Six Months After Hearing Arguments, Justices Still Mum on Kentucky v. Davis

Nearly six months after hearing oral arguments, the Supreme Court has yet to hand down a ruling in the closely watched Kentucky v. Davis case, leading some to wonder why the justices are taking so long to reach a decision.

Of the 29 cases heard by the high court during its fall 2007 session, only five remain undecided, including the Davis case, in which a Kentucky couple, George and Catherine Davis, challenged the state's practice of taxing out-of-state bonds but not its own bonds, claiming this violates the dormant commerce clause of the Constitution.

When the justices heard oral arguments in the case on Nov. 5, most of them seemed to side with the Bluegrass State in favor of the status quo. A ruling affirming a Kentucky appellate court decision in favor of the Davises would force 43 states to abandon similar preferential taxing practices and upend the muni market.

If the justices do not release a decision today, the next possible opportunity would be April 14, at the beginning of a new oral argument session.

C. Christopher Trower, the lead attorney for Kentucky who has his own law firm, is pragmatic in his rationale for the why the justices are taking so long, saying they simply may have not had time to address the case yet.

"Four of the last six weeks of the court's calendar have included oral argument sessions," he said. "The time and energy demanded by the court's preparation for, and participation in, oral argument undoubtedly affects the completion of opinions in previously argued cases."

But Gregory Germain, an assistant professor at Syracuse University College of Law, said there are a number of possible reasons why a ruling has not yet been issued.

"It may be [the justices are] trying to reach unanimity, or come up with some language that everyone supports," he said. "There is just no way to know or guess."

However, Germain said that changes to the municipal bond market- which has become more volatile and uncertain since oral arguments were heard - only increase Kentucky's odds of a favorable decision.

"I suspect that a decision upholding Davis would likely cause panic in this already jittery market, sending shock waves throughout the economy," he said. "Presumably, the judges are aware of the state of the economy. I would expect current market conditions to make an affirmance of Davis even less likely than it was before."

Another reason Kentucky may have an edge, he added, is that there are no prior cases that can serve as a direct precedent.

"There is no clear law here. They are going to make law when they decide the case, either way," Germain said. "The bigger the dislocation from an adverse decision, the less likely they will make an adverse decision."

The court may be diligently considering the issue, but Len Weiser-Varon, a partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC who has been closely following the case, noted that the justices may also be considering how to handle some specific details related to bonds.

"To me the real question, given the tenor of the oral argument, is whether they're going to address private-activity bonds," he said. "My guess is, if the reason for the delay is substantive or reflects any internal back and forth, it's around that issue. They could remand the case to the lower court to figure out whether private-activity bonds are at issue."

During oral arguments, the justices wondered if they should be drawing a distinction between public purpose municipal bonds and private activity bonds which can involve a limited amount of private use and payments.

Weiser-Varon also echoed Germain in saying that finding the proper language to phrase the ruling may be a sticking point. During oral arguments, the Davis camp made the argument that bonds should be treated like milk - a business that states cannot erect protectionist barriers around - the court has previously determined. While the justices may disagree with that contention, drawing the proper distinction could pose challenges.

"How do they articulate that the bonds are different from milk? That's kind of the issue," Weiser-Varon said. "The judges that want to say - as I think many do - that bonds are different from milk, they have to explain how bonds are different from milk. Depending on how they draw that line, it'll be clear that all bonds are different from milk, or maybe only some kinds of bonds are different from milk."

While expecting a ruling in favor of Kentucky, he added, "I guess we all just need to be patient, and all will be revealed."

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER