STATEMENT OF DAVID C. VLADECK, ESQ.

DIRECTOR, PUBLIC CITIZEN LITIGATION GROUP

BEFORE THE

HOUSE COMMITTEE ON THE JUDICIARY

SUBCOMMITTEE ON COMMERCIAL AND

ADMINISTRATIVE LAW

ON H.R. 4049 -- THE "REGULATORY FAIR WARNING

ACT OF 1998"

JULY 23, 1998

STATEMENT OF DAVID C. VLADECK, ESQ.

DIRECTOR, PUBLIC CITIZEN LITIGATION GROUP

BEFORE THE

HOUSE COMMITTEE ON THE JUDICIARY

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

ON H.R. 4049 -- THE "REGULATORY FAIR WARNING ACT OF 1998"

July 23, 1998

Mr. Chairman and members of the Committee, thank you for the opportunity to testify before you this morning on H.R. 4049, the Regulatory Fair Warning Act of 1998.

I am the Director of Public Citizen Litigation Group, the legal arm of Public Citizen, a nationwide advocacy organization of over 120,000 members. For more than twenty-five years, Public Citizen Litigation Group has represented consumer groups, labor unions, and public health organizations in standard-setting proceedings and in enforcement litigation involving OSHA, EPA, FDA, USDA, NHTSA, and other health and safety agencies.⁽¹⁾

Public Citizen's extensive, first-hand experience with the regulatory process gives us substantial insight into the way our system now operates. It also allows us to comprehend the changes that would be brought about by H.R. 4049, not just in terms of the procedural rules that govern agency enforcement proceedings, but in basic health, safety, environmental, and civil rights protections guaranteed by substantive statutes that, in our view, would be jeopardized by the implementation of H.R. 4049.

With all due respect to the co-sponsors of H.R. 4049, Public Citizen opposes this bill because it provides nothing to make the regulatory process work better for the American people. To the contrary, we oppose giving law-breakers -- and make no mistake, it is law-breakers who are the only beneficiaries of H.R. 4049 -- additional defenses and incentives to remain ignorant of their legal obligations. And we believe that H.R. 4049 would add considerably to agency enforcement burdens, because it would shift the inquiry at enforcement proceedings away from the allegedly unlawful conduct, which generally is susceptible to proof by objectively verifiable facts, to highly subjective defenses involving the state of mind of individuals or entities accused of misconduct, their "good faith," or the reasonableness of their reliance on oral or written agency pronouncements. Put bluntly, H.R. 4049 invites law-breakers to evade responsibility for their misdeeds by pointing fingers at agency officials or reading ambiguities into agency policy statements.⁽²⁾

We do not disagree with the sentiment underlying H.R. 4049 -- namely, that justice must be meted out fairly. But the Fifth Amendment to our Constitution already guarantees those accused of wrongdoing of due process. And existing law already forbids the imposition of punishment where the government fails to give adequate notice that conduct is proscribed. But H.R. 4049 goes well beyond existing law to place new burdens on agencies and to give lawbreakers new defenses, all at the public's expense. Accordingly, we urge this Committee not to act favorably on H.R. 4049.

EXISTING LAW ALREADY PROTECTS THE PUBLIC

FROM SANCTIONS BASED ON "SECRET LAW"

The first problem we have with H.R. 4049 is that it appears to be based on a misapprehension of existing law. Reading H.R. 4049, one would conclude that current law permits individuals and corporations to be sanctioned for violations of law in cases where the agency has failed to clearly and publicly articulate the governing substantive legal standards or has affirmatively misled the accused as to the appropriate standards of conduct. Neither proposition is true.

The Administrative Procedure Act has long provided that agencies must publish in the Federal Register all "substantive rules of general applicability." 5 U.S.C. 552(a)(1)(D). Failure to publish renders a final rule unenforceable against any person not having actual and timely notice of its terms. Id. 552(a)(1). The Supreme Court has long emphasized that it will not condone the government's use of unpublished regulations or "secret law" to affect adversely the substantive rights of individuals. Morton v. Ruiz, 415 U.S. 199 (1974). In explaining the policy underlying section 552(a)(1), the Court in Morton emphasized that "[t]he [APA] was adopted to provide, inter alia, that administrative policies affecting individual rights and obligations be promulgated pursuant to certain stated procedures so as to avoid the inherently arbitrary nature of unpublished ad hoc determinations." Id. at 232. And the lower courts have consistently invalidated agency actions because of the agency's failure strictly to observe the APA's publication requirements.⁽³⁾

Nor have the courts condoned efforts by an agency to impose sanctions against individuals or corporations where the agency's own conduct has created ambiguities about regulatory requirements. Perhaps the clearest illustration of this point is NI Industries, Inc. v. United States, 841 F.2d 1104 (Fed. Cir. 1988), which was a government contracts case. The case arose when NI Industries appealed a finding of the Armed Services Board of Contract Appeals that denied NI a share of the savings realized when NI submitted an engineering change, accepted by the Army, for the manufacture of steel projectiles produced by NI and other contractors. Unbeknownst to NI, another contractor working on the same type of projectile proposed the same engineering change, and the dispute centered on which contractor should receive a share of the savings realized because of the change. Under the appendix to an unpublished set of operating procedures, the first contractor to formally submit engineering changes is entitled to share in the savings, and, based on the unpublished rules, the Board of Contract Appeals ruled against NI because its competitor had formally filed its submission first.

The Court of Appeals reversed. It concluded that if the rules "had been either published or [made] provisions of NI's contract, [that] might have been sufficient to bar NI's claim to a portion of the savings from its suggested change." 841 F.2d at 1107. However, "these rules," the court declared, "are tainted by the glaring deficiency that they were unpublished." Id. The court went on to describe NI's plight in some detail. It noted that:

NI found itself facing the denial [of the benefits] because of precisely the scenario which the APA was designed to avoid. NI had no actual knowledge that this . . . policy existed . . . . It had no constructive notice of the policy (as it would have had if the regulation had been published in the Federal Register). NI had no reason even to suspect that such policy might exist because [it] had not been distributed to the procurement divisions [NI was dealing with] . . . So the very people with whom NI was negotiating its contract were not even aware of the policy's existence.

Id. at 1107-08.

We do not cite NI Industries because it is an extraordinary case. It is not. To the contrary, we cite NI Industries because it is ordinary in every respect, and because it shows that the courts already take care to ensure that the government does not rely upon and enforce legal requirements that are out of reach for the regulated community. Thus, the first and most glaring problem with H.R. 4049 is that the problem it purports to address -- unfairness due to the application of "secret" law -- is already addressed by existing law.

THE EXPANSION OF DEFENSES FOR LAWBREAKERS

UNDER H.R. 4049 IS UNWISE

Because existing law already meets the stated goal of H.R. 4049 -- ensuring that agencies adequately inform individuals of their obligations and responsibilities before any sanction can be imposed (see H.R. 4049, section 2) -- it is essential to focus on precisely what new legal rights H.R. 4049 would confer on law-breakers. The answer, unfortunately, is many.

The operative provisions of H.R. 4049 are section 3, which would add a new subsection to the APA, and section 4, which would amend Title 28 of the U.S. Code, which deals with the Judiciary and Judicial Proceedings, to impose what H.R. 4049 calls a "Ban on Imposition of Sanctions . . . in Certain Circumstances." In virtually identical terms, sections 3 and 4 create defenses to agency enforcement efforts that would permit those who have engaged in misconduct to escape liability.⁽⁴⁾ The first set of "circumstances" are those that, for the most part, replicate existing law by focusing on whether the rule itself was available for public review. They forbid the imposition of sanctions where the substantive rule to be applied was not published in the Code of Federal Regulations, printed in the Federal Register, or known to the person.

H.R. 4049 then parts company with existing law by creating two new, sweeping defenses. The first goes to whether "the rule failed to give the person fair warning of the conduct that the rule prohibits or requires." This focuses on the specificity of the rule, rather than whether the rule is accessible to regulated entities. The problem with this provision is that rules often set forth prohibitions or requirements in fairly general terms to maximize the flexibility that a regulated entity has for compliance (such as the good manufacturing practice ("G.M.P.") regulations issued by the Food and Drug Administration), or in terms of performance (such as OSHA or EPA standards setting limits on toxic emissions). Very few regulations actually prohibit or require "conduct."⁽⁵⁾ Take FDA's G.M.P. regulations. These regulations are intended to ensure that foods, drugs, medical devices, and cosmetics are made in a sanitary, wholesome way. They are not prescriptive, and do not prohibit or require specific "conduct." Rather, they set very general standards (e.g., persons working directly with food "shall conform to hygienic practices") and leave it to the regulated entity to decide on the methods of compliance. See, e.g., 21 C.F.R. Part 110 (establishing G.M.P.'s for manufacturing and packaging human food). Yet under H.R. 4049, a medical device manufacturer charged with failing to adequately sterilize a work-site could raise as a defense to a sanction the argument that the FDA's rules do not prohibit or require specific conduct, and that defense would end up the focal point of either an agency hearing or a court case.⁽⁶⁾ That result makes little sense, but it is the inevitable by-product of H.R. 4049.

Even more problematic is the final defense H.R. 4049 adds -- one based on claims that "official representations to the person about what the rule prohibits or requires were misleading and were reasonably relied upon by the person." ⁽⁷⁾ Not only would this provision reverse precedent dating back into the early Nineteenth Century holding that "estoppel" does not run against the government, but it would create an enforcement nightmare that would ensure that agency enforcement proceedings would often degenerate into swearing contests. A party charged with violating anti-pollution rules issued by the EPA, worker protection standards imposed by OSHA, or food safety requirements established by the FDA can almost always assert that it relied on statements from government inspectors or investigators that it was in compliance with agency regulatory standards.

One can easily imagine the dynamic at an agency or court proceeding in which this defense is raised (and since the defense would be so easy to assert, it is likely to become the first (not last) refuge of scoundrels). On the one hand, the accused party would claim that it reasonably relied on oral representations by an agency "official" (which, unfortunately is nowhere defined in H.R. 4049 or elsewhere, and could arguably mean any government employee, including a GS-7 clerk) that the party's conduct did not run afoul of the agency's rules. On the other hand, agency officials would deny ever making such representations, claiming that the defense is simply an invention of the accused party. Instead of worrying about whether a violation of law occurred and protecting the public from further wrongdoing, the trier of fact would become enmeshed in weighing the credibility of witnesses and resolving the battle of "who said what to whom." For what reason?

In enforcement litigation today, under existing law, the central focus is on the conduct of the party accused of breaking the law -- did the accused party in fact violate EPA's rules forbidding the dumping of toxic substances into a stream? Did a food manufacturer sell products contaminated with rodent droppings? Did a machine shop operator direct an employee to operate a drill press that did not have the appropriate guard rail? H.R. 4049 allows the law-breaker to put the agency on trial. The core questions will shift to the clarity of the agency's rules and the truthfulness of the agency's employees. That, in our view, is a dramatic step backward that can only thwart the effective enforcement of our nation's health, safety, environmental, and civil rights laws.

Congress and the courts have historically recognized the futility of unraveling such a Gordian knot and have rejected defenses based on alleged "misinformation" provided by government agents. Indeed, at least since 1813, the law has clearly held the government is not bound by the erroneous representations of government employees. See Lee v. Munroe & Thornton, 7 Cranch 366 (1813); The Floyd Acceptances, 7 Wall. 666 (1869); Utah Power & Light Co. v. United States, 243 U.S. 389 (1917).⁽⁸⁾ Rather than turn this established legal doctrine on its head, in many other contexts in which Congress has been concerned at the possibility of significant detrimental reliance on the erroneous advice of government agents, it has provided narrow but effective legislative relief. See, e.g., Federal Election Campaign Act of 1971, 2 U.S.C. 437F, 438(e); Federal Trade Commission Act, 15 U.S.C. 57b-4; Securities Act of 1933, 15 U.S.C. 77s(a); Truth in Lending Act, 15 U.S.C. 1640(f); Portal-to-Portal Act of 1947, 29 U.S.C. 259; Employment Retirement Income Security Act of 1974, 29 U.S.C. 1028. These examples only underscore the obvious point -- namely, that regulated entities in need of clear and binding guidance from agencies about their responsibilities and obligations have no shortage of avenues open to them right now to secure the agencies' views. H.R. 4049 is not needed for a regulated entity seeking clarification about its obligations under the law; rather, it gives an out for those who choose not to ask.

Public Citizen sees no reason to give businesses that violate federal regulatory requirements by polluting our air and water, exposing workers to toxic substances or harmful physical agents, or subjecting the American people to adulterated medicines and food products new defenses to shield them from being held accountable for their misdeeds. Too many Americans have fallen victim to regulatory violations in the past for Congress to try to further insulate wrongdoers from punishment. We urge that H.R. 4049 be rejected.

As a final note, although we would prefer to see H.R. 4049 interred once and for all, we note that there is a least one extremely serious drafting problem with H.R. 4049 that cries out for clarification or modification -- the pervasive use of the undefined word "sanction." At a minimum, the word must be defined to ensure that it is not construed as covering injunctive or other declaratory orders that do no more than compel immediate compliance with the law. This change is essential. Suppose OSHA inspected a work-site and found safety violations that posed an imminent danger to workers; or suppose the FDA inspected a food manufacturing facility and determined that, because it fell far short of the FDA's rules regarding sanitation, food products might become contaminated with E. Coli. In these circumstances, the agencies would take swift action to ensure that the violations were corrected immediately -- before workers and the public were placed in further jeopardy. We assume that the drafters of H.R. 4049 would want our health and safety agencies to respond without delay when faced with a serious public health threat. But as H.R. 4049 is currently drafted, an agency administrative law judge, or a federal district court judge, could easily conclude that such an injunctive order was a "sanction," and bar enforcement based on the new defenses set forth in H.R. 4049. Thus, we urge that the current drafting of the bill be modified to make it crystal clear that "sanction" does not include any form of declaratory or injunctive relief.

Thank you for inviting me to appear before you today. I would be happy to answer any questions.

Judiciary Homepage

1. ¹ To give the Committee some understanding of our work in the regulatory area, we have acted as lead or co-counsel in each of the following cases brought to compel the Department of Labor to promulgate regulations to protect worker health. See, e.g., Ethylene Oxide: Public Citizen Health Research Group v. Auchter, 702 F.2d 1150 (D.C. Cir. 1983); Public Citizen Health Research Group v. Tyson, 796 F.2d 1479 (D.C. Cir. 1986); Public Citizen Health Research Group v. Brock, 823 F.2d 626 (D.C. Cir. 1987); Hazard Communication: United Steelworkers of America v. Auchter, 763 F.2d 728 (3d Cir. 1985); 819 F.2d 1263 (3d Cir. 1987); 855 F.2d 130 and 862 F.2d 63 (3d Cir. 1988); Radon Daughters: OCAW v. Zeeger, 768 F.2d 1480 (D.C. Cir. 1985); Formaldehyde: International Union, UAW v. Pendergrass, 878 F.2d 389 (D.C. Cir. 1989); Benzene: United Steelworkers v. Rubber Manufacturers Ass'n, 783 F.2d 1117 (D.C. Cir. 1986); Cadmium: International Chemical Workers Union v. Pendergrass, 830 F.2d 369 (D.C. Cir. 1987); Order in No. 89-1357 (D.C. Cir., Feb. 12, 1990); Grain Dust: National Grain and Feed Ass'n v. OSHA, 866 F.2d 717 (5th Cir. 1988); and Lockout/Tagout: International Union, UAW v. OSHA, 938 F.2d 1310 (D.C. Cir. 1991). We have been equally active in other areas, including food safety, nuclear power, and automobile safety.

2. The problems with H.R. 4049 are brought into sharp focus by asking whether Congress ought to amend the criminal law to provide for defenses of the sort that are embodied in H.R. 4049. Should criminals escape punishment simply because at some point they might have been misinformed by a government official, or because they claim ignorance of the law? This concern is not an idle one because there is a considerable overlap between administrative and criminal law, and thus the defenses in H.R. 4049 might impede criminal as well as civil enforcement of the law.

3. Representative cases include Smith v. NTSB, 981 F.2d 1326 (D.C. Cir. 1993); NI Industries v. United States, 841 F.2d 1104 (Fed. Cir. 1988); D&W Food Center v. Block, 786 F.2d 751 (6th Cir. 1986); Alaniz v. OPM, 728 F.2d 1460 (Fed. Cir. 1984); Vigil v. Andrus, 667 F.2d 931 (10th Cir. 1982); Anderson v. Butz, 550 F.2d 459 (9th Cir. 1977).

4. H.R. 4049 benefits only law-breakers because it becomes relevant only when the party accused of law-breaking has no defense on the merits, and is looking for other defenses to avoid liability.

5. Imagine the disruption and lawlessness that would take place if this standard were applied to congressional enactments. For instance, section 5 of the Federal Trade Act gives the FTC jurisdiction over "unfair and deceptive" trade practices, and the FTC has some regulations implementing that grant of power. Under the standard articulated in H.R. 4049, every FTC case would dissolve into an argument over whether the accused party had been given adequate notice that the particular act or omission at issue was deceptive or fraudulent. That problem is no less true with respect to agency regulations that mirror general statutory commands, like those in the Food, Drug and Cosmetic Act prohibiting the sale of "misbranded" and "adulterated" products.

6. Any suggestion that this concern is fanciful is belied by the substantial volume of litigation that already occurs by individuals and businesses claiming that they did not receive adequate notice of agency rules. These challenges range from the run of mill tax evaders/protesters, see, e.g., United States v. Bowers, 920 F.2d 220, 222 (4th Cir. 1990); Hudson v. United States, 766 F.2d 1288 (9th Cir. 1985); Kahn v. United States, 753 F.2d 1208 (3d Cir. 1985); to challenges by sophisticated business entities, see, e.g., Giles Lowery Stockyards, Inc. v. Department of Agriculture, 565 F.2d 321 (5th Cir. 1977), cert. denied, 436 U.S. 957 (1978); cf. Kennecott Utah Copper Corp. v. Department of the Interior, 88 F.3d 1191 (D.C. Cir. 1996).

7. The phrase "official representations" appears to be intended to apply to oral as well as written statements, since dictionaries define "representation" to mean a "statement made orally or in writing."

8. The Court has, however, reserved the question whether intentional, affirmative misconduct by a government official may give rise to estoppel. See, e.g., Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 60 (1984).