Court Opinions: A Split US Supreme Court Rules Some Section 1983 Claims Can’t be Denied on Failure-To-Exhaust Grounds

U.S. Supreme Court.
The U.S. Supreme Court. / Photo by Michael Rummel for Law Week Colorado.

Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.

Hungary v. Simon


The Foreign Sovereign Immunities Act of 1976 provides foreign states with presumptive immunity from suit in the U.S. To sue a foreign sovereign in U.S. courts, plaintiffs must satisfy one of the exceptions to immunity set forth in FSIA. FSIA’s expropriation exception permits claims when “rights in property taken in violation of international law are in issue” and either the property itself or any property “exchanged for” the expropriated property has a commercial nexus to the U.S. 

Respondents are Jewish survivors of the Hungarian Holocaust and their heirs. They sued Hungary and its national railway MÁV in federal court, seeking damages for property allegedly seized during World War II. 

Respondents’ complaint alleged that Hungary and MÁV liquidated the expropriated property, commingled the proceeds with other government funds and later used funds from those commingled accounts in connection with commercial activities in the U.S. The district court determined that this “commingling theory” satisfied the law’s commercial nexus requirement. The D. C. Circuit affirmed, reasoning that requiring plaintiffs to trace the particular funds from the sale of their specific expropriated property to the U.S. would make the exception a “nullity” in cases involving liquidated property.

The U.S. Supreme Court held that alleging commingling of funds alone cannot satisfy the commercial nexus requirement of FSIA’s expropriation exception. 

The unanimous court reasoned that the expropriation exception requires plaintiffs to trace either the specific expropriated property itself or “any property exchanged for such property” to the U.S. (or to the possession of a foreign state instrumentality engaged in U.S. commercial activity).

The high court noted the provision’s plain text treats tangible and fungible property alike: For both kinds of property, plaintiffs must plead some facts that enable the reasonable tracing of the property to the U.S. When property is expropriated and exchanged for cash that is then commingled with other funds, the court held that plaintiffs must still plausibly allege that the specific proceeds from their property have the required commercial connection to the U.S.

The Supreme Court vacated the judgment and remanded the case. Justice Sonia Sotomayor delivered the opinion for a unanimous court.

Wisconsin Bell, Inc. v. United States ex rel. Heath

The Education-Rate, or E-Rate, program established under the Telecommunications Act of 1996 subsidizes internet and other telecommunications services for schools and libraries across the U.S. To finance those subsidies, Congress required that telecommunications carriers pay into a fund now known as the Universal Service Fund that is administered by the Universal Service Administrative Company, a private not-for-profit corporation. 

The company collects and distributes the resulting pot of money to beneficiaries pursuant to regulations prescribed by the Federal Communications Commission. In addition to providing for subsidies, those regulations impose upon carriers the “lowest corresponding price” rule, which prohibits them from charging schools and libraries more than what they would charge a “similarly situated” non-residential customer.

Once an appropriate charge is set, a school can obtain its subsidy by paying the carrier a discounted price and requiring the carrier to seek the remainder from the fund, or by paying the carrier full freight and then applying for reimbursement from the fund.

Todd Heath is an auditor of telecommunications bills who believes that Wisconsin Bell defrauded the E-Rate program out of millions of dollars. According to Heath, Wisconsin Bell consistently overcharged schools in violation of the “lowest corresponding price” rule. 

Heath brought suit under the False Claims Act, which enables private parties to bring civil actions on the government’s behalf to protect federal programs and funds from fraud. The FCA imposes civil liability on any person who “knowingly presents, or causes to be presented, a false or fraudulent claim” as statutorily defined. 

In Heath’s view, Wisconsin Bell’s violations of the “lowest corresponding price” rule led to reimbursement requests for amounts higher than the E-Rate program should have paid. The premise of Heath’s suit is that an E-Rate reimbursement request can give rise to FCA liability because it qualifies as a “claim,” which requires the government to “provide[ ] or ha[ve] provided any portion of the money” requested.

Wisconsin Bell moved to dismiss Heath’s suit. In its view, an E-Rate reimbursement request can never qualify as a “claim” under the FCA because the money comes from private carriers and is handled by a private corporation, meaning the government does not “provide[ ] any portion of the money” requested. 

The District Court and the 7th Circuit Court of Appeals rejected that argument. The appeals court held that the government “provided” E-Rate program funding for two independent reasons. First, it held that the government provided all the money in the program through its regulatory role in the collection and distribution of contributions. Second and more narrowly, it found that the government provided some “portion” of E-Rate funding by depositing into the fund more than $100 million directly from the Department of the Treasury in the relevant years.

The U.S. Supreme Court held that the E-Rate reimbursement requests at issue are “claims” under the FCA because the government “provided” at a minimum a “portion” of the money applied for by transferring more than $100 million from the treasury into the fund. It noted the question is whether the government “provided” — in ordinary meaning, supplied, furnished or made available — any portion of the money sought.

While the parties, mirroring the 7th Circuit’s opinion, discuss two independent theories under which the government potentially “provided” the requested funds, the court said that in this case, it is enough that the government provided some E-Rate moneys through the treasury’s own transfer of over $100 million into the fund. 

That amount consisted of delinquent contributions that the FCC and Treasury Department collected from carriers, as well as civil settlements and criminal restitution payments from Justice Department activities in response to wrongdoing in the E-Rate program. The government therefore “provided [a] portion of the money” disbursed from the Fund to reimburse E-Rate program participants.

The Supreme Court affirmed the judgment and remanded the case.

Justice Elena Kagan delivered the opinion for a unanimous Court. Justice Clarence Thomas filed a concurring opinion, in which Justice Brett Kavanaugh joined, and in which Justice Samuel Alito Jr. joined as to Part I. Kavanaugh filed a concurring opinion, in which Thomas joined.

Williams v. Reed

Petitioners are unemployed workers who contend that the Alabama Department of Labor unlawfully delayed processing their state unemployment benefits claims. They sued the Alabama Secretary of Labor in state court under Section 1983 of the U.S. Constitution, raising due process and federal statutory arguments and seeking a court order requiring the department to process their claims more quickly. 

The secretary moved to dismiss on several grounds, including that the state trial court lacked jurisdiction because the claimants had not satisfied the relevant statute’s strict administrative-exhaustion requirement. The state trial court granted the secretary’s motion and dismissed the complaint, leaving the claimants in a catch-22 — unable to sue to obtain an order expediting the administrative process because they had not yet completed the process allegedly being delayed. 

The Alabama Supreme Court affirmed on failure-to-exhaust grounds, concluding that Section 1983 didn’t preempt the state’s administrative-exhaustion requirement.

The U.S. Supreme Court held that where a state court’s application of a state exhaustion requirement in effect immunizes state officials from Section 1983 claims challenging delays in the administrative process, state courts may not deny those Section 1983 claims on failure-to-exhaust grounds.

The split Supreme Court reversed the judgment and remanded the case.

Justice Brett Kavanaugh delivered the opinion of the court, in which Chief Justice John Roberts Jr. and Justices Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson joined. Justice Clarence Thomas filed a dissenting opinion, in which Justices Sameul Alito Jr., Neil Gorsuch and Amy Coney Barrett joined as to Part II. 

“As a matter of first principles, States have unfettered discretion over whether to provide a forum for §1983 claims in their courts,” Thomas wrote in the dissenting opinion. “And, Alabama’s exhaustion rule does not transgress the limitations that our precedents have recognized.” 

Thomas went on to note that the court endorsed “an as-applied theory of futility that is both forfeited and meritless,” that he stated moves the court’s jurisprudence further off course. 

In Part II, the dissenting justices assert that the court should affirm even under existing precedents, stating that Alabama’s exhaustion requirement doesn’t run afoul of the limitations the court has identified on a state’s authority to restrict federal causes of action from proceeding in state court. 

“Petitioners misread our precedents in arguing otherwise, and the majority’s theory likewise cannot pass muster,” the dissenting justices stated in Part II.

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