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The FTC Suffers Another Loss in Federal Court

August 23, 2018 by

The Federal Trade Commission (“FTC”) has suffered another loss in the federal courts—this time in a case against DirecTV in California.  The FTC alleged that the satellite dish company’s advertisements did not properly alert consumers that their subscription prices would go up when promotional periods end.  To support this, the FTC hand-selected 116 out of over 40,000 advertisements DirecTV broadcast, using expert witness testimony to argue that these advertisements created a deceptive “net impression” in the minds of consumers.

When the FTC finished presenting its case at trial, DirecTV moved for judgment in its favor without presenting any evidence of its own.  DirecTV argued that the FTC had simply failed to meet its burden.  The judge agreed and dismissed most of the case.

The court found that the FTC failed on several fronts.  First, the FTC could not show, even in its hand-picked 116 examples, that DirecTV’s advertisements created any sort of “net impression” that deceived consumers.  Instead, DirecTV’s advertisements effectively communicated, usually in multiple places highlighted with all-caps lettering and bold font, that the promotional pricing applied to the promotional period only.  The FTC attempted to rely on the testimony of expert witnesses, but the judge dismissed those arguments, finding that the experts’ surveys and theories didn’t support the Government’s case.

Furthermore, the court held that the FTC failed to show its 116 samples were representative of a database of over 40,000 pieces of advertising.  While the court was not going to require the FTC to submit all 40,000 into evidence, the FTC had to at least try to argue why the samples were connected to the whole.  They didn’t.  Finally, after dismissing most of the FTC’s claims, the court questioned whether the FTC could even prove the monetary damages in this case, citing a lack of evidence.

For years, the FTC has dictated terms of trade to businesses without having to justify them either in rulemaking proceedings or litigation.  The result is that the FTC has taken legal positions that are weak and ill-considered.  The DirecTV case is an example of how unprepared the FTC is to defend those positions when challenged.

Cause of Action recently submitted a detailed comment to the FTC that suggests several reforms the agency can implement to stop these abuses and create a level playing field for litigants.  Simply put, the FTC has enormous power to unilaterally destroy businesses that cannot afford to face them down.  The ones that do litigate against them are winning, and this should send a signal to the Commissioners—it’s time to change.

Eric R. Bolinder is Counsel at Cause of Action Institute.  You can follow him on Twitter @EricBolinderLaw.

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CoA Institute Submits Comment to FTC, Recommends Multiple Reforms to Curb Agency Overreach and Abuse

August 20, 2018 by

Cause of Action Institute (“CoA Institute”) today submitted a public comment to the Federal Trade Commission (“FTC” or “Commission”) in advance of a series of hearings concerning the agency’s efforts to evaluate its law enforcement and policy agenda, improve investigative processes, and otherwise reform its implementation of the FTC Act.

CoA Institute’s recommendations are based on considerable experience dealing with the FTC.  Our attorneys regularly practice before the Commission.  At present, CoA Institute represents D-Link Systems, a networking equipment manufacturer, which is fighting vague and unsubstantiated allegations that it placed consumers “at risk,” despite any evidence of actual or likely substantial injury.  CoA Institute also represents Vylah Tec, LLC, a family-run technical support company that has been targeted on suspicion of “deceptive” sales practices.  The FTC has failed to uncover any concrete evidence of wrongdoing, yet the company remains subject to a punitive injunctive order.  In the past, CoA Institute represented LabMD, Inc., a small cancer-detection company, against claims that it had unreasonable data-security practices.  And CoA Institute has directly litigated against the FTC over matters related to the Freedom of Information Act.

As explained in the comment, CoA Institute’s track-record with the FTC gives it unique insight into how the agency can be improved in four general areas:

Reforming the FTC’s Enforcement Processes

When FTC staff believes there has been a violation of the law, the agency typically threatens a regulated entity with an enforcement proceeding and attempts to settle the matter by consent order.  This is the outcome in most cases.  But these consent orders tend to be vague; they provide little guidance about the standards with which other regulated companies are expected to comply.  This opens the door to regulatory overreach.  The FTC should provide specificity in its consent orders.

The FTC also should refine its use of ex parte injunctions, which are an extraordinary remedy.  Without clearer guidance limiting the use of temporary restraining orders and asset freezes, the FTC may continue to raise due process concerns and impose unjustifiable hardships on regulated entities defending themselves in enforcement proceedings.

Concerns about due process likewise arise with respect to the FTC’s own rules of procedure, which differ in material ways from well-accepted rules of procedure and evidence in federal courts.  The Commission’s rules provide its staff a decided advantage, particularly given the relatively boundless resources available to the agency.  This is unfair and flouts the rule of law.

Finally, the FTC should eliminate its practice of seeking legal damages in excess of what the agency is statutorily authorized to pursue.  Although the FTC may request equitable monetary damages, including restitution or disgorgement of ill-gotten gains, in practice the damages sought by the Commission are pecuniary and ultra vires.  In short, they amount to the imposition of personal liability on defendants.  This approach cannot be countenanced by the FTC Act.

Increasing FTC Transparency

Related to the reforms of the FTC’s enforcement regime are the changes that should be made to its disclosure practices.  As mentioned, the FTC regularly relies on consent orders to settle matters before an actual enforcement proceeding is opened.  The use of these negotiated orders, which are party-specific and, again, vague, fails to provide the requisite notice of legal standards to which regulated parties are expected to conform.  The FTC should abandon efforts to treat consent orders as a “common law” body of precedent that shapes future obligations for regulated parties.

To the extent the FTC continues to use consent orders in this problematic way, however, it should aim to make the orders specific, with detailed analysis about the application of generally applicable standards.  The Commission also should proactively disclose the closing letters and closing memoranda from matters where enforcement is not pursued.  In these cases, the FTC has determined that a potential respondent is operating within legal bounds.  The Commission itself admits that these documents are useful, but they are not uniformly disclosed to the public.

Developing a Proper Understanding of “Substantial Injury”

At the heart of Section 5 of the FTC Act is the concept of “substantial injury.”  Without actual, or the threat of “likely,” substantial injury, the FTC can do nothing.  But the exact scope of what is “likely” and “substantial” harm is unclear.  The FTC does not define the terms precisely, and the body of consent orders that reflect settled matters provide little further detail.  What is clear, however, is that the FTC prefers to maintain ambiguity to facilitate its overreach.

The Commission should do a better job considering the countervailing benefits to consumers or competition provided by allegedly unfair acts or practices, too.  This can be done with rigorous cost-benefit analysis.  The FTC often focus on amorphous concepts of harm while ignoring how regulated entities’ practices benefit the consumer or, more broadly, competition in the marketplace.

How Congress Should Amend the FTC Act

Although CoA Institute’s recommendations are principally directed to the FTC, Congress should play a key role in reforming the Commission’s enforcement processes.  We propose that legislators amend the FTC Act to allow direct appeals to a U.S. Court of Appeals following an administrative law judge decision.  This would replace the current process by which an appeal is first made to the full Commission.  It would be better to permit respondents to seek appellate relief in an Article III venue, and bypass the full Commission, because the FTC has a remarkable track record of never losing its own administrative appeals.  Regulatory agencies should not be allowed to wear the dual hats of prosecutor and judge.

Ryan P. Mulvey is Counsel at Cause of Action Institute

Click here to access the full comment or read below.


 

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CoA Institute President and CEO John Vecchione Discusses CoA’s Two Lawsuits Against the DOJ

August 9, 2018 by

 

Cause of Action Institute (“CoA Institute”) President and CEO John Vecchione appeared on the Daily Ledger to discuss CoA’s two lawsuits against the DOJ for failing to comply with numerous FOIA requests.

The interview comes after CoA Institute filed two complaints against the DOJ in six days for failing to respond to Freedom of Information Act (“FOIA”) requests. CoA’s first suit was a result of DOJ’s failure to respond to three requests in regards to the use of a personal email by  former FBI Director James Comey, former FBI Chief of Staff James Rybicki, and DOJ’s Director of Public Affairs Sarah Isgur Flores.

CoA’s second law suit, filed on behalf of the Daily Caller News Foundation, comes after the FBI failed to respond to a FOIA requesting communication records and work product relating to  Daniel Richman, a “Special Government Employee” (SGE) hired by former FBI Director James Comey. Richman gained notoriety when James Comey admitted to using Richman to leak memos to the media.

 

 

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DoD Watchdog Details Agency’s Failure to Address FOIA Shortcomings

August 8, 2018 by

The Inspector General (“IG”) for the Department of Defense (“DOD”) recently published its annual compendium of unimplemented recommendations given to various DOD components and military departments in past investigations, audits, and inspections.  The list of unresolved matters is rather lengthy—some issues are more serious, others less so.  Relevant here, the watchdog highlighted two outstanding recommendations concerning the Freedom of Information Act (“FOIA”) and, more specifically, the formalization and publication of Pentagon guidance on “sensitive review.”

Both of these FOIA-related recommendations originate with an August 16, 2016 IG report that was prepared at the request of Senator Ron Johnson, Chairman of the Homeland Security and Governmental Affairs Committee (“HSGAC”).  Senator Johnson initiated an investigation in 2015 into interference by political appointees within the Obama Administration in agency FOIA processes.  Cause of Action Institute (“CoA Institute”) actively followed the HSGAC inquiry and sued one agency, the Central Intelligence Agency, for refusing to release its response to the Committee.

“Sensitive review” refers to the practice of giving certain FOIA requests extra scrutiny, usually because the records sought are potentially newsworthy or politically embarrassing.  In its most benign form, sensitive review involves notifying an agency’s public affairs team, communications specialists, or political leadership of incoming requests and outgoing productions.  At its worst, it entails the active involvement of non-career officials in processing and redacting records, which results in significant delays and sometimes completely prevents the disclosure of records that the public has a right to access.

Sensitive review has been increasingly in the news.  A week ago, I described CoA Institute’s new investigation into politicized FOIA at the Department of Veterans Affairs, following allegations raised by Democrats on the Senate Veterans’ Affairs Committee.  Last month, I explained how an official from the Environmental Protection Agency told Ranking Member Elijah Cummings at the House Oversight and Government Reform Committee that the Trump White House had supposedly added an “extra lawyer of review” for “politically charged” or “complex requests.”  And, earlier this year, I revealed records exposing the National Oceanic and Atmospheric Administration and the Federal Aviation Administration for heightening sensitive review by, among other things, targeting attorney and media requesters.

Although recent news reports suggest that “sensitive review” is a novel practice, that is not so.  Intra-agency FOIA politicization, and related practices such as “White House equities” review, did not originate with the Trump White House, but date to the Obama Administration and beyond.  Indeed, as I have explained here and here, the Obama White House was particularly notorious for its efforts to delay and block disclosure of politically damaging or otherwise newsworthy records.  President Trump is taking advantage of President Obama’s legacy of secrecy.

All this is confirmed by the case of the DOD.  In its 2016 report, the IG explained that it had failed to identify any instances of “noncareer officials” either “adversely affecting” or “unduly influencing” the agency’s FOIA process.  But the watchdog’s cautious language and technical phrases failed to mask other troubling practices, including a special “situational awareness process” for “significant” requests.  DOD guidelines governing that process still have not been incorporated into the agency’s FOIA regulations, FOIA manual, or FOIA directive.  (The IG also faulted DOD for failing to update its regulations in light of the Open Government Act of 2007 and Executive Order 13392, but that was remedied with the finalization of new regulations in February 2018.)

CoA Institute has obtained copies of two versions of DOD’s “situational awareness” protocol (here and here), one of which dates to December 2012.  Both records similarly define “significant” requests—that is, requests deserving of special treatment—to include anything likely to “generate media interest” or be of “potential interest” to DOD leadership.  Requests implicating Members of Congress or President Obama, even during his time as a senator, also were included.

In addition to “situational” notification, component FOIA officers were expected to provide weekly updates on “significant” requests to the front office and delay any response or production of records until clearance was provided by departmental disclosure leadership.

This requirement was emphasized for “White House or Congressionally related” FOIA requests.

Although alerting or involving agency leadership, including 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.  The danger for politicization is evident.  “Notification” and “situational awareness” can too easily lead to political leadership controlling the disclosure of public records.  That result cannot be tolerated.

Although DOD has yet to incorporate its sensitive review protocol into formal and publicly available guidance, it is also unknown whether the policy has changed or been enhanced in any way in recent years.  Considering the unresolved IG recommendations, CoA Institute has submitted a FOIA request to DOD seeking further information.  We will continue to report on the matter as records become available.

Ryan P. Mulvey is Counsel at Cause of Action Institute



2018 08 08 Final and Approved DOD Sensitive Review FOIA Request (Text)

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Democratic Senators Seek Records about “Sensitive Review” from VA, Ask Inspector General to Open Investigation into FOIA Politicization

August 1, 2018 by

Last week, a group of eight Democratic Senators, led by Ranking Member Jon Tester of the U.S. Senate Committee on Veterans’ Affairs, wrote to the Department of Veterans Affairs (“VA”) to express concern over the possible politicization of the agency’s Freedom of Information Act (“FOIA”) processes.  The senators requested various records concerning the involvement of political appointees in the FOIA decision-making process, as well as other “sensitive review”-type policies.  They also wrote to the VA’s Inspector General to request an investigation into these allegations.  Among other things, the legislators sought “an assessment of the role that political appointees play in the FOIA process, what types of oversight exist to ensure employees are providing all responsive material, and who makes determinations about what is or is not responsive to a request[.]”

Sensitive FOIA review has been increasingly in the news.  The most recent reports have focused on the Environmental Protection Agency (“EPA”).  According to EPA Chief of Staff Ryan Jackson, the Trump Administration has added an “extra layer of review” for “politically charged” or “complex requests.”  Other officials claim that “sensitive review,” and similar practices such as “White House equities” review, actually originated with the Obama White House.  This latter claim is better supported by the historical record, as I (here and here) and others (here) have repeatedly argued.  The Obama Administration was notorious for its efforts to delay and block the disclosure of politically damaging or otherwise newsworthy records.  This is not to say the Trump Administration is innocent—it has likewise contributed to obfuscation and an overall erosion of transparency.  My posts earlier this year on sensitive review at the National Oceanic and Atmospheric Administration and the Federal Aviation Administration demonstrate as much.

In the case of the VA, the agency’s watchdog previously argued, in 2010 and 2015, that there has not been regular inference by political appointees in the FOIA process.  But the public has long known of internal practices at the VA that likely contribute to politicization.  In August 2007, for example, the agency issued a directive concerning the processing of “high visibility” or “sensitive” FOIA requests that implicate potentially embarrassing or newsworthy records.

The potential for politicization only worsened during the Obama Administration.  An October 2013 memorandum instructed all Central Office components to clear FOIA responses and productions through Jim Horan, Director of the VA FOIA Service.  (Mr. Horan is still part of the leadership in the Office of Privacy and Records Management.)  This clearance process imposed a “temporary requirement” for front office review—although it is unknown whether the practice continues—and entailed a “sensitivity determination” leading to unnamed “specific procedures.”

Regardless of which party or president controls the government, sensitive review 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 the new allegations of FOIA troubles at the VA, CoA Institute has submitted a FOIA request seeking further information about 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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Cause of Action Institute Sues DOJ for Refusing to Release Comey Emails

August 1, 2018 by

WASHINGTON, D.C. – Aug. 1, 2018 – Cause of Action Institute (“CoA Institute”) today sued the U.S. Department of Justice (DOJ) for failing to respond to three FOIA requests pertaining to the use of personal email by former FBI Director James Comey, former FBI Chief of Staff James Rybicki, and DOJ’s Director of Public of Affairs Sarah Isgur Flores.

The recent Office of Inspector General (OIG) report on the Hillary Clinton email scandal disclosed that Comey had used his personal email to conduct official business, but that OIG was, “never given access to all the work-related emails.” Comey claimed he either forwarded emails from his personal account to his official account or to Chief of Staff Rybicki. In an unrelated incident last year, Flores was cited as using her Gmail account to issue a statement on behalf of the Attorney General in response to a Washington Post article. CoA Institute filed three FOIAs relating to these matters, and in each case, DOJ failed to respond within the statutory timeframe.

Cause of Action Institute Counsel Ryan Mulvey:

“There is no reason for the U.S. Department of Justice to stonewall and ignore these FOIA requests. The requested emails, even though created or received on personal devices or in personal accounts, are agency records and the public has every right to access them. It should never have been necessary for us to sue the DOJ, the nation’s chief law enforcement body, to force it to abide by its obligations under the FOIA.”

The three FOIA requests include:

  • June 14, 2018 – Office of Inspector General FOIA request for “all emails sent or received by former FBI Director James Comey or former FBI Chief of Staff James Rybicki on a personal email account … conducting official government business, that were acquired or reviewed by” OIG.
  • June 14, 2018 – FBI FOIA request for, “all emails sent or received by former FBI Director James Comey or former FBI Chief of Staff James Rybicki on a personal email account … conducting official government business…”
  • March 2, 2017 – Office of Information Policy FOIA request for, “any email, including attachments, sent by Sarah Isgur Flores on or about March 2, 2017 from a non-governmental email account, containing a statement in response to news reports that Attorney General Jeff Session met with the Russian Ambassador during the 2016 Presidential Election.” CoA Institute also asked for, “all other emails, including attachments, sent or received by Sarah Isgur Flores on a non-government email account that were for the purpose of conducting official government business.”

The full complaint can be viewed below.

About Cause of Action Institute

Cause of Action Institute is a 501(c)(3) non-profit working to enhance individual and economic liberty by limiting the power of the administrative state to make decisions that are contrary to freedom and prosperity by advocating for a transparent and accountable government free from abuse.

Media Contact:

Matt Frendewey
matt.frendewey@causeofaction.org
202-699-2018

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Now is the Time for VA to Change its Culture

July 24, 2018 by

Yesterday, the Senate confirmed Pentagon official Robert Wilkie as the new Secretary for the Department of Veterans Affairs (“Department” or “VA”). Wilkie takes over a federal agency plagued with a culture of toxicity, politicization, and misconduct. Although recent news reports and investigations of VA leadership have been a public relations nightmare for the agency, the prescription for success for the Secretary is rather simple: implement a culture change from the top-down to develop a VA that both performs its duty to veterans and operates in an ethical and productive manner.

A recent Washington Post report found that acting VA secretary Peter O’Rourke removed or reassigned VA staff members perceived to be disloyal to President Trump and his agenda for veterans. The report said that none of the staffers were given reasons for their reassignments. O’Rourke also incorrectly claimed authority over the VA Inspector General in a letter to the Inspector General. Although it would be easy to blame O’Rourke for the Department’s toxic climate, he only took office in May 2018; the systemic issues within the VA long precede the acting secretary.

Following the Washington Post report, the U.S. Government Accountability Office (“GAO”)  identified several issues within the Department regarding employee misconduct, retaliation against whistleblowers, and impunity for senior officials. Perhaps the most troubling finding was that senior officials, who perpetuate the agency’s climate, are held to a lower standard than their subordinates. The following figure shows the outcomes of seventeen misconduct cases against senior officials where disciplinary or adverse action was proposed over a 53-month period. Although twelve of the officials faced proposed actions calling for their removal based on the specific charges, only three officials were actually removed from their position. In total, 71% of senior officials who were guilty of misconduct served lesser or no disciplinary action compared to the original proposed action.

Other issues the GAO identified include:

  • Poor record-keeping – the current information system for recording adverse disciplinary actions does not track employee misconduct across the Department, despite the system having the capability to include and incorporate such models.
  • Poor communication within the Department – VA employee files investigated by GAO did not always contain documentation indicating that employees were informed of the reason disciplinary action was brought against them. The lack of oversight in the VA’s human resource policies increases the risk that employees will not be adequately informed of their rights during adjudication.
  • Lack of Transparency – VA facilities and program offices did not always provide the supporting documentation that they used to reach their conclusions about case referrals. This calls into question whether enough evidence was gathered to make sound conclusions about disciplinary or adverse actions.
  • A clear disregard for procedure – the report found that facility and program offices did not consistently follow policies and procedures for investigating allegations against senior officials. Similarly, senior officials may not have always been held accountable for misconduct, whether disciplinary action was not taken or recommended, or previous disciplinary failures were not considered in repeated offenses.

Whistleblowers provide a public service by exposing illegal or unethical activity within an organization. But whistleblowers in the VA allege that managers in their chain of command took actions against them after they reported misconduct. These alleged actions included reassignment to other locations, reduced access to computer equipment necessary to complete assignments, and social isolation from peers. Whistleblowers also were not provided adequate information by VA on how to document or file a claim of misconduct or retaliation.

The GAO report included sixteen recommendations to the VA, of which the VA concurred with nine and partially concurred with five. According to their comments to GAO, the VA plans to, among other things, have the Secretary direct the Office of Accountability and Whistleblower Protection (“OAWP”) review and issue guidance on how OAWP will discipline senior officials, and develop a functional process to ensure the implementation of whistleblower protections.

Wilkie is now the face of the VA. It is up to him to make sure that the agency implements the recommendations to protect whistleblowers and hold managers that retaliate against them accountable. Cause of Action Institute will continue to conduct oversight to make sure the VA follows through with adopting GAO’s recommendations. We have documented what happens when agencies provide lip-service instead of fixing problems. Our veterans deserve a functional and ethically-operated VA, and that can only start by repairing the climate of the agency from the top.

Chris Klein is a Research Fellow at Cause of Action Institute

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