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11/27/2017

CoA Institute Seeks CFPB Records Surrounding Controversial Appointment of Former Director’s Subordinate to Lead the Agency

Washington D.C. – Cause of Action Institute (“CoA Institute”) today filed a Freedom of Information Act (“FOIA”) request with the Consumer Financial Protection Bureau (“CFPB”) for all records relating to the last-minute appointment made by the agency’s departing director, Richard Cordray, that made his former chief of staff, Leandra English, deputy director. The move allegedly puts Ms. English in line to take over as acting director, despite President Trump’s recent appointment of Mick Mulvaney to the same position.  CoA Institute seeks to better understand the process by which English was named deputy director, and what process led to her claiming to be acting director.

CoA Institute President and CEO John J. Vecchione: “The CFPB is playing a dangerous game, which threatens to block political accountability of the Bureau. It has created a ‘two-headed beast’ that creates uncertainty in a critical sector of our economy. Americans deserve to know the motivations and legal foundation behind Mr. Cordray’s last-minute decision to promote his chief of staff, potentially in defiance of the appointment of the Executive under the Vacancies Act.”

On Friday, when Richard Cordray officially resigned from his position, he named English as deputy director. Following President Trump’s subsequent appointment of Mulvaney, on Sunday night, English filed a lawsuit against both Trump and Mulvaney asking the court to halt the appointment of Mulvaney as acting director.

CoA Institute’s FOIA request seeks all records of communications regarding the appointment of English, including emails and other communications between Cordray, English, Senator Elizabeth Warren, and others.

The full FOIA request is available here

For information regarding this press release, please contact Zachary Kurz, Director of Communications at CoA Institute: zachary.kurz@causeofaction.org

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11/20/2017

CoA Institute Investigating Taxpayer-Funded Settlements for Sexual Harassment, Discrimination on Capitol Hill

Washington D.C. – Cause of Action Institute (“CoA Institute”) has filed a Freedom of Information Act (“FOIA”) request with the U.S. Department of the Treasury as part of an investigation into the secret  settlement payments of millions in taxpayer dollars to settle cases of sexual harassment and other forms of invidious discrimination by members of Congress and their staff over the last two decades.

CoA Institute President John J. Vecchione: “Powerful testimony, admissions by the Office of Compliance, and numerous brave women speaking out have brought to light sexual harassment and discrimination in Congress. Unfortunately, many questions remain concerning how and under what authority these settlement payments have been made. If taxpayers are footing the bill to settle complaints of misconduct, the American public should know about it.”

CoA Institute’s FOIA request seeks all records and communications relating to taxpayer funds used to settle complaints of misconduct against members of Congress and their staffs. It requests all records, including financial records, relating to settlement payments made over the past 20 years for any allegation of misconduct, including sexual harassment, racial and religious discrimination, and discrimination against people with disabilities.

The existence of settlement payments has been publicly confirmed by the congressional Office of Compliance, which stated that the funds for the payments comes from an account operated by the Treasury Department.

For information regarding this press release, please contact Zachary Kurz, Director of Communications at CoA Institute: zachary.kurz@causeofaction.org

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11/14/2017

Opposing Government Retaliation Against Free Speech

Cause of Action Institute Files Amicus Brief in Support of LabMD’s Bivens Claim Against FTC Officials

Cause of Action Institute filed an amicus curiae brief (“Brief”) in Michael Daugherty, et al v. Alain Sheer, et al[1] in support of Appellees Michael Daugherty and LabMD, Inc. in their Bivens lawsuit against certain FTC employees in their individual capacities seeking monetary damages. The Brief argues that the Federal Trade Commission (“FTC”) Act does not displace Bivens or immunize First Amendment retaliation, and that  the misconduct and collusion of individual FTC staff directly infected the investigation and administrative prosecution of LabMD after the company’s CEO spoke out against the agency.

In Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S.C 388 (1971), the Supreme Court first recognized an implied private action, directly under the Constitution, for damages against federal officials alleged to have violated a citizen’s constitutional rights.

As our Brief argues, Appellees’ complaint “alleges a straightforward First Amendment retaliation claim actionable under Bivens: LabMD’s CEO, Michael Daugherty, publicly criticized the Defendants’ abusive investigation of LabMD. In response, Defendants retaliated by ramping up the investigation to harm LabMD; bamboozling the Commission into authorizing an administrative prosecution based on false pretenses and stolen files; and then continuing to retaliate against LabMD throughout the enforcement action (including by subpoenaing its CEO’s book drafts and allegedly importuning the creation of false evidence for use against LabMD).”

Importantly, the Brief continues, “Defendants’ conduct led to the destruction of LabMD, formerly a thriving cancer-detection business supporting numerous jobs. That is a plausible Bivens claim. Therefore, Appellees should be entitled to discovery and the opportunity to make their case on the merits.”

Cause of Action Institute adamantly opposes any administrative action that exceeds Constitutional bounds. As the Brief states, “[i]t is never permissible for federal law enforcement to retaliate against citizens or businesses for exercising their First Amendment rights, no matter how vigorously law enforcement may disagree with or is offended by the speaker’s message.”

In March, the United States District Court for the District of Columbia partially rejected Defendants’ motion to dismiss. As Judge Tanya Chutkan wrote, “[i]n the court’s view, Plaintiffs’ First Amendment rights to criticize the actions of the federal government without fear of government retaliation are as clearly established as can be, and a serious escalation of an agency’s investigation or enforcement against Plaintiffs for publicly criticizing the agency would appear to violate that clearly established constitutional right.”[2]

In July, the FTC issued a final rule permitting indemnification of FTC employees in certain circumstances for claims made against them as a result of actions taken by them in the scope of their employment.[3] This general statement of policy relating to FTC management and personnel was published without the opportunity for public notice and comment, pursuant to the Administrative Procedure Act. As the agency stated, “[t]his policy is applicable to actions pending against FTC employees as of its effective date, as well as to actions commenced after that date.”[4] According to Bloomberg Law, the “FTC didn’t mention the LabMD case when it rolled out its new liability protection policy, but Daugherty said he believes there’s an obvious connection. ‘We’re hard pressed to believe this isn’t about us,’ he said.”[5]

Nichole Wilson is strategy officer at Cause of Action Institute.

[1] 17-5128 Michael Daugherty, et al v. Alain Sheer, et al (1:15-cv-02034-TSC)

[2] https://law.justia.com/cases/federal/district-courts/district-of-columbia/dcdce/1:2015cv02034/175313/24/

[3] “Indemnification of Federal Trade Commission Employees,” July 5, 2017; Federal Register Number: 2017-14008 https://www.regulations.gov/document?D=FTC-2017-0049-0001

[4] Id.

[5] Bloomberg Law, “FTC Tackles ‘Intimidating’ Threat of Lawsuits Against Staff,” Alexei Alexis, July 12, 2017 https://biglawbusiness.com/ftc-tackles-intimidating-threat-of-lawsuits-against-staff/

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11/9/2017

Court Dismisses Hillary Clinton Email Recovery Case

Washington D.C. – A federal judge in the U.S. District Court for the District of Columbia today dismissed a case brought by Cause of Action Institute (“CoA Institute”) and Judicial Watch against the Secretary of State and the Archivist of the United States to compel them to fulfill their legal obligations to recover all of Hillary Clinton’s unlawfully removed email records during her tenure as Secretary of State.

In December 2016, the D.C. Circuit Court of Appeals ruled in favor of CoA Institute and Judicial Watch, overturning an earlier opinion by the same district court judge that had dismissed the case as “moot.” Despite the higher court’s rebuke, the Secretary of State and U.S. Archivist still refused to perform their statutory obligations under the Federal Records Act to recover Secretary Clinton’s email records by initiating action through the Attorney General.

CoA Institute President and CEO John J. Vecchione: “The fact that this case was dismissed does not absolve Secretary Clinton or show that all of her unlawfully removed email records have been recovered. In fact, the Court’s decision shows that Secretary Clinton violated the Federal Records Act and that a subset of her work-related emails remains missing. Unfortunately, the Court concluded that efforts by the FBI in its investigation of Secretary Clinton’s handling of classified material, which resulted in the recovery of numerous emails that Clinton had not previously turned over, left nothing further for the Attorney General to do.”

This case, for the first time, brought to light that the FBI’s investigation included the issuance of grand jury subpoenas. The Court stated that “referral to the Attorney General” is the typical remedy for unrecovered records, but found that unnecessary in this case because:

The Government has already deployed the law enforcement authority of the United States to recover Clinton’s emails, as the FBI has sought those records as part of its investigation into whether Clinton mismanaged classified information. The Court thus need not speculate about what the Attorney General might do.

Testimony submitted by FBI Assistant Director E.W. Priestap opined that the Bureau’s investigation was conclusive. However, the FBI’s investigation focused solely on “unauthorized transmission and storage of classified information” and was not a Federal Records Act record-recovery effort, which was the focus of this litigation. Regardless, the Court found Agent Priestap’s opinions “relevant and reliable,” stating:

Although the FBI and the Attorney General are not one and the same, Jeff Sessions would necessarily look to his investigative arm to recover Clinton’s emails. The FBI’s own assessment of its searches is therefore telling.

Read the full opinion here

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11/9/2017

The Forgotten 21 Disks: The IRS’s Unlawful Disclosure of Taxpayer Data to DOJ & FBI

Just as the Internal Revenue Service (“IRS”) targeting scandal was beginning to fade from Washington’s collective memory, it returned to the forefront of the national political scene with a vengeance.  It started with the Department of Justice (“DOJ”) decision in early September to forgo further criminal investigation of Lois Lerner and other IRS officials because of allegedly insufficient evidence of “criminal intent.”  Shortly thereafter, the Treasury Inspector General for Tax Administration’s (“TIGTA”) released an audit review that expanded upon the watchdog’s 2013 report, which had concluded the IRS inappropriately selected conservative tax-exempt applicants for heightened scrutiny based on their names and policy positions rather than objective criteria.  TIGTA’s new report found that the IRS had similarly mistreated left-leaning groups.  As my colleagues argued, TIGTA’s findings hardly diminished the import of the earlier investigation, but “widen[ed] the scope of IRS misconduct and increase[ed] the urgency for further changes at the agency.”  More importantly, the report impliedly highlighted the absence of any serious attempts to root out the cause of IRS politicization.

While TIGTA announced its revised findings, the IRS rolled out a work plan for the Tax Exempt and Government Entities division—the component in which Ms. Lerner worked—which signaled efforts to develop “data-driven” criteria and “analytics” for IRS decision-making.  That, of course, raised the curious question of what exactly the IRS meant by “data-driven” and what criteria it previously had been using to assess tax-exempt compliance.  And this development was followed in quick succession by a DOJ announcement that it had reached a settlement agreement with some of the so-called “Tea Party” groups, who successfully argued their constitutional rights had been violated by the IRS.  Finally, Commissioner Koskinen ended his tenure as head of the IRS and, on the way out the door, tried—yet again—to downplay TIGTA’s role in exposing IRS wrongdoing.  “Sometimes they get a little carried away with their reports,” he suggested.

Lost in all this news—particularly, the DOJ decision not to reopen a criminal investigation—was the government’s stunning admission that confidential taxpayer data was, in fact, unlawfully disclosed by the IRS to the DOJ Public Integrity Section and the Federal Bureau of Investigation.  As Cause of Action Institute (“CoA Institute”) reported last year, the DOJ Inspector General (“DOJ-OIG”) confirmed that “protected taxpayer information was included on compact discs (CDs) that the IRS provided to the Department [of Justice] in response to a Department request.”  Those infamous twenty-one disks contained more than 1.1 million pages of return information on different tax-exempt groups.  DOJ-OIG summarily concluded that the “matter does not warrant further investigation.”  TIGTA, which was also alerted to the unlawful disclosure, refused to comment.

DOJ ostensibly sought this trove of non-public information as part of the Obama Administration’s efforts to prosecute exempt entities for engaging in prohibited political activity.  Given the pattern of IRS abuse and politicization in previous administrations, however, those stated goals were always suspect, particularly given Ms. Lerner’s involvement.  Now, in light of TIGTA’s revelations about the scope of the IRS’s targeting, progressives should be as alarmed as conservatives about the lack of accountability for one of the largest and most significant breaches of taxpayer confidentiality laws in U.S. history.

When it confirmed that taxpayer data had been mishandled, DOJ-OIG also claimed that DOJ informed Congress about the unlawful disclosure.  We filed a Freedom of Information Act (“FOIA”) request last year to investigate the matter.  That request has gone unanswered.  We filed two additional follow-up requests last month (here and here), one of which also seeks records about the processing of the 2016 request.  To date, the authorities have refused to hold anyone at the IRS or DOJ accountable for the wrongful disclosure of countless pages of Americans’ private tax information.  The importance of these records cannot be overstated.  CoA Institute remains committed to bringing them to public light.

Ryan P. Mulvey is Counsel at Cause of Action Institute

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11/7/2017

Coal Subsidies: Just As Bad As Green Energy Subsidies

Republicans promote the free market rhetorically, but in crafting policy, all too often they jump ship and support corporate subsidies for favored industries. For example: coal subsidies.

President Donald Trump followed that well-worn path last month when he called for coal subsidies that would cost American taxpayers an estimated $10.6 billion per year, according to a joint analysis from Climate Policy Initiative and Energy Innovation.

Trump appears to be trying to live up to his promise to bring back coal jobs, but he shouldn’t ignore free market principles or force the energy market at the expense of the economy as a whole. Coal has been declining in its percentage of the energy market for several decades. Although anti-coal regulations put in place by previous administrations have played a role, the increased efficiencies in the production and use of natural gas have been the primary driver of coal’s loss of market share.

Coal production started declining in the ‘80s when low-sulfur coal become harder to find. It dipped again in the late 2000s as hydraulic fracturing made natural gas cheaper to produce. Once natural gas became competitive with coal, power companies started building cheaper and more efficient gas-run generation plants.

In addition, power generation from renewable energy is estimated to increase by 169% by 2040, while coal, as a percentage of our energy mix, could decrease by 51%, Bloomberg New Energy Finance predicts. For a number of reasons, solar has even become cheaper than coal in many countries, and as the Guardian reported, even with Trump’s laudatory hands-off approach on green energy, companies are still investing heavily in alternative fuel sources.

As with all state-controlled markets, government policies that favor one sector over another end up helping certain companies and individuals at the expense of others, and ultimately, it injures consumers and the economy, generally. President Trump’s plan would subsidize only a handful of companies that operate about 90 plants in the East Coast and Midwest. Meanwhile, the specter of cronyism has emerged. As E&E News reported, the official leading the charge on this initiative previously lobbied for FirstEnergy Corp., a company that stands to benefit directly from the coal subsidies.

Trump’s plan to help the coal industry is similar to former President Obama’s initiatives to prop up green energy, which conservatives properly lambasted as inappropriately “picking winners and losers.” Indeed, President Obama funded select green energy groups that played politics well, even if they didn’t use the money as efficiently as they could. For example, Solyndra received guaranteed loans, but an investigative report showed it never got close to yielding its expected results. Its principals played politics, wasted and misused taxpayer money, and kicked the can down the road until everything collapsed. Companies like Solyndra were able to ignore the signals of the market, cash in on government largesse, funnel massive bonuses to high-salary CEOs even as their business crumbled beneath them, and were never held accountable.

If Trump uses federal coal subsidies, one should expect similar results. Coal companies will be encouraged to play politics to stay afloat instead of being encouraged to provide more efficient products and services. And this means Americans may be forced to prop up companies that aren’t able to compete in the market. It is a waste of taxpayer money.

Trump and other Republicans should embrace free market principles that incentivize competition rather than embracing a top-down approach that will help a few businesses at the expense of everyone else.  By all means, eliminate the regulations that unfairly target coal at the expense of other energy sources, but don’t transfer taxpayer money in the form of subsidies, another failing business model.  The government should not be in the business of picking who wins and who loses.

Tyler Arnold is a communications associate at Cause of Action Institute.

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11/3/2017

Has the IRS Changed Its Selection Criteria or Just a Machine?

In May 2013, the Treasury Inspector General for Tax Administration (“TIGTA”) reported audit results showing that between May 2010 and May 2012, the Internal Revenue Service (“IRS”) used “inappropriate criteria” to identify which organizations’ applications for tax-exempt status it would give heightened scrutiny.  TIGTA found that IRS selections had been based on groups’ names or policy positions rather than objective indicia that groups might act outside the requirements and limitations for tax-exempt status under 26 U.S.C. § 501(c).  As restated by TIGTA in its latest Review of Selected Criteria Used to Identify Tax-Exempt Applications for Review, published this month, “using names and/or policy positions instead of developing criteria based on tax-exempt laws and Treasury Regulations is inappropriate.”

The IRS asserts it has been reforming its review-selection process ever since in an effort to develop “data-driven” criteria and use “data analytics to inform decision-making.”  For example, the latest work plan for the Tax Exempt and Government Entities 2018 fiscal yeatar says the IRS will “continue to improve Form 990, 990-EZ, and 990-PF compliance models” as part of a new “data-driven approach” to checking compliance and selecting returns for examination.  The phrases “data-driven selection criteria” and “data analytics” can conjure algorithms and black-box calculators that are supposed to mirror impartial decisions and whose lack of bias is notoriously difficult to understand without expert background and sophisticated mathematics.

The IRS’s description of its approach, however, proffers something much simpler that does not involve sophisticated mathematics or algorithmic analysis.  Instead, its new “data-driven” approach involves analyzing informational returns for indicia that the group is operating outside the restrictions of the tax-exempt statutes or not complying with reporting obligations.  So, under the 2018 Plan, examinations will target organizations whose returns show the “highest risk of Employment Tax non-compliance” (such as 1099 information showing “high distributions” or numerous employees but “zero or minimal Medicare and/or Social Security wages paid”).  And examinations will focus on entities that do not file schedules required by their Form 990 information.  More generally, when an entity’s Form 990 suggests it has taxable business income unrelated to its charitable purposes, an examination should ask whether the entity filed Form 990-T and if not, why not.

If this “data-driven” approach is new, a few questions arise:  How was the IRS using data from Form 990 series returns before now?  Why weren’t these compliance criteria used previously?  Shouldn’t the IRS have been flagging these potential problems all along?

In any event, to the extent “data-driven” analysis does not rely on names or policy positions but instead focuses on objective indicia of compliance with the law and Treasury regulations, the new approach will be better than the IRS’s past inappropriate practices.  But if that’s all that’s being changed, and the data being relied upon is still from Forms 1023 and 990, then perhaps “machine-driven” better captures the new examination-selection criteria than “data-driven.”

Mike Geske is Counsel at Cause of Action Institute.

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