Amicus Curiae Brief — Bowen v. Georgetown Univ. Hospital

OCTOBER TERM, 1988

OTIS R. BOWEN, SECRETARY OF HEALTH

AND HUMAN SERVICES,

. Petitioner,

GEORGETOWN UNIVERSITY HOSPITAL, et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

MOTION FOR LEAVE TO FILE

BRIEF AS AMICUS CURIAE

AND BRIEF OF OHIO POWER COMPANY

AS AMICUS CURIAE IN SUPPORT OF RESPONDENTS

HENRY V. NICKEL

(Counsel of Record)

F. WILLIAM BROWNELL

LYNDA GUILD SIMPSON

MEL 8S. SCHULZE

HUNTON & WILLIAMS

2000 Pennsylvania Avenue, N.W.

Suite 9000

Washington, D.C. 20006

(202) 955-1500

A. JOSEPH DowpD

JEFFREY P. WHITE

AMERICAN ELECTRIC POWER

SERVICE-CORPORATION

One Riverside Plaza

P.O. Box 16631

Columbus, Ohio 43216

(614) 223-1636

August 4, 1988 Counsel for Ohio Power Company

LE A A EI em ER ge NT LS ET RL TR se

WILSON - Epes PRINTING Co.. INC. - 789-0096 - WASHINGTON, D.C. 20001

IN THE

Suprenv Court of the United States

OCTOBER TERM, 1988

No. 87-1097

OTIS R. BOWEN, SECRETARY OF HEALTH

AND HUMAN SERVICES,

. Petitioner,

GEORGETOWN UNIVERSITY HOSPITAL, et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

MOTION FOR LEAVE TO FILE

BRIEF AS AMICUS CURIAE

Ohio Power Company hereby respectfully moves for

leave to file the attached brief as amicus curiae in sup-

port of respondents in this case. Although the time for

filing this brief has passed, the written consents of the

attorneys for both the petitioner and the respondents

have been obtained and are being filed with this motion.

The interest of the movant in this case arises from the

fact that it is a party to a case in which the same issue

has been raised, namely, whether the Administrative Pro-

cedure Act (“APA”) prohibits an agency from promul-

gating retroactive rules upsetting past transactions be-

tween the government and a private party. On July 12,

1988, movent filed a petition for a writ of certiorari to

the Unit. ‘tates Court of Appeals for the District of

Columbia Circuit in which it asks this Court to consider

that issue. Ohio Power Co., et al. v. Thomas, No. 88-60.

Movant also has filed a motion asking this Court to defer

consideration of that petition pending its decision in this

case, because the resolution of the APA issue here may

be dispositive of the Ohio Power petition. This Court’s

resolution of the APA issue therefore is of critical im-

portance to the movant.

Movant’s petition for certiorari in Ohio Power was

filed less than thirty days ago, and movant has worked

expeditiously since the filing of that petition to prepare

its proposed amicus brief in this case. Moreover, movant

has reviewed respondents’ brief and the amicus briefs in

support of respondents and believes that its proposed

amicus brief would not be duplicative of these briefs,

would provide a more detailed, historical analysis of the

APA issue, and would demonstrate that this Court’s reso-

lution of that issue is important not only in the regula-

tory context of this case but also in other regulatory

contexts.

More specifically, respondents’ brief argues primarily

as to construction of the Medicare statute and devotes

relatively less time to the APA issue. The two amicus

briefs that already have been filed focus more directly on

the APA issue, but again in the context of the Medicare

statute. Movant’s brief, which is devoted exclusively to

the APA issue, analyzes, among other things, the histor-

ical basis for the APA’s proscription on retroactive rule-

making and the importance of the APA issue in another

regulatory context. These arguments are not presented

in any other brief. Therefore, consideration of movant’s

brief would be helpful to the Court in its review of this

case.

Movant understands that this case has been set for oral

argument on October 11, 1988. Because Petitioner’s re-

ply brief is not due until a week before argument, see

Supreme Court Rule 35.3, Petitioner will have ample

time to reply to movant’s brief and will suffer no preju-

dice by the brief’s late filing.

For these reasons, movant respectfully requests this

Court to grant leave to file this brief as amicus curiae.

Respectfully submitted,

HENRY V. NICKEL

(Counsel of Record)

F. WILLIAM BROWNELL

LYNDA GUILD SIMPSON

MEL S. SCHULZE

HUNTON & WILLIAMS

2000 Pennsylvania Avenue, N.W.

Suite 9000

Washington, D.C. 20006

(202) 955-1500

A. JOSEPH Dowp

JEFFREY P. WHITE

AMERICAN ELECTRIC POWER

SERVICE CORPORATION

One Riverside Plaza

P.O. Box 16631

Columbus, Ohio 43216

(614) 223-1636

August 4, 1988 Counsel for Ohio Power Company

QUESTION PRESENTED

Whether, absent an explicit statutory authorization to

adopt retroactive rules that upset past transactions be-

tween the government and a private party, the Admin-

istrative Procedure Act precludes an agency from prom-

ulgating revised regulations that revoke rights conferred

on a private party by the agency through an administra-

tive determination completed in accordance with prior

regulations?

(i)

TABLE OF CONTENTS

NO

INTEREST OF THE AMICUS CURIAE ......................

SRP GU FREI eis ncccercctecccseconsessvecssncensnsees

SITET ecncesinniipiissenticctiuignentndediidinnnintensntnnniosmnineniiates

I. The Common Law of This Nation Presumes

That Legislation Has Prospective Effect ............

II. The APA Codified the Common Law Principle

That Legislative Pronouncements Have Prospec-

ER INES, IRE Te Res PD PR Oe SO

III. Common Law Principles and the APA Require

That Statutory Grants of Rulemaking Authority

Be Construed as Authorizing Only Prospective

Regulation, Absent an Explicit Statutory Au-

thorization To Adopt Legislative Rules Affect-

a ccceumeneanmnocinden

TEENY -hicnisnantintietieninsischtnnabeintionsccasoeninenbmnciecniinaaienes

(iii)

10

14

18

21

iv

TABLE OF AUTHORITIES

CASES: Page

Addison v. Holly Hill Fruit Products, Inc., 322

DN 17, 18, 19

American Methyl Corp. v. EPA, 749 F.2d 826

SIpaiya: GENUI SHIIIIIIIID-achccrnncisnsseipercenitiisianelletaiivelaibbadiniamdindanee 6, 19

American Airlines, Inc. v. CAB, 359 F.2d 624

(D.C. Cir.), cert. denied, 385 U.S. 843 (1966)... 6

Calder v. Bull, 3 U.S. (3 Dall.) 386 (1798)....11, 12, 13

Chapman v. El Paso Natural Gas Co., 204 F.2d

fF ff Fert ee cen 6, 19

Claridge Apartments Co. v. Commissioner, 323

RE RRS an eT We ee oe 14

Cummings v. Missouri, 71 U.S. (4 Wali.) 277

EEE vee ene rE. er tn rer 11

Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.)

RRR Sale sneer cree area eree eee ee atta 13

Dash v. Van Kleeck, 7 Johns. 477 (N.Y. 1811).... 10

Fletcher v. Peck, 10 U.S. (6 Cranch) 87 (1810).... 12, 13

Georgetown University Hospital v. Bowen, 821

be YE, RAR 7

Greater Boston Television Corp. v. FCC, 463 F.2d

268 (D.C. Cir. 1971), cert. denied, 406 U.S. 950

So EI ae ae ne afl a DN 6, 19

Green v. Biddle, 21 U.S. (8 Wheat.) 1 (1823) ....... 12

Greene v. United States, 376 U.S. 149 (1964) _..... 14

Hirschey v. FERC, 701 F.2d 215 (D.C. Cir. 1983)... 6,19

Hotch v. United States, 212 F.2d 280 (9th Cir.

SI acai dieing a 20

Lyng v. Payne, 476 U.S. 926 (1986) -.................... 5

Miller v. United States, 294 U.S. 435 (1935)....... 14, 18

Natural Resources Defense Council v. Thomas,

838 F.2d 1224 (D.C. Cir. 1988) -..........00 2. 3, 8,9

New Jersey v. Wilson, 11 U.S. (7 Cranch) 163

I soniisacilaahidagienidiataddadeniaieiadiadidans/oteasiaabinel deta 12, 13

Opp Cotton Mills v. Administrator of the Wage

and Hour Division of the Department of Labor,

Sn I i eiieeiaetane 5

Retail, Wholesale & Dep't Store Union v. NLRB,

466 F.2d 380 (D.C. Cir. 1972) ............................. 20

Satterlee v. Matthewson, 27 U.S. (2 Pet.) 380

SII otis scucataeneidislpiibitiaiiedsraide tial iaieieiiaaandiiianiainenei 12, 13

v

TABLE OF AUTHORITIES—Continued

Page

SEC v. Chenery Corp., 332 U.S. 194 (1947) _.... 17

Society for the Propagation of the Gospel v.

Wheeler, 22 F. Cas. 756 (C.C.D.N.H. 1814) (No.

RRR EASES aa SNES Sees een a ea 5,13

State Bank v. Knoop, 57 U.S. (16 How.) 369

a a a De 13

Sturges v. Crowninshield, 17 U.S. (4 Wheat.) 122

RRC SERS A os cE Ee AEA RR i 13

Terrett v. Taylor, 13 U.S. (9 Cranch) 43 (1815).. 12

Train v. Natural Resources Defense Council, 421

8 EE REA A 3

Union Pacific R. Co. v. Laramie Stock Yards Co.,

GR Ee ee ee 14

United States v. Grimaud, 220 U.S. 506 (1911)... 5

United States v. MacDaniel, 32 U.S. (7 Pet.) 1

la EE RD oe Satie: IY en a 13, 14

United States v. Seatrain Lines, Inc., 329 U.S. 424

a aa 6, 19

Upjohn Co. v. FDA, 811 F.2d 15883 (D.C. Cir.

ENR STOCE EI RSE Secs Se een ee 6

Utah International, Inc. v. Andrus, 488 F. Supp.

a inten 6

UNITED STATES CONSTITUTION:

Ne nn cenenepeneenn aisle 11

Se eT i «occ vemensenememenebuson 11

STATUTES:

The Administrative Procedure Act, 5 U.S.C. § 551,

et seq. (1982)

Pe ED CED ovavecececcececccncecensnevcoseces 5, 7, 15

Sy I UD I si nssdecessemapeneeiseenens 15

5 U.S.C. § 553(d) (1982) ...................... cea 16, 17

The Clean Air Act, 42 U.S.C. § 7401, et seq.

(1982)

§ 109, 42 U.S.C. § 7409 (1982) .......................... 2,3

§ 123, 42 U.S.C. § 7423 (1982) ............................ 2, 3,8

§ 123(c), 42 U.S.C. § 7423(c) (1982) W000... 2, 3,8

vi

TABLE OF AUTHORITIES—Continued

LEGISLATIVE HISTORY: Page

Senate Committee on the Judiciary, 79th Cong.,

2d Sess., Administrative Procedure Act—Legis-

Res TIT CGD acess ccecccscecsccnctsesnsesenscoowennsinnnns 16, 20

MISCELLANEOUS:

Oe ON i cisetiestcceeinanenicomecinion 15

Black’s Law Dictionary (3d ed. 1933) -................... 15

Blackstone, Commentaries on the Law of England.. 10

Se ee eee a 10

Davis, Administrative Law Treatise (2d ed.

1978) .-----neceeneeeceeseeeeeeeeesesseceeearanenensensnssnenneanananannenas 6, 15

The Federalist No. 14 (J. Madison) (C. Rossiter

OD. 1901) -....-----n-eseeceeceeeeeseeseeseeseoseenenseenennenncenenseneees 11

Hurst, Law and Social Order in the United States

(1977) ......... a nel uel cae ccna 15

Kent, Commentaries on American Law ..............---- 10

Smead, The Rule Against Retroactive Legislation:

A Basic Principle of Jurisprudence, 20 Minn.

, 2). eee 10

United States Department of Justice, Attorney

General’s Manual on the Administrative Pro-

a TE CIID avccencsecsccccecesoncctosnseinnntmmionsntennnnss 17

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No. 87-1097

OTIS R. BOWEN, SECRETARY OF HEALTH

AND HUMAN SERVICES,

Petitioner,

v.

GEORGETOWN UNIVERSITY HOSPITAL, et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Disirict of Columbia Circuit

BRIEF OF OHIO POWER COMPANY

AS AMICUS CURIAE IN SUPPORT OF RESPONDENTS

INTEREST OF THE AMICUS CURIAE

Ohio Power Company (“Ohio Power’), an operating

subsidiary in the American Electric Power Company

(“AEP”) system, is the owner and operator of the Kam-

mer Plant, a large electric generating facility located on

the Ohio River in West Virginia. Ohio Power has filed a

petition for a writ of certiorari to the United States

Court of Appeals for the District of Columbia Circuit

regarding a decision affecting its Kammer Plant.’ That

petition asks this Court to review one of the issues pre-

sented by this case—whether the Administrative Proce-

1 See Ohio Power Co., et al. v. Thomas, No. 88-60 (petition for a

writ of certiorari to the United States Court of Appeals for the

District of Columbia Circuit filed July 12, 1988).

2

dure Act (“APA”), 5 U.S.C. § 551, et seg. (1982), per-

mits an agency to promulgate revised regulations that

revoke rights settled in an administrative proceeding con-

ducted under prior regulations, where Congress has pro-

vided no specific statutory authority for rules to upset such

past transactions between the agency and a private party.

The disposition of this case is critically important to

amicus. Ohio Power spent over $500,000 in the course of

a four-year proceeding with the United States Environ-

mental Protection Agency (“EPA”), to obtain in 1982

EPA’s final approval under § 123(c) of the Clean Air

Act, 42 U.S.C. §$ 7423(c) (1982), of a stack height dis-

persion “credit” for the Kammer Plant.? Because § 123

nowhere authorizes EPA to revoke or reevaluate a dis-

persion credit once approved, Ohio Power relied on the

finality of the administrative proceeding in which it ob-

tained the credit.

2 Congress directed EPA in § 123 of the 1977 Clean Air Act

Amendments to develop a program that would define the amount

of dispersion “credit” to use in setting emission limits for individual

sources pursuant to the National Ambient Air Quality Standards

(NAAQS) established under §109 of the Act. See Petition for

Certiorari of Ohio Power Co., et al., supra note 1, at 3-5. In § 125,

Congress authorized the agency to adopt a general rule defining

“good engineering practice” stack height dispersion credit that

could be applied to sources that constructed stacks after 1970. Sec-

tion 123(c) provides that EPA may allow credit greater than that

allowed by this general rule in specific cases where “the source

demonstrates, after notice and opportunity for public hearing, to

the satisfaction of the Administrator, that a greater [stack] height

is necessary” to avoid air quality problems.

Ohio Power obtained its stack height dispersion credit for the

Kammer Plant under the § 123 rules then in effect, pursuant to

the source-specific proceeding provided for in § 123(c). While any

general stack height credit rule under § 123 may have a limited

retroactive effect (i.e., § 123 applies to any stack constructed after

1970), § 123(c) nowhere provides, either explicitly or implicitly, for

the revocation, expiration, or periodic reevaluation of credits ap-

proved by EPA after 1977 (when § 123(c) was enacted) in case-

specific proceedings under that section.

—

3

Stack height dispersion credit, once determined for a

source under § 123(c), serves as the basis for establish-

ing that source’s emission reduction obligations under the

Clean Air Act.* Ohio Power therefore designed its air

pollution control program and entered into long-term coal

supply contracts and other engagements with third par-

ties based on the emission reduction obligations deter-

mined by that credit. :

Years later, in revising its § 123 regulations, EPA

imposed new requirements for obtaining a dispersion

credit and ruled that the effect of those revisions was to

revoke the credit Ohio Power previously had obtained for

the Kammer Plant. The Court of Appeals affirmed.

See Natural Resources Defense Council (“NRDC”’) v.

Thomas, 838 F.2d 1224, 1244 (D.C. Cir. 1988).

The outcome of this case therefore will have a direct

impact on amicus. If this Court were to interpret the APA

as allowing an agency, without an explicit statutory au-

thorization, to adopt rules that revoke administrative de-

terminations completed under prior rules, Ohio Power’s

settled expectations under § 123 derived from the past

administrative transaction with EPA would be defeated.*

3 Of course, if the health and welfare-based National Ambient Air

Quality Standards (NAAQS) established under § 109 of the Act

are revised in a manner that makes them more stringent, the Act

requires that the agency determine whether more stringent emission

limitations are needed to implement that new standard. See Train

v. Natural Resources Defense Council, 421 U.S. 60 (1975). Any such

determination, however, must be based on the applicable § 123

dispersion credit determined by EPA. See supra note 2.

*The harsh impact of retroactive application of new regulations

would extend beyond Ohio Power. For example, Ormet Corporation,

a petitioner in Ohio Power Co. v. Thomas, No. 88-60, entered into

aluminum supply contracts and other commitments based on the

assumed availability of power from the Kammer Plant at a price

that reflected the dispersion credit approved by EPA. Revocation

of Ohio Power’s existing stack height dispersion credit would en-

danger the continued existence of Ormet and the coal mine that

currently supplies Kammer’s needs. A more detailed discussion of

4

Given the close relationship of these cases, amicus has

moved this Court to defer consideration of its petition

for certiorari in Ohio Power v. Thomas until resolution

of this case, and requests permission to file this brief in

support of respondents in this case.°

SUMMARY OF ARGUMENT

Pursuant to the Constitution, Congress delegates power

to administrative agencies to promulgate legislative

rules executing the details of statutory pronouncements

and regulating the affairs of private parties. The scope

of an agency’s power to determine the rights and duties

of private parties depends on the breadth of authority

granted in the statutory delegation. Where an agency

has determined a party’s rights pursuant to a statute

that does not authorize the agency to reevaluate that de-

termination, the party justifiably may expect that the

agency may not revoke those previously determined rights

by promulgating a revised rule.

Since earliest times, a central maxim of the common

law has been that justice requires legislation to have

prospective effect, except where the legislature expressly

states its intention to the contrary. The Framers

of the Constitution expressed a broad concern about the

unfairness of retroactive legislation, and this principle

found expression in the Constitution through several spe-

cific prohibitions on retroactive laws—the prohibition of

ex post facto laws, bills of attainder, and laws impairing

existing contractual obligations. In early cases constru-

ing these prohibitions, this Court made clear its distaste

generally for statutes that “create[] a new obligation,

the implications of revocation of the EPA-approved dispersion credit

is contained in the petition for certiorari filed in Ohio Power Co.

v. Thomas, supra note 1.

5 Written consents to the filing of this brief have been obtained

from the parties to this case, and have been filed with the clerk.

5

impose[] a new duty, or attach[{] a new liability in re-

spect to transactions or considerations already past.” °

Congress, in adopting the APA, defined the legislative

powers of federal agencies in a manner that was con-

sistent with the historical notion thai legislation should

only operate prospectively. The APA specifically pro-

vides that a rule is “an agency statement of general or

particular applicability and future effect.” 5 U.S.C.

§ 551(4) (1982) (emphasis added). The legislative his-

tory is replete with discussion that confirms that a rule

does not determine a party’s rights or liabilities with re

spect to past conduct, but defines the future law so far as

the agency is authorized to act. The common law and his-

torical background, when combined with the language of

the APA and its legislative history, leave no doubt that an

agency given rulemaking powers in a statute cannot adopt

rules that upset a past transaction between a private party

and the agency, except where Congress has explicitly

granted the agency the authority in the statute that the

agency is administering to adopt such a rule.

ARGUMENT

Pursuant to the United States Constitution, Congress

delegates power to administrative agencies to promulgate

legislative rules executing the details of statutory pro-

nouncements and regulating the affairs of private par-

ties.. The power delegated to such agencies can be no

broader than the power originally residing in Congress.*®

Agencies today exercise this delegated power largely

through promulgating legislative regulations that de-

® Society for the Propagation of the Gospel v. Wheeler, 22 F. Cas.

756, 767 (C.C.D.N.H. 1814) (No. 13,156) (Opinion of Story, J.).

7 See, e.g., Opp Cotton Mills v. Administrator of the Wage and

Hour Division of the Department of Labor, 312 U.S. 126 (1941);

United States v. Grimaud, 220 U.S. 506 (1911).

8 Lyng v. Payne, 476 U.S. 926, 937 (1986).

6

termine either directly, or through subsequent individual

determinations, the rights and duties of private parties.’

The scope of the statutory delegation to establish rules

will affect private parties’ reasonable expectations about

the finality of their rights and obligations established

under those rules. For example, where rights are estab-

lished pursuant to a delegation that contemplates con-

tinuing agency review, private parties are on notice that

rights established by an administrative determination are

contingent on future rulemaking.”

By contrast, where a statute delegates to an agency

the power to determine a party’s rights but does not

specifically authorize the agency to revoke those rights,-

an administrative determination creates settled expecta-

tions for the party whose rights have been determined."

Thus, an administrative determination that a party has

complied with the statute as implemented through regu-

lations then in effect, where Congress has not made that

determination contingent upon subsequent regulatory de-

velopments, creates an expectation that the party has

rights that may not be disturbed by subsequent admin-

® K.C. Davis, Administrative Law Treatise, Vol. 1, § 1.9, at 34,

§ 6.1, at 448-49 (2d ed. 1978).

1° Thus, where a permit is issued for a set period of time, or is

subject to continuing reevaluation pursuant to an evolving regula-

tory standard (e.g., a “just and reasonable” standard), there can be

no justifiable expectation that the rights established in that permit

will remain forever unchanged. See, e.g., Upjohn Co. v. FDA, 811

F.2d 1583 (D.C. Cir. 1987); American Airlines, Inc. v. CAB, 359

F.2d 624 (D.C. Cir.), cert. denied, 385 U.S. 843 (1966).

11 See, e.g., United States v. Seatrain Lines, Inc., 329 U.S. 424,

430-33 (1947); Hirschey v. FERC, 701 F.2d 215, 220 (D.C. Cir.

1983); Greater Boston Television Corp. v. FCC, 463 F.2d 268, 291

(D.C. Cir. 1971), cert. denied, 406 U.S. 950 (1972); Chapman v. El

Paso Natural Gas Co., 204 F.2d 46, 53-54 (D.C. Cir. 1952); Utah

International, Inc. v. Andrus, 488 F. Supp. 976, 984-87 (D. Colo.

1980); cf. American Methyl Corp. v. EPA, 749 F.2d 826, 834-40

(D.C. Cir. 1984).

7

istrative proceedings, either rulemaking or adjudica-

tion.”

In the case now before this Court, respondents suc-

cessfully challenged in the Court of Appeals an attempt

by the Department of Health and Human Services

(“HHS”) to change through rulemaking respondents’

right to funds received under earlier rules. The effect

of HHS’s new rule would have been to require respond-

ents to return to the government monies that had been

properly paid to respondents under the prior regulations.

The Court of Appeals confirmed that the benefits flowing

to the respondents under the rules then in effect could

not be revoked by newly revised rules. To impose new

burdens on respondents with respect to the earlier trans-

action between the agency and respondents, the court

reasoned, would be inconsistent with the APA definition

of a “rule” as a statement of future effect, see 5 U.S.C.

§ 551(4) (1982), where the statute being implemented

did not supersede the APA by explicitly authorizing such

regulations.**

Amicus is seeking a writ of certiorari in a case (Ohio

Power v. Thomas)** that also addresses whether an

agency may use rulemaking proceedings to upset past

administrative transactions that granted rights to pri-

vate parties. The circumstances of that case bear many

similarities to those of this case.

The statute involved in Ohio Power provides EPA with

broad authority to act through rulemaking and through

case-by-case informal adjudication, but does not provide

for revocation of rights determined in administrative

12 See also infra note 57.

13 Georgetown University Hospital v. Bowen, 821 F.2d 750, 757

(D.C. Cir. 1987).

14 See supra note 1 and accompanying text.

8

proceedings conducted under earlier rules.’ Moreover,

like HHS in this case, EPA had exercised its statutory

authority under prior regulations to define, “after no-

tice and opportunity for a hearing,” ** the right of a

private party to receive a benefit—in Ohio Power, a

stack height dispersion credit to be used by the company

in complying with Clean Air Act requirements at its

Kammer Plant.”

As in this case, therefore, the previous regulatory

transaction between the agency and the private party in

Ohio Power established a right that the agency had no

explicit statutory authority to take back.’* Nevertheless,

EPA, like HHS here, concluded that revision of the rules

which had governed the earlier transaction justified revo-

cation of the rights of the private party established in that

transaction.’”

Notwithstanding the similarities between these two

cases, the Court of Appeals in Ohio Power refused to give

effect to the APA proscription against retroactive rules,

even though it found that EPA’s new rules would have

15 See supra note 2.

16 Clean Air Act § 123(c).

17 As noted above, this credit has considerable monetary value to

amicus. See supra pp. 2-3.

18 Amicus does not dispute that if in the future it seeks addi-

tional stack height dispersion credit for the Kammer Plant, it will

be required to satisfy all of the criteria contained in the most

recent version of EPA’s § 123 rules in order to qualify for that

credit. Rather, amicus is concerned that the agency and the lower

court have found that these new criteria, to the extent inconsistent

with prior regulations, revoke any determinations made pursuant

to those prior regulations. See supra pp. 2-3.

19 Indeed, in Ohio Power, unlike this case, the new rules were

found to revoke the prior transaction even though EPA did not spe-

cifically address in the rulemaking the status of rights granted

under prior rules. NRDC v. Thomas, 838 F.2d at 1249.

A ni

9

retroactive effect.” The only explanation given by the

Court of Appeals for not applying the general APA pro-

scription was the assertion that this rule would not affect

“past transactions” but only “future emissions.” *4

As discussed in Ohio Power’s petition for certiorari,

the assertion that there is no “past transaction” is sim-

ply wrong.” Moreover, the fact that “future” burdens will

be imposed does not distinguish this rule from any other

retroactive rule, since retroactive rules always impose only

future burdens. Thus, revoking the Kammer dispersion

credit will affect the plant’s “future emissions,” just as

the repayment rule in this case will affect the hospitals’

“future” cash flow. The critical element in both cases is

not the future burdens imposed by the rule, since every

rule (even a retroactive rule) imposes only “future”

burdens, but the fact that both rules serve to upset past

completed transactions between private parties and the

government.**

Together, these cases raise important questions about

an agency’s authority to revoke, through legislative rule-

making, a private party’s rights established in a pre-

vious administrative transaction under the then-applic-

able agency regulations. For the reasons discussed be-

low, this Court should confirm that the APA precludes

legislative rules that revoke rights established in prior

regulatory transactions, where Congress has provided the

agency with no explicit authorization to revoke such

rights.

*0 Id. at 1244. The court found that “[rJetroactivity is involved

here” because the rule would affect “investments or other commit-

ments [made] in reasonable reliance on prior understandings.” /d.

21 Jd,

22 See Petition for Certiorari of Ohio Power Co., et al., supra

note 1, at 13-14.

*3 See also infra note 49 and accompanying text.

10

I. The Common Law of This Nation Presumes That Leg-

islation Has Prospective Effect.

Since earliest times, a central maxim of the common

law has been that a new statement of the law affects the

future, not the past.** As early commentators recognized,

justice requires that laws be prescribed or promulgated

with respect to future conduct, to avoid penalizing parties

as a result of transactions that were legal when

completed.*°

American as well as English courts adopted this com-

mon law maxim as a rule of statutory construction.

Courts therefore refused to give legislative acts retro-

active effect unless their express language so provided.”

Even then, retroactive laws were disfavored. As Chief

Justice Kent explained, “|a] retroactive statute, affecting

and changing vested rights, is very generally considered,

in this country, as founded on unconstitutional principles,

and consequently inoperative and void.” 2"

_ An equally well-established strand of American juris-

prudence, reflected in the Constitution, views the pre-

sumption against retroactive laws as an inherent limita-

tion on the legislative power. Thus, the Constitution at

several points provides that a new law may not revoke

or burden transactions completed before the enactment

of the law, specifically prohibiting the most flagrant his-

torical examples of such abuses of legislative power—ex

*4 Coke, 2 Inst. 292 (“Nova constitutio futuris formam imponere

debet, et non praeteritis”). See generally Smead, The Rule Against

Retroactive Legislation: A Basic Principle of Jurisprudence, 20

Minn. L. Rev. 775 (1936).

“51 W. Blackstone, Commentaries “46. See also Smead, supra

note 24, at 777.

*6 See, e.g., Dash v. Van Kleeck, 7 Johns. 477, 502 (N.Y. 1811)

(opinion of Kent, C.J.) (“A statute ought never to receive such a

construction, if it be susceptible of any other. . .”).

“7 1 Kent, Commentaries *455.

. oer 6 ater th

11

post facto laws, bills of attainder, and laws impairing

existing contractual obligations.*

Beyond these specific prohibitions, the Framers also

expressed a broader concern with retrospective legisla-

tion. For example, Madison in the Federalist Papers de-

scribed such legislation as “contrary to the first princi-

ples of the social compact and to every principle of sound

legislation.” *® To the Framers, the atmosphere of un-

certainty and arbitrariness created by legislative inter-

ference with past transactions would frustrate their de-

sire that government “inspire a general prudence and

industry, and give a regular course to the business of

society.” *°

Since the early days of this country, therefore, legisla-

tion that upsets previously established rights by imposing

new burdens on the exercise of those rights has been dis-

favored. As Justice Paterson noted in Calder v. Bull, 3

U.S. (3 Dall.) 386 (1798), construing the ex post facto

clause shortly after adoption of the Constitution:

I had an ardent desire to have extended the provi-

sion in the Constitution to retrospective laws in gen-

eral. There is neither policy nor safety in such

laws; and, therefore, I have always had a strong

aversion against them. It may, in general, be truly ob-

served of retrospective laws of every description,

that they neither accord with sound legislation, nor

the fundamental principles of the social compact.**

28 U.S. Const. art. I, §9, cl. 3; id. $10, cl. 1. See also Calder v.

Bull, 3 U.S. (3 Dall.) 386, 389 (1798) (cataloguing extreme instances

of abuse under English law); Cummings v. Missouri, 71 U.S. (4

Wall.) 277, 323 (1866) (same).

22 The Federalist No. 44, at 282 (J. Madison) (C. Rossiter ed.

1961).

30 Jd. at 283.

31 Calder v. Bull, supra, 3 U.S. (3 Dall.) at 397 (opinion of

Paterson, J.). See also id. at 391 (opinion of Chase, J.) (“[I]t is

a good general rule, that a law should have no retrospect. .. .”).

12

While Calder v. Bull restricted the ex post facto clause

to criminal cases, Justice Paterson’s ‘ardent desire” found

further voice in the early interpretations of the contracts

clause, which the Court read expansively to accommodate

its distaste for retroactive legislation. Thus, Chief Jus-

tice Marshall early expressed dissatisfaction with Calder

v. Bull, noting that a civil law that revoked vested

rights would operate with the same injustice as an ex

post facto law.** Justice Story based his opposition to

retrospective legislation “upon the principles of natural

justice, upon the fundamental laws of every free gov-

ernment, upon the spirit and the letter of the constitu-

tion of the United States, and upon the decisions of most

respectable judicial tribunals... .” *

32 Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 138 (1810) (“Why,

then, should violence be done to the natural meaning of words for

the purpose of leaving to the legislature the power of seizing, for

public use, the estate of an individual in the form of a law annulling

the title by which he holds that estate? The court can perceive no

sufficient grounds for making this distinction. This rescinding act

would have the effect of an ex post facto law.”). See also New

Jersey v. Wilson, 11 U.S. (7 Cranch) 164 (1812) (Marshall, C.J.).

33 Terrett v. Taylor, 13 U.S. (9 Cranch) 43, 52 (1815). See also

Green v. Biddle, 21 U.S. (8 Wheat.) 1, 12 (1823).

By the time of Satterlee v. Matthewson, 27 U.S. (2 Pet.) 380

(1829), Justice Johnson, who earlier had called the rule against

retroactive legislation “a principle which will impose laws even on

the Deity,” Fletcher v. Peck, supra, 10 U.S. (6 Cranch) at 143, was

ready to reconsider Calder v. Bull and give the prohibition of retro-

active civil legislation an explicit constitutional status. 27 U.S.

(2 Pet.) at 414 (concurring in judgment only). See also his

appended note, 27 U.S. (2 Pet.) 681 (1829). After reviewing the

opinions in that case, he concluded that

the learned judges could not then have foreseen the great

variety of forms in which the violations of private right have

since been presented to this court .... [T]he prohibition to

pass laws violating the obligation of contracts is not a sufficient

protection in private rights, and .. . the policy and reason of

13

Given the general distaste for retroactive legislation,

this Court early on expressed its disfavor for “every

statute which . . . creates a new obligation, imposes a

new duty, or attaches a new liability in respect to trans-

actions or considerations already past.” * Over time, the

Court addressed a diverse set of transactions between the

government and private parties in applying this general

rule against retroactive legislation,* including transac-

tions between private parties and the Executive Branch

departments exercising delegated congressional power.*°

Thus, well before the advent of the administrative

state, the Court recognized in United States v. MacDaniel

that “usages” not specifically described in a statute would

of necessity evolve in departments of the federal govern-

ment as a means of executing congressional statutes.”

Reflecting the historical view that legislation has prospec-

tive effect, the Court held that “no change of such usages

the prohibition to pass ex post facto laws does extend to civil

as well as criminal cases.

Id. at 685-86. With regard to the contracts clause cases, the Justice

remarked that “[t]his court has had more than once to toil up hill

in order to bring within the restriction . . . the most obvious cases

to which the Constitution was intended to extend its protection... .”

Id. at 686.

34 Society for the Propagation of the Gospel v. Wheeler, 22 F. Cas.

756, 767 (C.C.D.N.H. 1814) (No. 13,156) (opinion of Story, J.)

(emphasis added). See also Calder v. Bull, 3 U.S. (3 Dall.) at 391

(Chase, J.) (“Every law that ... impairs. . . rights vested, agree-

ably to existing laws, is retrospective. . .”).

35 See, e.g., State Bank v. Knoop, 57 U.S. (16 How.) 369 (1853)

(bank charter); Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.)

518 (1819) (college charter); Sturges v. Crowninshield, 17 U.S. (4

Wheat.) 122 (1819) (debtors’ obligations); New Jersey v. Wilson,

11 U.S. (7 Cranch) 164 (1812) (tax exemption); Fletcher v. Peck,

10 U.S. (6 Cranch) 87 (1810) (legislative land grant).

36 See, e.g., United States v. MacDaniel, 32 U.S. (7 Pet.) 1, 14-15

(1833).

37 Id.

14

can have a retrospective effect, but must be limited to the

future. [Past] [u]sage[s] ... must be considered binding

on past transactions,” **

This historical distaste for retroactive legislation has

been consistently echoed in the decisions of this Court. A

century after MacDaniel, this Court reiterated that “leg-

islation must be considered as addressed to the future,

not to the past... [and] a retrospective operation will

not be given to a statute which interferes with antecedent

rights . . . unless such be the unequivocal and inflexible

import of the terms, and the manifest intention of the

legislature.” ** And shortly before enactment of the APA,

the Court reaffirmed that this rule applies to the dele-

gatees of congressional power as well as to the Congress

itself.*°

II. The APA Codified the Common Law Principle That

Legislative Pronouncements Have Prospective Effect.

Transactions between private parties and the govern-

ment burgeoned with the growth in the number and re-

sponsibilities of federal agencies during the first part of

this century. Thus, the decade 1905-1915 “first saw the

grant of substantial rule-making, rule-enforcement, and

adjudicative powers to executive offices and independent

88 Jd. The Court therefore prohibited the Secretary of the Navy

from applying retroactively a new interpretation of a statute to

vitiate a transaction completed under an earlier interpretation.

89 Union Pac. R. Co. v. Laramie Stock Yards Co., 231 U.S. 190, 199

(1913). See also Greene v. United States, 376 U.S. 149, 160 (1964);

Claridge Apartments Co. v. Commissioner, 323 U.S. 141, 164 (1944).

#9 Miller v. United States, 294 U.S. 435, 439 (1935) (“The law is

well settled that generally a statute cannot be construed to operate

retrospectively unless the legislative intention to that effect un-

equivocally appears .... An administrative regulation is subject

to the rule equally with a statute; and accordingly, the regulation

here involved must be taken to operate prospectively only.’’).

re

15

administrative agencies. . . ,”*' and administrative agen-

cies began increasingly to exercise their responsibilities

through informal rulemaking.** Reflecting these develop-

ments, Elihu Root, then-President of the American Bar

Association, observed in 1916 that “[{i]f we are to con-

tinue a government of limited powers, these agencies of

‘evalation must themselves be regulated... . The rights

of the citizen against them must be made plain,” *

Against this background of concern with the fairness

of the administrative process and with the scope of

agency power,** Congress in 1941 began consideration of

legislation to define the parameters within which agencies

would exercise their delegated legislative and adjudica-

tory authorities. In 1946, Congress enacted the APA and

described in it the nature of agency authority to pre-

scribe “rules” governing the conduct of private parties.*

Consistent with the historical understanding that leg-

islation applies prospectively, Congress defined a “rule”

(the term used to describe agency-created legislation) as

“an agency statement of general or particular applic-

ability and future effect.” ** Thus, the language “future

effect”? unambiguously categorizes agency-made legisla-

tion as “prospective” legislation, that is, legislation that

operates on “future cases only” as opposed to “retrospec-

tive” legislation that “may also embrace transactions oc-

curring before” its adoption.”

41 J.W. Hurst, Law and Social Order in the United States at 40

(1977), quoted in Davis, supra note 9, at 18-19.

42 See Davis, supra note 9, at 18, 448-49.

4341 A.B.A.R. 355, 368-369 (1916), quoted in Davis, svpra note

9, at 19 (emphasis added).

44 See Davis, supra note 9, at 20-21.

#5 See 5 U.S.C. § 551(4), § 553 (1982).

465 U.S.C. § 551(4) (1982) (emphasis added).

47 Black’s Law Dictionary 1075 (id ed. 1933) (explaining that

“ls]tatutes are. . either prospective or retrospective” (emphasis in

original) ).

"

16

-Had Congress viewed the rulemaking function of fed-

eral agencies to include the inherent power to undo or

burden past transactions, one would expect that it would

have made that intent clear, given the historical distaste

for retrozctivity pervading our legal system and the gen-

eral thrust of the APA to define the overall limitations on

the exercise of agency power. Congress certainly would

not have used the words “future effect” to describe

agency created legislation that Congress contemplated

would be applied retroactively.

The legislative history confirms this view. Thus, dur-

ing the final House proceedings on consideration of 8.7,

Representative Walter explained each provision of the

bill. In addressing the definition of “rule,” he noted that

“(ijn rule making an agency is not telling someone what

his sights or liabilities are for past conduct or present

status under existing law. Instead, . . . the agency is

prescribing what the future law shall be so far as it is

authorized to act.”** Similarly, the House Committee

Report explains that “‘[r]ules’ formally prescribe a

course of conduct for the future rather than pronounce

past or existing rights or liabilities.” *

** Senate Committee on the Judiciary, 79th Cong., 2d Sess.,

Administrative Procedure Act—Legislative History (“APA Legis-

lative History”) at 355 (1946) (emphasis added).

“Id. at 254 (emphasis added). Petitioner argues that the

“future effect” language, which was a late amendment to the bill,

see APA Legislative History at 20, was added merely to clarify

that a rule may take effect only after promulgation. See Petitioner’s

Brief at 30-33 (citing APA Legislative History at 423). The

effective date provision in § 4(c) of the Act, however, is so specific

that a clarification of this nature would have been unnecessary and

hardly worth the special effort an amendment required. See 5 U.S.C.

§$ 553(d) (“Publication or service of any substantive rule shall be

made not less than 30 days before its effective date... .”). Rather,

the phrase “future effect” only codified the common law under-

standing that a legislative pronouncement is presumed not to affect

past transactions. Indeed, given the common law background and

the general thrust of the APA, the effective date provision of § 4(c)

17

This view is also confirmed by an authoritative, con-

temporary interpretation of the Act. Thus, the Attorney

General’s Manual discusses the definition of “rule” and

“rulemaking” as follows:

[Rules] must be of future effect, implementing or

prescribing future law.

* * * *

Rule making is agency action which regulates the

future conduct of either groups of persons or a sin-

gle person; it is essentially legislative in nature, not

only because it operates in the future but also be-

cause it is primarily concerned with policy consider-

ations. The object of the rule making proceeding is

. the implementation or prescription of law or policy

for the future, rather than the evaluation of a re-

spondent’s past conduct... .*°

itself is most logically read as an indication that Congress intended

to adopt the historical principle that legislation has prospective

effect.

5° United States Department of Justice, Attorney General's Man-

ual on the Administrative Procedure Act at 13-15 (1947) (emphasis

added). See also SEC v. Chenery Corp., 332 U.S. 194, 202 (1947)

(“The function of filling in interstices of the Act should be per-

formed, as much as possible, through this quasi-legislative promulga-

tion of rules to be applied in the future” (emphasis added) ).

Relying primarily on Addison v. Holly Hill Fruit Products, Inc.,

322 U.S. 607 (1944), Petitioner contends that the common law

before the APA's enactment did not disfavor the issuance of retro-

active laws, and that the “future effect” language therefore should

not be read to define “rules” as prospective legislation. See Peti-

tioner’s Brief at 22, 24. Petitioner’s argument is contradicted by

the very case he cites.

The Court in Holly Hill expressly confirmed the common law

maxim that “law should avoid retroactivity as much as possible.”

322 U.S. at 620. The dissenters (Justices Rutledge, Black, and

Murphy) expressed the historical rule that legislation addresses

the future in even stronger terms:

The administrative process has increasingly important func-

tions in our legal system. Ordinarily it does enough, if it takes

care of today and tomorrow. When it begins to add yesterday,

18

In sum, the “future effect” language of the APA codi-

fies the historical, common law understanding that legis-

lation applies prospectively.

Ill. Common Law Principles and the APA Require That

Statutory Grants of Rulemaking Authority Be Con-

strued as Authorizing Only Prospective Regulation,

Absent an Explicit Statutory Authorization To Adopt

Legislative Rules Affecting Past Transactions.

Courts have traditionally viewed legislation as deter-

mining rights and responsibilities for the future.*' Courts

therefore adopted early on, as a principle of statutory

construction, the presumption that legislation would have

no retrospective effect unless plainly called for by Con-

gress.”

Agencies may exercise only that authority delegated

by Congress.” Since a law that Congress passes cannot

be applied retroactively unless that is the unequivocal im-

port of its terms and the manifest intention of Congress,™

an agency may not adopt a legislative rule with retro-

spective effect unless specifically authorized to do so by

Congress.”

Courts therefore have historically applied the presump-

tion against retroactivity to include congressional dele-

without clear congressional mandate, the burden may become

too great. In any event, that has not heretofore generally been

considered its task.

id. at 641-642. Far from signalling acceptance of retroactive legis-

lation, therefore, Holly Hill firmly endorsed the common law pre-

sumption against such legislation.

51 See supra pp. 10-14.

52 See supra notes 26, 39.

53 See supra note 8.

54 Supra note 38 and accompanying text.

5 See Miller v. United States, 294 U.S. at 439.

19

gations of administrative authority. As several Justices

observed in Addison v. Holly Hill Fruit Products shortly

before enactment of the APA, retrospective regulation

“has not heretofore generally been considered [the

agency’s] ... task. If that task is to be added, the addi-

tion should be made from the body whence administrative

power is derived... .” ™

Accordingly, an agency cannot revoke rights previously

granted to a party, where there is no statutory authority

to revoke those rights. This result must follow regardless

of whether those rights were established through rule-

making or adjudication.”

56 322 U.S. at 641 (Justices Rutledge, Black, and Murphy,

dissenting).

57 Other amici in this case focus on the distinction the APA draws

between adjudication and rulemaking, pointing out the “future

effect” limitation on legislative rules, and the absence of such

language for adjudications. See Brief of Amicus Curiae the Ameri-

can Hospital Ass’n at 7-13; Brief of Amici Curiae Sister of Mercy

Health Corp. and Michigan Hospital Ass’n at 14-15. Given the

common law distaste for upsetting past transactions, however, retro-

activity is discouraged even in the context of adjudication.

Thus, where a person was a party to a prior adjudication (i.e.,

where he was a party to a completed transaction with the agency),

rights .. tablished in that transaction may not later be revoked in

a subsequent adjudication absent explicit statutory authority to do

so. See United States v. Seatrain Lines, Inc., 329 U.S. 424, 430-33

(1947) (The Interstate Commerce Commission cannot revoke a

certificate of public convenience and necessity previously issued to

a water carrier, given the absence of explicit statutory authority.) ;

American Methyl Corp. v. EPA, 749 F.2d 826, 834-40 (D.C. Cir.

1984); Hirschey v. FERC, 701 F.2d 215, 220 (D.C. Cir. 1983);

Greater Boston Television Corp. v. FCC, 463 F.2d 268, 291 (D.C.

Cir. 1971), cert. denied, 406 U.S. 950 (1972); Chapman v. El Paso

Natural Gas Co., 204 F.2d 46, 53-54 (D.C. Cir. 1958). Even where

a person who was not a party to a transaction with the agency relied

on a legal principle established in another adjudication, that reliance,

if justifiable, may not be upset absent an overriding statutory and

public interest in retroactive application of that principle. See, e.¢.,

20

The common law principle that agencies may not upset

past transactions absent explicit statutory authority to

do so has been codified as to legislative rulemaking by

enactment of the APA.* The APA is “a measure...

laying down definitions and stating limitations. These

definitions and limitations must ... [be] applied by

agencies affected by them... .” *°

Given the focus of the APA on defining the overall limits

of agency authority, “the Administrative Procedure Act

. .. must be read as part of every Congressional delega-

tion of authority, unless specifically excepted.” ®” In in-

terpreting any grant of rulemaking authority in a statute

subject to the APA, therefore, the APA construction of

that authority as being prospective only must be given

effect in the absence of an explicit congressional authoriza-

tion to adopt retroactive rules that upset or otherwise

affect past administrative transactions.

In the instant case ‘accepting here respondents’ char-

acterization of the Medicare statute), as in Ohio Power,”

Congress has not explicitly provided for revocation or

modification through rulemaking of rights previously es-

Retail, Wholesale & Dep’t Store Union v. NLRB, 466 F.2d 380, 390

(D.C. Cir. 1972).

In short, given the common law view that laws apply to the

future, the authority of an agency to change retrospectively estab-

lished rights does not depend upon the type of transaction in which

the rights were established. Rather, if a person was a party to a

transaction with the agency that established rights that the agency

has no statutory authority to revoke, the proscription on retroactiv-

ity applies. By contrast, if a person merely relies on a legal princi-

ple that was never applied to him during a transaction with the

agency, then retroactive application to him of a new principle will

depend on a balancing of public and private interests.

58 See supra pp. 14-18.

59 APA Legislative History at 217 (Senate Report).

® Hotch v. United States, 212 F.2d 280, 283 (9th Cir. 1954).

6! See supra note 2 and accompanying text.

21

tablished in transactions between private parties and the

government. As a result, neither HHS nor EPA have

authority to upset those rights through rulemaking.

CONCLUSION

For these reasons, this Court should affirm the deci-

sion of the Court of Appeals in this case and clarify that

the APA proscribes retroactive rulemaking. Such a rul-

ing will promote the just administration of law by fed-

eral agencies, in a manner consistent with long-established

constitutional and common law principles.

Respectfully submitted,

HENRY V. NICKEL

(Counsel of Record)

F. WILLIAM BROWNELL

LYNDA GUILD SIMPSON

MEL S. SCHULZE

HUNTON & WILLIAMS

2000 Pennsylvania Avenue, N.W.

Suite 9000

Washington, D.C. 20006

(202) 955-1500

A. JOSEPH DowD

JEFFREY P. WHITE

AMERICAN ELECTRIC POWER

SERVICE CORPORATION

One Riverside Plaza

= P.O. Box 16631

Columbus, Ohio 43216

(614) 223-1636

August 4, 1988 Counsel for Ohio Power Company