Oral Argument in Wayfair Raises the Possibility That a Sharply Divided Court Will Preserve Quill

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April 18, 2018

As noted in our initial report on the Wayfair case, supporters of overruling the physical-presence rule of Quill appeared to begin the vote-counting with a solid head start, given statements already made by several of the Justices. Both Justices Kennedy and Gorsuch were on record as questioning the continuing vitality of Quill, and Justice Thomas has repeatedly expressed his general disdain for the Dormant Commerce Clause and seems most unlikely to provide a decisive vote in favor of a controversial application of that doctrine.

The oral argument yesterday in Wayfair provided no reason to change the expectation that these three Justices will vote to overrule Quill. Justice Thomas, in accordance with his standard practice, said nothing at the oral argument. Justice Gorsuch’s questions were all sympathetic to South Dakota. He asked why it was appropriate to draw a distinction that disfavored brick-and-mortar stores and also questioned the retailers’ claim of burdensome tax collection requirements by suggesting that the Colorado notice-and-reporting scheme upheld in Direct Marketing Ass’n v. Brohl, 814 F.3d 1129 (10th Cir. 2016), appears to be even more burdensome. Justice Kennedy described Quill as wrongly decided and criticized some of the other Justices for their apparent willingness to treat the correctness of Quill as irrelevant in deciding how to move forward.

Justice Ginsburg’s questions strongly indicated that she is prepared to supply a fourth vote to overrule Quill. She interjected several times to suggest that solutions would emerge for the problems that were concerning other Justices—namely, Congress could provide a cure for the potential unfairness of imposing a collection requirement on very small sellers and of retroactive application of a new decision overruling Quill; entrepreneurs could be expected to develop software to minimize the burdens of collection. She described the South Dakota statute as one that is equalizing sellers, not discriminating among them, and also pointed out that small local businesses are suffering under the current law. She also remarked that the Court should overturn its own obsolete precedents, not leave the job to Congress. Interestingly, Justice Ginsburg asked counsel for the United States whether the Court could give prospective effect to a ruling overruling Quill. He did not encourage that approach, however, responding that, at least in this context, a prospective decision would be “inconsistent with the judicial role.”

Four votes, however, do not make a majority, and none of the other Justices revealed a strong inclination to join in voting to overrule Quill. In particular, Justices Sotomayor and Alito seemed opposed to changing the law. Justice Sotomayor began the questioning by pointing to “a whole new set of difficulties” that would be created if Quill were overruled, such as possible retroactivity and a “massive amount of lawsuits” about what minimum level of contact would be necessary to obligate a seller to collect sales taxes. Even if Congress were to act to ameliorate these problems, she noted that there would be an “interim period” in which there would be significant “dislocations and lawsuits.”

Justice Alito emphasized that the competing considerations in play cried out for a resolution by Congress that could balance those considerations and reach a more nuanced outcome than the Court could reach. He added that a win for South Dakota in this case would remove the incentive for states to urge Congressional action and hence might reduce the likelihood of Congress stepping in. In response to the argument that this particular statute did not present concerns about retroactivity or burdening very small sellers, Justice Alito stated that the South Dakota law “is obviously a test case,” but the Court needed to be concerned about how a new rule would apply to laws passed by “states that are tottering on the edge of insolvency” that “have a strong incentive to grab everything they possibly can.”

Justices Kagan and Breyer also seemed fairly sympathetic to retaining Quill. Making more of an economic than a constitutional point, Justice Breyer expressed strong concern about the entry costs for small e-commerce businesses, remarking that overruling Quill would undermine the “hope of preventing oligopoly.” On this point, as well as on the economic issues focused upon by the briefs, Justice Breyer expressed frustration that the Court was in no position to resolve the parties’ conflicting empirical claims. In a similar vein, he noted that the issue in the case was like a statutory issue on which the Court would ordinarily allow Congress to act, rather than overruling its own decision, and he cited the brief filed by three Senators and Congressman Goodlatte that argued that Congress will take action if the Court leaves things alone.

Justice Kagan, who is generally a champion of stare decisis, suggested that instead of treating Congressional inaction as a reason for the Court to step in, the Court should “pay attention” to the fact that Congress has chosen not to overturn Quill. She also observed that, if South Dakota prevailed, small sellers would probably look for help to companies like Amazon, which could take over compliance for small companies on their system. Creating this new business opportunity for the major online retailers would be “ironic” – “saying the problem with Quill is that it benefited all these companies, so now we’re going to overturn Quill so that we can benefit the exact same companies.”

Chief Justice Roberts questioned both sides, but not at length. He pressed both South Dakota’s counsel and counsel for the United States on whether the Constitution requires a minimum level of contact for imposing a sales tax collection obligation. He seemed skeptical that it did, which would mean on the one hand that small sellers might be subjected to serious burdens, but on the other hand would ameliorate the concern of an explosion of litigation over the level of contact required. He also remarked that the problem of uncollected sales and use tax seemed to be diminishing as Amazon and other large sellers are now collecting sales tax in all 50 states, which would tend to support the view that “we should leave Quill in place.” He later added that perhaps Congress has already made a decision to leave things as they have been for the last 25 years. Conversely, the Chief Justice criticized Wayfair’s counsel’s argument that reliance interests pointed towards keeping Quill in place, suggesting that a reliance interest based upon nonpayment of lawful use taxes is not one that should be respected.

Thus, the outcome of this case remains very much in doubt. Given the exchanges at the oral argument, however, it would not be surprising if the physical-presence rule again survives by a whisker, as it did in Quill a quarter of a century ago. With almost all of the largest Internet retailers now collecting sales taxes, it could be that the optimal time for persuading the Court to overrule Quill has passed and that the Court will now decide to stick with the devil that it knows instead of opening a new box of uncertainties. A decision in the case is expected by the end of June.

A copy of the oral argument transcript is linked below.

Wayfair – Oral Argument Transcript