Business and the Supreme Court

Cite this Article
Larry Ribstein, Business and the Supreme Court, Truth on the Market (July 01, 2010),

David Zaring has noted

that courts have formed an unimportant part of the financial crisis interventions by the government, and that the end of the Supreme Court’s most recent term suggests that it gets to matters years, if not decades, after they have become settled law one way or the other.

Steve Bainbridge responds:

The very nature of their social role precludes judges from being proactive regulators. They can make law, of course, but they can’t do so without an actual case or controversy to use as a vehicle for doing so. Finding a case that has the right facts and the right procedural posture to make new law can take quite a while. This is especially true for the SCOTUS, of course, since it can take years for cases to find their way through the lower court system.* * * And, of course, the judiciary is the least accountable branch. If you’re going to be in a position to plunge the entire world economy into a depression, you ought to be democratically accountable.

I agree with Steve. Indeed, I find the view that the Supreme Court is “unimportant” because it doesn’t keep up with the news rather surprising. The Court lays general ground rules. It is not for many reasons the appropriate institution for setting social policy in reaction to current events.

But this doesn’t end the discussion, because the Court could still be unimportant if it does not serve its ground-rule-making role well – that is, if it shies away from making hard decisions for political reasons.

However, in my column this week for I argue that the Court has been important this term precisely because it has bucked anti-business political winds in making or reinforcing Constitutional rules that serve business’s long-term interests. After discussing the regulatory excesses that have followed the financial busts at the beginning and end of this decade, I summarize the Court’s actions this term, concluding:

In a single term, despite widespread popular support for punishing and restricting corporations and their agents, the Court admonished Congress that it had to respect the structure of government and draft criminal statutes clearly, noted the dangers of court interference in business decisions, restricted the international reach of the securities laws and, perhaps most importantly, ensured that business’s voice would be heard in future lawmaking. The Court demonstrated that it can be a good friend to business in bad times.

These decisions accord with my prediction last February in the course of a Federalist Society debate on Citizens United. Barry Friedman noted that the decision’s timing was “inauspicious as a public relations move,” coming just as “the public generally is up in arms about financial matters, corporations, money in politics, and the like.” I responded that “Justices Scalia and Kennedy are both approaching 74 and might not survive eight Obama years. Perhaps the time to correct Austin is now or never.” I continued:

[T]he very thing that makes the political moment wrong arguably makes the judicial moment right: corporations are under political siege and need the Constitution more than ever. This returns to my theme that this case is at least as much about corporations and business as it is about the First Amendment. It will be interesting to apply this political theory to decisions due later this term on mutual fund executive compensation (Jones v. Harris) and Sarbanes-Oxley (FEF v. PCAOB). The Citizens United majority might be inclined to ensure in the PCAOB case that separation of powers protects business from unwise regulation in a hostile political environment. On the other hand, the Court may go with the political environment on executive compensation in Jones where no strong Constitutional principle is at stake.

This is, of course, precisely what happened, not only in these cases but in the others I summarize in my Forbes post. At the same time, the Court did not ignore political considerations: Its decisions went no further than absolutely necessary to make the important structural points. The Court, for example, refused to completely throw out the “honest services” rule and preserved Sarbanes-Oxley. Although I complained about the latter decision at the time it came out, here I want to emphasize that the Chief Justice compensated rhetorically for the case’s modest result:

Our Constitution was adopted to enable the people to govern themselves, through their elected leaders. The growth of the Executive Branch, which now wields vast power and touches almost every aspect of daily life, heightens the concern that it may slip from the Executive’s control, and thus from that of the people.

This is precisely the sort of concern with general ground rules I predicted in the Federalist Society debate.

In short, in business cases at least, the Court has gotten its role exactly right, and this role has been far from unimportant.

Update: David Zaring thinks my post “is an interesting way to characterize what has been going on.”