Regulatory Studies

January 17, 2020 4:07PM

Ninth Circuit “Reluctantly” Dismisses Kids Climate Case

Today, a split panel on the U.S. Court of Appeals for the Ninth Circuit “reluctantly” dismissed Juliana v. United States, known colloquially as the “kids’ climate case.”

We should all be thankful for the court’s avowed restraint — for much of this controversy, judges in the circuit seemingly champed at the bit to take on central planning of the American economy. A big assist is due the Supreme Court, which bench‐​slapped some sense into the Ninth Circuit.

Here’s the backstory. In 2015, a group of children filed suit in a federal district court in Oregon, alleging that the federal government infringed on on their putative constitutional right to a climate unaffected by anthropogenic global warming.

On its face, the kids’ case is silly. For starters, it’s not terribly plausible to claim there’s an unenumerated constitutional right to a specific atmospheric concentration of greenhouse gases. But let’s assume there is, for the sake of argument. What could a court do about it?

As a remedy, the Juliana plaintiffs sought for the court to order the government to draw up a comprehensive climate plan – one that is subject to judicial approval and ongoing oversight.

The requested relief, therefore, is a court‐​ordered scheme to regulate the American economy. If the plaintiffs had their druthers, a single federal district court judge would become, after the president, the most powerful official in the country. Obviously, that’s a big practical problem with the plaintiff’s argument.

From a legal perspective, the Constitution vests Article III judges with the “Judicial power.” National regulatory plans, by contrast, emanate from the “legislative” or “executive” powers that are the province of the political branches of government. Simply put, judges have no constitutional authority to initiate and oversee major climate policy. 

For these reasons, judges in other circuits have been quick to nix similar challenges. Last February, for example, U.S. Eastern District of Pennsylvania Judge Paul Diamond dismissed a near‐​identical suit. According to Judge Diamond, the Constitution does not guarantee children a right to a “life‐​sustaining climate system.” After disavowing both “the authority [and] the inclination to assume control of the Executive Branch,” he concluded that climate change regulation “is a policy debate best left to the political process.”

Yet, in Juliana, U.S. Oregon District Judge Ann Aiken entertained no such reservations. Not only did she deny two of the federal government’s procedural motions to stop the case, but she initially refused to certify her orders for interlocutory appeal — that is, she refused to allow the government to appeal her procedural orders before the case went to trial. It seemed as if she wanted to try Juliana.

The Ninth Circuit, too, seemed eager for the case to proceed. Twice, the court denied government petitions to end the case.

If all these judges in the Ninth Circuit were so eager to take the case, then how did Juliana get dismissed today?

The answer involves unmistakable signals sent from the Supreme Court. At various points during the litigation, the federal government asked the Court to pause the case. In denying these motions as untimely, the Court included language that unequivocally imparted its concern regarding the constitutional viability of the claims at issue in Juliana.

For example, in July of 2018, the Court observed that “The breadth of respondents’ claims is striking,” and further directed District Court Judge Aiken to “take [justiciability] concerns into account.” A few months later, the Supreme Court basically ordered the Ninth Circuit to hear the federal government’s appeal (on justiciability grounds).

After the Supreme Court’s second order, the Ninth Circuit leaned on Judge Aiken to certify her procedural orders and thereby permit the government’s appeal. Last June, the Ninth Circuit held oral arguments. Today, it “reluctantly” dismissed the case, holding:

We reluctantly conclude … that the plaintiffs’ case must be made to the political branches or to the electorate at large, the latter of which can change the composition of the political branches through the ballot box. That the other branches may have abdicated their responsibility to remediate the problem does not confer on Article III courts, no matter how well‐​intentioned, the ability to step into their shoes.

It bears noting that a majority on the three‐​judge panel dismissed Juliana over the impassioned (though wrong) dissent of Judge Josephine L. Staton. So a third of the panel would have allowed the case to proceed, while the rest ended Juliana only with “reluctance.” It may not be pretty, but I welcome the outcome nevertheless.

January 13, 2020 11:42AM

Labor Law: Feds Call Off Their War on Franchising and Subcontracting

The U.S. Department of Labor has announced a final rule (press release, fact sheet, FAQ) backing off one of the Obama administration’s most damaging initiatives, its attempt to redefine a wide range of franchise, subcontract, and supplier business models as “joint employment.” The effect of that move would have been to make many companies liable for breaches of labor and employment law committed by their franchisees or contractors. The final rule is set to take effect on March 16, 2020.

This is an important win for economic freedom, as well as for the legal reality that a supply or contractual relationship between two firms is by no means the same thing as a merger between them.

It is also a victory for regulatory modesty. The Obama rules had pushed hard at (and arguably overstepped) the bounds of the New Deal‐​era Fair Labor Standards Act so as to rope in as employment many relationships that Congress had never chosen to include as such. The push had been a multi‐​agency affair, extending to ostensibly independent federal bodies such as the National Labor Relations Board (NLRB) and others; and the retreat is likewise multi‐​agency, as can be seen in an NLRB case last month in which the board confirmed that McDonald’s does not, in fact, employ the employees of McDonald’s franchisees.

The new four‐​part balancing test announced by the Trump labor department assesses, to quote directly, whether the potential joint employer:

* hires or fires the employee;
* supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
* determines the employee’s rate and method of payment; and
* maintains the employee’s employment records.

Whatever else can be said about this framework, it at least seems likely to return the scope of the rules to the same general neighborhood they occupied for decades up to 2015.

Most of all, to quote our 2015 description, the new rule beats a retreat from the past administration’s aim “to force much more of the economy into the mold of large‐​payroll, unionized employers, a system for which the 1950s are often (wrongly) idealized.” That very same goal is at the root of California’s unfolding debacle with AB5, a law that tries to force many lines of freelancing into a direct‐​employment model and is already harming large numbers of workers it had purported to help.

If some progressives at the federal level continue to pursue this paradoxically backward‐​looking agenda, they will need to do so through the front door, by working in Congress to enact different standards into law.

January 9, 2020 3:29PM

Gains From Deregulation Undone by Tariffs

By Jeffrey Miron and Erin Partin

Optimism among U.S. manufacturers was near an all‐​time high in early 2017. Just eleven days into his presidency Trump signed an executive order specifically targeting overregulation. According to a survey by the National Association of Manufacturers, an advocacy group representing 14,000 U.S. companies, 93.3 percent of respondents felt optimistic about their company’s outlook. This optimism was driven by an expectation that the new administration would focus on deregulation, which would benefit the domestic manufacturing industry. The administration’s commitment to deregulation kept industry confidence high through much of 2017 and 2018 as regulations continued to be repealed.

This figure shows the results of a NAM survey with the percent of respondents expressing a positive outlook each quarter from 2016-2019

However, the escalating trade war with China is erasing many of the gains from deregulation. Small and medium sized firms are being hit hard by high tariffs on steel and other imported components. The only hope for many companies is to apply for tariff exemptions, but the process is often opaque, arbitrary, and tilted heavily in favor of larger firms with strong lobbying power.

Pro Publica reports:

“Companies with enough resources and savvy can not only push their own cases, they can work to undermine those of competitors.”

“With new tariffs being announced and lifted on a few days’ notice and trade agreements constantly being renegotiated, companies have scrambled to protect themselves. Tariff exclusions are highly sought after because they offer a huge competitive advantage — especially if a rival still has to pay. The review of exclusions is happening on a compressed time schedule, with little warning before tariffs and a complex set of rules that few people understand go into effect. And there are no second chances.”

“The Commerce Department at first had projected that it would see only about 4,500 applications — a threshold that was passed almost instantly. According to a regulatory filing, USTR estimated that each exclusion request would take applicants two hours to prepare, at a cost of $200 each, and two and a half hours for USTR to process. For the China tariffs, adjudicating cases is expected to take 175,000 staff hours over the course of a year, at a cost of $9.7 million.”

Trump’s trade war is harming U.S. manufacturers, their employees, and their customers. While it may be too soon to determine the damage to the economy, the thirty percent drop in manufacturer confidence over the past year does not bode well.

January 9, 2020 10:04AM

How to Make Congress Great Again

As I’ve argued repeatedly, Congress is a shell of its former self.

In last Sunday’s Washington Post, Paul Kane made the same point specifically with respect to Congress’s upper chamber. He wrote:

The Senate tasked with holding President Trump’s impeachment trial would be unrecognizable to most of its predecessors … By almost every measure, today’s Senate is the least deliberative in the modern era of a chamber that bills itself as the world’s greatest deliberative body.

Congress’s weakness threatens liberty because it reflects a breakdown of the Constitution’s structural check on overbearing government. In modern America, policy flows from regulatory agencies known in the aggregate as the “administrative state.” From 1995 to 2017, the executive branch issued over 92,000 rules, compared to 4,400 laws enacted by Congress.

Over the last forty years, alas, Congress abandoned oversight of the agencies it had legislated into existence. Meanwhile, the president’s grip over administrative policymaking tightened with each successive administration.

With Congress M.I.A., the president has become the policymaker‐​in‐​chief at the head of the administrative state. Indeed, the presidency has become so powerful that one of the two parties in Congress — roughly half the legislature — loses interest in executive overreach whenever “their guy” occupies the White House.

Our constitutional system of separate and competing powers — a bulwark for liberty — is dangerously out of whack. Which raises a crucial question: What do we do about it?

In the latest issue of InFOCUS quarterly, I offer a menu of options to “Make Congress Great Again”:

So, how do we make Congress great again?

Congress might be compelled to get its act together, even if it doesn’t want to.

For almost 80 years, the Supreme Court has refused to police how much power Congress transfers to the executive branch … [Yet] [f]or the first time since the New Deal‐​era, a majority on the Supreme Court has expressed a willingness to revisit the nondelegation doctrine. Were the Court to add teeth to its “intelligible principle” test, then Congress would be forced to curtail the breadth of its delegations to the executive branch.

Turning from the Supreme Court to Congress, there are many institutional reforms that the legislature could take to empower itself vis‐​a‐​vis the presidency.

Starting with the easiest measures, Congress could remedy its anemic staffing. In fact, the current level of committee staffing is commensurate with levels from the early 1970s, even though government has grown much larger and more complex in the five decades since.

Congress also could create new institutions to better compete. In the early 1980s, the president unilaterally established the Office of Information and Regulatory Affairs (within the Office of Management and Budget) to manage regulations out of the White House. Yet Congress has no commensurate capacity. There is an obvious need for Congress to create its own comparable mechanism to oversee agency rules.

Congress could adopt simple legislative fixes. For example, lawmakers used to regularly limit the clock on their delegations, such that an agency’s regulatory authority expired after a given time. These “sunset” provisions force Congress to periodically review the programs it creates, before these regimes are re‐​authorized.

Or lawmakers could make greater use of “resolutions of disapproval,” which allow them to veto individual regulations … 

If it wanted to get bold, Congress could pass more comprehensive reform. The Regulatory Accountability Act, for example, would require agencies to better justify rules that cost more than $100 million.

And if Congress wanted to regain the upper hand in one fell swoop, the House and Senate would get behind the REINS Act, which would require both chambers of Congress to approve all major regulations before they took effect.

These reforms are fantastic ideas, to be sure, but they’re all nonstarters for as long as love of party trumps institutional pride in Congress. You can lead a horse to water, but you can’t make it drink. Even were Congress to pass REINS, no doubt the House and Senate could find a way to avoid accountability.

Most likely, we need a new type of lawmaker, one who is cut from old cloth …

Read the whole thing here.

January 2, 2020 10:42AM

Wall Street Journal Editorial Board Misses the Mark on Congressional Staffing

Most days, the Wall Street Journal OpEd page runs multiple unsigned editorials next to the letters and across from the opinion columns. Last Friday, however, the Editorial Board gave its entire platform to a single composition, titled “Elizabeth Warren Has a Plan, Oh My.”

The editorial’s thesis is to “show where the American left wants to go” by presenting Senator Elizabeth Warren’s (D‑Mass.) campaign platform for president, which “exceeds what the socialist dreamers of a century ago imagined.”

The guts of the editorial are 26 bullet points each describing Warren’s policy initiatives, including “Wealth tax,” “Medicare for all,” and “Free college.” After listing Sen. Warren’s various “plans for that,” the WSJ Board concludes:

All this adds up to such an expansion of government that the temptation is to dismiss it as fanciful. But Ms. Warren is a shrewd and disciplined politician who isn’t supporting these ideas on an ideological whim … The question for Democrats: Is this the agenda they want to put forward in 2020?”

For my part, I’d add that Republicans are little better than Democrats on this score, at least in practice (if not in campaign rhetoric). Last month, for example, large bipartisan majorities in Congress passed a $1.43 trillion spending bill — up $50 billion over the previous year — that also raises the legal vaping age to 21. Our Republican president quickly signed the package. The upshot is that both parties collaborated on a spending bill defined by principles of Big Government and the Nanny State.

Setting aside the limited scope of the Editorial Board’s case, I have a bone to pick with one of their policy arguments against Sen. Warren.

Specifically, the editorial’s last bullet point, titled “Miscellaneous,” includes Warren’s pitch to “give congressional staff ‘competitive salaries.’” If the WSJWSJ‘s‘s institutional voice is to be believed, then lawmaker spending on congressional staff reflects the “expansion of government” and even “socialism.”

I share the Board’s concern regarding overweening government, but I think the editorial misses the mark on Congress’s support personnel. Though perhaps counter‐​intuitive, investment in congressional staff is an essential complement to the WSJ’s avowed goal — that is, checking the “expansion of government.”

Of course, Big Government today is largely coterminous with the administrative state. From 1995 to 2017, the executive branch issued over 92,000 rules, compared to 4,400 laws enacted by Congress. The regulatory agencies behind all this lawmaking didn’t materialize from thin air; rather, they were created by legislation, and Congress paired these “delegations” with an oversight framework.

Passed during the administrative state’s adolescence, the 1946 Legislative Reorganization Act established Congress’s strategy for supervising the regulators. The Act tasked issue‐​specific committees with a duty to conduct “continuous watchfulness” over administrative policymaking. To execute this mandate, the Act provided committees with professional staffs.

By design, therefore, committee staffers are crucial cogs in Congress’s oversight machinery, and this understanding served as conventional wisdom among lawmakers through much of the last century. Yet this prevailing sense abated during the 1980s and, ultimately, disappeared by the mid‐​1990s.

What happened? A shifting power landscape on Capitol Hill led to the decline of staff, both in status and number.

After World War Two, committees were the most consequential institutions in Congress; now, parties fill that role. Part of the reason for this change is demographic: The parties became more homogenous with the demise of southern Democrats and northeastern Republicans. At the same time that party rank‐​and‐​file were taking on hive‐​minds, opportunistic party leaders gamed the House and Senate rules to centralize power in their hands.

For ascendant party leadership in Congress, strong committees were a roadblock to the consolidation of authority. To weaken committees, party leaders sought to weaken committee staff.

Matters came to a head in 1995 on the first day of the 104th Congress, when Speaker Newt Gingrich and Republican leadership slashed committee staff by one‐​third, and the Senate soon followed suit. Because it was in the interest of both parties’ leaders to subdue committees, staffing never recovered

For example, there were 2,115 professional personnel in House and Senate standing committees in 2015, or less than two‐​thirds the total in 1991 (3,528). To be fair, party leaders invested in some parts of Congress – themselves. From 1995 to 2011, House and Senate leadership staff increased 35 percent and 38 percent (respectively).

Simply put, Congress doesn’t have the tools to oversee the administrative state it created. The WSJ grows a false narrative when its Editorial Board opines that Warren’s plan for congressional staff reflects an “expansion of government.” In a less sincere tone — his real purpose was power — Rep. Gingrich advanced the same arguments when he dropped the ax on committee staff in 1995. Though untrue and often disingenuous, it makes for a great talking point to claim that Congress should lead by example by starving itself in the name of fiscal prudence. Anyone who claims otherwise is branded as a spendthrift. That’s why staffing levels have never recovered.

In conclusion, I’ll turn to R St. Institute’s Casey Burgat, who’s been sounding this alarm for a while. He warns:

As the size and complexity of the federal government has continued to grow, Congress has deprioritized spending within the offices most responsible for legislating and conducting Executive Branch oversight.

December 30, 2019 2:48PM

Yes, Colorado, the Excessive Fines Clause Protects Small Businesses against Your Regulatory Death Penalty

Mrs. Soon Pak manages Dami Hospitality, LLC, a company that runs hotels and motels in Colorado. Pak is a Korean immigrant with minimal proficiency in English. She relies on third‐​party professionals to assist her in maintaining compliance with the myriad regulations that even native English speakers struggle to understand. Between 2006 and 2014, Dami’s insurance agent failed to renew the company’s worker’s compensation insurance, despite assuring Pak that Dami maintained full coverage.

In 2014, the state division of workers’ compensation gave notice that Dami’s policy had lapsed, and Pak immediately secured coverage without any employee suffering any harm. A few weeks later, the division imposed a fine of $841,200, calculated at a $25 – 500 daily rate that the division had allowed to accumulate for eight years before finally giving notice to the company. Put simply, the state assessed nearly a million‐​dollar fine against a small corporation — which grosses less than a quarter of the total fine — for a violation that was solved immediately after notice was received, with no actual harm done to anyone.

However one defines “excessive,” this fine is excessive compared to Dami’s violation. To frame it in the worker’s comp context, if an employee is killed on a job, his dependent receives $250,000. That means the Colorado Labor Department considers the results of Dami’s lazy insurance agent to be worse than three workplace fatalities.

Dami sought relief in the Colorado courts, arguing that the fine violated the Excessive Fines Clause of the Eighth Amendment (which the U.S. Supreme Court held just this part term applies to the states). Cato filed an amicus brief supporting Dami before the Colorado Supreme Court, arguing that the excessive fines clause applies to corporations (which the state had been denying). The Colorado Supreme Court ruled that the Excessive Fines Clause does indeed apply to corporations and that a fine that is financially ruinous may be deemed unconstitutionally excessive, but that the total fine in this case cannot be considered in the aggregate. The question, the court said, is limited to evaluating whether each individual daily fine is financially ruinous. While the decision was favorable to Dami and Mrs. Pak in part, as one justice wrote in dissent, confining the excessiveness inquiry to the daily fine ($250-$500) misses the point of the constitutional exercise.

Both Colorado and Dami were unsatisfied with the ruling and have asked the U.S. Supreme Court to step in. The state has asked the Court to review (1) whether the Excessive Fines Clause applies to corporations at all, and (2) even if it does, whether the financial ruin the fine may cause is relevant to determining its excessiveness. Dami has filed a cross‐​petition, asking the Court to take up both of those issues — to finally resolve all the issues in this expensive and time‐​consuming enforcement action — and also to look at whether the fine must be considered in the aggregate.

The Supreme Court will review at its conference next week (January 10) whether to take up this case — which it should.

December 21, 2019 9:22AM

The Autobahn to Car Consumer Hell Is Paved with the Best Intentions

After bailing out two of the “Big 3” Detroit automakers, President Obama called in his markers during the summer of 2011. That’s when his administration announced an agreement with major car manufacturers to increase federal fuel economy standards to 54.5 miles per gallon (MPG) by 2025.

At the time, fleet averages (including cars and light‐​duty trucks) were about 27 MPG; doubling that figure in 14 years was a tall order requiring technological breakthroughs that might or might not happen.

Accordingly, the 2011 agreement included an escape hatch. The plan stipulated for a “mid‐​term review” process, by which regulatory agencies could revisit their fuel efficiency targets and change course if necessary.

Under the agreement’s terms, the mid‐​term review was due by April of 2018. All the parties to the original accord understood that the mid‐​term review would entail a process that unfolded up to the 2018 deadline in order to best inform the final decision with the latest data.

If Hillary Clinton had won in 2016, the process would have occurred as initially expected. But then Trump won, and the Obama administration scrambled to finish a mid‐​term review during the outgoing president’s lame‐​duck session.

After a six‐​week rulemaking conducted with breakneck speed, Obama’s agencies completed their mid‐​term review with only eight days to spare before Trump occupied the White House. To no one’s surprise, the Obama administration affirmed its original 54.5 MPG (by 2025) target.

About a month after President Trump took office, his administration announced it would reconsider Obama’s lame‐​duck determination. Ultimately, the Trump administration proposed to freeze the fuel efficiency standards at their 2021 targets through 2025. That proposal, however, has yet to be finalized. When it is made final, it will be challenged in court by progressive state attorneys general and environmental groups.

With this context in mind, let’s turn to Europe, which has more stringent fuel efficiency standards than we do. To be precise, the European Union regulates tailpipe emissions of greenhouse gases, the control of which is effectively coterminous with the regulation of fuel efficiency.

Current regulations for the EU translate to fuel efficiency standards that are roughly commensurate with what the Obama‐​era standards would have required by 2023, based on my eyeball approximation of this New York Times chart comparing the two regimes.

So, how’s that working out for Europeans?

Not well, according to last Thursday’s fascinating Big Read in the Financial Times by Peter Campbell. The sub‐​headline says it all: “rather than embrace the new technology, consumers seem more interested in larger, petrol‐​fueled cars.”

The article starts with a charming story about how the European Union’s regulatory framework affected a recent automobile purchase in Spain:

When Blas Arambilet tried to buy an electric car in April, something strange happened.

Months after ordering a white Kia e‑Niro from his local Barcelona showroom, he received a call from the dealership. Kia could not deliver the car this year, a salesman explained, because it needed to book the sale in 2020 in order to help meet tough new targets for [fuel economy].

In sum, car companies are delaying delivery of their least polluting cars, and their purpose is to game compliance with the European Union’s fuel economy regulations. Perversely, emissions‐​conscious consumers — the very buyers whom the EU’s fuel efficiency rules are supposed to favor — are the first to feel the unintended consequences.

But it’s not just environmental‐​minded buyers who stand to lose out. According to the Financial Times, sports car enthusiasts might be denied their need for speed:

[Daimler] is expected by many dealers to cut production of its most polluting models. In its crosshairs is the Mercedes AMG range, its highest specification models that have supercar acceleration and the body of a family saloon. A reduction of 75 percent in the availability of some [of these] models … is expected by several retail executives … 

More broadly, the general car‐​buying public is in for a bumpy ride. Per the FT:

“There is going to be an imbalance between what consumers want and what manufacturers want to sell them,” say Robert Forrester, chief executive of the dealership group Vertu … [V]anishingly few buyers are turning to electric cars … [they’re instead] switching to heavier sports utility vehicles.

For their part, carmakers are playing a dangerous game of chicken with regulators. The FT reports that manufacturers would be on the hook for $27 billion in fines were they to sell the same mix in 2021 as they did last year.

In an understatement, one anonymous industry insider told the newspaper that “the regulation is not aligned with what is happening in the market.”

Inconvenient delivery dates for super fuel‐​efficient cars are merely the first mile of a long and uncomfortable road trip, but what’s the destination? A dramatic and government‐​imposed scarcity of what the Financial Times calls “American‐​style SUVs” — that is, the cars that buyers want — seems likely unless either consumer preferences or EU regulators pull a u‑turn. 

Because these “American‐​style SUVs” engender higher profit margins, they are essential to many automakers’ bottom lines. To the extent manufacturers are not permitted to sell these “gas guzzlers,” there will be pileups in the sector, in the short term at the very least, as the industry is compelled to change lanes to a new business model.

The upshot is that consumers and automakers will be left in the dust if EU regulators keep their pedal to the metal with fuel efficiency requirements that remain grossly out of “alignment” with what buyers want. Could it happen here?