Oral Argument: State Tax of Federal Pensions & Securities Fraud

On December, the Court heard argument in Dawson v. Steager, which implicates a nearly-200-year-old case: McCulloch v. Maryland, as tax professor Daniel Hemel explains at SCOTUSblog.. In McCulloch, the Court, led by Chief Justice John Marshall, held that the state of Maryland could not tax the Bank of United States, at least as long as it exempted state banks from similar taxation.  In Dawson, retired United States Marshal James Dawson argues that West Virginia local and state law enforcement personnel can entirely exempt their benefits, while he can only exempt $2,000, a distinction he challenges under 4 U.S.C. § 111, which in relevant part permits states to tax federal retirement benefits only if “the taxation does not discriminate against the officer or employee because of the source of the pay or compensation.”

At oral argument Dawson claimed that he had the same law enforcement authority as state employees whose retirement benefits are tax exempt, and argued that “the State can’t justify discriminatory tax treatment just based on whether he has some additional administrative responsibilities, but his basic law enforcement function is the same.” On the other hand, respondents argue that the differences in tax exempt status arise out of differences in the particular retirement plans that the two groups belong to, pushing back against the argument that the West Virginia Code was facially discriminatory. The Telegraph reported on the arguments, suggesting that the Court appeared to be more likely to side with Dawson; Herald-Mail Media had a similar perspective on the Dawson arguments. Petitioners James and Elaine Dawson are clients of the WVU Law School’s U.S. Supreme Court Clinic.

The Court also heard arguments in Lorenzo v. Securities and Exchange Commission, in which the Court is being asked to decide a question relating to the Securities Exchange Act Rule 10b-5, which prohibits the manipulative and deceptive tactics in connection with the purchase or sale of any security. Specifically, the Court is being asked to decide whether a false statement by someone who does not retain “ultimate authority” over the statement still subjects the person to a fraudulent-scheme claim under Rule 10b-5 (click here for more background on the Securities and Exchange Commission). At issue in the case are statements in two emails that Francis Lorenzo sent – false financial information to potential investors. Lorenzo claims he is not liable for engaging in a deceptive act under Rule 10b-5 because, as his lawyer put it, he “just sent an email at the direction of his boss with content that was provided by his boss to the recipients.”

The respondent, the Securities and Exchange Commission, emphatically argued against this point, saying “And this email was extraordinarily deceptive, as was commented earlier. There were – there were three gross mischaracterizations of the company under the representation that they would provide different layers of protection.” The New York Times has some background on the case in this July 3, 2018 article,  and the Epoch Times gives an overview of the case and Monday’s arguments.

Oral arguments were not the only events of Monday December 3, 2018 at the Court. The day started with a formal recognition of Anthony Kennedy’s retirement through an old-fashioned exchange of letters that Chief Justice Roberts read from the bench, in which the justice expressed their affection and appreciation for Kennedy. As Bustle reports, the letter praised Kennedy for his “kindness, camaraderie, and generosity.”

ISCOTUS Fellows Zoe Arthurson-McColl and Michael Halpin, both Chicago-Kent Class of 2020, contributed to this post, which was edited by Matthew Webber, ISCOTUS Editorial Coordinator, Chicago-Kent Class of 2019, and overseen by ISCOTUS Co-Director Carolyn Shapiro.

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