WLF Briefing to Examine Office of Management and Budget’s Role in Regulators’ Use of Science

PodiumPic1Science and Federal Regulation: Is the Office of Management and Budget an Effective Gatekeeper?

WLF Media Briefing, Tuesday, May 19, 10:00-11:00 a.m. EDT

Location: 2009 Massachusetts Avenue, NW (WLF headquarters)—RSVP to glammi@wlf.org or click HERE for free registration to view program live online

Speakers:

Federal Regulators’ Disregard for Sound Science Displayed in Four Agencies’ Actions

4th CircuitHow federal regulators use—and abuse—science in the regulatory process has a profound impact on regulated businesses and consumers who purchase their products and services.  In addition to the financial impact, every time that an agency forces science and the scientific process to serve its ideological or political agendas, rather than be guided by the neutral data, the public becomes less trusting of government pronouncements based on science. Below are some troubling recent examples of regulatory junk science. The first example demonstrates that protections against junk science do exist in the courtroom. The subsequent three examples reflect the lack of similar protections in the rulemaking and adjudication contexts.

Fourth and Sixth Circuits Slap-down EEOC. For the second time in less than a year, a federal appellate court has rebuked the Equal Employment Opportunity Commission (EEOC) for its use of junk science in accusing an employer of discrimination for conducting criminal background checks in its hiring process. EEOC’s litigation crusade against criminal background checks has faltered since its outset, with federal district court judges in Ohio and Maryland separately dismissing Title VII claims in 2013. Last April, just 20 days after hearing oral argument, the U.S. Court of Appeals for the Sixth Circuit affirmed the Ohio trial judge’s decision in EEOC v. Kaplan. The court found the EEOC’s statistical proof of disparate impact—compiled and presented by expert witness Kevin Murphy, an industrial psychologist—unreliable and “based on a homemade methodology” not generally accepted in the scientific community. A WLF Legal Opinion Letter and a WLF Legal Pulse post, both published last spring, offer more detail on the ruling. Continue reading

Federal Workplace Police Cast Aside Rules that Inhibit Capitalist Punishment

oshaNLRBAn excellent Economist article recently critiqued the ever-increasing criminalization of the American business community by federal regulators:

The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company.

None of this is news to us here at WLF, where we have long been at the forefront of those who are concerned about the federal erosion of business civil liberties.

But what if, despite the heavy-handed leverage, government regulators still don’t get the results they are looking for? That’s easy—change the rules. That’s precisely what OSHA Administrator David Michael recently revealed he intends to do with the standard of proof required in whistleblower merits determinations.

Despite boasting to a recent meeting of the Whistleblower Protection Advisory Committee that, from 2009 to 2014, OSHA more than doubled the number of complaints it found to have merit, recovering over $119,000,000 in damages for whistleblower complainants in the process, Michael announced that OSHA will soon release a policy memo that will change the burden of proof in whistleblower investigations.

No longer will whistleblowers be required to prove by a preponderance of the evidence that it is “more likely than not” that a violation occurred. Rather, under the new regime, whistleblowers will need only establish “reasonable cause” that a violation occurred. That lower bar will undoubtedly result in many, many more cases being found to have merit by OSHA, which is what OSHA wants.

OSHA is not the only federal workplace cop pursuing rule changes on the fly to advance its ideological agenda. As explained in a new WLF Legal Backgrounder by Littler Mendelsohn LLP attorneys Michael Lotito and Missy Parry, the National Labor Relations Board (NLRB) is poised to radically alter long-standing definitions of who counts as an employer to favor unions, plaintiffs’ lawyers, and, of course, federal regulators.

Under the view of agencies like OSHA and NLRB, due process in the face of a government-decreed worthy goal is no virtue.  And drumhead justice in pursuit of that same goal is no vice.

Also published by Forbes.com at WLF’s contributor page

FDA Advisory Committee Not Rife with Conflicts of Interest? — “Please!” Quips Federal Judge

FDAIn order to achieve results that it believes are vital to public health, the Food and Drug Administration (FDA) has demonstrated time and again that it’s not afraid to trample laws and constitutional rights along the way. Occasionally, judges reintroduce FDA to the Rule of Law. We applaud one such recent rebuke by Judge Richard Leon, whose July 21 Lorillard v. FDA decision reminded FDA that it cannot stack a science advisory panel with members who will tell the agency what it wants to hear.

FDA tobacco control. After the U.S. Supreme Court rejected the agency’s attempt to seize regulatory oversight of tobacco products in 2000 (FDA v. Brown & Williamson), Congress granted FDA the authority it coveted in 2010. Banning or severely restricting the use of menthol in cigarettes has long been a goal of FDA’s friends in the anti-tobacco movement. FDA created a science advisory panel, the Tobacco Products Scientific Advisory Committee (TPSAC) to study menthol. The TPSAC concluded in 2011 that menthol had a negative effect on public health. Two companies filed suit in Febuary 2011, charging that FDA violated federal law by appointing members to the TPSAC who had clear conflicts of interest. The plaintiffs asked the court to strike the TPSAC’s report from the regulatory record.

Judge Leon’s opinion. The TPSAC members in question had ongoing contracts to testify as expert witnesses for plaintiffs in suits against tobacco companies. They also served as consultants to manufacturers of tobacco cessation products. FDA didn’t feel such relationships conflicted with their duties on the TPSAC. Judge Leon was quite flabbergasted by FDA’s decision. “Please!” he exclaimed, adding, “This conclusion defies common sense.” With regard to the members’ work with plaintiffs’ lawyers, Judge Leon explained that they had a financial incentive not to make any recommendations that would compromise the lawsuits in which they would testify. On the product consulting work, the judge noted that any FDA regulation of menthol would likely inspire more smokers to quit, potentially with the assistance of cessation products. Thus the TPSAC members also had a financial incentive to offer advice that would encourage a ban or restrictions on menthol. Judge Leon concluded that such blatant disregard for obvious conflicts violated federal law, and he enjoined FDA from utilizing the report in its assessment of menthol. Continue reading

Will Fourth Circuit Decision to Unseal a CPSC Case Be a Boon to Asbestos Defendants?

4th CircuitThe U.S. Court of Appeals for the Fourth Circuit issued a decision on April 16 in a case called Company Doe v. Public Citizen that signals hope for asbestos defendants who are seeking to combat fraudulent claims in North Carolina. Those claims were brought in connection with a bankruptcy proceeding styled as In re: Garlock Sealing Technologies, LLC et al. (“Garlock”). How could an anonymous CPSC case from Maryland affect a gasket company’s asbestos bankruptcy from North Carolina? In a word: transparency. Both cases involve the ability of third parties to gain access to documents enmeshed in public litigation.

In issuing its ruling in Company Doe, the Fourth Circuit surely had no inkling that its words might cheer long-suffering asbestos defendants. However, that court’s insistence on transparency and public access to the judicial process bodes well for an asbestos case in which similar issues have been percolating. When the district court (and perhaps eventually the Fourth Circuit) hears motions from asbestos defendants and others about divulging sealed documents from the Garlock asbestos bankruptcy docket, the recent decision in Company Doe will surely loom large. There is no guaranty as to where the Fourth Circuit ultimately will come down on the sealing issues in Garlock. But it does appear that a new day is dawning, and—if the Court of Appeals acts consistently with its stated policy favoring public access in Company Doe—it just might prove to be the Day of Reckoning for fraudulent asbestos plaintiffs and their trial lawyer accomplices.

Company Doe Takes Two Steps Forward in District Court

Company Doe v. Public Citizen, No. 12-2209 (“Company Doe”), started when the U.S. Consumer Product Safety Commission received a “report of harm” and sought to post it on its new government-run product safety database website. [Full disclosure: I worked as legal counsel to CPSC Commissioner Anne Northup from 2009 through 2010, but left before this report of harm was received.] The report alleged that a company’s product was related to the death of an infant, but the company strongly objected that the report of harm was not accurate. When the company could not obtain satisfaction through direct negotiations with the Commission, it was forced to file suit against the CPSC in federal district court in Maryland (where the CPSC is located) to enjoin the Commission from posting the erroneous report of harm. Continue reading

Proxy Advisory Services: Making Glass (Lewis) Transparent—and ISS Too

nasdaqCross-posted at WLF’s Forbes.com contributor page

With 2014 and many corporations’ annual meetings just around the corner, more and more publicly-traded companies find themselves girding for costly proxy fights over corporate governance issues.  The small cadre of firms that provide proxy advisory services increasingly hamper management’s ability to prevent proxy battles, and to win those it can’t forestall.  Entities like Glass Lewis & Co. and Institutional Shareholder Services (ISS) provide advice to their institutional money manager and investment adviser clients that increase the percentage of shareholders voting against management’s recommendations.

But it is not at all clear that this proxy voting trend serves shareholder interests.  The Securities and Exchange Commission (SEC) has been studying these firms (which together control some 97% of the proxy services market )and their grip over proxies.  As Edward Knight, General Counsel of NASDAQ OMX (the public company that owns NASDAQ) points out: “[T]here is evidence that the Firms not only increase the costs of being a public company, but also create disincentives for companies to become public in the first place.”  Perhaps, as an October petition filed with SEC by NASDAQ OMX urges, it’s time the SEC stopped studying and started acting to make the methodology behind such influential proxy voting advice more transparent.

A Creature of Regulation.  The current problem began when, in an effort to curtail potential conflicts of interest, SEC imposed a new rule in 2003—the “Proxy Voting by Investment Advisers” rule—that required entities such as institutional investors and investment advisers to disclose “the policies and procedures that [they use] to determine how to vote proxies.”  To satisfy this new requirement, investment advisers began turning to third-party firms that offer advice on proxy voting.  When a 2004 SEC no-action letter clarified that relying on such firms creates a veritable safe harbor, the reliance on these firms grew and their impact blossomed.

Thanks to a second 2004 no-action letter, SEC has also instructed proxy advisory firms that they can provide advice to public companies on corporate governance issues—including how to win proxy votes—at the same time that they make proxy voting recommendations to investment advisers.  As James Glassman and J.W. Verret wrote in a Mercatus Center analysis last April, “Instead of eliminating conflicts of interest, the rule simply shifted their source.  Instead of encouraging funds to assume more responsibility for their proxy votes, the rule pushes them to assume less.”  Such concerns, voiced both by public companies and SEC Commissioners, led SEC to publish a “Concept Release on the U.S. Proxy System” that elicited over 300 comments. Continue reading

FDA’s Disrespect for the First Amendment (and Federal Courts) Dips to a New Low

cnbcCross-posted at WLF’s Forbes.com contributor page

The Food and Drug Administration (FDA) has long had “commitment issues” in its relationship with the First Amendment.  It possesses statutory authority to prevent the sale and distribution of drugs whose intended use and labeling are not FDA-approved, but in doing so it routinely treads on manufacturers’ speech.  Federal courts have held repeatedly that the First Amendment severely restricts FDA’s regulation of truthful speech about approved drugs.  The agency has responded with assurances that it will comply fully with those court decisions.  Recent actions make clear, however, that FDA shows little or no respect for those rulings and apparently believes it is not bound by the First Amendment.

The latest example of FDA’s defiance took the form of a Warning Letter issued by FDA’s Office of Prescription Drug Promotion (OPDP) on November 8, 2013 to Aegerion Pharmaceuticals.  OPDP’s letter objected to an appearance by Aegerion’s CEO on a CNBC talk show directed to the financial community.  During the course of his interview, the CEO suggested that Juxtapid, a drug manufactured by Aegerion, was safe and effective for several off-label uses that are closely related to its approved uses.  For example, the CEO could reasonably have been understood to say that the drug, when taken by itself, was effective in reducing a patient’s “bad” cholesterol levels, even though FDA has approved Juxtapid as a treatment for reducing “bad” cholesterol only as an “adjunct” to a “low-fat diet and other lipid lowering treatments.”  The Warning Letter did not contend that the CEO’s statement regarding efficacy was false, but it nonetheless charged that the statement was illegal because it rendered Juxtapid “misbranded.”  The letter demanded that Aegerion “immediately cease misbranding Juxtapid” and to issue “corrective messages” to rectify the situation.

So how did OPDP reach the remarkable conclusion that truthful statements made on a television talk show aimed at the financial community can render an otherwise lawful drug “misbranded?”  OPDP noted that a “misbranded” drug is defined to include a drug that lacks adequate directions for all intended uses.  It is safe to assume that a drug’s approved labeling does not include adequate directions for uses that have not been approved by FDA.  So if a manufacturer distributes a drug with the objectively verifiable intent that it be sold for an off-label use, the drug can be deemed “misbranded.”  So far so good.  Continue reading