The Volokh Conspiracy

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Interesting Supreme Court petition: State regulators retaliated against financial adviser for anti-Obama speech (and for ad offering $100 'towards the purchase of a firearm' as bonus)


I blogged about this case in July, but there's a petition for review now pending at the Supreme Court, so I thought I'd mention it again; it's a matter to watch, partly because the facts are so striking and partly because the legal issue—which has to do with the standard of review for claims of retaliation against speakers—is quite important. (If you're interested, you can read the cert. petition, the brief in opposition and the reply by clicking on "Documents" here; you can also read an amicus brief, which I wrote on behalf of nine law professors, including myself, here.) [UPDATE: See also this amicus brief on behalf of the Cato Institute, the Reason Foundation, and the National Right to Work Foundation, by Cato's Ilya Shapiro and my frequent cocounsel Brad Benbrook and Steve Duvernay.]

1. First, the facts, from the Eighth Circuit opinion (Bennie v. Munn). Bob Bennie, like millions of Americans, was working for a private business but under government regulation; and what got him into trouble is that the regulators didn't like Bennie's political speech:

Until November 2010, Bennie worked for LPL Financial (LPL). LPL is a broker-dealer, meaning it holds accounts and assets and executes financial transactions. It operates through agents like Bennie, who deal with customers. As a broker-dealer, LPL is subject to regulation by the Nebraska Department of Banking and Finance (department). Among other things, the department regularly reviews LPL's agents' advertisements and other public statements for compliance with applicable rules. The department can sanction broker-dealers and their agents for violations, including by fining them or barring them from operating in Nebraska.

In late 2009, … [t]he compliance supervisor at the [D]epartment, Rodney Griess, … reviewed a television commercial in which Bennie rode a horse and said he would give customers who did business with him "a hundred dollars towards the purchase of a firearm." Because Griess thought the offer "unusual," he suspected Bennie had not gotten the necessary approval from LPL to run the commercial. Eventually, Griess scheduled a conference call to talk to LPL about the issues with Bennie.

A few days before the call, the Lincoln Journal Star ran a story about Bennie's role in the Tea Party political movement. The article quoted Bennie denouncing the government and politicians, including President Barack Obama. The article also mentioned Bennie's business and was accompanied by a photograph of Bennie at his desk in his office.

Griess emailed LPL a link to the online version of the article. In the body of his message, Griess quoted Bennie, in the article, calling President Obama "a communist," "dishonest," and "an evil man." The next day, Griess told a colleague his upcoming call with LPL would cover Bennie's "recent string of activities; i.e., lack of … disclosure, gun slingin ads, and calling Obama a 'communist' and an 'evil' man issues."

On the call, department employees and LPL discussed Bennie's CD and commercial and the article about him, and the department asked for information about LPL's review, if any, of the commercial and the article. Afterward, in an email exchange with LPL to schedule a follow-up call, Griess wrote that it "would be nice to know" if

LPL anticipate[d] imposing any kind of heightened supervision, more frequent/unannounced exam schedule, specialized advertisement approval process or other sanction(s) that may provide the Department with a little better sense that the firm is "on top of" addressing this type of activity which in turn may be of some comfort to us and really is in the best interest of the public….

LPL sent Griess materials from its review and approval of the commercial and told him it had not reviewed the article. In response to Griess's question about LPL's supervision of Bennie, LPL explained that since a recent internal reorganization, Bennie's proposed advertisements were reviewed by a senior analyst. Department employees asked whether LPL had any guidelines about agents like Bennie publicly communicating their political views. LPL said it did not….

Bennie contacted Nebraska Governor David Heineman and told him the department was targeting Bennie and "harassing [Bennie] because of his political views." Governor Heineman called Munn to discuss the situation. Afterward, Munn had Griess review a draft memorandum responding to the Governor. Griess observed the draft did not say anything about the newspaper article and explained he "felt compelled to at least mention it" because

While Mr. Bennie did not author the article, and does not appear to be subject to our regulatory purview regarding it, the comments made regarding the President etc., regardless of anyone's political views do tend to be quite polarizing to say the least, not all that dissimilar to the firearm purchase statement. Anyway, it's another piece of the puzzle and just saw that it was missing.

Munn agreed to "mention that situation." …

LPL fired Bennie at the beginning of November 2010. [The district had court concluded that the firing was not connected to Bennie's politics, and the court of appeals concluded that this decision wasn't clearly erroneous.-EV] …

2. Bennie then sued, arguing that the state regulators violated the First Amendment by retaliating against Bennie—through their calls to his employer—based on his political speech. The Eighth Circuit agreed that the regulators' actions were improper:

[Even though] the state regulators were ostensibly doing their jobs and for the most part did not directly target Bennie's political speech in their investigations, they were [not] justified in, as the district court found, "looking for reasons to go after" Bennie…. "Conduct that retaliates against the exercise of a constitutionally protected right is actionable, even if the conduct would have been proper if motivated by a different reason." …

[We reject] the state regulators' brief that the only thing they did wrong was "to quote Bennie's statements about the President in [the]… email [to LPL]." Far from it.

The email was certainly problematic, because it implicitly pressured LPL to curtail Bennie's speech to avoid problems with the department. The email was also evidence of a deeper problem, as the district court found: that the state regulators "were looking for reasons to go after" Bennie and "made regulatory inquiries of LPL that were motivated, to varying degrees, by the content of [Bennie's] speech."

For the state regulators to allow their apparent disagreement with or even distaste for what Bennie had to say politically, or how he said it, to influence how the department treated him and his employer was wholly inappropriate—and absolutely inconsistent with the First Amendment. That inappropriate, unconstitutional conduct was wrong, regardless of whether the state regulators revealed their retaliatory motives to LPL or anyone else or whether the consequences of their actions were severe enough to be actionable in this case….

[W]e also note Griess's testimony that he "would be doing a disservice not only to the people of the State of Nebraska but to [him]self" if he did not investigate Bennie after reading Bennie's comments about President Obama accompanied by the photograph of Bennie at his desk, as well as Munn's assertion, in an email to Griess, that Bennie being photographed at his desk making political comments "would be like me standing up in front of the flags and seal in my office and talking about a topic like abortion." Like the language quoted above, these statements appear to reflect a troubling misunderstanding of the—nonexistent—role that political speech by persons in regulated entities should play in the department's investigatory and enforcement activities….

3. Nonetheless, the panel majority held against Bennie. Recall that the district court had made the factual finding that LPL's firing of Bennie wasn't caused by the regulators' actions, and the court of appeals concluded that this finding wasn't clearly erroneous. Because there was no job loss or other such tangible harm caused by the regulators' actions, the legal question was whether their actions were sufficient to "chill[] an ordinary person's speech." The court concluded that this was a close call but deferred to the district court's finding that an ordinary person would not have been chilled by such actions:

To be sure, "the threat"—not to mention the reality—"of continued and heightened regulatory scrutiny" sometimes can have a chilling effect, regardless of whether it ultimately results in sanctions being imposed. The increased attention from the department undeniably affected LPL—not the least by necessitating the expenditure of time and money responding to questions about Bennie—and thus had the potential to harm Bennie indirectly by turning his employer against him. However, while the record in this case might well have supported a conclusion that an ordinary person's speech would have been chilled, it did not compel such a finding….

We are not of a definite and firm conviction that a mistake was committed by the district court such that the district court clearly erred by finding the state regulators' actions against Bennie would not have quieted a person of ordinary firmness. Based on this standard of review, we affirm.

Judge Beam dissented in part:

A correct evaluation of the record, in my view, compels a finding that the department's actions would deter a person of ordinary firmness from engaging in protected political speech. The court correctly recognizes that the department, which may suspend or revoke Bennie's registration as an agent, raised the "issue" of Bennie's political speech, inquired as to whether LPL regulated such speech, and threatened both Bennie and LPL with "whatever administrative action deemed necessary and appropriate under its authority … to insure compliance."

Because Bennie, and therefore a similarly situated ordinary person, is employed in a profession "heavily regulated and closely overseen" by the department, the chilling effect of the department's actions must be evaluated in that context. It is apparent that an agency, empowered to deprive those whom it regulates of their livelihood, could easily overcome the firmness of an ordinary, regulated person by "engag[ing] the punitive machinery of government."

Bennie, as anyone else, needs to earn a living. It is unsurprising that when confronted with even "marginally increased interest" by his registering agency, Bennie's unusually firm resolve gave way to self-censorship after the mid-2011 records request. It is clear error, I think, not to have concluded in this case that an ordinary person would have done the same.

Additionally, it is clear, as the district court recognized, that employees at the department "were bothered by the plaintiff, in no small part because of the plaintiff's political views, or at least the manner in which he expressed those views. And that antipathy was manifested in the Department's regulatory attention to the plaintiff." I would therefore hold that the department's actions were motivated in part by retaliation against Bennie's speech and thus that each of the three elements of a First Amendment retaliation claim were satisfied here….

4. The petition, however, isn't just about correcting the error in this case; rather, the real question here is how appellate courts should make decisions about what would "chill an ordinary person's speech." I think that, when it comes to making such decisions, appellate courts should not defer to trial court findings. This sort of question isn't a pure question of historical fact, as to which such deference is usually proper; rather, it's a question of application of law to fact, which courts should review anew, especially when First Amendment issues are at stake.

Many courts have indeed so held, following Supreme Court precedent calling for such independent appellate review in First Amendment cases. (The lead case on this is a 1983 libel case called Bose Corp. v. Consumers Union, but the same independent appellate review principle has been applied in many other cases, especially ones where courts are supposed to determine where the uncontested facts fit within a legal standard, such as an "ordinary person" standard.) Other courts, though, including the Eighth Circuit, call for deference to such trial court judgments.

As with many legal questions, this one comes down to a question of procedure—and the procedure is very important; if you want to know more about it, you can look at our amicus brief. It will be interesting to see whether the court decides to hear the case; we expect to know within the next few weeks.