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

Monday Morning Regulatory Review – 2/13/17: Fiduciary Reconsideration; Executive Order Litigation; Regulatory Deconstruction & Executive and Interagency Review

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

dawn over the capitol aocRelative quietude on the surface of regulatory practice belies shifting tides.  A challenge to one major rule from the prior Administration failed, but a new rule is being reviewed to delay the existing rule while a new challenge raises a host of old issues applied to a new Administration.  The First Branch, on the other hand, continues to prepare joint resolutions of disapproval of the past Administration’s regulations.  And the new Administration has begun to push out its first economically significant proposed rule.

Fiduciary Reconsideration:  A district court and the agency went in different directions last week over the Department of Labor (DOL) Definition of the Term “Fiduciary” suite of rules.  The United States District Court for the Northern District of Texas rejected a host of Administrative Procedure Act (APA) claims in Chamber of Commerce of the United States v. Hugler.  DOL, pursuant to direction from the President of the United States (POTUS) signaled its reconsideration of the rule in submitting a proposed rule to the Office of Management and Budget (OMB) for executive and interagency review.

The district court rejected claims that DOL exceeded its statutory authority under the Employee Retirement Income Security Act (ERISA) in several different ways; impermissibly create a private right of action not recognized in ERISA; failed to give adequate notice of particular changes to give an effective opportunity for public comment; was arbitrary and capricious in altering exempting relief; failed to account for existing annuity regulations, and the DOL’s benefit / cost analysis was arbitrary and capricious.  This was the broadest attack on the rules and the one most likely to succeed, but did not.

The district court notes, as did this blog, that POTUS instructed DOL to “conduct a further review” of the rule, but that management directive did not moot the underlying litigation because DOL must adopt a new rule to alter the legal requirements subject to the current litigation.

Meanwhile, DOL filed a Definition of the Term “Fiduciary” – Delay of Applicability Date proposed rule on February 9, 2017, with OMB’s Office of Information and Regulatory Affairs (OIRA).  Taking the title at face value, the proposed rule could be quite small and sterile, with an extremely short public comment period, to accomplish the singular change in delaying the applicability of substantive the substantive rights under ERISA that the original rule created by redefining “fiduciary.”

►  At bottom, the district court found that DOL acted within its authority but DOL is now about to reconsider the underlying policies.  Promulgating a final rule under the APA is quite possible prior to the April 10, 2017, applicability date promulgated in the current regulations, but postponing that applicability date further must be accomplished by a final rule because the date is embedded in the regulatory text.  The APA has no minimum public comment period mandate, and this rule could be an example of a short comment period.  Finally, a distinction between the original suite and the delay rule – unlike the original suite of rules, OMB does not deem delaying those rules to be economically significant, but any final amendments rolling back the substantive regulations to be economically significant – modifying prior economic analysis to emphasize different arguments.

Executive Order Litigation:  In a twist of old arguments, Public Citizen v. Trump, in the United States District Court for the District of Columbia, alleges that Executive Order 13771, Reducing Regulation and Controlling Regulatory Costs (also noted last week), exceeds the constitutional authority vested in POTUS, violates POTUS’s duty under the Take Care Clause of the Article II of the United States Constitution, and directs federal agencies to engage in unlawful actions that will harm plaintiffs’ members.  Plaintiffs’ summarize their complaint:

To repeal two regulations for the purpose of adopting one new one, based solely on a directive to impose zero net costs and without any consideration of benefits, is arbitrary, capricious, an abuse of discretion, and not in accordance with law, for at least three reasons.  First, no governing statute authorizes any agency to withhold a regulation intended to address identified harms to public safety, health, or other statutory objectives on the basis of an arbitrary upper limit on total costs (for fiscal year 2017, a limit of $0) that regulations may impose on regulated entities or the economy.  Second, the Executive Order forces agencies to repeal regulations that they have already determined, through notice-and-comment rulemaking, advance the purposes of the underlying statutes, and forces the agencies to do so for the sole purpose of eliminating costs that the underlying statutes do not direct be eliminated.  Third, no governing statute authorizes an agency to base its actions on a decisionmaking criterion of zero net cost across multiple regulations.

The suit names not only POTUS, but includes selected officials from the Department of the Interior (DOI), Department of Transportation (DOT), Environmental Protection Agency (EPA), and DOL as defendants – illustrative of their specific statutory mandates contented to conflict with the Executive Order – as well as the United States.

►  The suit rests in part on arguments that were made and ignored in prior attacks on the past Administration’s actions by some States – the ambiguous POTUS duty to “take Care that the Laws be faithfully executed.”  This is simply turnabout as fair play, but it does not answer the questions previously ignored – where is the mandatory duty to do precisely what?  Additionally, many of the same arguments in the complaint could be applied equally to Executive Order 12866 and any of the other management directives for regulatory review.

Two points worth noting as likely to arise in the litigation.  First, the complaint appears to presume that the POTUS is an agency under the APA, a point rejected in other contexts.  Second, the suit does not appear to address the limitations of the Executive Order in what is often considered boilerplate:  Nothing in the Executive Order “shall be construed to impair or otherwise affect … the authority granted by law to an executive department or agency” and that the Executive Order “shall be implemented consistent with applicable law and subject to the availability of appropriations.”

The reality remains that it is not the Executive Order that is a final agency action, but the regulations promulgated by the agencies.  The district court may need to address these issues in this novel case.

Regulatory Deconstruction:  The House of Representatives continued the process of dismantling major rules under the Congressional Review Act (CRA) last week by passing three more joint resolutions of disapproval of major rules:

  • H.J. Res. 44, Disapproving the rule submitted by the Department of the Interior relating to Bureau of Land Management regulations that establish the procedures used to prepare, revise, or amend land use plans pursuant to the Federal Land Policy and Management Act of 1976;
  • H.J. Res. 57, Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Department of Education relating to accountability and State plans under the Elementary and Secondary Education Act of 1965; and
  • H.J. Res. 58, Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Department of Education relating to teacher preparation issues.

The White House has signaled its approval and the Senate is likely to follow suit.

►  No resolution has been presented to POTUS for signature as yet and there is a fair likelihood that a number of these joint resolutions will be signed at one time.  Whether litigation challenging a joint resolution of disapproval is filed, it will present novel issues because of the dearth of past precedent.

Executive and Interagency Review:  In a first for a new Administration, OMB completed review of the Department of Health and Human Services (HHS) Centers for Medicare and Medicaid Services (CMS) Patient Protection and Affordable Care Act; Market Stabilization (CMS-9929-P) economically significant proposed rule on February 10.  OMB held at least one Executive Order 12866 meeting with a private party during the 10 days that OMB reviewed the proposed rule.  The proposed rule has not yet surfaced in print.

►  The review was completed with some haste for an economically significant proposed rule, but insurers need certainty to propose premium rates and the process does not wait for a new Administration.  Many old hands are adjusting to new parameters even as appointees are slow to come on board.  The gears are turning slowly.