White House memo puts burden of proof back on agency for administrative enforcement

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One particular White House memorandum issued a month ago didn’t get a lot of notice. But some think it should have. The memo instructs agencies with administrative enforcement powers to give the parties they go after more due process and to shift the burden of proof back to the government. Thompson Hine law firm partner Joan Meyer talked about it more on Federal Drive with Tom Temin.

Interview transcript:

Tom Temin: So this is aimed, first of all, at what specific agencies, this White House memo?

Joan Meyer: Well, it’s aimed at all federal agencies really, that have any kind of administrative or civil power, regulatory power to investigate and bring enforcement actions. So it has wide application as written.

Tom Temin: So the Securities and Exchange Commission is just one of many that it seems to be aimed at.

Joan Meyer: Correct. It’s the Securities and Exchange Commission, the Federal Trade Commission, Commodity Futures Trading Commission, the banking regulators who have enforcement powers and can bring cases the EPA, the Environmental Protection Agency. So it really runs the gamut.

Tom Temin: All right, and let’s if you would maybe review the standard operating procedures now of these agencies, I guess they’re not quite the same from one to one, but what generally governs the way they operate when they are prosecuting cases administratively?

Joan Meyer: Well, you’re absolutely right, that there are different statutes and regulations and procedures that are applicable to all these different agencies. But typically, these agencies will have an investigative arm. And, you know, it’s related to the regulatory enforcement powers. And they can initiate investigations of companies and individuals through administrative subpoenas, or as in the case of the SEC, or the CFTC, actually having audit rights to a company’s books and records or civil administrative inspection rights. And so they will go to an entity or an individual proprietor and basically want to inspect, see their books and records, issue administrative subpoenas and collect evidence. If they find that there is a violation, they can bring an action via a complaint. Some agencies provide more notice the Securities and Exchange Commission has what’s known as a Wells notice process, which allows the party, pre- moving forward on the action, to actually argue their case before the commission as to why they shouldn’t be charged. But many of these agencies just filed a complaint, issue a press release, and then have an enforcement action before an administrative law judge or a hearing officer. The administrative law judge will issue an initial recommendation or a decision, which could then be essentially appealed to a commission or a board of the federal agency. And that would generally be the process. It varies, though, from agency to agency. But that’s usually what occurs.

Tom Temin: Right. And there have been some serious challenges, I think, one to the EPA, by a landowner, and it had to do with water activity and water flows, and one against the Securities and Exchange Commission. And part of the argument was, how can you have an agency that is both prosecuting – all three: Prosecutor, judge and jury? And those cases have gone against the agencies.

Joan Meyer: Yeah, well, one particularly interesting case was a case that was brought against to the Securities and Exchange Commission and actually challenged the appointments of administrative law judges. And the Securities and Exchange Commission did find for the respondent and finding that administrative law judges at the Securities and Exchange Commission were appointed in violation of the Constitution. And that really had general application to administrative agencies, federal agencies, and there was guidance issued by I believe the Department of Justice, that counseled agencies as to how to reappoint their administrative law judges consistently with Lucia [v. SEC]. There were also questions that were not taken up by the United States Supreme Court that still are pending. And one of them being whether or not the removal process for administrative law judges is constitutional. And that’s still winding its way through the courts. The Supreme Court specifically declined to take up that issue at the time it took up the issue in Lucia. But, you know, that’s a great example Tom because in administrative proceedings, right before Lucia there were a lot of challenges all across the federal government as to the appointment process in these specific agencies as well as the removal process. And agencies have been reluctant to provide transparency to some of those issues and have denied discover requests by respondents to try to find out how these ALJs were appointed after Lucia, and what is the removal process for these administrative law judges? Obviously, these are critical threshold issues that each respondent should be allowed to litigate.

Tom Temin: We’re speaking with Joan Meyer, she’s a partner at the law firm Thompson Hein. And getting to the White House memo, what are the specific changes it calls for in agencies conducting administrative hearings and findings?

Joan Meyer: Well, one of the first things is the burden of proof. The memo talks about the government always bearing the burden of proof for an alleged violation of the law. But it makes clear that the subject of enforcement should not bear the burden of proving compliance. And while in my experience, the government always has the burden of proof, usually administratively and civilly by a preponderance of the evidence and regulatory matters, you can find in agencies that companies are expected to affirmatively show that they’re in compliance of a particular regulation. And what the memo I think is trying to address is that – look, it shouldn’t be and the company to prove compliance. There should be a procedure here, where the government may have reasonable suspicion that a violation has occurred, uses their investigative powers to collect evidence to find proof of the violation, allow the company or the individual to respond to that allegation, but the burden should not be on the company to prove a negative.

Tom Temin: And outside of due process. There are some other pretty big changes, too, in the memo, correct?

Joan Meyer: Yes, there are procedural changes. So along with the due process, where the memo says apply a rule of lenity, meaning that when you’re construing statutes and regulations, it should be in favor of the defendant if there’s any ambiguity. Limit the duration of investigations and inform the target if you’ve closed the investigation. Don’t duplicate efforts from one federal agency to another – have one, essentially proceeding for a single body of operative facts. But one of the other things that I think the memo addresses that is important is improper agency influence. So the memo tasks agencies with developing processes so that their adjudicators operate independently from investigators and enforcement staff. So you should have no ex parte communication, you should develop separate reporting and command structures, adjudicators should be compensated, or their performance should be evaluated based on their unbiased adjudications rather than on the amount of cases that they’ve processed or the amount of penalties awarded. And that’s a very important point, because with agencies, it can be subject to improper influence arguments in that you’ve got complaints that are coming out from enforcement staff, they may be reviewed by attorney advisors or the general counsel’s office of an agency that reports directly to the commission or a board. And so you can have the approval process of a complaint where everybody becomes vested in bringing the case forward. But yet that same command structure is also taking an administrative law judge’s decision and making a determination on whether or not the decision was correct or incorrect. So it really is important that adjudicators operate completely independently from enforcement staff and that their command structures reflect that independence.

Tom Temin: So this really changes things pretty profoundly in the internal operations of the affected agencies, doesn’t it?

Joan Meyer: For some of them, it does. You know, there are agencies that have done a fairly good job, I think separating adjudicators from enforcement staff, but there are other agencies that, frankly, don’t do much litigation, and they’re bringing enforcement cases on a much less frequent basis. So their procedures, they’re not as rigid in terms of making sure that there is independence from the enforcement arm and adjudicatory arm of the agency. The other thing is that what I’ve seen in administrative proceedings is there needs to be a greater adherence to the Federal Rules of Evidence. So this memo does a good job and moving more towards that – provide exculpatory evidence to a respondent, which I think is, you know, a standard in criminal proceedings, but should be a standard in government enforcement proceedings, as well as having the clear rules of evidence. So reduce hearsay in these proceedings, use of federal case law as benchmarks to evaluate scientific evidence. That is, you know, if you’re going to rely on tests or a scientific methodology, when you’re applying a regulation or alleging a violation, make sure the testing that you’re doing is relevant, it’s reliable, and it’s based on sound scientific methodologies, which is the standard that you find in federal district court. So you see the memo trying to move these agency proceedings and align them more with federal court practice.

Tom Temin: And just to what degree are the practices prior to this memo, governed by the Administrative Procedures Act, versus whatever enabling legislation might be specific to those particular agencies in their domains?

Joan Meyer: Well, they are governed by specific statutes and regulations and the Administrative Procedures Act. And of course, what this memorandum is doing is not telling agencies don’t comply with those regulations. And those statutes that generally apply to your area. What they’re really saying is that we want to see more due process in these proceedings. This implementation memo doesn’t direct agencies to do anything in particular, what it really is doing is saying to agencies, these are the principles upon which we want to guide your use of your investigatory and enforcement power. And we expect you to start developing rules and guidance to your investigative enforcement arm and adjudicators that are consistent with this guidance. And I think the implementation memo gives a date of late November to agencies to do this. So it is attempting to give respondents in these administrative and civil proceedings more due process within the context of the existing statutory and regulatory structure.

Jared Serbu: Joan Meyer is a partner at the law firm at Thompson Hine. We’ll post this interview along with a link to her white paper at www.FederalNewsNetwork.com/FederalDrive.

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