Eugene Scalia on Beating Regulators in Court

Regulatory Practice Group. Two thousand and two to two thousand and three, Secretary Scalia served as Solicitor of the US Department of Labor, and from twenty nineteen to twenty twenty one he served as US Secretary of Labor, making him the only person ever to have served as both solicitor

and Secretary of Labor. Secretary Scalia is the go to lawyer for challenging federal regulatory actions and has successfully challenged rules like the SEC's Proxy Access Rule, the CFTC's position limits rule, met Life's designation as too big to Fail by the Financial Stability Oversight Council, the Labor Department's fiduciary rule,

and OSHA's Cooperative Compliance program. And if that's not impressive enough, he's currently involved in litigation challenging the SEC's Private Funds Rule, California's climate disclosure law, New York City Pension Fund's decision to divest from fossil fuel companies, and he has been retained to represent banking industry groups to fight proposed rules

that would increase capital requirements for banks. I would be remiss if I didn't also mention that Secretary Scolia is a son of the late Supreme Court Justice Antonin Scalia. And on a personal note, I should add that many years ago I played on the same fifth grade soccer team as one of Secretary Scolia's brothers, though I doubt anyone other than me remembers that. So with all that, Secretary Scolia, welcome to the Votes and Verdicts podcast.

you're also challenging government laws or initiatives. Well, of course, get into more detail about some of those, but before we do, we like to ask our guests a little bit about their background. So maybe we can start by having you tell us a little bit more about your legal career, about your stints at the Labor Department, and about your current practice at Gibson Done.

employment law practice and a litigation practice. But I moved back to Washington in nineteen ninety two to work for the Attorney General as a special assistant. It was actually Bill Barr, his first time as Attorney General. I worked there for a year. The American people voted us out in nineteen ninety two, and so I rejoined my firm, Gibson Done, became partner here, started our what we call

administrative law and regulatory practice group. It's really a practice that focuses on representing clients who are in contentious proceedings with agencies where they think they may well ultimately need to go to court to vindicate their rights. And so that's the heart of that practice. But I've also maintained a labor employment practice for many years, co chaired or labor employment practice while also sharing our administra of law practice.

As you mentioned, I went to work in the George W. Bush administration as the so called solicitor, the general counsel of the Labor Department, then return to my firm when that was done, and then rejoined the Labor Department as secretary for President Trump in twenty nineteen, and came back here in the spring of twenty twenty one.

with government overreached. So I was wondering, if could you place this moment of time in terms of a horse historical context. Are there other times that you can recall with there's so many lawsuits challenging government regulations.

Congress while still remaining consistent with constitutional requirements. I think that this question of the powers and limits of powers on federal ministry of agencies and associated questions about how they can exercise those powers may end up being the

defining issue for the Roberts Court. I point out to people that if you look at the three justices that President Trump added to the Supreme Court during his tenure, very arguably each one of those three is more interested than the person he or she replaced in identifying and enforcing limits on the power of federal regulatory agencies. So Justice Barrett more so than Justice Ginsberg, Justice Kavanaugh, I think, more so than Justice Kennedy, and even Justice Gorsuch more

so than my father, Justice Scalia. And in fact, that change in the seat in the Court is a very good example because on two issues that are getting a lot of attention right now, my father had a position that was somewhat favorable toward regulatory agencies for much of his career. He was a real proponent of so called Chevron deference. That's the idea that when statutes are ambiguous that courts should defer to agencies reasonable interpretations of those statutes.

And then secondly, my father was skeptical Justice Scalia was of whether the courts could effectively administer what's known as the non delegation doctrine. It's the idea that Congress can't delegate its legislative job wholesale lock stock and barrel to regulatory agencies. Justice Gorsuch, on the other hand, has been a very harsh critic of Chevron and has been a real proponent of reinvigorating that so called non delegation doctrine. So he parts company with my father on both of

those important issues. Although I should add that very late in his career, my father justically was becoming skeptical of deference doctrines, including I think Chevron difference. So his views themselves were changing. So that's part of what is going on. You've got a Supreme Court really focused on limits on agency power, on preventing Congress from intruding on the president authority, preventing agencies from adopting authorities that belong to Congress the president.

And then the other trend that's happening is you do have an administration that's using regulatory agencies in a quite aggressive and expansive way. Now, this is also not entirely new, because presidents have found it increasingly difficult to enact their agenda legislatively through Congress, they you know, naturally cast about for other ways to get things done, and using agencies, using their executive administrative powers is a natural place to look.

And so you have seen just generally more energetic use by presidents and recent administrations of their agencies. But I think some Biden agencies have been on overdrive. The President Biden has been encouraged by some to view himself as a new Franklin Dellan Roosevelt in sort of the ambition and sweep of the programs that he puts in place. The problem is that President Roosevelt had enormous legislative majorities and Biden doesn't. So how does he get there? Well, again,

it's through aggressive, adventurous use of agencies. Examples would include the cancelation of student loan debt, the so called eviction moratorium that was put in place in originally the Trump administration, but extended a couple of times by President Biden, ultimately struck down by the Supreme Court the Osha vaccine mandate that the President adopted late in twenty twenty one, also

struck down by the Supreme Court. And there are a number of rules out there that are in litigation or are in the verge of being proposed, like the Federal Trade Commission's proposal to outlaw noncompete agreements that again are very aggressive, uh attempts to use regulatory power. So one of the same time that you've got the court looking for agency overreach and abuse, you've got the bidy administration saying, hey,

look over here, we've got some for you. And it's uh, it's it's it's resulting in a lot of litigation.

by suing it? Because I know for my own experience, we would never suggest ever suing your own regulator unless there's a really good reason.

get in litigation with the government. Trade associations generally also would rather reach a consensus compromise not be driven to litigation. I've had conversations many a time with clients where I've said, you know, you've got a really pretty good case to bring here. I think you're likely to win if you're willing to bring it, and the clients have said, you

know what, we hear you. We're very bothered by what was done, but we just at the end of the day, have other fish to fry with the agency right now, we'd rather not sue. I've had that conversation a number of times in my career. Never have I had a corporation or trade association say you know, yeah, I'm probably not gonna win. I hear you, but I want to assue them anyway. And so there's a natural hesitancy. There's a respect for the government. There's a desire to find compromise.

There's a desire to have a regulatory environment that's predictable, that's manageable. But there certainly are times where clients feel that they have no choice but to proceed with litigation.

in two thousand and five or so. They were just indignant. They were not used to this. My client was the US Chamber of Commerce, and the SEC just couldn't understand what business the Chamber of Commerce had suing them over one of their rules. They raised very non meritorious arguments

challenging the Chambers standing and the like. I actually gave a talk after that first lawsuit where a staff member of the SEC insisted on showing up and getting equal time and castigating my client's in me for bringing this lawsuit. He was still so worked up about it even though we had won the case, and actually his point was

kind of interesting. His point was that my client and I were trying to use procedural rules, in his mind, tricks to prevent the agency from doing the right thing that the agency's policy goals he believed were really important, and we were just trying to use procedural tiki taki requirements to prevent them from doing it. And you know, my answer was, a procedure is what the Administrative Procedure

Act is all about. The Administraive Procedure Act, the APA is the law under which agencies are most frequently sued, and that law requires agencies to proceed in a way that's fair, it's open minded, that gives the public a chance to comm meant and a process where after the public has commented, the agency listens carefully to what they've said and reconsiders its course of action. And and so you know that that is the process that Congress has established.

It's one that the agencies are governed by. And what I found with the SEC was that over time they you know, they've become a little more accustomed to getting sued. People who in the past might have been hesitant about doing it now recognized that it's just part of dealing with a regulator and the agent. The SEC, for its part, has particularly in the last couple of years, gotten much

more aggressive, which again is prompted more lawsuits. So again I think most companies and trade associations would would rather find agreeable ground. But they've come to realize, particularly in recent years, is that court has begun to supervise this area a little bit more, that when the agency overreaches, they have a chance to be heard and to win in court. And they're they're taking those opportunities in those circumstances where agencies are overreaching.

But before we turn to that, I just want to go back to Chevron, since we were talking about that before. As I'm sure you know most listeners know, there were a pair of cases argued in the Supreme Court in January seeking to get rid of Chevron deference. And I think the consensus view, certainly ours, is that the High Court will overrule Chevron and articulate a new standard requiring courts to determine the best interpretation of the statute at issue,

rather than defering to agency interpretations. But Secretary School, I'd just love to get your thoughts on those cases, the argument, and how you think that the Supreme Court might rule on it.

the Chevron doctrine. It's one of the most frequently cited Supreme Court cases ever. It's been seen by its supporters as a way of giving the federal government some latitude to craft sensible rules that provide predictability to the regulated community, and without being overridden by judges who might happen to disagree with the policy or have a slightly different interpretation

of a statute that's ambiguous. It's critics, though, have said that it's really empowered agencies to expand their jurisdiction to supersede courts in interpreting the law. Obviously, a central role of courts is determining what the law is, and Chevron's critics say you should never have given that responsibility to the agencies in any way. There's been a question for a while whether the Supreme Court might overrule that old Chevron case. In recent years, the Court itself has not

used Chevron to defer to an agency. It has begun to develop some principles by which it doesn't even reach Chevron. These include the so called major question doctrine, which we can talk about if you'd like. But this term, the Court did agree to hear the question whether it should

just do away with Chevron deference. Always hard to know just based on oral argument, what the Court ultimately will do, And for people following Chevron, it's important to remember that there was a case called Kaiser a few terms ago that concerned the related question of whether courts should defer to agencies reasonable interpretations of their own regulations when the agency's own regulations are ambiguous, and some scholars had believed that there was actually a stronger case for getting rid

of that difference doctrine than there was for getting rid of the Chevron difference doctrine. But when the rubber hit the road in that Kaiser case, the Court kept Kaiser deference, but it cut it back and narrowed it. I think that it's safe bet based on the argument in the cases in the Court this term about Chevron, it's safe to bet that the Court will cut back on Chevron. I think a lot of people believe it will be

fully done away with. Whether or not that happens, I think it's likely that we will have a much narrower Chevron going forward, and there's already been some hand ringing about what that might mean for agencies in the courts in the years ahead.

In the following way, if the Court over rules Chevron regulation adopted a year ago is not still going to be entitled to Chevron difference because it was adopted a year ago, they would apply this new rule prospectively, so it wouldn't be retrospective in that effect in that sense, but I fully expect that whatever rule they announce will largely apply in cases going forward, even if the rules were adopted a year ago or more.

clear congressional authorization. But you know, a question I have is did that largely replace Chevron accept on issues that aren't of major national or economic importance, or you know, maybe stated differently, what work is Chevron still doing now that we have the Major Questions doctrine.

that's one way to look at it. That the Major Question doctrine flips Chevron on its head in circumstances where the power to be exercised by the agency is especially consequential. Of course, there's something odd in the notion that when it's unclear whether the government has power it does, you know, we still would think that we're a government, a nation of limited government. We got a Congress of enumerated powers, the powers not granted or to Congress, or powers it

doesn't have. In that context, it's a little counterintuitive that the government might have whatever the federal agencies might have whatever powers that Congress didn't withhold from them. And that's one of the complaints is brought against Chevron, you know. But differently, a lot of people would say that, look, when in doubt whether the government has power over the individual,

it doesn't. Right now, before the pending cases involving Chevron are decided, there's still a large number of cases where people would agree the issue presented is not a major question. It's important to the parties before it, but doesn't meet the relatively high threshold the Supreme Court has set for a major question case. And right now, in that world of non major question cases, at least in the lower courts,

Chevron is still the law. As I said, the Supreme Court itself has not really been you using Chevron much in recent years. It's been studiously avoiding it. But the lower courts are still bound by Chevron, and they've they've been continuing to use it, and so it's still got life in the lower courts outside of major question doctument cases.

lead to around nineteen percent in higher capital requirements. And for the smaller banks this is applicable to banks that are hundred billion and up and at least in our estimation round five to six percent in terms of cap requirements. And you know, Secretary School, I know you've done some work on the Buzzle three endgame. Can you just describe some of the problems that you see with the proposal, because there is considerable pushback from many of the stakeholders in Washington about this as.

the process. I think there are some in the banking world banking regulators who have this notion that they can meet with fellow banking regulators in some other place. Often it sounds like a kind of swank location in Switzerland, and they can arrive at a view about how banks ought to be regulated, to structured like reach agreement and then just come back home and get it done. Of course, there's a critical step along the way, which is that we have our own set of laws in this country

that have to be respected. Those include, as I mentioned, the Administra Procedure Act. You can't just go abroad agree to do something and then not satisfy all the usual requirements that one mess most satisfy through rulemaking. Bosle's not a treaty that's been ratified by the Senate, for example.

But one of the concerns is that it sort of looks to some extent like the US banking regulators thought that having reached agreement in Switzerland, they'd sort of largely done their job and could just drop this on American banks with a thud, and it was their duty to accept it. Now, this problem was exacerbated by the fact that what the US banking regulators did was actually bozzle

three on steroids. They departed from the agreement they'd reached in a number of ways, and I think you know, every time they departed, they made the capital requirements waightier, costlier for US banks. And so on the one hand they seemed to be saying, here's basle, We're doing it, and then on the otherhand, at various points they said basil is not good enough. We're going to stick to even harder. That raises a separate set of legal problems.

At the end of the day, the capital standards, as they've been looked at by the banks that would be affected and the economists they've retained, would be extremely costly, not just for banks, but for our financial system, potentially

hundreds of millions of dollars in costs. And yet when you look at the work that the regulators showed as to why they're doing what they're doing, it really fell very far short of what you expect from agencies when they're engaged in rulemaking in the United States, especially when they're engaged in rulemakings that would have an enormous impact. Again, we're back to the Administra Procedure Act. It's about process, it's about listening to the public. It's also about showing

the public your reasoning, your math, your work. Why did you arrive at these capital requirements. Unfortunately, the proposal was put out at a very very poor job of that, and they're going to have to go back to the drawing board to reconsider the limits that they want to put in place and to do a much better job explaining how they got there. And of course they're going to have to respond to the comments that they received.

Just to give one quick example, the proposal was put out that had a very short economic analysis where they admitted that the proposal could have an adverse impact on trading on markets, and the proposal said somebody ought to do a study of this. And you know, as a lawyer, reading that, and I think, well, yeah, that's you. It's your proposal. You need to study it, appraise it, and consider whether it's worth it before you put it out.

You can't put out something that's going to have an adverse effect on trading and saying, wow, this could be bad. Somebody ought to do some homework for us, so they have some work to do.

them followed. But when you're in the notice and comment realm at least, and I think in other realms too, but in the notice and comment realm, it doesn't work that way. You really do need to arrive at a regulation in a thoughtful way that's very attentive to the impacts that are going to occur, and that gives the public an opportunity to participate, fair notice of what you're

going to do, and that kind of thing. So I do think that in this area, and in some other areas too, that in this world where people feel forced to make resorts court more frequently and reports are listening, banking regulators are going to have to become more attentive to the rights of the banks that they're regulating and the impact that they're having.

finalized in two days. Again, we're recording this on March fourth, and then we expect lawsuits to be filed shortly after finalization, although a lot depends on what that final rule looks like. And since we don't know what that final rule looks like, well, we're going to skip some discussion and questions about the SEC's rule. But in the meantime, we do have laws passed in California recently, pair of climate disclosure laws for

companies that do business in California. On January thirtieth, the US Chamber of Commerce and other industry groups sue the California Air Resources Board challenging those laws. Your firm, Gibson Done with you as lead attorney, is representing the plaintiffs

in that litigation. So we were wondering if you can just tell us a little bit more about the litigation in California, the arguments you're making there, including the First Amendment arguments, preemption, and dormant commerce clause, because I think a lot of people think that some of the arguments in the California litigation will serve as a preview of potential arguments against the SEC's rule as well.

that do really any business in California. When those companies are I think have more than five hundred million or a billion in revenues, depending on the statute requires them to make a series of really quite costly disclosures about greenhouse gas emissions, both their emissions but also the emissions of people in their supply chain or their customers, and then also require them to make disclosures about the impact

that climate risks could have on the company's operations. And as you say, there's some similarities to the SEC's proposed rules. I'm representing the US Chamber of Commerce and others and

bringing a lawsuit over these statutes. One of our claims is simply under the First Amendment, of course, everybody understands you have a right to speak, but you also have a right not to speak, not to carry a particular government message, or not to be forced to disclose things that the government wants you to disclose, so that, for example, you can be subject to pressure various people out there in the marketplace, in the blog of sphere or whatever,

who might want you to change your conduct. The Supreme Court, incidentally, has become more interested in the last few years in attempts by agencies, including the State of California, to bring pressure on organizations or on their donors by forcing disclosure.

The sort of pressure by disclosure gain is one that the Supreme Court is onto, and we believe that this is a case where environmental organizations and others are successfully persuade the California legislature to force companies to make disclosures so that then those organizations and others can bring pressure to bear on those companies to change their practices to reduce their emissions, emissions by others and the like. The Chamber's lawsuit is not challenging at all the science that

might exist around climate change. And the Chamber itself has a pretty strong and consistent message about its member's interest in finding ways to address climate change. But this particular method is problematic for a lot of reasons. As I said,

it implicates free speech rights. These disclosures can be extremely costly, and it merged in the SEC's Climate rule making that having this disclose certain emissions can cost individual companies millions of dollars and Moreover, it's very clear that what California is trying to do is to affect companies nationwide operations

and in fact trying to affect their operations internationally. If you're a company of a certain size and have any business in California, then they've got you under this statute. And we have statements by some of the legislators who supported the law to the effect that this is the way that California can get it's hook and the companies and force them to change their emissions practices and the practices of their suppliers and customers nationwide. So that puts

some new issues into play. It's Congress that's in charge for regulating interstate commerce, not individual states. We can't have individual states setting climate policy for companies in every state they're operating in. That's what California in a sense, is trying to do. And so in addition to the First Amendment challenge which has been brought to the California Statutes, there are also challenges under what we call the Dormant

Commerce Clause. Again this idea that it's Congress's job to regulate interstate commerce, not state's job, not state's world to interfere with it. And then also the Clean Air Act and principles that surround that, we believe preempt the states from trying to set nationwide climate policy on their own. So that's the set of issues in that case. And you know, we think that California. Again, we're not questioning the interest that many people have in addressing climate change.

The Chamber shares that interest. It's a matter of means and it's a matter of the proper authority. We think it's for Congress, certainly, not for one state to dictate what's done nationwide.

and then on the other two. On the second statute, the card has a role, but not a role in defining what has to be done at all. And so when you ask the question, is it clear enough now that there's a constitutional violation, you know, we think absolutely that the CARB does not have the discretion to roll

back these onerous requirements imposed by the California legislature. And so the case is ripe, ready to go forward, and it's preferable it go forward now rather than wait a year or two when companies are going to have to start incurring really significant costs coming to compliance. By the way, I should add, I've talked a lot about the California legislature. Gavin Newsom, the for you governor, you know, prominent Democrat,

seems to have his eye on the presidency. At one point one year or another, he signed the law, but he's very critical. So even Gavin Newsom, certainly very progressive, uh sees these laws as overreaching, impractical, to burden some and the like. Didn't steal them from signing them, but it's an indication how far California's overreached.

can you give us your view of the case. And you know, because one of the questions that you received at oral arguments was whether the court should strike down the whole rule or just only part of it. Are you worried that the court may only strike part of the rule down if the court were to, you know, come to that conclusion.

are hedge funds, private equity venture capital fund. Investment in those is limited to sophisticated investors by law, and precisely because investment in those vehicles is limited to sophisticated investors, Congress has taken a much more hands off roll toward regulating and has told the SEC that it can't impose the kinds of requirements that are imposed on mutual funds

and other investment companies. For whatever reason, that limitation on the SEC's authority doesn't sit well with the current chair of the SEC, and so last summer he adopted some really aggressive rules to assert what amounts to full authority

if he wants to use it over private funds. And so you have this extraordinary lawsuit where again hedge funds, private equity, and venture capital, three different important segments of the financial services industry have all come together and sue the SEC to challenge those rules on a number of grounds, the principal one being again that the SEC just simply

does not have the authority in this area. Statutory provisions that the SEC has glommed onto and said oh, this is this is why we can do it are very narrow provisions that aren't addressed at private funds at all. So we think this entire structure is very legally vulnerable. For that reason and for other reasons too, the SEC made a poor showing of why it needs to do this. I mean, it admitted this rule is going to cost billions of dollars a year and so you say, well, wow,

you don't have a really powerful reason. We don't think they came up with that reason. And then finally, the SEC has had a lot of rules thrown out by courts over the years because it failed its duty given it by Congress to consider the effects the rule will have on what Congress calls efficiency, competition, and capital formation. And here again the SEC did a bad job weighing

those impacts and simply stating what they would be. So each of those failings, the lack of statutory authority, lack of established need for the rules, yet another deficient cost benefit analysis, each of those is a reason to throw out this entire rule that was adopted by the SEC. In oral argument, the judges did ask some questions about whether if they made a particular finding in the case,

the whole rule would be thrown out or not. But we feel that we've made a really powerful showing that in fact, as we said in our brief, this rule is rotten from route to branch and should be vacated by the court.

After having been Secretary of Labor.

I certainly have respect for government service. I've had an interest in it over the years, and so I having served in four Republican administrations, I'm kind of past the point of saying I'd never do it again. But as you get more senior, as you know, as you're saying, Elliott, there's less out there that might interest you. So I'm happy where I am. I never say never if there's something out there that's really rewarding, although again there's less and less that might be that description.

two would probably be something more low key. I love Mozart, but that's Don Giovanni covers that box piano music is beautiful and contemplative, play it when I'm working off and very much enjoy it. And plus I've got like a like a ten CD set so it lasts you a long time in that desert island. And then back in the day, I loved punk rock and particularly The Clash. The Clashes London Calling is a great album. It always

makes the top rock album ever lists. It's music I still listen to, so I would have that too.

for taking the time to join us. As well as a reminder you can read all of our Bloomberg intelligence research on the Bloomberg terminal at Big And with that, thank you again and have a great day.