If the Debt Ceiling Comes to SCOTUS, It Would Help to Play Defense, Not Offense

 by Michael C. Dorf

In just over a week, the government will have insufficient funds to pay all of its bills. President Biden and Speaker McCarthy still haven't gotten to yes on a deal that includes raising the debt ceiling. Even if they reach one as early as later today, there is no guarantee that it will get through Congress. Under the Hastert rule, a majority of Republicans will need to support the deal in order for McCarthy to bring it to the floor, so even substantial support from House Democrats would not ensure passage. And there might not be time for a discharge petition to succeed, even assuming enough support could be found for that avenue. Thus, the path to passage would be narrow, to say the least.

What happens if the debt ceiling isn't raised? Whenever a version of that question is asked, two families of answers are given: (1) the government "prioritizes" certain payments, especially those due to bondholders, while delaying or only partially paying or not paying at all certain other payments, such as the salaries of federal employees, doctors and hospitals that are due payments under Medicare, etc.; or (2) the government employs one (or more) of a number of devices and/or arguments to pay everyone in full while continuing to borrow (in substance even if not in name).

In recent weeks, President Biden has, on a number of occasions, appeared to rule out at least one of the options on the menu for family (2)--invoking the Fourteenth Amendment. However, as Prof Buchanan and I noted in our Verdict column on Monday, it is possible that the President is simply bluffing and is holding in reserve other contingent plans or even invocation of the Fourteenth Amendment (or better yet, in our view, separation of powers). Accordingly, both (1) prioritization and (2) one or more workarounds that allow full payment remain live possibilities. Under either scenario, lawsuits will follow.

Indeed, a lawsuit has already been filed objecting to prioritization. As I noted a couple of weeks ago, a well-crafted complaint was filed in federal district court in Massachusetts by a labor organization representing numerous government employees, seeking to have the debt ceiling statute declared invalid and thus obligating the Secretary of the Treasury to pay the government's bills in full. Late last week, the plaintiff filed an equally well-crafted emergency motion for a preliminary injunction.

What about litigation against the administration in the event that it adopts one of the workarounds? In principle, it should be difficult to find a party with standing. Congressional standing is difficult and the purchasers of any bonds sold to the public would have made the voluntary choice to accept the bonds under a cloud, for which they will have presumably been compensated with an interest premium. Perhaps the best case would be indirect. E.g., a pension plan beneficiary could sue the plan for investing in bonds of uncertain legality, claiming that the investment violates contractual rights (and perhaps also ERISA). The government might then intervene as a defendant. In any event, I would expect that plaintiffs could find a friendly forum--presumably a federal district judge in Texas--to find standing and enjoin the Biden administration.

So no matter what the administration does nine days from now (if there's no deal), there will be litigation. How might it end?

I don't have a crystal ball, so I won't make a definitive prediction (other than that no matter what there will be pain). However, I do think that we can make an educated guess about the relative likelihood of a favorable SCOTUS ruling as between scenarios (1) and (2). Although I said above that the federal employee lawsuit is well-crafted and I believe it should succeed if the administration proceeds with prioritization, I also believe that a more likely route to overcoming the debt ceiling comes through scenario (2). Why? Because it's easier to play defense in court than to play offense.

Consider the post-2020 election litigation, in which the courts--including the Supreme Court--overwhelmingly acquitted themselves quite well, rejecting just about all of the claims asserted by Donald Trump and his political allies. For that, they deserve praise. But note that things might have gone quite differently if, instead of playing defense, the Biden team had to play offense. As it was, Trump's lawyers were asking the courts to undo actions taken by political actors--especially state and local officials. The courts didn't do so in part because the factual and legal claims the Trump teams offered were very weak but also because the inclination of courts in such circumstances is try to stay out.

Now suppose that Trump had succeeded in persuading/pressuring legislatures in Pennsylvania, Michigan, Arizona, and/or other states to declare the election fraudulent and certify slates of Trump electors. Biden lawyers would then have been asking courts to invalidate those actions. They would have had a decent argument based on the Electoral Count Act, but, given the Court's flirtation with the independent state legislature theory, that would not have been a sure thing. And as importantly, in such circumstances, the urge to stay out would have meant leaving in place the Trump electoral slates.

Hold on. What about Bush v. Gore? There SCOTUS didn't stay out, so maybe if the stakes are high enough judges will always vote their partisan druthers. Right?

Not necessarily. It's relatively easy to conceptualize what the SCOTUS did in Bush v. Gore as saying that all courts should stay out. After all, it reversed a judgment of the Florida Supreme Court that had ordered relief for Gore. Put differently, part of why Gore lost might have been that he was playing offense rather than defense.

Moreover, I'm making only a relative claim. Sufficiently high stakes could overcome the judicial inclination to stay out. It helps at least somewhat to play defense.

Finally, I want to emphasize a point Prof Buchanan and I (both separately and jointly) have been making for some time: the administration will be sued no matter what it does. Thus, the choice is between going to court in a defensive or an offensive posture. Not playing isn't an option.