Texaco two step: 1) The agency can make a rule, subject to notice and comment, during which any interested party can challenge its passage.; 2) Once the rule is passed, it can be enforced against all parties who had the opportunity to participate in notice and comment, effectively acting as a mechanism of summary judgment, precluding parties from challenging the validity of the rule once it is applied to them. Essentially makes hearing much more cursory, where all an agency has to do is determine whether the contract fails to conform with the rule-this process is considered the hearing, without the possibility of prejudice from the denial of oral procedures since there are no issues in dispute.
Heckler v. Campbell (1983):
Background: The Social Security Act provides that an applicant denied disability benefits is entitled to a trial-type adjudicatory hearing before an Administrative Law Judge (ALJ). The Secretary of Health and Human Services (HHS) promulgated regulations providing that there are certain impairments that prevent a person from gaining employment, and that a claimant who establishes that he suffers from one of these will be considered disabled without further inquiry. If a claimant suffers from a less severe impairment, the Secretary determines: what the applicant’s medical condition is, his skill/experience, and whether or not there are jobs within the national economy for someone in his position. If there are jobs available, he is not entitled to disability benefits. Prior to 1978, the Secretary relied on vocational experts, however HHS adopted regulations establishing the types and numbers of jobs that exist in the national economy (eliminating the need for vocational experts). A judge, using these qualifications, denied the claimant’s application. The Court of Appeals held that the Social Security Administration was required to include in the administrative record more specific evidence, beyond the guidelines, of available jobs in the national economy she was capable of performing, and that the hearing did not qualify as a meaningful adjudicatory hearing.
Majority (Powell): Citing Texaco, the court found that a case-by-case determination of the available jobs was not required and that the Secretary’s use of the vocational guidelines did not conflict with the statute.
U.S. v. Florida East Coast Railway (1973)
Background: To ease the problem caused by a freight-car shortage, the Interstate Commerce Commission (ICC) under the Interstate Commerce Act, passed a rule authorizing charges for the use of a freight car by a company that did not own it. The ICC passed this rule according to informal rulemaking procedures (without an oral hearing, though they allowed written comments). The Act granted authority to issue such charges “after hearing.” Florida East Coast sued claiming that this triggered formal rulemaking under 553/556.
Majority (Rehnquist): The language “after hearing,” without more, is insufficient to trigger §556 and 557. It is simply a mandate to the Commission to consider the factors set forth in reaching their conclusions. (Though the magic words are not required, you need something more than what you have in this case.). The Court also relies on the Londoner/Bi-Metallic factors (not a particularized effect, general, and not unfairly disadvantaging a particular party) to determine that it could stand. In rulemaking, a written hearing is sufficient. We can generalize §559 and apply it to statutes even before the APA to unify the administrative state under a single set of procedures.
(Courts began requiring agencies to develop an evidentiary basis for their regulations through procedures that go beyond bare bones informal rulemaking requirements set out in the APA). United States v. Nova Scotia Food Products Corp. (2nd Cir. 1977):
Background: The FDA conducted §553 notice-and-comment rulemaking proceedings to promulgate safety regulations for the smoking of fish to safeguard against botulism poisoning. It sued to enjoin Nova Scotia from processing hot-smoked whitefish in violation of the regulations. Nova Scotia claimed that they followed the wrong procedure (though it is informal rulemaking) because there was an inadequate administrative record upon which to predicate judicial review and that the failure to disclose the factual material upon which the agency relied defeats the purpose of n+c.
Issues: What record does a reviewing court look to? How much of what the agency relied on has to be disclosed to interested parties? To what extent must the agency respond to criticism that is material?
Holding: A reviewing court must consider whether the agency took into account all of the relevant factors and whether there was a clear error of judgment (Overton Park). Failure to notify the interested persons of the research upon which the agency was relying necessitates a finding that the agency did not consider the relevant factors. The administrative process must disclose whether the proposed regulation is considered to be commercially feasible, or whether other considerations prevail. Further, the requirement in §553 (c) of a “concise general statement” requires an explanation of the adoption of the rule that gives more than cursory/conclusive information. There was no balancing to show that the procedure was not arbitrary. Thus, Courts can require agencies to consider relevant policy alternatives and make a reasonable choice between them under 553. Further, agencies must follow certain norms of procedural regularity like disclosing studies to interested parties for comment.
Result of these cases: Agencies are strongly encouraged to substitute rulemaking for adjudication since rules are made primarily informally through notice and comment, with a procedural benefit of being able to drastically limit/narrow the issues in subsequent adjudication. Idea of “paper hearings,” in which the “concise general statement of basis and purpose” of a regulation becomes the administrative record from which a court reviews a decision. This leads to “hybrid rulemaking,” a blend of formal and informal rulemaking requirements that go beyond “paper hearings” (rejected in Vermont Yankee)
Informal Rulemaking and “Common Law”
Long Island Care (2007):
Background: In 1974, Congress amended the Fair Labor Standards Act to cover “domestic service” employees. It exempted from coverage companionship workers, which the Department of Labor interpreted to mean “those who are employed by an employer or agency other than the family or household using their services” (so those who were employed by third parties were not protected). A domestic worker challenged the validity of the regulation. She claimed that the promulgation of the regulation under notice-and-comment was defective because notice was defective.
Holding (Breyer): The APA requires an agency conducting n+c rulemaking to publish in its notice of proposed rulemaking “either the terms or substance of the proposed rule or a description of the subjects and issues involved” §553 (b) (3). This requirement has been interpreted to mean that the final rule that the agency adopts must be a “logical outgrowth” of the rule proposed to ensure that all the parties who have a stake at the proceedings have fair notice (and by extension a chance to record their objects-must be reasonably foreseeable that their interests are at stake).
Rationale: There is a need to structure the notice and comment proceedings to give parties maximum incentives to disclose information to the agency/court. The reasonably foreseeable/logical outgrowth test may do the opposite.
“Hard Look Review”: Based on §706, if an agency has made irrational or unjustified policy choices, it is presumed to be acting arbitrarily and capriciously. Agencies have to show that they made a reasoned choice from among alternatives. To deal with the movement toward informal rulemaking, the D.C. Circuit adopted this type of review.
Vermont Yankee (1978): The Nuclear Regulatory Commission granted Vermont Yankee a license to operate a nuclear power plant. The standard involved a rulemaking proceeding through notice-and-comment. The commission, after holding a hearing the included expert testimony (but offered no chance for cross-examination) depended on that testimony to grant a license to Vermont Yankee based on the environmental conclusions without giving any hearing rights to environmental groups on the issue of waste disposal.
D.C. Circuit majority (Bazelon): Reversed the grant of the license and the “zero grant “ rule on the basis that the commission failed to expose and permit adequate adversary probing of the waste disposal issues. He essentially said that the record on which the agency based its conclusion (the expert’s testimony) was insufficient given the alternatives they had to create more dialogue. (In other words, the agency did not adequately justify its policy choices-additional proceedings were needed to supplement the notice and comment proceedings).
Concurrence (Tamm): Agreed that the record did not provide adequate data or analysis to support the Commission’s conclusion and was therefore “arbitrary and capricious.” However, he took issue with the emphasis on the additional proceedings (which the majority laid out in its suggestions for the way in which the agency could have created a more genuine dialogue around the issue).
Supreme Court Ruling (Rehnquist): The APA established the maximum procedural requirements, which can be imposed on agencies in conducting rulemaking procedures. Agencies are free to grant additional procedural rights in the exercise of their discretion, but courts are generally not free to impose them if the agencies have not chosen to grant them (Court cannot impose more procedures than the agency has undertaken in compliance with the APA). Administrative agencies must be free to fashion their own rules of procedure within the APA. This is necessitated by the need for judicial consistency, to prevent the agency from having to adopt full adjudicatory proceedings each time in an attempt to employ the “best” procedures, and finally because any other requirement would fundamentally misconceive the nature of the standard for judicial review of the agency rule. So long as the Commission employs the statutory minimum of procedural requirements, the Court cannot overturn it on the basis that there were additional procedural steps that could have been taken. Short: The APA precludes, absent unspecified exceptional circumstances, judicial requirements that agencies use additional procedures beyond those specified in the APA or other relevant statutes.
After Vermont Yankee, hybrid rulemaking requirements are impermissible, but paper hearings still stand. However, there is not a meaningful difference between the two.
Exceptions to Notice-and-Comment Requirements: As a result of the more formalized notice and comment requirements, agencies began looking for ways to avoid it altogether by falling under the exceptions outlined in §553 (b) (3) (interpretive statements and good cause)
American Hospital Association v. Bowen (D.C. Circuit 1987): A “general statement of policy,” which falls under the §553 exemption does not impose any rights and obligations and genuinely leaves an agency and its decision-makers free to exercise discretion. If something grants rights, imposes obligations, or produces other significant effects on private interest, or changes a current policy, it is a rule subject to notice and comment. If it merely clarifies or explains existing law or announces when an agency seeks to establish a policy, it is an interpretive rule not requiring notice and comment.
Appalachian Power Co. v. EPA (D.C. Circuit 2000): If an agency acts as if a document issued at headquarters is controlling in the field, if it treats the document in the same manner as it treats as legislative rule, if it bases enforcement actions on the policies or interpretations formulated in the document, if it leads private parties or state permitting authorities to believe that it will declare permits invalid unless they comply with the terms of the document, then the guidance document is for all purposes “binding,” regardless of the way the agency characterizes it.
Community Nutrition (D.C. Circuit 1987):
Background: The FDA set “action levels” allowing them to bring a court action to condemn any interstate shipment of food that contained more than the maximum amount of unavoidable contaminants permitted by regulation. The FDA said these action levels were nonbinding statements of the agency’s enforcement policy (not requiring n+c under §553). Community Nutrition claimed that the levels were treated as binding and so constituted substantive, not interpretative rules.
Holding: These guidelines were sufficiently binding to require notice and comment. Thus, even if an agency claims that a guidance document or other policy isn’t binding, if it treats it as if it is, the rule requires notice and comment.
Dissent (Starr): To determine whether the agency’s policy is a guidance or a binding rule, look at whether it has the force of law in future proceedings. If it does, it is a legislative rule subject to notice and comment. To determine if it has force, ask whether the agency must show that the pronouncement has been violated or that the pronouncement is justified. If it is the former, it is a binding rule.
American Mining (D.C. Cir. 1993):
Background: The Labor Dept.’s Mine Safety and Health Act requires mine operators to submit reports and information as may reasonably be required. MSHA issued program policy letters (PPLs) to mine operators stating that the chest X-rays of miners that “scored” above a certain opacity would be considered a diagnosis that the employee had one of the illnesses specified in the regulations and could subject the employer to liability for disability.
Holding: The PPLs were interpretive and not subject to notice-and comment requirements. He laid out the following test to distinguish legislative and interpretive: to determine whether a purported interpretive rule actually has “legal effect,” ask: 1) whether in the absence of the rule there would be not an adequate legislative basis for enforcement action or other agency action to confer benefits or ensure the performance of duties; 2) whether the agency has published the rule in the code of the Federal Regulations; 3) whether the agency has explicitly invoked its general legislative authority; 4) whether the rule effectively amends a prior legislative rule. If any of these have an affirmative answer, it is a legislative not interpretive rule.
Hoctor v. U.S. Department of Agriculture (7th Cir. 1996) (Posner) (“Big Cats” case): Case dealt with whether an internal memorandum specifying the required height of fences around dangerous animals including tigers, lions, etc. constituted a legislative or interpretive rule. The court determined that it was a legislative rule requiring notice and comment because the inclusion of a number added substantive content.
Air Transport Association of America v. Department of Transportation (1991) (“American Pilots”):
Background: Amendments to the Federal Aviation Act raised the maximum penalty for a single violation, establishing a program authorizing prosecution and adjudication of smaller administrative polices. After Congress enacted these changes, the FAA promulgated rules regarding them without notice and comment, labeling them as “rules of organization, procedure, or practice” (falling under the §553 (b) (3)) exception.
Holding: Where rules “encode a substantive value judgment” or “substantively alter the rights or interests of regulated” parties, they must be preceded by notice and comment. Because the new rules include a penalty provision that substantially affects a defendant’s right to an administrative adjudication, it cannot be properly labeled “procedural.”
Takeaway: Interpretation and procedure, which fall under the exception, are things without binding legal effect. Interpretation is to clarify rather than create the law. Procedure is ancillary to enforcing the law. Policy statements are not binding. Another exception is the “good cause” exception: when an agency creates a new requirement that might be evaded if advance notice was provided, there is no requirement of notice and comment. Agencies also occasionally produce “interim final rules,” meaning that they employ the good cause exception to promulgate a rule while simultaneously holding a notice-and-comment proceeding on the same subject, where the promulgated rule functions as the proposed rule. Some critics argue that rulemaking has become increasingly rigid (“ossification”) resulting in delay and increased transactional costs, causing agencies to forgo rulemaking for adjudicatory techniques that are less effective, rely on interpretive rules, etc. However, this criticism is largely unfounded (see p. 606 and March 9th notes).
Agency Decisionmaking Structure: Within agencies, according to §554 (d) (2), there should be separation in adjudication between those who perform investigative and prosecutorial functions and those who advise the decision. The test of whether the functions are connected is whether or not they are “factually related,” similar to the idea of a “common nucleus of operative fact.” Such separation of functions is only applicable when adjudication is required by statute (or by the Constitution). ALJs are supposed to be independent parties to decide cases.
Overall: For formal adjudication, at the initial level there is strict separation of function. Separation of functions applies only to formal adjudication, not to rulemaking of any kind. Ex parte contacts are prohibited in all formal proceedings. In informal proceedings, there is no requirement of separation of functions, though ex parte contacts are still prohibited. There is no separation of functions required for the head (§554 (d) (2) (c)). Agencies can constrain/put in place quality evaluations but cannot encroach on the decisional independence of the adjudicator.
Wong Yang Sung v. McGrath (1950):
Background: A habeas corpus proceeding to determine whether administrative hearings in deportation cases have to conform to requirements of the APA. Immigration officers arrested a Chinese person for overstaying his leave. An inspector held the hearing, recommended deportation, and the Board of Immigration Appeals affirmed. The inspector was similar to an investigator, despite prohibitions against the inspector being the one who investigates the case.
Holding: The only time hearings are exempt from §554 is when those hearings are held by agencies on the basis of regulation, rule, custom, or special dispensation, not those held by compulsion. Deportation proceedings not exempted. While employees can have different roles/functions, they cannot perform two different functions in the same case or in cases with common facts.
Aftermath: Although in Florida East Coast, the Court determined that formal rulemaking/an oral hearing was not required unless the words “hearing” or “on the record” appeared in the statute, courts have been quicker to require an on-the-record proceeding absent the magic words when the agency is engaged in adjudication. Courts have been reluctant, however, to extend the holding to all administrative adjudication. Congress overruled the decision through subsequent legislation. The Supreme Court upheld those procedures, suggesting that this whole issue was really a matter of APA interpretation. Lower court decisions have determined that the due process clause does not bar the combination of investigatory, prosecutorial, and adjudicative functions absent a more particular showing of bias. (See practice problem pp. 751-752).
Hercules Inc. v. EPA (D.C. Cir. 1978):
Background: The petitioners challenged the EPA’s regulations limiting the discharge of two toxic substances into rivers and other waterways. The regulations, issued under the CWA resulted from formal rulemaking. The petitioners argued that the EPA administrator and the judicial officer who presided at the hearing and compiled the rulemaking record had impermissible contacts with EPA’s staff. (Under EPA rules, the administrator was allowed staff assistance as well as review of the entire record).
In Home Box Office (later overruled), the court held that wide-ranging private contacts with FCC decisionmakers were impermissible. The petitioners contended that that staff contacts offended principles of fairness in the same way by depriving the reviewing court of the full and accurate administrative record and by preventing a genuine opportunity to genuine adversarial discussion. However, EPA claimed that Congress had expressly sanctioned staff contacts because of the quasi-legislative function of the rulemaking process and the necessities implicit in administrative policy (since §§553, 556, and 557 don’t have the same prohibition as §554 (d) (2) against mixed functions).
Holding: Relying on Vermont Yankee’s holding precluding the imposition of procedural requirements beyond the APA, the Court determined that the EPA standards could be upheld and that the administrator could have such staff contacts. They noted the necessity for staff contacts to help view the extraordinary bulk and complexity of the administrative record, however, the court condemned the communication between the administrator and legal advocates since it gave an “appearance of unfairness,” suggesting that the EPA and other agencies should proscribe post-hearing contacts between staff advocates and decisionmakers in formal rulemaking proceedings for the sake of public confidence.
Aftermath: Some critics find the APA’s “separation of functions” provision both too broad and too narrow. See p. 755 and consider the question at the bottom.
Administrative Law Judges (ALJ): The officer who does the adjudication, hired by the Office of Personnel Management. ALJs can only be fired for cause by the Merit Systems Protection Board, an agency. A hearing to determine whether there was cause is a formal adjudication in which another ALJ presides. (APA §3105)
Problems: For cause protection: the structure of ALJ, with its double for-cause protection seems to conflict with the holding in PCAOB.
Are ALJs exercising judicial or executive power? If they are exercising judicial power, they are in violation of Article 3. If they are exercising executive power, and are thus “officers of the United States,” they seem to conflict with PCAOB.
Nash v. Bowen (2nd Cir. 1989):
Background: The plaintiff, an ALJ, claimed that the reforms, regarding “quality assurance” and “peer review,” imposed by the director of the Bureau of Hearings and Appeals interfered with his ability to decide cases independently. After his protest, Nash was demoted.
Holding: The Court upheld the efficiency standards on the basis of the need to ensure fairness, saying that the Secretary setting monthly production goals did not threaten the ALJ’s independence. It struck down the requirement for lower reversals because there was no evidence that such reversals did indicate errors in the decisionmaking of the ALJs (only that they might indicate such errors). It was within the discretion of the Secretary to adopt reasonable administrative measures to improve the decisionmaking process.
Agency Decisionmaking (At the Head) and Bias: Agency heads typically combine several functions, generally both issuing the complaint that initiates the hearing process and ultimately deciding the issue in the resulting proceeding. Although this potentially biases their judgment, there is no easy way to divide functions structurally among commissioners, which is why §554 (d) exempts “the agency or a member or members of the body comprising the agency” from its prohibitions.
Withrow v. Larkin (1975): At the agency head level, the combination of adjudicative and investigative functions does not itself violate due process.
Background: Larkin practiced medicine in Wisconsin. The board investigated his abortion practices in an “investigative hearing.” It later sent him notice that it would hold a “contested hearing” to determine whether he had practice under another name and done other illegal things. Larkin sought and obtained an injunction against this second hearing on the basis that it was unfair and unconstitutional to have the investigator from the first hearing make the final decision.
Analysis: While there is a presumption of an increased probability of actual bias on the part of the judge/decisionmaker when the adjudicator has a pecuniary interest in the outcome or in which he has been the target of personal abuse or criticism from the party before him, it is less clear that a combination of investigative and adjudicative functions necessarily creates the same unconstitutional risk/bias. There is a “presumption of honesty and integrity” in those serving as adjudicators.
Holding: The combination of investigative and adjudicative functions does not, without more, constitute a due process violation, though a court can determine from the special facts and circumstances present in the case before it that the risk of unfairness is intolerably high. The Court also analogizes to a judge who rules on a probable cause issue and then later rules on the facts in the case.
Compare with Gibson: Citing Tumey v. Ohio, where the court determined that those with a substantial pecuniary interest in legal proceedings should not adjudicate those disputes because of the presumption that they will fall prey to their other interests (no presumption of honesty and integrity). In Gibson, the action was ruled impermissible on the grounds of “possible personal interest.”
FTC v. Cement Institute (1948): The Court upheld a Commissioner’s refusal to disqualify themselves from a proceeding on the basis of bias claimed from reports the Commission promulgated on the issue in a similar industry (steel). The Court pointed out that if the plaintiff’s position were allowed, there would be no one to make a determination in the case. This is the
