Chapter 6: Administrative LawI. THE PRACTICAL SIGNIFICANCE OF ADMINISTRATIVE LAWa. Administrative Agencies exist at all levels of government i. Federal, state, and localii. Affect all aspects of business, including1. Firm’s capital structure, financing & financial reporting (Securities and Exchange Commission)2. Employer-Employee Relations (Equal Employment Opportunity Commission)3. Relations between a firm and unions (National Labor Relations Board)4. Product manufacturing (Environmental Protection Agency & Occupational Safety and Health Administration)5. Product Marketing (Federal Trade Commission)b. Agencies provide a comprehensive regulatory scheme, often working together to create and enforce certain regulationsII. AGENCY CREATION AND POWERSa. Enabling legislation specifies the name, purposes, functions and powers of an agency (state and federal)b. Federal agencies can only exercise powers Congress has specifically delegated through enabling legislationc. Example: The Federal Trade Commission has the power to:i. Create rules and regulations to carry out the FTC Actii. Conduct investigations of business practicesiii. Obtain reports from interstate corporations concerning their business practicesiv. Investigate possible violations of federal antitrust statutesv. Publish the findings of its investigationsvi. Recommend new legislationvii. Hold trial-like hearings to resolve certain kinds of trade disputes that involves FTC regulations or federal antitrust lawsd. Two basic types of agencies:i. Executive Agencies: subject to the authority of the president, who can appoint and remove officersii. Independent Agencies: officers serve a fixed term and cannot be removed without just causee. Administrative Agencies’ powers mirror those of the federal government as a whole: rulemaking, rule enforcement, adjudicationi. Delegation Doctrine: Congress has the power to establish agencies that can create legislative rules to implement laws andinterpretive rules to declare policy ii. Executive branch controls agencies through veto power and through president’s power to appoint federal officers iii. Congress exercises authority over agency power through enabling legislation and subsequent legislation1. Congress can restrict or expand agency power2. Congress can investigate an agency3. Administrative Procedure Act (APA) acts as a check on agency poweriv. APA provides for judicial review of most agency decisions1. Exhaustion Doctrine: A party must have used all potential administrative remedies before filing suitIII. THE ADMINISTRATIVE PROCEDURE ACT (APA)a. Imposes procedural requirements that all federal agencies must follow in their rulemaking, adjudication and enforcement functionsb. Arbitrary and Capricious Test: APA provides that courts should set aside agency decisions that are “arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with the law;” includingi. Failure to provide a rational explanation for a decisionii. Change in prior policy without an explanationiii. Consideration of legally inappropriate factorsiv. Failure to consider a relevant factorv. Render of a decision plainly contrary to the evidencec. Rulemaking: Congress confers an agency’s power to make rulesi. Rule: an agency statement of general or particular applicability and future effect designed to implement, interpret or prescribe law and policyii. Agency rules/regulations have a binding legal effectd. Rulemaking Process:i. Notice of the proposed rulemaking: an agency publishes a notice of proposed rulemaking in the Federal Registerii. Comment period: interested parties can express their views on the proposed rule in writing or orally (if a hearing is held)iii. Final Rule: final rule is published in the Federal Register and later compiled in the Code of Federal Regulations (CFR)iv. Failure to follow rulemaking procedures means that the final rule can be challenged and is unlikely to be bindinge. Informal Agency Actions: A rule that states an agency’s interpretation of its enabling statute’s meaning, may be issued without formal rulemaking and imposes no direct or binding effectIV. JUDICIAL DEFEREANCE TO AGENCY DECISIONSa. Courts generally defer to an agency’s factual judgment on a subject within the area of its expertise and its interpretation of its legal authorityb. Chevron v. NRDC: When reviewing an agency’s interpretation of law, a court should ask: i. Whether the enabling statute directly addresses the issue, and if notii. Whether the agency’s interpretation is reasonablec. Courts more likely to give Chevron deference if the agency’s decision has resulted from formal rulemakingV. ENFORCEMENT AND ADJUDICATION a. Investigation: during the rulemaking process, an investigation obtains information about a certain individual, firm, or industry to avoidissuing a rule that is arbitrary and capricious and instead is based on aconsideration of the relevant factors; after final rules are issued, agencies conduct investigations to monitor compliancei. Inspections: agencies will conduct on-site inspections to obtainevidence to prove a regulatory violation, sometimes in place of a formal hearing. If the firm or individual fails to cooperate with an inspection the agency may use a subpoena or search warrantii. Subpoenas: Two basic types:1. Ad testificandum: ordinary subpoena compelling a witness to appear at a hearing2. Duces Tecum: compels individual or organization to hand over books, papers, records or documents3. Agency demands are limited by:a. Purpose of an investigationb. Relevancy of the information soughtc. Specificity of the demand for testimony or documentsd. Burden of the demand on the party from whom the information is soughtiii. Searches during site inspections1. Search warrant usually required: 4th Amendment protects against unreasonable searches and seizures by government officers2. Some warrantless searches are legal (particularly in highly regulated industries or hazardous operations or emergencies)b. Adjudication: Most administrative actions are resolved through negotiated settlements at their initial stages without formal adjudicationi. Negotiated Settlements: appealing to firm because1. Regulated industries often do not want to appear uncooperative2. Litigation is expensiveii. Formal Complaints: complaint is public document and a press release often comes with it; if parties cannot settle the case goes before an administrative law judgeiii. Administrative Law