Archives for 2018

07/10/2018

Department of the Army Refuses to Search Its Servers for Email Records

In May 2016, Cause of Action Institute (“CoA Institute”) sued the Department of the Army after it refused to produce records under the Freedom of Information Act (“FOIA”) concerning the use of teleconference technology at the White House. CoA Institute’s FOIA request, which was filed in June 2015, followed the release of a record in an unrelated FOIA matter by the Office of Management and Budget (“OMB”). That email revealed how a special email account, “system.manager@conus.army.mil,” had been set-up and was operated by the military for the purposes of facilitating teleconferences.
Although the OMB record may strike some as containing seemingly benign information, it nonetheless piqued our interest. We realized that little is known about how the Executive Office of the President (“EOP”) arranges its audio and video conferences. Moreover, there is scant public information available about the important role played by the President’s “IT team,” the White House Communications Agency (“WHCA”), in the functioning of the White House. We were also troubled because the OMB record showed how WHCA was responsible for facilitating a conference call for inter-agency consultation on “White House equities.” As we have repeatedly described, “White House equities” review is a form of FOIA politicization that allows the President to interfere with and delay the production of politically sensitive records.

WHCA released approximately 200 pages of email correspondence in response to our request. The Army, however, failed to identify any responsive records. In the lead up to summary judgment proceedings, we continually asked the Army about its efforts to search for records in the “@conus.army.mil” account. We had even given the Army a copy of the OMB email when we filed an administrative appeal in September 2015. But the Army kept mum and only provided details about its “search” last month, arguing that it had located the so-called CONUS account and determined that its contents were stored on Army computer servers. But the Army claimed that the account would contain zero “responsive records.” Why? Because only “EOP personnel” interfaced with the account, even though it was owned and maintained by the military and stored on Army hardware.

We filed our own cross-motion for summary judgment yesterday. The first part of our argument focuses on the Army’s unjustifiably narrow and unfair reading of our FOIA request, which sought all records of correspondence with EOP about conference calls “hosted and/or arranged by the military.” Not only did we give the OMB record to the government to demonstrate exactly the sort of records we wanted—which should be enough to defeat the Army’s interpretation of the scope of our FOIA request—but any natural reading of the operative words “hosted” and “arranged” would include the situation of an agency maintaining a software system and email account for the sole purpose of setting-up audio and video conferences. Whether Army personnel were involved in the day-to-day business of confirming the details for a new conference, or merely set up some sort of automated process, is without moment.

The second part of our cross-motion concerns the redaction of non-contractor employees of the Department of Defense (“DOD”) in the WHCA correspondence. DOD takes the position that, as a categorical matter, nearly all the names and email addresses of its employees may be kept secret. But there are several problems with this position. First, FOIA caselaw generally disfavors categorical claims and, in the context of personal privacy interests, the public interest can outweigh an individual’s right to keep their name and work information secret—particularly when the individual is a government employee. Second, official DOD policy posted on the agency’s FOIA website explicitly directs the sort of information we want to be made public unless disclosure would raise “substantial security or privacy concerns.” Finally, the FOIA’s newly-added “foreseeable harm” standard mandates that an agency demonstrate how specific pieces of information may, if disclosed, be reasonably foreseen to harm an interest protected by a statutory exemption. That sets a high bar, particularly in the context of DOD’s categorical and generally applicable policy. In this case, it seems unlikely that the EOP’s IT staff could be described as working in a “sensitive” position, akin to activity duty military personnel on the front line or law enforcement officials involved with criminal investigative activities. We look forward to the Army’s reply brief.

Ryan P. Mulvey is Counsel at Cause of Action Institute.

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07/9/2018

Zen Magnets Wins, but Decision Does Little to Protect Against Regulatory Overreach

Last month, a U.S. District Court tossed a mandatory recall issued by the Consumer Product Safety Commission (CPSC) against Zen Magnets, a company that sells powerful Small Rare Earth Magnets (SREMs) to adults as desk toys or for use in art, jewelry, and physics education. The recall was the latest in a long series of CPSC actions taken against SREM sellers premised on child safety. In a handful of cases, children who swallowed multiple magnets sustained internal harm when the magnets would reconnect in the digestive tract, often despite unmistakable warnings against ingestion or use by children.

The CPSC has been on a relentless crusade to eradicate SREMs from the market using a variety of strategies. One tactic, an attempt to set a regulatory safety standard, was thrown out by the 10^th Circuit in part because the Commission ignored the public’s use of SREMs for educational and artistic purposes. Further, the court explained that because the CPSC couldn’t explain why the injury rate from magnets was actually declining, the standard violated the Administrative Procedure Act:

“The Act provides that the Commission cannot promulgate a safety standard unless it concludes “that the rule . . . is reasonably necessary to eliminate or reduce an unreasonable risk of injury. . .” Here, the downward trend in injury rates is obvious, and appears to speak directly to the question of whether the new rule is “reasonably necessary. . . ” While the Commission is certainly free to rely on the emergency room injury report data set, it may not do so in a way that cloaks its findings in ambiguity and imprecision, and consequently hinders judicial review.”

Rather than trying to better back up their data or acknowledging the miniscule risk posed by SREMs, the Commission tried another tactic – continuing to take administrative action against SREM companies who refused to voluntarily recall their products. To companies, a standard would have provided much-needed certainty about which marketing tactics and warnings they could adopt to stay in business and minimize injuries to children. Instead, companies were forced to guess at which fixes would satisfy the CPSC; most were taken to administrative adjudication anyway.

Unlike nearly all similar companies in the market, Zen Magnets’ founder, Shihan Qu, refused to recall his products. But he did add multiple highly visible warnings and primarily marketed the magnets to stores frequented by adults, like marijuana dispensaries. None of these changes placated the CPSC, who at the same time managed to drive every other company selling SREMs out of business.

The CPSC justified their administrative action under the Consumer Products Safety Act, which gives the Commission the ability to make companies recall, replace, or refund products with hazardous defects. But under the agency’s corresponding regulation, before finding a design defect, an agency or court has to weigh the adequacy of warnings, the utility of the product, and the frequency and probability of injury – all of which the 10^th Circuit said the agency hadn’t done! Nonetheless, Qu’s magnets were labelled a “design defect” and he was forced to incinerate some $40,000 of his products.

The recent district court ruling invalidated the CPSC’s decision because one of the Commissioners had made public statements (see the video here at 22:14) indicating that he was incapable of judging the case fairly and on its facts. The ruling, though a win for Qu and Zen Magnets, affirms the CPSC’s authority to order mandatory recalls. Unfortunately, nothing in this decision prevents the CPSC from abusing this power in the future, so long as its commissioners keep their internal thoughts out of the public record.

In 2014, Cause of Action Institute investigated a similar case brought by the CPSC against Craig Zucker, founder of the magnet company Buckyballs. One of Zen’s biggest competitors, Zucker settled with the CPSC, but for less than one percent of the Commission’s estimated cost of recall. This disparity, combined with concerns that the CPSC had initiated the action in retaliation for Zucker’s popular anti-CPSC internet campaign, prompted us to submit FOIA requests and demand investigations to determine why the Commission had pursued the case so fervently, yet only as far as driving Zucker out of business. The CPSC not only bankrupted Zucker’s business but also attempted to go after him in his personal capacity to pay for a mandatory recall.

Shihan Qu fought for over six years in numerous courts before this recent victory, which likely won’t restrain the CPSC’s ability to go after other entrepreneurs in the future. For Qu, the ruling marked the end of a costly, drawn-out tangle with the administrative state:

Along the way we eulogized burnt magnets, uncovered CPSC injury data dishonesty, spent two dozen days in court over four years, all while a blizzard of legal motions flew around us.
The nationwide magnet ban meant we were without income for most of 2015. After downsizing from 12 employees in a big warehouse to one loyal part time in a spare bedroom, 2016 was when we had our first significant victories.

The experience of entrepreneurs like Zucker and Qu serve as a stark reminder of the cost of fighting the federal government. But it is thanks to people like Qu, who are willing to push back against agencies that are abusing their power, that we are able to hold our government accountable.

Jake Carmin is a Law Clerk at Cause of Action Institute.

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07/6/2018

District Court Enjoins Cigar Labeling Requirements Pending Appeal

As we recently discussed, a district court ruled against cigar manufacturers and upheld onerous new labeling requirements imposed by the Food and Drug Administration (“FDA”). The case is not over, however, as the cigar plaintiffs have decided to appeal to the Court of Appeals for the D.C. Circuit.

Just yesterday, as a result of the pending appeal, the district court judge issued an order blocking the FDA from implementing any of its labeling regulations without first hearing from the D.C. Circuit. This might seem odd at first: didn’t the judge originally rule on behalf of the FDA? Why is the agency now blocked from enforcing its regulations? The judge determined that–because the regulations are costly and the legal questions are so important–it’s better to wait for the appeals court to decide the case before allowing the FDA to enforce the ban. He conceded that many of the issues in the case, including essential First Amendment questions, are purely legal. Therefore, it’s possible that the appeals court could disagree with his ruling.

Most interestingly, the judge cited the Supreme Court’s decision from just a couple weeks ago in National Institute of Family and Life Advocates v. Becerra, which held that a California law requiring pregnancy clinics to provide certain information to their patients likely runs afoul of the First Amendment. The cigar companies argued that Becerra is strong evidence that the court of appeals would overturn the district court’s ruling here. Even though the judge disagreed, he did concede that “Becerra makes clear that Plaintiffs’ appeal raises serious legal questions.”

This latest ruling provides a temporary respite for cigar companies as they take their appeal to the higher courts. Here’s hoping common sense and the rule of law prevail.

Eric R. Bolinder is Counsel at Cause of Action Institute. You can follow him on Twitter @EricBolinderLaw.

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07/6/2018

OMB Confirms Agencies Required to Disclose Earmarks, Declines to Enforce

The White House Office of Management and Budget (“OMB”) has confirmed that all executive branch agencies are required to disclose attempts by congressional and other outside force to influence the merit-based decision-making process for federal spending. These efforts to earmark federal spending must be disclosed on agency websites within thirty days of their receipt. But OMB has refused to issue new guidelines directing agencies to comply with the rule.

OMB’s reaffirmation came in a letter during litigation declining Cause of Action Institute (“CoA Institute”) and Demand Progress’s 2015 petition for rulemaking that asked the agency to enforce President George W. Bush’s Executive Order 13,457.

Background

In 2008, during the congressional debate over the earmark ban, President Bush issued EO 13,457, both to take a position in the ongoing debate and in an attempt to foreclose members of Congress from evading the ban by going directly to agencies. Part of the order relied on transparency as a tool to dissuade these “executive branch earmarks” by requiring agencies to publish efforts to influence their decision making on their website within thirty days of receiving such communications. The order also directed agencies not to fund these “non-statutory” earmarks. Shortly after, OMB issued a memorandum instructing agencies how to comply with the order while implementing recent appropriations law.

CoA Institute had concerns that agencies were not complying with the order and conducted an investigation into which agencies were properly disclosing executive branch earmarks; only the Departments of Justice and Energy had published any meaningful content on their website.

In 2015, CoA Institute joined with Demand Progress and asked President Obama’s White House to depoliticize federal spending decisions by upholding the order. We filed a petition for rulemaking asking the Obama OMB “to issue a rule ensuring the continuing force and effect of Executive Order 13457[.]”

In November 2017, after two years of not receiving a response, CoA Institute sued OMB over its failure to act on the petition. With a new administration now in the White House, we urged President Trump’s OMB to issue updated guidance ensuring that agencies followed the order and disclosed earmarking efforts.

OMB Declines Petition, Confirms Executive Order Still in Effect

Due to the lawsuit, OMB has finally responded. Although OMB declined to issue a new memorandum, it confirmed that “EO 13457 Remains In Force [because] No Executive Order has been issued that displaces, alters, or withdraws EO 13457 and [because] OMB is also not aware of any judicial decision vacating EO 13457.”

Therefore, agencies are still obligated both to refuse to fund non-statutory earmarks and disclose any attempts to influence their decisions within thirty days. The Trump Administration, however, refuses to make them live up to their responsibilities.

James Valvo is Counsel and Senior Policy Advisor at Cause of Action Institute. You can follow him on Twitter @JamesValvo.

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07/6/2018

Carelessness, Certifications, and Millions of Dollars: The SBA’s Mishandling of Federal Contracts

The Office of the Inspector General (“IG”) for the Small Business Administration (“SBA”) released a report last month detailing its findings from an agency-wide audit of the Women-Owned Small Business Contracting Program (“Program”). The Program provides greater access to federal contracting opportunities for women-owned small businesses (“WOSBs”) and economically disadvantaged women-owned small businesses (“EDWOSBs”) that meet Program requirements. The IG found that an astounding 81% of the audited contracts awarded on a sole-source basis (i.e., without competitive bidding) within a sixteen-month time-period from 2016 to 2017 may have been given to firms that were ineligible for the Program. The total value of the contracts awarded to potentially ineligible firms exceeds more than $52 million.

Previous audits conducted in 2015 by the SBA IG and in 2014 by the U.S. Government Accountability Office (“GAO”) warned that the Program was vulnerable to fraud without changes to its certification process. Unfortunately, the SBA failed to make those changes.

The IG found that contracting officers—the federal employees responsible for awarding contracts to firms—did not comply with federal regulations for fifty of the fifty-six set-aside contracts awarded on a sole-source basis. The contracts studied under the audit were all valued individually at equal to or greater than $250,000. Further, the fifty firms that received those contracts did not comply with the Program’s self-certification requirements, leaving no assurance that federal funds were given to eligible WOSB or EDWOSB firms.

The IG audit lists examples of other missing documentation, including WOSB and EDWOSB self-certifications, birth certificates, and mandatory financial information. Indeed, eighteen of the fifty-six contracts, valued at $11.7 million in total, were awarded on a sole-source basis to firms that uploaded no documentation to Certify.SBA.gov, the SBA’s online platform for federal contracting program applications.

The 2015 GAO report explicitly recommended better training for contracting officers because of a lack of understanding regarding SBA certifying procedures. The SBA agreed with that recommendation. However, according to the recent IG audit, one contracting officer, who awarded contracts to firms that had not uploaded any documentation in Certify.SBA.gov, told the IG that “he was not aware of the requirement to verify documents in Certify.SBA.gov.” Other contracting officers incorrectly coded contracts as sole-source contracts. These officers handle awards worth hundreds of thousands of taxpayer dollars, and the numerous mistakes show a vulnerability that the SBA knew it should have addressed.

Just as it did in 2015, the SBA agreed with the IG’s latest assessment and findings. The agency’s intended actions, however, will not rectify the deficiencies identified by the IG. For example, the SBA acknowledged it needed to initiate debarment proceedings for ineligible firms and implement a certification requirement, but it does not anticipate finishing those tasks until summer 2020. The SBA also refused to implement the IG’s recommendation that would strengthen controls to prevent contracting officers from inappropriately coding contracts, instead arguing that the “recommendation is vague and would not likely help the [P]rogram.”

In perhaps the most interesting point of dissent, the SBA argued that “the audit findings unnecessarily rely on unverified and/or refuted data.” In response, the IG pointed out the problem with the SBA’s criticism:

The [data] that we used to conduct this audit was the same data the SBA relies on to formulate the Small Business Goaling Report, which is submitted to Congress and other stakeholders. If the SBA is admitting that the data it uses is inaccurate, the SBA should immediately communicate this inaccuracy to Congress to ensure that all stakeholders understand the SBA’s use of inaccurate data when assessing the Federal Government’s achievement of small business procurement goals.

Either the SBA is knowingly using inaccurate data in its federal reports, or its criticism of the IG report is fundamentally dishonest.

The Program was designed to expand federal contracting opportunities for WOSBs and EDWOSBs. Inflating the competition pool with ineligible businesses reduces the Program’s effectiveness and diminishes the opportunity for WOSBs and EDWSOBs to succeed as the Program intended. Americans deserve an efficient and effective government. Washington bureaucrats spend our money, and they owe it to us to make sure that contracts and funds are properly awarded to eligible businesses. The SBA must fix its mistakes—its negligence is inexcusable.

Chris Klein is a Research Fellow at Cause of Action Institute

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07/3/2018

Cause of Action Institute Representing TABOR Foundation in Suit Challenging Colorado Hospital Provider Tax

Washington, DC – July 3, 2018 – Cause of Action Institute today announced that it is taking on the representation of the TABOR Foundation in its ongoing lawsuit TABOR Foundation, et al. v. Colorado Department of Health Care Policy & Financing, et al. The case argues that the state has violated Colorado’s Taxpayer’s Bill of Rights (“TABOR”) by using a hospital provider tax to artificially increase costs and then collect higher reimbursements from the federal government under Medicaid.

“TABOR requires that the state get consent from the people before raising taxes. But for the past eight years the state of Colorado has been taxing hospitals by hundreds of millions of dollars to fleece the federal government without the required TABOR vote. The TABOR Foundation is rightly pushing back on the sweetheart deal that leaves taxpayers stuck with the bill,” said James Valvo, Counsel and Senior Policy Advisor at Cause of Action Institute.

“The people of Colorado are confronted with actions taken by the legislature and the governor to damage their constitution. The Hospital Provider program was built on a lie, then made much worse. The people should get a final vote on tax increases and new government debt, but that was taken from them in a dishonest power grab by elected officials,” said Penn R. Pfiffner, Chairman of the TABOR Foundation. “The TABOR Foundation is grateful that Cause of Action Institute has stepped in to allow this lawsuit to go forward. Its participation supports all the citizens of Colorado to reverse the corrupt government actions and to allow the people once again to control their state government.”

TABOR Foundation v. Colorado Department of Health Care Policy & Financing is an ongoing Colorado state court lawsuit that began in 2015 challenging a hospital provider tax levied by the state and used to increase Medicaid reimbursements. Under TABOR, new taxes cannot be collected without a vote of the people. The TABOR Foundation’s challenge argues that the hospital provider charge, that is currently reimbursed under Medicaid from the federal government, is in fact a tax and violates the TABOR amendment in Colorado’s state constitution because the state did not hold the required vote.

The case also argues Senate Bill 17-267, which converted the hospital provider tax from the Department to a newly created enterprise, violated the Colorado constitution’s single-subject requirement and failed to comply with the state excess revenue cap, which limits the amount of revenue the state can keep and spend.

Cause of Action Institute will be requesting summary judgment from the Colorado state district court on behalf of the Plaintiffs.

For more information, please contact Mary Beth Gombita, mbgcomms@gmail.com.

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07/3/2018