Header graphic for print
Federal Regulations Advisor Insight and Commentary on U.S. Government Regulatory Affairs

Monday Morning Regulatory Review – 11/16/15: Food Safety Rules Up; Energy Efficiency Removal; Conflict Minerals Review Denial; & WOTUS Forward

Posted in Executive - OMB Review, Judicial Process, Judicial Review & Remedies

dawn over the capitol aocThe most significant agency action in regulatory practice last week may have been the release of three long-delayed Food Safety Modernization Act (FSMA) final rules. Courts took a number of small steps toward resolving challenges to Administration priority regulations, but no particular signal from these actions appears evident, except for the affirmance of the preliminary injunction against implementation of one of the immigration executive actions previously noted.

Food Safety Rules Up: After much litigation on statutory deadlines for promulgating regulations, the Food and Drug Administration (FDA) released three major FSMA final rules on Friday:

Although included in the Office of the Federal Register (OFR)’s Public Inspection List, the Federal Register will not publish the (multi-quire) rules until November 27.

Under a judicial settlement, the rules were slightly late, but the timing reflects the difficulty of predicting completion of reviews. In these instances, the Office of Management and Budget (OMB) completed review of three different rules on different submission schedules on October 30. FDA needed about two weeks to complete final technical reviews before release and that is not out of line. The produce standards and foreign supplier rules are economically significant, and the latter raises an interesting policy issue.

In the produce rule, FDA establishes minimum standards for growing, harvesting, packing, and holding produce grown for human consumption to reduce (FDA says minimize) the risk of serious adverse health consequences or death from consuming contaminated produce. The expected primary benefit of the produce final rule is a reduction in illnesses (and death) from contamination. FDA expects 10-year annualized benefits (7% discount rate) of $925 million annually, against annualized costs of $366 million. FDA has not yet released the economic analysis supporting these estimates, but a critical question may be how FDA determines illness etiology within the handling system – particularly distinct at the sale to the end user. The rule does not apply to farms with a specified “average annual monetary value of produce” of less than $250,000 (very small business), and provides qualified exemptions for farms with qualified value of less than $500,000.

In the foreign accreditation rule, the FDA establishes standards for accreditation of third-party certification bodies to conduct food safety audits of foreign food entities, including registered foreign food facilities, and to issue food and facility certifications. Accreditation of inspection allows foreign facilities and importers to choose to use onsite audits conducted by third party accredited certification bodies under this rule to help meet supplier verification requirements under FDA’s other FSMA final rules.

The foreign supplier regulation requires importers to verify that food they import into the United States is produced in compliance with the FDA’s hazard analysis and risk-based preventive controls and standards for produce safety, is not adulterated, and is not specifically misbranded. FDA establishes an application threshold at $1,000,000/year in sales, and estimates the ten-year annualized costs of the final rule at approximately $435 million/year under both 3% and 7% discount rates. The rule does not establish safety requirements for food manufacturing and processing, but “benefits the public health by helping to ensure that imported food is produced in a manner consistent with other applicable food safety regulations.”

► All of these costs, naturally, will become part of the cost of the regulated foods which consumers will pay at the supermarket checkout. The domestic / foreign distinction will continue to produce interesting results because of the difficulty of managing the higher risk of contamination in foreign foods. FDA might be getting the FSMA program back on track, but haste may have created some additional costs, for example, the applicability thresholds in the regulatory text refer to “average annual monetary value of produce (as defined in paragraph (c) of this section)” but the definition seems to be missing.

Energy Efficiency Removal: Bridging back to regulatory implementation of judicial decisions, the Department of Energy (DOE) implemented a negotiated settlement and vacatur order of the United States Court of Appeals for the Fifth Circuit by removing six of 19 energy conservation standards for walk-in coolers and walk-in freezers. DOE found “good cause” to bypass the advance notice and opportunity for public comment requirements of the Administrative Procedure Act (APA) because those procedures were “unnecessary,” because DOE had no discretion in complying with the court order – removal is a ministerial act.

► DOE correctly is amending the Code of Federal Regulations to reflect the court’s order vacating the six standards and effecting a restatement of the prior regulations. DOE is also correct that the rule removal can be effective on the date of publication of this final rule. This type of removal should be routine on the issuance of a mandate or the expiration of the time for appeal when a court has ordered vacatur, but, unfortunately, some agencies fail to effect the necessary changes and their regulations are inaccurate and might be deceiving.

Conflict Minerals Review Denial: And on the issue of finality, the United States Court of Appeals for the District of Columbia Circuit appears to have sounded the death knell for the Securities and Exchange Commission (SEC)’s Conflict Minerals reporting rule and the underlying statutory requirement. A panel of the D.C. Circuit previously vacated the regulations and statutory provision as violating the First Amendment to the United States Constitution as compelled speech that any of their products have “not been found to be ‘DRC conflict free.’” Since then, the D.C. Circuit, en banc, refined its analysis of the underlying issues with respect to the “Country of Origin Labeling” (COOL) regulations, and the panel granted rehearing. After that the panel affirmed its prior judgment, but with a dissent.

Now the D.C. Circuit has denied petitions to rehear en banc in National Association of Manufacturers v. SEC in “the absence of a request by any member of the court for a vote” on whether to grant en banc review.

► A previous prediction of the conflict minerals rule demise was premature. Now, the dissenter does not dissent or ask for that en banc review and the value of the specific case may not warrant more review in the eyes of the dissenting judge. The case presents some important issues of corporate free, regulated, or compelled speech, but no intercircuit conflict exists. The statute’s and regulation’s attenuated causation, the limited relation to the agency’s purpose, and the limited value of the regulatory result all diminish substantially the likelihood of further substantive review. In all likelihood, however, this does mark the end of the conflict minerals rule, and the SEC should remove the provisions from the CFR.

WOTUS Forward: Challenges to the Environmental Protection Agency (EPA) and Army Corps of Engineers’ Definition of Waters of the United States (WOTUS) rule continued to develop outside the petitions for review in the United States Court of Appeals for the Sixth Circuit, where the Judicial Panel on Multidistrict Litigation (JPMDL) consolidated all petitions for review. The United States District Court for the District of North Dakota, in North Dakota v. EPA and through a Magistrate Judge assigned for procedural issues, denied the agencies’ request for a stay of proceedings pending the Sixth Circuit’s jurisdictional determination under the Clean Water Act (CWA). As important as the fact that the district court will not wait further is the court’s determination that the Sixth Circuit jurisdictional decision will not be binding on it (i.e. not the Eighth Circuit). (NB: A similar stay motion is pending in the Northern District of Oklahoma, where the court had stayed proceedings pending JPMDL’s denial of district court litigation).

The Magistrate Judge also scheduled summary judgment briefing. The agencies are required to file a certified index of the administrative record by November 20, 2015 – a filing already made in the Sixth Circuit on August 24. The agencies, however, must also submit a privilege log, identifying “the nature of each document in a manner that, without revealing information itself privileged or protected, will enable plaintiffs to assess the claim of privilege.” The court required the plaintiffs to file any motions to supplement (which probably means both complete and supplement) by December 4 and their motion for summary judgment by January 4. The order lays out the remaining steps to set up a complete briefing schedule and designation and submission of a joint appendix of the portions of the administrative record that are relevant to the issues.

► Whether privileged material is part of the administrative record or just a privileged part is not settled – but the court has preserved the question. Additionally, the layout of the schedule reflects the appellate function of the district court in APA litigation. WOTUS is now travelling two parallel roads.