RFRA at the Border: Immigration’s Entry Fiction and Religious Free Exercise

RFRA and RLUIPA have greatly enhanced the religious free exercise rights of individuals, but it is not clear that all immigrants in detention in the United States are able to claim these protections. One lower court has applied the entry fiction doctrine, which limits the constitutional rights of immigrants at the border, to hold that these immigrants do not have statutory rights under RFRA because they are not “person[s]” within the meaning of the statute. This Note contends that the Supreme Court’s recent analysis of RFRA in Burwell v. Hobby Lobby Stores, Inc. calls into question this lower court decision. Contemplating the various methods of statutory interpretation from Hobby Lobby and other lower courts, this Note argues that the plain meaning of “person[s]” should govern its interpretation in RFRA and, thus, should include immigrants subject to the entry fiction.

Introduction

For many, religion is a solace in times of crisis.1.Maryam Saleh, A Second Chance, Intercept (Dec. 22, 2018, 10:44 AM), https://theintercept.com/2018/12/22/georgia-ice-raids-muslim-refugees/ [https://perma.cc/Q3Q5-MLWS] (“You know, it’s just the belief that you have that you don’t have no control of everything, so, you know, that’s what keeps us going, just prayers . . . .”).Show More However, for some immigrants in detention centers across the country, their ability to practice their religion has been limited.2.Conrad Wilson, Hundreds of Immigrant Detainees Held in Federal Prisons, NPR (Aug. 23, 2018, 7:28 AM), https://www.npr.org/2018/08/23/641165251/legal-battles-began-when-migrants-were-sent-to-federal-prisons [https://perma.cc/8A3F-6GN4] (“If you lock somebody up in a foreign country and cut them off from the outside world . . . it’s going to cause all kinds of psychological trauma at the minimum . . . .”).Show More In Glades County, Florida, Muslim immigrant detainees were denied access to the Quran and forced to use bedsheets as prayer rugs.3.See ACLU, Letter from ACLU to U.S. Dep’t of Homeland Sec. 4 (Mar. 15, 2019), https://www.aclu.org/letter/investigating-religious-freedom-violations-border-patrol-and-ice [https://perma.cc/ET7C-TAG6] [hereinafter ACLU Letter]; Complaint at 12–13, Abdulkadir v. Hardin, No. 2:19-CV-00120-SPC-MRM (M.D. Fla. Feb. 27, 2019).Show More In both Port Isabel, Texas and Miami, Florida, Muslim detainees were given only pork sandwiches to eat.4.Roque Planas, Border Patrol Fed Pork to Muslim Detainee for 6 Days, Huffington Post (Feb. 27, 2019, 4:45 PM), https://www.huffpost.com/entry/border-patrol-fed-pork-to-muslim-detainee-for-six-days_n_5c76f474e4b0d3a48b5627a2#:~:text=A%20permit%20allowing‌%20him%20to,Parveen%20from%20landinl%20in%20detention [https://perma.cc/F2JZ-ZFKM]; Groups: Muslim Detainees at Miami Facility Are Served Pork, Associated Press (Aug. 20, 2020), https://apnews.com/article/a4cdb2edd79edfc83adde71fdcafb079 [https://perma.cc/A8GJ-4LHJ].Show More In Sheridan, Oregon, Sikh detainees were denied turbans, and other detainees were denied access to pastoral care or spaces to worship.5.See ACLU Letter, supra note 4, at 5; Decl. in Support of Habeas Petition at 2, ICE Detainee No. 2 v. Salazar, No. 3:18-CV-01280-MO (D. Or. July 18, 2018); Memo in Support of Petition for Habeas Corpus at 22–23, ICE Detainee Nos. 1-74 v. Salazar, No. 3:18-CV-01279-MO (D. Or. July 30, 2018).Show More In Victorville, California, detainees were likewise denied meals that complied with their religious needs, were denied appropriate religious counseling, and were prevented from wearing head coverings.6.See ACLU Letter, supra note 4, at 5; Decl. of Atinder Paul Singh ¶ 5, 10–11, Teneng v. Trump, No 5:18-cv-01609 (C.D. Cal. Aug. 1, 2018), ECF No. 1-4; Decl. of Gurjinder Singh ¶¶ 4–8, id., ECF No. 1-5.Show More Indeed, one individual was chastised by officers for using his cell to pray, even though he was given no other space to do so.7.Decl. of Gabriel Antonio Manzanilla Pedron ¶ 24, Teneng v. Trump, No 5:18-cv-01609 (C.D. Cal. Aug. 1, 2018), ECF No. 45-3.Show More

These stories are reminiscent of the shocking stories relating to immigrant detention centers over the past decade.8.See Michael D. Shear, Katie Benner & Michael S. Schmidt, ‘We Need to Take Away Children,’ No Matter How Young, Justice Dept. Officials Said, N.Y. Times (Oct. 6, 2020), https://www.nytimes.com/2020/10/06/us/politics/family-separation-border-immigration-jeff-sessions-rod-rosenstein.html [https://perma.cc/EPE8-HDCX]; Jacob Soboroff & Julia Ainsley, Lawyers Can’t Find the Parents of 666 Migrant Kids, A Higher Number Than Previously Reported, NBC News (Nov. 9, 2020, 4:32 PM), https://www.nbcnews.com/politics/immigration/lawyers-can-t-find-parents-666-migrant-kids-higher-number-n1247144 [https://perma.cc/G8KR-AWJH]; Tell Me More: Child Detention Centers: A ‘Headache’ for the Obama Administration NPR (June 23, 2014, 12:54 PM), https://www.npr.org/2014/06/23/324857970/child-detention-centers-a-headache-for-the-obama-administration [https://perma.cc/3CMF-WM8L].Show More The COVID-19 pandemic has not only grossly over-affected immigrant detainees in terms of the virus’s impact,9.Alisa Reznick, ‘You Can Either Be a Survivor or Die’: COVID-19 Cases Surge in ICE Detention, NPR (July 1, 2020, 9:17 AM), https://www.npr.org/2020/07/01/871625210/you-can-either-be-a-survivor-or-die-covid-19-cases-surge-in-ice-detention [https://perma.cc/NBC3-JWK4].Show More but it has led to greater opportunities for mistreatment.10 10.Ike Swetlitz, ‘Suddenly They Started Gassing Us’: Cuban Migrants Tell of Shocking Attack at ICE Prison, Guardian (July 2, 2020, 6:00 PM), https://www.theguardian.com/us-news/2020/jul/02/cuban-migrants-detention-ice-facility-new-mexico [https://perma.cc/QP2N-AYNV] (describing immigrant detainees who were corralled into their dormitory and pepper sprayed by prison guards in “full riot gear of gas masks” and “shields” as a response to their hunger strike protesting against their vulnerability to COVID-19).Show More Other accounts of abuse in immigration detention also raise religiously motivated concerns, albeit not as directly as those previously mentioned. For example, in deciding a due process challenge to the Trump administration’s family separation policies, a district court judge wrote that separating her from her child “absolutely precludes” a mother’s “involvement in any aspect of her sons’ care, custody, and control, from religion to education.”11 11.Jacinto-Castanon de Nolasco v. U.S. Immigr. & Customs Enf’t, 319 F. Supp. 3d 491, 501 (D.D.C. 2018) (emphasis added). While it is not clear that the mother in this case would be able to claim that this burdened her religious beliefs, it shows the scope of religion-related issues present in the immigration detention context.Show More Additionally, recent claims of unwanted gynecological procedures in detention centers12 12.Caitlin Dickerson, Seth Freed Wessler & Miriam Jordan, Immigrants Say They Were Pressured Into Unneeded Surgeries, N.Y. Times (Sept. 29, 2020), https://www.nytimes.com/‌2020/09/29/us/ice-hysterectomies-surgeries-georgia.html [https://perma.cc/7TQX-8QKZ].Show More could raise concerns of bodily integrity that are violative of certain religious beliefs. While there would need to be an individualized assessment of whether these practices burdened individuals’ religious practices, all of these stories demonstrate the pressing importance of protecting the religious rights of immigrants in detention centers.

What may be most surprising about the previous stories is not that they happened, but that there may not be a remedy under the law for these violations. The Religious Freedom Restoration Act (“RFRA”)13 13.42 U.S.C. § 2000bb-1.Show More and the Religious Land Use and Institutionalized Persons Act (“RLUIPA”)14 14.42 U.S.C. §§ 2000cc–2000cc-1.Show More provide the broadest grants of religious free exercise protections against laws made or actions taken by the federal government.15 15.While both RFRA and RLUIPA apply to federal actions, only RLUIPA applies to state actions as well. See City of Boerne v. Flores, 521 U.S. 507, 529, 532–36 (1997); Cutter v. Wilkinson, 544 U.S. 709, 713, 715–16 (2005); infra Section I.A.Show More The First Amendment Free Exercise Clause also provides more limited protections against religious liberty violations.16 16.U.S. Const. amend. I (“Congress shall make no law . . . prohibiting the free exercise [of religion] . . . .”); see Emp. Div., Dep’t of Hum. Res. v. Smith, 494 U.S. 872, 878–79 (1990).Show More However, because of the complex doctrine known as the “entry fiction,” certain immigrants may not be able to bring a suit under RFRA or RLUIPA.17 17.See infra Section I.B.Show More

The entry fiction says that certain individuals, while physically inside the United States are legally considered to be still outside of the United States because they have not “effected an entry.”18 18.Zadvydas v. Davis, 533 U.S. 678, 693 (2001); see Wong v. United States, 373 F.3d 952, 971 (9th Cir. 2004) (summarizing the entry fiction doctrine).Show More While controversial,19 19.Recent dissents by the Court have argued vehemently against this legal fiction. See Jennings v. Rodriguez, 138 S. Ct. 830, 862 (2018) (Breyer, J., dissenting) (“We cannot here engage in this legal fiction. No one can claim, nor since the time of slavery has anyone to my knowledge successfully claimed, that persons held within the United States are totally without constitutional protection.”); Dep’t of Homeland Sec. v. Thuraissigiam, 140 S. Ct. 1959, 2013 (2020) (Sotomayor, J., dissenting) (“Taken to its extreme, a rule conditioning due process rights on lawful entry would permit Congress to constitutionally eliminate all procedural protections for any noncitizen the Government deems unlawfully admitted . . . .”).Show More it has primarily been applied to deny certain immigrants their procedural due process rights in immigration proceedings.20 20.SeeWong, 373 F.3d at 971–72; see also Zadvydas, 533 U.S. at 703–04 (Scalia, J., dissenting) (claiming that the distinction between “aliens” who have effected an entry and those who have not “makes perfect sense” with regard to the procedures “necessary to prevent entry” but he is “sure they cannot be tortured”).Show More However, relying on this doctrine, at least one lower court has recently interpreted this fiction to deny immigrants their rights under RFRA by holding that they are not “person[s]” under the statute.21 21.Bukhari v. Piedmont Reg’l Jail Auth., No. 01:09-CV-1270, 2010 WL 3385179, at *5 (E.D. Va. Aug. 20, 2010).Show More

At the same time, the Supreme Court has arguably expanded the scope of free exercise protections available to individuals under RFRA.22 22.See infra Section III.A.Show More In deciding Burwell v. Hobby Lobby Stores, Inc.,23 23.573 U.S. 682 (2014).Show More the Court suggested a new, larger role for RFRA in affording religious liberty protections that go even beyond the Constitutional guarantees of the older, more protective free exercise precedents.24 24.See id. at 695 n.3 (“RFRA did more than merely restore the balancing test used in the Sherbert line of cases; it provided even broader protection for religious liberty than was available under those decisions.”); see also infra Section III.A.Show More While this move to untether RFRA from the First Amendment could prove troublesome, in that it allows for broader religion-based challenges to federal laws that protect civil rights,25 25.See Micah Schwartzman, Richard C. Schragger & Nelson Tebbe, The New Law of Religion, Slate (July 3, 2014, 11:54 AM), https://slate.com/news-and-politics/2014/07/after-hobby-lobby-there-is-only-rfra-and-thats-all-you-need.html [https://perma.cc/92GW-D4GT]; Marty Lederman, Hobby Lobby Part XVIII—The One (Potentially) Momentous Aspect of Hobby Lobby: Untethering RFRA from Free Exercise Doctrine, Balkinization (July 6, 2014), https://balkin.blogspot.com/2014/07/hobby-lobby-part-xviii-one-potentially.html [https://perma.cc/2A3B-MSRX]; see also Ira C. Lupu, Hobby Lobby and the Dubious Enterprise of Religious Exemptions, 38 Harv. J.L. & Gender 35, 93 (2015) (noting a potential wave of RFRA litigation regarding employer objections to paying benefits for same-sex spouses).Show More this Note will contend that this decision is good for immigrants subject to the entry fiction as it establishes a framework under which they can bring a RFRA claim.

This Note will attempt to resolve a fragment of the jurisprudential conflict between expanded religious liberty rights and restricted immigration rights by answering the narrow question of whether immigrants who are subject to the entry fiction are “person[s]” under RFRA. The normative analysis of this question is clear: the United States should not prevent relief to individuals who have been subjected to some of the treatment described above at the hands of government actors. Unfortunately, the doctrinal analysis is murkier, and it is this analysis with which this Note will contend. Part I will give an overview of RFRA and RLUIPA, including the relevant statutory history. It will then outline in more detail the doctrine of the entry fiction, laying out its import to the constitutional rights of immigrants, and the relevance of these constitutional rights to the statutory interpretation question at the heart of this issue.

Part II will confront the decisions of lower courts that have waded into this murky analysis. Only one lower court has directly ruled on this question as it relates to immigrants subject to the entry fiction.26 26.See Bukhari, 2010 WL 3385179.Show More That court relied heavily on a case from the U.S. Court of Appeals for the D.C. Circuit, which confronted the question as it relates to Guantanamo detainees.27 27.Id. at *4; see Rasul v. Myers (Rasul II), 563 F.3d 527, 528 (D.C. Cir. 2009); Rasul v. Myers (Rasul I), 512 F.3d 644, 649 (D.C. Cir. 2008), cert. granted, judgment vacated, 555 U.S. 1083 (2008).Show More As the law around Guantanamo detainees is more developed, this Note will delve deeply into that case and other similar cases from the D.C. Circuit.

Part III will then focus on the Court’s decision in Burwell v. Hobby Lobby Stores, Inc. This Part will explore the Court’s enlarged view of RFRA and how its analysis casts doubt on the reasoning of the decisions in the lower courts. Finally, Part IV will propose a way to answer the question of who are “person[s]” under RFRA. Contending with three separate methods of statutory interpretation, this Note will demonstrate why a plain meaning approach to the term “person[s]” is the most logical from a doctrinal perspective. By reading “person[s]” to include all people who are subject to government burdens on their free exercise, immigrants subject to the entry fiction will have rights under the RFRA and RLUIPA statutory regimes.

  1. Maryam Saleh, A Second Chance, Intercept (Dec. 22, 2018, 10:44 AM), https://theintercept.com/2018/12/22/georgia-ice-raids-muslim-refugees/ [https://perma.cc/Q3Q5-MLWS] (“You know, it’s just the belief that you have that you don’t have no control of everything, so, you know, that’s what keeps us going, just prayers . . . .”).
  2. Conrad Wilson, Hundreds of Immigrant Detainees Held in Federal Prisons, NPR (Aug. 23, 2018, 7:28 AM), https://www.npr.org/2018/08/23/641165251/legal-battles-began-when-migrants-were-sent-to-federal-prisons [https://perma.cc/8A3F-6GN4] (“If you lock somebody up in a foreign country and cut them off from the outside world . . . it’s going to cause all kinds of psychological trauma at the minimum . . . .”).
  3. See ACLU, Letter from ACLU to U.S. Dep’t of Homeland Sec. 4 (Mar. 15, 2019), https://www.aclu.org/letter/investigating-religious-freedom-violations-border-patrol-and-ice [https://perma.cc/ET7C-TAG6] [hereinafter ACLU Letter]; Complaint at 12–13, Abdulkadir v. Hardin, No. 2:19-CV-00120-SPC-MRM (M.D. Fla. Feb. 27, 2019).
  4. Roque Planas, Border Patrol Fed Pork to Muslim Detainee for 6 Days, Huffington Post (Feb. 27, 2019, 4:45 PM), https://www.huffpost.com/entry/border-patrol-fed-pork-to-muslim-detainee-for-six-days_n_5c76f474e4b0d3a48b5627a2#:~:text=A%20permit%20allowing‌%20him%20to,Parveen%20from%20landinl%20in%20detention [https://perma.cc/F2JZ-ZFKM]; Groups: Muslim Detainees at Miami Facility Are Served Pork, Associated Press (Aug. 20, 2020), https://apnews.com/article/a4cdb2edd79edfc83adde71fdcafb079 [https://perma.cc/A8GJ-4LHJ].
  5. See ACLU Letter, supra note 4, at 5; Decl. in Support of Habeas Petition at 2, ICE Detainee No. 2 v. Salazar, No. 3:18-CV-01280-MO (D. Or. July 18, 2018); Memo in Support of Petition for Habeas Corpus at 22–23, ICE Detainee Nos. 1-74 v. Salazar, No. 3:18-CV-01279-MO (D. Or. July 30, 2018).
  6. See ACLU Letter, supra note 4, at 5; Decl. of Atinder Paul Singh ¶ 5, 10–11, Teneng v. Trump, No 5:18-cv-01609 (C.D. Cal. Aug. 1, 2018), ECF No. 1-4; Decl. of Gurjinder Singh ¶¶ 4–8, id., ECF No. 1-5.
  7. Decl. of Gabriel Antonio Manzanilla Pedron ¶ 24, Teneng v. Trump, No 5:18-cv-01609 (C.D. Cal. Aug. 1, 2018), ECF No. 45-3.
  8. See Michael D. Shear, Katie Benner & Michael S. Schmidt, ‘We Need to Take Away Children,’ No Matter How Young, Justice Dept. Officials Said, N.Y. Times (Oct. 6, 2020), https://www.nytimes.com/2020/10/06/us/politics/family-separation-border-immigration-jeff-sessions-rod-rosenstein.html [https://perma.cc/EPE8-HDCX]; Jacob Soboroff & Julia Ainsley, Lawyers Can’t Find the Parents of 666 Migrant Kids, A Higher Number Than Previously Reported, NBC News (Nov. 9, 2020, 4:32 PM), https://www.nbcnews.com/politics/immigration/lawyers-can-t-find-parents-666-migrant-kids-higher-number-n1247144 [https://perma.cc/G8KR-AWJH]; Tell Me More: Child Detention Centers: A ‘Headache’ for the Obama Administration NPR (June 23, 2014, 12:54 PM), https://www.npr.org/2014/06/23/324857970/child-detention-centers-a-headache-for-the-obama-administration [https://perma.cc/3CMF-WM8L].
  9. Alisa Reznick, ‘You Can Either Be a Survivor or Die’: COVID-19 Cases Surge in ICE Detention, NPR (July 1, 2020, 9:17 AM), https://www.npr.org/2020/07/01/871625210/you-can-either-be-a-survivor-or-die-covid-19-cases-surge-in-ice-detention [https://perma.cc/NBC3-JWK4].
  10. Ike Swetlitz, ‘Suddenly They Started Gassing Us’: Cuban Migrants Tell of Shocking Attack at ICE Prison, Guardian (July 2, 2020, 6:00 PM), https://www.theguardian.com/us-news/2020/jul/02/cuban-migrants-detention-ice-facility-new-mexico [https://perma.cc/QP2N-AYNV] (describing immigrant detainees who were corralled into their dormitory and pepper sprayed by prison guards in “full riot gear of gas masks” and “shields” as a response to their hunger strike protesting against their vulnerability to COVID-19).
  11. Jacinto-Castanon de Nolasco v. U.S. Immigr. & Customs Enf’t, 319 F. Supp. 3d 491, 501 (D.D.C. 2018) (emphasis added). While it is not clear that the mother in this case would be able to claim that this burdened her religious beliefs, it shows the scope of religion-related issues present in the immigration detention context.
  12. Caitlin Dickerson, Seth Freed Wessler & Miriam Jordan, Immigrants Say They Were Pressured Into Unneeded Surgeries, N.Y. Times (Sept. 29, 2020), https://www.nytimes.com/‌2020/09/29/us/ice-hysterectomies-surgeries-georgia.html [https://perma.cc/7TQX-8QKZ].
  13. 42 U.S.C. § 2000bb-1.
  14. 42 U.S.C. §§ 2000cc–2000cc-1.
  15. While both RFRA and RLUIPA apply to federal actions, only RLUIPA applies to state actions as well. See City of Boerne v. Flores, 521 U.S. 507, 529, 532–36 (1997); Cutter v. Wilkinson, 544 U.S. 709, 713, 715–16 (2005); infra Section I.A.
  16. U.S. Const. amend. I (“Congress shall make no law . . . prohibiting the free exercise [of religion] . . . .”); see Emp. Div., Dep’t of Hum. Res. v. Smith, 494 U.S. 872, 878–79 (1990).
  17. See infra Section I.B.
  18. Zadvydas v. Davis, 533 U.S. 678, 693 (2001); see Wong v. United States, 373 F.3d 952, 971 (9th Cir. 2004) (summarizing the entry fiction doctrine).
  19. Recent dissents by the Court have argued vehemently against this legal fiction. See Jennings v. Rodriguez, 138 S. Ct. 830, 862 (2018) (Breyer, J., dissenting) (“We cannot here engage in this legal fiction. No one can claim, nor since the time of slavery has anyone to my knowledge successfully claimed, that persons held within the United States are totally without constitutional protection.”); Dep’t of Homeland Sec. v. Thuraissigiam, 140 S. Ct. 1959, 2013 (2020) (Sotomayor, J., dissenting) (“Taken to its extreme, a rule conditioning due process rights on lawful entry would permit Congress to constitutionally eliminate all procedural protections for any noncitizen the Government deems unlawfully admitted . . . .”).
  20. See Wong, 373 F.3d at 971–72; see also Zadvydas, 533 U.S. at 703–04 (Scalia, J., dissenting) (claiming that the distinction between “aliens” who have effected an entry and those who have not “makes perfect sense” with regard to the procedures “necessary to prevent entry” but he is “sure they cannot be tortured”).
  21. Bukhari v. Piedmont Reg’l Jail Auth., No. 01:09-CV-1270, 2010 WL 3385179, at *5 (E.D. Va. Aug. 20, 2010).
  22. See infra Section III.A.
  23. 573 U.S. 682 (2014).
  24. See id. at 695 n.3 (“RFRA did more than merely restore the balancing test used in the Sherbert line of cases; it provided even broader protection for religious liberty than was available under those decisions.”); see also infra Section III.A.
  25. See Micah Schwartzman, Richard C. Schragger & Nelson Tebbe, The New Law of Religion, Slate (July 3, 2014, 11:54 AM), https://slate.com/news-and-politics/2014/07/after-hobby-lobby-there-is-only-rfra-and-thats-all-you-need.html [https://perma.cc/92GW-D4GT]; Marty Lederman, Hobby Lobby Part XVIII—The One (Potentially) Momentous Aspect of Hobby Lobby: Untethering RFRA from Free Exercise Doctrine, Balkinization (July 6, 2014), https://balkin.blogspot.com/2014/07/hobby-lobby-part-xviii-one-potentially.html [https://perma.cc/2A3B-MSRX]; see also Ira C. Lupu, Hobby Lobby and the Dubious Enterprise of Religious Exemptions, 38 Harv. J.L. & Gender 35, 93 (2015) (noting a potential wave of RFRA litigation regarding employer objections to paying benefits for same-sex spouses).
  26. See Bukhari, 2010 WL 3385179.
  27. Id. at *4; see Rasul v. Myers (Rasul II), 563 F.3d 527, 528 (D.C. Cir. 2009); Rasul v. Myers (Rasul I), 512 F.3d 644, 649 (D.C. Cir. 2008), cert. granted, judgment vacated, 555 U.S. 1083 (2008).

The Banker Removal Power

The Federal Reserve (“the Fed”) can remove bankers from office if they violate the law, engage in unsafe or unsound practices, or breach their fiduciary duties. The Fed, however, has used this power so rarely that few even realize it exists. Although major U.S. banks have admitted to repeated and flagrant lawbreaking in recent years, the Fed has never removed a senior executive from one of these institutions.

This Article offers the first comprehensive account of the banker removal power. It makes four contributions. First, drawing on a range of primary sources, it recovers the power’s statutory foundations, showing that Congress created the authority to better align the interests of senior bankers and the public. Second, using a novel dataset obtained through Freedom of Information Act requests, it maps the actual practice of banker removal—who is removed, how often removal occurs, and for what reasons. It reveals that the Fed now uses the removal power mostly to prevent already-terminated, low-level employees from working at other banks, even though Congress never intended for the power to be used primarily in this way. Third, harnessing corporate law theory, the Article defends the legislative design. It argues that removal of senior bank executives for unsound management practices is a critical component of effective bank supervision, filling gaps left by regulatory rules and traditional corporate governance measures. Finally, the Article concludes by assessing obstacles to the use of the removal power against bank leadership and suggesting policy responses.

Introduction

Many observers have wondered why the Department of Justice (“DOJ”) did not prosecute more high-level executives following the 2008 financial crisis.1.See, e.g., Jesse Eisinger, The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives xvi–xvii, at xxi (2017); Jed S. Rakoff, The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?, N.Y. Rev. Books, Jan. 2014, at 4–8; William D. Cohan, How the Bankers Stayed Out of Jail, Atlantic, Sept. 2015, at 20; Dorothy S. Lund & Natasha Sarin, The Cost of Doing Business: Corporate Crime and Punishment Post-Crisis (unpublished manuscript) (on file with authors); see also John C. Coffee, Jr., Corporate Crime and Punishment: The Crisis of Underenforcement, at ix–x, 2–6, 13–14 (2020); Brandon L. Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations 5, 18 (2014).Show More Some argue that the paucity of indictments was the product of soft corruption or the government’s fear of challenging deep-pocketed defendants.2.See Rakoff, supra note 1, at 4, 6 (critiquing the Justice Department’s rationales for not prosecuting bank executives); Eisinger, supra note 1, at xx, 228, 233 (citing revolving door practices at the Justice Department and the risk aversion of prosecutors). For other commentary on prosecutors’ failure to charge executives in connection with the 2008 crisis, see Coffee, supra note 1, at 13 (arguing that the lack of prosecution “results chiefly from the logistical mismatch between the government’s limited enforcement resources and the nearly limitless capacity of the large corporation to resist and delay”); Garrett, supra note 1, at 6, 45–80 (showing how public corporations were able to escape criminal prosecution through the use of deferred prosecution agreements).Show More Others attribute it to the absence of executive-level criminal offenses: to them 2008 “was a bubble, not a fraud.”3.Coffee, supra note 1, at 4 (collecting sources).Show More Missing has been any discussion of why the Board of Governors of the Federal Reserve System (“the Fed”)—the country’s leading bank supervisor—failed to remove even a single top bank executive in connection with the crisis. This civil remedy—the “banker removal power”—allows the Fed to fire bank officers, directors, and employees for “unsafe or unsound practices” and to prohibit them from working in banking.4.12 U.S.C. § 1818(e). A brief definitional point: current law authorizes the Fed to remove sitting bankers as well as to temporarily suspend them or permanently prohibit them from working in banking (even if they have already been terminated). This Article uses the terms “removal power” and “removal action” broadly to encompass all three sanctions.Show More It was a core part of Franklin D. Roosevelt’s financial reform agenda.5.See infra Section I.A.Show More And it was designed precisely to allow the Fed to prevent an economic collapse of the sort experienced in 2008.

The mystery deepens when one considers the remarkable breadth of wrongdoing that has surfaced since the 2008 crisis. In the past twenty years, America’s largest banks have settled hundreds of major lawsuits and paid an unprecedented $195 billion in fines and penalties.6.See, e.g., Laura Noonan, US Banks Rack Up $200bn in Fines and Penalties over 20 Years, Fin. Times (Dec. 24, 2020), https://www.ft.com/content/989035f3-767a-43c2-b12e-2f6c0be0aa6b [https://perma.cc/R29R-AQT6].Show More They have admitted to fraud, bribery, money laundering, price fixing, bid rigging, illegal kickbacks, discriminatory lending, and a host of other consumer protection violations.7.See Better Markets, Wall Street’s Crime Spree 1998–2020: 395 Major Legal Actions and $195+ Billion in Fines and Settlements over the Last 20 Years, at 2 (Jan. 13, 2021).Show More In 2019, the DOJ labeled one trading desk at JPMorgan Chase a “criminal enterprise.”8.Tom Schoenberg & David Voreacos, JPMorgan’s Metals Desk Was a Criminal Enterprise, U.S. Says, Bloomberg (Sept. 16, 2019), https://www.bloomberg.com/news/articles/2019-09-16/jpmorgan-s-metals-desk-was-a-criminal-enterprise-u-s-says [https://perma.cc/FW3C-QC99].Show More Yet during this period, the Fed did not remove a single senior executive of Chase or any other major U.S. bank.

Instead, the Fed used its removal power mostly to exclude rogue low-level employees from the banking business for isolated instances of misconduct. For example, in the early 2000s, SunTrust Bank fired Roslyn Terry for stealing $21,200 while working as a teller.9.Prohibition Ord., Roslyn Y. Terry, Bd. of Governors of the Fed. Rsrv. Sys. No. 08-016-E-I (Aug. 29, 2008).Show More Following her termination, the Fed banned Terry from working at a bank ever again.10 10.Id.Show More The Fed’s ban had no impact on SunTrust, its management, or its practices, nor was it intended to. Primarily, it signaled Terry’s lack of fitness to other banks and potential employers.

Terry’s case—and the lack of executive removals in recent years—was not always the norm. In the early 1990s, the Fed used its removal power primarily against bank leadership. Between 1989 and 1993—the first five years for which enforcement data is publicly available—over 75% of domestic removal orders issued by the Fed targeted presidents, chief executive officers, board chairmen, and board directors. But as the banking industry consolidated in the subsequent decade, the Fed’s enforcement focus shifted toward rank-and-file workers, especially those who had already been fired by their employers and no longer worked at a bank. Over the five years ending in 2019, 72% of domestic removal actions by the Fed barred low- and mid-level employees who had already been terminated.11 11.See Compiled Data on Removal Orders Completed by the Bd. of Governors of the Fed. Rsrv. Sys. (on file with authors) [hereinafter Removal Orders].Show More

Scholars and policymakers have failed to notice this change or appreciate its significance.12 12.There is little scholarship on the removal power, and the scholarship that does exist is dated. See Joseph M. Korff, Banking, 8 B.C. Indus. & Com. L. Rev. 599, 600 (1967) (describing the effect of the Financial Institutions Supervisory Act of 1966 on the removal power); Robert J. Basil, Suspension and Removal of Bank Officials Under the Financial Institutions Reform Recovery and Enforcement Act of 1989 (“FIRREA”), 18 J. Legis. 1, 2 (1991) (discussing the effect of recent amendments on removal actions from the perspective of the private bar). One exception is work by Professor Heidi Schooner who considers removal in the context of disparate enforcement policies for large and small banks. See Heidi Mandanis Schooner, Big Bank Boards: The Case for Heightened Administrative Enforcement, 68 Ala. L. Rev. 1011, 1013, 1024–27 (2017).Show More There has been little effort to date to explain why the Fed has a removal power or to consider how the Fed should use it.13 13.The power is similarly neglected by corporate governance scholars and unknown to the voluminous administrative law literature focused on the President’s power to remove independent agency heads. See, e.g., Cass R. Sunstein & Adrian Vermeule, Presidential Review: The President’s Statutory Authority over Independent Agencies, 109 Geo. L.J. 637 (2021); Ganesh Sitaraman, The Political Economy of the Removal Power, 134 Harv. L. Rev. 352, 354 (2020); Gillian E. Metzger, The Constitutional Duty to Supervise, 124 Yale L.J. 1836, 1880–81 (2015); Kirti Datla & Richard L. Revesz, Deconstructing Independent Agencies (and Executive Agencies), 98 Cornell L. Rev. 769, 772 (2013); Lawrence Lessig & Cass R. Sunstein, The President and the Administration, 94 Colum. L. Rev. 1, 110 (1994).Show More The absence of the power in the literature is particularly surprising given the salience and frequency of lawbreaking by banks and the ensuing public outrage toward bank executives.14 14.See, e.g., Letter from Elizabeth Warren, Ranking Member, Senate Subcomm. on Fin. Inst. & Consumer Prot., to Janet Yellen, Chair, Fed. Rsrv. Bd. of Governors (June 19, 2017) [hereinafter Letter from Elizabeth Warren].Show More

This Article seeks to give the banker removal power a seat back at the table. It makes four contributions. The first is historical. Through original research, Part I reconstructs the statutory development of the banker removal power. It highlights the power’s animating conception of bank executives as public fiduciaries and reveals that banker removal is not just another remedial tool in the Fed’s toolkit. Removal is the legal foundation for modern bank supervision, a distinctive form of government oversight that proceeds through continuous, confidential engagement between bankers and government officials. Policymakers first proposed the power in the late nineteenth century as a way to enhance the government’s supervisory control of banks. And Congress granted the Fed the power in 1933 in an effort to preserve an institutional arrangement for expanding the money supply that relies on deposit money issued by privately run banks.15 15.See Lev Menand, Why Supervise Banks? The Foundations of the American Monetary Settlement, 74 Vand. L. Rev. 951, 958, 1004 (2021).Show More Congress hoped that if the Fed had the power to remove untrustworthy bank leaders, banks would heed informal supervisory directives and better serve public as well as private interests.16 16.Bank supervision has been the subject of a surge of recent scholarly attention. See, e.g., id.; Daniel K. Tarullo, Bank Supervision and Administrative Law, Colum. Bus. L. Rev. (forthcoming) (unpublished manuscript) (on file with authors), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3743404 [https://perma.cc/ZY2P-3EXR]; see also Julie Andersen Hill, Bank Supervision: A Legal Scholarship Review (forthcoming) (U. Ala. Legal Stud., Research Paper No. 2627472), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3777580 [https://perma.cc/5752-7XHC]; Event Overview Bank Supervision: Past, Present, and Future, Fed. Rsrv. Bd. of Governors, Wharton Sch. & Harv. L. Sch. (Dec. 11, 2020), https://events.stlouisfed.org/event/67aec69c-628d-459d-8366-466979e3f8af/summary; Lev Menand, Too Big to Supervise: The Rise of Financial Conglomerates and the Decline of Discretionary Oversight in Banking, 103 Cornell L. Rev. 1527 (2018); Julie Andersen Hill, When Bank Examiners Get It Wrong: Financial Institution Appeals of Material Supervisory Determinations, 92 Wash. U. L. Rev. 1101, 1105 (2015). This growth is due in part to an active debate inside and outside the government over supervision’s legitimacy as a mode of administrative governance. See Jeremy Kress, Notice & Comment, The War on Bank Supervision, Yale J. Regul. (Dec. 18, 2020); Peter Conti-Brown & Nicholas R. Parrillo, Supervision, Stress Tests, and the Administrative Procedure Act (unpublished manuscript) (on file with authors); Randal Quarles, Vice Chair, Bd. of Governors of the Fed. Rsrv. Sys., Remarks at the “Law and Macroeconomics” Conference at Georgetown University Law Center: Law and Macroeconomics: The Global Evolution of Macroprudential Regulation 12 (Sept. 27, 2019). Part I of this Article introduces removal law to the supervision literature and adds to the debate by recovering a portion of supervision’s legal foundations. It reveals, among other things, that removal law treats banks as public franchises, complicating contemporary efforts by critics of bank supervision to characterize banks as purely private enterprises.Show More

In 1966, Congress gave the banking agencies a further tool to strengthen supervision—the cease-and-desist order—and rolled back removal, limiting it to situations involving “dishonesty.”17 17.See infra Section II.B.Show More In 1978, concerned by evidence of increasing executive malfeasance, Congress reversed course, allowing for removal even in cases not involving dishonesty.18 18.See Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183, § 904 (codified as amended at 12 U.S.C. § 1818).Show More Removals accelerated, and in the wake of hundreds of costly bank failures in the late 1980s, Congress further expanded the removal power in 1989. Today, the power exists at its broadest scope. Any institution-affiliated party is subject to sanction; a removal may result in a lifetime prohibition from banking; and willful or continuing “unsafe or unsound” conduct, even in the absence of fraud, suffices to justify enforcement.

This Article’s second contribution is analytic, picking up the story after 1989 and bringing it to the present. Part II introduces a novel dataset on the Fed’s removal actions between 1989 and 2019 using public information as well as orders obtained through Freedom of Information Act (“FOIA”) requests.19 19.The Fed is not the only bank regulator with the power to remove bank employees and affiliates. Little is currently known about how the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”) use their parallel power—whom they remove and for what conduct. Given the breadth of their supervisory jurisdictions, their practices are worthy of future study.Show More Details about the individuals sanctioned and their wrongdoing were hand collected from case files and contemporaneous news accounts and matched with bank characteristics.

The data reveal that the Fed uses its removal power sparingly, averaging 7.2 actions per year over the past 31 years. Even less common are Fed removals of sitting bank employees; 91% of Fed removal orders ban people who are no longer working at banks, blocking them from returning in the future. More notably, since the late 1990s, the Fed has deployed its power, now codified at 12 U.S.C. § 1818(e), primarily against rank-and-file workers for activities already subject to criminal penalties. For example, the most common reason for removal during this period was embezzlement or misuse of funds. In only three instances has the Fed used its removal power to address poor oversight and reckless management, and two of these instances involved employees of the same bank who jointly supervised a rogue trader. The Fed’s other 187 removal actions all targeted individuals who directly participated in unlawful activities.20 20.These results align with qualitative accounts of the Fed’s supervisory rollback in the late 1990s and early 2000s. See, e.g., Menand, supra note 16, at 1541, 1574. They also provide empirical evidence for concerns about the government’s enforcement posture toward senior corporate executives. See, e.g., Coffee, supra note 1, at 2.Show More

The Article’s third contribution is theoretical. Part III argues that a credible threat of removal against senior bank executives for unsound management practices is an indispensable component of contemporary bank supervision. Traditional corporate governance measures, which focus on enhancing the accountability of senior bankers to shareholders, will not eliminate incentives for banks to engage in socially harmful risk taking. Shareholders have strong incentives to exploit banks’ government backstopping and extract wealth from the public by encouraging investment in risky assets. No matter how carefully constructed, regulatory rules and statutory provisions that directly restrict the menu of choices available to banks are backward looking, crude, and inevitably incomplete.21 21.We use Dan Tarullo’s term “regulatory rules” to describe strictures promulgated through notice-and-comment in order to differentiate them from “regulation,” which we use to refer to all manner of government oversight. See Tarullo, supra note 16.Show More

This Article therefore joins a growing body of scholarship in recognizing that corporate governance reforms and prudential regulatory rules have limited capacity to curb unsafe bank behavior.22 22.See infra Sections III.A–B; see also Jonathan R. Macey & Maureen O’Hara, The Corporate Governance of Banks, 9 Fed. Rsrv. Bank N.Y. Econ. Pol’y Rev. 91, 97–99 (2003) (observing that banks have “special corporate governance problems” that “weaken the case for making shareholders the exclusive beneficiaries of fiduciary duties”); Lucian A. Bebchuk & Holger Spamann, Regulating Bankers’ Pay, 98 Geo. L.J. 247, 255–61 (2010) (observing the same problem and detailing how features of modern banking organizations heightened the basic moral hazard problems); Steven L. Schwarcz, Misalignment: Corporate Risk-Taking and Public Duty, 92 Notre Dame L. Rev. 1, 4 (2016) (describing the “misalignment” between shareholders’ interests and the public’s interest in systemically important firms); John C. Coffee, Jr., Systemic Risk After Dodd-Frank: Contingent Capital and the Need for Regulatory Strategies Beyond Oversight, 111 Colum. L. Rev. 795, 807 (2011) (noting that “the more ‘shareholder friendly’ the firm’s corporate governance system, the less attention is likely to be paid to externalities, and the greater the exposure to volatility and systemic risk”). See generally Dan Awrey & Kathryn Judge, Why Financial Regulation Keeps Falling Short, 61 B.C. L. Rev. 2295, 2299–300 (2020) (summarizing the literature on “why financial regulation so often falls short” and contributing additional explanations).Show More But contrary to the emerging view, we do not conclude from this diagnosis that entirely new regulatory methods are needed.23 23.For examples of this emerging view, see Schwarcz, supra note 22, at 23–44 (arguing that “managers should have a public governance duty not to engage their firms in excessive risk-taking that leads to [systemic] externalities”); Macey & O’Hara, supra note 22, at 92 (contending that “directors and officers of banks should be charged with a heightened duty to ensure the safety and soundness of these enterprises[, which] . . . should not run exclusively to shareholders”); Coffee, supra note 22, at 834–35 (proposing a contingent capital mechanism that would, in part, serve the function of giving creditors’ voting powers once the bank is in the “vicinity of insolvency”); John Armour & Jeffrey N. Gordon, Systemic Harms and Shareholder Value, 6 J. Legal Analysis 35, 67–70 (2014) (arguing that Caremark liability for oversight failure should be “applied in wider circumstances and to a higher standard” in banks and other systemically important financial firms); Saule T. Omarova, Bank Governance and Systemic Stability: The “Golden Share” Approach, 68 Ala. L. Rev. 1029, 1032, 1043–51 (2017) (arguing for a “golden share” regime that would “giv[e] the federal government a seat on the board of each systemically important banking organization”); Saule T. Omarova, Bankers, Bureaucrats, and Guardians: Toward Tripartism in Financial Services Regulation, 37 J. Corp. L. 621, 658–69 (2012) [hereinafter Omarova, Bankers, Bureaucrats, and Guardians] (proposing the creation of a Public Interest Council that would function to “represent the public interest in preserving financial stability and minimizing systemic risk”); Ross Levine, The Governance of Financial Regulation: Reform Lessons from the Recent Crisis, 12 Int’l Rev. Fin. 39, 41–42 (2012) (proposing a new regulatory entity “to act as the public’s sentry over financial policies and to help compel financial regulators to act in the public interest, regardless of their private interests”); see also Daniel K. Tarullo, Member, Bd. of Governors of the Fed. Rsrv. Sys., Remarks at the Association of American Law Schools Midyear Meeting: Corporate Governance and Prudential Regulation 11–17 (June 9, 2014), https://www.federalreserve.gov/newsevents/‌speech/tarullo20140609a.htm [https://perma.cc/9QMX-A32B] (proposing mechanisms to align corporate governance at banks with public objectives, including: changing the incentives of decision makers; restricting dividends under certain circumstances; reforming the institutions and processes of corporate decision making; and amending the fiduciary duties of bank boards).Show More Instead, we argue that regulators already have a tool that would allow them to reorient bank managers’ incentives toward the public interest. Section 1818(e) can serve this role. A credible threat of removal permits the Fed to keep senior executives and directors in line by prioritizing its judgment over that of private shareholders in order to improve the safety of the banking system as a whole. It also bolsters ongoing government supervision of banks by ensuring that Fed officials do not need to continue to rely on bank managers whom they no longer trust.

The Article’s final contribution is prescriptive. The removal power has failed to achieve its full potential to improve bank governance because the Fed rarely removes senior bankers. Part IV examines how the current statutory design enables this trend and recommends changes. In particular, it shows that the removal power was last updated before the emergence of large financial conglomerates and thus is out of sync with the reality of modern banking. Bank executives now serve in oversight, rather than operational, roles. Because the removal power relies on a single culpability standard that applies in blanket fashion to all bankers along the corporate hierarchy, regardless of their varied roles and responsibilities, it substantially raises the difficulty of removing bank leadership relative to lower-level subordinates. Accordingly, Part IV argues that Congress should expressly recognize oversight failure as a removal ground. In addition, the Fed should revise its practice of imposing uniform removal terms for all cases, instead varying the scope and duration of removal according to the type of wrongdoing at issue.

Banker removal can be a powerful tool for strengthening bank governance. It can even work silently, with few if any formal actions. But the law only works if bankers believe they will be removed for breaking the law or jeopardizing the public’s interest in a safe and sound banking system. The evidence suggests that, at the most senior levels of the banking industry, removal has ceased to fulfill this function. By providing a comprehensive account of the removal power in theory and practice, this Article takes a first step toward its renewal.

  1. See, e.g., Jesse Eisinger, The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives xvi–xvii, at xxi (2017); Jed S. Rakoff, The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?, N.Y. Rev. Books, Jan. 2014, at 4–8; William D. Cohan, How the Bankers Stayed Out of Jail, Atlantic, Sept. 2015, at 20; Dorothy S. Lund & Natasha Sarin, The Cost of Doing Business: Corporate Crime and Punishment Post-Crisis (unpublished manuscript) (on file with authors); see also John C. Coffee, Jr., Corporate Crime and Punishment: The Crisis of Underenforcement, at ix–x, 2–6, 13–14 (2020); Brandon L. Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations 5, 18 (2014).
  2. See Rakoff, supra note 1, at 4, 6 (critiquing the Justice Department’s rationales for not prosecuting bank executives); Eisinger, supra note 1, at xx, 228, 233 (citing revolving door practices at the Justice Department and the risk aversion of prosecutors). For other commentary on prosecutors’ failure to charge executives in connection with the 2008 crisis, see Coffee, supra note 1, at 13 (arguing that the lack of prosecution “results chiefly from the logistical mismatch between the government’s limited enforcement resources and the nearly limitless capacity of the large corporation to resist and delay”); Garrett, supra note 1, at 6, 45–80 (showing how public corporations were able to escape criminal prosecution through the use of deferred prosecution agreements).
  3. Coffee, supra note 1, at 4 (collecting sources).
  4. 12 U.S.C. § 1818(e). A brief definitional point: current law authorizes the Fed to remove sitting bankers as well as to temporarily suspend them or permanently prohibit them from working in banking (even if they have already been terminated). This Article uses the terms “removal power” and “removal action” broadly to encompass all three sanctions.
  5. See infra Section I.A.
  6. See, e.g., Laura Noonan, US Banks Rack Up $200bn in Fines and Penalties over 20 Years, Fin. Times (Dec. 24, 2020), https://www.ft.com/content/989035f3-767a-43c2-b12e-2f6c0be0aa6b [https://perma.cc/R29R-AQT6].
  7. See Better Markets, Wall Street’s Crime Spree 1998–2020: 395 Major Legal Actions and $195+ Billion in Fines and Settlements over the Last 20 Years, at 2 (Jan. 13, 2021).
  8. Tom Schoenberg & David Voreacos, JPMorgan’s Metals Desk Was a Criminal Enterprise, U.S. Says, Bloomberg (Sept. 16, 2019), https://www.bloomberg.com/news/articles/2019-09-16/jpmorgan-s-metals-desk-was-a-criminal-enterprise-u-s-says [https://perma.cc/FW3C-QC99].
  9. Prohibition Ord., Roslyn Y. Terry, Bd. of Governors of the Fed. Rsrv. Sys. No. 08-016-E-I (Aug. 29, 2008).
  10. Id.
  11. See Compiled Data on Removal Orders Completed by the Bd. of Governors of the Fed. Rsrv. Sys. (on file with authors) [hereinafter Removal Orders].
  12. There is little scholarship on the removal power, and the scholarship that does exist is dated. See Joseph M. Korff, Banking, 8 B.C. Indus. & Com. L. Rev. 599, 600 (1967) (describing the effect of the Financial Institutions Supervisory Act of 1966 on the removal power); Robert J. Basil, Suspension and Removal of Bank Officials Under the Financial Institutions Reform Recovery and Enforcement Act of 1989 (“FIRREA”), 18 J. Legis. 1, 2 (1991) (discussing the effect of recent amendments on removal actions from the perspective of the private bar). One exception is work by Professor Heidi Schooner who considers removal in the context of disparate enforcement policies for large and small banks. See Heidi Mandanis Schooner, Big Bank Boards: The Case for Heightened Administrative Enforcement, 68 Ala. L. Rev. 1011, 1013, 1024–27 (2017).
  13. The power is similarly neglected by corporate governance scholars and unknown to the voluminous administrative law literature focused on the President’s power to remove independent agency heads. See, e.g., Cass R. Sunstein & Adrian Vermeule, Presidential Review: The President’s Statutory Authority over Independent Agencies, 109 Geo. L.J. 637 (2021); Ganesh Sitaraman, The Political Economy of the Removal Power, 134 Harv. L. Rev. 352, 354 (2020); Gillian E. Metzger, The Constitutional Duty to Supervise, 124 Yale L.J. 1836, 1880–81 (2015); Kirti Datla & Richard L. Revesz, Deconstructing Independent Agencies (and Executive Agencies), 98 Cornell L. Rev. 769, 772 (2013); Lawrence Lessig & Cass R. Sunstein, The President and the Administration, 94 Colum. L. Rev. 1, 110 (1994).
  14. See, e.g., Letter from Elizabeth Warren, Ranking Member, Senate Subcomm. on Fin. Inst. & Consumer Prot., to Janet Yellen, Chair, Fed. Rsrv. Bd. of Governors (June 19, 2017) [hereinafter Letter from Elizabeth Warren].
  15. See Lev Menand, Why Supervise Banks? The Foundations of the American Monetary Settlement, 74 Vand. L. Rev. 951, 958, 1004 (2021).
  16. Bank supervision has been the subject of a surge of recent scholarly attention. See, e.g., id.; Daniel K. Tarullo, Bank Supervision and Administrative Law, Colum. Bus. L. Rev. (forthcoming) (unpublished manuscript) (on file with authors), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3743404 [https://perma.cc/ZY2P-3EXR]; see also Julie Andersen Hill, Bank Supervision: A Legal Scholarship Review (forthcoming) (U. Ala. Legal Stud., Research Paper No. 2627472), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3777580 [https://perma.cc/5752-7XHC]; Event Overview Bank Supervision: Past, Present, and Future, Fed. Rsrv. Bd. of Governors, Wharton Sch. & Harv. L. Sch. (Dec. 11, 2020), https://events.stlouisfed.org/event/67aec69c-628d-459d-8366-466979e3f8af/summary; Lev Menand, Too Big to Supervise: The Rise of Financial Conglomerates and the Decline of Discretionary Oversight in Banking, 103 Cornell L. Rev. 1527 (2018); Julie Andersen Hill, When Bank Examiners Get It Wrong: Financial Institution Appeals of Material Supervisory Determinations, 92 Wash. U. L. Rev. 1101, 1105 (2015). This growth is due in part to an active debate inside and outside the government over supervision’s legitimacy as a mode of administrative governance. See Jeremy Kress, Notice & Comment, The War on Bank Supervision, Yale J. Regul. (Dec. 18, 2020); Peter Conti-Brown & Nicholas R. Parrillo, Supervision, Stress Tests, and the Administrative Procedure Act (unpublished manuscript) (on file with authors); Randal Quarles, Vice Chair, Bd. of Governors of the Fed. Rsrv. Sys., Remarks at the “Law and Macroeconomics” Conference at Georgetown University Law Center: Law and Macroeconomics: The Global Evolution of Macroprudential Regulation 12 (Sept. 27, 2019). Part I of this Article introduces removal law to the supervision literature and adds to the debate by recovering a portion of supervision’s legal foundations. It reveals, among other things, that removal law treats banks as public franchises, complicating contemporary efforts by critics of bank supervision to characterize banks as purely private enterprises.
  17. See infra Section II.B.
  18. See Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183, § 904 (codified as amended at 12 U.S.C. § 1818).
  19. The Fed is not the only bank regulator with the power to remove bank employees and affiliates. Little is currently known about how the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”) use their parallel power—whom they remove and for what conduct. Given the breadth of their supervisory jurisdictions, their practices are worthy of future study.
  20. These results align with qualitative accounts of the Fed’s supervisory rollback in the late 1990s and early 2000s. See, e.g., Menand, supra note 16, at 1541, 1574. They also provide empirical evidence for concerns about the government’s enforcement posture toward senior corporate executives. See, e.g., Coffee, supra note 1, at 2.
  21. We use Dan Tarullo’s term “regulatory rules” to describe strictures promulgated through notice-and-comment in order to differentiate them from “regulation,” which we use to refer to all manner of government oversight. See Tarullo, supra note 16.
  22. See infra Sections III.A–B; see also Jonathan R. Macey & Maureen O’Hara, The Corporate Governance of Banks, 9 Fed. Rsrv. Bank N.Y. Econ. Pol’y Rev. 91, 97–99 (2003) (observing that banks have “special corporate governance problems” that “weaken the case for making shareholders the exclusive beneficiaries of fiduciary duties”); Lucian A. Bebchuk & Holger Spamann, Regulating Bankers’ Pay, 98 Geo. L.J. 247, 255–61 (2010) (observing the same problem and detailing how features of modern banking organizations heightened the basic moral hazard problems); Steven L. Schwarcz, Misalignment: Corporate Risk-Taking and Public Duty, 92 Notre Dame L. Rev. 1, 4 (2016) (describing the “misalignment” between shareholders’ interests and the public’s interest in systemically important firms); John C. Coffee, Jr., Systemic Risk After Dodd-Frank: Contingent Capital and the Need for Regulatory Strategies Beyond Oversight, 111 Colum. L. Rev. 795, 807 (2011) (noting that “the more ‘shareholder friendly’ the firm’s corporate governance system, the less attention is likely to be paid to externalities, and the greater the exposure to volatility and systemic risk”). See generally Dan Awrey & Kathryn Judge, Why Financial Regulation Keeps Falling Short, 61 B.C. L. Rev. 2295, 2299–300 (2020) (summarizing the literature on “why financial regulation so often falls short” and contributing additional explanations).
  23. For examples of this emerging view, see Schwarcz, supra note 22, at 23–44 (arguing that “managers should have a public governance duty not to engage their firms in excessive risk-taking that leads to [systemic] externalities”); Macey & O’Hara, supra note 22, at 92 (contending that “directors and officers of banks should be charged with a heightened duty to ensure the safety and soundness of these enterprises[, which] . . . should not run exclusively to shareholders”); Coffee, supra note 22, at 834–35 (proposing a contingent capital mechanism that would, in part, serve the function of giving creditors’ voting powers once the bank is in the “vicinity of insolvency”); John Armour & Jeffrey N. Gordon, Systemic Harms and Shareholder Value, 6 J. Legal Analysis 35, 67–70 (2014) (arguing that Caremark liability for oversight failure should be “applied in wider circumstances and to a higher standard” in banks and other systemically important financial firms); Saule T. Omarova, Bank Governance and Systemic Stability: The “Golden Share” Approach, 68 Ala. L. Rev. 1029, 1032, 1043–51 (2017) (arguing for a “golden share” regime that would “giv[e] the federal government a seat on the board of each systemically important banking organization”); Saule T. Omarova, Bankers, Bureaucrats, and Guardians: Toward Tripartism in Financial Services Regulation, 37 J. Corp. L. 621, 658–69 (2012) [hereinafter Omarova, Bankers, Bureaucrats, and Guardians] (proposing the creation of a Public Interest Council that would function to “represent the public interest in preserving financial stability and minimizing systemic risk”); Ross Levine, The Governance of Financial Regulation: Reform Lessons from the Recent Crisis, 12 Int’l Rev. Fin. 39, 41–42 (2012) (proposing a new regulatory entity “to act as the public’s sentry over financial policies and to help compel financial regulators to act in the public interest, regardless of their private interests”); see also Daniel K. Tarullo, Member, Bd. of Governors of the Fed. Rsrv. Sys., Remarks at the Association of American Law Schools Midyear Meeting: Corporate Governance and Prudential Regulation 11–17 (June 9, 2014), https://www.federalreserve.gov/newsevents/‌speech/tarullo20140609a.htm [https://perma.cc/9QMX-A32B] (proposing mechanisms to align corporate governance at banks with public objectives, including: changing the incentives of decision makers; restricting dividends under certain circumstances; reforming the institutions and processes of corporate decision making; and amending the fiduciary duties of bank boards).

Conflict Avoidance in Constitutional Law

­­­­Hard cases present a dilemma at the heart of constitutional law. Courts have a duty to decide them—to vindicate rights, to clarify law—but doing so leads to errors (judges do not know the “right answer”) and strains the credibility of courts as impartial decision makers. Theories of constitutional adjudication tend to embrace one horn of this dilemma. We explore a principle for deciding hard cases that appreciates both. We argue that courts should decide hard cases against the party who could have more easily avoided the conflict in the first place. This is the conflict-avoidance principle. The principle builds on and systematizes “least cost avoidance” in private law and myriad constitutional doctrines. We apply the principle to several cases, generating insights into discrimination, affirmative action, religion, and so on. The principle represents a form of common-law constitutionalism, and it reveals connections between rights, markets, and State power. It also invites objections, to which we respond. Conflict avoidance is not “value-neutral,” and it cannot resolve every hard case. But it can resolve many in a practical way.

Take any demand, however slight, which any creature, however weak, may make. Ought it not, for its own sole sake, to be satisfied? If not, prove why not? The only possible kind of proof you could adduce would be the exhibition of another creature who should make a demand that ran the other way.

William James (1891)1.William James, The Moral Philosopher and the Moral Life, 1 Int’l J. Ethics 330, 339 (1891).Show More

Introduction

How should courts resolve hard constitutional cases?2.See Ronald Dworkin, Hard Cases, 88 Harv. L. Rev. 1057, 1060 (1975) (defining hard cases as ones where “no settled rule dictates a decision either way”).Show More On the one hand, deciding them on the merits strains courts’ credibility as impartial decision makers, especially when they engage in judicial review of legislation where the constitutional text is vague and the interests at stake essentially political.3.See T. Alexander Aleinikoff, Constitutional Law in the Age of Balancing, 96 Yale L.J. 943, 971–73, 977–78 (1987) (criticizing interest balancing). For a thorough and optimistic account of the capacity of courts to balance interests optimally, see generally Robert Alexy, A Theory of Constitutional Rights (Julian Rivers trans., Oxford Univ. Press 2002) (1986) (offering an account of constitutional rights that connects the analytical, empirical, and normative dimensions of legal doctrine); Robert Alexy, Constitutional Rights, Balancing, and Rationality, 16 Ratio Juris. 131 (2003) (arguing that there is a rational structure within balancing). Roughly speaking, interest balancing focuses on which party (or possibly which group) can bear a loss in court more easily. Are the losses to this side (or to this principle) outweighed by the gains to the other? Our enterprise is quite different. We focus on which party could have avoided more easily the conflict that led to the hard case in the first place.Show More On the other hand, courts are constitutionally charged with deciding such cases. A refusal to decide them amounts to shirking that responsibility.4.U.S. Const. art. III, § 2 (“The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution . . . .”); Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803) (“It is emphatically the province and duty of the judicial department to say what the law is.”); Alexander M. Bickel, The Least Dangerous Branch: The Supreme Court at the Bar of Politics 70 (1962) (explaining that not deciding cases must “be justified as compatible with the Court’s role as defender of the faith”).Show More Theories of constitutional adjudication often embrace one horn of this dilemma.5.Theories of judicial deference embrace the first horn by treating most constitutional issues as political ones appropriately decided by the political branches. See, e.g., James B. Thayer, The Origin and Scope of the American Doctrine of Constitutional Law, 7 Harv. L. Rev. 129, 129–39 (1893) (explaining origins of judicial review); see also Larry D. Kramer, The People Themselves: Popular Constitutionalism and Judicial Review 7–8 (2004) (comparing early judicial review to contemporary practice). Originalist theories, “moral” interpretations, and “living constitutionalism” tend to treat constitutional questions as essentially legal questions with which the Court is properly tasked with deciding, thereby embracing the second horn. See, e.g., Antonin Scalia, A Matter of Interpretation: Federal Courts and the Law 45–46 (1997) (discussing issues with living constitutionalist interpretations); James E. Fleming, Living Originalism and Living Constitutionalism as Moral Readings of the American Constitution, 92 B.U. L. Rev. 1171, 1172–73 (2012) (offering a “complete, ecumenical approach to constitutional interpretation”); David A. Strauss, The Living Constitution 41–44 (2010) (arguing that judges and lawyers are not properly equipped for originalist interpretation). Process theory and prudential approaches attempt to reconcile the two. See, e.g., John Hart Ely, Democracy and Distrust: A Theory of Judicial Review 4–5 (1980) (arguing that judicial review is best justified when it can be understood as a mechanism for improving the democratic process); Bickel, supra note 4, at 64 (“No good society can be unprincipled; and no viable society can be principle-ridden.”). Our approach draws on elements of both the process and prudential traditions.Show More This Article explores a principle that appreciates the force of both horns: courts should decide hard cases against the party who could have more easily avoided the constitutional conflict in the first place. We call this the conflict-avoidance principle.

To preview the principle, consider an example. Suppose a student wears a Confederate flag shirt to school, in violation of the dress code, and gets disciplined. She argues that this violates her free speech rights, and the school responds that it has the authority to ensure a conducive learning environment.6.Cf. Castorina ex rel. Rewt v. Madison Cnty. Sch. Bd., 246 F.3d 536, 538, 548 (6th Cir. 2001) (noting that a “disruption-free educational environment is a substantial government interest”); Defoe v. Spiva, 625 F.3d 324, 335 (6th Cir. 2010) (holding that the school officials’ concern that displays of the Confederate flag would be disruptive was reasonable).Show More For the sake of argument, assume the case is hard (we will say more about “hard cases” below). A court applying conflict avoidance would compare the relative costs to the parties of avoiding the conflict in the first place. Could the student have expressed herself in another way? Could she have transferred to a school with a more permissive dress code? Could the school have ensured a conducive environment without banning the flag? Whoever could have avoided the conflict more easily would lose.

This is a simple example, but the principle applies the same way in real, controversial cases like Masterpiece Cakeshop, Our Lady of Guadalupe School, Fisher, and Janus.7.Masterpiece Cakeshop, Ltd. v. Colo. C.R. Comm’n, 138 S. Ct. 1719 (2018) (on discrimination and religion); Our Lady of Guadalupe Sch. v. Morrissey-Berru, 140 S. Ct. 2049 (2020) (same); Fisher v. Univ. of Tex. at Austin, 136 S. Ct. 2198 (2016) (on affirmative action); Janus v. Am. Fed’n of State, Cnty., & Mun. Emps., Council 31, 138 S. Ct. 2448 (2018) (on speech).Show More We will examine these cases and others below.

Applying the conflict-avoidance principle has several advantages. For one thing, it requires courts to decide cases instead of deflecting or delaying judgment.8.Cf. Bickel, supra note 4, at 71 (approving Justice Brandeis’s statement that “[t]he most important thing we do . . . is not doing” and observing that Brandeis “had in mind all the techniques . . . for staying the Court’s hand”).Show More Second, and more important, applying the conflict-avoidance principle requires courts to decide cases by looking to relatively concrete facts and considerations, rather than to abstract political values. Such an approach not only plays to courts’ institutional strengths; it may also produce a pattern of decisions that vindicate the relevant values where they are needed most. That, at least, is the theory of the common law.9.Frederick Schauer, Do Cases Make Bad Law?, 73 U. Chi. L. Rev. 883, 883 (2006) (“Treating the resolution of concrete disputes as the preferred context in which to make law . . . is the hallmark of the common law approach.”).Show More As Oliver Wendell Holmes famously said, “[i]t is the merit of the common law that it decides the case first and determines the principle afterwards.”10 10.Codes, and the Arrangement of the Law, 5 Am. L. Rev. 1, 1 (1870) (unsigned article by Oliver Wendell Holmes).Show More

Finally, the conflict-avoidance principle encourages parties to avoid the sorts of conflicts that produce hard cases. Deciding such cases imposes real costs. In addition to financial costs, such cases can undercut the legitimacy of courts as judicial institutions, especially when the political stakes are high.11 11.Precisely that concern underlies the Supreme Court’s practice of treating some politically charged issues as “political questions,” incapable of impartial judicial resolution. See Baker v. Carr, 369 U.S. 186, 217 (1962) (stating that cases lacking “judicially discoverable and manageable standards” or requiring a “policy determination of a kind clearly for nonjudicial discretion” involve political questions).Show More Furthermore, deciding hard cases can lead to errors in the sense that judges do not know the “correct” answer (if they did, the case would not be hard). We think reducing the incidence of hard cases is itself a benefit.12 12.We relax the assumption that deciding hard cases imposes more costs than benefits. See infra Part V.Show More

The conflict-avoidance principle has roots in private and public law. It relates to least cost avoidance, which Guido Calabresi identified and developed in tort law.13 13.Guido Calabresi, The Costs of Accidents: A Legal and Economic Analysis 135 (1970) (advocating placing liability on “those acts or activities . . . which could avoid the accident costs most cheaply”).Show More It also resonates with various constitutional doctrines—such as time, place, and manner doctrines in First Amendment law—that inquire into the alternative courses of action available to the parties to a dispute.14 14.See infra Part IV.Show More Also, some scholars have advanced proposals that sound in cost avoidance.15 15.The clearest example would appear to come from Professor Tang, who has two papers in draft form. See Aaron Tang, The Costs of Supreme Court Decisions: Towards a Best Cost-Avoider Theory of Constitutional Law (Sept. 27, 2019) (unpublished manuscript), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3457533 [https://perma.cc/3UAQ-WF­WW] [hereinafter Tang, Cost-Avoider]; Aaron Tang, Constitutional Law After Mazars, Vance, & June Medical: The Case for Harm-Avoider Constitutionalism, 109 Calif. L. Rev. (forthcoming 2021) (on file with authors) [hereinafter Tang, Harm-Avoider]. Professor Tang’s work and ours, which developed simultaneously and independently, are quite different. In brief, we aim to minimize conflicts by placing the onus on the party who could have avoided the dispute at lowest cost, whereas Professor Tang aims to minimize the “costs” of judicial decisions by placing the onus on the group that could bear the loss most easily. See infra note 46. Professor Tang’s work relates more closely to interest balancing, covering, or mitigation (i.e., bearing loss after the fact) than to a conventional understanding of avoidance (preventing the loss from occurring).For other scholarship that sounds in conflict avoidance, see, for example, Douglas Laycock, The Broader Implications of Masterpiece Cakeshop, 2019 BYU L. Rev. 167, 193 (arguing that free exercise claims by service providers should not prevail over non-discrimination claims by LGBT customers in communities where “discrimination is still widespread”); J.H. Verkerke, Is the ADA Efficient?, 50 UCLA L. Rev. 903, 941 (2003) (applying least cost avoidance to disability law in the workplace); Robert D. Cooter, The Strategic Constitution 129–32 (2000) (connecting rights to mobility costs); Frank I. Michelman, Pollution as a Tort: A Non-Accidental Perspective on Calabresi’s Costs, 80 Yale L.J. 647, 666–86 (1971) (book review) (applying least cost avoidance to pollution).We note that conflict avoidance can be seen as a distinct kind of “minimalist” theory of adjudication. See, e.g., Cass Sunstein, Burkean Minimalism, 105 Mich. L. Rev. 353, 355–56 (2006). Minimalist theories direct judges to concentrate on the facts of the case. See id. at 376 (describing as non-minimalist an approach that is “not limited to the facts of particular cases”). Conflict avoidance directs judges to focus on a particular subset of facts, namely on who could have avoided the conflict more easily.Finally, we note that our argument is consistent with a broader, emerging approach to constitutional law. See generally Robert D. Cooter & Michael D. Gilbert, Constitutional Law and Economics, in Research Methods in Constitutional Law: A Handbook (Malcolm Langford & David S. Law eds., forthcoming 2021) (discussing the emergence of economic theory as applied to constitutional law).Show More Thus, we do not offer a radically new approach to constitutional adjudication. Rather, we collect strands of reasoning that already permeate law and legal scholarship and show how, once systematized, they yield a promising and innovative approach to hard cases.

Why hasn’t anyone systematized these ideas before? Why haven’t judges and scholars, many of whom are familiar with least cost avoidance, already applied these ideas to constitutional law? Here is one explanation. Constitutional adjudication often proceeds “top-down.”16 16.Richard A. Posner, Legal Reasoning from the Top Down and from the Bottom Up: The Question of Unenumerated Constitutional Rights, 59 U. Chi. L. Rev. 433, 433 (1992) (defining top-down reasoning as when “the judge or other legal analyst invents or adopts a theory about an area of law—perhaps about all law—and uses it to organize, criticize, accept or reject, explain or explain away, distinguish or amplify the existing decisions to make them conform to the theory and generate an outcome in each new case as it arises that will be consistent with the theory”).Show More The constitutional principles at stake loom large, sweeping away particular case facts. In contrast, least cost avoidance proceeds in a “bottom-up,” context-sensitive fashion.17 17.For an analysis of the formal difference between bottom-up and top-down reasoning, see Charles L. Barzun, Justice Souter’s Common Law, 104 Va. L. Rev. 655, 708–13 (2018) (explaining that, whereas under top-down reasoning, courts apply a fixed major premise (or rule) to the minor premise (or facts) in order to deduce a conclusion, with bottom-up forms of reasoning, the judge aims to let the facts of the case themselves be the guide to the proper outcome).Show More Courts concentrate on the facts (who could have avoided the crash more easily?), rather than on how to best apply the relevant legal principles. Applying least cost avoidance to the Constitution requires taking a bottom-up approach to a subject dominated by top-down reasoning.18 18.Of course, our approach is top-down in the sense that it involves applying the conflict-avoidance principle to many different cases. But the point is that it is a meta-principle that directs courts to focus on the sort of factual nuances that bottom-up approaches consider critical.Show More

Gesturing at least cost avoidance and “bottom-up” reasoning is easy. The hard part is translating it to constitutional law. We take the main contribution of our project to lie in showing what the translation requires.

The conflict-avoidance principle is not a panacea; nor does it claim “value-neutrality.” But it does offer a fresh way of thinking about how to resolve hard cases. Rather than seeing constitutional conflicts as brute clashes of values—liberty vs. equality, positive liberty vs. negative liberty, substantive equality vs. formal equality—courts might make more progress by looking at the concrete difference that vindicating those values would have made in parties’ actual lives. The goal is to see what work rights claims are doing in social and political life.

We develop our argument in five Parts. Part I clarifies the scope of the principle: we confine its use to hard cases, where “hard cases” has a specific meaning that we will explain. Part II briefly reviews least cost avoidance in private law, drawing out a key distinction between avoiding costs and bearing them. Part III operationalizes the conflict-avoidance principle by developing a doctrinal test for its application. Part IV applies the test to real cases, including recent, controversial cases before the Supreme Court. In Part V, we respond to various objections. The Conclusion develops a broader point. Although the conflict-avoidance principle requires no special commitment to private ordering or negative liberty, it does illuminate a connection between markets, rights, and State power.