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SCOTUS for law students (sponsored by Bloomberg Law): Why cases settle

If you want an unusual measure of the power of the Supreme Court, consider why parties to a case sometimes (although rarely) settle their dispute after the Justices have agreed to hear the appeal and as oral argument approaches.

In some cases, the answer may simply be fear of losing, but it can also be much more profound:  not only the fear of losing, but also a concern that in the process the loss may establish a legal precedent for the nation that one side of the case considers harmful.

The most recent example came last week, when officials in the New Jersey town of Mount Holly agreed to settle a housing discrimination lawsuit filed in 2008 by the residents of a part of town known as the Gardens. Last June, the Court agreed to hear the case, and oral argument was scheduled for December 4 in Mount Holly v. Mount Holly Gardens Citizens in Action Inc.

In light of the settlement, on Friday the Court issued an order dismissing the case.  That order in turn deprived the Justices of their second opportunity in as many years to decide the important question whether discrimination must be intentional to violate the Fair Housing Act, a federal law that prohibits a broad range of bias in housing sales and rentals. The question before the Court was whether evidence of policies that had a disparate impact based on race or other factors is sufficient to establish a violation of the Fair Housing Act.

Understanding why Supreme Court cases may settle is important for law students who want to appreciate the workings of the Court. It is also important for a full appreciation of litigation strategies which remain critical even at the highest appellate level. Finally, students may be interested in some of the legal issues that remain unresolved when cases settle.

Parties to a lawsuit have the right to settle a case at any time, of course. But why, having endured pre-trial proceedings, trial-level stages and at least one round of appellate review, likely lasting at least a couple of years, would a case settle after securing one of the scarce, coveted oral argument slots in the Supreme Court?

It is really a matter of risk calculation. Apparently nothing concentrates the mind on calculating risk like an imminent oral argument in the Supreme Court. Justices have long engaged in the practice described by the late Justice William J. Brennan Jr. as “getting to five,” a calculation of whether there are five votes to make up a majority on the Court for a particular outcome or legal doctrine. When cases settle before oral argument, it is apparent that the lawyers and the parties to the dispute have finally engaged in the same kind of calculation: what is the likelihood that five Justices will support a particular approach or outcome?

Consider a few examples.

Sometimes a settlement may be prompted by financial considerations. In one rather famous example, in December 1982, with Supreme Court oral arguments pending, plywood manufacturers settled a decade-old antitrust lawsuit filed by purchasers who charged Georgia-Pacific Corp., Weyerhaeuser Co. and Willamette Industries with price-fixing in violation of federal law. The Fifth Circuit upheld a federal judge’s ruling that the manufacturers had engaged in price-fixing, at least as to some purchasers. The Court then agreed to hear the appeal, although with only seven of the nine Justices participating in the case.

Had the purchasers won in the Supreme Court, the case would have gone back to the district court to calculate damages based on standards approved by the jury after the initial trial. Had the manufacturers won in the Supreme Court, the plaintiffs’ theory of price-fixing might have been thrown out. In the end the manufacturers agreed to pay the purchasers about $165 million, and the Supreme Court dismissed the case, Weyerhaeuser Co. v. Lyman & Lamb Co., in June 1983.

In other cases, the motivation for settlement may not be financial. Sometimes it is apparent that avoiding a harmful legal precedent may be the paramount consideration.

In 1997, the case of Piscataway Township Board of Education v. Taxman became the focal point of a national battle over affirmative action in employment.  Faced with budget cuts, Officials in the New Jersey town decided to eliminate a teaching position in business education at Piscataway High School in 1989. The two teachers with the least seniority had been hired the same day. Pursuant to an affirmative action plan that the officials had adopted voluntarily, they chose to lay off Sharon Taxman, a white teacher, while retaining the only African-American teacher in the department for the sake of promoting diversity.

Taxman and the U.S. Justice Department under the first President Bush sued the school board and won a federal district court judgment that the layoff and affirmative action plan violated Title VII of the 1964 Civil Rights Act, which prohibits employment discrimination based on race and other factors. The Third Circuit, by an eight-to-four en banc vote, went further and ruled that under Title VII, race could only be taken into account to remedy past discrimination but not to promote diversity.

When the school board appealed to the Supreme Court, the Justices asked for the views of the Solicitor General. The Clinton administration changed sides and told the Court that the Third Circuit’s approach to Title VII was wrong, but the government also urged the Court to pass on the case because the school board had only used the affirmative action plan on the one occasion. Just three weeks later on June 27, 1997, the Supreme Court agreed to hear the appeal, and oral argument was eventually scheduled for early in 1998.

Civil rights groups openly feared that the Justices might use the case to curtail the use of affirmative action. Civil rights leaders raised more than $300,000 to contribute to a settlement, and in November 1997 they persuaded the Piscataway school board to drop the appeal and pay a total of $433,500 in back pay, court costs, and fees to Taxman. The case was dismissed shortly thereafter, and the test of the scope of Title VII was averted.

That brings us to the most recent examples, both of which involve the Fair Housing Act issue. The stakes are significant. If housing discrimination may be proven by disparate impact, it is easier for plaintiffs to prove that they are the victims of illegal bias. Proof of intentional bias requires plaintiffs to show that a discriminatory policy was adopted for the purpose of treating people differently on the basis of race or other factors like gender and religion. Disparate impact, on the other hand, may be satisfied with evidence that a policy did treat groups differently, even if there was no intent to discriminate.

Most federal appeals courts have accepted disparate impact as a sufficient basis to show a violation of federal law. The Supreme Court, however, has not ruled on whether that is a correct reading of the historic Fair Housing Act which was adopted by Congress in 1968.

The Justices have twice agreed to resolve this question. In the case of Magner v. Gallagher, the Justices agreed to review the actions of officials in St. Paul, Minnesota who decided to vigorously enforce their housing code. The owners of rental properties challenged the city’s actions, arguing that the enforcement made rental housing more costly and that the enforcement policy disproportionately hurt African-American tenants. The Eighth Circuit ruled in 2010 that the owners had established a case of disparate impact.

The city’s appeal was set to be argued on February 29, 2012, but the dispute was settled (and later dismissed by the Court) shortly before that. In simple terms, the civil rights community does not want to risk a ruling from the Court that proof of intentional discrimination is required. Local governments are willing to continue to try to persuade different federal circuit courts to change their minds.

The same scenario just repeated itself in the Mount Holly case.  The Third Circuit allowed the lawsuit by property owners and the residents’ association to proceed against the town, relying on disparate impact as a sufficient theory. Just a few weeks before the oral argument, the case was settled and then dismissed.

Another showdown over the Fair Housing Act seems inevitable, but when and how is anyone’s guess. Stay tuned.

Recommended Citation: Stephen Wermiel, SCOTUS for law students (sponsored by Bloomberg Law): Why cases settle, SCOTUSblog (Nov. 21, 2013, 1:12 PM),