Posted in Agency Authority, Constitutional
Issues in Regulations, Judicial Review & Remedies, Regulatory
Process
The Administration fully engaged
in institutionalizing its policies through promulgated rules with the Employee
Benefits Security Administration (EBSA), the Internal Revenue Service (IRS),
and the Food and Drug Administration (FDA) all publishing economically
significant final rules this week.
Petitions for review challenged the Occupational Safety and Health Administration (OSHA)’s crystalline silica rule as expected.
In a not expected event, a court ordered counsel to prepare to argue remedies, indicating the court has a serious concern that the Consumer Financial Protection Bureau (CFPB) lacks constitutional authority.
Petitions for review challenged the Occupational Safety and Health Administration (OSHA)’s crystalline silica rule as expected.
In a not expected event, a court ordered counsel to prepare to argue remedies, indicating the court has a serious concern that the Consumer Financial Protection Bureau (CFPB) lacks constitutional authority.
Corporate
Inversions Ruled Out: The
Department of the Treasury (DOTr)’s IRS published on Friday final temporary and proposed Inversions and Related Transactions rules.
The temporary rule follows up on IRS September 22, 2014, and November 19, 2015,
announcements that it intended to issue regulations to address corporate
inversions and certain transactions, but these “notices” are not regulatory and
the IRS did not published those notices in the Federal
Register. The temporary rule also goes further than any prior
notice. The temporary rule seeks to contain transactions structured to
avoid taxation by moving a company’s tax home into a foreign country through a
domestic parent or larger company being absorbed by a smaller foreign
subsidiary or merger partner and certain post-inversion United States-tax
avoidance transactions.
The temporary rule was effective on the day of its
publication, last Friday, while the economically significant proposed rule
requests comments by July 7, 2016.
► Several problems immediately become apparent in the temporary rule –
the IRS baldly claims that the Administrative Procedure Act (APA) advance
notice and an opportunity for public comment requirements “do not apply to
these regulations” but provides no justification, let alone a concise statement
of good cause. The IRS asserts discrete authority for its “temporary
rule” but fails to state the temporary rule expiration date, leaving to the
reader to find the requirement and calculate the date that the rule “expire[s]
within 3 years after the date of issuance.” Transaction tax management
may be an appropriate use for a temporary rule, but Congress imposed
limitations on temporary rules in the Internal Revenue Code (IRC) that
supplement the APA. The IRC’s special requirements do not supplant the
APA in any way. Past abuse of the temporary rule concept lead to the
restrictions and continuing abuse should lead to new restrictions.
Untrusted
Fiduciary Rule: The Department of
Labor (DOL)’s EBSA published the Definition of the Term
Fiduciary; Conflict of Interest Rule – Retirement Investment Advice final rule in the Federal Register last
Friday, along with its pride:
At bottom, DOL’s fiduciary rules alter the duty of
care owed to a tax-advantaged retirement account investor: raising the duty
from “suitability” to “fiduciary” best interest of the individual.
DOL made numerous amendments after the public
comments, and initial evaluations suggested DOL may have avoided some of the
issues found most troubling by the industry in the proposed rule.
Currently advisors may suggest a “suitable” more expensive fund that pays them
a higher commission or outside income rather than an equivalent (or even
identical) fund with lower cost that pays them a lower commission or outside
income. The rule seeks to eliminate the potential conflict by increasing
the duty of care to a full fiduciary – client’s best interest – standard.
The rule becomes effective June 7, 2016, and DOL set
the issuance date for the revised exemptions as of that date. The revised
definition of fiduciary investment advice and the new and amended exemptions
become applicable on April 10, 2017.
► The question remains whether this “apparent” conflict creates
an actual harm. DOL has faced great difficulty in establishing a factual
record of victims to justify its assertion that the rule will generate some $17
billion in benefits – indeed, this may be an accumulation of estimates,
assumptions, theories, fears, and animosity, with only minimal anecdotal
evidence against a few bad actors. The fear that should be of concern is
whether the rule will shift additional costs to retirement plans and retirees.
Whether the final rules are arbitrary and capricious or an abuse of discretion
will require substantial analysis and will delay litigation.
Sanitary Transport: The Department of Health and Human Services (HHS)’s FDA published a
final Sanitary
Transportation of Human and Animal Food rule on Wednesday. One of the numerous rules required by the
Food Safety Modernization Act (FSMA), and one subject of litigation to compel
agency action when the
FDA to act after it missed Congressional deadlines, the sanitary transport rule
establishes criteria for determining whether food is “adulterated” because it
has been transported or offered for transport under conditions that are not in
compliance with the sanitary food transportation regulations. FDA estimates that the total annualized costs to be approximately $113 million
annually (3% discount rate) to $117 million annually (7% discount rate) over 10
years, and admits that it does “not have sufficient data to fully quantify the
benefits of this regulation.”
► Performance standards serve both the agency regulatory goals and
industry management goals, but the sanitary transport is not strictly speaking
a performance rule – more of a performance to avoid structured regulation rule
because it must rely on the original century-old statutory structure of
“adulteration.” While the goal may be worthy, and required by statute,
the structure and the benefit-cost ratio raise questions about whether, in the
larger scheme of regulatory planning, the outcome is worthwhile.
Silica Suits: At least two, and probably three or more, petitions for review have
been filed challenging the DOL Occupational Safety and Health Administration
(OSHA)’s respiratory silica final rule. Two petitions (the second
increasing participation) were filed in the United States Court of Appeals for
the Fifth Circuit, and an unconfirmed petition may have been filed in the
United States Court of Appeals for the Eleventh Circuit. As with all
petitions for review filed with courts of appeals, actual issue identification
is deferred.
► The challenges are unsurprising and the litigation process will reach
well into the next Administration before a court of appeals decision. The
procedural posture is unclear because press releases and reports note the
filing in the Eleventh Circuit, the docket does not reflect the petition.
The different filings, and presumably service on OSHA, may require a random
selection of venue by the Judicial Panel on Multidistrict Litigation (JPMDL),
but, if not, the courts may order consolidation on the request of the parties.
Agency Authority
Constitutional Challenge: On
Tuesday, a panel of the United States Court of Appeals for the District of
Columbia Circuit will hear a challenge to the constitutional authority of the
agency in PHH Corp. v. CFPB, D.C. Cir. No.
15-1177. The case actually focuses on whether PHH, a mortgage servicer,
violated the Real Estate Settlement Procedures Act (RESPA) and the efficacy of
the CFPB’s $109 million monetary penalties. The interesting issue here is
that the D.C. Circuit panel added structure to the coming oral argument in an
order last week that requires counsel to be prepared to address:
(1) What independent agencies
now or historically have been headed by a single person? For this
purpose, consider an independent agency as an agency whose head is not
removable at will but is removable only for cause; and (2) If an independent
agency headed by a single person violates Article II as interpreted in Free Enterprise Fund v. PCAOB, 561 U.S. 477 (2010),
what would the appropriate remedy be? Would the appropriate remedy be to
sever the tenure and for-cause provisions of this statute, see 12 U.S.C. 5491(c)? Cf.Free Enterprise Fund,
561 U.S. at 508-10. Or is there a more appropriate remedy? And how
would the remedy affect the legality of the Director’s action in this case?
► The challenge to the CFPB penalties reaches a core issue of
authority, and, in a back door way, may undercut the efficacy of a host of CFPB
regulations. The case was originally of, at least some, interest, but the
court’s instructions to arguing counsel suggest that the court expects to reach
the underlying question of agency authority.
No comments:
Post a Comment