Rules and Rulemaking

• Pages: 61-91
• Author: Richard J. Pierce, Jr.

61

Chapter 4

RULES AND RULEMAKING

A. Introductory Overview

Rules serve many salutary purposes in the administrative

justice system. They co nfine ag ency d iscretion, increase the

likelihood that agencies will decide like cases in like manner, and

provide notice to beneficiaries and regulatees with respect to the

rules that affect their benefits and duties. Moreover, rules often

enhance the efficiency of an adjudicatory system an d render it more

effective by providing a definitive resolution of a recurring issue,

thereby eliminating the need to litigate the issue in each case.

Most agencies have the power to adjudicate disputes. An y such

agency can announce a generally -applicable “rule” of conduct in the

same manner as a common law court—by announcing the rule or

principle in the course of adjudicating a dispute. The Supreme Court

has repeatedly upheld agency discretion to ann ounce generally-

applicable rules of conduct in this traditional manner.

1

Agencies also

can announce rules through other means, however. All agencies have

the inherent powe r to issue rules of procedure, interpretative rules,

and policy statements. An agency is not required to follow any

procedures before it issues a rule that falls in one of those categories.

Many agencies also have the power to issue legislative rules, also

known as substan tive ru les. As the name implies, legislative rules

have the same binding effect as statutes. Unless a legislative rule

falls within one of several exemptions, an agency cann ot issue a

legislative rule without following one of two procedures. If an agency

is required by statute t o issue a rule “on the record after an

opportunity for agency hearing,” the agency is required to use the

procedures described in APA §§ 556 and 557. Those are the same

provisions that apply to formal adjudications. As discussed in § 3B,

they require an agency to conduct an oral evidentiary hearing before

an ALJ. That rulemaking process is called formal rulemaking. Few

statutes require agencies to engag e in formal rulemaking, and an

agency that i s required to use formal rulemaking usually abandons

its ef forts to issue legislative rules because the formal rulemaking

process is so expensive, burdensome, and time-consuming. If an

agency is not required to issue rules “on the record ,” it can issue a

rule by using the three -step procedure described in APA § 553:

1

NLRB v. Bell Aerospace Co., 416 U.S. 267 (1974); SEC v. Chenery Corp., 332

U.S. 194 (1947).

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RULES AND RULEMAKING

Ch. 4

issuance of a Notice of Proposed Rulemaking (NOPR), receipt and

consideration of comments from interested members of the public,

and issuance of a final rule that is accompanied by a statement of its

basis and purpose. This is referred to as the process of informal

rulemaking.

Informal rulemaking once was an efficient means through which

an age ncy could issue a rule in only a year or two. It co ntinues to

operate in that manner in the context of the thousands of relative ly

non-controversial rules that agencies issue every year. I nformal

rulemaking is no lon ger a quick and inexpensive means of issuing a

rule today, however, when an agency uses it to issue one of the one

hundred to two hundred major rules that agencies issue e very year.

When a proposed rule would require regulatees to incur hundreds of

millions or billions of dollars in compliance costs, a rulemaking

typically takes three to ten years to complete and requires an agency

to devote a high proportion of its staff resources to the process of

issuing the rule. In the conte xt of issuance o f such a major rule, the

NOPR typically is several hundred pages long, interested members

of the public typically submit comments that total hundreds of

thousands of pages and that include numerous studies with

inconsistent findings with respect to the underlying issues, and the

typical statement of basis and purpose that accompanies the final

rule is five hundred to two thousand pages long. Moreover, at the end

of that long and expensive process, there is a thirty to forty per ce nt

chance that a reviewing court will reject the rule and remand the

proceeding to the agency for further action.

Several factors have contributed to the transformation of the

informal rulemaking process from a quick and efficient process to a

long, expensive, and burdensome process. First, the Supreme Court

adopted an interpretation of the arbitrary and capricious standard of

review in the rulemaking context that has two related effects: (1) it

encourages firms that dislike a proposed rule to submit volumino us

comments critical of the proposed rule, and (2) it requires the agency

to provide detailed responses to each well-supported criticism

contained in comments in order to minimize the risk that a court will

reject the rule as the product of arbitrary and capricious agency

action. Second, Congress has required many agencies to add

expensive and time-consuming procedural steps to the three -step

informal rulemaking process. Third, the President has also added

procedures that agencies must use when they issue major rules.

The long, expensive, and burdensome nature of the modern

informal rulemaking process has changed agencies’ incentives.

Agencies now minimize their use of the informal rulemaking process

to issue legislative rules and attempt where possible to substitute