Rami Fakhoury and Mark Levey
Copyright @2010 Fakhoury Law Group/Rami Fakhoury
D. Litigation Issues – Non-Discretionary Grounds of Appeal
1. Background to Constitutional Claims - The Yick Wo Case (1886)
When Agency misadministration reaches the level of constitutional harm, grounds for appeal separate and above abuse of discretion arises. As the Fragomen v. USDOL case shows, where suits against agencies are competently presented, the courts have begun to assert jurisdiction over questions of law and constitutional issues. While Congress has stripped the courts of power to review many types of discretionary USCIS and Immigration Court determinations, business immigration is not off-limits to litigation.
The Equal Protection Clause of 14th Amendment has been held to attach to companies and commercial activities for many decades. Commercial activities, and the rights of those who operate them, are particularly favored under American law. Discrimination against certain types of businesses because of their foreign ownership has been held to be unconstitutional going back to the Chinese laundries case of 1886. Yick Wo v. Hopkins, 118 US 356 . In that seminal decision, the Supreme Court ruled that a law regulating business that is race-neutral on its face, but is administered in a prejudicial manner, is an infringement of the Equal Protection Clause and thus lacks a “rational basis”. Justice Matthews joined by a unanimous court found:
The necessary tendency, if not the specific purpose, of this ordinance, and of enforcing it in the manner indicated in the record, is to drive out of business all the numerous small laundries, especially those owned by Chinese, and give a monopoly of the business to the large institutions established and carried on by means of large associated Caucasian capital. [ . . . ]
[I]t seems to us that there has been a wide departure from the principles that have heretofore been supposed to guard and protect the rights, property, and liberties of the American people. And if, by an ordinance general in its terms and form, like the one in question, by reserving an arbitrary discretion in the enacting body to grant or deny permission to engage in a proper and necessary calling, a discrimination against any class can be made in its execution, thereby evading and in effect nullifying the provisions of the national constitution, then the insertion of provisions to guard the rights of every class and person in that instrument was a vain and futile act.
The period of the late 1880s was in some ways very much like that today. Following a massive expansion of U.S. industry and communications lines built largely with immigrant labor, tens of thousands of Chinese workers who had laid the tracks for the Union Pacific Railroad began to establish lives for themselves and their families in their adopted land. Many settled and opened small shops and businesses in San Francisco, the port city where they had initially arrived.
One of the more popular entrepreneurial ventures of Bay Area citizens from China was laundry and tailoring.
About two-thirds of the laundry’s owners and almost 90 percent of the city’s laundry workers were then of Chinese origin. This did not always sit well with their neighbors. In 1880, the city of San Francisco passed an ordinance that persons could not operate a laundry in a wooden building without a permit from the Board of Supervisors. The ordinance conferred upon the Board of Supervisors to grant or withhold these permits at their discretion.
After passage of that ordinance, of the wooden building laundry owners who applied for a permit, not a single permit was granted to a Chinese owner, while only one out of some eighty non-Chinese applicants was denied a permit.
Lee Yick, who had operated a laundry in the same wooden building for many years and held a valid license to operate his laundry previously issued by the Board of Fire-Wardens. He continued to operate his laundry without further license from the supervisors, and was convicted and fined $10.00, which he refused to pay. He sued for a writ of habeaus corpus after he was imprisoned.
2. There is no Discretion to Discriminate: Are Indian Outsourcing Companies being Treated as the Chinese Laundries of the 21st Century?
The Yick Wo decision was a powerful statement about equality under American law, at a time that was not universally respected, and Jim Crow racial discrimination was proliferating. Justice Matthews did not disguise the indignation the Court felt at the fact that government power was used to put a particular type of business owned and operated by non-citizens out of business in order to advance native economic interests:
'The effect of the execution of this ordinance in the manner indicated in the record would seem to be necessarily to close up the many Chinese laundries now existing, or compel their owners to pull down their present buildings and reconstruct of brick or stone, or to drive them outside the city and county of San Francisco . . . beyond the convenient reach of customers, either of which results would be little short of absolute confiscation of the large amount of property . . .. If this would not be depriving such parties of their property without due process of law, it would be difficult to say what would effect that prohibited result. The necessary tendency, if not the specific purpose, of this ordinance, and of enforcing it in the manner indicated in the record, is to drive out of business all the numerous small laundries, especially those owned by Chinese, and give a monopoly of the business to the large institutions established and carried on by means of large associated Caucasian capital.
3. THE CHENERY II “INFORMED DISCRETION” STANDARD: Rulemaking by Adjudication Valid Only When the Agency Exercises Expert Judgment Applied to Limited Cases.
Federal agencies are generally required to provide notice of proposed rules and consider comments about those rules. 5 U.S.C. § 553. However, “interpretive” rules are exempt from this process. 5 U.S.C. 553(b)(3)(A); Gunderson v. Hood, 268 F.3d 1149, 1155 (9th Cir. 2001). Interpretive rules generally clarify or explain, but cannot be inconsistent with or amend an existing rule. Gunderson, 268 F.3d at 1155.
Where the courts have allowed agencies an exception to the APA “publication and comment” requirement to permit rulemaking by adjudication, the courts have imposed limits on that practice. First, the agency must exercise expert judgment in an individualized determination. This gives rise to the “informed discretion” standard articulated in the landmark Chenery II case and the line of cases that follow it. Furthermore, the agency can only substitute its own informed discretion for normal rulemaking in limited circumstances where the need for a published rule could not be foreseen. Once an issue is decided upon, the agency must publish its rule, and may not broadly apply ad hoc rules without publication.
Sixty years after Yick Wo, the Court issued another landmark decision limiting the powers of government to arbitrarily shut down business. In SEC V. CHENERY CORP., 332 U. S. 194 (1947)(“Chenery II”) an case brought in the immediate wake of the Administrative Procedures Act (APA), involved management of a publicly-traded water company accused of illegal stock manipulation. The first time this case made it to the Supreme Court (Chenery I), the Court held that the acts committed by the company did not amount to common law fraud and therefore the SEC's stated rationale for the charges could not be sustained.
On remand, the SEC charged the company's officials on different grounds, under its own enabling act. The court used the case as an opportunity to discuss the merits of policymaking through adjudication and retroactive rule-making by federal agencies.
The court stated that policymaking through administrative adjudication is not necessarily wrong and may be desirable, but only under limited circumstances. Adjudication may be more flexible than rule-making and allows policy to be made on an ad hoc basis. This flexibility is important where there may be unforeseeable problems, inexperience with the problem, or the problem is so specialized in varied that a general rule would be impossible. Therefore, the choice between rule-making and adjudication lies in the informed discretion of the agency.
Chenery II is often cited to illustrate the deference under the APA that courts have long shown to agency’s powers to exercise policy-making by adjudication, and an agency may sometimes substitute its own “informed discretion” based in agency expertise for judicial decisions, where the two may conflict. However, Chenery II and the line of decisions that follow it stand for a third major principle of Administrative Law and that is: “informed discretion” implies a requirement for application of expert judgment and reasoned analysis to individual cases rather than a blanket application of policy. Rule-making by adjudication is an exceptional practice involving decision-making of the highest standard. Decision-making in lieu of published rule must be of the highest standard; thus, per curium application of de facto rules is an abuse of discretion:
administrative judgments are entitled to the greatest amount of weight by appellate courts . . . [if the product of] administrative experience, appreciation of the complexities of the problem, realization of the statutory policies, and responsible treatment of the uncontested facts. It is the type of judgment which administrative agencies are best equipped to make and which justifies the use of the administrative process. See Republic Aviation Corporation v. Labor Board, 324 U. S. 793, 324 U. S. 800.
4. Chenery II: Change in Substantial Agency Rules Without Notice and Comment is Restricted to a Case the Administrative Agency “Could Not Reasonably Foresee”
Chenery II also laid restrictions on the circumstances under which agencies could change their rules through adjudications. Rule-making through adjudications give an agency flexibility but, the Court held, it is acceptable in lieu of normal APA “publication and comment” procedures strictly in the context of novel circumstances:
[P]roblems may arise in a case which the administrative agency could not reasonably foresee, problems which must be solved despite the absence of a relevant general rule. Or the agency may not have had sufficient experience with a particular problem to warrant rigidifying its tentative judgment into a hard and fast rule. Or
Page 332 U. S. 203
the problem may be so specialized and varying in nature as to be impossible of capture within the boundaries of a general rule. In those situations, the agency must retain power to deal with the problems on a case-to-case basis if the administrative process is to be effective. There is thus a very definite place for the case-by-case evolution of statutory standards. And the choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency. See Columbia Broadcasting System v. United States, 316 U. S. 407, 316 U. S. 421.
Where similar issues arise over and over again over a longer period of time, Chenery II is clearly telling us, published regulations are mandatory when the rule is amenable to general application or the rule made by adjudication will not receive deference.