Administrative Law

Spring 2004

Professor Perritt

Model Answer

Question I.

A. I would file suit in United States District Court, asserting jurisdiction under 28 U.S.C. § 1331 (federal question) and seeking an injunction under 5 U.S.C. § 702, which waives sovereign immunity.  I would anticipate objections that the APA does not apply under 5 U.S.C. § 701 (a)(2) because the statute commits decisions to agency discretion.  But given the strong presumption in favor of reviewability and the strong constitutional arguments I have, I think this argument of non reviewability would fail under Overton Park and Webster v. Doe.

On the merits, I would argue that the rule is ultra vires because the statute itself is unconstitutional and therefore incapable of conferring power on the agency to make rules or do anything else.

The statute is unconstitutional because it delegates legislative power in violation of the delegation doctrine.  The standard does not permit meaningful limitation of agency exercise of the delegated power because it purports to give the agency power to act according to its own unreviewable determination of the public interest.  The statute has none of the other mechanisms of accountability under Meat Cutters v. Connally:  the agency has not self limited its discretion by promulgating limiting rules, procedural or substantive; the statute does not have an early sunset provision; it purports to exclude meaningful judicial review.

The second problem under the delegation doctrine is the purported delegation of power to private individuals and state officers who are not accountable through the federal political process. Shechter raised grave questions about the permissibility of delegating legislative power to private individuals.  Even though there are some presidentially appointed members of the panel, its decisions are controlled by persons not appointed by the President.  I think my delegation challenge is strong.

The second reason the statute is unconstitutional is that it infringes on the President’s appointment power.  Members of the panel are clearly officers of the United States because they have power to make regulations and impose penalties.  Yet, six of the eight members are not appointed by the president.  This violates separation of powers under Buckley v. Valeo and Morrison v. Olson.

A third reason the statute is unconstitutional is that it violates separation of powers by purporting to exclude Article III courts from exercising the essential attributes of judicial power by making enforcement decisions essentially unreviewable.  I will revisit this argument in my answer to sub question (B).

Even if the statute were constitutional, the agency’s rule is nevertheless invalid.  It is arbitrary and capricious and thus should be set aside under § 706 (2)(A) because the agency has not really offered any meaningful explanation or justification for the choices it made.  It has not explained its selection of the ten drugs.  It has not offered its own explanation for the pricing rules, simply deferring to private industry.

I don’t see any pure decisions of law by the agency, so there is no occasion to explore Chevron deference.  But it has made factual decisions—selecting certain drugs and adopting a particular approach to pricing limitations, and offers absolutely no factual support whatsoever of its own to support these conclusions.  That exemplifies arbitrary and capricious decisionmaking.  Moreover, even though reviewing courts defer the most to agency policy decisions, those policy decisions still must be explained by the agency.  See Motor Vehicle Manufacturers.  The agency has offered no explanation whatsoever except its faith in the pharmaceutical industry. 

The rule is also ultra vires and should be set aside under § 706 (2)(C).  Of course the rule is ultra vires if the statute is unconstitutional, because the agency has no power at all.  But beyond that, the rule is ultra vires because the agency has not, as the statute commands, exercised its own judgment of the public interest or its own expertise, but has simply “punted” and deferred entirely to private industry.  This also is kind of a “baby” delegation-doctrine argument, in that the agency has delegated its power to private citizens, thus breaking whatever accountability links otherwise would exist if the agency exercised its own judgment.  That surely implicates the policy underpinnings of the delegation doctrine. 

The rule is also invalid because of the agency’s failure to observe procedures required by law, and thus should be set aside under § 706 (2)(D).  The issuance of this rule clearly is rulemaking, and thus covered by 5 U.S.C. § 553, unless there were magic language subjecting the rulemaking to some other procedure.  There is no such magic language.  Accordingly, Section 553 applies.  The agency has not met the requirements of § 553 because (1) it failed to cite the legal basis for its rule, and, more importantly, (2) has entirely violated its obligations to consider comments submitted, instead disregarding some of them as coming from “soreheads,” and not really considering the industry or AARP comments on their merits either, apparently.  This violates Section 553 under Nova Scotia Food Products, and the spirit of § 553, reinforced by Motor Vehicles Manufacturers and maybe by the Benzine case—although the Benzine case involved a separate statute with more demanding procedural requirements than § 553.  While the agency apparently did not rely on anything except its faith in the pharmaceutical industry, when a rule is made with respect to factual issues, which surely are involved in selecting particular drugs and excluding others, and setting prices to meet the “public interest” standard, agencies presumably must use the available procedures so as to avoid arbitrary and capricious decisionmaking.  To fail to mobilize any facts whatsoever in support of its decisions, the agency therefore has arguably violated its procedural obligations.

The only argument by the agency other than the non reviewability argument discussed above, would be that the matter is not yet ripe for judicial involvement, under Abbott Labs.  While the agency has sought to enforce its rule against my client and therefore this is not really “pre-enforcement review,” the agency still would argue that I should not be in court challenging the rule, but must wait for the agency to go to court to try to enforce its decision that the fine should be collected and the drugs forfeited.  I will explore the significance of the agency having to go to court to enforce its decision, unlike situations where an agency simply can withhold a license or benefits, in my answer to sub part (B).  But in the context of my challenge to the rule, I would argue that the enforcement proceeding may not provide an opportunity to challenge the rule because of the statutory provision that the agency decisions are simply to be accepted rather than questioned.  I think our position is pretty strong on being able to obtain review now, focused on the rule, especially because of our constitutional arguments.

B. We have an interesting problem here because even though the statute and the conduct by the DIP appear to constitute gross violations of procedural due process, my client, even if she gets lots of procedural due process may not be able to avoid proof that she violated the rule and the statute.  Nevertheless, the agency has the burden of proof and we should insist that the Constitution requires it to afford adjudicatory procedures within which it must prove its case.  The statutory procedures for formal adjudication under §§ 554-557 do not apply here because, even though the enforcement decision is obviously adjudicatory in character, there is no magic language to trigger the condition precedent of § 554 (a).  Accordingly, this is a “procedural orphan” as to which we must look to the Constitution to define the required procedures.

My client got almost no procedures except for an arguably unbiased decision maker—the DIP, and notice of what she is accused of.  So far as I can determine, she has no channels through with she can present any argument she may have to avoid the penalties.  So as long as we can mobilize some arguments that would get her off, we can argue that affording her an opportunity to respond, to offer arguments in on her own behalf, to call witnesses, and to be represented by counsel would enormously improve accuracy in the adjudicatory decision making process and would not impose any particular burdens on the agency, beyond those regularly incurred by most agencies following some minimal adjudicatory procedures.  But we have to crystallize the content of the arguments that we would make in order to make a persuasive case that we need additional procedural opportunities to make them.  We can’t ethically argue that, “she didn’t do it,” but we can insist that the agency must present witnesses, subject to cross examination, in order to meet its burden of proof that she did do it.  Moreover, we certainly have arguments that the rule is invalid.  See the answer to sub question (A).  We need procedural opportunities to make those arguments to the agency, which, whether or not an ALJ would be permitted to decide them, surely are cognizable by the agency itself.

These procedural defects require a reviewing court to quash any enforcement proceedings because they represent a failure to observe procedures required by law—especially the Constitution--and thus should be quashed under § 706 (2)(D).

But selecting the reviewing court and deciding how to get there is a challenge.  The agency’s decision that she must forfeit the drugs and pay the civil penalties has no concrete operative effect until the agency goes to court to enforce its decision.  Thus if we try to go to court first, we surely will be met with the argument that the matter is not yet ripe for a judicial determination.  Probably the best course of action is to wait for the agency to go to court and then present our challenges to the rule into the procedural infirmities of the enforcement process to that court.  For that to be effective, we must persuade that court to reject the statutory requirement that it take the agency decisions as “absolutely conclusive.”  We would argue that such straitjacketing of Article III courts is unconstitutional because it violates separation of powers by failing to reserve essential attributes of the judicial power to Article III courts.  We also would, in this context, present our procedural due process arguments, now arguing that the only way to meet the requirements of procedural due process, given the agency’s failure to afford any adjudicatory mechanisms administratively, is to select from Judge Friendly’s list in the judicial enforcement proceeding.  Thus, the agency should be required to present witnesses in court to meet its burden of proof, and we surely should be able to cross examine, thereby seeking to undercut the agency’s factual case.  We also surely should be entitled to present arguments to the court that the rule is invalid for the reasons set forth in the answer to sub question (A), and that the whole statutory framework is unconstitutional, as argued in the answer to sub question (A).  Separation of powers requires that the court consider these constitutional and statutory arguments on their merits. 

Question II.

A. I would file civil action in the United States District Court, asserting federal question jurisdiction under 28 U.S.C. § 1331 and asking that enforcement of the rule be enjoined.  5 U.S.C. § 702 waives sovereign immunity.  The Secretary of Transportation clearly is an agency and there is on apparent basis for overcoming the presumption of the reviewability under 5 U.S.C. § 701, reinforced by Overton Park.

The agency would likely argue that pre enforcement review is impermissible under Abbott Labs, but I have fairly strong arguments that this is more like Toilet Goods Association.  My challenges to the rule are almost entirely legal.  The rulemaking is completed and there is little more that the agency can do through further fact finding to validate the rule, because under Overton Park, only its contemporaneous explanations and factual support may be considered in review.  I do not have any substantial constitutional challenges to the statute, so I would focus my attacks on the agency’s notice and comment rulemaking and its ultimate conclusion.

I would argue that the rule is invalid because it is arbitrary and capricious and thus must be set aside under 5 U.S.C. § 706 (2)(A).  The agency failed to offer any of its own justification for the fact-sensitive questions impliedly resolved by the final rule.  It cannot merely accept without analysis or commentary studies done by someone else.  For example, why does city size matter in comparing modes of transportation?  It may be that rail movements only are efficient when the origin and destination areas are such that high traffic density exists, but the agency did not say that, and a reviewing court is not allowed to guess.  It’s almost as bad as if the studies claimed that freight should be shifted to rail to or from cities with a large Polish population.  It would arbitrary and capricious for an agency to accept that conclusion without any scrutiny.  Further, the agency offered no justification for exercising its discretion to impose the maximum surcharge permitted by law.  Why 50% and not 40%, which, on its face, would appear more appropriate given that the only evidence asserts a 40% efficiency difference?  Also, the agency failed expressly to address the three statutory factors and ignored the substance of the comments opposing the rule.  These represent procedural and ultra vires problems, discussed below, but it also is arbitrary and capricious for the agency to fail entirely to address the factors put before it by statute or comment.

The rule is ultra vires, and therefore should be set aside under 5 U.S.C. § 706 (2)(C).  The statute authorizes the agency to promulgate a rule only after considering and striking a balance among three statutory factors:  environmental impact, maintenance and construction costs, and efficiency of movement.  So far as the rulemaking record shows, the agency failed entirely to consider any of these factors.  Its decision thus is ultra vires, as was OSHA’s decision under the Benzine case, for the same reasons, and the Secretary of Transportation’s decision on Overton Park.  Furthermore, the statute authorized the agency to act only with respect to specific commodity movements.  The agency entirely ignored this restriction and instead promulgated an across-to-board rule with respect to classes of cities and all commodities, without any effort to justify this deviation from the plain statutory limitations. 

The agency’s rule is invalid because it was promulgated without observance of procedures required by law, to wit § 553.  Section 553 obligates agencies to consider comments, not merely to count them.  By failing to address in any way the content of the comments opposing the proposed rule, the agency has violated the legally mandated procedures.

B. If the trucking association had come to me before the comment period was closed, I would have urged it to submit one or more comments asserting the following three things in as much detail as possible.

First, I would urge the association to scrutinize the MIT and Northwestern studies in great detail, with the aid of its own experts.  It should challenge and question as many premises and methodological techniques of the studies as possible, for example, arguing, if possible, that the studies were based on testing the wrong kind of truck engines and locomotives, that they failed to take into account environmental effects of constructing and maintaining railroad rights of way, and of locomotives idling for long periods of time, and anything else the experts could come up with.  Based on such a critique, it would arbitrary and capricious for the agency simply to accept the studies without answering our criticisms.

Second, I would urge the association to conduct its own tests and make its own studies, showing, if at all possible, that truck movements of certain commodities over certain distances—including distances over 400 miles if possible, are more efficient than rail movements of the same commodities over the same routes, for example because of perishability—as in the case of cut flowers—because of small shipment size, or because of customer needs for speedy, flexible delivery.  I would help the association design their own studies with an eye toward creating a rulemaking record that would not support any wide spread imposition of a surcharge, specifically connecting the study results to the three statutory factors. 

Third, I would emphasize that the agency must pay attention to each of the three statutory factors, and that it must consider the justification for a rule, if any, commodity by commodity and city pair by city pair.  For the agency to persist in its across the board approach in the face of such a comment would reinforce eventual arbitrary and capricious and ultra-vires attacks on an undesirable rule.

C. I would challenge any adjudicatory decision against us in United States district court, asserting jurisdiction under 28 U.S.C. § 1331, pointing out the waiver of sovereign immunity under 5 U.S.C. § 702 and the creation of a right of judicial review in § 703.  I would anticipate no challenges to such a review action on justiciability grounds because the requirement to exhaust administrative remedies does not require one to pursue discretionary administrative appeal channels. 

Because the trucking company admits that it did not collect the surcharge, we cannot expect must success in challenging a factual conclusion that it did, unless we somehow discover some reason to impeach the atlas or Census data on which the ALJ based her conclusion that the population and route-length requirements of the rule were satisfied. 

But, an agency cannot adjudicate a violation of a rule unless it successfully defends the validity of the rule.  Hopefully, in the administrative adjudication we presented all of the arguments against the rule outlined in the answer to sub question (A) and if the ALJ came out against us on those arguments, we would reiterate them in District Court.  All of these are straightforward legal arguments.  Any policy decisions made by the agency, except for the selection of the maximum surcharge allowed by the statute, exceed its authority and/or are entirely unsupported by any explanation.  So even the policy components of the agency’s rulemaking decision are not entitled to judicial deference.  Any interpretation by the agency of its statutory mandate completely ignored the requirement that it consider the three factors and the requirement that it proceed commodity by commodity and city-pair by city-pair.  So, whatever Chevron says, the agency interpretated the statute to eliminate limitations and to enlarge its authority far beyond what the Congress obviously provided. Such rewriting of the statute is entitled to no deference and must be set aside.

The adjudication plainly was subject to 5 U.S.C. §§ 554-557 because it was adjudicatory in character and the statute used the “magic language” contained in a condition precedent of 5 U.S.C. § 554 (a).  There is, thus, no basis for any constitutional attack on the procedures used and, as far as the questions indicates, there is no indication that the agency failed to follow the procedures mandated by Sections 554-557.  The gist of our argument is that, the decision to hold us liable for violating an invalid rule is unsupported by any—let alone substantial—evidence in the record.  So by successfully attacking the rule in review of the adjudication we jerk the rug out from under the agency.