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07/23/2018

Federal Judge Confirms Agencies’ FRA Record Recovery Efforts Must Include Reaching Out to Third-Party Email Providers

Last Friday, Judge Trevor McFadden of the U.S. District Court for the District of Columbia granted the federal government’s second motion to dismiss a lawsuit to compel Secretary of State Mike Pompeo and U.S. Archivist David Ferriero to fulfill their statutory obligations under the Federal Records Act (“FRA”) to recover former Secretary of State Colin Powell’s work-related email records from a personal account hosted by AOL, Inc.  Cause of Action Institute (“CoA Institute”) filed the lawsuit in October 2016 after then-Secretary John Kerry and Archivist Ferriero failed to act on CoA Institute’s FRA notice and Freedom of Information Act (“FOIA”) request.

Although Judge McFadden’s dismissal is a technical defeat, albeit on procedural grounds, CoA Institute’s work in this case, and in another FRA case involving Hillary Clinton, is still a success.  Taken together, these cases have the raised the bar for what federal agencies must do when records go missing.  In future cases, agencies will be required, at the least, to reach out directly to third-party email providers in an attempt to recover work-related email records and may not rely on self-serving statements from agency officials that such records no longer exist.

In the recent motion, the government again sought dismissal on mootness grounds, arguing that Secretary Powell no longer had access to the account he used during his tenure at the State Department and, moreover, it would be “technologically impossible” for AOL to recover any records from its servers.  Correspondence from Secretary Powell and various AOL employees was used to support the government’s claims.  But the agency reached out to Secretary Powell and AOL only after Judge McFadden rejected a similar motion to dismiss in January 2018, holding that there was still a “substantial likelihood,” based on the record, that Secretary Powell’s work-related email could be recovered if the State Department were to leverage the full law enforcement authority of the federal government.  Judge McFadden looked to the Department of Justice’s successful recovery of former Secretary Hillary Clinton’s email from computer hard drives and mobile devices as a guide.

In opposition to the government’s second motion, and in support of its own motion for summary judgment, CoA Institute argued that the government had failed to provide enough evidence to establish fatal loss of the email records at issue, particularly since Secretary Pompeo and Archivist Ferriero continued to refuse to involve the Attorney General in compulsory or forensic recovery efforts.

This time around, however, the judge was convinced that the government had done enough and additional efforts would be “pointless.”  Nevertheless, in future cases, agencies will need to undertake substantial efforts to prove fatal loss, even if that means contacting third-party commercial communications providers to determine the recoverability of records on their servers or networks.

The alienation of federal records will likely continue with the fast-paced development of technology and alternative means of communication within the federal bureaucracy.  CoA Institute is committed to ensuring that the law follows these developments and holds government employees accountable.

Ryan Mulvey is Counsel at Cause of Action Institute.

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07/19/2018

CoA Institute Case Study on the CFPB’s Arbitration Rule: How the Bureau Evaded Scientific Guidelines and Bypassed Peer Review—And How to Fix It

 

Executive Summary

The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) is an agency unlike most any other in the history of the United States.  It possesses untold power over the American people and businesses, and the heft of this power is in a single agency director accountable to no one.  As Judge Kavanaugh of the U.S. Court of Appeals for the D.C. Circuit held in a since-vacated decision, “the Director enjoys more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the President.”[1]

In the Dodd-Frank Act of 2010, Congress delegated to the CFPB the power to regulate, if necessary, mandatory-binding arbitration clauses in consumer financial contracts.  This power came with an important caveat: the CFPB must first conduct a study on the effect arbitration clauses have on consumers, and any regulation promulgated by the agency must be based on that study.  Yet the CFPB already had the goal in mind to regulate and ban these arbitration clauses, driven largely by internal bias and promoted by third-party interests.  Instead of conducting an objective study backed by peer review, the agency sought a pre-determined result, abusing junk science and methodology to get there.  In doing so, it ignored the requirements of the Information Quality Act (“IQA”) and the ensuing Office of Management and Budget (“OMB”) bulletin requiring agency peer review.  This paper examines the failings of the arbitration study and offers solutions to the potential new agency head to ensure future policy is informed by sound science.

Recommendations

The best way to curtail the CFPB’s abuse of junk science is to force the agency to follow the standards contained within the IQA and the OMB peer review bulletin.  If the CFPB were to strictly adhere to the IQA’s standards of data quality—objectivity, integrity, and utility—and conduct rigorous, academic peer review, outcomes like the one detailed in this paper would be avoided.

Cause of Action Institute (“CoA Institute”) recommends that the new CFPB Director, once confirmed, immediately institute rulemaking actions to codify these already-mandatory requirements of the IQA and peer review.  This should apply to all studies or scientific findings released by the agency, whether they undergird a rule or not.[2]  Although the Director could just order agency personnel to follow these directives through a memorandum, that would only be a temporary solution.  Rulemaking under the Administrative Procedure Act (“APA”) would ensure that these science-based requirements have more permanence and apply regardless of who is running the agency five years from now.[3]  Furthermore, the new Director should require, whether through rulemaking or otherwise, that all published scientific findings be accompanied by full disclosure of outside datasets, sources, and lobbying.

Eric Bolinder is Counsel at Cause of Action Institute

[1] PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 7 (D.C. Cir. 2016), vacated on reh’g en banc, 881 F.3d 75 (D.C. Cir. 2018); see Consumer Fin. Prot. Bureau v. RD Legal Funding, LLC, No. 17-890, 2018 WL 3094916, at *35 (S.D.N.Y. June 21, 2018) (“Respectfully, the Court disagrees with the holding of the en banc court and instead adopts Sections I-IV of Judge Brett Kavanaugh’s dissent[.]”).
[2] This, of course, would extend to any scientific findings that are part of a proposed rule.
[3] A future Director could institute rulemaking to reverse the requirements, but that is a cumbersome process subject to judicial review.

 

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07/19/2018

EPA responds to House OGR Democrats, arguing FOIA “sensitive review” originated with the Obama Administration

Earlier this week, Democrats on the House Oversight and Government Reform Committee (“OGR”) released details about how officials from the Environmental Protection Agency (“EPA”) admitted to subjecting politically sensitive Freedom of Information Act (“FOIA”) requests to layers of extra scrutiny, including review by political appointees.  OGR Ranking Member Elijah Cummings even asked Chairman Trey Gowdy to issue a subpoena compelling the EPA to hand over various records documenting its FOIA processes.

Since Cause of Action Institute’s (“CoA Institute’s) coverage of this issue on Monday, there have been two important developments.  First, on Tuesday, Chairman Gowdy denied OGR Democrats their request for a subpoena.  Second, and more importantly, reports have revealed that Kevin Minoli, the EPA Principal Deputy General Counsel and Designated Agency Ethics Official, sent a letter to OGR Democrats on Sunday, arguing that the agency’s sensitive review policies actually originated with the Obama Administration.

According to Minoli, the EPA created a “FOIA Expert Assistance Team,” or “FEAT,” in 2013 to provide “strategic direction and project management assistance” on “complex FOIA requests.”  Minoli explained that a FOIA request could be classified as “complex,” for FEAT purposes, if someone in the agency’s leadership requested it to be so.  FEAT coordinated “White House equities” review and also alerted the Office of Public Affairs, as well as “senior leaders” within the EPA, of particularly noteworthy requests through its so-called “awareness review” process.

The EPA’s latest clarification vindicates CoA Institute’s repeated warnings (here and here) not to let political judgments about the Trump EPA’s policy agenda interfere with understanding and criticism of long-standing problems of FOIA administration, including the politicization that inevitably results from “sensitive review” processes.  To be sure, it appears the Trump Administration has worsened the problem, particularly at the EPA.  But the groundwork for this sort of FOIA politicization was laid by President Obama.  Indeed, Minoli claims OGR’s investigative work during the Obama-era was part of the then-Administration’s impetus for creating FEAT.

Regardless of which party or president is responsible for introducing FOIA sensitive review at the EPA or any other agency, the practice still raises serious concerns.  Although alerting or involving political appointees in FOIA administration does not violate the law per se—and may, in rare cases be appropriate—there is never any assurance that the practice will not lead to severe delays of months and even years.  At its worst, sensitive FOIA review leads to intentionally inadequate searches, politicized document review, improper record redaction, and incomplete disclosure.  When politically sensitive or potentially embarrassing records are at issue, politicians and bureaucrats will always have an incentive to err on the side of secrecy and non-disclosure.

Considering these developments, CoA Institute has submitted a FOIA request to the EPA seeking further information about FEAT and the agency’s sensitive review policy.  We will continue to report on the matter as information becomes available.

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

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07/17/2018

CoA Institute Moves for Summary Judgment in TABOR Case Challenging Hospital Tax

Cause of Action Institute has moved for summary judgment asking the Colorado state district court to rule that, as a matter of law, Colorado violated the Taxpayer’s Bill of Rights (TABOR) and other constitutional provisions when it levied $4.5 billion in hospital taxes without a vote of the people.

TABOR requires that the state legislature obtain Coloradans’ consent before it raises taxes. This constitutional amendment was approved by the voters in 1992 and it continues to be a leading issue in election races statewide.  It was designed not only to restrain the growth of government, but also to give Coloradans a voice when lawmakers attempt to reach into their pockets. Yet since its passage, legislators and governors of both parties have consistently refused to ask voters for more money. Instead, they use convoluted tactics to avoid using the ballot to raise taxes. Some of these tactics include mortgaging state buildings, eliminating tax breaks, and trying to disguise tax increases as fees administered by “enterprises,” state-run entities whose revenues do not count towards TABOR’s revenue cap.

This practice might make it easier for legislators to spend, but it runs contrary to the will of the voters, of whom only 26% disapprove of TABOR. And there is little reason to believe that voters will never approve a tax increase; a ballot measure in 2015 allowing the state to keep $67 million it had over-collected won with wide voter support.

In 2009, as the Affordable Care Act neared passage, the legislature enacted a hospital provider tax, which exploits the federal Medicaid fund-matching scheme to draw down more money to the state. Normally, when a state reimburses a health care provider who gives medical services to a patient who can’t afford healthcare, the federal government matches some percentage of those costs. But with the hospital provider tax in place, the hospital’s costs are artificially increased. When reporting that cost to the federal government, the state then receives matching funds for the inflated price of healthcare, rather than the actual cost to the hospital.

This scheme doesn’t just amount to quasi-money laundering – it also creates perverse incentives for hospitals, who might not choose the most cost-effective care, and legislators, who use Medicaid expansion to fill state coffers.

The scam worked well for the better part of a decade, but in 2016, the state was facing a budget crunch; the newest round of taxes was expected to take Colorado’s revenue collection past the TABOR cap, and it seemed likely that the governor would have to cut funds to higher education or transportation, an essential budget item in a snow-heavy state like Colorado. The governor could have instead cut the fee on the hospitals, but that would have decreased the federal matching funds.

Rather than send a revenue increase to voters for permission, as TABOR requires, the legislature and the governor instead passed SB 17-267, subtitled “Concerning the sustainability of rural Colorado.” The bill, among other things, set up the Colorado Healthcare Affordability and Sustainability Enterprise (CHASE). As with many of Colorado’s enterprises, CHASE was an attempt by the state legislature to avoid its duties under TABOR. To exempt the hospital provider tax from the TABOR revenue cap, the legislature threw an ill-fitting “enterprise” label onto the administration of the tax and the federal matching funds.

In response to this attempt to dodge accountability to the public, the TABOR Foundation, a non-profit educational organization whose mission is to protect TABOR, sued CHASE and the Colorado Department of Health Care Policy and Financing in 2015. According to Penn Pfiffner, President of the TABOR Foundation:

“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.”

The Foundation argues that the Hospital Provider Charge was a tax that had been levied without the requisite TABOR vote, and that CHASE is an illegal enterprise because its fees are not charged to hospitals based on services provided.

Recently, Cause of Action Institute took on the representation of the TABOR Foundation and the other plaintiffs in the case and will request summary judgment from the Colorado district court. Hopefully, this suit at minimum will indicate to lawmakers that the state might find tax policy to be less onerous (and litigious) if, next time, they simply follow their state constitution and ask voters for permission.

Yesterday’s motion for summary judgment can be viewed here.

Jake Carmin is a law clerk at Cause of Action Institute.

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07/16/2018

EPA Chief of Staff describes agency’s sensitive review process for “politically charged” FOIA requests

Democrats on the House Oversight and Government Reform Committee (“OGR”) revealed new details last week about the processing of politically sensitive Freedom of Information Act (“FOIA”) requests at the Environmental Protection Agency (“EPA”).  According to The Hill, Ryan Jackson, Chief of Staff to former Administrator Scott Pruitt and current Acting Administrator Andrew Wheeler, explained to “congressional investigators” how “‘politically charged’ or ‘complex’ requests . . . get an extra layer of review before being fulfilled, likely delaying” production of requested records.  Jackson specifically discussed how the EPA determined that one Sierra Club FOIA request—described as a “fishing expedition”—was improperly broad.  Other requests were delayed so that the disclosure of responsive records could “coincide with similar releases.”  This politicization also benefitted requesters sympathetic to the Administration; one request from the National Pork Producers Council was “expedited” due to Jackson’s intervention when he set up a meeting with EPA policy officials.

Reports about FOIA politicization at the EPA are not new.  At the beginning of May 2018, Politico reported that “top aides” had leaked internal emails showing the role of officials within the Office of the Administrator in reviewing “documents collected for most or all FOIA requests regarding [Pruitt’s] activities[.]”  The apparent aim of this “sensitive review” was to limit the release of embarrassing or politically damaging records.  House Democrats at OGR stepped into the game in early June 2018, demanding various records concerning the EPA’s policies for implementing the FOIA.  To date, the agency has pointed only to publicly available records, thus prompting Ranking Member Elijah Cummings to ask Chairman Trey Gowdy to exercise his subpoena authority and compel a substantive response.  (Incidentally, the EPA has previously ignored congressional records requests about FOIA politicization, as we explained in May 2014.)

The entire transparency community should be concerned over the heightening of sensitive review at the EPA.  But it also is important to keep politics from clouding our understanding and criticism of the practice.  As I wrote in May 2018:

It is true that the Trump Administration has enhanced sensitive review processes at the EPA.  Other agencies have witnessed a similar expansion of sensitive review, as Cause of Action Institute’s investigation of the National Oceanic and Atmospheric Administration demonstrates.  But it would be a mistake—as I argued last December—to think that the Obama White House was any better at avoiding FOIA politicization.  The EPA has a long and terrible track record for anti-transparency behavior.  Consider the agency’s blatant weaponization of fee waivers.  According to data compiled by the Competitive Enterprise Institute, and reported by Reason and The Washington Examiner, the Obama EPA regularly denied public interest fee waivers to organizations critical of the agency’s regulatory activities and the White House’s policy agenda.  By contrast, left-leaning groups nearly always (92% of the time) received fee waivers.

Sensitive review, along with other forms of FOIA politicization, such as “White House equities” review, is a cherished tradition for both the Left and the Right.  Regardless of which party controls the Executive Branch, the natural tendency will always be to keep embarrassing or politically sensitive records out of the hands of the public and—most especially—the news media.  Cause of Action Institute itself was regularly subject to “sensitive review” during President Obama’s tenure, and we continue to be singled out for “special” treatment under President Trump, as records from the Federal Aviation Administration have shown.  Regardless, we remain committed to exposing the practice of sensitive review and advocating for reform to combat all FOIA politicization.

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

 

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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 10th 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 10th 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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