Lecture: Administrative Law and Government Regulations
Administrative law defines the powers, limitations, and procedures of administrative agencies.
Federal administrative agencies are part of executive branch, yet they perform some quasi-legislative & quasi-
judicial functions.
Agencies act according to enabling statutes that establish the agency and set forth the responsibilities and
authority of that agency.
Administrative agencies have many designations like departments, commissions, bureaus, councils, groups,
services, divisions, and agencies.
Concerned about the power agencies possessed, Congress, in 1946, enacted the Administrative Procedure
Act (APA). The APA is the basic law governing the procedures agencies must use in the performance of their
functions.
The preamble of the APA states that it was designed to "improve the administration of justice by prescribing fair
administrative procedure."
The APA, like the U.S. Constitution, contains broad, open-ended provisions that have been provided
substantive content through subsequent judicial interpretations.
If the APA conflicts with an agency’s enabling legislation the enabling legislation is controlling in such cases.
While the APA presumptively applies to all agency actions, Congress can alter this by statute. For example,
Congress can allow “hybrid rulemaking,” which is in between formal and informal rulemaking, and not provided
for in the APA.
“Agency'' means each authority of the Government of the United States, whether or not it is within or subject to
review by another agency, but does not include -
(A) the Congress;
(B) the courts of the United States;
(C) the governments of the territories or possessions of the United States;
(D) the government of the District of Columbia; or except as to the requirements of section 552 of this title
(E) agencies composed of representatives of the parties or of representatives of organizations of the parties to
the disputes determined by them;
(F) courts martial and military commissions;
(G) military authority exercised in the field in time of war or in occupied territory; or
(H) functions conferred by sections 1738, 1739, 1743, and 1744 of title 12; chapter 2 of title 41; subchapter II
of chapter 471 of title 49; or sections 1884, 1891-1902, and former section 1641(b)(2), of title 50, appendix.
A rule is an agency statement of general applicability and future effect, made to implement a law.
Formal rulemaking is required “[w]hen rules are required by statute to be made on the record after opportunity
for agency hearing”; otherwise an agency is free to engage in informal rulemaking (553(c)). The precise
language “on the record after opportunity for agency hearing” must be used to trigger the formal rule-making
requirement (see U.S. v. Fla. East Coast Rwy. (1973)). Note that agencies tend to prefer informal rulemaking,
as it is much less time and resource consuming.
The APA establishes the procedural requirements for informal rulemaking. Informal rulemaking requires that
an agency that seeks to enact a rule publish a notice in the Federal Register detailing "either the terms or
substance of the proposed rule or a description of the subjects and issues involved." The agency must then
give "interested persons an opportunity to participate in the rule making," although the agency may limit such
participation to written submissions. The agency must consider those comments from the public and then
adopt a final rule that contains a "concise general statement of [its] basis and purpose.“
Notice and comment can provide the agency with valuable input from the public as well as furnish enhanced
public acceptance of the rules, because they feel somewhat “invested” in the process.
A policy is a form of formal guidance needed to coordinate and execute activity throughout the agency. When
effectively deployed, policy statements help focus attention and resources on high priority issues, aligning and
merging efforts to achieve the agency's mission or vision. Policy provides the operational framework within
which the agency functions. Policy statements are issued by an agency to advise the public prospectively of
the manner in which the agency proposes to exercise a discretionary power in subsequent adjudications or
through rulemaking. They come with a variety of labels and include guidances, guidelines, manuals, staff
instructions, opinion letters, press releases or other informal captions. For example, technical guidance may
suggest particular measurement techniques that the agency deems appropriate for assessing compliance with
a legislative rule or explain particular means that an agency’s staff has concluded may be used to meet
regulatory requirements.
A procedure is the operational processes required to implement agency policy. Operating practices can be
formal or informal, specific to a department or building or applicable across the entire agency. If policy is “what”
the agency does operationally, then its procedures are “how” it intends to carry out those operating policy
expressions. The distinctions commonly drawn between policy and procedures can be subtle, depending upon
the nature of the organization and the level of operations being described in the statements.
Many agencies conduct their own adjudications of certain types of claims. The common justifications for
allowing this is are that it streamlines the claims process and reduces the workload for overburdened courts.
Agencies are usually composed of specialists in the particular field that are more familiar with the material,
challenges, etc. Agencies are therefore often more competent, in the sense of being better informed or better
able to gather the necessary information at a lower cost, and in less time, than Congress or the courts. (See,
e.g., Chevron U.S.A. Inc. v. Natural Res. Def. Council, 467 U.S. 837, 865 (1984).
In addition, the officials hearing such adjudications generally have some expertise in the field. Such hearings
are required to operate according to basic rules of due process.
The results of such adjudications are generally appealable to federal courts, assuming the Claimant’s have
exhausted all remedies. There is a strong presumption that Congress intends judicial review of administrative
decisions. The presumption may however be overcome by specific language or specific legislative history or
by inferences drawn from a statutory scheme. (see Bowen v. Michigan Academy of Family Physicians, 106
S.Ct. 2133 (1986))
Reasons for the Doctrine of Exhaustion of Remedies
1. Allows an agency to fully develop and consider the facts of the case
2. Allows an agency to utilize its expertise
3. Allows an aggrieved party to obtain a remedy without judicial review
4. Protects agency processes from impairment by interruption
5. Allows agency to correct own mistakes
6. Conserves judicial time by avoiding piecemeal appeals
EXCEPTIONS TO THE DOCTRINE
Statute or rule is attacked as unconstitutional on its face
Multiple administrative remedies exist and one is exhausted
Agency cannot provide an adequate remedy
It is clearly useless to seek relief before the agency
No issues of fact exist
Agency expertise is not involved
Irreparable harm will result from pursuit of administrative remedies
Agency's jurisdiction is not authorized by statute
Limitation under §10(c) of APA when there is a final agency action.
Reviewing courts presume agency findings of fact are correct. Courts do not reweigh evidence or
substitute their view for the agency’s.
Generally courts will defer to the reasonable judgment of the agency. However, the Court shall set
aside an agency action if it finds that the action exceeds the authority granted.
The authority of the federal courts to keep federal agencies within constitutional limits is unquestioned.
As long as review is not otherwise precluded, courts must assess whether agency actions comply with
constitutional commands. Courts consider constitutional challenges both to the status of agencies, see, e.g.,
Morrison v. Olson, 487 U.S. 654 (1988) (addressing constitutional status of Office of Independent Counsel), as
well as to the propriety of particular agency actions. See, e.g., Marshall v. Barlow’s Inc., 436 U.S. 307 (1978)
(addressing constitutionality of agency search).
Agency rules having the force and effect of law are as binding on agencies as the Constitution and
statutes. Accordingly, courts may review agency action for conformance with previously promulgated rules.
Nader v. Bork, 366 F. Supp. 104, 108-109 (D.D.C. 1973) (an agency regulation has the force and effect of law,
and it is binding upon the body that issues it.). Agency procedures must be followed as well. Vitarelli v.
Seaton, 359 U.S. 535, 539-40 (1959).
Areas of Concern for Environmental Regulation include:
Waste & Pollution
Use of Natural Resources
Preservation of Environmentally Sensitive Areas
Preservation of Biodiversity
One objective of environmental regulation is sustainability , the ability to meet the needs of the present without
compromising the ability of future generations to meet their own needs. “To waste, to destroy, our natural
resources, to skin and exhaust the land instead of using it so as to increase its usefulness, will result in
undermining in the days of our children the prosperity which we ought by right to hand down to them amplified
and developed.” - Theodore Roosevelt, Message to Congress, 1907
The National Environmental Policy Act (1970) requires environmental impact statements (EIS) for certain types
of government projects affecting the quality of the human environment.
The Environmental Protection Agency (1970) is responsible to monitor and regulate pollution of the:
Air
Water
Endangered Species
Pesticides
Solid Waste
Toxic/Hazardous Substances
The Clean Air Act (CAA) directs the EPA administrator to establish air quality standards and to see that these
standards are achieved according to a timetable. Government regulation under the Clean Air Act is a joint
federal and state effort. Air pollution sources can be stationary, mobile (like cars) and technology related. The
government allows some degree of emissions trading in order to try to reduce overall air pollution.
The Clean Water Act (CWA) regulates navigable waterways. It does not permit point source discharges into
water without a permit and compels the use of the best practicable or available technologies in handling water
pollution. The Supreme Court has ruled that the EPA's interpretation of the Clean Water Act must be given
deference. Chemical Manufacturers Association v. Natural Resources Defense Council, Inc., 105 S.Ct. 1102
(1985).
In 1998 a 20-year research effort concluded that over one-tenth of the planet’s plant species were threatened
with extinction. In the United States some 29 percent of plants (16,000 species) were threatened. The study
maintained that loss of habitat and competition from human introduction of non-native species were the two
main reasons for the threats. The Endangered Species Act addressed species disappearing due to either
natural causations or human effects.
Considerations include:
Destruction Of Habitat- Critical
Disease/Predation
Commercial/Recreational Activity
Other Natural/Manmade Factors
Pesticide runoff into waterways is a major environmental problem. Acts related to pesticide control include the
Federal Insecticide, Fungicide, & Rodenticide Act (1947) and the Federal Environmental Pesticide Control Act
(1972). Under these acts:
Pesticides Must:
Be Registered/Properly Labeled
Meet Claims Of Effectiveness
Have No Lasting Adverse Effects
Regulation of pesticides takes place at the federal level. Regulation consists of a regulation process backed
up by the power to ban and limit the use of pesticides.
Comprehensive Environmental Response Compensation, & Liability Act (CERCLA)(1980) requires government
notification of the release of hazardous materials. The Act also often results in government ordered clean-ups,
to be performed by, or paid for by, responsible parties, which could include, current and/or former
owner/operators of contaminated sites as well as waste transporters.
Other environmental legislation includes the Noise Control Act (1972), the Solid Waste Disposal Act (1965), the
Toxic Substances Control Act (1976), and the Resource Conservation & Recovery Act (1976).
A number of states have also passed environmental cleanup laws.
Private Individuals & Non-Governmental organizations can bring suit to protect the environment under citizen
enforcement provisions in statutes and regulations, public & private nuisance claims, tort or negligence
actions, strict liability claims where appropriate and under the Public Trust Doctrine.
The basic purpose of anti-trust regulation is to breakup monopolies and encourage competition. Competition
encourages efficient allocation of resources, stimulates innovation, keeps prices low, promotes quality,
promotes a variety of choices and is consistent with the principle of individual freedom.
A fundamental assumption of anti-trust law is that many small competitors is better than a few large ones.
The Sherman Antitrust Act (1890) prohibits contracts, combinations & conspiracies in restraint of interstate
trade.
These include:
Horizontal price fixing between competitors
Vertical price fixing, such as resale price maintenance agreements
And indirect price fixing, such as protected marketing.
The Act also prohibits market allocation (territorial agreements) by competitors, splitting the market into non-
competing areas, and boycotts in restraint of trade by competitors against a particular entity.
Section 1 of the Act regulates “horizontal” and “vertical” restraints and requires the participation of two or more
persons.
Section 2 applies both to an individual persons and to several people, because it refers to every person.
Per se violations are blatant and substantially anticompetitive acts.
Horizontal restraints are agreements among Sellers (or Buyers) that restrain competition between rival firms
competing in the same market , for example by setting an agreed upon price for the goods or services they
offer. Such price fixing is a per se violation of the Act.
Group boycotts are agreements between two or more sellers to refuse to deal with a particular person or firm.
These too are
per se violations of the Act.
Unlike a group boycott, a refusal to deal is an action by one firm against another, and this is usually legal,
unless:
the firm refusing to deal has, or is likely to acquire, monopoly power, and
the refusal is likely to have an anticompetitive effect on a particular market.
Trade Associations are industry specific organizations created to provide for the exchange of information,
representation of the business interests before governmental bodies, advertising campaigns, and setting of
regulatory standards to govern their industry or profession.
A resale price maintenance agreement is a an agreement between a manufacturer and a distributor or retailer
in which the manufacturer specifies the retail price at which retailers must sell products furnished by the
manufacturer or distributor. This is a type of vertical restraint and is normally a per se violation.
Territorial and customer restrictions are imposed by manufacturers on the sellers of the products, to insulate
dealers from direct competition with each other. These are typically judged under the rule of reason.
Vertical restraints are agreements between firms at different levels of the manufacturing and distribution
process, imposed by sellers upon buyers, or vice versa, that may include affiliates in the entire supply chain of
production. These are per se anticompetitive.
Section 2 of the Sherman Antitrust Act deals with:
Monopolization.
And Attempts to monopolize.
Predatory pricing is an attempt by a firm to drive its competitor from the market by selling its product at prices
substantially below the normal costs of production.
Monopolization in violation of the act requires two elements:
The possession of monopoly power and
The willful acquisition and maintenance of the power.
A monopoly is said to exists when one firm has sufficient market power to control prices and exclude
competition. Market power is often assessed by the use of the Market-Share Test, that is, if a firm has 70% or
more of a relevant market, it is regarded as having monopoly power.
Intent to monopolize is difficult to prove, but may be inferred from evidence that the firm had monopoly power
and engaged in anticompetitive behavior.
To break up a monopoly the government must show:
Actual “Market Power” and that
Such power resulted from a deliberate course of action or that the holder intends to maintain such power by
particular conduct
Firm actions are scrutinized to determine whether they were intended to exclude competitors and garner
monopoly power and had a “dangerous” probability of success.
Sherman Act sanctions could include
Criminal Prosecution, subject to:
Fines, up to $350,000 for an individual and $10,000,000 for a corporation
Imprisonment, up to 3 years
Or Civil Action
Enjoining the conduct with potential treble damages
The following industries are exempt from Sherman Antitrust Act sanctions:
Insurance Companies
Farm Cooperatives
Shipping
Milk Marketing and
Investment Companies
The Clayton Act (1914) was enacted as an amendment to the Sherman Act to clarify some of its ambiguities. It
was later amended itself in 1936 and 1950 to clarify its own provisions
The Clayton Act (1914) prohibits:
Price discrimination in charging more to smaller competitors.
Tying agreements that force unwanted products on purchasers.
Binding contracts that restrict supplier choice by purchasers.
Interlocking directorates of board members of competing firms.
Community of interests created by purchasing the stocks of competitors.
The Federal Trade Commission Act (1914) created the Federal Trade Commission (FTC), an independent
agency charged with keeping competition free and fair. The FTC is responsible to enforces the Clayton Act.
Note however that anti-trust laws may also enforced by the Department of Justice as well as various state
agencies.
The Robinson-Patman Act (1936) prohibited:
Price differentials not based on lower costs for large orders.
Advertising and promotional allowances, unless offered to all.
The Celler-Kefauver Act (1950)
Prohibited the purchase of the assets of a competing firm, if the purchase reduces competition.
Required approval of mergers by the FTC and Justice Department.
The Antitrust Improvements Act (1976)
Provided additional time for Justice and FTC to consider mergers.
Authorized state attorneys general to prosecute price fixing and recovery of monetary damages for consumers.
The purpose of securities regulation is to:
protect investors from abuses by company insiders and securities professionals
encourage full disclosure and deter fraud
give potential investors factual information to make informed investment decisions.
Securities regulation involves both federal & state laws.
Securities Regulation covers two types of transactions:
Primary transactions, where an issuer offers and sells their own securities to investors.
And Secondary transactions where an investor resells securities of an issuer to another investor
Securities Act of 1933 covers “securities”, including but not limited to:
Some Notes, Stock, Bonds, Debentures
Various Types of Evidence of Indebtedness
Certificates of Interest
Certificates of Subscription
Investment Contracts
Voting Trust Certificates
Interests in Oil or Gas
Mineral Rights
And other interests “commonly known as securities”
The Securities Act defines “security” to include “any note,” so there is a presumption that every note is a
security. However, Congress was only concerned with regulating the investment market and notes are used in
a variety of settings, not all of which involve investment. Accordingly, a note is not a security if it bears a strong
resemblance to those categories of instruments that courts have found to be non-securities.
Common Stock represents true ownership of a corporation. It provides pro-rata (proportional) ownership
interest reflected in control, earnings and assets.
Preferred Stock has preferences over common stock and is normally offered when a company has a need for a
fast cash infusion.
Bonds are essentially loans from investors to the company.
The Securities & Exchange Commission (SEC) was created in 1934. It has 35 Commissioners and performs
some quasi-legislative & quasi-judicial functions.
The SEC regulates:
Stock Exchanges
Utility Holding Companies
Investment Trusts
Investment Advisors
SEC filings are documents related to the sale of securities.
If a security does not qualify for an exemption under §5 of the Securities Act of 1933, the security must be
registered with the Securities Exchange Commission and with state securities agencies before offered to the
public. A corporation must file a registration statement and prospectus with the SEC.
A filing typically provides such documentation as:
A description of the significant provisions of the registrant’s “offering” and how the registrant intends to use the
proceeds from the sale.
A description of the registrant’s properties and business.
A registration Statement.
A description of the management of the registrant, remuneration, pension, stock offerings, executive interests
and compensation.
A financial statement certified by and independent accounting firm.
A description of pending lawsuits.
Exempt Securities include:
Bank securities sold before 1933.
Commercial paper, if the maturity date does not exceed 9 months.
Charitable organization securities.
Securities issued to existing securities holders resulting from reorganization or bankruptcy.
Securities issued to finance railroad equipment.
Any insurance, endowment, annuity contract or government-issued securities.
Securities issued by banks, savings and loan association or farmers' cooperatives.
The Securities Exchange Act prohibits:
Untrue Statements Of Material Fact
Omissions of Material Facts
Omissions of Information Resulting In Misleading Potential Investors
Fraudulent Transactions
Attempts To Defraud
Attempts To Obtain Money/Property By Untrue/Misleading Statements
Attempts To Engage In a Transaction or Practice To Defraud or Deceive a Purchaser
Defenses include:
Immateriality
The Statute Of Limitations- 1 Year After Discovery, No More Than 3 Years
And Due Diligence- Reasonable Review Of Financials
Section 10(b) of the Securities Exchange Act prohibits the use of any manipulative or deceptive device or
contrivance in contravention of rules and regulations of SEC.
Rule 10(b)(5) prohibits the commission of fraud in the connection with the purchase or sale of any security.
Insider trading is the giving or using of advance information normally only available to “insiders” that can affect
future value of stock.
“Insiders” are typically officers, executives or directors of a corporation, or an owner of 10% or more of a class
of equity securities, though the definition is not limited to these.
