Balkinization: The Supreme Court Could Cripple America’s Pandemic-Fighting Capacity, Part II

The Supreme Court Could Cripple America’s Pandemic-Fighting Capacity, Part II

Guest Blogger

Simon Lazarus

Yesterday on Balkinization I introduced this two-part essay, and discussed how a likely resolution of the pending Supreme Court case, Seila Law v. CFPB could threaten the Fed’s independence of White House control.

Portentous for the Fed’s independence as is the pending CFPB controversy, two other recent cases intimate a far broader threat to the Fed’s essential role in managing crises like our current state. In these cases, conservative justices, led by Trump’s first appointee, Neil Gorsuch, touted reinvigorating the so-called “nondelegation” doctrine, which delimits Congress’ authority to give agencies discretion to carry out broadly phrased statutory mandates. Since the New Deal era, this doctrine has been interpreted liberally, to uphold any such legislation, as reaffirmed most recently in a 2001 decision by the late Justice Antonin Scalia, so long as it “lays down an intelligible principle” for the agency to follow in fashioning regulations or other actions. Indeed, in the interim three quarters of a century, the intelligible principle rule has not once been found to justify overturning a delegation of broad implementation authority; “[I]n short,” as Scalia wrote, “we have almost never felt qualified to second guess Congress regarding the permissible degree of policy judgment that can be left to those executing or applying the law.” Never, but apparently, not for long.

On June 20 of last year, in Gundy v. United States, Justice Gorsuch issued a 33 page manifesto, cast as a dissenting opinion, dismissing Scalia’s deferential perspective as a “blank check” to federal bureaucrats. Although not entirely consistent or clear about how he would replace the “intelligible principle misadventure,” Gorsuch asserted several times that the Constitution requires that statutes “assign to the executive only the responsibility to make . . . factual findings, . . . and not policy judgments.” As Justice Elena Kagan’s majority opinion observed, that would make “most of Government . . . unconstitutional.” But that does not mean that Gorsuch’s construct, however quixotic or calamitous, can be dismissed. His dissent was joined by Justice Clarence Thomas and by Chief Justice John Roberts. Further, Justice Samuel Alito wrote that, in the case at hand, he would continue to follow the Court’s liberal precedents applying the intelligible principle, but only because there was not a majority to overturn those precedents. “If,” he added, “a majority of this Court were willing to reconsider the approach we have taken for the past 84 years, I would support that effort.” So, for that moment, a 5-3 majority rejected Gorsuch’s bid to junk the constitutional framework on which government has been built, in Alito’s terms, for over three quarters of a century. (In actuality broad legislative latitude was assumed and relied upon by Congress stretching back far further, at least until 1887, when the Interstate Commerce Commission was created, or to George Washington’s first term, when the first National Bank of the United States was enacted.) There were just eight justices participating in last summer’s decision, because Justice Kavanaugh had been confirmed Court too late to hear the case.

But five months later, Kavanaugh dispelled any doubts about how he would tilt the outcome of similar future cases. On November 25, Kavanaugh released an unusual statement concurring in a decision denying to review a case identical to the previous term’s Gundy nondelegation ruling; he wrote that “Justice Gorsuch’s thoughtful opinion [in the prior case] may warrant future consideration in future cases.” He specifically commended Gorsuch’s view that, as Kavanaugh’s concurrence phrased it, courts should strike down “congressional delegations of authority to decide major policy questions – even if Congress expressly and specifically delegates that authority.” Hence, if Alito fulfills his stated intention of supporting reconsideration of established nondelegation criteria, a five vote majority exists for taking up Gorsuch’s invitation to consider sidelining them.

However many dozens of existing federal agencies and programs would fall, if the Gorsuch-Kavanaugh ban on delegating “major policy questions” were adopted and literally applied, there can be little question that that standard would kneecap the Fed, effectively zeroing out by judicial fiat most if not all the near-daily actions it has taken and continues to take, to contain the economic devastation from the coronavirus pandemic. Estimates of the total eventual impact of those actions, to date, vary from $4 to $6 trillion, well in excess of the approximately $3 trillion in fiscal stimulus that Congress has enacted so far. As summed up by CNBC columnist Jeff Cox, reflecting the views of financial experts across the board, the impact of the Fed’s far-reaching actions has been to staunch hemorrhaging when “the U.S. economy was in free fall,” stabilizing financial markets, enabling continued economic activity to the extent possible, and providing hope for “avoiding a downturn that would rival the Great Depression.”

Some, of those actions were authorized by Congress’ coronavirus remedial laws, others pursuant to legislation dating back to the original 1913 Act. But, whenever enacted or how well within authority prescribed by Congress, that would not resolve whether those laws delegate to the Fed, acting on its own or jointly with the Treasury or other financial supervisory agencies, the discretion to make “major policy decisions,” as proscribed by the Gorsuch-Kavanaugh nondelegation recipe.

Through that lens, there is no way to conscientiously parse these laws and conclude that they do not call for the Fed to make major policy decisions; the whole point of establishing the Fed, like any central bank, was to delegate to non-political experts the power to make major – life-or-death – policy decisions affecting the overall economy and private financial providers, together, in groups, and individually, as well as businesses and consumers. The Federal Reserve Act, as originally enacted and as amended since, spells out in often mind-numbing detail, the specific powers that it can exercise – powers to lend, to set interest rates, to buy, sell, and hold securities and certain other assets, and to regulate specified classes of private financial providers. But what the Act does not do is make even the slightest pretense of spelling out credibly meaningful criteria for choosing actions to put those powers into action. Indeed, the principal, virtually the only – spot in the Act that purports to provide guidance for the choices Fed decision-makers must make is as vague as it is short. Entitled “Monetary policy objectives,” that section directs the Fed to:

maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

The Act leaves it up to the Fed to define, mesh, and trade off among those – often conflicting – goals. By any measure, such choices constitute “policy judgments” – as laberled, approvingly, by Justice Scalia, and verboten to mere bureaucrats, by Justice Gorsuch. In the areas most central to the Fed’s missions, they constitute “major” policy choices, as or more indisputably “major” than decisions delegated to any other agency.

At one point, Gorsuch attempts to specify the questions courts must ask to determine whether a given delegation of authority passes constitutional muster.

“Does the statute assign to the executive only the responsibility to make factual findings? Does it set forth the facts that the executive must consider and the criteria against which to measure them? And most importantly, did Congress, and not the Executive Branch, make the policy judgments?”

The Federal Reserve Act, and the innumerable actions the Fed has taken over its century-plus existence, to implement that Act, surely flunk that test many times over.

Another line drawn by Justice Gorsuch, in several passages of his opinion, is that Congress, not agencies, must “prescribe[ ] the rule governing private conduct,” or “the rules by which the duties and rights of citizens are determined, a quintessentially legislative power.” In no way can that standard be squared with the authority granted the Fed by Congress to supervise, regulate, suspend operations of, put into and out of receivership banks of all varieties, bank holding companies, and, in a key enlargement of authority prescribed in 2010 by the Dodd-Frank Act, of “systemically important” non-bank financial institutions like securities firms and insurance companies.

* * *

So, if Kavanaugh’s and Gorsuch’s recent proclamations are ticking time bombs, when are they likely to go off, and with what destructive impact? As noted above, one very near-term threat, to the Fed’s capacity to ameliorate the current crisis, could arise any day, in the wake of a Supreme Court decision in the pending CFPB matter, that mandates at-will removal of single agency heads. Should President Trump seize upon such a decision as a green light to strip Jerome Powell of his post as Fed Chair, a likely scenario would include havoc in financial markets, a court challenge Powell has already said he would mount, that would surely reach the Supreme Court, and an uproar in Congress, with uncertain results. If such a move by Trump were sustained, politically and/or legally, that would bring the curtain down on the Fed’s capacity to play the robustly independent role it is now playing, in further iterations of the current crisis, and in similar health or economic catastrophes to come.

Compared to the imminence of a potential threat to the Fed’s independence, from a Supreme Court decision axing the independence of the CFPB, it is problematic to gauge the timing, scope, and impact of a future Supreme Court decision to reconsider the lawfulness of statutes that delegate major policy-making flexibility to executive agencies. For one thing, Justice Kavanaugh’s statement may not reflect unqualified agreement with Gorsuch’s stringent approach; Kavanaugh wrote that the latter opinion was “thoughtful” and “may warrant further consideration;” but he also tipped his hat to a 1980 opinion by then-Associate Justice William Rehnquist, which, while at some points similar to Gorsuch’s insistence on Congress’ making major policy decisions, was more nuanced about how inflexible such a limitation should be. (Two decades later, Rehnquist joined Justice Scalia’s emphatic 2001 reaffirmation of Congress’ broad delegation authority.) In a similar vein, while Chief Justice Roberts joined Gorsuch’s Gundy dissent last summer, that does not necessarily mean that he would be inclined to trigger litigation assaults on the dozens of major federal entities and programs that, plainly or even arguably, cannot meet Gorsuch’s draconian roll-back standards. Gorsuch highlighted Roberts’ 2015 decision to eliminate judicial deference to agencies’ interpretations of statutes on which they rely, on “question[s] of deep economic and political significance . . .central to [the] statutory scheme.” But Roberts’ ruling assumed, with no hint of disapproval, that Congress has authority to pass laws delegating such major policy-making authority to agencies; he just reserved to the courts the power to determine what such laws mean. Would Roberts now do a 180 degree turn on that elaborately drawn allocation of authority among the three federal branches?

Answers to such questions are necessarily imponderable. But much mischief can be wrought before they are resolved.

Hardline anti-regulatory conservatives and libertarian constitutional theologians have cast these debates as struggles to rein in an allegedly unaccountable “federal bureaucracy” or “administrative state” or “headless fourth branch” -- for which, read “the CFPB and EPA,” and other regulatory agencies and programs that many conservatives despise and liberals cherish. Liberals have tended, short-sightedly, to accept that polarized, right-left frame. In fact, the stakes of restoring pre-New Deal court-imposed shackles on federal regulatory power are far broader – as shown by the impact of such a constitutional counter-revolution on the Fed, and, potentially, on other economic or health crisis-fighting agencies, as well as on instrumentalities addressing critical challenges like climate change. The circle of constituencies vigorously committed to preserving, from judicial despoliation, the nation’s capacity for solving major national problems, and its elected representatives’ authority to deploy and enhance that capacity, needs to expand. Centrists and center-right conservatives (including those on federal benches) should be ingesting and acting on this lesson from the current pandemic, as should major industries habitually hostile to regulation. Indeed, the financial industry, which has strongly supported lawsuits to strip the CFPB Director of for-cause removal protections, may find that victory, if it comes, may not be worth its unintended ripple-effects – and not only because such a victory could enable a President Joe Biden to replace Donald Trump’s CFPB Director on January 21, 2021.

Simon Lazarus is a lawyer and contributor to legal and opinion blogs and journals. He served as Associate Director of President Jimmy Carter’s White House Domestic Policy Staff, and since then with private and public interest law firms in Washington, DC. His email address is Simonlaz@comcast.net.

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