Exhaustion requirements with federal statutory claims

1. Exhaustion requirements with federal statutory claims • If a special review statute mandates exhaustion, then plaintiff must exhaust all administrative remedies. • If a there is no special review statute, then APA § 704 requires exhaustion of administrative remedies only if they are expressly required by a statute or regulation. • Litigants need not exhaust permissive administrative remedies.

2. Exhaustion when the claim is not statutory • Before Darby, courts routinely implied exhaustion requirements as a matter of common law even with statutory claims not involving a special review statute mandating exhaustion. • That can no longer happen due to Darby’s interpretation of APA § 704 • BUT common law exhaustion principles still may apply in certain instances, especially when actions arise under the Constitution rather than statutes.

3. Common law exhaustion requirements in a nutshell • When the claim involved is based on the common law (including the Constitution), courts generally insist that litigants exhaust anyinternal review or rehearing procedures – even if only discretionary/permissive • Exceptions • If exhaustion of administrative remedies will cause undue prejudice to subsequent court action • Where administrative remedies are inadequate due to doubt that the agency has the power to grant appropriate relief • Where the agency has been shown to be biased or has otherwise predetermined the issue

4. The substance and procedure of agency policymaking • Policymaking: General rules, principles or patterns that guide the agency’s staff as it carries out its daily functions. • What vehicles for agency policymaking are their? • What procedures apply to agency policymaking? • Does the law constrain the choice of policymaking vehicles in some instances?

5. Rules, adjudications & procedural due process • Londoner (1908): BPW assessed tax on property along city street for purposes of paving a street. SCT said failure to provide oral hearing violated due process. • Bi-Metallic (1915): Tax Board increased taxes on all property in Denver pursuant to state law. SCT said failure to provide oral hearing did not violate due process. • How are Londoner & Bi-Metallic different – i.e., why were due process concerns implicated in the former but not the latter? • Londoner tax “involved a relatively small number of persons” who were were“exceptionally affected, in each case, upon individual grounds.” • Assessment operated more like an adjudication unlike Bi-Metallic tax which affected entire city.

6. APA definitions of rules & orders (and rulemakings & adjudications) • Rulemaking – the agency process for formulating, amending or repealing a rule (5 USC § 551(5)) • Rule -- any agency statement of general or particular applicability and future effect designed to implement, interpret or prescribe law or policy [or procedure], including making or approval of rates or corporate structures (5 USC § 551(4)) • Adjudication – the agency process for the formulation of an order (5 USC § 551(7)) • Order – the whole or part of a final agency disposition [that results from something] other than rule-making, but including licensing. (5 USC § 551(6)) • How is the APA definition of a rule different from what we saw in Londoner & Bi-Metallic?

7. APA procedures required for rulemakings – a sample of the basics (more detail later) Formal – Sec. 553, 556 & 557 Informal – Sec. 553 • Notice of proposed rulemaking (§553(b)) • Right to submit oral/written evidence and to conduct cross-ex (§556(d)) • Initial decision by an ALJ, the agency or qualified agency employee (§556(b)/557(b)) • No ex parte contacts (§557(d)) • Decision based on findings of fact, supported by substantial evidence in the record and conclusions of law (§557(c)) • Decision is appealable to the agency head(s) (§557(b)) • Notice of Proposed Rule (“NPR”) – Sec. 553(b) • Opportunity for Comment – Sec. 553(c) • Concise Statement of Basis & Purpose for Final Rule – Sec. 553(c)

8. APA procedures required for adjudications – a sample of the basics (more detail later) Formal – Sec. 554, 556, 557 Informal – Sec. 555(e) • Notice of agency hearing (§554(b)) • Separation of investigatory and adjudication functions (§554(d)) • Right to submit oral/written evidence and to conduct cross-ex (§556(d)) • Initial decision by an ALJ, the agency or qualified agency employee (§556(b)/557(b)) • No ex parte contacts (§557(d)) • Decision based on findings of fact, supported by substantial evidence in the record and conclusions of law (§557(c)) • Decision is appealable to the agency head(s) (§557(b)) • Prompt notice shall be given of denial in whole or part of a written application . . . of an interested person made in connection with any agency proceeding. • Unless the agency is affirming prior denial or it is self-explanatory, notice must contain brief statement of grounds for denial.

9. Nat’l Pet. Refiners Ass’n v. FTC – the facts • FTC has the authority to regulate under the FTC Act : • Sec. 12 - false & deceptive advertising of food, drugs . . . (15 USC § 52) • Sec. 5 – unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce (15 USC § 45(a)) • Sec 5(b) of the FTC Act provides that when the FTC “has reason to believe that [a person] has been or is using any unfair method of competition or unfair or deceptive act or practice in commerce . . .” it shall hold a hearing an ultimately issue a “cease & desist” order if it believes that such person is engaging in deceptive practices • Sec. 6 of the FTC Act gives the FTC the power to “make rules and regulations for the purpose of carrying out the provisions of sections 41 to 46 and 47 to 58 of this title.” (15 USC § 46(g)) • FTC enacted a rule pursuant to FTC Act § 6(g) stating that failure to post octane levels at gas pumps was a deceptive practice

10. Nat’l Pet. Refiners Ass’n v. FTC – choice of policymaking vehicles • Does the FTC have the authority to regulate octane postings generally (regardless of the vehicle it chose to use)? • What advantages are there to using rulemaking as the policymaking vehicle? • Why would gas stations prefer to have this issue raised on a case-by-case in adjudications (enforcement proceedings)?

11. Nat’l Pet. Refiners Ass’n v. FTC – does the FTC have the authority it enact rules • Choice of policymaking vehicles is dictated, at least in part, by whether an agency has been given the power to engage in an activity – rulemaking or adjudication. • If the agency literally has no rulemaking authority it cannot make rules on any topic. • Does the FTC have the power to enact rules pertaining to octane postings? • What does the language of Sec. 6(g) suggest? • Is the FTC’s original view of its powers (for 58 years) relevant? • What about pending legislation to give FTC greater rulemaking authority? • Does the APA’s enactment signal a preference for rulemaking?