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Module 12
The Regulatory Environment of Business
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Learning Objectives
Upon successful completion, the student will be able to:
Describe rule-making procedures;
Explain rule enforcing process;
Analyze judicial review process;
Identify controls on agency powers;
Describe concept of legal standing.
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Administrative agencies
“The rise of the administration bodies probably has been the most
significant legal trend of the last century and perhaps more values
today are affected by their decisions than by those of all the courts. .
. . They have become a veritable fourth branch of the government. .
. .”
Supreme Court in F.T.C. v. Ruberoid Company
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Chapter Issues
The development of administrative agencies
Powers delegated to agencies by Congress
Legislative
Investigative
Adjudicatory
Enforcement
Judicial review of an agency’s actions or decisions
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The Rise of Administrative Agencies
The first federal agency: The Interstate Commerce Commission
(ICC,1887)
In the early 1900s: Came the Federal Trade Commission (FTC) and the
Food and Drug Administration (FDA)
1930s: Brought Securities & Exchange Commission (SEC) and the
Federal Communications Commission (FCC)
1960s & 1970s: Created Environmental Protection Agency (EPA) and
the Equal Employment Opportunity Commission (EEOC)
The 1980s: Placed more emphasis on the important functions of the
Environmental Protection Agency (EPA) and the Occupational Safety &
Health Administration (OSHA)
Agencies: Tools for local, state & federal regulatory functions
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Creating An Administrative Agency
Congress gives an agency power & authority through legislative
delegation
Congress delegates power to the agency to perform the regulatory
purpose
Congressional statute delegates powers to the agency through an
enabling statute
Agencies are created to have expertise and supervision over special
problems about which Congress is concerned
If voters/businesses unhappy with regulations, can pressure
Congress to make changes
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Administrative Law
Administrative law consists of legal rules that define authority &
structure of an agency
Sources include
Enabling statutes of administrative agencies
Administrative Procedures Act (APA, 1946)
Rules issued by administrative agencies
Court Decisions: Review validity of agency actions
The structure of administrative law itself is created by the APA
Defines procedural rules and formalities for federal agencies
An agency must abide by APA requirements
Congress may impose different requirements than the APA
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Rule Making
Substantive or Legislative Rules
Same force as statutes of Congress
Agency usually must give public notice of these rules and give parties
opportunity for comment
Interpretative Rules
Statements issued by an agency to give guidance interpreting a
substantive rule or a statute
These rules may be created without public notice
Procedural Rules
Rules that outline the method of agency operation
Procedures used to deal with the public regarding enforcement,
investigation & adjudicatory review
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Perez v. Mortgage Bankers Association
The Fair Labor Standards Act (FSLA) regulates overtime pay.
Department of Labor sets the details of the requirement.
Managerial positions are exempted from the rule of overtime pay.
The Department issued Interpretive Rule in 2001: Stated mortgageloan officers were to receive overtime pay.
New Opinion Letter in 2006: Mortgage-loan officers fall under
managerial exception. Need not be paid overtime.
that they should be paid for overtime.
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Perez v. Mortgage Bankers Association (2)
MBA sued, contending that 2010 interpretive rule was invalid
because agency did not use notice-and-comment procedures when
rule changed in violation of APA.
District Court: Dismissed the suit.
Court of Appeals Reversed: Held that notice-and-comment should
have occurred. Department of Labor appealed.
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Perez v. Mortgage Bankers Association (3)
APA: 3-step procedure for “notice-and-comment” rulemaking:
1) Agency issues “general notice of proposed rule making”
Ordinarily published in Federal Register.
2) If “notice [is] required,” agency “give interested persons an
opportunity to participate in the rule making through submission of
written data, views, or arguments.” Agency then considers
significant comments.
3) Agency promulgates final rule. It must include in the rule text “a
concise general statement of [its] basis and purpose.”
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Perez v. Mortgage Bankers Association (4)
Rules issued through this notice-and-comment process: “Legislative
rules” – have “force and effect of law.”
Not all rules must be issued this way. APA states that notice-andcomment requirement “does not apply” to “interpretive rules, general
statements of policy. . . .”
The absence of notice-and-comment duty makes issuing interpretive
rules easier for agencies. But interpretive rules “do not have the
force and effect of law and are not accorded the weight in the
adjudicatory process . . . .”
HELD: Reversed. No need for notice-and-comment.
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Rulemaking Procedure
Proposed rule drafted by the agency staff
Internal review and revision of the rule
Rules approved by the head of the agency for public consideration
Proposed rules published in the Federal Register
Interested parties may submit written comments to agency
After public comment period (60-90 days), agency reviews
comments and finalizes the rule
Once agency issues final rule, it may be appealed through agency,
then to the U.S. Court of Appeals.
Courts will respect rule as long as it is reasonable under language of
Congressional statute.
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Chevron, USA, Inc. v. Natural Resources
Defense Council, Inc.
The Clean Air Act requires states to create permit program.
Program regulates “new or modified major stationary sources” of air pollution.
EPA regulations state a plant with multiple sources of pollution are treated as
one source of pollution.
This is the Bubble Concept – as if multiple sources are under a bubble for
measuring pollution from a facility rather than measuring from each individual
source in facility.
National Resources Defense Council (NRDC) challenged EPA’s “Bubble Rule”
Claimed rule was inconsistent with Clean Air Act
Court of Appeals overturned the EPA regulation.
Decision was appealed.
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Chevron, USA, Inc. v. Natural Resources
Defense Council, Inc. (2)
HELD: Reversed. Regulation is appropriate.
Two questions are asked:
1. Has Congress directly spoken to the precise question at issue?
2. If statute is silent or ambiguous on an issue, was the agency’s
answer based on permissible construction of the statute?
Agencies are allowed to fill gaps left by Congress
Unless agency decisions are “arbitrary, capricious or manifestly
contrary” to statute, regulations will be given deference.
Legislative delegation may be implicit or explicit – often implicit
Court usually defers to administrative agency expertise.
EPA’s use of the concept is reasonable policy for it to make.
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Enforcing Rules
Gathering of information and investigating violations
Agencies have broad investigative powers
Monitoring and self-reporting by business—no right to withhold
information based on 5th Amendment claim.
Direct observation by agency
Agency obtains information through subpoena directing person
receiving subpoena to appear and testify or to produce documents.
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Enforcement Power
Agencies have array of enforcement tools in civil and criminal penalties,
plus the use of injunctions
Possible sanctions
Prohibitions, requirements, limitations
Withholding of relief, penalties & fines
Destruction, taking, seizing, withholding of property
Assessment of damages, reimbursements, restitution, compensation, costs,
charges or fees
Requirement, revocation, suspension of license
Informal procedures (i.e. tests, inspections, permits, negotiations, advice,
settlements)
Formal procedures (i.e. adjudicatory hearings. Businesses sometimes
request a jury at an administrative hearing.)
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Black Beauty Coal Co. v. Federal Mine Safety
and Health Review Commission
Mine Safety and Health Administration (MSHA) inspector Franklin
entered mine operated by Black Beauty (BB). He smelled burning
coal; asked miners about it. One miner said he had smelled it about
30 minutes before.
Franklin found where a conveyor belt dumped coal on another belt.
A guard sheet was defective. Pile of coal 2’ x 2’ x 5’ was packed
around transfer spot.
Franklin thought it had begun to burn. BB employee Hammond said
he would have someone fix the problem.
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Black Beauty Coal Co. v. Federal Mine Safety
and Health Review Commission (2)
Franklin said shut down belts. Hammond refused – saw no evidence
of fire.
Franklin issued citation for “high negligence.”
MSHA send BB a proposed penalty assessment.
BB rejected proposal. Chose to contest the matter with and
administrative law judge (ALJ).
ALJ agreed with the MSHA and imposed $70,000 fine due to “high
negligence.”
BB petitioned court for review of ALJ decision.
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Black Beauty Coal Co. v. Federal Mine Safety
and Health Review Commission (3)
§75.400 prohibits accumulations of coal dust, but not mere spillages.
Accumulation: “reasonably prudent person, familiar with the mining industry
. . . would have recognized the hazardous condition. . . .”
ALJ found none of evidence explained the smell of burning coal that
occurred 30 minutes before Franklin’s arrival.
“High Negligence” finding based on:
(1) BB had been cited for several past accumulations of violations (included belt
line accumulations);
(2) Burning smell existed for significant time period;
(3) Company “should have . . . seen and noted” coal piling up; and
(4) Employees did not alert management after noticing burning smell.
HELD: Petition for review denied.
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Adjudicatory Hearing
Formal agency process under APA rules
Similar to those followed in a trial
Business must respond to a complaint that alleges violation of
agency regulation.
Administrative Law Judge (ALJ) presides.
ALJ is a civil service employee who is usually an attorney.
Witnesses may be cross examined.
Less formal than a court trial
Hearing must meet due process guarantees of the Constitution.
But no right to jury trial
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Judicial Review
APA sets out procedural requirements for court review
Jurisdiction is needed by the court to hear the case.
Action must be reviewable by the courts.
Sometimes review is prohibited by statute, i.e. Dept. of Veterans Affairs
actions regarding benefits for veterans, their dependents or survivors
A party must have standing to seek court review of an agency action
See Lujan v. Defenders of Wildlife (in text)
ripeness doctrine.
Parties must complete all agency appeals before turning to the
courts under the exhaustion doctrine.
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Summers v. Earth Island Institute
The Forest Service (FS) Decision Making and Appeals Reform Act requires the
FS to establish notice, comment & appeals process for “proposed actions of the
FS regarding projects and activities of land and resource management.”
Some procedures would not be applied to projects FS considered excluded from
requirements to file an environmental impact statement (EIS), such as salvagetimber sales of 250 acres or less.
After a forest fire, FS approved salvage sale of burned timber on 238 acres. Did
not prepare an EIS or provide formal notice of sale.
Earth Island challenged the sale. District court ordered the sale stopped.
Appeals court agreed with injunction against the sale.
Government asked for review of whether Earth Island could challenge the FS
regulations at issue.
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Summers v. Earth Island Institute
HELD: Reversed.
Courts cannot challenge the Forest Service’s regulations under this
instance.
Courts should not oversee legislative or executive action that
significantly alters the allocation of power away from the democratic
form of government.
In addition, there is an issue of standing.
Plaintiff must show that he has standing and has suffered “injury in
fact.”
Plaintiff was not an object of governmental action, which makes the
plaintiff’s case more difficult.
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Lone Mountain Processing v. Secretary of
Labor
Lone Mountain (LM), a mining firm, cited for regulatory violations; was mailed “notices
of contest;” did not respond; did not challenge notices or respond within 30 days.
MSHA sent delinquency notices. Later LM filed motions to reopen civil penalties from
the final order. Agency denied motion because company “failed to establish good
cause” for reopening the matter. LM appealed.
HELD: Court granted petition for review. Remanded the order to the Commission to
reopen its final order.
Commission has much discretion to “reopen” final orders. LM said Commission
“abused its discretion” by departing from its own precedent without explanation.
Agency did not mention prior orders of leniency in reopening their final orders.
Commission must give reasoned analysis indicting that prior policies had been
changed. Failing to supply this analysis renders agency’s actions “arbitrary and
capricious.”
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Controls On Agency Powers
Direct Controls
Congressional budget process
Agency Appropriations & Reporting Requirements
Cost-Benefit and Risk Analysis
Ex.: Office of Management and Budget may send proposed regulation back to an
agency if scientific, technical, and economic information standards are not met.
Presidential Executive Orders instructing tasks to be undertaken by agencies
Ex.: Pres. Johnson’s order to agencies re: affirmative action programs
Indirect Controls
Freedom of Information Act
Privacy Act
Government in the Sunshine Act
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THE END
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