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

Monday Morning Regulatory Review – 11/10/14: SCOTUS to Review Obamacare Subsidy Rule; Final Rule Statute of Limitations; Gainful Employment Metrics Litigation; Incorporation by Reference; and WOTUS Comments

Posted in Judicial Process, Judicial Review & Remedies, Regulatory Process

Last week in regulations was entirely expected – it was all just a matter of time.  The United States Supreme Court (SCOTUS) agreed that it will decide this Term whether the Internal Revenue Service (IRS) may, by regulation, extend Obamacare (Patient Protection and Affordable Care Act or PPACA) subsidies to participants in federally-operated health care exchanges.  One step lower in the judicial pyramid, the United States Court of Appeals for the District of Columbia Circuit reversed a district court dismissal of a regulatory challenge on statute of limitation grounds.  And still one more step lower on the judicial pyramid, suit was filed in that district court challenging, again, the Administration’s latest attempt to regulate for-profit colleges and universities.

For all of the agencies, the Office of the Federal Register (OFR) published its revision of incorporating privately developed standards as federal regulations.  One chapter in the contentious issue of the definition of “Waters of the United States” will come to an end this week, but that means that a great deal of quieter work begins in the agencies.

SCOTUS to Review Obamacare Subsidy Rule:  SCOTUS granted certiorari in King v. Burwell on Friday afternoon setting the stage for a most significant opportunity to clarify the structure and process for statutory interpretation and the application of Chevron deference.  The procedural order represents a loss for the Administration that had sought to slow down the King litigation while it sought a more favorable decision from the D.C. Circuit in Halbig, currently scheduled for en banc re-argument on December 17 (although that may now change, given SCOTUS’s cert grant).  Expect SCOTUS to hear argument in March 2015 and decide the case by the end of June 2015.

  Some interesting early commentary suggests that SCOTUS’s decision to hear King was a surprise, but it is hardly so – even with the intercircuit conflict on hold due to the Halbig vacatur for rehearing, the importance of the issue cannot be understated.  That importance is not the potential “death spiral” that is predicted if SCOTUS reverses King, but the structure and process of statutory interpretation – whether the subsidy provisions of Obamacare are plain under Chevron Step 1 (which is the end of the matter) or ambiguous, permitting the IRS interpretation under Chevron Step 2.  Justices are not immune to the hard realities of their decisions, but they are also not as motivated by political viewpoint as many try to ascribe to them.  A reversal of King would not “crash” the Obamacare “carefully balanced economic arrangements” but would correct the IRS’s balancing beyond the statutory bounds adopted by Congress.  If SCOTUS finds that “State” means only “State” in Obamacare, then it will have been the IRS that unbalanced Congress’s economic arrangement.  The only surprise in this order is that SCOTUS issued the order on Friday afternoon instead of Monday morning, and SCOTUS may simply be changing the way it internally processes cases.

Final Rule Statute of Limitations:  The statute of limitations for challenging a final rule is six years from the date when the action accrues.  A judicial intervention reinstating a rescinded rule, however, can restart that clock, however, as the D.C. Circuit reiterated in State of Alaska v. Department of Agriculture (DOA).  The short story is that the DOA promulgated the Roadless Rule in the last days of the Clinton Administration in 2001, litigation ensued and multiple injunctions were issued, appeals filed, … DOA promulgated the State Petitions Rule in 2005 (Bush II Administration), but a district court set aside the State Petitions Rule and reinstated the Roadless Rule in 2006.  Alaska sued in the district court in 2011 challenging the Roadless Rule, but the district court dismissed, finding that Alaska had filed outside the applicable statute of limitations, more than “six years after the right of action first accrues.”  The D.C. Circuit reversed and remanded, reviving Alaska’s suit:

The fundamental problem with the Forest Service’s argument is that the Forest Service repealed the Roadless Rule in 2005.  The Forest Service’s 2005 repeal of the Roadless Rule extinguished the right of action that had accrued in 2001.  …  For purposes of [the statute of limitations], however, a new right of action necessarily accrued upon the rule’s reinstatement in 2006.  In essence, when the District Court … issued its 2006 order, a new rule identical to an old repealed rule was issued.

  While the appellate panel may believe that the case has an “unusual procedural background” and therefore its holding is narrow, this very type of procedural litigation can and does perpetuate itself continually.  While the district court must now grapple with Alaska’s claims, do not be surprised to see this issue recur – particularly as long as the statute of limitations can exceed the lifespan of an Administration and judicial review of a final rule is available in multiple courts.

“In essence” requires a little more explanation.  The government conceded that a new right of action would have accrued in 2006 if the agency acting on its own had issued a new rule (i.e. a new 2001 rule).  The agency apparently never did act because the 2001 prohibitions do not appear in the Code of Federal Regulations; the 2005 regulations continue, and are supplemented by discrete State-based regulations that, per force, implement the 2005 regulations and obviate the application of the 2001 regulations, and litigation has proceeded apace on several State petitions under the 2005 regulations.  Perhaps the parties can explain this because court cannot itself publish agency rules in the Federal Register.  The current litigation resurrects a challenge to the essence of the 2001 regulation, highlighting the procedural problem of agency corrective publication (or lack thereof).

Gainful Employment Metrics Litigation:  We’ve quit numbering the episodes of the failing grades saga because as soon as the Department of Education (ED) can promulgate Gainful Employment regulations, we have Association of Private Sector Colleges and Universities v. Arne Duncan, D. D.C. No. 14-cv-01870.

The Higher Education Act (HEA) has required that certain postsecondary educational programs must “prepare students for gainful employment” in a recognized occupation or profession to be eligible to participate in the financial aid program for nearly half a century, but only in the past five years has ED attempted to define that concept by some relationship to loan repayment rates.  Under the current iteration, a for-profit school would lose programmatic eligibility for new government-guaranteed student loans if its graduates use more than 30% of their discretionary earnings and 12% of total income to repay existing loans; the regulation establishes acceptable levels of loan repayment at less than 20% of discretionary earnings and 8% of total income.

The complaint alleges that ED has exceeded the statutory authority delegated by the HEA, that that ED has irrationally related unrelated (or irrelevant) metrics of a student body “debt-to-earnings” test to the quality of an educational program without reasoned foundation, did not provide adequate advance notice of this test in a proposed rule, and the regulations are arbitrary and capricious.  At one point, the Complaint alleges:

The regulations impermissibly turn on demographics, the quality of a school’s enrollees, the wealth of those students, those students’ labor market decisions, and economic trends, among other factors, that are either beyond the school’s ability to control or unrelated to the quality of the school’s educational offerings.

Accordingly, the complaint asks the court to hold unlawful and set aside the regulation under the Administrative Procedure Act (APA) as arbitrary, capricious, and an abuse of discretion.

  The bottom line is quite simple:  The government’s liability for loan guarantees is higher with “for profit” than “non-profit” schools and ED is trying to reduce that liability.  The problem continues for the highly educated ED to devise rational and rationally related metrics that will reduce that future liability when the relationship between historic outcomes and future conditions are clouded by innumerable discrete and insoluble interventions.  The latest regulation will become effective on July 1, 2015, and the litigation at the district court level should be concluded on summary judgment well before that date.

Incorporation by Reference:  The OFR revised its Incorporation by Reference (IBR) regulations on November 7, 2014, imposing only subjective requirements on agencies.  IBR allows an agency to “incorporate” privately developed standards – by standards development organization (SDO)s such as the American National Standards Institute (ANSI) or National Fire Protection Association (NFPA) – into federal regulatory standards only by reference and without publication, which can create problems for the regulated community if they must purchase copyrighted standards.  The OFR will now require that agencies set out, in the preambles of their proposed and final rules in the Federal Register, a discussion of the actions they took to ensure the materials are reasonably available to interested parties and that they summarize the contents of the materials they wish to incorporate by reference.

  The OFR may have made the best of the difficult problem of privately developed standards and public access to the law.  The OFR claims that it does not have statutory authority to require publication of copyrighted standards.  Some SDOs are cooperating, but bear in mind that they generally fund the cost of developing standards by the sale of those standards.  Summarizing the proposed IBR is not a substitute for notice of the contents of the IBR and discussing the steps that the agency has taken to make the substance of the IBR “reasonably available” does not offset the costs of accessing what may become binding regulations.  OMB must consider these costs in reviewing any proposed and final rule, and agencies should affirmatively take steps to reduce the costs of availability of the regulations, including public display in multiple and convenient reading rooms.  Otherwise, the agencies may need to simply use the SDO standards to inform their own judgment about what to promulgate in the text of rules – absorbing the inconvenience themselves.

WOTUS Comments:  The public comment period on the Environmental Protection Agency (EPA) and Army Corps of Engineers (Engineers)’s proposed Definition of “Waters of the United States” under the Clean Water Act (aka WOTUS) rule comes to an end November 14, after a nearly six month run and multiple extensions.  The docket currently suggests that more than a quarter-million comments have been filed and, if past is prologue, that number is likely to spiral upward in the closing days.  The speed with which the agencies can analyze the issues presented by the public comments and draft a final rule for executive and interagency review by the Office of Management and Budget (OMB) may be surprisingly slow.