Choice of policy-making vehicles – rulemakings vs. adjudications

1. Choice of policy-making vehicles – rulemakings vs. adjudications • Agencies can make policy through rules (enacted as regulations). Advantages include: (1) Fairness due to general applicability (2) More targeted/vetted rule thru public input (3) Consistency in application (4) Efficiency – immediate application • Or an agency can make policy in adjudications • Resulting order is applicable only to parties in particular proceeding. • But order often has precedential value that may become established law in most agency proceedings – like case law. • To what extent is rulemaking a PREFERRED method of policy-making? • Note D.C. Cir. in Ntl. Pet. Refiners worked pretty hard to find that the FTC had gen’l rulemaking authority even though the FTCA wasn’t entirely clear about whether FTC had that authority.

2. 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? • Previous slide noted that 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)?

3. 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 • 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 binding principle (i.e., rule) in an adjudication?

4. Why shouldn’t agencies be forced to use rulemakings to announce a 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?

5. Beyond Wyman-Gordon: SCT and rulemaking/policmaking in adjudications Chenery II - pre-Wyman-Gordon decision “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 held that SEC could announce in an adjudication a gen’l principle that O/D of company cannot profit from a company in a reorganization How do we square this decision with Wyman-Gordon?

6. Beyond Wyman-Gordon: Bell Aerospace (1974) - p. 411 • NLRB originally held managerial employees were not covered by the NLRA. In an adjudication, NLRB switched its position to hold managerial employees were covered unless conflict of interest. NLRB held 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 (will see this as a Chevron issue later) • 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 • So how do we square Wyman-Gordon, Chenery II & Bell Aerospace?

7. 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 in all union elections that board foresaw would affect many others

8. Some obviously problematic applications of policymaking in agency adjudications • Even Bell Aerospace acknowledged that agency announcements of new, binding principles in adjudications sometimes amounts to an “abuse of discretion” • When will a court disallow or constrain applications of agency announcements of new, binding principles in adjudications: • When the principle announced in an adjudication conflicts or is in tension with a rule enacted through a RULEMAKING Courts are suspicious that agency is doing an end-run around the procedures associated with rulemakings. See Patel v. INS, p. 414 n.2 • When the retroactive application of this newly announced principle would be unfair: See next slide

9. Retrospective application of new principles in agency adjudications • Sometimes agencies will announce a new principle and only apply it to future cases (Wyman-Gordon). But if the rule is applied in the case it’s announced, it’s a “retroactive” application. • Most of the time, this isn’t an issue. But sometimes courts must ask whether retroactive application of the newly announced principle “works a manifest injustice” in a 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? • 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?

10. Applying retroactivity analysis to Majestic Weaving (p. 410) Factors: • 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? • 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 the announced principle fare here?

11. 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 • Although this is a debatable interpretation of the Snyder Act – SCT concedes at p. 418 that Sec’y has the “power to create reasonable classifications and eligibility requirements in order to allocate the limited funds available to him” under the Snyder Act. • 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.

12. Morton v. Ruiz – the Court’s decision/reasoning • SCT reversed the agency’s action. Why – what was wrong with what the agency did here? • What light does the SCT’s discussion at the top of p. 419 shed on the error in the agency’s decision-making? • Is that discussion consistent with Chenery II or Bell Aerospace? • Wasn’t the decision to deny the Ruizes benefits reached in an adjudication? Why doesn’t that end the inquiry after Chenery II and Bell Aerospace? • What else might be going on that concerns the SCT?

13. Possible alternative basis for Ruiz - 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 • Potential unfairness/arbitrary application of eligibility requirements if eligibibility requirements aren’t published • Failure to publish is a problem with formally adopted regs because it allows agencies to violate them w/ impunity • Butthis requirement may not apply to the BIA manuals (which are informal guidelines and not formally adopted regs)

14. The 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 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 that 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