by William Funk¹

Court Dismisses for Lack of Standing Suit Brought by Members of Congress Challenging Line Item Veto Act

Predictions that the Supreme Court would decide the line-item veto case, Raines v. Byrd, 117 S.Ct. 2312 (1997), on the basis of lack of standing, rather than on the merits, proved accurate. The Line Item Veto Act was challenged on its face by several members of Congress, and the district court found that the Act's effect on them, even in its unexercised status, was sufficient to confer standing and that the Act was unconstitutional as a violation of the Presentment Clause and as an unconstitutional delegation of legislative authority, see Byrd v. Raines, 956 F. Supp. 25 (D.D.C. 1997). The Act provides for direct, expedited appeal to the Supreme Court, which heard oral argument in May and rendered its decision on June 26. Chief Justice Rehnquist issued the opinion of the Court, holding that members of Congress did not have standing to bring the case. Justice Souter, joined by Justice Ginsburg, concurred in the judgement. Justices Stevens and Breyer dissented separately.

Traditional standing doctrine requires that a plaintiff have "personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." Moreover, the personal injury must be "concrete and particularized." Congress cannot grant standing to someone who does not satisfy the Constitutional standing requirements by purporting to authorize them to bring suit. Here, the Act expressly provided that "[a]ny Member of Congress" could bring suit. While the District of Columbia Circuit had found standing on behalf of members of Congress in several cases like the one here, the issue had never reached the Supreme Court. The Court characterized their injury under the unexercised Act as merely increasing from two, to three, the possibilities that might occur when an appropriations bill is passed: the President might sign it; he might veto it; or he might "cancel" a particular appropriation. This, the Court said, is only an "abstract dilution of institutional legislative power."

One case seemed to support the members of Congress, Coleman v. Miller, 307 U.S 433 (1939). There, the Court had found standing on behalf of 21 members (a majority) of the Kansas Senate challenging its ratification of the proposed "Child Labor Amendment" to the Constitution, saying that they had an "interest in maintaining the effectiveness of their votes." The Court distinguished Coleman on the basis that there the members' votes (not to ratify the amendment) had been rendered nugatory and of no effect, because, but for the allegedly unlawful vote cast by the state's Lieutenant Governor, their votes would have carried the day, while here, at least at this point, no vote of the members had been denied effect. The Court went on to note that historically Presidents had not challenged statutes in their unexercised state which they believed unconstitutionally limited their powers, mentioning the Tenure in Office Act which required Presidential removals of officers to be submitted to the Senate for approval and the one-house veto legislation. The Court also noted that this lawsuit had not been authorized by either house of Congress and in fact was actively opposed by both. In a footnote, the Court also suggested that even if the members of Congress suffered an injury, it was not traceable to the allegedly illegal action of the defendant, the Director of the Office of Management and the Budget, but of their colleagues in passing the Act. Finally, the Court recognized that when or if the President in fact exercises the line-item veto, someone will be able to challenge the constitutionality of the Act. What the Court left unclear was whether members of Congress who voted for such an appropriation would have standing to challenge the Act at that time, as opposed to the statutory beneficiary of the appropriation who presumably would be deprived of funds as a result of the President's action. Under existing precedent, if any plaintiff has standing, courts do not address whether other plaintiffs also have standing. As the News goes to press, the President has in fact exercised the line-item veto power, and a suit has been filed challenging the action.

Justice Souter's concurrence stated that "[b]ecause it is fairly debatable whether [the members'] injury is sufficiently personal and concrete to give them standing, it behooves us to resolve the question under more general separation-of-powers principles underlying our standing requirements." Because the case "is in substance an interbranch controversy about calibrating the legislative and executive powers, as well as an intrabranch dispute between segments of Congress itself," a dispute that involves no private party as yet, it is particularly inappropriate for judicial resolution at this time in this context.

Justice Stevens dissented from the denial of standing (and went on to indicate that he believes the Line Item Veto Act to be unconstitutional), because he found sufficient injury in that a member of Congress cannot know if the appropriations bill he is voting on, if passed, will be given effect as written at the time he or she votes on it; the member is denied the ability at the time of the vote to know what the law will say, if it goes into effect. Justice Stevens also seemed impressed with an argument made by the members that was totally ignored by the Court -- that the existence of the Act, even if unexercised, has a palpable effect on their political power, because it increases the President's power in interbranch negotiations over pending appropriations bills.

Justice Breyer, interestingly, never discusses the traditional standing requirements. First, he notes that the Act eliminates all prudential limitations on standing, leaving only the constitutional requirements. These he indicates only by quoting the text of Article III, limiting the federal judicial power to cases and controversies, not by reiterating the three-part test of injury, causation, and redressability indicated by the caselaw. Because the case is truly adversary, concrete, and focused, he suggests there is standing, unless there is a "serious constitutional difficulty due to the fact that this dispute . . . arises between government officials and is brought by legislators." He views Coleman as having decided that issue and finds the Court's distinguishing of Coleman not persuasive. Although Justice Breyer would find standing, he indicated no position on the merits.

Court Holds That Due Process Does Not Require Notice and a Hearing Prior to Suspension of Government Employee Without Pay

A university security officer was arrested at the home of a friend during a drug raid. He was charged with various drug offenses, and the university upon learning of the arrest and charges immediately suspended the officer without pay. Although the criminal charges were dismissed in less than a week, the officer was not provided any opportunity to contest his suspension until an informal meeting three weeks after the suspension. At that time the university officials did not inform the officer of all the information they had. About a week after the meeting, the officer received a letter from the university informing him that he was being demoted to a groundskeeper retroactively to the date of suspension, because the university found he had violated certain of the university rules for security officers, based upon admissions made by the officer to the police when he was arrested. The officer brought suit arguing that the failure to provide him notice and an opportunity for a hearing before suspending him without pay denied him Due Process. In Gilbert v. Homar, 117 S.Ct. 1807 (1997), the Court unanimously held that there was no denial of Due Process. The main issue in the case was whether the Court's decision in Cleveland Bd. of Ed. v. Loudermill, 470 U.S. 532 (1985), had established a rule that suspension without pay could not be made without prior notice and hearing, although suspension with pay could be. The Court found that it did not. Rather, the Court reiterated the flexible nature of due process and applied the Mathews v. Eldridge three-part balancing test that reflects that flexibility. First, the Court conceded that a person's interest in continued receipt of his paycheck is significant, but the Court noted that there is a difference between a temporary suspension and a final termination, as was involved in Loudermill. Second, the Court indicated that the state has a strong interest in "immediately suspending, when felony charges are filed against them, employees who occupy positions of great public trust and high public visibility, such as police officers." That this interest could be satisfied by suspension with pay did not move the Court, which replied, "the government does not have to give an employee charged with a felony a paid leave at taxpayer expense." Finally, the Court said, here there was little risk of erroneous deprivation and little value to be gained by prior notice and hearing, because the only purpose of a pre-suspension hearing would be to determine if there were reasonable grounds to suspend the person, and the arrest and charging of the officer here provided those reasonable grounds. The Court did express some concern whether the officer had received a sufficiently prompt post-suspension hearing, inasmuch as he did not receive any hearing at all until more than two weeks after the university knew that the charges had been dismissed, but this issue had not been addressed by the courts below, so the Court remanded the case for consideration by the lower courts first.

The Court's rejection of a categorical rule that there must be some sort of notice and hearing before a suspension without pay is consistent with its emphasis on the flexible nature of due process, but some of the Court's analysis is disturbing, in particular the Court's assertion that the arrest and filing of charges "assured" that there were "reasonable grounds to support the suspension." It cited to FDIC v. Mallen, 486 U.S. 230 (1988), in which the Court had upheld an FDIC order suspending a bank officer from participating in bank affairs after his grand jury indictment. The fact that in Gilbert there was no grand jury indictment did not make a difference to the Court, which referred to the arrest and formal charging of a person by the police as constituting a determination "by an independent body" that the person has done something meriting suspension.

Court Invokes Chevron to Uphold SEC Rule Prohibiting Trading on Non-Public Information Relating to a Tender Offer

O'Hagan was a lawyer in a firm hired in relation to a company's potential tender offer. O'Hagan, based on non-public information obtained because of his employment, purchased call options in the target company before the tender offer was announced. The Securities and Exchange Commission investigated his transactions and prosecuted O'Hagan for criminal violations of several statutes, including §§ 10(b) and 14(e) of the Securities Exchange Act of 1934 (and Rules 10b-5 and 14e-3(a) thereunder). After his conviction, the Eighth Circuit reversed his conviction on the grounds that Section 10(b) and Rule 10b-5 do not reach fraud under the so-called "misappropriation theory." Under this theory, unlike the normal 10b-5 case in which an insider of a company trades in shares of that company, thereby engaging in fraud or deception of the person with whom he trades, a person's breach of fiduciary duty by misappropriating the principal's private information for the fiduciary's private gain is fraud on the principal, not on the person with whom he trades. In addition, the Eighth Circuit reversed the convictions under Rule 14e-3(a) on the ground that the rule, which clearly prohibited O'Hagan's actions, was beyond the statutory authority of Section 14(e) of the Act.

In United States v. O'Hagan, 117 S.Ct. 2199 (1997), the Court reversed the Eighth Circuit. Justice Scalia and Justice Thomas dissented separately, with Chief Justice Rehnquist joining Justice Thomas's dissent. The Court's analysis regarding Section 10(b) and Rule 10b-5 involved a close reading of its prior cases under Section 10(b) and Rule 10b-5. In concluding that they did contemplate the misappropriation theory, however, the Court did not completely adopt the government's explanation of the theory. This led Justice Thomas to argue that the Court could not adopt a theory not supplied by the government, citing Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29 (1983), for the proposition that courts do not credit an agency's post hoc rationalization in litigation. Both the majority and Justice Scalia responded that Justice Thomas had confused judicial review of policy decisions made by agencies in administrative proceedings with questions of law presented in criminal enforcement proceedings, where the court decides the meaning of the law and is certainly not constrained by the government's arguments. Justice Scalia dissented on a different point, however. In his view, the rule of lenity required a construction of the ambiguous language of Section 10(b) and Rule 10b-5 that did not prohibit O'Hagan's action.

The issue with respect to Rule 14e-3(a) was different. Here the rule was clear and unambiguous; it prohibited O'Hagan's actions whether or not they were fraudulent. The question was whether the statute authorized the rule, because Section 14(e) itself only prohibits fraudulent actions. Section 14(e), however, also expressly requires the SEC to adopt rules to "define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent." The Eighth Circuit and Justice Thomas dissenting read this language not to broaden, beyond what was prohibited by the statute, what the SEC could prohibit by rule. The SEC, on the other hand, read the language "reasonably designed to prevent" to include the authority to prohibit actions likely to result in fraudulent activity, even if the actions themselves were not yet fraudulent. In other words, the SEC read the language to authorize the adoption of prophylactic regulations. The Court applied Chevron U.S.A. Inc. v. Natural Resources Defense Counsel, 467 U.S. 837 (1984). Finding the language ambiguous, the Court said it would defer to a reasonable interpretation by the agency. Here, the agency had articulated reasons for extending the prohibition to trading relating to a tender offer by anyone having material non-public information.

1. Professor of Law, Lewis & Clark Law School; Editor, Administrative & Regulatory Law News.