Businesses Wary as Obama Picks Get Edge in Senate Rules

President Barack Obama will have more leverage to regulate the energy and financial-services industries under a Senate rule change that will let a simple majority confirm most presidential nominees.

This week’s Senate vote means Obama won’t need Republican support to win approval of his nominees to run federal agencies and serve on U.S. trial and appeals courts. There are 231 Obama nominees pending in the Senate, including 53 judges, 81 candidates for cabinet-level agencies and 13 at independent regulatory agencies, according to the White House.

Most important, in many ways, are Obama’s picks to serve on the U.S. Court of Appeals for the District of Columbia Circuit, which handles challenges to federal regulations and is called the second-highest court in the country.

“Under any administration, federal agencies seek to implement the president’s policies by developing regulations,” said Jeff Holmstead, a Washington lawyer at Bracewell & Giuliani LLP who has represented coal-heavy utilities. “But in most cases, the judges on the D.C. Circuit are the people who decide whether those regulations comply with federal law.”

Among the cases being reviewed by the court is one on the Federal Communications Commission’s “net neutrality” rules requiring Internet-service providers such as Verizon Communications Inc. (VZ) and Comcast Corp. to treat all traffic equally, a goal of Google Inc. (GOOG) and Netflix Inc. (NFLX)

Three Vacancies

The court -- which has three vacancies and where Republicans now have an edge -- also would probably rule on the administration’s proposal to limit carbon-dioxide pollution from power plants. Those rules are under development by the Environmental Protection Agency, and may not be ripe for a legal challenge for more than a year.

Groups representing coal producers such as Alpha Natural Resources Inc. (ANR) and Peabody Energy Corp. (BTU) have tried to fight off EPA regulation of carbon dioxide emissions from power plants. They argue the EPA’s proposed standard relies on a technology that’s not commercially available.

The change in Senate procedure “can only result in more bad news for the energy industry as EPA will likely be be even more bold in attempting to run roughshod over state rights,” Laura Sheehan, a spokeswoman for the American Coalition for Clean Coal Electricity, said in an e-mail.

Any of the financial regulations soon to be issued could be affected by this change to the D.C. Circuit, said Jaret Seiberg, a financial services policy analyst at Guggenheim Securities LLC’s Washington Research Group. Possible challenges, he said, could come to the so-called Volcker Rule, which would curb proprietary trading by banks.

Regulatory Leeway

“For the most part, liberal judges give regulators more leeway to interpret the law,” Seiberg said in an interview. “If the president does get more judges on the court, the incentive would be less to” even file a legal challenge.

Nine nominations at four financial regulators, including those implementing Dodd-Frank legislation and the Volcker rule, are more likely to move forward with the rule change, according to Bloomberg Government senior finance policy analyst Cady North.

It’s not necessarily the case that the political affiliation of the president who appointed a judge will determine how they rule in any one case. For example, unanimous panels appointed by a mix of Republican and Democratic presidents voted to overturn a George W. Bush-era environmental rule on power plants, saying it wasn’t strong enough, and upheld the ability of Obama’s EPA to regulate greenhouse gases.

Environmental Leanings

“It’s not as determinative as some people would lead you to believe,” Scott Schang, executive vice president of the Environmental Law Institute, said. Schang’s group did a study of a subset of 325 environmental cases and found that judges appointed by Democrats side with environmental groups 60 percent of time, while Republicans do 28 percent of the time.

During almost five years in office, Obama has placed only a single judge, Sri Srinivasan, on the D.C. Circuit. Srinivasan was confirmed in May after Obama’s first nominee, Caitlin Halligan, was blocked by Senate Republicans. They objected to Halligan’s work as New York State’s solicitor general on a lawsuit against handgun manufacturers.

In June, Obama asked the Senate to confirm Georgetown University Law Professor Nina Pillard and U.S. District Judge Robert Wilkins, as well as Washington attorney Patricia Millett, for the vacancies on the appeals court. Those nominations are now on track to win confirmation.

‘Anti-Business’ Regulation

“They’re going to get approved,” said Senator Charles Grassley of Iowa, the top Republican on the Judiciary Committee. “And when they get approved, then you’ll have a rubber stamp for his anti-business regulations.”

The Nov. 21 Senate vote eliminated a delaying tactic known as a filibuster for all nominations except those to the Supreme Court. Republicans called it the most dangerous revision of Senate procedures in more than two centuries.

The change enacted this week doesn’t affect the deference given by custom to senators to sign off nominees to federal judgeships in their home states. That custom has been particularly important in Arizona and Texas, states with two Republican senators and multiple vacancies.

Nor does it affect the Senate tradition of placing a “hold” on a nominee. In recent years Senate Majority Leader Harry Reid, a Nevada Democrat, has abandoned the practice of not bringing to the floor nominees with holds on them.

Shorter Marathon

While the change will help Obama, it won’t “remake the federal government,” said Paul Light, a professor of presidential studies at New York University. It’s “like reducing a marathon from 26.2 miles to 20 miles. It’s still a hell of a marathon.”

Obama will have more latitude to make “extreme” nominations in the future, said Curt Levey, president of the Committee for Justice, which has opposed many of the administration’s nominees. The threat of a filibuster had previously constrained the administration, Levey said.

“That effect, frankly, is gone,” Levey said. “He knows that there’s absolutely nothing that anyone on the Hill, or off the Hill, can do.”

Interest groups allied with Obama have urged him to make bolder choices for the judiciary, along the lines of Goodwin Liu, whose nomination for the federal appeals court in San Francisco was blocked in 2011.

Republicans said Liu had activist judicial views and would support expanded welfare, gay-marriage and privacy rights. Democratic backers pointed to Liu’s years of scholarship as a law professor at the University of California. Liu now serves on the California Supreme Court.

Liu Nomination

“Goodwin Liu was an extremely highly qualified nominee who should have been confirmed,” said Caroline Fredrickson, president of the American Constitution Society, a network of progressive lawyers and law students. “If that’s the terrible outcome, bring it on.”

Federal appeals courts now have 18 open seats, and Obama has made nominations for 10 of those slots. In addition, some judges may take on semi-retired senior status -- creating additional vacancies -- now that prospects for confirmation of a successor have improved, said Tom Goldstein, an appellate lawyer whose Scotusblog website tracks the Supreme Court.

“This is the most exciting moment for liberal advocacy groups concerned with the courts ever,” Goldstein said.

Obama has said both parties share blame for the political conflict over judicial nominees. In 2007, then-Senator Obama joined two rivals for the 2008 Democratic presidential nomination -- Senators Joe Biden and Hillary Clinton -- in supporting an unsuccessful filibuster against one of Bush’s appellate court nominations.

‘Bitter Partisanship’

The fallout that may follow this week’s vote may undermine prospects for a functioning government, business groups said.

“An increase in bitter partisanship would not bode well for the business of running the country,” said Dan Stohr, a spokesman for the Aerospace Industries Association, the Arlington, Virginia-based trade group whose members include Lockheed Martin Corp. (LMT) and Boeing Co. (BA) “It’s in our country’s best interests for members of Congress to work together on the challenges facing our nation.”

To contact the reporters on this story: Mark Drajem in Washington at mdrajem@bloomberg.net; Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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