Legal News for Weds 11/13 - Trump Wants Sycophantic AG, Nvidia Fights to Dodge Securities Fraud Suit, SCOTUS Debates "Crime of Violence," and Tax Loss Harvesting

Minimum Competence

This Day in Legal History: SCOTUS Ends Bus Segregation

On November 13, 1956, the U.S. Supreme Court took a pivotal stand against racial segregation by refusing to hear the appeal in Browder v. Gayle, a landmark case challenging bus segregation laws in Alabama. This action upheld a ruling from the U.S. District Court for the Middle District of Alabama, which had declared state and local bus segregation laws unconstitutional. This legal victory effectively ended the Montgomery Bus Boycott, a 381-day protest sparked by Rosa Parks' arrest for refusing to give up her bus seat to a white passenger in Montgomery, Alabama.

The boycott, organized by the Montgomery Improvement Association under the leadership of a young Dr. Martin Luther King Jr., had drawn national attention and served as a major catalyst for the Civil Rights Movement. By ruling against bus segregation, the Supreme Court struck down a long-standing component of Jim Crow laws in the South, emphasizing that enforced racial segregation violated the Equal Protection Clause of the 14th Amendment. This decision marked a significant legal and moral victory, highlighting the role of the federal judiciary in upholding civil rights in the face of local and state resistance.

The end of bus segregation had immediate impacts, enabling Black citizens to ride buses alongside white passengers without enforced separation. More broadly, it emboldened the Civil Rights Movement, inspiring additional challenges to racial discrimination and unequal treatment across the United States.

Donald Trump’s push for a loyal attorney general highlights his intention to reshape the Justice Department to align closely with his agenda, a move seen as a bid to consolidate power and settle scores. Trump's past frustration with Jeff Sessions and Bill Barr, who he viewed as disloyal for permitting investigations against him, underscores his desire for an attorney general who will prioritize his directives, even if it undermines traditional Justice Department norms. Trump’s team, led by conservative lawyer Mark Paoletta, is signaling that department employees must either support Trump’s agenda or risk losing their positions, signaling a deep commitment to loyalty over impartiality.

Trump has promised to prioritize mass deportations, pardon January 6 rioters, and aggressively pursue individuals and officials he believes have wronged him, including political figures like Joe Biden, prosecutors like Alvin Bragg, and past critics like Liz Cheney. Legal experts warn that this approach could undermine prosecutorial independence, a principle established after the Watergate scandal. Trump’s transition team suggests a shift in priorities for the Justice Department, where cases involving immigration and religious freedom would take precedence over issues like police accountability and diversity programs.

With the Supreme Court’s recent ruling granting broad presidential immunity for official acts, Trump’s power to leverage the Justice Department is greatly expanded. Critics, including attorney Bradley Moss, believe Trump is prepared to exploit these legal boundaries to fulfill his promises of “retribution.” The list of potential attorney general candidates includes loyalists like Andrew Bailey, Mike Lee, and Matthew Whitaker, hinting at Trump’s intent to install officials willing to carry out his vision without hesitation.

Trump seeks loyal attorney general | Reuters

The U.S. Supreme Court will hear arguments from Nvidia, which seeks to dismiss a securities fraud lawsuit accusing it of misleading investors about the extent of its revenue dependence on cryptocurrency-related sales. The case, led by Swedish investment firm E. Ohman J:or Fonder AB, claims Nvidia and CEO Jensen Huang made false statements in 2017-2018 that downplayed how much of the company’s revenue growth stemmed from volatile crypto markets. When cryptocurrency profitability declined in 2018, Nvidia’s revenue fell short of projections, leading to a stock price drop that hurt investors.

The lawsuit initially dismissed by a federal judge was later revived by the 9th Circuit Court, which found the plaintiffs had sufficiently alleged that Nvidia’s leadership knowingly or recklessly made misleading statements. Nvidia contends the plaintiffs have not met the high bar required under the Private Securities Litigation Reform Act of 1995, which aims to limit frivolous securities lawsuits by requiring clear evidence of intentional misrepresentation.

The Biden administration has sided with shareholders in this case, while Nvidia argues the lawsuit should be dismissed for lack of sufficient evidence. This case, along with a similar one involving Meta, could shape the legal threshold for private securities fraud cases, potentially making it harder for investors to sue companies for alleged misleading statements. Rulings on both cases are expected by the end of June.

US Supreme Court to hear Nvidia bid to avoid securities fraud suit | Reuters

The U.S. Supreme Court is debating how broadly to interpret what constitutes a "crime of violence" in a case involving mobster Salvatore Delligatti, who was convicted of attempted murder-for-hire. The legal question revolves around whether a crime can qualify as violent under federal law even when no physical force is directly used. Delligatti’s case challenges a firearms statute that imposes a minimum five-year sentence for crimes involving “the use, attempted use, or threatened use of physical force.”

The justices grappled with “absurd” hypotheticals to explore if a crime can be violent in nature without actual force, as the statute requires. Justice Ketanji Brown Jackson highlighted a hypothetical involving a lifeguard refusing to save someone, pointing out that under the court’s “categorical approach,” even passive omissions could be considered violent. Justice Elena Kagan noted the oddity of this approach since failing to act doesn’t fit typical violent behavior but could theoretically fulfill the statute’s requirement, even for murder.

Delligatti’s defense argues that attempted murder isn’t always inherently violent, as some cases might involve indirect actions or omissions. Justice Neil Gorsuch suggested the court could separate violent acts from omissions to avoid “absurdity.” Yet, the debate underscores the challenge: whether the law’s strict categorization aligns with common-sense definitions of violent crimes, especially in cases involving complex, indirect criminal conduct like murder-for-hire.

Mafia Case Tests Supreme Court on Crime of Violence Limits (1)

Wealth managers are increasingly turning to strategies like the “tax-aware long-short” to help high-net-worth clients avoid taxes. This tax-loss harvesting approach involves holding one stock expected to appreciate long-term and another stock likely to decline in value short-term. When the anticipated loss occurs, the losing asset is sold to offset gains from the appreciating one, reducing taxable income and the overall tax bill. At the macro level, this strategy effectively shifts the tax burden from wealthy investors to average taxpayers and ultimately reduces public funds for essential services.

The preferential treatment of long-term capital gains—taxed at up to 20%, compared to a 37% maximum for ordinary income—already favors investment income over wages. While this policy was intended to promote investment, its default high cost to public funds and the extensive tax planning that can be used to exploit it reveal systemic failures in the tax code. When tax professionals and investors go to such lengths to sidestep taxes, this reflects inefficiencies and inequities in tax policy.

Addressing this issue requires substantial policy reforms. One solution would be to tax capital gains at the same rate as wages, removing the impetus to shift income into capital gains and thus increasing tax equity between ordinary income and investment income. While this might simplify the tax code and raise substantial revenue, it could discourage investment and lead to market volatility as investors bear more risk without tax-offset options.

Another option is to tax unrealized gains, similar to property taxes which tax value without the need for realization, where gains are taxed at regular intervals even if the asset isn’t sold. Under this approach, unrealized capital losses could offset unrealized gains during these set intervals, reducing opportunities for manipulative tax timing. This method would diminish the appeal of strategies like the long-short by minimizing the benefits of timing short-term losses against long-term gains. In sum, the effect of timing-based tax loss planning strategies would largely be blunted.

On the polar opposite policy spectrum, lowering capital gains rates would reduce the financial incentive to hire advisors for complex tax avoidance strategies. Lowering rates might make it more cost effective for investors to pay taxes directly rather than invest in costly avoidance techniques.

Ultimately, tax reform should prioritize policies that effectively generate revenue while minimizing the need for complex, resource-intensive planning.

We Need a Better Way to Reduce Tax Avoidance and Enhance Equity

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