Judge-Less Subpoenas Put ‘Debilitating Burden’ On Small Businesses

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Administrative subpoenas issued by federal bureaucrats without prior approval of a judge can be the kiss of death for Main Street businesses, according to attorneys representing them.

Congress has delegated to dozens of federal departments and agencies the authority to demand records and testimony with administrative subpoenas when the information meets a “relevance” standard instead of the Fourth Amendment’s “probable cause” requirement.

“If they issue a subpoena, they ask for everything,” said David Douglass to The Daily Caller News Foundation. Douglass is a former Department of Justice trial attorney and assistant U.S. attorney who now represents health care providers and government contractors as a partner at the Sheppard Mullin law firm in Washington, D.C. “It’s extraordinarily expensive to produce. It’s so much information that the government can’t even get through it.”

It’s common for a business to have to produce millions of pages of documents to comply with an administrative subpoena. Compliance can also take a year or two, Douglass said.

The burden is particularly heavy for small businesses.

“There are many large, sophisticated companies that are accustomed to having to respond to broad civil investigative demands (CIDs) and administrative subpoenas on a regular basis,” Robert Rhoad, a former Navy Judge Advocate General Corps lawyer, told TheDCNF. Rhoad now represents health care providers and federal contractors in litigation against government agencies as a partner at Crowell & Morring law firm.

“But because of their financial positions, record-keeping systems, and staffing, they can absorb the cost of doing so as a cost of doing business,” Rhoad said. “For small ‘mom and pop’ type businesses with limited resources, however, the demands imposed by such CIDs and subpoenas can be financially debilitating.”

Federal bureaucrats issue thousands of subpoenas — for records and testimony every year. Agencies often use this power to determine if businesses are complying with the law. Unlike law enforcement search warrants that must be approved by judges, however, administrative subpoenas don’t require specific suspicions or probable cause.

“It’s like an unfunded mandate,” said Tim Lynch, director of the Cato Institute’s project on criminal justice, to TheDCNF. “If the government were required to compensate business owners for the time and expense that they have to incur to comply with the subpoena, then I think that’s a reform that is worth taking a look at, because the business owner has done absolutely nothing wrong.”

A spokesman for The U.S. Chamber of Commerce told TheDCNF it has no position on administrative subpoenas.

But other business groups do. Steve Minick, vice president of public affairs at the Texas Association of Business, told TheDCNF the Environmental Protection Agency (EPA) can cause severe headaches for companies with its record requests.

The EPA requires companies affected by its regulations to maintain records for inspection. A company that exports waste to other companies, for example, has to keep shipping manifests for the EPA to review. But oftentimes, Minick said, the EPA demands many other records on a whim.

“The problem is when we go beyond that and agencies get into fishing expeditions for, ‘well, I want to see this,'” Minick said. “If you want access to data, then go through the rule-marking process to adopt that type of access.”

Businesses have little legal leverage to fight administrative subpoenas, so they generally don’t, Douglass said.

Complying with all federal regulations is costlier for small businesses.

The average small business with fewer than 20 employees spends $10,585 per employee on total regulatory compliance — 36 percent more than the $7,755 the average firm with 500 or more employees spends per employee on regulatory compliance, according to the Small Business Administration’s Office of Advocacy.

The burden of environmental compliance, included in that total compliance price tag, is more distinct. The average small business spends $4,101 per employee complying with environmental regulations alone, while the average large business spends $883 per employee, a 364 percent increase.

There isn’t any recourse for companies in the clear, but the federal government has plenty of “administrative remedies” to punish businesses that don’t comply, Rhoad said. The Department of Health and Human Services, for example, has the power to disqualify a doctor’s office from taking Medicare or Medicaid money.

When companies challenge the federal government, the cards are stacked against them.

Federal courts, as a 2002 Department of Justice report on administrative subpoenas pointed out, are historically deferential to Congress and executive branch agencies.

“I’m not sure if judicial review is necessary or even if they could use an administrative law judge to review them, but I think giving an agency unbridled discretion to issue requests that could place a debilitating burden on a company, there needs to be some sort of check and balance,” Rhoad said.

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