FinRegRant #6: Oral Arguments in NRA v. Vullo

Brian Knight’s thoughts on what he saw Monday at the Supreme Court

Transcript

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to bbrophy@mercatus.gmu.edu

Brian Knight: Hello, my name is Brian Knight, and this is FinRegRant, the audio blog of the Mercatus Financial Regulatory Program. Today, I'm joined by my co-host, Jessica Paska. 

Jessica Paska: Hi, Brian. 

Brian: We're going to talk about an issue that's gotten a lot of coverage here, National Rifle Association versus Vullo. The reason is, as of this recording yesterday, the 18th of March, was the oral argument for that case, and I attended the oral argument. We're going to talk about what I observed and what it might mean. Jessica, let me hand it over to you so this isn't just one long monologue. 

Jessica: Mostly, I have questions for you, Brian. 

Brian: Well, that's great. 

Jessica: First off, can you just tell us what is this case? What are the two sides? 

Brian: Sure. The National Rifle Association is an advocacy group, a bit controversial, shall we say, focusing on Second Amendment issues. Maria Vullo was the superintendent of the New York Department of Financial Services, the New York regulator for banks and insurance companies. She is accused of trying to use her regulatory authority to pressure banks and insurance companies to cut ties with the NRA with the intention of hurting the NRA's ability to advocate. She was sued, and the issue that came before the court is that she and Andrew Cuomo, and the NYDFS as an institution, abused their regulatory power, and the trial court also refused to dismiss some of the First Amendment claims against Vullo. She appealed to the Second Circuit, which said that the trial court erred, and that the claim should have been dismissed, and because what she is alleged to have done is not a problem, and that even if it was, she'd be entitled to qualified immunity. 

The NRA appealed that decision up to the Supreme Court, and the Supreme Court took up the case, and that's where we're at.  

Just to set one important point, the procedural posture of the case is that we're at the motion to dismiss stage, and so all allegations are supposed to be taken, all allegations in the complaint are supposed to be read in the way most favorable to the plaintiff. There are things that will, if the Supreme Court reverses the Second Circuit, if this case becomes live again, the trial court's going to have to actually find out whether or not it happened, whether or not the accusations are true. For right now, the court's supposed to treat those accusations as if they were true. 

Jessica: Okay. Okay. For each side, do we see a traditional lineup of a left-right split or something predictable like that? 

Brian: No. The NRA was represented by David Cole of the ACLU. 

Jessica: The ACLU was on the same side as the NRA? 

Brian: Yes. Which on the one hand, strange bedfellows. On the other hand, actually happens more than you might think on speech issues, because both groups understand the importance of being able to have robust free speech. This choice was controversial. The New York chapter of the ACLU actually dissented from the ACLU's decision to represent them. I'm sure quite a few members of the ACLU are less than thrilled, and the ACLU submitted an amicus brief at the trial court and I believe at the Second Circuit level on behalf of the NRA. It isn't that they agree on everything, including Second Amendment issues, but just that the ACLU did have serious concerns about the potential free speech implications of Vullo's actions. 

Jessica: Do you see this as a banking regulation case or is this a free speech debate? 

Brian: It's a free speech debate that happens in the context of banking and insurance regulation. That context matters, because that was the vehicle that Vullo allegedly used. Actually, that question came up a little bit in the oral argument, which we can get into. I think that this case is primarily a First Amendment case. There are certainly elements of financial regulation that are very important in the case and how it's going to play out. 

Jessica: Did you have any thoughts about the case or didn you submit something? 

Brian: Yes. Along with Professor George Mocsary and Trent McCotter from the law firm Boyden Gray & Associates, we submitted an amicus brief, both at the cert petition stage. We argued that the court should take the case. Then at the merit stage, we argued that the court should reverse the Second Circuit. Our brief focused on the regulation of banks and insurance companies, and how powerful things like guidance were, how prone to abuse concepts like reputation risk are, and the potential implications thereof. 

Jessica: You were there in the room, observing. Can you tell us a little bit about how the arguments went? What were the judges' reactions, and maybe the highlight of each side's argument? 

Brian: Sure. Let me set the stage here first, if I may. That is, this was part of a double header, right? A double feature. The first case to go was Murthy v. Missouri. That's a very similar case — did the federal government or didn’t the government try to suppress speech through an intermediary using coercive tactics? Murthy deals with social media companies and the allegation is that the federal government pressured and threatened social media companies to remove or at least bury posts that said controversial things that the government disagreed with about COVID, and about elections, and some other stuff. That was the case that was argued first. 

These two cases are in some ways very similar and in some ways very different. In Murthy, one of the big questions and one of the big challenges I think the plaintiffs are going to face is that it's pretty hard — I don't want to say it's impossible — but it's pretty hard to show a tight nexus between a government actor making a threat and something actually happening. There are a lot of inferences that have to be made, because the argument is, well, what the federal government said is if you don't give us what we want, we are going to do something like lobby Congress to repeal Section 230, which social media companies really like because it insulates them from a lot of liability, or they are going to get the Department of Justice and the FTC to use antitrust on you. 

The executive on its own cannot repeal Section 230. It would need to get Congress to do that.. I don't believe there were any emails from like the Department of Justice's antitrust division or the FTC saying, if you don't do this, we will do this. It's more implied that, well, if this doesn't happen, maybe we will make some phone calls. That is one of the challenges. Also, it's harder for the plaintiffs in that case to be able to draw a tight nexus between “this email got sent” and “my post got taken down.” They have to make inferences. It doesn't necessarily mean that that's inappropriate or impossible, but that's a challenge. 

Whereas with NRA v. Vullo, Maria Vullo had all the power she needed right away and there are at least allegations of a very tight connection where she said to some insurers, "I'll go easy on you if you drop ties with the NRA." They dropped ties with the NRA, and she sent guidance letters very explicitly criticizing not just the NRA, but other gun rights groups. Then saying, "Well, you should really be thinking about the reputation risk that doing business with these groups might pose, and by the way, under New York law, you have to consider reputation risk." You have to make far fewer inferences to get to the plausible threat of coercion. 

Jessica: Do you have thoughts about reputation risk? 

Brian: I'm against it. I think it's prone to abuse, and I'm not convinced at all that it's terribly useful. Now, unfortunately, as much as I wish there had been more discussion of that at the hearing, and what there was seemed to come mostly from Justice Kagan, who made the statement to David Cole, the ACLU attorney representing the NRA, "Well, reputation risk is a real thing, and don't regulators have to do that type of thing?" With the understanding that to win his case, Cole did not have to say, "No, reputation risk is bad," or “it's inherently illegitimate.” What he said is, "Well, even if it is, the use here as a tool to suppress speech is what is constitutionally problematic." 

I read his comments to acknowledge, or to not want to fight, the point on reputation risk, which is unfortunate from my perspective, but I completely understand why he did it, and that doesn't necessarily bind all people everywhere to the notion that reputation risk is A-okay. There did not seem to be much in the way of criticism of reputation risk, except from Alito at the margins. I don't know if that is indicative of the fact that the court's just accepting the notion that reputation risk is okay or if there's already enough Justices on the court who are like, yes, it can absolutely be abused. That's not the question we need to ask. I should say that trying to predict what the Supreme Court does based on oral arguments is probably a fool's errand, and so I'm not going to try. Who knows what they might be thinking. 

Jessica: Was that the best argument from the ACLU lawyer? 

Brian: There's a saying among lawyers that if the law is on your side, pound the law. If the facts are on your side, pound the facts. If neither is on your side, pound the table. Now, I'm going to try to not pound the table, because our audio engineer told us not to, but I feel like Cole really got the opportunity to pound the law, and Katyal, who was representing Vullo, spent most of his time pounding the table. 

Now, mind you, I'm clearly biased. I am not at all neutral on this, but Cole was able to make the argument based upon previous Supreme Court precedent that there's ample evidence that the end goal that Vullo was trying to pursue was to suppress the NRA's speech. The actions she took under color of law to do that are constitutionally problematic. I think that's a really good argument. You don't have to get into the inherent legitimacy or illegitimacy of something like reputation risk, because the point he made, which was very good, is like, "Look, if Vullo fined the NRA a dollar because of their speech, it's clearly unconstitutional." He made that in the point of, well, the First Amendment only requires that the government burden or only prohibits that the government burden speech. It doesn't have to actually stop it. It just has to burden it. The other point of that is, not necessarily the NRA, but fining people can be a legitimate act of a government agency. But if it's done for a constitutionally impermissible purpose, that's the problem, right? It isn't that the act itself has to be illegitimate. It has to be done for an illegitimate purpose. 

I think he had very strong arguments. I feel like Katyal really tried to frame things in the context of this was regular law enforcement, that the NRA was doing something really bad. He kept referring to the Carry Guard insurance, which, I understand there's a debate about this. He argued, and at least the Justices who engaged with it seemed to accept, that it had provisions in it that might provide insurance for criminal activity, like if the insured committed criminal activity. He referred to it as murder insurance on multiple occasions. When people or when the Justices raised the question, "Well, wait. The insurance products that led to the enforcement actions, the NRA's products were not the only ones that had defects." He's like, "Yes, but those others were not murder insurance." 

I feel like he ended up having to sort of push at: the NRA's bad, this is bad, this product was really bad. The problem with that is when you actually look at what Vullo did, what she did, particularly the guidance documents, but even the enforcement actions swept well beyond that. Cole pointed this out. One, there were three insurers who did business with the NRA who all got hit with fairly harsh enforcement actions. Only one of them offered the offending Carry Guard product. If this was about Carry Guard, it would only be one enforcement action against one insurance company. Then the guidance documents that were put out didn't talk about sort of defects in insurance products. They talked about how bad guns were, how people demanded gun control, about how the NRA and similar gun promotion groups should be stigmatized and boy, you should think about your reputation. It's hard to retroactively fit that into this when, even if that were actually the motivator, the actions would've looked different. 

Jessica: Now, I won't ask for your prediction on how the case turns out. However, could you explain a few potential outcomes or a range of outcomes that you could see coming? 

Brian: Yes. Here's where I want to go back, bring Murthy back in, because these two cases — I should note that the solicitor general (SG), who represents the United States, had representatives arguing in both cases. U.S. federal officials are the defendants in Murthy v. Missouri, and so the SG's representing them. There's no federal official directly involved in NRA v. Vullo, and yet the solicitor general asked for and was granted divided arguments. The solicitor general was actually able to argue as well, and argued largely in favor of the NRA, except on a narrower basis. We'll talk about that. 

Anyway, taking the two cases together, it was clear at least to my mind that the solicitor general really wants to protect the types of conduct that's alleged, or at least that they will acknowledge, in Murthy, which is much more what would be considered traditional conversation, traditional persuasion, and was willing to — I don't know if I'd want to use this phrase, but if one were to argue that the SG was trying to throw Vullo under the bus, I don't know if one would be wrong. In the sense that during the Murthy decision, the SG represented there would appear at least once, and maybe more than once, which is like, "Unlike in the next case, here the official only did X." Then in Vullo, they really tried to make the argument like, "Well, look, as alleged," and again, that's the standard we're working with here, "this would clearly be coercive." 

Now, the SG tried to draw a very narrow line in Vullo, and I don't know if they're going to be successful with that, because they really tried to take the guidance documents and be like, "Well, look, the guidance documents are bad. There is evidence that could bear on the allegation that Vullo offered to go easy on insurance companies if they cut ties with the government." 

Yes, the fifth paragraph where she explicitly mentions the regulatory obligation, maybe that's bad. Alito pushed back on that a bit and was like, "Wait, are you saying that absent that fifth paragraph, it would be okay?" My read on it is that the SG tried to say yes, but also I think hemmed and hawed, because Alito pushed pretty hard and made the entirely correct point, in my opinion, that the companies would know what the deal was, which was the point we raised in our amicus brief, though I'm not claiming credit for that necessarily. You don't need to put in the explicit threat for it to be read as a threat. 

The SG did not want to concede that. I think if I had to predict — not predict a future, but one possibility here —I should say that in Murthy there's a lot more. Like I mentioned earlier, there are way more procedural issues there. The plaintiffs there have a much harder time proving up standing. It wouldn't surprise me if the court actually kicked the Murthy decision on the basis of standing, because it's a really thorny issue. It's really challenging. 

This would give the opportunity for the court to sidestep trying to make some very fine line judgements on standing grounds. Then on Vullo, if I had to place money — it could come out any number of ways. My suspicion is that Vullo ends up losing, but the question then becomes, how wide or narrow is that decision going to be? Because it could be as narrow as what the SG wants, which is, well, the only thing that's inherently objectionable is offering to go easy on people if they cut ties with a group whose speech you don't like, and everything else is okay. 

It could be as wide as, though I don't think it's going to be this wide by any stretch, if aversion to a group speech is a motivating factor, the action is inherently unconstitutional. I think if I had to guess where we're likely to end up is on some question about how far does the court go out, if at all, outside of the narrow facts alleged? This is an area where I think just the brazenness of Vullo's actions certainly do not help her, but also may pose a barrier to getting a more broad and useful Supreme Court opinion, because she and Cuomo's actions would make a mafioso blush in their brazenness. 

The court could, if it wanted to be really, really narrow, say, "Well, yes, okay, this stuff is clearly wrong." Now the question is, does the court say, "This stuff is clearly wrong, but anything less crazy than this is okay," or does it say, "Well, this stuff is clearly wrong, and because these are the facts in front of us, we don't have to deal with, 'Well where is the line?'" We can just say that wherever the line might be, this is over it. Which could certainly occur. The saying, I don't know how true it is anymore, is that Roberts likes narrow opinions. He likes consensus. I don't know if he could get 9-0 on that, but he could probably pull…It's hard to tell for moral arguments. It seemed like Sotomayor was skeptical of some of Vullo's arguments. 

A 7-2 opinion that's pretty narrow might be doable, and in that scenario, then what you'd be looking for are the concurrences.. Who knows? I don't know if they could get a 7-2 opinion saying, “what Vullo is accused of doing is not okay, but anything less crazy than that is.” I don't know if they could get that many conservatives on that side. Something that says, “well, what she's accused of doing is not okay and we'll deal with other facts when we get them,” maybe. 

Then you'd look at the concurrences to see where are people, where are Justices trying to drive the debate? Do you get something that's like, "Well, we drew this line and this should be the line," or do you get concurrences with people trying to make the argument like, "No, the line should be drawn more broadly than this for the following reasons," and let's expand on it, expand on the logic behind it. Then if we get a case that presents a less brazen abuse, this is how we should handle it. 

Jessica: Great. Well, are there any observations or predictions that we didn't cover here? 

Brian: Well, one thing came up a lot in both arguments that I must say I'm disappointed by. I'm not surprised, but I'm disappointed — one of the other arguments that Katyal made, and one of the things that came up in Murthy a lot and I think with more justification in Murthy, is this, “Well, but wait. Won't this sweep in a lot of other government contract? Won't this cause a lot of trouble for the government?” 

To my mind, if something's unconstitutional, who cares if it causes trouble to the government? I believe it was Jackson who made a statement in the Murthy case, something to the effect of “I'm worried that this is going to tie the government's hands in moments of significant crisis.” My immediate reaction there is, well, the First Amendment's there to tie the government's hands. It's not that there aren't certain exceptions, but we shouldn't be surprised or disappointed if the Bill of Rights ties the government's hands. That's what it's there for. Then Katyal made the argument that, "Well, if you allow this case to move forward, what you're going to get are a lot of people who are under investigation by the government suing on First Amendment grounds." One, so what? Because using the courts is how we're supposed to handle these things. Two, you'd have to have a credible claim for it to really move anywhere. 

Katyal made a lot of arguments trying to get the court to think about this case as akin to a retaliatory arrest, right? I think Cole did a good job of pointing out that that's its own branch of case law and its own thing. It doesn't really apply to the First Amendment, the issues that came up here. Anyway, I don't know how the court's going to come down. I suspect we're going to find out in June or July. Like I said, I came away from the hearing thinking like, well, yes, the NRA is going to win. Then I read the transcript this morning and I came away thinking like, well, they might, but it might be too narrow to really do what it should. I don't know. We'll see. Again, I don't know how, there's a whole debate about how useful and meaningful oral argument is. We'll have to see. 

Jessica: All right. We'll have to see and we'll have you back here with your reactions when the outcome is released. 

Brian: I assume so. I don't know if it's bad enough. I don't want to talk about it anymore. I might just climb under my desk. Yes, well, definitely, we'll see about it and see what all went on. I'm sure there's a lot of nuance that I'm not conveying, but it was an interesting experience. If you have the opportunity to go to the Supreme Court and watch a hearing, you should. It is a bit of an ordeal to get in there, but it's worth it. 

Jessica: Thanks for sharing your observations. 

Brian: Oh, thank you. 

[00:26:24] [END OF AUDIO]