August 17, 2020 10:59AM

D.C. Circuit Strikes Blow to Leverage Policymaking

During the Obama administration, an unfortunate innovation in executive power was “leverage policymaking,” by which I mean that regulatory agencies would use individual transactions—such as enforcement or licensing actions—to achieve broad policy results.

Examples will help explain this concept.

In 2011, after promising to put one million electric cars on the road, the Obama administration requested $300 million in appropriations to spend on infrastructure for “zero emissions vehicles.” Congress demurred. Five years later, President Obama again sought such federal spending for the “21st Century Transportation Initiative”; once more, Congress refused. Then, in the summer of 2016, the Department of Justice, Environmental Protection Agency, and Volkswagen reached a judicial settlement to partially resolve the automaker’s Clean Air Act violations associated with the “defeat device” scandal. The consent decree included a stipulation for an EPA‐​approved plan to spend $1.2 billion over ten years “to support increased use of zero emission vehicle technology” Having failed to persuade Congress, the administration achieved the same result through regulatory enforcement!

Next, consider net neutrality, the ultra‐​divisive issue of whether internet service providers must treat data on a non‐​discriminatory basis. Congress considered multiple net neutrality bills during the Obama administration, but none passed. Nevertheless, the Federal Communications Commission—exercising its authority to review telecommunications mergers—made net neutrality a “voluntary” condition for corporate join‐​ups by Comcast/​NBC (2011) and Charter/​Time Warner (2016). Mind you, these companies serve millions of consumers. With such a broad reach, these merger conditions were indistinguishable from regulations or legislation.

At its most benign, “leverage policymaking” involved merely the funding of partisan nonprofits. For example, the Wall Street Journal reported that the Obama administration’s enforcement actions against big banks (in the wake of the financial crisis) typically included millions of dollars earmarked for left‐​of‐​center advocacy groups.

To be sure, prior presidents were not unknown to add stipulations onto these sorts of governmental transactions. During the Obama administration, however, these techniques exerted unprecedented influence.

Since then, the good news is that there’s been pushback from multiple institutions.

For example, in 2017, then‐​Attorney General Jeff Sessions issued a memo that prohibited the Justice Department from signing off on enforcement settlements that either fund third party groups or which otherwise effectuate broad policy. Sessions’ memo is still in effect and, as a practical matter, it precludes most of what I deem “leverage policymaking.”

Over at the FCC, the Commission’s current chair—Ajit Pai—is a long‐​time opponent of that agency’s use of its merger approval authority to wring conditions from telecommunications companies.

All of this gets me to the impetus for this post. Last week, the D.C. Circuit dealt another blow to Obama‐​era leverage policymaking. Above, I mentioned the FCC’s imposition of conditions on the 2016 Charter‐​Time Warner merger. Along with a handful of customers, my former colleagues at the Competitive Enterprise Institute challenged the conditions in court as being far beyond what the law allows.

On Friday, a split panel (that is, two out of three judges) mostly agreed with CEI. Really, this case was about “standing,” or the petitioners’ right to be in court. A normal lawsuit involves parties directly affected by the controversy. Here, by contrast, CEI and the customers were affected indirectly. Without getting into the legal weeds, the challengers sued over four conditions, and the court held that they had standing to bring suit against two of the conditions.

As I noted above, the FCC’s current chair is a prominent opponent of these sorts of merger conditions. Accordingly, the agency did not defend any of the Charter‐​Time Warner conditions on the merits. Because CEI was found to have standing (to challenge two of the four conditions), the good guys won by default (on those two conditions).

It’s a big ruling. If CEI v. FCC remains the law of the D.C. Circuit, then its lasting effect will be to open the courts to these sorts of challenges. I should note here that CEI and the customers were aided by the superb legal minds over at the Hamilton Lincoln Law Institute (full disclosure: I’ve worked with them, too).