The Regulatory Process

1. The Regulatory Process Chapter 17 Meiners, Ringleb & Edwards The Legal Environment of Business, 12th Edition

2. 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)

3. Chapter Issues • The development of administrative agencies • Powers delegated to agencies by Congress • Legislative • Investigative • Adjudicatory • Enforcement • See Exhibits 17.1 and 17.2 • Judicial review of an agency’s actions or decisions

4. Administrative Agencies • The first federal agency: The Interstate Commerce Commission (ICC,1887) • In the early 1900s: The Federal Trade Commission (FTC)and the Food and Drug Administration (FDA) • 1930s: The Securities & Exchange Commission (SEC)and the Federal Communications Commission (FCC) • 1960s & 1970s: The Environmental Protection Agency (EPA) and the Equal Employment Opportunity Commission (EEOC) • Few new agencies since then, but roles of some have greatly expanded. • Agency: Tool for local, state & federal regulatory functions • See Exhibit 17.1

5. Creating an Administrative Agency • Congress gives an agency power & authority through legislative delegation • Congressdelegates 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 supervisionover special problems about which Congress is concerned • If voters/businesses unhappy with regs., can pressure their representativesin Congress to make changes

6. 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

7. Administrative Regulatory Powers • Legislative (or Rulemaking) • Investigative • Adjudicatory • Enforcement • Virtually all powers of the 3 branches of the government are incorporated into an agency • See Exhibit 17.2

8. Rulemaking • Formal rulesand regulations • Policy guidance documents– Assist those regulated on how to comply with the law • 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 comment • 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 notice • Procedural Rules • Rules that outline the method of agency operation • Procedures used to deal with the public regarding enforcement, investigation & adjudicatory review

9. Rulemaking Procedure • Proposed rule drafted by the agency staff • Internal review of the rule • Rules approved by the head of the agency for public consideration • Publishing of the proposed rules in the Federal Register • Interested parties may submit written comments to agency • After public comment period (60-90 days), agency reviews comments and finalizes the rule • Once agency issues final rule, it may be appealed through agency, then to the U.S. Court of Appeals • Courts will respect rule as long as it is reasonable under language of Congressional statute

10. CaseChevron v. Natural Resources Defense Council • 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. • 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.” • The whole “bubble” is measured (rather than each source) • National Resources Defense Council (NRDC) challenged EPA’s “Bubble Rule.” Said rule was inconsistent with Clean Air Act • Court of Appeals overturned the EPA regulation • Decision was appealed (Continued)

11. CaseChevron v. Natural Resources Defense Council • HELD: Reversed. Regulation is appropriate. • 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? • Agencies are allowed to fill gapsleft by Congress. Unless agency decisions are “arbitrary, capricious or manifestly contrary” to statute, regulations will be given controlling weight • Legislative delegation may be implicit or explicit – often implicit. Courts usually deferto administrative interpretations. • Question here is not whether the “Bubble Concept” is inappropriate. Question is if Administrator’s view is appropriate and reasonable regarding the Bubble Program • EPA’s use of the concept is reasonable policy for it to make. The Bubble Program stays!.

12. 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?

13. Enforcing Rules • Gathering of information and investigating violations • Broad investigative powersof agencies through • Monitoring and self-reportingby business • Business may beconcerned with 5th Amendment violations re: self incrimination (see following slide) • Direct observation by agency • SeeDow Chemical v. U.S. (within text) • Agency obtains information through subpoena power • Directs person receiving subpoena to appear and testify or to produce documents

14. 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.

15. Enforcement Power • Agencies have an array of enforcement tools in civil and criminal penalties, plus the use of injunctions • 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 • Informal procedures(i.e. tests, inspections, permits, negotiations, advice, settlements) vs. • Formal procedures(i.e. adjudicatory hearingsand possible litigation)

16. 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.

17. CaseBlack Beauty Coal Co. v. Federal Mine Safety and Health Review Commission • §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.

18. 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

19. Judicial Review • APA sets out procedural requirements for court review • Jurisdictionis needed by the court to hear the case • Action must be reviewableby 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 standingto seek court review of an agency action • See 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

20. 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)

21. CaseSummers v. Earth Island Institute • 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 togovernmental action, which makes the plaintiff’s case more difficult.

22. 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”).

23. CaseLone Mountain Processingv. 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.”

24. 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