October 02, 2008
Judicial Review in the Bailout Bill
Posted by David Zaring

As we've told you, currently the bailout bill, now passed by the Senate, and looking better in the House, provides:

  • "Actions by the Secretary pursuant to the authority of this Act shall be subject to chapter 7 of title 5, United States Code [that's the Administrative Procedure Act], including that such actions shall be held unlawful and set aside if found to be arbitrary, capricious, an abuse of discretion, or not in accordance with law."
  • But "No injunction or other form of equitable relief shall be issued against the Secretary for actions pursuant to section 101 [that's the power granting section] ... other than to remedy a violation of the Constitution."
  • The section by section notes prepared by the drafters for the House say only that the section "[p]rovides standards for judicial review, including injunctive and other relief, to ensure that the actions of the Secretary are not arbitrary, capricious, or not in accordance with law."

The problem here is that arbitrary and capricious review is equitable relief.  Indeed, the Supreme Court said this in Doe v. Chao, 540 U.S. 614, 619 n.1 (2004) (referring to the "the general provisions for equitable relief within the Administrative Procedure Act" and citing a section of the same Title 5, Chapter 7 referenced in the bailout bill's judicial review provisions).  And so it looks a bit like the bill provides for A&C in one section, and then takes it away, by taking away equitable relief, in the other section.

It's worth puzzling through this because judicial review could be the most substantial limitation of the Secretary's authority to administer the bailout, which is not subject to a great deal of constraint elsewhere in the bill.  Can someone who thought that that Paulson underpaid for a particular mortgage backed security sue?  Remember, Treasury may make literally millions of these purchases.

I tentatively posit that the bill does appear to give plaintiffs that right, though probably the only remedy available would be a declaratory judgment (saying that a particular purchase was inconsistent with the bailout law), rather than an injunction stopping the sale.  Sometimes courts distinguish between declaratory relief and other equitable remedies.  And APA relief is usually described as declaratory, in that you get a declaration that what the Secretary did was illegal, with an implicit direction that the Secretary should go do it again in a legal way.  If the Secretary's actions under section 101 aren't subject to A&C review, then the first section of judicial review would be largely superfluous.   

But I don't think the case is closed.  I suspect the government could argue that A&C review isn't permitted for every purchase decision, based on the statute and on the unmanageability of that project.  It'd have to come up with a good account of what judicial review would do, though. 

At any rate, Treasury might want to use its broad powers to set up a mandatory administrative appeals process, which, under Darby v. Cisneros, would keep plaintiffs out of the courts until they had exhausted their administrative remedies, and which would give the courts an adjudicated process to look at (and, hopefully for Treasury, rubber stamp).

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