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U.S. court rejects J&J bankruptcy strategy for thousands of talc lawsuits

Jan 30 (Reuters) – A U.S. appeals court on Monday shot down Johnson & Johnson’s (JNJ.N) attempt to offload tens of thousands of lawsuits over its talc products into bankruptcy court. The ruling marked the first major repudiation of an emerging legal strategy with the potential to upend U.S. corporate liability law.

J&J is among four major companies that have filed so-called Texas two-step bankruptcies to avoid potentially massive lawsuit exposure. The tactic involves creating a subsidiary to absorb the liabilities and to immediately file for Chapter 11.

The court ruled the healthcare conglomerate improperly placed its subsidiary into bankruptcy even though it faced no financial distress. J&J’s two-step sought to halt more than 38,000 lawsuits from plaintiffs alleging the company’s baby powder and other talc products caused cancer. The appeals court ruling revives those lawsuits.

Reuters last year detailed the secret planning of Texas two-steps by Johnson & Johnson and other major firms in a series of reports exploring corporate attempts to evade lawsuits through bankruptcies.

Monday’s decision by the U.S. 3rd Circuit Court of Appeals in Philadelphia dismissed the bankruptcy filed by the J&J subsidiary in 2021. Before the filing, J&J had faced costs of $3.5 billion in verdicts and settlements.

J&J shares closed down 3.7% – the biggest one-day percentage decline in two years. The company said in a statement that it would challenge the ruling and that its talc products are safe.

Plaintiffs attorneys and some legal experts have argued the two-step could set a dangerous precedent, providing a blueprint for any corporation to easily avoid undesirable litigation. The appeals court decision could force companies considering the strategy to more carefully consider its risks, two legal experts said.

“It is a push back on the notion that any company anywhere can use the same tactic to get rid of their mass tort liability,” said Lindsey Simon, a professor at University of Georgia School of Law.

Bankruptcy filings typically suspend litigation in trial courts, forcing plaintiffs into often time-consuming settlement negotiations while leaving them unable to pursue their cases in the courts where they originally sued.

The 3rd Circuit ruling does not directly impact three other Texas two-step bankruptcies, filed by subsidiaries of Koch Industries-owned Georgia Pacific, global construction giant Saint-Gobain(SGOB.PA), and Trane Technologies (2IS.F). Those cases fall under the jurisdiction of the 4th Circuit appeals court. 3M (MMM.N) attempted a similar maneuver, which is currently pending in the 7th Circuit.

Those companies did not comment on the 3rd Circuit ruling or did not immediately respond to inquiries. All have previously defended the bankruptcies as the best way to fairly compensate claimants. Plaintiffs’ attorneys have countered that the Texas two-step is an improper manipulation of the bankruptcy system. The strategy uses a Texas law to split an existing company in two, creating the new subsidiary meant to shoulder the lawsuits.

New Jersey-based Johnson & Johnson, valued at more than $400 billion, said its subsidiary’s bankruptcy was initiated in good faith. J&J initially pledged $2 billion to the subsidiary to resolve talc claims and entered into an agreement to fund an eventual settlement approved by a bankruptcy judge.

“Resolving this matter as quickly and efficiently as possible is in the best interests of claimants and all stakeholders,” J&J said.

A three-judge panel on the appeals court rejected J&J’s argument, finding the company’s subsidiary, LTL Management, was created solely to file for Chapter 11 protection but had no legitimate need for it. Only a debtor in financial distress can seek bankruptcy, the panel ruled. The judges pointed out that J&J assured that it would give LTL plenty of money to pay talc claimants.

“Good intentions – such as to protect the J&J brand or comprehensively resolve litigation – do not suffice alone,” the judges said in a 56-page opinion. “LTL, at the time of its filing, was highly solvent with access to cash to meet comfortably its liabilities.”

‘PROJECT PLATO’

The decision could force J&J to fight talc lawsuits for years in trial courts. The company has a mixed record fighting the suits so far. While the firm was hit with major judgments in some cases before filing bankruptcy, more than 1,500 talc lawsuits have been dismissed and the majority of cases that have gone to trial have resulted in verdicts favoring J&J, judgments for the company on appeal, or mistrials, according to its subsidiary’s court filings.

A December 2018 Reuters investigation revealed that J&J officials knew for decades about tests showing that the company’s talc sometimes contained traces of carcinogenic asbestos but kept that information from regulators and the public. J&J has said its talc does not contain asbestos and does not cause cancer.

Facing unrelenting litigation, J&J enlisted law firm Jones Day, which had helped other companies execute Texas two-step bankruptcies to address asbestos-related lawsuits.

J&J’s effort, as Reuters reported last year, was internally dubbed “Project Plato,” and employees working on it signed confidentiality agreements. A company lawyer warned them to tell no one, including their spouses, about the plan.

Jones Day did not immediately respond to a request for comment.

The Texas two-step has garnered criticism from Democratic lawmakers in Washington, and inspired proposed legislation that would severely restrict the practice.

Senator Sheldon Whitehouse, a Democrat from Rhode Island, cheered Monday’s appeals court decision. Whitehouse chaired the first congressional hearing scrutinizing two-step bankruptcies in February of last year.

“Bankruptcy is meant to give honest debtors in unfortunate circumstances a fresh start,” he said, not to allow “large, highly profitable corporations” to avoid accountability for wrongdoing with a legal “shell game.”

Reporting by Tom Hals in Wilmington, Delaware; Mike Spector in New York; and Dan Levine in San Francisco; additional reporting by Dietrich Knauth and Chuck Mikolajczak in New York; editing by Bill Berkrot and Brian Thevenot

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Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.

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Supreme Court leans toward limiting judicial scrutiny of U.S. elections

  • Justice debate “independent state legislature” doctrine
  • Liberal justices decry threat to “checks and balances”
  • Conservative-dominated court to rule by end of June

WASHINGTON, Dec 7 (Reuters) – The U.S. Supreme Court’s conservative majority on Wednesday appeared to ready to limit judicial power to overrule voting policies crafted by state politicians but might not go as far as Republican North Carolina lawmakers want in a case the liberal justices painted as a threat to American democratic norms.

The court heard arguments in a case the state lawmakers have used to try to persuade the justices to endorse a contentious legal theory gaining traction in conservative legal circles that would prevent state courts from reviewing the legality of actions by state legislatures regulating federal elections.

The Republican lawmakers are appealing the top North Carolina court’s decision to throw out the map they devised for the state’s 14 U.S. House of Representatives districts as unlawfully biased against Democratic voters. Another state court then replaced that map with one drawn by a bipartisan group of experts.

The Supreme Court has a 6-3 conservative majority, and its most conservative justices including Samuel Alito, Clarence Thomas and Neil Gorsuch appeared willing to embrace the “independent state legislature” doctrine presented by the Republican legislators.

While the conservative justices in general asked questions that indicated skepticism toward the state court actions, some signaled that the Republican argument that state constitutions cannot constrain the power of legislatures in setting rules for congressional and presidential elections might go too far.

Under the once-marginal legal theory they are now promoting, the lawmakers argue that the U.S. Constitution gives state legislatures – and not other entities such as state courts – authority over election rules and electoral district maps.

The court’s liberal justices suggested the doctrine could free legislatures to adopt all manner of voting restrictions. Lawyers arguing against it also said it could sow confusion by allowing voting rules that vary between state and federal contests.

“This is a proposal that gets rid of the normal checks and balances on the way big governmental decisions are made in this country,” liberal Justice Elena Kagan said, referring to the interaction between the executive, legislative and judicial branches of government. “And you might think that it gets rid of all those checks and balances at exactly the time when they are needed most.”

America is sharped divided over voting rights. Republican-led state legislatures have pursued new voting restrictions in the aftermath of Republican former President Donald Trump’s false claims that the 2020 election was stolen from him through widespread voting fraud.

The court’s eventual decision, due by the end of June, could apply to 2024 elections including the U.S. presidential race.

During the three-hour argument, the justices touched on the issue of enabling federal courts to review state court actions to ensure that judges do not behave like legislators or unfairly apply vague state constitutional provisions such as those requiring free and fair elections to disempower lawmakers.

Conservative Chief Justice John Roberts wondered whether such broadly worded provisions provide proper “standards and guidelines” for state courts to apply.

ALITO WEIGHS IN

Alito dismissed arguments that legislatures would be unchecked if the Republican position carried the day.

“Under any circumstances, no matter what we say the ‘Elections Clause’ means, Congress can always come in and establish the manner of conducting congressional elections,” Alito said, referring to the Constitution’s elections language.

The doctrine is based in part on the Constitution’s statement that the “times, places and manner” of federal elections “shall be prescribed in each state by the legislature thereof.” The Republican lawmakers argued that the state court usurped the North Carolina General Assembly’s authority under that provision to regulate federal elections.

Kagan said the theory would free state legislators to engage in the “most extreme forms of gerrymandering” – drawing electoral districts to unfairly improve a party’s election chances – while enacting “all manner of restrictions on voting,” noting that lawmakers by virtue of coveting re-election may have incentives to suppress, dilute and negate votes.

Kagan said the theory also could let legislatures insert themselves into the process of determining winners in federal elections – a sensitive issue following the Jan. 6, 2021, U.S. Capitol attack by Trump supporters who sought to block congressional certification of Biden’s 2020 election victory.

‘HISTORICAL PRACTICE’

Some conservative justices appeared to balk at aspects of the Republican arguments.

Justice Brett Kavanaugh emphasized the “historical practice” that “nearly all state constitutions regulate federal elections in some way.” Roberts said another check on a legislature’s power – a state governor’s veto – “significantly undermines the argument that it can do whatever it wants.”

David Thompson, arguing for the North Carolina lawmakers, said the Constitution “requires state legislatures specifically to perform the federal function of prescribing regulations for federal elections. States lack the authority to restrict the legislature’s substantive discretion when performing this federal function.”

Kavanaugh told Thompson that his position on the theory’s breadth “seems to go further” than that conceived by then-Chief Justice William Rehnquist in a concurrence to a 2000 ruling deciding a presidential election’s outcome – an opinion seeing state courts as exceeding their authority on federal elections.

North Carolina’s Department of Justice is defending the state high court’s February ruling alongside the voters and voting rights groups that challenged the map approved by the legislature in November 2021. They are backed by Democratic President Joe Biden’s administration.

Elizabeth Prelogar, arguing for Biden’s administration, said empowering state legislatures the way the Republicans want would “wreak havoc in the administration of elections across the nation” and cause federal courts to become flooded with lawsuits concerning state-administered elections.

Reporting by Andrew Chung in Washington and Nate Raymond in Boston; Editing by Will Dunham

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Nate Raymond

Thomson Reuters

Nate Raymond reports on the federal judiciary and litigation. He can be reached at nate.raymond@thomsonreuters.com.

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Explainer: What legal problems does U.S. presidential candidate Trump face?

Nov 15 (Reuters) – Former President Donald Trump, who on Tuesday announced he will run again for the White House in 2024, faces a series of investigations and lawsuits.

MISSING GOVERNMENT RECORDS

The U.S. Department of Justice is conducting a criminal investigation of Trump for retaining government records, including some marked as classified, after leaving office in January 2021.

The FBI seized 11,000 documents from Trump’s Mar-a-Lago estate in Florida in a court-approved Aug. 8 search. About 100 documents were marked as classified, and some were designated top secret, the highest level of classification.

Trump, a Republican, has accused the Justice Department of engaging in a partisan witch hunt.

A special master, Senior U.S. District Judge Raymond Dearie, is reviewing the seized documents to determine whether any are protected by executive privilege, as Trump has claimed.

Executive privilege is a legal doctrine under which a president can keep certain documents or information secret.

The Justice Department has asked a federal appeals court to end that review and restore its access to unclassified materials taken in the search, arguing that both measures are hindering the criminal investigation.

NEW YORK ATTORNEY GENERAL CIVIL LAWSUIT

New York Attorney General Letitia James said in a civil lawsuit filed in September that her office uncovered more than 200 examples of misleading asset valuations by Trump and the Trump Organization between 2011 and 2021.

James, a Democrat, accused Trump of inflating his net worth by billions of dollars to obtain lower interest rates on loans and get better insurance coverage.

A New York judge ordered that an independent monitor be appointed to oversee the Trump Organization before the case goes to trial.

James is seeking to permanently bar Trump and his children Donald Jr., Eric and Ivanka Trump from running companies in New York state, and to prevent them and his company from buying new properties and taking out new loans in the state for five years.

James also wants the defendants to hand over about $250 million that she says was obtained through fraud.

Trump has called the attorney general’s lawsuit a witch hunt. A lawyer for Trump has called James’ claims meritless.

James said her probe also uncovered evidence of criminal wrongdoing, which she referred to federal prosecutors and the tax-collecting Internal Revenue Service for investigation.

NEW YORK CRIMINAL PROBE

The Trump Organization is on trial on New York tax fraud charges, in a criminal case brought by Manhattan District Attorney Alvin Bragg.

The company, which operates hotels, golf courses and other real estate around the world, has pleaded not guilty to three tax fraud charges and six other counts. It could face up to $1.6 million in fines.

Trump is not charged with wrongdoing.

Allen Weisselberg, the company’s former chief financial officer, has pleaded guilty and is required to testify against the Trump Organization as part of his plea agreement. He is also a defendant in James’ civil lawsuit.

DEFAMATION CASE

E. Jean Carroll, a former Elle magazine writer, sued Trump for defamation in 2019 after he denied her allegation that he raped her in the 1990s in a New York City department store. Trump accused her of lying to drum up sales for a book.

Trump appeared for a deposition in the case on Oct. 19, according to his and Carroll’s lawyers.

Trump has argued that he is shielded from Carroll’s lawsuit by a federal law that immunizes government employees from defamation claims.

The Manhattan-based 2nd U.S. Circuit Court of Appeals in September said Trump was a federal employee when he called Carroll a liar, but left open the question of whether he was acting as president when he made the statement.

A Washington, D.C., appeals court will consider that question in oral arguments scheduled for Jan. 10, 2023.

Carroll also plans to sue Trump for battery and intentional infliction of emotional distress under New York state law, even if the defamation lawsuit is dismissed.

U.S. CAPITOL ATTACK

A House of Representatives committee investigating the Jan. 6, 2021, assault by Trump supporters on the U.S. Capitol is investigating whether he broke the law in actions taken to try to overturn his 2020 election defeat. Rioters sought to block Congress from certifying the election results.

In October, Trump was subpoenaed by the committee to testify under oath and provide documents.

Committee vice chair Liz Cheney, a Republican, has said the committee could make referrals to the Justice Department seeking criminal charges against Trump.

Only the Justice Department can decide whether to charge Trump with federal crimes. The panel is expected to issue written findings in the coming weeks.

Trump has called the panel’s investigation a politically motivated sham.

GEORGIA ELECTION TAMPERING PROBE

A special grand jury was empanelled in May for a Georgia prosecutor’s inquiry into Trump’s alleged efforts to influence that state’s 2020 election results.

The investigation focuses in part on a phone call Trump made to Georgia Secretary of State Brad Raffensperger, a Republican, on Jan. 2, 2021. Trump asked Raffensperger to “find” enough votes needed to overturn Trump’s election loss in Georgia.

Legal experts said Trump may have violated at least three Georgia criminal election laws: conspiracy to commit election fraud, criminal solicitation to commit election fraud and intentional interference with performance of election duties.

Trump could argue that his discussions were constitutionally protected free speech.

In a separate lawsuit, a California federal judge said on Oct. 19 that Trump knowingly made false voter fraud claims in a Georgia election lawsuit, citing emails the judge reviewed.

Reporting by Luc Cohen in New York and Jacqueline Thomsen in Washington; Additional reporting by Jonathan Stempel; Editing by Ross Colvin, Noeleen Walder, Will Dunham and Daniel Wallis

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Luc Cohen

Thomson Reuters

Reports on the New York federal courts. Previously worked as a correspondent in Venezuela and Argentina.

Jacqueline Thomsen

Thomson Reuters

Jacqueline Thomsen, based in Washington, D.C., covers legal news related to policy, the courts and the legal profession. Follow her on Twitter at @jacq_thomsen and email her at jacqueline.thomsen@thomsonreuters.com.

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U.S. Chief Justice Roberts pauses fight over Trump tax returns

WASHINGTON, Nov 1 (Reuters) – U.S. Chief Justice John Roberts on Tuesday temporarily blocked a U.S. House of Representatives committee from gaining access to former President Donald Trump’s tax returns, effectively pausing the fight over a request from lawmakers that he claims is politically motivated.

The order from the chief justice maintains the status quo while the Supreme Court assesses Trump’s emergency request, filed on Monday, to block a lower court ruling that upheld the House panel’s request for the tax materials as a justified part of its legislative work, while his attorneys prepare an appeal.

Roberts ordered the Democratic-led House Ways and Means Committee to respond to Trump’s bid by Nov. 10. That is two days after the U.S. midterm elections in which Trump’s fellow Republicans are seeking to regain control of Congress.

The legal fight has lingered since 2019 when the committee sued Trump to force disclosure of the tax returns. Trump was the first president in four decades years not to release his tax returns as he aimed to keep secret the details of his wealth and the activities of his company, the Trump Organization.

Allowing the lower court decision to stand would “undermine the separation of powers and render the office of the Presidency vulnerable to invasive information demands from political opponents in the legislative branch,” Trump’s lawyers wrote, referring to the division of authority among the three branches of the U.S. government.

The committee’s purpose is “exposing President Trump’s tax information to the public for the sake of exposure,” the lawyers added.

U.S. Supreme Court Chief Justice John Roberts attends the State of the Union address by U.S. President Joe Biden at the U.S. Capitol in Washington, DC, U.S, March 1, 2022. Al Drago/Pool via REUTERS

The committee in its request invoked a federal law that empowers its chairman to request any person’s tax returns from the Internal Revenue Service.

House Democrats have said they need Trump’s tax returns to see if the IRS is properly auditing presidential returns and to assess whether new legislation is needed. Trump’s lawyers have called that explanation “pretextual” and “disingenuous,” saying the real aim is to unearth politically damaging information about Trump, who is considering another run for the presidency in 2024.

U.S. District Judge Trevor McFadden, a Trump appointee, sided with Congress in December 2021 and threw out the case, finding that the committee holds broad authority over a former president’s tax returns.

Trump is “wrong on the law,” McFadden wrote in his ruling.

“A long line of Supreme Court cases requires great deference to facially valid congressional inquiries. Even the special solicitude accorded former presidents does not alter the outcome,” McFadden added.

The U.S. Court of Appeals for the District of Columbia Circuit in August also ruled against Trump, concluding that “every president takes office knowing that he will be subject to the same laws as all other citizens upon leaving office.” The D.C. Circuit on Oct. 27 refused a rehearing.

Reporting by Andrew Chung; Editing by Will Dunham

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Conservative activist steers U.S. Supreme Court college race cases

  • Edward Blum engineered cases against Harvard, UNC
  • Arguments set for Monday; ruling due by end of June

Oct 27 (Reuters) – When the U.S. Supreme Court next week considers ending policies used by many colleges and universities to increase their numbers of Black and Hispanic students, a conservative activist will be on hand to watch this fateful moment in his long quest to erase racial preferences intended to boost diversity in American life.

The challenges to race-conscious admissions policies used by Harvard University and the University of North Carolina were brought by a group called Students for Fair Admissions founded and headed by Edward Blum, a 70-year-old former stockbroker and unsuccessful Republican congressional candidate.

The Supreme Court is scheduled to hear arguments in the two cases on Monday, with rulings due by the end of June. The litigation gives its 6-3 conservative majority another chance to issue blockbuster decisions after rulings four months ago overturning abortion rights and expanding gun rights.

The conservative justices – Clarence Thomas, John Roberts, Samuel Alito, Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett – are expected to be receptive to arguments Blum has honed against affirmative action policies, crafted as a remedy to discrimination. As such, Blum may be on the verge of a huge legal victory as he fights race-based policies not only in higher education but in areas such as elections and diversity in corporate America.

“I’m a one-trick pony,” Blum said in an interview. “I hope and care about ending these racial classifications and preferences in our public policy.”

Blum, who is white, has cast his mission as one aimed at creating a colorblind society.

“An individual’s race or ethnicity should not be used to help them or harm them in their life’s endeavors,” Blum said.

His critics paint his work as a war on racial equity aimed at undercutting policies designed to help non-white Americans overcome racial obstacles persisting in U.S. life.

“He’s made it harder for corporations, boards and governments to make racial diversity an explicit goal,” said Kristin Penner, a co-founder of a group called the Coalition for a Diverse Harvard that supports affirmative action. “And thus people of color continue to be blocked out of positions of power.”

Blum’s goal is for the Supreme Court to overturn its own precedents allowing race as a factor in admissions.

Blum lost in a previous case challenging race-conscious student admissions when the court ruled 4-3 in 2016 against a white woman he recruited as a plaintiff suing the University of Texas after being denied admission. Conservative Justice Anthony Kennedy provided the crucial vote. The court has moved rightward since then. Kennedy himself retired in 2018.

With Monday’s arguments, the court will have taken up eight race-related cases engineered by Blum. For instance, a Blum-backed challenge led to a 2013 Supreme Court ruling gutting a central part of the 1965 Voting Rights Act that had forced nine states, mainly in the South, to obtain federal approval for voting rules changes affecting Black and other minority voters.

In addition, Blum last year launched a group called the Alliance For Fair Board Recruitment and filed lawsuits challenging Nasdaq rules and California laws mandating gender and racial diversity on corporate boards.

A 1978 LANDMARK

From his home in South Thomaston, Maine, Blum has orchestrated a 14-year legal campaign to challenge affirmative action in college and university admissions.

The Supreme Court first upheld such affirmative action in a landmark 1978 ruling in a case called Regents of the University of California v. Bakke, holding that race could be considered as one of several factors, along with academic and extracurricular criteria, but racial quotas were prohibited. The court reaffirmed that stance in 2003.

Blum in 2008 recruited Abigail Fisher, the daughter of an old friend, and through his first group, the Project for Fair Representation, helped fund her University of Texas suit that yielded the 2016 ruling he called a “grave disappointment.”

By then, Blum had shifted gears to the next generation of cases, forming Students for Fair Admissions in 2014 and turning his attention to Harvard and UNC. Those lawsuits accused UNC of discriminating against white and Asian American applicants and Harvard of discriminating against Asian Americans.

Boston University School of Law professor Jonathan Feingold said Blum was “transparent” in saying he needed Asian American plaintiffs this time around to sue the universities, allowing him to “spin a narrative that affirmative action is pitting students of color against one another.”

Blum raised more than $8 million from 2015 to 2020 for Students for Fair Admissions, most going to covering legal fees. Big checks came from conservative supporters including DonorsTrust and Searle Freedom Trust. Blum said 5,000 smaller donors also contributed.

Students for Fair Admissions has said it boasts 20,000 members. Its critics said it is not a true membership association at all. No Students for Fair Admissions members served as plaintiffs or testified in court in the Harvard and UNC cases as the group lost in lower courts. The Supreme Court in January agreed to hear appeals backed by Blum in both cases.

The Harvard lawsuit accused the university of violating Title VI of the Civil Rights Act of 1964, which bars discrimination based on race, color or national origin under any program or activity receiving federal financial assistance.

The UNC lawsuit accused that university of violating the U.S. Constitution’s 14th Amendment guarantee of equal protection under the law. Blum and his supporters argue that the 14th Amendment bars government entities including public universities like UNC from treating people differently due to race.

“His efforts and broader project are paying off because now because you have a court that is very receptive to the specific arguments that are being made here,” Feingold said.

For Blum, potential victories over Harvard and UNC may not be the final word in the fight against racial preferences in student admissions.

“It might be the beginning of the end,” Blum said. “More likely, it’s probably the end of the beginning.”

Reporting by Nate Raymond in Boston; Editing by Will Dunham

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Nate Raymond

Thomson Reuters

Nate Raymond reports on the federal judiciary and litigation. He can be reached at nate.raymond@thomsonreuters.com.

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U.S. appeals court temporarily blocks Biden’s student loan forgiveness plan

WASHINGTON, Oct 21 (Reuters) – A U.S. appeals court on Friday temporarily blocked President Joe Biden’s plan to cancel billions of dollars in college student debt, one day after a judge dismissed a Republican-led lawsuit by six states challenging the loan-forgiveness program.

The 8th U.S. Circuit Court of Appeals granted an emergency stay barring the discharge of any student debt under the program until the court rules on the states’ request for a longer-term injunction while Thursday’s decision against them is appealed.

The St. Louis-based appeals court also ordered an expedited briefing schedule on the matter.

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U.S. District Judge Henry Autrey in St. Louis ruled on Thursday that while the six Republican-led states had raised “important and significant challenges to the debt relief plan,” he threw out their lawsuit on grounds they lacked the necessary legal standing to pursue the case.

Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina said Biden’s plan skirted congressional authority and threatened the states’ future tax revenues and money earned by state entities that invest in or service the student loans.

The non-partisan Congressional Budget Office in September calculated the debt forgiveness would cost the government about $400 billion.

White House press secretary Karine Jean-Pierre said Thursday’s temporary order does not prevent borrowers from applying for student debt relief or bar the Biden administration from reviewing applications and preparing them for transmission to loan servicers.

“We encourage eligible borrowers to join the nearly 22 million Americans whose information the Department of Education already has,” Jean-Pierre said.

U.S. President Joe Biden speaks about administration plans to forgive federal student loan debt during remarks in the Roosevelt Room at the White House in Washington, U.S., August 24, 2022. REUTERS/Leah Millis

“It is important to note that the order does not reverse the trial court’s dismissal of the case or suggest that the case has merit,” she added. “It merely prevents debt from being discharged until the (appeals) court makes a decision.”

Nebraska Attorney General Doug Peterson, a Republican who is leading the lawsuit, welcomed the temporary stay.

“It’s very important that the legal issues involving presidential power be analyzed by the court before transferring over $400 billion in debt to American taxpayers,” he said.

The case reaching the 8th Circuit is one of a number that conservative state attorneys general and legal groups have filed seeking to halt the debt forgiveness plan announced in August by Biden, a Democrat.

Autrey ruled about an hour after U.S. Supreme Court Justice Amy Coney Barrett denied without explanation an emergency request to put the debt relief plan on hold in a separate challenge brought by the Wisconsin-based Brown County Taxpayers Association.

Biden said the U.S. government will forgive up to $10,000 in student loan debt for borrowers making less than $125,000 a year, or $250,000 for married couples. Borrowers who received Pell Grants to benefit lower-income college students will have up to $20,000 of their debt canceled.

The policy fulfilled a promise that Biden made during the 2020 presidential campaign to help debt-saddled former college students.

Democrats are hoping the policy will boost support for them in the Nov. 8 midterm elections in which control of Congress is at stake.

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Reporting by Eric Beech in Washington and Steve Gorman in Los Angeles; additional reporting by Nate Raymond and Ismail Shakil; Editing by Grant McCool and Lincoln Feast

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U.S. consumer protection watchdog’s funding unconstitutional, court rules

Oct 19 (Reuters) – A federal appeals court ruled on Wednesday that the U.S. Consumer Financial Protection Bureau’s funding apparatus is unconstitutional, faulting a system Democrats designed to insulate the agency from requiring congressional appropriations.

The New Orleans-based 5th U.S. Circuit Court of Appeals ruled that the CFPB’s independent funding through the Federal Reserve rather than budgets passed by Congress violated the separation of powers principles in the U.S. Constitution.

That ruling, by a panel of three judges appointed by then-President Donald Trump, a Republican, in the process vacated a 2017 regulation the agency adopted aimed at combating “unfair and abusive” practices in the payday lending industry.

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The Community Financial Services Association of America sued in 2018 to challenge the rule, which barred lenders from making a new attempt to withdraw funds from an account where two consecutive attempts had failed unless consumers consented.

“Even among self-funded agencies, the Bureau is unique,” U.S. Circuit Judge Cory Wilson wrote. “The Bureau’s perpetual self-directed, double-insulated funding structure goes a significant step further than that enjoyed by the other agencies on offer.”

A CFPB spokesperson said there was “nothing novel or unusual about Congress’s decision to fund the CFPB outside of annual spending bills.”

The bureau could ask the full 5th Circuit to reconsider the case or take it to the U.S. Supreme Court.

Multiple other courts have deemed the CFPB’s funding constitutional, a point the 5th Circuit acknowledged but disagreed with.

The ruling marked the latest in a series of legal challenges to the CFPB, which Congress created in 2010 through the passage of the Dodd-Frank Act during Democrat Barack Obama’s presidency, in response to the 2008 financial crisis.

Republicans have long opposed the agency. The Supreme Court in 2020 ruled in another case that the protection Congress originally afforded the CFPB director, who could only be fired for cause, was unconstitutional.

“Extreme right-wing judges are throwing into question every rule the CFPB enforces to protect consumers and businesses alike,” U.S. Senator Elizabeth Warren, the Massachusetts Democrat who proposed the CFPB’s creation, wrote on Twitter.

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Reporting by Nate Raymond in Boston; Editing by Stephen Coates and William Mallard

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Nate Raymond

Thomson Reuters

Nate Raymond reports on the federal judiciary and litigation. He can be reached at nate.raymond@thomsonreuters.com.

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U.S. Supreme Court rejects Trump request over seized documents

Oct 13 (Reuters) – The U.S. Supreme Court on Thursday rejected former President Donald Trump’s bid to have an independent arbiter vet classified documents that were seized by the FBI from his Florida home as part of his legal battle against investigators probing his handling of sensitive government records.

The justices in a brief order denied Trump’s Oct. 4 emergency request to lift a lower court’s decision that prevented the arbiter from reviewing more than 100 documents marked as classified that were among the roughly 11,000 records seized at his Mar-a-Lago estate in Palm Beach on Aug. 8.

There were no publicly noted dissents by any of the nine justices to the decision, which came two days after the U.S. Justice Department urged them to deny Trump’s request and keep the classified documents out of the hands of the arbiter, known as a special master.

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The court’s 6-3 conservative majority includes three justices appointed by Trump, who left office in January 2021.

Federal officials obtained a court-approved warrant to search Trump’s residence in a Justice Department criminal investigation after suspecting that not all classified documents in his possession had been returned after his presidency ended.

Investigators searched for evidence of potential crimes related to unlawfully retaining national defense information and obstructing a federal investigation. Trump has denied wrongdoing and has called the investigation politically motivated.

Trump went to court on Aug. 22 in a bid to restrict Justice Department access to the documents as it pursues its criminal investigation.

Former U.S. president Donald Trump speaks during a rally in Youngstown, Ohio, U.S., September 17, 2022. REUTERS/Gaelen Morse/File Photo

U.S. District Judge Aileen Cannon last month agreed to Trump’s request to temporarily block the government from using the seized materials in its investigation until the special master determined if any could be deemed personal or subject to attorney-client confidentiality or executive privilege – a legal doctrine that shields some White House communications from disclosure – and thus off limits to investigators.

Cannon, who was appointed to the bench by Trump, named retired U.S. Judge Raymond Dearie as the special master. Cannon later refused a Justice Department request to partially lift her order relating only to the documents bearing classified markings of confidential, secret or top secret, which the government argued was impeding an effort to mitigate national security risks from their possible unauthorized disclosure.

Cannon said she could not accept that the documents were indeed classified without review by Dearie.

The Justice Department appealed to the Atlanta-based 11th U.S. Circuit Court of Appeals, which then put on hold Cannon’s decisions related to the classified documents, an action that prevented Dearie from vetting them while letting the government resume its probe. The 11th Circuit noted the importance of limiting access to classified information and ensuring the department’s probe would not be harmed.

The 11th Circuit also rejected any suggestion that Trump had declassified the documents – as the former president has claimed – saying there was “no evidence” of such action and that the argument was a “red herring because declassifying an official document would not change its content or render it personal.”

The three statutes underpinning the search warrant used by the FBI at Mar-a-Lago make it a crime to mishandle government records, regardless of their classification status.

The department’s investigation also seeks to determine who accessed classified materials, whether they were compromised and if any remain unaccounted for.

Trump’s lawyers previously told the Supreme Court that Dearie should be able to vet the records and that the Justice Department has “attempted to criminalize a document management dispute and now vehemently objects to a transparent process that provides much-needed oversight.”

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Reporting by Andrew Chung in New York; Editing by Will Dunham

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U.S. appeals court rejects big tech’s right regulate online speech

Facebook, Google and Twitter logos are seen in this combination photo from Reuters files. REUTERS/File Photo

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Sept 16 (Reuters) – A U.S. appeals court on Friday upheld a Texas law that bars large social media companies from banning or censoring users based on “viewpoint,” a setback for technology industry groups that say the measure would turn platforms into bastions of dangerous content.

The largely 2-1 ruling by the 5th U.S. Circuit Court of Appeals, based in New Orleans, sets up the potential for the U.S. Supreme Court to rule on the law, which conservatives and right-wing commentators have said is necessary to prevent “Big Tech” from suppressing their views.

“Today we reject the idea that corporations have a freewheeling First Amendment right to censor what people say,” Judge Andrew Oldham, an appointee of former President Donald Trump, wrote in the ruling.

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The Texas law was passed by the state’s Republican-led legislature and signed by its Republican governor.

The tech groups that challenged the law and were on the losing end of Friday’s ruling include NetChoice and the Computer & Communications Industry Association, which count Meta Platforms’ (META.O) Facebook, Twitter (TWTR.N) and Alphabet Inc’s (GOOGL.O) YouTube as members.

They have sought to preserve rights to regulate user content when they believe it may lead to violence, citing concerns that unregulated platforms will enable extremists such as Nazi supporters, terrorists and hostile foreign governments.

The association on Friday said it disagreed with forcing private companies to give equal treatment to all viewpoints. “‘God Bless America’ and ‘Death to America’ are both viewpoints, and it is unwise and unconstitutional for the state of Texas to compel a private business to treat those the same,” it said in a statement.

Some conservatives have labeled the social media companies’ practices abusive, pointing to Twitter’s permanent suspension of Trump from the platform shortly after the Jan. 6, 2021, attack on the U.S. Capitol by a mob of his supporters. Twitter had cited “the risk of further incitement of violence” as a reason.

The Texas law forbids social media companies with at least 50 million monthly active users from acting to “censor” users based on “viewpoint,” and allows either users or the Texas attorney general to sue to enforce the law.

Texas Attorney General Ken Paxton on Twitter hailed the ruling as “massive victory for the constitution and free speech.”

Because the 5th Circuit ruling conflicts with part of a ruling by the 11th Circuit, the aggrieved parties have a stronger case for petitioning the Supreme Court to hear the matter.

In May, the 11th Circuit, based in Atlanta, found that most of a similar Florida law violates the companies’ free speech rights and cannot be enforced. read more

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Reporting by Daniel Trotta; Editing by Alexia Garamfalvi and Leslie Adler

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U.S. Supreme Court declines to allow Biden’s shift on immigration enforcement

Migrants from Central and South America walk along a dirt trail after crossing the Rio Grande river into the United States from Mexico, in Roma, Texas, U.S., July 16, 2022. REUTERS/Adrees Latif

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WASHINGTON, July 21 (Reuters) – The U.S. Supreme Court on Thursday declined to reinstate President Joe Biden’s policy shifting the focus of America’s immigration enforcement toward public safety threats, handing a victory to Texas and Louisiana as they challenge a plan they call unlawful.

The justices on a 5-4 vote denied the Biden administration’s request to block a federal judge’s ruling that had prevented immigration officials from carrying out the enforcement guidelines while litigation over the legality of the policy continues. But the court said in a brief order that it would fast-track the Biden administration appeal and hear oral arguments in December.

Biden’s policy departed from the hard-line approach taken by the Democratic president’s Republican predecessor, Donald Trump, who sought to broaden the range of immigrants subject to arrest and removal. Biden took office last year promising a more humane approach to immigration.

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In announcing the new guidelines last September, Biden’s administration noted that U.S. officials have long relied on setting enforcement priorities due to the estimated 11 million immigrants living in the country illegally.

The policy would give agents more discretion to consider individual circumstances and prioritizes threats to national security or public safety.

Republicans have criticized Biden’s administration, saying fewer detentions and deportations have encouraged more illegal border crossings.

Texas and Louisiana sued in a federal court in Texas over Biden’s policy, arguing that under federal law officials lack discretion and are obligated to detain immigrants who commit a broad array of crimes or who have been ordered removed.

U.S. District Judge Drew Tipton agreed on June 10, suspending the policy nationwide. Tipton was appointed by Trump. read more

On July 6, the New Orleans-based 5th U.S. Circuit Court of Appeals refused to block Tipton’s ruling pending an appeal.

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Reporting by Andrew Chung and Lawrence Hurley; Editing by Leslie Adler and Jonathan Oatis

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