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Philadelphia Citizens v. Schweiker

decided: January 15, 1982.

PHILADELPHIA CITIZENS IN ACTION BY ROXANNE JONES, EXECUTIVE DIRECTOR AND TRUSTEE AD LITEM, AND PHILADELPHIA WELFARE RIGHTS ORGANIZATION BY LOUISE BROOKINS, EXECUTIVE DIRECTOR AND TRUSTEE AD LITEM
v.
V. RICHARD SCHWEIKER, SECRETARY, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, AND HELEN O'BANNON, SECRETARY, DEPARTMENT OF PUBLIC WELFARE, COMMONWEALTH OF PENNSYLVANIA; HELEN O'BANNON, APPELLANT IN NO. 81-2915, RICHARD SCHWEIKER, APPELLANT IN NO. 81-2916, PHILADELPHIA CITIZENS IN ACTION AND PHILADELPHIA WELFARE RIGHTS ORGANIZATION, APPELLANTS IN NO. 81-2942



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Before Adams, Weis and Higginbotham, Circuit Judges.

Author: Adams

Opinion OF THE COURT

President Reagan signed into law the Omnibus Budget Reconciliation Act (OBRA), Pub.L.No.97-35, 95 Stat. 357, on August 13, 1981. OBRA was the product of a major, highly publicized, and vigorously debated effort by Congress and the President to reverse the growth of federal spending by systematically reducing the level of expenditures in a wide range of federal programs. In one of its many provisions, OBRA mandated major revisions in the Aid to Families with Dependent Children (AFDC) program, reducing or eliminating federal funding for state-administered AFDC benefits to many persons who until then were eligible to receive those benefits. Congress set October 1, 1981, as the date on which the changes were to take effect.

The Department of Health and Human Services (HHS), which is charged with administering the AFDC program at the federal level, issued rules on September 21, 1981, to implement the revisions in AFDC policy. 46 Fed.Reg. 46750-73. The Secretary of HHS declared these rules to be "interim rules" for a 60-day period, during which time the Department would entertain comments on them. The Department proposed to issue final rules at the end of that period, on November 20, 1981. The Pennsylvania Department of Public Welfare (DPW) promulgated state regulations implementing the provisions of OBRA on November 7, 1981, to be effective November 9, 1981. 11 Pa.Bull. 3954-82 (Nov. 7, 1981).

Philadelphia Citizens in Action (PCIA) and the Philadelphia Welfare Rights Organization (PWRO), two associations comprising recipients of various types of welfare benefits, filed suit in the Eastern District of Pennsylvania on October 30, 1981, alleging that the federal rules had not been promulgated in conformity with the Administrative Procedure Act (APA), 5 U.S.C. § 553. The organizations sought injunctive and declaratory relief against HHS and DPW to prevent them from taking any action based on the federal AFDC rules or any conforming state regulations. After a hearing, the district court issued an order on November 20, 1981, invalidating the rules adopted by HHS and enjoining the Commonwealth of Pennsylvania from "reducing and/or terminating AFDC benefits in reliance on either the invalidated federal regulations or the Pennsylvania regulations published November 7, 1981...." The effect of this order was to forestall implementation of the statutorily-mandated changes in AFDC policy and to subject Pennsylvania to the risk that its payment of benefits at the existing higher level would not be reimbursed by the federal government. The state and federal agencies applied to this Court for a stay of the district court's order. We declined to grant that request at that time, and instead ordered an expedited hearing schedule. On December 2, 1981, we heard oral argument on the merits of the appeal and at the conclusion of the argument issued a stay of the district court's order. We now decide that the district court erred in declaring the federal rules invalid and in enjoining the Pennsylvania rules. Accordingly, we reverse the order of the district court.

I.

Congress created the AFDC program in 1935, and established it in Title IV, Part A of the Social Security Act, 49 Stat. 627, codified at 42 U.S.C. §§ 601-676. The program is intended to promote the care of needy dependent children in their own homes or in those of relatives and to assist the parents or relatives with whom they live to attain self-sufficiency. See 42 U.S.C. § 601. Under the statutory program, benefits are paid and administered by those states that wish to participate in the program. A state that desires to participate must first obtain from HHS approval for its state plan, which must conform with the statutory requirements of Title IV and the HHS implementing rules. States that receive approval can obtain reimbursement from the federal government for more than half of the benefits paid and administrative expenses incurred under their plan. See 42 U.S.C. § 603.

The primary purpose of the OBRA amendments to the AFDC program is to reduce or eliminate welfare benefits for those considered by Congress to be less needy than those completely without resources-persons or households that have available other sources of income or resources with which to support themselves. The amendments are intended to accomplish this by a number of means: limits on the amount of a potential recipient's earned income to be disregarded in determining eligibility and grant size, Pub.L.No.97-35, § 2301; redefinition of a potential recipient's income and resources, § 2302; lower income limits on eligibility, § 2303; new treatment of lump-sum payments and earned income advances, §§ 2304, 2305; and several other approaches, §§ 2306-2320.

Under the Social Security Act, HHS is required to promulgate rules and regulations to effectuate the AFDC programs and provide guidance to states so that they may comply with federal requirements. 42 U.S.C. § 639. Following enactment of OBRA, HHS was obliged to issue new rules to meet the new requirements of the OBRA amendments. Aware before the Act was set in final form that OBRA would contain amendments to the AFDC program, HHS began taking steps towards the eventual promulgation of new rules as early as May 1981, when a study group was created to formulate plans for drafting new rules. In order to give the public and interested groups as much opportunity to provide input, on July 2, 1981, and again on July 21, HHS sent out requests for comments and ideas as to possible regulations to individuals and organizations including PWRO, one of the appellees in this case. Representatives of HHS met with representatives of the American Public Welfare Association (APWA) on July 13 and August 3, 1981, and worked out a rough preliminary draft of proposed rules that was sent to the states through the APWA on August 13, 1981.

On the same date, OBRA was enacted into law. HHS at that point had 49 days until October 1, 1981, the date by which the Act was to go into effect, to implement rules interpreting and applying the OBRA amendments, unless of course HHS was to postpone the effective date of the legislature beyond the date that Congress had mandated. Proposed rules were approved by the Secretary on September 3, 1981, twenty-one days after passage of the Act. Conferences were held by HHS for state administrators to discuss the statutory amendments and accompanying proposed rules on September 13 and 15, 1981. On September 21, 1981, the federal rules were published, 46 Fed.Reg. 46570, as interim rules for a 60-day notice and comment period. The rules took effect on October 1, 1981, the effective date of the statute. To a considerable extent the rules merely reiterated the statutory requirements and resolved relatively minor matters committed to the Department's discretion. During the 60-day period few comments on the rules were received by HHS. Indeed, no comment was received from the appellee organizations until November 19, 1981.

II.

A.

Appellees contend, and the district court held, that the Secretary's promulgation of its rules did not comply with the requirements of the APA, 5 U.S.C. § 553.*fn1 Section 553 sets out the procedures that an agency must follow in promulgating rules, requiring that notice of proposed rules be published in the Federal Register and that a period of time be provided in which the public can comment on the proposed rules and suggest changes to the promulgating agencies before the proposed rules become effective.*fn2 The asserted violation of this procedural requirement of the APA in the promulgation of the new federal AFDC regulations served as the basis for the district court's issuance of injunctive relief invalidating the federal rules as well as barring Pennsylvania from implementing its own regulations effecting the benefit cuts. The federal and state agencies do not contend that the procedures set out in section 553 for notice and comment were followed. Instead, they assert that because of a specific provision in the APA, HHS was not required in the circumstances present here to adhere to notice and comment procedures in this instance.

The APA provisions reflect a judgment by Congress that the public interest is served by a careful and open review of proposed administrative rules and regulations. The salutary effect of the APA has been widely noted. See, e.g., 1 K. Davis, Administrative Law § 6:1 (2d ed. 1978). Yet surely one of the more attractive features of this procedural innovation is that lengthy administrative procedures are not required inexorably or inflexibly in situations where they are unnecessary or even counter-productive. Instead, Congress has seen fit to craft a number of exemptions from and qualifications to the rulemaking procedures required under section 553. And while one might question, as does Professor Davis, the appropriate contours for any exceptions to APA requirements, see id. at §§ 6:30-6:33, the explicit judgment of Congress as to when administrative agencies may dispense with formal rulemaking procedures must be respected.

Initially, we note that Congress did not require that APA procedures be employed for implementation of the regulations in question here; instead, these procedures are implicated in this case by a policy of HHS itself. Section 553(a)(2) exempts from the statutory mandate of section 553 matters "relating to ... loans, grants, benefits, or contracts." This exemption specifically applies to rules and regulations, such as those in question here, that concern benefits under the AFDC program. See Rodriguez v. Swank, 318 F. Supp. 289, 295-96 (N.D.Ill.1970), aff'd, 403 U.S. 901, 91 S. Ct. 2202, 29 L. Ed. 2d 677 (1971). However, the Secretary of HHS issued in 1971 a statement of policy that the Department would apply APA procedures in its rulemaking even when the exception for grants and benefits would make it clear that APA procedures were not required by statute. 36 Fed.Reg. 2532 (1971).*fn3

B.

The appellants assert that under both the APA and the Secretary's policy they are exempted from notice and comment requirements in the situation here because there exists good cause for avoiding these procedures. In this respect they rely on § 553(b)(B), which provides that notice and comment procedures are not required:

(B) when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedures thereon are impracticable, unnecessary, or contrary to the public interest.

In the regulations published on September 21, 1981, the Secretary made a specific finding that congressional concern with reducing government spending immediately and the short time Congress provided for implementation of the amendments-from August 13 to October 1-made a full notice and comment procedure prior to implementation of the rules impracticable.*fn4 In reliance on this statement and the rationale it incorporates, the Secretary argued before the district court and reiterates here that he had good cause to dispense with notice and comment procedures. The district court concluded that the Secretary's principal asserted rationale for good cause-that time did not permit a more extensive procedure-was insufficient as a matter of law to justify dispensing with the rule making procedures prescribed in section 553. We disagree.

This Court has twice considered the "good cause" exception to the APA. In American Iron & Steel Institute v. EPA, 568 F.2d 284 (3d Cir. 1977), we held that the Environmental Protection Agency (EPA) was not excused from compliance with the APA in promulgating regulations governing iron and steel manufacturing processes, even though the EPA asserted that a court order had imposed time constraints on the agency. We stated in that case that the good cause exception should be construed narrowly, and noted the legislative intent that " " "impracticable" means a situation in which the due and required execution of the agency functions would be unavoidably prevented by its undertaking public rule-making proceedings.' " 568 F.2d at 292 (quoting S.Rep.No.752, 79th Cong., 1st Sess. 16 (1945)). Similarly, in Sharon Steel Corp. v. EPA, 597 F.2d 377 (3d Cir. 1979), this Court held that the EPA lacked good cause to circumvent notice and comment procedures in issuing air quality standards for four areas of Pennsylvania, even though the EPA asserted that Congress had imposed severe time constraints on the agency.*fn5

The district court apparently inferred from these cases that, as a matter of law, shortness of time can never constitute good cause for invoking the section 553(b)(B) exemption. 527 F. Supp. at 188-190. We read the two cases more cautiously. In neither situation did we suggest that a lack of time would in every case fail to constitute good cause. At its extreme such a principle would make little sense. Indeed, such reasoning would eliminate the express provision which Congress has inserted in the APA. If Congress on October 1 ordered HHS to promulgate regulations by October 2, it is manifest that HHS would have good cause to do so without a notice and comment procedure. To rule otherwise would defeat a clear mandate of Congress because of procedural requirements that Congress undoubtedly did not mean to apply. The present case is somewhat less dire; Congress provided HHS with 49 days rather than one, and required promulgation of rules within that time only by implication rather than explicitly. Yet, if the present case differs from the suggested example, it is also quite different from the setting of Sharon Steel and American Iron and Steel.

In both of those cases, we concluded that the agencies that had waived notice and comment procedures could reasonably have fulfilled their statutory duties while carrying out those procedures. American Iron and Steel involved regulations that the EPA had been under order to promulgate from 1973 until 1976, a three year period, when the interim final rules were promulgated. No equivalent delay by HHS has been shown in the case before us.*fn6 In Sharon Steel the EPA faced a somewhat constricted schedule set by Congress for promulgating rules based on state-submitted plans for implementation of the Clean Air Act, 42 U.S.C. § 7401-7626. Under the Act, the states were required to submit plans to the EPA by December 5, 1977, the Administrator of EPA had to review those plans by February 3, 1978, and the states had to implement the approved plans by January 1, 1979-more than a year after the plans were submitted to the agency. The EPA argued that the time between the agency's receipt of the state plan and the completion of review by the agency did not permit notice and comment procedures to be followed in that review. We noted, however, that the agency could at least have published the state-submitted plans themselves, if not the agency's revision of those plans, within days of receiving the state-submitted plan, and thereby could have complied with the section 553 requirement that "either the terms or substance of the proposed rule or a description of the subjects and issues involved" be disclosed. The EPA could then have reviewed comments received on those proposed plans and issued final plans early enough so that the states would still have had ample time to implement them. 597 F.2d at 380.

HHS maintains that no such approach was available here. Even if HHS had been ready to publish a proposed set of rules on August 13-an accomplishment difficult to imagine-*fn7 the steps to be carried out before October 1 under the APA would have been virtually impossible: approval by the Secretary, publication in the Federal Register, receipt of, consideration of, and response to the proposed regulations by interested parties from all over the nation, receipt of comments by HHS, review of comments, modification of rules, final approval by the Secretary, clearance by the Office of Management and Budget, and final publication in the Federal Register. Yet if HHS-a department with responsibilities that go well beyond the promulgation of these particular rules-had failed to complete these tasks substantially in advance of October 1, so that all 50 states in ...


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