LAW 3220 chap 17

•The first federal agency: The Interstate Commerce Commission (ICC,1887)
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•In the early 1900s: Came the Federal Trade Commission (FTC) and the Food and Drug Administration (FDA)
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•1930s: Brought Securities & Exchange Commission (SEC) and the Federal Communications Commission (FCC)
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•1960s & 1970s: Created Environmental Protection Agency (EPA) and the Equal Employment Opportunity Commission (EEOC)
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•The 1980s: Placed more emphasis on the important functions of the Environmental Protection Agency (EPA) and the Occupational Safety & Health Administration (OSHA)
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•Agency: Tool for local, state & federal regulatory functions

¢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

Note that Congress creates a statute, and then "delegates the power" (through an "enabling statute) to the agency to create regulations to conform with the purposes of a congressional statute. Know the terms on this slide for the exam, and how they work.

¢Administrative law consists of legal rules that define authority & structure of an agency
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¢Sources include
Enabling statutes of administrative agencies
Administrative Procedures Act (APA, 1946)
Rules issued by administrative agencies
Court Decisions: Review validity of agency actions
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¢The structure of administrative law itself is created by the APA
Defines procedural rules and formalities for federal agencies
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¢An agency must abide by APA requirements
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¢Congress may impose different requirements than the APA

•Legislative (or Rulemaking)
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•Investigative
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•Adjudicatory
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•Enforcement
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•Virtually all powers of the 3 branches of the government are incorporated into an agency

•Formal rules and regulations
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•Policy guidance documents - Assist those regulated on how to comply with the law
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•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
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•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
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•Procedural Rules
-Rules that outline the method of agency operation
-Procedures used to deal with the public regarding enforcement, investigation & adjudicatory review

the "Substantive and Legislative Rules" and the force of law that they have; the "Interpretive Rules" that sometimes agencies will set out to companies to help companies understand how the agency will enforce the substantive rules; and the "Procedural Rules" of how the agency operates and deals with enforcement, investigation and adjudicatory review over companies.

•The Fair Labor Standards Act (FSLA) regulates requirements for overtime pay.
•Department of Labor sets the details of the requirement.
•In general managerial positions are exempted from the rule of overtime pay.
•The Department of Labor's Wage and Hour Division issued opinion letter.
•2001 Interpretive Rule: Stated mortgage-loan officers were to receive overtime pay
•2006 Division issued Opinion Letter: Mortgage-loan officers fall under managerial exception
-Need not be paid overtime.
•2010 Division changed interpretive rule back to 2001 position that they should be paid for overtime.
•MBA sued, contending that 2010 interpretive rule was invalid.
-Because agency did not use notice-and-comment procedures when rule changed
-Said this was a violation of APA.
•District Court: Dismissed the suit.
•Court of Appeals Reversed: Held that notice-and-comment should have
been used.
•Department of Labor appealed.
•Section 4 of APA: 3-step procedure for "notice-and-comment" rulemaking.
•1) Agency issues "general notice of proposed rule making"
-Ordinarily published in Federal Register.
•2) If "notice [is] required," agency must "give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments."
-Agency then considers and responds to significant comments.
•3) Agency promulgates final rule
-It must include in the rule text "a concise general statement of [its] basis and purpose."
•Rules issued through this notice-and-comment process: "Legislative rules" - have "force and effect of law."
•Not all "rules" must be issued through this process.
•APA states that notice-and-comment requirement "does not apply" to "interpretive rules, general statements of policy. . . ."
•The absence of notice-and-comment duty makes issuing interpretive rules easier for agencies that legislative rulemaking
-BUT interpretive rules "do not have the force and effect of law and are not accorded the weight in the adjudicatory process . . . ."
•If 1st interpretive rule doesn't use notice-and-comment procedures,
-Then amendments or repeals of interpretive rule don't either.
•HELD: Reversed. No need for notice-and-comment.

This deals with the Fair Labor Standards Act and exemptions granted to financial institutions for overtime pay of general managerial positions in a company. Notice that there was a back-and-forth change in the exemptions of this overtime pay for mangers in the administration's opinion letters and interpretive rules over a period of time. The crux of this case is whether an opinion letter or an interpretive rule must be given notice to companies for their comment. That is true of substantive rules, but as this case indicates, the notice and comment requirement is NOT applicable to opinion letters or interpretive rules. Therefore, in this case, the agency did a lot of waffling back and forth about the exemptions, but they can do this in these circumstances when there are opinion letters and interpretive rules sent to companies.

•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.

•The 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.
•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 gaps left 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
•Court usually defers to administrative interpretations.
•EPA's use of the concept is reasonable policy for it to make.
•The Bubble Program stays!

Note the reasoning of the court in upholding that Bubble Concept. Specifically, if Congress grants an agency such as the EPA the right to regulate but leaves "gaps" concerning specifics of carrying out the statute (here the Clean Air Act), the Agencies are allowed to fill gaps left by Congress. Further if an agency "fills gaps" left open by a statute, the regulations filling those gaps are valid unless the agency decisions are "arbitrary, capricious or manifestly contrary" to statute. Here they were not. And lastly courts will usually defer to the administrative interpretations of a Congressional statute.

¢Gathering of information and investigating violations

¢Broad investigative powers of agencies through

Monitoring and self-reporting by business
¢Business is 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

•This privilege applies to individuals

•Privilege does not apply to corporations or other legal entities

•Corporations MUST produce documents requested by an administrative agency
-If business doesn't comply, it will receive fines and penalties for non-reporting under the law.
-If they do comply, information may incriminate business or persons within an organization.

¢Sometimes compliance places business "between a rock and a hard place" .

there is NO 5th Amendment protection to business entities regarding concerning "self-incrimination". The 5h Amendment applies only to persons.

¢Dow denies EPA entry to its complex for an on-site inspection.

¢EPA hires commercial aerial photographer who uses a precision mapping camera to view 2000-acre outdoor manufacturing facility area.

¢Dow claims there is a 4th Amendment Constitutional violation re: warrantless search & seizure.

¢District Court rules for Dow; Court of Appeals reverses for EPA.
•Supreme Court HOLDS: Aerial photographs from navigable airspace are not a 4th Amendment violation.

•Photographing is lawful, if area is observable by the general public.

•However, cannot "penetrate walls"; that would violate trade secrets or confidentiality.

•Use of highly sophisticated technology is questionable as well.
•This concept is changing as technology is becoming more and more available to the public.

that you can monitor from the outside and take photographs, even with infrared cameras. However, you CANNOT penetrate walls with listening devices.)

•Need Warrant - "Routine inspections"

•Administrative warrants are simple to obtain

•No Warrant - "Open field observation"
•No Warrant - Consent by management for agency to look over or search the premises

•No Warrant - Closely regulated industries, i.e.
-Pharmaceuticals industry
-Nuclear facility

•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 hearings. Businesses sometimes request a jury at an administrative hearing.)

See Issue Spotter: Contest a Regulatory Order?

•Mine Safety and Health Administration (MSHA) inspector Franklin entered mine in Indiana - Operated by Black Beauty.
•Company assigned Hammond to escort Franklin.
•Franklin entered the mine; smelled burning coal; asked miners about it.
•One miner, Vogel, said he had smelled about 30 minutes before.
•Investigation continued; nothing found; no problem reported.
•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 sent 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.
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•HELD: Petition for review denied.

In this case, an MSHA inspector entered the Black Beauty mine and smelled burning coal. In checking things out, he found the conveyor belt problem as indicated on the slide and in the book. When a supervisor of the Black Beauty refused to shut down the belts (when the investigator demanded it) the investigator issued a citation for "high negligence" Then review the high fine imposed on Black Beauty. Know the outcome of this case on Slide #21 and that Black Beauty lost the case as the court denied a review of the fine and let the high fine stand. Note also that Black Beauty had previous violations and a lack of fixing problems, thus the "high negligence" fine was imposed on the coal company.

¢Formal agency process under APA rules
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¢Similar to those followed in a trial
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¢Business must respond to a complaint that alleges violation of agency regulation.
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¢Administrative Law Judge (ALJ) presides.
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¢ALJ is a civil service employee who is usually an attorney.
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¢Witnesses may be cross examined.
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¢Less formal than a court trial
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¢Hearing must meet due process guarantees of the Constitution.
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¢However, there is no right to trial by jury (see next slide)
•Hearings are held before Administrative Law Judge (ALJ)
•ALJ is not an independent judge but an employee of the agency where case is reviewed

•Question: Is there a right to trial by jury at such hearings?

•Answer: The Supreme Court has held that there is no right to a jury trial since these are neither criminal nor common-law cases.

regulatory agencies must provide basic constitutional procedures when dealing with businesses when assessing if there has been a violation by the business. Slide #22 discusses that "due process" is guaranteed at an Administrative Law Hearing, but there is NO right to trial by jury. (Slide # 23)

¢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 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.

•Very regulated

•Administrative "guidance system" (gyosei shido)

•They only give "guidance by direction" (shiji) or "suggestions" (kankoku)

•Have "requests" (yobo)

•Give "warnings" (keikoku)

•Give "encouragement" (kansho)

•Theoretically, businesses are not forced to comply
•If businesses don't comply, however, there may be subtle, unrelated ways that make doing business more difficult

•"Voluntary" nature of the system "saves face" for everyone.

•Unlike the U.S., a Japanese agency does not actually confront violators.

•The Japanese judiciary has a "hands-off" policy toward this administrative guidance system and its effects on businesses.

Notice how different the Japanese regulatory agencies function from the U.S. regulatory agencies. It's interesting that theoretically businesses are not forced to comply with what a Japanese agency wants of them or asks of them. However, if a company doesn't comply as requested or ordered or warned, the agency will be subtle in the difficulty it will make for the business to do its work, for instance in re-licensing some activities of the business.

•Environmental groups argued that U.S. should stop providing aid to Egypt to build dams on Nile River.

•Building of dams endangers the rare Nile crocodile.

•Groups asserted providing aid should comply with U.S. Endangered Species Act.

•Court held: Plaintiffs lacked standing and have suffered no "injury in fact".

•Concern about crocodiles in Egypt is too remote.

•Disagreement with agency policy is not = to an injury.

Especially note that The Defenders of Wildlife did not have "standing" to pursue a court remedy under these circumstances due to the fact that the actions in Egypt were too "remote" and that disagreement with a U.S. foreign policy did not create a harm to The Defenders. There was no "injury in fact" to this group. However, The Defenders would have had standing if the U.S. governmental actions affected something that occurred WITHIN the U.S.

•Interpretive ruling re: cleaning up horse manure in Wilderness Areas
•Arco Oil and Gas (no a part of BP Amoco) send seismologists by horseback to do seismic work.
•Best route to the out-of-the-way site was to go by horseback through a Wilderness Areas.
•EPA interpreted "pollution" to Wilderness Areas as any horse defecation of horses within the control and use of businesses travelling through areas by horseback.
•Seismologists rode horses themselves but had to bring extra cargo animals and collect the defecation, put it in plastic bags and bring it back to their home base.
•When news got around the ARCO offices, the e-mails and jokes went rampant, and the interpretive rule as nick-named "The Horse Shit Interpretation" of the EPA. (continued)
•However, the seismologists were not amused as they had to collect the stuff and carry it back and get rid of it properly.
•They said the stench was just TERRIBLE.
•They also said that the manure might have helped the natural state of the wilderness.
•Apparently wild horses and bears can, as they said "shit in the woods", but grain fed horses are not allowed to.
•Different "outcome" so to speak.
•UGH!
•Remember this is an interpretive rule, not a new regulation.

•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 Prohibited by Statute
•Congress may specify in the statute which court has jurisdiction for review.
•Can prohibit certain judicial review.
•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").

•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".

see what the company did and that it wanted to reopen civil penalties from the final decision of the administrative agency in its appeal to the court. The court allowed a review of the case and ordered the Commission to reopen it. The basis for siding in favor of Lone Mountain was "abuse of the Commission's discretion" without explanation. Prior leniency in other cases was never discussed by the Commission and therefore the Commission's decision was "arbitrary and capricious".

•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 an 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
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Indirect Controls
-Freedom of Information Act
-Privacy Act
-Government in the Sunshine Act

As indicated in the book, citizens can know how a company is treated under the FOIA (Freedom of Information Act). However, the citizens do NOT have the ability to know the trade secrets under the Privacy Act.