Administrative Law and Procedure

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ADMINISTRATIVE LAW AND PROCEDURE

Administrative law is the body of law that allows for the creation of public regulatory agencies and contains all of the statutes, judicial decisions, and regulations that govern them. It is created by administrative agencies to implement their powers and duties in the form of rules, regulations, orders, and decisions. Administrative procedure constitutes the methods and processes before administrative agencies, as distinguished from judicial procedure, which applies to courts.

The Administrative Procedure Act (5U.S.C.A. §§ 551–706 [Supp. 1993]) governs the practice and proceedings before federal administrative agencies. The procedural rules and regulations of most federal agencies are set forth in the code of federal regulations (CFR).

The fundamental challenge of administrative law is in designing a system of checks that will minimize the risks of bureaucratic arbitrariness and overreaching, while preserving for the agencies the flexibility that they need in order to act effectively. Administrative law thus seeks to limit the powers and actions of agencies and to fix their place in our scheme of government and law. It contrasts with traditional notions that the three branches of the U.S. government must be kept separate, that they must not delegate their responsibilities to bureaucrats, and that the formalities of due process must be observed.

Separation of Powers

The U.S. Constitution establishes a three-part system of government consisting of the Legislative Branch, which makes the laws, the executive branch, which carries out or enforces the laws, and the Judicial Branch, which interprets the laws. This system of checks and balances is designed to keep any one branch from exercising too much power. Administrative agencies do not fit neatly into any of the three branches. They are frequently created by the legislature and are sometimes placed in the Executive Branch, but their functions reach into all three areas of government.

For example, the securities and exchange commission (SEC) administers laws governing the registration, offering, and sale of securities, like stocks and bonds. The SEC formulates laws like a legislature by writing rules that spell out what disclosures must be made in a prospectus that describes shares of stock that will be offered for sale. The SEC enforces its rules in the way that the Executive Branch of government does, by prosecuting violators.

It can bring disciplinary actions against broker-dealers, or it can issue stop orders against corporate issuers of securities. The SEC acts as judge and jury when it conducts adjudicatory hearings to determine violations or to prescribe punishment. Although SEC commissioners are appointed by the president subject to the approval of the Senate, the SEC is an independent agency. It is not part of Congress, nor is it part of any executive department.

Combining the three functions of government allows an agency to tackle a problem and to get the job done most efficiently, but this combination has not been accepted without a struggle. Some observers have taken the position that the basic structure of the administrative law system is an unconstitutional violation of the principle of the separation of powers.

Delegation of Authority

The first issue that is encountered in the study of administrative law concerns the way in which Congress can effectively delegate its legislative power to an administrative agency. Article I, Section I, of the U.S. Constitution provides that all legislative power is vested in Congress. Despite early resistance, the U.S. Supreme Court gradually accepted the delegation of legislative authority so long as Congress sets clear standards for the administration of the duties in order to limit the scope of agency discretion. With this basic principle as their guide, courts have invalidated laws that grant too much legislative power to an administrative agency. President franklin d. roosevelt learned just how far the Court would go in allowing the delegation of authority, in two cases that stemmed from his administrative-agency actions to support his new deal program.

The national industrial recovery act (15 U.S.C.A. § 701 et seq., 40 U.S.C.A. § 401 et seq. [1933]) authorized the president to prohibit interstate shipments of oil that had been produced in violation of state board rules that attempted to regulate crude-oil production to match consumer demand. The Panama Refining Company sued to prevent federal officials from enforcing the prohibition, known as the "hot oil" law (Panama Refining Co. v. Ryan, 293 U.S. 388, 55 S. Ct. 241, 79 L. Ed. 446 [1935]). The U.S. Supreme Court found the law to be unconstitutional. Congress could have passed a law prohibiting interstate shipments of hot oil, but it did not do so; instead, it gave that power to the president. This has been called a case of delegation run amok because the law had no clear standards defining when and how the president should use the authority that the statute delegated to him.

Four months later, the Court invalidated a criminal prosecution for violation of the Live Poultry Code, an unfair-competition law that President Franklin D. Roosevelt had signed in 1934 pursuant to another section of the National Industrial Recovery Act. This was the case of schechter poultry corp. v. united states, 295 U.S. 495, 55 S. Ct. 837, 79 L. Ed. 1570 (1935). The problem in this case was not that the delegation of authority was ill-defined, but that it seemed limitless. The president was given the authority to "formulate codes of fair competition" for any industry if these codes would "tend to effectuate the policy" of the law. Comprehensive codes were created, establishing an elaborate regulation of prices, minimum wages, and maximum hours for different kinds of businesses. But there were no procedural safeguards from arbitrariness or abuses by enforcement agencies. Someone who was charged with a violation was not given the right to notice of the charges, the right to be heard at an agency hearing, or the right to challenge the agency's determination in a lawsuit. The Court struck this law down, stating that the unfair procedures helped strong industrial groups to use these codes to improve their commercial advantage over small producers.

As a result of Panama Refining and Schechter Poultry, when Congress delegates authority to agencies, it also sets out important provisions detailing procedures that protect against arbitrary administrative actions.

Due Process of Law

The Fifth and Fourteenth Amendments guarantee that the federal government and the state governments, respectively, will not deprive a person of his or her life, liberty, or property without due process of law. An administrative agency thus may not deprive anyone of life, liberty, or property without a reasonable opportunity, appropriate under the circumstances, to challenge the agency's action. People must be given fair warning of the limits that an agency will place on their actions. Federal courts routinely uphold very broad delegations of authority. When reviewing administrative agency actions, courts ask whether the agency afforded those under its jurisdiction due process of law as guaranteed by the U.S. Constitution.

The U.S. Supreme Court has held it improper for a state agency to deny welfare benefits to applicants who meet the conditions for entitlement to those benefits as defined by the legislature. The state must afford due process (in these cases, an oral hearing) before it can terminate benefits (Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 287 [1970]). Likewise, when a state grants all children the right to attend public schools, and establishes rules specifying the grounds for suspension, it cannot suspend a given student for alleged misconduct without affording the student at least a limited prior hearing (Goss v. Lopez, 419 U.S. 565, 95 S. Ct. 729, 42 L. Ed. 2d 725 [1975]).

Political Controls Over Agency Action—Legislative and Executive Oversight

Government institutions that set and enforce public policy must be politically accountable to the electorate. When the legislature delegates broad lawmaking powers to an administrative agency, the popular control provided by direct election of decision makers is absent—but this does not mean that administrative agencies are free from political accountability. In many areas, policy oversight by elected officials in the legislature or the Executive Branch is a more important check on agency power than is judicial review.

Federal agencies are dependent upon Congress and the president for their budgets and operating authority. An agency that loses the support of these bodies or oversteps the bounds of political acceptability may be subjected to radical restructuring. In the 1970s, the Atomic Energy Commission (AEC) took the politically unpopular position of promoting nuclear power, while underemphasizing safety and environmental protection. It paid the price when some of its promotional functions were transferred to a newly created department of energy, and the AEC was restructured into the nuclear regulatory commission, which was responsible for the former agency's regulatory duties.

Federal administrative agencies must be responsive to legislative and executive oversight mechanisms. During the 1970s, many members of Congress began to feel that the normal process of legislation was too cumbersome for effective control of administrative action. They devised a solution called the legislative veto. Legislative vetoes took a variety of forms, but most of them directed agencies to transmit final administrative rules to Congress for review before they became effective. Just as this approach was gaining in popularity and use, the U.S. Supreme Court declared the legislative veto unconstitutional. This ruling involved the Immigration and Nationality Act (8 U.S.C.A. § 1101 et seq. [1995]), which allowed either house of Congress to nullify a decision by the attorney general suspending deportation of an alien. Jagdish Rai Chadha brought suit when the House of Representatives exercised this power in his case. The Court held, in INS v. Chadha, 462U.S. 919, 103 S. Ct. 2764, 77 L. Ed. 2d 317 (1983), that the legislative veto was essentially a one-house veto, and, therefore, it violated Article I, Section 7, of the Constitution, which states that no legislation is valid unless passed by both houses of Congress and signed by the president (or, if the president vetoes it, repassed by two-thirds of each). The Court said that in Chadha, the House veto of the attorney general's decision was a legislative action, and therefore Article I, Section 7, applied. The Chadha decision invalidated all of the nearly 200 legislative-veto provisions that were on the books.

Another important legislative-oversight mechanism is the annual appropriations process. Congress determines the budget and appropriates money for the various administrative agencies. An administrative agency that angers Congress, or a key member of either house, could find itself with less money to work with in the next year, or could even see certain programs eliminated. A legislature may also enact a sunset provision, which provides for automatic termination of an agency after a stated time unless the legislature is convinced that the need for the agency continues. Sometimes, a sunset provision is written into the statute that creates a particular agency, but a general sunset law may terminate any agency that cannot periodically demonstrate its effectiveness. A useful agency can always be revived or retained by the enactment of a new statute.

Like Congress, the president uses a variety of powers and techniques to oversee and influence the operations of administrative agencies. The Appointments Clause of the Constitution (art.II, §2, cl. 2) states that the president may generally appoint all "officers of the United States," with the advice and consent of the Senate. Under the authority of this provision, presidents often appoint agency heads who share their political agenda. The president's power to remove an agency head depends on whether the agency is an independent agency or a cabinet department. Independent agencies tend to be multimember boards and commissions, like the Securities and Exchange Commission, federal communications commission (FCC), and national labor relations board (NLRB), which are run by officials who are appointed for a fixed period that does not correspond to the president's term of office. There also may be statutes protecting the commissioners from arbitrary removal during their terms of office. The heads of cabinet-level agencies, called secretaries, serve at the pleasure of the president and may be removed at any time. (Appointments of cabinet secretaries must be confirmed by the Senate.)

The president also reviews agency budgets, through the office of management and budget (OMB). A president's disapproval of agency initiatives can block appropriations in Congress. The president may also use an executive order, a formal directive, to direct federal agencies or officials. One technique that has been used frequently is the president's authority to modify the organizational structure of the bureaucracy. Under the Executive Reorganization Act (5 U.S.C.A. §§ 901–912 [Supp. 1993]), the president may submit a reorganization plan to Congress, transferring functions from one department to another. This law recognizes that although responsibility for the organization and structure of the Executive Branch is vested in Congress, the president needs flexibility to carry out executive duties.

Public opinion is another forceful weapon against unbridled agency action. Some jurisdictions of the United States have created special public offices to investigate complaints about administrative misconduct. Investigators holding these offices, called ombudsmen, usually have broad authority to evaluate individual complaints, to intercede on behalf of beleaguered victims of red tape, and to make reports or recommendations.

The Development of Administrative Procedure Law

Administrative agencies were established to do the government's work in a simpler and more direct manner than the legislature could do by enacting a law, and than the courts could do by applying that law in various cases. Because they pursue their actions less formally, agencies do not follow the civil procedure that is set up for courts. Instead, the law of administrative procedure has developed to ensure that agencies do not abuse their authority even though they use simplified procedures.

Although administrative agencies have existed since the founding of the United States, the early twentieth century saw a growth in the number of agencies that were designed to address new problems. During the Great Depression, a host of new agencies sprang up to meet economic challenges. Antagonism toward bureaucracy increased as existing dissatisfactions were multiplied by the number of new bureaucrats. In 1939, President Franklin D. Roosevelt appointed a committee to investigate the need for procedural reform in the field of administrative law. Although the comprehensive and scholarly report of that committee was not enacted into law, a later version of it was enacted in 1946 when Congress unanimously passed the Administrative Procedure Act (5 U.S.C.A. §§ 551–706) (APA). The statute made agencies' methods more fair so that there would be less reason to object to them. It also limited the power of the courts to review agency actions and to overturn them.

Judicial review of agency action furnishes an important set of controls on administrative behavior. Unlike the political oversight controls, which generally influence entire programs or basic policies, judicial review regularly operates to provide relief for the individual person who is harmed by a particular agency decision. Judicial review has evolved over a period of years into a complex system of statutory, constitutional, and judicial doctrines that define the proper boundaries of this system of oversight. The trend of judicial decisions and the Administrative Procedure Act is to make judicial review more widely and easily available.

How far can a court go in examining an agency decision? The reviewing court may be completely precluded from testing the merits of an agency action, or it may be free to decide the issues de novo, that is, without deference to the agency's determination. In general, administrative agencies make either formal or informal decisions, and courts have different standards for reviewing each type.

Informal Agency Action Most of the work done by agencies is accomplished with informal procedures. For example, a person who applies for a driver's license does not need or want a full trial in court in order to be found qualified. So long as the motor vehicle department follows standard, fair procedures, and processes the application promptly, most people will be happy. Agencies take informal action in a variety of settings. The Social Security Administration reviews over four million claims for benefits annually, holding hearings or answering challenges to their decisions in only a small number of cases. Most transmitter applications before the Federal Communications Commission are approved or disapproved without any formal action. The internal revenue service processes most tax returns without formal proceedings. It also will provide informal opinions to help people avoid making costly mistakes in their financial planning.

Anyone who objects to the informal decisions made by a government agency can invoke more formal procedures. Someone may believe that standards are unclear and that they should be promulgated through formal agency rule making. Or someone may feel that the decision in a particular case is unfair and may demand a formal adjudicatory hearing. If one of these formal procedures does not satisfy a party, the agency's decision may be challenged in court.

Formal Agency Action Most formal action taken by administrative agencies consists of rule making or adjudication. Rule making is the agency's formulation of policy that will apply in the future to everyone who is affected by the agency's activities. Adjudication is for the agency what a trial is for the courts: It applies the agency's policies to some act that already has been done, so that an order is issued for or against a party who appears for a decision. Rule making looks to the future; adjudication looks at the past. Where either of these formal procedures is used, the agency will usually give interested or affected persons notice and an opportunity to be heard before a final rule or order is issued.

Rule making Administrative agencies promulgate three types of rules: procedural, interpretative, and legislative. Procedural rules identify the agency's organization and methods of operation. Interpretative rules are issued to show how the agency intends to apply the law. They range from informal policy statements announced in a press release to authoritative rules that bind the agency in the future and are issued only after the agency has given the public an opportunity to be heard on the subject. Legislative rules are like statutes enacted by a legislature.

Agencies can promulgate legislative rules only if the legislature has given them this authority.

The Administrative Procedure Act sets up the procedures to be followed for administrative rule making. Before adopting a rule, an agency generally must publish advance notice in the Federal Register, the government's daily publication for federal agencies. This practice gives those who have an interest in, or are affected by, a proposed rule the opportunity to participate in the decision making by submitting written data or by offering views or arguments orally or in writing. Before a rule is adopted in its final form, and 30 days before its effective date, the agency must publish it in the federal register. Formally adopted rules are published in the Code of Federal Regulations, a set of paperback books that the government publishes each year so that rules are readily available to the public.

Adjudication The procedures that administrative agencies use to adjudicate individual claims or cases are extremely diverse. Like trials, these hearings resolve disputed questions of fact, determining policy in a specific factual setting and ordering compliance with laws and regulations. Although often not as formal as courtroom trials, administrative hearings are extremely important. Far more hearings are held before agencies every year than are trials in courts. Adjudicative hearings concern a variety of subjects, such as individual claims for worker's compensation, welfare, or social security benefits, in addition to multimillion-dollar disputes about whether business mergers will violate antitrust rulings. These proceedings may be called hearings, adjudications, or adjudicatory proceedings. Their final disposition is called an administrative order.

Many administrative proceedings appear to be just like courtroom trials. Most are open to the public and are conducted in an orderly and dignified manner. Typically, a proceeding begins with a complaint filed by the agency, much as a civil trial begins with a complaint prepared by the plaintiff. After the respondent answers, each side may conduct discovery of the other's evidence and prehearing conferences. A hearing examiner, sometimes called an administrative law judge (ALJ), presides over the hearing, giving rulings in response to a party's applications for a particular type of relief. The agency presents its evidence, usually through counsel, either by a written report or in the question-and-answer style of a trial, and then the respondent offers his or her case. Witnesses may be called and cross-examined. The examiner gives a decision, usually with written findings and a written opinion, shortly after the hearing.

The Executive Branch of the federal government employs federal ALJs. When Congress originally enacted the APA, it addressed concerns about the relationship between ALJs and their respective agencies by providing independence to the ALJ. The U.S. Office of Personnel Management (OPM) makes most of the decisions regarding the tenure and compensation of ALJs, and ALJs are exempted from many of the performance reviews that apply to other civil service employees. An agency may remove an ALJ only for cause and after a hearing conducted by the merit systems protection board.

Because administrative hearings do not use juries, an ALJ makes both factual determinations and legal decisions based upon the evidence presented and the law governing the dispute. The specific duties of an ALJ in an individual agency depend upon the powers delegated to the agency in the respective enabling statute and procedural regulations promulgated by the agency. For instance, the Office of Inspector General is empowered to impose civil penalties against a person who makes false statements or representations with respect to Social Security benefits. Under regulations promulgated by the Social Security Administration [20 C.F.R. §498.204 (2002)], the ALJ may make a number of decisions regarding the submission of evidence or the examination of witnesses; rule on motions and other procedural matters; and render a summary judgment where appropriate. However, the ALJ may not rule as invalid a federal statutory or regulatory provision, enjoin agency officials, or review discretionary acts by the inspector general. An ALJ's decision is often subject to review by a board or commission of the entire agency before parties may appeal the decision to a federal court. For example, labor disputes governed by the National Labor Relations Act are first heard by ALJs of the National Labor Relations Board (NLRB). The ALJ's decision may be appealed to the five members of the NLRB for review. Only after review by the NLRB, upon which it renders a decision and issues an opinion, may a party appeal the decision to a U.S. court of appeals.

Unlike a trial, an administrative hearing has no jury. The hearing examiner, or administrative law judge, is usually an expert in the field involved and is likely to be more concerned with overall policies than with the particular merits of one party's case. The Administrative Procedure Act affords parties who appear in administrative hearings involving federal agencies the right to notice of the issues and proceedings, the right to counsel, and the right to confront and cross-examine witnesses.

Judicial Review of Agency Actions

When someone believes that she or he has been the victim of administrative error or wrongdoing and seeks to have the actions of the responsible agency reviewed in a court of law, the reviewing court is faced with two questions: Does the court have a right to review the agency action? And if it does, what is the scope of that court's review?

The Right to Have a Court Review an Agency's Decision Whether someone has the right to ask a court to review the action taken by an agency depends on the answers to several questions. The first question is whether the person bringing the action has standing, or the legal right to bring the suit. Section 702 of the Administrative Procedure Act allows court review for any person who is adversely affected or aggrieved by agency action within the meaning of a relevant statute. When the U.S. Supreme Court reviewed section 702 in Association of Data Processing Service Organizations v. Camp, 397 U.S. 150, 90 S. Ct. 827, 25 L. Ed. 2d 184 (1970), the Court said that for the plaintiff to have standing to seek judicial review of administrative action, two questions must be answered affirmatively: (1) Has the complainant alleged an "injury in fact"?; and (2) Is the interest that the complainant seeks to protect "arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question"?

Even though an agency's decision is reviewable and the plaintiff has standing to litigate, the plaintiff still may be unable to obtain judicial review if he or she has brought the action at the wrong time. The aggrieved person must exhaust all other avenues of relief before the dispute is ripe for judicial determination. The doctrines of exhaustion of remedies and ripeness require a person who deals with an agency to follow patiently all of the available steps within the agency's procedures before resorting to court action. These rules are essential to prevent overloading the courts with questions that might not even be disputes by the time the agencies determine what their final orders or rulings will be.

The Scope of a Court's Review If an aggrieved party can convince a court that he or she has standing, that all available administrative remedies have been exhausted, and that the case is ripe for judicial review, the court will hear the case, but the scope of its review is limited. The law seeks to give agencies enough freedom of action to do their work, while ensuring that individual rights will be protected. The Administrative Procedure Act provides that courts may not second-guess agencies when the agencies are exercising discretion that has been granted to them by statute. A court is generally limited to asking whether the agency went outside the authority granted to it; whether it followed proper procedures in reaching its decision; and whether the decision is so clearly wrong that it must be set aside. The court also may set aside an agency decision that is clearly wrong.

The court usually will accept the agency's findings of fact, but it is free to determine how the law will be applied to those facts. It will look at the whole record of the administrative proceeding and will take into account the agency's expertise in the matter. The court will not upset agency decisions for harmless errors that do not change the outcome of the case. If the question at issue has been committed to agency discretion, the court may consider whether the agency has exercised its discretion. If the agency has not done so, then the court may order the agency to look at the situation and make a decision. The Administrative Procedure Act allows courts to overrule an agency action that is found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."