New York, July 10, 2013—Professor Thomas W. Merrill testified before the House Financial Services Committee’s Oversight and Investigations Subcommittee at a July 9 hearing on constitutional deficiencies and legal uncertainties in the Dodd-Frank Act.
Merrill, the Charles Evans Hughes Professor of Law and an expert in administrative law, directed his comments to Title II of the Dodd-Frank Act, which establishes a new “Orderly Liquidation Authority” for systemically significant financial firms. The authority is designed to eliminate the need for taxpayer bailouts, but, in his testimony, Merrill argued that it raises “serious constitutional questions” that invite challenges that would “almost certainly lead to delay and confusion, undermining the purpose and efficacy of Title II.”
Merrill recommended amending the law to adopt the original House version, rather than the Senate version that was enacted. He argued that Title II as it stands now violates various constitutional protections by limiting the notice and hearing period before appointment of a receiver to liquidate a firm, limiting the court’s decision on whether to appoint a receiver to 24 hours, and imposing a gag order on the parties during the judicial process.
Appointing the receiver administratively and then allowing the parties to challenge that appointment resolves those constitutional concerns, Merrill said.
“Such ex post review, by affording notice and an opportunity for a full and fair hearing after the appointment of a receiver, eliminates the due process problem,” Merrill testified. “It eliminates the Article III problem, because the court would be asked to act in a manner fully consistent with the judicial function. And it eliminates any need for a gag rule, and hence any First Amendment deficiencies.”
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