Topic: Regulatory Studies

King v. Burwell Doesn’t Present a ‘Coercion’ Question

I have a post over at National Review Online’s Bench Memos blog that explains why, contrary to Supreme Court Justice Anthony Kennedy’s concerns, the King v. Burwell challengers’ interpretation of the Patient Protection and Affordable Care Act (a.k.a., PPACA, ACA, and ObamaCare) doesn’t coerce states. At least, not under the Court’s current tests for determining whether Congress is coercing states.

If you happen to be a busy Supreme Court justice, here’s a spoiler:

1. The ACA’s exchange provisions don’t penalize states. They let states make tradeoffs between taxes, jobs, and insurance coverage.

2. Roughly half of states appear to consider those costs tolerable. Prior to 2014, eight states voluntarily imposed this supposedly coercive penalty on themselves.

3. This “deal” is comparable to what the Court allowed in NFIB v. Sebelius. In NFIB, the Court allowed states collectively to turn down Medicaid subsidies for as many as 16 million poor people. The exchange provisions permit states to do the same for 16 million higher-income residents.

I have no objection to the Court lowering the bar for demonstrating that cooperative federalism programs coerce states. But the Court will have to lower the bar quite a bit to find the ACA’s exchange provisions coercive.

If you aren’t a busy Supreme Court justice, or even if you are, read the whole thing.

The Grapes of Wrath: California Raisins Are Back at the Supreme Court

When Marvin Horne told the United States Raisin Administrative Committee (yes, there’s a raisin administrative committee) that he wasn’t going to turn over nearly 30 percent of his crop to the government in exchange for nothing, he probably didn’t expect his case would go to the Supreme Court—twice. That little act of civil disobedience was thirteen years ago, and the Hornes now stand on the precipice of vindicating an important constitutional right—the Fifth Amendment right not to have your property taken without just compensation—as well as putting a wrench in the gears of what Justice Elena Kagan called “the world’s most outdated law.”

Like much of our agricultural policy, the Raisin Administrative Committee (RAC) is a relic of New Deal-era cartelization schemes. Trying to understand the logic behind American agricultural policy is like trying to find the logic in a Marx Brothers movie—it can’t be done and you’re better off just sitting back and laughing at the antics. Yet our agricultural policy has real-world effects on farmers like the Hornes, who are subject to the whims of the RAC as it tries to stabilize the price and supply of raisins. Sometimes the RAC pays for the raisins it takes, and sometimes not. In 2002-2003, the RAC offered far less than the cost of production for 47 percent of the Hornes’ raisins, and in 2003-2004 they offered nothing for 30 percent of the raisins. The Hornes had had enough, and they refused the order, arguing the seemingly simple point that the confiscation would be a taking without just compensation under the Fifth Amendment.

Another Fishy Regulation

All across the globe, people see the United States as a land of opportunity and dream of making their way here to work hard and enjoy the prosperity that our system of laws helps provide. Cindy Vong made that dream a reality by emigrating from Vietnam, becoming a U.S. citizen, and starting her own nail salon in Gilbert, Arizona. Thanks to a state occupational-licensing scheme, however, Ms. Vong may no longer be free to pursue her vision of happiness.

The Arizona Board of Cosmetology—yes, that’s an actual entity—got wind that Ms. Vong’s spa offered a treatment that uses small fish to exfoliate dead skin from the feet. This is a perfectly safe practice popular in East Asia and the Middle East. Learning that the Board intended to apply its exfoliation-instrument sterilization standards to her fish—how does one sterilize a fish?—Ms. Vong volunteered her spa as a test project until the Board was able to revise its existing rules to address this increasingly popular treatment. Without so much as bothering to evaluate whether the fish treatment is unsafe—there is no such evidence anywhere—the Board ignored her request and, summarily concluding the treatment unsafe, shut down Ms. Vong’s business. So much for “Land of the Free.”

SCOTUS to Government: Somethin’ Fishy ‘Bout Your Prosecution

This morning the Supreme Court ruled in Yates v. United States that Sarbanes-Oxley—the massive legislation prompted by the accounting scandals of the early 2000s—can’t be used to prosecute a fisherman who caught undersized grouper.  It makes eminent intuitive sense. Luckily, it’s also correct as a matter of statutory interpretation. That is, even though the relevant provision (Section 1519) punishes those who would knowingly destroy or conceal “any record, document, or tangible object” in order to impede an investigation, Justice Ginsburg is correct in writing for the plurality that “it would cut §1519 loose from its financial-fraud mooring to hold that it encompasses [objects not] used to record or preserve information.”

And Justice Alito, in a narrow concurrence that ultimately controls the case, is even more correct to apply traditional canons of statutory construction—the rules that guide judges in interpreting laws—and thereby find that “tangible object,” in the context of the list of nouns that are Sarbanes-Oxley’s target, refers to “something similar to records or documents.” In a colorful opinion rife with salamanders, crocodiles, and oil derricks, Alito asks the correct question: “How does one make a false entry on a fish?”

As Cato wrote in our brief, words such as “record” and “document” modify the term “tangible object” to include things like hard drives and floppy disks (remember those?), not grouper. Moreover, an all-encompassing reading of “tangible object” would render the words “record” and “document” unnecessary. And the broader context of Sarbanes-Oxley illuminates the relevant meaning here: The Act focuses on financial fraud in the context of companies, not fauna. Thus, the words “tangible object” should be read differently in Sarbanes-Oxley than they would be in, say, the Federal Rules of Criminal Procedure.

If the term “tangible object” were read as broadly as the government wished, it could criminalize an unfathomable range of activities, from throwing away cigarette butts to washing away footprints in the sand. It wouldn’t provide adequate notice about potential legal violations, to which individuals have a right to so they can plan their actions accordingly and avoid getting caught in government nets.

After all, prosecutors and law enforcement officials can’t arbitrarily expand the range of criminal offenses as if they themselves were fishermen, exaggerating the size of their catches to a credulous legal system.

Clearly Worded Contracts Should Be Enforced

Freedom of contract—the right of individuals to manage and govern their own affairs—is a basic and necessary liberty. The appropriate role of the government in contract-law disputes is to hold parties to their word, not to enforce its own policy preferences.

The New Jersey Supreme Court recently struck a blow against that basic freedom, however, in ruling that clearly worded arbitration provisions—one of the most common parts of consumer contracts—are unenforceable unless the parties comply with multiple superfluous formalities. The case arose when Patricia Atalese retained a law firm, U.S. Legal Services Group, to negotiate with creditors on her behalf. Atalese signed a retainer agreement with a standard arbitration provision: she checked a box that unambiguously indicated that she read and understood that all disputes would be settled via arbitration. Then, after a dispute over legal fees, Atalese disregarded the arbitration agreement and filed a lawsuit in state court.

The trial court dismissed her complaint and compelled arbitration, a ruling that was affirmed by the intermediate appellate court. But instead of letting that decision stand, the New Jersey Supreme Court broke from years of tradition and federal precedent found the arbitration provision unenforceable because it lacked certain magic words stating, in addition to all disputes being resolved by arbitration, that the parties were waiving their right to a civil jury trial.

Cato, joined by the National Federation of Independent Business, has filed an amicus brief urging the U.S. Supreme Court to review the case. We make three key points. First, the New Jersey court’s proposed requirement—that contracts with an arbitration provision include belt-and-suspenders-and-drawstring language regarding jury-trial waiver—is redundant. Agreeing to submit a dispute to an impartial arbitrator instead of going through the expense of litigation is the very essence of an arbitration agreement.

“Slipshod Work, Faulty Analysis, And Statistical Sleight Of Hand” At the EEOC

We’ve reported earlier in this space on how the Obama administration’s Equal Employment Opportunity Commission (EEOC) keeps getting slapped down by federal judges over what we called its “long-shot lawsuits and activist legal positions.” Now the Fourth Circuit has weighed in on a high-profile employment screening case from Maryland – and it too has given the EEOC a good thwacking, in this case over “pervasive errors and utterly unreliable analysis” in the expert testimony it marshaled to show the employer’s liability. Those are the words of a three-judge panel consisting of Judge Roger Gregory, originally appointed to the court by Bill Clinton before being re-appointed by his successor George W. Bush, joined by Obama appointee Albert Diaz and GWB appointee G. Steven Agee. 

The case arose from the EEOC’s much-publicized initiative of going after employers that use criminal background checks in hiring, which the agency insists often have improper disparate impact on minority applicants and have not been validated as necessary for business reasons. It sued the Freeman Cos., a provider of convention and exposition services, over its screening methods, but Freeman won after district court judge Roger Titus shredded the EEOC’s proffered expert evidence as “laughable,” “unreliable,” and “mind-boggling.” The EEOC appealed to the Fourth Circuit. 

If it was expecting vindication there, it was very wrong. Agreeing with Judge Titus, Judge Gregory cited the “pervasive errors and utterly unreliable analysis” of the commission’s expert report, by psychologist Kevin Murphy. “The sheer number of mistakes and omissions in Murphy’s analysis renders it ‘outside the range where experts might reasonably differ,’” which meant it could not have been an abuse of discretion for Judge Titus to exclude it. 

Strong language, yet Judge Agee chose to write a separate concurrence “to address my concern with the EEOC’s disappointing litigation conduct.” Noting a pattern in multiple cases, Agee faulted the commission’s lawyers for circling the wagons on behalf of its statistical methods despite repeated judicial hints that it needed to strengthen its quality control. “Despite Murphy’s record of slipshod work, faulty analysis, and statistical sleight of hand, the EEOC continues on appeal to defend his testimony.” If the agency doesn’t watch out, exasperated judges might start imposing more sanctions against it. 

Incidentally, as a counterpoint to the EEOC’s bullheadedness, the U.S. Commission on Civil Rights a year back did a briefing program on employee screening and criminal background checks that tries to include an actual balance of views. You can read and download it here.

Is “Colorado’s Marijuana Money Going Up In Smoke?”

NPR has an interesting story about the interaction between Colorado’s tax revenue from legalized marijuana and its Taxpayer Bill of Rights (TABOR):

Colorado voters overwhelmingly supported state taxes on marijuana, and the state collected tens of millions of dollars in the first year of legalization. But in a strange twist, all those taxes raised from pot may have to be refunded because of a quirk in the state’s constitution. That means money earmarked for schools and drug prevention programs could be lost unless lawmakers agree on a solution.

Liberal supporters of legalization will worry that this conflict threatens to invalidate a key argument for legalization; conservative opponents will use the conflict to claim legalization was oversold.

But libertarian legalizers should not care much either way.  The crucial arguments for legalization are increased freedom for marijuana users and decreased prohibition costs for everyone, not increased tax revenue.

So if Coloradans end up with legal marijuana and an income tax refund, that’s just fine.