Opinion ID: 390286
Heading Depth: 1
Heading Rank: 3

Heading: characterizing the agency action

Text: 9 Appellant argues that DOL's methodology for developing unemployment statistics constitutes a rule, requiring notice and comment. 21 We note that so holding can also affect the weight the agency action must be given in future agency practice and upon judicial review. 22 Our task is therefore a familiar one that of characterizing the product of agency action to determine its legal status and effect. 10 Our task is particularly difficult because, ordinarily, a methodology related to disbursement of government benefits would fall outside the APA. Section 553 explicitly exempts from all procedural requirements a matter relating to agency management or personnel or to public property, loans, grants, benefits, or contracts. 5 U.S.C. § 553(a)(2) (1976). Here, however, DOL has expressly waived this exemption by its own regulation which provides: 11 It is the policy of the Secretary of Labor that in applying the rule making provisions of the APA the exemption therein for rules relating to public property, loans, grants, benefits or contracts shall not be relied upon as a reason for not complying with the notice and public participation requirements thereof. 23 12 As a result, the APA's examples, and judicial precedents interpreting them, do not speak directly to the case at hand. Our decision therefore must be based on the purposes and language of the APA, and on analysis of each of the relevant exemptions. Finally, we consider residual arguments proffered by the parties. 13
14 The Administrative Procedure Act (APA), 5 U.S.C. §§ 551 et seq., broadly defines an agency rule to include nearly every statement an agency may make: 15 (4) rule means the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency and includes the approval or prescription for the future of rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services or allowances therefor or of valuations, costs, or accounting, or practices bearing on any of the foregoing (.) 16 5 U.S.C. § 551(4) (1976). The breadth of this definition cannot be gainsaid. The APA further defines rule making to mean agency process for formulating, amending, or repealing a rule, 5 U.S.C. § 551(5) (1976), and prescribes procedural requirements for these processes. Rulemaking must be accompanied by (1) advance publication in the Federal Register of the proposed rule or its substance; (2) opportunity for public participation through submission of written comments, with or without oral presentation; and (3) publication of the final rule, incorporating a concise statement of its basis and purpose, thirty days before its effective date. 24 17 In keeping with the general commitment to public notice and participation, the APA provides only limited exceptions to these requirements. 25 Advance publication and opportunity for public participation applies to all rules except interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice. 26 Final publication or service, thirty days prior to the rule's effective date, applies even to rules of agency organization, procedure, or practice, but is not required for interpretative rules and statements of policy. 27 18 These provisions separate administrative rules that carry the force of law from those that do not. Advance notice and public participation are required for those actions that carry the force of law. These legislative or substantive rules can be issued only if Congress has delegated to the agency the power to promulgate binding regulations in the relevant area. 28 Legislative rules thus implement congressional intent; they effectuate statutory purposes. 29 In so doing, they grant rights, impose obligations, or produce other significant effects on private interests. 30 They also narrowly constrict the discretion of agency officials 31 by largely determining the issue addressed. Finally, legislative rules have substantive legal effect. They cannot be set aside by the courts unless found arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. § 706(2)(A) (1976). 32 19 1 (6-10) Non-binding action, in contrast, merely expresses an agency's interpretation, policy, or internal practice or procedure. Such actions or statements are not determinative of issues or rights addressed. 33 They express the agency's intended course of action, its tentative view of the meaning of a particular statutory term, or internal house-keeping measures organizing agency activities. They do not, however, foreclose alternate courses of action or conclusively affect rights of private parties. 34 Although an agency empowered to enact legislative rules may choose to issue non-legislative statements, an agency without legislative rulemaking authority may issue only non-binding statements. 35 Unlike legislative rules, non-binding agency statements carry no more weight on judicial review than their inherent persuasiveness commands. 36 20 We would be less than candid if we pretended that the labels of legislative and non-binding rules neatly place particular agency actions within any particular category. Instead, the categories have fuzzy perimeters 37 and establish no general formula. 38 The wouldbe cataloguer may be confounded by the wide variation in kinds of agency action, and the diverse contexts of regulatory fields. Agencies not only prescribe standards for acceptable conduct, 39 but also establish incentives for desired conduct, 40 and grapple with some of the most fundamental value conflicts of our era. 41 Agencies give advice, enter contracts, stimulate inventions, and approve rates. 42 Agencies also alleviate burdens, 43 allocate funds, 44 and issue statements guiding the exercise of such functions. 45 Particular actions combine the qualities of interpretative rules, policies, internal procedures, and legislative rules. 46 Thus, their legal characterization cannot be accomplished merely by asking if a given agency action is one or another of such thing. 21 Analysis that improves upon semantic play must focus on the underlying purposes of the procedural requirements at issue. The essential purpose of according § 553 notice and comment opportunities is to reintroduce public participation and fairness to affected parties after governmental authority has been delegated to unrepresentative agencies. 47 As the Third Circuit articulated, Section 553 was enacted to give the public an opportunity to participate in the rule-making process. It also enables the agency promulgating the rule to educate itself before establishing rules and procedures which have a substantial impact on those who are regulated. 48 22 1 To advance these purposes, the APA broadly defines rules subject to § 553 procedures, and carves out only limited exceptions. 49 Exemptions should be recognized only where the need for public participation is overcome by good cause to suspend it, 50 or where the need is too small to warrant it, as for example, when the action in fact does not conclusively bind the agency, the court, or affected private parties. 51 With these considerations in mind, we analyze the statistical methodology at issue here. 23
24 1 DOL argues that the statistical methodology at issue here is not a 'rule'  because it is not a 'statement designed to implement, interpret, or prescribe law or policy'; it is a method for gathering the data on which such implementation, interpretation, or prescription-e. g., the actual allocations of CETA funds-is based. 52 This reasoning fails to take adequate account of the relevant statutes and the practical purpose of the methodology. 25 1 The statutory formulation for allocating emergency job monies specifically requires use of the BLS criteria in defining persons as unemployed. 53 The Secretary is authorized and directed under 29 U.S.C. § 882(b) to develop reliable methods, including the use of selected sample surveys, to produce more statistically accurate data on unemployment. 54 The adoption of such methods clearly implements these statutory provisions. 26 1 Nonetheless, DOL argues that the gathering of unemployment statistics-and the methods prescribed for that purpose-entail merely investigatory steps which are not rules under the APA. 55 Thus, DOL relies on a statement in a 1958 treatise, written long before CETA, that identified the collection and analysis of materials by BLS as investigatory activity. 56 This reliance on pre-CETA analysis is surely misplaced, since the critical question is whether the passage of CETA changed the import of DOL's action in developing statistics. 27 As the district court observed, unemployment statistics were gathered long before CETA. 57 The passage of CETA, however, transformed them into the critical factor in an otherwise inflexible statutory formula for allocating monies. Therefore, the development of statistics no longer serves merely informational purposes, nor does it simply assist preliminary determinations prior to taking effective agency action. Instead, the chain of agency actions leading to allocation of funds under the emergency job program provides for agency discretion at only one link: the selection of statistical methodology for collecting and analyzing unemployment data. This certainly places DOL's selection of a statistical methodology within the APA's broad definition of rule as an agency statement . . . designed to implement . . . law. 58 28
29 As its name suggest, an interpretive rule is an agency statement interpreting an existing statute or rule. Guardian Federal Savings and Loan Ass'n v. Federal Savings and Loan Insurance Corp., 589 F.2d 658, 664 (D.C. Cir. 1978). An interpretative rule serves an advisory function explaining the meaning given by the agency to a particular word or phrase in a statute or rule it administers. As this court explained in Gibson Wine Co. v. Snyder, 194 F.2d 329 (D.C. Cir. 1952): 30 An interpretative rule is one which does not have the full force and effect of a substantive rule but which is in the form of an explanation of particular terms in an Act. If you had an expression in a statute such as Interurban Railway, the query might come up as to what is an interurban railway. A particular agency may adopt a rule defining an interurban railway. That, in a sense, may be called an interpretative rule. 31 Where the rule at issue is not authorized by a relevant statutory delegation, it can only be considered an interpretative rule regardless of its form or scope. 59 Here, however, the agency enjoys delegated authority to prescribe rules with the force of law concerning the development of unemployment statistics. 60 The methodology is not merely an interpretation of statutory language because it actually prescribes the regulatory structure through which the critical variable in the CETA formula is attained. 32 In this manner, the statistical methodology here resembles the regulations at issue in Pharmaceutical Manufacturers Ass'n v. Finch, 307 F.Supp. 858 (D.Del.1970). There the Commissioner of Food and Drugs promulgated standards detailing criteria for  'adequate and well-controlled clinical investigations'  deemed necessary for substantial evidence of effectiveness needed for the Commissioner to approve applications to market new drugs. 61 Because the criteria so conclusively determined the nature of satisfactory tests needed to obtain the Commissioner's approval for new drugs, the district court in Delaware found that the regulations were not interpretative and required application of § 553 procedures. 62 Similarly, DOL's methodology conclusively determines the unemployment statistics which trigger the emergency job program allocations. As DOL is authorized to promulgate legislative rules governing unemployment statistics, its determinative action to do so cannot be merely an interpretative rule under § 553. 33
34 Another exception to § 553 notice and comment procedures falls under the label, general policy statement. As this court articulated in Pacific Gas & Electric Co. v. 35 11 A general statement of policy is the outcome of neither a rulemaking nor an adjudication; it is neither a rule nor a precedent but is merely an announcement to the public of the policy which the agency hopes to implement in future rulemakings or adjudications. A general statement of policy, like a press release, presages an upcoming rulemaking or announces the course which the agency intends to follow in future adjudications. 36 The statistical methodology at issue here does not merely represent DOL's future intention. It presents the course the agency has selected and followed, resulting in significant changes from the previous method. 63 Moreover, the statistical methodology leaves no room for further exercise of administrative discretion. As described above, it is determinative of DOL's analysis in allocating CETA funds under the emergency job program. 37 1 In this respect, the methodology significantly differs from the general statement of policy in Guardian Federal Savings and Loan Ass'n v. Federal Savings and Loan Insurance Corp., supra. The regulation at issue there prescribed criteria for audits of Savings and Loan Associations to satisfy the Federal Savings and Loan Insurance Corporation. Because the regulations granted the agency discretion to accept even non-conforming audit reports, this court found the regulations to be a general statement of policy, rather than a binding rule requiring notice and comment. 64 The Secretary of Labor retains no such discretion here. 38 1 DOL's statistical methodology bears a clear resemblance to the parole guidelines contested in Pickus v. United States Board of Parole, 507 F.2d 1107 (D.C.Cir.1974). There, the Parole Board published guidelines specifying factors it considers in exercising its discretion to parole eligible federal prisoners. This court rejected the Board's argument that such guidelines were merely a general statement of policy because, formula like, 65 they effectively directed the focus of the Board's discretionary judgment. Because the guidelines define a fairly tight framework to circumscribe the Board's statutorily broad power, we found they could not be exempted from the notice and comment provisions of § 553. 66 We reach the same conclusion here, for the statistical methodology at issue is a formula, and leaves no discretion to weigh or alter the contributing elements. 39
40 The final characterization that could remove the statistical methodology from § 553 requirements may be the hardest to define. Labeled by the APA as a rule of agency organization, procedure, or practice, 67 this exception was provided to ensure that agencies retain latitude in organizing their internal operations. 68 41 The problem with applying the exception is that many merely internal agency practices affect parties outside the agency-often in significant ways. As Professor Freund explained decades ago, even office hours . . . necessarily require conformity on the part of the public. 69 A useful articulation of the exemption's critical feature is that it covers agency actions that do not themselves alter the rights or interests of parties, although it may alter the manner in which the parties present themselves or their viewpoints to the agency. 70 In this light, the exemption has applied to a freeze placed on the processing of applications for radio broadcast stations, 71 to procedures accelerating the processing of applications for abandoning railroad lines 72 and those for processing discrimination charges, 73 and to a directive specifying that requisite audits be performed by nonagency accountants. 74 42 The exemption cannot apply, however, where the agency action trenches on substantial private rights and interests. 75 As the case law demonstrates, substantial rights and interests in this light have come into play when railroads are directed to file proposed schedules of rates and tariffs with subscribers; 76 when applicants for food stamps are subject to modified approval procedures; 77 when drug producers are subject to new specifications for the kinds of clinical investigations deemed necessary to establish the effectiveness of drug products prior to FDA approval; 78 and when motor carriers are subject to a new method for paying shippers. 79 43 Here, recipients of CETA emergency job program monies are subject to a new method for determining the one undefined variable in the statutory fund allocation formula. Although the methodology itself may look procedural, as Judge McGowan noted in a similar context, (t)he characterizations 'substantive' and 'procedural' no more here than elsewhere in the law do not guide inexorably to the right result, nor do they really advance the inquiry very far. 80 The critical question is whether the agency action jeopardizes the rights and interest of parties, 81 for if it does, it must be subject to public comment prior to taking effect. As that is the case here, the exemption cannot apply.
44 DOL concludes its brief with the claim that (e)specially in light of the Supreme Court's recent admonition in Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc. (435 U.S. 519, 98 S.Ct. 1197, 55 L.Ed.2d 460 (1978)), Maryland's attempt to engraft additional procedures beyond what Congress intended, must therefore fail. 82 Because similar claims recently have been made before this court, 83 we briefly address the bearing of Vermont Yankee on this case. 45 DOL apparently relies on the Supreme Court's reiteration in Vermont Yankee of statutory and decisional law cautioning reviewing courts against engrafting their own notions of proper procedures upon agencies entrusted with substantive functions by Congress. 84 Based on this concern, 85 the Supreme Court reversed this court's invalidation of the Nuclear Regulatory Commission's rule that specifies numerical values for the anticipated environmental effects associated with the uranium fuel cycle in light water cooled nuclear power reactors. The Court rejected what it deemed the ineluctable mandate of the court of appeals decision, that is, to require procedures beyond those prescribed in § 553 of the APA. 86 The essence of the Court's decision, and the point that distinguishes Vermont Yankee from this case, was the conclusion that 46 nothing in the APA, NEPA, 87 the circumstances of this case, the nature of the issues being considered, past agency practice, or the statutory mandate under which the Commission operates permitted the court to review and overturn the rulemaking proceeding on the basis of the procedural devices employed (or not employed) by the Commission so long as the Commission employed at least the statutory minima, a matter about which there is no doubt in this case. 88 47 In the instant case, however, the sole question is whether DOL employed the minimal procedural requirements established by statute for modifying the statistical methodology. 89 We conclude that the agency erroneously omitted the minimal requirements prescribed by § 553 of the APA. 90 48 DOL argues that this result will produce a parade of horribles and will require the use of § 553 procedures for virtually any routine correction or refinement of technique. 91 This claim lacks merit. First, as this opinion makes clear, § 553 procedures apply only to rules not exempt by statute. Second, as DOL's own statement before the district court demonstrates, 92 the modification of the statistical methodology here was hardly a routine correction or refinement. It was instead the agency's considered response to over a decade of serious criticism of its prior methodology. 93 Even the Balance of State corrective factor 94 applied to Maryland with the new methodology was selected (u)pon examination by the agency. 95 The methodology bears all the earmarks of conclusive agency action, governing the rights and interests of the public. 96 Future changes to the methodology that are truly routine corrections or refinements may easily be exempted from § 553 procedures as interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice. 97 But where, as here, the agency action satisfies the APA's definition of a rule and eludes exemptions to § 553, it is procedurally defective unless promulgated with the procedures required by law. 98 IV. DISPOSITION 49 Normally, a judicial determination of procedural defect requires invalidation of the challenged rule. 99 The posture of this appeal, however, calls for different treatment. We found justiciable only Maryland's claim that future modifications of the statistical methodology must be subject to notice and publication. 100 Therefore, our disposition will govern only such future modifications. We hold that any substantial change in the method of calculating unemployment statistics must be promulgated with advance publication by notice, opportunity for public comment, and final publication at least 30 days prior to effective date. 101 50 In its amended complaint, Maryland also claimed that DOL's adoption of the new methodology is arbitrary and capricious. 102 Maryland requested that the district court defer ruling on this claim until after rulemaking procedures produce a record susceptible to judicial review. Applying this approach prospectively only, we agree. If Maryland or other interested parties wish to challenge future modifications of the methodology for gathering unemployment statistics, they may do so after DOL has promulgated such modifications according to requisite procedures.