If you took the argument Monday morning in Hawkins v. Bank of Raymore as evidence, you would think the Justices were well-rested after their summer break – they came out with lots of questions and for much of the argument spent more time talking and joking with each other than they did listening to the lawyers arguing.
The case involves a loan from the Bank of Raymore to a Missouri limited liability company, for the purpose of developing a residential subdivision. Despite a long-standing Federal Reserve rule (Regulation B) that makes it illegal to do so, the Bank required guaranties from Valerie Hawkins and Janice Patterson, the spouses of the two members of the LLC. The problem that brings the regulation before the Court is the fragile textual basis on which the regulation rests. The Equal Credit Opportunity Act (“ECOA”) makes it unlawful to “discriminate against any applicant” on the basis of marital status, and it defines an applicant as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit.” Accepting that the spousal-guaranty requirement is a species of marital discrimination, it is not at all obvious how a guarantor qualifies as an “applicant.”
Several of the Justices seemed inalterably opposed to the agency’s construction of the statute. For that group of Justices, the central problem was the common usage of “applicant” as limited to people affirmatively seeking a benefit for themselves. So, when John Duggan, arguing on behalf of Hawkins and Patterson, explained that the regulation simply defined “applicant” differently for one purpose (excluding guarantors from notice requirements) than for another (including them for the spousal-guaranty prohibition), Justice Antonin Scalia asked whether “the agency can make that up”? He went on to offer a hypothetical suggesting that he had written a recommendation to a law school, asking that it admit a young woman, putting his “reputation on the line on her behalf. Am I an applicant to the law school? Would anybody use the English language that way?”
Chief Justice John Roberts and Justice Samuel Alito were similarly dubious. The Chief Justice, for example, commented to Brian Fletcher (arguing for the government) that, “if you were in the industry and you’re looking at this, you wouldn’t call the petitioner an applicant. You’d call her a guarantor.” Justice Alito continued by asking whether Fletcher would “disagree that in ordinary speech an applicant is understood … to be someone who is asking for something for himself or herself?”
Justices Anthony Kennedy and Elena Kagan were concerned about another problem, emphasized by Judge Richard Posner in a lower-court opinion on the topic: if “applicant” is extended to include “guarantor,” then the logical consequence would be that the guarantors have the right to invalidate the entire loan, not just their guaranties – a considerable windfall for the borrower. As Justice Kagan put it in questioning Fletcher, “this actually creates liability on a scale that Congress wouldn’t have expected because if you are right, the guarantor can come in and declare the entire loan invalid. What’s the answer to that? Is there an answer?”
That is not to say that all of the questioners were predisposed to invalidate the regulation. Justice Stephen Breyer, for example, quite clearly wanted to support the regulation, but seemed quite unsure that he could come up with a defensible basis for doing so. So, early in the argument, he introduced the hypothetical of a parent applying to private school on behalf of a child, suggesting that we would in common parlance say that the parent was “applying” for the child: “A parent applies for her child to be admitted a school for which she will pay. The child is seven years old and has a hard time writing the application. Isn’t it normal for us to refer to the parent as the applicant?”
But Justice Breyer plainly did not think the hypothetical was enough to support the regulation. At one point, he commented to Fletcher: “It seems to me maybe you’re pushing the edge of the word ‘applicant’ as they didn’t intend it in the statute. That’s a problem.” Unsatisfied with Fletcher’s response, he asked, in a tone of desperation, whether Fletcher could offer “an example? Any example at all from a magazine having to do with finance, from anything you can find where, in fact, in the context of financial transactions, there are references to a surety, a guarantor … with the word applicant?”
Moreover, although Stephen McAllister (representing the bank) did have a much easier time at the podium, it would be an exaggeration to say the Justices left him undisturbed. In particular, Justices Kagan and Breyer presented a series of hypotheticals about co-signers. With McAllister on the one hand conceding that in some of the hypotheticals co-signers would be applicants, and at the same time having little success in providing a crisp explanation of the legal difference between the responsibility of the co-signer and the guarantor, it is fair to say that his presentation did not persuade Justices Kagan and Breyer. It also bodes well for the guarantors that Justices Ginsburg and Sotomayor weighed in with some incisive questioning for McAllister.
It is never easy to know what to make of an argument when the Justices are so engaged with each other – hard to distinguish between the points they are “trying out” for each other and the pre-conceived views on which they have settled. In this case, though, it seems clear that a strong group of Justices feels quite strongly that the regulation is indefensible, that another group of Justices is deeply troubled, and that none of the Justices evinced an unqualified support for it. So at the end of the day, a victory for Hawkins and Patterson does not look likely. I would add, given the simplicity of the question, that we might expect to see a decision relatively soon, before the end of the year.
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