IMPOSING SILENCE THROUGH SETTLEMENT: A FIRST-AMENDMENT CASE STUDY OF THE NEW YORK ATTORNEY GENERAL.

• Author: Gordon, Aaron

INTRODUCTION

In a May 2019 speech in honor of national "Law Day" (established in 1958 by President Eisenhower to celebrate this country's commitment to the Rule of Law, (1) New York Attorney General ("AG") Letitia James passionately paid homage to the freedom of expression, the theme of that year's Law Day festivities: "the concept of freedom of speech [is] a fundamental part of democracy," said James. (2) "The very heart of a free society is the ability to express, and to speak, and to criticize freely." (3) However, she continued:

[T]he painful truth is that the situation is getting increasingly worse in America. With the rhetoric coming in from the federal government and the attacks made daily on news organizations, America is not living up to our legacy as a beacon of transparency... . I reject the characterization that the media is an enemy of the people and so have our reporters. (4) In case it was not already obvious, James subsequently confirmed that her disheartening observations were directed at then-President Trump and his administration, (5) the actions of which accounted in part for AG James' perception that "the very fabric of who we are and what we believe in" is currently being "challenged," as well as her rejoinder to the Nation that "[w]e must... navigate through today's challenges without surrendering constitutional rights to the passions of this moment"--"[o]ur ability to criticize government, our ability to speak and write freely, our ability to serve as a check on power must not be restrained." (6)

All this lip service to free expression is perfectly well and good, and at first blush seems like the kind of boilerplate rhetoric that would soon be forgotten amidst similar remarks given by politicians almost every day. But James' Law Day speech is remarkable, for beneath it lurks a layer of extraordinary constitutional irony: the New York Office of the Attorney General ("OAG") has, for over a decade, pursued a civil enforcement policy that effectively compels the OAG's most potent potential critics to surrender the same "constitutional rights" to "criticize government" that AG James' claims were threatened by the President's mean tweets. (7)

The New York AG is currently considered "one of the most powerful [state attorneys general] in the nation." (8) Under New York's constitution and laws, she enjoys a "sweeping statutory array of... law-enforcement authority: to prosecute business frauds and other deceptive practices; commence civil investigations in the public interest; bring actions to remove persons [from]... corporate office; enforce the State's anti-discrimination... laws; enforce statutes regulating toxic substances in the workplace;... and other powers too numerous to mention." (9) Also among the AG's powers is that she may settle cases on the state's behalf by entering into agreements called "Assurances of Discontinuance" ("AODs") with targets of state investigations (10)--which in recent decades has emerged as the OAG's method of choice for resolving the vast majority of its cases. (11) And since at least 2009, the OAG has been inserting in most such agreements (12) a provision forbidding the settling party from "tak[ing] any action" or "mak[ing] or permit[ting] to be made any public statement denying, directly or indirectly," the AOD's "propriety... or expressing the view, in substance, that [the] [AOD] is without factual basis." (13) This provision is apparently inspired by virtually identical gag provisions that the federal Securities and Exchange Commission ("SEC") and Commodity Futures Trading Commission ("CFTC") have included since 1972 and 1999, respectively, in all settlements with targets of the agencies' enforcement actions, prohibiting the settling party from publicly calling into question the basis for the agencies' allegations. (14)

Yet the tension between these "gag" clauses and the American free-speech tradition is difficult to ignore. Surely no court would uphold the constitutionality of, say, an act of Congress declaring that regulated parties shall not "make... any public statement denying, directly or indirectly, the propriety" of any federal legislation "or expressing the view, in substance," that any congressional findings underlying such legislation are "without factual basis." (15) Any court in the United States would, without hesitation, lay waste to any enactment of this kind that came before it, as perhaps no proposition of the Bill of Rights case law is better established than the Supreme Court's repeated recognition that the Constitution "forbid[s] the State from exercising viewpoint discrimination," "an egregious form of content discrimination" that constitutes a "blatant" "violation of the First Amendment." (16) Indeed, the OAG's settlement practice suppresses protected expression by the targets of its investigations and enforcement actions--precisely those "members of [the] community most likely to have informed and definite opinions" (17) on the OAG's official conduct, an additional consideration strongly weighing against this practice's constitutionality. How can the First Amendment allow the OAG to silence criticism of its activities in this manner?

The answer, in short, is that the First Amendment allows no such thing. But the unconstitutionality of the New York OAG's settlement practice has thus far flown under the radar, with no court or commentator even acknowledging the First Amendment concerns raised by inclusion of speech-suppressant clauses in AODs. To be sure, the analogous gag provisions in SEC settlements have been the subject of two federal appellate cases, both decided in 2021, where the provisions were challenged as infringements upon the freedom of speech. In Cato Institute v. SEC, the D.C. Circuit held that the challengers lacked standing; while in SEC v. Romeril, the Second Circuit reached the merits, only to hold (erroneously, in my view) that no First Amendment violation had occurred. (18) And petitions for rulemaking recently filed with both the SEC and CFTC urged the agencies to abandon their policy of silencing settling parties. (19) Similarly, in a 2011 case, a federal district judge suggested, in dicta, that the SEC's policy of gagging settling parties "raises a potential First Amendment problem," but did not offer further analysis. (20) A 2017 blog post published in the online edition of the Yale Journal on Regulation likewise contended that the gag clauses in the SEC's and CFTC's settlements were unconstitutional, arguing that the provisions were contrary to public policy and hence unenforceable. (21) But this brief piece left unexplored several other (and, in my view, stronger) arguments for the gag clauses' unconstitutionality. In short, the SEC's and CFTC's speech-suppressant settlement practices have received only scant consideration in the literature and case law, and the only decision directly addressing the First Amendment issues posed by those practices (Romeril) rejected the constitutional challenge with only cursory analysis. Meanwhile, New York's OAG has yet to be taken to task at all for its similar policy.

I intend to change that with this Article--which, drawing on my experience working on recent First Amendment litigation against the SEC, argues that the speech-suppressant clauses of the New York OAG's AODs violate the First Amendment. Indeed, these provisions often constitute prior restraints, a particularly constitutionally problematic form of speech regulation, against which the judicial "presumption" of invalidity "is heavier--and the [constitutional] degree of protection broader--than that against limits on expression" enforced through subsequent punishments. (22) Since the OAG has thus far never had to defend the constitutionality of its AODs' speech-suppressant provisions in court, it is anyone's guess what arguments the Office would put forth in doing so. But it is a safe bet that the OAG's defense of its gags would borrow heavily from the SEC--which has, during the litigation challenging that agency's virtually-identical gag clauses, put forth what I consider to be the strongest conceivable justifications for silencing settling parties with such provisions. (23) This Article accordingly addresses each of the SEC's arguments to this effect, aiming to show that none can save the OAG's speech-suppressant settlement practice. Because that practice has received virtually no First Amendment scrutiny, my analysis focuses primarily on the OAG--though as I explain, my conclusion that the OAG's settlements violate the First Amendment applies with equal (if not greater) force to the identical gags used in SEC and CFTC settlements. The Second Circuit's decision in Romeril upholding the constitutionality of the SEC's gags, as I aim to show here, was analytically flawed and ultimately wrong. I hope, moreover, that this case study helps to delineate the broader constitutional limits on public officials' power to demand, as a condition of settlement, that citizens relinquish their fundamental rights.

The scope of this problem is far from trivial. Because the OAG does not provide data on its settlement practices, we cannot say with certainty how many gags the Office has imposed, or even how many of its enforcement actions have settled. (24) But it is clear that the OAG has inserted gag provisions into AODs for more than a decade, and that, for years now, such clauses have appeared in the vast majority of Assurances. (25) It is equally clear that the Office virtually never tries cases, preferring to rely instead on subjecting regulated parties to burdensome investigations so as to exhaust them into submitting to AODs. (26) Given these trends, and the New York OAG's status as arguably the Nation's most powerful state law enforcement agency, the suppression of political speech wrought by its AODs warrants some attention. And the suppression wrought by SEC and CFTC settlements warrants even more: the...