Cengage Advantage Books Foundations of The Legal Environment of Business 3rd Edition Jennings Solutions Manual 1

Solution Manual for Cengage Advantage Books
Foundations of the Legal Environment of Business 3rd

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CHAPTER 5
ADMINISTRATIVE LAW
LECTURE OUTLINE
5-1 What Are Administrative Agencies? (See PowerPoint Slides 5-1 and 5-2)
 Nonlegislative; Nonjudicial Body
 Exist at every level of government

 They make, interpret, and enforce regulations
 Examples of federal administrative agencies (see Exhibit 5.1)
 Examples of state administrative agencies
 Public Utility Commission

 Real Estate Department
 Registrar of Contractors
 Workers’ Compensation
 Welfare Department
 Structure of agencies (Exhibit 5.2 and PowerPoint Slide 5-3 provide an organizational
chart for a different federal agency)
 Carry out details needed from legislative enactments
 Legislatures pass enabling acts
 Sets up basic law, purpose, penalties

 Sets up administrative agencies to handle the enforcement; the following is the
SEC enabling provision
Sample Enabling Statute – SEC: Securities and Exchange Commission
95
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96 Part II Business: Its Regulatory Environment
(a) There is hereby established a Securities and Exchange Commission (hereinafter referred to as
the “Commission”) to be composed of five commissioners to be appointed by the President by
and with the advice and consent of the Senate. Not more than three of such commissioners
shall be members of the same political party and in making appointments members of different
political parties shall be appointed alternately as nearly as may be practicable. No
commissioner shall engage in any other business, vocation, or employment than that of serving
as commissioner, nor shall any commissioner participate, directly or indirectly, in any
stock-market operations or transactions of a character subject to regulation by the Commission
pursuant to this chapter. Each commissioner shall hold office for a term of five years and until
his successor is appointed and has qualified, except that he shall not so continue to serve
beyond the expiration of the next session of Congress subsequent to the expiration of said fixed
term of office, and except (1) any commissioner appointed to fill a vacancy occurring prior to
the expiration of the term for which his predecessor was appointed shall be appointed for the
remainder of such term, and (2) the terms of office of the commissioners first taking office
after June 6, 1934, shall expire as designated by the President at the time of nomination, one
at the end of one year, one at the end of two years, one at the end of three years, one at the end
of four years, and one at the end of five years, after June 6, 1934.
(b) The Commission is authorized to appoint and fix the compensation of such officers, attorneys,
examiners, and other experts as may be necessary for carrying out its functions under this
chapter, and the Commission may, subject to the civil-service laws, appoint such other officers
and employees as are necessary in the execution of its functions and fix their salaries in
accordance with chapter 51 and subchapter III of chapter 53 of Title 5.
5-2 Roles of Administrative Agencies (See PowerPoint Slides 5-4 and 5-5)
5-2a Specialization
 Needed to Deal With Complexities of Legislation
Examples: Environmental, occupational safety, nuclear, securities – regulation

in these areas requires special expertise. Agencies can hire the necessary
expertise.
 Provide for More Rapid Enforcement: Faster Relief
 Don’t have to use court system for enforcement

 Licensing and permits can also be done quickly
5-2b Due Process
 Hear Benefits Cases

 Goldberg v. Kelly Case Established Precedent
5-2c Social Goals
Chapter 5 Administrative Law 97
 Agency Set Up to Achieve Societal Goals

 Environmental Protection Agency; HUD; Resolution Trust Corporation
5-2d Protection for Small Business
 False Advertising Controls

 Private Suits for Damages
5-2e Faster Relief
 Hearings and Administrative Process Moves More Quickly

 Presence of Review Boards for Licensing Allow for Faster Processing of
Approvals
5-3 Laws Governing Administrative Agencies
5-3a Administrative Procedures Act (See PowerPoint Slide 5-6)
 First Passed in 1946

 Established Uniform Procedures for Agencies to Follow in Promulgating Rules
 Other Acts Have Separate Names But Are Amendments to the APA
5-3b Freedom of Information Act (See PowerPoint Slides 5-7, 5-8, 5-9, 5-10, and 5-11)
 APA Amendment Passed in 1966

 Purpose Was to Allow Public Access to Agency Records
 Types of Information Required to Be Published
 Location of offices
 Names of responsible individuals
 Rules and regulations
 Reports
 Policy statements
 Types of Information Not Published
 Hearing orders
 Nonpublished interpretations
 Personnel policies and procedures
 Unpublished Information Can Be Obtained Through an FOIA Request
 Must be written
 Must describe the information and/or documents sought
 Agency can charge for time and copy costs – Note: these costs must be
published and applied uniformly with the exception of waivers for nonprofit
organizations)
 Wrongful Refusal to Supply Information Allows Requester to Bring Suit and

Obtain Court Order for Release as Well as Recovering Cost
 Exemptions From Disclosure
 National defense or foreign policy matters

 Internal personnel rules of the agency
 Statutorily protected information
 Trade secrets (includes financial or commercial information, which is
privileged or confidential)
 Inter- and intra-agency memos
 Personnel and medical files
 Records of investigations
 Banking audits (mention to students that panic syndrome might set in here)
 Geological information on well sites
NOTE: In some cases, the providers of the information bring suit to prevent agency disclosure.
These are called reverse FOIA suits; in these suits it is the agency that can stop disclosure – not
the provider.
5-3c Federal Privacy Act (See PowerPoint Slide 5-12)
 Passed in 1974 as APA Amendment

 Intended to Cut Down on the Pervasive and Casual Exchange of Information
About Individuals Between and Among Agencies
 Agencies Cannot Obtain Individuals’ Records From Other Agencies Without the
Consent of That Person
 Covers All Records Including Medical and Employment Histories
 Exemptions
 Exchanges for law enforcement purposes

 Routine Exchanges
Examples: SEC information on stock trade, banking information to Federal

Reserve Board
ANSWER TO ETHICAL ISSUES (The Privacy of Joe the Plumber): Students should examine
why the agency has the data – for specific government-related purposes. The data are not to be
used for others reasons or by individual employees. Selective research by employees is not within
the permission given by citizens on government collection of data. There must be a governmental
purpose for the data and its use is limited to those purposes. No, the fact that the information is not
released to the public is not the issue. Employees of the state must follow the restrictions on the
use, examination, and processing of data on citizens. Private companies agree to follow similar
types of rules and have been sanctioned by administrative agencies when they put the data to uses
beyond their customers’ permission.
Following what happened to Joe the Plumber, Ohio state representative Shannon Jones sponsored
legislation, which mandates civil and criminal penalties for improper access of personal
information on state databases. On January 6, 2009, then-Governor Ted Strickland signed the
legislation, which became effective after 90 days.
Helen Jones-Kelley resigned in December 2008 as director of the Ohio Department of Job and
Family Services. Jones-Kelley was hired in January 2011 to lead the Montgomery County Drug
Addiction & Mental Health Services Board. Joe the Plumber is running for the U.S. Congress.
5-3d Government in the Sunshine Act (See PowerPoint Slide 5-13)
 1976 Amendment to APA

 Also Known as an Open Meeting Law
 Applies to Meetings of All Agencies Whose Heads Are Appointed by the
President
NOTE: All agencies with the word “commission” have agency heads appointed by the president.
 Applies Only When Agency Heads Are Meeting
Example: Staff members can meet without notice
 Exceptions – Meetings Covering:
 National defense
 Foreign policy
 Personnel issues
 Law enforcement issues
Example: SEC commissioners meeting to discuss insider trading
5-3e Federal Register Act
 Not Part of APA

 Publications Act
 Creates the Federal Register System – System of Publication for Federal Agency
Information
 Three Publications
 U.S. Government Manual: gives all agencies and their office locations
(regional and national), gives organizational charts, statistics on number of
employees, etc.
 Code of Federal Regulations: refer to Chapter 1 (CFR); reports agency
regulations; reprinted in paperback each year
 Federal Register: published every working day; an update for CFR of
changes in regulations, published notices of meetings, FOIA requests,
proposed rules, etc. Stats: 60,000 pages/year; 250 pages/work day; 7,000
regulations/year
5-4 The Functions of Administrative Agencies and Business Interaction (See PowerPoint
Slide 5-14)
5-4a Providing Input When Agencies are Promulgating Regulations
5-4b Formal Rulemaking (See Exhibit 5.3 and PowerPoint Slide 5-15 to explain steps
involved in rulemaking)
 Enabling Act (See above slides for SEC Enabling Act and also in text for
additional samples)
 Agency Research of the Problem
 Can be done by agency staff

 Can hire consultants to do it
 Cost study involved
 Also examine risks
 Proposed Regulations
 Draft is reviewed by staff members and legal counsel – economists, scientists,

etc. (depending upon type of regulation); review for content
 Notice of proposed rule must be made public
 Notice must include
 Name of agency
 Statutory authority of agency – enabling act
 Language of proposed rule or description of proposed rule
 Some agencies provide background information in their proposals

 Published
 In Federal Register
 Also in trade publications because Regulatory Flexibility Act has such

additional publication since not many people read the Federal Register
Exhibit 5.4 is sample notice of rule promulgation (proposed FAA rules on cell-phone use on
airplanes). See PowerPoint Slides 5-16 and 5-17 for a different example of a proposed regulation
from the SEC.
 The Public Comment Period
 Must be at least 30 days (unless there is an emergency)

 Allows anyone to make comments on the proposed rules
 In formal rulemaking procedures, public hearings are also held; may be held
regionally, nationally
Exhibits 5.5, 5.6, and 5.7 are examples of letters sent to the FAA during public comment period
on proposed use of in-flight cell phones.
ANSWER TO ETHICAL ISSUES (The Forged Comments): Deception is deception is

deception. The stakes may be higher in the comment letter arena because laws affecting all of us
are made on the basis of comments. Also, such behavior would find those for and against the
proposed rules gaming the system in order to achieve the result they want. The result may be
regulation of the comment process with all of us required to present ID, etc.
ANSWER TO CONSDIER 5.1: The public comment period brought out all the issues of
compliance that the EEOC might not have foreseen when the rule was proposed. So long as there
is adequate notice of rulemaking, the public comment approach seems to work well with all
interests having the opportunity to voice their concerns about a rule and raise issues perhaps not
anticipated by the agency. The agencies cannot act without congressional authority and congress
does hold the purse strings for agency budgets. The action of congress is a way of sending a strong
message to the agency about its activities and the need to re-examine the proposed rules.
Businesses can lobby members of congress directly. Working with administrative agencies
through the comment period limits contact to letters and, if any are held, hearings.
You have learned that there are three branches of government: executive, legislative, and judicial.
The administrative agency is part of the executive branch and is granted its authority through the
legislation that Congress passed. The three-branch structure was created as a means of applying
checks and balances.
One branch of government (the executive in the form of the agency) was working through its
processes for making laws. The proposed regulations may have their difficulties, but the branches
do not reverse each other without following processes.
The Senate passed a resolution because it did not want to revoke an agency’s authority in the midst
of a rulemaking procedure. The objections could be heard loud and clear from the businesses
affected. The resolution was a way of sending a signal without violating the jurisdiction, province,
and processes of each of the branches. Businesses, as you learned in Chapter 4, can have political
influence on elected officials by lobbying, donating money, and simply by expressing views. The
resolution was the result of businesses going to the legislative body that created the agency and
asking for some form of action. This situation illustrates how important business and industry
involvement is in both the rulemaking and legislative processes.
 Difference between legislation and rulemaking
 Executive Branch involved

 Cannot use PAC/monetary influence
See PowerPoint Slide 5-18.
CASE BRIEF 5.1
Hornbeck Offshore Services, LLC et al. v. Salazar

696 F. Supp. 2d 627 (E.D.La. 2010)
FACTS: Hornbeck and others (plaintiffs) provide services to support offshore oil and gas drilling,
exploration, and production activities in the Gulf of Mexico. Kenneth Salazar is the Secretary of
the Department of Interior (DOI), a federal agency that includes the Minerals Management.
Following the BP Deepwater Horizon drilling platform explosion on April 20, 2010, and the
resulting devastation and unprecedented disaster, the President asked DOI to conduct a study to
determine what steps needed to be taken to prevent another problem with oil rigs in the Gulf.
DOI did a thirty-day study, consulting respected experts from state and federal governments,
academic institutions, and industry and advocacy organizations. On May 27, 2010, DOI issued a
Report that recommended a six-month moratorium on permits for new wells and an immediate
halt to drilling operations on the 33 permitted wells in the Gulf of Mexico. The DOI report also
stated that “the recommendations contained in this report have been peer-reviewed by seven
experts identified by the National Academy of Engineering.” The experts pointedly observed this
statement was misleading and called it a “misrepresentation.” Although the experts agreed with
the safety recommendations contained in the body of the main Report, five of the National
Academy experts and three of the other experts publicly stated that they “do not agree with the six
month blanket moratorium” on floating drilling. They envisioned a more limited kind of
moratorium, but a blanket moratorium was added after their final review and was never agreed to
by them. The plaintiffs moved for a preliminary injunction against the moratorium.
ISSUE: Are the plaintiffs entitled to an injunction on the moratorium because the action of DOI
was arbitrary and capricious?
DECISION: The court held that the experts balking at the conclusion of the report, the
inconsistency of the moratorium with the report information, and the availability of alternatives
made the moratorium likely to survive a challenge of the action being arbitrary and capricious and
issued an injunction.
Answers to Case Questions
1. The judge finds that the objections of the experts relied upon for the report creates credibility
problems for a sufficient factual basis for the DOI’s actions. APA requires factual foundation
for agency action and when the factual basis is challenged by those relied upon, there is a
problem with arbitrary and capricious.
2. The court notes that the moratorium applies to wells 500 feet and deeper, but the report talks
about wells much deeper than that and does not drill down to, as it were, what happens at 500
feet and less – safety may be better in those wells.
3. The court notes that DOI could shut down those wells that are not in compliance with existing
regulations or require new safety standards that must be met in order to continue drilling.
 Deciding What to Do With the Proposed Regulation
 Rules are adopted

 Rules are modified and second public comment period held
 Rule is withdrawn
 Adverse reaction
 Congressional pressure
 Further refinement is necessary
 Industry is self-regulating
 Court and Legislative Challenges to Proposed Rules
 Made through the courts

 Theory one – arbitrary, capricious, or abuse of discretion
 Agency must show there is some evidence to support the rule

 Study must offer some reason for the rule
 Theory two – substantial evidence
 Rule proposed is unsupported by substantial evidence

 More convincing evidence exists in support of the regulation than
evidence against it; illustrated by Corn Products Co. and Derby Foods,
Inc. v. Department of Health, Education & Welfare and Food and Drug
Administration, 427 F.2d 511 (3rd Cir. 1970)
 Challenges can be based on failure to follow procedures
 Failure to give notice

 Failure to allow comment, see, for example, San Diego Air Sports Center,
Inc. v. Federal Aviation Administration, 887 F.2d 966 (9th Cir. 1989)
 Challenges based on constitutionality; FCC and First Amendment challenges
Example: See FCC v. National Citizens Committee for Broadcasting, 436

U.S. 775 (1978)
 Ultra vires challenge; agency went beyond authority given in enabling act
See PowerPoint Slide 5-19.
CASE BRIEF 5.2
Massachusetts v. EPA
549 U.S. 497 (2007)
FACTS: On October 20, 1999, a group of 19 private organizations (petitioners) filed a rulemaking
petition asking EPA to regulate “greenhouse gas emissions from new motor vehicles under § 202
of the Clean Air Act.” Petitioners maintained that greenhouse gas emissions have significantly
accelerated climate change; and that “carbon dioxide remains the most important contributor to
[man-made] forcing of climate change.”
Fifteen months after the petition was filed, the EPA requested public comment on “all the issues
raised in [the] petition,” adding a “particular” request for comments on “any scientific, technical,
legal, economic or other aspect of these issues that may be relevant to EPA's consideration of this
petition, including whether there was global warming due to carbon emissions. The EPA received
more than 50,000 comments over the next five months.
On September 8, 2003, EPA entered an order denying the rulemaking petition because (1) the
Clean Air Act does not authorize EPA to issue mandatory regulations to address global climate
change; and (2) even if the agency had the authority to set greenhouse gas emission standards, it
would be unwise to do so at this time. Massachusetts, other states, and private organizations filed
suit challenging the EPA denial as arbitrary and capricious, violative of the APA, and ultra vires
because of statutory mandates for EPA action.
LOWER COURT DECISIONS: The court of appeals dismissed the appeal from the agency denial
and the Supreme Court granted certiorari.
ISSUE ON APPEAL: Did the EPA not follow its statutory mandate in refusing to regulate
greenhouse gases? Was it required to regulate the gases? Was it within its authority to promulgate
such regulations?
DECISION: The court held that greenhouse gases were a form of pollution and that the Clean Air
Act required the EPA to take steps to curb those emissions. The court found that any justification
the EPA gave for inaction was not supported by either the statutory construction or the evidence
on global warming. The decision was a 5 to 4 decision in which the dissent maintained that no
matter how strongly we feel about global warming, action is left to the executive and legislative
branches, not the courts. The dissent also noted that agencies should be given great deference in
making their decisions on whether to regulate certain issues and that the statute did not mandate
regulation – it gave the EPA broad discretion and its discretion could include lack of scientific
conclusions, deference to the president, or other agencies.
Answer to Case Questions
1. The authority under the Clean Air Act is given to the EPA to regulate pollutants. The majority
and dissent differ on the definition of a pollutant. The EPA gave several reasons: (1) other
agencies were involved in regulating autos and emissions; (2) the executive branch was
involved and there were international issues to consider as well as the president’s programs;
(3) the science was not completely clear and required more investigation and study before it
promulgated programs and regulations.
2. The majority follows what Scalia referred to as a “multiple choice test” – reproduced here: the
Court invents a multiple-choice question that the EPA Administrator must answer when a
petition for rulemaking is filed. The Administrator must exercise his judgment in one of three
ways: (a) by concluding that the pollutant does cause, or contribute to, air pollution that
endangers public welfare (in which case EPA is required to regulate); (b) by concluding that
the pollutant does not cause, or contribute to, air pollution that endangers public welfare (in
which case EPA is not required to regulate); or (c) by “provid[ing] some reasonable
explanation as to why it cannot or will not exercise its discretion to determine whether”
greenhouse gases endanger public welfare, (in which case EPA is not required to regulate). I
am willing to assume, for the sake of argument, that the Administrator's discretion in this regard
is not entirely unbounded – that if he has no reasonable basis for deferring judgment he must
grasp the nettle at once. The Court, however, with no basis in text or precedent, rejects all of
EPA’s stated “policy judgments” as not “amount[ing] to a reasoned justification,” ante, at
1463, effectively narrowing the universe of potential reasonable bases to a single one:
Judgment can be delayed only if the Administrator concludes that “the scientific uncertainty is
[too] profound.” The Administrator is precluded from concluding for other reasons “that it
would ... be better not to regulate at this time.” Such other reasons – perfectly valid reasons –
were set forth in the agency's statement.
3. EPA maintains that other agencies are regulating; EPA maintains that the president has
programs and it does not want to interfere; EPA maintains that greenhouse gases are not
pollutants under the Clean Air Act and thus not under its jurisdiction; EPA maintains that there
is uncertainty about global warming and more study is needed before it can implement
programs; EPA does not want to conflict with other agencies’ regulation of autos. The dissents
(both) make it clear that whether there is or is not global warming is not the issue. One dissent
maintains there is not a justiciable claim here and the other maintains that the statute is clear,
that the agency has discretion and that the court should not be substituting its judgment for
others who have been involved in the field.
ANSWER TO CONSIDER 5.2: Federal agencies have constraints on their rulemaking. The rules
must be within their authority, the rule cannot be arbitrary and capricious, and the rule must be
based on evidence.
In this case, the court found that the FDA was not able to produce evidence that showed that the
graphic warnings on the packages advanced their interest in reducing smoking rates.
The court concluded that the FDA had gone too far in its zeal to warn smokers, stepping beyond
the science and into emotional appeals. The court held, “The graphic images here were neither
designed to protect the consumer from confusion or deception, nor to increase consumer awareness
of smoking risks; rather, they were crafted to evoke a strong emotional response calculated to
provoke the viewer to quit or never start smoking.” [R.J. Reynolds Tobacco Company, et al. v.
FDA et al., 696 F.3d 1205 (D.C. Cir. 2012).]
NOTE: Australia did pass a rule that requires plain packaging as well as graphic images. It is too
soon to tell if there has been an impact on smoking, but Australians say that their cigarettes taste
worse.
5-4c Informal Rulemaking
5-5 Business Rights in Agency Enforcement Action (See Exhibit 5.8 and PowerPoint Slide
5-20 to show enforcement steps)
5-5a Licensing and Inspections (See PowerPoint Slide 5-21)
 State Level – Construction Permits and Progress Inspections

 Federal Level – EPA Permits for Discharge
 OSHA Inspections for Safety
 Unannounced is okay
 Company can refuse without a warrant
5-5b Enforcement (See PowerPoint Slides 5-22, 5-23, 5-24, and 5-25)
 Beginning Enforcement Steps
 Complaint is filed
 Injunction can be obtained for this period
 Negotiation is possible – helps in business relationships with agency
 Consent Decrees
 Like a plea bargain in a criminal case

 Like a nolo contendere plea in a criminal case
 Hearings
 Penalties
 Fines
 Injunctions
 Repayment to buyers
 Corrective advertising
 Can go to hearing without an agreement
 Administrative law judge (ALJ) hears the case (can be called hearing
examiner or hearing officer)
 ALJ is like a judge at trial; makes decisions on evidence; prohibited from
one-sided or ex parte contacts
 Intervenors – interested parties can appear in the case
 Example: insurers, auto manufacturers
 Rules of evidence are relaxed
 Must allow for due process
• Notice of charges
• Notice of hearing
• Right to present evidence
• Right to use attorney
• Right to impartial judge
 Appeals of decisions go to agency heads exhausting administrative

authority (unless it would be futile)
 Administrative Law of Appeals
See Figure 5.9 and PowerPoint Slide 5-26 to summarize roles of administrative agencies.
ANSWERS TO CHAPTER QUESTIONS AND PROBLEMS

1. Yes, due process requires a quasi trial. These hearings are adversarial and are not to be
confused with public comment hearings. The case is a landmark one that made administrative
agencies follow due process in taking away citizens' rights. [Goldberg v. Kelly, 397 U.S. 254
(1970).]
2. For the most part, the courts have stayed with disclosure where possible. Unless there is
personal information, which can be redacted, the courts err on the side of agency and
government accountability that is only possible if the public knows about the actions and
behaviors of the agency. Public disclosure in the Demi Moore case helped with refinement of
how such calls are handled and streamlined the process – purposes that were at the heart of the
FOIA.
3. Ms. Kallman seems to be making the case for an ultra vires challenge – that is, she is indicating
that the FDA may not have the proper authority to ban her product because of other agencies
as well as the issue related to energy drinks. She could challenge the authority of the FDA to
ban her product through a court challenge once she has exhausted all avenues of hearing within
the agency.
4. The NPS cannot simply withdraw a rule. It must consider evidence, propose the withdrawal or
postponement, and take comments. An agency cannot reverse a process unilaterally midstream.
Ms. Mainella’s recommendation is relevant because she is trying to steer the Department of
Interior back to the basics of the APA, which requires an agency to base its regulations on
studies. [The Fund for Animals v. Norton, 294 F. Supp. 2d 92 (D.C. 2003) (memorandum
opinion) and 390 F.Supp.2d 12 (2005). Presently, use of snowmobiles in national parks
continues under a 2004 series of regulations promulgated by the Department of the Interior.
Objections by environmental groups continue, including calls for greater enforcement of the
rules.]
5. While Secretary Babbitt was cleared of any criminal wrongdoing in an investigation, the issue
in the case was one of perception. The coming together of the timing of the donations with the
regulatory process gave an appearance of impropriety. While there was no legal violation, the
ethical propriety of the conduct raised questions and objections.
The central ethical issue is a conflict of interest. Babbitt had, as a regulator, an application
pending and the fund-raising should not have been conducted simultaneously. The appearance
of quid pro quo arose from the timing of the two tracks of approval and campaign donations.
Discuss the following key points with the students to help them understand the risks of quid
pro quo:
 Any gift can compromise because of the sense of obligation
 The greater the gift, the greater the obligation

 In-kind is no different from cash
 Perception, particularly with government officials, is paramount
 Most companies are to a point of no gifts (cards and letters only)
INTERACTIVE/COOPERATIVE LEARNING EXERCISES

Have students put themselves in the position of an executive with a company in one of the
industries affected by the two cases. Have them develop a briefing of legal issues for their CEO.
Their assignment is to explain to the CEO the regulatory process, what has happened so far, and
what options the company has.
Federal Communications Commission v. National Citizens Committee for Broadcasting

436 U.S. 775 (1978)
FACTS: Under the Radio Act of 1927, the Federal Communications Commission (FCC) was given
the authority to regulate the licensing of television and radio stations. In 1976, the Federal
Communications Commission promulgated rules that bar the formation or transfer of
newspaper/tv/radio combinations in the same cities. Existing ownership combinations would be
permitted to continue except in those cities where there was one newspaper and one broadcast
station and they are commonly owned. In those cities, divestiture was ordered within five years.
The National Citizens Committee for Broadcasting (NCCB) and other broadcasting and publishing
groups appealed the constitutionality of the regulation. The Court of Appeals allowed the
regulations as a means of achieving the necessary diversity in public information. The NCCB and
other groups (petitioners) appealed.
JUDICIAL OPINION: MARSHALL, Justice.
Petitioners argue that the regulations, though designed to further the First Amendment goal of
achieving the widest possible dissemination of information from diverse and antagonistic sources,
nevertheless violated the First Amendment rights of newspaper owners. We cannot agree, for this
argument ignores the fundamental proposition that there is no unabridgeable First Amendment
right to broadcast comparable to the right of every individual to speak, write, or publish.
The physical limitations of the broadcast spectrum are well known. Because of problems of
interference between broadcast signals, a finite number of frequencies can be used productively;
this number is far exceeded by the number of persons wishing to broadcast to the public. In light
of this physical scarcity, government allocation and regulation of broadcast frequencies are
essential, as we have often recognized. No one here questions the need for such allocation and
regulation; given that need, we see nothing in the First Amendment to prevent the Commission
from allocating licenses so as to promote the “public interest” in diversification of the mass
communications media.
Petitioners contend, however, that it is inconsistent with the First Amendment to promote
diversification by barring a newspaper owner from owning certain broadcasting stations.
Requiring those who wish to obtain a broadcast license to demonstrate that such would serve the
public interest does not restrict the speech of those who are denied licenses; rather, it preserves the
interests of the people as a whole in free speech.
Petitioners also argue that the regulations unconstitutionally condition receipt of a broadcast
license upon forfeiture of the right to publish a newspaper. Under the regulations, however, a
newspaper owner need not forfeit anything in order to acquire a license for a station located in
another community. Here the regulations are not content related; moreover, their purpose and
effect is to promote free speech, not restrict it.
In the instant case, far from seeking to limit the flow of information, the Commission has acted, in
the Court of Appeals’ words, “to enhance the diversity of information heard by the public without
on-going government surveillance of the content of speech.” The regulations are a reasonable
means of promoting the public interest in diversified mass communications; thus they do not
violate the First Amendment rights of those who will be denied broadcast licenses pursuant to
them. Being forced to choose among applicants for the same facilities, the Commission has chosen
a sensible basis, one designed to further, rather than contravene, the system of freedom of
expression.
Advance Machine Company v. Consumer Product Safety Commission

666 F.2d 1166 (8th Cir. 1981)
DAVIES, Senior District Judge.
This is an appeal from a judgment of the district court holding that the Consumer Product Safety
Commission (Commission) possessed authority under the Consumer Product Safety Act (Act), 15
U.S.C. sec.2051 et seq., to proceed administratively to assess civil penalties for an alleged violation
of the Act; that the penalties are civil, not criminal, in nature; and that the administrative
proceedings were not barred by the statute of limitation or the doctrine of res judicata.
At the time the district court considered the Act, 15 U.S.C. sec.2069 read as follows:
(a)(1) Any person who knowingly violates section 2068 of this title shall be subject to a
civil penalty not to exceed $2,000 for each such violation [and] . . . $500,000 for any related
series of violations . . . . (b) Any civil penalty under this section may be compromised by
the Commission. In determining the amount of such penalty or whether it should be
remitted or mitigated and in what amount, the appropriateness of such penalty to the size
of the business of the person charged and the gravity of the violation shall be considered.
The amount of such penalty when finally determined, or the amount agreed on
compromise, may be deducted from any sums owing by the United States to the person
charged. (c) As used in the first sentence of sub-section (a)(1) of this section, the term
“knowingly” means (1) the having of actual knowledge, or (2) the presumed having of
knowledge deemed to be possessed by a reasonable man who acts in the circumstances,
including knowledge obtainable upon the exercise of due care to ascertain the truth of
representations.
The court below, in analyzing the Act, reasoned that because subsection (b) gave the Commission
power to determine the amount of a civil penalty; stated the factors to be applied in reaching that
determination; and contained no language indicating that the penalty was to be recovered in a civil
action, Congress implied that it expected the Commission would assess the penalty.
The Act has since been amended, the Omnibus Budget Reconciliation Act of 1981, Title XII,
Consumer Product Safety and Communications, Public Law 97-35, 95 Stat. 357 (August 13,
1981), the applicable changes being:
(c)(1) Section 20 [15 U.S.C. sec.2069] is amended by – (A) redesignating subsection (b)
and (c) as subsections (c) and (d), respectively; and (B) by inserting after subsection (a)
the following: (b) In determining the amount of any penalty to be sought upon
commencing an action seeking to assess a penalty for a violation of section [2068(a)], the
Commission shall consider the nature of the product defect, the severity of the risk of
injury, the occurrence or absence of injury, the number of defective products distributed,
and the appropriateness of such penalty in relation to the size of the business of the person
charged.
Former subsection (b), now subsection (c), was also amended:
(c) Any civil penalty under this section may be compromised by the Commission. In
determining the amount of such penalty or whether it should be remitted or mitigated and
in what amount, the Commission shall consider the appropriateness of such penalty to the
size of the business of the person charged, the nature of the product defect, the severity of
the risk of injury, the occurrence or absence of injury, and the number of defective products
distributed. The amount of such penalty when finally determined, or the amount agreed
upon compromise, may be deducted from any sums owing by the United States to the
person charged.
[1] The principle that the law in effect at the time of our decision must be applied, Bradley v.
Richmond School Board, 416 U.S. 696, 94 S.Ct. 2006, 40 L.Ed.2d 476 (1974); Ia. Power & Light
Co. v. Burlington Northern, Inc., 647 F.2d 796 (8th Cir. 1981), requires us to construe sec.2069(b),
as amended.
[2] While still not a model of statutory clarity, the amended section clearly requires the
Commission to consider specific factors in “determining” the amount of any penalty to be sought
upon commencing an action seeking to “assess” a penalty. The Commission’s contention that the
terms “determine” and “assess” mean the same thing and, in the context of the Act, be used
interchangeably may have been true under former subsection (b) which was silent as to how the
penalty was to be assessed. It was only because of the “absence of any indication that such a
penalty was to be assessed by the courts” that the district court found that the Act implied Congress
expected that the civil penalties would be assessed by the Commission. This is no longer true as
present subsection (b) requires the Commission to “commenc[e] an action seeking to assess a
penalty.”
The legislative history supports our conclusion. In discussing the amendments, the conference
report states that the Commission would be required to consider certain factors in determining the
amount of a civil penalty to be sought upon commencement of an action for any violation of
sec.2068, and to consider the same factors in compromising a civil penalty in an action for any
violation of sec.2068. H.R.Rep. 97-208, 97th Cong., 1st Sess. 886-887 (1981), U.S. Code Cong.
& Admin. News 1981.
Concluding that the Commission does not have authority to proceed administratively to assess a
civil penalty, it becomes unnecessary to consider the remaining issues. The matter is remanded to
the district court for further proceedings consistent with this opinion.
Industrial Union v. American Petroleum

448 U.S. 607 (1980)
581 F.2d 493, 5th Cir., affirmed
Mr. Justice STEVENS.
The Occupational Safety and Health Act of 1970 (Act), 84 Stat. 1590, 29 U.S.C. sec.651 et seq.,
was enacted for the purpose of ensuring safe and healthful working conditions for every working
man and woman in the Nation. This litigation concerns a standard promulgated by the Secretary
of Labor to regulate occupational exposure to benzene, a substance which has been shown to cause
cancer at high exposure levels. The principal question is whether such a showing is a sufficient
basis for a standard that places the most stringent limitation on exposure to benzene that is
technologically and economically possible.
Where toxic materials or harmful physical agents are concerned, a standard must also comply with
sec.6(b)(5), which provides:
“The Secretary, in promulgating standards dealing with toxic materials or harmful physical
agents under this subsection, shall set the standard which most adequately assures, to the
extent feasible, on the basis of the best available evidence, that no employee will suffer
material impairment of health or functional capacity even if such employee has regular
exposure to the hazard dealt with by such standard for the period of his working life.
Development of standards under this subsection shall be based upon research,
demonstrations, experiments, and such other information as may be appropriate. In
addition to the attainment of the highest degree of health and safety protection for the
employee, other considerations shall be the latest available scientific data in the field, the
feasibility of the standards, and experience gained under this and other health and safety
laws.”
Wherever the toxic material to be regulated is a carcinogen, the Secretary has taken the position
that no safe exposure level can be determined and that sec.6(b)(5) requires him to set an exposure
limit at the lowest technologically feasible level that will not impair the viability of the industries
regulated. In this case, after having determined that there is a causal connection between benzene
and leukemia (a cancer of the white blood cells), the Secretary set an exposure limit on airborne
concentrations of benzene of one part benzene per million parts of air (1 ppm), regulated dermal
and eye contact with solutions containing benzene, and imposed complex monitoring and medical
testing requirements on employers whose workplaces contain 0.5 ppm or more of benzene.
Benzene is a familiar and important commodity. It is a colorless, aromatic liquid that evaporates
rapidly under ordinary atmospheric conditions. Approximately 11 billion pounds of benzene were
produced in the United States in 1976. Ninety-four percent of that total was produced by the
petroleum and petrochemical industries, with the remainder produced by the steel industry as a
byproduct of coking operations. Benzene is used in manufacturing a variety of products including
motor fuels (which may contain as much as 2% benzene), solvents, detergents, pesticides, and
other organic chemicals.
The entire population of the United States is exposed to small quantities of benzene, ranging from
a few parts per billion to 0.5 ppm, in the ambient air. Tr. 1029-1032. Over one million workers are
subject to additional low-level exposures as a consequence of their employment. The majority of
these employees work in gasoline service stations, benezene production (petroleum refineries and
coking operations), chemical processing, benzene transportation, rubber manufacturing, and
laboratory operations. Persistent exposures at levels above 25-40 ppm may lead to blood
deficiencies and diseases of the blood-forming organs, including aplastic anemia, which is
generally fatal.
Industrial health experts have long been aware that exposure to benzene may lead to various types
of nonmalignant diseases. By 1948 the evidence connecting high levels of benzene to serious blood
disorders had become so strong that the Commonwealth of Massachusetts imposed a 35 ppm
limitation on workplaces within its jurisdiction. In 1969 the American National Standards Institute
(ANSI) adopted a national consensus standard of 10 ppm averaged over an 8-hour period with a
ceiling concentration of 25 ppm for 10-minute periods or a maximum peak concentration of 50
ppm. In 1971, after the Occupational Safety and Health Act was passed, the Secretary adopted this
consensus standard as the federal standard.
Between 1974 and 1976 additional studies were published which tended to confirm the view that
benzene can cause leukemia, at least when exposure levels are high. Although is acknowledged
that none of the intervening studies had provided the dose-response data it had found lacking two
years earlier, NIOSH nevertheless recommended that the exposure limit be set low as possible. As
a result of this recommendation, OSHA contracted with a consulting firm to do a study on the costs
to industry of complying with the 10 ppm standard then in effect or, alternatively, with whatever
standard would be the lowest feasible.
In October 1976, NIOSH sent another memorandum to OSHA, seeking acceleration of the
rulemaking process and “strongly” recommending the issuance of an emergency temporary
standard for benzene and two other chemicals believed to be carcinogens. NIOSH recommended
that a 1 ppm exposure limit be imposed for benzene. As a result of this new evidence and the
continued prodding of NIOSH, OSHA did issue an emergency standard effective May 21, 1977,
reducing the benzene exposure limit from 10 ppm to 1 ppm, the ceiling for exposures of up to 10
minutes from 25 ppm to 5 ppm, and eliminating the authority for peak concentrations of 50 ppm.
In its explanation accompanying the emergency standard, OSHA stated that benzene had been
shown to cause leukemia at exposures below 25 ppm and that, in light of its consultant’s report, it
was feasible to reduce the exposure limit to 1 ppm.
In its published statement giving notice of the proposed permanent standard, OSHA did not ask
for comments as to whether or not benzene presented a significant health risk at exposures of 10
ppm or less. Rather, it asked for comments as to whether 1 ppm was the minimum feasible
exposure limit. As OSHA’s Deputy Director of Health Standards, Grover Wrenn, testified at the
hearing, this formulation of the issue to be considered by the Agency was consistent with OSHA’s
general policy with respect to carcinogens. Whenever a carcinogen is involved, OSHA will
presume that no safe level of exposure exists in the absence of clear proof establishing such a level
and will accordingly set the exposure limit at the lowest level feasible. The proposed 1 ppm
exposure limit in this case thus was established not on the basis of a proven hazard at 10 ppm, but
rather on the basis of OSHA’s best judgment at the time of the proposal of the feasibility of
compliance with the proposed standard by the affected industries. Given OSHA’s cancer policy,
it was in fact irrelevant whether there was any evidence at all of a leukemia risk at 10 ppm. The
important point was that there was no evidence that there was not some risk, however small, at
that level. The fact that OSHA did not ask for comments on whether there was a safe level of
exposure for benzene was indicative of its further view that a demonstration of such absolute safety
simply could not be made.
As presently formulated, the benzene standard is an expensive way of providing some additional
protection for a relatively small number of employees. According to OSHA’s figures, the standard
will require capital investments in engineering controls of approximately $266 million, first-year
operating costs (for monitoring, medical testing, employee training, and respirators) of $187
million to $205 million and recurring annual costs of approximately $34 million. The figures
outlined in OSHA’s explanation of the costs of compliance to various industries indicate that only
35,000 employees would gain any benefit from the regulation in terms of a reduction in their
exposure to benzene. Over two-thirds of these workers (24,450) are employed in the
rubber-manufacturing industry. Compliance costs in that industry are estimated to be rather low,
with no capital costs and initial operating expenses estimated at only $34 million ($1,390 per
employee); recurring annual costs would also be rather low, totaling less than $1 million. By
contrast, the segment of the petroleum refining industry that produces benzene would be required
to incur $24 million in capital costs and $600,000 in first-year operating expenses to provide
additional protection for 300 workers ($82,000 per employee), while the petrochemical industry
would be required to incur $20.9 million in capital costs and $l million in initial operating expenses
for the benefit of 552 employees ($39,675 per employee).
In the end OSHA’s rationale for lowering the permissible exposure limit to 1 ppm was based, not
on any finding that leukemia has ever been caused by exposure to 10 ppm of benzene and that it
will not be caused by exposure to 1 ppm, but rather on a series of assumptions indicating that some
leukemias might result from exposure to 10 ppm and that the number of cases might be reduced
by reducing the exposure level to 1 ppm. In reaching that result, the Agency first unequivocally
concluded that benzene is a human carcinogen. Second, it concluded that industry had failed to
prove that there is a safe threshold level of exposure to benzene below which no excess leukemia
cases would occur. In reaching this conclusion OSHA rejected industry contentions that certain
epidemiological studies indicating no excess risk of leukemia among workers exposed at levels
below 10 ppm were sufficient to establish that the threshold level of safe exposure was at or above
10 ppm. It also rejected an industry witness’ testimony that a dose-response curve could be
constructed on the basis of the reported epidemiological studies and that this curve indicated that
reducing the permissible exposure limit from 10 to 1 ppm would prevent at most one leukemia and
one other cancer death every six years.
Third, the Agency applied its standard policy with respect to carcinogens, concluding that, in the
absence of definitive proof of a safe level, it must be assumed that any level above zero presents
some increased risk of cancer. As the federal parties point out in their brief, there are a number of
scientists and public health specialists who subscribe to this view, theorizing that a susceptible
person may contract cancer from the absorption of even one molecule of a carcinogen like benzene.
Fourth, the Agency reiterated its view of the Act, stating that it was required by sec. 6(b)(5) to set
the standard either at the level that has been demonstrated to be safe or at the lowest level feasible,
whichever is higher. If no safe level is established, as in this case, the Secretary’s interpretation of
the statute automatically leads to the selection of an exposure limit that is the lowest feasible.
Because of benzene’s importance to the economy, no one has ever suggested that it would be
feasible to eliminate its use entirely, or to try to limit exposures to the small amounts that are
omnipresent. Rather, the Agency selected 1 ppm as a workable exposure level, see n.14 supra, and
then determined that compliance with that level was technologically feasible and that the economic
impact of . . . [compliance] will not be such as to threaten the financial welfare of the affected
firms or the general economy.
Finally, although the Agency did not refer in its discussion of the pertinent legal authority to any
duty to identify the anticipated benefits of the new standard, it did conclude that some benefits
were likely to result from reducing the exposure limit from 10 ppm to 1 ppm. This conclusion was
based, again, not on evidence, but rather on the assumption that the risk of leukemia will decrease
as exposure levels decrease.
In our view, it is not necessary to decide whether either the Government or industry is entirely
correct. For we think it is clear that sec.3(8) does apply to all permanent standards promulgated
under the Act and that it requires the Secretary, before issuing any standard, to determine that it is
reasonably necessary and appropriate to remedy a significant risk of material health impairment.
Only after the Secretary has made the threshold determination that such a risk exists with respect
to a toxic substance, would it be necessary to decide whether sec.6(b)(5) requires him to select the
most protective standard he can consistent with economic and technological feasibility, or whether,
as respondents argue, the benefits of the regulation must be commensurate with the costs of its
implementation. Because the Secretary did not make the required threshold finding in these cases,
we have no occasion to determine whether cost must be weighed against benefits in an appropriate
case.
The legislative history also supports the conclusion that Congress was concerned, not with absolute
safety, but with the elimination of significant harm.
Given the conclusion that the Act empowers the Secretary to promulgate health and safety
standards only where a significant risk of harm exists, the critical issue becomes how to define and
allocate the burden of proving the significance of the risk in a case such as this, where scientific
knowledge is imperfect and the precise quantification of risks is therefore impossible. The
Agency’s position is that there is substantial evidence in the record to support its conclusion that
there is no absolutely safe level for a carcinogen and that, therefore, the burden is properly on
industry to prove, apparently beyond a shadow of a doubt, that there is a safe level for benzene
exposure. The agency argues that, because of the uncertainties in this area, any other approach
would render it helpless, forcing it to wait for the leukemia deaths that it believes are likely to
occur before taking any regulatory action.
We disagree. As we read the statute, the burden was on the Agency to show, on the basis of
substantial evidence, that it is at least more likely than not that long-term exposure to 10 ppm of
benzene presents a significant risk of material health impairment. Ordinarily, it is the proponent of
a rule or order who has the burden of proof in administrative proceedings.
In this case, OSHA did not even attempt to carry its burden of proof. The closest it came to making
a finding that benzene presented a significant risk of harm in the workplace was its statement that
the benefits to be derived from lowering the permissible exposure level from 10 to 1 ppm were
“likely” to be “appreciable.” The Court of Appeals held that this finding was not supported by
substantial evidence. Of greater importance, even if it were supported by substantial evidence,
such a finding would not be sufficient to satisfy the Agency’s obligations under the Act.
The inadequacy of the Agency’s findings can perhaps be illustrated best by its rejection of industry
testimony that a dose-response curve can be formulated on the basis of current epidemiological
evidence and that, even under the most conservative extrapolation theory, current exposure levels
would cause at most two deaths out of a population of about 30,000 workers every six years.
SUPPLEMENTAL READINGS
Breger, Marshall J., “The Administrative Conference of the United States: A Quarter Century Perspective,” 53
UNIV. OF PITTSBURGH L. REV. 813 (1992).
Eisner, Neil R. and Judith S. Kaleta, “Federal Agency Reviews of Existing Regulations,” 48 ADM. L. REV.
139 (1996).
Freeman, Jody, “Collaborative Governance in the Administrative State,” 45 UCLA L. REV. 1 (1997).
Rabinowitz, Randy S., “Punishment vs. Cooperation in Regulatory Enforcement,” 49 ADM. L. REV. 713
(1997).
Schiller, Reuel E., “The Era of Deference: Courts, Expertise, and the Emergence of New Deal Administrative
Law,” 106 MICH. L. REV. 399 (2007).
Schultz Bressman, Lisa, “Beyond Accountability: Arbitrariness and Legitimacy in the Administrative State,” 78
N.Y.U. L. REV. 461 (May 2003).
Steunenberg, Bernard, “Congress, Bureaucracy, and Regulatory Policy-Making,” 8 J. OF LAW, ECONOMICS
& ORGANIZATION 673 (1992).
Stewart, Richard B., “McConnell v. FEC: Rationing Speech to Prevent ‘Undue’ Influence,” 78 N.Y.U. L. REV.
437 (May 2003).
Strauss, Peter, “Symposium on Administrative Law,” 72 CHICAGO-KENT LAW REV. 965 (1997).

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Foundations of the Legal Environment of Business 3rd

 Nonlegislative; Nonjudicial Body

 Exist at every level of government

 Public Utility Commission

 Sets up basic law, purpose, penalties

Sample Enabling Statute – SEC: Securities and Exchange Commission

 Needed to Deal With Complexities of Legislation

Examples: Environmental, occupational safety, nuclear, securities – regulation

 Provide for More Rapid Enforcement: Faster Relief

 Don’t have to use court system for enforcement

5-2b Due Process

 Hear Benefits Cases

5-2c Social Goals

 Agency Set Up to Achieve Societal Goals

5-2d Protection for Small Business

 False Advertising Controls

5-2e Faster Relief

 Hearings and Administrative Process Moves More Quickly

5-3 Laws Governing Administrative Agencies

5-3a Administrative Procedures Act (See PowerPoint Slide 5-6)

 First Passed in 1946

 APA Amendment Passed in 1966

 Types of Information Not Published

 Unpublished Information Can Be Obtained Through an FOIA Request

 Wrongful Refusal to Supply Information Allows Requester to Bring Suit and

 National defense or foreign policy matters

5-3c Federal Privacy Act (See PowerPoint Slide 5-12)

 Passed in 1974 as APA Amendment

 Exchanges for law enforcement purposes

Examples: SEC information on stock trade, banking information to Federal

5-3d Government in the Sunshine Act (See PowerPoint Slide 5-13)

 1976 Amendment to APA

 Applies Only When Agency Heads Are Meeting

Example: Staff members can meet without notice

 Exceptions – Meetings Covering:

Example: SEC commissioners meeting to discuss insider trading

5-3e Federal Register Act

 Not Part of APA

5-4a Providing Input When Agencies are Promulgating Regulations

 Can be done by agency staff

 Draft is reviewed by staff members and legal counsel – economists, scientists,

 Some agencies provide background information in their proposals

 Also in trade publications because Regulatory Flexibility Act has such

 The Public Comment Period

 Must be at least 30 days (unless there is an emergency)

ANSWER TO ETHICAL ISSUES (The Forged Comments): Deception is deception is

 Difference between legislation and rulemaking

 Executive Branch involved

See PowerPoint Slide 5-18.

CASE BRIEF 5.1

Hornbeck Offshore Services, LLC et al. v. Salazar

Answers to Case Questions

 Deciding What to Do With the Proposed Regulation

 Rules are adopted

 Court and Legislative Challenges to Proposed Rules

 Made through the courts

 Agency must show there is some evidence to support the rule

 Theory two – substantial evidence

 Rule proposed is unsupported by substantial evidence

 Challenges can be based on failure to follow procedures

 Failure to give notice

 Challenges based on constitutionality; FCC and First Amendment challenges