Article II of the United States Constitution provides that “The executive Power shall be vested in a President of the United States of America.” This declarative statement gave rise to a theory of U.S. constitutional law that posits the President should have control over the entire executive branch. This theory has been given increasing attention with the rise of the administrative state. Some argue that the President does not have enough direct power over executive branch agencies, and that this is a violation of the clear statement in Article II Section I of the Constitution. Others argue that allowing the presidency more power would lead to a more dictatorial executive branch, and lead to a weakening of democracy. Proponents of Unitary Executive Theory respond to this concern by arguing that the absence of a unitary executive undermines democracy because without it democratically elected presidents lack the power to enact the policies that the American people elected them to enact, and instead can be stymied by unelected members of the administrative state. Critics of the Unitary Executive Theory assert that the expertise and insulation from political processes necessary to efficiently run government can be found only in the administrative state. The issue has been further complicated by the increased frequency of inter-agency litigation in the form of different executive branch agencies inhabiting both sides of Supreme Court cases. Proponents of the Unitary Executive theory wonder whether an executive branch divided to this extent is what the founders envisioned while writing Article II.
Prof. William Buzbee, Professor of Law, Georgetown University Law Center
Hon. Daniel Gallagher, Deputy Chair, Securities Department, WilmerHale and former Commissioner of the SEC
Hon. Maureen Ohlhausen, Partner, Baker Botts LLP, and former Commissioner of the FTC
Prof. David Vladeck, A.B. Chettle Chair in Civil Procedure, Georgetown University Law Center, former Director of the FTC's Bureau of Consumer Protection
This event is part of Executive Branch Review Week.
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Dean Reuter: Welcome to Teleforum, a podcast of The Federalist Society's practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group teleforum calls, become a Federalist Society member today at fedsoc.org.
Dean Reuter: Welcome to a special Executive Branch Review Week edition of The Federalist Society’s Practice Group Teleforum conference call, as today, April 29, 2020, we host a teleforum entitled the “Unitary Executive and Independent Agencies.” I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society.
As always, please note that all expressions of opinion are those of the experts on today’s call. Also, this call is being recorded for use as a podcast and will likely be transcribed, and this call is open to the public and the press.
We’re very pleased to welcome, as part of our Executive Branch Review Conference, four guests to our panel on the “Unitary Executive and Independent Agencies.” We’re going to get opening remarks from each of them, about five to seven minutes, in the order in which I’ll now introduce them. We’ll hear first from the Honorable Dan Gallagher, Deputy Chair, Securities Department at WilmerHale and a former Commissioner of the Securities and Exchange Commission.
He’ll be followed by Professor William Buzbee. He’s a professor of law at Georgetown University Law Center. He will be followed by Professor David Vladeck, A.B. Chettle Chair in Civil Procedure at the Georgetown University Law Center, and former Director of the FTC's Bureau of Consumer Protection.
And then we’ll conclude our opening round with the Honorable Maureen Ohlhausen, who’s a partner at Baker Botts and a former commissioner of the Federal Trade Commission. As always, of course, this will be followed by questions from our audience, so please have those in mind for when we get to that portion of the program. With that, Dan Gallagher, the floor is yours.
Hon. Daniel Gallagher: Thank you so much, Dean. It is a true honor to be speaking with all of you today. I wish we were doing it in person, but better to be speaking than not at all. As many of you know, I spent a lot of time over the last decade railing about the rise of the administrative state, and in particular, as an SEC staffer and then a commissioner, I dealt directly with the financial crisis of 2007 through 2009. I saw the impact of failed federal policy decisions, which were often implemented through the administrative state. And then I saw, up close, the creation and promulgation of the worst possible federal policy response to the crisis, the Dodd-Frank Act.
At 2,317 pages, this statute was the largest legislative action impacting financial markets in U.S. history. It dwarfed the original securities laws created in Roosevelt’s New Deal. For agencies like the SEC, Dodd-Frank mandated hundreds of rulemakings, mostly with two-year or sooner deadlines. And, unfortunately, the majority of the mandates are completely -- they remain to this day completely unrelated to the causes of the financial crisis and will do nothing to ensure another crisis can be detected and avoided.
Strangely, even though Dodd-Frank expressly touts itself as the official response to the financial crisis, it makes absolutely no mention of failed federal housing policy—the core cause of the financial crisis. But don’t worry everyone, Dodd-Frank spilled a lot of ink on the true cause of the crisis—conflict minerals from the Congo. Because the statute was forced through Congress on a party line vote, it was untempered by negotiation and instead was loaded up with long-desired wish-list items from certain constituencies.
To me, the truest test of Dodd-Frank should be whether we could now unwind a massive financial institution like Lehman. In truth, we could not. We have an elaborate resolution authority, entitled 2.0 of Dodd-Frank, that’s to be administered by—you can guess it—the administrative state at the FDIC, but anyone who dealt with the Lehman bankruptcy in a real way knows that Title II would fail that test.
As I stated often, and loudly, when I joined the commission in 2011, Dodd-Frank mandates would take well over a decade to implement even if the agency prioritized them. And here, almost ten years after the law was passed, my prediction remains a good one: the SEC today is still not done with the Dodd-Frank mandates. I spend a lot of time as a commissioner railing about Dodd-Frank and the misplaced inaccurate narratives of the financial crisis upon which it was crafted. Calling out these truths was necessary and exhausting, and to think that an agency as critical to the American capital markets as the SEC would be spending its precious resources in time on misplaced, purely political Dodd-Frank mandates was simply depressing.
And so it is with a bit of joy that I join you today to talk about a new era, the financial market oversight in the United States, that started in the Trump administration. The President has picked incredibly qualified, hardworking, and widely respected individuals to run the key agencies in this space. From my dear friend Jay Clayton at the SEC, to Randy Quarles at the Fed, and so many other important leaders, such as Jelena McWilliams at the FDIC, Heath Tarbert at the CFTC, and Joseph Otting at the OCC, the U.S. now has a financial services oversight dream team.
Over the last three years, focusing on the SEC, Chairman Clayton has revitalized the agency and redirected and dedicated its staff towards fulfilling the agency’s core mission and serving the interests of long-term retail investors. It’s easy to see that under his leadership, the agency has shifted its focus away from a reactive, mindless, Dodd-Frank, big-government agenda to a vigorous retail investor-oriented program to strengthen U.S. capital markets and facilitate the flow of capital in the American economy.
In a very short time, Chairman Clayton has ushered in a raft of reforms, that in the aggregate evidence a remarkably positive and proactive focus on removing impediments to the capital formation process and encouraging innovation and opportunity for the benefit of investors. I won’t give you the four pages of innovations that he’s put in, but to name a few, I wanted to highlight some of his significant accomplishments.
Under his tenure, Chairman Clayton has issued guidance significantly reducing the burden of the ill-conceived and ill-implemented Dodd-Frank CEO pay-ratio disclosure requirement. He has proposed rules to exempt certain smaller companies from the burdensome auditor attestation requirements of Sarbanes-Oxley Section 404(b)—a perennial favorite.
He’s rescinded staff guidance regarding proxy advisory firms that enabled those firms to monopolize the market for proxy voting advice despite open and notorious problems with those firms. And he’s also proposed new requirements to ensure that they are disclosing and managing conflicts of interest. He’s proposed a rule to improve the shareholder proposal process for corporate issuers that had long ago been hijacked by special interests. He’s proposed a rule to increase the offering limit for Regulation A+ offerings from $50 million to $75 million, improving on the work of the JOBS Act from 2012.
Importantly, for this crowd, he’s adopted a workable principle-based rule to finally address the standards of conduct, broker dealers, and investment advisors owe to their retail customers. He did it in a way that doesn’t pick winners and losers and substantially enhances competition in the market for retail investment advice and investor protections. He did this, of course, after the Department of Labor’s ill-thought, ill-executed fiduciary role was vacated rightfully by the courts. He has worked with his fellow regulators to reform the Rube Goldberg machine that we call the Volcker Rule.
He’s provided relief to U.S. registrants from the collateral effects of the burdensome European method requirements. He’s proposed access to private capital markets by expanding the definition of accredited investor, a true nanny-state construct put in place decades ago at the SEC, and the list goes on and on. But with my time allotted, I’ll stick with that and just point out that this free market oriented in pro-investor agenda, it’s very impressive, and the SEC is still going strong today by helping to cut unnecessary red tape and get capital flowing to U.S. businesses in this time of crisis.
To me, this just illustrates how important the leadership at these key administrative agencies can be, and it paints a very sharp contrast the worst of the administrative state can be brought to bear on the American populous when we have the wrong leadership. With that, I think I’ve burned up my time. Dean, I’m going to hand off the introductory remarks to Bill Buzbee.
Prof. William Buzbee: Okay. Hi. So Bill Buzbee here. I hope everyone can hear me okay. So I’m going to pick up there and first start by thanking Dean Reuter, Jenny Mahoney, and The Federalist Society for setting this discussion up. I’m going to go more professorial and broader to address some of the original framing questions which was really this broad debate over the administrative state, presidential power, and the independence and accountability of administrative agencies, and especially independent agencies.
So what I want to do is to start by just framing the basic discussion and then make a basic overarching point, and that basic overarching point about agencies, presidents, and accountability is that statutes rule, that is Congress sets policy and what the President and agencies can do is set by those legislative choices, and that is the fundamental source of accountability and political control in our constitutional system.
So, first, there is this ongoing constitutional debate about the role of agencies and, especially, the idea that there is something constitutionally problematic about agencies at all and also independent agencies. And for those attending, who are not familiar with what we mean by independent agencies, independent agencies is generally contrasted with executive agencies.
Executive agencies are appointed by the President. The head is appointed by the President and serves at the pleasure of the President. So-called independent agencies usually have some degree of insulation from current partisan politics. People are appointed for a term of years often with some qualification requirement and some protection from dismissal for cause.
So, first, on the constitutional question, importantly, the President is not given all and sole political control over the Executive Branch. The Executive does head the Executive Branch, but Congress makes the laws. Congress is the key shaper of policy, and policy is shaped by the constitutionally set process of legislating. A president can influence what goes on but does not get to remake the nation or our system of laws every four years.
Congress, under the Constitution, can design laws as “necessary and proper.” The Constitution assumes that agencies are departments exist and allows the President to seek their opinions in writing. The Constitution does not give the President directive power or the power to displace the choices created by Congress.
Indeed, the President’s fundamental obligation is to ensure that the law is faithfully executed. And from our earliest constitutional history, debates in cases confirm that the President and executive officials are subject to statutory choices and constraint devised by Congress and established in legislation.
Now, second and most important, as far as the framing of today’s discussion, which was on independent agencies, really when you think about statutes and the administrative state, there are degrees of accountability and degrees of congressional choosing, and those relate to amounts of presidential power that is retained. So I want to just focus on these critical sources of accountability and the regulatory rule of law that have to do with what statutes choose to do.
So, first, statutes are enacted by Congress, and Congress will assign tasks to regulators at particular agencies. Congress typically will specify procedures that agencies are to use and will set criteria for action by the assigned regulator. And fundamental to political accountability and constitutionality is that agencies must show compliance with these procedures and criteria as set by Congress. This is the essence of the regulatory rule of law and the essence of accountability under our Constitution.
Now, some may say, “Well, but the President is elected.” That’s true. So is Congress. Congress is elected, and Congress is the branch that makes policies that shape what presidents can do. So to sum up just this one point, as I try to move to a new point, is that -- so agencies and presidents must respect the choices of who the regulatory actor is, the process set by Congress, and the goals and criteria for action that are also set by Congress.
Furthermore, because agencies have to act in open and transparent ways, and provide reason justification, agencies are actually highly transparent, and what they do is generally known. Dan Gallagher’s point, he was discussing a lot that’s going on at the SEC and has gone on in the past and is critical of, say, Dodd-Frank. The reason we know all of that is the process of legislating declares the law, and what agencies do is known to the public. When you think about the presidents’ involvement, it very often is harder to determine and often less transparent and less visible to the world in general.
Now, so a president must be subject to the Constitution and to the law and must faithfully execute the law. And, again, this is the fundamental constitutional text that really is the basic answer “We do not have an unfettered king or queen.” Presidents are subject to the law, and law is set by statutes. Now, today’s framing talked about independent agencies. Again, these agencies are appointed usually for terms of years with some qualification criteria and some protection from removal. But importantly is all agencies, when they are designated for tasks and there are criteria for action procedures, have degrees of independence. Presidents cannot step in and rule by fiat. They must show respect for congressional choices in whatever agency is doing the work.
Since I’m getting down to my last few minutes, and I’ll close by saying the following: very important to thinking about agencies and accountability is the following: all presidents come in and have agendas where they hope to shift policy somewhat, and most statutes leave room for presidents to reshape the administrative state a bit, but not in a wholesale sort of way. And there’s a very important body of law that people must keep in mind. It’s called consistency doctrine, and it’s been developed over numerous courts with the key opinions penned by renowned conservative justices, especially, Justice Scalia, Justice Kennedy, and the like.
And it basically says this “Can presidents and agencies choose to reshape policy?” The answer is they often will have some latitude to do so. But if they do so, they must engage with the statutory criteria. They must use the process created by statutes. They must use the process agencies have committed to. They must engage with facts. They must engage with science. They must leave no unexplained inconsistency with past policy and provide good reasons for their actions.
For anyone in the press listening, trying to understand “Why is it that President Trump has had so much trouble in getting policy changes made?” This has been the key fundamental flaw. Agency after agency has failed to comply with this body of administrative law that has been around since the 1970s, that is that agencies may have latitude to change policy but cannot do so without compliance with the law, what it requires, and especially engagement with underlying facts, and science, and past policy. I’ll pause there now and turn the microphone over to my colleague at Georgetown, David Vladeck.
Prof. David Vladeck: Thanks, Bill, and thanks to Dean and The Federalist Society for arranging this panel and reuniting me with my former colleague, Maureen Ohlhausen. So I want to sort of take a step back and talk about the evolution of the debate over -- calling this the unitary executive theory doesn’t really help us understand what the debate is about because we only have one president, and so we do have a unitary executive. The question really is, how much power does the President have?
And the modern debate, I think, was really triggered at the beginning of the Reagan administration when it issued the first agency review executive order that required all rules to be approved through the White House Office of Information and Regulatory Affairs, which is part of OMB, but was seen as an effort by the President to enhance his own authority by essentially overseeing tasks that Congress had assigned to agency heads. And the OLC opinion that was written to justify the executive order really articulates a fairly muscular role for the President.
The current debate was really sparked by Justice Scalia’s lone dissent in Morrison v. Olson. He described a very highly compartmentalized government where each branch of government, really, sort of was semantically sealed off from the other. And, basically made a very strong argument that the President has lots of authority simply based on the Vesting Clause—the clause that vests the President power of executive power—and the Take Care Clause, which simply requires the President to take care, that the laws are faithfully executed.
What’s interesting about Morrison is the majority opinion was written by that known radical William Rehnquist that really rejected pretty emphatically Scalia’s dissent, took the position that removal was an important process that Congress, under its Necessary and Proper Clause, had a right to impose. And so you have two conservative giants fighting at the removal issue in Morrison, and Scalia couldn’t get another vote.
So then one of the key cases that talks about this is Myers, which was a 1926 opinion by Chief Justice Taft, and I think is often confused. The question in Myers was not the President’s ability to remove without restraint. It was whether Congress and the Senate could interpose itself in the President’s removal authority. And so Myers is often misunderstood. It really had to do not with the president – not with Congress’s ability to impose restrictions on removal but Congress interceding and trying to play a particular role. Myers was written by Chief Justice Taft, but interestingly, Brandeis, Holmes, and I forget -- there’s a third judge in the dissent. And Brandeis’s opinion really was “Look, Congress creates these agencies. None of them are constitutionally based. Congress could abolish them tomorrow. It’s not at all inappropriate for Congress to impose if it chooses restrictions on the President’s ability to remove.” And Holmes took the same position.
So that’s where the law stood until 1935 when Humphrey’s Executor was decided. Much of it actually were repudiated much of the language in Myers. And so what you have is an opinion that basically says, “Look, for the independent agencies, removal authority is just fine. And it doesn’t really interfere with the President’s take care duties. Because if Congress still permits removal for efficiency, for neglect, for malfeasance, then the President has the authority to remove.”
And one of the interesting questions in Seila Law, the case that’s currently pending before the Supreme Court, is what’s the scope of Congress’s authority to impose restrictions on removal. That’s not really been challenged, and the restrictions that go back to actually 1890. The first time that there was an agency created that had these kinds of restrictions was in 1890 when Congress created a board to do tariffs, and so forth, and imposed removal restrictions on the President. That language is now in the statutes of virtually every independent.
And let’s just take one second and focus why independence is important. The SEC, Dan Gallagher’s agency, the FTC, the agency that Maureen headed, and I worked in, we have tasks that are not purely thought of as executive, even though we’re part of the Executive Branch, which is adjudication and in some form of interstitial legislation. We are designated with authority to essentially make rules that are binding. And the theory is that you don’t want the President basically telling the FTC how to rule on a case.
It may be that the President can tell one of the original agencies, his closest advisors, his alter egos, the Attorney General, the Secretary of State, how to rule on a case or how to deal with a foreign entity. Even that, I think goes way too far, but that’s at least some of the arguments that are made. But, certainly, Congress, when it creates these agencies, gives them task that no one imagined at the time of the Founding. There’s nothing improper about the President not being able to remove someone other than for inefficiency, neglected duty, or malfeasance in office.
So let me make just a couple of final points. One is what’s interesting also about the unitary executive argument is that the originalists are not on the side of the conservatives here. One of the early originalist articles about this issue is published in 1994 by Cass Sunstein and Larry Lessig, who did an original analysis, and it’s not surprising that if you look at the sources from the Founding, people did not want George the III reincarnated in the United States. They wanted a president who had authority, could wield a nation out of the articles of confederation, but they didn’t want anyone approaching a king. And that’s why we have checks and balances.
That’s why Congress, not the Constitution, ended up setting up the original agencies. The original agencies were simply the War Department, the Treasury, and the Secretary -- and the State Department. There was no Department of Justice. The first judiciary act did not create the Justice Department. It’s simply appointed it and gave the President the power to appoint an attorney general. So to the extent that people were arguing that the Constitution envisioned an extremely muscular presidency, there’s really just no authority in the originalist literature for that.
So let me end by making two quick points. One is I don’t think the court has any appetite to overrule Humphrey’s Executor. It’s always hazardous to base predictions on oral argument, but I just didn’t see an enthusiasm for that there.
And the second is this is a healthy debate, and I’m really delighted that The Federalist Society’s holding this. We ought to talk about what the limits are on presidential power. And President Trump has, I think, in my view engaged in actions that assume enormous amount of authority inherent in his office. Some may be checked by the courts; some may not. But I think this is the right time to have a debate about just how far the President can go, and what the President’s ultimate powers are.
There’s absolutely nothing in the Constitution that helps us understand what the executive authority really is. There’s really nothing in the Constitution that lays that out in contrast to Article II. So this is a debate worth having, and I very much thank The Federalist Society for inviting me to participate. And now it’s my pleasure to turn this over to my friend and former colleague, Maureen Ohlhausen.
Hon. Maureen Ohlhausen: Thanks so much, David. Yes, we had a really interesting time at the FTC. I’ll talk a little bit more about that, but I got to know David when I was a commissioner in the minority party at the FTC, and then eventually I became the acting chair and headed a one-one agency—one Democratic, one Republican—for the first 18 months of the Trump administration. A little bit of what I’m going to talk about today is that kind of hands-on experience of running one of these agencies and dealing with some of these screenings that my co-panelists have touched on.
Certainly, the issue—Dan mentioned—is absolutely right. Congress sets the laws. So at the FTC, with the FTC Act, but the FTC has an act that’s extremely broad, unfair or deceptive acts or practices and for methods of competition. So there is a lot of discretion on how that’s interpreted and how that’s enforced. The Humphrey’s Executor case that David mentioned, in 1935, upheld the constitutionality of the FTC and looked at some of the characteristics that the FTC has to explain that.
And this has really come back to the floor because of the issue about the constitutionality of the Consumer Financial Protection Bureau, and some of the briefs and discussions in the Seila case were highlighting the difference between the two. So just to give you a little background on the FTC. The FTC has five commissioners. No more than three can be from the same political party, and they serve a standard seven-year term. So the Court found that important when it was evaluating the FTC’s constitutionality because it means that the President, he or she, doesn’t get to choose the Attorney General or the Secretary of Labor. He or she does get to influence who the commissioners are over a presidential term because during that four-year period, several of the seats will come up.
Also, you would typically have a president coming into office with having, at least, some from his or her party already on the commission. So the President gets to choose the chair of the agency, either brings in a new chair if there’s an opening in one of the commissioner seats or to elevate an existing commissioner to the chair, which is what happened to me. I was an Obama appointee, a Republican appointed by the Obama administration, and then President Trump elevated me to be the acting chair.
So one of the roles that the chair gets to play is also to choose the bureau leadership. So David, he was the head of the Bureau of Consumer Protection chosen by my predecessor and with the agreement of the other commissioners. But having the heads of the enforcement bureaus and the general council be chosen by the chair also helps to influence policy.
One of the other things that the FTC is having this bi-partisan nature, one of the other features that it has is that you needed a majority to act, so we needed a majority of the commissioners to agree to take action before the commission could act, and not a single-headed actor there.
Now, interestingly, the FTC also does not have any criminal authority, and previous iterations that the FTC, when I was from the general counsel’s office, had looked into this, and that really grows out of concern about delegating criminal enforcement authority outside of an agency where the head can be removed at will by the President. It has to do with political accountability.
I think one of the other issues at the FTC that -- well, David mentioned, the FTC does have adjudicatory authority and the agency has administrative litigation and has some rulemaking authority. It primarily sees itself as the law enforcement agency. So it is bringing cases in court where the courts are the final arbiter of the agency’s interpretation of its very broad statute. So I think some of those factors have helped the FTC, in some ways, be less controversial, and certainly, in the Humphrey’s Executor case upheld the agency’s constitutionality, and some of the arguments involving the CFTB have contrast to the FTC structure with the CFTB structure.
So a couple of other things that I just wanted to mention is talking about the issue of accountability, and political accountability, and having the bi-partisan nature of the FTC is helpful in some ways towards having that political accountability and also having some political consensus behind the decisions. Because how agencies operate, and whether they are seen as successful and caring out the mission that Congress gave them, is exceedingly important. So some of the things Dan was talking about, whether the FTC was carrying out its role appropriately, I think that’s always is an issue that is you can’t totally divorce from the structure of the agency, right? Is it perceived as doing what Congress said it should do and doing it successfully?
So one of the things that I found—and David and I had many conversations over this when I was a commissioner in the minority, and it could have been outvoted on any matter—was the value, at least, of having this bipartisan makeup where you could reach a consensus, then, where there was more support from both sides for the agency’s actions and the ability of commissioners to play that role. And that became exceedingly important when I took over as the chair of the agency. Because as I mentioned, it was just myself and one other commissioner, so we had to have bipartisan agreement to take any action because it was the one-to-one agency.
Two other things that I’ll just touch on, and then we can turn to questions, is the adjudicatory authority at the FTC has been subject to repeated questions on due process grounds because of the way you have a commission vote out, a complaint, and then it gets adjudicated through the ALJ process, and then appealed back to the commission who then sits effectively at the appellate body, though, maybe with a little more involvement in this act. And all those can ultimately be appealed to a court on those decisions, but when we’re moving outside the core enforcement authority of the FTC, there has been repeated questions about that.
The agency, outside rulemaking authority, it’s used in a more limited way, and Congress has given it, I think, some more discreet tasks and things, like the Children’s Online Privacy Protection Act. But, historically, when the FTC had tried to use its rulemaking authority quite broadly, Congress had stepped in and told the agency in no uncertain terms it was out of bounds, mainly by cutting the agency’s budget and staff, and so Congress does have the ultimate control in that regard—the power of the purse. And that’s one of the other important issues that’s been raised regarding the CFPB where Congress’s ability to exercise that kind of financial control is more limited. So I’ll stop there and turn it back to Dean, and I look forward to the questions.
Dean Reuter: Well, thank you very much to each of our panelists. We’ve got quite a few people on the line, so I want to go right to questions—at least, start by opening the floor. So let’s turn to our first caller.
Wayne Abernathy: Good morning or good afternoon, everybody. I very much appreciate the wonderful conversation. My name is Wayne Abernathy. I have a question particularly for Dan Gallagher, but any of the panelists are free to add their views as well. Dan, you’ve made a very good outline summary of the wonderful leadership we currently have with the financial agencies and the good works that they are doing. But I wonder, is the good that they can do also a demonstration of the bad that can be done when these authorities are given into other hands of people who may not be thinking in what we consider to be good policy directions. And that being the case, are there things that can be done now to enhance the accountability of the leadership of these financial agencies, many of which seem to be intentionally in that extreme case of the Consumer Bureau given a significant amount of lack of accountability, not only to the President, who heads that division of government, but from the public as well.
Hon. Daniel Gallagher: It’s Dan, Wayne. It’s great to hear your voice, by the way, and that’s a terrific question. The first point you make is spot on. The pendulum swing between what I think most of us on this call would view as good policymaking versus bad is vast, and we’ve seen it illustrated pretty starkly here with some of the long list of things that I ran through in my remarks. Some of the actions that were taken even before Dodd-Frank in ’09 and because of Dodd-frank from 2010 on—and again I’m speaking specifically of the SEC—just illustrate how if you have folks who have their own idiosyncratic policy goals, how much authority they really have.
And I think Maureen might’ve touched on it, but the main power of the chairman, the chairman is always selected in these independent agencies by the President. The main power of the chairman is the power of the agenda and to call votes, and if your intention is to have an agenda full of big-government, highly burdensome regulation, that’s your prerogative, and you can act on that. And the commissioners, even the minority commissioners, like I was for my whole tenure at the FCC, can’t really have an impact on that other than hitting the bully pulpit and trying to influence things in that regard.
And so it does remind you of how fragile the state of the administrative state is, that it really depends on who’s chairing up these agencies. And, look, I’ll be honest too, as positive as I am about what has been happening, specifically at the SEC since 2017, it’s all a matter of degree. I think the amount of harm that’s been done in the eight years preceding Jay Clayton arriving was so immense and is based in statute not just regulation and so unable without the proper amount of votes in the senate to be permanently fixed. Putting the Congressional Review Act aside, that I think we’re still running a pretty massive deficit here if you looked at the ledger of gains made by the administrative state versus free market reforms there too. And so I do worry, at a macro level, that the encroachment precedes, but I do think we should take a moment and recognize the small gains we’ve made.
As to oversight, I think CFPB is such an outlier on the lack of accountability, Wayne, that when you’re in—and even when I was in the SEC, you do feel a lot of the oversight coming internally from the inspector general, and then, obviously, very directly coming from the congressional committees that oversee your agency. And I look back to the years 2011, 2012, when Republicans took over the house, the House committees overseeing the SEC I think did a tremendous job.
Chairman McHenry and Issa and others really, I think, focused on some good things and brought about good changes due to that oversight. And I’m not saying it’s perfect, but I do think there is a -- and again, it’s political because it depends on who’s chairing those committees in Congress and whether they have a proper view of the regulatory state, but I think that the mechanism, at least, is in place for the SEC, FTC, FCC, the normal -- not normal, but the traditional administrative agencies, and CFPB is an outlier there.
Wayne Abernathy: Thank you.
Dean Reuter: A comment from one—
Prof. David Vladeck: Dan, can I comment for a second?
Dean Reuter: Yeah. That’s David Vladeck. Go ahead, David.
Prof. David Vladeck: Yeah. Let me just make two quick responses to Dan’s point. One is poor statutes result in poor policy and to the extent that you have concerns about the merits of Dodd-Frank, agencies have to do what they can even if the statutes they’ve been assigned to enforce by Congress are not well done. But my own view—and I’ve been doing administrative law for 40-plus years, here—is that there tends to be less of a swing, an ideological swing in multimember independent agencies and agencies that are single-headed.
When Maureen and I were working together, I would sit with Maureen and try to find out ways to accommodate Maureen before we moved forward on cases. Sometimes, we were able to reach an accommodation. Sometimes, we weren’t. The same is true on policy, and I suspect that in many agencies, in effort to try to forge some kind of unanimity, is the norm. And so my own view is independent agencies have their problems, but, in some ways, they mitigate some of the very sharp swings that you see when a new administration takes their place.
Dean Reuter: Let’s check in with another caller.
Caller 2: I have two questions for the group, and feel free to answer either. The first one is kind of asking whether, maybe, we’re looking at the structure issue wrong in the sense of if you had a -- take the Federal Trade Commission, for example, and you separate it out to be rulemaking and any authority over rulemaking or adjudication powers that the commissioners have and have them as solely enforcement officers, separate from the other two functions of the agency, would it be more in accordance with the constitutional principles to allow the President to have full control over the commission and removal as he does now with secretaries and cabinet-level officers?
Dean Reuter: Yeah. I think we got your question on the structural Constitution. Let me turn to our experts here and see if they have a response to that, and then, perhaps, we can get to your second question after that. But any responses on the structural Constitution and whether a separation of powers here might help?
Hon. Maureen Ohlhausen: So I do have a—
Prof. William Buzbee: This is Bill—
Dean Reuter: Go ahead, Maureen, first, and then we’ll get to Bill Buzbee. Go ahead, Maureen.
Hon. Maureen Ohlhausen: Okay. Yeah. So one of the reasons the FTC was created—really, the reason the FTC was created—was the idea of having a body of experts who would engage in inquiry about different types of business behavior and then come up with the rules and also decisions that would then control future behavior.
So that was really one of the reasons the FTC -- was the reason the FTC got the adjudicatory power that it has and was supposed to be used essentially to create a decision that this type of business behavior is unfair, or an unfair method of competition, or unfair and deceptive, and that companies shouldn’t engage in it anymore. I know it’s kind of a -- with the idea of that cease-and-desist structure.
One of the issues is if you were to take that away from the FTC, and also it’s rulemaking function, which also I think was that of the idea of having an expert body do that, is you cease to have a reason to have the FTC, and it would just essentially be solely an enforcement agency rolled into -- likely rolled into the Department of Justice or something like that. So while that might have a constitutional appeal, it does move away from why the FTC was created by Congress in a role that it has actually successfully played.
Like for example, in antitrust, the FTC, through its administrative adjudication, has been able to advance the interpretation of antitrust laws, and quite successfully, before the U.S. Supreme Court and has won a number of very important cases that were first explored during its adjudicative decision making, and then got appealed all the way up to the Supreme Court. So there’s a practical implication and a lack of expertise if you were to do that separation.
Dean Reuter: Professor Buzbee.
Prof. William Buzbee: Yeah. So Maureen addressed some of the points I’d make. So I just say a couple of points. One, the idea that agencies would somehow be more legitimate if they solely made policy through adjudication and enforcement, I don’t think there’s a constitutional basis for that. I think that would be an instrumental or normative argument that that is some way preferable, and, as Maureen said, agencies develop expertise.
And, very importantly, one of the great innovations of the administrative state, that has long been applauded right across the political spectrum, but especially by more conservative justices and commenters, is the innovation of notice-and-comment rulemaking where agencies need to in advance explain what they want to do, why they want to do it, hear criticisms, hear suggestions, and then provide a reason justification for the action. That’s very important to businesses that want notice about how the world will work and also is very important so all stakeholders involved in a regulatory domain know where the law is.
And so if you shifted solely to policymaking by adjudication, you would lose expertise. You would also lose notice, and you especially would lose the opportunities to basically improve agency actions as they move through a process of rulemaking.
Dean Reuter: This is Dean. Let me ask, what about the notion of separation of powers here and the fact that an agency even through notice-and-comment rulemaking, but also through guidance, even with some parameters set by Congress gets to engage and I think, Bill, what you called interstitial legislating. So they get to make the rules, and then people that work for the same agency are the enforcer for the investigators, and then the enforcers, who bring cases against the regulated community in front of an administrative law judge, who is often an employee of the same agency, who makes a decision which is then appealable to the same agency, so it takes you years to get out of the realm of the experts, and as a regulated person or entity, years to get out of that system and into a court, an Article III court, and when you finally do that, the Article III court begins with the presumption that everything the agency did to you is proper and appropriate.
Prof. William Buzbee: Well, I think what Dean is – Bill Buzbee, here, speaking. And what Dean is doing, I think, is making arguments rooted in some of the arguments for a revival of the delegation doctrine, and this is a constitutional doctrine that twice in the 1930s succeeded, but since then, and most importantly an opinion by Justice Scalia, largely put the – called the death knell of the delegation doctrine. Congress can hand power to agencies, and, generally, the view has been of Congress and presidents of both parties, now of over, I guess, 90 years, that there are benefits to agencies declaring policy via rulemaking, and that you’re concerned with a sort of one-sided favoritism for agencies.
In truth, agencies are quite embattled when they engage in rulemaking. They are subject to challenges. They have to justify their actions in law and fact, and, similarly, if they want to say that someone has violated the law, usually that turns on the issues of fact where people can basically challenge agencies and can often succeed, and so I think the claim of a skewed process, I think, is contestable and probably wrong. But for anyone listening and I think what Dean is referring is the arguments for a revived and strengthened delegation doctrine. So far that has not happened, and so I’ll just leave it at that.
Dean Reuter: Very good. Thank you [crosstalk 51:29]—
Prof. David Vladeck: Dean, I’ll like to chime in if I could.
Dean Reuter: David Vladeck, go right ahead.
Prof. David Vladeck: Yeah. Look, there have been all sorts of due process challenges to agency adjudication since the NLRB and some of the early agencies that engage in adjudication were formed. But two quick points, one is as the bureau director, I didn’t always win in front of our ALJ. And so the notion that this is somehow a fixed deck I just think is inappropriate. The other is the key thing is that agencies do not on their own have coerce of power. If the FTC issues a cease-and-desist order and someone avoids it, we have to go into court.
So there’s an Article III judge who has the authority to review what the FTC did. Yes, there’s some deference to fact finding. There’s no deference whatsoever to the legal conclusions that the agency draws except when there’s a matter of specific technological questions or something like that. So, yes, it’s a long period of time, but it’s a long period trial in federal court.
So I understand this concern. It’s been played out ever since there were independent agencies that engaged in adjudication. But the court has repeatedly, repeatedly endorsed that process and rejected due process claims, and so we’re going to see that constantly, but that is the dynamic that has existed since there were independent agencies doing these kinds of cases.
Dean Reuter: We’ve got two questions pending. Maybe, we can get to both of them. I’m going to have to abandon our previous caller in favor of remaining callers. Go right ahead from area code 315.
Caller 3: Hi. Can you hear me?
Dean Reuter: Yes, we can hear you fine. Go right ahead.
Caller 3: Oh, okay. First off, this is great. I’m a prelaw student, and I worked on an antitrust brief, and one of the things that we felt, the group I was working with, was big tech, and we felt that FTC should have some more power and that DOJ was political. And then second, I liked that you mentioned -- I can’t remember who mentioned the due process thing, but that’s a very good point. The whole review process was very new to me when I worked on that brief because I just assumed we were going to an Article III court, and that wasn’t going to happen because it was expensive. The deference question, how much deference is kind of up in the air, questions of law basically. The court decides. And I’m kind of questioning Gundy now. I was kind of in favor of it, but it might be disastrous.
Dean Reuter: You have a question for our panelists, caller?
Caller 3: Yeah. Sorry. The question is does FCC need to muscle up on Silicon Valley? There’s a lot of big companies there with a lot of power, and it’s an antitrust issue, I think, and—
Dean Reuter: I think we got the gist of it. I think we got the gist of that question. Which one of our callers wants to respond?
Hon. Maureen Ohlhausen: Maybe, I’ll jump in on that.
Dean Reuter: Go ahead.
Hon. Maureen Ohlhausen: And so the antitrust laws as promulgated by Congress and interpreted by the Article III courts are looking at whether there is a problem that is affecting consumer welfare and whether there’s anti-competitive behavior. And that’s really what the FTC’s unfair methods of competition authority is seen as overlapping with. So, certainly, the FTC or the DOJ -- because they’re essentially enforcing the same law—the Sherman Act. And the Sherman Act, that’s enforced through the FTC Act for the FTC’s purposes. That’s what they’re looking for.
So concerns about saying “Well, companies are big,” that that itself is an antitrust violation because that’s not what the antitrust laws are geared towards. If Congress wants to do something different, have a different goal for the law, I don’t think that’s something that the FTC should try to do itself. I think that’s kind of firmly in Congress’s court to make those kind of policy and legislative judgments.
Dean Reuter: We’ve got just about a minute and a half left. I want to give each of our experts a chance to express a final thought if they would like to do so. We do have a hard stop here I know for, at least, one of our guests. So, Dan Gallagher, any final thought?
Hon. Daniel Gallagher: No, look, I think I got it all out there, Dean. I think we’re enjoying the weaning days of the first term here at a minimum, and I hope we get another four years to kind of further seize the gains we’ve made since 2017.
Dean Reuter: Professor Buzbee, a final thought?
Prof. William Buzbee: Just that I think as people focus on political accountability in the administrative state, I think everyone should always keep in mind how regulators they might not like would behave, and I think people should more firmly keep embracing or requiring presidents and agencies to respect what statutes say and make sure they really engage with questions of law and fact. Thank you.
Dean Reuter: Professor Vladeck, a final thought? Yeah, thank you.
Prof. David Vladeck: Just take a hard look at Seila Law when it comes out. That will tell us where we’re headed, and it’s going to be very interesting to see what the Court does in that opinion. Man, thank you, Dean, and thank The Federalist Society for doing this. Thank you.
Dean Reuter: Oh, of course. Thank you. And we will, of course, have a teleforum on Seila Law when it comes out—a decision teleforum—at a date to be determined. Maureen Ohlhausen, you get the final word, final thought.
Hon. Maureen Ohlhausen: Oh, great. Yes. Well, I agree with my fellow panelists. I think political accountability is really important in following the rule of law because we should always think about how those tools may be used by someone with whom we don’t agree. So I think that’s good advice.
Dean Reuter: Very good. Well, my thanks personally, and on behalf of The Federalist Society, to our four panelists today as we continue on through Executive Branch Review Week. I want to thank the audience as well for dialing in and for your thoughtful questions. We are adjourned. Thank you very much, everyone.
Dean Reuter: Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.