Dynamic Regulation by Natasha Sarin

Article | Financial Regulation
Dynamic Regulation
by Natasha Sarin*

From Vol. 94, No. 5 (2021)
94 S. Cal. L. Rev. 1005 (2021)

Keywords: Financial Regulation, Great Recession, Bank Capital


The average American family lost one-third of its net worth during the Great Recession. One in ten families lost their homes. One in ten workers lost their jobs.[1] The consequences of the crisis still reverberate today, reflected in distrust of large financial institutions,[2] dissatisfaction with politics as usual,[3] and concern that capitalism is no longer working for the American people.[4]

It is possible to draw a line from the crisis to the election of Donald J. Trump as the 45th President of the United States. Further, in the most recent presidential election cycle, much of Senator Elizabeth Warren’s case for her electability was tied to her work in the Recession—arguing that she, unlike Republicans (and many Obama Administration officials), was focused on putting consumers first after the worst downturn since the Great Depression.[5]

While much has been written on the ways in which financial regulation has been overhauled since the crisis,[6] little research has been done on whether this overhaul was sufficient, or whether the system is still at risk. This Article steps in to fill this void. I argue that, despite regulators’ statements to the contrary, the vulnerabilities that led to the Recession remain in our financial sector. Without a course correction, the next time will be the same, and the consequences for ordinary Americans likely even more dire.

This Article differs substantially in tone from the calm espoused by those in the financial regulatory community of late. For example, in a speech in July 2019, Federal Reserve Vice Chair Randal Quarles announced that “banks have now built enough capital to withstand a severe recession.”[7] He further stated that it was now appropriate to deregulate large financial institutions because, since the crisis, large banks have addressed the “substantial deficiencies in their ability to measure, monitor, and manage their risks”—deficiencies that led to the Great Recession.[8]

Vice Chair Quarles is not alone in his optimism. Federal Reserve officials have claimed repeatedly in recent years that financial crises are behind us due to substantial reforms enacted in the aftermath of the Recession.[9] These reforms include decreasing banks’ ability to make risky bets and designing a plan for how to unwind large financial institutions with minimal harm to consumers. Perhaps most importantly, banks are now subject to annual stress tests that are intended to measure their ability to cope with a crisis-like event. For the last several years, all large financial institutions have cleared the stress tests with flying colors, suggesting that the system today is well equipped to weather the next storm.

At the same time, the market has not been so sanguine. In fact, in August 2019, only weeks after passing the stress tests, all large banks lost ten percent of their market value. Their probability of defaulting on borrowers, assessed from the cost of buying insurance that pays out if the firm defaults, skyrocketed. Analysts attributed this steep decline in value to an increase in bank risk: The business of banking involves borrowing short term and lending long term. In 2019, revenues from lending (long-term interest rates) fell below the costs of borrowing (short-term interest rates). This threatened the business model of large financial institutions and also prompted fears that a recession was imminent.[10] Concerned credit analysts downgraded financial firms,[11] and large financial institutions themselves advised their clients to begin to prepare for a recession.[12]

While industry participants, observers, and market signals were sounding alarms, regulatory measures of bank health were static. It is plausible that the market overreacted in August (in fact, it experienced a partial recovery in subsequent weeks), but it is unlikely that the risks in the financial sector were unchanged during this period as regulatory measures of bank capital suggested. Market measures provide a more dynamic assessment of the evolution of financial stability during this period. Regulators can, and should, monitor this information. Yet they do not.

Since the 1980s, capital regulation has been the primary form of bank regulation. Banks fail when the total amount of money they owe (their liabilities) exceeds the total value of the assets they have. The difference between a bank’s assets and liabilities is known as equity capital. Capital helps banks absorb losses that decrease the value of their assets and is measured by regulators as the difference between book values of bank assets and liabilities, known as book or “regulatory” capital.

However, this information is reported only quarterly and is prone to manipulation by sophisticated firms.[13] Because regulators rely solely on backward-looking, static, and manipulatable measures of capital, their assessments paint an inaccurate picture of bank health. I show this empirically in two ways.

First, I subject large banks in the United States to a hypothetical “market-based” stress test based on the value financial markets assign a bank’s business. These measures are dynamic and forward-looking, unlike the book-capital measures regulators have relied on historically. The results of a market-based stress test demonstrate that large financial institutions would experience cataclysmic losses in the event of a crisis like the Recession. Despite policymakers’ statements to the contrary, it is unlikely that these banks would be able to continue to intermediate as usual in the absence of substantial government assistance (that is, bailouts) during the next crisis.

Second, I document the failure of regulatory capital measures during the Great Recession and show that these measures were lagging indicators of bank health. Only days before some of the largest banks in the country failed, capital ratios indicated that all was well. In the case of Bear Stearns, Securities and Exchange Commission (“SEC”) Chairman Christopher Cox even testified before Congress after the firm had failed that it was healthy and well capitalized based on regulatory measures.[14] In contrast, market measures of bank health signaled cause for concern an entire year before the bankruptcy of investment banking giant Lehman Brothers sent the economy into free fall. In addition to being slow moving, regulatory capital measures also proved inaccurate: it was impossible to distinguish between healthy and doomed banks based on their reported capital levels. In contrast, there was significant divergence in the market’s perception of risk at these institutions, and its prediction of bank failures proved prophetic.

Our very recent experience illustrates the consequences of misplaced reliance on book capital as a measure of bank health, yet the post-crisis overhaul of financial regulation did not include a rethinking of the role this information plays in our assessments of large financial institutions. There has been no move toward incorporating more accurate market information into the regulatory regime.

This is an unforced error with significant repercussions. Large banks remain vulnerable to a crisis, and these risks are unacknowledged by the regulatory community. The singular focus on regulatory capital has also fueled a misunderstanding of the causes of the Great Recession and the tools policymakers had at their disposal to address them at their onset.

Policymakers typically offer two responses when asked about their failure to act more aggressively in the early stages of the crisis—that is, before Lehman’s bankruptcy—to forestall the catastrophe that ensued. The first is that the crisis could not be foreseen; illustrated, for example, by former Treasury Secretary Henry Paulson’s 2018 statement that his “strong belief is that these crises are unpredictable in terms of cause or timing or the severity when they hit.”[15] The second is that regulators lacked the legal authority to bolster struggling institutions. For example, as former Treasury Secretary Timothy Geithner stated in 2014: “The Fed didn’t have the legal authority to force Bear Stearns, Lehman Brothers, or other investment banks to raise more capital. We couldn’t even generate stress scenarios bleak enough to force the banks we regulated to raise more capital.”[16] Neither of these explanations, however, is accurate.

As to the unpredictability of financial crises, as this Article will show conclusively, substantial time existed between the first tremors in financial markets in the summer of 2007 and their eventual collapse in the fall of 2008. I assemble data on a variety of market-risk measures (including stock-price volatility, credit default swap (“CDS”) spreads, and market-based capital measures) and compare these with regulatory capital indicators. Market-based risk measures for large financial firms raised red flags for an entire year before the system collapsed. However, regulatory measures are slow to update—thus, failing banks were well above regulatory requirements for minimum capital ratios, not because they were healthy, but because these measures are flawed.

As to the lack of legal authority to intervene with financial institutions, this Article reviews the substantial legal authority at the disposal of financial regulators and demonstrates that lack of authority was not the binding constraint to action. Some pieces of evidence from this novel analysis are especially dispositive: First, regulators in fact did rely on their substantial legal authority to strengthen small financial institutions once risks emerged in the financial sector in the fall of 2007 and early 2008. This same authority could have simultaneously been wielded to bolster large, systemically important financial firms. Second, once the crisis was underway, regulators found ways to intervene and prevent even worse damage. By 2009, they forced banks to stop paying dividends and to raise new capital, which prevented additional failures. No new legal authority emerged between 2007 and 2009, which proves that lack of authority cannot explain the failure to respond more aggressively to the crisis at its onset.

In fairness to regulators, hindsight is twenty-twenty. It was impossible to predict with certainty in the summer of 2007 that a Lehman-size catastrophe was a year away. However, in the months leading up to Lehman, and especially after the collapse of Bear Stearns in the spring of 2008, the probability of a systemic collapse increased dramatically. In February 2008, academics presenting to Federal Reserve officials estimated that the losses that followed the collapse of the housing market would total about $500 billion, with half being borne by large and heavily leveraged financial institutions. This, they estimated, would imply a $2.3 trillion contraction in bank balance sheets—a substantial decrease in lending to households and businesses that would have immediate real consequences.[17] The way to prevent this contraction was to increase banks’ capital levels so they would not fail or to stop lending to households and businesses when imminent losses began to accumulate.

Yet instead of hoarding and raising capital to buffer against imminent asset losses, more than $100 billion of bank capital left the financial system in the form of dividend payouts to bank shareholders in the year before Lehman’s catastrophic bankruptcy. In fact, Lehman increased its dividend by thirteen percent in January 2008—six months before it collapsed and months after industry observers were aware of significant problems at the firm.[18] This is akin to deflating an airbag exactly when the risks of a crash are rising. The same occurred in the lead-up to the COVID-19 crisis—regulators allowed capital to be paid out to shareholders in the form of dividends and share buybacks at the same time monetary and fiscal authorities were contemplating economic interventions of unparalleled scope.

If not wanting for time or authority, what caused regulators to underreact to the initial stages of the crisis? This Article attributes this failure to reliance on regulatory capital, which painted (and continues to paint) an overly optimistic picture of financial stability.

Specifically, regulators failed to act in the early stages of the crisis because the default rule was inaction until book-capital levels signaled distress. Many looked at banks’ high regulatory capital ratios and concluded that there were few risks in the system: in the month before Lehman’s collapse, one Federal Reserve official guessed “that the level of systemic risk has dropped dramatically and possibly to zero.”[19] Others believed that, although it would be helpful for banks to have more capital, they were unlikely to do so while well above regulatory capital minimums, pointing to banks’ assertions that “now is not a good time” for equity-raising. Still others believed that acting aggressively—for example, by restricting banks’ dividend payments—would fuel a panic rather than prevent one.[20]

It is inaccurate and unfair to equate today’s regulatory regime to that in place in the summer of 2007. Capital requirements are higher, so banks have more of a cushion in place to bolster themselves when their assets begin to lose value. But the exercise of stress testing highlights the vulnerabilities that remain—that is, should a situation arise in which losses are so large that banks need to recapitalize, regulators will be slow to force them to do so because our tools of measuring banks’ risk, despite their known unreliability, have yet to be overhauled.

This Article provides a way forward, arguing that supplementing our understanding of financial stability with market information will paint a fuller picture. It also makes a case for automating regulatory action when banks appear undercapitalizedeither based on regulatory or market measures. If in place during the crisis, such a regime would have forced banks to hoard and raise new capital in the year leading up to Lehman Brothers’ collapse, decreasing the need for costly government bailouts. The regulatory innovations advanced in this Article will prevent the next recession from becoming a “Great” Recession.

I propose different approaches to incorporating market information into the financial regulatory regime. The most extreme form would automate an aggressive response to market indicia that distress is imminent. This approach, which I label “dynamic capital regulation,” would quickly recapitalize banks the market deems to be on the brink. This recapitalization could be accomplished through: (1) a market-based stress test whereby failure requires new capital-raising; (2) the requirement that banks purchase capital insurance; (3) the conversion of some proportion of bank debt to equity, which eliminates the risk that creditors will be able to withdraw funds and push the bank to failure; or (4) a market trigger that forestalls capital leaving the financial system when bank equities experience drastic moves.

These market-based approaches will increase the dynamism and the transparency of financial regulation. However, dynamic capital regulation will also highlight concern about death spirals—that is, that market speculators will short financial firms when dilution appears imminent. Properly designed regulation can address these concerns, as I describe.

Still, dynamic capital regulation is not a panacea. The result will be fewer Great Recessions but also more false positives, which create unnecessary pain for the financial sector and its shareholders. For example, banks may be disallowed from paying dividends in periods when distress is not actually imminent, despite market signals to the contrary. However, concerns about false positives may be overblown: the analysis in this Article demonstrates that the simplest market-based indicator (bank stock performance) correctly identifies the two financial crises that have occurred since 1990 and results in no false positives. Deciding on the type of errors we prefer—false positives that are unfairly harsh to banks and their shareholders versus false negatives that result in costly losses to the government and taxpayers—is a tradeoff that requires thoughtful deliberation.

This Article favors dynamic capital regulation based on a premise that our regulatory regime should favor the protection of ordinary citizens over the protection of bank shareholders. Incidentally, given the more extreme alternatives, this approach is also likely to be favored by large financial institutions; it will allow them to intermediate efficiently with low levels of capital in normal times and only require them to bolster themselves in extraordinary moments when distress appears likely. In contrast, approaches like a thirty percent capital requirement proposed by Professors Anat Admati and Martin Hellwig,[21] or even more extreme discontinuation of financial intermediation full stop, as proposed by Professor Adam Levitin, are less efficient and more punitive.[22]

The right approach to bank capital is ultimately a question of policy, which regulators must decide. The main objective of this Article is to force a debate that is currently missing in the financial regulatory community due to misplaced confidence in regulatory measures of bank health. Given the known failure of these measures to provide useful and timely indicia of distress during the Great Recession, our continued sole reliance on them is puzzling. Market data are plentiful and informative; ignoring them would be extremely ill-advised for our regulatory regime.

This Article proceeds as follows. Part I begins by demonstrating the importance of bank capital to the financial system and describes how financial crises begin. Part II tells the story of the Great Recession, arguing that the severity of the crisis could have been mitigated by more aggressive regulatory action in 2007 and 2008. Although authority for intervention existed, inaction was the consequence of a regulatory regime that fails to respond until regulatory measures of bank health—which are static and often inaccurate—signal cause for concern. Part III calls for overhauling the regulatory default to make action, rather than complacency, the automatic response to the early stages of a downturn. This approach would have forced banks to stop paying dividends and required raising new capital at the beginning of the financial crisis. This approach will prevent the next downturn from being “Great.” Part IV concludes.

         *       Assistant Professor of Law, the University of Pennsylvania Carey Law School, and Assistant Professor of Finance, the Wharton School of the University of Pennsylvania, nsarin@law.upenn.edu. I am indebted to Howell Jackson, for first recommending that I write this Article and for providing feedback on various drafts. For helpful conversations, I thank Kathryn Judge, Dorothy Shapiro Lund, Timothy Geithner, David Hoffman, Andrei Shleifer, Jeremy Stein, Lawrence Summers, Daniel Tarullo, and Mark Van Der Weide.

          [1].  E.g., Fabian T. Pfeffer, Sheldon Danziger & Robert F. Schoeni, Wealth Levels, Wealth Inequality, and the Great Recession 1–2 (2014), https://inequality.stanford.edu/sites/
default/files/media/_media/working_papers/pfeffer-danziger-schoeni_wealth-levels.pdf [https://perma.cc/J6H4-NYY7]; Pew Rsch. Ctr., A Balance Sheet at 30 Months: How the Great Recession Has Changed Life in America 57 (2010).

         [2].     Jordan Smith, Millennials and Big Banks Have Trust Issues – Here Are Three Ways Financial Institutions Are Trying to Fix That, CNBC (Jan. 16, 2019, 5:52 PM), https://www.cnbc.com/2019/01/16/
banks-millennials-trust-jp-morgan-chase-goldman-bank-of-america.html [https://perma.cc/YJF6-D6D

         [3].     Matt Taibbi, Turns Out That Trillion-Dollar Bailout Was, in Fact, Real, Rolling Stone (Mar. 18, 2019, 5:11 PM), https://www.rollingstone.com/politics/politics-features/2008-financial-bailout-8097
31 [https://perma.cc/E5AB-YF53].

         [4].     David Leonhardt, Opinion, American Capitalism Isn’t Working., N.Y. Times (Dec. 2, 2018), https://www.nytimes.com/2018/12/02/opinion/elizabeth-warren-2020-accountable-capitalism.html [https://perma.cc/5PJQ-MTT4].

         [5].     Gretchen Morgenson, Elizabeth Warren on Big Banks and Their (Cozy Bedmate) Regulators, N.Y. Times (Apr. 21, 2017), https://www.nytimes.com/2017/04/21/business/23gretchen-morgenson-wells-fargo-elizabeth-warren.html [https://perma.cc/Z383-4FXP].

         [6].     See, e.g., Viral V. Acharya, Thomas F. Cooley, Matthew Richardson & Ingo Walter, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (2011); Samuel G. Hanson, Anil K Kashyap & Jeremy C. Stein, A Macroprudential Approach to Financial Regulation, 25 J. Econ. Persps. 3 (2011); Ben S. Bernanke, Chairman, Bd. of Governors of the Fed. Rsrv. Sys., Speech at the Federal Reserve Bank of Kansas City’s Annual Economic Symposium: Reflections on a Year of Crisis (Aug. 21, 2009), https://www.federalreserve.gov/news
events/speech/bernanke20090821a.htm [https://perma.cc/T7KU-9SSM].

         [7].     Randal K. Quarles, Vice Chair for Supervision, Bd. of Governors of the Fed. Rsrv. Sys., Speech at a Research Conference Sponsored by the Federal Reserve Bank of Boston: Stress Testing: A Decade of Continuity and Change (July 9, 2019), https://www.federalreserve.gov/newsevents/
speech/quarles20190709a.htm [https://perma.cc/2UQE-UHNP].

         [8].     Id.

         [9].     See Fed’s Yellen Expects No New Financial Crisis in ‘Our Lifetimes,’ Reuters (June 27, 2017, 10:49 AM), https://www.reuters.com/article/us-usa-fed-yellen/feds-yellen-expects-no-new-financial-crisis-in-our-lifetimes-idUSKBN19I2I5 [https://perma.cc/HP2C-EPKN] (noting Federal Reserve Chair Janet Yellen’s suggestion in 2017 that she “does not believe that there will be another financial crisis for at least as long as she lives”); Press Release, Bd. of Governors of the Fed. Rsrv. Sys., Federal Reserve Board Releases Results of Supervisory Bank Stress Tests (June 22, 2017, 4:30 PM), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20170622a.htm [https://perma.cc/W732-U58X] (reporting Governor Jerome H. Powell’s statement that the 2017 stress-test results “show that, even during a severe recession, our large banks would remain well capitalized, . . . allow[ing] them to lend throughout the economic cycle, and support households and businesses when times are tough”).

       [10].     Yield-curve inversion has preceded every recession since 1955. See Jonnelle Marte, Recession Watch: What Is an ‘Inverted Yield Curve’ and Why Does It Matter?, Wash. Post (Aug. 14, 2019, 12:51 PM), https://www.washingtonpost.com/business/2019/08/14/recession-watch-what-is-an-inverted-yield-curve-why-does-it-matter [https://perma.cc/H4Z9-RLLT].

       [11].     Thomas Franck, Bank of America Is Downgraded – Inverted Yield Curve, Fed Rate Cuts Will Hurt Income, Analyst Says, CNBC (Aug. 29, 2019, 10:27 AM), https://www.cnbc.com/2019/08/29/bank-of-america-downgraded-amid-yield-curve-inversion-likely-fed-cuts.html [https://perma.cc/JD77-7LY

       [12].     Scott Barlow, ‘We Advise Investors to Prepare for Recession’ – Citi, Globe & Mail (Mar. 29, 2019), https://www.theglobeandmail.com/investing/markets/inside-the-market/article-we-advise-invest
ors-to-prepare-for-recession-citi [https://perma.cc/J88V-L2HU].

       [13].     See Andreas Fuster & James Vickery, What Happens When Regulatory Capital Is Marked to Market?, Fed. Rsrv. Bank N.Y.: Liberty St. Econ. (Oct. 11, 2018), https://libertystreeteconomics.
newyorkfed.org/2018/10/what-happens-when-regulatory-capital-is-marked-to-market.html [https://per
ma.cc/7M54-WYE9]; Jeremy Bulow, How Stress Tests Fail, VoxEU (May 9, 2019), https://voxeu.org/article/how-stress-tests-fail [https://perma.cc/E64H-VZ8J] (noting that the regulatory regime uses “regulatory rather than market measures for both the value and riskiness of bank assets—measures that failed badly during the financial crisis”).

       [14].     Christopher Cox, Chairman, U.S. Sec. & Exch. Comm’n, Testimony Before the U.S. Senate Committee on Banking, Housing and Urban Affairs: Testimony Concerning Recent Events in the Credit Markets (Apr. 3, 2008), https://www.sec.gov/news/testimony/2008/ts040308cc.htm [https://perma.cc/4

       [15].     Interview by Andrew Ross Sorkin with Ben Bernanke, Former Chair, Fed. Rsrv., Tim Geithner, Former Sec’y, U.S. Dep’t of the Treasury & Hank Paulson, Former Sec’y, U.S. Dep’t of the Treasury, in Washington, D.C. (Sept. 12, 2018) (transcript at 9, available at the Brookings Institution), https://www.brookings.edu/wpcontent/uploads/2018/09/es_20180912_financial_crisis_day2_transcript.pdf?mod=article_inline [https://perma.cc/C62S-NKZN].

       [16].     Timothy F. Geithner, Stress Test: Reflections on Financial Crises 98 (2014).

       [17].     David Greenlaw, Jan Hatzius, Anil K Kashyap & Hyun Song Shin, U.S. Monetary Pol’y F., Leveraged Losses: Lessons from the Mortgage Market Meltdown 11 (2008).

       [18].     Viral Acharya, Hyun Song Shin & Irvind Gujral, Bank Dividends in the Crisis: A Failure of Governance, VoxEU (Mar. 31, 2009), https://voxeu.org/article/amidst-crisis-banks-are-still-paying-dividends [https://perma.cc/XKV3-RDLU].

       [19].     Bd. of Governors of the Fed. Rsrv. Sys., Meeting of the Federal Open Market Committee on August 5, 2008, at 51 (2008) [hereinafter August 5, 2008, Meeting], https://www.federalreserve.gov/monetarypolicy/files/FOMC20080805meeting.pdf [https://perma.cc/XB

       [20].     Geithner, supra note 16, at 138 (“We considered forcing banks as a group to stop paying dividends in order to conserve capital, but we were concerned, perhaps mistakenly, that doing so might do more harm than good.”).

       [21].     See, e.g., Anat Admati & Martin Hellwig, The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It 179 (2013).

       [22].     See Adam J. Levitin, Safe Banking: Finance and Democracy, 83 U. Chi. L. Rev. 357, 454 (2016).


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On Electronic Word of Mouth and Consumer Protection: A Legal and Economic Analysis by Jens Dammann

Article | Computer & Internet Law
On Electronic Word of Mouth and Consumer Protection: A Legal and Economic Analysis
by Jens Dammann*

From Vol. 94, No. 3
94 S. Cal. L. Rev. 423 (2021)

Keywords: Internet and Technology Law, Product Reviews, Consumer Protection

The most fundamental challenge in consumer protection law lies in the information asymmetry that exists between merchants and consumers. Merchants typically know far more about their products and services than consumers do, and this imbalance threatens the fairness of consumer contracts.

However, some scholars now argue that online consumer reviews play a crucial role in bridging the information gap between merchants and consumers. According to this view, consumer reviews are an adequate substitute for some of the legal protections that consumers currently enjoy.

This Article demonstrates that such optimism is unfounded. Consumer reviews are—and will remain—a highly flawed device for protecting consumers, and their availability therefore cannot justify dismantling existing legal protections.

This conclusion rests on three main arguments. First, there are fundamental economic reasons why even well-designed consumer review systems cannot eliminate information asymmetries between merchants and consumers.

Second, unscrupulous merchants undermine the usefulness of reviews by manipulating the review process. While current efforts to stamp out fake reviews may help to eliminate some of the most blatant forms of review fraud, sophisticated merchants can easily resort to more refined forms of manipulation that are much more difficult to address.

Third, even if the firms operating consumer review systems were able to remedy all the various shortcomings that such systems have, it is highly unlikely that they would choose to do so: by and large, the firms using review systems lack the right incentives to optimize them.

*. Ben H. and Kitty King Powell Chair in Business and Commercial Law, The University of Texas School of Law. For research assistance or editing, or both, I am grateful to Jael Dammann, Elizabeth Hamilton, Stella Fillmore-Patrick, and Jean Raveney.

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A Dose of Dignity: Equitable Vaccination Policies for Incarcerated People and Correctional Staff During the COVID-19 Pandemic by Itay Ravid, Jordan M. Hyatt, and Steven L. Chanenson

Postscript | Government
A Dose of Dignity: Equitable Vaccination Policies for Incarcerated People and Correctional Staff During the Covid-19 Pandemic
by Itay Ravid*, Jordan M. Hyatt†, and Steven L. Chanenson‡

Vol. 95, Postscript (September 2021)
95 S. Cal. L. Rev. Postscript 1 (2021)

Keywords: Criminal Law, Public Health, Government

Since its emergence in early 2020, the COVID-19 pandemic has altered the lives of millions of Americans. As it so often is during times of crisis, our most vulnerable communities have disproportionately suffered and were overlooked. Among these myriad communities, incarcerated people became a particularly potent symbol of our failure to handle the spread of the virus. In December 2020, a beacon of hope emerged with the introduction of new cutting-edge vaccines which promised to bring the world back to where it was just a year-and-a-half ago. Here again, however, policy and politics have led states to adopt different distribution plans that, broadly speaking, deprioritized incarcerated populations and in some cases correctional staff as well. While vaccinations are now much more widespread, things were dramatically different not too long ago. The first goal of this Essay is to ensure we memorialize how society, once again, failed to protect our incarcerated communities when they needed it the most. To illustrate this, we offer a data-driven analysis of the early state-level policies regarding vaccinations of people who live and work in prisons. Our findings show that vaccination policies tended to systematically ignore or disadvantage incarcerated individuals. We argue that by adopting such policies, states have neglected to comply with their legal obligations, grounded in existing and emerging Eighth Amendment jurisprudence and long-standing ethical responsibilities to proactively vaccinate this population. This is particularly true given that prisons are among the high-risk “congregate settings” that are widely recognized by health experts, and often by the states themselves, as deserving of immediate distribution of vaccines. Based on these obligations, and given recent new virus outbreaks and the realization that some form of COVID-19 is here to stay (and other pandemics may be around the corner), this Essay concludes with recommendations for the future.


*. Assistant Professor of Law, Villanova University Charles Widger School of Law.
†. Associate Professor of Criminology and Justice Studies, Director, Center for Public Policy,

Drexel University.
‡. Professor of Law, Villanova University Charles Widger School of Law. The authors would

like to thank Kristi Arty and Michael Slights for their terrific research assistance, and the SCLR editorial team for their careful and diligent work. Research for this Article was conducted with support provided to Dr. Hyatt (Drexel University) by Arnold Ventures. The views expressed in this Article are those of the authors and do not necessarily reflect those of the funder or any of the authors’ respective academic institutions.



The Weintraub Principle: Attorney-Client Privilege and Government Entities – Postscript (Comment) by Jason Batts

From Volume 92, Number 1 (August 2018)

The Weintraub Principle: Attorney-Client Privilege and Government Entities

Jason Batts[*]

Amidst the backdrop of a federal investigation into the actions of President Donald Trump, a previously unexplored legal question has emerged on a topic that forms the foundation of legal practice: Can a succeeding government official revoke a predecessor’s claim of the attorney-client privilege? Although the question is novel, its role within the government context is well established—having been asserted by Presidents Richard Nixon and Bill Clinton in their respective administrations. The context of current events, however, underscores the need to further define the operation of a privilege that is once again being relied upon by a president under investigation.

In this Article, I argue that a public official should be permitted to revoke a predecessor’s claim of the attorney-client privilege if made on behalf of the government entity. I justify this determination by applying the same corporate rationale put forth by the Supreme Court in Commodity Futures Trading Commission v. Weintraub to the government context. Termed the “Weintraub Principle,” I contend that government agents should have the same authority afforded to their corporate counterparts for three primary reasons: (1) corporate and government entities are restricted to operating through replaceable agents; (2) corporate and government agents are granted authority from others to act on behalf of the entity; and (3) agents in both contexts owe a duty to act in the best interests of the entity—as well as to shareholders in the corporate setting and to the public in the government environment. While acknowledging the likely counterarguments to my proposal, further analysis reveals how each criticism falls short of prohibiting the rule’s application to government entities. In conclusion, I summarize the rationale for my argument and highlight the Weintraub Principle’s real-world application.


“Attorney-client privilege is dead!”[1] This announcement by President Donald Trump declaring the passing of one of the oldest concepts known to law, came as a surprise to many in the legal community and garnered headlines around the world.[2] Absent from the death certificate was the cause of the privilege’s untimely, alleged demise—the search and seizure by federal agents of files maintained by President Trump’s private attorney, Michael Cohen.[3] The taking of Cohen’s documents represented the latest maneuver by federal officials charged with investigating alleged wrongdoings by President Trump and his associates.[4]

Political scandals are as old as government itself.[5] While far from a uniquely American phenomenon,[6] the modern political investigations regarding Presidents Richard Nixon and Bill Clinton captivated a worldwide audience and set a precedent for future actions involving high-ranking government officials.[7] Although such legal actions can involve defendants who are as concerned about the court of public opinion as the court of legal decision,[8] the spotlight in such cases can grow as focused on the legal doctrines involved as easily as it can upon the parties to the action.[9] For example, during the impeachment of President Clinton, an American public that typically associated privilege with political leaders also became acquainted with a legal form of privilege between an attorney and client.[10] While the Clinton impeachment process played out, the privilege rose in notoriety as Clinton’s White House cited it in fighting to keep private certain conversations with in-house counsel.[11]

In the current tumultuous political environment, fueled by investigations into President Trump and those associated with his administration, the attorney-client privilege is again gaining notoriety as part of the legal toolkit for a president under investigation.[12] Following the seizure of documents from properties being used by the President’s attorney, President Trump and Mr. Cohen asked a court to throw out the material collected, arguing it was privileged.[13] In addition, the President’s son, Donald Trump, Jr., cited the attorney-client privilege as justification for refusing to answer questions in a hearing before the House Intelligence Committee.[14] This resurgent notoriety of the attorney-client privilege and discussion of how the privilege operates within the government context will likely grow as the investigations into the Trump administration continue.[15]

It would be disingenuous, however, to suggest that the attorney-client privilege was an ignored legal issue outside the realm of modern political events.[16] Presidential sagas—like those of Nixon, Clinton, and Trumpmerely provide a catalyst for media pundits and legal commentators to discuss a topic that is all too familiar to legal scholars[17] Much has been written about the privilege’s history and its application to courts in the United States and abroad.[18] Scholarship has also delved into the intricate theories of the privilege by discussing its potential application to government lawyers.[19] However, one question remains unanswered: Whether the successor to a government official can revoke a predecessor’s claim of attorney-client privilege? Faced with this unresolved issue, courts should apply the corporate principle outlined in Commodity Futures Trading Commission v. Weintraub[20] to government actors and permit a successive government agent to revoke a predecessor’s claim of the attorney-client privilege.

I.  Application of the Attorney-Client Privilege to Corporate and Government Entities

Although courts and scholars have relied upon various enunciations of the rule for attorney-client privilege, one replete with the intricacies of modern practice is found in the often-cited case United States v. United Shoe Machinery Corporation.[21] For entities, that analysis becomes complicated because they are restricted to acting through agents.[22] To assist with the task of applying the privilege in the entity context, courts have developed various tests that are largely focus on the status of the entity employee.

In 1950, a Massachusetts District Court put forth the first such test in a broad holding that permitted an employee to invoke the privilege on a corporation’s behalf if the majority of the employee’s job activities involved legal work and the communication remained secret from public disclosure.[23] In 1962, a District Court for the Eastern District of Pennsylvania created the “control-group test,” which narrowed application of the corporate privilege to include only those communications between corporate counsel and agents who controlled the corporation.[24] Under this test, the privilege would apply if the recipient possessed sufficient authority to implement changes within the corporation based upon the advice received.[25] Considering the different approaches, in 1970, the Seventh Circuit Court of Appeals created the “subject-matter test.”[26] This test required an employee to seek legal advice at the direction of a supervisor on a “subject matter” within the employee’s realm of work responsibility.[27] Finally, in 1981, the United States Supreme Court announced the Upjohn Test in an opinion that acknowledged the different tests, but refused invitations to endorse one over the other.[28] Instead, the Court used five factors to determine whether a communication is privileged in the corporate context.[29]

The boundaries for government application of the attorney-client privilege are not as established as their corporate counterparts.[30] This is particularly true in the criminal context, which—as the Second Circuit Court of Appeals wryly notedis ripe for a Supreme Court decision to resolve the current judicial split.[31] The public function served by government agents and the potentially high-ranking clients involved in such cases further demonstrates the need for clarity as to how the privilege operates within the government context.[32] Often with little underlying analysis, courts have seemingly deferred to a version of the control-group test by assuming that elected officials have authority to assert the privilege.[33]

In contrast to the disagreement over how the privilege operates with respect to entities, unanimity exists as to how the entity itself operates. Whether the entity is a business or a government agency, both act through agents.[34] The agents, in turn, possess authority and bear responsibility for asserting the attorney-client privilege on behalf of the entity when in its “best interests.”[35] This intersection—where the requirement of entity agents to invoke the privilege as well as their power to do so collide—highlights the unresolved issue of a succeeding government official’s authority.

This analysis has practical implications because it is not hard to imagine a scenario where a newly elected politician might revoke the privilege of her or his predecessor. For instance, the Obama administration could have sought to revoke the privilege that protected communications made during the Bush administration—a practice which frustrated some in Congress at the time.[36] In addition, a future president could seek to revoke any claims of privilege put forth by officials within the Trump administration on behalf of the executive branch.[37] Applying the Weintraub Principle in the government context permits a court to logically draw upon similarities to corporate entities, while furthering the distinctively public function of public agencies.[38]

II.  Development of the WeintrAUb Principle

In the seminal case Commodity Futures Trading Commission v. Weintraub, the Supreme Court set out to resolve a circuit split as to “whether the trustee of a corporation in bankruptcy has the power to waive the debtor corporation’s attorney-client privilege with respect to communications that took place before the filing of the petition in bankruptcy.”[39] Although not appearing in the title, the case stemmed from an inquiry into the Chicago Discount Commodity Brokers (“CDCB”) by the Commodity Trading Commission (“the Commission”).[40] After the CDCB filed bankruptcy, a permanent trustee was appointed to act on its behalf, thus setting the stage for a confrontation to determine which agent was authorized to assert attorney-client privilege on behalf of a corporate entity in bankruptcy.[41]

While the trustee moved forward with the corporation’s bankruptcy action, so too did the Commission with its investigation into allegations of misconduct by CDCB agents. As part of its inquiry, the Commission subpoenaed Mr. Gary Weintraub—the former counsel for the CDCB.[42] Although Weintraub provided sworn answers to the Commission, he “refused to answer 23 questions, asserting CDCB’s attorney-client privilege.”[43] In response, the Commission filed a motion requiring Mr. Weintraub to answer the remaining questions, while taking the unorthodox approach of communicating directly with the bankruptcy trustee to request the trustee use his authority to waive CDCB’s privilege. The trustee agreed to abandon any right to the privilege owned by the CDCB up to the date he was appointed. Although the district court found the trustee could waive the privilege, thus requiring Mr. Weintraub to testify, the Seventh Circuit overturned this decision, placing the power to waive privilege back in the hands of Mr. Weintraub.[44] Subsequently, the Supreme Court accepted the case to resolve the issue and the circuit split that had developed.[45]

As respondents, Mr. Weintraub and his counsel put forth five primary arguments for why the Court should permit management of a corporation in bankruptcy to retain the authority to assert attorney-client privilege. First, they argued that the allegiances of a trustee would be to the creditors that selected her or him, as opposed to the shareholders of the debtor corporation.[46] The Court dismissed this argument by noting that the fiduciary duties of a trustee are to “shareholders as well as to creditors.”[47] Furthermore, were there to be no trustee appointed, the managers of the insolvent corporation would share the same dual fiduciary duty as a trustee.[48] The Court also shrewdly observed that “out of all management powers” lost to a trustee during bankruptcy, the respondents had offered no justification as to why the attorney-client privilege should be the sole power treated differently.[49]

Second, the respondents argued that the Court’s decision “would also apply to individuals in bankruptcy.”[50] However, the Court rejected this notion by drawing upon the distinction between human and entity clients to convey that any such result would be an overly broad application of their ruling. As the Court noted, whereas a person makes his or her own decisions, “a corporation, as an inanimate entity, must act through agents.”[51] Therefore, the decision held that any subsequent ruling involving a person in the same context would require different legal reasoning than employed in Weintraub.[52]

Third, the respondents claimed that granting a bankruptcy trustee power over the privilege would “have an undesirable chilling effect on attorney-client communications.”[53] Corporate executives, the theory went, would be far less willing to communicate openly with entity attorneys if the conversations were discoverable in an ensuing bankruptcy matter. However, the Court dispelled this argument by noting that any hesitancy would be no greater than the amount already existing for corporations operating outside of bankruptcy. Future managers of corporations that are not going through bankruptcy could always “waive the corporation’s attorney-client privilege with respect to prior management’s communications with counsel.”[54]

Fourth, the respondents claimed that vesting authority to control an insolvent entity’s attorney-client privilege in a trustee is tantamount to “‘economic discrimination.’”[55] The Court acknowledged that solvent and insolvent corporations were treated differently, but noted that this was by legislative design. Bankruptcy laws grant courts the ability to “change radically and materially [the] rights and obligations” of an insolvent debtor, and the respondents failed to provide the Court with an explanation as to why the disparity in treatment was unwarranted.[56]

Finally, the respondents claimed that permitting a trustee to waive a corporate successor’s privilege would deter individuals and entities from pursuing the shelter of bankruptcy.[57] Ruling in favor of the Commission, according to the respondents, would “provide an incentive for creditors to file for involuntary bankruptcy.”[58] However, the Court disagreed, noting that there are a number of factors that might motivate a party to pursue or avoid bankruptcy.[59] The Court felt that any impact of its decision upon the calculus of a party weighing the possibility of bankruptcy, would be in accord with “congressional intent.”[60]

Having considered and refuted the arguments put forth by Mr. Weintraub, the Court overruled the Seventh Circuit and implemented the Weintraub Principle—that a corporate successor in interest can revoke a predecessor’s assertion of attorney-client privilege.[61]

III.  Applying the Weintraub Principle to Government Entities

With the well-articulated, point-by-point approach taken in Weintraub, the Court laid the groundwork for applying the rationale to similar scenarios. The characteristics of corporate entities described by the Court are also applicable to government agencies. Further analysis of each shared trait establishes strong evidence for employing the Weintraub Principle in both contexts.

A.  The Agent Requirement

The Court in Weintraub held that, “[a]s an inanimate entity, a corporation must act through agents [and] cannot directly waive the attorney-client privilege when disclosure is in [the entity’s] best interest.”[62] Likewise, a government agency is an inanimate entity that must act through its agents.[63] It cannot speak for itself, and similarly, it cannot directly waive the privilege when disclosure is in its best interest.[64] Furthermore, the agents operating within each type of entity are replaceable.[65] Whether the chief executive officer of a company or the president of the country, the end of their tenure does not result in the expiration of the entity.[66] By operating via agents who are replaceable, entities can carry on in perpetuity, with varying individuals speaking on its behalf throughout its lifespan.[67] Since both government and corporate entities are restricted to operating through interchangeable agents, courts should apply the Weintraub Principle to successive government agents.

B.  The Sources of Authority

The Court in Weintraub also justified its decision to allow corporate successorsininterest the power to revoke a predecessor’s claim of privilege by recognizing that the power wielded by entity agents stems from other authorities.[68] Corporate officers are empowered to act on behalf of the entity by the board of directors, who in turn are vested with authority by the shareholders.[69] Similarly, government agents are endowed by the people to act on their behalf.[70] Actors within a government entity may be elected by the people, appointed by the elected official, or hired by a subordinate to the officeholder.[71] The existence of empowering authorities, who select agents to act on their behalf, illustrates another similarity between the two entity types that justifies application of the Weintraub Principal in both contexts.[72]

C.  The Duty Owed to Others

Finally, operating as an agent carries certain obligations to act in the interests of the principle.[73] Private entities, for example, rely on senior officers to assert the privilege “in a manner consistent with their fiduciary duty to act in the best interests of the corporation.”[74] Likewise, government entities often act through high-ranking elected officials[75] who must take care to assert the privilege in accord with the official’s duty to the public in honest and open government.[76] Breach of duty in either context can result in judicial action against the agent.[77] Permitting a government official to revoke a predecessor’s assertion of the privilege is in furtherance of the official’s duty to “open government” since it would reveal government information.[78] Furthermore, a government agent’s decision to waive a predecessor’s claim of privilege would be a direct implementation of the people’s will since the people elected the new public official.[79]

IV.  Counterarguments to Applying the Weintraub Principle to Government Entities

Applying the Weintraub Principle to the government context will not be without critics. The attorney-client privilege is central to the practice of law, and any proposed hindrance to its operation might understandably inspire well-intentioned counterarguments. Ultimately, just as with corporate employees, an elected official can retain a private attorney to deliver independent advice that would be exempt from future revocation by a successor in interest.[80] After all, the Court in Weintraub acknowledged that its ruling applied solely to entities, given their unique structure, and that any similar conclusion reached by a court in the context of individuals would require different reasoning.[81] While the option of hiring private counsel remains available to an agent of either entity, it is not the only rebuttal available to courts responding to criticisms of applying the Weintraub Principle to government entities.

A.  Applying the Weintraub Principle to Government Entities Would Have a Chilling Effect

Opponents may argue that applying this corporate standard to government entities would produce a chilling effect on government communications.[82] As the respondents in Weintraub argued, permitting discovery of attorney-client communications could deter agents from having candid conversations with entity attorneys.[83] This point is significant as it cuts to the very purpose of the privilege—to induce open communications between attorneys and clients.[84] Ultimately, this argument is unpersuasive because the attorney-client privilege is not absolute and other opportunities exist to seek legal advice that are exempt from public inspection.

For example, the privilege does not protect communications pertaining to ongoing criminal or fraudulent activity.[85] Clients continue to successfully seek competent legal advice in spite of this exemption. In addition, “[e]xisting protections, including exemptions to the [Freedom of Information Act], special governmental privileges, and the attorney work product doctrine, offer sufficient protection for the government’s legitimate interests in confidentiality.”[86]

Considering the privilege exceptions already in operation, as well as the additional safeguards available for certain communications, revoking a predecessor’s claim of privilege would not “have an undesirable chilling effect on client-attorney communications.”[87] Furthermore, the lack of any cognizable chilling impact brought to light in the corporate context since Weintraub provides strong circumstantial evidence supporting the Court’s decision as well as my thesis.[88] In fact, some express skepticism as to whether or not the privilege actually promotes candor at all.[89]

B.  Applying the Weintraub Principle to Government Entities Will not Reflect the Will of the People

Critics may also argue that applying the Weintraub Principle to government entities is not in furtherance of the public duty owed by government officials.[90] Those opposed to the government’s application of the rule could note that it is impossible to know if the revocation would be representative of the people’s will because it is unlikely a candidate would run on the platform of “promising to revoke my predecessor’s claim of privilege on day one.” Although a candidate may face a variety issues in a campaign, an elected official faces a myriad of issues that are not thoroughly expounded on during a campaign—either because there were more important topics that occupied the limited time of the election or because it was not an issue yet.[91] Thus, government officials should be permitted to revoke a predecessor’s claim of privilege because the decision to do so may be one of many issues not discussed during the campaign.

C.  Applying the Weintraub Principle to Government Entities Would Endanger National Security

Even conceding the application of Weintraub to government officials, opponents may argue against allowing government successors the power to revoke claims of privilege by their predecessors because government lawyers have access to confidential material that should not be divulged to the public.[92]

While “the government entity has a unique public function”[93] involving access to “military secrets [and] sensitive negotiations with foreign governments,” it must also adhere to the strict regulations barring distribution of such information that would prevent the disclosure of national security secrets or other highly confidential matters.[94] For example, the Freedom of Information Act contains provisions that prevent the general public from accessing secretive information.[95] Such protections would adequately safeguard critical communications from being disclosed by a succeeding government official.


In summary, considering the inherent conflict between the public’s right to open government and an individual’s interest in having private communications with an attorney, it seems inevitable that a court will confront the question considered by this paper. In the context of current events, President Trump could invoke the privilege yet again—this time in his position as president—to defend against the federal inquiry that is ongoing at the time of this writing.[96] While it is impossible to predict the course of an investigationespecially one occurring within the political settingthe President’s assertion of the privilege already demonstrates its value to his defense strategy. If the investigations continue with the same scope and public intensity as have been exhibited thus far, the likelihood only grows that President Trump will invoke the privilege in the same manner as former Presidents Nixon and Clinton. If that occurs, the next president would face the question of whether revocation of Trump’s assertion serves the public interest.

Even absent further assertion of the privilege by President Trump, the surging popularity of the rule during his tenure highlights the need for an answer to the question posed in this paper.[97] Confronted with a case on this issue, a court should draw upon the parallels between private corporations and government agencies and apply the corporate Weintraub Principle to the government context. Both types of entities are restricted to acting through agents who acquire authority from others and must assert the privilege in keeping with their duty to shareholders or the public. Such an application applies sound legal principles to further the public interest, while also proving that the attorney-client privilege is not only alive and well, but healthy enough to survive the transition of government power in a democracy.[98]

[*] *. Prosecutor, Hickman County, Kentucky; B.A. 2005, Morehead State University; J.D. 2010, Washington University School of Law; Editor-in-Chief, Washington University Law Review, Volume 87. Special Victim’s Counsel to sexual-assault victims as a Judge Advocate in the United States Army Reserve. Military information does not imply endorsement by the Department of Defense or the Department of the Army. All analysis and opinions are my own. I remain very thankful to Professor Kathleen Clark for her helpful comments and express my sincere gratitude to Professor Brad Areheart and Professor Rebecca Hollander-Blumoff for their respective time, assistance, and encouragement.  In addition, I appreciate the staff on the Southern California Law Review, especially Daniel Brovman, for their helpful and professional guidance. I am forever grateful to Judge Hunter B. Whitesell, II and attorneys, Richard Major and Amanda Major, for their unending patience and teaching. I dedicate this Article to my family, without whom this would not be possible.


 [1]. Donald J. Trump (@realDonaldTrump), Twitter (Apr. 10, 2018, 6:07 AM), https://twitter.com/realdonaldtrump/status/983662868540346371.

 [2]. E.g., Andrew Buncombe, Trump ‘Bouncing Off Walls’ with Rage After FBI Raid on Personal Lawyer’s Offices, The Independent, Apr. 11, 2018, at 27; Ben Riley-Smith, Republicans Warn Trump not to Fire Mueller, Daily Telegraph, Apr. 11, 2018, at 11; Chidanand Rajghatta, Trump Goes Ballistic as FBI Closes in, Raids His Personal Lawyer, Times of India, (Apr. 10, 2018, 9:09 PM), https://timesofindia.indiatimes.com/world/us/trump-goes-ballistic-as-fbi-closes-in-raids-his-personal-lawyer/articleshow/63700727.cms; Lawrence Douglas, The Cohen Raid Is a Game Changer: Trump’s Reaction Tells Us So, Guardian, (Apr. 10, 2018, 11:03 AM) https://www.theguardian.com/us-news/2018/apr/10/donald-trump-michael-cohen-raid-comment. Research of news articles via Google News that included the terms “Trump attorney client privilege”, restricted to the twenty-four hours after the President’s Tweet regarding the privilege’s death, returned about 14,500 results. Similarly, a search of Lexis Advance that I limited to “major non-U.S. newspapers” for the same twenty-four-hour period returned twenty-six results within this more defined pool of news outlets.

 [3]. Matt Apuzzo, F.B.I. Raids Office of Trump’s Longtime Lawyer Michael Cohen; Trump Calls it ‘Disgraceful’, N.Y. Times (Apr. 9, 2018), https: //www.nytimes.com/2018/04/09/us/politics/fbi-raids-office-of-trumps-longtime-lawyer-michael-cohen.html; Josh Gerstein, Trump Lawyer Presses for Access to Seized Cohen Files, Politico (Apr. 15, 2018, 10:57 PM), https://www.politico.com/story/ 2018/04/15/trump-cohen-files-access-seized-526268.

 [4]. See Philip Bump & Devlin Barrett, Investigation of Trump Attorney Cohen Underway for Months, Filing Shows, Wash. Post, Apr. 14, 2018, at A5; Matt Apuzzo et al., Trump Sees Inquiry into Cohen as Greater Threat than Mueller, N.Y. Times (Apr. 13, 2018), https://nyti.ms/2JDyg0h.

 [5]. See Ramsay MacMullen, Corruption and the Decline of Rome (1988); Kyle Swenson, America’s First ‘Hush Money’ Scandal, Wash. Post (Mar. 23, 2018), http://wapo.st

 [6]. See, e.g., Choe Hang-Sun, Park Geun-hye, South Korea’s Ousted President, Gets 24 Years in Prison, N.Y. Times (Apr. 6, 2018), https://nyti.ms/2EmuUec; Lula: Former Brazilian President Surrenders to Police, BBC News (Apr. 8, 2018), http://www.bbc.com/news/world-latin-america-43686174.

 [7]. See e.g., Caryn James, Testing of a President: The Speech; Apology and Defiance Echo a Nixon Address, N.Y. Times, Aug. 18, 1991, at A16; Suzanne Garment, Nixon’s Decisions During Watergate May Help Us Understand the Legal Trouble Trump Is in Now, NBC News (Apr. 5, 2018, 1:29 AM), https://www.nbcnews.com/think/opinion/nixon-s-decisions-during-watergate-may-help-us-understand-legal-ncna862821; Sex, Lies and Impeachment, BBC News (Dec. 22, 1998), http://news.bbc.co.uk/2/hi/special_report/1998/12/98/review_of_98/themes/208715.stm.

 [8]. State of the Union with Jake Tapper, CNN (Apr. 15, 2018, 9:00 AM to 10:00 AM), https://archive.org/details/CNNW_20180415_160000_State_of_the_Union_With_Jake_Tapper/start/1299/end/1359 (starts at 9:20 AM).

My guess is that his lawyers don’t want him to go about it that way. That there’s lots of evidence, not necessarily in this Tweet storm, but in other Tweet storms, that will be bad for him if Bob Mueller you know ends up coming around to bringing some kind of case together either in a report or otherwise relating to obstruction. Every single time the President makes clear that he doesn’t like an investigation of him or his associates, and wants that investigation to stop, that adds to the narrative that when he takes an action that actually can cause the investigation to stop that that was intentional and was potential obstruction. I’m not saying it is obstruction, but its adds grist for people to find that to be true.

Id. In addition, during investigations concerning President Clinton, the President boldly pronounced that he “did not have sexual relations with that woman.” Bill Clinton: ‘I Did Not Have Sexual Relations with that Woman.’, Wash. Post (January 25, 2018, 4:39 PM EDT), https://www.washingtonpost.com
/video/politics/bill-clinton-i-did-not-have-sexual-relations-with-that-woman/2018/01/25/4a953c22-0221-11e8-86b9-8908743c79dd_video.html (affirming this story under oath caused the President to commit perjury); Mr. Clinton’s Last Deal, N. Y. Times (Jan. 20, 2001), https://www.nytimes.com
/2001/01/20/opinion/mr-clinton-s-last-deal.html. Likewise, President Trump’s social media commentary may boost his standing among his political base but could prove detrimental to his legal interests. See Julie Bykowicz & Janet Hook, Trump Weekend Tweetstorm Responds to Mueller Indictment, Wall St. J. (Feb. 18, 2018, 11:11 AM), https://www.wsj.com/articles/trump-weekend-tweetstorm-responds-to-mueller-indictment-1518967910.

 [9]. The investigations into Presidents Nixon, Clinton, and Trump increased the popular notoriety of the privilege through its repeated appearance in media reporting. See, e.g., Lesley Oelsner, Ehrlichman Blames Nixon, N.Y. Times, Oct. 16, 1974, at A1; Jacqueline Thomsen, Trump Lawyers Argue Material Seized in Cohen Raid Is Protected by Attorney-Client Privilege, The Hill (Apr. 13, 2018, 11:41 AM), http://thehill.com/homenews/administration/383019-trump-lawyers-argue-material-seized-in-cohen-raid-is-protected-by.

 [10]. Bob Franken, White House Says Clinton Needs Attorney-Client Privilege for Impeachment Fight, CNN (Aug 21, 1998), http://edition.cnn.com/ALLPOLITICS/1998/08/21/lewinsky.

 [11]. Id.; H.R. Res. 611, 105th Cong., 144 Cong. Rec. 11774 (1998) (enacted).

 [12]. See, e.g., Kathleen Parker, We’ve Seen This Movie Before. It Ended in Impeachment., Wash. Post (Apr. 10, 2018), https://wapo.st/2qkNFJO?tid=ss_tw-bottom&utm_term=.f83b124ba01c; Mike Huckabee (@GovMikeHuckabee), Twitter (Jun 13, 2017, 1:04 PM), https://twitter.com
/govmikehuckabee/status/874719159585841152?lang=en (“Dems act like they never heard of atty/client privilege; AG is top atty in Exec branch; serves @POTUS and not stooge of Congress.”).

 [13]. Thomsen, supra note 9.

 [14]. Kyle Cheney, Trump Jr. Cites Attorney-Client Privilege in not Answering Panel’s Questions About Discussions with his Father, Politico (December 6, 2017, 7:37 PM), https://www.politico.com

 [15]. It is worth noting that the current investigations concerning President Trump are occurring amidst the backdrop of a federal government controlled by members within the President’s own political party. Congress has immense investigatory powers, which are most practically limited by its willingness to utilize them. Should the Democratic Party take control of Congress, or simply the House of Representatives or Senate, members in the new majority would likely have a far greater willingness to investigate the Trump administration.

 [16]. See, e.g., 8 John Henry Wigmore, Evidence in Trials at Common Law § 2292 (McNaughton rev. 1961); John Damin, Thawing the Chill Between Government Attorneys and Their Clients: The Need for Legislative Intervention in Protecting the Governmental Attorney-Client Privilege, 111 Penn. St. L. Rev. 1009, 1010 (2007).

 [17]. See, e.g., Gregory I. Massing, The Fifth Amendment, the Attorney-Client Privilege, and the Prosecution of White-Collar Crime, 75 Va. L. Rev. 1179 (1989); Clinton’s Senate Trial: How It Will Work, Palm Beach Post, Dec. 20. 1998, at 22A.

 [18]. See, e.g., Paul R. Rice, Attorney-Client Privilege in the United States § 1:11 (2d ed. 1999); Damin, supra note 16, at 1013–15.

 [19]. See, e.g., Damin, supra note 16, at 1010–11 (quoting In re Bruce R. Lindsey, 158 F.3d 1263, 1271 (D.C. Cir. 1998)); Michael Stokes Paulson, Who “Owns” the Government’s Attorney-Client Privilege?, 83 Minn. L. Rev. 473, 475 (1998) (“My topic concerns one of the many important practical consequences that flows from this post-Morrison constitutional order: how control over the government’s attorney-client privilege works under a regime of divided executive management of USA, Inc.”) (providing analysis, in the context of the impeachment of President Clinton, of the privilege’s operation within the federal Executive Branch).

 [20]. Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343 (1985).

 [21]. United States v. United Shoe Mach. Corp., 89 F. Supp. 357, 358–59 (D. Mass. 1950).

The privilege applies only if (1) the asserted holder of the privilege is or sought to be come [sic] a client; (2) the person to whom the communication was made (a) is a member of the bar of a court, or his subordinate and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion on law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client.

Id. See also John E. Sexton, A Post-Upjohn Consideration of the Corporate Attorney-Client Privilege, 57 N.Y.U. L. Rev. 443, 445 n.5 (1982) (claiming Dean Wigmore’s definition is “the most widely cited formulation of the elements of the attorney-client privilege” before also reciting the definition put forth in United Shoe).

 [22]. See, e.g., Bellis v. United States, 417 U.S. 85, 90 (1974) (stating “the inescapable fact that an artificial entity can only act to produce its records through its individual officers or agents”); Braswell v. United States, 487 U.S. 99, 110 (1988) (citing Bellis, 417 U.S. at 90) (“Artificial entities such as corporations may act only through their agents.”).

 [23]. United Shoe, 89 F. Supp. at 361.

 [24]. Philadelphia v. Westinghouse Elec. Corp., 210 F. Supp. 483, 485 (E.D. Pa. 1962).

 [25]. Id. at 485–86.

 [26]. Harper & Row Publishers v. Decker, 423 F.2d 487, 491–92 (7th Cir. 1970).

 [27]. Id.

[A]n employee at a corporation, though not a member of its control group, is sufficiently identified with the corporation so that his communication to the corporation’s attorney is privileged where the employee makes the communication at the direction of his superiors in the corporation and where the subject matter upon which the attorney’s advice is sought by the corporation and dealt with in the communication is the performance by the employee of the duties of his employment.


 [28]. Upjohn Co. v. United States, 449 U.S. 383, 386 (1981).

 [29]. Id. at 394–95. The Court first considered whether the information was “available from upper-echelon management.” Id. Second, the Court examined whether the information was “needed to supply a basis for legal advice concerning compliance with securities and tax laws, foreign laws, currency regulations, duties to shareholders, and potential litigation in each of these areas.” Id. Third, the Court reviewed whether the “communications concerned matters within the scope of the employees’ corporate duties.” Id. Fourth, it asked whether “the employees themselves were sufficiently aware that they were being questioned in order that the corporation could obtain legal advice.” Id. Finally, the Court considered whether “the communications were considered ‘highly confidential’ when made . . . and have been kept confidential by the company.” Id. at 395.

 [30]. The evolutionary development of the corporate privilege spans decades and includes several tests developed by courts to determine the operation of the rule. See supra notes 2229 and accompanying text.

 [31]. United States v. Doe (In re Grand Jury Investigation), 399 F.3d 527, 536 n.4 (2d Cir. 2005) (“We are in no position, however, to resolve this tension in the law.”).

 [32]. See supra note 8 (stating examples of the potential high-ranking clients in government-privilege cases by comparing the investigations of Presidents Nixon and Clinton).

 [33]. See, e.g., In re Lindsey, 158 F.3d 1263, 1273 (D.C. Cir. 1998); In re Grand Jury Subpoena Duces Tecum, 112 F.3d 910, 920 (8th Cir. 1997). Unlike in cases involving corporations and other private entities, when the client is a public entity, courts often include a public-function element within their analysis. See, e.g., Lindsey, 158 F.3d at 1273 (“[T]he loyalties of a government lawyer therefore cannot and must not lie solely with his or her client agency.”); Duces Tecum, 112 F.3d at 920 (“[T]he general duty of public service calls upon calls upon government employees and agencies to favor disclosure over concealment.”).

 [34]. Deshaney v. Winnebago Cty. Dep’t of Soc. Servs., 489 U.S. 189, 194 (1989); Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 348 (1985); Bowen v. Watkins, 669 F.2d 979, 989 (5th Cir. 1982) (“At some level of authority, there must be an official whose acts reflect governmental policy, for the government necessarily acts through its agents.”). See also Anne Bowen Poulin, Party Admissions in Criminal Cases: Should the Government Have to Eat Its Words?, 87 Minn. L. Rev. 401, 404 (“Like a corporation, the government speaks and acts only through its agents.”); Carlos E. Gonzalez, Popular Sovereign Generated Versus Government Institution Generated Constitutional Norms: When Does a Constitutional Amendment not Amend the Constitution?, 80 Wash. U. L.Q. 127, 132 (2003) (considering the degree to which government entities represent the will of the people).

 [35]. See Weintraub, 471 U.S. at 34–49.

 [36]. See Cheney, Rice Approved Use of Waterboarding, Other Interrogation Tactics, FOX News (April 11, 2008), http://www.foxnews.com/story/0,2933,349948,00.html.

 [37]. See supra note 11 and accompanying text.

 [38]. See infra note 73 and accompanying text.

 [39]. Weintraub, 471 U.S. at 345.

 [40]. Id. The Commission sought to determine whether the Chicago Discount Commodity Brokers (“CDCB”) had “violated the Commodity Exchange Act, 7 U.S.C. § 1 et seq.” Id.

 [41]. Id. at 345–46. The bankruptcy court named Mr. John K. Notz, Jr. as the permanent trustee for CDCB, granting him authority to proceed with the bankruptcy action on behalf of the company, which occurred on the same day the Commodity Trading Commission (“the Commission”) filed a complaint against CDCB. Id.

 [42]. Id. at 346.

 [43]. Id.

 [44]. Id. at 346–47.

 [45]. Id. at 347.

 [46]. Id. at 354–55.

 [47]. Id. at 355–56.

 [48]. Id. at 355 (Respondents also ignore that if a debtor remains in possession—that is, if a trustee is not appointed—the debtor’s directors bear essentially the same fiduciary obligation to creditors and shareholders as would the trustee for a debtor out of possession.”) (citing Wolf v. Weinstein, 372 U.S. 633, 649–52 (1963).

 [49]. Id.

 [50]. Id. at 356 (emphasis in original).

 [51]. Id.

 [52]. Id. at 356–57.

 [53]. Id. at 357.

 [54]. Id.

 [55]. Id. 

 [56]. Id. (quoting McDonald v. Williams, 174 U.S. 397, 404 (1899)).

 [57]. Id. at 357–58.

 [58]. Id. at 357.

 [59]. Id. at 358.

 [60]. Id.

 [61]. Id. (noting that a corporate bankruptcy trustee “has the power to waive the corporation’s attorney-client privilege with respect to prebankruptcy communications”).

 [62]. Id. at 348.

 [63]. Rice, supra note 18, at § 4:28.

 [64]. Id.

 [65]. Trs. of Dartmouth Coll. v. Woodward, 17 U.S. 518, 636 (1819).

A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly, or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created. Among the most important are immortality, and, if the expression may be allowed, individuality; properties, by which a perpetual succession of many persons are considered as the same, and may act as a single individual. They enable a corporation to manage its own affairs, and to hold property without the perplexing intricacies, the hazardous and endless necessity, of perpetual conveyances for the purpose of transmitting it from hand to hand. It is chiefly for the purpose of clothing bodies of men, in succession, with these qualities and capacities, that corporations were invented, and are in use. By these means, a perpetual succession of individuals are capable of acting for the promotion of the particular object, like one immortal being. 

Id. Practically speaking, a potential counterargument could be the small, family-run corporation that may cease to exist beyond the original proprietors. This potential result, however, does not negate the well-stated case herein, nor the excellent article authored by Professor Schwartz. See Schwartz, infra note 66.

 [66]. Andrew A. Schwartz, The Perpetual Corporation, 80 Geo. Wash. L. Rev. 764, 766 (2012) (“Natural persons can get sick and die, and similarly, other forms of business organization, such as the partnership or sole proprietorship, have only limited lifespans. But one of the defining legal characteristics of the corporation is its capacity to live forever.”).

 [67]. Woodward, 17 U.S. at 636.

 [68]. Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 349 n.4 (1985) (citing Melvin Aron Eisenberg, Legal Models of Management Structure in the Modern Corporation: Officers, Directors, and Accountants, 63 Calif. L. Rev. 375 (1975)).

 [69]. Id.; Schoonejongen v. Curtiss-Wright Corp., 143 F.3d 120, 127 (3d Cir. 1998) (citing 2 William M. Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 434, at 339 (perm. rev. ed. 1992)).

 [70]. See, e.g., Perry v. United States, 294 U.S. 330, 353 (1935) (“The congress cannot revoke the sovereign power of the people . . . .”); The Federalist No. 22, at 152 (Alexander Hamilton) (Clinton Rossiter ed., 1961) (“The Fabric of American empire ought to rest on the solid basis of THE CONSENT OF THE PEOPLE. The streams of national power ought to flow immediately from that pure, original fountain of all legitimate authority.”); The Federalist No. 49, at 313–14 (James Madison) (Clinton Rossiter ed., 1961) (stating that “the people are the only legitimate fountain of power, and it is from them that the constitutional charter, under which THE several branches of government hold their power, is derived.”).

 [71]. See, e.g., U.S. Const. art. I, § 2 (stating “the People of the several States” are to elect House of Representatives members).

 [72]. Although differences between public and private entities can emerge when examining how a senior agent may be terminated in either context, similarities between the two continue when discussing employees operating at other levels. Employment contracts can result in countless different scenarios; however, in the context of an at-will-employment relationship, public and private entities enjoy broad latitude in deciding whether to terminate an employment relationship. Engquist v. Dep’t of Agric., 553 U.S. 591, 599 (2008) (“In light of these basic principles, we have often recognized that government has significantly greater leeway in its dealings with citizen employees than it does when it brings its sovereign power to bear on citizens at large.”); Hugley v. Art Inst., 3 F. Supp. 2d 900, 908 (N.D. Ill. 1998) (quoting Kahn v. U.S. Sec’y of Labor, 64 F.3d 271, 279 (7th Cir. 1995)). Yet differences can emerge with respect to elected officials because their employment in a particular office is restricted to certain timespans as well as limits on the number of terms the official can serve. See, e.g., U.S. Const. amend. XIV, § 2; Haw. Const. art. V, § 1. This variance for elected officials does not dilute the number of similarities between public and private entities enough, however, to warrant a result other than applying the Weintraub Principle to public entities.

 [73]. Restatement (Third) of Agency § 1.01 (Am. Law Inst. 2006) (“Agency is the fiduciary relationship that arises when one person (a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.”).

 [74]. Weintraub, 471 U.S. at 348–49. See also Quadrant Structured Prods. Co. v. Vertin, 102 A.3d 155, 171 (Del. Ch. 2014).

 [75]. See, e.g., In re Grand Jury Subpoena Duces Tecum, 112 F.3d 910 (8th Cir. 1997) (involving a president); United States v. Doe (In re Grand Jury Investigation), 399 F.3d 527 (2d Cir. 2005) (involving a governor).

 [76]. Subpoena Duces Tecum, 112 F.3d at 918 (finding that restricting communications involving the first family would be “in derogation of the search of the truth”) (quoting United States v. Nixon, 418 U.S. 683, 710 (1974)).

 [77]. Bailey v. Mayor of New York, 3 Hill 531, 538 (N.Y. Sup. Ct. 1842) (“If a public officer authorizes the doing of an act not within the scope of his authority, . . . he will be held responsible.”); Vertin, 102 A.3d at 171–72.

 [78]. Subpoena Duces Tecum, 112 F.3d at 918 (quoting Nixon, 418 U.S. at 710). A succeeding administration could also determine that revoking the prior claim of privilege undersuch circumstances would be contrary to a duty to maintain a truthful, open government that instills confidence in the people. See Chrysler Corp. v. Brown, 441 U.S. 281, 292 (1979) (“The Act is an attempt to meet the demand for open government.”).

 [79]. Hastings Ctr., The Ethics of Legislative Life 29 (1985). One theory of political representation describes an elected official’s duty as “carrying out [the] set of express or tacit instructions” expressed by her or his constituents. Id.

 [80]. Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 356 (1985) (“An individual, in contrast, can act for himself; there is no ‘management’ that controls a solvent individual’s attorney-client privilege.”).

 [81]. Id.

 [82]. See, e.g., id. at 357.

 [83]. Id.

 [84]. Mitchell v. Superior Court, 691 P.2d 642, 646 (Cal. 1984) (citing People v. Flores, 139 Cal. Rptr. 546, 547–48 (1977) (“Clearly, the fundamental purpose behind the privilege is to safeguard the confidential relationship between clients and their attorneys so as to promote full and open discussion of the facts and tactics surrounding individual legal matters.”).

 [85]. United States v. Zolin, 491 U.S. 554, 562–63 (1989) (quoting 8 J. Wigmore, Evidence § 2298)).

 [86]. Lory A. Barsdate, Attorney-Client Privilege for the Government Entity, 97 Yale L.J. 1725, 1742 (1988).

 [87]. Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 357 (1985).

 [88]. Although I agree with the insufficiency of a “lack-of-evidence-to-the-contrary,” it is difficult to believe that the dire “chilling effect” warned of by the respondents in Weintraub has come to fruition in the more than thirty years since the Supreme Court’s decision, given the silence on the matter since. However, this question is primed for further research to shed light on this possibility.

 [89]. See, e.g., Melanie B. Leslie, Government Officials as Attorneys and Clients: Why Privilege the Privileged?, 77 Ind. L.J. 469, 482–84 (2002).

 [90]. See supra notes 7071 and accompanying text.

 [91]. If a predecessor invoked privilege in between the successor’s election and successor’s swearing-in ceremony, there is arguably less incentive for the successor to have spoken about the issue during the previous campaign. This likelihood stems from the fact that neither political party currently recognizes the operation of attorney-client privilege as a campaign issue. See, e.g., Our Platform, Democrats, https://www.democrats.org/party-platform (last visited Aug. 21, 2018); RNC Communications, The 2016 Republican Party Platform, GOP: Blog (July 28, 2016), https://www.gop.com/the-2016-republican-party-platform. As party platforms are updated in response to issues of significance to the electorate, the platforms could include the issue of privilege revocation if it became significant.

 [92]. See Barsdate, supra note 86, at 1742–44 (noting and then refuting the existence of concerns surrounding the “sensitive communications” government attorneys have access to).

 [93]. Id. at 1738.

 [94]. Roger C. Cramton, The Lawyer as Whistleblower: Confidentiality and the Government Lawyer, 5 Geo. J. Legal Ethics 291, 294–95 (1991) (citing 26 U.S.C §§ 6103, 6104, 6108, 6110 (1988); 5 U.S.C. §§ 552, 552(a) (1988); 18 U.S.C. § 1905 (1988)).

 [95]. 5 U.S.C. § 552(b)(1)–(9) (2007).

 [96]. Prior invocation of the attorney-client privilege by Presidents Richard Nixon and Bill Clinton—as well as the current assertions by President Donald Trump and others associated with his administration—signal the possibility that the test case may involve a president. However, application of my thesis is by no means limited to members of the White House, as the rationale and logic put forth herein apply to local- and state-government agencies, as well.

 [97]. Analysis of the news articles regarding the privilege and President Trump’s references to the long-standing rule have resulted in a public-relations campaign that has promoted the privilege. With so much scholarship devoted to attorney-client privilege in recent years, such publicized talk of the privilege’s application to the President prove the need to resolve this unexplored question. Yet the test case may not end up involving a president or even federal officials; however, no matter the level of government agent involved, the current discussions stemming from President Trump illustrate the importance of the privilege in a government official’s day-to-day operations.

 [98]. See supra note 1 and accompanying text (discussing President Trump declaring the privilege dead).

End of the Dialogue? Political Polarization, the Supreme Court, and Congress – Article by Richard L. Hasen

From Volume 86, Number 2 (January 2013)

This Article considers the likely effects of continued political polarization on the relative power of Congress and the Supreme Court. Polarization is already leading to an increase in the power of the Court against Congress, whether or not the Justices affirmatively seek that additional power. The governing model of congressional-Supreme Court relations is that the branches are in dialogue on statutory interpretation: Congress writes federal statutes, the Court interprets them, and Congress has the power to overrule the Court’s interpretations. The Court’s interpretive rules are premised upon this dialogic model, such as the rule that Supreme Court statutory interpretation precedents are subject to “super strong” stare decisis protection because Congress can always correct an errant court interpretation. Legislation scholars also write as though congressional overriding remains common.

In fact, in the last two decades the rate of congressional overriding of Supreme Court statutory decisions has plummeted dramatically, from an average of twelve overrides of Supreme Court cases in each two-year congressional term during the 1975-1990 period, to an average of 5.8 overrides for each term from 1991-2000, and to a mere 2.8 average number of overrides for each term from 2001-2012. Although some of the decline seems attributable to the lower volume of Supreme Court statutory interpretation decisions, the decline in overrides greatly outpaces this decline in cases. Moreover, the decline does not appear to be driven by a decline in the amount of overall legislation. Instead, partisanship seems to have strongly diminished the opportunities for bipartisan overrides of Supreme Court cases, in which Democrats and Republicans come together to reverse the Supreme Court.

In its place we see a new, but rarer, phenomenon, partisan overriding, which appears to require conditions of near-unified control of both branches of Congress and the presidency. Two recent examples are (1) the Military Commissions Act of 2006, in which Republicans overturned the Court’s statutory interpretation decision in Hamdan v. Rumsfeld on the habeas corpus rights of enemy combatants, and (2) the Lilly Ledbetter Fair Pay Act of 2009, in which Democrats overturned the Court’s statutory interpretation decision in Ledbetter v. Goodyear Tire & Rubber Co. on how to measure the statute of limitations period in certain employment discrimination lawsuits. In a highly polarized atmosphere and with Senate rules usually requiring sixty votes to change the status quo, the Court’s word on the meaning of statutes is now final almost as often as its word on constitutional interpretation.