Capitalisn’t: How the Supreme Court Influences the US Economy

Luigi: Hello, Capitalisn’t listeners. When you hear the audio change dramatically, it is because I goofed and I forgot to turn on the microphone.

Bethany: I’m Bethany McLean.

Speaker 3: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?

Luigi: And I’m Luigi Zingales.

Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.

Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.

Speaker 5: First of all, tell me, is there some society you know that doesn’t run on greed?

Luigi: And, most importantly, what isn’t.

Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.

Bethany: So, we’re all, and rightly so, fixated on what a more-conservative Supreme Court may mean for social issues, for the all-important issue of abortion. But, in fact, the composition of the Supreme Court makes a huge difference for business and the economy as well.

Luigi: As a historical fact for the younger listeners, the first really contested nomination that failed was the nomination of Judge Bork.

Speaker 7: The Robert Bork nomination ended today. The Senate voted by an overwhelming 58-42 margin to reject the controversial appointment.

Luigi: The nomination was so contested, for the first time, people went and looked at what kind of movies he was renting, but all the discussion was entirely about the abortion issue and other civil-rights issues.

Speaker 8: In Robert Bork’s America, there is no room at the inn for Blacks and no place in the Constitution for women, and in our America, there should be no seat on the Supreme Court for Robert Bork.

Luigi: There was no mention of economic issues, when Bork represents probably the most important scholar in the change in antitrust law, and his appointment would have pushed the dimension of antitrust even further. The economic issues are very important, and they’re often not very discussed and, in my view, they’re not even that partisan.

Bethany: I think that’s true, although there are partisan aspects to economic laws and, for sure, even if they’re not partisan, they are critical to the way we all live. From the ability of shareholders to sue corporations to the prosecution of white-collar defendants, and what leeway prosecutors are allowed in prosecuting white-collar defendants, to, indeed, antitrust cases, it’s critical to the way we all live, and so, in an odd way, even if it’s not partisan per se, it’s still really important to understand it.

Luigi: Absolutely. Not to mention probably one of the most important things, which is the role of money in politics. Citizens United and also the subsequent Hobby Lobby decision were very instrumental in opening the door to dark money, having a huge impact on many elections.

Bethany: Yeah. When I was doing a little bit of homework for this episode, what was certainly not what I had anticipated was that this actually is a Court that has had a massive swing toward defendants in criminal cases overall. Not necessarily in white-collar cases and not necessarily on economic issues, but overall, the Court over the last decade has been increasingly sympathetic to defendants. That’s at odds with what we might expect. That seems to run counter to what we would expect from a more and more conservative Supreme Court.

Luigi: The term conservative and even the terms Republican and Democrat don’t explain very well the ideology of these justices. Because how originalist you are, how close to the original meaning of the Constitution, might be a better metric. How interventionist or noninterventionist you are is another important metric.

What I found incredibly interesting is, there is this paper written by two legal scholars and a political scientist, Epstein, Landes, and Posner. They look at how many decisions of the Supreme Court over the years, from World War II to basically five, six years ago, how many of them were probusiness?

What they find is that this number has increased dramatically over time, and not just because of the Republican appointees, but also because of Democratic appointees. We all like Ruth Bader Ginsburg and she was very progressive on civil rights. When it came to business decisions, she was quite in line with Antonin Scalia in many decisions. And so is Stephen Breyer, who is very much in the traditional antitrust school and, I think, on antitrust, he would be much closer to Robert Bork than you would expect, given that he was a Democratic appointee.

Bethany: Maybe that’s why Scalia and Ginsburg could go to the opera together, because as much as they disagreed on some cases, they at least had a similarly probusiness agenda. I wonder . . . Scholars would say that the court’s business rulings are statutory in nature, rather than ideological in nature. And yet, over the preceding decades, we’ve had a very probusiness move in this country on the part of both the Democratic Party and the Republican Party, as we talked about with one of our previous guests, Nick Lemann. It’s interesting, maybe that broader move around the country has influenced the justices in deeper psychological ways.

Luigi: I think it is training and language. There is a student of mine, who is on the job market this year, who has a very interesting paper looking at court decisions and how much they use economic language. And, not surprisingly, the use has increased dramatically from the ‘50s to today, but it really has accelerated since the ‘70s.

The two most interesting findings are, number one, you can identify a judge fixed effect. What does this mean? That a judge, on average, uses more economic reasoning than others. And the beauty is that this is not due to the composition of the cases, because cases are randomly allocated. This is one of the few cases in economics where we have random allocation of treatments, and she finds that, not surprisingly, judges that were trained in law schools with more law and economic faculties tend to use more economic reasoning.

Most importantly, she finds a correlation between how probusiness they are in their regulatory decisions, and their training and their use of economics. Now, you cannot prove causality. You cannot say that because they were trained this way, they become that way. But certainly, this association is an indication that either judges that are more lenient or probusiness, they get trained more, or the training does impact that. And what is important is this is true even after you control for the party that appointed you. We are all focused on this Democratic and Republican appointment and what it means. But I think, in economics, training is more important.

Bethany: Well, that almost backs up my point, in a way, which is that it’s in the water. People who went to school in places where it was in the water, where this was the way of thinking, if you learn to think in an economic framework, then you probably, given the way it’s taught in most places, it probably has a probusiness slant. And it’s interesting how much that influences much more than political ideology.

Do you remember the first time that you realized how influential the Supreme Court was in business affairs? For me, it came in the aftermath of the Enron trial, when the Enron shareholders were trying to . . . The plaintiffs’ bar was trying to sue all of the banks that had enabled Enron. And, in my view, it was very clear-cut that the banks were to blame for what had happened with Enron. They had enough warning signs that something was terribly wrong here, and yet they continued to give Enron cash.

And the plaintiffs’ bar came after them and sued them for their role in the Enron fraud. And a bunch of the banks ended up settling before the case got to the Supreme Court, and when it got to the Supreme Court, the Supreme Court said, “You can’t sue banks, you can’t sue the enablers in a case like this.” And I thought, wow, this just meant that the banks that had settled before the Supreme Court looked at it had paid billions of dollars that they didn’t have to pay. But it also meant that shareholders had far fewer avenues to get recompense, and it just struck me then the role that the Court plays.

Luigi: Actually, the first time I realized this was when I spoke with one of my colleagues who is very socially liberal but economically conservative. He cares that people who are conservative are appointed, in spite of the fact that they have a view on abortion that is different than his view on abortion. And why? Because he thinks that’s good for business.

I think that he educated me, indirectly, about the importance that this plays and how it trickles down. Because when you have a decision like the one you described, not only can fewer cases be brought, but there also is a chilling effect on even trying cases. One aspect that maybe our listeners are not so aware of, if they’re not in the legal business, is that if you’re a prosecutor, you don’t want to lose too many cases. You tend to be very risk-averse and go only when you’re pretty sure of winning. Even a case that undermines a bit, especially if it comes with the seal of the Supreme Court, can have an enormous chilling effect on even trying. And then, of course, if you don’t even try, people feel free to commit fraud or do whatever, because they know they can get away with it. It’s like when you know you’re not monitored, you go wild.

Bethany: Yeah. It’s interesting, I wonder if there’s also a Schrodinger’s cat-like metaphor that would apply here, in the sense that because the business and economic cases that the court looks at—

Luigi: I’ve not been taping up to now, sorry.

Bethany: I feel like we’ve all had our technological mishaps.

Luigi: Yeah. Now I’m taping, sorry.

Bethany: I wonder if there’s a Schrodinger’s cat-like analogy or metaphor, I’m getting confused about which would be the better word, that would apply here. Because the very fact that the Court’s business and economic decisions aren’t as highly scrutinized as their decisions on civil rights may mean that . . . I wonder if that influences the outcome at all, knowing that the scrutiny is not going to be the same.

Luigi: Oh, absolutely. Because no matter what they say, Supreme Courts are very influenced by the court of public opinion. For example, in the decision that John Roberts issued on Obamacare.

Speaker 9: Chief Justice John Roberts, who saved Obamacare once before back in 2012, did it again today, rejecting conservatives’ arguments.

Luigi: He made an effort to save Obamacare because he thought this would be a terrible image for the Court.

Speaker 9: Roberts ruled that courts should follow what Congress intended when they wrote the law. “In a democracy,” he wrote, “the power to make the law rests with those chosen by the people. Our role is more confined.”

Luigi: I think that they pay attention to the court of public opinion. In fact, part of the Republican obsession with the Supreme Court was that they always felt that they were appointing conservative people and then these people were going to Washington, and they were completely drifting in the liberal direction because they were living in Washington, they felt the pressure of the Washington establishment, the pressure of the press, and so on and so forth, they’re radicalizing as part of that. There’s no doubt that this plays a role. To some extent, the enormous attention that there is on the civil-rights side has obscured the lack of diversity on the business side.

Bethany: Yes, the lack diversity on the business side. I think that’s a great way of summing it up. Who would have guessed it? Supreme Court justices are people, too, and they, too, are influenced by these human factors.

We could continue forever, but let’s actually talk to someone who is a lawyer and who understands the Supreme Court better than the two of us do. And that is our guest Roman Martinez, who is a partner at Latham & Watkins in their Washington, DC, office.

He’s personally argued nine cases before the Supreme Court. He now focuses primarily on appeals in the Supreme Court, but he just recently rejoined Latham after serving as an assistant to the solicitor general at the US Department of Justice. And in that role, he represented the United States in litigation before the Supreme Court. With no further ado, let’s talk to Roman.

I thought, Roman, we’d start in a really basic place. Everyone is understandably obsessed with the makeup of the Supreme Court and what that means for social issues, but why should people also care about what it means for business, environmental, regulatory issues? Is that just as big a deal as the social issues?

Roman Martinez: Big picture, the Supreme Court sits atop the hierarchy of federal courts and is really the guardian of the rule of law. And I think the rule of law is just such a key underpinning to our constitutional system, but also to our economy. And although I think, in the business-type cases, the justices tend not to disagree with one another to the same extent and in the same way, and those cases don’t tend to be quite as high profile, I think they’re still very important.

Luigi: My understanding, and I have to preamble, I’m not an expert, but I read an article that Richard Posner wrote about the historical composition of the Supreme Court, with two others, Landes and Epstein. And what they document is that the Supreme Court has become dramatically more homogenous on the probusiness dimension. It didn’t used to be that way. The reality is that even liberal judges like the late RBG or Kagan, even Sotomayor to some extent, they tend to be much more friendly to the business side than the former liberals on the Supreme Court. Do you agree with that?

Roman Martinez: Well, look, I’ve seen that study as well, and I think it has some truth to it, but I also think there’s some important caveats. It does certainly seem to be the case that, in a large number of cases, you have a large number of justices cutting across just the Republican-, Democrat-appointee lines, voting in favor of business.

I tend to think that’s more a function of the fact that, in most of these business cases, they’re interpreting federal statutes that are written by Congress and, in general, the United States tends to have a pro-free-market, probusiness orientation in the statutes. And so, it shouldn’t necessarily be surprising that, if the laws they’re interpreting tend to be probusiness, that the court tends to reach probusiness decisions.

That said, I think it is interesting that they find that there has been change over time, and that litigants tend to succeed in business cases more often now, even with the Democratic-appointed justices, than before. And that could be a function of a number of things. It could be a function of the justices, in general, being more conservative. It could also just be a function of the cases that the Court is taking. Because the sample set that study is drawn from really just turns on what the Court decides to take. They get to choose which cases they review.

Bethany: I read a piece, actually, that disagreed with that point of view and said that, while that was definitely the common perception, it wasn’t actually totally true. For instance, Chief Justice Roberts, in the Halliburton case, issued a decision that makes it easier for plaintiffs to certify class actions in securities-fraud cases. There have been some cases that cut the other way. Do you agree with that caveat?

Roman Martinez: Yeah. Look, I think that’s exactly right. I mean, just to take another example from the securities field, there’s a case called Cyan, a few terms ago, that also had to do, essentially, with what the rules are going to be when you’re bringing a case in state court under the 1933 Securities Act. And it turned on these really tricky, textual questions of these cross-references and very hard statutory language. I was actually speaking on a panel at a securities-law conference, and we had a very diverse panel of a group of panelists who had their own different views on how the case was going to come out. The case was announced right before our panel started and, to everyone’s surprise, it was unanimous in favor of the class-action plaintiffs.

And so, I think there is still this potential, because the cases do ultimately turn on statutory language, not policy preferences. The court is not uniformly just voting probusiness or antibusiness, because they like business or they don’t like it. I think they’re looking at statutory language and they’re doing what judges do, which is to try to figure out what the law is.

Luigi: But there is a big exception, which is antitrust. Because statutory language in antitrust is very limited, and at the end of the day, there is a lot of ideological context in the way you judge. And there, Stephen Breyer is probably as conservative as the Republican appointees.

Roman Martinez: Yeah. Look, I think antitrust is an interesting example, although, even there, one of the more recent antitrust cases from the past few terms was the Apple case. And there you had what a lot of people saw as a surprising result, which was that one of the more-conservative justices, Justice Kavanaugh, ended up siding with the more Democratic-appointed justices and surprising people with the 5-4 decision, again in favor of the class-action plaintiffs.

It is a little bit unpredictable. Maybe we’ll see that crossover is going to be harder to do with the current composition of the court that’s slightly different. But I agree with you, Luigi, I think that antitrust is a different area where the justices will have a little bit more room to maneuver. Because it is a common-law, basically based on common-law precedent as opposed to clear statutory language.

I think there’s another component to this where maybe some of the more ideological factors come into play. And this is something that is important in cases that affect business, and it has to do, essentially, with the role of the administrative state, the role of agencies, and how much power they should have in making regulations that essentially create law that businesses and individuals have to follow.

And there, I think, there is a lot of first-principles analysis that tends to inform that line of cases. And I think that’s one of the areas where the Court might do some interesting things in the coming years, especially with its newer justices.

Bethany: That is interesting. I saw a piece suggesting, I think it was in The Washington Post, that because of the more conservative makeup of the Court, they might rule that independent regulatory agencies are unconstitutional, or they might resurrect the nondelegation doctrine. And maybe you can start with explaining the nondelegation doctrine to our listeners, but I’d love to hear your view on whether that’s likely to happen.

Roman Martinez: One of the trends in American constitutional law and American government, over the last 100 years or so, has been the explosion in growth and power of administrative agencies that exercise power that’s created by Congress and delegated to them. And a lot of these agencies are so-called independent agencies. They’re set up with the goal of having them be insulated from presidential control. And I think there’s a concern, especially among the more conservative-leaning justices, that this has gotten out of control. And that this is in significant tension with basic checks and balances and separation-of-powers principles. And principles that, in our government, elected officials like the president and Congress should really have a much closer role in determining policy.

And so, there are a couple of different doctrines and areas of law where you’ve seen challenges come up that implicate these questions. One area is the nondelegation doctrine, which is essentially the idea that Congress can’t just delegate to an agency without making clear what the agency is supposed to do. It can’t just delegate legislative power. And I think there’s a concern that sometimes Congress passes statutes that just basically tell the agency to go make the world better, and then the agency can do whatever it wants, and that’s not really how the government’s supposed to work.

Another doctrine has to do with the independence of agencies. Is it OK for an agency to be headed by someone who cannot be fired by the president? This came up with respect to the Consumer Financial Protection Bureau last year. And then a third area, just to round it out, is a question of how much deference should courts give to agencies when they’re trying to interpret statutes. And if the agency says, “The statute means X,” to what extent are courts supposed to or required to second-guess that and say, “No, the statute actually means Y.” And I think in all of these areas, you see the more-conservative justices expressing different degrees of concern. And I think one question is how far they’re going to be willing to go to rethink some of these areas of law.

Bethany: It seems to me that this would have major implications for the CFPB. Is that right?

Roman Martinez: Well, yes and no. One of the most interesting cases from last term was the Seila Law case, which actually brought this challenge. The CFPB was set up as an independent agency and, unlike a lot of other independent agencies, it was set up with a single director, a single head, instead of being a multimember commission. And the Court had to figure out whether this was constitutional, because the statute concentrated so much power in the head of the CFPB. And the Court ultimately said that this was not constitutional, and it basically said that the CFPB director had to be accountable to the president and could be fired by the president.

But part of the challenge in that case involved a broader challenge to the CFPB generally. And the challenger said, “If the statutes are unconstitutional, the whole thing has to be wiped off the books.” And the Supreme Court refused to do that. Chief Justice Roberts wrote the opinion, and he said, “No, no, we’re going to have a narrow remedial fix to this narrow problem, and we’re going to make the agency director accountable to the president, but we’re not going to strike down the whole statute.” There, I think, you see the Court trying to bring the statutory scheme that Congress set up in line with the Constitution, but not in a way that is intended to just cancel it out entirely and wipe it off the books.

Luigi: This is what it seems like they are going to do today with the decision on Obamacare, right?

Roman Martinez: Exactly. Very similar to the Seila Law case. And then there was another case from last year that I was involved with, involving the Telephone Consumer Protection Act, which is the federal statute prohibiting calls to your cell phone or text messages that you haven’t previously consented to. And in both of those cases, the Court found constitutional problems with the statute but refused to strike down the whole thing. That’s basically the same issue that we saw getting a lot of attention in the oral arguments about the Affordable Care Act.

Luigi: The other area is corruption cases, because there’s been a recent ruling of the Supreme Court that has made the definition of corruption very strict and made it very difficult to actually bring corruption cases. Do you see this trend continuing?

Roman Martinez: I actually do, in a way. I think one of the things that the Court has done in the last decade or so is, I think the justices have been very concerned with the aggressive use of prosecutorial power, overcharging, overcriminalization. They think that Congress sometimes legislates too broadly in the field of criminal law. And I think they’ve had a number of cases over the last decade or so, in which the court has seemed to want to narrow the scope of federal criminal liability.

We saw it in a case I argued, Yates, which involved the prosecution of a fisherman for catching undersized red grouper, allegedly in violation of the Sarbanes-Oxley financial-reform law. We saw it in the case of Skilling.

Bethany: Wait, wait. Pause on that.

Roman Martinez: All right.

Bethany: How does a fisherman possibly . . . You have to explain this.

Roman Martinez: Yes.

Bethany: How does a fisherman . . . What does he have to do with Sarbanes-Oxley?

Roman Martinez: Well, that’s what the Court asked, though I’ll tell you and I will say, I was serving in the Department of Justice, so I was representing the government, the prosecutors, in this case. I did not choose to bring this prosecution, but I was defending it. And the basic issue was, Sarbanes-Oxley included a provision, it was a destruction-of-evidence provision. And it said that if you destroy a record, document, or tangible object with the goal of impeding the enforcement of federal law, something like that, you’d be liable for destruction of evidence.

The fisherman in this case was stopped off the coast of Florida, and he had undersized red grouper. The officials told him, “OK, well, this is a violation, but you can finish your fishing trip. Come back tomorrow, we’ll meet you at the port, and we’ll seize the fish and we’ll sort all this out." And when he got back to shore the next day, the fisherman said, “I think you mismeasured the fish. Why don’t you measure them again?” And when they measured the fish the second time, lo and behold, the fish had gotten smaller. And the reason was that the first mate had been ordered to throw the fish overboard, destroy the fish, destroy the evidence, and they replaced the initial batch of fish with a new kettle of fish.

And the government decided to prosecute this case as the destruction of a tangible object, the fish, and in violation of Sarbanes-Oxley. The Supreme Court had to decide whether a fish was a tangible object. I was on the losing side of this case, in a 5-4 decision or 4-1-4 decision that came out against me. And the Court said, “Even though a fish is tangible, this is not what Congress meant.”

That’s a long story, but I think that’s an example. And I think, just to go back to Luigi’s question about corruption, there have been a couple of cases, the McDonnell case and then also, recently, the Bridgegate case involving several officials in Governor Chris Christie’s administration in New Jersey, where the Court has looked at some criminal prosecutions for forms of political corruption and said that those prosecutions have stretched the bounds of criminal law too far.

The good news, if you believe in anticorruption, is that if you think that, in fact, there’s a lot of wrongdoing and the courts are being too lenient, this is the thing that Congress can fix. Congress can write new laws to cover this type of conduct. But the Supreme Court, I think, is of the view that the federal government, in particular, is prosecuting too many of these types of cases.

Luigi: You, at the beginning, reassured me by saying, oh, the justices look at statute, and that’s the reason why they rule, et cetera, et cetera. But now, you told us the story of the fisherman off of Florida. And it seems that, at least to me, not a lawyer, but first of all, a fish is an object, and this guy concealed evidence. I think that your side was absolutely right, and I don’t understand why the justices went the other way. This was completely ideological. It was not based on substance.

Roman Martinez: Well, it’s interesting because, first of all, I’m glad you were persuaded by my argument, I wish you had been on the Court. But it was a very interesting breakdown in the votes. I had never had a case that broke down like this. Justice Ginsburg wrote the majority opinion against me, and she was joined by Justice Breyer, Justice Sotomayor, and the Chief Justice in her opinion. And then, Justice Alito wrote a concurrence agreeing with Justice Ginsburg’s bottom line, but not with all her reasoning.

And then the dissent was written by Justice Kagan supporting my side, supported by Justices Kennedy, Scalia, and Thomas. This was actually a case where all of the partisan alignments were completely broken up. And I think it’s a very interesting case, because it really has to do with how you interpret statutes. But it’s also interesting because it does show that there are cases that come up that flummoxes the justices and are not really the ones that, when we think of the Republican justices voting one way and the Democratic justices voting the other way, this was a 5-4 decision where those lines just broke down completely.

Bethany: So, right before I diverted us onto the topic of fish, you were about to say something about the Skilling case. And I’d love to return to that, and talk to us a little bit about how influential that case is for white-collar defendants, and whether the principles espoused in that decision continue to hold up and if you expect them to continue to hold up.

Roman Martinez: Yeah. And, I mean, just at a very high level, the Skilling case involved the prosecution in the wake of Enron. The Court basically had to decide whether the government’s theory of honest-services fraud was too broad. And the Court ultimately held that the prosecution’s theory was too broad because, really, honest-services fraud, at its core, needed to involve bribery, essentially, bribes or kickbacks. And so, what the Court did was, it shrunk its understanding of the criminal prohibition on fraud, thereby, in theory, allowing conduct that you and I would think of as immoral to, nonetheless, not be illegal.

And I think the Court did that, in part, because of this general concern that the fraud statute, in particular, is very broadly worded on its face. And if you allowed government prosecutors to go out and search far and wide for immorality or lying, that unfortunately happens a lot in our society, but that doesn’t mean that we want every act of immorality to be a criminal offense punishable by 20 years in prison. And so, I think that impulse that the Court had in that case is the same impulse that we saw in the Yates case that I was talking about, my fish case. And I think it is something that the Court is focused on.

Bethany: When people complain that the government doesn’t prosecute white-collar criminals enough, how big a deal is the Skilling case, in that view? In other words, does it influence the sort of cases that prosecutors bring, all the way down to the start of the process?

Roman Martinez: I think it exercises some discipline, and I think that is a welcome thing, because I don’t think you want prosecutors out there just looking for any misconduct. And Skilling, in the world in which it applies, which is essentially honest-services fraud, when you’re basically trying to get someone to betray their employer or basically betray a fiduciary relationship that they have, I think it’s important to have some limits in there.

That said, I do think that prosecutors, when they want to, even with the Supreme Court decisions in this area, they have a lot of tools in their toolbox, and they don’t seem to be shy about using them. And I’ll just say one last thing, which is that when I was in the government, in the solicitor general’s office, I was in the office that represented the US government in the Supreme Court full time. And so, we did all the different types of cases, and we were basically the spokespeople for the government, in litigation, in the Supreme Court.

And one of the things that my boss at the time — I was there as a nonpolitical appointee, but I was there during the Obama administration — my boss, who was in charge of the criminal cases, and then the solicitor general, one of the things they were very focused on was trying to explain to the line prosecutors that the Supreme Court did not like these cases that were being brought. And so, there was a lot of evangelism. I mean, my bosses went out and would give speeches to the meetings of the prosecutors and basically make this point to them, with the implicit or sometimes explicit request, “Don’t do things that I’m going to have to go up and defend to the Supreme Court. They’re going to cut back the law in this area, and it’s going to make it harder for you to bring the next case.”

I don’t think that pitch always worked, but it was certainly something that was on the mind of the senior political appointees, even in the Obama administration that you might think of as being more willing to bring white-collar criminal prosecutions. Even there, the senior folks were attuned to this set of brushback pitches from the Supreme Court and the need to be careful.

Luigi: I have a tricky question, because we have made such a big deal about diversity on the court. But in one dimension, the court is very homogenous. Before Justice Barrett was appointed, if I’m not mistaken, all the justices were trained at Yale and Harvard. Now, I have a student who is on the market this year who did a fascinating dissertation about how a district court decides. She shows that, depending on where they went to school, you can predict what decision they will make. This is not necessarily a causal thing, but it’s pretty compelling. Are you concerned that they all are trained the same way, so they are very homogeneous in that dimension?

Roman Martinez: Well, I will say, I went to undergrad at Harvard, and I have my law degree from Yale.

Luigi: You’re part of that.

Roman Martinez: I don’t have an instinctive aversion to what you’re saying. It’s not a great look for the Court to be seen as being homogeneous, Justice Barrett is a nice addition. She is the only justice on the Court without degrees from either of those institutions. That said, it is a little bit superficial. I think the justices that went to those schools, all nine justices, have a somewhat distinctive way of looking at the law. And there are all sorts of cross-cutting ideological and jurisprudential differences, and so, I don’t think it’s a big deal. In a perfect world, it would be more diverse, but I don’t think it’s a huge driver of decisions.

Bethany: Roman, last question. Did you ever expect you’d have someone flush the toilet in the middle of a Supreme Court argument?

Speaker 11: It was a Supreme Court argument unlike any other held before.

Roman Martinez: . . . The subject matter of the call ranges to such topics, then the call is transformed.

You know, I did not. I never expected to be arguing a case by telephone. That was a new experience.

Bethany: And did anyone ever confess?

Roman Martinez: There have been no confessions, and I’m completely agnostic as to who it might have been, although I can tell you, I was arguing the case from my office at Latham & Watkins, and it wasn’t me.

Bethany: Well, I found that a really interesting conversation, which both reinforces what you and I were talking about before Roman joined us and challenges it, in a way. And what I mean is that it reinforces this idea that Democrat or Republican labels aren’t what’s important in thinking about how the Court is going to rule on business issues. That the Court is perhaps less predictable than you might expect on some of these issues than they are on civil-rights issues. They’re more driven by the statutes and less driven by ideology.

But I also came away a little bit less reassured, I guess, from that conversation, in the sense that a more conservative Court may really have a profound impact on independent regulatory agencies and how they function. And I came away thinking that the more conservative bent of the Court could have a more profound impact on business and economic issues than I might have thought beforehand. What about you?

Luigi: I think you sum up the issue very well. What I came out with is the idea that maybe the entire nomination process should be different, and we should ask many more questions about your economic views and not just your civil-rights views.

Bethany: Wouldn’t that be nice? Yes.

Luigi: Because even if Roman started by saying, “Oh, the statute limits us and we follow the law,” et cetera, he ended up showing us examples where this was not the case. For example, I love the story of the fisherman, basically the obstruction of justice. That is a very arbitrary decision. To some extent, it is a function of your view of what morality is. That is extralegal, for sure. I think it should be a fair game, in a nomination process, to say, “How do you see the world?”

The justices should also reflect society in their fundamental values. I fear that they reflect more the values of the East Coast elite rather than the values of America overall. And it’s funny that when I asked him about, doesn’t Amy Barrett bring some diversity? He had to apologize because he belonged to that elite, too. He was the perfect example, I didn’t realize that, undergrad at Harvard, Yale Law School, he seems like he is embedding all those values.

Bethany: Back to the fish, because we have to go back to the fish. It’s funny, because my first instinct on that case was, “Oh, let the poor fisherman go, because it’s fish.” Instead of seeing the fish as a metaphor for the larger issues, which they are, I thought, “Well, isn’t a fish just a fish?” But I guess sometimes a fish is not just a fish. It’s more than a fish.

Luigi: Yeah, but I think he described it very well. The violation itself might not have been terrible, even if, these days, if you want to preserve the proper reproduction of fish, we need to have rules. So, I think those rules are important, but the point is not so much that the rule was so terrible or so terrible to break. It is the fact that this guy was trying to get away by cheating.

And I think that the United States system, in my view, is better than other systems because of this obsession with preserving the proof. We found out many of the more-important cases because there was no destruction of the proof. While sometimes, of course, the company is trying to hide it, the good lawyers try to uncover it. I followed in detail the DuPont case on the pollution of the Ohio River with PFOA, and in the disclosure process, a lot of documents came out that were instrumental, not only in winning the case, but also in informing the entire world about the damage of PFOA.

I gave a seminar about a particular case study in the Netherlands that I wrote. And in the Netherlands, they are very sensitive to the topic. Why? Because there was a DuPont plant that polluted the Netherlands. In Italy, actually my home region in Italy, there is a big problem with pollution from PFOA. This is not due to DuPont, but to another company, but they discovered the damage because of the legal trial that took place in the United States. In Japan, they’re doing the same. In a sense, one case brought to light a problem that is a world problem. I think that the preservation of documents is, in my view, essential. I would have gone in the direction of convicting the fisherman.

Bethany: You want the preservation of documents and the preservation of fish, fine.

Luigi: Absolutely. I’m a preservationist.

Bethany: That said, I found that case both reassuring and not reassuring. I suppose the reassuring part of it is that the Court didn’t break down against any ideological lines. But I guess the less-reassuring part about that is that the Court is always going to be unpredictable on these issues, unless we do as you suggest, and have a clearer sense of where people stand going in. Then, perhaps, the Court would be more predictable. But it seems to me that one of the key takeaways from what Roman said is the Court’s essential unpredictability on many of these important issues.

Luigi: You know that in many US states, the supreme court is elected. It is not appointed.

Bethany: Yeah. It’s interesting. My cousin just got elected to the supreme court of Mississippi, so there you go.

Luigi: Oh, I may actually ask him, because I’m writing a paper about this election and how campaign financing or career incentives may corrupt their decisions. I look forward to talking to your cousin.

Bethany: You can talk to my cousin. I think he had significantly less money than his challenger did, and I think he still managed to win, so maybe he’ll blow a hole in your thesis.

Luigi: No, no, it’s not the total amount, but most of the money, as you know, in those elections is donated by lawyers.

Bethany: Yes.

Luigi: By law firms.

Bethany: Absolutely. Absolutely.

Luigi: And so, the question is, if you have a law firm that donated a lot to you, that argues a case in front of you, are you more likely to vote in favor of that lawyer in a final decision?

Bethany: No, Luigi, it’s statutory. All these things are just statutory. You’re not influenced . . . Justices aren’t people, too, they’re not influenced by these sorts of things.

Actually, I thought that was the other fascinating thing that Roman said, this idea that the Supreme Court exerts a profound influence over what cases prosecutors choose to bring. Because, in the end, prosecutors don’t want to end up arguing in front of the Supreme Court only to lose.

By very dint of the Skilling decision in the Supreme Court, which limited the use of this so-called honest-services statute, you’ve deterred prosecutions that otherwise might have taken place of similarly positioned business executives. And I suppose it depends on which side of the argument you’re on, as to whether you think that’s a good thing or not. Because you could certainly argue, as our mutual friend Jesse Eisinger did, that we don’t prosecute enough people. And through that lens, the Skilling decision has probably led to quite fewer prosecutions than would have happened.

Of course, if you’re a criminal defense lawyer or a CEO, you’re going to argue that we overprosecute, and that anything we can do to cut down on prosecutors willy-nilly bringing cases is a good thing. But regardless, it’s fascinating to me that the Supreme Court, through its long tentacles, exerts such a profound effect all the way down to the ground level of what cases prosecutors will bring.

Luigi: I completely agree. And I heard the people who are defending the record of the Obama administration of basically not prosecuting any executives as a result of the financial crisis, they attribute this decision to one assistant attorney general, who was the defendant for Arthur Andersen in the case of obstruction of justice. As you know, but I’m not sure the listeners know, Arthur Andersen initially was indicted for obstruction of justice because they destroyed documents, a bit like the fish.

The Supreme Court overruled that decision in a 9-0 case. There wasn’t even any division. And then, the people that were involved felt that the cost of the indictment was gigantic, because Arthur Andersen disappeared as an entity. Some people say they disappeared because people do not want to be audited by Arthur Andersen because of its terrible record, but others blame the indictment. And so, for many lawyers, this was an enormous injustice, and they felt that it was too dangerous to bring indictments for any firm, let alone for any audit firms. Especially because there are only four big ones left, so it’s very complicated to get rid of one of them or to indict one of them with the risk of losing it. As a result, these guys became too free to jail, and they could do anything they want without any consequence.

Bethany: And hence, although, once again, causality is difficult, but you have EY and the Wirecard scandal, right? Because I think there is some feeling, among the Final Four, that they cannot be allowed to fail and that they are immune from prosecution. And, again, that comes back to the point we made earlier that the Supreme Court, what a huge influence it has by finding Arthur Andersen innocent. After all, that’s changed the tenor of corporate prosecutions in this country in a major way.

Luigi, what’s your key takeaway from our conversation with Roman?

Luigi: My key takeaway is that the way Supreme Court justices are appointed today and their review process, the hearings for their appointment, tend to be singlehandedly focused on abortion. I don’t want to dismiss it, this is an important issue, but it would be very important to have a review of their economic views. The rule of law is very important for the functioning of a capitalist economy, but the rule of law is very vague. Even from a distributional point of view, a Supreme Court decision can have massive impacts.

You have mentioned the cases of corporate fraud. That’s clearly very important. There are cases of litigation between consumers and firms, there are cases of litigation between unions and firms, there are regulatory cases that Roman talked about. While I’m sympathetic to stop the overreaching of regulation, there is also the fear of the undoing of any regulation by business interests. Because if the regulation is too business-friendly, nobody’s going to bring this decision up to the Supreme Court. If the regulation is too consumer-friendly or even the right amount, the business community will bring suit. The US Chamber of Commerce has been very active on this. They bring a suit to the Supreme Court and they succeed in overturning it, making it all but impossible to impose any form of regulation.

This is an incredibly important aspect, and I suspect we’re going to see this at play a lot. Remember, in the 1930s, when Roosevelt was elected president, he had to fight very aggressively because the Supreme Court was quite conservative. The Supreme Court actually did do something very positive, which is to block the National Recovery Act that was a form of monopolization. But there was a lot of tension between the Roosevelt administration and the Supreme Court, so much so that the idea of packing actually started back then. Roosevelt wanted to pack the Supreme Court, and even he thought that was not a good idea at the end. I think we’re going to see a lot of this tension moving forward. What about you, Bethany?

Bethany: Well, I think my most surprising takeaway actually came from part of the conversation or the dialogue between you and Roman about where the justices went to school. And given that justices’ opinions on business issues are not predicated on their party orientation, or their beliefs on civil liberties or civil rights, but are more unpredictable than that, and yet, essentially, probusiness, because that’s in the water at many of the elite schools where these people trained.

But I think we actually do need to have more diversity on the Supreme Court, in terms of how people grew up, the institutions in which they grew up, so that they have a diversity of thinking on business and economic issues, instead of all, essentially, buying into the same probusiness vibe that is in the water.

I guess, my other important takeaway is that, wow, it is so nice to be so incredibly focused that you don’t get distracted by a toilet flushing during a Supreme Court argument. May we all have Roman’s incredible focus.

Luigi: That was very good.