• Rules of Rulemaking: the Canard of Consistency

     

    Canard: 1. a groundless rumor or belief. 2. (French) ‘duck,’ from Old French caner ‘to quack

    In earlier posts, I have discussed two canards about rulemaking in North Carolina:

    I will finish this series on some core beliefs about rulemaking with an environmentally-centered, critical look at this final canard:

    • Rulemaking processes should be consistent from authorization to judicial review

    Frankly, no one who practices or follows environmental law in this State could take seriously the claim that the legislature cares much about consistency in administrative law processes, such as rulemaking. What do they care about, and how should judges review their grants of authority, if not by seeking consistency, a long and hallowed hallmark of legal fairness?

    Consistency, or the even more ambitious goal of “uniformity,” is set out at the very top of the legislature’s purposes in enacting the N.C. Administrative Procedures Act: “This Chapter establishes a uniform system of administrative rule making and adjudicatory procedures for agencies.” G.S. 150B-1(a)(emphasis added).

    Consistency as a goal of administrative law goes back to the creation of the federal Administrative Procedures Act in the 1940s, which arose after two major American Bar Association reports in the 1930s complained about the bewildering variety of procedures that lawyers had to deal with from the new federal agencies. Indeed North Carolina’s first Administrative Procedures Act (1974, S.L. 1973-1331) came out of a model created by the National Conference of Commissioners on Uniform State Laws in 1961.

    A major insurance case, State ex rel. Com’r of Ins. v. N.C. Rate Bureau, 300 N.C. 381 (1980), cites an influential law review article by Prof. Daye of UNC (his “tenure piece,” I surmise) on the importance of uniformity in judicial review of administrative decisions. See Charles E. Daye, North Carolina’s New Administrative Procedure Act: An Interpretive Analysis, 53 N.C. L. Rev. 833 (1975). The academic commentator’s idea of consistency still has much currency for judges. See, e.g., the 2011 Mayo Foundation case from the U.S. Supreme Court: “The Court has ‘[r]ecogniz[ed] the importance of maintaining a uniform approach to judicial review of administrative action.’” 562 U.S. at 45 (quoting Dickinson v. Zurko, 527 U.S. 150, 154 (1999)).

    So how can anyone seriously deny this canard its lofty perch? Answer: simply by looking at what has happened with environmental rulemaking authority over the last forty years. Consider in law, as Justice Holmes once urged, not the supposed logic, but the actual experience.

    Almost immediately after the legislature announces its high and mighty policy of uniformity in administrative process in G.S. 150B-1(a), it goes on to grant over thirty exemptions from the rules of rulemaking (G.S. 150B-1(c) (full exemptions from APA) and (d) (exemptions from rulemaking)). The number of exemptions has grown inexorably over the last twenty years. There has been almost no counter-movement towards consistency. The simplest explanation for who gets exempted or specially burdened? Whichever agencies (or functions within agencies) are either most trusted by the legislature or that the legislature wants to keep its distance from.

    That, at least, is what things look like for an environmental lawyer in North Carolina. Not only are there particular rulemaking restrictions for environmental rules in the APA, see G.S. 150B-19.3, there are very particular exemptions given by the General Assembly to environmentally significant industries and activities it favors. See, e.g., S.L. 2014-4 (exemptions for oil and gas operations); G.S. 130A-309.207 (coal ash rules exempted from G.S. 150B-19.3). This is by no means a complete list.

    An important additional consideration about this conundrum: judges themselves have a tendency to want to make distinctions among types of rules into differences that matter, because doing so can help resolve particular cases. For example, consider State ex rel. Com’r of Ins. v. N.C. Rate Bureau, 300 N.C. 381 (1980) (note case is decided under former G.S. 150A). The Court spent time distinguishing different types of rules:

    It becomes readily apparent from the statutory definition of “rule,” which includes six exceptions, that different types of rules were contemplated. This is crucial in the issue confronting us here for two reasons: (1) The distinction is important in determining the requirements that will be imposed in establishing the procedures used in adopting and promulgating the rule, and (2) the distinction between different types of rules is important in determining the validity and legal effect of a challenged rule.

    While the distinctions are sometimes blurred and rules often serve two or more purposes simultaneously, agency rules may be grouped into three general categories: procedural rules, interpretive rules, and legislative rules. 1 F. Cooper, State Administrative Law 173 (1965); Daye, supra at 851-53.

    (1) Procedural rules are those which describe how the agency will discharge its assigned functions and the requirements others must follow in dealing with the agency. These are the fundamental rules of agency procedures and are essential to efficient agency operation. Generally these rules deal with such matters as forms, instructions and availability for public inspection of all agency rules and policy. See, e. g., G.S. 150A-11(1). Clearly, then, the requirement that data presented in a ratemaking hearing be audited is more than a procedural rule.

    (2) Legislative rules are those established by an agency as a result of a delegation of legislative power to the agency. “Legislative rules fill the interstices of statutes. They go beyond mere interpretation of statutory language or application of such language and within statutory limits set down additional substantive requirements.” Daye, supra at 852-53.

    (3) Interpretative rules have been defined as those that interpret and apply the provisions of the statute under which the agency operates. No sanction attaches to the violation of an interpretative rule as such; the sanction attaches to the violation of the statute, which the rule merely interprets. Thus, for example, most of the regulations of the Internal Revenue Service are interpretative. 1 Cooper, supra at 174-75.

    The crucial determination to be made here is whether the Commissioner’s conclusion that data be audited is a legislative or interpretative rule. This is so because interpretative rules and general policy statements of agencies are excluded from the NCAPA rulemaking provisions by G.S. 150A-10(6) and statements of policy or interpretations made in the decision of a contested case are excluded by G.S. 150A-10(4). On the other hand, substantive legislative rules are not excluded from the NCAPA, unless one of the other exclusions applies. We note that none of the remaining exclusions is applicable here.

    300 N.C. at 410-411 (emphasis added).

    Consistency is not the holy grail in NC rulemaking authority that commentators historically have said (and continue to say) it should be. There is little or no visible, public pushback when the General Assembly proposes special exemptions or requirements for certain types of rules or certain agencies. Who, then, is the “stakeholder” for consistency in rulemaking? Originally it was the bar that represented clients before the New Deal agencies; when, in the 1930s and 1940s, those agencies began developing their own unique, independent administrative processes, the bar complained. The Administrative Procedures Act emerged. The goal of consistency was enshrined. But the goal was almost immediately forgotten, and today it carries no weight in legislative deliberations, at least when it comes to environmental rules.

    “Fidelity” (to legislative intent for agencies) would be a better holy grail. With the legislature firmly in charge of setting the processes, legislators can tailor rulemaking to try to achieve the results they want, with the processes varying in just the way processes and controls would vary for any principal who hires various agents, to accomplish different things, with varying levels of trust and experience between principal and agent.

    Courts should be urged to give meaning to process differences in rulemaking, instead of being urged, as they have been at least since Prof. Daye’s influential 1975 article on the North Carolina Administrative Procedures Act, to use as consistent a form of judicial review as possible across different types of rulemaking. Is any other outcome really reasonable? Consider two different agencies:

    1. one of which, while litigating a particular contested case, decides it needs to change and expand its rules. It relies on its existing authority to regulate a field, and proposes changes based on this particular contested case, with no special stakeholder input or fiscal analysis.
    2. The other is directed by the legislature to adopt a rule that is substantively identical to the provisions of a ratified bill. The bill goes on to say “rules adopted pursuant to this subsection are not subject to Part 3 of Article 2A of Chapter 150B of the General Statutes. Rules adopted pursuant to this subsection shall become effective as provided in G.S. 150B‑21.3(b1) as though 10 or more written objections had been received as provided by G.S. 150B‑21.3(b2).”

    It is ludicrous to imagine that a court reviewing each of the resulting rules would apply the same tests to determine whether those rules were legitimately authorized and within the agency’s discretion. The real test is whether the resulting rules faithfully match the legislature’s intent. The process the agencies use to promulgate the rules should provide meaningful input into that judicial review. To return to the case that started this series of blog entries, I would suggest that this new attention to the important procedural differences in rulemaking just restores a suggestion made by the N.C. Supreme Court back in the landmark case of Adams v. North Carolina Dept. of Natural and Economic Resources, 295 N.C. 683 (1978). There the Court said:

    [I]n determining whether a particular delegation of authority is supported by adequate guiding standards it is permissible to consider whether the authority vested in the agency is subject to procedural safeguards. A key purpose of the adequate guiding standards test is to “insure that the decision-making by the agency is not arbitrary and unreasoned.” Glenn, supra. Procedural safeguards tend to encourage adherence to legislative standards by the agency to which power has been delegated. We thus join the growing trend of authority which recognizes that the presence or absence of procedural safeguards is relevant to the broader question of whether a delegation of authority is accompanied by adequate guiding standards. See K. Davis, 1 Administrative Law Treatise, § 3.15 at p. 210 (2d ed. 1978).

    1. N.C. at 698 (emphasis added).

    So, for example, rules that have gone through the new statutorily-required process of review and readoption should be treated by courts with greater deference than rules that have sat on the books for years, perhaps even preceding the process given after 1995 by the Rules Review Commission. The statutory authority for a rule in effect depreciates over time. Courts should consider when and whether there have been new affirmations and investments into that authority by the legislature and by agencies themselves.

    Look closer at the cited advice of the great national administrative law scholar, Prof. Kenneth Culp Davis. In his treatise on administrative law, Prof. Davis urged that tests like “adequate guiding standards,” which don’t really say anything about what is adequate or how the standards must be established, should evolve into more focus on “adequate guiding processes.” Kenneth Culp Davis, Administrative Law Treatise § 3.14 (2d ed. 1978). Professor Davis traces this evolution, long underway in the federal courts: Beginning in 1980, with Industrial Union Department, AFL-CIO v. American Petroleum Institute, 448 U.S. 607 (1980), and American Textile Manufacturers Institute, Inc. v. Donovan, 452 U.S. 490 (1981) (cotton dust case), the U.S. Supreme Court has been willing to uphold rules even when it believes Congress has not determined the ultimate policy. See Kenneth Culp Davis, Administrative Law of the Eighties: 1989 Supplement to Administrative Law Treatise § 3:1, at 54-58 (1989). On this theory, the chief executive may provide the needed guidance for exercise of major policymaking power.

    The continued fraying of the old goal of “consistency” suggests that courts reviewing agency rules in North Carolina should focus more on process than on legislatively-promulgated standards. In any event, the goal should be fidelity to the legislature’s intent, even when that intent is to avoid some of the important but difficult (technically or politically) calls that must be made for a rule to be effective.

    Richard Whisnant joined the School of Government (then the Institute of Government) in 1998. Prior to that, he was general counsel with the NC Department of Environment, Health & Natural Resources. He had previously practiced environmental law with Robinson, Bradshaw & Hinson, in Charlotte, North Carolina, and was a clerk for the Hon. Sam J. Ervin III on the US Court of Appeals for the Fourth Circuit. Whisnant earned a BA from the University of North Carolina at Chapel Hill and an MPP and JD from Harvard University.

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