Opinion ID: 211886
Heading Depth: 3
Heading Rank: 3

Heading: Overturning the Regulation

Text: 68 Our holding that the Board's new interpretation of section 7521 is permissible does not end the inquiry. The Board has promulgated a regulation, 5 C.F.R. § 1201.142, codifying the holding of Doyle. The regulation states, An administrative law judge who alleges that an agency has interfered with the judge's qualified decisional independence so as to constitute an unauthorized action under 5 U.S.C. 7521 may file a complaint with the Board under this subpart. 5 C.F.R. § 1201.142 (2004). The Board recognized the inconsistency between the extant regulation and its desire to overrule Doyle. In dealing with the regulation, the Board said: 69 The Board's regulation at 5 C.F.R. § 1201.142 conforms to the Doyle theory of jurisdiction. That regulation states that an ALJ may file a complaint with the Board if he alleges that an agency has interfered with [his] qualified decisional independence so as to constitute an unauthorized action under 5 U.S.C. § 7521. The fact that a regulation is based on an erroneous interpretation of a statute does not prevent us from overruling the case law on which the regulation is based. Rather, the statute takes precedence over the regulation. We therefore will overrule Doyle and change our regulations later to conform to the statute and the new precedent. 70 Tunik v. Social Sec. Admin., 93 M.S.P.R. 482, 492 (2003) (citation omitted and alteration in original). Because the Board overturned its regulation through adjudication, we asked for additional briefing as to whether the holding of American Federation of Government Employees, AFL-CIO, Local 3090 v. Federal Labor Relations Authority, 777 F.2d 751, 758-60 (D.C.Cir.1985), might preclude the Board's decision in this case. The ALJs, the government, and the Social Security Administration submitted supplemental briefs on this issue. 71 We conclude that the Board misunderstood its role as an administrative agency and failed to consider the question of whether and under what circumstances the Board, by adjudication, could overturn its regulation. If the Board's regulation is subject to the requirements of 5 U.S.C. § 553, requiring notice and comment rule-making, the Board's regulation is the governing law and may not be overturned by the Board outside the procedural requirements of section 553. United States v. Nixon, 418 U.S. 683, 695-96, 94 S.Ct. 3090, 41 L.Ed.2d 1039 (1974) (So long as this regulation remains in force the Executive Branch is bound by it, and indeed the United States as the sovereign composed of the three branches is bound to respect and to enforce it.). To determine whether the Board improperly overruled its regulation, we must determine whether the regulation is subject to section 553. 72 Section 553(b) requires notice of proposed rule making to be published in the Federal Register. 5 U.S.C. § 553(b) (2000). Section 553(c) requires the agency attempting to promulgate the relevant rule to allow interested persons to participate in the process by providing comments on the proposed rules. Id. § 553(c). Section 551(5) expressly defines rule making as the agency process for formulating, amending, or repealing a rule. Id. § 551(5) (emphasis added). Thus, to the extent that promulgation of 5 C.F.R. § 1201.142 was subject to the requirements of section 553, the repeal of that regulation is also subject to section 553. 73 Section 553 has numerous exceptions, however, two of which are relevant here. First, section 553(a)(2) excludes a matter relating to agency management or personnel. Second, section 553(b)(A) excludes interpretive rules, general statements of policy, or rules of agency organization, procedure, or practice from the requirements of section 553. If either of these exceptions applies, the Board's rule is not subject to section 553, and the Board is free to repeal that rule without engaging in formal rulemaking as prescribed by section 553. On the other hand, if neither exception applies, then the Board's rule-making was governed by section 553 and was subject to the requirements of notice and comment. 74 The first exception excludes matters relating to agency management or personnel. That provision was in the original APA in essentially the same terms as appear today. Administrative Procedure Act, Pub.L. No. 79-404, § 4, 60 Stat. 237, 238 (1946) (Except to the extent that there is involved ... (2) any matter relating to agency management or personnel. . . .). Although the legislative history of this provision is sparse, the Attorney General provided a contemporaneous interpretation of the provision in the Attorney General's Manual on the Administrative Procedure Act published in 1947. Because of the extensive involvement of the Attorney General in the drafting and enactment of the APA, the Attorney General's contemporaneous interpretation of the provision is entitled to some weight. Chrysler Corp. v. Brown, 441 U.S. 281, 302, 99 S.Ct. 1705, 60 L.Ed.2d 208 (1979) (In prior cases, we have given some weight to the Attorney General's Manual on the Administrative Procedure Act (1947), since the Justice Department was heavily involved in the legislative process that resulted in the Act's enactment in 1946.). Regarding the agency management or personnel exception, the Attorney General said, The exemption for matters relating to `agency management or personnel' is self-explanatory and has been considered in the discussion of `internal management' under section 3. Attorney General's Manual on the Administrative Procedure Act 27 (1947) ( Attorney General's Manual ). The exemption in section 3 of the APA was for any matter relating solely to the internal management of an agency. Administrative Procedure Act, Pub.L. No. 79-404, § 3, 60 Stat. 237, 238 (1946). With respect to that exemption, the Attorney General said, 75 If a matter is solely the concern of the agency proper, and therefore does not affect the members of the public to any extent, there is no requirement for publication under section 3. Thus, an agency's internal personnel and budget procedures need not be published (e.g., rules as to leaves of absence, vacation, travel, etc.). However, in case of doubt as to whether a matter is or is not one of internal management, it is suggested that the matter be published in the Federal Register, assuming it does not require secrecy in the public interest. 76 Attorney General's Manual 18. Although the provision in section 3 is worded differently from section 4, the Attorney General was of the opinion that the agency management or personnel exception was essentially of the same scope. The Senate Report seemed to take a similar view stating, The exception of matters of management or personnel would operate only so far as not inconsistent with other provisions of the bill relating to internal management or personnel. S.Rep. No. 79-752, at 13 (1945). Few courts have had the opportunity to interpret this provision. 77 In Seaboard World Airlines, Inc. v. Gronouski, 230 F.Supp. 44 (D.D.C.1964), the plaintiff challenged a new postal regulation requiring mail to be sent by the most expedient air service without regard to the type of aircraft used. The new regulation significantly reduced the plaintiff's business in carrying mail for the U.S. Postal Service. In replying to the plaintiff's argument that the rule was required to be promulgated in accordance with notice and comment rulemaking, the government argued that the regulation only provided directions to agency personnel as to how to ship mail and thus was within the agency management or personnel exception. The district court disagreed, stating that the policy involved here, although it is directed to the Post Office personnel, substantially affects outside parties and is therefore NOT subject to the exception. Id. at 46. The District of Columbia Circuit rejected a similar argument in Joseph v. United States Civil Service Commission, 554 F.2d 1140, 1153 n. 23 (D.C.Cir.1977). In Joseph, the court considered the applicability of the agency management or personnel exception to a Civil Service Commission regulation exempting from the Hatch Act participation in political campaigns as, or on behalf of, an independent candidate in a partisan election for local office in the District of Columbia. Relying on Seaboard, the court said, Section 553(a)(2) must be narrowly construed, and although the Commission's regulation is only directed at government personnel it does not fall within section 553(a)(2) because outside individuals are substantially affected. Id. (citation omitted). 78 The D.C. Circuit again considered the scope of the agency management or personnel exception in Stewart v. Smith, 673 F.2d 485 (D.C.Cir.1982). Stewart involved a challenge to the Bureau of Prisons' policy of not considering for employment any person who is over 34 years of age. Id. at 487. The D.C. Circuit held, over a vigorous dissent, that the hiring policy was not subject to section 553 because it fell within the exception for agency management or personnel. Id. at 496-500. The majority read the exception in section 3 of the APA as being a narrower exception than the agency management or personnel exception in section 4 based on the plain language of the two provisions. The dissent, on the other hand, read the two provisions as being co-extensive based on the legislative history and prior cases. Id. at 502 (Wright, J., dissenting). 79 This court has twice considered the applicability of the agency management or personnel exception to section 553. Favreau v. United States, 317 F.3d 1346, 1359 (Fed.Cir.2002) (holding that memoranda detailing when the United States could seek recoupment of prepaid bonuses from armed forces personnel were subject to the agency management or personnel exception of section 553); Hamlet v. United States, 63 F.3d 1097, 1105 (Fed.Cir.1995) (holding that the Agricultural Stabilization and Conservation Service personnel management handbook relates to matters of agency personnel, [and thus] its promulgation was exempt from the strict procedural requirements found in the APA). Because the facts in these two cases bear little resemblance to the facts of the case before us, we will focus on the more pertinent cases from the D.C. Circuit. 80 Although we need not decide whether the section 4 exception carries the same scope as the section 3 exception, we conclude that the exception in section 4 cannot be construed to exempt the regulation at issue from notice and comment rulemaking. Although removal of ALJs could be characterized in a sense as a personnel matter in the same manner as the hiring policy at issue in Stewart, the removal of ALJs goes to the heart of the APA and implicates a much broader class of the public than those who might apply for employment with the Bureau of Prisons. Indeed, the removal of ALJs implicates not only the rights of an individual ALJ being removed, but also the broader interest of the public in having private rights adjudicated by persons who have some independence from the agency opposing them. In that sense, section 7521 is primarily for the public benefit and only secondarily for the benefit of a particular ALJ in a particular case. See Stewart, 673 F.2d at 505 (Wright, J., dissenting) (In the narrow set of cases where a proposed rule substantially affects parties outside an agency and implicates broad public concerns, the personnel exemption from rulemaking requirements surely does not apply.). Thus, section 7521 is unlike the hiring policy at issue in Stewart, which was primarily for the internal benefit of the Bureau of Prisons, although secondarily impacting eligibility of applicants for employment. Indeed, a substantial justification for the APA, as noted supra, was the need for greater independence of those adjudicating private rights. Given the importance of the independence of ALJs to the framework of the APA, it would be unreasonable to conclude that regulations promulgated pursuant to section 7521, which is a cornerstone of decisional independence for ALJs, were of so little concern to the public at large that they should not be subject to notice and comment rulemaking. See S.Rep. No. 79-752, at 30 (1945) ([T]here are certain provisions which touch on subjects long regarded as of the highest importance ... such as the separation of examiners from the agencies they serve....). The public would seem to have at least as much interest in the subject as it has in whether federal employees may participate in partisan elections. Moreover, exceptions to the notice and comment requirements of the APA should be narrowly construed. Joseph, 554 F.2d at 1153 n. 23 (Section 553(a)(2) must be narrowly construed ....); see also Alcaraz v. Block, 746 F.2d 593, 612 (9th Cir.1984) (The exceptions to section 553 will be narrowly construed and only reluctantly countenanced. (quotation marks and citation omitted)). Thus, the regulation at issue cannot be exempted from notice and comment rulemaking as merely relating to agency personnel. 81 Next, we must consider whether the exemption in section 553(b)(A) excluding interpretive rules, general statements of policy, or rules of agency organization, procedure, or practice from the requirements of section 553 applies to section 1201.142. In Chrysler Corp. v. Brown, the Supreme Court described a substantive, or legislative, rule—as opposed to an interpretive rule—as one `affecting individual rights and obligations.' 441 U.S. 281, 302, 99 S.Ct. 1705, 60 L.Ed.2d 208 (1979) (quoting Morton v. Ruiz, 415 U.S. 199, 232, 94 S.Ct. 1055, 39 L.Ed.2d 270 (1974)). The Supreme Court went on to say that [t]his characteristic is an important touchstone for distinguishing those rules that may be `binding' or have the `force of law.' Id. In Hamlet v. United States, 63 F.3d 1097, 1105 n. 6 (Fed.Cir.1995), this court said that procedural requisites in manuals or handbooks for the removal of an agency employee, such as the procedural requirements held to be binding in Service v. Dulles,  were substantive rules. This court then held that the regulation at issue was substantive because it purports to create a reinstated employee's right to receive backpay. Id. at 1106. Similarly, the requirements that the Supreme Court held to be binding in Service v. Dulles, 354 U.S. 363, 373-75, 77 S.Ct. 1152, 1 L.Ed.2d 1403 (1957), related to the Secretary of State's ability to remove an employee due to the Secretary's concern that the employee posed a loyalty or security risk. Thus, section 1201.142, granting an ALJ a right to bring an action before the Board for constructive removal, certainly affects individual rights and would seem to be at least as much a substantive rule as those in the above cases. 82 The Board, however, argues that it promulgated section 1201.142 under the authority of 5 U.S.C. § 1204(h), providing authority for the Board to prescribe such regulations as may be necessary for the performance of its functions, and that to the extent that the regulation describes the Board's jurisdiction over constructive removals, it can be no more than an interpretive rule. The Board argues that it lacks delegated authority to promulgate legislative rules determining the scope of its jurisdiction. The Board's position on this issue lacks any merit. When published for notice and comment, the notice of proposed rulemaking including section 1201.142 referred to 5 U.S.C. §§ 1204 and 7701 as authority for the regulation. 62 Fed.Reg. 48449, 48451 (Sept. 16, 1997). The Board's assertion that the notice only referred to section 1204(h) is clearly incorrect. We need not decide the extent of the Board's authority to promulgate regulations governing its jurisdiction under section 7701, because 5 U.S.C. § 1305 states that for the purpose of section 7521 of this title, the Merit Systems Protection Board may ... prescribe regulations .... To the extent there is doubt that the Board has jurisdiction to prescribe regulations governing its jurisdiction under section 7701, section 1305 expressly provides the Board with authority to prescribe regulations governing the provisions of section 7521, which is precisely what section 1201.142 does. While section 1305 was not expressly listed in the statutory authority for the promulgation of section 1201.142, this lack of notice was not prejudicial. See Trans-Pacific Freight Conference of Japan/Korea v. Fed. Mar. Comm'n, 650 F.2d 1235, 1259 (D.C.Cir.1980) (Although the Commission technically was not in compliance with section 4(b)(2), we believe that the defect in the notice of proposed rulemaking was not fatal.). 83 Because section 1201.142 is a substantive rule not subject to the exemption in section 553(b)(A) and because it is not subject to the agency management or personnel exception of section 553(a)(2), the Board could only repeal the rule through the notice and comment procedures required by section 553(b). United States v. Nixon, 418 U.S. 683, 695-96, 94 S.Ct. 3090, 41 L.Ed.2d 1039 (1974) (So long as this regulation remains in force the Executive Branch is bound by it, and indeed the United States as the sovereign composed of the three branches is bound to respect and to enforce it.); Am. Fed'n of Gov't Employees, AFL-CIO, Local 3090 v. Fed. Labor Relations Auth., 777 F.2d 751, 758-60 (D.C.Cir.1985) ([U]nless and until it amends or repeals a valid legislative rule or regulation, an agency is bound by such a rule or regulation.); see also United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260, 267-68, 74 S.Ct. 499, 98 L.Ed. 681 (1954) (holding that the Attorney General may not act in contravention of valid regulations as long as the regulations remain operative). 84 The Board and the Agency argue that an exception to the general rule that an Agency is bound by its own rules applies where the rule is inconsistent with a statute. See Am. Tel. & Tel. Co. v. Fed. Communications Comm'n, 978 F.2d 727, 733 (D.C.Cir.1992) ([T]hen Judge Scalia, concurring in American Federation of Government Employees, recognized that in some situations, when an agency declines to apply its own rule in an adjudication `we would be justified [on appeal] in looking beyond the defect of inconsistency, to affirm an adjudication on the ground that its result was mandated by statute and that the conflicting rule was simply unlawful.' (quoting Am. Fed. of Gov't Employees, 777 F.2d at 760 (Scalia, J., concurring)) (alteration in original)). However, the argument that section 1201.142 is inconsistent with section 7521 is foreclosed by our decisions in Sannier and Stephens. Thus, this exception does not apply. 85 Based on the foregoing, we must conclude that the Board lacked authority to overrule section 1201.142 by adjudication. That conclusion does not foreclose the Board from repealing the rule in accordance with section 553(b). However, for purposes of the present case, the Board must adhere to its legislative rule.