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Battles Brewing at Federal Regulatory Agencies
The National Law Journal
For some federal agencies, President Barack Obama's second term means a second chance. From investor protection to food safety, greenhouse gas limits to new workplace injury prevention programs, key regulatory agencies will use the next four years to tackle unfinished business.
Lawyers expect major new regulations and new legal challenges at the U.S. Securities and Exchange Commission, the Food and Drug Administration, the Environmental Protection Agency, the Occupational Safety and Health Administration and the Federal Communications Commission.
In this, the second of a two-part series, we flag what are likely to be the top issues at each of these agencies.
At the Securities and Exchange Commission, Chairman Mary Schapiro has had a tumultuous and transformative tenure, guiding the agency through the fallout from the Bernie Madoff Ponzi scheme and the financial crisis. Schapiro has not announced whether she'll stay on the job but in the agency's 78-year history, only two chairmen served longer than four years. "It's an incredibly demanding, tough job," said Gibson, Dunn & Crutcher partner John Sturc, who co-chairs the firm's securities enforcement group.
Should Schapiro exit, those mentioned as potential replacements include Mary John Miller, the undersecretary for domestic finance at the Treasury Department; Financial Industry Regulatory Authority chief executive officer Richard Ketchum; SEC Commissioner Elisse Walter; Columbia Law School professor Harvey Goldschmid (a former SEC commissioner and general counsel); and former Bank of America executive Sallie Krawcheck.
The expectation is that Director of Enforcement Robert Khuzami will leave as well and return to New York, and that the next chairman will choose Khuzami's successor. "Who you put in that position is part of your stamp," said former Enforcement Division assistant director Jordan Thomas, now a partner at Labaton Sucharow.
Thomas predicted that cases generated by the agency's new whistleblower program will be increasingly significant going forward, and dubbed 2013 "the year of the whistleblower." White & Case partner Gregory Little agreed, and also flagged insider trading cases. "I think the SEC has had a good deal of success in bringing insider trading cases, and will build on that success," he said.
Also on the to-do list for agency leadership: rulemakings to implement the Dodd-Frank Act. According to Davis Polk & Wardwell's monthly Dodd-Frank Progress Report, the SEC has finalized just 32 of 95 required rules and has missed deadlines on 50 rules. One of the thorniest still outstanding is the massive Volcker Rule, which includes a ban on banks making short-term trades for their own profit.
The agency must also write rules to implement the JOBS Act of 2012 and is facing pressure to strengthen oversight of money market funds.
Former SEC Chairman Harvey Pitt, speaking at a recent American Bar Association panel, said so many rulemakings are "undermining the SEC's ability to function properly," especially when "legal challenges are almost assured of success if the argument is that the commission hasn't properly considered the cost-benefit of the rules."
The SEC isn't the only agency under pressure to issue new rules the Food and Drug Administration also has a lot on its plate.
One of the top issues is food safety. Draft regulations to implement key parts of the landmark Food Safety Modernization Act, which was signed into law in January 2011, have been stalled before the White House Office of Management and Budget for months. The new law "calls for a whole new approach to food safety," said Venable partner Ralph Tyler, a former FDA chief counsel, one that "focuses on prevention, as distinguished from punishing or fining violators….It's going to take a major reorientation of the agency."
To Tyler, the FDA's biggest challenge on both the food and drug side is "how to go about transitioning from a domestic regulatory agency…when increasingly, the manufacturing and production of products is not occurring within the United States." The FDA is implementing a foreign supplier verification program and beginning to work more closely with regulators in other countries.
Another hot issue in the wake of the deadly meningitis outbreak that has killed 34 people is FDA oversight of compounding pharmacies. "It's quite likely we'll see legislation" to give the FDA more authority over such facilities, said Daniel Kracov, who heads Arnold & Porter's FDA practice. Kracov also predicted "more action on biosimilars," or generic versions of biologic drugs, and said it was "quite possible we'll see the first application in the coming year."
In his first post-election press conference, President Obama spoke about the importance of clean energy. And lawyers fully expect the Environmental Protection Agency to move forward with new regulations and reinvigorate those that have stalled to help achieve this goal. "There will be more opportunity to create a new agenda than before," said Sidley Austin partner Roger Martella, a former general counsel of the EPA. "They'll have a full, solid, four-year block, the people are in place, they know the agency, and they're not as concerned about reelection in the near term."
In the event that EPA head Lisa Jackson steps down, environmental lawyers said potential replacements include Deputy Administrator Bob Perciasepe; Gina McCarthy, who is assistant administrator for the Office of Air and Radiation, and Mary Nichols, chairman of the California Air Resources Board.
One area where lawyers expect action is greenhouse gas emissions. In June, the U.S. Court of Appeals for the D.C. Circuit handed the EPA a resounding win when it upheld the agency's rules limiting emissions of six greenhouse gases. The expectation now is that the EPA will move forward to impose emission limits on power plants and petroleum refineries.
Lawyers also predicted the EPA will set air quality standards for ozone. Every five years, the standards are reviewed by the agency. The EPA considered tightening the standards ahead of schedule in 2011 but backed down, according to The New York Times, under orders from the president, who feared political fallout from industry opposition. When the standards are reviewed in 2013, "I do see it moving forward, though it's going to be a long slog," said Charles Warren, who chairs the environmental practice at Kramer Levin Naftalis & Frankel.
Warren also predicted pending rules dealing with emissions from industrial and commercial boilers will be finalized, despite "a lot of interim back and forth."
Another unsettled area of regulation is coal ash the byproduct of coal combustion. Granta Nakayama, a former EPA official who is now a partner at Kirkland & Ellis, noted that EPA "never got to the finish line" on the issue, unable to determine if it should be treated as solid or hazardous waste. "It doesn't fit neatly into either category," he said.
The Occupational Safety and Health Administration is another agency that failed to achieve some of its primary goals in Obama's first term. Agency head David Michaels has pushed for a major new injury and illness prevention program known as I2P2, calling it "absolutely a priority" in an interview earlier this year. But OSHA has yet to convene a small business advocacy review panel, the first step for a new regulation.
"I believe I2P2 will be the main priority. They're going to want to complete it," said Jonathan Snare, a partner at Morgan, Lewis & Bockius.
Another stalled rule sets combustible dust standards, and yet another would limit exposure to crystalline silica. The key stumbling blocks: cost/benefit and economic analysis.
Overall, Fisher & Phillips partner Edwin Foulke, who headed OSHA from 2006 to 2008, predicted "continued aggressive enforcement, more inspections and higher penalties."
ACROSS THE SPECTRUM
Lawyers sum up the top priority for the Federal Communications Commission in Obama's second term in one word. "It's going to be spectrum, spectrum, spectrum," said Jenner & Block partner Samuel Feder, a former FCC general counsel.
The agency is planning an all-new incentive auction, where broadcasters will be enticed to give up spectrum in exchange for a share of the proceeds when it is auctioned off to wireless broadband providers.
FCC head Julius Genachowski is expected to exit the agency. Potential replacements include National Telecommunications Information Administration head Larry Strickling, Neustar Inc. general counsel Scott Blake Harris and Karen Kornbluh, the U.S. ambassador to the Organisation for Economic Co-operation and Development.
This article originally appeared in The National Law Journal.