The Administrative Conference of the United States (ACUS) approved three recommendations at its 57^th Plenary Session on December 6 – 7, 2012:

• Reform of 28 U.S.C. § 1500;
• Third-Party Programs for Regulatory Compliance; and
• Civil Monetary Penalty Inflation Adjustment.

This blog previously posted the agenda recommendations and reports.  Why Congress, the agencies, and practitioners should consider these authoritative final recommendations carefully follows the jump.

Procedural Traps:  28 U.S.C. § 1500 divides jurisdiction between the United States Court of Federal Claims and the United States District Courts in adjudicating claims against the United States by barring the former from proceeding if a case is pending in the latter.  A small number (debated) of “mixed” multiple claims cases arising from the same act may be trapped on a jurisdictional divide between the United States District Courts and the Court of Federal Claims unless practitioners are aware of the details of this Reconstruction Era provision.

The Department of Justice (DOJ) offered two amendments:   (1) to delay consideration for a year, and (2) to make substantive changes.  The former failed after some debate, but the Conference agreed that DOJ had offered some improvement and, with modifications, agreed in part to DOJ’s second amendment, and approved the amended recommendation.

♦While this recommendation affects only a small number of cases, the issue is whether a 150-year-old procedural bar should deprive the unwary from a day in court.

Third Party Inspections:  A number of Federal agencies use private third parties to inspect and verify that regulated entities comply with federal regulatory standards and other requirements.  Much of the debate on this recommendation focused on the risk values involved in the use of third party inspections – particularly a perceived higher risk in the regulations of health and safety issues.  ACUS approved the recommendation with amendments tightening the language.

♦The functioning of third party programs will always pose some risks different from agency direct oversight – the value judgment is relative risk to cost to benefit.  These recommendations provide a framework for Congress in deciding whether to require a third party compliance assessment program and for agencies and the Office of Management and Budget (OMB) in assessing regulatory development of such a program.  Currently OMB can use these recommendations in assessing the Department of Health and Human Services (HHS) Food and Drug Administration (FDA) food safety third party inspection rule.

Civil Monetary Penalty Inflation Adjustment:  Congress has provided agencies with the ability to adjust civil monetary penalties (CMPs) to reflect inflation and the fact that inflation weakens the deterrent value of such penalties over time.  CMPs are penalties paid for violation of statutory and regulatory requirements and the inflation adjustment was mandated in 1996, however imperfectly.  ACUS recommends the Congress eliminate the inflation gap created by the statutory 10% cap on adjustments, the asynchronous, but mandatory, use of the Consumer Price Index (CPI-U) against actual inflation creating another gap, and a statutory “rounding error” gap.  If enacted by Congress and implemented by the agencies, the effect would be substantially more than ACUS’ meager budget.

ACUS recommends correction of the most fundamental statutorily created problems of the adjusting civil monetary penalties.  Agencies can resolve process issues, such as the inherent gap created by the time requirements of the rulemaking process, by carefully structuring initial adjustment rules to permit later arithmetic adjustment by final rules.

♦These recommendation may seem somewhat bureaucratic, but Congressional and agency adoption can increase government receipts.  More accurate and more current CMPs could contribute to the budget bottom line, thereby slightly reducing the budget deficit, slightly helping Congress and the President avoid the fiscal cliff, and slightly reducing the growth of the national debt.

Disclosure:  The author is a consultant to ACUS on another project not before this Plenary Session.

• Reform of the Procedural Trap between the Court of Federal Claims and the United States District Courts;
• Third-Party Programs for Regulatory Compliance; and
• Civil Monetary Penalty Inflation Adjustment.

Discussions in the 100-member Plenary session are always informative and informed, often lively, and sometimes contentious, as befitting any meeting of the best minds in the business.

Jurisdictional Traps:  28 U.S.C. § 1500 divides jurisdiction between the United States Court of Federal Claims and the United States District Courts in adjudicating claims against the United States by barring the former from proceeding if a case is pending in the latter.  Certain “mixed” multiple claims arising from the same Federal act can be trapped on a jurisdictional divide if Congress has vested jurisdiction over the different claims in the District Courts and the Court of Federal Claims.  The Committee on Judicial Review recommends that Congress repeal the provision and enact a new presumptive stay and order of disposition provision.  The accompanying report details the vicissitudes of this procedural trap for the unwary and the fully informed litigator.

Third Party Inspections:  A number of Federal agencies use private third parties to inspect and verify that regulated entities comply with federal regulatory standards and other requirements.  The draft report surveyed eight federal agency programs that rely on private third parties to assess compliance of regulated entities by six different regulatory agencies; half assess compliance with mandatory standards and half assess compliance with voluntary standards; use of third parties is required in six and optional in two.  The existence of the report may spur further consideration of third party assessment programs and the Committee on Collaborative Governance recommends steps for deciding when and how to establish such programs.

Civil Monetary Penalty Inflation Adjustment:  Congress has provided agencies with a tool to adjust civil monetary penalties to reflect the fact that inflation weakens the deterrent effect of such penalties over time.  The mechanics of adjustment through a final rule are technically complex but substantively fairly straight forward and arithmetic.  The draft report points out the inflation gap created by the statutory 10% cap on adjustments, the asynchronous, but mandatory use of the Consumer Price Index (CPI-U) against actual inflation creating another gap, and a statutory “rounding error” gap.  The Committee on Administration and Management recommends legislative reconsideration of these issues, and that agencies, at a minimum, conduct a quadrennial review of penalties for adjustment.

Attendance and Video Linkup:  Here!

Disclosure:  The author of this blog is a consultant to the ACUS Committee on Judicial Review on another project not before this Plenary Session.

Size Matters:  The SBA this morning published three new size standard modifications based on requirements from the Small Business Jobs Act of 2010 and their new size setting methodology.  SBA is concerned with the impact of changes on SBA and other small business programs for purposes of this rulemaking.  The changes, however, have greater effect on the population of small entities that must be considered under the Regulatory Flexibility Act (RFA).  All agencies must apply these higher standards to whether a proposed or final rule will not “have a significant economic impact on a substantial number of small entities,” or the agency creates a full initial and final regulatory flexibility analysis.

1. Educational Services:  SBA estimates that about 1,500 firms exceeding the current size standards ($7mn) will gain small business status and become eligible for SBA programs under revised standards (ranging from $10m for elementary and secondary schools to $25.5m for colleges and universities).
2. Health Care and Social Assistance:   SBA estimates that more than 4,100 additional firms will become small because of increases in size standards in 28 industries.  Some sectors, such as ambulance services and blood banks, double the threshold from $7m to $14m, and HMO medical centers treble from $10m to $30m, but must changes are much smaller increments.
3. Real Estate and Rental and Leasing:  SBA estimates that about 13,000 additional firms will gain small business status under the changes in this rule.  The breadth of the category is surprising, with Home Health Equipment and Rental sector and Commercial, Air, Rail, and Water, Transportation Equipment and Rental sector more than quadrupling to $30m ceiling.  Consumer Electronics and Appliances Rental sector quintuples to a $35.5m ceiling.

Agencies and private practitioners should watch these changes closely when evaluating agency rulemakings.

House Floor:  Before leaving town, the House of Representatives passed (and sent to the Senate…for symbolic purposes) H.R. 3409, the Stop the War on Coal Act of 2012.  The bill

• limits the authority of the Environmental Protection Agency (EPA) to promulgate “greenhouse gas” rules ,
• limits the authority of the Department of the Interior (DOI) to promulgate certain strip mining regulations,
• vitiates a dozen existing environmental rules;
• requires publication of certain scientific studies in rulemakings,
• sets up committees, requires reports, ….

Congressional Review of Memorandum.  H.J. Res. 118 was reported out, providing for disapproval under the Congressional Review Act of the Department of Health and Human Services (HHS) Office of Family Assistance memorandum relating to waiver of any work requirements under the Temporary Assistance for Needy Families program.  As noted previously, this action is ostensibly a memorandum (HHS claims it is an exercise of discretion), but the House Ways and Means Committee and Education and Workforce Committee seem to believe that it is a rule and that the CRA applies.

H.R. 4078:  The bill itself (at the time of floor action) begins with a defined “significant regulatory action” in much the same way as Executive Order 12866’s directive for Office of Management and Budget review, but adds more details:  a regulation likely

1. to have an annual cost to the economy of $100 million or more or to adversely affect the economy, productivity, competition, jobs, the environment, public health or safety, small entities, communities, or state, local, or tribal governments;
2. to create a serious inconsistency or otherwise interfere with another agency’s action;
3. to materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
4. to raise novel legal or policy issues.

A critical floor amendment reduced the application threshold to $50,000,000.  The bill permits the President (POTUS) to exempt a rule from the bar contained in the bill if:

• necessary to respond to an imminent threat to health or safety or other emergency,
• necessary for the enforcement of criminal laws,
• necessary for U.S. national security, or
• issued to implement an international trade agreement.

If POTUS exempts a rule, the bill would Congressional review.  Moreover, the bill would permit judicial review of whether a regulation violated the Act and any determination by either the President or the Secretary of Labor under this Act.

Accompanying the bill are reports from the Committee on the Judiciary and the Committee on Oversight and Government Reform.

Veto Threat:  The Office of Management and Budget (OMB) issued a Statement of Administration Policy (SAP) in response to the Rules Committee report of the bill to the House.

• Sidebar:  This is the normal course on behalf of the Executive Office of the President when legislative policy is stated:  OMB does not make the decision – the White House makes the decision.  OMB coordinates views and announces the decision.  Many commenters don’t seem to understand this process.

The SAP stated the second highest level of veto threat:  “If the President were presented with H.R. 4078, his senior advisors would recommend that he veto the bill.”

The SAP argued:

Passage of H.R. 4078 would seriously undermine the existing framework.  H.R. 4078 would also add layers of procedural burdens that would interfere with agency performance of statutory mandates, unnecessarily delay important public health and safety protections, and undermine and potentially delay important environmental reviews.  For example, H.R. 4078 would create excessively complex permitting processes that would hamper economic growth.  It would also spawn excessive regulatory litigation, and introduce redundant processes for litigation settlements.  It also addresses numerous problems that do not exist, such as a moratorium on “midnight” rules.

The analysis addresses more the political import of the bill rather than the bill’s language, because the bill contains a POTUS waiver provision.

Floor Action:  The House considered a number of amendments to the original reported bill under the rule.  The result of each record vote was close to party-line, but by no means a party-line vote.  The enrolled bill will not be available (in light of several amendments adopted) for several days.

House Passage / Senate …:  The Committee of the Whole House adopted five amendments to the bill, reported it to the House, and the House passed the bill by a recorded vote of 245 – 172.  The bill now joins three other major regulatory reform bills discussed previously in the Senate.  No action is expected on any of these measures unless and until a compromise is forced by larger legislative problems that must be solved or even a budget compromise.

Evaluation of the legislation welcome.

Updated:  Includes engrossed bill with amendments.

Mortgage Charges:  Anyone who has a mortgage (about ⅔ of Americans), knows the painful process of negotiating the loan and settlement, the many hands that try to reach into the potential homeowner’s pocket, and the charges for “unusual” services, even under RESPA.  The issue raised in Freeman was whether RESPA’s “no kickback” provision applies to the division of a fee between two entities, or permits a single entity to be liable for charging an unearned fee.  The Court’s answer was emphatically that two entities must divide a fee.

Statutory Provision:  The United States Court of Appeals for the Fifth Circuit, relying on a plain-language analysis, held that the sharing of a fee was required.  The Supreme Court recognized the circuit split acknowledged by the Fifth Circuit and well pled by the petitioner, resolving it in Freeman.  Here the split revolved on whether the language was plain on the specific point of whether overcharges and unearned fees were covered by RESPA.

The relevant statutory language of RESPA § 8(b) (12 U.S.C. § 2607(b)), provides:

No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

HUD adopted regulations, but addressed only a limited circumstance, not the current issue:

A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates [RESPA Section 8(b)].

HUD’s Policy:

Historically, based on the statute and existing regulations, the Seventh Circuit certified a class action alleging that yield spread premiums violated RESPA and the Eleventh Circuit found the most natural reading of RESPA’s provision reached only kickbacks, not unearned fees, and that the regulation did not clearly provide otherwise.  These decisions left HUD in a quandary, so it adopted a policy statement – not a regulation.

Under previous management, HUD adopted a policy statement (not a regulation), that reviewed several forms of “unearned fees”, such as

• a split fee, any portion of which is unearned;
• fee mark-ups for services provided by others without added value;
• fees for no, nominal, or duplicative work; or
• fees in excess of the reasonable value.

HUD made the leap to a broad policy:

HUD regards all of these situations as legally indistinguishable, in that they involve payments for settlement services where all or a portion of the fees are unearned and, thus, are violative of the statute.  HUD, therefore, specifically interprets Section 8(b) as not being limited to situations where at least two persons split or share an unearned fee for the provision to be violated.

The parties vigorously disputed whether this non-regulation policy deserved deference under Chevron v. NRDC.

[Sidebar:  HUD no longer owns this statutory property, Congress transferred title to the Federal Reserve System’s independent Bureau of Consumer Financial Protection (CFPB), which Congress also inconsistently called the “Consumer Financial Protection Bureau.”]

Plain Language:  Justice Scalia concisely stated the issue:

The dispute between the parties boils down to whether this provision prohibits the collection of an unearned charge by a single settlement-service provider – what we might call an undivided unearned fee – or whether it covers only transactions in which a provider shares a part of a settlement-service charge with one or more other persons who did nothing to earn that part.

The Court found the plain language of the statute provided no grace for the agency to interpret – by either regulation or policy statement under the Chevron Step 1 analysis.  The Court found support for the plain meaning of the language in related language contemporaneously adopted by Congress, the structure of the language itself, and a common-sense understanding of the words.  That was enough.

The oft-repeated saw applies:  If the statute is clear, that is the end of the matter for both the agency and the court.  No agency interpretation – whether by notice and comment regulation or by some lesser policy statement – is considered or granted deference under the Chevron Step 2 analysis because it is irrelevant.

Lessons for Agencies:  The lead paragraph of this post emphasized “unanimously” for a reason – the Court often divides between strict construction without legislative history or external tools of interpretation and a broader view of the legislative process and the pressures to reach agreement that lead to use of legislative history and external tools of interpretation.  Generally, two of the Court’s administrative law scholars may exemplify the debate:  Justice Scalia and Justice Breyer, respectively.  The Court’s unanimity behind Justice Scalia in Freeman should warn agencies that the risk of overstepping the bounds of a statute are very real:  if the statute is clear, the agency may not add or detract from it, for the agency’s power derives from that statute.

Christopher Willis, Ballard Spahr LLP, concludes from the reasoning of Freeman that there exists a lack of plain-language support for the CFPB’s “disparate impact” interpretation under the Equal Credit Opportunity Act (ECOA) and HUD’s interpretations of the Fair Housing Act.  Nor is this an issue limited to housing and finance.

Agencies all too often attempt to alter the meaning of statutes when it suits, whether by regulations, statements of policy, or just plain abuse of discretion.  The core edict that “Congress says what it means and means what is says” is the heart and soul of the limits on delegated authority of an agency.  The Supreme Court has reaffirmed that core value.

A second House Appropriations Committee bill and report would bar using FY2013 funds to “develop, adopt, implement, administer, or enforce a change or supplement to” the Army Corps of Engineers’ rules or guidance on the definition of waters under the jurisdiction of the Federal Water Pollution Control Act.  The provision, if enacted, would freeze the regulations and guidance for FY2013 in light of Sackett v. EPA.

Limitations on an agency’s use of appropriation bills to limit rulemaking are more common than most realize and touch upon the delegation doctrine under the U.S. Constitution, so a short review is in order.

This blog previously discussed the Department of Labor (DOL) H-2B Wage Methodology Rule funding bar and litigation.  Together, these are all part of a much larger pattern of Congressional intervention and withdrawal of previous constitutional legislative delegations.  Often Members of Congress may perceive that an agency has “gone too far” with congressionally delegated authority, but the real issue is whether those Members can force a compromise that includes such a bar.

Congress created a detailed and complex mechanism for disapproving regulations – a joint resolution (also a law by another name) – in the Congressional Review Act (CRA).  Congress enacted the CRA in response to the United States Supreme Court decision, in INS v. Chadha, striking down as unconstitutional the “one-House veto” and with it over 200 provisions of various laws.  Congress used the CRA only once – to disapprove the Clinton Administration ergonomics rule.  Most recently, the Senate failed to approve S.J. Res. 36, a joint “resolution of disapproval” of the National Labor Relations Board (NLRB) Representation – Case Proceedings, a joint resolution that the President had threatened to veto in any event.

The simpler method, however, is to enact a funding prohibition in an appropriation.  An appropriation, of course, is a law like any other law – approved by the House and the Senate, and signed by the President.  Congress may, unquestionably, withdraw or limit a delegation made by a previous Congress in a previous law.  The dynamics of this law-making function are very different because the stakes vested in the ultimate decision are much greater.  An appropriation limitation is more viable for disabling a rule than the joint resolution under the CRA because

1. appropriations are “must” legislation that “must” be negotiated (it’s self-effecting: if the appropriation is not enacted or is vetoed, the agency withers, not just the rule), and
2. appropriations can apply much more broadly than to just CRA major rules or to a specified rule.

The massive Consolidated Appropriations Act, 2012, currently funding the vast majority of the Government for FY2012, illustrates the breadth and depth of regulatory defunding in a dozen such limitations:

• Many words on a regulation of a small program on loaning Executive Branch employees to the Legislative Branch (§ 730, 125 Stat. 936);
• A disappointment for those who prefer to escape reality because there will be no rules lessening penalties under schedule I under the Controlled Substances Act for tetrahydrocannabinols (read: marijuana)  (§ 810, p. 942);
• Industry-specific rules on permitting under the Clean Air Act for carbon dioxide, nitrous oxide, water vapor, or methane emissions resulting from biological processes associated with livestock production (§ 426, p. 1046);
• Or more pungently, no rules requiring reporting of greenhouse gas emissions from manure management systems (§ 427, p. 1046);
• No Occupational Safety and Health Administration (OSHA) rules applicable to small farms that do not maintain a temporary labor camp (p. 1059);
• No definition of ‘‘Fiduciary’’ by the DOL Employee Benefits Security Administration (EBSA) (§ 109, p. 1064);
• No (previously mentioned) DOL Wage Methodology for the Temporary Non-Agricultural Employment H–2B Program (§ 110, p. 1064);
• No OSHA Occupational Injury and Illness Recording and Reporting Requirements — Musculoskeletal Disorders (MSD) Column (§ 111, p. 1064);
• And sometimes rambling detail that is perhaps unconstitutionally, no Lowering Miners’ Exposure to Coal Mine Dust until the Government Accountability Office makes certain findings  (§ 112, p. 1064);
• Or quite bluntly, no funds may be used to administer or enforce “29 CFR 779.372(c)(4)”  (§ 113, p. 1064);
• Or by subject when a discrete regulations can’t be identified, such as no funding to the NLRB to issue any new administrative directive or regulation that would provide employees any means of voting through any electronic means in an election to determine a representative for the purposes of collective bargaining; (§ 405, p. 1107); and
• And, in case you want to apply, no regulation or any action to limit the submission of applications for benefits under the Demonstration Cities and Metropolitan Development Act of 1966 (p. 1141).

This catalogue illustrates a variety of sizes, shapes, and styles of funding limitation.  We should expect funding limitations as the Appropriators roll through the 13 bills to fund (hopefully) the United States Government for FY2013.  The Congress will never be consistent with how it withdraws delegations by defunding, and often-arcane appropriation language makes the issue daunting.

Congress may defund regulations and regulatory delegations and likely will use that authority even more in the future.  Although often limited to a single fiscal year, once adopted, these defunding restrictions also often recur in subsequent appropriations, becoming semi-permanent.

OMB also completed review of economically significant rules for the Department of Education’s (DOEd) Pell Grant Program, and the Department of Health and Human Services’ (HHS) (1) Home and Community-Based State Plan Services Program and Provider Payment Reassignments, and (2) Community First Choice Option.

Legislation:

The Senate failed to approve S.J. Res. 36, a resolution of disapproval of the National Labor Relations Board Representation – Case Proceedings on Tuesday, April 24.  As discussed last week, litigation is still pending, but there will be no legislative intervention (POTUS had threatened to veto a resolution in any event).

After the hearing the Securities and Exchange Commission’s (SEC) aversion to regulatory analysis reported here, the Financial Services Committee filed a report on April 25, 2012, recommending (to the Committee of the Whole House), H.R. 2308, to improve the consideration by the Securities and Exchange Commission of the costs and benefits of its regulations and orders, with an amendment (H. Rept. 112–453).

Litigation:

The United States District Court for the District of Columbia will hear cross motions to dismiss / summary judgment in National Restaurant Association [NRA] v. Solis, D.D.C. No. 11-cv-1116, on whether the Department of Labor (DOL) gave the public adequate notice and an opportunity to comment in its 2008 proposed rule of notice requirements to employees that tips would be offset against minimum wage requirements that were ultimately contained in the 2011 final rule.  NRA claims that the 2011 final rule is a significant revision of (and detrimentally unnoticed increase in) the level of information that employers are required to provide to tipped employees, which itself is a reversal of DOL’s position from adhering to prior court decisions (2008) to rejecting those decisions (2011).  (Note also the change in Administration between proposed and final rule).

This may be a close “logical outgrowth” case, but the change and rationale (to the extent it exists, is rather dramatic.  Plaintiffs also raise a significant Regulatory Flexibility Act (RFA) claim that DOL improperly certified that the rule would not have a significant impact on a substantial number of small entities.   Fortunately, plaintiffs appear to have dropped some of their more problematic contentions about executive management, which can only be raised in a much more intricate Administrative Procedure Act (APA) claim.

Short version this week because I’m on travel.

This Week:  The Supreme Court hears argument at 10:00 AM this morning in Christopher v. SmithKline Beecham Corp. Docket No. 11-204:  (1) Whether deference is owed to the Secretary of Labor’s interpretation in an amicus brief of the Fair Labor Standards Act “outside sales exemption” and related regulations (i.e. deference under Auer v. Robbins); and (2) whether the Fair Labor Standards Act “outside sales exemption” applies to pharmaceutical sales representatives.  Follow-up coming if the argument is interesting.

Regulations:  EPA published Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units, which they previously released on March 27, 2012.  The complaints heard of this “no cost” rule include that the rule would (1) combine fuel sources into a single standard instead of recognizing the differences between fuel sources, and (2) premise a lack of “costs” on the direct application to building only new plants, but, in conjunction with other EPA rules, would effectively bar modification and upgrading of existing coal-fired generating plants without compliance with this rule.  EPA may need to address these points in the preamble of any final rule; both complaints do appear to generate foreseeable costs.  Comments are due by June 12, 2012.

The Securities and Exchange Commission (SEC) requested, on April 11, 2012, pre-rule input on implementation of the Jumpstart Our Business Startups (“JOBS”) Act, recently signed into law.  The JOBS Act requires the SEC to undertake various initiatives, including rulemaking and studies touching on capital formation, crowdfunding, disclosure, and registration requirements.

A lack of transparency was illustrated in OMB’s clearance of the Department of Justice (DOJ), Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF)’s, interim final rule, Residency Requirements for Aliens Acquiring Firearms, on April 13, 2012.  The rule’s designation as not economically significant is not surprising given its title and OMB review probably lies in the legal or policy issues that the rule raises.  Despite the fact that the rule was sent to OMB on December 22, 2011, it did not appear in the Unified Agenda published in January, review was extended, and OMB required changes.   This is all that is known about a rule change that may become effective in 30 days or so and that lack of transparency can be troubling.

Legislation:  Congress returns, but with little on its schedule.  Of interest, on April 17, the House Committee on Oversight and Government Reform may hold a hearing on “The SEC’s Aversion to Cost-Benefit Analysis.”  The SEC’s aversion was a ground for vacature of the SEC’s shareholder proxy rule in Business Roundtable v. SEC, discussed previously in Judicial Skepticism of Administrative Rulemaking Quality – A Growing Trend?

Litigation:

Last Week:  The U.S. Court of Appeals for the D.C. Circuit vacated a Surface Transportation Board (STB) decision in Manufacturers Railway Corp. v. Surface Transportation Board.  The STB granted a request to permit discontinuance of rail service over Manufacturer’s entire system, but STB did not apply its long-standing “entire-system exception” to payment of employee dismissal allowances.  Manufacturers was thus required to pay dismissal allowances to its dismissed employees.  The D.C. Circuit concluded that the STB did not reasonably explain and justify its departure from its longstanding entire-system exception and, therefore, the STB’s decision was  arbitrary and capricious under the Administrative Procedure Act (APA).  An adequate explanation is needed for any administrative decision – whether an order or a regulation.

This Week:  The D.C. Circuit hears argument on Wednesday, April 18, 2012, in Texas Alliance For Home Care v. Sebelius (11-5265) (on appeal from the District Court) raising an issue of the degree of specificity required in a proposed rule to provide notice of potential financial standards that could be applied, the latest in a long line of struggle between agency use of “accounting and financial standards” (whether Generally Accepted Accounting Principles (GAAP) or otherwise) or their discretion to determine financial fitness, and regulatory requirements under the APA.

This Week:

Congress is out of town and court argument calendars are lighter, although OMB, the agencies, and the courts may try to clear the tables a bit before the Easter weekend.

The Supreme Court is expected to release orders and, perhaps, opinions at 10 this morning, before a two week recess.

The Federal Register should publish EPA’s Greenhouse Gas New Source Performance Standard for Electric Generating Units for New Sources (see below).

OMB should be completing review of a few rules, although review has been extended in three rules that were approaching Executive Order 12866’s nominal 90-day review timeframe.  I count 33 extended reviews, at present, of a total of 165 pending actions.

Last Week:

Regulations:

OMB completed review and the State Department published an interim final rule, Schedule of Fees for Consular Services, Department of State and Overseas Embassies and Consulates.  The rule becomes effective April 13, 2012, with public comments due by May 29, 2012 (interestingly, some fees go down).  State argues for an exception to Administrative Procedure Act’s (APA) advance notice and public comment with this summary (and I think dubious) statement:

Delaying implementation of this rule would be contrary to the public interest because the fees in this rule fund consular services that are critical to national security, including screening visa applicants.  In addition, the Department will not be able to sustain the anticipated growth in consular overseas operations if these fees are not effective within 15 days of publication.

EPA Administrator Jackson signed and released (March 27, 2012), but the Federal Register has not yet published, a much anticipated Greenhouse Gas New Source Performance Standard for Electric Generating Units for New Sources proposed rule.  The rule would set carbon emission standards only for new coal-fired power generating plants – comments will be due 60 days after publication.  EPA argues that its proposed rule “will have no notable compliance costs.”

OMB completed review on March 28, 3012, and DHS published this morning, a proposed rule, Provisional Unlawful Presence Waivers of Inadmissibility for Certain Immediate Relatives.  USCIS announced its intention to develop this rule in January and has moved the rule quickly.  Comments are due June 1, 2012.

Treasury & U.S. Customs and Border Protection published a proposed rule, Members of a Family for Purpose of Filing a CBP Family Declaration, to expand the definition of a family for customs declaration purposes, to accommodate non-traditional family units.  Comments are due May 29, 2012.

Legislation:

The House Judiciary Committee marked up and approved H.R. 3862, the “Sunshine for Regulatory Decrees and Settlements Act of 2012” with an amendment in the nature of a substitute, on March 27, 2012.  Committee Report to follow.

Litigation:

EPA was also chastised by the U.S. Court of Appeals for the Fifth Circuit in Luminant Generating Co., LLC, v. EPA.   EPA tried to disapprove certain Texas clean air regulations three years after the Clean Air Act deadline.  The Wall Street Journal opined that this victory for Texas illustrates EPA overreaching in seeking to transfer power from the states to the federal government, even if Congress intended otherwise.

Please let me know if this review is helpful.

Congress does not (and cannot) delegate to agencies the authority to rewrite statutes, even when the courts fundamentally alter the legal landscape.

Where the plain language of the statute applies, an agency may not promulgate a regulation that is inconsistent with the text of the statute because intervening events produce an absurd, difficult, or problematic result.

The Decision:  Judge Jackson summarized her decision succinctly:

In sum, the Court finds that Congress spoke plainly, that Congress did not delegate authority to the FEC to narrow the disclosure requirement through agency rulemaking, and that a change in the reach of the statute brought about by a Supreme Court ruling did not render plain language, which is broad enough to cover the new circumstances, to be ambiguous.  The agency cannot unilaterally decide to take on a quintessentially legislative function; if sound policy suggests that the statute needs tailoring in the wake of [FEC v. Wisconsin Right to Life, Inc., 551 U.S. 449 (2007) (WRTL)] or [Citizens United v. FEC, 558 U.S. ---, (No. 08-205, January 21, 2010) (Citizens United)], it is up to Congress to do it.

Background.  To oversimplify, Congress imposed restrictions on, and required disclosure of, certain contributions and expenditures by corporations and other organizations, including unions in the Bipartisan Campaign Reform Act (“BCRA”).  In WRTL, the Supreme Court struck down as unconstitutional a statutory prohibition of expenditures by corporations and unions for advertisements that did not constitute “express advocacy” or the “functional equivalent of express advocacy.”  The FEC adopted regulations to implement the Supreme Court’s decision in WRTL.  The regulation tracked the statutory reporting the sources of the funds used to make electioneering communications, but the FEC also changed the meaning.

The Supreme Court then decided Citizens United, completely invalidating the prohibition on the use of corporate and union treasury funds to finance electioneering communications, but upholding the disclosure provisions of the statute.  Thus, a statutory limitation was removed and the statutory disclosure requirement remained.

Congressman Van Hollen challenged the regulations under the Administrative Procedure Act (APA), claiming, among other things, that the FEC exceeded its authority.  The district court agreed and invalidated the regulation.

The Regulatory Impact:  The danger of statutory clarity and overbreadth lies in the agency’s inability to save the statutory purpose by regulation.  Here, the Supreme Court struck down limitations on political donations, leaving the statute’s plain disclosure language applicable to a much larger population of organizations.

Rules Applied:  Courts must determine whether a statute is clear and, if so, give effect to the statute.  If the statute is not clear, a court must defer to agency implementing regulation interpretation of that ambiguity.  In this case, the underlying statutes barred most corporations from certain electioneering and other political activities, and the remainder who could undertake those activities were required to report certain contributions.  When the restriction on corporate political activities was struck down as unconstitutional in Citizens United, the reporting requirements directly under the statute ballooned.  The FEC’s attempt to implement WRTL narrowly could only stand if the statute was ambiguous; otherwise plan statutory text was beyond the FEC’s authority to interpret.  While the application of the Supreme Court decisions is relatively new and the District Court decision “unprecedented,” the principle that the agency may not exceed the authority constitutionally delegated by Congress is well established.

The FEC is likely to seek further judicial review, I think, but further regulatory attempts may be futile as long as Judge Jackson’s decision stands.  Meanwhile, the administrative burden of disclosure has ballooned for corporations, unions, other organizations, and the FEC.

A Caution about a Common Problem:  Every regulatory agency faces this issue – how a number of different regulations are affected if a statute or related regulation is invalidated.  The Supreme Court’s pending decision on the constitutionality of Affordable Care Act (ACA) may loom large in regulatory development.  If the individual mandate is held unconstitutional and not severable from the remainder of the ACA, the Administration will need to rapidly rethink the efficacy of any regulations promulgated, at least in part, under the ACA.