For New York attorneys who regularly do business with the federal government, last week’s shutdown produced a frustrating loss of momentum.
Activity at the Commodity Futures Trading Commission and the International Trade Commission and other agencies largely ground to a halt. Meanwhile, with many government lawyers on furlough, the courts began deferring civil cases, a blow to clients eager for a quick resolution.
Lawyers keeping an eye on the rollout of Dodd-Frank financial regulations were especially concerned about the CFTC.
“The big problem is, here we are, right smack dab in a major regulatory overhaul, really the biggest one since the 1930s, and the key regulator…is not open to accept requests for interpretive relief or to answer questions and help provide guidance,” said P. Georgia Bullitt, a partner in Morgan Lewis & Bockius. “That’s a tough position to be in particularly since the commission has not been willing to extend compliance dates.”
Bullitt said a new rule was implemented on Oct. 2 requiring trading of swap transactions on swap execution facilities or SEFs, which are platforms for derivatives trading.
“There’s a sense that there’s nobody to reach out to if you’ve got questions,” Bullitt said. “If this continues, it’s going to be very problematic. Firms and the clients are going to take different positions” on how to interpret the new rules, she said.
Another Dodd-Frank deadline is Oct. 10, by which time clients must define who is a U.S. person for purposes of cross-border swap activities, a pressing issue for investment advisers, Bullitt said.
“There’s this problem with the industry having to identify literally tens of thousands of accounts without any guidance on how to do it or any kind of postponement,” Bullitt said, adding that the industry has not heard back from the CFTC staff on many interpretive questions.
Brian Korn, of counsel at Pepper Hamilton, noted that the CFTC website doesn’t offer attorneys and the public much information on how it’s handling the shutdown.
“You’re lacking anybody who is really available for real-time guidance,” Korn said. “Guidance from the CFTC is an important aspect for commodities and futures regulations and there are a lot of one-off situations where the practice is to pick up the phone and call the staff.”
Kenneth Raisler, a partner with Sullivan & Cromwell, said a shutdown of the CFTC affects the agency’s enforcement and regulatory programs.
“The interaction with the agency is very frequent and the process is important. You’re missing that on the enforcement side,” Raisler said.
On the regulatory side, “the ability to get guidance and clarification as we implement some of these Dodd-Frank rules is severely inhibited,” Raisler said. “You have to make your own judgment and hope it will be right. This problem is particularly acute with new rules that are just rolling out.”
The shutdown is problematic, he said, “because you’re in a momentum process and you stop the momentum and it impacts business and it impacts your ability to react and take the next step.”
The U.S. International Trade Commission said on its website it would shut down its investigative activities during the absence of government funding.
Marcia Sundeen, a partner with Kenyon & Kenyon, said that since the shutdown, all the firm’s communications with the agency have come to a halt.
Her firm had been waiting on decisions in cases that were supposed to be issued last week. “Those have been postponed,” Sundeen said.
Kenyon also had cases scheduled for trial, which have been pushed back.
Overall, the situation “is frustrating because it has changed all of our due dates and we don’t know” how long the shutdown will last, she said.
In antitrust matters, companies involved in mergers large enough to be above the Hart-Scott-Rodino Act threshold, generally those over $70.9 million, still have to notify the Justice Department and the Federal Trade Commission, said Clifford Aronson, a partner at Skadden, Arps, Slate, Meagher & Flom. The government still has to respond within 30 days, but it can extend that period, he said.
The shutdown could affect nonreportable transactions, which the government at times reviews, Aronson said. “It’s possible that nonreportable transactions that have antitrust issues may not be noticed as quickly,” Aronson said.
Sharis Pozen, another Skadden partner, said her firm is representing several clients in non-merger investigations. Those cases are at a standstill, Pozen said, and effects on clients vary.
“On one hand, there’s still a cloud of investigation hanging over them with no resolution in sight or no certainty. On the other hand, there’s no action or alleged liability,” Pozen said.
Daniel Lavoie, a Michelman & Robinson partner who represents landowners and real estate developers, often submits reports to the Environmental Protection Agency for review of development plans.
While he hasn’t noticed a short-term effect from last week’s furlough of EPA staff, “it will have a much more profound effect” in the long-run, Lavoie said. The agency already has a large case load, and “there will be a long-term ripple effect that is going to be caused by the backlog increasing,” which will delay approval of development plans, he said.
Jonathan Weinberger, a plaintiff’s employment discrimination attorney and solo practitioner, predicted it would take the Equal Employment Opportunity Commission—also closed last week—longer to give clients right-to-sue letters. Parties will be delayed in going to court and in investigations or mediations, he said. He said the shutdown could have a financial effect on firms and their clients.
Impact on Firms
Richard Spinogatti, senior counsel at Proskauer Rose in the firm’s litigation department, said the Justice Department has requested adjournments in some of his firm’s civil and criminal cases.
“Some clients are anxious to have litigation resolved one way or another so they can move on,” Spinogatti said. “There are other situations where the adjournment is a blessing, giving them more time to prepare. We have situations here in our office which fall in both categories.”
While the SEC has said it remains open, Spinogatti said some of his cases involving pending investigations are at a resolution point but are taking more time. He said it’s difficult to determine whether the delay is due to the department’s resources being stretched or case circumstances.
He said it’s too soon to tell what effect the shutdown will have on law firm business.
“If you were scheduled to start a trial in the month of October and the trial has been put off for a period of time, then the fees that you were going to earn” in October won’t be earned until later, he said.
“It’s a question of, is there an additional cost to the client and there may well be by reason of delay,” Spinogatti said.
While several attorneys interviewed said they do not expect the shutdown to take a toll on their business, Korn at Pepper Hamilton noted that law firms with ongoing business with the CFTC will likely have a reduction in their billable time.
Robert Anello, partner at Morvillo Abramowitz Grand Iason & Anello, said when government shutdowns occur, generally the pace of enforcement actions slows. The court grants extensions because parties cannot conduct depositions or discovery, he said.
“In the short term, lawyers have to rearrange scheduling. There’s some cost to that,” such as preparing for trial multiple times. “The clients may be hurt a little bit if you have to duplicate your efforts in the short term,” he said.
However, in the long term, attorneys and firm business could be damaged, he noted.
Fewer new cases and enforcement actions might be filed. “If this goes on for a while, I think you will see a drop in fees for enforcement matters and matters that are not essential,” Anello said.