Administrative Law Exam
Dean Perritt Spring, 1998
Sub Question A
My principal challenge would be that the President has acted ultra vires. Under Youngstown Sheet and Tube, the President of the United States lacks the authority to legislate. To allow the executive order to have effect would be to intrude upon the exclusive prerogative of the Congress under Article 1 to exercise legislative power, and this violates separation of powers. Youngstown Sheet and Tube leaves the door open slightly for presidential authority exercised through executive order in the foreign affairs arena and in the housekeeping or purely executive arena. Except as noted below with respect to possible treatment of domain names as government property, neither of these possibilities for presidential power helps save this executive order. While the regulatory scheme is foreign, the President is not really doing anything with respect to foreign affairs by issuing the order, and thus can enjoy no power under his foreign affairs functions in Article 2.
I think my argument against the invalidity of the executive order is an overwhelming one. The problem is: how do I get to court and get meaningful relief? My client wants a domain name, which the ICOP refuses to give him. Invalidating the executive order, without more, does not give him the domain name he wants.
The validity of the executive order under the constitution presents a federal question so the United States district courts would have jurisdiction under 28 U.S.C. § 1331 to hear an action seeking invalidation of the executive order. The President, no doubt, would assert sovereign immunity, and I would argue that the federal courts have inherent equitable power to enjoin ultra vires acts by federal officers, and that an ultra vires act is personal and not official and therefore outside sovereign immunity. Our strongest authority in this regard would be McAnulty v. American School of Magnetic Healing, which supports the proposition that federal courts have inherent equitable jurisdiction to enjoin ultra vires acts by federal officers.
But enjoining the executive order does not get my client a domain name. I would need to assert some other legal claim, based on private law--probably anti trust--to force the ICOP to give the requested domain name, or at least to follow some further procedures, as discussed in the answer to Sub Question B before denying the requested domain name.
In the alternative, I would argue that, if the executive order is valid, it has given ICOP the status of a federal agency. That permits me to argue all of the additional points set forth in the Answer to Sub Question B, including those that invalidate the rules of ICOP and its decision in my client’s particular case as violative of the Administrative Procedure Act. That alternative argument would justify a judicial order forcing ICOP to give my client the domain name. Or, at the very least, those arguments should justify a judicial order requiring ICOP to follow appropriate procedures in promulgating its rules and in adjudicating my client’s request.
All of these arguments are strong. The only conceivable response I can anticipate is that the government would argue that Internet domain names are a form of U.S. Government property and therefore are within the scope of the President’s inherent constitutional powers under Article 2. According to this argument, the President might be able to designate ICOP as a private entity responsible for administering this unusual form of government contract right. Nevertheless, the actions of ICOP would be the actions of the government--"state action"--and I would have reasonably good procedural due process arguments in defense of my client’s property interest in the domain name, represented by the entitlement system setup by the executive order and the ICOP organizational agreements. Perry v. Sindermann and Roth v. Board of Regents would be helpful to me in this regard, as would Goldberg v. Kelly, although my position would be somewhat weaker than the claimants in those cases because I do not already have the domain name, but merely seek one, and thus must establish the proposition that the regulatory arrangement gives me a property interest in receiving a domain name when I satisfy legally acceptable criteria.
Sub Question B
The principal difference here is that there now is legislative authority for the ICOP regulatory arrangement, and I lose my attack on the validity of the executive order. All of the arguments I now make to attack the statute are also available to attack the executive order in Sub Question A, and the counter arguments with respect to domain names as a form of government contractual entitlement property remain available to the Government.
I have several constitutional arguments. First, giving regulatory power to ICOP violates separation of powers because it interferes with the President’s appointment power under Article 2. Whether or not the ICOP decision makers are principal officers or "other officers," the ICOP arrangement does not provide for the appropriate appointing authority consistent with Article 2 and Morrison v. Olsen.
Second, there is a major problem with delegation of legislative power--the power to make rules, which ICOP obviously does--under Meat Cutters v. Connolly. There is no apparent judicial review mechanism. Nor are there clear standards to guide the exercise of delegated power. The only thing that might save this delegation of legislative power is the narrow subject matter (Internet domain names) and the implicit availability of judicial review of arbitration awards. The implicit judicial review would help save the statute under the delegation doctrine only if the arbitrator, and then the reviewing court, would have power to consider claims of ultra vires action by any of the ICOP decision makers.
Third, the legislation is unconstitutional because it delegates judicial power without preserving the essential attributes of judicial power in an Article 3 court. This is the weakest of my constitutional arguments because under Shorer v. CFTC, and Thomas v. Union Carbide, an arbitration mechanism can meet separation of powers in Crowell v. Benson as long as a court reviewing the arbitration award has the power to decide questions of law de novo and to review factual decisions for evidentiary support--only a slight deviation from traditional standards for judicial review of private arbitration awards.
I have one other constitutional argument: the legislation, combined with the decision of ICOP, violates my client’s First Amendment rights because it impermissibly denies him the opportunity to engage in expressive conduct. The language used in the ICOP rules is similar to language declared unconstitutional in ACLU v. Reno, which invalidated the Communications Decency Act on First Amendment grounds.
The following arguments require one to assume that the statute and/or the executive order confer governmental power on the ICOP system, thus making its decisions those of the government, and more particularly making it an agency, subject to the requirements of the Administrative Procedure Act.
The rules adopted by ICOP are invalid because ICOP did not follow the required rule making procedures under 5 U.S.C. § 553. It did not issue the proposed rule for comment, or publish the final rules of the Federal Register. Thus the rules are invalid for failure to observe procedures required by law under 5 U.S.C. § 706 (2)(D).
Because the rules are invalid, they can provide no support for the adjudicatory decision denying my client his requested domain name.
The adjudicatory decision is invalid because it was reached without observance of the procedures required by the constitution for adjudication (there is no magic language in the statute to support an argument that §§ 554-558 applies). Constitutional requirements of procedural due process say that my client should have been entitled to a live hearing on his arguments that the rules were invalid. This a relatively weak argument because arbitration almost certainly meets all of the requirements of procedural due process, and that was available to my client.
I may have some difficulty getting judicial resolution of my arguments because I have not exhausted all administrative remedies, specifically including arbitration. On the other hand, most of my arguments go to pure legal issues, and not factual issues, and Webster v. Doe suggests that I should have a judicial forum available for arguments like these even if there were an express preclusion of judicial review, which there is not.
My assertion of federal jurisdiction is based on the constitutional claims, giving rise to federal question jurisdiction under 28 U.S.C. § 1331. My cause of action is an implied private right of action under Bivens and McAnulty and, assuming that the statute/executive order combination is sufficiently valid to confer some power on the ICOP system, then on Section 702 and 704 of the administrative procedure act, because ICOP functions as an agency.
Sub Question C
This regulatory scheme is hard to save, because of the major constitutional flaws identified in the answers to Sub Questions A and B. It could be made constitutional by ensuring that it is established by statute, that at least a majority of its decision makers are appointed by the President or by department heads of the United States Government, and by subjecting its rule making and adjudicatory decisions to review by Article 3 courts. But that would make it an American administrative agency, and it is hard to imagine foreign entities and governments accepting that. So more creative approaches are worth considering.
One possibility is simply to let this proceed as a private arrangement and have no U.S. Government involvement at all, except possibly for granting some sort of antitrust immunity. Then, there would be no due process problems because there would be no state action, and there would be no separation of powers or delegation problems because there would be no delegation of governmental power. But it is not clear that is responsive to the question, which asks for modifications to the legislation.
The best approach would be to focus the legislation on an existing or new federal administrative agency which would be required by the legislation to look to the activities of ICOP and to use ICOP decisions as the basis for its own rules and orders. Thus, ICOP rules could be subjected to notice and comment rule making by the U.S. agency, and ICOP orders could be deferred to through doctrines analogous to res judicata and stare decisis by the agency in making its own decisions. Close conformity between the agency decisions, reached under the Administrative Procedure Act, and ICOP decisions could be ensured by statutory language obligating the agency to adopt ICOP decisions unless someone, with an interest, objecting to them could show that they violate clear constitutional rights of the objector. Agency decisions accepting or modifying ICOP decisions could be subject to judicial review under the usual standards of the Administrative Procedure Act. A sufficiently clear mandate to the agency to follow ICOP decisions absent some kind of extraordinary showing should reduce to a minimum the likelihood of a judicial decision overturning agency acceptance of an ICOP decision.
Sub Question A
I have two basic arguments: first, that the civil penalties are invalid because they were unsupported by required adjudicatory decision making procedures; and second, that the rule constituting the list of required treatments was invalid and thus could not provide any support for the decision to impose penalties. The second argument, challenging the rule, is addressed in the answer to Sub Question B. This answer focuses on the challenge to the order.
The Secretary of Health and Human Services qualifies easily as an agency. That status, combined with the presumption in favor of judicial review articulated in Overton Park, makes the Secretary’s decision to impose civil penalties on Least Care reviewable. The United States District Court has jurisdiction under 28 U.S.C. § 1331 because this case raises federal questions regarding the interpretation of the Administrative Procedure Act and the statute described in the question. Section 702 and 704 of the Administrative Procedure Act create a private civil action for review and waive sovereign immunity with respect to an injunction or declaratory judgment action. There is nothing further to exhaust by way of administrative remedies, and the civil penalties decision appears to be a final agency action. The $1,000,000 represents both injury in fact and adverse effect, thus bringing my challenge well within the scope of Section 702. There is no suggestion in the question of any express preclusion of review; nor is there is any political question or other difficulty triggering Section 701’s narrowly interpreted exception from review ability.
The decision to impose civil penalties is adjudicatory in character, inasmuch as it is applying a preexisting rule of decision (the list) to an individual entity (Least Care), and is focused on past or "adjudicatory" facts--Least Care’s refusal of treatment for the anxiety diagnosis.
The reviewing court is obligated to set this decision aside because several of the criteria set forth is Section 706 are satisfied.
Under Overton Park, agencies must consider all relevant matters; otherwise their decision making is arbitrary and capricious. I may have a difficult time showing that the decision is arbitrary and capricious unless I can invalidate the rule as argued in the answer to Sub Question B. The agency has explained its decision, which seems straightforward given Least Care’s admission that it did not comply with the rule. I can, however, argue that rejection of Least Care’s argument that its refusal to treat was based on a diagnosis that took it outside the list, without sufficient explanation or investigation, ignored factors presented to the agency by a party.
A must stronger argument is procedural. The decision was made without observing procedures required by law. See § 706 (2)(D). This decision is informal adjudication, like the decision in Overton Park, because no "magic language" appears in the statute sufficient to trigger the condition precedent in Section 554 (a) to make the APA’s formal adjudication requirements applicable. Informal adjudication is subject to procedural due process requirements under the 5th Amendment to the United States Constitution. Because the 5th Amendment’s procedural due process requirements obligated the agency to follow procedures not followed here, its civil penalty decision can be set aside under Section 706 (2)(D), because it has not observed procedures required by law, and under Section 706 (2)(B) because it has acted unconstitutionally. Moreover, the decision can be invalidated under Section 706 (2)(C) because it has acted ultra vires, given that the Congress did not intend--and lacks the power--to authorize unconstitutional agency decision making.
The procedural error is the denial of a live hearing. Under Judge Friendly’s list, Least Care received an unbiased tribunal, notice of the reasons asserted for the action, and was given a bare opportunity to present its own reasons why the action should not be taken. It has not, however, been given a complete opportunity to challenge the evidence against it and to present its own version of events. Under Matthews v. Eldridge, the additional procedural element--a live hearing--would have considerable utility in terms of fact finding accuracy. Only through a live hearing can Least Care be given a real opportunity to present its position that a diagnosis of severe anxiety was not warranted, and therefore it has not violated any treatment requirement contained in the list. The magnitude of the erroneous deprivation is substantial--$1,000,000, thus enlisting not only the marginal-utility-in-fact-finding-accuracy, but also the magnitude-of-deprivation elements of Matthews v. Eldridge. The agency can be expected to argue that live hearings in cases like this would be burdensome, noting that several Supreme Court cases have permitted agencies to decide disability cases based on a paper record. I would meet this argument by saying that even if we are not entitled to a live hearing, we surely should have been entitled to a more focused and complete development of our position through submission of affidavits and other materials pertinent to the disputed facts question of the diagnosis.
Sub Question B
If I can persuade a reviewing court to invalidate the list, I eliminate the only basis for the agency’s civil penalty decision. Without the rule, there is no factual or evidentiary support for the civil penalty decision. The agency’s decision is not subject to invalidation under Section 706 (2)(E), because formal adjudication is not involved, because there is not magic language in the substantive statute. Nevertheless, the arbitrary and capricious test of Section 706 (2)(A) requires that the decision be invalidated unless there is some evidentiary, policy, and legal support for it. The only real support is provided by the rule.
I may have difficulty maintaining an effective challenge against the rule on procedural grounds. The agency has observed procedure required by law, by publishing notice in the Federal Register, receiving comments, and considering them. My only bases for a procedural challenge under Section 706 (2)(D) are the bare bones character of the agency’s statement of basis and purpose in the final rule, and its cavalier rejection of the arguments against having a list at all. More significantly, I could argue under Nova Scotia Food Products, that the agency was obligated to publish in the Federal Register more details about the advisory committee recommendations and about its own experience. Complete disclosure of the details of the advisory committee analysis and of HHS experience were necessary to permit meaningful comment.
A stronger challenge is that the rule is arbitrary and capricious because there is insufficient factual support or policy explanation in the rule making record to permit meaningful judicial review.
Vermont Yankee says that reviewing court cannot impose procedural requirements beyond those contained in Section 553, and thus diminishes the force of the Section 706 (2)(D) arguments. Vermont Yankee also says, however, that agencies engaging in informal rule making must provide sufficient analysis and justification to permit meaningful judicial review, thus buttressing Least Care’s arbitrary and capricious arguments under Section 706 (2)(A). Overton Parks says that agencies must consider every statutory factor and link their decisions with those factors. Motor Vehicle Manufacturers says that when policy is the basis for a decision, agencies must carefully set forth their logic and analysis. To the extent that facts support an agency’s decision, enough factual evidence must exist to provide logical support for every aspect of the agency’s decision. The summary nature of HHS’s decision here flunks all of these tests. It has not linked the list as a whole or any particular item on the list with any of the explicit statutory factors. It has offered no factual support for the efficacy of the list or of any of the items or treatments contained in the list. This cannot pass muster under the arbitrary and capricious test.
A much weaker argument is that the agency decision to promulgate the list is ultra vires. The problem with this argument is that statute contains a fairly broad grant of authority, albeit one definitely circumscribed enough to pass muster under the delegation doctrine. It also explicitly includes as a purpose the prevention of withholding of medically necessary treatments. The list fairly obviously is intended to prevent withholding necessary treatments. On the other hand, the Benzine case supports Least Care’s argument that in the absence of a fairly compelling explanation, accompanied by evidence as to why each item on the list is "medically necessary", the list is ultra vires and therefore invalid. In the Benzine case, the same sort of statutory phrase was not sufficiently analyzed by the agency resulting in the invalidation of the benzine standard as outside the agency’s authority because of the absence of analytical linkage to the statutory language.
A related argument is that treatment for severe anxiety cannot, as a matter of law, constitute medically necessary services and therefore that this item of the list--crucial to the agency’s imposition of civil penalties--is ultra vires as a matter of law. The main problem with this argument is that Chevron says that the agency is entitled to fair amount of discretion in making reasonable interpretations of statutory language.