Outlook 2017: Courts Needed to Maintain Regulatory Balance

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By Cheryl Bolen

The U.S. Court of Appeals for the D.C. Circuit, staffed by seven Democratic appointees and headed by Chief Judge Merrick Garland, will play a pivotal role in maintaining some semblance of regulatory order in 2017, said lawyers and administration officials interviewed by Bloomberg BNA.

President-elect Donald Trump has pledged across-the-board deregulation, while Republican leaders in Congress eagerly anticipate quick passage of resolutions to rescind Obama-era regulations and bills to significantly slow or stop agencies from issuing expensive new rules.

Still, agencies have ongoing statutory obligations to regulate, and stakeholders can get a court order to force agencies to act, a former Obama administration official said. And most often, lawsuits involving federal agencies and administrative law fall under the jurisdiction of the D.C. Circuit Court.

“In that realm, Donald Trump is going to be under a lot of duress if he doesn’t want to regulate, or tries to deregulate extensively, because there are going to be lawsuits flying left and right to challenge his actions,” the official said.

Regulations Come From Congress

A substantial amount of regulation that takes place each year is non-discretionary under hundreds or thousands of statutes, said Howard Shelanski, administrator of the Office of Information and Regulatory Affairs, an office within the White House Office of Management and Budget that controls the flow of regulatory activity.

“These are statutes that were enacted for good reason because these rules are necessary to keep the country running,” Shelanski said. “I think you would have both cost to the economy, great inconvenience to the American public and a lot of lawsuits against the government if you simply stopped regulating.”

An agency can’t simply decide to regulate where it does not have statutory authority, Shelanski said. Any regulation or mandate by a president for an agency to regulate or deregulate has to fit within the authority that Congress has established, he said.

Then, assuming it is valid under the statute as a matter of authority, the regulation has to be justified on the administrative record, Shelanski said. That record is, of course, subject to judicial review, he added.

Brief Moratorium

The new administration is likely to start out with an order on Trump’s first day in office directing agencies to freeze work on all pending regulations, pull back any not yet published in the Federal Register and delay any effective dates if possible, said Sam Batkins, director of regulatory policy at the American Action Forum.

A similar order was issued at the start of the Obama administration, Batkins said.

“That’s just sort of standard practice, to have a brief formal regulatory moratorium,” he said.

After that, Congress is likely to start immediately working to rescind some regulations under the Congressional Review Act, Batkins said. The CRA, enacted in 1996, provides Congress with a fast-track procedure for rescinding regulations that avoids a filibuster.

The CRA procedure may only be used for 60 legislative days once a regulation is submitted to Congress. The process requires both chambers to pass a joint resolution nullifying a regulation. The resolution is subject to debate lasting up to 10 hours in the Senate, but the measure cannot be filibusterd. Once Congress adjourns for the year, the clock is reset and any regulations issued 60 legislative days before adjournment may be considered the following year.

In this case, any regulations issued after about May 30 are eligible to be reviewed and rescinded by the next Congress using the CRA procedure.

Adding fire power to this effort, on Jan. 4 the House passed by a vote of 238-184 a bill ( H.R. 21) that would allow Congress to repeal at once a slew of regulations issued by the Obama administration in the last half of 2016.

The Midnight Rules Relief Act, sponsored by Rep. Darrell Issa (R-Calif.), would amend the Congressional Review Act to allow Congress to include multiple regulations in one joint resolution of disapproval. The CRA now requires regulations to be considered individually.

One-In, Two-Out

With only a small subset of rules eligible for rescission under the CRA, Trump has pledged to deregulate through executive branch agencies by requiring them to eliminate two rules for every one they want to issue.

But in order to eliminate those two regulations, agencies will have to initiate a full-blown rulemaking process that will be time-consuming, expensive and subject his administration to lawsuits, the administration official said.

Trump’s announced policy could be a purely rhetorical position that never happens, the official said. Or, agencies could attempt to identify enough regulations that are insignificant, anachronistic, non-controversial, or genuinely outdated or unjustified to allow the policy to work in the short run.

“Or he could actually do this in earnest by eliminating regulations that are carrying out important statutory duties, in which case, he’s going to be in an epic and expensive battle,” the official said.

“He’s going to be fighting his bureaucracy and he’s going to be fighting in the courts,” the official said. “He has statutory obligations to regulate and American citizens expect their government to adequately protect them.”

Impractical and Bad for Business

Under such a policy, every time an agency had to issue a congressionally mandated regulation, it would be held up because the agency would first have to select two regulations to eliminate, initiate rulemaking processes to void or modify them, and legally justify the actions, the official said.

There are rhetorical arguments that regulation is too expensive, the official said. But there can’t just be a rhetorical explanation to justify overturning a rule. There has to be an administrative record that supports eliminating a rule that can survive judicial scrutiny, the official said.

Setting aside the legal grounds for eliminating a rule, there could be other complications as well, the official said. It could be difficult for businesses to operate in this environment after having made substantial compliance investments and long-term business plans that accommodate regulation.

Businesses would face the uncertainty of those requirements being eliminated, while new entrants in their sector could come in and compete without those investments or requirements, the official said.

“I think the incoming administration is going to find that things are more complicated than they might expect,” the official said.

Benefiting Corporate Interests

Public interest organizations are alarmed that the Trump administration will tilt the regulatory state in favor of industry and corporations, said Amit Narang, regulatory policy advocate for Public Citizen.

“I think we’re seeing confirmations of that in the first signs of who is being considered for some of these agency positions and administration posts,” Narang said. “You’re seeing the who’s who of the Washington-insider lobbying class.”

Industry executives will clearly come in with a strong conviction that corporate America knows best, Narang said. It’s hard to see corporate CEOs taking over agencies and then holding the industries that they led and worked for accountable in any significant way, he said.

“So in terms of the personnel Trump is appointing, it’s pretty clear that we’re looking at more or less a corporate takeover of our government agencies,” he said.

To contact the reporter on this story: Cheryl Bolen in Washington at cbolen@bna.com

To contact the editor responsible for this story: Paul Hendrie at pHendrie@bna.com

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