Posts Tagged 'admin law'



Connecting Corporate Counsel

Readers who are in corporate law departments may be interested in a conversation I had recently with the editors of Corporate Counsel Connect, a Thomson Reuters publication focusing on corporate law departments.  The focus of the piece was the development and 30 year history of the Association of Corporate Counsel (ACC), where I served as its first executive director.  You can find the interview in the October issue of Corporate Counsel Connect, here.  In a separate article I discussed with the editors the challenges that corporate counsel face in the current regulatory environment.

Corporate counsel who are not members of ACC may want to check out the resources it offers.

 

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Process is Important

This week’s CPSC Commission briefing on the proposed final rule for high powered magnet sets was as notable for what did not happen as for what did.  As the Chairman explained, Commissioner Buerkle declined to participate in the briefing and in the upcoming vote because she believes that it is inappropriate for the agency to vote on a rulemaking addressing the same issues that are currently before a judge in a litigation to which the agency is a party, and which may come back to the commissioners for further review. How refreshing–a public servant who believes that process is important.

The case is being litigated before an administrative law judge against Zen Magnets, and seeks a recall, alleging that the company’s product is defective because it presents a substantial product hazard–children can sustain serious injuries if they swallow small powerful magnets like those Zen sells as adult desk toys.  Zen is the only company currently selling such a product, according to the agency.  While this case is ongoing, the agency plans to issue a final rule to prevent anyone from selling such a product in the future. (It is currently scheduled to vote on the final rule before the end of the month.)

At the hearing at least one commissioner argued that this two-pronged attack against tiny Zen was appropriate because (i) the statute allows for rules to be issued only on a prospective basis for product manufactured in future; and (ii) the statute allows for the agency to get dangerous product already manufactured out of the market through recalls, including those resulting from administrative litigation.  Therefore, the argument goes, the agency’s actions are perfectly proper. That analysis is disingenuous because it is incomplete.

The agency initiated rulemaking in 2012.  It is true that rules are prospective.  However, the agency does have a mechanism for getting products it believes to be unsafe off the market while a rule (or a litigation) is pending and it is not the coercive tactics agency used.  Under section 12 of the statute, the agency may go to court and seek an injunction against the sale of such a product while it undertakes rulemaking if the product poses an imminent hazard.  Of course, the problem, from the agency’s point of view, is that it would have to actually convince a judge.   But that is what the notion of due process is all about.

Instead of seeking an injunction while it pursued rulemaking, the agency “requested” retailers not to sell magnets, destroying the retail market, and tried to negotiate voluntary recalls with as many companies as possible.  Those that did not agree were sued.  The purpose of the agency’s actions was never to get product out of consumer’s hands.  The paltry return rate of the recalls that were done demonstrates that consumers were not going to send the product back.  Instead the purpose was to stop the sale of the product on an on-going basis and on an across-the-board basis, picking the companies off one by one.

At this point in the saga, the only player to withstand the government is Zen which is insisting on its right for a judge to determine whether its products pose a substantial product hazard because they are defective.  While some may say this is a quixotic quest on Zen’s part, that is its right under our system of justice.  If the agency believes that Zen’s products pose an imminent threat to consumers while this litigation is going on, it could seek an injunction under section 12 of the statute but it has not done that.

The commission now seeks to put its very heavy thumb onto the scales of justice by finding that the magnets Zen sells pose an unreasonable risk and therefore are illegal.  This decision by the commission cannot help but have an impact on the litigation before the administrative law judge.  The agency cannot argue that risk to consumers justifies this action since it has not taken the action it could have under section 12 to actually protect consumers.  Add to all this the fact that the same commissioners who are so anxious to vote on the rule will hear any appeals that might come out of the ALJ’s decision and you hardly have to wonder what that outcome will be.

Commissioner Buerkle seems to understand that process is important.  Too bad her colleagues are in such a hurry to throw it out the window.

Fielding Differences

BUT BY WHAT MEANS?

It has been said that no two people ever read the same book.  Our perspectives and reactions are all influenced and informed by the points of view we bring to a particular issue.  This is especially true of commissioners at the CPSC who bring a wealth of experiences to the agency and whose outlooks are influenced by those experiences.

My former colleague and good friend, former Commissioner Anne Northup, and I did not always initially agree on various issues that we were confronted with.  But because of mutual respect for the other’s point of view, we were usually able to find common ground on most issues.  Even when we differed in approach or outcome, those differences provided opportunity for healthy debate and persuasion, which is the point of regulatory commissions.

One example of this was the commission’s approach to regulating small powerful magnets.  Former Commissioner Northup and I approached the issue from very different perspectives.  Commissioner Northup voted to bring an administrative action to force a recall of Buckyballs, the brand name of the most popular magnets sold as an adult desk toy.  Like all commissioners (myself included) she was very concerned about the number of injuries to children who swallowed the small magnetic balls.  She saw this as a product that was attractive to children and so, should be regulated as a toy.

My approach was different.  I was concerned by the fact that the product seller had gone to extraordinary lengths to market the product as an adult product.  I was unsatisfied with the commission’s view that it is appropriate to ban a product that is being safety used by its intended audience when unintended users are being harmed through misuse of the product.  I was concerned that the administrative action the commission undertook was tantamount to backdoor rulemaking and that if the commission wished to regulate this product it should do so directly.  Finally, I objected to the agency’s approach to contact retailers informally asking them to pull the product (thereby destroying its market without any kind of due process) rather than go to court to seek an injunction against the sale of the product during the pendency of the lawsuit (as the law allows).  Former Commission Northup shared this last concern.

Former Commissioner Northup recently wrote an opinion article that describes her reactions to the recent settlement of the CPSC’s administrative suit against Buckyballs.  Her article is worth reading.  Like me, she is most disappointed that the agency staff, presumably with the acquiescence of the Chairman, expanded the scope of the lawsuit to include one of the company’s principals as a party in his personal capacity.  This unprecedented action was never put to a vote and, hence, was not done by agreement of the commission.

While Anne and I did not agree on the merits of whether this case should have been started, we do agree that it soon badly went off the tracks.  And I cannot find anything but agreement when she concludes that “collaboration with manufacturers and retailers is a faster and fairer way to protect the public…”  Unfortunately, this is a lesson that I do not think the agency has yet learned.

 

Time for Doing the Work, Not Looking for Shortcuts

Those who follow the CPSC closely expect that the President’s new commission nominees will be confirmed soon.  The question is: will new leadership change either the tone or the direction of the agency?  Two exchanges during the confirmation hearings made my ears perk up since they went to that question.  Both exchanges addressed the regulatory approach of the nominees.

The first exchange dealt with testing burden reduction.  Remember that PL 112-28 directed the Commission to undertake actions to reduce the costs of third party testing or report back to Congress if it needed additional authorities.  Senator John Thune noted that the agency has done nothing to implement measures to reduce costs in any meaningful way.  Senator Thune asked each nominee, upon confirmation, to provide the Senate Committee with their plans for implementing efforts to reduce testing costs. Senator Thune has given the nominees a real opportunity to show leadership and provide actual relief from the agency’s overly-expansive and costly testing approach—which does not provide consumers with additional safety but does add additional costs to the products they buy.

So as the two nominees craft their plans in response to Senator Thune’s request, will those plans reflect business as usual, with the agency doing only enough to make it appear that it is doing its legal duty but still managing to avoid any real change?  Or will those plans show a thoughtful and creative approach to fixing a problem that Congress and members of the public have identified but which the leadership of the agency, up to this point, has sought to minimize?

Another interesting exchange during the hearing dealt with procedures for issuing regulations.  While addressing the five-year delay in issuing rules for recreational off-road vehicles, the nominee for Chairman, Mr. Kaye, bemoaned the lack of “express” rulemaking authority in the Consumer Product Safety Act.  He attributed regulatory delays to the findings the agency has to make before issuing a final rule and the cost-benefit analysis that he said was “unique” to the CPSC (implying that such analysis was overly burdensome).  But Mr. Kaye did not identify which findings and what aspects of cost-benefit analysis are overly burdensome to the agency. Having that information would provide the basis for a good discussion on regulatory policy at the agency.

Section 9 of the CPSA (15 U.S.C. 2058) spells out how the agency must go about issuing product safety rules or bans. The law states that before the agency initiates rulemaking it must make some preliminary effort to assure itself that the rule is indeed needed.  Those efforts include:

  • a first-cut at describing the potential costs and benefits of the proposed rule;
  • a discussion of why any existing voluntary standard is not adequate; and
  • a description of reasonable alternatives to the rule and why those alternatives should not be considered.

But which of these points of analysis do those advocating for express rulemaking want to eliminate?  Do we really want federal agencies beginning the rulemaking process without doing initial homework in the form of some upfront analysis to assure the public that the proposed direction is correct? To my ears, the complaint that doing your homework is too hard rings hollow.

But perhaps it is the cost benefit analysis that must been done during the rulemaking process that is the problem for those complaining about burdens and advocating express rulemaking.  The law states that the analysis must include a description of the potential benefits and potential costs of the rule and a description of the alternatives to the rule that the commission considered, the costs and benefits of those alternatives and a description of why they were not chosen.  But the law merely states explicitly what necessarily should be included in any competent regulatory analysis.  Unless we are willing to agree that the feds are always right in their regulatory approach, would we not want any agency to gather, write down and then actually consider that information before regulating?

I suspect that the real problem for those advocating for express rulemaking is the law’s expectation that the data will be used to inform results–that the agency actually will use the data to tailor or perhaps even change its preferred regulatory approach.  The law tells the agency that it may not issue a rule unless it finds, among other things, that

  • the benefits of the rule bear a reasonable relationship to its costs; and
  • the rule imposes the least burdensome requirement to adequately address the risk.

In other words, if the agency’s preferred regulatory approach is not the most efficient way to address a risk, then Congress expects the agency to change its approach.

Here are a couple of follow-up questions to the nominees.  Do we want the agency to be able to regulate without regard to costs and benefits? Should not the agency have to change its preferred approach if the costs and benefits are not reasonably related?  Do we want the agency to impose requirements that are more burdensome than they need to be and do so out of ignorance because it did not bother to consider alternatives?  I submit that we do not.  And I believe that experience over the past four years illustrates the importance of these requirements. Several extremely costly and burdensome rules were put into effect without the analysis described above since the CPSIA did not require that analysis.  Indeed, PL 112-28 was passed because the testing rule, not subjected to that analysis, resulted in costs that are excessive.

Regulation is not and should not be easy.  If data shows the need for a rule, then the agency should roll up its sleeves and get to work, not complain about how hard it is and look for shortcuts.  It will be interesting to see if the new leadership is up for doing the hard work.

Are Many Better Than One?

CommitteeLast week I spoke at a meeting of the American Bar Association’s Science and Technology Committee.  While the topic was the use of cost benefit analysis in formulating regulatory policy, the question I put on the table for discussion is whether the benefits of multi-member independent agencies outweigh the costs.  This is an issue that I have been thinking about for some time.  Based on my experience at the CPSC, I question whether these agencies really deliver to the public any better results than those headed by a single administrator.

The theory behind multi-member independent commissions is that with bipartisan members serving a term of office and who can only be removed for cause, the rules coming out of such commissions will be qualitatively better and have bipartisan legitimacy.  The reality is that the work product is not necessarily bipartisan and indeed, at the CPSC, has been very partisan.  Nor, I would submit, are the rules from independent agencies substantively different or “better” than those coming out of agencies with single administrators, but those rules have substantial process-based costs.

What are those costs?  For starters, each commissioner’s office and staff consume approximately $1 million, adding up to almost $5 million annually.  While for some agencies that is insubstantial, for the CPSC, with a budget of $108 million, that means almost five per cent of the agency’s budget is spent on housing, staffing and paying for commissioners.  But beyond just that obvious cost, there are significant costs associated with a top heavy management system.  For example, senior staff spend hours each week briefing commissioners in repetitive one-on-one meetings.   Having multiple commissioners also generates controversy where it might not otherwise exist.  For example, we have seen the agency start down a path, only to have a commissioner change his mind and, hence, change policy direction of the agency with significant burdens being placed on those who relied on the earlier policy.  As another example, commissioners and staff spend hours grappling with whether an issue is administrative in nature, and can be decided solely by the chairman, or whether the issue presents policy questions and therefore must be presented to the commission for decision.

Given these and other costs, would not a single administrator do better?  A single administrator would be charged with following broader administration policy and there would be clear accountability for agency decisions.  Such a change would avoid the costs of “collegial” decision-making.  With respect to the quality of decisions, with good data, the regulatory results would likely be as good as, if not better than, those coming out of a commission.  And if they were not, it would be an easy task to fix responsibility.

Crunch Time at the CPSC

We all know about crunch time—when it becomes apparent that projects are getting backed up and everyone is going to have to work like dogs to try to get the work done. Well, as summer fades and autumn beckons from around the corner, it’s crunch time at the CPSC. While no one can be certain (because deadlines can get pushed in any bureaucracy), based on our FY13 Operating Plan and the Mid-year Update, here are some of the issues I anticipate will soon be hitting our desks for decisions:

  • Final Rule on rare earth magnets;
  • Notice of Proposed Rulemaking on the CPSC staff’s role in voluntary standards committees;
  • Notice of Proposed Rulemaking on voluntary recalls;
  • Notice of Proposed Rulemaking for § 1101 with changes related to §6(b) of the Consumer Product Safety Act (CPSA) about public disclosure of information obtained under CPSA;
  • Final Rule for § 1110 Certificates of Conformity; and
  • Operating Plan for Fiscal Year 2014 (which begins October 1st).

We will have busy times ahead with important regulatory issues. Get ready to comment, participate, and track where appropriate.


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