Several regulatory highlights from the last week illustrate the more forthright and subtle aspects of the transition from one Administration to the next. A judgment in one district court probably sounded the death knell for a major labor regulation while another district court enjoined a regulation barring arbitration clauses. Judgment and discretion were displayed in one judgment to hold a losing cause in abeyance for the new Administration, while another agency pursued a losing agenda without regard to realities. Finally, the Administration released its last Unified Agenda – one that presents more of a future decision tree than regulatory intentions.
Persuader Rule Set Aside: In a final, very summary (two page) order, the United States District Court for the Northern District of Texas set aside and permanently enjoined 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 in National Federation of Independent Businesses v. Perez. The district court previously entered a preliminary injunction against implementation of the rule and that order is pending appeal in the United States Court of Appeals for the Fifth Circuit. As noted previously, on motion for a preliminary injunction, 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 under the Administrative Procedure Act (APA), 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.
Several key differences are notable between the preliminary injunction and the final order: (1) the preliminary injunction order was very detailed, while the final order is summary and relies upon the preliminary injunction order and subsequent briefing for its logic; (2) the final order invokes the APA remedial language that a could shall “hold unlawful and set aside” an improperly promulgated rule, affecting a vacatur of the rule itself rather than barring the administration of the rule; and (3) the preliminary injunction was very structured to fit narrow arguments about specific elements of the final rule while the final order appears to vacate the entire rule as not severable, but without discussion.
► The order is likely the death knell for the persuader rule, if for no other reason than the incoming Administration is likely to abandon any appeal from either the preliminary injunction or the final order. At this point, it is fair to expect the persuader rule to join the regulatory detritus of an expansive Administration policy.
Nursing Home Arbitration Bar Enjoined: Catching up with an election week decision, the United States District Court for the Northern District of Mississippi, in American Health Care Association v. Burwell, preliminarily enjoined a provision of the Department of Health and Human Services (HHS) Centers for Medicare and Medicaid Services (CMS) massive Medicare and Medicaid Programs; Reform of Requirements for Long-Term Care Facilities final rule. Here the district court found that the general delegation of regulatory authority under the Medicare statute – structured by findings and purposes to “protect and promote the rights of each resident,” or “the health, safety, and well-being of residents,” and to establish “other rights” – was not sufficient to authorize CMS to promulgate a rule vitiating Congress express policy of favoring arbitration clauses in the Federal Arbitration Act (FAA) and providing enforcement of arbitration clauses. In short, the court suggests that allowing the agency to vitiate the statute under a general delegation would leave no effective limit on agency power to select what statutes apply to its programs, what the court calls a “breathtakingly broad assertion of authority by a federal agency.”
The district court’s summary reflects administrative law first principles worth repeating:
This case places this court in the undesirable position of preliminarily enjoining a Rule which it believes to be based upon sound public policy. As discussed in section I of this order, this court believes that nursing home arbitration litigation suffers from fundamental defects originating in the mental competency issue, rendering it an inefficient and wasteful form of litigation. This court believes that Congress might reasonably consider this inefficiency, as well as the extreme stress many nursing home residents and their families are under during the admissions process, as sufficient reason to decide that arbitration and the nursing home admissions process do not belong together. Nevertheless, Congress did not enact the Rule in this case; a federal agency did, and therein lies the rub. As sympathetic as this court may be to the public policy considerations which motivated the Rule, it is unwilling to play a role in countenancing the incremental “creep” of federal agency authority beyond that envisioned by the [United States Constitution]. While this court does not exclude the possibility that CMS could, in the future, make a sufficiently strong showing that it had the authority to enact the Rule it did, it seems unlikely, based on the administrative record in this case, that it will be held to have done so here. Moreover, given that the enactment of the Rule raises serious legal questions extending well beyond the arbitration issue, this court concludes that the balance of harms and the public interest support holding it in abeyance until the doubts regarding its legality can be definitively resolved by the courts.
The district court did not decide that it could sever the arbitration clause bar from the remainder of the rule at this point in the proceedings, but ultimately, probably on summary judgment (judgment on the administrative record) will do so. The district court entered a preliminary injunction pending final resolution of the case, but did not stay the rule.
► The government argued that the rule does not bar existing arbitration agreements, but only provides a “strong financial disincentive” by withholding federal funding for nursing homes that enter into new arbitration agreements, and this distinction permits the rule under the FAA. Nonetheless, as the district court pointed out, nursing homes are so dependent upon Medicare and Medicaid funding that the rule effectively bans pre-dispute arbitration contracts. This adhesion contract vs. adhesion rule issue will arise frequently because of the omnipresence of federal funding in mandatory regulatory settings and will eventually require greater judicial resolution. Unlike the persuader rule, a more nuanced future awaits this litigation.
Executive Immigration Action Litigation Postponed: The lengthy history of United States v. Texas and the question of whether granting employment authorization to a class of individuals, and its outflows, constitutes a substantive rule, was effectively put on hold until the incoming Administration takes it in hand. The Department of Justice (DOJ) and the State of Texas filed a joint status report with the United States District Court for the Southern District of Texas that is typical of a realistic litigator’s sense of magnanimity:
Given the change in Administration, the parties jointly submit that a brief stay of any further litigation in this Court before beginning any further proceedings would serve judicial efficiency and economy so that the parties have a better understanding of how they might choose to move forward. …. Accordingly, the parties respectfully submit that further proceedings on the merits of this case, including the submission of a schedule for resolving the merits, should be stayed until February 20, 2017.
The benefits program remains on hold indefinitely, pending possible cross-motions for summary judgment, but rescission of the specific memorandum subject of this litigation would render the judicial process a waste of time.
► A good litigator must be harder nosed than any politician because there are times when politics bear no relation to reality. Expect many cases to be put on “hold” pending a litigation review if a change in litigation posture is likely with the new Administration – this is only the first one noticed.
Agency Authority Retread: On the other hand, the Consumer Finance Protection Bureau (CFPB) filed a petition for rehearing en banc of PHH Inc. v. CFPB last Friday with the United States Court of Appeals for the District of Columbia Circuit. The petition for rehearing en banc argues that the panel erred in striking down the “good cause” limitation on the appointment of its Director (rendering the Director subject to removal by the President of the United States (POTUS) at will), and that the panel erred in finding that the Real Estate Settlement Procedures Act (RESPA) plainly permits a mortgage company to reinsure mortgage insurance through their own captive reinsurance arrangement. The petition does not address the panel’s understanding of the three-year statute of limitations under RESPA incorporated in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
► Even if the petition for rehearing en banc is successful, the CFPB has left much of its case in tatters, and invites a contrary amicus brief from the United States under the new Administration before an en banc court. Perhaps the CFPB could not leave the decision alone and live with the panel decision, but now risks an even more adverse judicial decision and potentially antagonizes an already adverse incoming Administration and Congress.
Final Regulatory Agenda: The Office of Management and Budget (OMB) released the final Unified Agenda of Regulatory and Deregulatory Actions for this Administration on Friday, and it provides a basis for the new Administration’s agency transition teams to evaluate and new agency heads to make decisions, rather than a blueprint of future agency action. Previous prediction that the system was thrown in disarray by the election appear to be have been premature – the Unified Agenda was released without change or delay.
► Many rules will proceed largely according to the predictions in this snapshot because they largely do not present controversial political issues – a new Administration might do little more than tweak details in many rules. On the other hand, expect substantial and forceful changes in next Spring’s edition for the more controversial rules – or those that simply do not reflect the incoming Administration’s priorities.
The post Monday Morning Regulatory Review – 11/21/16: Persuader Rule Set Aside; Nursing Home Arbitration Bar Enjoined; Executive Immigration Action Litigation Postponed; Agency Authority Retread & Final Regulatory Agenda appeared first on Federal Regulations Advisor.