Topic: Regulatory Studies

Whichever Way You Slice It, Courts Have Made a Mess in Applying the ADA to Websites

An old judicial divide over the meaning of “place of public accommodation” in Title III of the Americans with Disabilities Act—which deals with access to private businesses—has in recent years produced inconsistent rulings regarding access to virtual platforms such as websites and smartphone applications. Some federal courts read the text to apply narrowly to physical places like doctor’s offices, while others read it broadly to include non-physical “places” like insurance policies. Before the internet, it wasn’t hard to see which side had the better textual argument. But in an age of omnipresent e-commerce, what was once as simple as a pepperoni pie has since become a fully loaded Chicago deep-dish.

While no court has ruled that virtual platforms are entirely beyond Title III’s ambit, some have limited it to the websites of brick-and-mortar establishments like restaurants and department stores, provided those websites share a commercial “nexus” to discrete physical locations. Others would extend it to website-only businesses (think Netflix). In short, there is no central Title III definition to guide courts on how to fit websites and apps into an analytical framework devised in the analog age. And the Department of Justice (DOJ) has only muddied the waters, offering prevaricating, non-binding guidance, in lieu of long-promised rules and regulations, the latest proposals for which were quietly withdrawn in 2017.

Congress intended the ADA to reshape the cultural and architectural landscape of American society to make it more welcoming to disabled people by compelling businesses to construct ramps, include braille signage, and provide countless other aids to ensure that the disabled have equal access to goods and services. But the ADA doesn’t define “access” with precision. It certainly doesn’t advise businesses on what they must do to avoid Title III liability. It does, however, list the types of “places of public accommodation” to which it applies, places that are alike only in their physicality (e.g., a concert hall and a barber shop).

That brings us to Guillermo Robles, a blind man who sued Domino’s Pizza, alleging that the company’s website doesn’t allow him to order pizza online. The federal district court ruled that, while Title III did apply to websites and apps, the absence of a formal rule meant businesses didn’t have sufficient notice of how to comply. The U.S. Court of Appeals for the Ninth Circuit reversed, holding that existing DOJ guidance is sufficient. Domino’s has asked the Supreme Court to review that ruling and Cato has filed an amicus brief supporting that request.

Courts that define website-only businesses as “places” of public accommodation in themselves have gone a bridge too far. So too have those courts that define the “nexus” between a website and a physical location so broadly as to require every page of a commercial website—even those pages that don’t involve access to a physical location—to have a Title III-compliant interface. And since DOJ remains largely in an advisory role, courts have invented their own compliance criteria, or adopted as binding certain guidelines offered by international standard-setters—even though many businesses have warned of the significant expense these approaches entail.

The compliance costs of this regulatory morass are too great for the Supreme Court to ignore. The confusion emanating from a rudderless bench and a reticent DOJ has opened the floodgates of litigation, driven largely by a plaintiffs’ bar more interested in attorneys’ fees than improving their clients’ lives. By one count, the number of Title III lawsuits rose from 7,663 in 2017 to 10,163 in 2018—a more than 30% increase. Without the Court’s intervention, the costs of this “regulation by litigation” will continue to rise, like so much dough in a wood-fired pizza oven. Although the facts of each case vary, the recent onslaught of claims target businesses both big and small. Today, its Domino’s Pizza or Netflix. Tomorrow, it’s a local contractor with far-more limited resources. The ADA was never meant to be a business-killer, so courts shouldn’t make it into one unless Congress so specifies in no uncertain terms.

Housing Affordability and Zoning Reform

In recent years, housing prices and rents have increased dramatically in the cities of the Northeast corridor and the West Coast. Leading Democratic presidential candidates have proposed plans to address this issue and, fortunately, most of these proposals recognize that public policy (i.e., local zoning and land use regulations) has limited the construction of new housing. As Edward Glaeser and Joseph Gyourko observed in a 2002 Regulation article, local and state laws have restrained housing supply from keeping pace with demand. While the willingness of Democrats to admit the importance of constraints on private supply is an important step away from an exclusive focus on public provision of housing or subsidies, a more direct and local option would be to establish a framework for developers to pay localities to alter their zoning constraints.

A recent New York Times editorial outlines Senator Cory Booker’s, Julian Castro’s, and Senator Elizabeth Warren’s plans to incentivize local governments to relax land-use laws and allow more housing development. Booker and Castro would require local governments to institute land-use reforms before they can obtain existing federal infrastructure subsidies while Warren would attach the land-use reform requirement to a new $10 billion spending program for governments that comply. Booker and Castro have additionally proposed increasing subsidies to tenants through tax credits or expanded housing vouchers. (Senator Kamala Harris also has proposed increasing tenant subsidies but without a parallel incentive to increase the housing supply.)

For the most part, Booker’s, Castro’s, and Warren’s plans eschew traditional, deleterious alternatives such as rent regulations and subsidies for developers. Last month I discussed how New York State’s recently tightened rent control regulations will decrease housing supply and harm both current and future renters. And, while not ideal, tenant-based assistance is more efficient and equitable than project-based assistance, such as housing tax credits.

It is encouraging that the proposals have managed to avoid those types of interventions and identified the harmful effects of zoning laws, but the proposals’ downside is that they tie land-use reform to federal subsidies for infrastructure. As a recent Regulation article argued, “although there are some reasons for higher-level governments to provide some local infrastructure projects … it is preferable for users to pay whenever that is feasible.”

In the current issue of Regulation, law professor Christopher Elmendorf proposes an alternative. Instead of incentivizing jurisdictions to relax zoning laws with federal money, state and local governments can independently create systems for developers to pay incumbent homeowners for the right to build more and denser housing. Fundamental to Elmendorf’s proposal is the recognition that zoning rules have become de facto property rights. Currently, local governments hold these rights and capture value from them by imposing impact fees, mandating that developers offer communities in-kind benefits (such as affordable housing requirements), or, most commonly, by zoning for less development than needed and extracting benefits including money, land for parks, and affordable housing from developers on a project-by-project basis (Roderick Hills and David Schleicher describe the negative consequences of this ad hoc exaction in their Fall 2015 Regulation article). The negotiations between developers and politicians are often behind the scenes and the benefits extracted do not always clearly go to incumbent homeowners.

Elmendorf’s alternative is for localities to transparently and directly sell developers the right to upzone. As he explains,

Development rights would be auctioned in the form of tradeable “development allowances” roughly analogous to the emissions allowances that are now bought and sold under cap-and-trade regimes for greenhouse gas emissions. Each allowance would permit its owner to build, say, 100 square feet of housing in excess of the baseline, up to a maximum defined by the new zoning map. To illustrate, imagine a parcel of 5,000 square feet that had been zoned for a floor-to-area ratio of 2:1, i.e., 2 square feet of housing for every square foot of lot size. After upzoning, the maximum floor-to-area ratio is 8:1. This means that the owner of the parcel, who previously could build no more than 10,000 square feet, may now construct as many as 40,000 square feet. But to obtain a permit to build 40,000 square feet, she would have to acquire and redeem 300 development allowances ([40,000 – 10,000] ÷ 100 = 300).

The local governments would be able to take the proceeds they receive and put them towards building new parks, infrastructure projects, tax reductions, or direct compensation of incumbent residents.

I have made similar proposals to resolve conflicts over Airbnb and conventional air pollution, which are rooted in economic theory developed by Nobel Laureate Ronald Coase. Allowing those with initial property rights to negotiate with entities who wish to purchase those property rights leads to trade and conflict resolution as long as transaction costs are low. In regard to the aforementioned examples and zoning rights, those who wish to offer their homes up for short-term rental, emit air pollutants, or develop new housing can purchase the right to do so and thus reimburse the initial property rights holders for any costs imposed.

Though the theory supporting Elmendorf’s idea is sound, there are pragmatic concerns. In a comment on Elmendorf’s article, economist William Fischel, one of the originators of the concept of exchanging zoning rights, notes that there will still be significant interests opposed to new development. The same incumbent homeowners that currently fight each building project and the unions and other interest groups that attempt to capture some of the producers’ surplus from development, will still attempt to influence the local politicians who will retain control of the zoning rights auctions. In fact, Fischel contends that because a zoning rights auction confers an abstract right to increase a plot’s floor-to-area ratio, as opposed to a tangible building plan that interests groups can directly address in zoning hearings, Elmendorf’s proposal actually may increase homeowners’ perceived risk of land-use change. 

But if the compensation for change is high enough and directed specifically to incumbent homeowners, change occurs. For example, Northern Virginia was once dominated by single-family homes. Between the late 1980s and early 2000s, developers bought up neighborhoods for redevelopment, often paying homeowners more than double the listed price of their houses. The Ballston corridor now has 22-story apartment buildings.

Allowing local governments to convert the current in-kind, opaque, underground market for zoning change into an explicit legal exchange of cash for density would facilitate the development of housing and address affordable housing shortages.

Written with research assistance from David Kemp.

 

Reforming Passenger Rail

The United States is more socialistic than other advanced economies in numerous ways. Federal and state governments attempt to run businesses that have been privatized in other countries, such as electric utilities, airports, air traffic control, postal services, and passenger rail.

The federal government took over passenger rail after it helped ruin private passenger rail with taxes, regulations, and unions in the post-WWII years. Remaining passenger rail routes were assembled into Amtrak in the 1970s, which was supposed to become self-supporting but has consumed billions of dollars in subsidies.

Today, Amtrak operates 44 routes on 21,000 miles of track in 46 states. The few routes that earn returns are in the Northeast and the biggest money losers are the long-distance routes.

The Wall Street Journal reports on Amtrak head Richard Anderson’s efforts to improve efficiency and stem the losses:

Mr. Anderson, 64 years old, didn’t shrink from many fights in his years running Delta and Northwest Airlines. And after two years of a sometimes uncomfortable overhaul, he is unapologetic about his efforts to force Amtrak to change. Among the most contentious proposals is altering or eliminating some of the network’s venerable long-distance train routes in favor of more frequent service where the population is growing.

… Amtrak, Mr. Anderson says, is now on the verge of doing something once thought impossible: breaking even on running its trains. Its annual adjusted operating loss, which excludes capital expenditures and some other costs, will fall to zero over the next year, which would be a first in its nearly 50-year history. The railroad projects a 900,000-person increase in ridership this year, to more than 32.6 million trips.

Amtrak says it is profitable on the Northeast Corridor between Washington and Boston, where adjusted earnings were $524.1 million in fiscal 2018, including $318.8 million from the Acela express train. But the company lost more than $540 million on its 15 long-distance trains, which cover routes of 750 miles or more.

Congress, however, is enamored with storied old train routes Mr. Anderson wants to break up and wary of some of his other methods. And there are plenty of signs lawmakers want to curb his ambitions.

As Anderson is discovering, congressional resistance to change is a big obstacle to running a business within the government. The solution is to privatize Amtrak and let the restructured company build on Anderson’s reforms with further cost-cutting and quality improvements. A private rail company could make operating and investment decisions based on market demands not pork-barrel politics. It would be able to close the routes losing the most money and shift resources to routes that service the most customers.

Passenger rail competes against automobiles and airlines. Congress should unleash rail’s potential by selling off Amtrak and giving it the flexibility it needs to cut costs and innovate.

One Year Later, The Harms of Europe’s Data-Privacy Law

The European Union’s General Data Protection Regulation (GDPR), which went into effect just over a year ago, has resulted in a broad array of consequences that are expensive, unintended, or both. Alec Stapp reports at Truth on the Market:

GDPR can be thought of as a privacy “bill of rights.” Many of these new rights have come with unintended consequences. If your account gets hacked, the hacker can use the right of access to get all of your data. The right to be forgotten is in conflict with the public’s right to know a bad actor’s history (and many of them are using the right to memory hole their misdeeds). The right to data portability creates another attack vector for hackers to exploit.

Meanwhile, Stapp writes, compliance costs for larger U.S.-based firms alone are headed toward an estimated $150 billion, “Microsoft had 1,600 engineers working on GDPR compliance,” and an estimated 500,000 European organizations have seen fit to register data officers, while the largest advertising intermediaries, such as Google, appear to have improved their relative competitive position compared with smaller outfits. Venture capital investment in Euro start-ups has sagged, some large firms in sectors like gaming and retailing have pulled out of the European market, and as of March more than 1,000 U.S.-based news sites were inaccessible to European readers.

More in Senate testimony from Pinboard founder Maciej Ceglowski via Tyler Cowen:

The plain language of the GDPR is so plainly at odds with the business model of surveillance advertising that contorting the real-time ad brokerages into something resembling compliance has required acrobatics that have left essentially everybody unhappy.

The leading ad networks in the European Union have chosen to respond to the GDPR by stitching together a sort of Frankenstein’s monster of consent, a mechanism whereby a user wishing to visit, say, a weather forecast is first prompted to agree to share data with a consortium of 119 entities, including the aptly named “A Million Ads” network. The user can scroll through this list of intermediaries one by one, or give or withhold consent en bloc, but either way she must wait a further two minutes for the consent collection process to terminate before she is allowed to find out whether or it is going to rain.

This majestically baroque consent mechanism also hinders Europeans from using the privacy preserving features built into their web browsers, or from turning off invasive tracking technologies like third-party cookies, since the mechanism depends on their being present.

For the average EU citizen, therefore, the immediate effect of the GDPR has been to add friction to their internet browsing experience along the lines of the infamous 2011 EU Privacy Directive (“EU cookie law”) that added consent dialogs to nearly every site on the internet.

On proposals to base legislation in the United States on similar ideas, see Roslyn Layton and Pranjal Drall, Libertarianism.org.

Alive Again: The Two-Pronged Strategy for Federal Marijuana Policy Reform

By any honest measure, America’s war on drugs has been an abject failure. Illicit drugs remain plentiful, inexpensive, and easily accessible to those inclined toward their use for both self-medicating and recreational purposes. Even worse, the collateral damage caused by these policies has left a path of destruction that will be felt for years to come.

Arguably the most indefensible of these ineffective and harmful policies is the federal prohibition on marijuana, which prosecutors continue to enforce despite the growing national consensus in favor of legalization. Following many years of reform efforts at the state level, forty-six states now allow the use of marijuana or its derivatives to some degree, including ten states that have fully legalized it for medical and adult-use purposes.

It is against this backdrop that several members of Congress have undertaken efforts to end marijuana prohibition. Five years ago, these efforts delivered the first legislative success of the marijuana policy reform movement—by then more than four decades old—with the passage, and then enactment into law, of a provision that prohibits the Department of Justice from using appropriated funds to prosecute those who are acting in accordance with their state’s medical marijuana laws. With that development, known colloquially as “Rohrabacher-Farr,” a two-pronged legislative strategy emerged: reform advocates in Congress would temporarily and increasingly limit the federal government’s ability to enforce marijuana prohibition by imposing spending restrictions (which would be attached to the annual “must-pass” appropriations bills) on particular law enforcement activities, while simultaneously working through the traditional (yet much slower) committee process to amend the U.S. Code to eliminate federal marijuana prohibition.

Other encouraging signs emerged shortly thereafter, including the House of Representatives’ near passage in 2015 of an amendment that would have extended protections to states that have legalized marijuana for adult use, and the subsequent passage through both the full House and the Senate Appropriations Committee (but not the enactment into law) of an amendment that aimed to allow physicians at the Veterans Administration to recommend medical marijuana as a treatment to ailing veterans.

But as the first prong of that strategy was seeing its initial policy successes and the second was getting started with the introduction of several legislative proposals, the then-chairman of the House Rules Committee tightened his grip on the floor amendment process and prevented a host of marijuana policy reform amendments from being considered on the House floor. Since then, congressional efforts to bring an end to federal marijuana prohibition have remained in a holding pattern. The Rohrabacher-Farr provision has been renewed and extended multiple times since 2014, and two proposals have been shepherded through the House Veterans Affairs and Financial Services Committees, but no new reforms have been signed into law.

However, that may soon change given this month’s inclusion of three significant marijuana-policy reform provisions that are now part of two separate House-passed appropriations packages. These provisions are:

  • Blumenauer (D-OR)-Norton (D-DC)-McClintock (R-CA) Amendment: Prohibits the Department of Justice from using appropriated funds to interfere with state cannabis programs, effectively extending the protections of Rohrabacher-Farr beyond medicinal to cover adult-use states. The amendment was adopted by a recorded vote of 267 – 165.
  • Blumenauer (D-OR)-Haaland (D-NM) Amendment: Prohibits the Department of Justice from using appropriated funds to interfere with tribal marijuana programs. This amendment was adopted by voice vote.
  • Marijuana Banking Provision: Prohibits appropriated funds from being used to penalize a financial institution that provides financial services to a state-legal marijuana business. This provision was included in the base text of the FY ’20 Financial Services appropriations bill and was therefore not subject to a standalone vote.

In addition to the House’s adoption of these funding restrictions, it appears increasingly likely that the chamber will take up consideration of the Safe Banking Act of 2019, which aims to allow state-legal marijuana businesses—which oftentimes operate on an all-cash basis—the ability to access traditional banking services. If the full House does pass this bill, it will mark the most substantial development of the second prong of the marijuana policy reform strategy to date.

As encouraging as these developments are, however, the Constitution dictates that legislation does not become law until identical language passes through both the House and the Senate and earns the approval of the president. As such, much work remains to ensure that any marijuana policy reforms make it past the finish line.

But for now, advocates for reform are celebrating the fact that the two-pronged strategy appears to be alive again with the prospect of seeing new and meaningful policy change for the first time in five years. If they are successful, we will be one step closer to the criminal justice system the American people demand and deserve.

The Auer Doctrine Suffers Pyrrhic Victory in Kisor v. Wilkie

Sometimes it’s possible to lose in name only. Consider, for example, Cato’s position in Kisor v. Wilkie, which the Supreme Court yesterday decided.

By a 5 – 4 vote, the Court upheld the Auer doctrine, or binding judicial deference to an agency’s interpretation of its own regulation. Only four Justices actually validated the Auer doctrine; Chief Justice Roberts provided the fifth vote solely out of respect for precedent. In a brief supporting the petitioner, Cato had argued that the Court should overturn Auer, so technically our position lost.

Nevertheless, the opinion of the Court “reinforced” and “expanded on” the doctrine’s limits. In Part II.B, Justice Kagan set forth several “markers” to guide lower courts regarding the boundaries of Auer deference. In practice, these limits gut the doctrine. As rightly observed by Justice Gorsuch, Auer emerges “maimed and enfeebled.” And because Auer deference has been rendered impotent, opponents of the doctrine effectively “won,” even though we officially “lost.”

So, how did the Court reduce Auer deference to a “paper tiger”? Justice Kagan set forth three big limitations.

The first is a requirement for courts to discern whether the regulatory text is ambiguous. While it might seem obvious that judges should ensure that a legal text is ambiguous before deferring to an agency’s interpretation, courts routinely skipped any meaningful textual analysis before assuming a deferential posture under the Auer framework. In an empirical study, I found that circuit courts failed to meaningfully examine the regulatory text about 35 percent of the time when they applied the Auer doctrine over a 15-year period. The upshot is that there’s a lot of room for courts to improve their craft when it comes to reviewing regulatory interpretations.

Kisor’s second limitation on Auer deference is a requirement that an agency’s regulatory interpretation reflect agency expertise. I expect that this “marker” on Auer’s domain will have the greatest influence on controversies over how to interpret an agency’s procedural regulations. After all, courts are more expert than agencies where due process is implicated. As a related aside, it bears noting that Kisor pertained to a dispute over the regulatory term “relevance” in an evidentiary context, which seemingly rests squarely in the wheelhouse of judicial expertise. Justice Kagan, however, did not draw this connection.

The third significant limitation on Auer was Kagan’s concession that binding deference is “rarely” warranted when an agency has changed its regulatory interpretation. This is huge; by itself, this call for interpretive consistency would have provided a mortal wound to the Auer doctrine. If a regulatory provision is of any consequence, and if it has existed for longer than one presidential administration, then there are vanishingly small odds that the agency’s interpretation has remained consistent. By holding that these interpretations would “rarely” achieve deference, the Court performs most of the work that goes into “enfeebling and maiming” the Auer doctrine.

Today’s unsung hero is the Solicitor General of the United States, Noel Francisco. Justice Kagan didn’t come up with these “markers” on her own. Rather, she borrowed them from the SG’s brief. As I previously explained, the SG’s unusual Kisor brief asked the Court to check the Auer doctrine, even though such a reform would diminish the government’s power. During oral arguments, Justice Kagan seemed concerned about the government’s anti-Auer argument, and she questioned in passing whether the petitioner and government were sufficiently adversarial. Given these apparent reservations, I’m a bit surprise she wholesale adopted the government’s arguments. In any case, the Solicitor General deserves kudos.

Although Supreme Court Doesn’t Overrule Judicial Deference to Agencies, It Cuts It Back Big-Time

As the Court often does, in Kisor v. Willkie, it made a big correction in an important legal area without formally overruling a weak or misapplied precedent. All nine justices agreed that courts need to work harder to ensure that a regulation truly is ambiguous before giving the agency re-interpreting it any sort of deference.

In other words, the Court limited the number of cases where judges defer to agencies, while setting out standards for evaluating those cases that boil down to “when the agency is correct and brings its expertise to bear, having considered the reliance interests of those being regulated” rather than just making legal or political judgment calls willy-nilly. That sounds like reining in the administrative state!

At first blush, Justice Neil Gorsuch’s magisterial opinion that concurred only in the judgment (joined by three colleagues), which would’ve thrown out the Auer deference doctrine altogether, reads like a dissent in all but name. But Chief Justice John Roberts (who joined the majority opinion, largely on stare decisis grounds), echoed by Justice Brett Kavanaugh (who joined Gorsuch’s concurrence), shows that in practice the distance between the two isn’t all that great. And this particular case illustrates that point, given that the lower-court opinion is vacated because all nine justices agree that it didn’t rigorously vet what the agency did.

At bottom, Kavanaugh makes the perfect analogy that sums up the unanimous Court’s position: “Umpires in games at Wrigley Field do not defer to the Cubs manager’s in-game interpretation of Wrigley’s ground rules.” Administrative agencies are now on notice that it’s not “anything goes” when they decide to rewrite their own rules, that judges will hold their feet to the statutory fire.

In short, while Kisor didn’t overturn Auer, it represents a pretty good start at limiting executive-agency overreach.

See here for more background and to read Cato’s brief in the case, which was joined by superstar law professors Jonathan Adler, Richard Epstein, and Michael McConnell.

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