President’s Regulatory Record in the Courts

Judiciary Strikes Down $4.6 Billion in Regulations

Federal courts have not ignored President Obama’s controversial – and costly – rulemakings.  Courts have struck down more than a dozen rules costing $4.6 billion.  During the past three years, his Administration has published more than $450 billion in regulatory burdens. Judges across the ideological spectrum – including four Obama appointees – have invalidated Dodd-Frank rules, EPA actions, NLRB labor rules, and FDA rulemakings.

This week the D.C. Circuit Court of Appeals struck down one of the Administration’s biggest rules, the $2.7 billion Cross-State Air Pollution Rule (CSAPR).  EPA’s $10 billion Utility MACT rule is also under review by federal courts.

National Labor Relations Board (NLRB)

In April, a federal judge in Florida invalidated NLRB’s union notification posters.  During the comment process, AAF argued that NLRB’s “Notification of Employee Rights” proposal likely exceeded the Board’s statutory authority.

President Obama’s appointee to the D.C. District Court, Judge Amy Jackson, agreed and invalidated part of the regulation. 

More recently, Judge David Norton of the South Carolina District Court concluded that NLRB exceeded its statutory authority, writing, “Since Congress has required notice posting in at least nine other federal labor statutes, notice posting is clearly a major question, not an interstitial matter….  The court holds that the Board lacks authority to promulgate the notice-posting rule based on its discovery of a ‘gap’ left in the Act by Congress.”

The U.S. Court of Appeals for D.C. (D.C. Court of Appeals) immediately enjoined NLRB’s enforcement of the regulation.  NLRB Chair Mark Gaston Pearce then announced that the Board would refrain from implementation, pending the outcome of further litigation.

Dodd-Frank

Just one year after passage of Dodd-Frank, the D.C. Court of Appeals held that the Securities and Exchange Commission (SEC) violated the Administrative Procedure Act (APA) by failing to “consider the rule’s effect upon efficiency, competition, and capital formation…” when it finalized its proxy access rule. The now-defunct regulation required companies to include shareholder nominees for director positions.  The rule applied regardless of company size, affecting many small businesses.

To date, SEC has imposed more than 4.1 million hours of paperwork compliance during its implementation of Dodd-Frank.

The Court’s invalidation of the proxy access rule should concern the Consumer Financial Protection Bureau, which recently issued a rule on remittance transfers that imposes more than 7.6 million paperwork hours, but contains no benefit-cost analysis.

According to AAF data, incomplete benefit-cost analyses are common.  Of the 99 Dodd-Frank rulemakings that impose paperwork burdens, only 57 also quantify costs, and dozens fail to conduct a full benefit-cost analysis. 

EPA

According to the Government Accountability Office (GAO), EPA has suffered several setbacks in federal court, having lost 184 cases from FY 2003 to FY 2010.

Last March Judge Jennifer Walker Elrod found EPA improperly denied a Texas environmental implementation plan.  Judge Elrod concluded that EPA created “three extra-statutory standards … out of whole cloth.” 

In addition, in Mingo Logan Coal v. EPA, Judge Amy Berman Jackson found EPA improperly withdrew two Clean Water Act permits.  In a 34-page opinion, Judge Jackson wrote, “This attempt to withdraw the specification of discharge sites after a permit has been issued is unprecedented in the history of the Clean Water Act.” 

Bear in mind the Administration’s broader regulation of the energy sector.  EPA has imposed greenhouse gas standards and made the cost of regulatory compliance higher by implementing Boiler MACT, Utility MACT, and Cross State Air Pollution rules. 

FDA’s Cigarette Labels

In June 2011, FDA mandated that all cigarette packaging contain graphic warning labels.  Judge Richard J. Leon wrote that Congress and FDA imposed “bold” affronts to the Constitution with new warning labels.

Judge Leon found FDA’s regulation violated the First Amendment.  He added, “[T]hese mandatory graphic images unconstitutionally compel speech, and [the plaintiffs] will suffer irreparable harm absent injunctive relief….”

The case is still pending review by a higher court but it appears FDA’s regulation will face a high constitutional bar in future litigation.

Education’s Gainful Employment Rule

On June 30, an Obama appointee struck down the so-called “Gainful Employment” rule, implemented by the Department of Education.  In a scathing decision, Judge Rudolph Contreras called the regulation “not based upon any facts at all,” adding that it was “not reasoned decisionmaking,” by Secretary Arne Duncan.   

The regulation would have required for-profit institutions to meet certain metrics for graduate loan repayment and earnings.  For-profit universities that fail to achieve the definition of “Gainful Employment” lose federal funding.  By the same rubric, thousands of recent graduates from public colleges and law schools are similarly situated but their alma maters do not face such market discipline: the rule only applies to for-profit institutions.

A conservative estimate of the rule’s impact predicts a compliance cost of more than 261,000 man-hours and $338 million in lost revenue for the for-profit sector.  One recent government estimate projected that five percent of institutions would lose funding if the courts had not struck down the regulation.

Regulatory Outlook

Losing fifteen times to judicial oversight is no doubt significant, but the most significant case is easily the $2.7 billion Cross-State Air Pollution Rule (CSAPR).  If the $10 billion Utility MACT rule falls as well, judges will have invalidated much of EPA’s regulatory achievements

Recently, EPA admitted to technical problems with its Utility MACT regulations and agreed to a partial stay of the rule.  In public court documents, plaintiffs challenging the regulation have argued that virtually no regulated entity would be compliant with the strict standards. 

EPA has already lost the battle on CSAPR, if they go 0 for 2 with Utility MACT, the Administration’s total regulatory loss in courts could eclipse $14.6 billion.  This is a victory for regulated industries and an embarrassment for the Administration, but the total still represents just a fraction of the total regulatory burden.

Conclusion

Judicial review of agency actions under the Obama Administration has had a significant impact on both monetized costs and broader public policy. Although a vast regulatory web remains, it is worth noting the challenge this Administration has had sustaining its signature domestic achievements in federal court, even with friendly judges.  With major EPA rules still under review, courts could add to the President’s legal struggles.