Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-05305/USCOURTS-caDC-99-05305-0/pdf.json

Parties Involved:
Dan Glickman
Appellee
James V. Hurson Associates, Incorporated
Appellant
United States Department of Agriculture
Appellee

Document Text:

<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 7, 2000 Decided October 24, 2000

No. 99-5305

James V. Hurson Associates, Incorporated,

Appellant

v.

Dan Glickman,

Secretary of the United States Department of Agriculture,

and

The United States Department of Agriculture

Appellees

Appeal from the United States District Court

for the District of Columbia

(No. 98cv02120)

Robert J. Brooks argued the cause and filed the briefs for

appellant.

Charles W. Scarborough, Attorney, U.S. Department of

Justice, argued the cause for appellees. With him on the

USCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 1 of 12
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

brief were David W. Ogden, Acting Assistant Attorney General, Barbara C. Biddle, Attorney, and Wilma A. Lewis, U.S.

Attorney.

Before: Williams, Sentelle and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge: James V. Hurson Associates

appeals from a District Court judgment upholding a United

States Department of Agriculture ("USDA") rule that controls the manner in which the agency receives requests for

the approval of food labeling. Appellant contends that the

USDA violated the Administrative Procedure Act ("APA"), 5

U.S.C. s 551 et seq. (1994), by promulgating that rule without

first engaging in notice-and-comment rulemaking. It also

claims that the District Court erred in denying its motion to

amend its complaint to include claims that the USDA's new

rule both is arbitrary and capricious and violates the Constitution's Interstate Commerce Clause.

We hold that the District Court properly concluded that

USDA was not required to engage in notice-and-comment

rulemaking, since its new rule falls within the APA's procedural-rules exception. We also conclude that the court erred

in refusing to allow Appellant to amend its complaint to

include an arbitrary-and-capricious claim and a CommerceClause claim, as it had an absolute right to do so until the

USDA filed a responsive pleading. We therefore remand

with instructions that Appellant be permitted to amend its

complaint to include its arbitrary-and-capricious claim. We

do not, however, remand with respect to Appellant's Commerce-Clause claim, because we conclude that it would not be

able to survive a motion to dismiss.

I. BACKGROUND

Appellee Daniel Glickman is the Secretary of the USDA,

another appellee in this case (collectively, "USDA"). The

USDA's Food Safety Inspection Service ("FSIS") is charged

with reviewing the labels affixed to certain commercial food

products to ensure that they are truthful, not misleading, and

USCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 2 of 12
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

otherwise comply with relevant regulations. Until recently, a

commercial food producer could seek approval of a proposed

label in several ways: by mailing its application, by personally visiting the FSIS, or by hiring courier/expediter firms

whose employees would meet with FSIS representatives during office hours. The latter method, colloquially known as

"face-to-face," enabled producers to secure instant approval of

their labels, whereas other methods could take days or even

weeks. See Meat, Poultry, and Egg Products Labeling Review Process; Elimination of Appointments With Label Courier/Expediting Firms, 63 Fed. Reg. 40,010, 40,011 (1998)

[hereinafter elimination of face-to-face].

On July 27, 1998, the USDA announced its intention to do

away with "routine, daily, time-set, face-to-face appointments

with courier/expediting firms," although FSIS employees

would be available for irregular meetings with industry representatives to discuss novel issues and provide regulatory

guidance. Id. at 40,010. The USDA cited four reasons for

its elimination of face-to-face review: (1) FSIS's need for

more time to evaluate labeling involving complex issues; (2)

FSIS's need for more time for consultation internally and

with other agencies; (3) the food industry's declining need for

immediate label approval; and (4) the unfairness of face-toface to food producers who submit by mail rather than

through courier/expediter firms. See id. at 40,011.

On September 2, 1998, Hurson, a courier/expediter firm the

livelihood of which was threatened by the USDA's new rule,

filed a motion for a temporary restraining order against the

agency in the United States District Court for the District of

Columbia. In its initial complaint, Hurson alleged only that

USDA had violated the APA by abolishing face-to-face without engaging in notice-and-comment rulemaking. That statute obliges agencies to publish in the Federal Register notice

of a proposed rulemaking and to give interested parties the

opportunity to submit comments. See 5 U.S.C. s 553(b), (c)

(1994). USDA did not submit an answer, and simply moved

to dismiss. With the consent of both parties, the District

Court regarded Hurson's motion for injunctive relief and

USDA's motion to dismiss as motions for summary judgment.

USCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 3 of 12
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

After the parties had fully briefed the notice-and-comment

issue, but before the court had ruled on their cross-motions

for summary judgment, Hurson submitted an amended complaint (or, in the alternative, a motion seeking leave to amend

its complaint). Hurson proposed to add new allegations that

the USDA's elimination of face-to-face both was "arbitrary

and capricious" in violation of the APA and violated the

Constitution's Commerce Clause. The District Court denied

Hurson's motion as untimely, citing "the fact that Plaintiff

waited to amend his [sic] complaint until after full briefing of

dispositive motions." Having disposed of Hurson's substantive objections to USDA's elimination of face-to-face, the

District Court concluded that the agency's new rule was a

procedural one. It was, therefore, exempt from the APA's

notice-and-comment requirement.

This appeal followed.

II. DISCUSSION

A. Notice and Comment

Although federal agencies ordinarily must provide the public with notice of a proposed rule and the opportunity to

submit comments on it, see 5 U.S.C. s 553, the APA makes an

exception for, among others, "rules of agency organization,

procedure, or practice." Id. s 553(b)(A). This Court has

stressed that the " 'critical feature' " of a rule that satisfies

the so-called "procedural exception 'is that it covers agency

actions that do not themselves alter the rights or interests of

parties, although it may alter the manner in which the parties

present themselves or their viewpoints to the agency.' "

JEM Broad. Co. v. FCC, 22 F.3d 320, 326 (D.C. Cir. 1994)

(quoting Batterton v. Marshall, 648 F.2d 694, 707 (D.C. Cir.

1980)).

Hence in JEM, we concluded that the Federal Communication Commission's new "hard look" rules--under which the

Commission summarily would dismiss any flawed license application without allowing the applicant to correct its error,

see id. at 322-23--were procedural ones. "The critical fact

USCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 4 of 12
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

here," we emphasized, "is that the 'hard look' rules did not

change the substantive standards by which the FCC evaluates license applications, e.g., financial qualifications, proposed programming, and transmitter location." Id. at 327.

That the hard-look rules employed the same substantive

criteria as their predecessors, we concluded, was "fatal to

JEM's claim." Id.; accord National Whistleblower Ctr. v.

Nuclear Regulatory Comm'n, 208 F.3d 256, 262 (D.C. Cir.

2000) ("The disputed agency action in this case merely altered

a standard for the enforcement of filing deadlines; it did not

purport to regulate or limit the Center's substantive rights."),

petition for cert. filed, 69 U.S.L.W. 3234 (U.S. Sept. 13, 2000)

(No. 00-422).

The USDA's decision to eliminate face-to-face review is the

very sort of procedural measure the JEM Court had in mind,

for, by its very terms, the rule "will not change the present

system of labeling review," even though the "new procedure

will eliminate routine, daily, time-set, face-to-face appointments with courier/expediting firms." Elimination of Faceto-Face, 63 Fed. Reg. at 40,010. The agency's abolition of

face-to-face did not alter the substantive criteria by which it

would approve or deny proposed labels; it simply changed

the procedures it would follow in applying those substantive

standards.

Because the rule is procedural on its face--which Hurson

concedes, see Appellant's Reply Brief at 1 ("USDA devotes

the argument to showing that the challenged rule does not

change the substantive criteria for evaluating labels. But

appellant Hurson does not contend otherwise.")--appellant

attempts to characterize it as effectively substantive by pointing to its putatively severe consequences and its origins in a

"substantive value judgment." Neither effort is persuasive.

Hurson introduces some evidence that the elimination of

face-to-face approvals will burden food producers. (It also

introduces evidence suggesting that the rule would devastate

the courier/expediter industry, but the burden to couriers/expediters--which are not regulated parties under the rules--is

irrelevant.) Hurson repeatedly argues that food producers

need to have their labels approved in "minutes and hours,"

USCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 5 of 12
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

not, as it suspects will be the case under the USDA's new

rule, after waiting for "days, weeks, even months." Appellant's Brief at 24. It also cites the 180 objections to the new

rule lodged by entities representing the food industry, which,

it proposes, illustrate that food processors regard speedy

approval as "an essential cog in their output mechanism." Id.

at 25.

Hurson's allegation that the elimination of face-to-face will

produce a significant burden may or may not be empirically

true. As an initial matter, we question whether the food

processing industry truly regards the USDA's new rule as

especially burdensome. After all, this challenge is brought

not by a food processor, but by a courier/expediter firm.

Still, the District Court, as it was required to do on a motion

for summary judgment, properly viewed all factual inferences

in favor of Hurson. Cf. Fed. R. Civ. P. 56(c); Taylor v. FDIC,

132 F.3d 753, 762 (D.C. Cir. 1997).

But even if the USDA's elimination of face-to-face did

impose a substantial burden on food processors, that burden

would not convert the rule into a substantive one that triggers the APA's notice-and-comment requirement. Appellant

has cited no case in which this Court has required notice-andcomment rulemaking for an especially burdensome procedural rule. Nor could it, for we recognize that "the impact of a

rule has no bearing on whether it is legislative or interpretative...." American Postal Workers Union v. United States

Postal Serv., 707 F.2d 548, 560 (D.C. Cir. 1983); accord

Cabais v. Egger, 690 F.2d 234, 237 (D.C. Cir. 1982) ("Simply

because agency action has substantial impact does not mean

it is subject to notice and comment if it is otherwise expressly

exempt under the APA."). Indeed, "interpretative rules may

have a substantial impact on the rights of individuals."

American Postal Workers, 707 F.2d at 560. The same is true

of procedural rules. We conclude, therefore, that an otherwise-procedural rule does not become a substantive one, for

notice-and-comment purposes, simply because it imposes a

burden on regulated parties.

USCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 6 of 12
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Hurson's second argument--that notice-and-comment rulemaking is required given the rule's origin in a "substantive

value judgment"--is equally unavailing. The USDA's decision to eliminate face-to-face does, as Hurson alleges, encode

the substantive value judgment that the new label-approval

procedures will more readily promote its already-existing

goals of fairness and efficiency. But the fact that the agency's decision was based on a value judgment about procedural

efficiency does not convert the resulting rule into a substantive one. All decisions, to the extent that they derive from

reasons, necessarily are based on the value judgment that the

chosen option is better, in some relevant way, than its alternatives. We have, therefore, consistently recognized that

" 'agency housekeeping rules often embody a judgment about

what mechanics and processes are most efficient.' This does

not convert a procedural rule into a substantive one." National Whistleblower, 208 F.3d at 263 (quoting JEM, 22 F.3d

at 328).

Finally, Hurson proposes that this Court is bound by our

prior holding in National Association of Home Health Agencies v. Schweiker, 690 F.2d 932 (D.C. Cir. 1982), to conclude

that the USDA could eliminate face-to-face only through

notice-and-comment rulemaking. In that case, we found that

the Department of Health and Human Services was required

to engage in notice-and-comment rulemaking when it eliminated Medicare claimants' right to seek reimbursement directly from the agency's Secretary, and now required them to

submit their claims to regional intermediaries. See id. at

949-50.

Home Health Agencies is distinguishable. Unlike the rule

challenged in that case, which both eliminated claimants'

access to the HHS Secretary and transferred his authority to

issue reimbursements to other agency employees, the

USDA's rule does not change the agency personnel who will

be responsible for reviewing proposed labels. Rather, "[t]he

labeling review staff will continue to receive and approve

labels," even though they will no longer do so in face-to-face

meetings. Elimination of Face-to-Face, 63 Fed. Reg. at

40,010. The crucial element of Home Health Agencies is not

USCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 7 of 12
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

whether one has "face time" with agency staff members, but

which staffers have decisionmaking authority. Home Health

Agencies is thus consistent with our holding here, for the

same USDA staffers who reviewed labels under face-to-face

continue to review labels after that procedure's abolition.

Because the USDA's decision to eliminate face-to-face label

review was a "rule[ ] of agency organization, procedure, or

practice," 5 U.S.C. s 553(b)(A), we hold that the agency was

not required to do so through notice-and-comment rulemaking.

B. Amended Complaint

On November 10, 1998, Hurson attempted to amend its

complaint to supplement its notice-and-comment claim with

allegations that the USDA's elimination of face-to-face both is

arbitrary and capricious and violates the Constitution's Commerce Clause. The District Court disallowed the amendment, citing the fact that Hurson had not filed its motion until

after the parties had fully briefed their cross-motions for

summary judgment. USDA now proposes that the District

Court's refusal was within its discretion, and cites our pronouncement that, when a plaintiff seeks to amend "more than

a year after the filing of [its] initial complaint and after

dispositive motions had been filed and opposed," denying its

motion "does not appear to be an abuse of discretion."

Wilderness Soc'y v. Griles, 824 F.2d 4, 19 (D.C. Cir. 1987).

We conclude that, while the decision whether to permit

amendments ordinarily "is left to the discretion of the district

court," Gaubert v. Federal Home Loan Bank Bd., 863 F.2d

59, 69 (D.C. Cir. 1988), the District Court here erred because

Hurson was entitled to amend its complaint as a matter of

right.

The Federal Rules of Civil Procedure guarantee a plaintiff

an absolute right to amend its complaint once at any time

before the defendant has filed a responsive pleading. See

Fed. R. Civ. P. 15(a) ("A party may amend the party's

pleading once as a matter of course at any time before a

responsive pleading is served...."). In this case, the USDA

filed no answer, but only a motion to dismiss. We have

repeatedly clarified that a motion to dismiss is not a responUSCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 8 of 12
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

sive pleading for the purposes of Rule 15. See, e.g., Confederate Memorial Ass'n v. Hines, 995 F.2d 295, 299 (D.C. Cir.

1993) ("As a motion to dismiss is not ordinarily considered a

'responsive pleading' ... under Rule 15(a), appellants could

have amended their complaint as of right prior to the court's

decision on the motions." (citation omitted)); accord, Bowden

v. United States, 176 F.3d 552, 555 (D.C. Cir. 1999) ("At the

time Bowden sought to amend, the government had filed only

a motion to dismiss or in the alternative for summary judgment, which is not considered a responsive pleading."). Because Hurson therefore was entitled as a matter of right to

amend its complaint, it was error for the District Court to

refuse to consider its added claims.

But not all such errors require a remand. See Bowden, 176

F.3d at 555 ("Though erroneous, the district court's denial of

Bowden's motion to amend does not require a new trial.").

Rather, we recognize that a district court need not be made

to reconsider an amended complaint that fails to state a claim

upon which relief could be granted, or that would otherwise

fail as a matter of law. In other words, no remand is

necessary if the amended complaint would not survive a

motion to dismiss under Federal Rule of Civil Procedure

12(b)(6). Thus, in Confederate Memorial, we declined to

remand because the plaintiff's amended complaint "fail[ed] to

state a civil RICO claim" in that it failed to allege two

essential elements: "the existence of an enterprise" and "that

appellants suffered injury." Confederate Memorial, 995 F.2d

at 299, 300. And in Bowden, we likewise refused to remand

for a new trial based on the plaintiff's amended complaint,

which added demands for fees, compensatory damages, and a

jury trial, because the plaintiff was "not a prevailing party

entitled to attorneys' fees or compensatory damages" and

"had no right to trial by jury." Bowden, 176 F.3d at 555, 556.

As was true in Confederate Memorial, Hurson's Commerce-Clause claim would fail as a matter of law, because it

fails to allege the claim's essential elements. In order to

articulate a cognizable Commerce-Clause challenge, a plaintiff

must allege, at a minimum, that Congress has regulated an

activity that falls within none of the following three categoUSCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 9 of 12
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

ries: (1) the channels of interstate commerce; (2) the instrumentalities of interstate commerce; or (3) activities that have

a substantial relation to interstate commerce. See United

States v. Lopez, 514 U.S. 549, 558-59 (1995). Hurson's complaint neither contains nor even suggests any such allegation.

In fact, what Hurson styles as a Commerce-Clause claim is

unlike any Commerce-Clause claim this Court has ever encountered. Hurson does not allege that the statutes authorizing the USDA to regulate food labels exceed the scope of

Congress's authority under the Commerce Clause. (Nor

could it, if it wishes to remain in business, for if Congress

lacks the authority to regulate labeling, there is no need for

courier/expediter firms.) Instead, it alleges that the USDA's

elimination of face-to-face transgresses the Commerce Clause

because it imposes an undue burden on interstate commerce.

See Appellant's Brief at 31-34. Hurson's argument, in essence, is that the federal government may exercise its Commerce-Clause powers only in ways that promote the free flow

of interstate commerce. No court has ever recognized any

such claim for relief, nor do we now. Therefore, we do not

remand Hurson's Commerce-Clause claim as it would not

withstand a motion to dismiss in any event.

Hurson's arbitrary-and-capricious claim is a different matter. A plaintiff can state a claim that an agency's action was

"arbitrary, capricious, an abuse of discretion, or otherwise not

in accordance with law," 5 U.S.C. s 706(2)(A) (1994), in a

number of ways. Those include alleging that the agency

failed to articulate an adequate explanation for its new policy,

see, e.g., AT&T v. FCC, 974 F.2d 1351, 1355 (D.C. Cir. 1992),

and that it failed to consider factors made relevant by Congress, see, e.g., Motor Vehicle Mfrs. Ass'n v. State Farm Mut.

Auto. Ins. Co., 463 U.S. 29, 43 (1983).

It seems to this Court that Hurson's arbitrary-andcapricious claim is exceptionally weak. We harbor grave

doubts that it would be able to prevail on remand. Still, it

USCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 10 of 12
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

appears that Hurson has alleged all the elements necessary to

state a claim. In its amended complaint, it argued that:

The reasons for the challenged action, as stated by

Defendants in the notice, are patently pretextual, implausible, counter to the attendant facts, and show a failure to

consider important factors; and thus the defendants'

decision reflected by the Notice is arbitrary, capricious

and clearly erroneous.

Amended Complaint at 6. Whatever its substantive flaws,

Hurson's arbitrary-and-capricious claim would survive a

12(b)(6) motion to dismiss. If USDA did, in fact, fail to

proffer an adequate explanation for its decision to eliminate

face-to-face, or if it did in fact fail to consider factors deemed

relevant by Congress, a court could conclude that the agency

acted arbitrarily and capriciously.

Because Hurson had an absolute right to add an arbitraryand-capricious claim to its complaint, we therefore have no

alternative but to remand with instructions that it be permitted to amend its complaint to include that claim. The Court

would have the USDA realize that it could have avoided this

additional stage of litigation by doing no more than filing an

answer, or other responsive pleading.

In sum, the District Court erred in declining to allow

Hurson to amend its complaint to allege that the USDA's

elimination of face-to-face violates the Commerce Clause and

is arbitrary and capricious, because Hurson was entitled to

amend its complaint as a matter of right. Although the

Commerce-Clause claim would not survive a motion to dismiss, and therefore need not be remanded, Hurson alleges

the necessary elements of an arbitrary-and-capricious claim.

Hurson must, therefore, be permitted to amend its complaint

to include the latter claim.

III. CONCLUSION

We affirm the District Court's grant of summary judgment

on Hurson's notice-and-comment claim. We also affirm its

denial of Hurson's motion to amend its complaint to include a

USCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 11 of 12
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Commerce-Clause claim. We reverse the District Court's

denial of Hurson's motion to include an arbitrary-andcapricious claim in its complaint, and remand for further

proceedings.

It is so ordered.

USCA Case #99-5305 Document #551790 Filed: 10/24/2000 Page 12 of 12