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A Fourth of July Lesson in “The Rule of Law” Presented by the Supreme Court

Our nation has a legal system that, in spite of its flaws, is generally transparent, rational, fair, and respected. Happy Birthday, U.S.A.!



Celebrate “The Rule of Law?”

Of all the things to celebrate on this Fourth of July, the rule of law probably doesn’t leap right to mind! But if we just think for a moment about what going on in other places around the world—Syria, Iraq, Egypt—we’d realize how thankful we ought to be about being a nation governed by the rule of law.

And the Rule of Law is What?

The “rule of law is the principle that all people and institutions are subject to and accountable to law that is fairly applied and enforced,” according to one dictionary.

It means that our government, and our police, can’t act arbitrarily. We the people are protected by a deep foundation of law, the Constitution, which reflects our nation’s values. All the rest of our laws have to fit within that protective legal foundation.

Basically, the government—federal, state, and local—has to follow the rules, and apply them the same to everybody. No playing favorites. No part of the government is above the law, and no official can act arbitrarily, outside of what the law states.

Our System of Laws and the Latest Supreme Court Bankruptcy Ruling

What does all this have to do with the Supreme Court?

Its ruling last month in Clark v. Rameker is its most recent one on a bankruptcy issue. It gives us a nice lesson in the rule of law in two ways. The first we cover today; the second in our next blog post.

The Courts Interpret and Enforce the Law, Following Established Procedures in Doing So

The question that was before the Supreme Court in this case was: does the protection that applies to debtors’ retirement accounts—in this case Individual Retirement Accounts (IRAs)—extend not just to those accounts originally set up for the debtors’ own retirement but also to those which were transferred to debtors by the death of the original owners of those accounts?

The language in the Bankruptcy Code simply says that the protection applies to “retirement funds to the extent those funds are in” an IRA. But what counts as “retirement funds”? Specifically, should an IRA acquired as a result of the death of the original owner and now owned by the beneficiary still be a protected “retirement fund” in bankruptcy?

It’s the job of the courts to figure out whether or not there is an ambiguity in the statute, and if so to resolve it by following established rules for clearing up ambiguities. Everybody agrees that’s what courts do, and that’s how they do it.

Judges are generally understood to be applying the laws as they honestly believe they should be applied, and must rationally justify their rulings. Except in extremely rare situations, judges aren’t bribed to rule in somebody’s favor. Of course people are often unhappy with a judge’s decisions, but extremely rarely do they take the law into their own hands by taking it out on the judge. Most of the time the judges play by the rules and we all peacefully accept their decisions.

The Supreme Court Doing Its Job

The Court in this case determined that there is indeed ambiguity in what the term “retirement funds” covers. That term was not defined by Congress in the Bankruptcy Code. So the Court looked at the ordinary, dictionary meaning of “retirement fund,” and then looked objectively at “the legal characteristics” of the inherited IRAs to see if they apply to that ordinary meaning. The Court unanimously decided that inherited IRAs do not, and so they are not “retirement funds.” Thus they are not protected from creditors.

At the end of the day, that is the law. The Court, having gone through a rational and fair decision-making procedure, makes a decision, which then everybody accepts.

What the Losers Do

Every judicial decision has both immediate and indirect winners and losers.  The losers are not happy. They may feel quite bitter and may well think that the members of the Supreme Court made a mistake, or read too much into the law that wasn’t there. And people will follow their perceived interest in trying to get around the decision, through the political process with new laws or by electing people who will nominate judges more in line with their way of thinking.

But just about everybody will (at least most of the time) follow the law. Nobody will be thinking about overturning the government with a coup. People may protest but almost never with violent riots in the streets. In the end the Supreme Court, and the entire judicial system, is respected. The laws are respected and followed.

Nobody paid a bribe. Judges did not play favorites. They followed the rules.

The rule of law reigns. Happy 4th of July!


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