Constitution, the Law, and the Courts

February 14, 2020 4:42PM

The Supreme Court Should Continue To Defend Arbitration

One of the most important practical applications of freedom of contract in present‐​day America is arbitration, which allows parties to take disputes out of the court system by agreeing to submit to the judgment of an arbitrator. As an institution, arbitration has grown vital to the business community as a way of planning around the costs, delays, and uncertainties of courtroom litigation. At the same time, arbitration has come under intense attack from opponents.

The U.S. Supreme Court has defended arbitration through its interpretations of the Federal Arbitration Act (“FAA”), which Congress passed in 1925 in an effort to overcome judicial antagonism toward the practice. The FAA requires that courts treat arbitration agreements as favorably as they do other contracts, setting aside these agreements only “upon such grounds as exist at law or equity for the revocation of any contract.” That has led to a series of cycles of evasion in which lower courts have contrived to disallow arbitration clauses by resorting to seemingly neutral contractual principles in a manner that is practically hostile to arbitration and to the FAA. No courts have been more active in trying to bypass arbitration than those of California, which have repeatedly used ostensibly neutral state‐​law principles in a manner that failed to provide equal treatment to contracts calling for arbitration.

OTO L.L.C. v. Kho arose when an employee terminated from an auto dealership refused to abide by the arbitration agreement to which both had agreed and instead pursued his employment dispute with the California Labor Commissioner. The arbitration agreement at issue provided the parties with procedural protections similar to what they could expect in an ordinary civil trial, which amounts to more protections that they would have otherwise had in a California administrative hearing. The arbitration would have been overseen by a retired California Superior Court judge.

The California Supreme Court, in a divided opinion, disallowed the agreement. Its decision targets arbitration for special scrutiny, deeming it unconscionable for parties to contract out of the supposed “efficiency” of the dispute resolution system provided by the state’s employment bureaucracy.

The Cato Institute has filed a brief in support of the petition for Supreme Court review by OTO L.L.C. We argue that the high court should review the case and protect Americans’ freedom to contract by correcting the California courts’ continued evasion of the FAA and the Court’s own precedents.

February 13, 2020 9:50AM

Austin Asks “What’s Your Sign?” Before Violating the First Amendment

When does a local ordinance relating to commercial signage become an unconstitutional regulation of speech? That is the question before the U.S. Court of Appeals for the Fifth Circuit in Reagan National Advertising of Austin v. City of Austin—a case that, if Austin, Texas has its way, could bring a troubling course correction to existing commercial‐​speech doctrine.

Austin distinguishes “on‐​premise” from “off‐​premise” signs, prohibiting the construction of new “off‐​premise” signs—signs that advertise products or businesses located elsewhere—while at the same time allowing for new “on‐​premise” signs. The city argues that the distinction preserves the city’s aesthetic character and ensures public safety. When advertising company Reagan National (not related to the airport) applied to construct dozens of off‐​premise signs, the city denied the permit.

Reagan National sued under the First Amendment. The district court applied so‐​called intermediate scrutiny and upheld the regulation. Now, on appeal to the Fifth Circuit, Reagan National asks the court to overturn the district court and Cato filed an amicus brief in support.

At a hearing last week, the judges probed both sides’ arguments in ways that offer some clues into their thinking, suggesting they are inclined to reverse the lower court. The judges pressed Reagan National on practical workarounds to otherwise unconstitutional restrictions, including advertising off‐​premises “for a short time,” as one judge understands the ordinance, but more or less left it at that. The judges were much less forgiving in their questions to Austin. Out of the gate, they wondered aloud how regulating the words on a sign—in contrast to its color or size—can be considered anything other than content‐​based.

The court was less than receptive to Austin’s assertion that a mixed on‐​premise/​off‐​premise message—“Sally makes quilts here and sells them [there]”—would be “considered” an on‐​premise sign (and therefore permissible). In a notable exchange, one judge asked how the ordinance would treat a sign, in front of a home, that read: “Barbara and Tom love Whataburger.” The panel was were unconvinced by Austin’s counsel’s insistence that that was a non‐​commercial sign. The nature and number of borderline examples, with so much haggling over the words on a sign, speak to the ordinance’s illogic—and suggest that the target of the law is the message conveyed rather than its method of delivery.

The hearing reinforced our argument that what’s at issue here is a content‐​based restriction, the kind that the Supreme Court has said are “presumptively unconstitutional” and subject to strict judicial scrutiny. Surely, both “buy here” and “buy there” signs, identical in every way save for the physical address to which it directs potential customers, would equally affect the attention of drivers or a city’s existing beauty.

Judge Jennifer Elrod referenced Cato’s brief (31:20) to counter Austin’s claim that the ordinance does not distinguish non‐​commercial signs based on the ideas or messages they convey. She asked how Austin can square this claim with the several examples we provided to show that the city’s sign ordinance would do just that.

Moreover, even if the court doesn’t apply strict scrutiny, the city’s rationale fails the more forgiving “rational basis” standard because the city’s permit denial treated certain messages more favorably than others, while also regulating the discussion of a topic in general. Both outcomes run afoul of existing Supreme Court precedent if the government cannot show that the harms it recites—here aesthetics and public safety—are real rather than speculative. In other words, a giant rotating Colonel Sanders head will have the same effect on local safety and beauty whether it is situated directly above a KFC or not.

While a city or state can protect drivers from obnoxious signage, it must do so within constitutional bounds. If its regulation makes a distinction based on where pizza is sold, it is content‐​based. Moreover, while commercial speech is already given less constitutional protection than noncommercial speech—something that finds no constitutional justification—states and municipalities shouldn’t be given license to violate the First Amendment simply because the speaker appears to be selling something.

February 11, 2020 5:21PM

EPA’s FY 2021 Budget Sets Out to Dupe Congress (again)

The EPA’s annual budget just came out, and it’s as confusing as ever—by insidious design.

All agencies have CFO offices whose responsibility is to work with the White House to produce a budget for congressional consideration. In addition to crunching numbers, agency CFOs also provide lawmakers with two qualitative descriptions: a “budget‐​in‐​brief” and a “budget justification.” These documents are supposed to play a crucial role in Congress’s power of the purse. After all, Congress cannot be a responsible steward of public funds if lawmakers have no idea how appropriations are spent.

Maybe it’s just me, but I think these documents should be easy‐​peasy. A useful budget justification would:

  • Identify the regulatory program;
  • Identify the office or division in the agency that is executing the program;
  • Identify the statutory basis of the program (is it discretionary or is it required by statute?);
  • Identify how much is being spent on the program.

Presto! All it takes is 4 bullet points per program. With this simple template, lawmakers could easily glean enough facts to make informed choices with the nation’s pocketbook.

In practice, alas, the EPA’s budget descriptions have been far from simple. In a word, these documents have been gobbledygook.

A few years ago, I tried to make sense of the agency’s FY 2017 budget justification. I’d been following the EPA for a decade, so I felt qualified to understand the document. Yet after a few frustrating weeks, I remained bewildered by the agency’s Kafkaesque presentation.

Instead of organizing its budget justification by office or statute, the EPA employed an indecipherable matrix of conceptual goals and organizational labels. Over the course of 1,200 pages, the document described 170 of these matrix combinations, using airy prose that failed to impart even the most basic information (such as, “which office is spending the money?”).

It slowly dawned on me that the confusion was intentional. By making it impossible to “follow the money,” the agency hoped to defeat congressional oversight.

On reviewing prior budget justifications, I discovered that this obfuscation extended at least to the George W. Bush administration.

I’d not given much thought to the matter until today, on seeing a story about the EPA’s FY 2021 budget. Having had my curiosity piqued, I investigated the EPA’s current justification, hopeful that our business‐​minded president had imposed some needed discipline on agency accounting.

No dice. The FY 2021 document relies on the same incomprehensible matrix.

To be sure, there’s plenty of blame to share. Not a single member of Congress has the wherewithal to demand an EPA budget that makes sense. 

February 6, 2020 2:21PM

The Coming Battle Over Exclusive Representation

Labor unions have always had a difficult time with those who don’t want the union’s representation. Those who crossed the picket line or those who were hired during a strike were called “scabs,” and unions sometimes employed violence or threats of violence against those who didn’t follow the union’s commands. One solution to this problem was the system of exclusive representation. Under exclusive representation, which was established by the National Labor Relations Act of 1935, if a majority of workers in a bargaining unit vote for a union, then that union becomes the exclusive representative for all the workers, even those who didn’t vote for it. Thereafter, workers are prohibited from bargaining on their own behalf.

Although exclusive representation is held up by some as a cornerstone of unionism, it is an antiquated practice that has many critics among labor union supporters. Union organizers and labor activists have written that exclusive representation was “designed to fit the immobile facilities and monolithic corporations that were at the heart of Fordist mass production, the system makes little sense in today’s world of fissured workplaces and flexible production.” Moreover, after the Supreme Court’s decision in Janus v. AFSCME, public‐​sector unions are no longer allowed to compel payments from nonmembers. Yet they still exclusively represent those nonmembers and owe a “duty of fair representation” even to those who aren’t contributing. 

It was thus no surprise that, after Janus, many people thought representation would be next on the Supreme Court’s chopping block, and a new case is asking the Court to extend its ruling in Janus to exclusive representation.

Under Maine law, public employees are compelled to associate with and speak through a state‐​designated labor union for collective bargaining and other related purposes. Under these exclusive representation schemes, state‐​designated unions are recognized as public employees’ “sole and exclusive bargaining agents.” Jonathan Reisman is a professor of economics at the University of Maine at Machias, and he has left his designated union, the Associated Faculties of the University of Maine (AFUM). Professor Reisman strongly opposes the union speaking on his behalf yet is still forced to accept the union as his representative.

The Supreme Court recognized in Janus that exclusive representation inflicts a “significant impingement on associational freedoms that would not be tolerated in other contexts.” After all, exclusive representation creates an unwelcome agency relationship between the union and dissenting nonmembers. The union is essentially granted a monopoly on all work‐​related expressive association, meaning employees can’t forgo union representation or choose another representative. And exclusive representative status means that any position the union takes during collective bargaining is imputed to all the bargaining unit employees, including those who disagree with its positions. Professor Reisman opposes many positions the AFUM has taken on issues involving “wages, hours, and conditions of employment.” The AFUM, through support of the Maine Education Association has even spoken out on controversial political matters, including issuing endorsements for public office and lobbying the state on various policy issues. And because unions with exclusive representative status negotiate one‐​size‐​fits‐​all contracts for all employees, they deny employees a chance to negotiate directly with their employer to develop contracts that fit their individual situations.

The Supreme Court has long recognized that freedom of association presupposes a freedom not to associate. Yet, in the labor context, the courts have been reluctant to subject public unions to any degree of constitutional scrutiny because of states’ purported interest in promoting “labor peace.” But whatever may have been the case in the early days of the labor movement, “labor peace” can now be achieved through means significantly less restrictive of associational freedoms. Exclusive representation simply can’t be justified by any state interest, let alone a compelling one, that would validate the serious impingements it imposes on dissenting nonmembers’ associational rights. Put plainly, there is no labor law exception to the First Amendment, and labor laws that violate constitutional principles must be held to heightened judicial scrutiny.

Professor Reisman lost in the court of appeals. Now on petition to the Supreme Court, the Cato Institute has filed a brief in support of Professor Reisman’s petition, arguing that exclusive representation regimes like Maine’s are unconstitutional violations of union nonmembers’ associational and free speech rights. The Court has a chance to finally set the record straight by reaffirming associational rights in the labor context and clarify once and for all that public employees don’t leave their constitutional rights at the workplace door.

February 3, 2020 3:48PM

Cato’s Letters: 300 Years

Cato's Letters

I grabbed a book off my shelf the other day that I had not read in years. The English Libertarian Heritage is a sampling of essays written three centuries ago by John Trenchard and Thomas Gordon. The pair as “Cato” published their provocative essays on liberty in the London Journal and British Journal between 1720 and 1723, naming themselves after Cato the Younger, who defended republican Rome against Julius Caesar.

The book’s foreword says that the essays, called Cato’s Letters, would years later “exercise a profound influence on the arguments put forward by American colonists in their struggles with the British crown.” The introduction quotes an expert saying the essays were “the most popular, quotable, esteemed source of political ideas in the colonial period.”

The American Founders praised the essays, and it is not hard to see why. Letter #59 argues that “Liberty is the unalienable right of all mankind.” Letter #62 defined liberty as “the power which every man has over his own actions, and his right to enjoy the fruit of his labour, art, and industry, as far as by it he hurts not the society, or any members of it, by taking from any member, or by hindering him from enjoying what he himself enjoys.”

Cato’s Letters heaps abuse on self‐​interested government officials and their misguided policies. Centuries before public choice theory, Trenchard and Gordon described government as it actually operated rather than as the public‐​interest fairy tales that governments want people to believe. Letter #60 argues, “The experience of every age convinces us, that we must not judge of men by what they ought to do, but by what they will do; and history affords but few instances of men trusted with great power without abusing it.”

Letter #17 describes “what measures are actually taken by wicked and desperate ministers to ruin and enslave their country.” Some of those measures are “contriving and forming wicked and dangerous projects, to make the people poor, and themselves rich; well knowing that dominion follows property,” and another is “by all practicable means of oppression, provoke the people to disaffection; and then make that disaffection an argument for new oppression.”

This government strategy will sound familiar to readers of Cato Institute commentaries:

They will engage their country in ridiculous, expensive, fantastical wars, to keep the minds of men in continual hurry and agitation, and under constant fears and alarms; and, by such means, deprive them both of leisure and inclination to look into publick miscarriages. Men, on the contrary, will, instead of such inspection, be disposed to fall into all measures offered, seemingly, for their defence, and will agree to every wild demand made by those who are betraying them.

Another government strategy is to convert temporary measures into permanent expansions of power, as noted in letter #115:

It is the nature of power to be ever encroaching, and converting every extraordinary power, granted at particular times, and upon particular occasions, into an ordinary power, to be used at all times, and when there is no occasion; nor does it ever part willingly with any advantage. From this spirit it is, that occasional commissions have grown sometimes perpetual.

When they were published, Cato’s Letters provoked an uproar. The government tried strong‐​arm tactics to suppress them, but that backfired, and the essays increased in popularity. The government then switched tactics and managed to silence the authors by subsidizing the owner of the London Journal. Sadly, that insidious government strategy is engrained in U.S. policies today. The federal government’s 2,300 subsidy programs tend to silence dissent and turn otherwise independent institutions such as businesses and charitable groups into tools of the state.

Trenchard and Gordon believed England to be the freest country in Europe. With Brexit, the British today have the independence to rediscover some of the libertarian ideas that they pioneered.

For Americans, Cato’s Letters is a reminder that the fight for liberty did not begin in 1776, and also that it will never end because the thirst for power is unquenchable. Government officials “wherever they were trusted with too much power, always abused it.” Government is a “Trust, which ought to be bounded with many and strong restraints, because power renders men wanton, insolent to others, and fond of themselves.”

Officials try to convince citizens that there is “difficulty and mystery” in government affairs “far above the vulgar understandings” of average folks. But letter #38 argues that government is not as complicated as officials make it seem: “Every ploughman knows a good government from a bad one, from the effects of it: he knows whether the fruits of his labour be his own, and whether he enjoy them in peace and security.” However, the public needs to invest in “thinking and enquiry” to see through all the self‐​interested mischief.

Cato’s Letters are available online from Liberty Fund here. The Cato Institute has provided commentary on the essays here and here.

January 30, 2020 10:34AM

Graphic Designers Aren’t State Marriage Bureaus, So Shouldn’t Be Forced to Support Same‐​Sex Weddings

For over a decade, Colorado law has prohibited businesses from discriminating against individuals on the basis of sexual orientation. Several small businesses in the state are owned and operated by individuals who believe that marriage should be between a man and a woman. Although these business owners are happy to serve customers of any sexual orientation, they have declined to offer their creative services to promote or celebrate same‐​sex weddings, because they feel that doing so would convey a message that conflicts with their deeply held beliefs.

Famously, the owner of one such small business refused to create a cake for a same‐​sex wedding in 2012, a controversy that ended up in the Supreme Court. Cato filed a brief in that case supporting the baker—the only organization to do so that also filed briefs supporting the plaintiffs in Obergefell v. Hodges (2015) and the other marriage cases—and his right to refrain from conveying messages with which he disagrees.

Unfortunately, the Supreme Court’s 2018 ruling in Masterpiece Cakeshop was exceedingly narrow and failed to clarify the crucial First Amendment issue: can a state compel an artistic professional to produce something conveying a message that he disagrees with? Lacking a definitive answer to this question, cases like the baker’s have surfaced repeatedly in Colorado and other states. (Cato filed a brief in in support of wedding videographers fighting a similar Minnesota law in the U.S. Court of Appeals for the Eighth Circuit, which ultimately held that the First Amendment stopped antidiscrimination laws from being used to compel speech in this way).

Cato has now filed an amicus brief, joined by UCLA law professor Eugene Volokh, in support of another challenger to the Colorado law: web designer Lorie Smith, who creates websites and graphic designs for clients through her one‐​woman business. Lorie would like to create websites helping opposite‐​sex couples celebrate their weddings, but knows that Colorado will then force her to also create sites celebrating same‐​sex weddings, which she cannot do in good conscience. The Supreme Court has long held that the right to speak includes the right not to speak. Lorie brought this lawsuit to vindicate that right.

Just as the government can’t demand that a Cato scholar write an article supporting the government’s preferred policy, it can’t compel those in expressive professions like web and graphic design, photography, or musical performance to harness their artistic gifts in support of the state’s message. That the artists are offering their services commercially is no matter; how many rock bands play all their gigs for free?

Cato advocated that, so long as states were involved in the marriage business, they should extend marital licenses to gay couples. But private businesses aren’t the government and the messages they express aren’t government messages. The First Amendment demands that private citizens and businesses be able to maintain their freedom of speech and conscience, and we urge the Tenth Circuit to join the Eighth in saying so.

January 30, 2020 10:07AM

Cato, Buckeye File Amicus Brief in Assn. for Community Affiliated Plans v. Treasury

This week, the Cato Institute, the Buckeye Institute, and I filed an amicus curiae brief in the case Association for Community Affiliated Plans v. Treasury. The plaintiffs in the case are challenging the Trump administration’s August 2, 2018 final rule that allows greater consumer protections in short‐​term limited duration insurance (STLDI) plans. On July 19, 2019, The U.S. District Court for the District of Columbia ruled against the plaintiffs. The plaintiffs have appealed the district‐​court ruling to the U.S. Court of Appeals for the D.C. Circuit. Oral arguments will take place March 20, 2020.

Congress has exempted STLDI from the statutory requirements otherwise applicable to individual health insurance plans. Since Congress has never defined the term or duration of STLDI, the Departments of Health and Human Services, Labor, and Treasury have filled that gap. Since 1997, with limited exception, these agencies have consistently defined STLDI as having, among other things, an expiration date that is “within 12 months of the date the contract becomes effective.”

The sole exception occurred between December 30, 2016 and 2018, when the Departments limited the maximum term to less than three months. As the National Association of Insurance Commissioners warned in 2016, that cramped three‐​month limit would strip health insurance coverage from consumers after they fell ill, leaving them with a period of up to a year during which they faced expensive medical bills with no health insurance coverage.

That’s exactly what happened to 61‐​year‐​old Arizona resident Jeanne Balvin, who found Affordable Care Act (ACA) coverage unaffordable and instead purchased an STLDI plan for one third of the cost of an ACA plan. Balvin’s STLDI plan provided excellent coverage for her emergency surgery and hospitalization; she paid far less than she would have with an ACA plan. But then, the three‐​month limit cancelled her STLDI plan, thereby stripping her of coverage that could have and would have covered two subsequent hospitalizations. The three‐​month limit left Balvin uninsured with a preexisting condition and $97,000 in unpaid medical bills.

In 2018, the Departments rescinded the three‐​month limit and reverted to the prior 12‐​month limit. The Departments also allowed STLDI issuers to renew the initial contract up to a total of 36 months and to offer renewal guarantees that would allow enrollees to keep purchasing STLDI plans at healthy‐​person premiums, even after they get sick.

The plaintiffs in ACAP v. Treasury are primarily private insurance companies who sell ACA‐​compliant plans. They are asking the courts to reinstate the three‐​month limit because they fear that otherwise, their customers would find STLDI plans more attractive than their ACA‐​compliant plans. I am not making this up. They are literally asking the court to reinstate the three‐​month limit and inflict real harm on patients like Jeanne Balvin in order to pad their bottom lines.

The Cato Institute, the Buckeye Institute, and I support the district court’s proper decision that the Departments acted within the scope of their statutory authority in reinstating the 12‐​month maximum term for STLDI plans.

For more information, read: