With Trump’s Inauguration Days Away, Senate Committees Set to Consider More Nominees; House Not in Session

Senate Legislative Activity

The Senate will convene on Tuesday, January 17 at 3:00pm. Following any Leader remarks, the Senate will be in a period of morning business until 4:15pm. At 4:15pm, the Homeland Security and Governmental Affairs Committee will be discharged from further consideration of H.R.72, GAO Access and Oversight Act. There will be 30 minutes of debate equally divided, and upon the use or yielding back of time, the Senate will vote on passage of H.R.72.

House Legislative Activity

The House is not in session this week.

State Attorneys General January 17 Update

Squire Patton Boggs’ State Attorneys General Practice Group is comprised of lawyers who have served at senior levels in state AG offices around the country and whose practices focus, to one degree or another, on representing clients before these increasingly assertive and powerful, yet often overlooked, government agencies, as explained in detail here.

In these updates, we will call attention to the most noteworthy state AG news or developments emerging in the previous week.

Litigation

The AGs of 21 states and the District of Columbia, along with the U.S. Department of Justice, have announced an $863.3 million settlement with Moody’s Corporation, “a business and financial services company, to resolve federal and state civil claims related to the company’s misconduct in inflating ratings of residential mortgage-backed securities,” according to a Press Release from California Acting AG Kathleen A. Kenealy. The AG’s investigation showed that Moody’s “systematically misrepresented . . . that its ratings of structured finance securities were based on an objective and reliable analysis and not influenced by Moody’s economic interest,” according to the Press Release. As part of the settlement, Moody’s “agreed to a statement of facts which indicate that, despite its claims of independence and objectivity, the desire for market share resulted in it using more lenient rating criteria than it publicly claimed to be using, resulting in ratings which were higher than they would have been if Moody’s had used its publicly stated criteria.” Moody’s clients “relied on these ratings to invest in the structured finance securities, the collapse of which led to the 2008 financial crisis,” according to the Press Release.

Shire Pharmaceuticals LLC and other subsidiaries of Shire plc (“Shire”), a multinational pharmaceutical firm headquartered in Ireland, will pay $350 million to settle “allegations that Shire . . . employed kickbacks and other unlawful methods to improperly promote a medical device called Dermagraft,” according to a Press Release from Florida AG Pam Bondi. Dermagraft is a bioengineered human skin substitute approved by the Food and Drug Administration for the treatment of diabetic foot ulcers. The Press Release states that the settlement resolves allegations that “from 2007 to 2014, Dermagraft salespersons unlawfully induced clinics and physicians to use Dermagraft with payment of remuneration.” The “federal Anti-Kickback Statute prohibits the payment of remuneration to induce the use of medical devices covered by Medicare,” and under the False Claims Act “claims filed in violation of the Anti-Kickback Statute are considered false or fraudulent,” according to the Press Release. The settlement in part resolves allegations that “Shire’s improper promotion and marketing of Dermagraft caused false claims to be submitted to government health care programs,” and the settlement “represents the largest False Claims Act recovery by the U.S. in a kickback case involving a medical device,” according to the Press Release.

A coalition of 23 states led by West Virginia AG Patrick Morrisey has filed an amicus brief in the Supreme Court “supporting the Gloucester County School Board in a lawsuit over Title IX bathroom regulations,” according to a Press Release from Texas AG Ken Paxton. The Press Release states that Title IX “prohibits discrimination on the basis of sex.” A “transgender student sued the school board after they were given the options of using the restroom corresponding to their biological sex, a private facility, or a unisex restroom,” according to the Press Release. The transgender student “previously agreed to use a separate restroom in the nurse’s office, but then expressed a preference for the boys’ bathroom at the high school,” per the Press Release. The school board “argues that the definition of one’s sex in Title IX . . . by its express terms does not include gender identity, but instead pertains to biological sex.” The coalition of states argues in its amicus brief that “the view that Title IX requires States to permit access to sex-separated facilities based on gender identity is indisputably ‘new’ and ‘novel.’”

Advocacy

In a January 10 Press Release, Illinois AG Lisa Madigan “applauded the Illinois Senate’s approval of legislation to protect children from drinking water contaminated by lead and urged [Illinois Governor Bruce] Rauner to sign the bill into law.” The legislation would require lead testing in schools and day cares throughout Illinois, and was “initiated” by Madigan and the Illinois Environmental Council “in response to alarming levels of lead found in water in many Chicago and suburban school districts,” according to the Press Release. The bill passed the Illinois Senate on January 10. The Press Release further states that according to “the Centers for Disease Control and Prevention, there is no safe level of lead in drinking water,” and that children “are particularly vulnerable to lead exposure, which can lead to irreversible brain damage and lifelong intellectual, emotional and behavioral consequences.” AG Madigan said of the legislation that “[t]esting our children’s drinking water for lead is a commonsense and inexpensive way to protect them from the serious and lifelong developmental impacts of lead exposure.”

House, Senate Pass Budget Resolution in First Step Toward Repealing Obamacare

Legislative Activity

House and Senate Pass FY 2017 Budget Resolution to Set into Motion the Repeal of Obamacare

Last week, Congress passed a budget resolution (S Con Res 3) that will serve as a first step in paving the way for budget reconciliation and eventual repeal of the Patient Protection and Affordable Care Act (P.L. 111-148), also known as “Obamacare.” The budget resolution is a non-binding spending blueprint, and because it is not an act of law, it does not require the President’s signature. See our previous post for details of the reconciliation process.  Congressional Republicans, including House Speaker Paul Ryan (R-WI), have labeled the resolution as a placeholder (simply to set into motion the repeal of Obamacare) and are promising that a “real budget” for Fiscal Year 2018 will be introduced, debated, and voted on in short order.

The Senate passed its budget resolution on January 12 by a vote of 51-48. Although amendments would not be binding, there were over 100 filed in advance of the Senate’s “vote-a-rama” last week.  However, only 19 votes were taken.  Of note, Senator Rand Paul (R-KY) proposed an amendment that would put a freeze on budget spending beginning in Fiscal Year 2018, but the amendment failed by a 14-83 vote.  The amendment would have resulted in a budget cut of trillions of dollars and the U.S. deficit being fully eliminated in as soon as five years. Additionally, Senate Democrats offered several amendments that were either not voted on or failed to receive enough affirmative votes to pass. For example, Senator Bernie Sanders (I-VT) offered an amendment, that ultimately failed, that would have prohibited cuts to Medicare, Medicaid, and Social Security, something President-elect Trump has pledged not to do.  Additionally, Senator Tammy Baldwin (D-WI) offered an amendment that contained the “Conrad Rule” which bars a reconciliation package that would allow the deficit to increase over a ten-year period; however, the amendment was never considered.   Senator Mark Warner (D-VA) also proposed an amendment that was never considered that would have forced points of order in the event that reconciliation legislation would worsen the financial solvency of Medicare’s Hospital Insurance Trust Fund.

Once the legislation reached the House chamber, the House Committee on Rules met and issued a “closed rule” prohibiting any amendments from being considered on the House floor. On January 13, the House passed S Con Res 3 by a vote of 227-198, with nine Republicans joining Democrats in voting against the measure.    While not included in the recently passed resolution, Speaker Ryan continues to promise that Republicans still plan to include measures that would ultimately defund Planned Parenthood as they move forward with repeal of the Affordable Care Act.

House and Senate Financial Services Lawmakers Kick-Off the 115th Congress; Regulators Tackle Debt Collection, Insurance, and FinTech

Legislative Activity

New Year, New Look for Senate Banking and House Financial Services Committees

With the new Congress officially under way, both the Senate Banking and House Financial Services Committees have announced new Committee members. Joining Chairman Mike Crapo (R-ID) on the Senate Banking Committee are fellow Republican Senators David Perdue (R-GA), Thom Tillis (R-NC), and John Kennedy (R-LA). On the Democrat side, Senators Brian Schatz (D-HI), Catherine Cortez Masto (D-NV), and Chris Van Hollen (D-MD) will join Ranking Member Sherrod Brown (D-OH) as new additions to the Committee. Kicking off the year, last week the Committee held its first hearing to consider the nomination of Dr. Ben Carson to be Secretary of the Department of Housing and Urban Development (HUD). The Committee was generally friendly and welcoming to Dr. Carson, whose nomination to lead HUD has been questioned by some due to his lack of government experience and housing policy credentials. Dr. Carson repeatedly suggested that his vision for HUD integrates government assistance programs with “holistic” solutions spurred by greater involvement of the business community. He called on the private sector to play a larger role in addressing poverty and systemic inequities, investing in “human capital” to both increase quality of life and profits. Both Republican and Democratic Senators agreed to work with Dr. Carson and expressed a general sense of support for his confirmation.

On the other side of the Capitol, House Financial Services Committee Chairman Jeb Hensarling (R-TX) announced 10 new Republican members who will serve on the committee, including Representatives Lee Zeldin (R-NY), Dave Trott (R-MI), Barry Loudermilk (R-GA), Alex Mooney (R-WV), Tom MacArthur (R-NJ), Warren Davidson (R-OH), Ted Budd (R-NC), David Kustoff (R-TN), Claudia Tenney (R-NY), and Trey Hollingsworth (R-IN). New Democrats joining the Committee include Representatives Josh Gottheimer (D-NJ), Vicente Gonzalez (D-TX), Charlie Christ (D-FL), and Ruben Kihuen (D-NV). Additionally, the Chairman Hensarling has established the Subcommittee on Terrorism and Illicit Finance, an area of focus previously addressed through the Task Force to Investigate Terrorism Financing. Representative Steve Pearce (R-NM) will serve as the Subcommittee’s Chairman and take the lead in implementing the recommendations included in the Task Force’s report released at the end of last year.

Notably, the House last week took up and passed several pieces of deregulatory legislation, marking the beginning of what is expected to be two years of strict scrutiny on the current financial services regulatory landscape. Among the bills passed include H.R. 79, Helping Angels Lead Our Startups Act (HALOS Act), which directs the Securities and Exchange Commission (SEC) to amend Regulation D within six months to make the prohibition against general solicitation inapplicable in certain circumstances. The House also voted on H.R. 78, SEC Regulatory Accountability Act, which, among other provisions, directs the SEC to: (1) review its existing regulations periodically to determine if they are outmoded, ineffective, insufficient, or excessively burdensome; and (2) modify, streamline, expand, or repeal such regulations. Additionally, the House voted on H.R. 238, Commodity End-User Relief Act, which would reauthorize the Commodity Futures Trading Commission (CFTC), while at the same time imposing certain restrictions, including a cost-benefit analysis.

Regulatory Activity

CFPB Director May Be in Trump’s Sights for Removal

Last week, Trump Administration spokesman Sean Spicer announced that President-Elect Trump is considering former Representative Randy Neugebauer (R-TX) to replace current Consumer Financial Protection Bureau (CFPB) Director Richard Cordray. According to some, President-Elect Trump may be building a case to remove Director Cordray “for cause” – current the only way a President can remove the Director of the CFPB (at least until the PHH case is resolved). The potential fight with Director Cordray – who has suggested he will not resign until his term ends next year – comes amid the Bureau’s efforts to finalize several pending rulemakings, including its debt collection proposal on which the Bureau last week issued a report.

US-E.U. Finalize Insurance Agreement

Last week, after more than a year of negotiations, the Treasury Department sent the terms of its insurance regulatory agreement (covered agreement) with the European Union to Congress. The covered agreement was drafted to address the current difference between the insurance regulation in the EU and U.S. In particular, the agreement with address the application of EU rules under its “Solvency II” regulations and the oversight of reinsurers. Pursuant to the terms of the covered agreement, certain EU Solvency II requirements will not apply to the worldwide operations of U.S. insurers (with the exception of those firms’ European operations). Instead, U.S. states will continue to serve as the primary regulators of the domestic insurance industry, though these regulators will need to update rules that apply to EU reinsurers. After three and a half years, if any states have failed to comply with the terms of the covered agreement, Treasury’s Federal Insurance Office may determine to preempt state laws that are inconsistent with the agreement.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the covered agreement, which was negotiated on the U.S. side by the Treasury Department and U.S. Trade Representative (USTR), the agreement will come into force 90 calendar days after it has been submitted to Congress. Of course, EU governments will have to approve the agreement as well, after which it would need to be approved by the European Commission as well as the European Parliament. Notably, in the U.S., both Members and state insurance regulators have thus far seemed to withhold judgment on the agreement pending further review.

OCC FinTech Charter Faces Unexpected Opposition

After the Office of the Comptroller of Currency’s (OCC) announcement last month that it would begin accepting applications from certain FinTech companies (i.e., those which participate in one of the three core banking functions: lending money, paying checks, or receiving deposits) seeking to obtain a federal bank charter, the proposal has received somewhat unexpected pushback from leading Democrats. Expressing several concerns about the OCC’s plan, Senate Banking Committee Members Sherrod Brown (D-OH) and Jeff Merkley (D-OR) argued that the proposal “could also allow predatory alternative financial services providers to spread more quickly given the blessing of the federal government and elimination of state-based protections for working class Americans.” Going further, the Senators questioned the underlying authority of the OCC to issue such a charter, suggesting that it could lead to “charter shopping” and allow these companies to sidestep certain requirements imposed on traditional banks. These remarks were echoed by the Conference of State Bank Supervisors, which submitted a comment letter criticizing the OCC’s proposal. Together, such opposition may indicate that the road ahead for the OCC’s proposal may be bumpier than had previously been expected.

Lawmakers Pledge Regular Reauthorization of Homeland Security Agency; Senate Panel Considers Trump DHS Secretary Nominee; Obama Administration Ends “Wet Foot, Dry Foot” Policy for Eligible Cuban Nationals

Legislative Activity

Lawmakers Pledge Regular Reauthorization of Homeland Security Agency

On Wednesday, January 11, House Speaker Paul Ryan (R-WI) released a Memorandum of Understanding (MOU) signed by chairmen of eight House committees with jurisdiction over the Department of Homeland Security (DHS). The MOU serves as an agreement between the eight lawmakers to work together to regularly authorize, reform, and improve DHS, which has not been reauthorized since its formation in 2002.  The MOU was signed amid what the House Homeland Security Committee calls an “evolving threat environment,” as well as Chairman Mike McCaul’s (R-TX) efforts to consolidate jurisdiction over DHS under his panel.

In a statement, Rep. McCaul stated “We are finally on a solid path to overhaul the Department of Homeland Security and make sure it stays ahead of threats to our country…I look forward to working hand-in-hand with my colleagues in the House, the Senate, and the new Administration to reauthorize DHS and ensure it is equipped to protect the United States and our people more effectively, efficiently, and decisively.”

In the MOU, the chairmen agree that DHS must be authorized “on a regular basis to ensure robust oversight and improve its operation” and that each committee will work together to develop “comprehensive” reauthorization legislation. The chairmen also commit to making “best efforts” to resolve policy disputes relating to aspects of DHS reauthorization.

Senate Panel Considers Trump DHS Secretary Nominee

On Tuesday, January 10, the Senate Homeland Security and Governmental Affairs Committee (HSGAC) held a hearing to consider the nomination of General John F. Kelly to be DHS Secretary. The hearing focused primarily on General Kelly’s views on cybersecurity, drug trafficking, counterterrorism, and immigration policy.  General Kelly largely received bipartisan praise from members of the Committee, who expressed confidence in his ability to lead the sprawling agency. Chairman Ron Johnson (R-WI) urged the Senate to confirm General Kelly on the first day of President-Elect Trump’s administration.

Ranking Member Claire McCaskill (D-MO) expressed hope that General Kelly’s experience as Commander of U.S. Southern Command (SouthCom) would assist in the development of a comprehensive and inclusive approach to addressing immigration and border issues at DHS. She is also encouraged by General Kelly’s past statements on engaging law enforcement, medical and rehabilitation organizations, and local communities to implement a comprehensive drug demand reduction campaign to address the U.S. opioid epidemic.

In his opening statement, General Kelly described his experience in senior command positions in the U.S. military and previous coordination with government agencies, Congress, and the private sector to address current and emerging threats. He highlighted his intent to provide “his full candor and honest recommendations” when advising the President and repeatedly emphasized the importance of “speaking truth to power.” He recognized the “many challenges” facing DHS and expressed his desire to work closely with the Committee to protect the United States from homeland security threats.

Senators Rob Portman (R-OH), John McCain (R-AZ), and Maggie Hassan (D-NH), focused on General Kelly’s previous experience handling drug trafficking efforts in Central and South America as SouthCom Commander. General Kelly stated that a physical barrier along the U.S. southern border alone will be insufficient in stopping the flow of illicit drugs into the U.S. and advocated for a “layered defense,” in which physical barriers are supported by sensors, patrol units, observation devices, and UAVs. He also highlighted the importance of partnering with countries in Southern and Central America to disrupt drug production and transportation operations, which he called the most effective means of restricting the flow of drugs into the U.S.

In a more pressing line of questioning, Senator Kamala Harris (D-CA) stressed that Deferred Action for Childhood Arrivals (DACA) program enrollees relied on the federal government’s representation that information acquired during DACA enrollment would not be used for deportation purposes. General Kelly stated that while he had not been involved in the President-Elect’s discussions on the use of such data in the context of immigration reform, he believed that non-criminal DACA enrollees would not be a high priority for deportation. Senator James Lankford (R-OK) asked General Kelly to address “sanctuary cities” and his intent to work with local jurisdictions that “refuse to cooperate” with U.S. Immigration and Customs Enforcement. General Kelly noted that while he understands the perspectives of some local leaders who have implemented sanctuary policies, he stated that he could not “pick and choose” which laws would be followed, calling such action “dangerous.”  General Kelly stressed the importance of working closely with international partners and enhancing information sharing between foreign governments and the U.S. in support of U.S. counterterrorism efforts.

Executive Branch Activity

Obama Administration Ends “Wet Foot, Dry Foot” Policy for Eligible Cuban Nationals

This week, the Obama Administration announced that it would be a revoking long-standing exemption from deportation under the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (P.L. 104-208) benefiting eligible Cuban nationals.  The Act grants the federal government the authority to place undocumented immigrants who arrived in the U.S. by sea or by air in “expedited removal proceedings.” Subsequent notices expanding the use of authority granted under the Act have included exemptions for Cuban nationals, who have been provided protected status since 1995.  Effective January 13, previously-eligible Cuban nationals who reach the United States will no longer automatically benefit from legal permanent status and a pathway to citizenship, ending the two-decade old so-called “wet foot, dry foot” policy.

“Effective immediately, Cuban nationals who attempt to enter the United States illegally and do not qualify for humanitarian relief will be subject to removal,” Obama said. “By taking this step, we are treating Cuban migrants the same way we treat migrants from other countries.” The decision to end the policy was reportedly made in agreement with the Cuban government.

Tax-Writers Take-Off on Tax Reform; IRS Issues Post-Inversion Regs Amidst New Taxpayer Advocate Report

Legislative Activity

Ways and Means, Finance Committees Welcome New Members

Kicking off the 115th Congress, both the House Ways and Means and Senate Finance Committees have announced their updated rosters. Joining Chairman Kevin Brady (R-TX) on the House Ways and Means Committee will be Representatives Dave Schweikert (R-AZ), Jackie Walorski (R-IN), and Carlos Curbelo (R-FL). On the Democratic side, newly appointed Ranking Member Richard Neal (D-MA) will be joined by Representatives Brian Higgins (D-NY), Terri Sewell (D-AL), and Suzan DelBene (D-WA). Not wasting any time, the Committee held an organizational meeting last week during which it adopted several rules changes, including: (1) holding a regular meeting each Wednesday while the House is in session (opposed to once a month); (2) adding “communicating information about the Committee’s activities to the public” to the existing purposes of the Committee website; (3) striking the requirement that the Subcommittee on Oversight’s jurisdiction shall be limited to “existing law”; (4) increasing the number of seats on the Subcommittee on Tax Policy from 14 to 15 and increasing the number of Democrat seats on the same subcommittee from 5 to 6; and (5) adding a provision allowing members to request access to electronic versions of unofficial markup transcripts. According to Chairman Brady, these rules underscore the Committee’s commitment to tax reform – something which is also reflected in the recent meeting that Speaker Paul Ryan (R-WI) had with President-Elect Trump.

On the Senate side, the Finance Committee will welcome two new members to its midst: Senators Bill Cassidy (R-LA) and Claire McCaskill (D-MO).

This Week’s Hearings:

  • Thursday, January 12: The Senate Finance Committee has scheduled a confirmation hearing on the nomination of Mr. Steven Mnuchin to be Secretary of the United States Treasury.

Regulatory Activity

IRS Issues Post-Inversion Regulations as Taxpayer Advocate Issues Report

Last week, the Internal Revenue Service (IRS) issued final and temporary regulations (T.D. 9812) providing guidance on determining stock ownership and rules regarding inversions and related transactions. The final regulations adopt, with certain changes, proposed regulations issued in 2016. (REG-135734-14). The temporary regulations amend regulation sections 1.7874-7T (disregard of some stock attributable to passive assets), 1.7874-10T (disregard of some distributions), and some definitions under reg. section 1.7874-12T; the text of the temporary regulations also serves as the text of concurrently issued proposed regulations.

Separately, last week the IRS National Taxpayer Advocated submitted her report to Congress, highlighting that the U.S. needs a simpler tax code and a service-centered IRS – both of which are principles expressed in the House Ways and Means Committee’s tax reform “Blueprint.” Among other notable items, the report highlights that if Congress were to eliminate all tax spending, it could cut individual income tax rates by 47 percent and generate the same amount of revenue. According to Nina Olson, National Taxpayer Advocate, the report should serve as the basis for Congress’ debate on how to overhaul the U.S. tax Code.

EU Public Policy January 17 Update

Malta Taking Over the Rotating Council Presidency 

The Presidency of the Council of the EU is rotating every six months among the EU Member States. The Presidencies are held by a group of three Member States which are rotating per semester. The Council’s Presidency is responsible to set up the agendas and to determine the most important issues to be addressed by the Council.

As of January 1, 2017, Malta is holding the Council’s Rotating Presidency for the first time.  Malta has identified in its work priorities on the key policy issues they seek to discuss during their Presidency. The key priorities focus among others on migration, single market, security and maritime issues.

In addition to the Maltese Presidency priorities, it is worth noting that in December 2016, the three Presidents of the European Commission, European Parliament and Council (at the time held by the Slovak Republic) signed a Joint Declaration to determine the EU’s legislative priorities for 2017. The European Commission stressed with the entry of 2017 that it remains devoted to achieving a swift legislative progress on these priorities.

Legislative Proposals on Privacy of Electronic Communication

The European Commission published on January 10, 2017 legislative proposals aiming to reinforce the privacy of electronic communications. Specifically, the following proposals were published:

  • 2017/0003 (COD): Proposal for a Regulation on privacy and electronic communications (including Impact Assessments and an evaluation report);
  • 2017/0002 (COD): Proposal for a Regulation on data protection rules applicable to EU Institutions; and
  • COM (2017) 7: Communication on Exchanging and Protecting Personal Data in a Globalized World.

In terms of the ePrivacy Regulation, the European Commission is proposing an increased confidentiality, not only on the electronic communications, but also to the user’s online behavior and devices. Other elements of the directive include ensuring users consent when it comes to processing of communication content and metadata.

The European Parliament and Council of the EU are now set to review the legislative proposals.

Building a European Data Economy

On January 10, 2017, the European Commission also published another important policy priority incorporated in the Digital Single Market Strategy: the next steps to build a European data economy. These are outlined in a Communication on Building the European Data Economy (COM (2017)9). Three of the key areas the European Commission is addressing in the Communication are (i) data access and transfer; (ii) liability related to data-base products and services; and (iii) data portability.

In order to have further clarity on these matters, a public consultation was launched by the Commission to collect information by various stakeholders. The collected data is expected to assist the Commission in determining the necessary policy priorities in this context. The public consultation is open until April 26, 2017.

Congress Continues Budget Debate; Congressional Review Act: A Primer

Senate Activity

The Senate will convene on Monday, January 9 at 2:00pm. Following any Leader remarks, the Senate will resume consideration of S.Con.Res.3, the FY 2017 Budget Resolution. At 5:30pm, the Senate will vote on Paul Amendment #1 (Substitute), with additional votes possible.

At 2:30pm on Tuesday, January 10, the Senate will vote on Sanders Amendment #19 (Social Security, Medicare, and Medicaid).

For more information on the budget reconciliation process and the Byrd rule, see our analysis here.

House Activity

On Monday, January 9, the House will meet at 12:00pm for morning hour and at 2:00pm for legislative business, with votes postponed until 6:30pm. The following legislation will be considered under suspension of the rules:

  1. H.R. 309 – National Clinical Care Commission Act;
  2. H.R. 315 – Improving Access to Maternity Care Act;
  3. H.R. 302 – Sports Medicine Licensure Clarity Act of 2017;
  4. H.R. 304 – Protecting Patient Access to Emergency Medications Act of 2017; and
  5. H.R. 353 – Weather Research and Forecasting Innovation Act of 2017

On Tuesday, January 10, the House will consider H.R. 79 – HALOS Act (Subject to a Rule). The House will also consider the following legislation under suspension of the rules:

  1. H.R. 306 – Energy Efficient Government Technology Act;
  2. H.R. 338 – To promote a 21st century energy and manufacturing workforce;
  3. H.R. 288 – Small Business Broadband Deployment Act;
  4. H.R. 321 – Inspiring the Next Space Pioneers, Innovators, Researchers, and Explorers (INSPIRE) Women Act;
  5. H.R. 255 – Promoting Women in Entrepreneurship Act;
  6. H.R. 239 – Support for Rapid Innovation Act of 2017, as amended;
  7. H.R. 240 – Leveraging Emerging Technologies Act of 2017, as amended;
  8. H.R. 274 – Modernizing Government Travel Act; and
  9. H.R. 39 – TALENT Act of 2017

On Wednesday and Thursday, January 11-12, the House will meet at 10:00am for morning hour and at 12:00pm for legislative business. On Friday, January 13, the House will meet at 9:00am for legislative business, with last votes expected by 3:00pm. The House will consider:

  1. H.R. 5 – Regulatory Accountability Act of 2017 (Subject to a Rule);
  2. H.R. 238 – Commodity End-User Relief Act, Rules Committee Print (Subject to a Rule); and
  3. H.R. 78 – SEC Regulatory Accountability Act (Subject to a Rule)

The House may also consider legislation related to the FY 2017 Budget Resolution. Additional legislative items are possible.

The Congressional Review Act: A Powerful Reform Tool, But Not a Panacea

With the election of a new President and a new Congress, attention naturally turns to what options are available for not only making new policy, but also for rolling back policy initiated during the previous Administration. The Congressional Review Act (CRA) may provide just the tool for the 115th Congress to roll back some Obama Administrations regulations. This legislative mechanism has been rarely used, but will provide an opportunity for a new, unified Republican government to wipe some of the slate clean. In fact, Congressional leaders announced last week that they would begin targeting recently passed rules. House Majority Leader Kevin McCarthy told reporters that he was working with colleagues to gather a list of half dozen or so regulations for review under the Act. Clearly, many policy makers, in and out of Congress, see it as a powerful regulatory tool to be put to use starting January 20. But it is no panacea.

Broadly stated, the aim of the CRA is to give Congress more control over the administrative state by providing for expedited legislative review of newly promulgated rules. Under the CRA, when an executive agency issues a new regulation, Congress may, by joint resolution, disapprove of it. With the President’s signature, the joint resolution invalidates and thus prevents the regulation from taking effect.

Historical Context and the Narrow Window of Relevance

The CRA emerged from a long history of attempts by Congress to garner greater control over administrative regulation. Since the New Deal, Congress has found itself unable to handle, by specific legislation, the many regulations required by a complex, modern economy. It has tended to delegate, therefore, broad swaths of authority to executive agencies. At the same time, Congress has worried that such broad delegations may leave too much power in the hands of an ever-growing bureaucracy, whose rules may not suit the needs of industry or the preferences of various constituencies. For a time, Congress sought to fix this problem with the legislative veto, whereby each or both houses reserved the ability to negate rules emerging from executive agencies. But in 1983 the Supreme Court ruled the legislative veto unconstitutional, stating that Congress could not invalidate the actions of agencies all on its own.

Seeking a replacement, and thus some form of control, Congress passed the Congressional Review Act in 1996, as a part of the Small Business Regulatory Enforcement Fairness Act. The CRA review process is, in some ways, like the legislative veto. It allows Congress, through a joint resolution brought to the floor in expedited fashion, to disapprove of new rules promulgated by executive agencies. The catch, however, is that such a joint resolution must also be signed by the President before the rule is invalidated.

Because Presidents are not usually enthusiastic about invalidating the rules of their own Administration, the CRA has largely been left unused by Congress. However, the CRA finds renewed possibilities during transitions underway now – namely, when a new party seizes control of the Presidency, while also controlling both Houses of Congress. For one, outgoing presidents typically seek to pass “midnight regulations” as their administrations wind down, and in anticipation of a change in control. The Obama Administration has proven no exception. And incoming presidents, at least when hailing from the opposing party, will typically be interested in reversing many of those new regulations. President-Elect Donald Trump has been clear about his desire to reverse a variety of Obama Administration actions, some of which can be addressed through an Executive Order, but others of which will undoubtedly be addressed by the 115th Congress. With a new Republican Congress behind him, President-Elect Trump will have the opportunity to leverage the CRA to roll back policies issued in the waning days of the Obama Administration.

The Procedure

Under the CRA, before any new rule may take effect, the issuing agency must submit it to Congress. “Major rules” – those with an annual cost of $100 million or more to the economy, a major effect on prices, or other significant adverse effects – may not take effect for at least sixty days. During that time, Congress may enact, by simple majority vote in each house, a joint resolution of disapproval. When signed by the President, the rule is nullified. Note that a complex scheme of measuring time until a rule takes effect – whether counting by legislative days, calendar days, or otherwise – assures that even adjournments and breaks, as well as misaligned House and Senate calendars, will not prevent either the House or Senate from having ample time to review new rules. When a major rule is submitted in the final sixty days of a congressional session, for instance, there is a special extended review period. As a result, a disapproval resolution may still issue within seventy five legislative days of when the next session of Congress convenes.

The CRA provides an expedited legislative path for these resolutions of disapproval. In the Senate, a submitted new rule is referred to the relevant committee, which has twenty days to report on a disapproval resolution. If it does not, such a resolution can, nevertheless, be brought to the floor upon a petition signed by thirty Senators. Once a disapproval resolution reaches the floor, the CRA precludes the use of the filibuster, sets time limits for debate (up to ten hours), and eliminates other procedural hurdles. (Ten hours of debate may not seem like much time to debate an issue, but in the Senate it can seem like a lifetime.) The House, for its part, considers the submitted rule under its general procedures. And crucially, when a disapproval resolution is sent from either the House to the Senate, or the Senate to the House, the chamber in receipt may not refer the resolution to a committee, but must bring the matter to the floor in the form approved by the other body.

Finally, disapproval resolutions may only be enacted as individual, stand-alone measures, using a template that is outlined in the Act itself. This ensures that unrelated bills are not combined with disapproval resolutions in order to exploit the expedited procedures under the CRA. It also assures that there are no discrepancies between the House and Senate versions of disapproval resolutions, and thus bypassing the need for a conference report and allowing the joint resolution to move swiftly to the President’s desk.

In an effort to address these limitations, the House on January 4 approved the “Midnight Rules Relief Act of 2017,” which would amend the CRA to provide for en bloc consideration in resolutions of disapproval for so-called “midnight rules.” Given that Senate Democrats are likely to block consideration of the legislation, the one-rule-at-a-time disapproval resolution will likely be in effect during the 115th Congress.

Once a joint disapproval resolution is passed by both Houses and signed by the President, the new rule is effectively nullified. It may not be “reissued in the same form,” and further, any new variation that is “substantially the same” as the previously rejected rule is prohibited as well, barring express statutory authorization enacted subsequent to the disapproval resolution. In the event that Congress has rejected a rule that an agency is otherwise required to issue, the agency is given an automatic one year extension to attempt to fashion something different to meet the requirement.

The CRA is About to Get its First Real Test in a Long Time

The Congressional Review Act has not been used frequently in the past. In fact, only one rule – relating to ergonomics standards – has ever been rejected with this process. That occurred in 2001, when President George W. Bush agreed with Congress to reject the ergonomics rule adopted by OSHA in the waning days of the Clinton Administration.

That the CRA has been used so infrequently is not surprising. As mentioned above, it is a promising mechanism in the unique situation of a transfer of the presidency from one party to the other, which also controls Congress. In 2015, the Republican Congress sought to use the CRA to block President Obama’s Clean Power Plan, but of course he vetoed the measure when it reached his desk. Further, the stand-alone requirement in the Senate means that each disapproval resolution will likely consume the entire permitted time for debate, using up a valuable share of limited available floor time. Finally, there may be alternative legislative methods to eliminate several regulations at once, such as through the appropriations process and a denial of funding.

Nevertheless, this may be the time when Congress finally begins to realize the potential of the Congressional Review Act. President-Elect Donald Trump has pledged to cut federal regulation, and Congressional Republicans have promised for years to begin to roll back Obama-era agency actions. Current estimates are that over 160 rules will carry over from the Obama Administration into the review period of the new Congress.

The House can easily move disapproval resolutions. The challenge will be, as always, getting anything through the Senate, even with expedited procedures in place to move things along. Leader McCarthy and other congressional leaders recognized as much when they spoke with the press this week. Given the limitations built into the CRA and the challenge of getting ten hours of Senate floor time for each disapproval resolution, Republicans in Congress will likely need to prioritize their use of the CRA, while looking for other mechanisms (such as reconciliation) to advance their policy objectives. In the end, without reform to the CRA, the 115th Congress will be challenged to move more than a handful of resolutions to the President’s desk for his signature. In short, they’ve got a powerful tool to use, but it is no panacea.

State Attorneys General January 9 Update

Squire Patton Boggs’ State Attorneys General Practice Group is comprised of lawyers who have served at senior levels in state AG offices around the country and whose practices focus, to one degree or another, on representing clients before these increasingly assertive and powerful, yet often overlooked, government agencies, as explained in detail here.

In these updates, we will call attention to the most noteworthy state AG news or developments emerging in the previous week.

Litigation

New York AG Eric Schneiderman and New York’s Acting Commissioner of Taxation and Finance Nonie Manion announced on January 4 the “conviction of Gary Mole, . . . the former CEO of Glacial Energy Holdings (“GEH”), stemming from the underreporting of over $18.5 million dollars in taxable income” by Glacial Energy of New York (“GENY”), a GEH subsidiary, according to a press release. Both GENY and Mole pleaded guilty to and were convicted of Criminal Tax Fraud in the Second Degree. The press release states that “[i]n approximately 2006, Mole allegedly began personally investing taxable revenue of GENY in a mining operation in the Democratic Republic of Congo, . . . known as ‘Gemico,’” and between 2006 and 2008 “diverted over $18.5 million in taxable revenue from GENY to Gemico.” Mole and GENY then “improperly deducted the monies invested in Gemico as consulting expenses on GENY’s tax returns for years 2006, 2007 and 2008, thereby understating GENY’s New York State taxable income by millions of dollars,” and in so doing “evaded a total of over $670,000 in New York State income taxes,” according to the press release. As a condition of his plea, Mole “repaid $335,000 in restitution to the State of New York,” per the press release.

Texas AG Ken Paxton announced on January 3 that his office “filed a lawsuit against the U.S. Food and Drug Administration (FDA) for illegally delaying the state’s importation of thiopental sodium,” according to a press release. Thiopental sodium is used by the Texas Department of Criminal Justice “as part of enforcing lawfully imposed capital sentences through lethal injection.” According to the press release, the drug has been “detained by the FDA for over 17 months without the FDA issuing a final decision on the admissibility of the drug, in gross violation of the FDA’s legal obligation to issue a ruling within a ‘reasonable’ time period.” Specifically, the FDA is withholding “based on allegations that the drug violates three provisions of the new drug approval requirements,” however the drug “falls squarely within the ‘law enforcement’ exemption of that rule and is not for patient use,” according to the press release. AG Paxton said that there were only “two reasons” for the FDA to take 17 months to issue a final decision: “gross incompetence or willful obstruction.” The AG’s office’s complaint asks the court to “declare the FDA’s delay unlawful and compel the FDA to make a final decision on the admissibility of the drugs,” according to the press release.

Advocacy

New Mexico AG Hector Balderas has announced a new initiative “aimed at attacking opioid abuse in the state,” according to an Associated Press report in The Fresno Bee. The anti-opioid initiative – named “Project OPEN: Opioid Prevention & Education Network” – is intended to educate the public on “New Mexico’s opioid crisis,” according to the report. The report notes that opioids “are the main driver of drug overdose deaths nationwide and in New Mexico” and that in 2015, only seven other states had higher overdose rates than New Mexico. The initiative’s “kick-off event,” scheduled for January 11th in Albuquerque, will feature workshops ranging from “treatment options to identifying fraud,” according to the report.

Agriculture Secretary Nominee Remains Uncertain

Legislative Activity

Cabinet Confirmation Hearings

This week, the Senate will be busy holding confirmation hearings for at least seven of President-Elect Donald Trump’s cabinet nominees. The president-elect’s choice for Secretary of the U.S. Department of Agriculture (USDA), however, has yet to be named. As history has shown, it is not unusual for the agriculture secretary to be one of the final cabinet posts to be named by newly elected U.S. presidents; however, President-Elect Trump has taken longer to choose the person responsible for leading the USDA than in recent past election cycles. In fact, the past three secretaries of agriculture named by newly elected presidents Barack Obama, George W. Bush, and Bill Clinton all occurred during the month of December, following the election.

As we are more than a week into 2017, and less than two weeks away from Inauguration Day, the agriculture community is anxious to learn who will be appointed to USDA’s top spot. Some are voicing strong opinions that President-Elect Trump’s delay could be representative of where agriculture resides as a priority for him. Others are choosing to remain optimistic, speculating that President-Elect Trump could be taking a very deliberative approach to ensure that rural America, which is widely-argued to have been responsible for catapulting President-Elect Trump to victory in November, is pleased with, and confident in, his choice.

Although President-Elect Trump has not given many specific details concerning his views toward current food or farm policies, the incoming agriculture secretary’s background, past experiences, and advocacy work may prove to exemplify the types of changes to food and farm policies we can expect to see under a Trump administration.

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