There were three distinct periods during which the Supreme Court decided securities law cases. From the 1930s to about 1970, the Court regularly adopted an expansive interpretation of the federal securities statutes and of SEC administrative authority. After about 1970, with the appointments of Justices Lewis Powell and William Rehnquist, it adopted a substantially more restrictive interpretation. Finally, after 1988, the Supreme Court has been almost evenly divided in its overall interpretation, ambivalent about expansive interpretations, and hard to predict.42
Scholars continue to disagree about the reasons for the variability of Supreme Court decisions. Some argue that the distinction between private law issues, such as those involved in securities and antitrust cases, which are much different and thus uniquely framed, rather than public law issues involving interpretations of Congressional legislation, plays a role. Others contend that those differences are not as much in the type of law, but rather in the minds or attitudes of the justices. Their politics, their pre-court experience, the manner in which they gained appointment to the bench, are all factors that determine how any particular judge decides a case. Still others account for the decisions by looking at, in the example of securities cases, the nature and extent of involvement by the SEC, either directly as a party or through its use of amicus briefs, where the agency expressed an opinion on a securities matter of interest to the Commission. The administrative expertise of the SEC, combined with the judicial philosophy that accepted a broad national role in economic regulation of the markets, helped to explain the SEC’s successes.43
Most likely, all of these factors influenced how the courts have decided securities cases. The personal papers of the justices provide insight, if not all the answers, to this mystery. In the case of the justices appointed during the New Deal, the majority of whom influenced the Supreme Court for decades, the power of judicial review often conflicted with the obligation to defer to the wisdom of the law-making bodies -- the Congress and the SEC -- in the field of securities law.
The role of courts to interpret law has long been a conflicted one. The idea of judicial review commands courts, especially those of last resort such as the Supreme Court, to be the final say on what the law is. Judges are expected to interpret and not make the law. Unlike the elected Congress, which makes federal law, judges are expected to be immune to popular majorities. A fine line exists between judicial interpretation and law making. Where the Congress has acted after conducting hearings as to the rational need for legislation, the philosophy of judicial deference requires courts to defer to the elected body except where there is a clear abuse of authority or where the rule violates the Constitution. After the New Deal, the SEC’s reputation as the respected expert on securities regulation gained tremendous credence as it made rules and testified before Congress. When confronted with securities rules developed by the SEC, justices who followed this philosophy were more likely to defer to Congress, and, to the extent the SEC was properly implementing Congressional policy, to the agency.
(standing) Associate Justice Tom Clark, Associate Justice Robert Jackson, Associate Justice Harold Burton and Associate Justice Sherman Minton; (seated) Associate Justice Felix Frankfurter, Associate Justice Hugo Black, Chief Justice Earl Warren, Associate Justice Stanley Reed and Associate Justice William Douglas(Courtesy Library of Congress )
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