Court Opinion

ID: 185266
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:29:54+00
Date Added: 2024-06-11T17:26:14.434399
License: Public Domain

229 F.3d 277 (D.C. Cir. 2000)
James V. Hurson Associates, Incorporated, Appellantv.Dan Glickman, Secretary of the United States Department of Agriculture, and The United States Department of Agriculture Appellees
No. 99-5305
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 7, 2000Decided October 24, 2000

[Copyrighted Material Omitted]
Appeal from the United States District Court for the District of Columbia(No. 98cv02120)
Robert J. Brooks argued the cause and filed the briefs for  appellant.
Charles W. Scarborough, Attorney, U.S. Department of  Justice, argued the cause for appellees.  With him on the brief were David W. Ogden, Acting Assistant Attorney General, Barbara C. Biddle, Attorney, and Wilma A. Lewis, U.S.  Attorney.
Before:  Williams, Sentelle and Rogers, Circuit Judges.
Opinion for the Court filed by Circuit Judge Sentelle.
Sentelle, Circuit Judge:

1
James V. Hurson Associates  appeals from a District Court judgment upholding a United  States Department of Agriculture ("USDA") rule that controls the manner in which the agency receives requests for  the approval of food labeling.  Appellant contends that the  USDA violated the Administrative Procedure Act ("APA"), 5  U.S.C. § 551 et seq. (1994), by promulgating that rule without  first engaging in notice-and-comment rulemaking.  It also  claims that the District Court erred in denying its motion to  amend its complaint to include claims that the USDA's new  rule both is arbitrary and capricious and violates the Constitution's Interstate Commerce Clause.

2
We hold that the District Court properly concluded that  USDA was not required to engage in notice-and-comment  rulemaking, since its new rule falls within the APA's procedural-rules exception.  We also conclude that the court erred  in refusing to allow Appellant to amend its complaint to  include an arbitrary-and-capricious claim and a Commerce Clause claim, as it had an absolute right to do so until the  USDA filed a responsive pleading.  We therefore remand  with instructions that Appellant be permitted to amend its  complaint to include its arbitrary-and-capricious claim.  We  do not, however, remand with respect to Appellant's Commerce-Clause claim, because we conclude that it would not be  able to survive a motion to dismiss.

I. BACKGROUND

3
Appellee Daniel Glickman is the Secretary of the USDA,  another appellee in this case (collectively, "USDA").  The  USDA's Food Safety Inspection Service ("FSIS") is charged  with reviewing the labels affixed to certain commercial food  products to ensure that they are truthful, not misleading, and  otherwise comply with relevant regulations.  Until recently, a  commercial food producer could seek approval of a proposed  label in several ways:  by mailing its application, by personally visiting the FSIS, or by hiring courier/expediter firms  whose employees would meet with FSIS representatives during office hours.  The latter method, colloquially known as  "face-to-face," enabled producers to secure instant approval of  their labels, whereas other methods could take days or even  weeks.  See Meat, Poultry, and Egg Products Labeling Review Process;  Elimination of Appointments With Label Courier/Expediting Firms, 63 Fed. Reg. 40,010, 40,011 (1998)  [hereinafter elimination of face-to-face].

4
On July 27, 1998, the USDA announced its intention to do  away with "routine,daily, time-set, face-to-face appointments  with courier/expediting firms," although FSIS employees  would be available for irregular meetings with industry representatives to discuss novel issues and provide regulatory  guidance.  Id. at 40,010.  The USDA cited four reasons for  its elimination of face-to-face review:  (1) FSIS's need for  more time to evaluate labeling involving complex issues;  (2)  FSIS's need for more time for consultation internally and  with other agencies;  (3) the food industry's declining need for  immediate label approval;  and (4) the unfairness of face-to face to food producers who submit by mail rather than  through courier/expediter firms.  See id. at 40,011.

5
On September 2, 1998, Hurson, a courier/expediter firm the  livelihood of which was threatened by the USDA's new rule,  filed a motion for a temporary restraining order against the  agency in the United States District Court for the District of  Columbia.  In its initial complaint, Hurson alleged only that  USDA had violated the APA by abolishing face-to-face without engaging in notice-and-comment rulemaking.  That statute obliges agencies to publish in the Federal Register notice  of a proposed rulemaking and to give interested parties the  opportunity to submit comments.  See 5 U.S.C. § 553(b), (c)  (1994).  USDA did not submit an answer, and simply moved  to dismiss.  With the consent of both parties, the District  Court regarded Hurson's motion for injunctive relief and  USDA's motion to dismiss as motions for summary judgment.

6
After the parties had fully briefed the notice-and-comment  issue, but before the court had ruled on their cross-motions  for summary judgment, Hurson submitted an amended complaint (or, in the alternative, a motion seeking leave to amend  its complaint).  Hurson proposed to add new allegations that  the USDA's elimination of face-to-face both was "arbitrary  and capricious" in violation of the APA and violated the  Constitution's Commerce Clause.  The District Court denied  Hurson's motion as untimely, citing "the fact that Plaintiff  waited to amend his [sic] complaint until after full briefing of  dispositive motions."  Having disposed of Hurson's substantive objections to USDA's elimination of face-to-face, the  District Court concluded that the agency's new rule was a  procedural one.  It was, therefore, exempt from the APA's  notice-and-comment requirement.

7
This appeal followed.

II. DISCUSSION
A. Notice and Comment

8
Although federal agencies ordinarily must provide the public with notice of a proposed rule and the opportunity to  submit comments on it, see 5 U.S.C. § 553, the APA makes an  exception for, among others, "rules of agency organization,  procedure, or practice."  Id. § 553(b)(A).  This Court has  stressed that the " 'critical feature' " of a rule that satisfies  the so-called "procedural exception 'is that it covers agency  actions that do not themselves alter the rights or interests of  parties, although it may alter the manner in which the parties  present themselves or their viewpoints to the agency.' "JEM Broad. Co. v. FCC, 22 F.3d 320, 326 (D.C. Cir. 1994)  (quoting Batterton v. Marshall, 648 F.2d 694, 707 (D.C. Cir.  1980)).

9
Hence in JEM, we concluded that the Federal Communication Commission's new "hard look" rules--under which the  Commission summarily would dismiss any flawed license application without allowing the applicant to correct its error,  see id. at 322-23--were procedural ones.  "The critical fact here," we emphasized, "is that the 'hard look' rules did not  change the substantive standards by which the FCC evaluates license applications, e.g., financial qualifications, proposed programming, and transmitter location."  Id. at 327.That the hard-look rules employed the same substantive  criteria as their predecessors, we concluded, was "fatal to  JEM's claim."  Id.;  accord National Whistle blower Ctr. v.  Nuclear Regulatory Comm'n, 208 F.3d 256,262 (D.C. Cir.  2000) ("The disputed agency action in this case merely altered  a standard for the enforcement of filing deadlines;  it did not  purport to regulate or limit the Center's substantive rights."),  petition for cert. filed, 69 U.S.L.W. 3234 (U.S. Sept. 13, 2000)  (No. 00-422).

10
The USDA's decision to eliminate face-to-face review is the  very sort of procedural measure the JEM Court had in mind,  for, by its very terms, the rule "will not change the present  system of labeling review," even though the "new procedure  will eliminate routine, daily, time-set, face-to-face appointments with courier/expediting firms."  Elimination of Faceto-Face, 63 Fed. Reg. at 40,010.  The agency's abolition of  face-to-face did not alter the substantive criteria by which it  would approve or deny proposed labels;  it simply changed  the procedures it would follow in applying those substantive  standards.

11
Because the rule is procedural on its face--which Hurson  concedes, see Appellant's Reply Brief at 1 ("USDA devotes  the argument to showing that the challenged rule does not  change the substantive criteria for evaluating labels.  But  appellant Hurson does not contend otherwise.")--appellant  attempts to characterize it as effectively substantive by pointing to its putatively severe consequences and its origins in a  "substantive value judgment."  Neither effort is persuasive.

12
Hurson introduces some evidence that the elimination of  face-to-face approvals will burden food producers.  (It also  introduces evidence suggesting that the rule would devastate  the courier/expediter industry, but the burden to couriers/expediters--which are not regulated parties under the rules--is  irrelevant.)  Hurson repeatedly argues that food producers  need to have their labels approved in "minutes and hours," not, as it suspects will be the case under the USDA's new  rule, after waiting for "days, weeks, even months."  Appellant's Brief at 24.  It also cites the 180 objections to the new  rule lodged by entities representing the food industry, which,  it proposes, illustrate that food processors regard speedy  approval as "an essential cog in their output mechanism."  Id.  at 25.

13
Hurson's allegation that the elimination of face-to-face will  produce a significant burden may or may not be empirically  true.  As an initial matter, we question whether the food  processing industry truly regards the USDA's new rule as  especially burdensome.  After all, this challenge is brought  not by a food processor, but by a courier/expediter firm. Still, the District Court, as it was required to do on a motion  for summary judgment, properly viewed all factual inferences  in favor of Hurson.  Cf. Fed. R. Civ. P. 56(c);  Taylor v. FDIC,  132 F.3d 753, 762 (D.C. Cir. 1997).

14
But even if the USDA's elimination of face-to-face did  impose a substantial burden on food processors, that burden  would not convert the rule into a substantive one that triggers the APA's notice-and-comment requirement.  Appellant  has cited no case in which this Court has required notice-and comment  rulemaking for an especially burdensome procedural rule.  Nor could it, for we recognize that "the impact of a  rule has no bearing on whether it is legislative or interpretative...."  American Postal Workers Union v. United States  Postal Serv., 707 F.2d 548, 560 (D.C. Cir. 1983);  accord  Cabais v. Egger, 690 F.2d 234, 237 (D.C. Cir. 1982) ("Simply  because agency action has substantial impact does not mean  it is subject to notice and comment if it is otherwise expressly  exempt under the APA.").  Indeed, "interpretative rules may  have a substantial impact on the rights of individuals."American Postal Workers, 707 F.2d at 560.  The same is true  of procedural rules.  We conclude, therefore, that an otherwise-procedural rule does not become a substantive one, for  notice-and-comment purposes, simply because it imposes a  burden on regulated parties.

15
Hurson's second argument--that notice-and-comment rulemaking is required given the rule's origin in a "substantive  value judgment"--is equally unavailing.  The USDA's decision to eliminate face-to-face does, as Hurson alleges, encode  the substantive value judgment that the new label-approval  procedures will more readily promote its already-existing  goals of fairness and efficiency.  But the fact that the agency's decision was based on a value judgment about procedural  efficiency does not convert the resulting rule into a substantive one.  All decisions, to the extent that they derive from  reasons, necessarily are based on the value judgment that the  chosen option is better, in some relevant way, than its alternatives.  We have, therefore, consistently recognized that  " 'agency housekeeping rules often embody a judgment about  what mechanics and processes are most efficient.'  This does  not convert a procedural rule into a substantive one."  National Whistleblower, 208 F.3d at 263 (quoting JEM, 22 F.3d  at 328).

16
Finally, Hurson proposes that this Court is bound by our  prior holding in National Association of Home Health Agencies v. Schweiker, 690 F.2d 932 (D.C. Cir. 1982), to conclude  that the USDA could eliminate face-to-face only through  notice-and-comment rulemaking.  In that case, we found that  the Department of Health and Human Services was required  to engage in notice-and-comment rulemaking when it eliminated Medicare claimants' right to seek reimbursement directly from the agency's Secretary, and now required them to  submit their claims to regional intermediaries.  See id. at  949-50.

17
Home Health Agencies is distinguishable.  Unlike the rule  challenged in that case, which both eliminated claimants'  access to the HHS Secretary and transferred his authority to  issue reimbursements to other agency employees, the  USDA's rule does not change the agency personnel who will  be responsible for reviewing proposed labels.  Rather, "[t]he  labeling review staff will continue to receive and approve  labels," even though they will no longer do so in face-to-face  meetings.  Elimination of Face-to-Face, 63 Fed. Reg. at  40,010.  The crucial element of Home Health Agencies is not whether one has "face time" with agency staff members, but  which staffers have decision making authority.  Home Health  Agencies is thus consistent with our holding here, for the  same USDA staffers who reviewed labels under face-to-face  continue to review labels after that procedure's abolition.

18
Because the USDA's decision to eliminate face-to-face label  review was a "rule[ ] of agency organization, procedure, or  practice," 5 U.S.C. § 553(b)(A), we hold that the agency was  not required to do so through notice-and-comment rulemaking.

B. Amended Complaint

19
On November 10, 1998, Hurson attempted to amend its  complaint to supplement its notice-and-comment claim with  allegations that the USDA's elimination of face-to-face both is  arbitrary and capricious and violates the Constitution's Commerce Clause.  The District Court disallowed the amendment, citing the fact that Hurson had not filed its motion until  after the parties had fully briefed their cross-motions for  summary judgment.  USDA now proposes that the District  Court's refusal was within its discretion, and cites our pronouncement that, when a plaintiff seeks to amend "more than  a year after the filing of [its] initial complaint and after  dispositive motions had been filed and opposed," denying its  motion "does not appear to be an abuse of discretion."  Wilderness Soc'y v. Griles, 824 F.2d 4, 19 (D.C. Cir. 1987).We conclude that, while the decision whether to permit  amendments ordinarily "is left to the discretion of the district  court," Gaubert v. Federal Home Loan Bank Bd., 863 F.2d  59, 69 (D.C. Cir. 1988), the District Court here erred because  Hurson was entitled to amend its complaint as a matter of  right. The Federal Rules of Civil Procedure guarantee a plaintiff  an absolute right to amend its complaint once at any time  beforethe defendant has filed a responsive pleading.  See  Fed. R. Civ. P. 15(a) ("A party may amend the party's  pleading once as a matter of course at any time before a  responsive pleading is served....").  In this case, the USDA  filed no answer, but only a motion to dismiss.  We have  repeatedly clarified that a motion to dismiss is not a responsive pleading for the purposes of Rule 15.  See, e.g., Confederate Memorial Ass'n v. Hines, 995 F.2d 295, 299 (D.C. Cir.  1993) ("As a motion to dismiss is not ordinarily considered a  'responsive pleading' ... under Rule 15(a), appellants could  have amended their complaint as of right prior to the court's  decision on the motions." (citation omitted));  accord, Bowden  v. United States, 176 F.3d 552, 555 (D.C. Cir. 1999) ("At the  time Bowden sought to amend, the government had filed only  a motion to dismiss or in the alternative for summary judgment, which is not considered a responsive pleading.").  Because Hurson therefore was entitled as a matter of right to  amend its complaint, it was error for the District Court to  refuse to consider its added claims.

20
But not all such errors require a remand.  See Bowden, 176  F.3d at 555 ("Though erroneous, the district court's denial of  Bowden's motion to amend does not require a new trial.").Rather, we recognize that a district court need not be made  to reconsider an amended complaint that fails to state a claim  upon which relief could be granted, or that would otherwise  fail as a matter of law.  In other words, no remand is  necessary if the amended complaint would not survive a  motion to dismiss under Federal Rule of Civil Procedure  12(b)(6).  Thus, in Confederate Memorial, we declined to  remand because the plaintiff's amended complaint "fail[ed] to  state a civil RICO claim" in that it failed to allege two  essential elements:  "the existence of an enterprise" and "that  appellants suffered injury."  Confederate Memorial, 995 F.2d  at 299, 300.  And in Bowden, we likewise refused to remand  for a new trial based on the plaintiff's amended complaint,  which added demands for fees, compensatory damages, and a  jury trial, because the plaintiff was "not a prevailing party  entitled to attorneys' fees or compensatory damages" and  "had no right to trial by jury."  Bowden, 176 F.3d at 555, 556.

21
As was true in Confederate Memorial, Hurson's Commerce-Clause claim would fail as a matter of law, because it  fails to allege the claim's essential elements.  In order to  articulate a cognizable Commerce-Clause challenge, a plaintiff  must allege, at a minimum, that Congress has regulated an  activity that falls within none of the following three categories:  (1) the channels of interstate commerce;  (2) the instrumentalities of interstate commerce;  or (3) activities that have  a substantial relation to interstate commerce.  See United  States v. Lopez, 514 U.S. 549, 558-59 (1995).  Hurson's complaint neither contains nor even suggests any such allegation.

22
In fact, what Hurson styles as a Commerce-Clause claim is  unlike any Commerce-Clause claim this Court has ever encountered.  Hurson does not allege that the statutes authorizing the USDA to regulate food labels exceed the scope of  Congress's authority under the Commerce Clause.  (Nor  could it, if it wishes to remain in business, for if Congress  lacks the authority to regulate labeling, there is no need for  courier/expediter firms.)  Instead, it alleges that the USDA's  elimination of face-to-face transgresses the Commerce Clause  because it imposes an undue burden on interstate commerce. See Appellant's Brief at 31-34.  Hurson's argument, in essence, is that the federal government may exercise its Commerce-Clause powers only in ways that promote the free flow  of interstate commerce.  No court has ever recognized any  such claim for relief, nor do we now.  Therefore, we do not  remand Hurson's Commerce-Clause claim as it would not  withstand a motion to dismiss in any event.

23
Hurson's arbitrary-and-capricious claim is a different matter.  A plaintiff can state a claim that an agency's action was  "arbitrary, capricious, an abuse of discretion, or otherwise not  in accordance with law," 5 U.S.C. § 706(2)(A) (1994), in a  number of ways.  Those include alleging that the agency  failed to articulate an adequate explanation for its new policy,  see, e.g., AT&T v. FCC, 974 F.2d 1351, 1355 (D.C. Cir. 1992),  and that it failed to consider factors made relevant by Congress, see, e.g., Motor Vehicle Mfrs. Ass'n v. State Farm Mut.  Auto. Ins. Co., 463 U.S. 29, 43 (1983).

24
It seems to this Court that Hurson's arbitrary-and capricious claim is exceptionally weak.  We harbor grave  doubts that it would be able to prevail on remand.  Still, it appears that Hurson has alleged all the elements necessary to  state a claim.  In its amended complaint, it argued that:

25
The reasons for the challenged action, as stated by Defendants in the notice, are patently pre-textual, implausible, counter to the attendant facts, and show a failure to consider important factors;  and thus the defendants' decision reflected by the Notice is arbitrary, capricious and clearly erroneous.

26
Amended Complaint at 6.  Whatever its substantive flaws,  Hurson's arbitrary-and-capricious claim would survive a  12(b)(6) motion to dismiss.  If USDA did, in fact, fail to  proffer an adequate explanation for its decision to eliminate  face-to-face, or if it did in fact fail to consider factors deemed  relevant by Congress, a court could conclude that the agency  acted arbitrarily and capriciously.

27
Because Hurson had an absolute right to add an arbitrary and-capricious claim to its complaint, we therefore have no  alternative but to remand with instructions that it be permitted to amend its complaint to include that claim.  The Court  would have the USDA realize that it could have avoided this  additional stage of litigation by doing no more than filing an  answer, or other responsive pleading.

28
In sum, the District Court erred in declining to allow  Hurson to amend its complaint to allege that the USDA's  elimination of face-to-face violates the Commerce Clause and  is arbitrary and capricious, because Hurson was entitled to  amend its complaint as a matter of right.  Although the  Commerce-Clause claim would not survive a motion to dismiss, and therefore need not be remanded, Hurson alleges  the necessary elements of an arbitrary-and-capricious claim. Hurson must, therefore, be permitted to amend its complaint  to include the latter claim.

III. CONCLUSION

29
We affirm the District Court's grant of summary judgment  on Hurson's notice-and-comment claim.  We also affirm its  denial of Hurson's motion to amend its complaint to include a Commerce-Clause claim. We reverse the District Court's  denial of Hurson's motion to include an arbitrary-andcapricious claim in its complaint, and remand for further  proceedings.

30
It is so ordered.