Kavanaugh pick signaling change ahead

Supreme Court nominee Brett Kavanaugh's front-row view of Washington's main businesses — regulation and legislation — has observers of the high court preparing for a change, particularly when it comes to what federal regulators can and cannot do, if he is confirmed.

For the past 12 years, Mr. Kavanaugh has served on the U.S. Court of Appeals for the District of Columbia Circuit, where foes and defenders of federal regulations often take their disputes. His rulings there have given court observers the strongest clues to what his approach at the Supreme Court might be, particularly when it comes to how much deference should be given to federal regulators, as opposed to strict interpretations of the underlying statutes.

"On the federal bench, he is the biggest thinker when it comes to administrative law. He's now going to have a national stage to talk about the proper role of the administrative state," said Christopher J. Walker, associate professor of law, in Columbus, at the Ohio State University Moritz College of Law. Mr. Walker, who has served in all three branches of the federal government, also clerked for the justice whom Mr. Kavanaugh would replace, Anthony M. Kennedy. Mr. Kennedy often served as the swing vote on a court that, for now, is evenly divided between conservatives and liberals.

Mr. Kavanaugh also would bring White House experience to the court, having served as associate counsel and staff secretary under President George W. Bush, and with independent counsel Kenneth Starr investigating the Clinton White House. Mr. Kavanaugh has since advocated for overturning a Supreme Court decision upholding the constitutionality of an independent counsel, arguing a sitting president should have "as few distractions as possible."

He is best known for his legal opinions and writings critical of Chevron deference, a principle of administrative law that requires courts, when interpreting statutes, to defer to the government agencies that enforce them, unless those interpretations are unreasonable. It has been the prevailing principle since a 1984 Supreme Court ruling in Chevron U.S.A. Inc. vs. Natural Resources Defense Council Inc., in a dispute over the Environmental Protection Agency's interpretation of a provision of the Clean Air Act Amendments of 1977.

If confirmed, Mr. Kavanaugh would find four sympathetic colleagues: Chief Justice John Roberts and Justices Clarence Thomas, Samuel Alito and Neil Gorsuch, who have written or joined judicial opinions arguing that Chevron deference should be reined in.

"In many ways, Chevron is nothing more than a judicially orchestrated shift of power from Congress to the executive branch," Mr. Kavanaugh wrote in a June 2016 book review in the Harvard Law Review. That, in turn, can encourage an administration "to be extremely aggressive in seeking to squeeze its policy goals into ill-fitting statutory authorizations and restraints," he wrote.

Particularly when it comes to federal agencies issuing major rules that expand their authority, "an ambiguous grant of statutory authority is not enough," Mr. Kavanaugh wrote in the recent challenge to a Federal Communications Commission' rule on net neutrality.

But holding federal agencies to a pure interpretation of a statute can cut both ways, noted Mr. Walker. "It applies to both regulation and deregulation. Chevron itself was a Reagan-era ruling that allowed (President Ronald) Reagan to deregulate on the Clear Air Act. (Mr.) Kavanaugh really holds agencies to the statute, so for the next years, that could mean an anti-regulatory stance," he said.

That would include rules aimed at undoing ones from previous administrations, or foot-dragging on ones the White House doesn't like. "The president may not decline to follow a statutory mandate or prohibition simply because of policy objections," Mr. Kavanaugh wrote in a 2013 majority opinion that ordered the Nuclear Regulatory Commission to consider an application to store nuclear waste in Nevada. "The underlying policy debate is not our concern," he said.

Regulation foes could be disappointed, too. "He is pretty right in the middle of the road on Chevron. My guess is that he won't move the court that much. The real question is how far they narrow it," Mr. Walker said.

The Supreme Court nominee also has advocated for agencies to do cost-benefit analyses of rules they are considering, including in a 2014 dissent from a D.C. Circuit court ruling that found the EPA was not required to consider potential costs of a power plant emissions rule. The Supreme Court wound up agreeing with that dissent when the case came before it.

He is also perceived as a stickler for agencies following the Administrative Procedure Act when issuing rules. In a 2007 dissenting vote to overturn the Securities and Exchange Commission's 2005 "Merrill Lynch rule" exempting brokerage firm managers with asset-based fees from investment advisory regulations under certain conditions. Mr. Kavanaugh said the SEC exceeded its authority.

An expected casualty of a more conservative court is the legal doctrine known as "Auer deference," which states that agencies can best interpret their own rules unless they are "plainly erroneous or inconsistent."

Just having Mr. Kavanaugh on the Supreme Court could cause regulators to think twice about rule-making, unless a statute is crystal clear, said Mr. Walker. "If agencies know they are not going to get Chevron deference, they are not going to be as aggressive."

Assuming Mr. Kavanaugh is confirmed by the Senate, high court observers said they wouldn't be surprised to see several cases brought forth that should provide a window into his positions.

"In the asset management world, I can see a couple of potential cases where there are strong enough feelings that a court case could be filed," said David Tittsworth, a lawyer with Ropes & Gray LLP in Washington and former president and CEO of the Investment Adviser Association. One is SEC proposed rules relating to standards of conduct for broker-dealers and investment advisers. With "very strongly held positions on both sides of the fence … I could see the potential of lawsuits filed by either broker-dealers that believe the proposed best-interest standard is too burdensome as well as potential lawsuits by consumer groups that believe the standards are too weak and inappropriate," he said.

Another possible issue for the Supreme Court are legal challenges to the SEC pay-to-play rule with strict limitations on political contributions by investment advisory personnel to public pension plan officials. "The strict liability approach of the rule and severe restrictions — such as potential contributions by incoming employees — have constitutional free speech implications," he said.

Mr. Kavanaugh also could be a deciding vote in a derivatives lawsuit by a group of institutional investors led by the $224.9 billion California State Teachers' Retirement System, West Sacramento. If the court accepts the petition for review in CalSTRS vs. Alvaerez, that decision could either chill or expand derivative stockholder lawsuit filings in multiple jurisdictions. The Council of Institutional Investors is planning to file an amicus brief to support the petition for review.

Senate Majority Leader Mitch McConnell has said he would like to begin Senate hearings on the nomination by September.

At the White House announcement of his nomination, Mr. Kavanaugh pledged to "keep an open mind in every case," a position reinforced in a Harvard Law book review where he disagreed with the notion that "judges should or necessarily must bring their policy and philosophical predilections to bear on the text at hand.

"The American rule of law, as I see it, depends on neutral, impartial judges who say what the law is, not what the law should be. Judges are umpires, or at least should always strive to be umpires."