Can the battle over the US Supreme Court influence businesses beyond US borders?

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The world has watched US politics this year with a mixture of dismay, amusement and confusion. One of the most controversial political skirmishes this year is being fought over the US Supreme Court, after the death of Justice Ruth Bader Ginsburg on the 18 September left a vacancy that Republicans and Democrats have been vying to fill.

Despite blocking Obama’s nomination of Chief Judge Merrick Garland in 2016 due to a forthcoming election, Senate Majority Leader Mitch McConnell has announced that Ginsburg’s vacancy can be filled before the election on 3 November.

Last week, Trump nominated Judge Amy Coney Barrett to the US Supreme Court. We examine the controversy surrounding this nomination and what this could spell for global financial markets.

Who was Ruth Bader Ginsburg?

Ruth Bader Ginsburg was the second female US Supreme Court Justice. She was renowned for her formidable intellect and contribution to American jurisprudence. However one of her most enduring legacies will be her advocacy for gender equality and social progress.

Ginsburg finished first in her class at Cornell University and Columbia Law School. She was the first female member of the Harvard Law Review, juggling her studies with raising a child and caring for her husband. Yet despite these achievements, Ginsburg graduated without a single job offer from a New York law firm because she was a woman.

She nevertheless landed a clerkship with US District Judge Edmund Palmieri and pressed on to become the first female tenured law professor at Columbia University. Upon her appointment to the Columbia Law School in 1972, she proclaimed “sexual discrimination is and will continue to be my principal interest.”

True to her word, Ginsburg was a pioneer in the push for constitutional recognition of gender equality.

She was a founding director of the Women’s Rights Project of the American Civil Liberties Union, for which she argued six landmark cases on gender equality before the Supreme Court.

In Reed v. Reed, Ginsburg drafted a brief that disputed the constitutionality of an Idaho statute that stated “men must be preferred to females” in executing estates. This became the first case where the Supreme Court struck down a state law on the grounds of gender discrimination.

Ginsburg also occupied an influential role in US and global politics.

Upon her nomination to the Supreme Court, she told the Senate Committee on the Judiciary that her approach was “neither liberal nor conservative”. When appointed, she was considered part of the moderate-liberal bloc.

However as George W Bush appointed Justices Roberts and Alito, and Donald Trump appointed Justices Gorsuch and Kavanaugh, the bench became distinctly conservative. Ginsburg, consequently, came to represent a crucial vote and voice for liberals.

In her time on the bench, Ginsburg delivered some of the most blistering dissents in the history of the Supreme Court. Her dissents were also recognised for their ability to prompt action in Congress.

In Ledbetter v. Goodyear Tire & Rubber Co, Lilly Ledbetter sued her employer for gender discrimination. Despite 19 years at the company, she received lower compensation than her male employees. However she was unsuccessful in the Supreme Court because her claim was made after a 180-day charging period.

In the minority judgment, Ginsburg delivered a scathing dissent that accused the all-male majority of failing to understand the “insidious” nature of pay discrimination and calling upon Congress to act.

“This is not the first time the Court has ordered a cramped interpretation of Title VII, incompatible with the statute’s broad remedial purpose,” wrote Ginsburg.

“Once again, the ball is in Congress’ court. As in 1991, the Legislature may act to correct this Court’s parsimonious reading of Title VII.”

Two years later, the Obama administration passed the Lilly Ledbetter Fair Pay Act to rectify procedural laws that prevented such gender discrimination challenges. Under the Act, unfair pay claims could be filed within 180 days of a discriminatory paycheck and would be reset after each paycheck is issued.

The rush to replace RBG

Despite Ginsburg’s “most fervent wish” that she is not replaced until a new president is installed, Trump has nominated Judge Amy Coney Barrett to the Supreme Court. The Senate Judiciary Committee will begin confirmation hearings on Barrett’s nomination on 12 October.

Barrett is a judge of the Seventh Circuit Court of Appeals and law professor at Notre Dame Law School. She graduated from Rhodes College and Notre Dame Law School, later landing a prestigious clerkship with Justice Antonin Scalia in the Supreme Court.

If confirmed, Barrett would tilt the US Supreme Court further to the right with Republican appointees outnumbering Democratic appointees by a 6-3 margin. This would make the Supreme Court the most conservative it has been since 1950.

Her appointment could also have a huge destabilising effect on abortion laws, gun rights and healthcare legislation in the US. Whilst Ginsburg was a clear liberal vote, Barrett embodies an almost polar opposite voting record.

Much like her conservative mentor Justice Scalia, she adopts a strict interpretation of the US Constitution rather than allowing the modern context to inform its reading.

Barrett has previously also expressed that a “relaxed form of constitutional stare decisis” is “probably desirable”.

Stare decisis represents a court’s obligation to follow a superior court and its own precedent. Her view that stare decisis is not a “hard-and-fast rule in the Court’s constitutional cases” may signal her willingness to overturn judgments such as Roe v. Wade, which protects a woman’s right to abortion.

However could Barrett’s nomination also influence businesses, and importantly, businesses beyond US borders?

Does this battle go beyond US borders?

The Supreme Court’s influence on business law is complex.

Professor Jennifer Hill, the Bob Baxt AO Professor of Corporate and Commercial Law at Monash University, explains that the Supreme Court’s power is “bifurcated.”

“There is a constitutional schism in the area of business law in the United States,” said Professor Hill. 

“Corporate law is a state-based matter, which means that the US Supreme Court does not have a high profile role in this area. 

“However, securities law is federal law in the United States and the US Supreme Court can therefore have a significant impact in relation to the anti-fraud provision, SEC Rule 10b-5. The Supreme Court also has power to hear cases involving environmental law.”

The Supreme Court has influenced global securities regulation in the past.

In Morrison v. National Australian Bank, the Supreme Court determined how far US anti-fraud provisions extended. The Court arguably curtailed the role that the US plays in the global securities market and inadvertently triggered more class actions in Australia.

The Court considered whether Australian shareholders of an Australian company could bring a case in the US under US securities law because the Australian company allegedly overpaid for a US company. The case was dismissed 8:0, however it reshaped the US’s role in international securities regulation.

In Morrison, the majority held that the Securities Exchange Act of 1934 was concerned with the regulation of domestic matters and did not extend jurisdiction to the Australian shareholders. The majority held that a presumption against extraterritoriality could only be displaced with clear legislative language. Their Honours also considered broader public policy issues, such as the desire to prevent the US from becoming a “Shangri-La” for plaintiff attorneys.

“Interestingly, the majority judgment in Morrison v NAB was delivered by Justice Scalia. Many commentators view Amy Coney Barrett, who clerked for Justice Scalia in the late 1990s as his intellectual heir on the US Supreme Court,” said Professor Hill. 

The minority, which included Ginsburg, did not take such a strict reading of the legislation. Although the minority dismissed the appeal, citing that it “had Australia written all over it,” they provided important dicta on how US legislation can be construed to apply extraterritorially.

The minority decision stated that the presumption against extraterritoriality should be applied only as “a tool for managing international conflict, a background norm, a tiebreaker.” Indeed, their Honours described certain provisions as giving “strong clues” that they could have extraterritorial application.

The impacts of Morrison were immediate and resounding.

After Morrison, it was reported that lawyers began withdrawing similar transnational litigation from US courts.

Australian legal academics have described Morrison as having a “centrifugal effect”, where more multinational securities class actions have been commenced in Australia.

Jonathon Redwood, a leading Australian barrister, wrote that “the US has significantly wound back on the availability of securities class actions … Australia [has] move[d] in the opposite direction toward an environment more conducive to the bringing of large shareholder class actions.”

These legal technicalities have also played an important role in US financial regulation.

Less than a month after Morrison, the Dodd-Frank Act was signed into law. Although encompassing a broad range of financial regulations, it codified the US courts’ ability to have jurisdiction over anti-fraud actions brought by the Securities and Exchange Commission that involved overseas conduct.

Ultimately, it is still difficult to predict how Barrett’s nomination will affect financial regulation and business outside US borders.

“In my view, US law is increasingly an outlier in many contemporary policy debates, such as the growing public role of corporations, climate change etc, which are major current themes in the UK and Europe,” said Professor Hill.

“Indeed, in many ways, the United States has become an importer, not exporter, of law in the area of corporate governance. Global institutional investors are putting pressure on US companies to adopt corporate governance practices that are embedded in the law of other jurisdictions (including Australia) … In my view, US legal influence in corporate law is, if anything, declining.”

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