Bailout plan could violate constitution, say lawyers and law

Daily Record, The (Baltimore), Sep 23, 2008 by Caryn Tamber

Since first being floated mere days ago, a proposal to give the treasury secretary unprecedented power over the financial system has been called many things -- among them creeping socialism, a necessary evil and a blank check.

Here's one more: Arguably unconstitutional.

While the administration and congressional leaders were negotiating amendments on Monday, several lawyers and law professors said the proposal to let Secretary Henry Paulson buy and sell mortgage-related assets with virtually no oversight would run afoul of a little-used constitutional provision.

The doctrine at issue is nondelegation, which is based on the first section of the first article of the constitution, giving all legislative authority to the Congress. The idea is that Congress cannot then delegate that power to another branch of government.

"It's hard to run afoul of the nondelegation doctrine, but if anything does, this is probably it," said state Sen. Jamin B. "Jamie" Raskin, D-Montgomery, a professor at American University Washington College of Law. "How does Congress just give away $700 billion and tell the Secretary of the Treasury to figure out the rest?

Nondelegation "was the first thing I thought of when I heard that the administration's entire plan was on three pages and that the third page said $700 billion would be allocated to this purpose [and] programmatic details are to be fleshed out by the treasury department," he said.

FDR's overreaching

However, nondelegation is not often used as grounds for invalidating a law, Raskin and others said.

The highest-profile use of the doctrine was during the New Deal by a Supreme Court irked at what it felt were President Franklin D. Roosevelt's overreaching policies, said University of Maryland School of Law professor Michael Greenberger.

Greenberger, former director of the Division of Trading and Markets at the Commodity Futures Trading Commission, raised the nondelegation issue on the Diane Rehm show on public radio Monday morning during a discussion of the financial crisis.

Greenberger said in an interview that the doctrine has most often been cited by conservatives "who see it as a way to limit liberal programs."

University of Maryland School of Law professor Jonathan Adler said "one cute little fact" about the recent history of the nondelegation doctrine is that Chief Justice of the United States John G. Roberts Jr. once wrote a certiorari petition asking the Supreme Court to consider a case dealing with nondelegation.

Adler said there have been a few appellate cases over the last 10 years raising nondelegation, but nothing where the nondelegation issue was as clear as this proposed law.

He said that there remains some question whether nondelegation has any teeth to it.

"My bottom line is if there is anything to the nondelegation doctrine, and that's certainly something that we continue to debate, this statute would seem to be a good candidate for raising nondelegation concerns," Adler said.

Greenberger said he thinks nondelegation is "not by any chance dead."

Judicial remedies

Even if a court would be willing to entertain a nondelegation argument, it would be hard to find someone with standing to bring a lawsuit because individual taxpayers cannot challenge a law unless they are particularly affected, Adler said.

He also said there are aspects of the legislation that might make it easier for the government to argue that it does not violate nondelegation. Both the amount of money in play -- $700 billion -- and the amount of time for which the secretary would have this new power -- two years from the effective date of the law -- are specified, he said, which could let the government claim that the powers being delegated are limited.

The Bush administration could further undermine the nondelegation argument by being even more specific about Paulson's new powers, Adler said.

Consumer lawyer Scott C. Borison of the Legg Law Firm L.L.C., who often represents homeowners facing foreclosure, said the first thing that struck him about the legislation was not nondelegation but a sentence saying Paulson's decisions under the proposed law could not be reviewed judicially.

Greenberger said legislation cannot outlaw judicial review of constitutional issues.

The legislation probably will not pass in its current form, he said.

Revisions in process

By Monday afternoon, even the Bush administration seemed to concede as much.

The Associated Press, citing congressional leaders, reported that the administration had agreed to include "strong congressional oversight" in the measure.

Like the administration's plan, a proposal by Sen. Chris Dodd, a Democrat and the Banking Committee chairman, would give the government broad power to buy up virtually any kind of bad asset -- including credit card debt or car loans -- from any financial institution in the U.S. or abroad in order to stabilize markets.

But it would end the program at the end of next year, instead of creating the two-year initiative that the Bush administration has sought. And it would add layers of oversight, including an emergency board to keep an eye on the program with two congressional appointees, and a special inspector general appointed by the president.