Although it did good by taxpayers today, the Supreme Court also issued a divided ruling that unfortunately expands the power of administrative agencies generally.  In City of Arlington v. FCC, six justices gave agencies discretion to decide when they have the power to regulate in a given area – which expands on the broad discretion they already have to regulate within the areas in which Congress granted them authority.

But why should courts defer to agency determinations regarding their own authority?  Courts review congressional action, so why should theoretically subservient bureaucrats – appointed by the executive branch and empowered by Congress – escape such checks and balances?  

Underneath the legal jargon and competing precedent regarding the line between actions that are “jurisdictional” (assertion of authority) versus “nonjurisdictional” (use of authority) is a very basic question: whether a government body uses its power wisely or not, it cannot possibly be the judge of whether it has that power to begin with.  Yet Justice Scalia, writing for the majority, essentially says that there’s no such thing as a dispute over whether an agency has power to regulate in a given area, just clear congressional lines of authority and ambiguous ones, with agencies having free reign in the latter circumstance unless their actions are “arbitrary and capricious” (what lawyers call Chevron deference, after a foundational 1984 case involving the oil company).

That makes no sense.  As Cato explained in our brief, since the theory of deference is based on Congress’s affirmative grant of power to an agency over a defined jurisdiction, it’s incoherent to say that the failure to provide such power is an equal justification for deference. Furthermore, granting an agency deference over its own jurisdiction is an open invitation for agencies to aggrandize power that Congress never intended them to have. One doesn’t need a doctorate in public choice economics to recognize that we need checks on those who wield power because it’s in their nature to husband and grow that power.

More broadly, this case should make us question the whole doctrine of Chevron deference: Yes, decisions about the scope of agency power should be made by elected officials, not by bureaucrats insulated from political accountability, but courts should also review with a more skeptical eye agency decisions about the use of power even within the proper scope.

I don’t often commend regulators, but for those interested in preserving national sovereignty, new SEC chairwomen, Mary Jo White, is off to a good start if yesterday’s New York Times’ editorial is anything to go by. The Times criticized White for approving new SEC derivatives regulations that defer oversight of foreign security-based swap transactions, including those relating to the foreign subsidiaries of U.S. banks, to foreign regulators. The Times also derided White for approving rules that were “weaker” than the similar rules released by the Commodity Futures Trading Association.

Like the CFTC, the Times’ editorial board has clearly not heard of the concept of international comity, which it seems to confuse with “weakness”. In particular, it is not clear why the Times believes that unelected U.S. regulators should have the right to be self-appointed derivatives tsars to the rest of the world. The Times also appears to have overlooked the recent letter, signed by the finance ministers of nine of the United States’ largest trading partners and addressed to their U.S. counterpart Jack Lew. The letter was a thinly-veiled attack on the CFTC’s so called “extra-territorial” application of its cross-border swap rules and noted that an approach “in which jurisdictions require that their own domestic regulatory rules be applied to their firms’ derivatives transactions taking place in broadly equivalent regulatory regimes abroad is not sustainable.”

Of course, the Times does raise one important point: that it is undesirable to have two agencies releasing different rules on what amounts to the same topic. But the arbitrary distinction in the oversight of security-based swaps (regulated by the SEC) and OTC derivatives (regulated by the CFTC) is just one of Dodd-Frank’s many design flaws. Moreover, the SEC is under no obligation, pursuant to Dodd-Frank or otherwise, to follow the CFTC’s approach just because the CFTC released its regulations first. Especially as those regulations have proven to be so contentious (and not just with U.S. banks who legitimately fear being shut of international derivatives markets, but, more importantly, the foreign regulators on whom the U.S. may have to rely in a crisis).

It has become an unwelcome trend for U.S. regulatory agencies to overreach their jurisdictional and geographical boundaries. This began with the IRS’ FATCA implementation and has continued in the financial regulatory space. That White does not wish to follow her CFTC counterpart, Gary Gensler, down the rabbit hole and alienate the U.S.’s trading partners and allies is commendable, even if the Times is disappointed.

In the 19th Century, when railroads were being built across the West, the federal government granted significant land and benefits to the railroad companies. The Great Railroad Right-of-Way Act of 1875 allowed the government to give railroad companies easements to build tracks — that is, a right to use sections of another’s property without legally owning it. The Brandt family eventually acquired land in Wyoming that came with pre-existing railroad easements.

In 2001, the owner of the easement formally abandoned all claims to it, presumably returning the property to the Brandts. But the government wanted that land. In 2006, it sued for title to the former easement land on the theory that the government retained a residual claim to it after the railroad abandoned it. The Brandts argue that the government has no such right and that taking their land requires just compensation under the Fifth Amendment’s Takings Clause.

Although this may seem like a small, unique problem, the scope of the Old West’s railway system was huge and those old easements criss-cross the land of thousands of property owners. In 1983, Congress amended the National Trails System Act to allow the government to take abandoned railroad easements and turn them into land for public recreation and “railroad banking.” Landowners have been fighting the taking of their property under the Trails Act ever since, claiming, as here, that the government’s original grant to the railroads contained no residual right of possession for the government.

Indeed, two federal courts of appeals, the Seventh and Federal Circuits, have held that the government didn’t retain any residuary rights. In the Brandts’ case, however, the Tenth Circuit held otherwise. This circuit split is untenable. Over 5,000 miles of abandoned track has been taken by the government since the Trails Act, and about 10,000 property owners are currently fighting in federal courts to hold onto their property.

Of course, given the possible benefits of not having to pay compensation to landowners, the government has responded to these claims by being aggressively litigious, reaching into its endless war-chest of taxpayer-provided resources to challenge the landowners on every tiny point. As the Federal Circuit said, the government’s behavior is “puzzling” in that it is “foregoing the opportunity to minimize the waste both of its own and plaintiffs’ litigation resources, not to mention that of scarce judicial resources,” but also by advancing arguments “so thin as to border on the frivolous.”

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