Elena Kagan’s War on
Small Business

Solicitor General Kagan urged against letting a small firm challenge a regulatory agency in court. Would a Justice Kagan do the same?


John Berlau

Now that Congress has passed — thanks to the peeling off of a bare minimum of Senate Republicans — and President Obama has signed a financial regulatory bill with a massive scope and untold costs, and a bill extending unemployment benefits without paying for them, he and the Democratic leadership have two more big items to rush through before Congress’s August recess. They are a bill that will ostensibly help small business and the Supreme Court nomination of Elena Kagan.

While Congress is claiming it wants to help small business, confirming Kagan could mean great harm to business owners crippled by costly regulation. Based on her writings and her arguments as Obama’s solicitor general (which is all we have to go on, since she has never served on the bench), not only is Kagan likely to rule against constitutional challenges to Obamacare, Dodd-Frank, and other onerous laws, but she is also likely to do what she can to make it nearly impossible for smaller “regulated firms,” as she calls them, to have their day in court in the first place.

In blasting Republicans for delaying passage of the small-business bill, Obama proclaimed, “Small businesses are the engine of job growth, and measures to cut their taxes and make lending available should not be held hostage to partisan tactics.” Yet in preparing legal briefs for the Obama administration, Kagan effectively argued that small businesses that object to a particular law or regulation as unconstitutional should be held hostage to the administrative-review process of the agency responsible for enforcing that law or regulation. According to Kagan, “regulated firms” should have no standing to bring a constitutional claim to federal courts until they “exhaust” every remedy at the regulatory agency.

Kagan’s prescription would be an unaffordable option for the vast majority of small businesses, as they could spend years in the exhausting “exhaustion” process before they could seek relief in court. This radically restrictive view of legal standing to challenge agency authority has been rejected by Democratic-appointed judges in federal courts and was given a stinging rebuke late last month by the U.S. Supreme Court in the landmark case Free Enterprise Fund v. Public Company Accounting Oversight Board.

In this case (in which attorneys with my Competitive Enterprise Institute served as co-counsel), the two-person Nevada accounting firm Beckstead & Watts challenged the constitutionality of the board that issues the costly accounting mandates under the Sarbanes-Oxley Act of 2002. In her October 2009 brief for the Supreme Court, Kagan argued that the court should throw the case out before even considering the constitutional merits.

The brief, which lists Kagan as “counsel of record,” argued that the U.S. District Court for the District of Columbia “lacked jurisdiction because petitioners failed to exhaust the exclusive statutory review procedures” at the agency. Directly attacking the reasoning of Judge James Robertson, appointed to the D.C. District Court by President Clinton, Kagan maintained that Robertson’s decision to even let the case proceed was “contrary to bedrock principles of judicial review of administrative action.”


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