Hawkins v. Community Bank of Raymore, a case on which I wrote previously, on whether spousal guarantors, or only borrowers, may sue to enforce the Equal Credit Opportunity Act's (ECOA's) prohibition of spousal guaranty requirements, was argued yesterday morning. The ECOA gives a cause of action to "applicants" for credit; an agency regulation interpreting ECOA defines applicants to include guarantors solely for purposes of enforcing ECOA's spousal-guaranty-requirement prohibitions. Plaintiffs in this case are spousal guarantors who, leaning on the agency regulation, argue they are applicants with causes of action under ECOA. The defendant bank argues that the regulation fails at Step One of Chevron.
Today's argument was thoroughly predictable (though fun), with the Court's leading textualist (Justice Scalia) leading the charge for an ordinary-meaning reading of "applicant" that would exclude guarantors, and the Court's leading purposivists (Justices Breyer and Kagan) pushing for a contextual, purpose-sensitive reading of "applicant" that would include guarantors. Other Justices divided along the lines the Justices usually divide in divided cases, while Justice Kennedy didn't say quite enough to be counted as a safe vote for either side, but appeared to be leaning slightly in favor of plaintiffs.
On Chevron, which I flagged as an area where Hawkins might break some new ground in a couple respects, there was no indication that anyone on the Court had a Step Zero/Mead problem with Chevron's applicability here. There was, however, some indication that a couple of Justices were concerned about the agency's selectively defining "applicant" to include guarantors for purposes of only one of ECOA's many protections, and whether such a selective definition could receive deference, even if a definition that treated guarantors as applicants for all purposes could.
I would expect plaintiffs to win 5-4 in a decision that sidesteps the selectivity of the agency's definition by deferring only to the agency's choice to define applicants as guarantors for spousal-guaranty purposes, while bracketing whether their choice to treat guarantors as non-applicants for all other purposes was reasonable. I'll break up my recap into a discussion of what was said about the interpretive question of whether guarantors are applicants, and a separate discussion of what was said about the Chevron problem with the agency's definition.
Are Guarantors Applicants?
Plaintiffs, represented by John Duggan, a first-time Supreme Court advocate, split time with an assistant to the Solicitor General, who is defending the agency regulation. Duggan had a respectable first outing, but the highlight of his time at the lectern was an exchange of hypotheticals and views on statutory interpretation between Justices Scalia and Breyer.
Justice Scalia began the exchange by asking Duggan whether, if he, Scalia, were to write a letter of recommendation to a law school requesting the school to admit an applicant, he too would be an applicant to the school. If not, he suggested, a woman who impliedly requests that a bank extend credit to her husband by executing a guaranty is not an applicant for credit. Duggan weakly replied that the difference between that hypothetical and his case was that Justice Scalia would not be jointly and severally liable for the applicant's tuition. Justice Breyer then interjected with a friendly hypothetical of a parent who applies for her child to get into private school; wouldn't the parent be an applicant, even though she was requesting admission for her child, not for herself? Justice Scalia, amusingly, proceeded to chide Justice Breyer for posing this question,
JUSTICE SCALIA: Well, you shouldn't -- you shouldn't have asked that!
JUSTICE BREYER: I have a parent applies for--
JUSTICE BREYER: What? Wait. A parent applies for a child... the child is seven years old, and has a hard time writing the application...
JUSTICE SCALIA: Change the seven-year-old to a young man who is applying to law school, who is already shaving, for Pete's sake.*
* Flawed transcription strikes again! The courtroom audio reveals at 7:30 that Duggan, not Scalia, said "you and I share that concern."
Justice Breyer, however, was unpersuaded that "applicant" only means third-party applicants (i.e., people who apply for another to receive a benefit) when the real applicants are minors. Instead, he drew the familiar Breyerian lesson from his and Scalia's hypotheticals that "how we use 'applicant' depends on context," and asked Duggan what it was "about the context of the guarantor of a loan that makes it reasonable in that context to call that person an applicant." Before Duggan could answer, Scalia delivered a textualist broadside:
Well, I don't agree with the hypothesis. Why do you accept the hypothesis? What it means depends upon the context? It means what it means. Now, whether the person is an applicant within the understood meaning of "applicant," that depends upon the context, but the meaning of the word doesn't change.
Duggan again answered that guarantors are applicants because of their liability and turned the podium over to Brian Fletcher, assistant to the Solicitor General. Fletcher immediately encountered resistance from Chief Justice Roberts and Justice Alito. Chief Justice Roberts suggested that, in the banking industry, "applicant" and "guarantor" have always been understood to carry separate meanings; Fletcher pointed out that in ECOA, the word "guarantor" is never used. Justice Alito asked whether "applicant" didn't always mean someone requesting a benefit for himself, and suggested that even in Justice Breyer's hypothetical of the parent applying for her child, the parent isn't really an applicant. Fletcher could only say that he disagreed. Justice Alito also suggested that whether spousal guarantors had a cause of action only made a difference where their interests were adverse to that of their borrower-spouses; Fletcher, in reply, made the very good point that spousal guarantors bear the economic brunt of spousal guaranties. Finally, Justice Kennedy wanted to know whether the government thought there was any part of ECOA where "applicant" couldn't mean guarantor; Fletcher said there wasn't, but that the agency had chosen to exempt guarantors from most of ECOA's protections (on which more later).
Stephen McAllister, a University of Kansas law professor who both serves as the Solicitor General of Kansas and has a private practice, argued for the defendant bank. He began, oddly, by claiming that the government's argument rested on an aggressive overreading of Chevron, on which, for the bank to win at Step One, "applicant" must unambiguously exclude guarantors, rather than only unambiguously not include them. What exactly the difference between an unambiguous exclusion and an unambiguous non-inclusion is, McAllister never said, and after no one expressed interest in the point he immediately dropped it and never came back to it.
He then took a lengthy volley of questions from Justice Kagan, who wanted to know why Congress would have given a cause of action to joint borrowers but not co-signers, guarantors, and the like, given the functional similarities between them. In response to these purposivist questions, McAllister eventually told a purposivist story about ECOA, on which Congress really only wanted to protect married borrowers, particularly women, from being saddled to the credit histories of their guarantor-spouses -- not to protect spouses from the imposition of spousal guaranties.
Justice Kagan had no response to this plausible-enough narrative, but just when McAllister appeared to have won a point on the purposivist front, Justice Breyer intervened to push McAllister on text. Why can't we say, he asked, that a guarantor has "applied for the credit to go to [a borrower]? I mean, in English, hasn't he?" McAllister could only demur that we don't ordinarily use "applicant" this way - a tricky claim to make persuasively, as he essentially needed to prove a negative about ordinary English usage. Justice Sotomayor pointed out that the only dictionary that says applicants usually apply for their own benefit is Webster's Third, a dictionary which she noted "has been criticized by at least one of my colleagues," at which point Justice Scalia, the critic she was alluding to, joked that "it's a terrible dictionary." McAllister insisted, nevertheless, that in "ordinary parlance" applicants apply for their own benefit.
Justice Ginsburg expressed doubts on that point, and Justice Breyer, again playing the textualist, said that dictionaries define applicants as people who make requests and asked why a guarantor, who requests a bank to extend credit to a borrower, isn't therefore an applicant. Justice Scalia said that on that definition, he would be an applicant any time he requested an admissions officer to admit an applicant in a recommendation letter, which proved the infirmity of the dictionary definition. Justice Sotomayor attempted, not entirely successfully, to distinguish Scalia's hypothetical, while Justice Kagan cleverly argued that the fact that third-party credit is the consideration for a guaranty that makes the guaranty binding shows that a guarantor is just as much an applicant for the extension of credit as a borrower.
Finally, Justice Kennedy asked McAllister if he could identify a single place in the statute "where it really would be contrary to a sensible interpretation of the Act" to interpret "applicant" to mean guarantor. McAllister referenced certain notice provisions, to which Justice Sotomayor countered that those provisions wouldn't be unworkable if construed to cover guarantors, which McAllister conceded. McAllister closed by warning the Court that if it ruled for the plaintiffs, banks would never make an unsecured guaranty-backed loan to a married couple again because they would have to worry about the guarantors suing under ECOA to void the guaranties. Duggan effectively countered this point on reply, explaining that banks could avoid spousal guaranty liability by, among other means, asking spouses to be co-borrowers.
In short, on the meaning of "applicant" and the reasonableness of the agency's interpretation, the Court looked to be divided down the middle along the usual lines, with Justice Kennedy seeking to assure himself that a ruling for the plaintiffs wouldn't create any problematic collateral consequences elsewhere in ECOA. Note, however, that the premise of Justice Kennedy's questions - that the agency has globally defined "applicant" to include guarantor and that what's at stake here is that interpretation - is factually inaccurate. (A couple of Justices seemed to be unaware of the selectivity of the agency's definition of "applicant," and understandably so, given how little was said about it in the briefs.) So it's somewhat difficult to predict what Justice Kennedy will make of the case once that mistake is cleared up in conference.
The Agency's Selective Defintion of "Applicant"
A peculiar quirk of this case, discussed in my last post, is that while the agency insists that "applicant" can mean guarantor, it has read "applicant" to mean guarantor with respect to only one rule enforcing one aspect of ECOA's prohibition of marital-status discrimination, which is one of only eight types of discrimination ECOA prohibits. What gives the agency the power to do that, and can the Court defer to such an interpretation?
This issue stuck in Justice Scalia's craw all morning. The first time he raised it, Mr. Duggan replied that the Court had previously held, in Duke Energy, that an agency may permissibly give different readings to the same defined term in different parts of a statute. Duke Energy's a helpful case to the plaintiffs and the government, but it's also rather distinguishable, as the Justices will no doubt find when they sit down to write an opinion. In Duke Energy, the Court held that the EPA could interpret an ambiguously defined term in the Clean Air Act, "modification," to mean different things in different parts of the Clean Air Act that address different pollution control schemes. In this case, the usages of "applicant" that are being interpreted are all the same usage - the sentence of the statute that gives a cause of action to "the aggrieved applicant" for violations of ECOA. The agency has interpreted that solitary usage to include guarantors with respect to some violations but not others. Even if one were to look through the cause of action to the substantive provisions of ECOA, the anti-discrimination provision, for example, is a single sentence that provides it "shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction," on the basis of eight different traits, including marital status. It's difficult to see how "applicant" changes meaning within the same sentence depending on which trait's at issue - though it's true that one type of discrimination covered by ECOA, marital-status discrimination, has more of a bearing on guaranties than others.
When Justice Scalia asked Mr. Fletcher about the agency's selective definition, his response was rather different than Mr. Duggan's. On his account, the agency had read applicant to mean guarantor, but then decided to "exempt them" from almost every ECOA protection. The agency could do this, he explained, because of its unusual grant of rulemaking authority, which provides that it may "provide for such adjustments and exceptions for any class of transactions, as in the judgment of the Bureau are necessary or proper to effectuate the purposes of this subchapter, to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance therewith." This certainly gives what the agency's doing a textual hook, but it's a troubling sort of textual hook that isn't likely to appeal to the Court's Chevron-skeptics; does ECOA really mean that the agency can cut a class of plaintiffs out of a cause of action they're otherwise entitled to?
It's hard to tell whether other members of the Court were troubled by the agency's selective definition of "guarantor," in part because several members of the Court didn't seem to know about it. Justice Sotomayor at one point averred that ECOA only covered marital-status discrimination (not so), while Justice Kennedy suggested at one point that the agency had read "applicant" to include guarantors across the board. Justice Kagan was the only other Justice who raised the issue, and she raised it only by way of suggesting to Mr. Fletcher that perhaps the agency wasn't really convinced of its interpretation.
My prediction here is that a majority will rule for plaintiffs and defer to the agency's interpretation of applicant to include guarantors for purposes of the spousal guaranty rule, without passing on whether its exclusion of guarantors for all other purposes was reasonable. I would be very surprised to see an affirmative holding that it was, or to see any reliance on the exceptions clause of the agency's grant of rulemaking authority. Instead, the Court's likely to say that any underinclusion in the agency's definition is an issue for a case where a guarantor argues he's an applicant for purposes of making some non-spousal-guaranty claim; the only aspect of the agency's definition now before the Court, they'll likely say, is its inclusion of guarantors for spousal-guaranty purposes. On the other hand, should Justice Kennedy join Justices Scalia et al., which wouldn't come as a complete shock, the selectivity of the agency's definition could play an important role in a majority opinion denying the agency deference.