Beware People Trying to Dismiss Jack Dorsey’s Inflation Analysis as Disinformation


JackDorsey_1161x653

I hope you squirreled away that cool 16 cents you saved on your Fourth of July barbeque this year. Across the board, prices seem to be going up, up, up.

Gas is more expensive (up 42.7 percent). Cars and trucks, too (up 7.6 percent for new and 31.9 percent (!) for used). Your wallet is surely feeling the burn at the grocery store (up 3 percent). Meat, in particular, is getting really expensive (up 10.5 percent), to the sure delight of the anti-animal food crusaders out there. According to the Bureau of Labor Statistics’ official measure of the Consumer Price Index (CPI), pretty much everything is more expensive across the board: 5.4 percent more expensive when compared to last year, according to government bean counters.

Watch how you talk about this seeming inflation online, though. And watch what you read, too.

We know we need to be on the lookout for wrecking misinformation when it comes to our health, our elections, and our political class’s networking equipment. Now we can add our economy to the mix. According to some experts, talking about rising prices could be extremely dangerous to our democracy.

This problematic price commentary is emanating from some interesting quarters: namely, Twitter CEO Jack Dorsey, whose platform is among the goodest of boys in sniffing out and slapping warning labels on dangerous content like obituaries and reports on errant laptops.

Dorsey recently took to his microblogging platform to offer some thoughts on what the officials have assured us is transitory inflation. The Bitcoin aficionado and also-CEO of payment platform Square tweeted: “Hyperinflation is going to change everything. It’s happening.” He got an assist from fellow very online tech billionaire Elon Musk who agreed that “short-term we are seeing strong inflationary pressure.”

Plenty of experts jumped in to fact check him. Hyperinflation, they say, is a rare and specific event involving periods of 50 percent inflation or higher within one month that has only occurred a few times in history. We all know about the Weimar Republic and Zimbabwe. Actually, the United States had a few brushes with almost or basically hyperinflationary events following the Revolutionary and Civil Wars—remember those continentals from high school history? But we’re far from hyperinflationary, our beloved and trusted experts say. And while we’re on the subject, maybe we need more inflation anyway.

Okay, maybe “hyperinflation” was a little dramatic. Let he who has never exaggerated on social media for effect cast the first stone. But most people got the picture: young Americans on Twitter are about to experience an inflationary episode unlike anything they’ve seen.

The criticism went beyond merely correcting someone’s usage of a technical economic concept. For some, this should be a bannable offense.

Notably, a writer for WIRED clucked that “like ‘divorce’ in a marriage”—or, for the season, like “Beetlejuice” in a haunted Connecticut country home—”this word @jack” should not be uttered unless you’re trying to bring it into being.” Shame on him. “How insanely reckless to tweet this. Immoral. Jack, ban thyself.”

Immoral! Are inflation hawks the new hate speakers now?

It is true that expectations do affect behavior and therefore prices. But any brouhaha Dorsey could stir up with his monetary shitpost obviously pales in comparison to the potent macroeconomics factors—spending and printing bonanzas, high debt overhangs, lockdown policies, and the current situation with the supply chain, to name a few—that are truly driving the “transitory” inflation that our widely respected experts do admit.

What is truly reckless is the suggestion that people should be scared to talk about their experience with everyday prices or risk reprisals. Ironically, censoring talk about rising prices is exactly what you’d expect to see in a high inflationary or hyperinflationary scenario.

Argentina, which has struggled with persistently high levels of inflation, reported official price numbers that were so unbelievable that independent economists started publishing their own. The government moved to punish anyone who deviated from the official narrative on inflation with fines of $120,000.

When things get really bad, the government simply stops publishing price data at all. This is what happened in Venezuela, whose central bank merely stayed mum when monthly inflation started to shoot up into the double-digit zone. Zimbabwe, a country almost synonymous with hyperinflation, again recently stopped reporting inflation data.

Thankfully, we’re not quite at the point where the government is pulling down price data and rounding up dissidents. We’re just hounding rich guys with FU money and the powers of platform censorship to STFU about inflation and stop other people from talking about it too. At least he didn’t pull the tweet down or apologize. But if Jack Dorsey can’t talk about rising prices on Twitter without major controversy, what hope do plebs like us have?

Hopefully Dorsey’s convictions will be strong enough to head off his Trust and Safety Team’s polite suggestions to start fact-checking and labeling inflation claims like his. He feels strongly about monetary sovereignty; it’s like his one thing. But he’s clashed with them publicly before and got overruled. Maybe Twitter gets a phone call strongly encouraging them to start countering economic misinformation. And Twitter is just one platform. Others could very well start massaging opinions on rising prices with their own bags of tricks. We can’t count on centralized platforms to protect our abilities to speak freely about inflation.

It’s good to start planning ahead. The technologist Balaji Srinivasan has started a $100k bounty for a censorship-resistant inflation dashboard that could accurately report prices through future monetary headwinds. It would be decentralized, which means that anyone could contribute price data and no one could shut it down or remove information that certain people don’t like. If built, we won’t have to fear that the government can easily snuff out independent economic data. Government economists could pull down whatever datasets they usually maintain, as states often do in inflationary events. This kind of system would provide a much-needed private backup.

The massaging of public opinion in response to perceived government failures has by now become something of a meme. First, it’s not happening. Then, it’s happening, but only temporarily. Then it’s happening because of Bad People and you’d better not contribute. Finally, it’s happening to you, and that’s A Good Thing. Depending on where you look, you can find some version of all of these narratives.

But rising prices affects everyone in a very immediate and material way, unlike some other political footballs. And it’s often a key procyclical indicator of establishment collapse. The stakes here are high, so the attempted controls on discourse may be more desperate. Keep an eye out.

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Bitcoin Jumps, Ether Hits Record High On Deflationary Issuance, Futures News

Bitcoin Jumps, Ether Hits Record High On Deflationary Issuance, Futures News

A day after headlines on Stablecoin regulation were expected to shake confidence (but in fact do the opposite), cryptos are extending ‘Uptober’ gains overnight, pushing the total crypto market cap above $2.6 trillion…

Source

…with Bitcoin spiking $1500 this morning, back above $63,000 (and up over $105% YTD)…

Source: Bloomberg

As it appears ‘Whales’ have been buying the dip in bitcoin:

But Ethereum is making the headlines as it spikes above…

Source: Bloomberg

To a new record high…

Source: Bloomberg

While catalysts for the move are numerous, some are pointing to the fact that the Ethereum network has seen its first consecutive week of negative supply issuance as bubbling markets drive persistently high transaction fees.

As CoinTelegraph reports, with the highly anticipated London upgrade introducing a burn mechanism into Ethereum’s fee market in early August, a small quantity of Ether (ETH) has since been destroyed with every transaction executed on the network.

With gas prices sustaining at high levels, Ethereum has seen seven consecutive days of deflationary issuance for the network, meaning that more ETH has been removed from supply than created through mining. In order for Ethereum to consistently produce deflationary blocks, gas prices must consistently remain roughly above 150 gwei.

EthHub co-founder Anthony Sassano commented that deflationary Ethereum was not expected until “the merge” — when the Ethereum blockchain is set to merge with Ethereum 2.0’s Beacon Chain, which is currently expected to occur during the first half of 2022.

According to the Ultrasound.Money fee burning tracker, around 15,000 ETH ($65 million at current prices) is being burnt daily. When factoring in the rate of new ETH being created, Watch the Burn reports a weekly net issuance of minus 8,034 ETH (roughly $34 million) at the time of writing.

Ethereum is likely also buoyed by news that CME will expand its crypto offerings to Micro Ether Futures (sized at one tenth of one ether).

CME launched ether futures in February and more than 675,500 contracts have traded to date and micro ether futures are scheduled to launch on Dec. 6, pending regulatory review.

For now, ETH is outperforming BTC having found support at around 0.06x…

Source: Bloomberg

Finally, as Goldman recently noted, the local backdrop looks supportive for Ethereum as it has tracked inflation markets particularly closely, likely reflecting the pro-cyclical nature as “network based” asset.” And, as Rzymelka notes, “the latest spike in inflation breakevens suggests upside risk if the leading relationship of recent episodes was to hold.”

All of which suggest significant further upside for Ethereum.

Tyler Durden
Tue, 11/02/2021 – 08:40

via ZeroHedge News https://ift.tt/3EEfb9W Tyler Durden

Limiting Principles and SB8

As noted in my prior post, the plaintiffs in the SB8 cases, both the clinics and the United States, seem to recognize that the remedies they’re asking for are quite extraordinary. Letting private parties sue judges and court clerks over an unconstitutional law, for example, would be what Chief Justice Roberts described in his VOPA v. Stewart dissent as “a substantial and novel expansion of what we have also called ‘a narrow exception’ to a State’s sovereign immunity.” (To quote a later passage of his dissent: “This sort of suit was not only anomalous and unheard of at the time of the founding; it was anomalous and unheard of yesterday.”)

The plaintiffs’ defense is that SB8 is extraordinary too. Yet two “extraordinary”‘s don’t make a right: presumably the unusual features of SB8 wouldn’t justify just any relief, such as ordering Texas legislators to vote for the law’s repeal, or ordering Texas citizens to vote for different legislators.

In any case, however hard it is to match one “extraordinary” with another, there’s a deeper problem here. Whether private parties can sue court clerks, or whether the U.S. can sue a state to enjoin a law its executive doesn’t enforce, are yes-or-no questions: either they can or they can’t. But the degree of chilling effect a statute imposes is just that, a question of degree. The plaintiffs need a limiting principle to explain how much chilling effect is too much, and when their new forms of relief start to kick in.

Of course, judicial opinions don’t really need limiting principles; a reversal in either case could be written as good-for-this-train-only. But it wouldn’t stay good-for-this-train-only: private parties and future administrations have too much interest in using the amazing injunctive powers the Court would have created for them. So when, exactly, will a state law justify these new kinds of suits?

Here are some possible options:

Whenever a state enacts an arguably unconstitutional law, enforced by private lawsuits. This is commonplace; as Justice Breyer noted, it occurs whenever anyone claims that a rule of tort or property law might violate the Constitution. Think punitive damages under BMW v. Gore, defamation claims under New York Times v. Sullivan, or restrictive covenants under Shelley v. Kraemer—all of which were brought and litigated by private plaintiffs and defendants, with the constitutional issues raised as defenses, and without any injunctions against judges or court clerks. If the law allowed for suing judges or clerks under statutes like these, then we should have seen some of these suits already.

Whenever a state enacts an arguably unconstitutional law, enforced by private lawsuits, with the intent of challenging a judicial precedent. This kind of rule would make test cases unconstitutional. States challenge judicial precedents all the time, usually in ways that allow (under current doctrine) for immediate pre-enforcement review. The plaintiffs’ problem isn’t what Texas intends, but that it might actually succeed, discouraging the exercise of Roe– and Casey-recognized rights without having to overturn Roe and Casey first. Yet the federal government structures its conduct to avoid judicial review all the time—such as by using enforcement discretion under Heckler v. Chaney rather than implementing a new regulation that might be contested under the APA. As far as I know, the DOJ hasn’t suggested that such intent “nullifies” the relevant statutes or the judicial decisions construing them, justifying an injunctive suit against the United States under the APA’s waiver of sovereign immunity. So the intent to get out from under judicial precedent doesn’t seem to be doing much work on its own.

Whenever a state enacts an arguably unconstitutional law, enforced by private lawsuits, with intent to challenge precedent, without a need to show injury. Citizen-suit provisions are commonplace too. Suppose a state adopted a false-advertising law, enforceable by anyone who saw an offending advertisement, that was contrary to the Court’s current commercial-speech doctrines (cf. Nike v. Kasky). These kinds of laws show up all the time, but somehow we haven’t yet started suing defendant classes of court clerks. Also, this kind of limit provides an easy roadmap to states to evade the restriction; they can just limit the universe of plaintiffs to a large group of people who do have some connection to the case. (Say, by giving an SB8-like right of action to anyone related to the unborn child within five degrees of consanguinity, or to any couples on a state-run adoption waiting list, or by declaring abortion a private nuisance that may be abated by anyone within 1000 feet of a clinic.)

Whenever a state enacts an arguably unconstitutional law, enforced by private lawsuits, with intent to challenge precedent, without a need to show injury, and with very heavy penalties. Texas didn’t need to limit itself to a minimum of $10,000 in statutory damages; it could have picked $1 million instead. But here, the chilling effect ultimately comes from the fact that no one knows whether the Court will uphold Roe and Casey. If a state tried to proscribe conduct that’s obviously protected by the Constitution, such as by banning handguns or Torah scrolls, then the plaintiffs would all lose; indeed, they’d be forced to pay attorney’s fees under Rule 11 or its state-law equivalents.

The chilling effect doesn’t come from being sued. Anybody can be sued, at any time, for any reason or for no reason at all. Some weirdos could sue you right now for $1 million for possessing a Torah scroll. They wouldn’t even need a state law pretending to tell them that they can. And they’re not even subject to any federal injunction that would have them found in contempt and thrown in jail. The reason why you don’t lose sleep over this is that their suit would be dismissed as frivolous on day one and they’d be forced to pay your attorney’s fees. The worry with SB8, by contrast, is that the lawsuits might actually proceed.

Which brings us to another possibility: Whenever a state does all of the above, and adds barriers to defensive litigation too. Texas’s argument is that clinics should raise their constitutional arguments defensively, once sued. Yet SB8 makes the job of defending these lawsuits much harder. It doesn’t just create a cause of action; it lets plaintiffs lay venue anywhere in the vast state of Texas, shields them from preclusion from losses against other defendants, protects them from having to pay attorney’s fees even when their arguments are frivolous, and purportedly limits the applicability of potential constitutional defenses.

Some of these barriers are less worrisome than others. Plenty of actions permit the plaintiff to lay venue in their home district, and there’s no constitutional right to non-mutual issue preclusion, binding one party by a prior loss against someone else. But all of it is overkill, and some of it may actually be unconstitutional on its own. For example, if Casey‘s undue-burden test really came from the Constitution, then no state would have power to suspend or limit its terms. Or if a state generally provides for attorney’s fees for the victims of frivolous and harassing litigation, taking that protection away only for the defense of one particular constitutional right might well count as an abridgment of that right, if such a right exists.

Yet here’s the key issue: these constitutional arguments, too, can be made in defensive litigation. In a state court suit, it’s perfectly possible for a provider defendant to argue that the suit is frivolous, that the lack of attorney’s fees is unconstitutional, and that the court should award fees notwithstanding SB8. Or it can argue that the heartbeat rule imposes an undue burden, that the statute takes an unconstitutionally narrow view of such burdens, and that the court should therefore grant a motion to dismiss regardless of what the statute says. If the state court disagrees, the defendant can appeal; and if the state supreme court disagrees, the defendant can seek cert.

So here, too, there’s no separate need for brand-new relief against judges or court clerks, so long as the Supreme Court is on the job—unless there were a constitutional right to pre-enforcement review, which there isn’t. Or, if Congress perceives such a need, as it perceived a need for § 1983, it can pass a statute under Section Five of the Fourteenth Amendment, which gives the creative pen to Congress, not to the courts.

Section 1983 was a great idea, but no one thinks the courts could have invented it on their own. So why are they able to invent new actions and remedies here? Texas won’t make this argument, but SB8 could be a really bad law, one that Congress should really do something about, without a preenforcement suit being legal already. The essence of judicial restraint is recognizing that some problems are up to people other than judges to solve.

In the meantime, the Supreme Court can cabin these problems by reminding people that it’s on the job—that the power to create strange causes of action is not the power to destroy while this Court sits. It could say that there are serious questions about the constitutionality of SB8’s substance as well as its attorney’s fees provisions; that anyone actually sued under SB8 would be able to seek a stay of any money judgment, ultimately appealable to this Court; and that any prevailing defendant under SB8 would be able to make any available argument as to the unconstitutionality of the attorney’s fees bar, again ultimately appealable to this Court. That would do as much as one lawfully could to avoid the chilling effect, given the preexisting weaknesses of Roe and Casey.

In other words, the plaintiffs’ problem isn’t just a line-drawing problem, that we’ll have hard cases about when to grant extraordinary relief. The problem is that the specific cases in which extraordinary relief might be merited are also the cases in which such relief might not be necessary—cases that we can deal with using our ordinary tools of defensive litigation. And if we can’t deal with them that way, we can seek novel legislative remedies instead. Either way, we can stop our search for a limiting principle; in fact, we shouldn’t begin it.

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2022 Earnings Estimates Still Too Bullish

2022 Earnings Estimates Still Too Bullish

Authored by Lance Roberts via RealInvestmentAdvice.com,

Fundamentally speaking, there are more than a few indications that 2022 earnings estimates are still overly exuberant. However, the bullish optimism currently supports rising stock prices. Such was a point I touched on in thispast weekend’s newsletter:

Overall, 56% of the companies in the S&P 500 have reported actual results for Q3 2021 to date. Of these companies, 82% have reported actual EPS above estimates, which is above the five-year average of 76%. If 82% is the final percentage for the quarter, it will mark with the fourth highest percentage of S&P 500 companies reporting a positive earnings surprise since FactSet began tracking this metric in 2008. In aggregate, companies are reporting earnings that are 10.3% above estimates, which is also above the five-year average of 8.4%.”

Earnings have indeed been impressive, but as we will discuss in more detail, this quarter will likely mark the peak of growth for a while. One particular reason is that while the outlook for earnings remains very bullish, economic growth and inflation trends are not.

The problem for earnings is that weaker economic growth and rising inflation will weigh on profit margins.

Let’s start with economic growth.

Economic Growth Set To Weaken

In March of this year, I penned an article entitled “Sugar Rush,” wherein we discussed the economy would run “hot” and then “crash.” At the time, I received a lot of “pushback” on my “dire predictions” of economic growth later in the year. Furthermore, I followed that analysis asking if Q2 was the “Peak Of Economic Growth?” To wit:

Was the second quarter the peak of economic growth and earnings? If estimates are correct and the year-over-year ‘base effect’ fades, such suggests risk to current earnings estimates. The chart from a “Grossly Defective Product,” utilizes the Atlanta Fed’s current estimates for Q2-2021 GDP. The full-year estimates are from JP Morgan. Notably, the economy quickly slows to 2% heading into 2022.”

At that time, we estimated less than a 4% growth rate for the economy, with the Atlanta Fed well above 6%. Last Thursday, the initial release of Q3 GDP came in well below even our “bearish” expectations at just 2%.

Notably, the “advance estimate” is derived from a sampling of economists’ estimates. As actual data gets factored into the GDP calculation during the next two months, the growth estimates will get revised. But, as discussed in “The Bullish/Bearish Case,” the weakness in the economic data suggests those GDP revisions will be lower.

Economic Output Composite Index

We are confident in our assessment of weaker economic output due to our Economic Output Composite Index (EOCI).

The chart below is the Economic Output Composite Index. The index comprises the CFNAI, Chicago PMI, ISM Composite, the Fed surveys, Markit Economic Index, Markit PMI, NFIB, TIPP Confidence, and the LEI. In other words, this indicator is the broadest indicator of the U.S. economy there is.

The last complete set of data is through September. Notably, the index peaked at the second-highest level on record. When October gets fully accounted for, the index will decline further. Not surprisingly, there is a decent correlation between declines in the EOCI index and struggles for the financial markets.

The implications of weak economic growth are broad. Consumer sentiment will remain weak as inflationary pressures undermine consumption. Furthermore, the negative impact on earnings continues to elude investors currently.

Earnings & Valuations Will Revert

There are two critical takeaways from the EOCI index. As noted, the stock market tends to correct, or worse, during reversals of the index. Secondly, there is a high correlation between the index and the annual change in earnings.

Such should not be a surprise given that “revenue,” which happens at the income statement’s top-line, is a function of economic growth. As individuals produce and consume, such is what creates economic activity. Revenues are a direct reflection of that activity. As economic growth slows, so does revenue.

However, this is a relationship investors have forgotten in their quest to push asset prices higher. Due to the massive liquidity infusions following the pandemic, equities have become increasingly expensive. As a result, equities are now the most expensive in history, measured by price to annual sales.

However, earnings per share, or what happens at the bottom of the income statement, are grossly manipulated through share repurchases, accounting gimmicks, and outright “fudging.” Therefore, top-line revenue gives us an accurate picture of the prices paid for stock ownership. Currently, investors are paying over 3x sales which exceeds any point previously.

Such is a point that should not get dismissed, given the long history of valuations and forward returns over the next decade. As shown, at 3x price to sales, expectations for 8% annualized returns should get lowered dramatically.

Analysts Are Overly Optimistic

“The biggest problem with Wall Street, both today and in the past, is the consistent disregard of the possibilities for unexpected, random events. In a 2010 study, by the McKinsey Group, they found that analysts have been persistently overly optimistic for 25 years. During the 25-year time frame, Wall Street analysts pegged earnings growth at 10-12% a year when in reality earnings grew at 6% which, as we have discussed in the past, is the growth rate of the economy.

This is why using forward earnings estimates as a valuation metric is so incredibly flawed – as the estimates are always overly optimistic roughly 33% on average.” – The Problem With Wall Street Forecasts

Once again, analysts have become exceedingly optimistic in their estimates.

Despite economic growth weakening as inflation increases, liquidity reducing, and profit margins under pressure, analysts continue to increase their earnings estimates. Currently, estimates for the Q4-2022 are $207/share according to S&P. As shown, that level will exceed the historical 6% exponential growth trend that contained earnings growth since 1950.

Currently, earnings expectations exceed the annual exponential growth trend by one of the most significant deviations on record. The only two periods with similar deviations are the “Financial Crisis” and the “Dot.com” bubble.

With analysts extremely exuberant, there seems to be little concern for investors. However, I would caution against such complacency.

As noted above, the most significant drivers to bottom-line earnings remain accounting gimmicks, share repurchases, and lower tax rates. However, there is a substantial risk to changes in the tax code, higher potential tax rates, and a reduction in liquidity. Such potentially threatens the critical drivers to profitability. As shown, revenue growth, as a percentage of the total, has shrunk to just 19% even though reported earnings per share surged by $2.74/share from repurchases.

Conclusion

The “sugar high” of economic growth seen in the first two quarters of 2021 resulted from a massive deficit spending surge. While those activities create the “illusion” of growth by pulling forward “future” consumption, it isn’t sustainable, and profit margins will follow suit quickly.

The point here is simple, before falling victim to the “buy the market because it’s cheap based on forward-estimates” line, make sure you understand the “what” you are paying for.

Wall Street analysts are always exuberant, hoping for a continued surge in earnings in the months ahead. But such has always been the case.

Currently, there are few Wall Street analysts expecting substantially weaker economic growth in 2022. But, unfortunately, there is a high probability such will be a reality, particularly as the Fed begins to “taper” bond purchases.

The risk to investors continues to rise as earnings peak and profit margins contract.

Wall Street is notorious for missing the major turning points of the markets and leaving investors scrambling for the exits.

Tyler Durden
Tue, 11/02/2021 – 08:21

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Proper Parties in SB8

I have no skill at reading judicial tea leaves, so what follows is a reaction to the discussion of the merits at oral argument, not a prediction of what a majority of Justices will actually do.

The basic problem in the SB8 suits is that neither case manages to pair a proper plaintiff with a proper defendant. The abortion providers are proper parties, but the judges and clerks they’re suing aren’t. The United States probably isn’t the right plaintiff in its case, and the State of Texas probably isn’t the right defendant either. And the arguments the plaintiffs make for overriding these considerations, given the extraordinary nature of SB8, desperately need a limiting principle they don’t and can’t provide—something addressed in the next post.

* * *

Whole Women’s Health. The provider plaintiffs in Whole Women’s Health are clearly the right people to defend their own interests. But they’re private parties, so they can’t sue the State of Texas directly, and they have to find other defendants—most plausibly, putative defendant classes of judges and court clerks under Ex parte Young.

Their first problem, as Justice Thomas pointed out, is that judges are specifically exempted from Ex parte Young suits. The Court has allowed some suits directly against judges—say, for imposing bail in violation of the due process clause. But in those very cases, it’s made clear that “Article III also imposes limitations on the availability of injunctive relief against a judge,” and it’s cited approvingly the claim that there’s “no case or controversy between a judge who adjudicates claims under a statute and a litigant who attacks the constitutionality of the statute.” That’s pretty much what we have in Whole Women’s Health.

The private plaintiffs’ response is essentially, “hey, Ex parte Young was a fiction, so why not do more fictions?” But just because yesterday’s judges pulled a fast one doesn’t mean today’s judges should too. (If you gained your house by adverse possession, that doesn’t mean you can try ousting your neighbor.) Chief Justice Marshall, in Livingston v. Jefferson, faced a similar argument for expanding a longstanding fiction beyond its acknowledged boundaries, in the hopes of achieving an obviously just result. But he refused, saying:

“If this distinction be established; if judges have determined to carry their innovation on the old rule, no further; if, for a long course of time, under circumstances which have not changed, they have determined this to be the limit of their fiction, it would require a hardihood which I do not possess, to pass this limit.”

If a fiction can be longstanding enough to be called law, then surely the longstanding limits on that fiction are law too.

So the plaintiffs turned instead to court clerks, who have to docket the SB8 cases, arguing that the “commencement” of a case can be enjoined under Ex parte Young. That equivocates on the meaning of “commencement.” Ex parte Young allowed a suit against a prosecutor, on the theory that the prosecutor, by “seek[ing] to enforce” an act in “violation of the Federal Constitution,” was in fact violating that Constitution, and was thus “stripped of his official or representative character” and “subjected in his person to the consequences of his individual conduct.” But a clerk of court, when accepting a complaint, isn’t seeking to enforce anything; he or she doesn’t and can’t make any assessment of what the complaint says! The party filing the complaint is the one who “commence[s]” the case, as well as the one who “seeks to enforce” the law. (This was also Ex parte Young‘s original reason why the judges are out: they don’t act in “violation of the Federal Constitution” just by considering whether some state statute violates the federal Constitution! They’re not being accused of doing anything against the law, so they aren’t proper defendants for this lawsuit.)

Ex parte Young is generously called a “fiction” because it allowed this kind of suit against a commencing party’s lawyer (the Attorney General), rather than against the commencing party itself (the State of Minnesota, which couldn’t be sued). Maybe it shouldn’t have; maybe the defendant and the government lawyer weren’t really adverse. Either way, the clerk of court is definitely a neutral here: the people who stamp the papers aren’t violators of the Constitution, stripped of their official character, just because some of the papers make legal arguments that are bad. Clerks of court might sometimes be the target of injunctions; imagine a clerk who discriminates among plaintiffs trying to file. But when the only claim is that the lawsuits are bad, the clerk is no more a proper defendant than the mailman who carried the complaints to the courthouse.

It might be convenient for the Court to close a perceived loophole by declaring the clerks to be proper defendants. But courts shouldn’t permit suits against people who aren’t legally liable in them, just because it solves someone else’s legal problems.

* * *

United States v. Texas. The U.S. doesn’t have to worry about sovereign immunity, so in that sense it’s a better plaintiff. But its rights aren’t at issue under SB8, so there’s a different concern of whether it’s a proper party. The government argues that under In re Debs, which concerned the Pullman rail strike, the U.S. can bring suit in equity to enforce “its sovereign interest in ensuring that a State cannot nullify federal constitutional rights.” Here, I outsource my views to Aditya Bamzai and Sam Bray, who rather persuasively argue that the Debs court, while going beyond strict proprietary interests, still relied on the government’s property-like interest in the Nation’s highways and waterways, and that Debs was perceived as a property-interest case by contemporaries. So, despite various bits of Debs dicta cited by DOJ, it’s hard to read that case as opening the doors for suits by the United States whenever a purported “nullification” is at hand. Given that Grupo Mexicano requires courts to rely on traditional doctrines of equity, and not to create them out of whole cloth, the U.S. has an uphill battle here.

And in suing the State of Texas, it’s not clear that the U.S. has picked the right defendant. Because no Texas executive officers enforce SB8 directly, what the U.S. really wants from its injunction is, again, to prevent state judges from hearing these suits, and to prevent state court clerks from docketing them. But although this argument doesn’t need to invoke Ex parte Young, it faces the same kinds of problems. Texas judges aren’t on “Team Texas”: they hear cases and render injunctions against “the State of Texas” all the time, and we don’t think of them as bound by their own injunctions. That’s because “the State of Texas,” when it shows up in court, is the State qua litigant—the executive power of the State, those officials with the legal right (as John Harrison describes) to put forth the government’s resources to achieve the government’s goals. So when “Texas” concedes in court that a state law is unconstitutional, we understand that the state legislature may well disagree with the position taken by “the State”—and we understand that state judges can decide between the two, as neutral arbiters, without somehow involving themselves in the dispute. (Sometimes judges do involve themselves in disputes; when this happens, they might be more proper targets for injunctions. But that’s not what the U.S. or the private plaintiffs are claiming here.)

By contrast, the injunction the United States is seeking isn’t against the executive power of Texas (which doesn’t have any direct role in enforcing SB8), or against the State qua litigant (which doesn’t appear in any SB8 suits), but against the State qua source of law; the idea seems to be that “Texas did this, and Texas must pay for it.” But suing the State qua source of law is as bizarre as suing the State qua Texas-shaped patch of land in the American southwest. The State qua litigant is the only entity which can actually appear in court and against which a judgment can be entered. If the legislature purported to pass an unconstitutional law, its punishment is the one listed in Marbury—that “an act of the legislature, repugnant to the constitution, is void.”

Besides, Texas law and Texas courts aren’t coextensive. If a Texas abortion provider crosses the border into Oklahoma, and is there served with process and sued in Oklahoma state court (whose choice-of-law principles, let’s assume, would ordinarily choose Texas abortion law), would the United States then have good grounds for suing the State of Oklahoma? Or consider the SB8 interpleader suit currently pending in the U.S. District Court for the Northern District of Illinois—must the United States now sue itself? The Solicitor General argued that injunctions against federal courts would be unwarranted, because federal plaintiffs (unlike SB8 plaintiffs) have to show injury-in-fact; but that wouldn’t make the court’s actions any more or less constitutional.

The U.S. would bind the Texas judges and clerks through an injunction entered against the state as a whole. Judges and court clerks do fall within the literal terms of Rule 65(d)(2), which extends to a party’s “officers, agents, servants, employees, and attorneys,” as well as all others “in active concert or participation” with them. But when a federal injunction issues against a state, we generally don’t expect that these injunctions already bind state judges and court clerks under Rule 65(d)(2), forbidding them on pain of contempt from docketing future cases or resolving future disputes—e.g., by agreeing with the courts that ordered the injunctions. Does anyone think that federal judges are bound under Rule 65(d)(2) in regard to injunctions against the United States, when they merely decide cases related to those injunctions? How could such injunctions ever be modified under Rule 60(b)(5), if the very existence of the injunctions might forbid “enforcement” of the relevant laws?

If state judges and clerks don’t go to jail, right now, for docketing and dismissing prosecutions brought under the state law enjoined in Arizona v. United States, then they shouldn’t go to jail for docketing and dismissing cases brought after an injunction issues in United States v. Texas. And if the judges and clerks aren’t covered by an injunction against the State as “officers” or “employees,” then the private parties who bring the suits, in the hopes of recovering money for their own pockets and not for the state treasury, aren’t covered under “active concert or participation” either. Unless, of course, the injunction is written specifically to include them—as the district court wrote the injunction here. But then the real defendant isn’t just the State of Texas qua litigant, but the judges and clerks and private litigants as well, none of whom has been made a party in the government’s suit under Hansberry v. Lee. And again, if the judges and clerks don’t lose their official character under Ex parte Young by receiving SB8 complaints, it’s not clear that anyone has anything to sue them for.

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Judge Blocks New California Law Banning Approaching People to Speak Outside Vaccination Centers

As I wrote about in September, the California Legislature enacted a law defining “harassing” as approaching within 30 feet to give leaflets to strangers, or to try to speak to them. The bill begins:

(a) It is [a misdemeanor punishable by up to six months in jail and a fine of up to $1000] to knowingly approach within 30 feet of any person while a person is within 100 feet of the entrance or exit of a vaccination site and is seeking to enter or exit a vaccination site, or any occupied motor vehicle seeking entry or exit to a vaccination site, for the purpose of obstructing, injuring, harassing, intimidating, or interfering with that person or vehicle occupant.

And it defines “harassing” thus:

(c)(1) “Harassing” means knowingly approaching, without consent, within 30 feet of another person or occupied vehicle for the purpose of passing a leaflet or handbill to, displaying a sign to, or engaging in oral protest, education, or counseling with, that other person in a public way or on a sidewalk area.

Such ordinary speech—familiar from a wide range of peaceful protests—has now been defined as criminal “harassment.” Yet the First Amendment of course protects speech on public sidewalks, including offering leaflets, displaying signs, or conveying oral messages to people who haven’t “consen[ted]” (whether because they haven’t thought about the matter, or even if they affirmatively don’t want to see the sign or hear the message). Remember: When you hear proposals to ban “harassment,” always ask yourself how this “harassment” is going to be defined.

In Hill v. Colorado (2000), the Court did uphold a restriction on “‘knowingly approach[ing]’ within eight feet of another person [near a medical facility], without that person’s consent, ‘for the purpose of passing a leaflet or handbill to, displaying a sign to, or engaging in oral protest, education, or counseling with such other person.'” But the majority stressed that this stemmed from 8 feet being such a short distance:

Unlike the 15-foot zone [struck down in Schenck v. Pro-Choice Network (1997)], this 8-foot zone allows the speaker to communicate at a “normal conversational distance.”

Thirty feet, on the other hand, is very far from a “normal conversation distance”; and in McCullen v. Coakley (2014), the Court struck down a 35-foot buffer zone outside a clinic in part because

[T]he zones … compromise petitioners’ ability to initiate the close, personal conversations that they view as essential to “sidewalk counseling.” For example, in uncontradicted testimony, McCullen explained that she often cannot distinguish patients from passersby outside the Boston clinic in time to initiate a conversation before they enter the buffer zone…. McCullen is often reduced to raising her voice at patients from outside the zone— a mode of communication sharply at odds with the compassionate message she wishes to convey.

And on top of that, Hill stressed that the 8-foot no-approach zone was content-neutral (even though it mostly affected anti-abortion protests, given that it was limited to speech outside medical facilities). Yet the new California law provides:

It is not a violation of this section to engage in lawful picketing arising out of a labor dispute, as provided in Section 527.3 of the Code of Civil Procedure.

First Amendment precedents make clear that this sort of exception makes a law content-based, and thus unconstitutional. Consider, for instance, Carey v. Brown (1981), which involved a restriction on residential picketing with a labor exception. In the later Frisby v. Schultz (1988), the Court upheld a content-neutral ban on all focused residential picketing, but in Carey the Court struck down the ban with the exception:

Nor can it be seriously disputed that in exempting from its general prohibition only the “peaceful picketing of a place of employment involved in a labor dispute,” the Illinois statute discriminates between lawful and unlawful conduct based upon the content of the demonstrator’s communication. On its face, the Act accords preferential treatment to the expression of views on one particular subject; information about labor disputes may be freely disseminated, but discussion of all other issues is restricted. The permissibility of residential picketing under the Illinois statute is thus dependent solely on the nature of the message being conveyed….

“[The government] may not vindicate its interest in preventing disruption by the wholesale exclusion of picketing on all but one preferred subject. Given what [the government] tolerates from labor picketing, the excesses of some nonlabor picketing may not be controlled by a broad ordinance prohibiting both peaceful and violent picketing. Such excesses ‘can be controlled by narrowly drawn statutes,’ focusing on the abuses and dealing evenhandedly with picketing regardless of subject matter.” Yet here, under the guise of preserving residential privacy, Illinois has flatly prohibited all nonlabor picketing even though it permits labor picketing that is equally likely to intrude on the tranquility of the home.

And the Court cited Police Department of Chicago v. Mosley (1972), which likewise held that an exception from a school picketing ordinance for “peaceful picketing of any school involved in a labor dispute” is unconstitutionally content-based. Nor can the government justify these exceptions on the theory that labor speech is especially valuable: The Court has expressly “reject[ed] [the] proposition” “that labor picketing is more deserving of First Amendment protection than are public protests over other issues.”

Indeed, on Saturday, Judge Dale Drozd issued a temporary restraining order blocking enforcement of the law (Right to Life of Central Cal. v. Bonta):

In the court’s view, plaintiff is very likely to succeed in showing that SB 742 is content based. By its terms, SB 742 prohibits a person from knowingly approaching another person for the purpose of engaging in “oral protest”—unless that oral protest is about a labor dispute. The statute also prohibits a person from knowingly approaching another person for the purpose of displaying a sign to that person—unless that sign is held by a picketer displaying speech about a labor dispute.

Accordingly, plaintiff has shown that it will likely succeed in establishing that SB 742 is a content-based restriction on speech and is thus subject to strict scrutiny…. [And, applying strict scrutiny, e]ven assuming that the state’s interest in ensuring Californians “can obtain and access vaccinations” is a compelling interest—an assumption this court would readily make with regard to access to COVID-19 vaccinations given this ongoing public health crisis and global pandemic—plaintiff has shown that it is likely to succeed in proving that SB 742 is not narrowly tailored to serve that interest….

Plaintiff argues that SB 742 is not narrowly tailored because it is both overbroad in that it prohibits speech beyond what Supreme Court precedent on buffer zones allow, and it is underinclusive in that it allows labor picketing—an activity that poses no less of a risk of endangerment to its stated interest. Plaintiff emphasizes that even under the less stringent standard of intermediate scrutiny, the Supreme Court has struck down: a 15-foot buffer zone around people entering and leaving abortion clinics that prevented “communicating a message from a normal conversational distance or handing leaflets to people entering or leaving the clinics who are walking on the public sidewalks,” Schenck v. Pro-Choice Network of W. N.Y. (1997); and a 35-foot buffer zone around an entrance or exit to a reproductive health care facility that stifled messaging “through personal, caring, consensual conversations,” emphasizing that “when the government makes it more difficult to engage in these modes of communication, it imposes an especially significant First Amendment burden,” McCullen v. Coakley (2014).

In those cases, the asserted state interest was similarly to ensure access to those facilities. But the Supreme Court found that those buffer zone laws were too broad and placed too much of a burden on fundamental protected speech, and thus struck them down as not being narrowly tailored to the state’s interest. In light of these precedents, plaintiff contends SB 742 is unquestionably overbroad and insufficiently tailored to survive strict scrutiny, in large part because a 30-foot floating buffer zone makes one-on-one conversations impossible and requires shouting that is “starkly at odds with the message [plaintiff] communicates,” and importantly, because defendant has not provided any evidence or argument suggesting that the speech prohibited by SB 742 causes or contributes to the harm that it seeks to prevent (i.e., obstruction of access). Finally, plaintiff notes that there are several readily available and less restrictive alternatives to achieving the stated interest, yet the state has not tried to employ them, seriously considered them, or explained why they would not be expected to work, all of which is required to show that a law is narrowly tailored.

Defendant … relies on the Supreme Court’s decision in Hill v. Colorado, in which the Court upheld a statute that prohibited a person within 100 feet of an entrance to a health care facility from knowingly approaching within 8 feet of another person to pass “a leaflet or handbill to, displa[y] a sign to, or engag[e] in oral protest, education, or counseling with [that] person.” Defendant argues that like the statute in Hill, SB 742 allows a speaker “to remain in one place” and not violate the statute even if passersby happen to come within 30 feet of the speaker who is standing.

But defendant’s argument ignores the Supreme Court’s reasoning in Hill. Namely, the Court explained that “[u]nlike the 15-foot zone in Schenck, this 8-foot zone allows the speaker to communicate at a ‘normal conversational distance.'” Defendant does not address plaintiff’s common-sense argument that 30 feet is clearly not a conversational distance.

Moreover, defendant overlooks the Court’s analysis in Hill with respect to leafletting, wherein the Court noted that “[t]he burden on the ability to distribute handbills is more serious because it seems possible that an 8-foot interval could hinder the ability of a leafletter to deliver handbills to some unwilling recipients,” but ultimately concluded that passing pedestrians can easily accept a proffered pamphlet from an 8-foot distance. The same cannot reasonably be said of a distance of 30 feet as imposed by this statute….

Indeed, plaintiff asserts that “[n]avigating around a 30-foot bubble on a public sidewalk (or even on [plaintiff’s] own property) to position oneself so that persons entering a vaccination site will pass close enough to engage in quiet conversation or accept a leaflet is far more difficult” than the maneuvering with the smaller 8-foot buffer zone permitted in Hill. At the hearing on the pending motion, defendant countered plaintiff’s argument and suggested that individuals can walk around and be closer than 30 feet from another person, and even hand them a pamphlet or display a sign to them, but only if they do not “knowingly approach” that person to hand them that pamphlet or display that sign. This strained interpretation is at best confusing and at worst frivolous in the undersigned’s view. For these reasons, the court is not persuaded by defendant’s argument that SB 742 can and should be deemed narrowly tailored based upon the Supreme Court’s decision in Hill.

For the reasons explained above, the court concludes that plaintiff is likely to show that SB 742 is not narrowly tailored to serve the state’s interest of ensuring access to vaccination sites. Thus, plaintiff has shown a likelihood of success on the merits of its First Amendment freedom of speech claim….

The court orders that, pending a hearing on a motion for a preliminary injunction, … Defendant and any person acting in concert with him shall be restrained and enjoined from enforcing SB 742’s prohibition on “harassing” as that term is defined in California Penal Code § 594.39, as applied to Right to Life and its agents, and facially as to any speaker ….

I’m not sure the California Attorney General’s office will fight this further, but if they do, I expect they’ll keep losing.

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Limiting Principles and SB8

As noted in my prior post, the plaintiffs in the SB8 cases, both the clinics and the United States, seem to recognize that the remedies they’re asking for are quite extraordinary. Letting private parties sue judges and court clerks over an unconstitutional law, for example, would be what Chief Justice Roberts described in his VOPA v. Stewart dissent as “a substantial and novel expansion of what we have also called ‘a narrow exception’ to a State’s sovereign immunity.” (To quote a later passage of his dissent: “This sort of suit was not only anomalous and unheard of at the time of the founding; it was anomalous and unheard of yesterday.”)

The plaintiffs’ defense is that SB8 is extraordinary too. Yet two “extraordinary”‘s don’t make a right: presumably the unusual features of SB8 wouldn’t justify just any relief, such as ordering Texas legislators to vote for the law’s repeal, or ordering Texas citizens to vote for different legislators.

In any case, however hard it is to match one “extraordinary” with another, there’s a deeper problem here. Whether private parties can sue court clerks, or whether the U.S. can sue a state to enjoin a law its executive doesn’t enforce, are yes-or-no questions: either they can or they can’t. But the degree of chilling effect a statute imposes is just that, a question of degree. The plaintiffs need a limiting principle to explain how much chilling effect is too much, and when their new forms of relief start to kick in.

Of course, judicial opinions don’t really need limiting principles; a reversal in either case could be written as good-for-this-train-only. But it wouldn’t stay good-for-this-train-only: private parties and future administrations have too much interest in using the amazing injunctive powers the Court would have created for them. So when, exactly, will a state law justify these new kinds of suits?

Here are some possible options:

Whenever a state enacts an arguably unconstitutional law, enforced by private lawsuits. This is commonplace; as Justice Breyer noted, it occurs whenever anyone claims that a rule of tort or property law might violate the Constitution. Think punitive damages under BMW v. Gore, defamation claims under New York Times v. Sullivan, or restrictive covenants under Shelley v. Kraemer—all of which were brought and litigated by private plaintiffs and defendants, with the constitutional issues raised as defenses, and without any injunctions against judges or court clerks. If the law allowed for suing judges or clerks under statutes like these, then we should have seen some of these suits already.

Whenever a state enacts an arguably unconstitutional law, enforced by private lawsuits, with the intent of challenging a judicial precedent. This kind of rule would make test cases unconstitutional. States challenge judicial precedents all the time, usually in ways that allow (under current doctrine) for immediate pre-enforcement review. The plaintiffs’ problem isn’t what Texas intends, but that it might actually succeed, discouraging the exercise of Roe– and Casey-recognized rights without having to overturn Roe and Casey first. Yet the federal government structures its conduct to avoid judicial review all the time—such as by using enforcement discretion under Heckler v. Chaney rather than implementing a new regulation that might be contested under the APA. As far as I know, the DOJ hasn’t suggested that such intent “nullifies” the relevant statutes or the judicial decisions construing them, justifying an injunctive suit against the United States under the APA’s waiver of sovereign immunity. So the intent to get out from under judicial precedent doesn’t seem to be doing much work on its own.

Whenever a state enacts an arguably unconstitutional law, enforced by private lawsuits, with intent to challenge precedent, without a need to show injury. Citizen-suit provisions are commonplace too. Suppose a state adopted a false-advertising law, enforceable by anyone who saw an offending advertisement, that was contrary to the Court’s current commercial-speech doctrines (cf. Nike v. Kasky). These kinds of laws show up all the time, but somehow we haven’t yet started suing defendant classes of court clerks. Also, this kind of limit provides an easy roadmap to states to evade the restriction; they can just limit the universe of plaintiffs to a large group of people who do have some connection to the case. (Say, by giving an SB8-like right of action to anyone related to the unborn child within five degrees of consanguinity, or to any couples on a state-run adoption waiting list, or by declaring abortion a private nuisance that may be abated by anyone within 1000 feet of a clinic.)

Whenever a state enacts an arguably unconstitutional law, enforced by private lawsuits, with intent to challenge precedent, without a need to show injury, and with very heavy penalties. Texas didn’t need to limit itself to a minimum of $10,000 in statutory damages; it could have picked $1 million instead. But here, the chilling effect ultimately comes from the fact that no one knows whether the Court will uphold Roe and Casey. If a state tried to proscribe conduct that’s obviously protected by the Constitution, such as by banning handguns or Torah scrolls, then the plaintiffs would all lose; indeed, they’d be forced to pay attorney’s fees under Rule 11 or its state-law equivalents.

The chilling effect doesn’t come from being sued. Anybody can be sued, at any time, for any reason or for no reason at all. Some weirdos could sue you right now for $1 million for possessing a Torah scroll. They wouldn’t even need a state law pretending to tell them that they can. And they’re not even subject to any federal injunction that would have them found in contempt and thrown in jail. The reason why you don’t lose sleep over this is that their suit would be dismissed as frivolous on day one and they’d be forced to pay your attorney’s fees. The worry with SB8, by contrast, is that the lawsuits might actually proceed.

Which brings us to another possibility: Whenever a state does all of the above, and adds barriers to defensive litigation too. Texas’s argument is that clinics should raise their constitutional arguments defensively, once sued. Yet SB8 makes the job of defending these lawsuits much harder. It doesn’t just create a cause of action; it lets plaintiffs lay venue anywhere in the vast state of Texas, shields them from preclusion from losses against other defendants, protects them from having to pay attorney’s fees even when their arguments are frivolous, and purportedly limits the applicability of potential constitutional defenses.

Some of these barriers are less worrisome than others. Plenty of actions permit the plaintiff to lay venue in their home district, and there’s no constitutional right to non-mutual issue preclusion, binding one party by a prior loss against someone else. But all of it is overkill, and some of it may actually be unconstitutional on its own. For example, if Casey‘s undue-burden test really came from the Constitution, then no state would have power to suspend or limit its terms. Or if a state generally provides for attorney’s fees for the victims of frivolous and harassing litigation, taking that protection away only for the defense of one particular constitutional right might well count as an abridgment of that right, if such a right exists.

Yet here’s the key issue: these constitutional arguments, too, can be made in defensive litigation. In a state court suit, it’s perfectly possible for a provider defendant to argue that the suit is frivolous, that the lack of attorney’s fees is unconstitutional, and that the court should award fees notwithstanding SB8. Or it can argue that the heartbeat rule imposes an undue burden, that the statute takes an unconstitutionally narrow view of such burdens, and that the court should therefore grant a motion to dismiss regardless of what the statute says. If the state court disagrees, the defendant can appeal; and if the state supreme court disagrees, the defendant can seek cert.

So here, too, there’s no separate need for brand-new relief against judges or court clerks, so long as the Supreme Court is on the job—unless there were a constitutional right to pre-enforcement review, which there isn’t. Or, if Congress perceives such a need, as it perceived a need for § 1983, it can pass a statute under Section Five of the Fourteenth Amendment, which gives the creative pen to Congress, not to the courts.

Section 1983 was a great idea, but no one thinks the courts could have invented it on their own. So why are they able to invent new actions and remedies here? Texas won’t make this argument, but SB8 could be a really bad law, one that Congress should really do something about, without a preenforcement suit being legal already. The essence of judicial restraint is recognizing that some problems are up to people other than judges to solve.

In the meantime, the Supreme Court can cabin these problems by reminding people that it’s on the job—that the power to create strange causes of action is not the power to destroy while this Court sits. It could say that there are serious questions about the constitutionality of SB8’s substance as well as its attorney’s fees provisions; that anyone actually sued under SB8 would be able to seek a stay of any money judgment, ultimately appealable to this Court; and that any prevailing defendant under SB8 would be able to make any available argument as to the unconstitutionality of the attorney’s fees bar, again ultimately appealable to this Court. That would do as much as one lawfully could to avoid the chilling effect, given the preexisting weaknesses of Roe and Casey.

In other words, the plaintiffs’ problem isn’t just a line-drawing problem, that we’ll have hard cases about when to grant extraordinary relief. The problem is that the specific cases in which extraordinary relief might be merited are also the cases in which such relief might not be necessary—cases that we can deal with using our ordinary tools of defensive litigation. And if we can’t deal with them that way, we can seek novel legislative remedies instead. Either way, we can stop our search for a limiting principle; in fact, we shouldn’t begin it.

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Yahoo Becomes Second Major American Firm To Pull Out Of China Over Past Month

Yahoo Becomes Second Major American Firm To Pull Out Of China Over Past Month

After a 20-year battle with the CCP, Yahoo, the one-time American tech giant that is now mostly owned by private equity giant Apollo (along with a small stake held by Verizon), has decided to pull out of its China business, becoming the second American firm to depart China over ethical considerations surrounding free speech in the span of a month.

When we reported on LinkedIn’s departure from China, we noted that its departure marked the last major social media network to leave the Chinese market. But Yahoo, which offers web hosting and email services has been quietly plugging along in China for years – it has also maintained a relatively large presence in Japan for years.

Yahoo pulled its services from China due to what it described as an “increasingly challenging business and legal environment.”

In recognition of the increasingly challenging business and legal environment in China, Yahoo’s suite of services will no longer be accessible from mainland China as of Nov. 1,” a Yahoo spokesman said. “Yahoo remains committed to the rights of our users and a free and open internet. We thank our users for their support.”

According to WSJ, Yahoo’s decision to shutter what’s left of its Chinese business “was largely symbolic, as Yahoo bad already begun shutting down its main services services such as email, news and community services” back in 2013.

Yahoo’s exit comes amid an ongoing crackdown by Beijing that’s predicated on protecting “data privacy” of the Chinese people. the CCP and some of its top tech regulators have mostly targeted Chinese tech giants, with many seeing the concerns about “data privacy” (all data must be kept on servers based in China, the CCP now demands) as a pretext for reining in the power of companies like Alibaba and Tencent. China’s Personal Information Protection Law went into effect on Nov. 1.

Back in 2005, Yahoo struck a deal with Alibaba which has been checkered at best. In 2007, Yahoo China was slammed in a Congressional hearing by lawmakers after allegedly exposing two political dissidents who wound up in prison.

A few years ago, we reported on Alphabet’s “Project Dragonfly”, a secretive program to reenter the Chinese market, which Google left in huff back in 2010 over Beijing’s censorship demands. 

If Alphabet’s designs on re-entering China hadn’t been extinguished already, they probably have been now.

Tyler Durden
Tue, 11/02/2021 – 08:07

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Proper Parties in SB8

I have no skill at reading judicial tea leaves, so what follows is a reaction to the discussion of the merits at oral argument, not a prediction of what a majority of Justices will actually do.

The basic problem in the SB8 suits is that neither case manages to pair a proper plaintiff with a proper defendant. The abortion providers are proper parties, but the judges and clerks they’re suing aren’t. The United States probably isn’t the right plaintiff in its case, and the State of Texas probably isn’t the right defendant either. And the arguments the plaintiffs make for overriding these considerations, given the extraordinary nature of SB8, desperately need a limiting principle they don’t and can’t provide—something addressed in the next post.

* * *

Whole Women’s Health. The provider plaintiffs in Whole Women’s Health are clearly the right people to defend their own interests. But they’re private parties, so they can’t sue the State of Texas directly, and they have to find other defendants—most plausibly, putative defendant classes of judges and court clerks under Ex parte Young.

Their first problem, as Justice Thomas pointed out, is that judges are specifically exempted from Ex parte Young suits. The Court has allowed some suits directly against judges—say, for imposing bail in violation of the due process clause. But in those very cases, it’s made clear that “Article III also imposes limitations on the availability of injunctive relief against a judge,” and it’s cited approvingly the claim that there’s “no case or controversy between a judge who adjudicates claims under a statute and a litigant who attacks the constitutionality of the statute.” That’s pretty much what we have in Whole Women’s Health.

The private plaintiffs’ response is essentially, “hey, Ex parte Young was a fiction, so why not do more fictions?” But just because yesterday’s judges pulled a fast one doesn’t mean today’s judges should too. (If you gained your house by adverse possession, that doesn’t mean you can try ousting your neighbor.) Chief Justice Marshall, in Livingston v. Jefferson, faced a similar argument for expanding a longstanding fiction beyond its acknowledged boundaries, in the hopes of achieving an obviously just result. But he refused, saying:

“If this distinction be established; if judges have determined to carry their innovation on the old rule, no further; if, for a long course of time, under circumstances which have not changed, they have determined this to be the limit of their fiction, it would require a hardihood which I do not possess, to pass this limit.”

If a fiction can be longstanding enough to be called law, then surely the longstanding limits on that fiction are law too.

So the plaintiffs turned instead to court clerks, who have to docket the SB8 cases, arguing that the “commencement” of a case can be enjoined under Ex parte Young. That equivocates on the meaning of “commencement.” Ex parte Young allowed a suit against a prosecutor, on the theory that the prosecutor, by “seek[ing] to enforce” an act in “violation of the Federal Constitution,” was in fact violating that Constitution, and was thus “stripped of his official or representative character” and “subjected in his person to the consequences of his individual conduct.” But a clerk of court, when accepting a complaint, isn’t seeking to enforce anything; he or she doesn’t and can’t make any assessment of what the complaint says! The party filing the complaint is the one who “commence[s]” the case, as well as the one who “seeks to enforce” the law. (This was also Ex parte Young‘s original reason why the judges are out: they don’t act in “violation of the Federal Constitution” just by considering whether some state statute violates the federal Constitution! They’re not being accused of doing anything against the law, so they aren’t proper defendants for this lawsuit.)

Ex parte Young is generously called a “fiction” because it allowed this kind of suit against a commencing party’s lawyer (the Attorney General), rather than against the commencing party itself (the State of Minnesota, which couldn’t be sued). Maybe it shouldn’t have; maybe the defendant and the government lawyer weren’t really adverse. Either way, the clerk of court is definitely a neutral here: the people who stamp the papers aren’t violators of the Constitution, stripped of their official character, just because some of the papers make legal arguments that are bad. Clerks of court might sometimes be the target of injunctions; imagine a clerk who discriminates among plaintiffs trying to file. But when the only claim is that the lawsuits are bad, the clerk is no more a proper defendant than the mailman who carried the complaints to the courthouse.

It might be convenient for the Court to close a perceived loophole by declaring the clerks to be proper defendants. But courts shouldn’t permit suits against people who aren’t legally liable in them, just because it solves someone else’s legal problems.

* * *

United States v. Texas. The U.S. doesn’t have to worry about sovereign immunity, so in that sense it’s a better plaintiff. But its rights aren’t at issue under SB8, so there’s a different concern of whether it’s a proper party. The government argues that under In re Debs, which concerned the Pullman rail strike, the U.S. can bring suit in equity to enforce “its sovereign interest in ensuring that a State cannot nullify federal constitutional rights.” Here, I outsource my views to Aditya Bamzai and Sam Bray, who rather persuasively argue that the Debs court, while going beyond strict proprietary interests, still relied on the government’s property-like interest in the Nation’s highways and waterways, and that Debs was perceived as a property-interest case by contemporaries. So, despite various bits of Debs dicta cited by DOJ, it’s hard to read that case as opening the doors for suits by the United States whenever a purported “nullification” is at hand. Given that Grupo Mexicano requires courts to rely on traditional doctrines of equity, and not to create them out of whole cloth, the U.S. has an uphill battle here.

And in suing the State of Texas, it’s not clear that the U.S. has picked the right defendant. Because no Texas executive officers enforce SB8 directly, what the U.S. really wants from its injunction is, again, to prevent state judges from hearing these suits, and to prevent state court clerks from docketing them. But although this argument doesn’t need to invoke Ex parte Young, it faces the same kinds of problems. Texas judges aren’t on “Team Texas”: they hear cases and render injunctions against “the State of Texas” all the time, and we don’t think of them as bound by their own injunctions. That’s because “the State of Texas,” when it shows up in court, is the State qua litigant—the executive power of the State, those officials with the legal right (as John Harrison describes) to put forth the government’s resources to achieve the government’s goals. So when “Texas” concedes in court that a state law is unconstitutional, we understand that the state legislature may well disagree with the position taken by “the State”—and we understand that state judges can decide between the two, as neutral arbiters, without somehow involving themselves in the dispute. (Sometimes judges do involve themselves in disputes; when this happens, they might be more proper targets for injunctions. But that’s not what the U.S. or the private plaintiffs are claiming here.)

By contrast, the injunction the United States is seeking isn’t against the executive power of Texas (which doesn’t have any direct role in enforcing SB8), or against the State qua litigant (which doesn’t appear in any SB8 suits), but against the State qua source of law; the idea seems to be that “Texas did this, and Texas must pay for it.” But suing the State qua source of law is as bizarre as suing the State qua Texas-shaped patch of land in the American southwest. The State qua litigant is the only entity which can actually appear in court and against which a judgment can be entered. If the legislature purported to pass an unconstitutional law, its punishment is the one listed in Marbury—that “an act of the legislature, repugnant to the constitution, is void.”

Besides, Texas law and Texas courts aren’t coextensive. If a Texas abortion provider crosses the border into Oklahoma, and is there served with process and sued in Oklahoma state court (whose choice-of-law principles, let’s assume, would ordinarily choose Texas abortion law), would the United States then have good grounds for suing the State of Oklahoma? Or consider the SB8 interpleader suit currently pending in the U.S. District Court for the Northern District of Illinois—must the United States now sue itself? The Solicitor General argued that injunctions against federal courts would be unwarranted, because federal plaintiffs (unlike SB8 plaintiffs) have to show injury-in-fact; but that wouldn’t make the court’s actions any more or less constitutional.

The U.S. would bind the Texas judges and clerks through an injunction entered against the state as a whole. Judges and court clerks do fall within the literal terms of Rule 65(d)(2), which extends to a party’s “officers, agents, servants, employees, and attorneys,” as well as all others “in active concert or participation” with them. But when a federal injunction issues against a state, we generally don’t expect that these injunctions already bind state judges and court clerks under Rule 65(d)(2), forbidding them on pain of contempt from docketing future cases or resolving future disputes—e.g., by agreeing with the courts that ordered the injunctions. Does anyone think that federal judges are bound under Rule 65(d)(2) in regard to injunctions against the United States, when they merely decide cases related to those injunctions? How could such injunctions ever be modified under Rule 60(b)(5), if the very existence of the injunctions might forbid “enforcement” of the relevant laws?

If state judges and clerks don’t go to jail, right now, for docketing and dismissing prosecutions brought under the state law enjoined in Arizona v. United States, then they shouldn’t go to jail for docketing and dismissing cases brought after an injunction issues in United States v. Texas. And if the judges and clerks aren’t covered by an injunction against the State as “officers” or “employees,” then the private parties who bring the suits, in the hopes of recovering money for their own pockets and not for the state treasury, aren’t covered under “active concert or participation” either. Unless, of course, the injunction is written specifically to include them—as the district court wrote the injunction here. But then the real defendant isn’t just the State of Texas qua litigant, but the judges and clerks and private litigants as well, none of whom has been made a party in the government’s suit under Hansberry v. Lee. And again, if the judges and clerks don’t lose their official character under Ex parte Young by receiving SB8 complaints, it’s not clear that anyone has anything to sue them for.

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Judge Blocks New California Law Banning Approaching People to Speak Outside Vaccination Centers

As I wrote about in September, the California Legislature enacted a law defining “harassing” as approaching within 30 feet to give leaflets to strangers, or to try to speak to them. The bill begins:

(a) It is [a misdemeanor punishable by up to six months in jail and a fine of up to $1000] to knowingly approach within 30 feet of any person while a person is within 100 feet of the entrance or exit of a vaccination site and is seeking to enter or exit a vaccination site, or any occupied motor vehicle seeking entry or exit to a vaccination site, for the purpose of obstructing, injuring, harassing, intimidating, or interfering with that person or vehicle occupant.

And it defines “harassing” thus:

(c)(1) “Harassing” means knowingly approaching, without consent, within 30 feet of another person or occupied vehicle for the purpose of passing a leaflet or handbill to, displaying a sign to, or engaging in oral protest, education, or counseling with, that other person in a public way or on a sidewalk area.

Such ordinary speech—familiar from a wide range of peaceful protests—has now been defined as criminal “harassment.” Yet the First Amendment of course protects speech on public sidewalks, including offering leaflets, displaying signs, or conveying oral messages to people who haven’t “consen[ted]” (whether because they haven’t thought about the matter, or even if they affirmatively don’t want to see the sign or hear the message). Remember: When you hear proposals to ban “harassment,” always ask yourself how this “harassment” is going to be defined.

In Hill v. Colorado (2000), the Court did uphold a restriction on “‘knowingly approach[ing]’ within eight feet of another person [near a medical facility], without that person’s consent, ‘for the purpose of passing a leaflet or handbill to, displaying a sign to, or engaging in oral protest, education, or counseling with such other person.'” But the majority stressed that this stemmed from 8 feet being such a short distance:

Unlike the 15-foot zone [struck down in Schenck v. Pro-Choice Network (1997)], this 8-foot zone allows the speaker to communicate at a “normal conversational distance.”

Thirty feet, on the other hand, is very far from a “normal conversation distance”; and in McCullen v. Coakley (2014), the Court struck down a 35-foot buffer zone outside a clinic in part because

[T]he zones … compromise petitioners’ ability to initiate the close, personal conversations that they view as essential to “sidewalk counseling.” For example, in uncontradicted testimony, McCullen explained that she often cannot distinguish patients from passersby outside the Boston clinic in time to initiate a conversation before they enter the buffer zone…. McCullen is often reduced to raising her voice at patients from outside the zone— a mode of communication sharply at odds with the compassionate message she wishes to convey.

And on top of that, Hill stressed that the 8-foot no-approach zone was content-neutral (even though it mostly affected anti-abortion protests, given that it was limited to speech outside medical facilities). Yet the new California law provides:

It is not a violation of this section to engage in lawful picketing arising out of a labor dispute, as provided in Section 527.3 of the Code of Civil Procedure.

First Amendment precedents make clear that this sort of exception makes a law content-based, and thus unconstitutional. Consider, for instance, Carey v. Brown (1981), which involved a restriction on residential picketing with a labor exception. In the later Frisby v. Schultz (1988), the Court upheld a content-neutral ban on all focused residential picketing, but in Carey the Court struck down the ban with the exception:

Nor can it be seriously disputed that in exempting from its general prohibition only the “peaceful picketing of a place of employment involved in a labor dispute,” the Illinois statute discriminates between lawful and unlawful conduct based upon the content of the demonstrator’s communication. On its face, the Act accords preferential treatment to the expression of views on one particular subject; information about labor disputes may be freely disseminated, but discussion of all other issues is restricted. The permissibility of residential picketing under the Illinois statute is thus dependent solely on the nature of the message being conveyed….

“[The government] may not vindicate its interest in preventing disruption by the wholesale exclusion of picketing on all but one preferred subject. Given what [the government] tolerates from labor picketing, the excesses of some nonlabor picketing may not be controlled by a broad ordinance prohibiting both peaceful and violent picketing. Such excesses ‘can be controlled by narrowly drawn statutes,’ focusing on the abuses and dealing evenhandedly with picketing regardless of subject matter.” Yet here, under the guise of preserving residential privacy, Illinois has flatly prohibited all nonlabor picketing even though it permits labor picketing that is equally likely to intrude on the tranquility of the home.

And the Court cited Police Department of Chicago v. Mosley (1972), which likewise held that an exception from a school picketing ordinance for “peaceful picketing of any school involved in a labor dispute” is unconstitutionally content-based. Nor can the government justify these exceptions on the theory that labor speech is especially valuable: The Court has expressly “reject[ed] [the] proposition” “that labor picketing is more deserving of First Amendment protection than are public protests over other issues.”

Indeed, on Saturday, Judge Dale Drozd issued a temporary restraining order blocking enforcement of the law (Right to Life of Central Cal. v. Bonta):

In the court’s view, plaintiff is very likely to succeed in showing that SB 742 is content based. By its terms, SB 742 prohibits a person from knowingly approaching another person for the purpose of engaging in “oral protest”—unless that oral protest is about a labor dispute. The statute also prohibits a person from knowingly approaching another person for the purpose of displaying a sign to that person—unless that sign is held by a picketer displaying speech about a labor dispute.

Accordingly, plaintiff has shown that it will likely succeed in establishing that SB 742 is a content-based restriction on speech and is thus subject to strict scrutiny…. [And, applying strict scrutiny, e]ven assuming that the state’s interest in ensuring Californians “can obtain and access vaccinations” is a compelling interest—an assumption this court would readily make with regard to access to COVID-19 vaccinations given this ongoing public health crisis and global pandemic—plaintiff has shown that it is likely to succeed in proving that SB 742 is not narrowly tailored to serve that interest….

Plaintiff argues that SB 742 is not narrowly tailored because it is both overbroad in that it prohibits speech beyond what Supreme Court precedent on buffer zones allow, and it is underinclusive in that it allows labor picketing—an activity that poses no less of a risk of endangerment to its stated interest. Plaintiff emphasizes that even under the less stringent standard of intermediate scrutiny, the Supreme Court has struck down: a 15-foot buffer zone around people entering and leaving abortion clinics that prevented “communicating a message from a normal conversational distance or handing leaflets to people entering or leaving the clinics who are walking on the public sidewalks,” Schenck v. Pro-Choice Network of W. N.Y. (1997); and a 35-foot buffer zone around an entrance or exit to a reproductive health care facility that stifled messaging “through personal, caring, consensual conversations,” emphasizing that “when the government makes it more difficult to engage in these modes of communication, it imposes an especially significant First Amendment burden,” McCullen v. Coakley (2014).

In those cases, the asserted state interest was similarly to ensure access to those facilities. But the Supreme Court found that those buffer zone laws were too broad and placed too much of a burden on fundamental protected speech, and thus struck them down as not being narrowly tailored to the state’s interest. In light of these precedents, plaintiff contends SB 742 is unquestionably overbroad and insufficiently tailored to survive strict scrutiny, in large part because a 30-foot floating buffer zone makes one-on-one conversations impossible and requires shouting that is “starkly at odds with the message [plaintiff] communicates,” and importantly, because defendant has not provided any evidence or argument suggesting that the speech prohibited by SB 742 causes or contributes to the harm that it seeks to prevent (i.e., obstruction of access). Finally, plaintiff notes that there are several readily available and less restrictive alternatives to achieving the stated interest, yet the state has not tried to employ them, seriously considered them, or explained why they would not be expected to work, all of which is required to show that a law is narrowly tailored.

Defendant … relies on the Supreme Court’s decision in Hill v. Colorado, in which the Court upheld a statute that prohibited a person within 100 feet of an entrance to a health care facility from knowingly approaching within 8 feet of another person to pass “a leaflet or handbill to, displa[y] a sign to, or engag[e] in oral protest, education, or counseling with [that] person.” Defendant argues that like the statute in Hill, SB 742 allows a speaker “to remain in one place” and not violate the statute even if passersby happen to come within 30 feet of the speaker who is standing.

But defendant’s argument ignores the Supreme Court’s reasoning in Hill. Namely, the Court explained that “[u]nlike the 15-foot zone in Schenck, this 8-foot zone allows the speaker to communicate at a ‘normal conversational distance.'” Defendant does not address plaintiff’s common-sense argument that 30 feet is clearly not a conversational distance.

Moreover, defendant overlooks the Court’s analysis in Hill with respect to leafletting, wherein the Court noted that “[t]he burden on the ability to distribute handbills is more serious because it seems possible that an 8-foot interval could hinder the ability of a leafletter to deliver handbills to some unwilling recipients,” but ultimately concluded that passing pedestrians can easily accept a proffered pamphlet from an 8-foot distance. The same cannot reasonably be said of a distance of 30 feet as imposed by this statute….

Indeed, plaintiff asserts that “[n]avigating around a 30-foot bubble on a public sidewalk (or even on [plaintiff’s] own property) to position oneself so that persons entering a vaccination site will pass close enough to engage in quiet conversation or accept a leaflet is far more difficult” than the maneuvering with the smaller 8-foot buffer zone permitted in Hill. At the hearing on the pending motion, defendant countered plaintiff’s argument and suggested that individuals can walk around and be closer than 30 feet from another person, and even hand them a pamphlet or display a sign to them, but only if they do not “knowingly approach” that person to hand them that pamphlet or display that sign. This strained interpretation is at best confusing and at worst frivolous in the undersigned’s view. For these reasons, the court is not persuaded by defendant’s argument that SB 742 can and should be deemed narrowly tailored based upon the Supreme Court’s decision in Hill.

For the reasons explained above, the court concludes that plaintiff is likely to show that SB 742 is not narrowly tailored to serve the state’s interest of ensuring access to vaccination sites. Thus, plaintiff has shown a likelihood of success on the merits of its First Amendment freedom of speech claim….

The court orders that, pending a hearing on a motion for a preliminary injunction, … Defendant and any person acting in concert with him shall be restrained and enjoined from enforcing SB 742’s prohibition on “harassing” as that term is defined in California Penal Code § 594.39, as applied to Right to Life and its agents, and facially as to any speaker ….

I’m not sure the California Attorney General’s office will fight this further, but if they do, I expect they’ll keep losing.

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