Opinion ID: 493205
Heading Depth: 2
Heading Rank: 1

Heading: Retroactivity Doctrine and Administrative Adjudications

Text: 75 The largest part of the court's opinion is devoted to its finding that FERC's application of its reversal of field to the parties in Pacific Power & Light Co., 25 F.E.R.C. (CCH) p 61,052, reh'g denied, 25 F.E.R.C. (CCH) p 61,290 (1983) (Merwin), was consistent with principles of retroactivity. The court begins its analysis by citing a general principle that retroactive application of a new interpretation announced in an agency adjudication is favored, and prospective application is permissible only if necessary to avoid a manifest injustice. Majority opinion (Maj. op.) at 1081. There is no such general principle under the law. Courts reviewing an agency's attempt to retroactively apply a new policy announced in an administrative adjudication must make an independent determination whether the inequity of retroactive application [is] counterbalanced by sufficiently significant statutory interests. Retail, Wholesale & Dep't Store Union v. NLRB, 466 F.2d 380, 390 (D.C.Cir.1972). This determination incorporates neither a presumption of retroactive application nor a presumption of prospective application. Rather, as the Supreme Court has made clear, it involves a straight-word balancing test in which the ill effect of retroactive application is weighed against the damage to the statutory design caused by prospective application. See SEC v. Chenery, 332 U.S. 194, 203, 67 S.Ct. 1575, 1580, 91 L.Ed. 1995 (1947). It is highly inappropriate for this court to transform this test by adjusting the scales in favor of retroactive application. Moreover, the manifest injustice test to which the court refers comes from Thorpe v. Housing Authority of the City of Durham, 393 U.S. 268, 89 S.Ct. 518, 21 L.Ed.2d 474 (1969), a case that is completely inapposite. In Thorpe, the Court found that it would not be manifestly unjust for the agency to apply a new standard that already had been established at the time of the proceeding. The equities are far sharper, and the legal test quite different, when an agency seeks to apply a new standard to the parties to the very adjudication in which the reversal is announced. 76 As the majority recognizes, the seminal case fixing the law of the circuit for retroactive application of agency adjudications is Retail, Wholesale & Dep't Store Union v. NLRB, 466 F.2d 380 (D.C.Cir.1972). In Retail, Wholesale, this court refused to give retroactive effect to a new rule adopted in the course of a National Labor Relations Board adjudication. The court listed five factors which courts must put into the balance in determining whether a decision should have retroactive effect: 77 (1)whether the particular case is one of first impression, (2) whether the new rule represents an abrupt departure from well established practice or merely attempts to fill a void in an unsettled area of law, (3) the extent to which the party against whom the new rule is applied relied on the former rule, (4) the degree of the burden which a retroactive order imposes on a party, and (5) the statutory interest in applying a new rule despite the reliance of a party on the old standard. 78 Retail, Wholesale, 466 F.2d at 390. These considerations provide in the context of agency adjudication a way to attend to the principal concerns of retroactivity analysis--lack of notice and the degree of reliance on former standards. Id. at 390 n. 22. The Retail, Wholesale test attempts to reconcile the interests of the litigants with the overall public interest in effectuation of a statutory scheme: retroactive application is appropriate only if the court is satisfied that the prejudice to parties who justifiably relied on the previous standard is outweighed by the need to advance the statutory purpose which the new rule will serve. See McDonald v. Watt, 653 F.2d 1035, 1045 (5th Cir.1981); Sierra Club v. EPA, 719 F.2d 436, 468 (D.C.Cir.1983). 79 The Retail, Wholesale test is specifically adapted to the unique circumstances of agency attempts to retroactively apply a new policy announced in an administrative adjudication. Although the principles of retroactive application of judicial decisions serve as a general guide in the context of administrative adjudications, 4 K. Davis, Treatise on Administrative Law Sec. 20.7, at 23 (2d ed. 1983); see Daughters of Miriam Center for the Aged v. Matthews, 590 F.2d 1250, 1259 (3rd Cir.1978), analysis of administrative decisions is colored by agencies' ability to announce new policy via either adjudication or rulemaking. On the one hand, the agency needs and enjoys considerable discretion in choosing which vehicle is the more appropriate for formulating new standards in a given case. See SEC v. Chenery Corp., 332 U.S. 194, 202-03, 67 S.Ct. at 1580 (1947). On the other hand, this flexibility means that an agency is less justified in relying upon adjudication to impose new standards of conduct retroactively, because the agency, unlike courts, has the option to promulgate a rule prospectively and thereby avoid imposing burdens on parties who have relied on the prior standard. See NLRB v. Majestic Weaving Co., 355 F.2d 854, 860 (2d Cir.1966) (Friendly, J.); Bonfield, The Federal APA and State Administrative Law, 72 Va.L.R. 297, 330 (1986). 80 Several additional principles emerge from cases in which this court has reviewed agency decisions applying a new standard retroactively. First, whether a new standard should be applied is a question of law. Agencies possess no particular expertise on the issue of retroactivity, and reviewing courts in turn have no overriding obligation of deference to an agency's decision to give retroactive effect to a new rule. Retail, Wholesale, 466 F.2d at 390. Second, agency decisions to apply an order retroactively must be the product of rational analysis, and the law requires that an agency explain ... how it determined that the balancing of the harms and benefits favors giving a change in policy retroactive application. Yakima Valley Cablevision, Inc. v. FCC, 794 F.2d 737, 746 (D.C.Cir.1986). Third, an agency's failure to consider the less drastic alternative of prospective application may be considered arbitrary and capricious and thus constitute grounds for reversal. Id.