#22 Fall 1998
ITEM VETO CASE DECIDED IN SUPREME
COURT: DECIDING THE OBVIOUS
l IN BRIEF
Free Speech in Public Universities
FDIC v. Small-Town Banker
1998 Page 1
ITEM VETO CASE DECIDED IN SUPREME COURT: DECIDING THE OBVIOUS
By Stephen Plafker
In the lead
article of the Spring 1998 issue of this Bulletin, Lauren Bain,
discussed the Line Item Veto Act of 1996. This
Act allowed the president to "cancel" certain spending
items and tax cuts from any bill within five days of its passage.
Ms. Bain’s article showed the Act's clear unconstitutionality
by reference to the language of the Presentment Clause (Art. I,
sec. 7, cl. 2).1 She went on to point out that this Clause is one
aspect of the Separation of Powers Doctrine which the founding
fathers, particularly Madison, believed to be a "fundamental
article of liberty."
At the time
Ms. Bain’s article appeared, the issue was before
the Supreme Court. On June 25, in a 6-3 decision, the Supreme Court
decided the issue in accordance with Ms. Bain’s conclusion.2
were involved in this decision. In the first, Clinton v.
City of New York,
the President “canceled” Section
4722(c) of the Balanced Budget Act of 1997 which declared New York
State eligible for certain subsidies to help finance medical care
for the indigent. In the second case, the President “canceled” Section
968 of the Taxpayer Relief Act of 1997 which would have allowed
owners of certain food refiners and processors to defer the recognition
of capital gains upon sale of their stock to eligible farmers’ cooperatives.
opinion, written by Justice Stevens, begins by pointing out the
obvious: "In both legal and practical effect, the
President has amended two Acts of Congress by repealing a portion
of each." Then, since "[t]here is no provision in the
Constitution that authorizes the President to enact, to amend,
or to repeal statutes," the President’s action and the
Line Item Veto Act are unconstitutional.3
With an indisputable
result before it, one may ask, why was the decision not unanimous?
The interesting opinion is, therefore,
the dissent, written by Justice Breyer and joined by Justices O'Connor
and Scalia. To understand the dissenting argument, one focuses
on the New York case. The situation would be no different, Justice
Breyer argues, had Congress added to Section 4722(c) the language: “provided
1998 Page 2
President may prevent the just mentioned provision from having
legal force or effect if he determines x, y and
x, y and z to be the same determinations required by the Line
Item Veto Act)."4 Therefore, the case is not as simple as it appears;
the majority has mischaracterized the President's action:
For that reason,
one cannot dispose of this case through a purely literal analysis
as the majority does. Literally speaking, the
President has not "repealed" or
He has simply executed a power conferred upon him by
which power is contained in laws that were enacted in compliance
with the exclusive method set forth in the Constitution.5
In addition to the fact that this opinion ignores the clear language
of the Constitution, it is based on a fundamental misunderstanding
of that document as well as of the modern process of making laws.
legislation under the American system is purposely cumbersome.
requires certain minima before a bill becomes
law. It must, at least, be acceptable to a majority of the House
of Representatives, to a majority of the Senate, and to the president.
The required procedure requires compromise on the part of representatives
of differing views. (This would be true under a rational system
of government. It is at the base of the present one.) Once the
president signs the law, it cannot be tinkered with. The Constitution
is explicit on this point. The president's sole relationships with
legislation are his veto power and the requirement that "he
shall take care that the laws be faithfully executed . . ."6
The Line Item Veto Act seeks to short-circuit the Constitutional
procedures in such a way that, after all sides have had their say
and made their mutual compromises, one man chooses whose negotiated
benefit survives and whose is sacrificed.
implicitly recognizes that he has an insurmountable problem by
his inability to formulate an equivalent law
in a way that is clearly constitutional. His position is especially
strange in light of a question he asked the government lawyer at
argument: "What's the
1998 Page 3
between 'giving a president the authority to pick and choose'
projects and tax-break winners and losers and 'a
who rules by decree'?"
is basically wrong when Congress would pass a law so clearly
and a president would approve it. And
that three of the most prestigious American lawyers find it acceptable
demands an explanation. The explanation is found in Justice Breyer
s reference to "the genius of the Framers' pragmatic vision,
which this Court has long recognized in cases that find additional
room for necessary institutional innovation." (emphasis added)
Framers' vision was not pragmatic. The Framers believed in facts
existing "antecedent" to the mind. Their vision
was based on a belief in objective reality with a definite identity,
on a belief that thought is used to evaluate reality, that truth
or falsity lies in consistency with reality. They believed in a "rigid
doctrine of natural rights inherent in individuals independent
of social organization." They believed that words have meanings.
That, when a document describes a particular method of enacting
laws, it describes the way laws are to be enacted. The Framers
understood that "institutional innovation" was not "necessary",
but in fact harmful, that it led to arbitrary governmental edicts;
i.e., tyranny. They therefore organized a government in which "institutional
innovation" was impossible.
The best statement
in the case was made by Justice Kennedy. In answer to a claim
that no injustice could be caused by the procedures
of the Line Item Veto Act, he said, "The Constitution's structure
requires a stability which transcends the convenience of the moment
* * * Liberty is always at stake when one or more of the branches
seek to transgress the separation o powers." (emphasis added).
1. "Every Bill which shall have passed the House of Representatives
and the Senate, shall, before it become a Law, be presented to
the President of the United States; If he approve he shall sign
it, but if not he shall return it, with
1998 Page 4
to that House in which it shall have originated, who shall enter
the Objections at large on their Journal, and
proceed to reconsider it. If after such Reconsideration two-thirds
House [and thereafter two-thirds of the other House] shall
agree to pass the Bill, . . . it shall become a Law . . . If
any Bill not be returned by the President within ten Days (Sundays
excepted) after it
shall have been presented to him, the Same shall be a Law,
in like Manner
as if he had signed it, unless the Congress by their Adjournment
prevent its Return, in which Case it shall not be a Law."
2. Clinton v. City of New York, 118 S.Ct. 2091, 141
L.Ed.2d 393 (1998)
3. A large part of this opinion was necessary to consider the
question whether the parties had standing to raise the substantive
issue involved in the case. None of these procedural questions
will be discussed here.
4. For Justice
Breyer's information, x is "reduce the federal
budget deficit", y, "not impair any essential Government
functions," and z, "not harm the national interest."
5. What would Justice Breyer consider an amendment? Amend... 2.
To make alterations (in a bill before Parliament). Shorter
Oxford English Dictionary (1933)
6. Article II, Section 3. This provision is quoted in none of
the opinions in this case.
Free Speech in Public Universities
Using college students' mandatory fees for student advocacy groups
was stopped by the 7th Circuit U. S. Court of Appeals. In Southworth
v. Grebe, the court prohibited state universities from engaging
in the practice of charging student fees which are distributed
to campus political organizations. It held the practice to be
in conflict with the First Amendment when the fees are used "to
fund organizations which engage in political or ideological activities,
advocacy or speech." The opinion follows other cases regarding
union fees and bar association fees. The court quoted Thomas
Jefferson (in the Virginia Statute of Religious Liberty of 1786): "To
compel a man to furnish contributions of money for the propagation
of opinions which he disbelieves, is sinful and tyrannical."
FDIC v. Small-Town Banker
owner of First State Bank of Purdy, Missouri, knows his customers
a first-name basis. He likes to lend money to
the customers he knows but is a little lax on the paperwork. He
has never lost one penny on the poorly documented loans. Nevertheless,
the FDIC thinks Garrett needs a lesson on how to run a bank. The
FDIC contends that the six loans in question were made more or
less for the benefit of Garrett, because his son and friends borrowed
from the bank to support their interests in business deals with
Garrett. In all, $137,000 was borrowed, and all was repaid, with
interest. The FDIC thinks that is bad banking and proposes a fine
of $25,000. It also wants him to sign a document in which he would
have to admit wrong-doing. After hearing the FDIC proposal, Garrett
didn't think about it for long. "I would have to agree to
1998 Page 5
that I didn't
do, so I told them to stick it." Now, $1,000,000
later in attorney's fees and expenses, from his own money,
and six years of administrative battles with the FDIC, Garrett
the fight. "And we still do business on a handshake, by
the way," says Garrett.
doctrine of sovereign immunity, governmental agencies and government
are usually immune from law suits. The
doctrine originally came from England where it originated in the
principle that "The King Can Do No Wrong." In this country,
the rule is justified by the necessity to protect the financial
well-being of the government and the (proper) reticence to give
the judicial branch leverage over government spending.
There are two modern trends in connection with this doctrine.
On the one hand, governments are consenting to be sued in many
situations. On the other, with the expansion of government activity,
the doctrine causes more unredressed harm.
An example of the latter is found in regulation of the securities
industry. In addition to the Securities and Exchange Commission,
some stock exchanges regulate the market. A recent case illustrates
how a stock exchange, NASDAQ in this case, can use sovereign immunity
to avoid the consequences of its actions.
Corp. is a corporation traded on NASDAQ. After making applications
to, and getting the appropriate rulings from,
NASDAQ and the SEC, Sparta and its underwriter began selling its
shares. Later, NASDAQ "de-listed" Sparta's stock and
suspended trading without an explanation. It subsequently lifted
the suspension, and trading in the stock resumed. However, this
did not eliminate the damage to Sparta's reputation and resulting
harm to its ability to sell its stock.
NASDAQ to redress these damages, but the court held that NASDAQ
was immune from suit because of its quasi-governmental
character---even if its action was done in bad faith.
1998 Page 6
to the court], this immunity is necessary because NASDAQ is "entrusted with the authority to preserve and strengthen
the quality of and public confidence in its market." How does
having legal immunity for completely arbitrary acts preserve this
confidence? In Ayn Rand's words, "blank out."
Copyright © 1998
The Association for Objective Law. All rights reserved. The Association
for Objective Law is a Missouri non-profit
corporation whose purpose is to advance Objectivism, the philosophy
of Ayn Rand, as the basis of a proper legal system.