MGT 301 CH 37 Administrative Law

Administrative agencies exist at

all levels of government

Consumer Financial Protection Bureau (CFPB)

A U.S. government agency that helps protect consumers by regulating financial products and services, like mortgages, credit cards, and student loans.

Judicial Deference to Agency Decisions

Courts defer to agency's judgment regarding facts within agency's scope (Ex: EPA on whether pollution occurred) When asked to review agency decisions, courts have historically granted significant weight to the agency's judgment, often citing the agency's expertise in the subject area of the regula- tion. This judicial deference seems especially appropriate when applied to an agency's analysis of factual questions

Executive Agencies

Federal agencies that are part of the executive branch but outside the structure of cabinet departments. Their heads typically serve at the pleasure of the president and can be removed at the president's discretion. pg 852

Administrative Law Judge (ALJ)

One who presides over an administrative agency hearing and has the power to administer oaths, take testimony, rule on questions of evidence, and make determinations of fact. Technically, the ALJ is not an independent judge and works for the agency prosecuting the case. Nevertheless, the law requires an ALJ to be an unbiased adjudicator (judge). Certain safeguards prevent bias on the part of the ALJ and promote fairness in the proceedings. For example, the APA requires that the ALJ be separate from an agency's investigative and prosecutorial staff.

The Final Rule

Regulation published by an agency, commented on by public comment, and published in its official form in the Federal Register. Has the force of law on its effective date. A final rule must contain a "concise general statement of . . . basis and purpose" that describes the reasoning behind the rule. The final rule may change the terms of the proposed rule, in light of the public comments, but cannot change the proposal too radically, or a new proposal and a new opportunity for comment are required. The final rule is later compiled along with the rules and regulations of other federal administrative agencies in the Code of Federal Regulations. Final rules have binding legal effect unless the courts later overturn them.

Administrative Law

The body of law created by administrative agencies (in the form of rules, regulations, orders, and decisions) in order to carry out their duties and responsibilities.

Code of Federal Regulations (CFR)

The codified regulations of the Federal government based on the final agency regulations published in the Federal Register.

Executive Control

The executive branch of government exercises control over agencies both through the president's power to appoint federal officers and through the president's veto power. The president may veto enabling legislation presented by Congress or congressional attempts to modify an existing agency's authority.

Bureaucracy

The organizational structure, consisting of government bureaus and agencies, through which the government implements and enforces the laws. Sometimes referred to as the 4th branch of the U.S. government

Administrative Process

The procedure used by administrative agencies in the administration of law. Rulemaking

fair notice

The requirement, stemming from due process, that government provide adequate notice to a person before it deprives that person of life, liberty, or property.

Regulatory Flexibility Act (1980)

Whenever a new regulation will have a significant impact upon a substantial number of small entities, the agency must conduct a regulatory flexibility analysis. The analysis must measure the cost that the rule would impose on small businesses and must consider less burdensome alternatives. The act also contains provisions to alert small businesses about forthcoming regulations. The act relieved small businesses of some record-keeping burdens, especially with regard to haz- ardous waste management.

Administrative Agency

a federal, state, or local government agency established to perform a specific function Unlike statutory law, administrative law is created by administrative agencies, not by legisla- tures, but it is nevertheless of overriding significance for businesses. When Congress—or a state legislature—enacts legislation, it typically adopts a rather general statute and leaves the statute's implementation to an administrative agency, which then creates the detailed rules and regula- tions necessary to carry out the statute. The administrative agency, with its specialized person- nel, has the time, resources, and expertise to make the detailed decisions required for regulation.

Administrative agencies at the state and local level are

created as a parallel to a federal agency (such as the Environmental Protection Agency). Just as federal statutes take precedence over conflicting state statutes, so do federal agency regulations take precedence over conflicting state regulations.

Article 1 of the Constitution

is the basis for all administrative law. Section 1 of that article grants all legislative powers to Congress and requires Congress to oversee the implementation of all laws. Article I, Section 8, gives Congress the power to make all laws necessary for executing its specified powers. Under what is known as the delegation doctrine, the courts interpret these passages as granting Congress the power to establish administrative agencies and delegate to them the power to create rules for implementing those laws.

ex parte

private communications between the ALJ and any party to an agency proceeding. Finally, provisions of the APA protect the ALJ from agency disciplinary actions unless the agency can show good cause for such an action.

Rulemaking

the actions of administrative agencies when formally adopting new regulations or amending old ones

Final Order

the final decision of an administrative agency on an issue

duces tecum

to compel documents to be provided (bring with you)

Enabling Legislation

A statute enacted by Congress that authorizes the creation of an administrative agency and specifies the name, composition, purpose, and powers of the agency being created.

Administrative Procedure Act

1946 Act requiring bureaucratic agencies to appeal to the affected parties before adopting new policies. Legislative check on Bureaucracy. Arbitrary & Capricious Fair Notice

Financial Stability Oversight Council (FSOC)

A US agency created under the Dodd-Frank Act, whose primary responsibility is to prevent systemic risk from threatening the financial system by identifying threats to financial stability and gaps in regulations, and facilitating coordination across federal and state agencies. FSOC oversees the primary bank regulators.

search warrant

A court order allowing law enforcement officers to search a suspect's home or business and take specific items as evidence The Fourth Amendment protects against unreasonable searches and sei- zures by requiring that in most instances a physical search for evidence must be conducted under the authority of a search warrant. An agency's search warrant is an order directing law enforcement officials to search a specific place for a specific item and seize it for the agency. Although it was once thought that administrative inspections were exempt from the warrant requirement, the United States Supreme Court held in Marshall v. Barlow's, Inc., that the requirement does apply to the administrative process.

Delegation Doctrine

A doctrine based on the U.S. Constitution, which has been construed to allow Congress to delegate some of its power to administrative agencies to make and implement laws.

Federal Register

A publication of the U.S. government that prints executive orders, rules, and regulations.

Agencies provide a comprehensive regulatory scheme

Administrative agencies in government work together and share the responsibility of creating and enforcing particular regulations When Congress enacted the Clean Air Act, it provided only general direc- tions for the prevention of air pollution. The specific pollution-control requirements imposed on businesses are almost entirely the product of decisions made by the Environmental Pro- tection Agency (EPA), which was created seven years later. Moreover, the EPA works with parallel environmental agencies at the state level to analyze existing data and determine the appropriate pollution-control standards.

Agency Creation and Powers

Agencies create rules, orders, and regulations (Administrative law) Congress creates agency with enabling legislation (Congress delegates to agency)

Small Business Regulatory Enforcement Fairness Act

Allows Congress to review new regulations for at least 60 days prior to taking effect SBREFA The SBREFA also authorizes the courts to enforce the Regulatory Flexibility Act. This helps to ensure that federal agencies, such as the Internal Revenue Service, consider ways to reduce the economic impact of new regulations on small businesses. Federal agencies are required to prepare guides that explain in plain English how small businesses can comply with federal regulations.

Chevron USA v. Natural Resources Defense Council

At issue in the Chevron case was whether the courts should defer to an agency's interpretation of a statute giving it authority to act. The Environmental Protection Agency (EPA) had interpreted the phrase "stationary source" in the Clean Air Act as referring to an entire manufacturing plant, and not to each facility within a plant. The agency's interpretation enabled it to adopt the so-called bubble policy, which allowed companies to offset increases in emissions in part of a plant with decreases elsewhere in the plant—an interpretation that reduced the pollution-control compliance costs faced by manufacturers. An environmental group challenged the legality of the EPA's interpretation. The United States Supreme Court held that the courts should defer to an agency's inter- pretation of law as well as fact. The Court found that the agency's interpretation of the statute was reasonable and upheld the bubble policy. The Court's decision in the Chevron case created a new standard for courts to use when reviewing agency interpretations of law. The standard involves the following two questions: 1. Did Congress directly address the issue in dispute in the statute? If so, the statutory language prevails. 2. If the statute is silent or ambiguous, is the agency's interpretation "reasonable"? If it is, a court should uphold the agency's interpretation, even if the court would have interpreted the law differently.

Independent Regulatory Agencies

Federal regulatory agencies that are independent, thus not fully under the power of the president. Ex. Federal Trade Commission, Securities and Exchange Commission. The president's power is less pronounced in regard to independent agencies, whose officers serve for fixed terms and cannot be removed without just cause. See Exhibit 37-2 for a list of selected independent regulatory agencies and their principal functions.

Comment Period

Following publication in the Federal Register, the agency must allow ample time for public comment. The agency need not respond to all comments, but it must respond to any significant comments that bear directly on the proposed rule by either modifying the proposed rule or explaining why the modification was not made. The purpose of this comment period is to give interested parties the opportunity to express their views on the proposed rule in an effort to influence agency policy. The comments may be in writing or, if a hearing is held, may be given orally.

Notice of Proposed Rulemaking

Legally required process by which federal departments and agencies make known intended rules, through publication in the Federal Register, and allow public review and comment. Government experts then analyze and use the comments to make any necessary changes before the proposed rule is published as a final rule in the Federal Register.

ad testificandum

for testifying - subpoena to appear in court and testify

Dodd-Frank Act

legislation passed in 2010 aimed at reforming the banking industry and offering consumers greater protection

Exhaustion Doctrine

requires a party to complete all agency appeals procedures before turning to a court for review

Government in the Sunshine Act (1976)

A law that requires all committee-directed federal agencies to conduct their business regularly in public session. Like the FOIA, the Sunshine Act contains certain exceptions. Closed meetings are permit- ted when one of the following occurs: 1. The subject of the meeting concerns accusing any person of a crime. 2. Open meetings would frustrate implementation of future agency actions. 3. The subject of the meeting involves matters relating to future litigation or rulemaking.

Adjudication

A proceeding in which an administrative law judge hears and decides issues that arise when an administrative agency charges a person or a firm with an agency violation. Most administrative actions are resolved through negotiated settlements at their initial stages, without the need for formal adjudication (the resolution of the dispute through a hearing conducted by the agency). Complaint Answer Hearing before ALJ Order of ALJ Appeal to Governing Board of Agency Final Agency Order Appropriate Court for Review of Agency Decision Court Order

Agency Powers and the Constitution

Administrative agencies occupy an unusual niche in the U.S. governmental structure, because they exercise powers that are normally divided among the three branches of government. The constitutional principle of checks and balances allows each branch of government to act as a check on the actions of the other two branches. Furthermore, the U.S. Constitution authorizes only the legislative branch to create laws. Yet administrative agencies, to which the Constitution does not specifically refer, can make legislative rules, or substantive rules, that are as legally binding as laws that Congress passes. Administrative agencies also issue interpretive rules that are not legally binding but sim- ply indicate how an agency plans to interpret and enforce its statutory authority.

Marshall v. Barlow's Inc. (1978)

Although it was once thought that administrative inspections were exempt from the warrant requirement, the United States Supreme Court held in Marshall v. Barlow's, Inc.,8 that the requirement does apply to the administrative process. Agencies can conduct warrantless searches in several situations. Warrants are not required to conduct searches in highly regulated industries. Firms that sell firearms or liquor, for example, are automatically subject to inspections without warrants. Sometimes, a statute permits warrantless searches of certain types of hazardous operations, such as coal mines. Also, a warrantless inspection in an emergency situation is normally considered reasonable.

enforcement

Although rulemaking is the most prominent agency activity, rule enforcement is also critical. Often, an agency itself enforces its rules. After final rules are issued, agencies conduct investigations to monitor compliance with those rules or the terms of the enabling statute. A typical agency investigation of this kind might begin when the agency receives a report of a possible violation. Inspections and Tests Subpoenas Search Warrants

initial order

An agency's disposition in a matter other than a rulemaking. An administrative law judge's initial order becomes final unless it is appealed.

formal complaint

An FREC administrative charge that is formally filed and defines charges against a licensee. Licensee is notified in writing and has 20 days to file an answer to the FREC. This complaint is a public document, and a press release may accom- pany it. The party charged in the complaint responds by filing an answer to the allegations. If the charged party and the agency cannot agree on a settlement, the case will be adjudicated. Agency adjudication involves a hearing before an administrative law judge (ALJ). Under the APA, before the hearing takes place, the agency must issue a notice that includes the facts and law on which the complaint is based, the legal authority for the hearing, and its time and place.

Legislative Rule

An administrative agency rule that carries the same weight as a congressionally enacted statute.

Interpretive Rule

An administrative agency rule that explains how the agency interprets and intends to apply the statutes it enforces. Not legally binding

Craker v. DEA

Background and facts Dr. Lyle Craker, a professor in the University of Massachusetts's Department of Plant, Soil and Insect Sciences, applied to the Drug Enforcement Administration (DEA) for permission to register to manufacture marijuana for clinical research. He stated that "a second source of plant material is needed to facilitate privately funded Food and Drug Administration (FDA)-approved research into medical uses of marijuana, ensuring a choice of sources and an adequate supply of quality, research-grade marijuana for medicinal applications." An administrative law judge recommended that Craker's application be granted, but a DEA deputy administrator issued an order denying his application. Under the DEA's interpretation, the Controlled Substances Act (CSA) requires an applicant to prove both that effective controls against diversion of the marijuana for unapproved purposes are in place and that its supply and the competition to supply it are inadequate. The administrator determined that the professor did not prove that effective controls against the marijuana's diversion were in place or that supply and competition were inadequate. Craker petitioned the U.S. Court of Appeals for the First Circuit to review the order. Decision and remedy The U.S. Court of Appeals for the First Circuit denied Craker's petition to review the agency's order "because the Administrator's interpretation of the CSA is permissible and her findings are reasonable and supported by the evidence."

Federal Communications Commission v. Fox Television Stations, Inc.

Background and facts The 1934 Communications Act established a system of limited-term broadcast licenses subject to various conditions. One condition was the indecency ban, which prohibits the uttering of "any obscene, indecent, or profane language by means of radio communication." The Federal Communications Com- mission (FCC) first invoked this ban on indecent broadcasts in 1975. At that time, the FCC defined indecent speech as "language that describes, in terms patently offensive as measured by contemporary community standards for the broadcast medium, sexual or excretory activities or organs, at times of the day when there is a reasonable risk that children may be in the audience." Before 2004, one of the factors used by the FCC in determining whether a broadcaster had violated the ban was whether the offensive language had been repeated, or "dwelled on," in the broadcast. If an offensive term was used just once in a broadcast, the FCC probably would not take any action. In 2004, however, the FCC changed this policy, declaring that an offensive term, such as the F-word, was actionably indecent even if it was used only once. In its 2004 ruling, the FCC specifically stated that previous FCC rulings allowing a "safe harbor" for a single utterance of an offensive term "were no longer good law." In 2006, the FCC applied this new rule to two Fox Television broadcasts, each of which contained a single use of the F-word, which had aired before the FCC's change in policy. Decision and Remedy The United States Supreme Court vacated the judgment of the U.S. Court of Appeals for the Second Circuit, which had ruled the FCC's order unconstitutional on different grounds. The Court noted that the regulations at the time the broad- casts took place did not cover "fleeting expletives." Therefore, Fox did not have fair notice of what was forbidden, and the standards applied to the broadcasts were impermissibly vague. The Court ordered the FCC's administrative order to be set aside.

Loving v. Internal Revenue Service

Background and facts The Internal Revenue Service (IRS) is a sub agency of the U.S. Department of the Treasury. Responding to concerns about the performance of some paid tax-return preparers, the IRS issued a new rule. The rule required paid preparers to pass an initial certification exam, pay annual fees, and complete at least fifteen hours of continuing education courses each year. As authority for the rule, the IRS relied on a statute enacted in 1884 and re-codified in 1982 that authorizes the agency to "regulate the practice of representatives of persons before the Department of the Treasury." Decision and Remedy The U.S. Court of Appeals for the District of Columbia Circuit affirmed the lower court's ruling. Under the IRS's interpretation of the statute, the agency "would be empowered for the first time to regulate hundreds of thousands of individuals in the multi-billion dollar tax-preparation industry." Nothing in the statute's text, history, structure, or context "contemplates that vast expansion of the IRS's authority."

Notice-and-Comment Rulemaking

Because agency rules have such great legal force, the APA established procedures for agencies to follow in creating rules. 1. Notice of the proposed rulemaking. 2. A comment period. 3. The final rule. The APA recognizes some limited exceptions to these procedural requirements, but they are seldom invoked. If the required procedures are violated, the resulting rule may be invalid. The impetus for rulemaking may come from various sources, including Congress, the agency itself, or private parties, who may petition an agency to begin a rulemaking (or repeal a rule). For instance, environmental groups have petitioned for stricter air-pollution controls to combat global warming.

Enabling legislation-an example

Congress created the Federal Trade Commission (FTC) in the Federal Trade Commission Act.1 The act prohibits unfair and deceptive trade practices. It also describes the procedures that the agency must follow to charge persons or organizations with violations of the act, and it provides for judicial review of agency orders. The act grants the FTC the power to do the following: 1. Create "rules and regulations for the purpose of carrying out the Act." 2. Conduct investigations of business practices. 3. Obtain reports from interstate corporations concerning their business practices. 4. Investigate possible violations of federal antitrust statutes. (The FTC shares this task with the Antitrust Division of the U.S. Department of Justice.) 5. Publish findings of its investigations. 6. Recommend new legislation. 7. Hold trial-like hearings to resolve certain kinds of trade disputes that involve FTC regulations or federal antitrust laws. The commission that heads the FTC is composed of five members, each of whom is appointed by the president, with the advice and consent of the Senate, for a term of seven years. The president designates one of the commissioners to be the chair. Various offices and bureaus of the FTC undertake different administrative activities for the agency.

Legislative Control

Congress exercises authority over agency powers through legislation. Congress gives power to an agency through enabling legislation and can take power away—or even abolish an agency altogether—through subsequent legislation. Legislative authority is required to fund an agency, and enabling legislation usually sets certain time and monetary limits on the funding of particular programs. Congress can always revise these limits. In addition to its power to create and fund agencies, Congress has the authority to investigate the implementation of its laws and the agencies that it has created. Congress also has the power to "freeze" the enforcement of most federal regulations before the regulations take effect. The question that a court faces when confronted with an agency's interpretation of a statute it administers is always whether the agency has acted within its statutory authority.

Hearing Procedures

Hearing procedures vary widely from agency to agency. Administrative agencies generally exercise substantial discretion over the type of procedure that will be used. Frequently, disputes are resolved through informal adjudication proceedings that resemble arbitration. A formal adjudicatory hearing, in contrast, resembles a trial in many respects. Prior to the hearing, the parties are permitted to undertake discovery—involving depositions, interrogato- ries, and requests for documents or other information—although the discovery process is not quite as extensive as it would be in a court proceeding. The hearing itself must comply with the procedural requirements of the APA and must also meet the constitutional standards of due process. The burden of proof in an enforcement proceeding is placed on the agency.

Inspections and tests

Many agencies gather information through on-site inspections. Sometimes, inspecting an office, a factory, or some other business facility is the only way to obtain the evidence needed to prove a regulatory violation. At other times, an inspection or test is used in place of a formal hearing to show the need to correct or prevent an undesirable condition. Administrative inspections and tests cover a wide range of activities, including safety inspections of underground coal mines, safety tests of commercial equipment and automo- biles, and environmental monitoring of factory emissions. An agency may also ask a firm or individual to submit certain documents or records to the agency for examination.

Arbitrary and Capricious Test

The APA gives courts power to hold agencies' actions "arbitrary and capricious" if they are not in compliance with constitutional due process. One of Congress's goals in enacting the APA was to provide for more judicial control over administrative agencies. To that end, the APA provides that courts should "hold unlawful and set aside" agency actions found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Under this standard, parties can challenge regulations as contrary to law or so irrational as to be arbitrary and capricious. The arbitrary and capricious standard does not have a precise definition, but in applying it, courts typically consider whether the agency has done any of the following: 1. Failed to provide a rational explanation for its decision. 2. Changed its prior policy without justification. 3. Considered legally inappropriate factors. 4. Failed to consider a relevant factor. 5. Rendered a decision plainly contrary to the evidence.

Freedom of Information Act (1966)

The Act defines agency records subject to disclosure, outlines mandatory disclosure procedures and grants nine exemptions to the statute Enacted in 1966, the Freedom of Information Act (FOIA)11 requires the federal government to disclose certain records to any person on request, even if no reason is given for the request. A request that complies with FOIA procedures need only contain a reasonable description of the information sought. An agency's failure to comply with such a request can be challenged in a federal district court. The media, industry trade associations, public-interest groups, and even companies seeking information about competitors rely on these FOIA provisions to obtain information from government agencies. The FOIA exempts certain types of records, such as those involving national security and those containing information that is personal or confidential.

Judicial Controls

The judicial branch exercises control over agency powers through the courts' review of agency actions. The Administrative Procedure Act, discussed shortly, provides for judicial review of most agency decisions. Agency actions are not automatically subject to judicial review, however. The party seeking court review must first exhaust all administrative remedies under what is called the exhaustion doctrine. In other words, the complaining party normally must have gone through the administrative process (from complaint to hearing to final agency order, as described later in this chapter) before seeking court review.

Negotiated Settlements

The process of reaching final equitable settlement of all outstanding issues, claims, and disputes through negotiation. Whatever form the negotiations take, their purpose is to rectify the problem to the agency's satisfaction and eliminate the need for additional proceedings. Settlement is an appealing option to firms for two reasons: to avoid appearing uncooperative and to avoid the expense involved in formal adjudication proceedings and in possible later appeals. Settlement is also an attractive option for agencies. To conserve their own resources and avoid formal actions, administrative agencies devote a great deal of effort to giving advice and negotiating solutions to problems.

subpoena

There are two basic types of subpoenas. The subpoena ad testificandum (to testify) is an ordinary subpoena. It is a writ, or order, compelling a witness to appear at an agency hearing. The subpoena duces tecum (bring it with you) compels an individual or organization to hand over books, papers, records, or documents to the agency. An administrative agency may use either type of subpoena to obtain testimony or documents. There are limits on what an agency can demand. To determine whether an agency is abusing its discretion in pursuing information as part of an investigation, a court may consider such factors as the following: 1. The purpose of the investigation. An investigation must have a legitimate purpose. Harassment is an example of an improper purpose. An agency may not issue an administrative subpoena to inspect business records if the motive is to harass or pressure the business into settling an unrelated matter. 2. The relevance of the information being sought. Information is relevant if it reveals that the law is being violated or if it assures the agency that the law is not being violated. 3. The specificity of the demand for testimony or documents. A subpoena must, for example, adequately describe the material being sought. 4. The burden of the demand on the party from whom the information is sought. In responding to a request for information, a party must bear certain costs—for example, the cost of copying requested documents. A business generally is protected from revealing information such as trade secrets, however.