Exceptions to Sec. 553-Interpretive rules, policy statements and guidance documents

1. Exceptions to Sec. 553-Interpretive rules, policy statements and guidance documents • Legislative rule establishes a “binding” norm. The other instruments are supposed to help interpret or flesh out this binding norm but are not supposed to themselves establish a binding norm. • If they do, courts require agency to use Sec. 553 rulemaking procedures. • Challenges often arise as to whether agency’s informal interpretive instrument is really being used as an agency rule: • Sullivan: Agency internal policy directive that essentially amends existing legislative rule to allow physicians to counsel about abortion (when the legislative rule prohibited all such counseling by medical personnel) establishes a new standard of conduct). Must use Sec. 553 procedures.

2. How do courts tell the difference between legislative rules and interpretive rules/policy statements - Hoctor? • 7 USC §§2141/2143: USDA can enact rules and formulate standards re the “humane handling, care, treatment & transportation” of animals by dealers,” including “minimum standards for handling, housing, feeding, watering, & sanitation.” • 9 C.F.R. § 3.125(a) – “the [housing] facility must be constructed of such material and of such strength as appropriate for the animals involved. The indoor and outdoor housing facilities shall be structurally sound and shall be maintained in good repair to protect the animals from injury and to contain the animals." • Internal interpretive memo - All "dangerous animals" (including lions, tigers, and leopards) must be inside a perimeter fence at least eight feet high. • Why was the “rule” in Hoctor v. USDA a “legislative rule?”

3. Distinguishing between legislative rules and interpretive rules/policy statements, etc. • Hoctor & Sullivan involved relatively easy situations • TEXT of “interpretive rule” supplemented or altered the existing Sec. 553 regulation in such a way as to make agency’s claim of interpretation or clarification unreasonable • But what about the harder situation? • E.g., where policy manual/interpretive rule lists many factors to consider when determining whether a violation of an existing regulation has occurred • E.g., where agency lists acceptable building materials for wild animal cages interpreting the regulation in Hoctor.

4. More on distinguishing between legislative rules and interpretive rules/policy statements, etc. Courts are pragmatic in these hard cases; no easy answers. • Look to text of interpretive rule/pol’y manual& agency’s treatment of it to determine if policy statement/interpretive rule is a legislative rule. • What does the text of rule/policy look like? • Does it 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 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 seems to 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, pragmatic approach gives agency a few opportunities to fix its actions before one can challenge its application as a binding rule.

5. Procedural rules vs. legislative rules • Sec. 553(b) exempts rules of agency organization, procedure & practice. Courts generallydefine 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 • Example: rules re timing/format for presentation of arguments in hearings • Sometimes rules seem “procedural” but have a substantial impact on rights. • Courts find these rules are “legislative” and require Sec. 553 procedures.

6. How do we distinguish between procedural and legislative rules – some examples: • Example – Mil. Order of Purple Heart v. Sec. of Vet. Affairs(p. 508 n.2) • Why was the rule allowing for automatic review and final determination by Sec’y of awards over $250K (without notice to claimant) NOT simply a procedural rule? • What about Lincoln v. Vigil? • Is the issue of discontinuing a Health Serv. Program funded from a lump sum appropriation really an issue of agency organization policy or practice?

7. Good cause exemption • Sec. 553(b)(3)(B) exemption when agency “for good cause” finds “notice and public procedures … are impracticable, unnecessary, or contrary to the public interest.” • Typical examples where exemption is successful: • Sec. 553 procedures undermine the rule – e.g., price control rule. • National security/emergency rules – often enacted under the “public interest” prong • Specifics re agency practice: • Sec. 553 REQUIRES: “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

8. 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? • Constitutionally required (due process) • Statutorily required (will focus on APA)

9. 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?

10. To what extent can agencies adjudicate – the early cases • Crowell v. Benson: Law created workman’s comp scheme in maritime cases; made employer’s strictly liable. • ECC implemented law; determined 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 • Can find facts re private rights BUT there must be some judicial review available • Courts retain de novo review of jurisdictional/constitutional facts & legal findings

11. CFTC v. Schor – the modern take on adjudication • CEA prohibits fraud/manipulation re commodities trnsxns; customers can ask CFTC to order broker to pay reparations. • CFTC regs allowed it to adjudicate broker counterclaims against customer arising “out of the same trnsxn” as customer original claim. • Schor (customer) filed CEA claim with CFTC against Conti (broker) • Prior to Schor’s claim, 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 complaint before the CFTC. • Conti voluntarily dismissed federal lawsuit; joined action as counterclaim against Schor before CFTC • CFTC adjudicator ruled against Schor on his claim/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

12. SCT’s approach in Schor: 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 • Litigants cannot waive or consent to cure this constitutional defect

13. 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”? • What are the origins & importance of the right to be adjudicated? • What concerns drove Congress to depart from Article III requirements?

14. 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.”

15. 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?