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August 3, 2018

A Supreme Court Justice Kavanaugh Will Be a Threat to Consumers, Investors, Taxpayers and Broad-Based Prosperity

By Dennis Kelleher, President and CEO of Better Markets (this op-ed first appeared on Medium)

Most people can readily understand and relate to social issues and individual rights, which have been the focus since President Trump announced his nomination of Judge Brett Kavanaugh to the Supreme Court. However, a Justice Kavanaugh will also almost certainly move an already majority pro-big business Supreme Court even more in the direction of protecting corporate power at the expense of the health, safety and welfare of America’s families and workers.

Consumers, investors, taxpayers, the stability of the financial system and an economy that works for everyone, producing jobs, higher wages and broad-based prosperity, are all going to be on the losing side of yet more Supreme Court decisions, as the Chamber of Commerce racks up more wins. In fact, Judge Kavanaugh’s constitutional ideology and beliefs (which overlap substantially with new Supreme Court Justice Gorsuch) could, over time, put much of the New Deal/Great Society structure of government at risk.

For example, as many have noted, he wrote the panel opinion in PHH v. CFPB stating that the politically independent, one-director structure of the wildly successful Consumer Financial Protection Bureau was unconstitutional. The Dodd-Frank financial reform law, he said, wrongly placed “enormous executive power” in the hands of a single director, delivering a major victory to the financial industry which has fought nonstop to kill the consumer protection agency. While his opinion ranged far and wide, his holding was relatively narrow (severing the “for cause” provision in the statute), but it was nonetheless reversed by the court en banc and Judge Kavanaugh wrote a 73-page dissent.

It is important to realize that the views expressed by Judge Kavanaugh in those opinions were not limited to the CFPB and likely provide a roadmap to how he’ll rule as a Supreme Court Justice. For example, he referred to independent agencies as the “headless fourth branch of the U.S. government,” saying they exercise “enormous power over the economic and social life of the United States.” His conclusion is that those agencies, “because of their massive power and the absence of presidential supervision and direction, pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.”

Tellingly, his dissent in the en banc opinion began “This is a case about executive power and individual liberty.” There’s no question that Judge Kavanaugh believes in a constitutionally required expansive view of Presidential power and discretion while at the same time believing in significantly limiting the power and discretion of agencies. He also seems to have a view of “individual liberty” that overemphasizes individuals’ freedom from government even when that government is elected by those individuals and when the government is acting to protect their health, safety and welfare.

However, notwithstanding those views, Judge Kavanaugh did not rule that all the independent agencies were unconstitutional because he was bound by a 1935 Supreme Court precedent that upheld the structure of independent agencies. Of course, the Supreme Court respects its precedents, but has no obligation or requirement to follow them and overrules them with some regularity. Given what Judge Kavanagh has said and his constitutional philosophy, a number of those precedents are likely to be at risk.

Even if he, Justice Gorsuch and the other conservatives on the Supreme Court don’t go so far as to overrule that particular 1935 precedent, they are almost certainly going to greatly limit the scope and authority of independent agencies by overruling or curtailing the so-called “Chevron doctrine.” In the 1984 case of Chevron v. NRDC, the Supreme Court recognized the expertise of the independent agencies and mandated that courts generally defer to those agencies when they exercise their discretion, particularly when reasonably interpreting a statutory ambiguity. In a 2016 Harvard Law Review article, Judge Kavanaugh stated his views on Chevron:

“Chevron itself is an atextual invention by courts. In many ways, Chevron is nothing more than a judicially orchestrated shift of power from Congress to the executive branch.”

True or not, the doctrine of Chevron deference has broadly enabled the agencies that are the front-line protectors of the health, safety and welfare of all Americans to give life to those statutes. A Justice Kavanaugh Supreme Court will likely greatly limit that, ushering in a new era of caveat emptor where individuals have to protect themselves from powerful, politically-connected and politically-protected corporations and predators.Making all that worse, individuals will have to do that entirely on their own as the courts increasingly limit the right to participate in class actions and expand forced arbitration.

In other cases directly related to finance, financial reform, Dodd Frank and consumer and investor protection — in addition to the PHH v. CFPB case — Judge Kavanaugh has been on the wrong side. Two cases in particular merit mention. First, he was on the DC Circuit Court panel that overruled the SEC and the federal banking agencies on their application of the Dodd Frank risk retention rule to CLO managers. The Court second-guessed the five financial regulators on the interpretation, application and implications of the Dodd Frank law and threw out a rule related to one of the most important pillars of financial reform: the requirement of risk retention or so-called “skin-in-the-game.” In doing so, the Court confidently cast aside the agencies’ concerns that the industry would use the opinion as roadmap to structure similar financial transactions to avoid the law, creating systemic risk and endangering the financial system. Unfortunately, there has been widespread discussion of just that trend in the financial markets.

Second, in a decision that the Supreme Court has already agreed to review, the DC court upheld the SEC’s authority to bring anti-fraud charges against an individual who send fraudulent information to investors. Judge Kavanaugh dissented, taking a much narrower view of SEC authority and saying he disagreed with the “SEC’s conclusions as to both sanctions and liability.” His opinion suggests a very narrow reading of the statute and the SEC’s rules, as well as a hostility to SEC power and authority that will undoubtedly be reflected in future decisions. The result will be less SEC regulation and enforcement, which is already insufficient, and greater harm to investors and consumers. It also suggests that he will display hostility to class actions, which will also further prevent injured consumers and investors from having viable and effective legal options when they are defrauded and ripped off.

Thus, a Justice Kavanaugh is likely not only going to be a consistent conservative vote (unlike Justice Kennedy, who he will be replacing), but also a consistently pro-business, pro-corporate power vote that sides against consumers, investors and regulators trying to protect the public. That’s bad news given the current Supreme Court is already one of the most pro-business courts in generations, as pointed out in a recent article in Barron’s:

“The four Democratic justices on the Roberts Court ‘are far more business-friendly than Democratic appointees of any other Court era,’ according to a 2013 article in Journal of Law & Policy by legal scholars Lee Epstein, William Landes and Richard Posner.

“Democrats have voted in favor of businesses at significantly higher rates than Republican appointees in all other periods since 1946, the article says. And because Democratic and Republican appointees support business at record levels, the ‘Business Favorability Index’ of decisions is at record levels, resulting in the most pro-business court in the past 70 years.”

There is little doubt that this nomination is “another win for corporate America” and good news for Wall Street’s too-big-to-fail financial firms. That means it is a loss for consumers and investors who are ripped off by corporate executives, Wall Street financiers, credit card fees, payday loans, student loans and other financial predators and practices.

None of this is to suggest that Judge Kavanaugh isn’t highly intelligent, likeable and qualified for any number of positions, including the Supreme Court. But, of course, so was his Supreme Court-nominated colleague on the DC Circuit Court, Judge Garland, who was denied even the courtesy of meetings by Senate Republicans much less a hearing or a vote.

Thus, the decision on confirmation shouldn’t just be based on narrow legal qualifications, but should also be a searching examination of the type of America that will result from the nominee’s judicial and constitutional philosophy. In this case, that means much more unaccountable and unchecked Presidential power; much more judicial activism under the pretext of literal statutory interpretation; many more protections for the wealthy, powerful and already connected and many fewer protections for America’s hardworking families; and, finally, greater imbalances of power in the workplace and marketplace, increasing inequality and economic distress.

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