Business and the Supreme Court

Jeffrey Rosen has an interesting article in the NYT magazine about the Supreme Court's pro-business tilt. Gordon Smith gives some highlights, noting the interesting agreement on business issues between liberal and conservative justices:

With their pro-business jurisprudence, the justices may be capturing an emerging spirit of agreement among liberal and conservative elites about the value of free markets. Among the professional classes, many Democrats and Republicans, whatever their other disagreements, have come to share a relatively laissez-faire, technocratic vision of the economy and are suspicious of excessive regulation and reflexive efforts to vilify big business. Judges, lawyers and law professors (such as myself) drilled in cost-benefit analysis over the past three decades, are no exception. It should come as little surprise that John Roberts and Stephen Breyer, both of whom studied the economic analysis of law at Harvard, have similar instincts in business cases.

Rosen notes the influence of Lewis Powell, Rex Lee and the litigation coordinating efforts of the Chamber of Commerce. I wonder how much of this development can be attributed to Henry Manne, whose writings and judicial and law professor seminars had a profound influence on US law and policy, as I have recently written.

For me the most interesting part of Rosen's article was about the clash of two strains of conservatism:

Ever since the Reagan administration, there had been a divide on the right wing of the court between pragmatic free-market conservatives, who tended to favor business interests, and ideological states-rights conservatives. In some business cases, these two strands of conservatism diverged, leading the most staunch states-rights conservatives on the court, Antonin Scalia and Clarence Thomas, to rule against business interests. Scalia and Thomas were reluctant to second-guess large punitive-damage verdicts by state juries, for example, or to hold that federally regulated cigarette manufacturers could not be sued in state court. As a result . . . the chamber began a vigorous campaign to urge the Bush administration to appoint pro-business conservatives.

When it came time to replace Chief Justice William Rehnquist and Justice Sandra Day O’Connor, the candidate most enthusiastically supported by states-rights conservatives, Judge Michael Luttig, had a record on the Court of Appeals for the Fourth Circuit that some corporate interests feared might make him unpredictable in business cases. (“One of my constant refrains is that being conservative doesn’t necessarily mean being pro-business,” Conrad [of the Chamber of Commerce] told me.) The chamber and other business groups enthusiastically supported John Roberts, who had been hired by the chamber to write briefs in two Supreme Court cases in 2001 and 2002. . . . . The business community was also enthusiastic about Samuel Alito, whose 15-year record as an appellate judge showed a consistent skepticism of claims against large corporations. Ted Frank of the American Enterprise Institute predicted at the time of the nomination that if Alito replaced O’Connor, he and Roberts would bring about a rise in business cases before the Supreme Court. Frank’s prediction was soon vindicated.

I certainly sympathize with the Court's pro-business move. [With respect to Alito, I take some credit for being among the first to highlight his business record when he was nominated –see here, and the follow-up Forbes column.]  But while I don't consider myself a "conservative," I think the Court's rejection of what Rosen calls "state's rights" [in NYT-speak] in favor of a broad view of federal power is not entirely a good thing, even for a pro-business type. See, for example, my article on preemption in the securities law area (which got some push-back when I presented it at Cato).

Yes, the states have overreached, particularly in empowering the trial bar, and we've seen, particularly recently, the corruption underlying this overreaching. But we must remember that federal law is not without its flaws, and its flaws are compounded by the high costs of exiting a federal regime.

As I've often argued, including in the article noted above, there is a way out of this dilemma, a business-friendly alternative to broad federal preemption: enhancing parties' power to contract for the applicable state law. Erin O'Hara and I have a forthcoming book on that, The Law Market, which I'll be writing about in coming months. You can get tastes of the analysis in, among other places, our Corporations and the Market for Law, just out in the Illinois Law Review, and our recent paper on European and American choice of law.

The market for law offers a way to get competition and evolution of legal rules while enabling firms to avoid the Mississippi swamps and duplicative and costly state regulation.  I think business will come to see the attractions of this approach, particularly when it realizes in coming years that Congress may not be entirely pro-business.