Tag: administrative law

Agencies Should Not Be Allowed to Ambiguously Interpret Their Ambiguous Interpretations

Arlen and Cindy Foster are farmers in Miner County, South Dakota. Arlen’s grandfather bought the land over a century ago, and the family has been working it ever since. In 1936, Arlen’s father planted a tree belt on the south end of the farm as a conservation measure. As the weather warms, the snow around the tree belt melts and the water flows into the circular depression, called a “prairie pothole” (circled in blue on the lower right hand part of the picture). Unfortunately for the Fosters, the federal government has declared that the shallow depression is a protected wetland, and thus denied them the productive use of that portion of their land. 

The Fosters' farm.

Department of Agriculture regulations define what qualifies as a wetland, but remain vague on some of the details. The regulations say that, if a parcel’s wetland status can’t be determined due to alteration of the vegetation (such as through filling or tilling the land), a similar parcel from the “local area” will be chosen to act as a proxy. “Local area” is never defined, but a 2010 internal field circular refers agency officials to an Army Corps of Engineers manual that uses the parallel language “adjacent vegetation.” Here, the agency interpreted “local area” to refer to an area of almost 11,000 square miles and then selected proxy site some 33 miles from the Fosters’ farm. That proxy site supports wetland vegetation, so the Fosters’ land was also declared a protected wetland.

Big Win for MetLife and Other SIFIs

MetLife notched an important win this week, securing a ruling from a federal court that it is not a systemically important financial institution (SIFI) under Dodd-Frank. Like much of the Dodd-Frank Act, the SIFI designation has been controversial since its introduction in 2010. The designation is intended to help the Financial Stability Oversight Council (FSOC, another Dodd-Frank creation) to monitor companies whose demise could destabilize the country’s financial system. Putting aside the question of whether a group of regulators in Washington could see and stop a crisis more quickly than those in the trenches at the nation’s financial giants, the designation triggers a host of regulatory requirements that many companies would prefer to avoid. 

One of the most controversial aspects of the SIFI designation is its black box nature. There is no publicly available SIFI check-list. The rationale for following a more principles- than rules-based approach may be that the definition needs to remain flexible. Companies may be motivated to avoid the letter of such a rules-based approach without avoiding the spirit, leaving FSOC without the ability to monitor a company that, despite not triggering the SIFI designation, still poses a risk to the financial system. But this has left companies in a bind. The SIFI designation has real and substantial ramifications for any company that triggers it, but companies have been unable both to avoid designation and to challenge designation once applied.  It’s hard to argue that you don’t fit a certain definition if you don’t know what the definition is.

Of course, not all companies want to avoid SIFI status. Although some have argued that FSOC and other aspects of Dodd-Frank will prevent future bailouts, it seems naïve to think that the government could designate a company as a risk to the entire financial system and then sit idly by as it burns.  SIFI designation is a wink and a nod, all but assuring government support if the designated company founders in rocky times.

King v. Burwell and the Triumph of Selective Contextualism

This Thursday, the Cato Institute will release the 14th edition of the Cato Supreme Court Review, covering the Court’s October 2014 and 2015 terms. The lead article, “King v. Burwell and the Triumph of Selective Contextualism,” is by Jonathan Adler and yours truly. Here’s the abstract:

King v. Burwell presented the question of whether the Patient Protection and Affordable Care Act of 2010 (ACA) authorizes the Internal Revenue Service (IRS) to issue tax credits for the purchase of health insurance through Exchanges established by the federal government. The King plaintiffs alleged an IRS rule purporting to authorize tax credits in federal Exchanges was unlawful because the text of the ACA expressly authorizes tax credits only in Exchanges “established by the State.” The Supreme Court conceded the plain meaning of the operative text, and that Congress defined “State” to exclude the federal government. The Court nevertheless disagreed with the plaintiffs, explaining that “the context and structure of the Act compel us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.” The Court reached its conclusion by disregarding portions of the ACA’s text and considering only selected elements of the ACA’s structure, context, and purpose. The King majority’s selective contextualism embraced an unexpressed congressional “plan” at the expense of the plan Congress actually enacted.

Our article—which is available now at SSRN—quotes Darth Vader more often than any previous Cato Supreme Court Review article. (Probably.)

Adler and I will also discuss the King ruling on a panel at Cato’s 14th Annual Constitution Day Conference this Thursday, September 17, from 10:45am-12pm. Click here to register.

Statement on Supreme Court Granting Cert in King v. Burwell

I applaud the Supreme Court’s decision to grant certiorari in King v. Burwell.

Since January, the Obama administration has been spending billions of unauthorized federal dollars, and subjecting nearly 60 million Americans to unauthorized taxes, all to hide the full cost of the Patient Protection and Affordable Care Act, or ObamaCare. The administration’s actions have not only violated the law and caused massive economic disruption, they have also subverted the democratic process. The plaintiffs in Pruitt v. BurwellHalbig v. Burwell, King v. Burwell, and Indiana v. IRS seek to put an end to those unlawful taxes and spending.

The Supreme Court’s decision is a rebuke to the Obama administration and its defenders, who dismissed as frivolous the plaintiffs’ efforts to defend their right not to be taxed without congressional authorization.

It is essential that these cases receive expedited resolution, if only to eliminate the uncertainty currently facing states, employers, insurers, and taxpayers.

Most important, these cases deserve expedited consideration because only they can bring an end to the greatest domestic-policy scandal of this administration.

Click here for reference materials on these cases, including all court filings and judicial opinions. Click here for news and opinion coverage of these cases.

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.