FIU Additional Administrative Law Judges Discussion

Assume that the Securities and Exchange Commission (SEC) has a rule under which it enforces statutory provisions prohibiting insider trading only when the insiders make monetary profits for themselves. Then the SEC makes a new rule, declaring that it has the statutory authority to bring enforcement actions against individuals even if they did not personally profit from the insider trading. The SEC simply announces the new rule without conducting a rulemaking proceeding. A stockbrokerage firm objects and says that the new rule was unlawfully developed without opportunity for public comment. The brokerage firm challenges the rule in an action that ultimately is reviewed by a federal appellate court. Using the information presented in the chapter, answer the following questions.

1. Is the SEC an executive agency or an independent regulatory agency? Does it matter to the out-come of this dispute? Explain.
2. Suppose that the SEC asserts that it has always had the statutory authority to pursue persons for insider trading regardless of whether they personally profited from the transaction. This is the only argument the SEC makes to justify changing its enforcement rules. Would a court be likely to find that the SEC’s action was arbitrary and capricious under the Administrative Procedure Act (APA)? Why or why not?
3. Would a court be likely to give Chevron deference to the SEC’s interpretation of the law on insider trading? Why or why not?
4. Now assume that a court finds that the new rule is merely “interpretive.” What effect would this determination have on whether the SEC had to follow the APA’s rulemaking procedures?

Debate This:Because an administrative law judge (ALJ) acts as both judge and jury, there should always be at least three ALJs in each administrative hearing.

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UNIT SIX: Government Regulation
37–5d Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act (SBREFA)14 includes various
provisions intended to ease the regulatory burden on small businesses:
1. Federal agencies must prepare guides that explain in plain English how small businesses can comply
with federal regulations.
2. Congress may review new federal regulations for at least sixty days before they take effect, giving
opponents of the rules time to present their arguments.
3. The courts may enforce the Regulatory Flexibility Act. This provision helps to ensure that
federal agencies will consider ways to reduce the economic impact of new regulations on small
businesses.
4. The Office of the National Ombudsman at the Small Business Administration was established to
receive comments from small businesses about their dealings with federal agencies. Based on
these comments, Regional Small Business Fairness Boards rate the agencies and publicize their
findings.
14. 5 U.S.C. Sections 801 et seq.
Practice and Review
Assume that the Securities and Exchange Commission (SEC) has a rule under which it enforces
statutory provisions prohibiting insider trading only when the insiders make monetary profits for
themselves. Then the SEC makes a new rule, declaring that it has the statutory authority to bring
enforcement actions against individuals even if they did not personally profit from the insider
trading. The SEC simply announces the new rule without conducting a rulemaking proceeding.
A stockbrokerage firm objects and says that the new rule was unlawfully developed without opportunity for public comment. The brokerage firm challenges the rule in an action that ultimately is
reviewed by a federal appellate court. Using the information presented in the chapter, answer the
following questions.
1. Is the SEC an executive agency or an independent regulatory agency? Does it matter to the outcome of this dispute? Explain.
2. Suppose that the SEC asserts that it has always had the statutory authority to pursue persons for
insider trading regardless of whether they personally profited from the transaction. This is the only
argument the SEC makes to justify changing its enforcement rules. Would a court be likely to find
that the SEC’s action was arbitrary and capricious under the Administrative Procedure Act (APA)?
Why or why not?
3. Would a court be likely to give Chevron deference to the SEC’s interpretation of the law on insider
trading? Why or why not?
4. Now assume that a court finds that the new rule is merely “interpretive.” What effect would this
determination have on whether the SEC had to follow the APA’s rulemaking procedures?
Debate This
Because an administrative law judge (ALJ) acts as both judge and jury, there should always be at
least three ALJs in each administrative hearing.
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CHAPTER 37: Administrative Law
889
Key Terms
adjudication 882
administrative agency 873
administrative law 872
administrative law judge (ALJ) 883
administrative process 879
bureaucracy 876
delegation doctrine 876
enabling legislation 875
exhaustion doctrine 876
final order 883
initial order 883
interpretive rule 880
legislative rule 876
notice-and-comment rulemaking 879
rulemaking 879
Chapter Summary: Administrative Law
Agency Creation
and Powers
1. Under the U.S. Constitution, Congress can delegate the implementation of its laws to government
agencies. Congress can thus indirectly monitor an area in which it has passed laws without becoming
bogged down in details relating to enforcement.
2. Administrative agencies are created by enabling legislation, which usually specifies the name,
composition, and powers of the agency.
3. Agencies can create legislative rules, which are as binding as formal acts of Congress.
4. The three branches of government exercise controls over agency powers and functions.
a. Executive controls—The president can control agencies through appointments of federal officers
and through vetoes of bills affecting agency powers.
b. Legislative controls—Congress can give power to an agency, take it away, increase or decrease
the agency’s funding, or abolish the agency.
c. Judicial controls—Administrative agencies are subject to the judicial review of the courts.
5. The Administrative Procedure Act also limits agencies.
The Administrative
Process
1. The administrative process consists of rulemaking, enforcement, and adjudication.
2. Agencies are authorized to create new regulations—their rulemaking function. This power is
conferred on an agency in the enabling legislation.
3. Notice-and-comment rulemaking is the most common rulemaking procedure. It involves the
publication of the proposed regulation in the Federal Register, followed by a comment period to allow
private parties to comment on the proposed rule.
4. As part of their enforcement function, administrative agencies investigate the entities that they regulate,
both during the rulemaking process to obtain data and after rules are issued to monitor compliance.
5. Some important investigative tools available to an agency are the following:
a. Inspections and tests—Used to gather information and to correct or prevent undesirable
conditions.
b. Subpoenas—Orders that direct individuals to appear at a hearing or to hand over specified
documents. The information must be sought for a legitimate purpose. It must also be relevant, and
the demands on the company must be specific and not unreasonably burdensome.
c. Search warrants—Orders directing law enforcement officials to search specific places for specific
items and seize them for the agency.
6. After a preliminary investigation, an agency may initiate an administrative action against an individual
or organization by filing a complaint. Most such actions are resolved at this stage.
7. If there is no settlement, the case is presented to an administrative law judge (ALJ) in a proceeding
similar to a trial.
8. After a case is concluded, the ALJ renders an initial order, which can be appealed by either party
to the board or commission that governs the agency and ultimately to a federal appeals court. If no
appeal is taken or the case is not reviewed, then the order becomes the final order of the agency.
Judicial Deference
to Agency Decisions
1. When reviewing agency decisions, courts typically grant deference to an agency’s findings of fact
and interpretations of law.
2. If Congress directly addressed the issue in dispute when enacting the statute, courts must follow the
statutory language.
(Continues )
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UNIT SIX: Government Regulation
3. If the statute is silent or ambiguous, a court will uphold an agency’s decision if the agency’s
interpretation of the statute was reasonable, even if the court would have interpreted the law
differently. (This is known as Chevron deference.)
4. An agency must follow notice-and-comment rulemaking procedures to be entitled to judicial
deference in its interpretation of the law.
Public Accountability
Congress has passed several laws to make agencies more accountable through public scrutiny. These
laws include the Freedom of Information Act, the Government in the Sunshine Act, the Regulatory
Flexibility Act, and the Small Business Regulatory Enforcement Fairness Act.
Issue Spotters
1. The U.S. Department of Transportation (DOT) sometimes hears an appeal from a party whose contract with the DOT has been canceled.
An administrative law judge (ALJ) who works for the DOT hears this appeal. What safeguards promote the ALJ’s fairness? (See The
Administrative Process.)
2. Techplate Corporation learns that a federal administrative agency is considering a rule that will have a negative impact on the firm’s
ability to do business. Does the firm have any opportunity to express its opinion about the pending rule? Explain. (See The Administrative
Process.)
—Check your answers to the Issue Spotters against the answers provided in Appendix C at the end of this text.
Business Scenarios and Case Problems
37–1. Rulemaking. For decades, the Federal Trade Commission
(FTC) resolved fair trade and advertising disputes through
individual adjudications. In the 1960s, the FTC began setting forth rules that defined unfair trade practices. In cases
involving violations of these rules, the due process rights of
participants were more limited and did not include crossexamination. This was because, although anyone found violating a rule would receive a full adjudication, the legitimacy
of the rule itself could not be challenged in the adjudication.
Any party charged with violating a rule was almost certain to
lose the adjudication. Affected parties complained to a court,
arguing that their rights before the FTC were unduly limited
by the new rules. What will the court examine to determine
whether to uphold the new rules? (See The Administrative
Process.)
37–2. Informal Rulemaking. Assume that the Food and Drug
Administration (FDA), using proper procedures, adopts a rule
describing its future investigations. This new rule covers all
future circumstances in which the FDA wants to regulate food
additives. Under the new rule, the FDA is not to regulate food
additives without giving food companies an opportunity to
cross-examine witnesses. Some time later, the FDA wants to
regulate methylisocyanate, a food additive. After conducting an
informal rulemaking procedure, without cross-examination, the
FDA regulates methylisocyanate. Producers protest, saying that
the FDA promised them the opportunity for cross-examination.
The FDA responds that the Administrative Procedure Act does
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not require such cross-examination and that it is free to withdraw the promise made in its new rule. If the producers challenge the FDA in court, on what basis would the court rule in
their favor? (See The Administrative Process.)
37–3. Spotlight on the Environmental Protection
Agency—Powers of the Agency. A well-documented rise
in global temperatures has coincided with a significant increase in the concentration of carbon dioxide
in the atmosphere. Many scientists believe that the
two trends are related, because when carbon dioxide is
released into the atmosphere, it produces a greenhouse
effect, trapping solar heat. Under the Clean Air Act (CAA), the
Environmental Protection Agency (EPA) is authorized to regulate “any” air pollutants “emitted into . . . the ambient air” that
in its “judgment cause, or contribute to, air pollution.” A group
of private organizations asked the EPA to regulate carbon
dioxide and other “greenhouse gas” emissions from new
motor vehicles. The EPA refused, stating that Congress last
amended the CAA in 1990 without authorizing new, binding
limits on auto emissions. Nineteen states, including Massachusetts, asked a district court to review the EPA’s denial. Did
the EPA have the authority to regulate greenhouse gas emissions from new motor vehicles? If so, was its stated reason for
refusing to do so consistent with that authority? Discuss.
[Massachusetts v. Environmental Protection Agency, 549 U.S.
497, 127 S.Ct. 1438, 167 L.Ed.2d 248 (2007)] (See Agency
Creation and Powers.)
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