Scalia: ‘Regulators are wise to be more careful’ after Chevron ruling

Gun Rights
Eugene Scalia
Gene Scalia, the renowned administrative law litigator and former Secretary of Labor who has been retained by a large bank lobbying group for a potential lawsuit over capital rules, says a key decision by the Supreme Court last week should be a warning for all regulators.

Caroline Brehman/Bloomberg

Transcription:

Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.

 Kyle Campbell (00:03):

Hello and welcome to this special edition of the American Banker Podcast. My name is Kyle Campbell and I’m a reporter for American Banker covering the Federal Reserve and bank regulation.

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Friday, June 28th was a momentous day for regulatory law in Washington. The Supreme Court’s decision in Loper Bright Enterprises versus Raimondo eliminated a major legal precedent that has shaped administrative law for the past 40 years. Known as Chevron deference, the doctrine established that agencies have the ability to interpret ambiguous authorities granted to them by Congress, and that courts should defer to those interpretations, so long as they are reasonable. In practice that deference has shielded regulators from lawsuits claiming they have exceeded or abused their statutory powers. Now, in the wake of Loper Bright, ambiguous legal statutes will be interpreted by the courts.

To understand just what this means, I sat down with Gene Scalia, one of the most decorated administrative law litigators in the country just hours after the decision came down.

(01:05):

Scalia co-heads the administrative law and regulatory practice at Gibson Dunn & Crutcher. He has mounted successful challenges against the Securities and Exchange Commission, Commodity Futures Trading Commission, and the Financial Stability Oversight Council, helping MetLife shed its designation as too big to fail.

He’s also the son of the late former Supreme Court Justice Antonin Scalia. He served as labor secretary during the Trump administration. And, most recently, he was retained by the Bank Policy Institute for a potential lawsuit against the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency over their proposed changes to the Bank Capital Framework last year.

Well, Gene, thanks for taking the time to have this conversation today. It’s worth noting that it is a big day for administrative law and the interpretation of regulatory policy in the US and we’ll certainly get into that at some point during the conversation. But, I think maybe a good place to kick off would be with a little bit about yourself and how you came to specialize in this particular practice of law. Is this something you sought out? And that being administrative law, and I know that you have multiple, you also focus on employment as well, but specifically for administrative law, was this something you sought out or did it sort of come to you in some way and what has sort of kept your interest?

Gene Scalia (02:36):

Well, first, Kyle, it’s good to join you and thanks for sitting down to chat. Yeah, I’ve been interested in administrable law really since I started practicing law very long time ago, and I see administrative of law as the law that governs the government. That’s what administrative of law really is about at the end of the day. And one of the reasons I went to law school was I was interested in government. And so if you’re interested in the law of government, you become interested in administrative law. That’s how I got there. My father, Justice Scalia had taught administrative law. It was a strong interest of his, and that may have influenced me as well. And then when I came to the Gibson Dunn law firm, where I am today, I also happened to work on some matters that involved administrative of law, and I just really enjoyed the work. I found it interesting just as an intellectual matter, and I found that being able to help clients in this area could be very rewarding. We have a wonderful government, a government to be admired, but it sometimes oversteps and it is very powerful. And I like having the ability to defend people and firms that are unfairly treated by our government, which is something that we have special statutory procedures established to enable people to push back on and defend their rights.

 Kyle Campbell (04:13):

So how have you seen the pendulum sort of swing in terms of the ability for people to defend themselves against the government? And over time have you seen particular, either decisions or sort of moments in time, not necessarily individual things, but sort of movements that have pushed that pendulum to one side or the other?

Gene Scalia (04:36):

I think the basic framework for litigating with the government about its rules, for example, has been pretty constant during the time that I’ve been practicing. The kinds of arguments that you might make, the different things that you might sue about have not changed immensely that I can think of. But I do believe that in the last 10 or 12 years, there’s been one significant shift, which is simply that the courts have become more interested in administrative law. And that’s been especially pronounced under what I think of as the new Roberts Court, that is the Supreme Court with the advent of the justices appointed by President Trump. And so I think since approximately 2019, 2020, the court has shown a very great interest in questions of administrative of law and identifying and properly applying limitations that exist on the exercise of executive power. Chief Justice Roberts wrote a really pretty passionate dissent, it might’ve been about 10 years ago or so now about the current administrative state, how the government is operated today, how large it is, how powerful it is, and comparing the government we have now with the government the founding fathers envisioned, including how, although the founding fathers believed strongly the separation of powers, it seems at times that the powers are blended in a way the framers wouldn’t have anticipated.

(06:29):

So, I think the Chief Justice has brought a strong interest in this area. Obviously, justices Thomas and Alito had a strong interest even before his arrival. And Justice Kavanaugh had been on the DC circuit, had written in the area. Justice Gorsuch before joining the court had written a very powerful critique of Chevron. It was probably his best known decision. And Justice Barrett is also somebody with expertise in the area. And for that matter, Justice Kagan was also I think a significant comment around questions of administrative law. So, you’ve got a court with that’s really very, very interested in this area, and you have lower courts that are, in part, because of the Supreme Court’s interest responding to that themselves. And if I could just add one thing, Kyle, when I first started doing administrative law cases, it sometimes was hard to get a court interested. It was seen as a kind of obscure and maybe boring body of law. That is not a problem now, but when you bring administrative of law case to a court, a case where you’re saying the government abused its power, I find judges are very interested and are more alert to the issues in a case like that than they might’ve been when I started doing this two, three decades ago.

 Kyle Campbell (07:57):

So I mean, if there is a factor — is there a factor within that that you think has created this environment more so than others? I mean, is the policies that the government is putting out or the actions it’s taking going too far? Is it the recipients of those actions becoming fed up or, I mean, you mentioned that the judges being more aware of these issues. Is that really where this sort of sort of change is settled just so you have a more informed and more plugged in judiciary?

Gene Scalia (08:31):

Yeah, there are two trends, and they may be related to some extent. One, I’ve been talking about a court that is just itself increasingly interested, very focused on this body of law. I think that administrative law may prove to be the defining issue of the Roberts Court or one of maybe a couple defining issues for the Roberts Court. So, you have a court that is interested in this area, a court that plainly believes that the way the government operates today has drifted from the structure and manner of operation set forth in the Constitution, and that was expected by the founding fathers. And who believe that at times it runs afoul of the Constitution, statutory provisions and just rights that American citizens have. And so that’s one trend that courts interested in that area and in making sure that things are set right. But the second trend is that presidents have turned to administrative action increasingly, probably over the last 30 some years, 30, 35 years.

(09:55):

And one of the principle reasons for that is that we’ve had a Congress that’s been fairly divided. It can be hard to enact legislation. And so if you’re newly elected president, what are you to do? You want to get your agenda through, you can’t get legislation enacted. And as President Obama said, at one point you try to use the pen and the phone, you try to use the other powers of your office to move your agenda forward. You do that through rulemaking, executive orders, other kinds of executive action. And so I think we’ve seen the presidents, Republican and Democrats, increasingly make — resort to administrative agencies to pursue their goals. And then we’ve been talking about the, so-called Chevron decision. This was a Supreme Court decision from 1984 and today marked just about its 40th anniversary and also its passing. But what Chevron said in so many words was that when an agency has responsibility to administer a statute and the precise requirements of the statute are unclear, then the agency’s understanding of the statute and the authorities that it has under the statute should be accepted by the courts as long as that understanding that interpretation is reasonable.

(11:31):

So again, Chevron says if the statute’s unclear on a point, the agency’s got authority in the area and the agency adopts a reasonable interpretation. Chevron said courts should accept that. That empowered agencies. And so at a very time when you had presidents and executive branch officials looking to agencies to get more things done, you had a Supreme Court decision telling the courts, ‘Hey, let them do that within reasonable bounds.’ And so that was a sense in which the Supreme Court going back 40 years had sort of facilitated an increasing and in some ways an aggressive use of administrative agencies to pursue policy goals.

(12:24):

And of course the Supreme Court, let me just add, one of the outgrowths of that, and this has become more apparent with each new presidential administration. One outgrowth has been that when a new president comes in succeeding, the president of the other party, he’s undone a number of the rules, the legal interpretations and positions adopted by his predecessor. And then when another president comes in after that, things get flipped back to way they were. So there’s been bit of a ping pong effect that has made it a little bit harder to know what the law is and what you need to do to comply. And I think the justices have seen that, and I think they’ve recognized that that’s not a very good way to run a railroad. And I think it’s one of the — Chevron became so heavily used that I think that use contributed to the court’s growing skepticism.

Kyle Campbell (13:32):

But would today’s decision, which effectively as you said, overturned the Chevron doctrine, that interpretation, is that going to stop that ping pong effect? Is it going to make it sort of slow the rate of play? What is the sort of net impact? I mean, obviously it’s pretty fresh, we’re still learning the nuances, but what is your first reaction to how this is actually going to play out broadly?

Gene Scalia (14:00):

Well, the so-called Loper Bright decision. That’s the case that overruled Chevron. And as you mentioned, it happened to issue today, the day we’re sitting down the chat. Loper Bright really wipes away that body of law that I described and said, it’s the court’s law. I’m sorry, it’s the court’s job to say what the law is. That’s their job. And they shouldn’t defer to what agencies happen to say. If the agencies have some good thoughts, of course the court should take that into account, but the courts are going to have to reach their own bottom line conclusion what the law means. I do think that this decision will make agencies somewhat more hesitant to try to push the law. I think in the past, agencies felt that they were being given leeway and that if they could persuade courts it was a close call, then they were going to be able to do what they wanted, and now they know they’re going to be reviewed a bit more closely and a little more strictly.

(15:14):

And so they’ll probably be a little more careful. Now, there are, obviously, many different statutes under which agencies still have a lot of discretion. They get to decide which issues to regulate that are under their lawful authority. They get to set priorities. Sometimes Congress says to them, you ought to determine, for example, what is a hazardous pollutant. And they can still do those kinds of things, but they can’t have the final word on what the statute itself means. And so I think that agencies will be reigned in a little bit. One of the really interesting questions is whether a decision like this and some of the other decisions that we’re seeing from the court will reenergize Congress. Because, I mentioned that it’s hard to get legislation through, a lot of people believe that Congress has been punting the tough issues to agencies and has been doing it too much and for too long. And some of those people believe that once agencies are on a shorter leash, presidents and the Congress will be forced to recognize that they actually do need to get more done through legislation and will have to find a way to get there. And so there’s a school of thought which says that overruling Chevron and forcing Congress to do its job will actually produce a more productive Congress over time. That remains to be seen. But that’s one theory. Yeah.

 Kyle Campbell (17:01):

So now the sort of consummate American banker question, what does it mean for banks? So I know banking law is not your main area of practice, but from your vantage point, how has banking regulation distinct from other types of regulation and do you think Chevron has had the same impact on regulation in the banking space as it has had maybe around securities or around the environment or other more hot button issues in the regulatory space?

Gene Scalia (17:37):

Yeah, maybe just a word or two on the perspective I bring, right? Because you say I’m not an expert in banking law. My specialty is administrative law, but I do deal with the regulatory practices of a lot of different agencies. And so I’ve dealt with the Labor Department, I’ve dealt with other employment agencies. I’ve dealt with the SECA lot. I dealt with the CFTC, I’ve dealt with the Federal Communications Commission, the Department of Transportation and other agencies, and FSOC — I represented MetLife when it sued over its designation as too big to fail. And I’ve had some matters involving the FDIC and the Fed as well. And so I’ve seen how different agencies function and can see some similarities and differences when it comes to the bank regulators. The most striking thing about the bank regulators is how closely they regulate banks and the power that they exercise over them. And there’s been some scholarship written about this, about the fact that through supervision, onsite examiners and the like, prudential regulators just have great power over banks, and banks are reluctant to take steps that could make those powerful regulators displeased.

(19:24):

My own perception is that because of that power and because banks don’t want to pick a fight, prudential regulators have not been especially careful in how they exercise the authority that they’ve been given, under the statutes that create the agencies and define their roles. Agencies get more careful about what they do when they know the people they’re regulating will raise concerns, push back and maybe even go to court if they think the agency’s gone too far. And bank regulators, I think generally have not been concerned about that happening. The MetLife case, for example, which was brought when MetLife was designated as too big to fail, surprised some people to see MetLife in a sense, suing its regulator.

(20:40):

And I think some people in the banking world were surprised. But MetLife considered it very carefully, and I’ll never forget a meeting with their board of directors where a fellow named William Kennard who’d been the chair of the Federal Communications Commission, that’s an agency that gets sued all the time, and he said, ‘Look, this is the way Washington works. Agencies adopt rules. People are displeased. They go to court. It’s not a big deal. It’s part of our government, it’s part of our federal statutory and constitutional system. Folks get used to it.’ And when I first sued the SEC back in I think 2005, I think they were beside themselves, who are these people suing us? They’ve been sued a lot lately, and I think they’ve gotten more used to it. It’s part of how our government is meant to function. So I think that bank regulators are at a point right now where they’ve been accustomed to exercising a lot of power and not being questioned about it. But now, they’re starting to get questioned a little bit more because for one, they’re being aggressive in certain areas. And for two folks, regulated by banks, look at what the Supreme Court is saying and doing, they look at people successfully taking the Securities and Exchange Commission to court, and they say, well, is there a reason why we can’t also bring our concerns to court if we think that our regulators have gone too far?

 Kyle Campbell (22:16):

Right, but the statutes that underpin bank regulation, they are pretty expansive and they do give a lot of power to regulators in an explicit way. So do you think that just in terms of trying to put today’s decision in context, I mean, how much of the exercise of power and the reluctance to sue comes from something like Chevron where it is sort of, again, like this broad umbrella of agencies have they have quite a bit of leeway versus the actual hard and set laws that underpin the FDIC and the Fed, et cetera? Do you just have a thought on the balance there of what’s sort of upheld this status quo?

Gene Scalia (23:10):

Again, I’m not an expert in how prudential regulators have historically proceeded, but I can analogize maybe a little bit to the Securities and Exchange Commission. As I said, I first sued the SEC in about 2005. It had not really been sued many times prior to that. And, also when its regulations were adopted prior to that, there weren’t often dissents from those regulations. But starting at around the time that I brought that lawsuit, you began to see a lot controversial non-consensus based SEC regulations. You had chairmen who were pushing the envelope rather than achieving consensus among market participants and proceeding on the basis of that.

(24:07):

I don’t know the extent to which, in the banking sector, a lot of what’s occurred historically has been based on a fairly broad consensus about the right way to go, and the extent to which lately instead, we’re seeing bank regulators behave more aggressively. But I sense that’s been happening a little bit, and it wouldn’t surprise me to see the same kind of trend as occurred with the Securities and Exchange Commission over time, which is agencies start really pushing the envelope and not acting based on what’s seen as a reasonable acceptable consensus. They’ll end up getting taken to court more and if they’re being aggressive, they’ll end up losing.

 Kyle Campbell (24:51):

So you’ve been retained by the Bank Policy Institute for a potential legal challenge to the regulators over the, so-called Basel III endgame, which is of course the capital reform proposal that came out last year. How does, I guess that particular proposal fit into some of the broader trends we’ve been discussing about bank regulators becoming a little bit more aggressive and possibly pushing the envelope? What is your broad view there?

Gene Scalia (25:20):

My understanding, just from following the debate over the capital rules proposal is that the proposal put out was very aggressive, very burdensome, very costly. And I know from having read the proposing release that it was not well justified and it wasn’t carefully considered that much. I know as an administrative law lawyer, I’m not the right person to tell you how great a break from tradition the capital rule proposal was, but it sure departed from Basel III, and almost every time it departed from Basel III, it put greater capital requirements on banks. But what really caught my attention was when I read the agency’s justification for the rule, I thought, ‘Wow, this is an agency that’s just not used to having to explain itself properly in a rulemaking,’ because its discussion was very superficial. The capital rules are economic rules. They’re about finance. They impose immense costs. They are meant to avoid other great costs. They should be adopted with a really thoughtful cost benefit analysis. And yet the cost benefit analysis in the capital rules proposal was just a few pages and very thin and poorly considered. And so what struck me most is that the rule was obviously generating a lot of controversy. It seemed to be very onerous based on everything that I was hearing, and it hadn’t been developed in a manner that would enable it to withstand a legal challenge.

 Kyle Campbell (27:13):

Yeah. The cost benefit analysis is something I’ve heard brought up in a number of forums in this discussion. Is that something that you think other agencies are maybe a little bit more focused on when they’re putting out a rule because they have had those challenges versus this one? And have you noticed any sort of cultural differences around cost benefit analysis between different agencies?

Gene Scalia (27:38):

Sure. There can be significant differences. I think an agency that’s experienced with rulemaking that’s had to go to court sometimes to explain what it’s doing is an agency that starts paying more attention to what the public says. I mentioned earlier how Congress makes fewer of the big decisions these days and pushes a lot over to agencies. And because of that, sometimes getting heard in a rulemaking is the closest that folks get to democratic participation. And so I think that paying attention to the public in rulemaking is really an indispensable part of fair and sound government these days.

(28:33):

And I think agencies that do a lot of rulemakings sometimes are brought to court to defend what they do, tend to get better at really paying careful attention to what the public’s saying. And part of that involves cost benefit analysis. Some agencies are required by the statutes that created the agency to actually do a cost benefit analysis. The SEC to some extent has that very explicit obligation, but even agencies that aren’t specifically told to do that, still have to think about the pros and cons of a rule, which especially when you’re regulating the economy finance, the pros and cons are going to be financial. And so I think any lay person, any federal judge would believe that bank regulators, when they’re adopting rules need to give really careful thought to the economic impacts of what they’re doing. And from what I’ve seen, the bank regulators are not as proficient at doing that as some other agencies.

(29:48):

A lot of my early administrative of law work involved the US Department of Labor, OSHA, which is part of the US Department of Labor. I was a general counsel for the US Department of Labor at one point. The US Department of Labor does, it does cost benefit analysis, sometimes it does pretty careful and thorough cost benefit analysis. The first time I sued the Securities Exchange Commission, I was appalled at how little they were doing in the wave of cost benefit analysis because they’re an economic agency. I would thought they would do economics better than OSHA, but they didn’t. And so I think that from what I saw from the capital rules for example, that’s a regulator that has a ways to go in appreciating what’s required in a cost benefit analysis.

 Kyle Campbell (30:39):

Got it. So I’m curious about if there’s an intersection between Chevron as it existed and the logical outgrowth doctrine, which says that if a agency has sort of asked about a certain issue and gotten gotten feedback and tried to incorporate that into a proposed rule, that it can finalize that rule in accordance, as opposed to having to re-propose. Are those two doctrines, do they kind go hand in hand and is one is the sort of logical outgrowth, is that a weaker crutch for regulators and agencies to lean on without having Chevron on the other side to sort of back them up?

Gene Scalia (31:22):

Yeah, logical outgrowth in a way relates to that point I was making earlier about democratic participation. And the idea there is when an agency is proposing a new rule, it’s got to put it out for the public to see, so the public can express its views, point out concerns, adjust corrections and the like. That’s how the public gets hurt. It’s also how the government does a better job because the public helps it see how it can improve. If what the government does is adopt a final rule that’s completely different from what was proposed, then the public often hasn’t really had a chance to weigh in and say, ‘Oh, wait a minute, here’s what I think about that. Here’s why that’s a bad reason.’ So, the whole point of notice, comment, rulemaking, democratic input has been lost. And the courts have said, when that happens, when the rule that’s ultimately adopted doesn’t flow logically from what was proposed, then notice and comment requirements have been violated.

(32:28):

So it’s another kind of check on agencies. In some ways it’s less about Chevron and more just about the public’s democratic participation and also about agencies getting the benefit of that public input. This is an issue with the Securities and Exchange Commission right now, for example, because the chairman there has proposed some extremely broad and aggressive rules, and I think it’s realized that a lot of them are too broad, too intrusive, too vague. They got to be fixed. But he can’t put out a completely different rule, the SEC instead is going to need to re-propose some of those rules. And that may be unfortunate for the chairman because I think the SEC would like to get a lot of stuff done quickly, but sometimes when you pump out a really big intrusive and somewhat sloppy rule proposal, it’s going to take you longer in the end. And we may be seeing that with some of the rules that have been proposed at the Securities Exchange Commission. Coming back to the bank capital rules, those are rules that there seems to be a consensus they need to be significantly changed. It’s probably hard to make those changes, comply with a logical growth rule and not therefore put them out for further comment, but we’ll see what they decide to do.

 Kyle Campbell (33:59):

And do you see Chevron factoring in on how that plays out? It’s sort of assumed that that’s going to be kind of an overarching theme for any sort of legal challenge, if there is one. I guess how would you anticipate regulators to maybe conduct themselves differently in light of this decision?

Gene Scalia (34:18):

Yeah, I would come back to my point that I see the Loper Bright decision from today overruling Chevron as one important reflection of a much broader trend, which is that courts today are more carefully scrutinizing how agencies exercise their authority and how far they take it. And for that reason, sure, because Chevron’s gone, but more importantly, because there’s this broader trend, I think all regulators are wise to be more careful than they’ve been in recent years, to make sure they’re acting within the authority that Congress gave them, and to make sure that they’re giving thoughtful consideration to what the public tell them their concerns are.

 Kyle Campbell (35:14):

A couple more things. Debanking is something that has been raised as a concern around specifically crypto and digital assets. You have a case underway or you filed a motion regarding Coinbase and their concerns about debanking as a result of efforts by the FDIC and the Fed. Is that correct? Or SEC. Can you explain a little bit what that motion was and what you’re seeing there on the treatment of crypto entities by the regulatory bodies out there?

Gene Scalia (35:55):

Yep. Coinbase filed a couple lawsuits this week, one against the Securities Exchange Commission. The other against the FDIC, both are suits seeking documents under the Freedom of Information Act. A request had been made to those agencies to provide documents, the documents weren’t provided under the Freedom of Information Act. When that happens, you can go to court. I should correct myself, it wasn’t actually Coinbase that filed the lawsuit. Coinbase had retained an organization to request the documents called History Associates. The documents were provided, History Associates sued, but Coinbase has said that it’s involved. So that’s all in the court papers. I probably shouldn’t get into detail about those lawsuits, but when it comes to debanking, I do think that that’s a really very interesting area. And we had a Supreme Court decision this term that was right down that lane. This is a Vullo case.

(36:56):

Didn’t involve a federal regulator involved the New York Department of Financial Services. And the allegation there was that the New York financial regulators and the Governor, Governor Cuomo didn’t like the National Rifle Association and wanted to pressure it. And to do that, pressured insurance companies and other financial institutions to stop doing business with them. The message supposedly given to the insurance companies and other financial institutions was people are angry about guns, about violence involving guns. The NRA is a lightning rod and you better think twice about doing business with them. And the allegation of the Vullo case was, in response to that pressure, the financial institutions actually did cease doing business with the NRA and the Supreme Court ruled unanimously that the NRA had stated a legitimate case. It didn’t say the NRA wins, it said that taste gets to go forward. And I mentioned earlier the power that prudential regulators have over banks.

(38:20):

Now, the more power an agency has, the greater the risk becomes it’ll try to use that power to do stuff that it’s not really supposed to be doing. Collateral objectives. Some people believe in the climate area, financial regulators are pushing too hard on the entities that they regulate to address climate issues in a way that the administration would want. And the Vullo case was an instance where the allegation was that the financial regulatory system was being used for the improper collateral purpose of ultimately regulating the gun industry. And I think that we may see more cases like that if regulators don’t stay in their lane, don’t focus on what their responsibilities are, instead try to achieve other objectives. We’ve got courts that are interested in hearing those cases.

 Kyle Campbell (39:18):

As far as crypto goes, it seems like a big set of concerns seems to be around money laundering and the use of this new technology impacting the financial system or the banking system specifically in ways that regulators aren’t comfortable with. It seems like an interesting topic of debate between how much authority does a regulator such as this have to say, and you can’t engage in this specific activity even if the activity itself isn’t expressly illegal. Right. How do you see that debate around crypto regulation unfolding? I guess, where do you see the lines being drawn, and do you think that they could be drawn a little bit more clearly as far as where bank regulators — how they can address their concerns with that particular industry?

Gene Scalia (40:16):

I think we should start with rule of law. And we live in a country where people are entitled in advance to know what the law is, because that is how you go about complying with the law. And the SEC for a number of years had sent a message that it did not regard digital assets, tokens as securities that were subject to its jurisdiction and an industry flourished. For whatever reason, the current chair, a little bit into his term, suddenly adopted a very different view, became very aggressive, refused to adopt regulations explaining which digital assets the SEC regarded as securities and which it didn’t. Also refused to adopt regulations indicating for digital assets that are securities, how compliance can actually be achieved because these digital assets are not your typical company stocks.

(41:37):

And even though the SEC adopted a novel view of the law, that novel view wasn’t clear and compliance wasn’t feasible. Nonetheless, the chairman took off after in a number of different companies. And I think regardless what one thinks about crypto digital assets and the like, I think you have to realize that’s not a proper way to go about establishing policy toward that industry. Likewise, to the extent that bank regulators collectively decided that they wanted to join in some kind of crackdown on crypto, their obligation was to proceed in a lawful manner according to ordinary processes and the like.

(42:33):

And we don’t live in a system where an agency that reaches a policy view on a particular matter can reach for any tool that happens to be its disposal and start pressuring folks to achieve that objective. Again, like I said, we like advanced notice, we like clear rules and we like vetting important policy decisions through notice and comment and the really big decisions, those are for Congress. And so crypto, for example, you’ve got the SEC, again, doing a bit of a 180, deciding to make itself the paramount regulator. I think there’s a very good argument that Congress never gave them that role, and it should be Congress to determine how that role ought to be exercised.

 Kyle Campbell (43:30):

Two last questions, if I may. First, there’s this view that with the overturning of Chevron, that regulation in general will become more litigious. Do you think that will actually happen? And if so, is that a good thing?

Gene Scalia (43:48):

Yeah, I actually see a scenario where we get less litigation because we get less agency overreach. Agencies, as I’ve said, have felt emboldened. They’ve thought, ‘Hey, when in doubt I win.’ And reversing Chevron means that when in doubt, you may well lose. And so I think if agencies overreach less, if they’re more careful to stay in their lane, you may get less litigation. As to whether or not litigation is a good thing or a bad thing. I think that people’s ability to go to court, to vindicate that rights is an extremely good thing, and the Constitution reflects that. The Administrative Procedure Act reflects that.

(44:42):

In my experience, the business community is never eager to go to court. And I’ve had a lot of conversations with clients where I’ve said to them, boy, I think you’ve got a winning case here. I think the agency really overreached, and the clients have concluded, you know what? I hear you. I just don’t want to sue. And I’ve really never had the conversation where I’ve said to a client, sorry, pal, this case is a loser. And they’ve said, I don’t care. I want to sue anyway. So I don’t think that the business community is spoiling for a fight. I think what it wants is fair rules, clear rules, advance notice, and then when those things aren’t provided, yeah, it wants an opportunity to be heard in court.

 Kyle Campbell (45:30):

Got it. And finally, you said that your interest in administrative law was rooted in an interest in government. You were part of the government from 2019 to 2021 leading the Labor Department. Would you be interested in engaging in government that way in the future, or was that sort of a one-time experience for you and you’re happy to stay here in the private world? What are your views on future service within the government itself?

Gene Scalia (45:58):

I’ve been in the government a few times now. I’ve enjoyed it, but I feel really fortunate that I love the private practice of law. A lot of people go to law school, join a law firm, don’t enjoy it. I’ve just had a lot of fun practicing law, enjoy doing it. I mean, I never say never, because I was really honored to be asked to be Labor Secretary. It was a great opportunity and I took it, but I have no reason to expect an opportunity like that will come again. And I really enjoy what I do these days.

 Kyle Campbell (46:31):

Great. Well, Gene, thanks so much for taking some time and talking through these very important issues with us today.

Gene Scalia (46:38):

My pleasure, Kyle.

 Kyle Campbell (46:39):

Thank you. Thank you for listening to the American Banker Podcast. I produced this episode with audio production by Adnan Khan. Special thanks this week to Jean Scalia at Gibson Dunn & Crutcher. Rate us, review us and subscribe to our content at www.americanbanker.com/subscribe. From American Banker, I’m Kyle Campbell and thanks for listening.

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