Trump Executive Order Seeks to Limit Scope of Clean Water Act

clean water act, EPA, environmental protection agencyThe executive order asks agencies to repeal or revise an Obama-era rule defining the scope of the Clean Water Act and recommends adoption of a narrower standard articulated by the late Justice Scalia.

On February 28, US President Donald Trump issued an executive order asking the US Environmental Protection Agency (EPA) and the US Army Corps of Engineers (Army Corps) to repeal or revise a 2015 rule interpreting the term “waters of the United States,” which determines the jurisdictional reach of the Clean Water Act. The order further recommends that the agencies consider crafting a new definition based on the “continuous surface connection” test adopted by a plurality of the US Supreme Court in Rapanos v. United States, which would result in a significant contraction in the Clean Water Act’s scope from the Obama EPA’s 2015 rule.[1] The 2015 rule was met with extensive criticism by some stakeholders and gave rise to a flurry of litigation. A new rule issued in response to President Trump’s executive order is likely to do the same—resulting in continued uncertainty as to the proper scope of the Clean Water Act and possibly requiring further review by the Supreme Court to resolve the question.

Background

The scope of jurisdiction under the Clean Water Act has long been controversial. It is also an important issue for stakeholders such as farmers, developers, and energy companies that own or use properties that may contain a “water of the United States.” The scope of the act affects the application of a number of regulatory programs, including the section 402 point source discharge permit program, the section 404 dredge and fill permit program, and the section 311 oil spill prevention program.

The Clean Water Act applies to “navigable waters,” which are defined in the statute as “waters of the United States, including territorial seas.” EPA and the Army Corps, the agencies charged with administrating the Clean Water Act, have sought multiple times to define “waters of the United States” through rulemakings and regulatory guidance, and those regulatory efforts have been subject to numerous legal challenges. The US Supreme Court has weighed in on the issue three times, most recently in Rapanos v. United States.[2] Rapanos resulted in a fractured decision in which no interpretation received support from a majority of the court—Justice Antonin Scalia and three other justices articulated a test based on a “continuous surface connection,” while Justice Anthony Kennedy’s concurrence relied on whether there was a “significant nexus” to another water of the United States.[3] Because Justice Kennedy’s analysis provided the narrowest grounds for reversal, the “significant nexus” test has been understood by many as the controlling test post-Rapanos for what constitutes a water of the United States.

In May 2015, EPA and the Army Corps issued a new rule seeking to better define the Clean Water Act’s scope.[4] The agencies maintained that the final rule only clarified and limited the reach of the act, but many stakeholder groups concluded that the 2015 rule significantly expanded the existing interpretation of waters of the United States. Of particular concern to stakeholders were categorical inclusions of “tributaries” and waters “adjacent” to other waters of the United States, as well as the rule’s broad definition of what constitutes a “significant nexus.” Numerous lawsuits challenging the rule were filed, which are currently consolidated in the US Court of Appeals for the Sixth Circuit.

The Executive Order

On February 28, 2017, President Trump issued an executive order asking EPA and the Army Corps to review the 2015 rule and propose a new rule “rescinding or revising” it. The order also asks the agencies to consider defining waters of the United States “in a manner consistent with the opinion of Justice Antonin Scalia in Rapanos v. United States.” The order further directs the US attorney general to take appropriate measures regarding the ongoing litigation over the 2015 rule.

EPA and the Army Corps released a prepublication Federal Register notice the same day noting their intention to “review and rescind or revise” the 2015 rule pursuant to President Trump’s executive order. The agencies also acknowledged that they would consider adopting Justice Scalia’s test from Rapanos.

Implications

It likely will take years for the exact contours of the new regulation to be fleshed out by EPA and the Army Corps and for any ensuing litigation to be resolved. The process likely will start with the withdrawal of the Obama-era rule and the issuance of a new rule, including an explanation as to how the new rule fulfills the legislative intent of the Clean Water Act. The new rule will be subject to a public comment period.

If the agencies’ new rule is indeed based on Justice Scalia’s “continuous surface connection” test from Rapanos, it likely would entail a significant contraction in the scope of the Clean Water Act from existing practices and the Obama EPA’s 2015 rule. For example, a wetland next to a navigable river presumably would be covered by the act only if surface water from the wetland flowed into that river on a year-round basis, regardless of any subsurface flows. Under the 2015 rule, the same wetland could be covered under the act as a water “adjacent” to another water of the United States in the absence of a continuous surface connection. Many tributaries and ephemeral waters also likely no longer would be subject to regulation under the Clean Water Act if the “continuous surface connection” test is adopted. Such changes likely would be hailed by stakeholders that would have been prohibited from engaging in certain activities or obtaining permits under the 2015 rule, but criticized by environmental groups seeking to broadly protect aquatic resources.

Given the stakes and the contentious atmosphere regarding the scope of the Clean Water Act, any new rule is likely to be challenged in court. One issue that may be raised by challengers is whether a rule based on Justice Scalia’s “continuous surface connection” test is consistent with the requirements of the Clean Water Act as interpreted by Supreme Court decisions, including Rapanos. Opponents of the rule could contend that a “continuous surface connection” standard is inconsistent with the Rapanos court’s view of the limits of the Clean Water Act because five justices rejected Scalia’s test as too restrictive, and most lower courts have treated Justice Kennedy’s “significant nexus” test as the operative standard. Proponents of a new rule could counter that such a construction is nonetheless a permissible interpretation of the Clean Water Act (as evidenced by the plurality’s opinion in Rapanos) that is entitled to judicial deference.[5]  

Environmental groups or others opposed to a new rule could also challenge the merits of the rule under the Administrative Procedure Act. Such a challenge could rely in part on the new rule’s departure from the 2015 rule, in which the Obama administration cited extensive scientific findings in support of its interpretation. While agencies can change their position, they must provide a “more detailed justification” if they rely on factual findings contradicting previous ones,[6] potentially heightening the agencies’ burden to provide support for a new rule.

In the interim, jurisdictional determinations under the Clean Water Act are likely to remain in a state of limbo. The 2015 rule has been stayed by the Sixth Circuit, technically leaving the rules and guidance pre-dating 2015 as the operative regulatory regime until the time that the stay is lifted or a new rule is promulgated. In light of the new administration’s expressed intent to limit the scope of the Clean Water Act, EPA and the Army Corps will be unlikely to assert jurisdiction over waters on the borderline of Clean Water Act jurisdiction until this legal limbo is resolved. The currently pending legal challenges also may be held in abeyance or remanded until the promulgation of a new rule, particularly given the executive order’s instruction to the US attorney general to take appropriate actions in pending litigation.

Ultimately, it likely will be years before the scope of the Clean Water Act is sorted out. And it may require a fourth trip to the Supreme Court for the justices to yet again wrestle with what are “waters of the United States.”

Additional Information

Additional information on the controversy that has surrounded efforts to define “waters of the United States” and the regulatory programs affected by the jurisdictional reach of the Clean Water Act can be found in the Clean Water Handbook, Fourth Edition, authored by Duke McCall and available from Bernan Press.

Copyright © 2017 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

[1] 547 U.S. 715 (2006).

[2] Id.

[3] See id. at 717-18.  

[4] 80 Fed. Reg. 37,054. 

[5] See Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).

[6] See FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009).  

March 8th in Detroit: Using Readership Analytics to Strengthen Your Firm’s Thought Leadership

Thought leadership is a time honored method for attorneys to demonstrate their expertise and to keep their profiles out in the public sphere –but how do you create readership goals, measure its effectiveness and manage attorney’s expectations? When confronted with billable hour pressures – how do you convince your lawyers that producing quality content is a critical and measurable endeavor? Show them evidence that you can define success using data and that you have the tools you need to help their content be successful
REGISTER TODAY
Managing Director of the National Law Review, Jennifer Schaller, will discuss strategies for optimizing your firm’s content based on the latest information available for 2017. Jennifer will provide brief case studies of content that reached different types of audiences, analyzing the promotion, reach and SEO structure of various articles. Along the way, various tips on formatting, writing titles, and promoting via social media will be provided to maximize the reach of your firm’s thought leadership efforts.
Nicole Minnis, lead publications manager at the National Law Review will show you how to use data from Google Analytics (and other readership information) to convince your attorneys that thought leadership is a critical and worthy endeavor. She will cover what core metrics you can extract from readership analytics that will be compelling to attorneys, where you can find them, and why they are important.Location:
Howard & Howard
450 W. Fourth Street
Royal Oak, Michigan 48067

Parking:
Parking is available in the attached parking garage (first 2 hours free).

Lunch will be provided.

$25 LMA Members
$35 Non-Members and any registrations after March 6th
Note: You must be logged in to the LMA website to receive the member rate.

Immigration Fact and Fiction for the U.S. Employer: Know Your Rights – 5 Things to Tell Your Foreign National Employee in the Current Climate

foreign national employeeOn February 21, 2017, Department of Homeland Security (DHS) released two memoranda signed by DHS Secretary Kelly addressing immigration enforcement.  While a sitting President cannot independently modify laws or regulations without going through the normal rule making process, he/she can significantly alter policy and enforcement priorities.  These two memoranda are a clear example of a shift in focus.  While the memos largely address individuals who are undocumented, your foreign national employees may be collaterally impacted as a result of being inadvertently involved in an enforcement action, when encountering an emboldened DHS officer or even in dealing with local police officials, given their new immigration related authority.

We provide a brief overview of several issues one may encounter.  We will provide additional information in subsequent postings as these directives, and others, continue to evolve.

1. Fact or Fiction, Can Your Foreign National Employee be Detained by DHS?

The new Kelly memos make it clear that the previous administration’s “catch and release” program is over.  The administration vows to deter illegal immigration by aggressively detaining noncitizens and expanding the categories of individuals who are considered priorities for removal.   The broad language of the memos suggest that  a foreign national employee could be detained and deported if he/she is convicted of a criminal offense, charged with a criminal offense, or even has committed acts that could rise to a chargeable criminal offense.  Assuming your employee has proper visa classification and he/she has been maintaining status, all should be OK.

As the law requires, we recommend all foreign nationals carry with them, at all times, proof of immigration status.  This means if your employee is a nonimmigrant worker (H-1B, L-1B, E-3, etc.) he/she should carry his/her Employment Authorization Document, I-94 card, passport with entry stamp, or other proof of lawful presence (or at least a photocopy of the relevant documents and be able to access the original quickly if needed).  If your employee is a Lawful Permanent Resident, he/she should carry his/her greencard (or at least a photocopy and be able to access the original quickly if needed).  Employees should have handy the name and contact information of their supervisor or HR representative who can also verify their employment details.

2. Fact or Fiction, Can the Company Continue to Employ a Foreign National Worker Authorized to Work Pursuant to DACA (Deferred Action Childhood Arrivals)?

As per the Questions and Answers guidance provided by DHS subsequent to the release of the memos, DACA continues as a program.  That means that if your employee is a DACA beneficiary and is employed pursuant to a valid Employment Authorization Document (EAD), you can continue to employ him/her and they can continue to renew their work permit.   This may change in the near future but for now it stands.

Some leaked Executive Orders (EO) have included provisions to end “amnesty programs.”   If this should happen, a DACA beneficiary will lose his/her permission to work in the United States.  Short of marrying a U.S. citizen, most DACA participants have no other immigration relief or form of work eligibility.  We have some hope that when implementing any new executive orders, the government will allow the “Dreamers” to continue working at least through the expiration of their current EADs so that both employers and employees alike are not impacted suddenly.

3. Fact or Fiction, Can the Company’s Foreign National Employees Continue to Travel Abroad?

Yes, but customs officers at airports and other ports of entry may question the employee about their immigration status and underlying eligibility for that status.   If the employee is selected for a longer interview during the admission process, he/she will be sent to a “secondary inspection” area.  While United States citizens have the right to have an attorney present during questioning, non-citizens generally do not have such a right while the officer determines whether or not to admit the foreign national employee.

Please advise your employees that if a DHS officer’s questions have to do with anything other than the foreign national’s immigration status, he/she does have the right to an attorney but it is unlikely that such requests will be granted until after the questioning is completed.

Also, employers should be warned that we expect a new Executive Order (EO) re-implementing the “travel ban” will be issued next week.   While foreign nationals of the 7 countries noted in the previous EO, namely Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen, will be surely impacted, it is possible the new EO will extend a “travel ban” to other countries.  As such, we recommend foreign nationals from these 7 countries not travel abroad at this time, and we will keep you updated as the new EO is released to warn potentially additional foreign national employees against travel.

4. Fact of Fiction, Can a Customs and Border Protection (CBP) Officer Review My and/or a Foreign Employee’s Personal Electronic Devices and /or Social Media Accounts?

Since 2008, it has been the position of CBP that it may, upon a “reasonable suspicion”, inspect electronic devices, such as phones and laptops.  Moreover, this can result in CBP confiscating the devices for several weeks or months.  As such, employees should take proactive steps to ensure the confidentiality of client, customer and proprietary information.   This means that phones and computers should contain only information that is needed for the business trip. Some employers may want to provide laptops and phones that are used solely for business trips and do not contain any sensitive information.   Basically, if the employee does not need the device or information for the trip – it should be left at home.

With respect to social media, CBP Officers have recently been requesting passwords to review an applicant for admission’s social networking activity.  In addition, social media questions – while not yet mandatory – have been added to the ESTA online application.  ESTA provides visa free travel to nationals of certain designated countries.  As such, it appears that the trend will continue so employees should continue to utilize social media judiciously and remember that no post in cyber space is confidential.

5. Fact of Fiction, Do These Changes Impact a Foreign Worker’s Privacy Rights?

The memorandum addressing this issue states that DHS will no longer afford Privacy Act rights and protections to individuals who are neither U.S. citizens nor lawful permanent residents.  Since 2009, DHS has treated personally identifiable information (PII) as subject to the Privacy Act. PII includes information that is collected, used, maintained, or disseminated and includes U.S. citizens and LPRs, as well as visitors and undocumented persons.

Non-U.S. persons have had the right of access to their PII and the right to amend their records, absent an exemption under the Privacy Act.   It is unclear whether the 2009 guidance will remain in place until the DHS Privacy Office develops new guidance and it is unclear what DHS intends as to the scope, purpose, and intent of the new guidance.   For example, if your foreign national employee commits a crime or is even suspected of committing a crime as determined by an immigration officer, the employee’s name may be placed on a list which DHS will be begin publishing and making public soon.

Conclusion

Most employers are committed to having a diversity of talent and to the fair and equal treatment of all employees, whatever their background, so perhaps this is a good time to share such a message with your employees.  It is probably beneficial to include that as an employer, the company will aim to support and protect colleagues, regardless of their race, country of origin, and religion or belief system, and that the previous (and perhaps future) executive orders, as well as memoranda are only likely to affect a small minority of employees but are still taken very seriously.  Confirming that impacted employees can reach out to local HR partners or managers if they have questions or concerns is highly reassuring to most employees.

Are You Still Minding the Gap? A Check-Up for Navigating Line Between Political and Hate Speech and Workplace Acceptability

megaphone political speech hate speechIn December 2015, we broadly reviewed concerns and compliance issues for employers when managing employees engaged in workplace political speech or those accused of engaging in “hate” speech in the workplace. A brief scan of headlines so far into 2017 reveals more than 900 instances of alleged violence, hate speech, and harassment in and out of workplaces reported since late January. Human Resource professionals and in-house counsel may wonder, again—what are the company’s obligations and duties to our employees?

A quick review: “Political activity” and “political affiliation” are only protected statuses for certain employees and in certain locales. Courts have held the First Amendment protects public employees from their employers using political affiliation as a basis for employment decisions. The Civil Service Reform Act of 1978 expressly prohibits political affiliation discrimination toward federal employees. Several states have passed their own statutes concerning private-sector employees:

  • Michigan prohibits direct or indirect threats against employees for the purpose of influencing their vote;

  • Oregon prohibits threatening loss of employment in order to influence the way an employee votes on any candidate or issue;

  • Florida considers it a felony criminal offense to discharge or threaten to discharge an employee for voting, or not voting, in any election (municipal, county or state) for any candidate or measure submitted for a public vote;

  • Kentucky, Ohio, Pennsylvania, and West Virginia prohibit employers from posting or distributing notices threatening to close their businesses or lay off employees if a particular candidate is elected; and

  • California, Colorado, New York, North Dakota, and Louisiana have passed laws deeming it illegal for an employer to retaliate against an employee for off-duty participation in politics or political campaigns.

Several cities, such as Lansing, Michigan; Madison, Wisconsin and Seattle, Washington, protect political affiliation similar to protections afforded race, sex, age and disability, even for private sector employees.

Beyond these mandated protections, private sector employees should be mindful of workplace speech and conduct. For example, managers and supervisors who express any type of political opinion to subordinate employees may expose themselves to subsequent claims they acted out of bias against those employees on the basis of other protected statuses. How could an employee draw such a connection in his or her allegation? As we saw in the most recent election cycle, some political candidates across all levels (local, state and federal) voiced strong opinions about race relations, foreign relations policy, religious freedom, Second Amendment rights, immigration, LGBT rights and other issues directly related to characteristics protected by federal, state or local workplace anti-discrimination laws. Dropping into a workplace political debate with a subordinate employee about a candidate, elected official, political party, cause or other political issue risks allowing that employee to associate expressed opinions with some type of prohibited discriminatory bias.

Best Practices Check-up

  1. Understand there could be laws relating to workplace political speech or activities in your location;

  2. Educate managers and supervisors regarding what laws impact the workplace as well as the employer’s workplace culture; training can form a vital line of defense by limiting potential exposure before it has a chance to evolve;

  3. Remind managers and supervisors how personal opinions can be viewed by subordinate employees as a form of prohibited workplace bias; and

  4. Encourage managers and supervisors to resist being drawn into workplace political discussions, particularly with subordinate employees.

Should an employee file an internal complaint alleging a workplace hate-based incident, conduct a measured, consistent investigation to determine what (happened), who (was targeted) and if hate speech or other actions (based on a protected class or against company culture) is likely to have occurred. Resist assumptions.

If the investigation yields a conclusion that inappropriate behavior occurred, initiate appropriate actions to (1) hold employees appropriately accountable (for example, through formal warning up to discharge) and (2) decrease the likelihood of repeated incidents. Resist any media, or social media, attention that can serve to derail thoughtful consideration of the facts and promote an atmosphere leading to impulsive decisions.

ARTICLE BYJay M. Dade of Polsinelli PC

© Polsinelli PC, Polsinelli LLP in California

U.S. Airways Vs. Sabre: 3 Ways To Prove Healthy Market Competition

Airplane, Sky, U.S. AirwaysAt the heart of any antitrust suit lies the intent to foster healthy competition in the market. But what, exactly, does healthy competition foster? Lower prices, sure. But, more importantly, better products, better services, and more innovative ways to provide them, as well as fair negotiations among vendors.

Successful defense of an antitrust suit starts with proof of healthy competition. A recent battle of the experts in the $134M trial between airline giant, U.S. Airways (recently merged with American Airways), and Sabre Holdings Corp., a trip-planning conglomerate, offered three indicators to successfully prove healthy market competition:

Innovation

In the trial, U.S. Airways claimed Sabre—as part of a conspiracy to increase airfares and damage U.S. Airway’s position in the market—forced it into an unfair, anti-competitive contract in 2006. At the time Sabre, which boasted a large share of the trip-booking market, served as one of the primary sources of airfare data for a massive network of travel agents responsible for a significant portion of U.S. Airways bookings. In the suit, U.S. Airways claimed it had no choice but to contract with Sabre in order to maintain access to this large travel agent network. Sabre’s expert, however, University of Chicago economics professor Kevin Murphy, pointed to U.S. Airway’s plea as the exact type of reasoning that is detrimental to the market, i.e., lack of innovation.

According to Murphy, U.S. Airways could have researched, planned and implemented the creation of a new technical platform, a “bridge” Murphy called it, to the numerous travel agents that would have alleviated the need to utilize Sabre’s connection. In other words, there was opportunity to innovate had U.S. Airways found the cost of the project in conjunction with the end result—which would have alleviated the need to partner with Sabre—more valuable than the contract with Sabre. Motive and opportunity to innovate around stagnant models is a sign of healthy market competition. In addition, the “threat” of creating a new model, as Murphy put it, also has value and would have impacted negotiations.

Negotiation

To further his argument that the Sabre-U.S. Airways contract was the result of healthy competition, Murphy also pointed to the stern negotiations U.S. Airways and Sabre entered into prior to execution of the contract. Witnesses at the trial testified that U.S. Airways took very stern negotiating positions before a final value was agreed upon between the parties. Murphy explained this could not have occurred had Sabre truly possessed the type of anticompetitive market power U.S. Airways claimed. If that had been the case, Sabre would have simply named their price and left U.S. Airways powerless to refuse. Fair bartering among vendors for provision of unique, in-demand services is another indicator of healthy market competition.

Valuation

One of the primary points of contention between U.S. Airways’ expert and economist Murphy was Sabre’s “full content” contracts, a requirement by Sabre that air carriers provide access to any and all fares they offer. U.S. Airways’ expert referred to this as a “no discount” constraint. In other words, if the consumer knows the carrier has previously priced a flight at $200, that prevents the carrier from now telling the consumer—with a straight face, at least—that the true value of the flight is $300 but will be generously offered at a discount for only $200. Full disclosure, according to U.S. Airways, limits the carrier’s ability to alter pricing to suit demand. Murphy, however, explained “full content” actually increases competition because it drives prices down. If consumers have all options available at the time of booking, they will often choose the lowest priced option that suits their need. This is the cornerstone of competition. Full disclosure allows for unfettered comparison shopping and enables the consumer to value all options according to personal preference and necessity. If certain options (which are often not simply the lowest-priced) begin to advance, this spawns innovation among market competitors to match consumer desire and the cycle begins anew: innovation, negotiation, valuation.

© Copyright 2002-2017 IMS ExpertServices, All Rights Reserved.

DHS Announces Intent to Award Contracts for Border Wall “Prototypes” by Mid-April

border wall immigration DHS

On Friday, February 24, 2017, the Department of Homeland Security, Customs and Border Protection published a presolicitation notice announcing its intent to issue a solicitation “for the design and build of several prototype wall structures in the vicinity of the United States border with Mexico.” At least on the government procurement front, this notice marks the most concrete indication of the federal government’s intent to construct a wall along the U.S. border with Mexico.

The notice — issued under Solicitation No. 2017-JC-RT-0001 — indicates that the resultant contracts will be for the design and build of “prototype wall structures,” suggesting that the Government may not yet be asking for the design and build of the wall itself.  And while the notice is only one paragraph long, it is noteworthy in several respects.

As an initial matter, the notice sets out a dizzyingly fast timeline for the procurement:

  • March 6, 2017: solicitation anticipated to issue

  • March 10, 2017: “vendors to submit a concept paper of their prototype(s)”

  • March 20, 2017: “evaluation and down select of offerors”

  • March 24, 2017: remaining offerors “to submit proposals in response to the full RFP,” including price

  • Mid-April 2017: “Multiple awards . . . contemplated”

Even considering the Government’s desire to take rapid action, it is difficult to see how contractors, or government personnel, will be able to comply with these incredibly tight turnarounds or if working at this pace for a project of this magnitude is in the ultimate interest of the country.  In addition, no specific funds have yet been appropriated for this project, meaning that it is unclear how the federal government plans to pay for the work that, presumably, it intends to commence shortly after awards in mid-April.

Beyond timing and funding, many other questions remain that will hopefully be answered when the full solicitation is issued, including:

  • How prototypes will be evaluated in light of the variety of terrains and concerns at different areas of the border.

  • How potential domestic sourcing preferences may be incorporated — if at all — at this stage of the project, as such requirements have the potential to impact costs, supply chain, and design, among other things.

  • How pricing will be evaluated at this stage of the process and how costs will be taken into account in the project as a whole, in light of the broad range of estimated costs that have been reported by various sources.

  • How the option periods mentioned in the notice will operate — the notice states that “[a]n option for additional miles may be included in each contract award,” although the need for “additional miles” of wall at the conceptual stage of the work is not evident.

Contractors and non-contractors alike will be keeping a close eye on this procurement and marking their calendars for March 6 in the hopes that their many questions will be answered.

© 2017 Covington & Burling LLP

Trump Administration Takes First Steps to Support Healthcare Exchanges, but Key Questions Remain

healthcare exchangesIn an effort to stabilize the Exchanges and encourage issuer participation, the Centers for Medicare & Medicaid Services (CMS) recently extended the federal Exchange application and rate filing deadlines and published a proposed rule affecting the individual health insurance market and the Exchanges. While issuers will likely see these actions as encouraging signs of the Trump administration’s willingness to support the Exchanges, these actions do not resolve the political uncertainty regarding the Affordable Care Act’s fate or whether cost-sharing reductions will be funded for 2018. These outstanding questions will likely be a key factor in Exchange stability going forward.

In Depth

On February 17, 2017, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule in the Federal Register outlining a series of proposals intended to stabilize the individual health insurance market and the Exchanges created by the Affordable Care Act (ACA). Comments on the proposed rule are due to CMS on March 7, 2017.

On the same day as the proposed rule was published, CMS announced that it was extending the federal Exchange application and rate filing deadlines with the apparent goal of ensuring that the proposed rule changes could be finalized and taken into account when issuers make Exchange participation and rate decisions for 2018. Although issuers are likely to support the proposed rule and delayed federal filing deadlines, it is not clear what effect these changes will have since they do not resolve the ongoing uncertainty regarding the fate of the ACA repeal effort in Congress and federal funding of cost-sharing reductions in 2018.

CMS believes that the proposed “changes are urgently needed to stabilize markets, to incentivize issuers to enter or remain in the market and to ensure premium stability and consumer choice.” The agency’s urgency is underscored by recent reports that Humana would exit the Exchanges entirely for 2018 and other companies have publicly stated that they are uncertain about the extent of their participation in 2018. Looking just at states using healthcare.gov, there are 960 counties with only one issuer in 2017. Additional issuer defections for 2018 would increase the odds that certain counties will have no issuers participating on the Exchange. This would result in residents of such counties being unable to utilize premium or cost-sharing subsidies for which they otherwise qualify.

The proposed rule addresses long-standing issuer concerns about special enrollment periods and perceived gaming of the 90-day grace period available to enrollees receiving premium subsidies. Looking beyond the specific proposals, the proposed rule is significant for the simple fact that it is the Trump administration’s first concrete step to support and stabilize the Exchange market. This likely provides a measure of relief for industry stakeholders that were unsure whether Republicans would be willing to support the Exchanges, which were a key focus of Republican opposition to the ACA. There had been mixed signals during the Trump administration’s first weeks about how it would approach ACA implementation. President Trump issued an executive order his first day in office directing the Secretary of Health and Human Services (HHS) and other agencies to “exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of” ACA requirements, creating uncertainty regarding how this broad directive would be implemented. In addition, the administration reportedly pulled back on advertising healthcare.gov during the final weekend of open enrollment, leading some to speculate that the Trump administration would be less supportive of Exchange stability than the Obama administration. In the proposed rule, however, CMS tries to make clear that it shares issuers’ goals of “improv[ing] the risk pool and promot[ing] stability in the individual market.”

The question remains whether the proposed changes (and the directional signal of Trump administration support) are sufficient to achieve their stated policy goals. That question is significantly influenced by the status of the ongoing legislative process seeking to quickly repeal the ACA. Although CMS has in this proposed rule endorsed the goal of Exchange market stability in anticipation of CY 2018 open enrollment proceeding as planned, a Republican-led Congress and the Trump administration have continued to signal their commitment to repeal the ACA. Even with the recent delay in Exchange product and rate filing deadlines, the political process (and the related uncertainty about the ACA’s fate) may not be resolved by the time issuers need to begin developing their rates and making decisions on CY 2018 participation. The proposed rule also does not resolve lingering questions related to Exchange funding, such as the availability of cost-sharing reductions for 2018, that will likely be a key factor in Exchange stability going forward.

Summary of Proposed Rule Changes

The proposed rule changes are largely designed to close potential avenues of adverse selection and improve the overall risk pool by encouraging healthier individuals to enroll in coverage.

Open Enrollment

CMS proposes shortening the 2018 open enrollment period from November 1, 2017, through January 1, 2018, to November 1 through December 15, 2017. CMS originally proposed that the shortened open enrollment period would be effective for the 2019 open enrollment period, but the agency is now proposing to move this up by one year. CMS expects that this change would improve the risk pool by reducing enrollments late in the open enrollment period spurred by an applicant’s recent discovery of a need to access health care services. This policy would also increase premium payments to plans, as more enrollees would begin the year’s coverage in January instead of February.

CMS likely would need to extensively market the shortened enrollment period to ensure public awareness. It remains to be seen whether the Trump administration is comfortable with such a commitment to marketing the program given the pull back on marketing efforts for the end of CY 2017 open enrollment.

Special Enrollment

CMS proposes a series of limitations on special enrollment periods intended to reduce adverse selection. Previously, issuers had complained that many healthy individuals were forgoing coverage until they were sick, taking advantage of lax special enrollment period rules to enroll in coverage only when it was needed.

To limit gaming, CMS proposes to expand an enrollment verification pilot program for states using healthcare.gov, planned to begin in summer 2017. CMS proposes that applicants enrolling in coverage under a special enrollment period would have their enrollment pended until they provide documentation that they actually qualify for the special enrollment period. Where providing and processing documentation would result in a delay in coverage after the requested coverage effective date, this policy would result in retroactive coverage. As such, where verification results in a delay in coverage of two months or more, CMS proposes to permit enrollees to request a later effective date.

Guaranteed Availability

CMS also proposes to reinterpret the “guaranteed availability” standard, which requires health plans in the individual market to sell coverage to any willing buyer during open or special enrollment periods. CMS proposes to create an exception to guaranteed availability for individuals with unpaid premiums due to the issuer from which the individual is seeking to purchase new coverage. In part, this proposal seems to address issuers’ concern that some individuals have taken advantage of generous grace periods to discontinue premium payment towards the end of a benefit year only to reenroll with the same plan for the next benefit year. Individuals could still enroll in coverage without coming due on unpaid premium amounts by enrolling with a different issuer (if there is more than one issuer participating in the service area).

Accepting Comments on Continuous Coverage Proposals

CMS requests comments on potential policies it could implement to promote continuous coverage, but the agency is not proposing any specific policies at this time. A continuous coverage requirement is a central feature of many Republican ACA replacement proposals as an alternative to the ACA’s individual mandate. The ACA’s statutory guaranteed availability protections are broad, so adoption of a generally applicable continuous coverage requirement would likely require a legislative change. This is, however, a signal that CMS, under HHS Secretary Price and congressional Republicans, is considering similar policy solutions.

De Minimis Variation

CMS proposes to expand the definition of de minimis variation, the amount by which a qualified health plan’s (QHP’s) actuarial value may vary from the statutorily mandated value. CMS proposes to increase the amount of permissible variation to -4/+2 percentage points from the +/-2 percentage points currently permitted. CMS argues that this policy will promote market stability by permitting plans to maintain the same plan design year over year. CMS additionally argues that this policy may promote competition and put downward pressure on premiums, encouraging healthier individuals to participate in the plan.

Network Adequacy

CMS also proposes to defer to states with respect to network adequacy for Exchange plans in federally facilitated Exchange (FFE) and state-based Exchange states. In past years, CMS has proactively verified that QHPs in FFE states have an “adequate” network of providers. Through such reviews, CMS has enforced “maximum time and distance standards” requiring, for at least 90 percent of enrollees, that certain types of providers be within a specified distance and travel time. These quantitative standards mirrored the Medicare Advantage program requirements. CMS proposes to discontinue its analysis of QHP time and distance, instead deferring to state regulators and accrediting bodies.

Network adequacy requirements vary significantly across states, so this change will affect issuers differently. While the National Association of Insurance Commissioners has adopted a new Health Benefit Plan Network Access and Adequacy Model Act, it has not been adopted in any states and defers to individual states to set applicable time and distance standards. Thus, CMS’s deferral of network adequacy to states may permit narrower networks than under CMS’s quantitative standards.

Executive Order on Significant Regulatory Actions

Also of note is CMS’s approach to President Trump’s recent executive order, which requires that any “significant regulatory actions that [impose] costs” be offset through the elimination of costs associated with at least two prior rules. The proposed rule offers an early opportunity to examine how the administration will implement this executive order. CMS determined that the proposed rule “is not a significant regulatory action that imposes cost” under the recent executive order. The basis for this finding appears to be CMS’s belief that the proposed rule results in a net cost reduction. Thus, while CMS characterized the rule as “significant” for creating separate costs and benefits that exceed $100 million, the net cost reduction allows the agency to avoid eliminating two rules. Industry stakeholders should continue to monitor how CMS implements President Trump’s recent executive order.

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© 2017 McDermott Will & Emery

Data Breaches Will Cost Yahoo and Verizon Long After Sale

data breach Yahoo VerizonFive Things You (and Your M&A Diligence Team) Should Know

Recently it was announced that Verizon would pay $350 million less than it had been prepared to pay previously for Yahoo as a result of data breaches that affected over 1.5 billion users, pending Yahoo shareholder approval. Verizon Chief Executive Lowell McAdam led the negotiations for the price reduction. Yahoo took two years, until September of 2016, to disclose a 2014 data breach that Yahoo has said affected at least 500 million users, while Verizon Communications was in the process of acquiring Yahoo. In December of 2016, Yahoo further disclosed that it had recently discovered a breach of around 1 billion Yahoo user accounts that likely took place in 2013.

While some may be thinking that the $350 million price reduction has effectively settled the matter, unfortunately, this is far from the case. These data breaches will likely continue to cost both Verizon and Yahoo for years to come.  Merger and acquisition events that are complicated by pre-existing data breaches will likely face at least four categories of on-going liabilities.  The cost of each of these events will be difficult to estimate during the deal process, even if the breach event is disclosed during initial diligence. First, the breach event will probably render integration of the systems of the target and acquirer difficult, as the full extent of the security issues is often difficult to assess and may evolve through time. According to Verizon executives, Yahoo’s data breaches created integration issues that had not been previously understood.  The eventual monetary cost of this issue remains unknown.

Second, where the target is subject to the authority of the Security and Exchange Commission (SEC), an SEC investigation and penalties if applicable, is likely, along with related shareholder lawsuits. As we wrote previously, The SEC is currently investigating if Yahoo should have reported the two massive data breaches it experienced earlier to investors, according to individuals with knowledge. Under the current agreement, Yahoo will bear sole liability for shareholder lawsuits and any penalties that result from the SEC investigation.

Third, there will likely be additional private party actions due to the breach. Exactly what these liabilities will be will depend on the data subject to exfiltration as a result of the breach.  In Yahoo’s case, Verizon and Yahoo have agreed to equally share in costs and liabilities created by lawsuits from customers and partners.  Multiple private party lawsuits have already been filed against Yahoo alleging negligence.

Fourth, other government investigations, such as by the Federal Bureau of Investigation (FBI), could result in additional costs, both monetary and reputational. The FBI is currently investing the Yahoo breaches.  Verizon and Yahoo will share the costs of the FBI investigation and other potential third party investigations.

Fifth, depending on the scope of the breach, there would likely be on-going remediation costs after the deal closes. According to a knowledgeable source, as of February 2017, Yahoo had sent notifications to a “mostly final” list of users, indicating that some remaining remediation activities may yet occur.

As we have seen, merger and acquisition events involving a target with a pre-existing data breach issues create difficult to assess costs and liabilities that will survive the closing of the transaction.

©1994-2017 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

President Trump to Give State of Union Address; Senate to Vote on Ross’ Nomination; Pentagon to Submit Its Anti-ISIS Plan

Trump State of Union AddressPresident Donald Trump is preparing to release another immigration-related Executive Order (E.O.) that is expected to refine a previous directive that banned Syrian refugees from entering the United States and suspended the issuance of visas and admission into the United States for foreign nationals from seven countries of “particular concern.” The President will address a joint session of Congress on Tuesday and give a speech expected to focus on the renewal of the American spirit.

The U.S. Congress returns to Washington on Monday, 27 February, with the Senate scheduled to vote that evening on Wilbur Ross’ nomination to serve as Secretary of Commerce.  The Pentagon is also set to submit its plan for defeating ISIS to the White House on Monday.

Syria: Combatting ISIS – DoD Plan Completed

Secretary of Defense Jim Mattis concluded his first trip to the Middle East on 20 February, a trip that included stops in the United Arab Emirates and Iraq. Pentagon Press Operations Director Navy Capt. Jeff Davis told reporters on Tuesday that Secretary Mattis gained valuable insight as he prepares to make key policy decisions, including submitting the results of a review of the Defense Department’s (DoD) strategy to defeat ISIS to the White House this week.

Chairman of the Joint Chiefs of Staff Gen. Joseph Dunford said of the military-political plan at a Brookings Institution event last week: “In the development of the plan, we have been engaged at every level of the State Department” he said.  Chairman Dunford added:  “Anything we do on the ground has to be in the context of political objectives or it is not going to be successful.”  The intelligence community and the Treasury Department have also participated in development of the plan.

Pentagon Spokesperson Capt. Jeff Davis told reporters on Friday that the Pentagon has supported an Authorization for Use of Military Force (AUMF) against ISIS under both the Trump and Obama Administrations. “An AUMF would make a lot of our congressional authorities clearer, and that thinking has not changed,” Davis said.

Senate Armed Services Committee Chairman John McCain (R-Arizona) recently traveled to Syria to speak with U.S. forces there about the campaign against ISIS, according to his office last Wednesday. His trip comes as U.S. Central Command Commander Gen. Joseph Votel told reporters that the Pentagon is considering whether to deploy additional troops to Syria. Chairman McCain met next with Saudi King Salman bin Abdulaziz al-Saud on 21 February. The two reportedly discussed regional issues and enhancing U.S. cooperation with the Kingdom.

Senate Foreign Relations Committee (SFRC) Chairman Bob Corker (R-Tennessee) and Ranking Member Ben Cardin (D-Maryland) sent a letter to Secretary of State Rex Tillerson dated 22 February that urged the Administration to “ensure Assad, Russia and Iran are made to answer for the war crimes and crimes against humanity committed in Syria.”  While all 10 Democratic Members of the SFRC signed the letter, Republican committee members appeared to be more reluctant in signing.  The letter also asks for an update on the Administration’s steps to document war crimes and crimes against humanity in Syria.

Iranian Naval Exercise Underway

Iran launched naval drills on Sunday, amid increased tension with the United States after the Trump Administration put “Iran on notice.” The U.S. Navy’s Fifth Fleet is based in the region.

Russia – Washington Scrutiny

Washington and the media continue to focus on increased allegations of Russian meddling in the United States. House Intelligence Committee Chairman Devin Nunes (R-California) said at this point there is no evidence of improper influence with respect to the Trump Administration, adding the House would not engage in a “witch hunt.”  Senator Tom Cotton (R-Arkansas), who serves as a member of the Senate Select Committee on Intelligence, cautioned this weekend against some calls for a special prosecutor to investigate the Administration’s alleged ties.  Meanwhile, the Senate Intelligence Committee is conducting an investigation of Russia’s effort to influence the 2016 U.S. election.

Mexico City Trip Readout

Secretary Tillerson and Secretary of Homeland Security John Kelly met Thursday with several Mexican officials, including Mexican President Enrique Peña Nieto. According to the State Department, both sides acknowledged that “two strong sovereign countries from time to time will have differences,” while also reaffirming “close cooperation on economic and commercial issues such as energy, legal migration, security, education exchanges, and people-to-people ties.”

Both sides also agreed the “two countries should seize the opportunity to modernize and strengthen our trade and energy relationship.” With respect to border security, the discussion included: (1) dismantling transnational criminal organizations that move drugs and people into the United States; (2) stopping the illicit flow of firearms and “bulk cash” that is originating in the United States and transiting to Mexico; and (3) curtailing irregular migration, which includes securing Mexico’s southern border and supporting efforts to stem the migration from Guatemala, Honduras, and El Salvador.

Press Secretary Spicer said of the bilateral meetings at the Thursday press briefing:

“Both sides had a candid discussion on the breadth of challenges and opportunities as part of the U.S.-Mexico relationship. The conversation covered a full range of bilateral issues, including energy, legal migration, security, education exchanges, and people-to-people ties.”

Peru Bilateral Meeting

President Trump met on Friday with Peruvian President Pedro Pablo Kuczynski, who was in the United States to receive an award from Princeton University. In remarks before the bilateral meeting, President Trump said Peru has been a “fantastic neighbor.” President Kuczynski noted:  “Latin America needs to grow more, and we’re going to talk about how to do that.”  White House readout of the meeting reflected:  “President Trump underscored the continued United States commitment to expanding trade and investment ties with Peru and others in the Asia-Pacific region.” The two leaders also discussed the political and economic situation in Venezuela.  President Trump also thanked Peru for hosting the 8th meeting of the Summit of the Americas next year.

Human Trafficking – A Priority

President Trump led a listening session on domestic and international human trafficking on Thursday. He acknowledged:

“Human trafficking is a dire problem, both domestically and internationally, and is one that’s made really a challenge [sic]. And it’s really made possible to a large extent, more of a modern phenomenon, by what’s taking place on the Internet, as you probably know.  Solving the human trafficking epidemic, which is what it is, is a priority for my administration”

He said he would direct the Departments of Justice and Homeland Security, as well as other federal agencies, to examine its resources and determine whether additional resources are needed to combat human trafficking: White House Press Secretary Sean Spicer said of the meeting: “Their expertise [re: meeting participants] will be invaluable to the President as he engages with members of Congress to raise awareness about, and push through, legislation aimed at preventing all forms of the horrific and unacceptable practice of the buying and selling of human lives.”

Foreign Policy Congressional Hearings This Week

  • On Tuesday, 28 February, the Senate Foreign Relations Committee is scheduled to hold a hearing titled “Iraq After Mosul.”

  • On Tuesday, 28 February, the House Foreign Affairs Subcommittee on the Western Hemisphere is scheduled to hold a hearing titled “Issues and Opportunities in the Western Hemisphere.”

  • On Tuesday, 28 February, the House Foreign Affairs Subcommittee on Asia and the Pacific is scheduled to hold a hearing titled “Checking China’s Maritime Push.”

  • On Wednesday, 1 March, the House Judiciary Committee is scheduled to hold a hearing titled “Section 702 of the Foreign Intelligence Surveillance Act.”

  • On Thursday, 2 March, the Senate Foreign Relations Committee is scheduled to hold a hearing titled “Venezuela: Options for U.S. Policy.”

Defense Congressional Hearings This Week

  • On Tuesday, 28 February, the House Armed Services Subcommittee on Oversight and Investigations is scheduled to hold a hearing titled “Hearing on Department of Defense Inspector General Report ‘Investigation on Allegations relating to USCENTCOM Intelligence Products.’”

  • On Wednesday, 1 March, the House Armed Services Committee is scheduled to hold a hearing titled “Cyber Warfare in the 21st Century: Threats, Challenges, and Opportunities.”

  • On Wednesday, 1 March, the House Armed Services Subcommittee on Tactical Air and Land Forces is scheduled to hold a hearing titled “U.S. Ground Force Capability and Modernization Challenges in Eastern Europe.”

  • On Thursday, 2 March, the Senate Armed Services Committee is scheduled to hold a hearing titled “Cyber Strategy and Policy.”

Looking Ahead

Washington is expected to focus on the following upcoming events:

  • 28 February: President Trump to address a joint session of Congress

  • Mid-March?: Release of the President’s Budget for Fiscal Year 2018

  • 14-15 March: Chile to host a Pacific Trade Summit in Vina del Mar, Chile

  • 21-23 April: World Bank/International Monetary Fund Spring Meeting in Washington

  • 28 April: U.S. Federal Government funding expires

© Copyright 2017 Squire Patton Boggs (US) LLP

4 Ways Attorneys Can Connect with Today’s Legal Consumers

attorney legal consumerLast year, an Avvo survey of 1,000 consumers who purchased legal services provided some important insights into what attorneys need to know about the modern legal consumer.  The Avvo study offered a three-point description of today’s legal consumers. They are:

Informed — access to legal information online has made consumers more savvy than ever about the options available to them. They read legal articles, research their particular legal issue, research an attorney and visit legal forums online.

Connected — people now have immediate access to other legal consumers online and they are reading reviews about others’ experiences with attorneys. An overwhelming 95% said that online reviews were important when choosing a lawyer. Of those who received a referral, 45% still researched attorneys online.

Picky — legal consumers know there are a number of different ways to purchase services, including online forms, fixed fee options, etc. They are increasingly attracted to unbundled services, an a la carte solution for their legal issues. In fact, 76% said they prefer fixed fee billing arrangements.

To connect with legal consumers today, attorneys must:

Have a strong online presence. When it comes to online marketing, you should focus on two things: (1) go where your potential clients are, and (2) implement what you can measure. You have to be able to measure your success (or failure) to discover what works for your area of practice and to be able to build on those successes. When it comes to social media, Facebook is a must for consumer attorneys. One of the most powerful features of Facebook is ad targeting, the ability to layer targeting options on top of one another to create a highly specific audience. This enables you to target locally and get your ads in front of people who need your services now. Facebook ads are low-cost, so you can experiment to see what resonates with your potential clients and then repeat what works.

Encourage online reviews. Attorneys need to create a process for making reviews happen. Always look for those moments in your relationships with clients to create a review opportunity – when you have won a case for a client, when you have helped someone avoid litigation – all opportunities for you to generate a great review. Make it easy for clients to review you by emailing them a link to post a review on Google. Better yet, create an autoresponder email with a built-in Google review form and send it to them at the appropriate time. When you have receive good reviews or testimonials, post them on your website, in your e-newsletter and anywhere else that potential customers are likely to stumble upon them. And be sure to ask whoever provided you with that great review if they would also submit it to Google so it shows up in search.

Offer unbundled services. There are millions of people who download legal documents off LegalZoom or Rocket Lawyer for business and personal use. And it shouldn’t surprise you to know that many of them still want a real live attorney to review those documents (which is why the online legal service providers refer customers to attorneys now from their websites). Consider offering unbundled services like online legal document reviews, especially for business clients — the initial fees may not be much, but could lead to bigger things down the road. Remember, many people are looking for a la carte options.

Provide fixed fee options. To be successful with fixed fee billing, firms need to conduct extensive research into their case files going back several years in order to arrive at pricing that will protect profitability.

© The Rainmaker Institute, All Rights Reserved