Archives: 03/2018

“There’s No Fear of Being Caught”

The front page of Monday’s New York Times featured a story about a dirty little police practice colloquially known as “testilying.” Testilying is the name police officers coined to describe lying in official statements, such as sworn affidavits, about particular facts to make a criminal case appear stronger. It happens most often in officer assertions of probable cause to conduct a search of a person or their property without a warrant. For example, an officer could say that contraband was “in plain sight” after he pulled a driver over, giving him the probable cause to suspect a criminal act and thus bypass the warrant requirement of the Fourth Amendment.

The most generous rationalization for this behavior is something like, “The suspect was guilty of a crime, I knew he was guilty but I couldn’t legally prove it, so I found a way around the rules and discovered the criminal evidence I needed to make an arrest.” Put simply, the ends (an arrest for criminal behavior) justifies the means (an unconstitutional search). But, very often, what the officers “know” is wrong and they violate the rights of perfectly innocent people. Even when they are right, illegal searches and the lies to cover them up corrupt the law in order to enforce it. That’s not how policing is supposed to work. Police are supposed to protect our rights, not violate them to make an arrest.

And as the Times story explains, the lie is not only used against people who are breaking the law:

There had been a shooting, Officer Martinez testified, and he wanted to search a nearby apartment for evidence. A woman stood in the doorway, carrying a laundry bag. Officer Martinez said she set the bag down “in the middle of the doorway” — directly in his path. “I picked it up to move it out of the way so we could get in.” The laundry bag felt heavy.

When he put it down, he said, he heard a “clunk, a thud.”

Officer Martinez tapped the bag with his foot and felt something hard, he testified. He opened the bag, leading to the discovery of a Ruger 9-millimeter handgun and the arrest of the woman. But a hallway surveillance camera captured the true story: There’s no laundry bag or gun in sight as Officer Martinez and other investigators question the woman in the doorway and then stride into the apartment. Inside, they did find a gun, but little to link it to the woman.

It took over a year for the woman, Ms. Kimberly Thomas, to clear her name with the help of surveillance video. In a way, she was very fortunate to even get that chance.

“There’s no fear of being caught,” said one Brooklyn officer who has been on the force for roughly a decade. “You’re not going to go to trial and nobody is going to be cross-examined.” The percentage of cases that progress to the point where an officer is cross-examined is tiny. In 2016, for instance, there were slightly more than 185 guilty pleas, dismissals or other non-trial outcomes for each criminal case in New York City that went to trial and reached a verdict. There were 1,460 trial verdicts in criminal cases that year, while 270,304 criminal cases were resolved without a trial.

The presumption that an officer will be able to swear a false affidavit and never be challenged in court is a casualty of a criminal justice system that has grown absolutely dependent on plea bargains. The justice system’s overreliance on plea bargains removes the safeguards and incentives that are supposed to hold the government and its officers accountable for lies and petty abuses.

You can read the whole piece here.

Supreme Court, Over Thomas/Gorsuch Dissent, Passes Up Chance to Rein in Administrative State

More than seven decades ago, litigation over the Emergency Price Control Act of 1942 left courts with an embarrassing black eye that would affect decisions for decades. In Bowles v. Seminole Rock & Sand Co. (1945), the Supreme Court decided to give controlling deference to administrative agencies’ interpretations of their own regulations. In Auer v. Robbins (1997), the Court unanimously doubled down on Seminole Rock. As the late Justice Antonin Scalia noted in a 2013 case when it seems he began having a change of heart, “[f]or decades, and for no good reason, [courts] have been giving agencies the authority to say what their rules mean.”

These “interpretations,” for which there are no standardized processes, can come in informal contexts, as was the case in Garco Construction v. Speer, where the government’s deferred to “interpretation” that didn’t come around until litigation was well underway. This year, the Supreme Court had a golden opportunity to finally do away or at least curb this problematic doctrine, but alas it was an opportunity it failed to seize, today denying Garco’s petition for review (which Cato had supported with an amicus brief).

There are a multitude of arguments for overturning Seminole Rock and Auer. Even when the cases were decided, the Court gave little justification for the doctrine beyond administrative and judicial convenient. To the contrary, giving agencies the authority to interpret (and reinterpret) their own rules violates principles of separation of powers, as well as the Administrative Procedure Act. As Justice Clarence Thomas pointed out in 2015, the doctrine combines “the power to prescribe with the power to interpret,” and the separation of those two powers was one of the primary goals of the Founders. Justices John Roberts, Scalia, Sam Alito, Thomas, and Neil Gorsuch have all written opinions questioning – or outright rejecting – the doctrine’s scope on that ground alone.

Further, the APA provides that it is for the reviewing court to “determine the meaning or applicability of the terms of an agency action,” and that all legislative rulemaking go through public notice-and-comment procedures. With Seminole Rock/Auer, however, agencies have been enabled to get around these requirements by simply “promulgat[ing] vague and open-ended regulations that they can later interpret as they see fit.” Even where regulations are not so vague, though, this doctrine rears its ugly head. In Duquesne Light Holdings v. Commissioner of Internal Revenue, in which Cato just today filed an amicus brief, a regulated entity followed controlling regulations to the letter, but was nonetheless penalized tens of millions of dollars after the Third Circuit deferred to the IRS’s countertextual reading of its own regulations.

It seemed that Garco Construction was a great vehicle for adjusting Seminole Rock/Auer deference. Garco Construction won a contract to build housing on an Air Force Base in Montana. The contract, and its prior contracts, allowed Garco to use employees who had criminal records. Base regulations, however, allowed officials to refuse entry to any workers who had any outstanding “wants and warrants.” After Garco began work on its contract, base officials suddenly began running full background checks on all workers, and refusing those with any criminal record, not just those with an outstanding want or warrant (whom Garco didn’t employ). This change forced the contractors to hire, train, and transport new workers who could pass the suddenly tightened rule. The contractors requested reimbursement of these costs, but were denied by the government.

Garco was never given a reason for the sudden change – until litigation seven years later, when base officials justified the denials by testifying that they interpreted “wants and warrants” to mean, as Justice Thomas pointed out in his dissent from denial of certiorari, “wants or warrants, sex offenders, violent offenders, those who are on probation, and those who are in a pre-release program.”

Justice Thomas, who was joined by Justice Gorsuch, is right. Garco Construction would have been a good case to reconsider Seminole Rock, “as it illustrates the problems that the doctrine creates … an agency was able to unilaterally modify a contract by issuing a new ‘clarification’ with retroactive effect.” “This type of conduct ‘frustrates the notice and predictability purposes of rulemaking, and promotes arbitrary government.’” In declining to hear the case, the Court has “passed up another opportunity to remedy ‘precisely the accumulation of governmental powers that the Framers warned against.’”

Perhaps the other justices shied away because Garco involved the military, which generally gets more deference than other governmental institutions. But regardless, this issue isn’t going away and, as Justice Thomas put it, “Seminole Rock deference is constitutionally suspect.”

Invalid When Made: The District Court’s Madden v. Midland Decision

The seven-year saga of Madden v. Midland began as a dispute over a four-figure consumer debt. But billions of dollars’ worth of loans, and the future of consumer lending markets, now hang in the balance.

Madden began in 2011 as a lawsuit based on a claim of usury. The plaintiff, Saliha Madden, a New York resident who had defaulted on $5,000 worth of credit card loans. The balance owed was later acquired by Midland Funding, a debt collector headquartered in California. Midland attempted to collect the debt with a default interest rate of 27 percent. Although the loan contract stipulated that it would be governed by Delaware law, which does not have a usury cap, Madden sued Midland, alleging unfair debt collection practices under federal law and usury under New York law — which considers interest rates above 25 percent usurious.

The Southern District Court for New York ruled in favor of Midland, rejecting the claim of unfair collection practices and finding that the National Bank Act pre-empted the application of state usury law. But the Second Circuit Court of Appeals — which covers Connecticut and Vermont as well as Madden’s home state of New York — reversed the District Court ruling, finding that the National Bank Act pre-emption did not apply to Midland because Midland is not a national bank. Therefore, the opinion went, applying state usury law in this instance would not hinder any national bank’s powers. The Second Circuit thereby remanded the case back to the District Court, which in turn found that New York law should apply since applying Delaware law, which provides for no usury limit, would “violate a fundamental public policy of the state of New York.”

Should the District Court’s decision stand, Madden would jeopardize the long-standing judicial precedent of “valid-when-made,” which holds that non-usurious debt remains valid when acquired by a third party, even if the interest rate implied in the latter transaction is usurious. Not surprisingly, the uncertainty sparked in the aftermath of the Second Circuit’s ruling has prompted policymakers to turn to a legislative fix to restore the “valid-when-made” precedent by making it federal law governing consumer credit markets.

The Two Faces of Mohammed bin Salman

Saudi Arabia’s prodigal son returns to Washington this week, beginning a tour through the United States apparently aimed at drumming up investment in the country. Mohammed bin Salman (MBS) is young with big ideas: he wants to reform Saudi society and wean the Saudi economy off oil. He also wants to build up Saudi as a foreign policy player – with or without the United States – and cement Saudi dominance in the Gulf.

It’s small wonder then that profiles and articles about the prince typically either laud him as a great reformer or simply criticize his foreign policy blunders. The truth is an accurate portrayal of Mohammed bin Salman must include both. And policymakers and businesses should be wary of the potential pitfalls of his proposed reforms, even as they hope for their success.  

The Crown Prince’s social reforms are a welcome step in the right direction, though they will be difficult to complete. Thus far, there has been a crackdown on the religious police, robbing them of much of their power over morality issues. Cinemas have been permitted to screen movies for the first time in decades. Women can now attend sporting events, and legal changes are in progress that will allow them to drive.

Likewise, the innovative economic reforms that MBS has proposed – notably using an IPO of Aramco stock to shift the government’s primary income source away from oil and towards investment gains, paired with an attempt to reform the domestic economy and attract inward investment – could potentially reshape and improve the state of the Saudi economy.

There is no doubt that U.S. policymakers should welcome these changes and encourage Saudi Arabia to continue down this path.

Unfortunately, on the flip side, the assertiveness shown by MBS at home has been matched by an extremely bellicose foreign policy. The young prince’s foreign policy overreach has already helped to create the world’s worst humanitarian crisis in Yemen. The Saudi blockade of Qatar has been spectacularly ineffectual and has hardened into stalemate.  

Privatize Dulles and National Airports

The Trump administration is proposing to privatize two airports owned by the federal government in Virginia, Dulles and Reagan National. William Murray discussed some of the advantages in the Washington Post, and noted that Australia provides a good model for such reforms.

Policymakers can also look to Europe, which has embraced airport privatization since Margaret Thatcher privatized London’s Heathrow in 1987. Today half of Europe’s commercial airports are private, including the main airports in Antwerp, Birmingham, Brussels, Budapest, Copenhagen, Edinburgh, Glasgow, Lisbon, Liverpool, Naples, Rome, Vienna, and Zurich.

Some of the advantages can be:

  • Self-financing without government subsidies.
  • Higher productivity, more innovation, reduced delays, and better service.
  • More competition between airlines and for gate space, to the benefit of passengers.
  • Airport expansion as aviation demand rises with fewer political/bureaucratic/funding roadblocks.

Airports Council International says there is “no denying the tangible benefits” of market-based reforms in Europe’s airport industry, including “significant volumes of investment in necessary infrastructure, higher service quality levels, and a commercial acumen which allows airport operators to diversify revenue streams and minimize the costs that users have to pay.”

Privatizing D.C.’s airports would be back to the future. The main airport serving D.C. during the 1930s was the private Washington-Hoover Airport in Virginia. The main airports serving many U.S. cities at the time were private, including the airports in Los Angeles, Philadelphia, and Miami.

What happened to America’s private-sector commercial airports? In city after city, they were pushed aside by government airports, which benefited from a range of subsidies.

Today, Dulles and National are operated by the same government authority. For what reason? Economists of all political stripes believe that monopoly is inferior to competition with respect to efficiency, innovation, and customer service. So, at minimum, the Trump administration should push to split the two D.C. airports into separate entities and induce them to compete against each other.

Better yet, Dulles and National should be privatized separately, either by share offerings or sales to airport operating companies.

 

More on airport privatization here. More on the general benefits of privatization here.

Giving NAFTA Some Teeth

The eighth round of negotiations on the North American Free Trade Agreement (NAFTA) are expected to take place sometime next month. While progress has been made, the thorniest issues have yet to be addressed. One of the most contentious issues is dispute settlement. There are three main types, and all are controversial. The most fundamental dispute provision is Chapter 20, the Agreement’s state-to-state dispute settlement mechanism, which allows the government of any NAFTA country to file a complaint when it believes another government is violating the Agreement. The future of Chapter 20 is particularly uncertain. In October last year, the U.S. pushed a proposal that would make Chapter 20 “non-binding” by allowing parties to a dispute to ignore the findings of an independent body of jurists (referred to as a panel). This change would take Chapter 20 in the wrong direction, as it would make NAFTA less useful as an instrument to promote and enforce trade liberalization.

In a recent paper, my colleague Simon Lester and I examine the history of NAFTA Chapter 20, showing that the mechanism has not been used all that much. While there have been twenty-one disputes initiated since 1994, only three have gone to a panel and had decisions rendered. Strikingly, no panel has been composed since 2000. Why? We argue that NAFTA’s state-to-state dispute settlement chapter has a fundamental flaw in its provisions, which effectively allow the responding party to the dispute (the country being complained against) to block the formation of a panel.

In the late 1990s, Mexico initiated a dispute against the United States related to restrictions on sugar imports, and soon discovered the glitch in the system.  Basically, in order for a panel to be composed, there has to be a list of individuals to choose from. This list, or roster, as it’s referred to, is supposed to be established by the parties when the agreement enters into force (to be updated over the years). However, a problem arises when there is no roster.  In that situation, the responding party can block any of the complainant’s proposals for panelists. Thus, if one of the parties fails to appoint people to the roster, the panel process breaks down and the dispute settlement mechanism cannot function.

To find a remedy to this problem, we look at recent developments in state-to-state dispute settlement chapters in other trade agreements, notably, the Trans-Pacific Partnership (TPP) (now the recently signed CPTPP), the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), and the draft of the Japan-European Union Economic Partnership Agreement (JEEPA), which is still being negotiated. These modern trade agreements have all attempted to address the problem of lapsed rosters and panelists appointments, in their own way. Some have provisions that give the complaining party the authority to appoint panelists when the responding party refuses to cooperate, while others give this authority to an independent third party, or the co-chairs of a joint committee, who are high-ranking government officials of each party, and must arrive at a decision together.

We conclude that much of the problems with state-to-state dispute settlement in the NAFTA could have been resolved if the U.S. had stayed in the TPP, as that agreement, on the whole, appears to address the problem of panel composition. However, since there is no indication that the U.S. will rejoin the TPP anytime soon, we note some key principles that could help guide the NAFTA renegotiation of Chapter 20:

[T]he roster should not be a hurdle to appointing panelists; an independent third party can act as a facilitator in the panel appointments; and, without an independent third party, the complainant should have the power itself to appoint, in order to prevent the respondent from delaying panel formation (p. 15).

Ultimately, a functioning state-to-state dispute mechanism is an essential feature of any trade agreement, because if the obligations cannot be enforced, then the cost of noncompliance would be low. This undermines the impact of trade agreements, and is why making Chapter 20 non-binding would seriously weaken any benefits that can be accrued from a modernized NAFTA. We hope that the NAFTA negotiators take these considerations into account.

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Wyden’s FOSTA Fix

The Fight Online Sex Trafficking Act (FOSTA), an anti-sex trafficking bill with grave implications for an open internet, has passed in the House and will likely receive a Senate vote later this week. Senator Ron Wyden has proposed an amendment that would blunt the worst of its harms.

At present, FOSTA holds hosts of user-generated content liable for “knowingly assisting, supporting, or facilitating” prostitution or the promotion thereof. Attempts to police illegal content posted on a platform could render moderators aware of its existence. If they do not eliminate all of it, they could find themselves for legal purposes “knowingly facilitating” whatever illegal activity continues. This standard might criminalize good-faith moderation efforts and foster removing innocent content along with the guilty.

Wyden’s well-crafted amendment reduces the risk of removing, by explicitly distinguishing moderation from facilitating criminal activity.

The fact that a provider or user of an interactive computer service has undertaken any efforts (including monitoring and filtering) to identify, restrict access to, or remove material the provider or user considers objectionable shall not be considered in determining the criminal or civil liability of the provider or user for any material that the provider or user has not removed or restricted access to.

This bill raises other issues. FOSTA might give established tech companies an unwarranted advantage in the future by imposing previously unknown moderation and legal compliance costs on their upstart competitors. On this point Wyden’s amendment says its protections are not contingent upon a service provider’s decision to moderate, or to use any “particular content moderation practices,” thereby preventing a passing understanding of “best practices” from crowding out other forms of moderation. 

Wyden’s amendment falls in line with the Department of Justice recommendation concerning FOSTA, which states that “the Department believes that any revision to 18 U.S.C § 1591 to define ‘participation in a venture’ is unnecessary” and would create additional barriers to the successful prosecution of actual sex traffickers. FOSTA’s expansion of grounds for criminal or civil action also increases the number of facts which prosecutors must prove in court, facilitating punitive fishing expeditions and frivolous lawsuits without making it any easier to put traffickers behind bars.

Senator Wyden’s amendment would go a long way toward reducing the risk FOSTA currently poses to an open internet.