Saturday, June 30, 2018

Red Sky At Morning

One of the odd things about teaching business and securities in the Trump era is that it’s been one of the few areas of law that’s been left largely unchanged by this singularly, umm, disruptive presidency.

That may be about to change.

As most readers are likely aware, the Supreme Court recently ruled in Lucia v. SEC that SEC ALJs are inferior officers, and therefore must be appointed by the Commission directly (instead of, as has been traditional, by the SEC staff).  The SEC, anticipating this holding, altered its procedures to have the Commission ratify the staff’s selection.  But – even assuming the ratification is sufficient – the next obvious question is whether, as inferior officers, ALJs must have fewer restrictions on their removal – an issue that, it should be noted, the Solicitor General’s office urged the Court to resolve against the SEC.  This is a much bigger deal, because leaving aside questions about how such a deficiency would be remedied as a technical matter, without such protections, the impartiality of the ALJs – and thus the fairness and, I suspect, the constitutionality of the entire administrative adjudicative process – would be open to question.  Cf. Kent Barnett, Resolving the ALJ Quandary, 66 Vand. L. Rev. 797 (2013) (anticipating these issues).

But that’s only the beginning.

In Janus v. AFSCME and NIFLA v. Becerra, the Supreme Court held that speech that was previously viewed as regulable – namely, required disclosures in the provision of health related services, and dues for union representation – instead would be subject to heightened scrutiny.  In both cases, the dissents pointed out that the Court’s reasoning would jeopardize a wealth of ordinary consumer – and securities – regulation.  As Justice Breyer put it, “In the name of the First Amendment, the majority today treads into territory where the pre-New Deal, as well as the post-New Deal, Court refused to go.”  Justice Kagan was even more blunt in her Janus dissent: “Speech is everywhere—a part of every human activity (employment, health care, securities trading, you name it).  For that reason, almost all economic and regulatory policy affects or touches speech. So the majority’s road runs long. And at every stop are black-robed rulers overriding citizens’ choices.”

And then there’s Masterpiece Cakeshop v Colorado Civil Rights Commission.  There, the Court largely avoided the free speech claim, but the majority opinion stated, “The free speech aspect of this case is difficult, for few persons who have seen a beautiful wedding cake might have thought of its creation as an exercise of protected speech. This is an instructive example, however, of the proposition that the application of constitutional freedoms in new contexts can deepen our understanding of their meaning.” – suggesting, again, the Court is inviting creative new First Amendment challenges to business regulation.  Indeed, a couple of years ago, John Coates empirically demonstrated the increasing use of the First Amendment to challenge business regulation.

As readers are likely aware, the SEC regulates in large part via required (and prohibited) speech.  After Citizens United, Larry Ribstein argued that some proposals for corporate governance and securities regulation might violate the First Amendment.  And, as it turns out, it was only three years ago that the SEC found itself in First Amendment crosshairs with respect to conflict minerals disclosures (umm, that link is to my post on the subject, and it anticipated that the DC Circuit would reconsider the matter en banc, which it … did not, so that only shows how seriously you should take my prognostications).  Rebecca Tushnet has more in-depth discussion of the conflict minerals case.  It seems to me that the SEC is long overdue for a First Amendment reckoning, and the climate has never been more ripe. 

Meanwhile, the Supreme Court has already granted cert to consider whether to reinvigorate the non-delegation doctrine, Justice Gorsuch has ostentatiously cast doubt on the viability of Chevron,* and Trump is expected to appoint a new conservative justice in the coming months – which will only encourage more aggressive litigation.  All of which suggests we’re about to see a rather dramatic dismantling of the regulatory state – including the SEC’s authority.

*although, to be fair, no one ever deferred much to the SEC anyway – which is like the Rodney Dangerfield of agencies – so Chevron’s fate may not end up making much difference to it.

Ann Lipton | Permalink


Post a comment