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SCOTUS News, May 19th, 2017: Howell, Midland, Kindred

SCOTUS released three cases after a deliberative week last week. Let’s dive in.

Howell v. Howell

This case concerned intrepretation of the Uniformed Services Former Spouses’ Protection Act (USFSPA). John Howell agreed to pay half of his military retirement pay to his wife Sandra in their divorce. Later, John waived a portion of his retirement pay in order to receive disability benefits under federal law. This reduction in his retirement pay also cut the amount of John’s retirement pay that went to Sandra. The lower courts, including the Arizona Supreme Court, held that Sandra had a vested interest in John’s pay, due to the stipulations of their divorce agreement. They argued that Sandra was entitled to her half ($250) of the pre-waiver amount. John’s choice to waive his retirement pay, and thus reduce total pay, should not also reduce Sandra’s share.

The Supreme Court reversed this lower ruling. They point to the same precedent the lower courts pointed to: Mansell v. Mansell. The lower courts argued a substantial difference between Mansell and this case. In Mansell, the legal waiver of retirement pay came before the later divorce. In Howell, the divorce agreement came before the later waiver. Justice Breyer, writing for a unanimous court, states that this difference is not relevant to this case. Federal law pre-empts state laws, divorce decrees notwithstanding. The language of the USFSPA states that amounts deducted from retirement pay via waiver (i.e. so John can lawfully claim his disability benefits) do not count as shared property between the two former spouses, and thus are not governed by their divorce agreement.

In effect, the precedent set in Mansell holds in this case. The fact that John waived part of his retirement pay does not entitle his ex-wife to a greater share of the remaining retirement pay.

Midland Funding v. Johnson

Johnson had filed for Chapter 13 bankruptcy. Midland filed a claim stating that Johnson owed them credit card debt. The statute of limitations for paying the debt had expired, though. This fact was known by both parties, debtor (Johnson) and collector (Midland). The issue in this case is not about payment of the debt. Johnson sued Midland for violation of the Fair Debt Collection Practices Act (FDCPA). Under the FDCPA, a “false”, “deceptive”, “misleading”, “unconscionable”, and “unfair” claim is unlawful. The district court dismissed Johnson’s lawsuit. The Eleventh Circuit reversed.

On appeal to the Supreme Court, Midland pointed to circuit court disagreement. SCOTUS granted certiorari, and reversed the Eleventh Circuit. The Supreme Court considered two major issues. First, whether Midland’s claim was “false”, “deceptive”, and “misleading”. Second, whether the claim was “unconscionable” or “unfair”.

On the first issue, Midland had a right to file a claim under the Bankruptcy Code. The Code’s statute of limitations does not extinguish a right to file a claim. It only disallows a remedy for such a claim. The act of filing a claim itself is not inherently “false”, “deceptive”, or “misleading”. Johnson argued that Midland’s claim was not enforceable. But SCOTUS points out that the Bankruptcy Code allows time-barred claims even if those claims are unenforceable. The Code does not specifically state that a claim has to be enforceable. Breyer writes for the majority here as well. He states that Midland’s claim filing does not qualify as false, deceptive, or misleading. The relevant statutes clearly allow claims (even unenforceable claims), and so too do Alabama’s relevant laws.

On the second issue, the Court finds the FDCPA does not apply. Because Johnson filed for bankruptcy, the Bankruptcy Code, not the FDCPA, controls in this case. In addition, Johnson had the assistance of a trustee in her bankruptcy case. This trustee, the majority says, would not be so easily confused or misled by a time-barred claim, and simply ignore it.

For the reasons above, SCOTUS reversed.

Dissent in Midland

Justice Sotomayor dissented, joined by Kagan and Ginsburg. They argue that it is easy to see Midland’s intent in buying up time-barred debt and attempting to have debtors unwittingly repay the stale debt. They present examples from other lower courts that state that filing claims like the one Midland filed violate the “unconscionable and unfair” clause of the FDCPA. Furthermore, Midland had filed a consent decree with the government barring them from filing suit to collect time-barred debts.

Additionally, the dissenters write that Chapter 13 bankruptcy trustees, upon whom the majority places the burden of catching these frivolous suits, cannot be expected to catch everything and appropriately disregard time-barred suits. These burdens are too great to withstand the “unconscionable and unfair” threshold. Debt collectors such as Midland do not file these suits in good faith. “They file them hoping and expecting that the bankruptcy system will fail.”

Kindred Nursing Centers v. Clark

Two respondents in this case each had a resident family member in a Kindred Nursing Home. Both respondents were agents in a power of attorney agreement for their respective family member. These agents signed paperwork with Kindred that included the power to enter arbitration on their principals’ behalf. When the residents died, their families brought suits alleging substandard care at Kindred had led to their family members’ deaths. Kindred moved to dismiss. Kindred argued that the agents were required to participate in arbitration, and could not bring lawsuits.

The Kentucky Supreme Court imposed a “clear-statement” rule. In their view, the agents were not allowed to sue because a power of attorney agreement only allows arbitration to proceed if it specifically says so.

This is a direct contradiction of the intent of the Federal Arbitration Act (FAA), the Supreme Court rules. The FAA’s purpose is to raise the status of arbitration to the same standards as all contracts. The Kentucky Supreme Court erred when it adopted a rule that singles out arbitration contracts for disfavored treatment. The FAA expressly forbids singling out arbitration for extra restrictions of power of attorney or constitutional rights.

Justice Kagan delivered this relatively brief opinion. The Court reversed in part and vacated in part, due to differences in the wording between one respondent’s contract and the other’s. They advise the state courts to reassess the arbitration agreements in light of established precedent, and with the rest of applicable state law for arbitration procedure.

Thomas, the lone dissenter, writes that, according to precedent, the FAA does not apply in State courts.

The Crowd and the Algorithm

These cases all covered rather narrow issues. That may explain a less-than-stellar performance from {Marshall}+ this week. The Algorithm had significant problems with Howell and Midland.

howell

Howell v. Howell

The Howell decision is firmly rooted in precedent and federal law, but the issue itself is narrow and not often visited. Additionally, when Mansell came before the Court, only Anthony Kennedy was on the bench at the time. Marshall’s inability to predict more accurately here may be due to this dearth of information.

The Crowd, meanwhile wracked up a solid W in Midland as well. {Marshall}+ struggled here as well.

midland johnson

Midland Funding v. Johnson

The spread in Midland seems to suggest that {Marshall}+ expected a split along the lines of State law versus Federal law. Thomas and Kennedy are two Justices who frequently fall on whichever side of an issue holds back the power of the federal government. Since in this case the federal Bankruptcy Code won the day, it’s somewhat easy to see why {Marshall}+ predicted the case the way it did.

Lastly, there were no great surprises in Kindred. Both the Crowd and the Algorithm solidly predicted the reversal. {Marshall}+ correctly predicted the Thomas dissent. For the Crowd’s part, they were far more wary of where Thomas would land than they were of the other seven Justices.

 

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