UNITED STATES DEPARTMENT OF TRANSPORTATION, ET AL., PETITIONERS V. AIR TRANSPORT ASSOCIATION OF AMERICA, ET AL. No. 90-605 In The Supreme Court Of The United States October Term, 1990 The Acting Solicitor General, on behalf of the United States Department of Transportation; Samuel Skinner, Secretary of Transportation; the Federal Aviation Administration; and James B. Busey, Administrator of the FAA, petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the District of Columbia Circuit in this case. Petition For A Writ Of Certiorari To The United States Court Of Appeals For The District Of Columbia Circuit PARTIES TO THE PROCEEDING The petitioners, respondents below, are the United States Department of Transportation; Samuel Skinner, Secretary of Transportation; the Federal Aviation Administration; and James B. Busey, Administrator of the FAA. The respondents are Air Transport Association of America, the petitioner below, and National Air Carrier Association, Inc., American Trans Air, Inc., Southern Air Transport, Inc., World Airways, Inc., Air Line Pilots Association, Aircraft Owners and Pilots Association, America West Airlines, Inc., Albert O. McCauley, Duncan Black Parker, and Herbert G. Vance, petitioners-intervenors below. TABLE OF CONTENTS Question Presented Parties To The Proceeding Opinions below Jurisdiction Statutory provisions involved Statement Reasons for granting the petition Conclusion OPINIONS BELOW The opinion of the court of appeals (App., infra, 1a-31a) is reported at 900 F.2d 369. JURISDICTION The judgment of the court of appeals was entered on April 13, 1990. A petition for rehearing was denied on June 18, 1990. App., infra, 32a. On September 7, 1990, the Chief Justice extended the time for filing a petition for a writ of certiorari to and including October 5, 1990. This Court has jurisdiction under 28 U.S.C. 1254(1). STATUTORY PROVISIONS INVOLVED Sections 551(4) and 553 of Title 5 of the United States Code and Section 204(g) of the Airport and Airway Safety and Capacity Expansion Act of 1987, 49 U.S.C. App. 1475 (Supp. V 1987), are set out in an appendix (App., infra, 92a-96a). QUESTION PRESENTED Whether regulations setting forth procedures for Federal Aviation Administration civil penalty proceedings were "rules of agency organization, procedure, or practice" exempt from the notice-and-comment requirement of the Administrative Procedure Act. STATEMENT In this case, a divided panel of the court of appeals struck down regulations establishing procedures for civil penalty proceedings conducted by the Federal Aviation Administration. The majority held that the regulations were invalid because the FAA failed to comply with the notice-and-comment requirement of the Administrative Procedure Act. In so doing, the majority rejected the government's contention that the challenged rules fell within the exception to that requirement for "rules of agency organization, procedure, or practice" (5 U.S.C. 553(b)(A)). By a 5-5 vote, the court of appeals declined to rehear that question in banc. 1. Until 1987, the FAA had only limited authority to adjudicate claims for civil penalties based upon violations of the Federal Aviation Act and associated regulations. With the exception of certain cases involving the transportation of hazardous materials, the agency was required to refer violations subject to civil penalties to the Department of Justice, which would then determine whether to pursue enforcement proceedings in federal district court. In 1987, recognizing that competing demands on the U.S. Attorneys' offices had led to sporadic enforcement, Congress provided the FAA with additional authority to assess civil penalties. /1/ Section 204(g) of the Airport and Airway Safety and Capacity Expansion Act of 1987, 49 U.S.C. App. 1475 (Supp. V 1987), /2/ empowered the FAA to conduct a "demonstration program" in which the agency could assess civil penalties in amounts up to $50,000.00. As originally enacted, the program was to remain in effect for two years, through December 30, 1989. 49 U.S.C. App. 1475(d)(4). The FAA's authority to assess civil penalties has since been extended on several occasions, most recently through August 1, 1992. /3/ The statute provides that a penalty is to be assessed "only after notice and an opportunity for a hearing on the record in accordance with (5 U.S.C. 554)." 49 U.S.C. App. 1475(d)(1). On September 7, 1988, in order to prescribe procedures through which its new enforcement authority could be exercised, the FAA promulgated its "Rules of Practice for FAA Civil Penalty Actions." 53 Fed. Reg. 34,646 (1988) (hereinafter Rules of Practice). /4/ The Rules of Practice set out a comprehensive set of procedures for civil penalty proceedings -- covering such matters as pleadings, representation of parties, scheduling, discovery, motions, hearings, and administrative appeals. App., infra, 38a-91a. The FAA made the rules effective immediately upon their publication in the Federal Register. App., infra, 35a; see id. at 37a. 2. The Air Transport Association of America (ATA), a trade association consisting of American air carriers, petitioned the United States Court of Appeals for the District of Columbia Circuit for review of the Rules of Practice, and other parties intervened to challenge the rules. See p. ii, supra. The ATA and the intervenors argued, inter alia, that the Rules of Practice were invalid because the FAA had promulgated them without complying with the notice-and-comment requirement of the APA, 5 U.S.C. 553(b)-(c). The government responded that the Rules of Practice were exempt from the notice-and-comment requirement, because they were "rules of agency organization, procedure, or practice" and because the agency had properly found, in view of the time constraints placed by Congress on the civil penalty program, that good cause existed for dispensing with notice and comment. See 5 U.S.C. 553(b)(A)-(B); App., infra, 35a-37a. A divided court of appeals held that neither exception to the notice-and-comment requirement was applicable. a. The majority (Edwards and Mikva, JJ.) ruled that the exemption for "rules of agency organization, procedure, or practice" does "not apply to agency action that 'substantially alter(s) the rights or interests of regulated' parties." App., infra, 2a. The Rules of Practice failed that test, the majority held, "because they substantially affect civil penalty defendants' 'right to avail (themselves) of an administrative adjudication.'" Ibid. (quoting National Motor Freight Traffic Ass'n v. United States, 268 F. Supp. 90, 96 (D.D.C. 1967) (three-judge court), aff'd mem., 393 U.S. 18 (1968)). See App., infra, 11a, 13a, 14a, 15a, 18a-19a. The majority dismissed as "unpersuasive" the government's contention that the Rules of Practice were rules of agency "procedure" or "practice" because they established procedures for civil penalty proceedings and had no effect on substantive obligations imposed on the aviation community. App., infra, 11a-12a; see id. at 18a. "Rather than focus on whether a particular rule is 'procedural' or 'substantive,'" the majority declared, the circuit's prior decisions mandated a "functional analysis." Id. at 12a. Under this analysis, "(w)here nominally 'procedural' rules 'encode() a substantive value judgment' or 'substantially alter the rights or interests of regulated' parties," the exemption for rules of agency procedure is unavailable (id. at 13a); that exception is a "mere 'housekeeping' measure" reserved for rules organizing an agency's "internal operations" (id. at 17a; see id. at 12a, 18a). An agency can be allowed "to forgo notice and comment," the majority said, "only when the subject matter or the circumstances of the rulemaking divest the public of any legitimate stake in influencing the outcome." Id. at 11a; see id. at 15a-16a, 24a. Applying this "functional analysis," the majority found that the Rules of Practice "substantially affect a civil penalty defendant's right to an administrative adjudication" under the Due Process Clause and the APA. App., infra, 13a. Whether or not the Rules of Practice violate any such right, the majority explained, the rules embodied "discretionary -- indeed, in many cases, highly contentious -- choices concerning what process civil penalty defendants are due," and those choices "'encode(d) a substantive value judgment' * * * on the appropriate balance between a defendant's right to adjudicatory procedures and the agency's interest in efficient prosecution." Id. at 13a & n.8. Thus, the majority declared, "(t)he FAA was no less obliged to engage in notice and comment before taking action affecting these adjudicatory rights than it would have been had it taken action affecting aviators' 'substantive' obligations under the Federal Aviation Act." Id. at 13a. In fashioning a remedy, the majority acknowledged that not all of the Rules of Practice "touch on civil penalty defendants' rights to adjudication," but it nevertheless refused to limit its decision to rules having such an effect. App., infra, 16a n.12. "At a minimum," the court said, "the FAA was obliged to engage in notice and comment before promulgating the Rules implementing the APA's procedures for formal adjudication, see 5 U.S.C. Sections 554, 556-557." Ibid. The decision prohibited the FAA from initiating any new penalty proceedings -- or going forward in pending cases -- under the Rules of Practice. Id. at 23a. Acknowledging the disruption that would accompany wholesale dismissals of civil penalty proceedings, however, the majority permitted the agency to hold pending cases in abeyance until it had promulgated new rules in accordance with the court's decision. Ibid. But the majority noted that a defendant would "be free to raise the defense that the FAA could not have successfully prosecuted him but for the agency's reliance" on any aspect of the rules that might be abandoned in a subsequent rulemaking. Ibid. The majority also took "no position on whether parties whose cases have reached a final determination under the (Rules of Practice) may now raise the procedural invalidity of the Rules as a ground for seeking review." Id. at 23a-24a. /5/ b. Judge Silberman dissented. While observing that "(l)ines between substance and procedure in various areas of the law are difficult to draw," he concluded that Congress "made that difference critical" in the APA and thus obligated courts "to implement a viable distinction between 'procedural' rules and those that are substantive." App., infra, 25a. In "a spectrum of rules running from the most substantive to the most procedural," he continued, the former would be "those that regulate 'primary conduct'" and the latter would be rules, such as those at issue here, "which deal with enforcement or adjudication of claims of violations of the substantive norm." Id. at 26a. He suggested that the majority's analysis -- which found the Rules of Practice not to be "rules of agency * * * procedure" because they affected a right to an adjudication -- was "circular reasoning" (id. at 26a-27a) and would "result() in the obliteration of the distinction that Congress demanded" (id. at 29a). Judge Silberman also noted that the majority's reasoning would make it "impossible for any agency general counsel, in the future, safely to advise agency heads that a given set of proposed rules are procedural and do not have to be published for comment" (id. at 26a). 3. The government filed a petition for rehearing with a suggestion of rehearing in banc. By a 5-5 vote, the court of appeals denied rehearing in banc. App., infra, 33a-34a. 4. After the case had been argued, but before the panel issued its decision, the FAA published a Federal Register notice proposing modifications of its rules to meet some of the specific objections advanced by the ATA and the intervenors. 55 Fed. Reg. 7980 (1990). When the panel issued its decision, the agency was on the verge of promulgating those amendments in final form. In an effort to minimize disruption of its enforcement program, the FAA issued the amendments, suspended their effective date, and simultaneously published all of the Rules of Practice, as amended, as a proposed rule. 55 Fed. Reg. 15,110, 15,134 (1990). Final, amended rules of practice were issued, after the agency had received comments from the public, on July 3, 1990. 55 Fed. Reg. 27,548 (1990). These rules became effective on August 2, 1990. REASONS FOR GRANTING THE PETITION The majority's holding -- that the FAA's Rules of Practice did not qualify as "rules of agency organization, procedure, or practice" because they substantially affected civil penalty defendants' right to an administrative adjudication -- represents a serious departure from the basic structure of the APA. The court's decision also conflicts squarely with a decision from the Ninth Circuit upholding procedural rules issued by FERC. In that case, the Ninth Circuit specifically rejected a contention that the applicability of the exemption depended on the magnitude of a rule's impact on private parties' interests. This Court's review is warranted to resolve both the scope of the exception for rules of agency procedure and the much-debated question of whether rules having a "substantial impact" on private parties are ineligible for the exceptions to the notice-and-comment requirement. The court of appeals' decision is important to the FAA and other federal agencies. The decision casts doubt on the substantial number of civil penalty proceedings that were pending at the time of the decision. The majority's interpretation will certainly encourage challenges to rules of procedure promulgated by other agencies without notice and comment. Finally, as the dissent noted, the practical effect of the decision is to make it impossible for agencies to rely in the future on the exemption for "rules of agency organization, procedure, or practice." With the possible exception of the most mundane housekeeping provisions, any procedural regulation promulgated without notice and comment will be vulnerable to a post hoc determination that it encodes a value judgment, extends beyond an agency's internal operations, substantially alters the rights or interests of regulated parties, or calls in some measure for public participation -- all grounds relied upon by the majority below, but not specified in the statute. 1. The APA divides agency rules into several categories and prescribes the procedures required for promulgation of each type. As this Court has observed, the "central distinction" is "between 'substantive rules' on the one hand and 'interpretive rules, general statements of policy, or rules of agency organization, procedure, or practice' on the other." Chrysler Corp. v. Brown, 441 U.S. 281, 301 (1979). When issuing "substantive rules," an agency must employ notice-and-comment rulemaking and, in general, must postpone the effective date of a final rule until 30 days after it has been published in the Federal Register. See 5 U.S.C. 553(b)-(d). The other categories referred to in Chrysler Corp. -- interpretative rules, general statements of policy, and rules of agency organization, procedure, and practice -- are exempt from the notice-and-comment requirement and may be made effective immediately upon publication. 5 U.S.C. 553(b)-(d). The drafters of the APA -- confident that "(t)he meaning of the phrase 'substantive rule' (was) well defined in court decisions and upon principle" (S. Doc. No. 248, 79th Cong., 2d Sess. 19 (1946)) -- chose not to include statutory definitions of the categories of rules referred to in Section 553. Nevertheless, as the dissent noted, a court is obliged to adhere to the basic framework set out in the statute -- i.e., "to implement a viable distinction between 'procedural' rules and those that are substantive." App., infra, 25a. a. In this case, the majority dismissed that "central distinction" (Chrysler Corp. v. Brown, 441 U.S. at 301) altogether. Responding to the dissent's criticism that its analysis would "result() in the obliteration of the distinction" between procedure and substance "that Congress demanded" (App., infra, 29a), the majority declared iconoclasticly that "there is no such 'distinction' to obliterate for purposes of section 553(b)(A)" (id. at 17a). Likewise, the majority dismissed the FAA's contention that the Rules of Practice did not affect the substantive obligations of the aviation community as "irrelevant." Id. at 18a. Instead of attempting to apply the distinction set forth in the statute, the majority devised a "functional approach" having absolutely no connection to the statutory text. Nothing in the statute suggests that the applicability of the notice-and-comment requirement depends on the magnitude of its effect on "'the rights or interests of regulated' parties" (App., infra, 18a). /6/ The APA does not distinguish between rules that "encode a substantive value judgment" and those that do not, nor does it suggest that courts should inquire whether an agency has made "discretionary" or "contentious" choices bearing on private parties' rights or interests (id. at 13a). There is nothing presumptively nonprocedural about rules "implementing the APA's procedures for formal adjudication" (id. at 16a n.12; see id. at 13a); on the contrary, such rules would seem to be "procedural" almost by definition. Nor does the text of the APA provide any support for the proposition that a rule of agency procedure cannot extend beyond an agency's "internal operations" (id. at 17a, 18a). b. The various judicial "tests" articulated in the majority's opinion -- in the main, excerpts lifted from various prior D.C. Circuit opinions -- were applied as substitutes for the statutory text. The majority justified this approach with the observation that "(t)he characterizations 'substantive' and 'procedural' * * * do not guide inexorably to the right result, nor do they really advance the inquiry very far." App., infra, 18a. In so doing, the majority overlooked provisions of the APA that cast considerable light on the distinction between "substantive rules" and "rules of agency organization, procedure, or practice" in favor of a smorgasbord of extra-statutory standards that have developed a life of their own -- independent of the law enacted by Congress. Various provisions of the APA make it clear that the majority's analysis is untenable. First, Section 553 does not apply at all to "a matter relating to agency management or personnel" (5 U.S.C. 553(a)(2)). Thus, if the additional exception set out in Section 553(b)(A) is limited to "internal operations," as the majority stated, it is superfluous. /7/ It is, of course, an "elementary canon of construction that a statute should be interpreted so as not to render one part inoperative." Colautti v. Franklin, 439 U.S. 379, 392 (1979). Second, the reference in Section 553(b)(A) to "rules of agency organization, procedure, or practice" is a shorthand reference to a category of rules described more fully in the APA's publication requirement. In enumerating the categories of materials that agencies would be required to publish, the predecessor of Section 552, 60 Stat. 238 (Section 3), distinguished between "substantive rules adopted as authorized by law and statements of general policy or interpretations formulated and adopted by the agency for the guidance of the public," on the one hand, and, on the other (emphasis added): (1) descriptions of (an agency's) central and field organization including delegations by the agency of final authority and the established places at which, and methods whereby, the public may secure information or make submittals or requests; (and) (2) statements of the general course and method by which its functions are channeled and determined, including the nature and requirements of all formal or informal procedures available as well as forms and instructions as to the scope and contents of all papers, reports, or examinations. /8/ This provision and Section 553 may properly be read in pari materia. /9/ Thus, it is clear that the "rules of agency * * * procedure" encompassed by Section 553(b)(A) include those establishing "all formal or informal procedures available" (plainly, to the public), not just the internal housekeeping matters encompassed by the majority's interpretation. Finally, the APA definition of a "rule," 5 U.S.C. 551(4), contrasts procedural rules with rules that are designed to implement, interpret or prescribe law or policy. According to that definition, a rule is "the whole or a part of an agency statement of general or particular applicability and future effect" -- "designed to implement, interpret, or prescribe law or policy or" -- "describing the organization, procedure, or practice requirements of an agency * * * " The second of these categories is the same as the category of "rules of agency organization, procedure, or practice" exempted by Section 553(b)(A) from notice-and-comment rulemaking. Here again, it is clear that the drafters envisaged a distinction between rules that implemented the agency's substantive mission -- those that "implement, interpret, or prescribe law or policy" -- and those that set forth the agency's procedures and practice requirements. In short, the drafters of the APA did not share the majority's view that there is no intelligible difference between procedure and substance. Nor did they leave courts with nothing to apply but an abstract distinction between procedural and substantive rules. The various provisions of the APA discussed above sketch a common-sense distinction between substantive rules -- rules that are designed to implement or prescribe law (see 5 U.S.C. 551(4)) -- and procedural rules -- rules setting forth "all formal and informal procedures available" (60 Stat. 238), including the agency's "practice requirements" (5 U.S.C. 551(4)). There is not need to resort to the various tests applied by the majority in this case, and doing so distorts the pertinent inquiry. Whatever the result of the refined analyses invoked by the majority below, when one looks at the APA and the FAA Rules of Practice it seems plain that the Rules of Practice are rules of agency "procedure" or "practice." They set forth formal and informal procedures and practice requirements of the FAA for civil penalty proceedings. They do not purport to "implement, interpret, or prescribe law or policy" -- i.e., the standards governing the aviation community or the penalties for violations of those standards. /10/ Those standards are prescribed in the Federal Aviation Act or in substantive rules issued after notice and comment. c. Finally, the APA does not, as the majority suggested, empower courts to exercise their judgment as to whether or not "the need for public participation (is) 'too small to warrant it'" (App., infra, 24a; see id. at 11a, 15a-16a). Congress weighed the benefits of public participation in rulemaking against the costs and struck the balance by specifying categories of rules which could be promulgated without resort to notice-and-comment rulemaking. As this Court observed in Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U.S. 519, 523 (1978), the APA "settled 'long-continued and hard-fought contentions, and enacts a formula upon which opposing social and political forces have come to rest.'" "(G)enerally speaking," Section 553 of the APA "established the maximum procedural requirements which Congress was willing to have the courts impose on agencies in conducting rulemaking procedures." 435 U.S. at 524. Just as these principles prohibit the imposition of procedural requirements more stringent than those specified by Section 553, they also require that Section 553's exceptions be evenhandedly construed. The decision in this case -- which narrows the exception for "rules of agency organization, procedure, or practice" to rules governing an agency's "internal operations" and makes the availability of the exception dependent upon criteria that have no foundation in the statutory text -- represents a serious departure from the basic structure of the APA and thus from the principles set forth in Vermont Yankee. 2. There is a square conflict between the court of appeals' decision in this case and the Ninth Circuit's decision in Southern California Edison Co. v. FERC, 770 F.2d 779 (1985). In Southern California Edison, two utilities challenged a rule, promulgated without prior notice and comment, establishing procedures for final approval of rates for power marketed by the Bonneville Power Administration. /11/ The utilities argued that notice-and-comment rulemaking was required because certain of the rules "would have a substantive effect on parties to BPA final rate approval proceedings." Id. at 783. The court rejected that contention, explaining (ibid.): Section 553(b)(3)(A) of the APA exempts "rules of agency organization, procedure, or practice" from the notice and comment requirement. In light of that express exemption, we have rejected the notion that procedural rules with a substantive impact are subject to the notice and comment requirements. * * * As noted above, the regulations pertain to the procedural aspects of FERC's approval of BPA rates: intervention, requests for refunds for interim rates and for final confirmation and approval. Accordingly, we conclude that the promulgation of 18 C.F.R. Section 300.21 was not subject to the APA's notice and comment requirement. Under Southern California Edison's interpretation of the exception for rules of agency procedure, it is irrelevant whether a rule has a "substantive impact" on private parties. By contrast, in this case, the majority ruled that the exception does not apply to agency action that substantially affects the rights or interests of regulated parties. App., infra, 2a. There is a square conflict between these approaches. This conflict did not arise with this case. There has long been disagreement among the courts of appeals with respect to the question whether a socalled "substantial impact" test has any legitimate role to play in determining the rules to which the notice-and-comment requirement applies. Before Vermont Yankee, courts relied heavily on the "substantial impact" test in applying the exceptions to the notice-and-comment requirement of the APA. /12/ Following Vermont Yankee, however, the Ninth Circuit rejected the substantial impact test altogether, finding it inconsistent with this Court's admonition that courts were not to "engraft() their own notions of proper procedures upon agencies entrusted with substantive functions by Congress" (435 U.S. at 525). See Rivera v. Becerra, 714 F.2d 887, 889-891 (9th Cir. 1983), cert. denied, 465 U.S. 1099 (1984); Alcaraz v. Block, 746 F.2d 593, 613 (9th Cir. 1984). /13/ Other circuits have continued to employ the substantial impact test in applying express exceptions to the notice-and-comment requirement. For instance, the Fifth Circuit has described the substantial impact test as "the primary means by which courts look beyond the label 'procedural' to determine whether a rule is of the type Congress thought appropriate for public participation." United States Dep't of Labor v. Kast Metals Corp., 744 F.2d 1145, 1153 (1984); accord Brown Express, Inc. v. United States, 607 F.2d 695, 701-702 (5th Cir. 1979) (substantial impact test is "proper test * * * in considering a rule that may arguably fall under the exemptions for 'procedural rules'"). In Kast Metals, the Fifth Circuit specifically declined to follow the Ninth Circuit in rejecting the substantial impact test. 744 F.2d at 1154 n.19. /14/ Before this case, the D.C. Circuit had given conflicting signals regarding its adherence to the "substantial impact" test. In Cabais v. Egger, 690 F.2d 234, 237 (D.C. Cir. 1982), the court declared that "(s)imply because agency action has substantial impact does not mean it is subject to notice and comment if it is otherwise expressly exempt under the APA." The court also observed that "the substantial impact test has no utility in distinguishing between" interpretative rules and substantive rules, but suggested that the test "may be useful" in applying other exceptions to the notice-and-comment requirement. Id. at 237-238. See also Batterton v. Marshall, 648 F.2d 694, 707-709 & n.83 (D.C. Cir. 1980). In American Hosp. Ass'n v. Bowen, 834 F.2d 1037, 1047 (D.C. Cir. 1987), the court observed -- with respect to the exception for procedural rules -- that its cases had "gradually shifted focus from asking whether a given procedure has a 'substantial impact' on parties * * * to inquiring more broadly whether the agency action also encodes a substantive value judgment or puts a stamp of approval or disapproval on a given type of behavior." This shift in focus, the court observed, "reflect(ed) a candid recognition that even unambiguously procedural measures affect parties to some degree." Ibid. The decision in the instant case represents an abrupt departure from the trend described in American Hospital Ass'n. The stated basis for the decision was a determination that the Rules of Practice "substantially affect" the rights of civil penalty defendants to an administrative adjudication. App., infra, 2a, 11a, 13a. Like decisions of the Fifth Circuit, the majority's analysis makes the effect of a rule the decisive factor in the application of the APA exception for rules of agency procedure. /15/ This case presents the Court with an excellent opportunity to resolve a square conflict -- between the D.C. and the Fifth Circuits on the one hand and the Ninth on the other -- over whether the availability of the exemption for "rules of agency organization, procedure, or practice" depends on the magnitude of a rule's effects on private parties. The validity of the "substantial impact" test has been widely discussed in the circuits during the 11 years since Vermont Yankee, in the context of several exemptions to the notice-and-comment requirement. The debate continues. The D.C. Circuit, the court in which "the vast majority of challenges to administrative agency action are brought," Vermont Yankee, 435 U.S. at 537 n.14, is sharply divided over the merits of the majority's approach. It denied the government's suggestion of rehearing in banc by a 5-5 vote. Even if the full D.C. Circuit were to resolve the confusion in its decisions in the near future, the conflict between the Fifth and Ninth Circuits would remain. Only this Court is in a position to restore consistency to this area of the law. /16/ 3. The decision in this case is important to the FAA and to all other federal agencies that are subject to the APA. a. The decision casts doubt upon a substantial number of civil penalty proceedings that were conducted in part under the Rules of Practice struck down by the court. As of the date of the court of appeals' opinion, the FAA had issued 5860 notices of proposed civil penalty, the first step toward assessing a penalty under the demonstration program. Over 1100 of the notices were issued to ATA's members. By the date of the panel's decision, 2128 of those matters (including 76 to which an ATA member was a party) had been resolved by means of orders assessing penalties, the final agency action in such a proceeding. /17/ We are advised that some of the remaining cases have been dismissed. Nevertheless, there are presently pending thousands of cases to which the Rules of Practice were applied before they were struck down. Those cases were held in abeyance between the date that the court of appeals issued its opinion and August 2, 1990, the effective date of the amended rules of practice promulgated by the FAA following notice and comment. See 55 Fed. Reg. 27,548 (July 3, 1990). In its decision, the court of appeals stated that a defendant in any such case "will * * * be free to raise the defense that the FAA could not have successfully prosecuted him but for the agency's reliance on some aspect of the Penalty Rules abandoned in the new scheme." App., infra, 23a. Already, the Administrator of the FAA has issued five decisions -- two of them involving ATA members -- in which he has addressed sua sponte the question whether amendments to the Rules of Practice struck down by the court might have affected the outcome. /18/ As cases pending on April 13, 1990, are brought before the Administrator, he will undoubtedly be called upon to address that issue with increasing frequency. /19/ After the court of appeals' decision, the agency announced it would voluntarily entertain requests to remand cases in which a civil penalty defendant can demonstrate that an amendment to the Rules of Practice would likely have affected the outcome of a case. 55 Fed. Reg. 15,125 (1990). However, there remains a live controversy concerning whether the notice-and-comment requirement was applicable to the Rules of Practice. If (as we maintain) the requirement was inapplicable, the failure to employ notice-and-comment rulemaking would provide no basis for invalidating any penalty assessed in a case pending at the time of the court of appeals' decision. Under the court of appeals' decision, by contrast, the agency's determinations will remain vulnerable to challenge on that ground -- under standards left unclear by that decision. Defendants denied remands by the agency will be in a position to argue that the court of appeals' decision entitles them to relief. /20/ b. The standards set forth in the majority's opinion will invite challenge to any existing procedural rule that has been issued without notice and comment and will make it impossible, in practice, to rely on the exception for rules of procedure. Ironically, while the majority dismissed the statutory distinction between procedural and substantive rules as unhelpful (see App., infra, 18a), it employed a "functional analysis" (id. at 12a) that is far less determinate. Under that approach, the exception for procedural rules will not apply to any rule that substantially alters the rights or administrative procedures. See id. at 2a, 13a. The effect on a procedural right can be substantial without rising to the level of a violation (see id. at 13a n.8), but it is not sufficient that the rule merely affects "the manner in which the parties present themselves to the agency" (id. at 15a). It is also relevant whether a rule "encode(s) a substantive value judgment" on "the appropriate balance between a defendant's right to adjudicatory procedures and the agency's interest in efficient prosecution" or extends beyond "internal operations." Id. at 13a, 17a, 18a. The majority acknowledged that "not all of the procedures established by (the Rules of Practice) touch on civil penalty defendants' rights to adjudication," but declined to specify which were invalid under that test. Id. at 16a n.12. As the dissent noted, standards of this nature will make it "impossible for any agency general counsel, in the future, safely to advise agecny heads that a given set of proposed rules are procedural and do not have to be published for comment." App., infra, 26a. Virtually any rule of agency procedure will be vulnerable to a claim that it substantially affects a procedural right or runs afoul of another of the majority's formulations. /21/ The express statutory exceptions to the notice-and-comment requirement serve the valuable purpose of obviating "lengthy administrative procedures" in circumstances where Congress has determined they are not essential. See Philadelphia Citizens in Action v. Schweiker, 669 F.2d 877, 881 (3d Cir. 1982). While many agencies voluntarily engage in notice-and-comment rulemaking when issuing procedural rules (including the DOT and FAA when time permits, see 44 Fed. Reg. 11,044 (1979)), the flexibility afforded by the exception to the notice-and-comment requirement for procedural rules remains important to agencies in various circumstances. This case -- in which the FAA was given the task of creating and implementing a major enforcement program and reporting to Congress within 18 months -- illustrates the importance of the exception. The exceptions to the notice-and-comment requirement embody a legislative decision that agencies should have discretion to promulgate certain categories of rules without notice and comment; Congress's "explicit judgment * * * as to when administrative agencies may dispense with formal rulemaking procedures must be respected." 669 F.2d at 881. CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. JOHN G. ROBERTS, JR. Acting Solicitor General /22/ STUART M. GERSON Assistant Attorney General STEPHEN L. NIGHTINGALE Assistant to the Solicitor General ANTHONY J. STEINMEYER JOHN F. DALY Attorneys PHILLIP D. BRADY General Counsel PAUL M. GEIER Assistant General Counsel for Litigation Department of Transportation GREGORY S. WALDEN Chief Counsel Federal Aviation Administration OCTOBER 1990 /1/ See 133 Cong. Rec. S15,294 (daily ed. Oct. 28, 1987) (remarks of Sen. Wilson). /2/ Unless otherwise indicated, all citations to 49 U.S.C. App. are to Supplement V to the 1982 edition of the United States Code. /3/ See Act of Dec. 15, 1989, Pub. L. No. 101-236, Section 1, 103 Stat. 2060 (four-month extension); Act of May 4, 1990, Pub. L. No. 101-281, Section 1(a), 104 Stat. 164 (additional three-month extension); Act of Aug. 15, 1990, Pub. L. No. 101-370, 104 Stat. 451 (extension through August 1, 1992). /4/ The Rules of Practice, together with excerpts from the explanatory statement accompanying them, are set forth in an appendix. App., infra, 35a-91a. /5/ The majority also held that the notice-and-comment issue was ripe for review (a conclusion with which the dissent agreed), App., infra, 7a-9a; id. at 25a (Silberman, J., dissenting); that there was no "good cause," as that APA term had been interpreted by the courts, justifying the FAA's decision not to engage in notice-and-comment rulemaking, id. at 19a-20a; and that the agency's failure to follow that course was not cured by its willingness to receive and respond to comments submitted after the Rules of Practice became effective, id. at 20a-22a. We do not seek further review of these determinations. /6/ The majority relied heavily on National Motor Freight Ass'n v. United States, supra, in fashioning its analytical approach. In that case, a three-judge court sustained a challenge to a rule establishing a mechanism through which a shipper and a carrier could voluntarily agree to "reparations" -- in effect, refunds of amounts paid by the shipper -- subject to a determination by the ICC that the original rate charged was unlawful. The precise basis for the holding was opaque, but the court appears to have relied upon its judgment that the rule was sufficiently significant in its impact to trigger the notice-and-comment requirement. See, e.g., 268 F. Supp. at 95 (informal, voluntary reparations procedure was not "so insignificant in nature and impact as to fall outside the rule-making requirements of Section (553)"); 268 F. Supp. at 97 (ICC took a "significant step" that was "within the purview of the Congressional prescription of rulemaking requirements contained in Section (553)"). Contrary to the majority's suggestion in this case, the National Motor Freight court did not hold that any rule affecting a right to an adjudication would trigger Section 553. Indeed, the language invoked by the majority in this case was an excerpt from an observation having no relevance to the issue presented here. Referring to the fact that carriers and shippers who agreed to reparations would obtain an ICC ruling on the legality of amounts previously paid, the court stated that "(a) right to avail oneself of an administrative adjudication of this kind does not become trivial simply because it is optional." 268 F. Supp. at 96. Nothing in the opinion remotely suggests that this observation was integral to the court's holding. As the dissent noted (App., infra, 30a), this Court's summary affirmance of National Motor Freight did not constitute approval of the three-judge court's reasoning. In Cabais v. Egger, 690 F.2d 234, 237 (1982), the D.C. Circuit suggested that National Motor Freight had been undercut by Vermont Yankee. The rule at issue in National Motor Freight -- which created a new remedy in the context of a statute in which Congress had assigned specific roles to the courts and the ICC in reparations cases -- bears no resemblance to the rules at issue here. /7/ Contrary to the majority's suggestion (App., infra, 12a, 17a-18a), this Court's decision in Chrysler Corp. v. Brown, 441 U.S. at 309-310, did not determine that the APA exception for "rules of agency organization, procedure, or practice" is limited to "housekeeping" matters. When it spoke of a "housekeeping" statute in Chrysler Corp., the Court was referring to 5 U.S.C. 301. See App., infra, 26a-27a n.2 (Silberman, J., dissenting). /8/ We have cited to this provision because it was enacted at the same time as the exception for "rules of agency organization, procedure, or practice" and is thus the best indicator of the intention of the Congress that enacted that exception. The current version of Section 552(a) reflects amendments enacted in 1967, Act of June 5, 1967, Pub. L. No. 90-23, Section 1, 81 Stat. 54. (These amendments were originally enacted in 1966, see Act of July 4, 1966, Pub. L. No. 89-487, Section 1, 80 Stat. 250, but were reenacted to incorporate them in the 1966 recodification of Title 5.) The amendments are not, in our view, material to the issues presented here. /9/ The "substantive rules adopted as authorized by law and statements of general policy or interpretations formulated and adopted by the agency for the guidance of the public" are unmistakable references to the "substantive rules," "general policy statements," and "interpretative rules" referred to in Section 553. The other paragraphs thus may be taken as a description of the "rules of agency organization, procedure, or practice" referred to in Section 553. The Attorney General's Manual on the APA relied heavily on the parallel between the predecessors of Sections 552 and 553 in explaining the intent of those provisions. It stated that "the rules of organization and procedure which an agency must publish pursuant to section 3(a)(1) and (2) (quoted above in text) are not ordinarily subject to the requirements of section 4(a) and (b) (now 5 U.S.C. 553(b) and (c))." United States Dep't of Justice, Attorney General's Manual on the Administrative Procedure Act 30 & n.3 (1947). This Court has relied upon the Manual's interpretations of the categories of rules established by the APA, "because of the role played by the Department of Justice in drafting the legislation." Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U.S. 519, 546 (1978). See Batterton v. Francis, 432 U.S. 416, 425 n.9 (1977). /10/ The majority stated that the Rules of Practice "established a schedule of civil penalties, including fines of up to $10,000 for violations of the safety standards of the Federal Aviation Act and related regulations." App., infra, 5a. The majority was mistaken. The regulations merely reiterate penalties set forth in the statute. Compare App., infra, 41a-43a with 49 U.S.C. App. 1374(d)(2), 1471(a)(1). /11/ In 1981, the FERC issued an interim rule establishing procedures for interim approval of BPA rates. After receiving comments on the interim rule, the FERC issued a final rule that added a new provision establishing procedures for final rate approval. That new provision was made immediately effective. The parties and the court assumed that Section 553 applied separately to the new provision issued without prior notice. 770 F.2d at 781-783. /12/ See, e.g., Pickus v. United States Bd. of Parole, 507 F.2d 1107, 1114 (D.C. Cir. 1974); Lewis-Mota v. Secretary of Labor, 469 F.2d 478, 482 (2d Cir. 1972); Akron, Canton & Youngstown R.R. v. United States, 370 F. Supp. 1231, 1236-1240 (D. Md. 1974) (three-judge court); Pennsylvania v. United States, 361 F. Supp. 208, 220-222 (M.D. Pa.) (three-judge court), aff'd mem., 414 U.S. 1017 (1973); Pharmaceutical Mfrs. Ass'n v. Finch, 307 F. Supp. 858, 863 (D. Del. 1970). See also 2 K. Davis, Administrative Law Treatise Sections 7:18-7:20 (2d ed. 1979); K. Davis, Administrative Law of the Eighties Section 7:20 (1989); Note, The Substantial Impact Test: Victim of the Fallout from Vermont Yankee?, 53 Geo. Wash. L. Rev. 118 (1985). /13/ At least in cases involving the distinction between interpretative and legislative rules, the Sixth Circuit seems to have rejected the test. Friedrich v. Secretary of HHS, 894 F.2d 829, 836 (1990) ("extent of the impact is not an indicative factor in our search for the proper characterization of" the rule at issue); Ohio Dep't of Human Servs. v. United States Dep't of HHS, 862 F.2d 1228, 1233-1234 (1988). Similarly, the First Circuit has restricted the role of the "substantial impact" test in that context. Levesque v. Block, 723 F.2d 175, 182 (1983) (in distinguishing between interpretative and legislative rules, "whether a rule has a substantial impact may be relevant in construing the intent of the agency in issuing the rule"). See also Energy Reserves Group, Inc. v. DOE, 589 F.2d 1082, 1093-1098 (Temp. Emer. Ct. App. 1978) (opinion of Becker, J.) (criticizing the substantial impact test). /14/ The Eleventh Circuit, although viewing the former Fifth Circuit's decision in Brown Express as part of the law of its circuit, has gone to unusual lengths to criticize it, in dicta, as contrary to Vermont Yankee. See American Trucking Ass'n v. United States, 688 F.2d 1337, 1351-1352 & n.20 (11th Cir. 1982), rev'd on other grounds, 467 U.S. 354 (1984); Jean v. Nelson, 711 F.2d 1455, 1479-1480 & nn.18, 20 (11th Cir. 1983), modified on other grounds on rehearing, 727 F.2d 957 (11th Cir. 1984) (en banc), aff'd, 472 U.S. 846 (1985). See also American Transfer & Storage Co. v. ICC, 719 F.2d 1283, 1285 (5th Cir. 1983) (noting that Brown Express had been "much criticized"). /15/ The majority claimed not to rely on the "substantial impact" test. App., infra, 17a. However, its explanation of how its approach differed from that test is unpersuasive. There is no difference between a test that focuses on whether procedural rules "substantially affect" the rights or interests of regulated parties and one that focuses on whether the rules have a "substantial impact" on private parties. The National Motor Freight case, the principal authority on which the majority relied, has been credited with originating the substantial impact test. See Associated Dry Goods Corp. v. EEOC, 543 F. Supp. 950, 964 (E.D. Va. 1982), rev'd, 720 F.2d 804 (4th Cir. 1983); British Caledonian Airways, Ltd. v. CAB, 584 F.2d 982, 989 (D.C. Cir. 1978). See also 1 K. Davis, Administrative Law Treatise Section 6.29, at 589 (2d ed. 1978). /16/ The majority's assertion that the APA exception for procedural rules is limited to rules organizing agencies' "internal operations" (e.g., App., infra, 18a) is also in conflict with decisions that have applied that exception to rules governing proceedings involving regulated parties. See Associated Dry Goods Corp. v. EEOC, 720 F.2d 804, 812 (4th Cir. 1983); Buckeye Cablevision, Inc. v. United States, 438 F.2d 948, 953 (6th Cir. 1971); Neighborhood TV Co. v. FCC, 742 F.2d 629, 636-639 (D.C. Cir. 1984); Lamoille Valley R.R. v. ICC, 711 F.2d 295, 327-328 (D.C. Cir. 1983). The majority described those decisions as "inapposite." Although the rules at issue in those cases "did affect 'the manner in which the parties present themselves or their viewpoints to the agency,'" the majority stated, "they did not affect any component of a party's statutory or constitutional right to avail himself of an administrative adjudication" and thus "'the need for public participation' in the rulemaking process was 'too small to warrant it.'" App., infra, 15a-16a. The distinction suggested by the majority is unworkable; further, it suggests, erroneously, that courts are to determine when the need for public participation rises to the level justifying notice and comment. Congress made that judgment in the APA in distinguishing between substantive and procedural rules. /17/ An FAA civil penalty proceeding commences with the issuance of a notice of proposed civil penalty. A party receiving such a notice has several options. It may submit the amount of the proposed penalty, invoke an informal procedure for resolving disputes, and, with or without employing the informal procedure, request a formal hearing. 55 Fed. Reg. 27,574 (July 3, 1990). After an ALJ has issued a decision following such a hearing, a party wishing to challenge an unfavorable decision has rights to administrative appeals. Id. at 27,584-27,585. An order assessing civil penalty is the final step in any proceeding in which a civil penalty defendant agrees to pay or is found liable for a penalty. Depending on the extent to which a party pursues available procedures, such an order may be entered following a voluntary payment in response to a notice of proposed penalty, at any stage of the administrative proceeding in which the party declines to proceed further, or following exhaustion of all administrative appeals. /18/ In re Broyles, FAA Order No. 90-23 (Sept. 14, 1990); In re Continental Airlines, Inc., FAA Order No. 90-18 (Aug. 22, 1990); In re Degenhardt, FAA Order No. 90-20 (Aug. 16, 1990); In re Carroll, FAA Order No. 90-21 (Aug. 16, 1990); In re USAir, Inc., FAA Order No. 90-22 (Aug. 16, 1990). In each of these cases, except for Degenhardt, the civil penalty defendant asserted that the Rules of Practice were invalid because they had been issued without notice and comment and that, as a result, any penalty had to be vacated. The Administrator rejected that contention, noting that the decision in this case expressly permitted the FAA to hold pending proceedings in abeyance. However, in each case, he went on to consider the claim reserved by the court of appeals. In four cases, he found no basis for a conclusion that the application of the Rules of Practice (as opposed to the subsequent, amended rules) could have affected the outcome. In USAir, he found that a change regarding service of a notice of proposed penalty could have affected the outcome, and he vacated the penalty at issue. No significance should be attributed to the fact that the Administrator has so far addressed the issue raised by the court of appeals' majority sua sponte. The amended rules did not become effective until August 2, 1990, and upon their effective date, all time periods prescribed by those rules began to run anew. 55 Fed. Reg. 27,549-27,550 (July 3, 1990). A 50-day limit applies to briefs challenging decisions issued by an ALJ. Id. at 27,584. Because of this circumstance (and extensions granted by the agency), no brief in chief was filed by a civil penalty defendant between August 2 and October 1, 1990. /19/ One party against whom a civil penalty had been assessed before the court of appeals decision has petitioned for review in the Sixth Circuit and has argued that the Rules of Practice are invalid by virtue of the agency's failure to follow the notice-and-comment requirement. Playter v. FAA, No. 90-3420 (6th Cir.). The case has been fully briefed, but has not yet been scheduled for argument. /20/ There is no doubt that at least some of the parties that challenged the rule retain an interest in the outcome of this case. For instance, ATA's members were parties to approximately 1100 cases as of the date of the court of appeals' opinion. ATA petitioned for review as a representative of its members; thus, to the extent its members have a continuing controversy with the FAA, ATA continues to have a live dispute with the FAA. The same may be said of other parties representing members to which the Rules of Practice were applied and of air carriers that are parties to proceedings in which the Rules of Practice were applied at some point. We are advised that the civil penalty proceedings brought against the three individual intervenors have been dismissed; the Rules of Practice invalidated by the court of appeals will not be applied to them. The case is moot as to those individuals. /21/ Under 5 U.S.C. 557(c), for example, a party to a hearing is entitled to submit "proposed findings and conclusions" before a decision is rendered. Under the majority's analysis, a rule limiting a written filing to a fixed number of pages might be said to affect the right to file proposed findings and conclusions and to encode a substantive value judgment on the appropriate balance between that right and the agency's interest in efficient adjudication. In fact, in this case, the ATA specifically challenged a rule that obligated parties to offer their proposed findings orally, except in complex cases. App., infra, 83a-84a. It is impossible to determine whether such a rule would pass muster under the majority's analysis or, in terms of that analysis, to discern a line that would distinguish it from a page limit. /22/ The Solicitor General is disqualified in this case. APPENDIX