Millennium Challenge Corporation Adopts CoA Institute’s Recommendations for FOIA Regulations

The Millennium Challenge Corporation (“MCC”) finalized a rule at the end of last week implementing new Freedom of Information Act (“FOIA”) regulations and incorporated important revisions proposed by Cause of Action Institute (“CoA Institute”) in a comment submitted to the agency in March 2018.  The MCC is a small agency tasked with delivering foreign aid to combat global poverty.

CoA Institute made several recommendations in response to the MCC’s proposed rulemaking.  Most importantly, we urged the agency to remove outdated “organized and operated” language from its proposed definition of a “representative of the news media.”  Such language has been used in the past to deny news media requester status—and favorable fee treatment—to government watchdog organizations, including CoA Institute.  For example, CoA Institute sued the Federal Trade Commission, and took its case all the way to the D.C. Circuit, just to get the agency to acknowledged that its FOIA fee regulations were outdated and that it had improperly denied CoA Institute a fee reduction.

In deciding that case, the D.C. Circuit issued a landmark decision clarifying proper fee category definitions and the application of fees in FOIA cases.  CoA Institute cited this case to the MCC and the agency took heed of the current case law, removing the outdated “organized and operated” standard from its final rule.

CoA Institute also asked the MCC to remove language directing FOIA officials to read agency regulations “in conjunction with” fee guidelines published by the White House Office of Management and Budget (“OMB”) in 1987.  Portions of the OMB guidance, which are actually the source of the “organized and operated” standard, are simply no longer authoritative—they conflict with the statutory text, as amended by Congress, and judicial authorities, including Cause of Action v. Federal Trade Commission.

Continued reliance on the OMB guidelines threatens to cause confusion.  In 2016, the FOIA Advisory Committee and the Archivist of the United States both called on OMB to update its fee guidelines.  CoA Institute also filed a petition for rulemaking on the issue, and is currently litigating the matter in federal court.  Although the MCC has decided not to alter its reference to the OMB guidelines (and did not provide an explanation for rejecting that portion of CoA Institute’s comment), the fact remains that no agency can rely on OMB’s superseded directives.

Since the passage of the FOIA Improvement Act of 2016, CoA Institute has commented on twenty-six separate rulemakings.  Of the twelve that have been finalized, CoA Institute has succeeded in convincing seven agencies to abandon the outdated “organized and operated” standard in favor of a proper definition of “representative of the news media,” including the following:

Some agencies, including the National Credit Union Administration and the Federal Reserve, choose to defer on CoA Institute’s recommendations and have promised to propose further rulemakings in the near future to address outstanding fee issues.

CoA Institute’s successful comment to MCC is another small step in our efforts to provide effective and transparent oversight of the administrative state and, more specifically, to ensure agency compliance with the FOIA.

Ryan P. Mulvey is Counsel at Cause of Action Institute

Zen Magnets Wins, but Decision Does Little to Protect Against Regulatory Overreach

Last month, a U.S. District Court tossed a mandatory recall issued by the Consumer Product Safety Commission (CPSC) against Zen Magnets, a company that sells powerful Small Rare Earth Magnets (SREMs) to adults as desk toys or for use in art, jewelry, and physics education. The recall was the latest in a long series of CPSC actions taken against SREM sellers premised on child safety. In a handful of cases, children who swallowed multiple magnets sustained internal harm when the magnets would reconnect in the digestive tract, often despite unmistakable warnings against ingestion or use by children.

The CPSC has been on a relentless crusade to eradicate SREMs from the market using a variety of strategies. One tactic, an attempt to set a regulatory safety standard, was thrown out by the 10th Circuit in part because the Commission ignored the public’s use of SREMs for educational and artistic purposes. Further, the court explained that because the CPSC couldn’t explain why the injury rate from magnets was actually declining, the standard violated the Administrative Procedure Act:

“The Act provides that the Commission cannot promulgate a safety standard unless it concludes “that the rule . . . is reasonably necessary to eliminate or reduce an unreasonable risk of injury. . .” Here, the downward trend in injury rates is obvious, and appears to speak directly to the question of whether the new rule is “reasonably necessary. . . ” While the Commission is certainly free to rely on the emergency room injury report data set, it may not do so in a way that cloaks its findings in ambiguity and imprecision, and consequently hinders judicial review.”

Rather than trying to better back up their data or acknowledging the miniscule risk posed by SREMs, the Commission tried another tactic – continuing to take administrative action against SREM companies who refused to voluntarily recall their products. To companies, a standard would have provided much-needed certainty about which marketing tactics and warnings they could adopt to stay in business and minimize injuries to children. Instead, companies were forced to guess at which fixes would satisfy the CPSC; most were taken to administrative adjudication anyway.

Unlike nearly all similar companies in the market, Zen Magnets’ founder, Shihan Qu, refused to recall his products. But he did add multiple highly visible warnings and primarily marketed the magnets to stores frequented by adults, like marijuana dispensaries. None of these changes placated the CPSC, who at the same time managed to drive every other company selling SREMs out of business.

The CPSC justified their administrative action under the Consumer Products Safety Act, which gives the Commission the ability to make companies recall, replace, or refund products with hazardous defects. But under the agency’s corresponding regulation, before finding a design defect, an agency or court has to weigh the adequacy of warnings, the utility of the product, and the frequency and probability of injury – all of which the 10th Circuit said the agency hadn’t done! Nonetheless, Qu’s magnets were labelled a “design defect” and he was forced to incinerate some $40,000 of his products.

The recent district court ruling invalidated the CPSC’s decision because one of the Commissioners had made public statements (see the video here at 22:14) indicating that he was incapable of judging the case fairly and on its facts. The ruling, though a win for Qu and Zen Magnets, affirms the CPSC’s authority to order mandatory recalls. Unfortunately, nothing in this decision prevents the CPSC from abusing this power in the future, so long as its commissioners keep their internal thoughts out of the public record.

In 2014, Cause of Action Institute investigated a similar case brought by the CPSC against Craig Zucker, founder of the magnet company Buckyballs. One of Zen’s biggest competitors, Zucker settled with the CPSC, but for less than one percent of the Commission’s estimated cost of recall. This disparity, combined with concerns that the CPSC had initiated the action in retaliation for Zucker’s popular anti-CPSC internet campaign, prompted us to submit FOIA requests and demand investigations to determine why the Commission had pursued the case so fervently, yet only as far as driving Zucker out of business. The CPSC not only bankrupted Zucker’s business but also attempted to go after him in his personal capacity to pay for a mandatory recall.

Shihan Qu fought for over six years in numerous courts before this recent victory, which likely won’t restrain the CPSC’s ability to go after other entrepreneurs in the future. For Qu, the ruling marked the end of a costly, drawn-out tangle with the administrative state:

Along the way we eulogized burnt magnets, uncovered CPSC injury data dishonesty, spent two dozen days in court over four years, all while a blizzard of legal motions flew around us.
The nationwide magnet ban meant we were without income for most of 2015. After downsizing from 12 employees in a big warehouse to one loyal part time in a spare bedroom, 2016 was when we had our first significant victories.

The experience of entrepreneurs like Zucker and Qu serve as a stark reminder of the cost of fighting the federal government.  But it is thanks to people like Qu, who are willing to push back against agencies that are abusing their power, that we are able to hold our government accountable.

Jake Carmin is a Law Clerk at Cause of Action Institute.