Legislature Passes Budget, But Is It Enough For the Court?

Superintendent:  Legislature still in contempt of court

MyNorthwest.com

by Richard D. Oxley

Many are sighing in relief after Washington’s lawmakers finished a budget preventing a shutdown of state services this month, but State Superintendent of Public Instruction Randy Dorn is not one of them.

While Republicans and Democrats took two special sessions to compromise on gas taxes and tax loopholes, Dorn told KIRO Radio’s Seattle’s Morning News that the education portion still falls short of what the state’s Supreme Court has ordered legislators to accomplish.

Related: Gov. Inslee to sign two-year state budget

“I think the court is going to be in a really tough spot to say ‘yeah, you did your job,'” Dorn said Tuesday morning.

The education portion of the budget was perhaps the largest consideration this time around as the state’s Supreme Court has been leaning on the Legislature to adequately fund basic education. It is the result of what has become known as the McCleary Decision; a 2012 decision that says the state failed to fulfill its paramount duty under the constitution to “make ample provision for the education of all children residing within its borders…”

The task involves finding at least $3.5 billion to fully fund education and provide a plan to continue doing so, by 2018. Lawmakers had to show progress toward that 2018 goal each year. But last year, the Supreme Court checked in on the state’s progress and found it lacking. It placed the state in contempt of court. Justices said the state had to have better funding by April 2014; it failed to meet that deadline as well. Justices then said legislators had to find the money in the 2015 budget.

Dorn said that while a budget was passed, education was shortchanged. He said that the court asked for two things: full funding and a plan that is equitable and ample.

“They didn’t produce a plan,” Dorn said. “What they did is make local districts more dependent on local levies. You are going to have to use more of your local levies to pay for state basic [education] responsibilities because they only paid for state-funded positions and didn’t pay for the money they are shorting them for administration.”

Dorn said that if it were up to him, he would hold state legislators in contempt again.

“It’s about an equitable system and funding what is basic in an equal manner,” he said. “And local levies are set aside for extra things — not basic education things — like an extra hour, a jazz band, field trips.”

Dorn said that he estimates only 12 state legislators actually understand the McCleary Decision and therefore what they are required to do. He thinks lawmakers are due for yet another special session.

“Call them back for a special session, so all 147 legislators actually understand the issue of what McCleary is, what the court said you had to do, and what’s in the statute that the Legislature said you had to pay for,” Dorn said.

For Dorn, the issue has moved beyond education funding and is now a civil rights issue that the state is slow to resolve.

“Wealthy neighborhoods are able to fund more dollars per pupil than poor neighborhoods because they can raise more money with local levies,” he said.

“Guess who’s in the wealthy neighborhoods? White kids and Asian kids. Guess who’s in the poor neighborhoods? Poor kids and minority students,” Dorn said. “That’s an inequitable system and that’s what the court said you had to do a better job of, and we haven’t made any effort to change that.”

FCC Receives First Complaint Under New Net Neutrality Rules

Here’s the first official net neutrality complaint to the FCC

Washington Post

By Brian Fung

Photo by Bill O’Leary/The Washington Post

Remember last week, when we learned that a San Diego-based company would be filing a net neutrality complaint against Time Warner Cable?

Well, that complaint just dropped. In a filing with the Federal Communications Commission on Monday, Commercial Network Services (CNS) claims that it’s being charged unjust rates to deliver its streaming Web cam video to consumers.

CNS wants Time Warner Cable to carry its traffic for free. But TWC is telling CNS’s chief executive, Barry Bahrami, that his company doesn’t qualify for what’s called a “settlement-free” deal.

“TWC is acting as gatekeeper and degrading our ability to exercise free expression,” Bahrami writes in the complaint. “TWC’s management policy is restricting the open exchange of Internet traffic.”

TWC has said that its behavior is consistent with industry standards and that it’s confident the FCC will reject Bahrami’s claims.

It’s unclear how much traction Bahrami will get with the commission. His argument is that Time Warner Cable has violated the FCC’s rules against paid prioritization, or the tactic where Internet providers charge a fee to selectively speed up certain Web sites. That behavior was labeled illegal under the FCC’s net neutrality rules.

But that part of the FCC’s rules only cover the so-called “last mile” between a consumer’s device and his Internet provider. It doesn’t address the part of the Internet where Time Warner Cable and Bahrami are having their dispute. So the FCC could find that, in fact, TWC hasn’t broken any rules after all.

ALJ Issues Heating Up at SEC

SEC Fights Challenges to Its In-House Courts:  Securities and Exchange Commission deploys countermeasures to defend its approach

Wall Street Journal

By Jean Eaglesham

The Securities and Exchange Commission is fending off a flurry of legal challenges to its in-house court system, which has become a key cog in its enforcement strategy but has drawn mounting criticism.

The agency is deploying a variety of countermeasures to fight at least seven cases brought by defendants around the country. The expanding effort prompted one federal judge last week to say the agency appears to be in “a little bit of chaos right now.”

The cases are forcing the SEC to defend the growing use of its five administrative-law judges, to whom it sends hundreds of cases a year. The agency has been directing more cases to its internal courts since the Dodd-Frank financial-reform law granted it more latitude to do so.

The SEC says the system is faster and more efficient than federal courts. Critics have said the process unfairly denies defendants important protections afforded by the federal courts.

A federal judge in Atlanta this month said in a ruling that the SEC in-house tribunal was “likely unconstitutional.” She ordered a temporary halt to the SEC case under review, ahead of a final decision on whether to block it permanently.

That case is just one of many challenges brought in recent weeks. Because the cases involve different legal issues but are being brought close together, the agency is employing a range of defenses.

The SEC accused several defendants of “judge shopping” by trying to get a case heard in a particular court and in another instance asked one of its own judges to submit a formal statement about whether he has ever felt pressure to favor the agency.

An SEC spokeswoman declined to comment.

The legal backlash stems in part from the SEC’s recent push to send more cases to the in-house judges, including some relatively complicated matters such as insider-trading that were traditionally heard by a federal judge or jury.

Some defendants have argued that the SEC judges appear biased toward the agency, based on their decisions. Several former high-ranking SEC officials have also said publicly in recent weeks that the system should be amended.

The legal battles could have far-reaching repercussions.

Thomas McCarthy, a past president of the Federal Administrative Law Judges Conference, an association of in-house judges for the SEC and other government agencies, said in an interview the wrangles could “open a can of worms” by calling into question hundreds of administrative law judges’ decisions across government. More than two dozen agencies use administrative-law judges to settle a variety of legal actions and disputes.

The challenges to the SEC system, many in New York and Georgia federal courts, focus on the legality of how the decades-old SEC in-house tribunal is operated, as well as the relative fairness of the system.

In ruling this month that the SEC in-house tribunal was “likely unconstitutional,” U.S. District Judge Leigh Martin May in Atlanta said the judges were “officials” and so should have been appointed by the commissioners who run the SEC, rather than by more-junior people within the agency. Mr. McCarthy said in the interview he agrees with Judge May that administrative judges are officials, rather than employees as the SEC argues.

The SEC intends to seek a fast-track appeal of that Atlanta ruling, its lawyers told U.S. District Judge Richard Berman, who is presiding over a separate legal challenge.

In the meantime, the SEC is fighting several challenges that seek to elicit a ruling similar to the one in Atlanta and have their administrative cases put on ice because of constitutional concerns.

At last week’s New York hearing, Judge Berman refused a request by lawyers representing Barbara Duka, a former Standard & Poor’s Ratings Services executive, to grant an immediate halt to the SEC administrative case against her. Instead, he set dates next month for more-detailed arguments by Ms. Duka, who denies SEC civil allegations of fraud.

But the judge grilled the government lawyer on why the SEC won’t adopt a seemingly “easy fix” to its legal headache. He asked if the issue highlighted in Atlanta—the need for “officials” such as in-house judges to be appointed by senior figures—could be cured by “one line in a memo” from the SEC commissioners, formally hiring its judges. Nelson Boxer, a lawyer for Ms. Duka, told the court this approach would address their concern, adding: “It doesn’t strike us as a very complicated exercise.”

Judge Berman said the government’s strategy for dealing with “all these cases all over the country” seemed surprising—“I just don’t get it,” he said.

But the SEC isn’t convinced any easy cure exists, according to people close to the agency.

Senior agency officials are weighing changes to its in-house tribunal, including a new appointments process, the people close to the agency said. The SEC could also update its rules for in-house cases.

Officials say, however, that any change shouldn’t be rushed.

“We should not act rashly,” Jean Lin, a Justice Department lawyer representing the SEC, said at last week’s hearing before Judge Berman.

One reason for caution is the possible impact on other SEC enforcement actions, the people close to the agency said. Any change seen as a tacit admission the SEC judges were appointed in an unconstitutional way might open the door to lawsuits, these people say, including in the more-than-100 disputed cases now going through the agency’s in-house courts.

The SEC is trying to prevent more of its in-house cases from being stopped in their tracks.

The agency last week asked Judge May—the Atlanta judge who issued the ruling that the SEC judges were likely unconstitutional—to send another lawsuit against the SEC back to the court clerks for assigning to a different judge. The case in question was filed by investment-firm Timbervest LLC and four of its executives, who are appealing to the SEC a ruling last year by Cameron Elliot, an SEC judge, that they defrauded a pension-fund client.

The Timbervest defendants say their lawsuit in the Atlanta federal courts, challenging the constitutionality of the in-house process that led to a decision against them, should be heard by Judge May because it raises issues similar to ones she ruled on in the earlier case.

But the SEC said the cases involved different facts and should be heard by different judges. Allowing the Timbervest challenge to be decided by Judge May would “stunt the development of the law and encourage judge shopping,” the SEC said in a court filing.

Joel Shapiro, Timbervest chief executive and one of the defendants in the case, called the agency’s stance “laughable.” Agency officials “are the ones who are both judge shopping and forum shopping,” he said.

Are Administrative Law Judges Unconstitutional?

Great question.  It’s a question that appeared in this post on PrawfsBlawg this week.  Last week, a federal District Court judge in Georgia determined that ALJs at the Securities and Exchange Commission are not properly appointed.  Judge Leigh Martin May, in an order on a motion for temporary injunction in Hill v. S.E.C., agreed with the arguments of  Charles Hill who was accused of insider trading by the SEC.  Hill argued, among other things, that Article II of the Constitution requires that “inferior officers” be appointed by the President, the Judicary, or “heads of departments”.   ALJs at the SEC are, instead, appointed by a chief ALJ.

As the PrawfsBlawg post points out,

“there’s an easy fix for the SEC because the SEC is already considered a ‘department’ and has authority to appoint ALJs itself. But the opinion raises new concerns for other ALJs in the administrative state, who together hear over 250,000 cases a year.  That’s because many agencies are not freestanding departments–like the Consumer Financial Protection Bureau, which operates inside of the Federal Reserve.”

So, these questions remain:  will the holding in Hill stand up on appeal and, in cases involving ALJs in agencies not considered “departments”, will the Constitution be applied to require the appointment of ALJs by Article II officers (President, the Judiciary, or department heads)?  Stay tuned . . .