Chapter 23: "Administrative Agencies"

The Process of Formal Administrative Adjudication

1. Complaint 2. Answer 3. Hearing before Administrative Law Judge 4. Order of Administrative Law Judge (for example, a cease-and-desist order) 5. Appeal to Governing Board of Agency 6. Final Agency Order 7. Appropriate Court for Review of Agency Decision (Usually an appellate court, but it depends on the specific agency.)

The Federal Trade Commission Act of 1914 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 5. Division of the U.S. Department of Justice—see Chapter 26.) Publish findings of its investigations. 6. Recommend new legislation. 7. Hold trial-like hearings to resolve certain trade disputes that involve FTC regulations or federal antitrust laws.

Arbitrary and Capricious Standards

1. Failed to provide a rational explanation for its decision. 2. Changed its prior policy without justification. 3. Considered legally inappropriate factors. 4. Entirely failed to consider a relevant factor. 5. Rendered a decision plainly contrary to the evidence.

To determine whether an agency is abusing its discretion in its pursuit of 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 agency's 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 the costs of, for example, copying the documents that must be handed over. A business generally is not required to reveal its trade secrets, however.

Bureaucracy

A large organization that is structured hierarchically to carry out specific functions. Sometimes referred to as the fourth branch of the U.S. government.

Investigation

After final rules are issued, agencies conduct investigations to monitor compliance with those rules or with the requirements of the enabling statute. A typical agency investigation of this kind might begin when a citizen reports a possible violation to the agency.

The Final Rule

After the agency reviews the comments, it drafts the final rule and publishes it in the Federal Register. The final rule must contain a "concise general statement of ... basis and purpose" that describes the reasoning behind the rule.

Enforcement and Adjudication

Although rulemaking is the most prominent agency activity, enforcement of the rules is also critical. Often, an agency itself enforces its rules. It identifies alleged violators and pursues civil remedies against them in a proceeding held by the agency rather than in federal court, although the agency's determinations are reviewable in court.

The Role of the Administrative Law Judge

An ALJ presides over the hearing and has the power to administer oaths, take testimony, rule on questions of evidence, and make determinations of fact. The law requires an ALJ to be an unbiased adjudicator (judge), even though the ALJ actually works for the agency prosecuting the case

Congress creates federal administrative agencies

By delegating some of its authority to make and implement laws, Congress can indirectly monitor a particular area in which it has passed legislation. Delegation enables Congress to avoid becoming bogged down in the details relating to enforcement—details that are often best left to specialists.

Government in the Sunshine Act

Congress passed the Government in the Sunshine Act, or open meeting law, in 1976. It requires that "every portion of every meeting of an agency" be open to "public observation." The act also requires the establishment of procedures to ensure that the public is provided with adequate advance notice of scheduled meetings and agendas. Like the FOIA, the Sunshine Act contains certain exceptions. Closed meetings are permitted when 1. The subject of the meeting concerns accusing any person of a crime, 2. An open meeting would frustrate the implementation of agency actions, or 3. The subject of the meeting involves matters relating to future litigation or rulemaking. Courts interpret these exceptions to allow open access whenever possible.

Negotiated Settlements

Depending on the agency, negotiations may involve a simple conversation or a series of informal conferences. Whatever form the negotiations take, their purpose is to rectify the problem to the agency's satisfaction and eliminate the need for additional proceedings.

Agency Orders

Following a hearing, the ALJ renders an initial order, or decision, on the case. Either party can appeal the ALJ's decision to the board or commission that governs the agency.

Comment Period

Following the publication of the notice of the proposed rulemaking proceedings, the agency must allow ample time for persons to comment in writing on the proposed rule. 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.

Formal complaints

If a settlement cannot be reached, the agency may issue a formal complaint against the suspected violator.

initial order

In the context of administrative law, an agency's disposition in a matter other than a rulemaking. An administrative law judge's initial order becomes final unless it is appealed.

Executive Agencies

Include the cabinet departments of the executive branch, which assist the president in carrying out executive functions, and the sub agencies within the cabinet departments. The Occupational Safety and Health Administration, for example, is a sub agency within the U.S. Department of Labor. Executive agencies usually have a single administrator, director, or secretary who is appointed by the president to oversee the agency and can be removed by the president at any time.

When Congress—or a state legislature—enacts legislation

It typically adopts a rather general statute and leaves its implementation to an administrative agency. The agency then creates the detailed rules and regulations necessary to carry out the statute. The administrative agency, with its specialized personnel, has the time, resources, and expertise to make the detailed decisions required for regulation.

Search Warrants

The Fourth Amendment protects against unreasonable searches and seizures by requiring in most instances that a search warrant be obtained before a physical search for evidence is conducted. An agency typically must obtain a search warrant that directs law enforcement officials to search a specific place for a specific item and present it to the agency. *Agencies can conduct warrantless searches in several situations. Warrants are not required to conduct searches in certain highly regulated industries. Firms that sell firearms or liquor, for instance, are automatically subject to inspections without warrants. Sometimes, a statute permits warrantless searches of certain types of hazardous operations, such as coal mines or liquid propane retailers. Also, a warrantless inspection in an emergency situation is normally considered reasonable.

Executive Controls

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 passed by Congress or congressional attempts to modify an existing agency's authority.

final order

The final decision of an administrative agency on an issue. If no appeal is taken, or if the case is not reviewed or considered anew by the agency commission, the administrative law judge's initial order becomes the final order of the agency.

Binding Effect

The final rule may modify the terms of the proposed rule in light of the public comments, but if substantial changes are made, 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 and for this reason are considered legislative rules.

Agencies' powers include functions associated with:

The legislature (rulemaking) The executive branch (enforcement) The courts (adjudication).

administrative process

The procedure used by administrative agencies in the administration of law. *which occurs from a complaint to a hearing to a final agency order—before seeking court review.

Subpoenas

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.

Notice of the Proposed Rulemaking

When a federal agency decides to create a new rule, the agency publishes a notice of the proposed rulemaking proceedings in the Federal Register. The Federal Register is a daily publication of the executive branch that prints government orders, rules, and regulations. The notice states where and when the proceedings will be held, the agency's legal authority for making the rule (usually its enabling legislation), and the terms or subject matter of the proposed rule.

administrative agency

is a federal, state, or local government agency established to perform a specific function. Administrative agencies are authorized by legislative acts to make and enforce rules to administer and enforce the acts.

Clean Air Act

it provided only general directions for the prevention of air pollution. The specific pollution-control requirements imposed on business are almost entirely the product of decisions made by the Environmental Protection Agency (EPA).

Informal Agency Actions

legislative rules are substantive in that they affect legal rights, whereas interpretive rules simply declare policy and do not affect legal rights or obligations. Agencies also issue various other materials, such as guidance documents, which advise the public on the agencies' legal and policy positions. *Informal agency actions are exempt from the APA's requirements because they do not establish legal rights.

Independent Regulatory Agencies

outside the federal executive departments (those headed by a cabinet secretary). Examples of independent agencies include the Federal Trade Commission and the Securities and Exchange Commission (SEC). Rather than having a single person as its head, an independent agency usually is run by a commission or board made up of several members, one of whom serves as the agency's chair. Commissioners or board members typically serve for fixed terms and cannot be removed without just cause. The SEC has five commissioners who serve for five-year terms that are staggered so that one term ends on June 5 of every year. The SEC's commissioners oversee its four divisions and nineteen offices

Types of Agencies

*Executive Departments and Important Sub agencies -State (1789): Passport Office; Bureau of Diplomatic Security; Foreign Service; Bureau of Human Rights and Humanitarian Affairs; Bureau of Consular Affairs; Bureau of Intelligence and Research -Treasury (1789):Internal Revenue Service; U.S. Mint -Interior (1849): U.S. Fish and Wildlife Service; National Park Service; Bureau of Indian Affairs; Bureau of Land Management -Justice (1870): Federal Bureau of Investigation; Drug Enforcement Administration; Bureau of Prisons; U.S. Marshals Service -Agriculture (1889): Soil Conservation Service; Agricultural Research Service; Food Safety and Inspection Service; Forest Service -Commerce (1913): Bureau of the Census; Bureau of Economic *Independent Regulatory Agencies -Federal Reserve System Board of Governors (the Fed)—1913: Determines policy with respect to interest rates, credit availability, and the money supply. The Federal Reserve became involved in various "bailouts" in the financial sector, including a "conservatorship" of two large mortgage institutions (Fannie Mae and Freddie Mac) and control of the world's largest insurance company, AIG. -Federal Trade Commission (FTC)—1914: Prevents businesses from engaging in unfair trade practices; stops the formation of monopolies in the business sector; protects consumer rights. -Securities and Exchange Commission (SEC)—1934: Regulates the nation's stock exchanges, in which shares of stock are bought and sold; enforces the securities laws, which require full disclosure of the financial profiles of companies that wish to sell stock and bonds to the public.

Notice-and-comment rulemaking

An administrative rulemaking procedure that involves the publication of a notice of a proposed rulemaking in the Federal Register, a comment period for interested parties to express their views on the proposed rule, and the publication of the agency's final rule in the Federal Register. *involves three basic steps: 1. notice of the proposed rulemaking 2. a comment period 3. final rule.

Searches during Site Inspections

As mentioned, agency investigations often involve on-site inspections. For instance, the Environmental Protection Agency (EPA) frequently conducts inspections to enforce environmental laws.

The Holding of the Chevron Case

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 Court's decision in the Chevron case created a new standard for courts to use when reviewing agency interpretations of law. This 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.

Administrative Agencies

Can make legislative rules, or substantive rules, that are as legally binding as laws that Congress passes. Administrative agencies also issue interpretive rules, which simply declare policy and do not affect legal rights or obligations.

Administrative agencies at the state and local level

Commonly, a state agency (such as a state pollution-control agency) is 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. Because the rules of state and local agencies vary widely, we focus here exclusively on federal administrative law.

Regulatory Flexibility Act

Concern over the effects of regulation on the efficiency of businesses, particularly smaller ones, led Congress to pass the Regulatory Flexibility Act in 1980. Under this act, 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 consider less burdensome alternatives. The act also contains provisions to alert small businesses—through advertising in trade journals, for example—about forthcoming regulations. The act reduces some record-keeping burdens for small businesses, especially with regard to hazardous waste management.

The Delegation Doctrine

Courts generally hold that Article I of the U.S. 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. This doctrine holds that Article I grants Congress the authority to delegate some of its power by establishing administrative agencies to create rules for implementing those laws.

Freedom of Information Act

Enacted in 1966, the Freedom of Information Act (FOIA) requires the federal government to disclose certain records to any person or entity on written request, even if no reason is given for the request. All federal government agencies must make their records available electronically on the Internet and in other electronic formats.

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.

Failure to Follow Rulemaking Procedures

If an agency failed to follow proper rulemaking procedures when it issued the final rule, however, the rule may not be binding.

FTC Structure

Is composed of five members. Each 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.

Legislative Controls

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. Congress also has the power to "freeze" the enforcement of most federal regulations before the regulations take effect. (Another legislative check on agency actions is the Administrative Procedure Act

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. Administrative inspections and tests cover a wide range of activities, including safety inspections of underground coal mines, safety tests of commercial equipment and automobiles, 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. For instance, the Federal Trade Commission often asks to inspect corporate records for compliance.

Small Business Regulatory Enforcement Fairness Act

The Small Business Regulatory Enforcement Fairness Act (SBREFA) allows Congress to review new federal regulations for at least sixty days before they take effect. This period gives opponents of the rules time to present their arguments to Congress. 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, will 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. The SBREFA also set up the Office of the National Ombudsman at the Small Business Administration to receive comments from small businesses about their dealings with federal agencies. Based on these comments, Regional Small Business Fairness Boards rate the agencies and publicize their findings.

Federal Trade Commission (FTC)

The act prohibits unfair methods of competition and deceptive trade practices. It also describes the procedures that the FTC must follow to charge persons or organizations with violations of the act, and it provides for judicial review of agency orders. *Federal Trade Commission Act of 1914.

Judicial Controls

The judicial branch exercises control over agency powers through the courts' review of agency actions. 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.

Adjudication

The process of resolving a dispute by presenting evidence and arguments before a neutral third party decision maker in a court or an administrative law proceeding. Most administrative actions are resolved through negotiated settlements at their initial stages, without formal adjudication

Rulemaking

The process undertaken by an administrative agency when formally adopting a new regulation or amending an old one. Rulemaking involves notifying the public of a proposed rule or change and receiving and considering the public's comments. *major function of an administrative agency

Enabling Legislation

specifies the name, purposes, functions, and powers of the agency being created. Federal administrative agencies can exercise only those powers that Congress has delegated to them in enabling legislation. Through similar enabling acts, state legislatures create state administrative agencies. *To create an administrative agency, Congress passes enabling legislation

The Arbitrary and Capricious Test

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 as so irrational that they are arbitrary and capricious.