Tag: administrative law

Resources for a Potential Ruling Today in Halbig v. Sebelius

The D.C. Circuit is due to rule any day now, quite possibly today, on Halbig v. Sebelius. For those who haven’t been watching the vigil I keep over at DarwinsFool.comNewsweek calls Halbigthe case that could topple ObamaCare.”

First a little background. The Patient Protection and Affordable Care Act offers refundable “premium-assistance tax credits” to qualified taxpayers who purchase health insurance “through an Exchange established by the State.” The PPACA contains no language authorizing tax credits through the 34 Exchanges established by the federal government in states that declined to establish one themselves, nor does it authorize the Internal Revenue Service to treat those federally established Exchanges as if they had been “established by the State.” Offering benefits only in compliant states was proposed by numerous Republicans and Democrats in 2009, for obvious reasons: Congress cannot force states to implement federal programs, but it can create incentives for states to act, such as by offering health-insurance subsidies to residents of compliant states.

Halbig is one of four cases challenging the IRS’s decision to rewrite the statute and offer tax credits in the 34 states with federal Exchanges. The plaintiffs are individuals and employers who are injured by the IRS’s overreach because, due to the PPACA’s many inter-locking pieces, issuing those illegal tax credits subjects them to illegal penalties.

Since a ruling may come today (or some Tuesday or Friday hence, as is the D.C. Circuit’s habit), here are some materials for those who want to hit the ground running.

Update: The D.C. Circuit has handed down rulings for today, and Halbig is not among them. Click here to check on the court’s most recent rulings.

FCC Takes Eye Off Ball, Leaves Court in Defeat

On Tuesday, the U.S. Court of Appeals for the D.C. Circuit served the Tennis Channel a crushing blow, essentially holding that government agencies cannot tell cable operators what networks should be disseminated to consumers.  

The court found that the FCC had made an unforced error in ruling that Comcast had acted illegally against the Tennis Channel by refusing to distribute it as widely as Comcast’s own sports networks, Golf Channel and Versus.  This was a challenge based on Section 616 of the Communications Act, which gives the FCC authority to prevent “multichannel video programming distributors” from restraining the ability of unaffiliated “video program vendors” from competing “fairly by discriminating” – a broad power that the FCC still managed to abuse here.

Initially, the Tennis Channel contracted with Comcast to distribute its content on Comcast’s less broadly distributed sports tier.  It later approached Comcast with a proposal to reposition the channel onto a tier with broader distribution.  Comcast backhanded this proposal, citing financial impracticability – a basic analysis of whether such a move would make sense given ratings, market demand, etc.  An FCC administrative law judge, without citing contrary financial studies (or even a video replay) then corrected what he deemed to be marketplace “discrimination” and ordered Comcast to pay $375,000 to the government and make the Tennis Channel more widely available to consumers.

On appeal, the D.C. Circuit smashed that finding of unlawful discrimination. Indeed, substituting the judgment of an administrative agency for a freely agreed distribution deal for no good reason flouts basic principles of administrative and contract law.  Even in this day of government overreach, it’s just not cricket!

Judge Brett Kavanaugh’s concurring opinion warrants special attention – and applause.  He concluded that Section 616’s prohibition on discrimination only applies when a distributor possesses market power and that Comcast has no such advantage in the national video programming distribution market. According to Kavanaugh, applying Section 616 to a video programming distributor that lacks market power is not only outside the lines of the Communications Act, but the First Amendment as well.

That is, when Comcast distributes specific channels, it’s transmitting speech.  Overruling a cable operator’s programming choices thus interferes with editorial discretion to select and transmit a protected form of speech.  Courts should continue to umpire federal agencies that grant themselves the power to distort the marketplace of ideas.

For more on this case and the important First Amendment and rule of law issues it raises, see Randolph May of the Free State Foundation.

Supreme Court Errs in Giving Agencies Power to Define Their Own Power

Although it did good by taxpayers today, the Supreme Court also issued a divided ruling that unfortunately expands the power of administrative agencies generally.  In City of Arlington v. FCC, six justices gave agencies discretion to decide when they have the power to regulate in a given area – which expands on the broad discretion they already have to regulate within the areas in which Congress granted them authority.

But why should courts defer to agency determinations regarding their own authority?  Courts review congressional action, so why should theoretically subservient bureaucrats – appointed by the executive branch and empowered by Congress – escape such checks and balances?  

Underneath the legal jargon and competing precedent regarding the line between actions that are “jurisdictional” (assertion of authority) versus “nonjurisdictional” (use of authority) is a very basic question: whether a government body uses its power wisely or not, it cannot possibly be the judge of whether it has that power to begin with.  Yet Justice Scalia, writing for the majority, essentially says that there’s no such thing as a dispute over whether an agency has power to regulate in a given area, just clear congressional lines of authority and ambiguous ones, with agencies having free rein in the latter circumstance unless their actions are “arbitrary and capricious” (what lawyers call Chevron deference, after a foundational 1984 case involving the oil company).

That makes no sense.  As Cato explained in our brief, since the theory of deference is based on Congress’s affirmative grant of power to an agency over a defined jurisdiction, it’s incoherent to say that the failure to provide such power is an equal justification for deference. Furthermore, granting an agency deference over its own jurisdiction is an open invitation for agencies to aggrandize power that Congress never intended them to have. One doesn’t need a doctorate in public choice economics to recognize that we need checks on those who wield power because it’s in their nature to husband and grow that power.

More broadly, this case should make us question the whole doctrine of Chevron deference: Yes, decisions about the scope of agency power should be made by elected officials, not by bureaucrats insulated from political accountability, but courts should also review with a more skeptical eye agency decisions about the use of power even within the proper scope.

Cato Files Brief in the First Federal Appeal Regarding the Contraception Mandate

In January, when the Department of Health and Human Services announced that qualifying health insurance plans under Obamacare would have to cover contraceptives and “morning after” pills, many religious institutions — most notably the Catholic Church — vehemently objected to being forced to fund health care that violates their religious beliefs.

More than 30 lawsuits challenging the contraceptive mandate have now been filed across the country by various individuals and religious institutions.  Two of those suits have now been consolidated for the first appellate argument on the issue: one brought by Wheaton College, a Christian liberal arts college in Wheaton, Illinois, and another brought by Belmont Abbey College, a North Carolina college based around a Benedictine abbey.

The legal point here is somewhat technical, but incredibly important for anyone who thinks his freedom of conscience may be violated by the government in the future (a category that includes essentially everyone).  As originally promulgated, the contraception mandate included a narrow exemption for religious institutions, one that wasn’t available to religiously affiliated colleges.  After the strong backlash against the mandate, HHS issued a “safe harbor statement,” saying that the government wouldn’t enforce the mandate for one year against certain non-profit organizations religiously opposed to covering contraception. 

In other words, the contraception mandate is still in place but just won’t be enforced — but only for a year and individuals are still free to sue to enforce it against their religiously opposed employers.  HHS also issued an Advance Notice of Proposed Rulemaking that announced the department’s consideration of more permanent methods of accommodating religious institutions.

Because of the safe harbor notice and the ANPRM, the district court dismissed the colleges’ lawsuits for lack of standing and ripeness — holding that the colleges aren’t currently suffering any injury and it was too early to challenge the proposed rule.  Now at the U.S. Court of Appeals for the D.C. Circuit – considered to be the second-most important federal court because of its role in reviewing executive branch actions – the colleges argue that they are in fact suffering a current injury and that the mere possibility of a future rule that may accommodate them in some way is too remote to terminate their case.

Last Friday, Cato joined the Center for Constitutional Jurisprudence and the American Civil Rights Union in filing an amicus brief supporting the colleges.  We argue that the trial court misapplied the constitutional test for standing by not focusing on the facts that existed at the outset of the case; subsequent government actions, such as the ANPRM, are irrelevant to the preliminary question of standing.  We also argue that the trial court’s ruling compromises the principle of separation of powers by giving the executive branch the power to strip a court of jurisdiction merely by issuing a safe harbor pronouncement and an ANPRM (which doesn’t legally bind an agency to act in any way).

It is thus entirely speculative whether the agency will alleviate the harms that the colleges are suffering.  Without intervention from the courts, therefore, the colleges are left in legal limbo while facing immediate and undeniable harms to their religious freedom:  On one hand, they can’t challenge the constitutionality of a final regulation. On the other, they can’t very well rely on a proposed regulatory amendment that may be offered at some unknown point in the future.

The trial court rulings in the Wheaton College and Belmont Abbey College cases are frightening examples of judicial abdication that permit the expansion of executive power far beyond its constitutional limits.  The D.C. Circuit will hear argument in these consolidated cases later this fall.

My Testimony on the Illegal IRS Rule Increasing Taxes & Spending under ObamaCare

Here is the video of my recent opening statement before a House Oversight Committee hearing on the IRS rule that Jonathan Adler and I write about in our forthcoming Health Matrix article, “Taxation without Representation: the Illegal IRS Rule to Expand Tax Credits under the PPACA.”

Please forgive the audio.

In addition, Pete Suderman writes that Adler and I “have jointly authored a long and quite convincing rebuttal to defenders of the IRS rule over at the journal Health Affairs. If they are right, it could be a fatal blow to the law.”

‘The IRS Overstepped Its Bounds and Lacked the Power to Rewrite the Law’

Of course, that is just Reuters paraphrasing me:

Under the new healthcare law, individuals can shop and purchase health insurance through government-created exchanges. If a state refuses to set up its own exchange, the law allows the federal government to set one up instead. Due to a glitch in the original statute, individuals are only eligible for a tax credit if they buy insurance through a state exchange, not a federal one. That allows states to disrupt the system by refusing to set up their own exchanges. To fix this technical problem, the Internal Revenue Service issued a new rule, making the tax credit available for people who purchase insurance on federal exchanges. Conservative watchdogs, including Michael Cannon of the Cato Institute, say the IRS overstepped its bounds and lacked the power to rewrite the law. While no lawsuit has been filed yet, “we’re watching the whole exchange issue now,” said Diane Cohen of the Goldwater Institute.

One addition and three corrections.

  1. By spending that money illegally and issuing those illegal tax credits, the IRS is also triggering an illegal tax against employers (i.e., ObamaCare’s employer mandate).
  2. It’s not a “glitch.” It is a deliberate design feature.
  3. When the IRS lacks statutory authority to tax people or spend taxpayer dollars, but does both anyway, that lack of authority is not “technical problem.” It is called “taxation without representation.” And it is a very bad thing.
  4. I am not a conservative.

Soviet-Style Cybersecurity Regulation

Reading over the cybersecurity legislative package recently introduced in the Senate is like reading a Soviet planning document. One of its fundamental flaws, if passed, would be its centralizing and deadening effect on society’s responses to the many and varied problems that are poorly captured by the word “cybersecurity.”

But I’m most struck by how, at every turn, this bill strains to release cybersecurity regulators—and their regulated entities—from the bonds of law. The Department of Homeland Security could commandeer private infrastructure into its regulatory regime simply by naming it “covered critical infrastructure.” DHS and a panel of courtesan institutes and councils would develop the regulatory regime outside of ordinary administrative processes. And—worst, perhaps—regulated entities would be insulated from ordinary legal liability if they were in compliance with government dictates. Regulatory compliance could start to usurp protection of the public as a corporate priority.

The bill retains privacy-threatening information-sharing language that I critiqued in no uncertain terms last week (Title VII), though the language has changed. (I have yet to analyze what effect those changes have.)

The news for Kremlin Beltway-watchers, of course, is that the Department of Homeland Security has won the upper-hand in the turf battle. (That’s the upshot of Title III of the bill.) It’s been a clever gambit of Washington’s to make the debate which agency should handle cybersecurity, rather than asking what the government’s role is and what it can actually contribute. Is it a small consolation that it’s a civilian security agency that gets to oversee Internet security for us, and not the military? None-of-the-above would have been the best choice of all.

Ah, but the government has access to secret information that nobody else does, doesn’t it? Don’t be so sure. Secrecy is a claim to authority that I reject. Many swoon to secrecy, assuming the government has 1) special information that is 2) actually helpful. I interpret secrecy as a failure to put facts into evidence. My assumption is the one consistent with accountable government and constitutional liberty. But we’re doing Soviet-style cybersecurity here, so let’s proceed.

Title I is the part of the bill that Sovietizes cybersecurity. It brings a welter of government agencies, boards, and institutes together with private-sector owners of government-deemed “critical infrastructure” to do sector-by-sector “cyber risk assessments” and to produce “cybersecurity performance requirements.” Companies would be penalized if they failed to certify to the government annually that they have “developed and effectively implemented security measures sufficient to satisfy the risk-based security performance requirements.” Twenty-first century paperwork violations. But in exchange, critical infrastructure owners would be insulated from liability (sec. 105(e))—a neat corporatist trade-off.

How poorly tuned these security-by-committee processes are. In just 90 days, the bill requires a “top-level assessment” of “cybersecurity threats, vulnerabilities, risks, and probability of a catastrophic incident across all critical infrastructure sectors” in order to guide the allocation of resources. That’s going to produce risk assessment with all the quality of a student term paper written overnight.

Though central planning is not the way to do cybersecurity at all, a serious risk assessment would take at least a year and it would be treated explicitly in the bill as a “final agency action” for purposes of judicial review under the Administrative Procedure Act. The likelihood of court review and reversal is the only thing that might cause this risk assessment to actually use a sound methodology. As it is, watch for it to be a political document that rehashes tired cyberslogans and anecdotes.

The same administrative rigor should be applied to other regulatory actions created by the bill, such as designations of “covered critical infrastructure,” for example. Amazingly, the bill requires no administrative law regularity (i.e., notice-and-comment rulemaking, agency methodology and decisions subject to court review) when the government designates private businesses as “covered critical infrastructure” (sec. 103), but if an owner of private infrastructure wants to contest those decisions, it does require administrative niceties (sec. 103(c)). In other words, the government can commandeer private businesses at whim. Getting your business out of the government’s maw will require leaden processes.

Hopefully, our courts will recognize that a “final agency action” has occurred at least when the Department of Homeland Security subjects privately owned infrastructure to special regulation, if not when it devises whatever plan or methodology to do so.

The same administrative defects exist in the section establishing “risk-based cybersecurity performance requirements.” The bill calls for the DHS and its courtesans to come up with these regulations without reference to administrative process (sec. 104). That’s what they are, though: regulations. Calling them “performance requirements” doesn’t make a damn bit of difference. When it came time to applying these regulatory requirements to regulated entities (sec. 105), then the DHS would “promulgate regulations.”

I can’t know what the authors of the bill are trying to achieve by bifurcating the content of the regulations with the application of the regulations to the private sector, but it seems intended to insulate the regulations from administrative procedures. It’s like the government saying that the menu is going to be made up outside of law—just the force-feeding is subject to administrative procedure. Hopefully, that won’t wash in the courts either.

This matters not only because the rule of law is an important abstraction. Methodical risk analsysis and methodical application of the law will tend to limit what things are deemed “covered critical infrastructure” and what the regulations on that infrastrtucture are. It will limit the number of things that fall within the privacy-threatening information sharing portion of the bill, too.

Outside of regular order, cybersecurity will tend to be flailing, spasmodic, political, and threatening to privacy and liberty. We should not want a system of Soviet-style regulatory dictates for that reason—and because it is unlikley to produce better cybersecurity.

The better systems for discovering and responding to cybersecurity risks are already in place. One is the system of profit and loss that companies enjoy or suffer when they succeed or fail to secure their assets. Another is common law liability, where failure to prevent harms to others produces legal liability and damage awards.

The resistance to regular legal processes in this bill is part and parcel of the stampede to regulate in the name of cybersecurity. It’s a move toward centralized regulatory command-and-control over large swaths of the economy through “cybersecurity.”