Not the Boardroom, the Bedroom. The first point that I want to make about the Hobby Lobby opinion has nothing to do with corporate law (which may disqualify me from future GLOM participation). I want to point out that access to contraceptives is an issue for BOTH women and men. Dare I say that it is, at its essence, a family issue? Because of how medical technology has advanced (and a bit of biological incentives) there is a wider variety of pharmaceuticals for women that prevent pregnancies than are available for men. Yes, this technology helps women participate in the workforce, equalize health care costs, and a host of other goals identified by Justice Ginsberg in her dissent. But men benefit from being able to plan for pregnancies in many of the same ways that it benefits women. The consequences are magnified for women, of course, and I am in no way diminishing the unequal burden. But I cannot stand another debate that exclusively talks about a WOMAN’s access to contraceptives as if the need for those contraceptives and the benefits derived from them have nothing to do with their male partners or their families.
If it is the Boardroom, then WHOSE Boardroom? Much has been made about the catastrophizing by opponents to the Hobby Lobby exemption suggesting that those who opposed the exemptions were envisioning a parade of implausible horribles. The opinion limits the holding to closely held entities, but don’t take the bait. The reasoning behind the holding is broadly stated with no distinction and will prove to be powerful arrows in the quiver of future litigants wanting to extend the scope of the holding to other entities. For example consider the following analytical building block for future litigation from the Majority: “Any suggestion that for-profit corporations are incapable of exercising religion because their purpose is simply to make money flies in the face of modern corporate law.”
Some have suggested that Justice Ginsberg’s dissent repeated a fatal error made by Justice Scalia in the DOMA case. Justice Ginsberg, like Justice Scalia, rejected the Majority’s attempt to limit the scope of the holding providing insight into the Majority’s reasoning that will be quotable by lower courts and future litigants seeking guidance on how to interpret Hobby Lobby. Take for example, her line that the Majority’s logic “extends to corporations of any size, public or private…..[and] invites for-profit entities to seek religion-based exemptions from regulations they deem offensive to their faith.”
Allow me to repeat myself (see BLPB post) when I also point out that the opinion doesn’t define what qualifies as a closely held entity. Even if we accept that the reasoning is limited to closely held entities, where should we look for that definition? State law? IRS guidelines? Common law? The absence of a clear definition is either evidence that there was no intention to limit the holding to closely held entities, or it suggests an important issue has been left unresolved for future litigation. While we have a general sense what closely held means, the precise boundaries are more difficult. Will closely held entities become the new pornography where we only know it when we see it? Take Wal-Mart as an example with 51% of its stock held by the Walton family and insiders (satisfies the IRS definition), but with publically traded stock. Is it in or out? Of course, larger entities may have difficulty establishing the sincerity of the belief, but that seems to be a prong of RFRA that no one wants to touch. And Justice Alito pointed to state law as appropriate intra-shareholder dispute resolution mechanisms. In other words, the controlling shareholder wins, so maybe only the controlling shareholder needs to have a sincere belief.
The Unaccommodating Accommodation. Not 72 hours after the opinion, the Court in a vote of 6-3 granted Wheaton College, a non-profit Christian institution, a temporary exemption from the accommodation under the All Writs Act. The same Justices who found that the contraceptive mandate failed the least restrictive means prong of RFRA, within the same week questioned the constitutionality of that very accommodation process. Wheaton asserts that the exemption process itself is an impermissible burden on Wheaton’s free exercise of religion in violation of RFRA because by filing the exemption form they trigger access to contraceptives. Justice Sotomayor wrote a dissent, joined by Justices Kagan and Ginsberg, highlighting the analytical whiplash resulting from this turn around. “After expressly relying on the availability of the religious-nonprofit accommodation to hold that the contractive coverage requirement violates RFRA as applied to closely held for-profit corporations, the Court now, as the dissent in Hobby Lobby feared it might…retreats from that position.”
The Not so Burdensome Burden. First, paying for third party’s access to contraceptives was a substantial burden on religion in Hobby Lobby. Later that same week in Wheaton College, the issue was filing a form with the government so that third parties could get access to contraceptives that someone else pays for may be a substantial burden on religion. While granting the injunction is not a clear indication of the Court’s future treatment of the merits, there is powerful language in the Hobby Lobby opinion foreshadowing the Court’s views of acts that merely facilitate any kind of breach of a religious code. The Court framed the case as an “important question of religion and moral philosophy, namely, the circumstances under which it is immoral for a person to perform an act that is innocent in itself but hat has the effect of enabling or facilitating the commission of an import act by another.” The corporate plaintiff didn’t have to violate its beliefs (that feels like an absurd statement), but taking an action that permitted a third party employee to possibly violate the beliefs of the corporation was a sufficient burden. This is also ignores that the contraceptives at issue could be used for medical reasons unrelated to lifestyle choices. Here is where I struggle the most with the reasoning of the Majority. Employers pay employees subject to minimum wage laws. Employers have no guarantee that the employees will use the compensation in a manner consistent with the employer’s religious views. Why is it different when the compensation comes in the form of employer-provided health benefits, which is a form of compensation?
In Hobby Lobby, I am pretty happy with the way that the Court treated the question of corporate personhood for purposes of RFRA. I am less impressed with the Court’s analysis of whether the contraception mandate imposed a substantial burden on the religious exercise of the challengers.
Justice Alito analyzed this question by looking at the scope of the penalty in the event that the challengers refused to comply with the law. Because the penalty was substantial, he argued, the burden must be substantial. I think that this focus on the penalty is mistaken. It seems to imply that moderate penalties imposed on core religious activities would not be a substantial burden. Suppose, for example, that some neutral law had the effect of imposing a $50 fine every time a Catholic priest performed the sacrament of ordination. As I understand it, priests perform this sacrament fairly infrequently, but it is centrally important to the life of the Church. Likewise, a massive fine on a relatively trivial religious activity – say putting an ichthus bumper sticker over a license plate – would be a substantial burden.
The analysis in Justice Ginsburg’s dissent strikes me as muddled, but at least it circles toward the real issue in the case. It’s muddled because she spends a lot of time arguing about harms to third parties. The problem with the harm principle, in my opinion, is that it is of little help because so much of the real work in the argument is done by the definition of harm. In Hobby Lobby, granting an exemption to the challengers harms third parties if one assumes that they have a right to contraception provided by their employers as part of their compensation. If one does not assume the existence of such a right, then there is no harm. Given that the case here involves a debate over whether such a legal right in fact exists, it doesn’t seem that we can appeal to such a right in the harm analysis without becoming circular. Alternatively, we might understand harm not in terms of some baseline of rights, but rather in terms of actually disutility or the like. The problem here, as Amartya Sen long ago pointed out his essay “The Impossibility of a Paretian Liberal”, is that once one links harm to the idea of utility rather than rights, the harm principle becomes impossibly restrictive.
Justice Ginsburg’s analysis gets closer to the mark, I believe when she talks about the idea of complicity. The burden asserted by the challengers is that by being required to purchase certain kinds of contraception coverage they are being made complicit in abortion. Justice Alito suggests that once one asserts complicity, a substantial burden has been established, presumably so long as the sanction for not complying with the law is large enough. Any attempt to judge the substantiality of the challengers’ complicity, he claims, would involve judging the reasonableness of their religious beliefs. In contrast, Justice Ginsburg is eager to charge in where Justice Alito fears to tread, arguing that in this case the actual use of the objected to contraception involves the choice of a third party, and, therefore, the challengers cannot assert the their religious exercise is burdened.
Here, I think Justice Ginsburg’s dissent gets at the hard issue in the case: When does complicity burden religious freedom? My intuitions on this run in opposite directions. On one hand, I think that Justice Alito’s deferential attitude toward claims of complicity is dangerous. If we must simply defer to a challenger’s claim that any forced complicity creates a burden without any inquiry into the scope or attenuation of the complicity, then we have a world where A can claim that his religious exercise has been burdened because B has engaged in conduct that A finds religiously objectionable, so long as A can sincerely claim that there is some law that makes A complicit in B’s activity. The problem is that in an interconnected society law and commerce arguably makes us complicit in so much of each other’s activities that we run the risk of adopting the perverse view that religious freedom is routinely threatened when others engage in religiously objectionable activity.
My other intiution is that in some cases complicity becomes a valid way of understanding burdens on religious activity. The obvious case would be a law requiring an objecting physician to perform abortions when asked to do so by a patient willing to pay for it. In such a case, one might point out that in this instance the abortion will only be performed if the patient chooses to do so, and if the physician doesn’t perform the operation, the abortion will happen anyway because the patient by definition has the funds to purchase the desired procedure. Still, I think such a law would be a major imposition on religious freedom. The difference between my hypothetical abortion law and Hobby Lobby or a case of someone objecting to taxes on the grounds of complicity in religiously objectionable government policies, it seems to me, is simply the extent of the complicity rather than any difference in the nature of the religious burden.
For those interested in business and corporate law, the issue of complicity is particularly important. Commerce is a matter of joint enterprises, and, as casuists long ago recognized, it involves ubiquitous complicity in the actions of others. The easiest solution to the problem of complicity-via-commerce is a regime of freedom of contract. In this world, consent does the work of mediating the degree to which we wish to become involved in the moral complexities of others’ projects. Of course, to this one can marshal the traditional objections to freedom of contract – inequality of bargaining power (whatever that means), the presence of non-disclaimable contractual and legal duties, problems of monopoly, the countervailing claims of status and the like - and we can turn this debate on religious freedom over to the contract law geeks.
In a world where freedom of contract is subordinated to such concerns, RFRA-like regimes require judgments about the level of complicity at which religious protections should be triggered. This means making the kind of delicate inquiries Justice Alito believes courts should avoid. Contra Justice Alito, however, I believe that in making such judgments courts would be defining the scope of religious freedom not the scope of reasonable religious belief.
First off, thank you to Usha and everyone at the Glom for inviting me back to participate in this symposium. I thoroughly enjoyed Round 1, and have eagerly awaited this sequel!
Before commenting upon what the opinion did decide, I thought I'd clear the brush a bit and comment upon what the opinion didn't decide. Especially because what the opinion didn't decide has been my own particularly scholarly focus for the last few years.
Namely: do publicly traded business corporations have First Amendment free exercise rights (akin to the First Amendment free speech rights that they possess)? The Supreme Court expressly decided to sidestep that particular issue (which is not surprising).
That said, the issue remains very much alive. In its decision, the court held 5-2 that business corporations were persons capable of exercising religion as per the Religious Freedom Restoration Act (RFRA). More than anythng else, RFRA addresses the standard pursuant to which religious liberty claims are to be adjudicated - not the definition of what constitutes the free exercise of religion. Therefore, it stands to reason that there are at least 5 justices on the Court who believe that corporations have standing to bring free exercise claims directly under the First Amendment. In light of the Smith decision, they'd most likely lose these cases if dealing with a law of general applicability, but they'd nevertheless have standing to bring them.
The issue is salient for at least two reasons: (1) Congress could curtail RFRA to reverse Hobby Lobby (and a movement among Democrats to do this is currently afoot), and (2) Hobby Lobby would not apply to similar claims brought against state-decreed (versus federally decreed) mandates.
With regard to the distinction between privately held versus publicly traded corporations, the Court in Hobby Lobby made clear that the decision was limited to the facts before them, thereby limited to privately held corporations. Nevertheless, the Court was a bit cagey about this, observing at one point that "it seems unlikely that ... corporate giants ... will often assert RFRA claims." The Court could have more firmly closed this particular door, but instead left it wide open.
Finally, the Court continued to avoid any sustained discussion of corporate theory, and how that might impact its recognition (or non-recognition) of corporate constitutional rights. Again, that's not at all surprising. Perhaps their waiting for one of us to pull their decisions together as part of some grand, over-arching theory!
I look forward to addressing the merits and implications of what Hobby Lobby did decide in the posts ahead, and to reading what others here have to say about the case.
Welcome to what promises to be an engaging conversation about one of the biggest Supreme Court cases of the last term, Burwell v. Hobby Lobby (opinion here). As I observed when it came out, the opinion has much language of interest to corporate scholars as well as con law types. We look forward to some great discussion!
I wanted to finish up my discussion of administrative enforcement by considering alternatives. We often take regulatory enforcement for granted. A securities regulator, for example, naturally will have the power to seek out violations of the securities laws and sanction violations. As is common in administrative law, scholars, courts, and Congress start with the assumption that expertise in the industry is the most important input into the enforcement calculus. If an agency is familiar with an industry, it will make good enforcement choices.
In my forthcoming article in the Minnesota Law Review, I argue that this question is actually much more complex than we usually assume. In particular, prosecutorial discretion has strong generalist aspects that largely do not depend on the regulatory subject matter. Giving enforcement authority to a specialist agency instead of a generalist enforcer (such as the Department of Justice) trades one type of expertise for another. Furthermore, specialists inherently see enforcement actions more narrowly. As a result, we shouldn’t see enforcement by regulatory agencies as inevitable or automatic.
Since it is still in draft form, I’d very much appreciate any and all comments. Thanks again to Erik for the chance to blog this week.
Faithful readers will remember our excellent symposium centered around the Hobby Lobby oral arguments (posts collected here). Next week we will reconvene our group, along with some new participants, to discuss this fascinating opinion. We look forward to a robust discussion!
I have a problem with VAPs--the visiting assistant professorships/fellowships that are the most common entry-point to the legal academy. What I am looking for in a new colleague is curiosity, discipline, and the capacity for intellectual give-and-take--not just play king-of-the-hill and defend a position against all comers, but engage in a real dialogue. One of my colleagues call it "sparkiness."
So how do you find that?
Pre-VAP, writing an article while in practice was a strong signal--if you were interested, cared enough, and were hard enough working to write while in practice, you were a pretty good bet. With VAPs now de rigeur, the signal is muddied. Each law school that houses VAPs has strong institutional incentives to place all of them, so it's hard to use VAP recommenders as a signal--the law school will find someone to enthuse about each of its VAPs. And VAPs are now well-groomed to say the right things, coached as to the standard arguments and responses. They talk the talk. But will they walk the walk 3 years into teaching? It's hard for me to tell.
There are recommenders and recommenders, of course. Each institution will have those discerning types who don't lard on the praise--whose compliments, even if sparing, mean more than the lavish encomiums of their colleagues. But how to find these?
As I commented on Elizabeth Pollman's great closing post,
last year I was talking to a distinguished older professor about hiring. He said he had stopped caring about how smart someone was, since everybody at this level is smart. "I don't care how smart the candidate is. Show me why they've done." I've thought about that conversation a lot since then. What makes a successful law professor or law student seems to have as much to do with drive/work ethic as smartness. The latter may be necessary, but is not sufficient.
It's just harder to discern "what someone has done" when their job as a VAP is basically to produce scholarship and have it be vetted and polished. Of course I'm just throwing stones--I don't have any ideas about how to make these discernments in the post-VAP age. Maybe someone else does?
Regulatory enforcement is a difficult task. It combines the challenges of traditional criminal enforcement with the concerns about capture and other weaknesses of administrative law. Yesterday I introduced FERC as a case study of regulatory enforcement. The Energy Policy Act of 2005 dramatically expanded FERC’s enforcement authority and required the agency to think hard about how to use its new power to impose large penalties for regulatory violations. In my view, FERC has met the challenge very successfully. (As I mentioned yesterday, I took leave from academia to work at FERC in the Office of Enforcement and was personally involved in some of these efforts.).
After the statutory changes expanding its authority, FERC brought numerous significant enforcement actions. These cases have frequently targeted large financial entities that allegedly manipulated the energy markets. The sanctions in these cases have been large by any measure. They include a settlement with a JP Morgan subsidiary for $285 million in civil penalties and $125 million in disgorgement.
FERC has mostly received positive press for its enforcement activities. Very recently, though, The Wall Street Journal has published a series of pieces that have claimed that FERC has been overaggressive and has engaged in prosecutorial abuse. In particular, the Journal has argued that FERC has been unfair to investment banks and hedge funds accused of manipulating the wholesale energy markets. I think these attacks are seriously wrong. In fact, FERC is in many ways an exemplary regulatory enforcement agency.
In particular, FERC has taken two key steps as matter of policy to improve its regulatory enforcement regime. First, in 2009, FERC committed to disclose exculpatory information relating to any enforcement action to the target of its enforcement activities. It may seem surprising, but this step probably is not required under the Constitution. Under Brady v. Maryland, criminal prosecutors must reveal information that suggests that the defendant is not guilty. Because regulatory enforcement is civil, the Brady obligation does not apply as a matter of constitutional law. Other regulatory agencies have been criticized for not providing these disclosures. FERC, though, voluntarily imposed Brady as a matter of enforcement policy, a step taken by comparatively few enforcement agencies.
Second, as I discussed in a previously, penalty ambiguity is a serious flaw with most civil enforcement. Federal agencies frequently provide little or no guidance to the regulated community about how civil penalties are calculated. Opaque penalties are very hard to defend – shaping behavior by deterring misconduct is a primary reason agencies impose penalties. If the targets of civil enforcement do not know how penalties are calculated, they cannot respond to the incentives created by enforcement. FERC has also been a leader in penalty transparency. In 2010, it published an extensive policy statement outlined a set of penalty guidelines that provide a mechanism to calculate the likely range of penalties in any given enforcement action. Equally important, it has continued to cite and rely upon its penalty guidelines in enforcement actions.
In these and other respects, FERC enforcement has been a leader among federal agencies in ensuring the transparency and fairness of its enforcement program. Equally important, FERC’s enforcement has been an example of bipartisan success. Both the Republican and the Democratic members of the Commission supported these policy statements and have voted in favor of FERC’s significant enforcement settlements. FERC is a model of fair, effective, and bipartisan enforcement that other federal agencies should follow.
Daniel Gitner got a splashy profile in the Times today in celebration of his recent trial acquiting Rengen Rajnaratnam, and congratulations to him. My theory of white collar/defense lawyer eminence is that often, you don't have to win to be able to market yourself. You were "picked by Martha Stewart," or "represented General Motors during the financial crisis," or "handle pro bono representations for five detainees in Guantanamo." See? It sounds like you're important. You're so good you drew the assignment.
Still, you probably won't get a Times profile when you lose those cases. Gitner won, and drew a reporter who didn't appear to like him much. He forbade his staff to get haircuts during the trial for some uninteresting lucky rabbit foot related reasons, and generally came across as intense but yet very platitudinous.
That right there isn't bad marketing either, though. My lawyer is a pain but leaves no stone unturned; it's practically in the job description. And now Gitner gets to add that he's the only person to win an insider trading case in the Bharara era; he did two things right there. First, he persuaded the jury to absolve his client of the one marginal count the judge didn't dismiss, and second, he got the judge to dismiss the two serious counts. It could be his briefwriting, rather than his bedside manner, that did the trick here - that, at least is what Matt Levine thinks.
I’ve been blogging recently about my scholarly work in administrative enforcement. I thought it might be useful to touch on my practical experience as well. I took a break from my academic career to work in the Office of Enforcement at the Federal Energy Regulatory Commission. I had the good fortune to serve under Norman Bay, the Director of that Office at FERC. (Full disclosure – Bay has been nominated by President Obama to serve as Commissioner and, eventually, Chair of the Commission. The Senate Energy Committee voted in favor of his confirmation and I hope that the full Senate will do the same shortly).
FERC is an agency with mixed regulatory portfolio. As a general matter, it oversees the interstate energy markets. In practice, two of its largest areas of regulatory focus are electricity and natural gas. The agency’s traditional mission involved the rates, terms, and conditions of service offered by public utilities. In important ways, the Commission’s work mirrored the function of state public regulatory commissions. For example, just as state regulators are charged with the obligation to prevent public utilities from using their monopoly position to exercise market power in retail electric markets, FERC plays the same role in interstate electric markets.
This mission changed in the first part of the last decade as a result of two significant problems in the energy sector. The first was the western energy crisis of 2000 and 2001. Severe shortfalls in the supply of electric power produced blackouts and dramatic price fluctuations. Market manipulation, primarily by Enron and related entities, is widely seen as a key cause of that crisis. Second, the 2003 northeast blackout involved widespread power losses in both the United States and Canada. The blackout was the result of multiple failures of several public utilities to ensure the reliability of their systems.
Despite the severity of these events, no federal agency was in a position to respond effectively. Neither federal nor state regulators could impose significant penalties for energy market manipulation. Similarly, electric utilities had no binding legal obligation to prevent blackouts. Electric grid reliability depended on a set of voluntary standards that were not backed by any enforcement authority.
Congress responded with the Energy Policy Act of 2005 and dramatically expanded FERC’s enforcement powers. It received statutory authority to punish the manipulation of the energy markets. The statute and implementing regulations closely followed the models used by the SEC in the securities markets. With respect to electric grid reliability, Congress authorized the creation of mandatory standards to prevent blackouts. Notably, FERC received the power to impose penalties of $1,000,000 per day for violations of the Commission’s rules and regulations.
As a result, FERC obtained not just a new regulatory mission, but both the power and obligation to impose significant penalties for serious violations. It needed to decide how to use the authority effectively and judiciously. As I’ll discuss more tomorrow, my view is that it has done so – FERC recently has been a true enforcement success story.
I blogged yesterday about administrative enforcement, an area that lies at the intersection of criminal and administrative law. Among other topics, my scholarship has considered the civil penalty process. In particular, what are the inputs and incentives that shape administrative agency penalties?
A standard model used to describe the penalty process emphasizes economic theories of deterrence. Financial penalties are a mechanism to raise the price for violations either to make misconduct completely unprofitable or, in the alternative, to force violators to internalize the costs of violations. I’ve pointed out one way that this theory may break down – administrative agencies might not focus on deterrence at all. Instead, their penalties may be crafted to achieve retributive ends.
In our recent Harvard Law Review article, For-Profit Public Enforcement, Margaret H. Lemos and I looked at penalties from another perspective: public enforcers may have self-interested reasons to maximize civil penalty recoveries. These incentives are widely recognized in private enforcement. Class action lawyers, for example, operating on a contingency fee basis have straightforward reasons to maximize recoveries.
Perhaps less obviously, public enforcement lawyers can have comparable incentives to impose large penalties. These incentives work most clearly in cases where enforcement agencies keep a portion of the civil penalties imposed. This structure is common in the asset forfeiture process used in connection with many criminal cases and also exists in other state and federal enforcement contexts. Even when penalties are turned over to the general treasury, enforcers may have reputational incentives to maximize penalties. Both agencies as a whole and individuals working in enforcement agencies may seek to build a reputation as an aggressive enforcer for reasons other than deterrence.
Assuming that these claims are right and that civil penalties can be driven by retributive or self-interested goals, is this a problem? Perhaps, perhaps not. Self-interested public enforcement may push enforcers to emphasize financial recoveries over other tools of regulatory control, such as injunctive relief. However, if our default assumption is that administrative agencies underenforce and usually do not impose adequate penalties, the pressure of self-interest may correct this trend to some degree.
The presence of retribution in civil penalties has similarly mixed effects. Of course, if penalties are supposed to be carefully calculated to deter, retributive ends will hamper this goal. On the other end, we now widely recognize the role of norms in shaping compliance behavior. Retributive punishment done well can shape and reinforce industry norms.
Usually thought of as unusually receptive, for a financial regulator, at least, to legislative pressure, the SEC, perhaps in a testament to its recent obsession with insider trading, has done the opposite and filed suit against Congress, subpeonaing a congressman and his aide to see whether the aide disclosed news to a lobby/law firm about health funding that caused a bunch of stock prices to spike ahead of the announcement of the new policy. DOJ is in on the game as well.
Congress is, it appears, displeased:
“What the SEC has done is embark on a remarkable fishing expedition for congressional records -- core legislative records,” [congressional lawyer] Kircher said in a court filing. “The SEC invites the federal judiciary to enforce those administrative subpoenas as against the Legislative Branch of the federal government. This court should decline that invitation.”
The so-called speech and debate clause in the Constitution protects members of Congress and staff from any outside inquiry into legislative business.
It is pretty juicy, and we'll outsource why to corp counsel. I'm just ballparking here, but a conversion between an aide and a lobbyist would seem to be deeply, deeply covered by the speech and debate clause, as unappetizing as it might seem. Here's a note on the clause, and here's the Heritage Foundation, which does these recaps pretty well.
And here's corp counsel:
the DOJ and SEC have sent subpoenas to Rep. David Camp, Chair of the House Ways & Means Committee, and Congressional Staffer Brian Sutter, regarding whether they tipped traders about a change in health care policy in the wake of a long-running investigation. And on Friday, as noted in this WSJ article, the SEC filed a lawsuit in the Southern District of New York seeking to compel the subpoenas. Possible grand jury to follow.
Here’s an excerpt from David Smyth’s blog about the case:
This is fascinating to me for so many reasons, among them: (1) the potential Constitutional cluster we’re about to witness; (2) the real test this poses for the recently passed STOCK Act’s effectiveness; and (3) another example of Mary Jo White’s severe distaste for those who defy Commission subpoenas.
And here’s an excerpt from the latest WSJ article:
“It’s not unheard of for an agency to serve a subpoena to Congress, but for an agency to sue is—if not unprecedented—at least very rare,” said Michael Stern, who was senior counsel to the U.S. House from 1996 to 2004. “It shows that there is a serious conflict; the SEC really wants the information and the House really wants it protected,” he said.
Erik, thank you for that introduction. It is a pleasure to join the Conglomerate for a week. My scholarly interests have recently focused on federal administrative enforcement – enforcement actions by agencies like the SEC, the CFTC, as well as a host of lower profile entities. This is a fascinating area of public law combining two scholarly literatures. Administrative enforcement actions share much in common with criminal cases. They are brought by public entities to vindicate public wrongs. However, the administrative context deeply shapes this type of enforcement. For example, unlike most prosecutor's offices, administrative enforcement bodies tend to be industry-specific.
As a result, administrative enforcement can go wrong in two different ways– the “criminal law” way or the “administrative law” way. Administrative agencies face the challenges of regulatory capture, inadequate or incorrect information, or simply the wrong incentives to engage in appropriate regulatory action. Criminal enforcement, though, often struggles with procedural fairness as well as the difficult task of assigning the correct level of punishment to different forms of misconduct.
Take, for example, this last issue: the fundamental question of penalty levels. Administrative agencies commonly use financial penalties to punish regulatory violations. How should these penalties be set? Which cases require the largest penalties and which only need more modest sanctions?
Criminal law scholars will recognize this question as an inquiry about theories of punishment. Speaking broadly, criminal law considers a couple of approaches. Utilitarian theories of punishment (e.g., deterrence, rehabilitation, incapacitation) seek to punish conduct to produce beneficial social outcomes. Retributive theories emphasize desert – punishment occurs because the violator deserves punishment, not because it produces a social benefit.
So what do federal agencies do? As I argue here, administrative agencies almost uniformly talk about deterrence, but usually engage in retribution. When setting penalty levels, agencies move penalties up or down in response to facts that justify retributive punishment but do not adjust penalties in the way deterrence requires. For instance, building on Gary Becker’s justifiably famous work, Crime and Punishment: An Economic Approach, most deterrence theories emphasize the role of the probability of detection in setting penalty levels. To deter appropriately, penalties need to increase when violations are harder to detect and punish. In practice, though, administrative agencies place little weight on this issue. Instead, agencies are deeply concerned with issues like mens rea, a topic far more central to retributive theories of punishment.
Is this retributive bent in administrative enforcement surprising? Perhaps not. A large literature suggests that most people are intuitively retributive when making punishment choices. In social science experiments, study participants set penalties based on retributive concerns, but do not adjust punishment levels in ways that would be required to deter appropriately. In this way, administrative agencies look like the rest of us. We mostly care about desert even when we talk about deterrence.
We are pleased to welcome Max Minzner for a guest blogging stint at the Conglomerate. Max is a Professor and the Associate Dean for Faculty Development at the University of New Mexico School of Law. In addition to teaching at UNM and Cardozo, Max has a wealth of experience in the public sector. He served as an Assistant U.S. Attorney in the Eastern District of New York and as Special Counsel to the Director of the Office of Enforcement at the Federal Energy Regulatory Commission. Among his articles is the fantastic new piece (co-authored with Margaret Lemos), For-profit Public Enforcement which appeared this January in the Harvard Law Review.
Psychologist Carol Dweck studied elementary school students and observed that when some of them came across math problems that they couldn’t solve, they could no longer do problems that they had solved before, and this effect sometimes lasted for days. What was going on with these students? They viewed intelligence as a fixed trait. When Dweck and fellow experimenters taught some of them that intelligence is malleable, like a muscle that grows with effort, these students persisted and improved. The control group showed no improvement.
For my last guest post, I wanted to share some research on “mindset,” because it has been so helpful in shaping my thinking on teaching and life more generally. I’m lucky to be friends with Jacquie Beaubien, a senior project manager at the Project for Education Research That Scales (PERTS), an applied research center at Stanford University that works on mindset science and academic motivation. They collaborate with leaders in the field like Carol Dweck and they’ve improved thousands of students’ achievement with programs based on mindset research.
The key insight is a difference in belief about intelligence: “fixed mindset” vs. “growth mindset.”
People with a “fixed mindset” see intelligence as a fixed trait that can’t be changed. They think that effort indicates low ability. People with a fixed mindset will spend their time trying to look smart rather than developing their intelligence. They are less likely to seek help because they’re afraid of showing that they don’t know things, and they’re more likely to cheat. They’ll get discouraged or draw back when they encounter challenges, afraid of failing. A fixed mindset hinders reaching one’s potential.
People with a “growth mindset” believe that intelligence can change. Effort is the mechanism by which you can grow your intelligence. Setbacks are understood as a part of the learning process. The “growth mindset” thus embraces challenges, which fosters a love of learning and the resilience that’s often needed to accomplish great things. Indeed, people with a growth mindset often see themselves as learning rather than failing at something (e.g., saying to oneself “I can’t do it yet,” or “I’m getting there” rather than “This shows that I failed and can’t do it.”).
A great deal of thoughts and behavior spring from these mindsets, including our relationship with success and failure. These mindsets affect what we strive for and how we interpret effort.
For example, Carol Dweck quotes one seventh-grade girl who explained: “I think intelligence is something you have to work for . . . it isn’t just given to you . . . . Most kids, if they’re not sure of an answer, will not raise their hand to answer the question. But what I usually do is raise my hand, because if I’m wrong, then my mistake will be corrected. Or I will raise my hand and say, ‘How would this be solved?’ or ‘I don’t get this. Can you help me?’ Just by doing that I’m increasing my intelligence.”
Dweck’s research also found, with the use of a brain-wave lab, that mindset affected how brains behaved when receiving feedback. Those with a fixed mindset focused on hearing feedback about their present ability and they tuned out information that could help them improve. By contrast, those with a growth mindset were attentive to information that helped them learn, regardless of whether they got a question right or wrong.
We can learn to adopt a growth mindset and use language that supports resilience. A bunch of resources on mindset research are available, such as Carol Dweck’s great book, articles about her work and others, and the PERTS site has mindset surveys, readings, and more.
Mindset research informs my teaching in a variety of ways. For example, usually in the beginning of the semester when I talk about class policies, I make clear that I really care whether they come to class prepared because much of their learning will take place with lots of hard work outside of class. I say that law school is often the time when people experience working the hardest they’ve ever worked. I ask that students strive for high-quality participation, knowing that it's okay to make mistakes when speaking in class. In fact I say that we learn as much, or more, from mistakes...it's part of the learning process.
Throughout the semester, I try to cultivate an atmosphere of trust and encouragement for effort in class. I use the language of a growth mindset in giving feedback on midterm exams and in-class problems. I tell them that the legal profession has high standards and the reason I give critical feedback is because I believe they can learn to meet those high standards. I try to remember to praise effort and process (e.g., “I like the way you…” or “you’re doing a good job, keep going…”) rather than fixed ability (“you’re smart”). I find that I can tell a student that their answer is wrong without using a negative tone … because I actually believe it's not a bad thing. As Dolly Parton said, “You’ll never do a whole lot unless you’re brave enough to try.”
It has been a real pleasure guest blogging. Many thanks to the Conglomerate for the opportunity.