Chapter 47 – Administrative Law
CHAPTER 47
ADMINISTRATIVE LAW
I. OBJECTIVES:
This chapter is designed to teach students about the nature of administrative agencies, their
regulatory processes, their importance in the American system of government and to the daily
operations of business, and the limits on the exercise of their power. After reading the chapter
and attending class, a student should be able to:
A. Understand the sociohistorical forces that led to the emergence of the agency phenomenon
and the pervasive impact that agency action has on modern life and business operations.
B. Understand the processes by which agencies are created and the limits the principle of
separation of powers places upon the ability of Congress to delegate its legislative powers to
an administrative agency.
C. Understand the two basic types of federal administrative agencies and the typical way in
which agencies are structured.
D. Understand the basic powers agencies possess and the fundamental statutory and
constitutional limits on their exercise of those powers.
E. Understand some important contemporary issues in regulation.
In addition, see the Learning Objectives that appear near the beginning of the chapter.
II. ANSWERS TO INTRODUCTORY PROBLEM:
In Food and Drug Administration v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000),
the Supreme Court held that in the Food, Drug, & Cosmetic Act, Congress had not given the FDA
authority to regulate tobacco products. The FDA regulations, therefore, were invalid. Because
the Court struck down the regulations on this basis, it was not necessary to address the question
whether the tobacco advertising restrictions violated the First Amendment. However, as pointed
out in the Introductory Problem and as noted later in the text, a 2009 congressional enactment
granted the FDA authority to regulate tobacco products. The FDA later issued tobacco
advertising restrictions that were being challenged on First Amendment grounds as of the time the
text and this manual went to press.
A. As this chapter reveals, an agency cannot lawfully act outside the subject area of authority
designated for it by Congress or the relevant state legislature.
B. Agencies typically are granted investigative, rulemaking, and adjudicatory powers. Having
created the agency, Congress or the state legislature may not only grant the agency certain
powers but also may limit the exercise of the powers granted.
C. Agency regulations have the force of law if they fall within the agency’s area of authority and
were properly promulgated.
D. As this chapter demonstrates, agencies’ regulatory actions are subject to constitutional
restrictions.
E. Political shifts can expand or narrow administrative powers, as seen in the summary set forth
in the Introductory Problem
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Chapter 47 – Administrative Law
III. SUGGESTIONS FOR LECTURE PREPARATION:
A. Introduction
1. Point out the pervasive influence agencies have on modern life and the consequent
importance of the subject of agency power. Give examples of the “alphabet soup” of
agencies (e.g., FTC, FCC, FDA, EPA, SEC, etc.) we read and hear about in the news on a
daily basis.
2. Discuss the sociohistorical factors that led to the creation of administrative agencies.
3. Note that although the text focuses on federal regulation and federal agencies, state
regulation and state regulatory agencies also have an important impact on business
operations.
4. Discuss the issues raised in the Ethics in Action box at 1273 of the text (both the general
questions and the more specific questions regarding the COX-2 inhibitors).
B. Agency Creation
1. Discuss enabling legislation as the basis for an agency’s existence. Note, for example,
how the FTC Act gives the FTC powers normally associated with the three traditional
branches of government. The enabling statutes for most other major agencies do
essentially the same thing. Point out that it is this broad mix of powers that makes
agencies such potentially powerful instruments of social control. At the same time,
however, this mix of powers accounts for the fundamental problem in administrative law:
how to design a system of control that preserves agencies’ power to perform good works
while simultaneously limiting their ability to be evil.
2. Discuss the basic constitutional checks (e.g., due process, equal protection, freedom of
speech) that apply to agency action because it is, of course, government action.
Pearson v. Shalala (p. 1274): A federal statute prohibits marketers of dietary
supplements from making health claims on container labels unless the health claims have
been submitted to the Food and Drug Administration for pre-approval. An FDA
regulation provides that the agency will not approve a health claim unless there is
“significant scientific agreement” that the health claim is supported by the available
evidence. The D.C. Circuit Court of Appeals holds that the FDA violated the First
Amendment rights of certain dietary supplement marketers by using this regulation as a
basis for refusing to approve certain health claims even if the claims were accompanied
by appropriate disclaimers. In addition, the court holds that the Administrative Procedure
Act requires–and the Fifth Amendment probably requires–the FDA to define more
clearly what “significant scientific agreement” means.
Points for Discussion: You may wish to have the students review Chapter 3’s treatment
of basic First Amendment and Fifth Amendment (particularly due process) concepts.
Walk the students through the relevant First Amendment analysis. Commercial speech–
what was at issue here–receives an intermediate level of First Amendment protection if it
pertains to a lawful activity and is nonmisleading. Note the court’s rejection of the FDA’s
argument that health claims not meeting the “significant scientific agreement” standard
are inherently misleading. Such claims aren’t necessarily misleading–especially if
appropriate disclaimers accompany them. Therefore, the speech in which the dietary
supplement marketers wished to engage was entitled to an intermediate level of
protection. Nevertheless, the government could still regulate the content of the
commercial speech at issue if it could demonstrate direct advancement of a substantial
government interest by a means that was not more extensive than necessary (i.e., a means
that reflected a reasonable fit between the speech restriction and the underlying
government interest). The FDA’s interests in promoting public health and preventing
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Chapter 47 – Administrative Law
consumers from being misled were clearly substantial and would be advanced by the
regulation under which health claims could not be made on container labels unless the
“significant scientific agreement standard” was met. The D.C. Circuit concludes,
however, that the FDA’s refusal to allow the making of the health claims with appropriate
disclaimers made the speech restriction more extensive than necessary (i.e., it prohibited
far too much speech and thus did not reflect a reasonable fit with the underlying
government interest). Appropriate disclaimers would go a long way toward preventing
consumers from being misled about possible or probable health effects, while still
allowing the speech set forth in the health claims to be made. Hence, there was a First
Amendment violation. Ask the class whether the court’s application of the relevant test
gives the government enough regulatory latitude, given that commercial speech receives
only intermediate–rather than “full”–First Amendment protection.
In this case, it appears that there was credible evidence to support the health claims at
issue even though the “significant scientific agreement” standard could not be met. Ask
your students whether the D.C. Circuit’s analysis seems to contemplate that the FDA
should be expected to allow health claims with appropriate disclaimers even if there is
virtually no scientific evidence to support the claims? How would/should the D.C. Circuit
view and evaluate such a case?
Briefly note the court’s holding and supporting reasoning on the Administrative
Procedure Act (and possibly Fifth Amendment due process) issue: that the FDA must
more clearly define the term “significant scientific agreement.” Is the term really as
unclear and vague as the D.C. Circuit says it is? How might the FDA more clearly define
the term or clarify its meaning and scope?
Additional Examples: For an example of an agency action challenged on First
Amendment grounds, see Problem Case #1. For an example of an agency action
challenged on due process grounds, see Problem Case #4.
3. Discuss the principle of separation of powers and the limits it places on the ability of
Congress to delegate its legislative power to an agency. Any new agency is likely to face
a challenge to the constitutionality of its enabling legislation early in its existence.
a. Note the general tendency of modern courts to approve quite broad grants of power
to agencies. Courts see a constitutional problem in a broad grant of power only
when–and such instances are exceedingly rare today–the grant is so sweeping and
without limitation that it effectively amounts to a congressional abdication of its
lawmaking responsibilities. Even very broad grants of power thus are not regarded
by courts as beyond the pale. You may wish to point out that courts faced with a
separation of powers argument may avoid striking down an agency’s enabling
legislation by narrowly construing the powers granted to the agency under the
statute. For a classic New Deal case in which a delegation was struck down as
overly broad, see Schecter Poultry Corp. v. United States, 295 U.S. 495 (1935). For
another classic decision, one upholding wartime price controls, see Yakus v. United
States, 321 U.S. 414 (1944) (delegation upheld unless statute so lacking in standards
that it would be impossible for court to ascertain whether will of Congress has been
obeyed). The consistency with which courts have upheld broad grants of power
during the preceding 60 years made it very surprising that in its 1999 American
Trucking Associations decision, the D.C. Circuit Court of Appeals held that the
Clean Air Act contained an unconstitutional delegation of power to the
Environmental Protection Agency. In a 2001 decision that appears as a text case and
is discussed below, the Supreme Court reversed the D.C. Circuit’s decision and
upheld the statute’s grant of power to the EPA.
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Chapter 47 – Administrative Law
Whitman v. American Trucking Associations (p. 1277): Overturning the D.C.
Circuit’s 1999 decision, the Supreme Court holds that there was not an
unconstitutional delegation of power when Congress, in the Clean Air Act, called for
the EPA to set pollutant concentration levels that would be “requisite to protect the
public health” with an “adequate margin of safety.” The Court held that this grant of
power was not so sweeping as to raise a constitutional problem, and that the quoted
language was “well within the outer limits” on congressional grants of power to
administrative agencies. Therefore, the EPA regulations setting such standards were
promulgated pursuant to a valid grant of authority.
Points for Discussion: The now-discredited decision of the D.C. Circuit had been
one of the most surprising administrative law decisions in many years. After six
decades in which broad delegations of power by Congress had been routinely upheld,
the D.C. Circuit had invoked an analysis that brought back memories of Supreme
Court decisions from the 1930s and earlier. The Supreme Court’s clear rejection of
the D.C. Circuit’s reasoning depended heavily on an examination of many years of
precedents and a recognition that the grant of power about which the D.C. Circuit
was so concerned was either not broader than or less broad than grants that had
routinely been upheld against constitutional attack. As Justice Scalia noted in his
opinion for the Court, the grant of power at issue in this case “fits comfortably”
within what had been held permissible in numerous precedent cases. Ask the class
what related concern must have been in the minds of the Supreme Court justices
when they decided this case. (The concern that if this grant of power was
unconstitutional, the same would have to be true of lots of other–maybe most other–
grants of power by Congress to administrative agencies. The consequences of a
contrary ruling by the Supreme Court in this case might have been staggering, in
terms of the numerous constitutional challenges of agency action that almost
certainly would have been triggered.)
C. Agency Types and Organization
1. Distinguish executive agencies from independent agencies.
2. Note that the organizational structure of a given agency will depend heavily on the
particular regulatory mission(s) of that agency.
3. Note the text’s discussion of the Department of Homeland Security, which was created by
Congress in 2002. As this mammoth-sized agency swung into action, it altered the
federal regulatory status quo. Differences of opinion exist regarding whether, on balance,
the alteration has been largely positive.
4. Administrative agencies no doubt are more prevalent in the United States than in other
nations. However, as pointed out in the Global Business Environment box that appears
later in the chapter, other nations frequently have bodies that play roles similar to those
played by agencies within the U.S.
D. Agency Powers and Procedures
1. Distinguish discretionary powers from ministerial powers.
2. Discuss the Administrative Procedure Act as an important constraint on an agency’s
exercise of its rulemaking and adjudicatory powers.
3. Discuss the fact that accurate information is an essential prerequisite of effective
regulation. Agencies need investigative power to gather such information and
investigative tools to compel disclosure of information by those who are unwilling to
disclose it. Note the tension between agencies’ needs for information and the legitimate
privacy interests of individuals.
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Chapter 47 – Administrative Law
a. Discuss the two basic types of subpoenas. Note the major limitations on agencies’
exercise of their subpoena power: investigation must be authorized by law and
conducted for legitimate purpose; information sought must be relevant to that lawful
purpose; demand for information must be sufficiently specific and not unreasonably
burdensome; information sought must not be privileged on common law, statutory, or
constitutional grounds; and forcing production of documents sought by agency must
not risk compromising important operations being conducted by another agency or
arm of government (example: Problem Case #11). You may wish to refer students to
Chapter 3’s discussion of the Fifth Amendment as it relates to business records.
b. Discuss the limitations that the Fourth Amendment imposes on an agency’s search
and seizure power. Note the lesser protection that the Constitution affords to the
owners of commercial property. This is illustrated by Dow Chemical Co. v. United
States, 476 U.S. 227 (1986), a case mentioned in the text. Point out in particular the
exception to the warrant clause for administrative inspections of “closely regulated”
businesses. The “closely regulated” industry exception has its roots in two cases,
Colonnade Corp. v. United States, 397 U.S. 72 (1970), and United States v. Biswell,
406 U.S. 311 (1972). Note that the doctrine is, to some extent, tautological: the
warrant requirement is relaxed due to the lessened privacy expectations of one who
participates in such a closely regulated industry, so the more the government
regulates you, the fewer rights you have. Point out, however, that though there are
lessened privacy expectations on the part of the person whose premises are searched,
there must be a special governmental need to regulate the business in question before
the doctrine will apply.
Additional Example: See Marshall v. Barlow’s, Inc., 436 U.S. 307 (1978), in which
the Court declined to uphold warrantless OSHA searches under the “closely
regulated” industry exception. See also Problem Case #9.
4. Discuss agency rulemaking power. Stress the fact that an agency’s rulemaking power
derives from its enabling legislation. Thus, in addition to compliance with APA
procedural requirements, agency rulemaking must be consistent with this basic statutory
mandate.
a. Discuss the differences among procedural rules, interpretive rules, and legislative
rules.
Example: Alaska v. U.S. Dept. of Transportation, 868 F.2d 441 (D.C. Cir. 1989)
(difference between legislative and interpretive rules; agency failure to follow APA
“notice-and-comment” procedures).
b. Distinguish among informal rulemaking, formal rulemaking, and hybrid rulemaking.
In the process, discuss the APA standards for formal and informal rulemaking and the
shortcomings of each that have led to the attempt to create hybrid rulemaking.
Examples: Northwest Airlines, Inc. v. Goldschmidt, 645 F.2d 1309 (8th Cir. 1981)
(“good cause” exception to APA notice requirements).
5. Discuss agency adjudicatory power. Place particular emphasis on the role played by
administrative law judges within an agency.
a. Discuss agency adjudicatory procedures and the important role that consent orders
play in an agency’s enforcement efforts.
E. Controlling Administrative Agencies
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Chapter 47 – Administrative Law
1. Briefly review the controls on agency action that have already been discussed. Then turn
to an examination of the controls that the three traditional branches of government exert
over agency action.
2. Discuss the tools the executive branch may employ in an attempt to control agency
action. One of the major problems that confronts any new president is how to seize
control, to the maximum extent possible, of an entrenched bureaucracy with its own
agenda and without whose cooperation little can be accomplished. A President sometimes
can “capture” agencies and convert them to his agenda. One area of control not
mentioned in the text is the power to control an agency’s litigation. Because most
agencies lack the authority to litigate on their own behalf and are forced to seek
representation by the Department of Justice, presidential control of the DOJ (through the
Attorney General) can also be an important tool for bringing agencies under control.
3. Discuss the Congressional controls over agency action. Note that if Congress and the
President are at odds and an agency is caught in the middle, the agency’s ability to act
effectively may be destroyed. This is one of the prices we pay for our system of checks
and balances.
4. Discuss judicial review of agency action.
a. Note that, despite the APA-created strong presumption in favor of reviewability, not
all agency actions are reviewable. Discuss the two situations in which agency actions
are not subject to judicial review: (1) when an applicable statute precludes review; or
(2) when the decision is committed to agency discretion by law.
Example: Problem Case #5.
1) Note the price at which the streamlining effects of agency discretion and
nonreviewability are purchased: sometimes that discretion will be abused or
poorly exercised. You might want to solicit your students’ views on whether
Problem Case #5 was one of the latter instances.
2) Explain that agency decisions not to act are considered to be committed to
agency discretion by law. Note that the discretionary power not to take action
can, in many instances, have as great an impact as the power to take action. This
may be particularly true in areas where private plaintiffs (assuming a private right
of action exists) lack the expertise or resources to challenge many alleged
regulatory violations. For example, as pointed out in Chapters 49 and 50,
antitrust enforcement under the Reagan FTC and Justice Department had a
dramatically different face from that seen with prior administrations. Many
unchallenged mergers, for instance, would likely have been challenged in prior
years. Some would probably also argue that substantial changes in enforcement
policies occurred in other agencies during the same general time. Where the
avenues for private enforcement are either nonexistent or severely constrained,
agency decisions not to act are obviously of even greater importance. Justice
Marshall once argued in a concurring opinion that refusals to enforce should be
reviewable in the absence of a clear and convincing congressional intent to the
contrary, but should be accorded judicial deference when there is nothing to
suggest that an agency has abused its discretion. In making the case for this view,
Justice Marshall stated: “The problem of agency refusal to act is one of the
pressing problems of the modern administrative state, given the enormous
powers, for both good and ill, that agency inaction, like agency action, holds over
citizens. [T]he problems and dangers of agency inaction are too important, too
prevalent, and too multifaceted to admit of a single facile solution under which
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Chapter 47 – Administrative Law
‘enforcement’ decisions are ‘presumptively unreviewable.’” Heckler v. Chaney,
470 U.S. 821 (1985) (Marshall, J., concurring).
b. Discuss the requirement that plaintiffs seeking to challenge agency action must
demonstrate that they have standing to sue. Examples: Problem Case #8; National
Coal Ass’n v. Hodel, 825 F.2d 523 (D.C. Cir. 1987) (standing present where plaintiffs
faced threat of competitive injury of sort Congress apparently was concerned about
when it enacted statute that plaintiffs allege was violated by Secretary of Interior’s
approval of land exchange).
c. Discuss the requirements of exhaustion and ripeness.
d. Discuss the bases for attacks on the legality of agency action: (1) ultra vires; (2)
substantial deviation from procedural requirements; (3) unconstitutional; (4)
erroneous interpretation of statute; (5) unsubstantiated by facts before agency.
Examples: Problem Cases #1, #3, and #7; Utility Air Regulatory Group v. EPA (text
case discussed below).
Utility Air Regulatory Group v. EPA (p. 1286): The Supreme Court holds that the EPA
exceeded its statutory authority in interpreting the Clean Air Act as requiring PSD
and Title V permits for stationary sources based on their emissions of greenhouse
gases. Although the Court held that greenhouse gases could not be classified as a
pollutant when defining a “major emitting facility” for PSD permit purposes or a
“major source” for Title V permit purposes, the EPA could continue treating
greenhouse gases as a pollutant for of requiring BACT for “anyway” sources (those
sources already subject to that requirement because of their emissions of pollutants
other than greenhouse gases.
Points for Discussion: Identify three Clean Air Act elements of importance here:
PSD; Title V; and BACT. (See the discussion of each in the case’s facts.) Note the
Court’s discussion of Massachusetts v. EPA (2007), in which the Court held that Title
II of the Clean Air Act authorized the EPA to regulate greenhouse-gas emissions from
motor vehicles if the EPA concluded that such emissions contribute to climate
change. The EPA later reached such a conclusion and adopted regulations of that
nature. Ask the students what the treatment of greenhouse-gas emissions from motor
vehicles has to do with the stationary-source questions in Utility Air Regulatory
Group? (The EPA concluded that the inclusion of greenhouse gases as a pollutant for
purposes of Title II’s provisions dealing moving sources such as motor vehicles
necessarily meant that greenhouse gases must be a pollutant for purposes of other
portions of the Clean Air Act dealing with stationary sources. The Court held that
this conclusion by the EPA was erroneous). Note the emphasis placed by the Court
on the notion that a word sometimes will not have the same meaning in different
portions of the statute. Context is key. Considering greenhouse gases as a pollutant
for purposes of Title’s provisions dealing with moving sources makes sense within
that context. However, treating greenhouse gases as a pollutant for purposes of
certain other Clean Air Act sections dealing with stationary sources would drastically
expand the permit requirement’s application and would make the regulatory regime
contemplated by those statutory sections unworkable. Hence, the EPA unreasonably
concluded that greenhouse gases were a pollutant for purposes of those statutory
sections and that the EPA’s tailoring rule (see explanation in the case’s facts) thus
lacked proper legal authority. Note, however, that the Court permitted the EPA‘s
treatment of greenhouse gases as a pollutant for purposes of applying the BACT
requirement to “anyway sources,” because those sources already were subject to the
BACT requirement on the basis of their emissions of other pollutants. Therefore,
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Chapter 47 – Administrative Law
applying the BACT requirement to them would not significantly expand the
regulatory regime.
e. Discuss the standards courts employ when reviewing agency action (little deference
to agency on questions of law; greater deference to agency on questions of fact or
policy; deference to agency interpretation of ambiguous statutory language; three
standards of review: de novo review; substantial evidence test; arbitrary and
capricious test).
Examples: Utility Air Regulatory Group (discussed above); Problem Cases #2, #3,
and #8; National Cable & Telecommunications Association v. Brand X Internet
Services., 545 U.S. 967 (2005) (the Supreme Court decision discussed in the
Cyberlaw in Action box at p. 1291 of the text); Mayo Foundation for Medical
Education v. United States (text case discussed below).
Mayo Foundation for Medical Education v. United States (p. 1292): The Supreme
Court upholds the Treasury Department’s full-time student regulation as a
permissible interpretation of the FICA provision in the Internal Revenue Code.
Congress had left the term “student” undefined in the Code’s FICA exemption for
student employees of colleges and universities. The Treasury Department’s
regulation defined “student” in a way that excluded medical residents even though
there was an educational aspect to their work, because they worked far more than 40
hours per week. The regulation was not arbitrary and capricious. Rather, it was a
reasonable interpretation of an undefined term in the statute and was thus entitled to
deference from the Court.
Points for Discussion: The facts and issues in this case may be easier for students to
latch on to than the facts and issues in Utility Air Regulatory Group (the previous text
case). Ask class members to explain, in a general sense, the FICA exemption for
student employees. Note that Congress did not define “student” in the relevant
statutory section. Ask the class about the rationale for the Treasury Department’s
regulation, and why it would mean that medical residents would not qualify for the
student exemption. Ask why the Mayo Foundation and the University of Minnesota
challenged the regulation. Have students explain why the Supreme Court regarded
the regulation as a permissible interpretation of the statute. Explain why courts
engage in Chevron deference (deferring to reasonable agency interpretations when
statutory language is ambiguous.
5. Discuss the information controls to which agencies are subject.
a. Discuss the Freedom of Information Act, highlighting its rationale, basic provisions
regarding availability of information, and exemptions. In particular, note Exemptions
1, 2, 4, 5, and 6.
Milner v. Department of the Navy (p. 1295): The Supreme Court holds that FOIA
Exemption 2 pertains only to human resources and employee relations records.
Therefore, that exemption could not be used to justify the government’s refusal to
release the records sought in this case (records regarding explosives data and maps
used by the Department of the Navy).
Points for Discussion: Ask students about the “Low 2” and “High 2” interpretations
developed by lower courts regarding Exemption 2. Ask why the Court concludes that
“Low 2 is all of 2 (and that High 2 is not 2 at all).” Note the Court’s focus on the
literal language of Exemption 2, whose reference to “personnel” records logically
contemplates human resources records. Note that according to the Court, the High 2
interpretation developed by lower courts was not sufficiently tied to the statutory
language of Exemption 2. Ask the students why the Court rejected the government’s
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Chapter 47 – Administrative Law
“clean slate” interpretation. (Because the fact that materials are used by an agency’s
“personnel” doesn’t make those materials “personnel records” in the usual sense of
that term. Note, too, the Court’ s nods to the general transparency-focused purposes
of FOIA, to the possibility that other exemptions can apply to requests for sensitive
information in the government’s possession, and to the avenue of convincing
Congress to add further exemptions to FOIA if the existing ones do not adequately
protect sensitive information.
Additional Example: Problem Case #10.
b. Discuss the Privacy Act of 1974.
c. Discuss the Government in the Sunshine Act.
F. Issues in Regulation
1. Discuss the differences between “old” regulation and “new” regulation.
2. Discuss captive agencies and agency shadows.
3. Note the timely examples in the “Is the Agency Doing Its Job?” subsection.
4. Discuss the deregulation movement and the drive for reregulation.
5. Explore the agency-industry “revolving door” phenomenon and the ethical and public
policy issues it raises. See the questions raised in the Ethics in Action box at p. 1299.
IV. RECOMMENDED REFERENCES:
A. KENNETH CULP DAVIS, ADMINISTRATIVE LAW TREATISE.
B. WILLIAM F. FOX, UNDERSTANDING ADMINISTRATIVE LAW.
C. MICHAEL ASIMOV, STATE AND FEDERAL ADMINISTRATIVE LAW.
D. REGULATION IN PERSPECTIVE: HISTORICAL ESSAYS (Thomas K. McCraw, ed.).
E. EUGENE BARDACH & ROBERT A. KAGAN, GOING BY THE BOOK: THE PROBLEM OF
REGULATORY UNREASONABLENESS.
F. E.P. Krauss, Unchecked Powers: The Supreme Court and Administrative Law, 75 MARQ. L.
REV. 797 (1992).
G. Sidney A. Shapiro & Richard E. Levy, Heightened Scrutiny of the Fourth Branch: Separation
of Powers and the Requirement of Adequate Reasons for Agency Decisions, 1987 DUKE L.J.
387.
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