Week in Review

IN THE NEWS

• The U.S. Supreme Court ruled that the U.S. Securities and Exchange Commission (SEC) violated the right to a jury trial guaranteed by the Seventh Amendment of the U.S. Constitution by its use of in-house administrative law judges to pursue fraud enforcement actions leading to civil penalties. In a 6-3 decision, the Court held that a “defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator.” The Court said that Congress exceeded its powers when it permitted the SEC to choose whether to pursue an enforcement action in-house or in federal court for suits that “resemble a traditional legal claim.” Justice Sonia Sotomayor, joined by Justices Elena Kagan and Ketanji Brown Jackson, dissented and argued that the majority’s view of what the Constitution requires is “plainly wrong” and that it “upends longstanding precedent.” The dissenters predict that the decision will likely impact “dozens of agencies” that use similar proceedings to hear enforcement actions and impose penalties without a jury, including the Federal Trade Commission, Social Security Administration, and the Environmental Protection Agency (EPA).
• The U.S. Supreme Court put on hold the “good neighbor” rule issued under the Clean Air Act. EPA intended its good neighbor rule to reduce the amount of air pollution traveling from upwind states, where pollution is emitted, to downwind states, which receive the air pollution. It required upwind states to commit to decreasing ozone pollution. Although the Act allowed states to develop their own plans to reduce ozone emissions, the good neighbor provision provided EPA with the authority to implement its own federal plan when it deemed state plans as insufficient.
• The U.S. Supreme Court held that individuals who pose a threat to the safety of others and have a history of domestic abuse may be temporarily disarmed under the Second Amendment. The vote was eight to one, with Chief Justice John G. Roberts authoring the majority opinion of the Court. The majority applied the Court’s recent New York State Rifle & Pistol Association, Inc. v. Bruen opinion to reach its result, emphasizing that Second Amendment rights are not absolute. In a concurring opinion, Justice Ketanji Brown-Jackson expressed concern about the difficulties lower courts are experiencing in grappling with the history and tradition standard set forth in Bruen. Justice Clarence Thomas was the sole dissenter, contending that “not a single historical regulation justifies the statute” adopted by Congress to prohibit domestic abusers from possessing firearms.
• The U.S. Supreme Court determined that a federal corruption statute only applies to bribes promised before an official act and not to gratuities extended after an official act. The Court voted six to three in favor of the narrower interpretation of the statute, with Justice Brett Kavanaugh writing that the government’s reading of the statute “would radically upend gratuities rules” and turn the statute “into a vague and unfair trap for 19 million state and local officials.” The majority posited that it falls upon states and localities to regulate gratuities to non-federal officials. Justices Sonia Sotomayor and Elena Kagan joined Justice Ketanji Brown-Jackson’s dissent, arguing that the majority ignored the plain text of the statute and that gift-giving can be “functionally indistinguishable from taking a bribe.”
• The U.S. Department of the Treasury proposed a new rule intended to restrict U.S. artificial intelligence investments in China. The proposed rule aims to prevent the development of sensitive technologies in “countries of concern” such as China, and intends to stop U.S. investments from funding military, cyber, and intelligence capabilities of such countries. The proposed rule is intended to improve the national security of the U.S. by preventing benefits that countries of concern would gain from U.S. investments.
• The U.S. Court of Appeals for the Fifth Circuit struck down as arbitrary and capricious the rollback of a 2022 rule by the SEC. The rule  eliminated certain disclosure requirements for proxy advisory firms. Proxy advisory firms help shareholders make decisions and vote in corporate elections. SEC Chair Gary Gensler claimed rolling back the requirements would improve the timeliness and independence of proxy advisory firms. The Fifth Circuit, however, found that the SEC failed to explain why it disregarded its prior factual findings that the disclosure requirements “posed little or no risk to the timeliness and independence” of proxy advisory firms. The Fifth Circuit also held that the SEC failed to explain why the risks were significant enough to justify the rollback.
• The U.S. Court of Appeals for the Fifth Circuit ruled that the U.S. Preventive Services Task Force is unconstitutional because it violates the Appointments Clause of Article II. Congress authorized the Task Force to publish preventive care recommendations to guide the health care community, organizations providing health services, and policy-makers. Under the Affordable Care Act, private health insurers must cover the Task Force’s recommendations, such as cancer screenings and HIV preventive drugs. The Fifth Circuit concluded that the Task Force’s members, currently comprising a group of volunteer experts, must be appointed by the President and confirmed by the Senate. In lower court proceedings, the trial court had “vacated all agency action” enforcing the Task Force’s recommendations. The Fifth Circuit found “no basis for the universal injunction,” and it narrowly affirmed the lower court’s ruling. The preventive care mandate currently remains in effect nationwide.
• A federal judge in the U.S. District Court for the Northern District of Texas issued a temporary injunction blocking a Biden Administration rule from taking effect on July 1 that would have cut off federal student aid to certain vocational programs. Under the rule, vocational programs that required more hours than the state mandated minimum for licensure would not qualify for federal aid. A group of vocational schools challenged the rule, arguing that the Department of Education violated the Administrative Procedure Act and exceeded its authority under the Higher Education Act of 1965. The court noted that, because the Department’s administrative record lacked any rationale for its “significant modification,” the schools established the “substantial likelihood of success on the merits” for injunctive relief. The schools also demonstrated “irreparable injury” by claiming that the rule would force them to reduce program hours and incur compliance costs. The court’s order prevents the rule from taking effect until the lawsuit is resolved.

WHAT WE’RE READING THIS WEEK

• In an article in the Seattle University Law Review, Jill Fisch, the Saul A. Fox Distinguished Professor of Business Law at the University of Pennsylvania Carey Law School, examined the Supreme Court’s oversight of agency decision-making since the New Deal era. Although the Court eventually accepted the administrative state, it first questioned the limits of Congress’s regulatory power, its authority to delegate lawmaking and adjudicative power, and the level of scrutiny the Court would use in overseeing agencies. Fisch proposed explanations for the resurgence of concerns first raised in the 1930s. One theory suggests that the New Deal Court erred in delineating the constitutional limits of agency power. A second theory points to conservative leaders’ focus on deregulation. Fisch contended that both explanations were “somewhat unsatisfying” and offered a third: The expertise and political insulation that once advantaged agency decision-making have unraveled. To improve agency legitimacy and regulations, Fisch advocated a more nuanced approach than “eliminating Chevron deference and extending the major questions doctrine,” such as establishing stricter qualifications for agency heads.
• In an essay published in the Notice & Comment blog of the Yale Journal on Regulation, Lev Menand, an associate professor at Columbia Law School, and Tim Wu, the Julius Silver Professor of Law, Science and Technology at Columbia Law School, argued that a Federal Trade Commission (FTC) trade regulation preventing employers from enforcing non-compete agreements against their employees did not violate the major questions doctrine and would not be deemed unconstitutional by the Supreme Court. Menand and Wu explained that the major questions doctrine applies when agencies assert authority in new ways, and that the FTC trade regulation is not novel because it conforms with textually explicit authorization from a 1973 D.C. Circuit case. Menand and Wu suggested that the FTC’s rule is sufficiently different from West Virginia v. EPA, where an agency did act in a novel way.
• In a German Marshall Fund (GMF) paper, Jessica Brandt, Director of the Foreign Malign Influence Center (FMIC), Bret Schafer, a senior fellow at GMF, and Rachel Dean Wilson, a managing director at GMF, argued that the United States can and must alter its strategy in the “information domain” to compete with autocratic countries such as Russia and China. Such autocratic countries are not constrained by the truth of the information they disseminate, which poses a challenge to the United States and other liberal democracies. Brandt, Schafer, and Wilson suggested that autocratic countries have preyed on the “open information environment” of the United States and that it has fallen behind rhetorically by being reactive. Brandt, Schafer, and Wilson offered several recommendations to update and improve the United States’ strategic and broadcasting activities, including refocusing its message around the country’s strengths, employing authentic voices, and filling vacant positions in public diplomacy ranks. If these changes are instituted, Brandt, Schafer, and Wilson claim that “Washington can position itself for success in today’s information environment.”

EDITOR’S CHOICE

• In an essay in The Regulatory Review, Hillel Y. Levin, the Alex W. Smith Professor of Law at the University of Georgia School of Law, and Timothy D. Lytton, the Regents’ Professor at Georgia State University College of Law, argued that the Supreme Court’s Bruen opinion places gun regulation firmly in the control of the courts, depriving federal and state legislators the ability to set firearm policy. Levin and Lytton noted that this phenomenon could result in unexpected consequences, such as determining the immunity of the firearms industry from civil lawsuits. Levin and Lytton cited, for instance, the Protection of Lawful Commerce in Arms Act (PLCAA), which grants civil immunity to the gun industry and includes exceptions for the regulatory choices of individual states. Levin and Lytton contended that Bruen may forge a wall of immunity beyond that constructed under PLCAA if there is no historical tradition of analogous civil lawsuits against the gun industry.