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Can a federal agency gag those who enter into settlement agreements? The SEC says yes. — First Amendment News 434

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Our prohibition . . . prevents the American public from ever hearing criticisms that might otherwise be lodged against the [SEC], let alone assessing their credibility. — Hester Peirce (SEC commissioner, dissenting)

[The] government may not grant a benefit on the condition that the beneficiary surrender a constitutional right, even if the government may withhold that benefit altogether. — Kathleen M. Sullivan, Harvard Law Review (1989)

Let’s begin with basics: Gag orders are, save for exceptional circumstances, an affront to the First Amendment. And why? Again, basics: They run counter to the principle of no prior restraints, and they can be content-based, which violates another free speech canon.

Hence, for a gag order to be permissible it must satisfy a strict scrutiny standard of review. As Chief Justice Burger put it in Nebraska Press Association v. Stuart, “[P]rior restraints are the least tolerable and most serious infringements on First Amendment rights.”

Okay. So what are we to make of a federal agency that gags the parties with which it enters into a settlement agreement? Can an agency demand that anyone who seeks a government-approved settlement must relinquish their First Amendment and due process rights?

Can the government impose gag orders by way of a mandatory consent rule even without any express and nuanced authorization from Congress? Can an agency like the Securities and Exchange Commission issue gag orders when it uses them to settle 98% of the cases before it? Can it compel those whose rights it “settles” and silence them from speaking once they “agree” to settle the charges the SEC has leveled against them?

Margaret A. Little
Margaret A. Little

Margaret A. Little, counsel of record for the petitioners in Powell v. United States Securities and Exchange Commission, thinks not — categorically not! Here’s how Little, who is currently the senior litigation counsel for the New Civil Liberties Alliance, put it in her Ninth Circuit brief on behalf of targeted affected individuals, a free speech organization (the Reason Foundation), and a local newspaper (Cape Gazette):

The founders, who enshrined the right of free speech, a free press, and rights of petition in the First Amendment, would never in their wildest imaginations have envisioned that a mere government agency could silence speech, dictate the content of speech, and compel corrective speech by those who would criticize that agency’s actions.

Congress itself could not enact a law extracting silence as a condition of settlement with the government; a mere administrative agency perforce lacks any such authority.

Believe it or not, in settlement cases the SEC enforces a gag rule (adopted in 1972) through a mandatory, nonnegotiable term in its settlement agreements, 17 CFR § 202.5 (e) — also known as the “no-admit and no-deny settlement policy.”

Once one “agrees” to the settlement, they cannot say anything about the SEC’s actions — the validity of its charges, the lawfulness of its conduct, or anything related to their case. This heavy-handed approach may be efficient (i.e., 98% of cases settled) but such “efficiency” comes at the cost of sacrificing one’s rights on the altar of unauthorized governmental officialdom.

Breaching textual commands

For all the contemporary talk about textualism, seldom is the text of the First Amendment given much attention when it comes to the speech and press clauses. “Congress shall make no law” is how the constitutional command begins. Notice that it is the making of a law that abridges the Madisonian dictate. Notice also that the command is directed solely to one branch of government — the only branch that can “make” laws. Hence, at the very outset the working premise speaks to the sole body duly authorized to make laws: namely, Congress. But in the Powell case, Congress did not act. It made no law. If it did — if it followed the SEC’s example — it would be abridging expression.

Now, the limits on the SEC’s powers must, as an Article I, Section 8 necessity, be read in tandem with the command of the First Amendment. Absent such authorization, there is an unconstitutional usurpation of power. (See Thomas Cooley, “A Treatise on the Constitutional Limitations,” 71 (1st ed. 1868)). In this case, however, there was no such constitutional delegation. Thus, the SEC acted without Article I authority, which if given would have violated the “make no law” command of the First Amendment.

“Or of the press”

At a time when textualists and others discount the independent significance of the press clause of the First Amendment, it is noteworthy how the Madisonian command affects this case. 

In Lewes (a small town in Delaware), the local newspaper called the Cape Gazette seeks to cover a story of local importance. But it cannot because of the SEC’s gag rule. Here is how Margaret Little explains the matter in her brief to the Ninth Circuit:

Marguerite Cassandra Toroian, is a former registered investment advisor and owner of Bell Rock Financial, as well as a former contributor to CNBC and Fox Business. After a prolonged investigation followed by a federal court action that imposed daunting reputational, occupational, relational and financial costs, she settled with SEC in 2023. She also unsuccessfully tried to negotiate for no gag. Ms. Toroian wishes to speak freely to co-Petitioner Cape Gazette about her case, as she did when SEC first filed its complaint, but she cannot because of her gag. She also wishes to publicly discuss her experience as an SEC enforcement target, including with Congress, the Commission, and on her podcast. 

Given that, Little argues that the “SEC’s Gag Rule prevents Cape Gazette from receiving Toroian’s and other SEC enforcement targets’ speech, thus abridging Cape Gazette’s speech and press rights.”

The First Amendment was born in an era of local newspapers; they were the soil in which it took root. It is in that spirit that a small Delaware paper (still very much in demand) decided to get involved in this case. Here is how Chris Rausch, its publisher put it:

Individuals coerced into signing away their rights leave the press with no ability to gather further information which would be beneficial to the public. The gag rule, as it currently stands, severely limits the ability of individuals and the press to provide any oversight or offer any criticism of a government agency that has granted itself the power to be judge, jury and executioner. For the Cape Gazette, this unique local story provided the opportunity for us to help shine light on this glaring violation of the First Amendment and the right to petition the government for a redress of grievances.

The Cape Gazette has joined the New Civil Liberties Alliance and others in a court appeal to end the Securities and Exchange Commission gag rule. Shown at an earlier forum on the appeal are (l-r) Margaret Little, NCLA counsel; Chris Rausch, owner/publisher Cape Gazette; Cassandra Toroian, former Rehoboth Beach investment advisor; and Thomas Powell, a finance entrepreneur.
The Cape Gazette joined the New Civil Liberties Alliance and others in a court appeal to end the SEC’s gag rule. Shown at an earlier forum on the appeal are, from left to right, Margaret Little, NCLA counsel; Chris Rausch, owner/publisher Cape Gazette; Cassandra Toroian, former Rehoboth Beach investment advisor; and Thomas Powell, a finance entrepreneur. (Photo courtesy of the Natinoal Civil Liberties Alliance)

All of this makes for a wonderful lesson in American constitutionalism — a lesson first grounded in questions of authorization and thereafter guided by the “make no law” command of the First Amendment. As Little quite ably puts it:

The Gag Rule was an affront to the Constitution the day it was deceitfully promulgated and remains so today. The Commission’s refusal to amend the Rule multiplies the constitutional harms the agency has inflicted or will inflict on countless individuals and businesses, including several Petitioners. And it does so while distorting the public record by sending pleadings down the memory hole, evading any criticism of SEC by those most knowledgeable about agency enforcement.

In sum, the SEC practice is a constitutional wrong in violation of constitutional rights, and thus in need of judicial slapdown. The Ninth Circuit judges should take heed!

Related

Coming next week: Levine responds to White on ‘reconsidering’ NYT v. Sullivan

Senate passes bill intended to protect children from online content

The Senate overwhelmingly passed legislation [recently] that is designed to protect children from dangerous online content, pushing forward with what would be the first major effort by Congress in decades to hold tech companies more accountable for the harm that they cause.

The bill, which passed 91-3, has been pushed by parents of children who died by suicide after online bullying or have otherwise been harmed by online content. It would force companies to take reasonable steps to prevent harm on online platforms frequently used by minors, requiring them to exercise “duty of care” and ensure that they generally default to the safest settings possible.

The House has not yet acted on the bill, but Speaker Mike Johnson, R-La., has said he is “committed to working to find consensus.” Supporters are hoping that the strong Senate vote will push the House to act before the end of the congressional session in January.

The legislation is about allowing children, teens and parents “to take back control of their lives online,” said Democratic Sen. Richard Blumenthal of Connecticut, who wrote the bill with Republican Sen. Marsha Blackburn of Tennessee. He said that the message to big tech companies is that “we no longer trust you to make decisions for us.”

Police chief to face criminal charges for raid on home of deceased Kansas newspaper owner

The former Kansas police chief who led raids on a Marion County newspaper, journalists and its 98-year-old co-owner will face criminal charges after an independent investigation found evidence he interfered with the legal process.

Joan Meyer, the 98-year-old co-owner of the Marion County Record, died the day after police knocked on her door with an improperly obtained search warrant. She had appeared on home security video demanding officers "get out." Prosecutors later withdrew the warrants, stating then-Police Chief Gideon Cody had not provided sufficient evidence to obtain them properly.

“It’s not surprising that fair-minded law enforcement officials would conclude that journalism is not a crime, but destroying evidence is,” Bernie Rhodes, an attorney for the newspaper, told Fox News Digital Monday. “So I’m pleased that the special prosecutors realized that Gideon Cody is not a fair-minded law enforcement officer, and that he should suffer the consequences for his decisions.”
WATCH: Video Shows Police Raiding Home of 98-Year-Old Kansas Newspaper Co-Owner.

New Book: Whittington on freedom to teach

Book cover of "You Can't Teach That: The Battle over University Classrooms" by Keith E. Whittington

Who controls what is taught in American universities — professors or politicians?

The answer is far from clear but suddenly urgent. Unprecedented efforts are now underway to restrict what ideas can be promoted and discussed in university classrooms. Professors at public universities have long assumed that their freedom to teach is unassailable and that there were firm constitutional protections shielding them from political interventions. Those assumptions might always have been more hopeful than sound. A battle over the control of the university classroom is now brewing, and the courts will be called upon to establish clearer guidelines as to what — if any — limits legislatures might have in dictating what is taught in public universities.

In this path-breaking book, Keith Whittington argues that the First Amendment imposes meaningful limits on how government officials can restrict the ideas discussed on university campuses. In clear and accessible prose, he illuminates the legal status of academic freedom in the United States and shows how existing constitutional doctrine can be deployed to protect unbridled free inquiry.

New Scholarly article on ‘trans talk’

Prof. William M. Carter
Prof. William M. Carter

The rights of transgender youth and their families have increasingly come under attack. In addition to barring transgender youth from participation in sports teams, from accessing bathrooms that match their gender identity, and from receiving gender-affirming healthcare, states are increasingly restricting speech and expression related to transgender issues. Courts and scholars have begun addressing the First Amendment implications of some of these restrictions, including the removal of books related to transgender issues; restrictions upon teachers' classroom speech regarding such issues; school discipline imposed upon students whose social transition includes forms of gender expression that differ from their assigned sex at birth; and bans upon doctors providing minors with referrals for gender-affirming care. 

This Article breaks new ground in two respects. First, it focuses on an aspect of student speech regarding transgender issues that has not yet been addressed by courts or in the scholarly literature: namely, whether the Supreme Court's school speech cases would permit states or public-school officials to restrict student speech advising a peer to obtain forms of gender-affirming care that are unlawful to minors in the state where the speech occurs. This Article is also the first to apply the history of the battles over free speech regarding slavery and of the Nation's Second Founding following the Civil War to analyze the First Amendment implications of restrictions upon student speech relating to transgender issues.

Under the classic framework of Tinker v. Des Moines School District, student speech cannot be restricted unless it causes or poses a significant risk of material and substantial disruption to the learning environment. The Supreme Court's post-Tinker school speech cases, however, have been significantly more solicitous toward school officials' efforts to restrict student speech. Opponents of gender-affirming care for minors are therefore likely to seek to rely upon the post-Tinker jurisprudence to justify restricting or punishing student speech advocating that a peer seek gender-affirming care. This Article argues that the Court's post-Tinker school speech cases cannot and should not be read to justify restrictions upon such speech. This Article further argues that extending the post-Tinker cases to allow the government to punish student speech advocating that a peer receive gender-affirming care would violate the right to freedom of speech secured at great cost by our Nation's Second Founding.

Related

‘So to Speak’ podcast interview with co-author of Section 230

  • “Section 230 co-author, Rep. Christopher Cox” (Aug. 1)

Some argue that Section 230 allows the internet to flourish. Others argue it allows harmful content to flourish. Christopher Cox knows something about Section 230: He co-wrote it.

Section 230 of the Communications Decency Act is an American law passed in 1996 that shields websites from liability for content posted on their sites by users. What does Rep. Cox make of the law today? Rep. Cox was a 17-year member of the House of Representatives and is a former chairman of the Securities and Exchange Commission.

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More in the news

2023-2024 SCOTUS term: Free expression and related cases

Cases Decided

Review granted

Pending petitions

State action

  • Lindke v. Freed (Barrett, J., 9-0: “The state-action doctrine requires Lindke to show that Freed (1) had actual authority to speak on behalf of the State on a particular matter, and (2) purported to exercise that authority in the relevant posts. To the extent that this test differs from the one applied by the Sixth Circuit, we vacate its judgment and remand the case for further proceedings consistent with this opinion.”)
  • O’Connor-Ratcliff v. Garnier (Per Curiam: 9-0: “We granted certiorari in this case and in Lindke v. Freed (2024), to resolve a Circuit split about how to identify state action in the context of public officials using social media. Because the approach that the Ninth Circuit applied is different from the one we have elaborated in Lindke, we vacate the judgment below and remand the case to the Ninth Circuit for further proceedings consistent with our opinion in that case.”)

Review denied

Free speech related

  • Miller v. United States (judgment vacated, and case remanded) (statutory interpretation of 18 U.S.C. § 1512(c) advocacy, lobbying and protest in connection with congressional proceedings) 
  • Fischer v. United States (vacated and remanded, 6-3 per Roberts with Barrett, Sotomayor and Kagan dissenting: “To prove a violation of §1512(c)(2), the Government must establish that the defendant impaired the availability or integrity for use in an official proceeding of records, documents, objects, or other things used in an official proceeding, or attempted to do so.”)

Last scheduled FAN

FAN 433: “Clement and Murphy ask high court to overrule Hill v. Colorado”

This article is part of First Amendment News, an editorially independent publication edited by Ronald K. L. Collins and hosted by FIRE as part of our mission to educate the public about First Amendment issues. The opinions expressed are those of the article’s author(s) and may not reflect the opinions of FIRE or Mr. Collins.

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