Florida Bankers Association: The Supreme Court Must Check IRS Abuse of Discretion

Today, Cause of Action Institute submitted an amicus brief to the U.S. Supreme Court urging it to grant a petition for certiorari to review the D.C. Circuit’s decision in Florida Bankers Association v. Department of the Treasury.  The Court should take the case to ensure that IRS rules are subject to the proper judicial review, a much-needed check on the agency’s rulemaking discretion.

In August 2015, the D.C. Circuit ruled that the Anti-Injunction Act shielded the IRS rule at issue from judicial review.  The Act requires taxpayers to pay taxes first and sue later for a refund if they believe a particular rule is infirm.  The rationale behind this rule is to protect government’s ability to generate a consistent stream of revenue without litigation slowing down that process.  However, the rule at issue in Florida Bankers was simply a reporting requirement and the penalty attached to it is designed to ensure compliance, not generate revenue.  Nonetheless, the IRS argued, and the majority of the divided D.C. Circuit panel agreed, that the Act applied to challenges to the reporting requirement as well.  This argument directly conflicts with a unanimous Supreme Court decision from last term, Direct Marketing Association v. Brohl.

Cause of Action Institute’s amicus brief brought a unique perspective to the question.  We revealed that although judicial review is an important part of constraining agency discretion, it comes at the end of a long rulemaking process and is especially important when an agency, such as the IRS, routinely defies established oversight procedures.  The IRS is notorious for skirting numerous rulemaking procedures that help ensure both accountable and higher-quality rulemaking.

The IRS, for example, evades Executive Order 12,866, which requires agencies to submit significant rules to the White House Office of Information and Regulatory Affairs for pre-publication review.  As Cause of Action Institute informed the Court in its brief, “Over the past ten years, the IRS has submitted only eight rules to OIRA for regulatory review and deemed only one of those rules significant.  Those eight rules are less than one percent of the final rules the IRS published in the Federal Register over the same period.”

In addition to evading pre-publication review, the IRS also flouts the Administrative Procedure Act’s rulemaking requirements.  Cause of Action Institute relied on University of Minnesota Law School Professor Kristin Hickman’s empirical research to show the Court that in “almost ninety-three percent of the cases she surveyed over a three-year period, ‘Treasury claimed explicitly that the rulemaking requirements of APA section 553(b) did not apply.’”

Effective and accountable agency rulemaking requires robust judicial review of agency authority, the process followed in promulgating rules, and the record upon which the rulemaking is based.  Overextension of the Anti-Injunction Act undermines these important principles, and the Supreme Court should grant certiorari and reverse the D.C. Circuit.

Click here to read the amicus brief in its entirely.

 

The Hill: When foreign investment and national security collide

When foreign investment and national security collide

by Dan Epstein

November 27, 2012

As part of the arms race between the United States and Russia that fueled the Cold War, Congress established the Committee on Foreign Investment in the United States (CFIUS) under the Defense Production Act of 1950. CFIUS’s purpose was to review transactions that could result in the control of a U.S. business by a foreign person to determine the effect of such transactions on the national security of the United States. CFIUS, the only committee of its kind in the world, is an artifact of Cold War-era fears about Soviet threats to America, but it is having the very real effect of reigning terror upon job creation in America.

CFIUS, like any taxpayer-funded institution under our constitution, has limited powers. CFIUS may only review certain “covered transactions” that could result in foreign control of a person engaged in interstate commerce in the United States. It may not bar a covered transaction from taking place, it may not arbitrarily or capriciously make decisions without supporting evidence, and it may not engage in the unconstitutional deprivation of property without due process.
Yet CFIUS has done all of these things.

On June 28, 2012, Ralls Corporation, a Delaware wind turbine company, informed CFIUS of its intent to build power-generating windmills by acquiring and controlling the assets of four wind farm projects in Oregon (“Project Companies”). Prior to Ralls’s acquisition of the Project Companies the Federal Aviation Administration issued “Determinations of No Hazard” for each of the twenty planned turbines. But on July 25, 2012, CFIUS determined that because Ralls is owned by executives of China’s Sany Group, “there are national security risks to the United States that arise as a result of the Transaction,” and ordered the Project Companies to cease all construction and operations of these wind farms.

The Navy wrote to the Oregon Public Utility Commission on Ralls’ behalf, saying the placement of the wind turbines “may have negative security implications” but recommending that the requested approvals be issued. In the same letter, the Navy added that it “appreciat[ed]” Ralls’s “cooperation and consideration” in agreeing to move their wind farms. Does this sound like the activities of a company looking to threaten American national security interests?

On July 26, 2012, in an effort to address CFIUS’s concerns, Ralls informed CFIUS that it sought to sell the Project Companies, as several American buyers expressed interest. But on August 2, 2012, CFIUS amended its order, prohibiting Ralls from any further construction or operations on its property, mandating that it remove its belongings from the property, prohibiting access to its own property, and prohibiting Ralls from selling goods associated with the wind farms until all items are removed, the companies notify CFIUS, and CFIUS does not object.

On September 12, 2012, Ralls filed a complaint against CFIUS in federal district court in Washington, D.C. and filed a motion for a temporary restraining order against CFIUS’s order. Ralls argued that the authority to block the Project Companies’ transactions, if any, lies with the president, who, under the Defense Production Act may take action “to suspend or prohibit any covered transactions that threatens to impair the national security of the United States,” and “shall not be subject to judicial review.” Sound Orwellian? On September 28, 2012, via Executive Order, President Barack Obama halted all of Ralls’ attempts broadly citing “credible” national security concerns. In other words, an unaccountable, unreviewable Committee has become President Obama’s latest political tool, this time at the sacrifice of job creation – even green energy jobs.

Obama’s logic is as follows: any company owned by two Chinese nationals is prima facie a national security risk. CFIUS claimed the wind-farm sites are all within or near restricted air space. But this argument seems dubious given the fact that wind turbines already operate in this area.

The Wall Street Journal described the move as politically calculated as “voters in the industrial Midwest, including Ohio and other battleground states . . . have lost millions of manufacturing jobs over the past decade.” But if anything, the Ralls transaction means creating U.S. jobs via foreign capital injection instead of outsourcing those jobs back to China. The most plausible explanation seems to be that anti-China resentment sells.

On October 1, 2012, Ralls amended its initial complaint to include President Obama as a defendant arguing that the order exceeds the president’s statutory authority. President Obama has not only shut down a job-creating, environmentally-friendly business deal in the name of politics, he has done so in a way that violates Constitutional due process and judicial review.

Cause of Action, a nonprofit dedicated to fighting government abuse, is going to court to challenge the president’s arbitrary abuse of power. CFIUS and the president must be held accountable for actions that limit economic growth and threaten free enterprise in the name of politics, or, worse, xenophobia.

Epstein is the executive director of government accountability group Cause of Action, based in Washington, D.C.

 

Should the federal government have unchecked authority to interfere in matters of business and trade?

Should the federal government have unchecked authority to interfere in matters of business and trade at the expense of due process rights?

This question has been brought to light in Ralls Corp. v. Obama et al, a lawsuit challenging a shut-down of a Chinese-owned wind farm project in Oregon.

Cause of Action filed an amicus brief in the suit, and at the heart of our interest in this case is an American-owned green energy company called Oregon Windfarms who originally designed the “Butter Creek Projects”—a group of 4 windfarms that started development and were slated to be sold to Ralls Corporation before the government intruded. The Committee on Foreign Investment in the United States (CFIUS), an agency created originally during the Cold War era to protect the interest of American business, has exacerbated its presumed authority and intervened to stop the wind farm project. The halted deal not only harmed Ralls Corp., a privately owned Chinese company, but it also arrested an investment that started right here in the United States.

The display of power by both the President and CFIUS is disconcerting, to say the least; however, the fact that both CFIUS and President Obama are directly limiting the ability of American businesses is of much greater concern. While American businesses and workers are entitled to due process when it comes to their property, in the case of Ralls Corp. the government saw fit to ignore these rights and arbitrarily deny a company from conducting business simply because its owners are Chinese.

Further, future jobs and American businesses may be in jeopardy. This action by CFIUS and POTUS sets a less than favorable precedent for future foreign investments in an ever-shrinking global economy.

CFIUS and the President may hide behind the guise of protecting the American citizenry, but when you lift the veil of rhetoric, the long-term effects felt by the American people are much worse than allowing an American-owned business to engage with a foreign investor.

You can read our brief here.

Amicus Brief, Ralls v. Obama et al.

113087608-Ralls-v-CFIUS-Brief-in-Support-of-Motion-to-Participate-as-Amici-Curiae

CoA Brief in Jane Doe v. FDA

Complaint and Civil Cover Sheet – Doe v. Hamburg – Signed

Politico’s Morning Energy Report: CoA Files Amicus Brief re: EPA

Read the full story here. Politico

“The Institute for Liberty, Americans for Prosperity, Center for Rule of Law, Cause of Action and National Black Chamber of Commerce are also worried about the effect of EPA’s final utility MACT rule for mercury and air toxics, which is due out Dec. 16. In an amicus brief filed Tuesday in the U.S. District Court for the District of Columbia, the groups say EPA needs another year to study the rule’s impacts on electric-grid reliability because the agency has rushed into a rulemaking without a clear understanding of how many power plants will close and what the effect will be on power generation.”

 

CoA Files Amicus Curiae Brief in EPA Case

Image source: Flickr user brandonwu

Asks Court to Extend EPA Rule-Making Deadline for MACT Utility Rule

Cause of Action, along with the Institute for Liberty and the Center for Rule of Law, filed a motion in Federal Court supporting the Utility Air Regulatory Group's motion to modify an EPA rulemaking timeline. Specifically, CoA seeks to participate in the EPA's “Utility MACT” rulemaking to bring to the Agency's attention recently released materials that cast doubt on its fundamental assumptions concerning Utility MACT's impact on reliable electric service a

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nd, those assumptions being no longer reliable, the complete absence of data or information supporting the Agency's approach of ignoring reliability. Particularly, EPA assumes that its Proposed Rule would not impair reliability and ended its analysis there. Yet a detailed preliminary assessment undertaken by the Office of Electric Reliability of the Federal Energy Regulatory Commission demonstrates that Utility MACT is likely to cause far greater retirements of generating capacity than projected by EPA and pulls the legs out from under EPA's assumption of continued reliability.

According to a consent decree entered in this case, the EPA currently has until November 16, 2011 to promulgate final emissions standards, not nearly enough time to consider the new evidence the groups have brought forth. Thus, CoA and the other groups asked the court to extend that deadline in order for the EPA to take into account the new studies.

Image courtesy of Flickr user benchilada.

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