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Presidential Administration and Cost-Benefit Analysis (see hypotheticals February 23rd notes)
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Directive Power: the power (or lack thereof) of the President to tell agency officials how to exercise discretion delegated to them by a statute.
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Question of Constitutional Authority: The traditional and mainstream position is that if Congress assigns a task to the head of an agency, the president cannot dictate the substance of the decision, and thus a decision made in direct contravention of a presidential command would be legally valid. Some lower courts have taken the view that the vesting clause and the take care clause create broad presidential power to dictate policy to officials.
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Statutory authority: Even if the president lacks an inherent directive authority under the Constitution, it is universally agreed that Congress can grant him such power over particular officers or particular decisions, and it sometimes does so. Statutes that do not mention the president and grant particular authority or assign particular tasks to agency officials are primarily read as prohibiting presidential displacement of the designated agency official as decision-maker. However some, notably Justice Kagan, have read such statutes, in regard to executive agencies, to implicitly authorize presidential direction absent an explicit statement to the contrary. (She supports the opposite presumption when it comes to independent agencies.)
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A broad reading of Myers seems to point strongly to Presidential directive power. A narrower reading, however, understands it as validating the President’s role of supervision and guidance rather than command-thus the President can ask agencies to consider making rules on certain subjects, and agencies have a legal obligation to consider them but not to actually do it. There are exceptions even to a broad reading:
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There is a question whether the President can overrule or revise the officer’s interpretation of his statutory duty when the duties are so “peculiarly and specifically committed to the discretion of a particular officer.” (108)
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When there are duties of a quasi-judicial character imposed on executive officers and members of executive tribunals whose decisions after hearing affect the interest of individuals, the President cannot properly influence or control such decisions (108). (Where there is an adjudicative decision)
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Presidents coordinate control by creating a centralized system of review that emphasizes coordination and cost effectiveness. He can take such an active role in regulation through official memoranda, executive orders, and press conferences, and in doing so puts his official stamp on the regulation. Congress has stated, however, that administrators “shall not submit [their] decisions for the approval of, nor be bound by, the decisions or recommendations of any committee, board, or other organization created by Executive Order.” (See other outline for the ways prior Presidents have utilized Executive Orders).
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Guidance Documents are agency statements that provide general information about regulatory requirements but do not impose new requirements or bind regulated entities or the agency. They can be in the form of letters, or “Frequently Asked Questions,” or manuals, or memoranda or interpretive rules. Critical features: (a) Unlike so-called “legislative rules,” guidance documents are issued by agencies without public input, and (b) in theory, they are not binding.
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Any regulation that will cost more than $100 million is considered “significant” and subject to OIRA rules under Presidential Executive Orders.
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Cost-Benefit Analysis: The current administration’s executive order says that agencies are required to quantify benefits and costs to the extent possible, and where appropriate may consider qualitatively values that are impossible to quantify (e.g. equity, dignity, fairness, and distributive impacts.) A cost-benefit analysis (CBA) is performed using the following steps (pp. 155-161):
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Calculate and monetize multiple effects: The agency must consider, either formally or informally, the benefits of the substance they might ban and thus the costs of any ban. First, they must determine which benefits and costs to consider and then decide how to measure them.
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Look at the markets for non-health effects
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Deal with commensurability issues: make various sorts of risks and benefits commensurable so that some sort of global estimate of each can be reached, allowing them to be weighed against each other.
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Distributional questions: ask whether giving certain distributional weights to particular outcomes would be helpful.
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Calculate the difference between willingness to pay to obtain a certain benefit and willingness to accept to give up a certain benefit.
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Weighting: A regulator must consider how to weigh risks to human life against economic or non-health benefits.
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Calculate the “value of statistical life”
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Consider the qualitative differences among risks.
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The discount rate
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The bottom line
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In the end, most regulation does not go through CBA. (see other outline for policy concerns/considerations)
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Procedure
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Rules and Order: Background
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Agencies have two basic procedural modes through which they make general policy and apply that policy in particular contexts, namely rulemaking and adjudication. An agency has to stay within the bounds of its grants of power for these procedures. These procedures have five basic sources:
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Organic Statutes: The organic statute creating an agency or vesting it with powers often specifies applicable procedures.
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Agency Procedural Regulations: The agency may have adopted procedural regulations, which it must follow in accordance with the principle that an agency is bound by its own rules
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APA: The APA establishes procedural requirements of general applicability.
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Federal common law: The courts have created “federal common law” imposing procedural requirements on agencies; most of these requirements, based neither on specific statutory provisions nor the Constitution, are designed to facilitate judicial review. (E.g. the requirement, developed in Chenery and subsequent cases, that agencies articulate a sustainable justification for discretionary decisions is an example.)
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The Constitution: Constitutional due process requirements may apply.
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Rulemaking and Adjudication: the Constitutional Distinction
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Londoner v. Denver (1908):
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Background: Colorado statute provided that the Board of Public Works might, after notice and opportunity for hearing, order the paving of a street on petition of a majority of the owners of property facing that street. The Denver City Council had to approve and implement this order through the adoption of an ordinance authorizing the paving. Additionally, before taking any action, the council had to provide notice and opportunity to file written objections. Plaintiffs, owners of property, challenged the council’s approval/levying of a tax against them on the basis that the authorization of improvement was invalid because they didn’t get a majority of owners to sign, paving had not been properly completed, the apportionment of costs was improper, and the hearing procedures afforded by the council with respect to assessment were inadequate.
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Issue: Did the council’s action violate the due process clause of the fourteenth amendment? Did the council’s approval of the assessments without an opportunity for an oral hearing violate the Constitution?
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Majority (Moody) Analysis: The Court determined that the council’s action in authorizing the improvements without notice and opportunity for hearing did not violate due process. Since the state legislature delegated the assessment and levying of the tax to a subordinate body (here the City Council), however, the plaintiffs had a right to an oral hearing.
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Holding/Conclusion: Decisions, made by an administrative body rather than a legislature, that are adjudicative in nature (case-by-case determination) must be subject to some sort of review (here an evidentiary hearing.)
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Bi-Metallic Investment Co. v. State Board of Equalization (1915):
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Background: The State Board of Equalization and the Colorado Tax Commission made an order increasing the valuation of all taxable property in Denver by forty percent. The plaintiff brought a claim on the basis that it was given no opportunity to be heard and that therefore its property was being taken without due process of law.
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Issue: Did the Board and Commission violate due process because they gave no opportunity for an oral hearing?
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Majority (Holmes): no violation of due process. Distinct from Londoner because there was a large number of people effected versus a small number of people (and therefore they could influence the legislature); it was an order with general rather than specific effect (no one was “exceptionally affected”); and further Londoner dealt with adjudicative facts (facts about the parties and their activities, businesses, and properties, which require an opportunity to be heard) rather than legislative facts (general facts which help the tribunal decide questions of law and policy and discretion-broad principles of general application).
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Note: These distinctions are not always dispositive because they often have contradictory results. (E.g. a large party with specific claims on legislative facts)
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These cases both demonstrate the principle that the Constitution does not impose any procedural requirements when either legislatures or administrative agencies adopt general laws or rules (according to common law). When a legislature extinguishes a property right by way of legislation that affects a general class of people, the legislative process provides all the process that is due. The Londoner/Bi-metallic Distinction says that the following factors tend to make an act adjudicative in nature (requiring a hearing or some other means of judicial review): a small number of people, specially affected by the act, on the facts of an individual rather than general case.
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Southern Railway v. Virginia (1933):
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Background: The Highway Commissioner directed Southern Railway to eliminate an overhead railroad passage on the basis of his opinion that public safety and convenience required such a measure. The decision was made under the authority of a Virginia statute that said no prior notice was needed. The statute included no mechanism for judicial review of such decisions. Southern Railway sued, claiming that such an order violated due process because there was no notice or hearing.
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Analysis: The statute allowed an administrative officer (the Commissioner) to make a final determination without notice, hearing, or evidence, and the finding was not subject to judicial review.
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Holding: The RR company was entitled to a fair hearing on the fundamental facts (of whether public safety and convenience required its elimination).
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Non-constitutional requirements: The Chenery Litigation
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Background: The Public Utility Holding Company Act gave the SEC sweeping authority to reorganize and simplify public utility empires. The SEC could then approve the issuance of new securities pursuant to voluntary reorganization unless the commission found that “the terms and conditions of the issue…are detrimental to the public interest or the interest of investors or consumers.” The Chenerys were the officers, directors, and controlling shareholders of the Federal Water Service Corp. The SEC refused to allow them to participate in the reorganization process (which would have allowed them to maintain their controlling share). The Commission did not find that the Chenerys acted covertly or with inside knowledge, etc., however it claimed its action under the principle of equity.
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Chenery I (1943): The Court (Frankfurter) determined that the Commission did not proffer new standards of equity on which it relied in its effectuation of legislative process (in its determination against the Chenerys). The Commission claimed that it relied on administrative competence, but the Court found that those considerations were not what the Commission based its decision on. An administrative order cannot be upheld unless the grounds upon which the agency acted in exercising its powers were those upon which its action can be sustained. An agency must make a clear statement of its rationale. No post-hoc rationalizations are allowed, agencies must articulate their rationales contemporaneously with their decisions. The court is unwilling to supply a rationale for an agency decision in order to uphold it on other grounds, and so must send it back to the agency for a new decision. Remanded.
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The SEC Decision on Remand (1945): While the Supreme Court indicated promulgating a general rule would be advisable, the absence of such a rule does not make the decision void. After consideration of the question, the statute grants power to withhold approval on cases like this, even when there is not affirmative evidence that actual misconduct existed. The proponents of the plan must show that the plan is fair and equitable. They failed to do so, so their participation is still not permissible. (Same result, just claiming to rely on statutory authority for their equitable principle rather than the equitable principle alone).
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Chenery II (1947): (The Court, which has changed significantly): The SEC can apply the statute in this way. The retroactive/ad hoc nature of their justification is not problematic because the Chenerys still get their money back plus interest. Administrative agencies have informed discretion to choose between proceeding by general rule or by individual, ad hoc litigation (adjudication or rulemaking). Thus, the Commission had the right to use this proceeding to announce and apply a new standard of conduct. Because the decision had a rational and statutory foundation, it stands. (Agencies have broad discretion to choose between adjudication and rule-making).
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Summary: Courts will not limit an agency’s discretion to choose between case-by-case adjudication and rulemaking to develop policy unless a statute so specifies. (Where agencies have the power to do both, they have broad discretion to choose between them.) Thus, agencies can decide whether they want to put themselves into the Bi-Metallic or Londoner world.
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The Administrative Procedure Act: (See pp. 28-29 of the other outline to get really clear on APA requirements/sections) Enacted in 1946 in response to concerns that the administrative state was out of control, it provides a loose framework for agencies, allowing flexibility for agencies and courts deciding what agencies are allowed to do. Under §551 (1), the APA covers all agencies”- “each authority of the Government of the U.S., whether or not it is within or subject to review by another agency, but does not include: Congress, the courts of the United States…agencies composed of representatives of parties or of representatives of organizations of the parties to the disputes determined by them…”
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Rulemaking vs. adjudication: Under §551 (5) “rule making” means agency process for formulating, amending, or repealing a rule; (7) “adjudication” means agency process for the formulation of an order. Adjudication includes licenses. Note: these definitions are different from those in the Const. and the distinctions made in Londoner, Bi-Metallic, and Southern Railway.
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Informal vs. formal proceedings: Formal proceedings are triggered when the relevant organic statute requires that the agency act “on the record after opportunity for an agency hearing” §556 and §557. Informal is the default for both unless the magic words appear. Under §553 (b) (3), notice or hearing, unless required by statute, is not mandated when it comes to: interpretive rules, general statements of policy.
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Informal (notice and comment) rulemaking: Under §553, it essentially involves the agency giving public notice of its proposal, a period for submission of written comments by any interested person, and then publication of a final rule along with an explanation and response to comments.
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Formal rulemaking: A trial-type hearing replaces submission of written comments.
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Formal adjudication: With the magic words, then §554, 556, and 557 apply, and the agency must hold a full, trial-type hearing. (For pre-hearing and hearing information, see pp. 513-514).
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Informal adjudication: no triggering language, then the APA imposes essentially no requirements (though §555 and 558 apply to all four categories). 95% of all adjudication is done informally. Under these proceedings, persons appearing before an agency are allowed to be represented by counsel; an agency must provide a “brief statement of the grounds of denial” of any application, petition, or other request”; when it comes to revocation of licenses, agencies must give permittees a second chance to bring themselves into compliance
Formal Rulemaking
§553 (a) (b) (d) (e) §556, 557
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Informal (notice and comment) rulemaking §553
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Formal adjudication: §554, 556, 557
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Informal adjudication (almost no procedures)
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Rule vs. order: §551 (4): A rule means the whole or part of an agency statement of general or particular applicability and future effect…; (6) an order means the whole or a part of a final disposition, whether affirmative, negative, injunctive, or declaratory in form, of an agency in a matter other than rule-making, but including licensing. The APA’s definition of order is much broader than the constitutional concept of adjudication. (See §551 (6)-(7)).
Organic Statute Requires Decision on “Record” after “Opportunity for Hearing?”
Yes No
Rulemaking
Adjudication
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Cases
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Dominion Energy Bayton Point, LLC v. Johnson (1st Cir. 2006) (come back to this p. 511 after Chevron, West Chicago, etc.)
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Background: The EPA issued a permit/license to Dominion, a power plant, under the Clean Water Act (CWA). In renewing the permit, EPA denied Dominion’s request for a variance on the basis of written submissions, without a formal hearing under the EPA. The CWA requires that the EPA provide “an opportunity for public hearing” before issuing or renewing such a permit.
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Holding: [Although ordinarily, this would require formal adjudication, the Court determined that the agency’s interpretation merited Chevron deference.] The administrative interpretation took account of the “relevant universe of factors.” The Court rejected the Seacoast decision, another 1st Circuit case that required formal proceedings even in the absence of the magic words and instead found that an agency can determine (under Chevron) whether or not a hearing is warranted, so long as their determination is reasonable given the factors in the particular case. (Note: Courts are more likely to interpret the statute as providing for a hearing on the record in cases where the agency is imposing a sanction or liability on a party under Londoner).
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National Petroleum Refiners Association v. FTC (D.C. Cir. 1973)
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Background: FTC Act gives the FTC power to prevent unfair or deceptive practices in commerce and to make rules to carry out the Act. The FTC promulgated a regulation declaring that it was illegal to post octane ratings on gas pumps at service stations, then brought enforcement action against Nat’l Petroleum for not complying. The District Court ruled that the Commission lacked the authority to issue such rules.
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Issue: Whether the FTC is empowered to promulgate substantive rules of business conduct that will later be used by the agency in adjudicative proceedings aimed at producing cease and desist orders against violations of the statutory standard.
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Holding: Yes, the FTC can do so since utilizing rulemaking in advance of adjudication minimizes the unfairness (and unpredictability) of using a purely case-by-case approach requiring “compliance by one manufacturer while his competitors remain free to violate the Act.” Unless the organic statute is very clear, agencies will be assumed to have the power of both rulemaking and adjudication, as well as the power to choose between them (consistent with Chenery 2).
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Summary: There has been a general trend toward rulemaking, but adjudications have not been eliminated. Although the official trigger for formal adjudication under the APA is “on the record after opportunity for hearing,” there are three different views on whether it actually means that:
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Seacoast/Londoner: As long as the organic statute says something like “hearing,” there is an assumption that the formal adjudication statute is triggered, even if it doesn’t include the rest of the magic words for the sake of respecting values similar to due process. (Bi-Metallic exception: If the order affects a large number of people, deals with legislative issues, and is general rather than specific, no hearing is required.)
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West Chicago: Reads 554 in a textualist way to say that unless the organic statute contains the magic words, no formal adjudication is triggered
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Dominion Energy/Chemical Waste: It is up to the agency to determine whether a hearing is warranted, and the reviewing court should accept the agency’s view as long as their interpretation of the statute is reasonable.
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FPC v. Texaco (1964):
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Background: The Federal Power Commission, through notice and comment rulemaking, adopted regulations governing the terms of contracts between independent natural gas producers and pipelines, prohibiting “escalator” clauses adjusting the contract price for gas to future (higher) prices for newly delivered gas. This rule allowed them to dismiss Texaco’s application for a license without hearing because it contained such a clause. Texaco was allowed to submit written comments but did not get an oral hearing.
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Issue: Was this rule permissible/adequate under the APA?
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Majority (Douglas): Yes. The statutory provision under which the Commission was authorized included a requirement that the Commission set such applications “for hearings.” However, that provision does not preclude the Commission from setting standards through rulemaking and barring those who do not measure up to such a rule, otherwise the Commission would have to proceed on a case-by-case basis (summary judgment appropriate). The company had a chance to contest the rule during the notice and comment period.
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