Unit I - The Uneasy Constitutional Location of Agencies in the Executive Branch

Unit One in a nutshell: Types of Agencies: - Departments - Independent (article I courts) - Other (mistretta, sentencing guideline commission, etc.)

Presidential power - Removal (Meyers, Humphreys) Separation of powers - Mistretta at pg. 19 Non-delegation - J.W. Hampton, Mistretta at 15.

APA design; three functions of agencies: 1. make rules 2. adjudicate 3. gather information
There are not very many legal issues with information gathering, so the class will not focus on it.

Rule making and adjudication is done formally and informally

| |Rule Making |Adjudication |
|Formal |§ 553 |§ 554 |
|Informal |§ 553 |§ 554 |

Rulemaking = making little laws. Same effect as anything congress passes.
Adjudication = making an order

Introduction to Administrative Law - F&S pp. 1-22

The Administrative Procedure Act - Act, Chart and Sample Rule

The Grouper Handout and the APA §553 §553 doesn’t say where the rule comes from (i.e. employee of the U.S. or anything), but does say publish in the federal register. §553(b) §553(b)(1) - time/place/etc/nature. The grouper rule - March 4, 1992, to the mailroom, by mail = time, place, nature. Does this constitute a “hearing”? Its called a paper hearing and satisfies §553. §553(b)(2) - authority. Grouper - Magnuson Fishery . . Act. Note, they cite to their own rule; generally an agency must follow its own rules (notice exceptions). 553(c) - interested persons must have an opportunity to participate, (concise general statement) §553(d) - publish 30 days before effective date

Page 180-88 of Schecter says something about rule making; how is it different than §553?

A. The Problems of Locating Administrative Agencies in the Executive Branch:

Departments:
Head: Cabinet Officer
Serve: At Convenience of President
Appoint: Advice and Consent
Meyers : The president can fire

Independent Agency:
Remove for Cause
Taking Care Clause - he shall take care that the laws be faithfully executed, and shall commission all the officers of the United States.
Humphreys: Congress can insulate

Federal Corporations
Established by statute
Generally the act covers areas that would be in the APA. Don’t really need to follow the APA

Agencies are the headless fourth branch of government because their heads can not always be fired (independent agencies - “for cause”).

Department heads are picked by the president and can be fired by the president.
The president can not fire civil service employees (needs cause).
Civil Service - created by Chester Arthur (crook)

Commission (independent agencies) - heads are appointed by president but staggered terms so no president could appoint a majority. Also party restrictions. Insulated from president control. Can president remove them?
Often they are in different structures. Congress is not consistent.
Example - U.S. Postal Service - Federal Corporation set up by the government for profit. Rates are reviewed by the postal rate commission.

When addressing legal issues, the one question you ask is what does this issue sound in? Contract, property, tort ? One problem with admin law is trying to figure out whose rules to follow.

Power of the president to control/fire people. At the cabinet level, no problem. Lower level positions usually are insulated by statute that says “for cause” . . .

1. Presidential Power ‘the Unitary President’ F&S 51-67 Vesting Clause: Art. II §1; Take Care Clause: Art. III, §3

Meyers and Humphreys focus on two kinds of issues: (1) separation of powers, (2) non-delegation: Separation of powers is an issue of encroachment - if congress can fire people under the executive branch, they step on the presidents toes. Isn’t it the same type of encroachment if congress says the president can not fire the head of an agency?

Delegation - Duties can not be delegated, if there is a finding that congress delegated its power - its unconstitutional. Can congress let some agency make laws?

ART I ART II ART III
Congress Executive Courts - Joint Committees - GAO - Lib. Of Congress

Congress and courts are easier to define
Only court required by constitution is the supreme court (act of 1789 created the other courts).
The constitution grants specific powers to congress, the rest is undefined and left to the executive - In the progressive era (1st Roosevelt) we start getting independent agencies. - They are under Art II, but created by congress’ article I power. E.g. tax court, bankruptcy court. - The tax court and bankruptcy court are called article I courts - the regular rules don’t apply.

Meyers and Humphreys - notice issues of president power and description of how some of these agencies are acting; Postmaster, FTC, Sentencing guideline committee

Meyers - Postmaster is a cabinet level post. Justice Taft was president - has some opinions that show.
Mistretta - look at different functions they describe to get a clue. Why is the president complaining about it. 3 types of agencies?

2. Presidential Power in respect to a Department:

Humphreys:
Appointment of inferior officers clause - 2 different kinds of officers: (1) officer of the U.S. and (2) Inferior officer (no one is sure what the difference is).

Morrison v. Olson:
Independent counsel - Inferior officer.

Easy rule (but still not sure): Congress creates office and requires advice and consent = office of the U.S. Other office = inferior...

The president himself is not an agency.
What about homeland security? What is Tom Ridge? Originally, an executive order made him an advisor of the president (president can remove). The legislation may be different.

Myers v. U.S. Postmaster of Oregon, appointed through advice and consent by the president for four year term, president decides to fire him; can he? The court says the power of removal is incident to the power of appointment. Requiring consent for appointment is not much of an infringement on executive power because there is usually a large slate of qualified individuals and a check is necessary to ensure qualified individuals fill the position. Consent for removal limits the power too much because the president needs to be able to make sure people do their jobs.

Can congress create agencies? Yes, Necessary and proper clause.

How do you define “Executive” - not defined in the constitution, so defined by tradition (of the crown) and theory (separation of powers - not crown) of constitution. To define, we need to look at the confederate papers and other sources to see what people at the constitution convention intended. One question is whose notes should you be looking at. Everyone has a different opinion.

What should we get out of cases? - Authority of executive over the agencies - Sense of the difference between Department (Meyers) and Independent agencies (Humphreys)

3. Presidential Power in respect to an independent Agency

Humphrey’s Executor v. U.S. P was nominated by pres. Hoover to Federal Trade Commission. Pres. Roosevelt comes along and wants to fire Humphrey. The court looks at the function of the commission: it was the type that needed to be beyond the president’s control, nonpartisan, independent, and not executive. It was in fact quasi-judicial and quasi-legislative in nature. In addition, the legislative reports indicated that it would not be subject to orders of the president. Myers doesn’t apply because it is outside the executive branch. They analyze the duties and determine it is not executive. The court holds that the President’s removal power is not illimitable. Where congress creates an agency outside the executive that requires nonpartisan/independence, they can limit the president’s removal power to “For Cause”.

What were the reasons argued why the president can not remove? People are entitled to an impartial decision maker, can’t have the threat of termination hanging over their head. They need to be independent. Argument against - don’t want president to give jobs to people and never be able to take them away.

Removal power seems to be implied by appointment power, unless congress says differently. Whoever appointed the person can probably remove, otherwise congress can. Look at the statute to determine if congress limited the removal, who appointed is probably who removes.

Humphrey clear statement rule: If congress intended something really unusual, it will not be read it into the statute - Congress needs to put it in a clear statement.

No agencies are quite like any others. They are doing different things; rule making, consulting, adjudication, etc.. When dealing with an agency, First thing you do is go to their organic statute. Second, consider whether the statute is constitutional. Maxim of the courts: If an issue can be resolved without reaching the constitutional issue, it will be so resolved.

It is more common to find non-delegation issues at the state level than at the federal level.

Meyers - Department Humphreys - Independent agency Mistretta - Agency in judicial branch Humphreys overrules parts of Mistretta when it comes to presidential power over executive officers.

Look at how an officer is appointed. If appointed by advise and consent by the President, he is probably an officer of the U.S.

Issue: Can congress limit the president on his control of the executive branch? How far? (purely executive office). Congress has not tried. President will probably argue “take care” clause and might win.

Without agencies the three branches would not work well together. Congress puts agencies in places to make branches work better together.

4. “Principle” and “Inferior” officers.

Principle Officer = Appointed through advice and consent. See Myers, Humpreys, Misteretta. Infererior Officer = Appointed by the president. He can fire at will

5. An Agency in the judicial branch:

Mistretta v. U.S. (also separation of powers) Congress passed an act to review sentencing guidelines and create mandatory sentencing guidelines. Require 3 fed judges, mix of political parties, appointment by pres, etc.. Placed it under the judicial branch but it is not a court and does not exercise judicial power. Mistretta challenges the act under the non-delegation of powers doctrine and separation of powers.

Delegation of powers not a problem because it required specific guidelines. So long as Congress sets up an “intelligible principle”/standard that the agency has to conform to, we don’t run into problems with the non-delegation doctrine. Separation of powers Congress stuck it under judicial branch. Congress may delegate to the judicial branch non-adjudicatory functions that do not trench upon the prerogatives of another branch and that are appropriate to the central mission of the judiciary. And, having judges on the commission isn’t bad. Dissent: Scalia says the commission is only able to set up guidelines. What the commission is doing by setting the sentencing standards is pretty close legislating, and because it deals with sentencing it is a judicial function.

Sentancing commission set up to provide uniform sentencing guidelines. Kind of limits the power of judges. Board is composed of a couple of judges, a couple legislators, etc.

3rd part of mistretta finds that presidents power to remove a judge from the commission is not the same as firing a judge, therefore not a separation of powers issue.

Delegation issue: argument that setting the sentencing guidelines is a legislative function and is thus unconstitutional delegation. (Scalia’s dissent takes this up). The majority thinks it is OK. Takes up the Hampton opinion. Given clear guidelines it is OK.

Separation of Powers (harder to apply): Doesn’t violate the separation of powers doctrine because .........

Issue: when on branch is taking power from another.

Comment on use of Legislative History for statutory interpretation. Are judges taking the side of one house/party/etc.? What seems to get more authority; senate reports, house reports, floor debates (may just be spinning), or signing statement? Are there any rules that guide the use of legislative history? Must interpret the organic statute and the APA

Clear Statement Rule: If agency is claiming to have an unusual power, the court looks for a clear statement from congress that the agency has that power.

B. The Doctrine of Non-Delegation. Read F&S pp. 23-34

Problem with delegation - There is too much delegation. Agency has too much authority. Purpose of non-delegation is to avoid: 1. Arbitrary agency actions (too much discretion). Fixes - make the legislation clearer; agency can clarify (limit itself) 2. Restrains on legislature

1. When and What can Congress Delegate?

J.W. Hampton v. U.S. (statement of the test) Congress wants to assess tariffs on imported goods to raise revenue and equalize costs to U.S. consumers. To protect U.S. companies from foreign corporations. They authorize the executive to set some rates; carry out their plan. Congress must establish an intelligible principle to limit the power of the executive so as to prevent delegation of legislative authority (this is still the rule). There is a principle, but it does not say what products to apply the tariff to. Does this limit the president’s ability so he is not legislating?

Note: Intelligible principles are a broad and easy to meet standard, can be done by implication. F&S page 33.

A.L.A. Schechter v. U.S. (Legislation invalidated on non-delegation grounds) Congress passed a statute that allowed trade associations to recommend rules to promote fair trade in the chicken industry and the president could approve them. It is unconstitutional. The court tells us why it violates non-delegation: 1. People making the rules are not officers of the U.S.. They are not appointed by advise and consent. They are not inferior officers; appointed by congress. They are just organizations that assemble themselves. 2. There is not a proper limit on the rule making authority (intelligible principle). Finding “unfair competition” is the same as finding “fair competition”. 3. President could decide which codes he would enact and which ones he would not. Stepped over the line.

Panama refining - Couldn’t find the rule, now we have the federal register/CFR.

2. Maxims and interpretations to avoid non-delegation issues:

The Benzene Cases (American Petroleum)

Follow the law. Its a statutory question, you have §3(8) of the act - rule making. §6(b)(5) what standards are appropriate and carcinogen (anything that is a carcinogen they can regulate down to zero production). Add these three up and there is almost no limit on what OSHA can do. Legislative authority was delegated without an intelligible principle when the enabling act did not require OSHA to construct a cost-benefit analysis.

Must have a threshold finding of the administrator - point w . . .

Amalgamated Meatcutters Gave president authority to accept wages and prices. How do you find an intelligible principle. Look how they make an argument that the overbroad statute has an intelligible principle. Plaintiff’s burden is met only if it can be said that there is no standard by which to determine whether the will of Congress has been followed by the Agency.

MISSED 10/01

Standards for Non-Delegation in Washington State:

Barry & Barry, Inc. v. State Dept. of Motor Vehicles Agency power oddly lodged in the Department of Motor Vehicles. Gave the DMV the ability to police the employment agency business. It was set up in a way that looked like employment agencies would have to get approval fro rates. So the director set a rate schedule that there would be automatic approval if under certain rates (looks like DMV). The agency was given the right to promulgate rules. RCW 19.13.070(1). ***Need to check for rulemaking power in the statute. 2 steps in the case 1. Look to the statute. Maxim if you don’t need to resolve a constitutional issue, Don’t. Was the right to issue a rate schedule given? Power to approve fees = power to make a list of pre-approved fees. 2. Address the constitutional delegation issue. Court made a new 2 part rule.

The Washington test for non-delegation: 1. Legislature must provide standards or guidelines to define in general terms what is to be done. 2. Must be procedural safeguards to control arbitrary administrative action and abuse of discretionary power. Looks like precedent from old WA test will be valid to interpret step 1. Step 2 will probably rely on Davis treatise to develop.

Anderson v. City of Issaquah Challenge of refusal to grant land use permit. There is panel of commissioners that evaluate plans and make recommendations. Anderson was trying to build a building and couldn’t get through the board. They kept turning him down. . . . No rule making power.

F&S 34-40 Public Rights 1. Claims against the government 2. Congressionally created rights. (example - social security)

Most claims can not be brought against the government in Article III courts. Sovereign immunity - can’t sue the government unless they give you permission. In a lot of situations they will give a right to sue if brought in Article I court.

In addition to article I courts, admin agencies also have hearings. For example, the social security administration. Have an administrative law judge. Right to appeal article I adjudication and agency adjudication. Federal courts can give a lot of deference to article I courts and even agency hearings. Admin hearings are often treated as a court of first instance. Most evidence is preserved. Used to be no juries in article I courts, but it is a 7th amendment issue and they may have them in some instances.

The Separation of Powers.

Congress and the Executive: F&S 40-63

Chadha - Legislature can not have veto power over the executive. Deciding to deport an alien after the INS decided not to.

The Courts and the Executive: Two questions apply when the Art. III branch encroaches upon the Art. II branch: 1) Does is impair the function of the Art. II branch; and 2) Does it impair the function of the Art. III branch members (judges)? Thus, does having an Art. III judge sitting in an Art. II branch impair the functioning of the Art. II and the ability of that Art. III judge to perform its functions? Mistretta v. United States (1989)

Commodity Futures Trading Commission v. Schor.: F&S pp. 34-40 Securities fraud claim against Schor and state common law counter-claim in front ____ agency. Should we let admin agency or art. I court, adjudicate state claims? We start to make a parallel court system. Also, they are informal, they allow hearsay, limited discovery, etc. The decision will not get overturned unless there is clear error. When has congress taken too much from article III? In Schor the state claim was subject to the statement of waivers - you waive your right to a trial and have an arbitration. The court concluded that the statute allowing the Commissions to adjudicate compulsory state-law counterclaims did not impermissibly intrude on the judiciary.

The court makes a fact and circumstance test on page 37. Congress has gone too far when...weigh a number of factors (no factor is dispositive) 1) The extent to which the “essential attributes of judicial power” are reserved to Article III courts, and 2) Conversely, the extent to which the non-article III forum exercise the range of jurisdiction and powers normally vested only in Article III courts, 3) The origin and importance of the right to be adjudicated, and (4) the concerns that drove Congress to depart from the requirements of Article III.

Unit II - Judicial Review of Agency Actions

A. Judicial Deference to an Agency’s Interpretation of its Statute: Hearst and Packard - there is a right to judicial review.

1. Pre-Chevron Approaches:

NLRB v. Hearst Publications (deferring to the agency) Newsboys (not necessarily kids) want the newspaper to bargain collectively with them under the Wagner Act. NLRB certified the union and established the bargaining unit. NLRB found that the newspaper violated the act. The newspaper argues that the newsboys are not employees under the act, but are independent contractors. Argue (1) certification is not appropriate [this is a statutory interpretation], (2) finding not supported by the evidence [Question of their statutory mandate. The wagner act said “supported by the evidence” is the standard]. Court of appeals set aside the boards order. The court of appeals independently examined the question of whether the newsboys are employees. The board made a bunch of findings, the jobs look a lot like employment because of the control the newspapers have. The court of appeals used state common law to define employee. The S.Ct. says that using state law was not appropriate because they don’t want the board to have a patchwork of rules depending on the jurisdiction - need uniformity. The court addressed the issue of whether the finding of the board was supported by the substantial evidence, if they would have addressed if the certification was appropriate (statutory interpretation) they would have got into a constitutional question. The court says it should defer to the board because it has experience in this area. The board decides if evidence supports the material facts. It s not the courts function to substitute its own inferences of facts for the board’s, when the later have support in the record.

Packard Motor Car Co. v. NLRB (deciding de novo) The addresses whether the certification was appropriate as if it was a question of law (review de novo).

Two different treatments between Packard and Hearst. Hearst looks at it and recognizes that there is a lot of law under tort and tax theories that discuss what an employee is, but it is all state law. If we go with state law, we will have a patchwork of standards for this one federal law. What’s the problem with patchwork? Might unionize and cross state lines - transportation for example. Need something that is uniform when crossing state lines. Downside of this - your in a state where you are not considered an employee under every state rule except the national labor relations act. State law - not employee; the Act - employee. Another problem - IRS. Its a big deal if you are independent contractor or an employee and they have their own standard.. Do you pay your own taxes or does your employer withhold. They don’t look at this in the case. It would make sense to use the same definition that the IRS uses. Instead they don’t, they create a federal patchwork. The reason is that the statutes have different purposes. One might be for unemployment benefits, one might be for insurance etc. The legislature may want different people covered by each statute.

Hearst defers to the agency. The say it is their job to do that. Packard looks at the statute and addresses it just as any other “fuzzy” statute. The question is, what should a court do now that we have two different ways of addressing the issue.

2. Two Current Standards of Deference:

1. Chevron Deference. (1) Has congress spoken to the issue/is the statute ambiguous? (2) If no, is the agency action reasonable? 2. Skidmore. Where an agency is not exercising its legislative power (rulemaking) the courts will use Skidmore. What is Skidmore Deference? 1) Decision by an agency that has no legislative (rulemaking) powers. All they can do is make recommendations. 2) Exercise of agency power that is obviously not an exercise of legislative power because it is one of the three exceptions under §553. (see American Hospital Corp.)

Skidmore v. Swift & Co. (interpretive rules) What is work? Employees are “on call” to take care of fire alarms, the must stay at a fire hall, they are not allowed to leave, etc. If there is a fire alarm they must respond, but the rest of the time they just chilled out. Is it work? Should they get paid for it? Administrator says that everything except eating and sleeping time should get compensated. The trial court said that time spent sitting around is not work, Court of appeal affirmed. This court says that no statute of law says waiting time is not work.

The court addresses how much deference should be given to the administrator. There is no statutory provision that says how much weight should be given to the administrator. In the end say they that the conclusions of the administrator should be persuasive because of their expertise, but the court is not bound to follow (Packard view). Look to the administrator for guidance. Administrators are not interpreting the statute, they are determining the policy to guide application.

Does the administrator have rule making power? No. The statute/congress does not give him rule making power. If there is no delegation of lawmaking power, the court is not confronted with the issue of who congress has told to clarify the statute. If the agency has been given the power to fill in the details, it would not be the courts job to fill in the details, but.... The question was, what was the delegation/ The agency is not claiming that they are exercising a power congress gave them in an authoritative way. It is claiming that it is exercising it power to issue interpretations.

Hearst - Defer to agency interpretation

Packard - Court reviewed agency decision de novo. These are inconsistent results (hearst and packard) Skidmore - Agency decision/action is persuasive only. More on the packard side.

APA §706 - Reviewing court decides questions of law. What is a question of law? Mixed question of law and fact? Most questions are mixed. Chevron doctrine applies to questions of law, questions of fact, and mixed questions.

Chevron v. NRDC (Legislative Rules or Adjudication)

If congress said “source” and told the agency to administer, who has the power to fill in the blanks? Agency says it is their power. Agency came up with a bubble concept. A factory with a number of smoke stacks could be considered one source instead of looking at each stack individually. This concept is more advantageous to the industry. “agency capture” - agency needs experts who know the field. Sooner or later, the agency becomes saturated with industry people who are interested in the industry no necessarily in government. The court holds that the agencies definition is permissible. Where congress leaves gaps in the statues and gives the agency the power to fill them in, the courts inquiry should be whether it is a permissible determination. Whether or not a determination by an agency is permissible depends on what congress has said; there is a two part test: 1. Did congress speak to the issue? (i.e. look at the statue and see what congress said, look at legislative history, etc.) Is the statute clear? 2. If no, Congress didn’t address the questoin, the court should ask whether the agencies construction is permissible. Is the agency within its power. Is the definition consistent with congress’ intent? This test is in between complete deference (Hearst) and de novo review (Packard). - some judges say look at the four corners of the statute. - Courts have a lot of tools: maxims, legislative history, etc. Because of these tools, it is rare that they will look at a statute and not know what it means.

Q. How far should they go in the 1st question of the test? Use all the tools or not. See MCI for this.

Admin agencies - soft spot - not mentioned in the constitution. Its a creature of statute - becomes a non-delegation issue. a. when do they step over the separation of powers b. are they doing what the statue says they should? Does the court have to listen to them? Step 1. Has congress spoken to the question? a. Statute might be silent; is the agency supposed to fill in the blanks? b. Might be ambiguous. Maybe congress didn’t intend the agency to fill in the banks - its for the courts. Chevron has not distinguished these two issues. How far will the court go to figure this out. They have a lot of “tools of interpretation” e.g. maxims, etc. Step 2 If not, defer to reasonable agency interpretation. Is the agencies decision clearly outside the statute?

Statute may address the issue in a number of ways: - Explicit (tells agency what gaps to fill) - Gap filling (leaves administration to the agency but doesn’t tell them what gaps to fill) - Chevron - Vague

3. Chevron and Textualism:

MCI Telecommunications Corp. v. AT&T “Modification” - battle of the dictionaries.

Maislin Industries v. Primary Steel SEE NOTES 11/1/02, 11/3/02 Tarrif making: 1) must be non-discriminatory. 2) must be published (if you make a typo you’re stuck with it for 30 days.

Rate: Legal - what is published; Lawful - what is fair.

4. Judicial Deference and Agency Explanation

Interpretive Rules: Various degrees of deference Chevron deference: Express/implied delegation of authority to agency to fill statutory gaps: controlling unless “arbitrary, capricious, manifestly contrary to the act” (only has to be reasonable) Skidmore deference: No delegation of authority: Entitled to respect depending on the interpretation’s power to persuade “Power to persuade” depends upon: The thoroughness of the consideration The validity of its reasoning Consistency with earlier and later pronouncements, etc. Moreover, if an agency has special expertise in a specific area of law, even non-notice & comment regulatory interpretations are still entitled to some level of deference (sometimes as high as Chevron). United States v. Mead Corp., 121 S. Ct. 2164 (2001). Moreover, agency must have Congressional authority to construe its enabling act. Id. Chevron deference applies when an agency decision has the force & effect of law When to apply the degrees of deference: Chevron deference: when an interpretation is in a regulation that “carries the force of law” Skidmore deference: interpretations such as those in opinion letters, policy statements, agency manuals, and enforcement guidelines (lack the force of law) Informal Adjudication: Supreme Court has never addressed whether informal adjudications are entitled to Chevron deference. Circuit Courts have attempted to resolve the issue. One circuit is of the view that informal adjudications are entitled to Chevron deference. See Gonzalez v. Reno, 212 F.3d 1338 (11th Cir. 2001) (Elian Gonzalez case w/ INS interpretation).

SEC v. Chenery Corp

Utility holding company. Highly leveraged - people who owned the common stock ran the show and raised money with non-voting preferred shares. Congress passed an act that requires reorganization. The standard SEC plan was to convert the preferred into common.

The Chenerys owned the common voting stock. They submitted plans for reorganization to the SEC. While they were negotiating the details with the SEC, the Chenerys bought a bunch of the preferred stock at favorable prices that would be converted into voting stock after the reorg. So they would still have a controlling interest. (now we have §10(b)(5)). The SEC didn’t approve the plan because it wouldn’t be fair. The statute did not say anything about finding that a plan was “not fair”. The SEC told the Chenerys they had to get rid of the preferred stock they purchased. . . . . . • The SEC said they would not approve the plan unless the Chenerys sold their stock. • SEC says it is a breach of fiduciary duty because they were cheating the preferred shareholders. • The court is angry because its their job to decide if fiduciary duty is breached. • The court can’t fix it because the statute says the SEC orders reorganizations. Their solution is to remand. • The SEC uses a different reasoning the second time around, but has the same holding. • The SEC doesn’t like the retroactive effect of the SEC decision (there was no rule against insider trading).

Brings up additional tools that makes it easier to interpret Chevron. After the great depression, congress decided that they did not want public utilities to held in parent-subsidiary pyramid structures. There were a few people that would own the voting common of the parent, then forms a bunch of subsidiaries, get loans, and issue non-voting preferred etc. to leverage the deals. Congress said these companies needed to reorganize to eliminate this structure.

Three important things about Chenery: 1. The agencies explanation. Let the SEC make their adjudication then see if it is within the law, don’t venture into equitable duties, etc. The agency can only explain itself in terms of the statute and their area of expertise? Consistency with prior decisions. Ability to limit chevron. 2. Retroactivity. Primary retroactivity - making what you did and subjecting you to liability (you did something that looked legal, but now you are told that it is not and you are criminally liable). Secondary retroactivity - ... 3. Rule making or adjudicating - 1st Chenery was sent back because the agency did not do any rule making. . . .. . . It looks like the court is telling them to do a rulemaking, the SEC does an adjudication. Can the SEC do this? Yes, unless the statute says they can not.

When can an agency use a rulemaking vs. an adjudication?

It is up to their discretion. Example: could make a rule that 0% financing is unfair, or could go after people offering 0% financing and adjudicate.

Chenery is relates to Chevron - if an agency explains what it did, it must do it in its area of expertise. For example see LTV.

Fixing rates; rulemaking or adjudication? Check the APA definitions. (Should probably know the difference between rule making and adjudication)

Missed class 11/8/02

Quiz - Yellow Cab. Two issues ______, and collateral estoppel.

Discussion re de novo review in order to develop a record: 1. ____ 2. Cease and desist order issued by District Court after agency issues citation.

Chapter 5 of the APA is about procedure. - what must be done for rulemaking and exceptions - when rulemaking or adjudication becomes formal

Formal adjudication by an agency looks a lot like formal rulemaking including the assembly of a record.

Chapter 7 of the APA is guidance to the court of their role in the APA.

Universal Camera Corp. v. NLRB

Universal Camera (this is also what happened in Yellow Cab) is talking about a formal adjudication that required the assembly of a record. Two places assemblage of a record is required, (1) in the organic statute, (2) in the APA. If the organic statute requires the assemblage of a record, it triggers the matching sections of the APA. Frustrating, you go to the organic statute and it will give some but not all of the formal requirements for an adjudication; the statute may read differently than the APA. If that is so, the organic statute is the one that defines the law with respect to the situation. We look to see if the agency acted property; look at the organic statute, if it is different than APA (§554, 556) go with the organic statute. If the organic statute doesn’t give enough information to specify a procedure, it will be taken to mean a formal adjudication under the APA.

Universal Camera. - Two similar situations where . . Hand goes into a discussion of the facts. Who said what about who, who testified to what, who is pissed off, etc. The ALJ is the one who saw all these people. The Board reversed the ALJ, who thought Chairman was fired because of insubordination (???). The board is dealing with a rebuttable presumption that anyone who is fired within six months of supporting a union, has been fired because of retaliation. Burden on employer to show it was not retaliatory. Policy is driving the board decision. HAND thinks that the standard of review is any evidence, the Supreme Court says it must be more than a scintilla of evidence. More than a mere scintilla means an amount a reasonable person would need to come to the same conclusion.

Agency decisions and the appellate process: You have a tribunal that issues a decision that is reviewed by another agency body. The ALJ reports to . . .it is appealed all the way up to the commissioner. There is a decision, it is called the decision of the agency. This decision is reviewed by the District Court or Court of Appeals (depends on the organic statute - says which court reviews, usually district court). Layers - there can be a decision by a magistrate or a special master, the special masters issues his report to the trial court and they issue a determination. When reviewed the court looks at finding of facts and findings of law. When reviewing finding of fact, what are the options? Usually they must accept findings of fact, unless there is clear error. The standard of review with respect to law; they will overturn if they disagree. These are the same standards that apply between a special master and a trial court. Trial court can not reverse findings of fact by a special master unless the finding was clear error. The question; is the Agency process the same? Is the ALJ like a special master? Is the ALJ like a trial court? What are the rules of deference between ALJ and agency review? It is decided that no deference must be given to the layers in the agency until there is an agency decision. If the Board reverses the ALJ, it is not the same as . . . What the court reviews is the FINAL decision of the agency. If an ALJ issues a decision and the agency denies it, that is the final decision; if it reviewed at a higher level, that is the final decision. (process called exhaustion - the agency has taken all the “bites of the apple” that it wants to take - - all of the agency processes are exhausted - it is a final decision). Courts will require that the internal procedures of the agency have been exhausted so that what is coming out of the agency is its position on the matter; final decision. What should the court do with respect to fact? The entire agency is acting as if it is the trial Court. We now what it does with respect to findings of law - CHEVRON. They are even more deferential with respect to findings of fact. They go to §706. 706(2)(E) - substantial evidence on the record as a whole. Can reverse if it is unsupported by substantial evidence if it is subject to 554, 556 (?) or provided by statute (organic). What does substantial evidence mean? Does it mean preponderance (more likely than not)? Courts had read substantial evidence to mean, any evidence, but along comes universal camera.

Judicial Treatment of Agency Procedure:

Moving from chapter 5 of the APA which gives duties.
Procedure - Chapter V requirements and the organic statute
Substance - 706(2) A-E
Universal Camera - 706(2)(E)
Overton - 706(2)(A)-(D)

An ALJ decision can not be based entirely on inadmissible evidence, but can be based in part on such evidence.

Sections 701 - 706 (Judicial Review):

Citizens to Preserve Overton Park v. Volpe

What is really important is that there were so many claims filed that the complainants argued under almost every section of 706. Therefore, Overton is a lot of holdings without much dicta.

Justice Marshal reads a lot of substantive duties to the court based on Chapter 7 of the APA. If the agency thought it only needed to look at ch. 5, we now discover under chapter 7 that some additional features are required . . .

Argument over the substance of what is done. If you are putting in highways you need to condemn land to use for the highway, wipes out businesses, cuts neighborhoods/communities in half, etc. If you go through parkland you don’t have to worry about cost of condemning, don’t hurt businesses, doesn’t cut neighborhoods in half; but some people will be angry. There is a statute passed that authorized more highways, but there is concern about parks being endangered. The statute required that the secretary find that there is no alternative before building through a park. The whole issue here is that the secretary approved the freeway going through Overton park. When people challenge admin action the substance (the rule is a bad rule) is what is driving them (they went through a park and that is bad). When challenging an agency you must deal with the deference that is given to the agency decision. The court will be hesitant to address the substance (the agency is experienced etc. example how many parts per million of a certain pollutant). The courts do think they are experts on procedure however. You can go to the court and say here are the alternatives that could have been used for the highway so the secretary should not have authorized the construction. The court is hesitant to make engineering decisions and evaluate which alternative is better.

The court addresses the procedural aspect. The courts do not proscribe additional procedures past the APA ch. V and the organic statute. The statute does not require a formal hearing so it does not fall under 706(2)(E). Doesn’t require it develop a record, . . . What did the secretary have to do in producing the order? Nothing in the statute says what is required. However, part of the APA requires the courts to review agency actions. Whether arbitrary, capricious, abuse of discretion, etc. 706(2)(A)-(E) is cumulative, you can challenge under A,B,C . . . not mutually exclusive, you can stack them up. The court says you should not have gotten to 706(2). Look at 701. Some agency actions are not review able (1) statutory prohibition or (2) committed to agency discretion . . The court gives the rule on when there is review. (1)____________ (2) when there is no law to apply. There is lots of law in this case. The statute says . . . So what does fall into this category? Prosecutorial discretion would apply; no law on this, not reviewable. Similarly if an agency decides it will not pursue a corporation it is not reviewable, it is a discretionary decision. But Court says this is not the type of discretion we are dealing with here. The court is charged with reviewing the decision, but there is no record to review. Agency says “we gave you affidavits.” Chenery said that documents prepared for litigation are not sufficient “post hoc”. The Court says the record must be contemporaneous with the decision. Must know what was in front of the secretary when he made the decision. The court is not telling how to have hearings, etc, but is saying we want to see what you had in front of you. There had to be something. See U.S. v. Morgan - the rule had been that you can not subpeona the head of an agency for his deliberations. The thought process of an agency head is not discoverable. Overton says, if you can not come up with anything else, this is going to be one of the exceptions to the U.S. v. Morgan rule

The Result of Overton. Definitional language for 706. Even if agency decision is completely discretionary, must produce some form or record for review. So, even though ch. 5 does not require a record, the court can demand one under Ch. 7. Also, what does arbitrary and capricious mean - failure to consider the relevant factors.

Documents prepared for litigation are not “Chevron” documents. They do not get the any deference.

Overton gives us holdings on the following parts of the APA: 701(a) - when something is precluded from review by statute or agency discretion. If precluded by statute we need a clear statement that says it is precluded. An issue would only be entrusted to agency discretion if there is no law for the court apply. When is there no law? Example prosecutorial discretion - if a prosecutor will not charge someone no judge can force them. If a factory is putting out bunches of smoke, no one can make the EPA charge them. 706(2)(a)-(f) - most important section on judicial review. • (f) de novo review only appropriate where there was no fact finding. (see yellow cab - gives factors that you should look for). • (e) substantial evidence (Universal Camera). • (d) arbitrary and capricious, etc. Overton defines the arbitrary and capricious standards (handout pg 5) based on a consideration of the relevant factors, and/or clear error of judgment. Also requires a contemporaneous record. What was the agency looking at when he made the decision. If they do not provide a record of some sort, the court will allow the agency guy to be deposed.

What is clear error? Must be based on relevant factors. What is a relevant factor.

Sources of Procedure: 1) APA 2) Organic Statute 3) Constitution (due process, etc.)

Courts have determined the rights under 553 were very important and if they were cut short they would not meet the three sources of procedure. Their remedy is remand. 553 tells us when we must use 556 and 557.

Organic statute does not have to have the same procedures as the APA. If the organic statute requires more procedure than the APA we call it hybrid procedure. APA is the default procedure. If the organic statute is silent or refers to the APA, you go to the organic statute. If the organic statute gives procedures you follow them. The court is not permitted to impose procedures not in the APA or the organic statute. If the APA and the organic statute say nothing about the agency hearing oral argument, a judge can not remand and tell the agency to hear oral arguments.

Guarantee Funds - Insurers of last resort. Example - Insurance companies pay in; when they fail the guarantee fund steps in and takes over.

Federal corporations are subject to the APA.

Pension Benefit Guaranty Corp. v. LTV Corp. Corporations with a defined benefit plan. ERISA requires employers with defined benefit plans to pay into the Pension Benefit Guaranty fund (basically insurance that the employees won’t get screwed if the corp. fails). LTV has three plans and determines it is going bankrupt. Their pension obligations go to the PBGC. The PBGC will not pay out as much as the employees would have gotten before. LTV cuts a deal with the unions which requires them to make up for the employees lost pension benefits. PBGC is angry, it has to pay LTVs old obligations and LTV has basically found a way to give their employees full pension benefits but shift the majority of the burden to the PBGC. PBGC says they are restoring the plans and shifting it back to LTV. LTV makes an argument that PBGC should be paying attention to bankruptcy policy (creditors can’t ask for more money after bankruptcy) and labor law. PBGC says that ERISA allows them to do it. The question becomes, if the PBGC ignores bankruptcy policy, have they looked at all the relevant factors. The court says yes. The relevant factors are your statute not everyone else’s. The organic statute is all that the agency needs to look at.

What does it mean to look at the relevant factors? The factors relevant to the statute. Pension benefit corp didn’t need to look at bankruptcy law because it was not a relevant factor in relation to the statute.

Chenery - Requires an explanation for agency acts - in area of agency expertise

Cheveron - What deference is given to those interpretations.
Overton - _______________
Pension Benefit Corp. - Look at the relevant factors (Relevant factors in the statute/expertise).

Section 553 Rulemaking Procedure

“Hard Look” Review:

Scenic Hudson Preservation Conference v. FPC A bunch of material shows up at a rule making. One guy sends his comments in after the deadline. The organic statute required them to consider all the alternatives. The court says, I don’t care if you closed your hearing, if its relevant, read it. This is what is called hard look review. Agency must take a hard look at the problem. They must address all the hard issues. But when is enough enough? When do they have a full record?

Weyerhuser Co. v. Costle The record is complete when . . . it is the logical outgrowth of the record. The final rule. §553(d).

Hybrid Procedure:

Hybrid = APA + another statute

Vermont Yankee Nuclear Power Corp. v. NRDC Two stages for licensing nuclear power plants. Takes a lot of time. There is a lot of pressure to issue the license if the plant is already built. There is a lot of concern about environmental impact. With nukes, disposal of waste is a huge issue. Environmentalist start making a big deal about the waste, so the nuclear regulatory administration decided to divide the questions. They would have a rulemaking to determine the weight to give to the waste issue in their licensing. At the rule making hearing a guy puts in a 20 page paper that discusses the disposal and basically says we don’t know, but we will come up with something. The agency accepts it and goes forward. It goes to the D.C. circuit. One justice says there was a lot of things that could be done to create an adequate record and more needs to be done. Other justice just says it is an incomplete record and they should remand. At Supreme court it is said that . . . Renqhuist: • if the reason you find the reasoning is inadequate is the failure to use adequate procedures to ventilate the issues, it is not a reason to invalidate. The court can not require more procedure in a rulemaking than the statutory minimum. (e.g. you should have permit oral argument and cross examination) • If you find that the record doesn’t support the rulemaking, you can remand. “Hard-look”, you didn’t take a hard look at the issue. Arbitrary and capricous review. The difference is was there enough procedure vs. does the record support your conclusion. If the record doesn’t support, you remand. They will probably employ more procedures, but you are not remanding because of lack of procedure.

The APA is the floor of procedure that is required by the courts. If the agency wants more procedure, they can do that.

License is always an adjudication

Rescinding Rules: Motor Vehicle Manufacturing Association v. State Farm Mutual Insurance companies want safer cars. Auto manufactures say it is not feasible, cost effective, and drivers don’t want it. Safety agency had been making rules about what is required and when it will go into effect. They change their mind and say they are taking it back. What do they have to do if they are taking it back? You must go through the exact same procedure to rescind a rule as you went through to create the rule. Need a record so we know why.

Holding: when agency decided to revoke a rule that was supported by the record, they must follow the same procedure to revoke as they did to support the rule. Must make a record to explain your revocation. This slows down the process of a new agency getting rid of old rules. But, the agency can just decide not to enforce it.

The Section 553 Exemptions: Interpreting Rules, General Statements of Policy, Rules of Agency Organization:

§553(b) - General notice of proposed rule making shall be published in the federal register . . .553(c) After notice, must give interested persons an opportunity to participate through written submissions, oral observations, etc. After considering the relevant matter present, the agency must adopt a concise general statement of their basis and purpose. Final rule must be a logical outgrowth of the issues addressed. Weyrhauser

Don’t have to follow 553 when . . . .Interpretive rules, general statement of policy, rules of agency organization, . . . or when the agency for good cause finds that notice and public procedure are impracticable, unnecessary, or contrary to the public interest.

Substantive Rule =
Interpretive Rule = If it affects rights, its not interpretive.
General Statements of Policy = . . .agency doesn’t bind itself. (1) indication of when the agency will take action. (2) How the agency plans to act.
Rules of Agency Organization, Procedure or Practice . . . . (example, internal revenue manual).

American Hospital Association v. Bowen

Community Nutrition v. Young

Agency Rulemaking Summary: F&S Chapter 5 on Rulemaking

Standing for Judicial Review

Timing 1. Final Agency Action 2. Exhaustion 3. Ripeness -Is it too early? (1) Is there a hardship, (2) Fitness of the issues for judicial decision

Association of Data Processing Service Organizations (ADAPSO) v. Camp ADAPSO wanted to compete with banks for data processing. Said that banks were unfairly competing. There was a question of whether ADAPSO had standing. The APA says you have standing if (1) injury in fact and (2) arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee at issue (within the interest to be protected by the statute).

Sierra Club v. Morton (associational standing)

Lujan v. Defenders of Wildlife A group is trying to say that a U.S. statute is hurting the environment of endangered species overseas. Injury: Injury is too speculative. Could not prove that they were actually going to go see them. Causation: U.S. only spends a small amount of money. Redressabilty: most obvious problem in this case. The agencies funding the projects were not parties to the case.

Standing and Judicial Review Summary: F&S Chapters 6 and 7

Constitutional Standing Requirements (from Con. Law I)

1 Injury - The plaintiff must have an actual or imminent injury.

a) Actual b) Imminent c) Individualized: can not be the same type of injury that anyone could claim. Suits by organizations: are ok if (1) the members would have standing on their own (2) the interest being asserted must relate to the purpose of the organization (3) the suit doesn’t require the members to participate with regard to the claim asserted or the remedy sought.

1) Causation - The injury the plaintiff has suffered must be traceable to defendant 2) Redressable - Can the judges do something about it through judicial relief

Rulemaking
Legislative Rulemaking: Legislation encompasses government acts that affect a large number of people—universal application. Legislation is enforced prospectively. Legislative rulemaking is also known as “informal rulemaking.”

When an agency conducts legislative rulemaking, the only due process required is the process guaranteed in § 553 APA plus the process required by the mandate.

Notice & Comment Rulemaking; APA § 533: The only due process required by §553 of the APA is “notice and comment.” General Rule: Under “notice and comment,” interested parties must be given a meaningful notice and ability to submit written comment within reasonable time. “Notice” must contain: A statement of the time, place, and nature of proceedings; A reference to the legal authority under which rule is proposed; and Substance of the proposed rule.

The agency gives notice of a proposed rulemaking in the Federal Register. However, proposed rules need not be published in the Federal Register when affected persons have actual notice.

After notice is given, the agency shall give interested parties the opportunity to participate in the rulemaking process through submission of written data, views, or arguments. The notice must be given at least 30 days before the deadline for the comments. Exception: Notice & Comment is not necessary where it is impractical, unnecessary, or contrary to public policy.

After considering all relevant matters presented, the agency shall incorporate a general statement of their basis and purpose in the adopted rules. This statement provides a record for judicial review. Under Notice & Comment rulemaking, there is no statutory right to provide oral comment. Whether to also provide the opportunity for oral presentation is as the agency’s discretion. Thus, oral comment is only available under Notice & Comment rulemaking if the agency chooses to provide this right.

Substantive vs. Procedural Regulations Notice & Comment rulemaking is only required when the agency implements substantive regulations. Substantive regulations defined: Regulations that require value judgment or substantially alter the rights or interests of regulated parties.

Notice & Comment rulemaking is not required when the agency implements procedural or interpretive regulations.

Exception to Notice & Comment; APA § 553(c) APA § 553 applies unless another statute requires rules to be made “on the record after opportunity for agency hearing.” When rules are required by statute to be made “on the record after opportunity for hearing,” they are to be made through the adjudicative process under §§556, 557. In essence, a trial-type hearing is required. Plaintiff is given the right to present evidence and cross-examine witnesses. The record must be sufficient to support judicial review. The mandate takes precedent over the APA. Therefore, if the “magic words” are not in the mandate, plaintiff is left with the process given by the agency.
Summation
• When an agency is deciding matters with future effect only, the agency is acting in its legislative capacity. • Under the APA, an agency acting in its legislative capacity is required to provide a trial-type hearing only when another statute requires such process before regulations are issued. • A statute requiring an agency to act only “after hearing” will not trigger the process of formal rulemaking. Such statutory language is not the equivalent of “on the record after opportunity for agency hearing.” • Soft Glance vs. Hard look • Before Vermont Yankee, courts took a hard look at the process given by the agency. Often times, the result was that courts imposed additional layers of administrative procedures • After Vermont Yankee, courts take a “soft glance” when determining whether the process afforded is adequate. • General Rule • As long as agency procedures meet the minimum requirements of APA § 553 (and any additional requirements in the mandate), courts may not review and overturn rulemaking procedures. • Under the “soft glance” doctrine, courts give deference to the procedure chosen by the agency. • In other words, courts will generally not second-guess agencies’ decision. Nor will they impose additional layers of administrative procedures.

Adjudicative Rulemaking; APA §§ 556, 557: Adjudication is government acts that affect a limited number of people (specific application). Adjudicative decisions are enforced retroactively. Also known as “formal rulemaking.” An agency may adjudicate a case, and in the process define a term or procedure. This is in and of itself rulemaking, and was done without notice and comment, or other requirements.

APA § 556 The “magic words” (on the record after opportunity for agency hearing) are required for §§ 556, 557 to apply. The presiding member may be the agency itself, one member of the agency, or an administrative law judge; § 556 (b)(1). Something akin to a trial-type hearing is required under § 556. § 556(d) – Proponent of an order has the burden of proof. §556(e) – Agency decisions must be based on the record. Record as Basis of Decision; APA § 557 The exclusive record for decision in accordance with § 557 APA is made up of the transcript of testimony, and exhibits, together with all papers and requests filed in the proceeding.

Adjudication on the Record; APA § 554 APA § 554 only applies to adjudication and is only triggered if the mandate has the words “on the record after opportunity for hearing.” “[A]fter opportunity for public hearing” was upheld in District Court. Thus, this wording may require adjudication under § 544. The agency must provide the procedure required by the mandate, the APA, and other statutes. Naturally, the agency may also, at its own discretion, provide more. Other adjudication When the agency decides to adjudicate without the magic words being present In that case, the adjudicative process must accord with: The mandate; The regulations; Other statutes; and Due process (if applicable).

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