• Introduction

Issues of judicial review that were raised by the 104th Congress--in the context of what was termed "regulatory reform" legislation and amendments to Administrative Procedure Act (APA)--were carefully analyzed, vigorously debated, and are likely to be revisited by Congress. Those issues focused debate on the proper role of judicial review of agency action in the regulatory process.

Conceptually, judicial review is the check by the judicial branch on agency activity at an appropriate stage of the administrative process, and in an appropriate manner and degree. Agencies are authorized to act and promulgate regulations under enabling statutes passed by Congress. The various enabling statutes also grant the right of, and limit the extent of, review of agency action by courts. Both agency action and judicial review of regulatory rule-making are governed by the provisions of the APA. A party that is affected by agency action can seek judicial review of that action in court when all other administrative remedies and appeals have been exhausted. However, a preliminary, procedural, or intermediate action by an agency that is not directly reviewable by a court is subject to review under the APA only upon final agency action, so that it will not interrupt the regulatory process prematurely.

A reviewing court adjudicates procedural issues, interpretations of constitutional and statutory provisions, and determinations of the meaning or applicability of the terms of agency action. It can compel agency action and hold such action to be unlawful if the court finds it to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law, or in observance of procedure required by law. Moreover, when a reviewing court considers the record developed through formal agency hearings (formal hearings are required under certain enabling statutes), or when "substantial evidence" is otherwise required by statute, the court can hold agency action unlawful if that action is not supported by substantial evidence.

The Commission carefully considered the issues raised by proposed legislation and the effect of each of the regulatory rule-making process. In short, and as discussed below, the Commission submits that legislative initiatives should not provide for premature interruption of the administrative process, should not expand the nature and extent of judicial review in ways that will require courts to devote substantial time and resources to the oversight of agency compliance with detailed procedural requirements or the resolution of complex scientific issues, and should consider the use of alternatives that assure rational and cost-effective regulatory action.

• Premature Interruption of the Administrative Process

FINDING 5.6.1: Interlocutory, or intermediate, appeals of discrete issues prematurely interrupt the administrative process.

RECOMMENDATION: Final agency action must, in fact, be final. Judicial review should be available only after agency action is complete and all administrative remedies have been exhausted. Amendments to the Administrative Procedure Act should not contemplate the premature interruption of the agency decision-making or rule-making process.

RATIONALE

Historically, provisions for judicial review under the APA grant review of the rule-making record for "final agency action". This practice limits parties from interrupting the administrative process by seeking judicial review of discrete issues until all other administrative remedies have been pursued and exhausted. The APA provides a procedural safeguard that not only ensures the establishment of a rule-making record, but preserves that record. Thus, in the administrative context, an agency has the opportunity to apply its expertise, exercise its informed discretion, and create a more complete record, so that if judicial review is invoked, there is a full record upon which a court can adjudicate.

Administrative procedure and practice require a party to challenge issues within the internal agency deliberative process. Issues raised in an administrative proceeding allow an agency to monitor and correct its mistakes, omissions, or oversights. Without resorting to costly lawsuits and court-imposed remedies, the administrative review process provides agencies with an opportunity to research and develop more fully a record that identifies issues considered as part of the rulemaking process.

Proponents of some legislative initiatives maintained that they preserved the APA's premise that only final agency action is reviewable, but there were suggestions and debate as to what was considered to be final agency action. In various drafts of proposed legislation, a number of initial and intermediate agency determinations in the rule-making process were deemed final agency action. That would have created an opportunity to leap immediately--and prematurely--out of the administrative context, where issues could be developed fully, and into the judicial arena, under the guise of final agency action. Considering this scenario in the context of drafting and implementing agency regulations, interested parties could prematurely, and in piece-meal fashion, seek judicial review of discrete issues and effectively delay and hamstring the regulatory process.

Allowing premature interruption of the administrative process limits--if not impedes--the rule-making record. As a consequence, judicial review would proceed on an incomplete record and issues would be adjudicated without a full and fair development of the underlying data and benefit of scientific analysis.

Interlocutory review is inconsistent with notions of litigation reform, which were also major goals of the 104th Congress.⁽¹⁾ In addition, new opportunities for judicial review would result in costly and unacceptable delays in the rule-making process. Simply stated, interlocutory appeals of agency actions are not supported historically and limit the development of regulatory initiatives by prematurely interrupting the regulatory rule-making process.

• The nature and extent of judicial review

FINDING 5.6.2: Recent proposed legislation included detailed requirements governing the content of risk assessments and cost-benefit analyses, the procedures for preparing the analyses, and the regulatory decisions based on the analyses. Under accepted administrative law requirements, all those new requirements would be judicially reviewable, potentially leading to increased and more complex litigation over agency decision-making on highly scientific substantive matters.

RECOMMENDATION: Provisions that would make substantive risk assessments and cost-benefit analyses and their underlying factual support subject to expanded judicial review, as well as prescriptive and detailed procedures for conducting those assessments and analyses, should not be legislatively grafted onto existing enabling statutes. Instead, a legislative program-by-program approach would assure that such requirements fit the statutory scheme and would help tailor such requirements to that scheme, thereby reducing the potential for unnecessary litigation. Court review should remain confined to questions of law, constitutional and procedural issues, and whether the agency's finding, determination, or decision was arbitrary or capricious under the traditional deferential standard (unless the enabling legislation otherwise provides). Following that standard, courts should continue to defer to agency expertise and peer review in areas involving highly scientific analysis.

RATIONALE

Courts are the appropriate reviewers of statutory and regulatory limitations of rights and obligations, of broad process and procedural rights and, of course, of legal issues and the interpretation and application of precedent. In general, courts are not best equipped to assess in detail and delve deeply into the technical science that supports much agency decision-making. Although all issues of scientific method and factual support for findings are currently subject to judicial review, courts instead typically have undertaken broad oversight of agency scientific findings under the "arbitrary and capricious" standard of review. This standard is deferential to agency scientific decision-making and allows agencies substantial flexibility in drawing upon their specialized expertise, while ensuring judicial oversight to ensure that administrative agencies follow accepted procedures and standards and do not, broadly speaking, act in an improper manner (i.e., arbitrarily or capriciously). Indeed, one of the primary reasons administrative agencies were created in the first place was to bring specialized expertise to bear on complex issues.

Some proposed legislative initiatives would change the nature and extent of judicial review of agency decisions in a number of ways. A legislative mandate to agencies to follow intricate, detailed procedures in developing cost-benefit analyses and risk assessments, combined with a change in the standard of judicial review of agency decision-making from the "arbitrary and capricious" standard to the less deferential "substantial evidence" standard (discussed in more detail in section 5.6.3), inevitably would involve courts in an investigation of much more than whether a "rational basis" exists to support an agency rule. In addition to examining agency compliance with detailed substantive and procedural requirements contained in the legislative proposals under a broadened "substantial evidence" standard, courts would likely be required to delve far more deeply into the many complex scientific issues affecting a rule. That would create not only increased opportunities for litigation, but much more complicated and expensive litigation. The end result may well be that courts, without any significant scientific expertise in the subjects being adjudicated, would replace administrative agencies as the ultimate decision-maker on many highly technical, specialized issues.⁽²⁾

In addition to requiring risk assessments and cost-benefit analyses, some proposed legislation would establish criteria ("decisional criteria") that would be used to evaluate the validity of a rule, and would supplement all enabling statutes. Consequently, the findings of cost and risk evaluations, conflicts with regard to scientific data, the postulates representing the most reasonable inferences from supporting toxicologic and epidemiologic data, and determinations of whether an agency sufficiently used the appropriate information in its analysis, would become inexorably part of the agency record and, therefore, the subject of judicial scrutiny. Some statutes administered by federal agencies now preclude reliance upon benefit-cost analyses or risk assessments in regulatory decision-making. For example, when EPA sets national ambient air quality standards (NAAQS) under section 109 of the Clean Air Act, it must rely on technology and cost considerations, and not the results of risk assessments (section 112 provides for risks to be considered at a second, later regulatory phase). Because many of the legislative proposals would overlay these laws with new requirements that decisions be based on benefit-cost analyses and risk assessments, they would greatly expand the number of issues that the Agency would have to analyze and that could be presented, in turn, to courts. Rather, we suggest the policy of including risks, costs, and benefits as decision criteria be established and pursued on a legislative program-by-program basis to ensure that the administrative rule-making process does not itself increase in complexity and duration, consuming more agency resources and time to complete individual rule-makings.

We recommend that courts should focus on that for which they are best equipped--reviewing agency compliance with the broad procedural requirements that currently govern agency action and reviewing whether an agency decision is arbitrary and capricious in light of the goals of the underlying statute.

• Standard for judicial review

FINDING 5.6.3: Enhanced standards for judicial review would reverse years of precedent and expand the historical role of the courts in reviewing agency action.

RECOMMENDATION: The standards by which courts review agency regulatory action, exercising great deference to agency interpretations of highly technical and scientific areas, should not be expanded.

RATIONALE

Historically, the standard by which courts have reviewed most agency regulatory action has been the narrow "arbitrary and capricious" standard. Under the arbitrary and capricious standard, courts consistently have held that agencies are entitled to great deference with regard to factual questions involving scientific matters in their own fields of expertise. Such deference has extended to mixed questions of law and fact, at least to the extent they have been fact-dominated. For example, in the case of Northwest Motorcycle Association v. United States Department of Agriculture,⁽³⁾ an off-road vehicle (ORV) association petitioned for review of the United States Forest Service's decision to close forest trails to ORVs in designated areas of the Wenatchee National Forest. After exhausting all administrative remedies, the ORV association argued before the United States Court of Appeals for the Ninth Circuit that the Forest Service's conclusion was arbitrary and capricious.

In holding that the decision to close the trails was not arbitrary and capricious, the circuit court limited its review to the administrative record as required under the provisions of the APA.⁽⁴⁾ The court recited "evidence in the administrative record" that supported the Forest Service's findings, and cautioned that "the court here is reviewing the evidence only to determine whether such evidence existed that justified the [Forest Service's] decision."⁽⁵⁾

The ORV association pointed to a number of alleged deficiencies in the administrative record. The court, however, replied that these deficiencies did not "mandate a finding that the [Forest Service's] decision was arbitrary and capricious."⁽⁶⁾ Rather, the court opined that the Forest Service, as fact-finder, was in the best position to determine the credibility of the evidence.⁽⁷⁾ Acknowledging the long-standing precedents of judicial review under the APA, the court noted that it "is not empowered by [the APA] to substitute its judgment for [the] agency."⁽⁸⁾ Thus, the basic standard for review of informal regulatory rulemaking is whether the agency action is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." The scope of review under this standard is a narrow one. In Citizens to Preserve Overton Park v. Volpe,⁽⁹⁾ the United States Supreme Court held that agency action is entitled to a "presumption of regularity" and while that does not "shield [it] from a thorough, probing, in-depth review," the "ultimate standard of review is a narrow one." The reviewing court is to search for a "clear error of judgment," and cannot "substitute judgment for that of the agency."⁽¹⁰⁾

A starting point for analysis of the proper standard of review is an explanation of the type of findings and type of file that are typical to informal rule-making. The findings and file reviewed under the arbitrary and capricious standard differ substantially from those required in formal adjudications under the APA.⁽¹¹⁾ The agency is not required to supply specific and detailed findings and conclusions, but need only "incorporate in the rules a concise general statement of their basis and purpose." The agency need not discuss every item of fact or opinion included in the written comments submitted to it, although it must respond to those comments and not be arbitrary and capricious. The "basis and purpose" statement must identify "what major issues of policy were ventilated by the informal proceedings and why the agency reacted to them as it did." In addition, the record "ordinarily will contain more generalized than specific information, may not contain information tested by cross-examination and will frequently contain much more conclusory information based on data gathered by interested parties."⁽¹²⁾

The court's paramount inquiry is whether a reasoned conclusion from the record as a whole could support and explain the agency's course of action.⁽¹³⁾

Proposed legislation appeared to greatly expand the use of the broad substantial evidence standard now reserved for formal agency adjudications, at the expense of the more narrow arbitrary and capricious standard. Proposed amendments to the APA would compel courts to hold agency action unlawful if the agency findings and conclusions are found to be "without substantial support in the rulemaking file, viewed as a whole, for the asserted or necessary factual basis . . ." [emphasis added]. Thus, the substantial evidence standard apparently would be expanded beyond formal hearings to all rulemakings.

While the substantial evidence standard is not a new standard of review, it typically (although not exclusively; see, for example, TSCA) has been reserved for formal rule-making and hearings. Courts have expressed some question about the application of the substantial evidence standard to informal rule-makings where the evidentiary standards and record development are different than in formal hearings (see, for example, Aqua Slide 'n' Dive v. CPSC⁽¹⁴⁾). Courts that have historically deferred to agency interpretation and action under an arbitrary and capricious standard⁽¹⁵⁾ would, instead, have to find substantial support for that action in the agency file. Inherently, requiring a court to find substantial evidence lessens its ability to defer to agency decisions.

The Commission submits that years of judicial and administrative precedent are well founded. Agencies, not courts, are better equipped to analyze highly scientific and technical findings. That precedent should not be legislatively overruled by expanding the standard of review.

• Impact of increased litigation on agencies, parties, and the courts

FINDING 5.6.4: Our court system is backlogged and agencies are heavily burdened. Each is often incapable of handling its caseloads. Consequences of increased judicial review through interlocutory appeals and an expanded scope and standard for review could include a new wave of litigation causing more delay and more costs to agencies and parties, without producing improvements in the quality of the decisions or benefits to the parties involved.

RECOMMENDATION: Initiatives that are likely to increase litigation and the role of the courts should not be undertaken.

RATIONALE

As already noted, expanded judicial review under the proposed legislation would represent an historic retreat from precedential notions of judicial deference and restraint. The APA provides procedural avenues that are aimed at preventing arbitrary or capricious action by an agency. Moreover, under the APA, judicial intervention is called for, appropriately, at the end of the administrative process, when the record is full, developed, and complete, not near the beginning or in the middle of that process. The wave of science- and medicine-based litigation involving, among other things, asbestos and lead-based paint, that flooded the courts in the 1980s and early 1990s provides meaningful examples of how questions of science can open up a universe of litigation that results in massive delay and massive costs, without necessarily producing improvements in the quality of decisions or benefits to the parties involved.

We are not suggesting that courts steer away from science issues when considering those questions in the regulatory context. The question is not whether but to what degree a court reviews science-based regulatory decision-making. Increasing judicial involvement as described above act only to delay, burden, and increase costs to agencies and parties.

• Alternatives to increased judicial review

FINDING 5.6.5: Consensual approaches to decision-making that would help assure rational and cost-effective regulatory actions affecting health, safety, and the environment as alternatives to increased judicial review are not commonly used.

RECOMMENDATION: Regulatory agencies should maximize consensual approaches to decision-making such as negotiated rule-making, alternative dispute-resolution techniques, expert peer review, and informal practices such as meetings with groups of representatives of interested parties, involvement of community stakeholders, and workshops to explore alternative regulatory approaches. Congress, in turn, should explore with the agencies removal of possible obstacles to these practices that may exist under current law.

RATIONALE

Alternatives to judicial review that promote dialogue, interplay, and negotiation between regulators and the regulated community are not commonly used, other than in the context of agency policy initiatives. While variations of alternative dispute resolution (ADR) procedures are sometimes used in the rulemaking and enforcement arenas, they clearly are the exception and not the rule.

For example, members of the regulated community, public-interest groups, and other interested parties engaged in a negotiated rule-making process work together to analyze and discuss proposed regulatory initiatives. Those negotiated rule-making sessions allow the promulgating agency to understand fully and develop possible alternatives to a regulatory initiative. The development of achievable standards or alternatives to regulatory controls are contemplated, tested, and implemented, and regulatory goals are achieved rather than violated. EPA has embraced this concept with its Common Sense Initiatives, and for those stakeholders involved, the process has opened up communications with the regulatory agency. In turn, fewer legal challenges are filed in the course of the rule-making process.

In some instances, current laws may stand as obstacles to consensual approaches in regulation. For example, the Federal Advisory Committee Act prohibits federal agencies from organizing groups of interested but unrelated parties to seek consensus, unless the groups are chartered by the Office of Management and Budget (OMB) as advisory committees and detailed procedures, including notice of meetings in the Federal Register, are followed. As a result, agencies are faced with either resorting to the inefficient practice of meeting one by one with affected groups, or accepting the substantial delays associated with chartering advisory committees.

Similarly, agencies that seek to gather information on a voluntary basis from the regulated community or others are often prohibited by the Paperwork Reduction Act from doing so--even on a voluntary basis--unless they seek and obtain clearance from OMB. Other statutes that require publication and formal notice of meetings, such as the Government in the Sunshine Act, may unintentionally chill efforts by agencies such as the Federal Energy Regulatory Commission and the Consumer Product Safety Commission to use informal consensus-building approaches.

Congress might explore with affected federal agencies whether it would be useful to relax some of these restrictions to make consensus-building approaches more readily available. Agencies such as EPA have demonstrated their readiness to use these techniques and the law should not restrict their use unnecessarily.

¹ Congress overrode a presidential veto to enact securities-reform legislation and also seriously considered and debated tort reform to decrease the amount of litigation.

² Unless the enabling legislation otherwise provides.

³ 18 F.3d 1468 (9thCir. 1994).

⁴ Pursuant to 5 U.S.C. 706 of the APA, final agency action is reviewable; however, review is limited to the administrative record.

⁵ See 18 F.3d at 1473, fn 2.

⁶ Id. at 1476.

⁷ Id. at 1476.

⁸ Id. at 1476.

⁹ 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971)

¹⁰ See Citizens to Preserve Overton Park, 401 U.S. at 415-16, 91 S.Ct. at 823-824.

¹¹ Formal agency adjudications, on appeal, are reviewed under the substantial evidence standard.

¹² Id., at 1204.

¹³ See Citizens to Preserve Overton Park, 401 U.S. 402, 91 S.Ct. 814; American Medical Association v. Matthews, 429 F.Supp. 1179 (N.D. Ill 1977).

¹⁴ 569 F.2d 831 (5th Cir. 1978)

¹⁵ Obviously, we are not addressing those specific statutes that individually require a substantial evidence standard. Nor are we suggesting that in future legislative initiatives Congress does not have the prerogative to require the substantial evidence standard. Rather, we are addressing a wholesale approach supplementing all existing legislation.