//  12/22/17  //  Quick Reactions

Note: This post has been updated.

“Congress is not a potted plant.” So says Judge George Daniels of the federal district court for the Southern District of New York in a decision dismissing a lawsuit against Donald Trump for violating the Foreign and Domestic Emoluments Clauses. We agree with that—for one thing, potted plants are much easier to move. But Congress’s status as something other than a potted plant provides little support for the district court’s conclusion that the plaintiffs in CREW v. Trump lack standing to sue the President.

For the time being, the district court’s decision is a holiday gift to President Trump, who avoids (or, at least, delays) discovery and further litigation regarding his business dealings with foreign and state governments. But this partridge might not stay in the pear tree for long. President Trump still faces emoluments lawsuits in the federal district courts in the District of Columbia and Maryland that rely on different standing theories. And even in this case, Judge Daniels’s reasoning is vulnerable to reversal on an appeal to the Second Circuit.

We’ve expressed our view on this before—we joined an amicus brief arguing that the plaintiffs had standing. We (still) think that’s the right conclusion, though we recognize that reasonable minds disagree on the matter. We do not, however, think that the reasons the district court gave for reaching the contrary conclusion ultimately hold up to scrutiny.

The Competitor Standing Argument

For those who haven’t spent the past two months waiting at the edge of their seat for a decision from the district court in the CREW case, a refresher on the plaintiffs’ competitor standing argument might be useful. The plaintiffs’ argument relied on a long line of Supreme Court and Second Circuit cases recognizing that market participants have standing to challenge actions by government officials that confer an illegal advantage on competing businesses. The Second Circuit and other federal courts have held that a plaintiff can invoke this competitor standing doctrine if she “personally competes in the same arena” as the businesses that have received the unlawful benefit. See, e.g., In re U.S. Catholic Conference, 885 F.2d 1020, 1029 (2d Cir. 1989). Several plaintiffs in the CREW case claimed that they satisfied the “same arena” standard.  For example:

—Jill Phaneuf, who books embassy events and other functions for foreign governments on a commission basis at two D.C. hotels that compete with the new Trump International Hotel in the nation’s capital;

—Eric Goode, who owns a luxury hotel on the Lower East Side and several other lower Manhattan properties; and

—ROC United, an organization of restaurant owners and employees whose members include several Michelin-star restaurants in Manhattan that vie for customers with restaurants at the Trump Tower nearby.

If the court concluded that any one of these plaintiffs had competitor standing, then the case could proceed to the merits.

The President’s lawyers vigorously contested the plaintiffs’ claims that they actually competed with Trump properties. Some of these arguments bordered on the ridiculous: Trump’s hotels, his lawyers noted, have five-diamond ratings from AAA (Goode only has four), and the Jean-Georges restaurant at Trump Tower has three Michelin stars (ROC United member The Modern has only two). But to their credit, Trump’s lawyers responded to the plaintiffs’ claims directly (if not always persuasively).

The District Court’s Decision

The district court’s opinion devotes two pages of analysis to the plaintiffs’ competitor standing (what comes before that is a summary of the facts and a relatively uncontroversial overview of Supreme Court doctrine). The court makes three points. First, the court says it is “wholly speculative” whether the plaintiffs have lost business to Trump because foreign and state government clients want to curry favor from the President or because government officials have an “independent desire to patronize [Trump]’s businesses” (p. 13). Second, the court says that it lacks the power to remedy the injuries suffered by the plaintiffs with respect to competition for non-government customers. Third, the court notes that regardless of what it does, “Congress could still consent and allow [Trump] to continue to accept payments from foreign governments” (p. 14).

The district court goes on to issue two alternative holdings that address claims by Phaneuf, Goode, and ROC United. First, the court says that the plaintiffs’ claims do not fall within the “zone of interests” protected by the Emoluments Clauses because “[n]othing in the text or history of the Emoluments Clauses suggests that the Framers intended these provisions to protect anyone from competition” (p. 15). Second, and surprisingly, the court holds that the plaintiffs’ claims are “not ripe for judicial review” (p. 27). This is especially surprising because even Trump’s lawyers—who have taken an everything-but-the-kitchen-sink approach in this litigation—did not think to throw in a ripeness argument at the motion-to-dismiss stage.

(The district court also held that Citizens for Responsibility and Ethics in Washington (CREW), the named plaintiff in the case, lacks “organizational standing” to sue the President. We think that’s wrong, but we acknowledge that the organizational standing question is a closer one than the competitor standing issue.)

Six Impossible Things Before Breakfast

In our view, there are (at least) six errors in the district court’s analysis of the plaintiffs’ competitor standing claims. (We should add that the virtual ink is not yet dry on the PDF version of the district court’s opinion—which is to say, we’ve had only a few hours to think about it. So please take these for what they are—preliminary impressions rather than long-considered conclusions.)

(1) The Mysterious Disappearance of Competitor Standing Precedents

In dismissing the plaintiffs’ competitor standing claims, Judge Daniels relies primarily on two Supreme Court decisions: Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26 (1976), and Bennett v. Spear, 520 U.S. 154 (1997). What’s odd about that choice is that Eastern Kentucky Welfare Rights Organization and Spear aren’t competitor standing cases at all. The issue in Eastern Kentucky Welfare Rights Organization was whether low-income individuals and organizations representing them had standing to challenge the tax-exempt status of hospitals that denied nonemergency services to patients who couldn’t pay. (The court said no.) The issue in Spear was whether ranchers had standing to challenge a Fish and Wildlife Service decision that would reduce their access to irrigation water. (The court said yes.) Neither of these cases has anything to do with the competitor standing doctrine on which the plaintiffs rely.

One might expect the court to analyze the plaintiffs’ competitor standing claims by analogizing the facts here to those in other competitor standing cases. See, e.g., Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014) (business competitor has standing to sue for harms caused by false advertising); Nat’l Credit Union Admin. v. First Nat’l Bank & Tr. Co., 522 U.S. 479 (1998) (plaintiff banks have standing to challenge a regulator’s ruling that allowed AT&T Family Federal Credit Union to enroll members who were employees of companies other than AT&T); Clarke v. Sec. Indus. Ass’n, 479 U.S. 388 (1987) (trade association of securities brokers, underwriters, and investment bankers has standing to challenge a regulatory decision allowing Security Pacific National Bank of Los Angeles to offer discount brokerage services to the public at nonbranch offices). That is, one might expect the court to explain why the competitor standing claims in this case are weaker than—or otherwise distinguishable from—the claims recognized in cases like Lexmark, First National Bank & Trust, and Securities Industry Association. Instead, we’re left to guess why the court thought this case was more similar to the no-standing precedents than to the cases finding standing.

(2) The Mysterious Relevance of Non-Government Customers

A second perplexing move in the district court’s decision is its emphasis on competition for non-government customers. According to the court (p. 14):

Plaintiffs are likely facing an increase in competition in their respective markets for business from all types of customers—government and non-government customers alike—and there is no remedy this Court can fashion to level the playing field for Plaintiffs as it relates to overall competition.

We’ve read this sentence a dozen times and still don’t understand it. First, the court does have the power to address the increased competition for government customers—by prohibiting the President from owning hotels and other properties that accept business from government clients. And any increased competition for non-government customers does not speak to whether plaintiffs are injured because of increased competition for government customers. Second, the court’s statement that “[p]laintiffs are likely facing an increase in competition . . . for . . . non-government customers” appears to come from . . . where? That wasn’t in the plaintiffs’ complaint, which is the only relevant source for a decision on a Rule 12(b) motion to dismiss. Third, as the competitor standing cases make clear, the “injury” in competitor standing is whatever increased competition plaintiffs face because of purportedly unlawful conduct. A court doesn’t have to eliminate all competition; it just has to remove the increased competition that results from unlawful government action—here the competitive boost the defendant’s businesses receive because of his violations of the Foreign and Domestic Emoluments Clauses.

(3) Injury-in-Fact and Injury-in-Fiction

A third and related flaw in the district court’s opinion is its confusion between illegal competition and loss of customers. The court says (n.3) that “even if [Trump] honored his pledge to establish and donate all profits from foreign governments’ business to the U.S. Treasury, foreign government officials may still patronize [Trump]’s restaurants and hotels.” But so what? Even assuming that a Foreign Emoluments Clause violation could be cured by a pledge to donate profits to the Treasury, the fact that some foreign government officials might patronize Trump properties anyway doesn’t address the fact that other foreign government officials quite likely would not. And more importantly, the injury in competitor standing cases is not the loss of sales but the intensified competition, which compels plaintiffs to expend more time and resources attracting customers. See Sherley v. Sebelius, 610 F.3d 69, 74 (D.C. Cir. 2010); Bristol-Myers Squibb Co. v. Shalala, 91 F.3d 1493, 1499 (D.C. Cir. 1996).

This much is clear from the Supreme Court’s competitor standing precedents. Most recently, the Court in Lexmark recognized that Static Control Components had standing to sue Lexmark for false advertising even though—of course—some customers still would have purchased Lexmark cartridges without the allegedly false ads. With respect to foreign and domestic emoluments as with false advertising, a plaintiff need not prove that the other party’s business depends entirely on an illegal advantage.

(4) Congress Is Not a Potted Plant—Even When It Acts Like One

A further puzzle in the district court’s opinion is its repeated reliance on the fact that Congress can consent to the President’s acceptance of emoluments form foreign governments. The district court is correct as a matter of constitutional text: the Foreign Emoluments Clause says that “no person holding any office of profit or trust under [the United States] shall, without the consent of the Congress, accept of any ... emolument . . .  from any king, prince, or foreign state.” But we’re baffled as to why the remote possibility of congressional consent has any bearing on the plaintiffs’ standing arguments.

First of all, the plaintiffs are suing for violations of the Foreign and Domestic Emoluments Clauses, and while the Constitution allows Congress to cure a Foreign Emoluments Clause violation, the prohibition on domestic emoluments is absolute. Second, the fact that Congress could—hypothetically—consent to an action can’t be enough (or even be a reason) to conclude that a plaintiff lacks standing to challenge that action on the grounds that Congress hasn’t authorized it. Otherwise, there would never be standing when a plaintiff challenges ultra vires executive action—executive action that exceeds the scope of congressionally delegated authority, or executive action that violates a statutory prohibition. In all of those cases, Congress could have authorized the action, but didn’t.  The same would be true in dormant commerce clause cases—no plaintiff would have standing to challenge a dormant commerce clause violation because Congress could always consent to and thus cure the violation.   

That’s also why Congress’s status as a non-potted plant has little to do with the resolution of the case. And while we love the “potted plant” line, we should give credit where credit is due: several lawmakers have said the same thing themselves, including then-Senator Jeff Sessions during a 2015 debate about Department of Homeland Security funding. (At the very least, if Congress is a potted plant, it’s one of the rare potted plants that talks.)

(5) The Mysterious Disappearance of Constitutional Structure

The court also concludes that the plaintiffs’ injuries do not fall within the zone of interests protected by the Emoluments Clauses because the clauses were not “intended . . . to protect anyone from competition.” But that reasoning overlooks the structural function of the Emoluments Clauses. As we explained in our brief:

The Emoluments Clauses . . . serve structural purposes. The Foreign Emoluments Clause is a separation-of-powers provision in addition to an anti-corruption one. It allocates to Congress the power to decide whether and when federal officeholders can receive emoluments from foreign governments. . . . The Domestic Emoluments Clause also protects the separation of powers: it ensures that Congress, through its control over the President’s statutory compensation, is “the sole master” whom the President will serve. The prohibition on state-granted emoluments likewise preserves our system of federalism, as it “helps to ensure presidential impartiality among particular members or regions of the Union.”

The Supreme Court has said that the zone of interests test does not prevent individuals from suing to enforce structural provisions of the Constitution. After all, the whole point of the structural provisions of the Constitution is—ultimately—to protect individuals. The district court overlooks this argument entirely in its opinion.

(6) Ripeness

Finally, and most surprisingly, the district court concludes that the plaintiffs’ foreign emoluments claims “are not ripe for adjudication” because Congress has not chosen “to confront the defendant over a perceived violation of the Foreign Emoluments Clause.” 

This is stunning. The Foreign Emoluments Clause says that the President cannot accept emoluments from foreign governments without Congress’s consent. The district court’s opinion implies that the judiciary can’t do anything about the President’s violations of the Foreign Emoluments Clause until Congress explicitly expresses its nonconsent. This is an inversion of constitutional text that would make Lewis Carroll proud. Plus, when does the court think that the case would be ripe for adjudication? When Congress says what the Constitution already does: that the President is prohibited from accepting foreign emoluments without prior congressional authorization and cannot receive domestic emoluments under any circumstances? Or would it remain unripe because Congress still could change its mind?

* * *

None of this is to suggest that CREW v. Trump should have been an easy case. We recognize that the arguments around organizational standing put the court in a difficult bind between Second Circuit doctrine and (arguably inconsistent) Supreme Court cases. And on the merits, the plaintiffs’ emoluments claims presented issues of first impression. But the competitor standing claims in the case are—we continue to believe—quite powerful. Fortunately, the district court’s conclusion may not be the last word on the matter.

@DanielJHemel

@LeahLitman


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No, Congress doesn't have a duty to provide the resources necessary for the executive branch to adequately fulfill its constitutional functions.

Zachary Price

U.C. Hastings College of the Law

Versus Trump: 2017 Scorecard

1/4/18  //  Uncategorized

On the first episode of Versus Trump of 2018, Jason and Charlie look back at Versus Trump cases in 2017 and score them as Administration wins, losses, or not-yet-decided. They also look ahead at big issues to come in 2018. Listen now!

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District Court Tries Too Hard To Duck Emoluments Clause Case

12/27/17  //  Commentary

I did not expect that a federal district judge would simply fail to apply the law that currently binds him. Yet that's more or less what Judge Daniels did in dismissing the CREW emoluments case.

Michael C. Dorf

Cornell Law School