The President of the United States (POTUS) dominated regulatory affairs last week by announcing firearms executive actions and the devil, as always, is in the details. Two other actions at least deserve a mention – the appropriate withdrawal of a contentious proposed rule that simply did not work and the dismissal of a complaint in the trail court that should have been filed as a petition in the court of appeals.
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Firearms Executive Action: POTUS announced his gun control executive actions (not an Executive Order) last Tuesday amid much fanfare and much derision. The White House Fact Sheet must be balanced with a few realities.
A. The Department of Justice (DOJ), Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) “is making clear that it doesn’t matter where you conduct your business – from a store, at gun shows, or over the Internet: If you’re in the business of selling firearms, you must get a license and conduct background checks.” The point is to maximize purchaser background checks.
ATF issued new guidance that admits that it “has no regulatory effect and is not intended to create or confer any rights, privileges, or benefits in any matter, case, or proceeding[.]” The guidance, likely not even an interpretative rule, reiterates the possibility that “A person can be engaged in the business of dealing in firearms regardless of the location in which firearm transactions are conducted. For example, a person can be “engaged in the business” of dealing in firearms even if the person only conducts firearm transactions at gun shows or through the internet.” ATF admits that the regulation defining “engaged in the business” is identical to statutory language and that there is no “bright-line” rule and each determination depends on the “totality of the circumstances.” The only addition clarifies that the term can apply on a “part-time basis.” The United States may criminally prosecute a person who willfully engages in the business of dealing in firearms without a license — the penalty can be up to five years in prison, a $250,000 fine, or both. ATF interprets what the courts have “held” but cites none of the few decided cases and the key interpretation of the criminal law lies in jury instructions, e.g.:
The government must prove beyond a reasonable doubt that the defendant engaged in a greater degree of activity than the occasional sale of a hobbyist or collector, and that the defendant devoted time, attention and labor to selling firearms as a trade or business with the intent of making profits through the repeated purchase and sale of firearms. Willfully, as used in this statute, requires proof that the defendant knew that his or her conduct was unlawful, but does not require proof that the defendant knew of the federal licensing requirement.
Federal firearms laws require “any person engaged in the business of selling firearms at wholesale or retail” to be licensed. Licensed dealers must query the Federal Bureau of Investigation (FBI)’s National Instant Criminal Background Check System (NICS) when selling a firearm. The Attorney General is permitted to “prescribe only such rules and regulations as are necessary to carry out the provisions of” the statute. Current regulations further define dealers to include persons “engaged in the business of selling firearms at wholesale or retail” including “any person who engages in such business or occupation on a part-time basis.” The regulations exclude a “person who makes occasional sales, exchanges, or purchases of firearms for the enhancement of a personal collection or for a hobby, or who sells all or part of his personal collection of firearms….”
► ATF’s “guidance” adds little except the threat that DOJ will pursue its interpretation of the law in criminal cases – a threat limited by its existing agent and prosecutor resources. The nine examples illustrate little except how blurry the line can be. DOJ may alter its guidance at will and without pause under Perez v. Mortgage Bankers Association, but it is by no means clear that the courts should accord this guidance any deference at all, even as to that miniscule interpretation of its regulations rather than regurgitation of the statute. ATF’s guidance should receive no deference as an interpretation of only statutory criminal sanctions and criminal sanctions are subject to the rule of lenity.
DOJ might attempt to clarify the statutory terms within its statutory delegation of rulemaking authority, but must distinguish and explain many key terms that have well-established meanings beyond the current DOJ regulations, and time may already be too short. DOJ would need to propose a rule – no “good cause” exception to the Administrative Procedure Act (APA) advance notice and an opportunity for public comment requirements would apply at this late date to such a controversial idea. A proposed rule surely will draw a torrent of comments. No such regulatory action appears in DOJ’s Unified Agenda of Regulatory and Deregulatory Actions, suggesting that DOJ would face a daunting task in a very short time – proposing and promulgating a contentious rule in only 11 months – if they have a substantive vision for change. In any event, some would test any final rule against the Congressional delegation of regulatory authority and APA arbitrary and capricious and abuse of discretion standards. Beyond increasing the number of dealers and, therefore, background checks, the effect on violent crime seems speculative.
B. The Attorney General did sign off last Monday on two expected final rules:
- Commerce in Firearms and Ammunition – Reporting Theft or Loss of Firearms in Transit, proposed in August 2014, and
- Machine Guns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Corporation, Trust, or Other Legal Entity With Respect to Making or Transferring a Firearm, proposed in September 2013.
► Both rules have been on DOJ’s Unified Agenda for years, both rushed through executive and interagency review with the Office of Management and Budget (OMB), and both make narrow adjustments that their titles suggest, and are quite unsurprising.
C. The Department of Health and Human Services (HHS), Office of Civil Rights (OCR) had already sent to the Federal Register when POTUS made the announcement, a final Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule and the National Instant Criminal Background Check System (NICS) rule. The final rule published January 6 promulgates without change a proposed rule published for comment almost exactly two years ago. The final rule expressly permits medical providers covered by the HIPPA confidentiality requirements to disclose to NICS the identity of an individual disqualified from possessing a firearm by a finding of mental incompetence and the source of the disqualification ruling, but not the diagnosis, treatment records, or other information.
D. The White House Fact Sheet also announced that the Social Security Administration (SSA) “has indicated that it will begin the rulemaking process to include information in NICS about beneficiaries who are prohibited from possessing a firearm for mental health reasons.” The Administration expects this reporting to add approximately “75,000 people each year who have a documented mental health issue, receive disability benefits, and are unable to manage those benefits because of their mental impairment, or who have been found by a state or federal court to be legally incompetent.”
► As with the issue of redefining “dealers” the issue has not appeared in the Unified Agenda and completing such a contentious rulemaking in 11 months could be another daunting challenge.
E. Beyond these, POTUS’s executive actions fall into two broad categories:
- announcement of intent to act in certain ways, subject to the availability of appropriations to be approved by the Congress (e.g. inclusions in the FY2017 budget request) or subject to the reprogramming limitations included in current appropriations (e.g. adding new personnel and programs), and
- letters and memoranda to persuade others to support POTUS’s preferred positions but that have no other effect.
► Little of the executive action is surprising or new and much depends on POTUS’s requests to others – even “enforcement” of ATFE’s guidance and interpretation would require additional investigators and analysts that do not exist. The announcement in sum deserved substantially less fanfare and derision that it received – the most significant action requires a substantial regulatory commitment in a very short time, other concrete but small actions were already well entrained, and many “actions” merely propose that others act. Much of the hype about large Constitutional issues in these proposals is itself derisory. Although some actions raise thorny legal issues, no vast constitutional crisis exists. Much ado about not much.
IRS Withdrawal: On the other hand, the Internal Revenue Service (IRS) magnanimously withdrew the proposed Substantiation Requirement for Certain Contributions rule. The Internal Revenue Code (IRC) requires that a taxpayer substantiate charitable contributions over $250 unless the receiving nonprofit organization independently substantiates the contributions to the IRS. The proposed rule would have provided for that substantiation, but necessarily would have required that the non-profit acquire and provide to the IRS the donors social security number. The public – and the non-profits – revolted. In particular, the non-profits argued that they could not ensure the security of donor’s social security numbers – data they never had acquired before.
► Sometimes an idea that, on its face, looks good, just does not work out, and the only realistic course of action is to walk away. Here the IRS did precisely that and took the step that some agencies would simply avoid – withdrawing the proposed rule and ending the discussion unless and until it proposes another rule for public comment. Not often does the taxman get kudos, but today he does.
Petition Petition Jurisdiction: In a reminder that may have little real world effect, the United States District Court for the District of Columbia dismissed Silberstein v. SEC because plaintiffs complaint that the SEC had not acted in his petition for rulemaking should have been filed in the United States Court of Appeals for the District of Columbia Circuit. Plaintiff petitioned the Securities and Exchange Commission (SEC) under the APA to promulgate a rule requiring publicly traded corporations to disclose to shareholders and the public their use of corporate funds for political activities almost two years ago. The SEC never acted on the petition. Plaintiff sued to compel action under the APA, but the SEC’s programmatic statute provides that judicial review of any final agency action lies in the regional Court of Appeals of venue or the D.C. Circuit. Reiterating prior D.C. Circuit decisions, the district court dismissed because the petition should have been filed upstairs (on the Fifth Floor, not the First Floor of the courthouse).
► This is not necessarily an obvious result to anyone not steeped in the details of judicial review of final administrative action – the general rule is that judicial review of non-action follows the same jurisdiction and venue as final action. Here it doesn’t really matter because Congress recently intervened and barred the SEC from using appropriated funds to “finalize, issue, or implement any rule, regulation, or order” not only requiring disclosure, but “regarding” disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.
The post Monday Morning Regulatory Review – 1/11/16: Firearms Executive Action; IRS Withdrawal & Petition Petition Jurisdiction appeared first on Federal Regulations Advisor.