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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

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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11/3/2017

President Trump to appoint a new watchdog for the Intelligence Community

As we have argued previously, one of the most troubling aspects of President Obama’s legacy was his failure to nominate permanent Inspectors General (“IGs”) at many agencies across the federal government.  Without presidentially-appointed, Senate-confirmed leadership, there is always a real danger that IG offices will lack the necessary commitment to transparency and accountability in government.  As Senator Ron Johnson has commented, “acting” IGs—who are typically career civil servants—risk being “not truly independent [because] they can be removed by the agency at any time; they are only temporary and do not drive office policy; and they are at greater risk of compromising their work to appease the agency or the president.”

When President Obama left office, twelve agencies lacked an IG.  Since taking office, President Trump has steadily moved to remedy this dearth of leadership.  Last month, we praised the President for nominating five individuals to some of these watchdog vacancies.  Now, we can sound another note of accomplishment following the White House’s announcement today that it intends to name Michael Atkinson as Inspector General of the Intelligence Community.  Although this post only became vacant shortly after President Trump took office—the former IG, Charles McCullough, retired in March 2017—it is a vital one, particularly in the current political climate.  Mr. Atkinson, who studied law at Cornell University, currently serves as the Acting Deputy Assistant Attorney General for the Department of Justice’s National Security Division.  He previously worked in the Department’s Fraud and Public Corruption Section.

We reiterate our hope that the White House will continue its efforts to find IGs for all current vacancies, such as those at the Department of Defense, the Department of Energy, and the Department of Housing and Urban Development.  The Department of the Interior, sadly, continues to lack a permanent IG since the previous watchdog left office 3,175 day ago.  These large agencies have substantial budgets, and presidentially-appointed IGs will provide an important internal check on waste, fraud, and abuse.

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

 

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11/3/2017

Federal Records Law Must Keep Pace with Evolving Technology

Technology develops faster than law.  This maxim has implications across society, but one place it has particular purchase is in federal recordkeeping and the public’s right to access government information.  The two primary federal statutes that require government to preserve records and then allow the public to access those records are the Federal Records Act (“FRA”) and the Freedom of Information Act (“FOIA”).  Federal agencies, unfortunately, do not always live up to their obligations under these laws and government-oversight organizations turn to the courts to seek relief.  The public’s right to sue under the FOIA is well established.  However, courts rarely compel agencies to fulfil their FRA obligations.  My organization, Cause of Action Institute (“CoA Institute”), is currently involved in two important FRA lawsuits that may shape the future of agency obligations under the FRA for decades to come, as information technologies continue to change.

Both lawsuits arose from Secretaries of State failing to preserve their emails in compliance with the Federal Records Act.  Former Secretary Hillary Clinton’s email travails are well catalogued.  But former Secretary Colin Powell also used a non-governmental email account to conduct official government business.  The factual difference between these two cases is that while Secretary Clinton primarily used a personal email service with a server in her basement, Secretary Powell used an AOL account.  But Secretary Clinton also used a BlackBerry email account for the first two months of her tenure as Secretary of State.  So, from these two cases the same legal issue arises: what is an agency’s FRA obligation to recover unlawfully removed federal email records that are housed on commercial email servers?

This question is important to the future of federal recordkeeping law and public access to information because we are already seeing an explosion of non-email methods of electronic communication.  Some of these methods of communication store information locally, such as on a phone or computer, and some store them on commercial servers.  For example, FOIA requesters have been battling for access to text messages for years, agency employees use various forms of instant messaging while at work, and we’ve now seen the rise of the surreptitious use of phone applications such as Signal and Confide that do not always preserve the communications.

In Armstrong v. Bush, the D.C. Circuit recognized two cognizable private rights of action under the Federal Records Act.  First, a plaintiff may bring a case against an agency if that agency does not have the requisite recordkeeping policies in place or if the policies are insufficiently clear so that an employee does not know what type of records he is required to save.  Second, a plaintiff may bring a case to compel the head of an agency or the Archivist of the United States to recover records that have been unlawfully removed from the agency.  If the agency head or Archivist is either unable or unwilling to perform that duty, then the FRA requires them to “initiate action through the Attorney General for the recovery” of those records.  To our knowledge, no such referral to the Attorney General has ever occurred.

At stake in CoA Institute’s Clinton and Powell cases is whether a plaintiff can force the agency head and Archivist to refer the matter to the Attorney General when, through their own actions, they have failed to recover all the missing records.  In both cases the State Department asked representatives of Secretaries Clinton and Powell to recover the unlawfully removed records and return them to the agency for historical preservation and for response to FOIA requests.  In both cases those representatives responded that they were unable to obtain copies of the records that were housed on BlackBerry and AOL servers, respectively.  The State Department and Archivist have responded in the ongoing suits that those efforts are sufficient and that they are not required to use legal process or refer the matter to the Attorney General for more forceful efforts at record recovery.

CoA Institute’s case related to Secretary Clinton has already been to the D.C. Circuit once and the appellate court held that the agency is only absolved of its Federal Records Act obligations if it can establish the “fatal loss” of the records in question.  The State Department and Archivist have not made a sufficient affirmative showing that BlackBerry, and AOL in the case of Secretary Powell, do not have, and cannot recover, these email records.  They have offered no statements from either company or detailed efforts by those companies to recover and return the federal records.

Whether the district court compels the current Secretary of State and Archivist to make such an affirmative showing or requires them to refer the matter to the Attorney General for him to attempt record recovery could set an important precedent.  This decision will shape the future of agency responsibilities under the Federal Records Act and the public’s ability to have access to its government’s information as communications technology continues to change.

James Valvo is counsel and senior policy advisor at Cause of Action Institute.  He is counsel in both cases discussed in this article.  You can follow him on Twitter @JamesValvo.

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11/2/2017

CoA Institute Urges Supreme Court to Hold EPA to Task

Section 321(a) of the Clean Air Act contains an explicit requirement that the Environmental Protection Agency (“EPA”) conduct “continuing employment evaluations” related to Clean Air Act implementation or enforcement.  What this means is that the EPA needs to continually do an analysis of how many jobs will be lost, if any, including whenever it considers new regulations.  This allows the EPA, Congress, and the public as a whole to evaluate whether the loss in American jobs is worth the overall benefit to American lives.  If a regulation, for example, has virtually no impact on environmental well-being, but would cost 30,000 jobs, a rational person would conclude the benefits of the regulation simply aren’t worth the cost.

Of course, most analyses are never this clear cut, which is why we need solid science and transparency from the EPA.  And that’s why Congress required it.  As we detail in our brief, EPA administrations past and present have confessed to not conducting these studies.  Similar requirements extend to a number of other environmental statutes and, to the knowledge of Cause of Action Institute, the EPA has only conducted one such study in the past three decades.  Very recently, the EPA publicly admitted this and indicated its willingness to finally comply, but hasn’t yet released any specifics.

The Murray Energy case centers on employment evaluations required under the Clean Air Act.  A federal court in West Virginia ordered the EPA to comply with the statutory mandates of Congress, castigating the agency for its willful disobedience.  The Fourth Circuit, however, sided with the EPA and ruled that Congress’ edict was too murky to be viewed as “mandatory” and was thus “discretionary.”

Murray Energy has asked the Supreme Court to reverse the court below, and Cause of Action submitted an amicus brief supporting this effort.  Our brief makes the following point: Congress specifically said that the EPA shall conduct the continuing employment evaluations.  Not may, or if something happens, or if the EPA deems it expedient, but shall.  The Fourth Circuit effectively read the mandatory language out of the statute, denying Murray Energy relief because the Circuit court believed it was too complicated to enforce.   That’s not how mandates work. We’re hopeful the Supreme Court will agree, grant review of the case, and reverse the Fourth Circuit’s error.

Eric Bolinder is Counsel at Cause of Action Institute

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