When President Barack Obama took the White House in 2009, he delivered an inauguration address against the backdrop of an economy reeling from the collapse of the housing market and accompanying financial crisis.
Obama spoke about the “clouds and raging storms” of an economy that had been “badly weakened.” The financial crisis, he declared then, had reminded the country that “without a watchful eye, the market can spin out of control.”
Within 18 months, Obama would successfully push for greater restrictions against the ability of Wall Street to take risks. The Dodd-Frank Act was an early victory for a new administration that would push to fundamentally reshape how American companies did business.
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Hallmark legislative achievements under Obama, heralded by consumer and investor advocates, civil rights leaders and environmentalists, now stand in peril under the administration of President Donald Trump. The Trump administration embarked almost immediately on a plan for the “deconstruction of the administrative state,” as the president’s chief strategist, Stephen K. Bannon, put it earlier this year in remarks in Washington.
No presidential transition comes without some uncertainty for regulated industries and the lawyers who work in them. But the pace and fervor of Trump’s deregulatory push has proven dizzying for corporate legal departments and outside counsel, forced to keep up with every new memo, Federal Register notice and presidential pronouncement. In speeches, executive orders and Saturday morning tweets, Trump is methodically fulfilling a campaign promise to shred many of the rules and regulations his predecessor created and embraced.
In the regulated industries, there is wide unrest. How far will the Trump administration go? Will the courts be a check against the power of the White House and Congress to scale back agency regulations? How will the president and his deputies respond to concerns by emerging industries such as drones and marijuana that want the assurances that regulations bring? Is the federal hiring freeze — impacting the very ability to enforce compliance — only temporary?
A fog hangs over regulatory Washington, dissolving the bright-line borders drawn and policed by the Obama administration.
“What [companies] value more than anything is certainty, and certainty isn’t a high commodity right now,” said Crowell & Moring partner Elliott Laws, chairman of the firm’s environmental and natural resources practices group.
Trump, hours after delivering his inaugural address, froze all the rules that were pending before agencies. Days later, meeting with executives from a dozen companies, including Ford Motor Co. and Dell Technologies Inc., he vowed to cut regulations by 75% — “maybe more,” he said — to spur economic growth. Trump would soon sign an executive order that requires agencies to cut two existing rules for every new regulation, as part of an effort to offset compliance costs. More than 90 regulations were delayed, suspended or reversed in the first weeks of the Trump administration, according to a New York Times report in March.
For example, the U.S. Labor Department spent more than six years crafting new rules to curtail conflicts of interest in the retirement-advice market. The department’s so-called “fiduciary rule,” challenged in court by the U.S. Chamber of Commerce and insurance-industry advocates, is now on hold at least for 60 days.
Legal departments that were once scrambling to prepare for the fiduciary rule’s April 2017 effective date have now been handed a reverse play, forced to roll out backup options, all in preparation for how rulemaking under Trump could evolve.
“I’ve had conversations with general counsel where they’ve chatted about the difficulty in trying to keep multiple options open at this late date,” said Amar Sarwal, chief legal strategist at the Association of Corporate Counsel. “The difficulty here is how, with that regulatory firehose, to make sure you’re able to accommodate various options that may be mutually exclusive.”
For financial companies, Republicans on Capitol Hill have put a target on Dodd-Frank changes that, among other things, created the Consumer Financial Protection Bureau. The agency, since its creation in 2010, has collected billions of dollars from mortgage lenders and banks for fraud and other deceptive practices. Its continued existence is now an open question.
(Photo: Diego M. Radzinschi/ALM)
The retrenchment has been a welcome surprise for companies and corporate lawyers who, like many, anticipated a continuation of Obama-era regulations under a Hillary Clinton administration. After eight years on the defensive, companies in many industries are crafting wish lists for the rules they want Trump to quash.
“I have some clients with whom I am close friends who were disappointed by the outcome of the election because they personally are strong Democrats or were supporters of Secretary Clinton. But what I’ve told them was, I know you are not happy on a personal level, but this is a tremendous opportunity for your company,” said Gibson, Dunn & Crutcher partner Helgi Walker, co-leader of the firm’s administrative law and regulatory practice group. “It’s just a completely brave new world in terms of the possibilities for regulatory reform.”
Companies are preparing to play an unfamiliar role after eight years fighting government regulators in administrative proceedings and in court: agency supporter.
“We are prepared, and I’m talking with clients about what we would do to support an agency in defending against petitions for review of agency actions that are favorable,” said Gibson Dunn’s Walker, who has represented clients including Verizon Corp., Comcast Corp. and Ford. “I think, just in talking with people inside agency general counsel shops, that they are thinking about how best to write their orders so they will withstand any challenges coming from those who disagree.”
Proponents of deregulation will have an ally in the leadership ranks at the U.S. Justice Department. Trump’s pick for associate U.S. attorney general, Rachel Brand, formerly led the regulatory litigation arm of the U.S. Chamber of Commerce. In that role, Brand was a leading critic of federal regulatory action.
Brand and her colleagues at the Justice Department will be tasked with defending federal agencies from attack during the Trump presidency. She was asked on Capitol Hill last month about the challenges of switching sides.
“My client will be the United States, and my role will be to serve the public interest and the interest of justice, representing that client as best I can,” Brand told U.S. senators at her confirmation hearing. “That’s a role I’m very comfortable with.”
The practical implications of Trump’s two-for-one slashing order remain to be seen. Trump’s mandate spelled out broad concepts, to be sure, but left the finer points for the Office of Management and Budget to flesh out.
That office issued interim guidance instructing agencies to take two deregulatory actions for each “new significant regulatory action that imposes costs.”
But questions abound. What action rises to the level of significant? How will the administration calculate compliance costs? Will the agencies look inward for deregulatory actions or engage in interagency bargaining?
Hogan Lovells partner W. Michael House, who leads the firm’s legislative practice group, called Trump’s order “a nice concept” — but one that will leave much for companies to watch, closely, before executing a revised business strategy.
“In many of these areas, it’s going to take legislation” to repeal a regulation, House said. “It’s not as easy as just making a proclamation, especially in areas that require legislation.”
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Unions, along with public interest and environmental groups, are moving quickly to preserve existing regulations. Trump’s two-for-one order drew a challenge from the Public Citizen Litigation Group, the National Resources Defense Council and the Communications Workers of America. In a lawsuit filed in Washington federal district court in February, the groups argued the Trump administration’s approach would scrap rules that have a net benefit to society in spite of their compliance costs.
“The executive order will block or force the repeal of regulations needed to protect health, safety and the environment, across a broad range of topics — from automobile safety, to occupational health, to air pollution, to endangered species,” the groups said in their complaint.
The lawsuit was one of the earliest, and broadest, challenges against the Trump’s administration’s push to deregulate.
And it is likely just the beginning.
The plaintiffs in the case contend it would be improper for agencies to withdraw regulations strictly for cost-cutting purposes. “If agencies begin repealing regulations based on improper considerations, I think that, regardless of the status of the broad lawsuit, you’ll see challenges to each one of those brought by people who were affected by the withdrawal of the regulation,” Public Citizen attorney Scott Nelson said.
Be Careful What You Wish for
As much debate as there is over Trump’s plan to cut regulations, some industry lawyers and business advocates are presenting a counter-narrative that any effort to stall the work of regulatory agencies would harm the business community.
One day in March, a Crowell & Moring client came to Washington to get “some idea of what is going to happen,” Laws, the firm’s lead environmental and natural resources attorney, recalled recently. The client — which Laws declined to identify — was concerned about getting necessary and timely approvals from the Environmental Protection Agency to bring a product to market this year.
The day of that visit, Trump announced his plans to slice a quarter of the EPA’s budget — a cut the client feared would further slow regulatory approvals.
“They were just besides themselves,” Laws said. “Their big concern is how are we going to operate if there’s no one there to promulgate regulations and give us the permits and approvals we need.”
The drone industry has presented similar concerns. An industry coalition wrote to the Office of Management and Budget in February warning that Trump’s two-for-one edict could have “unintended negative consequences” for industry growth.
“We want rules that enable innovation to succeed — that are sensitive to safety, privacy and security risks,” Hogan Lovells partner Lisa Ellman, a leader of the nonprofit Commercial Drone Alliance, said. “Without rules to enable conduct, they’re essentially not able to do anything.”
Another drone group, the Small UAV Coalition, echoed the Commercial Drone Alliance’s call for a waiver allowing the Federal Aviation Administration to fast-track regulations to allow drones to fly over people and beyond the pilot’s visual line of sight. (UAV stands for unmanned aerial vehicle.)
In a letter to OMB Director Mick Mulvaney, the group argued that an FAA regulation would be expected “in most instances” to impose new costs.
“As is the case with many rapidly developing sectors of the 21st century economy, however, commercial [unmanned aircraft system] technology is evolving at a pace that has exceeded nascent regulations and industry needs a forward-leaning, progressive regulatory framework to realize the manifold safety, economic, and social benefits of commercial UAS operations,” the group said in its letter. “Without rulemaking from the FAA, operations over people and beyond the visual line of sight will remain prohibited, thereby stifling thousands of business opportunities and consumer benefits, as well as life-saving operations.”
The pharmaceutical industry has its own set of worries. Industry advocates said they are concerned that relaxed drug approvals could hinder insurance coverage — and perhaps boost litigation exposure. Without significant vetting by the U.S. Food and Drug Administration, insurance carriers “will hammer you,” said James Shehan, who leads Lowenstein Sandler’s FDA regulatory practice.
Trump invited the chief executives of some of the world’s biggest pharmaceutical companies to the White House in January and made an appealing proposal to speed up the drug-approval process. Written agency guidance from the FDA would be compressed from 9,000 pages to 100, he said.
Pharmaceutical Research and Manufacturers of America president and CEO Stephen Ubl said industry leaders found “many areas of common ground” with the president, including proposals to overhaul the tax code and rework trade agreements.
“We believe @POTUS agenda on taxes, trade & regulations could create 350,000 American jobs over 10 years due to biopharma industry growth,” Ubl wrote on Twitter after the meeting.
Some industry representatives remain apprehensive about Trump’s plans, however. “You don’t want this existing system torn up,” Shehan said. “For one thing it kind of works. You want to show that your products are safe and effective or consumers aren’t going to want them.”
Where There’s Toke There’s Fire
Perhaps the capital’s regulatory haze is no more apparent than in the marijuana industry.
While many business leaders ponder a future with fewer government regulations, those executives looking to profit on recreational marijuana face a very different possibility.
The prospect of new guidance for banking rules — by far one of the largest headaches for the fledgling industry — are dim. The fear stems in part from whether and how the Trump administration might revise Obama’s hands-off approach to marijuana businesses operating in states where the drug is legal.
Trump’s press secretary, Sean Spicer, told reporters on Feb. 24 that Americans “will see greater enforcement” of federal anti-marijuana laws. Attorney General Jeff Sessions, a longtime opponent of marijuana legalization, has also criticized state laws he said condone “marijuana being sold at every corner grocery store.”
“My phone is ringing off the hook with people concerned about these statements,” said Rachel Gillette, a partner at Greenspoon Marder in Denver, Colorado, who specializes in marijuana regulatory compliance.
“It’s really hard for them to plan for their future when there’s this much uncertainty for their businesses,” she added.
Eight states and Washington, D.C, have legalized recreational marijuana. Medical marijuana use, which has not come under the same scrutiny from Trump officials, is permitted in 20 other states.
Gillette said her clients generally fall into olne of three categories. Some clients are putting the brakes on startup or expansion projects amid the uncertainty. Others are forging ahead with their original plans, believing that the industry has simply grown too big for the federal government to shut down now.
“And then there are some people who say, well, I guess I should go get a medical marijuana license,” Gillette said.
Chasing what’s next in regulation has Covington & Burling’s Keir Gumbs feeling more like a news reporter than a Big Law partner.
Republicans on Capitol Hill have already moved to kill the Securities and Exchange Commission’s resource extraction rule.
Inside the SEC, acting chairman Michael Piwowar is moving to erase a rule that requires companies to disclose the pay gap between executives and employees and, separately, a regulation concerning the disclosure of companies’ use of minerals from war-torn regions of Africa.
To keep apace, Gumbs has set up new Google alerts and begun to scour the SEC website more thoroughly and regularly. A former SEC lawyer, Gumbs also scans blogs and checks in with agency staff.
“To be honest, I think what I find myself doing and other regulatory lawyers doing is not that dissimilar to what [reporters] do,” Gumbs said. “That’s basically a couple of hours of work every day just to stay up on what’s happening.”
At Hogan Lovells, House, who leads the firm’s legislative group, said there is no weekend without work anymore.
“It’s coming in seven days a week now,” he said. “We find ourselves more in the weeds than we’ve ever been.”
— Read Trump’s Safe and Sane ‘Regulatory Reform’ Idea on ThinkAdvisor.