b'Prepayment Authority Under the\nRural Electrification Act o f 1936\nSection 306A of the Rural Electrification Act of 1936, as amended, which authorizes bor\xc2\xad\nrowers of Federal Financing Banking loans to prepay those loans if private capital is\nused to replace the loan, does not preclude prepayment with funds obtained by means\nother than refinanced loans secured by existing Rural Electrification Act loan guaran\xc2\xad\ntees. In particular, prepayment may be made from internally generated funds.\nSection 306A does not authorize the issuance of regulations creating a priority in favor of\nborrowers who agree to prepay such loans with internally generated funds.\n\nMay 2, 1989\nM em orandum O p in io n fo r t h e G en er a l C o un sel\nD epartm en t o f t h e T reasury\n\nThis memorandum responds to your request of February 8, 1989, for\nthe opinion of this Office concerning the proper construction of section\n306A of the Rural Electrification Act of 1936 (the \xe2\x80\x9cRE Act\xe2\x80\x9d), as amended,\n7 U.S.C. \xc2\xa7 936a. This section authorizes borrowers of Federal Financing\nBank (\xe2\x80\x9cFFB\xe2\x80\x9d)1 loans guaranteed by the Rural Electrification Adminis\xc2\xad\ntration (\xe2\x80\x9cREA\xe2\x80\x9d) to prepay the loans if, inter alia, \xe2\x80\x9cprivate capital, with the\nexisting [REA] loan guarantee, is used to replace the loan.\xe2\x80\x9d 7 U.S.C. \xc2\xa7\n936a(a)(2). You have asked whether section 306A permits a borrower to\nprepay an FFB loan only if the borrower uses the proceeds of an REAguaranteed private refinancing loan to do so, or whether the statute also\nauthorizes prepayment with private capital generated by means other\nthan an REA-guaranteed refinancing loan, such as with internally gener\xc2\xad\nated funds. The General Counsels of the Department of Agriculture and\nthe Office of Management and Budget (\xe2\x80\x9cOMB\xe2\x80\x9d) have joined in your\nrequest for an opinion on this issue. See Letter for Douglas W. Kmiec,\nAssistant Attorney General, Office of Legal Counsel, from Christopher\nHicks, General Counsel, Department of Agriculture, (Feb. 9, 1989).\nIn addition, at the oral request of your Office and the Offices of the\nGeneral Counsels of the Department of Agriculture and OMB, we have\nexamined the legality of section 1786.6 of REA\xe2\x80\x99s draft regulations imple1 The FFB is an instrumentality and wholly-owned corporation of the United States 12 U.S C. \xc2\xa7\xc2\xa7 22812296\n\n116\n\n\x0cmeriting the most recent amendments to section 306A (the \xe2\x80\x9cDraft 1989\nREA Regulations\xe2\x80\x9d), which would, with respect to $300 million of the $500\nmillion of prepayment authority, create a priority in favor of borrowers\nwho agree to prepay their FFB loans with internally generated funds,\nrather than use privately refinanced loans backed by existing REA\nguarantees.2\nFor the reasons set forth below, we have concluded that section 306A\ndoes not preclude prepayment with funds obtained by means other than\nrefinanced loans secured by existing REA loan guarantees. We have also\ndetermined that the priority scheme proposed in the Draft 1989 REA\nRegulations would be inconsistent with Congress\xe2\x80\x99 intent to provide for\nFFB loan prepayment through private capital, irrespective of the manner\nin which the capital is generated.\nI. BACKGROUND\nSection 306 of the RE Act, 7 U.S.C. \xc2\xa7 936, authorizes the Administrator\nof REA to guarantee loans made by any legally organized lending agency.\nFFB is such an agency. 12 U.S.C. \xc2\xa7\xc2\xa7 2281-2296. Under FFB\xe2\x80\x99s program of\nlending to rural electric and telephone cooperatives, each borrower\nagrees in its promissory note that its FFB loan or any advance thereun\xc2\xad\nder may be prepaid by paying, in most cases, the \xe2\x80\x9cmarket value\xe2\x80\x9d of such\nloan or advance. See Letter for Douglas W. Kmiec, Assistant Attorney\nGeneral, Office of Legal Counsel, from Mark Sullivan III, at 1 n.5 (Feb. 8,\n1989). The market value requirement is intended to preserve for the FFB\nthe yield on each loan it makes.\nBeginning in July 1986, Congress enacted a series of statutory provisions\npermitting some borrowers of FFB loans guaranteed by REA to prepay such\nloans by paying the \xe2\x80\x9cpar value\xe2\x80\x9d of the loan (its outstanding principal balance\nplus accrued interest, if any), rather than the higher \xe2\x80\x9cmarket value\xe2\x80\x9d. On July\n2, 1986, Congress enacted the first such FFB loan prepayment measure as\npart of the Urgent Supplemental Appropriations Act, 1986, Pub. L. No. 99349, 100 Stat. 710, 713-14 (the \xe2\x80\x9c1986 Supplemental Appropriations Act\xe2\x80\x9d). An\nundesignated paragraph in that Act provided that an FFB borrower may\nprepay its loan by paying the outstanding principal balance due \xe2\x80\x9cusing pri\xc2\xad\nvate capital with the existing loan guarantee.\xe2\x80\x9d 100 Stat. at 713. To qualify for\npar prepayment under this provision, a borrower was required to certify\nthat its prepayment would result in \xe2\x80\x9csubstantial savings to its customers\xe2\x80\x9d or\n\xe2\x80\x9clessen the threat of bankruptcy of the borrower.\xe2\x80\x9d Id. The Secretary of the\nTreasury was authorized to disapprove any prepayments which, in his opin\xc2\xad\nion, would adversely affect the operation of the FFB. Id. at 713-14.\n2 The Agnculture Department has predicted that, as a result of this prionty, non-distressed borrowers\nseeking to prepay using REA-guaranteed pnvate refinancings would be precluded from prepaying any of\ntheir FFB loans. Draft 1989 REA Regulations at 14-15.\n\n117\n\n\x0cOn October 21, 1986, Congress continued this prepayment program by\nenacting the Omnibus Budget Reconciliation Act of 1986 (\xe2\x80\x9cOBRA 1986\xe2\x80\x9d),\nPub. L. No. 99-509, 100 Stat. 1874. Section 1011 of this Act substantially\nadopted the earlier prepayment provision, and with slight modification made\nit a permanent part of the RE Act, as section 306A 100 Stat. at 1875-76.\nSubsection (a)(2) of new section 306A provides, in pertinent part, that\na borrower may prepay its FFB loan \xe2\x80\x9cif ... private capital, with the exist\xc2\xad\ning loan guarantee, is used to replace the loan.\xe2\x80\x9d The borrower must cer\xc2\xad\ntify that any savings resulting from prepayment will be \xe2\x80\x9cpassed on to its\ncustomers or used to improve the financial strength of the borrower in\ncases of financial hardship.\xe2\x80\x9d 7 U.S.C. \xc2\xa7 936a(a)(3). Subsection (c) of the\nnew section 306A limited the Treasury Secretary\xe2\x80\x99s authority to disap\xc2\xad\nprove prepayments to amounts in excess of $2.0175 billion in aggregate\nprincipal prepayments in fiscal year 1987.3\nOn December 22, 1987, Congress adopted the Fiscal Year 1988\nContinuing Resolution, Pub. L. No. 100-202, 101 Stat. 1329, 1329-356 to\n357 (1987), which included the \xe2\x80\x9cRural Development, Agriculture, and\nRelated Agencies Appropriations Act, 1988\xe2\x80\x9d (the \xe2\x80\x9cFY 1988 Appropriations\nAct\xe2\x80\x9d). Section 633 of this Act authorized further prepayments pursuant to\nsection 306A of the RE Act and further curtailed the Treasury Secretary\xe2\x80\x99s\nauthority to disapprove prepayments by providing that such authority\ncould only be exercised after an aggregate of $2.5 billion in FFB loans had\nbeen prepaid. This enactment made no amendment to the language of\nsubsection (a) of section 306A.\nLater the same day, Congress enacted the Omnibus Budget Recon\xc2\xad\nciliation Act of 1987 (\xe2\x80\x9cOBRA 1987\xe2\x80\x9d), Pub. L. No. 100-203, 101 Stat. 1330,\n1330-20. Section 1401 of OBRA 1987 contained essentially the same\nauthorization for additional FFB prepayments contained in the FY 1988\nAppropriations Act and, like the 1988 Act, made no amendments to\nsection 306A(a) of the RE Act. Whereas the FY 1988 Appropriation Act\nhad, as permanent legislation, excepted from the Treasury Secretary\xe2\x80\x99s\ndisapproval authority prepayment amounts up to an aggregate of $2.5\nbillion, OBRA 1987 provided that, for fiscal year 1988, prepayments in\nexcess of a $2.0 billion aggregate were subject to disapproval by the\nSecretary.4\n3 It has been represented to us by the interested agencies that this figure represented Congress\xe2\x80\x99 esti\xc2\xad\nmate of the amount of high-interest FFB loans held by financially distressed borrowers. Similarly, in sub\xc2\xad\nsection (d)(2) of OBRA 1986 Congress required REA to establish \xe2\x80\x9celigibility criteria to ensure that any\nloan prepayment activity be directed to those cooperative borrowers in greatest need of the benefits\nassociated with prepayment.\xe2\x80\x9d 7 U S.C. \xc2\xa7 936a(d)(2) In its next enactment, an undesignated paragraph of\nthe Supplemental Appropriations Act, 1987, Pub. L No. 100-71, 101 Stat 391, 429, Congress permanent\xc2\xad\nly suspended the operation of section 306A(d)\n4 Sections 1401(b)(1) & (2) also established new priorities for prepayment: first, certain borrowers\nalready determined to be eligible pn or to OBRA 1987\xe2\x80\x99s enactment, followed by borrowers in the order in\nwhich they were prepared to disburse funds to the FFB to complete prepayment. 101 Stat at 1330-20\nThis priority provision expired at the end of fiscal year 1988.\n\n118\n\n\x0cSince the FY 1988 Appropriations Act permanently authorized $2.5 bil\xc2\xad\nlion of section 306A prepayments not subject to the Treasury Depart\xc2\xad\nment\xe2\x80\x99s approval, and OBRA 1987, in effect, limited the amount of par pre\xc2\xad\npayments authorized in fiscal year 1988 to $2.0 billion, there remained\nauthorization to make additional prepayments not subject to the\nTreasury Secretary\xe2\x80\x99s approval in an amount not in excess of $500 million\nat any time after the end of fiscal year 1988.\nOn October 1, 1988, Congress enacted the Fiscal Year 1989 Rural\nDevelopment, Agriculture, and Related Agencies Appropriations Act (the\n\xe2\x80\x9cFT 1989 Agriculture Appropriations Act\xe2\x80\x9d), Pub. L. No. 100^460, 102 Stat.\n2229 (1988). Section 637 of that Act, 102 Stat. at 2264, required that REA\nallocate $150 million of the remaining $500 million prepayment authority\nunder section 306A to borrowers in REA\xe2\x80\x99s telephone loan program and\n$350 million to borrowers in REA\xe2\x80\x99s electric loan program. REA circulated\nthe Draft 1989 REA Regulations to implement the statutory allocation\nbetween the REA telephone loan program and the REA electric loan pro\xc2\xad\ngram. Subsection (d) of section 1786.4 of the Draft 1989 REA Regulations\nwould authorize borrowers to use \xe2\x80\x9cInternally Generated Funds without a\nguarantee\xe2\x80\x9d to prepay FFB loans. Section 1786.3(a) of the regulations\nwould define \xe2\x80\x9cInternally Generated Funds\xe2\x80\x9d as \xe2\x80\x9cmoney belonging to the\nborrower other than (1) proceeds of loans made or guaranteed under the\nRE Act or (2) funds on deposit in the cash construction trustee account.\xe2\x80\x9d\nSection 1786.6(a) of the regulations would establish a priority for pro\xc2\xad\ncessing applications for par prepayments. This subsection provides that\nthe Administrator of REA will give a preference in processing prepayment\napplications to those applications from borrowers agreeing to use\nInternally Generated Funds to prepay their FFB loans. This preference will\nextend over all other prepayment applications except those applications\nsubmitted by \xe2\x80\x9cFinancially Distressed Borrowers.\xe2\x80\x9d Section 1786.6(a)(1).5\nREA states in the commentary appended to its regulations that it\nbelieves that the amount of prepayment applications\nreceived from financially distressed electric borrowers and\nfrom other electric and telephone borrowers wishing to uti\xc2\xad\nlize Internally Generated Funds in connection with a pre\xc2\xad\npayment, [sic] will exceed the $500 million available for\nprepayment without the approval of the Secretary of the\nTreasury.\n5 Section 1786 3(a) of the Draft 1989 REA Regulations defines \xe2\x80\x9cFinancially Distressed Borrowers\xe2\x80\x9d as\nfollows\n\xe2\x80\x9cFinancially Distressed Borrower" means an REA-financed electric system determined by\nthe Administrator to be either (i) in default or near default on interest or principal payments\ndue on loans made or guaranteed under the RE Act, and which is making a good faith effort\nto increase rates and reduce costs to avoid default, or (ii) participating in a work out or debt\nrestructuring plan with REA, either as the borrower being restructured or as a borrower pro\xc2\xad\nviding assistance as part of the work out or restructuring\n\n119\n\n\x0cDraft 1989 REA Regulations at 14-15. Because the Treasury Secretary has\napparently determined to disapprove any applications exceeding $500\nmillion in aggregate prepayments, the Draft 1989 REA Regulations could\neffectively preclude some borrowers from prepaying their FFB loans\nwith the proceeds of a new loan from private sources backed by an exist\xc2\xad\ning REA guarantee.\nII. USE OF INTERNALLY GENERATED FUNDS\n\nBy its terms, section 306A(a)(2) authorizes an FFB borrower to prepay\nits loan \xe2\x80\x9cif ... private capital, with the existing loan guarantee, is used to\nreplace the loan.\xe2\x80\x9d 7 U.S.C. \xc2\xa7 936a(2). The dispute between the Depart\xc2\xad\nments of Agriculture and the Treasury centers on the meaning of the\nphrase \xe2\x80\x9cwith the existing loan guarantee.\xe2\x80\x9d The Treasury Department\nreads this phrase as a restriction on the kind of private capital that an\nFFB borrower can use to prepay its loan. It argues that the phrase\nrequires that a borrower seeking to prepay an FFB loan replace the FFB\nloan with a privately refinanced loan secured by the borrower\xe2\x80\x99s REA\nguarantee. In other words, the Treasury Department maintains that under\nsection 306A an FFB borrower is authorized to use only REA-guaranteed\nrefinanced loan proceeds to prepay its FFB loan and is prohibited from\nusing, in whole or in part, any other form of private capital.\nThe Department of Agriculture argues that Congress intended a bor\xc2\xad\nrower to be able to prepay its FFB loan with any form of private capital,\nhowever generated or secured. The Agriculture Department contends\nthat the clause \xe2\x80\x9cwith the existing loan guarantee\xe2\x80\x9d was included in section\n306A merely to ensure that a borrower would be permitted to use its\nexisting REA guarantee if and to the extent needed to secure private refi\xc2\xad\nnancing. Under this construction, an FFB borrower is not compelled to\nrely exclusively, or even at all, on refinanced loans to prepay its FFB loan,\nbut may prepay with any combination of loan proceeds and internally\ngenerated funds, and whether or not the capital is guaranteed by REA.\nWe believe that neither of the proffered interpretations is dictated by\nthe statutory language. This is not a case where the \xe2\x80\x9cplain meaning\xe2\x80\x9d of the\nstatute compels acceptance of one construction over the other. Given the\nambiguity in the statutory language itself, we must resort to other indicia\nof Congress\xe2\x80\x99 intent \xe2\x80\x94 here, principally, the legislative history, the cir\xc2\xad\ncumstances surrounding enactment of the statute, and the statute\xe2\x80\x99s over\xc2\xad\nall purpose and internal logic.\nCongress enacted section 306A during a period of sharply declining\ninterest rates. See, e.g., 132 Cong. Rec. 12,678 (1986) (statement of Sen.\nBurdick). It was concerned that the high rates that had been charged on\nFFB loans in prior, inflationary years were contributing to a weakening of\nthe rural economy. See, e.g., id. at 12,680 (statement of Sen. Johnston). Its\nobvious purpose was to provide through section 306A relief to rural coop\xc2\xad\n120\n\n\x0ceratives and their customers by permitting such cooperatives to prepay\ntheir high-interest FFB loans without penalty. The right to prepay, how\xc2\xad\never, was explicitly conditioned on the use of \xe2\x80\x9cprivate capital,\xe2\x80\x9d not addi\xc2\xad\ntional public funds. See, e.g., id.-, id. at 12,682 (statement of Sen.\nAndrews).\nAs the legislative history shows, at the time of enactment of section\n306A, Congress assumed that most, if not all, borrowers would have to\ndepend, in whole or at least in part, on private refinancing loans to pre\xc2\xad\npay their FFB loans.6 This assumption is also evident in the statutory\nrequirement that a borrower certify that its prepayment would \xe2\x80\x9cresult in\nsubstantial savings to its customers or lessen the threat of bankruptcy to\nthe borrower." 1986 Supplemental Appropriation Act, 100 Stat. at 713\n(emphasis added). Congress also recognized that such needy borrowers\nwould have difficulty obtaining advantageous private loans unless they\ncould use as security their existing REA guarantees. Indeed, without the\nREA guarantees, needy borrowers would be effectively precluded from\navailing themselves of the section 306A prepayment opportunity.7\nCongress\xe2\x80\x99 overall design was thus to give FFB borrowers the right to\nprepay their FFB loans with private capital, but to make that right mean\xc2\xad\ningful by permitting them to use their existing REA guarantees to raise\nprivate funds. This broad relief was animated by two explicit congres\xc2\xad\nsional objectives \xe2\x80\x94 to strengthen the financial condition of the coopera\xc2\xad\ntives themselves, and to pass cost savings through to the cooperative\xe2\x80\x99s\ncustomers. See supra p. 117 (discussing certification requirements in\n1986 Supplemental Appropriations Act).\nGiven these congressional objectives, we think that the better inter\xc2\xad\npretation is that Congress simply meant to ensure in section 306A that\nborrowers could use their existing REA guarantees if they wished, and\nto the extent necessary, to secure private refinancing. Congress meant to\npermit borrowers to use their existing REA guarantees to the extent\nneeded to secure private capital; it did not command that borrowers pre\xc2\xad\nGSee, eg., 132 Cong Rec. 15,838 (1986) (statement of Sen. Cochran), id at 12,683 (statement of Sen.\nDomenici); id. at 12,678 (statement of Sen Burdick) Similar references appear in discussions of several\nof the later enactments See, e g , H.R. Rep. No. 195, 100th Cong., 1st Sess 79 (1987) (discussing the 1987\nSupplemental Appropnations Act); H R Rep No 391, 100th Cong., 1st Sess. pt. 1, at 17 (1987) (discussing\nOBRA 1987). Indeed, both Departments have represented to us that all FFB borrowers prepaying their\nFFB loans to date have prepaid using the proceeds of new loans obtained from private sources, and all\nsuch private loans have been guaranteed by the Administrator of REA using the existing guarantees.\n7 As the Agnculture Department notes, there were a number of reasons why Congress might have\nthought it necessary to include a directive to REA to provide guarantees to borrowers prepaying with\nrefinancing proceeds Congress may have supplied the mandate out of a belief that it was unclear in the\nabsence of such language that REA would even have had the authonty to transfer such guarantees, see\n7 U S C \xc2\xa7\xc2\xa7 904, 936; see also Letter for Douglas W Kmiec, Assistant Attorney General, Office of Legal\nCounsel, from Christopher Hicks, General Counsel, Department of Argriculture at 10 and n 35 (Feb 9,\n1989). Moreover, a mandate would have appeared necessary because both the Administration\xe2\x80\x99s objec\xc2\xad\ntions to the prepayment program and OMB\xe2\x80\x99s proscription of blanket guarantees of pnvate refinancings\ngave Congress no reason to expect that REA would exercise any statutory discretion to transfer existing\nguarantees. See OMB Circular A-70 at 8, H 10(b)(4) (rev Aug. 24, 1984).\n121\n\n\x0cpay their FFB loans exclusively with refinancing proceeds. The preposi\xc2\xad\ntional phrase \xe2\x80\x9cwith the existing loan guarantee\xe2\x80\x9d was included to effect\nonly this intent.\nThis construction of the section is fully supported by the language of\nthe statute itself. By its terms, subsection (a)(2) requires that \xe2\x80\x9cprivate\ncapital\xe2\x80\x9d be used to replace the FFB loan. The term \xe2\x80\x9ccapital\xe2\x80\x9d encompass\xc2\xad\nes many kinds of private funds, including debt, equity, and internally gen\xc2\xad\nerated funds. There is nothing in the subsection expressly limiting this\notherwise broad term to refinance proceeds. Had Congress intended the\nphrase \xe2\x80\x9cwith the existing loan guarantees\xe2\x80\x9d to require use of refinancing\nproceeds exclusively, we believe it almost certainly would have coupled\nthis language with a term of limitation, such as \xe2\x80\x9cloan proceeds,\xe2\x80\x9d rather\nthan with the inclusive term \xe2\x80\x9cprivate capital.\xe2\x80\x9d\nWe also find support for this interpretation in the fact that the phrase\n\xe2\x80\x9cwith the existing loan guarantee\xe2\x80\x9d was set off by commas when section\n306A was made a permanent part of the RE Act by OBRA 1986. Had\nCongress meant to limit the private capital that may be used to capital\nobtained by refinance, presumably it would have left the clause without\ncommas, as it originally stood in the first prepayment provision in the\n1986 Supplemental Appropriations Act. This amendment plainly strength\xc2\xad\nens the inference that Congress intended to give the term \xe2\x80\x9cprivate capi\xc2\xad\ntal\xe2\x80\x9d its widest possible interpretation and not to limit it by a requirement\nthat the capital be secured through refinancing.\nIn sum, we believe it is entirely natural to read the statutory phrase\n\xe2\x80\x9cwith the existing loan guarantee\xe2\x80\x9d as meaning simply that, when a bor\xc2\xad\nrower chooses to rely on refinancing for all or part of the \xe2\x80\x9cprivate capi\xc2\xad\ntal\xe2\x80\x9d used for prepayment, the borrower may secure that refinancing \xe2\x80\x9cwith\nthe existing loan guarantee.\xe2\x80\x9d\nThis reading of subsection (a)(2) is supported by the legislative histo\xc2\xad\nry. The Senate Appropriations Committee Report on the initial prepay\xc2\xad\nment provision in the 1986 Supplemental Appropriation states:\n[B]orrowers [could] prepay any or all loans with the [FFB],\nby payment of the full amount of the unpaid principal bal\xc2\xad\nance on such loan advances.... REA borrowers may prepay\nthese FFB loans only if they use private sector capital to\nmake these prepayments. Existing REA guarantees on loans\nto be prepaid will also guarantee loans from private capital\nsources for like amounts used for these prepayments.\nS. Rep. No. 301, 99th Cong., 2d Sess. 19 (1986). The language and struc\xc2\xad\nture of this passage strongly suggest that Congress intended the only con\xc2\xad\ndition to prepayment to be use of \xe2\x80\x9cprivate sector capital.\xe2\x80\x9d Here, as in the\nstatute itself, there is no suggestion that the only permissible form of pri\xc2\xad\nvate capital is loan proceeds. If Congress intended to impose the twin\n122\n\n\x0crequirements that private capital be used and that that capital be\nobtained through refinancing, it is only reasonable that it would have said\nso in the second sentence quoted above. The fact that the private capital\nrequirement and the REA guarantee carry over are addressed in separate\nsentences, and as separate, unrelated thoughts, further suggests that the\nlatter was not intended as a limitation on the former but rather as a sep\xc2\xad\narate mandate. Last, both the sequence and deliberate separation of the\nsecond and third sentences clearly suggest both that Congress regarded\n\xe2\x80\x9cloans from private capital sources\xe2\x80\x9d as but one of any number of forms of\n\xe2\x80\x9cprivate sector capital,\xe2\x80\x9d and that these loans were the particular form of\ncapital that must be eligible for REA guarantees.8\nFinally, we believe that the Department of Agriculture\xe2\x80\x99s construction\nis consistent with Congress\xe2\x80\x99 overall design in enacting section 306A.\nCongress\xe2\x80\x99 express purposes were to improve the financial condition of\ncooperatives and to achieve savings for the cooperatives\xe2\x80\x99 customers.\nRequiring private refinancing as the only permissible form of prepayment\nwould not appear to advance either of these goals. On the other hand,\npermitting a cooperative to use internally generated funds as part of its\nprepayment would effectuate the statute\xe2\x80\x99s purpose, yielding, in many\ncases, greater benefits of the kind sought by Congress.\nWe acknowledge that the Department of the Treasury\xe2\x80\x99s interpretation\nof subsection (a)(2) is by no means frivolous. On balance, however, we\nthink it is less plausible. First, the Treasury Department has offered and\nwe can discern no reason why Congress, given its broad remedial pur\xc2\xad\nposes, would have imposed a requirement that borrowers use refinancing\nas the exclusive means of prepayment. REA does not benefit financially\nor otherwise by guaranteeing such private sector loans; in fact, it is bur\xc2\xad\ndened to the extent of the contingent liabilities. See Letter for Benedict S.\nCohen, Senior Counsel, Department of Justice, from Terence M. Brady,\nDeputy Assistant General Counsel, Department of Agriculture at 3 (Apr.\n6, 1989). Nor does FFB benefit by any such requirement. More important,\nas noted above, such a limitation seems at odds with Congress\xe2\x80\x99 articulat\xc2\xad\ned objectives of strengthening the financial condition of cooperatives and\npassing benefits through to the cooperatives\xe2\x80\x99 customers, since prepay\xc2\xad\nment through refinancing would obviously be more costly to borrowers.\nAdditionally, the Treasury\xe2\x80\x99s construction would produce anomalous\nresults. Even under its interpretation, an FFB borrower that wanted to\nuse internally generated funds to prepay its loan could do so. The bor\xc2\xad\n8 Section 637 of the FY 1989 Agnculture Appropriations Act does not purport to amend the existing lan\xc2\xad\nguage of section 306A(a) of the RE Act with which we are here concerned Both Departments, however,\nhave directed us to the Conference Report accompanying the bill ultimately enacted as the FY 1989\nAgriculture Appropnations Act, which contains language purporting to interpret that provision See H.R\nConf. Rep No. 990, 100th Cong., 2d Sess. 38 (1988). As you have noted, such legislative statements sub\xc2\xad\nsequent to a statutory enactment cannot legitimately be relied upon in interpreting that prior enactment.\nSee generally Consumer Prod Safety Comm\'n v GTE Sylvama, Inc , 447 U S. 102, 117-18 & n.13 (1980).\n\n123\n\n\x0crower would simply use its REA guarantee to borrow funds from a pri\xc2\xad\nvate lender, prepay its FFB loan, and then immediately prepay the new\nprivate sector loan with internally generated funds. And borrowers that\nare prosperous enough to prepay with internally generated capital would\nbe required to take out unneeded loans, backed by unneeded REA guar\xc2\xad\nantees, before being permitted to use their capital for prepayment.\nWe have considered the possibility that Congress might have intended\nto require refinancing as a form of \xe2\x80\x9cmeans test\xe2\x80\x9d for prepayment \xe2\x80\x94 that is,\nas a means of ensuring that only financially distressed borrowers were\npermitted to prepay. This supposition, however, seems untenable for at\nleast two reasons. First, in the context of this very prepayment program,\nCongress has showed that, when it wished to target prepayment provi\xc2\xad\nsions to financially distressed borrowers, it did so explicitly. See 1986\nSupplemental Appropriations Act, 100 Stat. at 713-14 (undesignated para\xc2\xad\ngraph); section 1011 of OBRA 1986, 100 Stat. at 1875-76. It is thus unlike\xc2\xad\nly Congress would have relied on such indirect if not ambiguous means\nto effectuate the same purpose it elsewhere was accomplishing explicit\xc2\xad\nly in the same program. Second, the statute would be ineffectual as a\nmeans test. As noted above, a requirement that prepayment be made only\nby means of REA-guaranteed refinancings would not ensure that only dis\xc2\xad\ntressed borrowers participated in the program. Prosperous borrowers\ncould simply take out REA-guaranteed loans from private lenders to pre\xc2\xad\npay the FFB and then use internally generated capital to prepay the pri\xc2\xad\nvate loan. See Draft 1989 REA Regulations at 10-11 (1989).\nIII. THE REGULATORY PRIORITY\n\nAs noted above, as a result of several enactments modifying section\n306A of the RE Act, see supra, Part I at 117-19, only $500 million in FFB\nloans may be prepaid pursuant to section 306A without the approval of\nthe Secretary of the Treasury. By statute, $350 million of this prepayment\nauthority is reserved for rural electric cooperatives, and $150 million for\ntelephone cooperatives. See Section 637 of the FY 1989 Agriculture\nAppropriations Act, 102 Stat. at 2264. It is our understanding that the\nSecretary has determined to withhold his approval of any prepayments\nexceeding $500 million in aggregate.\nDraft Department of Agriculture regulations currently before OMB\nwould set aside for \xe2\x80\x9cFinancially Distressed Borrowers\xe2\x80\x9d9 $200 million of\nthe $350 million statutorily allocated for electrical cooperatives, and\nwould give processing priority to the applications of such borrowers.\nSection 1786.6(a). With respect to the remaining $150 million of the $350\nmillion allocated for prepayments by electrical cooperatives and the $150\nmillion allocated for prepayment by telephone cooperatives, the regula\xc2\xad\n9See supra, note 5\n\n124\n\n\x0ctions would give processing priority to the applications of borrowers who\nagree to prepay with \xe2\x80\x9cInternally Generated Funds,\xe2\x80\x9d defined as \xe2\x80\x9cmoney\nbelonging to the borrower other than: (1) proceeds of loans made or\nguaranteed under the RE Act or (2) funds on deposit in the cash con\xc2\xad\nstruction trustee account.\xe2\x80\x9d Sections 1786.6(a); 1786.3(a). The Department\nof Agriculture has predicted that prepayment applications by financially\ndistressed borrowers and borrowers using internally generated cash will\nexceed in the aggregate the $500 million prepayment authorization not\nsubject to the Treasury Secretary\xe2\x80\x99s approval. See Draft 1989 REA\nRegulations at 14-15. Because the Secretary has determined to disap\xc2\xad\nprove applications exceeding $500 million in aggregate, the priorities\nestablished by REA could determine whether some borrowers are per\xc2\xad\nmitted to prepay.10 You have asked us whether this priority is statutorily\npermissible. We believe that it is not.\nThe only borrower-specific requirement of section 306A(a)(2), as we\nconclude supra, is that prepayment be by use of \xe2\x80\x9cprivate capital.\xe2\x80\x9d\nCongress expressed no preference in the statute or its legislative history\nfor any particular means of prepayment; it did not prefer prepayment by\ninternally generated funds over funds generated through means of REAguaranteed refinancing, or vice versa.\nIn the face of statutory language equally permitting payment both by\ninternally generated funds and by the proceeds of REA-guaranteed refi\xc2\xad\nnancings, and a mandate to REA to carry over upon request REA guaran\xc2\xad\ntees to refinancing loans from private lenders, we think that imposition\nof a preference disadvantaging those who choose to use REA guarantees\nwould indeed be inconsistent with the statute. We fmd such a preference\nespecially troubling where, as here, by operation of the preference it is\npossible that some distressed borrowers, who were among the principal\nbeneficiaries of the prepayment program, might be precluded from pre\xc2\xad\npayment, given REA\xe2\x80\x99s prediction that the $500 million available for pre\xc2\xad\npayment without the approval of the Secretary of the Treasury will easi\xc2\xad\nly be exhausted. Draft 1989 REA Regulations at 14-15.\nIn the commentary section of the draft regulations, the Agriculture\nDepartment explains that the prepayment priority for Internally\nGenerated Funds, inter alia, \xe2\x80\x9cencourages borrowers to privatize, reduces\npotential future impacts on the Revolving Fund, ... make[s] it possible for\nall borrowers who apply to make such a prepayment to participate in the\nprogram without significantly increasing administrative burden on REA[;\nand] [i]n addition ... ensures that [the] amount of existing prepayment\nauthority not requiring the Secretary of the Treasury[\xe2\x80\x99s] approval will be\n10 In the commentary appended to the regulations REA has noted its intention that \xe2\x80\x9c(i]n the event that\nduring the application period REA does not receive prepayment applications totaling $150 million from\nelectnc borrowers desiring to use Internally Generated Funds or $150 million from telephone borrowers\ndesiring to use Internally Generated Funds REA intends to issued [sic] amended regulations establishing\nnew priority criteria and a new application period.\xe2\x80\x9d See Draft 1989 REA Regulations at 14-15\n\n125\n\n\x0cused in an economically efficient manner maximizing the benefits to all\nborrowers.\xe2\x80\x9d Draft 1989 REA Regulations at 17-18.\nIn an additional submission to us, the Department of Agriculture has\nfurther argued that the priority is justified because it would have the fol\xc2\xad\nlowing effects: lower costs to borrowers; faster prepayments; participa\xc2\xad\ntion by a larger number of borrowers; reduced regulatory burdens for\nborrowers and an associated diminished risk to REA; strengthening of\nthe Revolving Fund; and a reduction of the administrative burden upon\nREA. Memorandum for Benedict S. Cohen, Senior Counsel, Department\nof Justice, from Terence M. Brady, Deputy Assistant General Counsel,\nDepartment of Agriculture (Apr. 6, 1989). While all these administrative\nefficiencies of the prioritization may be laudable, we do not think that\nthey are sufficient to sustain regulations incompatible with the statute\nand its purposes.\nThis is not to say that any regulatory prioritization of prepayment\noffers would be impermissible. It is doubtful, for example, that a prioriti\xc2\xad\nzation based either upon date of filing or upon readiness to prepay would\nbe inconsistent with the statute.11 Either requirement would be neutral as\nto the borrowers eligible for prepayment and the means by which they\nwould make prepayment. Nor, we think, would a reasonable accommo\xc2\xad\ndation of distressed borrowers, such as that evidenced by the $200 mil\xc2\xad\nlion set aside for distressed electrical cooperatives, be prohibited, given\nCongress\xe2\x80\x99 particular concern for borrowers in financial hardship. See\nsupra text pp. 121. But any regulation that either distinguishes among\nborrowers based upon the particular means of prepayment, or that gives\npriority to non-distressed over distressed borrowers, except consistently\nwith later enactments,12would likely be suspect given the congressional\nintent discussed above.\nWILLIAM P. BARR\nAssistant Attorney General\nOffice of Legal Counsel\n\nJl In 1987 Congress itself established a pnonty based upon the order in which applicants for prepay\xc2\xad\nment were prepared to disburse funds to the Treasury. See Section 1401(b)(2) of OBRA 1987, 101 Stat at\n1330-20.\n12See, e.g., Section 637 of the FY 1989 Agriculture Appropriations Act, 102 Stat at 2264 (reservation of\nfunds for telephone borrowers).\n\n126\n\n\x0c'


b'Constitutionality of Regulatory Reform\nLegislation for Independent Agencies\nAlthough there is no constitutional impediment to the bill\xe2\x80\x99s requirement that independent regulatory\nagencies communicate their legislative and budgetary messages directly to the Congress without\nfirst clearing them with OMB, a uniform rule in the opposite extreme\xe2\x80\x94i.e., that no communication\nfrom an independent agency may be sent to OMB unless it is simultaneously sent to the Congress\xe2\x80\x94\nwould not adequately protect important interests of the Executive Branch. The congressional access\nprovisions of the bill would not affect the power of the President, or the agency acting on the\nPresident\xe2\x80\x99s behalf, to assert executive privilege, because in the absence of express language in the\nbill, it must be assumed that the bill does not constitute an attempted infringement of the constitutionally based privilege, which is available with respect to those functions of independent regulatory\nagencies that are of an executive or quasi-executive nature.\n\nSeptember 1, 1976\n\nMEMORANDUM OPINION FOR THE ASSISTANT ATTORNEY GENERAL\nOFFICE OF LEGISLATIVE AFFAIRS\nThis is in response to the request by Tom Boyd for the views of the Office of\nLegal Counsel on the Interim Regulatory Reform Act of 1976, S. 3308, 94th\nCong., as it passed the Senate on May 19, 1976. 122 Cong. Rec. 14,528\xe2\x80\x9334\n(1976).\nOur June 9 memorandum to you discussed the bill as it was introduced, when it\nmerely would have required agencies to submit proposals for the recodification of\ntheir existing regulations. This proposal is retained in section 4 of the bill,\nmodified and improved somewhat. However, the bill now also deals with such\nadditional matters as substantive law revision for the seven independent agencies\ninvolved,1 timely consideration of rulemaking petitions, congressional access to\nagency information, conduct of the agencies\xe2\x80\x99 civil litigation, protection of agency\npersonnel, conflicts of interest, and a limited waiver of sovereign immunity. Each\nof these provisions, except that dealing with substantive law revision, is patterned\nafter a virtually identical section of a law already in effect for one or another of the\nagencies. The effect of S. 3308 is therefore to extend these provisions to the seven\nagencies involved so that all will be on equal footing. We will discuss the\nproposals in order.2\n\n1\nAs introduced, S. 3308 applied to the Departments of Commerce and Transportation, Civil\nAeronautics Board (\xe2\x80\x9cCAB\xe2\x80\x9d), Interstate Commerce Commission (\xe2\x80\x9cICC\xe2\x80\x9d), Federal Trade Commission\n(\xe2\x80\x9cFTC\xe2\x80\x9d), Federal Communications Commission (\xe2\x80\x9cFCC\xe2\x80\x9d), Federal Maritime Commission (\xe2\x80\x9cFMC\xe2\x80\x9d),\nand Consumer Product Safety Commission (\xe2\x80\x9cCPSC\xe2\x80\x9d). Id. \xc2\xa7 3 (as introduced Apr. 13, 1976). The two\ndepartments have now been dropped from the bill and the Federal Power Commission (\xe2\x80\x9cFPC\xe2\x80\x9d) has\nbeen added. Id. (as amended May 19, 1976); 122 Cong. Rec. 14,528.\n2\nRules recodification, law revision, and protection of agency personnel are dealt with in sections 4,\n5, and 9, respectively. Each of the remaining provisions listed in the text is the subject of a separate\nsection of the bill. However these sections (6, 7, 8, 10, and 11) apply only to the FTC, FCC, FPC, and\n\n397\n\n\x0cSupplemental Opinions of the Office of Legal Counsel in Volume 1\n\nI. Rules Recodification\nThis section (\xc2\xa7 4) applies to all seven agencies. It would require the chairman\nof each agency, within 360 days after the Act is passed, to prepare and submit to\nthe Congress and to the Administrative Conference of the United States an initial\nproposal setting forth a recodification of all the rules which the agency has issued\nand which are in effect or proposed as of the date of submission. S. 3308, \xc2\xa7 4(a).\nThe recodification is to be only \xe2\x80\x9ctechnical\xe2\x80\x9d\xe2\x80\x94i.e., a streamlining or simplification\nof existing rules to make them more understandable and capable of effective and\nfair enforcement. The bill expressly provides that the recodified rules \xe2\x80\x9cshall not be\nat variance, in any substantive respect, with the text of the rules of the agency\ninvolved which are in effect or proposed as of the date of such submission.\xe2\x80\x9d Id.\nSee also S. Rep. No. 94-838, at 2\xe2\x80\x933 (1976) (\xe2\x80\x9cSenate Report\xe2\x80\x9d). After studying the\ncomments and recommendations of the Administrative Conference and others, the\nchairman of each agency must submit to the Congress a final proposal for\nrecodification of the agency\xe2\x80\x99s rules, which will take effect 90 days after this final\nsubmission. S. 3308, \xc2\xa7 4(c). The provisions for judicial review in chapter 7 of\ntitle 5, United States Code, are expressly made applicable to the repromulgated\nrules. S. 3308, \xc2\xa7 4(e).\nAlthough section 4 as it passed the Senate does not contain several of the defects we identified in the original version of S. 3308, we still have reservations\nabout it:\nThe term \xe2\x80\x9crule\xe2\x80\x9d is defined in section 4(f) of the bill in language that to some\nextent parallels the definition of the term in 5 U.S.C. \xc2\xa7 551(4) (Supp. V 1975).\nHowever, the term also includes \xe2\x80\x9cany general statement of policy, and any\ndetermination, directive, authorization, requirement, designation, or similar such\naction,\xe2\x80\x9d but not an \xe2\x80\x9corder\xe2\x80\x9d as defined in 5 U.S.C. \xc2\xa7 551(6) (1970). The express\nexclusion of \xe2\x80\x9corders\xe2\x80\x9d from the definition is unnecessary, and it is not clear what is\ncovered by the additional phrase just quoted.\nMoreover, the definition of the term \xe2\x80\x9crule\xe2\x80\x9d encompasses many agency determinations\xe2\x80\x94such as \xe2\x80\x9cthe approval or prescription for the future of rates, wages,\ncorporate or financial structures or reorganizations thereof, prices, facilities,\nappliances, services or allowances therefor, or valuation, costs, or accounting\xe2\x80\x9d\xe2\x80\x94\nwhich affect a limited number of parties and are not ordinarily codified in the\nCode of Federal Regulations. Yet sections 4(a) and 4(c) require the agency to\nprepare initial and final proposals \xe2\x80\x9csetting forth a recodification of all of the rules\nwhich such agency has issued and which are in effect or proposed\xe2\x80\x9d (emphasis\nadded). Perhaps this means that the agencies must review and repromulgate only\n\nCPSC. Sections 12\xe2\x80\x9314 each deal with one of the three other agencies, so that all remaining matters\naffecting the CAB, ICC, or FMC are included in one section. The substance of the proposals as to each\nof the three is largely the same as that set forth in the earlier sections. The CAB, ICC, and FMC were\nseparated out because they are not subject to the jurisdiction of the House Commerce Committee.\n\n398\n\n\x0cConstitutionality of Regulatory Reform Legislation for Independent Agencies\n\nthose rules which have already been codified. It would be advisable to make this\nqualification explicit, however, or at least to limit the definition of the term \xe2\x80\x9crule\xe2\x80\x9d\nin section 4(f) to matters of general applicability.3 In our view, the Department\nshould not endorse any proposal which would require the agencies to reexamine\nand codify all previously promulgated rules of particular applicability.\nThe bill directs the chairman of each independent agency to \xe2\x80\x9cdevelop, prepare,\nand submit\xe2\x80\x9d the initial and final proposal for the technical recodification of the\nagency\xe2\x80\x99s rules. S. 3308, \xc2\xa7 4(a), (c). However, because the proposals will contain\nrevisions of the agency\xe2\x80\x99s governing rules, which must ordinarily be approved by a\nvote of all the members of the commission or board, we assume that the chairman\nis to submit the agency\xe2\x80\x99s proposals only after they have been approved by the\ncommission or board.\nSection 4(e) provides that the text of the initial and final proposals must be\npublished in the Federal Register and that written comments are to be invited on\nthem. Solicitation of comments makes sense with respect to the initial plan, which\nis in the nature of a notice of proposed rulemaking, but we see no reason to\nprovide another opportunity for public comment on the final proposal.\nWe also question the advisability of the provision for judicial review in section\n4(e). Presumably there was an opportunity for judicial review of the substantive\ncontent of the agency\xe2\x80\x99s existing rules when they were first promulgated. Because\nthe recodification is to be only technical, judicial review of the substance of the\nnew rules is unnecessary. Furthermore, a court has no particular expertise to\ndetermine whether an agency should have gone further in simplifying and\nconsolidating its rules. That is essentially a legislative-type determination to be\nmade by the agency and the Congress. And if there were any question as to\nwhether a given change was in fact merely technical, a court in a later case would\nno doubt construe and apply the new rule in such a way that it would not be at\nvariance in any substantive respect with its predecessor. Judicial review of the\nrecodified rules will therefore serve no legitimate purpose, and it could lead to\ndelay and confusion as to the force of the recodified rules pending review.\nFinally, we doubt whether the possible benefits of simplification of agency\nrules\xe2\x80\x94assuming they materialize\xe2\x80\x94will outweigh the costs involved in the\nrecodification process. Agency personnel and those subject to the agency\xe2\x80\x99s\njurisdiction are familiar with the regulations as they are presently written and\ncodified. The transition period will introduce considerable uncertainty. It is also\npossible that the proposed \xe2\x80\x9ctechnical\xe2\x80\x9d recodification will divert attention from the\nmore profound assessment of the agency\xe2\x80\x99s functions contemplated in section 5 of\n3\nIn this connection, we note that section 1 of S. 796, 94th Cong. (as introduced Feb. 22, 1975),\nwhich is based on recommendations of the American Bar Association (\xe2\x80\x9cABA\xe2\x80\x9d) and the Administrative\nConference, would exclude matters of particular applicability from the definition of \xe2\x80\x9crule\xe2\x80\x9d under the\nAdministrative Procedure Act, 5 U.S.C. \xc2\xa7\xc2\xa7 551\xe2\x80\x93559, and include them in the definition of a new term,\n\xe2\x80\x9crate-making and cognate proceedings.\xe2\x80\x9d\n\n399\n\n\x0cSupplemental Opinions of the Office of Legal Counsel in Volume 1\n\nS. 3308. In fact, major portions of the recodification could be rendered moot by\nthe substantive law revision, if it is adopted. However, the ultimate wisdom of\nsection 4 involves questions of policy on which this office defers to the seven\nagencies involved.\nII. Law Revision\nEach of the seven agencies is directed by section 5(a) of S. 3308 to conduct a\nfull review of the statutory and case law relating to the agency and to make\nrecommendations to the Congress for revision and codification of the statutes and\nother lawful authorities administered by or applicable to it, including repeals or\namendments \xe2\x80\x9cas such agency feels may better serve to enhance commerce and\nprotect consumers.\xe2\x80\x9d The purpose of the study and recommendations is to facilitate\ncongressional consideration of regulatory reform and to clarify, simplify, and\nimprove applicable law, both substantively and technically.\nThe chairman, upon the approval of a majority of the members, would appoint\na director to supervise the agency\xe2\x80\x99s law revision activities and to serve as the\nagency\xe2\x80\x99s reporter, S. 3308, \xc2\xa7 5(b), and he would also appoint an Advisory\nCommittee on Law Revision comprised of \xe2\x80\x9cindividuals who by reason of\nknowledge, experience, or training are especially qualified to assist in such law\nrevision,\xe2\x80\x9d id. \xc2\xa7 5(c). Section 5(e) requires the chairman to submit a preliminary\nreport on law revision to the President and Congress within one year after the bill\nis passed and an interim and final report within two and three years of passage,\nrespectively. The latter two reports would include an analysis of the economic and\nother consequences of the revision and codification and a discussion of alternatives considered.4\nIt is somewhat dubious that proposals for regulatory reform will be made in an\nobjective and thorough manner when they are developed under the control of the\nvery agencies sought to be reformed. For example, none of the agencies would be\nlikely to propose that it cede jurisdiction in certain matters to another body, or that\nCongress provide for deregulation in a sector of the economy which would result\nin a significant diminution of the agency\xe2\x80\x99s role. Also, S. 3308 does not contemplate reports from or about other agencies or executive departments whose\nfunctions are related to those of the seven dealt with in the bill and which would\ntherefore be affected by the substantive law revision. By way of contrast, S. 3428,\n94th Cong. (as introduced May 13, 1976), an administration bill, would require the\nPresident to submit regulatory reform proposals to the Congress which cut across\nagency and departmental lines and cover entire sectors of the economy, such as\n\n4\nA similar but less elaborate law revision requirement is currently applicable to the ICC by virtue\nof section 312 of the Railroad Revitalization and Regulatory Reform Act of 1976, Pub. L. No. 94-210,\n90 Stat. 31, 60 (\xe2\x80\x9cRRRRA\xe2\x80\x9d). See Senate Report at 82\xe2\x80\x9383. This provision would be repealed by section\n13(a) of S. 3308.\n\n400\n\n\x0cConstitutionality of Regulatory Reform Legislation for Independent Agencies\n\ntransportation, agriculture, mining, manufacturing, finance, and communications.\nHowever, whether or not this broad ranging approach is preferable to the more\ncompartmentalized study called for in S. 3308 involves questions of policy on\nwhich this office takes no position.\nWe do have one technical suggestion, however. It may be desirable to include\nin section 5(c) an authorization for compensation for the members of the Advisory\nCommittees.\nIII. Timely Consideration of Petitions\nSections 6, 12(a) and 14(a) of S. 3308 would amend the organic acts of the\nFTC, FCC, FPC, CAB, and FMC5 to require these agencies to grant or deny\npetitions filed under 5 U.S.C. \xc2\xa7 553(e) (1970) within 120 days and to publish the\nreasons for each denial in the Federal Register. If the agency denies the petition or\nfails to act on it within 120 days, the petitioner would be entitled to bring a civil\naction for an order directing the agency to initiate a proceeding to take the action\nrequested in the petition. To obtain such an order, however, the petitioner would\nbe required to demonstrate (by a preponderance of the evidence in the record\nbefore the agency, or, if the agency had failed to act, in a \xe2\x80\x9cnew proceeding\xe2\x80\x9d before\nthe court) that the failure to grant the petition was arbitrary and capricious, that the\naction requested in the petition is necessary, and that the failure to take the action\nrequested in the petition \xe2\x80\x9cwill result in the continuation of practices which are not\nconsistent with or in accordance with\xe2\x80\x9d the agency\xe2\x80\x99s organic act or any other act\nadministered by the agency or applicable to it. However, a court would have no\nauthority to compel the agency to take any action other than the initiation of a\nproceeding for the issuance, amendment, or repeal of an order, rule, or regulation.\nSomewhat similar provisions are already in effect for the CPSC, see 15 U.S.C.\n\xc2\xa7 2059 (Supp. V 1975), and for the ICC with respect to common carriers by\nrailroad, see 49 U.S.C. \xc2\xa7 13(6) (as added by RRRRA, supra note 4, \xc2\xa7 304(b), 90\nStat. at 52). S. 3308 therefore contains no new provision regarding rulemaking\npetitions filed with the CPSC, and section 13(b) merely extends to all ICC matters\nthe provisions for the timely consideration of petitions that are now applicable\nonly to those involving common carriers by railroad.\nThe Administrative Procedure Act (\xe2\x80\x9cAPA\xe2\x80\x9d), 5 U.S.C. \xc2\xa7 553(e), now provides\nthat \xe2\x80\x9c[e]ach agency shall give an interested person the right to petition for the\nissuance, amendment, or repeal of a rule.\xe2\x80\x9d By letter dated April 26, 1976, from\nAssistant Attorney General Uhlmann to Senator Eastland, the Department opposed\nthe enactment of S. 3123, 94th Cong. (as introduced Mar. 10, 1976), which would\nhave amended 5 U.S.C. \xc2\xa7 553(e) to provide that an agency must either deny such a\npetition or initiate the requested rulemaking proceeding within 60 days of the\n\n5\n\nIn the case of the FMC, \xe2\x80\x9corganic act\xe2\x80\x9d refers to Reorganization Plan 7 of 1961, 75 Stat. 840.\n\n401\n\n\x0cSupplemental Opinions of the Office of Legal Counsel in Volume 1\n\nreceipt of the petition. It was pointed out in the letter that 5 U.S.C. \xc2\xa7 555(b) and\n(e) (1970) already impose an obligation on agencies to act on such petitions in a\nreasonable time and that a person aggrieved by an agency\xe2\x80\x99s delay in acting on a\npetition would appear to have a right to seek judicial review under 5 U.S.C.\n\xc2\xa7 706(1) (1970) to compel the agency to decide whether to deny the petition or\ninitiate rulemaking. The court cannot now, and could not under S. 3123, address\nthe merits of the petition or direct the agency to initiate the requested rulemaking\nproceeding.\nS. 3308 is in certain limited respects an improvement over S. 3123, because it\nwould allow the agencies 120 rather than 60 days to take action on petitions,\nS. 3308 \xc2\xa7\xc2\xa7 6, 12(a), 14(a), and because it would not amend 5 U.S.C. \xc2\xa7 553(e) and\nthereby impose a rigid deadline on all departments and agencies covered by the\nAPA. Moreover, only the person who files the petition could seek judicial review\nof the agency\xe2\x80\x99s denial or failure to act on his petition. The generally applicable\njudicial review section of the APA (5 U.S.C. \xc2\xa7 702 (1970)), on the other hand,\nallows any person suffering legal wrong because of agency action or adversely\naffected or aggrieved within the meaning of a relevant statute to seek judicial\nreview. Nevertheless, there may still be some question as to whether a fixed\ndeadline is appropriate. The FPC, FCC, CAB and FMC opposed the provision in\ntheir letters to the Senate Commerce Committee regarding S. 3308. See Senate\nReport at 65, 67, 71, 78.\nWhatever may be the merits of the fixed deadline provided for in S. 3308,\nhowever, we recommend that the Department oppose the bill\xe2\x80\x99s judicial review\nprovisions. The bill would require a court to determine whether the action\nrequested in a petition is \xe2\x80\x9cnecessary\xe2\x80\x9d and whether the agency\xe2\x80\x99s failure to take the\naction will result in the continuation of practices which are not consistent with the\nagency\xe2\x80\x99s responsibilities. Id. \xc2\xa7\xc2\xa7 6(a)(1), 6(b), 6(c), 12(a), 14(a). These are\nsubstantive determinations of a kind ordinarily reserved to the agency. Yet, having\nmade a decision which is tantamount to a decision on the merits of the petition, a\ncourt could do no more than remand the matter to the agency for another exploration of the same issues in rulemaking proceedings. Notwithstanding the statement\nin the Senate Report that the bill does not make \xe2\x80\x9cadministrative expertise subservient to the orders of the judiciary,\xe2\x80\x9d id. at 5, it is our opinion that this judicial review procedure would seriously undermine the independence of the agencies\ninvolved. An agency would be most reluctant to refuse to take the action requested\nin a petition after a reviewing court has already determined that such action is\n\xe2\x80\x9cnecessary\xe2\x80\x9d and that the failure to take the action is not consistent with the agency\xe2\x80\x99s goals. As a result, judicial review, which would frequently be made on an\nincomplete record and without the benefit of the agency\xe2\x80\x99s expertise, would give\nthe appearance of pre-judging the merits of the petition for the agency and thereby\ncasting doubt on the integrity of subsequent agency proceedings.\nQuite aside from public pressures and problems of appearances resulting from\nthe timing of judicial review, the bill has the added disadvantage of forcing a court\n\n402\n\n\x0cConstitutionality of Regulatory Reform Legislation for Independent Agencies\n\nto second-guess the agency on the allocation of its scarce resources among various\nadministrative proceedings and other agency functions. As a practical matter, the\nreviewing court might also be forced to consider each petition in isolation, without\ngiving due regard to related proceedings or the agency\xe2\x80\x99s long-term goals.\nThe provisions for the timely consideration of petitions in S. 3308 were patterned after 15 U.S.C. \xc2\xa7 2059, see Senate Report at 4, which permits a district\ncourt to order the CPSC to initiate rulemaking proceedings if the petitioner can\ndemonstrate to the court that the consumer product involved \xe2\x80\x9cpresents an unreasonable risk of injury\xe2\x80\x9d and that the failure of the CPSC to initiate rulemaking\nproceedings \xe2\x80\x9cunreasonably exposes the petitioner or other consumers to a risk of\ninjury presented by the consumer product,\xe2\x80\x9d 15 U.S.C. \xc2\xa7 2059(e)(2). It may be\nquestioned whether a court should second-guess the CPSC on such a matter, but at\nleast a court\xe2\x80\x99s intervention is limited to situations which pose a significant threat\nof injury. In such cases, the interference with the independent judgment of the\nCPSC may be thought to be out-weighed by an overriding public interest in safety.\nAn overriding public interest of this type is not present in most matters coming\nbefore the other agencies covered by S. 3308. Thus, the CPSC provision is not\nnecessarily a precedent for the present bill.\nIt might be argued, of course, that the independence of the agencies is preserved in S. 3308 by the added requirement that a court may not direct an agency\nto commence rulemaking proceedings unless it concludes that the agency acted\narbitrarily and capriciously in denying the petition or failing to act on it. We doubt\nthat this will be the effect. If the court determines that the action requested in the\npetition is necessary and that the failure to take the action would not be consistent\nwith the act administered by the agency, the court would be hard-pressed to\nconclude that the agency\xe2\x80\x99s denial or failure to act was nevertheless not arbitrary\nand capricious.\nFinally, we have some questions about the evidence on which the reviewing\ncourt must base its decision. The relevant sections of the bill provide that the\ndecision is to be based on \xe2\x80\x9ca preponderance of the evidence in the record before\nthe [agency] or, in an action based on a petition on which the [agency] failed to\nact, in a new proceeding before such court.\xe2\x80\x9d S. 3308, \xc2\xa7\xc2\xa7 6, 12(a), 14(a). There is\nnow no requirement in the APA that a decision whether to grant or deny a petition\nbe made on the basis of a record developed before the agency and that an agency\xe2\x80\x99s\ndenial be substantiated by such a record. This makes sense, because the agency\xe2\x80\x99s\ndetermination as to whether to initiate rulemaking proceedings depends not merely\non the \xe2\x80\x9cfacts\xe2\x80\x9d pertinent to the petition, but also on broader policy, budgetary, and\nrelated considerations which it would often be unnecessarily wasteful to reduce to\nwriting in each case. The effect of S. 3308, then, would be to force the agency to\ngo to the added expense of preparing an administrative record in a kind of minirulemaking proceeding so that its denial of a petition will be supported by the\npreponderance of the evidence in the record. Again, while this result might be\n\n403\n\n\x0cSupplemental Opinions of the Office of Legal Counsel in Volume 1\n\nacceptable for the CPSC because of public safety considerations, there is far less\njustification for it with respect to the other agencies covered by the bill.\nFor these reasons, we believe that the provisions for judicial review raise far\nmore problems than they would solve. In our view, judicial review of the type now\navailable to compel an agency to make a decision whether to grant or deny a\npetition is as far as the bill should go in this area.\nIV. Congressional Access to Information\nA.\nSections 7, 12(a) and 14(a) of S. 3308 would have the effect of establishing a\nuniform requirement that the agencies transmit to the Congress copies of budget\ninformation, legislative recommendations, testimony for congressional hearings,\nand comments on legislation at the same time that such materials are submitted to\nthe President or to the Office of Management and Budget (\xe2\x80\x9cOMB\xe2\x80\x9d). The sections\nfurther provide that no officer and no other agency of the United States shall have\nauthority to require the agency to submit its legislative recommendations,\ntestimony, or comments for approval, comments, or review prior to their submission to Congress. Provisions of this type are already applicable to the CPSC under\n15 U.S.C. \xc2\xa7 2076(k) (Supp. V 1975), enacted in 1972, and to the ICC by virtue of\nsection 201(j) of the Budget and Accounting Act of 1921, 31 U.S.C. \xc2\xa7 11(j) (as\nadded by RRRRA, supra note 4, \xc2\xa7 311, 90 Stat. at 60). A similar provision applicable to the FTC was also included in section 4 of S. 2935, as it passed the Senate\non March 18, 1976. See 122 Cong. Rec. 7203 (1976); Senate Report at 5\xe2\x80\x936, 86.\nUnder existing law, the Secretary of the Treasury, the Director of OMB, and\nthe heads of \xe2\x80\x9cexecutive agencies\xe2\x80\x9d (which in this context presumably includes\nindependent regulatory agencies) must, upon request, furnish a committee of either\nHouse of Congress, the Comptroller General, or the Director of the Congressional\nBudget Office information as to the \xe2\x80\x9clocation and nature of available fiscal,\nbudgetary, and program-related data and information.\xe2\x80\x9d 31 U.S.C. \xc2\xa7 1153(a)(1)\n(Supp. V 1975). This provision would appear to require the head of a department\nor agency to furnish Congress with the budgetary proposal that the department or\nagency has transmitted to OMB, although this Department\xe2\x80\x99s administrative\ncounsel has construed the provision to compel the furnishing of the Department\xe2\x80\x99s\nbudgetary data to Congress only after OMB has completed the overall budget\nprocess. This is apparently OMB\xe2\x80\x99s position as well. See OMB Circular No. A-10,\n\xc2\xa7\xc2\xa7 3\xe2\x80\x934. OMB Circular A-19 requires independent agencies to clear their legislative proposals through OMB, although section 7(g)(2) of the Circular permits such\nreports to be submitted without approval where time limits require.\nThus, the effect of S. 3308 would be to alter the time at which Congress could\nobtain copies of budget and legislative materials prepared by the seven independent agencies and to make them available to Congress without OMB clearance or a\n\n404\n\n\x0cConstitutionality of Regulatory Reform Legislation for Independent Agencies\n\nformal request from the Congress. The bill would not lift the present requirement\nthat agencies\xe2\x80\x99 budgetary and other materials be submitted to OMB as well. Thus,\nthe Executive Branch will be informed of all agency transmissions to Congress\nand will be able to counter them through its own recommendations, testimony, and\ncomments.\nIn general, we see no constitutional impediment to the requirement that independent regulatory agencies communicate their legislative and budgetary messages directly to the Congress without first clearing them with OMB. In Humphrey\xe2\x80\x99s\nExecutor v. United States, 295 U.S. 602, 629\xe2\x80\x9331 (1935), the Supreme Court held\nthat Congress could establish a regulatory agency, in that case the FTC, and insure\nits independence from Executive Branch control by establishing a fixed term for\nits members and providing that such members could be removed only for inefficiency, neglect of duty, or malfeasance in office. In our view, Congress may\nlegitimately conclude that a uniform practice of clearing all communications with\nCongress through OMB might undermine the agencies\xe2\x80\x99 intended independence\nfrom the Executive Branch. See Senate Report at 5\xe2\x80\x936.\nOn the other hand, a uniform rule in the opposite extreme\xe2\x80\x94i.e., that no communication from an independent agency may be sent to OMB unless it is simultaneously sent to the Congress\xe2\x80\x94would not adequately protect important interests of\nthe Executive Branch. For example, we do not believe that independent agencies\nshould be permitted to transmit to Congress copies of comments they have\nprepared on legislation or reports drafted by executive departments before the\nlegislation or reports have themselves been transmitted to Congress. The departments\xe2\x80\x99 draft legislation and reports are subject to review by OMB prior to\nsubmission to Congress. This measure of Executive Branch control\xe2\x80\x94which has\nconstitutional underpinnings in the duty of the President to \xe2\x80\x9cfrom time to time give\nto the Congress Information of the State of the Union, and recommend to their\nConsideration such Measures as he shall judge necessary and expedient,\xe2\x80\x9d U.S.\nConst. art. II, \xc2\xa7 3\xe2\x80\x94would be lost if copies of independent agency comments made\navailable to Congress disclosed the substance of the Executive Branch proposals\nwhile the proposals were still in their formative stage. In our view, the same\nprinciple applies when draft legislation, reports, or comments prepared by an\nindependent agency relate to other important interests of the Executive Branch, as\nmight be the case, for example, with a proposal to take jurisdiction in a certain\narea away from an executive department or to alter the application of civil service\nlaws to the agency\xe2\x80\x99s personnel.\nB.\nThe other feature of sections 7, 12, 13 and 14 of S. 3308 having to do with\ncongressional access to agency information directs each agency, whenever a duly\nauthorized committee having responsibility for authorizations or appropriations for\nthe agency makes a written request for documents in the possession or subject to\n\n405\n\n\x0cSupplemental Opinions of the Office of Legal Counsel in Volume 1\n\nthe control of the agency, to submit such documents (or copies thereof) to the\ncommittee within 10 days of the request. The bill prescribes no sanctions for an\nagency\xe2\x80\x99s failure to comply, nor does it contain any other means of enforcement,\nalthough the bill does expressly provide that it \xe2\x80\x9cshall not be deemed to restrict any\nother authority of either House of Congress, or any committee or subcommittee\nthereof, to obtain documents,\xe2\x80\x9d id. \xc2\xa7\xc2\xa7 7(a), 7(b), 7(c), 7(d), 12(a), 14(a)\xe2\x80\x94\napparently referring to the subpoena power. A similar congressional access\nprovision was recently made applicable to the ICC in a new paragraph 15 of\nsection 17 of the Interstate Commerce Act, 49 U.S.C. \xc2\xa7 17(15) (as added by\nRRRRA, supra note 4, \xc2\xa7 301, 90 Stat. at 47). In our opinion, the Department of\nJustice should oppose the adoption of this aspect of S. 3308, because it does not\nadequately preserve the confidentiality of trade secrets and similar information\nobtained from persons subject to the agencies\xe2\x80\x99 regulation and because it could lead\nto inappropriate involvement by the Congress in the ongoing operation of the\nagencies, especially in pending cases and investigations.\nConfidential information in the hands of an independent regulatory commission\nshould be protected from casual disclosure in the course of compliance with a\nsweeping, undifferentiated, and perhaps passing congressional request for\nmaterials. Cf. Authority of Federal Communications Commission to Disclose\nConfidential Information to Senate Committee on Interstate and Foreign Commerce, 41 Op. Att\xe2\x80\x99y Gen. 221, 228 (1955) (Brownell, A.G.). The provision\napplicable to the ICC recently enacted as section 17(15) of the Interstate Commerce Act contains a key limiting provision designed to enable agencies to afford\njust such protection, while at the same time preserving the right of a congressional\ncommittee to obtain the material by means of subpoena if it concludes that\ncircumstances warrant disclosure. The limiting provision reads:\nThis paragraph shall not apply to documents which have been obtained by the Commission from persons subject to regulation by the\nCommission, and which contain trade secrets or commercial or financial information of a privileged or confidential nature.\n90 Stat. at 47. Similar qualifying language was apparently contained in the\nrelevant paragraphs of S. 3308 when the bill was circulated to the seven agencies\nin working paper form, see Senate Report at 68, but it has since been deleted.\nSection 13(c)(5) of S. 3308 would delete the passage from the Interstate Commerce Act as well. At a minimum, this protection for confidential information\nshould be restored to the bill.\nEven with this modification, however, we have serious doubts about the disclosure provision. The Department of Justice has taken the position that executive\nprivilege is available with respect to those functions of independent regulatory\nagencies that are of an executive or quasi-executive nature. The privilege must be\nassertible by the President or in a manner suitable to him. In our view, S. 3308\n\n406\n\n\x0cConstitutionality of Regulatory Reform Legislation for Independent Agencies\n\nwould not affect the power of the President, or the agency acting on the President\xe2\x80\x99s behalf, to assert executive privilege, because in the absence of express\nlanguage in the bill, it must be assumed that the bill does not constitute an\nattempted infringement of the constitutionally based privilege. Nevertheless, the\npassage of these congressional access sections of S. 3308 could introduce added\nconfusion into an already unsettled area.\nAside from the question of executive privilege as such, it should also be noted\nthat within its own area of operations, an independent regulatory agency has a\nstrong interest in the free flow of communications to and from the heads of the\nagency\xe2\x80\x94i.e., the members of the commission or board\xe2\x80\x94which is analogous to\nthat giving rise to the privilege of the President as head of the Executive Branch.\nSee United States v. Nixon, 418 U.S. 683, 705, 708 (1974). An independent\nregulatory agency also has a strong interest in the integrity of ongoing cases and\ninvestigations which could be seriously prejudiced if the facts and legal arguments\nare freely reported to the Congress. Similar interests have been asserted to support\nthe withholding of investigation-related evidence compiled by the FBI, an agency\nof the Executive Branch. Position of the Executive Department Regarding\nInvestigative Reports, 40 Op. Att\xe2\x80\x99y Gen. 45 (1941) (Jackson, A.G.). In our view,\nS. 3308 does not give adequate weight to these important interests.\nIt is true that the bill contains no sanctions for violations and that an agency\nmight therefore be thought to be free to decline to comply with a request for\ninformation on either of the above-mentioned grounds or for any other reason. But\nan agency should not be placed in the position of defying mandatory language in a\nstatute in order to protect the confidentiality of certain of its internal communications and operations. For these reasons, we recommend that the Department\noppose passage of those portions of sections 7, 12(a), 13(c), and 14(a) which\npurport to require agencies to furnish information to Congress within 10 days of a\nrequest.\nV. Representation in Litigation\nSection 8, 12(a), 13(d) and 14(a) of S. 3308 contain provisions which would in\nessence permit the FCC, FPC, CAB, ICC, and FMC, through their own attorneys,\nto commence, defend, or intervene in any action (including any appeal of such\naction) having to do with matters under their jurisdiction if the Department of\nJustice fails to assume the case on behalf of the agency within 45 days of the\nreceipt of written notification from the agency. The right of an agency to handle its\nown appeals in cases in which the Department of Justice has declined to represent\nthe agency apparently would include appeals and petitions for certiorari to the\nSupreme Court, thereby undercutting the Solicitor General\xe2\x80\x99s control over such\nmatters. The agencies would also be authorized to seek temporary and preliminary\ninjunctive relief without first giving the Department of Justice an opportunity to\ntake responsibility for the case.\n\n407\n\n\x0cSupplemental Opinions of the Office of Legal Counsel in Volume 1\n\nCongress recently enacted somewhat similar legislation for the FTC, see 15\nU.S.C. \xc2\xa7 56(a) (Supp. V 1975), and the CPSC, see Consumer Product Safety\nCommission Improvements Act of 1976, Pub. L. No. 94-284, \xc2\xa7 11, 90 Stat. 503,\n507\xe2\x80\x9308.6 S. 3308 therefore contains no section dealing with the litigating authority\nof these two agencies.\nThe Department of Justice vigorously opposed the expansion of the FTC\xe2\x80\x99s\nlitigating authority on the traditional ground that the government\xe2\x80\x99s litigation\nshould be centrally controlled and under the supervision of experienced trial\nattorneys, see H.R. Rep. No. 93-1107, at 51\xe2\x80\x9352, 67\xe2\x80\x9368 (1974), and the Chief\nJustice informed the Congress that the justices unanimously recommended against\ndilution of the Solicitor General\xe2\x80\x99s control over government litigation in the\nSupreme Court, see S. Rep. No. 93-1408, at 39 (1974). Both objections were to no\navail. The Department also unsuccessfully opposed the expansion of the CPSC\xe2\x80\x99s\nlitigating authority. See Consumer Product Safety Act Amendments: Hearings\nBefore the Subcomm. on Consumer Protection and Finance of the H. Comm. on\nInterstate and Foreign Commerce, 94th Cong. 158\xe2\x80\x9367 (1975) (statement of Joe\nSims, Special Assistant to the Assistant Attorney General, Antitrust Division).\nWe assume that the Department will also oppose S. 3308 to the extent that it\nwould result in a loss of litigating authority to the other five agencies,7 although\n6\nThe FTC provision is actually considerably broader than the litigating authorizations in S. 3308\nfor the FCC, FPC, CAB, and FMC, because it grants the FTC exclusive litigating authority in such\nareas as injunctive relief, consumer redress, judicial review of rules and cease and desist orders, and\nenforcement of subpoenas. 15 U.S.C. \xc2\xa7 56(a)(2). Section 13(d) of S. 3308 would grant the ICC\nexclusive litigating authority in essentially the same areas as those in which the FTC has been granted\nsuch authority. This ICC provision is virtually identical to one passed by the Senate as part of the\nRRRRA but dropped from the bill (S. 2718) because of a jurisdictional objection by a House\nCommittee. See S. Rep. No. 94-595, at 158\xe2\x80\x9359 (1976) (Conf. Rep.). The Department of Justice apparently did not formally communicate with the Congress on this feature of the Senate version of S. 2718.\nThe CPSC provision enacted in May gives the CPSC exclusive litigating authority only in injunction and forfeiture actions, and it expressly denies the CPSC the authority to handle its own cases in the\nSupreme Court. It does, however, permit the CPSC, with the concurrence of the Attorney General, to\nprosecute and appeal any criminal action. S. 3308 does not propose to give the other six agencies any\nauthority with respect to criminal cases.\n7\nThe existing litigating authority of the five agencies varies considerably. For example, the FPC\ncurrently has authority to be represented by its own attorneys in actions to review FPC orders or to\nenjoin violations of the Federal Power Act and Natural Gas Act. See 15 U.S.C. \xc2\xa7\xc2\xa7 717r, 717s; 16\nU.S.C. \xc2\xa7\xc2\xa7 825l, 825m (1970). Section 8(b) of S. 3308 therefore appears to enhance the authority of the\nDepartment of Justice by giving the Attorney General 45 days in which to assume responsibility for\nsuch actions. See Senate Report at 65\xe2\x80\x9366. Similarly, the FCC\xe2\x80\x99s right under 47 U.S.C. \xc2\xa7 401(e) (as\nadded by S. 3308, \xc2\xa7 8(a)) to be represented by its own attorneys in appeals of FCC orders and decisions\nunder 47 U.S.C. \xc2\xa7 402(b) (1970), see Senate Report at 68\xe2\x80\x9369, may be undercut by the Attorney\nGeneral\xe2\x80\x99s right of first refusal under 47 U.S.C. \xc2\xa7 402(e)(1)(B) (as added by S. 3308, \xc2\xa7 8(a)). See also\n49 U.S.C. \xc2\xa7 1486(a) (1970) (CAB); 46 U.S.C. \xc2\xa7 828 (1970) (FMC); Senate Report at 72\xe2\x80\x9373 (CAB), 79\n(FMC). In other respects, however, the litigating authority of these agencies would be enhanced insofar\nas actions the Attorney General has refused to bring are concerned. The somewhat different provisions\nin section 13(d) would apparently have little substantive effect on the ICC\xe2\x80\x99s present authority. Senate\nReport at 54\xe2\x80\x9355.\n\n408\n\n\x0cConstitutionality of Regulatory Reform Legislation for Independent Agencies\n\nthat is a question of policy on which this office defers to the Solicitor General, the\nCivil Division, and other interested litigating divisions.\nVI. Protection of Officers\nSection 9 of S. 3308 would amend 18 U.S.C. \xc2\xa7 1114 (Supp. V 1975) to make it\nunlawful to kill an officer or employee of the ICC, FTC, FPC, FCC, CAB or FMC\nwho is \xe2\x80\x9cassigned to perform investigative, inspection, or law enforcement\nfunctions, while engaged in the performance of his official duties, or on account of\nthe performance of his official duties.\xe2\x80\x9d Section 1114 now prohibits the killing of\nofficers and employees of various executive departments and agencies and of the\nCPSC, which was brought under the section\xe2\x80\x99s coverage as a result of an amendment contained in section 18 of the Consumer Product Safety Commission\nImprovements Act, 90 Stat. at 514. Also, 18 U.S.C. \xc2\xa7 111 (1970) makes it a\nfederal crime forcibly to assault, resist, oppose, impede, intimidate or interfere\nwith a person designated in 18 U.S.C. \xc2\xa7 1114 while he is engaged in, or on\naccount of, the performance of his official duties.\nWe do not disagree with the statement in the Senate Report (at page 8) that\nthere should be no distinction, for purposes of federal criminal jurisdiction,\nbetween officers and employees of the Executive Branch and those of independent\nagencies, but we question whether piecemeal amendment to 18 U.S.C. \xc2\xa7\xc2\xa7 111 and\n1114 is the proper approach. This Department has previously sought more general\namendment to those provisions bringing within federal jurisdictions all assaults on\nfederal officers occasioned by their status or their performance of duties. This is\nthe approach taken in S. 1, 94th Cong. (as introduced Jan. 15, 1975).\nVII. Avoidance of Conflict of Interest\nThe organic acts of each of the seven agencies would be amended by sections\n10, 12(d), 13(f), and 14(b) of S. 3308 to provide that no commissioner or member\nshall, for a period of two years following the termination of his service as a\ncommissioner or member, \xe2\x80\x9crepresent any person before the [Commission or\nBoard] in a professional capacity.\xe2\x80\x9d8 The prohibition is intended to prevent a\nconflict of interest or the appearance of a conflict of interest, Senate Report at 8,\npresumably resulting from the possibility that a former commissioner or member\nmight have lingering influence with the agency by virtue of his former position.\n8\nSection 14(b) would add a new section 102(e) to Reorganization Plan 7 of 1961 to prohibit a\ncommissioner of the Federal Maritime Commission from engaging in any other business, vocation,\nprofession, or employment. A similar prohibition is already in effect for members of the other six\nagencies, although only FCC commissioners are expressly precluded from engaging in any other\n\xe2\x80\x9cprofession.\xe2\x80\x9d 47 U.S.C. \xc2\xa7 154(b) (1970). For the sake of uniformity, S. 3308 would add the word\n\xe2\x80\x9cprofession\xe2\x80\x9d to the provisions applicable to the CPSC (\xc2\xa7 10(d)), FTC (\xc2\xa7 10(a)), CAB (\xc2\xa7 12(d)), ICC\n(\xc2\xa7 13(f)), and FPC (\xc2\xa7 10(c)). We have no objection to these changes.\n\n409\n\n\x0cSupplemental Opinions of the Office of Legal Counsel in Volume 1\n\nUnder existing law, a specific prohibition similar to this is in effect only for\nformer FCC commissioners, although the FCC provision is applicable only for one\nyear and only if the former commissioner did not serve the full term for which he\nwas appointed. However, members and employees of all seven agencies covered\nby S. 3308 are subject to the criminal conflict of interest laws, including 18 U.S.C.\n\xc2\xa7 207 (1970). Subsection (a) of section 207 bars a former officer or employee of\nan independent agency from knowingly acting as agent or attorney for anyone\nother than the United States, either before the agency or in court, in connection\nwith any case or other particular matter in which he participated personally and\nsubstantially as such an officer or employee. In addition, subsection (b) prohibits a\nformer officer or employee of an independent agency, for a period of one year\nfollowing the termination of his service, from knowingly acting as agent or\nattorney for anyone other than the United States in connection with any particular\nmatter which was under his \xe2\x80\x9cofficial responsibility\xe2\x80\x9d within one year prior to the\ntermination of such responsibility. All matters pending within an independent\nagency are under the \xe2\x80\x9cofficial responsibility\xe2\x80\x9d of the commissioners or members.\nSee 18 U.S.C. \xc2\xa7 202(b) (1970). Thus, the effect of 18 U.S.C. \xc2\xa7 207(b) is to\nprohibit, for a period of one year, a former commissioner or member of any of the\nagencies involved here from representing a private party in connection with any\nparticular matter that was pending within the agency during the year prior to the\ntime he left office, even if he had not participated in it or had no knowledge of it\nwhile he was in office.\nThe conflict of interest section of S. 3308 would supplement the existing ban\non representational activity contained in 18 U.S.C. \xc2\xa7 207. We recommend that the\nDepartment support this proposal. Former commissioners or members are free\nunder 18 U.S.C. \xc2\xa7 207 to represent private parties before the agency in which they\npreviously served in new matters that arise in the agency after they leave. Yet the\npotential for a former commissioner or member to exert undue influence in an\nagency proceeding because of his prior position is just as great in new matters as\nin matters that were pending in the agency at the time he was there. S. 3308 would\nprevent the use of such influence.\nS. 3308 would impose a two-year ban on representational activities rather than\nthe one-year ban found in 18 U.S.C \xc2\xa7 207. This longer period was chosen to make\nthe conflict of interest section in S. 3308 consistent with 18 U.S.C. \xc2\xa7 283,* which\nprohibits a retired officer of the Armed Forces of the United States, during the two\nyears following his retirement, from acting as agent or attorney or otherwise\n\n*\nEditor\xe2\x80\x99s Note: By the time of this opinion, 18 U.S.C. \xc2\xa7 283 was listed in the U.S. Code as having\nbeen repealed. See 18 U.S.C. \xc2\xa7\xc2\xa7 281\xe2\x80\x93284, at 4185\xe2\x80\x9386 (1970). As explained in the reporter\xe2\x80\x99s note to the\n1970 edition of the U.S. Code, however, section 283 was only partially repealed by section 2 of Public\nLaw 87-849, 76 Stat. 1119, 1126, and remained applicable to \xe2\x80\x9cretired officers of the armed forces of\nthe United States.\xe2\x80\x9d Id.\n\n410\n\n\x0cConstitutionality of Regulatory Reform Legislation for Independent Agencies\n\nassisting in the prosecution of a claim against the United States involving the\ndepartment in which he holds retired status.\nUnlike 18 U.S.C. \xc2\xa7\xc2\xa7 207 and 283, the conflict of interest provisions of S. 3308\nwould prevent representational activities only before the agency itself, not those\nrendered in court in connection with matters under the agency\xe2\x80\x99s jurisdiction, such\nas in judicial review of an agency order. We have no objection to this more limited\nscope of S. 3308. There is obviously a much greater potential for a former\ncommissioner or member to use undue influence in administrative proceedings in\nwhich he is dealing directly with his former colleagues and subordinates than there\nis once the matter reaches court, where the case is subject to independent supervision by the court.\nAlso, we note the S. 3308 does not provide for criminal sanctions for former\ncommissioners and members who violate its conflict of interest provisions.\nPresumably each agency will enforce the ban on representational activities by\ndisqualifying the individual involved, either on its own motion or on the motion of\na party to the administrative proceeding in which the former commissioner or\nmember is appearing. This method of enforcement should be adequate. Because\nthe ban extends only to services rendered before the agency, agency officials will\nbe in a position to detect most if not all violations. For this reason, and because\nattorneys\xe2\x80\x94the group at which this aspect of S. 3308 apparently is aimed 9\xe2\x80\x94would\nbe required as a matter of professional ethics to comply with the ban, see ABA,\nModel Code of Professional Responsibility, DR Rule 2-110(B) (1976), the added\ndeterrent effect of criminal sanctions does not appear to be necessary in order to\naccomplish the purposes of the statute.\nVIII. Accountability\nSections 11, 12(a), 13(g), and 14(a) of S. 3308 would amend the organic act of\nsix of the agencies to provide that the Federal Tort Claims Act, 28 U.S.C.\n\xc2\xa7 2680(a), (h) (1970 & Supp. V 1975), does not prohibit the bringing of a civil\naction against the United States based upon misrepresentation or deceit on the part\nof the agency or any of its employees or based upon any exercise or performance,\nor failure to exercise or perform, a discretionary function on the part of the agency\nor its employees which was grossly negligent.10 Judgments would be paid out of\ngeneral funds rather than out of funds appropriated for the operation of the\nrespective agencies. Senate Report at 9.\n9\nS. 3308 prohibits a former commissioner or member from representing a person before the agency\n\xe2\x80\x9cin a professional capacity.\xe2\x80\x9d See also Senate Report at 8. The phrase \xe2\x80\x9cacts as agent or attorney,\xe2\x80\x9d which\nappears in 18 U.S.C. \xc2\xa7\xc2\xa7 207 and 283, is somewhat broader, covering informal contacts on behalf of\nothers by the former employee in addition to those made in a professional capacity.\n10\nThe waiver of sovereign immunity in S. 3308 would apply only with respect to acts committed by\nthe agencies or their employees prior to January 1, 1979, so that Congress may assess the impact of the\nwaiver for discretionary acts before making it permanent. Senate Report at 9.\n\n411\n\n\x0cSupplemental Opinions of the Office of Legal Counsel in Volume 1\n\nThe sovereign immunity sections of S. 3308 are drawn almost verbatim from a\nprovision that is already applicable to the CPSC. 15 U.S.C. \xc2\xa7 2053(i) (as added by\nsection 5 of the Consumer Product Safety Commission Improvements Act, 90\nStat. at 504). The Department of Justice apparently did not formally relay its views\nto Congress on that aspect of the CPSC legislation, but Assistant Attorney General\nUhlmann did advise OMB by letter dated May 5 that the Department would\nsupport a veto of the bill (S. 644) because of the waiver of sovereign immunity\nand the expansion of the CPSC\xe2\x80\x99s litigating authority. The President approved the\nCPSC legislation without mentioning the Department\xe2\x80\x99s reservations. We assume\nthat the Department will oppose an identical waiver of sovereign immunity for the\nother six agencies covered by S. 3308.\nHowever, it should be noted that both the CPSC statute and the pertinent sections of S. 3308 contain two features which might serve to limit the scope of the\nwaiver of sovereign immunity to some extent. First, there can be no recovery on a\nclaim against the United States which is based on \xe2\x80\x9cagency action\xe2\x80\x9d as defined in\n5 U.S.C. \xc2\xa7 551(13) (1970)\xe2\x80\x94i.e., \xe2\x80\x9cthe whole or a part of an agency rule, order,\nlicense, sanction, relief, or the equivalent or denial thereof, or failure to act.\xe2\x80\x9d The\npurpose of the exception in the CPSC legislation was to eliminate the possibility\nthat an action to recover damages under the Federal Tort Claims Act based on the\nperformance of or failure to perform a discretionary act would be used as an\nalternative to seeking judicial review of the agency action under the Administrative Procedure Act. 121 Cong. Rec. 23,577\xe2\x80\x9378 (July 18, 1975). We assume that\nthe corresponding exceptions in S. 3308 have the same purpose. The effect of the\nqualification, however, will be to preclude liability for most major policy determinations which the discretionary act exception in the Federal Tort Claims Act, 28\nU.S.C. \xc2\xa7 2680(a), was designed to insulate from liability for damages. Presumably, this exception for agency action in S. 3308 will also apply to discretionary\ndecisions and acts in the course of the administrative process which precede a final\nagency determination, not merely the formal agency action itself.\nSecond, the CPSC provision (15 U.S.C. \xc2\xa7 2053(i) (as added by section 5 of the\nConsumer Product Safety Commission Improvements Act, 90 Stat. at 504)) and\nS. 3308 (\xc2\xa7\xc2\xa7 11(a)(1), 11(b), 11(c)) both provide that a judgment may not be\nentered against the United States on a claim based upon the performance of or\nfailure to perform a discretionary function \xe2\x80\x9cunless the court in which such action\nwas brought determines (based upon consideration of all the relevant circumstances, including the statutory responsibility of the [agency] and the public interest in\nencouraging rather than inhibiting the exercise of discretion) that such exercise,\nperformance, or failure to exercise or perform was unreasonable.\xe2\x80\x9d As Assistant\nAttorney General Uhlmann pointed out in his May 5 letter to OMB on S. 644, this\n\xe2\x80\x9creasonableness\xe2\x80\x9d test appears on its face to impose a standard of conduct on the\nagency and its personnel that is more lenient than and therefore inconsistent with\nthe requirement, also contained in the CPSC legislation and S. 3308, that a\nclaimant may not recover damages unless the discretionary conduct at issue was\n\n412\n\n\x0cConstitutionality of Regulatory Reform Legislation for Independent Agencies\n\n\xe2\x80\x9cgrossly negligent.\xe2\x80\x9d However, the conference report on the CPSC legislation states\nthat the court must find that the discretionary conduct was unreasonable \xe2\x80\x9cas a\nmatter of law.\xe2\x80\x9d H.R. Rep. No. 94-1022, at 18 (1976) (Conf. Rep.). This is the\nstandard under tort law generally for taking an issue away from the jury, and it is\nordinarily thought to be satisfied only when no reasonable person could reach a\ncontrary conclusion. William L. Prosser, Handbook of the Law of Torts \xc2\xa7 37, at\n207 (4th ed. 1971). If Congress actually intends to impose such a stringent\nlimitation on recoveries in addition to the separate requirement that the conduct be\n\xe2\x80\x9cgrossly negligent,\xe2\x80\x9d the waivers of sovereign immunity in S. 3308 may not result\nin many recoveries. But passage of this feature of the bill could nevertheless result\nin the filing of numerous and often frivolous damage claims by disgruntled\npersons or companies who have been only incidentally injured by a low level\nadministrative decision or oversight. It is by no means clear that the cost and effort\nentailed in processing and defending all such claims is warranted in order to\npermit recovery in a few meritorious cases.\nThe CPSC provision which serves as a prototype for the sovereign immunity\nsections of S. 3308 was passed largely in response to a single incident involving\nthe Marlin Toy Company that arose when the CPSC mistakenly included one of\nthe company\xe2\x80\x99s products on a list of banned products. When Marlin requested that\nthe list be corrected, the CPSC admitted its error but did not issue a retraction until\nit published a new list some eight months later. The company sustained a substantial financial loss as a result, but it could not recover until the Congress enacted\nspecial legislation enabling it to do so. See 121 Cong. Rec. 23,578 (July 18, 1975);\n121 Cong. Rec. 33,686 (Oct. 22, 1975). We agree with the observation of\nAssistant Attorney General Uhlmann in his letter to OMB on S. 644 that the\ngenuine hardship cases that have given rise to the sentiment in support of the\nCPSC provision, and presumably those in S. 3308 as well, are best dealt with by\nprivate relief legislation, as was in fact done in the Marlin Toy Company case.\nFor the foregoing reasons, we recommend that the Department oppose the\nadoption of the sovereign immunity sections of S. 3308. This could be justified on\nthe ground that it is necessary to assess the impact of the special CPSC provision\nbefore extending the concept to other agencies.\nMARY C. LAWTON\nDeputy Assistant Attorney General\nOffice of Legal Counsel\n\n413\n\n\x0c'