124 Search Results

November 22, 2019 |
New York State Department of Financial Services Proposes New Regulation Easing Information Sharing Between Regulated Entities and Professional Advisors

Click for PDF Last week, the New York State Department of Financial Services (“DFS”) proposed a new regulation allowing regulated entities to share “confidential supervisory information” with their legal counsel and independent auditors without first obtaining approval from DFS.[1] Announced by superintendent Linda Lacewell, DFS stated that the new regulation will make it easier for banks to share confidential information with attorneys[2] and other advisors by seeking to “streamline” the disclosure process.[3] The regulation will be subject to a 60-day comment period following publication in the state register on November 27, 2019.[4] DFS’s Current Outlier Approach As New York’s chief financial regulator,[5] DFS has broad “supervisory” authority[6] to examine and investigate banks, trust companies, investment companies, and other banking organizations in order to “protect the public interest.”[7] In exercising that authority, DFS has long mandated that reports, memoranda, or correspondence relating to such investigations and examinations, including materials from banks or regulatory agencies, be deemed “confidential” and not be subject to subpoena or disclosed to the public without DFS approval.[8] This confidentiality requirement, which is more than a century old,[9] applies even after an entity has received a disclosure request pursuant to New York’s Freedom of Information Law.[10] DFS and its predecessors have long maintained that such a rule is intended to “encourage frank and open communications” between regulated entities and DFS.[11] And that is because the restriction can, in some cases, facilitate “effective” and “comprehensive” examinations by DFS[12] and allow the agency to make “frank and forceful criticism” without fear of disclosure.[13] Indeed, other important bank regulators have imposed similar restrictions on disclosure of confidential supervisory information, including the Consumer Financial Protection Bureau (“CFPB”),[14] the Office of the Comptroller of the Currency (“OCC”),[15] the Board of Governors of the Federal Reserve System (“FRB”),[16] and the Federal Deposit Insurance Corporation (“FDIC”).[17] Nevertheless, the sheer breadth of DFS’s prohibition and the agency’s aggressive approach in interpreting its own mandate have led some to criticize DFS’s rule as out of step with more sensible restrictions imposed by other regulators.[18] For example, DFS has often asserted restrictions to prevent regulated companies from sharing information with other regulators. It has also taken the position that its prohibition applies even when a regulated entity seeks to provide confidential supervisory information to important professional advisors such as legal counsel—an interpretation that raises constitutional concerns[19] in light of its obvious impact on the attorney-client relationship and which, in any event, may lack statutory support[20] given the New York Legislature’s prohibition on disclosure of such information to the “public.”[21] As a result of DFS’s aggressive approach, legal counsel with financial clients are often forced to take the cumbersome, time-consuming step of obtaining DFS approval before considering such confidential supervisory information and can be impaired from providing timely and thorough advice with respect to compliance with the state’s banking statutes. The Proposed Regulation  The new regulation would provide a “limited exception” to DFS’s restrictions as they relate to regulated entities and professional advisors.[22] In particular, regulated entities would now be able to share confidential supervisory information with legal counsel and auditors without first obtaining DFS’s approval, provided that they enter into a written agreement stating, among other things, that the information will be used solely to provide “legal representation or auditing services”; that the information will be disclosed solely to employees, directors, or officers on a “need to know” basis; that the counsel or auditors will notify DFS of demands or requests for such information; and that the advisors will assert legal privileges or protections as requested by DFS and on the agency’s behalf.[23] In addition, the regulated entities must keep a record of all disclosed confidential supervisory information[24] and a copy of each required written agreement.[25] The new regulation would place DFS closer in line with other regulators of financial institutions, which also permit disclosure to legal counsel and other professionals.[26] The CFPB, FDIC, OCC, and FRB all currently allow certain service providers to access confidential supervisory information without seeking additional approval from the regulator.[27] “With this action, DFS is delivering on a promise I made to ensure the Department engages in an open dialogue with the financial services industry,” said Superintendent Lacewell,[28] who was confirmed as Superintendent this year.[29] “This is one of the many steps DFS is taking to ensure an efficient regulatory structure to assist the industry.”[30] Conclusion The new DFS administration is likely to be applauded for this proposed regulation, which reflects a meaningful attempt to “modernize and transform” DFS’s practices[31] and to adhere to its statutory mandate to “foster the growth of the financial industry in New York and spur state economic growth through judicious regulation.”[32] Moving forward, financial institutions should view this new measure as a favorable development, and sophisticated legal counsel are likely to find it easier to provide prompt legal advice to their clients. ___________________________    [1]   Click here.    [2]   https://www.law.com/newyorklawjournal/2019/11/14/dfs-proposes-new-regulation-streamlining-info-sharing-between-banks-and-their-lawyers/.    [3]   Click here.    [4]   https://www.dfs.ny.gov/reports_and_publications/press_releases/pr1911141.    [5]   See, e.g., N.Y. Financial Services Law §§ 101-a, 102; see also, e.g., Dep’t of Fin. Servs., 2018 Annual Rep. at 1, https://www.dfs.ny.gov/system/files/documents/2019/07/dfs_annualrpt_2018.pdf.    [6]   See, e.g., N.Y. Financial Services Law §§ 201(a), 202, 301-302.    [7]   See, e.g., N.Y. Banking Law §§ 10, 36(1); see id. §§ 2(11), 11, 14(1), 38-39; see also, e.g., N.Y. Financial Services Law §§ 102(j), 104(a)(4).    [8]   N.Y. Banking Law § 36(10); 3 N.Y.C.R.R. Sup. Proc. G 106.8; see ch. 146, 1961 N.Y. Laws, 779, 680; see also here.    [9] See, e.g., ch. 41, 1914 N.Y. Laws 1264, 1264. [10]   See 3 N.Y.C.R.R. Sup. Proc. G 106.8. [11]   See, e.g., Banking Dep’t Mem. of Bill Before the Gov. for Exec. Action (June 29, 1999), reprinted in Bill Jacket for ch. 206 (1999) (“Bill Jacket”), at 11. [12]   Ltr. from Sen. Hugh T. Farley to Hon. James M. McGuire (June 28, 1999), reprinted in Bill Jacket at 4. [13]   See, e.g., Stratford Factors v. New York State Banking Dep’t, 10 A.D.2d 66, 70-71 (1st Dep’t 1960) (citation and internal quotation marks omitted). [14]   See 12 C.F.R. § 1070.42. [15]   See id. § 4.37. [16]   See id. § 261.20. [17]   See id. § 309.6. [18]   See, e.g., https://www.law360.com/articles/980300/ny-regulator-s-untenable-authority-over-confidential-info. [19]   N.Y. Const. art. Art. 1, § 6. [20]   See, e.g., https://www.law360.com/articles/980300/ny-regulator-s-untenable-authority-over-confidential-info. [21]   See Banking Law § 36(10) (“All reports of examinations and investigations, correspondence and memoranda concerning or arising out of such examination and investigations . . . shall not be made public unless, in the judgment of the superintendent, the ends of justice and the public advantage will be subserved by the publication thereof.” (emphasis added)). [22]   See 3 N.Y.C.R.R. § 7.2(b) (proposed 2019); see also here. [23]    See 3 N.Y.C.R.R. § 7.2(c) (proposed 2019); see also here. [24]    See 3 N.Y.C.R.R. § 7.2(c) (proposed 2019); see also here. [25]   See 3 N.Y.C.R.R. § 7.2(c) (proposed 2019); see also https://www.law.com/newyorklawjournal/2019/11/14/dfs-proposes-new-regulation-streamlining-info-sharing-between-banks-and-their-lawyers/. [26]   See 12 C.F.R. §§ 4.37(b)(2), 261.20(b), 309.6(a), 1070.42(b)(2). [27]   Id. [28]   https://www.dfs.ny.gov/reports_and_publications/press_releases/pr1911141. [29]   https://money.usnews.com/investing/news/articles/2019-06-21/ny-state-senate-confirms-linda-lacewell-as-new-chief-of-financial-regulator. [30]   https://www.dfs.ny.gov/reports_and_publications/press_releases/pr1911141. [31]   N.Y. Financial Services Law § 101-a. [32]   N.Y. Financial Services Law § 201; see 3 N.Y.C.R.R. § 7.2(c) (proposed 2019) (citing § 201). Gibson, Dunn & Crutcher’s lawyers are available to assist with any questions you may have regarding these issues. For further information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Public Policy or Financial Institutions practice groups, or the authors: Mylan L. Denerstein – Co-Chair, Public Policy Practice, New York (+1 212-351-3850, mdenerstein@gibsondunn.com) Matthew L. Biben – Co-Chair, Financial Institutions Practice, New York (+1 212-351-6300, mbiben@gibsondunn.com) Seth M. Rokosky – New York (+1 212-351-6389, srokosky@gibsondunn.com) Randi Kira Brown* – New York (+1 212-351-6205, rbrown@gibsondunn.com) Please also feel free to contact the following practice group leaders: Financial Institutions Group: Arthur S. Long – New York (+1 212-351-2426, along@gibsondunn.com) Stephanie L. Brooker – Washington, D.C. (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day – Washington, D.C. (+1 202-955-8220, kday@gibsondunn.com) *Not admitted to practice in New York; practicing under the supervision of Gibson, Dunn & Crutcher LLP. © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

November 13, 2019 |
New York Lengthens the Limitations Period for Public Water Suppliers to Sue for Alleged Water Contamination

Click for PDF Last week, New York Governor Andrew Cuomo signed a new measure lengthening the statute of limitations period for public water suppliers to sue for water contamination.[1] Supporters have characterized this as a “significant blow” to companies alleged to be polluters[2] because it could aid in suing to recover hundreds of millions of dollars for alleged contamination cleanup costs.[3] The new law will take effect immediately.[4] The Old Limitations Period Before last week, New York law set forth a three-year limitations period for claims to recover damages from latent effects of substance exposure, running from “the date of discovery of the injury by the plaintiff or from the date when through the exercise of reasonable diligence such injury should have been discovered by the plaintiff, whichever is earlier.”[5] New York law also provided an independent one-year period (subject to conditions) if the plaintiff did not know the cause of its injuries during the initial three-year period.[6] Officials and environmental advocates criticized this standard as discouraging lawsuits by public water suppliers, in part because of a lag between contamination and discovery[7] and perceived ambiguity over when contamination allegedly occurred.[8] Moreover, prior court rulings applied the general rule that began the statute of limitations period when a “reasonably prudent water provider should have or could have brought the suit.”[9] In the context of public water suppliers alleging contamination, however, the general counsel for the Suffolk County Water Authority explained that such a rule makes it difficult “to know when they should commence the action.” For example, New York courts had held that discovery occurred when, “based upon an objective level of awareness of the dangers and consequences of the particular substance, ‘the injured party discovers the primary condition on which the claim is based.’”[10] “Thus, knowledge of both the ‘dangers and consequences’ posed by contamination and harmful impact” were required.[11] In light of such obstacles, lawmakers complained that it was difficult for public water suppliers to overcome statute of limitations defenses raised by polluters in many cases.”[12] The hurdles presented by the prior limitations period were evident in a recent Second Circuit decision affirming dismissal of claims brought by the Bethpage Water District.[13] The parties took divergent views on the application of New York law, with a company arguing that a “cause of action accrues when the water provider learns that the contamination threatens water quality to such an extent that remedial action must be promptly taken, even if the contamination has not yet reached the water source,” and the District arguing that the limitations period “does not accrue until contamination is actually detected in the water source itself.”[14] Rejecting the District’s argument, the Court dismissed the District’s claims because it had been “aware that the threat of contamination was sufficiently significant to warrant ‘immediate or specific remediation efforts.’”[15] The New Limitations Period The new measure amends the Civil Practice Law and Rules to create a new statute of limitations for actions brought by public water suppliers to recover damages from water contamination.[16] The period begins to run once contamination has been detected in a public water supply, rather than when the contamination occurred.[17] It also clarifies that the statute of limitations period runs from the latest of (1) when a test has detected contamination in the raw water of a well or plant intake sample point in excess of state or federal drinking water limits, or (2) the last action taken by a company contributing to the contamination.[18] “Polluters need to be held responsible for their actions and with this measure we are closing an unacceptable loophole that let them skate for far too long,” Governor Cuomo said in a statement.[19] “This law will equip public water authorities with a desperately needed tool to hold corporate polluters accountable for contaminating our drinking water and ensure these deep-pocketed polluters, not ratepayers, pay the costs of removing contaminants like 1,4-dioxane from our drinking water,” a legislation sponsor said.[20] Conclusion The new measure increases potential challenges for companies alleged to be contributors to contamination. By setting the limitations period to run from the date of the impact on the water supply, this measure lengthens the period in which public water suppliers may sue, and it clarifies certain instances in which discovery will trigger that period to run. Moreover, while the old limitations period will still apply for private plaintiffs,[21] this new measure will nevertheless increase the potential liability of companies faced with allegations that they have contributed to ground water contamination. Moving forward, companies and stakeholders may wish to account for the greater resulting uncertainty about their potential liability risk due to this statute.  _____________________________    [1]  https://www.nystateofpolitics.com/2019/11/173011/.    [2]   https://www.newsday.com/long-island/environment/water-treatment-pollutants-1-4-dioxane-1.31984977.    [3]   https://www.newsday.com/news/region-state/1-4-dioxane-cuomo-gaughran-1.38223403.    [4]   Click here.    [5]   See N.Y. C.P.L.R. 214-c.    [6]   Vincent C. Alexander, Practice Commentaries to C.P.L.R. 214-c (Westlaw 2019).    [7]   https://www.newsday.com/news/region-state/1-4-dioxane-cuomo-gaughran-1.38223403.    [8]   https://www.nystateofpolitics.com/2019/11/173011/; also click here.    [9]   https://www.newsday.com/long-island/environment/water-treatment-pollutants-1-4-dioxane-1.31984977. [10]   Bethpage Water Dist. v. Northrop Grumman Corp., 884 F.3d 118, 125 (2018) (quoting MRI Broadway Rental, Inc. v. U.S. Min. Prods., 92 N.Y.2d 421, 429 (1998)). [11]   Id. [12]   N.Y. State Assembly Mem. In Supp. of Legis., click here. [13]   See Bethpage Water Dist., 884 F.3d at 119. [14]   Id. (emphasis added). [15]   Id. at 128. [16]   See N.Y. C.P.L.R. 214-h. [17]   https://www.newsday.com/news/region-state/1-4-dioxane-cuomo-gaughran-1.38223403; https://www.governor.ny.gov/news/governor-cuomo-signs-legislation-giving-public-water-suppliers-three-year-statute-limitations. [18]   https://www.governor.ny.gov/news/governor-cuomo-signs-legislation-giving-public-water-suppliers-three-year-statute-limitations; see https://nyassembly.gov/leg/?default_fld=&leg_video=&bn=A05477&term=2019&Summary=Y&Text=Y. [19]   https://www.governor.ny.gov/news/governor-cuomo-signs-legislation-giving-public-water-suppliers-three-year-statute-limitations. [20]   Id. [21]   See, e.g., Panzo v. Keyspan Corp., 2019 N.Y. Slip Op. 07407 (2d Dep’t Oct. 16, 2019). Gibson, Dunn & Crutcher’s lawyers are available to assist with any questions you may have regarding these issues. For further information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Public Policy or Environmental Litigation and Mass Tort practice groups, or the authors: Mylan L. Denerstein – Co-Chair, Public Policy Practice, New York (+1 212-351-3850, mdenerstein@gibsondunn.com) Abbey Hudson – Los Angeles (+1 213-229-7954, ahudson@gibsondunn.com) Seth Rokosky– New York (+1 212-351-6389, srokosky@gibsondunn.com) Please also feel free to contact the following practice group leaders: Environmental Litigation and Mass Tort Group: Daniel W. Nelson – Washington, D.C. (+1 202-887-3687, dnelson@gibsondunn.com) Peter E. Seley – Washington, D.C. (+1 202-887-3689, pseley@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

November 13, 2019 |
Navigating the Murky Waters of Impeachment: FAQs

Click for PDF Gibson Dunn’s Congressional Investigations team has been following the impeachment inquiry in the U.S. House of Representatives and has developed a set of questions and answers designed to help sort out the many competing claims being made on both sides of the aisle, by media, and by various commentators. We hope that you find this document helpful and invite you to let us know of other questions you have. Since Speaker Nancy Pelosi’s September 24, 2019 announcement of a formal impeachment inquiry,[1] a myriad of uncertainties have emerged and continue to unspool as witnesses parade through the House Permanent Select Committee on Intelligence. We hear daily summaries of testimony and competing takes on its significance, but it’s not easy to discern how all of the developing information fits within the impeachment process. Perhaps the most important question is the macro one. As the Trump Administration and House leadership spar over whether proper procedures are being followed and whether the Administration should cooperate with the inquiry, it is difficult to determine, “who is right?” The Trump Administration has vowed to fight all Congressional subpoenas and refused to cooperate with the inquiry. On October 8, White House Counsel, Pat A. Cipollone, sent a letter to Speaker Pelosi and several committee chairs, arguing that the inquiry is “constitutionally invalid and a violation of due process.”[2] Cipollone pointed to the secretive nature of the proceedings and argued that the inquiry was fueled by a partisan desire to “undo the democratic results of the last election” and “influence the next election.”[3] In addition, he emphasized that a mere “announcement” was insufficient to authorize an official inquiry because the full House of Representatives failed to take a vote.[4] Meanwhile, a legal action involving the authority of the House to access grand jury material in the Mueller Report teed up a key issue in the impeachment debate. On October 25, the District Court for the District of Columbia found that a House resolution was not necessary to initiate an impeachment inquiry.[5] In support of this conclusion, Chief Judge Beryl A. Howell cited multiple impeachment proceedings (and impeachments) of federal judges without a vote, as well as the absence of a vote for four months into President Clinton’s impeachment inquiry.[6] The court also noted that it ultimately “lacks authority to require the House to pass a resolution tasking a committee with conducting an impeachment inquiry.”[7] Shortly thereafter, on October 29, the Court of Appeals for the District of Columbia Circuit placed a stay on the decision.[8] Two days later, following a month of closed-door discussions, the House passed a resolution to initiate the public phase of the impeachment inquiry.[9] The resolution authorizes the House Intelligence Committee to conduct open hearings and grants the ranking Republican member on the committee the ability (with the concurrence of the chair) to issue subpoenas as well.[10] In announcing the initial draft of the resolution, Speaker Pelosi underscored that an affirmative vote on the resolution diminishes the ability for the Trump Administration to ignore subpoenas, withhold documents, and prevent witness testimony. Yet, while the resolution establishes a procedural outline for committee hearings, much ambiguity remains. The resolution directs committees “to continue their ongoing investigations as part of the existing House of Representatives inquiry.”[11] There is no explicit grant of due process rights,[12] thereby leaving the Judiciary Committee to develop procedures “not inconsistent” with existing committee or House rules. As discussed herein, impeachment proceedings are both complicated and rare, so there are seldom definitive answers to questions. In the sections that follow, we provide a series of questions and answers regarding impeachment such as: What does the U.S. Constitution require? What were the procedures used in past impeachments? Is there a difference between the impeachment and oversight powers of the House? Is impeachment a criminal proceeding? What is the role and effect of executive privilege in impeachment? I. FAQs A. What Is Impeachment? Impeachment is a formal charge of misconduct made against the holder of a public office. Impeachment is the first step in a two-step process for the House and Senate to remove federal officials. The members of the House investigate allegations of misconduct. A majority is required to charge the official by authorizing articles of impeachment. When a president is impeached, the Chief Justice presides over the trial in the Senate. A two-thirds majority vote of the Senate is required to remove an official.[13] B. Is Impeachment A Novel Idea? In short, no. Impeachment, as an American procedure, was borrowed from Great Britain, as Alexander Hamilton noted in 1788.[14] Great Britain’s use of impeachment as a process to remove government officials dates as far back as the late fourteenth century.[15] The first American impeachment was that of William Blount in 1797 for conspiring to assist Britain in capturing Spanish territory.[16] There have been nineteen individuals impeached by a vote of the House of Representatives since the country’s founding.[17] Of those nineteen, eight have been convicted by a trial in the Senate.[18] The most recent impeachment by the House occurred in March of 2010 with the impeachment of Judge G. Thomas Porteous, Jr. of the Eastern District of Louisiana.[19] He was subsequently convicted by the Senate and removed from his position.[20] C. What Does The Constitution Say About The Impeachment Process? The Constitution allocates the impeachment power to the legislative branch, broadly states the types of offenses that warrant removing a president from office, and makes clear that a president can face a criminal trial after the Senate convicts him. The Constitution gives only a skeletal framework for impeachment proceedings. Many of the missing details may be surprising. For example, the Constitution is silent about: How the House of Representatives presents its case to the Senate; Whether all Senators must be present to hear all of the evidence against the president; Whether the president must be present for the proceeding;[21] Whether the proceeding must be open to the public; What rules of evidence apply to the proceeding; Whether the president has a constitutional right to counsel; What standard of proof the House should use to charge and what standard the Senate should use to convict. The answers to these questions are left to Congress.[22] Below is a list of constitutional requirements and the relevant constitutional provisions. i. Constitutional Requirements The impeachment process is split between the two chambers of Congress. The House of Representatives impeaches the president, meaning the House investigates. The House then authorizes the articles of impeachment, which are the charges against the president.[23] The Senate tries the case, meaning it decides whether to acquit or convict the president.[24] The House of Representatives and the Senate each create their own rules for the investigation and trial.[25] This means that the Constitution does not require an impeachment proceeding to be exactly the same as a criminal trial. There is also very limited judicial review of impeachment proceeding procedures; federal courts may decline to resolve questions about impeachment proceedings.[26] The Chief Justice shall preside over the Senate trial of a president.[27] Two-thirds of the Senate must vote to convict the president.[28] If convicted, the president is removed from office.[29] The Senate can also disqualify a president from holding “any Office of honor, Trust, or Profit under the United States.”[30] A president may be impeached for “Treason, Bribery, or other high Crimes and Misdemeanors.”[31] Treason is the only crime defined in the Constitution: “Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort. No Person shall be convicted of Treason unless on the Testimony of two Witnesses to the same overt Act, or on Confession in open Court.”[32] An impeachment proceeding does not require a jury trial.[33] If a president or other official is removed from office by the Senate, he can then be subject to criminal proceedings: “the Party convicted shall nevertheless be liable and subject to Indictment, Trial, Judgment and Punishment, according to Law.”[34] The Twenty-Fifth Amendment gives an alternative mechanism to remove the president from office. It requires two-thirds of both houses of Congress to vote to remove him.[35] D. What Did The Framers Say About The Grounds For Impeachment? As noted above, the Constitution specifically states that “Treason, Bribery, or other high Crimes and Misdemeanors” are grounds for impeachment. Looking to the debates during the ratification of the Constitution provides a little context as to what that phrase actually means. Impeachment first appeared to make its way into the Constitutional text via language proposed by the Virginia Plan, written by James Madison and argued for by George Mason.[36] The Virginia Plan stated that impeachment would be for “Malpractice and Neglect of Duty.”[37] This language was revised and replaced with “Treason and Bribery.” Fearing that treason and bribery would “not reach the many great and dangerous offences,” Mason advocated for impeachment to cover “Treason, Bribery, or Maladministration.”[38] However, Madison argued that the additional term was so vague that it would be “equivalent to a tenure during displeasure of the Senate.”[39] Thus, the Convention delegates ultimately compromised and revised the phrase to “Treason, Bribery, or Other High Crimes and Misdemeanors” though they did not further clarify it. According to the ratification debates, the most vocal delegates with respect to this power thought maladministration was too low of a bar and treason and bribery alone to be an incomplete list. Renowned English legal commentator William Blackstone, with whom the framers were very familiar, defined “high misdemeanors,” and the “first and principal” among such high misdemeanors was “the mal-administration of such high officers, as are in public trust and employment.”[40] Thus, one can intuit that the Framers did intend to include maladministration of office as at least part of the definition of “high Crimes and Misdemeanors.” E. Is A House Resolution Needed To Start An Impeachment Inquiry? The impeachment process in the House of Representatives is “usually initiated…when a Member submits a resolution through the hopper (in the same way that all House resolutions are submitted).”[41] However, not every impeachment process has begun with a floor vote on whether to open an impeachment inquiry. In fact, three relatively recent judicial impeachments—that of Harry E. Claiborne, Alcee Hastings, and Walter E. Nixon—were not initiated by a House resolution explicitly authorizing an impeachment inquiry.[42] Additionally, nowhere in the Constitutional provisions on impeachment does it mention a requirement that a resolution first be passed to authorize an official impeachment inquiry. A recent Congressional Research Service report notes that “ [i]n the past, House committees, under their general investigatory authority, have sometimes sought information and researched charges against officers prior to the adoption of a resolution to authorize an impeachment investigation.”[43] While precedent exists for an impeachment inquiry to begin with a House vote, there is no Constitutional provision requiring one, nor has the House, even recently, fully abided by this practice in all circumstances. Perhaps an argument can be made that judicial impeachments, such as those mentioned above, function differently from presidential impeachments—and that the latter requires a resolution to officially open an inquiry, or at least to authorize a committee to commence an impeachment (as opposed to a legislative) investigation. After all, the Judiciary Committee that has led investigations into impeachable judges has explicit authority over the judiciary that is not analogous to any committee’s jurisdiction over the president. Moreover, Congress has arguably established a separate process for initiation of judicial impeachment proceedings by authorizing the Judicial Conference to conduct investigations of misconduct by federal judges and, when the Conference determines “that consideration of impeachment may be warranted,” to refer such matters to the House for further proceedings. 28 U.S.C. § 355(b). By contrast, the two other presidential impeachment proceedings of the modern era—those of Presidents Clinton and Nixon—have had an official resolution voted on by the full House. And now the current proceedings have included such a vote, too. The Constitution does distinguish presidential impeachment proceedings from all others in that “[w]hen the President of the United States is tried, the Chief Justice shall preside.”[44] However, there is no indication that any other procedural distinctions were intended. Further, although the House impeachment proceeding against President Nixon ultimately included a House resolution, the Judiciary Committee “began an examination of the charges against the President under its general investigatory authority.”[45] The resolution that passed, which was reported by the House Rules Committee, provided for additional investigation authority.[46] Additionally, the past two presidential impeachment inquiries were the result of special prosecutor investigations—Archibald Cox in the case of Nixon and Ken Starr in the case of Clinton. In the current proceeding, the impeachment investigation was brought on by a whistleblower complaint and not the result of the report of a special prosecutor. In short, every past impeachment case appears to be unique in both scope and procedure; however, it does not seem that a House Resolution authorizing an impeachment investigation or inquiry is required. Impeachment proceedings are ill-defined in the Constitution and vary based on the circumstances surrounding it. This current one is no different. F. When Does Congress Have The Power To Issue Subpoenas Pursuant To An Impeachment Inquiry? Congress has been engaging in investigations and issuing subpoenas since the beginning of the Republic.[47] Its power to do so was first confirmed by the Supreme Court in the 1927 case McGrain v. Daugherty.  For the most part, the Constitution does not directly speak to the procedures or limits of Congressional authority in this space; instead, House and Senate rules primarily govern.  Courts have limited their own oversight of Congress by holding that they do not have authority to impose particular structures or procedures on Congress when Congress is within the bounds of its Constitutional duties and delegations.[48] i. What Subpoenas Can Congress Constitutionally Issue? Congress can issue subpoenas to assist with its constitutionally delegated powers: legislation and impeachment.[49]  Legislative subpoenas are by far the most common.  Congress’s legislative power (and thus its legislative power of investigation) is broad.[50] In McGrain, Congress subpoenaed bank records related to the then-Attorney General and his Department of Justice.  The Supreme Court concluded that the subpoena was valid because Congress’s “power of inquiry . . . is an essential and appropriate auxiliary to the legislative function.”[51]  The Court went on to explain that Congress could investigate and issue subpoenas on any subject for which “legislation could be had,” as long as the information requested would materially aid the legislation.[52]  This is the limitation placed on investigations (and thus subpoenas) that are conducted pursuant to Congress’s legislative power. Occasionally, in cases such as Mazars, courts are faced with subpoenas that may serve mixed purposes.  There, the House Committee on Oversight and Reform issued a subpoena to an accounting firm for records related to President Trump.  President Trump, challenging the subpoena, argued that it was not properly “legislative” because the Committee’s real purpose was to inquire about potentially impeachable offenses. The Mazars majority found that the subpoena was issued pursuant to the Committee’s authority to “legislate and conduct oversight regarding compliance with ethics laws and regulations,”[53] notwithstanding the potential implications of the subpoena for a potential impeachment.  After finding a valid legislative purpose, the majority ended their inquiry.[54] Judge Rao dissented vehemently from the majority’s approach in Mazars on the basis that the Oversight Committee’s true (or additional) aims were impeachment, not legislation.  Judge Rao argued that investigations targeting questions of impeachment cannot permissibly be authorized by Congress’s power to issue legislative subpoenas.[55] Here, she argued, any potential “legislative purpose” that might underlie the subpoena is dwarfed by the Committee’s purpose to investigate the president for impeachable offenses.[56] In a case such as Mazars, or even more so in a case where the president himself is subpoenaed, Rao highlights the importance of considering separation of powers principles when ruling on the legitimacy of such a subpoena.  To allow Congress to use its legislative power to issue a subpoena to the Executive Branch while seeking the subpoena to assist its impeachment inquiry could risk trampling on the constitutional distinction between those two separate grants of authority.  Judge Rao’s dissent is novel, as the Mazars majority points out, but time will show which perspective will ultimately prevail. ii. When Do Congressional Committees Have Subpoena Power? An additional limitation on all subpoenas issued by Congress comes from the House and Senate Rules.  When courts have evaluated the legitimacy of Congressional subpoenas, they have often looked to the rules and resolutions that authorized the investigation.  This inquiry is particularly relevant when a Congressional committee, as opposed to the entire House or Senate, is the body issuing subpoenas. In United States v. Rumely, for example, a House committee subpoenaed the names of people who had purchased certain types of books under resolution that authorized an investigation of “lobbying activities.”[57]  The Court ultimately held that the “sale of books” was not included in the authorization to investigate “lobbying activities.”[58] The court in Mazars recently took that same approach.  After finding that the subpoena had a proper legislative purpose, the Mazars majority asked whether the committee was authorized to issue the subpoena at all.  To analyze the Committee’s power, the D.C. Circuit looked to House Rules to determine “whether the committee [was] authorized” by the full House “to exact the information” it sought.[59] The court noted that the House rules broadly authorize the Oversight Committee to conduct investigations to “review and study on a continuing basis the operation of Government activities at all levels, including the Executive Office of the President.”[60]  This includes the power to issue subpoenas to “carry[] out any of [its] functions and duties.”[61]  When such authority is built into a committee’s creation, the committee does not need additional authorization from the full House to carry out its mandate. While most committees have some legislative authority (and therefore the ability to issue legislative subpoenas), recent events have raised a somewhat novel question: when and how are Congressional committees authorized to issue impeachment-related subpoenas? Some have opined that the entire House must vote to specifically provide a committee with impeachment-related investigative powers.  By contrast, the U.S. District Court for the District of Columbia recently ruled that all “investigating committees” of the House have inherent authority by their very creation to conduct investigations, even where the committee develops and reports facts that may set an impeachment into motion.[62] Now that the full House has voted to authorize the impeachment-related investigations of several committees, it is clear that those committees can properly issue subpoenas under their legislative or impeachment authority moving forward.  But what about the subpoenas issued prior to the recent House vote?  The recent D.C. district court ruling, for one, did not provide guidance on the legitimacy of subpoenas issued by “investigative committees” prior to impeachment inquiry authorization, nor did it pass on the authority of non-investigative committees to issue impeachment-related subpoenas.  We are left asking: do the previously issued subpoenas need to have a “valid legislative purpose” to make them constitutionally permissible? These are novel questions.  The Supreme Court has yet to rule on these issues, making them ripe for continued debate and litigation. G. Can Congress Subpoena A Sitting President? And, If So, Must The President Comply? Congress has investigated sitting presidents on several occasions, both for actions taken before the president in question had taken office and for actions taken by the president in his official role. In 1832, the House vested a select committee with subpoena power to investigate whether the President had knowledge of a contract that the Secretary of War had allegedly awarded fraudulently.[63]  In 1946, the Senate investigated whether the President had “provoked” Japan into attacking the United States.[64]  And, finally, the well-known Watergate Investigation centered on President Nixon.[65] Some presidents, such as President Reagan when he was investigated for his role in the Iran-Contra Affair, have complied willingly with Congress’s subpoenas.[66] Others, such as President Nixon, have asserted executive privilege over the requested documents.[67] When President Nixon fought the Congressional subpoenas directed at him, he did not contest that the issuing committee had the authority to so subpoena a sitting president.  Neither did the D.C. Circuit, finding instead that executive privilege shielded the tapes.  The court in Mazars interprets the Nixon decision as “impl[ying] that Presidents enjoy no blanket immunity from congressional subpoenas.”  If such immunity existed, says the Mazars court, the Nixon court would have had no reason to “explore the subpoena’s particulars” and conduct the balancing test necessary in evaluating a claim of executive privilege.[68] H. Is Impeachment A Criminal Proceeding? Asking and answering this question is crucial for two related reasons.  First, a criminal proceeding follows specific procedures leading up to and during a trial.  These procedural rules govern the actions of the prosecutor, grand jury, judge, petit jury (i.e., the jury at trial), and, of course, the defendant and his lawyer.  Second, a criminal defendant has specific constitutional rights, such as a right to a public trial, due process, and the right against self-incrimination. There is no authoritative or definitive answer to whether an impeachment proceeding is a criminal proceeding.  The text of the Constitution, the Framers’ comments, court cases, and authoritative comments all indicate that impeachment proceedings are informed by, but are ultimately different from, criminal proceedings. i. What Is A Criminal Proceeding? A federal criminal case is brought on behalf of the United States to address a general grievance.  If convicted, a criminal defendant can be fined (i.e., loss of property), imprisoned (i.e., loss of liberty), or put to death (i.e., loss of life).  Consequently, criminal defendants are afforded additional constitutional protections.  It is worth noting that non-criminal proceedings can have serious consequences but participants are not given the same panoply of rights afforded to criminal defendants.  For example, a family evicted from their home is deprived of something valuable; yet, there is no constitutional guarantee of a lawyer in housing court.  The due process clause ensures minimum procedural protections in civil proceedings, but does not impose the wide array of additional procedural protections applicable in the criminal context. In a federal criminal proceeding, a prosecutor represents the United States.  In conjunction with law enforcement, such as the FBI, she builds her case.  Before she can file charges, she must present her evidence to a grand jury unless the defendant waives that right.  The grand jury comprises members of the public and meets in secret.  If the grand jury finds there is probable cause, they issue a true bill. After receiving a true bill, the prosecutor may proceed to trial.  Before trial, a petit jury is seated in order to decide questions of fact (e.g., Did the event happen?  Did the defendant have the requisite mental state?).  At trial, a judge presides over the trial and rules on questions of law, such as the admissibility of evidence. After hearing the evidence from the prosecutor and any evidence from the defense, the petit jury deliberates in secret.  They are not allowed to consider external evidence, such as news reports.  To convict the defendant, the jury must unanimously find him guilty beyond a reasonable doubt. ii. What Does The Constitution Say? The Constitution uses the language of criminal law in discussing impeachment but also indicates that impeachment proceedings are procedurally different from a criminal proceeding.  On the one hand, the Constitution uses the language of criminal law when talking about impeachment.  For example, Article II states an official may be removed from office for “Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors.”  Similarly, “[t]he Senate shall have the sole Power to try all Impeachments . . . And no Person shall be convicted without the Concurrence of two thirds of the Members present.”[69] On the other hand, the Constitution is clear that impeachment is procedurally different from a criminal proceeding.  Under the Constitution, a president is expressly made subject to impeachment proceedings during office; he can also be subject to criminal proceedings after he leaves office.  Art. I, § 3 cl. 7 states that “the Party convicted shall nevertheless be liable and subject to Indictment, Trial, Judgment, and Punishment, according to Law.”  This structure indicates that impeachment and criminal proceedings are different. Additionally, the Constitution states, “[t]he trial of all crimes, except in cases of impeachment, shall be by jury.”[70]  Similarly, “the President … shall have the Power to grant Reprieves and Pardons for Offenses against the United States, except in Cases of Impeachment.”[71]  The use of “except” implies that an impeachment proceeding is a type of criminal proceeding, while at the same time clarifying that an impeachment proceeding is different from a criminal trial. Moreover, the trial in the Senate is different from a trial before a petit jury.  First, the Senate is not a jury of the president’s peers; the Senate is an elected body.  Second, a president may be convicted by a two-thirds vote of the Senate, whereas a petit jury must unanimously convict a criminal defendant in a federal trial.  Moreover, there is no double jeopardy violation if the Senate convicts a president and he is later tried in a criminal proceeding. Finally, the consequence of impeachment indicates that an impeachment proceeding is different from a criminal proceeding.  One hallmark of a criminal proceeding is the sentencing exposure: impeachment is not a criminal proceeding because the official is not exposed to a loss of liberty (i.e., imprisonment) or life.  If convicted in the Senate, the official is removed from office.  The Senate may also vote to bar the official from holding future offices. iii. What Did the Framers Say? The Framers discussed whether impeachment is a criminal proceeding.  There were a variety of opinions and it is difficult to draw a definitive conclusion given the disagreements among them. The first impeachment proceeding in Congress raised this very question of whether impeachment is a criminal proceeding.  The question was whether an impeached official, in this case Senator Blount, had to be tried with a jury in the Senate.  Thomas Jefferson wrote to Senator Tazewell on the question of “whether an impeachment for a misdemeanor be a criminal prosecution?”[72]  In consulting Blackstone and Wooddeson, two leading legal treatises, Jefferson concluded, “in Law language the term crime is in common use applied to misdemeanors, and that impeachments, even when for misdemeanors only are criminal prosecutions.”[73]  He took the position that the Senate must use a jury to try an impeached official.  The Senate and other Framers disagreed.  Ultimately, the Senate voted 26-3 against using juries in impeachment proceedings.[74] During the proceeding against Sen. Blount, Rep. Dana took the position that “the process in cases of impeachment in this country is distinct from either civil or criminal––it is a political process, having in view the preservation of the Government of the Union.”[75] Madison indicated that he did not agree with Jefferson that impeachment is a criminal proceeding.  In a letter to Thomas Jefferson, James Madison wrote, “[m]y impression has always been that impeachments are somewhat sui generis, and excluded the use of juries.”[76]  Merriam Webster defines sui generis as “constituting a class alone: unique, peculiar.” iv. What Have Courts Said? Courts have said very little, probably because impeachment proceedings are rare and because the Supreme Court has held that impeachment proceedings fall under the political doctrine exception to judicial review.[77] In the case of Judge Walter Nixon, the Supreme Court hinted that impeachment proceedings are different from criminal proceedings.  Chief Justice Rehnquist wrote, “the Framers recognized that most likely there would be two sets of proceedings for individuals who commit impeachable offenses—the impeachment trial and a separate criminal trial.  In fact, the Constitution provides for two separate proceedings.  See Art. I, Sec. 3, cl. 7.”[78] In the same case, a circuit court judge wrote: “The inference that the framers intended impeachment trials to be roughly akin to criminal trials is reinforced by seemingly unrefuted statements made by Alexander Hamilton during the ratification debates.”[79] v. What Have Other Sources Said? Other authorities such as Senators, the Department of Justice, and the transcripts of past proceedings all indicate that impeachment proceedings are informed by, but ultimately different from, criminal proceedings. Senators have indicated they believe an impeachment proceeding is something different from a criminal trial.  As Senator Crapo (R-ID) said about the Clinton trial: “As each Senator took the oath to provide impartial justice, . . . [n]o longer was the Senate a legislative body, it was a court of impeachment.  A unique court, to be sure, not identical to traditional civil and criminal courts, but a court nonetheless.”  He also stated, “Although the ‘beyond a reasonable doubt’ standard of traditional criminal trials is not applicable in impeachment proceedings, I am convinced the evidence presented in this case [against President Clinton] meet[s] even this high standard.” The Department of Justice recently took the position that “[t]he Constitution carefully separates congressional impeachment proceedings from criminal judicial proceedings.”  (Chief Judge Howell rejected the Department of Justice’s position in her recent decision.) I. What Does It Mean That The House Of Representatives Is Like A Grand Jury? In an impeachment proceeding, the House acts like a prosecutor and grand jury because it investigates and decides whether to bring charges. In a criminal proceeding, a grand jury’s investigation is kept secret.  The defendant has very few rights during a grand jury investigation and proceeding; most of the rights we associate with criminal law attach only after an indictment is returned or charges are filed.  In United States v. Williams, 504 U.S. 36, 49 (1992) the Supreme Court said, “certain constitutional protections afforded defendants in criminal proceedings have no application before that body [i.e. the grand jury].”  For example, the target of the investigation does not have a right to present his case to the grand jury; that right attaches at trial.  Similarly, he also does not have a right to cross-examine the witnesses in a grand jury proceeding; that right also attaches at trial. i. Overview Of A Grand Jury In a criminal proceeding, a grand jury must find there is probable cause before a person can be indicted.[80]  The grand jury meets in secret.[81]  The Supreme Court has explained why grand jury proceedings are secret: (1) to prevent the escape of those whose indictment may be contemplated; (2) to insure the upmost freedom to the grand jury in its deliberations, and to prevent persons subject to indictment or their friends from importuning the grand jurors; (3) to prevent subornation of perjury or tampering with the witness who many testify before the grand jury and later appear at the trial of those indicted by it; (4) to encourage free and untrammeled disclosures of persons who have information with respect to the commission of crimes; (5) to protect the innocent accused who is exonerated from disclosure of the fact that he has been under investigation, and from the expense of standing trial where there was probability of guilt.[82] A grand jury has the power to subpoena witnesses and physical evidence, including documents.  A witness “cannot refuse to answer questions simply because the answer is embarrassing, may cause the witness to lose his job, or might implicate some other person in a crime.”[83]  However, a grand jury witness does enjoy the right against self-incrimination.  This means a witness cannot be compelled to answer questions that would implicate himself in a crime.[84]  The law is relatively complicated when it comes to producing documents.[85] ii. The House Of Representatives As A Grand Jury The House of Representatives is like a prosecutor and grand jury because it considers the evidence against the president before deciding whether to authorize articles of impeachment.  To the extent the House acts as a grand jury, it is not required to conduct its investigation in public. Moreover, assuming the House investigation models a grand jury investigation, a president has very few rights.  For example, a defendant in a grand jury proceeding does not have the right to present his own evidence.  Neither he nor his attorneys have the right to be present during the questioning of witnesses or to question those witnesses.  He does not have the right to receive exculpatory material during a grand jury proceeding.  There is not a due process right per se because the grand jury is not depriving the defendant of life, liberty, or property; the grand jury is determining whether there is probable cause to move forward with such proceedings. There are some notable differences between the House of Representatives and a grand jury.  First, a grand jury consists of members of the public whereas the House is made up of elected officials.  Second, a grand jury must meet in secret.  The House of Representatives may choose to hold secret hearings or public hearings.  Third, the grand jury has a clear standard of proof; they can return a true bill only if they find probable cause that the defendant committed the crime.  The House of Representatives is free to select their own standard of proof.  The Constitution does not specify what standard of proof the House of Representatives may or must use, instead simply vesting the “sole Power of Impeachment” in the House.  U.S. Const. art. I, § 2, cl. 5. J. What Does It Mean That The Senate Is Like A Petit Jury? A petit jury is the jury on a criminal trial that decides questions of fact (e.g., was the light red?).  Many commentators have described the Senate as a jury because the Senate decides whether to acquit or convict the president.  However, there are several ways the Senate is different from a petit jury. First, a criminal trial requires a unanimous jury.  The Senate can remove the president from office with two-thirds of the Senators present. Second, the Senate can decide questions of law and fact.  Traditionally, a jury is a trier of fact (i.e., did this event happen, did the defendant have the intent?).  The judge determines questions of law (i.e., what does this statute mean, is this evidence admissible?).  During President Clinton’s impeachment trial, Chief Justice Rehnquist ruled that, “[t]he Senate is not simply a jury, it is a court in this case.  Therefore counsel should refrain from referring to senators as jurors.”[86] Third, jurors on a petit jury are instructed to decide the case based on the evidence presented in court.  A judge instructs the jurors not to “consult dictionaries or reference materials, search the internet, websites, blogs” and jurors may not discuss the case with each other before deliberations.  Since the Senate is not sequestered, senators do not have to abide by such restrictions.  While a Senator may decide not to discuss the case with the press, she will likely continue to read news stories and discuss the case with her colleagues. Fourth, senators can be called as witnesses under existing rules for impeachment trials.[87]  In a criminal trial, a witness cannot serve as a juror. K. Does The President Have A Constitutional Right To Due Process? It is not self-evident that a president has a constitutional right to due process in an impeachment proceeding. The due process clause states no person shall be “deprived of life, liberty or property without due process of law.”  U.S. Const., Amend. V.  The plain text does not seem to encompass impeachment proceedings and past impeachments do not seem to have relied on the due process clause.  Of course, a commitment to fairness and a legitimate process demand that an elected official must have some protections in an adversarial proceeding against him. There are several reasons the Fifth Amendment due process clause does not seem to apply to an impeachment proceeding. First, according to the plain text of the due process clause of the Constitution, a person is guaranteed due process only in cases where life, liberty, or property is at stake.  If a president is convicted, he is removed from office.  Removal from elected office is not a deprivation of life or liberty.  While there is case law on whether government employment constitutes a property interest, it may be a stretch to apply those cases to the Office of the President. Second, the House and Senate have historically relied on their power to make the rules of proceedings, not the due process clause, to grant the president procedural protections.  When the House impeached President Clinton, it adopted rules to “provide the President with certain procedural rights[,]” “similar to those adopted by the Committee in 1974.”  Specifically: The President and his counsel shall be invited to attend all executive session and open committee hearings.  The President’s counsel may cross examine witnesses.  The President’s counsel may make objections regarding the pertinency of evidence.  The President’s counsel shall be invited to suggest that the Committee receive additional evidence.  Lastly, the President or the President’s counsel shall be invited to respond to the evidence adduced by the Committee at an appropriate time.[88] Pursuant to H. Res. 660, the House Judiciary Committee has given the President some procedural protections once the House Permanent Select Committee on Intelligence Committee completes its investigation and issues its report setting forth its findings and recommendations.[89]  The President and his counsel are to be given copies of reports and they are invited to attend the Judiciary Committee proceedings.  The rules authorize his counsel to question witnesses subject to “instructions from the chair or presiding member.”  The chair, in consultation with the ranking member, may invite the President’s counsel to respond to evidence presented.  The counsel may also submit requests for additional witnesses. Third, one of the only court decisions to address the question of due process during impeachment proceedings determined that due process applied in only a general sense.  (It is important to note that this court case is not precedential.  The decision is from a district court and the decision was vacated by the D.C. Court of Appeals.)  The district court judge wrote, “[t]here is no reason to believe that the full panoply of due process protections that apply to a trial by an Article III court necessarily apply to every proceeding.  Impeachment trials are unique, and are entitled to be carried out using procedures that befit their special nature.  However, they must be conducted in keeping with the basic principles of due process that have been enunciated by the courts and, ironically, by the Congress itself.”[90] L. Does The President Have A Constitutional Right To Exculpatory Material? A president probably does not have a constitutional right to exculpatory material, known as Brady evidence, during the House impeachment proceeding.  Brady material is specific to criminal trials and impeachment is probably not a criminal trial.  Moreover, even a criminal defendant does not have a right to Brady material during the investigation phase.  That right attaches after charges are filed.  House Resolution 660 does not include a provision to turn over exculpatory material. In a criminal case, due process requires that the prosecution turn over favorable or exculpatory evidence to the defendant.  This is known as “Brady evidence.”[91]  A criminal defendant does not have a right to Brady material during the investigation phase.  The right to favorable evidence applies only after charges are filed.  In other words, the target, i.e., the defendant, of the investigation does not have a right to exculpatory material during a grand jury proceeding.  (The grand jury only determines whether there is probable cause to bring a charge, not whether there is proof beyond a reasonable doubt.)  Moreover, the prosecutor is not obligated to present exculpatory material evidence to the grand jury.[92]  Therefore, a president probably does not have a right to favorable or exculpatory evidence during the investigation portion of impeachment proceedings. It is a closer question whether a president has a right to exculpatory evidence during a trial in the Senate.  On the one hand, Brady material relies on the due process clause and it is not obvious that the due process clause applies.  (See section K).  On the other hand, Brady material is relevant “to guilt or to punishment.”[93]  Because an impeachment trial does raise questions about guilt, the president could claim he does or should have a have a right to the material.  That said, the more public and transparent the process, the less likely an explicit Brady right would be needed. M. How Do Impeachment And Executive Privilege Interact? The question of whether a president can invoke executive privilege during impeachment proceedings is largely unsettled by the courts, but will likely prove a battleground between the House and the administration in the weeks and months to come.  The Supreme Court has never ruled directly on the issue, but has given some indication about the contours of executive privilege in other circumstances. i. Overview Of Executive Privilege Executive privilege (also known as presidential communications privilege) is a qualified right of the president, based in the constitutional separation of powers, to preserve the confidentiality of communications, information, and documents related to presidential decision-making.  As the D.C. Circuit has explained: “The President can invoke the privilege when asked to produce documents or other materials that reflect presidential decisionmaking and deliberations and that the President believes should remain confidential.  If the President does so, the documents become presumptively privileged.  However, the privilege is qualified, not absolute, and can be overcome by an adequate showing of need.”[94] The privilege also extends to close aides of the president, in order to “provide sufficient elbow room for advisers to obtain information from all knowledgeable sources” and not otherwise chill robust policy discussion within the Executive branch.[95] ii. Other Forms Of Privilege Executive privilege is a broad, umbrella term that is often used loosely for other legal concepts depending on the context.  In general, it serves to protect confidential presidential communications.  There are also two related forms of privilege that are sometimes viewed as components of executive privilege: diplomatic privilege and deliberative process privilege. Military, Diplomatic, and National Security Secrets: The Supreme Court has long recognized that the president has a common-law based right to withhold documents related to military, diplomatic and state secrets and communications and documents related to the same.[96] Deliberative Process Privilege: Lower courts have held that the deliberative process extends beyond the confines of the White House, and presidential communications themselves, to other departments within the Executive branch, allowing such agencies “to withhold documents and other materials that would reveal advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated.”[97] Its scope and applicability remain uncertain. A third concept is executive immunity, but this too can have conflicting meanings.  On one hand, it is a separate doctrine that provides an absolute protection for the president regarding civil liability for official acts in office.[98]  On the other, it represents a concept advocated for by the current and prior administrations that Executive branch officials are immune from compelled testimony before Congress.[99] iii. George Washington’s View Of Executive Privilege And Impeachment In 1796, President George Washington asserted executive privilege against a House demand for diplomatic communications surrounding the Jay Treaty by arguing that the House only had the power to compel such documents during an impeachment proceeding.  In doing so, he noted “[i]t does not occur that the inspection of the papers asked for can be relative to any purpose under the cognizance of the House of Representatives, except that of an impeachment, which the resolution [demanding the papers] has not expressed.”[100] That episode produced additional guidance from Washington’s advisers, similarly recognizing the unique powers of an impeachment proceeding.  Attorney General Charles Lee indicated “there may be occasions when the books and original papers should be produced: for instance to sustain an impeachment commenced.”[101]  Secretary of War James McHenry similarly queried, “But as the House of Representatives are vested with the sole power of impeachment, has it not a right as an incident to that power to call for papers respecting a treaty when the object is impeachment?”[102]  While the House never received the documents, Washington did share them with the Senate when it considered the treaty for approval.[103] iv. Claiming Privilege Against Congressional Subpoenas The President has directed several current and former administration employees to refuse both to comply with Congressional subpoenas or to appear before hearings on Capitol Hill.  These refusals have not always been accompanied by a formal invocation of executive privilege.  At the same time, the administration has wielded broad claims of the Executive branch’s rights and immunities under the separation of powers and the requirements of maintaining confidentiality. In one example, the White House Counsel’s office sought to restrict the testimony before Congress of former senior National Security Council staffer Fiona Hill.  In doing so, it cited the classified nature of the information, along with the deliberative process privilege and executive privilege, as well as the then-absence of an official vote on impeachment.  The White House’s letter noted that “even if it were the case that executive privilege operates differently in connection with an impeachment inquiry, there is no ground for Dr. Hill to believe that she may disclose privileged information on that basis to the House Committee.”[104]  Hill eventually testified. Other recent administrations have also claimed executive privilege.  President Obama invoked it once, during the Congress’s investigation of Operation Fast and Furious; President Bush asserted it six times, in matters ranging from EPA air quality standards to the revelation of Valerie Plame’s identity as a CIA agent.[105]  President Clinton invoked executive privilege in relation to multiple grand jury proceedings, both inside and outside the context of his impeachment over the Lewinsky affair.[106] v. The Supreme Court And Nixon The Supreme Court did consider President Nixon’s invocation of executive privilege during his impeachment, but that case, United States v. Nixon, addressed a grand jury subpoena in the separate and distinct setting of a criminal prosecution.[107]  Nevertheless, the Supreme Court narrowed the scope of the privilege in several meaningful and relevant ways, rejecting the president’s claim of an absolute executive privilege and providing a balancing test between the confidentiality of presidential communications and the rule of law.[108]  This remains the fundamental judicial framework for evaluating executive privilege today. [N]either the doctrine of separation of powers nor the need for confidentiality of high-level communications, without more, can sustain an absolute, unqualified Presidential privilege of immunity from judicial process under all circumstances.  The President’s need for complete candor and objectivity from advisers calls for great deference from the courts.  However, when the privilege depends solely on the broad, undifferentiated claim of public interest in the confidentiality of such conversations, a confrontation with other values arises.  Absent a claim of need to protect military, diplomatic, or national security secrets, we find it difficult to accept the argument that even the very important interest in confidentiality of Presidential communications is significantly diminished by production of such material for in camera inspection with all the protection that a district court will be obliged to provide.[109] vi. Other Notable Court Cases The Supreme Court has never ruled directly on executive privilege in the context of a dispute with Congress.  However, several other cases in the lower courts have added texture and nuance to the concept. In 1997, the D.C. Circuit added significant jurisprudence to the scope of executive privilege in In re Sealed Case. Among other things, the case established a distinction between the presidential communications privilege and the deliberative process privilege, emphasizing that the former relates to “direct decisionmaking by the President,” including his close advisers.[110]  It also reinforced that the privilege may only be overcome by a substantial showing that the “subpoenaed materials likely contain[] important evidence” that is not available with due diligence elsewhere.[111] In 2008, the D.C. District Court in Committee on the Judiciary v. Miers, determined that while an administration official could invoke executive privilege as to specific questions, she could not assert the privilege in a blanket manner to altogether prevent compelled testimony before Congress.[112] Miers was stayed pending appeal, and eventually settled, leaving its impact somewhat ambiguous. In 2016, the D.C. District Court again took up the scope of the privilege, this time regarding a Congressional subpoena requesting documents related to the Fast and Furious investigation. While it held that the deliberative process privilege provided a qualified basis for resisting Congressional subpoenas, it nonetheless found that “under the specific and unique circumstances of this case … the qualified privilege invoked to shield material that the Department has already disclosed has been outweighed by a legitimate [Congressional investigative] need that the Department does not dispute, and therefore, the records must be produced.”[113] N. Can Congress Enforce A Subpoena Against Administration Officials Unwilling To Testify? Also undefined is the balance between Congress’s subpoena power and administration officials’ invocation of privilege or immunity.  Preliminary—but likely not definitive—answers to this question, however, may come soon, as at least two current and former White House officials have sought a resolution of where they stand from the courts. i. Options To Enforce A Subpoena Congress has two paths to enforce a subpoena: criminal contempt and civil action.  In both cases, enforcing compliance with the subpoena presents unique challenges.  Congress can hold an individual who willfully refuses to comply with a committee subpoena in contempt of Congress.[114]  But a contempt of Congress citation is referred back to the Executive branch for prosecution, which in the case of contempt by Executive officials would essentially require the administration to prosecute itself.  Congress can also bring a civil action to enforce compliance with its subpoena, but this routes the issue through the courts and could require potentially protracted litigation.[115]  In the time between 2008 and the current administration, Congress has held an Executive branch official in criminal contempt four times, and in each case the administration declined to bring the issue before a grand jury.[116] The main constraint on bringing a civil enforcement action to challenge an assertion of executive privilege is time—it may well take months or years for the courts, which are already hesitant to address such thorny political topics, to resolve a dispute between the branches of government.  Moreover, House Democrats have made clear that they may find strategic value in not pursuing litigation regarding their subpoena power.  In a letter issuing a subpoena to President Trump’s personal attorney Rudy Giuliani, House Democrats noted “[y]our failure or refusal to comply with the subpoena, including at the direction or behest of the president or the White House, shall constitute evidence of obstruction of the House’s impeachment inquiry and may be used as an adverse inference against you and the president.”[117]  An adverse inference would presumably be used as a stand-in for incriminating evidence in follow-on litigation or impeachment proceedings. ii. Punting to the Courts   The difficulties with subpoena enforcement are center stage in ongoing litigation involving two former White House advisers—Charles Kupperman, a former Deputy National Security Adviser; and Donald McGahn, former White House Counsel.  Faced with a Congressional subpoena in one hand, and a letter from the White House Counsel in the other telling them to not to testify, Kupperman and McGahn decided to punt these unsettled legal questions to the courts. Kupperman, under subpoena to testify from the House but ordered by the White House to refuse to appear on the basis of testimonial immunity, sought a declaratory judgment from the D.C. District Court to resolve what he called “irreconcilable commands by the Legislative and Executive Branches of the Government.”[118]  Kupperman’s complaint notes that “he is aware of no controlling judicial authority definitively establishing which Branch’s command should prevail,” but that his personal stakes are high—on the one hand, defying a Congressional subpoena could result in criminal contempt, on the other, an erroneous decision to appear could “unlawfully impair the President in the exercise of his core national security responsibilities.”[119]  U.S. District Judge Richard J. Leon has fast-tracked this case and set oral argument for December 10.[120]  A similar dispute is unfolding in court regarding former White House Counsel Don McGahn, who also claimed testimonial immunity.  Press reports indicate that, in a recent hearing on the case, U.S. District Judge Ketanji Brown Jackson was skeptical of the administration’s claim of blanket immunity and questioned how such a broad privilege could be squared with fundamental separation of powers concepts.[121] For either case, however, a determinative outcome is unlikely.  Even if one of the district court judges rules in favor of the House or the administration on the balance between a subpoena and concepts of executive privilege and immunity, that decision will undoubtedly be appealed to the D.C. Circuit.  So too would any appellate decision be appealed, with the potential for a subsequent argument en banc or a petition to the Supreme Court following that.  The effect of this may be to frustrate the efforts of the House—as long as litigation remains pending, the legal ramifications of not complying with Congressional subpoenas will remain undetermined.  In light of this, the administration will likely continue to command its current and former officials not to testify. II. Conclusion We will continue to keep you informed on these and other related issues as they develop. APPENDIX Constitutional Provisions About Impeachment Art. I, § 2, cl. 5: The House of Representatives shall choose their Speaker and other Officers; and shall have the sole Power of Impeachment. Art. I, § 3, cl. 6: The Senate shall have the sole Power to try all Impeachments.  When sitting for that Purpose, they shall be on Oath or Affirmation.  When the President of the United States is tried, the Chief Justice shall preside: And no Person shall be convicted without the Concurrence of two thirds of the Members present. Art. I, § 3, cl. 7: Judgment in Cases of impeachment shall not extend further than to removal from Office, and disqualification to hold and enjoy any Office of honor, Trust or Profit under the United States: but the Party convicted shall nevertheless be liable and subject to Indictment, Trial, Judgment and Punishment, according to Law. Art. I, § 5, cl. 2: Each House may determine the Rules of its Proceedings, punish its Members for disorderly Behaviour, and, with the Concurrence of two thirds, expel a Member. Art. II, § 2, cl. 1: [The President] shall have Power to grant Reprieves and Pardons for Offences against the United States, except in Cases of Impeachment. Art. II, § 4: The President, Vice President and all civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors. Art. III, § 2, cl. 3: The Trial of all Crimes, except in Cases of Impeachment, shall be by Jury. Art. III, § 3, cl. 1: Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort.  No Person shall be convicted of Treason unless on the Testimony of two Witnesses to the same overt Act, or on Confession in open Court. Amend. XXV, § 4: Whenever the Vice President and a majority of either the principal officers of the executive departments or of such other body as Congress may by law provide, transmit to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office, the Vice President shall immediately assume the powers and duties of the office as Acting President. Thereafter, when the President transmits to the President pro tempore of the Senate and the Speaker of the House of Representatives his written declaration that no inability exists, he shall resume the powers and duties of his office unless the Vice President and a majority of either the principal officers of the executive department or of such other body as Congress may by law provide, transmit within four days to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office. Thereupon Congress shall decide the issue, assembling within forty-eight hours for that purpose if not in session.  If the Congress, within twenty-one days after receipt of the latter written declaration, or, if Congress is not in session, within twenty-one days after Congress is required to assemble, determines by two-thirds vote of both Houses that the President is unable to discharge the powers and duties of his office, the Vice President shall continue to discharge the same as Acting President; otherwise, the President shall resume the powers and duties of his office. ___________________________ [1]     Nicholas Fandos, Nancy Pelosi Announces Formal Impeachment Inquiry of Trump, N.Y. Times (Sept. 24, 2019), https://www.nytimes.com/2019/09/24/us/politics/democrats-impeachment-trump.html?module=inline. [2]     Letter from Pat A. Cipollone, White House Counsel, to Nancy Pelosi, Speaker, House of Representatives, 2 (Oct. 8, 2019), https://www.whitehouse.gov/wp-content/uploads/2019/10/PAC-Letter-10.08.2019.pdf. [3]     Id. at 1. [4]     Id. at 2–3. [5]     In re Application of the Committee on the Judiciary, U.S. House of Representatives, for an Order Authorizing the Release of Certain Grand Jury Materials, 1:19-gj-00048-BAH (Oct. 25, 2019 D.D.C.) (the finding that a House resolution was unnecessary to authorize an impeachment inquiry was part of the central issue of the case, which was centered upon whether the House is authorized to access grand jury material). [6]     Id. at *50–52. [7]     Id. at *53. [8]     Order No. 19-5288, In re Application of the Committee on the Judiciary, U.S. House of Representatives, for an Order Authorizing the Release of Certain Grand Jury Materials, 1:19-gj-00048-BAH (Oct. 29, 2019 D.C. Cir.). [9]     H. Res. 660 (Oct. 31, 2019); Elise Viebeck, Karoun Demirjian, Rachael Bade and Mike DeBonis, A divided House backs impeachment probe of Trump, Wash. Post (Oct. 31, 2019), https://www.washingtonpost.com/national-security/house-to-vote-on-rules-governing-next-phase-of-trump-impeachment-inquiry/2019/10/31/bc2f5e7a-fbcc-11e9-ac8c-8eced29ca6ef_story.html. [10]    H. Res. 660, § 2; Deirdre Walsh, House Democrats Release Draft Resolution on Impeachment Inquiry, NPR (Oct. 29, 2019), https://www.npr.org/2019/10/29/774380175/read-house-democrats-release-draft-resolution-on-impeachment-inquiry (providing the text of the initial draft resolution). [11]    H. Res. 660, § 1. [12]    The resolution did, however, provide rights to the ranking minority member of the Permanent Select Committee (the “minority”).  First, as determined by the chair, the chair and the ranking minority member (or a designated staff member) will be permitted to question witnesses for equal specified periods of longer than five minutes.  Second, the ranking member may submit to the chair any requests for witness testimony relevant to the investigation.  Third, the ranking member (with the concurrence of the chair) may issue subpoenas for the attendance and testimony of any person or the production of documents and interrogatories for the furnishing of information. [13]    See Congressional Research Service, The Impeachment Process in the House of Representatives 1 (Oct. 10, 2019). [14]    Alexander Hamilton, The Federalist No. 65 (Mar. 7, 1788). [15]    Jason J. Vicente, Impeachment: A Constitutional Primer, 3 Tex. Rev. L. & Pol. 117, 126 (1998). [16]    Id. at 134. [17]    List of Individuals Impeached by the House of Representatives, History, Art & Archives, United States House of Representatives, https://history.house.gov/Institution/Impeachment/Impeachment-List/. [18]    Impeachment, United States Senate, https://www.senate.gov/artandhistory/history/common/briefing/Senate_Impeachment_Role.htm.  An argument can be made that nine individuals have been removed by the Senate in connection with an impeachment proceeding as they expelled William Blount by other means before trial after the first ever successful impeachment vote in the House of Representatives. [19]    See, supra, n.17. [20]    See, supra, n.18. [21]    During the first impeachment trial, the defendant was not present.  See Blount Expulsion, United States Senate, https://www.senate.gov/artandhistory/history/common/expulsion_cases/Blount_expulsion.htm (last accessed Nov. 1, 2019) (“Despite Blount’s absence, his impeachment trial began in the Senate on December 17, 1798.”). [22]    U.S. Const. art. I, § 5, cl. 2. (“Each House may determine the Rules of its Proceedings.”). [23]    U.S. Const.  art. I, § 2, cl. 5. [24]    U.S. Const. art. I, § 3, cl. 6. [25]    U.S. Const. art. I, § 5, cl. 2. [26]    See Nixon v. United States, 506 U.S. 224 (1993) (note: the Nixon in this case was former Judge Walter Nixon, not former President Richard Nixon). [27]    U.S. Const. art. I, § 3, cl. 6 (emphasis added). [28]    U.S. Const. art. I, § 3, cl. 6. [29]    U.S. Const. art. I § 3, cl. 7. [30]    U.S. Const. art. I, § 3, cl. 7. [31]    U.S. Const. art. II § 4. [32]    U.S. Const. art. III § 3, cl. 2. [33]    U.S. Const. art. III, § 2, cl. 3.  See also Buckner F. Melton Jr., Federal Impeachment and Criminal Procedure: the Framers’ Intent, 52 Md. L. R. 437 (1993) (The Senate rejecting a resolution to use a jury in the first impeachment proceeding). [34]    U.S. Const. art. I, § 3, cl. 7. [35]    U.S. Const. Amend. XXV, § 4. [36]    Erick Trickery, Inside the Founding Fathers’ Debate Over What Constituted an Impeachable Offense, Smithsonian Magazine (October 2, 2017); see also Ronald D. Rotunda, An Essay on the Constitutional Parameters of Federal Impeachment, 76 Ky. L.J. 707, 723 n.4 (1988). [37]    Id. [38]    Id. [39]    Id. [40]    United States House of Representatives Committee on the Judiciary, Report By the Staff of the Impeachment Inquiry, Feb. 1974.  James Madison later described Blackstone’s Commentaries on the Laws of England as “a book which is in every man’s hand.”  Id. [41]    Congressional Research Service, The Impeachment Process in the House of Representatives 1 (Oct. 10, 2019). [42]    Id. at 4. [43]    Id. at 1. [44]    U.S. Const. art II § 4. [45]    Congressional Research Service, The Impeachment Process in the House of Representatives 5 (Oct. 10, 2019). [46]    Id. [47]    See Trump v. Mazars USA, LLP, No. 19-5142, 2019 WL 5089748 (D.C. Cir. Oct. 11, 2019) for a history of congressional investigations prior to 1927. [48]    In re Application of the Committee on the Judiciary, Grand Jury Action No. 19-48 (BAH) (D.D.C. Oct. 25, 2019) at 52 (citing Mazars, 2019 WL 5089748 at *24); see also Barker v. Conroy, 921 F.3d 1118, 1130 (D.C. Cir. 2019). [49]    U.S. Const. art I, § 2, cl. 5 [50]    Watkins v. U.S., 354 U.S. 178, 187 (1957). [51]    McGrain v. Daugherty, 273 U.S. 134, 174–75 (1927). [52]    Id. at 175–76. [53]    Mazars, 2019 WL 5089748, at *6 (citing Letter from Elijah E. Cummings, Chairman, House Committee on Oversight and Reform, to Pat Cipollone, Counsel to the President, The White House 1 (Feb. 15, 2019) at 7–8). [54]    Mazars, 2019 WL 5089748, at *46 [55]    Mazars, 2019 WL 5089748, Rao, J., dissent at *2. [56]    Mazars, 2019 WL 5089748, Rao, J., dissent at *6. [57]    345 U.S. 41, 42 (1953). [58]    Id. at 45, 48. [59]    Mazars, 2019 WL 5089748, at *54 (citing Rumely, 345 U.S. at 42–43). [60]    House Rule X, cl. 3(i). [61]    House Rule XI, cl. 2(m)(1); see also Rules of the House Committee on Oversight and Reform, 116th Cong., Rule 12(g) (2019) (authorizing the Oversight Committee Chair to issue subpoenas as provided in Rule XI to conduct an investigation within the Committee’s jurisdiction). [62]    In re Application of the Committee on the Judiciary, Grand Jury Action No. 19-48 (BAH) (D.D.C. Oct. 25, 2019) at 54, citing Jefferson’s Manual, which governs the House in all applicable situations as per House Rule XXI. [63]    See H.R. Rep. No. 22-502, at 1 (1832). [64]    S. Doc. No. 79-244, at xiii, 251 (1946) (exonerating the president of this charge). [65]    S. Res. 60, 119 Cong. Rec. 3255, 93rd Cong. §1(a) 1973). [66]    See Morton Rosenberg, Congressional Research Service, RL 30319, Presidential Claims of Executive Privilege: History, Law, Practice and Recent Developments 14 (Aug. 21, 2008). [67]    See Senate Select Committee on Presidential Campaign Activities v. Nixon, 498 F.2d 725, 726–27 (D.C. Cir. 1974). [68]    Mazars, 2019 WL 5089748, at 18. [69]    U.S. Const. art. I, § 3, cl. 6 (emphasis added). [70]    U.S. Const. art. III, § 2 (emphasis added). [71]    U.S. Const. art. II, § 2, cl. 1. [72]    Letter from Thomas Jefferson to Henry Tazewell (Jan. 27, 1798), available in Wilbur S. Howell, Jefferson’s Parliamentary Writings 11 (2016). [73]    Id. [74]    Buckner F. Melton, Federal Impeachment and Criminal Procedure: The Framers’ Intent, 52 Md L. R. 427, 439, 454 (1993). [75]    Hinds’ Precedents, Volume 3. Available at https://www.govinfo.gov/content/pkg/GPO-HPREC-HINDS-V3/html/GPO-HPREC-HINDS-V3-19.htm. [76]    Letter from James Madison to Thomas Jefferson (Mar. 4, 1798), available at https://founders.archives.gov/documents/Madison/01-17-02-0062, last accessed Oct. 24, 2019. [77]    See Nixon v. U.S., 506 U.S. 224 (1993). [78]    Id. at 234. [79]    Nixon v. United States, 938 F.2d 239, 260 (D.C. Cir. 1991) (Randolph, J., concurring) aff’d, 506 U.S. 224 (1993) (emphasis added). [80]    U.S. Const. Amend. V. [81]    See Fed. R. Crim. P. 6(d) (“The following persons may be present while the grand jury is in session: attorneys for the government, the witness being questioned, interpreters when needed, and a court reporter or an operator of a recording device.”) [82]    Douglas Oil Co. v. Petrol Oil Stops Northwest, 441 U.S. 211, 219 n.10 (1979). [83]    Ronald J. Allen, Et Al., Criminal Procedure: Adjudication And Right To Counsel 1097 (2nd ed. 2016). [84]    Id. [85]    Id. at 1085. [86]    Joan Biskupic, Chief Justice Assumes a Speaking Part, Wash. Post, Jan. 23, 1999, at A13. [87]    See Senate Rule for Impeachment XVIII (“If a Senator is called as a witness, he shall be sworn, and give his testimony standing in his place.”). [88]    H.R. Rep. No. 105-795, at 25 (1998). [89]    H. Res. 660, §§  2(6) & 4; Impeachment Inquiry Procedures in the Committee on the Judiciary Pursuant to H. Res. 660, https://rules.house.gov/sites/democrats.rules.house.gov/files/ImpeachmentInquiryProceduresJudiciary.pdf (last accessed Nov. 6, 2019). [90]    Hastings v. United States, 802 F. Supp. 490, 504 (D.D.C. 1992), vacated by Hastings v. United States, 988 F.2d 1280 (D.C. Cir. 1993). [91]    See Brady v. Maryland, 373 U.S. 83, 87 (1963) (“suppression by the prosecution of evidence favorable to an accused upon request violates due process where the evidence is material either to guilt or to punishment, irrespective of the good faith or bad faith of the prosecution.”). [92]    See United States v. Williams, 504 U.S. 36 (1992). [93]    Brady, 373 U.S. at 87. [94]    In re Sealed Case, 121 F.3d 729, 745–46 (D.C. Cir. 1997). [95]    Id. at 745. [96]    See United States v. Reynolds, 345 U.S. 1, 6–8 (1953); Chicago & Southern Air Lines, Inc. v. Waterman Steamship Corp., 333 U.S. 103, 111 (1948); Totten v. United States, 92 U.S. 105, 106–07 (1875). [97]    In re Sealed Case, 121 F.3d at 737. [98]    See Nixon v. Fitzgerald, 457 U.S. 731, 749 (1982). [99]    Testimonial Immunity Before Congress of Former counsel to the President, 43 Op. O.L.C., slip op. (May 20, 2019), https://www.justice.gov/olc/opinion/testimonial-immunity-congress-former-counsel-president (“The immunity of the President’s immediate advisers from compelled congressional testimony on matters related to their official responsibilities has long been recognized and arises from the fundamental workings of the separation of powers.”). [100]    5 Annals of Cong. 760–62 (1796) (emphasis added). [101]    Letter from Attorney General Charles Lee to President George Washington (Mar. 26, 1796), https://founders.archives.gov/documents/Washington/05-19-02-0491. [102]    Letter from Secretary of War James McHenry to President George Washington (Mar. 26, 1796), https://founders.archives.gov/documents/Washington/05-19-02-0492. [103]    4 Annals of Cong. at 761. [104]    Letter from Michael Purpura, Deputy Counsel to the President, to Lee S. Wolosky, Esq. (Oct. 14, 2019). [105]    Congressional Research Service, Presidential Claims of Executive Privilege: History, Law, Practice, and Recent Developments (Dec. 15, 2014), 26–28. [106]    Id. at 25. [107]    United States v. Nixon, 418 U.S. 683, 710 (1974). [108]    Id. at 703–710. [109]    Id. at 706. [110]    In re Sealed Case, 121 F.3d at 745, 754. [111]    Id. at 757. [112]    558 F. Supp. 2d 53, 99 (D.D.C. 2008). [113]    Committee on Oversight and Government Reform v. Lynch, 156 F. Supp. 3d 101, 115 (D.D.C. 2016). [114]    See 2 U.S.C. 192. [115]    See 2 U.S.C. 288b. [116]    Congressional Research Service, Congressional Subpoenas: Enforcing Executive Branch Compliance (Mar. 27, 2019). [117]    The Hill, Giuliani Subpoenaed as Trump Rages Against Schiff, Whistleblower (Oct. 1, 2019), https://thehill.com/homenews/morning-report/463762-the-hills-morning-report. [118]    Compl. of Charles Kupperman at 2, United States House of Representatives v. Donald Trump, No. 193224 (D.D.C. 2019). [119]    Id. at 2–3. [120]    See Washington Post, U.S. Judge Fast-Tracks Hearing Over House Impeachment Subpoena to Former National Security Aide Charles Kupperman (Nov. 4, 2019), https://www.washingtonpost.com/local/public-safety/us-judge-fast-tracks-hearing-over-house-impeachment-subpoena-to-ex-trump-deputy-national-security-adviser-charles-kupperman/2019/11/04/5606e5bc-ff3e-11e9-8bab-0fc209e065a8_story.html. [121]    See Washington Post, John Bolton’s Former Deputy Asks Judge to Resolve Conflicting Demands for House Impeachment Testimony (Oct. 31, 2019), https://www.washingtonpost.com/local/legal-issues/john-boltons-former-deputy-asks-judge-to-resolve-conflicting-demands-for-house-impeachment-testimony/2019/10/31/6119ae8c-f9b0-11e9-8190-6be4deb56e01_story.html. The following Gibson Dunn lawyers assisted in preparing this client update: Michael Bopp, Thomas Hungar, Ciara Davis, Natasha Harnwell-Davis, Teddy Kristek, Emily Maxim Lamm and Brian Williamson. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or the following authors: Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com) Thomas G. Hungar – Washington, D.C. (+1 202-887-3784, thungar@gibsondunn.com</ © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 25, 2019 |
New York State Enacts Sweeping Emissions Reduction Law

Click for PDF Last week, the New York State Legislature passed the Climate Leadership and Community Protection Act, Senate Bill S6599 (“CLCPA”).[1]  It is considered to impose “the most aggressive legal mandate in the country” for emissions reduction.[2]  New York State Governor Andrew Cuomo called the bill “the most aggressive climate change program in the United States of America, period.”[3]  Governor Cuomo is expected to sign it into law. The timing of the CLCPA is notable given that the federal Environmental Protection Agency has just promulgated a rule requiring rather scant emissions reductions.[4]  Indeed, one supporter of the CLCPA remarked that “[a]s the White House continues to put fossil fuels first, this legislation is a model for other states to follow.”[5] New Law Will Apply to Anything Regulators Deem a “Greenhouse Gas” Notably, the CLCPA does not only target carbon emissions.  Instead, it requires emissions reductions of anything regulators deem to be a “greenhouse gas.”  In addition to usual suspects like carbon dioxide and methane, the CLCPA defines the term “greenhouse gas” to include “any other substance emitted into the air that may be reasonably anticipated to cause or contribute to anthropogenic climate change.”[6]  The law thus potentially allows New York to regulate any business that emits substances into the air. Required Aggressive Emissions Reductions The CLCPA requires New York’s Department of Environmental Conservation (“Department”) to promulgate regulations to aggressively and rapidly curtail the emission of anything deemed a greenhouse gas.  By 2030, greenhouse gas emitters must reduce emissions to “60% of 1990 emissions” levels, and by 2050 they must achieve “15% of 1990 emissions” levels.[7]  The regulations requiring these reductions must be promulgated within a year of the CLCPA’s becoming effective.[8]  Already, some have questioned whether businesses in New York, including those in energy and real estate, can meet the goals set forth in the bill.[9] The law also seeks “reduction of emissions beyond eighty-five percent,” and “net zero emissions in all sectors of the economy.”[10]  The details of how these aggressive goals will be met is left to a “state climate action council” (“Council”), which will prepare a “scoping plan” and report within two years of the CCLPA’s becoming effective.[11]  The Council will consist of twenty-two members, including the heads of twelve state agencies “or their designees;” “two non-agency expert members appointed by the governor;” “three members to be appointed by the temporary president of the senate;” “three members to be appointed by the speaker of the assembly;” “one member to be appointed by the minority leader of the senate;” and “one member to be appointed by the minority leader of the assembly.[12]  The Council must “provide meaningful opportunities for public comment” before issuing its recommendations.[13]  Once completed, the Council’s report “shall [be] incorporate[d]” into the “state energy planning board’s” “state energy plan,” which will establish the State’s “clean energy goals” and how to meet them.[14]  The Council is broadly empowered to consider all manner of methods for achieving emissions reductions, including “displacing fossil-fuel fired electricity with renewable electricity,” “land-use and transportation planning,” “establishing appliance efficiency standards, strengthening building energy codes,” and “limit[ing] the use of chemicals” that may “contribute to global climate change.”[15] Alternative Compliance Through Net Zero Emissions Reduction While the CLCPA generally mandates gross emissions reductions, entities may be able to meet their reductions requirements through “an alternative compliance mechanism” under which they would need to achieve “net zero emissions.”[16]  But use of this alternative mechanism will be significantly limited.  First, the Department is left to decide whether to create this alternative compliance structure at all.[17]  Second, to utilize the alternative compliance mechanism, entities must go through “an application process” in which they must demonstrate that “compliance with” the normal emissions limits is not feasible and that they “ha[ve] reduced emission to the maximum extent practicable.”[18] Renewable Energy Requirements for Power Companies Serving End-Users The CLCPA requires New York’s Public Service Commission (“Commission”) to impose new regulations on companies that “secure[] energy to serve the electrical energy requirements of end-use customers in New York.”[19]  These companies will be required to meet demand with renewable energy.  Specifically, such companies regulated by the Commission will have to meet their customers’ needs with at least 70% renewable energy by 2030, and they will need to meet all demand with zero emissions by 2040.[20]  These targets may be suspended or modified if the Commission finds that they will adversely impair safety, existing agreements, or if they cause “arrears or service disconnection.”[21] Conclusion The CLCPA will impose hefty requirements on all industries that contribute to greenhouse gas emissions, including energy, transportation, real estate, and any others that New York’s regulators may identify in deciding which emissions contribute to climate change.  And because of the size of New York’s economy, businesses that operate within New York to any extent will likely need to adjust their operations and compliance structures to meet the CLCPA’s requirements.  Additionally, businesses and other stakeholders may wish to provide comment on how the CLCPA is to be implemented, whether before the Department, the Commission, or the newly-created Council. They may also wish to apply for the alternative net zero emissions compliance channel, or provide comment on what should or should not be considered a greenhouse gas.  Thus, in addition to expending considerable resources to adapt to the new law’s requirements, many businesses may also decide it is necessary to spend resources to engage in the new regulatory processes established by the CLCPA. _______________________    [1]   https://www.nysenate.gov/legislation/bills/2019/s6599    [2]   https://www.politico.com/states/new-york/albany/story/2019/06/19/senate-passes-ambitious-renewable-energy-measure-1067167    [3]   http://nymag.com/intelligencer/2019/06/new-york-state-to-approve-impressive-ambitious-climate-bill.html    [4]   https://www.washingtonpost.com/climate-environment/trump-epa-finalizes-rollback-of-key-obama-climate-rule-that-targeted-coal-plants/2019/06/19/b8ff1702-8eeb-11e9-8f69-a2795fca3343_story.html    [5]   https://www.nysenate.gov/newsroom/press-releases/velmanette-montgomery/senate-democratic-majority-passes-historic-climate    [6]   Senate Bill S6599 § 2.    [7]   Id.    [8]   Id.    [9]   https://www.nytimes.com/2019/06/18/nyregion/greenhouse-gases-ny.html [10]   Id. [11]   Senate Bill S6599 § 2. [12]   Id. [13]   Id. [14]   Id. [15]   Id. [16]   Id. [17]   Id. [18]   Id. [19]   Id. § 4. [20]   Id. [21]   Id. Gibson, Dunn & Crutcher’s lawyers are available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Public Policy or Environmental Litigation and Mass Tort practice groups, or the authors: Mylan L. Denerstein – Co-Chair, Public Policy Practice, New York (+1 212-351-3850, mdenerstein@gibsondunn.com) Abbey Hudson – Los Angeles (+1 213-229-7954, ahudson@gibsondunn.com) Michael Klurfeld – New York (+1 212-351-6370, mklurfeld@gibsondunn.com) Please also feel free to contact the following practice group leaders: Environmental Litigation and Mass Tort Group: Daniel W. Nelson – Washington, D.C. (+1 202-887-3687, dnelson@gibsondunn.com) Peter E. Seley – Washington, D.C. (+1 202-887-3689, pseley@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 9, 2018 |
H.R. 4010: The Congressional Subpoena Compliance and Enforcement Act of 2017

Click for PDF Late last year, the U.S. House of Representatives passed H.R. 4010, the Congressional Subpoena Compliance and Enforcement Act of 2017 (the “Bill”).[1]  The Bill seeks to strengthen Congressional subpoena enforcement power by:  (1) codifying the subpoena enforcement power and process in statute; (2) expediting litigation arising from non-compliance with the subpoena; (3) codifying a court’s power to levy financial penalties against the head of a U.S. government agency who willfully fails to comply with a subpoena; and (4) requiring the production of a privilege log in cases where a subpoena recipient refuses to comply on the basis of privilege. The Bill was introduced by Rep. Darrell Issa (R-CA) and ordered reported out of the Committee on the Judiciary by a unanimous vote.  It passed in the House by voice vote.  The Bill was received in the Senate and referred to the Committee on the Judiciary, where it is currently pending. The Bill has support from both sides of the aisle, which is not surprising given that, historically, both parties, when in control of Congress, have experienced delays and difficulties when attempting to enforce subpoenas against the Executive Branch, as well as private parties.  As discussed below, courts have resolved recent cases favorably to Congress, but only after significant delays that likely impacted the usefulness of the eventually-disclosed information to congressional oversight. I.          Background and Purpose The stated purpose of the Bill is to enhance compliance with requests for information pursuant to legislative power under Article I of the Constitution.  While the Bill was pending in the House, Members expressed concern over significant delays in the enforcement of congressional subpoenas, particularly with regard to subpoenas served on the Executive Branch.[2]  House Judiciary Committee Chairman Bob Goodlatte (R-VA) commented in his opening statement during markup that “the existing framework to enforce congressional subpoenas has proved to be an inadequate means of protecting congressional prerogatives.”[3]  Rep. Issa, the Bill’s sponsor and former Chairman of the Oversight and Government Reform Committee, said he saw subpoenaed parties, in particular the Executive Branch, go to great lengths to avoid turning over documents or materials to congressional committees for review.[4]  He noted that such “delays were unfair to the body and unfair to the American people because it denied them in any reasonable period of time the effect of factfinding.”[5]  He also commented that both parties have tried to take advantage of partisan rivalries while in control of the Executive Branch.[6]  Statements by then-Ranking Member John Conyers (D-MI) echoed concerns about the failure to comply with subpoenas and the hope that putting requirements in writing would ensure that subpoena recipients understand their full legal force.[7]               A.        Congressional Subpoena Enforcement Congress may combat non-compliance with a subpoena in three ways:  1) through its inherent contempt power; 2) through the criminal contempt statute; or 3) through civil contempt proceedings, which differ between the House and Senate.[8]  The first, which has not been used since 1935, allows Congress to bring an individual before the full House or Senate for trial, and may result in imprisonment for a specified time or until compliance.[9]  Under the criminal contempt statute, a contempt citation must be approved by the full committee, then the full House or Senate, and eventually is presented to the U.S. Attorney, who has a “duty” to bring the matter before a grand jury.[10]  In practice, the Department of Justice has taken the position that it may direct the U.S. Attorney to refuse to proceed on the contempt citation.[11]  This position is based on a constitutional separation-of-powers argument that posits the Executive Branch’s prosecutorial discretion authority cannot be interfered with by the Legislature or Judiciary. The DOJ’s position rests on the theory that any legislative or judicial interference with prosecutorial discretion would unconstitutionally interfere with the Executive Branch’s essential functions.[12]  Prosecutorial discretion allows the Executive Branch to balance “various legal, practical, and political considerations” when deciding which legal violations to pursue.[13] According to the Justice Department, this discretion is constitutionally absolute; the Executive must always have full and independent authority to dictate whether a criminal case will move forward. Therefore, the argument goes, any attempt by Congress to force the Attorney General to take executive action on a contempt citation violates separation-of-powers principles by unconstitutionally interfering with his or her discretionary authority.[14]  This position essentially takes criminal contempt off the table of options available to Congress as a means of enforcing a subpoena against an Executive Branch employee, thus effectively leaving Congress with the third procedure, civil contempt. Under the third and most common procedure, a single house or committee of Congress may file suit in Federal district court seeking a declaration that the individual or entity in question is legally obligated to comply with the congressional subpoena.  The Senate has existing statutory authority to pursue enforcement through civil contempt.[15]  Notably, however, the statute is inapplicable by its terms in the case of a subpoena issued to an officer or employee of the Federal government acting in his or her official capacity.[16]  The House has no such existing statutory authority, but as past precedent—including the decisions in Committee on the Judiciary v. Miers, 558 F. Supp. 2d 53 (D.D.C. 2008), and Committee on Oversight & Government Reform v. Lynch, 156 F. Supp. 3d 101 (D.D.C. 2016)—shows, the House may authorize a committee to seek a civil enforcement action to force compliance with a subpoena, even without specific statutory authorization.[17] Nevertheless, reliance on a declaratory civil action to enforce a subpoena against an executive official has proven inadequate due to the time required to achieve a final, enforceable ruling in the case.  In Miers, the district court rendered a decision favorable to Congress but the ruling was appealed and the D.C. Circuit did not reach a decision on the merits by the end of the 110th Congress.  Ultimately, the appeal was dismissed at the request of the parties.  Similarly, in HOGR v. Lynch, the Department of Justice eventually was forced to disclose documents, but the production was made nearly five years after the documents were first requested. Members are concerned that such delays undermine a committee’s ability to conduct effective oversight.  Accordingly, the Bill seeks to amend and codify the civil contempt enforcement process in two primary ways.  First, it directs a district court to “expedite to the greatest possible extent the disposition of any such action and appeal” and allows the plaintiff to request the action be heard by a three-judge panel, with direct appeal to the Supreme Court.[18]  Second, the Bill states that the court may impose financial penalties directly against the head of a government agency who willfully fails to comply with the congressional subpoena.[19]  It stipulates that no taxpayer funds may be used to pay this penalty. Rep. Issa made clear that expediting the judicial review process was the primary goal of the Bill.  During markup, he stated that “speed matters when discovery is underway.”[20]  The intent of the Bill, he stated, is “not to change the outcome of any effort under a subpoena” but to get before a Federal judge “in a timely fashion.”[21] Members were eager to note Section 4 of the Bill, which states “[n]othing in this Act shall be interpreted to diminish Congress’ inherent authority or previously established methods and practices for enforcing compliance with congressional subpoenas…”[22]  Ranking Member Conyers stressed at markup that “Congress does not require a statute in order to enforce its subpoenas in Federal court.”[23]  Rep. Issa stated that the Bill does not seek new power, but only “an expeditious review by a Federal judge of a claim” for the production of documents or the appearance of a person.[24]  Rep. Jerrold Nadler (D-NY) also commented that the statute to enforce subpoenas is not required but is “useful as a means to codify certain practices and to expedite enforcement of subpoenas.”[25]               B.        Privilege The House and Senate take the position that they need not honor claims of attorney-client privilege or testimonial privilege for confidential communications (e.g., those between a doctor and a patient).[26]  This position is based on Congress’ inherent constitutional prerogative to investigate, in contrast to the Judicial Branch, where privileges are judge-made exceptions to full disclosure, or based in statute or common law.[27]  Generally, the decision whether to recognize a privilege has been informed by weighing considerations of legislative need, public policy, and the statutory duty of congressional committees to engage in continuous oversight against any possible injury to the witness.[28] Section 3 of the Bill codifies the requirement that a subpoena recipient provide a privilege log for any records being withheld, in whole or in part.[29]  Note that many congressional committees currently request a privilege log in instructions that accompany document request letters or subpoenas.  Under the Bill, the privilege log must include the legal basis asserted for withholding the record.  Recipients also are required to identify and explain any missing records.  The Bill further provides that claims of privilege are waived if a privilege log is not produced.[30]  This provision may have been motivated in part by the Senate Permanent Subcommittee on Investigations’ inquiry into Backpage.com, whose CEO refused to turn over documents on the basis of privilege but failed to produce a privilege log.  On March 17, 2016, the Senate passed a resolution[31] authorizing civil enforcement of a subpoena against the CEO seeking the production of documents concerning the company’s advertisements for commercial sex services, and a civil contempt proceeding was subsequently initiated in the U.S. District Court for the District of Columbia.[32]  The court eventually held that any privilege had been waived by the failure of Backpage.com’s CEO to timely file a log.[33] Notably, Section 4 of the Bill states that nothing in the Bill shall “be interpreted to establish Congress’ acceptance of any asserted privilege or other legal basis for noncompliance with a congressional subpoena.”[34]  Essentially, this Section of the Bill clarifies for parties responding to a congressional subpoena that the production of a privilege log does not mean that Congress will recognize any privilege, but a privilege log does preserve the privilege argument. II.        Observations If the Bill becomes law, it would have practical implications for not only the Executive Branch, but for private parties subpoenaed by Congress.  Upon receiving a subpoena from a congressional committee, private parties should be prepared to timely produce a log of any documents for which it believes a privilege may be asserted.  While this may not ensure that claims of privilege will be recognized, it will prevent an automatic waiver of the privilege. While it is not clear this Bill will become a law, it is not expected to fail for partisan reasons.  Thus far, there is no apparent opposition to the Bill.  Despite bipartisan support, however, it is not clear whether the Senate will take up the bill or might develop a bill of its own to accomplish similar objectives.  As discussed above, some of the Senate’s enforcement powers are already codified in statute, so the same urgency may not exist in the Senate as in the House.  It is important to note, however, that, Senator Charles Grassley (R-IA), who serves as Chairman of the Senate Committee on the Judiciary, the committee to which the Bill has been referred, initiated his own inquiry into Operation Fast and Furious (the situation at issue in Lynch) while serving as Ranking Member of the committee, and has expressed similar frustrations about delays in the enforcement of subpoenas.[35]  President Trump has not indicated whether he would support the measure. It is impossible to know whether the Bill, if enacted, would actually expedite the judicial review process and lead to more efficient and effective congressional oversight.  On the one hand, the bill could speed up judicial review of attempts by Congress to vindicate its subpoena authority and make Executive Branch officials think twice before ignoring a committee subpoena.  On the other, it seems unlikely that statutory changes alone will solve Congress’ issues with subpoena compliance, particularly when it comes to the Executive Branch.  Perhaps what is needed is a combination of internal rules changes and statutory assistance, where Congress uses some of its inherent authorities to satisfy its oversight and investigative needs.  After all, it seems unlikely that relying on a separate branch of government to vindicate a legislative prerogative alone is the answer.    [1]   H.R. 4010, 115th Cong. (2017).    [2]   An illustrative example of the perception that Congress’ subpoena power may not have sufficient weight was noted by Rep. Eric Swalwell (D-CA) during markup and later discussed by Rep. Jerrold Nadler (D-NY) during floor debate.  After an interview with the Intelligence Committee relating to alleged Russian interference in the 2016 election, a witness gave a public statement saying he had not disclosed certain information and documents during the interview because he was not under subpoena and had certain privileges to assert (despite the fact that he did not actually assert them). See 163 Cong. Rec. H8061 (daily ed. Oct. 23, 2017) (statement of Rep. Jerrold Nadler).    [3]   Markup of H.R. 4010; H.R. 2228; and H.R. 3996  before the H. Comm. on the Judiciary (2017) (statement of Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary), available at https://judiciary.house.gov/wp-content/uploads/2017/10/10.12.17-Markup-Transcript.pdf.    [4]   Rep. Darrell  Issa Press Release, “Rep. Issa Bill To Require Compliance with Congressional Subpoenas Passes Judiciary Committee,” October 12, 2017, available at https://issa.house.gov/news-room/press-releases/rep-issa-bill-require-compliance-congressional-subpoenas-passes-judiciary.    [5]   163 Cong. Rec. H8061 (daily ed. Oct. 23, 2017) (statement of Rep. Darrell Issa).    [6]   Id.    [7]   Markup of H.R. 4010; H.R. 2228; and H.R. 3996  before the H. Comm. on the Judiciary (2017) (statement of Rep. John Conyers, Ranking Member, H. Comm. on the Judiciary), available at https://judiciary.house.gov/wp-content/uploads/2017/10/10.12.17-Markup-Transcript.pdf.    [8]   See CRS Report, “Congress’s Contempt Power and the Enforcement of Congressional Subpoenas: Law, History, Practice, and Procedure,” May 12, 2017, available at http://www.crs.gov/Reports/RL34097?source=search&guid=423009d34fd84a7b98a6fabe7ef0db57&index=0.    [9]   See, e.g., Jurney v. MacCracken, 294 U.S. 125 (1935); McGrain v. Daughtery, 273 U.S. 135 (1927); Anderson v. Dunn, 19 U.S. 204 (1821). [10]   2 U.S.C. §§ 192, 194. [11]   See Prosecution for Contempt of Congress of an Executive Branch Official Who Has Asserted a Claim of Executive Privilege, 8 Op. O.L.C. 101, 122 (1984) [hereinafter 8 Op. O.L.C.]. [12]   8 Op. O.L.C. at 115 (“The Executive’s exclusive authority to prosecute violations of the law gives rise to the corollary that neither the Judicial nor Legislative Branches may directly interfere with the prosecutorial discretion of the Executive by directing the Executive Branch to prosecute particular individuals.”). [13]   Morrison v. Olson, 487 U.S. 654, 708 (1988) (Scalia, J., dissenting) (“to take [prosecutorial discretion] away is to remove the core of the prosecutorial function.”); see also 8 Op. O.L.C. at 113–15 (quoting Smith v. United States, 375 F.2d 243 (5th Cir.), cert. denied, 389 U.S. 841 (1967)) (“The discretion of the Attorney General in choosing whether to prosecute or not to prosecute . . . is absolute [and . . .] required in all cases). [14]   8 Op. O.L.C. at 125 (“A number of courts have expressly relied upon the constitutional separation of powers in refusing to force a United States Attorney to proceed with a prosecution.”) (citing cases). [15]   2 U.S.C. §§ 288b(b), 288d, 1365. [16]   28 U.S.C. §1365(a) (2012). [17]   See CRS Report at 30.  In Miers, the court held that the subpoena power “derives implicitly from Article I of the Constitution” thus concluding that the case “arises under the Constitution” and therefore qualifies for federal question jurisdiction.  Miers, 558 F. Supp. 2d at 64.  In Lynch, the House pursued a civil action in Federal court to enforce a subpoena against Attorney General Eric Holder for his failure to comply with subpoenas issued pursuant to the investigation of Operation Fast and Furious.  In its opinion rejecting the Department of Justice’s motion to dismiss based on jurisdictional and justiciability arguments, the court largely adopted the reasoning in Miers.  Following Miers and Lynch, it appears all that is legally required for House committees to seek civil enforcement of subpoenas is that authorization be granted by resolution of the full House. [18]   H.R. 4010, 115th Cong. §2 (2017). [19]   Id. [20]   Markup of H.R. 4010; H.R. 2228; and H.R. 3996  before the H. Comm. on the Judiciary (2017) (statement of Rep. Darrell Issa), available at https://judiciary.house.gov/wp-content/uploads/2017/10/10.12.17-Markup-Transcript.pdf. [21]   Id. [22]   H.R. 4010, 115th Cong. §4 (2017). [23]   Markup of H.R. 4010; H.R. 2228; and H.R. 3996  before the H. Comm. on the Judiciary (2017) (statement of Rep. John Conyers, Ranking Member, H. Comm. on the Judiciary), available at https://judiciary.house.gov/wp-content/uploads/2017/10/10.12.17-Markup-Transcript.pdf. [24]   163 Cong. Rec. H8060 (daily ed. Oct. 23, 2017) (statement of Rep. Darrell Issa). [25]   Id. [26]   CRS Report at 61. [27]   Id. [28]   Id. at 60. [29]   H.R. 4010, 115th Cong. §3 (2017). [30]   H.R. 4010, 115th Cong. §2(a) (2017). [31]   S. Res. 377, 114th Cong. (2016). [32]   Senate Permanent Subcomm. v. Ferrer, 199 F. Supp. 3d 125 (D.D.C. 2016). [33]   Id. [34]   H.R. 4010, 115th Cong. §4 (2017). [35]   See, e.g., Operation Fast and Furious: Obstruction of Congress by the Department of Justice: Hearing Before the H. Comm. on Oversight and Gov’t Reform, 115th Cong. (2017) (statement of Sen. Charles Grassley, Chairman, S. Comm. on the Judiciary) (“This case has broad implications for the ability of the elected representatives of the American people to do our constitutional duty to act as a check on the executive branch.  Clearly, Congress needs to do something.  It cannot take years for this body to get answers from a co-equal branch of government about information that has no legal basis to stay hidden from Congress.”) Gibson Dunn’s lawyers  are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or the following lawyers: Michael D. Bopp – Chair, Congressional Investigations Subgroup (+1 202-955-8256, mbopp@gibsondunn.com) Emily Yezerski – Washington, D.C. (+1 202-887-3549, eyezerski@gibsondunn.com)

June 27, 2018 |
Webcast: Developments in Virtual Currency Law and Regulation

The past year has seen an explosion in virtual currency offerings, as well as significant legal and regulatory developments as U.S. regulators have tried to keep pace with the industry. It is therefore timely for an analysis of these developments under a multi-disciplinary approach. Our team of experienced virtual currency practitioners analyze relevant issues from the perspective of U.S. securities regulation and enforcement, U.S. commodities regulation and enforcement, U.S. banking and licensed financial services law, and the U.S. anti-money laundering statutes and regulations. View Slides (PDF) PANELISTS: J. Alan Bannister is a partner in Gibson Dunn’s New York office and a member of the Firm’s Capital Markets, Global Finance and Securities Regulation and Corporate Governance Practice Groups. Mr. Bannister concentrates his practice on securities and other corporate transactions, acting for underwriters and issuers (including foreign private issuers), as well as strategic or other investors, in high yield, equity (including ADRs and GDRs), and other securities offerings, including U.S. public offerings, Rule 144A offerings, other private placements and Regulation S offerings, as well as re-capitalizations, NYSE and NASDAQ listings, shareholder rights offerings, spin-offs, PIPEs, exchange offers, other general corporate transactions and other advice regarding compliance with U.S. securities laws, as well as general corporate advice. Mr. Bannister also advises issuers and underwriters on dual listings in the U.S. and on various exchanges across Europe, Latin America and Asia. He has closely followed developments on Initial Coin Offerings (ICOs). Michael D. Bopp is a partner in Gibson Dunn’s Washington, D.C. office and Chair of the firm’s Public Policy group and its Financial Services Crisis Team, a multi-disciplinary group formed to address client concerns stemming from the credit and capital markets crisis.  Mr. Bopp engages in high-level, strategic policy and related regulatory work on a variety of issues but focuses on financial regulatory issues. He works with Congress and the Executive Branch on regulatory reform legislation and helping to shape new regulatory requirements promulgated as a result of the Dodd-Frank Act.  Mr. Bopp also has counseled numerous companies in complying with Dodd-Frank Act requirements.  From 2006-2008, Mr. Bopp served as Associate Director of the Office of Management and Budget in the White House, and was responsible for overseeing budgets and coordinating regulatory, legislative, and other policy for approximately $150 billion worth of spending for various government agencies, including the Departments of Treasury, Homeland Security, Transportation, Justice, Housing and Urban Development, and Commerce, the General Services Administration, the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission.  As a result of his work on financial regulatory and policy issues, Mr. Bopp has been named one of the 100 most influential people in finance by Treasury and Risk magazine. M. Kendall Day is a partner in Gibson Dunn’s Washington, D.C. office and a member of the White Collar Defense and Investigations and the Financial Institutions Practice Groups. His practice focuses on internal investigations, regulatory enforcement defense, white-collar criminal defense, and compliance counseling for financial institutions, multi-national companies, and individuals. Prior to joining Gibson Dunn, Mr. Day spent 15 years as a white-collar prosecutor, serving most recently as an Acting Deputy Assistant Attorney General of the U.S. Department of Justice’s Criminal Division. In that role, Mr. Day supervised more than 200 Criminal Division prosecutors and professionals tasked with investigating and prosecuting many of the country’s most significant and high-profile cases involving corporate and financial misconduct. He also had supervisory authority over every Bank Secrecy Act and money-laundering charge, deferred prosecution agreement and non-prosecution agreement involving every type of financial institution. Arthur S. Long is a partner in Gibson Dunn’s New York office, Co-Chair of Gibson Dunn’s Financial Institutions Practice Group and a member of the Securities Regulation Practice Group. Mr. Long focuses his practice on financial institutions regulation, advising on the regulatory aspects of M&A transactions; bank regulatory compliance issues; Dodd-Frank issues, including the regulation of systemically significant financial institutions (SIFIs) and related heightened capital and liquidity requirements; resolution planning; and Volcker Rule issues with respect to bank proprietary trading and private equity and hedge fund operations. Mr. Long has concentrated on the issues raised under U.S. state and federal banking law and state money transmission law by virtual currencies. Carl E. Kennedy is Of Counsel in Gibson Dunn’s New York office and a member of the firm’s Financial Institutions, Energy, Regulation and Litigation, and Public Policy Practice Groups. Mr. Kennedy applies his prior financial services and government experience to assisting clients with myriad regulatory, legislative, compliance, investigative and litigation issues relating to the commodities and derivatives markets. Mr. Kennedy served as Special Counsel and Policy Advisor to Commissioner Scott O’Malia at the U.S. Commodity Futures Trading Commission (CFTC) where he advised the commissioner on a full range of legal, regulatory and policy matters before the CFTC. While also at the CFTC, Mr. Kennedy was Legal Counsel in the Office of the General Counsel where he played a key role in the commission’s adoption of several rulemakings and guidance implementing the Dodd-Frank Act. Jeffrey L. Steiner is Counsel in Gibson Dunn’s Washington, D.C. office and is a member of the firm’s Financial Institutions, Energy, Regulation and Litigation, Investment Funds and Public Policy Practice Groups. Mr. Steiner co-leads the firm’s Derivatives team, as well as the firm’s Digital Currencies and Blockchain Technology team. Prior to joining Gibson Dunn, Mr. Steiner was special counsel in the Division of Market Oversight at the Commodity Futures Trading Commission (CFTC) where he drafted rules that became the current regulatory framework for over-the-counter derivatives. He advises commercial end-users, financial institutions, dealers, hedge funds, private equity funds, clearinghouses, industry groups and trade associations on regulatory, legislative and transactional matters related to OTC and listed derivatives, commodities and securities, including those relating to the Dodd-Frank Act, the rules of the CFTC, the Securities and Exchange Commission (SEC), the National Futures Association and the prudential banking regulators. Mr. Steiner also advises a range of clients on issues related to digital currencies and distributed ledger technology, including analyzing regulatory and enforcement matters relating to their implementation and use. MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the areas of professional practice requirement.  This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast.  Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.50 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

May 9, 2018 |
The Trump Administration Pulls the Plug on the Iran Nuclear Agreement

Click for PDF On May 8, 2018, President Donald Trump announced his decision to abandon the 2015 Iran nuclear deal—the Joint Comprehensive Plan of Action (the “JCPOA”)—and re-impose U.S. nuclear-related sanctions on the Iranian regime.[1]  Though it came as no surprise, the decision went further than many observers had anticipated.  Notably, under the terms of the JCPOA, U.S. sanctions were held in abeyance through a series of waivers that were periodically renewed by both the Obama and Trump administrations.  Many commentators expected the current administration to discontinue only waivers of sanctions on the Iranian financial sector that were set to expire on May 12, 2018, leaving other sanctions untouched.[2]  Instead, the Trump administration re-imposed all nuclear related sanctions on Iran, staggering the implementation over the course of the next six months.  As described in an initial volley of frequently asked questions (“FAQs”) set forth by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the re-imposition of nuclear sanctions will be subject to certain 90 and 180 day wind-down periods that expire on August 6, 2018 and November 4, 2018, respectively.[3] Background The JCPOA The JCPOA was a purposefully limited accord focusing only on Iran’s nuclear activities and the international community’s nuclear-related sanctions.  Prior to the JCPOA, the international community, including the United Nations, the European Union, and the United States imposed substantial sanctions on Iran of varying scope and severity.  The European Union had implemented an oil embargo and U.S. nuclear sanctions had included the “blacklisting” of more than 700 individuals and entities on OFAC’s list of Specially Designated Nationals and Blocked Persons (“SDN List”), as well as economic restrictions imposed on entities under U.S. jurisdiction (“Primary Sanctions”) and restrictions on entities outside U.S. jurisdiction (“Secondary Sanctions”).  Secondary Sanctions threatened non-U.S. entities with limitations on their access to the U.S. market if they transacted with various Iranian entities.  Broadly, Secondary Sanctions forced non-U.S. entities to decide whether they were going to deal with Iran or with the United States.  They could not do both. The JCPOA, signed between Iran and the five permanent members of the United Nations Security Council (the United States, the United Kingdom, France, Russia, and China) and Germany (the “P5+1”) in 2015, committed both sides to certain obligations related to Iran’s nuclear development.[4]  Iran committed to various limitations on its nuclear program, and in return the international community (the P5+1 alongside the European Union and the United Nations) committed to relieving substantial portions of the sanctions that had been placed on Iran to address that country’s nuclear activities.  This relief included the United States’ commitment to ease certain Secondary Sanctions, thus opening up the Iranian economy for non-U.S. persons without risking their access to the U.S. market to pursue Iranian deals.  This sanctions relief came into effect in January 2016 (on “Implementation Day”) when the IAEA determined that Iran was compliant with the initial nuclear components of the JCPOA. Criticism of the Deal Donald Trump made his opposition to the JCPOA a cornerstone of his presidential campaign.  On occasions too numerous to count, then candidate and now President Trump criticized the deal and indicated his intent to withdraw from the JCPOA unless it was “fixed” to address his concerns, including the deal’s silence on Iran’s ballistic missile development and the existence of certain “sunset provisions” (after which any remaining sanctions would be permanently lifted).[5] There were at least two challenges built into the JCPOA that critics—including President Trump—have seized upon.  First, in an effort to reach an agreement to limit Iran’s nuclear capabilities, the Obama administration and other JCPOA parties not only included “sunset” provisions in the accord after which certain restrictions on Iran would be lifted, but also drew a distinction between Iran’s compliance with the nuclear deal and its conduct in other areas (including its support for groups the United States deems terrorists, its repression of its citizens, its support for Syrian President Bashar al-Assad, and its conventional weapons development programs).  Supporters of the deal argued that addressing the immediate nuclear weapons risk was paramount—this necessitated both the sunset provisions and the absence of addressing other troubling activities.  Critics of the deal, however, including some powerful Congressional leaders and President Trump, derided these compromises and claimed not only that the sunset periods were too brief to be meaningful, but also that by ignoring non-nuclear issues Iran was given both a free pass to continue its bad behavior and indeed the ability to fund that bad behavior out of proceeds received from the nuclear-related sanctions relief. A second challenge to the deal came from the fact that while the other parties to the JCPOA agreed to remove almost all of their sanctions on Iran, U.S. relief was far more surgical and reversible.  This was recognized by all parties to the JCPOA but so long as President Obama (or a successor with similar political views) was in office, it was thought to be a manageable limitation.  One of the key limits to the U.S. relief was that U.S. persons—including financial institutions and companies—have remained broadly prohibited from engaging with Iran even after the JCPOA was implemented in 2016.  Instead, the principal relief the U.S. offered was on the sanctions risks posed to non-U.S. parties pursuant to Secondary Sanctions and related measures.  As a consequence, it has remained a challenge for non-U.S. persons to fully engage with Iran due to the continued inability to leverage U.S. banks, insurance and other institutions that remain central to the bulk of cross-border finance and trade. Changes to U.S. Sanctions Regarding Iran Wind-Down Periods In conjunction with the May 8, 2018 announcement, the President issued a National Security Presidential Memorandum (“NSPM”) directing the Secretary of State and the Secretary of the Treasury to prepare immediately for the re-imposition of all of the U.S. sanctions lifted or waived in connection with the JCPOA, to be accomplished as expeditiously as possible and in no case later than 180 days from the date of the NSPM. According to FAQs published by OFAC, the 90-day wind-down period will apply to sanctions on:[6] The purchase and acquisition of U.S. dollar banknotes by the Government of Iran; Gold and precious metals; Graphite, raw or semi-finished metals such as aluminum and steel; Coal; Software for integrating industrial processes; Iranian rials; Iranian sovereign debt; and Iran’s automobile sector. At the end of the 90-day wind-down period, the U.S. government will also revoke authorizations to import into the United States Iranian carpets and foodstuffs and to sell to Iran commercial passenger aircraft and related parts and services.[7] The longer 180-day wind-down period will apply to sanctions on:[8] Iranian port operators, shipping and shipbuilding; Petroleum-related transactions; Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions; Provision of specialized financial messaging services to the Central Bank of Iran and certain Iranian financial institutions; Underwriting services, insurance and reinsurance; and Iran’s energy sector. At the end of the 180-day wind-down period, the U.S. government will also revoke General License H, which authorizes foreign entities of U.S. companies to do business with Iran, and the U.S. government will re-impose sanctions against individuals and entities removed from the SDN List on Implementation Day.[9] The nature and scope of the “wind-down” period resulted in immediate, and significant, concerns from companies seeking to comply with U.S. sanctions.  OFAC has clarified that, in the event a non-U.S. non-Iranian person is owed payment after the conclusion of the wind-down period for goods or services that were provided lawfully therein, the U.S. government would allow that person to receive payment according to the terms of the written contract or written agreement.[10]  Similarly, if a non-U.S., non-Iranian person is owed repayment after the expiration of the wind-down periods for loans or credits extended to an Iranian counterparty prior to the end of the 90-day or 180-day wind-down period, as applicable, provided that such loans or credits were extended pursuant to a written contract or written agreement entered into prior to May 8, 2018, and such activities were consistent with U.S. sanctions in effect at the time the loans or credits were extended, the U.S. government would allow the non-U.S., non-Iranian person to receive repayment of the related debt or obligation according to the terms of the written contract or written agreement.[11]  These allowances are designed for such parties to be made whole for debts and obligations owed or due to them for goods or services fully provided or delivered or loans or credit extended to an Iranian party prior to the end of the wind-down periods.  Notably, any payments would need to be consistent with U.S. sanctions, including that payments could not involve U.S. persons or the U.S. financial system, unless the transactions are exempt from regulation or authorized by OFAC.[12] Changes to the SDN List In assessing the impact of the “re-designations” under the SDN List, it is useful to note the restrictions that remained in place after the JCPOA was implemented.  For example, although they were not classified as SDNs, the property and interests in property of persons of the Government of Iran and Iranian financial institutions remained blocked if they are in or come within the United States or if they are in or come within the possession or control of a U.S. person, wherever located.  As a result, U.S. persons were broadly prohibited from engaging in transactions or dealing with the Government of Iran and Iranian financial institutions, while non-U.S. persons could deal with them in non-dollar currencies.[13]  But under the new policy, such persons will be moved to the SDN List, which means that non-U.S. persons who continue to deal with them will be subject to Secondary Sanctions.[14]  OFAC indicated that it will not add such persons to the SDN List immediately, so as “to allow for the orderly wind down by non-U.S., non-Iranian persons of activities that had been undertaken” consistent with the prior regulations.  This change will happen no later than November 5, 2018.[15] Diplomatic Next Steps Yesterday’s announcement followed significant diplomatic efforts to save the deal.  Trump’s January 2018 announcement that he would extend existing waivers until May 2018 set off a feverish round of negotiations with European partners, culminating in recent visits by French President Emmanuel Macron and German Chancellor Angela Merkel to try to persuade the Trump administration to remain in the deal.  Many expect those negotiations to continue, as the global community is significantly more exposed to the Iranian market than U.S. persons, who continued to be subject to sanctions post-JCPOA.  Indeed, since sanctions were suspended in early 2016, Iran’s oil exports have increased dramatically, reaching approximately two million barrels per day in 2017.  European imports from Iran rose by nearly 800 percent between 2015 and 2017 (primarily imports of Iranian oil), while European exports to Iran rose by more than four billion euros ($5 billion) annually over the same period.[16]  Major European companies have also resumed investing in Iran—France’s Total has announced plans to invest $1 billion in one of Iran’s largest offshore gas fields.[17]  Early press reports following President Trump’s May 2018 announcement, if accurate, suggest that Iran and the other JCPOA parties remain committed to the underlying deal and plan to begin prompt negotiations to salvage the JCPOA.[18] Because full re-imposition of U.S. sanctions is not scheduled to take effect for another six months, it is entirely possible that the announcement by President Trump will serve as an impetus to negotiations that bring Iran and the rest of the P5+1 to the table.  Such an approach could mirror the Trump administration’s recent tactics with respect to steel and aluminum tariffs, where a splashy public announcement is followed by a series of repeated extensions as the administration seeks to extract further concessions.  One point of leverage the EU may have in these negotiations is the possibility of extending the existing “Blocking Regulation,”[19] which makes it unlawful for EU persons to comply with a specific list of U.S. sanctions laws against Cuba, Libya and Iran as of 1996.  That list could be extended to capture U.S. sanctions against Iran in respect of which the JCPOA offered relief.  This possibility has been mentioned by senior EU officials a number of times since late last year, including by the EU ambassador to the United States in September 2017,[20] and the head of the Iranian Taskforce in the EU’s External Action Service in February 2018.[21] For now, the EU remains committed to the deal.  On the same day that President Trump announced the change in Iran sanctions policy, European Union High Representative and Vice-President Federica Mogherini remarked that “[a]s long as Iran continues to implement its nuclear related commitments, as it is doing so far, the European Union will remain committed to the continued full and effective implementation of the nuclear deal. . . . The lifting of nuclear related sanctions is an essential part of the agreement.  The European Union has repeatedly stressed that the lifting of nuclear related sanctions has not only a positive impact on trade and economic relations with Iran, but also and mainly crucial benefits for the Iranian people.  The European Union is fully committed to ensuring that this continues to be delivered on.”[22] Notably, the Trump administration may be hard pressed to convince Iran’s most significant trading partners —many of whom are mired in disputes with the United States—to add pressure on Tehran.  China and India are Iran’s largest importers, and China appears particularly unlikely to reduce its reliance on Iranian oil given heightened tensions between Beijing and Washington over bilateral trade and investment issues.  Furthermore, the Trump administration would need to convince Russia to halt plans to invest potentially tens of billions of dollars in Iran’s oil and gas sector, and the Trump administration’s strained ties with Turkey make it far from clear that Turkey would cooperate with renewed U.S. pressure on Iran.[23]  Furthermore, the expected rise in oil prices as a result of the withdrawal is seen as a boon to Russia, whose economy is heavily dependent on petroleum and natural gas exports. Alternatively, U.S. allies in the Middle East, led by Israel and Saudi Arabia, support the Trump administration and have argued that Iran threatens their own national security.  Last week Israeli Prime Minister Benjamin Netanyahu unveiled documents regarding Iran’s covert nuclear weapons project from the 1990s as proof that Iran lied about the extent of its program, a move that was widely criticized as an effort to influence U.S. public opinion with information that was widely known and had provided the impetus for the negotiations in the first place.  The U.S. intelligence community had confirmed the weapons program ended in 2003. Furthermore, the Trump administration could have a difficult time persuading countries to cut commercial ties with Iran in the absence of any international legal basis for doing so.  Although U.S. sanctions on Iran have more force than United Nations sanctions, the latter created an important international framework that the United States and other countries could expand on.  Most of these sanctions were repealed with the passage of UN Security Council Resolution 2231 (2015), which endorsed the JCPOA.  The “snapback” mechanism in UNSCR 2231 would enable the United States to unilaterally require the restoration of UN sanctions on Iran under international law.  But as the UN’s nuclear watchdog has repeatedly confirmed Iran’s compliance with the JCPOA’s nuclear terms, the diplomatic costs of unilaterally requiring UN sanctions’ reactivation would likely outweigh any benefits.[24] Although the JCPOA contains no provisions for withdrawal, Iran has long threatened to resume its nuclear program if the United States reneges on its obligations by reinstituting sanctions.[25]  In the immediate aftermath of the Trump administration’s May 8 announcement, however, Iranian President Hassan Rouhani said that his government remains committed to maintaining the nuclear deal with other world powers.  The Iranian leader said he had directed his diplomats to negotiate with the deal’s remaining signatories—including European countries, Russia and China—and that the JCPOA could survive without the United States.  Rouhani, who had made the deal his signature achievement, faces stiff pressure from the hardline elements within Iran who objected to the deal.  If Iran resumes uranium enrichment activities, that could move European parties to walk away from the negotiating table, thereby dooming the JCPOA on which President Rouhani has staked so much political capital and empowering more hardline elements within the Iranian regime.[26] Conclusion Although many expect negotiations regarding the fate of the JCPOA to continue over the next six months, the outcome of such deliberations is highly uncertain.  Notably, it took the combined efforts of the Bush and Obama administrations to convince foreign governments and companies to join the United States in imposing sanctions on Iran, and such coordinated actions are unlikely to be replicated in the wake of leaving the JCPOA.  As the Trump administration negotiates with the rest of the parties to the JCPOA, it is possible that the U.S. administration may exercise discretion and decline to bring enforcement actions against non-U.S. persons that continue to do business with Iran.  That would mitigate the immediate impact of re-imposing sanctions. The precise nature of any EU response remains to be seen.  Although potential blocking regulations may serve as leverage in negotiations, the impact would be severe for European companies seeking to comply with both U.S. and European laws.  Whether the position of the United Kingdom will remain aligned with its European partners once it has left the EU is another imponderable,[27] although the U.K., French and German governments have projected a united front in re-affirming their commitment to the JCPOA,[28] and the U.K. is a signatory to the JCPOA separate from its status as an EU member state.  Further strains to the U.S.–EU relationship are likely if the U.S. were to bring enforcement actions against EU persons for alleged breaches of re-imposed sanctions.  The EU has stated that “it is determined to act in accordance with its security interests and to protect its economic investments.”[29]  However, what this might mean in practice remains unclear.    [1]   Press Release, White House, Remarks by President Trump on the Joint Comprehensive Plan of Action (May 8, 2018), available at https://www.whitehouse.gov/briefings-statements/remarks-president-trump-joint-comprehensive-plan-action; see also Presidential Memorandum, Ceasing U.S. Participation in the JCPOA and Taking Additional Action to Counter Iran’s Malign Influence and Deny Iran All Paths to a Nuclear Weapon (May 8, 2018), available at https://www.whitehouse.gov/presidential-actions/ceasing-u-s-participation-jcpoa-taking-additional-action-counter-irans-malign-influence-deny-iran-paths-nuclear-weapon.    [2]   These sanctions were enacted on the last day of 2011, when President Obama signed into law the National Defense Authorization Act for Fiscal Year 2012 (“NDAA”).  Included within the NDAA is a measure that designated the entire Iranian financial sector as a primary money laundering concern, which effectively required the President to freeze the assets of Iranian financial institutions and prohibit all transactions with respect to Iranian financial institutions’ property and interests in property if the property or interest in property comes within the United States’ jurisdiction or the possession and control of a United States person.  In addition, the measure broadly authorized the President to impose sanctions on the Central Bank of Iran.    [3]   Press Release, U.S. Dep’t of Treasury, Statement by Secretary Steven T. Mnuchin on Iran Decision (May 8, 2018), available at https://home.treasury.gov/news/press-releases/sm0382.    [4]   U.S. Dep’t of State, Joint Comprehensive Plan of Action (July 14, 2015), available at https://www.state.gov/documents/organization/245317.pdf.    [5]   Press Release, White House, Statement by the President on the Iran Nuclear Deal (Jan. 12, 2018), available at https://www.whitehouse.gov/briefings-statements/statement-president-iran-nuclear-deal.    [6]   U.S. Dep’t of Treasury, Frequently Asked Questions Regarding the Re-Imposition of Sanctions Pursuant to the May 8, 2018 National Security Presidential Memorandum Relating to the Joint Comprehensive Plan of Action (JCPOA) (May 8, 2018), available at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_winddown_faqs.pdf, FAQ No. 1.2.    [7]   Id.    [8]   OFAC FAQ No. 1.3.    [9]   Id. [10]   OFAC FAQ No. 2.1. [11]   Id. [12]   Id. [13]   E.O. 13599, 77 Fed. Reg. 6659 (Feb. 5, 2012); U.S. Dep’t of Treasury, Resource Center, OFAC, JCPOA-related Designation Removals, JCPOA Designation Updates, Foreign Sanctions Evaders Removals, NS-ISA List Removals; 13599 List Changes (Jan. 16, 2016), available at https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/updated_names.aspx. [14]   OFAC FAQ No. 3. [15]   Id. (“Beginning on November 5, 2018, activities with most persons moved from the E.O. 13599 List to the SDN List will be subject to secondary sanctions.  Such persons will have a notation of “Additional Sanctions Information – Subject to Secondary Sanctions” in their SDN List entry.”) [16]   Peter Harrell, The Challenge of Reinstating Sanctions Against Iran, Foreign Affairs (May 4, 2018), available at https://www.foreignaffairs.com/articles/iran/2018-05-04/challenge-reinstating-sanctions-against-iran?cid=int-fls&pgtype=hpg. [17]   Id. [18]   See, e.g., Erin Cunningham & Bijan Sabbagh, Iran to Negotiate with Europeans, Russia and China about Remaining in Nuclear Deal, Wash. Post (May 8, 2018), available at https://wapo.st/2HWaI9w?tid=ss_tw&utm_term=.ed12421ad6a6; James McAuley, After Trump Says U.S. Will Withdraw from Iran Deal, Allies Say They’ll Try to Save It, Wash. Post (May 8, 2018), available at https://wapo.st/2rokYfI?tid=ss_tw&utm_term=.291cd9490f2e. [19]   Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom. [20]   Jessica Schulberg, Europe Considering Blocking Iran Sanctions if U.S. Leaves Nuclear Deal, EU Ambassador Says, Huffington Post (Sept. 26, 2017), available at https://www.huffingtonpost.co.uk/entry/europe-iran-sanctions-nuclear-deal_us_59c9772ce4b0cdc77333e758. [21]   John Irish & Parisa Hafezi, EU could impose blocking regulations if U.S. pulls out of Iran deal, Reuters, (Feb. 8, 2018), available at https://uk.reuters.com/article/uk-iran-nuclear-eu/eu-could-impose-blocking-regulations-if-u-s-pulls-out-of-iran-deal-idUKKBN1FS2F0. [22]   Press Release, European Union External Action Service, Remarks by HR/VP Mogherini on the statement by US President Trump regarding the Iran nuclear deal (JCPOA) (May 8, 2018). [23]   Harrell, see supra n. 16. [24]   Id. [25]   The last sentence of the JCPOA expressly provides: “Iran has stated that if sanctions are reinstated in whole or in part, Iran will treat that as grounds to cease performing its commitments under this JCPOA in whole or in part.” [26]   See Erin Cunningham & Bijan Sabbagh, Iran to Negotiate with Europeans, Russia and China about Remaining in Nuclear Deal, Wash. Post (May 8, 2018), available at https://wapo.st/2HWaI9w?tid=ss_tw&utm_term=.ed12421ad6a6; James McAuley, After Trump Says U.S. Will Withdraw from Iran Deal, Allies Say They’ll Try to Save It, Wash. Post (May 8, 2018), available at https://wapo.st/2rokYfI?tid=ss_tw&utm_term=.291cd9490f2e. [27]   While the U.K. is currently in the EU, it will be leaving the EU shortly, at which time it may seek to negotiate trade deals with a variety of governments.  Particularly if negotiations over the U.K.’s exit from the EU were to become fractious, it is possible a post-Brexit U.K. could use its stance on the JCPOA as a bargaining counter in negotiations with the Trump administration over a new U.K.–U.S. trade deal. [28]   Press Release, U.K. Prime Minister’s Office, Joint statement from Prime Minister May, Chancellor Merkel and President Macron following President Trump’s statement on Iran (May 8, 2018), available at https://www.gov.uk/government/news/joint-statement-from-prime-minister-may-chancellor-merkel-and-president-macron-following-president-trumps-statement-on-iran. [29]   Press Release, EU External Action Serv., Remarks by HR/VP Mogherini on the statement by US President Trump regarding the Iran nuclear deal (JCPOA) (May 8, 2018. The following Gibson Dunn lawyers assisted in preparing this client update: Judith Alison Lee, Adam Smith, Patrick Doris, Mark Handley, Stephanie Connor, Richard Roeder, and Scott Toussaint. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments.  Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s International Trade Group: United States: Judith Alison Lee – Co-Chair, International Trade Practice, Washington, D.C. (+1 202-887-3591, jalee@gibsondunn.com) Ronald Kirk – Co-Chair, International Trade Practice, Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Jose W. Fernandez – New York (+1 212-351-2376, jfernandez@gibsondunn.com) Marcellus A. McRae – Los Angeles (+1 213-229-7675, mmcrae@gibsondunn.com) Daniel P. Chung – Washington, D.C. (+1 202-887-3729, dchung@gibsondunn.com) Adam M. Smith – Washington, D.C. (+1 202-887-3547, asmith@gibsondunn.com) Christopher T. Timura – Washington, D.C. (+1 202-887-3690, ctimura@gibsondunn.com) Stephanie L. Connor – Washington, D.C. (+1 202-955-8586, sconnor@gibsondunn.com) Kamola Kobildjanova – Palo Alto (+1 650-849-5291, kkobildjanova@gibsondunn.com) Courtney M. Brown – Washington, D.C. (+1 202-955-8685, cmbrown@gibsondunn.com) Laura R. Cole – Washington, D.C. (+1 202-887-3787, lcole@gibsondunn.com) Scott R. Toussaint – Palo Alto (+1 650-849-5320, stoussaint@gibsondunn.com) Europe: Peter Alexiadis – Brussels (+32 2 554 72 00, palexiadis@gibsondunn.com) Attila Borsos – Brussels (+32 2 554 72 10, aborsos@gibsondunn.com) Patrick Doris – London (+44 (0)207 071 4276, pdoris@gibsondunn.com) Penny Madden – London (+44 (0)20 7071 4226, pmadden@gibsondunn.com) Mark Handley – London (+44 (0)207 071 4277, mhandley@gibsondunn.com) Benno Schwarz – Munich (+49 89 189 33 110, bschwarz@gibsondunn.com) Richard W. Roeder – Munich (+49 89 189 33-160, rroeder@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 5, 2017 |
Trump Administration Rescinds Deferred Action for Childhood Arrivals (DACA) Program

On September 5, 2017, the Trump Administration announced the termination of the Deferred Action for Childhood Arrivals program ("DACA").  Attorney General Jeff Sessions announced the Administration’s decision in remarks delivered on Tuesday morning.[1]  Acting Secretary of Homeland Security Elaine Duke subsequently issued a memorandum formally rescinding the program,[2] after which the White House issued a separate statement explaining President Trump’s decision.[3] Under DACA, certain individuals brought to the United States as children who met specific criteria could apply for a two-year, renewable period of deferred action from immigration enforcement.  Those granted deferred action were considered by the Department of Homeland Security ("DHS") to be "lawfully present" in the United States, and eligible for work authorization.  Since 2012, nearly 800,000 young people have been granted DACA status, with the majority of these individuals located in California, Texas, Illinois, New York, and Florida.[4] This alert addresses the implications of the implementation of the rescission memorandum by DHS.  Most notably for our clients, DHS will continue to accept renewal applications from individuals who have DACA status that will expire between now and March 5, 2018, so long as the renewal applications are filed and accepted by October 5, 2017. I.  Background On June 15, 2012, then-Secretary of Homeland Security Janet Napolitano issued a memorandum establishing the DACA program.[5]  Individuals qualified for DACA if they: (1) came to the United States under the age of sixteen; (2) had five years of continuous residence in the United States; (3) met certain education or military service requirements; (4) had not been convicted of a felony or certain other crimes, and weren’t otherwise a threat to national security; and (5) were not above the age of 30.[6] On November 20, 2014, DHS issued a new memorandum expanding the eligibility for DACA and also creating a new program called Deferred Action for Parents of Americans and Lawful Permanent Residents ("DAPA").[7]  However, shortly thereafter, a group of 26 states successfully challenged DAPA in federal court, obtaining a nationwide injunction against its implementation that was affirmed by the Fifth Circuit on the basis that the DAPA program was not authorized by the Immigration and Nationality Act and was therefore unlawful executive action.[8]  The Fifth Circuit’s decision was subsequently affirmed by an equally divided Supreme Court. On June 29, 2017, officials from ten of the states that had challenged the DAPA program sent a letter to Attorney General Sessions, asserting that the DACA program was unconstitutional for the same reasons that the court found the DAPA program to be unconstitutional.  The states wrote that they would amend their DAPA lawsuit to include a challenge to DACA unless the federal government rescinded the DACA program by September 5, 2017.[9] On July 21, 2017, attorneys general from twenty other states sent a letter to the President urging him to maintain DACA and defend the program in court.[10]  On August 31, 2017, hundreds of America’s leading business executives sent a letter to President Trump urging him to preserve the DACA program.[11] On September 4, 2017, Attorney General Sessions wrote to Acting Secretary of Homeland Security Duke, describing his assessment that "DACA was effectuated by the previous administration through executive action, without proper statutory authority;" that DACA "was an unconstitutional exercise of authority by the Executive Branch;" and that "it is likely that potentially imminent litigation would yield similar results [as the DAPA litigation] with respect to DACA."[12] On September 5, 2017, Attorney General Sessions announced the Administration’s decision to end DACA, and Acting Secretary of Homeland Security Duke issued the memorandum formally rescinding the DACA program. II.  Effect of Today’s Rescission Memorandum The DHS memorandum does not immediately terminate the lawful presence or work authorizations of current DACA recipients, nor does it immediately terminate the DACA program itself.  Rather, DHS has chosen to wind down the program over the coming years.  The details of this phase-out are as follows: DHS will continue to process and approve initial DACA applications that it received as of September 5, 2017, although it will not accept any new applications. DHS will continue to process and approve DACA renewal applications from current beneficiaries, including: (a) applications that DHS received as of September 5, 2017; and (b) applications that DHS receives between now and October 5, 2017, for individuals whose benefits will expire between now and March 5, 2018. DHS will not terminate any individual’s DACA status or work authorization solely on the basis of the rescission memorandum.  Rather, these benefits will be allowed to continue until their previously-established expiration dates, subject to the limited renewal period discussed above. DHS will "generally honor" the validity period for previously-granted foreign-travel requests submitted by DACA beneficiaries, called applications for "advance parole."  However, DHS will not approve any currently-pending requests for advance parole relying on DACA; these requests will be administratively closed, and DHS will refund the associated fees. DHS will reject all initial and renewal DACA applications and requests for advance parole, with the exceptions of those already outlined above that fall within the prescribed time periods. DHS will not "proactively" provide the information submitted in DACA requests to other law enforcement entities for the purpose of immigration enforcement proceedings, except in limited circumstances, such as those involving risks to national security or public safety.[13] DHS will continue to terminate or deny deferred action under DACA on an individual basis when immigration officials consider it appropriate to do so.[14] Although the extended nature of the rescission will delay the effect of terminating DACA somewhat, the end of the program is nonetheless expected to be disruptive to American businesses.  Researchers have estimated that terminating DACA would cause 30,000 people per month to lose their jobs, and will impose costs of approximately $3.4 billion on employers nationwide.[15] III.  Related Developments In a statement issued on September 5, 2017, President Trump called on Congress to pass comprehensive immigration reform, including a program similar to DACA.  President Trump wrote, "Congress now has the opportunity to advance responsible immigration reform that puts American jobs and American security first. . . . I look forward to working with Republicans and Democrats in Congress to finally address all of these issues in a manner that puts the hardworking citizens of our country first. . . . It is now time for Congress to act!"[16] At least one court challenge has already been initiated in reaction to today’s rescission memorandum.  The National Immigration Law Center, joined by the Jerome N. Frank Legal Services Organization at Yale Law School and Make The Road – New York, are requesting leave to amend a complaint in the Eastern District of New York, to allege that the rescission of DACA violates the Administrative Procedure Act and the constitutional rights of DACA beneficiaries.[17]  And at least three Democratic state attorneys general have threatened to challenge the Administration’s decision in court.[18] Additionally, following the Administration’s announcement, the states that successfully challenged the DAPA program voluntarily dismissed their lawsuit.[19] IV.  Guidance For Clients Employers may consider actions to address the developments described above, and minimize the effect on employees.  In particular, employers may want to consider: Identifying employees who are DACA recipients, in order to aid those employees with renewing their status if appropriate; Broadly distributing an informational email to employees regarding these developments and the limited opportunity for renewal (keeping in mind that some employees may not want to self-identify as DACA recipients); and Reviewing the potential impact on travel and work authorization of employees, being careful to comply with I-9 and non-discrimination requirements. Finally, employers may consider the impact that these developments are likely to cause for DACA beneficiaries and their families.  Employers may consider providing counseling or other support for employees affected by this change in policy. * * * Gibson Dunn will continue to closely monitor these rapidly developing issues.    [1]   See Attorney General Sessions Delivers Remarks on DACA (Sept. 5, 2017), https://www.justice.gov/opa/speech/attorney-general-sessions-delivers-remarks-daca.    [2]   See Memorandum from Acting Secretary Elaine C. Duke, Rescission of the June 15, 2012 Memorandum Entitled "Exercising Prosecutorial Discretion with Respect to Individuals Who Came to the United States as Children" (Sept. 5, 2017), https://www.dhs.gov/news/2017/09/05/memorandum-rescission-daca (hereinafter "Rescission Memorandum").    [3]   See Statement from President Donald J. Trump (Sept. 5, 2017), https://www.whitehouse.gov/the-press-office/2017/09/05/statement-president-donald-j-trump.    [4]   See United States Citizenship and Immigration Services, Number of Form 1-821D, Consideration of Deferred Action for Childhood Arrivals, by Fiscal Year, Quarter, Intake, Biometrics and Case Status Fiscal Year 2012-2017 (June 8, 2017).    [5]   Memorandum from Secretary Janet Napolitano, Exercising Prosecutorial Discretion with Respect to Individuals Who Came to the United States as Children (June 15, 2012), https://www.dhs.gov/xlibrary/assets/s1-exercising-prosecutorial-discretion-individuals-who-came-to-us-as-children.pdf.    [6]   Id.    [7]   Memorandum from Secretary Jeh Charles Johnson, Exercising Prosecutorial Discretion with Respect to Individuals Who Came to the United States as Children and with Respect to Certain Individuals Who Are the Parents of U.S. Citizens or Permanent Residents (Nov. 20, 2014), https://www.dhs.gov/sites/default/files/publications/14_1120_memo_deferred_action.pdf.    [8]   Texas v. United States, 86 F. Supp. 3d 591 (S.D. Tex. 2015); see also Texas v. United States, 809 F.3d 134 (5th Cir. 2015), aff’d by an equally divided Court, 136 S. Ct. 2271 (2016). [9]   Letter from Texas Attorney General Ken Paxton, et al., to U.S. Attorney General Jeff Sessions (June 29, 2017),  https://www.texasattorneygeneral.gov/files/epress/DACA_letter_6_29_2017.pdf. [10]   Letter from California Attorney General Xavier Becerra, et al., to President Donald J. Trump (July 21, 2017), https://oag.ca.gov/system/files/attachments/press_releases/7-21-17%20%20Letter%20from%20State%20AGs%20to%20President%20Trump%20re%20DACA.final_.pdf. [11]   Letter to Donald J. Trump, Paul Ryan, Nancy Pelosi, Mitch McConnell, and Charles Schumer (Aug. 31, 2017), https://dreamers.fwd.us/business-leaders. [12]   See Mahita Gajanan, Read Jeff Sessions’ Letter Calling for the End of DACA, TIME (Sept. 5, 2017), http://time.com/4927250/jeff-sessions-daca-rescind-letter; see also Rescission Memorandum, supra note 2. [13]   Department of Homeland Security, Frequently Asked Questions: Rescission Of Deferred Action For Childhood Arrivals (DACA) (Sept. 5, 2017), https://www.dhs.gov/news/2017/09/05/frequently-asked-questions-rescission-deferred-action-childhood-arrivals-daca. [14]   See Rescission Memorandum, supra note 2. [15]   See Immigration Legal Resource Center, Money on the Table: The Economic Cost of Ending DACA, at 4 (Dec. 2016), https://www.ilrc.org/sites/default/files/resources/2016-12-13_ilrc_report_-_money_on_the_table_economic_costs_of_ending_daca.pdf. [16]   Statement from President Donald J. Trump, supra note 3. [17]   See Batalla Vidal, et al. v. Baran, et al., No. 1:16-cv-04756-NGG-JO, Dkt. #46 (E.D.N.Y. Sept. 5, 2017). [18]   Reid Wilson, Dems Threaten to Sue Trump Over DACA, The Hill (Sept. 5, 2017), http://thehill.com/homenews/state-watch/349302-dems-threaten-to-sue-trump-over-daca. [19]   Texas v. United States, No. 1:14-cv-00254, Dkt. #469 (S.D. Tex. Sept. 5, 2017). Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or the following: Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com)Ethan Dettmer – San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Stuart F. Delery – Washington, D.C. (+1 202-887-3650, sdelery@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 29, 2017 |
Update on Immigration Executive Order

Gibson Dunn previously issued several client alerts regarding President Trump’s January 27, 2017 and March 6, 2017 Executive Orders restricting entry into the United States for individuals from certain nations and making other immigration-related policy changes.[1] This alert addresses implementation of the Supreme Court’s June 26, 2017 ruling allowing the travel ban to go partially into effect.  The executive branch has indicated it will begin enforcing the order as of 8 pm ET, June 29, 2017.  The most current information indicates this will primarily impact those applying for visas, not those travelling on existing visas. Experience suggests that individuals attempting to board U.S.-bound aircraft, or arriving in the United States, may nonetheless encounter some difficulties. I.    Background On January 27, 2017, President Trump issued the first Executive Order restricting entry into the country for individuals from seven specified nations, as well as related changes to visa and refugee programs.  Multiple courts enjoined implementation of most major aspects of that order, including the entry ban. On March 6, 2017, the President issued a new Executive Order, rescinding in full the January Order, but providing for a ban on entry of individuals from six specified nations, and suspension of the refugee program, among other changes.  The revised order was narrower in certain respects, notably in removing Iraq from the list of impacted countries, and more clearly defining certain exceptions to the Order, such as the exception of dual citizens from the ban. Courts again blocked implementation of the major provisions, this time before it went into effect.  Ultimately both the Fourth Circuit (sitting en banc) and the Ninth Circuit upheld injunctions issued by the District of Maryland and the District of Hawaii, respectively.[2] The government asked the Supreme Court to reverse the lower courts’ order blocking implementation, as well as to grant certiorari to hear the merits of the case. II.    Supreme Court Action On June 26, 2017, the Supreme Court issued an order allowing certain aspects of the the March Executive Order to be implemented.[3]  Separately, the Court granted certiorari and added the case to its calendar for the term beginning in October.[4] The Court’s order stayed implementation of the lower court injunctions in part, allowing the government to enforce the ban “with respect to foreign nationals who lack any bona fide relationship with a person or entity in the United States,” but continued to block enforcement against individuals who do have such ties. The Court provided some guidance on what it means to have a “bona fide relationship with a person or entity in the United States”: For individuals, a close familial relationship is required. A foreign national who wishes to enter the United States to live with or visit a family member, like Doe’s wife or Dr. Elshikh’s mother-in-law, clearly has such a relationship. As for entities, the relationship must be formal, documented, and formed in the ordinary course, rather than for the purpose of evading [the Executive Order.] The students from the designated countries who have been admitted to the University of Hawaii have such a relationship with an American entity. So too would a worker who accepted an offer of employment from an American company or a lecturer invited to address an American audience.  Not so someone who enters into a relationship simply to avoid § 2(c): For example, a nonprofit group devoted to immigration issues may not contact foreign nationals from the designated countries, add them to client lists, and then secure their entry by claiming injury from their exclusion.[5] III.    Practical Implications It appears that the most immediate impact will be in connection with the issuance of new visas, rather than the use of a visa that was issued prior to 8 pm ET on June 29, 2017.  Certain categories of individuals are exempt from the ban based either on the terms of the March Executive Order itself or the State Department guidance implementing the Supreme Court’s decision.  Those are outlined below. Notwithstanding the clear language of the Executive Order, it is difficult to predict whether those travelling on existing visas will run into difficulties in trying to board U.S.-bound flights or upon attempting to enter upon arrival. A.    Who Is Covered By The Ban And Who Is Not? As a reminder, the March Executive Order barred entry to the United States by nationals of Iran, Libya, Somalia, Sudan, Syria, and Yemen.  (Iraq was not included in the second Executive Order.)  On its face, the March Executive Order already excluded from the ban: Nationals from those countries who are travelling on a passport from a country not included on the list; U.S. Legal Permanent Residents, regardless of nationality; Those travelling on already issued and currently valid visas; and Those travelling on certain diplomatic and related visas.[6] Now the Court has created another exception for those with a “bona fide relationship with a person or entity in the United States.”  The primary question at this point is what qualifies as, and what is needed to prove, such a relationship. The State Department issued a cable on June 28, providing guidance about handling visa applications, and has also posted a similar FAQ.[7]  This cable gives some indications of how the government will interpret the March Executive Order, as narrowed by the recent Supreme Court order. The following additional categories of people are now exempt from the ban: Anyone who qualifies for a non-immigrant visa in a “classification other than B, C-1, D, I or K” because that eligibility inherently establishes the required relationship. “Derivative” applicants are also exempt (i.e., certain immediate family members of the main applicant). Individuals who have been granted asylum, refugees already admitted to the United States, and individuals already granted withholding of removal, advance parole, or protection under the Convention Against Torture. Otherwise, eligibility has to be established according to the following criteria: For family-based eligibility, the only relationships that qualify are “close family,” which the State Department is defining as parents, parents-in-law, spouses, children (including adults), sons- and daughters-in law, and siblings (including half-siblings).  No other relationships qualify. UPDATE (6/30/17): As the ban was going into effect, the Departments of State and Homeland Security added fiancés to the list of qualifying categories. For entity-based eligibility, the standards are less clear, and largely parrot those in the Supreme Court’s order.  The following are specifically exempt from the Executive Order: Media (“I”) visa applicants employed by an organization with a U.S. news office; Students admitted to a U.S. educational institution; Workers who have “accepted an offer of employment from a company in the United States;” and “Lecturer[s] invited to address an audience in the United States.” The State Department specifically noted that “a hotel reservation, whether or not paid, would not constitute a bona fide relationship with an entity in the United States.” In the event an applicant is not exempt, he or she may still be eligible for a waiver.  The State Department indicated that travelers in the following categories may be eligible for a waiver: Individuals who “previously established significant contacts with the United States but [are] outside the United States on the effective date of the” Order; Travel for “significant business or professional obligations,” which would be “impair[ed]” by the denial of entry; Small children, adoptees, and those needing medical care; and Those travelling for certain international organizations. B.    Practical Tips Without further clear guidance about how travelers (as opposed to visa applicants) will be treated under this system, those who may be affected and are travelling in the near future should collect and carry clear documentation of the purpose of the trip if that documentation might help to show a “bona fide relationship” with people or entities in the United States.  For example, for work-related travel, employment offer letters, conference agendas listening the traveler as a speaker, invitations to a business meeting, and the like may be helpful in the event of questions from immigration officials.  However, the Court made clear that the supporting documentation must show “ordinary course” relationships, and not relationships that appear to have been created for the purposes of fitting within the narrowed scope of the injunction. As suggested in Gibson Dunn’s earlier alerts on these topics, companies will want to consider effective planning and communication with employees and partners who may be affected by implementation of the Executive Order. *      *      * Gibson Dunn will continue to monitor these rapidly developing issues closely.    [1]    See, Court Orders Block Implementation of New Immigration Executive Order (March 16, 2017), https://www.gibsondunn.com/court-orders-block-implementation-of-new-immigration-executive-order/; Analysis of March 6, 2017 Executive Order on Immigration (Mar. 7, 2017), https://www.gibsondunn.com/analysis-of-march-6-2017-executive-order-on-immigration/;  Ninth Circuit Court of Appeals Issues Opinion Upholding Nationwide TRO of January 27 Immigration-Related Executive Order (Feb. 10, 2017), https://www.gibsondunn.com/ninth-circuit-court-of-appeals-issues-opinion-upholding-nationwide-tro-of-january-27-immigration-related-executive-order/; Recent Developments Regarding Executive Order on Immigration (Feb. 1, 2017), https://www.gibsondunn.com/recent-developments-regarding-executive-order-on-immigration/; President Trump Issues Executive Order on Immigration (Jan. 30, 2017), https://www.gibsondunn.com/president-trump-issues-executive-order-on-immigration/     [2]   See Hawaii v. Trump, 2017 WL 2529640 (9th Cir. June 12, 2017) https://cdn.ca9.uscourts.gov/datastore/opinions/2017/06/12/17-15589.pdf; Int’l Refugee Assistance Project v. Trump, 857 F.3d 554 (4th Cir. 2017).    [3]   https://www.supremecourt.gov/opinions/16pdf/16-1436_l6hc.pdf.    [4]   Slip op at 12, https://www.supremecourt.gov/orders/courtorders/062717zr_6537.pdf.    [5]   https://www.supremecourt.gov/opinions/16pdf/16-1436_l6hc.pdf.    [6]   See Analysis of March 6, 2017 Executive Order on Immigration (Mar. 7, 2017), https://www.gibsondunn.com/publications/Pages/Analysis-of-March-6-2017-Executive-Order-on-Immigration.aspx.    [7]   See Dep’t of State, Implementing Executive Order 13780 Following Supreme Court Ruling – Guidance to Visa-Adjudicating Posts (June 28, 2017), http://live.reuters.com/Event/Live_US_Politics/989297085; Dep’t of State, Executive Order on Visas (June 29, 2017), https://travel.state.gov/content/travel/en/news/important-announcement.html. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Rachel S. Brass – San Francisco (+1 415-393-8293, rbrass@gibsondunn.com) Anne M. Champion – New York (+1 212-351-5361, achampion@gibsondunn.com) Ethan Dettmer – San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Theane Evangelis – Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kirsten Galler – Los Angeles (+1 213-229-7681, kgaller@gibsondunn.com) Ronald Kirk – Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Joshua S. Lipshutz – Washington D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Katie Marquart, Pro Bono Counsel & Director – New York (+1 212-351-5261, kmarquart@gibsondunn.com) Samuel A. Newman – Los Angeles (+1 213-229-7644, snewman@gibsondunn.com) Jason C. Schwartz – Washington D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Kahn A. Scolnick – Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 1, 2017 |
The Power to Investigate: Table of Authorities of House and Senate Committees for the 115th Congress

For the fourth successive Congress, we are releasing a table of authorities that summarizes the investigative authorities and powers of each House and Senate committee.  We believe that understanding a committee’s investigative powers is crucial to successfully navigating a congressional investigation.  Congressional committees have the power to issue subpoenas to compel witnesses to produce documents, testify at committee hearings, and, in some cases, appear for depositions.  Moreover, standing committees may appeal to the full House or Senate to hold in contempt any witness who refuses to appear, answer questions, or produce documents, though note, of course, that Constitutional protections apply to witnesses in congressional investigations.[1]  Congressional contempt authority may take one of three forms: inherent, civil, or criminal.  Failure to adhere to committee rules during an investigation may thus have severe legal and reputational consequences.    Committees may adopt their own procedural rules for issuing subpoenas, taking testimony, and conducting depositions, though in the House, general deposition procedures applicable to all Committees except the Committee on Oversight and Government Reform are promulgated by the House Rules Committee.  Each committee may re-issue and sometimes alter its rules at the commencement of each Congress.  House and Senate committees adopted their rules for the 115th Congress earlier this year. Meanwhile, at the start of this Congress the House voted to authorize the power of nearly all committees to compel witnesses to sit for a staff deposition while the Senate took similar action with respect to the Judiciary Committee.  The attached table of authorities reflects these developments, as well as other key rule changes.  As a reminder, Committees also are subject to the rules of the full House or Senate. Some items of note: House While just five House committees in the prior Congress were vested with staff deposition authority permitting committee counsel to conduct depositions, the House extended such authority this Congress to all standing committees (with the exception of the Committee on House Administration and the Committee on Rules).  Additionally, this new authority provides that a Member need not be present for such depositions if the House is not in session and the full committee authorizes the taking of the deposition without a member present.  While it largely remains to be seen how aggressive committees will be in making use of this authority in the 115th Congress, it has the potential to dramatically change the way House committees conduct investigations and, in particular, how they enforce subpoenas.  Further, such authority could make it more difficult for minority members to affect, influence, or otherwise hinder investigations to which they are opposed.  The rule change was controversial and several Democrats expressed criticism.  Rep. Louise Slaughter (D-NY), the ranking member on the House Rules Committee, told Bloomberg News: "Freely handing out the power to compel any American to appear, sit in a room, and answer staff’s invasive questions on the record–without members even being required to be present–is truly unprecedented, unwarranted, and offensive."[2]  Moreover, a spokesman for House Minority Leader Nancy Pelosi (D-CA) said that "[t]his rules change represents a shocking continuation and expansion of House Republicans’ abusing of congressional processes to intimidate private citizens. . . ."[3]  Conversely, House Speaker Paul Ryan’s office noted that under the prior rules, witnesses had tried to use House Members’ busy schedules as an excuse to avoid appearing for a deposition.[4] In light of what for many committees is new staff deposition authority, we expect that the unilateral ability of a chairman to issue a subpoena will be an even more powerful investigative tool in the House of Representatives in the 115th Congress.  As was the case in the prior Congress, a dozen committees empower their chairman to unilaterally issue a subpoena: the Committees on Education and the Workforce, Foreign Affairs, Oversight and Government Reform, Select Intelligence, Transportation and Infrastructure, Ways and Means, Agriculture, Energy and Commerce, Financial Services, Homeland Security, Judiciary, and Science, Space, and Technology.  The Ranking Member cannot block the subpoena but usually must either be consulted or given notice prior to the subpoena being issued.  Several of these committees require such notice to occur 24 to 72 hours before the subpoena is issued.  And, in the case of a subpoena compelling a witness to appear at a staff deposition, House rules mandate that at least three days’ notice is provided to the ranking member. Senate New for the 115th Congress is Senate authorization of the Judiciary Committee to compel a witness by subpoena to sit for a deposition, which may be conducted by committee staff provided that a member is present (unless the witness has waived that requirement).  As is the case with the similarly expanded authority in the House, this deposition authority has the potential to significantly increase the power of staff to gather information from otherwise uncooperative witnesses. The expansion of deposition authority to the Judiciary Committee brings the count to seven Senate bodies that have received Senate authorization to take depositions.  In addition to Judiciary, the Senate Committee on Homeland Security and Governmental Affairs and its Permanent Subcommittee on Investigations receive the authority to do so each Congress from the Senate’s funding resolution.  The Aging and Indian Affairs Committees were authorized by S. Res. 4 in 1977, which the committees incorporate into their rules each Congress.  The Ethics Committee’s deposition power was authorized by S. Res. 338 in 1964, which created the committee and is incorporated into its rules each Congress.  And the Intelligence Committee was authorized to take depositions by S. Res. 400 in 1976, which it too incorporates into its rules each Congress.  Of these, staff is expressly authorized to take depositions except in the Indian Affairs and Intelligence Committees. Other Senate committees, namely the Committees on Agriculture, Commerce, Foreign Relations, and Small Business and Entrepreneurship authorize depositions in their rules.  The Small Business and Entrepreneurship Committee also permits Committee staff to take depositions.  However, it is not clear that such deposition authority is authorized by the Senate and, hence, it is similarly not clear whether appearance at a deposition can be compelled.  The Senate’s view appears to be that Senate Rules do not authorize staff depositions pursuant to subpoena.  Hence, Senate committees cannot delegate that authority to themselves through committee rules.  It is thus understood that such authority can only be conferred upon a committee through a Senate resolution.[5] As was the case in the prior Congress, while several House committee chairmen can issue subpoenas unilaterally, on the Senate side only the Permanent Subcommittee on Investigations permits the Chairman to issue a subpoena without the consent of the Ranking Member.  The Committees on Agriculture, Nutrition, and Forestry, Commerce, Science, and Transportation, Homeland Security and Governmental Affairs, Small Business and Entrepreneurship, and Veterans’ Affairs permit the chairman to issue a subpoena so long as the ranking member does not object within a specified time period.  Furthermore, the Health, Education, Labor, and Pensions (HELP) Committee can delegate its subpoena authority to the chairman, his designees, or a subcommittee with only notice to the ranking member and any other members requesting notice. Our table of committee authorities is meant to provide a sense of how individual committees can compel a witness to cooperate with its investigation.  But each committee conducts congressional investigations in its own particular way, and investigations vary materially even within a particular committee.  While our table provides a general overview of what rules apply in given circumstances, it is essential to look carefully at a committee’s rules to understand specifically how its authorities apply in a particular context. Gibson Dunn lawyers have extensive experience in both running congressional investigations and defending targets of and witnesses in such investigations.  If you have any questions about how a committee’s rules apply in a given circumstance, please feel free to contact us for assistance. We are available to assist should a congressional committee seek testimony, information or documents from you.  Table of Authorities of House and Senate Committees: http://www.gibsondunn.com/wp-content/uploads/documents/publications/Power-to-Investigate–Table-of-Authorities–House-and-Senate-Committees-115th-Congress.pdf   [1]   See Morton Rosenberg & Todd Tatelman, Congressional Research Service, Congress’s Contempt Power: Law, History, Practice, and Procedure 62 (2007).    [2]   Billy House, House GOP Gives Staff Broader New Powers to Grill Witnesses, Bloomberg News (Jan. 3, 2017, 9:28 PM), https://www.bloomberg.com/politics/articles/2017-01-04/house-gop-gives-staff-broader-new-powers-to-grill-witnesses.   [3]   Id.   [4]   Id.   [5]   Jay R. Shampansky, Cong. Research Serv., 95-949 A, Staff Depositions in Congressional Investigations 8 & n.24 (1999); 6 Op. O.L.C. 503, 506 n.3 (1982).  The OLC memo relies heavily on the argument that the Senate Rules never mentioned depositions at that time and those rules still do not mention depositions today.  Rules of the Senate, Committee on Rules and Administration (last visited April 17, 2017), http://www.rules.senate.gov/public/index.cfm?p=RulesOfSenateHome. Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work or the following lawyers: Michael D. Bopp – Chair, Congressional Investigations Group, Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com)F. Joseph Warin – Washington, D.C. (+1 202-887-3609, fwarin@gibsondunn.com) Trent J. Benishek – Washington, D.C. (+1 202-955-8251, tbenishek@gibsondunn.com)Alexander W. Mooney – Washington, D.C. (+1 202-887-3751, amooney@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 28, 2017 |
The Commodities Activities of Banks: Comments on the Federal Reserve’s Notice of Proposed Rulemaking Reveal Key Concerns and Divides

One of the remaining significant issues facing the Board of Governors of the Federal Reserve System (Board) is its Notice of Proposed Rulemaking (Proposed Rule) relating to the physical commodities activities of U.S. and non-U.S. financial holding companies (FHCs).[1]  The public comment period for the Proposed Rule closed in February 2017, and like the Board’s 2014 Advanced Notice of Proposed Rulemaking (ANPR),[2] the Proposed Rule drew comments from a diverse group of parties, including members of Congress, academics, interest groups, the banking industry, and end-users of commodities and commodity-based derivatives. Commentary:  Key Points 44 end-users, comprising individual businesses, municipal end-users, and related trade groups and associations, reacted to the Proposed Rule with concern, citing issues including risk mitigation, market liquidity, transaction costs, and counterparty credit risk. Proponents, comprised of interest groups, academics and certain U.S. Senators, filed 11 submissions. They echoed the Board’s concern over perceived environmental risks and, in addition, noted the importance of restricting the potential for market manipulation. The comments filed by participants in the commodities markets show serious concerns with the Board’s approach to the Proposed Rule and disbelief that the costs of the regulation will be outweighed by market benefits.  Market participants argued that the Board failed to connect the proposed restrictions on commodities activities to the Board’s perceived risks, and that the Board did not sufficiently acknowledge the tangible commercial benefits that FHCs provide to U.S. counterparties.[3]  Market participants further contended that existing laws and regulations adequately constrain potential adverse effects. In particular, the commercial end-user community expressed strong concerns with the limitations that the Board proposed.  24 comment letters were filed by end-users and municipal end-users of commodities and commodities-based derivatives, and their related associations and industry groups,[4] including a letter from the National Association of Corporate Treasurers, on to which 18 additional end-users signed.[5]  These comment letters generally expressed a strong preference to transact with sophisticated, well-capitalized, and well-regulated FHC counterparties, as well as fear that FHCs will continue to exit commodities markets. Background The current legal authority for FHCs to engage in physical commodities activities is derived from several provisions of the Gramm-Leach-Bliley Act of 1999 (GLB Act),[6] which amended the U.S. Bank Holding Company Act of 1956 (BHC Act) to expand the permissible business activities of bank holding companies. The GLB Act permitted expanded financial activities to be carried out by a subset of bank holding companies – those whose insured depository institution subsidiaries met heightened capital and management standards[7] and had “satisfactory” or better ratings under the U.S. Community Reinvestment Act.  This subset of bank holding companies could elect “financial holding company” status; under a new section of the BHC Act, Section 4(k), FHCs could engage not only in the “closely related to banking” activities that had been permissible for all bank holding companies, but also activities that were “financial in nature” and “incidental to a financial activity,” and, on receiving a specific Federal Reserve approval, activities “complementary” to a financial activity as well.[8] Under Section 4(k)’s complementary authority, the Federal Reserve was required to find that the activity did not pose “a substantial risk to the safety or soundness of depository institutions or the financial system generally,” and that the public benefits from the activity outweighed any adverse effects.[9] In addition to Section 4(k), the GLB Act added a new Section 4(o) to the BHC Act. Section 4(o) provided that a company that was not a bank holding company when the GLB Act was enacted but that became an FHC after November 12, 1999, could “continue to engage in, or directly or indirectly own or control shares of a company engaged in, activities related to the trading, sale, or investment in commodities and underlying physical properties that were not permissible for bank holding companies to conduct in the United States as of September 30, 1997, if . . . the holding company, or any subsidiary of the holding company, lawfully was engaged, directly or indirectly, in any of such activities as of September 30, 1997, in the United States.”[10] In 2003, the Federal Reserve made its first interpretation under Section 4(k)’s complementary authority, and determined that certain physical commodities activities were “complementary” to financial activities and thus permissible for FHCs.  It did so in permitting Citigroup to retain its subsidiary Phibro, which had been a subsidiary of Travelers Group before the Citigroup-Travelers merger.[11] Following the Citigroup approval, a number of other domestic and foreign FHCs received approval to engage in physical commodities trading activities.[12]  In other orders, the Board declared energy tolling and energy management activities to be complementary to financial activities.[13] During the 2008 Financial Crisis, Morgan Stanley and Goldman Sachs became FHCs and subject to Board supervision and regulation. Both companies had been engaged in physical commodities activities in 1997 and therefore came under the legal authority contained in Section 4(o) of the BHC Act. For more information on the legal authorities that permit FHCs to engage in commodities-related activities, please see Appendix B. The ANPR In July 2013, the Board surprised most observers by announcing that it was re-evaluating its determination that physical commodities activities were complementary to financial activities.  Commodities activities had not been identified as contributing to the Financial Crisis, and Congress had specifically excluded spot commodities from the Volcker Rule’s proprietary trading prohibition, thus indicating a degree of comfort with the risks posed by commodities trading.[14] In January 2014, the Board issued its ANPR, requesting public comment with respect to three specific GLB Act authorities relevant to physical commodities activities: Section 4(k)’s complementary authority, Section 4(k)’s merchant banking authority, and The grandfather authority contained in Section 4(o) of the BHC Act. The ANPR also posed twenty-four questions that fall into the following three categories: Whether commodity-related activities by FHCs pose unacceptable systemic risk; What other costs and benefits are created by FHC engagement in commodity-related activities; and What other regulation of FHC activities in this area is necessary. Our Client Alert summarizing the ANPR and public comment is available here. The Proposed Rule On September 8, 2016, the Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued a study required by Section 620 of the Dodd-Frank Act (Section 620 Study).[15]  In it, the Board recommended that Congress repeal both Section 4(k)’s merchant banking authority and Section 4(o)’s grandfather provision. A little over two weeks later, the Board issued the Proposed Rule, premised on concerns over environmental risks such activities could pose.  Notably, the Board did not address allegations of market manipulation as a reason for the Proposed Rule.  Seen largely as a “de-risking” mechanism, the Proposed Rule was issued notwithstanding that many FHCs, for business reasons, have actively reduced commodity-related activities. The Proposed Rule would restrict FHC commodities activities in several ways: It would tighten the conditions for finding certain commodity activities to be “complementary” to a financial activity – most notably, by counting the value of commodities held in bank subsidiaries towards the 5 percent of Tier 1 capital limit; It would impose a 300% risk weighting on certain physical commodities held under Section 4(k) authority, and a 1,250% risk weighting on certain commodities and related assets held under Section 4(o) and the merchant banking authority; It would rescind the findings underlying the Federal Reserve orders that permitted certain FHCs to engage in energy tolling and energy management services; It would revise Regulation Y to provide that the owning and storing of copper is not an activity closely related to banking, which would remove the ability of bank holding companies to own and store copper absent a Section 4(k) complementary determination, which would be available only to FHCs; and It would impose new public reporting requirements in the form of a new Schedule HC-W, Physical Commodities and Related Activities, which would collect more specific information on the covered physical commodities holdings and activities of FHCs. In particular, the Proposed Rule’s increased risk-weights would apply to commodities defined: As a “hazardous substance” under section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. 9601) and interpreting regulations; As “oil” under section 1001 of the Oil Pollution Act of 1990 (33 U.S.C. 2701) or section 311 of the Clean Water Act (33 U.S.C. 1321) and interpreting regulations; As a “hazardous air pollutant” under section 112 of the Clean Air Act (42 U.S.C. 7412) and interpreting regulations; or In a state statute, or regulation promulgated thereunder, that makes a party other than a governmental entity or fund responsible for removal or remediation efforts related to the unauthorized release of the substance or for costs incurred as a result of the unauthorized release; provided that the Board-regulated institution owned the commodity in the state that promulgated the law imposing such liability during the last reporting period. Comments on the Proposed Rule were originally due on December 22, 2016, but the Board agreed to extend the comment period through February 20, 2017. Scope of Comments to the Proposed Rule As of the close of business on April 26, 2017, the Board had posted 43 unique comment letters on its website.[16]  We have categorized commenters based on the following: End-Users 27 end-user companies submitted their own letter or joined a trade association letter; 8 municipal utility districts submitted their own or joint letters; 8 end-user trade associations submitted their own or joint letters; and 1 private equity firm with end-user operating companies submitted its own letter. Financial Holding Companies 1 FHC submitted a letter; 9 trade associations from the financial services industry submitted their own or joint letters; and 2 other financial companies submitted their own letters. Others 4 U.S. Senators and Representatives submitted their own or joint letters; 6 academics submitted their own or joint letters; and 9 interest groups submitted their own or joint letters. We summarize below the key points made by end-users, banks, and their trade associations as well as the arguments raised by certain U.S. Senators, interest groups, and academics.  For a list of commenters and a breakdown of certain key points raised in the comment letters, please see Appendix A. Comments to the Proposed Rule:  Key Points The end-user community focused on how the proposed rule could impact commodities markets.  They fear that the proposed rule could cause additional FHCs to exit commodities markets and identified the following concerns: End-users could be denied the ability to trade with the counterparties of their choosing. FHCs are market-makers and necessary counterparties that provide economies of scale, creditworthiness, and sophistication, which in turn provide affordable financing, risk mitigation, and other business solutions for end-user businesses. Non-bank financial institutions lack the institutional knowledge, capital, creditworthiness, transparency, and regulatory oversight necessary to serve as market makers and price commodities-related products as efficiently. With a departure of additional FHCs, the commodities markets generally would suffer from diminished liquidity and greater risk concentration. There would be fewer counterparties with the ability to enter into long-term transactions and to offer a range of financial solutions, as certain products essential to end-user operations were generally not available from non-FHCs; as a result, costs for end-user businesses and consumers would increase. Comments from an FHC commenter and industry trade groups made the following principal contentions: FHCs provide substantial benefits to consumers, commodity producers, investors, financial markets, and the broader economy by their participation in physical commodities markets and making merchant banking investments. FHC physical commodity activities are already subject to extensive regulation by the Federal Reserve and other government agencies, and Basel III has imposed additional capital requirements for certain of these activities.  Risks identified by the Board as justification for additional capital levies may already be captured under current regulatory requirements, such as requirements for FHCs to account for the credit risk of subsidiaries. Section 4(o) authority is an explicit recognition by Congress of the importance of the expertise and risk management provided by grandfathered companies in the physical commodity markets.  The Proposed Rule undermines this statutory grant and is a direct contradiction of the authority outlined in the GLB Act.  Such fundamental changes are contrary to well-recognized limits to administrative powers and, as suggested by the Board in its Section 620 Study, are solely within the purview of Congress. Before imposing punitive risk-weights, the Board should conduct in-depth empirical and qualitative studies to assess the potential effects that increased capital requirements and the related departure of FHCs would have on the physical commodities markets. The environmental risks cited by the Board are exaggerated and speculative.  In addition to the Board’s failure to point to a material environmental liability borne by an FHC since the inception of the GLB Act, generally accepted principles of corporate separateness prevent enterprise-wide liability of FHCs.  Moreover, the parties legally responsible for environmental liabilities are often the facility owners and operators, not the underlying commodity owners. The lack of empirical data supporting the Proposed Rule and acknowledgment of its failure to consider unforeseen consequences warrants further caution.  The Board should present data to support its claim that additional capital requirements improve the safety and soundness of FHCs and the U.S. financial markets.  Additionally, the Board should also consider the public benefits FHCs provide to the physical commodity markets and the potential downsides to their departure from such markets. Several U.S. Senators, interest groups like Public Citizen, Amazon Watch, and Americans for Financial Reform, and certain academics supported the Proposed Rule, making the following principal arguments: Physical commodities activities present risks that are wide-ranging and whose severity is unpredictable, therefore justifying new limitations and capital requirements. The Federal Reserve should narrowly construe the authority contained in Section 4(o) to pre-GLB Act activities due to the risks posed by commodities activities. The Board had interpreted Section 4(k)’s “complementary” authority in an expanded manner that did not accord with congressional intent. Additional disclosures of FHC commodities activities were required for the Federal Reserve to regulate such activities adequately. There have been and will continue to be conflicts of interest in the commodities markets when FHCs are allowed both to own physical commodities and trade their financial equivalents. Potentially adverse effects on the commodities markets are not outweighed by the benefits of reducing risk to particular FHCs and to the financial system generally. Comments to the Proposed Rule:  Key Themes and Contentions The debate over the appropriate extent of bank commodities activities in the comment letters shows four principal issues at play: Conflicting Viewpoints:  Market Participants vs. Interest Groups and Academics There was a clear delineation in the views of market participants, on the one hand, and representatives of interest groups and academia, on the other.  Outnumbering all other commenters nearly [three-to-one], end-users of physical commodities, including municipal end-users, noted their reliance on FHCs as counterparties to finance their businesses and engage in risk mitigation.  End-users expressed concern that the Proposed Rule could force more FHCs out of the commodities markets, which they argued could lead to (1) decreased market liquidity,[17] (2) increased counterparty risk,[18] (3) increased transaction costs,[19] (4) decreased counterparty sophistication,[20] and (5) greater price volatility.[21] In contrast, academics, several U.S. Senators, and various interest groups contended that the Proposed Rule should be strengthened in various ways in light of the risks that they claimed financial institutions pose to the commodity markets and the U.S. economy.  Suggested changes to the Proposed Rule included: (1) reinterpreting and limiting Section 4(o) authority to restrict permissible activities to pre-GLB Act activities;[22] (2) expanding the scope of commodities covered by the key provisions of the Proposed Rule (copper and aluminum, agricultural commodities, electricity);[23] (3) increasing FHC commodities disclosure requirements (such as by requiring FHCs to provide narrative disclosures detailing how their operations and assets related to physical commodities are interdependent);[24] and (4) redefining merchant banking authority (removing FHCs from business strategy formulation, decision-making, and employee overlap with boards of portfolio companies).[25] Authority:  Congress vs. the Board Relatedly, many commenters were divided on the scope of Section 4(o) authority and the Board’s authority to interpret it. As to the first issue, academics, interest group representatives, and several U.S. Senators suggested that the rulemaking should limit Section 4(o) activities to the actual activities in which the FHCs were engaged at the time that Section 4(o) was passed.[26]  Those concerned with the Proposed Rule noted that since Section 4(o) was enacted, there has been a steady decline in the number of FHC-eligible Section 4(o) institutions participating in physical commodity markets, and therefore that additional limitations on this provision could have economically adverse effects. Commenters also were divided on the question of the appropriate scope of Board rulemaking authority.  Those advocating for Board restrictions on the extent of Sections 4(k) and 4(o) argued that it was within the Board’s power, as it was when issuing its original interpretations, to reinterpret the scope of such authorities,[27] particularly in light of the environmental, market, and financial risks alleged.[28]  End-users, financial institutions, and trade associations countered that although the Board has the authority to issue capital standards as a general matter, the use of punitive risk weightings, which would make certain physical commodity activities economically unviable, amounted to agency legislation, and ignored the fact that Congress explicitly authorized additional financial activities without revising the attendant capital rules.[29] Public Benefits:  Healthy Markets vs. Systemic Effects Commenters also disagreed on whether perceived benefits to commodities markets or the broader financial system should be the priority in the Board’s analysis. End-users and financial entities urged the Board to focus on the “real-world” implications that the Proposed Rule would have on U.S. businesses and the physical commodity markets.  Central to their concern was the apparent lack of consideration in the ANPR and Proposed Rule in estimating the economic effects of additional FHC departures,[30] as well as a failure to consider the entities that would replace FHCs as market makers and counterparties.[31]  Similarly, Congressman Bradley Byrne of Alabama cautioned that the Board should postpone rulemaking until adequate consideration is given to “the potential adverse impact upon costs to the American public, the reduction in competition, the loss of markets, and the potential for fewer creditworthy and highly regulated bank counterparties with whom end-users may transact.”[32] Academics, interest group representatives, and certain U.S. Senators noted potential risks that FHCs pose to the market, and that the benefits considered by the Board should focus on overall market stability.[33]  Proponents cited past instances of manipulation in energy and aluminum markets and the potential for future abuses; however, the Board did not discuss, nor did it advance, past instances of market manipulation as a justification for the Proposed Rule.  Interestingly, Novelis, Inc., a major producer of aluminum, noted the substantial benefits that FHCs provide to its business.[34]  Subscribing to the belief of general de-risking and separation of commercial and investment banking, proponents urged the Board to consider the overall health of the U.S. financial system over the effects of FHC departures. Liability:  Environmental Risks vs. Principles of Corporate Separateness  Although the Board premised much of the Proposed Rule on the existence of serious environmental risks, there was a substantial debate in the public comments over the factual basis of the Board’s claims. Opponents of the Proposed Rule noted the Board’s lack of substantive discussion on the extent of environmental risks posed by FHC commodity activities.  They argued that, historically, FHC physical commodity activities have been conducted safely, without a major environmental incident since the inception of Section 4(k) and Section 4(o) authority.[35]  In addition, they contended that such speculative risks are already captured by capital requirements mandating that FHCs account for the credit risk of their subsidiaries, arguing that the larger capital reserves FHCs maintain to address institutional credit risk guard against environmental risks at the subsidiary level.[36]  Opponents further cited studies on legal principles of corporate separateness, which they stated demonstrated that most courts were not willing to pierce the corporate veil by reason of an environmental disaster alone.[37] Like the Board, supporters of the Proposed Rule focused on environmental disasters, albeit  disconnected to FHC activity, like the Deepwater Horizon disaster, as evidence of the potential for massive environmental liabilities; however, and also like the Board, they did not identify actual examples of material FHC liability stemming from physical commodity activities to date.  Instead, they referred to the specific holdings of large FHCs,[38] and cited disasters in related activities, such as oil exploration and energy projects,[39] in contending that such holdings pose unacceptable risks that should be divorced from banking activities. Conclusion Because many FHCs have retreated from the commodity markets since the Financial Crisis for other reasons, the concerns of market participants that further limitations on FHC activities will adversely affect their businesses and their customers—concerns expressed by numerous such participants during the comment period—appear justified.[40]  When weighed against the lack of concrete evidence of widespread veil piercing in environmental cases, these concerns justify a cautious approach in restricting commodity authority, particularly in the absence of congressional action.[41] Appendix A:  Summary of Key Points Raised by Commenters Commenter Type of Entity Key Points Raised in Comment Letter 1.      Alon USA Energy, Inc. End-User   Alon is an independent refinery owner and marketer of petroleum products in the United States that transacts with FHCs to hedge against normal and expected price volatilities. Relies on FHCs to timely access physical commodity markets to hedge against price volatilities and maintain stable funding. FHCs allow Alon to use excess inventory as collateral to hedge long- and short-term inventory needs.  FHCs further serve to bring better convergence between financial and physical assets which Alon uses to mitigate risks. Concerned that the departure of FHCs would force Alon to transact with counterparties in markets in which they do not operate. 2.      Barrick Gold End-User       Barrick is the largest gold-mining company in the world and a significant miner of copper. Argues that the Board has not and cannot demonstrate that the metals market poses a sufficient risk to warrant the proposed changes. It maintains that the proposal should be rescinded, but that if it is not, it should at least be modified so as to not cover the metals market. Concerned that risks to BHCs from metals activities are not substantial and that the oil and gas incidents that the Board cites are clearly distinguishable from any risks faced in the metals markets. Explains that there is no risk posed by metals since copper or precious metals are not released into the environment, mining activities are subject to rigorous safety and environmental controls and financial assurance requirements, mere owners of commodities are generally outside the scope of liability of environmental statues, and courts are very unlikely to pierce the corporate veil. Proposes the following revisions: excluding metals from the definition of “covered physical commodity”; reclassifying copper under the “closely related” authority only to the extent that it is in a form primarily suited for industrial or commercial use; and excluding non-covered physical commodities from the tighter Section 4(k) cap on assets held under the complementary authority (otherwise, this risks the possibility that FHCs will exit the metals market). 3.      Calpine Corporation End-User Calpine is the largest generator of electricity from natural gas and geothermal resources in the U.S. Opposes the rulemaking because it will hinder its ability to engage in risk-mitigation and could result in it having access to fewer credit-worthy counterparties. 4.      Cheniere Energy, Inc. End-User Cheniere is involved in the development and operations of liquefied natural gas terminals and transacts in the physical commodities markets to manage its risks. Argues that the Board’s analysis of the impact of the Proposed Rule is inconsistent with Cheniere’s experience in these markets.  Contests the Board’s assumption that FHCs only consist of 1% of the physical commodity markets and notes that companies like Cheniere transact with FHCs on a daily and monthly basis to address funding needs and mitigate risks. Concerned that increased regulation will cause FHCs to leave the markets.  Notes that they rely on FHCs to serve as market makers and facilitate liquid markets.  By contrast, commercial companies transact only to meet their acute needs. 5.      Cogentrix Energy Power Management, LLC End-User Cogentrix is a manager and operator of power generation facilities across the U.S. Concerned that the new rules will make it more difficult and expensive for it to achieve risk-mitigation through the use of commodity-related derivatives, will restrict competition and innovation, and will reduce market liquidity and result in higher prices for commodities and commodity-related production. Argues that this will ultimately result in higher prices for consumers. 6.      Delek US Holdings, Inc. End-User Delek is a diversified downstream energy company with operations in two primary business segments: petroleum refining and logistics. Notes that FHCs provide liquidity, offer customized solutions to meet its business needs, and provide important risk-mitigation opportunities.  Also asserts that it prefers to transact with financially sound and well-regulated counterparties such as FHCs. Economies of scale allow Delek to quickly sell and source inventory at market prices to FHCs to eliminate backlog and excess inventory.  Notes that arrangements like these eliminate the need for complex financing facilities and reduce exposures to price volatility given the short periods of ownership. FHCs allow access to lower crude oil prices even when Delek’s refinery does not have capacity, since FHCs will continue purchasing at advantageous prices and store the crude oil for Delek until Delek’s refinery has capacity for the oil. 7.      Novelis Inc. End-User Novelis is the world’s leading aluminum rolled products producer.  It produces aluminum sheet and light gauge products primarily for use in the beverage can, automotive, specialties (including transportation, consumer electronics, and architecture), and foil markets. Depends on FHCs to shift the metal price risk associated with aluminum to creditworthy third parties.  Argues that having multiple FHCs that participate in the aluminum futures market available to Novelis has helped keep hedging transactions costs relatively low and stable and given manufacturers in the aluminum industry improved liquidity. Notes that FHCs also allow Novelis to manage operational and business risks by engaging in repo transactions with excess inventory, acting as intermediaries between Novelis and related businesses, and carrying inventory on consignment. Concerned with the Proposed Rule because it will (1) reduce market liquidity, (2) increase costs and ultimately its costs to consumers, (3) increase price divergence, and (4) increase counterparty risks. 8.      Philadelphia Energy Solutions LLC End-User Philadelphia Energy Solutions LLC owns and operates a merchant fuel refinery (gasoline, ultra-low sulfur diesel, etc.). Argues that risk-mitigating derivatives make the commodity markets more stable and that increased capital requirements will make hedging risks more expensive and less effective.  Notes that many FHCs have already scaled back their physical commodity activities. Relies on expansive market knowledge of FHCs to tailor products to meet its needs. Asserts that high-risk weighting should be reserved for “the riskiest of bank exposures” and that physical commodities do not qualify. 9.      Black Belt Energy Gas District Municipal End-User Black Belt is a public corporation formed by three member municipalities in Alabama. It is a joint action gas supply agency that provides wholesale sales service to municipal gas systems both within and outside the State of Alabama. Black Belt also provides natural gas management services for certain large industrial customers. Argues that FHCs assist municipal end-users in financing and purchasing natural gas via long-term pre-paid purchase transactions.  By closing such a transaction with an FHC in 2016, more than 150 cities and towns spread across several southern states will have stable energy prices for the next 30 years. Further notes that given the nature of their business and transactions, FHCs are creditworthy counterparties that are necessary for small municipalities in securing long-term, stable natural gas prices. 10.  Central Plains Energy Project Municipal End-User CPEP is a joint action gas supply agency that provides wholesale sales service to its members and other municipal natural gas distribution systems in the states of Nebraska, Iowa, and South Dakota. Relies on prepayment transactions to meet the domestic and commercial needs of its customers.  Notes that the natural gas energy markets are primarily supported by FHCs and that their departure from this market would be hard to replicate with non-bank companies. Argues that the departure of FHCs from the physical natural gas marketplace would be highly adverse to the interests of municipal gas systems and gas consumers, while serving no countervailing public purpose. 11.  City of Rocky Mount, North Carolina, Richard H. Worsinger Municipal End-User As a community-owned electric and natural gas system, the goal of Energy Resources is to provide safe, efficient, and reliable electric and natural gas services to all customers. Argues that if FHCs stop participating in long-term municipal gas supply transactions, this will cause an increase in gas prices for its customers. Transactions with FHCs lead to discounted gas for its customers, and its customers have come to depend upon lower gas prices. 12.  Clarke-Mobile Counties Gas District Municipal End-User CMC is a public corporation formed by three member municipalities in Alabama. It is a municipal gas transmission and distribution system that provides natural gas transportation and sales service to retail gas customers in an eight-county area in southwestern Alabama. CMC also provides wholesale natural gas sales service to other municipal gas systems and their joint action agencies that it purchases in gas prepayment transactions. Relies on natural gas prepayments to serve Alabama counties.  Notes that FHCs play a critical role in providing stable and affordable supplies of natural gas.  For example, the use of prepayment transactions in 2016 are now serving gas consumers in Alabama, Louisiana, Florida, Georgia, Tennessee, and Kentucky. Concerned that the potential departure of FHCs would be replaced with less-liquid, less-capitalized, and less-efficient counterparties.  As a result, transaction costs would likely increase and it would not be able to provide services at their current rates. 13.  Greenville Utilities Commission Municipal End-User Electric utility company in Greenville, NC. Critical of the proposed requirements as increasing the likelihood that FHCs will be driven out of the commodities markets, which will result in a decrease in natural gas supply and an increase in natural gas prices. 14.  Public Utility District No. 1 of Chelan County, Washington Municipal End-User Consumer-owned electric utility that generates electricity and transacts in power markets.  Manages power needs, volatility, and exposure to price and volumetric risks by selling and buying wholesale power using short-, mid-, and long-term contracts. Cautions against new rulemaking because market access could become more difficult, more expensive, and less efficient without FHC participation.  Argues that reduced FHC participation will ultimately increase the cost and difficulty for end-users to serve customers. 15.  Tennessee Energy Acquisition Corporation Municipal End-User Tennessee Energy is an instrumentality of the State of Tennessee and certain Tennessee municipalities. It is a joint action natural gas supply agency that provides wholesale sales service to municipal gas distribution systems and to other joint action agencies within and outside the State of Tennessee. Tennessee Energy also provides natural gas supply, transportation, and storage management services for other municipal gas systems and joint action agencies, and supplies price-hedging services for its associated municipalities and others to whom it sells long-term gas supplies as part of its sales service to them. Relies on gas prepayment transactions (prepaid long-term natural gas contracts) which are offered by FHCs.  States that FHCs’ role in this regard could not and would not be replicated by other industry participants. Concerned that the Proposed Rule will force FHCs out of the natural gas marketplace by making it more expensive for them to participate.  Argues that this will result in the increase of natural gas prepayments and hedging services for Tennessee Energy, which would then increases costs for its customers. Suggests that FHCs are the most creditworthy counterparties with which they deal, and that they are more efficient and operate in a regulated environment. Notes that the fear of environmental catastrophe is completely misplaced in the natural gas industry. 16.  Town of Slaughter, Louisiana Municipal End-User Member of the Louisiana Municipal Gas Authority. FHC involvement in commodities activities provides their residents and retail and industrial consumers with affordable energy products. Argues that their Town has come to rely on FHC involvement and the economic savings involved. 17.  American Public Gas Association End-User Trade Association APGA is the national association for publicly owned, not-for-profit natural gas distribution systems, comprising over 700 public gas systems. Increased capital requirements threaten APGA members’ reliance on natural gas prepayment transactions—using swaps transactions and tax-exempt financing for the long-term purchase of natural gas—to provide affordable energy solutions. 18.  American Wind Energy Association End-UserTrade Association Trade association for a range of entities interested in encouraging the expansion of wind energy in the U.S. Notes wind industry reliance on FHC merchant banking authority investments to bring projects from development and construction into operation.  In 2015, over $14.7 billion was invested in new wind energy projects in the U.S. This included $5.9 billion from tax equity providers, including under the merchant banking authority. Concerned that some of the restrictions being considered by the Federal Reserve would unnecessarily limit or eliminate the ability of banking entities to help finance wind generation. Relies on FHCs to transact in stable, low-risk investment for long-term contracts to purchase their power at a set price.  Argues that this enables wind industry companies to reinvest money into growth rather than hedge against energy price fluctuations. 19.  Edison Electric Institute and the National Rural Electric Cooperative Association End-User Trade Associations Joint letter from the Edison Electric Institute (“EEI”) and the National Rural Electric Cooperative Association (“NRECA”). EEI is the association of U.S. shareholder-owned electric companies. EEI’s members comprise approximately 70% of the U.S. electric power industry, provide electricity for 220 million Americans, operate in all 50 states and the District of Columbia, and directly employ more than 500,000 workers. NRECA is the national service organization for more than 900 not-for-profit rural electric utilities that provide electric energy to more than 42 million people in 47 states or 12% of electric customers. Relies on banking entities and their affiliates as counterparties to customized energy commodity forward contracts and commodity trade options that can be physically settled to hedge and mitigate their commercial risks. Concerned that the proposed changes will make risk management more difficult and more expensive by disincentivizing banking entities from engaging in hedging transactions. Concerned that substantial increase in the regulatory capital requirements for FHCs’ holdings of certain commodities will have indirect cascading effects on the wholesale physical electric markets. 20.  National Association of Corporate Treasurers, et al.[42] End-User Trade Association NACT represents companies and trade associations (like its 18 co-signatories) that are end-users of physical commodities and commodity-related derivatives. Expresses concern that increased capital requirements would fuel the departure of FHCs from the commodities markets. Notes that FHCs provide affordable, well-tailored products and that non-bank financial replacements would likely be unable to address specific end-user needs. Notes that emerging and start-up end-users are likely to be the most affected as they will no longer be able to use their physical commodity assets as collateral to hedge risk, and would otherwise be unable to engage in risk management due to cash-flow and credit-rating constraints.  Further notes that without such benefits, such entities would have to enter into less-favorable, costly, and restrictive credit facilities. 21.  National Mining Association End-User Trade Association NMA is a national trade association that includes the producers of most of the nation’s metals, coal, industrial, and agricultural minerals; the manufacturers of mining and mineral processing machinery, equipment, and supplies; and the engineering and consulting firms, financial institutions, and other firms serving the mining industry. Notes that Mining is critical to the success of American manufacturers. Cites a 2014 Edelman Berland survey of 400 manufacturing executives, where more than 90% of respondents expressed their concern about supply disruptions outside of their control. FHCs enable mining companies to hedge risks associated with long-term investment projects.  A departure of FHCs would decrease liquidity in the commodities markets with no discernible corresponding benefit. Cites the robust federal and state environmental regulations applicable to mining operations, including those that require mining companies invest in and secure sites, as well as to post financial assurance instruments designed to cover potential unintended environmental releases. 22.  Natural Gas Supply Association End-User Trade Association Trade-association for the downstream natural gas industry. Argues that the Proposed Rule would reduce liquidity and efficiency in relevant markets, which will ultimately result in higher costs and increased credit risk for end-users, increased volatility in physical and financial markets, and a reduction in consumer choice for counterparties. Notes concern that increased capital requirements would also result in increased hedging costs. Argues that FHC financial products and market making activities have fostered growth within the natural gas industry.  Cites to overall reductions in CO2 emissions, increased technological breakthroughs, and job growth, all made possible with FHC backing. 23.  International Energy Credit Association End-User Trade Association The IECA is the leading global membership organization for credit professionals in the energy industry.  IECA is a not-for-profit association with over 1400 individual members who are involved in energy credit management. Urges the Board to reconsider issuing a final rule at all and also proposes a number of modifications that should be made to the rule before issuance. Argues that the Board does not present any evidence in support of its Proposal (“no precedent where financial entities involved in the physical commodities markets were held liable for environmental incidents”) and asserts that the Board is emphasizing hypothetical, potential risks (“possibility of a possibility of loss”) over the many positive effects of FHC activities.  Also notes that corporate separateness would shield FHCs from liability for environmental catastrophes. States that the definition for covered physical commodities is overly broad and the Board should provide a clear list of those commodities that are expressly covered by the definition (and those commodities should have evidence concerning the risks they post).  Also argues that the requirements should be proportional to the risks (e.g., natural gas activities do not pose the same risks as other commodities of concern). 24.  The Goldman Sachs Group, Inc. FHC Goldman Sachs has been a participant and market maker in the commodities and commodity derivatives markets since 1981. Argues that FHCs provide substantial benefits to consumers, commodity producers, investors, financial markets, and the broader economy by their participation in physical commodities markets and making merchant banking investments. Notes that FHCs enable end-users to obtain competitive pricing, manage their risks, and serve as stable, highly regulated counterparties. Argues that punitive capital requirements effectively pre-empt Congressional authority granted to FHCs under Section 4(k) and Section 4(o). Explains that the capital requirements do not reflect any change in the intrinsic risk of owning the physical commodities.  Further notes that an FHC engaged in a physically settled hedging transaction pursuant to Section 4(o) authority may be subject to the 1250% risk-weighting, while another FHC engaging in an identical transaction under Complementary Authority would only be subject to a 300% capital charge. 25.  The Clearing House Association, L.L.C., the American Bankers Association, the Financial Services Forum, the Financial Services Roundtable, and the Institute of International Bankers Financial Trade Associations Believes that limitations on FHC activities should be addressed by Congress, as suggested by the Board in its Section 620 study.  Notes that punitive rulemaking undermines current statutory authority. Concerned that additional capital charges are not commensurate with the environmental risks cited and that current capital standards already address the true risks.  Argues that corporate veil piercing standards are very difficult to overcome and such theories have not changed in recent years. FHCs are an efficient tool for providing capital to companies and industries.  Merchant banking authority affords FHCs flexibility to contribute capital at various stages in a company’s growth.  Notes that preliminary data to a Clearing House study suggests that FHCs provide ~40% of the renewable energy market’s financing needs. Argues that the Proposed Rule fails to address the impact it would have on the economy, small business, and the commodity markets.  Argues that further rulemaking in this area should take into account the impact on customers, markets, industries, and economic growth. 26.  The Futures Industry Association Financial Trade Association FIA is the leading trade organization for the global futures, options, and over-the-counter cleared derivatives markets.  Its mission is to support open, transparent, and competitive markets, protect and enhance the integrity of the financial system, and to promote high standards of professional conduct.  FlA’s members, their affiliates, and their customers are active users of physical commodities, futures, and over-the-counter derivatives. Urges the Board not to adopt restrictive regulatory measures or, at the very least, to conduct an analysis of the potential costs and benefits of the restrictions and to submit that analysis to the public for comment. Argues that FHCs provide many benefits to the physical commodities markets, including market depth, liquidity (serving as market-makers), and by offering a broad spectrum of financial services available to the market (e.g., risk-mitigating commodity-linked swaps and other derivatives).  Highlights the fact that commercial energy firms rely on inventory financing, which requires the FHC to take temporary title to the physical commodity.  This would now be subject to higher capital requirements, which would result in reduction of the practice. Makes the point that the Board does not support with any evidence its conclusion that any reduction in activity by FHCs in the commodities markets would not have a material impact on participants in those markets. 27.  International Swaps and Derivatives Association, Inc. Financial Trade Association Trade association for the global derivatives market with more than 850 member institutions in 67 countries.  Members comprise a broad range of derivatives market participants, including corporations, investment managers, government and supranational entities, insurance companies, energy and commodities firms, and international and regional banks. Requests that the Board revise the Proposed Rule so as not to: impose heightened capital requirements in the absence of supporting evidence; lower the cap of total value of physical commodities permitted under Section 4(k)’s “complementary authority”; rescind the previous authorizations of FHCs to engage in energy management services and energy tolling activities; and implement restrictions on copper trading, and to limit the reporting provisions. Concerned with the lack of empirical support for restricting the activities of FHCs, and the failure to cite any instances where FHCs were liable for the full extent of an environmental catastrophe. Argues that removing FHCs will decrease liquidity, increase volatility, and ultimately result in higher costs to consumers (also specifically points to the practice of providing inventory financing transactions). 28.  Securities Industry and Financial Markets Association and the Institute of International Bankers Financial Trade Association The associations believe that “the benefits of continuing to permit FHCs to engage in physical commodities activities should continue to produce public benefits that outweigh their potential risks.” Argues that the risks cited in the Proposed Rule are speculative and unsupported by facts and the law, and that the Board failed to point to a single instance where an FHC incurred a significant loss arising from environmental liability related to these activities.  Notes that case law and real-world examples demonstrate that FHC involvement in commodities-based activities do not pose a substantial risk to the safety and soundness of the institution or the financial system. Cites to a Joint Memorandum of Law, prepared by four law firms, which concludes that “appropriately limited investment and trading activities relating to environmentally sensitive commodities present limited environmental liability risk” to FHCs, and “well-established doctrines of corporate separateness protect FHC groups from liability for investments in enterprises that engage in environmentally sensitive activities.”[43] Argues that proposed capital charges would be duplicative of FHC requirements to maintain capital based on the credit risk (i.e., bankruptcy risk) of its subsidiaries engaged in commodities activities.  Argues that environmental risks are accounted for by credit risk capital requirements.  As a result, increased capital charges would force FHCs out of the market, causing adverse effects on competition, end-users, the liquidity of commodities markets, small- and medium-sized companies in the commodities sector, and the real economy. Concerned that the Proposed Rule ignores the substantial public benefits accruing from FHCs’ participation in these activities.  Notes that numerous public benefits flow from the participation by FHCs in the commodities markets, including greater competition, increased liquidity in commodities, increased price convergence between cash and derivatives markets and more economical financing for end-users, among many others.  Further notes that prior Federal Reserve determinations have found that FHC involvement in commodities activities provide: (1) greater convenience, (2) increased competition, and (3) enable efficient hedging. Counters the argument that the tail risks associated with FHCs’ current physical commodities activities pose unique and/or more significant risks than any of the other permissible banking and financial activities conducted by FHCs.  Notes that the scope of regulated commodities is overly broad and should be limited to substances defined by the EPA as “Extremely Hazardous Substances,” such as arsenic, hydrogen sulfide, and sulfuric acid.  Notes that the Proposed Rule captures commodities that present no meaningful risk of environmental harm (e.g., iron, vinegar, silver, silicon). 29.  U.S. Chamber of Commerce Center For Capital Markets Competitiveness End-User Trade Association The Chamber is the world’s largest federation of business and associations, representing the interests of more than three million U.S. businesses and professional organizations of every size and every economic sector. These members are users, preparers, and auditors of financial information. Argues that the Section 4(o) risk-weighting requirements and the new Section 4(k) thresholds will push FHCs out of the physical commodities markets.  This will result in reduced competition, which will ultimately lead to less liquidity and higher prices for the commodities on which end-users depend, and ultimately to higher prices for customers. Reasons that the regulation contradicts Congress’ intent when enacting Sections 4(k) and 4(o), as both Section 4(o) and 4(k) provide authority to facilitate efficient functioning of commodity markets and the efficient exchange of risk. Concerned that the Board has provided no evidence for hypothetical extreme circumstances where FHCs could be subject to massive liability.  Emphasizes that the risk-weighting requirements are particularly unjustified, as the Fed cannot and has not provided any evidence of material loss. Also notes that that the potential costs to FHCs are remote, and argues that there are no examples of “corporate veil piercing” occurring in the FHC context. Calls for the need to undertake a comprehensive study of various regulatory initiatives as well as the effects of those initiatives on the broader global economy and the capital formation system. 30.  Exante Regulatory Compliance Consultants Inc. Financial Services Company Exante is a financial services consulting firm specializing in regulatory compliance under SEC, CFTC, and FINRA. Urges the Federal Reserve to work with the Financial Stability Oversight Council to strengthen the Proposed Rule to prevent future instances of market manipulation by FHCs. 31.  TrailStone Group Financial Entity TrailStone is an asset-backed trading and logistics company with in-depth experience in mining, oil and gas investment and finance, energy asset management, energy logistics, and trading. Argues that new restrictions will force FHCs out of the market, thus reducing market depth (i.e., the number of sophisticated parties in which TrailStone relies on to efficiently hedge, finance, and otherwise transact in commodities), and liquidity of the commodities market. Concerned that lack of FHC activity will increase price divergence between physical and financial products.  Because TrailStone regularly makes use of both, it requires closely aligned pricing to prevent market arbitrage. Notes that its end-user subsidiaries need FHCs to take physical commodities as collateral to hedge and manage market risks. 32.  Elise J. Bean and Tyler E. Gellasch Academic Elise Bean is the former Staff Director and Chief Counsel of the U.S. Senate Permanent Subcommittee on Investigations, and Tyler Gellasch is the former Senior Counsel of the U.S. Senate Permanent Subcommittee on Investigations. Reaffirms the Board’s position to limit FHCs’ physical commodity holdings in order to mitigate the dangers associated with an overconcentration of assets, volatile price swings, and unexpected costs arising from catastrophic events.  Cites a 2012 Federal Reserve study supporting greater disclosure, reporting, capital requirements, and enhanced risk management measures for FHCs engaged in physical commodities activities. Supports stronger prohibitions on FHCs’ ability to own and operate facilities connected to the distribution of commodities through Section 4(k)’s complementary authority, as well as the prohibition of energy tolling, the reclassification of copper as an industrial metal, and increased capital requirements. Contends that the U.S. Senate Permanent Subcommittee’s investigation found evidence of market manipulation and conflicts of interest with respect to FHC commodity activities. Recommends strengthening the Proposed Rule as it relates to Section 4(k)’s complementary authority so that it also addresses catastrophes caused by safety violations; clarifying the definition of “covered physical commodities” by making use of a straightforward list (e.g., petroleum and petroleum products, natural gas, fertilizer), and clarifying the scope of Section 4(o) on whether or not the clause is confined to physical commodity activities the entities were engaged in prior to 1997. 33.  James D. Hanson Academic Supports removing copper and silver from lists of bank permissible precious metals. Expresses concern over the conflicts of interests banks may have when they both transact in financial products related to physical commodities and also hold physical commodity assets. 34.  Reid B. Stevens and Jeffery Y. Zhang Academic Reid Stevens is a Professor of Agriculture Economics at Texas A&M University; Jeffrey Zhang is a Professor of Economics at Yale and Harvard Law School. Presents a case study concerning alleged manipulation of the U.S. aluminum market from 2010 to 2014.  Argues that the Proposed Rule will improve the detection of manipulation, since it strengthens the prohibition on owning and operating storage facilities and increases reporting requirements for FHCs. 35.  Saule T. Omarova, Professor of Law, Cornell University Law School Academic Urges the Board to strengthen the Proposed Rule to expand the scope of covered commodities, tighten complementary authority, narrow Section 4(o) authority, and require additional quantitative and qualitative disclosures of FHC activity. Notes that even markets for “non-hazardous” commodities are subject to the distortive and manipulative effects of FHCs.  Cites examples in the aluminum, copper, and electricity markets. Argues for several changes to the Proposed Rule: The key operative provisions should apply to all physical commodities (e.g., copper and aluminum, agricultural commodities, electricity, etc.) as opposed to just hazardous substances that carry the greatest potential liability. The rule needs broader prohibitions on FHCs’ ability to manage, direct, conduct, or provide advice regarding business operations of entities engaged in the physical commodities business. Should restrict Section 4(o) activity to only those activities that were conducted before 1997. Should require from FHCs a detailed qualitative narrative of the entire complex of their operations and assets involving, or related to, physical commodities and how they are linked or interdependent. 36.  Aidenvironment, et al.[44] Interest Group Consortium of environmentally focused organizations and investors. Supports the Proposed Rule in order for FHCs to account for the material financial, environmental, and social risks associated with their physical commodities activities. Argues that Section 4(o) and Section 4(k) authority contribute to deforestation and other environmental effects. Cites independent research which suggests that asset impairment due to environmental and social degradation poses significant risk to FHCs holding physical assets.  For example, references a study which suggests that the Noble Group’s balance sheet was reduced by $400 million due to impairments of their palm oil and coal assets and receivables. 37.  Amazon Watch Interest Group Nonprofit organization for the protection of the rainforest and advancement of the rights of indigenous peoples in the Amazon Basin. Argues that FHCs should not have business financing or owning commodities and assets that harm the environment or indigenous communities. Contends that FHC holdings are problematic, including jet fuel supplies and the recent purchase, sale, transport, and storage of oil, natural gas, coal, metals, electricity, and agricultural products.  Further cites the extractive activities of FHC-owned or -backed entities, such as oil drilling in the Amazon. Argues that FHCs’ direct involvement in commodities financing and ownership creates layers of legal liability, as well as political, reputational, and financial risks. 38.  Americans for Financial Reform Interest Group AFR is a coalition of more than 200 national, state, and local groups who advocate for reform of the financial industry.  Their members include consumer, civil rights, investor, retiree, community, labor, faith-based and business groups along with prominent independent experts. Believes in the elimination or the significant reduction of commodity ownership from bank portfolios. Supports limitations and restrictions to FHCs commodity activities to limit exposures to both changes in commodity prices and commodity-related catastrophic events.  Notes that increased capital requirements would further serve as a stop-gap to such losses. Argues that FHC commodities activities concentrate economic power and pose potential market manipulation risks.  Cites the concerns related to energy and aluminum market manipulation. Urges the Board to interpret Section 4(o)’s grandfather provision more narrowly, such as by limiting activities to those permitted when the GLB Act was passed. 39.  Better Markets, Inc. Interest Group Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets and support financial reform. Supports the new requirements and offers a number of proposals and amendments to strengthen the rulemaking and its enforcement. Supports restrictions on commercial activities of banking entities, which aligns with the original intent of the GLB Act.  Also supports the proposals outlined in the Section 620 Study to (1) repeal the authority of FHCs to engage in merchant banking activities entirely, and (2) repeal the grandfather authority under Section 4(o).  Argues that this will result in “reduced institutional and systemic risk; more fair competition; and better fulfillment of original Congressional intent.” Recommends that the Board: engage in coordination with other regulatory agencies (e.g., CFTC, FERC, etc.) with regard to physical commodities trading, such as by establishing a mechanism for sharing the nature and percentage of commodities ownership among BHCs and FHCs; prevent evasion of other laws dealing with financial market oversight (e.g., FHCs that own commodity businesses have insider information, which can lead to insider trading and manipulation); ensure that non-banking business are not given an unfair advantage through Discount Window funding; and refrain from exempting FHCs from disclosure requirements (suggests that they should define the exemption from disclosure as narrowly as possible). 40.  Institute for Agriculture and Trade Policy Interest Group Nonprofit organization focused on ensuring fair and sustainable food, farm, and trade systems. Supportive of the proposed capital requirements but cautions that the Board has underestimated FHC and bank involvement and market share within the physical commodity markets, and therefore may underestimate the impact of commodity derivatives losses on the FHC trading losses in physical commodities. Skeptical of FHCs’ claims that their involvement in physical commodities trading benefits end-users.  Recommends that the Board require FHCs to divulge comprehensive and standardized data about their complementary commodity activities to verify their claims of harm from the Board’s action, and their claims of end-user and social benefits from those activities. Suggests that the Board should possibly broaden its understanding of what constitutes a catastrophe for the purposes of determining whether an FHC could be liable for a catastrophe involving its physical commodity activities. 41.  Public Citizen, Inc. Interest Group Non-profit consumer rights advocacy group and think tank. Supports the increased capital requirements, the prohibition of FHCs from entering into energy tolling agreements, and the copper amendment, but cautions that the Board should narrow the language for what it means to be “closely related” to banking. Proposes that the Board should modify the reporting requirements to require (1) disclosure of ownership or control over infrastructure assets and (2) restrictions on communications between a bank’s energy infrastructure and energy trading affiliates (otherwise they have an “insider’s peek” into the physical movements of energy products which is unavailable to other traders). 42.  Congressman Bradley Byrne U.S. House Requests an extension of the comment period until the 115th Congress has convened and has a chance to review the proposal. Notes that the Board needs to “consider the potential adverse impact upon costs to the American public, the reduction in competition, the loss of markets, and the potential for fewer creditworthy and highly regulated bank counterparties with whom end-users may transact.” 43.  Senators Sherrod Brown, Jeff Merkley, and Jack Reed U.S. Senate Argues that the recent departure of FHCs from the physical commodity markets demonstrates that FHCs are not pivotal intermediaries as they claim to be. Cites airline practices of engaging with non-financial companies for their fuel needs. Supports the expansion of covered physical commodities on the ground that volatility and sudden swings are not limited to those commodities enumerated in the Proposed Rule. Contends that the Proposed Rule fails to address additional environmental concerns related to international and other long-term liabilities.  The Senators note that reclamation and remediation of abandoned mines in the U.S. is problematic. Concerned with the ability of FHCs to utilize repo-style transactions to move commodities exposures off the balance sheet.  Argues that this would allow FHCs to continue to engage in commodity activities beyond the proposed 5% Tier 1 Capital cap. Supports a limitation of Section 4(o) activities to those permissible pre-1997.     Appendix B:  Physical Commodities Legal Authorities Type of Authority Covered Entities Applicable Statutes, Rules and Guidance Scope of Activities 1.   Banking and “Closely Related to Banking” Activities All BHCs and FHCs. 12 U.S.C. § 1843(a), (c)(8) 12 C.F.R. §§ 225.21(a), 225.28(a)-(b), 225.123, 225.126, 225.129, 225.131 Within two years of becoming a BHC (subject to three one-year extensions from the Board), a BHC may only own shares in banks, or engage in, or own companies that engage in, banking activities or activities that the Board has determined by regulation or order to be “so closely related to banking as to be incident thereto.”[45] The Board has determined that commodities derivatives activities are “closely related to banking” as long as the contract requires cash settlement or the BHC makes every reasonable effort to avoid physical delivery or receives and instantaneously transfers the asset by operation of contract and without taking physical delivery.[46] BHCs generally must file a notice with the Board and receive approval prior to engaging in any “closely related to banking” activities.[47]  FHCs and certain well- capitalized and well-managed BHCs may commence the activities and file a notice after the fact.[48] 2.   “Financial in Nature” Activities and Merchant Banking All FHCs. 12 U.S.C. §§ 1843(k)(1), (k)(4)(H), (k)(7); 12 C.F.R. 225 Subpart J (225.170-177) Fed. Res. Interp. Ltr. from J. Mattingly, Esq. to P. Grauer (Credit Suisse First Boston) (Dec. 21, 2001) All FHCs are permitted to engage in, and to acquire and own shares of any company engaged in, activities that are “financial in nature or incidental to such financial activity.”[49] Merchant banking is a permissible “financial in nature” activity for FHCs and their non-depository institution subsidiaries.[50] The merchant banking authority permits an FHC to: acquire an ownership interest in any company as “part of a bona fide underwriting or merchant or investment banking activity,”[51] so long as the FHC controls (i) a registered broker-dealer or (ii) an insurance company that is advised by a registered investment adviser;[52] hold such ownership interests “only for a period of time to enable the sale or disposition thereof,” which period generally may not exceed 10 years;[53] select all of the directors of a portfolio company;[54] enter into an agreement with a portfolio company giving it approval rights over non-routine matters;[55] and provide advice to officers and employees of a portfolio company.[56] The merchant banking authority does not permit FHCs to: own assets other than securities or other ownership interests in a portfolio company, unless the assets are held by a portfolio company that maintains a separate existence from the FHC and has separate management; or “routinely manage or operate a portfolio company”[57] other than for a limited period 3.   “Complementary” Activities FHCs that have applied to, and received approval from, the Board to engage in specific complementary activity. 12 U.S.C. § 1843(j), (k)(1)(B) 12 C.F.R. § 225.89 Board complementary activities orders, including Citigroup (2003), Barclays (2004), and RBS (2008)[58] FHCs are permitted to engage in, and to acquire and own shares of any company engaged in, any activity that the Board has determined by regulation or order “is complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.”[59] A FHC must request approval from the Board to engage in a complementary activity, which the Board will evaluate as to whether the benefits to the public outweigh potential adverse effects.[60] In a series of orders beginning with the Citigroup order, the Board has determined that the purchase and sale of commodities in the spot market and taking physical delivery of commodities in connection with commodity derivatives activities—including owning and disposing of nonfinancial commodities (collectively, “Physical Trading Activities”)—are complementary to the financial activity of engaging as principal in BHC-permissible (i.e., cash settled) derivatives activities based on those commodities. As conditions to approval of its proposed Physical Trading Activities, Citigroup committed: that the market value of commodities held as a result of the activities would at no time exceed 5 percent of Citigroup’s consolidated Tier 1 capital; that it would notify its supervising Reserve Bank if the market value of commodities held by Citigroup as a result of its Physical Commodities Trading activities exceeded 4 percent of its Tier 1 capital; to only make and take delivery of physical commodities for which derivatives had been approved for trading on a U.S. futures exchange by the CFTC, unless explicitly excluded or approved by the Board.[61] 4.   “Grandfathered” Activities Any company that is not a BHC or foreign bank that becomes a FHC after November 12, 1999. 12 U.S.C. § 1843(o). Any company that is not a BHC or foreign bank that becomes a FHC after November 12, 1999 “may continue to engage in, or directly or indirectly own or control shares of a company engaged in, activities related to the trading, sale, or investment in commodities and underlying physical properties that were not permissible for bank holding companies to conduct in the United States as of September 30, 1997” if certain conditions are met.[62] These conditions are: that the FHC or one of its subsidiaries was engaged in any of such activities as of September 30, 1997; that the value of the assets of the company held by the FHC that are not otherwise permissible for a FHC are equal to or less than 5% of the total consolidated assets of the FHC (except as permitted by the Board); and that the FHC does not permit the company whose shares the FHC owns pursuant to section 4(o) to offer or market any product or service of an affiliated depository institution or vice versa. The Board, while not formally interpreting the extent of section 4(o) authority, has noted that the GLBA permits “FHCs that meet the criteria in section 4(o) to engage in a potentially broader set of physical commodity activities than generally authorized for BHCs and other FHCs.”[63] 5.   Sub-5% Investments All BHCs and FHCs. 12 U.S.C. § 1843(c) (6). BHCs are permitted to own “shares of any company which do not include more than 5 per centum of the outstanding voting shares of such company.”[64] BHCs may own more than 5% of the economic interest in such a company, but the size of such additional economic ownership may depend on the facts and circumstances. Sub-5% investments must be passive and non-controlling in nature.     [1]      Notice of Proposed Rulemaking, Regulations Q and Y; Risk-Based Capital and Other Regulatory Requirements for Activities of Financial Holding Companies Related to Physical Commodities and Risk-Based Capital Requirements for Merchant Banking Investments, 81 Fed. Reg. 67220 (Sept. 30, 2016) [hereinafter the “Proposed Rule”]. [2]      Complementary Activities, Merchant Banking Activities, and Other Activities of Financial Holding Companies Related to Physical Commodities, 79 Fed. Reg. 3329 (January 21, 2014); Complementary Activities, Merchant Banking Activities, and Other Activities of Financial Holding Companies Related to Physical Commodities, 79 Fed. Reg. 12414 (March 5, 2014) (extending the comment period to April 16, 2014). [3]      In previous Client Alerts, we analyzed public comments to the ANPR and the historical justifications for bank commodity activities in light of the enhanced regulatory framework existing after the passage of the Dodd-Frank Act, available at http://www.gibsondunn.com/publications/Pages/Commodities-Activities-of-Banks–Comments-on-Federal-Reserve-Advance-Notice-of-Proposed-Rulemaking.aspx and http://www.gibsondunn.com/publications/Pages/Federal-Reserve-to-Reevaluate-Permissibility-of-Physical-Commodities-Trading-Rationale-Historically-and-Today.aspx. [4]      In total, there were 44 individual end-users and municipal end-users signatories to the 24 letters. [5]      Trade associations and end-users that signed on to this letter include Accuride Corporation, Air Products and Chemicals, Inc., the American Investment Council, Apache Corporation, Ball Corporation, The Boeing Company, BP, Cummins Inc., FMC Corporation, General Electric Company, General Motors Company, Harley-Davidson, Inc., The Hershey Company, Honeywell International, NextEra Energy Resources LLC, Northern Virginia Electric Cooperative, Orbital ATK, Inc., and Southwest Airlines Co. [6]      Pub. L. 106-102, 113 Stat. 1338 (Nov. 12, 1999). [7]      The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required that such conditions be met at the bank holding company level as well.  12 U.S.C. § 1843(l)(1)(C). [8]      12 U.S.C. § 1843(k). [9]      Id. § 1843(j)-(k). Note that, under Section 4(k) of the BHC Act, making “merchant banking” investments in non-financial companies is an activity financial in nature. [10]     Id. § 1843(o). [11]     See Citigroup Inc., 89 Fed. Res. Bull. 508 (2003) (Citigroup Order). [12]     The FHCs other than Citigroup that received approval to engage in complementary physical commodities activities included UBS AG, 90 Fed. Res. Bull. 215, 216 (2004); Barclays Bank plc, 90 Fed. Res. Bull. 511, 512 (2004) (Barclays Order); Deutsche Bank AG, 92 Fed. Res. Bull. C54, C56 (2006); Société Générale, 91 Fed. Res. Bull. C113, C115 (2006); JPMorgan Chase & Co., 92 Fed. Res. Bull. C57, C58 (2006); Fortis S.A./N.V., 94 Fed. Res. Bull. C22 (2008) (Fortis Order); and The Royal Bank of Scotland Group plc, 94 Fed. Res. Bull. C60 (2008) (RBS Order). Beginning in 2006, many determinations were made by delegated authority to the Director of the Division of Banking Supervision and Regulation. See, e.g., Wachovia Co., Letter to Elizabeth T. Davy, Esq., dated Apr. 13, 2006; Credit Suisse Group, Letter to Paul E. Glotzer, Esq., dated Mar. 27, 2007; Bank of America, Letter to Gregory A. Baer, Esq., Apr. 24, 2007; BNP Paribas, Letter to Paul E. Glotzer, Esq., dated Aug. 31, 2007; Wells Fargo, Letter to John Shrewsberry, dated Apr. 10, 2008; Bank of Nova Scotia, Letter to Andrew S. Baer, Esq., dated Feb. 17, 2011. [13]     See RBS Order (energy tolling); Fortis Order (2008) (energy management). In an energy tolling arrangement, an FHC enters into an agreement with the owner of a power plant under which the FHC pays the plant owner a periodic payment that compensates the owner for its fixed costs in exchange for the right to all or part of the plant’s power output. Energy management services include acting as a financial intermediary for a power plant owner to facilitate transactions relating to the acquisition of fuel and the sale of power and advising on risk management. [14]     12 U.S.C. § 1851(h)(4) (definition of proprietary trading includes only commodity futures and derivatives). [15]     Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, Report to the Congress and Financial Stability Oversight Council Pursuant to Section 620 of the Dodd-Frank Act (Sept. 8, 2016).  For more information, please see our Client Alert, available at http://www.gibsondunn.com/publications/Pages/US-Bank-Regulators-Section-620-Study-Federal-Reserve-De-Risks-Merchant-Banking-Commodities.aspx. [16]     Comment letters are available at:  https://www.federalreserve.gov/apps/foia/ViewAllComments.aspx?doc_id=R-1547&doc_ver=1. For purpose of counting comment letters, we have removed instances where a commenter has submitted more than one letter. [17]     See, e.g., Comments submitted by the U.S. Chamber of Commerce Center for Capital Markets Competitiveness (“[M]arket liquidity would suffer because FHC affiliates are frequently the most knowledgeable participants and the most willing to enter into customized trades, and there are few potential new market entrants who can replace them.”); Comments submitted by Novelis Inc. (“Having multiple FHCs that participate in the aluminum futures market available to us has . . . given manufacturers in the aluminum industry improved liquidity.”). [18]    See, e.g., Comments submitted on behalf of end-users and end-user trade associations by the National Association of Corporate Treasurers (“[W]e will likely find ourselves having to transact with less-resilient and less-regulated non-bank counterparties, who offer a less-sophisticated and less-customized array of products, and who are often located outside the United States.”). [19]     See, e.g., Comments submitted by end-users and municipal end-users such as Alon USA Energy, Inc., the Town of Slaughter, Louisiana, and Cogentrix Energy Power Management, LLC. [20]     See, e.g., Comments submitted by the TrailStone Group (“[O]nly FHCs can provide practical market solutions to transparency, bid/ask pricing, and the tenor in which market participants need.”); Comments submitted by Delek US Holdings Inc. (“[W]we do not believe that the remaining intermediaries that exist in or could be expected to enter the market would be able to service our physical commodity and commodity derivatives needs as well as FHCs currently do because of FHCs’ unique combination of favorable characteristics”). [21]     See, e.g., Comments submitted by the International Swaps and Derivatives Association (“[L]limitations and restrictions in the Propos[ed] [Rule] on the ability of banking organizations to engage in certain activities relating to physical commodities may have negative effects on the physical and financial commodities markets, including less liquid and efficient markets, greater volatility and higher costs for end-users and consumers.”). [22]     See, e.g., Comments submitted by U.S. Senators Sherrod Brown, Jeff Merkley, and Jack Reed. [23]     See, e.g., Comments submitted by Former Staff Director and Chief Counsel of the U.S. Senate Permanent Subcommittee on Investigations, Elise J. Bean, and Former Senior Counsel of the U.S. Senate Permanent Subcommittee on Investigations, Tyler E. Gellasch (suggesting that the definition of “covered physical commodities” be clarified by making use of a straightforward list). [24]     See, e.g., Comments submitted by Public Citizen, Inc. (“Given the critical role played by FHCs in the economy and in commodity trading markets, and considering the unique risks associated with energy infrastructure in our economy and national security, the public interest is best served by having the Board publically disclose limited aspects of FHC ownership and control over physical commodity assets such as pipelines, storage terminals and tankers.”); comments submitted by Professor Saule T. Omarova (“[T]the Board should require each FHC to provide a detailed qualitative narrative of the entire complex of its operations and assets involving, or related to, physical commodities. As part of this narrative, FHCs should be required to identify and discuss specific organizational, informational, and financial links and inter-dependencies between their specific physical commodities businesses and other business activities they conduct or seek to conduct.”). [25]     See, e.g., Comments submitted by U.S. Senators Sherrod Brown, Jeff Merkley, and Jack Reed (citing to the U.S. Senate Permanent Subcommittee on Investigations’ findings with relation to Goldman Sachs’ activities within the aluminum markets, the Senators reasoned that “because FHCs have been found to exercise a high level of control over physical commodity portfolio companies, the proposal’s strengthened restrictions are necessary and important.”). [26]     See, e.g., Comments submitted by Americans for Financial Reform, U.S. Senators Sherrod Brown, Jeff Merkley, and Jack Reed, and Professor Saule T. Omarova. [27]     See, e.g., Comments submitted by U.S. Senators Sherrod Brown, Jeff Merkley, and Jack Reed (noting that “the Director of the Board’s Bank of Supervision and Regulation Division has acknowledged that ‘there are multiple possible interpretations of section 4(o) of the BHC Act.'”). [28]     See, e.g., Comments submitted by Professor Saule T. Omarova. [29]     See, e.g., Comments submitted by the Goldman Sachs Group, Inc. (“In enacting Section 4(o) Congress explicitly acknowledged the importance of the expertise and risk management provided by FHC intermediaries in the physical commodity markets.”). [30]     See, e.g., Comments submitted by the Natural Gas Supply Association (crediting the growth in the natural gas industry in part to the “unique role in facilitating physical commodity and related financial market counterparty diversity.”). [31]     See, e.g., Comments submitted on behalf of end-users and end-user trade associations by the National Association of Corporate Treasurers (“[W]e will likely find ourselves having to transact with less-resilient and less-regulated non-bank counterparties, who offer a less-sophisticated and less-customized array of products, and who are often located outside the United States.”). [32]     Comments submitted by U.S. Representative Bradley Byrne; see also Comments submitted by the Securities Industry and Financial Markets Association and the Institute of International Bankers (“The Federal Reserve’s failure to take into account the public benefits of FHCs’ physical commodities activities that would be lost if the requirements of the Proposed Rule were to become effective fails to satisfy its obligation under the Administrative Procedures Act to engage in reasoned decision-making in its rulemaking.”). [33]     See, e.g., Comments submitted by Professors Reid B. Stevens and Jeffery Y. Zhang (presenting their study of manipulation by financial entities of regional commodity markets); Comments submitted by Better Markets (FHC physical commodity activity “invites market manipulation and excessive commodity speculation.”); Comments submitted by Americans for Financial Reform (citing to federal studies noting market manipulation in the energy, aluminum, and copper markets). [34]     See Comments submitted by Novelis, Inc. (noting that FHCs enable Novelis to (1) efficiently manage surplus inventory through short-term repo transactions and (2) lock-in favorable pricing in instances where its business demands do not correspond with current market pricing). [35]     See, e.g., Comments submitted by the Securities Industry and Financial Markets Association and the Institute of International Bankers (“Despite the fact that Congress and the Federal Reserve have allowed FHCs to engage in physical commodity activities for over 15 years, the Federal Reserve has failed to point to a single instance where an FHC incurred a significant loss arising from environmental liability related to these activities.”). [36]     Id. (“FHCs are already subject to existing capital charges for credit risk, market risk and operational risk, which are designed to address, among other risks, legal liability risk.”). [37]     Id. (noting that associations attach a Joint Memorandum of Law, prepared by four law firms, which concludes that “appropriately limited investment and trading activities relating to environmentally sensitive commodities present limited environmental liability risk” to FHCs, and “well-established doctrines of corporate separateness protect FHC groups from liability for investments in enterprises that engage in environmentally sensitive activities”). Additionally, the Board acknowledged such safeguards in the Proposed Rule, stating that these laws “generally impose liability on owners and operators of facilities and vessels for the release of physical commodities. . . [and while] a company that directly owns an oil tanker or petroleum refinery that releases crude oil in a navigable waterway” may be liable for damages that result from a spill, the owner of the commodity often times is not liable except in instances where the underlying owner engages in activities in addition to mere ownership.  81 Fed. Reg. at 67221. [38]     See, e.g., Comments submitted by Amazon Watch (“In 2013, Morgan Stanley reported trading aluminum, copper, gold, lead, palladium, platinum, silver, rhodium, zinc, coal, crude oil, heating oil, ethanol, fuel oil, gasoline, jet kerosene, naphtha, and natural gas. It also reported maintaining physical inventories in 2012 that included 1.7 million barrels of crude oil, 5.8 million barrels of heating oil, and 6.2 million barrels of gasoline.”). [39]     See, e.g., Comments submitted by Amazon Watch (“As a new study from the Center for Biological Diversity shows, existing pipelines in North Dakota have spilled crude oil and other hazardous liquids at least 85 times since 1996—an average of four a year—and released over 3 million gallons into rivers, farmland, reservoirs, and more. Those 85 spills caused more than $40 million in property damage.”). [40]     See Catherine Ngai and Olivia Oran, Barclays’ exit from energy trading stirs concerns over liquidity, Reuters, Dec. 6, 2016, available at http://www.reuters.com/article/us-usa-oil-barclays-bk-idUSKBN 13U2MW. [41]     We note also that the Proposed Rule could face an uncertain future.  Board Governor Daniel Tarullo, the de facto Governor for bank supervision and regulation, has announced his resignation, effective in less than a month.  With two Board seats currently empty, the Trump Administration will be able to add at least three Governors to the Board.  Aspects of the Proposed Rule seem in tension with several Administration priorities, including lessening regulatory burden, making clear the economic costs of agency rulemakings, and constraining administrative action to adhere more closely to the expressed will of Congress. [42]     Trade associations and end-users that signed on to this letter include Accuride Corporation, Air Products and Chemicals, Inc., the American Investment Council, Apache Corporation, Ball Corporation, The Boeing Company, BP, Cummins Inc., FMC Corporation, General Electric Company, General Motors Company, Harley-Davidson, Inc., The Hershey Company, Honeywell International, NextEra Energy Resources LLC, Northern Virginia Electric Cooperative, Orbital ATK, Inc., and Southwest Airlines Co. [43]     See Covington & Burling LLP, Davis Polk & Wardwell LLP, Sullivan & Cromwell LLP and Vinson & Elkins LLP, Joint Memorandum of Law Prepared for SIFMA In Response to the Notice of Proposed Rulemaking on Risk-Based Capital and Other Regulatory Requirements for Activities of Financial Holding Companies Related to Physical Commodities and Risk-Based Capital Requirements for Merchant Banking Investments (Docket No. R-11547; RIN 7100AE-58), available at https://www.federalreserve.gov/SECRS/2017/February/20170228/R-1547/R-1547_021717_131733_608227617620_1.pdf (Appendix A). [44]     Aidenvironment was joined by Climate Advisers, Green Century Capital Management, and Profundo. [45]     12 U.S.C. § 1843(a)(2), (c)(8). [46]     12 C.F.R. § 225.28(b)(8)(ii).  FHCs are also permitted to own commodities that state member banks are permitted to own, such as gold and silver bullion.  Id. § 225.28(b)(8)(ii)(B)(1), (b)(8)(iii). [47]     12 U.S.C. § 1843(j)(1)(A). [48]     Id. § 1843(j)(3)-(4). [49]     Id. § 1843(k)(1)(A). [50]     Id. § 1843(k)(4)(H). [51]     Id. § 1843(k)(4)(H)(ii)(II). [52]     12 C.F.R. § 225.170(f). [53]     Id. § 225.172(b). [54]     Id. § 225.171(d)(1). [55]     Id. § 225.171(d)(2). [56]     Id. § 225.171(d)(3). [57]     Id. § 225.171(a).  The rule provides examples of what constitutes “routine management or operation” of a portfolio company.  “Routine management or operation” generally includes when any FHC director, officer or employee serves as an executive officer or employee of a portfolio company or when any portfolio company officer or employee is supervised by a director, officer or employee of the FHC (other than in its role as director of the portfolio company).  See id. § 225.171(b).  See also Fed. Res. Interp. Ltr. from J. Mattingly, Esq. to P. Grauer (Credit Suisse First Boston) (Dec. 21, 2001) (available at https://www.federalreserve.gov/boarddocs/legalint/BHC_ChangeInControl/2001/20011221/) (providing a list of example covenants that would not involve an FHC routinely managing or operating a portfolio company). [58]     Citigroup Order; Barclays Order; RBS Order. [59]     12 U.S.C. § 1843(k)(1)(B). [60]     Id. § 1843(j)(1)(A), (j)(2). [61]     After the Citigroup Order, the Board permitted FHCs to make and take delivery of physical commodities for which the CFTC had not approved derivatives for trading on a U.S. futures exchange.  See RBS Order. [62]     12 U.S.C.  § 1843(o). [63]     Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation & Office of the Comptroller of the Currency, Report to Congress and the Financial Stability Oversight Council Pursuant to Section 620 of the Dodd-Frank Act (September 2016), available at https://www.fdic.gov/news/news/press/2016/pr16079a.pdf, at 16.  Former Governor Daniel K. Tarullo has also noted that “[i]n contrast to section 4(k) complementary authority, this authority is automatic–meaning no approval by or notice to the Board is required for a company to rely on this authority for its commodities activities. Also, unlike the firms conducting limited commodities activities found to be complementary to financial activities under section 4(k), the section 4(o) grandfathered firms are authorized to engage in the transportation, storage, extraction, and refining of commodities.”  Speech:  Former Governor Daniel K. Tarullo, Statement before the Permanent Subcommittee on Investigations, U.S. Senate, Washington, DC (Nov. 21, 2014), available at https://www.federalreserve.gov/newsevents/testimony/tarullo20141121a.htm. [64]     12 U.S.C. § 1843(c)(6). Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact any member of the Gibson Dunn team, the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following: Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com) Arthur S. Long – New York (+1 212-351-2426, along@gibsondunn.com) Carl E. Kennedy – New York (+1 212-351-3951, ckennedy@gibsondunn.com) Jeffrey L. Steiner – Washington, D.C. (+1 202-887-3632, jsteiner@gibsondunn.com) James O. Springer – Washington, D.C. (+1 202-887-3516, jspringer@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 16, 2017 |
Court Orders Block Implementation of New Immigration Executive Order

Gibson Dunn previously issued several client alerts regarding President Trump’s January 27, 2017 and March 6, 2017 Executive Orders restricting entry into the United States for individuals from certain nations and making other immigration-related policy changes.[1] This alert addresses the impact of two federal district court rulings temporarily blocking the federal government from implementing the Executive Order’s travel ban and changes to the refugee program, both scheduled to go into effect at 12:01 AM ET on March 16. I.          Court Orders Blocking Travel Ban and Refugee Program Changes. A.        District of Hawaii: TRO in State of Hawaii v. Trump Judge Derrick K. Watson of the District of Hawaii entered a nationwide temporary restraining order (TRO) on the evening of March 15, hours before the Executive Order was scheduled to take effect.[2]  The court concluded that both the travel ban (Section 2), and the modifications to the refugee program (Section 6) likely violated the Establishment Clause.  Accordingly it blocked the federal government from enforcing or implementing either provision.  The ruling came after a hearing earlier in the day in a case brought by the state of Hawaii and a private plaintiff. Standing for Establishment Clause Claim.  The court found that the state of Hawaii had standing stemming from the Order’s effects on the state university system and the state’s tourism economy.  First, the court that students and faculty would be deterred from studying or teaching at the state institutions, that the state will lose tuition from students no longer able to enter the country, and that the state will suffer damage to the “collaborative exchange of ideas among people of different religions and national backgrounds.”  Slip op. 17-19.  These injuries were “nearly indistinguishable” from those found sufficient by the Ninth Circuit in the States of Washington and Minnesota’s challenge to the January Order.  Slip op. 19.  Second, it found sufficient evidence that the travel ban would negatively impact tourism, the state’s “main economic driver.”  Slip op. 20.  The court also found that the individual plaintiff, an American citizen of Egyptian descent, had standing based on the likelihood that his mother-in-law would be unable to enter the country and the discriminatory impact of the travel ban.  Slip op. 23-25. Likelihood of Success on Establishment Clause Claim.  Next, the court concluded that the plaintiffs were likely to succeed on the merits of their Establishment Clause claim because the Executive Order did not have a “primary secular purpose.”  Slip op. 29.  The court rejected the federal government’s contentions that the order was not religiously motivated because it only targeted Muslims in six majority-Muslim countries, and that it could not consider material outside the four corners of the Order itself to assess motive.  Slip op. 30-32.  Focusing on a series of statements by President Trump and his advisors during the presidential campaign and since taking office, the court found a “unique record” of “significant and unrebutted evidence of a religious animus driving the promulgation” of both the January order and the new March Order.  Slip op. 33; see id. at 33-36.  The court acknowledged it was generally inappropriate to undertake what the federal government called a  “judicial psychoanalysis of a drafter’s heart of hearts,” but explained that the “remarkable facts at issue here require no such impermissible inquiry” because there was nothing “veiled” or “secret” about the statements it considered.  Slip op. 34-35.  On that basis, it enjoined both the travel ban and the refugee program provisions. Other Claims Not Reached.  The district court did not reach the plaintiffs’ arguments that the March Order also violated the Due Process Clause and the Immigration and Nationality Act’s prohibition on nationality-based discrimination. B.        District of Maryland: Preliminary Injunction in International Refugee Assistance Project v. Trump Hours after the Hawaii ruling, Judge Theodore R. Chuang of the District of Maryland issued a separate nationwide preliminary injunction in International Refugee Assistance Project v. Trump, a class action brought by several non-profit organizations on behalf of themselves and several individual plaintiffs.[3]  This order enjoined the travel ban (Section 3), but declined to enjoin the refugee provisions (Section 6), or the Order as a whole. Standing for Establishment Clause and Statutory Claims.  Like the Hawaii court, the Maryland court found the individual plaintiffs had sufficient standing to bring an Establishment Clause due to the “fear, anxiety, and insecurity” they claimed was caused by the Executive Order.  Slip op. 17.  It also found standing for the individual plaintiffs’ claim that the Order violated the Immigration and Nationality Act, relying on a series of decisions that have “reviewed the merits of cases brought by U.S. residents with a specific interest in the entry of a foreigner challenging the application of the immigration laws to that foreign individual.”  Slip op. 13.  It did not reach the question of the organizations’ standing. Likelihood of Success on Challenges to Travel Ban.  The Maryland court found the plaintiffs had a likelihood of succeeding in their claim that the Order violated the Establishment Clause and the Immigration and Nationality Act.  In an analysis similar to that of the Hawaii court, the Maryland court rejected the argument that officials’ public statements and the context of the Order should not be considered.  Slip op. 32-33.  It proceeded with an analysis of the President and other officials’ past statements, including those specifically addressing the new Executive Order, as well as the process by which both Executive Orders were promulgated.  Slip op. 26-31, 35.  The court concluded that “[i]n this highly unique case, the record provides strong indications that the national security purpose is not the primarily purpose for the travel ban.”  Slip op. 35. The court also found a likelihood of success on the statutory (INA) claim, but only as to immigrant visas.  Slip op. 24-25. Other Claims.  The district court found that the challenge to the refugee provisions was “not sufficiently develop[ed]” to justify relief, and relatedly that there was no basis for enjoining the Order in its entirety.  Slip op. 41.  Like the Hawaii court, it specifically declined to reach the argument that the Order also violated the Due Process clause.  Id. II.        Potential Further Judicial Action Immediate Appellate Review.  The federal government has said it will review of the district court orders by the relevant courts of appeal–the Fourth Circuit for the Maryland order, and the Ninth Circuit for the Hawaii order.  That was the route pursued (unsuccessfully) with the Western District of Washington TRO blocking implementation of parts of the January Executive Order.  Such requests would initially be heard by a three-judge panel, with potential further review by the en banc courts of appeals, and ultimately by the Supreme Court. Shortly after the Hawaii ruling, President Trump told attendees at a rally in Nashville, Tennessee that “[w]e’re going to fight this terrible ruling.  We’re going to take our case as far as it needs to go, including all the way up to the Supreme Court.”[4]  At the press briefing on March 16, White House Press Secretary Sean Spicer said that the federal government “intend[s] to appeal the flawed rulings,” and “expect[s] action to [be] taken soon to appeal the ruling in the Fourth Circuit and to seek clarification of the order prior to appeal in the Ninth Circuit.”[5] As a practical matter, in order for the travel ban to go into effect, the federal government would need a higher court to reverse or stay both district court orders, as they both are nationwide in scope. Further District Court Proceedings.  Absent to, or in parallel with, appellate action, both district courts will conduct further proceedings to determine whether to provide longer-term relief.  Initially, the Hawaii court can be expected to consider whether to issue a longer-term preliminary injunction to replace the TRO.  (The Maryland court’s order was itself a preliminary injunction.)  That decision would utilize similar standards as those governing the TROs, but with the benefit of more expansive briefing and argument. Ultimately, the district courts could reach a final merits decision on the case, and order (or deny) permanent injunctive relief.  However, because the travel ban is only slated to be in effect for 90 days, the courts may not reach a final determination, with the TRO and/or PI effectively being their last words on that issue.  The refugee program changes are slated to be in effect through the end of the federal fiscal year (September 30), so there is a larger chance a court would reach the merits stage on that issue. Proceedings in Other Courts.  There are also challenges to the Executive Order proceeding in other district courts around the country, which could result in orders blocking parts of the order on the same or different grounds as the Hawaii and Maryland orders.  For example, the Eastern District of Virginia will hold a hearing on Tuesday, March 21 to consider a TRO motion in Sarsour v. Trump.[6]  Additionally, the Western District of Washington is considering a TRO motion in Ali v. Trump, a class action brought by several advocacy groups pending before Judge Robart, who issued the nationwide TRO against the January Order.[7] III.       Executive Order Provisions Unaffected By the Court Orders. The only enjoined parts of the Executive Order are the travel ban (enjoined by both the Hawaii and Maryland courts), and the refugee program changes (enjoined only by the Hawaii court). Other less-publicized sections of the Executive Order remain in effect, several of which have the potential to impede business travel to the United States. The indefinite suspension of the Visa Interview Waiver Program (sec. 9) which had previously benefited regular visitors whose country of origin and visit type required a visa, by allowing them to avoid repetitive consular interviews under certain circumstances. Review of visa reciprocity programs, under which the United States offers foreign nationals visas of similar lengths and types (e.g. multi-visit vs. single-visit), and at similar fees to those offered U.S. nationals.  Sec. 10. Requirements for enhanced screening of Iraqi nationals seeking a visa or admission (Sec. 4), and for implementation of more rigorous and uniform screening and vetting standards across-the-board (Sec. 5). *       *      * Gibson Dunn will continue to monitor these rapidly developing issues closely.    [1]   See, e.g., Analysis of March 6, 2017 Executive Order on Immigration (Mar. 7, 2017), https://www.gibsondunn.com/publications/Pages/Analysis-of-March-6-2017-Executive-Order-on-Immigration.aspx;  Ninth Circuit Court of Appeals Issues Opinion Upholding Nationwide TRO of January 27 Immigration-Related Executive Order (Feb. 10, 2017), https://www.gibsondunn.com/publications/Pages/Ninth-Circuit-Issues-Opinion-Upholding-Nationwide-TRO-of-Jan27-Immigration-Executive-Order.aspx    [2]   Order, Hawai’i v. Trump, No. 1:17-cv-50 (D. Haw. Mar. 15, 2017), ECF No. 219, https://www.clearinghouse.net/chDocs/public/IM-HI-0004-0032.pdf    [3]   Opinion, Int’l Refugee Assistance Project v. Trump, No. 8:17-cv-361 (D. Md. Mar. 16, 2017), ECF No. 149, https://www.clearinghouse.net/chDocs/public/IM-MD-0004-0032.pdf    [4]   Remarks by the President at Make America Great Again Rally (Mar. 15, 2017), https://www.whitehouse.gov/the-press-office/2017/03/15/remarks-president-make-america-great-again-rally    [5]   See White House Daily Briefing at 8:00 (Mar. 16, 2017), http://cs.pn/2mUXKNh    [6]   Order, Sarsour v. Trump, No. 1:17-cv-120 (E.D. Va. Mar. 13, 2017), ECF No. 17, https://www.clearinghouse.net/chDocs/public/IM-VA-0005-0009.pdf    [7]   Emergency Motion for Temporary Restraining Order and Preliminary Injunction, Ali v. Trump, No. 2:17-cv-135 (W.D. Wash. Mar. 10, 2017), ECF No. 53, https://www.clearinghouse.net/chDocs/public/IM-WA-0028-0008.pdf Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Rachel S. Brass – San Francisco (+1 415-393-8293, rbrass@gibsondunn.com) Anne M. Champion – New York (+1 212-351-5361, achampion@gibsondunn.com) Ethan Dettmer – San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Theane Evangelis – Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kirsten Galler – Los Angeles (+1 213-229-7681, kgaller@gibsondunn.com) Ronald Kirk – Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Joshua S. Lipshutz – Washington D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Katie Marquart, Pro Bono Counsel & Director – New York (+1 212-351-5261, kmarquart@gibsondunn.com) Samuel A. Newman – Los Angeles (+1 213-229-7644, snewman@gibsondunn.com) Jason C. Schwartz – Washington D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Kahn A. Scolnick – Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 7, 2017 |
Analysis of March 6, 2017 Executive Order on Immigration

Gibson Dunn previously issued several client alerts regarding President Trump’s January 27, 2017, Executive Order restricting entry into the United States for individuals from certain nations and making other immigration-related policy changes. This client alert addresses the replacement Executive Order entitled “Protecting the Nation from Foreign Terrorist Entry into the United States,” signed on March 6, 2017.[1]  It also addresses a recent announcement suspending expedited processing of H-1B visas. I.          Overview of March 6, 2017 Replacement Executive Order The new order is in some regards narrower than the prior order, and its scope appears to be more clearly defined.  However, there is still some ambiguity as to the process for obtaining waivers, and the order continues to provide for the possible extension or expansion of the travel ban.  The order and the accompanying official statements also include considerably more material seeking to justify the provisions than contained in the prior order.[2] The Department of Homeland Security has released detailed Q&As[3] and a fact sheet regarding the new order;[4] additional guidance from the Department of State is expected.[5] Key features of the new order include: Effective Date.  The effective date of the order is deferred for 10 days; the order goes into effect at 12:01 am ET on March 16, 2017.  Sec. 14. Status of Prior Order.  The new order fully rescinds and replaces the January 27 order.  Sec. 13. Travel Ban For 6 Countries.  Like the prior order, the new order suspends for 90 days entry for nationals of a number of Muslim-majority countries: Iran, Libya, Somalia, Sudan, Syria, and Yemen.  Sec. 1(e). Exclusions and Exceptions to Travel Ban.  The travel ban and related provisions have been narrowed and clarified in various respects: Iraq.  Iraq is no longer identified among the affected countries.  The other six nations designated in the original order are still covered.  However, the order specifically calls for additional review when an Iraqi national who holds a visa applies for “admission,” meaning upon arrival to the U.S.  Secs. 1(g), 4. Lawful Permanent Residents.  Lawful permanent residents (green-card holders) are explicitly excluded from the order.  Sec. 3(b)(i). Current Visa Holders.  Existing visas are not revoked by the order, and they can be used during the 90-day period otherwise covered by the order by the visa-holders under their existing terms, regardless of whether the visa-holder has previously been to the United States or is arriving for the first time.  Those who had a visa physically marked as cancelled as result of the January order are also entitled to admission.  Secs. 3(a), 12(c)-(d); Q&As 3, 5, 7. Dual-Citizens.  Dual citizens of one of the designated nations are also explicitly excluded from the order provided that they are travelling on a passport of a country other than the six designated.  For example, a dual-citizen of Somalia and the United Kingdom would still be eligible for admission to the United States if travelling on his U.K. passport.  Sec. 3(b)(iv). Refugees, Asylees, and Convention Against Torture.  Foreign nationals who are granted asylum status prior to the March 16 effective date, refugees already admitted, and those granted withholding of removal, advance parole, or protection under the Convention Against Torture are not barred from entry into the U.S. Sec. 3(b)(vi).  Note, however, that under existing law, individuals with those statuses may need certain advance permission or authorization if they wish to leave and return to the United States without jeopardizing that status. Certain Diplomatic and Related Visas.  As in the January order, diplomatic and diplomatic-type visas, NATO visas, C-2 (United Nations) visas, and G-1 through G-4 visas are excluded from the order.  Sec. 3(b)(v) Travel Ban Waivers.  The new order provides authority to certain Department of State and Homeland Security officials to grant waivers to the travel ban’s limitations on a case-by-case basis.  The new order identifies nine scenarios in which such treatment “could be appropriate.”  These include a variety of hardship scenarios which arose under the January order, such as those needing urgent medical care or those who can document that they have “provided faithful and valuable service” to the United States government (e.g. foreign translators).  Sec. 3(c).  Importantly, these are still case-by-case waivers, not automatic exemptions.  It is also not yet clear if individuals seeking waivers will be allowed to board flights to the U.S. Suspension of Visa Interview Waiver Program.  As before, the Visa Interview Waiver program (often used by repeat business travelers from certain nations) is suspended.  Sec. 9. Suspension of Refugee Admission Program.  As in the January order, the Refugee Admission Program is suspended for 120 days, with a cap of 50,000 entrants for the current fiscal year upon resumption.  Sec. 6.  Unlike the January order, the new order does not indefinitely halt refugee admissions from Syria or prioritize religious minorities upon resumption.  The treatment of those already granted refugee status but not yet in the United States is somewhat unclear.  The DHS Q&A says such individuals “whose travel was already formally scheduled by the Department of State … are permitted to travel to the United States and seek admission,” and they are covered by the text of the carve-out in Section 3(b)(vi). See Q&A 10.  But the Q&A also says those individuals “are exempt from the Executive Order.”  Q&A 27.  Admission thus may require a case-by-case waiver. Possible Expansion and Extension.  Like the prior order, this order requires a global review to identify categories of individuals appropriate for further limitations.  Secs. 2(e)-(f).  Another provision requires re-alignment of any visa reciprocity programs, under which the United States offers visas of similar validity period and type (e.g. multiple-entry) on the basis of those offered to U.S. citizens.  Sec. 10. II.        Impact on Current Litigation There are approximately 20 active lawsuits challenging aspects of the January order.  Additional, key parts of that Order are currently subject to a preliminary injunction issued by the United States District Court for the Western District of Washington.  The Ninth Circuit declined to temporarily stay that injunction pending a fuller appeal.[6]  The Eastern District of Virginia has also issued a preliminary injunction against certain parts of the January order as it applies to Virginia residents and institutions. There are hearings and briefing deadlines scheduled in both the Washington and Ninth Circuit proceedings, as well as in many of the other cases.  Because the new order rescinds the old order, effective March 16, those challenges may become moot, and the Department of Justice has said it will be seeking dismissal.[7]  However, it is highly likely that some of the existing complaints and requests for relief will be amended to challenge the new ban.  New challenges to the newly announced Executive Order are also anticipated. It is difficult to predict how the courts will approach litigation, either substantively or procedurally.  Given that the new order does not go into effect until March 16, there will be opportunity for more substantive (although expedited) proceedings than was the case with the original order.  Gibson Dunn will continue to monitor challenges for possible impacts on the new order. III.       Issues for Companies to Consider As with the January order, there is no “one size fits all” approach for companies addressing employee and business issues related to the new Executive Order. Accordingly, companies should again evaluate whether they will need to develop strategies to deal with the impact of the replacement Executive Order, both internally and as it relates to potential shareholder and business relations. In the immediate term, companies should consider outreach to their employees, particularly those who are or may be affected by the Executive Order.  Companies should also consider whether plans or policies are needed for travel by executives, employees, or other stakeholders.  In many ways, the new order is clearer than the January order, but as we describe in more detail below it not clear how all aspects of the order will be implemented.  Accordingly, employers may want to consider the following: Outreach to employees who may be affected.  Companies should consider proactively identifying and reaching out to all employees who may be affected.  As noted above, the Executive Order, on its face, applies to both immigrants and non-immigrants from the six covered countries.  Thus, employees traveling for business or leisure may be equally affected.  Note that different employees’ immigration statuses may compel differing guidance on how to approach any issues that arise in the enforcement of the Order. Outreach to employees who may have family members affected.  It is important to remember that some of your employees, even if not directly impacted by the Executive Order, will have family and loved ones who are or may be impacted.  Companies may consider providing counseling and support for employees with these concerns. Communicating with employees.  Companies should consider identifying employees who frequently travel to and from the affected countries or who are visa holders from affected countries, to explain company plans with respect to the Executive Order.  Given issues that arose for travelers in connection with the implementation of the original Executive Order in January, employees from affected countries who are currently outside the United States, but have a legal right to enter, should be advised to stay in communication with individuals in the United States about their travel plans, in the event they have difficulty re-entering the country, and have a plan to obtain appropriate assistance in that event. Identifying a point of contact.  Consider identifying a contact point for any employee questions or concerns regarding the Executive Order.  Furthermore, ensure that this contact is prepared to field questions from affected or potentially affected employees, to discuss visa renewal or travel to and from the affected countries, and to refer employees with specific issues to the appropriate resources. Communicating with shareholders, business partners and other stakeholders.  Companies should consider whether communications with shareholders, business partners or other stakeholders regarding potential impacts on business as a result of enforcement of the Executive Order are appropriate. Modifying travel and meeting obligations.  Companies should consider modifying (or allowing for employee choice regarding) employee travel obligations, as appropriate to the company’s business needs, to avoid potential difficulties with travel to and from the United States.  Likewise, if companies have board members or executives affected by the Executive Order, or business stakeholders who will not be able to enter the United States due to the Executive Order, consider whether meetings can be conducted remotely or outside the United States.  Companies involved in pending litigation that may require employee travel to the United States should consider seeking the advice of litigation counsel to determine what, if any, notice to the relevant court or parties may be advisable at this stage. Reviewing non-discrimination policies.  Companies may wish to send reminders of applicable equal employment policies.  Many employers included such statements in communications regarding the original Order.  Companies may also wish to consider how their policies apply to employment and hiring decisions in light of travel restrictions. This list addresses just some of the issues that companies will face in light of the Executive Order.  Gibson, Dunn & Crutcher’s lawyers, including its employment, securities, administrative law, constitutional law, and sanctions teams, are available to assist clients with navigating these and other issues that arise with respect to enforcement of the March 6 Order. IV.       Suspension of Expedited Processing for H-1B Visas On March 3, U.S. Citizen and Immigration Services (USCIS) announced it will suspend “premium processing” of applications for H-1B visas.[8]  This change is effective April 3, 2017, the first date for filing FY18 applications.  The agency says that this is necessary to process back-logged petitions.  It also says that “expedited” processing is still available for applications meeting certain criteria, and subject to “the discretion of office leadership.”  Applications that remain eligible for premium processing include those involving:  Severe financial loss to company or ​person​;​ Emergency situation;​ Humanitarian reasons;​ Nonprofit organization whose request is in furtherance of the cultural and social interests of the United States​;​ Department of Defense or ​national ​interest ​​situation; USCIS error; or​ compelling interest of USCIS.​[9] *      *      * Gibson Dunn will continue to monitor these rapidly developing issues closely.    [1]   “Executive Order Protecting The Nation From Foreign Terrorist Entry Into The United States,” Mar. 6, 2017, https://www.whitehouse.gov/the-press-office/2017/03/06/executive-order-protecting-nation-foreign-terrorist-entry-united-states.    [2]   See, e.g., Letter from Attorney General and Sec’y of Homeland Security, Mar. 6, 2017, https://www.dhs.gov/sites/default/files/publications/17_0306_S1_DHS-DOJ-POTUS-letter.pdf    [3]   U.S. Dep’t of Homeland Security, “Q&A: Protecting the Nation From Foreign Terrorist Entry To The United States,” Mar. 6, 2017, https://www.dhs.gov/news/2017/03/06/qa-protecting-nation-foreign-terrorist-entry-united-states.    [4]   U.S. Dep’t of Homeland Security, “Fact Sheet: Protecting the Nation From Foreign Terrorist Entry To The United States,” Mar. 6, 2017, https://www.dhs.gov/news/2017/03/06/fact-sheet-protecting-nation-foreign-terrorist-entry-united-states.    [5]   U.S. Dep’t of State, “Executive Order on Visas,” Mar. 6, 2017, https://travel.state.gov/content/travel/en/news/important-announcement.html.    [6]   http://cdn.ca9.uscourts.gov/datastore/general/2017/02/27/17-35105%20-%20Motion%20Denied.pdf; https://cdn.ca9.uscourts.gov/datastore/opinions/2017/02/09/17-35105.pdf.    [7]   http://www.politico.com/story/2017/03/trump-releases-new-travel-ban-executive-order-235720.    [8]   U.S. Citizenship and Immigration Services, “USCIS Will Temporarily Suspend Premium Processing for All H-1B Petitions,” Mar. 3, 2017 https://www.uscis.gov/news/alerts/uscis-will-temporarily-suspend-premium-processing-all-h-1b-petitions.    [9]   U.S. Citizenship and Immigration Services, “Expedite Criteria,” https://www.uscis.gov/forms/expedite-criteria. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Rachel S. Brass – San Francisco (+1 415-393-8293, rbrass@gibsondunn.com) Anne M. Champion – New York (+1 212-351-5361, achampion@gibsondunn.com) Ethan Dettmer – San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Theane Evangelis – Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kirsten Galler – Los Angeles (+1 213-229-7681, kgaller@gibsondunn.com) Ronald Kirk – Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Joshua S. Lipshutz – Washington D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Katie Marquart, Pro Bono Counsel & Director – New York (+1 212-351-5261, kmarquart@gibsondunn.com) Samuel A. Newman – Los Angeles (+1 213-229-7644, snewman@gibsondunn.com) Jason C. Schwartz – Washington D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Kahn A. Scolnick – Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 10, 2017 |
Ninth Circuit Court of Appeals Issues Opinion Upholding Nationwide TRO of January 27 Immigration-Related Executive Order

On Monday, January 30, 2017, Gibson Dunn issued a client alert regarding President Trump’s January 27 Executive Order restricting entry into the United States for individuals from certain nations, and making other immigration-related policy changes.  On February 1, Gibson Dunn issued an updated client alert, covering subsequent developments relating to the Executive Order including: (1) coverage of dual citizens; (2) provisional revocation of certain visas; and (3) reciprocal policy changes abroad. This update describes yesterday’s Ninth Circuit decision in State of Washington v. Trump, which denied the Government’s request to stay the nationwide temporary restraining order, as well as other recent developments relating to the various legal challenges to the Executive Order.  On February 10, the Ninth Circuit issued a sua sponte request that the parties brief whether en banc review by the Ninth Circuit is appropriate.  At the same time, news reports indicate that the Trump administration may issue a revised executive order, rather than appeal the decision.[1]  This update also provides considerations for companies and others as they continue to deal with the aftereffects of the Executive Order and the various court challenges to it.  This alert is informational only, and you should, of course, seek legal advice specific to any particular situation. I.      Ninth Circuit Decision in State of Washington v. Trump, No. 2:17-cv-141 On February 3, in an action brought by the State of Washington and the State of Minnesota, the United States District Court for the Western District of Washington (Hon. James L. Robart) issued a nationwide temporary restraining order against enforcement of the Executive Order.  The next day the federal defendants filed an emergency motion for an immediate administrative stay and for a stay pending appeal.  The Ninth Circuit denied an immediate stay and held telephonic oral argument on Tuesday, February 7. On Thursday, February 9, the three-judge panel issued its unanimous opinion holding that, “the Government has not shown a likelihood of success on the merits of its appeal, nor has it shown that failure to enter a stay would cause irreparable injury, and we therefore deny its emergency motion for a stay.”  Opinion at 3.[2]             A.      Jurisdiction and Standing  The Court determined it had appellate jurisdiction due to the extraordinary circumstances of the case, even though it generally does not review temporary restraining orders.  The Court rejected the Government’s argument that the plaintiff States lack Article III standing, finding that, for purposes of this stage of the proceedings, the States adequately alleged that the Executive Order caused concrete harm to their state universities, faculty and students.  Opinion at 12.             B.      Reviewability of the Executive Order While recognizing the deference owed to the executive branch on matters of immigration and national security, the Court rejected the Government’s argument that the Executive Order was not subject to judicial review, stating that such a claim “runs contrary to the fundamental structure of our constitutional democracy.”  Opinion at 14.  The Court went on to cite a number of instances in which federal courts have reviewed and, in some instances invalidated, executive actions taken in the name of national security.  Opinion at 14-18.             C.      Legal Reasoning and Opinion In deciding whether to stay the temporary restraining order, the Court examined four factors:  (1) whether the federal government was likely to succeed on the merits; (2) whether the federal government would be irreparably harmed absent a stay; (3) whether the stay would irreparably injure the plaintiff States; and (4) what is in the public interest. As to success on the merits, the Court concluded that the federal government had not demonstrated that it was likely to succeed on the merits, at least with respect to the States’ due process claims.  With respect to the due process claims, the federal government failed to show that the Executive Order provided notice and a hearing prior to restricting an individual’s ability to travel.  The Court rejected the federal government’s assertion that the Executive Order no longer applies to lawful permanent residents, as that clarification came from the White House counsel, who is “not known to be in the chain of command for any of the Executive Departments.”  Opinion at 22.  With respect to those without legal status, the court found potential claims of due process violations existed as well.  The Court also noted that the States’ religious discrimination claims raised “serious allegations and present significant constitutional questions,” but reserved consideration of those claims until the merits are fully briefed.  Opinion at 26. With respect to the likelihood of irreparable harm, the Court found that the federal government failed to show that a stay was necessary to avoid unnecessary injury stating, “the Government submitted no evidence to rebut the States’ argument that the district court’s order merely returned the nation temporarily to the position it has occupied for many previous years.”  Opinion at 26.  The Court found that the States had offered ample evidence of irreparable harm, including separating families and stranding individuals traveling abroad.  Opinion at 28.  Finally, the court found that there were competing public interests at play here such that irreparable harm alone could not justify a stay.  Opinion at 28-29. The Court also declined the federal government’s proposed alternative relief, including modification or narrowing of the existing temporary restraining order either in geographic scope or as to what categories of covered individuals.  Opinion at 23-24. On the day after the Ninth Circuit issued its ruling, it issued an order that the parties submit simultaneous briefs setting forth their positions on whether en banc review by an 11-judge panel of the Ninth Circuit is appropriate.  At the same time, as stated above, recent news reports indicate that the White House may not seek to appeal the decision and will instead draft and issue a revised executive order.[3] II.      Status of Other Legal Challenges Since the January 27 Executive Order was issued, dozens of legal challenges have been brought in an effort to stay or invalidate the Executive Order.  Many of these suits have resulted in orders staying or limiting the Executive Order itself, including by judges in Massachusetts, Brooklyn, and Virginia.  See, e.g., Louhghalam v. Trump, No. 1:17-cv-10154-NMG (D. Mass. Feb 3, 2017); Darweesh v. Trump, 17 Civ. 480 (AMD) (E.D.N.Y. Jan. 28, 2017); Aziz v. Trump, No. 1:17-cv-116 (E.D.Va. Jan. 28, 2017).   One decision refused to offer temporary injunctive relief against the effectiveness of the Executive Order.  Louhghalam, 2017 WL 479779 (D. Mass. Feb. 3, 2017).  At least one case seeking to enjoin enforcement of the Executive Order has been stayed pending today’s decision by the Ninth Circuit.  State of Hawaii v. Donald J. Trump et al., No. 1:17-cv-50 (D. Haw. February 3, 2017). Other lawsuits filed over the course of the last week have sought to challenge the Executive Order as whole, as well as its impact on specific populations.  See, e.g., Pars Equality Ctr. v. Trump, No. 1:17-cv-255 (D.D.C. Feb. 9, 2017) (suit by several Iranian-American groups seeking a broad permanent injunction and alleging that the Executive Order reflects “invidious discrimination”); Int’l Refugee Assistance Project v. Trump, No. 8:17-cv-00361 (D. Md. Feb. 7, 2017) (seeking declaration that “the entire Executive Order is unlawful and invalid”). III.      Issues for Consideration Despite the temporary clarity provided by the Ninth Circuit’s ruling, there are, as described above, multiple legal challenges still outstanding and the likelihood of further appeals of the Ninth Circuit decision issued on Thursday, February 9.  As such, companies and others should still consider the guidance provided in our earlier client alerts on this topic, until the courts or the administration provide more certainty on this issue.  For example, companies should still consider modifying (or allowing for employee choice regarding) employee travel obligations, as appropriate to the company’s business needs, to avoid potential difficulties with travel to and from the United States.  Likewise, if companies have officers, employees, contractors, or others affected by the Executive Order, or business stakeholders who will not be able to enter the United States due to the Executive Order, consider whether meetings can be conducted remotely or outside the United States.    [1]   http://www.cnn.com/2017/02/10/politics/immigration-executive-order-white-house/index.html    [2]   In addition to the filings by the parties, 20 amicus briefs were filed by a variety of entities and individuals.  Sixteen of the briefs supported the States, and were submitted by various nonprofit organizations, several other states, labor organizations, a group of law professors, and a group of over 120 technology companies.  Three briefs filed by a variety of nonprofit organizations support the government.  These briefs are available on the Ninth Circuit’s website, at https://www.ca9.uscourts.gov/content/view.php?pk_id=0000000860.    [3]   http://www.cnn.com/2017/02/10/politics/immigration-executive-order-white-house/index.html Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Rachel S. Brass – San Francisco (+1 415-393-8293, rbrass@gibsondunn.com) Anne M. Champion – New York (+1 212-351-5361, achampion@gibsondunn.com) Ethan Dettmer – San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Theane Evangelis – Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kirsten Galler – Los Angeles (+1 213-229-7681, kgaller@gibsondunn.com) Ronald Kirk – Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Joshua S. Lipshutz – Washington D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Katie Marquart, Pro Bono Counsel & Director – New York (+1 212-351-5261, kmarquart@gibsondunn.com) Samuel A. Newman – Los Angeles (+1 213-229-7644, snewman@gibsondunn.com) Jason C. Schwartz – Washington D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Kahn A. Scolnick – Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 6, 2017 |
President Trump Issues Executive Order on Financial Regulation, and Memorandum on Department of Labor Fiduciary Rule

Last Friday, February 3, 2017, President Trump took two executive actions relating to U.S. financial markets and institutions.  First, the President issued an executive order titled “Core Principles for Regulating the United States Financial System.”[1]  The Executive Order articulates “core principles” with respect to financial regulation and directs the Secretary of the Treasury to advise the President within 120 days of actions being taken to promote those principles and to identify legal requirements that are inconsistent with the principles.  Second, the President issued a memorandum directing the Department of Labor to review its controversial “Fiduciary Rule” and to consider whether to revise or rescind it.[2] Together, these executive actions indicate that the new Administration is prepared to undertake a vigorous re-appraisal of a number of the restrictions imposed on financial institutions during the Obama Administration. Executive Order The Executive Order announces seven “core principles” to guide the regulation of the American financial system: “empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth”; “prevent taxpayer-funded bailouts”; “foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry”; “enable American companies to be competitive with foreign firms in domestic and foreign markets”; “advance American interests in international financial regulatory negotiations and meetings”; “make regulation efficient, effective, and appropriately tailored”; and “restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.”[3] The Executive Order directs the Secretary of the Treasury to “consult with the heads of the member agencies of the Financial Stability Oversight Council”[4] and to report to the President within 120 days regarding the laws, treaties, regulations, other administrative requirements and guidance, and “other government policies” that “promote” or “inhibit” these core principles, and the steps being taken to “promote and support” the principles.[5] The Executive Order builds upon the prior order titled “Reducing Regulation and Controlling Regulatory Costs” that the President signed earlier last week.  As explained in our analysis of that order, the requirement that agencies offset the costs of any new regulations with reductions in existing regulatory burdens–and that two rules be repealed for every new rule adopted–“will provide a significant incentive for agencies to examine current regulations to identify those that may be rescinded or modified to reduce regulatory burdens.”[6]  The most recent Executive Order indicates that financial regulation will be an area of special focus as the Administration undertakes its general efforts to reduce federal regulation. Presidential Memorandum The Presidential Memorandum addresses a package of rules adopted by the Department of Labor in April 2016.  These rules vastly expanded the definition of who is a fiduciary for purposes of ERISA and tax-favored investment accounts such as IRAs, and placed a range of new requirements, restrictions, and liabilities on advisers, broker-dealers, insurance agents, and others who offer financial services and products to retirement savers.  Several lawsuits have been filed challenging this “Fiduciary Rule”–including one in which Gibson Dunn represents the challengers–and the Rule has been criticized by legislators, industry participants, and some experts as burdensome, costly, and harmful to retirement savers, whose investment options they contend would be limited by the Rule. The Presidential Memorandum takes heed of these criticisms and states that the Fiduciary Rule “may significantly alter the manner in which Americans can receive financial advice and may not be consistent with the policies of my Administration.”[7]  Accordingly, the Presidential Memorandum instructs the Department to review the Rule and “prepare an updated economic and legal analysis concerning the likely impact of” the Rule.[8]  The Department is to consider whether the Rule “has harmed or is likely to harm investors,” “has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees,” and “is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.”[9]  If the Department makes an “affirmative determination” as to any of those considerations or finds that the Rule “is inconsistent with the priority identified” in the memorandum, the Department is directed to “publish for notice and comment a proposed rule rescinding or revising the Rule.”[10] Shortly after issuance of the President’s memorandum, the Acting Secretary of Labor released a statement that “[t]he Department of Labor will now consider its legal options to delay the applicability date as we comply with the President’s memorandum.”[11] *   *   * Reaction to the two actions on Capitol Hill has been mixed.  Rep. Jeb Hensarling (R – Tex.), Chairman of the House Financial Services Committee said that he was “very pleased” and that the President’s action “closely mirrors provisions” of his proposed Financial CHOICE Act, which is meant to “end and replace the Dodd-Frank mistake with legislation that holds Wall Street and Washington accountable.”[12]  Sen. Elizabeth Warren (D-Mass.) predicted that the President’s actions will result in “gutting the rules that protect [the public] from financial fraud and another economic meltdown.”[13] Both the Executive Order and the Presidential Memorandum portend significant changes to the executive branch’s approach to regulation of the financial services industry.  By directing the Department of Labor to re-evaluate its legal and economic justifications for the Fiduciary Rule, the Presidential Memorandum takes the first concrete steps toward a repeal of the Rule or a substantial reduction in its scope.  And the Acting Labor Secretary’s press statement indicates that the Department may take action soon to delay the current April 10 deadline for some of the Rule’s principal requirements to come into effect. Meanwhile, the Judge presiding over three of the pending lawsuits challenging the Rule issued an order on Thursday of last week indicating that she would issue her decision in the case by February 10, 2017.[14] Similarly, the Executive Order gives clear shape and impetus to the Trump Administration’s unfolding reconsideration of the Obama Administration’s implementation of the Dodd-Frank Act.  Aspects of Dodd-Frank that have been the subject of criticism since the bill’s passage now have the potential to be deemed by the Treasury Secretary as inconsistent with the Executive Order’s “core principles,”[15] including: the authority of the Financial Stability Oversight Council to designate particular companies as posing systemic risk; the Orderly Liquidation Authority contained in Title II of Dodd-Frank; U.S. implementation of Basel III capital requirements, particularly with respect to small institutions; the extent to which U.S. regulators’ participation in international forums like the Basel Committee affects rulemakings; banking agency enforcement of the Volcker Rule; the extent of regulatory transparency in the Dodd-Frank stress testing and CCAR processes; the regulations and enforcement approach of the Consumer Financial Protection Bureau; the extent to which regulations place direct and indirect burdens on commercial end-users’ ability to manage risks; the regulations and enforcement by U.S. banking agencies, the Commodity Futures Trading Commission, and the Securities and Exchange Commission of capital and margin rules related to derivatives; and the Commodity Futures Trading Commission’s rules and interpretive guidance related to cross-border regulation of derivatives transactions. Although the Executive Order does not itself pare back any regulations, it is another early signal of the Trump Administration’s intent to reduce the regulatory burdens on American businesses in general and the financial services industry in particular. Gibson Dunn will continue to monitor these developments and the effect they may have on our clients.     [1]  See Presidential Executive Order on Core Principles for Regulating the United States Financial System, WhiteHouse.gov, https://www.whitehouse.gov/the-press-office/2017/02/03/presidential-executive-order-core-principles-regulating-united-states (Feb. 3, 2017).     [2]  See Presidential Memorandum on Fiduciary Duty Rule, WhiteHouse.gov, https://www.WhiteHouse.gov/the-press-office/2017/02/03/presidential-memorandum-fiduciary-duty-rule (Feb. 3, 2017); Fiduciary Rule, 81 Fed. Reg. 20946 (Apr. 8, 2016).     [3]  Order § 1.     [4]  The FSOC member agencies are:  the Board of Governors of the Federal Reserve System; the Commodity Futures Trading Commission; the Federal Deposit Insurance Corporation; the Federal Housing Finance Agency; the National Credit Union Administration; the Office of the Comptroller of the Currency; the Securities and Exchange Commission; the Treasury Department; and the Consumer Financial Protection Bureau.     [5]  Order § 2.     [6]  Client Alert: President Trump Issues Executive Order on Reducing Regulation and Controlling Regulatory Costs, GibsonDunn.com, http://www.gibsondunn.com/publications/Pages/President-Trump-Issues-Executive-Order-on-Reducing-Regulation–Controlling-Regulatory-Costs.aspx (Feb. 3, 2017).     [7]  Memorandum.     [8]  Id. § 1(a).     [9]  Id.     [10] Id. § 1(b).     [11] Press Release, U.S. Department of Labor, US Department of Labor to Evaluate Fiduciary Rule (Feb. 3, 2017), available at https://www.dol.gov/newsroom/releases/opa/opa20170203.     [12] Press Release, Chairman Jeb Hensarling, House Financial Services Committee, President’s Executive Action Mirrors Financial CHOICE Act (Feb. 3, 2017), available at http://financialservices.house.gov/news/documentsingle.aspx?DocumentID=401457; see Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).     [13] Press Release, Senator Elizabeth Warren, Statement on President Trump’s Executive Orders to Roll Back Dodd-Frank, DOL Conflict-of-Interest Rule (Feb. 3, 2017), available at https://www.warren.senate.gov/?p=press_release&id=1431.     [14] Chamber of Commerce of the U.S. v. Hugler, 16-1476, dkt. 134 (N.D. Tex. Feb. 2, 2017).     [15] Order § 2.     The following Gibson Dunn lawyers assisted in the preparation of this client alert:   Eugene Scalia, Helgi Walker, Michael Bopp, Arthur Long, Jeffrey Steiner, Carl Kennedy, Catherine Conway, Jason Schwartz, Jason Mendro, James Springer and Russell Falconer. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Administrative Law and Regulatory, Financial Institutions, Labor and Employment, or Public Policy practice groups, or the following practice group leaders: Administrative Law and Regulatory Group: Eugene Scalia – Washington, D.C. (+1 202-955-8206, escalia@gibsondunn.com) Helgi C. Walker – Washington, D.C. (+1 202-887-3599, hwalker@gibsondunn.com) Financial Institutions Group: Arthur S. Long – New York (+1 212-351-2426, along@gibsondunn.com) Stephanie L. Brooker – Washington, D.C. (+1 202-887-3502, sbrooker@gibsondunn.com) Labor and Employment Group: Catherine A. Conway – Los Angeles (+1 213-229-7822, cconway@gibsondunn.com) Jason C. Schwartz – Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Public Policy Group: Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com)   © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 1, 2017 |
Recent Developments Regarding Executive Order on Immigration

On Monday, January 30, 2017, Gibson Dunn issued a client alert regarding President Trump’s January 27 Executive Order restricting entry into the United States for individuals from certain nations and making other immigration-related policy changes. This update describes further developments relating to the Executive Order involving (1) coverage of dual citizens; (2) provisional revocation of certain visas; and (3) reciprocal policy changes abroad.  It also provides updates on the status of various legal challenges to the Executive Order.[1]  In particular, it describes a decision from earlier today that broadly prohibits enforcement of the Executive Order, on an interim basis. I.     Coverage of Dual Citizens, Certain Special Immigrants Clarified The Department of Homeland Security (“DHS”) announced that dual citizens are not affected by the ban on entry of individuals from the seven countries covered by the Executive Order.  According to new guidance, “travelers are being treated according to the travel document they present,” and will be admitted if they “apply for entry based on their citizenship from one of the countries NOT on the list” and are otherwise eligible.[2]  The Acting Commissioner of Customs & Border Protection stated that “[t]ravelers will be assessed … based on the passport they present, not any dual-national status.  So if you’re a citizen of the United Kingdom, you present your United Kingdom passport and the executive order does not apply to you upon arrival.”[3] However, as a practical matter, travelers who are also nationals of one of the seven covered countries may be subject to additional screening both when applying for a visa (if applicable) under their non-affected passport, or upon arrival in the United States. Relatedly, DHS announced that holders of “special immigrant visas” (which could include translators for the U.S. armed forces in Iraq), will be treated similarly to lawful permanent residents from the covered countries.  Although covered by the ban, they will generally be allowed entry under the “case-by-case” waiver provision.[4] II.     Revocation of Existing Visas On Tuesday, January 31, in one of the cases challenging the Executive Order, the government publicly filed a January 27 Department of State order that “provisionally revoke[d] all valid nonimmigrant and immigrant visas of nationals of Iraq, Iran, Libya, Somalia, Sudan, Syria, and Yemen.”[5]  It is not currently clear to what extent this order is being enforced. Like the Executive Order, this State Department order recognizes the possibility of exceptions made on a “case-by-case” basis, but does not provide information on the process for obtaining such an exception. While application of this order remains unclear, revocation of a visa has potentially significant implications.  For example, once a nonimmigrant visa is revoked, the visa holder becomes deportable.[6]  The rule regarding immigrant visas is less clear, although there is some risk that an immigrant whose visa has been revoked could be subject to deportation.[7]  If the government seeks to deport an individual on the basis of a visa revocation, that individual has the right to judicial review prior to removal.[8] While no guidance has been issued, the order may mean that individuals who entered on a valid multi-entry visa prior to the Executive Order will not be able to enter again under the same visa, even after the 90-day ban expires.  Instead, individuals in this category will likely need to obtain a new visa, or a waiver from the revocation.  In addition, individuals in the United States under a previously issued visa may be deported. III.     Reciprocal Action in Other Nations At least two of the seven nations covered by the Executive Order are implementing or moving toward reciprocal bans on travel from the United States, although details of the scope of these bans, and possible exceptions, are unclear at this time.  Iran has announced a ban.[9]  Iraq’s parliament has passed a non-binding recommendation to take similar action if the U.S. ban remains in effect, in line with criticism of the Executive Order from the foreign ministry there.[10] IV.     Status of Legal Challenges              A.        Badr Dhaifallah Ahmed Mohammed et al v. United States of America et al, 2:17-cv-00786 (C.D. Cal. January 31, 2017) On January 31, the United States District Court for the Central District of California (Hon. André Birotte Jr.) entered an Order enjoining the President, DHS, CBP, and other defendants from enforcing the Executive Order “by removing, detaining, or blocking the entry of Plaintiffs, or any other person from” the seven countries named in the Executive Order “with a valid immigrant visa.” The court further: (i) enjoined the defendants from cancelling the plaintiffs’ validly obtained and issued visas; (ii) ordered the defendants, and the State Department in particular, to return “to Plaintiffs their passports containing validly issued immigrant visas so that Plaintiffs may travel to the United States on said visas,”; and (iii) ordered defendants to immediately “inform all relevant airport, airline, and other authorities at Los Angeles International Airport and International Airport in Djibouti that Plaintiffs are permitted to travel to the United States on their valid immigrant visas.” Although the court’s order prohibits the “blocking of entry” of anyone from the seven countries who possesses “a valid immigrant visa,” regardless of whether the individual is a plaintiff in the case, it is unclear what impact this will have beyond the named plaintiffs in light of the Department of State’s order provisionally revoking all such visas as discussed above.              B.        State Government Actions Four state governments have also sued to enjoin the Executive Order or moved to intervene in cases challenging the Order, one new class action was filed challenging the Executive Order, and two potentially significant hearings are scheduled for this Friday. Several States have gone to court to challenge the ban.  The State of Washington filed a challenge in the Western District of Washington.[11]  Similarly, Massachusetts,[12] Virginia,[13] and New York,[14] moved to join existing lawsuits pending in federal court in their states. The Northwest Immigrant Rights Project filed a class action in the Western District of Washington seeking invalidation of the Executive Order.  Abdiaziz v. Trump, No. 2:17-cv-135. Finally, two hearings are set for this Friday, February 3.  The District of Massachusetts hearing in Tootkaboni v. Trump, No. 17-cv-10154, will further consider the temporary restraining order that court entered last weekend.  The Western District of Washington will consider the state government’s request for a temporary restraining order in its recently filed case, State of Washington v. Trump, No. 2:14-cv-141. *      *      * Gibson Dunn will continue to closely monitor these rapidly developing issues.                 [1]     On January 30, shortly after the release of our earlier client alert, the Acting Attorney General announced guidance that the Justice Department would not defend the Executive Order, explaining that she is not “convinced that the Executive Order is lawful.”  (http://documents.latimes.com/message-acting-attorney-general).  The White House relieved the Acting Attorney General of her duties, stating that the Acting Attorney General had “betrayed the Department of Justice by refusing to enforce a legal order designed to protect the citizens of the United States.”  See White House, Statement on the Appointment of Dana Boente as Acting Attorney General, Jan. 30, 2017 (https://www.whitehouse.gov/the-press-office/2017/01/30/statement-appointment-dana-boente-acting-attorney-general).  The new Acting Attorney General promptly announced that he was rescinding his predecessor’s guidance regarding the Executive Order.  See U.S. Dept. of Justice, “Acting Attorney General Boente Issues Guidance to Department on Executive Order,” Jan. 30, 2017 (https://www.justice.gov/opa/pr/acting-attorney-general-boente-issues-guidance-department-executive-order).                 [2]     U.S. Customs & Border Protection, “Protecting the Nation from Foreign Terrorist Entry into the United States,” Jan. 31, 2017 (https://www.cbp.gov/border-security/protecting-nation-foreign-terrorist-entry-united-states).                 [3]     U.S. Dept. of Homeland Security, “Transcript of Media Availability on Executive Order with Secretary Kelly & DHS Leadership,” Jan. 31, 2017 (https://www.dhs.gov/news/2017/01/31/transcript-media-availability-executive-order-secretry-kelly-and-dhs-leadership).                 [4]     U.S. Dept. of Homeland Security, “Transcript of Media Availability on Executive Order with Secretary Kelly & DHS Leadership,” Jan. 31, 2017 (https://www.dhs.gov/news/2017/01/31/transcript-media-availability-executive-order-secretry-kelly-and-dhs-leadership).                 [5]     U.S. Dept. of State, Order, Jan. 27, 2017.  This document is not currently available on a government website, but can be found at http://www.politico.com/f/?id=00000159-f6bd-d173-a959-ffff671a0001 .                 [6]     See 8 U.S.C. § 1227(a)(1)(B) (“Any alien who is present in the United States in violation of this chapter or any other law of the United States, or whose nonimmigrant visa (or other documentation authorizing admission into the United States as a nonimmigrant) has been revoked under section 1201(i) of this title, is deportable.”).                 [7]     See 8 U.S.C.  § 1201(i); 22 C.F.R. § 42.82(b); see also 8 U.S.C. § 1227(4)(c)(i) (“An alien whose presence or activities in the United States the Secretary of State has reasonable ground to believe would have potentially serious adverse foreign policy consequences for the United States is deportable.”).                 [8]     8 U.S.C. § 1201(i) (“There shall be no means of judicial review … of a revocation … except in the context of a removal proceeding if such revocation provides the sole ground for removal…”).                 [9]     Asas Fitch, et al., “Iran Halts Visas to Americans As Iraq Keeps Doors Open,” Wall Street J., Jan. 31, 2017 (https://www.wsj.com/articles/iran-stops-issuing-visas-to-americans-1485870515).                 [10]     Qassim Abdul-Zahra, “Iraqi Lawmakers Urge Ban On Americans After Trump Order,” Associated Press, Jan. 30, 2017 (https://www.apnews.com/53228591339c42daa0b27c152c95b630).                 [11]     Washington State Office of the Attorney General, “AG Ferguson Seeks Halt to Trump’s Immigration Executive Order,” Jan. 30, 2017 (http://www.atg.wa.gov/news/news-releases/ag-ferguson-seeks-halt-trump-s-immigration-executive-order).                 [12]     Attorney General of Massachusetts, “AG Healey Announces Lawsuit Against President Trump’s Executive Order on Immigration,” Jan. 31, 2017 (http://www.mass.gov/ago/news-and-updates/press-releases/2017/2017-01-31-ag-lawsuit-president-eo.html).                 [13]     Attorney General of Virginia, “Virginia Brings Action Against President Trump for Unlawful and Unconstitutional Executive Order on Immigration,” Jan. 31, 2017 (http://www.oag.state.va.us/media-center/news-releases/879-january-31-2017-virginia-brings-action-against-president-trump-for-unlawful-and-unconstitutional-executive-order-on-immigration).                 [14]     Attorney General of New York State, “A.G. Schneiderman Joins Lawsuit Against President Trump’s Immigration Executive Order, Jan. 31, 2017 (https://ag.ny.gov/press-release/ag-schneiderman-joins-lawsuit-against-president-trumps-immigration-executive-order). Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Rachel S. Brass – San Francisco (+1 415-393-8293, rbrass@gibsondunn.com) Anne M. Champion – New York (+1 212-351-5361, achampion@gibsondunn.com) Ethan Dettmer – San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Theane Evangelis – Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kirsten Galler – Los Angeles (+1 213-229-7681, kgaller@gibsondunn.com) Ronald Kirk – Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Joshua S. Lipshutz – Washington D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Katie Marquart, Pro Bono Counsel & Director – New York (+1 212-351-5261,kmarquart@gibsondunn.com) Samuel A. Newman – Los Angeles (+1 213-229-7644, snewman@gibsondunn.com) Jason C. Schwartz – Washington D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Kahn A. Scolnick – Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 31, 2017 |
President Trump Issues Executive Order on Reducing Regulation and Controlling Regulatory Costs

On January 30, 2017, President Trump signed an executive order entitled “Reducing Regulation and Controlling Regulatory Costs.”[1] As the title suggests, the order is intended to reduce the burden imposed by federal regulations and establish a cap on the costs that such regulations impose on the United States economy. It could prove to be one of the most significant developments for agency rulemaking in decades. The order imposes two important new requirements on rulemakings at Executive Branch agencies. First, the order requires agencies that propose new regulations to identify “at least two existing regulations to be repealed.” Order § 2. “[A]ny new incremental costs associated with” a new regulation must “be offset by the elimination of existing costs associated with” the two regulations identified as candidates for repeal. Id. § 2(c). In other words, agencies must attempt to offset the cost of new regulations by eliminating old ones. The order provides that the Director of the Office of Management and Budget (“OMB”) will provide guidance to help agencies comply with this requirement, and to identify “emergencies and other circumstances that might justify individual waivers of” the requirement that the costs of new regulations be offset by the repeal of existing regulations. Id. § 2(d). Second, the order establishes an annual budgeting process that seeks to control the cumulative costs imposed by each agency’s regulations. For fiscal year 2017, which is underway, the order requires the total incremental cost of new regulations to be zero—i.e., in 2017 agencies may not increase the burden currently imposed by their regulations unless an exception applies. Order § 2(b). Beginning in fiscal year 2018, OMB will “identify to agencies the total amount of incremental costs that will be allowed for each agency in issuing new regulations and repealing regulations for the next fiscal year.” Id. § 3. The total amount identified by OMB “may allow an increase or require a reduction in total regulatory cost.” Id. § 3(d). In other words, each agency will have a regulatory “budget” determined by the Director of OMB, and that budget may require agencies to reduce the costs imposed by their regulations. As with the requirement that agencies offset the cost of new regulations by identifying existing regulations for repeal, the order provides that the Director of OMB will provide further guidance on how agencies should implement this requirement. Id. § 3(e). According to multiple press reports, shortly after releasing the order the White House stated that it does not apply to independent agencies, such as the Securities and Exchange Commission, that are not subject to the OMB regulatory review process. (Any agencies not covered by the order would have the option of voluntarily adhering to its “cost neutral” regulatory approach.) The order categorically exempts “regulations issued with respect to a military, national security, or foreign affairs function of the United States”; “regulations related to agency organization, management, or personnel”; and “any other category of regulations exempted by the Director” of OMB. Order § 4. The order also provides that it “shall be implemented consistent with applicable law,” id. § 5(a)(i), and indicates that it is not intended to create any enforceable private rights of action, id. § 5(c). *       *       * The new executive order represents a substantial change in rulemaking at executive departments and agencies. Unlike previous executive orders that require agencies simply to consider the costs and benefits of proposed regulations, the order seeks to impose a hard cap on the cumulative regulatory burden imposed by each agency. In doing so, it will provide a significant incentive for agencies to examine current regulations to identify those that may be rescinded or modified to reduce regulatory burdens. Regulated entities and other interested parties who favor the adoption of new rules in certain areas will likewise be motivated to simultaneously identify old regulations that may be repealed, in order to make room for the new regulatory requirements that they propose. Going forward, OMB’s implementation of the order will be an important issue to monitor, given the details that remain to be fleshed out and the substantial discretion afforded the Director to carry out the order. [1]  See Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs (“Order”), WhiteHouse.gov, https://www.whitehouse.gov/the-press-office/2017/01/30/presidential-executive-order-reducing-regulation-and-controlling (Jan. 30, 2017).   Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’sAdministrative Law and Regulatory practice group, or the authors: Eugene Scalia – Co-Chair, Washington, D.C. (+1 202-955-8206, escalia@gibsondunn.com) Helgi C. Walker – Co-Chair, Washington, D.C.  (+1 202-887-3599, hwalker@gibsondunn.com) Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com) Thomas  H. Dupree, Jr. – Washington, D.C. (+1 202-955-8547, tdupree@gibsondunn.com)   © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 30, 2017 |
President Trump Issues Executive Order on Immigration

Click for PDF On Friday January 27, 2017, President Trump issued an Executive Order entitled “Protecting the Nation from Foreign Terrorist Entry into the United States Executive Order.”  (Available here.) The Executive Order imposes, among other things, a 90-day ban on entry into the United States for any purpose by non-U.S. citizens from Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen.  The State Department has advised individuals from the affected countries seeking visas to enter the United States not to schedule or attend interviews, or pay fees for such visas, until further notice.[i]  Over the weekend, three federal courts blocked implementation of various parts of the Executive Order.  Additionally, the Administration has announced that implementation of the Executive Order will be somewhat relaxed for U.S. lawful permanent residents.  However, confusion persists at airports both here and abroad.  For example, it has been reported that some individuals have not been permitted to board U.S.-bound flights, and that upon arrival in the United States, other individuals have been subjected to inconsistent treatment, including detention by Customs and Border Protection (“CBP”) officers or often lengthy screenings.  Additionally, in some cases, individuals are reportedly unable to communicate with their family members or legal counsel. Although the legal landscape is continuing to evolve, as we describe below, this Client Alert provides an overview of the Executive Order, the district court decisions enjoining portions of the Executive Order, and guidance that may assist companies and others impacted by the Executive Order.  As we understand that responding to inquiries involving the Order may be our clients’ most pressing concern, we start with a brief background of the Executive Order and provide guidance companies may want to consider.  We then provide an overview of the legal landscape that exists as of Monday, January 30, 2017.  This alert is informational only, and you should, of course, seek legal advice specific to any particular situation.  Please note that we have published a supplement to this Client Alert regarding later relevant events, which is available here. I.     Overview of the Executive Order The Executive Order has the stated purpose of “protect[ing] the American people from terrorist attacks by foreign nationals admitted to the United States.”  Among its provisions are the restriction of “immigrant and nonimmigrant” entry of non-citizens from seven countries for 90 days, suspension of all refugee admission for 120 days, and indefinite prohibition of refugees from Syria.      A.     Individuals Covered and Not Covered by the 90-day Ban Section 3(c) of the Executive Order “suspend[s] entry into the United States, as immigrants and nonimmigrants” for 90 days of “aliens” from Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen.  Subject to certain exceptions, this suspension applies regardless of travel origin, type of visa, or U.S. immigration status. The Executive Order provides that the “the Secretaries of State and Homeland Security may, on a case-by-case basis, and when in the national interest, issue visas or other immigration benefits to nationals of countries for which visas and benefits are otherwise blocked.”  Sec. 3(g).  The Executive Order also explicitly exempts only certain categories of visas for diplomats, NATO business, United Nations business (C-2), and international organization staff (G-1, G-2, G-3, G-4)).  Sec. 3(c). The Executive Order is drafted broadly enough to cover lawful permanent residents (i.e., green-card holders), and there are reports that in the first 36 hours of implementation, the CBP officers denied re-entry to such individuals.  However, on Sunday, January 29, the Department of Homeland Security (“DHS”) announced that “absent significant derogatory information indicating a serious threat to public safety and welfare, lawful permanent resident status will be a dispositive factor in our case-by-case determinations” under Section 3(g) of the Order.[ii]  Since that announcement, reports from across the country suggest that such individuals are now being admitted under this discretionary authority, after extended screening upon arrival. The Executive Order also implicates dual citizens who are not U.S. citizens.  However, exactly how such individuals will be addressed by CBP is uncertain.  There are some indications that such individuals will be treated similarly to green-card holders–subject to increased scrutiny, but generally admitted.  However, admission appears to be discretionary, and, as of now, there is no clearly announced policy.  The United Kingdom Foreign Office announced on Sunday, January 29 that the United States is not applying the ban to individuals who are dual citizens of the United Kingdom and one of the banned countries, if such individuals are travelling from the United Kingdom.[iii]  On Monday, January 30, the U.S. Embassy & Consulates in the United Kingdom made a similar announcement, confirming that “[d]ual nationals of the United Kingdom and one of [the seven covered] countries are exempt from the Executive Order when travelling on a valid United Kingdom passport and U.S. visa.”[iv]  In addition, various news outlets have reported–quoting Canadian government officials–that the United States is not applying the ban to individuals who are dual citizens of Canada and one of the banned countries.[v]  U.S. officials, however, have yet to make a similar announcement. U.S. citizens are not covered by the language of the Executive Order.  As described below, however, non-U.S. citizens from countries other than the seven covered countries may still be affected by the Executive Order’s suspension of the Visa Interview Waiver Program.  Suspension of this program is likely to increase the time necessary for issuance of U.S. visas.      B.     Other Provisions A few other provisions of the Executive Order should also be noted, as they may hinder travel to the United States by those not directly affected by the country-specific ban. The Executive Order suspends the Visa Interview Waiver Program, which allows those renewing certain types of visas to skip a consular interview under certain circumstances.  See Sec. 8(a).  This program is commonly used by low-risk travelers, including many employment-based visa applicants, in order to expedite the time in which visas are obtained for travel to the United States.  Suspension of this program is likely to slow, perhaps significantly, the process of renewing a visa, as it appears to impose a requirement that all visa applicants be interviewed in person. The Executive Order requires the Secretary of State to review “all non-immigrant visa reciprocity agreements.”  Sec. 9.  This raises the prospect that certain visas will be scaled back in the future, such as by reducing the number of allowed visits in a period or the length of an allowed stay under a visa. The Executive Order suspends the U.S. Refugee Admissions Program for 120 days (Sec. 5), and indicates certain priority for religious minorities upon its limited resumption.  This is generally understood to apply to Christian refugees from Muslim-majority nations. Finally, it is possible that the list of affected countries will expand after the 90-day ban period.  The Executive Order directs the DHS to submit for inclusion a list of any other countries that “do not provide adequate information” regarding admission of their citizens.  Sec. 3(b).  At the end of the 90-day period, DHS or the State Department may also “submit to the President the names of any additional countries recommended for similar treatment.”  Sec. 3(f). II.     Issues for Companies to Consider There is no “one size fits all” approach for companies addressing employee and business issues related to the Executive Order.  In the immediate term, companies should consider preparing a uniform communications plan for their employees, particularly those who are or may be affected by the Executive Order.  Companies should also consider whether plans or policies are needed for travel by executives, employees, or other stakeholders.  Although this situation is fluid and continues to develop, as further described below, we believe companies should also be mindful of whether they will need to develop strategies to deal with the impact of the Executive Order, both internally and as it relates to potential shareholder and business relations. Specific questions that companies may want to consider with respect to the Executive Order include: Outreach to employees who may be affected.  Although the administrative and judicial interpretation of the Executive Order continues to evolve, meaning that the full scope of individuals who may be affected is in flux, companies should consider proactively identifying and reaching out to all employees who may be affected.  As noted above, the Executive Order, on its face, applies to both immigrants and non-immigrants from the seven covered countries.  Thus, employees traveling for business or leisure may be equally affected.  In addition, as discussed above, there have been indications that lawful permanent residents may be subject to additional questioning when entering the United States from one of the seven covered countries, even if those individuals are not subject to detention.  Note that different employees’ immigration statuses may compel differing guidance on how to approach any issues that arise in the enforcement of the Order. Outreach to employees who may have family members affected.  It is important to remember that for some of your employees, even if they are not directly impacted by the Executive Order, they will have family and loved ones who are directly impacted.  We have received reports of many family members detained and separated from other family members upon arrival at an airport.  We have heard reports about family members traveling abroad who are now fearful of not being able to return home to reunite with a family member.  Companies may consider providing counseling and support for your employees who are facing these concerns. Communicating with employees.  Companies should consider identifying employees who frequently travel to and from the affected countries or who are visa holders from affected countries, to explain company plans with respect to the Executive Order.  In particular, employees from affected countries who are currently outside the United States, but have a legal right to re-enter, should be advised to stay in communication with individuals in the United States about their travel plans, in the event they have difficulty re-entering the country, and have a plan to obtain appropriate assistance in that event.  For employees currently in the United States but who are from the affected countries or frequently travel to the affected countries, consider whether travel abroad is necessary before the full scope of enforcement of the Executive Order is known and understood. Identifying a point of contact.  Consider identifying a contact point for any employee questions or concerns regarding the Executive Order.  Furthermore, ensure that this contact is prepared to field questions from affected or potentially affected employees, to discuss visa renewal or travel to and from the affected countries, and to refer employees with specific issues to the appropriate resources. Communicating with shareholders, business partners and other stakeholders.  Companies should consider whether communications with shareholders, business partners or other stakeholders regarding potential impacts on business as a result of enforcement of the Executive Order are appropriate. Modifying travel and meeting obligations.  Companies should consider modifying (or allowing for employee choice regarding) employee travel obligations, as appropriate to the company’s business needs, to avoid potential difficulties with travel to and from the United States.  Likewise, if companies have board members or executives affected by the Executive Order, or business stakeholders who will not be able to enter the United States due to the Executive Order, consider whether meetings can be conducted remotely or outside the United States.  Companies involved in pending litigations that may require employee travel to the United States, should consider seeking the advice of litigation counsel to determine what, if any, notice to the relevant court or parties may be advisable at this stage. Reviewing non-discrimination policies.  Companies may wish to send reminders of applicable equal employment policies.  Many employers have included such statements in communications regarding the Order.  Companies may also wish to consider how their policies apply to employment and hiring decisions in light of travel restrictions. This list addresses just some of the issues that companies will face in light of the Executive Order.  Gibson, Dunn & Crutcher’s lawyers, including its employment, securities, administrative law, constitutional law, and sanctions teams, are available to assist clients with navigating these and other issues that arise with respect to enforcement of the Order. III.     District Court Orders Blocking Implementation of the Executive Order As of the morning of January 30, three district courts–in New York, Massachusetts, and Virginia–have issued orders of varying general applicability temporarily (a) halting deportations resulting from the Executive Order and (b) providing certain other relief.  Other federal courts, including those in the Central District of California and the Western District of Washington have issued relief specific to individual applicants.      A.     Nationwide Stay of Removal–Darweesh v. Trump, No. 17 Civ. 480 (AMD) (E.D.N.Y. Jan. 28, 2017). On Saturday, January 28, two visa holders of Iraqi origin detained at JFK Airport in New York filed suit relief on behalf of themselves and others similarly situated, along with a petition for writ of habeas corpus.  They also asked the court for an emergency stay of removal of similarly situated people nationwide. Judge Ann Donnelly of the Eastern District of New York granted relief that evening, enjoining the President, DHS, CBP, and other respondents from removing (i) refugees, (ii) visa-holders, and (iii) individuals from the nations affected by the Executive Order. The court found that the petitioners–two individuals who were detained at JFK, along with all others similarly situated–“have a strong likelihood of success” with respect to their Due Process and Equal Protection challenges to the Executive Order.  The court also found that, absent the stay, there was an “imminent danger that . . . there will be substantial and irreparable injury” to those subject to the Executive Order. On Sunday, January 29, petitioners filed a motion for clarification and enforcement of the order.  The motion cited reports that similarly situated people “have been placed on planes, possibly deported, and subject to intimidation to sign removal orders after the issuance of the Court’s Order.”  Among other things, petitioners seek confirmation that the court’s order applies to all similarly situated people nationwide. On Monday, January 30, the case was assigned to Judge Carol Bagley Amon.      B.     Nationwide Stay of Removal and Detention —Tootkaboni v. Trump, No. 17-cv-10154 (D. Mass. Jan. 29, 2017).  On Saturday, January 28, two lawful permanent residents of Iranian origin who were detained at Logan Airport in Boston filed a similar action for relief, and also applied for an emergency stay on a nationwide basis. Early Sunday, Judge Allison D. Burroughs and Magistrate Judge Judith Dein of the District of Massachusetts issued a temporary restraining order (“TRO”) prohibiting removal and detention of those subject to the Executive Order (i.e., refugees, visa-holders, and individuals from the affected nations).  The court made the same findings as the Darweesh Court, described above.  The TRO is in effect for seven days, with the court to set a further hearing date prior to its expiration. The court also directed respondents to limit secondary screening–an airport security measure that some critics have associated with profiling–to comply with the regulations and statutes in effect prior to the Executive Order, including 8 U.S.C. § 1101(a)(13)(C), the statute providing the standards by which a lawful permanent resident may be regarded as “seeking admission” into the United States.  The court also issued instructions to CBP, apparently intended to address the issue of airlines turning away passengers on international flights destined for Logan Airport, stating that CBP “shall notify airlines that have flights arriving at Logan Airport of this Order and the fact that individuals on these flights will not be detained or returned based solely on the basis of the Executive Order.”      C.     Stay of Removal of Lawful Permanent Residents at Dulles–Mohammed Aziz v. Trump, No. 1:17-cv-116 (E.D. Va. Jan. 28, 2017) On Saturday, January 28, two brothers of Yemeni origin detained at Dulles International Airport filed an emergency application seeking a stay of removal on behalf of themselves as lawful permanent residents and others similarly situated at that same airport, as well as seeking access to counsel. Judge Leonie M. Brinkema of the Eastern District of Virginia issued a TRO forbidding removal of any lawful permanent residents from Dulles for seven days.  The court also directed that respondents “shall permit lawyers access to all legal permanent residents being detained at Dulles International Airport.” On January 30, petitioners filed a First Amended Complaint, adding new allegations that they were coerced into surrendering their green cards and then flown to Addis Ababa airport in Ethiopia.[vi]      D.     Other Court Actions and Orders Individuals seeking relief on an individual basis only, and not on behalf of others similarly situated, have sought habeas corpus and/or other relief in a number of other district courts with jurisdiction over relevant international airports. For instance, on Saturday, January 28, a visa holder of Iranian origin detained at LAX in Los Angeles filed suit in the Central District of California, seeking habeas corpus, declaratory, and injunctive relief.  See Vayeghan v. Kelly, No. CV 17-0702 (C.D. Cal. Jan. 28, 2016).  Before the court could consider the emergency application for a TRO, however, “he was placed on a flight to Dubai to be removed to Iran.”  But Judge Dolly M. Gee issued a TRO on January 29, directing respondents to “transport Petitioner back to the United States and admit him under the terms of his previously approved visa.”  The court found, among other things, “a strong likelihood of success” on the petitioner’s claims under the Equal Protection Clause, Establishment Clause, and Immigration and Nationality Act, and also pointed to “the public interest in upholding constitutional rights.”  The court set a hearing to show cause regarding preliminary injunctive relief for Friday, February 10. On Saturday, January 28, Judge Thomas S. Zilly of the Western District of Washington granted an emergency stay of removal with respect to two petitioners being detained at Seattle-Tacoma International Airport.  A full hearing on the stay is set for Friday, February 3.  The matter is Doe v. Trump, No. C17-126 (W.D. Wash. Jan. 28, 2017). In addition, there are at least two broad-based suits being filed today.  First the Council on American-Islamic Relations (“CAIR”) has filed suit in the Eastern District of Virginia, focusing on the Executive Order’s “apparent purpose and underlying motive . . . to ban people of the Islamic faith from Muslim-majority countries from entering the United States.”[vii]  The case  raises challenges under the Establishment, Free Exercise, and Due Process Clauses, and seeks broad injunctive relief against most aspects of the Executive Order restricting travel to the United States.  See Sarsour v. Trump, No. 1:17-cv-00120 (E.D. Va. Jan. 30, 2017).  Second, the attorney general of Washington State has announced he will file a suit in the Western District of Washington, also seeking to have key provisions declared unconstitutional and requesting injunctive relief.[viii] Finally, we are aware of other actions being filed in the Northern District of Illinois (Chicago O’Hare International Airport); the Northern District of California (San Francisco International Airport); the Central District of California (LAX); and the Northern District of Texas (Dallas-Fort Worth International Airport).  Additionally, there are at least fifteen actions pending in the Eastern District of New York, including the Darweesh matter discussed above. IV.     On-the-Ground Observations at Airports Nationwide Although deportations appear to have stopped and DHS has indicated it will comply with the court orders described above, reports from airport observers indicate that confusion continues regarding the implementation of the Executive Order and compliance with these court orders.  The Administration, however, has contradicted these reports, but has acknowledged that some individuals were affected and slowed down in their travel.[ix] Attorneys at various airports around the country have reported denial of access to detainees.  Despite court orders mandating attorney access to potential clients, CBP has reportedly refused to allow some detainees to speak in person with counsel.[x]  Other lawyers have reported that CBP has been averse to inquiries for information.  In Los Angeles, for example, CBP closed its airport office, making it difficult to determine the number, identity, and legal status of potential detainees. Detainees have reported extensive examinations and confiscations of luggage and personal belongings.[xi]  Multiple reports circulated detailing investigations into detainees’ social media accounts and corresponding questioning regarding personal religious beliefs and political views, particularly related to President Trump and his administration.  Some detainees stated that individuals wearing headscarves were targeted for additional vetting.  Wait times varied widely, from half a day or longer to an hour or less.  There have also been reports that some detainees have been pressured into renouncing their lawful status under threat of being banned from re-entry for up to five years.[xii] Finally, many individuals have reported undergoing more rigorous screening at the point of embarkment.  As part of that process, individuals may be denied permission to board if there is an expectation they will not be admitted to the United States upon arrival.[xiii] *          *          * The issues described in this Client Alert are rapidly changing.  Gibson Dunn is dedicated to staying at the forefront of these issues for the benefit of our friends and clients, and will update you with significant developments. [i] U.S. State Dept., “Urgent Notice: Executive Order on Protecting the Nation from Terrorist Attacks by Foreign Nationals,” Jan. 27, 2017 (https://uy.usembassy.gov/urgent-notice-executive-order-protecting-nation-terrorist-attacks-foreign-nationals/). [ii] U.S. Dept. of Homeland Security, “DHS Statement On Compliance With Court Orders And The President’s Executive Order,” Jan. 29, 2017 (https://www.dhs.gov/news/2017/01/29/dhs-statement-compliance-court-orders-and-president%E2%80%99s-executive-orders). [iii] U.K. Foreign & Commonwealth Office, “Press Release, Presidential Executive Order on Inbound Migration to United States,” Jan. 29, 2017 (https://www.gov.uk/government/news/presidential-executive-order-on-inbound-migration-to-us). [iv] U.S. Embassy in Norway, “Updated Guidance on Executive Order on Protecting the Nation from Terrorist Attacks by Foreign Nationals,” Jan. 30, 2017 (https://no.usembassy.gov/updated-guidance-executive-order-protecting-nation-terrorist-attacks-foreign-nationals/). [v] See, e.g., Daniel Dale & Emily Mathieu, “Canadian dual citizens exempted from Trump’s travel ban,” Toronto Star, Jan. 28, 2017 (https://www.thestar.com/news/world/2017/01/28/passport-holders-of-7-muslim-majority-countries-cant-board-air-canada-flights-to-us.html). [vi] As of Sunday night, it is unclear how the matters in Massachusetts and Virginia, brought by lawful permanent residents, are affected by DHS’s statement on January 29 that “the entry of lawful permanent residents is in the national interest.” [vii] Council on American-Islamic Relations, “CAIR to Announce Constitutional Challenge to Trump’s ‘Muslim Ban’ Executive Order,” Jan. 27, 2017 (https://www.cair.com/cair_to_announce_constitutional_challenge_to_trump_s_muslim_ban_executive_order). [viii] KOMO Staff, “State attorney general to file lawsuit against Trump immigration order,” KOMO News, Jan. 30, 2017 (http://komonews.com/news/local/state-attorney-general-plans-major-announcement-on-trump-immigration-plan). [ix] E.g., Berkeley Lovelace Jr, “White House spokesman Sean Spicer says immigration ban ‘small price to pay’ for safety,” CNBC, Jan. 30, 2017 (http://www.cnbc.com/2017/01/30/white-house-spokesman-sean-spicer-immigration-ban.html). [x] See, e.g., Edward Helmore, et al., “Border agents defy courts on Trump travel ban, congressmen and lawyers say,” Guardian, Jan. 29, 2017 (https://www.theguardian.com/us-news/2017/jan/29/customs-border-protection-agents-trump-muslim-country-travel-ban). [xi] See, e.g., Nadel Issa, et al., “As hundreds protest, attorneys seek info on how many are detained,” Chicago Sun-Times, Jan. 29, 2017 (https://chicago.suntimes.com/2017/1/30/18478614/as-hundreds-protest-attorneys-seek-info-on-how-many-are-detained). [xii] See, e.g., Joseph Goldstein, et al., “Lives Rewritten With the Stroke of a Pen,” New York Times, Jan. 29, 2017 (https://www.nytimes.com/interactive/2017/01/29/nyregion/detainees-trump-travel-ban.html?_r=0). [xiii] See, e.g., Evan Perez, et al., “Inside the confusion of the Trump executive order and travel ban,” CNN, Jan. 30, 2017 (http://www.cnn.com/2017/01/28/politics/donald-trump-travel-ban/). Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Rachel S. Brass – San Francisco (+1 415-393-8293, rbrass@gibsondunn.com) Anne M. Champion – New York (+1 212-351-5361, achampion@gibsondunn.com) Ethan Dettmer – San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Theane Evangelis – Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kirsten Galler – Los Angeles (+1 213-229-7681, kgaller@gibsondunn.com) Ronald Kirk – Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Joshua S. Lipshutz – Washington D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Katie Marquart, Pro Bono Counsel & Director – New York (+1 212-351-5261,kmarquart@gibsondunn.com) Samuel A. Newman – Los Angeles (+1 213-229-7644, snewman@gibsondunn.com) Jason C. Schwartz – Washington D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Kahn A. Scolnick – Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

November 30, 2016 |
Tools of Transition: Procedural Devices That Could Help the President-Elect Implement His Agenda

President-elect Donald J. Trump ran on a predominantly deregulatory, limited-government platform that included, among other things, repeal and replacement of Obamacare, repeal of the Dodd-Frank Act and related regulations, repeal of environmental regulations related to climate change, and tax reform.  When he takes office on January 20, 2017, he will have several tools available to him and the Republican-controlled Congress to halt or otherwise claw back federal regulations promulgated during the Obama administration, enact legislative priorities, and staff the Executive and Judicial Branches (as well as independent agencies) with his nominees.  This alert discusses several of these tools, as well as their likely efficacy and their limits in facilitating the implementation of President-elect Trump’s deregulatory and other campaign positions.  These executive and congressional tools include: (1) a memorandum like the Andrew Card and Rahm Emmanuel memoranda that directs federal agencies to freeze the finalization of federal rules, (2) repeal of recently promulgated rules under the Congressional Review Act, (3) the budget reconciliation process, and (4) the so-called “nuclear option.”  Each of these tools is discussed below. I.    Regulatory Moratorium and Postponement:  The “Priebus Memorandum” and “McCarthy Letter” Like Presidents George W. Bush and Barack Obama, President-elect Trump likely will attempt to freeze pending rulemakings at the start of his administration by imposing a moratorium on the finalization of federal rules by executive departments and recommending that independent regulatory agencies do the same.  He likely will also request that departments and agencies withdraw proposed rules that have been sent to the Office of the Federal Register (“OFR”) but have not yet been published, and postpone the effective dates of rules that have been published but have not yet taken effect. Both Presidents Bush and Obama used a similar strategy at the start of their administrations.  In January 2001, Assistant to the President and Chief of Staff Andrew H. Card, Jr. sent a memorandum (the “Card memorandum”) to the heads and acting heads of all executive departments and agencies asking them to take the following steps “to ensure that the President’s appointees ha[d] the opportunity to review any new or pending regulations”: Refrain from sending any proposed or final regulations to the OFR until after review and approval by a department or agency head appointed by President Bush; Withdraw from the OFR any regulations that had been sent to the OFR but not yet published in the Federal Register for review and approval; and Postpone for 60 days the effective date of regulations that had been published in the Federal Register but had not yet taken effect.[1] The Card memorandum permitted exceptions for “emergency . . . situations related to health and safety” and “regulations promulgated pursuant to statutory or judicial deadlines.”[2]  It did not purport to bind independent agencies, but it “encouraged [them] to participate voluntarily in this review,” “in the interest of sound regulatory practice and the avoidance of costly, burdensome, or unnecessary regulation.”[3] At the start of the Obama administration in 2009, Assistant to the President and Chief of Staff Rahm Emanuel issued a similar memorandum (the “Emanuel memorandum”) to the heads of executive departments and agencies, with a few modifications.[4]  First, the Emanuel memorandum allowed exceptions for “emergency situations” not only relating to health and safety, but also relating to “environmental, financial, or national security matters.”[5]  Second, it showed greater deference to agencies, asking them only to “consider” extending the effective dates of rules that had not taken effect, rather than directing them to do so.[6]  Third, it stated that when the effective dates of rules are extended, the agencies should allow interested parties to comment for 30 days “about issues of law and policy raised by those rules.”[7]  Finally, it did not address independent agencies.[8] Generally, once final rules have been published in the Federal Register, the only way for a new administration to eliminate or change them is through the notice-and-comment rulemaking process delineated in the Administrative Procedure Act (“APA”).[9]  The APA specifies only very narrow exceptions to notice-and-comment for federal rules on the theory that regulated parties are entitled to notice of the regulations with which they must comply and an opportunity to comment on the government’s proposal and explain what compliance will entail.[10]  These limited exceptions include when the agency is issuing a “rul[e] of agency organization, procedure, or practice,” or when the agency determines “for good cause” that notice-and-comment procedures are “impracticable, unnecessary, or contrary to the public interest.”[11]  Agencies have typically relied on one or more of these exceptions when they have postponed the effective dates of published rules at the direction of a new administration without following the notice-and-comment process.[12]  In some instances, courts have invalidated these changes as requiring notice-and-comment rulemaking, but many of these postponements go unchallenged.[13] Although it is difficult to evaluate the effect of these memoranda on federal agencies, it appears that agencies generally comply with their instructions.  For example, in February 2002, the Government Accountability Office determined that “federal agencies delayed the effective dates for 90 of the 371 final rules that were subject to the Card memorandum” (i.e., had been published in the Federal Register but had not yet taken effect when President Bush took office), and that a majority of the rules that were not delayed were non-controversial rules that the White House had previously agreed should be issued as scheduled.[14]  Independent regulatory agencies in some cases also abide by the regulatory moratoria, although they have not delayed the effective dates of previously published rules.[15]  An agency is an “independent regulatory agency” if it is “run by principal officers appointed by the President, whom the President may not remove at will but only for cause.”[16]  In contrast to non-independent agencies (sometimes referred to as executive agencies), the President’s control over independent agencies is limited by his inability to fire the commissioners, board members, and directors that make these agencies’ final decisions, unless he has “cause” to remove them from office.  For-cause removal protections are typically understood to preclude the President from removing an agency official simply because the President disagrees with the official’s policy decisions.[17]  At the SEC, for example, five Commissioners decide whether to propose and adopt new regulations, and the President presumably lacks the ability to prevent them from doing so if he disagrees.  Likewise, if the President orders the Commissioners to repeal regulations adopted during the Obama Administration, nothing clearly requires them to obey that order.  In contrast, if the Administrator of the Environmental Protection Agency refuses to repeal a regulation that the President wants to eliminate, then the President undoubtedly has the ability to replace him or her with a new Administrator. It is likely that President-elect Trump will direct his Chief of Staff, Reince Priebus, to issue a memorandum similar to the Card and Emanuel memoranda directing executive departments and encouraging independent regulatory agencies to refrain from promulgating any new rules, and to postpone the effective dates of rules that have been published but have not yet taken effect. In fact, Congressional leaders are pushing for that regulatory moratorium to begin immediately.  On November 15, 2016, House Majority Leader Kevin McCarthy and 20 other House Republican leaders sent a letter to federal agencies “requesting a moratorium on passage of any pending regulations until President-elect Donald Trump’s inauguration.”[18]  The letter states that “[s]uch forbearance is necessary to afford the recently elected administration and Congress the opportunity to review and give direction concerning pending rulemakings,” and warns “[s]hould you ignore this counsel, please be aware that we will work with our colleagues to ensure that [C]ongress scrutinizes your actions—and, if appropriate, overturns them—pursuant to the Congressional Review Act.”[19] It appears that at least one independent agency is complying with the McCarthy Letter.  On November 16, 2016, Federal Communications Commission Chairman Tom Wheeler agreed to stop all action on complex or controversial issues during the transition, announcing that the agency would suspend consideration of new rate regulations in the business data services market that were scheduled to be issued the next day.[20]  It is unclear whether other independent agencies will follow suit. II.    The Congressional Review Act The Congressional Review Act (“CRA” or “Act”) enables Congress to enact joint resolutions invalidating new rules adopted by federal agencies.[21]  Among other things, the Act provides for expedited procedures that enable Congress to repeal a new regulation relatively quickly.[22]  Most notably, the Senate’s ordinary procedural rules do not apply to a disapproval resolution under the CRA.[23]  Once a disapproval resolution is reported by a committee or supported in writing by 30 members, any member may move to consider the resolution, debate is limited to a maximum of ten hours, and at the end of the debate the resolution may be passed with a simple majority vote (i.e., a 60-vote supermajority to overcome a filibuster is not required).[24]  If either House adopts a disapproval resolution, then the other House votes on that version, precluding the possibility of a conference committee.[25]  If Congress passes a disapproval resolution and the President does not veto it, then the rule is void and the agency is prohibited from readopting a “substantially similar” rule absent an express authorization from Congress.[26] A.    Background and Process  Generally speaking, the CRA is not an effective tool for invalidating new regulations, because the President is likely to veto any resolution invalidating a rule adopted by an agency during his administration.[27]  President Obama, for example, vetoed five disapproval resolutions during the 104th Congress.[28]  In theory, a President might be more amenable to repealing a regulation adopted by an independent agency like the Securities and Exchange Commission, Federal Communications Commission, or Consumer Financial Protection Bureau because they are not subject to the President’s direction and supervision.  However, the CRA has never been used in this manner.  In fact, although the CRA was adopted in 1996, it has been used successfully only once—in 2001, when Congress passed and President George W. Bush signed a resolution invalidating an Occupational Safety and Health Administration ergonomics rule adopted during the final months of the Clinton Administration.[29] Thus, as the invalidation of the ergonomics rule demonstrates, the CRA is most effective at the start of a new administration in which the same political party controls both houses of Congress and did not control the White House during the prior administration—i.e., in circumstances like those in which President-elect Trump and the Republican Congress will find themselves in January 2017.  It is also helpful in enabling Congress to repeal so-called “midnight regulations” adopted during the prior administration’s final months.  As discussed in further detail below, however, the Act’s timing provisions render its expedited-repeal provisions inapplicable to the vast majority of regulations adopted during the Obama Administration. Indeed, the Act includes a series of complicated deadlines that govern when new rules take effect, when Congress may propose and adopt joint resolutions invalidating them, and when Congress may take advantage of the Act’s expedited procedures.  “Major rules”—including rules that have an annual economic effect of more than $100 million, result in “a major increase in costs or prices,” or have “significant adverse effects on” competition or employment—generally may not take effect until 60 days after an agency submits the rule to Congress or publishes the rule in the Federal Register, whichever is later.[30]  If during that period Congress enacts a joint resolution disapproving a rule, then the rule does not take effect and the agency may not adopt a “substantially similar” rule in the future unless Congress specifically authorizes it to do so.[31] Usually, a disapproval resolution must be introduced in either the House or the Senate within 60 days after an agency submits a rule to Congress, “excluding days either House of Congress is adjourned for more than 3 days during a session of Congress.”[32]  The resolution may be adopted at any time after that, but the expedited procedures in the Senate—which preclude a filibuster, limit the length of debate on the resolution, and require a “vote on final passage” at the conclusion of the debate—become unavailable after 60 “session days beginning with” the submission of the rule to Congress or its publication.[33]  The 60-day time limit has already expired for most of the major regulations adopted during the Obama Administration. The Act includes carryover provisions that extend the deadline for repealing rules adopted near the end of a congressional session, including the deadline for using expedited procedures in the Senate.[34]  For purposes of the Act’s disapproval provisions, after the new Congress convenes, the clock starts ticking on the “15th session day” in the Senate or the “15th legislative day” in the House.[35]  Thus, a new Congress gets a brand new 60-day period to invalidate rules subject to the carryover provision.  As a practical matter, this means that a new Congress and a new Administration have 60 days in which they may use the Act to repeal regulations adopted during the final months of the previous Administration.  The carryover provisions do not delay the effective dates of new rules, however, which means that some new rules will go into effect before a new Congress and Administration can repeal them.  If Congress repeals a rule that has already taken effect, then the rule “shall be treated as though [it] had never taken effect.”[36] The carryover provision applies to rules that agencies submitted to Congress during the period beginning “in the case of the Senate, 60 session days,” or “in the case of the House of Representatives, 60 legislative days” before Congress adjourned its previous session.  The precise dates covered by that period depend on Congress’s schedule in a particular year. Recently, Republicans in Congress have introduced legislation intended to strengthen the CRA.  The Midnight Rule Relief Act of 2016, which passed the House on a party-line vote on November 17, 2016, would enable Congress to repeal multiple rules in a single disapproval resolution, unlike the current version of the CRA, which requires Congress to pass a separate resolution for each rule.[37]  And the REINS Act, which passed the House in December 2015, would amend the CRA to prevent major rules from taking effect until Congress passes a joint resolution of approval.[38] B.    Application to Obama-Era Regulations  The Congressional Research Service has estimated that the CRA’s carryover provision—and hence the 60-day period for repealing regulations—will apply to all federal rules adopted after May 30, 2016.[39]  And Congress’s recent decision to pass a continuing resolution instead of an omnibus appropriations bill in the lame-duck session could lead it to adjourn earlier than expected, which would bring even more rules within the carryover period.[40] According to one analysis, the next Congress could use the CRA to repeal more than 150 significant new rules.[41]  Those rules include, among others, new regulations on arbitration agreements between nursing homes and residents[42]; payment disclosures by resource-extraction companies[43]; and wastewater created by fracking.[44]  If Congress adjourns early enough in December, it may also use the Act to repeal the Department of Labor’s May 23 final rule expanding the group of employees entitled to overtime pay.[45] As it currently stands, the CRA will enable the next Congress to use expedited procedures—including a simple majority vote in the Senate—to repeal a large number of regulations adopted during the final months of the Obama Administration.  And repeal under the Act would have the added effect of preventing agencies from readopting substantially similar rules in the future.  The Act will not, however, enable Congress to repeal regulations adopted before May 2016. III.    Reconciliation Budget reconciliation is a fast-track procedure by which Congress can pass legislation that affects U.S. spending.  Part of the Congressional Budget Act of 1974, reconciliation permits Congress to pass legislation without facing a filibuster in the Senate, but applies only to certain types of legislation.[46] A.    Background and Process  Each year, Congress prepares a budget for the federal government by adopting a budget resolution—that is, a bill adopted by both houses of Congress that sets forth the levels of spending, revenue, and debt.[47]  Because the bill is not submitted to the President for signature, the budget resolution itself lacks the force of law. A budget resolution may include “reconciliation instructions” designed to reconcile existing law with the dictates of the budget resolution.  These instructions direct particular congressional committees to propose legislation that will help achieve the resolution’s goals, without specifying the changes that should be made.[48]  For example, the 2016 budget resolution directed five committees in the House and Senate to eliminate $1 billion in the deficit.[49] When multiple committees are subject to reconciliation instructions, each committee submits its proposed amendments to the budget committee, which packages together and reports the amendments without substantive changes in a single, consolidated “reconciliation bill.”[50]  There are no immediate penalties if the reconciliation bill fails to satisfy the reconciliation instructions, but the committees generally satisfy them.  (If they do not, the reconciliation bill can be amended on the floor.)  Notably, the targets set by the reconciliation instructions apply only to the initial proposals from the committees, not to the final bill that results from the reconciliation process. The procedural rules that govern consideration of reconciliation bills make a profound difference in the Senate, which – unlike the House – does not use bill-specific rules to limit debate time or structure amendments.  Most significantly, the rules restrict debate on reconciliation bills to 20 hours[51] and prohibit a filibuster, thus eliminating the need for a 60-vote supermajority to invoke cloture and proceed to a vote on final passage of the bill.  The practical effect of this provision is that reconciliation bills can pass the Senate by a simple majority. The “Byrd rule” limits the permissible scope of a reconciliation bill in the Senate.[52]  Named for the late West Virginia Senator Robert Byrd, the rule generally provides that provisions “extraneous to the instructions to a committee” may be stricken from the reconciliation bill and may not be offered as an amendment.[53]  The Byrd rule defines “extraneous” material to include six types of provisions:  (1) provisions that do not affect the budget (unless this is due to offsetting changes to revenues and outlays); (2) provisions that increase the budget deficit, if the committee does not satisfy the reconciliation instructions; (3) provisions that are outside the jurisdiction of the relevant committee; (4) provisions that produce budgetary changes that are merely incidental to the provisions’ non-budgetary components; (5) provisions that increase the budget deficit for a year not within the scope of the budget resolution or the reconciliation bill; and (6) provisions that would make changes to Social Security programs.[54]  When an objection under the Byrd rule is raised, the Senate Parliamentarian decides the question, unless the Senate—using ordinary rules—votes to waive the objection.[55] Once the House and Senate have agreed on their respective reconciliation bills, they work out the differences between them to develop a final bill that will be voted on by both chambers.  This process typically occurs through a conference committee consisting of members from both chambers. B.    Examples and Implications  Reconciliation has been used more than 20 times since 1980 to achieve results favored by both major parties.  In 2001 and 2003, for example, Congress used reconciliation to enact tax cuts proposed by President Bush; in 2010, Democrats used it to enact a portion of the Affordable Care Act.[56]  There is no requirement that reconciliation be used to decrease the deficit. Because it precludes a filibuster in the Senate, reconciliation is an attractive tool for a congressional majority to accomplish certain economic objectives, like revising tax rates and changing mandatory spending programs.[57]  Indeed, the reconciliation process could be used by President-elect Trump and congressional Republicans to pass Trump’s tax plan,[58] to adjust spending on veterans,[59] and even to repeal some aspects of the Affordable Care Act,[60] as House Republicans voted to do earlier this year.[61]  But it is not a filibuster cure-all.  The Byrd rule sharply limits the types of provisions that may be enacted through the reconciliation process, and while the boundaries of the rule are subject to interpretation – making the Senate Parliamentarian’s role an important one – the limitations it imposes are meaningful.  Ultimately, the reconciliation process is best viewed as having the potential to secure significant changes to relatively narrow areas of U.S. law and policy. IV.    The Nuclear Option The “nuclear option” refers to a move by the majority party in the Senate to “[c]hang[e] the effective procedures of the Senate by establishing new precedential interpretations of existing rules” by a simple majority vote.[62]  By way of example, this can be accomplished by making a motion related to a question that is not subject to debate (and thus not subject to filibuster) and then raising a point of order reinterpreting a Senate Standing Rule, which—if it is rejected by the chair—a majority of the Senate can then vote to approve.[63]  The nuclear option is viewed by some as an “extreme” tactic, and in the past was “used only for relatively minor procedural changes,” while “major rule changes” were accomplished only by amending the rules, which requires a two-thirds majority.[64] However, in November 2013, Senate Democrats exercised the nuclear option to reinterpret Senate rules “so that federal judicial nominees and executive-office appointments could advance to confirmation votes by a simple majority of senators, rather than the 60-vote supermajority” previously required to defeat a filibuster.[65]  The move was aimed to allow the confirmation of three Obama nominees to the U.S. Court of Appeals for the District of Columbia Circuit, whose confirmations had been blocked by Senate Republicans.[66]  Notably, this reinterpretation did not apply to Supreme Court nominations or other legislation.[67] Senate Republicans, however, who now have a slim majority, are in a position to reinterpret the rules more expansively to require a simple majority to approve Supreme Court nominations or legislation.[68]  In other words, by “further strip[ping] filibuster rules,” Senate Republicans “could dismantle Obama’s landmark achievement, the Affordable Care Act,” or implement the Trump Administration’s deregulatory agenda “on a simple majority vote.”[69]  Whether they will do so is an open question (and the subject of much speculation), as they run the risk of making long-term changes to Senate procedures that may impact them negatively in the event the power balance in the Senate shifts. V.    Reversing Course in Pending Regulatory Challenges In the case of final rules that are already subject to legal challenge in federal court, whether a new administration can or is likely to opt not to defend a previous administration’s final rule depends on a number of factors. If the agency is an independent regulatory agency, it is more difficult for a new administration to direct the agency to abandon the defense of existing regulations because, as explained above, the heads of independent regulatory agencies can only be removed “for cause.”  Independent regulatory agencies include the Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission, the Consumer Product Safety Commission, the Federal Communications Commission, the Federal Deposit Insurance Corporation, the Federal Energy Regulatory Commission, the Federal Housing Finance Agency, the Federal Maritime Commission, the Federal Trade Commission, the Interstate Commerce Commission, the Mine Enforcement Safety and Health Review Commission, the National Labor Relations Board, the Nuclear Regulatory Commission, the Occupational Safety and Health Review Commission, the Postal Regulatory Commission, the Securities and Exchange Commission, the Bureau of Consumer Financial Protection, the Office of Financial Research, Office of the Comptroller of the Currency, and any other similar agency designated by statute as a Federal independent regulatory agency or commission.[70]  However, the new heads of independent agencies can certainly decide that they do not wish to defend an existing rule challenge; agencies without independent litigating authority would need to coordinate with the Department of Justice to achieve that result.  The issue becomes more complicated for Supreme Court litigation, as distinguished from litigation in the lower courts, however, because even agencies that have a high degree of independent litigating authority must, in that forum, secure Department of Justice approval or at least the absence of any objection to proceed.[71] If the agency is not an independent regulatory agency, a new president could direct the agency to refrain from defending a prior administration’s regulation.  The more likely scenario, however, is that the heads of agencies – independent or not – that are appointed by the new administration might ask the Department of Justice not to defend a rule, and the Department of Justice can agree or refuse.  If the Department of Justice agrees not to defend a final rule in a pending legal challenge, it could move for a voluntary remand back to the agency to reevaluate the rule.  Courts often grant federal agencies’ motions for voluntary remand because they allow the agency to correct its own errors without expending the resources of the court in reviewing a record that may be incorrect or incomplete, or in a case that may be mooted by subsequent agency action.[72]  In cases in litigation, it also is possible for a new administration to support a stay of the rule pending completion of the litigation. Instances in which a new administration changed the government’s position in pending legal challenges include during the Bush Administration, when the Environmental Protection Agency (“EPA”) and Attorney General were directed to review Clean Air Act enforcement actions stemming from Clinton-era investigations to determine whether they should be continued.  The review resulted in the EPA dismissing enforcement actions (launched by the Clinton administration) against dozens of coal-fired power plants.[73]  Bush Administration prosecutors also changed course from the Clinton Administration in the Microsoft antitrust litigation, which reportedly resulted in the company obtaining a more favorable settlement than had been offered previously.[74]  In the case of the Obama Administration’s Clean Power Plan, Clean Water Rule, Department of Labor Overtime Rule, and Union Persuader Rule, the Trump Administration could use a similar approach and opt to move for a voluntary remand back to the agency to repeal or revise the regulations being challenged.[75] VI.    Repealing Executive Orders and Presidential Directives and Memoranda  In recent administrations, Presidents have increasingly turned to executive orders and presidential memoranda and directives to achieve certain legislative and regulatory priorities without the assistance of Congress or federal agencies. A.    Executive Orders  Executive orders are presidential directives that have the force of law when they are issued pursuant to a valid claim of constitutional or statutory authority.[76]  Unlike legislation and federal regulations, Presidents are free to revoke, modify, or supersede executive orders at any time.[77]  Indeed, new administrations often begin their terms by acting quickly to revoke previously issued orders.  In February 1993, for example, President Clinton revoked two of President George H. W. Bush’s executive orders relating to union dues and labor contracts.[78]  In February 2001, President George W. Bush issued several orders revoking orders issued by President Clinton,[79] and in February 2009, President Obama revoked several of President Bush’s executive orders.[80] President Obama has issued 249 executive orders during his presidency.  In his 100-day action plan, President-elect Trump pledged that on his first day in office, he will “cancel every unconstitutional executive action, memorandum and order issued by President Obama” in order “to restore security and the constitutional rule of law.”[81]  While there has been much speculation about precisely which executive orders President-elect Trump will revoke, possible contenders include: National Security: EO 13716 (lifting certain sanctions on Iran in exchange for halting its nuclear program as part of an international agreement)[82] EO 13685, 13662 (imposing sanctions on Russia relating to its actions in Ukraine and Crimea)[83] Labor: EO 13495, 13496, 13502, 13738 (relating to union dues, labor contracts, and government contract requirements)[84] Energy and the Environment: EO 13693 (adopting federal sustainability practices) EO 13605 (setting standards for natural gas extraction and infrastructure development)[85] EO 13624 (accelerating investment in industrial energy efficiency) Trade: EO 12889 (implementing NAFTA)[86] B.    Presidential Directives, Memoranda, and Proclamations  In addition to executive orders, past Presidents have utilized various written instruments to direct the executive branch and implement policy.[87]  These include presidential memoranda, directives, and proclamations, which generally are less formal than executive orders and need not be published in the Federal Register unless the President determines that they “have general applicability and legal effect.”[88]  Like executive orders, presidential memoranda, directives, and proclamations can be undone by new executive actions revoking the prior action.[89] President Obama has utilized these instruments, particularly presidential memoranda, to achieve numerous policy goals.[90]  For example, in January 2013, President Obama issued three memoranda relating to gun control that directed federal law enforcement agencies to trace any firearm that is part of a federal investigation, expanded the data available to the national background check system, and instructed federal agencies to conduct research into the causes and possible solutions to gun violence.[91]  President Obama also issued a memorandum directing the Departments of Defense, Justice, and Homeland Security to conduct or sponsor research into gun safety technology.[92]  It is widely anticipated that President-elect Trump will act to revoke these and other presidential memoranda when he assumes office on January 20. VII.    Conclusion Each of these tools and strategies will be available to President-elect Trump and the Republican-controlled Congress in their efforts to halt or repeal regulatory actions undertaken during the Obama administration.  However, each tool is limited in certain respects, meaning that the effort to repeal President Obama’s core legislative and regulatory enactments – with the exception of Executive Orders and presidential directives and memoranda, which may be revoked immediately and unilaterally by President-elect Trump – will not be immediate and will require coordination and a multi-pronged approach.    [1]   Memorandum from Andrew Card to the Heads and Acting Heads of Executive Departments and Agencies, 66 Fed. Reg. 7702-01 (Jan. 20, 2001, published Jan. 24, 2001) (the “Card memorandum”).    [2]   Id.    [3]   Id.    [4]   Memorandum from Rahm Emanuel to the Heads and Acting Heads of Executive Departments and Agencies, 74 Fed. Reg. 4435-02 (Jan. 26, 2009) (the “Emanuel memorandum”).    [5]   Id.    [6]   Id.    [7]   Id.    [8]   Id.    [9]   See 5 U.S.C. § 551 et seq.  The APA defines “rule making” as the “agency process for formulating, amending, or repealing a rule.”  Id. § 551(5).  The APA generally requires agencies to (1) publish a notice of proposed rulemaking in the Federal Register; (2) allow interested parties an opportunity to participate in the rulemaking process by providing “written data, views, or arguments”; and (3) publish a final rule 30 days before it becomes effective.  Id. § 553. [10]   Id. § 553(b)(3). [11]   Id. [12]   See U.S. Gov’t Accountability Office, GAO-02-370R, Regulatory Review: Delay of Effective Dates of Final Rules Subject to the Administration’s January 20, 2001 Memorandum 6 & app. I (Feb. 15, 2002) (“GAO Report”). [13]   See, e.g., Nat. Res. Def. Council v. Abraham, 355 F.3d 179, 204-06 (2d Cir. 2004) (rejecting the Department of Energy’s arguments that its notice delaying a published rule’s effective date in accordance with the Card memorandum was a procedural rule exempt from the notice-and-comment requirements, or that there was “good cause” to not comply with the notice-and-comment requirements); Envtl. Def. Fund, Inc. v. Gorsuch, 713 F.2d 802, 815-17 (D.C. Cir. 1983); Nat. Res. Def. Council v. EPA, 683 F.2d 752, 761-63 (3d Cir. 1982). [14]   GAO Report, supra note 12, at 2-5. [15]   Compare Securities & Exchange Commission Acting Chairman Laura S. Unger, “What’s New in the Land of Regulation?” (Mar. 2, 2001), https://www.sec.gov/news/speech/spch465.htm (announcing plan to defer any rulemaking in light of the Card memorandum); with GAO Report at 4-5 (noting that none of the 30 final rules that were issued by independent regulatory agencies (the Federal Communications Commission, Nuclear Regulatory Commission, and Securities and Exchange Commission) during the period subject to the Card memorandum were delayed). [16]   See Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 483 (2010). [17]     See id. at 502. [18]   Chuck Stanley, “Don’t Pass Lame-Duck Rules, House GOP Warns Agencies,” Law360 (Nov. 16, 2016), https://www.law360.com/articles/863258/don-t-pass-lame-duck-rules-house-gop-warns-agencies. [19]   Id. [20]   Jenna Ebersole, “FCC Cancels Business Data Services Vote After GOP Pressure,” Law360 (Nov. 16, 2016), https://www.law360.com/articles/863449. [21]   See 5 U.S.C. §§ 801–808. [22]   See id. § 802. [23]   See id. § 802(c), (d). [24]   See id. [25]   Id. § 802(f). [26]   Id. § 801(b). [27]   See Curtis W. Copeland & Richard S. Beth, Cong. Research Serv., RL34633, Congressional Review Act: Disapproval of Rules in a Subsequent Session of Congress 1 (2008), available at https://www.fas.org/sgp/crs/misc/RL34633.pdf. [28]   Christopher M. Davis & Richard S. Beth, Cong. Research Serv., IN10437, Agency Final Rules Submitted After May 30, 2016, May Be Subject to Disapproval in 2017 Under the Congressional Review Act 1 (2016), available at https://www.fas.org/sgp/crs/misc/IN10437.pdf. [29]   Id. at 5–6. [30]   5 U.S.C. §§ 801(a)(3), 804(2). [31]   Id. § 801(b). [32]   See id. § 802(a). [33]   Id. § 802(d), (e). [34]   Id. §§ 801(d), 802(e)(2). [35]   Id. [36]     Id. § 801(f). [37]   Lydia Wheeler, House Passes Bill Targeting “Midnight” Obama Regs, TheHill.com (Nov. 17, 2016), http://thehill.com/regulation/306564-house-passes-bill-targeting-midnight-obama-regs. [38]   See Regulations from the Executive in Need of Scrutiny Act of 2015, H.R. 427, 114th Cong. (2015), available at https://www.congress.gov/bill/114th-congress/house-bill/427/text. [39]   Davis & Beth, supra note 28, at 2. [40]   See Russell Berman, Trump Scores His First Win in Congress, TheAtlantic.com (Nov. 17, 2016), http://www.theatlantic.com/politics/archive/2016/11/trump-gets-his-first-win-in-congress/508049/?utm_source=feed. [41]   Susan E. Dudley, Election Could Wake The Sleeping CRA Giant, Forbes.com (Nov. 14, 2016), http://www.forbes.com/sites/susandudley/2016/11/14/election-could-wake-the-sleeping-cra-giant/#2267f11309bb. [42]   81 Fed. Reg. 68688 (Oct. 4, 2016). [43]   81 Fed. Reg. 49360 (July 27, 2016). [44]   81 Fed. Reg. 41845 (June 28, 2016). [45]   81 Fed. Reg. 32391 (May 23, 2016). [46]   2 U.S.C. §§ 601-608. [47]   See id. § 632. [48]   See id. § 641. [49]   See Budget Reconciliation:  How It Will Work Under the 2016 Budget Conference Agreement, House Committee on the Budget—Democrats (July 29, 2015), https://democrats-budget.house.gov/committee-report/budget-reconciliation-how-it-will-work-under-2016-budget-conference-agreement. [50]   See 2 U.S.C. § 641(b). [51]   See id. § 641(e)(2). [52]   Id. § 644. [53]   Id. § 644(a). [54]   Id. § 644(b)(1)(A). [55]   See id. § 644(e). [56]   See Manu Raju, GOP Targets Budget Process for Tax Reform, Politico (Jan. 13, 2015), http://www.politico.com/story/2015/01/gop-tax-reform-114201. [57]   Congress addresses discretionary spending separately through the appropriations process. [58]   See Tax Plan, Donald J. Trump for President, https://www.donaldjtrump.com/policies/tax-plan/ (last visited Nov. 19, 2016). [59]   See Veterans Affairs Reform, Donald J. Trump for President, https://www.donaldjtrump.com/policies/veterans-affairs-reform/ (last visited Nov. 19, 2016). [60]   See Healthcare Reform To Make America Great Again, Donald J. Trump for President, https://www.donaldjtrump.com/positions/healthcare-reform (last visited Nov. 19, 2016). [61]   See Jennifer Haberkorn, Trump Victory Puts Obamacare Dismantling Within Reach, Politico (Nov. 9, 2016), http://www.politico.com/story/2016/11/trump-victory-obamacare-risk-231090. [62]   Richard S. Beth, Cong. Research Serv., Procedures for Considering Changes in Senate Rules 8 (Jan. 22, 2013), https://www.fas.org/sgp/crs/misc/R42929.pdf (“CRS Procedures Report”); see also Valerie Heitshusen, Cong. Research Serv., Majority Cloture for Nominations: Implications and the ‘Nuclear’ Proceedings 1 (Dec. 6, 2013), https://www.fas.org/sgp/crs/misc/R43331.pdf(“CRS Nominations Report”). [63]   See CRS Nominations Report, supra note 62, at 8-9. [64]   Paul Kane, Reid, Democrats trigger ‘nuclear’ option; eliminate most filibusters on nominees, Wash. Post (Nov. 21, 2013), https://www.washingtonpost.com/politics/senate-poised-to-limit-filibusters-in-party-line-vote-that-would-alter-centuries-of-precedent/2013/11/21/d065cfe8-52b6-11e3-9fe0-fd2ca728e67c_story.html; see also Senate Standing Rule XXII (requiring two-thirds majority for amendment of Senate Standing Rules); CRS Procedures Report, supra note 62, at 2-3 (describing process for changes in Senate Standing Rules). [65]   Kane, supra note 64; see also CRS Nominations Report, supra note 62, at 4-5.  Note that the Senate “did not change the text of Rule XII of the [Senate] Standing Rules,” but rather “established a new precedent by which it reinterpreted the provisions of Rule XXII to require only a simple majority to invoke cloture on most nominations.”  CRS Nominations Report, supra note 62, at 4-5; see also id. at 8-9 (providing a detailed discussion of the procedures the Senate majority used to set new precedent in relation to consideration of nominations). [66]   Kane, supra note 64. [67]   Kane, supra note 64. [68]   Karound Demirjian, President Trump’s Cabinet picks are likely to be easily confirmed.  That’s because of Senate Democrats, Wash. Post (Nov. 18, 2016), https://www.washingtonpost.com/news/powerpost/wp/2016/11/18/president-trumps-cabinet-picks-are-likely-to-be-easily-confirmed-thats-because-of-senate-democrats/. [69]   Kane, supra note 64. [70]     44 U.S.C. § 3502(5). [71]     See, e.g., 12 U.S.C. § 5564(e) (“Appearance Before the Supreme Court”) (“The [CFPB] may represent itself in its own name before the Supreme Court of the United States, provided that the Bureau makes a written request to the Attorney General within the 10-day period which begins on the date of entry of the judgment which would permit any party to file a petition for writ of certiorari, and the Attorney General concurs with such request or fails to take action within 60 days of the request of the Bureau.”). [72]     See, e.g., Ethyl Corp v. Browner, 989 F.2d 522, 524 (D.C. Cir. 1993); SKF USA Inc. v. United States, 254 F.3d 1022, 1029 (Fed. Cir. 2001); Citizens Against Pellissippi Parkway Extension, Inc. v. Mineta, 375 F.3d 412, 417 (6th Cir. 2004); Sierra Club v. Van Antwerp, 560 F. Supp. 2d 21, 24-25 (D.D.C. 2008). [73]     Elizabeth Shogren, EPA Drops Its Cases Against Dozens of Alleged Polluters, N.Y. Times, Nov. 6, 2003. [74]     D. Ian Hopper, New Administration Takes Less Fractured View of Microsoft, AP, Sept. 7, 2001, available at http://cjonline.com/stories/090701/usw_microsoft.shtml#.WDR6k-YrLGh; Jonathan Krim, Circumstance Had Role in U.S.-Microsoft Deal, Wash. Post, Nov. 3, 2001, at A21. [75]   Tim Devaney, 14 Obama regs Trump could undo, TheHill.com (Nov. 12, 2016), http://thehill.com/regulation/305673-14-obama-regs-trump-could-undo. [76]     Vivian S. Chu & Todd Garvey, Cong. Research Serv., Executive Orders: Issuance, Modification, and Revocation 1-2 n.3 (Apr. 16, 2014), https://www.fas.org/sgp/crs/misc/RS20846.pdf (quoting Staff of House Comm. on Gov’t Operations, 85th Cong., 1st Sess., Executive Orders and Proclamations: A Study of A Use of Presidential Powers (Comm. Print 1957)); see also John Contrubis, Cong. Research Serv., Executive Orders and Proclamations 2 & n.4 (Mar. 9, 1999), http://www.llsdc.org/assets/sourcebook/crs-exec-orders-procs.pdf. [77]     Chu & Garvey, supra note 76, at 7. [78]     Exec. Order No. 12836 (Feb. 1, 1993) (revoking Exec. Order No. 12818 (Oct. 23, 1992) & Exec. Order 12800 (Apr. 13, 1992)). [79]     Chu & Garvey, supra note 76, at 7 n.46 (citing Exec. Orders Nos. 13201-04, 66 Fed. Reg. 11221, 11225, 11227- 28 (Feb. 17, 2001) (revoking Exec. Order No. 12836, 58 Fed. Reg. 7045 (Feb. 1, 1993); Exec. Order No. 12871, 58 Fed. Reg. 52201 (Oct. 1, 1993); Exec. Order No. 12933, 59 Fed. Reg. 53559 (Oct. 20, 1994)). [80]     Id. (citing Exec. Order No. 13496, 74 Fed. Reg. 6107 (Jan. 30, 2009) (revoking Exec. Order No. 13201); Exec. Order No. 13502, 74 Fed. Reg. 6985 (Feb. 6, 2009) (revoking Exec. Order No. 13202); Exec. Order No. 13495, 74 Fed. Reg. 6103 (Jan. 30, 2009) (revoking Exec. Order No. 13204)). [81]     Donald Trump’s Contract with the American Voter, Donald J. Trump for President (Oct. 23, 2016), https://www.donaldjtrump.com/contract/. [82]     See Zahraa Alkhalisi, “Trump could hit Iran with sanctions – but Europe would scream,” CNN Money (Nov. 10, 2016), http://money.cnn.com/2016/11/10/news/economy/trump-iran-sanctions/; see also Thomas Erdbrink, “Trump, Though Critical of Nuclear Deal, Could Offer Opportunities for Iran,” N.Y. Times (Nov. 20, 2016), http://www.nytimes.com/2016/11/21/world/middleeast/donald-trump-iran-nuclear-deal.html. [83]     See Owen Matthews, “Donald Trump Can Either Continue the Shadow War with Vladimir Putin or End Sanctions,” Newsweek (Nov. 16, 2016), http://www.newsweek.com/2016/11/25/donald-trump-vladimir-putin-russia-cyber-war-sanction-521580.html. [84]     See Timothy Aeppel & Daniel Wiessner, “Unions brace for pro-business shift in labor policy under Trump,” Reuters (Nov. 9, 2016), http://www.reuters.com/article/us-usa-election-unions-idUSKBN1343LU. [85]     See Donald Trump’s Contract with the American Voter, supra note 81 (pledging to “lift the restrictions on the production of $50 trillion dollars’ worth of job-producing American energy reserves, including shale, oil, natural gas and clean coal” on his first day in office). [86]     See id. (pledging to “announce [his] intention to renegotiate NAFTA or withdraw from the deal” on his first day in office). [87]     Chu & Garvey, supra note 76, at 1. [88]     See id. at 1-2 & n.7 (citing 44 U.S.C. § 1505). [89]     Contrubis, supra note 76, at 19. [90]     Gregory Korte, “Obama issues ‘executive orders by another name,'” USA Today (Dec. 17, 2014), http://www.usatoday.com/story/news/politics/2014/12/16/obama-presidential-memoranda-executive-orders/20191805/. [91]     Id. (citing Presidential Memorandum, Tracing of Firearms in Connection with Criminal Investigations, 78 Fed. Reg. 4301 (Jan. 16, 2013); Presidential Memorandum, Improving Availability of Relevant Executive Branch Records to the National Instant Criminal Background Check System, 78 Fed. Reg. 4297 (Jan. 16, 2013); Presidential Memorandum, Engaging in Public Health Research on the Causes and Prevention of Gun Violence, 78 Fed. Reg. 4295 (Jan. 16, 2013)). [92]     The White House, Office of the Press Secretary, Fact Sheet: New Executive Actions to Reduce Gun Violence and Make Our Communities Safer (Jan. 4, 2016), https://www.whitehouse.gov/the-press-office/2016/01/04/fact-sheet-new-executive-actions-reduce-gun-violence-and-make-our; Presidential Memorandum, Promoting Smart Gun Technology, 81 Fed. Reg. 719 (Jan. 4, 2016). The following Gibson Dunn lawyers assisted in the preparation of this client update:  Michael Bopp, Eugene Scalia, Helgi Walker, Ashley Boizelle, Russell Balikian, Naima Farrell and Matt Gregory. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Public Policy or Administrative Law and Regulatory practice groups, or the following authors in the firm’s Washington, D.C. office: Michael D. Bopp – Chair, Public Policy Practice (+1 202-955-8256, mbopp@gibsondunn.com) Eugene Scalia – Co-Chair, Administrative Law & Regulatory Practice (+1 202-955-8206, escalia@gibsondunn.com) Helgi C. Walker – Co-Chair, Administrative Law & Regulatory Practice (+1 202-887-3599, hwalker@gibsondunn.com) Ashley S. Boizelle – Member, Administrative Law & Regulatory Practice (+1 202-887-3635, aboizelle@gibsondunn.com) © 2016 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 30, 2016 |
Sovereign Immunity Limits Imposed by the Justice Against Sponsors of Terrorism Act

On September 28, 2016, the U.S. Congress voted to approve the Justice Against Sponsors of Terrorism Act ("JASTA").  President Obama had vetoed JASTA on September 23, 2016 but both the U.S. Senate and the U.S. House of Representatives overwhelmingly voted to override the veto – the first such override in the Obama presidency. Understanding the significance of JASTA requires some context.  As a general matter, countries and their officials cannot be sued in the courts of another country as a result of acts taken in their sovereign capacity.  This concept is known as "sovereign immunity" and it is a core doctrine of international law.  Although exceptions to sovereign immunity have long existed in the United States and in other countries, and although JASTA is less extreme than some  of its detractors have claimed, the law further erodes sovereign immunity in the U.S. in certain situations that are linked to acts of international terrorism in the United States. JASTA was drafted specifically with reference to the events of September 11, 2001, and attempts to sue the Saudi Arabian government.  While the law was animated by sympathies for 9/11 victims and families, JASTA is not limited to potential legal action against Saudi Arabia – it allows potential actions in U.S. courts against any other countries that may qualify.    Importantly, JASTA does not create liability for citizens of foreign countries for the actions of their states.  Rather, JASTA only speaks to suits brought by U.S. nationals against allegedly culpable foreign states. Background and Purpose The stated purpose of JASTA is to "provide civil litigants with the broadest possible basis . . . to seek relief against foreign countries . . . that have provided material support, directly or indirectly, to foreign organizations or persons that engage in terrorist activities against the United States." Fifteen of the nineteen 9/11 hijackers were citizens of Saudi Arabia.  Supporters of JASTA argue that this is not a coincidence and that the Government of Saudi Arabia should be held accountable for the terrorism perpetrated on that day.  The Government of Saudi Arabia, a long-standing U.S. ally, has denied involvement.  The White House resisted the legislation on both diplomatic grounds, due to sensitivities of close allies, and international legal grounds, arguing that JASTA is too broadly drafted and could expose U.S. companies, troops and officials to lawsuits if other countries pass reciprocal legislation limiting the United States’ own sovereign immunity in those other countries. In order to allow victims to bring actions against foreign countries, JASTA makes amendments to the United States Code creating further exceptions to the doctrine of sovereign immunity. Exceptions to Sovereign Immunity A number of exceptions to sovereign immunity already exist in the United States.  For example, a foreign state can be sued for personal injury or death that was caused by an act of torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources for such an act.[1]  JASTA takes this exception significantly further – though arguably not as far as some fear. How Far Does the New Exception to Sovereign Immunity Go? Under federal law[2], any U.S. national "injured in his or her person, property, or business by reason of an act of international terrorism, or his or her estate, survivors, or heirs, may sue therefor in any appropriate district court of the United States and shall recover threefold the damages he or she sustains and the cost of the suit, including attorney’s fees."  This type of suit is referred to in this Client Alert as an "International Terrorism Suit." Before JASTA became law, a U.S. national could not bring an International Terrorism Suit against "a foreign state, an agency of a foreign state, or an officer or employee of a foreign state or an agency thereof acting within his or her official capacity or under color of legal authority."[3] Through JASTA, the U.S. Congress has enacted the following changes:   A U.S. national may now bring an International Terrorism Suit against a foreign state if the foreign state would not have immunity by virtue of 2 below.[4]  U.S. courts may hear cases in which money damages are sought against a foreign state for physical injury to a person or property or death that occurs inside the United States and that are caused by: an act of international terrorism in the United States; and tortious act or acts of the foreign state, or of any official, employee, or agent of that foreign state while acting within the scope of his or her office, employment, or agency, regardless where the tortious act or acts of the foreign state occur.[5] It should be noted that a foreign state does not lose its sovereign immunity as a result of JASTA "on the basis of an omission or a tortious act or acts that constitute mere negligence."[6]  In other words, the law requires that there must be an act by the foreign state (or its official, employee, or agent while acting within the scope of his or her office, employment, or agency) and such act needs to be more than mere negligence. Effective Date The amendments made by JASTA apply to any civil action:  pending on, or commenced on or after, the date of enactment of JASTA; and  arising out of an injury to a person, property, or business on or after September 11, 2001.  The retroactive effect of JASTA in this respect is also a unique component of the statute. Observations Given the strong reservations expressed by Saudi Arabia, the White House and others and the potential foreign relations impact of suits that may be brought against Saudi Arabia and other countries by victims of terrorism, it remains to be seen how utilized, let alone how effective, JASTA will be. JASTA includes several brakes that allow the White House and the wider Executive Branch to slow down courts’ consideration of such suits.  The law permits the U.S. Attorney General to intervene in any action being taken against a foreign state "for the purpose of seeking a stay of the civil action, in whole or in part."  The U.S. Court "may stay a proceeding against a foreign state if the Secretary of State certifies that the United States is engaged in good faith discussions with the foreign state defendant concerning the resolution of the claims against the foreign state, or any other parties as to whom a stay of claims is sought."  The stay may be sought for up to 180 days and may be extended by additional 180 day periods.[7] With several 9/11-related suits likely to be filed in the near term, it will be interesting to see how often, and in what circumstances, an intervention is made – and what the diplomatic, legal, and judicial reaction from other states will be. Before recessing to campaign for the November elections, Congress signaled that it may revisit – and narrow – JASTA when it returns to Washington for a lame duck session in November.  Specifically, Senate Majority Leader Mitch McConnell and Speaker of the House Paul Ryan indicated that Congress may seek to narrow the bill to avoid unintended consequences, including responsive or retaliatory actions by other countries that could have negative impacts on U.S. service members overseas.  We think that some narrowing of the bill is likely, either later this year or in the new Congress that convenes in January.    [1]   28 U.S.C. § 1605A.    [2]   18 U.S.C. § 2333.    [3]   18 U.S.C. § 2337.    [4]   Justice Against Sponsors of Terrorism Act, sec. 3 (2016) (to be codified at 28 U.S.C. § 1605B(c)).    [5]   Id. (to be codified at 28 U.S.C. § 1605B(b)).    [6]   Id. (to be codified at 28 U.S.C. § 1605B(d)).    [7]   Justice Against Sponsors of Terrorism Act, sec. 5 (2016).   Gibson Dunn, with more than 1,200 lawyers in 19 offices in major cities throughout the United States, Europe, the Middle East, Asia and South America, is committed to providing the highest quality legal services to its clients. Gibson Dunn has been advising leading Middle Eastern institutions, companies, financial sponsors, sovereign wealth funds and merchant families on their global and regional transactions and disputes for more than 35 years. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments. Please contact the Gibson Dunn lawyer with whom you usually work, the author of this alert, Hardeep Plahe, or any of the following: Hardeep Plahe – Dubai (+971 (0)4 318 4611, hplahe@gibsondunn.com)Paul Harter – Dubai/London (+971 (0)4 318 4621/+44 (0)20 7071 4212, pharter@gibsondunn.com)Mitri J. Najjar – London/Dubai (+44 (0)20 7071 4262/+971 (0)4 318 4612, mnajjar@gibsondunn.com)Chézard F. Ameer – Dubai (+971 (0)4 318 4614, cameer@gibsondunn.com)Richard Ernest – Dubai (+971 (0)4 318 4639, rernest@gibsondunn.com)Graham Lovett – Dubai (+971 (0)4 318 4620, glovett@gibsondunn.com)  Jeffrey M. Trinklein - London/New York (+44 (0)20 7071 4224 /+1 212-351-2344), jtrinklein@gibsondunn.com)Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com)Adam M. Smith – Washington, D.C. (+1 202-887-3547, asmith@gibsondunn.com) © 2016 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.