Distinguishing between legislative rules and interpretive rules/policy statements, etc.

1. Distinguishing between legislative rules and interpretive rules/policy statements, etc. • Hoctor & Sullivan involved relatively easy situations where the court found an ostensibly non-binding agency action to be a legislative rule requiring Sec. 553 procedures • Agency claimed that an “interpretive” rule was indeed interpretive. • BUT the TEXT of the rule clearly supplemented or altered the existing Sec. 553 regulation in such a way as to make the claim of interpretation or clarification unreasonable • But what about the harder situation? • Where an agency has a policy manual or interpretive rule that lists several factors that it can consider in terms of determining when a violation of an existing regulation has occurred • Or where an agency may give a list of materials that are acceptable to use re building cages for wild animals in interpreting the regulation in Hoctor.

2. More on distinguishing between legislative rules and interpretive rules/policy statements, etc. Courts tend to be pragmatic in these hard cases; no easy answers. • Courts will look to text of interpretive rule/pol’y manual& agency’s treatment of it to determine if policy statement/interpretive rule is really a legislative rule. • What does the text of rule/policy look like? • Does the text of the rule/policy give the agency discretion – does it say “may” or “shall” consider? Are the factors or materials to be considered exclusive or just examples? • Look to see how agency treats rule/policy initially and over time. • Does the agency always apply the guidelines in the same way – does it ever deviate (i.e., exercise the discretion it claims or seemsto have)? • Does it grandfather existing structures that don’t meet the examples (in the case of the Hoctor example) or does it adhere rigidly to the listed materials? • With these grey areas, this pragmatic approach essentially gives the agency a few bites at the apple in terms of enforcement before one can challenge itsapplication as a binding rule.

3. Procedural rules vs. legislative rules • Sec. 553(b) exempts rules of agency organization, procedure & practice. Courts generally define procedural rules as: • Rules that do not alter the rights or interests of parties although they may alter the manner in which the parties present themselves or their viewpoints to the agency • Ex: rules re timing/format for presentation of arguments in hearings • Sometimes rules seem “procedural” but have a substantial impact on rights. In such cases, courts find rules are “legislative” • Example – Pickus v. US, 507 F.2d 1107 (D.C. Cir. 1974)– Rule setting out mechanical formula for determining time when a prisoner could be paroled was a binding legislative rule and had a substantial impact on prisoners’ rights (even though it was part of a “decision-making procedure”) • What about Lincoln v. Vigil?

4. Good cause exemption • Sec. 553(b)(3)(B) exempts rules from N&C reqm’ts where the agency “for good cause” finds that “notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” • Typical instances where exemption is successfully applied: • Where the public rulemaking process would actually undermine the rule – e.g., price control rule (public hearing would lead to price hikes before rule goes into effect). • National security/emergency rules – often enacted under the “public interest” prong • Some specifics re agency practice: • Sec. 553 REQUIRES that agencies “incorporate the finding [of good cause] and a brief statement of the reasons therefor in the rules issued” • Many agencies will ask for comments after the fact and consider changes to the rules later

5. Agencies & adjudication • 2 questions: • To what extent can agencies adjudicate consistent with Article III – i.e., what is the relationship between agencies and the federal courts in terms of the functions agencies perform? • If agencies can adjudicate, what procedures are required for adjudications?

6. Agencies & the power to adjudicate Article III Section 1: The judicial Power of the United States shall be vested in one SCT Court, and in such inferior Courts as the Congress may from time to time ordain and establish. The Judges, both of the supreme and inferior courts, shall hold their Offices during good Behavior, and shall. . . receive compensation, which shall not be diminished during their continuation in Office. Section 2: Establishes that federal courts shall have jurisdiction over all cases arising under Constitution/Laws/Treaties of U.S. and in certain cases of diversity of citizenship Why does the Constitution vest federal judicial power in independent judges?

7. To what extent can agencies adjudicate – the early cases • Crowell v. Benson: Challenge to law establishing workman’s comp scheme in maritime cases, which made employer’s strictly liable. • ECC implemented law & determined the circumstances, nature, extent & consequences of the injuries. ECC compensation orders could be appealed to district court. ECC determinations of law were subject to substantial review by federal courts but determinations of fact were almost totally insulated from judicial review. • SCT upheld scheme against challenge that it violated Article III • Agency adjudicators can adjudicate public (statutorily created) rights as opposed to “private (common law or constitutional) rights • Non-article III adjudicators can serve as “adjuncts” to Article III courts even when private rights are concerned (see also Murray’s Lessee) • They can find facts re private rights BUT there must be some judicial review available • Courts must have de novo review of jurisdictional/constitutional facts & legal findings

8. CFTC v. Schor – the modern take on adjudication • CEA prohibits fraud/manipulation in cnxn with commodities trnsxns; gives customers right to ask CFTC to order broker to pay reparations. • CFTC regs also allowed it to adjudicate broker’s counterclaim against customer if arose “out of the same trnsxn” as customer claim under CEA. • Schor (customer) filed claim with CFTC against Conti (broker) alleging violations of the CEA • Prior to Schor’s claim w/ CFTC, Conti (broker) filed diversity suit in federal court to recover unpaid brokerage fees. • Schor maintained that court should dismiss Conti’s claim because it was related to Schor’s CFTC complaint. • Conti finally voluntarily dismissed federal lawsuit & joined his action as counterclaim before CFTC • CFTC adjudicator ruled against Schor on his claim and Conti’s counterclaim. • Schor then challenged CFTC’s authority to hear Conti’s counterclaim because it was a state common law breach of contract claim – i.e., “core” area of law generally reserved to Article III courts

9. Schor’s approach: SCT looked to “purposes underlying Article III” to determine whether the CFTC’s exercise of jurisdiction over the counterclaim violated Article III Identified 2 purposes: (1) independent judiciary gives us freedom from bias in adjudications • Characterizes as largely an interest personal to the litigant – right to Art. III adjudication can be and was waived here (2) independent judiciary also serves as a check on other branches • This is an institutional interest in separation of powers, preventing aggrandizement of power in the executive branch, and in protecting the institutional integrity of courts (pp. 574-75) • Litigants cannot waive or consent to cure this constitutional defect

10. Schor’s test re SCT’s separation of powers concern How does the court determine that agency adjudication “impermissibly threatens the institutional integrity of the judicial branch”? Multi-factor test: • Are “essential attributes” of judicial power reserved to Article III courts? Does the agency exercise the “range of jurisdiction and powers normally vested in Article III courts”? • CFTC’s jurisdiction is narrowly limited to violations of commodities laws & related transactions; agency has limited powers – can’t issue writs or supervise jury trials or even enforce own orders • What are the origins & importance of the right to be adjudicated? • It is a common law right (contract) – pretty foundational – but court has de novo review of all legal determinations in this scheme • What concerns drove Congress to depart from Article III requirements? • Efficiency concerns – no sense that Congress was trying to prevent courts from adjudicating common law rights

11. Procedural Requirements w/ Adjudications – We Will Start With Procedural Due Process • 5th Amendment: No person shall be deprived of life, liberty & property without due process of law. • 14th Amendment: No State shall deprive any person of life, liberty or property without due process of law. • When do the due process clauses apply to agency actions? • Bi-Metallic/Londoner: • Quasi-legislative actions do not implicate the due process clauses. BUT quasi-adjudicative actions do implicate the due process clauses and require heightened procedural protections. • What is an “adjudication” for due process purposes? • Involve a “relatively small number of persons” who are “exceptionally affected, in each case, upon individual grounds.”

12. Quasi-judicial agency actions violate the due process clause only if they involve the following: • Deprivation • By the Government • Of a Person’s • Life, Liberty or Property – what are these things? • Without Due Process of Law – what does this require?

13. Goldberg v. Kelly – foundational due process case • Facts:Plaintiffs received AFDC benefits. State/city of New York changed law so that plaintiffs’ benefits were terminated or about to be terminated. Plaintiffs claimed the new law as violating due process. • Is this an adjudication in the constitutional sense? • Yes - although involves statutory change in eligibility, decisions to terminate were based on new criteria & procedures that were individualized & people were contesting termination under those procedures • Is it a deprivation by the government of a personal interest? • Yes – pretty obviously • Are AFDC benefits “life, liberty or property?” • Why are AFDC benefits “property” in any meaningful sense? How does SCT reason to this result, or does it?

14. Process given to the Goldberg plaintiffs re termination of benefits: • Discussion of eligibility for benefits with caseworker • Notice of termination – w/ reasons at least 7 days prior to termination • Appeal to a superior agency officer via written statement • Written letter confirming the termination of benefits – benefits terminated • POST-termination fairness hearing (formalish hearing in nature) Why was this “process”inadequate under the 14thAmdt according to Ps and SCT?

15. The process required in Goldberg to satisfy the 14th amendment • Majority identifies 2 principle requirements for a hearing to satisfy due process: • Timely/adequate notice of termination with reasons 7 days is not per se inadequate but SCT notes it could be insufficient in particular situations • Effective opportunity to participate in hearing prior to termination • Hearing need not be “quasi-judicial” but it must be held in a “meaningful manner” • Hearing must be “tailored to the capacities and circumstances of those who are to be heard” • What must the agency do differently regarding the 2nd requirement to satisfy SCT – i.e., what process must agency provide?

16. Interest balancing in procedural due process cases • Does the agency/government have no countervailing interest in the current form of hearings here? • Why isn’t that interest enough? Note the beginnings of a balancing frameworkto determine what kind of process is due (i.e. what procedures are required) when gov’t deprives a person of an property/liberty interest Balance gov’t interest v. individual interest • But how easy is it to apply this balancing test – how do we know when individual or gov’t interest is weightier?