close X
07/18/2017

Watchdog Exposes IRS Record Management Failures

The Treasury Inspector General for Tax Administration (“TIGTA”) released an important report yesterday that detailed the Internal Revenue Service’s (“IRS”) inconsistent and inadequate records retention policies over recent years. The audit had been requested in March 2016 by the House Committee on Ways and Means.  TIGTA, the IRS’s watchdog, concluded that the agency had failed to “comply with certain Federal requirements that agencies must ensure that all records are retrievable and usable for as long as needed.”  In other words, TIGTA took the IRS to task for having ignored the requirements of the Federal Records Act (“FRA”) and the Freedom of Information Act (“FOIA”).

Consider some highlights from the report:

  • “The IRS’s current e-mail system and record retention policies do not ensure that e-mail records are saved and can be searched[.]”
  • “[R]epeated changes in electronic media storage policies, combined with a reliance on employees to maintain records on computer hard drives, has resulted in cases in which Federal records were lost or unintentionally destroyed.”
  • “Interim actions taken by the IRS while developing an upgraded e-mail solution do not prevent loss of e-mail records.”
  • The IRS’s “interim e-mail archiving policy for executives” was “not implemented effectively because some executives”—including four members of the Senior Executive Team—did not properly configure their e-mail accounts . . . and the IRS did not have an authoritative list of all executives required to comply with the interim policy.”
  • “Policies requiring the IRS to document search efforts [under the FOIA] were not followed for some cases.”
  • “The IRS does not have a consistent policy to search for records from separated employees.”

TIGTA’s report offers countless examples of how not to comply with federal law.  Yet none of the details are terribly unexpected.  Ever since the Lois Lerner Tea Party targeting scandal broke in 2013, the IRS has been grilled for its shoddy records management.  Cause of Action Institute’s oversight of the agency revealed, for example, that the IRS used to delete BlackBerry messages after only fourteen (14) days because of “routine system housekeeping” and “spacing constraints.” More egregiously, the IRS intentionally failed to capture, preserve, or retain instant messages created on its Microsoft Office Communications Server (“OCS”) platform because of a contractual agreement with the National Treasury Employees Union.  That “memorandum of understanding” sought to “enhance employee work environments and allow employees to more effectively and efficiently collaborate with their colleagues.”  In other words, the IRS had no systemic means of assuring that employees’ communications on OCS were not records subject to the FRA or the FOIA and, if they were, that they were appropriately retained and retrievable.  Our lawsuit against the IRS helped push the agency to implement a new records management system for text and instant messages in line with the requirements of the law.  Unfortunately, as the TIGTA report demonstrates, the agency still falls short with respect to its management of email records.

It is also unsurprising—but still deeply troubling—that TIGTA concluded the IRS “did not consistently ensure that potentially responsive records” were identified, searched, and produced in response to FOIA requests. CoA Institute frequently litigates with the IRS over requests that go unanswered for months.  The fight usually boils down to a disagreement over the adequacy of the agency’s search.  Regrettably, courts give agencies a great deal of deference in justifying the reasonableness of their searches, even when a declarant fails to provide sufficiently specific information about how a search was conducted.  In some of our cases, IRS FOIA officers have merely asked senior employees whether potentially responsive records exist and then called it a day.  That’s unacceptable.  The onus is now on the IRS to make improvements, and it is for Congress and taxpayers to ensure those improvements are made.

Ryan P. Mulvey is Counsel at Cause of Action Institute

Media, Blog Learn More
07/14/2017

CFPB’s Woeful Defense of its Final Arbitration Rule

The Consumer Financial Protection Bureau (“CFPB”) has taken steps to finalize its long-awaited disaster of a rule that would ban certain arbitration clauses in consumer finance contracts. This will severely harm economic liberty and cause banks to shift excess costs on to consumers, apparently all to benefit an elite group of plaintiffs’ lawyers eager to file massive class actions and pocket huge attorneys’ fees.

Cause of Action Institute (“CoA Institute”) has written extensively on this, including submitting a regulatory comment during the rule’s open period. In its final rule, CFPB responded to CoA Institute’s comments directly. For example, we detailed precisely how CFPB ignored the requirements of the Information Quality Act (“IQA”), which requires that agencies disseminate only “quality” information that meets Office of Management and Budget (“OMB”) defined standards of “objectivity, utility, and integrity.”  Furthermore, we alleged that CFPB failed to conduct a peer review of the study, as required by OMB.  In its final rule, CFPB writes:

One nonprofit commenter challenged the Bureau’s Study for its alleged failure to comply with the requirements of the Information Quality Act and a related OMB bulletin, asserting that the Study should have undergone a rigorous, transparent peer review process to ensure the quality of the disseminated information.

CFPB’s answer to our comment is vapid and incomplete:

In response to concerns about the Bureau’s compliance with the Information Quality Act, the Bureau did comply with the IQA’s standards for quality, utility, and integrity under the IQA Guidelines.

The footnote CFPB placed at the end of this sentence, which one assumes would support the Bureau’s assertion, merely links to the agency’s IQA guidelines website. CFPB makes no effort to answer CoA’s detailed criticisms or explain why the Bureau’s study met objectivity, utility, and integrity standards.  One is left to draw the inference that CFPB simply has no defense for the glaring vulnerabilities in the Arbitration Study.  The Bureau’s only play is to blindly link to IQA guidelines and hope we take their word for it.

CFPB put similarly little effort into responding to our allegations regarding peer review.

Moreover, the Study did not fall within the requirements of the OMB’s bulletin on peer review, contrary to what the commenter suggested. The bulletin applies to scientific information, not the “financial” or “statistical” information contained in the Study. The Federal financial regulators, including the Bureau, have consistently stated that the information they produce is not subject to the bulletin.

In our initial comment, CoA Institute anticipated CFPB might make this argument:

CFPB may be claiming [an exemption from the peer review rules] under the authority of Section IX of the OMB Peer Review Bulletin, which finds that “accounting, budget, actuarial, and financial information, including that which is generated or used by agencies that focus on interest rates, banking, currency, securities, commodities, futures, or taxes[]” are exempt from peer review. However, neither the Arbitration Study nor the proposed regulations fall under any of these categories. It is a social and behavioral study—concentrating not only on award numbers, but also consumer preference and awareness.

Essentially, the CFPB appears to be playing games of semantics, differentiating “financial” information from “scientific” information. As anyone who has a degree in economics knows—such as this author—it is very much a science.  The agency cannot be allowed to wriggle out of an important peer-review requirement by simply stretching dictionary definitions.

Furthermore, even if CFPB were not required to conduct a peer review, why wouldn’t they? If the CFPB is as confident in its results as it seems to be, why not bolster the study’s integrity by having outside academics go through the very routine peer review process?  This lends credence to the idea that this study was rigged from day one to get to a pre-determined result: arbitration is bad.

CFPB attempted to sow confusion regarding what peer review is and how it is conducted:

Although the Bureau did not engage in formal peer review, it did include with its report detailed descriptions of its methodology for assembling the data sets and its methodology for analyzing and coding the data so that the Study could be replicated by outside parties. The Bureau is not aware of any entity that has attempted to replicate elements of the Study; to the extent that the Bureau’s analysis has been reviewed by academics and stakeholders those individual critiques are addressed above. The Bureau has monitored academic commentary in addition to the comments submitted and continues to do so.

This is not an adequate substitute for the OMB required peer review. CFPB appears to be shifting the blame on outside groups for not “replicating” the study.  This is something the agency could have and should have coordinated on its own.

CFPB appears to know its study has glaring weaknesses that threaten the integrity of its final rule. Remember, Dodd-Frank requires that any arbitration rule be “consistent” with the underlying study. If the study is bad, so is the rule.

This rule threatens economic freedom and is based on a rigged study that used junk data and methodology. Whether through litigation, legislation, or a new rulemaking, it must go.

Media, Blog Learn More
07/6/2017

Is NOAA deleting records? CoA Institute sues for important communications about fisheries regulation

In passing the Freedom of Information Act (“FOIA”) and the Federal Records Act, Congress intended for internal agency communications to be logged and, in many cases, retrievable under the FOIA.  Attempts by agencies and officials to evade such transparency violate the core principles of government accountability and recently resulted in a highly publicized scandal that enveloped Secretary Hillary Clinton’s campaign for president.

So in the wake of the Clinton e-mail scandal, have agencies learned their lesson?  For the National Oceanic and Atmospheric Administration (“NOAA”), this doesn’t appear to be the case.  Cause of Action Institute (“CoA Institute”) recently submitted multiple FOIA requests for NOAA’s records retention policies and internal communications from the time period surrounding the recent New England Fishery Management Council (“NEFMC”) meetings.  In addition to asking for emails, CoA Institute also requested Google Chat/Google Hangout (“GChat”) records.

Anyone who regularly uses G-Mail is familiar with GChat and its “off the record” feature, which disables message logging.  Unfortunately, a 2012 NOAA memo indicates that NOAA enabled the “off the record” feature agency-wide.  There’s no indication that NOAA is using any other method to log these communications.  This likely violates the Federal Records Act and frustrates public efforts to file FOIA requests seeking to better understand government decision-making.

CoA Institute is interested in the communications between NOAA officials during the recent NEFMC meetings.  These meetings were important because, at their conclusion, the NEFMC voted to adopt an amendment that would extend coverage of “at-sea monitors” on the fishing industry.  This could have devastating effects on the ability of small-boat fishermen to continue to pursue their livelihoods.  This amendment now goes to the Secretary of Commerce for his approval, and it is critical that the public understand the thought process used by NOAA to get this result, which would be revealed by reading its internal communications.

NOAA’s response to CoA Institute’s FOIA request was unusual.  First, it declared the request was non-billable, meaning CoA Institute would not need to pay fees for compiling the information.  This is appropriate given both the public interest in these records and CoA Institute’s status as a news media requester organization.  NOAA later rescinded its non-billable determination and demanded CoA Institute submit more information relevant to the fee waiver request.  CoA Institute did so, but, to date, NOAA has not responded.  In our letter, we express concern with how NOAA is handling this request:

If NOAA is concerned that records responsive to this request will cast the agency in an unflattering light or reveal that its recordkeeping practices are in violation of law, it cannot weaponize fee waivers to prevent disclosure. To do so would not only be a violation of the law, but it would strike a grave blow to transparency.

With today’s lawsuit, NOAA has no choice but to produce the requested records.  If the agency is unable to locate any GChat records because they were improperly deleted, NOAA must publicly admit this, immediately take steps to recover the records, and change its policies for future record retention to comply with the law.

Eric Bolinder is Counsel at Cause of Action Institute.

Media, Blog Learn More
07/6/2017

The White House Should Follow Arizona Governor Ducey’s Lead and Implement an Online Portal Where Americans Can Suggest Regulations to Eliminate

On January 9, 2017, Arizona Governor Doug Ducey announced a new program designed to reduce outdated and burdensome regulations and to promote economic growth and job creation. His goal is to eliminate 500 regulations by the end of 2017.  To achieve this goal, Governor Ducey created a website—RedTape.AZ.Gov—where Arizonans can “crowdsource” recommendations on which regulations should be eliminated and submit those recommendations directly to the governor’s office.[1]  The website provides an easy, streamlined way for citizens to assist in the regulatory reform of their state.  This approach recognizes and honors what F.A. Hayek called the knowledge problem, that is, that the information necessary to make informed and efficient decisions is decentralized and that the top-down model is doomed by its arrogance.

President Trump’s White House should follow suit if it is serious about reducing the strain old regulations put on the country. President Trump issued Executive Order 13,777 on February 24, 2017, which requires that agencies designate a Regulatory Reform Officer (RRO) to implement a regulatory-reform agenda that implements, inter alia, Executive Order 13,771, which requires agencies to remove two regulations for each new one they issue.[2]  Neither of those orders contain a way for ordinary Americans to provide transparent input into this important process.  Several agencies have decided to open public-comment periods so that stakeholders and the public can provide input, but this approach leaves the comments scattered by agency and makes it difficult to aggregate.[3]  In addition, not every agency has decided to offer a public-comment period, leaving ordinary Americans without a voice.

The White House subsequently issued Executive Order 13,781 on March 13, 2017.[4]  This order created a website that allowed the public to submit comments on ways to optimize and reorganize the federal government.  While Executive Order 13,781 is a step in the right direction, it contains two fatal flaws.  First, the comment period closed on June 12, 2017 when it should be kept open permanently.  Second, the White House said it received over 100,000 comments during the comment period, but those comments are not available to the public.[5]  Cause of Action Institute submitted a FOIA request to the Office of Management and Budget, which administered the website, seeking access to those comments.[6]  Even though that request is still pending, the White House can take immediate steps to launch an improved website.

To foster and promote transparent regulatory reform, Cause of Action Institute recommends the White House launch a new website devoted to receiving recommendations from the public.  The recommendations could then automatically be forwarded to each agency’s RRO.  To ensure a transparent comment process, the recommendations should be accessible to the public and easily searchable by agency, topic, regulation identifier number, and other filters.  The website could foster public discourse by allowing the public to upvote or downvote comments, respond to specific comments, and suggest related regulations to comment on.  Finally, the website should not have a deadline for submissions but instead permanently allow Americans to make recommendations to reform the administrative state.  By providing a central, permanent website for submitting and reviewing recommendations, the White House can achieve its regulatory reform agenda more efficiently and promote accountability while ensuring that all Americans have a voice in the process.

Travis Millsaps is counsel at Cause of Action Institute.

[1] Press Release, Gov. Doug Ducey, Governor Ducey Announces RedTape.AZ.Gov (January 9, 2017), https://azgovernor.gov/governor/news/2017/01/governor-ducey-announces-redtapeazgov.

[2] See Exec. Order No. 13,777, 82 Fed. Reg. 12285 (Mar. 1, 2017), https://www.whitehouse.gov/the-press-office/2017/02/24/presidential-executive-order-enforcing-regulatory-reform-agenda; Exec. Order No. 13,771, 82 Fed. Reg. 9339 (Feb. 3, 2017), https://www.whitehouse.gov/the-press-office/2017/01/30/presidential-executive-order-reducing-regulation-and-controlling.

[3] See Evaluation of Existing Regulations, 82 Fed. Reg. 17793 (proposed April 13, 2017), available at https://www.regulations.gov/document?D=EPA-HQ-OA-2017-0190-0042.

[4] See Exec. Order No. 13,781, 82 Fed. Reg. 13959 (Mar. 16, 2017), https://www.whitehouse.gov/the-press-office/2017/03/13/presidential-executive-order-comprehensive-plan-reorganizing-executive.

[5] See Reorganizing the Executive Branch, The White House, https://www.whitehouse.gov/reorganizing-the-executive-branch (last visited June 29, 2017).

[6] Press Release, Cause of Action Institute, White House Should Release 100K Public Comments on Reforming Government (June 19, 2017), https://causeofaction.org/white-house-release-100k-public-comments-reforming-government/.

Media, Blog Learn More
06/30/2017

LabMD and the FTC–Rough Day for the Government

On January 21, 2017 LabMD v. FTC, a case where we here at Cause of Action Institute weighed in with a friend of the Court brief on behalf of affected medical professionals [see brief here], was argued.  You should listen to it here.

CoA Institute also represented LabMD in the FTC proceedings and in collateral federal court actions seeking to halt the FTC’s administrative prosecution in the U.S. District Court for the Northern District of Georgia and in the U.S. Court of Appeals for the Eleventh Circuit. The arguments made here, and seemingly grasped by the 11th Circuit at oral argument, have been made by CoA Institute for quite some time.  This case was heard before three experienced jurists Gerald B. Tjoflat, Charles R. Wilson and Senior U.S District Court Judge Eduardo C. Robreno. (Interestingly, Judge Robreno is within the Third Circuit but sat on the 11th here).

Suffice to say it was not a good day for the ham-handed actions of the FTC in this case. The Court focused on the fact there appeared to be no harm to anyone from the action sued upon.  “A tree fell and nobody heard it, that’s the case we have here,” said Judge Tjoflat (if my memory for voices is accurate).  A nice summary of some of the more pungent comments from the bench were listened to, are found in Westlaw, and transcribed here:

“Counsel, let me put it this way. What the aroma that comes out of this case is that Tiversa was shaking down private industry with the help of the FTC, with the threat of going to the FTC. If you don’t cooperate, we will go to the FTC. It may well be how they got some of their clients…

“That’s an aroma, with falsifications to the commission. The administrative law judge just shredded Tiversa’s presentation, just totally annihilated it.”

In this case, the FTC with no consumer complaints, and no evidence of injury, and with no prior standards issued by the FTC for data security, put a company many physicians relied upon completely out of business. This is so even though the medical privacy act embodied by HIPAA was not violated.

The FTC relied on false information from Tiversa. “Oh, Come on!” said Judge Tjoflat responding to the assertion the FTC did not rely on that information to prosecute the matter.   Their own ALJ heard the facts (presented by CoAI) and destroyed the case and the Commission just overruled it; an appeal to Power and not Reason.  Judge Wilson specifically asked how LabMD would know it’s procedures would violate any standard.

The 11th Circuit already stayed the FTC Order with an Order of its own that bodes ill for Government.  Now we have this oral argument where the FTC was completely friendless.

Douglas Meal of Ropes & Gray, who argued the matter for LabMD, deserves kudos for a job well done. as does the rest of the Ropes & Gray team.  I will also note that Patrick Massari and Michael Pepson did a splendid job on the amicus brief which argument was also mentioned by the Court.

John J. Vecchione is President and CEO of Cause of Action Institute.

Blog, Media Learn More
06/28/2017

Supreme Court to Hear Case on Obstruction of the Tax Code

The Supreme Court this week announced that it will hear the case of Carlo Marinello, II v. United States next fall.  The Supreme Court granted Mr. Marinello’s petition for a writ of certiorari after considering it in conference on June 26, 2017, the Court’s last day of the summer session.  Cause of Action Institute filed an amicus curiae brief in support of Mr. Marinello’s petition, urging the Supreme Court to hear the case to address the Second Circuit’s expansive reading of a tax statute that could be interpreted to criminalize routine conduct of everyday American taxpayers and business owners.

Mr. Marinello owned a small courier service in New York. In 2012, the United States obtained an indictment against him under 26 U.S.C. 7212(a)’s “omnibus clause” of the criminal tax code, which makes it a felony to “in any other way corruptly…obstruct [] or impede [] or endeavor to obstruct or impede, the due administration” of the tax code.  The government argued that Mr. Marinello could be guilty of corruptly obstructing or impeding the administration of the tax code by performing acts as common as failing to maintain books and records for his small business, failing to provide his accountant with complete information, and discarding business records, all because he did these acts with the goal of not paying taxes.  However, the tax code already outlaws tax evasion, and it requires that the government prove a heightened criminal intent—that the defendant acted “willfully.”  The Sixth Circuit, in order to cabin its expansive language, has held that an individual must have knowledge that his or her conduct is obstructing an ongoing IRS investigation in order to be found guilty under the omnibus provision.  The Second Circuit and other courts of appeals have interpreted the language much more broadly, however, causing a circuit split.

Cause of Action’s amicus curiae brief highlighted the importance of preserving mens rea, or “guilty mind” requirements and the need for our criminal code to clearly inform people about what is, or is not, illegal.  As Judge Jacobs wrote in his dissent from the rest of the judges on the Second Circuit, “if this is the law, nobody is safe.”  Cause of Action hopes that the Supreme Court will cabin the omnibus clause as the Sixth Circuit has done and intends to file a new amicus curiae brief at the merits stage.  You can check out our prior blog post on this case here.

Erica Marshall is counsel at Cause of Action Institute.

Media, Blog Learn More
06/26/2017

Cause of Action Institute Joins Broad Coalition Urging Congress to Reject New FOIA Exemption

Cause of Action Institute has signed a joint letter with dozens of groups from across the ideological spectrum urging the Chairmen and Ranking Members of the Senate and House Committees on Armed Services to oppose a Department of Defense (“DOD”) measure that could undermine the Freedom of Information Act’s (“FOIA”) goal of government transparency and accountability through a new FOIA exemption.

The DOD proposal would use the FY2018 National Defense Authorization Act to exempt from disclosure “information on military tactics, techniques, and procedures, and of military rules of engagements.” This proposal represents an effort by the Pentagon – the largest executive branch agency with the largest discretionary budget – to create a FOIA exemption that, if applied broadly, could hide much of the information and documents it creates.

This proposal is both procedurally problematic and unnecessary by DOD’s own practices, and the changes were proposed without the robust consideration and input of the committees with jurisdiction over FOIA. To date, no one has identified a disclosure of information that should not have occurred and that would be protected by this new language. DOD already has authority to withhold classified as well as unclassified information under FOIA for a variety of reasons. The proposed measure would give DOD license to further stretch its ability to shield documents from the public, which could be used to conceal information about matters of compelling public interest, such as the military’s oversight of contractors. This proposal would broaden a very narrowly drawn existing Exemption 3 statute. The risk in exempting more materials from disclosure does not appear to be justified in this case.

Cause of Action Institute shares DOD’s goal of ensuring that information that needs to be withheld for national security purposes is not disclosed.  However DOD’s most recent proposal is not the way to do so.

Media, Blog Learn More