Category: Administrative Law

8

The child, not the school

The Indiana vouchers program I posted about earlier, significant on its own, also partakes of a trend. The New York Times gets it:

A growing number of lawmakers across the country are taking steps to redefine public education, shifting the debate from the classroom to the pocketbook. Instead of simply financing a traditional system of neighborhood schools, legislators and some governors are headed toward funneling public money directly to families, who would be free to choose the kind of schooling they believe is best for their children, be it public, charter, private, religious, online or at home.

In particular, the Times is right that what is sought here is redefinition. Once states established and supported institutions – public schools – that parents could take or leave, so long as they educated their children somehow. The new paradigm has states instead provide a quantum of funding earmarked for each child, that parents can deploy at any educational institution of their choosing. The fact that the aid attaches to the child and follows her to her family’s chosen school is much more important than the various labels ascribed to the funding and/or the institutional provider – public, private, charter, voucher.

As people learn to function within, and get used to, this new paradigm, they will stop thinking of educational politics as the way to create good public schools, and start thinking of it in terms of how big the aid pie is and how it gets divided up. Whether a school is public or private, online or bricks-and-mortar, religious or not – these stop being political questions and start being questions that markets will resolve through supply and demand. Read More

0

Double deference

I know that I am supposed to be caught up along with everyone else in the same-sex marriage cases, but I am still distracted by Decker v. Northwest Environmental Defense Center, decided last week at the Supreme Court. In a separate opinion designed to push the buttons of what Scotusblog’s John Elwood called Supreme Court nerderati, Justice Scalia again called for the reconsideration of the principle of Auer deference. Auer says that just as courts should defer to agencies’ reasonable interpretations of ambiguous provisions in their organic statutes, so should they defer to agencies’ reasonable interpretations of ambiguous provisions in regulations that they themselves promulgate. Chief Justice Roberts and Justice Alito suggested that they would also be open, in a different case, to reconsidering Auer.

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0

Auditing’s Snafu: Foreign Secrecy and Impaired Audits

Many US companies maintain substantial global operations, with increasing volumes of business done in China; many foreign companies are listed on US securities exchanges.  This cross-border expansion makes the reliability of financial reports created in foreign locales increasingly important.  Yet, in tandem with this cross-border expansion, there have been increasing assertions abroad, including in China, that local secrecy laws restrict access to the work papers of auditors, frustrating the ability of US federal authorities to enforce US securities laws designed to promote financial reporting integrity.

The snafu was joined this week in a case where the SEC is seeking access to audit work papers of a Deloitte affiliate in Shagnhai but the firm refuses.  The firm’s lawyers cite Morrison v. National Australia Bank, the 2010 SCOTUS ruling that, absent explicit language, federal statutes are seen as intended to apply within the US, not be extraterritorial.  It said that the federal securities laws lacked such explication.   

Furthermore, for Deloitte to comply with the SEC’s requests, the lawyers said, would risk committing a serious crime under Chinese law, one punishable by imprisonment. Deloitte’s lawyers say that the combination of Morrison and Chinese secrecy laws puts the records beyond the SEC’s reach.

Lawyers for the SEC object that these points cannot possibly be seen to limit the SEC’s administrative subpoena power under which it has demanded the Deloitte documents. But, during oral argument, the SEC’s lawyers did not acquit themselves well, according to one report, as they could not readily cite the precise legal authority supporting their position. 

Deloitte says there isn’t one and that the appropriate procedure to handle such cross-border securities matters is by diplomacy not enforcement. In this view, the SEC is wrong to proceed against Deloitte in court but must dispatch appropriate US officials to broker a resolution with Chinese regulatory counterparts.

The stakes are high for both sides in the case, of course, and for investors and students of auditing. After all,  audits endow financial statements with credibility. Shareholders are willing to pay for audits in exchange for that credence value.  But if an auditor’s work papers are top secret, inaccessible even to a regulatory overseer, how much of an audit’s credence value is lost? Is it still rational for shareholders to condone paying the auditor’s fee?

When the credibility of financial statements are in doubt, investors should shun their issuer and sell the stock.  A critical mass of shareholders of companies affected by this snafu might do well to follow that old-fashioned Wall Street Rule. If they did, then, along with such companies, the need to resort to either a diplomatic or enforcement solution would disappear. Read More

2

Nondelegation, now available in 32-ounce sizes

New York City is abuzz with the setting aside of Mayor Bloomberg’s ban on the sale of sugared drinks in containers larger than sixteen ounces. The ban applies to establishments directly under the authority of the City’s Health Department (restaurants, movie theaters) but not those that are not (retail stores, church suppers). I have been following the rule with interest because my colleague Olivier Sylvain (guest blogging at Concurring Opinions next month, so stay tuned) has placed it at the core of his 1L course on Legislation and Regulation. In my section of the same course, but with respect to a different rule, I ask my students to pretend to represent the American Beverage Association, today’s successful plaintiffs. The ABA titled its victory post this morning “Choice Lives!”:  “Individuals are the ones with the power to choose what foods and beverages are right for them.”

The decision, by New York State Supreme Court Judge Milton Tingling, makes a move one often sees in high-profile trial court cases, which is that it reaches its conclusion on as many bases as possible. In many ways, therefore, the decision is an alarming overreach. In particular, Judge Tingling says that the regulation is arbitrary and capricious because it is riddled with exceptions:  not just for the above-mentioned retail stores, but also, for example, for beverages that contain a lot of  milk or any alcohol. It cannot be right that an agency acts arbitrarily by failing to be comprehensive. The rules’ various exemptions, while fairly numerous, each bears a plausible justification. That plausibility is more than sufficient to get by the arbitrariness test.

The weakest part of the opinion is a long history of the New York City Charter, which the judge recites in support of his position that obesity is not a “health” issue within the Charter’s meaning. Not only does the opinion give a very dubious restrictive construction to the Charter language, but the Mayor’s soda rule survives that construction. Judge Tingling says that the Executive’s authority to “limit or ban” legal food items applies only when the city is in “eminent [sic] danger due to disease” [29] – but that is precisely the Health Department’s claim, and it is a reasonable one. And, as the City has emphasized, there is no ban here on soda in any quantity; all that is restricted is delivery systems, for which alternatives are available. You can buy 64 ounces of Coke if you want, as long as you are willing to carry four cups.

Nevertheless, Judge Tingling is right that New York State’s nondelegation doctrine – the doctrine that administrative law professors who teach only federal cases tell their students is a dead letter – prohibits the rule. The foundational case, Boreali v Axelrod, is nearly on all fours with this case. Health departments, pursuant only to sweeping language giving them authority over public health, cannot in New York State limit trade in legal markets over which the legislature has given them no explicit authority. If the City is to win its promised appeal, it is going to need to argue that Boreali should be overruled or limited.

The problem with that is that Boreali is right. Nondelegation is an important constitutional principle and should not be sidelined out of existence. I don’t disagree with the Mayor that obesity is a big problem, and am not per se opposed to the kind of state paternalism that shoves people in the direction of healthy behaviors; but I think it’s not just reasonable, but better politics, better civics, and better constitutional law to require those shoves to come from a legislative, rather than an executive and bureaucratic, process.

See also Rick Hills’ interesting comments here.

5

The Cultural Construction of the Bicycle

Before automobiles first appeared in urban spaces, parents regularly sent children outside to play in the street. Today, noone would hesitate to label any parent who did that as reckless. The cultural distance between then and now is substantial. Readers interested in its course should check out Peter Norton’s excellent, and consistently surprising, Fighting Traffic.

I am regular bike commuter in New York City, along with an increasing number of other people. Bikes, under the law, are supposed to follow the same rules of the road as motor vehicles. But many cyclists, here in New York at any rate, don’t. They slow rather than stop at red lights and stop signs. They weave around pedestrians in crosswalks. They go the wrong way on one way streets. It’s a great case study of why people obey the law: we cyclists break these rules because they seem so manifestly unsuited to our circumstances. I yield rather than stop for some red lights and some pedestrians, when it seems clearly safe to do so (although I draw my personal line at salmoning upstream in a one-way zone). But I would never in a million years blow through a red light when driving a car. Even in the middle of the night, even if  nobody is coming and I know nobody is coming, I sit there patiently in the empty intersection until the light turns green.

Can the law take the lead in developing rules that make enough sense for biking for transport that cyclists would obey them? Or must we await, as we did in the case of automobiles, a new cultural construction of bicycling? (As Norton demonstrates, a lot of people died in “accidents” while the new construction of the car was emerging.) Is the wait worth it if that new construction would be optimized by what my colleagues Sonia Katyal and Eduardo Peñalver might call bicyclists’ productive disobedience? Notwithstanding my wish for a more top-down approach, it seems that  lawyers and regulators have given more thought how to optimize traffic rules for driverless cars than for bicycles.

I was in London two weeks ago giving a paper, where the bike share system has made urban cycling even more ubiquitous than it is in New York. A few days’ observation found, just as in New York, cyclists ignoring red lights and going the wrong way on one way streets.  But I didn’t see one instance in London of two cyclist behaviors I see regularly here:  failing to stop for pedestrians and riding on the sidewalk.  London cyclists’ disobedience seems more productive than New Yorkers’.

0

The New York Fed and the Rule of Law

In Sunday’s New York Times, business columnist Gretchen Morgenson reported a piece of investigative journalism that is transcendently important, but whose complexity may have obscured that. It concerns secret dealings of the Federal Reserve Bank of New York. Morgenson explains the importance of her topic in terms of the threatened erosion of social trust that can occur when central banking officials engage in dubious behavior.

I would add that her topic, dubious dealings of central bankers, is of vital importance because those who run the FRBNY have enormous power in the field of banking regulation. They oversee the largest banks and provide direct input into the Financial Stability Oversight Council, the interagency government organization created by the Dodd Frank Act to oversee the financial system. It is empowered to intervene when the next financial crisis occurs, which could be later this year or five years or ten or what have you.

As with the financial crisis of 2008, these government actors, dominated by the FRBNY, will call all the shots about which institutions to save, sell or seize, on the one hand, and which creditors and shareholders to pay, wipe out or shortchange, on the other. How they exercise these powers is thus a matter of the utmost national interest. How they exercised them in the 2008 crisis remains both obscure and questionable. Read More

1

The Disclosure Crisis

Thank you to Danielle for the lovely (re)introduction and to Concurring Opinions for inviting me to blog this month.

The Washington Law Review hosted a symposium Thursday entitled “The Disclosure Crisis,” which covered everything from privacy policies to restaurant hygiene grades. The gist of the conference, on my view, was that the only thing piling up faster than examples of mandated disclosure as a regulatory strategy is the evidence it does not work. Time and time again, officials choose to intervene in a given area by requiring companies and others to reveal information so that individuals can protect themselves and police the market. And time and time again, disclosure ends up helping few if any consumers or citizens actually make better decisions.

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RUC-rolled

A few years ago, I noted that the American Medical Association/Specialty Society Relative Value Scale Update Committee (RUC) has a dominant role in suggesting payment levels to CMS.  It raises hard questions about price-setting in the health care sector, many of which cannot be answered because its processes are opaque.  Now we know that judicial relief will not improve things any time soon.  As Brian Klepper reports, “On January 7, a federal appeals court rejected six Georgia primary care physicians’ (PCPs) challenge to the Centers for Medicare and Medicaid Services’ (CMS) 20-year, sole-source relationship with the secretive, specialist-dominated federal advisory committee that determines the relative value of medical services.”  What was the complaint?

The core of the … physicians’ legal challenge was that the RUC is a “de facto Federal Advisory Committee,” and therefore subject to the stringent accountability requirements of the Federal Advisory Committee Act (FACA). This law ensures that federal bodies have panel compositions that are numerically representative of their constituencies, that their proceedings are open, and that methodologies are scientifically credible. In other words, FACA ensures that advisory practices are aligned with the public interest.

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4

For Transparency Sake?

Recall after President Obama’s first inauguration the fuss made about his administration’s commitment to transparent government.  The January 2009 Open Government memorandum seemed a fresh start for openness in the post-9/11 era.  Now, four years later, drastic change in government secrecy has not materialized.  Let’s take DOJ’s release to two Congressional intelligence committees the OLC memo authorizing the use of drone strikes to kill American civilians abroad considered terrorists.  According to the New York Times, the administration had until now refused to even officially acknowledge the existence of the documents, which had been reported about in the media.  This recent revelation is just one example of what we say–a commitment to transparency–is not what we do.  Consider that in a 2010 memo, the DOJ endorsed “the presumption that [OLC] should make significant opinions fully and promptly available to the public.”  Despite this stated goal and the stated goals of the Open Government memorandum, the Sunlight Foundation reports that DOJ is “withholding from online publication 39% (or 201) of its 509 Office of Legal Counsel opinions promulgated between 1998 and 2012.”  That is not to say that we have made no progress.  As the Sunlight Foundation explains, the Obama administration published a slightly higher percentage of its OLC opinions online when compared to its predecessor. From inauguration until March 28, 2012, the Obama administration published 63% (40 of 63) of its OLC opinions online whereas Bush administration’s published 55% (54 of 98) of its second term opinions online, and published 11% (20 of 187) of its first term OLC opinions online by January 20, 2005.

Implementing Health Reform

The Commonwealth Fund has recently reported on how states are lagging in implementing consumer protection aspects of the ACA.  In case you are looking for a comprehensive overview of the options open to a state as it implements the MLR provisisons of the ACA, check out my colleague Tara Adams Ragone’s policy brief The Affordable Care Act and Medical Loss Ratios: Federal and State Methodologies.  Though the piece focuses on New Jersey, its structure suggests the issues that will come up for many other states:

As part of sweeping health care reform in 2010, Congress established MLR requirements for health insurance issuers offering coverage in the group and individual health insurance markets, including grandfathered but not self-insured plans, hoping to increase the value consumers receive for their premiums and to improve transparency. Medical loss ratio refers to a measure of the percentage of premium dollars that a health insurance company spends on health care as distinguished from administrative expenses and profit, including advertising, marketing, overhead, salaries, and bonuses. Prior to the ACA, some states but not the Federal government regulated loss ratios. The new Federal MLR law, which went into effect on January 1, 2011, for the first time established a national MLR standard, which varies from existing state MLR requirements in important ways.

This Policy Brief analyzes the new Federal MLR requirements and how they intersect with and affect New Jersey law and its insurance markets. After providing background on medical loss ratios and highlighting the major similarities and differences between the existing Federal and New Jersey MLR regulatory schemes, this Brief examines several requirements and policy options that New Jersey must consider as it implements the Federal requirements. This Brief also includes appendices that provide more extensive details regarding the components of the Federal MLR requirements, New Jersey’s MLR legal structure, and research regarding experiences with loss ratios nationally and in New Jersey, pre- and post-the ACA.

My former student Ina Ilin-Schneider has also posted on the MLR, after authoring a very interesting paper on the state waivers granted (and denied) by HHS.

Finally, a quick note to recommend Ann Marie Marciarille’s several recent posts at PrawfsBlawg on ACA implementation and health policy generally.  It’s hard to write about these topics gracefully and for a general audience, while conveying the expertise of a scholar.  I think of her posts as real models on both counts.

X-Posted: Health Law Profs.