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2. Darby, a real estate developer, used Garvin, a mortgage banker, to arrange single-
family mortgage insurance from HUD to cover a development project. Garvin
obtained this insurance, as opposed to multiple-family mortgage insurance, by using
“straw purchasers.” Garvin and Darby fully informed HUD officials of their plans.
When some of the development projects failed, thereby causing liability on behalf of
HUD, the department prohibited Darby and Garvin from participating in any HUD-
administered project in South Carolina. HUD also sought debarment orders against
Darby and Garvin with respect to any procurement contracts with HUD and any
nonprocurement contracts with any federal agency. The ALJ entered an order of
debarment for an 18-month period. Darby and Garvin filed a lawsuit. HUD sought to
have this suit dismissed since they had not exhausted the available administrative
remedies.
Issue: Can federal courts require a plaintiff to exhaust possible administrative
remedies prior to seeking judicial review when neither the statute involved nor the
agency rules require exhaustion prior to judicial review?
113 S.Ct. 2539 (1993).
D. Review of Factual Determinations
Emphasize:
That the function of courts in reviewing the decisions of agencies is to determine
whether the agency proceeded in accordance with law and whether or not its findings
and conclusions accorded with statutory standards and were supported by substantial
evidence.
That in reviewing the sufficiency of the evidence to support the facts found by an
agency, courts will only overturn an agency finding if it appears that the evidence upon
which the agency acted was devoid of probative value or so meager as to lead to the
conviction that the finding does not rest upon a rational basis, or when it appears that the
result of the hearing must have been influenced by improper considerations.
That Courts do not reweigh the evidence, make independent determinations of fact, or
substitute their view of the evidence for that of the agency.
Cases for Discussion:
1. Holly Farms Corporation operates numerous poultry facilities, including hatcheries, a
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feed mill, an equipment maintenance center, and a processing plant. “Broiler” chickens
weeks old, Holly Farms sends its live-haul crews to reclaim the birds and ferry them to
the processing plant for slaughter. The live-haul crews—which typically comprise nine
chicken catchers, one forklift operator, and one live-haul driver—travel in a flat-bed
truck from Holly Farms’ processing plant to the farms of the independent growers. At
proposed unit that included live-haul employees working out of Holly Farms’
Wilkesboro processing plant. Over Holly Farms’ objection, the Board approved the
bargaining unit, ruling that the live-haul workers were “employees” protected by the
National Labor Relations Act, rather than “agricultural laborers” excluded from the
Act’s coverage. The Board ordered Holly Farms to bargain with the Union as the
construction is the best way to read the statute; rather, courts must respect the Board’s
judgment so long as its reading is a reasonable one. Regardless of how the Board might
have resolved the question as an initial matter, the Board’s decision here reflects a
reasonable interpretation of the law. Holly Farms Corporation v. National Labor
Relations Board, 116 S.Ct. 1396 (1996).
2. The Occupational Safety and Health Act assigns distinct regulatory tasks to two
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independent administrative actors. The Secretary of Labor is charged with setting and
enforcing workplace health and safety standards. The Occupational Safety and Health
Review Commission is responsible for carrying out adjudicatory functions. The Act also
requires a court of appeals reviewing a Commission order to treat as “conclusive”
Commission findings of fact that are “supported by substantial evidence.”
Issue: In the event of a conflict between the Secretary and the Commission, which
prevails?
promulgator of standards, is in a better position than the Commission to reconstruct the
purpose of particular regulations. Martin v. Occupational Safety and Health Review
Commission, 111 S.Ct. 1171 (1991).
3. The Reagan administration when it took office reviewed many of the policies and
decisions of its predecessor, the Carter administration. It rescinded several rules,
including one by the National Highway Traffic Safety Administration (NHTSA), which
had required all new cars sold after September, 1982, to include air bags to protect
passengers in the event of a collision. This rule was adopted as a motor vehicle safety
standard. Several auto insurance companies filed suit challenging the rescission of the
air bag rule. The rule had been rescinded on the belief that it was an example of
excessive government regulation.
Issue: Was the rescission order properly issued?
judgment required to pass muster under the “arbitrary and capricious” test. Motor
Vehicle Mfrs. Ass’n. v. State Farm Mut., 103 S.Ct. 2856 (1983).
4. A candidate who was defeated for office in a union election filed a complaint with the
Secretary of Labor alleging union violation of federal law. The Secretary conducted an
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investigation and decided not to challenge the election. No reasons for the decision were
given in the letter to the candidate that notified him of the decision.
Issue: Must the Secretary provide the basis for this decision?
III. Criticism of Administrative Agencies (LO 15-3)
Emphasize:
That the administrative agencies and the regulatory process face many problems and much
criticism. At the heart of many of these problems and criticisms is the cost associated with
the regulatory process.
Sidebar 15.6—“Criticisms of Administrative Process”
A. The Costs to Business
Emphasize:
That regulation is a form of taxation.
That the existence of a governmental agency usually forces a business subject to the
agency’s jurisdiction to create a similar bureaucracy within its own organization to deal
with the agency.
Federal administrative agencies are required to work with the Small Business
balancing the costs of the programs with their potential benefits.
That it is difficult to weigh the costs of regulation against the benefits of regulation.
That when regulation creates inefficiencies, the cost to the public rises.
The size and growth of the Federal Register as discussed in the marginalia to show the
increase in regulation.
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C. Conclusion
Emphasize:
That all levels of governments are larger and more complex in this first decade of the
twenty-first century than even 25 years ago.
Sidebar 15.7—“Trends in Regulations: Growth of Government in the 20th Century”
How the U.S. workforce has changed during the past 100 years and how this impacts the
need for further regulation and deregulation.
The Emergency Economic Stabilization Act of 2008 and why this legislation was
necessary.
Answers to Review Questions and Problems
Regulatory Process—Administrative Agencies
1. Reasons for Agencies
There are a variety of reasons that agencies are created.
a. Specificity (Example – I.R.S.)
2. Functions of Agencies
3. Organization of Agencies
a. The general counsel is the agency’s chief legal officer and legal advisor. He or she also
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4. Influencing Agency Decisions
The company should certainly write letters stating their position to agency members and
appropriate members of Congress. The company should also be sure to have representatives
at any public hearings to provide input and monitor the situation.
Judicial Review of Agency Decisions
5. Standing to Sue
6. Review of Rule Making
a. First, is the delegation of authority to the agency to make rules valid? There must be
7. Review of Adjudications: Procedural Aspects
The plaintiff may need to exhaust all other remedies because the general rule is that judicial
review of an administrative decision may not be had until the aggrieved party has exhausted
all administrative remedies. The purpose of the doctrine of exhaustion of administrative
remedies is to allow administrative agencies to correct their own errors, clarify policies, and
1985).
8. Review of Factual Determinations
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Criticism of Administrative Agencies
9. The Costs to Business
Regulation adds to the monetary costs of doing business which are then often passed on to
10. The Costs to Society
In most cases it is difficult and nearly impossible to weigh costs against benefits regarding
11. Conclusion
The nature of bureaucracies is continued growth. Throughout history, administrative
agencies have had an expanding role in our lives.
Business Discussion #1
1. Is this company regulated only by the federal government, or are state and local regulations
relevant?
As discussed in this chapter, the federal government’s primary source of authority to regulate
business is the Commerce Clause found in Article I, Section 8 of the United States
2. How does the company and its divisions keep track of laws and regulations?
There are multiple administrative agencies created with a view of regulating various
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3. If an administrative agency begins an investigation of your company, should your company
cooperate with or fight the agency’s action?
The answer depends on the nature of the investigation and the desired outcome. Cooperation
Business Decision #2
1. Should you continue to seek review of your case before the agency’s officials?
If the sanctions imposed by the administrative agencies is unfair, one can try and first
2. Should you appeal by filing a lawsuit to reverse the agency’s decision?
The concept of primary jurisdiction can be applied to answer this question. The idea of
primary jurisdiction is that although a court can rule in a case involving an agency, it does
3. If you are successful in court, under what circumstances can you recover your attorney’s
fees?
Business Decision #3
1. To what degree does the FTC have the right to challenge your business practices?
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2. Are your clearly stated contractual provisions unfair or deceptive?
3. Should you cooperate with the investigator or seek a court order enjoining this
investigation?
4. How do you challenge the FTC’s action if a formal complaint is filed against your
company?
One may seek review before the administrative judge for the FTC where evidence and