Textualism, the Gun Control Act, and ATF’s Redefinition of “Firearm” – Stephen P. Halbrook

Posted by JLPP on Aug 27, 2024 in Per Curiam

Textualism, the Gun Control Act, and ATF’s Redefinition of “Firearm”

Stephen P. Halbrook*

The Supreme Court has granted the Attorney General’s petition for a writ of certiorari in a case concerning agency authority to adopt regulations that expand the definitions found in the Gun Control Act of 1968, 18 U.S.C. § 921 et seq. (“the GCA”).  In VanDerStok v. Garland, the Fifth Circuit decided that the regulations unlawfully expanded the reach of the GCA’s criminal provisions and exceeded the powers that Congress delegated to the Bureau of Alcohol, Tobacco, Firearms & Explosives (“the ATF”).[1] The Supreme Court will review the Fifth Circuit’s decision during its 2024 Term.

In VanDerStok, the Court is poised to expand on the statutory interpretation jurisprudence that characterized its 2023 Term. First, Loper Bright Enterprises v. Raimondo reasserted the power of the judiciary to interpret the law and abrogated the Chevron deference doctrine.[2] Second, in Garland v. Cargill, the Court undertook a meticulous analysis of the GCA’s definition of “machinegun” and held that the agency exceeded its powers by changing that definition.[3] These decisions represent a trend toward embracing the proper judicial role in statutory interpretation and away from outsourcing that role to administrative agencies.

The definition at issue in VanDerStok lies at the very heart of the GCA: what is a firearm?  Numerous crimes are predicated on whether something is a “firearm.” Under the auspices of the Department of Justice, the ATF enforces the GCA. In 2022, the ATF promulgated a Final Rule that expanded the list of items that are considered a “firearm.”[4]

The VanDerStok challenge presents two questions. [5]  First, may the statutory definition of “firearm” be expanded by regulation to include “a weapon parts kit that is designed to or may readily be completed, assembled, restored, or otherwise converted” to fire a projectile?[6]  Second, may the longstanding regulatory definition of a firearm’s “frame or receiver” be expanded by a regulation to “include a partially complete, disassembled, or nonfunctional frame or receiver” that may be readily converted into a frame or receiver?[7]

In VanDerStok, the Fifth Circuit held that the Final Rule flouted the statutory text and exceeded the agency’s authority.[8]  It found the requirement of adherence to statutory text especially heightened because “the Final Rule purports to criminalize what was previously lawful conduct,” which only Congress can do.[9]

In an earlier phase of the case, the district court vacated the Final Rule, but the Supreme Court stayed that order pending further disposition by the Fifth Circuit and disposition of a petition for a writ of certiorari.[10]  The grant of the petition leaves the stay in place.  The case is set for oral argument on October 8, 2024.

“Textualism, in its purest form, begins and ends with what the text says and fairly implies.”[11]  Loper Bright states that “every statute’s meaning is fixed at the time of enactment.”[12]  This article asks whether the GCA text authorizes the Final Rule and answers that question in the negative.

I. A Textual Analysis of “Firearm” and the ATF’s Limited Regulatory Authority Precludes the Final Rule

A. The Plain Text Defines “Firearm”

Section 921(a) of the GCA states in relevant part: “The term ‘firearm’ means (A) any weapon (including a starter gun) which will or is designed to or may readily be converted to expel a projectile by the action of an explosive; (B) the frame or receiver of any such weapon .  .  .  .”[13]  The terms “is designed” and “may readily be converted” modify “weapon,” not “frame or receiver.”

“When Congress takes the trouble to define the terms it uses, a court must respect its definitions as ‘virtually conclusive.’”[14] “When Congress includes particular language in one section of a statute and omits it from a neighbor, we normally understand that difference in language to convey a difference in meaning (expressio unius est exclusio alterius).”[15]

Until the Final Rule in 2022, except for the definition that the Court overturned in Cargill,[16] the regulations defined “firearm” and the various weapon types exactly as enacted in the GCA.[17]  And from 1968 until the Final Rule, the regulations defined “firearm frame or receiver” as the actual housing for the operating parts.[18]

B. The ATF’s New Definition of “Firearm” Expands Criminal Liability

Section 922 of the GCA provides that “[i]t shall be unlawful” to commit various acts involving “firearms.”  In punishing these crimes, § 924 refers to violations of “this chapter” or a “subsection,” or defines a crime.[19]  Neither of these sections makes violation of an administrative regulation a crime.  But the expanded definition of “firearm” in the Final Rule would expand criminal liability.

By contrast, a firearm involved in a willful violation of the GCA “or any rule or regulation promulgated thereunder” is subject to forfeiture.[20] A license to engage in the business of dealing in firearms may be granted if “the applicant has not willfully violated any of the provisions of this chapter or regulations issued thereunder,”[21] or may be revoked if the holder has “willfully violated any provision of this chapter or any rule or regulation prescribed by the Attorney General under this chapter . . . .”[22]

The GCA authorizes regulations in certain non-criminal contexts.  For instance, licensed importers and manufacturers “shall identify by means of a serial number engraved or cast on the receiver or frame of the weapon, in such manner as the Attorney General shall by regulations prescribe,” each firearm imported or manufactured.^[23]

Finally, “[t]he Attorney General may prescribe only such rules and regulations as are necessary to carry out the provisions of this chapter . . . .”[24] This is quite unlike statutes that “‘expressly delegate[]’ to an agency the authority to give meaning to a particular statutory term.”[25]

Loper Bright acknowledged that the Supreme Court had “sent mixed signals on whether Chevron applies when a statute has criminal applications.”[26] No more. As noted by one of the cases it cites, “criminal laws are for courts, not for the Government, to construe,” and that “ATF’s old position [is] no more relevant than its current one—which is to say, not relevant at all.”[27]

C. A “Weapon Parts Kit” is Not a “Firearm”

The Final Rule purports to add to the statutory definition of firearm “a weapon parts kit that is designed to or may readily be completed, assembled, restored, or otherwise converted to expel a projectile by the action of an explosive.”[28]  But the statute says an actual “weapon” is one that “is designed to or may readily be converted to expel a projectile.” [29]

The Final Rule includes no definition of “weapon parts kit.”  The commentary states that some kits “contain all of the components necessary to complete a functional weapon,” and others “include jigs, templates, and tools that allow the purchaser to complete the weapon . . . .”[30] But a statutory “firearm” is a far cry from raw material that requires fabrication to become a firearm—just as a spool of thread is a far cry from a dress.

D. “The Frame or Receiver Thereof” Refers to an Actual Frame or Receiver

Section § 921(a)(3) refers to “the frame or receiver of any such weapon.”  Adopted in 1968 and remaining in place until 2022, a regulation defined frame or receiver as “that part of a firearm which provides housing for the hammer, bolt or breechblock, and firing mechanism . . . .”[31] Loper Bright teaches that since the Founding, “respect was thought especially warranted when an Executive Branch interpretation was issued roughly contemporaneously with enactment of the statute and remained consistent over time.”[32]  That observation applies to the 1968 regulation, not the Final Rule promulgated over half a century later.

The Final Rule provides: “The terms ‘frame’ and ‘receiver’ shall include a partially complete, disassembled, or nonfunctional frame or receiver, including a frame or receiver parts kit, that is designed to or may readily be completed, assembled, restored, or otherwise converted to function as a frame or receiver.”[33]  It adds that ATF “may consider any associated templates, jigs, molds, equipment, tools, instructions, guides, or marketing materials” that are available.[34]  And it classifies a “billet or blank of a frame or receiver” sold with such items as a frame or receiver.[35]  But the statute says “frame or receiver,” not materials and information used to fabricate one.

II. The Statutory and Administrative  History  of “Firearm” and “Frame or Receiver” Undermine the Final Rule

A statutory provision must be read “in light of the history of the provision.”[36]  After analyzing the statutory text, a court may look at “the statutory history, which reinforces that textual analysis.”[37]  This part traces the statutory history of the meaning of “firearm” from the Federal Firearms Act of 1938 to the Gun Control Act of 1968, including its revision by Congress in the Firearm Owners’ Protection Act of 1986.

A. The Federal Firearms Act of 1938

The Federal Firearms Act of 1938 (“the FFA”) was the first federal law to regulate interstate and foreign commerce in firearms.[38]  It was preceded by the National Firearms Act of 1934 (“the NFA”), which taxed and required the registration of machine guns and other narrow classes of firearms.[39]  Because many of the terms of the GCA are lineal successors to those in the FFA, the statutory and administrative history of the FFA provides insights into the meaning of definitions in the GCA.

The FFA stated: “The term ‘firearm’ means any weapon, by whatever name known, which is designed to expel a projectile or projectiles by the action of an explosive . . . , or any part or parts of such weapon.”[40]  A “manufacturer” was “any person engaged in the manufacture or importation of firearms.”[41] A “dealer” was “any person engaged in the business of selling firearms,” or “of repairing such firearms or of manufacturing or fitting special barrels, stocks, trigger mechanisms, or breech mechanisms to firearms . . . .”[42]  A license was required for such businesses to transport, ship, or receive a firearm in interstate or foreign commerce.[43]

It was unlawful for a person who was convicted of a “crime of violence” to receive a firearm that had been transported in interstate or foreign commerce.[44]  It was also unlawful to transport or receive “any firearm from which the manufacturer’s serial number has been removed, obliterated, or altered . . . .”[45]  However, manufacturers were not required to place serial numbers on firearms.  (By contrast, the NFA required manufacturers and importers to identify restricted firearms like machine guns with a number.[46])

It was a crime to violate “this Act or any rules and regulations promulgated hereunder .  .  .  .”[47]  Further, the act provided that “[t]he Secretary of the Treasury may prescribe such rules and regulations as he deems necessary to carry out the provisions of this Act.”[48]

B. The Regulatory Interpretation of “Firearm” and “Parts”

The first FFA regulations, promulgated by the Internal Revenue Service (the “IRS”) in 1939, required manufacturers to record firearms disposed of, “including the serial numbers if such weapons are numbered . . . .”[49]  Dealers were required to record firearms they acquired or disposed of.[50]  Subsequent regulations required manufacturers and dealers to record “firearms in an unassembled condition,” but “not including parts of firearms.”[51]  A complete firearm did not lose its character as such by being unassembled.

In 1955, the IRS issued a revenue ruling holding that “a barrel[ed] action comprised of the barrel . . . ; front and rear stock bands; receiver with complete bolt, trigger action, magazine, etc., is a weapon, complete except for the stock, which is capable of expelling a projectile or projectiles by the action of an explosive.”[52]  These words foretold the regulatory definition of a “firearm frame or receiver” adopted in 1968.

Judicial decisions about the FFA largely arose out of criminal cases, only one of which concerned the “part or parts” definition.[53]  The defendant there had a conviction that prohibited him from shipping firearm parts.[54]  Some parts were “Browning automatic rifle magazines”; since “such weapons could not be fired automatically without the magazines, . . . they were within the broad reach of the Act as ‘parts’ of a weapon . . . .”[55]  There were also “firearm parts contained in 1,651 machine guns,” which were “serviceable parts, thus bringing them within the scope of the Act.”[56]  Only useable parts counted.

C. The Requirement of Firearm Serial Numbers Did Not Begin until 1958

From the Founding until 1958, no federal requirement existed that a firearm (other than an NFA firearm) be marked with a serial number.  In 1958, the IRS adopted a regulation requiring manufacturers and importers to “identify [firearms] by stamping . . . the name of the manufacturer or importer, and the serial number, caliber, and model of the firearm . . . . However, individual serial numbers and model designation shall not be required on any shotgun or .22 caliber rifle . . . .”[57]

The commentary to the Final Rule uses the politically charged term “ghost guns” 52 times.[58]  Policy arguments about “ghost guns” ignore that all firearms were originally “ghost guns” in that serial numbers were not required on any firearms until the mid-20^th century, and even then that requirement applied only to licensed manufacturers and importers.  To date, Congress has never required hobbyists and other non-licensees to serialize the firearms that they make.

D. In the Gun Control Act of 1968, Congress Removed “Parts” from Regulation and Rejected Violation of a Regulation as an Offense

In 1963, a bill was drafted to amend the FFA with the following definition: “The term ‘firearm’ means any weapon . . .  which will, or is designed to, expel a projectile or projectiles by the action of an explosive, the frame or receiver of any such weapon . . . .”[59]  The Department of the Treasury opined:

The present definition includes any “part” of a weapon within the term.  It has been found that it is impracticable, if not impossible, to treat all parts of a firearm as if they were a weapon capable of firing.  This is particularly true with respect to recordkeeping provisions since small parts are not easily identified by a serial number.  Accordingly, there are no objections to modifying the definition so that all parts, other than frames and receivers, are eliminated.[60]

In 1966, a bill added the phrase “which may be readily converted to” expel a projectile,[61] explaining that it would “include specifically any starter gun designed for use with blank ammunition which will or which may be readily converted to expel a projectile . . . .”[62]  Another bill inserted “any weapon (including a starter gun)” into the definition.[63]

By 1968, the definition of “firearm” was settled.  A U.S. Senate report explained: “Under the present definition of ‘firearm,’ any part or parts of such a weapon are included.  It has been found that it is impractical to have controls over each small part of a firearm.  Thus, the revised definition substitutes only the major parts of the firearm; that is, frame or receiver for the words ‘any part or parts.’”[64]

Bills that morphed into the Gun Control Act originally followed the FFA in making it a crime to violate an administrative regulation as well as the Act itself.  As reported out of committee in 1968, Senate Bill 917 punished violation of “any provision of this chapter or any rule or regulation promulgated thereunder,” and authorized the Secretary to “prescribe such rules and regulations as he deems reasonably necessary . . . .”^[65]

In debate, Senator Robert P. Griffin (R., Mich.) objected that “we should not delegate our legislative power . . . in the area of criminal law,” and that due process required that “we should spell out in the law what is a crime.”^[66]  Senator Howard Baker (R., Tenn.) rejected “plac[ing] in the hands of an executive branch administrative official the authority to fashion and shape a criminal offense to his own personal liking . . . .”^[67]  The bill was then amended to delete the provision making it an offense to violate “any rule or regulation promulgated thereunder.”[68]

The Omnibus Crime Control and Safe Streets Act of 1968 repealed the Federal Firearms Act and punished “[w]hoever violates any provision of this chapter,” with no reference to regulations.[69]  Before it became effective, that act was superseded by the Gun Control Act of 1968, which enacted the same penalty clause.^[70]

Under the GCA, all offenses were defined in terms of violations of “this chapter.”[71]  The term “firearm” had the same definition then as it has today.[72]  Congress declared its intent not “to place any undue or unnecessary Federal restrictions or burdens on law-abiding citizens with respect to the acquisition, possession, or use of firearms,” or “to discourage or eliminate the private ownership or use of firearms by law-abiding citizens for lawful purposes . . . .”[73]

E. The Regulatory Definition of “Frame or Receiver” Adopted in 1968 Reflected Common Usage of These Terms

In 1968, the Treasury Department adopted regulations under the GCA that included the following definition: “Firearm frame or receiver. That part of a firearm which provides housing for the hammer, bolt or breechblock, and firing mechanism, and which is usually threaded at its forward portion to receive the barrel.”[74]  Being “that part” that “provides housing” in the present tense excludes unfinished material that cannot provide such housing.

That definition reflected the common understanding of a “frame or receiver.” The Small Arms Lexicon published in 1968 defined “frame” as “the basic structure and principal component of a firearm.”^[75]  “Receiver” was defined as “the part of the gun that takes the charge from the magazine and holds it until it is seated in the breech.”[76]  It is “[s]pecifically, the metal part of a gun that houses the breech action and firing mechanism . . . .”^[77]  The Lexicon also defined each of the other parts mentioned in the regulation, such as defining “firing mechanism” as “those parts of a gun that cooperate to cause the propelling charge to fire.”^[78]

Under both the regulation and the Lexicon, a frame or receiver was the actual, serviceable housing of the firearm for the operating parts, to which the barrel and stock attached.

F. The Firearm Owner’s Protection Act of 1986 Reduced the ATF’s Regulatory Power and Left the Definitions Untouched

The Firearm Owners’ Protection Act of 1986 (the “FOPA”) reaffirmed the Second Amendment right to keep and bear arms and found it necessary “to correct existing firearms statutes and enforcement policies.”[79]  It provided that “[t]he Secretary may prescribe “only such rules and regulations as are necessary to carry out the provisions of this chapter” (chapter 44 of title 18), deleting his power to “prescribe such rules and regulations as he deems reasonably necessary . . . .”[80]

In enacting the FOPA, Congress did not disturb the definition of “firearm” or modify ATF’s definition of a frame or receiver adopted in 1968.[81]  A letter from the Department of the Treasury stated: “Existing law regulates the principal part of a firearm, i.e., the frame or receiver, and we believe this is adequate.”[82]

Further amendments to the GCA were enacted in 1993,[83] 1994,[84] and 2022[85] without touching the definition of “firearm” or questioning ATF’s long-standing definition of “frame or receiver.”  “[O]nce an agency’s statutory construction has been ‘fully brought to the attention of the public and the Congress,’ and the latter has not sought to alter that interpretation although it has amended the statute in other respects, then presumably the legislative intent has been correctly discerned.”[86]

Conclusion

The Federal Firearms Act of 1938 defined a firearm as a weapon that is designed to expel a projectile or as a part or parts thereof.  The Gun Control Act of 1968 added a weapon that may be readily converted to do so and changed “part or parts” to only a frame or receiver.  Nothing in the statutory text or statutory history suggests that “firearm” includes a “weapon parts kit” that requires fabrication, rather than mere assembly, to become a weapon, or that “frame or receiver” includes material requiring fabrication to provide housing for the internal parts.

It remains to be seen how the Court will resolve Garland v. VanDerStok, and it is hazardous to predict the outcome of any case.  But the Court’s recent focus on statutory textualism and rejection of the Chevron deference rule do not bode well for the Final Rule.

* Georgetown University, J.D.; Florida State University, Ph.D. in Philosophy.  Argued and won U.S. v. Thompson/Center Arms, 504 U.S. 505 (1992) (National Firearms Act) and other firearm cases in the Supreme Court.  Latest books include Firearms Law Deskbook and America’s Rifle: The Case for the AR-15.  Senior Fellow, The Independent Institute.  See https://stephenhalbrook.com/. Copyright © Stephen P. Halbrook 2024.

[2] 144 S. Ct. 2244, 2263 (2024).

[3] 602 U.S. 406 (2024).

[4] See 87 Fed. Reg. 24,652 (Apr. 26, 2022) (codified in relevant part at 27 C.F.R. § 478.11, 478.12(c)).

[5] See Petition for Writ of Certiorari, Garland v. VanDerStok, No. 23-852, 2024 WL 515619, at *1 (U.S. Feb. 2024).

[6] 27 C.F.R. § 478.11.

[7] 27 C.F.R. § 478.12(c).

[8] VanDerStok, 86 F.4th at 182.

[9] Id. at 195–96 & n.26.

[10] Garland v. VanDerStok, 144 S. Ct. 44 (2023).  Four Justices would have denied the application for stay.

[11] Antonin Scalia & Bryan A. Garner, Reading Law 16 (2012).

[12] Loper Bright, 144 S. Ct. at 2266 (internal citation omitted).

[13] 18 U.S.C. § 921(a)(3).

[14] Dep’t. of Agriculture Rural Dev. Rural Housing Service v. Kirtz, 601 U.S. 42, 59 (2024) (citation omitted).

[15] Bittner v. United States, 598 U.S. 85, 94 (2023).

[16] See Garland v. Cargill, 602 U.S. 406, 413, 415 (2024) (noting that the ATF’s “earlier regulations simply restated § 5845(b)’s statutory definition” and holding that the ATF “exceeded its statutory authority” by issuing a regulation that classified bump stocks as machineguns.).

[17] See Final Rule, 33 Fed. Reg. 18555, 18557–59 (Dec. 14, 1968).

[18] Id. at 18558.

[19] 18 U.S.C. § 924.

[20] Id. § 924(d)(1).

[21] Id. § 923(d)(1)(C).

[22] Id. § 923(e).

[23] Id. § 923(i).

[24] Id. § 926(a) (emphasis added).

[25] Loper Bright, 144 S. Ct. at 2263 (citation omitted).

[26] Id. at 2269.

[27] Abramski v. United States, 573 U.S. 169, 191 (2014).

[28] 27 C.F.R. § 478.11.

[29] 18 U.S.C. § 921(a)(3).

[30] 87 Fed. Reg., supra note 4, at 24662 & n.44.

[31] 33 Fed. Reg., supra note 17, at 18,558 (emphasis added).

[32] Loper Bright, 144 S. Ct. at 2258.

[33] 27 C.F.R. § 478.12(c).

[34] Id.

[35] Id. (examples 1­–3).

[36] Fischer v. United States, 144 S. Ct. 2176, 2186 (2024).

[37] Snyder v. United States, 144 S. Ct. 1947, 1955 (2024).

[38] Pub. L. No. 75-785, ch. 850, 52 Stat. 1250 (Jun. 30, 1938) (repealed 1968).

[39] Pub. L. No. 474, 48 Stat. 1236 (Jun. 26, 1934).

[40] 15 U.S.C. § 901(3); 52 Stat. at 1250.

[41] 15 U.S.C. § 901(4).

[42] Id. § 901(5).

[43] Id. § 902(a).

[44] Id. § 902(f).

[45] Id. § 902(i).

[46] 48 Stat. at 1329.

[47] 15 U.S.C. § 905.

[48] Id. § 907.

[49] 26 C.F.R. § 315.10(a)(1), I.R.S. Treasury Decision 4898, 1939-1 C.B. 364, 1939 WL 74413.

[50] Id. § 315.10(b).

[51] 26 C.F.R. § 315.10(a), Final Rule, 13 Fed. Reg. 4383, 4386 (1948) (manufacturers); 26 C.F.R. § 315.10(b), Final Rule, 14 Fed. Reg. 7389 (1949) (dealers).

[52] Rev. Rul. 55-175, 1955-1 C.B. 562, 1955 WL 10177.

[53] See United States v. Lauchli, 371 F.2d 303, 313 (7th Cir. 1966).

[54] See id. In 1961, the FFA had been amended to delete “crime of violence” and to insert “crime punishable for imprisonment for a term exceeding one year.”  Pub. L. No. 87-342, 75 Stat. 757 (1961).

[55] Lauchli, 371 F.2d at 313–14.

[56] Id. at 314.

[57] 26 C.F.R. § 177.50; Final Rule, 23 Fed. Reg. 343 (Jan. 18, 1958).

[58] 87 Fed. Reg. 24,652 (Apr. 26, 2022).

[59] Juvenile Delinquency: Hearings Before the Subcom. to Investigate Juvenile Delinquency, Sen. Jud. Com., 88^th Cong., 1^st Sess., 3412 (1963).

[60] Id. (emphasis added).

[61] S. Rep. No. 1866, at 24 (1966).

[62] Id. at 14.

[63] Id. at 43.

[64] S. Rep. No. 90-1097, at 110 (1968) (emphasis added).

[65] S. Rep. No. 1097, at 23–24 (1968).

[66] 114 Cong. Rec. 14792 (May 23, 1968).

[67] Id.

[68] Id. at 14793.

[69] Pub. L. No. 90-351, 82 Stat. 225, 233 (penalties), 234 (FFA repeal) (1968).

[70] Pub. L. No. 90-618, 82 Stat. 1213, 1226 (1968).

[71] Id. at 1223–24.

[72] Id. at 1214.

[73] Id. at 1213–14.

[74] Final Rule, 33 Fed. Reg. 18555, 18558 (Dec. 14, 1968).

[75] Chester Mueller & John Olson, Small Arms Lexicon 87 (1968).

[76] Id. at 168.

[77] Id.

[78] Id. at 82.

[79] Firearm Owners’ Protection Act, § 1(a), Pub. L. 99–308, 100 Stat. 449 (May 19, 1986).

[80] Id. § 106 (emphasis added).

[81] Final Rule, 33 Fed. Reg. 18555, 18558 (Dec. 14, 1968).

[82] 131 Cong. Rec. S9101-05, 1985 WL 714011, *125 (July 9, 1985) (letter inserted by Senator Hatch).

[83] Brady Handgun Violence Prevention Act, Pub. L. No. 103-159, 107 Stat. 1536 (1993).

[84] Public Safety & Recreational Firearms Use Protection Act, Pub. L. No. 103-322, 108 Stat. 1796 (1994).

[85] Bipartisan Safer Communities Act, Pub. L. No. 117-159, 136 Stat. 1327 (2022).

[86] United States v. Rutherford, 442 U.S. 544, 554 n.10 (1979) (citation omitted).

Problems with Rulemaking by District Court Enforcement Action: the SEC’s Improper Cryptocurrency Regulation – Eric Wessan & Phil Pillari

Posted by JLPP on Aug 8, 2024 in Per Curiam

Problems with Rulemaking by District Court Enforcement Action: the SEC’s Improper Cryptocurrency Regulation

Eric Wessan and Phil Pillari*

Introduction

Cryptocurrencies have become a vibrant part of the global economy. Unsurprisingly, the United States is the global leader in developing and advancing cryptocurrency and blockchain technology. But as with any new technology, the rise and prominence of cryptocurrencies create both opportunities and challenges. Some of those challenges are regulatory in nature. As States, the federal government, and even many in the cryptocurrency industry agree, some regulations to ensure safety and protect consumers are necessary.

Yet an increasingly important question is: Who should be regulating? States or Congress could assign roles to various actors in our federalist system to ensure safe continued use of cryptocurrencies. Instead, the SEC has decided, without Congressional authorization, that regulating cryptocurrencies is its job—and has decided to take on that new role without following the Administrative Procedure Act.

Rather than going through notice-and-comment rulemaking, the SEC has taken a new approach—rulemaking by district court enforcement action. Through that process, the SEC seeks to set judicial precedent adopting its view so that it could create new law without facing the normal adversarial testing that would come through traditional notice-and-comment rulemaking. In so doing, the SEC has saddled many tech startups with prohibitively expensive lawsuits and then forced them to bite their tongues through neither-admit-nor-deny consent decrees that make it impossible for the target of the action to defend itself after the fact.

For example, in Securities and Exchange Commission v. SafeMoon LLC,[1] the SEC went after SafeMoon, a cryptocurrency token not connected with any business. The SEC never alleges that SafeMoon’s token was a stock by another name—it repeatedly uses the term “token,” and its only allegation for why the token satisfies Howey is that SafeMoon investors “shared equally in price increases[] or together suffered price decreases.”[2] Adopting that standard for defining an investment contract would give the SEC the right to regulate virtually any commodity that changes value.

This is not a one-off for the SEC. The SEC website lists the dozens of enforcement actions the agency has brought against cryptocurrency sellers without tying the cryptocurrency tokens to shares in a business.[3] Perhaps the SEC’s vigor in choosing to regulate cryptocurrencies without following the APA’s requirements makes sense: the SEC is acting far outside its assigned regulatory role. Any move toward rulemaking would draw scrutiny for the SEC’s attempted ultra vires expansion. And especially with the Supreme Court’s renewed skepticism of free-ranging federal agencies acting beyond their statutory authority,[4] the SEC may realize that such rulemaking would be short-lived—assuming it survived a pre-enforcement challenge at all.

The challenges that have risen along with cryptocurrencies’ surge in popularity are varied and complex. But almost every interested party—save the SEC itself—agrees that the SEC has no business treating cryptocurrencies as investment contracts under the Securities Act.[5]

Compounding its problems, the SEC’s conduct—rulemaking by district court enforcement action—flouts the APA. Even the SEC has long acknowledged that cryptocurrencies are not investment contracts subject to their oversight. But rather than explain why it changed its mind, the agency has ignored the basic requirements of reasoned decision-making for its arbitrary and capricious campaign of scorched earth litigation.[6]

The SEC’s actions do not adequately consider their consequences—potential preemption of State consumer protection laws leaving citizens without defense from predatory scammers. The SEC is not shy about claiming preemptive effect of its regulations—nor will those who States seek to pursue be shy in contending that States no longer have a proper role in a field occupied by the SEC.

The federal courts should stop the SEC’s egregious regulatory overreach and hold that garden variety cryptocurrencies are not investment contracts under the Securities Act of 1934. In Part I, we discuss the basics of cryptocurrencies. In Part II, we make two overarching arguments. The first (in Section II.A) is that the major questions doctrine and federalism canons require a clear statement because the SEC is entering a domain it has never regulated before and because the SEC is asserting authority over a large swath of the American economy. The second (in Section II.B) is that ordinary cryptocurrencies are not investment contracts under Howey. Not only are ordinary cryptocurrencies not contracts (much less investment contracts), but they do not satisfy any of the three prongs of the traditional Howey test. In Part III, we provide concluding remarks.

I. Background

A. A Primer on cryptocurrency

Cryptocurrencies started to become popular “in 2008, . . . with the deployment of Bitcoin and the blockchain ledger.”[7] “Cryptocurrency is any form of currency that only exists digitally.”[8] Cryptocurrencies usually do not have a “central issuing system or regulating authority.”[9] Instead, they rely on decentralized systems called “blockchains” that maintain records of the transactions and provide the code that underlies each cryptocurrency.[10]

“A blockchain is a digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network.”[11] “A cryptocurrency coin [(or token)] is a coin built on its native blockchain.”[12] Coins can either be “fungible, meaning” the tokens are all identical and can be exchanged for each other, “or non-fungible, meaning each token is unique and carries a different value.”[13]

“Bitcoin was created to eliminate the need for a central monetary authority to monitor, verify and approve transactions”; it does this by using a network on which people can mine Bitcoin “using software to solve mathematical puzzles.”[14] Cryptocurrencies are popular with scammers and other criminals because they can be difficult to track.[15] And the recent FTX scandal should teach observers that the SEC oversight may not prevent certain fraudulent cryptocurrencies from defrauding less informed investors.

B. The Major Questions Doctrine

When an agency asserts newly found authority to regulate areas of broad “economic and political significance,” courts should “hesitate before concluding that Congress meant to confer such authority.”[16] The major questions doctrine requires Congress to “speak clearly when authorizing an agency to exercise powers of vast economic and political significance.”[17] After all, “[e]xtraordinary grants of regulatory authority are rarely accomplished through modest words, vague terms, or subtle devices.”[18]

Major questions cases tend to have several characteristics in common. First, major questions cases involve agencies asserting authority over large swaths of the American population or economy.[19] Second, major questions cases tend to involve agencies trying to assert power in areas outside their expertise and that they had never previously regulated.[20] Third, major questions cases tend to involve an agency settling a national debate through its rulemaking authority.[21]

II. Cryptocurrencies are not investment contracts.

Courts should find that cryptocurrencies are not investment contracts subject to the SEC regulation under the Securities Act for two fundamental reasons. First, the SEC’s attempted arrogation of authority is a major question and violates the federalism canon. The SEC does not have clear congressional authorization to treat cryptocurrencies like investment contracts. Second, ordinary cryptocurrencies do not satisfy Howey’s test. Although there are some investment vehicles that satisfy Howey and are labeled cryptocurrencies, that is because those so-called cryptocurrencies are investment contracts by a different name. The label should not matter in determining whether a financial instrument is an investment contract under the Securities Act.

A. The Major Questions Doctrine and federalism canon foreclose the SEC’s ability to regulate cryptocurrencies.

1. The SEC regulating cryptocurrencies raises the major questions doctrine.

The SEC’s decision to regulate cryptocurrencies has all the hallmarks of a major questions case. First, the SEC is trying to regulate massive portions of the economy. The cryptocurrency industry is worth “more than a trillion dollars,” and “its daily trading volume is in the tens of billions of dollars.”[22] There are more than $450 billion in Bitcoin in circulation alone.[23] The industry has created “hundreds of thousands of new jobs,” and cryptocurrencies have the potential to take the economy to places it has never been before.[24] Second, the SEC has never asserted authority over cryptocurrencies. Even though cryptocurrencies have been around for much of two decades,[25] the SEC did not start taking enforcement actions against cryptocurrency exchanges until 2022.[26] Third, the SEC is trying to stop a debate that has raged in the law reviews for years over what Congress can or should do to regulate cryptocurrencies. But Congress has the responsibility to assert its authority to control the money supply in interstate commerce.[27] And Congress has never tasked the SEC with doing so through rulemaking by district court enforcement action.

Because this case is a quintessential major questions case, the SEC must demonstrate it has a clear congressional authorization to regulate cryptocurrencies.

2. The SEC’s attempted regulation implicates the federalism canon.

The SEC’s attempt to regulate cryptocurrencies “would upset the usual constitutional balance of federal and state powers,” so “federal courts [must] be certain of Congress’ intent before finding that federal law overrides this balance.”[28]

Consumer protection is uniquely the States’ domain. Garden variety fraud is a state law cause of action.[29] Meanwhile, States have enacted a bevy of laws that bar unfair or unconscionable trade practices.[30] But federal securities law preempts state consumer protection law in many instances.[31] Bad faith actors will almost assuredly argue that the SEC’s treatment of cryptocurrency scams precludes any state-level enforcement actions against them. So, the SEC’s foray into consumer protection threatens to tear down States’ delicately balanced statutory schemes and common law causes of action. And it risks not only upsetting any given State’s approach to regulation but also preempting those regulations.

Because the SEC is trying to intrude on an area of the law that is uniquely within the purview of the States, it must point to “unmistakably clear” language authorizing it to do so.[32] And it cannot.

3. No statute clearly authorizes the SEC to regulate the sale of cryptocurrencies.

No one contests that the SEC has general authority to prosecute people for engaging in securities fraud.[33] But general language is not enough to overcome a clear statement rule. For example, the Supreme Court in Atascadero refused to hold California waived its sovereign immunity, even though the California Constitution gave its citizens the general right to sue the State.[34] And the Court in Gregory refused to strike down Missouri’s age limits for judges, even though the law banning age discrimination applied to the States.[35]

What is more, clear statement rules like the major questions doctrine and the federalism canon prevent Congress from “hid[ing] elephants in mouseholes.”[36] Here, the Securities Act’s definition of a “security” is long and includes several dozen different types of investment vehicles.[37] The word “investment contract” is buried in the middle of that lengthy definition.^[38] To read the Securities Act and find that Congress allowed the SEC to regulate cryptocurrencies as investment contracts would be finding a mammoth in that mousehole. And the SEC recognizes that, which is why it has proceeded on this ad hoc basis of seriatim enforcement actions rather than through rulemaking that would exceed its authority.

B. Precedent forecloses the SEC’s position.

Applying longstanding precedent to the Securities Act shows that cryptocurrencies are not investment contracts. The Supreme Court has explained that investment contracts must be a contract “whereby [(1)] a person invests his money in [(2)] a common enterprise” (3) through which the investor would “expect profits solely from the efforts of the promoter or a third party.”^[39] A financial instrument meets Howey’s first prong only if the investor can make “a voluntary investment choice.”^[40] A financial instrument meets Howey’s second prong only if “the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties.”^[41] And a financial instrument meets Howey’s third prong only if someone other than the investor has “managerial” control that could “affect the failure or success of the enterprise.”^[42]

If cryptocurrencies look like a strange fit for the Supreme Court’s definition of an investment contract, it is because they are. When the average person thinks of investing in an “enterprise” they think of investing in a business. That is why the Ninth Circuit held speculating in gold futures did not create an investment contract—investing in a product involves reliance on the price of the underlying product, not someone’s business acumen.^[43] So too with cryptocurrencies; the value of a cryptocurrency has nothing to do with the success of a business and everything to do with the price of the underlying token. Since the investor is not investing in a business, it would be weird to hold that speculating in cryptocurrencies creates an investment contract within the SEC’s jurisdiction.

1. Cryptocurrency trading does not involve contracts under Howey.

Howey’s test is often described as having three-prongs but there is also a fourth prong that the SEC’s approach violates—that is, that the financial instrument be a contract.[44] As one commentator has explained, “speculat[ing] on a global market” will not involve investment contracts “without any post-sale obligations undertaken by the seller.”[45] In other words, the “meeting of the minds” that forms the backbone of American contract law, never happens when someone speculates in cryptocurrencies.[46]

And that makes sense. Calling a stock a contract (and, by extension, an investment contract) is reasonable because there is a meeting of the minds. For example, an investor could pay Apple at an IPO in return for a share of stock representing a piece of the company’s ownership. That investor understands Apple has a duty to maximize its value to its investors. But that agreement does not exist for cryptocurrencies. There is no one to call at Bitcoin Headquarters who can allow you to buy shares of Bitcoin in exchange for Bitcoin, Inc. maximizing shareholder value. Treating a Bitcoin like a share of Apple stock is a category error. Without an underlying agreement between the purchaser and the seller there is no meeting of the minds—the fundamental requirement of a contract. That alone precludes calling cryptocurrencies investment contracts.

2. Normal cryptocurrencies fail under Howey, even assuming they involve a contract.

The preliminary problems take cryptocurrencies outside of Howey’s reach. But even if they did not, cryptocurrencies do not satisfy Howey.

First, there is no investment under Howey. “[T]here are many reasons one would buy Bitcoin or Ethereum not as an investment; the common one being to transact anonymously.”[47] If the person buying the cryptocurrency does so to use it as currency, they are not investing. By way of analogy, although someone might buy Euros because they hope they will increase in value, another person might buy Euros to buy goods on a trip to Europe. That is not investing in Euros. So too here. The person buying cryptocurrency is not investing their money because the goal is to use the cryptocurrency to make purchases, not wait for it to increase in value.

Second, there is not necessarily a common enterprise when someone buys cryptocurrency. A cryptocurrency buyer’s fortunes are not interwoven with an entity seeking an investment—nobody is seeking an investment. Bitcoin is a currency that is designed to serve as a store of value and a way to make purchases. In that way Bitcoin is like other currencies, from the Swiss Franc to the British Pound Sterling. Just as those currencies are not businesses seeking an investment, many cryptocurrencies are not businesses seeking an investment, either.

That makes sense given the reasons cryptocurrencies’ value fluctuates. With most investments, the success of the business determines the value of a given security—the value will increase during the good times and decrease during the bad times.[48] But a cryptocurrency is not a business, so it does not increase or decrease in value based on whether the business is doing well or poorly. Instead, the value of a given cryptocurrency is simply whatever the next person in line is willing to pay for it. Put differently, someone investing in a business is betting on the company doing well. Someone “investing” in a cryptocurrency is betting on the willingness of other people to bet on the success of the cryptocurrency. As a result, the fortunes of the investor are not interwoven with or dependent upon the fortunes of the person seeking the investment.

The SEC has argued that “the promoter[]” of the cryptocurrency can serve as the person seeking the investment for Howey’s second prong,[49] but that proves too much. For context, celebrities and social media influencers will promote a cryptocurrency the same way they might endorse a pair of headphones. But if that were sufficient to meet Howey’s second prong, then any investment advisor who recommends a specific investment would be enough, too.

Congress did not want to turn a financial instrument into an investment contract simply because someone recommended that the investor buy it. What is more, it is unclear how the influencer’s success is interwoven with the investor’s success. The influencer would (ostensibly) either receive a flat fee or a commission for the endorsement deal, while the investor’s profit would fluctuate with the value of the cryptocurrency. Because the influencer’s profits do not change with the investor’s, their success is not interwoven with the investor’s success under Howey.

Indeed, the case the SEC mainly relies on shows why that argument must fail. In Securities and Exchange Commission v. International Loan Network, Inc., a group of people was found to have illegally sold unregistered securities.[50] But the unregistered security there was shares in a business, and the promoters of that business were the owners of that business. Rather than being a third-party influencer, the people seeking the investment were the ones who stood to profit off the investment.

Third, the profits do not come solely through the acts of a third party. There is no business, so for many cryptocurrencies no one exercises managerial control over the cryptocurrency.[51] In those cases, the token’s seller and buyer set the price, even if those cryptocurrencies have a management structure. After all, buying a cryptocurrency is often a bet that other people will be willing to buy that currency later. And a cryptocurrency purchaser can influence whether people are willing to buy his tokens later by changing the price at which he is willing to sell the token. But those pricing decisions are made by the cryptocurrency owners, not a business management team.

C. Cases finding cryptocurrencies to be investment contracts are unpersuasive.

The District of Connecticut found that the cryptocurrency Paycoin was an investment contract, but that is because Paycoin was a stock.[52] The token represented shares in the defendant company.[53] And no one disputes that a stock is an investment contract under Howey. That is also why the Southern District of New York’s reasoning in Terraform Labs and Kik Interactive is unhelpful—in both cases, a company was selling stocks by a different name.[54] A company cannot avoid the SEC regulation through clever attempts at labeling.

That distinction sounds technical, but it matters. The tokens at issue in those cases were all investments in a company. The fluctuations in the tokens’ values were really fluctuations in the companies’ values. That differs from the ordinary cryptocurrency. In those circumstances, the SEC is not trying to regulate the purchase and sale of traditional stocks or shares in a company. Rather, the SEC is trying to regulate cryptocurrencies generally, not tokens connected to the value of the company that issued the cryptocurrencies.

To be clear, the SEC is not powerless when someone uses the words “cryptocurrency” or “blockchain” to try to launder what would otherwise be an investment contract into a cryptocurrency. Howey “is to be applied in light of ‘the substance—the economic realities of the transaction—rather than the names that may have been employed by the parties.’”[55] So, the SEC’s authority does not extend to all “cryptocurrencies”—it only applies to tokens that also meet the traditional definition of investment contracts.

Indeed, the nuance in this discussion highlights why the SEC’s position is such a gross overreach. Like the Covid pandemic, the challenges of cryptocurrencies require “a delicate exercise of” regulatory power.[56] But “rather than a delicately handled scalpel, the [the SEC’s position] is a one-size-fits-all sledgehammer that makes hardly any attempt to account for differences in” the financial instruments it is trying to regulate.[57]

Conclusion

The SEC’s decision to engage in a scorched earth campaign of rulemaking by district court enforcement action on cryptocurrencies is a decision without a basis in law. And the repercussions are most likely to be felt by States—States that do not appreciate intrusions on their sovereign police powers. Even worse, many of those effects are likely both unforeseen by the SEC and quite foreseeable—had the SEC chosen the more appropriate path of explaining itself through rulemaking. Beyond the effect on States, the SEC’s unexplained arrogation of authority risks stepping far beyond the bounds that Congress authorized. And so, the SEC should tread carefully. An aggressive regime of enforcement may spur the Courts to assess the SEC’s actions under the many tools at their disposal to curtail instances of federal overreach.

* Eric Wessan is the Solicitor General of Iowa. He received his Bachelor’s Degree and J.D. from the University of Chicago. Phil Pillari is a J.D. candidate at Northwestern University, and he received his Bachelor’s Degree from Ramapo College of New Jersey. The views expressed in this article are those of the authors alone and not those of any employer or government agency.

[1] 1:23-cv-08138 (E.D.N.Y.).

[2] Compl. ¶ 43, SEC v. SafeMoon LLC, 1:23-cv-08138 (E.D.N.Y. Nov. 1, 2023).

[3] SEC, Crypto Assets and Cyber Enforcement Actions, https://perma.cc/5SGL-TF3Y; see also In re Wines, SEC No. 3-21682 (2023) (involving cryptocurrency token that was functionally equivalent to fiat currency); SEC v. DeSalvo, 2:23-cv-08092 (D.N.J.).

[4] See, e.g., Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244, 2262 (2024) (holding that courts must “exercise independent judgment on questions of law”).

[5] See, e.g., CFTC, The CFTC’s Role in Monitoring Virtual Currencies (last accessed on July 25, 2024), available at https://www.cftc.gov/digitalassets/index.htm; Jacob Bogage, House votes to make CFTC main crypto regulator, a win for the industry, Washington Post (May 22, 2024); Eleanor Terrett, Coinbase sues SEC, FDIC for information relating to crypto regulation, FoxBusiness (June 27, 2024).

[6] Cf. Grayscale Investments, LLC v. SEC, 82 F.4th 1239, 1249 (D.C. Cir. 2023) (finding arbitrary and capricious differential treatment of similar cryptocurrency products).

[7] Paul Andersen, Note and Comment, Will the FTX Collapse Finally Force U.S. Policymakers to Wake Up?: Regulatory Solutions for Cryptocurrency Tokens Not Classified As Securities Under the Supreme Court’s Howey Analysis, 18 J. Bus. & Tech. L. 251, 257 (2023).

[8] Id. (quotation marks omitted).

[9] Id. (footnotes omitted).

[10] Id. at 257–58 (footnote omitted).

[11] Id. at 258 (quotation marks omitted).

[12] Id.

[13] Id. (footnotes omitted).

[14] Brett Hemenway Falk & Sarah Hammer, A Comprehensive Approach to Crypto Regulation, 25 U. Pa. J. Bus. L. 415, 419 (2023).

[15] See Chelsea Pieroni, La Crypto Nostra: How Organized Crime Thrives in the Era of Cryptocurrency, 20 N.C.J.L. & Tech. Online 111, 133–34 (2018).

[16] West Virginia v. EPA, 597 U.S. 697, 721 (2022) (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159–60 (2000)) (quotation marks omitted).

[17] Ala. Ass’n of Realtors v. Dep’t Health & Hum. Servs., 594 U.S. 758, 764 (2021) (per curiam) (quoting Util. Air Regul. Grp. v. EPA, 573 U.S. 302, 324 (2014)) (quotation marks omitted).

[18] West Virginia, 597 U.S. at 723 (quoting Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001)) (cleaned up).

[19] See, e.g., Nat’l Fed. Indep. Bus. v. OSHA, 595 U.S. 109, 117 (2022) (per curiam) (applying the doctrine to OSHA’s vaccine mandate because it covered over 84 million people); West Virginia, 597 U.S. at 723–24 (EPA’s attempt to regulate carbon emissions was subject to major questions scrutiny because the agency tried to assert authority over almost the entire economy); Ala. Realtors, 594 U.S. at 764 (invoking the major questions doctrine when evaluating the CDC’s eviction moratorium because it covered “[a]t least 80% of the country, including between 6 and 17 million tenants at risk of eviction”).

[20] See, e.g., Louisiana v. Biden, 55 F.4th 1017, 1029–30 (5th Cir. 2022) (holding unconstitutional the federal government’s vaccine mandate for government contractors because the Procurement Act had never been used to regulate public health issues); NFIB, 595 U.S. at 117 (a workplace safety agency trying to regulate public health for the first time); Ala. Realtors, 594 U.S. at 764 (the CDC, a public health agency, regulating landlord-tenant relationships).

[21] See, e.g., Texas v. Nuclear Reg. Comm’n, 78 F.4th 827, 844 (5th Cir. 2023) (applying the doctrine to rules governing nuclear waste disposal—a “hotly politically contested” issue “for over half a century”); Biden v. Nebraska, 600 U.S. 477, 504 (2023) (hundreds of billions of dollars in student debt forgiveness that was near constant Congressional debate); West Virginia, 597 U.S. at 701 (regulation of carbon emissions that would resolve “how much coal-based” pollution the government would tolerate “over the coming decades”).

[22] Compl. ¶ 29, Lejilex v. SEC, 4:24-cv-00168 (N.D. Tex. Feb 21, 2024).

[23] Id.

[24] Id. ¶ 30.

[25] Andersen, supra note 7, at 257.

[26] See Compl. ¶ 47, Lejilex, supra, note 22; see also Util. Air Regul. Grp. v. EPA., 573 U.S. 302, 324 (2014) (noting that courts should be skeptical “[w]hen an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy’” (quoting Brown & Williamson, 529 U.S. at 159)).

[27] See U.S. Const. art. I, § 8, cls. 3, 5.

[28] Gregory v. Ashcroft, 501 U.S. 452, 460 (1991) (quoting Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 243 (1985)) (quotation marks omitted).

[29] See, e.g., Bowden v. Med. Ctr., Inc., 845 S.E.2d 555, 563 n.10 (Ga. 2020); Koury v. Ready, 911 So. 2d 441, 445 (Miss. 2005); Beeck v. Aquaslide ‘N’ Dive Corp., 350 N.W.2d 149, 155 (Iowa 1984).

[30] See, e.g., Iowa Code § 537.5108; Mo. Rev. Stat. § 407.020.1; N.J. Stat. Ann. § 56:8-2.

[31] See 15 U.S.C. § 77r.

[32] Gregory, 501 U.S. at 460 (quoting Atascadero, 473 U.S. at 242).

[33] See 15 U.S.C. § 78u.

[34] 473 U.S. at 241.

[35] 501 U.S. at 466–47.

[36] Whitman, 531 U.S. at 468.

[37] 15 U.S.C. § 77b.

[38] See id.

[39] SEC v. W.J. Howey Co., 328 U.S. 293, 298–99 (1946).

[40] Matassarin v. Lynch, 174 F.3d 549, 561 (5th Cir. 1999).

[41] SEC v. Koscot Interplanetary, Inc., 497 F.2d 473, 478 (5th Cir. 1974) (quoting SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 n.7 (9th Cir. 1973)).

[42] SEC v. Arcturus Corp., 928 F.3d 400, 409–10 (5th Cir. 2019) (quoting Williamson v. Tucker, 645 F.2d 404, 418 (5th Cir. 1981)).

[43] See SEC v. Belmont Reid & Co., 794 F.2d 1388, 1391 (9th Cir. 1986).

[44] See, e.g., Howey, 328 U.S. at 298–99.

[45] Matt Donovan, Note, Ripple Effect: The SEC’s Major Questions Doctrine Problem, 91 Fordham L. Rev. 2309, 2319 (2023).

[46] See, e.g., Peak v. Adams, 799 N.W.2d 535, 544 (Iowa 2011); Chisholm v. Ultima Nashua Indus. Corp., 834 A.2d 221, 225 (N.H. 2003); Milner v. Milner, 360 S.W.3d 519 (Tex. App. 2010), aff’d, 361 S.W.3d 615 (Tex. 2012); see also id. at 2340 (noting that the average secondary buyer—that is, someone who buys cryptocurrency off an exchange—“has no legal relationship” with whoever invented that coin).

[47] Justin Henning, Note, The Howey Test: Are Crypto-Assets Investment Contracts?, 27 U. Miami Bus. L. Rev. 51, 65 (2018).

[48] See generally, e.g., Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005).

[49] See Jerry W. Markham, Securities and Exchange Commission vs. Kim Kardashian, Cryptocurrencies and the “Major Questions Doctrine”, 14 Wm. & Mary Bus. L. Rev. 515, 540 (2023) (quoting SEC guidance).

[50] 968 F.2d 1304, 1305 (D.C. Cir. 1992).

[51] See Arcturus, 928 F.3d at 409–10.

[52] See Audet v. Fraser, 605 F. Supp. 3d 372, 394 (D. Conn. 2022).

[53] Id. at 381.

[54] SEC v. Terraform Labs Pte. Ltd., 2023 WL 4858299, at *13 (S.D.N.Y. July 31, 2023); SEC v. Kik Interactive Inc., 492 F. Supp. 3d 169, 177–78 (S.D.N.Y. 2020).

[55] Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am. v. Daniel, 439 U.S. 551, 558 (1979) (quoting United Hous. Found., Inc. v. Forman, 421 U.S. 837, 851–52 (1975)).

[56] BST Holdings, LLC v. OSHA, 17 F.4th 604, 612 (5th Cir. 2021) (quoting Pub. Citizen Health Rsch. Grp. v. Auchter, 702 F.2d 1150, 1155 (D.C. Cir. 1983)) (cleaned up).

[57] Id.

Jarkesy and Gravitational Pull: The Supreme Court’s Approach To Precedent And Its Implications – Michael Showalter

Posted by JLPP on Aug 6, 2024 in Per Curiam

Jarkesy And Gravitational Pull: The Supreme Court’s Approach To Precedent And Its Implications

Michael Showalter*

Introduction

In a June 2024 concurring opinion, U.S. Supreme Court Justice Brett Kavanaugh argued that text and history should exert a “gravitational pull” on the interpretation of precedent.  The majority opinion he joined in SEC v. Jarkesy, decided a week later, provides an illustration.

Jarkesy was a battle of text and history versus mixed precedent. The question presented was whether the SEC could assess civil money penalties against Jarkesy through administrative adjudication without judicial process.  The majority held that it could not.  A dissent emphasized that Atlas Roofing, a 1977 case, sustained OSHA civil money penalties imposed through administrative adjudication.  But the dissent made no argument from text or ratification-era history—because no plausible text-and-history defense of Atlas Roofing exists.  Scholars across the spectrum agree that as a matter of text and history, the Constitution prohibits the government from depriving Americans of vested property rights outside judicial process (with possible rare and isolated exceptions).  So the majority declined to give Atlas Roofing the broader reading advocated by the dissent.  Under the gravitational-pull principle, when original understanding points a certain direction, misaligned doctrine should be pulled back toward it.

This essay examines the Supreme Court’s gravitational-pull approach in Jarkesy and discusses its implications for other constitutional provisions.  The Court’s doctrine in various other areas contains statements that the current Court likely considers indefensible as a matter of text and history.  The Court likely will be slow to overrule precedent in these areas—as Justice Neil Gorsuch recently observed, the current Court overrules precedent only about half as often as the Warren Court and Burger Court did.  But the Court likely will continue to pull its jurisprudence toward original understanding, particularly when it believes that a precedent’s misalignment with original understanding is obvious.

I. The Gravitational-Pull Principle

Justice Kavanaugh’s gravitational-pull principle stems from his conception of the judicial role.  Concurring in United States v. Rahimi, Justice Kavanaugh wrote that the “first and most important rule in constitutional interpretation” is “to heed the text—that is, the actual words of the Constitution.”[1]  The text of the Constitution, after all, is the “‘Law of the Land.’”[2]  Judges should interpret the text “according to its ordinary meaning as originally understood.”[3]  In doing so, Justice Kavanaugh continued, courts should “respect precedent” given that “[t]he ‘judicial power’ established in Article III incorporates the principle of stare decisis.” [4]

But even when the courts have developed “extensive bodies of precedent,” Justice Kavanaugh wrote, “text and history still matter a great deal.”[5]  When determining “how broadly or narrowly to read a precedent,” or “whether to extend, limit, or narrow a precedent,” courts should consider “how the precedent squares with the Constitution’s text and history.”[6]  Courts should resolve questions about a precedent’s scope “in light of and in the direction of” that text and history.[7]  In other words, text and history should exert a “gravitational pull” on the court’s interpretation of precedent.[8]

II. SEC v. Jarkesy

A week later, the Supreme Court applied the gravitational-pull principle in SEC v. Jarkesy—a case that involved mixed precedent, some of which clearly is inconsistent with text and history.  The Court held that a defendant in a securities-fraud suit has the right to be tried by a jury in an Article III court.  The case arose when the SEC alleged that Jarkesy violated various securities laws, held an adjudication before its own in-house tribunal, found Jarkesy liable, and imposed a $300,000 civil money penalty.  Jarkesy sued in federal court, arguing that the SEC violated the Seventh Amendment, which provides that in “[s]uits at common law, . . . the right of trial by jury shall be preserved.”

The Supreme Court agreed with Jarkesy, concluding that the proceeding was a suit at common law and that the public-rights doctrine (which in exceptional cases allows for adjudication outside Article III) did not apply.  The Court focused largely on the remedy—the civil penalties remedy, the Court emphasized, can “only be enforced in courts of law.”[9]  Three justices dissented, arguing that the public-rights doctrine allows Congress to “create statutory obligations” entitling the government to civil penalties and “assign their enforcement” to executive adjudication.[10]

Text and history clearly favored the majority.  Scholars across the ideological spectrum agree that the public-rights doctrine historically asks about the deprivation rather than the government interest being pursued.  Under the original understanding, the government may not deprive Americans of vested property rights absent judicial process.

But precedent was mixed.  While the Court had largely hewed to the historical understanding, the Jarkesy dissent relied heavily on Atlas Roofing, a 1977 case that upheld certain civil penalties imposed by OSHA without judicial process.  That case arguably had been implicitly overruled or limited by later cases, but it had never been explicitly overruled.

A. Text and History

Historically, as Caleb Nelson has shown, public rights are rights created by the government that have no counterpart in the Lockean state of nature.[11]  Public roads are an example—no one has a right to government-operated roads in a state of nature that has no government.  Similarly, the government sometimes creates benefits or privileges that no one has a natural right to.  Private rights, in contrast, are those associated with the natural rights that individuals would enjoy even in the absence of political society.[12]  The paradigmatic examples are life, liberty, and property—Congress did not create those rights; they existed before Congress existed.

Under our Constitution, the government may deprive Americans of public rights without judicial process—what the political branches give, the political branches may take away.  But the government may deprive Americans of private rights only with judicial process.  That is evident from multiple provisions of the Constitution.

First, Article III vests the “judicial power” “of the United States” in the Supreme Court and the lower federal courts.  And the core of the judicial power is the power to bind parties and to authorize the deprivation of private rights.[13]  The executive does not hold that power; Article II grants the executive only executive power.[14]   Under the Constitution’s vesting clauses, therefore, unilateral executive action cannot deprive Americans of vested property rights.

Second, the Constitution’s due process clauses provide that the federal and state governments may deprive persons of “life, liberty, and property” only with “due process of law.”  Due process “has always been the insistence that the executive . . . deprive persons of rights only in accordance with settled rules independent of executive will, in accordance with a judgment by an independent magistrate.”[15]  Whatever due process’s precise definition, it definitely requires some kind of judicial process—the executive branch cannot unilaterally deprive persons of life, liberty, or property.^[16]

Third, the Seventh Amendment provides that “[i]n Suits at common law,” “the right of trial by jury shall be preserved.”  Because suits imposing civil penalties are suits at common law, they require a jury trial.[17]

Scholars across the ideological spectrum agree about these textual and historical points.  In a prominent article otherwise supporting the Jarkesy dissent’s position, for example, Adam B. Cox & Emma Kaufman observed that “Founding Era lawyers would have been shocked to learn that the government could take a person’s recognized due-process rights without a trial before an Article III tribunal.”[18]  And while Gregory Ablavsky tried to unsettle the consensus in a recent article, his effort only highlights that there is no real debate on the issue.  He argues that in the mid-nineteenth century the government could deprive individuals of what he calls imperfect vested property rights without judicial process, but agrees with every other scholar that perfect and vested property rights—the ordinary kind—“could be challenged only in court.”[19]  No one has seriously contested Nelson’s account.[20]

As a matter of text and history, then, the question whether Jarkesy concerned public or private rights was among the easiest in the Supreme Court’s history.  To recap, public rights are those the government may take away as a matter of prerogative without judicial process.  And it has always been understood—and enshrined in the Constitution’s text—that the government may not take away a person’s “life, liberty, or property” by prerogative.  After all, those rights precede government; they exist in a state of nature.  The founding generation understood that only through exercise of “judicial power” with “due process of law” could the government deprive a person of a property right.  Because the SEC sought to deprive Jarkesy of a property right, the proceeding concerned private rights and required the concomitant constitutional protections.  As a matter of text and history, it was as simple as that.

B. Precedent

For the most part, the Supreme Court has heeded the Constitution’s text in this area.  Its longstanding precedent establishes that “only” controversies in the public-rights category “may be removed from Art[icle] III courts and delegated to . . . administrative agencies.”[21]  Congress “lacks the power to strip parties contesting matters of private right of their constitutional right to a trial by jury.”[22]  And the Court generally has recognized that the public-rights doctrine asks about the deprivation, not the public interest being pursued.  It is only when Congress “creates” a “statutory right”—not an obligation—that Congress may provide that those “seeking to vindicate that right” must do so in executive adjudication.[23]  That is, when “it depends upon the will of congress” whether a “remedy” “shall be allowed at all,” Congress can “limit the extent to which a judicial forum [is] available.”[24]

In its 1977 Atlas Roofing decision, however, the Court drifted from text and history.  The opinion’s author believed that “Article III . . . must be balanced against . . . legislative responsibilities.”[25]  The Court, accordingly, invoked the public-rights doctrine to approve adjudication of OSHA civil penalties in an administrative tribunal “supplying speedy and expert resolutions of the issues involved.”[26]  The Court invoked “the practical limitations of a jury trial” and its “functional [in]compatibility” with administrative proceedings,[27] and concluded that Congress need not “choke the already crowded federal courts with new types of litigation,” but rather may “commit[] [them] to administrative agencies with special competence in the relevant field.”[28]  In short, as it later recognized, the Court focused on “the practical effect” of statutory law and “the concerns that drove Congress” to “depart from the requirements of Article III.”[29]

Atlas Roofing faced severe and sustained scholarly criticism across the ideological spectrum.  For example, prominent scholar Martin Redish wrote that Atlas Roofing is “indefensible” “as a matter of Seventh Amendment construction.”[30]  The Court’s “abandonment of a constitutional right,” “for no other reason than the Court’s deference to the conclusion of the majoritarian branches that enforcement of that right would be politically or socially difficult or inconvenient,” was “wholly unprincipled.”[31]  “[N]othing in the text, structure, or history of the Seventh Amendment provides any basis on which to permit reliance on . . . a social balancing process.”[32]

A few years after Atlas Roofing, the Court arguably “overrule[d] or severely limit[ed]” it.[33]  In Granfinanciera v. Nordberg, the Court rejected Atlas Roofing’s assertion that the Seventh Amendment “does not apply when Congress assigns the adjudication of [certain] rights to specialized tribunals where juries have no place.”[34]  Dissenting, Atlas Roofing’s author suggested that Atlas Roofing “is no longer good law after today’s decision.”[35]  And by the time Jarkesy was litigated, several decades of more recent public-rights cases had consistently looked to text and history.[36]

C. The SEC’s Position In Jarkesy

In Jarkesy, the SEC’s main argument was that the public-rights doctrine applied, but it had no theory of what the public-rights doctrine actually is.  The SEC invoked Atlas Roofing, but that case “left the term ‘public rights’ undefined.”[37]  And rather than advancing a definition of its own, the SEC asked the Court to refrain from “explain[ing] the distinction between public and private rights” at all.[38]

The untheorized rule of decision that the SEC did advance, moreover, was obviously wrong.  The SEC asserted that Congress can override the Constitution’s judicial-process protections whenever it creates “new statutory obligations.”[39]  But that proved far too much—the creation of new statutory obligations cannot possibly be sufficient to trigger the public-rights doctrine because all agree that “the public-rights doctrine does not extend to any criminal matters.”[40]  No one would argue that judicial process is unnecessary whenever Congress creates new statutory felonies.  When it comes to criminal prosecution, everyone recognizes that no matter how salutary the government objective, it is the deprivation that matters.  The same is true for the backend of “life, liberty, or property.”

D. The Jarkesy Opinion

The Supreme Court held that Jarkesy is “entitled to a jury trial in an Article III court,” concluding that the public-rights doctrine was inapplicable.[41]  The Court stated that the public-rights doctrine is “an exception” to the constitutional norm that “has no textual basis.”[42]  And “what matters,” the Court explained, is “the substance of the action, not where Congress has assigned it.”[43]  The SEC’s claims were “traditional legal claims” because they sought civil penalties—a remedy that can “only be enforced in courts of law.”[44]  The majority distinguished Atlas Roofing on the ground that the statute in that case “did not borrow its cause of action from the common law” but rather “resembled a detailed building code.”[45]

The dissent concluded that “a statutory right belonging to the Government in its sovereign capacity” falls within the public-rights exception.[46]  For the dissent, then, the public-rights doctrine asks about the government’s “rights,” not the citizen’s.[47]  And whether a defendant receives judicial process is entirely up to Congress: the only question is “[w]hether Congress assigned the Government’s sovereign rights to civil penalties to a non-Article III [adjudicator].”[48]  In a concurring opinion, Justice Gorsuch called this “astonishing.”[49]  The dissent’s view, Justice Gorsuch observed, is that the Constitution “imposes no limits” on the government’s power to seek civil penalties outside Article III.[50]

The dissent did not attempt to reconcile its conception of public rights with the Constitution’s text or ratification-era history.  And the dissent offered no original-understanding defense for its assertion that the public-rights doctrine concerns the government’s “rights.”[51]  Instead, the dissent relied exclusively on precedent, focusing foremost on Atlas Roofing.  The majority criticized the dissent for creating a rule based “not in the constitutional text (where it would find no foothold), nor in the ratification history (where again it would find no support).”[52]

While the majority declined to formally overrule Atlas Roofing, it did not leave the case upright.  The majority observed that “Granfinanciera might have overruled Atlas Roofing,” at least “the author of Atlas Roofing certainly thought . . . so.”[53]  It called Atlas Roofing’s definition of public rights “circular,” noting that Atlas Roofing said the public-rights doctrine applies “in cases in which ‘public rights’ are being litigated” such as cases in which the government “enforce[s] public rights.”[54]  And it asserted that Atlas Roofing “represents a departure from our legal traditions.”[55]

*           *           *

Jarkesy employs Justice Kavanaugh’s gravitational-pull principle.  The majority plainly considered Atlas Roofing indefensible as a matter of original understanding.  The dissent advanced no text-and-history defense of the decision, and scholars haven’t either.  The majority therefore declined to give Atlas Roofing the broader reading the dissent proposed.

III. Implications For Other Constitutional Questions

The current Supreme Court is by no means quick to overrule or limit precedent—it actually appears slower to overrule precedent now than in the past.  As Justice Gorsuch recently observed, the current Court is overruling only about half as many prior decisions per term as the Warren Court and the Burger Court did.[56]

But in recent years the Court has been willing to narrow (or occasionally overrule) precedent that it perceives as plainly inconsistent with original understanding.  The more indefensible a precedent is as a matter of text and history, the more vulnerable it is.  Stare decisis, the Court observed in 2020, “isn’t supposed to be the art of methodically ignoring what everyone knows to be true.”[57]  To this Court, a “demonstrably” or “egregiously” wrong precedent is categorically different from a precedent whose correctness is reasonably contestable.[58]  When the current Court believes that a precedent cannot be seriously defended as a matter of text and history, it is unlikely to extend or broadly read that precedent.

Atlas Roofing is not the only case with doctrinal statements that the current Court likely considers indefensible as a matter of text and history.  For example, in 1983 the Court wrote: “The Court balance[s] the language of the Contracts Clause against the State’s interest in exercising its police power.”[59]  In 2004 the Court wrote that Congress’s legislative power in military and foreign affairs rests in part “not upon affirmative grants of the Constitution” but “upon the Constitution’s adoption of preconstitutional powers necessarily inherent in any Federal Government.”[60]  In 1988 the Court wrote that the U.S. Sentencing Commission “does not exercise judicial power” but may nevertheless be placed “within the Judicial Branch.”[61]  In 2012 the Court summarized previous cases as holding that “the power of Congress over interstate commerce is not confined to the regulation of commerce among the states,” even though the Interstate Commerce Clause says that “Congress shall have Power To . . . regulate Commerce . . . among the several States.”[62]

The current Court likely considers these statements indefensible as a matter of text and history.  All nine justices believe that the Court may not “balance” the Constitution’s text against something else.  The justices likely believe that the notion of inherent preconstitutional Congressional power cannot be squared with the Article I Vesting Clause and the Tenth Amendment.  The justices likely believe that an entity exercising nonjudicial power of the United States cannot be placed in the judicial branch.  And whatever the proper scope of the Interstate Commerce Clause, the justices likely believe that their doctrine cannot properly be formulated as a quotation of the Constitution’s text with a “not” in front.

That is not to say that the Court will likely uproot its jurisprudence in any of these areas or others.  Gravitational pull is just pull.  But given that these doctrinal statements and certain others seem severely misaligned with the Court’s views about its interpretive obligations, Jarkesy probably will not be the last case in which the Court pulls precedent back toward the best reading of the “Law of the Land.”

* J.D. 2016, Yale Law School.

[1] United States v. Rahimi, slip op. 1, No. 22-915 (June 21, 2024) (Kavanaugh, J., concurring).

[2] Id. at 2 (quoting Article VI).

[3] Id.

[4] Id. at 17.

[5] Id.

[6] Id.

[7] Id. at 18.

[8] Id. at 17. Several originalist scholars have advanced this idea in recent years.  E.g., J. Joel Alicea, An Originalist Victory, City Journal (June 24, 2022), tinyurl.com/3z3ps3rx; Lee J. Strang, A Three-Step Program for Originalism, Public Discourse (June 12, 2022), tinyurl.com/yc2b96bm; Randy E. Barnett, The Gravitational Force of Originalism, 82 Fordham L. Rev. 411 (2013); Josh Blackman, Originalism’s Gravitational Pull Toward Original Meaning, tinyurl.com/2mcp6t3e (Nov. 18, 2012).

[9] SEC v. Jarkesy, slip op. 21, No. 22-859 (June 27, 2024).

[10] Id. (Sotomayor, J., dissenting), slip op. 2.

[11] See Caleb Nelson, Adjudication in the Political Branches, 107 Colum. L. Rev. 559, 567 (2007) (citing William Blackstone).

[12] See id.

[13] See William Baude, Adjudication Outside Article III, 133 Harv. L. Rev. 1511, 1513–14 (2020).

[14] See id. at 1541 (“The predominant principle of executive action is that it cannot deprive people of life, liberty, or property without judicial process.”).

[15] Nathan S. Chapman & Michael W. McConnell, Due Process As Separation of Powers, 121 Yale L.J. 1672, 1681 (2012).

[16] See, e.g., id. at 1679 (“From at least the middle of the fourteenth century” onward, “due process consistently referred to the guarantee of legal judgment in a case by an authorized court in accordance with settled law.”).

[17] See Tull v. United States, 481 U.S. 412, 418–19, 422 (1987).

[18] The Adjudicative State, 132 Yale L.J. 1769, 1794–95 (2023).

[19] Getting Public Rights Wrong, 74 Stan. L. Rev. 277, 317 (2022); see also Ilan Wurman, Nonexclusive Functions and Separation of Powers Law, 107 Minn. L. Rev. 735, 763 n.136 (2022) (“[T]he distinction Ablavsky draws . . . tracks [Nelson’s] dichotomy exactly.”).  Ablavsky says that for the imperfect land claims he discusses, “the formal legal title remained in the United States.”  74 Stan. L. Rev. at 316.  That is not true, of course, of the property at issue when the government seeks civil penalties.

[20] Arguably, there were two or three isolated quasi-exceptions to the rule in the eighteenth and nineteenth centuries.  See Baude, supra note 13, at 1548–53 (discussing military adjudication and tax collection and explaining why they were thought to involve executive power); Nelson, supra note 11, at 585–590 (discussing eminent domain and tax collection); SEC v. Jarkesy, slip op. 15, No. 22-859 (June 27, 2024) (discussing “unbroken tradition” “long predating the founding” related to tax collection).  But Jarkesy implicated none of them.

[21] Northern Pipeline Construction v. Marathon Pipe Line, 458 U.S. 50, 70 (1982) (plurality) (emphasis omitted); see also, e.g., Stern v. Marshall, 564 U.S. 462, 489 (2011) (citing Murray’s Lessee v. Hoboken Land & Improvement Co., 59 U.S. 272 (1856)).

[22] Granfinanciera S.A. v. Nordberg, 492 U.S. 33, 51–52 (1989).

[23] Id. at 83 (emphasis added); see also, e.g., Thomas v. Union Carbide Agric. Prods., 473 U.S. 568, 593–94 (1985) (holding that Congress may “create” a new public “right”).

[24] Stern, 564 U.S. at 489.

[25] Northern Pipeline, 458 U.S. at 113 (White, J., dissenting).

[26] Atlas Roofing v. OSHA, 430 U.S. 442, 461 (1977).

[27] Tull v. United States, 481 U.S. 412, 418 n.4 (1987) (describing Atlas Roofing).

[28] Atlas Roofing, 430 U.S. at 455.

[29] CFTC v. Schor, 478 U.S. 833, 851 (1986).

[30] Martin Redish & Daniel La Fave, Seventh Amendment Right to Jury Trial in Non-Article III Proceedings: A Study in Dysfunctional Constitutional Theory, 4 Wm. & Mary Bill Rts. J. 407, 408–09 (1995); see also, e.g., Vikram Amar, Implementing an Historical Version of the Jury in an Age of Administrative Factfinding and Sentencing Guidelines, 47 S. Tex. L. Rev. 291, 298 (2005) (criticizing Atlas Roofing).

[31] Redish & La Fave, supra note 30, at 409–11.

[32] Id. at 411.

[33] Granfinanciera S.A. v. Nordberg, 492 U.S. 33, 71 n.1 (1989) (White, J., dissenting).

[34] Id. at 81.

[35] Id. at 79.

[36] E.g., Northern Pipeline Construction v. Marathon Pipe Line, 458 U.S. 50, 74 (1982) (“[O]ur precedents” are “rooted in history and the Constitution.”); Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 584 U.S. 325, 334 (2018) (examining the history of the patent right); id. at 1381–85 (Gorsuch, J., dissenting) (same).

[37] Granfinanciera, 492 U.S. at 51 n.8.

[38] Brief for the Petitioner at 21, SEC v. Jarkesy, No. 22-859 (Aug. 28, 2023).

[39] Id. at 21, 23–24.

[40] Northern Pipeline, 458 U.S. at 70 n.24.

[41] SEC v. Jarkesy, slip op. 27, No. 22-859 (June 27, 2024).

[42] Id. at 17.

[43] Id. at 21.

[44] Id. 

[45] Id. at 23.

[46] Jarkesy (Sotomayor, J., dissenting), slip op. 21.

[47] The dissent attempted to distinguish criminal prosecution on the ground that Article III requires a jury for criminal trials, id. at 28 n.9, but that requirement only reinforces the point that the public-rights doctrine asks about the deprivation, not the government interest.

[48] Id. at 22.

[49] Jarkesy (Gorsuch, J., concurring), slip op. 20.

[50] Id. at 20.

[51] At the founding, “rights” usually belonged to individuals, whereas governments usually were understood to hold certain “powers.”  Compare, e.g., U.S. Const. art. I, § 1 (vesting all granted legislative “Powers” in Congress), with U.S. Const. amend. IV (protecting the people’s “right” against unreasonable searches and seizures).  See also, e.g., Russell L. Caplan, The History and Meaning of the Ninth Amendment, 69 Va. L. Rev. 223, 256 (1983) (Madison believed that “individual rights and governmental powers composed two mutually exclusive and collectively exhaustive categories”).  And the Seventh Amendment and Due Process Clause protect individual rights against government power.  See also Stern v. Marshall, 564 U.S. 462, 483 (2011) (“Article III protects liberty.”).  The dissent did not explain why the public-rights doctrine nevertheless concerns what the government may lose rather than what the citizen may lose.

[52] Jarkesy, slip op. 17 n.2.

[53] Id. at 23 n.3.

[54] Id. at 26.

[55] Id. at 25 n.4.

[56] Loper Bright Enterprises v. Raimondo, slip op. 9 (Gorsuch, J., concurring) (No. 22-451) (June 28, 2024).

[57] Ramos v. Louisiana, 590 U.S. 83, 105 (2020).

[58] Gamble v. United States, 587 U.S. 678, 711 (2019) (Thomas, J., concurring); Ramos, 590 U.S. at 121 (Kavanaugh, J., concurring in part); see also, e.g., Dobbs v. Jackson Women’s Health Organization, 597 U.S. 215, 219 (2022) (overruling Roe v. Wade on the belief that it was “far outside the bounds of any reasonable interpretation” of the constitutional text and citing a scholar reflecting that while he supported Roe’s outcome politically he believed that Roe was “not constitutional law” and gave “almost no sense of an obligation to try to be”).

[59] Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 410 (1983).

[60] United States v. Lara, 541 U.S. 193 (2004) (internal quotation marks omitted).

[61] Mistretta v. United States, 488 U.S. 361, 384–85 (1988).  Justice Antonin Scalia pointed out in dissent that “the Sentencing Commission’s labors . . . have the force and effect of laws,” id. at 413—the Sentencing Commission clearly was exercising power of the United States of some kind.

[62] NFIB v. Sebelius, 567 U.S. 519 (2012); U.S. Const. art. I, § 8.

Proxies, Quorum, and Legislative Immunity – Kimo Gandall

Posted by JLPP on Aug 1, 2024 in Per Curiam

Proxies, Quorum, and Legislative Immunity

 Kimo Gandall*

On March 13, 2020, President Trump declared a nationwide emergency in response to the COVID-19 pandemic.^[1] Two days later, on March 15th, public shutdowns began, and the government began to institute mandatory quarantines.^[2] Two months later, the House of Representatives approved House Resolution 965, which authorized a process under which House Members could both cast votes and establish presence via proxy, allowing the House to meet quorum even though most members of Congress were physically absent.^[3]

The passage of the Resolution faced stiff resistance from Republicans, with then-House Minority Leader Kevin McCarthy filing suit to argue that Article I, section 5 of the Constitution required a majority physically present to conduct business.^[4] However, by the D.C. District Court’s decision in August 2020,[5] most Republican signatories had withdrawn from the suit, following their Democratic colleagues by increasing time spent campaigning.^[6]

The D.C. Circuit, not reaching the merits of the argument to quorum, dismissed the case for lack of jurisdiction under the Speech or Debate Clause. Under the Speech and Debate Clause, “any Speech or Debate in either House” are prohibited from being “questioned in any other Place.”[7] “Here, the acts presented for examination,” the Court concluded, “are quintessentially legislative acts falling squarely within the [Speech or Debate] Clause[]. . . . [as] the ‘act of voting’ is necessarily a legislative act.”^[8] For the D.C. Circuit, proxy rules that “[govern] how Members may cast their votes” are legislative acts necessarily covered by the Speech and Debate Clause.^[9]

While additional debate has continued on the House’s proxy rules,[10] the Republican House majority reversed the proxy voting rules in the 118th Congress: “No more proxy voting,” Speaker McCarthy tweeted, “[e]ffective immediately, Members of Congress have to show up to work if they want their vote to count.”^[11] While the House’s refusal to extend the proxy rules from the 116^th to 117^th Congresses by declining to insert the necessary authorizing language resolved the immediate political question, Texas Attorney General Paxton has since filed suits alleging certain Congressional actions—including the Consolidated Appropriations Act, 2023, Pregnant Workers Fairness Act, and the Department of Homeland Security’s Pilot Management Program—were unconstitutionally authorized on the basis of proxies.^[12] Since then, Judge James Hendrix of the Northern District of Texas has held for Attorney General Paxton, thereby effectively rendering the Consolidated Appropriations Act, 2023, amongst others, unenforceable in Texas, writing that, “[b]ased on the Quorum Clause’s text, original public meaning, and historical practice,” the Quorum Clause “bars the creation of a quorum by including non-present members participating by proxy.”[13] As a result, while Congress has temporarily suspended the use of proxy votes on the House floor, the legal question of proxy voting continues to cast a specter over the legitimacy of several statutes passed during the 116^th and 117^th Congresses.[14]

This essay argues that quorum cannot be established by proxy. Several primary sources, ranging from the Constitutional convention to various parliamentary manuals employed by the House support this position. My argument proceeds as follows: First, history and tradition in the American context deny support for employing proxies to meet quorum on the House floor. Second, the legislative action test—designed by the Supreme Court largely to immunize certain Congressional acts from judicial review under the Speech or Debate Clause as a safeguard to legislative independence[15]—fails to resolve proxy voting disputes because it ignores that quorum is a Constitutionally-fixed condition that is necessary to protect fair representation.^[16] Accordingly, because proxy voting violates the Constitution’s Quorum Clause, the Court should reconsider the legislative action test’s applicability to proxy voting rules.^[17]

I. Definition of Quorum and Proxies

A. Quorum

A quorum is the number of members required to be present for a constitutive body to transact business.^[18] For the House of Representatives, the Constitution defines a quorum as a simple majority of Members,[19] which may slightly vary in the case of deaths or resignations.^[20]

Between House rules, parliamentary manuals, comments, and opinions, a quorum is discussed on over five hundred occasions, with different requirements of quorum enumerated for different forms of the body or body-delegated authority. For example, in Jefferson’s Rules the “Committee of the Whole” was distinguished from the actual floor of the House, in that the former only permitted debate and not the exercise of legislative power, and thus did not permit the Speaker to individually declare an absence of a quorum, given the Speaker must relinquish his seat during the Committee of the Whole—the effect of this process (that the House could debate a bill or resolution without obtaining a quorum, since the House was not legislating) was recognized in 1890, when the Committee of the Whole was given a set quorum of one hundred, a fixture that remains today.^[21] The flexibility of quorum for Congress—that is, that the Constitutional boundaries of quorum only applied to true acts of legislation, as opposed to Committee actions merely discussing legislation—was therefore premised on the power of the body it applied to; as a result, when such a committee body could exercise the legislative power of the House in some capacity, the requirements of quorum were considerably tighter.^[22]

B. Proxies

Proxy voting enables one Member to vote on behalf of another Member, usually an absent one.^[23] And although proxy voting does not necessarily interact with quorum—after all, the number of votes physically present may incidentally be the same as the quorum, even if there are votes conducted by proxy—H.R. Res. 965 authorizes proxy votes to count towards quorum, even if quorum would not be otherwise met.^[24]

Furthermore, there is normally a general “prohibition against proxy votes” in committees, although Congress has acted on several historical occasions to provide exceptions to this rule.^[25] Finally, within Jefferson’s Manual and House Rules generally, discussion of proxies are rather scant, with most in reference to committees and virtually none in reference to proxies meeting quorum requirements.^[26] Although the proxy question for committees is always adjacent to quorum for those committees, the question of proxies for quorum of the House as a deliberative body is fundamentally different, given committees are simply delegated agents of the body, and are not Constitutionally restricted.^[27] As with any other rule of the House, such procedures can be amended with a simple majority of the House, unlike the Constitution.^[28]

C. Interaction of Proxies and Quorum

The contested issue is whether the Constitution’s quorum requirement compels a “majority” of members to be physically present, or if that majority can instead be represented by the number of votes cast.^[29] If the Constitution does require such a majority be physically present on the House floor, then obtaining a quorum via proxy is prohibited since the necessary number of Members are not physically present. This is not merely an academic contention: the physical presence of members of a body to approve legislation is the very essence of a democratic body, without which there is, almost literally, “legislation without representation.”^[30]

I intentionally eschew the extensive common law history of proxies for two reasons: first, elaborating the whole “history and tradition” of voting methods—which in the Western tradition range as diverse as the Peloponnesian war and medieval English Parliament—is beyond the scope of this paper.^[31] Second, the focus of this paper is to identify how proxies work or do not work within the American system, not if proxies are intrinsically disordered or if their employment in a body lacks prudence.

II. History and Tradition of Quorum and Proxies

A. Quorum and Proxies in the Constitutional Convention.

The Founders, having learned from the exploitation of quorum rules in colonial assemblies,^[32] were keenly attuned to debates about the nature of quorum. The Supreme Court has also noted that proxy voting was also common in Founding-era state legislatures, subject to both advocates and critics.^[33] Notably, prior to the Constitutional Convention, Benjamin Franklin proposed proxy voting in the Articles of Confederation,^[34] only for the proposal to be subsequently rejected. And even within Benjamin Franklin’s proxy-friendly proposal, proxies were excluded from being counted towards quorum.[35]

One such debate was over quorum busting. During the Convention, Governor Morris moved to fix quorum at 33 members in the House and 14 in the Senate (the majority at that time), arguing that without necessitating a majority present and voting, “[representatives] will generally attend knowing that advantage may be taken of their absence.” That is, representatives may intentionally be ‘absent’ to avoid difficult votes, or, if in sufficient numbers, to frustrate a normal majority.^[36] Governor Morris also feared that a quorum count too high would permit representatives to “break up a quorum” so that such individuals could “seize a moment when a particular [part] of the Continent may be in need of immediate aid . . .”^[37] Other representatives agreed with the necessity for a majority, but opposed the fixing of a majority as “extremely cumbersome,” and so moved to substitute the motion so that not less than thirty-three in the House and not less than fourteen in the Senate, should constitute quorum, deferring increases in the quorum to Congress. ^[38] The substitute motion was lost, with 2 ayes and 9 noes.^[39] As a solution to concerns about quorum-breaking, Madison moved to add to Governor Morris’s motion a provision to grant Congress a potent method of enforcing quorum: that Congress could physically “compel the attendance of absent members in such manner and under such penalties as each House may provide.”^[40] It passed near-unanimously.^[41] Notably, that same committee limited this power by unanimously agreeing that the “right of expulsion” must only be applied for a two-thirds (⅔), not majority, vote.^[42] The House was thus given an extensive, meaningful power under the Constitution to coerce the majority required for a quorum, including the power to expel those offending members.

Admittingly, proxies are rarely mentioned explicitly during the American Constitutional Convention.^[43] When they are mentioned, it is primarily in reference to the Hamilton Plan, which explicitly permitted proxies: “Representatives may vote by proxy.”^[44] Likewise, in the Senate, proxies were permitted, but limited each Senator to supporting only one proxy from another Senator.^[45] Of course, the Hamilton Plan was rejected by the convention, in large part because it provided equal representation for the states in a unicameral legislature.^[46] While the debate between large and small states dominated the question of how Congress was to be organized, the aforementioned discussions of proxies in the transcript illustrate that the issue was nonetheless pertinent to those at the Convention. More importantly, the very fact that the Framers settled on different methods of selecting Senators versus Members of the House—“The Great Compromise”—at minimum suggests that delegates of the Convention were acutely aware of the importance of a member’s presence for sufficient representation.^[47]

B. Quorum and Proxies in Congressional Legislative History.

A second venue for understanding proxies is through legislative history. While committees, being inferior bodies, have been permitted by the House to employ proxies for voting,^[48] such proxies were almost never historically used as a measure for quorum (a separate issue is on a ‘catastrophic circumstance’ which only modifies quorum without introducing proxies as a cure).^[49] And even in the few approved situations for the employment of proxies, Congress has always historically recognized a key distinction between the deliberative assembly of the House and its inferior committees, almost always requiring members physically present in the former when determining quorum.^[50]

One key debate recorded in Cannon’s Precedents begins with the contested use of proxies, ironically enough, in committees. In 1929, Representative Reece, in debating a question to the speaker, referred to the use of proxies in committees.^[51] A dispute emerged as to the actual use of proxies in committee.^[52] The speaker recognized that proxies were allowed “by unanimous consent of the committee itself,” and “[o]f course, a proxy could not be counted in making up a quorum.”^[53] A year later, Representative Johnson raised a parliamentary inquiry if a Member could sign onto a motion by proxy.^[54] The Member, he alleged, was “absent on account of illness,” and therefore requested Representative Johnson cast the motion in his stead.^[55] The Chair denied Representative Johnson’s request, stating that “there is no rule that the Chair knows of in the House of Representatives for any sort of proxy,” and thus “the Chair is very clear that no member can delegate to another the right to sign such a petition . . .”^[56] Likewise, in 1933, when a Committee of the Whole House (not to be confused with a standing committee),^[57] considered a bill to regulate banking assets, Representative Lehr’s motion to make an amendment by proxy on behalf of a member, Representative Dingell, was denied.^[58] The Chair ruled that “Amendments may not be proposed by proxy.”^[59]

The precedent to deny the use of proxies on the floor continued into more recent congressional history. As early as 1979, for example, the parliamentary rules of the House recognized that, “[a]lthough the House, of course, does not allow the use of proxy votes on the floor, the rules do permit their use in committees subject to certain restrictions.”^[60] And even then, it was equally recognized that even in committees “No measure or recommendation may be reported from any committee unless a majority of the committee were actually present.”^[61] Moreover, proxies were exercised only as an exception, rather than the norm, as committees were required to, “[limit] the exercise of the proxy to a specific measure or matter.”^[62] These examples demonstrate the principle the House has frequently deferred to: that while proxies may be used for in limited circumstances to vote on committee business, proxies may not be used to establish quorum. In effect, the House has attempted to divorce the process of deliberation, in other words, the process of “speech and debate,” from the ambit of proxies in establishing quorum.

While precedent offers a normative rejection of proxies as a measure of quorum, it fails to address the actual controversy of why proxies harm the process. In 1971, Representative Cleveland, flustered that proxy voting approved an amendment for a resolution that reduced funding for the Committee on Internal Security, offered one reason: that because proxies allow votes without deliberation, they formulate a poor legislative process.^[63] Representative Cleveland noted that “this particular result we have on the floor of the House . . . never would have occurred if there had not been proxy voting.”^[64] Because of an apparent lack of deliberation, Representative Cleveland argued that proxies were decisive “in the vote that resulted in the cut that has been characterized here as too drastic.”^[65]

While this review is certainly not an exhaustive history of proxies, it nonetheless illustrates that Members of Congress have expressed serious concerns about how proxy votes impact the legislative process, even in the most limited of contexts.

III. Legislative Immunity under the Speech or Debate Clause

In McCarthy v. Pelosi, the D.C. Circuit repeated the crudely designed legislative action test to determine if a legislative action can be reviewed: “The pivotal distinction . . . is between legislative acts and non-legislative acts.”^[66] But the legislative action test misses the Constitutional question on proxies because it ignores the fundamental, Constitutionally enumerated implication of quorum on proxies: the concern shared by the Founders and many Members of Congress that quorum was (and remains) a key pillar in the Constitution to protect fair representation, which proxies frustrate.^[67]

A congressional rule is a legislative act if it is “an integral part of the deliberative and communicative processes by which Members participate in committee and House proceedings with respect to the consideration and passage or rejection of proposed legislation.”^[68] In McCarthy, the D.C. Circuit held that because it was difficult to “conceive of matters more integrally part of the legislative process than the rules governing how Members can cast their votes,”[69] it followed that “[the] recording of proxy votes–is itself a legislative act.”^[70] More specifically, because proxy voting was within the “‘direct business of passage or rejection’” of legislation, it fell within Congress’ power to “determine the Rules of its Proceedings.”^[71]

There are several important errors within this argument; first, from a purely textual basis, the power of each House to define the “Rules of its Proceeding” is clause 2, Sec. 5 while the quorum requirement is intentionally separated in clause 1, Sec. 5.^[72] Thus, the D.C. Circuit erroneously equates the expansive deference for rules of proceeding to the quorum requirement; and in doing so, eschews the historical debate that underlies the intentional separation of the Quorum Clause and the rules of procedure in determining a majority.^[73]

Second, more importantly, the precedent set by such an equivocation opens the door for the abusive, unconstitutional majority the Founders feared. Imagine, for example, that the House rules were amended to allow Congressional members to concentrate their proxies in the Speaker of the House; under this system, the Speaker could constitutionally pass legislation or suspend debate unilaterally.^[74] For a Constitutional provision designed to protect “Speech and Debate” from external regulation, there is a deep irony that the court’s interpretation would allow a single figure, empowered by a partisan majority, to deny the House both speech and debate. It was this exact debate over quorum as a necessary condition of representation that invigorated the founders at the Constitutional Convention,^[75] prompted Delegates Randolph and Madison to offer avenues for Congress to enforce physical attendance,^[76] and that the Great Compromise contemplated in rejecting the Hamilton Plan’s proxy provision.^[77]

Third, the primary policy justification to a broad interpretation of the Speech or Debate Clause—in the words of Justice Harlan, to safeguard the “independence of legislature” from “an unfriendly executive and conviction by a hostile judiciary”—does not apply to proxies.[78] Start with the McCarthy court’s reliance on Gravel v. United States.^[79] In Gravel, Senator Gravel convened a midnight subcommittee hearing, wherein he read from the Pentagon Papers (which were classified) and placed the papers into the public record.^[80] Senator Gravel then arranged for the publication of the papers by Beacon Press.^[81] A grand jury subpoenaed Gravel’s aide to testify as part of an investigation into the Pentagon Papers.^[82] Gravel contended that the Speech or Debate Clause barred enforcement of the subpoena.^[83] The Court held that Gravel’s subcommittee disclosures were protected legislative acts, but his publishing arrangements with Beacon Press were not.^[84] Here, the McCarthy court mistakes Gravel’s physical proximity of the act to the legislative process as a necessary and sufficient—rather than only a sufficient—condition of the legislative action test. That is, just because Gravel’ publishing arrangements fell outside the Speech or Debate Clause, does not mean analogous situations must be outside the physical proximities of a committee.  As a result, Gravel’s congressional record is not analogous to the proxy vote, as the former is unencumbered by a Constitutional necessary condition that the latter is subject to: namely, the Quorum Clause. Even if not, Gravel is particularly inappropriate to an exploration into legislative independence because it is related to third-party criminal acts and not to the substantive making of legislation.

Petitioner likewise cites to United States v. Brewster, which has the same problem.^[85] In Brewster, a member of Congress accepted a bribe in exchange for specific legislative acts (voting).^[86] The Court held that while the member’s votes fell under protected legislative action, accepting the bribe itself was not.^[87] But again, the condition about legislative action hinged on external criminal conduct, not the legislative process itself.^[88] By contrast, McCarthy does not implicate the potential immunity concerns that the Gravel court feared would place legislators above the law,[89] but whether Congress actually convened a valid vote.^[90]

The Court’s analysis of Powell v. McCormack is more analogous because it addresses how explicitly enumerated Constitutional processes affect the independence of the legislature.^[91] In Powell, the House of Representatives voted to bar Representative Adam Clayton Powell from being seated in the 90th Congress based on allegations he had misused public funds,^[92] despite  Representative Powell’s status as duly elected and constitutionally qualified.^[93] The Court held the House was effectively expelling Representative Powell by a majority vote, rather than the Constitutionally required two-thirds;^[94] and since the House had tried to maneuver around those procedural requirements, it had run afoul with the Constitution.^[95] The McCarthy court argues that Powell has a secondary holding that distinguishes proxy voting: namely, that in Powell, the suit applied to those not directly involved in the legislative process, such as the Sergeant-at-arms.^[96] This is pure legal pettifoggery.^[97] What the Powell court actually focused on was the limiting principles enumerated into the Constitution. That is, because the “Convention adopted [Madison’s proposal to limit expulsion to two-thirds] limiting the power to expel,” it followed that allowing new procedures to avoid the Constitutionally enumerated requirements would vest “an improper & dangerous power in the Legislature.”^[98] Because quorum is textually enumerated, Powell limits congressional powers to maneuver around the constitutionally defined procedure.^[99]

*           *           *

In the docket of Supreme Court cases, proxy voting—especially now that the House has discarded the practice in the aftermath of COVID-19—may seem pedantic. But proxy voting represents one of the most dangerous trends in modern American republicanism, one that the Founders sought to avoid by explicitly enumerating the requirement of quorum in the Constitution.[100] Proxy voting not only strikes at the heart of the American tradition, but also usurps the Constitution’s textual requirement of a majority presence. In an age increasingly dominated by algorithmic subconscious prediction methodologies that can drive social trends and erode trust,[101] human presence is not only institutionally prudential but a Constitutional requirement.  Accordingly, the Court should thus review its application of the legislative action test, and bar proxy voting for establishing quorum in legislative sessions in the House.

* Kimo Gandall is a J.D. Candidate, Harvard Law School (2025) and a Professional Registered Parliamentarian. He is CEO of Fortuna-Insights, a legaltech company focused on probability analysis and automated legal research. His scholarship focuses on the impact of rules and psychology in institutional decision-making.

^[1] Proclamation 9994, 85 FR 15337 (March 13, 2020).

^[2] Id.

^[3] H.R. Res. 965, 116th Cong. (2020).

^[4] Chris Marquette, What’s in a House quorum? GOP wants the courts to rule on that, Roll Call (June 4, 2020, 5:00 AM), https://rollcall.com/2020/06/04/whats-in-a-house-quorum-gop-wants-the-courts-to-rule-on-that/.

[5] See McCarthy v. Pelosi, 480 F. Supp. 3d 28 (D.D.C. 2020).

^[6] Katherine Tully-McManus, Supreme Court Denies Kevin McCarthy’s Challenge to Proxy Voting in House, Politico, (Jan. 24, 2022, 9:58 AM), https://www.politico.com/news/2022/01/24/supreme-court-proxy-voting-house-00001243; Mini Racker, For Some in Congress, Proxy Voting Was a Game Changer. It’s About to Go Away, TIME (December 27, 2022, 7:00 AM) (“Some members have capitalized on their ability to vote by proxy to hit the campaign trail. Democrat Karen Bass voted by proxy this year while engaged in her successful bid for Los Angeles Mayor. Three Democrats who used proxy voting frequently in 2022—Reps. Charlie Crist of Florida, Tom Suozzi of New York, and Kai Kahele of Hawaii—did so while running for governor of their respective states. The Honolulu Civil Beat reported earlier this year that proxy voting allowed Kahele to avoid Washington for months as he not only campaigned, but worked as a pilot for Hawaiian Airlines… But many members of the House have assigned proxies for other kinds of politicking, like a Trump rally at the border”), https://time.com/6242920/proxy-voting-congress-going-away/.

[7] U.S. Const. art. I, § 6, cl. 1.

^[8] McCarthy v. Pelosi, 5 F.4th 34, 39 (D.C. Cir. 2021).

^[9] Id.

[10] See, e.g., Emily Larson, Naomi Maehr, and Molly Reynolds, Proxy voting takes on new meaning for Republicans, BROOKINGS, January 20, 2022, https://www.brookings.edu/articles/proxy-voting-takes-on-new-meaning-for-republicans/.

^[11] Chris Pandolfo, House Speaker Kevin McCarthy Officially Ends Proxy Voting, Fox News, January 19, 2023, https://www.foxnews.com/politics/house-speaker-kevin-mccarthy-officially-ends-proxy-voting.

^[12] Margot Cleveland, How a Texas Lawsuit Could Nuke Biden’s $1.7T Spending Spree, The Federalist (Feb. 22, 2023), https://thefederalist.com/2023/02/22/how-a-texas-lawsuit-over-proxy-voting-could-nuke-bidens-entire-1-7-trillion-spending-spree/.

[13] Nate Raymond, US judge in Texas rules congressional passage of 2022 spending bill unconstitutional, REUTERS, February 27, 2024, https://www.reuters.com/legal/us-judge-texas-rules-congressional-passage-2022-spending-bill-unconstitutional-2024-02-27/.

[14] See id.

[15] Gravel v. United States, 408 U.S. 606, 637 (1972) (explaining that the purpose of the legislative action test is to ensure the independence of the legislature from a hostile judiciary or executive).

^[16] See United States v. Ballin, 144 U.S. 1, 5 (“The two houses of Congress are legislative bodies representing larger constituencies. Power is not vested in any one individual, but in the aggregate of the members who compose the body, and its action is not the action of any separate member or number of members, but the action of the body as a whole; and the question which has over and over again been raised is, what is necessary to constitute the official action of this legislative and representative body.”).

^[17] See id. at 5. But see Doe v. McMillan, 412 U.S. 306, 340 (“Previous decisions of this Court have upheld the immunity of Members whenever they are ‘acting in the sphere of legitimate legislative activity.’”).

^[18] See, e.g., H.R. Res. 1507, 117th Cong. § 310 (2023) reprinted in CONSTITUTION, JEFFERSON’S MANUAL, AND RULES OF THE HOUSE OF REPRESENTATIVES, H.R. Doc. No. 117-161, 1, 155 (2023) (“In general the chair is not to be taken till a quorum for business is present . . .”).

[19] U.S. Const. art. I, § 5, cl. 1 (“Each House shall be the Judge of the Elections, Returns and Qualifications of its own Members, and a Majority of each shall constitute a Quorum to do Business; but a smaller Number may adjourn from day to day, and may be authorized to compel the Attendance of absent Members, in such Manner, and under such Penalties as each House may provide.”).

^[20]  See Rules of the House of Representatives, 118, r. XX, cl. 5(d) (2023).

^[21] H.R. Doc. No. 117-161, supra note 19, at 164 (“The form of going from the House into committee, is for the Speaker, on motion, to put the question that the House do now resolve itself into a Committee of the Whole to take into consideration such a matter, naming it. If determined in the affirmative, he leaves the chair and takes a seat elsewhere, as any other Member; and the person appointed chairman seats himself at the Clerk’s table.”); H.R. Doc. No. 117-161, supra note 19, at 163 (“Until 1890 a quorum of the Committee of the Whole was the same as the quorum of the House; but in 1890 the rule (formerly clause 2 of rule XXIII, current clause 6 of rule XVIII) fixed it at one hundred (IV, 2966). Clause 6 of rule XVIII provides the procedure that is followed in the Committee in case of failure of a quorum.”); see also Rules of the House of Representatives 118, r. XVIII, cl. 6(a) (2023); cf. Christoffel v. United States, 338 U.S. 84, 87 (1949) (“Rule XV of the House provides for a call of the House if a quorum is not present, and it has been held under this rule that such a call, or a motion to adjourn, is the only business that may be transacted in the absence of a quorum.”).

^[22] See Christoffel, 338 U.S. at 87.

^[23] See H.R. Res. 965, 116th Cong. § 1(a) (2020). (“[a] proxy . . . may cast the vote of such other Member or record the presence of such other Member in the House.”); cf. H.R. Res. 965, 116th Cong. § 3 (2020) (explaining that members can instruct the proxy prior to a vote, thereby limiting the proxy’s autonomy).

^[24] Compare Rules of the House of Representatives, 118, r. III, cl. 2(a). (“A Member may not authorize any other person to cast the vote of such Member or record the presence of such Member in the House or the Committee of the Whole House on the state of the Union.”) and Rules of the House of Representatives, 117, r. XI, cl. 2(f) (2023) (“A vote by a member of a committee or subcommittee with respect to any measure or matter may not be cast by proxy”) with H.R. 965, 116th Cong. § 3(b) (2020) (“Determination of Quorum. Any Member whose vote is cast or whose presence is recorded by a designated proxy under this resolution shall be counted for the purpose of establishing a quorum under the rules of the House.”).

^[25] Compare Rules of the House of Representatives, 118, r. XI, cl. 2(f) (2023) (“A vote by a member of a committee or subcommittee with respect to any measure or matter may not be cast by proxy.”) with Rules of the House of Representatives, 116, r. XI, cl. 2(f) ( 2021) (citing H.R. Res. 5, 94th Cong. p. 20) (“the [proxy] rule was amended to permit proxies in committees with additional restrictions requiring an assertion that the grantor was absent on official business or otherwise unable to attend, requiring the Member to sign and date the proxy, and permitting general proxies for procedural matters.”).

^[26] See id.; see also H.R. Doc. No. 117-161, supra note 19, at 24 (applying Ballin to quorum proceedings but only discussing proxies once, and in application to H. R. Res. 965, 116th Cong. § 3 (2020)).

^[27] Cf. id. at 157 (applying the same rule to the Committee of the Whole, that despite being near to or a majority of the House, such a committee does not have the power to legislate, but only to recommend a report to the House).

^[28] Compare Rules of the House of Representatives, 117, r. XVI (2022) and Rules of the House of Representatives, 118, r. XVI (2023) with U.S. Const. art. V.

^[29] See U.S. Const. art. I, § 5, cl. 1.

^[30] See Wesberry v. Sanders, 376 U.S. 1, 13–14 (1964) (“The Constitution embodied Edmund Randolph’s proposal for a periodic census to ensure ‘fair representation of the people,’ an idea endorsed by Mason as assuring that ‘numbers of inhabitants’ should always be the measure of representation in the House of Representatives.”); see also Raines v. Byrd, 521 U.S. 811, 827–31 (accepting that dilution of Congress’s Article I powers could establish standing and on those grounds rejecting the Line Item Veto Act, which gave the President the power to cancel certain spending and tax provisions in bills passed by Congress.).

^[31] See Alison McHardy, The ‘Hidden’ Parliamentarians of Medieval England, 35 Medieval Prosopography 87, 91 (explaining the practice in the English Parliament of clergy to give letters of proctors, or proxies, to represent and vote on their behalf); Cf. Henry M. Robert, III, et al., Robert’s Rules of Order 33 (12th ed. 2006).

^[32] Robert Luce, Legislative Procedure: Parliamentary Practices and the Course of Business in the Framing of Statutes 25–28 (1922).

^[33] See id. at 27–31. It is notable that proxy voting was not only a contentious subject in Congress, but also in other institutions, such as the Electoral College. See also Chiafalo v. Washington, 140 S. Ct. 2316, 2325 (2020) (“[S]uppose in a system allowing proxy voting (a common practice in the founding era), the proxy acts on clear instructions from the principal, with no freedom of choice. Still, we might well say that he cast a “ballot” or “voted,” though the preference registered was not his own. For that matter, some elections give the voter no real choice because there is only one name on a ballot (consider an old Soviet election, or even a down-ballot race in this country). Yet if the person in the voting booth goes through the motions, we consider him to have voted. The point of all these examples is to show that although voting and discretion are usually combined, voting is still voting when discretion departs.”).

^[34] Benjamin Franklin, Franklin’s Articles of Confederation art. VIII (Jul. 21, 1775).

[35] Id. at art. VIII (“At every Meeting of the Congress One half of the Members return’d exclusive of Proxies be necessary to make a Quorum.”).

^[36] 2 The Records of the Federal Convention of 1787 252–53 (Max Farrand ed., 1911).

^[37] Id.

^[38] Id.

^[39] Id. at 253–54.

^[40] Id. at 254.

^[41] Id.

^[42] Id.

^[43] Most references to proxies in the transcript of the Constitutional Convention involve how members can employ the proxies to corrupt or influence legislation. See, e.g., 1 The Records of the Federal Convention of 1787 394–95 (Max Farrand ed., 1911) (Mr. Hamilton explaining how offices held by proxy can be used to influence appointments).

^[44] 3 The Records of the Federal Convention of 1787 620–21 (Max Farrand ed., 1911).

^[45] Id. at 622.

^[46] See Francis Newton Thorpe, Constitutional History of the United States 386 (1970) (“[Western states would be] entitled to vote according to their population, all would be right and safe; but possessing an equal vote, a more objectionable minority than ever might give law to the whole. The relative merits of the two plans had now been thoroughly shown, and by a vote of seven States to three, the larger States against the small, the New Jersey plan was rejected for the Virginia. The vote indicated that the more perfect Union about to be formed would be national rather than federal in character.”); see also Committee to Recall Robert Menendez From the Office of U.S. Senator v. Wells, 204 N.J. 79, 158 (2010) (Rivera-Soto, J., dissenting) (“Disputes among the states about how to balance representation between and among populous and sparsely-settled states which spawned the Virginia Plan, favoring the former, and the New Jersey Plan, which protected the latter, dominated the debate.”).

^[47] See The Federalist No. 58 (Alexander Hamilton) (“As connected with the objection against the number of representatives, may properly be here noticed, that which has been suggested against the number made competent for legislative business. It has been said that more than a majority ought to have been required for a quorum; and in particular cases, if not in all, more than a majority of a quorum for a decision. That some advantages might have resulted from such a precaution, cannot be denied. It might have been an additional shield to some particular interests, and another obstacle generally to hasty and partial measures. But these considerations are outweighed by the inconveniences in the opposite scale. In all cases where justice or the general good might require new laws to be passed, or active measures to be pursued, the fundamental principle of free government would be reversed. It would be no longer the majority that would rule: the power would be transferred to the minority.”).

^[48] Rules of the House of Representatives, 116, r. XI cl. 2(f) (“[I]n the 94th Congress . . . the rule was amended to permit proxies in committees with additional restrictions requiring an assertion that the grantor was absent on official business or otherwise unable to attend, requiring the Member to sign and date the proxy, and permitting general proxies for procedural matters.”).

^[49] See, H.R. Doc. No. 117-161, supra note 19, at 156 (“Although it was formerly the rule that a quorum was necessary for debate as well as business (IV, 2935–2949), in the 94th Congress the House restricted the Chair’s ability to recognize the absence of a quorum (clause 7 of rule XX). Clause 5(c) of rule XX permits the House to operate with a ‘‘provisional quorum’’ where the House is without a quorum due to catastrophic circumstances. In the 116th and 117th Congresses the House adopted a provision, effective during a designated public health emergency, to count for purposes of establishing a quorum all Members voting or recording their presence by proxy”).

^[50] Id.

^[51] 8 Clarence Cannon, Cannon’s Precedents of the House of Representatives 35 (Gov’t. Printing Off. 1936).

^[52] Id.

^[53] Id.

^[54] 7 Clarence Cannon, Cannon’s Precedents of the House of Representatives 144 (Gov’t. Printing Off. 1935).

^[55] Id.

^[56] Id.

^[57] 8 Cannon, supra note 53, at 433.

^[58] Id.

^[59] Id.

^[60] 4 Lewis Deschler, Deschler’s Precedents 2674 n.9 (Thomas J. Nicola, ed., 1994) (citing Rules of the House of Representatives, 96, r. XI cl. 2(e)(1) (1979)), https://www.govinfo.gov/content/pkg/GPO-HPREC-DESCHLERS-V4/pdf/GPO-HPREC-DESCHLERS-V4.pdf.

^[61] Id. at 2679 (emphasis added).

^[62] Id.

^[63] Id. at 2736.

^[64] Id.

^[65] Id. at 2737.

^[66] McCarthy, 5 F.4th at 41.

^[67] See The Federalist No. 58, supra note 49.

^[68] Gravel, 408 U.S. at 625.

[69] McCarthy, 5 F.4th at 39.

^[70] Id. at 41.

^[71] Id. at 40.

^[72] Compare U.S. Const. art. I, § 5, cl. 1 with U.S. Const. art. I, § 5, cl. 2 (“Each House may determine the Rules of its Proceedings, punish its Members for disorderly Behaviour, and, with the Concurrence of two thirds, expel a Member.”).

^[73] See The Federalist No. 58, supra note 49.

^[74] Cf. H.R. Res. 965, 116th Cong. (2020).

^[75] 2 The Records of the Federal Convention of 1787, supra note 38, at 254; see also Luce, supra note 34, at 25.

^[76] 2 The Records of the Federal Convention of 1787, supra note 38, at 200.

^[77] 3 The Records of the Federal Convention of 1787, supra note 46, at 620.

[78] Gravel, 408 U.S. at 636 (citing United States v. Johnson, 383 U.S. 169, 179 (1966)).

^[79] See McCarthy, 5 F.4th at 40.

^[80] Gravel, 408 U.S. at 609 (“It appeared that on the night of June 29, 1971, Senator Gravel, as Chairman of the Subcommittee on Buildings and Grounds of the Senate Public Works Committee, convened a meeting of the subcommittee and there read extensively from a copy of the Pentagon Papers. He then placed the entire 47 volumes of the study in the public record.”).

^[81] Id.

^[82] Id. at 608.

^[83] Id. at 608–09.

^[84] Id. at 621–23.

^[85] Petition for Writ of Certiorari at 14–16, McCarthy v. Pelosi, No. 20-5240 (Sept. 9, 2021).

^[86] United States v. Brewster, 408 U.S. 501, 502 (1972).

^[87] Id. at 526 (“Taking a bribe is, obviously, no part of the legislative process or function; it is not a legislative act. It is not, by any conceivable interpretation, an act performed as a part of or even incidental to the role of a legislator.”).

^[88] Id. at 528 (“The only reasonable reading of the Clause, consistent with its history and purpose, is that it does not prohibit inquiry into activities that are casually or incidentally related to legislative affairs but not a part of the legislative process itself.”).

[89] Compare Gravel, 408 U.S. at 621–22 (“The United States fears the abuses that history reveals have occurred when legislators are invested with the power to relieve others from the operation of otherwise valid civil and criminal laws . . . [This view] provides no protection for criminal conduct threatening the security of the person or property of others, whether performed at the direction of the Senator in preparation for or in execution of a legislative act or done without his knowledge or direction. Neither does it immunize Senator or aide from testifying at trials or grand jury proceedings involving third-party crimes where the questions do not require testimony about or impugn a legislative act.” (emphasis added)) with McCarthy, 5 F.4th at 39 (“The challenged Resolution enables Members to cast votes by proxy, and the ‘act of voting’ is necessarily a legislative act—i.e., something “done in a session of the House by one of its members in relation to the business before it.” (emphasis added)).

^[90] See Gravel, 408 U.S. at 621.

^[91] Powell v. McCormack, 395 U.S. 486, 503 (1969) (“Legislative immunity does not, of course, bar all judicial review of legislative acts.”).

^[92] Id. at 490–94.

^[93] Id. at 548 (“Unquestionably, Congress has an interest in preserving its institutional integrity, but in most cases that interest can be sufficiently safeguarded by the exercise of its power to punish its members for disorderly behavior and, in extreme cases, to expel a member with the concurrence of two-thirds. In short, both the intention of the Framers, to the extent it can be determined, and an examination of the basic principles of our democratic system persuade us that the Constitution does not vest in the Congress a discretionary power to deny membership by a majority vote.”).

^[94] Id.; see U.S. Const. art. I, § 5, cl. 2.

^[95] Id.

^[96] McCarthy, 5 F.4th at 41.

^[97] In Powell, while the court dismissed the case against Members of Congress, the court retained it against House agents. Unlike the Gravel staffers—who were personally employed by Senator Gravel—the staffers in Powell were “House agents solely within the House” and not an “employee outside the House having a direct effect upon a private citizen.” See Powell, 395 U.S. at 504. Perhaps there is an argument that petitioners sued the wrong individual; but even if petitioners did fail to plead sufficiently, they could simply bring the case back as a suit against House staff enforcing the rule.

^[98] See Powell, 395 U.S. at 533–34.

^[99] Cf. Ballin, 144 U.S. at 5.

[100]  See U.S. Const. art. I, § 5, cl. 1.

[101] See, e.g., Kimo Gandall et al., Predicting Precedent: A Psycholinguistic Artificial Intelligence in the Supreme Court, 14 Case W. Res. J.L. Tech. & Internet 220, 228–29 (2023) (explaining that traditional institutionalist explains of Supreme Court behavior—such as a case specific background, or the legal rule in question—is only 70% accurate, while an algorithm with features built from sentiment was over 91% accurate).

Water and Federalism in Texas v. New Mexico – Frances Williamson

Posted by JLPP on Jul 30, 2024 in Per Curiam

Water and Federalism in Texas v. New Mexico

Frances Williamson*

Drought plagues the western United States.[1] California, Colorado, Arizona, New Mexico, and Texas, among others, rely heavily on the dwindling flow of two major rivers: the Colorado River and the Rio Grande River. These rivers provide millions with drinking water and support hundreds of thousands of acres of agriculture. As the water disappears, states, tribes, and communities are left wondering what the future holds in a dry climate.

Unsurprisingly, scarcity and apprehension generate conflict. Last year, the Supreme Court heard Arizona v. Navajo Nation, a case that set the Navajo tribe against western states and the federal government as it tried to gain guaranteed protection of tribal water.[2] The water at-issue flowed within the banks of the Colorado River, a body of water that is no stranger to dispute and litigation.[3] What made this case so interesting was not just its implications for the Colorado River Compact or its impact on tribal resources. The Colorado River spurred litigation that gave great insight into federal power as it relates to the ability of other governments to control, use, and preserve their natural resources.

And this past spring, another river made its way to the Supreme Court—the Rio Grande.

This note discusses the implications of the Court’s recent decision in Texas v. New Mexico and Colorado, a case that concerns a state-state agreement related to water apportionment and groundwater pumping along the Rio Grande. The Court’s recent decision undermines the historical function of the states to define and protect water rights, and it weakens the interstate compact as a tool for future state-to-state negotiation and innovation. The majority’s holding creates three obstacles: 1) it limits future cooperation of states when faced with federal intervention in water disputes, 2) it undermines the “cooperative federalism” in interstate water law, and 3) it restrains the ability of states to adapt to unique hydrogeological realities. Even for those uninterested in water law, the currents swirling underneath this opinion speak to the current, and future, balance of federal and state power in the management of this country’s natural resources.

I. History and previous litigation

This case concerns the Rio Grande Compact, an interstate agreement between Colorado, New Mexico, and Texas that apportions the Rio Grande’s waters among the states.^[4]

In 1906, the United States and Mexico entered into a treaty wherein the U.S. promised to keep available 60,000 acre-feet of water in the Rio Grande.^[5] To comply with this obligation, the Bureau of Reclamation constructed the Elephant Butte Reservoir in New Mexico, about 100 miles north of Texas’s eastern border. The federal government split the remaining reserved water between New Mexico and Texas and entered separate contracts with each state—the “Downstream Contracts.” For New Mexico, the Bureau agreed to supply the Elephant Butte Irrigation District with enough water for 88,000 irrigable acres. For Texas, the Bureau agreed to supply the El Paso County Water Improvement District with enough water for 67,000 irrigable acres.^[6]

The remainder of the Rio Grande’s water—water not captured and reserved by the Bureau of Reclamation’s Rio Grande Project—was apportioned by the states themselves. In 1938, the states entered into the Rio Grande River Compact.^[7] Essentially, the Compact determined how much water each state delivered to the next.^[8] Colorado must deliver a certain amount of water to New Mexico. New Mexico, in turn, must deliver water to the Elephant Butte Reservoir, which would feed the portion of the Rio Grande that flowed into Texas.^[9] The Compact also realized the role of the Bureau and USGS in monitoring water delivery, especially between the Elephant Butte Reservoir and Texas’s water district. Congress approved the Compact, and it became binding law.

But the situation soon became turbulent. Within twenty years of the Compact’s passage, drought began affecting the southwestern states. As a result, irrigators in New Mexico south of the Elephant Butte Reservoir began pumping groundwater, which decreased the amount of water that actually flowed across the New Mexico-Texas border.^[10]

Decades later, in 2013, Texas sued New Mexico in the Supreme Court of the United States for declaratory and injunctive relief (Texas v. New Mexico, or Texas I). Texas wanted to prevent New Mexico from interfering with the passage of water through the Rio Grande Project; New Mexico water users needed to stop groundwater pumping south of the Reservoir. In 2014, the U.S. sought to intervene in the suit.^[11]

The Supreme Court ruled in its favor, rejecting the recommendation of the Special Master that the U.S.’s claims be dismissed.^[12] But the majority opinion, authored by Justice Gorsuch, noted that simply because Congress plays a role in approving interstate compacts, it does not necessarily follow that the federal government  automatically receives “blanket authority to intervene in cases concerning the construction of those agreements.”^[13] The opinion set out four justifications for the U.S. to intervene: 1) the Rio Grande Compact was “inextricably intertwined” with the Downstream Contracts; 2) New Mexico conceded that the U.S. “plays an integral role in the Compact’s operation”; 3) New Mexico’s breach of the compact jeopardized the US’s delivery of water to Mexico; and 4) the U.S. sought substantially the same relief as Texas, a signatory state.[14]

Notably, the opinion stated that “This case does not present the question whether the United States could initiate litigation to force a State to perform its obligations under the Compact or expand the scope of an existing controversy between States.”[15] The Court explicitly reserved judgment on whether the U.S., on its own, could bring suit against a Compact state.

After the U.S. intervened, litigation continued for almost ten years. Until, finally, the states made a breakthrough—Texas and New Mexico negotiated a consent decree that complied with the Compact and settled the dispute between the states. Specifically, the decree updated the method used to calculate the amount of water New Mexico had to deliver downstream to the Texas border. This new method permitted New Mexico users to pump at slightly elevated rates[16] and modified the amount of water New Mexico had to store in the Elephant Butte Reservoir. Texas received sufficient water from the Reservoir, and New Mexico water users kept pumping.

But despite the states’ agreement, the U.S. objected, and claimed the consent decree would dispose of its Compact claims without its consent. The Special Master disagreed, and the U.S. filed an exception.

II. The current case

The U.S. claimed that New Mexico’s groundwater pumping violated the terms of the Compact—similar to the claim brought by Texas in the prior litigation (Texas I). Specifically, the U.S. argued New Mexico must comply with incredibly low groundwater pumping rates.[17] Although Texas had sought the same relief in Texas I, it no longer asserted that claim. Therefore, the Court faced the question it previously avoided: Can the federal government continue litigation and force a state to perform its Compact obligations, even when no other signatory state maintained those claims?[18]

The majority determined that it could. The federal government had “its own, uniquely federal claims under the Compact,” and the consent decree would dispose of those claims.^[19] Because the federal government had to deliver water to New Mexico and Texas under the Downstream Contracts, as well as Mexico under the 1906 treaty, the U.S. could intervene and styme the consent decree. Besides, the majority concluded, the Court had already given the U.S. permission to intervene in Texas I.[20]

Ironically, Justice Gorsuch, the author of Texas I, wrote a passionate dissent. He made several points that undermined the majority’s decision:

1. The consent decree is not inconsistent with the Compact or other congressional decree.^[21]
2. The government’s claims expands the scope of the original dispute between Texas and New Mexico.^[22]
3. This action undermines historical reliance on state water law and cooperative federalism.^[23]

Not only did the majority mischaracterize Texas I, but it also disregarded the deference historically accorded states to navigate water disputes between themselves. The U.S. did not have the power to “assert essentially any Compact-related claims” on its own. [24] The Court confused narrow permission to intervene with an ongoing license to intervene in Compact cases.[25]

At the end of his dissent, Gorsuch wrote three brief statements—two questions, and one warning. Each of these sentences, transcribed below, connect to three obstacles created by the majority’s decision: 1) it limits future cooperation of states when faced with federal intervention in water disputes, 2) it undermines the cooperative federalism in interstate water law, and 3) it restrains the ability of states to adapt to unique hydrogeological realities. In a broader context, these obstacles suggest a growing imbalance in state and federal power.

III. Ramifications

A. Limiting federal intervention

“But in light of the veto power the Court seemingly awards the government over the settlement of an original action, what State in its right mind wouldn’t object to the government’s intervention in future water rights cases?”^[26]

Rivers pay no heed to jurisdiction, some spanning as many as seven states in their journey from headwaters to delta.^[27] The way one state treats an interstate water source inherently affects the uses of its neighbors. For example, if farmers in Arkansas diverted all the water from the Mississippi River, riparian crops in Louisiana would not receive any of its beneficial flows. Interstate water requires interstate management.

Compacts became a way to mitigate the harms states impose through excessive pumping, irrigation, and various other forms of diversions. State delegates met and determined the proper allocation of river water among the relevant states. The states then signed the contract and submitted it for Congress’s approval.[28] Today, over 20 different compacts (in various iterations) exist.^[29] The terms of each compact differ greatly—some simply allocate volumes of water to individual states, and others set minimum guidelines for shared water management.^[30]

Even the judiciary recognized the superiority of compacts as a tool for state to resolve water disputes. The Supreme Court wrote that issues with interstate water management are “more likely to be wisely solved by co-operative study and by conference and mutual concession on the part of representatives of the States so vitally interested in it than by proceedings in any court however constituted.”^[31] The Court plays a role in enforcing Compact terms through original jurisdiction.[32] Since 2015, the Supreme Court has resolved disputes involving the Republican River Compact,^[33] the Yellowstone River Compact,^[34] and other attempts to equitably apportion aquifers and basins.^[35] Compacts remain an important tool for conflict resolution between states, and the Court plays a role in maintaining their efficacy.^[36]

The Court’s decision in Texas v. New Mexico risks undermining this reliable mechanism for resolving interstate water disputes by showing states the risk of federal intervention. States will hesitate, if not balk, when faced with federal interference in a compact dispute. Rather than acknowledge federal interests, western states may disregard them in an attempt to obscure the need for federal intervention.

Admittedly, it is important that the U.S. retain the right to intervene in compact disputes. The federal government holds reserved water rights for dozens of American Indian tribes, as well as endangered species living in interstate waters. And states are often accused of devaluing—or totally ignoring—these rights.^[37] If the federal government does not intervene on their behalf, those water rights may disappear.

But, as the dissent notes, even if the Court rejected the government’s individual claim, the U.S. had access to the lower federal courts.^[38] Rather than intervene in an original jurisdiction compact dispute, the federal government would bring a separate suit disputing the compact’s effect on federal reserved water rights. For example, in this case, the federal government could initiate action against New Mexico for impeding its ability to honor its 1906 treaty with Mexico. Similarly, the federal government can sue in lower federal court if a compact allocated too much water to a state and impeded the water rights of a federally-recognized tribe.^[39] The drastic result that the majority envisioned did not come from necessity; the federal government had other legal avenues to protect federal water rights.

Justice Gorsuch exposes this concern and identifies the existential threat Texas v. New Mexico creates for the future of interstate water compacts. The Court gives the federal government license to undo signatory state efforts to resolve water disputes, simply because the U.S. is interested in the disputed water.[40] Even if the federal government chooses not to exercise the full extent of this intervening power, states that would prefer negotiation to litigation may be hesitant to pursue such a path. Why expend resources settling out of court when the federal government will block you later?[41] States will resist attempts by the U.S. to intervene on behalf of reserved water rights. The government should celebrate negotiations between compact signatory states as efficient and effective means of water dispute resolution. Instead, the majority’s decision clouds negotiations with doubt.

B. Undermining cooperative federalism

“If, as happened here, even heavily caveated permission to intervene may end up federalizing an interstate dispute, what State (or Court) would ever want to risk letting the nose make it under the tent?”^[42]

The majority granted the federal government the power to intervene in a compact dispute between signatory states. Specifically, it let the government disturb a complex negotiation process, claw back the authority and autonomy of the states, and upset the delicate balance built by a compact. In this way, Texas v. New Mexico contradicts the practice of cooperative federalism in water law jurisprudence.

Cooperative federalism involves federal deference to state water law and federal adherence to state water compacts.[43] This concept dates back to 1902, when Congress passed the Reclamation Act. The Act authorized the Department of the Interior to construct irrigation infrastructure in areas designated by the Secretary of the Interior in the western states. But the grant of authority to a federal department did not diminish the role of the states in water management. The Act stated:

“Nothing in this Act shall be construed as affecting or intended to affect or to in any way interfere with the laws of any State or Territory relating to the control, appropriation, use, or distribution of water used in irrigation, or any vested right acquired thereunder, and the Secretary of the Interior . . . shall proceed in conformity with such laws, and nothing herein shall in any way affect any right of any State or of the Federal Government or of any landowner, appropriator, or user of water in, to, or from any interstate stream or the waters thereof.”^[44]

Congress ensured the Reclamation Act did not eviscerate state water law. The federal government was bound, in this context, by state law.

Cooperative federalism recognizes the role that states and the federal government play in water management. The majority’s decision undermines this historic balance and allows the federal government to demolish a state-state agreement. As Justice Gorsuch writes, the agreement between Texas and New Mexico disappeared because the federal government would not “accept a settlement providing it with everything it once sought, and now seeks to promote the use of an alternative 1938 baseline that no party seeks and New Mexico represents could cost it tens of thousands of jobs and a large segment of the State’s economy.”[45] The consent decree did not violate the Rio Grande Compact, nor did it practically impair the Bureau of Reclamation’s functions. In fact, the consent decree promised to end a ten-year dispute without further controversy. But the majority permitted the U.S. to transform a state-state negotiation into federal litigation. The decision undermined the autonomy of the states to make state-to-state water allocation decisions, and it threatened the framework of water law jurisprudence established at the turn of the century.

C. Restraining state adaptation

“In that way, too, I fear the majority’s shortsighted decision will only make it harder to secure the kind of cooperation between federal and state authorities reclamation law envisions and many river systems require.”^[46]

Finally, and potentially most concerning, the majority’s opinion threatens to restrain attempts by the state to adapt to drought conditions. In an amicus brief, a group of water law professors wrote that “the Consent Decree account[ed] for the most serious hydrological threat to the Basin since the groundwater revolution: aridification caused by climate change.”[47] The consent decree employed an “aridity adjustment” that required an annual adjustment to the measuring index.[48] Texas and New Mexico could account for increased rates of evaporation, and insufficient replenishment, in this manner.[49] The consent decree represented state innovation in the face of drought.

For example, the consent decree made the forward-thinking shift to integrate groundwater and surface water.[50] Not all western states treat surface water and groundwater as connected, and many states apply different laws of ownership to each.[51] But the integration of both systems allows lawmakers to account for the hydrological reality that groundwater and surface water are connected. Laws in integrated systems regulate water rights in ways that match the natural world. The consent decree, once again, exemplified state adaptation to changing ecological circumstances.

The consent decree helped the signatory states adapt to drought and decreased rainfall, and the Court allowed the federal government to stifle it. Will states feel the same incentive to experiment and innovate if they fear federal intervention? Does the lack of federal cooperation in Texas v. New Mexico discourage states hoping to bring their compacts into alignment with a changing western landscape? The Court’s decision chills the willingness of states to adjust interstate compacts in accord with an era of drought. The principles adopted in Texas v. New Mexico will impact how western states handle water-management challenges in the future, maybe for the worse.

*                       *                       *

This case speaks to more than groundwater pumping in New Mexico. It addresses the future of this nation’s natural resources management, and it potentially undermines the role of the states in that vital endeavor. States protect the water rights of their citizens, and interstate compacts became a successful avenue for dispute resolution. The Court’s recent decision destabilizes that historical function and weakens the interstate compact as a tool for state-to-state negotiation and innovation. The federal government’s new license to intervene may limit the cooperation of states when faced with federal intervention in water disputes. And the reasoning of the majority’s opinion undermines the historic “cooperative federalism” principle of interstate water law. Finally, the decision restrains the ability of the states to adapt to unique hydrogeological realities, as any state-led experimentation may be vetoed by the federal government. The balance of federal and state power shapes the future of water in the West. Texas v. New Mexico strains that balance.

* Law clerk to Judge Charles Eskridge, U.S. District Court for the Southern District of Texas, 2023–2024. Harvard Law School, J.D. 2023; Rice University, B.A. 2020. All errors are my own.

[1] The Department of the Interior has named the current period of water scarcity “the drought crisis.” U.S. Dep’t of the Interior, Addressing the Drought Crisis, https://www.doi.gov/priorities/addressing-the-drought-crisis [https://perma.cc/J8Y7-F96N].

[2] 599 U.S. 555 (2023).

[3] A 1922 compact—the Colorado River Compact—addresses the complicated allocation of water from the river among various western states and tribes.

[4] H. R. 4997, Public Act No. 96, May 31, 1939.

[5] Texas v. New Mexico, 602 U.S. ___, 2–3 (2024).

[6] Id. at 3.

[7] H. R. 4997, supra note 4.

[8] Id.

[9] Texas, 602 U.S. at 4.

[10] Id. at 4–5.

[11] Texas v. New Mexico, 583 U.S. 407 (2018).

[12] Id.

[13] Id. at 413.

[14] Id. at 413–15.

[15] Id. at 415.

[16] Groundwater pumping was rare in 1938, when the Compact was written. The consent decree allowed pumping to occur at the 1951-1978 rate—“the D2 period”—a period when groundwater pumping was more common.

[17] Specifically, the 1938 groundwater pumping rates—not the higher 1951-1978 rate identified in the consent decree.

[18] Texas v. New Mexico, 602 U.S. ___, 6–8 (2024).

[19] Id. at 12, 16.

[20] Id. at 9–12.

[21] Texas, 602 U.S. at 19 (Gorsuch, J., dissenting) (“Few rules in water law are more settled than that federal reclamation projects must comply with any Compact, state water law, or consent decree term ‘not inconsistent with clear congressional directives respecting the project.’” (quoting California v. United States, 438 U. S. 645, 672 (1978))).

[22] Id. at 21. The U.S. did not previously request a return to the 1938 groundwater pumping baseline, so the consent decree satisfied the interests the U.S. asserted in the original case. Id. at 22, 24.

[23] Id. at 24–25.

[24] Id. at 24.

[25] Id.

[26] Id. at 25.

[27] Noah D. Hall, Interstate Water Compacts and Climate Change Adaptation, 5 Env’t & Energy L. & Pol’y J. 237, 255 (2010); see also Lynn A. Mandarano, Jeffrey P. Featherstone & Kurt Paulsen, Institutions for Interstate Water Resources Management, 44 J. of the Am. Water Resources Ass. 136, 136 (2008).

[28] The Compact Clause in the U.S. Constitution states that “No State shall, without the consent of Congress, . . . enter into any agreement or compact with another State, or with a foreign power.” U.S. Const. art. I, § 10, cl. 3.

[29] Hall, supra note 27, at 260–61.

[30] Id. at 255.

[31] New York v. New Jersey, 256 U.S. 296, 313 (1921); see id. at 257; see also, Amelia I.P. Frenkel, Interstate Water Rights: Take No Drop for Granted, 40 Harv. Env’tl L. Rev. 253, 260 (2016) (“[W]ater compacts have, in modern times, proven to be the favored method of division.”).

[32] The Constitution vests the Supreme Court with original jurisdiction to adjudicate interstate disputes over the meaning of compact terms. See Texas v. New Mexico, 602 U.S. ___, 11 (2024) (Gorsuch, J., dissenting).

[33] Kansas v. Nebraska, No. 126, Orig, 574 U.S. 445 (2015).

[34] Montana v. Wyoming, No. 137, Orig, 538 U.S. 142 (2018).

[35] See Brief of Water Law Professors as Amici Curiae Supporting Respondents, Texas v. New Mexico, 602 U.S. ___(2023) (No. 141).

[36] “The result of the Court’s approach, when it is successful in securing compliance with pre-existing apportionments, is to preserve, insofar as possible, states’ settled expectations with regard to the availability of water.” Frenkel, supra note 31, at 256.

[37] For example, Arizona v. Navajo Nation was a recent case highlighting state water interests in conflict with tribal water interests. 599 U.S. 555 (2023). Ultimately, the federal government was not forced to maintain responsibility for the Navajo’s water rights—a result desired by the states involved in the litigation.

[38] Here, a dismissal of the government’s claims without prejudice, as recommended by the Special Master, would allow the government “to pursue any valid independent claims it may have in the ordinary course in lower courts.” Texas v. New Mexico, 602 U.S. ___, 15 (2024) (Gorsuch, J., dissenting). And if the government prevailed, it may return to the Supreme Court for modification of the consent decree.

[39] For example, the litigation that culminated in Arizona v. Navajo Nation—litigation that implicated the Colorado River Compact—began in a federal district court and moved to the Ninth Circuit before receiving a grant of cert. 599 U.S. 555 (2023).

[40] Here, the consent decree did not “impose any new improper duty or obligation on the federal government or deny it the ability to pursue any valid claim it may have.” Texas, 602 U.S. at 13 (Gorsuch, J., dissenting). Instead, it merely required the Bureau of Reclamation measure distributed water with the metric it already used—the 1951–1978 numbers. Id.

[41] The dissent notes that, in this case, Texas and New Mexico spent “tens of millions of dollars in lawyers’ fees” over a period of ten years to craft the consent decree. Texas, 602 U.S. at 25 (Gorsuch, J., dissenting).

[42] Id.

[43] Id. at 10–11.

[44] 43 U.S.C. § 383.

[45] Texas, 602 U.S. at 25 (Gorsuch, J., dissenting).

[46] Id.

[47] Brief of Water Law Professors, supra note 35, at 12.

[48] Id.

[49] Id.

[50] Id.

[51] New Mexico, for example, applies a prior appropriation framework to both groundwater and surface water rights; the surface water and groundwater legal frameworks of the State are fully integrated. Stanford: Water in the West, “New Mexico,”  https://groundwater.stanford.edu/dashboard/region.html [https://perma.cc/E8EW-67RL] (last visited May 27, 2024). In Arizona, however, groundwater and surface water are governed by different legal frameworks—they are not integrated. While surface water is public property subject to prior appropriation laws, percolating groundwater is subject to the reasonable use doctrine. Stanford: Water in the West, “Arizona,” https://groundwater.stanford. edu/dashboard/region.html [https://perma.cc/E8EW-67RL] (last visited May 27, 2024).