Federalism, Free Markets, and Free Speech

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Category: Business Regulation, Constitutional Interpretation, Corporate Law, Election Law, Federalism, First Amendment, Judges & Judicial Process, Legal History, U.S. Supreme Court
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2not even-handed justiceThe Supreme Court decision in Citizens United v. FEC strikes down as unconstitutional a federal law that prohibits corporations and unions from using general treasury funds to make independent expenditures that expressly advocate the election or defeat of candidates for office.  The majority opinion, written by Justice Kennedy, ignores hundreds of years of Supreme Court history in interpreting the subjects of federalism, free markets, and free speech.  In its place, Justice Kennedy presents a textualist interpretation of the First Amendment that is divorced from any history or context.  Justice Kennedy engages in the sort of “faux originalism” (syn. “fake,” “artificial,” “false”) that has been criticized by Judge Richard Posner.  Kennedy places a historical glaze on his own personal values and policy preferences, and calls the result the “original understanding” of the First Amendment.

As such, Citizens United v. FEC stands with District of Columbia v. Heller, the Second Amendment case decided in 2008, as an example of the Justices slapping the “originalist” label on a profoundly un-originalist interpretation of the Bill of Rights.  It is appropriate to view the two cases together.  Both are exercises in raw political power employed in order to accomplish conservative objectives.  Both ignore hundreds of years of understanding about the meaning of the relevant constitutional provisions, in favor of a meaning derived by taking the words of the Amendment out of context.  And both embrace interpretations of the constitutional Amendment at issue that are inconsistent with the meaning ascribed to that same language by the intellectual father of originalism, Robert Bork.  In the same way that modern scholars deride the “Lochner era” as a misguided period in American Constitutional Law, I believe that future scholars and judges will recognize and reject the intellectual dishonesty of the “Heller era.”

We begin, as we so often do, with John Marshall.  Justice Marshall’s reading of the Constitution was clearly a reading that respected the rights of property.  As R. Kent Newmyer succinctly summarized it, in his book “John Marshall and the Heroic Age of the Supreme Court,” Marshall understood the rights of property ownership to include an individual’s right “to acquire property and deploy it creatively as he saw fit and to enjoy its fruits without hindrance.” (Newmyer p. 264)  But this does not mean that Marshall embraced Adam Smith’s theory of completely free markets, where private business enterprises act completely free from government regulation.  First of all, not even Adam Smith advocated for markets that were sealed off from all government regulation.  Second of all, while the Framers of the Constitution were aware of Adam Smith, there is little evidence that Smith’s economic theories influenced the Constitution.

John Marshall’s understanding of how the Constitution protected property rights was, characteristically, derived from his understanding of federalism.  Justice Marshall struck down state laws that interfered with private property rights, for example in Fletcher v. Peck and Dartmouth College v. Woodward, because those laws violated the Contract Clause of the Constitution.  However, Marshall’s motivation was not to protect private economic activity from all forms of government regulation.  His motivation was to protect national economic interests from protectionist state laws.  Marshall viewed the states less as political units and more as local interest groups that would pass legislation favoring parochial economic interests over interests from out of state.  If the young United States of America was to build a truly nationwide economy, private enterprise had to be able to grow free from the constant parade of protectionist legislation being passed by the states.  As stated by Newmyer: “What he feared . . . was state legislative meddling with contracts, either by passing laws that undercut contracts between individuals or by reneging on its own.” (Newmyer p. 265)

Marshall’s protection of the rights of property, therefore, is not inconsistent with the idea of uniform, federal regulation of private enterprise when in the public interest.  (Kutler, infra, p. 67) Marshall simply never faced this issue.  The corporations in existence at the time of his opinions were not national in scope, and corporate activity that exploited labor or endangered consumers would not become common until the industrial revolution.  Marshall used the text of the Contracts Clause to clear local state laws from the path of private enterprise, and no more.  He sought to support a system of federalism where national interests could act free from state constraints.  He did not seek to completely immunize private enterprise from all government regulation. (Kutler, infra, p. 179)

Those who put their faith in the “invisible hand” of the marketplace often assert that the owners of a private enterprise have a natural law right to use their property as they see fit, free from any government interference.  The Supreme Court rejected this argument shortly after John Marshall’s death when, in 1837 the Court decided the Charles River Bridge Case.  The majority of the Court held that the Massachusetts legislature, by granting a charter to the proprietors of a toll bridge, did not violate the Contract Clause of the Constitution by subsequently chartering the construction of a competing (and free) bridge.  As explained by University of Wisconsin law professor Stanley Kutler in his classic book, “Privilege and Creative Destruction,” the case strongly affirmed the power of government to regulate the use of private property.  In the words of Chief Justice Taney, “The continued existence of a government would be of no great value, if . . . it was disarmed of the powers necessary to accomplish the ends of its creations; and the functions [government] was designed to perform, transferred to the hands of privileged corporations.” (Kutler p. 91)  The Constitution has never been interpreted to preclude government regulation of a private business enterprise for the public good.

The specific treatment of corporations under the Constitution is entirely consistent with this treatment of private property in general.  There is no evidence that the Framers’ generation understood corporations to have any rights under the Constitution separate from the rights of the persons who owned the corporation.  In fact, for most of our nation’s history, the Supreme Court denied the existence of any rights for corporations under the Constitution at all.

This history is usefully summarized in a forthcoming article by David Gans and Douglas Kendall.  In 1809, Justice John Marshall wrote in Bank of U.S. v. Deveaux that corporations were not “citizens” as that word was used in Article III of the Constitution.  Unfortunately, the result of the ruling was that corporations evaded the jurisdiction of the federal courts in order to avoid paying their debts.  Therefore, the Court quickly overruled Deveaux and adopted the legal fiction that corporations could be deemed “citizens” for purposes of suing or being sued in federal court.  The Court’s motivation in adopting this legal fiction, however, was to preserve the ability of natural persons harmed by a corporation to avail themselves of the diversity jurisdiction of the federal courts.

In 1839 the Court specifically ruled that the treatment of corporations as “persons” for diversity jurisdiction purposes did not grant corporations any of the other rights that the Constitution granted to natural persons.  The Court never extended any of the individual rights provisions of the Constitution to corporations until the end of the 19th century.  Nor did the Court ever suggest that the federal government lacked the power to regulate corporate activity, so long as the government did not violate the literal terms of the corporate charter.

The first case extending constitutional rights to corporations came in 1897, under the Equal Protection Clause of the 14th Amendment, and it ushered in the Lochner era when the Supreme Court used theories of substantive due process to assert that the Constitution protected corporations from federal economic regulation.  It is significant that this innovation came via an interpretation of a Reconstruction-era constitutional amendment, and not from a purported interpretation of the original text.  Moreover, in non-economic areas, such as the rights of self-incrimination, the Court continued to refuse to recognize any constitutional right for corporations.  Also, during this era, two giants of the law, Oliver Wendell Holmes and Louis Brandeis, dissented often and aggressively from all extensions of constitutional rights to corporations.

The Lochner era ended in 1937, after President Roosevelt threatened to pack the Supreme Court.  The Supreme Court retreated from its Lochner line of cases and once again began to uphold the federal power to regulate corporate affairs.  Over time, however, the Supreme Court began to hold that this power to regulate corporate activity was tempered by the existence of constitutional rights for corporations under the 14th Amendment and under the criminal procedure provisions of the Constitution.

The true revolution occurred in 1978, when the Supreme Court ruled in First National Bank of Boston v. Bellotti that a state law limiting the ability of corporations to spend money on referenda elections that didn’t affect their property was unconstitutional.  The ruling did not explicitly hold that corporations had a First Amendment right, but it did say that the protection of speech was so important that it didn’t matter who was doing the talking.  This ruling was revolutionary because it was a departure from precedent that, with the exception of the Lochner era, had held that the distinction between the regulation of corporations and the regulation of individuals is an important distinction under the Constitution.

However, the Bellotti opinion was careful to preserve the power of the government to regulate corporate spending in the context of candidate elections, as opposed to referenda.  The Court continued to recognize this power to regulate corporate money in FEC v. National Right to Work Committee, in Austin v. Michigan Chamber of Commerce, and in McConnell v. FEC.  These latter two cases contained spirited dissents from Justices Scalia and Kennedy arguing that the First Amendment right that protected corporations in Bellotti should be extended to the context of candidate elections.

In Citizens United v. FEC, these dissents become the majority opinion, and the Austin and McConnell decisions were overruled insofar as they allowed the federal government to prevent corporations from making independent expenditures on behalf of candidates for office.  Not only are these prior cases overruled, but the history of the Court’s treatment of corporations under the Constitution is ignored.  Ignored, as well, is the Court’s pre-Lochner understanding that the Constitution permits the government to regulate corporate activity when it is contrary to the public interest.

Instead, what we get in the Citizens United opinion is the textualist assertion that the language of the First Amendment does not distinguish between whose speech is being regulated, so the government must therefore lack the power to makes a similar distinction.  We are told that the benefits of political speech are the same, whether the source of that speech is an individual or a corporation.  And we are told that media corporations, that report the news, might be subjected to government control if we do not recognize a First Amendment right for corporations.

Similar arguments were rejected by Robert Bork.  Bork clearly did not understand the First Amendment to require a complete absence of government regulation over speech.  For example, in his 1971 Indiana Law Journal article, Bork argued that the First Amendment does not prevent the government from regulating speech outside of the political context if that speech causes public harm.  Bork wrote that the Framers “displayed a determination to punish speech thought dangerous to government.”  For him, it was the impact of the speech at issue on the political process (positive or negative) that determined whether the speech was protected under the First Amendment, and not an absolutist interpretation of the text.

Justice Kennedy’s arguments were also rejected by Justice William Rehnquist, who dissented in Bellotti. Rehnquist stressed that “early in our history” the Supreme Court had declined to extend constitutional rights to corporations.  He viewed the Bellotti majority as acting inconsistently with this original understanding.  Therefore, the so-called “orginalism” that Justice Kennedy says requires us to depart from longstanding precedent is in fact contrary to earlier interpretations of the First Amendment by two notable originalists.

Justice Stevens’ dissent in Citizens United contains a devastatingly accurate characterization of Justice Kennedy’s argument:

As a matter of original expectations, then, it seems absurd to think that the First Amendment prohibits legislatures from taking into account the corporate identity of a sponsor of electoral activity.  As a matter of original meaning, it likewise seems baseless – unless one elevates the First Amendment’s ‘principles’ or its ‘purpose’ at such a high level of generality that the historical understandings of the Amendment cease to be a meaningful constraint on the judicial task.  This case sheds a revelatory light on the assumption of some that an impartial judge’s application of an originalist methodology is likely to yield more determinate answers, or to play a more decisive role in the decisional process, than his or her views about sound policy. 

What does support the majority’s interpretation of the First Amendment in Citizens United?  We are left with Justice Kennedy’s personal preference that corporations should have a voice in the political arena.  Except what is this “corporate voice” that needs protection?  It is most assuredly not the voice of the shareholders.  State law provides them with no mechanism to approve in advance the use of corporate funds for political activity, and under state law shareholders have little prospect for successfully punishing management after the fact for the use of corporate funds to sponsor political activity that they disagree with.  In addition, given that during 2009 the average share of stock was bought and sold two and one half times, shareholders will probably not own their shares long enough to care what management does with corporate money.  With the turnover in corporate ownership today, we do not have share-holders, we have share- renters.  In this context, the corporate voice is reduced to the voice of top management, who will use corporate money to fund political views that these highly compensated individuals are fully capable of funding out of their own pocket.

When it comes to the First Amendment, therefore, it seems that an ideological preference for free markets trumps traditional notions of federalism and free speech.    

Note:  The photo accompanying this post depicts the cover of Harper’s Weekly January 21, 1888 and is entitled “Not Even-Handed Justice: Crushing the Scorpion of Anarchy But Sparing the Octopus of Monopoly.”  A framed copy hangs in my office.

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11 Responses to “Federalism, Free Markets, and Free Speech”

  1. Ed Fallone Says:

    When I delivered these remarks yesterday at the event sponsored by the American Constitution Society Chapter here at Marquette, there were two points raised that I would like to address here.

    First, I was asked for my for reaction to a hypothetical congressional statute that penalized media corporations for publishing editorials in support of paricular candidates in the time period just prior to an election. My answer rambled a bit without ever reaching its final destination, which is that the history of campaign finance legislation demonstrates that congress has consistently attempted to carve out exceptions for media companies, and if future legislation were to fail to adequately address this particular context of corporate “speech” then that future law could be struck down on an “as applied” basis for media companies without the need for a broad First Amendment right that would extend to all corporations. I think this is Justice Stevens’ main argument in the dissent in Citizens United.

    The second point was made by Visiting Assistant Professor Esenberg, who said that, on the subject of whether corporations possessed full constitutional rights equivalent to natural persons, “that train has left the station.” I would think that on a panel discussing a Supreme Court decision that overrules longstanding precedent on the grounds that it is contrary to “original understandings,” we can all agree that the current majority of the Court refuses to apply stare decisis in a way that treats anything as settled doctrine. In such a world, nothing has “left the station.”

  2. Rick Sankovitz Says:

    Very thought-provoking post, Ed, and I appreciate the link to Judge Posner’s piece, which I had not read in full before.

    Is the thrust of your position the same as his: judicial modesty, leaving constitutional issues over which the nation is deeply divided to the political realm rather than courts? If so, do we counsel antagonists in abortion and campaign speech and gun and equal marriage cases and the like to withdraw from the courts and take their cases to the Legislature, or at least counsel them to do so after some point in the future when the conservative majority on the Supreme Court becomes a liberal majority and, if the influence of politics on the judiciary remains as you have suggested, rewrites the precedents that you and Judge Posner criticize? A self-defanging of the courts (maybe by making much more robust the political question exception to the court’s jurisdiction)?

    And if so, are there cases out there we can’t afford to leave to the legislature because the minority is oppressed (maybe I should put that in quotation marks) and there is no room for compromise? (And how to go about defining which cases these are . . .)

    I think these are the kinds of design questions that may govern the evolution of the courts in the next 50 years, at least as far as constitutional questions are concerned.

    Your posts really make us think, Ed. Keep up the good work.

    Rick

  3. Ed Fallone Says:

    Rick:

    I do believe that many “liberal” acadmics are holding back from criticisizing the Heller and Citizens United methodology, because results-oriented liberals might view an absolutist assertion of First and Second Amendment rights as reinforcing the groundwork for future decisions that might adopt an absolutist assertion of rights under the Equal Protection and Due Process Clauses (same sex marriage?).

    I think that you hit the nail on the head when you suggest that any absolutist interpretation of individual rights shifts power away from the politically elected branch (congress) and towards the unlected judiciary. Judicial modesty does require courts to think carefully about these consequences. Critics of the abortion and busing decisions have long made this point, but until the current conservative majority on the Court began throwing their weight around it was too easy for liberals to ignore this basic structural concern.

    If every federal judge were as careful and deliberate as you are, or if we could rely upon stare decisis to moderate the more extreme impulses of the judiciary, I wouldn’t be so concerned. Maybe it is time for both sides to stop playing this “absolute rights trump legislative power” game.

  4. Ed Fallone Says:

    The brief characterization of Adam Smith’s economic theories contained in my main post has been reviewed and found to be “correct broadly.”

    http://adamsmithslostlegacy.com/2010/03/smith-on-laissez-faire-markets-and.html

  5. Martin Tanz Says:

    Thank you, Professor Fallone, for your incisive critique of the Citizens United case.

    When I was studying Con Law at Marquette, I initially suspected that federalism was just a stick that Republican jurists used to beat Warren and post-Warren Court decisions with which they did not agree. I was assured by several law school faculty that law and politics were not the same thing and conservative or originalist jurists were not the same thing as conservative politicians.

    And then the Court decided Bush v. Gore. After that, nothing would surprise me from this conservative majority on the Court.

  6. Sean Samis Says:

    I attended the panel discussion at which Professor Fallone presented his remarks. There was little time for audience questioning at the end, much less for audience comments; so forgive me if I add my $0.02 here. Feel free to ignore these if you want.

    All originalism should be presumed faux-originalism. It is a rebuttable presumption, but the Framers were too inconsistent either in what they wrote or did to derive any single coherent intention except to do what needs to be done. This was not due to any particular mendacity I believe, but because of the political equivalent of the old rule of war that no plan survives contact with the enemy; political theories rarely survive contact with the realities of governance. It is easy in most instances to find Framers on both sides of any issue; so “originalism” almost always consists of convenient facts cherry-picked from a mixed bag of historical contradictions.

    Another observation regards Prof. Esenberg’s comments on Benjamin “Pitchfork” Tillman who authored the 1907 federal law banning corporate spending in politics (the “Tillman Act”). Prof. Esenberg’s point was that the law’s original purpose was to promote racial discrimination, which is true. Apparently the Professor believes this argues against the Tillman Act. Ironically, Prof. Esenberg has recently defended the Electoral College despite the fact that the Electoral College was designed (in conjunction with the three-fifths clause) to promote the political power of Slave States. I think these historic trivia are not reasons to oppose the Electoral College or the Tillman Act; they are just more examples of the law of unintended consequences; Tillman may have accidentally done us all a favor.

    I found the panel discussion unsatisfying in one stark manner: giving a nod to past decisions, the panel accepted the equation of speech and money and did not consider the legitimate state interest (if not a compelling interest) in preventing political corruption. Given the current deep distrust of Congress, and the perception that it is a mockery of democracy, this interest is significant. We ignore it at our peril.

    Even if this “speech” (money) is regarded as “core political speech,” not all such speech need be protected. Bribery is one of the few crimes actually mentioned in the Constitution, but by a similar analysis, it can be seen as “core political speech”. Bribery, like pornography, is speech that does not deserve protection.

    Someone may rightly point out that Citizens United did not extend to corporations the privilege of giving money directly to candidates, but it did further the notion that corporations have the same rights as flesh-and-blood persons. And since individual citizens can donate money (bribes) to candidates, it is only rational to assert corporations have the same privilege. The Court may someday say they do not, but only after the damage is done.

    Nor need donors give directly to someone to have a corrupt influence. Being willing and able to spend significant amounts of money to guarantee your continued employment in the Legislature or Congress is just as valuable as putting the money in a bag and kicking it over to you under the table.

  7. Martin Tanz Says:

    “Nor need donors give directly to someone to have a corrupt influence. Being willing and able to spend significant amounts of money to guarantee your continued employment in the Legislature or Congress is just as valuable as putting the money in a bag and kicking it over to you under the table”

    Alternately, corporations can get what they want with their willingness and ability to spend money on your opponent’s campaign.

  8. Sean

    You miss my point about the origins of the ban on corporate contributions (which is still in effect). It was in response to Professor Fallone’s suggestion – since clarified by his comment – that the answer to the problem of exempting media companies is political, i.e., a belief that the legislature will carve out an exception and that a constitutional solution may not be warranted.

    My point was that campaign finance laws are rules governing a game that are often drawn up by only one of the teams. As such, they may entrench incumbents or, as in the case of the Tillman Act, be designed to gain political advantage.

    The point was not that the Tillman Act is “bad” because it was sponsored by a bad guy, but that even this seemingly innocuous bit of “good government” legislation was strategic.

    That can’t mean that there can be no law governing elections and campaign finance but it does, I think, bear on the question of consitutional protection for campaign speech as against legislative regulation and the feasibility of looking for political, as opposed to consitutional, solutions to overly restrictive rules.

  9. Sean Samis Says:

    Professor:

    Your point is valid, and stated in your comment much more clearly than it was at the forum. However, many (if not most) legislative enactments are “tainted” (if that’s the right word) by the efforts of legislators to gain some advantage, whether political, social, or economic advantage. And arguably so are many Supreme Court decisions. The reason so many are upset with Citizens United is the belief that the Court’s decision is tainted by strategic concerns, not Constitutional concerns.

    As such, your point is valid, but not significant. Tillman may have been tainted, but so is the Electoral College, and many, many other enactments and decisions. It was concerns about this kind of tainting that brought everyone together for the forum in the first place.

    And because Court decisions regarding the Constitution are as prone to being convenient to entrenched powers as legislative enactments are, constitutional solutions to overly restrictive rules are not better than legislative solutions. Both are political solutions; but improper legislative solutions are easier to undo than self-serving Court decisions.

  10. Justice Ginsburg’s statement from yesterday’s order granting a temporary stay in the case of American Tradition Partnership v. Bullock:

    “Montana’s experience, and experience elsewhere since this Court’s decision in Citizens United v. Federal Election Comm’n, 558 U. S. ___ (2010), make it exceedingly difficult to maintain that independent expenditures by corporations “do not give rise to corruption or the appearance of corruption.” Id., at ___ (slip op., at 42). A petition for certiorari will give the Court an opportunity to consider whether, in light of the huge sums currently deployed to buy candidates’ allegiance, Citizens United should continue to hold sway. Because lower courts are bound to follow this Court’s decisions until they are withdrawn or modified, however, Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U. S. 477, 484 (1989), I vote to grant the stay.”

    The stay will allow the parties to file a cert. petition. Whether this case will provide the Supreme Court with an opportunity to reconsider or narrow the Citizens United ruling is discussed here:

    http://electionlawblog.org/?p=30145

  11. I agree with J. Ginsburg’s statement.

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