NANCY SWEET, Individually and as Mother and Natural Guardian of Thomas Sweet a/k/a Thomas Brown, Plaintiff-Appellee, v. ROBERT SHEAHAN, Defendant-Appellant, AMERICAN CYANAMID COMPANY, Successor in interest to MacGREGGOR LEAD COMPANY, ATLANTIC RICHFIELD COMPANY, EAGLE-PICHER INDUSTRIES, INC., LEAD INDUSTRIES ASSOCIATIONS, INC., N.L. INDUSTRIES, INC., SCM CORPORATION, as Successor in interest to the GLIDDEN COMPANY, SCM CHEMICALS, INC., f/k/a SCM PIGMENTS and GLIDDEN PIGMENTS, THE GLIDDEN COMPANY, THE O‘BRIEN CORPORATION, d/b/a FULLER-O‘BRIEN PAINTS, THE SHERWIN WILLIAMS COMPANY, and E.I. DUPONT DE NEMOURS & CO., Defendants.
Docket No. 00-7350
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
Argued: October 19, 2000; Decided: December 13, 2000
235 F.3d 80
Before: CABRANES, POOLER, KATZMANN, Circuit Judges.
GARY C. HOBBS, Poklemba, Hobbs & Ulasewicz, LLC, Saratoga Springs, NY for Plaintiff-Appellee Nancy Sweet.
JAMES E. CULLUM, McPhillips, Fitzgerald & Cullum LLP, Glens Falls, NY for Defendant-Appellant Robert Sheahan.
Clarin Nardy Riddle and Charles N. Rock, Rock & Rosmarin, LLP, White Plains, NY submitted a brief for Amici Curiae The National Multi-Housing Council, et al.
Laurene K. Janik, Ralph W. Holmen, Finley P. Maxson, National Association of REALTORS Institute of Real Estate Management, Chicago, IL, submitted a brief for Amicus Curiae National Association of REALTORS Institute of Real Estate Management.
R. Justin Smith and Bruce Nilles, Attorneys, U.S. Department of Justice, Washington D.C., and Lois J. Schiffer, Assistant Attorney General, Environment and Natural Resources Div. submitted a brief for Amicus Curiae United States of America.
Introduction
KATZMANN, Circuit Judge:
1 Defendant Robert Sheahan (“Sheahan” or “defendant“) appeals a decision of the District Court for the Northern District of New York (David N. Hurd, J.), which denied his motion to dismiss plaintiff‘s claim. Plaintiff Nancy Sweet, individually and on behalf of her son Thomas Brown (“plaintiff” or “Sweet“), brought suit against defendant on the grounds that, inter alia, defendant failed to provide her with warnings about lead-based paint in the apartment defendant rented to her and in which she lived with her son. Plaintiff alleges that defendant‘s failure to provide the warnings was in violation of the Residential Lead Based Paint Hazard Reduction Act,
Facts and Procedural History
2 Defendant Sheahan owned an apartment located at 59 Elm Street in Glens Falls, New York, and leased said apartment from December 1, 1995, until October 1996, to plaintiff Sweet, who lived there with her infant son Thomas Brown. Sweet claims that Brown was severely injured and hospitalized after he came into contact with lead-based paint, which was allegedly used on both the interior and exterior walls of the leased apartment.
3 On March 30, 1999, Sweet commenced an action against Sheahan on behalf of herself and her infant son. Subsequently, Sweet added as defendants a number of manufacturers of lead-based paint (or their successors-in-interest) and an industry trade association (collectively referred to as “the manufacturer defendants“), by filing an amended complaint. The amended complaint alleges that, as a result of his exposure to lead paint, Thomas Brown suffered permanent injuries to, among other things, his central nervous system. The complaint also claims that defendants have caused Sweet herself “serious physical, mental and cognitive injuries.” Sweet asserts one federal cause of action against Sheahan, pursuant to the Residential Lead Based Paint Hazard Reduction Act (“the Lead Based Paint Act” or “the statute“),
5 By Memorandum-Decision and Order dated November 5, 1999, the district court denied defendant‘s motion to dismiss. See Sweet v. Sheahan, No. 97-CV-1666, 1999 WL 1011921, at *5 (N.D.N.Y. Nov. 5, 1999). The district court found that, although the applicable regulations themselves may not have been in effect at the time the apartment was leased to plaintiff, the statute itself created a duty on defendant to disclose information about lead-based paint. See id. at *3.
6 After the district court denied his motion to dismiss, Sheahan moved for amendment of the district court‘s order or, alternatively, for an order certifying the case as one involving a controlling question of law as to which there was substantial ground for difference of opinion, such that Sheahan could present the case for an interlocutory appeal to this court. Pursuant to
Standard of Review
7 We review the district court‘s decision on a motion to dismiss under F.R.C.P. 12(b)(1) or 12(b)(6) de novo. See Jaghory v. New York State Dep‘t of Educ., 131 F.3d 326, 329 (2d Cir. 1997). When considering a motion to dismiss pursuant to Rule 12(b)(1), the court must take all facts alleged in the complaint as true and draw all reasonable inferences in favor of plaintiff. See id. Dismissal is inappropriate unless it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him or her to relief. See Securities Investor Protection Corp. v. BDO Seidman, LLP, 222 F.3d 63, 68 (2d Cir. 2000), certified question accepted by 95 N.Y.2d 831, 734 N.E.2d 1211 (N.Y. 2000).
Discussion
I. Statutory and Regulatory Background
8 Congress enacted the Residential Lead Based Paint Hazard Reduction Act as Title X of the Housing and Community Development Act of 1992. See Pub. L. No. 102-550, codified at
9 Additionally, and more directly relevant to the case at hand, the Lead Based Paint Act directs the Secretary of the Department of Housing and Urban Development (“HUD“) and the Administrator of the Environmental Protection Agency (“EPA“) to promulgate regulations mandating the disclosure of lead-based paint hazards in privately owned housing that is sold or leased. See
11 Although [
Section 4852d(d) ] specified that final regulations should be promulgated no later than October 28, 1994, EPA/HUD will not be able to meet this deadline. It appears that Congress’ intent in [the statute] was to provide a year between the promulgation of the final rule, and the effective date of the rule. Congress reasonably could have believed that this year was necessary in order that the real estate industry, landlords, sellers, etc. could become familiar with the rule requirements and set up procedures for compliance. For this reason, EPA and HUD believe that the effective date of the rule should be no earlier than 1 year after promulgation of the final rule, even if this occurs later than October 28, 1995. EPA and HUD believe that this interpretation is the one most consistent with congressional intent.
12
13 Despite this statement in the “Background” section of the proposed regulations, the proposed regulations provided that the proposed disclosure requirements “shall apply to any transaction to sell or lease target housing on or after October 28, 1995.” Lead Based Paint Poisoning Prevention in Certain Residential Structures, 59 Fed. Reg. 54997 (1994) (to be codified at 24 C.F.R. § 38.10 and 40 C.F.R. § 745.102). The agencies provided for a period for public comment on the proposed regulations, see 59 Fed. Reg. at 54984. Approximately 200 comments were received, beginning on November 10, 1994, and ending on February 9, 1996. See Requirements for Disclosure of Known Lead Based Paint and/or Lead Based Paint Hazards in Housing, 61 Fed. Reg. 9064, 9066 (1996)
14 After the close of the public-comment period, the agencies published the final regulations in the Federal Register on March 6, 1996 -- some four months after the effective date set by Congress. See
15 The agencies cited promulgation delays as the reason for failing to meet the statutory deadline. See
16 While agreeing that this rule addresses an important consumer protection and empowerment goal, EPA and HUD believe that the rule‘s effective implementation requires an informed and prepared general public and regulated community. EPA and HUD believe that a phase in period is necessary to provide adequate time for the real estate industry, private lessors, and independent housing sellers and lessors to become familiar with the rule requirements and to set up procedures for compliance.
17
II. The Issue
18 The legal question before the Court is: As of what date did Sheahan become legally obligated to comply with the federal lead-paint disclosure requirements? Was it: (1) October 28, 1995, the date the statute states the regulations would become effective and which was before Sweet leased the apartment from Sheahan; or (2) December 6, 1996, the date set forth by the agencies in the Federal Register and Code of Federal Regulations as the effective date of the regulations? If the answer is the former, then Sheahan would have owed a duty of disclosure to Sweet and subject matter jurisdiction would exist, but if the latter date is applicable, then Sweet‘s federal claim would have no basis and subject matter jurisdiction would be lacking.
20 Our finding for defendant rests on three interrelated conclusions. First, the plain language of the statute establishes that the EPA and HUD had an obligation to promulgate regulations that implemented the disclosure obligations; the statute itself does not create such obligations on property owners. Our conclusion that the regulations, and not the statute, created the enforceable obligations on private parties is supported by the fact that, in the absence of Congressional direction, the agencies were compelled to make a number of decisions in the regulations without which the duties of those private parties would not have been clear. Second, given our holding that the statute did not create enforceable obligations, the only way in which to conclude that Sheahan owed a duty of disclosure to Sweet would be to apply the regulations retroactively. Such an interpretation, however, is disfavored by our precedents, and we cannot so hold. Finally, we note that in devising regulations the agencies imposed additional obligations on homeowners that were not specified by the statute. This fact, among others, suggest that the agencies were engaged in legislative rulemaking, such that the interpretations in the regulations, including the effective date, are entitled to substantial deference from this Court.
III. The Statute Does Not Impose a Legal Obligation on Private Parties.
21 The section of the statute concerning disclosure requirements begins by stating:
23 Not later than 2 years after October 28, 1992, the Secretary [of HUD] and the Administrator of the [EPA] shall promulgate regulations under this section for the disclosure of lead based paint hazards in target housing which is offered for sale or lease. The regulations shall require that, before the purchaser or lessee is obligated under any contract to purchase or lease the housing, the seller or lessor shall -
24 (A) provide the purchaser or lessee with a lead hazard information pamphlet . . . .
25
26 The statute obligates the EPA and HUD to promulgate regulations. The obligations of sellers and lessors stem from the regulations to be promulgated by the agencies: “The regulations shall require . . . .” Thus, the statute imposes obligations on the agencies to promulgate regulations which will then -- and only then -- impose obligations on sellers and lessors. Sheahan thus had no disclosure obligation until the regulations became effective.5
27 We thus respectfully disagree with the interpretation of the district court, which held that the “plain language of [the statute] supports plaintiff‘s position that October 28, 1995 is the controlling date.” Sweet, 1999 WL 1011921, at *3. As discussed above, the statutory deadlines are directives to the agencies and do not directly impose duties on sellers and lessors. Thus, although the statute unambiguously states that the regulations are to take effect on October 28, 1995, that provision was rendered unenforceable by the failure of HUD and EPA to promulgate final regulations before that date. Put another way, no regulations became effective on the date set forth in the statute because the agencies did not meet the statutory deadlines.
28 Implicit in our argument is the established point of law that proposed regulations, in this case those issued on November 2, 1994, have no legal effect. See LeCroy Research Sys. Corp. v. Commissioner, 751 F.2d 123, 127 (2d Cir. 1984) (“Proposed regulations are suggestions made for comment; they modify nothing.“); Barton Mines Corp. v. Commissioner, 446 F.2d 981, 990 n.4, 993 n.7 (2d Cir. 1971) (refusing to consider import of proposed regulations in rendering decision); Wuillamey v. Werblin, 364 F. Supp. 237, 243 (D.N.J. 1973) (a proposed rule does not have “the force of law“); cf.
30 Although the statute itself did not impose enforceable obligations on private parties, the agencies, in an effort to fashion a workable scheme, did so through the regulations. In promulgating the final regulations, the agencies refined the class of persons subject generally to the disclosure requirements of
31 Bolstering our view that the statute itself did not create enforceable obligations on private parties is the fact that Congress anticipated at least a one-year delay between the time the regulations were promulgated and when those regulations would become effective. See
IV. Retroactive Application of the Regulations
33 Given our conclusion that the statute itself does not create enforceable obligations on private parties, the only way in which we could find that Sheahan had a duty to provide plaintiff with disclosures regarding lead-based paint hazards would be to conclude that a duty existed under the regulations. We have already explained that such a duty cannot come from the proposed regulations because proposed regulations do not have binding legal effect. See LeCroy Research Sys. Corp., 751 F.2d at 127.
35 Plaintiff Sweet argues that Congress, by clearly mandating the effective date of October 28, 1995, not only authorized retroactivity but mandated it. We disagree. No express language in the Lead-Based Paint Act requires that the regulations be applied retroactively. The statute mandated that final regulations would take effect on October 28, 1995, but this was necessarily based on the assumption that final regulations would be promulgated by that date.
36 We agree with Sweet that the agencies’ failure to promulgate final regulations before the date specified in the Lead-Based Paint Act contravened Congressional intent. However, we cannot remedy the agencies’ failure by holding Sheahan liable for allegedly neglecting his disclosure obligations when those obligations did not exist, at least under the federal statute, at the time Sheahan entered into the lease with Sweet. Congress expressly delegated to the agencies the responsibility for developing regulations, and the statutory language makes the private landlords’ disclosure obligations contingent on the promulgation of those regulations. Applying a duty of disclosure to Sheahan‘s lease agreement with Sweet would be unfair because, at the time the lease commenced, Sheahan could not be sure of what his disclosure requirements would be under the forthcoming regulations. See Sipes v. Slaughter, 89 F. Supp. 2d 1199, 1203 (D. Kan. 2000) (faced with the same legal issue raised in this case, finding that the retroactive application of the final regulations was prohibited on grounds of procedural fairness); see generally Landgraf, 511 U.S. at 265 (“Elementary considerations of fairness dictate that individuals should have an opportunity to know what the law is and to conform their conduct accordingly; settled expectations should not be lightly disrupted.“). Moreover, applying the regulations to create a duty on Sheahan would require us to override the agencies’ specific, stated intention that the regulations not become effective until December 6, 1996. This would be inconsistent with our finding that the regulations are entitled to Chevron deference. See infra Part V.
37 The district court argued that Sheahan would not be prejudiced by requiring his compliance with the disclosure requirements before the final regulations were published.6 The court stated:
38 The statute specifically set[s] forth the specific conduct required of sellers and lessors, and stated that such conduct would be required on and after October 28, 1995. Furthermore, the proposed regulations, which were published more than one year before Sweet moved into the subject apartment, contained the same basic disclosure requirements and stated that such disclosure would be required in “any transaction to sell or lease target housing on or after October 28, 1995.” 59 Fed. Reg. 54997. Sheahan would only be prejudiced if he were held responsible for acts of disclosure contained in the final regulations which were not in the statute or proposed regulations. That is not the case here, however. Sheahan is accused of failing to comply with conduct specifically contained in the Lead Based Paint Act and which is substantially similar in the proposed regulations. Therefore, Sheahan cannot show prejudice.
V. The Regulations Are An Exercise in Legislative Rulemaking and Entitled to Substantial Deference.
42 The district court found that the regulations at issue in this case are interpretive rather than legislative: “[T]he regulations in the instant case merely report and explain the disclosure requirements set forth by Congress“, and thus “they are not entitled to any deference.” Sweet, 1999 WL 1011921, at *3. We disagree with this conclusion and find that the regulations are legislative and are entitled to substantial deference from this Court. Before we explain our reasoning, however, it is necessary to give a brief overview of the difference between interpretive and legislative rules, and the relevance of this distinction.
43 The distinction between legislative and interpretive rules derives from the Administrative Procedure Act (“APA“), codified at
44 A more comprehensive test for distinguishing legislative and interpretive rules was set forth by the D.C. Circuit in American Mining Congress v. Mine Safety & Health Administration, 995 F.2d 1106, 1110-12 (D.C. Cir. 1993). In that case the court stated:
45 Accordingly, insofar as our cases can be reconciled at all, we think it almost exclusively on the basis of whether the purported interpretive rule has “legal effect“, which in turn is best ascertained by asking (1) whether in the absence of the rule there would not be an adequate legislative basis for enforcement action or other agency action to confer benefits or ensure the performance of duties, (2) whether the agency has published the rule in the Code of Federal Regulations, (3) whether the agency has explicitly invoked its general legislative authority, or (4) whether the rule effectively amends a prior legislative rule. If the answer to any of these questions is affirmative, we have a legislative, not an interpretive rule.
47 Interpretive rules and legislative rules differ in important ways. Legislative rules bind members of the agency and the public, and such rules receive substantial deference from the courts. See Kenneth Culp Davis & Richard J. Pierce, Jr., 1 Administrative Law Treatise (“Treatise“) § 6.3, at 233-38 (3d ed. 1994) (citing sources).9 Indeed, we have stated that “[w]hen Congress delegates to an agency the power to promulgate rules, ‘the [agency] adopts regulations with legislative effect. A reviewing court is not free to set aside those regulations simply because it would have interpreted the statute in a different manner....‘” United States v. Chestman, 947 F.2d 551, 557-58 (2d Cir. 1991) (quoting Batterton v. Francis, 432 U.S. 416, 425-26 (1977) (second alteration in original)). Legislative rules can impose obligations on members of the public distinct from, and in addition to, those imposed by statute. See Davis & Pierce, Treatise, § 6.3, at 234. Because of the potentially powerful nature of legislative rules, it is essential to recognize that agencies have the power to issue legislative rules only if, and to the extent that, Congress has so authorized. See id.; see also Yuzary, 55 F.3d at 51 (discussing and quoting Treatise).
48 In this case, we find that the regulations are legislative. As reviewed above, the regulations were promulgated pursuant to the explicit statutory authority of the Lead-Based Paint Act. The plain language of the statute anticipates that the regulations themselves will create legal obligations on landlords to disclose lead-based paint hazards. See
49 We disagree with the district court‘s assessment that the regulations only “report and explain” the requirements set forth by the statute. We acknowledge that the statute is rather explicit in setting forth certain aspects of the disclosure that Congress intended be given. See especially
51 In addition, although the statute did not explicitly require the agencies to follow the notice-and-comment process, the agencies provided notice to the public and an opportunity to comment, following the requirements of the APA,
52 In sum, although the explicit nature of certain parts of the statute could suggest that the regulations are interpretive, the evidence refutes such an argument. Because the rules are legislative, the interpretations contained therein, including the effective date, receive substantial deference from this court. We have stated that “an agency‘s interpretation of a statute in a legislative rule is binding on a court if the interpretation is a ‘permissible construction of the statute.‘” Yuzary, 55 F.3d at 51 (quoting Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843 (1984)). Given Congress’ stated expectation that there would be a year between the promulgation of the final rule and its effective date, the agencies’ decision to provide the regulated public six to nine months before the final rule became effective is doubtless a permissible interpretation of the statute. Therefore, the agencies’ interpretation, including the effective date, is binding on this court.
53 The legislative nature of the regulations also distinguishes this case from our earlier holding in Huberman v. Perales, 884 F.2d 62 (2d Cir. 1989), upon which the district court relied. In that case, the court analyzed whether a recipient‘s right to a more generous amount of food stamps began on the effective date of the Food Security Act (“FSA“), or the later effective date of the implementing regulation. See id. at 64. We held that the recipient was entitled to the higher amount of food stamps as of the effective date of the FSA. Id. at 68-69. Our decision relied on the fact that the FSA expressly provided that its provisions became effective upon the date of enactment, unless otherwise provided in the specific provisions. Id. at 64-65. We noted that the provision in question, unlike other provisions, did not specifically provide for a different effective date. Id. at 65-66. Moreover, we emphasized that the Secretary of Agriculture had characterized his department‘s duty in implementing the relevant provision of the FSA as “interpretive.” Id. at 66, n.12, 68. This view made sense to us because the FSA provision at issue was a “ministerial” amendment to the way food stamp benefits were calculated, requiring “no discretion or judgment of officials in the program.” Id. at 66. The regulations did not “alter any rights, entitlements, or responsibilities extant before they were issued.” Id. at 68. The Court also found that Congress did not expect that the agency would follow notice-and-comment procedures in designing the implementing regulation, and none were followed. Id. at 66-67.
Conclusion
55 The gravamen of plaintiff‘s argument and district court‘s holding is that Congress signaled that the regulations would become effective on the date mandated by the statute. However, the clear language of the statute did not impose obligations on private parties, but rather required the agencies to promulgate the regulations, which in turn created enforceable disclosure requirements on the regulated community. And those regulations did not take effect until after plaintiff and her son moved from defendant‘s apartment. In such a circumstance, we are bound to yield to the strong presumption against retroactively applying regulations and to give deference to the agencies’ interpretation of the statute. Where the regulated community was not responsible for the agencies’ delay, we believe in fairness that the regulated community cannot be liable for not complying with regulations yet to take effect.
56 We recognize the strong public interest furthered by allowing plaintiff a chance to recover for her injuries. By requiring regulations, Congress determined that voluntary compliance was insufficient to the task of eliminating the tragic circumstances of the kind present in this case, and that mandatory disclosure, among other means, was necessary to protect the community. See generally Mary Graham, Regulation by Shaming, The Atlantic Monthly, Apr. 2000, at 36 (examining mandatory disclosures in a variety of contexts). And if those final regulations had been in effect, this Court would have been presented with a different case. We again emphasize that our ruling expresses no view on the merit of plaintiff‘s claim against defendant under state law. Our holding is limited to a finding that plaintiff fails to state a claim under the Lead-Based Paint Act.
57 In conclusion, we find that Sheahan‘s duty of disclosure did not accrue before December 6, 1996, the date the regulations became effective. Therefore, Sweet‘s federal claim against Sheahan is without basis in the law, and federal jurisdiction is lacking. The decision of the district court is reversed, and the case is remanded with instructions to dismiss plaintiff‘s case.
Notes
The requirements in this subpart [setting forth disclosure requirements for lead-based paint] take effect in the following manner:
(a) For owners of more than four residential dwellings, the requirements shall take effect on September 6, 1996.
(b) For owners of one to four residential dwellings, the requirements shall take effect on December 6, 1996.
1994 * October 28 CONGRESS states regulations are to be promulgated by this date. * November 2 The AGENCIES publish proposed regulations in the Federal Register.
1995 * October 28 CONGRESS states regulations are to become effective by this date. * December 1 Sweet‘s lease commences.
1996 * March 6 The AGENCIES publish the final version of the regulations, announcing that they would become effective on September 6 or December 6, 1996, depending on the type of residential structure. * October Sweet‘s lease expires. * December 6 The date set by the AGENCIES for the regulations to become effective for the type of residence owned and leased by Sheahan.
“The regulations do not alter rights or obligations existing prior to their issuance. It is the Lead Based Paint Act which does this; the regulations merely report and explain the mandate of Congress. Thus, it is the statute and its effective date which is being applied here, not the regulations. Since the conduct at issue in this case occurred after the regulations’ effective date as declared by Congress, the regulations are not being applied retroactively.”
1999 WL 1011921, at *4. For the reasons stated supra, we have already rejected the argument that the statute itself created enforceable obligations.
It appears that Congress’ intent in [the statute] was to provide a year between the promulgation of the final rule, and the effective date of the rule. Congress reasonably could have believed that this year was necessary in order that the real estate industry, landlords, sellers, etc. could become familiar with the rule requirements and set up procedures for compliance.
59 Fed. Reg. 54984-85 (1994).
Moreover, as set forth above, when announcing the publication of the final regulations, the agencies stated:
EPA and HUD believe that a phase in period is necessary to provide adequate time for the real estate industry, private lessors, and independent housing sellers and lessors to become familiar with the rule requirements and to set up procedures for compliance.