under the “rule of necessity,” judges may participate in a case notwithstanding a seeming conflict of interest “if the case cannot be heard otherwise.”

Whether the rule of necessity would permit participation here is far from clear; it has typically been invoked in the past in cases in which all judges on a court, or even the entire federal judiciary, have a conflict of interest, such as in a case involving a suit challenging the compensation of all federal judges. Deutsche Bank seems different, because it appears that some justices lack a conflict of interest. Perhaps some of the justices are mulling over whether the rule of necessity should be extended to this situation, in which most, but not all, justices seem to have a conflict requiring recusal.

But that’s not the only potential explanation for the seeming uncertainty about a quorum. Perhaps the other justices are working to rid themselves of conflicts of interest. If, say, Kagan possesses Vanguard or TIAA mutual funds in the 403(b) retirement accounts associated with her previous employment at Harvard University, she might be able to sell those assets and “roll over” the proceeds into the federal government’s retirement system, the Thrift Savings Plan. And even if the justices hold funds outside of their tax-preferred retirement accounts, they could still sell them to avoid the conflict while avoiding any immediate capital-gains tax in light of a special statute designed to help federal officials divest themselves of ownership that creates a conflict of interest. Perhaps some of the justices are working to comply with that law so that the Supreme Court will have a quorum.

Whatever the explanation for the uncertainty about the lack of a quorum, Kennedy and Thomas seem to be hoping that the lower courts will bail the Supreme Court out of this mess. Their joint statement appears calculated to provide a very strong hint to the court of appeals or the district court that one of them should solve the problem by providing some kind of “relief from judgment.”

In this way, the statement is reminiscent of an odd GVR the court issued several years back in a case called Beer v. United States. That case involved a constitutional challenge to Congress’ refusal to adjust the salaries of federal judges. The U.S. Court of Appeals for the Federal Circuit had rejected the challenge, although its reasoning was unclear. To make a long story short, the Supreme Court issued an order that strongly suggested that the justices wanted the lower court to take another look at the merits of the constitutional issue. The Federal Circuit got the message, ultimately reversing itself on the merits and finding the failure to adjust judges’ pay unconstitutional.

The petitioners here certainly are hoping that the court of appeals will similarly follow the Supreme Court’s suggestion: They filed a motion to recall the mandate in the 2nd Circuit a few days after the Supreme Court’s statement, pointing to the statement and urging the court to set aside the earlier ruling. (If that effort fails, the next logical step is likely to be, as the two-justice statement suggested, a motion to vacate the judgment in the district court.)

If none of that works, the justices will have no chance but to resolve whether the “possibility” of a missing quorum is in fact a reality.