Legal News for Tues 9/24 - Adams' NYC Property Tax Dilemma, NYC Tax Column, Biden's Authority Over National Monuments, Ellison's Sentencing in the FTX Fraud Case and Taft Merger

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This Day in Legal History: Judiciary Act of 1789

On September 24, 1789, Congress passed the Judiciary Act of 1789, laying the foundation for the federal judiciary as we know it today. This landmark legislation established a three-tiered court system, consisting of district courts, circuit courts, and the U.S. Supreme Court at its pinnacle. The Act also created the position of Attorney General to represent the federal government in legal matters. One of its most critical provisions was the authorization of six justices for the Supreme Court, marking the Court's formal establishment.

The Judiciary Act granted the Supreme Court the authority to hear appeals from state courts, ensuring the supremacy of federal law. Additionally, it gave lower federal courts jurisdiction over specific types of cases, including those involving the Constitution, federal laws, and treaties. Perhaps most famously, the Act's Section 25 allowed the Supreme Court to review decisions of state courts when federal issues were at stake, further centralizing federal judicial power.

This Act played a pivotal role in shaping the balance of powers between the federal government and the states. It ensured that federal laws would have a uniform interpretation across the country. While it has been amended many times, the Judiciary Act of 1789 remains a cornerstone of U.S. legal history, establishing the basic framework for the judicial branch.

In 2021, Eric Adams promised to reform New York City's flawed property tax system, which many blame for exacerbating housing inequality. The current system results in tax disparities, with upscale Manhattan properties often taxed at lower rates than homes in the outer boroughs. Despite Adams’ campaign pledges, his administration has yet to introduce significant reforms. Instead, it has fought a 2017 lawsuit filed by Tax Equity Now New York, which argues the system unfairly burdens minority communities and renters.

The lawsuit was revived in 2023, and the court ruled that the city has the authority to address these tax inequalities. Adams, however, faces a political dilemma. Any changes would likely increase taxes for many homeowners, threatening key voting blocs. Property taxes are a critical revenue source, generating $32.7 billion in the last fiscal year. City officials prefer state-led reforms, but without a strong push from Adams, the state is unlikely to act. The ongoing lawsuit may force the city to respond more directly. The next court hearing is set for October 2024, where the city will be required to submit documents explaining its tax assessments.

Eric Adams Fights Legal Challenge to NYC’s ‘Unfair’ Property Tax

And on the subject of NYC and the need to focus on state-based reforms, in my column this week, I discuss New York City’s retreat from a proposed partnership tax, emphasizing how it reveals the limitations local governments face in tax policy.

Municipalities like New York operate under state control, making meaningful tax reform at the city level nearly impossible. Even when a city attempts to innovate, its tax policies must align with state rules, or risk legal and administrative challenges. In this case, New York City’s plan to depart from the state’s method of taxing partnership income posed significant compliance difficulties and potential capital flight.

Ultimately, the city reverted to the state's tax model, acknowledging the practical benefits of consistency. This outcome reflects broader issues cities face: compliance costs, capital mobility, and state-imposed restrictions all limit local tax initiatives. In states like Wisconsin and Colorado, further limitations on local taxation exist through caps or voter approval requirements. The core message is clear: real tax reform must happen at the state level, as municipalities lack the autonomy to make meaningful changes on their own.

NYC Partnership Tax Retreat Shows Change Must Come at State Level

The U.S. Court of Appeals for the Tenth Circuit heard arguments in Garfield County v. Biden, a case challenging President Joe Biden’s authority to restore the boundaries of the Grand Staircase-Escalante and Bears Ears national monuments. The plaintiffs, including Utah and Garfield County, argue that the monuments, covering over 3 million acres, violate the Antiquities Act by exceeding the “smallest area compatible” for preserving historical sites. The monuments, initially designated by Presidents Clinton and Obama, were reduced in size by President Trump before Biden reinstated them in 2021.

The central question before the court is whether presidential actions under the Antiquities Act can be reviewed by courts. A lower court had dismissed the case, ruling that Biden’s actions were not subject to judicial review. The Tenth Circuit must now decide if courts can assess the legality of these presidential designations.

The case could set a precedent on whether future presidents can use the Antiquities Act to protect vast expanses of land, affecting federal land management and resource development. The lawsuit may ultimately reach the U.S. Supreme Court, where Chief Justice John Roberts has previously expressed interest in revisiting the scope of the Antiquities Act.

Biden’s National Monuments Power Set for Tenth Circuit Scrutiny

Caroline Ellison, former CEO of Alameda Research and ex-girlfriend of FTX founder Sam Bankman-Fried, is set to be sentenced for her role in the $8 billion fraud linked to FTX's collapse. Ellison, who has pleaded guilty to seven counts of fraud and conspiracy, cooperated with prosecutors in Bankman-Fried’s trial, where he was convicted and sentenced to 25 years in prison. Ellison’s sentencing is expected to be more lenient, as her cooperation was deemed "extraordinary" by prosecutors, who highlighted her remorse.

Ellison’s cooperation involved meeting with prosecutors around 20 times to assist in building the case against Bankman-Fried, whom she testified had directed her to misuse FTX customer funds to cover losses at Alameda Research. Her testimony revealed she felt relief after the fraud was exposed, lifting a burden of lies. While Ellison could face up to 110 years in prison, her lawyers have argued for no jail time due to her extensive assistance. Two other FTX executives, Nishad Singh and Gary Wang, are also awaiting sentencing later this year.

Bankman-Fried's ex-girlfriend Ellison to be sentenced over crypto fraud | Reuters

Taft Stettinius & Hollister, a U.S. law firm with 925 attorneys, announced its merger with Denver-based Sherman & Howard, which has 125 lawyers across the Mountain West region. The merger, effective January 1, 2025, is part of a broader trend of law firm consolidations in 2024. This merger will bring the combined firms' projected revenue to $810 million. Taft has been expanding over the past 16 years, targeting high-growth markets like Denver and Phoenix. Sherman & Howard, facing challenges competing with larger firms, sought the merger to gain broader expertise and ensure long-term business viability. Several other law firm mergers have been announced in September, signaling increased consolidation in the legal industry.

US law firm merger streak continues with Taft tie-up | Reuters

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