Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the litigation and policy team at Bloomberg Intelligence, the
Speaker 1: investment research platform of Bloomberg LP. This podcast series examines
Speaker 1: the intersection of business policy and Law'm Elliott Stein and
Speaker 1: analysts with Bloomberg Intelligence covering financials litigation.
Speaker 2: And my name is Nathan Dean, and I'm an analyst
Speaker 2: with Bloomberg Intelligence covering financials policy.
Speaker 1: So our topic for today is how to beat the
Speaker 1: US government in court, and we're delighted to have with
Speaker 1: us the perfect guest for this topic, Eugene Scalia, partner
Speaker 1: in the Washington, d c. Office of Gibson, Dunn and
Speaker 1: Crutcher and co chair of the firm's Administrative Law and
Speaker 1: Regulatory Practice Group. Two thousand and two to two thousand
Speaker 1: and three, Secretary Scalia served as Solicitor of the US
Speaker 1: Department of Labor, and from twenty nineteen to twenty twenty
Speaker 1: one he served as US Secretary of Labor, making him
Speaker 1: the only person ever to have served as both solicitor
Speaker 1: and Secretary of Labor. Secretary Scalia is the go to
Speaker 1: lawyer for challenging federal regulatory actions and has successfully challenged
Speaker 1: rules like the SEC's Proxy Access Rule, the CFTC's position
Speaker 1: limits rule, met Life's designation as too big to Fail
Speaker 1: by the Financial Stability Oversight Council, the Labor Department's fiduciary rule,
Speaker 1: and OSHA's Cooperative Compliance program. And if that's not impressive enough,
Speaker 1: he's currently involved in litigation challenging the SEC's Private Funds Rule,
Speaker 1: California's climate disclosure law, New York City Pension Fund's decision
Speaker 1: to divest from fossil fuel companies, and he has been
Speaker 1: retained to represent banking industry groups to fight proposed rules
Speaker 1: that would increase capital requirements for banks. I would be
Speaker 1: remiss if I didn't also mention that Secretary Scolia is
Speaker 1: a son of the late Supreme Court Justice Antonin Scalia.
Speaker 1: And on a personal note, I should add that many
Speaker 1: years ago I played on the same fifth grade soccer
Speaker 1: team as one of Secretary Scolia's brothers, though I doubt
Speaker 1: anyone other than me remembers that. So with all that,
Speaker 1: Secretary Scolia, welcome to the Votes and Verdicts podcast.
Speaker 3: Thank you, Elliott, good to join you. If you didn't
Speaker 3: say it, we should also add that I'm with the
Speaker 3: Gibson un and Cruncher Law Firm.
Speaker 1: That's exactly right, and we are so excited to have
Speaker 1: you on today's show because we really can't think of
Speaker 1: anyone better than you to talk to us about challenging
Speaker 1: government regulations in court. I think I listed most of,
Speaker 1: not all, of the cases where you've done that, and
Speaker 1: I believe you are seven and zero in going up
Speaker 1: again and government rules and regulations. And of course there
Speaker 1: are several high profile cases going on right now where
Speaker 1: you're also challenging government laws or initiatives. Well, of course,
Speaker 1: get into more detail about some of those, but before
Speaker 1: we do, we like to ask our guests a little
Speaker 1: bit about their background. So maybe we can start by
Speaker 1: having you tell us a little bit more about your
Speaker 1: legal career, about your stints at the Labor Department, and
Speaker 1: about your current practice at Gibson Done.
Speaker 3: Sure, we please too. I should, by the way, clarify
Speaker 3: that I'm seven to zero in suing the SEC to
Speaker 3: challenge its rules. I've won more if you count other
Speaker 3: agencies as well, although there are a couple there that
Speaker 3: where the court got it wrong and I didn't win.
Speaker 3: I went to University of Chicago Law School after a
Speaker 3: couple of years actually working in the Reagan administration as
Speaker 3: a speechwriter, and then join my current firm, Gibson, Done
Speaker 3: and Crutcher in Los Angeles, where I had a labored
Speaker 3: employment law practice and a litigation practice. But I moved
Speaker 3: back to Washington in nineteen ninety two to work for
Speaker 3: the Attorney General as a special assistant. It was actually
Speaker 3: Bill Barr, his first time as Attorney General. I worked
Speaker 3: there for a year. The American people voted us out
Speaker 3: in nineteen ninety two, and so I rejoined my firm,
Speaker 3: Gibson Done, became partner here, started our what we call
Speaker 3: administrative law and regulatory practice group. It's really a practice
Speaker 3: that focuses on representing clients who are in contentious proceedings
Speaker 3: with agencies where they think they may well ultimately need
Speaker 3: to go to court to vindicate their rights. And so
Speaker 3: that's the heart of that practice. But I've also maintained
Speaker 3: a labor employment practice for many years, co chaired or
Speaker 3: labor employment practice while also sharing our administra of law practice.
Speaker 3: As you mentioned, I went to work in the George W.
Speaker 3: Bush administration as the so called solicitor, the general counsel
Speaker 3: of the Labor Department, then return to my firm when
Speaker 3: that was done, and then rejoined the Labor Department as
Speaker 3: secretary for President Trump in twenty nineteen, and came back
Speaker 3: here in the spring of twenty twenty one.
Speaker 2: Great, Well, I'd like to kick things off a little
Speaker 2: bit by talking about just what is it like to
Speaker 2: see a regulator. It feels like we're in this perfect
Speaker 2: storm for litigating challenges challenging regulations because on one hand,
Speaker 2: you have the Biden administration, which is, I would argue,
Speaker 2: fairly aggressive in promligating rules and regulations. And then on
Speaker 2: the other hand, you have a federal judiciary, particularly at
Speaker 2: the Supreme Court and the Circuit court levels, that's concerned
Speaker 2: with government overreached. So I was wondering, if could you
Speaker 2: place this moment of time in terms of a horse
Speaker 2: historical context. Are there other times that you can recall
Speaker 2: with there's so many lawsuits challenging government regulations.
Speaker 3: It really isn't on you usual time. And I think
Speaker 3: that's for a couple of different reasons, which you've already
Speaker 3: touched on. One is that you do have a Supreme
Speaker 3: Court right now that is very focused on re examining
Speaker 3: the limits that exist on the powers of federal regulatory
Speaker 3: agencies and the powers that they may be given by
Speaker 3: Congress while still remaining consistent with constitutional requirements. I think
Speaker 3: that this question of the powers and limits of powers
Speaker 3: on federal ministry of agencies and associated questions about how
Speaker 3: they can exercise those powers may end up being the
Speaker 3: defining issue for the Roberts Court. I point out to
Speaker 3: people that if you look at the three justices that
Speaker 3: President Trump added to the Supreme Court during his tenure,
Speaker 3: very arguably each one of those three is more interested
Speaker 3: than the person he or she replaced in identifying and
Speaker 3: enforcing limits on the power of federal regulatory agencies. So
Speaker 3: Justice Barrett more so than Justice Ginsberg, Justice Kavanaugh, I think,
Speaker 3: more so than Justice Kennedy, and even Justice Gorsuch more
Speaker 3: so than my father, Justice Scalia. And in fact, that
Speaker 3: change in the seat in the Court is a very
Speaker 3: good example because on two issues that are getting a
Speaker 3: lot of attention right now, my father had a position
Speaker 3: that was somewhat favorable toward regulatory agencies for much of
Speaker 3: his career. He was a real proponent of so called
Speaker 3: Chevron deference. That's the idea that when statutes are ambiguous
Speaker 3: that courts should defer to agencies reasonable interpretations of those statutes.
Speaker 3: And then secondly, my father was skeptical Justice Scalia was
Speaker 3: of whether the courts could effectively administer what's known as
Speaker 3: the non delegation doctrine. It's the idea that Congress can't
Speaker 3: delegate its legislative job wholesale lock stock and barrel to
Speaker 3: regulatory agencies. Justice Gorsuch, on the other hand, has been
Speaker 3: a very harsh critic of Chevron and has been a
Speaker 3: real proponent of reinvigorating that so called non delegation doctrine.
Speaker 3: So he parts company with my father on both of
Speaker 3: those important issues. Although I should add that very late
Speaker 3: in his career, my father justically was becoming skeptical of
Speaker 3: deference doctrines, including I think Chevron difference. So his views
Speaker 3: themselves were changing. So that's part of what is going on.
Speaker 3: You've got a Supreme Court really focused on limits on
Speaker 3: agency power, on preventing Congress from intruding on the president authority,
Speaker 3: preventing agencies from adopting authorities that belong to Congress the president.
Speaker 3: And then the other trend that's happening is you do
Speaker 3: have an administration that's using regulatory agencies in a quite
Speaker 3: aggressive and expansive way. Now, this is also not entirely new,
Speaker 3: because presidents have found it increasingly difficult to enact their
Speaker 3: agenda legislatively through Congress, they you know, naturally cast about
Speaker 3: for other ways to get things done, and using agencies,
Speaker 3: using their executive administrative powers is a natural place to look.
Speaker 3: And so you have seen just generally more energetic use
Speaker 3: by presidents and recent administrations of their agencies. But I
Speaker 3: think some Biden agencies have been on overdrive. The President
Speaker 3: Biden has been encouraged by some to view himself as
Speaker 3: a new Franklin Dellan Roosevelt in sort of the ambition
Speaker 3: and sweep of the programs that he puts in place.
Speaker 3: The problem is that President Roosevelt had enormous legislative majorities
Speaker 3: and Biden doesn't. So how does he get there? Well, again,
Speaker 3: it's through aggressive, adventurous use of agencies. Examples would include
Speaker 3: the cancelation of student loan debt, the so called eviction
Speaker 3: moratorium that was put in place in originally the Trump administration,
Speaker 3: but extended a couple of times by President Biden, ultimately
Speaker 3: struck down by the Supreme Court the Osha vaccine mandate
Speaker 3: that the President adopted late in twenty twenty one, also
Speaker 3: struck down by the Supreme Court. And there are a
Speaker 3: number of rules out there that are in litigation or
Speaker 3: are in the verge of being proposed, like the Federal
Speaker 3: Trade Commission's proposal to outlaw noncompete agreements that again are
Speaker 3: very aggressive, uh attempts to use regulatory power. So one
Speaker 3: of the same time that you've got the court looking
Speaker 3: for agency overreach and abuse, you've got the bidy administration saying, hey,
Speaker 3: look over here, we've got some for you. And it's uh,
Speaker 3: it's it's it's resulting in a lot of litigation.
Speaker 2: You know, it's funny because I I came to Washington
Speaker 2: fourteen years ago. Funny enough, also from the University of Chicago,
Speaker 2: though I was on the business school side asposed to
Speaker 2: law school. So we can definitely talk Hyde Park Restaurant someday, but.
Speaker 3: Help me at.
Speaker 2: Exactly. But when I look back at your career, I
Speaker 2: see all these core cases that I had to, you know,
Speaker 2: respond to, as you know, either in government affairs or
Speaker 2: here at Bloomberg. You know, we're talking about the met
Speaker 2: Life SAPY designation, the CFDC position limits rule, and I
Speaker 2: would love to know how do you approach these cases, like,
Speaker 2: is there when you come into this, you know, is
Speaker 2: there a concern that a company further upsets its regulator
Speaker 2: by suing it? Because I know for my own experience,
Speaker 2: we would never suggest ever suing your own regulator unless
Speaker 2: there's a really good reason.
Speaker 3: It's a great question. And let me say that in
Speaker 3: some circles there's this narrative whereby corporations and trade associations
Speaker 3: are incessantly looking for fights to pick with the government
Speaker 3: and lawsuits to bring, and even when those cases may
Speaker 3: not be particularly meritorious. The truth is actually very much
Speaker 3: the opposite. My corporate clients really are not eager to
Speaker 3: get in litigation with the government. Trade associations generally also
Speaker 3: would rather reach a consensus compromise not be driven to litigation.
Speaker 3: I've had conversations many a time with clients where I've said,
Speaker 3: you know, you've got a really pretty good case to
Speaker 3: bring here. I think you're likely to win if you're
Speaker 3: willing to bring it, and the clients have said, you
Speaker 3: know what, we hear you. We're very bothered by what
Speaker 3: was done, but we just at the end of the day,
Speaker 3: have other fish to fry with the agency right now,
Speaker 3: we'd rather not sue. I've had that conversation a number
Speaker 3: of times in my career. Never have I had a
Speaker 3: corporation or trade association say you know, yeah, I'm probably
Speaker 3: not gonna win. I hear you, but I want to
Speaker 3: assue them anyway. And so there's a natural hesitancy. There's
Speaker 3: a respect for the government. There's a desire to find compromise.
Speaker 3: There's a desire to have a regulatory environment that's predictable,
Speaker 3: that's manageable. But there certainly are times where clients feel
Speaker 3: that they have no choice but to proceed with litigation.
Speaker 2: Now.
Speaker 3: I first sued the Securious Exchange Commission back in about
Speaker 3: two thousand and five, and that was a rule where
Speaker 3: when I looked at the work they'd done, when I
Speaker 3: looked at the rule making file, I was surprised at
Speaker 3: how unsophisticated the SEC's work was, and frankly, some of
Speaker 3: the most of the comments that were submitted also were
Speaker 3: comments submitted to the agency by the public about what
Speaker 3: the rules should say, were very short and really didn't
Speaker 3: offer very much. When I sued the SEC back then
Speaker 3: in two thousand and five or so. They were just indignant.
Speaker 3: They were not used to this. My client was the
Speaker 3: US Chamber of Commerce, and the SEC just couldn't understand
Speaker 3: what business the Chamber of Commerce had suing them over
Speaker 3: one of their rules. They raised very non meritorious arguments
Speaker 3: challenging the Chambers standing and the like. I actually gave
Speaker 3: a talk after that first lawsuit where a staff member
Speaker 3: of the SEC insisted on showing up and getting equal
Speaker 3: time and castigating my client's in me for bringing this lawsuit.
Speaker 3: He was still so worked up about it even though
Speaker 3: we had won the case, and actually his point was
Speaker 3: kind of interesting. His point was that my client and
Speaker 3: I were trying to use procedural rules, in his mind,
Speaker 3: tricks to prevent the agency from doing the right thing
Speaker 3: that the agency's policy goals he believed were really important,
Speaker 3: and we were just trying to use procedural tiki taki
Speaker 3: requirements to prevent them from doing it. And you know,
Speaker 3: my answer was, a procedure is what the Administrative Procedure
Speaker 3: Act is all about. The Administraive Procedure Act, the APA
Speaker 3: is the law under which agencies are most frequently sued,
Speaker 3: and that law requires agencies to proceed in a way
Speaker 3: that's fair, it's open minded, that gives the public a
Speaker 3: chance to comm meant and a process where after the
Speaker 3: public has commented, the agency listens carefully to what they've
Speaker 3: said and reconsiders its course of action. And and so
Speaker 3: you know that that is the process that Congress has established.
Speaker 3: It's one that the agencies are governed by. And what
Speaker 3: I found with the SEC was that over time they
Speaker 3: you know, they've become a little more accustomed to getting sued.
Speaker 3: People who in the past might have been hesitant about
Speaker 3: doing it now recognized that it's just part of dealing
Speaker 3: with a regulator and the agent. The SEC, for its part,
Speaker 3: has particularly in the last couple of years, gotten much
Speaker 3: more aggressive, which again is prompted more lawsuits. So again
Speaker 3: I think most companies and trade associations would would rather
Speaker 3: find agreeable ground. But they've come to realize, particularly in
Speaker 3: recent years, is that court has begun to supervise this
Speaker 3: area a little bit more, that when the agency overreaches,
Speaker 3: they have a chance to be heard and to win
Speaker 3: in court. And they're they're taking those opportunities in those
Speaker 3: circumstances where agencies are overreaching.
Speaker 1: And I would say that it seems like agencies now
Speaker 1: anticipate in litigation coming after the rule is finalized, and
Speaker 1: we're seeing that, for example, with the SEC Climate Disclosure rule,
Speaker 1: which we expect to be finalized in a couple of days.
Speaker 1: I should add that we are recording this on March fourth,
Speaker 1: twenty twenty four, and that SEC rule is expected to
Speaker 1: be finalized on March sixth, and we'll talk a little
Speaker 1: bit about California's climate rule in particular in a little bit.
Speaker 1: But before we turn to that, I just want to
Speaker 1: go back to Chevron, since we were talking about that before.
Speaker 1: As I'm sure you know most listeners know, there were
Speaker 1: a pair of cases argued in the Supreme Court in
Speaker 1: January seeking to get rid of Chevron deference. And I
Speaker 1: think the consensus view, certainly ours, is that the High
Speaker 1: Court will overrule Chevron and articulate a new standard requiring
Speaker 1: courts to determine the best interpretation of the statute at issue,
Speaker 1: rather than defering to agency interpretations. But Secretary School, I'd
Speaker 1: just love to get your thoughts on those cases, the argument,
Speaker 1: and how you think that the Supreme Court might rule
Speaker 1: on it.
Speaker 3: Sure, well, this is an important pair of cases argued
Speaker 3: before the Court in I believe in February concerning again
Speaker 3: this so called Chevron doctrine. Chevron is a nineteen eighty
Speaker 3: four Supreme Court case, where as I mentioned, the Court
Speaker 3: said that when an agency has authority given by Congress
Speaker 3: to regulate in a particular area, and where the statute
Speaker 3: is ambiguous, courts should defer to the agency's interpretation of
Speaker 3: that statute so long as the interpretation is reasonable. That's
Speaker 3: the Chevron doctrine. It's one of the most frequently cited
Speaker 3: Supreme Court cases ever. It's been seen by its supporters
Speaker 3: as a way of giving the federal government some latitude
Speaker 3: to craft sensible rules that provide predictability to the regulated community,
Speaker 3: and without being overridden by judges who might happen to
Speaker 3: disagree with the policy or have a slightly different interpretation
Speaker 3: of a statute that's ambiguous. It's critics, though, have said
Speaker 3: that it's really empowered agencies to expand their jurisdiction to
Speaker 3: supersede courts in interpreting the law. Obviously, a central role
Speaker 3: of courts is determining what the law is, and Chevron's
Speaker 3: critics say you should never have given that responsibility to
Speaker 3: the agencies in any way. There's been a question for
Speaker 3: a while whether the Supreme Court might overrule that old
Speaker 3: Chevron case. In recent years, the Court itself has not
Speaker 3: used Chevron to defer to an agency. It has begun
Speaker 3: to develop some principles by which it doesn't even reach Chevron.
Speaker 3: These include the so called major question doctrine, which we
Speaker 3: can talk about if you'd like. But this term, the
Speaker 3: Court did agree to hear the question whether it should
Speaker 3: just do away with Chevron deference. Always hard to know
Speaker 3: just based on oral argument, what the Court ultimately will do,
Speaker 3: And for people following Chevron, it's important to remember that
Speaker 3: there was a case called Kaiser a few terms ago
Speaker 3: that concerned the related question of whether courts should defer
Speaker 3: to agencies reasonable interpretations of their own regulations when the
Speaker 3: agency's own regulations are ambiguous, and some scholars had believed
Speaker 3: that there was actually a stronger case for getting rid
Speaker 3: of that difference doctrine than there was for getting rid
Speaker 3: of the Chevron difference doctrine. But when the rubber hit
Speaker 3: the road in that Kaiser case, the Court kept Kaiser deference,
Speaker 3: but it cut it back and narrowed it. I think
Speaker 3: that it's safe bet based on the argument in the
Speaker 3: cases in the Court this term about Chevron, it's safe
Speaker 3: to bet that the Court will cut back on Chevron.
Speaker 3: I think a lot of people believe it will be
Speaker 3: fully done away with. Whether or not that happens, I
Speaker 3: think it's likely that we will have a much narrower
Speaker 3: Chevron going forward, and there's already been some hand ringing
Speaker 3: about what that might mean for agencies in the courts
Speaker 3: in the years ahead.
Speaker 1: Do you think there's any chance that they know if
Speaker 1: they do scale it back, that it applies retroactively. That
Speaker 1: seems like it would be pretty extreme.
Speaker 3: Well, that was one question that the justices asked about
Speaker 3: it an argument. You know, for example, if there was
Speaker 3: a case a few years ago was litigated in the
Speaker 3: Court of Appeals and the court said, well, the statute's ambiguous,
Speaker 3: the agency's interpretation is reasonable, so we're leaving the rule
Speaker 3: in place. Can that now be challenged again remains to
Speaker 3: be seen. I think I'd be shocked if it weren't retroactive.
Speaker 3: In the following way, if the Court over rules Chevron
Speaker 3: regulation adopted a year ago is not still going to
Speaker 3: be entitled to Chevron difference because it was adopted a
Speaker 3: year ago, they would apply this new rule prospectively, so
Speaker 3: it wouldn't be retrospective in that effect in that sense,
Speaker 3: but I fully expect that whatever rule they announce will
Speaker 3: largely apply in cases going forward, even if the rules
Speaker 3: were adopted a year ago or more.
Speaker 1: And you mentioned major questions Major Questions doctrine, how do
Speaker 1: you think about the interplay between the Major Questions doctrine
Speaker 1: and Chevron deference. You know, the Major Questions doctrine was
Speaker 1: only recently articulated by the Supreme Court, and you know,
Speaker 1: for those who don't know, it essentially says that if
Speaker 1: an agency seeks to decide an issue of major national
Speaker 1: or economics significance, its action must be supported by a
Speaker 1: clear congressional authorization. But you know, a question I have
Speaker 1: is did that largely replace Chevron accept on issues that
Speaker 1: aren't of major national or economic importance, or you know,
Speaker 1: maybe stated differently, what work is Chevron still doing now
Speaker 1: that we have the Major Questions doctrine.
Speaker 3: Well, first of all, I think that was a good
Speaker 3: description of the Major Questions doctrine sort of how it
Speaker 3: has been stated and operates, and in a way, the
Speaker 3: Major Questions doctrine could be thought of as a sort
Speaker 3: of reverse Chevron, you know, as I was describing Chevron
Speaker 3: roughly described says that when it's unclear whether an agency
Speaker 3: has the power it does, and the Major Questions doctrine says,
Speaker 3: if it's unclear whether an agency has a really big,
Speaker 3: major power, then it doesn't. It needs clear authority. So
Speaker 3: that's one way to look at it. That the Major
Speaker 3: Question doctrine flips Chevron on its head in circumstances where
Speaker 3: the power to be exercised by the agency is especially consequential.
Speaker 3: Of course, there's something odd in the notion that when
Speaker 3: it's unclear whether the government has power it does, you know,
Speaker 3: we still would think that we're a government, a nation
Speaker 3: of limited government. We got a Congress of enumerated powers,
Speaker 3: the powers not granted or to Congress, or powers it
Speaker 3: doesn't have. In that context, it's a little counterintuitive that
Speaker 3: the government might have whatever the federal agencies might have
Speaker 3: whatever powers that Congress didn't withhold from them. And that's
Speaker 3: one of the complaints is brought against Chevron, you know.
Speaker 3: But differently, a lot of people would say that, look,
Speaker 3: when in doubt whether the government has power over the individual,
Speaker 3: it doesn't. Right now, before the pending cases involving Chevron
Speaker 3: are decided, there's still a large number of cases where
Speaker 3: people would agree the issue presented is not a major question.
Speaker 3: It's important to the parties before it, but doesn't meet
Speaker 3: the relatively high threshold the Supreme Court has set for
Speaker 3: a major question case. And right now, in that world
Speaker 3: of non major question cases, at least in the lower courts,
Speaker 3: Chevron is still the law. As I said, the Supreme
Speaker 3: Court itself has not really been you using Chevron much
Speaker 3: in recent years. It's been studiously avoiding it. But the
Speaker 3: lower courts are still bound by Chevron, and they've they've
Speaker 3: been continuing to use it, and so it's still got
Speaker 3: life in the lower courts outside of major question doctument cases.
Speaker 2: Great, So I'd like to take us to the what's
Speaker 2: known as the Buzzle three Endgame. And for the listeners
Speaker 2: you know who aren't familiar, this is the one of
Speaker 2: the last remaining pieces of the Bozle three Accords, hence
Speaker 2: the name endgame. But you know, this proposal comes from
Speaker 2: the Federal Reserve, the FDIC and the Office of the
Speaker 2: Controller Currency, and you know, is a recalibration of with
Speaker 2: risk weighting of assets, which for the biggest banks could
Speaker 2: lead to around nineteen percent in higher capital requirements. And
Speaker 2: for the smaller banks this is applicable to banks that
Speaker 2: are hundred billion and up and at least in our
Speaker 2: estimation round five to six percent in terms of cap requirements.
Speaker 2: And you know, Secretary School, I know you've done some
Speaker 2: work on the Buzzle three endgame. Can you just describe
Speaker 2: some of the problems that you see with the proposal,
Speaker 2: because there is considerable pushback from many of the stakeholders
Speaker 2: in Washington about this as.
Speaker 3: You're describing the sort of the Basil three proposals originate
Speaker 3: with some international banking accords that various nations arrived at
Speaker 3: in Basel, Switzerland. Those accords call for the member countries
Speaker 3: to then implement those new standards in their home countries
Speaker 3: for their banks. And this proposal that was put out
Speaker 3: last year by the US banking regulators is purportedly their
Speaker 3: attempt to implement Basel in the United States. There are
Speaker 3: a number of problems with it. Let me start with
Speaker 3: the process. I think there are some in the banking
Speaker 3: world banking regulators who have this notion that they can
Speaker 3: meet with fellow banking regulators in some other place. Often
Speaker 3: it sounds like a kind of swank location in Switzerland,
Speaker 3: and they can arrive at a view about how banks
Speaker 3: ought to be regulated, to structured like reach agreement and
Speaker 3: then just come back home and get it done. Of course,
Speaker 3: there's a critical step along the way, which is that
Speaker 3: we have our own set of laws in this country
Speaker 3: that have to be respected. Those include, as I mentioned,
Speaker 3: the Administra Procedure Act. You can't just go abroad agree
Speaker 3: to do something and then not satisfy all the usual
Speaker 3: requirements that one mess most satisfy through rulemaking. Bosle's not
Speaker 3: a treaty that's been ratified by the Senate, for example.
Speaker 3: But one of the concerns is that it sort of
Speaker 3: looks to some extent like the US banking regulators thought
Speaker 3: that having reached agreement in Switzerland, they'd sort of largely
Speaker 3: done their job and could just drop this on American
Speaker 3: banks with a thud, and it was their duty to
Speaker 3: accept it. Now, this problem was exacerbated by the fact
Speaker 3: that what the US banking regulators did was actually bozzle
Speaker 3: three on steroids. They departed from the agreement they'd reached
Speaker 3: in a number of ways, and I think you know,
Speaker 3: every time they departed, they made the capital requirements waightier,
Speaker 3: costlier for US banks. And so on the one hand
Speaker 3: they seemed to be saying, here's basle, We're doing it,
Speaker 3: and then on the otherhand, at various points they said
Speaker 3: basil is not good enough. We're going to stick to
Speaker 3: even harder. That raises a separate set of legal problems.
Speaker 3: At the end of the day, the capital standards, as
Speaker 3: they've been looked at by the banks that would be
Speaker 3: affected and the economists they've retained, would be extremely costly,
Speaker 3: not just for banks, but for our financial system, potentially
Speaker 3: hundreds of millions of dollars in costs. And yet when
Speaker 3: you look at the work that the regulators showed as
Speaker 3: to why they're doing what they're doing, it really fell
Speaker 3: very far short of what you expect from agencies when
Speaker 3: they're engaged in rulemaking in the United States, especially when
Speaker 3: they're engaged in rulemakings that would have an enormous impact. Again,
Speaker 3: we're back to the Administra Procedure Act. It's about process,
Speaker 3: it's about listening to the public. It's also about showing
Speaker 3: the public your reasoning, your math, your work. Why did
Speaker 3: you arrive at these capital requirements. Unfortunately, the proposal was
Speaker 3: put out at a very very poor job of that,
Speaker 3: and they're going to have to go back to the
Speaker 3: drawing board to reconsider the limits that they want to
Speaker 3: put in place and to do a much better job
Speaker 3: explaining how they got there. And of course they're going
Speaker 3: to have to respond to the comments that they received.
Speaker 3: Just to give one quick example, the proposal was put
Speaker 3: out that had a very short economic analysis where they
Speaker 3: admitted that the proposal could have an adverse impact on
Speaker 3: trading on markets, and the proposal said somebody ought to
Speaker 3: do a study of this. And you know, as a lawyer,
Speaker 3: reading that, and I think, well, yeah, that's you. It's
Speaker 3: your proposal. You need to study it, appraise it, and
Speaker 3: consider whether it's worth it before you put it out.
Speaker 3: You can't put out something that's going to have an
Speaker 3: adverse effect on trading and saying, wow, this could be bad.
Speaker 3: Somebody ought to do some homework for us, so they
Speaker 3: have some work to do.
Speaker 1: I mean that seems like APA one oh one right,
Speaker 1: And so I'm just wondering, like, how does that happen? Like,
Speaker 1: I mean, you've been a regulator before, how is it
Speaker 1: that an administrative agency just doesn't do some of the
Speaker 1: basic study that needs to be done, you know, before
Speaker 1: proposing a rule.
Speaker 3: Banking regulators wield an enormous amount of discretionary power over
Speaker 3: banks every day of the week, you know, as you know,
Speaker 3: they lodge personnel actually on the bank's premises. They're reviewing
Speaker 3: what they're doing every day, and I think to some
Speaker 3: extent they're not used to being questioned by the people
Speaker 3: that they regulate. They're accustomed to issuing orders and having
Speaker 3: them followed. But when you're in the notice and comment
Speaker 3: realm at least, and I think in other realms too,
Speaker 3: but in the notice and comment realm, it doesn't work
Speaker 3: that way. You really do need to arrive at a
Speaker 3: regulation in a thoughtful way that's very attentive to the
Speaker 3: impacts that are going to occur, and that gives the
Speaker 3: public an opportunity to participate, fair notice of what you're
Speaker 3: going to do, and that kind of thing. So I
Speaker 3: do think that in this area, and in some other
Speaker 3: areas too, that in this world where people feel forced
Speaker 3: to make resorts court more frequently and reports are listening,
Speaker 3: banking regulators are going to have to become more attentive
Speaker 3: to the rights of the banks that they're regulating and
Speaker 3: the impact that they're having.
Speaker 1: Let's shift gears just a little. Let's go back to
Speaker 1: the climate disclosure rules that we were talking about before.
Speaker 1: The SEC, of course, you know, proposed a rule in
Speaker 1: March twenty twenty two, two years ago that would require
Speaker 1: issuers to report how they identify and manage climate risks.
Speaker 1: Like I said earlier, that rule is expected to be
Speaker 1: finalized in two days. Again, we're recording this on March fourth,
Speaker 1: and then we expect lawsuits to be filed shortly after finalization,
Speaker 1: although a lot depends on what that final rule looks like.
Speaker 1: And since we don't know what that final rule looks like, well,
Speaker 1: we're going to skip some discussion and questions about the
Speaker 1: SEC's rule. But in the meantime, we do have laws
Speaker 1: passed in California recently, pair of climate disclosure laws for
Speaker 1: companies that do business in California. On January thirtieth, the
Speaker 1: US Chamber of Commerce and other industry groups sue the
Speaker 1: California Air Resources Board challenging those laws. Your firm, Gibson
Speaker 1: Done with you as lead attorney, is representing the plaintiffs
Speaker 1: in that litigation. So we were wondering if you can
Speaker 1: just tell us a little bit more about the litigation
Speaker 1: in California, the arguments you're making there, including the First
Speaker 1: Amendment arguments, preemption, and dormant commerce clause, because I think
Speaker 1: a lot of people think that some of the arguments
Speaker 1: in the California litigation will serve as a preview of
Speaker 1: potential arguments against the SEC's rule as well.
Speaker 3: Sure, well, this is a pair of laws enacted in
Speaker 3: California in twenty twenty three, as you say, re companies
Speaker 3: that do really any business in California. When those companies
Speaker 3: are I think have more than five hundred million or
Speaker 3: a billion in revenues, depending on the statute requires them
Speaker 3: to make a series of really quite costly disclosures about
Speaker 3: greenhouse gas emissions, both their emissions but also the emissions
Speaker 3: of people in their supply chain or their customers, and
Speaker 3: then also require them to make disclosures about the impact
Speaker 3: that climate risks could have on the company's operations. And
Speaker 3: as you say, there's some similarities to the SEC's proposed rules.
Speaker 3: I'm representing the US Chamber of Commerce and others and
Speaker 3: bringing a lawsuit over these statutes. One of our claims
Speaker 3: is simply under the First Amendment, of course, everybody understands
Speaker 3: you have a right to speak, but you also have
Speaker 3: a right not to speak, not to carry a particular
Speaker 3: government message, or not to be forced to disclose things
Speaker 3: that the government wants you to disclose, so that, for example,
Speaker 3: you can be subject to pressure various people out there
Speaker 3: in the marketplace, in the blog of sphere or whatever,
Speaker 3: who might want you to change your conduct. The Supreme Court, incidentally,
Speaker 3: has become more interested in the last few years in
Speaker 3: attempts by agencies, including the State of California, to bring
Speaker 3: pressure on organizations or on their donors by forcing disclosure.
Speaker 3: The sort of pressure by disclosure gain is one that
Speaker 3: the Supreme Court is onto, and we believe that this
Speaker 3: is a case where environmental organizations and others are successfully
Speaker 3: persuade the California legislature to force companies to make disclosures
Speaker 3: so that then those organizations and others can bring pressure
Speaker 3: to bear on those companies to change their practices to
Speaker 3: reduce their emissions, emissions by others and the like. The
Speaker 3: Chamber's lawsuit is not challenging at all the science that
Speaker 3: might exist around climate change. And the Chamber itself has
Speaker 3: a pretty strong and consistent message about its member's interest
Speaker 3: in finding ways to address climate change. But this particular
Speaker 3: method is problematic for a lot of reasons. As I said,
Speaker 3: it implicates free speech rights. These disclosures can be extremely costly,
Speaker 3: and it merged in the SEC's Climate rule making that
Speaker 3: having this disclose certain emissions can cost individual companies millions
Speaker 3: of dollars and Moreover, it's very clear that what California
Speaker 3: is trying to do is to affect companies nationwide operations
Speaker 3: and in fact trying to affect their operations internationally. If
Speaker 3: you're a company of a certain size and have any
Speaker 3: business in California, then they've got you under this statute.
Speaker 3: And we have statements by some of the legislators who
Speaker 3: supported the law to the effect that this is the
Speaker 3: way that California can get it's hook and the companies
Speaker 3: and force them to change their emissions practices and the
Speaker 3: practices of their suppliers and customers nationwide. So that puts
Speaker 3: some new issues into play. It's Congress that's in charge
Speaker 3: for regulating interstate commerce, not individual states. We can't have
Speaker 3: individual states setting climate policy for companies in every state
Speaker 3: they're operating in. That's what California in a sense, is
Speaker 3: trying to do. And so in addition to the First
Speaker 3: Amendment challenge which has been brought to the California Statutes,
Speaker 3: there are also challenges under what we call the Dormant
Speaker 3: Commerce Clause. Again this idea that it's Congress's job to
Speaker 3: regulate interstate commerce, not state's job, not state's world to
Speaker 3: interfere with it. And then also the Clean Air Act
Speaker 3: and principles that surround that, we believe preempt the states
Speaker 3: from trying to set nationwide climate policy on their own.
Speaker 3: So that's the set of issues in that case. And
Speaker 3: you know, we think that California. Again, we're not questioning
Speaker 3: the interest that many people have in addressing climate change.
Speaker 3: The Chamber shares that interest. It's a matter of means
Speaker 3: and it's a matter of the proper authority. We think
Speaker 3: it's for Congress, certainly, not for one state to dictate
Speaker 3: what's done nationwide.
Speaker 1: Now, if I understand it correctly, the lawsuit is suing
Speaker 1: the California Air Resources Board, which as far as I know,
Speaker 1: I don't think has promulgated any rules or regulations pursuant
Speaker 1: to the statutes that were passed by the California legislature.
Speaker 1: So I'm just curious, you know, why the suit is
Speaker 1: ripe now before there are any rules or regulations promulgated
Speaker 1: or proposed.
Speaker 3: Even elliot rightness has to do with the question of
Speaker 3: simply whether it's time yet for a case to be brought,
Speaker 3: And the Supreme Court has said that sometimes the issues
Speaker 3: aren't clear enough, aren't crystallized enough for a court to
Speaker 3: yet decide. They need the case more fully developed, the
Speaker 3: conflict more sharply defined before the courts want to get involved. Here,
Speaker 3: the California legislature has pretty clearly told the Air Resources
Speaker 3: Board what to do under one of these two statutes,
Speaker 3: and then on the other two. On the second statute,
Speaker 3: the card has a role, but not a role in
Speaker 3: defining what has to be done at all. And so
Speaker 3: when you ask the question, is it clear enough now
Speaker 3: that there's a constitutional violation, you know, we think absolutely
Speaker 3: that the CARB does not have the discretion to roll
Speaker 3: back these onerous requirements imposed by the California legislature. And
Speaker 3: so the case is ripe, ready to go forward, and
Speaker 3: it's preferable it go forward now rather than wait a
Speaker 3: year or two when companies are going to have to
Speaker 3: start incurring really significant costs coming to compliance. By the way,
Speaker 3: I should add, I've talked a lot about the California legislature.
Speaker 3: Gavin Newsom, the for you governor, you know, prominent Democrat,
Speaker 3: seems to have his eye on the presidency. At one
Speaker 3: point one year or another, he signed the law, but
Speaker 3: he's very critical. So even Gavin Newsom, certainly very progressive,
Speaker 3: uh sees these laws as overreaching, impractical, to burden some
Speaker 3: and the like. Didn't steal them from signing them, but
Speaker 3: it's an indication how far California's overreached.
Speaker 1: Yeah, I was. I was going to mention that, and
Speaker 1: that was sort of what prompted my question too, because
Speaker 1: given his criticism, I just wondered whether the actual rules
Speaker 1: that come down the road may be different than you know,
Speaker 1: what the laws we're advocating for. But in any event,
Speaker 1: we appreciate the answer, Nathan to you.
Speaker 2: Yep. So you know, one of the other cases we
Speaker 2: want to ask you about is, of course, the Private
Speaker 2: funds Rule. This is the National Association of Private Fund
Speaker 2: Managers and other industry groups challenging the sec Private fund Rule.
Speaker 2: You know, the industry. Main argument here is that the
Speaker 2: rule exceeded or exceeds SEC authority because Congress didn't give
Speaker 2: the SEC authority to intervene in the private funds market. So,
Speaker 2: can you give us your view of the case. And
Speaker 2: you know, because one of the questions that you received
Speaker 2: at oral arguments was whether the court should strike down
Speaker 2: the whole rule or just only part of it. Are
Speaker 2: you worried that the court may only strike part of
Speaker 2: the rule down if the court were to, you know,
Speaker 2: come to that conclusion.
Speaker 3: Yeah, this challenge involves a really very sweeping SEC rule.
Speaker 3: Congress has established a very clear divide between how so
Speaker 3: called investment companies are to be regulated on the one hand,
Speaker 3: and private funds on the other. Investment companies include, for example,
Speaker 3: mutual funds, which are often held by individual American investors,
Speaker 3: so called retail investors. Private funds, on the other hand,
Speaker 3: are hedge funds, private equity venture capital fund. Investment in
Speaker 3: those is limited to sophisticated investors by law, and precisely
Speaker 3: because investment in those vehicles is limited to sophisticated investors,
Speaker 3: Congress has taken a much more hands off roll toward
Speaker 3: regulating and has told the SEC that it can't impose
Speaker 3: the kinds of requirements that are imposed on mutual funds
Speaker 3: and other investment companies. For whatever reason, that limitation on
Speaker 3: the SEC's authority doesn't sit well with the current chair
Speaker 3: of the SEC, and so last summer he adopted some
Speaker 3: really aggressive rules to assert what amounts to full authority
Speaker 3: if he wants to use it over private funds. And
Speaker 3: so you have this extraordinary lawsuit where again hedge funds,
Speaker 3: private equity, and venture capital, three different important segments of
Speaker 3: the financial services industry have all come together and sue
Speaker 3: the SEC to challenge those rules on a number of grounds,
Speaker 3: the principal one being again that the SEC just simply
Speaker 3: does not have the authority in this area. Statutory provisions
Speaker 3: that the SEC has glommed onto and said oh, this
Speaker 3: is this is why we can do it are very
Speaker 3: narrow provisions that aren't addressed at private funds at all.
Speaker 3: So we think this entire structure is very legally vulnerable.
Speaker 3: For that reason and for other reasons too, the SEC
Speaker 3: made a poor showing of why it needs to do this.
Speaker 3: I mean, it admitted this rule is going to cost
Speaker 3: billions of dollars a year and so you say, well, wow,
Speaker 3: you don't have a really powerful reason. We don't think
Speaker 3: they came up with that reason. And then finally, the
Speaker 3: SEC has had a lot of rules thrown out by
Speaker 3: courts over the years because it failed its duty given
Speaker 3: it by Congress to consider the effects the rule will
Speaker 3: have on what Congress calls efficiency, competition, and capital formation.
Speaker 3: And here again the SEC did a bad job weighing
Speaker 3: those impacts and simply stating what they would be. So
Speaker 3: each of those failings, the lack of statutory authority, lack
Speaker 3: of established need for the rules, yet another deficient cost
Speaker 3: benefit analysis, each of those is a reason to throw
Speaker 3: out this entire rule that was adopted by the SEC.
Speaker 3: In oral argument, the judges did ask some questions about
Speaker 3: whether if they made a particular finding in the case,
Speaker 3: the whole rule would be thrown out or not. But
Speaker 3: we feel that we've made a really powerful showing that
Speaker 3: in fact, as we said in our brief, this rule
Speaker 3: is rotten from route to branch and should be vacated
Speaker 3: by the court.
Speaker 1: So we're gonna shift gears a little bit again. We're gonna,
Speaker 1: i think, move away from some of the substantive discussion
Speaker 1: and We're going to ask you a couple of personal questions,
Speaker 1: not not too personal. But the first one is, you
Speaker 1: know you've you've obviously bounced, you know, back and forth
Speaker 1: between government service and the private sector, private practice. Do
Speaker 1: you have any desire to return to government service, and
Speaker 1: if so, in what capacity? What what would be next?
Speaker 1: After having been Secretary of Labor.
Speaker 3: You know, I count myself really lucky that I love
Speaker 3: practicing law. A lot of people go to law school,
Speaker 3: they go to law firm, and it's drudgery. I've always
Speaker 3: enjoyed my private practice. I like my case load, I
Speaker 3: appreciate your interested in it, and I like helping clients.
Speaker 3: Uh So, I've had a lot of fun here. I've
Speaker 3: spent most of my career in private practice. You know,
Speaker 3: I certainly have respect for government service. I've had an
Speaker 3: interest in it over the years, and so I having
Speaker 3: served in four Republican administrations, I'm kind of past the
Speaker 3: point of saying I'd never do it again. But as
Speaker 3: you get more senior, as you know, as you're saying, Elliott,
Speaker 3: there's less out there that might interest you. So I'm
Speaker 3: happy where I am. I never say never if there's
Speaker 3: something out there that's really rewarding, although again there's less
Speaker 3: and less that might be that description.
Speaker 2: Well, I'm going to ask the most difficult question of
Speaker 2: the day, and this is something that we always ask
Speaker 2: our guests, and this is if you were stranded on
Speaker 2: a desert island, what three pieces of music albums, song, soundtracks,
Speaker 2: et cetera would you bring with? And your responses will
Speaker 2: go into elliott Spotify playlist that we currently have of
Speaker 2: all the Bloomberg you know, votes and verdicts guests, so
Speaker 2: feel free to give us what you know is your dreathers.
Speaker 3: Yeah, I listened mostly to classical music these days, and
Speaker 3: I have come to love opera. My father loved opera.
Speaker 3: Took me a while to get there, but it's beautiful
Speaker 3: music and wonderful stories, especially once you realize that the
Speaker 3: stories are ridiculous. You know, the greatest operas plot wise,
Speaker 3: aren't really much better than American soap opera. They're fun.
Speaker 3: My favorite is Don Giovanni, so that would be out
Speaker 3: of a music number one. Out of a music number
Speaker 3: two would probably be something more low key. I love Mozart,
Speaker 3: but that's Don Giovanni covers that box piano music is
Speaker 3: beautiful and contemplative, play it when I'm working off and
Speaker 3: very much enjoy it. And plus I've got like a
Speaker 3: like a ten CD set so it lasts you a
Speaker 3: long time in that desert island. And then back in
Speaker 3: the day, I loved punk rock and particularly The Clash.
Speaker 3: The Clashes London Calling is a great album. It always
Speaker 3: makes the top rock album ever lists. It's music I
Speaker 3: still listen to, so I would have that too.
Speaker 1: That's pretty good. So Opera, Bach and The Clash, I
Speaker 1: mean that covers a wide range. All right, Secretary School,
Speaker 1: I think with that we will wrap up this episode
Speaker 1: of Votes and Verdicts. We are extremely grateful to you
Speaker 1: for appearing on this episode. I think it was a
Speaker 1: really informative discussion about a very important time in American
Speaker 1: regulatory and legal history. And we thank you the listener
Speaker 1: for taking the time to join us. As well as
Speaker 1: a reminder you can read all of our Bloomberg intelligence
Speaker 1: research on the Bloomberg terminal at Big And with that,
Speaker 1: thank you again and have a great day.