MARVAL, OFARRELL MaIRAL EDITORIAL ADVISORY BOARD GS ASPEN LAW. sSS, SS Panel publishers Richard A. Epstein James Parker Hall Dising¥ithed Service Professor of Law University of Chicago E. Allan Farnsworth, Alfred MeCormack Professor of Law Columbia University Ronald J. Gilson Profesor of Law Stanford University Geoffrey C. Hazard, Jr Sterling Professor of Law ‘Yate University James E. Krier Earl Warven Delano Professor of Law ‘University of Michigan ‘izabeth Warren William A. Schnader Professor of Commercial Law ‘University of Penmaylvanis Bernard Wolfman Fessenden Professor of Law Harvard University ADMINISTRATIVE LAW THIRD EDITION BERNARD SCHWARTZ EDWIN D. WEBB PROPESSOR OF LAW NEW YORK UNIVERSITY SCHOOL OF LAW S&S ASPEN LAW & BUSINESS Aspen Publishers, Inc.CHAPTER FOUR RULES AND RULEMAKING ‘Teranology and che Administrative Proce At emai Aahoroy Uh Veer and Rentoables Reale Refs and Reson Reteacthe Ratemaking Coseenste Arai “Types of Baler pl Ee Font Rotemaking obi Pricipsion and Conieraen Escepins Fone! Rulemaking Porpone an Bfecirenest $139 Youen Tontee Owe Hd Hyat Ralewatng Ls Mose and ace Ae Fle Matteson $3 Rearing eres Adjsicaon $15 Aguateauen sere Ruane $19 Lapesrive Yoo. $4.1 Terminology and the Administrative Procedure Act A bright law student walking down the library corridor who saw & TeeamyDeetions set of books labeled “Treasury Decisions” would probably pass thet by if he were looking for Treasury regulations. The word "decisions usually means determinations in particular cases, But in the Treasury Department a general rule is called a “decision.” The Federal Admin- istrative Procedure Act calls a judicialaype decision by an agency an ieelon? H utes and felemakiag “order.” Yer, if you pick up an administrative document and see atthe top the word “order,” do not be surprised to find that it is a general 4app ene oe eraerene og la wma ot ney gen ‘Whether a document that an agency calls an order is actually a rule or et regulation may be of crucial significance. The agency's own label, while Televant, is not dispositive, In a New York ease, an automobile driver, convicied of speeding claimed that the “order” of the State Tratfe Commission fixing 2 speed limit of dhiryrfive miles per hour in the given zone was not binding because it had not been filed as a “rule.” ‘Fe commission contended that, since the limit had been issted as an 4 fonder" and nocas a “rule” or “regulations” ic did not come sithin 3 the requirement for filing “rules and regulations.” The court held that the label used by the agency was no: determinative, Though called aa = “orden,” it was in effect a rule or regolation since it was a "legislative 3 cor quesilegislative norm of prescription which established a pattern § or corse of conduct for the fature."® An agency may not “end rin Tulesmaking procedures” by labeling rules as something else.‘ ‘The confusion of terminology is a natural result of the manner i ‘which our administrative law has developed. In a branch of law that 3] “as largely ‘growed! like Topsy," the terms employed have been net" ther consistent nor scientific. It would certainly be better to system: 2 ie administrative terminology. Agencies would then call the same thing by the same name. Today administrative law students 100 often feel like Alice after going through her looking glass; they yearn for that ttler room where chairs are actually chairs and tables, tables — and “ fules and regolations are rules ard zegulations and orders, orders. | ‘The most significant attempt to define basic administrative Law if terms is that made by the Federal Administrative Procedure Act. The $a. 4. Soe MeFottand, in The Federal Adminiralve Feocedore Act and the. | Adwincative Agencies 19.30 (Warren ed. 1947). M2 Goverd Motors Corp. t, Rucker, 742 F.2d 1561,1865 (D.C. Cie. 1984). 5. Peoples. Cul, 10 NLY-28 123, 126 (L961), For similar case where dre agency label deestane comico, see Drester Inds, x Commninionce of atemval Revenue, 911 ! F.2d 1125, 188 (sth Cir, 1600), Louiniana Cher. Assn v. Bingham, 657 F-2d 727 {Gah Gir 1981), Sete Ba. w,Siera Pac. Power Coy O94 P2440] Ner 1981). vt, Bote Garp, ©. United Siaes, 740 F.26 1028, 1080 (D.C. Gi. 1984). 1 Prantfarter, Foreword, 41 Golam. L. Rev. 685, 886 (1941). pete nt ss definition section of the APA defines che following key terms: agency resend ane mm ria aan et RL DGUU, etn wer gn oceig a a =e a es nate sp ante rn soem ss ee conte of nomena ta eee ee At my abies et of ek gtr ageungte naman ngerars wage Themes) sil ney Bamps eo soe ne Pe sere Seto Gomme $4.2 Rules versus Orders The New Vork ease discussed in the preceding section indicates that the ose of incorrect terminology may result in more than mere Con- fusion, This is paticuarly true of the basie distinction at laste there — that between legislative and adjudicnory functions. Ifa particular funedionis termed “legislative” or “rulentking” rather than "Jud sia” oF “adjudication,” icmay have substantial effects upon the pat. tescoceme Ihe functions ete ee in atr, re ther. fa hearing is held in accordance with n statutory requirement, 5, Seaton 2.9 US. S52 1. then tase wody eons ‘tea wd meant wh chore io mean" Cert Trough the Locing as ch 6. Bt compare Aco Wrecking Gv Uned Stes #31 Us 275,208 (979; "Congress dd nx empower the Adria afer ean Cup Dompyin Thrgh she Looking Gs, makes tepoton ot oan "ison andor by hn ere designation 169 Roemsking 2ejadeaion Sietesiz sues and nueva tt normaly need not be a formal one, governed by the requirements eee CSapuie 8 aad 7 The characterization of a admis see saute intead of usc ths of est siguticence, ‘stra aun nde te Fer Adnan rote Acts cither rulemaking or adjudication. ? The APA is thus based upon 3 AO ASRSianl lotelingsajudeation dichotomy thee govern {Sra aw a Toe APA allows the tons 2pronch sathing ndrnberatve proceedings ina the vo cepa, oro. sear ousions are grounded on the distinction between the legis MERE Pinnatong Rettone of admnistnne agencies, on the one Wn, nd hele lel or audicaie acivies, on te oer. The a one receineg for leaking i legely infor neha, epoca planson also male forte comparatively rae ese ofr seetediong where tne procedure i paserued upon that followed | sersMuicauoss. ine requirements preserbed for ajacieaions ae en tialn anu, modeled more upon te process of thes “etl process, - ; “apc tour points ont that sere Is no “brig ne between rulemaking and adjudication.’ The most famous pre-APA attempt to: TIRES dite hetween leglaive and juicalfoneion as Sauhy janice Hols in Pens dane Cot Line Co Aji | Tit atthe testes delves td enforces ates 3 hey ee preent or past fete and under laws supposed alecady 1 | Sac Ta sits purpose andl end, Leginsion on the oes an 00k he nae and anges exiting conditions by making anew Tale se tbplied treater all or une port of those subject to 6 power"? The key factor in the Holmes analysis is time: A role pre- Fes jaune paaere of conc 2 decison determines Habits | “frome bait pred or pu! nets as oe Sela hs Seco put 12. Tin SHAG Sainte Mat Advices TG, 087 F24115, 5160 GC. 3970, cst died, 447 US. 923 1980} ‘3 Rowen v. Genrgetown Univ, Hosp. 488 U.S. 204, 210 (1985). same is cre of the eitient Model State Aminincatve Procedure Acts and the varlow stat 2 ‘sdinistrativ procedure statutes, “Infra Hd) 5. Assocation of Nal, Advertiser: w. FTG, 627 F.n6 at 1165. 6, 211 US.210.4908). . 7, fa, ac 226. The Phen soalyse hae en centred ip New Orleans PUbICSE + Council of New Orlesne, — US. —, — (382) 154 Rules versus Orders ie it, “Adjudication deats with what che Jaw was; rulemaking deals with ‘sha the law will be. The element of applicabitity haFbeen emphasized by others as the sey i differentiating legislative from judicial fonctions. According to Ghief justice Burger, “Rulemaking is normally directed toward the formulation of requirements having a genera! application to all mem= bers oF a broadly indentifable class.”? An adjudication, on the other hand applies to specific individuals or siuations."" ‘To determine whether a0 action is rulemaking or adjudication, courts should con. sider whether the action is generalized ia nature G.e. whether it ap- pies to specific individuals or to unnamed and unspecified persons); whether the agency considered general facts or adjudicated partic- ular s¢t of disputed facts; and whether the action determines poliey issues or resolves 2 specific dispuce between partes, ™ Both the Holmes time test and the applicability test are workable in the great majority of cases. There are, however, situations that cause difficulty. Under the Holmes tes an adminsirative determination that has Foture effect is a rule, This wonld lead to the conclusion that licens- ing and the issuance of injunctive orders, such as a Federal Trade Commission cease and desist order, are instances of rulemaking, SE the ‘pplicability testis followed, a function such as ratemaking would be classified as judicial, although the Supreme Court bas recently con firmed that itis logisacive in eharacter. ™ ‘The APA follows Holmes in its definition of “role.” Under it, 5, yen» Georgetown Us Max 6 US 021, ene Sony Bech Foy Coo 775 Pa 40 28 en 65) 1 aching in Ameren rey CaN 9 2862, 636 (D.C. 066, sot does 38808. 08 (509) omg de) 10 Se Ronde Fol Se 8 Beare of Transporation, $84 A241 1212 (Pa. 1981). eee = a TA Rnuns Mec, 742477, 780 (an, 188. 12, Nowoscae Pk Serv Gana of Ore — US. — 505 18. The APA denens me fl" sesh aloes pat oon ssn saeent rere ae plas tn te tt dete itomen rpc or presi o gle ot Scrnge sree ae «shor pains eine of ge nthe ep preset tenia ure rae wags copter mca seuruacror eos cet pay etn pnt ees anne teat orar let ‘iar coping, paces wagon ty a he fee Seeson td USC. $5514), mens ‘ 165 Appleby et APA cue denonAPA nde declaratory ection rr ‘Rules and Relemaking rules have legal consequences for the futare: "The key factor in deter. “1 Inining the natsre of an agency determination is “future effect." The ‘E ‘APA definition does not limit rules to statements of general applica. 6 that apply only to specific individuals or situations. This is the portion -§| a of the definition that, at first glance, causes difficulty, for particular ‘applicability is the characteristic feature of an adjudicatory decision, ‘The original draft of the APA limited rules to “statements of general “4 applicabiliy.” “The change of the language to embrace specifically ules of ‘particular’ as well as ‘general’ applicability is necessary in order to avold controversy and assure coverage of rule making addressed to named persons." 7° Tt has been suggested that this change in wording may greatly in- crease the scope of shat is included a rulermking, and correspond. ingly narrow the scape of adjudication. The difficulty i largely avoided by the express limitation of “rules” to statements of “future effect.” “There can thus be no confusion with regard to the great majority of adjudications, for, though particular in applicability, they do not meet the requirement of “future effect.” The difficulty that arises with re. ‘gard 10 adjudications char are funure in effect is minimized by the ex: press inclusion of injunctive and declaratory orders and licensing in the APA definition of “order and adjudication.” “The APA definitions of "order" and “adjudication” are residual ones. “Order” (which is the end result of an “adjudication”) means the final agency disposition “in any mae other than rule making but ineluding licensing,” The scope of this definition is dependent upon the conten: of the term “rule.” The logical approach in any case is to determine first whether the function concerned comes within the def- inition of “rulemaking.” Ifi¢ does not, then itmust come within “adju- ication” since i is deierenined by what is not rolemaking. 3 “The APA definition of “order” expressly includes negative, injunc: tive, and declaratory action, as well a5 licensing. The inclusion of orders "negative... in form’ is a legislative restatement of the repu- Giation of the so-called negative order doctrine. ™ Under the APA, It ects 114, Sealia, fia Bowen. Georgetowe Unis. Howp, 488 US. at 216. 15, Admioisrative Procedure AE, Legislative History 2980.1 (1048), Seea inane, le Making. “Adjudication and Ezerptions under Ge Adinistrave Pro ‘duce Aet, 08 U. Ba 1 Rev. 621 (1047); Schwartz, Administrative Terminology #04 the Administrative Procedure Act. 48 Mich, L. Rev. 37 (1940) YG. Tn Rochester Fel. Corp. United States, 207 US. 125 (2958), infra $9.2 186 Rulemaking Authority sas isthe effect rather than the form of administrative action that is deter- rinative, If matter before an agency is finally disposed of, and a qulemaking proceeding is not involved, the disposition is an “adjudi- tation," even though it is negative in form. The other express inclu. sions ake care of eases that might otherwise come within the definition of “rule.” As we have seen, agency action that is injuncsive in form, sch as an FTC cease and desist order, might otherwise be considered aril, a result that would be undesirable from the point of view of procedural requirements. Similar considerations apply to the express inchision of "declaratory orders” *? and “licensing.” ‘The APA definitions represent an attempt to resolve one of the most troublesome problems of administrative terminology -— whether a particular funerion is legislative or judicial in nature. One may dis- gree with particular aspects of the definitions, but they do result ia consistency of nomenclature, if only for the purposes of the APA ite self, As noted at the end of the preceding section, the effect of the "APA in this respect js limited. Though the APA employs the basic 1ule- order distinction, agencies continue to use the terminology to which they are accustomed, with the confusing results adverted ro it the pre- ceding section. $43. Rulemaking Authority Rulemaking power is an outstanding feature of the modern adraia- inrative agency. As Justice Scalia tells us, “Agency rulemaking powers are the rule rather than, 25 they onee were, the exeeption.”"” Doriag the past two decades, rulemaking has been increasingly substituted for adjudication asa vegulatory technique, with the support and encour agement of the courts? By now there isa significant body of case nv that fivors dhe use of rulemaking? over the generation of policy in Piecemeal fashion through individual adjudicatory orders." None Propet aa, Jal Defence Jo AdissratveInerprcttons of ax wi Due. 52,816 6980. ves " ton Nuon Foods Ass. Weinberger. es nberge, 512 24 698, 688 @d 3. nse Permanent Sure Mining Reg Lig, 058 P24 G14, 525 DO. Cie 1982), cert. denind, 454 U.S. 822 (1981). : 4. Artons Dep. of Revenue ». Transomerica Tiss in apt Mtoe ep 604 F.2d 1199, 1148 (Are. making