March 23, 2009
Is the PPIP legal?
Posted by David Zaring

I asked my administrative law students today whether Treasury will get Chevron deference or Skidmore deference when it is sued over its new public-private toxic asset protection plan, and I'd love to hear your thoughts.  Treasury announced this new plan through a press conference, a fact sheet, and a white paper.  Whatever happened to ordinary administrative procedure during the bailout, where agencies would make policy through rulemaking or adjudication?  I have yet to see either from Treasury or the Fed.

But still, courts will find a way to classify what it was that Treasury was doing - if I were a government lawyer I'd analogize it to a request for proposals. If it is an RFP, there would be a ripeness issue and a standing issue that could prevent judicial review from happening until the partnerships are up and running.  The government won't be able to avoid judicial review forever, though, and that review would be related to the usual ways that agencies make policy - the ways that Treasury and the Fed have eschewed.  Section 117 of the TARP statute provides:

Actions by the Secretary pursuant to the authority of this Act shall be subject to chapter 7 of title 5, United States, 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.

The good news for Treasury is that funding a public-private asset purchasing partnership looks comfortably within the purpose of the TARP, as section 101(a)(1) of its enabling legislation suggests, so it probably is "in accordance with law":

The Secretary is authorized to establish the Troubled Asset Relief Program (or ‘‘TARP’’) to purchase, to make and fund commitments to purchase, from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary.

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Comments (4)

1. Posted by Jake on March 23, 2009 @ 20:23 | Permalink

The so-called Legacy Securities Public-Private Investment Fund seems about as arbitrary and capricious as anything can get. For one thing, the application spells out criteria for pre-qualifying Fund Managers that effectively restrict applicants to the same class of people who dumped financial Armageddon in the laps of US taxpayers in the first place.

Why not just seize the toxic assets and auction them off to all comers? It worked with the RTC.

Second, paragraph B.5 of the application states that the "Applicant must describe its proposals for efficient tax structuring for Treasury and private investors." Why is tax efficiency a valid consideration? How does the Treasury define a "tax efficient" structure for this public-private investment fund? (Presumably a punitive 90% tax on the manager's earnings is not in the picture.) One imagines tax shelter promoters slavering.

Bah. The current administration needs adult supervision.

2. Posted by Kristin Hickman on March 24, 2009 @ 8:45 | Permalink

Regarding the question you posed, I have two thoughts.

First, in the post-Mead era, I would expect most courts to use Skidmore rather than Chevron as the standard of review for a press conference, fact sheet, and white paper. Whether or not the courts then will apply the Skidmore factors to defer or not is another question. That said, this plan comes from top agency officials after a great deal of consideration on their part; the plan has gone through absolutely no public process, but most informal agency action does not; many are questioning whether Geithner, et al, are up to the job, but they clearly have more expertise in this area than the courts do, and they are exercising that expertise to the best of their ability. Granted, the plan lacks public process, but most informal agency actions do as well, and many still receive Skidmore deference. I would not at all be surprised for a court to defer to Treasury's plan under the Skidmore standard.

Second, while a regulated party might challenge Treasury for failing to put their plan through notice-and-comment rulemaking, I would imagine that most courts would be persuaded that the good cause exception applies in this instance.

These arguments are highly formalistic. But, whatever one's normative objections to Treasury's plan, as a practical matter, I strongly doubt that a reviewing court is going to want to second-guess Treasury on this. So formalistic analysis seems a good way to go for a court that wants to kick this back to the political process.

3. Posted by David Zaring on March 24, 2009 @ 8:56 | Permalink

Great comments Kristin (I actually told my class that you were the expert on this sort of thing, given that nobody knows more about how Treasury deals with/ignores Chevron et al than you!).

I bet Skidmore too, given the announcement - don't see how Chevron is possible - and the procedural requirements probably can be dispensed with on account of emergency, as you suggest.

Small caveat: I'll note that pre-Chevron courts have never messed with Fed decisions to bail out a bank, citing lots of deference, and the same sort of analysis might apply here.

4. Posted by Jake on March 24, 2009 @ 19:49 | Permalink

The prediction of Skidmore deference strikes me as optimistic. Any Article III jurist worth his salt ought to accord Geithner's toxic asset plan no more than "making it up as they go" deference. De novo review, in other words.

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