Professor Henry H. Perritt, Jr.
Exam No. _____
Chicago-Kent College of Law
Final Examination in administrative Law
1. This examination consists of 4 pages. Please check to make certain you have the complete examination.
2. Read these instructions carefully and read each question carefully. Think each problem through before you write and treat every appropriate issue in each question. Be direct and concise.
3. Answers will be graded upon the reasons given as well as the conclusions drawn. If more than one reason is pertinent to an answer, state every reason.
4. While you have been permitted to bring materials into the examination room, answering the questions appropriately will put time pressure on you. You should not do extensive research during the examination. Credit will be weighted according to the time allocations shown. Manage your time accordingly.
5. You may decide, in answering one or more questions, that a complete answer would require legal research. If this is so, you should identify the specific issue that you would research. If you have a mastery of the basic concepts, you will be able to frame research issues very narrowly and precisely.
6. It also may be that more factual information is required to answer a question. If this is the case, you should say what factual information is required and why you need it. A mastery of the underlying concepts will permit you to frame any factual inquiries very narrowly and link them precisely to the legal issue involved.
7. Organization and clarity are very important. A shorter answer that is well organized and evidences a clear understanding of basic concepts and their interrelationships is better than a long answer with disconnected fragments of information.
8. Do not write outside the margins of your bluebook pages, but write clearly. If it’s not legible, it will not get credit.
9. Write your examination number on your bluebook(s) and on each page of this examination. Do not use your name.
10. When you have finished the examination place it inside your bluebook(s) and deposit them in the appropriate box in the examination room.
MATERIALS WHICH MAY BE TAKEN INTO THE EXAMINATION ROOM
Any material including any outlines whether commercially prepared or not, whether accessible by computer or not. No communication by e-mail is permitted during the exam.
Administrative Law Final Examination
QUESTION I (120 minutes)
Suppose that a federal agency, the Accounting Standards Review Board (“ASRB”), has been given authority in its organic statute to “make and enforce such rules as are necessary, taking into account the cost of compliance, to improve the accuracy of financial reporting by corporations.” The ASRB has promulgated a final rule prohibiting any person from performing any accounting or bookkeeping functions for any enterprise unless that person is licensed by the ASRB. The proposed rule, published in the Federal Register and on the ASRB’s web site six months ago, covered only public accounting firms comprising one or more certified public accountants (“CPAs”) that perform audit functions of public corporations and certify the results of their audits publicly to shareholders and suppliers of the audited corporations. The proposal imposed a licensing requirement preceded by an “accounting competency standardized exam,” developed and administered by the ASRB, or “such other investigation of competency that may be adopted in the discretion of the board and its agents.” The final rule required a standardized exam, as proposed, but dropped the alternative “other investigation” procedure.
Several hundred comments were received. The large accounting firms argued that the proposed rule was unnecessary, too costly, would provide few benefits, and in any event should be extended to all persons performing bookkeeping or accounting functions because investors, suppliers, and customers depend on any financial statement issued by any enterprise, not just formally published public statements of public corporations subjected to audit. Because financial statements are almost always prepared by or with the assistance of accountants and bookkeepers, extending the rule’s coverage would improve the quality of financial reporting in general. The final rule accepted the arguments for extending coverage and applies to all persons performing booking or accounting functions for any enterprise, including partnerships and sole proprietorships, as well as corporations.
The ASRB is ready to administer the new competency exam, which includes a number of questions on fiduciary law and on state corporation law and federal securities law imposing duties on corporate officers and advisors vis-ŕ-vis shareholders and lenders to corporations. The exam is based in substantial part on an undisclosed study by a commercial test developer who validated it (confirmed that it tests factors relevant to competency in accountants) and determined that at most 16 hours would be required to prepare for it. After the comment period closed, the ASRB met with the American Institute of Certified Public Accountants (“AICPA”), the principal trade group representing professional accountants, which approved the basic approach in the test and strongly opposed the “alternative investigation” procedure as allowing too much discretion to “government bureaucrats.”
The proprietor of a small local accounting and bookkeeping firm, who is not a CPA and who employs no CPAs, has come to your law office to ask you to represent him and a number of similarly situated accounting professionals in a challenge to the rule and the examination. He tells you that the components of the competency test requiring knowledge of fiduciary law and state corporation and federal securities law are particularly problematic, because most accountants outside big accounting firms lack knowledge of such subjects. Your potential client also shows you figures demonstrating that applying for the license, preparing for and taking the exam will take so much time and cost so much that it will put him and others like him out of business. No one in his position submitted a comment to the ASRB because they did not know they would be affected by the rule.
A. What arguments would you make to have the rule and the exam set aside? Identify the forum in which you would make these arguments, evaluate the relative strength of your arguments and of counter arguments you might anticipate from the ASRB.
B. Suppose your potential client does not come to you until after he has taken and failed the competency exam. He tells you that before taking the exam, he wrote a letter to the ASRB administrator asking for an opportunity to present evidence of his competency as an accountant and bookkeeper and that he never received a response. He renewed his request when he went in for the examination, but the examination administrator told him that only written responses to the written examination questions would be considered. What challenges can you make on behalf of your client now? In presenting your arguments, evaluate the relative strengths of counter arguments likely to be made by the ASRB. Also, be sure to identify the forums in which you would present these arguments. Do not repeat the arguments you made in answer to sub question A; instead, incorporate parts of your answer to sub question A by specific reference to that answer insofar as those arguments are material to the posture of the controversy after he fails the exam.
C. Suppose the ASRB, in addition to the activities described in sub parts A and B, has established a system for reviewing exam results and the validity of any regulations. This system relies on arbitration under the Rules of the American Arbitration Association, a private body. If the ASRB receives a complaint about exam results or its rules, it refers the complaint to the AAA, which selects an arbitrator at random from its roster. The arbitrator receives submissions from both sides and decides the dispute. The arbitrator has broad discretion as to the procedures to be followed. Must your client participate in this arbitration process if he wishes an adjudication under part A or part B? Suppose he loses an arbitration. What recourse if any does he have then?
QUESTION II (60 minutes)
Assume that sovereignty over Iraq has passed to the United States of America under the law of military conquest. The United States Congress has enacted the “Iraq Model Democracy Act,” granting “all governmental power over Iraq and its peoples” to the United States Secretary of Defense “acting in consideration of the views of the Secretary of State.” The Act further authorizes the Secretary of Defense to delegate his authority to “such persons as he may select.” The Secretary of Defense has accepted recommendations from a variety of Iraqi groups that a group of three Iraqi exiles be designated to act as the “Council of State” for Iraq, exercising all legislative, executive, and judicial powers until such time as a constitution for Iraq is written and ratified and a new, permanent government is elected. The Secretary of State objected to proceeding in this manner, preferring a system of consultations with Iraqi citizens in the formation of an interim government, but the Secretary of Defense went ahead over the objections of the Secretary of State.
The Iraqi Council of State has adopted a “decree” requiring anyone wishing to participate in the reconstruction of Iraq first to obtain a license and to pay, in advance, a fee of 10% of the value of any work the person or entity intends to do. The fee must be paid even by entities and persons who intend to act pro bono—without receiving any actual money for their efforts. The Council of State also has adopted a decree establishing a system of tribunals. Whenever someone is accused of violating a decree issued by the Council, of any order issued by coalition military authority or of international human rights law, that person must be notified of the violation he or it is accused of committing, of the penalties intended to be imposed, and given an opportunity to make arguments and present evidence before a tribunal. The accused may be represented by counsel of his or its choosing, the public may attend the proceedings, and the tribunal must make its decision based on the evidence and arguments submitted at the proceeding and on nothing else. Decisions by tribunals may be appealed to the Council of State, which makes the final decision.
A very good international law school located in the Midwest of the United States has organized a project called “Initiative Iraq,” aimed at assisting in nation building in post war Iraq. A team of law students, law faculty, and staff associated with Initiative Iraq, all American citizens, are assisting courts, lawyers, political parties, and NGOs in Iraq to develop a “rule of law” in democratic political institutions. Half of the Initiative Iraq team are in Iraq. The other half are in a large global city in the Midwest where the law school is headquartered.
The Initiative Iraq project director in Iraq received a visit from an American soldier, accompanied by an interim Iraqi policeman who gave the project director a piece of paper charging them in the name of the Council with violating the registration decree and providing notice of a hearing before a tribunal, referred to above. The school and the project have not paid the fee nor do they intend to. The order presented to the project director in Iraq calculated the fee at $100,000, because the value of the nation building services performed by Initiative Iraq was estimated to be $1 million.
The dean of the law school, who never has left the United States during the time period relevant to this dispute, has received a copy of the order from the United States Secretary of Defense saying that any penalties imposed for nonpayment of the fee will be collected in the United States by the Defense Department by deducting the amounts from government contracts received by the university, if the fee is not collected in Iraq.
A. What arguments would you make to ensure that the law school and its project do not have to pay the fee or suffer any other consequences for their activities relating to Iraq? What counter arguments would you expect? Evaluate the strength of your position on each significant part of your argument. Do not address sub question B in your answer to this question.
B. Where would you make these arguments, and from whom or what entity would you seek relief? What arguments would you expect in opposition to your selection of forum? Evaluate the strength of your arguments. Do not, in your answer to this sub question, include responses to sub question A.