24 March 2015

How Far Stare Decisis? Today at SCOTUS

The United States Supreme Court heard oral arguments in Bank of America v. Caulkett and the companion case of Bank of America v. Todelo-Cardona this morning. Both cases present an important issue of bankruptcy law: Can a Chapter 7 debtor strip off wholly unsecured second mortgages under section 506(d) of the Bankruptcy Code? I say yes and am one of the signers of an amicus brief that makes that argument at some length. You can read that brief here.

Of greater interest to more people may be the series of questions posed by Justice Scalia beginning on page 11 of the transcript that you can read by going here. Twenty-five years ago Justice Scalia had dissented in a case in which a Chapter 13 debtor was prohibited from doing what the Chapter 7 debtors seek to do in the cases argued today. Moreover, Justice Scalia continues to believe the majority in that earlier case was wrong. Thus, he asks counsel for the petitioner bank why he should not limit the earlier case to its facts and assert the contrary in today's cases.

In other words, Justice Scalia was asking a jurisprudential question: To what extent are members of a court bound by an earlier decision with which they disagree? Are judges bound by precedent they believe to be incorrect? This question--the nature of the principal of stare decisis--is a normative one and cannot be answered by looking to the law or even the express terms of the United States Constitution.

Unfortunately, rather than turning to first principles that I discussed here and here, the Court focused on the pragmatic concern of reliance. To what extent, several members of the Court asked, had lenders relied on the earlier decision in "pricing" loans like the ones at issue in the current cases? Even if it was incorrect, the justices wondered aloud, would it be fair to contemporary lenders to change the rules midstream?

Counsel of the bank seemed unprepared for this question and got around to a cogent response only with the help of Chief Justice Roberts. By way of contrast, counsel for the petitioner-debtors pounced on an empirical study in another amicus brief that purported to demonstrate that there was no material effects in similar situations. (You can read that brief here and form your own opinion.)

The Court seemed unimpressed by the empirical data and so went back to what it knows best, asking debtors' counsel to explain why, if x were the case twenty-five years ago, it shouldn't remain the case today, even if the decision twenty-five years ago was wrong? Or, more to the point, why the debtors were not arguing that the Court today should simply admit it was wrong twenty-five years ago and get matters back on track?

I don't know if the Court was serious about overruling its earlier case or if was merely trolling counsel for the debtors. I believe, however, that the Court lost the opportunity to delve more deeply into the nature and effect of stare decisis. In any event, I'm hoping that the Court will affirm the decision below and I would be delighted to see it go further and set matters straight.

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