Barrett May Reinforce High Court Trends For Banking Industry

Law360 (September 29, 2020, 10:46 PM EDT) -- Seventh Circuit Judge Amy Coney Barrett's elevation to the U.S. Supreme Court would position her to weigh in on fintech regulation, agency independence and other legal issues affecting the banking industry. But with the high court already showing a tilt toward business, her addition to the bench may not yield a sea change from a financial services perspective.

President Donald Trump nominated Judge Barrett on Saturday to fill the vacancy created by the death of Supreme Court Justice Ruth Bader Ginsburg, setting up a confirmation battle that could see conservatives strengthen their presence on the high court to a 6-3 majority.

But while the court's shift further to the right could carry significant implications for gun rights, abortion access and other social issues, experts who spoke to Law360 said Judge Barrett's confirmation would likely not produce dramatically different outcomes in banking-related cases.

"Even before recent changes in the court's composition, it was a fairly pro-business court," said Daniel Rubens, a partner in Orrick Herrington & Sutcliffe LLP's litigation group and appellate practice. "On questions of concern to businesses, the justices viewed as 'liberal' have often been comfortable moving the law or keeping the law in a direction that was favorable to business interests."

Rubens once clerked for Justice Ginsburg, whom the Constitutional Accountability Center ranked last among the high court's nine justices this past term for how often she ruled in favor of positions supported by the U.S. Chamber of Commerce.

Still, the analysis found Justice Ginsburg sided with the Chamber more than 45% of the time, and the high court as a whole delivered decisions aligned with the Chamber about 67% of the time. That's on par with the 70% win rate enjoyed by the Chamber since 2006 in cases where it has advocated, and well above its average under previous chief justices, according to the CAC.

"Without Justice Ginsburg, the court already has the conservative makeup that is beneficial to the banking industry overall," said Quyen Truong, a partner at Stroock & Stroock & Lavan LLP. "Judge Barrett's appointment results in a reliably more conservative bench, but in terms of bottom-line outcome, this is not going to cause a major change for the industry."

Facebook v. Duguid

If confirmed quickly, the new justice could join the Supreme Court's bench in time to help decide Facebook v. Duguid, a closely watched appeal over what qualifies as an autodialer under the Telephone Consumer Protection Act.

Banking industry groups like the Consumer Bankers Association have argued in amicus briefs that the term has been too broadly construed by some courts to cover practically any equipment that can store and dial phone numbers, with the result that even key customer communications like low-balance alerts and security notifications risk triggering potential liability for the companies that send them.

When the same issue recently reached the Seventh Circuit in a different case, Judge Barrett in February wrote a panel ruling that held the TCPA's autodialer provision should be more narrowly read to cover only equipment that uses random or sequential dialing. As a result, it is expected she would come down similarly on industry's side in the Facebook case, which is scheduled for oral argument at the high court on Dec. 8.

"That's the easiest one to read, in terms of her likely ruling in favor of a narrow interpretation of the TCPA," Truong said.

Collins v. Mnuchin

Quick confirmation could also mean a Justice Barrett's participation in the Supreme Court's consideration of Collins v. Mnuchin, a case involving consolidated appeals that challenge the Federal Housing Finance Agency's constitutionality and its "net worth sweep" of Fannie Mae and Freddie Mac.

Collins in some ways picks up where the high court left off in June with its decision in Seila Law v. Consumer Financial Protection Bureau , which held that it was unconstitutional for the CFPB to be structured as an independent agency whose single director couldn't be fired at will by the president.

Given that the FHFA's single-director structure is almost identical, the Fannie and Freddie investors behind the Collins case have argued that the housing regulator can't escape a similar constitutional reckoning. And with Seila's five-justice majority still on the bench this term, the investors were already well-positioned going into the oral argument set for Dec. 9.

But the investors have also urged the court to go further than it did in Seila and provide "backward-looking relief" for the agency's alleged past unconstitutionality — namely, invalidation of the net worth sweep, under which the FHFA has required Fannie and Freddie to turn over billions of dollars in profits to the government since 2013.

Although the full Fifth Circuit wasn't willing to grant the investors so sweeping a remedy last year, Lee Reiners, executive director of Duke Law's Global Financial Markets Center, said that he views Judge Barrett as a potential vote on their side.

"My instinct tells me that a textualist would unlikely be willing to ratify actions by an officer of the government that the court has determined to be unconstitutionally seated," Reiners told Law360 in email. "Therefore, I would bet a Justice Barrett would rule for the plaintiffs and determine the net worth sweep invalid."

Agency Independence

The Collins case also presents the Supreme Court another opportunity to revisit Humphrey's Executor , a New Deal-era ruling that upheld limits on the president's power to fire regulatory agency leaders and, in the process, provided a key legal foundation for agency independence.

The high court declined to overturn the landmark precedent when it ruled on the CFPB's constitutionality in Seila Law, rejecting pleas from conservative legal advocates who have long criticized the decision for fueling the growth of what they see as an unaccountable and illegitimate administrative state.

But Humphrey's Executor is back in the spotlight now that the FHFA is facing similar questions about its structure, raising the prospect that the court may yet reconsider the precedent "in toto," as Justices Clarence Thomas and Neil Gorsuch recommended in a partial dissent in Seila Law.

Such an outcome could pave the way for presidents to assert greater control over the FHFA as well as other traditionally independent financial regulators, like the Federal Reserve, though it's unclear where a Justice Barrett might come down.

"She is not as wedded to stare decisis," Truong said, referring to Judge Barrett's academic writings expressing skepticism about the weight that should be accorded to precedent. "She is going to be more open to arguments to take a fresh look, but it really will depend on the individual case whether she thinks the text dictates a different outcome."

The New Civil Liberties Alliance, which has pushed for overturning Humphrey's Executor in amicus briefs field in Seila Law and Collins, has been cautious but optimistic. In a statement released after her nomination was announced, NCLA Executive Director Mark Chenoweth said that Judge Barrett "does not have quite the same robust track record in opposing unlawful administrative power that Justices Gorsuch and [Brett] Kavanaugh brought with them to the Supreme Court bench."

Still, Chenoweth said she "has shown a willingness to protect civil liberties from administrative power" and added that his organization looks forward to her "prompt confirmation."

The NCLA's reaction underscores one of the difficulties facing the banking industry in trying to gauge Judge Barrett's potential effect at the high court: her relatively short paper trail in her slightly less than three years as a federal judge since she left her career as a Notre Dame law professor.

"She's written virtually nothing about banking law," said Julie A. Hill, a banking and commercial law professor at the University of Alabama School of Law. "She hasn't been on the court that long, so we don't have many banking cases that she's ruled on."

And while Judge Barrett's academic writings on originalism and textualism suggest she would be reluctant to grant regulatory agencies a wide berth on statutory interpretation, "whether that goes far enough to constrain agencies when they're doing pro-business things that conservatives would like is a harder question," Hill added.

Blurred Lines?

Hill was alluding to how some high-profile legal issues in banking tend to blur ideological lines, yet another complication that emerges when trying to gaze into the jurisprudential crystal ball.

While conservatives have traditionally been critical of the idea that courts should give deference to regulatory agencies' readings of their own statutes and regulations, for example, the Trump administration has been pushing for such deference in defending the Office of the Comptroller of the Currency's basis for offering banking charters to nondepository fintech firms.

This so-called fintech charter was unveiled by the OCC in 2018 as an alternative to state-by-state licensing and oversight for nonbank lenders and other fintech companies, but it sparked a backlash from consumer advocates and state regulators, which have framed the charter concept as regulatory overreach by the OCC and a threat to consumer protection.

The charter is now tied up in litigation at the Second Circuit, where New York's Department of Financial Services is squaring off with the OCC in a battle that could shape the future of fintech regulation and may yet wind up at the Supreme Court.

But Reiners doesn't see Judge Barrett as a vote in the OCC's corner on this issue.

"If the fintech charter makes its way to the court, a potential Justice Barrett would likely rule against the OCC," Reiners said. "As a textualist, a Justice Barrett would find that the [National Bank Act] contains no language permitting the OCC to grant such charters."

Other experts who spoke to Law360 similarly flagged the host of lower court cases from recent years that have tested banks' federal preemption powers and put pressure on lending partnerships between banks and nonbank fintechs. Although there will likely be calls for the justices to clarify the law around these issues in the coming years, Rubens cautioned that having a more conservative high court won't necessarily guarantee a particular set of results.

"We've become very used to discussing the Supreme Court and nominees in ideological terms, but in my experience clerking at the court and watching the courts, there are a lot of areas of law where the justices are deciding things unanimously or by large margins and doing things that you can't really map neatly onto an ideological axis," Rubens said.

Still, given Judge Barrett's doctrinal leanings, there's a general expectation within the banking industry that her confirmation would reinforce existing trends at the high court, according to Truong.

"The court's makeup already favors the industry overall, with or without her appointment," Truong said. "But regardless of their general philosophy, the justices can come out with unexpected decisions on individual cases because of the specific facts and sometimes narrow issues presented."

Rubens agreed that the bottom line for banks is that a Justice Barrett is unlikely to be a game changer.

"The court tended to be ruling in a pro-business way, occasionally but not always by 5-4 margins, before Justice Ginsburg's passing," Rubens said. "Even if you're looking at an area that is of concern to businesses but a little more ideologically charged, like arbitration, [a Justice Barrett] is probably not going to move the needle."

--Editing by Brian Baresch and Jill Coffey.

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