the regulatory process

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THE REGULATORY

PROCESS

Chapter 17

Meiners, Ringleb & EdwardsThe Legal Environment of Business, 12th Edition


ADMINISTRATIVE AGENCIES

“The rise of the administration bodies probably has been

the most significant legal trend of the last century and

perhaps more values today are affected by their decisions

than by those of all the courts. . . . They have become a

veritable fourth branch of the government. . . .”

~Supreme Court in F.T.C. v. Ruberoid Company (1952)


CHAPTER ISSUES

The development of administrative agencies Powers delegated to agencies by Congress

Legislative InvestigativeAdjudicatoryEnforcement

See Exhibits 17.1 and 17.2 Judicial review of an agency’s actions or decisions


ADMINISTRATIVE AGENCIESo The first federal agency: The Interstate Commerce Commission

(ICC,1887)o In the early 1900s: The Federal Trade Commission (FTC) and the

Food and Drug Administration (FDA)o 1930s: The Securities & Exchange Commission (SEC) and the

Federal Communications Commission (FCC)o 1960s & 1970s: The Environmental Protection Agency (EPA) and

the Equal Employment Opportunity Commission (EEOC)o Few new agencies since then, but roles of some have greatly

expanded.o Agency: Tool for local, state & federal regulatory functionso See Exhibit 17.1


CREATING AN ADMINISTRATIVE AGENCY

Congress gives an agency power & authority through legislative delegation

Congress delegates power to the agency to perform the regulatory purpose

Congressional statute delegates powers to the agency through an enabling statute

Agencies are created to have expertise and supervision over special problems about which Congress is concerned

If voters/businesses unhappy with regs., can pressure their representatives in Congress to make changes


ADMINISTRATIVE LAW Administrative law consists of legal rules that define authority &

structure of an agency Sources include

Enabling statutes of administrative agencies Administrative Procedures Act (APA, 1946) Rules issued by administrative agencies Court Decisions: Review validity of agency actions

The structure of administrative law itself is created by the APA Defines procedural rules and formalities for federal agencies

An agency must abide by APA requirements Congress may impose different requirements than the APA


ADMINISTRATIVE REGULATORY POWERS

o Legislative (or Rulemaking)o Investigative o Adjudicatoryo Enforcemento Virtually all powers of the 3 branches of the

government are incorporated into an agencyo See Exhibit 17.2


RULEMAKINGo Formal rules and regulationso Policy guidance documents – Assist those regulated on how to comply

with the lawo Substantive or Legislative Rules

• Same force as statutes of Congress• Agency usually must give public notice of these types of rules and

give parties opportunity for written commento Interpretative Rules

• Statements issued by an agency to provide guidance regarding interpretation of a substantive rule or a statute

• These rules may be created without public noticeo Procedural Rules

• Rules that outline the method of agency operation• Procedures used to deal with the public regarding enforcement,

investigation & adjudicatory review


RULEMAKING PROCEDUREo Proposed rule drafted by the agency staffo Internal review of the ruleo Rules approved by the head of the agency for public considerationo Publishing of the proposed rules in the Federal Registero Interested parties may submit written comments to agencyo After public comment period (60-90 days), agency reviews

comments and finalizes the ruleo Once agency issues final rule, it may be appealed through agency,

then to the U.S. Court of Appealso Courts will respect rule as long as it is reasonable under language

of Congressional statute


CASECHEVRON V. NATURAL RESOURCES DEFENSE

COUNCIL

o Clean Air Act requires states with “nonattainment” (dirty air) areas to create permit program. Program regulates “new or modified major stationary sources” of air pollution.

o EPA regs. state a plant with multiple sources of pollution are treated as one source of pollution. This is the “Bubble Concept” – it’s as if multiple sources are under a “bubble.”

o The whole “bubble” is measured (rather than each source)o National Resources Defense Council (NRDC) challenged

EPA’s “Bubble Rule.” Said rule was inconsistent with Clean Air Act

o Court of Appeals overturned the EPA regulationo Decision was appealed

(Continued)


o HELD: Reversed. Regulation is appropriate. o Two questions are asked:

• 1. Has Congress directly spoken to the precise question at issue?• 2. If statute is silent or ambiguous re: an issue, was the agency’s

answer based on permissible construction of the statute?o Agencies are allowed to fill gaps left by Congress. Unless agency

decisions are “arbitrary, capricious or manifestly contrary” to statute, regulations will be given controlling weight

o Legislative delegation may be implicit or explicit – often implicit. Courts usually defer to administrative interpretations.

o Question here is not whether the “Bubble Concept” is inappropriate. Question is if Administrator’s view is appropriate and reasonable regarding the Bubble Program

o EPA’s use of the concept is reasonable policy for it to make. The Bubble Program stays!.

CASECHEVRON V. NATURAL RESOURCES DEFENSE

COUNCIL


CYBER LAW“DO OLD REGULATIONS APPLY TO NEW

FORMS OF COMPETITION?” Problems with regulating technology related to the

Internet If a new technology is not covered in a regulation that

governs existing competitors, are the new competitors covered?

Existing firms want new competitors subject to the same rules

Problem: If the way the regulations are written does not envision new inventions – are they really covered under the regs?


ENFORCING RULES

Gathering of information and investigating violations Broad investigative powers of agencies through

Monitoring and self-reporting by business Business may be concerned with 5th Amendment violations re: self

incrimination (see following slide)

Direct observation by agency See Dow Chemical v. U.S. (within text)

Agency obtains information through subpoena power Directs person receiving subpoena to appear and testify or to

produce documents


INVESTIGATIVE POWERS

Information about compliance with federal laws is obtained in three basic ways:Regulated businesses are required to self-report.Direct observation determines if a business is

following the law.Agency subpoena power is used to require a

business to produce documents.


ENFORCEMENT POWERo Agencies have an array of enforcement tools in civil and criminal

penalties, plus the use of injunctionso Possible sanctions

• Prohibitions, requirements, limitations• Withholding of relief; penalties & fines• Destruction, taking, seizing, withholding of property• Assessment of damages, reimbursements, restitution, compensation,

costs, charges or fees• Requirement, revocation, suspension of license

o Informal procedures (i.e. tests, inspections, permits, negotiations, advice, settlements)

vs. o Formal procedures (i.e. adjudicatory hearings and possible

litigation)


CASEBLACK BEAUTY COAL CO. V. FEDERAL MINE SAFETY AND HEALTH REVIEW COMMISSION

Mine Safety and Health Administration (MSHA) inspector Franklin entered mine in Indiana – Operated by Black Beauty. He smelled burning coal; asked miners about it

Company assigned Hammond to escort Franklin. One miner said he had smelled about 30 minutes before.

Investigation continued; nothing specific found. Franklin proceeded and found place where conveyor belt dumped coal on another belt.

Rip in guard sheet. Pile of coal 2’ x 2’ x 5’ was packed around transfer spot. Franklin thought it had begun to burn. Hammond said he would have someone fix the problem. Franklin said shut down belts. Hammond refused – he didn’t see evidence of fire. Franklin issued citation for “high negligence.” MSHA send Black Beauty a proposed penalty assessment. Black Beauty rejected proposal. Chose to contest the matter with and administrative law

judge (ALJ). ALJ agreed with the MSHA and imposed $70,000 fine due to “high negligence”. Black Beauty petitioned court for review of ALJ decision.


§75.400 prohibits accumulations of coal dust, but not mere spillages.

Accumulation: “reasonably prudent person, familiar with the mining industry . . . would have recognized the hazardous condition. . . .”

ALJ found none of evidence explained the smell of burning coal that occurred 30 minutes before Franklin’s arrival.

“High Negligence” finding based on: (1) Black Beauty had been cited for several past accumulations of violations

(included belt line accumulations);

(2) Burning smell existed for significant time period;

(3) Villain “should have . . . seen and noted” coal turning in the tail roller; and

(4) Vogel & others did not alert management after noticing burning smell.

HELD: Petition for review denied.

CASEBLACK BEAUTY COAL CO. V. FEDERAL MINE SAFETY AND HEALTH REVIEW COMMISSION


ADJUDICATORY HEARINGS

Formal agency process under APA rules Similar to those followed in a trial Business must respond to complaint that alleges violation of

agency regulation Administrative Law Judge (ALJ) presides ALJ is a civil service employee who is usually an attorney Witnesses may be cross examined Less formal than a court trial Hearing must meet due process guarantees of the Constitution However, there is no right to trial by jury See Exhibit 17.3


JUDICIAL REVIEW APA sets out procedural requirements for court review Jurisdiction is needed by the court to hear the case Action must be reviewable by the courts

Sometimes review is prohibited by statute, i.e. Dept. of Veterans Affairs actions regarding benefits for veterans, their dependents or survivors

A party must have standing to seek court review of an agency actionSee Lujan v. Defenders of Wildlife (within text)

The agency action must be final to warrant judicial review under the ripeness doctrine

Parties must complete all agency appeals before turning to the courts under the exhaustion doctrine


CASESUMMERS V. EARTH ISLAND INSTITUTE

The Forest Service Decision Making and Appeals Reform Act of 1992 requires the Forest Service to establish notice, comment & appeals process for “proposed actions of the Forest Service regarding projects and activities of land and resource management plant.”

Certain procedures would not be applied to projects Forest Service considered excluded from requirements to file an environmental impact statement (EIS), such as salvage-timber sales of 250 acres or less.

After forest fire in 2002, Forest Service approved salvage sale of burned timber on 238 acres. Did not prepare an EIS or provide formal notice of sale.

Earth Island challenged the sale. District court ordered the sale stopped. Appeals court agreed with injunction against the sale.

Government asked for review of whether Earth Island could challenge the Forest Service regulations at issue.

(Continued)


HELD: Reversed. Courts cannot challenge the Forest Service’s regulations

under this instance. Courts should not oversee legislative or executive. action

that significantly alters the allocation of power away from the democratic form of government.

In addition, there is an issue of standing. Plaintiff must show that he has standing and has suffered

“injury in fact”. Plaintiff was not subject to governmental action, which

makes the plaintiff’s case more difficult.

CASESUMMERS V. EARTH ISLAND INSTITUTE


REVIEWABILITY Review Prohibited by Statute

• Congress may specify in the statute which court has jurisdiction for review.

• Can prohibit certain judicial review.

Review of Substantive Determination Usually the courts yield to

an agency’s judgment unless decisions are arbitrary, capricious, or an abuse of discretion or rulemaking is vague or unduly burdensome on business.

Review of Statutory Interpretation Courts determine if the

agency has gone beyond Congressional authority.

Review of Procedural Requirements Courts will ensure that an

agency has not acted unfairly or disregarded procedures (has not violated “procedural fair play”).


CASELONE MOUNTAIN PROCESSING V. SECRETARY OF

LABOR Lone Mountain, a mining firm, cited for regulatory violations; was

mailed “notices of contest;” did not respond; did not challenge notices or respond within 30 days.

MSHA sent delinquency notices. Later Lone Mountain filed motions to reopen civil penalties from the final order. Agency denied motion because company “failed to establish good cause” for reopening the matter. Lone Mountain appealed.

HELD: Court granted petition for review. Remanded the order to the Commission to reopen its final order.

Commission has much discretion to “reopen” final orders. Lone Mountain said Commission “abused its discretion” by departing from its own precedent without explanation.

Agency did not mention/discuss prior orders of leniency in reopening their final orders. Commission must give reasoned analysis indicting that prior policies had been changed. Failing to supply this analysis renders agency’s actions “arbitrary and capricious.”


CONTROLS ON AGENCIES Direct Controls

Congressional budget process Agency Appropriations & Reporting Requirements Cost-Benefit and Risk Analysis

Example: Office of Management and Budget may send proposed regulation back to agency if scientific, technical and economic information standards are not met

Presidential Executive Orders instructing tasks to be undertaken by agencies Example: Pres. Johnson’s order to agencies re: affirmative

action programs Indirect Controls

Freedom of Information Act Privacy Act Government in the Sunshine Act

the regulatory process

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