Legal News for Mon 11/18 - Trump Hush Money, USPTO Vidal to Winston & Strawn, Spirit Airlines Bankruptcy and 501(c)(4) Dark Money Reform

Minimum Competence

This Day in Legal History: Goodridge v. Department of Health

On November 18, 2003, the Massachusetts Supreme Judicial Court issued a historic decision in Goodridge v. Department of Public Health, becoming the first court in the United States to rule that a state ban on same-sex marriage was unconstitutional. In a narrow 4–3 decision, the court held that the denial of marriage rights to same-sex couples violated the Massachusetts Constitution's guarantees of equality and liberty. Writing for the majority, Chief Justice Margaret Marshall emphasized that marriage is a civil right and that excluding same-sex couples from this institution created a second-class status inconsistent with constitutional protections.

The court ordered the Massachusetts legislature to take corrective action within 180 days, either by revising existing laws or crafting a new framework that would extend marriage rights to same-sex couples. Importantly, the ruling did not permit civil unions as a substitute for marriage, affirming that anything less than full marriage rights would perpetuate discrimination. This groundbreaking decision made Massachusetts the first state in the U.S. to legalize same-sex marriage, sparking national debates over marriage equality.

The Goodridge decision laid the foundation for subsequent legal battles over marriage rights and catalyzed movements for LGBTQ+ equality nationwide. While celebrated as a milestone in civil rights history, the ruling also ignited opposition, prompting efforts to pass constitutional amendments to define marriage as between one man and one woman. Despite the controversy, Massachusetts began issuing marriage licenses to same-sex couples in May 2004, cementing its role as a trailblazer in the fight for marriage equality.

Former President Donald Trump’s hush money criminal case is at a crossroads following his election victory. Trump was convicted in May of falsifying business records to conceal a $130,000 payment to Stormy Daniels during his 2016 campaign, but sentencing has been paused at the request of Manhattan District Attorney Alvin Bragg. Prosecutors must now propose how to proceed, balancing the political implications of prosecuting a president-elect with the need to uphold legal standards. Their recommendations are due Tuesday.

Options for prosecutors include indefinitely delaying sentencing, postponing punishment until Trump exhausts appeals, or pursuing a sentence with minimal consequences, such as an unconditional discharge. Legal experts suggest Bragg is unlikely to seek aggressive penalties before the inauguration, given the potential political fallout.

Trump’s defense has long claimed the case is politically motivated, arguing that it should be dismissed to avoid unconstitutional interference with his presidency. They also contend that his actions are protected by presidential immunity, though the court has yet to rule on this argument. The judge, Justice Juan Merchan, will ultimately decide whether the case moves forward, with both sides expected to appeal any unfavorable decisions.

What's next in Trump's hush money criminal case | Reuters

Former IRS Contractor Sentenced for Disclosing Tax Return Information to News Organizations | United States Department of Justice

Kathi Vidal, outgoing director of the U.S. Patent and Trademark Office (USPTO), will rejoin her former law firm, Winston & Strawn, as a partner on December 16 after leaving the agency. Nominated by President Joe Biden in 2021, Vidal focused on policies addressing artificial intelligence (AI) in patents, international intellectual property (IP) issues, and diversity in innovation during her tenure. She emphasized transparency and patentability standards for AI-assisted inventions to promote innovation without stifling it.

Deputy Director Derrick Brent will serve as acting director until President-elect Donald Trump appoints a replacement. Trump has not announced his pick, though his first-term USPTO head, Andrei Iancu, prioritized policies favoring patent owners. Vidal noted that IP policy tends to be less partisan and highlighted the agency’s unique funding model, which relies on processing fees rather than taxpayer dollars.

At Winston, Vidal will advise clients on tech-related legal issues, including AI, cybersecurity, and antitrust law, leveraging her USPTO experience. The firm’s leadership praised her ability to guide clients through challenges posed by technological advances and geopolitical pressures. Vidal expressed her intention to continue shaping tech policy at the intersection of law and innovation.

US Patent Office's Vidal returns to law firm Winston ahead of Trump term | Reuters

Spirit Airlines Inc. has filed for Chapter 11 bankruptcy amid financial challenges and intense competition from rival carriers. The filing in New York lists the company’s assets and liabilities as between $1 billion and $10 billion. Spirit’s troubles escalated after a federal judge blocked its proposed $3.8 billion merger with JetBlue Airways Corp., citing antitrust concerns that the deal would harm budget-conscious travelers by raising ticket prices. Previous merger talks with Frontier Group Holdings Inc. also collapsed.

The discount airline has faced increasing pressure from major carriers offering competitive basic economy fares, which have eroded Spirit’s market share. Since the COVID-19 pandemic, the company has posted consistent losses, with its stock plummeting 93% in 2023.

Spirit’s bankruptcy follows an agreement with bondholders on a debt restructuring plan. Bondholders will convert $795 million of debt into equity, take control of the company, and inject $350 million in fresh equity along with $300 million in debtor-in-possession financing to sustain operations during the bankruptcy process. The airline also plans to delist as part of the restructuring.

In an effort to remain competitive, Spirit recently introduced upgrades such as extra legroom and free checked baggage to attract travelers seeking more premium options. However, these efforts have been insufficient to counter the financial strain. The case is being handled in the U.S. Bankruptcy Court for the Southern District of New York.

Spirit Airlines (SAVE) Files Bankruptcy Following Failed JetBlue Tie-Up - Bloomberg

The U.S. Supreme Court announced it will release its first opinion of the term on November 22, earlier than in recent years, where the first opinions appeared in December or January. The specific case or cases to be decided have not been disclosed, but they are likely from the nine argued in the October session. These include issues like federal court jurisdiction, attorneys’ fees, and the requirement to exhaust administrative remedies before suing in federal court. Complex cases, such as challenges to Biden's ghost gun regulations and an Oklahoma death penalty case, are expected to take longer.

The timing recalls the court's earlier practice of releasing initial opinions in November, a pattern often attributed to Justice Ruth Bader Ginsburg's quick writing pace. In contrast, recent terms have seen delays, with the first opinion in the 2022 term arriving as late as January 23, 2023, marking an unprecedented delay since the court’s October term structure began in 1917.

This term, the court has already agreed to hear 45 cases, avoiding controversial social issues and focusing on lower-profile matters. The November 22 release could include an opinion or even a dismissal of a case as “improvidently granted,” as suggested during recent arguments in an investor lawsuit against Nvidia.

US Supreme Court Bucks Recent Trend, Announces Opinion Release

The court ruling in Mem’l Hermann Accountable Care Org. v. Commissioner underscores the flaws in the current 501(c)(4) tax-exempt classification and the need for reform to address the issue of dark money in politics. This tax code section groups together vastly different organizations, from advocacy groups like the NRA to local sports leagues, under a single classification. The lack of clear, enforceable standards allows some organizations to exploit their tax-exempt status to fund political campaigns while avoiding donor disclosure. This lack of transparency fuels the dark money problem.

501(c)(4) organizations can engage in political activity as long as it's not their primary purpose, a vague standard that has led to inconsistent enforcement by the IRS. The Fifth Circuit’s decision in Mem’l Hermann challenges this leniency by applying a stricter “substantial nonexempt purpose” test, signaling a potential shift towards greater scrutiny of political spending by these organizations.

One solution is creating a new tax-exempt subcategory—501(c)(4)(C)—for politically active social welfare groups. This would establish clearer rules, such as capping political expenditures at 50% of revenue and requiring donor disclosure for contributions above $10,000. It would also separate traditional social welfare organizations from politically active ones, reducing unnecessary regulatory burdens on the former.

Breaking 501(c)(4) into more specific classifications would ensure that transparency requirements target politically active organizations without disrupting community-focused groups. It would also help regulatory bodies focus enforcement efforts and prevent misuse of tax exemptions for untraceable political contributions. This reform aligns with public demand for accountability in campaign finance while preserving the integrity of non-political nonprofits.

In sum, the 501(c)(4) designation is problematic as currently drafted because it combines a wide variety of organizations with vastly different purposes under the same tax code section. This allows political advocacy groups to hide behind the same classification as traditional social welfare organizations, avoiding stricter scrutiny. This structural ambiguity hampers transparency efforts, suggesting the need to separate these groups into distinct categories for effective regulation.

Getting Rid of Dark Money Requires a New Tax-Exempt Designation

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