Chapter #5- Agency Rulemaking

Constitutional Foundationsof Business Regulation

Supremacy Clause: When a federal and state law conflict, the Supremacy Clause of the U.S. Constitution provides that the federal law controls. Thus, federal agency regulations trump state laws

• Commerce Clause: Congress uses its power over interstate and foreign commerce to create a free market of goods throughout the U.S.

Example of HowExpansive the Commerce Clause Is---Heart of Atlanta Case in which the Court Upheld theGovernments Powerto Regulate Commerce and thusCongress can give this power to Administrative agencies

Actual postcard of Motel

Statutory Limits on Agency Discretion

Agencies are given power by Congress, but their enabling legislation is not always as clear as one would hope. The upcoming case shows such confusion and ultimately the US Congress cleared up the confusion in 2005 by specifically giving the FDA power to regulate tobacco.

Case: Chemical Waste Management v Hunt---- Alabama passedlaw requiring the taxing of “out of state” waste to be brought intoAlabama for disposal. Operator of waste facility w/n Alabama suesAlabama for unfairly interfering with interstate commerce....

Case: FDA vs. Brown & Williamson Tobacco Corp. FDA enacts many widespread rules and regulations upon the tobacco industry under its rule making authority. Tobacco manufacturers, retailers & advertisers claim that FDA is acting beyond its scope of powers delegated to it by Congress and thus these rules/regulations are illegal….

FDA is out of control--acting beyond its powers given

to it by Congress.(Case Handout)

Judge Judy Ready to Rule---

Statutory Limits on Agency Discretion

Congress however, cannot just give a “blank check” to an agency and send it on its way no matter how much “good intention” they may have to ‘fix’ a problem.

• See for example Schechter Poultry Corp. v. US case Congress was facing the prospect of recovery after the “great depression” and passed the National Industrial Recovery Act creating private trade group associations to suggest “fair competition” codes to the President to facilitate an emergency recovery.

• US Supreme Court ruled that this delegation amounted to entire process of making laws to the executive and private enterprises –statute provided no detailed procedures for making codes nor no limits or standards for kinds of things codes would cover.

In the area of public safety there is often competing forces of speculation of health consequencesand industry existence. Congress direct agencies to “protect” but when does scientific evidence reach the level of conclusive proof that a certain degree of a substance causing injury

While data may establish an association with various chemicals or products, it often cannot distinguish between safe and unsafe levels of exposure. Thus, Congress’s statutory authority in the area of public safety is generally do “something” but it is up to you to do it and measure it!

JUDGE JUDY READY TO JUDGE JUDY READY TO RULE----RULE----

Case: INDUSTRIAL UNION DEPARTMENT V. AMERICAN PETROLEUM INSTITUTE OSHA set a standard for worker’s exposure to a carcinogenTo be 1 part per million (ppm) and the industry says that there is no basis for such a Tight standard on them –OSHA says it is up to the industry to prove the That the standard is to strict and the science does not back up the standard –theIndustry disagrees and claims the standard is arbitrary and capricious.

1. OSHA should makeWorkplaces “safe”

but can’t mandate “riskFree” and 2. and its ppm

Must be based on substantialEvidence of a connection

Of benzene and health and What % of benzene is

Beyond safe.

JUDGE JUDY READY TO JUDGE JUDY READY TO RULE----RULE----

Case: CHEVERON V. NATURAL RESOUCES DEFENSE COUNCIL In enforcing the Clean Air Act the EPA adopted the “bubble approach” by Some states in their effort to reduce emissions and that was challenged by environmental groups as to generous to industry participants and notNot a proper interpretation of the statute’s directives.

EPA’s interpretation of the

Statute’s language was ‘reasonable’ and a

Permissible construction ofThe term “source” and Keeping with intent of

Act to reduce air pollutionBut encourage economic

Growth.

State & Local Regulation State & Local Regulation of Interstate Commerceof Interstate Commerce

Although the federal government’s power Although the federal government’s power over interstate is considerable, it is not over interstate is considerable, it is not exclusive. Often states enact trade exclusive. Often states enact trade barriers and other restrictions in the barriers and other restrictions in the interest of their own citizens. These are interest of their own citizens. These are considered unconstitutional or upheld on a considered unconstitutional or upheld on a case-by-case basis.case-by-case basis.

JUDGE JUDY READY TO JUDGE JUDY READY TO RULE----RULE----

Case: OREGON WASTE SYSTEMS VS. DEPARTMENT OF ENVIRONMENTAL QUALITY OF THE STATE OF OREGON State agency places a 3X’s the amountOf tax on waste generated outside of the State of Oregon and brought in for Disposal as compared to “domestically” generated waste. Companies feel this Is a violation of the Commerce Clause and sue.

State agency’s regulationIs an unreasonable or undue burden on

Interstate commerce and Violation of the “reverse commerce

clause” a/k/a “negative commerce

Clause”

How are Administrative Rules How are Administrative Rules made?made?

““Statements of Policy”Statements of Policy” ‘‘Notice & Comment’ Rule MakingNotice & Comment’ Rule Making Formal Rulemaking under APAFormal Rulemaking under APA Hybrid RulemakingHybrid Rulemaking Negotiated RulemakingNegotiated Rulemaking

“Due Process” Continuum(Less to More)

• Exempted Rulemaking (No Public Participation):– “Statements of Policy”– Interpretive Rules– Military or foreign affairs function– Agency Management or

personnel

• Informal Rulemaking (“Notice & Comment”):

• Formal Rulemaking (Higher Due Process Formalities):

Which one requires

More legal Formalities?

Rulemaking vs. Adjudication

• Both create “rules” but different levels of scrutiny on an agency’s action depending on the function undertaken….

Which one requires

More legal Formalities?

Rulemaking (formal & informal) vs. Adjudication (formal & informal)• 1. Does the agency action

affect a small specifically identified number of people whom the agency can feasibly hear without sinking under this burden?

• 2. Does the agency decision depend at least in part on facts about specific people and their cases such that an individual, if given some right to be heard, might show the agency it made a factual mistake in his/her case?

Substantive Rule Making

• A Rule much like a law that people & businesses must follow or they will face civil and/or criminal sanctions.

• All substantive rules are subject to judicial review.

• If a substantive rule is being contemplated, then the agency must follow 1) the steps dictated by its enabling legislation; or 2) if non, then the APA section 553…..

APA Sec. 553 formalities:

• Publish a general notice of the proposed rule making in the Federal Register. The notice must include:– The time, lace & nature of

the rule-making proceeding.– The legal authority pursuant

to which the rule is proposed.

– The terms or substance of the proposed rule or a description of the subject and issues involved.

APA Sec. 553 continued..

• Give interested persons an opportunity to participate in the rule making process. This may involve oral hearings.

• Review all written and oral comments. Then the agency announces its final rule making in the matter. This procedure is often referred to as notice-and-comment rule making, or informal rule making.

• Require, in some cases, formal rule making. Here the agency must conduct a trial like hearing at which the parties may present evidence, engage in cross –examination, present rebuttal evidence, and such. (APA sec. 556)

Interpretive Rule Making & Statements of Policy

• Interpretive Rule Making: An agency issues interpretive rules that interpret existing statutory language but such rules are not law. Neither the public notice or public participation is required.

• Statements of Policy: Agencies issue statements that announce a proposed course of action that an agency intends to follow in the future. These statements do not have a force of law and again, public notice and participation are not required.

JUDGE JUDY READY TO RULE----

Case: BI-METALLIC INVESTMENT CO. V. STATE BOARD OF EQUALIZATION OF COLORADO State Board raises value of propertyIn Denver 40% across the board without a hearing. One property owner feels thatUnder the Due Process Clause, he is entitled to a hearing before this occurs on hisLand valuation. Board disagrees and State Courts side with State Board.

This is a rule making decisionAnd thus not an adjudication.

If you don’t like the rules, Vote the rascals out—but

No adjudication formalitiesNeeded here.

Trends in Rule Making

• Hybrid Rulemaking: Requires APA Sec. 533 formalities & sets forth the following:

– Gives Statement of the basis & purpose of rule and cites supporting documentation;

– Sets forth the data on which the agency relied in developing the rule;

– Describes the methodology & agency employed in analyzing its data and developing the final policy;

– Provides evidence that here was adequate notice to those who might be interested in commenting on the proposed rule;

– Shows that a sufficient amount of time was provided so that comments could be prepared & submitted to the agency

– Indicates that comments could challenge the data admittedly relied on by the agency, either on paper or by some form of oral argument;

– Gives evidence that the agency did examine relevant significant public comments and responded, albeit perhaps in a limited way, to those criticisms and suggestions.

See sample HybridRulemaking

Procedure P.159

Trends in Rule Making (Continued)

• Negotiated Rulemaking: Agencies allow participation by industry participants and give & take interaction to help develop the rules….somewhat like mediation.

See example of Notice of

Negotiated Rule Proposal

P. 162

Executive Oversight of New Rules

• Executive Pre-clearance of New Rules: – Agencies are expected to show

that the new regulation is really necessary;

– The administrator is to indicate what other alternative policy instruments were available and why they were rejected in favor of the regulation;

– The agency is generally expected to show that it has considered the likely costs/benefits of the proposed Regulation.

• Enforced by the Office of Management & Budget

Due to the conceptOf Over ReachingPresidents haveOrdered Extra

Procedures

Legislative Oversight of New Rules

• Copy of Rule & Related Descriptive Materials Proffered to Both House & Senate & Comptroller General of USA and include: – A complete copy of the

cost-benefit analysis of the rule, if any;

Legislative Vetos arePossible