The Legal Environment of Business II Chapter 19 Review Questions

19-1 Why did Congress create administrative agencies? The administrative agencies were created by Congress because they felt that the anticompetitive conduct of railroads and other corporations could best be controlled by separate administrative agencies with defined statutory mandates. Also during 1929 because of the stock market crash and the beginning of the Great Depression Congress felt the need of additional agencies to assist free-market economy and to act in the public interest, convenience, and necessity.

19-2 What are the two major functions of administrative agencies?
The first function is rulemaking, where agencies are authorized to create new regulations by virtue of their enabling statutes; if they are not agencies, they need to follow the three ruled making models which are formal, informal, and hybrid outlined in the APA (Administrative Procedure Act). The Second Major Function is the Adjudication of individual cases brought before administrative law judges by agency staff, this function is done in individual cases as oppose to rulemaking for whole industries, and administrative agency usually pursues a four step process.

19-3 Explain the distinction between executive administrative agencies and Independent administrative agency is an agency which appointed heads and members serve for fix terms and cannot be removed by the president except for reasons defined by Congress. Executive administrative agency is an agency located within a department of the executive branch of government; heads and appointed members serve at the pleasure of the president.

19-4 Describe how the courts check the power of administrative agencies. The courts can curb administrative agencies’ rulemaking and adjudicative excesses by reversing or modifying such actions. When the party that loses at full-commission or agency head level and wants to appeal he/she can file a motion for appeal with the federal court circuit that has jurisdiction in the area. Then the courts will review all the findings with the expectation that their findings will match with the agency findings. The court’s job is to check and make sure that the agency acted constitutional, it acted within the scope of jurisdiction as outlined by the enabling statute, it follow statutory procedures and did not act in arbitrary or capricious manner.

19-5 Describe how the executive branch of government checks the power of administrative agencies. The executive branch checks the power of agencies through three processes. 1. The United States President has the power to appoint heads of the agencies; he also designates some of the lower-level heads of departments and divisions that don’t belong to the federal service system. He also has a big influence in the budget process and executive orders. 2. Another way executive branch controls the agency is through The Office Management and Budget which is also in the executive branch and is in charge of recommending each agency’s budget to Congress. 3. Presidential executive orders where the president signed that all agencies executive and independent need to turn in a cost-benefit analysis before promulgating a major federal regulation and economy expenditure over $25million.

19-6 Describe how the legislative branch of government checks the power of administrative agencies. Congress limits the authority of administrative agencies through its (1) oversight power, (2) investigative power, (3) power to terminate an agency, and (4) power to advise on and consent to presidential nominations for heads of administrative agencies.

Review Problems
19-7
Facts: The OSHA promulgated a rule limiting employees’ exposure to cotton dust during the manufacture of cotton products because serious diseases were traced to exposure to such dust.

Issue: Did OSHA have the right to promulgate a limit for cotton industry employees without asking for a cost of compliance for the industry and benefits to people working in the industry? Rule: 202 of the Clean Air Act (Pg.484-485) The Clean Air Act’s sweeping definition of “air pollutant” includes “any air pollution agent or combination of such agents, including any physical, chemical . . . substance or matter which is emitted into or otherwise enters ambient air” There are not exceptions to this rule. This also includes textiles.

Analysis: OSHA implemented limitation for exposure to employees of cotton industries. Cotton manufacturing argues that OSHA shouldn’t had implemented such of limitations without asking for cost benefit and the benefits employees working in this industry received. OSHA and the secretary of labor argued that they did not need to perform a cost-benefit analysis to justify the standard, but rather needed to show only that the standard reduced the risk of illness to an extent that was technologically and economically feasible.

Conclusion: Under the Clean Air Act, OSHA is right to implement limitations to industries that might show a hazard not only to the environment but in this case the employees of such of industry. The Cotton Industry would win because they needed to received a warning to be able to fix the problem and present OSHA and the secretary of labor with solutions to solve this problem

19-8
Facts: Scientific evidence showed that lead emissions from gasoline constituted 90 percent of all the lead in the air and that this lead could be absorbed into the body. The EPA promulgated regulations requiring a step-by-step reduction of the lead content of gasoline.

Issue: Gasoline manufactures claims that the EPA’s rule making to reduce the lead content of the gasoline was done in a malicious and capricious manner. Rule: 202 of the Clean Air Act (Pg.484-485) The Clean Air Act’s sweeping definition of “air pollutant” includes “any air pollution agent or combination of such agents, including any physical, chemical . . . substance or matter which is emitted into or otherwise enters ambient air” There are not exceptions to this rule.

Analysis: Under further investigation EPA was able to prove that 90% of the lead emission from gasoline is contaminating the air and the lead it’s been absorbed into the body. This is a treat not only to the environment but to the population as well. The gasoline manufactures claims that the results were unfound and that the lead it’s only one of several sources that absorbs the body.
Under the Clean Air Act rule there is and emphasis in the word ANY. This applies to any airborne compound that might be a treat to the air ambient. If EPA has sufficient proof or reason of the endangerment that the emission lead from gasoline in fact presents to the environment, then EPA has the obligation and the right to make changes to reduce this treat. Because, there is not exception to this statutory and it’s very unambiguous when it comes to air pollution endangerment. Conclusion: Even though EPA has the obligation to protect the air environment, they cannot just take a decision based it once finding. They also need to produce other alternatives where the agency can work together with the gasoline manufactures to reduce the lead in their product and protect the environment at the same time. In this case I think that the Gasoline manufactures will win because EPA acted in capricious manner and implement changes without giving a chance for the gasoline manufactures to defend themselves.

19-9
Facts: The FCC promulgated rules prohibiting cable television from broadcasting feature films more than 3 years old but less than 10 years; old in addition to certain other programs. The FCC countered that the regulations were necessary to prevent siphoning-off of movies by cable companies from (free) network television.

Issue: The rule that FCC promulgated rules prohibiting cable television from broadcasting feature films after a certain period of time. Cable companies feel discriminated against this rule because it left them out from playing old movies and shows.

Rule: The FCC promulgated rules prohibiting cable television from broadcasting feature films more than 3 years old but less than 10 years old in addition to certain other programs. Pg.495 Analysis: As already mention FCC ruled that movies and programs older than 3 but no more than 10 are not allowed to be play by cable companies, but only in regular television. The cable companies argue that this rules were arbitrary and capricious and FCC is discriminating cable companies. FCC sustains that this rule it’s necessary to prevent siphoning-off of movies by cable companies. If this rule applies it would prevent companies from charging for a service that it is already offer for free. In conclusion FCC it’s trying to control cable companies from overcharging viewers for programming that it’s already available for free, but at the same time it’s preventing cable companies from making their own choices regarding their TV programming. FCC should be more lien when it comes to rulemaking for broadcasting.

Conclusion: HBO would probably win this case. FCC is acting in capricious manner because they are trying to give the free network television an advantage from cable companies and that is unfair and malicious to compete in the broadcasting market. They both should be given the same opportunity and have the viewers made their own choice when it comes to television.

19-10
Facts: In 1969, the secretary of transportation approved a plan to extend an interstate highway through Overton Park in Memphis, Tennessee.

Issue: Did the secretary of transportation show sufficient alternatives to the Overton Park, Highway construction before approving federal funding to start it.

Rule: Under the Federal Aid Highway Act, federal funds could not be used for Highway construction through a public park if a “feasible and prudent alternative” existed. Pg.492

Analysis: According to the Federal Aid Act before approving a federal funding; there are certain p[requisites that need to be meet before funding its approve. One of them is to show alternatives to building this highway. The environmentalist felt that there were not enough alternatives to this project and challenge the secretary of defense decision trough court. But, DOT personnel produced evidence of the other alternatives that was already consider and review by the secretary but obviously did not work out; therefore the findings were approve. The environmentalist argue that there was not necessary alternatives for this project to be approve but DOT prove them wrong by showing them affidavits of alternatives been consider.

Conclusion: The Secretary of Transportation would win the case because his staff was able to show that al perquisites were met before findings were approved.

19-11
Facts: FTC has filed a complaint against the soft drink bottling company for violation of laws prohibiting unfair methods of competition.

Issue: * Soft Drink Bottling Company alleges violations of laws prohibiting unfair methods of competition. * The complaint against Soft Drink Bottling challenged the validity of exclusive bottling agreements between the company and franchised bottlers, who had to agree not to sell the company’s products outside a designated territory.

Rule: Under the Adjudication function of the rulemaking investigation and complain process, the FTC which includes the Bureau of Competition and the Bureau of Consumer Protection it’s obligated to conduct an investigation whenever there it’s a complaint from other government agency, competitors or consumers. Pg 486

Analysis: FTC, acted within regulation of the complaint received most likely from another competitor. FTC found enough evidence of the law violation against the bottling soft drink company. In the other hand, the soft drink company its right to ask for this complains to be issue to the other 513 soft drink companies, and not just to them. This would create a sense of discrimination against this particular bottling soft drink Co. when also other companies have restricted advertising franchise contract with their distributors. The FTC refusal to include the other 513 bottling company into the violation complaint decision was because they though it would make the case unmanageable, so the bottling company that was specific target decided to appeal FTC decision into federal court.

Conclusion: I don’t think the federal court entertained this decision and gave a dismissal into this issue. The bottling soft drink company its right, FTC needs to include the 513 bottling companies to participate in this issue since they have specific advertising contracts.

19-12
Facts: The outrageously lavish pay of many chief executive officers (CEOs) corporate profits. Some CEOS make 1200 more times than the regular worker even though United State economy it’s not doing well.

Issue: Does the ICC would like to regulate CEO pay. Can they do it?

Rule: The ICC not only doesn’t exist anymore, but their main purpose was to control rates of carriers of goods and people in different states. SEC (Securities and Exchanges Commission) it’s the agency in charge of making sure that corporation and individuals are not committing any fraud. Pg. 481

Analysis: ICC cannot regulate CEO pay because they were in charge for transportation of goods and people around the states. The CEO pay it is very high especially in this economy but pay cannot be regulated but there can be limitations to their expending and can be supervised closely.

Conclusion: No, ICC has not authority to administer CEO pay because they were in charge of interstate transportation. SEC in the other hand can put limitations to CEO expending.

19-16 Chamber of Commerce of the United States v. U.S. Department of Labor, 74 F.3d 206 (D.C. Cir. 1999).
What are the steps of the most commonly used rulemaking procedure?

Step 1. Agency draft rules in consultation with interested parties.
Step 2. Proposed rules are published in the Federal Register.
Step 3. Interested parties can file written comments on the written draft usually within a 30-day period from publication in the Federal Register.
Step 4. Final draft of a rule is published in the Federal Register 30 days before it takes effect.
A statement of its purpose and cost-benefit analysis must accompany its publication.
Step 5. Agency receives feedback from interested parties during the 30-day period and makes a decision on whether the final draft should be rewritten. If not, it becomes law.

Which steps are missing in this case?

Step 1. Agency draft rules in consultation with interested parties.
Step 3. Interested parties can file written comments on the written draft usually within a 30-day period from publication in the Federal Register.
Step 4. Final draft of a rule is published in the Federal Register 30 days before it takes effect.
A statement of its purpose and cost-benefit analysis must accompany its publication.
Step 5. Agency receives feedback from interested parties during the 30-day period and makes a decision on whether the final draft should be rewritten. If not, it becomes law.