WOODLAND PRIVATE STUDY GROUP, MINNESOTA MINING AND MANUFACTURING COMPANY, AND ROHM AND HAAS COMPANY, RESPONDENTS, v. STATE OF NEW JERSEY, DEPARTMENT OF ENVIRONMENTAL PROTECTION, AND ROBERT E. HUGHEY, COMMISSIONER, OF THE DEPARTMENT OF ENVIRONMENTAL PROTECTION, APPELLANTS.
Supreme Court of New Jersey
Argued January 20, 1987—Decided November 16, 1987.
109 N.J. 62 | 533 A.2d 387
William H. Hyatt, Jr. argued the cause for respondents (Pitney, Hardin, Kipp & Szuch, attorneys; Mr. Hyatt, Robert G. Rose, and William J. Friedman, on brief).
The opinion of the Court was delivered by
Plaintiffs, Minnesota Mining and Manufacturing Company and Rohm and Haas Company, known collectively as Woodland Private Study Group, challenge an Administrative Order, AO-69, issued by the Commissioner of the Department of Environmental Protection. Annexed to the order is a “policy statement” regarding “Participation of Responsible Parties in the Development of Remedial Investigations and Feasibility Studies.” Plaintiffs are “Responsible Parties” within the meaning of that policy statement. They contend that AO-69 amounts to rulemaking and hence is subject to the procedural requirements of notice and hearing, whereas the Commissioner views his Order as no more than an intra-agency statement for which no such procedures are required.
The Appellate Division upheld plaintiffs’ challenge to the Commissioner‘s Order. On the strength of Metromedia, Inc. v. Director, Division of Taxation, 97 N.J. 313 (1984), the court declared the order invalid, Woodland Private Study Group v. State of New Jersey, 209 N.J.Super. 261 (1986), inasmuch as it was “a rule subject to the procedural requirements for adoption
I
The underlying dispute between plaintiffs and the Department of Environmental Protection (DEP), well summarized in Woodland Private Study Group v. State of New Jersey, 616 F.Supp. 794, 796-98 (D.N.J.1985), has been brewing for some time. As the federal district court pointed out, during the 1950s and 1960s the Industrial Trucking Service Corporation allegedly deposited at two dump sites in Woodland Township, Burlington County, wastes generated by several manufacturing concerns, including these plaintiffs. Id. at 797. Sampling conducted by the DEP revealed the presence of volatile organics and pesticides at both sites and of ground water contamination at one of them. The hazardous nature of these sites made them priority targets of cleanup efforts by the DEP under the Spill Compensation and Control Act,
On August 4, 1983, Industrial Trucking notified the DEP of possibly hazardous discharges at the Woodland sites. Following that notification, appellants and DEP entered into extensive negotiations over the scope of a Remedial Investigation/Feasibility Study (RI/FS) for the sites. Ibid. The RI/FS phase of the cleanup process involves the delineation and analysis of the pollution problems at a site, and makes recommendations for the implementation of various cleanup plans and technologies to remedy the hazardous conditions.
Plaintiffs sought primary responsibility for preparing the RI/FS, with the DEP to exercise an oversight role. Ibid. Initially, DEP appeared ready to accept such an arrangement. However, by letter dated February 17, 1984, DEP informed plaintiffs that a change in agency policy would bar them from
On June 29, 1984, DEP issued AO-69. The Order forbids “responsible parties” (parties alleged to have contributed to or caused contamination at a site) from conducting an RI/FS. The Order further states in part:
In order to insure that a remedial investigation and feasibility study (RI/FS) of a site which is scheduled for a publicly funded RI/FS will be properly and reliably performed and to insure the maximum degree of public confidence in the results of the RI/FS, the * * * [DEP] will conduct all such RI/FS work.
AO-69 does permit private parties to “participate” in the development of an RI/FS under certain specified conditions. The private party must agree: (1) to the scope of work developed by the DEP; (2) that the State will hire the contractor to perform the RI/FS; (3) to pay in advance all the costs of the RI/FS, including the administrative costs of DEP; and (4) to comply with all applicable community relation requirements. Moreover, the agreement between DEP and the responsible party must be reduced to an administrative or judicial consent order.
Private party involvement under AO-69 is limited to minority membership on a committee chaired by a DEP representative. The committee is responsible for selecting the contractor to perform the work, approving the contractor‘s work plan, and overseeing the development of the RI/FS.
DEP concedes that AO-69 was not adopted in “substantial compliance” with the rulemaking prodedures of the Administrative Procedure Act (APA) as required by
each agency statement of general applicability and continuing effect that implements or interprets law or policy, or describes the organization, procedure, or practice requirements of any agency. The term includes the amendment or repeal of any rule, but does not include: (1) statements concerning the internal
management or discipline of any agency; (2) intra-agency and interagency statements; and (3) agency decisions and findings in contested cases.
Thus the latter three categories of administrative actions need not satisfy the notice and hearing requirements of
The Appellate Division, faced with plaintiffs’ challenge to AO-69 solely on the ground of procedural noncompliance with the requirements of the APA, concluded that the proper characterization of the order was controlled by this Court‘s recent opinion in Metromedia, Inc. v. Director, Division of Taxation, supra, 97 N.J. 313. There, the Court established six factors for determining that agency action constitutes an administrative rule, namely, when the determination
(1) is intended to have wide coverage encompassing a large segment of the regulated or general public, rather than an individual or a narrow select group; (2) is intended to be applied generally and uniformly to all similarly situated persons; (3) is designed to operate only in future cases, that is, prospectively; (4) prescribes a legal standard or directive that is not otherwise expressly provided by or clearly and obviously inferable from the enabling statutory authorization; (5) reflects an administrative policy that (i) was not previously expressed in any official and explicit agency determination, adjudication or rule, or (ii) constitutes a material and significant change from a clear, past agency position on the identical subject matter; and (6) reflects a decision on administrative regulatory policy in the nature of the interpretation of law or general policy. [Id. at 331-32.]
The Court emphasized that not all of these factors need be present in order for agency action to constitute a rule. Rather, the various factors can be balanced even if some are present and others are not. Id. at 332. The Appellate Division concluded that because AO-69 satisfied all six of the Metromedia factors, the Order was invalid for its failure to comply with the prescribed rulemaking procedures.
II
As is by now apparent, the starting point for analysis of this appeal is our opinion in Metromedia. The threshold question is whether Metromedia controls the outcome here. We think not.
Metromedia provides standards for determining whether rulemaking requirements apply to or govern an agency decision or particular agency action. Metromedia itself was concerned with whether an agency determination was subject to the criteria of either rulemaking or adjudication, 97 N.J. at 328, 332, 333, although the proceedings attendant to the Director‘s determination in that case were also held not to satisfy the “contested case” exception to rulemaking found in
In In the Matter of the Request For Solid Waste Utility Customer Lists, 106 N.J. 508 (1987), for example, the Metromedia criteria were applied to determine whether an agency order directing solid waste utilities to provide the agency with customer lists was a regulation. Id. at 517-18 (also concluding, id. at 521, that the absence of a factual dispute rendered adjudication inappropriate). In Board of Education, City of Plainfield v. Cooperman, 209 N.J.Super. 174 (App.Div.1986), aff‘d, 105 N.J. 587 (1987), the Court applied the Metromedia criteria and held that the Commissioner of Education‘s “policy guidelines,” which set forth the criteria that were to inform a local school
Cooperman and Customer Lists thus applied the Metromedia criteria to distinguish rulemaking not from adjudication but from “informal action,” which has been defined as agency action that is neither adjudication nor rulemaking. Customer Lists, supra, 106 N.J. at 519 (citing 1 K. Davis, Administrative Law Treatise, § 1.4 at 13 (2d ed. 1978)). The Metromedia criteria, although originally formulated in a context that distinguished rulemaking from adjudication, essentially provide a test of when rulemaking procedures are necessary in order to validate agency actions or determinations.
Informal action and adjudication, however, are not coincident with the intra-agency exception to rulemaking codified at
Metromedia‘s criteria, developed to distinguish rulemaking from adjudication, do not necessarily serve to define whether a given agency statement, decision, or determination satisfies the intra-agency exception. As noted in Metromedia not all of the criteria need be met in order for rulemaking procedures to be required. If none of those criteria applies or only a few apply, they must be balanced to determine whether rulemaking proce-
These distinctions suggest that the nature and extent of the coverage or effect of an agency determination or action must also be weighed to determine whether rulemaking procedures are required. The effect or impact of agency conduct is relevant to the determination of the choice between rulemaking procedure and the intra-agency exception, which provides for no procedural protection at all. Even assuming that AO-69 satisfies all of the Metromedia criteria, the inquiry is not complete. The next question is whether AO-69 satisfies those criteria that distinguish a rule from an intra-agency statement.
The term “intra-agency statement” is nowhere defined in the APA. Moreover, no New Jersey case has attempted to provide a principled or abstract definition of the term. See, e.g., Shapiro v. Albanese, 194 N.J.Super. 418, 429 (App.Div.1984) (rejecting contention that a “Circular Letter” sent by agencies to counties was not an “intra-agency statement,” without, however, defining that term.)
Conversely, a statement originally directed within the agency does not lose its intra-agency status merely because the information contained in the statement will, when acted upon, have some impact on the regulated community. “[E]ven office hours necessarily require conformity on the part of the public.” E. Freund, Administrative Powers Over Persons and Property 213 (1928). It is the nature of the statement‘s impact on affected parties that must be considered in determining whether notice and hearing are required.
The Federal Administrative Procedure Act exempts certain non-binding agency action, as distinguished from “legislative rules,” from the requirements of notice and hearing.
A useful articulation of the exemption‘s critical feature is that it covers agency actions that do not themselves alter the rights or interests of parties, although it may alter the manner in which the parties present themselves or their viewpoints to the agency. In this light, the exemption has applied to a freeze placed on the processing of applications for radio broadcast stations, to procedures accelerating the processing of applications for abandoning railroad lines
and those for processing discrimination charges, and to a directive specifying that requisite audits be performed by nonagency accountants. The exemption cannot apply, however, where the agency action trenches on substantial private rights and interests. As the case law demonstrates, substantial rights and interests in this light have come into play when railroads are directed to file proposed schedules of rates and tariffs with subscribers; when applicants for food stamps are subject to modified approval procedures; when drug producers are subject to new specifications for the kinds of clinical investigations deemed necessary to establish the effectiveness of drug products prior to FDA approval; and when motor carriers are subject to a new method for paying shippers. [Id. at 707-08 (footnotes omitted).]
See also Kessler v. F.C.C., 326 F.2d 673, 680 (D.C.Cir.1963) (quoting with approval FCC‘s view that rulemaking procedures need not be followed in fashioning rules “dealing with the method of operation utilized by Commission in the dispatch of its business“); Pickus v. United States Bd. of Parole, 507 F.2d 1107, 1113 (D.C.Cir.1974) (in determining whether exemption to rulemaking applies, test is whether the action “substantially affects the rights of persons subject to agency regulation“). “The central question is whether the agency action jeopardized the rights and interests of the parties.” Batterton, supra, 648 F.2d at 708; see also Commonwealth of Pennsylvania v. United States, 361 F.Supp. 208 (M.D.Pa.1973) (applying “substantial impact” test and upholding rule that did not change the substantive law on discontinuance of service); Standard Oil Co. v. Department of Energy, 596 F.2d 1029, 1061 (Temp.Emer.Ct.App.1979) (applying “substantial impact” test and invalidating rule establishing method of costs-recovery under oil price regulations); Chisholm v. F.C.C., 538 F.2d 349, 394 (D.C.Cir.) (Wright, J., dissenting) (collecting cases that have applied “substantial impact” test and arguing that FCC order exempting certain political debates from equal time rule should be invalidated for failure to comply with rulemaking procedures because of its substantial impact on candidates), cert. denied, 429 U.S. 890 (1976). But see Rivers v. Becerra, 714 F.2d 887, 890 (9th Cir.1983) (holding that “substantial impact” test should not determine whether notice and hearing are required, because section 553 explicitly except-
Other states have inserted a comparable limitation into the statutory exception for internal memoranda. In Connecticut, for example, statements “concerning only the internal management of an agency and not affecting private rights or procedures available to the public” are exempted from notice and hearing requirements.
(g) An intergovernmental, interagency, or intraagency memorandum, directive or communication which does not affect the rights of, or procedures and practices available to, the public. [
M.S.A. § 3.560(107) .]
Some states have placed judicial limitations on the intra-agency exception to notice and hearing. New York‘s Constitution contains an exception for statements relating “to the organization or internal management” of an agency.
The appropriate limitation on the intra-agency exception can be distilled from a comparison of the underlying purposes of the rulemaking procedural requirements and the intra-agency exception. The “essential purpose of * * * notice and comment opportunities is to reintroduce public participation and fairness to affected parties after governmental authority has been delegated to unrepresentative agencies.” Batterton, supra, 648 F.2d at 703. The intra-agency exception is “designed to permit the executive branch to communicate with itself and with other units of government without delay or bureaucratic entanglement.” Rulemaking Reform, supra, 58 Or.L.Rev. at 438-39; see also Asimov, Nonlegislative Rulemaking and Regulatory Reform, supra, 1985 Duke L.J. at 407-08 (agencies may choose not to act rather than devote their limited resources to notice and comment procedure). Intra-agency statements that affect interests beyond the agency implicate precisely the concerns articulated in Batterton, and notwithstanding the agency‘s interest in streamlined operation, procedural protections must not be ignored.
We hesitate to adopt the strict rule applied in Burke v. Children‘s Services Division, supra, which exempted from procedural requirements only those statements that have no impact on the regulated public. 26 Or.App. at 151, 552 P.2d at 595. Even the most narrowly drawn organizational internal
The “substantial impact” test alone may not be sufficient to isolate those internal agency statements that remain immune from the notice and hearing requirements. To take a prior example, an internal agency directive prohibiting agency members from accepting free lunches from the regulated public will have a “substantial impact” on those members of the public with an interest in buying lunch for a regulator. The basis for not requiring rulemaking procedure in that circumstance is not the absence of substantial impact, but rather the fact that the interest that is affected is not sufficiently important or worthy of recognition. See Board of Educ. v. Cooperman, supra, 105 N.J. at 599-600 (the process due is partly a function of the importance of the interest affected).
Where a legally countenanced right of a party is threatened by an internal communication of an agency, rulemaking procedure must be followed. What constitutes an interest that cannot be abridged without rulemaking procedure is not easily defined. The interest alleged must ultimately be legitimate, of justifiable concern. Many internal agency memoranda, for example, relate to prosecutorial discretion. Given limited resources, an agency must make important choices regarding which actions of the regulated public it should monitor or prosecute. In a real sense these communications can have a substantial impact on the regulated public: the memorandum may ultimately determine who is prosecuted, and knowledge of the communication might facilitate illegal conduct. The regulated public cannot be said to have a legitimate interest in frustrating the agency‘s enforcement mechanism, and thus
The inquiry is whether the agency‘s interest in streamlined procedure is outweighed by the importance of the interests that are affected. Generally where the interest implicated is legitimate, the balance will tilt in favor of notice and hearing for internal actions that have a substantial impact on that interest. In light of the foregoing we can define an intra-agency statement as (1) a communication between agency members that (2) does not have a substantial impact on (3) the rights or legitimate interests of the regulated public.
Applying that standard to the facts of this case, we first observe that AO-69 was originally directed to agency members, although ultimately it was forwarded to the regulated public. The fact that the order or its contents were ultimately transmitted to the public does not necessarily negate the intra-agency status of a memorandum. Many strictly internal memoranda—for example, those establishing office hours or effecting organizational changes—require transmission to the public.
The next question is whether AO-69 has a substantial impact on the rights of the regulated public. In respect of responsible party participation in an RI/FS, the Spill Act states only that
[w]henever any hazardous substance is discharged, the department * * * may direct the discharger to remove, or arrange for the removal of, such discharge. [
N.J.S.A. 58:10-23.11f(a) .]
The Act, then, confers no right on the regulated public to participate in the cleanup procedures developed by DEP.
What cannot be ignored, however, is the vast economic interest implicated in the decisions attending the cleanup procedure. Under
The foregoing is not to suggest that DEP must or even should provide for participation of the regulated public in cleanup procedure. That decision remains within the sound discretion of DEP. The only constraint imposed today is that the agency must provide to the affected parties the opportunity for notice and comment in compliance with
Judgment affirmed.
O‘HERN, J., dissenting.
This case presents a close call in defining the proper relationship between the judicial and executive branches of government. I believe that the better view is that the judiciary should not crystallize into a rule1 the management practices of an
To place this issue in perspective, it helps to restate the role of administrative agencies in our governmental structure. With the growth of industrialized societies, modern legislatures were presented with complex issues regarding governmental regulation of private conduct. Legislatures increasingly entrusted to regulatory agencies the responsibility of developing the details of such programs. L. Jaffe, Judicial Control of Administrative Action 3 (1965).
Though resistant at first to the new forms, Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935), courts increasingly recognized and deferred to the agency‘s policymaking role: “[A]lthough the administrative process has had a different development and pursues somewhat different ways from those of courts, they are to be deemed collaborative instrumentalities of justice and the appropriate independence of each should be respected by the other.” United States v. Morgan, 313 U.S. 409, 422 (1941), cited in Bernard Schwartz, Administrative Law 20 (1976).
Once courts recognized that the choice of policy was for the agency, the next distinctive trend in the development of administrative law was to require procedural fairness before an agency could act as a lawmaker by formulating interstitial mandates that affected public conduct or by adjudicating private rights. Hence, the 1946 enactment of the Federal Administrative Procedure Act,
Under our Constitution, administrative agencies are part of the executive branch of government.
Moreover, we have consistently held that because the choice of procedure is one historically left to the discretion of the agency such administrative determinations should be given deference by the courts. Department of Labor v. Titan Constr. Co., 102 N.J. 1, 18 (1985); Texter v. Human Servs. Dep‘t., 88 N.J. 376, 385-86 (1982). In Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, 435 U.S. 519 (1978), the United States Supreme Court cautioned reviewing courts against engrafting their own notions of proper procedure upon agencies entrusted by Congress with substantive functions. Id. at 524. “[C]ourts are ill-equipped for ‘social-cost accounting,’ particularly when looking over an administrative policy maker‘s shoulder. Not only do courts lack the administrator‘s presumed investigative resources, analytic com-
Here we deal not so much with the agency‘s choice of procedures to mandate conduct by the regulated public as with the choice of procedures to guide conduct of the agency itself. The touchstone for decision is, of course, the New Jersey Administrative Procedure Act (APA),
As the majority opinion demonstrates, the words of the statute embracing matters of “internal management or discipline” and “intraagency statements” do not prevent courts from deciding what is a rule. Courts and commentators have given other content to the words of such statutes.2 Some would distinguish between what are called primary and secondary rules. In this scenario, the administrative rule-maker is seen as promulgating two kinds of rules: “‘external’ rules[,] addressed principally to the regulated public, and ‘internal’ rules, addressed to persons charged with the enforcement of external rules.” Diver, supra, 93 Yale L.J. at 76. Another
Some courts have phrased the question, in part, in terms of whether the action “substantially affects the rights of those over whom the agency exercises authority.” Pickus v. United States Bd. of Parole, 507 F.2d 1107, 1113 (D.C.Cir.1974); see also Commonwealth of Pennsylvania v. United States, 361 F.Supp. 208 (M.D.Pa.), aff‘d, 414 U.S. 1017 (1973) (since law on discontinuance of carrier service has not been substantively changed, APA procedures are not required).
From this discussion, we may deduce that the labels of legislative and non-binding rules have “fuzzy perimeters” and “‘establish no general formula.‘” Batterton v. Marshall, 648 F.2d 694 (D.C.Cir.1980) (citations omitted). That court would view the issue in terms of “the underlying purposes of the procedural requirements at issue“: does the judicial deci-
I do not see that this fundamental policy of representative government would be advanced in this case were we to require the agency to follow the rule-making process in deciding how it shall discharge its statutory obligations. As judges we are used to the adversary system. We like to hear from the other side. But what we see through Diver‘s “refracting prism of judicial review,” we need not engraft upon an agency of government entrusted with cleaning up the residue of industrial society‘s waste products. I believe that the DEP‘s administrative order is best analogized, in concept but not in direction, to the federal EPA‘s similar guidance memorandum, which has been seen as conforming “to the pattern of internal management common in every federal agency.” Anderson, “Negotiation and Informal Agency Action: The Case of Superfund,” 1985 Duke L.J. 261, 313 n. 196 [hereinafter Anderson].
In this case, the DEP had to choose between assuming responsibilities for the removal job itself or letting the discharger clean up the waste site. The Spill Act has entrusted extraordinary discretion to the Department of Environmental Protection in this regard. See Woodland Private Study Group v. State of New Jersey, 616 F.Supp. 794 (D.N.J.1985). In implementing its environmental mandate, DEP has sought to safeguard the public‘s trust and confidence that the site would be properly cleaned up. AO-69‘s limitation on the extent to which an alleged discharger may conduct the first phase of the cleanup process—the remedial investigation and feasibility study (RI/FS)—seeks to guarantee public confidence that the site will be fully restored to environmental safety. DEP‘s control over the RI/FS process is critical in light of the temptation of parties responsible for the discharge to downplay the environmental conditions and the cost of site cleanup. Indeed,
In this context there is not a little irony in federal EPA Administrator Ann Gorsuch Burford being held in contempt of Congress for failing to disclose the details of her negotiation of cleanup plans with alleged dischargers and in DEP Commissioner Robert Hughey being found to have violated the law by directing his staff that they alone should decide how best to clean up a hazardous waste site.
When courts overly “judicialize” the management of other agencies of government, they should not lose sight of the natural tendencies of the governed:
Agency decisionmakers, like all rational beings, seek to function efficiently by maximizing utility—both their own and that of the regulatory program for which they are responsible. Given a fixed budget and many competing uses of available resources, efficient operation involves a constant weighing of the net marginal costs and benefits of a proposed course of action. Thus, in order to undertake a new legislative or nonlegislative rulemaking project, an agency must conclude that the net marginal benefits to the regulatory program or to the agency from adopting an incremental rule outweigh the net marginal bureaucratic costs of adopting it. [Asimow, supra, at 404 (footnote omitted).]
See also Smith, “Judicialization: The Twilight of Administrative Law,” 1985 Duke L.J. 427 (administrative process has become so formalized that it has lost sight of original goal of effectuating governmental policy). Faced with these obstacles, the agency may simply decide to forget the whole thing. Asimow, supra, at 407-08.
In my view, AO-69 was essentially an internal policy choice of the Executive Branch. The pros and cons of the policy
Justice STEIN concurs in this opinion.
For affirmance—Chief Justice WILENTZ and Justices CLIFFORD, HANDLER, POLLOCK and GARIBALDI—5.
For reversal—Justices O‘HERN and STEIN—2.