Labor Day 2016 will be no holiday for regulatory experazzi, at least in this post. Last week, a court of appeals affirmed dismissal of a host of constitutional claims that overshadowed an ineffectively plead Administrative Procedure Act (APA) claim – and the decision reprises the circuit law on when guidance becomes a rule only to show the futility of permitting an amended complaint. On the other hand, a district court dispatched an attempt to force an agency to nonacquiesce in another court of appeals decision – in an entirely different circuit. Finally, the most substantive regulation of the week overshadowed a final rule that should not have been a rule in the first place.
Guns, Drugs, and Guidelines: A panel of the United States Court of Appeals for the Ninth Circuit affirmed the district court’s dismissal of a broad-brush complaint in Wilson v. Lynch. Wilson challenged federal statutes, regulations, and guidance that she argued prevented a federal firearms dealer from selling her a firearm because she possesses a Nevada medical marijuana registry card. A Nevada medical marijuana registry card is issued on an attending physician’s confirmation that the applicant has a chronic or debilitating medical condition, the medical use of marijuana may mitigate the symptoms of the condition, and the physician has explained to the applicant the risks and benefits of the medical use of marijuana. The Federal firearms statutes, however, prohibit “an unlawful user of … any controlled substance” from “possess . . . or . . . receive any firearm or ammunition” and “any person to sell or otherwise dispose of any firearm or ammunition to any person knowing or having reasonable cause to believe that such person . . . is an unlawful user of or addicted to any controlled substance.” The defining regulations explicate the statutory terms in language nearly four decades old.
After dismissing a plethora of constitutional attacks, the panel reached the issue of whether a September 21, 2011, Department of Justice (DOJ), Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF or ATFE) Open Letter to All Federal Firearms Licensees was a substantive rule requiring advance notice and an opportunity for public comment under the APA. The Open Letter advised federal firearms dealers:
[A]ny person who uses … marijuana, regardless of whether his or her State has passed legislation authorizing marijuana use for medicinal purposes, is an unlawful user of … a controlled substance, and is prohibited by Federal law from possessing firearms or ammunition. Such persons should answer “yes” to question 11.e. on ATF Form 4473 … and you may not transfer firearms or ammunition to them. Further, if you are aware that the potential transferee is in possession of a card authorizing the possession and use of marijuana under State law, then you have “reasonable cause to believe” that the person is an unlawful user of a controlled substance. As such, you may not transfer firearms or ammunition to the person, even if the person answered “no” to question 11.e. on ATF Form 4473.
Hueing to the Ninth Circuit precedent, the court repeats the test that “interpretive rules merely explain, but do not add to, the substantive law that already exists in the form of a statute or legislative rule. Legislative rules, on the other hand, create rights, impose obligations, or effect a change in existing law pursuant to authority delegated by Congress.” Wilson argued that the Open Letter impermissibly expands the regulations that seem to define “unlawful user” with an exception: “any person who is a current user of a controlled substance in a manner other than as prescribed by a licensed physician.” This may be true, but the court found it to contradict the statutory classification of marijuana as a Schedule I drug and (criminal) bar to possession that contains no such exception as found in the regulations. Additionally, the court notes that the Open Letter makes not blanket assertion but only clarifies that a firearms dealer has “reasonable cause to believe” an individual is an unlawful user if she holds a registry card (but does not note that it remains up to the dealer to decline the sale or suffer the consequences).
► The opinion is unusual in how it reaches the APA claim – which was not presented to the district court in the complaint or first amended complaint, and was only the basis for the district court to deny a motion to amend that first amended complaint. The panel reviewed this claim to establish the futility of amendment. Additionally, at no point does the panel appear to address whether the plaintiff lies within the zone of interest under the federal firearms dealers licensing statute and has standing to challenge the Open Letter, though clearly a subject of that Open Letter.
A cautionary point: the link in this post will open the Open Letter, but the link in the opinion does not work – perhaps a product of link rot sometime during consideration of the appeal. Unfortunate, but not uncommon.
Nonacquiescence Not Arbitrary and Capricious: In an unusual, even odd, case, hospitals unsuccessfully sought, in the United States District Court for the District of Columbia in Grant Medical Center v. Burwell, to compel the Department of Health and Human Services (HHS) to nonacquiesce in a decision of the United States Court of Appeals for the Sixth Circuit, Clark Regional Medical Center v. HHS. Both cases focus on a key Medicare hospital payment element: bed count. HHS regulations excluded specific types of beds from counting, and Clark held that HHS erred in excluding swing and observation bed days; therefore, HHS amended the regulations prospectively and acquiesced in Clark in the Sixth Circuit as to bed counts prior to the amended regulations. Grant’s counts were adversely affected by HHS’ acquiescence to Clark and, therefore, the present case deals with decade-old hospital bed counts still in accounting. The district court rejected Grant’s challenge that HHS’s decision to acquiesce was arbitrary and capricious and not in accordance with law.
► Grant poses a common problem – accounting results are rule applications and agencies may apply the results of judicial review of these adjudications through nonuniform acquiescence in a Court of Appeals precedent. Direct judicial review of a regulation per se, however, results in a different remedy (vacatur) that is inherently nationwide – once vacated, a rule has no effect. The conflict between agency uniformity of application and judicial regionality of precedent is hardly new. Both have the same solutions: higher review, Congressional intervention, or regulatory amendment (if possible). HHS’s choice need not favor all parties and effectively surrender, and because it is a choice, Grant’s problem was attempting to compel the agency’s choice in its favor. Grant’s attempt to gain an accounting advantage is not surprising, but a fair risk assessment suggests that it had little chance of success, and, thus, was probably not economically sound.
Anti-Bacterial Soap and Passport Over-Regulation: The most substantial and unsurprising agency regulatory news of the week was likely HHS’s Food and Drug Administration (FDA) final rule (scheduled for publication in tomorrow’s Federal Register) establishing that 19 active ingredients used in most over-the-counter antiseptic washes are no longer generally recognized as safe and effective (GRAS/GRAE) and therefore are headed for extinction. Fully under the radar, on the other hand was the more problematic Department of State (DOS) enigmatic final rule Passports, published and effective September 2, to implement two statutes: the International Megan’s Law to Prevent Child Exploitation and Other Sexual Crimes Through Advanced Notification of Traveling Sex Offenders (IML) and the Fixing America’s Surface Transportation Act (FAST Act). The final rule incorporates statutory passport denial and revocation requirements for certain sex offenders and persons with a seriously delinquent tax debt, respectively.
► DOS argues generally that it has good cause to except the final rule from the APA advance notice and an opportunity for public comment requirements as unnecessary, impractical, and contrary to the public interest because the final rule only implements the Congressional mandates within the statutes; likewise, the rule was made effective without delay. The authorizing statutes, however, appear to be self-executing prohibitions and the regulations resolve no ambiguity, add no substantive interpretation, or establish no process. DOS is correct that notice and comment is unnecessary because the “regulations” are unnecessary; the rule merely regurgitates the statutory requirements. Agencies should be more circumspect in deciding when to issue “regulations.”