Incoming! Private Sector Should Anticipate a Wave of Investigations From the New Democratic House of Representatives

The 116th Congress was sworn in today, officially shifting control of the House of Representatives to the Democratic Party for the first time in nearly a decade. Media talking heads will debate the short-term policy implications of divided government, but the private sector should brace for aggressive congressional oversight for the foreseeable future. As Rep. Elijah Cummings (D-MD)—incoming Chair of the powerful, and newly renamed, House Committee on Oversight and Reform—explicitly announced yesterday, the new majority views its “true jurisdiction” for investigations and oversight as reaching “both the government and the private sector.”

The current congressional atmosphere is reminiscent of the power shift in the 110th Congress. In January 2007, the Democrats assumed control of both the House and Senate after years in the minority, opposite a GOP-controlled Executive that had not experienced significant congressional oversight. The 2007 leadership change unleashed a torrent of congressional investigative activity with a primary focus on the Bush Administration, but that involved extensive collateral investigative spillover into the private sector. Defense and government contractors, like former Halliburton subsidiary KBR, felt the full brunt of intense scrutiny, as alleged abuses in Iraq and Afghanistan reconstruction drew significant congressional interest. Other inquiries expanded into business sectors as disparate as the health insurance and pharmaceutical industries as the Democrats made their case for health care reform, oil and gas extraction companies, such as BP, which was heavily investigated after the Deepwater Horizon oil spill, Toyota and other vehicle manufacturers concerning reports of unintended acceleration, and a broad array of hedge funds, investment banks, and other financial services firms as Congress investigated the causes of the 2008 economic collapse.

What’s past is likely prologue, as the new Democratic House Committee chairs are armed with a wide-ranging investigative agenda and, based on authority that the Republicans previously extended to many committees, the ability to issue subpoenas unilaterally, without even calling a vote by the committee. And given the limited prospects of enacting meaningful legislation with a GOP-controlled Senate and President Trump, the new Democratic House majority will likely exercise its oversight prerogative aggressively, triggering a surge in the pace and shift in the focus of congressional investigations. The collateral spillover to private sector actors is likely to be more profound this time, both because the Democratic Committee chairs view their investigative license expansively and because the news media has focused heightened attention on private business efforts to influence the appointment of agency officials and the reform of regulatory policies.

We expect the Democratic House majority to focus substantial investigative attention directly at the Trump White House and executive agencies, as well as scrutinize private-sector business practices to advance certain political goals. This alert analyzes the implications of leadership changes on several key House committees for companies operating in sectors likely to experience increased scrutiny, including technology and data privacy, health care, natural resources and the extraction industries, education, and financial services. We also identify some best practices for companies and their counsel preparing for heightened congressional oversight.

Implications of Changes in Key Committee Leadership

Committee on Oversight and Reform—Rep. Elijah Cummings (D-MD): Under House of Representative Rule X, the newly renamed Committee on Oversight and Reform (COR) (formerly the Committee on Oversight and Government Reform) has the broadest investigative jurisdiction of any House committee. Its investigative authority generally includes any matters involving the management and operation of the federal government and public records. But the COR is also authorized to investigate any matter that falls within the jurisdiction of all the other standing House committees, and its investigative reach will likely include the Trump Administration’s policy changes to the Affordable Care Act, the approach to climate science and environmental policies, and allegations of financial conflicts of interest between agency officials and the industries they regulate. Indeed, the Committee’s recent name change, expressly dropping the “Government” limitation on its oversight and reform jurisdiction, offers the most concrete evidence of the majority’s intent to conduct robust oversight of business practices of private-sector companies and their interaction with policymaking in the Trump Administration.

Chairman Cummings can be expected to use the threat of unilateral subpoena power to pursue information from pharmaceutical manufacturers concerning prescription drug costs, an issue of long-standing personal focus. We anticipate vigorous probing of rising drug cost trends and other subjects related to the fate of the ACA, inquiries that will likely involve intrusive requests for documentary and testimonial evidence from insurance companies, pharmacy benefit managers, and others operating in the delivery or administration of health care. Inquiries into the Administration’s potential financial conflicts of interest and allegations of improper business influences on regulatory reforms will likely prompt related oversight of the energy industry, the banking industry, and other private companies viewed as benefiting from the Trump Administration’s de-regulatory efforts.

Energy and Commerce—Rep. Frank Pallone (D-NJ): The House Committee on Energy and Commerce exercises the broadest legislative jurisdiction of any House committee, and its investigative jurisdiction is co-extensive. Energy and Commerce oversees telecommunications, data privacy, consumer protection, food and drug safety, public health and research, environmental quality, energy policy, and interstate and foreign commerce. Its expansive purview encompasses economic sectors corresponding to the areas of responsibility for five Cabinet departments and at least seven independent agencies.

Former Ranking Member Frank Pallone (D-NJ) will assume the Committee’s chairmanship. Chairman Pallone has already identified a wide range of issues as priorities for the committee’s attention—including lowering prescription drug costs, addressing climate change and other environmental issues, and protecting the “Net Neutrality” rules advanced in the Obama Administration.  Pharmaceutical manufacturers and other companies involved in the prescription drug supply chain, traditional energy producers, sensitive or personal data hosts, as well as telecommunication companies, internet service providers, and other media and content producers involved in the promulgation and later repeal of Obama-era Net Neutrality rules should anticipate being among the first private-sector enterprises to field Energy and Commerce inquiries. 

Financial Services—Rep. Maxine Waters (D-CA): After serving as the Ranking Member during the 115th Congress, Rep. Maxine Waters returns as Chair of the Financial Services Committee. Financial Services is charged with oversight of the entire financial sector, including the banking, housing, and insurance industries. As Chair, Rep. Waters is expected to greatly expand oversight of the banking sector and has promised to highlight what she views as exploitative financial practices, promote the availability of credit and services to low-income communities, and promote policies aimed at greater regulation of financial sector practices. Financial institutions regulated by the Bureau of Consumer Financial Protection (the renamed CFPB) and, in particular, the nation’s largest banks and securities trading firms may find themselves swept up in the Committee’s broader effort to investigate the Trump Administration’s relaxation of enforcement priorities within the CFPB, as well as in direct inquiries related to the Committee’s attempt to avoid a new financial crisis on the scale of the 2008/09 Great Recession. Rep. Waters has also announced an intent to seize a global oversight role for the committee by bringing foreign banks and financial institutions within the committee’s jurisdiction

Judiciary—Rep. Jerrold Nadler (D-NY): The House Committee on the Judiciary—and its new Chair Jerrold Nadler (D-NY)—stands to be among the most closely watched committees in either chamber during the 116th Congress, owing primarily to its oversight of the Justice Department and Special Counsel Mueller’s ongoing probe. Beyond oversight of the Trump Administration itself, investigations relating to “dark money” are top priorities for Chairman Nadler, to the extent they may buttress the House Intelligence Committee’s expected reopening of its investigation into foreign influence in US politics and prepare the ground for future proceedings concerning misconduct within the Administration. Those inquiries can be expected to scrutinize the practices of social media and technology companies, hotels and real estate deals involving the Trump organization, and inquiries of other companies and individuals alleged to have sought influence with candidate or President Trump.

Responding to a Congressional Investigation

Companies and individuals that receive an official committee inquiry, whether a subpoena or a voluntary request for documents or testimony, are well-served by recognizing the unique nature of, and risks inherent in, a congressional investigation. For example, unlike the courts and attorneys involved in civil litigation or criminal grand jury investigations, Congress and its investigative counsel do not acknowledge the restrictive limits of common law privileges such as the attorney-client privilege or the work product doctrine. Nor is Congress bound by the rules of procedure that govern discovery and the collection of evidence in civil and criminal proceedings.

Unlike most state, federal, or administrative enforcement actions where the subpoena recipient can appeal to a neutral judge to limit the scope of an overbroad inquiry or address a prosecutor’s burdensome overreach, in congressional investigations, the Committee Chair serves as both prosecutor and judge, issuing the investigative request and ruling on its appropriate scope. In many instances, delicate negotiations and strategic cooperation, informed by a respectful, arms-length rapport with congressional investigative counsel, can avoid open conflict with the Committee and resultant reputational damage to the responding company. In other cases, a more forceful, confrontational approach is appropriate to advance the company’s goals in weathering an invasive inquiry premised on unfair presuppositions.

Retaining experienced counsel who can leverage a combination of subject matter expertise and intimate knowledge of the motivations and personalities driving a particular investigation is a critical step in successfully navigating a congressional inquiry. Counsel with experience in these dynamic representations can help negotiate the scope of a company’s response in a manner that minimizes burden and reputational risk. Our team features former high-ranking investigative counsel who directed Senate and House committee investigations with decades of experience successfully defending these high-stakes inquiries. Our expertise and track record of success have made O’Melveny a trusted ally of companies, organizations, and individuals responding to congressional subpoenas, preparing for public testimony at congressional oversight hearings, and facing ethics inquiries, related criminal investigations, and civil enforcement actions.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. K.Lee Blalack II, an O’Melveny partner licensed to practice law in the District of Columbia, David Leviss, an O’Melveny partner licensed to practice law in the District of Columbia and New York, Sara Zdeb, an O’Melveny counsel licensed to practice law in the District of Columbia and Maryland, and David Fitzgerald, an O’Melveny associate licensed to practice law the District of Columbia and North Carolina, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2019 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, T: +1 212 326 2000.