Legislative rules, nonlegislative rules, and the perils of the short cut.

• Author: Franklin, David L.

ARTICLE CONTENTS INTRODUCTION I. BACKGROUND: THE DISTINCTION BETWEEN LEGISLATIVE AND NONLEGISLATIVE RULES II. SLICING THROUGH THE SMOG? ENTER THE SHORT CUT III. THE SHORT CUT NOT TAKEN: EXPLORING THE CURRENT JUDICIAL LANDSCAPE IV. THE PERILS OF THE SHORT CUT: IN DEFENSE OF JUDICIAL SKEPTICISM A. Casting Doubt on the Trade-Off B. Mead Does Not Rescue the Short Cut CONCLUSION INTRODUCTION

There is perhaps no more vexing conundrum in the field of administrative law than the problem of defining a workable distinction between legislative and nonlegislative rules. The problem is relatively easy to state. Under standard doctrine, these two types of rules differ from one another in both a substantive and a procedural sense. Substantively, legislative rules are designed to have binding legal effect on both the issuing agency and the regulated public; procedurally, the Administrative Procedure Act (APA) requires such rules to undergo the expensive and time-consuming process known as notice-and-comment rulemaking before being promulgated. (1) Nonlegislative rules, by contrast, are not meant to have binding legal effect, and are exempted from notice and comment by the APA as either "interpretative rules" or "general statements of policy." (2)

So far, so good. The problem arises when we leave the airy realm of theory and enter the untidy arena of litigation. Here is the usual sequence of events: a federal agency issues some sort of pronouncement--a guidance, a circular, an advisory--without using notice and comment; parties that believe that they are adversely affected by the new pronouncement go to court, perhaps before it has even been enforced against anyone; the challengers argue that the pronouncement is in fact a legislative rule and is therefore procedurally invalid for failure to undergo notice and comment.

Even by the standards of administrative law--a field in which uniform, predictable rules of black-letter law are hard to come by--the resulting litigation is considered notoriously difficult. The problem is not just that the Supreme Court has not supplied a test for distinguishing between the two types of rules, or that the APA does not define the exempt categories of interpretative rules and general statements of policy. The problem runs deeper: it turns out to be maddeningly hard to devise a test that reliably determines which rules are legislative in nature and which are not. Currently, courts do their best by examining the text, structure, and history of the rule, its relationship to existing statutes and rules, and the manner in which it has been enforced (if at all) in an effort to ascertain whether the rule was intended to have binding legal effect or instead was merely designed to clarify existing law or to inform the public and lower-level agency employees about the agency's intentions. Given the amount of indeterminacy built into this inquiry, it is no wonder that courts have labeled the distinction between legislative and nonlegislative rules "tenuous," "baffling," and "enshrouded in considerable smog." (3)

What seems just as baffling, however, is that for many years, administrative law scholars have proposed a simple solution to the problem of distinguishing between these two types of rules--and courts have failed to take them up on it. The scholars' proposal is disarmingly simple; indeed, it is not so much a solution as a way of malting the problem disappear. It runs as follows: rather than asking whether a challenged rule was designed to be legally binding in order to determine whether it must undergo notice and comment, courts should simply turn the question inside-out and ask whether the rule has undergone notice and comment in order to determine whether it can be made legally binding. Rules that have been through notice and comment would be accorded the force of law in later enforcement actions; rules that have not been through notice and comment would be denied such force. No longer would a rule's substantive nature dictate its procedural provenance; instead, its procedural provenance would determine its substantive effect. (4)

This approach--which I will call the "short cut," for short--has tremendous appeal. Most attractively, it would economize on judicial decision costs by eliminating at one stroke the need for courts to divine the intrinsic nature or purpose of any challenged rule or to develop any elaborate test for distinguishing between legislative and nonlegislative rules. Instead, courts would simply shunt aside all challenges raising questions of procedural validity under the APA. At the enforcement stage, too, courts would merely need to ascertain the procedural provenance of the challenged rule--almost always a very simple task(5)--to determine the uses to which the rule could validly be put.

The most obvious objection to the short cut is that it would substantially diminish judicial and public oversight of the administrative process by leaving agencies free to eschew notice and comment at their unreviewable discretion. But the proponents of the short cut have a response to this objection. Agencies, they argue, would still need to submit their rules to robust scrutiny at some stage: either scrutiny by the public during the notice-and-comment period or, if the agency opts to dispense with notice and comment, enhanced scrutiny by the courts during judicial review of enforcement action. (6) This component of the short cut argument is crucial enough that it deserves its own name: the "trade-off." The trade-off asserts that agencies-recognizing that they must either "pay now or pay later" (7) in terms of defending their substantive policy choices--would decide, at least much of the time, to submit their rules to notice and comment ex ante in exchange for the assurance that those rules will be treated as legally binding ex post. As a result, say the proponents of the short cut, their proposal would not lead to any appreciable decrease in substantive oversight of the administrative state.

In recent years, advocates of the short cut have added another arrow to their quiver. The trade-off at the heart of the short cut, they argue, has been implicitly embraced by the Supreme Court in its decision in United States v. Mead Corp. (8) which holds that nonlegislative rules are presumptively disqualified from deferential judicial review under the Chevron doctrine. (9) After Mead, the argument goes, it is clearer than ever that agencies cannot have their cake and eat it too by sidestepping expensive public input at the promulgation stage while also counting on lenient substantive review from courts at the enforcement stage. (10)

The federal courts themselves have never explained why they have not adopted the short cut in the face of these seemingly compelling arguments in its favor. This Article fills that gap by accounting for the continued judicial adherence to the now-traditional (if frustratingly indeterminate) enterprise of distinguishing between legislative and nonlegislative rules in order to adjudicate claims of procedural invalidity. But the Article has more than merely descriptive aims. It has a normative objective as well: it seeks to explain not only why judges have resisted the short cut but also why they have been wise to do so.

Part I of the Article lays out in greater detail the problem of distinguishing between legislative and nonlegislative rules. Part II sets forth the short cut proposal, tracing its lineage back through the work of several prominent administrative law scholars to a seminal 1987 dissent by then-Judge Kenneth Starr. Part III demonstrates that courts have not adopted the short cut, conducting a brief tour through current case law with an emphasis on cases in which courts have confronted, either directly or indirectly, the logic of the short cut and the trade-off.

Part IV of the Article attempts to explain this judicial reluctance. Section IV.A argues that caution about the short cut is warranted in light of three factors, all of which take aim at the trade-off argument that is so central to the short cut's appeal. First, there are situations in which the trade-off relied upon by advocates of the short cut would not take place, (11) Second, the logic of the trade-off stands in strong tension with the longstanding administrative law principle that agencies are generally free to establish new policy through adjudication as well as through rulemaking. (12) Third, and most fundamental, the trade-off is problematic even when it operates as its advocates intend, because there are important differences between public scrutiny at the promulgation stage and heightened judicial scrutiny at the enforcement stage. (13) Because of the differences between these two types of oversight, courts adopting the short cut would often sacrifice the former without fully capturing the benefits of the latter.

Finally, Section IV.B rejects the contention that the Mead decision lends decisive force to the arguments in favor of the short cut, for three reasons. First, even under Mead. nonlegislative rules might still qualify for heightened deference under the Chevron doctrine. (14) Second, even if the deference owed to nonlegislative rules is diminished in theory after Mead, it is still often substantial in practice, particularly in technically complex contexts. (15) Third, an agency's interpretation of its own rules, even when promulgated in the form of a nonlegislative rule, continues to warrant an extremely lenient form of judicial review. (16) For all these reasons, it is unrealistic to derive assurance from Mead that rules will receive more exacting judicial scrutiny simply because they were promulgated without public input.

1. BACKGROUND: THE DISTINCTION BETWEEN LEGISLATIVE AND NONLEGISLATIVE RULES

   The APA adopts an extraordinarily broad definition of "rule": it is "the whole or a part of an agency statement of general or particular applicability and future effect designed...