NRA High Court Case Risks Free Speech Suits Against Regulators

The US Supreme Court next week will hear a case that threatens to expose more government actions to free speech challenges and chill future efforts to warn financial institutions about working with high-risk industries.

At the center of the case, National Rifle Association v. Vullo, is April 2018 guidance from New York’s Department of Financial Services cautioning insurers about the “reputational” risks of doing business with the NRA and other gun rights advocacy groups.

The US Court of Appeals for the Second Circuit ruled in 2022 that former New York Superintendent for Financial Services Maria Vullo didn’t violate the NRA’s First Amendment rights by raising such concerns following the 2018 mass shooting at Marjory Stoneman Douglas High School in Parkland, Fla.

The NRA’s case against Vullo touches on issues that have become central themes for this Supreme Court, such as the First Amendment, narrowing regulatory actions, and expanding gun rights. That leaves at least some former regulators concerned the high court is eyeing a broad ruling against Vullo’s guidance.

Should the Supreme Court overturn the Second Circuit, regulators throughout the country will have to consider whether their nonbinding guidance documents are vulnerable to costly First Amendment challenges. That, in turn, could hamstring government officials’ free speech rights, said Renato Mariotti, a partner at Bryan Cave Leighton Paisner LLP and a former federal prosecutor.

“It strikes me that the ultimate endpoint here is one that handicaps the people who are supposed to be regulating commerce and ultimately enforcing the laws in our country,” he said.

Mariotti signed on to an amicus brief in the case supporting Vullo.

Oral arguments are set for March 18.

Reputational Risk

The key questions in NRA v. Vullo hinge on the concept of reputational risk.

Regulators use reputational risk to highlight potential customer backlash if financial institutions provide services to controversial industries and advocacy groups. It’s a tool that’s been used by regulators for years, often in the form of guidance, according to Dave Jones, a former California insurance commissioner.

A win for the NRA could take that tool off the table, said Jones, now the director of the Climate Risk Initiative at the University of California, Berkeley Law School.

“Not only would regulators be reluctant to advise the institutions they regulate; they would be loath to voice their position on matters of public concern—fearing accusations of coercion and lawsuits like this one,” Jones wrote as one of the coauthors of an amicus brief supporting Vullo.

Regulators say reputational risk is a valuable tool, but critics say it can be used to punish disfavored industries and advocacy groups.

In New York, that might mean gun rights groups. In Texas, groups advocating for abortion or LGBTQ rights could find themselves targeted, critics say.

“Regulators have broad and nearly overarching power to punish conduct by financial institutions that we wouldn’t want,” said Julie Hill, a professor at the University of Alabama School of Law who teaches bank regulation.

Looming over the case is Operation Choke Point, an Obama-era program under which the Justice Department and federal banking supervisors allegedly pushed banks to stop lending to gun stores, payday lenders, and other legal businesses on grounds of reputational risk. The operation drew fierce pushback from Republicans and led to a settlement with payday lenders who sued federal banking regulators.

Crossing the Line?

Rather than focusing on reputational risk, regulators should instead look to instances of businesses actually running afoul of banking or insurance laws, Hill said.

In the case of Vullo, her department started by investigating Lockton Cos. for allegedly violating New York insurance law by administering the NRA-endorsed “Carry Guard” insurance program. The program provided personal injury, criminal defense, and other insurance coverage to gun owners charged with the wrongful use of firearms. New York and other states bar the sale of insurance coverage for potential criminal acts.

Vullo’s probe began in late 2017, months before the Parkland shooting and the April 2018 reputational risk guidance. New York regulators entered into consent orders with Lockton in May 2018. Chubb Ltd. and Lloyd’s of London also reached settlements with Vullo and the DFS that resulted in the insurance giants ceasing to underwrite “Carry Guard” policies.

Jones, the former insurance commissioner, noted that California and other states also took action against the insurers for participating in the program.

The NRA separately agreed to a November 2020 settlement with New York for acting as an insurance broker in the state without a license.

New York’s financial regulator could have issued guidance related specifically to the problems with “Carry Guard” and other so-called affinity insurance products, and not have run afoul of the First Amendment, Hill said.

Instead, Vullo and then-New York Gov. Andrew Cuomo (D)—a longtime NRA foe—made their guidance a warning about doing business with gun rights groups, said Brian Knight, a senior research fellow at the conservative Mercatus Center at George Mason University focused on financial regulation.

“Regulators have other tools that are least rooted in the law or some other objective fact, or something that some third-party could look at,” Knight, who coauthored an amicus brief supporting the NRA, said.

Whether Vullo crossed a First Amendment line is a big question.

People at the time were protesting the NRA after the Parkland shooting, and companies were fearful of the reputational risk of doing business with them, Jones said. It was reasonable for Vullo to raise that question, he added.

“There is a line, but she didn’t cross it,” Jones said.

Easy Out

There is an easy out in NRA v. Vullo if the Supreme Court decides to issue a narrow ruling, Bryan Cave’s Mariotti said.

A brief from civil procedural law scholars said the Supreme Court should determine the case is moot, or was improvidently granted.

The NRA sued Vullo, not the Department of Financial Services. But the Second Circuit found Vullo didn’t violate the NRA’s First Amendment rights, and that she had qualified immunity shielding her from any liability for her official actions, the scholars argued.

The high court could also make some narrow statements about Vullo and Cuomo’s actions without broadly impacting regulators, Mariotti said.

But former regulators worry this Supreme Court may not be able to pass up a broad ruling limiting the government’s power to use guidance to raise reputational risk concerns, leaving regulators vulnerable to First Amendment challenges, Jones said.

“The fact that they decided to take the case is very worrisome,” he said.

The case is National Rifle Association v. Vullo, U.S., No. 22-842, Oral Arguments 3/18/24.