Independence Day – a day to celebrate the right to choose between praising or criticizing the administrative state – or both. Several courts took exception from Administration regulat
ory actions in the past week, including a regulation that exceeded the agency’s authority, a regulation that likely failed to comport with a number of superior requirements, and a guidance document that, at a minimum, appears to be a final agency action and requires further review in a lower court. Expect more proposed and final rules in the near future as the Administration attempts to clear policy into regulatory form before its end.
Agency Exceeds Authority in Limiting Obamacare Exceptions: The United States Court of Appeals for the District of Columbia Circuit, in Central United Life Insurance v. Burwell, held the Department of Health and Human Services (HHS) overstepped its authority in promulgating regulations that bar insurers from selling fixed indemnity plans to individuals unless the individual certifies that she has “minimum essential coverage” under Obamacare (Patient Protection and Affordable Care Act or PPACA).
The Public Health Service Act (PHSA) establishes coverage requirements for all health insurance plans except enumerated “excepted benefits” that are provided under a separate policy and as independent, noncoordinated benefits. Fixed indemnity plans are excepted benefit plans that pay a fixed amount for a particular medical event. Obamacare left the exception intact from “minimum essential coverage.” HHS, however, in Patient Protection and Affordable Care Act; Exchange and Insurance Market Standards for 2015 and Beyond, promulgated a rule that bars plaintiffs from selling fixed indemnity plans to individual consumers unless those consumers certify that they have minimum essential coverage under Obamacare.
The United States District Court for the District of Columbia permanently enjoined HHS from enforcing the rule, and D.C. Circuit on Friday affirmed.
► The panel’s decision is quite summary and reaches no further than Congress’ plain meaning dictating the result. The statute left little room, or, as the panel noted, “[a]mbiguity, however, “is a creature not of definitional possibilities but of statutory context.” The panel notes, moreover, HHS’ own folly:
Here, HHS described its rule as an attempt to “amend the criteria for fixed indemnity insurance to be treated as an excepted benefit.” …. Most likely, HHS intended only to amend the regulatory criteria because of course only Congress can amend its statutes. But it’s more accurate – and fatally so – to say HHS’s rule proposed to “amend” the PHSA itself.
Naturally, because HHS lacked authority to demand more of fixed indemnity providers than Congress required, the panel affirmed the district court’s permanent injunction. HHS’ error is obvious and been confessed long ago. Now HHS must make a regulatory retreat.
Second Persuader Challenge Persuaded: As noted last week, the first challenge to the Department of Labor (DOL) Interpretation of the “Advice” Exemption in Section 203(c) of the Labor-Management Reporting and Disclosure Act (LMRDA) final rule had thus far been unsuccessful. This week, the United States District Court for the Northern District of Texas reached a different conclusion in National Federation of Independent Businesses v. Perez, and enjoined the rule on a nationwide bases pending further order of the court.
The district court notably made detailed findings of fact necessary to consider the preliminary injunction standard, including detailed facts (based on affidavits and proffered evidence not in the administrative record) regarding how union representation elections are conducted – the province of the National Labor Relations Board (NLRB), not DOL. Particularly, the court noted that employers now often learn of representation elections mere days before they are to occur. The rule would require that many actions that an employer might take – including seeking legal advice and ancillary tactical advice – require public reporting to DOL.
The district court specifically found that plaintiffs were likely to succeed on the merits of claims that:
- DOL lacked statutory authority to promulgate and enforce the final rule;
- DOL’s final rule is arbitrary and capricious and an abuse of discretion, applying the reasoning of the United States Supreme Court (SCOTUS) decision in Encino Motorcars, LLC v. Navarro because DOL inadequately explained its reasoning for changing the long-standing interpretation;
- DOL’s final rule violates plaintiffs’ First Amendment freedom of speech and freedom of association rights;
- DOL’s final rule violates plaintiffs’ Fifth Amendment due process rights as it appears to be void for vagueness; and
- DOL violated the Regulatory Flexibility Act (RFA) in promulgating the final rule.
Moreover, the district court specifically found that plaintiffs would suffer irreparable harm in the absence of a preliminary injunction. Given these weightings, the district court took the view that the balance of interests favored the preliminary injunction.
The preliminary injunction come just days before the July 1 reporting requirement implementation, but well after the effective date of the rule.
► DOL will undoubtedly seek review in the United States Court of Appeals for the Fifth Circuit, but overturning this decision will be difficult because of the detailed structure that the court adopted: DOL must seek reversal of numerous independent detailed legal conclusions and can only succeed if it succeeds in reversing all of the core conclusions.
The district court opinion also reflects difficult posture of reviewing a single agency regulation when multiple agencies regulate an area independently. The representation election process under the NLRB’s jurisdiction is the target of the LMRDA’s disclosure requirements, but that lies outside DOL’s regulatory purview and administrative record. Thus, the district court’s taking evidence falls into that category of administrative record supplementation that is required to provide the court with an understanding of the facts (although the district court does not discuss the administrative record process).
Conviction Guidance as Final Agency Action: A divided panel of that same Fifth Circuit, in State of Texas v. Equal Employment Opportunity Commission (EEOC), held that Texas had demonstrated standing to sue and that the EEOC’s Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964 was a final agency action.
As background, the EEOC enforces Title VII of the Civil Rights Act of 1964 bars to employment discrimination, and may only formulating procedural rules. Congress did not delegate to EEOC authority to promulgate substantive or legislative rules. EEOC may investigate and litigate employment discrimination cases against private employers, but may not sue State employers, but may only investigate and refer to the Department of Justice (DOJ) any case in which the EEOC finds reasonable cause to believe a Title VII violation occurred; DOJ must decide whether to bring enforcement action against a State. EEOC published its Enforcement Guidance in 2012, setting out its view that use of criminal convictions as a bar to employment would violate the Civil Rights Act if that use resulted in a disparate impact on a protected class. Texas statutes and agencies bar the employment of individuals with criminal convictions in many contexts from law enforcement to medicine.
Taking issues in order, the Fifth Circuit first found that Texas had standing to sue because Texas as an employer is the object of the Enforcement Guidance and because Texas faced a forced choice between incurring costs and changing its laws no different from the issues presented in the United States v. Texas immigration case ultimately affirmed by an equally divided SCOTUS. The court also invoked the special solicitude due Texas in its sovereign role.
Second, the court found that the Enforcement Guidance was final agency action under the Administrative Procedure Act (APA) because the guidance was the consummation of the EEOC’s decisionmaking process and that guidance determined rights or obligations or from which legal consequences flow. The former was not disputed, but the latter was deeply contested because the EEOC had no direct enforcement authority over Texas. The court found, however, that the Enforcement Guidance narrowed EEOC’s field of discretion by adopting safe harbors upon which an employer could rely, particularly noting SCOTUS’s recent decision in Army Corps of Engineers v. Hawkes Co., Inc. that a jurisdictional determination with consequences was final agency action. Of particular note here, Hawkes resolved an intercircuit conflict on finality rejecting the Fifth Circuit’s prior precedent on which the government relied. Co. in lig to sue under A
The dissent is quite straightforward, disagreeing on core standing requirements that it was enough that Texas sought to challenge a guidance document that could not be enforce against it.
The Court of Appeals decision is hardly the end – the district court had ordered the case dismissed and on remand must evaluate the claims anew, although the panel decision will weigh heavily in that balance. The issue will return to the Court of Appeals.
► The dissent, and DOJ’s argument, would except the vast majority of agency enforcement guidance from finality if enforcement is predicated on a civil complaint in the district court and this poses a large issue. An agency’s decision to investigate a specific regulated entity normally does not does not constitute final agency action and such investigative and prosecutorial decisions are granted the greatest deference, but the challenge here was to class-wide Enforcement Guidance representing the legal standards that the EEOC will apply in deciding when and how to conduct such investigations, and sets up safe harbors from prosecution. As the court summarized, “the EEOC exploits the limitations of its enforcement authority, while denying that state agencies will face legal consequences should they fail to follow the Enforcement Guidance’s directives.” DOJ overestimated the value of its own discretion or badly under-evaluated the nature of this litigation.
Regulatory Deck-Clearing: The Office of Management and Budget (OMB) Office of Information and Regulatory Affairs (OIRA) appears to be clearing its decks, although its docket remains in the 130-pending rules range. In the past two weeks, OMB has completed review of at least 29 proposed and final rules; about one-half of that number of proposed and final rules have been newly submitted for review. OMB’s regulatory review docket rises and ebbs for many reasons, and the current reason may well be the desire of this Administration to institutionalize as much policy into regulations as possible. OMB’s real operational deadline will be to promulgate rules with an effective date prior to January 20, 2017.
The post Monday Morning Regulatory Review – 7/4/16: Agency Exceeds Authority in Limiting Obamacare Exceptions; Second Persuader Challenge Persuaded; Conviction Guidance as Final Agency Action & Regulatory Deck-Clearing appeared first on Federal Regulations Advisor.