Administrative agencies should not be required to use a process that has been obsolete for decades.
Recently, The Regulatory Review has featured a debate over the contemporary relevance of trial-type or formal rulemaking. The issue is topical because of proposals for that procedure in pending Regulatory Accountability Act (RAA) bills. The House bill relies directly on the “formal rulemaking” provisions of the Administrative Procedure Act (APA). The Senate bill does not, but its provision on public hearings is still clearly modeled on the APA.
In each bill, the provision for public hearings would apply to most, if not all, “high-impact” rulemakings—roughly, those with a $1 billion impact on the economy—and at least some “major” rulemakings—roughly, those with a $100 million impact. The House version of the RAA has cleared that chamber multiple times, and the Senate version has already been reported favorably out of committee. The proponents’ basic claim is that the formal rulemaking system was designed to provide a higher level of deliberativeness and accountability than the APA’s informal or notice-and-comment model affords. At least on the face of the APA, the latter model requires little more than that agencies announce proposed rules and solicit public comment before they can become final rules. Proponents of the RAA favor a return to the formal system of rulemaking, at least in limited circumstances, in order to counteract what they take to be out-of-control regulation.
In prior essays in The Regulatory Review, Richard Pierce and William Funk have criticized the public hearings provision of the RAA for being unwieldy and an obstruction to rulemaking. Kent Barnett and Christopher Walker have discussed the provision more sympathetically. I fully agree with the former two but will not attempt to improve on their explanations of the burdens that would ensue if formal rulemaking is resurrected. Rather, the purpose of this essay is to highlight a different point: The proponents of reviving trial-type procedure in rulemaking have simply not reckoned with the implications of the fact that this technique has been considered obsolete for decades, following the U.S. Supreme Court’s narrow construction of the applicable APA language in 1973.
In exploring this thesis, we need to get the history straight. In the past four decades, Congress has never required any agency to make rules using APA formal rulemaking or anything like it. In fact, it has rescinded some of the mandates that existed as of the 1970s. The most recent instance occurred last year when Congress enacted a major overhaul of the Toxic Substances Control Act (TSCA). This legislation was adopted with overwhelming support in each chamber. The legislative reports in the House and especially in the Senate contained detailed, sophisticated explanations of the substantive changes to TSCA. But they did not even discuss the elimination of hearings with cross-examination rights in proceedings to ban chemical substances, presumably because Congress considered the obsolescence of those provisions too self-evident to merit explanation.
In his two essays, Barnett cites the Dodd-Frank Act of 2010 as a counterexample. One part of the law, he says, requires formal rulemaking for decisions by the Office of the Comptroller of the Currency (OCC) on whether to preempt state consumer protection laws. Indeed, he adds, in this instance Congress required that procedure in order to protect the interests of consumers, not those of industry. This would be a good argument if his reading of the law were persuasive. But it is not. At the very least, it is not widely shared—if shared by anyone. In a post-Dodd-Frank proceeding to reexamine preemption issues, OCC relied on notice-and-comment rulemaking. In that proceeding, OCC responded to various procedural objections that participants raised, but apparently none of them suggested that formal rulemaking was required.
A look at Dodd-Frank itself supports the prevailing understanding. Barnett bases his reading on the judicial review language of the preemption provision, which requires that OCC’s finding that a state law is preempted by Dodd-Frank must rest on “substantial evidence, made on the record of the proceeding.” As he recognizes, in procedural statutes the phrase “on the record” or its equivalent typically triggers formal rulemaking. In the judicial review context, however, “substantial evidence in the record” has a different meaning. It is a term of art that specifies how an administrative record should be judged, but Congress sometimes uses it in situations in which it clearly does not contemplate trial-type procedures–even, as the Supreme Court recently noted, in situations like city council meetings.
To discover the legislature’s intention on the required procedure for OCC preemption decisions, one should look not at the Dodd-Frank Act’s subsection on judicial review—surely an unlikely place in which to find that information—but instead at an adjacent subsection, which speaks directly to agencies. That subsection provides that OCC may make preemption determinations by regulation “in accordance with applicable law.” If the judicial review provision really had been intended as a procedural mandate, the drafters would have said “in accordance with this section;” instead, they said the opposite. Thus, I doubt that a court would be receptive to Barnett’s novel interpretation of Dodd-Frank, even if the Supreme Court had not established a strong presumption against reading formal rulemaking mandates into enabling statutes, as of course it has.
We are left, therefore, with the stark fact that trial-type procedure in rulemaking has steadily lost favor over the course of four decades. This history is important, because during this period the judicial and executive branches have dramatically elaborated on the standard notice-and-comment model, in part to fill the gap created by the demise of formal rulemaking. Today, when agencies engage in rulemaking, they are expected to maintain a systemic record, to disclose the evidence on which their factual claims rest, and to respond to significant public comments. Moreover, executive agencies conduct intensive cost-benefit analysis of their major rules under the supervision of the Office of Information and Regulatory Affairs. In addition, all agencies must engage in “reasoned analysis” that can survive judicial review under the arbitrary-and-capricious standard of the APA. In major rulemaking proceedings, today’s courts apply that standard in a probing and demanding fashion known as the “hard look” approach. All of these developments have served to enhance the rigor of notice-and-comment rulemaking to an extent never contemplated during the heyday of formal rulemaking.
The prevailing opinion among regulatory practitioners is that, in light of the methods that the administrative law system has created to promote rigorous analysis and careful development of the facts, trial-type procedures in significant rulemaking proceedings are simply not necessary. As the American Bar Association (ABA) Administrative Law Section wrote in its comments opposing the hearings procedures in the House version of the RAA:
The collective repudiation of formal rulemaking reflects widespread recognition that trial-type methods are usually unsuitable in generalized rulemaking proceedings… Even in proceedings in which potentially expensive rules are under consideration, issues can be ventilated effectively through more limited variations on the standard model of notice-and-comment rulemaking. Such proceedings allow for rigorous analysis, but the participants usually join issue over scores of interconnected questions through a continuing exchange of documents over a period of weeks or months. Live confrontation is largely beside the point in such proceedings.
The proponents of the public hearings provisions in the RAA take a more positive view of the potential value of the hearings process and the benefits of cross-examination. I do not argue that this view should be dismissed simply because formal rulemaking has passed out of general use. In light of the many years in which our system has relied on other modes of inquiry, however, the onus should be on these proponents to justify a reversion to long-abandoned procedures. And here is the crux of the matter: They have made no serious effort to carry that burden.
As best I can discover, the proponents of this provision have yet to identify even one rulemaking proceeding conducted in the past forty years in which, according to them, regulated parties were unable to make their case using existing notice-and-comment procedures but could have been more successful using trial-type procedure. Legislative reports, congressional testimony, law review articles, and commentaries all appear to be bereft of modern, concrete examples that supposedly demonstrate the need for this reversion to the decisional methods of an earlier generation. If proponents were to cite such examples, interested observers could debate their cogency, but in the absence of a factually based account of purported problems with today’s procedures, we are left with mere assertions rooted in the assumptions of a bygone era.
It is troubling that the public hearings requirements in the RAA bills have advanced so far in the legislative process without a serious effort to justify a need for them (to say nothing of the burdens and resource costs associated with that alternative).
It is true, as Walker notes, that the Senate bill is drafted to apply to a narrower range of circumstances than the House bill would. Under the Senate bill, participants in high-impact or major rulemaking proceedings could obtain a hearing only on “specific scientific, technical, economic or other complex factual issues that are genuinely disputed” and material to the rulemaking. But that provision is still too broad. It allows participants to obtain hearings on those issues without any showing that an opportunity for cross-examination is necessary in light of the available alternatives. The ABA Administrative Law Section has opposed the provision for exactly that reason. Indeed, the fact that the proponents have not managed to cite even one modern proceeding as to which they claim that condition would have been satisfied is reason enough for Congress to reject the measure.
Barnett’s essays called formal rulemaking the “platypus of administrative law,” but, to my mind, “dinosaur” is a more apt metaphor. As Jurassic Park might suggest, the RAA experiment with reviving the dinosaur of formal rulemaking is unlikely to end well.
This essay is part of a series, entitled Assessing the Regulatory Accountability Act.