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05/10/2019

Cause of Action Institute at D.C.’s 2019 Small Business Expo

Yesterday, Cause of Action Institute (CoA Institute) joined hundreds of small business owners and entrepreneurs at the 2019 Small Business Expo in Washington D.C. CoA Institute has long been an advocate for protecting the economic rights and freedoms of small businesses, and connecting with stakeholders at this event proved this fight is still as important as ever.

We have previously represented clients from various industries who have been impacted by burdensome regulations, and the people we connected with at the Expo continued to be representative of the diverse fields and industries impacted by these policies. We spoke with people who own businesses in fields such as healthcare, beauty, finance, and tech who all claim that regulations from several government agencies negatively impact their ability to grow or operate their business. Barriers created by issues such as unnecessary occupational licensing requirements hinder many small businesses, and the attendees at the Expo were no exception to these harms.

Small business owners represent some of the greatest examples of the economic opportunities available to Americans. However, costly and excessive regulations far-too-often limit the potential for many of these entrepreneurs. Government regulations should support and promote entrepreneurial endeavors and innovative operations, and CoA Institute will continue to fight against regulations that thwart these opportunities.

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

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04/26/2019

Auto-Tariff Investigation Sets Dangerous Anti-Transparency Precedent

Tariffs are often used as a costly tool that economically harms American consumers and business. These protectionist policies often invite turmoil and government overreach, and the tariffs proposed and implemented by the Trump Administration have been no different. In fact, with each round of proposed tariffs, it seems that the government has become less transparent about its process and rationale.

In an effort to advance its trade agenda, the administration has used four Section 232 investigations into different imports to justify tariffs on national security grounds. Although national security concerns may have a place in trade policy where there is a clear and narrow interest, Section 232 should not be used as a tool to bypass Congress when there is no legitimate national security threat. Nevertheless, this was the purported rationale of initiating the Section 232 investigation into auto imports despite the President’s assertion that the importation of autos and auto-parts themselves do not actually pose a national security threat.

So why was this investigation initiated and what did the U.S. Department of Commerce (Commerce) conclude from its investigation? Commerce proactively published its findings and documents supporting its case for steel and aluminum tariffs but refuses to do the same with its auto investigation.

After Commerce announced that it was launching a Section 232 investigation into the national security impacts of auto imports, they were required by law to notify the U.S. Department of Defense (DOD). Commerce announced that it sent notification of the investigation to then-Secretary of Defense James Mattis but have yet to release a copy of this notification, as they did with the Section 232 investigation into steel and aluminum tariffs, as well as with the uranium investigation.

In June 2018, one month after the investigation into auto imports was announced, Commerce Secretary Wilbur Ross told then-U.S. Sen. Orin Hatch that while Secretary Mattis accepted the proposition for the threats imposed by steel and aluminum imports, Commerce was not yet sure about DOD’s views for the automotive sector. Neither Commerce nor DOD has released the Defense Department’s response memo to the auto-import investigation.

Due to this lack of transparency, Cause of Action Institute (CoA Institute) sent FOIA requests to Commerce and DOD on March 22 seeking DOD’s response to the investigation and any relevant communication regarding this matter. The government has yet to release a substantive response from either agency regarding these requests.

The lack of transparency compared to the steel and aluminum process is stark. The government has announced that it will not be releasing Commerce’s final Section 232 report and recommendations on auto imports to the public. Not only were the reports for steel and aluminum published upon completion but the government is statutorily required to publish in the Federal Register “any portion of the report submitted by the Secretary under subparagraph (A) which does not contain classified information or proprietary information.”

CoA Institute believes that this information should be disclosed as the statute requires, particularly if it is going to be used to justify a potential 25 percent tariff on cars and car parts. This is why CoA Institute filed FOIA requests to Commerce for a copy of the report. After Commerce failed to respond to the request within the statutory timeline, CoA Institute filed a lawsuit against the Commerce Department.

It is troubling that the government is not upholding its legal obligations or open-government practices when it comes to Section 232 investigations. Larry Kudlow, director of the National Economic Council, stated that the administration may delay the decision on whether to impose auto-tariffs beyond the 90-day deadline that began when Commerce completed and provided the report to the White House. It is not clear how or what legal justifications exist to allow the administration to defer the decision beyond the May deadline.

However, the lack of transparency on this issue is not a new concern when it comes to tariffs. In September, after reports emerged of potential corruption in the tariff exemption process for the already controversial steel and aluminum tariffs, CoA Institute filed three FOIA requests seeking information to clarify the methodology behind the exemption process. After the government failed to respond to any of the FOIA requests relating to the steel and aluminum tariff exemption process, CoA Institute filed a lawsuit against Commerce for this information. As a result of the lawsuit, the government has agreed to produce relevant records at the end of each month.

Tariffs can be an economically treacherous policy, eroding the economic freedoms of individuals, hurting businesses, and almost always causing consumers to pay more for products as the government picks winners and losers. In this instance, not only is the government imposing tariffs that harm Americans, but it is doing so in a manner that evades transparency and, in regard to the auto-tariff report, fails to comply with its statuary obligations. The path to a stronger economy is one that eliminates barriers to trade, not one that unfairly manipulates the free-market while withholding justification from the public.

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

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04/18/2019

CoA Institute Files Amicus Brief in FTC v. AMG Capital Management

On March 14, 2019, Cause of Action Institute (CoA Institute) filed an amicus brief in the Ninth Circuit in support of an en banc petition to rehear a three-judge panel ruling for the Federal Trade Commission (FTC) in FTC v. AMG Capital Management, LLC, et al., No. 16-17197.

This case addresses the important issue of the power of the FTC to take businesses’ property without the due process protections Congress has placed around such confiscation. Here, for example, the FTC used Section 13(b) of the FTC Act to obtain a judgement of over one billion dollars against AMG Capital Management, LLC (AMG) for practices that the FTC (which began its investigation in 2002) never notified AMG were, in the FTC’s view, unlawful until it sued a decade later in 2012. Congress, however, only provided the FTC with power to obtain such relief under Section 19 of the FTC Act, which established a number of procedural safeguards that ensure companies’ ability to defend themselves, including a requirement that the FTC must prove that the defendant knew or should have known its actions were wrongful and a three-year statute of limitations. Section 13, on the other hand, was enacted so that the FTC could quickly get preliminary injunctive relief to stop a company from doing harm to consumers if it could show an ongoing, current violation.

The FTC, in keeping with the tropism of agencies to aggrandize their power beyond Congressional limitations, set out to persuade the judiciary that Section 13(b) allowed the agency, through “ancillary” relief under equity, to get the same confiscations Congress allowed under Section 19. The Ninth Circuit long ago accepted this argument. In this case, however, two Judges ruling for the FTC stated that they had to rule that way as precedent demanded it, but that the larger Ninth Circuit (by an en banc panel) should review the case and change that Circuit’s precedent in light of subsequent Supreme Court rulings, notably, Kokesh v. Securities and Exchange Commission, 137 S. Ct. 1637 (2017).

The amicus brief focuses on the long-term strategy of the FTC to lead the Courts astray on what Congress had allowed and not allowed by enacting specific sections of the FTC Act to do different things. The Washington Legal Foundation and the Chamber of Commerce also urged in amicus briefs that the Ninth Circuit take up this case to right a legal error of the past.

Our full amicus brief can be view here.

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

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04/17/2019

CoA Institute Presents Winning Research Paper at 2019 National Freedom of Information Coalition Summit

On Friday, April 12, Cause of Action Institute (CoA Institute) Counsel Ryan Mulvey joined a panel at the National Freedom of Information Coalition’s (NFOIC) 2019 Annual Freedom of Information (FOI) Summit in Dallas, Texas to present a winning research paper co-authored by Mulvey and CoA Counsel and Senior Policy Advisor James Valvo. The paper presents a comprehensive survey of open records laws and identifies useful trends in how public access to legislative records is regulated at the state and federal levels. Ryan and James’ paper was one of three to be presented on a panel from 18 total submissions for the contest. Their underlying research evolved out of work originally undertaken for an amicus brief filed in the Georgia Court of Appeals.

The paper, “‘Opening the State House Doors’: Examining Trends in Public Access to Legislative Records” examines how all 50 states’ FOI laws address the question of access to legislative records. That survey reveals that 38 states provide some form of access to various legislative materials. Only 11 exclude the legislative branch from their public-disclosure laws, whether expressly, by implication, or according to judicial interpretation. The clear trend, in any case, is to construe state FOI laws in favor of public access.

Of the 38 states that provide requesters with at least some basic level of access to legislative records, 14 do so implicitly while the other 24 explicitly allow access to legislative records.

Of the states that explicitly cover the legislature in their FOI laws, there is some diversity in how the branch is included. For example, in two states the law focuses on the nature of the record subject to disclosure. North Carolina defines a “public record” to include materials “made or received” by a “public office,” including that of an elected official. Another 20 states focus on the kinds of government entities that must disclose their records upon request, including nine states that define an “agency” to include the legislature or legislative offices. Finally, in Missouri and Florida, access to legislative records is guaranteed by the state constitution.

Ryan and James identified 14 states that impliedly grant access to legislative records. Ten states do so based on the interpretation of terms defining the governmental entities subject to disclosure. For example, six states use the term “branch,” which is understood to include the legislature. Four states define the sort of record subject to disclosure in such a way to include legislative materials. And in six states, the presence of statutory exemptions—or protections that allow a record custodian to withhold information—only applicable to certain legislative records suggest that the legislature, as a whole, is subject to the FOI statute.

Finally, the survey found that of the 12 states that completely exclude the legislature from their FOI statutes, eight do so explicitly, two implicitly, and two based on judicial interpretation.

In addition to surveying state law, Ryan and James examined the treatment of legislative records under the federal FOIA. Specifically, they discussed the possibility that courts could look more seriously at the availability of records under the control of legislative branch agencies, and they pointed to the positive development in the case law governing the extension of congressional control over records that reflect the interaction of the federal legislature and the Executive Branch.

The full paper can be viewed here. The findings discussed above, and the graphics excerpted from the panel presentation, reflect developments in three states (Missouri, South Carolina, and Michigan) that are not discussed in the paper.

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

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04/2/2019

McDonough v. Smith: Why SCOTUS Should Revisit the Statute of Limitations for Fabrication of Evidence

By the time Annie Dookhan was finally caught in 2012, she had been falsifying drug test results at a state crime laboratory in Massachusetts for several years. The rogue chemist had managed a productivity rate 500% higher than her peers by not actually running tests at all, and her misconduct would ultimately impact over 36,000 criminal cases.

Dookhan is not alone – fabricated evidence is far more common than it may seem, and it can impact thousands of people falsely accused of crimes. The legal remedy for this misconduct is known as a Section 1983 lawsuit, but a significant decision by the Second Circuit in McDonough v. Smith would sharply limit when those lawsuits could be filed. This case was appealed to the Supreme Court, which recently agreed to hear the case. On March 4, 2019, Cause of Action Institute filed an amicus curiae brief urging the court to overturn the Second Circuit.

The question in front of the Supreme Court is when the countdown begins on the limited amount of time available for filing a claim that fabricated evidence was used (i.e. when the statute of limitations begins to run, also known as when the claims “accrue”). In this case, petitioner Edward McDonough endured two criminal trials for election-related crimes that he was ultimately acquitted of. McDonough now argues that Youel Smith, the prosecutor in his criminal case, fabricated evidence in an attempt to falsely convict him. In response, Smith filed a motion arguing claims related to fabricating evidence accrue when the defendant first becomes aware of the tainted evidence and its improper use.

Several other appellate courts had previously decided that the claim accrued when the criminal proceeding ended in the defendant’s favor. That could mean an acquittal, winning on appeal and having the charges dropped, or other, less-common means of victory. Only after the possibility of criminal charges was gone were courts ready to hear a claim that evidence used to support those charges had been fabricated.

In McDonough’s case, however, the Second Circuit took a different view. Instead of waiting for criminal proceedings to end, they decided that defendants were ready to file lawsuits the moment they became aware that fabricated evidence was being used against them.  The Second Circuit thus granted Smith’s motion to dismiss, leaving McDonough with no legal redress. It was the first appellate court in the country to use this rule, and the decision will result in unfair treatment of defendants and unnecessary complications for prosecutors and judges as well. This is especially true given the level of factual support needed to successfully file a lawsuit under the current Supreme Court precedent.

For someone sitting in an interrogation room, it is impossible to know exactly what is happening when fabricated evidence is first used. Imagine the police just said you were seen leaving the house after a robbery occurred. You know you weren’t there, so why is someone saying that? Are they mistaken? Lying for their own benefit? Or did the police induce them to lie so the case would be closed? Only the last explanation justifies a Section 1983 lawsuit, and asking a defendant in this position to walk directly from the police station to the courthouse (if they are even free to do so) is both unrealistic and against the “complete and present” standard the Second Circuit used to determine if a claim had accrued.

Even if a defendant immediately knew a police officer had fabricated evidence, as recently happened in nearly 2,000 cases in Baltimore, it is almost impossible for a defendant to have enough evidence to successfully file a lawsuit. In two cases decided approximately ten years ago, the Supreme Court raised the bar for what must be included in the initial filing of lawsuits. Mere “conclusions” were not enough; factual support was needed. This is understandable in theory, but someone accused of having drugs in their pocket when they know that pocket was empty has almost nothing to offer but the conclusion that police or prosecutors must be responsible.

There are other problems with the Second Circuit decision, including the possibility that prosecutors being sued will be tempted to punish those filing the lawsuits. At the very least, those prosecutors will have to defend themselves while simultaneously trying to perform their official duties. There are many reasons why having the statute of limitations begin to run earlier is an unwise decision that will prevent government agents from being held accountable for these abuses of power, and we hope the Supreme Court chooses to endorse the rule used by other appellate courts instead of the new approach used by the Second Circuit.

John McGlothlin is Counsel at Cause of Action Institute. Libby Rudolf is a litigation support analyst at Cause of Action Institute.

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03/30/2019

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.

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

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03/29/2019

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



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