Topic: Regulatory Studies

The Wall Street Journal on Halbig v. Sebelius

Today, the U.S. Court of Appeals for the D.C. Circuit will hear oral arguments in Halbig v. Sebelius, one of four cases that Jonathan Adler and I helped spur with our 2013 Health Matrix article, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA.” Critics call Halbig the most significant existential threat to the Affordable Care Act.” In anticipation of the hearing, the Wall Street Journal wrote a lengthy editorial explaining the issues. Excerpts:

Halbig v. Sebelius involves no great questions of constitutional interpretation. The plaintiffs are merely asking the judges to tell the Administration to faithfully execute the plain language of the statute that Congress passed and President Obama signed.

The Affordable Care Act—at least the version that passed in 2010—instructed the states to establish insurance exchanges, and if they didn’t the Health and Human Services Department was authorized to build federal exchanges. The law says that subsidies will be available only to people who enroll “through an Exchange established by the State.” The question in Halbig is whether these taxpayer subsidies can be distributed through the federal exchanges, as the Administration insists…

In 2012, HHS and the Internal Revenue Service arrogated to themselves the power to rewrite the law and published a regulation simply decreeing that subsidies would be available through the federal exchanges too. The IRS devoted only a single paragraph to its deviation from the statute, even though the “established by a State” language appears nine times in the law’s text. The rule claims that an exchange established on behalf of a state is a “federally established state-established exchange,” as if HHS is the 51st state.

Careful spadework into ObamaCare’s legislative history by Case Western Reserve law professor Jonathan Adler and Michael Cannon of the Cato Institute has demonstrated that this jackalope rule-making was contrary to Congress’s intent…

Mr. Obama has conceded that “obviously we didn’t do a good enough job in terms of how we crafted the law.” The right and only lawful way to repair ObamaCare is through another act of Congress. In Halbig, the judiciary can remind the Obama Administration of this basic constitutional truth.

Jonathan Adler critiques the Halbig district court’s ruling in favor of the IRS here.

Find lots of commentary by me on the Halbig cases at DarwinsFool.com.

This reference guide contains all the information you could want about these cases – and more.

Privatizing the Royal Mail

Britain privatized its Royal Mail in 2013, proceeding with an initial public offering of shares that raised about $2.7 billion. The government pursued the reform because the company faced falling mail volume, and it needed to reduce costs and increase innovation. Similar issues face the U.S. Postal Service.

The Financial Times has named the reformer leading the privatized Royal Mail its “Person of the Year.” Below is an excerpt about Moya Greene from FT’s story. I have two questions: i) Why don’t we get reforms or reformers like this in Washington? ii) Why are American leaders so comparatively timid in embracing market-based reforms?

Ask anyone who knows Moya Greene, the Canadian chief executive who last year steered Royal Mail, the UK’s 500-year-old postal service, into the private sector, and the same phrases come up. “She’s relentless, a force of nature, a tough lady,” says one admirer.

It took a determined personality to get this behemoth, with £9bn of revenues and 150,000 staff, into a healthy enough state to be floated on the London Stock Exchange, where it went straight into the FTSE 100 index. The goal of privatising Royal Mail had defeated governments for 40 years.

Greene, 59, has been Royal Mail’s chief executive for almost four years, the first woman and first non-Briton to run it since Henry VIII established a “master of the posts” in 1512. Her previous role heading Canada’s postal service – and as a civil servant overseeing the privatisation of that country’s railway and deregulation of its airline and ports systems – gave her the necessary blend of industrial and political experience.

With this British privatization—and past ones—people have quibbled with some of the details. But, all in all, privatization in Britain has been hugely successful. Prime Minister Cameron should be applauded for having the guts to build on the privatization reform legacy of Thatcher, Major, and Blair.

Meanwhile on this side of the pond, Republican Darrell Issa is having trouble getting his own nominally conservative party to accept even small changes to the broken government postal system. Perhaps he could kick-start reforms by inviting Moya Greene to give testimony to his high-profile committee.

For more on postal privatization, see here.   

Toyota Stumbles Into a Dark Legal Alley…

…and the U.S. Department of Justice emerges whistling with $1.2 billion. I explain how it happened in a Wall Street Journal opinion piece today (more: Overlawyered). Toyota’s cars are very safe indeed, and “sudden acceleration” was a concoction of media-fueled panic, as the government’s own safety engineers have confirmed. But now the company is being punished not just for alleged data-reporting and compliance infractions unlikely to have caused any genuine material risk to the public, but also for defending itself and its products at Congressional hearings and in the arena of public opinion. DoJ’s demagogic press release cites, among the instances of supposed fraud for which Toyota is now being punished by the gigantic forfeiture, such standard exercises in bland crisis communication as, “The safety of our owners and the public is our utmost concern and Toyota has and will continue to thoroughly investigate and take appropriate measures to address any defect trends that are identified.” 

A couple of other points I didn’t have room for in the WSJ piece: Toyota is settling the government’s trumped-up single charge of mail fraud by way of a so-called Deferred Prosecution Agreement, or DPA, and its terms really must be seen to be believed. “Toyota understands and agrees that the exercise of the Office’s discretion under this Agreement is unreviewable by any court,” appears on clause 14 on page 6, with “Office” referring to the office of the U.S. Attorney for the Southern District of New York, currently Preet Bharara. And if you are expecting even the tiniest squeak from anyone at Toyota in contradiction to the government line, even around the coffee machine at the local dealership, consider clause 13, which states: that Toyota “agrees that it shall not, through its attorneys, agents, or employees, make any statement, in litigation or otherwise, contradicting the Statement of Facts or its representations in this Agreement.” If DoJ catches wind of any such statement it can revoke the agreement not to prosecute, without of course having to give back the billion dollars. “The decision as to whether any such contradictory statement shall be imputed to Toyota for the purpose of determining whether Toyota has violated this agreement shall be within the sole discretion of the Office.” 

When people talk about federal prosecutors having become a law unto themselves, this is the sort of thing they mean.

The Administration’s Plan to Kill Elephants and Treat Americans as Criminals

Today the Advisory Council on Wildlife Trafficking is meeting near the nation’s capital to plot the administration’s impending ban on ivory sales. The plan is typical for counterproductive government regulation.

The panel’s proposals would accelerate the slaughter of African elephants and turn millions of law-abiding Americans into criminals. The Council also would destroy hundreds of millions of dollars worth of property legally acquired by everyone from antique dealers and restorers to tourists and retirees.

Elephants are magnificent creatures—intelligent, social, and expressive—and threatened by widespread poaching. Unfortunately, international activists sometimes appear more interested in feeling virtuous than in deterring poaching. In 1989 an international convention outlawed the sale of new ivory.

Unfortunately, the ban increased the price of ivory, which remains in high demand, especially in Asia. Daniel Stiles of the IUCN/SSC African Elephant Specialist Group explained: “The inconvenient truth is that the CITES ivory trade ban and [subsequent CITES] votes to cut off legal raw ivory supplies are the real causes of the recent elephant holocaust.”

Yet the U.S. Fish and Wildlife Service plans what it calls “a nearly complete ban on commercial elephant ivory” trade.

While You Fill Out Your Bracket, Chris Christie Busts the NCAA’s Racket

After considerable debate, the Founding Fathers elected to give the new federal government the power of regulating commerce among the several states. We’ve all seen what’s become of that power, but in the beginning, giving the federal government the ability to regulate—literally, to “make regular”—interstate commerce made good sense as a way to avoid the otherwise inevitable collective-action problems, like trade wars and anti-competitive jockeying for monopolies. The goal was to ensure that federal law would not permit or bestow any unfair competitive advantage to any one state or group of states over the others.

Throughout much of our nation’s history, the federal government has, for the most part, succeeded at this particular goal. Thanks to the Professional and Amateur Sports Protection Act of 1992 (PASPA), however, Congress’s power to keep states from obtaining unfair advantages is being used to grant some states (most notably Nevada, but also Oregon, Montana, and Delaware) an unfair advantage: a special right to license gambling, which PASPA prohibits to other states.

In 2012, New Jersey Governor Chris Christie signed a sports-gambling bill into law, and as a result was sued by the NCAA, NFL, MLB, NHL, and NBA, who believed that additional sports betting would result in corruption and game-fixing. Christie defended his actions by arguing that PASPA violates the 10th Amendment by restricting New Jersey’s right to govern itself, and also that it violates the equal-sovereignty doctrine by giving an unfair advantage on certain states.

The federal district court and the U.S. Court of Appeals for the Third Circuit failed to recognize these constitutional flaws, so New Jersey has now asked the Supreme Court to hear its case. Cato has joined the Pacific Legal Foundation on a brief supporting New Jersey’s petition.

We explain that the principle of equal sovereignty was central to the creation of Congress’s power to regulate interstate commerce, and that conferring state-specific advantages is precisely opposite to the federal power that the Framers created. We think it important that the Supreme Court hear this case because it offers an excellent opportunity to explain the equal-sovereignty doctrine and how it furthers federalism, and to provide guidance as to the scenarios in which the doctrine applies. Congress shouldn’t be able to pick winners and losers among the states.

The Supreme Court will likely decide whether to take the case of Christie v. NCAA before recessing for the summer at the end of June.

This blogpost was co-authored by Cato legal associate Julio Colomba.

Just Call Us the “Not Smart Enough” Bunch

From a Baltimore Sun article on the regulatory fate of car-sharing services Uber and Lyft, bitterly attacked by their more highly regulated taxi competitors: 

At a recent work session on the issue, Kelley [Sen. Delores G. Kelley, D-Baltimore County] rejected the contention from Lyft and Uber that it’s a matter of consumer choice about whether to use the application to book a ride and they won’t do it if the price is too high. 

“We regulate all sorts of things because the general public is not smart enough to know when they’re about to be fleeced,” Kelley said.

But what about members of the general public who are smart enough to know they’re about to be fleeced, but are unable to do anything about it because it’s lawmakers and market incumbents combining to make that happen? 

SCOTUS Deferred to Executive Agencies. What Happened Next Will Infuriate You!

In the 1996 case Auer v. Robbins, the Supreme Court ruled that where there is any ambiguity or disagreement over what a federal regulation means, courts should defer to the interpretation favored by the agency that issued the regulation. The practical consequence of this decision has been that government agencies have had the power not just to create and enforce their own rules but also to definitively interpret them. Given the mind-boggling number of federal regulations that exist—and the exceptional breadth of behavior that they govern—the importance of this “Auer deference” can’t be overstated.

While handing the powers of all three branches of government to the bureaucracy is problematic in and of itself, a recent decision by the U.S. Court of Appeals for the Ninth Circuit further extended the deference courts show to agency rulemakers by declaring that an agency’s interpretation of its own rule is authoritative even if the agency has altered its interpretation dramatically since the regulation came into effect. Under that logic, an agency could spend decades saying that its regulation governing footwear only applied to shoes—and then, without warning or consultation, unilaterally decide to extend the rule to sandals and slippers (despite explicitly saying for years that they were not covered by the regulation).

Such a power to rewrite regulations through after-the-fact “reinterpretation” is incredibly tempting, freeing agencies to change the rules of the game without further legislation or congressional oversight, or even the formalized rulemaking process required by the Administrative Procedure Act.

Peri & Sons, a family-run farm in Nevada (one of America’s largest onion producers), is caught in just such an Kafkaesque morass. In its case, the Ninth Circuit ruled that even though the Department of Labor for over five years interpreted regulations issued under the Fair Labor Standards Act to mean that employers aren’t required to pay employees for the costs of moving for a job (including passport and visa applications), DOL is free to change its interpretation to now require employers to cover those costs.

Cato, along with the Center for Constitutional Jurisprudence and the National Federation of Independent Business, filed a brief urging the Supreme Court to hear this case. We argue not just against the Ninth Circuit’s extension of Auer to cases where the agency has reversed its position, but also that Auer itself was incorrectly decided. Granting agencies post-hoc control over their regulations’ textual meaning is an abdication by the courts of their constitutional duty to zealously guard against executive encroachment on the judiciary’s role as interpreters of the law. And we’re not alone in questioning the wisdom of Auer; as recently as 2011, Justice Scalia criticized the ruling as being “contrary to [the] fundamental principles of separation of powers.”

The Supreme Court will be deciding this spring whether to hear Peri & Sons Farms v. Rivera.We urge the Court to take the case and restore a modicum of the Constitution’s separation and balance of powers.