Kagan and the Agency-Exhaustion Doctrine: A Response to Media Matters

Well, who’da thunk it? George W. Bush’s Justice Department is now considered a citadel of wisdom by the legal eagles at Media Matters for America.

Yesterday, I outlined in NRO how Elena Kagan took the position as solicitor general that “regulated firms” must “exhaust” the administrative-review process at a regulatory agency before judicial review, a position that, if adopted by a future Supreme Court, would likely mean that small businesses challenging Obamacare and other laws would never see their day in court. Hours later, Media Matters blasted my piece as “the latest bogus attack on Kagan” — “bogus,” apparently, because “the Bush administration Justice Department made the same argument in lower court proceedings.”

Putting aside the issue of whether these arguments were in fact “the same” — and they differed in many respects — it is striking that authors of the Media Matters response did not seem to be bothered by the rejection of these arguments by two Clinton-appointed federal judges, a fact that one would think would interest the site’s readers. Both James Robertson at the D.C. district court and Judith Rogers, who wrote the majority opinion for the appeals court, ruled that plaintiffs had standing to challenge the constitutionality of Sarbanes-Oxley in Free Enterprise Fund v. Public Company Accounting Board, although they would rule against the merits of this challenge. Rogers wrote that the doctrine of regulatory “exhaustion doctrine does not apply” because the “constitutional challenges to the Act are collateral to the Act’s administrative review scheme.”

It is true that when the case was filed in 2006, officials of the Bush DOJ did submit an opposition brief arguing, among other things, that plaintiffs lacked standing. The Competitive Enterprise Institute protested the administration’s position vigorously through the participation of our attorneys in the case and in public statements, articles, and op-eds. Should any of the DOJ employees whose names are on these briefs ever become the judicial nominees of a future GOP president, they too should face serious scrutiny for their advocacy of this position.

That being said, Kagan’s briefs in the case ventured beyond those of the Bush DOJ and phrased the arguments in terms of general principles that seem to bar virtually all legal challenges to laws and rules by “regulated firms” unless a regulatory agency’s review process is “exhausted.” Further, she brought back the arguments on standing after both the district and appeals courts had rejected them. And the Kagan briefs in which she abandoned arguments in favor of the Defense of Marriage Act because they were contrary to the views of the Obama administration show that she is not hesitant to discard a legal argument in a case if it goes against her principles.

First, it should be pointed out that the Bush DOJ did not have the opportunity to file briefs once the case was taken by the Supreme Court in May 2009, a few months after the Obama administration took office. Comparing DOJ briefs offered in cases before the lower courts to those filed before the Supreme Court — even in the same case — is to some extent an apples-and-oranges exercise. Except for politically charged cases such as the challenge to Arizona’s immigration law, higher-level DOJ officials often have minimal involvement in lower court cases. Bush’s solicitor general’s name is not on any of the DOJ lower briefs in the case, while Kagan is listed as “counsel of record” on the Supreme Court briefs.

This distinction is important in discerning her constitutional views because at the Supreme Court level, an administration is much more conscious about the arguments it makes, knowing that it can influence the Court not just with regard to the case at hand, but other important cases as well.

This makes it all the more striking that in comparing the briefs, the Bush DOJ argued against standing mostly based on the facts and circumstances of this specific case, while Kagan’s brief phrased the arguments in terms of general principles about judicial review and the regulatory state. The Bush briefs, for instance, never praised the exhaustion doctrine in such effusive terms as the Kagan brief, which called it one of the “bedrock principles of judicial review of administrative action.”

The Bush DOJ briefs made a more limited argument — still wrong and still rejected by the lower courts — that the plaintiffs in this case lacked standing because of specific provisions of Sarbanes-Oxley and the Exchange Act and because the injuries the small accounting firm Beckstead & Watts suffered due to the law weren’t severe enough to bypass review at the agency. But those DOJ officials also conceded that the agency-exhaustion doctrine should not apply to some cases. A DOJ brief in 2006 conceded that legal challenges in which the plaintiff would suffer “immediate and irreparable harm” without prompt access to the courts “could justify extra-statutory review.” It argued, however (and again wrongly), that this plaintiff was in no such danger.

But Kagan never made allowance for “irreparable harm” or other extenuating circumstances to her argument of the need for “regulated firms” to exhaust all procedures at the regulatory agency.

In the brief’s words, “even when an agency cannot itself rule on the merits of a constitutional challenge, a regulated firm cannot bypass exclusive administrative-review procedures established by Congress if the constitutional claims can be meaningfully addressed in the Court of Appeals after the administrative review.” Note the phrase “after the administrative review.” What good is judicial review, however “meaningful,” if a plaintiff such as a small business has had its livelihood harmed for years before it ever got access to the courts?

Also, the Bush DOJ never suggested, as Kagan’s brief does, that Beckstead & Watts could seek judicial review by refusing to comply with a Sarbanes-Oxley inspection or investigation. That argument drew a serious rebuke from Chief Justice John Roberts in the Supreme Court decision last month. Noting that the firm would face “severe punishment should its challenge fail,” Roberts wrote dryly in the opinion, “We normally do not require plaintiffs to bet the farm by taking the violative action before testing the validity of the law, . . . and we do not consider this a meaningful avenue of relief.” The dissent did not express disagreement with Roberts on this point.

Media Matters also fell back on the argument that “Kagan’s personal legal views can’t be inferred from her actions as solicitor general,” and that “Kagan’s duty as SG is to make every reasonable argument to defend federal laws and actions.” But in previously defending Kagan’s dropping of what many would deem “reasonable” arguments from a brief supporting the Defense of Marriage Act (a law and an issue that the Competitive Enterprise Institute takes no position on), Media Matters argued, “It’s not unprecedented for DOJ to abandon arguments.” The site quoted approvingly former attorney general John Ashcroft’s statement that “justice is best achieved, not by making any available argument that might win a case, but by vigorously enforcing federal law in a manner that heeds the commands of the Constitution.”

Kagan did not have to argue that this small business lacked legal standing in order to make her case. In fact, since it was rejected by both the district and appeals court and by Clinton-appointed judges, pragmatism would seem to suggest dropping the argument. But Kagan instead expanded the argument to further close the courthouse door on virtually all “regulated firms” challenging government agencies. The facts suggest that her arguments in this brief represent her deeply help legal views, and small businesses have reason to fear a solicitor-general-turned-justice Kagan.

John Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute. The opinions expressed here do not necessarily reflect those of counsel for the plaintiff in Free Enterprise Fund v. Public Company Accounting Oversight Board.

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