Many Americans were surprised by the outcome of the recent U.S. Presidential election. As unexpected as the results may have been, the fact is that on January 20, 2017, Donald Trump will be sworn in as the 45th President of the United States. Even among his supporters, there is a great deal of uncertainty about what a Trump presidency will actually mean. Many of the larger questions – foreign and diplomatic affairs, trade plans, military security, economic policy — are more appropriately addressed elsewhere. In this blog post, I lay out some of my thoughts about what Mr. Trump’s election may mean for the business litigation environment.
I freely admit at the outset that a great deal of uncertainty surrounds many of these issues; on many of the issues I discuss below, others that know far more about the topics than I do. I hope that others who have insight on these issues will add their thoughts to this post using the blog’s comment feature.
The Courts: The most obvious practical consequence in terms of the business litigation environment is that as the new President, Donald Trump will be able to appoint the individual to fill the current vacancy on the U.S. Supreme Court. The arrival of Mr.Trump’s appointee will shift the balance of the Court in favor of the its conservative wing, with important implications for future case outcomes. The addition of Mr. Trump’s nominee will also likely affect the mix of cases that the Court agrees to take up.
As I noted in a blog post at the opening of the Court’s current session, the Court’s docket for the current term is quite a bit lighter than it has been in the recent past. In part, the reduced number of cases is due to the fact that it as a result of the vacancy it has been relatively harder to come up with the four votes needed in order for the Court to agree to take up a case. Another reason some have suggested why the Court has taken up fewer cases it that the Justices were reluctant to take up controversial matters that, with the vacancy, might have resulted in a 4-4 split.
Once Mr. Trump’s nominee has been confirmed, the possibility of assembling the requisite four votes for the court to take up a case will be incrementally that much easier. If the Court was in fact avoiding taking up controversial cases, the reason for restraint will diminish once the Ninth Justice is in place.
On the other hand, there are cases that are currently before the Court that may wind up being dropped as a result of changed policies under the new administration. As the Wall Street Journal suggested in a November 11, 2016 article (here), among the cases that might be dropped is the transgender bathroom case, which was decided at the appellate court level based in part of U.S. Department of Education guidelines. Were the guidelines to be changed by the Trump administration, the Court might, the Journal suggests, throw the case out without oral argument. A number of other cases in the pipeline challenging various Obama administration policies – such as the Clean Power Plan, seeking to cut carbon emissions, and the Affordable Care Act regulations designed to ensure that women working for religious-affiliated organizations have access to contraception – may also, in the words of the Journal article, “vanish.”
The new President’s ability to fill the Supreme Court vacancy is the headline issue, but there is more to the story than just the Supreme Court. There are a large number of vacancies in the other federal courts as well. As of November 11, 2016, there were a total of 103 federal court vacancies (including the Supreme Court vacancy), including 81 in the federal district courts and 13 on the U.S. Courts of Appeals. There will be as many as 18 additional future vacancies in the next few months as, for example, judges who have previously announced their retirements step down. There are nominations pending for some of these vacancies, but the likelihood of any lame-duck Senate action on the pending nominations seems remote.
Because Mr. Trump has many positions to fill in the executive branch, it may be some time before he has nominated candidates for the other judicial vacancies, even if he moves quickly on the Supreme Court vacancy. But once his judicial nominees are in place, they could have an enormous impact on the litigation environment and the legal landscape.
The Dodd-Frank Act: Throughout his campaign, Donald Trump said that if elected he intended to repeal the Dodd-Frank Act. He has already suggested that repealing the Act will be one of his priorities (along with repealing the Affordable Care Act). While Mr. Trump has said he will “dismantle” the Dodd-Frank Act, it seems unlikely that what will happen is a wholesale repeal of the massive Act’s many provisions. (Similarly, in post-election comments, Mr. Trump has scaled down his rhetoric about wholesale repeal of the ACA; piecemeal reform now seems likelier.) Based on his comments in a post-election Wall Street Journal interview (here), Mr. Trump’s Dodd-Frank Act roll back efforts are likeliest to focus on deregulating financial institutions and to try to allow “banks to lend again.”
In a November 9, 2016 blog post on its website (here), the Cooley law firm suggested that it is likely Dodd-Frank reform will proceed through a reintroduced version of the Financial Choice Act, which Rep. Jeb Hensarling, Chair of the House Services Committee introduced in September as a Republican proposal to reform the financial regulatory system and to undo the burdens of the Dodd-Frank Act. (The likelihood that the Dodd-Frank reform effort will look something like Hensarling’s bill seems even greater now, as his name has been circulated as the possible Treasury Secretary.) A November 10, 2016 Wall Street Journal article about Mr. Trump’s plan to dismantle the Dodd-Frank Act (here) cites sources in Mr. Trump’s transition team as saying that the ultimate legislative action will include many of the features of the Financial Choice Act.
The Financial Choice Act in its current form would revise but not eliminate many of the Dodd-Frank Act’s features. For example, the legislation does not eliminate say-on-pay, it reduces the frequency of the vote. The legislation would not eliminate executive compensation clawback, it would limits its application to circumstances where the executive had responsibility for financial statements there were later restated.
On the other hand, there are a number of other features of the Dodd-Frank Act that the legislation would repeal. For example, the legislation would eliminate a number of the Dodd-Frank’s disclosure requirements, such as pay ratio disclosure; conflicts minerals disclosure; mine safety disclosure; and disclosure of payments by resource extraction issuers.
The legislation would also introduce a number of exemptions for smaller issuers for others of the Dodd-Frank Act’s requirements.
I would also expect that a Republican effort to reform the Dodd-Frank Act would also take aim at the Consumer Finance Protection Bureau, which the Dodd-Frank Act created. Several commentators cited in a Law 360 article about likely Dodd-Frank reform (here) suggest that the CFPB could be vulnerable.
There are some other features of the Dodd-Frank Act that might be left untouched. For example, I would expect that the Dodd-Frank Act whistleblower program would remain in place (although, who knows, maybe that will be reformed as well.) I wouldn’t expect Congress to eliminate the Federal Insurance Office, which the Dodd-Frank Act created.
The SEC: The expectation is that Mary Jo White will resign as head of the SEC following the election, as a result of which Mr. Trump would be able to appoint a new SEC chair. Broc Romanek speculated on his The CorporateCounsel.net blog (here) that Mr. Trump might appoint current Commissioner Mike Piwowar as the agency’s Chair. However, at the recent PLUS Conference in Chicago, several of the panelists on a panel discussing SEC and DOJ activity raised an intriguing possibility. They noted that while White’s resignation is generally expected, her term does not actually expire until January 2019. And while it apparently is something of a tradition that when the party controlling the White House changes, the sitting Chair resigns so that the new President can designate his (or her) own nominee as Chair. But while that it traditional, there is nothing that requires the Chair to resign. Perhaps, the panelists suggested, White might rethink her decision to resign? UPDATE: The SEC announced on November 14, 2016 that White intends to resign at the of the Obama administration.
But assuming as I think everyone is that White will resign, there is the question of what a change at the top will mean. Notwithstanding Senator Elizabeth Warren’s complaints about her, White was generally regarded as a “tough cop” who made enforcement a priority. The SEC recently released statistics showing that in the most recent fiscal year, it brought a record annual number of enforcement actions. It is important to note, as the New York Times observed, that changes in priorities can be made at top, but prosecutions and enforcement actions are handled by career prosecutors and staff. The agency has been in a constant struggle for budget dollars in the past and has tried to use its enforcement statistics to strengthen its claim for resources.
One particular area of SEC practice that could change in a Trump administration, particularly working in conjunction with a Republican congress, is the agency’s use of its administrative courts. Rep. Hensarling’s proposed bill to reform the Dodd-Frank Act (discussed above) includes a provision that would allow a defendant in an administrative proceeding to immediately remove the action to federal court and then require proving a violation by “clear and convincing evidence,” a higher standard than the usual one applied in a civil enforcement action. As the New York Times said, this provision “would effectively eliminate the use of administrative hearings.”
Department of Justice: There has been a lot of speculation about who Mr. Trump might name as his attorney general. It was certainly clear from his campaign statements that Mr. Trump intends to make “law and order” a priority. What that might mean in term of DoJ priorities will have to be seen, but I don’t think I am going out on a limb here to suggest that Mr. Trump wasn’t talking about stepping up efforts to go after white collar criminals, though he did have quite a bit to say on the campaign trail about “Wall Street Greed.” (I am consciously leaving out a detailed reference here to his threatening comments directed at Mrs. Clinton during the Presidential debates.)
The New York Times speculated that simply from a budgetary standpoint there could be fewer resources devoted in a Trump administration to white collar crime; one area that the Times suggested may remain a priority is FCPA enforcement (particularly as under current practices much of the cost of investigation is borne by companies themselves, who investigate and self-report in order to appeal for leniency). On the other hand, as the FCPA Professor blog notes (here), during the campaign, Trump apparently said that the FCPA is “horrible law” that “should be changed” and that puts U.S. businesses at “a huge disadvantage.” Prof. Mike Kohler, the blog’s author, suggests that to the extent that Mr. Trump’s comments were addressed to the practices and policies that the DoJ and the SEC have adopted in their enforcement of the FCPA (as opposed to the statute that Congress actually enacted), “there are many people that would likely agree.”
All of these considerations also make me wonder whether in a Trump administration the principles embodied in the Yates Memo will have the same priority, or will even if the memo’s policies will be retained in their current form. The fact that I am even asking about the Yates memo shows how much the outcome of elections can remake circumstances. All of which is another way of saying that Mr. Trump’s election and his administration’s impact on enforcement priorities raise uncertainties about how these developments will affect the potential liability exposures of corporate directors and officers.
Regulatory Priorities: Another position that Trump emphasized in his campaign was regulatory reform. His stated intent is to try to reduce regulatory burdens on companies, particularly small businesses. As this proposition has long been a goal of House Speaker Paul Ryan, it seems likely that there could well be significant action in the area of regulatory reform. According to the Wall Street Journal (here), Mr. Trump’s “point man” on regulatory reform is former SEC Commissioner Paul Atkins. The likeliest areas to be reformed would appear to be in the financial regulation, as well as the energy, environmental, and labor regulatory arenas.
Mr. Trump’s instincts are not against all forms of regulation. His immediate reaction to the recent news that AT&T planned to acquire Time Warner was that the combination should not be allowed because it would represent too large of business combination. If nothing else, this reaction suggests that he recognizes the need at least for antitrust regulation at least in some circumstances. On the other hand, as the Washington Post noted in a November 11, 2016 article (here), “a constellation of factors, from the makeup of Trump’s transition team to the mundane details of antitrust law, may make it difficult for Trump to oppose the tie-up once he is in office.” Whether or not the Trump administration actually blocks the AT&T/Time Warner merger, the point that should not be lost is that not all of his instincts are against regulation. Even Mr. Trump recognizes that on at least some occasions, regulation of business is necessary.
Employment Law: Mr. Trump will have the opportunity to have a relatively quick impact on important employment law issues. There are currently two vacancies on the five-member National Labor Relations Board and one of the current board members is a republican, so Mr. Trump will have an opportunity to immediately begin shaping the NLRB and its policies. Among other issues that may quickly be reconsidered with the change in the board composition is the joint employer issue. During the Obama administration, the NLRB revised its framework for analyzing joint employment, making it easier for companies to be held liable for violations committed by franchisees and contractors.
The EEOC has already set its strategic enforcement priorities for the next three years (as discussed here). The laws that the agency is tasked to enforce remain in place and the agency’s regulatory mandates remain in effect. However, as the Connecticut Employment Law Blog noted (here), the agency has, for example made it a high priority to address sexual orientation and gender identity issues. Whether these same priorities continue, especially as time passes, remains to be seen.
One specific question that is already circulating is whether or not Mr. Trump’s election spells doom for the U.S. Department of Labor’s revised overtime guidelines. The guidelines revised the Fair Labor Standard Act’s “white collar” exemption by raising the salary threshold to $47,476, bringing employees who make less than that amount within the law’s minimum wage and overtime protections. The revised guidelines go into effect on December 1, 2016, but questions are already being raised whether the lame-duck conference will attempt to roll back the regulations. One possibility rather than an outright rollback of the new requirements might be that they are staged in over a period of time. At the same time, oral arguments in the request for a preliminary injunction to the stay the rules will take place on November 18. Stay tuned on this one.
One issue that was obviously important to Mr. Trump during his campaign was immigration. News reports on Sunday suggest that he intends to follow through on his campaign statements about building a wall and deporting illegal aliens. Another possibility that has been suggested is that his administration will focus on trying to criminalize the employment of individuals residing in this country illegally. Arizona’s state law intending to criminalize employment of illegal aliens was struck down by the Supreme Court, but on the grounds that the field had been preempted by the federal government. A Congressional immigration bill could attempt to do at the federal level what Arizona had not been able to do at the state level. A Trump administration could also mandate E-Verify to check the employment eligibility of all workers. A detailed look at the immigration law possibilities in a Trump administration can be found here.
PLUS Conference: As I noted above, I attended the PLUS Conference in Chicago this past week. It was a great conference, although I have to concede that the effects of a late night on Tuesday watching election returns pretty much set me back for the rest of the week. It was good seeing many old friends and making new friends at the conference. I congratulate the PLUS staff and the PLUS Conference Committee, particularly Conference Chair Pete Herron, for a very successful conference.
Because so many of the hallway and reception conversations at the conference involved preoccupying discussions about the election results, I didn’t get around to taking as many pictures at the conference as I usually do. However, I did get a few pictures. In the first picture below, I am standing with David Bell, President and CEO of ALPS Corporation, and Pete Herron, of Travelers, Conference Chair and PLUS President-Elect. In the second picture I am standing with Kim Melvin of the Wiley Rein law firm and Sarah Goldstein of the Tressler law firm.
There were street protests about the election on Wednesday night outside Trump Tower in Chicago. I arrived with my camera too late to get a picture of the protesters; by that point, all that was left was the police barricades. Yessir, the next four years are going to be interesting. Personally, I am praying for reconciliation, healing, and peace.