On Reading The Language of Statutes (Book Review)

Linda D. Jellum reviews Lawrence M. Solan, The Language of Statutes: Laws and Their Interpretation (The University of Chicago Press, Chicago, 2010), ISBN-13: 978-0-226-76796-3

Dodging the Taxman: Why the Treasury’s Anti-Abuse Regulation is Unconstitutional

To combat abusive tax shelters, the Department of the Treasury promulgated a general anti-abuse regulation applicable to all of subchapter K of the Internal Revenue Code of 1986. The Treasury targeted subchapter K because unique aspects of the partnership tax laws—including its aggregate-entity dichotomy—foster creative tax manipulation. In the anti-abuse regulation, the Treasury attempted to “codify” existing judicially-created anti-abuse doctrines, such as the business-purpose and economic-substance doctrines. Also, and more surprisingly, the Treasury directed those applying subchapter K to use a purposivist approach to interpretation and to reject textualism. In this article, I demonstrate that the Treasury exceeded both its constitutional and statutory authority. Congress neither expressly nor implicitly delegated to the Treasury the power either to direct a method of statutory interpretation or to codify the judicially developed anti-abuse doctrines. Hence, the regulation is unconstitutional. Alternatively, even if Congress validly delegated either power to the Treasury, the anti-abuse regulation exceeded the scope of any delegated power and is, thus, ultra vires

The Shadow of Free Enterprise: The Unconstitutionality of the Securities & Exchange Commission’s Administrative Law Judges

Six years ago, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), for the first time giving the Securities and Exchange Commission (SEC) the power to seek monetary penalties through its in-house adjudication. The SEC already had the power to seek such penalties in federal court. With the Dodd-Frank Act, the SEC’s enforcement division could now choose between an adjudication before an SEC Administrative Law Judge (ALJ) or a civil action before an Article III judge. With this new choice, the SEC realized a significant home-court advantage. For example, in 2014, the SEC’s enforcement division prevailed in 100% of its administrative proceedings, while it prevailed in only 61% of the cases it brought in federal court. With these statistics, it is no surprise that potential respondents to SEC enforcement actions soon challenged the constitutionality of the SEC’s new choice. In this Article, we explain why the SEC ALJs’ appointment and removal processes violate the United States Constitution. The SEC ALJs are inferior officers of the United States. As such, they must be appointed by the President, a court of law, or the head of a department. Instead, they are appointed by the head SEC ALJ. Additionally, in Free Enterprise Fund v. Public Company Accounting Oversight Board, the Supreme Court held that dual for-cause removal provisions violate separation of powers because such clauses prevent the President from faithfully executing the law. The SEC ALJs are subject to multiple for-cause removal protections. Possibly, the Supreme Court will refuse to extend its holding in Free Enterprise— that multiple levels of tenure protection violate separation of powers—to ALJs. However, if the Court meant what it said and if the case is to have any relevance beyond the agency involved in that case, then the multiple for-cause removal provisions affecting the SEC ALJs specifically, and all ALJs generally, will need to be reconsidered

Osvrt na knjigu o tradicijskoj kulturi zadarskih Arbanasa

Six years ago, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), for the first time giving the Securities and Exchange Commission (SEC) the power to seek monetary penalties through its in-house adjudication. The SEC already had the power to seek such penalties in federal court. With the Dodd-Frank Act, the SEC’s enforcement division could now choose between an adjudication before an SEC Administrative Law Judge (ALJ) or a civil action before an Article III judge. With this new choice, litigants contended that the SEC realized a significant home-court advantage. For example, the Wall Street Journal alleged that in 2014, the SEC’s enforcement division prevailed in 100% of its administrative proceedings, while it prevailed in only 61% of the cases it brought in federal court. While these statistics have recently come under fire, it is no surprise that potential respondents to SEC enforcement actions who believed the statistics soon challenged the constitutionality of the SEC’s new choice. In this Article, we explain why the SEC ALJs’ appointment and removal processes violate the United States Constitution. The SEC ALJs are inferior officers of the United States. As such, they must be appointed by the President, a court of law, or the head of a department. Instead, they are appointed by the head SEC ALJ. Additionally, in Free Enterprise Fund v. Public Company Accounting Oversight Board,(1) the Supreme Court held that dual for cause removal provisions violate separation of powers because such clauses prevent the President from faithfully executing the law. The SEC ALJs are subject to multiple for-cause removal protections. Possibly, the Supreme Court will refuse to extend its holding in Free Enterprise—that multiple levels of tenure protection violate separation of powers—to ALJs. However, if the Court meant what it said and if the case is to have any relevance beyond the agency involved in that case, then the multiple for-cause removal provisions affecting the SEC ALJs specifically, and all ALJs generally, will need to be reconsidered

You’re Fired! Why the ALJ Multi-Track Dual Removal Provisions Violate the Constitution & How to Fix Them

This Article explains why the for-cause removal provisions for ALJs are unconstitutional and offers three potential solutions to remedy this problem. Part I provides background information, which explains that the APA was a compromise of competing interests. Some wanted ALJs to be completely in-dependent from their agencies to further unbiased decision-making and inde-pendence, and others feared agencies would lose control over setting policy, should ALJs have such an independent function.Ultimately, Congress com-promised by including provisions to make the ALJs more independent, while also ensuring that agencies retained complete control to set policy. As part of the independence piece of the compromise, ALJs would henceforth be removable only for cause.Further, to remove an ALJ, an agency, whose members might also be removable only for cause, had to make its case during a formal hearing before a different ALJ, who was removable only for cause and worked for a separate agency, whose members were also only removable for cause.In short, the process Congress created involves multiple levels of for-cause protection. Next, Part II of this Article points out that the Constitution does not expressly provide the President with removal power; however, such power has been located within Article II and separation of powers.Specifically, the Supreme Court early on presumed the President had removal power be-cause the framers of the Constitution did not explicitly take it away.Building on the understanding that the President’s removal power is implicit in the Constitution, Part III details the Supreme Court cases that have addressed removal. Unfortunately, as Part III suggests, the Court has not been consistent in this area, but then again, that is nothing new these days. Though the Court’s decisions have been inconsistent, its precedents show a definite pattern. The Court began the discussion with an expansive view of the President’s removal power that Congress could not easily re-strict. Removal limitations would not be implied, and the Court made clear it would only tolerate limitations on appointing authorities other than the President. Then, coinciding with the arrival of the first independent agencies, the Court backtracked in a series of cases. First, the Court decided to allow Congress to restrict the President’s removal power regarding officers having quasi-judicial and quasi-legislative functions;45 however, this distinction was hard to maintain. Most agency officials have multiple powers. So, the Court decided to allow Congress to restrict the President’s power to re-move purely executive, inferior officers so long as the President’s ability to faithfully execute the laws remained unimpeded.46 With these cases, the Supreme Court’s test had morphed. The type of power was no longer relevant; rather, the President’s ability to control the officer became determinative. But even this new test was short-lived. Judicial hostility towards restrictions on presidential removal powers returned. While the Court has not yet re-turned to its earlier expansive view of the President’s removal power, Part III of this Article concludes by discussing the views of the two newest appointments to the Court, and predicts that the Court is certainly headed in that direction. In Part IV, this Article explains why the multi-track removal provisions protecting ALJs are unconstitutional, even if their purpose is meritorious, and perhaps even necessary. Given that the Supreme Court has held that dual for-cause removal provisions are unconstitutional, it does not take a math major to conclude that more than dual for-cause removal provisions are also unconstitutional. Hence, the Court will likely hold 5 U.S.C. § 7521 unconstitutional, because the statutory scheme creates multiple dual for-cause removal protections. Assuming this assumption is correct and the Supreme Court is likely to hold 5 U.S.C. § 7521 unconstitutional, and that protecting ALJ independence within constitutional constraints is a worthy endeavor, one might ask, how can the Court resolve this mess? Part IV of this Article considers three possible solutions, none of which is perfect. First, the removal protection that applies to all civil service employees could similarly protect ALJs. Second, the Court could narrow Humphrey’s Executor to hold that Congress can limit a President’s power to remove principal officers who exercise adjudicatory powers exclusively. Third, the Court could overrule Humphrey’s Executor entirely and hold that Congress cannot limit a President’s power to remove any principal officer. This Article explains the pluses and minuses of each. Finally this Article concludes by offering some thoughts about the impact this issue will have on those attempting to dismantle the administrative state

Why the SEC is Wrong About Implied Preclusion

Can the U.S. Securities and Exchange Commission (SEC) unilaterally deny citizens the right to challenge the constitutionality of its administrative hearings in federal court? The SEC has argued that bringing enforcement actions against entities in-house prevents the federal district courts from hearing constitutional challenges to its adjudication process. In other words, the SEC believes that when it initiates an enforcement action against a business or an individual, the entity cannot sue the agency in federal court. Instead, the entity must raise challenges to the agency’s adjudicatory structure with the agency first and then again during the appeal to federal court. Entities counter that they should not have to endure what they claim is an unconstitutional proceeding before being able to raise their claim in an Article III court, especially when they can never remedy the harms from undergoing such a proceeding. You cannot unscramble an egg! Other agencies, such as the U.S. Federal Trade Commission, have made identical arguments. This issue raises a fundamental question. Who should resolve challenges about an agency’s constitutionality: the federal courts or the adjudicating agency? Although the SEC argues that it should resolve these challenges, it is wrong. Federal courts should resolve constitutional challenges to an agency’s adjudicative structure. The Securities Exchange Act of 1934 as amended by the Securities Enforcement Remedies and Penny Stock Reform Act of 1990 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 gave the SEC the power to choose its forum for enforcement actions: an adjudication before an SEC administrative law judge (ALJ) or a civil suit in federal court before an Article III judge. After the SEC lost numerous high-profile cases in federal court, the SEC switched tactics, bringing its claims in-house in front of its ALJs. In response, the entities sought to avoid the SEC’s adjudicative process. Losing before the SEC would effectively end their careers because the appellate court does not automatically grant a stay of the SEC’s orders—that is, pausing their legal effect—during appeals to federal court. And the SEC typically denies stay requests. In response to the SEC moving in-house, the entities, now plaintiffs, sued in federal district courts around the country to challenge the constitutionality of the SEC’s in-house process. Their constitutional claims have included unlawful delegation, violation of equal protection and due process, interference with the right to a jury trial, and unconstitutional appointment and removal structures for the SEC’s ALJs. The SEC has responded by arguing that the federal courts lack subject matter jurisdiction to hear the claims, citing the doctrine of implied preclusion. Pursuant to the Administrative Procedure Act (APA), courts may review final agency action except to the extent that the agency’s enabling act precludes judicial review. Preclusion is a narrow doctrine because it runs counter to the U.S. Supreme Court’s longstanding “strong presumption” favoring judicial review of administrative action. The Supreme Court developed a two-step approach to determine whether Congress intended to preclude judicial review. Courts must first examine the relevant statute’s text, structure, and purpose to see if Congress intended to preclude judicial review. This step—articulated in Block v. Community Nutrition Institute—calls on courts to determine whether Congress’s intent is “fairly discernible.” If it is, then courts must undergo a second step and determine whether the plaintiff’s claim can be meaningfully reviewed during the administrative appeal process. Under this second step—articulated in Thunder Basin Coal Company v. Reich—a court asks whether (1) meaningful judicial review would be unavailable if the district court could not hear the claim, (2) the claim is wholly collateral to the issues raised in the adjudication, and (3) the claims are outside the agency’s expertise. The Supreme Court has been unclear about the relationship among these three questions, including whether they function as factors that courts must balance or elements that must each be met for the claim to be precluded. But treating them as elements better aligns with the Court’s strong presumption in favor of judicial review. When the plaintiffs’ lawsuits challenging the constitutionality of the SEC’s adjudicatory process have reached the appellate courts, they have been almost uniform in siding with the SEC. But they have had difficulty applying the two-step approach correctly. To be fair, the Supreme Court developed this approach incrementally over forty years, and it is anything but clear. So it is of little surprise that the appellate courts have struggled with the analysis. For example, in Bebo v. SEC, the Seventh Circuit analyzed only Thunder Basin’s meaningful review step and only one of the three questions. The Second Circuit in Tilton v. SEC treated Thunder Basin’s three questions as factors, not elements, acknowledging that one question “leaned” in the plaintiffs’ favor. And the D.C. Circuit in Jarkesy v. SEC reversed the burden of proof, stating that the plaintiff must demonstrate “a strong countervailing rationale” against implied preclusion. Besides misanalyzing the issue, the appellate courts have labored to resolve the litigation in the SEC’s favor. At times, their reasoning has been almost nonsensical. In Tilton v. SEC, for example, the SEC analyzed the first question—whether meaningful judicial review would be unavailable if the district court could not hear the claim—and reasoned that judicial review was meaningful because it was available, regardless of whether it remedied the harm. Similarly, the Fourth Circuit in Bennett v. SEC analyzed the second question—whether the claim was wholly collateral to the issues raised in the administrative action—and held that the plaintiff’s claims were not wholly collateral because they only arose when the SEC brought the enforcement action. And, the Eleventh Circuit in Hill v. SEC analyzed the third question—whether the claims were outside the agency’s expertise—and strangely concluded that because the claim in that case might be rendered moot and the agency’s expertise would then be unneeded, the “factor” was met. I could go on. The appellate courts should have held, however, that the plaintiffs’ constitutional claims were not impliedly precluded. Even assuming the text, structure, and purpose of the Exchange Act evinced congressional intent to preclude review—which it does not—a court must apply Thunder Basin’s meaningful review step to confirm that Congress intended for agencies, and not courts, to resolve these claims. And regardless of whether a factors-based or elements-based approach to the meaningful review step applies, there can be no meaningful review. For the first question, meaningful judicial review of these claims is unavailable for many reasons. Plaintiffs may not be able to raise a claim effectively in the administrative forum or put together a sufficient record given that discovery is largely unavailable. Moreover, ALJs and the agency are unlikely to be neutral on these constitutional issues. In addition, plaintiffs may not be able to appeal to a federal court given that the case might settle or the plaintiff might win. Finally, even if plaintiffs could effectively bring a claim before a neutral decisionmaker, the plaintiff’s harm could never be effectively remedied because the plaintiff would have already suffered the harm of undergoing an unconstitutional hearing. With respect to the second question, the plaintiff’s claim that the hearing process is unconstitutional is unrelated to the SEC’s enforcement action alleging that the plaintiff violated the securities laws. Courts, not agencies, should hear claims that are completely unrelated to, or wholly collateral to, the issues in the enforcement proceeding. As for the third question, the claims are outside the agency’s expertise. The plaintiff’s claims are “standard questions of administrative law” best left to judicial resolution, as the Supreme Court said in Free Enterprise Fund v. Public Company Accounting Oversight Board. The SEC has no expertise interpreting the U.S. Constitution. Under an elements-based approach, this finding alone is sufficient to conclude Congress did not intend to preclude review. Under a factors-based approach, the outcome is the same. None of the factors show that Congress intended to preclude review. Importantly, the SEC should not have the power to decide its own constitutionality. Yet the SEC is using the implied preclusion doctrine to shield itself from valid claims challenging its structural legitimacy. Federal courts should hear challenges to the legitimacy of the SEC’s adjudication process. Plaintiffs should not be dragged through years of litigation at the SEC before an Article III court can resolve their constitutional claims. Such an approach almost guarantees that federal courts will never hear these claims. Almost. After seven years of fighting on this issue, one plaintiff will have her day in the Supreme Court in November. The Court has granted a petition to review the Fifth Circuit’s decision in Cochran v. SEC, a case that squarely presents the implied preclusion question. By next June, I hope the Supreme Court will agree that the SEC has been wrong about implied preclusion

The Impact of the Rise and Fall of \u3ci\u3eChevron\u3c/i\u3e on the Executive\u27s Power to Make and Interpret Law

The Supreme Court’s willingness to defer to agency interpretations of ambiguous statutes has vacillated over the past seventy years. The Court’s vacillation has dramatically impacted the executive’s power to make and interpret law. This Article examines how the Court augmented then constricted executive lawmaking power and ceded then reclaimed executive interpretive power with a single case and its legal progeny. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.1 and its aftermath dramatically altered the executive’s power to make and interpret law. Prior to Chevron, Congress had the primary responsibility for lawmaking, while agencies made policy choices primarily when Congress explicitly delegated that power to them. Also, prior to Chevron, the judiciary resolved questions of statutory interpretation of regulatory statutes with a bifurcated approach: agencies did not receive deference when they resolved issues involving pure questions of law, but did receive some level of deference when they resolved issues involving questions of law application. In short, prior to Chevron, the executive was an expert advisor, not a law-maker or law interpreter. With its holding in Chevron, the Court dramatically, and likely unintentionally,2 altered executive lawmaking and interpretive power. Specifically, executive power burgeoned. The sphere of legitimate agency lawmaking expanded because of the adoption of implicit delegation as a legitimate legislative mandate. The sphere of legitimate agency interpretation also expanded because the Court replaced its bifurcated deference approach with its now familiar two-step approach, under which the Court retained interpretive power at step one, but ceded interpretive power at step two. In summary, with Chevron the executive moved from expert advisor to quasi-law maker and quasi-law interpreter. But this transition was short-lived. Today, the Court is reclaiming the power it both surrendered and transferred with Chevron. With two important changes to Chevron’s application—restricting the types of agency interpretations entitled to deference and curbing the implied delegation rationale—the Court has begun to reclaim the interpretive power it ceded and the lawmaking power it shifted with the rise and fall of Chevron. Simply put, the Court has come full circle by expanding executive power and then dramatically contracting it. --- 1.467 U.S. 837 (1984) (unanimous opinion). Justices Marshall, Rehnquist, and O’Connor took no part in the decision. Id. at 866. 2.See Thomas W. Merrill, Judicial Deference to Executive Precedent, 101 YALE L.J. 969, 976 (1992) [hereinafter Merrill, Judicial Deference] (“Justice Stevens’ opinion contained several features that can only be described as ‘revolutionary,’ even if no revolution was intended at the time.” (citations omitted))

Dodging the Taxman: Why the Treasury’s Anti-Abuse Regulation is Unconstitutional

To combat abusive tax shelters, the Department of the Treasury promulgated a general anti-abuse regulation applicable to all of subchapter K of the Internal Revenue Code of 1986. The Treasury targeted subchapter K because unique aspects of the partnership tax laws—including its aggregate-entity dichotomy—foster creative tax manipulation. In the anti-abuse regulation, the Treasury attempted to “codify” existing judicially- created anti-abuse doctrines, such as the business-purpose and economic-substance doctrines. Also, and more surprisingly, the Treasury directed those applying subchapter K to use a purposivist approach to interpretation and to reject textualism. In this article, I demonstrate that the Treasury exceeded both its constitutional and statutory authority. Congress neither expressly nor implicitly delegated to the Treasury the power either to direct a method of statutory interpretation or to codify the judicially developed anti-abuse doctrines. Hence, the regulation is unconstitutional. Alternatively, even if Congress validly delegated either power to the Treasury, the anti-abuse regulation exceeded the scope of any delegated power and is, thus, ultra vires