Archives for March 2019

Recap: Cause of Action Institute at Seafood Expo North America 2019

Earlier this month, Cause of Action Institute joined more than 20,000 members of the fishing industry from across the globe at the 2019 Seafood Expo North America in Boston. For years, Cause of Action has monitored and brought legal challenges against the overregulation of our nation’s fisheries and its negative economic impact on fishing communities – especially small business and family owned operations. However, after three days of speaking with industry insiders last week, the breadth of the harm caused by administrative state overreach continues to appall us.

We spoke with people from nearly every corner of the seafood industry who are severely impacted by the government regulations that plague this field: trade restrictions such as tariffs or quotas, the cost of complying with regulations such as the Jones Act, one size fits all or outdated regulations that benefit certain companies at the expense of others, and offshore development that has the potential to bring many companies’ business to a standstill. Many of the visitors we engaged with were small business owners who fear regulations like industry-funded monitoring will run them out of business entirely.

Cause of Action was fortunate to be able to reconnect with former clients David Goethel and John Haran. For David, John, and many members of their respective communities, fishing is not only their livelihood, but also a large part of the culture of their respective communities. When faced with economic devastation from regulations like the Omnibus Amendment, the way of life that communities have spent years building is also threatened with destruction.

Cause of Action Staff with former client David Goethel

Stories like those we encountered last week serve as an important reminder of the direct consequences posed by arbitrary and excessive executive power. American’s should be free to live prosperous lives and reach their highest potential without the interference of an overbearing administrative state, and Cause of Action looks forward to continuing to strive towards this goal in the commercial fishing industry, among many other affected fields.

Mallory Koch is a communications associate at Cause of Action Institute.

Wisconsin’s Foxconn Deal Illustrates the Dangers of Corporate Welfare

Corporate welfare undermines the economic liberties of individuals, entrepreneurs and innovators by creating a two-tiered society where the government creates a special set of rules and benefits for favored companies. Recently released documents obtained from a Wisconsin Public Records Request reveal that while many of Foxconn’s tax incentives are tied to employment numbers, the Wisconsin Economic Development Council (WEDC) has no formal process for checking construction employment numbers and has to rely on reports compiled by Foxconn’s construction company. The Foxconn deal in Wisconsin illustrates the dangers of corporate welfare and perfectly sums up why Cause of Action Institute is dedicated to exposing these deals and informing citizens of the risks associated with tax incentives and subsidies designed to benefit a single exclusive company.

How did this all begin? Then Wisconsin Governor Scott Walker promised to bring thousands of blue-collar manufacturing jobs back to state, and in July 2017, Walker signed a deal with Foxconn, one of the largest technology providers in the world. Foxconn promised to invest over $10 billion in Wisconsin and create up to 13,000 jobs by 2022, three-fourths of which would be in manufacturing. As a short-term goal, Foxconn promised to create 5,200 jobs by 2020. In exchange, Walker promised $4.5 billion in subsidies and other benefits. At the time, President Trump touted this extravagant corporate welfare deal as “the eighth wonder of the world,” and supportive Wisconsin legislators declared that it would bring economic prosperity to Wisconsin.

Almost two years later, however, the rosy picture painted by Wisconsin lawmakers has yet to materialize. In late 2018, Nikkei Asian Review wrote that Foxconn was planning on cutting 100,000 jobs worldwide due to global economic uncertainty. Then, Louis Woo, one of Foxconn’s lead negotiators on the deal, announced that they were scrapping plans to build a factory, saying “We can’t compete.” Instead of building a manufacturing facility in Wisconsin, as promised, Foxconn shifted to building research and development facilities expected to employ substantially fewer people from a categorically different labor pool.

Crucially, much of the subsidies promised to Foxconn are tied to the company meeting agreed-upon employment numbers. However, documents also reveal that WEDC does not have any formal process for verifying Foxconn’s construction job numbers, despite the fact that WEDC’s website claims credit for the project supporting “10,000 construction jobs in each of the next four years.”  Instead, it must rely on Foxconn’s construction management company, Gilbane, to report the job numbers to them. WEDC CEO Mark Hogan said in emails that the WEDC “would only have to verify job creation by a sample of job creation data and signed statements from the company.” As if this weren’t bad enough, Wisconsin’s legislature also has no way to determine what jobs Foxconn employees are doing. In a letter to the state legislature’s leadership, several members of Wisconsin’s state senate and house of delegates said “The company has never explained what the 178 employees in Wisconsin are doing now.” For such a huge deal, there is a staggeringly low amount of oversight.

Unless Foxconn hits its hiring targets, it won’t see much of the $4.5 billion subsidy package, but the state and local governments, as well as the nearby communities, have already paid significant costs. In order to secure the necessary land for the Foxconn campus, the village of Mount Pleasant exercised eminent domain to force village residents out of their homes. Mount Pleasant and Racine County have spent over $130 million to prepare for Foxconn construction, and the state of Wisconsin has spent an estimated $120 million on road construction in the nearby area.

When the deal was originally signed, the non-partisan Wisconsin Legislative Fiscal Bureau (WFLB) reported that even in the absolute best-case scenario, where all the workers employed by Foxconn live in Wisconsin and all the money spent by Foxconn stays in Wisconsin, the state government would not see any return on its investment until the year 2042. In the same study, WFLB estimates that around 10 percent of people employed by Foxconn in Wisconsin will be filled by Illinois residents, pushing the break-even point back to 2045. In February 2018, Tim Bartik, a senior economist at the W.E. Upjohn Institute, told Bloomberg that Wisconsin will never see a return.

Drawing a big company to invest in a particular region can be an exciting proposition for state and local politicians enticed by the prospect of increased employment and economic activity in their state or town. However, when these deals are made final, they often cost more in tax money than they generate. In Wisconsin, the state and local governments proved willing to use every means at their disposal, including the seizure of private property, to try to convince Foxconn to build a multibillion-dollar facility in the state. As the Foxconn deal (and those like it) highlight, state and local governments should not create a separate standard for well-connected companies by granting them billions of dollars in special benefits or using eminent domain to seize private property to advance the needs of a single corporation.

Zeke Rogers is a Research Associate at Cause of Action Institute



Cause of Action Institute leads diverse coalition in filing Supreme Court amicus brief in FMI v. Argus Leader

Urges Court to follow the text and strike a wise balance when examining Exemption 4 within the Freedom of Information Act

Today, Cause of Action Institute, a nationally recognized government watchdog organization with a specialty in government transparency, led an ideologically diverse coalition in filing an amicus brief involving Exemption 4 of the Freedom of Information Act (FOIA), a statute the Court rarely interprets. The brief, filed before the U.S. Supreme Court, urges the Court to improve and clarify how Exemption 4 is applied. This particular exemption protects “trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential.”

The case has the potential to upset the status quo and drastically expand the use of this exemption – meaning more information that was otherwise public could now be withheld from disclosure. The coalition’s amicus brief urges the Court to strike a sound balance by clarifying and improving the competitive-harm test, eliminating the Critical Mass distinction, confirming an objective test for determining confidential information, and ensuring Exemption 4 takes into account some reputational harms that could occur if confidential information is disclosed.

James Valvo, counsel and senior policy advisor for Cause of Action issued the following statement:

“It’s rare to see the Supreme Court take a FOIA case, and far more rare that the case deals with the specifics of Exemption 4. But good government is government that is transparent and open. This is perhaps why it is so critical that the Court uses this opportunity to clarify how Exemption 4 is applied, to ensure the public’s right to information is protected while not harming legitimate commercial concerns. The existing standards to determine what information falls within or out of the scope of Exemption 4 has created a confusing web that does a disservice to spirit of the FOIA.”

In addition to Cause of Action Institute, Citizens for Responsibility and Ethics in Washington, FOIA Advisor, Open the Government, and the Project on Government Oversight signed the amicus brief.

The amicus brief specifically asks the Court to:

  • Address and interpret the term “confidential,” as used under Exemption 4, to bring it into harmony with the statutory text and its historical usage in other legal contexts and confirm an objective test for determining the confidentiality of commercial or financial information;
  • Eliminate the National Parks standard that the impairment of the government’s ability to collect information is a justification for withholding information as unnecessary and duplicative;
  • Eliminate the atextual distinction created in Critical Mass between information that is obtained through voluntary or compulsory means; and
  • Ensure Exemption 4 protects against certain types of reputational harm that have a negative impact on competitive standing.

Summary:

All records subject to the FOIA should be disclosed to the public unless the federal government cites one of nine exemptions. This case specially deals with Exemption 4, which concerns, “Trade secrets or commercial or financial information that is confidential or privileged.”

FOIA Exemption 4, exempts from disclosure “confidential” commercial or financial information that the government obtains from a person. But the FOIA does not define “confidential.” The meaning of that term cannot be derived from bare dictionary definitions. “Confidential” instead must be understood in light of its historical usage in other legal contexts and in the FOIA. Persuasive canons of statutory interpretation counsel the Court to take that approach. Petitioner’s overbroad understanding of “confidential” ignores legal history, deviates from the interpretative methodology accepted for other terms in Exemption 4, and would render the whole of Exemption 4 surplusage by swallowing up the independent meanings of “trade secret” and “privileged.”

The proper meaning of “confidential” covers information that, if made public, would cause competitive harm to its source. This meaning is rooted in the common law and the nature of confidential relationships. But history is not the only basis for this understanding. In other legal contexts, construing the phrase “confidential information” frequently involves some form of harm analysis. From judicial records and the Bankruptcy Code, to the Rules of Civil Procedure and this Court’s precedents on FOIA Exemptions 5 and 7, legal context demonstrates the inadequacy of Petitioner’s dictionary-bound approach to Exemption 4.

This case also presents the Court with an opportunity to clarify other aspects of Exemption 4. Although amici ask the Court to uphold the competitive-harm justification of National Parks, they also ask the Court to eliminate the government-impairment justification, abandon the distinction between information submitted voluntarily or under compulsion, reiterate that competitive harm is analyzed under an objective test, and accept reputational harms that impact competitive standing as cognizable under Exemption 4.

As the Court considers this case, it should do so consistent with its precedent for interpreting the FOIA. The Court has recognized that the FOIA is essential to “ensure an informed citizenry, vital to the functioning of a democratic society,” and that it contains a “strong presumption in favor of disclosure. To ensure that citizens have access to information and to honor the strong presumption of disclosure, FOIA exemptions “must be ‘narrowly construed.”

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Media ContactMatt Frendewey, matt.frendewey@causeofaction.org | 202-699-2018

 

Cause of Action Sues Commerce Dept. for Failing to Release Auto-Tariff Report

Washington, D.C. (Mar. 21, 2019) – Cause of Action Institute (CoA Institute) filed a lawsuit against the Department of Commerce (Commerce) for failing to respond to two Freedom of Information Act (FOIA) requests seeking a copy of the Commerce Secretary’s final report to the President regarding the Section 232 investigation into the national security impacts of the Administration’s proposed foreign automobile tariffs. The Commerce Department has previously stated that it will not make the report public. In an effort to increase transparency and protect Americans’ economic freedom, CoA Institute filed a FOIA request so the public can see the report, but Commerce did not produce it within the statutory timeline.

James Valvo, counsel and senior policy advisor at Cause of Action Institute:

“Commerce claims that the information contained in their report justifies the proposed auto-tariffs, but the government refuses to release this report.  The public should not have to take the government’s word that the report supports tariffs when the administration withholds the document it claims supports its position. The tariffs will harm American consumers and businesses, and the public has a right to see the information contained in the report. We are dedicated to placing this vital information into the public sphere, ensuring that the government complies with its statutory obligations, and we look forward to a robust debate about the merits of the report.”

The Section 232 National Security Investigation of Imports of Automobiles, Including Cars, SUVs, Vans and Light Trucks, and Automotive Parts will provide recommendations for the Administration’s proposal to impose a 25% tariff on imports of cars and car parts. CoA Institute sent requests to both the Department of Commerce and the Bureau of Industry and Security for a copy of this report.

Background:

Documents:

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Media ContactMatt Frendewey, matt.frendewey@causeofaction.org | 202-699-2018

 

IRS Gives Nod to Its Regulatory Noncompliance, Doesn’t Address Real Issues

The Internal Revenue Service (“IRS”) is notorious for flouting regulatory procedures that are designed both to legitimize the administrative state’s exercise of lawmaking power and to constrain the worst abuses of that authority through information gathering tools and judicial review.  One reason the IRS is able to avoid the traditional regulatory process is because the Anti-Injunction Act prevents most lawsuits that would invalidate rules that the IRS promulgates outside that process.

Last week, the IRS acknowledged some of those shortcomings in a policy statement announcing changes to the way it rolls out new rules.  These changes are on top of last year’s revocation of a decades-old exemption from White House pre-publication review and approval.

The Administrative Procedure Act (“APA”) has different processes for legislative and interpretative rules, i.e., rules that create new legal obligations on private parties and those that purportedly don’t.  The IRS has long maintained that nearly all its rules are interpretative and thus exempt from the APA and notice-and-comment regime.  This is a dubious claim, at best.  Notwithstanding this self-bestowed exemption, the IRS magnanimously still puts its supposedly interpretative rules out for notice and comment.  But it does so without following all of the required procedures, which it justifies by claiming that any process it is following is voluntary anyway, so it can follow which procedures it wants to.  In its policy statement, the IRS confirmed that it “will continue to adhere to [its] longstanding practice of using the notice-and-comment process for interpretive tax rules.”

IRS Won’t Seek Deference

An issue that has plagued the IRS is the use of subregulatory guidance to explain the IRS’s view on how it will apply statutes and regulations; these guidance documents often come in the form of revenue rulings, revenue procedures, notices, and announcements.  Although these documents are supposed to be interpretative and explanatory, in many cases they create new legal obligations and are thus actually legislative in nature.

For example, the IRS used a subregulatory mechanism to announce new “transactions of interest” that captive insurance companies must report to the IRS or face a penalty and enforcement.  This is a classic case of a new law that affects private parties that was slipped through in a policy document, without notice and comment, and which should be invalidated on those grounds.

The IRS now seems to be conceding the issue broadly, although not with regard to the example above, and announced in its policy statement that:

When proper limits are observed, subregulatory guidance can provide taxpayers the certainty required to make informed decisions about their tax obligations.  Such guidance cannot and should not, however, be used to modify existing legislative rules or create new legislative rules.  The Treasury Department and the IRS will adhere to these limits and will not argue that subregulatory guidance has the force and effect of law.  In litigation before the U.S. Tax Court, as a matter of policy, the IRS will not seek judicial deference under Auer v. Robbins, 519 U.S. 452 (1997) or Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), to interpretations set forth only in subregulatory guidance.

This is a positive development, but it remains to be seen whether IRS attorneys really will abide by the constraint when faced with a rule that they’re trying to save in court.  Further, the policy only applies in “litigation before the U.S. Tax Court,” and so will not apply when challenges are brought to federal district court, as many procedural challenges to rulemaking are.  Another limitation of the statement appears to be that the IRS is only forswearing seeking deference to interpretations of subregulatory tax guidance and not other rules that litigants might dispute the IRS has violated, such as the APA or the Regulatory Flexibility Act, which the IRS claims does not apply to nearly all of its rules.

“Good Cause”

One of the APA procedures the IRS sidesteps is providing “good cause” for when interim final rules become immediately effective upon publication.  Treasury and the IRS have decided to now “commit to include a statement of good cause when issuing any future temporary regulations under the Internal Revenue Code.”  This is a good, if minor, change and adherence to general practice used elsewhere in the government.

The biggest issue plaguing the IRS’s compliance with procedural rules that constrain the agency is the Anti-Injunction Act, which prevents many challenges that would clean up the IRS’s lack of compliance.  Unless and until there is a shift in judicial interpretation of that provision or Congress exempts Title 5 challenges to IRS rules, we will continue to see the IRS operate outside the bounds of standard administrative practice.  The IRS’s recent policy statement does nothing to change that.

James Valvo is counsel and senior policy advisor at Cause of Action Institute.

Busted During Sunshine Week: EPA Employees Still Appear to be Using Unauthorized Messaging Applications

Cause of Action Institute Urges Chairman Cummings to Investigate EPA Employees’ Violation of Disclosure & Records Retention Laws

Cause of Action Institute (CoA Institute), a nonpartisan strategic oversight group, sent a letter to U.S. Rep. Elijah Cummings, chairman of the U.S. House Committee on Oversight and Reform (Oversight Committee), on the eve of the committee’s hearing on transparency, to urge Chairman Cummings to investigate government employees using unauthorized messaging applications on their government devices to avoid and/or prevent disclosure, as required under federal law.

“We applaud Chairman Cummings for his commitment to government transparency and urge him to use the powers of his committee to determine why government employees can ignore government policies and federal law and use unauthorized messaging applications that thwart disclosure of government business,” said James Valvo, counsel and senior policy advisor at Cause of Action Institute. “The EPA promised it would clean up its act and eliminate unauthorized apps installed on government devices, but our investigation has found the EPA may have failed to take the necessary action, as a result, these unauthorized apps pose considerable harm to enforcing federal disclosure laws.

By letter, the EPA informed the National Archives and Records Administration (NARA) that as of June 2018, the EPA had “completed its process” of disabling downloads of unauthorized applications subject to two minor exceptions, and removed most previously installed applications. However, CoA Institute uncovered evidence that 62.16 percent of all apps installed on EPA-furnished devices were unapproved applications, including the non-work-related or encrypted messaging applications that violate record retention and disclosure laws.

Cause of Action Institute, by letter, informed Chairman Cummings of this information in order to assist the Oversight Committee’s duty to reign in government abuses. CoA Institute also informed NARA and the EPA Inspector General of the findings.

The letter we sent to Chairman Cummings can be found below.
Background on our investigation can be found here and here.

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Media ContactMatt Frendewey, matt.frendewey@causeofaction.org | 202-699-2018

 

Shining a Light on Agency FOIA Policies that Contradict the Law

Some agencies have regulations that conflict with the Freedom of Information Act (FOIA), which can lead to confusion for officials and the public, as well as the improper withholding of public information.  For instance, a few agencies still base their definition of a “representative of the news media” on language that is outdated and contradicted by both the FOIA statute and judicial authorities.  The old “organized and operated” standard that certain agencies have left in their regulations can be used to deny preferential fee treatment to nascent or non-traditional news media groups, as well as government watchdog organizations like Cause of Action Institute (CoA Institute).  The current statutory definition, by contrast, is meant to broaden the universe of requesters qualifying for the news media fee category.

In Cause of Action v. Federal Trade Commission,  a monumental decision in 2015 that resulted with an appellate court victory for Cause of Action Institute, the U.S Court of Appeals for the D.C. Circuit struck down the Federal Trade Commission’s outdated and narrow definition of a “representative of the news media” and confirmed the current statutory standard.  The FTC had tried to deny CoA Institute its proper fee categorization and a public interest fee waiver.

In March 2018, CoA Institute submitted a comment to the Millennium Challenge Corporation (MCC), a small agency tasked with delivering foreign aid to combat global poverty, on the agency’s proposed rule revising its FOIA regulations.  Among other things, CoA Institute suggested that the MCC correct its definition of a “representative of the news media.” In July of that year, MCC finalized a rule implementing the recommended revisions and taking a step towards effective and transparent oversight.  CoA Institute has had similar success with FOIA reform at other agencies, including the Consumer Product Safety Commission, Office of the Special Counsel, U.S. Department of Defense, U.S. Agency for International Development, and the U.S. Department of Homeland Security.

This is but one example of the work CoA Institute performs to advance government transparency and protect the rights of the American public, taxpayers and our collective ability to hold our government accountable for its actions.

Matt Frendewey is Director of Communications at Cause of Action Institute.