You don’t have to be a legal scholar to be impressed with the breath of business-related decisions issued by the U.S. Supreme Court in its 2023-2024 term that ended on June 30, 2024. Some of these decisions may affect your business in direct or indirect ways. The following is a brief discussion of selected cases and some thoughts on how they may impact your business. This is just meant to give you an inkling of what we could see in the near future as a result of these cases.
Loper Bright Enterprises v. Raimondo
Commercial fishermen who were subject to a daily fee—up to $700 per ship—levied to support a sea-monitoring program challenged the National Marine Fisheries Service’s authority to create and fund such a program. The U.S. Supreme Court, in a 6-3 decision, said there was no such authority. The Court overturned long-standing precedent with respect to the Administrative Procedure Act—referred to as the Chevron doctrine that was in place for 40 years—under which courts gave latitude to agencies on how they interpreted laws they administered. The Court concluded that Congress didn’t mean to cede law-making authority to departments and agencies without any explicit delegation of authority. For example, some provisions in the Internal Revenue Code specifically instruct the Treasury/IRS to flush out a rule. But absent this delegation, courts shouldn’t defer to an agency rule and can look at it directly to decide whether it should stand or fall.
What it means to businesses.
This case deals a major blow to the administrative state. The impact of the decision goes way beyond commercial fishermen who are no longer subject to this daily fee. It is expected that businesses will challenge agency rules and regulations. Some areas that have been assumed to be settled may not be clear. Some of the potential vulnerabilities that are already being challenged:
- DoL’s independent contractor rule
- DoL’s exemption for minimum wage and overtime rules
- FTC’s ban on non-compete agreements
Coinbase, Inc. v. Bielski
The “Coinbase User Agreement” said disputes would be resolved through arbitration. Coinbase then ran a sweepstakes, with “Official Rules” stipulating that California courts would handle disputes. A few users filed a lawsuit against the parties running the sweepstake alleging false advertising, but Coinbase sought to compel arbitration. Which is it? A court or arbitration? The Supreme Court, a unanimous decision, said when there are two conflicting contracts (here the User Agreement and the Official Rules), it’s up a court to determine which contract controls without having to litigate the underlying issues.
What it means to businesses.
Clearly, the case points out the need to be very clear about the rights of parties to an agreement; it took a Supreme Court decision to decide the matter in this case. But where there is a conflict, the parties don’t have to litigate the case merely to decide whether the court or arbitration should hear the matter—a significant time and money saver for businesses caught in this dilemma.
City of Grants Pass v. Johnson
A city in Oregon passed an ordinance restricting encampments on public property. An organization on behalf of homeless people challenged this, arguing it violated the 8th Amendment to the Constitution (bar against cruel and unusual punishment). The Supreme Court, in a 6-3 decision, said that enforcing the ordinance was not cruel and unusual punishment.
What it means for businesses.
In many urban areas, homelessness has gotten out of hand, with encampments blocking customers from entering commercial establishments. The Court’s decision allows cities to create laws to block camping and sleeping in public spaces. Some locations may take years to craft a law that protects the public without imposing harsh treatment on the homeless. But businesses will be able to afford access to their customers without running the gauntlet of bodies, debris, used needles, and feces on the sidewalks.
Connelly v. U.S.
An S corporation co-owned by brothers bought life insurance on the owner’s lives so the proceeds could be used to buy out the ownership interest when a brother died. The Supreme Court, in a 6-3 decision, said the proceeds are part of the corporation for purposes of determining the value of the deceased owner’s shares for federal estate tax purposes.
What it means for businesses.
If you have a closely-held business and are planning what happens on your death, this decision must be taken into account. Clearly, if you are in a similar situation—you have co-owners and entity-owned life insurance intended for redemption purposes on death—expect to have a higher estate tax cost (assuming the value of your estate is greater than the exemption amount–$13.61 million in 2024). Experts suggest that existing buy-sell agreements should be reviewed and changes made if needed. For example, instead of having the corporation own the policy, which increases the value of corporate shares, owners can carry insurance for a cross-purchase agreement (each owner buys out the other rather than having the corporation redeem shares). This may or may not be practical in a particular situation. Another thought is for owners to obtain additional insurance coverage to enable their estates to pay the projected federal estate tax bill.
Final thought
These aren’t the only decisions that may impact your business; there were 60 decisions issued by July 1, 2024. In the coming months, hopefully the ramifications of the decisions discussed as well as other decisions will come into focus.
For other information concerning U.S. Supreme Court decisions see this list of blogs.
