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

Tuesday Morning Regulatory Review – 1/3/17: Statutes of Limitation & Regulations; Finality, Power & Constitutionality; Another Sex & Gender Preliminary Injunction; Streaming Suit; Effective Date Delay Dance; Inaction as Action; Energy Efficiency Standards Efficiencies; and Irrelevant and Relevant Facts

Posted in Agency Authority, Constitutional Issues in Regulations, Judicial Review & Remedies, Regulatory Process

dawn over the capitol aocWelcome back for the fifth anniversary post of the Federal Regulations Advisor (No. 393) and a new year of poking the Federal regulatory bear (and sometimes praising it).  Among highlights from regulatory practice in the past few weeks are a recurring regulatory misinterpretation of a statute of limitations, a new intercircuit conflict over appointments of inferior officers, and another injunction against implementation of a regulation that expanded sex to include gender.  In one instance, an agency entered the controversial arena of stream protection and was immediately sued.  Agencies took exception to delayed effective dates to avoid review by a new Administration and withdrew model rules to released drafts avoiding the regulatory process, but also continued a practice of advance release and delayed publication for technical corrections.  Finally, some operative facts in regulatory practice are irrelevant and others are relevant – a distinction needs to be made.

Statutes of Limitation & Regulations:  The United States Court of Appeals for the Fifth Circuit determined, in Delek Refining Ltd. v. OSHRC, that the Department of Labor (DOL)’s Occupational Safety and Health Administration (OSHA) again misinterpreted the Occupational Safety and Health Act (OSH Act) six-month statute of limitations.  This time, the issue revolves on OSHA’s process safety management rules, and OSHA alleged that Delek filed to resolve open audit findings and recommendations during a regulatory process hazard analysis, but the panel concluded that the relevant regulatory violations were barred by the six-month statute of limitations in the OSH Act and vacated the OSHRC citations.  The court, although not bound by the United States Court of Appeals for the District of Columbia Circuit analysis in AKM LLC v. Secretary of Labor, found the D.C. Circuits reasoning persuasive – an analysis that OSHA rejected in its attempt to revise its illness and injury continuing reporting obligation regulations to create a continuing duty that elongates liability (which OSHA, in Delek, admitted would all but eviscerate any statute of limitations).

►  OSHA’s positions are likely to become increasingly untenable in the new Administration and the continuing duties are likely to be removed from the regulations.  The adoption of a position that is consistent with judicial interpretation of the statute, however, is more likely to survive even the incoming Administration because it reflects a denial of agency discretion that would be more difficult to resurrect.

Finality, Power & Constitutionality:  The United States Court of Appeals for the Tenth Circuit brought a core issue to a head last week, in Bandimere v SEC, when it disagreed with the D.C. Circuit on whether a Securities and Exchange Commission (SEC) Administrative Law Judge (ALJ) exists as an employee or an inferior officer of the United States under the Appointments Clause of the United States Constitution.  In short, the Tenth Circuit held that the SEC’s Chief ALJ’s appointment of the ALJ in Bandimere’s enforcement action was improper because the SEC could not delegate authority to appoint an “inferior officer” but only an employee, rendering the proceeding itself improper.  The Tenth Circuit has decision created a direct and acknowledged intercircuit conflict:

This past August, the D.C. Circuit addressed the same question we face here. Raymond J. Lucia Cos., Inc. v. SEC, ….  The D.C. Circuit followed Landry and concluded that SEC ALJs are employees and not inferior officers.  ….  The holding was based on the court’s conclusion that SEC ALJs cannot render final decisions.  ….(“[T]he parties principally disagree about whether [SEC] ALJs issue final decisions of the [SEC].  Our analysis begins, and ends, there.”).  We disagree with the SEC’s reading of Freytag and its argument that final decision-making power is dispositive to the question at hand.

The Tenth Circuit narrowly circumscribed its decision to leave no doubt:

Nothing in this opinion should be read to answer any but the precise question before this court:  whether SEC ALJs are employees or inferior officers.  Questions about officer removal, officer status of other agencies’ ALJs, civil service protection, rulemaking, and retroactivity, …, are not issues on appeal and have not been briefed by the parties.  Having answered the question before us, and thus resolved Mr. Bandimere’s petition, we must leave for another day any other putative consequences of that conclusion.

The implications of the decision alone are substantial because the SEC has brought numerous enforcement actions within the jurisdiction of the Tenth Circuit that are now highly questionable and likely to be the subject of applications for some form of relief (a complicated question by itself).  The intercircuit conflict necessarily tees up whether the SEC will seek rehearing en banc by the Tenth Circuit (likely), or the new Administration’s Solicitor General’s petition for certiorari to the United States Supreme Court (SCOTUS) (less likely, for now, but ultimately the case).

►  Here the SEC has created the Appointments Clause problem through its own regulations and Appointments Clause precedent is already complicated.  The scope of agency delegable authority is likely to command SCOTUS attention sooner or later, but probably this year.

Another Sex & Gender Preliminary Injunction:  The United States district court for the Northern District of Texas issued a nationwide injunction in Franciscan Alliance, Inc. v. Burwell upon finding that plaintiffs were likely to succeed in establishing that Department of Health and Human Services (HHS) Nondiscrimination in Health Programs & Activities exceeded the statutory terms of the Patient Protection and Affordable Care Act (PPACA or Obamacare).  Obamacare prohibits discrimination in providing health services by any program receiving federal financial assistance on the grounds incorporated from four federal nondiscrimination statutes, applying pre-existing, not creating new anti-discrimination provisions – in this case, the prohibition of discrimination on the basis of “sex” under Title IX of the Education Amendments of 1972.  The challenged regulation interpreted “sex” to encompass “gender identity” and “termination of pregnancy.”

The district court found the rule in conflict with its incorporated statute, thereby rendering it likely that plaintiffs would establish that the rule was contrary to law under the Administrative Procedure Act (APA).  This district court is the same district court that previously concluded, in Texas v. United States, that the meaning of sex in Title IX unambiguously refers to “the biological and anatomical differences between male and female students as determined at their birth” when considering Department of Education (ED) and Department of Justice (DOJ) Dear Colleague guidance letter on transgender students’ use of school bathrooms – a substantive issue pending separately before SCOTUS.

Alternatively, the district court found that plaintiffs likely established a sincere religious exercise that the rule imposes substantial pressure on plaintiffs to abstain from that religious exercise, and that, even if the government established a compelling interest, the government had not established that the regulation represented the least restrictive means under the Religious Freedom Restoration Act (RFRA).  The RFRA and remaining preliminary injunction issues pose substantially lesser problems than the likelihood of success on the HHS’s authority to promulgate its interpretation of the statute.

►  The ruling should come as little surprise.  Plaintiffs again asked for, and the court granted, a preliminary injunction, when both seem to be thinking of a stay of effective date (what would have been January 1, 2017).  It is unclear why the distinction between a stay of effective date and preliminary injunctions was not given the same level of consideration as the distinction between sex and gender identity.

Streaming Suit:  The Department of the Interior (DOI), Office of Surface Mining Reclamation and Enforcement (OSMRE) filed for public inspection its Stream Protection Rule on December 19, 2016, specifying that the rule takes effect January 19, 2017.  The final rule makes substantial changes to the way in which DOI implements the Surface Mining Control and Reclamation Act of 1977 (SMCRA), including allegedly stranding substantial coal seams from future mining and limiting, if not barring, a common mining technique.  Quite naturally, DOI was immediately sued in the United States District Court for the District of Columbia – Murray Energy v. DOI claims that the final rule violates the SMCRA and was not promulgated in accord with the APA, including that DOI failed to include in the public docket for public comment underlying technical documents and data upon which DOI relied in developing the rule, failed to respond to substantive public comments, and failed to provide a reasoned analysis for provisions of the final rule.  The complaint asks the court to hold unlawful and set aside the final rule.

►  The litigation is likely to move quickly on preliminary relief, but will likely also require many months to reach an ultimate conclusion – the likelihood standard for a stay will take substantial time to fill out on judgment on the record.  One expected issue here is the completeness of the administrative record because the plaintiff avers the acquisition of relevant (considered?) documents under the Freedom of Information Act (FOIA) that may or may not appear in the administrative record, but were not cited in the final rule.

Effective Date Delay Dance:  The HHS Centers for Medicare and Medicaid Services (CMS) took an unusual step in the publication of its Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2018; Amendments to Special Enrollment Periods and the Consumer Operated and Oriented Plan Program final rule that begs for problems and offers proof of the worst of “midnight regulations.”  The final rule sets out a host of changes to payment parameters, risk adjustment, cost-sharing, and user fees, as well as guidance on insurance options.

According to the Office of Management and Budget (OMB) Office of Information and Regulatory Affairs (OIRA)’s docket, the massive and economically significant final rule was submitted for executive and interagency review on December 5, 2016, and review was completed nine days later on December 14, 2016, “consistent with change.”  The final rule was filed for public inspection by the Office of the Federal Register at 4:15 PM December 16, 2016, with a text specifying an effective date 30 days from the “date of display.”  The final rule was not published until December 22, 2016, but becomes effective January 17, 2017, less than the APA minimum 30 days of delayed effective date.

HHS first admits that it normally provides a 60-day delayed effective date, and then argues that it has good cause to justify a less than Congressional Review Act (CRA)-mandated 60-day delayed effective date, and a less then APA-mandated 30-day delayed effective date as “contrary to the public interest.”  HHS argues:

HHS has determined that implementation of these changes beginning early in 2017 is important for issuer confidence.  Issuer confidence is necessary to maintain robust issuer participation in and competition on the Exchanges and to encourage affordability of coverage for enrollees and the continuity of care that is supported by the continued availability of plans on the Exchanges.  We believe that the later effective date for the 2017 Payment Notice added to issuers’ uncertainty in preparing their products for the 2017 benefit year, which may have led to uncertainty in the market and may have resulted in premium increases.  We are seeking a shorter effective date in order to allow issuers ample time to prepare for the 2018 benefit year and help stabilize the Exchanges for issuers and consumers.  We also believe consumers’ confidence in the Exchanges is especially important this time of year when they are making enrollment decisions, with Open Enrollment in the individual market ongoing and the Medicare General Enrollment period about to begin on January 1.

HHS’s argument lacks citation to judicial precedent supporting this argument.

►  HHS fails to establish more than that the rule and their proposed effective date are a “good idea” from their perspective – points that have nothing to do with good cause that compliance with the statutory delayed effective dates under the CRA or APA are “contrary to the public interest.”  The substance of the rule may be entirely beneficial, but the shortened delayed effective date is justified only by political efficacy, not law.  HHS submitted the massive rule far too late to assert good cause for excepting from the delayed effective date requirements.

Inaction as Action:  On Monday, December 19, 2016, the Environmental Protection Agency (EPA) withdrew from executive and interagency review before OMB its Draft Model Trading Rules for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014.  EPA announced its action in a blog post and OMB’s docket reflects a withdrawal.

EPA proposed the Model Rules as part of the Clean Power Plan (CPP) – subsequently stayed.  EPA pursued the dependent rulemaking even after the stay, reflected in both considerable consternation or support, depending on which side of the litigation a particular participant stood.  EPA made is point clear and candidly:

Today, we are withdrawing the draft Model Rules and accompanying draft documents from interagency review and are making working drafts of them available to the public.  While these drafts are not final and we are not required to release them at this time, making them available now allows us to share our work to date and to respond to the states that have requested Exit information prior to the end of the Administration.  In a letter issued today, we have notified those 14 states about the information we are making available.

►  In short, these novel legal and policy documents would have only been model rules and now the interested States can use them as such.  An agency may release drafts and thereby waive privileges from disclosure, and this release is a tactical action by EPA.  With few days remaining, it may have become apparent that EPA could not promulgate these model rules and ensure that they could not be stayed with the stroke of a pen and ultimately withdrawn without ever becoming effective.  The public release, however, of “model rules” allows those so inclined to utilize them as if they had in fact been promulgated, although without official imprimatur.  Thus, EPA has acquired much that it could from the process by ending the process.

Energy Efficiency Standards Efficiencies:  OMB completed review of six economically significant Department of Energy (DOE) energy efficiency standards under the Energy Policy and Conservation Act of 1975 (EPCA).  EPCA prescribes categories of appliances and equipment subject to a specific regulatory process to establish energy conservation standards for consumer products and certain commercial and industrial equipment.  Two sets of Energy Conservation Standards appear to be facing statutory review deadlines:

  • Central Air Conditioners and Heat Pumps, and
  • Commercial Packaged Boilers.

Three Energy Conservation Standards appear to have been concluded without that hanging sword:

  • Dedicated-Purpose Pool Pumps,
  • Portable Air Conditioners, and
  • Uninterruptible Power Supplies.

But the most interesting final rule is the Energy Conservation Standards for Walk-In Coolers and Walk-In Freezers, completed under a judicial deadline from Lennox Int’l v. DOE, in which the parties agreed on a remand to the agency.  The draft final rule explains that process in more detail.

►  These rules illustrate two practices worth note.  First, DOE releases, under with its regulations for promulgating EPCA rules, a pre-publication draft with a specific invitation to readers to notify DOE of any typographical or other errors, which it describes in its regulations, during a 45-day window.  All rules receive several “technical reviews” but this invitation expands the reading audience and can catch errors that internal experts might miss – a value of its own.  DOE’s advance release also can be quite beneficial in affording the regulated community additional advance notice of the regulatory content prior to the beginning of the delayed effective date period.

Here the technical review will encompass an expected political review by the new Administration and that latter review might reconsider the use of the social cost of carbon (SCC), and discount rates appropriate for each set of SCC values as an avoidance benefit.  The use of SCC is result-oriented – it only increases benefit values to offset costs.  The objective reasonableness of SCC without considering countervailing costs is still arguable and may be modified or even abandoned by the incoming Administration.

Irrelevant and Relevant Facts:  In 2016, the Federal Register published 97,110 pages – more than any other year – but that fact is driven not by any single element but by the cumulation of many different events, so the fact itself is irrelevant.  One the other hand, OMB completed review of 98 significant regulatory actions during the month of December – a highly relevant fact from an Administration seeking to embed its policies in the future, but with the caveat that many of these rules are destined for promulgation in any event and only a few qualify as economically, legal, or policy significant (aka “high jingo”) that might cause consternation in the new Administration.