Wall Street and the First Amendment
by Jamie Z. Isani
When bankers and First Amendment lawyers encounter each other at cocktail parties, they can struggle to find common interests. Here is something to break the ice.
In July 2010, President Obama signed into law the Dodd-Frank Act, the most comprehensive series of financial regulatory reform measures since the Great Depression. Just one year later, the United States Supreme Court issued Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (2011), a significant First Amendment decision holding that the government may not interfere with the free flow of the data that fuels today’s digital economy.
Could the latter be used to attack the former? Give that some thought while I get you another drink.
As financial institutions and other regulated entities endeavor to adapt to the new regime imposed by Dodd-Frank, they should consider that Sorrell makes the First Amendment a powerful tool that can be used to resist the new regulations that restrict the flow of information. Compliance is so passé. Attack is the new black.
Here’s to that! Clink!
In Sorrell, healthcare data mining companies and pharmaceutical manufacturers challenged the constitutionality of a Vermont law that restricted the disclosure of prescriber-identifiable information in prescription records for marketing.
In a 6-3 opinion by Justice Kennedy, the court rejected the state’s argument that the law’s restrictions on the sale, transfer, and use of information were nothing more than a regulation of conduct, rather than speech. In a related case, an appellate court had likened the sale of such information to a commodity such as “beef jerky.”
The court reminded the state that “the creation and dissemination of information are speech within the meaning of the First Amendment.” “Facts,” Justice Kennedy wrote, “are the beginning point for much of the speech that is most essential to advance human knowledge and to conduct human affairs.”
Recognizing that consumers often have a stronger interest in the free flow of commercial speech than they do in political dialogue, the court struck down the Vermont law under the traditional commercial speech test, which requires the government to show that the statute directly advances a substantial governmental interest and that the measure is drawn to achieve that interest.
Justice Breyer fired off a spirited dissent cautioning that the Vermont law was “inextricably related to a lawful governmental effort to regulate a commercial enterprise.” He accused the majority of opening a “Pandora’s Box of First Amendment challenges to many ordinary regulatory practices that may only incidentally affect a commercial message,” and predicted that the decision would strip power from energy and trade regulators, the Federal Reserve Board, the Food & Drug Administration and other bureaucrats.
His prediction already has come true. In the two years since Sorrell, fighting the power already has started to show green.
After Sorrell, courts have used the First Amendment to invalidate application of a rule banning off-label drug marketing (as Justice Breyer predicted), United States v. Caronia, 703 F.3d 149 (2d Cir. 2012), an FDA requirement that cigarette packages carry graphic warnings, R.J. Reynolds Tobacco Co. v. FDA, 696 F.3d 1205 (D.C. Cir. 2012), and an NLRB policy directing employers to post pro-labor signs, Nat’l Ass’n of Mfrs. v. NLRB, 717 F.3d 947 (D.C. Cir. 2013).
But can Sorrell actually be used to help me? I’m a banker, not a drug maker, tobacco pusher, or union buster. What’s the scoop on that?
Well, it did not pass Justice Breyer’s notice that the Federal Reserve Board regulates the content of statements, advertising, loan proposals, and interest rate disclosures, but only when made by financial institutions. That is not to say that a challenge to long-standing regulatory provisions such as Regulations Z and DD would be easy, but the government would need to show that the regulations directly advance important government interests.
The government might have a more difficult time justifying recently enacted regulations, which impose a new set of burdens on financial institutions and other regulated entities. Dodd-Frank’s statutory labyrinth implicates a host of First Amendment concerns because it introduces many information regulations, including some that many say don’t make any sense at all. For instance, the act directs the Securities and Exchange Commission (SEC) to require companies that use “conflict minerals” to disclose whether they came from the Democratic Republic of the Congo. Companies claimed this would do nothing to promote peace and security in and around the DRC as sponsors of the law claimed. The trial court deferred to the judgment of Congress, Nat’l Ass’n of Mfrs. v. SEC, Civil Action No. 13-cv-635 (RLW), 2013 WL 3803918 (D.D.C. July 23, 2013), but the U.S. Chamber of Commerce and two business groups have appealed. You should keep a close eye on this.
Energy companies also challenged another Dodd-Frank-mandated SEC rule requiring disclosure of payments to foreign governments in connection with the commercial development of natural resources. The district court side-stepped those First Amendment issues by invalidating the rule on other grounds, Am. Petroleum Inst. v. SEC, Civil Action No. 12-1668 (JDB), 2013 WL 3307114 (D.D.C. July 2, 2013), but only after an appellate judge roundly criticized the government’s arguments that the rule did not implicate speech.
Of more direct concern to banks and other lenders, Dodd-Frank also authorizes the newly created Consumer Financial Protection Bureau to collect data from companies it regulates “as necessary for the Bureau to fulfill the monitoring, assessment, and reporting responsibilities imposed by Congress.” 12 U.S.C. § 5512(c)(4)(B)(ii).
The bureau has not issued a rule or order governing its collection of data, as required by the act, yet it reportedly is demanding voluminous records from banks as part of the regular examination process. Responding to data demands is a burdensome process for banks, so expect to see some First Amendment push back against the Bureau soon.
Improving the regulatory process and the marketplace may be substantial government interests, but the First Amendment requires the bureau, if challenged, to prove how demanding large amounts of transactional data on an ad hoc basis directly serves those interests. As Sorrell makes abundantly clear, the government “may not burden the speech of others in order to tilt public debate in a preferred direction.”
Wait, here comes a reporter. Should we tell her that the First Amendment is not just for newspapers anymore?