Court Opinion

ID: 8914634
Source: CourtListenerOpinion
Date Created: 2022-11-27 04:29:00.959867+00
Date Added: 2024-06-11T17:08:51.867574
License: Public Domain

A. LEON HIGGINBOTHAM, Jr., Circuit Judge,
dissenting.
This case comes to us on appeal from an Order of Chief Judge Lord, dated November 20,1981, which enjoins the state defendant, Secretary O’Bannon, from implementing state regulations passed pursuant to the Omnibus Budget Reconciliation Act (OBRA). Among other things, OBRA amended the Aid to Families with Dependent Children (AFDC) program to reduce or eliminate federal funding for a number of categories of previously eligible recipients under the state-administered AFDC program. Secretary Schweiker, alleging good cause under the Administrative Procedure Act (APA), dispensed with the notice and comment provisions of the APA. The gravamen of Chief Judge Lord’s opinion is that good cause did not exist, either in law or in fact, and, consequently, the regulations promulgated by Secretary Schweiker were invalid. Further, because the state regulations promulgated by Secretary O’Bannon were virtually identical to the invalid federal regulations and looked in substantial part to an exercise of discretion by Secretary Schweiker for their substantive content, the federal defendant’s violation of the APA could only be remedied by enjoining the state defendant whose role it is to administer the AFDC program.
The majority opinion concludes that Chief Judge Lord “erred in declaring the federal rules invalid and in enjoining the Pennsylvania rules.” Majority Opinion, at 888. Because I believe that Chief Judge Lord’s opinion was legally correct and not clearly erroneous on the issue of a federal violation, I dissent from the majority’s reversal on this ground.
*889I.
The majority’s recitation of the history of the AFDC program is sufficient and does not need to be repeated. What does bear repeating is the chronology of events regarding the promulgation of the federal regulations.
Congress enacted OBRA into law on August 13, 1981. In anticipation of the passage of OBRA, the Department of Health and Human Services (HHS) formed a study group in May of 1981. The group included federal and state officials and was charged with the duty of formulating a timetable to ensure timely promulgation of any necessary regulations. It was at this point, “almost six months before the actual effective date of OBRA, [that] HHS decided to avoid the usual notice and comment procedures mandated by the Administrative Procedure Act (APA), 5 U.S.C. §§ 500-576, and instead to issue interim final regulations implementing OBRA.” District Court Opinion, at 185.
The effective date of OBRA was October 1, 1981. On July 22, 1981, HHS wrote to 32 interested organizations informing them that Congress had under consideration legislation which would affect AFDC. The letter solicited suggestions for regulations but did not contain any draft regulations. The letter requested written comments by August 7, 1981. Not surprisingly, only one of the 32 organizations responded and it complained of the short period of time and the proposed use of interim final regulations. The federal defendant made no effort to recontact any of the organizations after the draft regulations were developed.
HHS conducted conferences on September 13 and 15, 1981. Participation in these conferences was limited to state administrators. On September 3, 1981, Secretary Schweiker approved a proposed set of regulations which were then published in the Federal Register on September 21, 1981. The regulations were to take effect October 1, 1981 leaving only nine days for comment prior to OBRA’s and the regulations’ effective date.
The majority observes that “few comments on the rules were received by HHS. Indeed, no comment was received from the appellee organizations until November 19, 1981.” Majority Opinion, at 880. Yet, as Chief Judge Lord wrote, “the uncontrovert-ed testimony of Ms. Betty Van Dyke, a board member of the Philadelphia Citizens in Action, one of the plaintiffs here [revealed] that her organization did not comment during the post-publication comment period because of its view that the agency [HHS] had already made up its mind.” District Court Opinion, at 192.
Pennsylvania, after reviewing the regulations in the Federal Register, promulgated regulations on November 7, 1981 with an effective date of November 9, 1981. Although based on the federal regulations, it is Pennsylvania’s November 7, 1981 regulations which result in the complete cutoff of AFDC benefits to 17,840 households comprising 53,520 persons. An additional 23,-950 households composed of 57,050 persons will have their AFDC benefits reduced an average $133.49.
II.
It is the appellees’ contention that the federal defendant violated the APA when he elected to dispense with prior notice and comment.1 The relevant section of the APA states as follows:
(b) General notice of proposed rulemak-ing shall be published in the Federal Register, unless persons subject thereto are *890named and either personally served or otherwise have actual notice thereof in accordance with law. The notice shall include—
(1) a statement of the time, place, and nature of public rulemaking proceedings;
(2) reference to the legal authority under which the rule is proposed; and
(3) either the terms or substance of the proposed rule or a description of the subjects and issues involved.
Except when notice or hearing is required by statute, this subsection does not apply—
(A) to interpretative rules, general statements of policy, or rules of agency, organization, procedure, or practice; or
(B) when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.
5 U.S.C. § 553(b). The appellants concede that § 553(b) is applicable to this case. Thus, the only issue presented under these facts regarding -the APA is whether the federal defendant had good cause under § 553(b)(B) to dispense with notice and comment.
Chief Judge Lord concluded, after closely examining our decisions in Sharon Steel Corp. v. EPA, 597 F.2d 377 (3d Cir. 1979) and American Iron and Steel Institute v. EPA, 568 F.2d 284 (3d Cir. 1977), that, as a matter of law, the federal defendant lacked good cause. He reasoned as follows:
In both American Iron and Steel and Sharon Steel Corp. v. Environmental Protection Agency, 597 F.2d 377, 380 (3d Cir. 1979), the Third Circuit held expressly that time pressure on an agency caused by rapidly approaching effective dates for the underlying legislation does not constitute good cause for dispensing with the APA’s normal notice and comment requirements. The discussion in Sharon Steel on this issue is particularly instructive:
In enacting amendments to the Clean Air Act, Congress gave no explicit indication that it intended to override the procedural safeguards of the APA. The amendment set the December 5, 1977, deadline for submission of state designations, the February 3, 1978, deadline for the Administrator’s review, and the January 1, 1979, deadline for state implementation plans. Even at the time when Congress passed the amendments to the Clean Air Act, the circumstances that the Administrator advances as good cause should have been apparent. Nonetheless, Congress nowhere recorded any express indication that the 1977 amendment should relieve the Administrator from the ordinary procedures set forth in the APA for rulemaking.
Sharon Steel, 597 F.2d at 380 (emphasis added).
Finally, it is also crystal clear under applicable Third Circuit precedents that a period for comment following publication of final regulations is not a valid substitute for the normal provisions of the APA:
We hold that-the period for comments after promulgation cannot substitute for the prior notice and comment required by the APA. If a period for comments after issuance of a rule could cure a violation of the APA’s requirements, an agency could negate at will the Congressional decision that notice and an opportunity for comment must precede promulgation. Provision of prior notice and comment allows effective participation in the rulemaking process while the decision maker is still receptive to information and argument. After the final rule is issued, the petitioner must come hat-in-hand and run the risk that the decision maker is likely to resist change.
Sharon Steel, 597 F.2d at 381.
Under these precedents, I hold as a matter of law that the federal defendant did not have “good cause” for dispensing with the notice of proposed rulemaking *891otherwise required under the APA. The main justification asserted for this action, that the OBRA passed only forty-eight days before its scheduled effective date, has been explicitly and repeatedly rejected as good cause in the Third Circuit. The logic of Judge Rosenn’s analysis in Sharon Steel is inescapable: to hold otherwise would allow Congress to override the notice and comment provisions of the APA merely by placing an effective date in every statute that put some time pressure on the administering agency. It is eminently more reasonable to expect Congress to enact an express override to those provisions of the APA when it wishes to achieve that result. Finally, neither the informal pre-publication comments solicited by HHS nor the more formal post-publication comment period provided for in the September 21, 1981 promulgation is sufficient to cure this fatal defect.
District Court Opinion, at 189-190.
The majority rejects Chief Judge Lord’s conclusion by “read[ing] the two cases more cautiously.” Majority Opinion, at 883. Their caution involves constructing a hypothetical case whereby “Congress on October 1 order[s] HHS to promulgate regulations by October- 2.” Id. They then conclude that, “it is manifest that HHS would have good cause to do so without a notice and comment procedure.” Id. The critical flaw in the majority’s hypothetical is the word “ordered.” Of course, Chief Judge Lord recognized that if OBRA contained an express statutory override of the APA good cause would exist. The emphasis he added to the excerpt from Sharon Steel regarding an “express indication” demonstrates Chief Judge Lord’s awareness of the majority’s proposition. However, the fact remains that OBRA does not contain an “express indication” of such an intent by Congress.
The majority’s attempt to narrow and distinguish Sharon Steel from the present case is also unpersuasive. In Sharon Steel, the EPA argued that the shortness of the period from December 5, 1977, when the states were required to submit Clean Air Act implementation plans, to February 3, 1978, when the EPA had to complete their review of the plans, necessitated dispensing with notice and comment. We rejected the EPA’s argument because the EPA could have published the state-submitted plans upon receipt and this would have constituted sufficient notice of “either the terms or substance of the proposed rule or a description of the subjects and issues involved.” 5 U.S.C. § 553.
In the present case, Chief Judge Lord found that “HHS made its decision to dispense with normal notice and comment procedures in May 1981, almost six months before the actual effective date of the statute.” The majority does not assert that this finding is clearly erroneous. The facts here are less compelling for a finding of good cause than Sharon Steel. If a two month time period is not sufficient to overcome the narrowly construed good cause exception, I do not understand how an agency with six months can claim good cause. Similarly, there is no evidence to indicate that “ ‘the agency functions would be unavoidably prevented by its undertaking public rule-making proceedings.’” American Iron and Steel, 568 F.2d at 292 quoting Senate Rep.No.752, 79th Cong., 1st Sess. 16 (1945) (emphasis in original).
The absence of any need to dispense with notice and comment is further demonstrated by Chief Judge Lord’s independent factual findings. He found as follows:
Putting this theoretical evidence aside, and looking instead to how HHS actually developed these regulations, I still conclude that no good cause existed. The record is clear that HHS had a rough draft of proposed regulations on August 13, the same day OBRA passed. (See Exhibit P-2) Although it is also true that this draft was extremely preliminary, there is no reason why [a Notice of Proposed Rule Making] could not have been published on or shortly following the August 13 date. Under the APA, a NPRM need contain “either the terms or substance of the proposed rule or a description of the subjects and issues in*892volved.” 5 U.S.C. § 553(b)(3) (emphasis added). Following that publication, HHS could have taken the identical steps that it performed to meet its objective of publishing an interim final rule before October 1, 1981. It could have circulated that draft to the [Association of Public Welfare Administrators], it could have developed a new draft based on the comments on the first draft, it could have added the comments that would have come in as a result of publication of the NPRM, it could have circulated a new draft to the APWA in early September, it could have put its final draft through OMB and HHS clearance procedures, and it could have held the two conferences in Arizona and Pennsylvania for the benefit of state administrators to provide them guidance on implementation of OBRA. The fact is that HHS polished that August 13, 1981 draft into interim final regulations which had cleared all HHS and OMB administrative obstacles by September 21, 1981, ten days before the effective date of the statute.
Viewed in this light, it is inconceivable how the federal defendant can maintain that, had it chosen to pursue the NPRM procedure in May 1981, it would not have been able to promulgate final regulations by October 1, 1981. The only additional burden placed on HHS had it published the regulations as a NPRM is the burden of reviewing the additional comments that that publication would generate. The federal defendant appears to argue that all work would have had to cease during the minimum thirty day comment period mandated by the APA. Nothing in the record supports such a contention. Thus, from the middle of August until the middle of September, during the thirty day public comment period, HHS could have continued to perform the same tasks that it actually performed during the same time period on the facts of this case. That HHS was able to transform the extremely rough working draft of August 13 into the polished regulations that appear in the Federal Register by September 3 (when the regulations were sent to OMB for clearance) is conclusive proof of its capacity to transform the hypothetical NPRM of August 13 into a final rule by the middle of September for transmittal to OMB for the same clearance.
District Court Opinion, at 191.
The standard of review for these findings is of course the familiar clearly erroneous standard. Krasnov v. Dinan, 465 F.2d 1298 (3d Cir. 1972). The majority does not contend that these findings of fact are clearly erroneous. Instead, they apply the abuse of discretion standard in an effort to skirt otherwise iron-clad factual findings. The majority’s reliance on Universal Minerals, Inc. v. C. A. Hughes & Co., 669 F.2d 98 (3d Cir. 1981) for the proposition that the district court’s findings are not subject to the clearly erroneous standard of review is misplaced. The Universal Minerals case concerned an appeal to our court “from an appellate decision of the district court, which reversed the judgment of a bankruptcy court in an adversary proceeding. ...” At 100. Because the district court was not sitting as a fact finder but rather was reviewing the bankruptcy court’s findings of fact made after a full hearing, the rationale for applying the clearly erroneous standard, i.e., to give deference to the judge who has heard testimony and has made findings based on demean- or and credibility which are not apparent from a cold appellate record, did not exist. When the district court sits as an appellate court to review an administrative adjudicatory proceeding, “we are in as good a position as the district court to review the findings . . . . ” Universal Minerals, at 102. The present case, however, is very different from Universal Minerals. The district court was sitting as the initial trier of fact and did hear live testimony from HHS officials and from the plaintiffs. There was no adjudicatory proceeding below and the entire factual record was developed in the district court. HHS was rulemaking and not conducting an adversarial hearing which would then be subject to appellate review in the district court. It is axiomatic that the district court’s findings of fact *893made after hearing the witnesses and observing the credibility of HHS officials cannot be reversed on appeal unless clearly erroneous. Fed.R.Civ.P. 52(a).
In my view, Chief Judge Lord was correct in following the dictates of our Sharon Steel and American Iron and Steel cases. His legal conclusions are sound and his factual findings not clearly erroneous. Consequently, I dissent from the majority’s view that HHS had good cause under the APA to dispense with the procedural rights of notice and comment.
III.
The remedial aspect of Chief Judge Lord’s opinion is a closer issue and raises a question of the district court’s inherent power to fashion an effective remedy capable of making the injured party as nearly whole as possible.2 However, since the majority opinion declines to reach this issue, I will not address it.
The majority concludes that “. . . it can hardly be denied that the termination of benefits will work a hardship on families already pressed by financial exigency.” Majority Opinion, at 888. To call cuts in a life sustaining benefits program a mere “hardship” is an understatement. Others have characterized the cuts as “The War Against the Poor.” Although “Governors and Mayors understand the cuts; poor people feel them . . . For poor people the issue is not an abstract matter of ideology.... ” N.Y.Times, Dec. 27, 1981, § E at 14. I agree with the majority that “[i]n judging the validity of the procedure by which its rules were promulgated, we must not be swayed by our views of the desirability of the underlying statutory policy that HHS is bound to implement.” Id. at 888. I differ with the majority in that I do not believe that HHS was “bound to implement the policy” without proper notice or an opportunity to comment. In Sharon Steel we held that the steel companies which were polluting the air by their manufacturing process had a right to continue polluting the environment until they received from the federal government agency the procedural rights they were due under the APA. Similarly, I believe that 41,790 indigent families and 110,570 poor people have as much a right to the same type of procedural protection under the APA as the two steel companies did in Sharon Steel.

. The majority in a footnote expresses concern over the appellees’ standing to assert a violation of the APA. Majority Opinion, at 880 n.l. To the extent that the majority’s concern does not alter their conclusion that appellees do have standing, I consider the text of the footnote to be dicta and will not address it. However, I believe that the majority’s focus on the injury in fact inherent in OBRA is misleading and incorrect. The appellees recognize that they are without a basis for challenging OBRA at this time. Rather, they are arguing that the APA creates procedural rights which have been denied them without good cause. It is this injury which has in fact caused the harm to the appellees. Clearly, they have the requisite interest in a statutorily created procedural right to make their standing obvious.

. Chief Judge Lord reasoned that
both the testimonial and documentary record establish conclusively that the Commonwealth relied to an extremely significant extent on these invalid federal regulations. A simple comparison of the wording of the promulgated state regulations with the wording of the invalid federal regulations shows that time and again the Commonwealth merely copied the precise language from the federal regulations. Further, the explanatory material published by the Commonwealth accompanying its promulgation of state regulations states numerous times that its regulations are based on, required by, or follow the federal regulations. Finally, in several instances, such as the part-time worker earned income and child-care disregard sections, the Commonwealth regulations exercise authority specifically delegated to HHS. Absent sub-delegation from HHS, which in at least those two instances has been provided in the invalid regulations, the Commonwealth has no authority to regulate on these matters.
Thus, I bold that the Pennsylvania regulations promulgated on November 7, 1981 (to be effective November 9, 1981) are so pervasively tainted by the invalidity of the federal administrative process that allowing implementation of OBRA pursuant to these regulations would be equivalent to allowing a violation of the APA to stand unremedied. If the federal government can issue defective interim final regulations and the states can rely on them and implement federal programs pursuant to those regulations, then the plaintiffs would be deprived of their statutory right to comment on the implementing regulations before experiencing the adverse action authorized by the statute and invalid federal regulations. Thus, if my holding that the federal government violated the APA is to have any substantive effect at all, 1 must enjoin the state from implementing the provisions of OBRA in reliance on state regulations pervasively tainted by invalidly promulgated federal regulations.
District Court Opinion, at 193-194.