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

Monday Morning Regulatory Review – 5/16/16: Deeming Rule & Litigation; Safety and Health Electronic Recordkeeping; Reconstructed or Modified Methane; Transgender Accommodations Guidance; & Conflicting Disability Compliance

Posted in Agency Authority, Constitutional Issues in Regulations, Executive - OMB Review, Judicial Process, Regulatory Flexibility & Small Business, Regulatory Process

dawn over the capitol aocHighlights with no surprises in regulatory practice last week focused on the rush to complete regulatory actions.  The Administration issued the controversial tobacco “deeming rule” and a vaping manufacturer immediately sued.  A new electronic reporting requirement must be challenged in affirmative pre-enforcement litigation because the underlying statute may bar challenges to the regulations in defensive enforcement proceedings.  Methane capture was the subject of a new rule, and that rule must also be challenged directly.  A highly controversial guidance from two agencies is likely to be litigated, but in defense to a funding cut off.  And a coming regulation under the Americans with Disability Act (ADA) may alleviate potential conflicts with health care regulations.

Deeming Rule & Litigation:  The Food and Drug Administration (FDA) published its long-awaited “Deeming Rule” (it has a much longer pedantic title) to apply specific provisions of the Food, Drug, and Cosmetic Act (FD&C Act) to the widest range of tobacco products and electronic vaporizing or “vaping” technologies on May 10.  FDA published a gaggle of related proposals and guidance at the same time.

Litigation commenced immediately with the filing of the complaint in Nicopure Labs, LLC v. FDA, D.D.C. No. 1:16-cv-878-AJJ (filed May 10, 2016).  The complaint argues:

  1. FDA exceeds its statutory authority by defining a non-tobacco product as a tobacco product in the rule;
  2. FDA’s rule is arbitrary and capricious under the Administrative Procedure Act (APA) in how it seeks to regulate vaping technologies;
  3. FDA’s rule is arbitrary and capricious and an abuse of discretion under the APA because the underlying benefit / cost analysis overstates the benefits, fails to quantify the benefits, understates the costs, and erroneously concludes that the benefits outweigh its costs; and
  4. FDA’s rule violates the First Amendment to the United States Constitution by prohibiting manufacturers from making truthful and non-misleading statements regarding their products.

The rule and litigation are no surprise – expectations for this final rule and the litigation response have been on the table for some time.  The same was true of the lesser Department of Transportation (DOT)’s Use of Electronic Cigarettes on Aircraft final rule and petition for review pending in the United States Court of Appeals for the District of Columbia Circuit in Competitive Enterprise Institute v. DOT, D.C. Cir. No. 16-1128 (filed Apr. 28, 2016), was expected.

►  These no-doubt coordinated and engaged agency efforts represent just another aspect of the Administration’s haste to institutionalize its regulatory imprint.  The regulatory issues presented focus on very different scopes of agency authority and how well or poorly the agencies analyze issues.  What is now clear, however, is that final resolution of these issues will not occur during this Administration.

Safety and Health Electronic Recordkeeping:  The Department of Labor (DOL) Occupational Safety and Health Administration (OSHA) published its Improve Tracking of Workplace Injuries and Illnesses final rule.  The rule requires large employers (≥250 employees) and designated risk employers with 20 – 249 employees to electronically report job-related injuries and illnesses.  OSHA argues that the final rule does not add to or change any employer’s obligation to complete, retain, and certify injury and illness records or add to or change the recording criteria or definitions.  OSHA argues that the only changes are that, under certain circumstances, employers will be obligated to submit information from these records to OSHA in an electronic format and to assure that employees have, and understand they have, a right to report injuries and illnesses without fear of discrimination.

OSHA’s final rule retreats to annual filing from proposed quarterly filing.  Mid-sized employers in designated industries must file, but the designated industries are included on the basis of a three-year average of Bureau of Labor Statistics (BLS) data, rather than one year, and the years included are 2011 – 2013, rather than proposed single year 2009 data.  OSHA responds to many comments, including concerns about privacy to the degree of considering conflict between OSHA rules and the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

►  The final rule may create significant problems, not the least of which may lie in OSHA’s estimated $15 million cost, which his nowhere near the private sector estimates, but OSHA has mechanically used definitions and dollar amounts for very limited functions.  OSHA appears to exclude, for example, the cost of reading and interpreting the rule and applying the industry codes to mid-level employers (lawyers and economists are not included; spectator sports are included).  Questions may also arise about OSHA’s consideration of differential treatment of small businesses under the Regulatory Flexibility Act (RFA) and possible differences (from other agencies) in how OSHA treats training requirements for those handling personally identifiable information (PII) and HIPAA-restricted information.  Expect a pre-enforcement petition for review of the rule because the Occupational Safety and Health Act (OSH Act) may bar regulatory attacks in enforcement proceedings.

Reconstructed or Modified Methane:  The Environmental Protection Agency (EPA) released a “suite” of new rules aimed to curbing emissions of methane, volatile organic compounds, and toxic air pollutants from new, reconstructed and modified oil and gas wells.  The master of this house is the economically significant Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources final rule, but the EPA released two lesser final rules and additional documents as well.  EPA evaluated this rule alone as having a net monetized benefit of $35 million over its monetized costs of $320 million in 2020.

►  Introducing new regulations into the process of upgrading existing wells may result, as some have suggested, in delay in upgrades – i.e. modification or reconstruction – leading to more emissions, not less.  Additionally, the benefit / cost analysis assumes a certain degree of salability for captured methane that previously was emitted (including flaring) and assumes additional revenues at a wellhead natural gas price of $4 per thousand cubic feet ($4/Mcf), a price that may be little more than speculation if past natural gas pricing is any indication.  The final rule comes a time when the number of active well rigs and the pricing for natural gas are at a marked low.  Expect a petition for review under the Clean Air Act (CAA) to be filed in the D.C. Circuit.

Transgender Accommodations Guidance:  In a widely lauded and criticized action, the Department of Justice (DOJ) Civil Rights Division (CRT) and the Department of Education (ED) Office of Civil Rights (OCR) issued joint Dear Colleague Letter on Transgender Students guidance to educational programs and activities operated by Federal financial assistance recipients.  The letter avers:

ED and DOJ (the Departments) have determined that this letter is significant guidance.  This guidance does not add requirements to applicable law, but provides information and examples to inform recipients about how the Departments evaluate whether covered entities are complying with their legal obligations.

[footnote omitted].

The guidance is premised on the requirements of Title IX of the Education Amendments of 1972 (Title IX) and implementing regulations that prohibit sex discrimination in educational programs and activities operated by Federal financial assistance recipients.  At bottom, the guidance asserts that the agencies believe that schools must not treat a transgender student differently from the way it treats other students of the same gender identity, i.e. the individual’s asserted gender, not their sex.  The agencies claim their interpretation is consistent with judicial interpretations of Federal laws prohibiting sex discrimination.  The agencies provide examples of policies consistent with their interpretation as well.

►  Numerous external legal (e.g. State law majority and in loco parentis) and practical (actualization, third party actions) limitations must be analyzed to determine how far this guidance actually effects any given school or individual.  A careful read of the document makes clear one point – DOJ’s and ED’s interpretation is no more than that:  the document attains none of the hallmarks of a rule.  Whether any court will grant the agencies deference in interpreting their statutes and regulations in this letter will necessarily await positive enforcement actions by the agencies – litigation directly attacking the guidance is unlikely to reach the merits.  Finally, returning to the premise of guidance, this guidance does not include a boilerplate recital that “it does not and is not intended to create any rights substantive or procedural enforceable in any court of the United States,” leaving open the question of whether it intends to do so.

Conflicting Disability Compliance:  The Office of Management and Budget (OMB) completed review of an Equal Employment Opportunity Commission (EEOC) final rule and interpretive guidance implementing the Americans with Disabilities Act (ADA).  The final rule alleviate potential conflicts when an employer complies with Department of Health and Human Services (HHS) HIPAA regulations and Obamacare (Patient Protection and Affordable Care Act or PPACA) regulations concerning wellness programs and program incentives.

►  Although not one of the most significant (and not economically significant) rules, the potential conflict (direct or interpretive) between similar requirements of different agencies creates problems for the regulated community geometrically to their actual numbers.  Some suggested during the public comment period that EEOC consider HIPPA / PPACA compliance in outcome based wellness programs offered as part of a group health plan to comply also with the EEOC’s ADA rules.  Whether OMB has managed its multiple partners to create a working relationship between regulations may soon prove or disprove a value in executive and interagency review.

Although last week may have provided few surprises as the agencies churn out regulations, next week may be very different.  The Administration should release numerous major priority regulations soon; the United States Supreme Court (SCOTUS) may issue as many as five major opinions with administrative law and regulatory implications before the end of its Term in June; and numerous courts of Appeal and district courts should soon decide numerous regulatory challenges – a typical end of Administration scenario.