Brian Knight is a Senior Research Fellow and Director of Innovation and Governance at the Mercatus Center at George Mason University. He coauthored an amicus brief in National Rifle Association of America v. Vullo with FRC Director George A. Mocsary.

FinRegRant Episode 3: On National Rifle Association of America v. Vullo Part 1


Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected]

[00:00:00] Brian Knight: Hey, this is Brian Knight and you’re in for another episode of the FinRegRant. Actually, this is an interesting and part one of a very special two-part series where we’re going to be talking about some of the work that, well, I and my good friend and colleague, George Mocsary over at the University of Wyoming have done with regards to a constitutional amicus brief in the Supreme Court on the National Rifle Association v. Maria Vullo case and how it relates to financial regulation.

Now, just hearing me monologue would be incredibly boring. I’ve asked my good friend Ben Brophy, our head of marketing here at Mercatus, to serve as the interviewer. Ben, with that, I turn over all power to you. Please be gentle.

[00:00:45] Ben Brophy: Thank you, Brian. It’s great to be here and talk to you. This caught my attention a couple of months ago because it seems so interesting and a little bit different from what we typically see at Mercatus. I was excited to learn more about it, but with that being said, I am a bit of a marketing monkey. I put stuff on the internet. The legal world and the economic world are far beyond my intellectual can, but I’m happy to play interviewer with you and hear why you got into this and your interest in it.

I promise I will use my dictatorial powers for good and not for evil, as best I can. With that being said, talk to us a little bit about the basic facts of the case. What is the story? Who is Vullo? Why is the NRA involved in it? I’m a layman. I don’t know any of this stuff. Explain to me the overview, 30,000-foot level of what’s going on here.

[00:01:39] Brian: You’d think given the fact that the NRA is involved, this would be a Second Amendment case, but the thing is it isn’t. It’s a First Amendment and banking and insurance regulation case. That second part is how we got involved. The facts, at a very high level, are these. In 2018, after the school shooting in Parkland, Florida, Maria Vullo, who was the head of the New York Department of Financial Services, she’s the superintendent there, which is the financial service regulator for New York State, and, of course, New York is a very important state for financial services, is alleged to have done several things.

I say alleged because we’re at the motion-to-dismiss phase. There’s been no finding of fact. The court has not come down and said, “You did this, you did not do that.” What we have are allegations and denials. Just assume I’m saying alleged in front of everything here. It’s alleged that Maria Vullo wanted to use her power as a financial regulator to target the NRA because she disagreed with the NRA’s position on guns and gun control. Her boss, Governor Andrew Cuomo, disagreed with the NRA.

What is alleged to have occurred is that, one, she investigated some insurance companies who did business with the NRA and who offered what are called affiliate programs, insurance programs, with the NRA. If you’re an NRA member, you’ll get offers to be like, “Oh, do you want to get insurance through this NRA affiliate program?” One of the products, in particular, was called Carry Guard, and that’s insurance to cover you for not in criminal instances that may come up if you use your firearm for self-defense.

Allegedly, she investigated and found that these insurance companies, Lockton, Chubb, Lloyds of London, had technical problems with their affiliate insurance programs, not just with the NRA, but with a whole bunch of other groups, Cornell Alumni Association, ASPCA, whomever. What she apparently, or what she and her office allegedly said to these insurance companies is like, “Look, we’re willing to go light on you for all of these violations in the other places, but you have to drop the NRA as a customer.”

That’s one of the allegations. The second allegation is that, and it’s not an allegation, she did this, this is a matter of public record, but the implications are where the allegation kicks in. She released a pair of guidance statements to all the banks regulated by the NYDFS and all the insurance companies regulated by the NYDFS saying– the first four-fifths of the document were basically, Americans want gun control, children are marching in the streets, industry should help be part of positive social change, organizations like the NRA are bad.

At the end, to paraphrase, “As a regulated entity, you have an obligation to manage risk, including reputation risk of doing business with unpopular entities. We’re reminding you of that.” The allegation is that was her effort to basically signal to everybody, “You should stop doing business with the NRA or else.”

The third allegation is that she ended up doing enforcement actions against those insurance companies. These enforcement actions, they’re consent orders. What happened is that the insurance company “agreed” to it, but let’s put agree in quotation marks here. They were much harsher than the nature of the violation would seem to indicate. The argument or the allegation is that was there to throw the fear of God into people to be like, “Hey, I mean business.”

The point or the alleged point of this and I think this has been sort of acknowledged is she wanted to use this power as a tool to further the policy goal of gun control by hurting the NRA financially in a way that would impede its ability to advocate for gun rights issues. My research involves things like the politicization of financial services and the use of financial services as tools of universal regulation. It really just started going in that direction around this time.

When I saw the guidance documents that were released, I wrote a blog post basically saying, “Hey, is this the NYDFS trying to use financial regulation as a tool of gun control,” looking at the statements being like, “Wow, these do seem to be pretty heavy-handed.” There isn’t any language in them to sort of make clear that this was just guidance. It’s something along the lines of, “This is non-binding,” or there’s no risk of you getting into trouble or whatever. It was very strongly worded.

That blog post ended up getting picked up by other people and it ended up getting cited in the NRA’s complaint at the district court level. I went on to do more research on banks as private regulators and the use of financial services. Meanwhile, the NRA sued Andrew Cuomo, the NYDFS and Maria Vullo on First Amendment grounds and 14th Amendment grounds and due process grounds.

Most of the claims got thrown out and they got thrown out on immunity grounds. Not that the arguments were wrong or that if true, there was no problem there. It’s rather that, well, government officials enjoy and government and states and government organizations enjoy certain immunities from suit. One claim, the claim against Maria Vullo survived at the trial court level. Vullo appealed to this Second Circuit. Most listeners probably know this, but, federal courts, there’s three layers of federal courts. You’ve got your trial court, you’ve got an appeals court, and the appeals courts cover a certain geographic area. Then you have the Supreme Court.

The Second Circuit, which covers New York, took up her appeal and ruled that the trial court messed up by not granting her motion to dismiss. The opinion is basically like, “Look, even if everything the NRA alleged is true, which is the standard that you’re supposed to apply at this stage, she didn’t do anything wrong.” With regards to the alleged, “We’ll go easy on you if you drop the NRA,” the Second Circuit position was like, “Well, this is prosecutorial discretion.” Law enforcement gets to decide who they prioritize and who they don’t, and they get to make deals with people.

The guidance documents, they said, “Well, look, no reasonable bank or insurance company would consider themselves bound because there’s no mandatory language. There’s no threat. This is just her expressing her views. She has a right to do that. The government has a right to express their views, and no reasonable bank or insurance company would consider themselves bound.” Then on the consent orders, it was, “Well, look, as a law enforcement agency, they get to assess what sort of penalties they want to impose, and if the other party consents to it, well, who are we to second guess that?”

At the end, they’re like, “Even if this isn’t true, she’s entitled to qualified immunity.” The NRA appealed that decision to the Supreme Court. The NRA’s lawyers had been in touch with me off and on for a while just because they found the blog post, and they thought they were like, “Yes, we like this.” They included it. It was just incidental communication. They reach out to me, and said, “Hey, we’re going to appeal. Would you be interested in filing an amicus brief?”

What an amicus brief is, it’s a friend of court brief. You have the parties to a suit, in this case, the National Rifle Association and Vullo. An amicus brief is submitted by a third party to help inform the court about something. What they said is, “Look, we want someone who can sort of provide the financial regulatory information about how financial regulation in this context really works.” I should say, it’s very common for parties to reach out to people. I’m sure Maria Vullo’s team has reached out to a bunch of people, as they should. This wasn’t something unique or special.

Also, as we stipulated in the brief, there was no financial interest in this. That’s prohibited. They didn’t pay for the brief or anything like that. I say, “Well, okay, I think this would be a good opportunity.” Now, I also realize I’m not an insurance expert. Thankfully, in the intervening period, I got to know George Mocsary, who’s currently a professor at the University of Wyoming and who wrote a paper for us about administrative browbeating and insurance markets. I reached out to him to be the co-author. I did the banking and he did the insurance.

We submitted a brief at the cert stage. The cert stage, the Supreme Court, generally speaking, doesn’t have to take a case. They choose which cases they want, with some narrow exceptions not relevant here. At the cert stage, the purpose of the brief is to inform the court about issues that would help them to understand why they should take the case up. In that context, what our– I don’t want to get into all the details of the brief because we’re actually going to have George in part two.

It was aimed in that direction of helping to inform the court about how financial regulation really works and about why in particular, the Second Circuit’s assumption that financial institutions would not consider themselves bound by guidance is not– it’s not supported by the literature, it’s not supported by history, and it’s not supported by the atmospherics. We submitted that brief and the court took forever. This case was re-listed six or seven times, which means they hand out cases for conference where the justices and their clerks get together and talk about cases and you need four justices to take up a case.

It got re-listed six or seven times, but they finally granted cert on the first question presented. They’re not looking at the qualified immunity issue because I think their thinking is probably like, “That’s premature.” Then you get to the merit stage and we submitted a very similar brief at the merit stage. In fact, much of it was copied word for word which is also done very commonly. Because of the nature, one, you have more words, we expanded the argument and dealt with some other things.

I should say part of why we have amicus briefs is that the parties are, one, strictly limited as to their word count. They can’t address every argument or every issue or every bit of atmospherics that’s relevant. They’re not experts on certain things. I’m most certainly not an expert on the First Amendment. If I’m your attorney in a First Amendment case, you are in trouble. This is primarily a First Amendment– this is a First Amendment case, but it’s a First Amendment case that operates in the context of financial regulation.

That’s the other side of it, is like, “Hey, we should inform the justices, we should inform their clerks.” The clerks are all very smart. Most of them go to elite law schools and get very good grades. I don’t know how many of them have spent a lot of time looking at banking and insurance regulation. They’ve probably been busy doing other things. Just informing them about that is the purpose.

[00:14:42] Ben: There’s a lot of interesting elements to this case. We’re going to get into a lot of those in our next episode with Professor George Mocsary. Questions come to mind of the unique nature of the banking and insurance industry. There’s a very tight relationship with regulators there that just makes it different than others, but we’ll talk about that with him since he’s the expert.

I’m interested in the human face of this story or more on the ground for a guy like me, why does it matter? It sounds like they’re using soft power or influence to change or regulate policy in a sphere other than they should. That’s just what it sounds like to me in my layman’s ears. I’m curious how you’d answer the question, why does this case matter to those of us who are interested in a free and flourishing society?

[00:15:34] Brian: Well, it’s an incredibly important case because a truism in modern society is if you can’t access modern financial services, it’s really hard to exist in a modern society.

It’s really hard if you’re an advocacy organization, be it the NRA or Planned Parenthood or whomever to function effectively if you can’t access financial services and if the financial regulator for reasons of either their own animus, right? “We don’t like what you’re saying,” or the mob saying, “Well, if you do business with this group, we are not going to do business with you,” which is how reputation risk in this context was applied, and even a neutral regulator coming in and saying like, “Oh, well geez, my job’s to prevent you from failing. If doing business with this group might cause a risk of you failing or at least lost business, maybe you need to think twice about it.”

Then what you risk is the ability of the American people to self-govern is threatened because of cutting off access to financial services. That is a very important issue. It’s such an important issue that the NRA is being represented before the Supreme Court by the ACLU, which–

[00:17:09] Ben: Strange bedfellows.

[00:17:10] Brian: Strange bedfellows except on matters of free speech, and worth noting that the New York chapter of the ACLU dissents from this that they’re against it. The ACLU’s perspective, and I think they’re absolutely right, is if this is okay in this context, well, one, that’s bad enough, but two, you’re ringing the dinner bell for anyone else who wants to do this.

Imagine you’re a red state bank regulator and you want to go– okay, imagine you’re the Texas Bank regulator and you notice the groups that work to support undocumented immigration. Well, why are you not going to be dashing off all of this? We’ll get into more of this next time, but one important thing to think about for banking and insurance is the rules and laws governing those are complex that perfect compliance is impossible, which means if you want to get someone in trouble, all you have to do is look, you’ll find something. That is just so much power that can be abused to suppress speech that it should scare all of us.

[00:18:20] Ben: In this case, we’re talking about guns, but as you’ve mentioned, whatever issue is near and dear to your heart from a policy perspective, left, right, indifferent, doesn’t matter, this kind of power could be used to curb the ability to act on those policy issues. It becomes a freedom issue across the board, regardless of your political persuasion. It makes absolute sense why you’re personally interested and passionate about it.

I’m curious, when did you first hear about the case, and when did you hone in on this idea of, like, “Wow, this is a really big deal. This could be a big threat to people being able to enact or fight for policies that they want or work in issue advocacy,” when did that all start to click for you?

[00:19:06] Brian: Shortly after, I think I wrote the blog post the day the guidance documents came out. I’d already been primed on this. We’ve had instances in the past. There was this thing called Operation Choke Point, but I should note that Operation Choke Point was a Department of Justice operation, and what a lot of people, myself included, have in the past referred to as Operation Choke Point really wasn’t, it just happened at roughly the same time.

Just like we call every scandal a gate, every effort to use financial services to choke off politically disfavored, but legal activity will now be a choke point forever and ever. Just deal with it. I’d already been primed on that to be thinking that way. Then when this came out, it just struck me as rather, using financial regulation as a tool of universal regulation was the most plausible explanation for this activity.

I think part of why this suit’s going the way it went is because Maria Vullo and Andrew Cuomo were pretty darn naked about their animus and about using financial services to attack the NRA. There wasn’t a lot of plausible deniability here about like, oh, no– it wasn’t just the NRA, like the guidance documents for the NRA and other similar gun promotion organizations. It’s hard to argue that there wasn’t a political component to this, that there wasn’t a speech-targeting component to this.

Now, whether or not that constitutes the First Amendment violation is up to the court to decide, but it’d be hard for them to be like, “Oh, no, that’s not it at all. We were really just doing a neutral economic analysis.” That was part of it, is they were very blunt about it.

This is an area that, frankly, this is a thing that scares me, that the financial services are so critical and so important to being able to function, and they are this sort of soft underbelly because regulation of financial services is so all-encompassing and is far less, at least traditionally, adversarial than many other areas of regulation. It is an attractive vehicle.

[00:21:47] Ben: In layman’s terms, if you want to run this course of logic down to the end and paint the grimace picture of how this could be used, regulators that are in power could use financial regulation to crush any dissent on a range of political advocacy issues, depending on the whims of that regulator in power. I’m a plucky college student who gets really passionate about recycling in a red state and there’s somebody who wants to crush my ability to have a bank account for my 501(c)(3) or get insurance coverage, whatever the case may be. The dystopian version of this is a regulator crushing my ability to do that.

[00:22:33] Brian: The grimmest version is that section in Revelation about how they could neither buy nor sell unless they took the mark of the beast. That’s the grimmest version. Now, you dial that back a few steps, yes, exactly. Imagine a world where your ability– the thing is it’s not going to be that you’re technically prohibited from getting an account. That would be challengeable in court. It will be that the regulators will change the cost-benefit analysis of financial–

[00:23:03] Ben: It’s too risky.

[00:23:03] Brian: Yes. It’s like, “I’m sorry, you’re a plucky young man who loves recycling, that’s great, but the amount of money-–”

[00:23:09] Ben: You’re a risk.

[00:23:09] Brian: Yes. The amount of money we’d make on your account is not worth the extra hassle I’m going to get from the regulator. We politely decline.

[00:23:16] Ben: Yes. Yes. That’s fascinating. Truly, this is the thing. As a layman, you get into financial regulation. If you don’t understand that world, it can be overwhelming. When you get down to it, this is a chilling of people’s ability to advocate for the policy issues that they care about. That should concern all Americans of a variety of political stripes. There’s a lot of things you do here at Mercatus. You do research, you manage a team, you’re doing media, you meet with policymakers. In this case, you decided to pursue a strategy of creating or filing an amicus brief.

Why that strategy? There’s a number of things you could have done to advocate on this particular case, but why the amicus brief and what do you think it– walk me through the thinking behind that.

[00:24:06] Brian: The court, the judiciary, the legal process is a core part of the policy process. Yet all too often I at least thought about it as separate, but it’s really not. It’s not even the end of the policy process because it’s a feedback loop.

Particularly on issues of constitutional or legal issues where in this case I had relative comparative advantage on some knowledge helping to inform the court about that so that we can get the best outcome, the most informed outcome will help the policy process by either– it’s not necessarily either– striking down laws or rules or actions that are unconstitutional or extra judicial or extra statutory or just whatever, and then creating a space for more appropriate activity or lack of activity to occur.

Regulators need to comply with the constitution, they need to comply with their statutory grants of authority, and the courts are the primary mechanism by which that is enforced. When that occurs, it can reopen the window for the legislative branch or the regulators to then come and say, “Okay, we can’t do X, maybe we can do Y.” Hopefully, Y is better. Hopefully, it’s better both as general policy and also more compliant with the law and the constitution. Dealing with the judicial process is part and parcel of the policy process and they are another policy actor who would benefit from information.

[00:26:00] Ben: For those of us who work in policy, would you consider this kind of an underserved area in which organizations can try to play a helpful role in policymaking?

[00:26:14] Brian: I don’t know if I want to say underserved because there are groups that have been doing this far longer than we have. I’m pleased to say we are stepping up on this. Several of my colleagues have filed amicus briefs in various cases, and we have more that we’re hopefully going to be doing. It’s an important area because judges are not necessarily policymakers, but they are very relevant actors in the policy process. Information is helpful to them to make the best possible decision.

In some cases, information particularly sort of– I’m not an economist, I’m a lawyer, but my economist colleagues, there are areas where economic analysis is explicitly relevant like competition policy. There are other areas where whether or not an agency did an appropriate economic analysis is relevant, even if the court isn’t going to, second-guess their math. Instead, we’ll look to see, well, did you do an adequate cost-benefit analysis? Our colleagues can speak to whether or not this was adequate or whether the appropriate factors were considered.

We have many colleagues who are attorneys and who are experts on various areas of law, and their knowledge can be very helpful. As we see in this case, these issues may not come up in just a, “Oh, the bank regulator is proposing a rule.” This is a First Amendment case, but it’s a First Amendment case that interacts with bank regulation. As I said earlier, I’m not a First Amendment expert, but nor are they banking and insurance experts. Helping to inform that can only help the courts do their job.

[00:28:06] Ben: Yes. Absolutely. That makes perfect sense to me. That is the end of my questions for you, Brian. At this point, like George Washington at the end of his second term, I now relinquish my power and authority back to you, and nobly step back and return the power of FinRegRant to you.

[00:28:26] Brian: I appreciate that, and I can only hope that I’m worthy of the mantle and to fulfill your legacy.

[00:28:33] Ben: Thanks, Brian. Appreciate you taking the time.

[00:28:34] Brian: Thank you.

[This post is cross-posted on the FinRegRag.]