Liveblogging Supreme Court same-sex marriage cases: What today's rulings mean for angel investing and the startup financing ecosystem

Go to Scotusblog and elsewhere for discussion of the broader societal ramifications of the US Supreme Court's decisions this morning on same-sex marriage. The picture is from an @Scotusblog tweet.

BNryXjpCEAMbLs7On this blog, we want to focus on what the decision regarding DOMA likely means for the accredited investor definition under Rule 501 of Regulation D.

The decision is in. Amy Howe on the Scotusblog live blog reports, "DOMA is unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment."

Click here for the opinion.

More from Howe: "In determining whether a law is motivated by improper animus or purpose, discriminations of an unusual character especially require careful consideration. DOMA cannot survive under these principles." I think she is paraphrasing from page 20 of the opinion of the Court.

Here is the section of DOMA (the Defense of Marriage Act) that is being struck down:

“In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.” 1 U. S. C. §7.

 Here's how Justice Kennedy's opinion for the 5-4 majority describes the impact of the above quoted section of DOMA:

"The definitional provision does not by its terms forbid States from enacting laws permitting same-sex marriages or civil unions or providing state benefits to residents in that status. The enactment’s comprehensive definition of marriage for purposes of all federal statutes and other regulations or directives covered by its terms, however, does control over 1,000 federal laws in which marital or spousal status is addressed as a matter of federal law."

And here's more from Kennedy's opinion (pages 15-16) on the impact DOMA had:

"it enacts a directive applicable to over 1,000 federal statutes and the whole realm of federal regulations. And its operation is directed to a class of persons that the laws of New York, and of 11 other States, have sought to protect."

Scotusblog is reporting that references in dissenting opinions on DOMA indicate that the Court will dismiss the California Proposition 8 case on standing. To be clear, the opinion on the Prop 8 case has NOT been released yet, but that would appear to be coming next, after dissent(s) are read aloud from the bench, apparently, in the DOMA case.

It is now 7:23 AM Pacific. I guess the proper reference, since the Court is on the east coast, should be 10:23 AM Eastern.

Here's how Howe of Scotusblog summarizes, for non-lawyers, the upshot of the case: "What this means, in plain terms, is that same-sex couples who are legally married will be entitled to equal treatment under federal law-- with regard to, for example, income taxes and Social Security benefits."

My friend and former law firm colleague David Ziff has tweeted, "The federal govt will have to re-work all their regulations to make benefits available to same sex couples." I'm sure that must be the case but I don't think that is true with regard to Rule 501 of Regulation D.

Rule 501 reads in pertinent part,

"(a) Accredited investor. Accredited investor shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

. . .

"(5) Any natural person whose individual net worth, or joint net worth with that person's spouse, exceeds $1,000,000 [excluding the person's primary residence]. . . .

"(6) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year[.]"

Emphasis added.

So I think the implications of the Court's ruling on DOMA is self-executing with respect to who is and isn't allowed to participate in angel investing. "Spouse" now means any person with whom the potential accredited investor is married, regardless of gender. The attenuated, discriminatory meaning imposed by DOMA is now gone.

Not so clear, however, that couples in civil unions are "spouses" to one another. For someone who is part of a couple who wish to be married, but state law doesn't permit them to be, he or she may yet be shut out of the ability to combine income or net worth to meet what is effectively a lower accredited investor standard for married (now, regardless of gender) couples.

The link to Rule 501 above is to the offical language of the rules. This summary of the accredited investor definition on the SEC website is friendlier.

Turning back to Kennedy's opinion striking down DOMA, there as a lot of discussion and citation on pages 16-18 about how marriage is the province of state law, not federal law, and how DOMA abrogated that precept.

From pages 20-21 of the opinion:

"DOMA’s unusual deviation from the usual tradition of recognizing and accepting state definitions of marriage here operates to deprive same-sex couples of the benefits and responsibilities that come with the federal recognition of their marriages. This is strong evidence of a law having the purpose and effect of disapproval of that class. The avowed purpose and practical effect of the law here in question are to impose a disadvantage, a separate status, and so a stigma upon all who enter into same-sex marriages made lawful by the unquestioned authority of the States."

The argument here I think could be applied or adapted in reasoning that persons in civil unions, designated beneficiary arrangments, and other state law relationships designed to afford couples the economic benefits of marriage, should also be treated as "spouses" for purposes of the accredited investor standard. But no question Kennedy uses the word "marriage."

Here's another quote from Kennedy's opinion, one that helps put the implications of the prior DOMA-discrimination in an angel group context, I think:

"By creating two contradictory marriage regimes within the same State, DOMA forces same-sex couples to live as married for the purpose of state law but unmarried for the purpose of federal law, thus diminishing the stability and predictability of basic personal relations the State has found it proper to acknowledge and protect."

In other words, under DOMA, before it was struck down, an angel in a given state who was married might well think she or he would be able to meet the same standard to be qualified as an angel, as would any other married person in the angel group. But, because of DOMA, before it was struck down, she or he might in fact had to have met a higher standard than other members of the angel group who were in marriages that the federal government called out as not legitimate.

So DOMA is unconstitutional, the Court holds, "as a deprivation of the liberty of the person protected by the Fifth Amendment." 

Getting back to the limits of the ruling, the word marriage, the penultimate sentence of the Court's opinion probably settles it: "This opinion and its holding are confined to . . . lawful marriages."

That's probably enough for this morning. Signing off at 11:15 AM, Eastern!


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