Week in Review

IN THE NEWS

• The U.S. Supreme Court reinstated an order to disburse approximately $2 billion owed to contractors for completed work, ruling against the Trump Administration’s freeze on foreign aid. The contractors had previously received foreign assistance funds from the U.S. Agency for International Development and the U.S. Department of State. In a 5-4 decision, the majority directed the U.S. District Court for the District of Columbia to clarify the government’s obligation, in light of the passed deadline to pay the contractors, but did not require immediate payment. Justices Samuel Alito, Clarence Thomas, Neil Gorsuch, and Brett Kavanaugh dissented, arguing that the majority failed its “duty to ensure that the power entrusted to federal judges by the Constitution is not abused.”
• A federal judge ruled that an Office of Personnel Management (OPM) directive ordering administrative agencies to fire probationary employees was unlawful and that the directive must be rescinded. Judge William Alsup of the U.S. District Court for the Northern District of California reasoned that OPM has never been granted statutory authority “to direct the termination of employees in other agencies.” Although OPM argued that it merely requested agencies to consider terminating probationary employees, Judge Alsup agreed with plaintiffs that this was a directive to other federal agencies. The court will hold an evidentiary hearing later this month on the matter.
• The U.S. Department of Health and Human Services (HHS) rescinded the 1971 Richardson Waiver, a policy that directed public comment on “rules and regulations relating to public property, loans, grants, benefits, or contracts.” In a policy statement, HHS Secretary Robert F. Kennedy Jr. argued that requiring public comments for these types of matters was not statutorily required by the Administrative Procedure Act and was too costly for the Department. Samuel R. Bagenstos, former general counsel to HHS, criticized the new policy, arguing that the rescission allows the agency to “move a lot faster to implement big new policy changes.”
• In a 5-4 decision, the U.S. Supreme Court held that the Environmental Protection Agency (EPA) cannot impose generic limits penalizing Clean Water Act (CWA)—a 1972 Act governing pollution and water quality control—permit holders when water quality does not meet the EPA’s standards. San Francisco argued that the EPA did not provide clear guidance on how to comply with the CWA and that the city faced burdensome criminal and civil penalties as a result. The Court held that the EPA could impose specific requirements on CWA permit holders to combat pollution, but could not impose liability whenever water quality falls below acceptable standards. The dissenting members of the Court argued that breaches in the water quality of San Francisco’s sewer system demonstrate the need for general standards for water quality in addition to the specific standards provided by the EPA.
• The U.S. District Court for the District of Columbia ruled that President Donald J. Trump cannot fire a Biden-appointed member of the U.S. Merit Systems Protection Board (MSPB) without cause before the expiration of her three-year term. The MSPB, which consists of three members, evaluates actions against federal employees and hears federal employee appeals. The court found that the Trump Administration did not explain the basis for the MSPB member’s termination and did not dispute her effectiveness. Emphasizing the need for the MSPB to maintain its independence, the court held that the firing was unlawful because members can only be removed for inefficiency, neglect of duty, or malfeasance, which did not appear to apply in this case. The court relied on Humphrey’s Executor v. United States, which held that presidents cannot fire federal agency heads without cause.
• The U.S. Department of the Treasury has suspended enforcement of the Corporate Transparency Act (CTA)—a 2021 Act mandating certain businesses to report information on owners or controllers of companies to the Financial Crimes Enforcement Network—and will not enforce penalties and fines against those who fail to comply with the required ownership reporting information. The Biden Administration passed the CTA in an effort to prevent tax evasion and business owners hiding profits from the public. President Trump and Republicans, however, contend that the rule burdened American small businesses with onerous reporting requirements. The Treasury Department announced that it will propose a rule to narrow the CTA’s ownership reporting requirements to only apply to foreign reporting companies.
• President Trump signed an executive order to expand tree cutting in national forests and public lands for timber production and to bypass certain environmental regulations. The order, which would affect 280 million acres of forested land, criticized past federal policies that “prevented full utilization of these resources and made us reliant on foreign producers.” The order directed the use of the Endangered Species Act’s emergency regulations and a rarely-used committee that has the power to approve federal projects even if they lead to the extinction of protected species. Critics argued the order could increase wildfire risks, destroy habitats, and pollute water resources.
• The Federal Deposit Insurance Corporation (FDIC) Board of Directors approved a proposal rescinding the FDIC’s 2024 Statement of Policy on Bank Merger Transactions and reinstating the Merger Policy Statement that was in effect before 2024. The 2024 Statement of Policy on Bank Merger Transactions scrutinized mergers that create banks with more than one hundred billion in assets and examined the merger impacts on local communities of banks with fifty billion or more in assets. Travis Hill, Acting Chairman of the FDIC, advocated accelerating the merger approval process and withdrawing from proposals he deemed “problematic” in recent years.

WHAT WE’RE READING THIS WEEK

• In an article in the Duke Law Journal, Joshua D. Blank, professor of law at the UC Irvine School of Law, and Leigh Osofsky, the William D. Spry III Distinguished Professor of Law at the University of North Carolina School of Law, argued that there is a “democracy deficit” in agency communications and that the current administrative law framework for analyzing agency interactions is flawed when applied to communications aimed at the general public. The pair proposed a new framework to improve agency interactions and align them with democratic values. Blank and Osofsky focused on encouraging public input on drafting regulations, enabling challenges to existing regulations by the general public, and allowing citizens to reasonably rely on agency communications. With the proposed framework, the pair aimed to provide the general public with the protections that sophisticated parties possess in the rulemaking process.
• In an essay in the Cornell Law Review Online, Chad Squitieri, assistant professor of law at the Catholic University of America, Columbus School of Law, argued that administrative agencies can help enforce separation-of-powers principles. Squitieri responded to critiques that courts have overstepped their role checking Congress and the President “impermissibly aggrandizing judicial power at the expense of the political branches.” He contended that, while courts should not be the sole enforcers of separation-of-powers principles, they should not be excluded, either. Squitieri proposed that agencies, through rulemakings, adjudications, and guidance documents, can instill virtues such as prudence and justice in legislators, encouraging them to take more responsibility for lawmaking rather than delegating authority excessively. Squitieri suggested that agencies could use hearings, policy statements, and rule preambles to pressure lawmakers into more direct legislative action.
• In an article in the Yale Journal on Regulation, Erika M. Douglas, an Associate Professor at Temple University Beasley School of Law, argues that certain industry regulators, such as the U.S. Department of Agriculture, have failed to use their statutory antitrust enforcement powers. Douglas explains that the federal agencies regulating the ocean shipping, rail, and meatpacking industry specifically have brought only a few antitrust claims in over the span of decades, leaving gaps in competition enforcement across economically important industries. Douglas argues that the lack of antitrust enforcement can be attributed to underenforcement and a lack of capacity and funding on the part of industry regulators.To prevent such gaps in competition enforcement, Douglas contends that the Federal Trade Commission and Department of Justice should act when the relevant industry regulator has failed to.

EDITOR’S CHOICE

• In an essay in The Regulatory Review, Sally Katzen, a Professor of Practice and Distinguished Scholar in Residence at the New York University School of Law, analyzed the advantages of public participation in the rulemaking process. Although she noted how sophisticated participants can provide valuable expertise through public comments, she emphasized the critical role of feedback from those who will be most affected by the rulemaking. Katzen wrote that comments from these Americans may not be as long or substantive as experts, but signal whether communities will welcome the regulations. She concluded by advocating for agency officials to engage with every American affected by their rules.