Choice of policy-making vehicles – rulemakings vs. adjudications

1. Choice of policy-making vehicles – rulemakings vs. adjudications • Can make policy through rules (enacted as regulations). Advantages include: (1) Fairness due to general applicability (2) Public input results in targeted rule (3) Consistency in application (4) Efficiency – immediate application • Or can make policy in adjudications Resulting order is applicable only to parties in particular enforcement/licensing proceeding. But often has precedential value that will become established law applied by agency in most such proceedings – like judge-made case law.

2. Ntl. Pet. Rfrs. v. FTC - why did NPR resist FTC’s policy-making through rulemaking? • Partly due to defenses it could raise in the enforcement proceeding when the agency made policy through a rule vs. an adjudication. • At enforcement proceedings, when agency enforces a rule, party can only argue about whether its actions violate the rule. • Cannot argue the wisdom/validity of the rule to the agency – which already vetted those issues during the rulemaking process. • Party can later appeal to a court & challenge the wisdom or validity of the rule under Chevron or hard look review. • When agency makes policy in an enforcement proceeding: • There is no similar opportunity to vet the policy and the resulting order is not technically binding on parties in other proceedings. • So a decision in an adjudication may have precedential value in future adjudications, future parties can argue (1) that the policy is invalid (i.e. practice is not deceptive) or that the adjudicator should create exceptions to the established policy for their circumstances.

3. A preference for making policy through rulemakings? • In Ntl. Pet. Rfrs. v. FTC, big fight involved whether FTC had the power to enact rules governing deceptive practices or whether it only had the power to make policy through cease and desist hearings. • Agency must have the power to use a particular policy-making vehicle per the organic statute. • DC Cir’s analysis that FTC had the authority to enact rules was somewhat tortured and FTC’s authority to make rules was debatable at best. • Does DC Cir’s willingness to allow FTC to engage in rulemaking signal a preference for rulemaking as policy-making vehicle?

4. Policymaking through adjudications – the Wyman-Gordon cases • In Excelsior Underwear, NLRB “established a requirement to be applied [prospectively] in all election cases” that employers provide names/addresses of all employees to the Board’s Regional Director. • Why does Justice Fortas think that this action violates the APA? • What is he concerned about? • Don’t courts (and many agencies that adjudicate) announce precedent that becomes the “rule of law” much like a rule is governing law? • How is announcing a principle in a precedent subject to stare decisis different from what the NLRB arguably did here (or is it)?

5. Precedents versus rules (or statutory laws) – the same but different • Generally applicable laws bind all citizens (and “rules” bind regulated entities) from the time they are enacted • Everyone knows they exist and can be applied to them • Enacted by politically accountable legislatures • Precedent binds lower (sister?) courts via stare decisis (same principle applies to agency adjudicators) • But entities not parties to original adjudication aren’t bound by it. Don’t have to follow the original precedent until an adjudicator says so. • A later adjudicator likely WILL say so because of stare decisis once the entity is involved in a later proceeding • Adjudicators aren’t politically accountable but the “test of time” and incremental change through applications can improve law • Question in Wyman-Gordon: can agency effectively announce a prospective, general RULE in an adjudication?

6. Why shouldn’t agencies be forced to use rulemakings to announce this generally applicable principle? • Many justices in Wyman-Gordon believed NLRB should have engaged in a Sec. 553 proceeding before announcing the generally applicable principle in Excelsior Underwear. • Does the text of the APA dictate whether agencies must make “rules” using Sec. 553 procedures? • What is Justice Black’s position on whether agencies can make what amount to “rules” during adjudications? • Why – what are the advantages of using adjudications to make generally applicable policy? • Whose position is the better take on the issue?

7. Beyond Wyman-Gordon: SCT and policymaking in adjudications Chenery II – (1947) – text p. 409 Since the SEC [has] rule-making powers, … [t]he function of filling in the interstices of the [law] should be performed, as much as possible, through this quasi-legislative promulgation of rules to be applied in the future. But any rigid requirement … would make the administrative process inflexible and incapable of dealing with many of the specialized problems which arise. Not every principle essential to the effective administration of a statute can or should be cast immediately into the mold of a general rule. Some principles must await their own development, while others must be adjusted to meet particular, unforeseeable situations. … [A]n administrative agency must be equipped to act either by general rule or by individual order. SCT: OK for SEC to announce in an adjudication a principle that O/D of company cannot profit from a company in a reorganization

8. Bell Aerospace (1974) - p. 411 • In an adjudication, NLRB switched a long held position on whether managerial employees were covered by the NLRA, holding that Bell’s buyers, even if managerial employees, were entitled to NLRA protection • SCT ruled: • NLRB’s interpretation of NLRA to cover managerial employees was wrong and its earlier interpretation was right (Chevron issue in modern terms) • On remand, agency could decide whether buyers were “managerial employees” via an adjudication rather than a rulemaking • “[T]he Board is not precluded from announcing new principles in an adjudicative proceeding and … the choice between rulemaking and adjudication lies in the first instance within the Board’s discretion.” p. 412 • How do we square all of these decisions?

9. Bottom line on SCT and policymaking in adjudications • Chenery & Bell Aerospace are more typical of SCT’s attitude to policymaking in adjudications: • If agency has power to make rules through Sec. 553-type rulemakings, it probably should use those procedures. • But agencies aren’t precluded from adopting broad principles (rules) in adjudications if the need arises. • Courts are more sympathetic if the agency adopts such rules in a context in which the agency may need flexibility • Ex: Bell Aerospace – where the question of whether BUYERS are managerial employees may change substantially from industry to industry • Compare to Wyman-Gordon – across the board announcement of prospective rule that board foresaw would affect many others

10. Some obviously problematic applications of policymaking made during agency adjudications • Even Bell Aerospace acknowledged that agency announcements of new principles in adjudications sometimes amounts to an “abuse of discretion” • When will a court disallow or constrain applications of agency announcements of new principles in adjudications: • When the principle announced in an adjudication conflicts or is in tension with a rule enacted through a RULEMAKING Courts tend to be suspicious that agency is doing an end-run around the procedures associated with rulemakings • When the retroactive application of this newly announced principle would be unfair: See next slide

11. Retrospective application of new principles in agency adjudications • Courts ask whether retroactive application of the newly announced principle “work a manifest injustice” in this particular case? • Factors to consider: • Is this a case of first impression? • Does the new legal principle abruptly depart from well-established practice or does it merely fill in portions of a vague statute or extend existing rules and practices? • How much did the parties actually rely on the old rule when taking action? • How burdensome on the regulated entity is the retroactive application in terms of effort/penalty? • Is there a statutory interest in applying the new legal principle – what are the statutory purposes and does the new rule implement or cut against those purposes? How does Majestic Weaving (p. 410) fare under these factors?

12. Policy-making through informal means – Morton v. Ruiz • BIA Manual established a requirement that Native American eligibility for general assistance benefits under Snyder Act extended only to “needy Indian families and persons living on reservations” or near reservations in a few select circumstances • This was a debatable (but for our purposes legitimate) interpretation of the Snyder Act – don’t get sidetracked by the statutory interpretation issue • Ruizes were denied benefits under Snyder Act because they lived off of the Papago Indian Reservation and did not fall within one of the other categories including “near” the reservations. • Ruizes challenged the denial in an appeal to the Superintendent of the PIA – they lost that challenge and their appeal to the BIA Phoenix Director.

13. Morton v. Ruiz – the Court’s decision/reasoning • SCT reversed the agency’s action (pp. 418-19): • An agency’s power to administer a congressionally created/funded program “requires the formulation of policy and the making of rules to fill any gap left [by Congress]…. This agency power to make rules that affect substantial rights and obligations carries with it the responsibility ... to employ procedures that conform to law. See Wyman-Gordon. … Sec’y has presented no reason why the requirements of the APA could not or should not have been met. See Chenery” • Does SCT really mean that because a rulemaking wasn’t used, the rule applied is invalid – surely that goes Chenery II, Bell Aerospace and many, many later cases that don’t require such procedures be used? • Is there something else problematic about this case?

14. The requirement that agencies follow their own rules • Agencies must follow their formally adopted rules (i.e., Sec. 553 rules or rules after formal rulemakings) • These are as binding on agencies as the Constitution, any statute or judicial case law. • This is true even if the rules are simply procedural rules (the Accardi doctrine p. 422) • Ruiz Court makes a big deal about how agency didn’t publish its eligibility requirements despite the fact that its Manual said that it would make all such requirements public • Could result in manifest unfairness/arbitrary application of eligibility requirements if they aren’t published • Failure to publish is a huge problem with formally adopted regs because it would allow agencies to violate them • Butdoes this requirement apply to the BIA manuals (which are informal guidelines)? NO

15. The somewhat more convoluted SCT rules on whether agencies must follow informal guidelines • Must agencies follow informal requirements (such as the requirement in the Indian Affairs Manual in Ruiz)? • Generally: Agencies are notobligated to follow informal guidelines found in policy manuals, etc. • Such manuals are not supposed to be binding but rather serve as internal guidance (more discussion later w/ exceptions to Sec. 553) • BUT if an agency’s informal procedural policy gives the public a “justified expectation” that the agency follows certain procedures, courts may force agency to follow informal procedure • APA '552(a)(2)(C) requires agencies to publish staff manuals that affect members of the public. This reqm’t makes it more likely that people come to have a “justified expectation” in certain informal procedures • Maybe Ruiz really involves the BIA’s failure to publish an important informal rule affecting the public