2. P A R T P A R T Regulation of Business Administrative Agencies The Federal Trade Commission Act and Consumer Protection Laws Antitrust: The Sherman Act 11 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

3. P A R T P A R T Regulation of Business The Clayton Act, The Robinson-Patman Act, and Antitrust Exemptions and Immunities Employment Law Environmental Regulation 11 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

4. Administrative Agencies PA E TR HC 47 “The execution of the laws is more important than the making of them.” Thomas Jefferson

5. Learning Objectives  Creation of administrative agencies  Agency types and organization  Agency powers and procedures  Controlling administrative agencies  Information controls  Issues in regulation 47 - 5

6.  The administrative agency, created by enabling legislation, implements and enforces statutes enacted by Congress  Has legislative, executive, judicial functions  Federal and state agencies must operate within the constitutional guarantees of due process, equal protection, and freedom of speech  See Pearson v. Shalala Overview 47 - 6

7.  Two types of federal administrative agencies:  Executive : within Office of President or executive departments of president’s cabinet  Administrative heads appointed and removable at President’s will  Independent : still executive in function, but headed by board or commission whose members are appointed by President “with the advice and consent of the Senate” Agency Types 47 - 7

8.  Basic discretionary powers: rulemaking power, investigative power, and adjudicatory power  Agency also has significant informal power through agency advice, suggestions, guidelines  Lack legal force of formal agency regulations or rulings, but very persuasive in shaping behavior of regulated industries Agency Powers 47 - 8

9.  Agency rulemaking power derives from enabling legislation and must comply with Administrative Procedure Act (APA)  Informal rulemaking ( notice and comment ) is most common method and the process is:  Publication of Notice of Proposed Rulemaking in Federal Register, comment period, publication in Federal Register of regulation (after review of comments) in final form Rulemaking Power 47 - 9

10.  Formal rulemaking also begins with a Notice of Proposed Rulemaking published in Federal Register, but unlike informal rulemaking, the formal notice must state time and place at which a public hearing will be held  Hearings resemble trials: agency must produce evidence and justify proposed regulation; interested parties may present evidence in opposition Rulemaking Power 47 - 10

11.  Agencies need accurate information about business activities for rules and enforcement  Agency investigations must be authorized by law and conducted for a legitimate purpose  Two most important investigative tools are subpoenas and searches and seizures  Subpoena duces tecum (compels documents)  Subpoena ad testificandum (compels testimony) Investigative Power 47 - 11

12.  Agency may seek information only available by entry upon private property  Fourth Amendment prohibits unreasonable search and seizure and requires a warrant based on probable cause  Typically, no warrant required for routine administrative inspections Investigative Power: Search & Seizure 47 - 12

13.  Agencies conduct judicial hearings to decide whether a regulation has been violated  In a hearing before an administrative law judge (ALJ), testimony and evidence are allowed, but no jury is present  ALJ issues decision with findings of fact and conclusions of law and penalty if required  ALJ decision may be appealed Adjudicatory Power 47 - 13

14.  Executive shapes agencies by President’s:  (a) power to appoint/remove administrators, (b) power to veto legislation about agencies, (c) influence over executive budget  Congress shapes agency action by its:  (a) advice and consent role in agency appointments, (b) power to amend enabling legislation, (c) power to pass laws changing agency procedures Control of Agencies 47 - 14

15.  Courts arguably exercise greatest control over agency behavior since APA allows judicial review of most agency action  Individual or organization seeking judicial review must demonstrate that the:  Agency action being challenged is reviewable, challenging party has standing to sue, all required administrative remedies exhausted, and dispute ripe for judicial review Judicial Review of Agencies 47 - 15

16.  Legal bases for challenging agency action: 1. Ultra vires doctrine 2. Agency deviated from necessary procedures 3. Agency action was unconstitutional 4. Agency action unsubstantiated by facts  Judicial deference : if question of fact or policy is at issue in the case, courts generally defer to agency decision Challenging Agency Action 47 - 16

17.  Three statutes regulate flow of information held or gathered by administrative agencies  Freedom of Information Act (FOIA): enables citizens to access government documents  Privacy Act of 1974 : citizens may inspect files agencies have on them and request corrections  Government in the Sunshine Act of 1976 : “every meeting of an agency shall be open to public observation” Information Controls 47 - 17

18. Test Your Knowledge  True=A, False = B  Agencies are created by Congress through enabling legislation.  Federal Procedure Act constrains agencies.  An agency subpoena may request information that is privileged as long as it is necessary to the investigation.  An Administrative Law Judge’s opinion may not be appealed. 47 - 18

19. Test Your Knowledge  True=A, False = B  Informal rulemaking is also known as notice and comment rulemaking.  Under the Freedom of Information Act, the plaintiff/requester bears the burden of proving the denial was wrongful.  If an agency decision is challenged, courts generally defer to the agency decision. 47 - 19

20. Test Your Knowledge  Multiple Choice  The basic discretionary powers agencies may possess are:  (a) Rulemaking power  (b) Investigative power  (c) Adjudicatory power  (d) All of the above  (e) A and B only 47 - 20

21. Test Your Knowledge  Multiple Choice  Which of the following is not a legal basis for challenging agency action?  (a) Ultra vires doctrine  (b) Agency failed to obtain advice and consent  (c) Agency action was unconstitutional  (d) Agency failed to comply with the APA  (e) None of the above 47 - 21

22. Test Your Knowledge  Multiple Choice  An individual or organization seeking review of an agency action must show:  (a) The challenged agency action is reviewable  (b) Challenging party has standing to sue  (c) All required administrative remedies have been exhausted  (d) The dispute is ripe for judicial review  (e) All of the above 47 - 22

23. Thought Questions  Do you think that federal agencies have enough power to do all they are expected to do or too much power? What ethical issues might arise for a business that receives a subpoena or warrant from an administrative agency? 47 - 23