FBI Halts 2257 Inspections of Secondaries

The following article first ran in the November 2007 issue of XBIZ World Magazine.

Following the 2257 inspections of five Florida-based producers in September, Special Agent Chuck Joyner, head of the FBI's 2257 inspection effort, sat down with XBIZ to clarify some points concerning the FBI's inspection policies, including the question of whether inspections of so-called "secondary" producers are imminent.

Joyner was definitive in his response as to whether inspections of secondary producers have taken place thus far, or are likely to take place in the immediate future.

"We do not inspect secondary producers," Joyner told XBIZ. "On a few inspections, we determined the company was a primary producer for the majority of the products we reviewed. However, some of the products reviewed were produced by a separate company and the company inspected was the secondary producer or distributor. In those instances, we did not review any records for products determined to be produced by another company."

When the story of the Florida inspections broke, some speculated that one or more of the producers inspected had been a secondary producer. This speculation was based in part on the paraphrasing of an unidentified producer who allegedly told the inspection team that he had not kept any records prior to 2005.

Joyner told XBIZ, however, that the FBI would not undertake any inspections of secondary producers until the revised regulations are in effect.

"Until any new regulations become law, they do not exist for our purposes," Joyner said. "So, no, there will not be any inspections of secondary producers unless the law changes. Any proposed revisions are irrelevant until they become law."

Adult industry attorneys contacted by XBIZ were somewhat divided as to how much faith producers should place in Joyner's assurance that the FBI would not inspect secondary producers, but generally agreed that such inspections are unlikely to take place in the short term.

Attorney Larry Walters concurred with Douglas for the most part, but added that while Joyner's comments made sense and that waiting for the new regulations to come into effect would be "typical of regulatory agencies, generally," Joyner's comments should not be taken as the final word on the question.

"Joyner is not a policymaker, and he cannot set policy," Walters said. "People in this industry should know by now that an individual's statement is only as good as their word that day – they can be replaced, or there can be a change in policy from above."

Walters said it also is important to note that the "position of the Justice Department is that secondary producers have always been required to maintain records."

"From the Justice Department's perspective, the Adam Walsh Act just made it clear that the regulations apply to secondary producers," Walters said. "Their official position is that secondary producers have always been required to maintain the records."

Attorney Jeffrey Douglas, the chairman of the Free Speech Coalition, told XBIZ that he had received similar assurances from the fourth highest-ranking officer of the FBI at the September meeting that took place between members of the adult industry and the FBI in Washington.

"The only problem lies in the FBI's definition of 'secondary producer,'" Douglas told XBIZ, adding that producers who label their content with a custodian of records statement indicating that they maintain records might be considered a primary producer by the FBI, even if they technically do not qualify as such.

Douglas said, however, that whether the FBI might show up to inspect a secondary producer based on such a label and whether the Justice Department would initiate a prosecution based on that inspection are two entirely different questions.

"It is not a question of just some low-level official saying 'We aren't going to inspect secondary producers until the regulations change,' it is a fundamental issue of law," Douglas said. "A proposed regulation is just a breath of wind, it is just an idea."

Douglas said that Joyner's statement was "consistent with everything" that has been communicated by high-ranking officials both from the FBI and from the Justice Department, as well as the statements made in the preface to the revised regulations proposed by the Justice Department in July.

Attorney Reed Lee, a member of the FSC's litigation team in its challenge to 2257 and current president of the 1st Amendment Lawyers Association, told XBIZ that while there are reasonable caveats that one must keep in mind, "there is reason to believe that Mr. Joyner knows of what he speaks with regards to the FBI's inspection policies."

"Joyner has established a fair degree of credibility as someone who is trying to cultivate good relations with the community that he is inspecting," Lee said.

Lee echoed Walters' words of caution, however, and stated that Joyner's credibility and forthrightness "doesn't mean that he speaks for the people at the Justice Department."

Lee also agreed with Douglas that the FBI's interpretation of what constitutes a "secondary producer" does not necessarily match the definition of that term under the statute.

"Even if Joyner is being totally honest and forthright in saying 'we are not inspecting secondary producers,' they go by what's on the label," Lee said. "Since many secondary producers have been complying in good faith and labeling their products with the required custodian of records statement, this does present the inspection team with some factual issues that are difficult for them to determine."

Ultimately, Lee said, some issues surrounding 2257 likely will not be settled by any means other than litigation.

"Absent Congress sitting down and fundamentally rethinking section 2257, further litigation is almost inevitable," Lee said. "It likely will be several years before we have answers on some of this."

In another 2257-related development, experts on the Regulatory Flexibility Act (RFA) retained by the FSC submitted comments to the Justice Department during the recent public comment period, arguing that Justice Department has failed to satisfy requirements of the RFA.

The letter, primarily authored by David E. Frulla, a partner in the firm Kelley, Drye, Collier & Shannon, focused 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.

The law firm was retained by the FSC 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 Dept. of Commerce, 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 said 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."

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."

Douglas said 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.