News from the Circuits

Fourth Circuit voids FDA rule regulating tobacco products as beyond statutory authority in case posing interesting statutory interpretation questions

In 1996 the Food and Drug Administration for the first time exerted jurisdiction over tobacco products, on the basis that they were "drugs" and "devices" within the meaning of the Federal Food, Drug, and Cosmetic Act. In Brown & Williamson Tobacco Corp. v. FDA, -- F. 3d -- (1998), a panel of the Fourth Circuit, with one dissenter, held that despite the literal language of the Act, Congress did not intend for the Act to authorize regulation of the ordinary sale of tobacco products. The case raised an interesting question of statutory interpretation. Here everyone essentially conceded that the definition of "drug" in the Act would include tobacco products as normally marketed. However, no reasonable person could conclude, given the evidence, that the Congress that enacted that definition positively intended it to include tobacco products. Moreover, there was ample evidence that subsequent Congresses did not understand the Act to encompass tobacco products, an understanding that the FDA itself had explicitly shared since the passage of the Act in 1938 until its reverse of direction in 1996. Finally, even the FDA's current action to regulate tobacco products was inconsistent with a literal reading of the Act, because the FDA did not ban tobacco products, as it almost definitely was required to do, if they were within the meaning of "drug" in the Act, because the FDA had found them unreasonably dangerous and without any health benefits. The question was how to reconcile this information with the statutory text. For the majority, "[a]lthough the task of statutory construction generally begins with the actual language of the provision in question, the inquiry does not end there," and it went on to consider "the overall statutory scheme," the "legislative history," "the history of evolving congressional regulation in the area," and "a consideration of other relevant statutes." After considering all these factors, the court held that Congress clearly did not intend to delegate jurisdiction to the FDA to regulate the ordinary marketing of tobacco products, and accordingly under Chevron v. NRDC, 467 U.S. 837 (1984), no deference was due to FDA's contrary interpretation. The dissent posed the question somewhat differently; "[i]f the words of a statute are plain, 'absent any indication that doing so would frustrate Congress's clear intention or yield patent absurdity, our obligation is to apply the statute as Congress wrote it.'" Viewing Congress's intention as protecting public health, the dissent found no frustration of that intent or patent absurdity in applying the Act to tobacco products. The dissent explained the FDA's change as based upon new evidence of health effects and of tobacco companies' intentional addition of nicotine to their products. It seems likely that this case will go on to en banc consideration and probably Supreme Court review. It will be interesting to see how proponents of "plain language" construction of statutes will address this case.

Department of Labor's regulation defining Secretary's scope of review of ALJ decisions proves fatal to Secretary's reversal of ALJ decision

Under the APA, a court is to overturn an agency's findings of fact in a formal adjudication only if they are unsupported by substantial evidence on the record considered as a whole. However, the Secretary of Labor's regulations under the Surface Transportation Assistance Act also provide that an ALJ's findings are conclusive if they are "supported by substantial evidence on the record considered as a whole." In Brink's, Inc. v. Herman, -- F.3d -- (2d Cir. 1998), the Secretary had set aside the ALJ's findings, concluding that the evidence was contrary to his findings. The Second Circuit held that, because of the regulation, if there was substantial evidence to support the ALJ's findings, the Secretary's determination would be unlawful as a violation of her own regulations. With respect to the specific findings the ALJ made, the court found ample evidence to support his findings. The ALJ did not make a finding that expressly referenced one of the alleged claims, but the court found that his findings clearly encompassed and addressed the issues involved in that claim, so that it too was supported by substantial evidence. Accordingly, the Secretary's decision was vacated, an the Secretary was directed to enter a decision in accordance with the ALJ's decision.

D.C. Circuit refuses review of EPA statements in a preamble to a proposed rule

In 1994 EPA issued a proposed rule dealing with state authorization to administer federal authorities under the Resource Conservation and Recovery Act, in particular dealing with the legal power states must possess to require corrective action at hazardous waste facilities. In the preamble to that proposed rule, EPA expressed its view of its own authority to require corrective action at certain types of hazardous waste facilities. Although the proposed rules have never been adopted, a Florida utility possessing the types of facilities discussed in the preamble challenged the preambular statements because of its belief that these types of facilities are not subject to EPA's jurisdiction. In Florida Power & Light Co. v. EPA, 145 F.3d 1414 (D.C. Cir. 1998), the court held it had no jurisdiction to hear the challenge, and even if it did, the challenge would not be ripe for review. Florida Power sought judicial review under the review provisions of RCRA, but they authorize review only of final regulations. The court analyzed the statements in the preamble according to its three factor test for determining whether something is a final regulation: (1) the Agency's own characterization of the action; (2) whether the Agency published the action in the Federal Register or the Code of Federal Regulations; and (3) whether the action has binding effects on either private parties or the Agency. Although the statements had been published in the Federal Register, none of the other factors supported a conclusion that the statements constituted a final rule. The court then went on to consider whether, even if it had jurisdiction, the claims were ripe. Purporting to apply the Abbott Laboratories test, the court found that the issues were not fit for review because they were not sufficiently crystalized. "The present petition for review is not based on crystallized EPA interpretations, but, rather, on Florida P&L's own interpretations of the preamble statements and what could happen if those statements--as interpreted by Florida P&L--are applied to the company in an as-yet-to-be-issued . . . order." The court then said: "[i]n light of the lack of fitness of its claims, Florida P&L must demonstrate that postponing review will cause the company 'hardship' in order to overcome a claim of lack of ripeness and obtain review of the challenged rule at this time." This reflects the D.C. Circuit's interpretation of Abbott Laboratories test that when the issues are fit for review there is no need for a plaintiff to show "hardship." The Abbott Laboratories test, however, is probably best read as requiring findings of both fitness for review and hardship to the parties of withholding review. Absent either, review should be denied. In any case, because EPA's statements only indicated its view of its enforcement reach, they did not impose duties upon Florida P&L. Only when and if EPA tried to exercise that enforcement reach, could it be said that the statements had any effect on plaintiffs.

Third Circuit denies review of FAA advisory reports as non-final orders despite their real effect on company

The Federal Aviation Administration certifies aviation repair shops as a condition for the repaired equipment being used on aircraft. The FAA publishes a number of reports to assist owners, operators, manufacturers and the FAA in identifying problems encountered during aircraft service. One is known as Service Difficulty Reports (SDRs) and another is known as General Aviation Airworthiness Alerts. In 1996 the FAA issued an SDR identifying parts repaired by Aerosource, a repair shop, as not being repaired properly. It warned that Aerosource may have repaired other parts improperly as well. At the same time the FAA also issued an Alert to the same effect. Both reports were based on reports made by Aerosource's competitors, who had torn down or inspected some of Aerosource's work. Aerosource complained about the reports, claiming that the competitors' reports were inaccurate. On the basis of Aerosource's information, the FAA ceased its investigation of Aerosource. Nevertheless, it refused to withdraw the SDR or Alert. Aerosource filed a petition with the Third Circuit challenging the FAA's denial of its request to rescind the SDR and Alert. The Federal Aviation Act provides that any person disclosing a substantial interest in an order issued by the FAA with respect to safety issues may apply for review in an appropriate circuit court. In Aerosource, Inc. v. Slater, 142 F.3d 572 (1998), the Third Circuit held that the FAA's denial of the request for recission was not an order within the meaning of the Act and therefore was not reviewable. First, the court established that "order" meant final order. While final orders need not be formal or the product of formal agency decision making, they do need to be "a definitive statement of the agency's position which has a direct and immediate effect on the petitioner's day-to-day operations, which has the status of law, and of which immediate compliance is expected." While acknowledging that the issuance of the reports and the denial of their recission were the agency's final statements on the subject and that they had a "severe adverse impact" on Aerosource, because its customers naturally went to other, less tainted repair shops, the court still found them unreviewable. The reports did not impose any legal obligations on Aerosource or anyone else; they reflected nothing more than an advisory warning. Aerosource did not suffer an legal consequence as a result. In reaching this conclusion, the court relied its recent decision in Hindes v. FDIC, 137 F.3d 148 (3d Cir. 1998), in which the court had likewise held unreviewable the FDIC's notification to a savings bank that unless the bank met certain capitalization requirements, the FDIC would cancel its deposit insurance. This notification created a crisis that led the state regulators to close the bank, but the court said that the notification was "merely the first step of a multi-step statutory procedure which could lead to termination," and as such was not itself a reviewable order.

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