The Administrative State, Once More: What’s Law But a Second-Hand Devotion?

Print Friendly

They’re on to me. I’m “disgruntled” with my profession (Administrative Law), says Stephen Bainbridge; the whole field is a fraud.

Sort of—but not quite. In coming months I’ll devote a number of posts to the pathologies of our administrative law. To avoid further misunderstanding and to keep me gainfully employed, let’s take this from the top.

What is the “Administrative State”?

What is its law? And why do many of us think it’s a constitutional problem?  It isn’t a lot of folks working for the gummint. The Constitution envisions and/or permits a postal service, a census bureau, a patent office, a revenue service, and a navy and an army (including a corps of engineers). Etc. Put the entire country in federal uniforms: there’d be nothing wrong with it, constitutionally speaking.

The hallmark of the administrative state is a power once known as “prerogative”—that is, the power to make binding rules without law, outside the law, or against the law, exercised by someone other than an elected legislature. John Locke understood that royal power, and was against it. The founders understood it, and they wrote an entire Constitution to suppress it. All legislative powers granted in  the Constitution are vested in the Congress, and nowhere else. Except, evidently,  when they’re vested in the Federal Communications Commission, or some other three-letter outfit. There’s the problem.

Administrative “Law” in Action

To impress the prerogative problem on my students, I teach a famous pair of cases from the 1940s, called Chenery I and Chenery II (still teachable and still crazy, after all these years).  In 1935, Congress commanded the newly formed Securities and Exchange Commission to “simplify” the nation’s utility industries, in a manner that would be “fair and equitable” to all “affected” parties. These terms are contained, without further elaboration, in the Public Utility Holding Company Act, fittingly pronounced Puke-aah. A New Deal masterpiece, the statute was pushed by such constitutional stalwarts as Alabama Senator (later and, at the time of the Chenery litigation, Justice) Hugo Black, in whose considered opinion utility executives deserved an elevated status—in a tree, next to uppity blacks. Its implementation was the SEC’s single biggest program for an entire decade, during which the agency’s New Deal warriors (Joseph Kennedy, William Douglas, James Landis, Jerome Frank) struggled to make a vast sector of the economy look more like—well, the way it ought to look like. (We’d never enact a statute like that these days. Not without calling it “Affordable.”)

Among the companies that didn’t look right was Christopher Chenery’s. Repeatedly, the SEC rejected restructuring plans that would have allowed him and his associates to retain control over the company. Instead, the SEC insisted on handing the outfit to the owners of preferred shares (who were owed a big chunk of back dividends). Chenery submitted a plan in accordance with the SEC’s design. Meanwhile, he and his group bought preferred shares—in the open market, at market prices, with full disclosure to the SEC. Great, said the Commission: now, we’ll give the new company to all owners of preferred shares  except the Chenery group. In support, the agency cited three wholly inapposite judicial decisions.

No dice, said a plurality of justices: your cases don’t cut it. However, we’re not going to bag your order: you may do as you wish, provided you give us the real reason why you did it. (Three justices dissented on the ground that the agency is staffed by experts, who—unlike justices—know whether or not they need a reason.)

So the SEC went back to work. It did not make a prospective “fair and equitable” rule, either through rulemaking or in the context of adjudication, that would have covered the Chenery case and others like it. Nor did it unearth legal authority (there wasn’t any). Instead, it issued the same order, accompanied by (a) a statement that it would not follow a “current owners can’t be future owners” Chenery position in any other case and (b) a thirty-page essay on the virtues of expertise, acknowledging that Chenery had done absolutely nothing wrong or illegal but so what? “Fair and equitable,” said the Commission, is what we say it means, retroactively, because we know what we’re doing. And the Supreme Court opined: Why didn’t you say so in the first place? Sustained. Move along, everyone. Nothing here to see.

Ladies and gentlemen, meet the administrative state. Administrative state, meet America’s youth.  And please assure them that everything is in good legal order. Because it sure doesn’t look that way.

Legal Process—Or Emergency State?

In Chenery II, Justice Robert Jackson (just returned from the Nuremberg trials) submitted a ferocious dissent, complaining bitterly about the agency’s “administrative authoritarianism,” its “conscious lawlessness,” and the Court’s approval of “that disregard of the law which enemies of the [administrative] process have always alleged to be its principal evil.” Administration, Jackson insisted, could and should be checked through “legal process”—that is, institutional and legal practices that would check prerogative in a world in which constitutional rules, from delegation to the separation of powers, had been relegated to the sidelines.

Is that doable, and is it enough? From a certain vantage, Robert Jackson’s view prevailed. Foremost, the courts (especially the D.C. Circuit) in later decades grafted onto the 1946 Administrative Procedure Act a ton of procedural and substantive requirements to cabin agency discretion. (These rules have very little to do with the text of the APA, which breathes the spirit of Chenery II; they’re a sort of federal common law. FWIW I’m good with that.) Today’s SEC can do many things, but it cannot do what it did in Chenery.

Still, I fret.  As suggested in an earlier post, government now does many things that escape legal process requirements entirely, from unguided administrative waivers and bargains to capital injections into favored companies and labor unions to fiscal repression by phone call. In a series of books and articles, Adrian Vermeule and Eric Posner have argued that this is the new normal. Our government, they say, is “Schmittian” (as in Carl Schmitt, Nazi jurist): you can’t control emergency powers by law. Obviously, their view is shaped by the responses to 9/11 and to the fiscal crisis. But the authors insist that government always escapes into legal “black” and “grey” holes; it’s just a matter of degree. Still, they say, there is nothing to worry about: the institutions will do good, most of the time. We’re all Nazis now. Relax.

I refuse to accept administrative authoritarianism as a principle of government. But the Posner-Vermeule point is serious. It is very hard to think of workable legal rules and institutions that would allow us to get a handle on an institutional apparatus that in many respects has indeed become “Schmittian.” With very few exceptions, the AdLaw profession lumbers hopelessly, unseriously behind the alarming manifestations of prerogative power: that’s the frustration. And yet, rule of law redress shouldn’t be beyond the ken of man: that’s the challenge.

Victory?

Christopher Chenery was on all accounts a very good man, and an avid race horse fan and owner. In 1973, a year after his death, his most famous horse won the Triple Crown, setting a track record in each race. Its name fit the SEC of Mr. Chenery’s recollection: Secretariat.