1127 Connecticut Avenue, NW
Washington, DC 20036
Public and Private Power: Preserving Freedom or Preventing Harm?November 11 — 13, 2021
The 2021 National Lawyers Convention took place Thursday, November 11 through Saturday, November 13 at the Mayflower Hotel in Washington, DC. Over three days, the Convention featured four Showcase Sessions discussing the Convention Theme of "Public and Private Power: Preserving Freedom or Preventing Harm?", sixteen breakout sessions sponsored by the Practice Groups, the Thirteenth Annual Rosenkranz Debate, the Twentieth Annual Barbara K. Olson Memorial Lecture, and the 2021 Antonin Scalia Memorial Dinner.
2021 Antonin Scalia Memorial Dinner
Hon. Tom Cotton
United States Senate,
50 Massachusetts Avenue NE
Washington, DC 20002
Thursday, November 11, 2021
Reception - 6:00 p.m.
Dinner - 7:00 p.m.
(ticketed event) BLACK TIE OPTIONAL
Twentieth Annual Barbara K. Olson Memorial Lecture
The Mayflower Hotel
1127 Connecticut Avenue NW
Friday, November 12, 2021
Thirteenth Annual Rosenkranz Debate
RESOLVED: Concentrated corporate power is a greater threat to individual freedom than government power
The Mayflower Hotel
1127 Connecticut Avenue NW
Saturday, November 13, 2021
Hon. Robert H. Bork Memorial Lecture
The Job of Attorney General—A Historical Perspective
The Mayflower Hotel
1127 Connecticut Avenue NW
Saturday, November 13, 2021
The Mayflower Hotel
The Mayflower Hotel
Showcase Sessions Discussing the Convention Theme:
"Public and Private Power: Preserving Freedom or Preventing Harm?"
Practice Group Breakout Sessions
Reserve early! Washington, DC hotels are becoming booked very quickly for the fall convention season. To reserve overnight accommodations for the Convention, please contact The Mayflower directly:
The Mayflower Hotel
1127 Connecticut Avenue, NW
Washington, DC 20036
Reservations Toll Free: 877-212-5752
Reservations Local Phone: 202-347-3000
Reservation Link: https://book.passkey.com/event/50205953/owner/1261/home
Cut off Date: October 18, unless rooms sell out sooner.
Please note that we are subject to local and federal government restrictions, which could include capacity limitations; therefore, register early to secure your spot.
All events are now sold out. You may add yourself to the waitlists for the Antonin Scalia Memorial Dinner and the Barbara K. Olson Memorial Lecture & Reception by selecting the Waitlist ticket options. If a spot opens up, you will be contacted and confirmed before any payment is processed.
|Non-Member||SOLD OUT $250 per day|
|Active Member||SOLD OUT $200 per day|
|Student Non-Member||SOLD OUT $60 per day|
|Student Active Member||SOLD OUT $50 per day|
**Individual day purchase includes that day’s sessions, CLE, and lunch. It does not include social events. CLE materials will be available electronically. A hardcopy of materials can be provided upon request after the Convention, make sure to request CLE Materials in hardcopy form on the CLE sign-in form during the Convention.
|Antonin Scalia Memorial Dinner
|SOLD OUT $250|
|Antonin Scalia Memorial Dinner
|SOLD OUT $200|
|Barbara K. Olson Memorial Lecture & Reception
|SOLD OUT $150|
|Barbara K. Olson Memorial Lecture & Reception
|SOLD OUT $100|
***The Antonin Scalia Memorial Dinner and the Barbara K. Olson Memorial Lecture & Reception are now sold out. You may add yourself to the waitlist for either event. If a spot opens up, you will be contacted and confirmed before any payment is processed.
CANCELLATION FEE OF $100 AFTER MONDAY, NOVEMBER 1.
NO REFUNDS WILL BE GIVEN AFTER MONDAY, NOVEMBER 8.
2021 National Lawyers Convention
Dean Reuter: Good morning. You can applaud the good morning. Thank you. I was worried that no one would come.
Amul Thapar: That’s because it was me.
Dean Reuter: Yeah, because it was Amul. I’m Dean Reuter, Senior Vice President and General Counsel of The Federalist Society, and it’s my job to welcome you here this morning. It is so good to see so many of you here at last. Elena Kagan, then the dean of Harvard Law School in 2005, welcomed The Federalist Society to Harvard Law School, warmly, and then she said, good naturedly, “But you are not my people.”
Well, I welcome you back to the Mayflower and proclaim that you are my people, and decidedly so. So welcome back. Today, November 11th, is of course, Veteran’s Day, so now that I’ve woken you up, I ask you to join me in a moment of silence in observance of the veterans, all of those who are serving now and who have served before.
[Moment of silence]
Thank you. One special observation that I’m really happy to make, actually honored to make, is just a note to mark Justice Clarence Thomas’s 30 years on the Supreme Court. He’s a true intellect and welcome leader on the Court. He’s often described as the Court’s most unwavering originalist, and that’s so important at a moment when we seem to need true originalists the most.
He said, this is at least anecdotal, that the confirmation process was so difficult it fairly ruined the first 43 years of his life, so he swore or promised to serve 43 years, so he owes us 13 years. I don't know if that’s an enforceable promise, but if you see him, you should remind him of that.
Turning now to our convention program, we’ve set an ambitious task, a discussion of the accumulation and the exercise of public and private power defined by our four showcase panels, addresses, and touched on by many of our breakout sessions throughout the convention. Today alone, after a brief opening address by Judge Thapar, we’ll have a showcase panel on “Social Activism and Corporate Leadership” and breakout sessions ranging from life in-house to antitrust to separation of powers and political polarization, criminal justice, religious liberties, and on and on.
Then of course, this evening we’ll celebrate at the annual dinner. Now, I want to mention, this is not just an annual dinner, it’s the Justice Antonin Scalia Memorial Dinner, which of course reminds me of a story.
This story features Justice Scalia. It took place at what we used to call the Scalia Separation of Powers CLE that many of you might have been able to attend. That was a multi-day course taught by the Justice and John Baker, if John Baker’s in the room here. I used to say people should attend this. It’s a once in a lifetime opportunity to go to this event, it’s so special. Then I realized I had been several times, so it’s technically not a once in a lifetime event.
The attendees, the students at the class, are all FedSoc members. They’re all FedSoc lawyers. On the first morning of one of these, the first break, the Justice and I were on the balcony. He said, “Dean,”—that’s what he called me, Dean—“I can’t get these people to participate. I can’t get them to answer my questions.” I said, “Justice Scalia,”—because that’s what I called him, Justice Scalia—I said, “That’s because you’re intimidating.” Justice Scalia gave me a friendly but disbelieving scowl. You’ve all seen that look. I can’t duplicate it, but it was his way of saying, “Phooey,” or maybe “Applesauce.”
I said, “Try this. Ask the next question and just wait. Someone will be uncomfortable with the silence, and eventually they’ll answer. You’re intimidating, but they’ll answer under that circumstance.” So he gave me a slightly different friendly but disbelieving scowl. This one I interpreted as “You’re wrong, but whatever.”
We go back in. The coursework resumes. Justice Scalia covers some ground, then asks a question. Silence. More silence. Still more silence. Justice Scalia glances my way, gives me a friendly but “I told you so” scowl. Then finally, finally someone raises their hand and begins to answer the question. The guys spins out his answer in 20 or 30 seconds, Scalia nodding, following along, indicating he’s tracking. The guy finishes his answer. Justice Scalia leans into the podium and says into the microphone, “Wrong.”
I can hear it now. You’ve got to love the man.
It’s now my honor to introduce Judge Amul Thapar, a man who very rarely gets it wrong, himself a great intellect. He’s known to many of you as the highly good-natured jurist seen for years in the Mayflower promenade, now before you as a featured speaker. He’s brilliant. His opinions and dissents have become must-reads, not just for their writing, but for their reasoning. He unfailingly goes where the law takes him, even jailing nuns if necessary. You can look that up if you don’t know the reference.
He’s a first-generation American. His parents were small business owners, both of them. His father owned a heating and air conditioning business in Michigan, and I’m betting in Michigan it was more heating than air conditioning. It was the classic small business. The Wikipedia page says that as a young man, Amul Thapar worked in the business and drove the truck, not one of the trucks, the truck. His mother sold her own successful business after 9/11 to help veterans. Not just talk, and even not just the right attitude, but action.
To my mind, Judge Thapar represents so much of what is right in America, the realization of the American dream; humble beginnings, hard work, and then ending up on everyone’s U. S. Supreme Court short list. Well, maybe not everyone’s.
Perhaps most importantly, so often Judge Thapar goes out of his way to help others, colleagues certainly, but also younger lawyers and students. I’ve seen it. When it comes to lifting up others, he’s tireless. I admire him greatly for that and for many other things. I’m excited to learn what he has to say this morning. It’s a very fitting start to our convention, Judge Thapar.
Hon. Amul Thapar: Dean had one requirement when I give this speech, and that was that I mention his name often, so I’ve now done it. If you hear me say Dean in the middle of a sentence, it’s just achieving the quota. He said, “I’ll give you one quota. Just mention my name a lot.”
I also want to thank all the veterans. We couldn't do this without them. It was amazing after 911 when my mom went to work with the Army. She was a social worker by trade, and she got the opportunity to work with the Army. Every time I talked to her, she was just amazed by the resilience, the wherewithal, and the leadership that the military shows every day. Less than one percent of our citizens now serve, and yet, those are the most important people in this country, so God bless them and thank you for all they do.
Well, it’s wonderful to be back here today and see so many friends, old and new. I’m grateful to The Federalist Society for putting on this year’s event. Every year the convention takes an extraordinary amount of effort, but this year surely was the most challenging in so many ways. I want to start by giving thanks to the staff and the student volunteers who have helped to make this convention possible.
Don’t clap after this one, but Dean, too.
This promises to be an extraordinary convention, so I’m sure we will appreciate the planners’ efforts more and more over the coming days, especially when I’m done and you can hear from speakers that know what they’re talking about.
The theme of this convention is great, “Public and Private Power: Preserving Freedom or Preventing Harm?” This topic touches on perennial questions about the role of government and the scope of liberty. In my brief remarks today, and Dean told me to keep them brief, I want to talk about a third factor that preserves a healthy balance between the state and the individual. That’s the role of civil society in public life.
As the late, great Father Richard John Neuhaus noted, “Civil society is made up of those institutions standing between the individual in his private life and the government.” The relationships between the individual, the state, and civil society are always interesting questions. They’re especially timely questions to ask in 2021. They tie right into the theme for this year’s convention.
So much has happened since we were last together in the flesh, and frankly, much of it can seem dispiriting. The pandemic has upended our lives in so many ways. Ten of thousands of families have lost loved ones. So many small businesses have shuttered, and those still open struggle to find workers. I talk to my dad about it often, who’s still a small business owner.
Less visible, but no less damaging, have been the invisible scars that the pandemic has inflicted upon so many people. Indeed, it is these costs which very well may be the most lasting and the most drastic. Think of the students who have missed half of their college experience or two-thirds of their law school time because of the pandemic. As many schools moved to online education, we unsurprisingly found that this amplified achievement gaps. For millions of American students, the last two years were one large write off. Many of them will have fallen so far behind that it will be daunting for them to catch up.
Young adults haven’t had it easy, either. So many young Americans have deferred marriage or having children in this time of uncertainty. According to the data from the CDC, births in January of 2021 dropped almost 10 percent from the previous January, the largest drop in decades. These consequences could reverberate for decades.
The pandemic has also put more strain on our shared national fabric. In so many cities across America, crime, homelessness, and drug addiction rates are skyrocketing. In 2020, the United States saw an almost 30 percent rise in the murder rate, the highest year-to-year increase since the FBI began keeping statistics. In too many communities across this country, opioids continue to exact a devastating toll. Ninety-three thousand Americans died of drug overdoses in 2020, nearly 30 percent more than in the previous year. For these reasons and many others, many Americans are now despondent about our future.
According to one poll, 71 percent of Americans said they’re pessimistic about the country’s direction. Think about that. Those are sobering numbers. In a country known for its perennial optimism, close to three-quarters of us now think our children will inherit a country worse off than we did. In large chunks of the country, such as rural America and the Rust Belt, which I love dearly, life expectancy has actually been going down. The Princeton economists Anne Case and Angus Deaton have attributed this to a historically unprecedented trend and what they label deaths of despair: drug abuse, alcoholism, and suicide.
In prior times of crisis, we could at least be confident that whatever we faced, we faced it together as Americans. From our world wars and the Great Depression to the Cold War and 9/11, we bonded as Americans when we were worst hit. Leading businessmen, politicians, and other community leaders would work hand in hand.
Now, however, social division and polarization seem at all-time highs, and the pandemic has coincided with an uptick in intolerance. Popularly dubbed the cancel culture, its simple name should not obscure its force. What began on a college courtyard has moved into the newsroom and the corporate boardroom with alarming speed. From Hollywood to professional sports and everything in between, it now seems you can lose your job and be shunned if you voice the slightest disagreement with today’s fashionable views. Unsurprisingly, social distrust in our public and private institutions is at all time high. We have, in short, been far too focused on the pluribus and not enough on the unum.
What can be done? Where should we look? At times like this, when every day’s newspaper carries another round of bleak headlines, it’s easy to resign ourselves to fatalism. I certainly feel that temptation. But when I come here to the National Lawyers Convention and I think about what the next few days will bring, I cannot help but feel rejuvenated and optimistic.
After everything I just said, you must be wondering why. It’s because The Federalist Society represents, in its small way, the genius of America. Of course no institution will single-handedly save America, not even The Federalist Society. I am not naïve about the limits of law and judging. As our founders understood, a society is only as good as its people, and our system was designed, as John Adams put it, “for a virtuous and religious people.” Still, a good legal culture can sustain and safeguard it. That requires judges who don’t make things up, judges who begin with the text rather than their preferred policy outcomes, and it’s important that judges respect the Constitution as ratified.
On these fronts, The Federalist Society has done extraordinary and important work. Long may it continue. Yet, The Federalist Society is an antidote for our problems today in a different sense, and that’s because of what this organization represents. On one level, yes, it’s a group of lawyers who like to nerd out about whether we should incorporate the Bill of Rights through the Due Process Clause or the Privileges or Immunities Clause. But on another level, FedSoc represents a uniquely successful, yet also entirely representative example of how grassroots civil society can solve important public policy problems.
What do I mean by civil society? It’s hard to give it a definition, so I looked to Alexis de Tocqueville, one of the great analysists of American life to shed some light. In his magisterial Democracy in America, Tocqueville observed that in Europe the first person you turn to when you see a problem, for example, is the government in France or a great lord in England. “But in America” he said, “we first turn to our neighbors.” Here we find a friend to raise money with for a small cause or an ally to build a church, a school, or a hospital with.
In other words, what stood out to this French nobleman was our small-d democratic approach to problem solving. When faced with problems, we don’t wait for an English duke or Paris bureaucrat to show up. We the people acted, not just in how we picked the government—that too was radical—but also in what we solved without government. And Yuval Levin, one of the great successors to Tocqueville, points out that this civil society remains the backbone of our great country.
As you might have noted, I still have not given a definition of civil society, but we all know it when we see it. It’s the local school board that shapes our values and heritage. It’s our churches, synagogues, temples, and mosques that tend to our soul, and it’s the Salvation Army, which feeds the hungry and houses the homeless. That spirit is all around us. It’s what makes our country rich. It’s what makes our lives rich. It gives us meaning and it connects us to our neighbors. It teaches us how to practice democratic politics.
If we learn by doing, then mass democracy requires a civil society. The day-to-day work of identifying problems, offering diagnoses, and then treatments gives us a stake in our society, and it teaches us how to find common ground with those who may vote for a different party, worship at a different temple, or, God forbid, root for someone other than the Kentucky Wildcats, worse yet root for Duke.
Trust, cooperation, a willingness to hear different perspectives, and civic duty, these are the ingredients of a successful republic. Civil society has long been where Americans cultivated these traits. Edmund Burke understood this when he urged us to cherish our “little platoons,” the basic units of society. For him, it meant kin and kith, friends, the neighborhood, the town church, and the debate clubs where voters discuss public affairs. As he wrote in Reflections on the Revolution in France, “to love the little platoon we belong to in society, is the first principle, the germ, as it were, of public affection. It is the first link in the series by which we proceed towards a love to our country and to mankind.”
But just as importantly, we need civil society because civil society works. The economist Friedrich Hayek famously noted that central planning goes awry when planners lack information about what’s happening on the ground. Civil society doesn’t have that problem. It forms organically to tackle a local problem, and the people who invest in it have skin in the game. They have the incentives and knowledge and usually the skills to understand the problem in its full scope and then solve it. And compared to individuals, civil society’s a force multiplier. One voice can be drowned out by the status quo. A chorus in unison is a different matter.
Whenever someone’s skeptical about what civil society can do, I tell them about a little initiative back in Ohio and Kentucky. I learned about it when I was looking to donate my old car. Two churches, one in northern Kentucky, one in Cincinnati, formed a program known as Wheels. They would take old cars like mine that people were willing to donate.
When I was ready to donate it, I took it to the garage where I found a bunch of wonderful, retired mechanics from those churches. First, they prayed with me over my car. Then they promised to put it to good use. They had built a beautiful garage where they turned these old cars, sometimes lemons, into amazing used cars, and they provided those cars to people down on their luck, perhaps someone recovering from drug addiction or a single mother trying to get on her feet.
The most amazing part, though, was witnessing how one gesture of kindness can generate a self-sustaining cycle of positive change. These cars weren’t a one-time cash transfer. Instead, for many of these people, this program was life altering. For them, the car didn’t just represent a stranger’s act of generosity at a time when life looked bleak. It was also, I am sure, a ticket to a new life. Many of them likely used their cars to drive to a better paying job or to attend night classes to get an education.
Why do I know this? Because so many people would then come back to the program, not to trade up, but to donate their own cars and complete the circle of giving back. The very people who got the cars would later donate their old cars to the program.
Clear away the brush and the academic jargon, that’s what we mean by civil society. Here was a simple solution to a difficult problem. Retired mechanics, check. A spare garage, check. Parishioners who needed to get rid of their aging vehicles, check. And people who just needed a little help to kick start their lives again, check again.
No one needed to fill out reams of paperwork. The Department of Transportation didn’t need to create a new and improved Churches and Clunkers program. This was just ordinary folks helping their neighbors who were down on their luck. The most incredible part of it all? In America, the story I told you is entirely ordinary. From Ohio to Oregon, volunteer initiatives like this transform lives every day through extraordinary acts of civic duty.
And if you’re still not convinced, look around you. That’s right, look at The Federalist Society. This right here, this convention, shows us the power of civil society. Think back to The Federalist Society’s roots. In the late 1970s and ’80s, Yale Law School was a crazy place.
Okay, like death and taxes, some things will never change. But the legal landscape was just as bleak across the nation. And so many veterans of this organization know firsthand it was the Wild West in federal courthouses. Though the Warren Court had technically passed, its mode of jurisprudence was very much still alive. The judiciary would routinely find implied causes of action or make rights up out of whole cloth.
Consider the field of statutory interpretation for a minute. When The Federalist Society began, people would give you vacant stares if you told them you were an originalist or textualist. Justice Scalia fondly tells a story of him saying it and everyone running from the room.
My clerks and the younger students in this crowd may not believe it, but it’s true. There was a time, not so long ago, when people would look at you funny if you thought judges were bound by the text of the law. If you cited a dictionary in statutory interpretation class, your classmates would look at you with disbelief and perhaps some concern.
In those days statutory interpretation was all about legislative intent. If you don’t believe me, look at Train v. Colorado Public Interest Research Group. There, the Supreme Court noted that it did not even need to consult the plain meaning of the text and used scare quotes around plain meaning because the legislative history was clear enough and answered the question. The decision was 8-0. It’s safe to say things have now changed. As one justice put it, “We are all now originalists and textualists.”
So what prompted this sea change? Well, of course, in part it was the greatness of Justices Scalia and Thomas, but it was also in no small part because of the efforts of a handful of students in the early 1980s. When the first convention took place in 1982, almost 40 years ago, it gathered students from just a handful of schools.
At the time, The Federalist Society’s founding fathers did not know that they were starting a national movement. Instead, for them, the convention was simply their way of tackling a problem that they saw in their communities, an overwhelming, intellectual homogeneity on their campuses. They didn’t seek to solve the problems by looking to the government to pass a law. No one sought for the state to impose an intellectual diversity quota on their schools. Instead, they focused on what civil society does best, creating homegrown solutions to local problems.
In this case, that meant the cut and thrust of intellectual debate. Don’t take my word for it. As Steven Calabresi put it at the time, “FedSoc’s original objective was to have some good debates and to force faculty members to confront the ideas by inviting speakers to Yale who brought different views.” Imagine that.
In an event celebrating The Federalist Society’s 25th anniversary, Justice Scalia spoke in characteristically memorable terms. “We thought we were just planting a wildflower among the weeds of academic liberalism. It turned out to be an oak.” As the next few days will show us, the spirit of robust debate and intellectual vigor remains the beating heart of The Federalist Society’s mission.
Now, admittedly, the Mayflower Hotel is not quite what you might think of when someone mentions civil society, but all of us know that The Federalist Society is so much more than this convention. The organizers of the convention will be the first to tell you this. Don’t get me wrong. I’m as excited for the Scalia dinner tonight as everyone else, but the real success of The Federalist Society can’t be measured solely by the number of judges or justices who are members. It can’t be measured by the number of well-heeled lawyers in this room or in some of D.C.’s leading firms. It can’t even be measured by the public-interest lawyering that furthers the goals many of us share.
All of this is important and good, and we are grateful to each of you, but the real work of The Federalist Society happens out there. It’s where lawyers take time from their busy lives to meet in northern Kentucky or Miami to discuss the ideas about the rule of law, how to interpret statutes, and yes, what the appropriate division of power between private and public actors should look like.
It’s the local chapter that puts on events challenging the prevailing orthodoxy of a law school or a legal profession that is still to homogenous and still too sheltered. It’s the minds that have been changed one way or another and the friendships that have been deepened through this relentless pursuit for truth.
You can draw a direct line between their daily efforts and the annual convention we host this week. That’s why when you meet another Federalist Society member, you know what you’re getting. You know you’re meeting an intellectual brother or sister who has been sharpened through the same formative training. You know you are meeting someone who takes ideas seriously, who wants to get the law right, and who knows the judge’s place is not as a legislator. And you know you’re meeting someone who had courage, real courage, to stand apart from the crowd at law school.
This week’s conference exemplifies all of this. We begin by interrogating the scope of corporate power and what role corporations do and should play in our democratic process. We end by asking how public policy should incorporate scientific research, when, as the Noble prize-winning physicist Richard Feynman remarked, “Science begins with a distrust of experts.” Luckily for you and me, I’m not an expert on anything. That’s why Dean had me do this versus putting me on one of the panels.
But I marvel at the breadth of perspectives we’ll see across the four days. From antitrust to religious liberty law, The Federalist Society has marshalled experts and amateurs, liberals and conservatives, government officials and regulators, to bring us an intellectual feast, just like it always does every day across our country.
And the nation’s better off for it. The legal culture is certainly better off for The Federalist Society’s efforts. Now, there’s still much work to be done. Don’t get me wrong. If you don’t believe me, just read my dissents.
Thank you. But the legal culture has certainly changed in seismic ways thanks to the dedication of many of the people found in the local chapters.
So if there’s one thing you should take away from this conference—well, maybe two—first, enjoy each other’s company. Face-to-face conversation is how we make republican government work. It’s how we solve problems and find the common good. No idea is a sacred cow. Nothing should be off limits. True civility is not mere kindness, though that’s important. It’s when interlocutors who are deeply divided on something still respect one another by pressing their best arguments.
And second, we should take The Federalist Society as an inspiration. At a time when there is still much to be pessimistic about, The Federalist Society reminds us what is great about America. As Tocqueville put it, “Above all, not what public administration executes, but what is executed without it and outside of it.”
So I urge you to ask three questions when thinking about public power and private rights in the coming days. One, what problems do you see in your community? Two, how can you solve it? And three, who do you need to help you solve it? In some cases, that does require government. I’m not naïve. As I mentioned before, we really need our armed forces to win wars. In fact, we won two world wars with them. And the federal government has played a critical role in setting up highways that connect our great country.
But I submit that many problems, more than you might think, are solved through what we Catholics called subsidiarity, a fancy word for the idea that problems should be solved by local groups and associations that are best equipped to tackle them. This is not a new idea, of course, but it is one that should guide us and inspire us.
In bleak times like now, we should remember Ronald Reagan’s statement, “Freedom is never more than one generation away.” That’s right, and it’s worth noting that Reagan knew to deliver this line at the annual convention of the Kiwanis International, one of the great pillars of American civil society.
And at this convention, when I think what The Federalist Society has achieved over the past four decades and what American civil society has solved since before Tocqueville even arrived on our beautiful shores, I cannot help but think of another quote by the great President Reagan. “There is nothing wrong about America that cannot be solved by what is right about America.” I hope this convention inspires us to prove him right once more.
May God continue to bless you all, and may God continue to bless the greatest country in the world, the United States of America. Thank you.
2021 National Lawyers Convention
|Topics:||Corporations, Securities & Antitrust • Culture • Politics|
What role should publicly traded corporations play in democratic politics?
Corporate resources are increasingly being used to advance social justice policy goals. This corporate engagement includes advocacy for what’s presented as the “corporate perspective” on divisive social questions. It also includes the use of economic leverage to influence public opinion, affect government policy, and induce private agreements to policy choices that have not been adopted through the political process.
To some, this is a positive development: it is all to the good for corporations to advance a just cause. Their public leadership and their market power can help bring the country and the world along. To others, this is an abuse and confusion of power. The goals of the “social justice” and “woke” movements are among the most hotly contested questions of American politics and culture, and they should be resolved through democratic processes without corporations putting a thumb on the scale.
We will explore these questions both as matters of principle and matters of law.
As a matter of principle, should corporations have unfettered discretion to influence any sphere of American life? Is such discretion good for the democratic process, and is it good for individual liberty? Is the libertarian perspective -- that private actors should be largely able to do what they want, and if they overstep, market competition will fill the gap – adequate to this dynamic? Is there any limiting principle to corporations using economic power to influence politics?
As a matter of law, are corporations permitted to use whatever levers are available to them to influence matters of politics? Is corporate leadership permitted to do so in publicly traded companies? Should corporate endorsement or support of a policy position or candidate be considered a reportable lobbying expense or campaign contribution and, if so, how should it be valued? What existing legal frameworks might apply to these questions? How does Citizens United fit into this picture?
Hon. Jeffrey Sutton: My name is Jeff Sutton. I’m a judge on the Sixth Circuit, and I’m really honored to start our first showcase panel. It’s labeled “Social Activism and Corporate Leadership.”
I’ll take us back about 107 years to 1914. Louis Brandeis wrote a book called Other People’s Money and How the Bankers Use It. This book became the blueprint for the future Wilson administration’s antitrust regulatory efforts, probably earned Brandeis a seat on the U.S. Supreme Court. And if there’d been a Federalist Society in 1914, we would have had a showcase panel on the book, I can almost assure you. I suspect Brandeis would have shown up. There would have been a few people disagreeing with him, but we would have allowed a fair debate. Borrowing from Brandeis, today’s panel could be entitled “Other People’s Money and Power and How Corporations Use It.”
This being D.C., there’s an acronym for everything. One you’re going to hear today is ESG investing in corporate leadership. The E is for environmental. The S is for social. The G is for governance. And the question is whether ESG investing in corporate leadership is a sound development. On the one hand, one could argue that it helps to leverage power and money to valuable ends. Nothing wrong with corporations having values; see Hobby Lobby. On the other hand, you might wonder if ESG investing is a creative takeover of government functions. So the stakes are quite high, and it’s remarkable that we continue to debate how exactly corporations ought to work and be governed in this country.
I feel really fortunate to have a front row seat to our debate and presentations. We’ve got four terrific speakers. In conventional format, they’ll each speak for roughly 12 minutes or so. We’ll have a little discussion among ourselves, and then we’ll open it to the audience.
In the order in which they’re going to speak, we have Margaret Blair from Vanderbilt’s Law School who once was with the Brookings Institution. Following her will be Jonathan Macey from Yale Law School, author of Macey on Corporation Laws. Then we’ll have Luigi Zingales from the Booth School of Business at Chicago; by the way, the producer of a podcast called Capitalisn’t, which is really terrific, has an episode on this exact topic. And last but hardly least will be Julia Mahoney from the University of Virginia Law School who has a piece co-authored by her husband in Columbia Business Law Review actually on this exact topic.
Margaret, if you could get us started, that would be terrific.
Prof. Margaret Blair: Good morning and thank you for that introduction. And thank you to The Federalist Society for having me here today to talk about this.
I haven’t followed The Federalist Society very closely, but it may be a bit unusual to start with a discussion of corporations instead of with various aspects of government. But corporations have become and have been in some ways for a long time incredibly important institutions in our society. They’re part of civil society, but they are bigger and more powerful than governments with respect to many kinds of activities, and so they’re really an important part of the landscape of what you need to be thinking about when you’re thinking about government and civil society.
I’m going to begin today by building on some ideas that our colleague on the panel here, Professor Macey, has written about and developed. And that is that there are a number of myths that have emerged and become important and become dominant stories in corporate law. Professor Macey identifies four such myths in his recent paper that he’s written on this subject. And I’m only going to talk about two of them which I think are most relevant to the topic for today.
The first is that corporations are owned by their shareholders. This myth is derived from the belief that the shares of stock in a corporation represent “ownership” interests, and I put ownership in quotes. So this is Professor Macey’s argument. I agree with him, but I think for different reasons, and I’ll say some more about that.
The second myth is that corporate officers and directors are legally required to carry out their duties in a manner that they believe will maximize the value of the shares of the corporation. He calls this the shareholder value myth. And so he uses that phrase -- that phrase is the title of a book by a co-author of mine that I’ve written with a number of years ago who died four years ago now, 2018, so three and a half years ago, and who was a mutual friend of Jonathan Macey. He acknowledges her in his paper. Where he uses this phrase, he acknowledges the book.
Professor Macey argues that these myths serve the “social function”—and I’m using air quotes here for a reason I’ll come back to—the social function of, quote, “legitimizing the current practice of giving corporations the same right as actual flesh and blood people.” Now, the reason for the air quotes is that I don’t agree that this is a social function. I think it’s more of an antisocial function. But I think he meant it more -- I think he meant the term social a little bit differently from what I mean when I talk about it being an antisocial function.
I want to make the point here today that these myths also serve another function, which is to try to legitimize actions and choices of corporate executives that cause their corporations to externalize as much as possible the of costs associated with their businesses and their business activity while trying to capture as much as possible of the benefits. For these reasons, I do not believe these myths are benign, nor are the function that they serve properly thought of as a social function in the sense of a socially beneficial function. Instead, they represent a major problem with capitalism in its current manifestation.
A corporation is a legal structure. It was organized to facilitate the organization and deploying of property, contracts, and certain social arrangements in order to carry out a business activity. If the business activity is a needed business activity, we sometimes encourage corporations to do that, as we did early in the life of this country when we encouraged private individuals to build bridges.
And our previous guest speaker this morning talked about how one of the important functions of government is to create roads and bridges. Well, actually, that was done privately. It was done by private sector organizations, but they were given special tools to use to do that in the form of making corporate law available to them. Actually, there was no separate law called corporate law. They were issued specific charters in order to be able to build a bridge or a road or whatever that was needed by society.
It’s a legal structure. It’s not a person. It’s a rights-bearing institution in the sense that it was created to make possible a separate entity that could own the property, enter into contracts, and that that entity would be distinct from the individual persons behind the corporation, in the same way that a trust is a legal entity separate from the grantor, the beneficiary, or the trustee and can exist in perpetuity, or a corporation can exist in perpetuity.
It is certainly not a person and should not be granted constitutional rights in its own name or any rights beyond those necessary to carry out these functions. Recent Supreme Court decisions that seemingly grant or protect a constitutional right in the name of a corporation are troubling to me because I think it’s important that the Court actually did not rely on the argument that corporations are persons.
That’s not what the Court said in either Citizens United or Hobby Lobby. Instead, the Court made an argument that corporations are associations of persons and that it was necessary in their view that the corporation have the right in order to protect the rights of the persons behind the corporation.
This is a derivative argument. It’s not a direct argument, as Professor Elizabeth Pollman and I have argued in some works that we have done. I think it’s a problematic way to protect the rights of the actual flesh and blood persons behind corporations, but at least we should recognize this is what the Supreme Court did in those decisions. It didn’t ever argue that corporations are persons, therefore, they get rights.
Are corporations themselves the property of their shareholders? I agree with Professor Macey that no, they are not. Corporations are devices for holding property but are not themselves property. Shareholders are one class of investor in the business. They have certain rights and obligations. Some are delineated in their issuing documents. Some are default rules that are in the statutes. These provisions make it clear that the corporation is different from the individuals who own its shares.
One of the most important factors that makes it clear that shareholders are not owners it that they have limited liability, meaning that shareholders cannot be held personally liable for debts incurred by the corporation, whether those debts were incurred contractually or as a result of a tort claim, or settlement of some sort, or some sort of regulatory action by the government.
The effect of limited liability for shareholders, especially when combined with a share value maximization norm, is that corporations often pursue a goal of maximizing value for shareholders and will do so by pursuing risky activities that have very high upside potential for the shareholders without taking into full account the downside risks which often get imposed on other parties. Such activities are especially attractive from a shareholder perspective if they can externalize downside costs to parties outside the corporation. So this is clearly a situation in which maximizing value for shareholders is not the same as maximizing the total social value being created by the corporation.
In recent years, we’ve seen automobile companies pawn off their underfunded pension funds in a federal bailout. Pensioner claims were slashed as part of that. We’ve seen federal government bail out financial firms when the bets that they made on credit default slots failed. We routinely see natural resource extraction companies dump their waste into local rivers. That’s done less in the United States now, but it’s done a lot in developing countries. Huge oil companies cut their maintenance costs on their offshore oil drilling platforms, and the result is massive oil spills.
And just a few weeks ago—actually, there was news about this this morning, so I’m not certain I’m 100 percent up to date here—Johnson & Johnson announced that it had formed a subsidiary that would take all of the talcum powder business along with all of its potential liabilities, which we now know are going to be fairly substantial. And these are liabilities associated with the argument that the talcum powder caused harm because it had traces of asbestos in it. Of course, Johnson & Johnson would underfund this subsidiary, and then immediately cause it to file for bankruptcy protection. This is called a, I think, Texas two-step maneuver, which is it protects the parent corporation because they’ve claimed that all the liabilities are associated with, guess what, an underfunded subsidiary.
Corporations have perhaps always pushed the boundaries of socially accepted behavior, but just 40 years ago, that same company, Johnson & Johnson, became an important example for businesses school professors when it spent more than $100 million to withdraw its highly successful new product, Tylenol, from the market after 7 people in the Chicago area died from taking tainted Tylenol capsules. And the company continued to invest huge amounts of money, at least by the standards of 40 years ago, in tamper-proof packaging. This was considered a model behavior by the corporation.
Today, their answer is just put the Tylenol into a subsidiary, and then cause the subsidiary to declare bankruptcy, and then protect the shareholders of any of the bad effects of this problem.
Over the 40 years since the Tylenol incident, corporations and corporate managers have been told repeatedly and by authoritative sources like business school professors and law professors, including, probably, all four of us up on this panel, that their responsibility is to maximize share value, moreover, that they should do whatever they can get away with as long as they can get away with it to get cash out to their shareholders by dividends, buyouts, and stock buybacks, thereby imposing huge risks that are predictably associated with their businesses on the other stakeholders when, surprise, the corporation does not have enough assets to make good on all of its liabilities.
So I agree completely with John Macey’s assertion that it is a myth that the law requires shareholders to do this, but I do not agree with him that this is a benign myth and that it serves a socially beneficial corporation. As I said initially, corporations are not people. They are legal instruments created by or authorized by government. They’re supposed to have special powers. They do have special powers.
So as a political question, since corporations are created by government, it is appropriate to ask whether we should allow corporations to accumulate vast sums, vast resources way beyond any other kind of institution we’ve ever seen in our society, and yet, not demand certain standards of behavior in exchange for the privilege of being able to do so.
I’ll stop there. Thank you.
Hon. Jeffrey Sutton: All right, Professor Macey?
Prof. Jonathan Macey: Coming down from New Haven, you have no idea how wonderful it is to breathe the air of freedom at a Federalist Society meeting. Thank you for having me.
I do want to say that out of chaos sometimes comes order. The Federalist Society, after all, was founded at Yale Law School, so if you push lovers of liberty too far, I suppose they will organize into an effective political coalition and create a framework for coming together in civil society, as we were told this morning.
It’s great to be here on this panel. I want to talk a little bit about the role of corporations and society, and to try and place the whole wokeness debate inside of some kind of hopefully rational framework. It’s an extremely interesting and difficult topic. The basic idea is that, like so much of the rest of America, corporations have become woke. The idea is that CEOs and corporate directors are extremely afraid of being criticized and have taken up very left mantles of social activism. And I just want to talk a little bit about where that comes from and how someone like me, who takes a decidedly libertarian bent to social issues, should respond to this. And as I say, it is complicated.
The first thing that I want to talk about a little bit in response to the previous comments is to state what I think are some just ineluctable facts about the corporation, not just in the United States but abroad as well. First of all, as a matter of being a social invention, which they are, corporations are the most powerful engine for economic growth and development in the history of mankind. We would not have had the industrial revolution. We would not have anything remotely approaching the levels of societal wealth that we observe and enjoy in developed countries without this social construct called the corporation.
What is the genius of the American corporation? It’s pretty simple. It’s the only legal vehicle, the only mechanism that allows for the accumulation of the massive amounts of capital needed for an industrial enterprise without that source of capital being the government. So the corporation, in a sense, is the only thing really standing between us and socialism.
In addition, as something of kind of icing on the cake with respect to the corporation is the idea that corporations can fund themselves by taking small amounts of capital from millions and millions of people and their pension funds, their 401K funds, etc., etc. And these shareholders, while I’ve argued, as Margaret Blair mentions, that these people are not the owners of the corporation in any way that we think about from a sort of property law perspective, the fact of the matter is that these people profit, we, the investors, profit when the corporations flourish. And in that sense, we have that attribute of ownership, of being what economists would call the residual claimants on the cash flows of the enterprise.
So the question is really, in a way, what is the role of the corporation in society? What are corporations supposed to do? And the default rule, the basic paradigm, although this can be altered, as it should be, by contract, is that corporations maximize profits within the confines or within the constraints established by law. That is what corporations do, and that is why they are created, and that is why people invest in corporations.
Now, in addition, or as a second point in terms of what corporations are supposed to do, is to maximize profits within the confines of the law. Corporations are plagued by what are known as agency costs. That is, we have hundreds and thousands and often millions and millions of shareholders, and these shareholders are unable to coalesce into an effective coalition to monitor what their directors and officers are doing or to exercise any meaningful control. So we rely on market forces to do that.
So while it is true that corporate officers and directors have massive amounts of discretion, and they’re not required to maximize profits in any operational sense, I want to talk about a few characteristics of the corporation that cause corporations to be decidedly profit maximization in their orientation. These are market forces, by and large, not legal forces. And they’re contractual forces.
First and foremost is the idea that when we’re thinking about the woke corporation, when we’re thinking about the idea that corporations should not, as the Business Roundtable, a group of CEOs in the U.S. have said, when people talk about the idea that the corporations should not maximize profits for shareholders but rather should try to advance broad societal ends, we need to keep three institutional facts, I think, three or four institutional facts at the foremost of our minds.
The first is that shareholders and only shareholders elect directors. So to the extent that people are talking about reframing the basic role of the corporation in society, that’s an ineluctable reality that people have to contend with.
A second ineluctable reality is that compensation packages, the way in which officers and directors are compensated, is overwhelmingly oriented as an empirical matter toward stock price performance and profits. So that is the way that the compensation scheme, that’s where officers’ and directors’ bread is buttered, if you will.
In addition, there’s a hierarchical and Darwinian process for getting into the C suite, for becoming the CEO of a company. And corporate culture overwhelmingly advances people who are competent at their jobs where competence is defined as being able to maximize profits by producing the best quality products at the lowest possible price.
And finally, there’s the market for corporate control. The idea that there are activist investors, there are hedge fund investors who are overwhelmingly profit maximizers so that when you have corporations, and there’s a ton of evidence for this, who veer too far from the profit maximization paradigm, as Danone Yogurt did several years ago, active investors buy shares, replace management with people who are going to work to maximize value in the corporation.
So I wanted to start with that by way of background and then quickly pivot to talking with you and thinking with you a little bit about this phenomenon that Judge Sutton mentioned in his introduction about ESG investing. What is ESG investing all about, this idea of investing for environmental and social and governmental issues, and how should we think about this?
Well, the first thing I want to say is my bottom line on this is that this is much sound and fury signifying nothing. But having said that, I think it’s very important to pay assiduous attention to the amount of sound and fury that there really is. In this year alone, if we count up the amount of investment in woke, ESG oriented investment, it comes up to $17.1 trillion. That is a significant increase over just 2020 when there were $12 trillion.
Now, these people may not -- and as I’ll argue in just a minute, these people may not know what they’re getting when they make these ESG investments. But we have to recognize, or I have to recognize, anyway, as a libertarian, these are people allocating their own capital in ways that they think will make them feel better or make the world better.
I want to specifically talk about what is it that people who are engaged in ESG investing think that they’re accomplishing? And I don’t want to be too cynical about this, but I think people are -- and I’m not going to be too cynical, just cynical enough, I suppose, but people think, well, we have these massive problems in this country with environmental issues, global warming and the like, that many believe pose an existential threat to the survival of the planet. And we also have the idea of a perception of, as Professor Thomas Piketty and others have observed, increasing gaps in wealth and income distribution.
And if one thinks about it for a second, what ESG investing does is to take the two problems that from a political theory standpoint are problems for which government intervention is required, where there are massive free rider and collective action problems associated with these kinds of investments, and they’re saying, well -- and this is why, as a libertarian, I have a fond place in my heart for ESG investing. It is a massive libertarian turn where people are essentially saying we can’t imagine any longer realistically that government can solve the problems of society, and so we’re turning to a much more reliable and efficacious source for solving these problems, which is the modern American public corporation.
I want to mention that from an interest group perspective, there are a few issues that coalesce very, very nicely here. First of all, ESG investing is coming up as a counter that incumbent management has to activist shareholding in investments. CEOs can say, and they do on a daily basis, “Well, my share price performance was very good. I didn’t do a great job of generating profits for the shareholders in the last quarter, but I’m woke. I’m doing a good job in terms of ESG investing, and, therefore, you should not throw me out on the street, Mr. Activist Investor.”
But the fact of the matter is, there’s no -- while it’s extremely easy to quantify corporate share price performance and to look at accounting results and see how well a company is doing in profits, there is no way to tell how a company is doing from an ESG perspective.
Studies have shown that if you look at the major institutions that rate ESG investing, there’s no correlation. You look at the Carbon Disclosure Project, the Sustainability Accounting Standards Board, Climate Disclosure Standards Board, several at ISS, there’s several of these large institutions that purport to rate ESG performance, but there’s tremendous heterogeneity.
You don’t have tremendous heterogeneity when you look at standard reports or Moody’s or other credit rating agencies looking at creditworthiness, but everybody can pick some vector on which they are successful. They may not be successful in doing good things for the environment, but maybe they are good in pay parity, or maybe they have the chairman’s office split from that of the CEO, so they do well in terms of the G, the governance aspect in corporate governance. So we have a tremendous amount of cheap talk associated with ESG investors.
And we have a very discreet, finite group of people who benefit from ESG investing. Modern financial economists, Luigi’s colleagues at the University of Chicago primarily among them, have done tremendous work in corporate finance on portfolio theory and the efficient capital of markets hypothesis. And boiling down a ton of great work and several Nobel prizes into a single takeaway is the idea that for the average investor who does not have superior information to that which is in the market, the best form of investment is an index fund.
Index fund investing, though, is no fun for Wall Street because the fees generated by ESG -- sorry, by index fund investing are extremely low, rapidly approaching zero. But by raising up ESG investing as a high order of priority, we can move investors from unprofitable investments in Wall Street to extremely high cost, high fee investing. So this entire ESG movement, I think, fits very well into a public choice model. It fits very well in terms of the private interest of Wall Street, and the private interest of incumbent management. And so I’m very cynical about it.
But on the other hand, and I’ll end with this, we have to remember that these are people who are spending their own money, and the facts on the ground leave me confident that profit maximization will remain the paradigm as long as directors are elected by shareholders, we have a vibrant market for corporate control, and a compensation of managers as oriented towards stock price performance and profits. Thank you so much.
Prof. Luigi Zingales: First of all, thank you very much for this great opportunity. I think that we live very much in an upside down world where liberal icons like former U.S. Attorney for the Southern District of New York, Preet Bharara, wishes that a billionaire would buy out Twitter to shut up Trump before he was shut up by Jack Dorsey himself.
Well, fervent opponents of Citizens United actually cheer at corporations that blackmail states over their electoral laws. While it takes a conservative like Senator Josh Hawley paraphrasing Theodore Roosevelt to say, “I am for business, but I am for democracy first.” And I am for business as an adjunct to democracy. Who would expect a Democrat to say that? But in fact, Democrats seem to prefer business to democracy.
This is the reasons why it’s important in my view to go back in this debate to first principle. One of the advantages of economics -- it has a lot of disadvantages, but one of the advantages is that we have a strong theoretical framework that can help us answer this question not based on whether we like a particular outcome but whether an outcome is good for society overall and whether, and this is what I want to emphasize today in particular, it preserves our freedom.
So on this issue of social activism, I want to start distinguishing, and this is the most important distinction, whether we are talking about a competitive industry or a noncompetitive one. So in a competitive industry, firms are price and rule takers. In a competitive industry, firms should have the right to choose the level of wokeness their customers, their employees, and their investors want.
A Jewish publisher might not want to publish Nazi sympathizing books. A black owned movie theater might not want to show Gone with the Wind. A Hindu owned restaurant may not want to serve beef. If these decisions are value maximizing because made in response of customers’ or workers’ demand for certain products, they can be made by managers who are incentivized to maximize value.
If consumers are willing to pay a sufficiently large premium for sustainable tuna fish, some companies will find it profitable to sell tuna fish in a sustainable way. If workers are willing to work at lower wages for environmentally friendly companies, many companies will find it profitable to become environmentally friendly. So when consumers or workers demand something, I think management can supply it in a perfectly competitive and profit maximizing way.
Now, what happens if these decisions are not value maximizing? I’m not saying that they shouldn’t be made, but they should be made by who pays for these costs, which are the shareholders. So assume that a small pharmaceutical firm has discovered a formula for a very effective day after pill. If the vast majority of its shareholders are devout Catholics and passionate pro-life advocates, they can choose not to pursue the commercialization of this drug, even if it maximizes profits.
Now, the decision should not be made by a manager. It should be made by the shareholders. Why? Because managers are chosen on the basis of their business acumen, not of their moral values. And so eventually, the moral value decisions should be made by who pays the ultimate costs, which are the shareholders.
The beauty of this competitive world is twofold. First of all, each stakeholder pays a cost for choice, which is related to the cost of offering this choice. Thus, the consumer pays a higher price for the tuna, the worker receives a lower wage for the pleasure to work in an environmentally friendly company, and shareholders give some of the profits’ opportunity away to follow their conscience.
The second and even more important benefit is that the competitive nature of the market ensures the freedom of choice for the people who have different belief systems. If now people love to eat beef, some restaurant will specialize in serving beef. If abortion is legal, other firms will produce the day after pill.
Now, the situation is very different when firms have market power. If I am the only restaurant in town and I don’t serve beef, no customers can eat beef. Furthermore, the nearby farmer cannot afford to raise cows because there’s not enough demand for that. And so even the people who want to eat beef at home might not be able to have the beef because the beef is not supplied.
Furthermore, in a monopoly situation, the patrons expressing a preference do not necessarily have to pay for the cost of their choices. If the majority of consumers is environmentally friendly, they can force the monopoly tuna supplier to offer sustainable tuna without having to pay for the additional cost since the monopolist can pay for this cost with the monopoly profits.
When any product or service is offered at a zero price, it will be overconsumed. So the first consequence is, in a monopolist world, work is overconsumed. More importantly, it does compress the freedom of the rest of the population. With the monopolies, the majority imposes its will on the minority, compressing its freedom. This is one of the many reasons why monopolies are bad.
And by the way, for the future panel, this has nothing to do with the important point of the consumer welfare standard. Monopolies are bad beyond the consumer welfare standard. So far, I’ve just assumed that firms or monopolies, or more generally, their market power, in knowing why they have it.
More often than not, the existence of a monopoly is the direct consequence of an action or lack thereof by the government. The NFL is a legally sanctioned cartel. Facebook is a monopoly generated by the lack of regulation to force interoperability among social networks. After all, we would have a monopoly in phones if there wasn’t interoperability in our cell phones. And we don’t have that interoperability.
So the problem is that the first concern of every monopoly is to preserve itself. The most effective way to preserve itself is to cozy up to a political power and offer a Faustian pact. I, monopolies, give you, party in power, what you want and cannot legally obtain in Congress. And you, party in power, guarantee me that my monopoly power remains intact for the years to come.
So think about the following Faustian pact. I, Facebook, give you, Democratic party, the right to censor free speech that you cannot obtain in Congress. And you, Democratic party, ensure that I, Facebook, can maintain my monopoly for the foreseeable future. This formal quid pro quo is the most pernicious form of corruption because it ends up hurting the majority of the citizens for the benefit of a few. Even when the quid pro quo is not so explicit, monopoly firms like to ingratiate the political power by performing actions that are liked by the party in power.
So you remember that Carrier air conditioner slowed down the move of jobs to Mexico just to please the then President Trump. Again, this is a dangerous form of profitable social activism. In these cases, attacking the social activists rather than the monopoly is not only misguided but also counterproductive. It does exactly what the social activist CEOs want you to do, talk about activists rather than monopoly.
I will not fall in this trap, so I will end my speech by talking not about activism but talking about monopolies and how to fight them. By far, the most powerful and dangerous are digital monopolies in particular because they can span the world of the media. I don’t have the time to describe how all the monopolies can be fought, but let me give you some indication how the monopoly by Facebook can be fought.
In many countries, the electric power grid, a natural monopoly, is separated from electricity production. In the same way, we should separate social media networking infrastructure from the editorial role. Today, the two things are done in the same company, but they can easily be separated.
Now, notice that the natural externality, the know competitive part that creates a natural monopoly is the grid component, while the editorial function would benefit from competition. And so if we can separate the two, we can have a regulated public monopoly that does simply the posting, and then you can have on the most important part, that is how you edit the content, you can have free competition there. Now, of course, you need to break up the two things because otherwise, the one part will subsidize the other, killing the possibility for competition.
Now, if you are concerned about somebody talking about breaking up a big business, I want to end with a statement written by George Stigler, Nobel Prize winner for the University of Chicago, that in 1952, said, “The obvious and economical solution is to break up the giant companies. This, I would emphasize,” this is Stigler talking, “is the minimum program and is essentially a conservative program.” And people say, “What is conservative about that?” It is because he guarantees no continuous interference in the private operation of business that is required or desired. Thank you.
Prof. Julia Mahoney: Thank you, and thanks very much to The Federalist Society. It is wonderful to be here in person.
Now, concerns about private power and its potentially malign effects on a good government and civil society are not new. The founders of the United States of America were highly alert to, one might even say obsessed with, the possibility of corruption and what they saw as its profound dangers.
In the run up to the American Revolution, colonists had repeatedly accused King George and his ministers of usurping power by bestowing special economic privileges on actual and potential political supporters. Claims that this conduct threatened the colonists’ liberties found a wide and receptive audience, due in no small measure to the low cost of printing press technologies, and helped convince Americans they needed to break away from the British Empire to form a new nation.
Once independent, as economic historian John Joseph Wallis observes, Americans worried constantly about their governments and how to design their political institutions to limit the capacity of politicians to deliberately create rents by limiting entry into valuable economic activities through grants of monopoly, restrictive corporate charters—we’ve heard already quite a bit about monopoly from Professor Zingales and about restrictive corporate charters from Professor Blair—and, of course, government regulations that favored the powerful and well connected.
The influence of these principles is discernable in our Constitution. As Renée Lerner writes in her article “Enlightenment Economics and the Framing of the U.S. Constitution,” it would have been very difficult to enact directly prohibitions on the sorts of practices that we today often refer to as rent seeking. And this, I think is a perennial problem for people like those of us in The Federalist Society who would like to figure out ways to constrain crony capitalism and other practices that appear to be eroding a great bit of the social fabric of the United States these days.
But even though these prohibitions are hard to enact directly, nevertheless, as Professor Renée Lerner has pointed out, the framers crafted numerous parts of the Constitution to further these principles indirectly, including the Commerce Clause and procedures of bicameralism and presentment for enacting bills. Also in the Constitution, of course, are explicit commitments to protections of property rights and contract rights. These provisions are, in significant part, the result of perceived excesses of tax and debtor relief laws enacted by many state legislatures in the 1770s and early 1780s.
Now, our new Constitution, as you all know, succeeded brilliantly, providing a framework for the extraordinary economic growth, technological breakthroughs, and increasing political participation that characterized the United States in the late 18th and early to mid-19th centuries. As Professor Macey was discussing, we have seen an incredible explosion of economic growth made possible in significant part by our understanding of the corporate form. General corporation laws became the norm; no more need to go to the legislature to get some kind of special charter.
And those, together with well-developed doctrines of commercial law and fiduciary duty, what one can do and not do with other people’s money, made the United States a more open access society, one where most people—not everyone, we’ll get to that—but most people had -- most men, anyway, had a real shot at being able to achieve great success. And their success did not hinge on government favors or the patronage of the rich or powerful. They did not have to have a patron. They didn’t have to have British lord. They did not have to have any sort of special government benefit, no special granted government monopoly.
Now, the United States, of course, was not perfect. When I say the United States became a more open access society, I mean exactly that, a more open access society. We are today a more open access society than we were back then, and it is my fervent hope that the United States will continue to become, albeit not without some fits and starts, will continue to become a more open access society.
Now, for all the genius of our original constitutional design, that original design proved unequal to the task of ending slavery without bloodshed. And after the Civil War came the so-called second founding with the Civil Rights Act of 1866 and the Reconstruction amendments. At the core of the Reconstruction project was ensuring opportunities for the formerly enslaved to participate effectively in American society. And to participate effectively in American society, it was understood by all that it was essentially that the formerly enslaved have the ability to enter into contracts and to own property. And that in turn, of course, enabled them to make, save, and invest money.
Now, fast-forward to the early 21st century. The United States is, in the early 21 century, a vastly richer and far more equal society than it was at the founding, than it was at the first founding and, of course, at the second founding.
By any measure, our rule of law is an extraordinary success story, for trust in the rule of law, enforced by an impartial judiciary, is so strong that tens of millions of workers can entrust their retirement and other savings to financial firms, which in turn invest that money in, among other things, publicly traded companies. And these investors, these tens of millions of workers who have worked so hard and saved so much money, can turn their money over without fear that their savings will be siphoned off or squandered on ill-advised utopian schemes. At least, that is, roughly speaking, our present system.
In part, that trust is due to confidence that government in the form of the judiciary is going to enforce fiduciary duties. Now, of course, I’m not suggesting that fiduciary duties are perfectly enforced. Of course not. It’s a difficult thing, but we do think that the courts are honest, and that they take fiduciary duties seriously, and that they will try to discipline bad actors when it comes to corporate managers and rogue investment counselors.
And the public also has trust in the government in the form of the Securities and Exchange Commission, the Federal Reserve, and other entities who we believe have expertise and to which we have accorded power to oversee the financial industry, that these entities will serve as the protector of ordinary investors, that they will be committed, that they are committed to ensuring that the financial markets are a level playing field, or at least something close to a level playing field, and that these markets are not rigged to favor the powerful, politically well-connected sophisticates at the expense of regular, mainstream investors, either through government failure to detect, prevent, and punish fraud and other bad acts. It’s a very bad thing if prosecutors are asleep at the switch or if courts are not serious about punishing unfaithful fiduciaries.
And there is also the worry that government will use its vast regulatory powers -- and the financial industry is extremely heavily regulated, so those regulatory powers really are quite extraordinary. And the government, the public trusts, will not use these vast regulatory powers to favor the economically and politically powerful, even though in the United States today, there are a lot of people with a lot of economic and political power. And we understand that agencies can be captured, and this worries us.
This system has worked so well for so long, albeit with occasional glitches, as we saw in the financial crisis of 2007 to 2009, that it’s very easy to take for granted. But if history teaches anything, I believe it is that we should not take for granted a system where so many can with so much confidence entrust so much money to intermediaries.
There was nothing inevitable about our present world, a world in which BlackRock, Vanguard, and State Street, to name three of the most enthusiastic proponents of activist, what we’ll simply refer to as ESG investing, they hold trillions of dollars for investors who to date can trust these firms to serve as faithful fiduciaries. But the rise of activist investing, in particular the recent rapid surge of ESG, or environmental, social, and governance investing, threatens to undermine this system.
Now, the system that we have now is frequently misunderstood and frequently misdescribed as one that allows, encourages, and perhaps even sometimes requires corporate managers and investment professionals to aggressively inflict societal harms as they do their jobs, to aggressively externalize costs onto society so that their shareholders can make money.
When Milton Friedman published an article in The New York Times in 1970 on corporate social responsibility, expanding and modifying arguments he had advanced in his book, Capitalism and Freedom, he was accused of, and for half a century now has continued to be accused of, producing a simple-minded “greed is good” narrative. But he didn’t do this. Friedman’s reasoning was subtle and ought to command our attention.
Yes, Milton Friedman argued that the social responsibility of business is to increase its profits as much as possible, as Professor Macey was just noting. But Friedman was careful to add that business must do so while staying within the rules of the game. Understood property, Milton Friedman’s main point is that in a market-oriented democracy, there are clear, distinct divisions of labor and responsibility. Laws and regulations impose constraints on business. Corporate managers then act within these constraints to be faithful agents for their principles, making them maximum profits within the societal constraints.
These constraints are important to respect, and we come down hard on corporate fiduciaries, corporate managers who don’t respect them. They reflect the collective decisions of the voters who act through the political process to make decisions about public policy, including hard calls on how much pollution are oil companies going to be allowed to emit, where, when.
By respecting these restraints, by following the rules of the game, corporate fiduciaries can be confident that they are not in conflict, or at least not in serious conflict with society’s interests. For how are we to know society’s interests except by understanding that in our system, those interests are, in large measure, constructed and revealed through the political process? It is the political process that is responsible for ensuring that the externalities that Professor Blair described, which are serious problems, and we should not dismiss them out of hand, but it is that process that is designed to make sure that the externalities do not get out of hand. It is that process that sets these rules of the game.
When those who are trusted to serve as agent decide to pursue social goals, which are often quite amorphous, often represent particular hobby horses of the agent who’s deciding to peel off of it, they are, in effect, imposing a kind of tax on those whose interests they are supposed to protect. That’s another kind of externality on the part of these agents. And as Milton Friedman noted, they are in a sense acting simultaneously as legislator, executive, and jurist, deciding who to tax, by how much, and for what purpose, and how to spend the proceeds, all of this guided only by general exhortations to improve the environment, fight poverty, and so forth.
Right now, the SEC, and some other organizations too, are subject to very strong pressures to adopt some form of ESG disclosure mandates. And these mandates, I believe, if instituted are likely to put pressure on companies to adopt practices that are popular with one chunk of society, often a chunk of society that has values, that has projects, has aspirations that are not necessarily those of their mainstream investors, and to adopt policies that have yet to be enacted through normal channels, generally because there isn’t the political support for these policies to be put in place through the normal channels.
It is Congress, the EPA, and other entities with particular expertise in the area who we have entrusted to look at the issues connected with climate change and make hard decisions, not organizations like the SEC. And there is a real danger, I believe, that the SEC and other regulators can end up being backdoor regulators for areas outside their purview. They are obviously some formidable constitutional issues here that I think will attract a great deal of attention. But even putting those aside, it’s simply not a good idea.
One final observation. A central feature that distinguishes poorly functioning financial markets from well functioning ones is the association between firm valuation and political risk. When governments play favorites, political risk increases. What I see is a political climate in which the SEC, the Federal Reserve, and other government entities are faced with pressures that may lead to raised costs for firms that are out of step with the governing party’s priorities. Should things go in that direction, the cost of capital for a given company could rise and fall with each change of administration. That would be a bad system, I believe, and a seismic change from the system we have now.
Now, Jon Macey has offered persuasive comments about why this is, quote, “sound and fury, signifying nothing.” Jon is often right. Jon, I hope you are right here. But the speed and magnitude of the enthusiasm for ESG investing does give me pause. And I hope at the very least, we will figure out that it is important to draw a very, very, very bright line between people spending their own money to further causes that are near and dear to their hearts and people spending other people’s money to do so. Thank you.
Hon. Jeffrey Sutton: Thanks to all four of you. That was terrific. Professor Zingales, I saw you wanted to respond or offer a thought.
Prof. Luigi Zingales: Yes. I agree mostly with the position that Milton Friedman took in the 1970 piece, but there are two important caveats. Number one is Julia said Milton Friedman said firms should maximize profits staying within the rule of the game. Now, what is funny is that his next door office mate, George Stigler, the same time as he was writing the 1970 piece was writing the 1971 piece on regulatory capture.
And so we know that corporations don’t stay just within the rule of the games. They make the rule of the games. And so I think the question that we have to be careful is does this maximize profits include that you subvert the law to the advantage of a corporation? Of course the answer is no. Of course Milton Friedman would say no. But we have to be very careful that this rule of the game are not, unfortunately, exogenous. They are endogenous. And if you push too much that argument, you endogenize them in the wrong direction.
The second point is more subtle. Milton Friedman said that corporations should do whatever they, its owners—and here he is wrong—but whatever the shareholders wish, which is most of the time, make as much money as possible. So Milton Friedman recognized that sometimes owners have other objectives other than money.
So the example I made is not a hypothetical. I think that there are choices that shareholders might want to make that are not profit maximizing. If I am the sole owner of a pharmaceutical company and I don’t believe in abortion, I don’t want to develop the day after pill even if that’s profitable. And if I am alone, I don’t want to do it; if there are three of us, and all of us are Catholic, we don’t want to do it; if there are a million of us and the million of us are all Catholic and we don’t want to do it, we should have the right not to do it.
Now, this is important because what he’s saying is there is a good way to do ESG, which is to ask the shareholders what they want. And being fair with the fact that ESG costs money, because if it doesn’t cost money, it’s not real ESG. It’s simply what Friedman said. You maximize profits. If this is good in the long term, then you don’t need a special dispensation to do it. It is profit maximizing. If it’s not profit maximizing, I’m not saying you shouldn’t do it. There are more values that I’m willing to sacrifice money for. However, I should be asked.
And so I think that the way we want to confront this movement is not by saying you shouldn’t do any because eventually people will say we’re going to do some. We should say -- we should actually ask the people who pay for it. And so they’re not the managers that are the ultimate shareholders.
Prof. Jeffrey Sutton: Professor Mahoney, I want to follow up on that and maybe put the point this way. So it’s one thing if the FCC or government agencies to require it. Let’s put that on the side because I get those are pretty easy to think through that problem. So it’s not mandated, so you have either ESG funds or ESG leadership of a company. Who cares?
These ESG funds, they’re 50, 100 basis points extra. You’re losing a percent a year that you wouldn’t spend on an index fund. As far as I’m concerned, that’s a voluntary tax. And then over the years, let’s say you return -- recently they’ve had good returns. Maybe that’s just all the money piling in. But over ten years, you’re losing money, and you either decide I kind of like losing money because I feel so good about the values of this company, or you buy another -- you find someone else. You get an index fund. That seems libertarian.
Prof. Julia Mahoney: Exactly. I agree with you completely on that. So if you wish to go and buy fair trade coffee, I say that’s fantastic. If you say to me, I’ve been researching how hard it is to engage in effective philanthropy, this is absolutely true, and I think I would be better off purchasing items from corporations that tell me plausibly that they engage in certain kinds of labor practices, etc., etc., etc., and I’m willing to pay more for products, I say that’s fantastic.
Now, there are, of course, difficulties in monitoring those who you trust to be philanthropic intermediaries. That’s not a problem, however, that’s unique to ESG. That’s a huge problem with the whole nonprofit sector. I’m a big fan of civil society and so forth. I very much enjoyed and appreciated Judge Thapar comments about the importance of civil society and how it is a backbone of the United States. I agree with all that. But when it comes to charity, we all know that it can be very, very difficult to figure out -- to find trustworthy intermediaries for one’s generous projects.
And to the extent that I think ESG has a future or should have a future, it is in this area of, in effect, allowing for effective charity, effective philanthropic-style projects. When I say that there are some complications, there’s a lot of misleading of people, I think, in terms of the good that’s actually being done, and we need to think about that. But the basic idea, I’m with you completely.
Prof. Jeffrey Sutton: I’ve got a few more questions, but people that want to ask questions, feel free to come up to the mike and I’ll give you a shot.
Professor Blair, one trick of ESG investing, whether it’s leadership of a company or a fund, is measuring success. So one of the easy things to think about with profit maximizing, it’s pretty easy to measure shareholder return. And what’s the social return on investment? How do you measure that? How do you say the manager did a good job of a company or the investment stock picker did a good job at picking stocks?
Prof. Margaret Blair: Yeah, this is a huge issue. I started writing about these issues about 30 years ago, and one of the first things I ran into was the difficulty of measurement. In the late 1990s, there was a big interest in these kinds of issues among accounting firms because if you recall what else was going on in the late 1990s, there was a big run up in the stock prices of any firm that had a dot com at the end of its name.
And there were a lot of people out there who said, “Wait a minute. We’ve been creating value all the time, and not all of the value is picked up by -- is measured in the conventional accounting ways. If these people can just put a dot com at the end of their name and get people to invest in them, why don’t we -- we should -- running other kinds of businesses, we should learn how to explain to our investors where we think the value is coming from that may not be measurable in the form of conventional assets.”
And there was a big interest in this, and there was a lot of accounting push, and I ran a big project at the Brookings Institution back then to look at this and see if there -- and it was one of the most discouraging projects I ever undertook because there is no simple answer about measuring a lot of the things that we all know have value that go on inside corporations, the intangible assets where there’s not a market, the human capital, the ideas, the camaraderie you build, the whatever it is, the reputational capital.
These things, we can’t measure them, except we can look at the total at the end of the day and we can ask by what amount does the share price of the corporation exceed its property, plant, and equipment, and all the rest of it must be intangibles. That’s about the best we came up with. And here we are, 25 years later, and we still have made very little progress.
It isn’t the same world, however. So one of the things that is different now is that there’s enough people out there that have been trying, and putting out metrics, and measuring things, and posting them that there’s beginning to be some coalescence around certain ideas. So measuring your -- there are standards for measuring your carbon footprint. And there’s not just one way to do it. And the SEC and the accounting industry hasn’t adopted a particular way to do it. But there are -- there’s a narrowing of the choices. We are closing in on better ways to measure certain kinds of things. And that’s happened because people cared about it, and people have worked at it for a long time now, trying to figure these things out.
The other thing that’s happening, and I guess these are all tributes to civil society because these are happening outside of government, that is helping in this regard is another thing that I’ve written about, which is what I call third-party certification. So this is turning up in a lot of -- as a way to let your investors know here’s what we’re doing. And in fact, there’s this third party out here that certifies we, in fact, are doing that. And again, they’re all over the map, and some of them are bogus, but there is a gradual coalescence toward some standards in these kinds of areas.
Hon. Jeffrey Sutton: Professor Macey, I want to give you one shot at either responding to some of these comments or to this question. There are a lot of libertarians here. Why shouldn’t libertarians say, “We love this. Government gets in the way. Put ESG funds to the side. We’re talking ESG leadership of corporations. You can have a Hobby Lobby here. You can have a climate sensitive company there. What’s not to like about this? Let these companies run the world.”
Prof. Jonathan Macey: I’m going to be very succinct because I want to hear questions, but the basic answer is, I think, was supplied by Luigi, which is it’s fine if I’m the CEO of a company and I want to devote my life to volunteering for Greenpeace. It’s quite another thing to do it with other people’s money, and that’s my concern.
Hon. Jeffrey Sutton: All right, first question. Say where you’re from and name. And if you want to direct it to somebody, that would be great.
Daniel Ortner: Hi. I’m Daniel Ortner from the Pacific Legal Foundation. The question, I think this is to anyone, is if anyone would like to comment on the recent trend from both regulators like the State of California and also organizations like the Nasdaq to be imposing social policies on corporations such as diversity quotas requiring a certain number of women or racial minorities or LGBT individuals to be on corporate boards, and those kind of -- the shift towards those policies and what that says about social activism and corporate policy.
Hon. Jeffrey Sutton: Professor Mahoney, do you want to try that one, or Professor Blair?
Prof. Margaret Blair: I didn’t understand the question. Maybe my hearing’s bad, but there’s a lot of noise back there.
Daniel Ortner: I’m sorry. So I was asking about the trend of states and also organizations like the Nasdaq to impose policies on corporate boards and corporations such as the requirement from the State of California and the Nasdaq that corporations have a certain number of women or minorities on their corporate boards, and what implications the new direction toward states or government entities imposing those kinds of policies on corporations, what that has to say for the policies.
Prof. Margaret Blair: I’m torn about whether the law should require this. I guess I don’t really think it’s the appropriate role of government to say this. But increasingly, investors want it. And I think inside corporations, the conversation that’s being had is around -- I think inside corporations, they really are asking questions like, “Wait a minute. We have not worried about these things in the past because it was a -- it didn’t seem like it made much difference. But we’re not going to be a profitable company in the long run if society falls apart. So we do need to think about whether there are things that we should be doing in order to in general improve the overall fairness and the overall functioning of society at large.”
So is putting minorities and women on boards helps that? I think it’s likely to give corporations new perspectives on things that can be helpful to them. So I’m not opposed to them doing that, certainly. I’m not sure I think it should be mandated by law.
Hon. Jeffrey Sutton: Okay. Over here?
Robert Barker: Can you hear me?
Hon. Jeffrey Sutton: Speak up, if you could.
Robert Barker: Yeah, okay. I’m Robert Barker from Atlanta. I’ve represented public companies. Right now, I represent a lot of private companies and private investors. And so I’ve followed the debate for a long time from various sources. And I think there’s all sorts of people putting mandates in place. Norway requires 40 percent of the boards to be comprised of women, I think. And those have been around for a long time.
And I was intrigued by the idea of rules of the game that Professor Mahoney put forward and Professor Zingales picked up on. So I would like to ask Professors Blair and Mahoney this question because it seems to me that there are two different kinds of rules of the game. There are the larger rules of the game like tax policy and how much you can take out, and there’s some other things. And then there’s some smaller rules of the game which, according to the Delaware courts post-Revlon, for example, would not necessarily say that the rules should be imposed as long as they don’t accept shareholder value. So they leave a great deal of discretion to the managers under the business judgement rule.
I’m looking back in history, and you look at it in Genesis. I guess the Book of Genesis is when you first look at this where Joseph tells Pharoah, “Well, you can let the owners, the entrepreneurs keep 80 percent of their wealth as long as you only take 20 percent during the years of fat.” Okay, that’s fine. Then you roll forward to modern times where what Professor Blair was calling this consensus develops. So in the ’30s, there was this consensus in Germany --
Hon. Jeffrey Sutton: -- Let’s roll forward to the present and the question.
Robert Barker: I’m going very quickly. This will be my last historical example and move from Genesis to the ’30s. But in the ’30s, you have a situation where you say in Germany there’s a consensus, we shouldn’t have Jews on the board, so that becomes the law. There’s a consensus that corporations make too much money, and so Hitler says, “Okay, well, if it’s above 6.5 percent, you have to use all your profits to buy German war bonds.”
So what are the rules of the game, and how do you distinguish between these two rules? And how do you develop a consensus that is good for all times, not just for Genesis or the ’30s?
Hon. Jeffrey Sutton: Yeah, that’s a good follow up. So you’ve got business judgement rule, which gives a lot of flexibility to the board and management, and then you have mandates, which narrow that. So maybe Professor Mahoney -- and let’s try to keep the answers fairly short and the questions short as well so everyone gets a shot. Professor Mahoney, go ahead.
Prof. Julia Mahoney: I will keep the answer very short. The answer is yes, we have rules of the game, and an enormous amount of what we do at The Federalist Society concerns making sure that those rules of the game are in accordance with our Constitution, its text, and its principles.
Hon. Jeffrey Sutton: Here we go.
Sam Wright: Yes. I’m Sam Wright from Marlin, Texas. For Professor Macey, you seem to express a reluctant admiration for ESG because people are playing with their own money. But is it not true that a lot of the clout for ESG comes from state and local government pension funds that are massively overpromised and underfunded, and when they focus on something other than maximizing return on investment, they make their own fiduciary problems that much worse?
Prof. Jonathan Macey: I couldn’t agree with you more. And I should have drawn a distinction between a situation where John Smith is putting his money in his own 401K, and he can do whatever he wants with it, versus public pension funds, which are using other people’s money. I’m right 100 percent in agreement with you. Great point.
Prof. Margaret Blair: Can I just talk?
Hon. Jeffrey Sutton: Go ahead, Professor Blair.
Prof. Margaret Blair: I just want to address that question. This was -- 20 years ago, it would have been an accurate description that all of the pressures for ESG and that sort -- they didn’t use the term back then, but all the pressures, or a substantial portion of them, were coming from public pension funds, the pension funds of teachers and civil servants and that sort of thing. That’s not true anymore. That’s not what’s going on. You don’t get up to, what is it, $17 trillion worth of assets being invested if you’re just looking at that. So it’s coming from a very, very broad basis.
And I think it goes to the question of -- people always say, well, Milton Friedman didn’t really say they should do everything. He said they should do everything within the rules of the game. Well, where do the rules of the game come from? Well, there are the written rules, the law, and the court decisions, but there’s also norms. And Professor Macey agrees that maximizing shareholder value is a norm. It’s not a legal requirement. So the norms are changing. And I personally think that that’s probably a good thing.
Hon. Jeffrey Sutton: Over here?
Michelle Roberts: Good morning. Michelle Roberts of BlackRock. Larry Fink recently wrote an op-ed in The Wall Street Journal in these last weeks where he argued that rich countries must put more taxpayer dollars to work driving the net zero transition abroad and that $1 trillion a year in public and private investment is required to drive down emissions. I’m wondering if any of the panelists read the op-ed and how they would analyze it from the perspective of rule of law, separation of powers, and first principles. Thank you.
Hon. Jeffrey Sutton: Anyone want to take a shot at this? Professor Zingales?
Prof. Luigi Zingales: Yeah. I think that the ultimate decision should be in the hands of the investor in BlackRock and the one who put the money in the funds. I think that the fact that Larry Fink advocates for himself the right to decide over all the pensioners, he is managing, what, $8 trillion in assets. He has a power that’s disproportionate. So that’s the reason why I strongly believe we need to create systems so that people can transfer their preferences and direct the votes of all this money in the direction they want, not in the direction Larry Fink wants. I think that Larry Fink is too powerful for today’s society.
Hon. Jeffrey Sutton: Professor Macey, did you want to respond to that?
Prof. Jonathan Macey: I think that we should probably go to the next one.
Hon. Jeffrey Sutton: Okay, next one.
Anthony Bruno: Thank you. Anthony Bruno. I’m from California. I’m in-house counsel out of Apollo Global Management. Real quick question. I kind of want to drill down the idea of shareholder ratification for some of these investment’s fiduciary duties. What are the proposed remedies to situations where companies may be going in a direction that is not maximizing shareholder value? Are you suggesting shareholder derivative suits? How does that square with business judgement rule? What are some concrete remedies people who may dissent can avail themselves to?
Prof. Jonathan Macey: Well, I think pass-through voting is a very good idea. I think ex ante approval is probably superior to ex post ratification.
Prof. Julia Mahoney: Yes, I agree. I think we should look very carefully at more pass-through voting.
Hon. Jeffrey Sutton: Over here.
Randall Johnson: Hi. Randall Johnson, various jobs. Is it possible to contrast the rules of the road with regard to corporations with ESG funding as distinguished from corporations, and then the rules of the road applicable to fiduciaries running the 401K plans? And of course, it’s a little different with multi-employer plans where the trustees are both union and employer.
But a repeated argument, to put it simply, is, for example, pension plans, 401K plans be invested in union housing to create jobs for union members. And residually, there’s a payoff down the road, perhaps. That was really before the ESG investing, but it strikes me that fiduciaries ought to be under tighter obligations with investing 401K plans and corporations in general. But I don't know if there’s separate rules of the road there or not. And that might be a question for you, Julia.
Prof. Julia Mahoney: That’s a great question. To say that someone is a fiduciary, of course, only begins the inquiry. We need to know much more. Trustees of trusts are held, of course, to stricter duties, stricter standards, in a way, than are corporate fiduciaries.
When it comes to retirement money, I would endorse a very, very strong fiduciary standard, full stop, regardless of whether it is a public pension fund, private 401K, or whatever. I think it is just way too easy for there to be schemes that sound good but which are actually either complete wastes of money, wishful thinking, or worse yet, feathering the nests of the politically well connected.
Hon. Jeffrey Sutton: Okay, yeah. Go ahead.
Brian Bishop: Brian Bishop from the Stephen Hopkins Center in Rhode Island. I just wanted to briefly ask -- we’ve been talking a bit about the kind of concealed carry version of ESG investing, but at least people using their money to forward ideas, even ideas about the market. I think of the GameStop as the open carry kind of version where people are expressing a concern about what’s happening in the market. And then, we came to the conundrum of should they be regulated not to be able to do that for their own protection, that it created more problems of regulation in a sense when people did take that individual prerogative.
Hon. Jeffrey Sutton: Professor Zingales, I’m not sure you followed the GameStop reference, but you might be a good person to talk about this because you do seem to believe in government regulation when it comes to antitrust law. And maybe there’s --
Prof. Luigi Zingales: -- Yeah. No, no, I do know the GameStop story. I think that I don’t see if people are consenting adults and they’re not gambling with their pension money—because if they’re gambling with their pension money, eventually all of us are on the hook—but if they are consenting adults and gambling with their money, I think that you should let them gamble. And I think that the risk of intervening in a situation like this is to favor somebody else. So there were a lot of hedge funds that were asking for the first time for regulation because they lost money. And you don’t want to cave into those demands. Those are terrible.
Hon. Jeffrey Sutton: Okay, next.
Brad Russell: I’m Brad Russell. I’m from Jacksonville, Florida. Professor Macey, if you like breathing free air, you should come down to Florida.
But I’d like to hear the panelists thoughts on the proliferation of ESG practice groups at all of the leading law firms. It seems to me that Professor Macey’s three fundamental facts of the corporation would ordinarily prevent too much harm from this new ESG movement. But if all of the law firms are recommending that corporations follow ESG, it seems like that might be a way of imposing social pressure that is not law but essentially has the effect of law.
Prof. Jonathan Macey: That’s a fascinating point. I want to be clear that I guess the only issue I have with the way you framed the question, and it’s a great question, is the extent to which law firms are faithful agents of their clients. The ESG groups at law firms are not themselves philanthropies or eleemosynary arms of the law firm. They’re billing their clients for providing this advice.
So law firms have a huge interest in the kind of SEC mandated ESG disclosure that Professor Mahoney was talking about because it provides a demand for the services of law firms and the creation of ESG practice groups in order to allow their clients to comply with these rules. And so I think that the law firms’ push for ESG is really leaving their clients interest at the door when they go in to lobby, frankly.
Prof. Julia Mahoney: Yes, thanks for raising that. If I had had more time, I would have said a few words about this development in the law firm practices, the ESG practices, and how that’s part of a greater network of social pressure.
Hon. Jeffrey Sutton: Yeah?
Prof. Margaret Blair: If we think about these things as changing norms, and I think we do need to think about them that way, the share value maximization norm emerged out of the takeover activity of the 1980s and late ’70s, ’80s. And it came out of finance, and it began to infiltrate into broad-based thinking that this is what should be done.
Well, what kind of effect did that have? In the 1980s, you may remember interest rates were extraordinarily high. We had a period of time in which the interest rates on Treasury securities was as high as 12 and 14 percent. And so if you have companies introducing finance concepts into the way they’re running their companies, and they’re starting to do present value calculations, and the underlying interest rate is 10 percent, 11 percent, 12 percent, their internal hurdle rate that they have to meet may be 15, 16, 18 percent. You can’t think about the long term if you’ve got a discount rate of 20 percent or 15 percent. You cannot think about the long term. You have to disinvest now.
So we had a whole set of practices that gradually worked their way into the way corporations operate, the way their managers -- the way B schools taught things. And you had this tension because the managers of the corporations in the 1980s were saying, “Don’t pay attention to those Wall Street guys. They just have a very short-term mentality.” Well, yeah, your mentality is really short term when you’re facing an environment of 15 and 20 percent discount rates.
Now, what’s going on? Discount rate is practically zero. We all better be thinking long term with the discount rates as low as they are in this time. So it’s become socially acceptable again to think long term and to pay attention to social factors and other kinds of issues that will affect the business and affect the ability of the whole planet to survive over the next few centuries. Thank you.
Hon. Jeffrey Sutton: All right, this is perfect. Our last questioner will be the former Secretary of Labor who, I think, has thought about this a little bit.
Eugene Scalia: Yeah, thanks. Gene Scalia. This has been a great panel. I just want to touch on two things that I think are extremely important as we talk about this area. One is the different rules applicable to pension plans, which Jon touched on, Professor Mahoney. There is a different legal standard there, and not just for defined benefit plans for 401Ks too. When I was at Labor Department, we did a rule on that. There’s now been a proposal to withdraw that. People interested in this area should regard that as one area where the standards governing ESG investing are particularly high.
The second thing I want to say is that a lot of the discussion today has been in the context of people free to do what they’d like with their money, or corporations responsibly doing so. But there’s a very important SEC rulemaking that I think we’ll see early next year which will force ESG disclosures as to certain things that the SEC thinks should be promoted, climate change and the social values that some people hold.
And so that really radically changes the context in which a lot of this discussion has occurred where suddenly companies are forced to disclose the things that they’re doing in certain areas. If they’re doing good things, or say they’re doing good things, good for them, unless the SEC decides that they’re not doing good enough things and there’s an enforcement action. If they’re falling short and say, “Hey, we’re kind of falling short,” then they’re subject to public opprobrium. So I think that’s a very important rulemaking coming down the road that alters some of the terrain we’ve been talking about where it’s free people, free markets, free decisions.
Hon. Jeffrey Sutton: You became our fifth panelist. Anyone want to respond to our fifth panelist who has several terrific observations?
Prof. Jonathan Macey: I agree, Gene. You’re absolutely right.
Prof. Julia Mahoney: Yes, I agree.
Hon. Jeffrey Sutton: Well, a lot of agreement with an excellent way to end.
Prof. Margaret Blair: We better quit while we’re ahead.
Hon. Jeffrey Sutton: It’s 11:30, so if you have a breakout session with a lunch, find it. Otherwise, there’ll be lunch out there. And thank you so much to our four panelists.
2021 National Lawyers Convention
|Topics:||Federalism • Litigation|
In a 1987 article entitled Why Hold Elections?, Professor Michael McConnell noted a trend that had been emerging since the 1970s: the use of consent decrees to settle federal lawsuits against state and local governments. These decrees are entered as judgements enforceable by contempt, but without full litigation. Nonetheless, these decrees often contain hundreds of requirements that dictate the policies, budgets, and personnel of local government agencies for years or even decades. Professor McConnell thus warned: "To the extent that consent decrees insulate today's policy decisions from review and modification by tomorrow's political processes, they violate the democratic structure of government. They should be repudiated before they become a common part of the legal landscape."
In 2018, then-Attorney General Jeff Sessions issued a memo noting that consent decrees "raise sensitive federalism concerns" and announcing a new set of policies governing (and limiting) DOJ’s use of consent decrees.
In April 2021, Attorney General Garland repudiated the Sessions memo, stating that the "Department will return to the traditional process that allows the heads of litigating components to approve most settlement agreements, consent decrees, and the use of monitors in cases involving state and local governmental entities."
This panel will explore the important topic of federal court consent decrees to settle claims against state and local governments. Panelists will explore the history of such decrees and the arguments for and against their use. Panelists will also discuss the dueling approaches to DOJ’s use of such decrees, as outlined in the Sessions and Garland memos.
Allyson Ho: Welcome. We’re going to get started. I’m Allyson Ho. I serve on the executive committee of the litigation group of The Federalist Society, and it is my great pleasure to welcome you to today’s panel discussion on federal consent decrees.
I’ve been asked to announce that per D.C. regulations please wear a mask unless eating or drinking, so I suspect I will be putting on more weight during the annual convention than I normally do given that rule.
And now I have the great pleasure of introducing our moderator, Judge Lisa Branch of the U.S. Court of Appeals for the Eleventh Circuit. This is a point of real personal privilege for me.
I first met Judge Branch 20 years ago in 2001 when both of us attended our very first Federalist Society National Lawyers Convention, the first of many. From private practice as a commercial litigator in Georgia to high level stints at the Department of Homeland Security in the Office of Management and Budget to the Georgia Court of Appeals and now to the U.S. Court of Appeals for the Eleventh Circuit, Judge Branch truly exemplifies the ideals of the Society, and it’s my great honor to introduce her as our moderator today. Judge Branch.
Hon. Elizabeth “Lisa” Branch: I have to say it’s also a point of privilege to have Allyson do that introduction. That was a surprise to me, and Allyson is -- as she indicated, she is a dear friend of mine. We go so far back when I was up here serving in the Bush administration -- both Allyson and her husband, Jim, who’s also now a federal judge. So this kind of makes my day, my week, my month to have you a part of this. So thank you.
I’m always honored to serve as moderator for a panel at The Federalist Society’s annual Lawyers Convention, and I’m particularly honored to do so this year as we work toward returning to normal, being back in person. I know that that is a point of privilege and pleasure for all of us to be back resuming everything as normal as much as possible. And it’s also particularly meaningful for me to serve on this panel today on Veteran’s Day when we can honor all those who served our country.
Welcome to the lunch panel for the first day of the conference. The only concern I had about this lunch panel and I did express to Dean is he pitted all the Eleventh Circuit judges up against each other. We’re all moderating lunch panels today, and he seemed puzzled when I pointed that out. I don’t think he had noticed that. So I cannot do my normal support of my colleagues by attending their panels.
But our panel today -- I’m very pleased to be serving on this, titled “Federal Consent Decrees: Good Governance, an Expansion of Federal Power, or Both?” Consent decrees are used by the federal government to settle lawsuits in various contexts, those brought by the federal government and those brought against the federal government. They are entered as judgments enforceable by contempt without full litigation. And they’ve been so used for decades.
Not surprisingly, different presidential administrations have taken different approaches to consent decrees to address the concerns they raise and the benefits they provide. In 1986, in fact, during the Reagan administration, Attorney General Meese instructed Department of Justice lawyers not to enter into consent decrees that significantly constrained the discretion of executive agencies. And jumping to a more modern time, the more current tension between administrations is shown by the fact that in 2018 in the Trump administration Attorney General Sessions implemented policies on consent decrees with state and local entities that were designed to reduce the circumstances when they would be used and to limit the scope when they were negotiated.
He said the DOJ, quote “Must ensure that its practices in such cases are in the interest of justice, transparent, and consistent with the impartial rule of law and fundamental constitutional principles, including federalism and democratic control and accountability.” More recently -- in 2021 in fact, in August in the Biden administration Attorney General Garland rescinded the Sessions memo and said the Department of Justice would, quote “return to the traditional process that allows the heads of litigating components to approve most settlement agreements, consent decrees, and the use of monitors in cases involving state and local entities.” Our distinguished panel today will address those issues during its discussion.
I will briefly introduce our four panelists in the order in which they will speak. Please note these are very brief introductions and that you will find their more detailed biographies on The Federalist Society website. Each panelist will then deliver brief remarks. I will ask a few questions of the panel before we turn to the audience for questions. Jesse Panuccio, a dear friend of mine, is going to be our first speaker. He is a partner at Boies Schiller, and he has offices in D.C. and Florida. Before he joined the firm, Jesse was the acting associate attorney general at the Department of Justice, the third ranking official.
He served for three years as the Secretary of the Florida Department of Economic Opportunity. And before that, he served as Governor, now Senator, Rick Scott’s general counsel. He’s going to discuss how consent decrees are a form of legislation outside of the democratic process or serious judicial testing, which raise separation of powers, federalism, and good government issues.
Next up will be Ben Wolf. Ben was the legal director of the ACLU of Illinois from 2015 to 2020. Before he took that position, he was the director of the ACLU of Illinois’ institutional reform project since 1984. Before he joined the ACLU legal staff, he was an associate at Jenner & Block in Chicago. Ben’s going to share his positive experiences with consent decrees which he considers to be an important tool for addressing serious problems he has encountered in his years as a civil rights lawyer representing vulnerable people.
Andrew McCarthy is a contributing editor at National Review, a senior fellow at National Review Institute and a Fox News contributor. He is also a best selling author. He is a former chief assistant U.S. attorney in the southern district of New York who notably led the terrorism prosecution against the Blind Sheikh after the 1993 World Trade Center bombing. He will argue that consent decrees are non-democratic vehicles that undermine federalism principles when the federal government seeks to implement transformation change as to state and local government entities.
And last but certainly not least Robert Percival is the Robert Stanton Professor of Law and director of the Environmental Law Program at the University of Maryland School of Law. Before he joined the faculty he was a senior attorney for the Environmental Defense Fund. He wrote one of the first articles on the propriety of consent decrees to effectuate and enforce federal law in 1987. He will discuss how consent decrees have proven to be a useful and efficient means for ratifying and enforcing settlement agreements entered between plaintiff and government entities. I will now turn the microphone over to Jesse.
Jesse Panuccio: Well, thank you, Judge Branch, for that kind introduction. It is great to be with you and this distinguished panel and this crowd back in person in the Mayflower. So thanks. I’m really happy to be here. So our topic this morning is as you’ve heard the modern day use of federal consent decrees, but I’d like to start briefly with first principles which I think should help orient our thinking on this issue.
Madison famously lamented in Federalist 51 that men are not angels, and thus they need a government. He explained in framing a government which is to be administered by men over men, the great difficulty lies in this. You must first enable the government to control the governed, and in the next place you must oblige it to control itself.
Now, the Framers accomplished this through the structural Constitution. That is how the government was to control itself. But the administrative state has long since eviscerated most of those controls, and federal agencies, especially the Department of Justice, often wield the very unchecked and uncontrolled power the Framers knew was destructive of liberty. Consent decrees are a powerful but I think underappreciated and under-analyzed example of this phenomenon.
A consent decree as Judge Branch mentioned is a settlement by parties reduced to a binding court judgement, meaning that unlike a violation of an out of court settlement which can lead to a breach of contract claim, a violation of a consent decree can lead to contempt, including criminal contempt. In other words, consent decrees have the force and effective of law and are very serious business. Consent decrees can and do serve an important function in the range of cases in enforcement areas, but many consent decrees are in effect a set of regulations for a single party or government agency overseen by the Department of Justice, a federal judge and quite often a private party monitor appointed by the court.
In practice consent decrees can result in one or all of these entities directing the day to day operations of a business or local government agency for years on end. As should be obvious from the description, such a regime can be as intrusive as, if not more intrusive than, a set of regulations. Take for example the consent degree that now governs the city of Chicago police department, a decree that DOJ objected to in 2018 under Attorney General Sessions but one that is similar in substance to many that DOJ required in years past and will surely require again during the Biden administration.
Regarding the Chicago decree DOJ noted this. The decree is a 226-page document governing virtually every facet of Chicago police department operations in excruciating detail. The decree’s 799 paragraphs and hundreds more subparagraphs cover community policing, impartial policing, crisis intervention, use of force, recruitment, hiring, promotion, training, supervision, officer wellness and support, accountability, transparency, and data collection. Indeed, if you were to go to the Chicago police department website right now, you could find on their page what they call a compliance consent decree dashboard. It has 797 requirements governing nearly every aspect of the department’s operations.
The consent decree is in effect the city agency’s governing charter at this point. There are many potential problems with such wide ranging consent decrees, and I’ll highlight just some of them. First consent decrees turn DOJ litigators, private plaintiffs, federal judges, and private monitors into regulators, even if they lack the time or expertise to properly regulate. 30 years ago the assistant attorney general for the antitrust -- the then assistant attorney general for the antitrust division, Rick Rule, noted in a speech that the Reagan administration’s best known accomplishment in antitrust law was the breakup of AT&T.
The ongoing monitoring required under the AT&T consent decree, however, created in his words a mixed legacy for that accomplishment because of the institutional harms flowing from requiring the division and the federal court to be in effect telecom regulators. Federal courts in the antitrust division rule said -- inherently lack many of the resources crucial to successful regulation such as technical expertise, regulatory experience, and administrative processes. So that’s one problem.
A second problem with consent decrees and perhaps the most egregious is that many of them stray not only beyond the practical resources and expertise of the enforcers but also beyond the legal authority of what the government could to by any other means. Imposing conditions that could not be obtained through litigation to judgement is similar to creating regulations beyond the bounds authorized by statute. It creates serious due process and separation of powers questions, and just because a court imposes such a decree does not make it appropriate, legal, or wise. Courts like Executive Branch agencies—I’m sorry, judge—can exceed their powers and distort constitutional norms in certain circumstances.
A third issue for consent decrees is that they often empower private party monitors as independent agents of the court. Courts regularly defer to monitors as the decrees are complex and voluminous. Without a monitor’s assent it is very rare -- exceedingly rare that a federal judge will terminate a decree, even, I’ve seen, in circumstances where both the government and the defendant agree that the decree should be terminated. The problem is that monitors are not government officials clothed with official power.
They are not elected, and they are not appointed. They are not accountable once appointed to the DOJ or to the defendants. And they are paid often very handsomely for their work. For example, let’s look again at the Chicago consent decree. Here’s what DOJ said about it in its objection at the time. “The monitor costs alone will be staggering. The monitor can be paid $2.85 million per year, more than ten times both the police superintendent salary and the mayor’s salary and 59 times the starting salary for a beginning Chicago police department officer. These taxpayer funds, thus, will not be available to hire and train more officers and purchase equipment to protect Chicago residents.”
Now, many monitors are honest brokers and do good work, but that doesn’t change the fact that they wield tremendous, unaccountable power over the local governments and businesses they monitor. They are very costly, and for better or worse they face obvious financial incentives to keep the monitorship going, especially when the fees represent a substantial income stream for their law firms or their consultancies.
A fourth problem with consent decrees is that in practice consent decrees have virtually perpetual life, regardless of factual changes, scientific advancements, elections, economic shifts, deaths, wars, or just about anything else. One consent decree I can think of in governing a state environmental agency has been in place since 1991 -- yes, 1991. That’s 30 years. By my count, we have had six presidents, 10 Senate confirmed U.S. Attorneys General, 11 Senate confirmed EPA Administrators, and hundreds of new state and federal legislatures elected. We’ve had significant advances in scientific understanding, major shifts in the economy and population trends, and changes in the environment.
And through all of that time despite all of these changes, a loan federal district judge has been in charge of a critical issue of environmental policy and restoration. The question from a first principles perspective is this. Do the people through their elected representatives get a chance to reconsider critical environmental policy and funding priorities after 30 years? Do our democratic norms not require that someone other than a loan federal judge gets to revisit this vitally important issue from time to time?
Fifth and finally for consent, for today anyway, I think perhaps the most significant potential problem for federal consent decrees relates uniquely to those entered into with state and local governments. Such decrees are everywhere. In an important but underappreciated book published 30 years ago by the title of Democracy by Decree, law professors Ross Sandler and David Schoenbrod outlined just how pervasive these decrees were at the time. They have been, quote, “applied to the full range of government programs, including to name just a few examples, special education, mental hospitals, environmental protection, and prisons.”
The decrees cover not only an enormous range of programs but also an enormous range of states and cities. Decrees have ruled prisons in 41 states and local jails in 50 states, and this was in 2003, long before the Obama administration imposed many, many more consent decrees on state and local governments.
Now, you might wonder why local officials would enter such decrees, which often diminish their powers and divert limited local financial resources. Sandler and Schoenbrod explain why in their excellent book. “State and local officials wishing to avoid embarrassment for faults in the government program are glad to consent to a detailed plan.” In other words, it is often just politically expedient. It is also a way to cement one official’s preferred policy long after the official is gone. Indeed, it is a way to make it criminal for a future official to deviate from past policy choices.
And finally, local officials may agree to a consent decree because it is a way to force the elected appropriators, their managers, their overseers, the legislature, to fund programs that would otherwise lose out in the necessary compromises of assembling an entire state or city budget. Federal consent decrees thus raise both vertical and horizontal separation of powers concerns. From a federalism perspective, they constitute a federal takeover of local government. From a horizontal perspective, these decrees represent the Executive, rather than Congress, making policy that governs state and local governments. And at the local level, they represent local executive officials agreeing to a governing framework that the state legislature or city council has not enacted into law.
So I’ll close with this. All of these concerns are what animated the Department of Justice when it was led by then Attorney General Sessions to put in place a policy establishing some guardrails around the use of consent decrees. We aimed, in the words of Madison, to oblige the Department of Justice to control itself. The memo required -- the memo did no prohibit consent decrees, but it meant to cabin them and put serious process around it.
So the memo required the DOJ afford entities an adequate opportunity to respond to any allegations of wrongdoing. It required special caution before using a consent decree to resolve disputes with state or local government agencies. It provided guidance on the limited circumstances on which a consent decree might be appropriate, such as repeated violations that other enforcement mechanisms are not able to address. It required consent decrees usually have limited terms and clear objectives for exiting out of and terminating the consent decree, something that is often missing in most of the modern day consent decrees.
It required critically rotation of monitors -- mandatory rotation of monitors to get rid of the financial incentives to keep the decree going for nonlegal reasons. And it stated importantly -- perhaps most importantly that the consent decree must not be used to achieve general policy goals or to extract greater or different relief from the defendant than could be obtained through agency enforcement authority or by litigating the matter to judgement. In other words, a consent decree had to be about law, not about the policy preferences of DOJ lawyers or enforcement agencies. And it required high level approval by the associate attorney general or the deputy attorney general for final entry of a consent decree so that somebody with high level responsibility was signing off on the federal takeover of a local state government agency.
To my mind, our work on consent decree reform was one of the most important projects we tackled in the Sessions DOJ. Delegation, regulation, guidance, and deference got all the attention from administrative law scholars. But consent decrees are just as pervasive and probably more powerful. And the work to reign them in had never really before been done.
Alas, as you heard with a stroke of Attorney General Garland’s pen all that work has been undone and without, in my respectful view, any real explanation as to why. For example, his rescission memo recognizes that monitors can have conflicts of interest, a position DOJ has long held in other areas. But instead of leaving the carefully crafted policy in place, he establishes 120-day review period for further study and recommendations from the associate attorney general. As far as I know, it’s been well more than 120 days, and we have not seen any public disclosure of those recommendations.
So we are back to the wild west of consent decrees, and we will see where they go. And with that, I’ll now turn it over to Ben who will surely rebut everything I just said. Thank you very much.
Benjamin S. Wolf: Thank you, Jesse, and thank you, Judge Branch. And happy Veterans’ Day. As the son and nephew and son-in-law of people who fought bravely in World War II and the Korean War, I always spend some time on this day reflecting on our gratitude and our freedom. And Jesse’s right, I will disagree with a few things he says.
I’ve represented ACLU clients in class actions against public officials for more than 35 years. My clients in most of these cases were people in the custody of the government or government funded entities such as prisons, foster homes, nursing homes, and facilities for children. These kinds of cases are often called institutional reform litigation, and many of them involved consent decrees. And I do want to insert one note of caution. I no longer work for the ACLU, so whatever I say today are the views of me and nobody else. Although, they reflect my 36 years working for the ACLU.
The problem my cases confronted were profound -- the problems. Foster care systems that brought children into the state’s custody in the name of protecting them, were sent to foster homes and institutions that neglected their basic needs and sometimes abused them. A large juvenile detention center housed young people in filthy conditions, repeatedly denying them essential health and educational services and exposing them to abuse by staff -- a lot of it. Prisons that denied decent healthcare to inmates, causing unnecessary pain, sickness, and death. Hard problems causing a lot of human suffering.
Elected and appointed officials for years had completed failed to address these broken public systems, often misleading the public -- I would say usually misleading the public about the suffering of my clients. These were in my view classic examples of entrenched, unlawful practices that required federal court intervention. I’ll just summarize the results in a few of these cases to give you the sense of how consent decrees can make a real difference.
These consent decrees often helped to bring about measurable improvements in the broken government systems. Two quick examples, the changes in the foster care system in one case where I was lead counsel were described by the congressional quarterly researcher as the gold standard of reform, resulting among other things in tens of thousands of children placed in safe, stable adoptive homes or guardianships, improvements in the safety of children by every measure, and a reduction of the number of children lingering in temporary foster care, from over 50,000 to about 16,000, consistent with safety.
The litigation I mentioned involving the juvenile detention center that was so filthy and overcrowded and violent was described by one expert in a book published a couple of years ago as the most effective and best documented transformation of egregious conditions of confinement at any juvenile corrections facility in the country. I’d be happy to provide relevant cites and even cites to books and studies for anyone who’s interested. In my experience, consent decrees and other structural injunctions can be very effective in imposing a structure for accountability and reform of profoundly broken government systems serving prisoners, foster children, and others with little political power.
They can force public officials to acknowledge the depth of the problem, produce accurate independent data about whether the reforms are working—sometimes they don’t— and require stakeholders to go back to the drawing board when their favored prescriptions don’t work. Critics often question how long these cases can last. Jesse mentioned some cases that lasted a long time. And I would say that’s a fair point.
The two cases I’ve described involving foster care and juvenile detention both lasted well over a decade, and one of them is still pending. It’s certainly true that consent decrees don’t magically transform hard problems into easy ones. Large broken government systems can take many years to fix, even under the pressure of a court injunction, whether a consent decree or the result of an adversarial trial. Changing the organizational culture of a large chaotic bureaucracy and creating sometimes almost from scratch the infrastructure required to measure what’s happening to change incentives, to impose some accountability on unionized civil service systems, takes time.
The case involving the police in Chicago that Jesse mentioned is one I didn’t work on directly, but I did supervise some of the people in my office who were involved in that case. And I think it’s fair to say we’re still in the early stages. The consent decree probably is longer than one I would have negotiated. Very often the defendants want that.
The police departments and other defendants often prefer a proscriptive, detailed consent decrees to consent decrees -- the kind that I prefer, more focused on broad outcomes and expressing some flexibility about how you get there. I suspect we’ll get to more creative strategies achieving better outcomes. And I’m confident over time that the consent decree enforced by the attorney general and by some private parties, including some represented by the ACLU, will produce real changes. But it’s going to take a while.
The process is still in its infancy right now. And whether the current monitoring structure or some other such structure of oversight is the best one, I’m open to talking about that. I don’t know the answer to that, and I think neither do the people who work on that case. But the thing to remember throughout that case is the problems are hard, and big broken police systems in major cities are complex. And particularly in this era now for the first time in a while of slightly rising violent crime rates in a lot of cities, there are a lot of challenges about how to do that right.
The process of consent decrees can also be slowed down by legitimate concerns about state and local autonomy and federalism. I think we live in a very different world than the one described in the book 30 years ago that Jesse described. The law about modifying decrees, about deferring to the judgement about new public officials is quite clear now and does create more deference to the opportunities of new state and local officials to propose changes. But the consequence of that is that the process gets dragged out, and if you impose less intrusive remedies and you have a learning curve for the new public officials who maybe haven’t learned what the people in the process have learned for a few years going through things that worked and things that didn’t, you end up prolonging the remedial process.
And I think there are legitimate reasons for that, but the remedial process also then will prolong the human suffering that it’s trying to address, at least in the kinds of cases I worked on. I would submit that the alternative to court oversight is to consign huge numbers of people to needless suffering when elected officials fail to address the problems that afflict these systems. Protecting the constitutional and statutory rights of powerless citizens through court injunctions, whether after a trial or via consent decree, in the end I think makes our federal system stronger. We can’t consign our federal citizens with little political power to endless abuse and neglect when the elected branches won’t act. Consent decrees can be and often are slow and messy, as Jesse pointed out. But the alternatives usually are worse. Thank you.
Andrew McCarthy: Thank you, judge. It’s an honor to be on this panel, and it’s a pleasure to be asked to come back to The Federalist Society convention, especially in person. As you can imagine most of the things I get asked to participate in these days are more journalist than lawyerly related, and in my legal career the worst thing I’ve had to worry about in the legal system is jihadist mass murder. So to me its much preferable to what I usually do day to day.
On the theme of trying to stick with what you know I’m going to talk about consent decrees and crime. There were in New York City in 1990 2,600 homicides, about seven a day. In 2017, that number had plummeted by almost 90 percent, down to 290. Crime was at record highs from the '70s to the '90s, and it was driven down to record lows by state policing innovations. Things like broken windows philosophy, the idea that you project the notion that the rule of law obtains and that the laws are going to be enforced, it can bring about cultural change. The idea of improving policing by being able to interview suspects and learning and making a more robust police database, that led to innovations like Compstat -- the idea of not having just static police assignments but actual deploying police to the places where crime was beginning to surge so that you could tamp down on it before it became a problem.
All of these innovations were not driven by the Justice Department or the federal government. They were driven by experimentation at the state and municipal level. The drastic improvement for civil rights cannot be overstated. African Americans suffer from disproportionately in terms of their percentage of the population -- from murder and violent crime. A near 90 percent drop in murder saved tens of thousands of lives. The plummeting of other violent crimes saved hundreds of thousands of criminal incidents where people were victimized.
It allowed neighborhoods to thrive in safety. It allowed them to thrive economically and culturally. The record plummeting of crime in the generation beginning in the 1990s is simply the most significant social evolution in modern American history. I’m almost tempted to call it social justice. It’s critical to recognize that this was not just a revolution in crime reduction; it was a revolution in policing. And it was also driven by state and local policy, not by the federal government. And that’s because a system of democratic federalism -- in such a system local government must be responsive to citizens whose lives are affected, particularly affected by their policing.
Because of the developments that we saw in this record reduction of crime, modern American police departments -- and this the point of it being a revolution in policing as well as crime reduction. Modern American police departments are more reflective of the communities that they protect and serve then they have ever been in American history. And that’s not just at the rank and file level. In cities like Atlanta for example where the population is 50 percent African American and the police department is 55 percent African American, there’s also been an evolution in the command level so that in modern police departments you have commanders, commissioners, deputy commissioners all reflective, again, of the communities that they protect and serve.
Society is making great progress through federalism and through democratic accountability. It does not need the Justice Department and its consent decrees to thrive and to safeguard civil rights. The Justice Department’s return to its Obama era proliferation of civil rights investigations and heavy handed consent decrees is about advancing a racial divisive, progressive political agenda, not advancing civil rights and not advancing quality of life. Don’t take my word for it.
In her August 13th memorandum revamping consent decrees, Associate Attorney General Vanita Gupta proclaimed the Justice Department’s vision that consent decrees and the monitorships they impose—and this is a quote—“promote transformational change in the state and local governmental entities where they are used.” I’d respectfully counter that the American people and their local communities do not want transformational change.
They want record low crime. They want safe streets. They want prosperous communities. They want a political class and legal elites who worry more about neighborhoods that are victimized by crime than about criminals and political narratives about systemic racism. That is the foundational canard behind the crusade to remake policing through federal consent decrees. And we must know that that political narrative is specious. The criminal justice system is dominated by graduates of elite American law schools who overwhelmingly identify as political progressives.
No small thanks to The Federalist Society, constitutional conservatives who care deeply about civil rights and equal protection under the law are also well represented. The notion that this profession would abide a system that is racist to its core should insult every one of our intelligence. Yet, that is the premise for the push for transformational change.
And the political nature of this crusade is blatant. It falls into a familiar pattern. Some tragic loss of life occurs in a racially charged incident involving police and a suspect. It is often not apparent that any civil rights violation occurred. We are inspected to infer one from nothing more than the race of the suspect, even if, as if often the case, the police are the same race as the suspect. It quickly becomes clear that there is no constitutional violation, but the Justice Department slips streams in behind the heated political rhetoric and the controversy and announces a pattern or practice investigation, suggesting that there are structural departures from constitutional norms, even if they can’t -- they’re not able to prove by prosecution a particular constitutional violation of law.
States and municipalities cannot afford to go toe to toe with the Justice Department’s bottomless budget. Plus, there are often collusive negotiations between DOJ progressives and progressive politicians who calculate that a consent decree will require so called reforms that they wouldn’t dare try to campaign on if they had to sell them at the ballot box. One way or another the states cave.
A great example is the George Floyd case in Minnesota, the trial of Derek Chauvin. Minnesota has a very progressive police department. It’s led by an African American commissioner with a reform background. They have extensive training in use of force, in conflict de-escalation. We heard endlessly at the trial that it’s drummed into the police this idea of “In my custody, in my care.” If you have a suspect in your custody, you are responsible for the suspect’s wellbeing -- drummed into every officer by hours and hours of training.
Every police official who testified at the trial of Derek Chauvin said that the tactics that were used on the street by the police officer violated basic tenants of Minnesota police training, even against suspects who were resisting arrest. And obviously, Minnesota prosecuted the rogue cop, and the jury believed the police witnesses who said that the behavior on the streets ran afoul of what their training was in the Minnesota police department. Yet, the Department of Justice could not wait to announce that it was opening a pattern and practice investigation as if those of us who watched a month of the trial had witnessed rampant constitutional violations day after day.
The response of the Justice Department is a response to situational politics, not a response to courtroom evidence. In our system the states are sovereign and should be trusted to govern their own internal affairs. Policing is the most central and consequential of those affairs. If state and local enforcement officials really do violate federal law and the Constitution, it is always available to the Justice Department to prosecute civil rights cases by criminal indictment. But the idea that the federal government -- that it’s the federal government’s job to transform the nation’s police departments should be offensive.
The idea that the feds always know best what to do should be offensive. It was not the Justice Department and consent decrees and monitors that gave us those record low crime rates. It was state and local police, and it was a historic boon for civil rights. Thank you.
Prof. Robert Percival: I like going last because it gives me a chance to respond to things that have been said before. As Judge Branch indicated, way back in 1987 I wrote an article on consent decrees in the same symposium issue on consent decrees at the University of Chicago legal forum that Mike McConnell published his article “Why Hold Elections?” arguing that consent decrees fundamentally undermine democracy.
In that article I said that the longstanding public policy favoring settlements -- that consent decrees simply made those more enforceable. They’re not a form of legislation as Jesse said. They’re a means of enforcing existing law. I noted in that article that the Meese memo, which was actually kept in place by the Justice Department, had made minor changes that made it so that they weren’t doing things that infringed on democratic principles.
Now, Jesse indicated that when Merrick Garland in April withdrew the Session guidance on consent decree he promised that there would be 120-day review and that he had heard nothing since then. Well, let me tell you what they did do. In fact, exactly 120 days later on August 13th, 2021, the Associate Attorney General issued the report that Attorney General Garland had asked for. And in preparing this report they conducted more than 50 listening sessions with stakeholders, including current and former monitors, state and local officials, police chiefs and national law enforcement organizations, civil rights advocates, community leaders and academics.
These listening sessions—I’m quoting from the memo—“revealed a remarkably consistent story. Most felt strongly the consent decrees had acted as the primary catalyst in transforming the state and local agencies in which they were used. Many recognized that consent decrees provide state and local governments with a stable long-term plan to reform agencies and departments and, in the law enforcement context, to rebuild trust between law enforcement agencies and communities they serve.”
They looked at a number of studies of police consent decrees that showed that they had not only reduced the incidents of illegal activities by the police but also improved community relations. The memo stressed that the Justice Department wanted to learn and evolve from past practice, and it recommended some very specific changes that I think respond directly to the criticisms Jesse was making. Here are the principles for dealing with monitorships of state and local government entities.
First, monitorships should be designed to minimize the cost to jurisdictions and to avoid any appearance of conflict of interest. How? Cap monitor’s fees. Decrees should include an annual cap on monitor’s fees. Second, encourage use of pro bono time, reduced rates of nonprofit organization and academic institutions. Third, explore alternative fee arrangements. Fourth, restrict lead monitor participation in multiple monitorships. Second principle, monitors must be accountable to the court, the parties, and the public. How do you do that? First, collect public input during monitor selection.
Second, impose term limits subject to judicial reevaluation and reappointment. After the first two or three years, consent decrees should build in a procedure for assessing the monitor before any reappointment can occur. Fourth, make monitoring documents publicly accessible. Another principle, monitors should assess compliance consistently across jurisdiction. A fourth principle, sustained, meaningful engagement with the community is critical to the success of a monitorship. You should first select monitors who will prioritize stakeholder input. Second, require consistent local feedback. Third, modernize monitor communication strategies by encouraging among other things the use of social media so the community can follow what the monitor is doing.
Final principle, monitoring must be structured to efficiently move jurisdictions into compliance. Monitorships must be designed to incentives the monitor and the jurisdiction to move towards compliance as efficiently as possible. How do you do that? Require a hearing to assess termination after no more than five years. Jesse talked about how some of these decrees have been in existence for many, many years. Unfortunately, that’s because some of the problems, like environmental cleanups and the mess EPA had with the initial implementation of the Clean Water Act that generated the Flannery decree that ultimately was actually embodied into legislation when Congress amended the Clean Air Act -- they’re really difficult to deal with. And it takes a lot of time. Encourage use of partial termination provisions, prioritize project management skills in monitor selection.
So the conclusion of this memo was monitorships have proven to be vital tools in upholding the rule of law and promoting transformational change in the state and local government entities where they are used. Andrew may not like the word “transformational,” but some of the police abuses in these departments are so great -- in Baltimore where I teach, the cops -- some of the cops were actually totally corrupt, arresting people so they could rob them. And it was only when the federal government came in and indicted them and ended up several of the cops went to prison that the rot that was in that police department started to be cleaned up. And a consent decree, it’s not perfect. It hasn’t completely solved all the problems, but it has at least provided hope for improvement.
Exactly a month later on September 13th, 2021, the attorney general Merrick Garland said in a memo “The Associate Attorney General has now provided and I approve a set of principles for the use of monitors in civil settlement agreements and consent decrees involving state and local governmental entities.” So the Biden administration is trying to learn from history, responding to some of the criticisms that have been made about what’s happened in the past and is working to ensure that we develop a more efficient system of enforcing the law, enforcing constitutional norms, and particularly increasing community confidence in the agencies of state and local government that they deal with. Thank you.
Hon. Elizabeth “Lisa” Branch: I know Robert said he loves going last because he gets to respond to everybody, and not to take that position away from him, but I would like to open it up to the panel. If there’s anybody that would like to respond to another panelist, please feel free to do so, and I know Jesse has something to say.
Jesse Panuccio: Yeah. So I’ll respond to that. So I did realize actually before it got to you -- I’ll note that -- that I had missed Associate Attorney General Gupta’s memo. In fairness I see the date that it was made public I was on my honeymoon in Hawaii with my lovely wife who’s here. So I think I’ll be excused for missing it, but I do have some responses to that.
So one, you have to look carefully at what’s said there. I am sure -- I would be curious to know who the interested stakeholders were that DOJ invited because I guarantee you I could find some who would not have been overwhelmingly effusive about the process of consent decrees in their agencies. I worked with many of those state officials as a state official for many years. But if you look carefully at what the memo says, it doesn’t actually include any term limits.
It says, well, there should be a process for thinking about maybe having the judge impose a term limit if the judge finds the monitor’s not doing a good job. Well, guess what? That’s what judges are supposed to be doing right now. That’s what they are supposed to have been doing for the last 40 years of monitorships. But in practice, it never happens. It never happens because these consent decrees are overwhelmingly long, and judges don’t want to deal with them. So they hand it off to the monitor.
The other main issue is it doesn’t deal with the root cause problem of monitors which is who the heck is a monitor to exercise essentially government power? They haven’t been elected by anyone in the local community. They haven’t been appointed by any responsible government official in the local community. And so the Sessions memo said this. “Just as it would be extraordinary for a federal agency to consent to the use of a monitor to oversee it’s operations or policies, in most cases there is little reason to expect or require a state or local government equally a democratically accountable entity to do so.”
And so the Sessions memo said, look, if you DOJ lawyers can’t oversee this consent decree yourself, then maybe you shouldn’t be having this consent decree. And that principle is gone and not in the new principles announced in the Gupta memo.
Benjamin S. Wolf: So, Judge, I’d like to respond to that just briefly. I’ve had mixed experience with monitors. In one case the judge fired a monitor and actually the parties under the supervision of the judge negotiated a structure where we created the Children and Family Research Center at the University of Illinois and funded it to produce data on child welfare outcomes and how our clients were doing. We learned enormously from them over several years. And they were extremely helpful, and their work still goes on even though most of it isn’t anymore about the consent decree and those issues.
In other cases, monitors have been terrific in my cases. The key is you need a way not to just have lawyers in the room making decisions about how to fix a government system. So if monitors can bring in law enforcement expertise, if they can bring in medical expertise in the case of issues involving healthcare in prisons and in foster care systems, if they can bring in expertise in organizational change, which is something lawyers think they know about and they think if they change a rule everybody’s going to do better -- you know, pass a rule saying, oh, the case workers in the foster care system should do a better job -- oh, that’s great. That’ll make a big difference.
You know, the real problem is much subtler and more complex, and you have to try different things and measure the outcomes. When it’s done right, bringing expertise and measuring outcomes but not creating a command system where the monitor’s word is law -- which is not typical in my experience -- it can be very important and well worth the investment. Sometimes it’s not. I want to respond to one thing about crime rates too that Andrew said. Crime rates plummeted all over the country in the late '80s, '90s and early 2000s. Some of those places had broken windows policing. A lot of those places didn’t.
Correlation is not cause, and it’s very important to think analytically about these issues and what really produces change. I looked somewhat closely at that in the Chicago police context. And I’ll just tell you it’s hard. You know, there’s literature that suggests that changes in the amount of lead in pipes, reproductive choice for women who don’t want to have a pregnancy, real estate values -- San Francisco had a huge drop in crime rates because people couldn’t afford to live there if they were poor. And that happened in New York too to some degree.
It’s important to look at these issues in a nuanced way and particularly now with all the attention to crime rates happening again because there has been -- we’re nowhere near where we were in the '60s and '70s. But there has been an increase. It’s really important in the context of judicial relief and consent decrees on all of these issues not to accept simple answers that look to correlation and not more subtly at cause. Thanks.
Andrew McCarthy: Yeah. I’d just respond to that that I’m all for nuance. I think the best way to do nuance is not to have a one size fits all solution that’s imposed by a justice department model. It doesn’t surprise me in the slightest that the decline in crime -- generational decline in crime featured different approaches to crime and that there were some things like Compstat which caught on especially in the places that were able to do it.
But there were other municipalities that were able to experiment with other solutions and also saw success. I think that’s exactly what we want. We want solutions to these problems driven by the people who were making the decisions close to home who answer politically to the people who’s lives are at stake and whose lives are affected by the policing. So I’m all for nuance. Let’s have as much nuance as we can. If you have 50 different laboratories of democracy, you’re going to have a lot more nuance then you’re going to get out of the Department of Justice.
Hon. Elizabeth “Lisa” Branch: And now, Robert, I will give you the last word.
Prof. Robert Percival: I would like to congratulate Jesse on his marriage. He picked a great place to honeymoon. The point I’d make is I think the approach the Biden administration is taking is that you have to tailor what is done in consent decrees and what level of authority approves them to the individual facts and circumstances. You can’t just have a broad bunch of policy that says, we don’t like consent decrees, so if we have any, it’s got to be approved by the Attorney General or the top officials at the Justice Department. So decrees are much different than others. And in fact in virtually every environmental enforcement action against a corporation, it’s settled by consent decrees.
Some of those are enormously complex like the consent decree that settled the BP Horizon oil spill or the consent decree that settled the criminal litigation against the Volkswagen company for intentionally violating our environmental laws by cheating on the testing. And so even during the Trump administration you had consent decrees in environmental enforcement cases. Why? Because they’ve proven to be a very effective tool for enforcement. And when you’re dealing with an entity like a corporation, you can’t just rely on the promise that changes are going to be made and this isn’t going to happen again. In similar fashion, some state and local government entities needed substantial change.
And I think the approach of the Biden administration is a good one, and the fact that they’ve signaled that they’re responding very specifically to some of the criticisms that Jesse and others have made of consent decrees indicates that they’re on the right track. And certainly their emphasis on trying to get better community support for the police -- I would just say that the fundamental point I made in that 1987 Law Review article that consent decrees don’t undermine democracy -- Mike McConnell said why hold elections? I would suggest that today there are far more fundamental threats to democracy. And I don’t see a lot of panels at this conference that are addressing those. I wish there were.
Hon. Elizabeth “Lisa” Branch: Thank you. I’ve got just a couple of questions before I’m going to open it up to the audience in about 10, 12 minutes just to let you know. But I’ve got a couple of questions I’m going to exercise my privilege as moderator to ask. Let me start with Andy. Andy, you started by talking about the policing techniques of the '90s. And then you had pivoted to the Department of Justice’s concern about police departments, the pattern or practice of unconstitutional policing. Could the policing techniques of the '90s exist today?
Andrew McCarthy: I don’t believe -- with the assumptions that are informing transformational change I do not believe that the techniques that began to be developed under the broken windows ideas of the 1990s would be possible today. And in part -- I think this is in largest part the models that -- the remedies that were used in the 1990s really were driven by data. And I think they were driven unapologetically by data. And what I fear is that today they are driven not by data but by a political narrative. And to the extent that reality crashes into the political narrative, the political narrative wins. And as a result I think the things that we know would work would have a very hard time being used.
Let me just take one concrete example. Stop and frisk which has gotten a lot of attention and a lot of negative attention, and some of it is merited because there are obviously some episodes involved in that where people’s rights were in fact violated. But there’s a lot of people who analyze that from a standpoint of, if you stop and frisk X percentage of people who are a particular race and it turns out that that is over-representative population-wise of other groups that get stopped and frisked, then there’s implicitly a problem when in point of fact the most important thing in crime is offence pattern and offence behavior, not a person’s particular race.
And if it happens that there are neighborhoods or even racial groups where offense patterns are higher than others, that is simply a fact of why the crime takes place. And I don’t think that that is -- that’s something that you could recognize in the 1990s. I don’t think you’d be allowed to recognize it today.
Benjamin S. Wolf: May I briefly respond to that?
Hon. Elizabeth “Lisa” Branch: Yes.
Benjamin S. Wolf: There certainly is high crime in some black neighborhoods. But the enforcement of the law has a huge racial component in a lot of big cities that is not just because of crime. I’ll give you one example. In Illinois I could give you 30. Marijuana until recently was illegal to possess and to use, and me and my friend nevertheless broke those laws in high school and college. And that’s one reason I was passionate about representing kids in the juvenile detention center. Black kids were arrested for marijuana possession at seven or more times the rate of white kids in Illinois.
And everybody who studies the question agrees that the usage rates were not higher, in fact, because white kids on the average have more money. It’s quite likely that they used a bit more. Same thing with stop and frisk. I mean, treating black people as second class citizens isn’t good law enforcement. We have a consent decree settlement agreement actually involving the stop and frisk practices in Chicago. When we looked closely at it, I mean, people were just being stopped for no good reason.
It wasn’t that there was a principled offense pattern. There was nothing except prejudice and sloppiness on the part of many of the Chicago police, not all. There were good stops -- but many. So let’s not ignore the racial aspect of the problem, too. It’s not the only problem. Sometimes my compatriots and allies may overstate it as the answer to everything, and I recognize there are more things involved. But treating a category of people as second class citizens isn’t good policing.
Hon. Elizabeth “Lisa” Branch: Jesse, I have a question for you. When you were at the Department of Justice -- and the consent decree process did exist, but perhaps on a much more limited basis -- but how were cases selected at the Department of Justice? Who approves that selection? How does that work?
Jesse Panuccio: Thanks for that question. I think the answer is who knows? Things are reported. Things come to light. But there is a cadre of lawyers at DOJ whose job it is to go out and find these cases. And so they will I think as Andy said sort of follow a political controversy into a community and say, okay, we’ve got to put out a report to show we’re doing something, and then we’ve got to go in and have a wide ranging consent decree and cut off any local solutions.
So when I was there, I think I heard that they’ll get reports from the public or they’ll find things on social media, et cetera. And that’s not -- I’m not sure that’s how local government should be taken over or processed in this country. I think there are deep issues. And we don’t see any process around that. There is no DOJ policy or standard for which cases merit a consent decree and which don’t.
And that gets to a fundamental problem, and I think it responds to some of what Ben was saying which is, look, there are real tough societal problems out there -- children in the foster care system, prisoners, racial justice in policing. It turns out that in society everywhere since the beginning of time everybody’s got problems, and they all think they’re serious. And there’s only limited resources of the government to spend on those problems. And some people win, and some people lose. It’s a zero sum game.
Now, we in America and our Framers came up with something ingenious so that we could all have a say in how that problem gets resolved. It’s called legislatures elected by the people. And you go to a legislature, and you plead your case. And sometimes you win, and sometimes you lose. And most often you get half a loaf. And everybody feels a little pain, and we disperse it throughout the society.
But what happens in these consent decree cases is one group that gets represented by a powerful public interest firm like, say, the ACLU or some other gets a stranglehold on those resources and gets to say, we get 100 percent of the resources that we need to solve our problem. And if anybody else isn’t politically powerful enough to get one of those groups behind them, too bad, so sad, go to the legislature and see what you can get. But you’re not getting a federal court to demand the resources for you. And to me, that is just undemocratic, and it goes against the fundamental way we solve problems in American democratic society.
Hon. Elizabeth “Lisa” Branch: Robert, I mentioned and you also mentioned your 1987 article about federal consent decrees. How have your views changed over time, and do you have any concerns now that you didn’t have then?
Prof. Robert Percival: Well, I know a lot more about consent decrees than I did then. I think it was actually the first academic article I ever wrote. I was just in the process of joining the University of Maryland to start their environmental law program. And one thing that sort of stung me was I was sort of personally attacked by Mike McConnell who suggested that I had been involved in the Flannery decree that he was attacking in his article and just trying to feather my own nest. I had no involvement at all. My group had signed on as one of the many groups that supported the litigation, but it was NRTC who brought that. And I was working for the Environmental Defense Fund.
And there’s been sort of a steady evolution that the concern back then was undermining democracy. And I think that’s almost laughable compared to the current concerns about very real things that are undermining democracy. Then back in 2012 I testified before a house committee on sue and settle. The concern there was that the Obama administration would enter into collusive settlements with environmentalists in order to do things that wouldn’t otherwise have been able to do under the statute. And I pointed out all the safeguards against that, and it just didn’t happen.
This morning’s Wall Street Journal has an op ed from Peter Wallison saying maybe sue and settle is coming back because of the controversy over whether or not the Justice Department will agree to damages awards to parents who were separated from their children. I would say the most important piece of evidence that sue and settle is not back in the environmental context is the Juliana litigation where a group of children actually at the end of the Obama administration sued the Justice Department with a very novel complaint. They said our substantive due process rights have been denied because the federal government’s done nothing about climate change while promoting use of fossil fuels and that we have a constitutional right now and in the future to have an environment free of the dangers of climate change.
The Justice Department in the Obama administration fought that tooth and nail, as did the Trump administration. Now that their lawsuit was rejected by a panel of the Ninth Circuit on standing groups on the redressability prong of standing, the plaintiffs have filed a motion to amend their complaint to say they no longer want the court to direct reductions in greenhouse gas emissions; they just want a declaration that we have this substantive due process right. And they were ordered to enter into settlement negotiations with the Biden administration.
The Biden administration refused to settle with them. And just this week the plaintiff’s issued a press releasing saying that negotiations have broken down. So I think that -- it’s almost like the war on Christmas coming back that people get all exercised about these things and it later proves just simply not to be true.
Hon. Elizabeth “Lisa” Branch: Robert, I think Jesse again has something to say.
Jesse Panuccio: I’ll just respond on that. Yeah, it’s not a panel necessarily on sue and settle, although consent decrees are essentially sue and settle often for the other side. I mentioned those political incentives at the local level. But I’ll just say this because I can’t resist. To use the Juliana litigation as an example of sue and settle not coming back, the underlying legal theory is so patently absurd that no lawyer could bring themselves to say I would settle a case like that. I think the fact that the children of the world have a substantive due process right to have a federal judge oversee omissions is probably a step too far even for the Obama or Biden Justice Departments. But I promise you sue and settle is on its way back because all of the other memos we put in place to stop that have also been withdrawn, which is a panel for another day.
Hon. Elizabeth “Lisa” Branch: All right. We’re going to turn this over to audience questions, and I can already see my friend Mike is on his way up there. Just as a quick reminder, if you’re addressing it to a specific panel member, please let us know. If you would say your name and if you could ask the question and not do the speaking question, that would be helpful too.
Michael Buschbacher: Michael Buschbacher from Boyden Gray Associates. My question I think is primarily for Professor Percival. You mentioned that consent decrees are about enforcing the law. But going back to 1986 the Supreme Court said in the Firefighters case that in fact consent decrees can have things that not only are beyond what the law would allow if you litigate a judgement but can even go against what you could get there.
And so what I’m curious about is with that level of flexibility -- and that’s how it works out in the environmental context, for instance, with supplemental environmental projects which everyone agrees are things you cannot get if you litigate to judgement. With that flexibility built into the law it seems to undermine that point, and I’m curious for your thoughts on what limits exist and why they exist and whether the Supreme Court is right in the Firefighters case and why.
Prof. Robert Percival: Okay. With respect to supplemental environmental projects, when I was first asked to be on this panel, the first thing I said is, is it in person? And I was so pleased they said yes. The last time I was on such a panel I was speaking in Adelaide, Australia in March 2020 at a conference of the International Network of Environmental Compliance and Enforcement. And it was just as the Jeff Clark memo on supplemental environmental projects was about to be issued.
And the various experts on environmental enforcement from all over the world were puzzled. Why is the U.S. wanting to eliminate supplemental environmental projects? In Australia they’re called EUs, for environmental undertakings, because they essentially are designed to mitigate the harm that’s been done by an environmental violation by doing something that’s going to help correct the harm that had been caused by the violation. So I thought Clarke was kind of out there -- well, I won’t talk about his subsequent activities, but in that memo and that it’s a good thing that they are being restored.
Now, as you say, the courts have held that you don’t necessarily -- that details that are in the consent decrees could go beyond what you might be able to get in litigation. I submit that consent decrees -- we’ve evolved a lot from the initial effort to desegregate the schools that confronted judges in almost a weekly basis with what is this agency supposed to do? Do we have busing? Do we have all these other measures to try to desegregate the schools?
Now, consent decrees are a tool that can help judges in an enforcing things such remedy and constitutional and statutory violations. And I believe the Department has been pretty careful in both Democratic and Republican administrations in not trying to use consent decrees as a vehicle to feather their own nest but trying to tailor them to how do we remedy specific violations. And that may require things that you wouldn’t necessarily get if you just left it to the judge to make all these decrees.
Hon. Elizabeth “Lisa” Branch: All right. My friend Mike is up next.
Mike: And so as a friendship request I will personally just ask a question. All right. So could each of you talk a little bit about backdoor examples of packing consent decrees? Because it cuts both way. My experience with the FTC -- I’m not a lawyer. I negotiate against them. I just walked away because they wanted a gag order and cookie cutter -- 20 years -- everyone was 20 years. There was no negotiation. It was take it or leave it. And so what have you seen that you’ve tried to backdoor in this race or seen that’s been trying to backdoor to defend the defendant or to help the government’s position? Because I don’t think they’re really cookie cutter.
Jesse Panuccio: Maybe I don’t quite understand. You’re asking whether the defendants in these cases sometimes get provisions that they want into the decrees?
Mike: Well, in my personal opinion that’s kind of rare. But I was trying to be fair. My opinion is it gets jammed down our throat, and it’s a gun to your head to take it or leave it because it’s cheaper to leave. But I’m trying to be more objective than that.
Jesse Panuccio: I think it depends what you’re talking about. If you’re talking about a consent decree with a private party, as with any federal prosecution the choice for a defendant is often this or something worse if we go to trial. Now, I will say for consent decrees the worst is usually going to be major fines or prison time, not necessarily -- because the DOJ, in my view, could not get most of these structural things that they want in litigation to judgement because the law doesn’t authorize it. And that’s the big problem.
Now, with state and local governments it actual does work both ways. It might have been Ben or Bob who said this, but a lot of times these governments want very prescriptive things now in there. I mentioned this in my comments. One of the reasons the local enter these decrees is the controversy is political, and once they say, we have a decree; problem solved, they can just say, it’s off my plate, and now I’m running for my next thing; and that won’t hurt my election anymore. So you do get defendants assenting to these probably when they shouldn’t.
And it’s a huge problem. I mean, as a former state official who came in and had to deal with legacy decrees, you’re basically handcuffed. I remember quite clearly when I went to work for the governor of the third largest state in the country and we had all these ideas on the environment or this and that. And I said, sorry, we can’t do that because 35 years ago one of your predecessors who’s no longer alive entered a consent decree. What is that? It just doesn’t make any sense in terms of government.
Benjamin S. Wolf: I don’t know much about the FTC problem that you alluded to. I apologize --
Jesse Panuccio: How fortunate for you.
Benjamin S. Wolf: But there’s something I want to say broadly responding to the next -- the first two questions. The right and the problem of violating a foster kid’s right to minimally adequate care and not to be in dangerous conditions or a prisoner’s right to healthcare doesn’t tell you how to fix it. And actually some of the conservative literature makes this point effectively, I think. And I agree with it.
So very often remedies have to reach into things that are not necessarily the direct application of the right. I mean, if all you did was remedy the right, you’d just have a declaration saying they’re violating somebody’s rights; figure out how to fix it and submit a plan. And there are some decrees that are more like that. And I actually don’t think that’s so bad. The defendant gets the first opportunity to try to fix it. They usually fail, and then you work with experts and try to figure out how to fix it more subtly. Those things inevitably involve something a judge after a trial wouldn’t order in the first place, but the process would emerge that way.
For the critics of consent decrees, I would ask -- I mean, I think the Prison Litigation Reform Act pretty much gave you everything you want in terms of restrictions on the scope and duration of consent decrees and judgement. In prison litigation -- and I do prison litigation along with other things. And the statute has had a significant effect on pro se prison filings, and we can debate the merits of that. I think they lost some good ones, but they also lost a lot of frivolous ones I admit. I don’t think it’s had as much effect on class action litigation of the kind that I do. A defendant can move to terminate the whole process after two years if you have a consent decree and make the plaintiff reprove liability.
But the problems are hard. And my cases at least, yeah, we can reprove liability. We have court appointed experts or our own consulting experts if the problem is still there. And defendants don’t even file that motion because the constitutional problem and the human suffering is still there. They don’t want a court to have to hear all that and the public to have to hear all that. So in some ways, the notion that these things last forever or that they’re inappropriate restrictions on state and local discretion is disproven by the experience of the Prison Litigation Reform Act. I don’t mind the Prison Litigation Reform Act most of the time, except the low attorneys fees and a few things, because I can prove liability 10 years into a case. If it’s not still bad, what am I doing? So that’s a total digression from what you were trying to find out about.
Mike: That’s all right. I wish the FTC was outside of that.
Andrew McCarthy: To go back to the Minnesota example -- and my point is the one that Jesse’s made much better, which is that you’re going to have a sweeping resolution or a sweeping prescription on the basis of a very finite, narrow problem. If what is the trigger for having a consent decree ultimately -- or some kind of a resolution in Minnesota is an incident involving use of force where on a fairly interesting, dynamic criminal law episode a police detention that starts out legal evolves into criminal assault because excessive force is used and despite all of the testimony in the trial where the one police officer -- one police expert after another says, what happened out on the street as it evolved is a departure from our procedures, that we train day after day after day and log -- and every single cop has a schedule that he or she has received this training day after day after day.
If that’s going to be the trigger for a pattern or practice investigation -- and I do think -- we haven’t talked too much about this, but I think part of the problem with the pattern of practice investigation is that when Congress put it into the law in 1994 there’s no objective metrics for what triggers it. They can just decide, you know, we think we need a pattern of practice investigation. If you’re ultimately promulgating settlements that are 300 pages long and 799 paragraphs long, then you’re not dealing with a narrow issue of excessive use of force even assuming the proof that came out at the trial suggested that it was necessary to deal with that issue in some kind of a supervisory, systemic way.
So I can’t speak to environmental litigation because I don’t know enough about it or the FTC or even your prison experience. But what I see happening time after time after time with police and law enforcement is that a single incident is used pretextually to draft what turns out to be a charter of how policing is to be done. And that is just wrong.
Prof. Robert Percival: I would just point out that consent decrees can be modified. The Flannery decree the court modified it six different times. So if it’s not working the way it’s supposed to -- and in order to be entered, the parties have to agree to it. So if they’re willing to do things that go beyond what a court might order as a violation of law because it would make it less likely that the violation would happen in the future, they can agree to that. And that does happen.
Hon. Elizabeth “Lisa” Branch: Thanks, Mike. Yes?
Unidentified Speaker 3: A conman is still a conman, even if he doesn’t rip off every one of his business associates. And a serial killer is still a serial killer even if he lets one of his kidnap victims go free. As a matter of logic pointing out an exception does not defeat the rule. I’m somebody who does fear that sue and settle is coming back. And my worry is accentuated by the fact that Joe Biden after saying that the reports were garbage -- he then changed his mind I guess after being propped up, given his drugs and being told that Bernie’s back in town.
So what I’m wondering fearing that sue and settle’s coming back, is there an argument that’s better than pointing out one solitary example? Because, again, the example does not defeat the rule. And second question is in my view my fear is that the ACLU is joined at the hip with the DOJ. Are there ways to stop that from happening?
Benjamin S. Wolf: We aren’t. We fight with DOJ all the time irrespective of the administration. In my career I’ve sued more Democrats than Republicans. Rob Blagojevich was the worse governor Illinois ever had, not just because he was a crook, although that was a factor. I think the dynamic of DOJ cases is very different than of the kind of cases we do where we represent the actual people who are suffering. And I don’t want to say too much about that.
But the one instance of sue and settle that I saw in Illinois where we were looking at possible litigation was the Cook County Jail healthcare case, which, by the way, caused huge positive changes. And the reason the defendants settled right after the suit is because there had been a long DOJ investigation with expert reports that were public. And this stuff should be transparent. References to gag orders always scare me as an ACLU lawyer. And it was obvious the problem was horrible.
And so when DOJ sued, they had already negotiated a consent decree. That didn’t strike me as a big problem. I haven’t seen the kind of collusive stuff that it sounds like you fear. I just haven’t seen it. In our cases, we sue and have years of discovery and fights. We don’t settle right away almost ever.
Unidentified Speaker 3: Can you speak to the immigration litigation and giving each illegal alien $450,000?
Benjamin S. Wolf: Well, I think that was just a -- I mean, everybody acknowledged that something horrible had been done. It was just a question of what to do about it. I didn’t work on it. That’s a national ACLU case. Money settlements in cases where something horrible has been done happen all the time. Was that particularly unusual? I don’t think so.
Andrew McCarthy: May I say one thing about that? This will cut against my diatribes against settlement decrees, but I do think that you’re hitting on a different and related problem, which is what to do -- what do the people who are saddled with a problem do when Congress is AWOL on something Congress needs to address? So you have in the immigration context a literal application of federal law that says that people who come in under the circumstances that the migrants we’re talking about come in shall be detained. That’s that federal law says.
And then there’s a whole different channel of law that deals with children. And it starts to deal with unaccompanied minors, but because it’s a much more complex problem, those principles end up being extended by courts because they’re not getting any guidance from Congress to accompanied minors or people who present as a family unit. Now, if you -- I think what bothers me and what bothers people who are annoyed by the exorbitant amounts that have been reported in connection with these settlement talks is it’s counterintuitive to think that you can literally apply federal law and have caused tortious emotional harm to people such that should be rewarded under circumstances where they came to the country illegally.
And even though there’s a harm, if somebody has to be responsible for the harm, it’s the people who shouldn’t have come here in the first place. But the fact of the matter is the reason we have the problem we have is if you literally apply the law, then you are separating children from their parents. And that’s a fact. That’s what the federal statutes say.
Now, whether people should get a payday out of that -- and I don’t mean to minimize. I know that there were terrible damages that was done and emotional harm that was done by virtue of what happened. I saw it myself for 20 years as a prosecutor. Every time we prosecuted somebody for a serious crime, the family was effected, and they were emotionally distraught over it. It’s part of what happens in law enforcement. But I do think a big part of the problem that we’re dealing with here I don’t like all the experimentation that the courts do. I don’t like it when the Justice Department sees a statute that says shall be detained and they decide that they’re allowed to parole people into the country because they’ve let more in than they have housing for.
But the fact is if Congress doesn’t step up to the plate and provide guidance in these places in the law where you need guidance from Congress, it’s tough to blame the people who the problem falls in the lap of for groping for a solution, which is, I think, a lot of people in good faith are trying to grope for a solution. That doesn’t mean everyone should get a $450,000 settlement. But a big part of the problem here is political paralysis more than anything else.
Jesse Panuccio: Let me just add one thing here without wading into the necessary controversy, but I think I can tie this question back to consent decrees.
Andrew McCarthy: Oh, yeah. Right.
Jesse Panuccio: The issue that federal agencies were dealing with— the Obama administration, the Trump administration and now the Biden administration— is that in the 1990s the Clinton administration agreed to a consent decree in California called the Flores consent decree. And it now controls this policy. And no federal officer has been able to figure out a way to get out from under that consent decree and have proactive policy change or implement any new policies because every time they try to do something they have to go to a federal judge in California, and they have to go to this plaintiffs group that sued 30 years ago and got what they wanted. And that has led in part to a very difficult policy situation.
There’s a lot of other things that feed into it, but at the root of that issue is a consent decree that has not gone away and will never go away. And nobody knows a way out of that box because there’s a federal judge behind it who doesn’t have to answer to anyone and can say, this is what we’re going to do even if the agency officials involved want to come up with a different policy solution.
Benjamin S. Wolf: So there are very conservative principles now post-Rufo in the 90s about modifying consent decrees. And the defendants failed to meet that standard in their effort to modify or get rid of the Flores decree repeatedly. It turned out when you unpacked it they weren’t saying something principled enough to persuade the judge on the Ninth Circuit. I mean, I don’t know enough about it to know who’s right. But there was a real discussion of it, and they lost.
Hon. Elizabeth “Lisa” Branch: All right. And I’m going to introduce the next audience member who is going to ask a question. This is my current law clerk, Seth Cohen. And I’m also pleased as I look around the room I see former law clerks of mine, current law clerks of mine, and future law clerks of mine.
Jesse Panuccio: I was wondering how we got such a full audience.
Seth Cohen: Well, after that, I’m going to hope this isn’t a sophomoric question. So the Constitution permits Congress to abrogate state sovereign immunity to enforce the Fourteenth and Fifteenth Amendment. But as the Supreme Court has told us, even that has limits. And separate sovereignty and equal dignity afford to separate sovereigns does eventually weigh out when factual circumstances change. So I guess in light of Shelby County v. Holder, might there be a constitutional problem with these perpetual consent decrees, both the one that we’re talking about in California and, for instance, the one in Chicago?
Benjamin S. Wolf: A problem based on the autonomy of states? Is that what you’re --
Seth Cohen: Yeah. And the fact that the factual circumstances in many of these cases do change over time, even if it doesn’t necessarily produce the remedy that the parties -- to which the parties initially consented.
Benjamin S. Wolf: You want to start, Jesse?
Jesse Panuccio: It’s not sophomoric. It’s a very law clerk question. It’s deep in constitutional theory. Look, I think there are constitutional problems with these. Whether it’s tied into that specifically is interesting to think about. But I think I want to say something related that is related to something Ben said as well, which is you have these federal rights -- so let’s say it was a permissible federal statute that is addressing some constitutional violation.
But there’s another dynamic going on, which is -- and it’s the same thing like you have a political dynamic of why local officials will enter these decrees. But the statutes that get sued under are often these environmental or civil rights statues that really don’t solve a problem because that’s not really the business Congress is in. Congress is in the business of solving its political problems. So society gets loud about some issue, and they say Congress must act.
So Congress passes some vague statute with standards in it that states need to meet. They don’t fund the mandate, and then they say, go meet it. And then plaintiffs can go out and sue and say you’re not meeting this vague statute that was passed. And then you have to come up with the remedies in court.
So there’s a dynamic going on at Congress as well. And I think part of your question would be are those vague statutes that become the basis for the underlying lawsuits themselves constitutional. And maybe the question is, well, you can’t look at the statute itself. You have to look at how they’re applied and practice. And if they’re applied and practiced with a 30 year consent decree that changes over time, maybe the Fourteenth and Fifteenth Amendment do have something to say about that.
Hon. Elizabeth “Lisa” Branch: Anyone else?
Andrew McCarthy: I would just say it would seem to me that the way these litigations go and as Jesse’s pointing out the way the question was teed up, pretty standard cannons of interpretation would sort of push the constitutional problems to the back. So if you can resolve these disputes without having to reach these fundamental questions, that’s what you do. I don’t know that if we were Congress instead of a litigation process dealing with a problem you would like to see them go right to the fundamental problem. But I think the way litigation works it just doesn’t work that way most of the time.
Hon. Elizabeth “Lisa” Branch: Thanks, Seth. And we have time for one more. You’ve been waiting at the back for the longest.
Richard Benenson (sp): Richard Benenson of the Chicago Lawyers Chapter. Thank you for sharing your wisdom with us. I’m curious from a criminal justice perspective -- we talked about the Chicago consent decree. And then shortly thereafter in spring the legislature passed a significant criminal justice reform bill, including standardized police behaviors in the statute. And then in Texas you have the Houston consent decree or Harris County about cash bail abolition for misdemeanor crimes or charges. And then the Texas legislature in special session just passed a significant bail reform.
So I’m curious do you see perhaps a positive interplay of consent decrees forcing states to actually address some of these concerns from a legislative perspective, or if the administrative cost of compliance are actually too high to justify what’s occurred in those two specific jurisdictions? Thank you.
Benjamin S. Wolf: Legislatures certainly have the ability to push back. In my experience when they talk about doing that -- and I don’t know the specifics of some of the things you mentioned -- the state authorities who settled the case -- or the local authorities end up telling the facts, and they back off. One example. The director of the Department of Children and Family Services in Illinois who was the defendant in our case -- and there was one director in particular who was very gifted and won national awards and worked with us constructively to fix a lot of the problems and help kids get out of the system safely.
Some of the people in the state senate thought that the consent decree was getting in the way of the legislative process, much in the way that everybody talked about up here. So they proposed legislation that any new consent decree that would cost over a certain amount or involve certain kinds of restrictions on state authority would have to be approved by the legislature. The attorney general, who was, I think, a Republican then, the director of the Department of Children and Family Services, and the governor’s office all opposed it and said, we don’t want to have to come to you and have to explain how bad it is and why we’re doing this.
I actually didn’t think it was a big deal. Look, if they want to have a trial, we’ll have a trial. But it’s the very people running state government that I think for legitimate reasons don’t want to prolong the process of trying to address these problems with a consent decree.
Hon. Elizabeth “Lisa” Branch: Anyone else? All right. Well, that is going to conclude our panel. I’d like to thank the panelists and the audience for joining us today. And just a reminder that the next convention event you’ll have three panels to choose from. Those events will start at 1:45. And thank you all for being here today.
2021 National Lawyers Convention
2021 National Lawyers Convention
|Topics:||Culture • Politics • Separation of Powers|
Political polarization is a great problem of our time. This panel would consider the separation of powers deformation that is a factor in polarization. Executive branch administrative decisions tend to be more extreme than legislative solutions, particularly when, as is usually the case, the houses of Congress and the President are divided among the parties. Thus, Congress’s delegation of policy decisions to the executive branch results in extreme regulations that can shift radically between administrations, creating government by whiplash. The panel would consider whether institutional restorations, like the curbing of delegation and Chevron, might help in restoring a constitution of compromise.
2021 National Lawyers Convention
|Topics:||Corporations, Securities & Antitrust|
The Federalist Society’s In-House Counsel Working Group presents a panel discussion featuring top in-house attorneys at publicly-traded and privately-owned companies, who will shed light on the current state of corporate law and governance, reflect on challenges they face in day-to-day practice, and present an overview of the in-house legal world to newcomers and experienced lawyers alike.
2021 National Lawyers Convention
|Topics:||Culture • Intellectual Property|
A perennial debate about intellectual property and culture is how intellectual property laws enhance or restrict the ability of people to contribute to and build a culture. The Supreme Court has described copyright as "the engine of free expression," but criticisms frequently arise when intellectual property law prevents people from using the work of others to express themselves. In the trademark context, recent Supreme Court decisions struck down the prohibition of federal trademark registration for immoral, scandalous, and disparaging marks as a violation of First Amendment speech rights. Some argue that the Court’s reasoning should further be applied to strike down most federal Trademark Dilution claims, which allow brand owners to sue those who use their trademarks in ways that blur or tarnish the trademark. The debate regarding copyright fair use also continues to rage on, pitting the rights of original creators against the ability of appropriation artists and others to use those original works.
This panel will consider these longstanding controversies in light of recent developments.
2021 National Lawyers Convention
|Topics:||Corporations, Securities & Antitrust|
The past year has seen an unprecedented number of political and legislative suggestions for altering nearly every aspect of U.S. antitrust law. If adopted, these proposals may redefine the American economy and consumer marketplace. Hear from leading legislators, antitrust luminaries and policy makers about the potential upcoming antitrust revolution.
2021 National Lawyers Convention
|Topics:||Culture • Labor & Employment Law|
The average United States workplace has changed in many ways over the past twenty years. The development of modern internet, computers, and smartphones shifted corporate America fully into the 21st century. The changes, however, have not been only technological in nature. New HR practices can now be found in more and more companies, both large and small. In the same way the iPhone modernized how U.S. workers communicate, new progressive HR policies seek to modify several aspects of workplace interaction. Our panel of experts will discuss the school of thought and fundamental reasoning behind these policies, as well whether these changes are helpful or harmful, or something in between.
Pepper Crutcher: So a new customer walks into a tailor shop, announces he wants a $10 sport coat. And the tailor says, "You want this sport coat to be made out of what sort of material?" And the new customer says, "Oh, you know." And the tailor says, "Very well then. Unicorn hair it is."
Welcome to a discussion of today's hottest trend in personnel management. I'm sure our panelists will have other things to say about it as well. Before I get further, let me tell you who I am. I am Pepper Crutcher. I'm the Chairman of the Labor and Employment Practice Group, and I am directed to give you two pieces of preliminary information. One, if you're not eating, you're not drinking and you're not speaking, you should be wearing one of these lovely masks. They're available over there on the other side of the hall by the sack full. Thank you very much.
I have the honor to introduce our moderator today, Judge Paul B. Matey of the U.S. Court of Appeals for the Third Circuit. Judge Matey was appointed by President Trump on March 18, 2019. Before his judicial service, he was a partner at Lowenstein Sandler, New Jersey where he practiced complex commercial litigation and criminal defense. Earlier Judge Matey was the Senior Vice President, General Counsel and Secretary at the University Hospital in Newark, an academic medical center and teaching hospital. He also served as the Deputy General Counsel to Governor Chris Christie and as an Assistant United States Attorney in the district of New Jersey, where he was awarded the Justice Department's Directors Award for superior performance. Judge Matey.
Hon. Paul B. Matey: Well, good afternoon everyone, Pepper. On behalf of the entire panel, thanks for that kind introduction. Pepper set himself up for the toughest of challenges by opening with a joke. I thought it succeeded, but I'm a poor judge of humor being a judge, so there you go. There you go.
And thanks to everyone at The Federalist Society, including Dean Reuter, of course, for this extraordinary set of conversations. It's such a delight to be back with everyone, friends new and old, in person at this convention. It's always a pleasure to moderate one of these discussions, and I was particularly delighted to join this particular conversation as it touches upon an issue of personal interest to me, an area at the intersection of policy and precedent, social norms and statues, cases, controversies, and careers. I speak, of course, of the age old struggle between corporate HR and in house counsel. Anyone who has ever worked inside a business or advised a corporation know well what I mean. In my time as a general counsel and in my work as a lawyer, it was always a safe bet that the employment matters meant extra hours on the time sheet and extra Advil on the way home, as I think it should be.
As the introduction to this session notes, the American workplace, well, it scarcely resembles the one that I joined some 25 years back. Nearly every expectation once fundamental to work has given way to new thinking, opening up opportunity but assuring well founded concern, concern about how to create working environments, the nature of the firm itself, and who should be at the charge for change.
Law, in my opinion, is the predictable standard that allows for a steady and sure organization. Policy, well, it's the engine of innovation, the catalyst for tomorrow. It's HR versus legal all over the country in a fight that can only have one winner, say some. Or perhaps new solutions or even old solutions can chart a course that balances our commitment to the rule of law with our commitment to betterment of America's economy.
We are fortunate to have three experienced voices on today's panel to help us explore these issues, beginning with Sharon Gustafson, the immediate past General Counsel of the United States Equal Opportunity Commission, where she helped lead the enforcement of Title VII of the Civil Rights Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act. A graduate of the Georgetown Law Center, Sharon is an experienced litigator and councilor representing employers and employees in federal and state workplace matters. We'll begin to today with Sharon's remarks and then continue through the panel.
Hon. Sharon Fast Gustafson: Thank you. I'm happy to be here today. For 30 years, I have been an employment lawyer, representing both employers and employees in the workplace. I have been watching employers operating under Civil Rights laws for a long time. I've been asked to talk about the diversity, equity, and inclusion agenda that is currently taking HR departments by storm.
Reading up on DEI in the workplace, one would get the impression that the DEI agenda is fueled by employer desire to comply with a legal obligation. I can summarize very briefly what the federal employment Civil Rights statutes say about diversity, equity, and inclusion. Nothing.
When I was at the EEOC, I saw eyes widen and jaws drop just a bit when I noted that none of these words appeared in the statutes that the EEOC enforces. Instead, Title VII and related employment statutes forbid discrimination based on race, sex, religion, color, national origin, age, and disability. Far from commanding diversity, equity, or inclusion, Title VII expressly states that it does not require affirmative action where employees of a protected group are underrepresented in the workplace. In fact, Title VII expressly forbids an employer from being motivated even in part by any of these protected characteristics in any employment decision. The Supreme Court has held that even any voluntary affirmative action program is permissible only temporarily and in narrow circumstances.
Whether we should enact statutes that command diversity, equity, and inclusion, is another question. My answer is no, we should not enact such statutes. My opinion does not arise from a denial that diversity, equity, and inclusion can be good. Racial and ethnic diversity are beautiful and beautifully American, whether in the neighborhood, in the house of worship, or the workplace and everywhere else. Nor does my opinion arise from a denial that illegal discrimination still happens.
When I was at the EEOC, we had the case with evidence that black oil rig workers were forced to work outside in the heat, while white oil rig workers worked inside in the air conditioning. In another case, I saw a video tape of an employer defending himself to the police by saying, "I'm a good employer. I mean, I'm not going to hire Mexicans or blacks or homosexuals, but I'm a good employer." The problems persist.
But nonetheless, for two reasons, the law requires and should require only non-discrimination. First, favoring people by identity groups in order to achieve diversity is by definition discrimination. DEI encourages and rewards illegal discrimination. An employer cannot discriminate in favor of applicants or employees in one protected group without discriminating against applicants and employees in other protected groups. An employer giving favored treatment to Hispanics is giving less favored treatment to African Americans, Asians, and everybody else. Such a hiring practice may be well intentioned discrimination, but it is nonetheless discrimination. And when you are on the negative end of it, it hurts.
As Chief Justice Roberts stated in his Parents Involved opinion, "The way to stop discrimination on the basis of race is to stop discriminating on the basis of race."
Sharon Fast Gustafson: We can't stop it if we keep doing it. Recently some prominent corporations announced they would achieve a certain percentage of increase in black executives and employees over the next five years. These sorts of quotas mean that employees outside the categories given preferential treatment will be given inferior treatment. Employers should be on notice. Two week ago, on October 28, a federal jury in North Carolina awarded $10 million to David Duvall, a former executive of Novant Health, after he put on evidence that he was fired because he's a white man and his employer was trying to diversify.
Americans believe that we have all been created equal and we must be treated as equals under the law. To be sure, we achieve this aspiration most imperfectly. And individuals, aware of the unfairness of life that is visited some in disproportion to others, should serve those most in need. Contribute to causes designed to level the playing field. Volunteer time mentoring, serving, foster parenting, helping in any way possible. Do it early and do it often. Follow a few disadvantaged children all the way through school helping wherever you can because when those children reach the doors of the workplace as applicants and employees, the law requires that they must be treated as equals with all other applicants and employees without discrimination in their favor. To do otherwise would not only be illegal, it would be misguided.
Consider the Coca-Cola former general counsel who directed the company's lawyers to staff Coca-Cola's cases with a quota of minority lawyers. It is easy to see how such a requirement is not only illegal, but counterproductive. The minority lawyers who were supposed to be helped by such a requirement are suddenly under pressure to put in large numbers of hours working on Coca-Cola matters when they may prefer doing other work.
The second reason the law should require only non-discrimination and not DEI is that law and litigation by their nature are exceedingly blunt instruments. Ultimately the evils and wrongs of the workplace are failures of love. They are at bottom spiritual problems that the civil law can imperfectly manage but cannot cure. The best we can do to remedy discrimination is to pass laws making it illegal and then to diligently enforce those laws.
A third problem with the current DEI agenda is what it omits. DEI discussions make almost no mention of religion, one of the great protections of our legal system, explicitly protected in Title VII. I don't wish that employers were inquiring into the religion of applicants and employees. However, the omission of religious diversity in the discussion of DEI has troubling congruity with the same omission now being made in employer policies about discrimination. Twice very recently I have seen employer discrimination policies that simply excise religion from the list of protected bases. It seems that the current mood, so intent on protecting racial and sexual equity, overlooks the constitutional and statutory protections for religion.
Earlier this year, the same administration pushing DEI on the public shut down the religious non-discrimination work group at the EEOC and put its work product down the memory hole. It is not as if religious discrimination is not happening. Employees who are weekend pastors have been terminated from their day jobs because of sermons preached on the weekend. Alaska Airlines invited its employees to comment on the airline's support of the proposed equality act and then fired to flight attendants who took their offer and raised religious concerns about the proposed law.
Kroger grocery stores fired two long-time religious employees, a cashier and a deli worker, who requested to substitute their own navy blue aprons for store aprons bearing LGBTQ pride emblems. The list of these cases is very long.
When it comes to religious diversity, DEI champions fall silent. Much of what is called diversity, equity, or inclusion appears to be an effort to make everyone conform to thinking the way that those in power think. It appears less tolerant and less diverse than old fashioned non-discrimination.
We live in the best country in the world, but even it is populated by and governed by fallen human beings. Some of hope that when Jesus returns to set up his kingdom, we will see perfect justice and perfect love in the workplace and everywhere else, but in the meantime, we do not live in utopia. Rather, we enact laws that help us approach proximate justice. Non-discrimination and equal opportunity is the best we've got. Even if we could somehow irradicate all discrimination made illegal by our employment statutes and we could achieve perfectly proportioned diversity, equity, and inclusion without violating any of those laws, we would find that we had still not addressed rampant discrimination based on class, education, intelligence, philosophical beliefs, beauty, body size. And that list stretches on, practically speaking, to infinity.
I'm stressing today the inevitable limits of the law, the EEOC, the courts, and the HR departments. If this seems defeatist or despairing, I insist otherwise. Instead, I believe that a futile perfectionism, a demand for perfect equity would distract us from the great good that we have accomplished and must continue to accomplish by opposing unfair discrimination on the basis of race, color, religion, sex, national origin, and disability. Illegal discrimination still exists. I've heard years of employees' stories and I've read the hate speech on the public restroom walls. Nonetheless, Americans have in large part embraced Martin Luther King Junior's dream that all people will be judged by the content of their character and not by the color of their skin.
The Civil Rights laws have been successful, not perfectly successful, but enormously successful in resisting and suppressing such discrimination. Let's not start now discriminating in the name of diversity, equity, and inclusion.
Hon. Paul B. Matey: Sharon, thank you for those remarks. It's my pleasure next to introduce Daniel Villao, the Chief Executive Officer at Intelligent Partnerships. Dan brings decades of policy experience, specializing in innovative and accessible workforce design, transforming businesses while adding value. He is the immediate past chair of the National Board of Directors for the Association of Latino Professionals for America, the former Deputy Administrator in the Office of Apprenticeship for the U.S. Department of Labor, and the author of Beyond Green Jobs, addressing diversity and climate change solutions. Dan, it's a pleasure to have you today.
Daniel Villao: Well, first of all, I'm grateful for the opportunity to appear here and chat about DEI and access issues. HR is evolving and, as was just pointed out so eloquently, there's a challenge between the law and what is protected against what the public is demanding because the people of America have embraced diversity in a very real way, but corporate environments have not. So the tension then is how do we evolve into a space that makes sense.
The reality is that what you should probably know about me first is that I'm not a lawyer, so you can use your filter on my words based on that. I am also -- don't come from the pedigree that's represented in this room, education-wise. I'm just a kid from a neighborhood in LA who worked his way up through the ranks. And I have had the privilege of serving both our government and private corporate environments in evolving the opportunities that they generate, both for businesses and their employees, in a way that's significantly meaningful. And so our lens at Intelligent Partnerships is not one of advocacy. We're not trying to create reparations or get our pound of flesh. Our purview is from what makes business sense.
As I shared with the panelists on a previous call, if it don't make money, it don't make sense. And corporate environments are not going to adopt these policies if there's not an interest in the bottom line return on investment and there's not genuine value. And so diversity, equity, and inclusion does make financial sense.
Case and point, a couple of years ago, a few years ago now, State Street Financial spent a lot of money marketing a golden statue that they placed in front of a bull out there on Wall Street. They didn't overnight decide that women needed to be empowered in the marketplace. They didn't overnight discover that the women in their organization were smarter than the men in their organization. What they discovered was that fund performance had a bottom-line level that was managed by women were outperforming other funds. That was recently validated by new data that demonstrates that not only are funds managed by women outperforming traditionally managed funds, but they're doing it in double digits. And so the realities of the math in the business space lend themselves to ensure that you have diversity of thought and diversity of experience in your ecosystem in order to remain competitive.
Those organizations that decide that they want to hold on to their traditional models will experience the pain because the demographic realities also demonstrate significant shifts sooner rather than later. BL's data shows that Hispanic working age adults between the ages of 18 and 45 make up over 60 percent of today's U.S. workforce, and when connected to blended marriages, that number shoots up above 80 percent. And so you have the youngest working demographic, the actual workforce that's available to you, extremely diversified from the historical workforce that has been available in the U.S. and accessible in the normal pools that you fish in.
In addition all indicators point to this same demographic the Latinos' purchasing power topping 1.3 trillion in the next 24 months—I'm going to let that sink in for a moment—not in the next decade. But by 2023 all indicators point that the purchasing power of the U.S. Latino will be at 1.3 trillion. That is the most powerful statement in terms of earning power and collective market availability that the U.S. has seen in decades, and yet less than six percent of American marketing dollars by corporate America are being spent in attracting that population.
And so if your clients and companies that you represent don't reflect the realities of this evolving market space, you're already in trouble. The opportunity is exponential as, through a reimagined HR model, organizations can also move HR from a fixed cost center to a ROI. As the C-suite and stockholders call for inclusive practices, there's a glaring opportunity to reposition HR in order to make it more productive. The ability to lower cost factors by casting a wider net is real. And yes, everybody wants the Yale or Harvard grad depending on which side of the room you're on, but that pedigree is giving way to technological advances and access to information that doesn't necessarily make it necessary to for employees to a) invest $120,000 in their education for a $40,000 a year job, and b) doesn't require companies to own the employment relationship wholeheartedly.
The other part of the problem, the other side of that coin, is that workers, especially on the lower end of the economic spectrum, workers have figured out that they don't need to give you 30 hours of work to generate the $600 or $800 a week that they would generate in that part time, no benefit employment environment. They could earn poverty wages on their own without you. They could drive a car for a couple of days or go online and work in those environments.
And so the business model of corporate America that has driven wages down collectively for an exponential amount of time is now in jeopardy because "the workforce is not available." No, the workforce is not available at the value that you place on that workforce. So the reason organizations can't find diverse talent is because they're fishing in the same pond that they've always fished in, and you won't catch different fish in that same space. So if your organization is truly interested in diversifying your workforce, you have to expand the spaces that you're looking in.
And the public and the C-suite and stockholders are calling for this diversification because it represents them, not because there's a legal obligation or because there's a need that hasn't been met by corporate America to ensure that there's a level playing field. It's because it reflects our actual society and what it looks like and what is emerging in terms of demographics around the country. And so organizations that ignore that will feel that pain exponentially.
DEI when it's deployed on purpose can be a powerful business advantage. Diversity of thought and experience translates into fresh approaches and new market exposures immediately, making new markets available. Having people on your team that look and have similar experiences to your paying clients that you're trying to attract makes all the difference in the world. And if you don't believe that, just ask Reebok and their experience with Beyonce. It's a genuine, genuine issue that companies are going to continue to face if they don't reflect the dollar that they're trying to pursue.
This is not about only doing the right thing. Yes, it's the right thing to do, but it's not just about that. It's a business imperative. Whatever your organization's position is on DEI, if you're going to engage, you have to do it on purpose. Don't just check the box because that will also cause you to be crucified in the public space. So ensure that engagement is genuine and can be quantified as stakeholders will hold you accountable.
Internal and external expectations are real and have to be taken seriously or the company culture and the reputation will be exposed to risk. These adjustments or combinations to do not mean that the organization has to lower the bar. It simply should look beyond its historical net casting when seeking talent and creating meaningful bodies of work that deliberately deliver on their client promise.
Title VII may codify all the needed language and regulatory protection, or maybe it doesn't codify it according to what I just heard, but the reality is that the real world practices of employers who generate multiple ways to design workforces that mirror their historical demographics has led to measurable wage gaps, separation of professional employment trajectories, false ceilings, and a workforce that today counts the highest number of workplace strikes in the last 50 years, today.
And so workers have figured out that they don't need your part-time, no-benefit job to earn poverty level wages. They can do that without your clients. And that reality needs to be considered before one of your clients closes the door on creating work environments that are inclusive, empowering, and generate real income, or they will go the way of Sears Roebuck and so many other industry icons that cannot read the writing on the wall. That's all I have to say about that.
Hon. Paul B. Matey: Dan, thanks for those comments. Finally, Larry James. Larry is the managing partner of the law firm of Crabbe Brown & James in Ohio, a leader in the business, legal, and civic life of Columbus for more than three decades. Larry's practice has included work on behalf of student athletes at Ohio State and since 2001, serving as the General Counsel of the National Fraternal Order of Police. He's also the co-founder of the African American Leadership Academy and a member of the board of trustees at Kenyon College. Larry, welcome.
Larry H. James: Thank you. Good afternoon. It's a pleasure to be here. Thank you on behalf of The Federalist Society. Let me give you the street corner how I see the world and how I got to where I am. My background is I've prosecuted police officers. I've defended police officers. I've administrated for police officers. And now I've been general counsel to the National Fraternal Order of Police since '01. I was also at one time the general counsel of the local NAACP and have been the general counsel of the Columbus Urban League now for 15 years. So I am that perfect mutt, and I've seen the world from 360 time and time again.
I also -- the smartest thing I ever did -- last week my wife and I celebrated 32 years of marriage [applause] and people in central Ohio and somewhere around the country will say that I hit the jackpot. My wife Donna James is the new chair of the board of Victoria's Secret as reconstituted. It's an all woman's board. So Donna had served on the prior board for 17 years, and when the issue came to this, as a black woman, she was trying to figure out was this the right thing to do. And I said, "Number one, are you crazy? And if you love the bacon, don't hate the pig. So embrace it." But so she's been on that, chairing that board since August 1. She's also on Boston Scientific and Hartford Insurance, and she's served on a number of boards. So this issue of diversity, equity, and inclusion, I have pillow talk for 32 years in addition to representing the clients that I represent.
And the way that I come at this issue, I think we have a failure of leadership. This division we see in American is a failure of leadership. And the idea, I think, about inclusion and whether it makes business sense without hurting someone but helping everyone is the focus I usually approach with my client. And that is number one, let's talk about what we're trying to address. If you got to a physician and you have to articulate what it is that you want that's hurting you and how do we fix it without adding to that pain, that's the same thing in this field. It's educating leadership. It's educating the workforce. It's training the workforce and including the workforce to participate so this is not so foreign or so painful.
Donna and I, dinner conversations are fantastic because we both realize that the older we get, the more successful we get, the more isolated we become, and the more segregated we become. So we have to work very hard at this inclusion thing. And we're both from a family of seven, and we have mixed results in those family of sevens.
But what we both have done, 17 years ago, we started the African American Leadership Initiative in Columbus, Ohio. Now we have over 250 graduates of that program. It's become the feeder system of education, not-for-profit, and the private sector. It is incredible. The Columbus partnership this past year just put in 150,000. And they asked us would we increase it and double it. Why? Because it was filtering and committing to that issue of diversity and inclusion, both women and men. I think that's the type of success we're talking about. That's the type of thing we embrace without the controversy.
You know, when I -- one of the things we talked about this wokeness thing and particularly being a black man in general counsel for the National FOP, I catch hell. And I've caught hell for a long time, including in my household. And what I say to people is when you're looking at the problem to diagnose, the diagnostic issue of the problem is, I say to the world, the union does not hire. It does not fire. It does not train. It does not set the budget. It does not set the policy. But everybody is looking at us as the boogie man. I catch it from The Federalist Society. I catch it from the Cato Institute. I catch it from Ben and Jerry. And obviously, I catch it from the black community.
And I say look folks, we are in this together. And if we don't come together to try to figure it out, and diversify, we are going to create a lot of harm, and down the road it's going to be very painful to cure our ills. I was giving a talk a couple weeks ago, and I said think about this if you're thinking about diversity in the police department. You're dealing with a zip code with a high crime area that's 98 percent black. Your seniority program has only white males to try to address the issue of crime in that zip code. How smart is that? You're not going to -- you're just not going to be successful.
The other thing I didn't tell you, I was also safety director in Columbus over police and fire. And I had the obligation and responsibility of setting that budget, setting those policies, and trying to address those issues. So what I did is I brought in our command staff, and I said look, folks, this is what I'm after. This is what I need. Can you work with me, understanding that you have the union contract? And as a result of being safety director is the reason I became general counsel for the National FOP. Do good. Do not do harm.
The one thing that always puzzles me is this issue of affirmative action and how it became a hot button issue. And I'm finishing my 11th year on the board of trustees of Kenyon College. I chaired the admission committee. I think if you look around the country and you look at the gender gap on GPAs in test scores, women are outperforming men like night and day. If we had a meritocracy, our colleges would being to go 40, 50, 60, 70 percent women.
So I remember being chairman of the board, and particularly where you're doing -- where you have colleges and universities that you need the full pay student. You need the full pay student to generate that money for academic aid. So you were limited, no matter how talented those students were of color or poverty. If you met that goal that you hit your percent of revenue, it could only be spread so far. And I remember saying -- I said my god, the affirmative action baby is the white male, and we need boy toys in order to be competitive so that we keep diversity on the gender side of it.
Then we look at the legacy. I can tell you unequivocally at that college, we did not accept any student who was not qualified to perform. We passed over a lot of students of color because we didn't have the money to give them to compete. And I remember, because as I came in and I did this example of admissions, and people were shocked and said, "Oh my god, I had no idea."
Ladies and gentlemen, what I challenge you to do is really diversify your association because I think again, as I said, as we grow and we are limited at to our exposure and our conversation, it's going to be so much more difficult to get it and set policy. One of the things I do with a lot of our clients is I sit down. We put those programs together, and we say here's our policy. Here's how we're going to diversify. We're going to help, and we're not going to harm. And that becomes your skillset and your test. Because in litigation, at the end of the day, the damage is already done. You're just trying to figure out who's going to get the greatest degree of pain. But if you're building that house, if you're building that policy, you will understand.
I remember when I came home and I told my wife I was going to become the general counsel of the National FOP, she said, "Have you lost your mind?" I said, "We've got to have someone in the room. We've got to participate." And it's not going to be easy. It's going to be painful. But I think the people that we interact with and our law firm interacts with understand what that means.
One of the other things as managing partner I do on the firm on our charitable giving, we demand everybody to participate, to have skin in the game. You do not come to me and say I want to make a 10,000 contribution here if you don't participate. You've got to participate, and you got to stay involved.
The last thing I'll say and the perfect example of inclusion, think about our music industry. Think about our film industry, our entertainment industry. Wil Haygood just came out of a book, just produced a book called Colorization, and we did the national roll out of that book in Columbus, Ohio. And we say everyone goes to the movies. Think about when they came out with Gone with the Wind, Birth of a Nation.
Now, I understand that the law may say, well, you can't give preference. You're damn sure you can't, and you do give preference. We all do. And it's based on our personal preference. The question is, have we expanded our recipe, our taste bud, our vision to be inclusive. I think what you'll find and challenge you will become so much more enriched. It has enriched my wife's life, my life, and my family life. Thank you very much.
Hon. Paul B. Matey: I want to thank all the participants for those opening remarks and continue on with some discussion. One of the things that, Larry, you sort of raised powerfully, is a call to action is that we have to figure this out. And I wonder if we could start by talking about what the "it" is in that challenge. Do we have a consistent standard for what is normally referred to as DEI? What is it? Where does it come from? And then, if we want, we can talk about where it might be codified. I know this is something that both Sharon and Dan had thoughts on as well, so I'll open it up to anyone who has a thought.
Larry H. James: Well, I think, again when you're establishing policy, I'll tell you [inaudible 00:48:30] is public private insurance company, and at one point in time we were looking at redlining. And the administration came to me and said, "How are we going to structure these policies? How are we going to train the agents that sell our product to understand that these folks need coverage?" So we sat down, and we looked at the financial portfolio, if you will, and by portfolio I mean that what you qualified for, what your financial scores were, and we retooled that. And we've seen that historically where folks have looked at where there's been disparate impact on a certain constituency whether that's redlining or overcharging in loans and things of that sort. We just need to do an audit and say, "Is it real that these policies are adversely discriminating against a certain group of people?" And if it is, like medicine, you find the solution. You find the solution without having harm.
I was safety director when we had the dual list of women and blacks on fire and police because it has been so bad for so many years. And then it ran its course, and those dual lists were terminated. But I can tell you, if you live in the space, if you associate with people whose job it is to try to figure out what these policies are, they won't be so repugnant.
Hon. Paul B. Matey: Sharon, how would you respond? Do you see this as something that remedies past harms, or do you see a broader mission in modern DEI?
Sharon Fast Gustafson: What Mr. James just discussed in terms of the dual lists for women and for minorities at some point for the police is a good example of how affirmative action can sometimes be done legally. The Court has allowed for temporary measures when you are addressing past discrimination that you can prove. It's apparent. It's kind of obvious that people just haven't been hiring women or haven't been hiring minorities for a long period of time. If an employer is able to show these things and draw and explain the past discrimination that's happened, they may be able to temporarily come up with some affirmative action that passes muster.
But that's not what's being talked about in DEI now in the workplace. I'm sure it's a big world. I'm sure somebody's doing something everywhere, but the situation's I hear about are not situations where anybody is going out and trying to show that we had past discriminatory policies, at least not in the recent past, that women or minorities were forbidden to work in these organizations. And they're not trying to do it temporarily. They're saying let's come up with a way to promote women and minorities at the expense of other people in the workplace. And that's the thing that the law simply doesn't allow.
I think that there are some good suggestions. I did a lot of reading getting ready for this panel just on diversity, equity, and inclusion, online, just seeing what people said about it. And I found that the comments fell in three categories. the first category was good comments people made, but they were nothing new. They were best practices that we've heard forever. Diversify where you advertise, where you seek applications from. Go to historically black colleges. Go to places that you might not have advertised in the past and advertise there too. That's a good thing to expand the breadth of your advertisement. Have blind review of applications. That's a good idea too. Don't do the touch people on the shoulder promotions, but make people apply so you make sure you're considering everybody. All these things are good suggestions.
And then there was what I jokingly was referring to as the word salad things that talk about DEI where I just read it and couldn't figure out what in the world they were saying. And there was a whole bunch of that that I read.
And then there were just the bad suggestions, just the illegal suggestions. Employers need to come up with particular programs and particular benefits for their minority candidates. The law just doesn't allow this. It doesn't work. And if you go back and try to do that, you're going to have to undo -- you're going to have to have changes to the Constitution which provides for equality. You're certainly going to have to have a change to Title VII which doesn't permit race discrimination. So I think people have got to think about ways to do this that are not illegal.
I do think one thing to think about is the BFOQ, the Bona Fide Occupational Qualification. One thing that Mr. Villao was saying is that you're going to miss the boat if you don't try to direct some of your employees to figuring out what the Latino community wants or what the black community wants. That's fine. You can hire people for the purpose of looking at these different marketplaces and figuring out what these different marketplaces want. But you're going to have to be specific in the way you define the job, what the purpose of the job is, and I think you could pass a BFOQ test to say, we want the minorities in these positions because that's what their purpose is here.
Daniel Villao: So I agree with you, Sharon, that the law doesn't allow for the establishment of protocols the way that some people are asking them for. But the interpretation of the law has allowed corporations to do it silently, to create disparate mechanisms and structures that limit the ability to access to work, that limit the supply chain to those that they're comfortable with. And so there's a very -- and the fact that they have resource -- there's a -- and I think this is what you were getting to earlier, Paul. The law assumes a level playing field, that everybody is starting at the same starting line, that everybody has a genuine access to the playing field and is equipped the same way to maneuver that space.
Let me tell you that I do not come from a poor family. I come from a middle class, working family. I did attend, in my junior and senior years, some private schools, but they were not private academies that led me to spaces where I could get letters of endorsements from senators and move me into the type of academic environments that would have been a much more powerful place. Had that been accessible for me, I would have been a terrible monster and would be significantly more better positioned than I am today. Why? Because that arsenal of tools that comes from that space and from that access at the early stages of the race makes all the difference.
The fact that education is funded through homeownership taxes and that populations are coupled together, the east side looking one way and the west side looking another way, and the value that's generated from those property taxes funds education at different levels, immediately creates a disparate model. And so, yeah, I'm smart. I'm real smart. But I would a lot smarter had I been in an environment or environments that really empowered me and really supported me in a way that was meaningful.
Now, this is not a personal whining session. It's just a reality. It's a reality. The leading generator of new small businesses are Latinas in the U.S. That's the demographic. The math isn't going to lie. Eighty percent of American marriages are blended, whether it's African American, Asian American, or Latino American. The majority of U.S. Latinos are born here in the United States. They're not foreigners that are coming to take your jobs. They're U.S. citizens that are working here and have lived here for generations. My wife is eight generations in as a Latina here. So we've been around for a long, long time, but we didn't start at the same place.
Now, advocates get mad at me too because I say things like hey, it's not about creating a new disparate system. It's about leveling the playing field and making sure that everybody has access. In this moment in this time on this project in this company, everybody plays at the same level, can compete at the same level because white people have to work too. So the fear that is being stirred up in white America, that America has changed and is changing, is real. It has changed, and it will continue to change. And so that economic separation that already exists, that is genuine, has begun to brew discontent.
And for those folks that are -- I've heard all day long about originalists and the original language. We forget that for the first hundred years that original language was not influenced by people of color at all. We didn't have any opportunity to give any input to that established language that has formulated the prison system, the education system, and all other systems, including corporate environments and corporate law in the U.S. So the fact that we didn't get to create any of the rules but have to play by them, and folks are 150, 100 years ahead of us in terms of interpreting them, and now they're getting their feelings hurt because we're figuring it out and the global competitive landscape has emerged in the technical environment in the technology space that allows us to compete for real, makes you nervous. And you should be.
Larry H. James: A couple things. Nationwide Insurance Company, I think most of you are very familiar with, and when I talked about my experience in working with some of the companies, if you look at Nationwide today—I'm going to brag on my wife again—they give the Donna A. James award at Nationwide, and after Donna—and you look at corporate Nationwide today, it's like night and day. I don't know if you want to call it affirmative action, whatever you want to call it, they figured it out. And when they decided to reconstitute that board of Victoria's Secret to go with seven women and no men, that was a discretion.
The last example was the Ohio Water Development Authority in Ohio. And before Warren Tyler, real good friend of mine, because chairman of that organization, there were no black investment bankers. There were not black lawyers. It had been around for 35 years. It went from zero black folks participating to about thirty percent, and the performance improved. There are absolute discretionary positions that companies have that have nothing to do with affirmative action, diversity, inclusion. They just make up their mind this is what we want our workforce to look at, and we're going to get the best, and we're going to get the brightest.
And so I want to say to you, look at the policies that are working that never see the courthouse, that never see the challenge. Folks, it's going on. Don't get caught up in the technical, legal jargon. I understand that, but again, I'm going to go back to where I started. This is about leadership.
Sharon Fast Gustafson: May I?
Hon. Paul B. Matey: Please.
Sharon Fast Gustafson: It's interesting to me. I know my perspective is just my own. It's small, but in my experience, the employers that I have represented, they are embracing diversity. People are so happy to have diverse people. And the boards that I've been on, on the employers that I'm representing, I just haven't seen anybody trying to keep minorities out of the workplace, trying to suppress women in the workplace. I'm not saying it doesn't happen. Of course, I've admitted it still happens, but I don't think that is the norm.
And I want to address, in response to Mr. Villao was saying that he grew up in a middle class family, so did I. I grew up in a middle class family in and town of 2,000 people, New Buffalo, Michigan, just an hour from Chicago. I didn't know race discrimination. I can't pretend like I know what life felt like for the black people in my town. But we did have -- we had quite a few black families, many of whom had moved from Chicago to New Buffalo. I said quite a few, but that's not accurate. There weren't very many, but I mean, the basketball team was all black starters on the basketball team, so there were at least that many.
The teachers, the families, everybody taught us we are one. We are unified. The color of our skin doesn't matter. And I just believed them. And I thought everybody thought that. And I never saw -- it was all about unity as Americans and unity as Michiganders and unity as New Buffalo people. Of course, I was just a child, I was only six years old when the Civil Rights Act was passed, but I saw that, and I still look back on that as -- the lunchrooms were integrated. When my kids were going to high school in Arlington, Virginia, and I was over there in the lunchrooms, I noticed more segregation. But when I was a kid, I didn't see segregation. And I think this spirit of unity is important. And I am seeing now with some of this DEI agenda, a spirit of division, and it is not good. It is not a good spirit. We need to reject the spirit of division and embrace the spirit of unity. We are on the same team. We need to be all trying to help to pull each other up. I think that's what most people are doing. We need to give each other credit for that. I agree, we're in this together, and we need to look for ways to solve problems, but we need to it is a way that doesn't violate the law.
Daniel Villao: Absolutely. I couldn't agree with you more. And I do -- I have worked with clients that are very -- corporate clients, large corporations that you would recognize their names. I agree with you that there doesn't seem to be an intent of separating by race or of keeping people down. But when you look at the numbers, the reality of the numbers is that people of color, others, make up middle management and below versus executive level positions. The number of board seats for Latina women in the U.S. is less than two percent. It's a reality. I think the figure for African American's is somewhere around three and a half percent. And so states have tried to intervene and regulate this, like California. I'm not sure that that's the right practice. I don't necessarily agree that we need to force people to do this. I think business will figure out that it makes sense, financial sense, to diversity the way your organizations operate.
And so from my perspective, I agree with you. We're all in this together. It's just that some of us don't get to ride on the same bus that others do. And that's the real issue, and until everybody recognizes it and beings to work collaboratively to change that dynamic, I think that there's quite a bit of opportunity to move.
Hon. Paul B. Matey: This idea of collaboration and working together has come up a couple of times now, and so I'm curious whether -- do you see this as something appropriate for state action, government involvement? Or is it something that would more from a local non-governmental solution? In other words, do you see this as a project that is largely something about changing the law or rather changing the way people act with one another so that the law may ultimately be less of a concern?
Larry H. James: I can tell from the—we call it the Columbus Way. And I talked about the African American Leadership Academy and investing in your future. The corporate community has indicated without hesitancy this is where we want to be. We want to be the leading city in the country that embraces everyone and welcomes everyone. This world that people seem to suggest that we're forcing these issues down the -- I don't see it. And believe you me, I'm a Republican. I represent the cops. You know, I catch hell.
So we've got to produce, and we've got to produce long term, sustainable things. I've earned those stripes—I think my wife and both—in this space. We say, unapologetically, "If you want us to be in that black space, we'll embrace it." We write checks, challenge everyone. We participate. We include everyone without exception. When the gay initiative came for benefits, Donna was the HR person, my wife was the HR person at Nationwide. It was one of the first in the country.
Collaboration. Inclusion. If your team believes in this, I guarantee you, you'll have one of those dinners like we just had with our law firm for the end of the year, where I'm passing out checks, and people going, "Why didn't we do this sooner?"
Sharon Fast Gustafson: On the LGBTQ issue, if you want to know what it feels like to feel like an outsider who is not embraced, be a religious person who doesn't want to cause any harm to any LGBTQ person, who does not want that LGBTQ person to be discriminated against in the secular workplace, but simply cannot say, "I celebrate this" because that person's religion does not permit them to celebrate it. Even if they don't ever come out and actively say that. They're going to be in training programs where they are forced to say these things. They're going to take training exercises where you have to complete the entire exercise to keep your job, but if you won't say something that violates your religious believes on question three, you can't get to question four. I know of situations where people have had pay docked, where people have been fired from their jobs. You cannot imagine. The new discrimination that is going on that is rampant is against religious people. And I don't want to be whining on behalf of religious people, but anybody who doesn't know this needs to wake up to it. People are losing their jobs. I am getting calls about this and hearing about it right and left.
So the idea that everybody wants to embrace everybody, and we don't know anybody who is not embraced, then you just need to meet a few more people because I'm telling you, this is going on.
Larry H. James: Let me respond to that. I want to respond to that because I can tell you every movement without exception has had its conflicts and its cross in the roads, and I agree with you. Two of the most difficult discussions we have today is the vaccination and abortion. Clearly on abortion, that cuts on the religious thing. But that doesn't mean we don't try, and we don't work through it. It's not going be easy. I've said to you, this challenge is painful. This is about leadership.
The head of Nationwide, when we started making the moves and we made -- when my wife made the thing on inclusion on the gay issue, the head of Nationwide was a Mormon, Dimon McFerson, love him dearly. I remember sitting down talking about this issue, and he says, "How do we bridge this gap? I know people in the religious community are going fight it, but we need your help." And it's going take time. And if that discrimination occurs, we don't have all the answers as we sit. But if you don't embrace it, you don't get into the storm. You're not going to find smooth sailing.
Daniel Villao: Yeah. I think the religious exemption is a legitimate beef, and it needs to be explored, and it needs to be evaluated. And every organization is going to review whatever their practices are. But in terms of the original question that Paul asked, should it be legislated or regulated, there's plenty of rules and laws and regulations in place all over the country to do this.
What we don't have is compliance at every level. The compliance structures in this country are designed to be reactive, to be responsive to complaints instead of being proactive and ensuring the organizations are doing what they law requires them to do. You don't hear about the judgments that you described until somebody actually raises the complaint. And there is no design structure and there's no investment by government in actually ensuring that organizations are performing and delivering on the criteria that the law has laid out. And until we address compliance in a real way, the actors are going to do what they do.
Sharon Last Gustafson: If I may just respond briefly to that, you said that we don't hear about this until someone raises the complaint. But I want to note that we don't hear about it even after people raise the complaint. You don't hear about it in the media. You don't hear about it from the EEOC. The Equal Employment Opportunity Commission, which has done such a great job working to defeat all sort of discrimination, a great bunch of attorneys doing a great job on a lot of things, they have completely dropped the ball on this. They are willing to bring religious discrimination claims for a few very narrow categories of cases, if you need a Sabbath day off or if you need to pray at a certain time of day or if you need to wear a headdress or certain kinds of things like that. But the employees who are discriminated against because of their religious beliefs related to abortion or human sexuality, the EEOC has never brought those cases ever.
I ask people, bring me anything. Show me an example. Contradict what I'm saying here. And nobody brought it to me and showed me. The first case that I know is this Kroger case that was brought was when I was at the EEOC, and I got a lot of flak for that. And I'm pointing this out because this is our government. If we really want to protect everybody, then we have to protect everybody. And right now, for reasons I don't completely understand, we have decided certain people are worthy of protection and other people aren't worthy of protection. It's a kind of puritanism that says you people are wearing letter A over here, and you people are the good people. This is not the way it should be done.
We are a pluralistic society. We all know this. We have to be able to put up with it and tolerate people who disagree with us. And I know it's a big world. Like I said in note, there's a lot of people who would do different things, but the religious people that I know have no intention of discriminating against LGBTQ people in the secular workplace. They will work shoulder to shoulder with people. They will embrace them. They will be friends with them. They simply cannot violate their religious beliefs in what they say. As I see it, this is the big discrimination that’s happening right now that's going not talked about.
Hon. Paul B. Matey: As we continue the conversation, we want to get everyone involved. There are microphones for questions, and we would be happy to direct those to the panel. In the meantime, while we're sort of getting set up for that, just one last question real quick. Where do you see other practices changing as a result of these kinds of initiatives? We talked a little bit about legacy preferences, the idea the corporations and institutions have typically looked to the same narrow set of criteria, consistent with the law, but perhaps not consistent with best practices. Is that one easy avenue for improvement that you think is getting underaddressed in the workspace?
Larry H. James: So are you talking about legacy in colleges, or...?
Hon. Paul B. Matey: Yeah.
Larry H. James: Well, I think there's -- I think Smith or—I can't remember—one of the colleges just announced a week ago that they were terminated the legacy preference. I just think -- first of all, thank you for being here. Thank you for inviting me. I really appreciate it, and I say it time and time again. If we can't sit on these panels, if we can't have this dialogue, whatever the pain of our discussions, we can work through and find a solution. And I agree with you. The religious one is tough. My wife said the other day, "If I'd known that preacher that married us had these ideas, he wouldn't have been marrying us." But those are the type of convictions, I think they have to be pretty closed to principle and absolute.
Hon. Paul B. Matey: We'll take your questions. Next panel we'll definitely bring in Larry's wife. Does everyone agree with me? There's no question. No question.
Pepper Crutcher: All right. Pepper Crutcher. I'm the chairman of the Practice Group. First of all, I want to say, I promise you that that light back there that went out that put Daniel and Larry in the dark, leaving Sharon and Judge Matey in the light was totally accidental. They tried to fix is the best they can. That, I promise you, was not programmed.
Pepper Crutcher: I got down on my hands and knees back there and tried to find the plug myself. So a response to Sharon and a question for Daniel and Larry. Unlike you Sharon, I grew up in the very segregated south. I was actually there for the James Meredith thing at Ole Miss. And my first memory of this whole issue was I hung out in the kitchen with Georgia, Isaiah, and Willie B. Tankersley and all the rest and the people I loved. My first notice of something was very wrong was when I noticed that they talked to each other in one tone of voice, one mannerism. And when they talked to white adults, they talked in a totally different tone of voice, different mannerism, chose their words carefully. I didn't understand what was wrong, but I knew something was very wrong with that situation. I'm now seeing young white men in the workplace do the very same thing. They speak to each other in one pattern, and when they talk to anybody in supervision, they're acting like they're somebody else. I think there's something very wrong there, and it can't lead to a good place. Daniel, Larry, does that worry you at all?
Larry H. James: Well, you know, when I was—if I could digress a minute, when we were going out to Kansas city for the FOP to get them recognized, and I told our FOP leadership that happened to be all white, I said, "Look, there's a conversation that black folks have when white folks are in the room. There's another one we would have when you ain't in the room. And so there maybe come that time that I ask you to leave." Why are all the black kids eating in the cafeteria sitting together?
So yes, but again, I think this is about our leadership. We have become—and I agree that we've become somewhat of canceling out certain cultures, and we've become politically correct that if you say thing wrong thing, I'm going to take your head off. Or I'm worried about if I say something, I'm going to be fired. But again, that leadership thing about the supervisors, the executives, we've got to push them to be better and address that issue.
Daniel Villao: I will just emphasize it's not about creating another disparate system. And the American Latino has an opportunity, as the power shifts and they come into leadership roles. They have a tremendous honor and responsibility on how they will lead once the numbers are there. Are we going to learn from the history and the practices our of predecessors and make it equitable for everyone and treat everybody in a way that's meaningful? Or are we going to continue this legacy that exists in this nation of creating opportunity for those that look and reflect our own principles. So it's a very, it's a very interesting time for this country. I know there's more questions, so I'll stop.
Andrea Lucas: Hi. I'm Andrea Lucas, and I'm a commissioner on the EEOC. Like you said, not all of the EEOC is against religious discrimination.
Sharon Fast Gustafson: Oh, good point. Good point.
Andrea Lucas: I will speak up on that point. But on race discrimination issues and DEI, I did want to say that to some degree, we're talking past each other on the panel about exactly what kind of DEI initiative we're talking about. There's a variety, as Sharon mentioned. I'm particularly interested in DEI related trainings, though. I wanted to get the panel's thought on that.
There's a lot of research that indicates the many DEI trainings actually create racial polarization and don't actually produce the business results that people want. So when we're talking about inclusion practices, perhaps there is a lot of business data that supports a diverse workforce might produce better results.
But in terms of a lot of, I think, what you have some people who have put a lot of money on the DEI industrial complex. And it's not actually the leadership that Larry's been talking about. I think sometimes people do too little. They satisfy thoughts about corporate compliance by passing this or that DEI training, and then they do nothing. Or they engage in over racial discrimination in hiring, and they don't care about retention of workers.
So I do wonder that some of this is really less about DEI training and more fixed by leadership, as Larry mentioned, and actually looking at the workplace culture that you have. Do you have a healthy workforce? And that cuts across race and cuts into class. It cuts into working conditions of employees. You're right, Daniel, that if you aren't paying people a living wage, maybe they don't want to work for you.
So I'd like -- I think people should think about that, and I'm interested in your thoughts. Are some of these corporations doing too little if they're checking the box to do some training or they're engaging in some hiring discrimination on the front end, and then they're leaving their diverse employees to the wolves along with everyone else to an unhealthy workplace and the wondering why they find themselves not retaining women, not retaining others? Well, maybe it's the culture of your workplace.
Daniel Villao: Yeah. I have very clear and direct thinking on DEI training. A lot of it is designed to expose old wounds and not solution based. And I have a problem with that. The fact that I'm rubbing your face in 200 years of bad treatment is not helpful. Again I would say, corporate leadership, government leadership needs to focus on where we go from there. Have there been wrongs in the past, and should somebody address that? I'll let other people debate that. Where is this country going from this space forward? Because we're in a global competitive marketplace where your mom and pop shop in rural Ohio or in Arkansas—where I just left a bunch of business leaders—wherever they are, they're competing with businesses around the world. It's no longer just competing in their own communities. And so your ability to interact in a much broader marketplace now is saturated. And adding this layer of garbage about trying to fix something that you had no control over to me doesn't make sense.
To me, if you're a business leader today, I would not focus—I would encourage you, I should say, not to focus on the wrongs that have occurred in the past. If you need to address issues in your organization, you should address them. But the real game is on what happens on a going forward basis. How do you make it fair for everybody, everybody? And I married a preacher's kid, so I do understand the religious issue very clearly as well.
But the opportunity around training is really about helping people learn about each other. I'm going to digress for just a moment, if you'll allow me. My family's from Ecuador, South America. My parents came here in 1963. My mother was a chief of staff for a university professor who was about to launch a campaign to become the president of Ecuador and did eventually win that presidency. She was well educated, came here, because of her accent, even though she spoke English, because of her accent was given a back office job and told not to speak with clients at a very well-known national American banking institution that all of you would recognize. In 1963, she was told that that was a firing offense if she interacted with their clients. And so that's where my parents started.
My father came here as an electrician and was fired on the first day because he didn't know the names of the material and the tools in English. And so from that early beginning, they built a legacy that allowed me to work from a middle class on ramp. And so I've always been the odd man out because in LA in the '70s when I was growing up as a kid, there was black people; there was white people; and there were Mexicans. There was not a big, thriving Ecuadorian community that you could rely on. Ad so my role as a kid, I learned to speak English in the streets of my neighborhood helping other kid splay with each other, convincing other kids that the other person of different background was cool, and they could have fun with them. And I've done that all my life.
And I find myself, ironically, in a business that does the same thing, helping facilitate conversations. And that's what training should do, facilitate a discussion so that people from diverse backgrounds can get some insight on other people's histories, other people's beliefs, other people's knowledge base, other people's experience, and then coordinate how to move forward together so that there's value for everyone. If everyone doesn't win, no one wins.
Hon. Paul B. Matey: Let's go to the back of the room.
Will Trachman: Yes. Thank you. Will Trachman with Mountain States Legal Foundation out in Colorado. This question is for Mr. Villao and Mr. James. Do either of your organizations or the organizations you work with use race as a factor when hiring or promoting employees?
Daniel Villao: We do not exclude Anglos if that's what you're asking. But what we focus on is giving people an opportunity that normally would not be looked at, get a second look. So I'll give you a prime example. Early on, yeah, a few years ago, early on in our growth, we were introduced to a young lady who was involved in a training program for disadvantaged young people, had had experience with various government systems, and was very bright when I spoke to her.
What I look for when I'm hiring people, I'm looking for people that are teachable, people that will actually show up to work, that won't embarrass me when I bring them into a client room. I don't need them to be technically capable because—and we can have a whole other discussion about how you're paying top dollar for candidates that you're going to teach for the first 18 months of their employment on your own internal systems, anyway—I don't need them to have the technical capacity. I need them to have the ability to learn and to deliver the outcomes that my company needs them to deliver.
And so we invested in this young person, gave her an opportunity, and today she leads a team and leads teams on some of our highest dollar value projects. She would have never gotten that opportunity had her application been screened—I would challenge to say—in 90 percent of other corporate environments.
Larry H. James: The answer is yes in two very specific situations. I'm a lawyer. I represent clients, corporations, obviously, cops. So one of the areas, as I started out talking about, in those areas where it is a large percentage if not completely black and we have to do an investigation, we're going to need some black folks in order to address that issue. The other area that I suggest to clients and work with them about race is at the college level where they've had no black hirees for ever and ever and ever. And so they're trying to say to parents, to students, "Why should you come to our college or university when you have no one that looks like us and you're losing all those top minority students?" Those are the two areas, and we have been very successful in that, and they haven't been challenged.
Tammy McCutchen: Tammy McCutchen, retired. I guess this is for all of you, but, Sharon, I really identified with what your comments was. We have the old stuff that everybody's still doing for—we didn't used to call it DEI—but the recruitment, the job fairs, the advertising. And then we have the case you mentioned Novant Health which I think is a very telling case, where you have a white executive being fired so he could be replaced by minorities and women in order to meet corporate goals.
By the way, I once told a client like 15 years ago that they shouldn't be basing their bonus calculations on hiring quotas. They told me, "Oh, yeah. We know, but we don't care because we'd rather have the story be $10 million verdict because of reverse discrimination," Right, so they're like -- so my question for all of you, there's got to be something in between what we've been doing for 30 years versus these hiring quotas, these you're going to be fired or you're not going to get your bonus because you have failed to meet quotas for hiring women and minorities. And then of course we have states like California that are actually mandating proportions on boards of females. Where is the leadership, and what's -- where is the solution? There's got to be an in between between the same old same old and these illegal practices that corporations are increasingly under pressure to do despite the fact that they're blatantly illegal.
Larry H. James: Well, let me tell you this -- Go ahead.
Sharon Fast Gustafson: I think it's partly -- and I don't know the answer, of course. I don't know the answer to all of it. But I do think when you have individuals on an individual basis picking out some talent, just saying a minority person for instance or if women are underrepresented, a woman, and saying I see something there. I'm going to develop that in that person, doing that. I think everybody should be looking for people to help develop. I think that's great. But I think it has to be done in a way that doesn't violate the law, and it can't be done by the employer saying we're going to give special training to certain people, to minorities, but we're not going to allow the other people to get it. We're going to permit the women to get this training, but we're not going to permit them men to get this training. That's just not going to work.
I think the solution -- I also think that part of the solution is supposed to be things like Head Start, helping disadvantaged children from the very beginning. We have those program. Maybe we need more programs. I'm not against those. In fact, I'm in favor of those programs. Somebody should think them up and do them. But we've got to get those programs in place and be helping people as their growing up so that by the time they get to the workplace, they can make it without discrimination.
Larry H. James: I would say look at a company like Nationwide. I think they figured it out, and as a result of what they've done, it has become the magnet for black folks and women to want to work at that company. It's amazing.
I am an affirmative action baby, okay, from college on, and I think it was a good investment by everyone. But the most huge affirmative action baby that I am is the General Counsel of the National FOP because the president came -- and I have some skills, so it wasn't a big risk. But I think he felt -- the way it happened, I had a Supreme Court justice said, "There's this individual running for president of the National FOP, will you support him?" I wrote a check for $1,000, and he gave it to him. And so the president wanted to come over and have a conversation, say thank you.
That five minute thank you turned into a two-hour battle about black folks and cops. And so two-weeks later he calls me, and he says, "Can I stop by and see you?" I said, "Sure." He says, "Listen, I'm unopposed. I want you to be my general counsel, and I am so happy you're black on top of it." And the rest is history.
Daniel Villao: I would just add that HR creates false barriers for itself and part of the reason that this challenge exists in corporate America is because of every company says we'll only hire the highest quality people, and therefore -- why does a customer service clerk have to have an MBA? Right? Because we only hire the best, the most overqualified people, right and then their trajectory only gets them to middle management. These expecta-,-- and I just said that to SHRM leadership in a big conference. So human resource managers don't respond well to you telling them that there's other alternatives. There's other pathways on how to move people into employment systems that don't violate the law and that actually create opportunity and value in a way that's significant and meaningful.
And so you have to be creative. You don't have to exclude white people. We hire white people on our staff. There's Anglos and men and women and LGBT and everybody else. We're a unicorn, I think. But we are a Latina-owned, wholly Latino-owned business. And so we do have that sensitivity, that creating opportunities in our DNA, as a company. And until you embrace that in your leadership circles, the idea that everyone can contribute, you won't see the kind of results that are really productive to your bottom line.
Sharon Fast Gustafson: You make a very good point. One thing employers can do is really take a close look at job descriptions and make sure there aren't requirements on there, job qualifications, that aren't really needed for the job. I've seen so many job descriptions that require a college degree where not college degree should be necessary for that job. And that's one of the things that we can do right away is say we're going to be willing to hire people without college degrees because this job doesn't need a college degree. We're forcing everybody through this college system, and we shouldn't be doing that. So maybe that could make a difference for minorities.
Daniel Villao: Best kept secret -- [applause]. Yes, please. The best kept secret in the federal government is the registered apprenticeship system, the utilization of apprenticeship modeling to help equip employees as they enter new career trajectories. It's powerful, and you can get tax credits depending upon the state that you're working in, lots of ways to bring people into your system.
Hon. Paul B. Matey: We're right up against the clock, but I think we can squeeze in one last question.
Changa (sp): Thank you very much for sharing all these practical ideas. My name is Changa, and I come from Hungary. I study HR management, and I'm here since the end of August to learn about policy making in the U.S. So I just faced this problem back home in Hungary that oftentimes the big firms actually positively discriminate the people that they are about to hire because they are visibly different than average white person. So they can easily marketing themselves as an inclusive or a diverse company. And there's been conversation about that among my folks back home. So I just wanted to if you could give you point on how the U.S. professionals deal with this problem or if you have this at all?
Larry H. James: Maybe I can conclude. In 1981 I was working for the city attorney's office, and I wanted to apply to Crabbe Brown James. It was Crab Brown Jones Potts and Schmidt at that time. And they were strongly vacillating over whether they were going to hire their first black guy. So one of the associates and I staged this thing where I got a job interview and an offer within 10 days from the highest blue blood law from in the city and went back to them. At that point, I was making $31,500 with the city, the blue blood law firm offered me $39,500. I took the job with Crabbe Brown for $22,500. They were not ready, willing to hire the black guy, but for that price they said you know, whatever. I say that because those are the realities. And if you look at the law field and the change over the last 20 years on the gender women, it's like night and day.
Daniel Villao: There's nothing more powerful than the image of a politician standing next to an African American woman, a Chinese American woman, a Latina that's holding a hard hat and the keys to her first home because of a policy piece that they effectuated and allowed them to move into a high dollar value career. The storytelling is part of the journey. And it's part of the price of admission. It's a fair trade. It's a fair trade.
Hon. Paul B. Matey: As always, the best conversations are the ones that conclude too early, so please do continue this conversation going all week. I want to thank Larry, Dan, Sharon for your exceptional remarks and participation and for all of you for joining us today. We look forward to seeing you during the rest of the convention this week. Thank you again for spending time with us.
2021 National Lawyers Convention
|Topics:||Administrative Law & Regulation|
In addition to formal rulemaking and case-by-case adjudication and enforcement, federal agencies have long employed a myriad of mechanisms to influence and punish private behavior. Their civil administrative investigations are unbounded by the procedural constraints of the Administrative Procedure Act, traditional transparency protections, or the redress afforded by timely judicial review. Civil administrative investigations can be not only onerous but also financially catastrophic, especially when the targets are small businesses and individuals. The abuse of agency investigative authority raises significant constitutional and statutory questions. Agencies have compelled information from investigative targets without the warrant the Fourth Amendment would require, and then converted the investigation from civil to criminal. Federal agencies have been imposing draconian conditions to end administrative investigations, like imposing "gag" orders that prohibit the target from disclosing the terms of the settlement, and requiring the target to make payments to agency-designated third parties in lieu of paying the statutorily prescribed fine into the Federal Treasury. These conditions are imposed without affording the investigative target the opportunity to meaningfully challenge the agency’s underlying authority to act or the tactics by which it acts.
This panel will explore the under-researched civil investigative and related activities of federal agencies and engage on their underlying legal authority to so act.
Hon. Eileen J. O’Connor: Good afternoon, everyone. Welcome to our next panel discussion. I’m Eileen O’Connor, Chairman of the Executive Committee of the Administrative Law and Regulation Practice Group, which brings you this panel. Before I say a word about that, however, I am moved to acknowledge that today is Veteran’s Day, a day when we remember and honor the service of our armed forces.
Today, November 11, is the day we do this because it was on this day in 1918 that an armistice was reached, bringing to an end the hostilities in what was then known as the war to end all wars and what we now call World War I. And I take this opportunity to read to you a few words from a citation for one bronze medal earned during World War I -- excuse me, World War II.
On one occasion, he led his platoon at the head of a task force into Pressburg, Germany, and despite heavy cannon and machine gunfire, killed 40 enemy and routed the remainder. On another occasion, although wounded while seizing an objective north of Tangeda, he evacuated several of the platoon’s casualties under direct machinegun fire, and then continued to lead his unit in the capture of three villages against severe opposition. Still another time, without support, he led his platoon across the Sal River and fought eastward 18 miles to obtain important knowledge of enemy strengthened positions.
The citation goes on, but those items get the point across. The three-and-a-half-week period during which these activities occurred included the medal recipient’s no doubt unacknowledged 25th birthday. That recipient was Lieutenant Joseph B. O’Connor. Thanks, Dad. God bless you. And God bless all United States military veterans past and present who have defended and continue to defend our great nation.
I have a housekeeping matter to mention. District of Columbia regulations require that each of us wear a mask except when we are eating or drinking. I’m reminded of an observation a bunch of tax lawyers made years ago, and it just made so much sense to me at the time. It said in Germany, everything is forbidden unless it’s specifically permitted. In the United States, everything is permitted unless it’s specifically forbidden. In Italy, everything is prohibited, and everybody does it anyway.
So I’ve noticed that most people are managing to drink, most of the time having something in their hand that they’re about to drink if somebody notices they’re not wearing a mask at the moment.
Now, back to the matter at hand, this panel is brought to you by the Executive Committee of the Administrative Regulation and Practice Group. Putting together interesting and informative programs on important topics like this one is one of the things practice groups do. If you’re not now a member of one of The Federalist Society’s 15 practice groups but would like a role in putting together interesting projects like this, I encourage you to join one.
The topic of today’s panel is administrative inquisitions: how agencies initiate, conduct, and conclude investigations. And I’m not sure which agency it is that’s inquisitive right now, but that’s all right, I can see. In addition to formal rulemaking and case-by-case adjudication and enforcement, federal agencies have long employed a myriad of mechanisms to influence and publish private behavior. Civil administrative investigations can be not only onerous but also financially catastrophic, especially when the targets are small businesses and individuals.
To what extent are these investigations bounded by the procedural constraints of the Administrative Procedure Act, traditional transparency protections, or the redress afforded by timely judicial review? Our distinguished panel will address these and related questions.
We are delighted that our moderator for today’s panel is the Honorable James Ho of the United States Court of Appeals for the Fifth Circuit. It’s hard for me to believe that this coming January, we’ll see the fourth anniversary of Judge Ho’s ascendance to the bench. Immediately before joining the court, Judge Ho was co-chair of the national appellate and constitutional law practice group of Gibson Dunn & Crutcher. Early in his career, among other demanding posts, Judge Ho served in the Justice Department’s Office of Legal Counsel. This is where I first encountered him, and it has been a great pleasure to watch the progress of his career and continued service to the nation since then. Judge Ho.
Hon. James C. Ho: Thank you so much, Lee, and to The Federalist Society. And good afternoon, everyone. I am grateful for the kind introduction, but I’m specifically grateful that Lee explained that everyone in the audience is supposed to wear a mask because I’m from Texas. And where I’m from, if I saw everyone in a room wearing a mask, I’d be worried that we were being robbed.
Now, as the moderator today, I am not going to say too much both because we already have a great group, a panel of experts here, and also because my voice is a bit hoarse, so I do apologize for that. But don’t worry, I’ve talked to my doctor. He said it’s not COVID. I’m just allergic to Washington, D.C.
We’re all familiar with the structural constitutional issues presented when administrative agencies promulgate rules, rules not written pursuant to Article I, by officials not fully accountable to the president under Article II, and subject to only deferential review under Article III. But less attention has been paid to investigations conducted by administrative agencies, investigations not regulated by any law enacted by Congress, not subject to accountability to the president or his cabinet, and not subject to judicial review. Fortunately, the Society has assembled for us today an exceptional panel to explore these particular issues. And after their remarks, we will be welcoming questions from the audience.
Our first speaker today will be Professor Aram Gavoor from the George Washington University Law School, and as I understand—hot off the presses—now the Associate Dean at the law school. He is a nationally recognized scholar in administrative law and federal courts. As a Justice Department litigator, he has appeared in federal district and appellate courts nationwide, and he recently co-authored an article on administrative investigations with Steven Platt, an article that has largely prompted much of our discussion today.
Next, we’ll hear from Professor Richard Pierce, also from the George Washington University Law School. He has written over 20 books and 130 articles about administrative law, and in particular about the effects of government intervention on the performance of markets, and his books and articles have been cited in hundreds of court opinions, including over a dozen Supreme Court opinions.
Next will be Tyler Clarkson, who serves as Associate General Counsel at a synthetic biology company where he handles all manner of regulatory and compliance issues. And he previously served as Deputy General Counsel, Principal Deputy General Counsel, and Acting General Counsel at the U.S. Department of Agriculture.
And then, we will hear from Susan Rodriguez, a Partner at McGuire Woods, where she is co-lead of the firm’s financial institutions industry team. She focuses primarily on government investigations and complex civil litigation. She previously served as a policy advisor at the Department of Homeland Security, and also clerked for Judge Frank Whitney on the United States District Court for the Western District of North Carolina.
Professor, would you like to get us started?
Prof. Aram A. Gavoor: Yes. Thank you to The Federalist Society and Dean Reuter for hosting this event, and to the Administrative Law and Regulation Practice Group, and our Chair, Lee O’Conner, for selecting this panel. And also, I want to personally thank Steven Platt, who’s sitting right over there, if you could raise your hand. He’s the other half of this little outfit in terms of the scholarship that we’re discussing today and for which the panel is based.
So when I wrote my remarks for this, because we hadn’t had one of these in a while, I didn’t realize I’d recognize about 40 people in this room, all very heavy hitters. But for those of you who don’t know the fundamental rudiments of administrative investigations, I kind of view it as the dark matter of administrative law. This happens. It exists. It’s mostly necessary for the parts of administrative law that we are aware of, the stuff that’s subject to positive legal constraints contained in the Administrative Procedure Act of 1946.
And those of us who are experts in the subject matter are actually experts in silos of the subject matter, the financial services experts in investigations, experts for Inspector General’s investigations from the Department of Health and Human Services, experts for the Wage and Hour division for Fail Labor Standards Act violations.
But there hasn’t been a single trans-substantive constitutional account for administrative investigative behavior, and that’s where the questions that I and my co-author are looking to explore in an article titled “Administrative Investigations” that’ll be published in the Indiana Law Journal later this year. So when I say, “Me” or “I,” I mean, “We.”
So imagine that you’re running a small business that facilitates, say, the sale of gently worn children’s clothing on a consignment basis by renting space and using volunteer staff of your consignors as assistants in exchange for early marketplace access. That is among the most benign businesses I can think of.
Nonetheless, also imagine that you don’t live near Washington, D.C. You live in someplace, perhaps, rural, and your interactions with the federal government are usually in the mail -- paper. And then imagine that an investigator from the Wage and Hour Division of the Department of Labor comes knocking on your business’s door, smiling, of course, asking about whether it’s possible to inspect the books for employees just to check and make sure that the FLSA of 1938 is being complied with. Not a big deal.
Just a quick polling of the audience. Good idea to let that person in? No. Well, of course, we know better, but the American regulated public mostly does not. Well, the rubber meets the road, of course, where first, the Hobson’s choice where the investigator’s let in, inspects documents, maybe takes them away to make copies and brings them back.
And then, all of a sudden, a few days or weeks later, you get an enforcement letter for a violation of the FLSA of 1938 with some sort of calculated amount of back wages, which would have a tax consequence that flows from it. You don’t really have many opportunities to challenge it, and heavens, you wouldn’t want to because you’re a small business. You don’t have the resources to handle that kind of asymmetric power relationship.
Or you could choose option B and not let the person in. Then they’ll start potentially insinuating or implying that they have the power of compulsion upon you and that they might come back with some more heavily enforcement-minded demeanor with an express authority to do so. So it’s not a really easy body of options.
Well, this conduct, this behavior happens all the time in the United States, and I’m talking just at the federal level, across many agencies, across with, perhaps, many of your clients. And many of us who have been in federal government understand the sheer power that federal investigative authority lends, not just to engage in what I’d style as statutorily linear investigation of potential violations, audits that are required by the law, but sometimes, and especially when there are few constraints to regulate that conduct of government, it can be punitive. It can be crushing to businesses, to individuals, and it can also cause behavioral change as a function of regulation that did not find its way into the federal register.
So my co-author and I, we hypothesized just this and tried to write the first law review article that covers all of this material. We had to cut about 20,000 words. But the whole and the goal that at least I bring to bear for this interaction is that first, we can all agree upon the fact that this indeed exists. Second, that it is largely unregulated. By the way, it is unregulated by the Administrative Procedure Act of 1946. There are no positive procedures for agency investigative conduct. Third, this presents a problem. And fourth, maybe the areas upon which we can have the rich disagreement that is germane to these panels might be upon the solutions for it.
And hopefully, those of you who are scholarly inclined might do some further research on it. And for those of you who are litigation inclined might find that there could be an appropriate basis to perhaps stand up a little more and engage in something otherwise than capitulation when government comes knocking in semi-legitimate ways.
Our research, the big key of all of this, is that in the mid-20th century in two cases, Oklahoma Press and Publishing Company v. Walling from 1946, the year of the APA’s enactment, and the United States v. Morton Salt, which many of us are familiar with from 1950, laid out a framework that was starkly distinct from the judiciary’s prior engagement with agency investigative conduct and took a very hospitable and deferential approach. And also, did so using, I think, distinctly different factual predicates then than what exists now with a substantially larger federal government with a substantially larger federal bureaucracy and substantially more, perhaps, politicized and policy-oriented investigative conduct.
Well, in so ceding or at least recalibrating the separation of powers from a constitutional law structural perspective, agencies were granted enormous bodies of deference to engage in all kinds of investigative conduct using relatively minimalistic statutory grants, using tactics that many would style as coercive, and having a wide body of discretion that perhaps they really shouldn’t have. Because as we know, government works more effectively when there are limiting principles put into place, when there are guideposts by which the government must comport when it engages in its conduct, and there are opportunities for those who have a grievance with the government to seek redress before the Article III courts.
We lack many of those features in the context of the administrative investigations. So the example I gave, Rhea Lana v. Department of Labor, was a case that I personally was involved with in the litigation on the business owner’s side. And that, I think, is striking because the first case that I mentioned, Oklahoma Press and Publishing Company, was a Wage and Hour case. The other case, Morton Salt, was a Federal Trade Commission case.
And the example that I immediately think of is LabMD, that mid-2010s enforcement action where the Federal Trade Commission, reading quite expansively its own Section 5 authority for data security purposes, investigated a cancer laboratory testing company, a small business, essentially into oblivion. The investigation killed the company, not even in the enforcement action that followed. So this type of conduct undoubtedly strikes me as not sound for a free and liberal society and certainly feels, to my read of the APA, using whatever methodology you prefer, textualism or even purposivism, well off-piste.
So the question then is, what do we do about it? We know that agencies uniformly investigate. And also, I think, from a maximalist perspective — and I think we have some maximalists in the audience — if you just completely shut down agency investigative authority, well, the federal government stops.
I’m approaching it from a more pragmatic perspective as drawn from Supreme Court behavior. If the Court is hesitant to even write off Auer deference by Chevron-izing it into Kisor v. Wilkie, which is almost impossible to meet, it is highly improbable that a significant litigation or two is going to solve this problem. What I think this calls for is principled and strategic incrementalism, especially because I’m living in a reality where Congress is in significant torpor; obviously, the first place we would go to for some sort of a solution to the problem.
So in the context of using the tools that are practically available to us, really, it’s the courts, and there’s a number of different solutions that can be brought to bear. The first would be really pressing back on the Fourth Amendment and the Fifth Amendment predicates from Morton Salt and Oklahoma Press. I think — and of course, I’m constrained by time — there is a variety of opportunities that well-situated litigators and companies that are willing to take the risk, of course, where capitulation takes with it a very high cost, can use to press back. The APA itself, like I said, has very little affirmative regulation positive procedures for agency action of this regard.
Well, first, it’s not technically agency action. It’s sort of pre-action. My definition of it with my co-author is that it is information gathering using any number of tools, CIDs, subpoenas, inspections, and the like, that are in a pre-enforcement, pre-adjudicative context, thus the investigation. Once you’re in the adjudication, you fall within the domain of the APA.
But also, the APAs we have seen with Supreme Court’s 2010’s behavior in the context of 704 reviewability has expanded Bennett v. Spear, and Sackett, and also with Hawkes. So the more that this conduct can turn into something that can be styled as final agency action, that can be a basis for Article III review because ultimately, the goal is, can we get this court to review it? And then to what degree are there limiting principles that the court can deploy to protect the individual liberties?
I suppose the last that within the time constraints I have time to articulate is it’s possible that the Court could also read agency investigative authority more narrowly at a maximalist perspective, apply a clear statement rule with regard to agency positive investigative authorities. But undoubtedly, perhaps, to offer more opportunities for motions to quash or for underlying challenges of the legitimacy of agency conduct based on the stated reason upfront. Thank you very much, and I very much look forward to the rest of the panelists.
Hon. James C. Ho: Professor Pierce?
Prof. Richard J. Pierce: Thank you, Your Honor. I really appreciate the invitation from The Federalist Society to talk to you folks today about this important subject.
I’m going to use Dean Gavoor’s article, the article that he wrote with Steven Platt, as my frame of reference in discussing this topic. For those of you who haven’t yet read it, I commend it to everyone’s attention. It’s divided into five parts, and the first four parts are extraordinarily -- well, encyclopedic. They’re comprehensive and persuasive accounts of four different points that I think he makes quite effectively.
First, agency investigative powers are important, and they’re understudied. I cannot remember reading any prior systematic study of agency investigations. Then he makes the point that agencies have very broad powers that are subject to only a few relatively weak limits. I think that’s absolutely right, though I would -- I agree completely that Sackett and Hawkes, two of the cases he mentioned, are really quite important in this respect where the Court showed great empathy for, particularly in these cases, it was farmers whose land had been classified as waters of the United States and, of course, showed a lot of empathy for them and said, yeah, they could get immediate judicial review of the jurisdictional determination.
And those two Supreme Court opinions have rippled all through the Circuit Courts and caused Circuit Courts to be more willing to intervene at earlier stages in agency decision-making processes. So those can be helpful.
I certainly also agree with another point that Dean Gavoor documents well. There is the potential for abuse of these very broad powers and the potential for abusive use of them to cause a lot of damage. In section five, Dean Gavoor gives us a very rich menu of options of ways we might try to address this phenomenon. He uses appropriately cautious language, and I would urge caution in thinking about how best to address them.
I’ve always believed that by far the most powerful law is the law of unintended consequences, and I think it’s important to remember that there are a lot of individuals and a lot of companies that engage in violation of laws that produce a tremendous amount of harm to society and that agencies have a very important function of investigation to determine and identify such violations of law and do something about them. And any additional procedural hurdle or opportunity for judicial intervention in the investigation process won’t necessarily force the agency to divert resources from its other tasks, and that, in turn, will reduce their ability to perform those important tasks.
Now, with that in mind, what I did is I looked at the rich menu of options that Dean Gavoor has in section five, and I have neither the time nor the expertise, frankly, to give you an evaluation of all of them. But I have identified two that I think are particularly promising and then two that I don’t think are promising. So I’ll just describe each.
The two that I find promising are internal separation of functions where the agency enforcement personnel are not allowed to talk with the decision-making personnel, and the investigators are not allowed to communicate with the decision-making personnel. That is a very important principle. Congress included it in the Administrative Procedures Act applicable to any circumstance in which an agency is engaged in formal adjudication, and the Supreme Court in Withrow v. Larkin went out of its way to commend that congressional decision. I think it’s a very important principle and a very important way of protecting interests of regulated firms.
Unfortunately, Congress then created the option of using informal adjudication where there are no such requirements, and so a lot of agencies have that discretion, and they use the less formal, informal adjudication approach with none of the safeguards that apply to formal adjudication, including no requirement of separation of functions.
There is an easy fix for that, and it really relates to the second suggestion in Dean Gavoor’s article that I find promising. That is to get agencies to develop and to issue their own rules that circumscribe their powers, that state very clearly what they can and cannot do -- their personnel can and cannot do in the course of investigations.
There’s a very good recent article in Duke Law Journal by Kent Barnett in which he goes through the process through which an agency can add safeguards that Congress neglected to include in the statute through the rulemaking process, and then those rules bind the agency as well as everybody else. And the fact that the agency makes those rules when it’s thinking about the concerns that are raised by broad investigative powers assures that the agency is going to be looking at them with much greater care in a very different way than when the folks on the ground who are conducting a particular investigation are just potentially carried away by the facts of that case and have a tendency to engage in abusive behavior.
Well, they can’t do that if and to the extent that the agency has previously issued rules that say that they can’t. And you can force an agency to look at that prospect quite seriously by filing a petition for rulemaking asking them to issue such a rule. And if the agency refuses to do it, that’s judicially reviewable. So I think that’s a very promising approach.
Let me just mention two that he suggests that I think are not at all promising. One is that -- he puts it this way, agencies should have rules of evidence. Well, they all have rules of evidence, but most of them are just very, very broad and permissive. I’m guessing he’s talking about what a number of people have urged, that they adopt the federal rules of evidence.
I’ve been teaching that subject for 40 years now, and they’re just totally inappropriate for use in agency proceedings. They’re designed for a jury trial and have no application at all to agency proceedings. I studied that topic in 1986 for the Administrative Conference, and the Conference voted 100 to nothing in favor of a recommendation that agencies never use the federal rules of evidence.
The second one is he suggests that perhaps agencies could be told that they cannot have access to privileged matters. And that, I think, is also not a promising idea. People have been burying incriminating evidence in alleged privileged documents forever. It is a standard technique.
Just to mention a recent illustration of it, Michigan State, when it assembled all of the documents that made it absolutely clear that Larry Nassar was systematically engaging in sexual abuse of the athletes at Michigan State, the response by one of the senior administrators in the meeting when they looked at those documents was, let’s send them all to the lawyers and tell them to claim an attorney-client privilege. Now, of course, attorney-client privilege doesn’t apply, but you don’t know that without going through the documents themselves. So I think that’s also a nonstarter.
But I certainly agree that this is a good time to look with great care at the broad powers that agencies have to try to identify some ways of confining, limiting those powers that will not cause too much problems for the agencies in their ability to carry out their missions. Thank you.
Tyler S. Clarkson: Is this on? Great. I think we got the coach side of the table, so I’m not going to climb in and out near first-class over there.
Thank you, Judge Ho, for moderating today’s panel. Thank you to The Federalist Society for addressing this topic and my fellow panelists for participating. By way of a quick disclaimer, I am speaking strictly in my personal capacity, not on behalf of my employer, the prior administration, or the like.
Aram has laid out the landscape as it presently exists, the academic literature, the case law, and some of the larger problems that administrative enforcement entails. I’ll focus on what I’d suggest are historic administrative law reforms that took place in the previous administration, and when taken together, earlier Republican presidents did not undertake. Part of the appetite for such reform is a testament to the maturation of The Federalist Society and its influence on the debate related to the rule of law, and credit goes to the prior administration and President Trump for pursuing an agenda that didn’t yield to beltway resistance.
Much of the reforms that I’ll recount today are of lower political salience, though of fundamental importance, to the rule of law. Put another way, the political capital required to push these reforms through here in Washington doesn’t necessarily redound to the President’s benefit across the rest of the country. Nonetheless, President Trump issued three separate executive orders that fundamentally changed, at least while they remained in force, the relationship between U.S. citizens and the administrative state.
I will mention the first two briefly, but I will focus more of my remarks on the third EO of importance, the so-called Regulatory Bill of Rights. In October of 2019, President Trump signed Executive Order 13891, which I will refer to as the Guidance EO. The Guidance EO brought sanity to agency guidance practices. As a matter of course, agencies often clarify existing obligations through non-binding guidance documents, which the APA exempts from notice and comment requirements. However, agencies sometimes use this authority inappropriately to try to regulate the public without following the rulemaking procedures of the APA.
Even when accompanied by a disclaimer that is non-binding, a guidance document issued by an agency may carry the implicit threat of an enforcement action if the regulated public does not comply. Moreover, the public frequently has insufficient notice of guidance documents which are only sometimes published in the Federal Register and rarely, if ever, distributed to all regulated parties.
Under the Guidance EO, it was policy of the Executive Branch, to the extent consistent with applicable law, to require that agencies treat guidance documents as non-binding both in law and importantly also in practice. Agencies were to take public input into account when appropriate in formulating guidance documents and to make guidance documents readily available to the public.
Agencies were permitted to impose legally binding requirements on the public only through regulations, that is, through notice and comments rulemaking, and on parties on a case-by-case basis through adjudications and only after appropriate process. Such an approach to guidance has the practical effect of limiting an agency’s potential administrative enforcement authority.
Ensuring an agency sticks to its enabling statute or statutes and notice and comment rules for enforcement purposes has the effect of limiting its jurisdiction. An agency cannot issue a guidance document to expand its enforcement authority and/or apply its authority to an entirely unforeseen circumstance, absent an intervening notice and comment rule. That kind of limitation, though perhaps not the direct aim of a rule of law approach to guidance documents, is nonetheless a desirable externality.
Turning to Executive Order 13892, which President Trump also signed in October of 2019, and I’ll refer to as the Administrative Enforcement EO. In much the same way that the Guidance EO served as a necessary predicate to the Regulatory Bill of Rights, in EO 13924, so too did the Administrative Enforcement EO.
Under the Administrative Enforcement EO, the prior administration set a policy whereby parties must know in advance the rules by which the federal government will judge their actions. No person should be subjected to a civil administrative enforcement action or adjudication absent prior public notice of both the enforcing agency’s jurisdiction over particular conduct and the legal standards applicable to that conduct.
Further, the Administrative Enforcement EO required agencies to publish a rule and procedure that governed administrative inspections. Both of these EOs serve as the necessary foundation for the big step the prior administration took to bring due process and consistency to administrative enforcement.
On May 19, 2020, the President signed Executive Order 13924. The EO aimed to provide regulatory relief to businesses and support economic recovery after the first COVID wave. The so-called Regulatory Bill of Rights appeared in Section 6 of that EO. And at this point, what I’d like to do is just walk you through those protections because I do think they’re responsive to some of what’s been discussed already, and some of it’s been endorsed, others not.
Executive Order 13924, Section 6, the Regulatory Bill of Rights in the first instance, the first protection was that government should bear the burden of proving an alleged violation of law. The subject of enforcement should not bear the burden of proving compliance. After that EO was issued in May, OIRA, on August 31st, I believe it was, issued an implementing memorandum in which, at least with respect to this protection, they suggested that members of the regulated public should not be required to prove a negative to avoid liability and enforcement consequences. Only if a statute requires otherwise should the regulated public face such a burden.
The second protection stated that administrative enforcement should be prompt and fair. And here, in its implementing memorandum, OIRA instructed that agencies should seek approval from an officer of the United States, that is, in most cases, if not all, someone who’s politically responsible, before entering into a tolling agreement, for instance, that would have the effect of extending the statute of limitations for an infraction. In addition, OIRA encouraged agencies to consider a regulation for applying limiting principles to the duration of an investigation.
The third protection, articulated in the Regulatory Bill of Rights, said that administrative adjudicators should be independent of enforcement staff, something we can agree on. And this particular protection in the implementing memorandum suggested that the protection aimed to apply more broadly the ex parte protections contained in the APA for formal adjudications.
The fourth protection stated, consistent with any executive branch confidentiality interests, the government should provide favorable relevant evidence in possession of the agency to the subject of an administrative enforcement action. This, in short, applied the Brady protection from the criminal context to the administrative enforcement context. And here, in its implementing memorandum, OIRA instructed that agencies consider Brady, Giglio, and Kyles, and that agency officials should timely disclose exculpatory evidence to the target of an enforcement. Likewise, agencies should automatically disclose evidence material to the mitigation of damages or penalties.
The fifth protection, which has not been as warmly received on this panel, is that all rules of evidence and procedure should be public, clear, and effective. And here, OIRA strongly implored agencies to seek to reduce the use of hearsay evidence in administrative enforcement adjudications, and that agencies should generally require the application of the Daubert framework to determine the veracity of scientific evidence. Agencies should make their rules of evidence and procedure easily accessible on their websites.
The sixth protection was that penalties should be proportionate, transparent, and imposed in adherence to consistent standards and only as authorized by law. Agencies were instructed here in the implementing memorandum to establish policies of enforcement discretion that decline enforcement or the imposition of a penalty when the agency determined that the regulated party attempted in good faith to comply with the law. The OIRA implementing memorandum here also directed agencies to make the public aware of conditions in which investigations and enforcement actions will be brought and to provide the public with information on the penalties sought for common infractions.
The seventh protection was that administrative enforcement should be free of improper government coercion. And here, OIRA encouraged agencies to consider protections that would guard against retaliatory or punitive motives or the desire to compel capitulation. Such things should not form the basis for an agency’s selection of targets for investigations or enforcement actions, or other investigations, enforcement decisions, or the like.
The eighth protection in the Regulatory Bill of Rights stated that liabilities should be imposed only for violations of statutes or duly issued regulations after notice and an opportunity to respond. Here, OIRA encouraged agencies to consider that in any document initiating an investigation or enforcement action, an agency should include a citation to the statute and regulation asserted to be violated and an explanation as to how the asserted conduct is prohibited by that statute or regulation.
The ninth protection was that administrative enforcement should be free of unfair surprise. And the tenth protection was that agencies must be accountable for their administrative enforcement decisions. And here the implementing memorandum stated that in addition to the substantive mandates of the APA, the initiation of investigations and enforcement actions should carry the structural protection of requiring approval of an agency official who is an officer of the United States, again trying to introduce some measure of political accountability.
And so I know this was not -- to provide a little context here too, this was not something that in the EO that was issued bound agencies to initiate rulemaking on. It strongly encouraged department heads to consider whether these principles of fairness ought to be applied in their administrative enforcement contexts, and OIRA sort of doubled down on that, albeit still not in a fashion that bound agencies. And so, between the summer of 2020 and the fall of 2020, we found ourselves largely in a position where we didn’t have adequate time, I think, to do this in the way that it should be done. I’m happy to talk about that some as we get into Q&A, but with that, happy to yield the floor, too.
Susan C. Rodriguez: Well, I’m very grateful to Tyler for setting the precedent that we could sit down and speak to you all because I was wondering how I’m going to get over there gracefully without falling off the stage here. So thank you.
I’d first just like to say just what an honor it is to be here with an esteemed panel on this important topic. Just before we stood up, I told now Dean Gavoor that when I read his article, I felt like I was reading a novel that I was actually living. I see this every day in my practice. And I’ll say, just as Tyler said, these views are my own views and not that of my employer or my clients. But as we were preparing for today, I promised the panel that I would bring the practitioner’s view with several examples or case studies, if you will, that I’ve seen over the years.
As Judge Ho mentioned earlier, I practice in the area of government investigations, and I often see when there is a civil investigative demand or administrative government subpoena that seems very innocuous at first, and then suddenly we are faced with a criminal investigation.
So here’s a few things I’d like to go through. First, I’m going to talk about the Consumer Financial Protection Bureau, the CFPB. There’s two things that I would like to talk about here, first, the civil investigative demand, CIDs, and then using enforcement actions to create rules outside and circumventing the rulemaking process.
So it’s been really interesting. I don’t know if anyone else in the audience has sort of followed this CID process with the CFPB. Obviously, the CFPB has only been around for a few years, so it’s really easy to study that evolution. Most of you know a CID can be issued by the CFPB to companies, or a witness compelling them to produce information, or to submit to an interview with the CFPB.
Now, there is the Consumer Financial Protection Act of 2010, of course, authorizes the bureau to issue these investigative subpoenas when it’s looking at violations of law. And the CID, as we all know, usually is the signal of a start of an investigation. Perhaps you’re the target, and sometimes if you’re lucky, maybe you’re just a third-party witness. We’ve seen both. But these CIDs are incredibly burdensome. Sometimes I’ve seen requirements to provide whole databases of information within just a two or three-week timeframe. There’s little room to negotiate with the CFPB enforcement attorneys.
In the early years of the CFPB, companies and banks wanted to challenge the scope of these CIDs but were disincentivized to do so for numerous reasons. One, it’s very costly to challenge these CIDs, and, as someone I was talking to earlier thought this was the most important point, you risk upsetting your regulators.
So if you’re a bank or a fintech company, some of your clients are fearful that if you push back on a regulator, there’s a taint that will follow the company or the bank for years that money and litigation cannot repair. For some companies, there are also shareholder considerations. Sometimes your hands are tied, and there’s no appetite to fight back if a matter can be quickly and quietly resolved with a reasonable civil monetary penalty.
Now, I wrote about this back in 2013 when an entity was one of the first to challenge a CID over a privilege issue, and Professor, I’m glad you brought up privilege issues. This was in the U.S. District Court for the District of Columbia. Although this was not the main issue in the case, the court reiterated in a response to a civil investigative demand a recipient may withhold responsive material based on a claim of privilege. And this is the important part. The court noted that the CIDs issued by the bureau are not self-enforcing, and therefore the bureau could not have compelled information without a court proceeding in which a claim of privilege could be asserted.
Now, for us in the room, this may not sound very far-fetched. Now, this sounds like common sense, but at the time, this was a groundbreaking thought on CIDs. When you compare that also, some of you may be aware of 12 U.S.C. 1828(x). In the supervisory capacity of the CFPB, they actually can review privileged materials.
So let me just say that again. The CFPB can actually review your privileged materials. It’s very similar to the privilege that the OCC has, where they can also review a bank’s privileged materials. It does not waive the privilege and future litigation, but imagine that. And even though that’s in a supervisory context, I have seen personally enforcement attorneys get together with the supervisory attorneys, and they share information. So this is a very concerning thing to look at and to see how that could play out.
Now, to go, Tyler, to what you were saying, this was just before some of the October 2019 EOs that came out, but in April of 2019, the CFPB announced policy changes regarding these CIDs. It announced that the CIDs will provide more information about the applicable provisions of law that may have been violated. So the CFPB promised to provide recipients of these CIDs more information because before, they had been very secretive. Often times when you get a CID, they might not even tell you exactly what they’re investigating, and that’s really troublesome for companies who don’t know why the information is being requested or how to properly defend itself.
Now, I’d also like to talk about RESPA. RESPA is a very interesting case study here, I would submit, because if you look prior to the Trump Administration, there was a trend going on at the CFPB of using RESPA enforcement actions to make rules but not using the rulemaking process. It was very interesting. So before the Trump Administration, about a third of all enforcement actions at the CFPB were RESPA-related. As you may recall — the Real Estate Settlement Procedures Act, by the way — RESPA carries both civil and criminal penalties.
So I vividly remember an interview with the CFPB where I had an individual, and he had accepted some Super Bowl tickets, and we had to make a judgment call. Do we reveal this to the CFPB because, technically, that would be a violation of RESPA? But RESPA just doesn’t have civil penalties. It has criminal penalties. And as all good CFPB attorneys at the very beginning of those investigative interviews, it’s very intimidating because they will recite the 1001 rule to you and remind you that if you give a false statement to the government, there will be consequences.
Now, thankfully we made the right call in that case. We did not get referred over to Department of Justice for criminal prosecution, but that is just some of the things that you’re facing with RESPA.
Now, another interesting thing is some of you all might remember back in 2015 there was not a proposed rule, there was no commenting, there was no final rule. Instead, in 2015 the CFPB issued a bulletin on marketing service agreements and RESPA.
Now, what was interesting about this is this came about on the heels of several enforcement actions, so you might remember Lighthouse, NewDay, and others. And it basically warned the industry that was using marketing service agreements -- that is, if I want to advertise or jointly market and I am a provider of a settlement service, for example, a lender, I have to be very careful about partnering with title companies, home warranty companies, and others. If I have an agreement with them to provide advertising services, I need to make sure that I’m not paying them improperly for referrals.
Now, some of you all might remember this ended up at the Supreme Court, but I would like to not even go to the Supreme Court so far but actually talk about the D.C. Circuit and the PHH case. I’m sure some of you all closely followed that action. Ted Olson argued that case, and it was really interesting because there was -- in the D.C. Circuit when they heard this, it was then Judge Kavanaugh, now Justice Kavanaugh, was talking during oral argument and questioned whether the CFPB gave fair notice of its interpretation of RESPA and alluded to the widespread understanding in the industry that the MSAs were legal under prior HUD guidance if you followed certain rules.
And then this was my favorite part, in a colorful comment Judge Kavanaugh, now Justice Kavanaugh, analogized the CFPBs sanction of PHH to a police officer saying, “You can cross the street here,” but then gives you a $1,000 ticket when you get to the other side.
After all of this happened, some of you who follow the CFPB might remember last fall at the end of the Trump Administration, they came out with some new RESPA guidance which were just questions and answers. Again, no rulemaking or anything like that, but they were questions and answers, and they finally did rescind that 2015 bulletin that most of the industry had been following.
So I’ll conclude with the CFPB, and I’ll move on to another example which I think is really interesting. It comes from my time when I was at Homeland Security, and I still do a few of these now, but ICE subpoenas. So everyone probably knows if you have ever worked for a company, you have to go in and on the first day of work you complete your Form I-9. Does everybody remember doing that? So you submit your passport or your driver’s license, social security card, your birth certificate.
And for those of you who follow that, there’s about an 80-page handbook that the government issues on compliance with Form I-9s. And if you fail to comply, the government can come in, they can do a Notice of Inspection, and they can fine you for every single paperwork violation. So if you’re completing the form and the company inadvertently leaves off the driver’s license number, you can be fined about $240 to about $2,400 per Form I-9. Kind of interesting to think about.
But here’s where the interesting part comes in. ICE can issue a Notice of Inspection, and that is part of an administrative summons that they issue to the company. They can actually come into the company without prior notice, provide this administrative summons, and here’s what they’ll get in return. They can request your Form I-9s, and if you keep copies of every one of your employee’s driver’s license and security cards, they will get copies of all of that too. They can ask for your tax records. They can ask for your payroll records. They can ask to interview you, and they do so.
And so you can see how this can start out as a civil investigation. But if you have maybe a landscaping company where you’re down in Florida, and you happen to have maybe some workers who aren’t work authorized but submitted fake documents, well, maybe the company didn’t know about it, but you are now being looked at in a criminal capacity. Did you know or did you not know that you may have been employing unauthorized workers?
So you can see how a so-called innocent administrative subpoena and summons can quickly turn into a criminal investigation, and nowhere at the beginning of this inspection did you have any Fourth Amendment rights. And we’ll talk about some of this. That’s at least ICE’s position when that happens.
Now, the reason I said that when I read your article, Dean Gavoor, I loved that he had a footnote on the Department of Justice Immigrant and Employee Rights Section. This used to be the Office of Special Counsel. Some of you all may know it by that. But now it is called Immigrant and Employee Rights Section, IER, part of the Civil Division.
Now, they have the power to investigate, and I wanted to tell -- this is public. It’s in a published decision. It’s an administrative decision. But I once had a company where they came to me, and they had received an investigation, a subpoena where they needed to provide a lot of information. They had to provide all of their I-9s and submit to numerous rounds of interviews, and it was all because an individual had complained that the company had asked for a copy of a social security card and followed up outside of the Form I-9 process.
So this little section at DOJ has the right to investigate potential discrimination, but they are bound by a statute that includes who are protected individuals, and that should contain their jurisdiction. That’s under 8 U.S.C. 1324(b). However, in this particular instance, DOJ kept investigating, and ultimately, they ended up fining the company for a conduct that was totally unrelated to what they were originally looking for.
Ultimately, the individual ended up suing, in an administrative complaint, the company. And I got to argue that the DOJ investigation should have never happened because this particular complainant, this individual who complained, was not protected under the statute. They did not fall into the statutory definition of a protected individual. And you query whether or not the Department of Justice should have ever been investigating in the first place because it was easy to find whether or not he met the definition of a protected person or not. He did not. We successfully argued that through an administrative panel.
But I will say, unlike the example that I used with ICE and the summonses, the Department of Justice Immigrant and Employee Rights Section has a more robust administrative process that you can follow to sort of challenge these things. They have an administrative law body that I went to, and that’s where this published decision, which is buried somewhere on OCAHO’s website, that you can find that talks all about this.
And interestingly, if I had lost at that level, I could have went straight to a U.S. Court of Appeals. I would skip the District Court altogether. So I wanted to say that because I thought to juxtapose the ICE administrative subpoena, where you don’t really have a lot of rights to challenge it, versus the Department of Justice Immigrant and Employee Rights Section, where you do have a more robust opportunity to challenge it, might be interesting as we study this area.
I’ll conclude with just some thoughts on -- I do agree with you that this is an area that needs to be studied. It is very complex and challenging to study, however. FOIA limits really prohibit -- even though sometimes you might be able to get certain information, a lot of agencies will do everything they can to avoid any release of investigative issues under FOIA. It’s often unknown what agencies and bureaus are doing in this area, and you only know about it from practitioners or professors. There’s little by way of statistics out there on this topic.
I’ve also considered the judicial option, and we’ve talked -- somehow, those have been successful today, but I do struggle with this option. There are challenges. It’s a catch-22. I think most of us in this room probably agree that judges ought to be bound by judicial restraint. There’s a precedent for deference to agencies, and so how do you address it with that backdrop? Maybe when we talked about the civil to criminal investigations, perhaps the Fourth Amendment is a way to do that.
I’ve also thought about the congressional solution, and that might work, but I think that really needs to be studied more, and we need to consider what might happen. I guess be careful what you wish for because if you did go the congressional solution, it might not turn out so well.
So with that, thank you so much for allowing me to be here. And we’ll look forward to the Q&A portion.
Hon. James C. Ho: So while we wait for any members of the audience to approach -- I think we have some microphones around the room. While we wait for that, I do want to invite members of the panel to respond to one another to the extent that there are any. Professor?
Prof. Richard J. Pierce: Thank you, Your Honor. Just briefly, in response to Susan, as I recall, the third example -- the last of the examples was a pre-Sackett and Hawkes situation. And Sackett and Hawkes would give you the tools necessary to keep that from happening today, so that’s an illustration of how those recent opinions can be valuable in this context.
The other thing I want to say about Tyler’s remarks, I was just -- just to put this into perspective, I was harshly critical of a lot of the regulatory actions that were taken during the Trump Administration. So when those three executive orders came out, I read them with an entering attitude of skepticism and concern, but after reading over them a couple of times, I said, "No, these are just fine."
They’re actually -- I think they’re quite carefully drafted. I’d say 90 percent, at least, is just codification of existing laws. I read them. I was jotting down quickly names of cases or references to cases that supported the principle. The few that were not or are not clearly supported by precedent are just kind of common sense riffs on what courts had said.
And I actually urge somebody to think about it. If you know somebody, a professor who’s looking for an article topic or a student who wants to write a good note, you could take, say, a third of those executive orders and annotate it. Do an article or essay or note in which you say, okay, here’s what this says, here’s the case law that supports it, and go through the whole thing. So I thought it was a useful codification, and I was not generally a fan of the Trump Administration, so…
Tyler S. Clarkson: Appreciate the exception.
Hon. James C. Ho: Professor Gavoor, I think Professor Pierce did have some criticisms of some of your suggestions. Now that you’re Dean, do you want to comment on your colleague?
Prof. Aram A. Gavoor: I’m not his Dean. I’m just the Associate Dean for Academic Affairs, so I help with the curriculum and part-time faculty.
I think they’re well-stated viewpoints. When my co-author and I laid out the menu of options, obviously, we weren’t going to mention anything that we couldn’t get behind. And I think it’s just a difference of opinion. My view is I’m very dubious of hearsay exceptions. The Court allows for reliable hearsay in administrative behavior in the context of formal adjudication, but generally speaking, I think it’s just a policy preference. Perhaps not all of the federal rules of evidence, but maybe just some of them might be suitable, and I also think administrative behavior from 1986 undoubtedly is very different in 2021, so maybe some of the factual predicates are different.
And then also with regard to access to privileged materials, it’s a hard one because he makes a good point with regard to Larry Nasser. But also, at the same time, Susan makes an equally good point that even if there are rules to allow privileged information, agencies don’t necessarily follow them. So my solution with Steve is why not have a separation of functions, and also have the classic diffusion of discretion that the administrative state has in spades for all kinds of other conduct, and apply that in administrative investigations?
Hon. James C. Ho: Any other comments? All right. We do have time for a question or two, if there are any. The gentleman here.
Mike Daugherty: Hello. I’m Mike Daugherty. I’m not a lawyer. I’m the President of LabMD, who spent 12 years being shredded by the fine Federal Trade Commission. So I’d like to ask Professor Pierce about what’s wrong with having administrative procedures under the rules of evidence and civil procedure, because my experience is that tons of hearsay came in. My lawyers had no experience in those courtrooms with that. The media ran with it. You can’t say, “It’s not true and no one believes you,” and six years later, “Oops, we were wrong.”
And it’s because the whole legal system, when you try to get a lawyer to come into this, you’re like, “I’m in kangaroo court. I don’t know the rules there.” And then you end up in an Article III court anyway. So why do we have to have this circle and confused rule book that only benefits the agency and leaves the poor citizen defendants who have lost a medical facility out in the swamp, so to speak? I tried to ask that gently.
Prof. Richard J. Pierce: So the rules of evidence -- you go through provision by provision. And there are many, many provisions that say what the judge needs to do here is look at the evidence and decide whether the jury should be allowed to consider it because that’s the only point at which you can assure that decision is not made based on extremely weak evidence at the point of admission because once the jury sees it, you have no way in the world of knowing why the jury decided it.
In any administrative case, there is a decision that tells you what they relied on and what they didn’t rely on. That is a much, much better opportunity to sit down and figure out, is this evidence sufficiently reliable and probative to be the basis for this decision? And that’s what courts do routinely.
It makes no sense at all to instead engage in the very, very crude practices that aren’t necessary in the context of a jury trial to make sure that jurors have no access to any evidence that they might abuse in the processes of their decision making. We know that they operate primarily based on emotion. Everybody knows you start a case with the sobbing parents holding the baby who’s been injured on one side and the doctor, well known to be insured, on the other side. The case is over. You don’t even need more evidence than that.
Mike Daugherty: So we should have jury trials.
Prof. Richard J. Pierce: That’s not the case with agencies.
Mike Daugherty: All right. Can I follow up?
Hon. James C. Ho: Please.
Mike Daugherty: So how do you propose, then, you reign in the abusive agencies, because with all due respect, I’ve got tons of transcripts that will show outrageous lying, especially from the Eleventh Circuit Court of Appeals to the FTC saying, “You participated in shakedowns.” Now, the problem is there’s nothing to protect the people that are getting abused by this weaponization of this process until you get to that point. And most people don’t climb justice mountain that far because they’re not crazy like me.
But I can tell you, with all due respect, it is being abused like crazy by the SEC and the FTC, for starters, because they all share the game with each other. So the credibility of the courts has been compromised, and the integrity has. That’s why we have, evidently, annoying things like a jury because that’s supposed to be by the people. And what happened by not having that protection is we lost a medical facility with 700,000 patients. And now they’re saying, “Sorry, we were wrong. Here’s $800,000.” And see, that’s the type of thing -- that story has to stop. So is there a way to protect from that if we’re not going to allow those rules?
Prof. Richard J. Pierce: Yeah, I don’t know the facts of those cases.
Mike Daugherty: Well, we didn’t have any babies crying.
Prof. Richard J. Pierce: But that’s why judicial review exists. That’s the opportunity to say, okay, this agency did the wrong thing, and so we’re hereby reversing it and vacating it. I know of no better remedy than that.
Hon. James C. Ho: Aram?
Prof. Aram A. Gavoor: If I might add a point, there are two other residual values to having at least some federal rules of evidence grafted upon agency administrative adjudication because they are familiar and consistent standards. So to the extent we can agree upon whether or if some of them are appropriate to graft on, they would then first benefit from the case law and great familiarity among the Article III jurists who are reviewing agency action, which, by the way, the agency findings of fact are deeply deferential under 7062(a) through (e).
And second, I think it would allow greater access to justice, and perhaps more willingness for litigators with general civil litigation background to delve into administrative law issues because it’s not going to be some sort of arcane mysticism that is associated just with one agency or a particular administrative law judge, and it’s going to be more generally applicable.
Susan C. Rodriguez: And I would like to add too. So first of all, thanks for being here. Having many clients similarly situated to you, I sympathize with your position. Hopefully -- it sounds like you did this. You ultimately triumphed in the end. But hire really good lawyers and see if you can clamp down on it at the beginning.
Sometimes I’ve found the most effective thing is lobbying efforts through the agency. Hire folks who know everyone in the enforcement division, and that is the best way to negotiate in the beginning. But when you talk about the federal rules of evidence, I’ve even found I’ve been in even interviews, or really, they’re depositions of sorts, where the attorneys don’t even know the federal rules of evidence --
Mike Daugherty: -- They don’t.
Susan C. Rodriguez: -- because they’re not practitioners, they’re government attorneys. And I was once a government attorney, so no offense there, it’s just sometimes they don’t necessarily know that. And oftentimes, investigations actually start out based on hearsay, and I don’t think that’s ever going to change. You get a tip from a complainant. You even get tips from competitors who might purposely try to get an investigation going to gain a competitive advantage.
Mike Daugherty: Well, I would say FedSoc is what led us to great lawyers, I must say. I came here seven years ago and got pro bono defense, so that’s also great too.
Susan C. Rodriguez: There you go. Good.
Hon. James C. Ho: We have a gentleman in the back.
Questioner 2: So traditionally, administrative law judges have been very independent, both in their selection and in their removal. But this has recently been ended by the Supreme Court recognizing that there are offices of the United States as part of the Executive Branch, and therefore appointed by and removal by heads of agencies.
As that happens, do you see that there is a substantial problem with due process where the government is selecting the judge in their own cause, able to remove that judge if they don’t like how they’re ruling, and perhaps moving administrative law judges into being closer to federal magistrates may be a good option for reigning in the agencies?
Prof. Richard J. Pierce: In short, yes. I’m very concerned about that. I’ve written on it extensively. I’ve been looking for the right case to argue on a due process basis, but the problem is in a sense worse even than the way you frame it because in addition to the administrative law judges — there’s what 2,000 of them — there’s 11,400 other judicial officers employed by agencies to perform analogous functions that have no safeguards whatsoever, and that is of great concern.
The article I referred to by Kent Barnett in the recent issue of Duke Law Journal was actually an article written in that context that if we cannot get safeguards through statute or through application of the due process laws, well, at least every agency should come up with rules that provide safeguards for those adjudicative officers so that they know that they’re not going to be fired or demoted or sent to Siberia if they make a decision that offends the government.
Hon. James C. Ho: Last question.
Questioner 3: Yeah, Dean, I was just curious, and I’ll tell you why I’m asking this question. In all your research, did you find an example of where a career person who was perhaps overly aggressive, going beyond whatever boundaries they may have established, was punished in some way for being aggressive in that way?
And the reason I’m bringing that up is we can have all the Trump executive orders or whatever, but it’s all paper in the end because when you’re down at that lower base, very few people have the wherewithal to go up to the courts and challenge whatever that career person’s doing. And the political people are all busy on big stuff. This is not sexy things. Unless you have some kind of penalty that’s associated with violating whatever these norms might be at the career level, it’s all paper, I think.
And the other part is, is there a way to penalize agencies for bringing frivolous cases such as strengthening the Equal Access to Justice Act, which we did on the Hill one time and got a bill through the House, by removing the requirement that a company has to show that the agency’s position was not substantially justified such that the attorney’s fees would be automatically awarded upon the business showing that its position was vindicated.
So you’ve got to penalize the agency for bringing frivolous cases, and you’ve got to have some deterrence, I think, on career people who go beyond the boundaries and are just abusive to the employer community or whoever it is. Otherwise, it’s sort of a lot of paper, and it’s subject to people being able to hire good lawyers to go up to the courts of appeals, and that’s going to be one out of a hundred cases at best. Otherwise, it’s just a lot of talk, and it’s not going to be helping that small guy, I think.
Prof. Aram A. Gavoor: Great series of questions. So the first one is I am not aware of a government bureaucrat in an agency that is not the Justice Department that has gotten in trouble for that kind of conduct. And that’s different from just general ethics violations or stealing money and the like. DOJ attorneys will sometimes get in trouble in defending agency action as they interact with the Article III courts, sometimes unfairly because they just have the case and they have to defend it, and there’s a legal basis to defend it. But nothing of the class that you’re describing.
And I think you’re right in the sense that the term “penalties for agencies” does not have the same effect as a penalty would in a private-sector corporation. It’s not that agencies have a sense of shame or something like that. They just continue to exist. And it’s not like the employee is going to have an adverse consequence for engaging within the boundaries of the employment so long as it’s not outrageous one way or the other.
So I think in terms of providing resources to bring to bear to control Executive Branch behavior, it requires political power oversight in the context of the power of the purse, committees of oversight engaging in hearings. So in the LabMD context, House OGR had a hearing, if I recall, over Tiversa, a data security firm in Pennsylvania that may or may not have referred the LabMD data breach for a LimeWire misuse after they initially tried to get business from LabMD and LabMD said no. So the solutions are not easy ones.
Tyler S. Clarkson: And I’d like to add on that, having been at an agency, I think to the extent that you have -- you need paper. You need rules. You need rules of agency procedure or regulations in place because absent that, there’s no mechanism for holding a career employee accountable. If you have rules of agency procedure or regulations in place, and you have a political appointee, you’ve equipped that political appointee with a cause to discipline that employee. Absent that kind of rule of agency procedure, any sorts of internal procedures of a kind that I think a lot of us in this room would like, it is very difficult to discipline a career employee.
So you need actual rules of agency procedure, you need hand -- not handbooks in the pejorative sense, but some sort of procedure --
Questioner 3: -- It’s a start.
Tyler S. Clarkson: Yeah, there you go -- some sort of procedure internally whereby a political appointee with fortitude can fire or discipline that career employee absent the paper, as you pejoratively characterized it, you’re not in a position to bring down the hammer on a career employee.
Prof. Aram A. Gavoor: And I would also add, I think many career employees of the federal government genuinely attempt to uphold their oath to the Constitution as they engage in their work, but there’s enough of them who don’t, which gives rise to the problems.
Prof. Richard J. Pierce: I just wanted to chime in and agree completely with both your suggestion and Tyler’s important qualification of it, that there have to be rules that you can show were violated. But I’m with you. I think any employee who violates rules in this or other contexts should be punished. And I’ll tell you there is a movement, an interesting movement to extend that way of thinking into criminal law.
We had, for instance, a rather notorious case lately in which a famous actor had his conviction for multiple counts of rape reversed based on prosecutorial misconduct. And I was just looking at a draft of an article the other day where the author is arguing that instead of that punishment — which is not a punishment of the prosecutor; it is a punishment of the public and the victims of the crime — instead of that punishment, there should be a punishment for prosecutorial misconduct. And she looked at a lot of cases involving prosecutorial misconduct and didn’t find a single one where the prosecutor suffered any consequence. In some cases, they actually were praised.
Hon. James C. Ho: Well, that is perhaps a depressing way of closing this panel, but c’est la vie.
Before I adjourn this session, I’ve been asked to announce that the Scalia reception and dinner begins at 6 p.m., so if you’re planning to attend, you should start to make your way over to Union Station shortly. And with that, please join me in thanking our wonderful panel today.
2021 National Lawyers Convention
|Topics:||Criminal Law & Procedure|
For many who align themselves with fundamental principles of our constitutional system, the progressive agenda seems to be driven not only by an unreasonable cry to defund police, but a broader assault on the fundamental American precept "ordered liberty" through the rule of law. Meanwhile, those who align themselves with another agenda see these principles as a shield for abuses of police authority, particularly abuses aimed at certain communities, driven by perceived lack of accountability on the part of beat cops and administrators alike.
This panel will review the Constitutional underpinnings of "ordered liberty" at the state and federal level. It will discuss and consider the criminal justice system's role in both securing liberty and protecting civil rights, including as carried out by police, prosecutors, defense counsel and judges.
2021 National Lawyers Convention
Fulton v. City of Philadelphia was a victory for religious liberty, but it is unclear how broad its implications will be for other cases and what the opinions in Fulton portend for the future of Employment Division v. Smith. The Court’s majority opinion relied on provisions of Philadelphia’s foster care agency contracting process, but the majority also potentially reworked Smith’s understanding of when government regulation is "generally applicable." Meanwhile, several justices indicated a willingness to revisit Smith altogether, though what a post-Smith free exercise jurisprudence would look like remains unclear. This panel will explore these and other questions raised by Fulton and the future of religious free exercise.
Bill Saunders: Let's get started in just one minute. It's a great week to all see each other, and a lot of people are taking the opportunity to say hello to old friends, and I don't want to interrupt that, but we got a great panel and a great topic. So again, welcome.
This panel is put on by the Religious Liberties Practice Group. My name's Bill Saunders with Catholic University. I'm the Chairman of that Practice Group. I invite any of you that are interested in these issues, if you haven't joined the Practice Group, please do. You can see me or you can see Dean Reuter or someone and join it. Yes, so I welcome all of you to do that. And I welcome you to this panel.
The other announcement is, as you all know, D.C. regulations require wearing a face mask unless you are eating or drinking or speaking on this panel. So let me just hand it over to our Moderator who is Judge Lawrence VanDyke of the Ninth Circuit. And perhaps the -- I was going to say, the greatest thing to recommend him, but the dearest thing is before he ascended to the bench, he was a member of the Executive Committee of the Religious Liberty Practice Group so, Judge VanDyke.
Hon. Lawrence VanDyke: Well, thank you, Bill, and welcome to this year's panel sponsored by the Religious Liberties Practice Group which is titled, "Religious Liberty After Fulton v. City of Philadelphia." And it's my honor to moderate what I think we've assembled as an amazing panel to discuss one of the Supreme Court's most recent religious liberty cases, Fulton v. City of Philadelphia.
And you'll notice, I say recent instead of blockbuster or landmark because I don't want to taint the well here. And I hope our distinguished panelists will discuss this issue this afternoon, but there's some dispute about whether and what exactly this case did, the Fulton case. It was widely anticipated, I think, to do a lot and we're not sure exactly what it did. So that's one of the things that I'm hoping to hear about from our panelists today.
But while Fulton will be the center of gravity of their comments, I think, I'm hopeful that our panel will address some broader topics including what the future of Employment Division v. Smith is. Is there a better theory for the Free Exercise Clause? And why does the Supreme Court seem so enamored with deciding religious liberty cases so narrowly, perhaps maybe is something we can talk about.
Let me give a brief introduction of each our panelists in the order that they're going to speak, and then I'm just going to let them go without an introduction in between. Each of the panelists is going to give us about eight minutes of opening remarks, plus or minus, and then I'm going to -- once they've all finished, obviously, I'm going to let them respond to any of the other panelists, remarks if they'd like. And I might exercise the Moderator's privilege to ask a question or two, but then I really want to open it up and let all of you ask questions to our panelists.
I'm only going to give a brief biography of each of the panelists because I think you have the materials somewhere. I don't actually know where but they're available somewhere online. And if you want to -- and you want to hear from them, not me. And we're going to start with Lori Windham. She's Senior Counsel at Becket Fund for Religious Liberty, and I've actually known Lori since we went to law school together. And I think she may have started at Becket right after law school, Lori, I can't remem --
Lori Windham: I did.
Hon. Lawrence VanDyke: And she's been there defending religious liberty both in a courtroom and also by testifying in front of governmental bodies and other entities ever since. But most recently, and perhaps most relevant to our discussion today, she was the one who argued the Fulton case on behalf of the petitioners at the Supreme Court, winning that victory for her clients.
So we're going to start with Lori, and then she's going to be followed by Akhil Amar, who's a Sterling Professor of Law and Political Science at Yale University where he teaches both in the college and at law school. He's authored over 100 articles and multiple books and is widely acknowledged for his originalism research. He's been cited by the Supreme Court in over 40 cases and perhaps Professor Sunstein said it best in a review of one of Akhil's books where he said Justice Scalia is the most famous originalist, but in the law schools, the most influential originalist may be Akhil Reed Amar. So we're very delighted to have him talk about this topic today.
And then after Akhil, we'll hear from Tom Berg, Professor Tom Berg, who's the James L. Oberstar Professor of Law and Public Policy at the University of Thomas School of Law. At St. Thomas, Professor Berg teaches on religious liberty, con-law, and runs their religious liberty clinic. And he and Professor McConnell have one of the leading textbooks on religion and law. And Professor Berg has authored around 70 briefs in Supreme Court and in other courts on religious freedom issues.
And last but not least, we'll end with Professor Bill Marshall, the William Rand Kenan Jr. Distinguished Professor of Law at the University of North Carolina School of Law, where he teaches, among other things, on the Free Exercise Clause. And Bill -- when I was reading Bill's bio, I was happy to see that it looks like he spent time in multiple states' Attorney's General's office which has a soft spot in my heart because I spent time in multiple states' Attorney Generals' office. He was a deputy counsel and a deputy assistant to the President during the Clinton administration and also served, I think, as assistant general of Ohio and the special assistant attorney general for the State of Minnesota. So I won't ask him how he got between those two states because then he'll ask me how I moved around so much, but having worked in those, that's a soft spot in my heart.
So, Lori, why don't you start us off?
Lori Windham: Thank you, Judge VanDyke. And thank you all for being here this afternoon. I want to start off, of course, talking about Fulton. And I want to talk about Sharonell Fulton who's a single black foster mom, over -- more than 20 years of service, she's cared for more than 40 children in her home, giving them a home, loving them, caring for them, what she says, and she said it again and again, is there's room in my heart, there's room in my home, I want to care for these kids.
In March of 2018, the City of Philadelphia decided it would no longer allow any foster children to be placed in Sharonell's home because Sharonell works with Catholic Social Services of Philadelphia, an agency that shares and affirms her faith and has supported her on her foster care journey. The City of Philadelphia learned that Catholic Social Services did not provide written home study endorsements for unmarried or same-sex couples. Even though no same-sex couple had ever approached them asking for that kind of endorsement, they decided that they would no longer place any children with the agency or with any parents who worked with the agency.
I'm going to fast forward now to the end and skip over the part you all actually want to hear about to tell you what's happening now, which is that today, Catholic Social Services and its families are placing children once again. They're welcoming children into homes, uniting them with loving parents, and helping them through this very difficult phase of life. They're doing that because we have a consent decree with the City of Philadelphia. The City of Philadelphia is permanently enjoined to continue working with Catholic Social Services, not excluding them or excluding families like Sharonell's because of their religious beliefs and practices.
As Judge VanDyke alluded to, that might come as surprise to some of you in the room because you're thinking but wait, I'm not sure how consequential this decision was. I'm not sure why it would end up this way. I actually have a theory about why it ended up this way. Only the City's lawyers know for sure why this is where we ended up, but I think the reason it ended up this way is that we don't have the same Free Exercise Clause that we had in 1990.
If you remember one thing that I say today with this very distinguished panel, I don't know you're remember anything I say today, but if you remember one thing I say today, remember this. It's not the 1990s anymore and not every '90s trend comes back.
What we have is a Free Exercise Clause that has developed and evolved. And as it stands today, Employment Division v. Smith actually only governs a minority of cases, and I would say a rapidly shrinking minority of cases.
Now, I want to speak for a few minutes as a litigator, talking about when these cases come before you, how do you think about it? I know we're going to have a lot of discussion on the history and the theory today, and I’m really excited to hear it, but I want to set the table a little bit to talk about how we got here.
After Smith, Congress came together with overwhelmingly bipartisan majority -- this is a thing that happened in our lifetimes. They came together and they passed the Religious Freedom Restoration Act, and it was signed by President Clinton, also known as RFRA, a four-letter word now in many jurisdictions. But Congress said we don't want the Smith standard; we want a standard that is more protective of religious exercise. If the government burdens religious exercise, it needs to pass strict scrutiny. RFRA applies to all federal law and the implementation of that law. And that's how it applies today.
Congress later passed RLUIPA, applying that same standard to even state and local actions in the land use context and in prisons. And you have about half the states that have also said either by legislation, by constitutional amendment, or by state Supreme Court decisions that you know, we think we can do better than Smith too. We want to provide our citizens with more protection than is currently available under the Free Exercise Clause, and so we want a standard that looks like RFRA. And that is the standard they have.
And so when you're looking at a free exercise case, RFRA, RLUIPA, or state law, rather than Smith, is going to apply in many, many cases. Ask the Little Sisters of the Poor. And so the Supreme Court then continue to develop the doctrine, independent of what was going on in the legislative arena. And they, of course, passed -- they handed down the Lukumi decision where they started to explain this whole neutrality and general applicability thing that was in the Smith decision.
Lukumi's really helpful, but the circumstances there are pretty extreme. And so in the lower courts, my experience has been that lower courts often distinguish cases from Lukumi because they're like that's pretty bad. What happened here wasn't nearly as bad, and so we don't think Lukumi applies. But what has happened, especially in the last few years, is that the Supreme Court has really put some teeth into the neutrality and general applicability standards. They did that in Trinity Lutheran, where they applied it even in the context of government funding and said look, if you're going to exclude a religious organization because it is a religious organization, even absent any kind of proof of animus, that is not a neutral law. And so that is something that is not governed by Smith. It's going to be governed, arguably, by strict scrutiny and others can debate about that.
They did the same thing in Espinoza, where they said even in the school-funding context, you're not going to be able to exclude religious schools. They also looked at the negative and dark history of the Blaine Amendments and said this is not a neutral policy. You're not going to be able to treat religion in this way. It's going to go to strict scrutiny. They took on the Masterpiece case, and they said if the decision-makers, the government officials who are in charge, do not remember their own high duty to the Constitution when they're making these decisions, that's not neutral either and that's not governed by Smith.
Then, we had a fascinating series of decisions that came up in the context of Covid where you had states across the country that had shutdowns. They restricted religious gatherings, and they restricted other gatherings as well. So these questions come to the Supreme Court, and the Court is asked again and again how far is too far? Are these laws neutral and generally applicable because there's a lot of people who are restricted from gathering in a lot of different ways.
And yet, the Court, in a series of decisions starting with Diocese of Brooklyn and ending with the Tandon decision, said no, if you're going to say that you can have 20 people together in a factory but not 20 people together in a synagogue, that's not a generally applicable law. Even if you are restricting other kinds of gatherings as well where you're going to treat certain secular activities that pose similar risks better than gathering for religious worship, that's not a generally applicable law. That's not covered by Smith. We're going to go to strict scrutiny.
And then we come to Fulton where the Court looked at individualized exemptions. What we had in Fulton was a contract provision that said that there's certain rules that apply but the commissioner in her sole discretion could choose to waive those rules in certain circumstances. And the Supreme Court said look, when you have a government decision-maker who can unilaterally decide in a discretionary way where the rules apply and where they don't, this is not the kind of neutral generally applicable law that Smith envisioned. The Chief Justice said this is a case that falls outside Smith. It's an individualized assessment.
This was interesting because Smith had distinguished Sherbert in a prior line of cases on the basis that those were individualized assessments. This was something that had previously been used in the unemployment context, and the Court applied it in Fulton and showed that the individualized assessments piece of it actually does have some teeth.
This is a line of cases, following Smith and Lukumi, but there are other lines as well. There's the Hosanna-Tabor decisions, Our Lady of Guadalupe decision, where the Supreme Court said that there's a line of cases where we're not even going to look at Smith at all. Justice Scalia was quite clear in the oral argument of Hosanna-Tabor that this wasn't a Smith case. This is a case about a church's ability, a religious body's ability, to select its leaders, to engage in its own internal decision-making, and to run its own affairs. These are cases that are not governed by Smith.
So I know my time is running short. This is the problem with litigators. I will say very briefly, what we have now is a Free Exercise Clause that starts to look a lot more like a free speech clause. This is great news for law professors. Those exam questions are going to be so much easier to write because it's not one standard that you apply anymore. Like a free speech case, you say what kind of case do I have? What kind of circumstance? What kind of restriction on religious exercise? Is this a ministerial exception case? A church autonomy case? Is this a case of individualized exemptions? Is this a case of non-neutrality? Is this a case of different kinds of rules for different sets of people?
And that's where the starting point is. Smith is still wrong. It still ought to be overruled, and I'm sure we'll have a long discussion about that today but what I want to leave you with is the idea that Smith no longer controls most cases. And I'm happy to turn it over to Professor Amar.
Prof. Akhil Reed Amar: Thank you. It's such an honor --
-- such an honor to be with my dear friends in The Federalist Society. So let's move from the recent case to originalist first principles. We'll start with the First Amendment. We'll start with its first word, "Congress." The addressee of the First Amendment is Congress. It's about Congress making a law, and I've already told you enough to explain that Smith from a textualist and originalist point of view, before we get to the Fourteenth Amendment which may change things here as it changes things in so many other areas, that Smith is rightly decided.
You see, it's about the making of a law and telling Congress that it can't make law of a certain sort. That's the addressee and at the time Congress is making -- imagine it makes a law saying it's a federal crime to kill or maim postal workers. It's necessary and proper. But now there's some religion that believes in killing postal workers. Now, that religion -- Congress might not know that that religion exists. That religion might not even exist at the time the law is made. Even if the religion does, the religious practice might not exist. Doctrines within religions change just as within the Court.
Congress has made a perfectly valid law, you see, and it's the addressee of the First Amendment: Congress, make no law of a certain sort. So that just -- almost the first word or the first three words. Now, let's think about it more in a more fulsome way. Intertextually, where is that phrase coming from, "Congress shall make no law." Well, it's coming -- it's a riff on the Necessary and Proper Clause. Congress shall have power to dot dot dot, make all laws necessary and proper for certain purposes.
And once again, you see that it's got to be about laws regulating religion as such, either formally or with the intent or the purpose of harming or benefitting perhaps this religion or that religion. And that's not a proper purpose for Congress. And so once again, the original First Amendment is about laws targeting religion as such.
Let's think about it more broadly. Why are the speech and press clauses in the same amendment as the religion clauses, because they're not in any state constitution at the time of the 1780s and '90s. Those provisions in state constitutions for religion and speech are separate, but why are they put together in the First Amendment? Because this is also an amendment about federalism. There are domains over which Congress has no enumerated power. These are domains reserved to states.
States can have established churches, Congress can't. But states can and in fact, Congress can't mess with established churches, can't try to dis-establish a state's church. It's not just that the First Amendment doesn't apply against the states. It's a state choice to have established churches, and half of them did are protected from federal dis-establishment because that would be a law on the topic of, in regards to. Respecting is the key word of the First Amendment and establishment of religion.
So the First Amendment is a Tenth Amendment like idea of local option. It's an American equivalent of the Peace of Augsburg of 1555 and the Peace of Westphalia of 1648. Cuius regio, eius religio: there will be no imperial policy on religion, but it will be left to local option. The religion of the prince is the religion of the principality. It's a federalism idea of sorts so once again, if that's so, it can't be about accommodation as such. It has to be basically about laws regulating religion as such, both because it's about Congress and about the making of a law and this isn't a necessary and proper purpose and this is a domain beyond federal power.
And finally, note the absolutism of the phrase, "can make no law." There's no room for any override of any sort, any compelling state interest of any size or shape. So textually, you see -- and it could never be the case that just because the religious practice is sincere, it has to trump. The Aztec religion demands the sacrifice of non-believing postal workers who aren't members of -- who aren't co-religious. They have to be thrown into the volcano.
Well, that can't be right. There has to be some sort of override and -- but "shall make no law" doesn't admit of any of that. Now, so I've just shown you in about three minutes why my dear friend Michael McConnell has to be wrong in his article in the Harvard Law Review on the Free Exercise Clause. And I love Michael, but no.
And Justice Amy Coney Barrett says, hmm, Justice Alito who, another one of my dear friends, who's channeling Michael McConnell doesn't really seem to have very much history and support, that's true. This is a very big thing. If there really were an exemption from ordinary neutral secular laws, then we'd expect there to be a lot of discussion about this and what's the nature and shape of the override and all the rest. This is a big elephant. And proverbially, elephants don't hide in mouse holes, and there's just not a lot of actually history.
So she says that. She acknowledges that in Fulton, but she actually says but textually, it actually seemed that there is an argument for exemption. No, there isn't. I just gave you a bunch of clear textual arguments. Professor McConnell says well, the Framers believed in the logical priority of God. One's duties to the Almighty are prior to everything else, and so they have to actually override other things. That can't be right because once you say that, there's no override -- there's no compelling interest trump to that. And again, that can't be right. We need some compelling interest trump to that. And that's ultimately going to be judged by a secular standard, not a religious standard. So we're no longer in -- no matter how strict the scrutiny is, it's still a secular standard so we don't have the logical priority of God. So once again, with due respect, Michael, no.
Now, does that mean that there's no strong argument for religious accommodation? No, it does not because I know it's going to surprise you, but Fulton is not a First Amendment case. And most of the religious free exercise cases that pop into your head, most of the "Bill of Rights cases" that you would think about if I just played a free association game, think of ten important Bill of Rights cases, almost none of them actually would be First Amendment cases.
And strictly speaking, almost none of them would be Bill of Rights cases because the cases that you're thinking about involve state and local governments, which from strict point of view are not First Amendment cases or Second Amendment cases, apart from Heller, or Fourth or Fifth or Sixth. They're Fourteenth Amendment cases. They're incorporation cases as was Fulton. Of course, the Fourteenth Amendment is about not just states but there are arms and instrumentalities, cities and counties. And note how it's tracking the language of the First Amendment but inverting it.
No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States. Shall make no law abridge. That's the language of the First Amendment but it's inverting it, you see. Now, it's about states and not just Congress. Oh, but it's also not just about the legislature or the state legislature or Congress making the law, it's make or enforce a law. And now, we're focusing on the moment of enforcement when the religious practice does indeed exist and not the moment of making.
So hmm, maybe actually everything that I just said is inapplicable given that we're talking about the Fourteenth Amendment and not the First Amendment. We still have to figure out well, what -- and maybe it's actually a privilege of citizenship for there to be an effect substantive and not merely formal entitlements of a free exercise that actually have weight even against a general neutral secular law. It's possible to imagine that's a privilege.
We're still going to need to figure out what the boundary of that privilege is and what would count as a kind of override, a compelling interest. This was the thing that bothered Justice Scalia most of all in Smith in Footnote 5 of Smith, and there are several possibilities, and here, Ill end. So there are at least two ideas -- and by the way, I'm summarizing to some extent the work of my brilliant Yale student, now professor, Kurt Lash in an article in 1994 in the Northwestern Law Review, which I commend to you all. He writes about the second adoption of the Free Exercise Clause, religious exemptions under the Fourteenth Amendment, 88 Northwestern Law Review at page 11 -- excuse me, 1106, 1994.
Okay, finally. So what's the override? Well, one idea is equality. Just if there are exceptions made for factories, why not for churches? And then the question is how strictly are you going to apply that? If there's any exemption anywhere for a secular, does the religion benefit, kind of strong most favored nation status? Or on the other side, do you actually have to have lots and lots of other exemptions before we say gee, churches should benefit as well? So how strictly you're going to enforce that equality, especially because churches may be different in certain respects. People aren't maybe breathing heavily and singing in factories next to each other the way they are in church.
So but second, and my colleague alluded to this with the Hosanna Tabor case, but might I think about another idea which is an island of Lochner, a kind of Libertarian idea, an idea of privilege as in privacy about the religious organization regulating itself, its own internal operations, picking its leaders, regulating its members with no external spillover on non-believers. So on this view, jumping into the volcano enthusiastically if you're a co-religionist is maybe protected but throwing non-believers into the volcano, you see, would be a very different thing indeed.
And with that, I think I'm done. So thank you very much. And I'd like to turn it over to my dear friend Professor Berg who happens actually to be a co-author of Professor McConnell's, for whom, once again, I have the highest regard in every way.
Prof. Thomas C. Berg: He doesn't say he had the highest regard for me but --