Daily Briefing – September 1, 2020

Daily Briefing – September 1, 2020


Tyler Durden

Tue, 09/01/2020 – 18:10

Senior editor, Ash Bennington, hosts Tony Greer, editor of The Morning Navigator, to discuss how the Fed’s “inflation running hot” memo has been translated by the markets. With a weakening dollar, rally in TIPS, and a steeper yield curve, Tony argues that the asset price inflation happening is the way the Fed had intended it to be and that understanding how the Fed fits into the equation will shape the investor’s understanding of the sustainability of this rally. He and Ash examine the price action and continuous rotation across different sectors as well as how commodities continuing to rip is an expression of an ever-weakening dollar. Tony then provides his forward guidance for the remainder of the week. In the intro, Nick Correa goes over the newest U.S. manufacturing numbers as well as what’s happening with copper and other industrial metals.

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Philadelphia Mayor Shamed After Eating Indoors In Maryland While His City Remains Shut Down

Philadelphia Mayor Shamed After Eating Indoors In Maryland While His City Remains Shut Down

Tyler Durden

Tue, 09/01/2020 – 18:05

In yet another example of liberal hypocrisy, Philadelphia Mayor Jim Kenney is being shamed by his city – whose restaurants he has barred from operating – and forced to apologize after he was spotted dining indoors in Maryland, without a mask, while his city remains shut down. Restaurant owners in the city are irate. 

A photograph of Kenney went viral early this week and the mayor’s office later confirmed that Kenney was visiting a “friend’s restaurant” on Sunday, according to ABC Philadelphia

Well known Philadelphia restauranteur Marc Vetri unloaded on the mayor on Instagram, writing: “Glad you’re enjoying indoor dining with no social distancing or mask wearing in Maryland tonight while restaurants here in Philly close, suffer and fight for every nickel just to survive. I guess all your press briefings and your narrative of unsafe indoor dining don’t apply to you. Thank you for clearing it all up for us tonight.”

 

Another Philadelphia bar operator commented on a Facebook post about the photo of Kenney: “This took some balls. This f*cker should be flagged from every bar and restaurant in the city.”

Meanwhile, indoor dining in Philadelphia isn’t set to resume until September 8, with several restrictions and a 25% capacity limit. Kenney has “staunchly stood by” his decision to wait until that date to resume indoor dining. Kenney said earlier this month: “We need to follow what we are being asked to do by the health department. I beg you to follow the rules.”

The mayor’s office commented on the photo:

“The mayor went to Maryland earlier today to patronize a restaurant owned by a friend of his. For what it’s worth, he also went to Rouge to enjoy outdoor dining in Philly on the way home. He looks forward to expanding indoor dining locally next week.

Throughout the pandemic the Mayor has consistently deferred to the guidance of the Health Commissioner, who in this case felt strongly about waiting until Sept. 8 to resume indoor dining. If elected officials at the federal level had similarly deferred to health experts over the past five months, this might not even be an issue by now.

Of course we understand the frustrations of local restaurant owners who have been among the hardest hit by the pandemic. But there are 782 total cases in the county the mayor briefly visited, compared to over 33,000 cases in Philadelphia. Drastically different circumstances.”

But the backlash was so prominent, Kenney eventually took to Twitter to offer up a mea culpa:

“I’m sorry if my decision hurt those who’ve worked to keep their businesses going under difficult circumstances,” he wrote.

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What Will Stop The Gold Bull Market?

What Will Stop The Gold Bull Market?

Tyler Durden

Tue, 09/01/2020 – 17:45

Via Evergreen Gavekal blog,

“It is easier to find an alluring candidate in the US presidential race than an OECD* central banker even thinking of raising interest rates in his or her lifetime.”
– Louis-Vincent Gave

*OECD stands for the Organization for Economic Co-operation & Development.

NOT TOO LATE

My close friend and partner Louis Gave, whom I’ve known for 13 years, is the furthest thing from a gold bug.  In fact, for most of the time I’ve known him he’s had a dim view of the shiny metal often derisively referred to as a “barbarous relic” or a “pet rock”.  In this regard, his appraisal has been similar to the long dismissive view of gold by Warren Buffett.  However, for both men, there has been a decided attitude shift of late.

This edition of the Gavekal EVA is authored once again by my prolific colleague (Louis’ writing volume puts me to shame).  As you will see, it was originally published back on July, 20th, but for various reasons, including a desire to finish his three-part series on July 31st, we elected to defer it until now.  Our hope at the time was that it would still be relevant at this point.  Based on what Mr. Buffett just announced, one could argue it is even more so.  (If you somehow missed it, markets were shocked this week to learn of a $565 million investment by the company Mr. Buffett co-founded and still runs, Berkshire Hathaway, in Barrick Gold, one of the premier bullion producers.)

Let’s get an important disclaimer out there right away: as Louis wrote, gold was, and still is, very extended thanks to a powerful rally this year that has eclipsed even the hyper-performing Nasdaq.  In technical jargon, it is one standard deviation above its 200-day moving average.  In plain words, it’s vulnerable to some serious profit-taking.  Silver, as usual in bullion bull markets, has done better yet.

Source: Bloomberg, Evergreen Gavekal

The same is true of the companies that explore for and produce precious metals, as represented by the gold mining ETFs, GDX and GDXJ.  Their move has been even more volcanic, as you can see below.

Source: Bloomberg, Evergreen Gavekal

Additionally, as I have expressed in a few prior EVAs, gold’s outperformance is not a recent phenomenon.  Since the start of the millennium/century, the so-called pet rock has returned 576% versus 244% for the S&P 500, or, on an annualized basis, 9.7% compared to 6.1% for the mighty S&P 500.  Unfortunately, almost all portfolios—professional or amateur—have had nearly zero participation in precious metals.

Source: Bloomberg, Evergreen Gavekal

Suddenly, though, gold is front page news and it’s attracting a lot of new buyers.  Thus, in addition to being extended in price, gold and all things precious metal-related seem to me uncomfortably—and uncharacteristically–crowded.

It’s for these reasons that Evergreen has been repeatedly selling down our positions in gold, silver, and the miners in recent weeks.  However, as we have often opined in our Likes/Dislikes section at the end of this newsletter, we believe the long-term potential remains considerable.  Further, when you are dealing with an income-free asset, as all pure commodities are, the only way to generate cash flow is to take advantage of big rallies to take some gains.

Part of our reason for liking this area long-term is what Louis points out about the total market value of all miners of $550 billion, or a little over one-quarter of Apple’s market capitalization.  Per Louis, it’s also less than 30 days’ worth of the Fed’s magical money manufacturing, at least in a “good” month.  (We would both argue that over time this is a very “un-good” development for America’s welfare and the soundness, such as it is, of the US dollar.)

His argument that past bull markets in gold have lasted for years is historically accurate and worth pondering for anyone who has, like Mr. Buffett, been reluctant to use precious metals as a hedge against unparalleled currency debasement.  Moreover, despite being up almost 50% this year, at the current quote of $41, GDX remains far below where it traded in 2012, which was north of $60.

Gold, silver, and the mining stocks also went through a brief but sharp correction from late-July to mid-August, with GDX falling by 11%.  Obviously, those types of selling squalls are the best times to be adding exposure for those who have missed the early move.  However, I count myself among those who believe gold will ultimately hit $3,000 during this bull phase, perhaps higher.

A key part of my thesis, with which Louis largely concurs, is that we are entering a decade similar to the 1970s, with rising inflation being one of the parallels.  Like in the ‘70s, it’s probable interest rates will be held below the actual inflation rate.  This creates a so-called negative real interest rate and this condition tends to be rocket fuel for hard asset prices like precious metals.

Another highly supportive aspect is that gold mining companies were badly burned by over-expanding during the last gold bull market that peaked in 2012.  Consequently, they are being extremely cautious with investing in new production even with gold at $2,000.  Anything around that price renders these entities prodigious cash flow machines.  Dividends, typically miniscule with miners, could end up being surprisingly husky.

Let me conclude my introduction to Louis’ missive with one more caveat:  the US dollar and gold typically move opposite of one another.  Presently, the US dollar is as oversold as gold is overbought.  Should there be a near-term rally in the dollar, that would be another reason for gold, and the miners, to correct.  If so, that will be a golden/glittering/lustrous/shining (insert your favorite adjective) opportunity to jump on what is likely to be multi-year gravy train.

WHAT WILL STOP THE GOLD BULL MARKET?

BY LOUIS-VINCENT GAVE

The sustained outperformance of very large-cap tech stocks means that any manager who substantially underweighted the sector has likely lost clients. The exception may be those who favored gold and gold miners, which have experienced a “stealth” bull market (see chart below). I say stealth because the precious metals rally has garnered limited headlines, scant investor interest and fewer reflections on either its causes, or consequences.

The reason that investors focus on tech—and don’t care about gold—is largely down to size, as the “Fab Five” tech stocks make up some 20% of the S&P 500. As a result, tech exposure has dictated relative performance in recent years, and this situation is almost certain to continue; performance will still revolve around the decision of whether, or not, to overweight tech. So given this backdrop, who cares about gold? After all, in spite of a near doubling over the past two years, the total market value of the precious metal mining sector is only about US$550bn—roughly what Amazon has added to its market value this year, or less than a month’s asset purchases by the Federal Reserve.

For now, the market for gold and gold mining stocks tick a number of boxes:

  • Both are showing strong momentum.

  • Unlike tech, both markets are small enough to keep running without hitting the big numbers problem (see Have Equities Become A Bubble?).

  • Neither has become a crowded trade.

  • There has been no rush of secondary placements and IPOs usually seen in gold miner bull markets (as repeated capital destroyers, gold miners normally jump at the chance to push paper down the market’s throat!).

  • Both assets remain a clear diversification choice for investors worried about runaway budget deficits and an unprecedented expansion of monetary aggregates globally, but especially in the US.

In short, precious metals are in a bull market. A concern may be that the gold price is about 12%, or one standard deviation, above its 200-day moving average (see right-hand chart below). But one has to question what will stop this run up. Historically, precious metals tend to “trend”, with both bull and bear markets lasting three years, or more. Indeed, looking back through gold bull markets in the post Bretton Woods era, one finds the following:

  • 1976-80: As inflation rose bonds and equities de-rated, while gold rallied. This changed when US short rates were jacked up to break inflation’s back.

  • 1985-88: The Plaza Accord saw major economies agree to a US dollar debasement. Gold and gold miners thrived in this era, only ending when Germany pulled out of the deal and US real rates started to rise.

  • 2001-11: President George W. Bush’s “guns and butter” policies spurred a weak US dollar. The concurrent rise of emerging markets meant that a new buyer showed up in the gold markets. This ended when the dollar began to strengthen.

  • 2018-?: Deglobalization, high US budget deficits, and surging monetary aggregates seem to have created a new gold bull market. Any breakdown in the US dollar from here will likely push gold higher. Looking at recent history, when gold bull markets get going they usually feed on their own momentum for quite a while and only end when facing (i) higher nominal interest rates, (ii) a stronger US dollar and (iii) a rise in real rates. Hence, consider these threats to the unfolding gold bull market.

Momentum: Gold bull markets may build up over multi-year periods as the metal speaks to the public’s imagination. For millennia, gold has been valued for its beauty, which may explain why it becomes more attractive as its price rises. The new thing—certainly in 2001-11—was most new wealth being created in emerging markets, where investors have a strong cultural affinity for gold. In contrast, the past decade saw most of the world’s wealth created around technology campuses on the US west coast by people with scant interest in the “barbarous relic”. This is interesting, as gold has ripped higher in the past two years in spite of a market consensus that global wealth creation in the coming years will match that of the last decade. In short, gold is showing strong momentum despite emerging markets having broadly been dogs with fleas for a decade. Imagine if the dollar is now done rising and EMs, led by Asia, again thrive. What a tailwind that would be for gold.

Higher nominal rates: It is easier to find an alluring candidate in the US presidential race than an OECD central banker even thinking of raising interest rates in his or her lifetime. Higher nominal interest rates are simply not a threat to the unfolding gold bull market.

Stronger US dollar: The main case for a stronger US dollar is that foreigners spent decades borrowing in the currency and a turnaround in the US’s current account deficit (thanks to its energy boom) will make it hard for foreigners to get dollars and service their debts. Cue a “US dollar short-squeeze” which would see the dollar exchange rate sky-rocket. There are many problems with this theory starting with the fact that—instead of improving—the US current account deficit is actually worsening (US consumers are shoveling ever more dollars offshore). Secondly, rather than rising, the cost of borrowing dollars continues to fall. Thirdly, since the Fed has swap lines with some 15 other key central banks, how can a dollar shortage develop? Moreover, how can dollars be scarce when US M2 is growing at about six times nominal US GDP growth, or 24.5% per annum—an absolute and relative record. Instead, the more interesting question is whether, over the next decade, foreigners find themselves using US dollars more to settle their foreign trade, or less. If less, then that should be structurally bearish for the dollar.

Surging gold supply: A key mantra of commodity investing is that the solution to high commodity prices is high commodity prices, just as the reverse holds true. Yet increases in commodity output, spurred by rising prices, is always lagged (why commodity prices usually trend for five to 10 years). A key question is thus whether the recent gold price rise is enough to trigger big production gains in the coming quarters. The answer is “no”. Rather than pour capital down new holes, gold miners have spent the past year consolidating with record takeover activity seen.

A rise in real rates: The above leaves a rise in real rates as the most credible threat to the unfolding gold bull market. Yet if nominal rates are not going to rise, the only way the US and other OECD countries can experience surging real rates is through an already low inflation rate collapsing more. But how? Energy prices seem to be done falling and labor costs are being supported by government diktat and purchasing power protection schemes. A possible source of future global deflation could be a collapse in real estate prices or alternatively a huge fall in the renminbi. So far, there are few signs of such shocks unfolding and it seems clear that policymakers in both the West and China are intent on stopping such developments. So with this in mind, it seems likely that a surge in real rates is not an immediate threat.

Putting it all together, the odds thus have to be that the stealth gold bull market will continue.

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Arizona Supreme Court Strikes Down Sentence Enhancement for “Criminal Street Gang Member[s]”

From today’s unanimous Arizona Supreme Court decision in State v. Arevalo, written by Justice John R. Lopez IV:

A.R.S. § 13-1202(B)(2), which enhances the sentence [here, from a class 1 misdemeanor to a class 6 felony] for threatening or intimidating if the defendant is a criminal street gang member, is [un]constitutional … because it increases a criminal sentence based solely upon gang status in violation of substantive due process….

The charges against defendant Christopher Arevalo arise from two distinct cases. First, as alleged, on March 4, 2017, Arevalo entered a convenience store, was asked to leave by an employee who recognized him from prior shoplifting incidents, and grabbed a bag of peanuts and a soda without paying. As he was leaving, Arevalo gestured towards the employee and the store manager, mimicked holding a firearm, and vocalized gunfire noises. Arevalo did not mention any gang affiliation during the encounter.

The employee and manager later told the police they believed Arevalo was a criminal street gang member and felt threatened by his behavior. After his arrest, Arevalo told officers he stole the items and, when questioned about gang membership, admitted he was a gang member. He explained he was a member of a street gang in Los Angeles and that he began associating with a local gang after moving to Arizona. Arevalo was indicted for two counts of threatening or intimidating in violation of § 13-1202(B)(2).

Then, on April 14, 2017, Arevalo’s father called 911 after Arevalo became aggressive during a family dispute. When police arrived, Arevalo was hiding in a bedroom and told police to leave. Arevalo threatened one officer, vowing to “bash his head” if the officer entered the room. Several officers eventually entered the room, wherein Arevalo threatened them with a tire iron. Arevalo was arrested and charged with two counts of threatening or intimidating in violation of § 13-1202(B)(2)…. The State … did not allege a nexus between Arevalo’s charged conduct and his gang membership….

“[G]uilt is personal, and when the imposition of punishment on a status or on conduct can only be justified by reference to the relationship of that status or conduct to other concededly criminal activity … that relationship must be sufficiently substantial to satisfy the concept of personal guilt in order to withstand attack under the Due Process Clause ….” Scales v. United States (1961).

In Scales, the defendant was charged under the Smith Act, which criminalized “the acquisition or holding of knowing membership in any organization which advocates the overthrow of the Government of the United States by force or violence.” The indictment alleged that the defendant was a member of the Communist Party of the United States and had “knowledge of the Party’s illegal purpose and a specific intent” to overthrow the government. The defendant challenged the statute’s constitutionality, in part, on due process grounds because “it impermissibly impute[d] guilt to an individual merely on the basis of his associations and sympathies, rather than because of some concrete personal involvement in criminal conduct.”

The Court distilled the constitutional inquiry to “an analysis of the relationship between the fact of membership and the underlying substantive illegal conduct, in order to determine whether that relationship is indeed too tenuous to permit its use as the basis of criminal liability.” In the context of the Smith Act’s criminalization of Communist Party membership, the Court reasoned that due process is satisfied only if the statute was applied to ” ‘active’ members” who have a “guilty knowledge and intent.” The Court declined to recognize “[m]embership, without more, in an organization engaged in illegal advocacy,” as a sufficient nexus between association and criminal activity to satisfy the concept of personal guilt under the due process clause.

We extract from Scales the principle that due process allows criminalization of membership in an organization only if such status has a sufficient connection, or nexus, to the underlying criminal conduct. We also import Scales‘ qualitative standard, even though it predates the three-tiered scrutiny level analysis the Supreme Court later adopted, because the relationship between associational membership and the underlying criminal conduct “must be sufficiently substantial to satisfy the concept of personal guilt in order to withstand attack under the Due Process Clause.” … [W]e conclude that § 13-1202(B)(2) fails even rational basis review—and therefore we need not analyze whether the statute meets strict or intermediate scrutiny—because it does not require a nexus between threatening or intimidating and gang membership….

The State argues that “the increased risk of violence when threats or intimidation [are] done by a gang member, versus a non-gang member … is the nexus the Court of Appeals referenced when it concluded [§] 13-1202(B)(2) does not penalize mere membership in a street gang.” The State reasons that there only “needs to be a relationship between the gang status and the crime of threatening and intimidating that is sufficient to permit gang membership’s use as the basis of criminal liability,” rather than a direct correlation between an individual’s gang membership and the purpose of his actual threats. We disagree.

Although a gang member’s proclamation of membership, when it accompanies the crime of threatening or intimidating, might provide a sufficient nexus between membership and the crime to justify enhanced punishment, a theoretical or abstract connection between the two fails to satisfy Scales‘ due process standard because “the relationship between the fact of membership and the underlying substantive illegal conduct” must be sufficiently substantial to warrant punishment. A non-gang member’s threat is indistinguishable from that of a gang member if the threat is not bolstered—or connected—by gang membership. The flaw in the State’s argument is that it sanctions what due process forbids—punishment based solely on associational status….

An example is illustrative. Assume a teenager is, unbeknownst to his mother, a gang member. In the midst of a domestic disturbance, he threatens to strike his mother and is subsequently charged with threatening or intimidating. Under the State’s argument and the court of appeals’ reasoning, the defendant would be subject to a (B)(2) sentencing enhancement for gang membership even though his mother was unaware of his affiliation, he never invoked it to bolster his threat, and the crime was altogether unrelated to his gang activity. And even if the mother knew of her son’s gang membership, the State would not have to prove that knowledge or otherwise relate his membership to the offense to invoke (B)(2)’s enhancement.

{It may be true that the policy animating (B)(2)’s enactment is to confront what is presumed to be “the added menace inflicted when a criminal street gang member is engaged in criminal conduct,” but the statute’s text [does not require evidence of such menace]—it penalizes mere membership in a criminal street gang.} By its terms, § 13-1202(B)(2) permits sentencing enhancement absent any nexus between gang membership and the crime. The absence of a nexus requirement between gang status and the crime of threatening or intimidating renders the statute facially invalid ….

The statute in Scales criminalized organizational membership whereas § 13-1202(B)(2) enhances a sentence, based on gang membership, for an underlying personal crime. But, as the State conceded at argument, this distinction is immaterial. Scales‘ “personal guilt” or “nexus” due process requirement applies with equal force to substantive offenses and sentencing enhancements….

The statutory structure of § 13-1202 further dispels the notion that (B)(2) serves any purpose other than to enhance punishment based solely on gang status. Section 13-1202(A)(3) provides: “A person commits threatening or intimidating if the person threatens or intimidates by word or conduct: … [t]o cause physical injury to another person or damage to the property of another in order to promote, further or assist in the interests of or to cause, induce or solicit another person to participate in a criminal street gang ….” A violation of (A)(3) is a class 3 felony pursuant to § 13-1202(C).

Section (A)(3) evinces the legislature’s intent to justify an enhanced sentence for threatening or intimidating when a sufficient nexus exists between a defendant’s gang membership and the underlying crime. By contrast, other than its impermissible purpose to penalize mere gang membership, any constitutional application of (B)(2) would render the provision superfluous because a violation of (A)(3) would, in most instances, subsume it.

We note that courts in other jurisdictions have held similar statutes unconstitutional as violative of due process if they penalize gang membership without requiring a nexus between gang status and the underlying crime…. In O.C., the Florida Supreme Court invalidated a statute that enhanced penalties “[u]pon a finding by the court at sentencing that the defendant is a member of a criminal street gang” because the statute did not require a nexus and lacked a ” ‘reasonable and substantial relation’ to a permissible legislative objective.”

Similarly, in Bonds, the Tennessee Court of Criminal Appeals examined a statute that stated, in relevant part, that “[a] criminal gang offense committed by a defendant who was a criminal gang member at the time of the offense shall be punished one (1) classification higher than the classification established by the specific statute creating the offense committed.” The defendants challenged the statute as a violation of substantive due process because it “lack[ed] a nexus between gang membership and criminal conduct.” The court held the subsection unconstitutional as it was “completely devoid of language requiring that the underlying offense be somehow gang-related.” Consequently, like § 13-1202(B)(2), the statute impermissibly enhanced the defendant’s punishment solely for his association with a gang….

I’m skeptical of the court’s conclusion that the statute “fails even rational basis review”; that famously forgiving standard, under which statutes must be upheld if there is “any conceivable rational basis” to believe they “further a legitimate governmental interest,” seems amply satisfied here. For instance, the law can be rationally believed to further a legitimate governmental interest in deterring street gang membership.

Likewise, it can be rationally believed to further a legitimate governmental interest in especially punishing crimes that are especially threatening or intimidating, because people who know the criminal is a street gang member may be especially frightened (and especially reluctant to call the police). To be sure, the law may be overinclusive to that interest, because the law applies even to defendants whom the victims don’t suspect of being gang members; but overinclusiveness is generally not enough to invalidate a statute under the rational basis test. I think it would have been better for the court to acknowledge that it was applying more demanding review than the traditional “rational basis review” (Scales does suggest that more demanding review is called for), and to explain why the statute failed that review.

The statute, by the way, defined “criminal street gang” to essentially mean “an ongoing formal or informal association of persons in which members or associates individually or collectively engage in the commission, attempted commission, facilitation or solicitation of any felony act.”

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Arizona Supreme Court Justice Clint Bolick, Writing Against the “Presumption of Constitutionality”

Before being appointed to the Arizona Supreme Court, Justice Bolick had been one of the leading libertarian lawyers in the country (he cofounded the Institute for Justice); this is from his opinion today in State v. Arevalo, which was also joined by retired Justice John Pelander:

I join fully the Court’s well-reasoned opinion. In addition to the substantive issues addressed by the Court, Arevalo made arguments regarding the proper application of the presumption of statutory constitutionality. I write separately because I would discard that presumption.

It is essential to our system of justice, and to its endurance, that every person enter the courtroom on a level playing field. Sometimes our rules of procedure provide a momentary advantage to one side or the other, but ideally the law is blind to the identity, power, and resources of the litigants.

All of that is represented by the most ubiquitous symbol of the American judicial system, the scales of justice. They are, by their nature and necessity, evenly balanced. But when a litigant, whether in a criminal or civil context, argues that a law that diminishes liberty is unconstitutional, the scales are tipped by the presumption of constitutionality in favor of the government. Although this presumption is deeply rooted in our jurisprudence, it is antithetical to the most fundamental of ideals: that our constitutions are intended primarily not to shelter government power, but to protect individual liberty.

Although Arizona courts adopted the presumption of constitutionality from federal jurisprudence, it is more pronounced here than at the national level. As this Court has applied it over the years, the presumption and the burden to overcome it can be heavy.

A constitutional attack upon a statute triggers several “cardinal rules.” First, that the “[b]urden is on him who attacks constitutionality of legislation.” Second, “[g]enerally, every legislative act is presumed to be constitutional and every intendment must be indulged in by the courts in favor of validity of such an act.” Third, the Court “will not declare a legislative act unconstitutional unless satisfied beyond a reasonable doubt of its unconstitutionality.” Indeed, an early decision went so far as to say that the burden on a party challenging the constitutionality of a statute is of “as great a weight of evidence and reasoning as would be required to be presented by the state to convict a defendant of murder.”

This Court has recognized problems with the presumption over the years and has trimmed its sails a bit. For instance, the Court disapproved the “beyond a reasonable doubt” standard because “[d]etermining constitutionality is a question of law, which we review de novo,” and this inquiry “fundamentally differs from determining the existence of historical facts, the determination of which is subject to deference.” Likewise, the Court has declared that “if a law burdens fundamental rights, such as free speech or freedom of religion, any presumption in its favor falls away.”

Despite that constructive step, the Court attached the presumption’s application to a fundamental-rights rubric that is at once familiar, yet amorphous as to which side of the line a particular right resides. And although the Court held that the presumption should “fall away” in matters pertaining to such fundamental rights, it added that the presumption should remain intact when “the law in question touches only peripherally” on such rights. In this case, the Court does not confront those nuances, perhaps because it is not clear from this amorphous framework when the Court should place its thumb on the scale in favor of the government.

The rationale for the presumption of constitutionality is two-fold: that because other public officials have all taken an oath to the constitution, courts should assume as a matter of comity that they have acted in accordance with the oath; and that without such a presumption, courts might transgress upon the legislature’s powers on the basis of policy disagreements. The United States Supreme Court has explained that “[a] decent respect for a co-ordinate branch of the government demands that the judiciary should presume, until the contrary is clearly shown, that there has been no transgression of power by Congress—all the members of which act under the obligation of an oath of fidelity to the Constitution.”

Similar rationales have informed Arizona jurisprudence. “The Arizona Legislature is vested with the legislative power of the state, and has plenary power to deal with any subject within the scope of civil government unless it is restrained by the provisions of the Constitution.” Moreover, “questions of the wisdom, justice, policy or expediency of a statute are for the legislature alone.”

I agree with the propositions expressed in [the preceding paragraph], but they do not support a presumption of constitutionality. Neither the federal nor state constitution suggests an elevation of legislative or executive power over individual rights. To the contrary, both constitutions establish the protection of individual rights as a core purpose. See, e.g., U.S. Const. Preamble (establishing the Constitution “to … secure the Blessings of Liberty to ourselves and our Posterity”); Ariz. Const. art. 2, § 2 (“[G]overnments … are established to protect and maintain individual rights.”). Indeed, our constitutionally mandated separation of powers, proclaimed in article 3, “is part of an overall constitutional scheme to protect individual rights.” These purposes, conjoined with express guarantees of individual rights in the Bill of Rights and Arizona’s Declaration of Rights, undermine any notion that courts should presume that laws infringing individual rights are constitutional.

Indeed, the role of the independent judiciary in our constitutional system is to protect individual rights by ensuring that the political branches do not exceed their constitutionally assigned authority. As Alexander Hamilton explained in The Federalist, “the courts were designed to be an intermediate body between the people and the legislature, in order, among other things, to keep the latter within the limits assigned to their authority.” Without the independent judgment of the judiciary, he declared, “all the reservations of particular rights or privileges would amount to nothing.”

This view of the framers became the bulwark of American jurisprudence in Marbury v. Madison. There the Court famously declared that “it is emphatically the province and the duty of the judicial department to say what the law is,” and thus the courts cannot simply “close their eyes” to laws that violate the Constitution. A contrary view of the judiciary’s constitutional authority “would be giving to the legislature a practical and real omnipotence, with the same breath which professes to restrict their powers within narrow limits.”

The role of judicial review articulated by Marbury leaves no room for the presumption that the legislature acts constitutionally. See, e.g., Gary Lawson, Thayer Versus Marshall, 88 Nw. U. L. Rev. 221, 224–25 (1993). It is true that members of all three branches take constitutional oaths and thereby are obliged to act constitutionally. But their respective roles require the courts to serve as the ultimate arbiter, especially when it comes to the legislative body, which by its nature advances the views of the majority and resolves competing interests. As James Madison remarked, “[i]t is in vain to say that enlightened statesmen will be able to adjust these clashing interests, and render them all subservient to the public good.” Moreover, he warned, “a body of men are unfit to be both judges and parties at the same time,” yet legislators who enact laws “concerning the rights of large bodies of citizens” are “advocates and parties to the causes which they determine[.]”

Given the competing interests asserted in the legislative process, Madison proclaimed: “Justice ought to hold the balance between them.” Specifically, “[t]he prescriptions in favor of liberty ought to be levelled against that quarter where the greatest danger lies,” Madison argued, namely, “the body of the people, operating by the majority against the minorityThus, as this Court has recognized, “it is well settled that when one with standing challenges a duly enacted law on constitutional grounds, the judiciary is the department to resolve the issue even though promulgation and approval of statutes are constitutionally committed to the other two political branches.”

We can preserve the broad authority conferred by the constitution upon the legislature without diminishing the essential role of the judiciary by strictly observing essential boundaries and limits on judicial authority, some of which are expressly recognized in the Court’s opinion today. The courts should never substitute their policy judgments for those of the legislature, but instead should simply undertake the narrow task of determining whether the legislature acted within its constitutional authority. We should never rewrite laws or exercise legislative functions. See The Federalist No. 78 (Alexander Hamilton) (“[L]iberty can have nothing to fear from the judiciary alone but would have every thing to fear from its union with either of the other departments[.]”). And if a matter is constitutionally entrusted to another branch of government, we should refrain from intervening in its resolution. All of these are proper rules of judicial deference.

Similarly, as a matter of statutory interpretation, we should whenever possible avoid constructions that would render the legislature’s handiwork unconstitutional. Whenever a court interprets any document, whether a contract or statute, we should disfavor “interpretations that would nullify the provision or the entire instrument.” More specifically, we should avoid interpreting a statute in a way that places its constitutionality in doubt. That interpretative canon traces to the notion that “a legislature should not be presumed to be sailing close to the wind, so to speak—entering an area of questionable constitutionality without making that entrance utterly clear.”

Although “that is today a dubious rationale,” it is still the case that “courts should minimize the occasions on which they confront and perhaps contradict the legislative branch.” By happy happenstance, interpreting a statute to avoid an unconstitutional effect is ordinarily an outcome that both parties should favor, as the challenger’s constitutional rights are preserved while so too is the legislation.

But interpreting statutes to avoid constitutional problems when an equally plausible interpretation presents itself is different, by order of magnitude, from a presumption that a statute is constitutional. When a court defers to legislative judgments about the constitutionality of statutes, it abdicates its most essential constitutional duty. Indeed, the presumption of constitutionality is at war with de novo review, which we announce every time we decide a statute’s constitutionality. De novo means “anew.” Anew means “as if a new start were being made and without reference to or observance of past acts or actions.” What we mean by de novo review, when coupled with a presumption of constitutionality, is that we disregard the reasoned legal judgment of the courts below, but we credit the legislature’s self-interested determination of its own constitutional authority. That is not true de novo review, yet true de novo review is exactly what our constitutional duty requires.

The presumption of constitutionality is increasingly subject to critical judicial and scholarly reexamination. See, e.g., Randy E. Barnett, Restoring the Lost Constitution: The Presumption of Liberty (2004); F. Andrew Hessick, Rethinking the Presumption of Constitutionality, 85 Notre Dame L. Rev. 1447 (2010); Robert F. Utter, Freedom and Diversity in a Federal System: Perspectives on State Constitutions and the Washington Declaration of Rights, 7 U. Puget Sound L. Rev. 491, 507 (1984) (presumption of constitutionality “seriously hampers the courts’ accomplishment of what … the Washington Declaration [of Rights] defines as the fundamental purpose of our state’s constitution and government: to protect and maintain individual rights”).

Three members of the Texas Supreme Court recently questioned excessive judicial deference to legislative enactments in Patel v. Texas Department of Licensing and Regulation. The justices noted that “[a] pro-liberty presumption is … hardwired into the Texas Constitution,” meaning that “Texans are thus presumptively free, and government must justify its deprivations.” 469 S.W.3d 69, 93 (Tex. 2015) (Willett, J., concurring). The same is true under the Arizona Constitution. The Texas justices aptly observed that “[l]awmakers’ policy-setting power is unrivaled—but it is not unlimited. Preeminence does not equal omnipotence. Politicians decide if laws pass, but courts decide if those laws pass muster.” Citing The Federalist No. 10, these concurring justices observed that “when people, or branches of government, are free to judge their own actions, nothing is prohibited.” Although “[t]he question for judges is not whether a law is sensible but whether it is constitutional,” “we should be neutral arbiters, not bend-over-backwards advocates for the government.”

What does the presumption of constitutionality mean in real life and real cases? It is hard to say. Is it mere verbiage that we recite to show we are appropriately constrained before we strike down a law? See, e.g., John D. Leshy, The Arizona State Constitution 119 (2d ed. 2013) (asserting that the Court has “overstate[d] the degree to which the judiciary defers to legislative judgments”). Or is it a significant weight on the scales of justice, which presents a real risk of sustaining unconstitutional laws because they do not meet the more exacting requirement of being “clearly” unconstitutional? Either way, the result is unsatisfying, yet sends an unmistakable message to Arizonans that they face a judicially manufactured uphill battle any time they challenge an infringement of their rights.

We should dispense with the presumption. Although deeply embedded in our jurisprudence, it should not continue to subordinate the essential role of the independent judiciary in protecting individual rights that was so central to our constitutional design. On this point our constitution furnishes the necessary counsel: “A frequent recurrence to fundamental principles is essential to the security of individual rights and the perpetuity of free government.” Ariz. Const. art. 2, § 1.

 

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When a Killing Becomes a Rorschach Test: Dispatch From Portland

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The country is in the grip of a hallucinatory fever, one that has people seeing as monstrous or heroic any action that confirms that their side is right and the other is wrong. 

This was on display Sunday morning, when individuals and media accounts rationalized the point-blank killing of Aaron J. “Jay” Danielson: They claimed that he was an outsider (Danielson lived in Portland), that he’d been coming at the killer while a gun was in his hand (it would prove to be a can of Mace), that the murder of Danielson (who was white) was “a bit of justice for the black people that were killed by police” (at odds with any version of morality), and, always, that he was wearing a Patriot Prayer baseball cap.

This last detail may not mean much to those outside of Portland, but Patriot Prayer and its founder, Joey Gibson, are characterized by left-wing activists and protesters as right-wing extremists who come to Portland to bash heads and stoke division and, thus, are the enemy. Though Patriot Prayer had maintained virtually no presence in Portland since the protests began—up until Danielson’s murder by a self-proclaimed supporter of antifa, that is—that did not deter activists from seeing the murder as nothing to be sorry about. On Sunday morning, I watched a video of people cheering Danielson’s death. It is both an abomination and evidence of any movement’s ultimate failure. You cannot celebrate the shooting of one man by another, no matter how much you claim the killing conforms to your sense of justice, and expect to achieve justice.

Did any on the activist side feel contrition? Maybe. The morning after the murder, some people associated with antifa seemed spooked that a person on “their” side had gone ahead and done the killing that had been crackling in the air for weeks. One member tweeted that he’d gone home early Saturday night because he felt things were getting hot downtown and intimated it was OK for others to do the same, a sentiment that contradicts the nightly chant of, “Stay together! Stay tight! We do this every night!” Another member, who at first asked me to promote the idea that “last night’s shooter acted in self-defense,” went quiet after video revealed this was not the case and the shooter was positively identified as being on the pro-antifa side.

Which raises the question: What counts as being on someone’s side? The shooter, Michael Reinoehl, was a 48-year-old with a troubled past and a police record who in the spring locked in on Black Lives Matter (BLM) as a place he might find purchase. In a post on his Instagram account, he wrote: “Every Revolution needs people that are willing and ready to fight…I am 100% ANTIFA all the way! I am willing to fight for my brothers and sisters!…#Antifa #blaklivesmatter [sic] #fuckthepolice

In July, Reinoehl was filmed saying he’d been shot while protecting BLM protesters; also, that he’d brought along his young daughter (seen eating from a takeout container in the front seat of a car) because “I’m trying to give her an education…she’s going to be contributing to running this new country that we’re fighting for.” 

Whether Reinoehl thought he would be seen as a hero, or had hate in his heart, or something else entirely may be determined later. What we can know today is that his actions are a symptom of what happens when a movement gets such a glow that it attracts people ready to take things to the next level. For most people, fatal violence causes an instinct to recoil, to take a step back and reconsider. But not for everyone. The night after Danielson’s murder, activists again tried to burn a police station. The night after that, they were back at Mayor Ted Wheeler’s apartment building, setting fires. That things will get worse before they get better seems inevitable; a movement that justifies intimidation and violence moves in only one direction, and anyone who says they did not see this coming to the streets of Portland has not been paying attention.

“He was courageous, but very gentle,” Joey Gibson said. It had been 19 hours since his friend Danielson had been shot and killed. Gibson, 36, was back home in Vancouver, Washington, just north of Portland. It had been one day since he and other members of Patriot Prayer had decided at the last minute to join a truck caravan in support of President Donald Trump they’d seen publicized on Facebook.

“It wasn’t even a Patriot Prayer thing,” he said. “We just went down with a bunch of guys.”

Gibson, who’s clashed with antifa in Portland many times, had not been overly nervous about the caravan entering the city. “I expected it to be okay because the organizer did not announce the route,” he said. “Antifa and these protesters, if you don’t give them preparation, it’s usually safe.”

It is not controversial to say that antifa does not like Gibson and that they see him as the embodiment of the oppression they are fighting: He looks white (Gibson is half-Japanese), he seems to be a Republican (Gibson claims he is a libertarian), and he’s a practicing Christian. He is also a provocateur aware of the reaction he provokes. He’s like catnip to antifa. Recent forays into Portland have resulted in him being mobbed by protesters, despite what he claims was his mission that day: to promote Black Lives Matter.

“I went in there by myself after Marquise Love pulled that guy out of the truck and kicked him in the head,” Gibson said. “I showed up with a bullhorn 24 hours later and went down[town] and called them out. ‘You want to stand for black lives? Okay, good. Let’s do that. But let’s call out these people who are trying to murder other people.'”

If Gibson considers himself a peacekeeper, most Portlanders see him as a fascist. The day after Danielson was killed, Gov. Kate Brown released a statement. “The right-wing group Patriot Prayer and self-proclaimed militia members drove into downtown Portland last night, armed and looking for a fight,” she declared. “Every Oregonian has the right to freely express their views without fear of deadly violence. I will not allow Patriot Prayer and armed white supremacists to bring more bloodshed to our streets.”

It is true that members of Patriot Prayer sometimes carry weapons. It is true that the truck caravan, made up of different pro-Trump factions, blasted street protesters with paintball guns and Mace. In turn, protesters pelted them with various objects and sprayed them with urine from Super Soakers.

Had this been the Portland of a year ago, the clash between the right and left might have ended there. A Proud Boys versus antifa rally in August 2019 seemed mostly to be LARPing and boo-ya! 

In the past, it felt like more of a professional wrestling or football type of thing. George Floyd changed that,” said Gibson. “Then you’ve got COVID, you’ve got the lockdown, everyone’s angry. A lot of people aren’t working. Tensions are really high. It’s definitely true and you can feel it. It’s in the air. Even last night, I felt something just in the air, that tension.”

Aaron Danielson and Chandler Pappas were in downtown Portland just after 8 p.m. on Saturday. The friends were no longer part of the truck caravan, more scouting out what was still going on of the confrontation. Both were carrying Mace and Danielson carried a knife. Both were wearing Patriot Prayer hats. At 8:38 p.m., Pappas heard someone say, “Got a couple of ’em right here! Got a couple of ’em right here!” and, a moment later, “Pull it out! Pull it out!” He and Danielson turned around, and if Danielson registered that a gun was being pointed at them, Pappas did not. Then two shots rang out and people started running. Pappas tried to process what had happened; did someone just shoot at them? He was OK. Danielson was not, he was on the ground. One bullet had gone through the can of Mace he was holding. The other had gone through his chest. 

“Jay’s dead because he believed something different,” Pappas would say the next day. “Jay’s not a racist, he’s not a xenophobe or whatever label. He’s not an –ist or an –ism. He’s an independent man. And he’s a good man. And he didn’t do anything to earn a bullet in the chest.”

When asked what he would want Trump to do in reaction to the killing, Pappas said, “Send troops. Send troops.”

The city of Portland and the state of Oregon would not request federal troops. On the contrary, during a press conference the day after the killing, Mayor Wheeler was adamant about placing much of the blame for the city’s violence and the violence gripping the nation with the Trump administration and what Wheeler sees as the president’s rhetoric of hate. Whatever one feels about Wheeler’s or Trump’s blind spots or inadequacies, sending federal troops to Portland right now would almost surely escalate the conflict.

Perhaps understanding this, Gov. Brown instead came up with a six-point plan. She would need to mollify multiple groups in Portland at the expense of others. She would have nearby municipalities shore up the Portland Police Bureau. She would request that the FBI “commit additional resources for investigation of criminal activity.” Earlier in the plan is where she’d mentioned, “The right-wing group Patriot Prayer and self-proclaimed militia members drove into downtown Portland last night, armed and looking for a fight.” There was no mention of any other faction involved in the fight.

Brown’s plan to reinstate peace backfired within a day, with the sheriffs in both Washington and Clackamas counties, which border Portland, refusing to offer more than ancillary support. The departments laid out the steps that had gotten Portland where it was—the defunding of certain police programs, the decriminalization of violent acts committed by protesters—and essentially said, you broke it, you fix it.

Gibson had left the truck caravan early Saturday evening and headed back to its starting point in Clackamas, 16 miles south of Portland. At that point he saw some video of trucks that seemed like they were “stuck and being attacked” and decided to head back to the city, along with a friend. 

“It was just a coincidence we showed up right where Jay’s body was,” he said, though he did not see Danielson or yet know that he had been killed. He did see the protesters, who recognized him immediately.

“I came around the corner, and all of a sudden, there’s like 300, 400 of them,” he said. “I cannot run from them, because when you run, they psychologically just get into the mob mentality of, ‘Let’s beat him up.'”

Instead, he and his friend walked slowly. They had to; they were surrounded by antifa and other protesters screaming, “GO HOME JOEY!” Someone in the crowd, whom Gibson called “one brave girl,” joined them, as did several other people who broke away from the protesters and acted as de facto bodyguards. They got Gibson to a gas station, where he took refuge as dozens of protesters shouted and pounded on the building.

“Anyone else you see in that video that was protecting us? These are Black Lives Matter types,” he said “It means a lot to see them step up and try to protect us and put themselves basically in danger.”

Gibson claiming to need protection will strike some as hilarious or posturing or evil misdirection. It complicates the picture to see someone nearly always presented as the aggressor as anything else. Being unwilling to complicate the picture—to see people’s actions only through a scrim of ideology, or as Brown or Trump would have us see it—has gotten us where we are.

While the grievous police shooting of Jacob Blake earlier in the week in Kenosha, Wisconsin, provoked an enormous national response, the reaction to the killing in Portland has been much more muted. Someone who livestreamed Danielson’s killing told the New York Times that he “believed the Portland police should not have allowed the pro-Trump caravan to enter an area they knew would be occupied by opposing protesters.” While any protest death can become a political football, some are deemed more useful than others in advancing a narrative. If we want to transcend the deadly impasse at which we find ourselves, we cannot start assigning value to one person’s life but not another’s, no matter how doing so mixes up the picture.

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Arizona Supreme Court Justice Clint Bolick, Writing Against the “Presumption of Constitutionality”

Before being appointed to the Arizona Supreme Court, Justice Bolick had been one of the leading libertarian lawyers in the country (he cofounded the Institute for Justice); this is from his opinion today in State v. Arevalo, which was also joined by retired Justice John Pelander:

I join fully the Court’s well-reasoned opinion. In addition to the substantive issues addressed by the Court, Arevalo made arguments regarding the proper application of the presumption of statutory constitutionality. I write separately because I would discard that presumption.

It is essential to our system of justice, and to its endurance, that every person enter the courtroom on a level playing field. Sometimes our rules of procedure provide a momentary advantage to one side or the other, but ideally the law is blind to the identity, power, and resources of the litigants.

All of that is represented by the most ubiquitous symbol of the American judicial system, the scales of justice. They are, by their nature and necessity, evenly balanced. But when a litigant, whether in a criminal or civil context, argues that a law that diminishes liberty is unconstitutional, the scales are tipped by the presumption of constitutionality in favor of the government. Although this presumption is deeply rooted in our jurisprudence, it is antithetical to the most fundamental of ideals: that our constitutions are intended primarily not to shelter government power, but to protect individual liberty.

Although Arizona courts adopted the presumption of constitutionality from federal jurisprudence, it is more pronounced here than at the national level. As this Court has applied it over the years, the presumption and the burden to overcome it can be heavy.

A constitutional attack upon a statute triggers several “cardinal rules.” First, that the “[b]urden is on him who attacks constitutionality of legislation.” Second, “[g]enerally, every legislative act is presumed to be constitutional and every intendment must be indulged in by the courts in favor of validity of such an act.” Third, the Court “will not declare a legislative act unconstitutional unless satisfied beyond a reasonable doubt of its unconstitutionality.” Indeed, an early decision went so far as to say that the burden on a party challenging the constitutionality of a statute is of “as great a weight of evidence and reasoning as would be required to be presented by the state to convict a defendant of murder.”

This Court has recognized problems with the presumption over the years and has trimmed its sails a bit. For instance, the Court disapproved the “beyond a reasonable doubt” standard because “[d]etermining constitutionality is a question of law, which we review de novo,” and this inquiry “fundamentally differs from determining the existence of historical facts, the determination of which is subject to deference.” Likewise, the Court has declared that “if a law burdens fundamental rights, such as free speech or freedom of religion, any presumption in its favor falls away.”

Despite that constructive step, the Court attached the presumption’s application to a fundamental-rights rubric that is at once familiar, yet amorphous as to which side of the line a particular right resides. And although the Court held that the presumption should “fall away” in matters pertaining to such fundamental rights, it added that the presumption should remain intact when “the law in question touches only peripherally” on such rights. In this case, the Court does not confront those nuances, perhaps because it is not clear from this amorphous framework when the Court should place its thumb on the scale in favor of the government.

The rationale for the presumption of constitutionality is two-fold: that because other public officials have all taken an oath to the constitution, courts should assume as a matter of comity that they have acted in accordance with the oath; and that without such a presumption, courts might transgress upon the legislature’s powers on the basis of policy disagreements. The United States Supreme Court has explained that “[a] decent respect for a co-ordinate branch of the government demands that the judiciary should presume, until the contrary is clearly shown, that there has been no transgression of power by Congress—all the members of which act under the obligation of an oath of fidelity to the Constitution.”

Similar rationales have informed Arizona jurisprudence. “The Arizona Legislature is vested with the legislative power of the state, and has plenary power to deal with any subject within the scope of civil government unless it is restrained by the provisions of the Constitution.” Moreover, “questions of the wisdom, justice, policy or expediency of a statute are for the legislature alone.”

I agree with the propositions expressed in [the preceding paragraph], but they do not support a presumption of constitutionality. Neither the federal nor state constitution suggests an elevation of legislative or executive power over individual rights. To the contrary, both constitutions establish the protection of individual rights as a core purpose. See, e.g., U.S. Const. Preamble (establishing the Constitution “to … secure the Blessings of Liberty to ourselves and our Posterity”); Ariz. Const. art. 2, § 2 (“[G]overnments … are established to protect and maintain individual rights.”). Indeed, our constitutionally mandated separation of powers, proclaimed in article 3, “is part of an overall constitutional scheme to protect individual rights.” These purposes, conjoined with express guarantees of individual rights in the Bill of Rights and Arizona’s Declaration of Rights, undermine any notion that courts should presume that laws infringing individual rights are constitutional.

Indeed, the role of the independent judiciary in our constitutional system is to protect individual rights by ensuring that the political branches do not exceed their constitutionally assigned authority. As Alexander Hamilton explained in The Federalist, “the courts were designed to be an intermediate body between the people and the legislature, in order, among other things, to keep the latter within the limits assigned to their authority.” Without the independent judgment of the judiciary, he declared, “all the reservations of particular rights or privileges would amount to nothing.”

This view of the framers became the bulwark of American jurisprudence in Marbury v. Madison. There the Court famously declared that “it is emphatically the province and the duty of the judicial department to say what the law is,” and thus the courts cannot simply “close their eyes” to laws that violate the Constitution. A contrary view of the judiciary’s constitutional authority “would be giving to the legislature a practical and real omnipotence, with the same breath which professes to restrict their powers within narrow limits.”

The role of judicial review articulated by Marbury leaves no room for the presumption that the legislature acts constitutionally. See, e.g., Gary Lawson, Thayer Versus Marshall, 88 Nw. U. L. Rev. 221, 224–25 (1993). It is true that members of all three branches take constitutional oaths and thereby are obliged to act constitutionally. But their respective roles require the courts to serve as the ultimate arbiter, especially when it comes to the legislative body, which by its nature advances the views of the majority and resolves competing interests. As James Madison remarked, “[i]t is in vain to say that enlightened statesmen will be able to adjust these clashing interests, and render them all subservient to the public good.” Moreover, he warned, “a body of men are unfit to be both judges and parties at the same time,” yet legislators who enact laws “concerning the rights of large bodies of citizens” are “advocates and parties to the causes which they determine[.]”

Given the competing interests asserted in the legislative process, Madison proclaimed: “Justice ought to hold the balance between them.” Specifically, “[t]he prescriptions in favor of liberty ought to be levelled against that quarter where the greatest danger lies,” Madison argued, namely, “the body of the people, operating by the majority against the minorityThus, as this Court has recognized, “it is well settled that when one with standing challenges a duly enacted law on constitutional grounds, the judiciary is the department to resolve the issue even though promulgation and approval of statutes are constitutionally committed to the other two political branches.”

We can preserve the broad authority conferred by the constitution upon the legislature without diminishing the essential role of the judiciary by strictly observing essential boundaries and limits on judicial authority, some of which are expressly recognized in the Court’s opinion today. The courts should never substitute their policy judgments for those of the legislature, but instead should simply undertake the narrow task of determining whether the legislature acted within its constitutional authority. We should never rewrite laws or exercise legislative functions. See The Federalist No. 78 (Alexander Hamilton) (“[L]iberty can have nothing to fear from the judiciary alone but would have every thing to fear from its union with either of the other departments[.]”). And if a matter is constitutionally entrusted to another branch of government, we should refrain from intervening in its resolution. All of these are proper rules of judicial deference.

Similarly, as a matter of statutory interpretation, we should whenever possible avoid constructions that would render the legislature’s handiwork unconstitutional. Whenever a court interprets any document, whether a contract or statute, we should disfavor “interpretations that would nullify the provision or the entire instrument.” More specifically, we should avoid interpreting a statute in a way that places its constitutionality in doubt. That interpretative canon traces to the notion that “a legislature should not be presumed to be sailing close to the wind, so to speak—entering an area of questionable constitutionality without making that entrance utterly clear.”

Although “that is today a dubious rationale,” it is still the case that “courts should minimize the occasions on which they confront and perhaps contradict the legislative branch.” By happy happenstance, interpreting a statute to avoid an unconstitutional effect is ordinarily an outcome that both parties should favor, as the challenger’s constitutional rights are preserved while so too is the legislation.

But interpreting statutes to avoid constitutional problems when an equally plausible interpretation presents itself is different, by order of magnitude, from a presumption that a statute is constitutional. When a court defers to legislative judgments about the constitutionality of statutes, it abdicates its most essential constitutional duty. Indeed, the presumption of constitutionality is at war with de novo review, which we announce every time we decide a statute’s constitutionality. De novo means “anew.” Anew means “as if a new start were being made and without reference to or observance of past acts or actions.” What we mean by de novo review, when coupled with a presumption of constitutionality, is that we disregard the reasoned legal judgment of the courts below, but we credit the legislature’s self-interested determination of its own constitutional authority. That is not true de novo review, yet true de novo review is exactly what our constitutional duty requires.

The presumption of constitutionality is increasingly subject to critical judicial and scholarly reexamination. See, e.g., Randy E. Barnett, Restoring the Lost Constitution: The Presumption of Liberty (2004); F. Andrew Hessick, Rethinking the Presumption of Constitutionality, 85 Notre Dame L. Rev. 1447 (2010); Robert F. Utter, Freedom and Diversity in a Federal System: Perspectives on State Constitutions and the Washington Declaration of Rights, 7 U. Puget Sound L. Rev. 491, 507 (1984) (presumption of constitutionality “seriously hampers the courts’ accomplishment of what … the Washington Declaration [of Rights] defines as the fundamental purpose of our state’s constitution and government: to protect and maintain individual rights”).

Three members of the Texas Supreme Court recently questioned excessive judicial deference to legislative enactments in Patel v. Texas Department of Licensing and Regulation. The justices noted that “[a] pro-liberty presumption is … hardwired into the Texas Constitution,” meaning that “Texans are thus presumptively free, and government must justify its deprivations.” 469 S.W.3d 69, 93 (Tex. 2015) (Willett, J., concurring). The same is true under the Arizona Constitution. The Texas justices aptly observed that “[l]awmakers’ policy-setting power is unrivaled—but it is not unlimited. Preeminence does not equal omnipotence. Politicians decide if laws pass, but courts decide if those laws pass muster.” Citing The Federalist No. 10, these concurring justices observed that “when people, or branches of government, are free to judge their own actions, nothing is prohibited.” Although “[t]he question for judges is not whether a law is sensible but whether it is constitutional,” “we should be neutral arbiters, not bend-over-backwards advocates for the government.”

What does the presumption of constitutionality mean in real life and real cases? It is hard to say. Is it mere verbiage that we recite to show we are appropriately constrained before we strike down a law? See, e.g., John D. Leshy, The Arizona State Constitution 119 (2d ed. 2013) (asserting that the Court has “overstate[d] the degree to which the judiciary defers to legislative judgments”). Or is it a significant weight on the scales of justice, which presents a real risk of sustaining unconstitutional laws because they do not meet the more exacting requirement of being “clearly” unconstitutional? Either way, the result is unsatisfying, yet sends an unmistakable message to Arizonans that they face a judicially manufactured uphill battle any time they challenge an infringement of their rights.

We should dispense with the presumption. Although deeply embedded in our jurisprudence, it should not continue to subordinate the essential role of the independent judiciary in protecting individual rights that was so central to our constitutional design. On this point our constitution furnishes the necessary counsel: “A frequent recurrence to fundamental principles is essential to the security of individual rights and the perpetuity of free government.” Ariz. Const. art. 2, § 1.

 

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When a Killing Becomes a Rorschach Test: Dispatch From Portland

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The country is in the grip of a hallucinatory fever, one that has people seeing as monstrous or heroic any action that confirms that their side is right and the other is wrong. 

This was on display Sunday morning, when individuals and media accounts rationalized the point-blank killing of Aaron J. “Jay” Danielson: They claimed that he was an outsider (Danielson lived in Portland), that he’d been coming at the killer while a gun was in his hand (it would prove to be a can of Mace), that the murder of Danielson (who was white) was “a bit of justice for the black people that were killed by police” (at odds with any version of morality), and, always, that he was wearing a Patriot Prayer baseball cap.

This last detail may not mean much to those outside of Portland, but Patriot Prayer and its founder, Joey Gibson, are characterized by left-wing activists and protesters as right-wing extremists who come to Portland to bash heads and stoke division and, thus, are the enemy. Though Patriot Prayer had maintained virtually no presence in Portland since the protests began—up until Danielson’s murder by a self-proclaimed supporter of antifa, that is—that did not deter activists from seeing the murder as nothing to be sorry about. On Sunday morning, I watched a video of people cheering Danielson’s death. It is both an abomination and evidence of any movement’s ultimate failure. You cannot celebrate the shooting of one man by another, no matter how much you claim the killing conforms to your sense of justice, and expect to achieve justice.

Did any on the activist side feel contrition? Maybe. The morning after the murder, some people associated with antifa seemed spooked that a person on “their” side had gone ahead and done the killing that had been crackling in the air for weeks. One member tweeted that he’d gone home early Saturday night because he felt things were getting hot downtown and intimated it was OK for others to do the same, a sentiment that contradicts the nightly chant of, “Stay together! Stay tight! We do this every night!” Another member, who at first asked me to promote the idea that “last night’s shooter acted in self-defense,” went quiet after video revealed this was not the case and the shooter was positively identified as being on the pro-antifa side.

Which raises the question: What counts as being on someone’s side? The shooter, Michael Reinoehl, was a 48-year-old with a troubled past and a police record who in the spring locked in on Black Lives Matter (BLM) as a place he might find purchase. In a post on his Instagram account, he wrote: “Every Revolution needs people that are willing and ready to fight…I am 100% ANTIFA all the way! I am willing to fight for my brothers and sisters!…#Antifa #blaklivesmatter [sic] #fuckthepolice

In July, Reinoehl was filmed saying he’d been shot while protecting BLM protesters; also, that he’d brought along his young daughter (seen eating from a takeout container in the front seat of a car) because “I’m trying to give her an education…she’s going to be contributing to running this new country that we’re fighting for.” 

Whether Reinoehl thought he would be seen as a hero, or had hate in his heart, or something else entirely may be determined later. What we can know today is that his actions are a symptom of what happens when a movement gets such a glow that it attracts people ready to take things to the next level. For most people, fatal violence causes an instinct to recoil, to take a step back and reconsider. But not for everyone. The night after Danielson’s murder, activists again tried to burn a police station. The night after that, they were back at Mayor Ted Wheeler’s apartment building, setting fires. That things will get worse before they get better seems inevitable; a movement that justifies intimidation and violence moves in only one direction, and anyone who says they did not see this coming to the streets of Portland has not been paying attention.

“He was courageous, but very gentle,” Joey Gibson said. It had been 19 hours since his friend Danielson had been shot and killed. Gibson, 36, was back home in Vancouver, Washington, just north of Portland. It had been one day since he and other members of Patriot Prayer had decided at the last minute to join a truck caravan in support of President Donald Trump they’d seen publicized on Facebook.

“It wasn’t even a Patriot Prayer thing,” he said. “We just went down with a bunch of guys.”

Gibson, who’s clashed with antifa in Portland many times, had not been overly nervous about the caravan entering the city. “I expected it to be okay because the organizer did not announce the route,” he said. “Antifa and these protesters, if you don’t give them preparation, it’s usually safe.”

It is not controversial to say that antifa does not like Gibson and that they see him as the embodiment of the oppression they are fighting: He looks white (Gibson is half-Japanese), he seems to be a Republican (Gibson claims he is a libertarian), and he’s a practicing Christian. He is also a provocateur aware of the reaction he provokes. He’s like catnip to antifa. Recent forays into Portland have resulted in him being mobbed by protesters, despite what he claims was his mission that day: to promote Black Lives Matter.

“I went in there by myself after Marquise Love pulled that guy out of the truck and kicked him in the head,” Gibson said. “I showed up with a bullhorn 24 hours later and went down[town] and called them out. ‘You want to stand for black lives? Okay, good. Let’s do that. But let’s call out these people who are trying to murder other people.'”

If Gibson considers himself a peacekeeper, most Portlanders see him as a fascist. The day after Danielson was killed, Gov. Kate Brown released a statement. “The right-wing group Patriot Prayer and self-proclaimed militia members drove into downtown Portland last night, armed and looking for a fight,” she declared. “Every Oregonian has the right to freely express their views without fear of deadly violence. I will not allow Patriot Prayer and armed white supremacists to bring more bloodshed to our streets.”

It is true that members of Patriot Prayer sometimes carry weapons. It is true that the truck caravan, made up of different pro-Trump factions, blasted street protesters with paintball guns and Mace. In turn, protesters pelted them with various objects and sprayed them with urine from Super Soakers.

Had this been the Portland of a year ago, the clash between the right and left might have ended there. A Proud Boys versus antifa rally in August 2019 seemed mostly to be LARPing and boo-ya! 

In the past, it felt like more of a professional wrestling or football type of thing. George Floyd changed that,” said Gibson. “Then you’ve got COVID, you’ve got the lockdown, everyone’s angry. A lot of people aren’t working. Tensions are really high. It’s definitely true and you can feel it. It’s in the air. Even last night, I felt something just in the air, that tension.”

Aaron Danielson and Chandler Pappas were in downtown Portland just after 8 p.m. on Saturday. The friends were no longer part of the truck caravan, more scouting out what was still going on of the confrontation. Both were carrying Mace and Danielson carried a knife. Both were wearing Patriot Prayer hats. At 8:38 p.m., Pappas heard someone say, “Got a couple of ’em right here! Got a couple of ’em right here!” and, a moment later, “Pull it out! Pull it out!” He and Danielson turned around, and if Danielson registered that a gun was being pointed at them, Pappas did not. Then two shots rang out and people started running. Pappas tried to process what had happened; did someone just shoot at them? He was OK. Danielson was not, he was on the ground. One bullet had gone through the can of Mace he was holding. The other had gone through his chest. 

“Jay’s dead because he believed something different,” Pappas would say the next day. “Jay’s not a racist, he’s not a xenophobe or whatever label. He’s not an –ist or an –ism. He’s an independent man. And he’s a good man. And he didn’t do anything to earn a bullet in the chest.”

When asked what he would want Trump to do in reaction to the killing, Pappas said, “Send troops. Send troops.”

The city of Portland and the state of Oregon would not request federal troops. On the contrary, during a press conference the day after the killing, Mayor Wheeler was adamant about placing much of the blame for the city’s violence and the violence gripping the nation with the Trump administration and what Wheeler sees as the president’s rhetoric of hate. Whatever one feels about Wheeler’s or Trump’s blind spots or inadequacies, sending federal troops to Portland right now would almost surely escalate the conflict.

Perhaps understanding this, Gov. Brown instead came up with a six-point plan. She would need to mollify multiple groups in Portland at the expense of others. She would have nearby municipalities shore up the Portland Police Bureau. She would request that the FBI “commit additional resources for investigation of criminal activity.” Earlier in the plan is where she’d mentioned, “The right-wing group Patriot Prayer and self-proclaimed militia members drove into downtown Portland last night, armed and looking for a fight.” There was no mention of any other faction involved in the fight.

Brown’s plan to reinstate peace backfired within a day, with the sheriffs in both Washington and Clackamas counties, which border Portland, refusing to offer more than ancillary support. The departments laid out the steps that had gotten Portland where it was—the defunding of certain police programs, the decriminalization of violent acts committed by protesters—and essentially said, you broke it, you fix it.

Gibson had left the truck caravan early Saturday evening and headed back to its starting point in Clackamas, 16 miles south of Portland. At that point he saw some video of trucks that seemed like they were “stuck and being attacked” and decided to head back to the city, along with a friend. 

“It was just a coincidence we showed up right where Jay’s body was,” he said, though he did not see Danielson or yet know that he had been killed. He did see the protesters, who recognized him immediately.

“I came around the corner, and all of a sudden, there’s like 300, 400 of them,” he said. “I cannot run from them, because when you run, they psychologically just get into the mob mentality of, ‘Let’s beat him up.'”

Instead, he and his friend walked slowly. They had to; they were surrounded by antifa and other protesters screaming, “GO HOME JOEY!” Someone in the crowd, whom Gibson called “one brave girl,” joined them, as did several other people who broke away from the protesters and acted as de facto bodyguards. They got Gibson to a gas station, where he took refuge as dozens of protesters shouted and pounded on the building.

“Anyone else you see in that video that was protecting us? These are Black Lives Matter types,” he said “It means a lot to see them step up and try to protect us and put themselves basically in danger.”

Gibson claiming to need protection will strike some as hilarious or posturing or evil misdirection. It complicates the picture to see someone nearly always presented as the aggressor as anything else. Being unwilling to complicate the picture—to see people’s actions only through a scrim of ideology, or as Brown or Trump would have us see it—has gotten us where we are.

While the grievous police shooting of Jacob Blake earlier in the week in Kenosha, Wisconsin, provoked an enormous national response, the reaction to the killing in Portland has been much more muted. Someone who livestreamed Danielson’s killing told the New York Times that he “believed the Portland police should not have allowed the pro-Trump caravan to enter an area they knew would be occupied by opposing protesters.” While any protest death can become a political football, some are deemed more useful than others in advancing a narrative. If we want to transcend the deadly impasse at which we find ourselves, we cannot start assigning value to one person’s life but not another’s, no matter how doing so mixes up the picture.

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Federal Court Strikes Down State Department Denying Citizenship to Children of Same-Sex Couples Born Abroad

Babies

Late last week, a federal district court issued a decision striking down a Trump Administration State Department policy denying citizenship to some children of US-citizen same-sex couples born abroad. The decision was written by a Trump appointee, Judge Michael L. Brown, of the US District Court for the Northern District of Georgia. I previously wrote about the case here. Here is an excerpt from Judge Brown’s decision, describing the facts of the case:

Plaintiffs James Derek Mize and Jonathan Daniel Gregg are U.S. citizens married to one another. In 2018, they had a child using Gregg’s sperm, an anonymously donated egg, and a gestational surrogate. The child, Plaintiff S.M.-G., was born in England, and that country issued a birth certificate listing Mize and Gregg as S.M.-G.’s parents. The couple later applied for a U.S. passport and other proof of citizenship for their daughter. The U.S. Department of State (“State Department”) denied S.M.-G.’s applications, concluding she was not a U.S. citizen at birth because she shares a biological relationship with only one of her citizen parents (Gregg) who had not been physically present in the United States for long enough. In doing so, the State Department treated S.M.-G. as if she had been born out of wedlock.

Plaintiffs filed suit challenging that determination and arguing the State Department’s actions violate the Immigration and Nationality Act (“INA”), the Due Process Clause of the United States Constitution, and the Administrative Procedures Act (“APA”).

As I noted in my earlier post on the case, State Department policy generally does not treat children of opposite-sex married couples born abroad as being born “out of wedlock,” even if one of the parents lacks a “biological” relationship to the child (for example, because they parents had to use assisted reproduction technology or a surrogate). This issue is further discussed in a June decision striking down the same policy issued by Judge Theodore Chuang of the US District Court for the District of Maryland (a liberal Obama appointee). As Judge Chuang and I pointed out, this discriminatory treatment of opposite-sex and same-sex couples violates the Supreme Court’s ruling in Obergefell v. Hodges (2015), and Pavan v. Smith (2017), which  entitle same-sex married couples to the same “rights, benefits, and responsibilities” of marriage as opposite-sex ones. That surely includes the right to transmit citizenship to their foreign-born children.

For that reason, among others, Judge Chuang interpreted the relevant provision of the INA as requiring a grant of US citizenship to children of same-sex couples born abroad, even if one of the parents lacks a “biological” relationship to the child. Doing so is mandated by the canon of “constitutional avoidance,” which requires courts to interpret federal statutes in ways that avoid constitutional problems, wherever it is reasonably feasible to do so.

Judge Brown reaches the same conclusion by a  similar, but slightly different route. As he notes, Section 301(c) of the INA grants US citizenship to “a person born outside of the United States and its outlying possessions of parents both of whom are citizens of the United States and one of whom has had a residence in the United States or one of its outlying possessions, prior to the birth of such person.” The State Department interprets the phrase “born….of parents” as requiring a “biological” connection to both parents. That  categorically excludes children born to a same-sex male couple, since two men can never be biological parents of the same child. It also appeared to exclude female and opposite-sex couples that use assisted reproduction technology (ART).

Over time, however, the State Department modified the policy to count as “biological” connection situations where a US female parent either donated an egg implanted in a surrogate or was herself the “gestational” parent for an egg donated by someone outside the marriage. That opened the door to granting citizenship to many children born abroad to same-sex female couples, and opposite-sex married couples using ART. In addition, as already noted, the State Department in practice presumed that there was a sufficient “biological” connection in cases where the parents are an opposite-sex married couple. But male same-sex couples were categorically excluded. As Judge Brown puts it, “The State Department says two married men can never have a child abroad that it considers having been born in wedlock.”

Judge Brown ruled that this state of affairs violates the canon of constitutional avoidance:

“[T]he Constitution entitles same-sex couples to civil marriage on the same terms and conditions as opposite-sex couples.” Pavan v. Smith, 137 S. Ct. 2075, 2076 (2017). This includes equal access not just to the “symbolic recognition” of marriage but also to the “material benefits” that come with it. Obergefell v. Hodges, 576 U.S. 644, 669 (2015)….

These cases raise serious doubts about the constitutionality of a biological parent-child requirement in Section 301(c). That provision allows married U.S. citizens to confer birthright citizenship on their foreign-born children if either spouse resided previously in the United States for any length of time. The ability to confer citizenship under
these circumstances, without the additional burdens imposed by other provisions, could reasonably be viewed as a “benefit.” That benefit is “linked to marriage” because it is unavailable to unmarried couples. And, under the Biological Reading, Section 301(c) would preclude married same-sex male couples from accessing this benefit because it is “impossible” for two men to be related biologically to the same child….

The Court finds that Section 301(c) is reasonably consistent with the Non-Biological Reading, even if it is also consistent with the Biological Reading. Because the Non-Biological Reading is “fairly possible,” and because the Biological Reading would raise serious constitutional questions, the Court must adopt the former under the doctrine of constitutional avoidance.

Earlier in the opinion, Judge Brown offers a good explanation of why the “non-biological” interpretation of Section 301(c) is at least as plausible as the “biological” one, if not more so.

Judge Brown’s analysis could have been even stronger had he recognized, as did Judge Chuang, that the State Department, in practice, makes little effort to enforce any “biological” constraints on citizenship grants to children born to opposite-sex married couples. That further undermines the claim that the policy discriminates purely based on “biological” ties, as opposed to the sex of the parents.

In my earlier post, I also explain additional reasons why this policy qualifies as unconstitutional sex discrimination, even aside from the related, but partly distinct issue of running afoul of Obergefell.

Judge Brown’s ruling also addresses a number of procedural issues, most notably the question of why the baby and her parents continue to have standing to pursue this lawsuit, despite the fact that she was ultimately granted citizenship as a “naturalized” citizen. I would add that one additional reason why such standing continues, is that there is at least one relevant difference between naturalized citizens and those who gain citizenship at birth. Only the latter are allowed to become president of the United States under the Natural Born Citizen Clause of the Constitution.

The litigation over this question is likely to continue in federal appellate courts, at least so long as the Trump administration remains in office. Should Joe Biden win the election, the new administration may well just concede these cases and change the State Department policy. Either way, it is notable that two such ideologically divergent judges as Judge Brown and Judge Chuang (a liberal Obama appointee) have reached the same conclusion on this issue.

 

 

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Angry Robinhood Traders Unleash Tsunami Of Complaints

Angry Robinhood Traders Unleash Tsunami Of Complaints

Tyler Durden

Tue, 09/01/2020 – 17:25

Robinhood’s quick rise to the top of the brokerage world hasn’t come without speedbumps. To wit, US consumer protection agencies are being flooded with complaints about the app. In fact, four times as many complaints are being filed about Robinhood than other traditional brokerages like Schwab and Fidelity, according to Bloomberg; in 2020 alone more than 400 complaints have been lodged against the “free” daytrading app.

The complaints have featured “novice investors in over their heads, struggling to understand why they’ve lost money on stock options or had shares liquidated to pay off margin loans.”

Complaints were also filed when Robinhood’s app went down for a full day back in March during the beginning of the coronavirus pandemic. Users complained about losing money and not being able to sell holdings (in retrospect, they should be praising the company for preventing them from dumping just before the Fed nationalized the market and sent the S&P 61% higher from the March lows). They complained about not being able to make money because the app was down. A legitimate grievance: no phone number, or direct contact at Robinhood have been listed, probably because the company still can’t afford a client-facing support team.

One complaint unearthed by Bloomberg in a FOIA request stated: “It just says to submit an email. This company’s negligence cost me $6,000.”

Another complaint, from a user who estimated they lost $20,000, said: “I can’t make trades, can’t take my own money and can’t leave their service.”

The complaints are par for the course for a company that has focused solely on growth over the last few years. Robinhood has signed up more than 3 million clients in the first four months of 2020 alone and has become the go-to app for those in quarantine, receiving unemployment and looking for something to do all day.

Regulators have received so many complaints, they have joked that they feel like they have become Robinhood’s customer service department (it’s funny cause it’s true). Both the SEC and FINRA are currently investigating how the company handled its app’s outage in March. Their findings and any enforcement action is being watched closely, as it may interfere with plans for an IPO that is widely expected from Robinhood, which is now valued at $11.2 billion after its latest round of funding. 

Robinhood has responded by saying it has doubled its customer service representatives this year and is “hiring hundreds more”. They have also said that after the March outage, they have strengthened their platform and improved reliability. The company is able to offer free commissions because it sells its order flow, something we have harped on and pointed out numerous times on this site (we exposed that the app was selling its order flow to HFT algorithms as early as 2018). 

Meanwhile, Robinhood still appears to be having outage issues, with the app going down as recently as Monday and again this morning.

In response, the company hired former Republican SEC commissioner Dan Gallagher as its top lawyer. Gallagher has years of experience with federal regulation. 

“Robinhood is empowering a whole new class of investors, and I think it is critical for us to have a voice in Washington to advocate for our customers and fairer markets,” Gallagher concluded.

Enjoy those IPO shares, Dan. After the Citadel-led IPO of course.

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