Regulatory practice highlights this week seem to focus on the margins of general practice and unique relationships of specialty practice. In one decision, a court of appeals held that an agency failed to follow statutory requirements that supplanted the default requirements while a district court stayed and remanded an unusual regulation as adjudication for failure to provide a reasoned decisio
n. New policy guidance may help the States and industry deal with the most rapidly developing non-drone transportation technology issue. And more to come.
Narrowing Safety Standards Exemptions Still Standards: The United States Court of Appeals for the District of Columbia Circuit determined, in Agricultural Retailers Ass’n v. Occupational Safety and Health Administration (OSHA), that Department of Labor (DOL)’s OSHA fatally erred in changing an interpretation of a standard without observing the Occupational Safety and Health Act (OSH Act) special requirements for adopting safety standards. At the outset, the OSH Act authorizes both “safety standards” that are adopted under specific procedures and rules adopted under the Administrative Procedure Act (APA) procedures, and jurisdiction for the purposes of judicial review differs between those type of rules.
OSHA’s Process Safety Management of Highly Hazardous Chemicals; Explosives and Blasting Agents (PSM) safety standards impose requirements to help prevent or minimize the consequences of catastrophic releases of toxic, reactive, flammable, or explosive chemicals and has always exempted “retail facilities” because the relative small volume of packages and containers and allotments in retail establishments make a large release unlikely. OSHA issued guidance stating its understanding of retail establishments as obtaining more than half of their income from direct sales to end users – the so-called “50% test.” After a fertilizer facility explosion in West, Texas, killed 15 people in April 2013 – a retail facility that sold large quantities directly to farmers – OSHA another memorandum rescinding the 50% test and adopting a Department of Commerce (DOC) manual defining retail facilities as “organized to sell merchandise in small quantities to the general public.” The effect was to bring many such facilities within the scope of the rules – indeed, OSHA estimated that its revised definition would subject up to 4,800 facilities to the standard.
OSHA argued that the memorandum did not issue or modify a standard, but only interpreted an existing standard and, therefore, was not subject to the procedural requirements in the OSH Act or to the direct, pre-enforcement review in the court of appeals. The court disagreed, however, determining that its precedent treated an OSHA action that “corrects a particular hazard, as opposed to adjusting procedures for detection or enforcement, it amounts to a ‘standard.’” The court concluded, therefore, that it had jurisdiction under the “standards” provisions and that OSHA’s “narrowing of the substantive scope of the exemption for retail facilities qualified as issuance of a ‘standard.’” in violation of the OSH Act.
► Numerous statutes supplant APA requirements and the OSH Act supplants the APA broadly for the substantive category of “safety standards.” It might seem surprising after more than 40 years that OSHA made this mistake, but the complex relationship between the statutes – particularly at the interpretative rule / guidance level – requires a complex understanding of both the OSH Act and the APA, and much more. The court’s distinction appears relatively analogous to finding that a guidance document has the practical effect of a substantive rule under the APA and, therefore, requires APA advance notice and an opportunity for public comment. The court did not need to address this issue because the challenge lay only under the OSH Act.
Money Laundering Adjudication by Regulation: The United States District Court for the District of Columbia, on cross motions for summary judgment in FBME Bank Ltd. v. Lew, confronted the bizarre adjudication by regulation of money laundering sanctions under the USA Patriot Act of 2001. In short, the USA Patriot Act permits the Department of the Treasury (DOTr), as delegated to its Financial Crimes Enforcement Network (FinCEN), to impose requirements on domestic banking institutions in relation to foreign banking institutions that the government reasonably believes are primary money laundering concerns. The first four informational requirements may be imposed by regulation, order, or otherwise as permitted by law, but the fifth – imposing conditions on transactions or full prohibition of transactions that can effectively be a death knell for the foreign institution – must be imposed by regulation. The court previously entered a preliminary injunction baring action on FinCEN’s first final rule, after which FinCEN requested a voluntary remand to respond to the identified deficiencies and issue the current, second final rule. The court stayed the second final rule pursuant to the APA to enable thorough judicial review.
The court’s lengthy menu of specific holdings on the challenges raised by FBME warrants reading, but only one challenge found its mark. The court found that FinCEN was not obliged to disclose for public comment the actual suspicious activity reports (SAR)s that domestic banks filed raising questions about FBME – SARs are subject to limited disclosure under the Bank Secrecy Act (BSA) and not here. The court determined, however, that FinCEN did not meaningfully respond to FBME’s significant comments challenging FinCEN’s analysis of SARs data and how that data centrally lead to FinCEN’s conclusion about FBME regarding money laundering. FinCEN succeeded on all of the evidentiary issues, although on a few only because FBME failed to establish that it was prejudiced by FinCEN’s error, but FinCEN failed to provide a sufficient analytical response to FBME’s challenges to the meaning of that evidence.
With a single significant fault, the court considered whether the vacate or merely remand the rule. Given a view that FinCEN had demonstrated at least a serious possibility that it will be able to substantiate its decision on remand and because vacatur of the rule would be unnecessarily disruptive (already stayed), the court merely remanded.
► Without vacatur, FBME may not appeal the district court decision – the district court remand is not a final appealable order – although FinCEN might appeal both the stay and the remand (yes, appeal here is asymmetrical).
The regulation (adjudication) and litigation is far from over – FinCEN now faces the difficult process of attempting to again explain the nexus between its record and its decision. Putting aside the odd nature of the rulemaking qua adjudication, the extraterritorial limitations on regulations, and other issues, the case will continue to present the difficult problem of explaining a decision that is based on highly sensitive confidential information.
To Be or Not To Be Autonomous Vehicle Policy: The President of the United States (POTUS), the Secretary of the Department of Transportation (DOT), and the National Highway Traffic Safety Administration (NHTSA) released new Federal Automated Vehicles Policy with great fanfare. The policy guidance suggests that States continue to manage driver’s licenses, car registrations, general traffic laws, liability and insurance issues, etc. while avoiding trying to create vehicle safety standards that are the NHTSA’s province in Federal Motor Vehicle Safety Standard (FMVSS). The policy guidance outlines what DOT considers to be best practices for industry’s safe pre-deployment design, development and testing of highly automated vehicles (HAVs) prior to commercial sale or public operation. Although couched in the precatory “should” there is more than a suggestion that DOT will consider these practices in granting any exceptions to the existing FMVSS.
DOT seems to suggest that policy guidance is temporally an alternative to regulations: “We are issuing this Policy as agency guidance rather than in a rulemaking in order to speed the delivery of an initial regulatory framework and best practices to guide manufacturers and other entities in the safe design, development, testing, and deployment of HAVs.” At the same time, DOT suggests that outside the FMVSS exemptions and process, petitions for rulemaking may be the best path forward on some issues (and NHTSA has adopted procedures for petitions for rulemaking).
DOT is seeking public comment on the policy guidance through November 22, 2016, and has included a set of future steps under consideration.
► Much of the guidance document is repetitive of the current state of legal responsibilities, but any agency thoughts on best practices on this nascent industry should be welcomed, even if the public relations outstrips the substance. Vehicle automation and what are now considered HAVs have proven already to pose high risks and can greatly reduce risks. Guidance is not surprising at this stage and this guidance appears to fit outside the APA delimitations of a regulation. While DOT has many options, one not found here that might well be useful would be negotiated rulemaking to develop proposed rules.
Regulatory Week Ahead: Two key events this week will inform this blog very soon: First, the United States Supreme Court (SCOTUS) begins its long conference in preparation for the First Monday in October. SCOTUS is expected to grant certiorari in a number of cases next Monday (or earlier) and may include significant regulatory issues.
Tomorrow, the en banc D.C. Circuit will hear nearly four hours of argument on a multitude of issues raising the efficacy of the Environmental Protection Agency (EPA)’s stayed Clean Power Plan in State of West Virginia v. EPA, D.C. Cir. No. 15-1363. Do not expect a rapid decision from the 10 judges; do expect a deeply divided and highly structured set of opinions for the next Administration to contemplate.
The post Monday Morning Regulatory Review – 9/26/16: Narrowing Safety Standards Exemptions Still Standards; Money Laundering Adjudication by Regulation; To Be or Not To Be Autonomous Vehicle Policy & Regulatory Week Ahead appeared first on Federal Regulations Advisor.