The era of deference: courts, expertise, and the emergence of New Deal administrative law.

• Author: Schiller, Reuel E.

The first two terms of Franklin Roosevelt's presidency (1933-1941) were periods of great administrative innovation. Responding to the Great Depression, Congress created scores of new administrative agencies charged with overseeing economic policy and implementing novel social welfare programs. The story of the constitutional difficulties that some of these policy innovations encountered is a staple of both New Deal historiography and the constitutional history of twentieth-century America. There has been very little writing, however, about how courts and the New Deal-era administrative state interacted after these constitutional battles ended. Having overcome constitutional hurdles, these administrative agencies still had to interact with the judiciary in their day-to-day operations. This Article examines this interaction. In particular, it shows how Roosevelt's appointees to the federal bench changed administrative law so as to dramatically diminish the role of the judiciary in the administrative process. The New Dealers espoused what I will call a "prescriptive" vision of policymaking in which expert administrators implemented the policy desires that emerged from the democratic process. There was little room for courts in this vision of policymaking. This era of judicial passivity was short lived, but it firmly defined the role of expertise in the administrative state and created the model of judicial deference that would be both emulated and reacted against as administrative law developed during the rest of the twentieth century.

TABLE OF CONTENTS INTRODUCTION I. ADMINISTRATIVE LAW BEFORE THE NEW DEAL: A BRIEF OVERVIEW II. NEW DEAL ADMINISTRATIVE THEORY AND ITS DISSENTERS A. Expertise and the New Deal B. Expertise and the Courts C. The Conservative Response D. Courts, Democracy, and Expertise III. NEW DEAL ADMINISTRATIVE LAW A. Judicial Review of Agency Action B. The Fate of Crowell v. Benson IV. REMOVING A REFRACTIVE LENS: SOME CONCLUSIONS ABOUT NEW DEAL ADMINISTRATIVE LAW INTRODUCTION

In 1904, the Ohio Valley Water Company ("Ohio Water") paid $3,900 for nine acres of property at the tip of Neville Island, a small sliver of land in the middle of the Ohio River about four miles northwest of Pittsburgh. (1) Two of the nine acres were dry land, and Ohio Water built a pumping station there. The remaining seven acres were wetlands made up mostly of a sandbar where the company sank its wells. Having thus improved the land, Ohio Water informed the Pennsylvania Public Service Commission ("PSC") that the land was now worth no less than $100,000. According to the company, drawing Ohio River water up through the sandbar purified the water, rendering it particularly potable. Ohio Water, therefore, possessed a unique and valuable piece of land.

Ohio Water had to report the value of its land to the PSC because the Commission needed this information to determine what rates Ohio Water would be allowed to charge its customers. Rate-making was a tricky business. Since the late 1890s, the Supreme Court of the United States had required rate-making agencies to set rates at a level that would allow public utilities to receive a reasonable return on their investment. (2) Rates that did not allow such a return were confiscatory and, as such, violated the Due Process Clause of the Fourteenth Amendment. Thus, to determine whether a particular rate was constitutional, a court had to determine whether it would allow a company to receive "a just and reasonable return upon the fair valuation of its property." (3) Accordingly, the more a company's property was worth, the more it could charge its customers.

Unfortunately for Ohio Water, the Pennsylvania PSC did not think the Neville Island property was worth $100,000. Indeed, the Commissioners did not think it was worth even half that much. According to the PSC, the reason such tasty water flowed from Ohio Water's wells was not because of some special property of the sandbar. The water was of high quality because the company was not pumping Ohio River water at all. Its wells had gone down through the sandbar into a slowly flowing aquifer that ran under the Ohio River, known to geologists as the Wisconsin Glacial Flow (and to the residents of Pittsburgh as "The Fourth River"). (4) Since the flow could be accessed along the Ohio River at least to the Ohio border and throughout Neville Island, there was nothing particularly unique or valuable about the sandbar. Lower value meant lower rates. (5)

Facing such financial hardship, Ohio Water appealed the PSC's valuation to the Pennsylvania Superior Court, which reversed the Commission. (6) After reviewing the evidence submitted to the PSC, the Superior Court ordered the agency to fix the company's rates based on the higher valuation of the Neville Island property. (7) The PSC, in turn, appealed the Superior Court's decision to the Pennsylvania Supreme Court.

At issue in this appeal was not the substance of the debate over the value of Ohio Water's wells. Instead, the litigants debated one of the most basic issues confronting those who study the administrative state: what is the proper relationship between courts and agencies? (8) Indeed, it is the dispute over this issue that makes this case, which ended up in the United States Supreme Court in 1920 under the moniker Ohio Valley Water Co. v. Ben Avon Borough, (9) such a good place to start an inquiry into the shifting relationship between the judiciary and the administrative state during the New Deal.

Progressives and their New Deal--era descendents demanded that courts stay out of the administrative process. Judges, they argued, did not possess the expertise necessary to understand the issues that agencies had to address, issues like the hydrological features of the Ohio River Valley. When courts thrust themselves into the administrative process--as the Pennsylvania Superior Court did in this instance--they would, at best, make a hash of the situation by applying legal doctrines rooted in otherworldly abstractions while ignoring the practical necessities of the particular public policy at issue. At worst, Progressives and New Dealers argued, courts would simply impose outcomes on agencies favoring the vested interests that the administrative state was designed to tame. In an increasingly complex, industrialized society, agencies had to be allowed to exercise their expertise without judicial interference.

This was certainly the PSC's position, and the Pennsylvania Supreme Court readily signed on. According to the court, determining the value of property for the purpose of setting rates was a complex and technical process "which calls for the exercise of a sound and reasonable judgment upon a proper consideration of all relevant facts." (10) Because rate-making was "not a matter of formulas," "[m]uch must be left to the sound discretion of the appraising body, the tribunal appointed by law and informed by experience, for the discharge of these delicate and complex duties." (11) An understanding of the comparative expertise between a court and an agency was the key to allocating power between the two:

It was assumed perhaps by the Legislature that the members of the Public Service Commissions would acquire special knowledge of the matters in-trusted [sic] to them by experience and study, and that ... they would prove efficient instrumentalities for dealing with the complex problems presented by the activities of these great corporations. It was not intended that the courts should interfere with the commissions or review their determinations further than is necessary to keep them within the law and protect the constitutional rights of the corporations over which they were given control. (12) Accordingly, courts were to be deferential when they reviewed agency actions. Was the agency's action "reasonable" or "based on very substantial evidence"? (13) Was its behavior "not arbitrary or capricious"? (14) Courts were not to substitute their judgment for that of the agency. Because that had clearly happened in this instance--the PSC's valuation of the Neville Island property was "beyond question ... warranted," (15)--the Pennsylvania Supreme Court overturned the Superior Court's decision and reinstated the PSC's valuation. (16)

The PSC's victory, however, was short-lived. The company appealed the Pennsylvania court's decision to the United States Supreme Court, which tersely overturned the state court's opinion. Since an improper valuation of a regulated company's property could result in a constitutional violation, "the State must provide a fair opportunity for submitting that issue to a judicial tribunal for determination upon its own independent judgment as to both law and facts." (17) The Pennsylvania Superior Court had behaved properly, independently reviewing the facts that had been submitted to the Public Service Commission. The Pennsylvania Supreme Court, on the other hand, had ignored its duty by deferentially reviewing the agency's action for mere reasonableness. The expertise of the agency did not warrant any deference. (18)

For progressive proponents of the administrative state, the Supreme Court's ruling in Ben Avon was a nightmare come to life. (19) Was the Court really suggesting that courts not defer to agencies even on technical, factual issues that could not possibly be within the expertise of the judiciary? How could a court possibly justify second-guessing the state geologist of Pennsylvania and several "[o]ther practical men, speaking from experience" as to the ultimate source of the water that the Ohio Valley Water Company pumped out of its wells on the sandbar of Neville Island? (20) Why have an administrative state at all if courts were going to do all the work over again, but badly? Or was that the point? Had courts become the agents of interests who sought to undermine the efficiency and expertise of agencies in the name of protecting their property rights...