Thursday, Oct 4, 2007    Text size: 

The letter, primarily authored by David E. Frulla, a partner in the firm Kelley, Drye, Collier & Shannon, honed in on the fact that the Justice Department apparently has done no research whatsoever on the economic impact of 2257 and the burden that compliance would impose on small businesses within the industry.

FSC Chairman Jeffrey Douglas told XBIZ that the RFA concerns cited by Frulla in his letter are “earth-shattering” for the Justice Department’s continuing efforts to enforce 2257.

“I don’t know how the Justice Department is going to proceed,” Douglas said. “If they ignore [the RFA claims] the statute will be enjoined — hopefully root and branch. If they comply, then they have to start all over again, and consider the economic impact of the entire statute.”

The Kelley, Drye, Collier & Shannon firm was retained by the Free Speech Coalition, along with Georgetown Economic Services (GES), to help communicate to the Justice Department concerns over the economic impact of 2257. GES conducted a study on the costs, and Kelley, Drye, Collier & Shannon was retained to present the legal arguments surrounding the RFA.

The firm previously has represented clients on RFA issues initiated by a wide range of federal rulemaking proceedings, including ones initiated by the Commerce Department, the Environmental Protection Agency, the U.S. Army Corps of Engineers, the Agriculture Department and the Federal Communications Commission.

“[T]here are thousands of small businesses in the adult entertainment industry that will experience a significant adverse economic impact if the proposed rule is implemented,” Frulla wrote. “Accordingly, pursuant to the RFA … the Justice Department is required to conduct detailed regulatory flexibility analyses … in connection with developing this rule.”

Frulla also observed that “while the adult entertainment industry’s overall economic contribution to the U.S. economy is large, the overwhelming majority of industry participants (and, likewise, of the FSC's members) are small businesses.”

Frulla argued that small businesses in the industry will “suffer substantial economic, administrative and other injury, which almost assuredly will force a significant number of them (particularly Internet-based businesses) out of business should the proposed rule proceed to final rule in its current form.”

Whatever the true economic impact of 2257 may be, Frulla asserted that the Justice Department simply has not met its responsibilities under the RFA with respect to researching that impact.

“In its proposed rule, the Justice Department states, in conclusory fashion, that it ‘drafted the rule to minimize its effect on small businesses while meeting its intended objectives,” Frulla wrote. “Yet nowhere in the proposed rule does the Department explain how it sought to minimize impacts on small businesses, nor is such consideration otherwise evident.”

This unsupported assertion on the part of the Justice Department “falls far short of what is required of agencies under the RFA, the SBA Guide and controlling case law,” Frulla wrote.

Douglas noted that the Justice Department not only failed to conduct any real analysis of the statute’s economic impact with respect to the newly proposed revisions to the regulations, the agency never considered the impact of the statute and regulations in their original form.

“They haven’t even gotten to step one of a long, complicated road,” Douglas said.