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Federal Regulations Advisor Insight and Commentary on U.S. Government Regulatory Affairs

Monday Morning Regulatory Review – 7/7/14: Hobby Lobby Realities; Open Internet, Closed FCC; and ACUS Recommendations: Preambles as Guidance & Ex Parte Contacts

Posted in Agency Authority, Judicial Process, Judicial Review & Remedies, Regulatory Flexibility & Small Business, Regulatory Process

The holiday-shortened week was highlighted by judicial and Administration reaction to the United States Supreme Court (SCOTUS) decision in Burwell v. Hobby Lobby that the Administration failed to comply with the Religious Freedom Restoration Act (RFRA) in promulgating Obamacare preventative contraceptive care exemption regulations – and the issue will return frequently as the parties and the Administration further respond.  The Federal Communications Commission (FCC) finally published in the Federal Register its response to losing its “net neutrality” rule, but that response, whatever its substantive policy implications for regulated parties be, does not address the end user – the public – until now.  And, catching up with Administrative Conference of the United States (ACUS), two recommendations adopted last month deserve careful consideration by the agencies, bench, and bar:  use of final rule preambles as guidance documents and ex parte contacts in informal rulemaking.

Hobby Lobby Realities:  The courts and the Administration reacted immediately to SCOTUS decision in Burwell v. Hobby Lobby that the Administration failed to comply with RFRA in promulgating Obamacare (Patient Protection and Affordable Care Act or PPACA) preventative contraception requirements as applied to closely-held, for-profit companies whose owners have religious objections to providing birth control.  Within hours, the United States Court of Appeals for the Eleventh Circuit enjoined pending appeal enforcement of the Paperwork Reduction Act (PRA)-approved self-certification process (EBSA Form 700) of the contraceptives mandate applied to religious nonprofit organization in Eternal Word Television Networks v. Secretary, HHS.  On Thursday, SCOTUS granted a temporary injunction to non-profit Wheaton College, consistent with the previous order in Little Sisters of the Poor, barring enforcement dependent on the use of the self-certification process.

The Administration began weighing multiple options for complying with SCOTUS’s opinion while maximizing contraceptive coverage and decrying its loss in court.  All known options appear to require some regulatory change.  Complicating the Administration’s task, expect a flood of motions for preliminary injunctions, injunctions pending appeal, and final injunctions in the nearly hundred pending cases to reflect the altered Hobby Lobby result.  In effect, Hobby Lobby set in motion a reconstructing of the application of the contraceptive mandate to all churches, church-related non-profits, unaffiliated religious non-profits and (the lesser) closely-held for-profit corporations run by individuals according to their religious principles, and the Administration will need to respond to this reconstruction in any new regulatory effort.

  The judicial fallout from Hobby Lobby is hardly surprising but many writers have reacted politically without following the regulatory litigation structuralism.  The temporary injunctions maintain the status quo after the finding of the RFRA violation – the regulations may not be enforced and the certification “in a form and manner specified by the Secretary” – EBSA Form 700 – depends on these regulations.  When the regulations fell as not compliant with the RFRA all that rested on them fell also, at least temporarily, like removing an arch’s keystone or unbalancing a jenga.

  The Administration may seek to move quickly to promulgate RFRA-compliant regulations, but the constraints of generally applicable statutes remain and require time.  For example, the Administration may now be required to:

  • adhere to the notice and comment requirements of the Administrative Procedure Act (APA) because the Obamacare statutory exceptions to the APA requirements were time-sensitive, have been executed, and may no longer be available, and self-made problems do not qualify as “emergencies” justifying a good cause exception as “impracticable” and “contrary to the public interest” or “unnecessary” would be inherently dubious given the lengthy history of complicated issues;
  • develop a more formidable initial regulatory flexibility analysis under the Regulatory Flexibility Act (RFA) given the complex post-Hobby Lobby legal parameters and the need for legal counsel to assess organization-by-organization applicability; and
  • recalculate the PRA implications of any revised EBSA Form 700 (i.e. notice to HHS rather than certification to the plan administrator) in light of the APA and RFA requirements and reconsider the Office of Management and Budget (OMB)-approved inventory of an imaginary total of two (2) annual responses at two (2) total burden hours and one dollar ($1) burden cost.

Vituperate political reaction to Hobby Lobby has sought to mask this result:  the regulation reflects little more than summary Administration consideration of the issues, and little consideration of lesser, let alone least, restrictive means under the RFRA.  The Administration must now fill in the hole it has dug.

Open Internet, Closed FCC:  The FCC finally published its open internet proposed rule in the Federal Register on July 1, 2014, following vacature and remand of its prior “net neutrality” rule by the United States Court of Appeals for the District of Columbia Circuit last January in Verizon v. FCC.  The proposed rule revolves on the fundamental question of “right” public policy to ensure that the Internet remains “open” in light of the regulatory void.  The FCC proposes to reinstitute the no-blocking rule adopted in 2010 and create a new rule that would bar commercially unreasonable actions from threatening Internet openness (as well as changing the transparency rule that is currently in effect).  The proposed rule requests comments also on the effectiveness of the FCC’s current transparency rules.  This wide open proposed rule provides an opportunity for providing the FCC with information, data, and complaints about a number of historical competitiveness issues, and also on differential pricing based on bandwidth consumption and internet congestion issues, but the comment period ends July 15, 2014.

  Although the FCC previously released this proposed rule through its arcane website, the Federal Register notice permits only 15 days for public comment, raising a question of whether the FCC’s notice is fundamentally fair.  The FCC couches the proposed rule in terms of regulated businesses but the real effect of the proposed rule is on the individual internet users.  The FCC should treat its publication in the Federal Register as its primary notice to the entire affected population, rethink its parsimonious notice to the highly regulated community in its indigenous journal, and accept comments through the universal Regulations.gov rather than its bizarre indigenous portal.  Unless the common internet user reads the FCCR or this blog dutifully, he or she will likely lose an opportunity to express concerns to the FCC because of the FCC’s own closed restrictions on its rulemakings.

ACUS Recommendations:  The Administrative Conference of the United States (ACUS) recently published four sets of recommendations for agency, bench, and bar consideration that – together with the underlying studies – may fill out the administrative law non-fiction reading list.  Two recommendations and reports suggest critical benchmarks for rulemaking – preambular guidance and ex parte communications – that should be added to the summer reading list.

Preambles as Guidance:  Preambles in informal rulemaking serve a number of purposes.  The preamble of a proposed rule sets out issues that the agency is considering beyond the stark contours of the proposed regulatory text, thereby setting the parameters of matters adequately noticed and limits of logical outgrowth.  A final rule preamble, on the other hand and the subject of ACUS’s concern, provides not only an explanation of how the agency considered the public comments on the proposed rule and reached its final decision, it can provide contemporaneous interpretation and guidance to the final rule text.  The accompanying report provides a wealth of understanding of how an agency may (and may not) use a preamble to interpret a final rule.

Contemporaneous guidance in regulatory preambles may obviate the issue of whether the guidance is authoritative, but, as the report points out, some agencies may use the preamble as if it were regulatory text.  ACUS Recommendation 2014-4, for example, guards against this problem by reiterating the linguistic element of the distinction between regulatory text and “guidance” or “interpretative rules.”

Agencies should not use the preamble as a substitute for regulatory language.  Agencies should avoid use of mandatory language in the preambles to final rules, unless an agency is using these words to describe a statutory, regulatory, or constitutional requirement, or the language is addressed to agency staff and will not foreclose agency consideration of positions advanced by affected parties.  Such language should be understood to include not only mandatory terms such as “shall,” “must,” “required,” and “requirement,” …, but also any other language that appears to impose substantive standards or obligations.

  The distinction between regulations or legislative rules and “interpretative rules,” policy statements, and guidance was famously described more than quarter-century ago as “‘tenuous,’ … ‘fuzzy,’ … ‘blurred,’  …, and, perhaps most picturesquely, ‘enshrouded in considerable smog.’”  ACUS has cleared a little air and provided substance worth agency review.

Ex Parte Contacts:  The realities of informal communications with agencies engaged in informal rulemaking through the notice and comment procedures of the APA are often misunderstood – often misconstrued as if equivalent to prohibited ex parte communications with courts.  The consultant’s report accompanying the recommendations illustrates the lack of consensus in the combined agency experience and seeks to clarify the favorable and unfavorable implications of ex parte communications in informal rulemaking.  ACUS recommends that agencies more formally establish policies for receiving and disclosing informal communications, including docketing summaries and documents, and, like the consultant’s report, presumes that informal communications must be included within the administrative record for judicial review.

  Ex parte communications in informal rulemaking between an agency and private sources often and routinely exchange necessary information because an agency needs to acquire far more information to make a policy decision than may exist in literature or its own experience.  Some (particularly those who do not possess substantive information for the agency’s consideration and take an argumentative position opposite sources of information) see information and inherent argument as improper.  This is an unrealistic notion that all communications to an agency must be conducted in the relatively formalized public comments in response to the agency’s proposed rule.  The ACUS recommendations provide some best practices for handling this necessary but problematic issue in a more consistently and transparently.

  • xuinkrbin

    “Vituperate political reaction to Hobby Lobby has sought to mask this result: the regulation reflects little more than summary Administration consideration of the issues, and little consideration of lesser, let alone least, restrictive means under the RFRA. The Administration must now fill in the hole it has dug.” — True.