Judicial Fortitude

The Last Chance to Rein In the Administrative State

Peter J. Wallison

• Editorial: Encounter Books
• Año: 2018
• ISBN:
  9781641770095
• Categoría: Jura
• Categoría: Verwaltungsrecht

The central concern of the book is that the administrative agencies of the Executive Branch are gradually taking over the legislative role of Congress. The courts bear the major responsibility for this, because they have failed to carry out their primary responsibility in the Framers' constitutional structure: to assure that the three components of the separation of powers—Congress, the Executive and the Judiciary—remain independent and separate from one another. Since1937, the Judiciary has pulled back from this role, allowing the administrative agencies great latitude in their interpretation of their statutory authorities, and allowing the Executive Branch to assume more and more of the legislative powers of Congress. The result has been the uncontrolled growth of regulation and a significant threat to the Rule of Law in the United States.

1

THE ADMINISTRATIVE STATE AND THE RULE OF LAW

It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. Law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed?

JAMES MADISON, FEDERALIST NO. 62

We live, we believe, in a country governed by the rule of law, and recognize that this is in large part responsible for the success of our country and the well-being of its citizens. In our diverse and complex society, with many competing interests, a framework of laws to guide individual actions is essential; people know what to expect and what is expected of them. This framework breaks down, however, when agencies of the administrative state formulate regulations that go beyond the authority they have been given by Congress.

In The Road to Serfdom, Friedrich Hayek points out that it is wrong to believe that the rule of law exists in a society simply because all the actions of the state are duly authorized by legislation. He writes that the rule of law “has little to do with the question whether all actions of government are legal in the juridical sense. They may well be and yet not conform to the Rule of Law…. If the law says that … a board or authority may do what it pleases, anything that board or authority does is legal—but its actions are certainly not subject to the Rule of Law.”¹ To Hayek, “the important question is whether the individual can foresee the action of the state and make use of this knowledge as a datum in forming his own plans … or whether the state is in a position to frustrate individual efforts.”²

Justice Clarence Thomas made the same point in his important concurring opinion in Perez v. Mortgage Bankers Association, a case that dealt with the validity of a Labor Department change in its interpretation of the wage and hour laws. Thomas noted that one of the justifications for providing judicial deference to agency interpretations of their rules is that “agencies are better suited to define the original intent behind their regulations.” However, he wrote, “[i]t is the text of the regulations that have the force and effect of law, not the agency’s intent. Citizens arrange their affairs not on the basis of their legislators’ unexpressed intent, but on the basis of the law as it is written and promulgated…. To be governed by legislated text rather than legislators’ intentions is what it means to be a Government of laws, not of men.”³

This is the standard we should be looking for when we analyze what administrative agencies do: not whether there is some justification in the authorizing statute for a particular regulation, but whether Congress intended, at the time it enacted the statute, to give the agency the powers it is asserting. In other words, has the agency moved beyond the task of administering or enforcing the law into the role of making law, reserved by the Constitution to Congress?

The Consumer Financial Protection Bureau

It is useful to begin this discussion of regulation and the rule of law with the Consumer Financial Protection Bureau (CFPB), a glaring example of an agency that seemed, during the Obama administration, to have little regard for the rule of law. Most of the problems associated with the agencies of the administrative state arise from agencies issuing regulations that exceed the authority they were given by Congress. This is an obvious violation of the rule of law. However, the CFPB was different: it refused to prescribe rules or regulations that would restrict or limit its freedom to bring enforcement actions. In other words, it set out not to gain compliance by the regulated industry with any set of rules but instead to punish what it saw as inherent wrongdoing, apart from any set of rules.

Administrative and regulatory agencies have authority to make rules for two reasons: first, to fill in the details of what Congress authorized, and second, to inform those subject to their jurisdiction about how to conform their activities to the new policies embodied in the statute. The CFPB, established under the Dodd-Frank Act, is an example of an agency (at least in the Obama administration) that had less interest in providing information about the rules it would enforce than in gaining publicity through enforcement actions. In that sense, the agency is a prime example of how a regulatory agency can use its statutory authority to go beyond what Congress intended and, in doing so, impair the rule of law in a different way.

To be sure, some of the sponsors of the CFPB’s statutory foundation said the agency should be an enforcement agency and not a regulatory agency. By this, they might have meant that the CFPB should do most of its work through enforcement actions rather than through regulations. This would not be wrong if the agency had first established the rules that it would enforce, but that is not how it proceeded. Among other things, the agency was empowered to prevent “abuse” of consumers, but its director during the Obama administration, Richard Cordray, refused to provide any guidance on what constitutes “abuse,”⁴ asserting instead that he intended to define the term through enforcement actions.⁵ Contrast this approach with that of the Securities and Exchange Commission. The SEC spends most of its resources on enforcement, but had first laid down a comprehensive set of rules to guide the behavior of those in the securities industry who wanted to operate within the rules.

Enforcement actions without an underlying set of rules is a derogation of the rule of law, since a regulated firm can have no idea what activities might constitute abuse and thus no way to modify its behavior. As Mick Mulvaney, the acting director who succeeded Cordray, noted in a memorandum to the CFPB staff: “the people we regulate should have the right to know what the rules are before being charged with breaking them.”⁶ Moreover, the effect of Cordray’s approach to enforcement is more likely to harm consumers and the regulated industry than to help them. As Todd Zywicki, a law professor, notes, “The ability to deem certain products as inherently unsafe or ‘abusive’ is a dangerous one that will likely chill innovation and the introduction of new products.”⁷

The CFPB also provides an example of how an agency, in the absence of any judicial review, can arrogate to itself authorities that were denied in its authorizing statute. This is often possible because the regulated industry is afraid to challenge an aggressive agency, and could well suffer reputational harm when accused of bilking consumers. Although the Dodd-Frank Act provided the CFPB with a broad mandate to protect consumers against “unfair, deceptive or abusive acts and practices,” it clearly exempted auto financing from the scope of the agency’s authority. “Nonetheless,” as recounted by Neomi Rao, a scholar of administrative law who heads the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA) in the Trump administration, “the CFPB … enacted a rule to cover nonbank auto finance companies…. The Bureau relied on its general authority to supervise nonbank ‘larger participant[s] of a market for other consumer financial products or services’ as the Bureau defines by rule.”⁸ In other words, the agency used its general and open-ended authority to trump specific statutory limitations and leverage itself into the regulation of auto lenders.

Needless to say, if the touchstone of the rule of law is the language that Congress actually enacts, and if that language is ignored by administrative agencies, even statutes become unreliable guideposts for those who try to conform their behavior to what the law requires. Mulvaney’s memorandum to CFPB staff should be a mission statement for every regulatory agency: “I intend to exercise our statutory authority to enforce the laws of this nation. But we will no longer go beyond that mandate. If Congress wants us to do more than is set forth in the Dodd-Frank Act, they can change the law. Until then, we will enforce the law as currently written.”⁹

Title IX and Sexual Harassment

Another example of administrative actions that go well beyond Congress’s intent is the Education Department’s interpretation of the following language in Title IX of the Education Amendments of 1972: “No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance.”

This language, which Congress almost certainly meant to apply to discrimination against women in the provision of educational resources, was first interpreted by a federal court to cover the failure of a school to respond to allegations of sexual harassment by professors.¹⁰ The court reasoned that denial of educational resources because of refusal to accede to sexual demands came within the statutory language. But what was spun out from this rationale went even further beyond what Congress could have had in mind. In 1975 the predecessor of the Education Department issued a rule that applied Title IX to employment discrimination. This was upheld by the Supreme Court in 1982. In 1977 the department applied its regulations under Title IX to a school that received federal financial assistance only indirectly, through education grants to students. This was upheld by the Supreme Court in 1984.

Interpretations like this could conceivably have been within the contemplation of Congress, but it was the success of the Education Department’s Office of Civil Rights (OCR) in turning what had been devised by Congress as an antidiscrimination law into an anti-sexual-harassment law that is the most remarkable example of how administrative agencies can manipulate their statutory mandates.

In granting rulemaking authority to the Department of Education, Congress took an unusual step: it required that any rules under Title IX had to be signed by the president. Indeed, the first rule, after much negotiation, was signed by President Gerald Ford in 1975, but that was the last time that the department followed the normal requirement under the Administrative Procedure Act to issue a proposed rule, solicit public comments, and issue a final rule with responses to the comments received. As R. Shep Melnick reports in his comprehensive book on Title IX, “OCR has evaded [the statutory] requirements by labeling its commands ‘interpretations,’ ‘clarifications,’ and ‘guidance’ rather than ‘rules,’ and denying—quite unconvincingly—that they did anything new. In recent years it has announced major policy decisions in Dear Colleague Letters,…inverting standard rulemaking procedures by asking for comments only after it has established its position.”¹¹

These documents are not strictly binding on the educational institutions on which they have been imposed, but as Melnick notes, OCR “warned schools that they will face serious sanctions if they fail to comply with the mandates contained in these documents.”¹² This cavalier treatment of the rulemaking process cannot be consistent with the rule of law. And it gets worse when we look at what OCR has been requiring since 1975 with its unauthorized commands. In effect, largely without objection by the courts, it has usurped the power of Congress by creating rules on sexual harassment for educational institutions that have no basis in law but have resulted in serious punishments for students caught in this ultra vires web.

The link between the discrimination by an educational institution that was prohibited by the underlying statute, and the peer-to-peer sexual harassment OCR set out to prevent, was the concept of the “hostile environment.” This allowed OCR to threaten schools with penalties even when the harassment occurred between students. According to Melnick,

the first reported decision on school liability for student-on-student harassment appeared in 1993. By 1998 there were twenty-four published federal district court decisions on the subject, as well as rulings by six circuit courts…. Federal courts were all over the map on the liability standard to apply. Some ruled that schools were liable if they “knew or should have known” about behavior that created the hostile environment. Others held that schools would be held responsible only if they had “actual knowledge” of the behavior and failed to take corrective action.¹³

There is no indication that any court questioned how a statute that prohibited discrimination by schools “on the basis of sex” had become a vehicle for punishing student-on-student sexual harassment—and how all of this had been done without a notice-and-comment rulemaking.

Matters got even worse as OCR—essentially uninhibited by courts—went about defining “sexual harassment.” The scope of the law’s application continued to grow. In 1994 OCR sent a letter to Santa Rosa Junior College agreeing with two students at the California school who had claimed that sexually oriented offensive speech had created a “hostile educational environment” and directing the college to adopt a policy to prevent it. Although the Supreme Court held in one case that student-on-student sexual harassment had to be “so severe, pervasive and objectively offensive that it can be said to deprive victims of access to educational opportunities,”¹⁴ by 2008 the Office of Civil Rights was defining sexual harassment as “unwelcome” sexual conduct and “telling sexual or dirty jokes.”¹⁵ It is highly unlikely that Congress would have adopted this rule in 1972, especially in light of its implications for First Amendment rights.

With the advent of the Obama administration, the Office of Civil Rights became even more aggressive in its use of this law. In April 2011 it issued another letter, to the effect that schools must respond to claims of sexual harassment with a grievance procedure that uses a “preponderance of the evidence” standard. For a penalty that could lead to expulsion from an academic institution, a life-changing event, a preponderance of the evidence standard means that the accused can be convicted even though there is reasonable doubt concerning guilt. Nor is there any indication in Title IX that the department can require such an evidentiary standard.

In its 2013 agreement with the University of Montana, which the department referred to as “a blueprint for colleges and universities,” the department and the university agreed that sexual harassment should be defined as “any unwelcome conduct of a sexual nature,”¹⁶ and in an accompanying May 9, 2015, letter to the university, the Departments of Justice and Education noted that sexual harassment need not be “objectively offensive.”¹⁷ Under this standard, the important question is whether the complainant was offended—and thus sexually harassed—not whether a reasonable person would be offended.

This is an egregious example of how legislative language can be perverted into something unrecognizable because of compliant courts and no standards about how to interpret existing legislation. Starting with a simple and sensible idea—that no one should be deprived of the benefits of a federally supported educational institution because of sex or other discrimination—we now have a system in which normal communications between college students, protected by the First Amendment, are potentially punishable with expulsion. Clearly, something has gone seriously wrong. Congress...