Requiring Formal Rulemaking Is a Thinly Veiled Attempt to Halt Regulation

by Bill Funk

May 22, 2017

Originally published on The Regulatory Review by CPR Member Scholar William Funk.

Professor Kent Barnett recently opined in The Regulatory Review that formal rulemaking really is not that bad and may actually be a good thing in certain circumstances. His argument deserves closer review because the proposed Regulatory Accountability Act (RAA) would require the equivalent of formal rulemaking—or what the bill calls a "public hearing." Barnett may well be right to suggest that in some situations the costs of formal rulemaking could be justified, but he could not be more wrong to argue that the circumstances that would trigger formal rulemaking under the RAA are among those situations.

As Barnett acknowledges, the U.S. Supreme Court, scholars, policy makers, and other interested parties all have condemned formal rulemaking. Why? Because formal rulemaking utilizes a judicial, trial-like procedure to adopt rules that are legislative, not adjudicative, in nature. Therefore, its procedural requirements are fundamentally at odds with the nature of legislative decision-making.

Ever since the beginning of the last century, when the Supreme Court decided cases such as Londoner v. Denver and Bi-Metallic Investment Company v. State Board of Equalization, the law has recognized the essential difference between proceedings that decide adjudicative facts applicable to a particular person, and proceedings applying more general and universal legislative facts. Even the authors of the Administrative Procedure Act (APA) recognized this distinction.

The legislative history of the APA reveals that, although nearly identical language was used to trigger formal procedures in adjudication and rulemaking, the triggering language for formal adjudication was meant to be more liberally interpreted than for formal rulemaking, precisely because of the distinction between adjudication and rulemaking. That legislative intent was given effect by the Supreme Court in its seminal cases of United States v. Allegheny-Ludlum Steel Corporation and Florida East Coast Railway Company v. United States, in which the Court recognized the distinction between rulemaking and adjudication and the difference in the appropriate procedures for both.

More recently, the Administrative Conference of the United States, an entity whose members comprise private practitioners, agencies, and legal scholars, likewise has concluded that formal rulemaking procedures are "cumbersome" and only "rarely" appropriate for legislative rulemaking.

Despite all this, Barnett has made five arguments in favor of formal rulemaking—none of which withstand scrutiny.

First, relying on a law review article by Professor Aaron Nielson, Barnett suggested that the burdens of formal rulemaking have been exaggerated. Much of Nielson's article is devoted to rebutting the idea that the U.S. Food and Drug Administration's (FDA) peanut butter debacle is typical or was necessary. It took the FDA more than ten years and 8,000 pages of transcript to establish whether peanut butter had to contain at least 90 percent peanuts or only 87 percent. It may be that the peanut butter rule was extreme. Nevertheless, anyone who has been involved in complex adjudication knows the difficulty involved in the proceeding itself. If the RAA were adopted, it would only add to the difficulties already involved in rulemaking. For example, in addition to the policy analysts, economists, scientists, engineers, and attorney-advisors that agencies already need to involve in a rulemaking, agencies will ...

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