Retroactivity and Administrative Rulemaking

RETROACTIVITY AND ADMINISTRATIVE RULEMAKING WILLIAM V. LUNEBURG* INTRODUCTION Retroactivity is no stranger to the judicial process. Historically it has been the norm, given the Blackstonian view of the judge's role as that of "discovering" and applying "the law" rather than creating it.1 Conversely, prospectivity has been a hallmark of the legislative product. However, in the law-as in life-generalization begets exception. Judges occasionally prospectively overrule judicial precedents, 2 and at times legislatures alter the legal consequences of past transactions and occurrences. Administrative agencies may make both prospective and retroactive policy because they are vested with quasi-legislative and quasi-adjudicatory powers. The legislative role correlates with prospective administra- tive policymaking and with agency rulemaking functions. The judicial role is evidenced by retrospective policymaking via adjudication. Viewed in this way, a legislative or substantive rule3 with a retroactive effect seems anomalous. In fact, such rules are infrequently promulgated. Yet some agencies, such as the Department of Health and Human Services (HHS), have perceived a need for retroactive rules and acted on such a need.4 * Professor of Law, University of Pittsburgh School of Law. Many individuals took the time to read and offer valuable comments---both substantive and organizational-on earlier drafts, including Michael Asimow, Richard Berg, Arthur Bonfield, Michael Bowers, Clark Byse, George Cohen, William Eskridge, Cyril Fox, Philip Frickey, William Funk, Ernest Gelihorn, Walter Gellhor, Erika Jones, Richard Lazarus, Ronald Levin, Nancy Miller, Sidney Shapiro, and Carl Tobias. 1. See 1 W. BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND *70-72; Mishkin, Foreword: The High Court, The Great Writ, and the Due Process of Time and Law, 79 HARV. L. REv. 56, 58-60 (1965) (Blackstone's "declaratory theory" of common law proposes the general rule that a court applies its rules retroactively). 2. See, eg., Traynor, Quo Vadis, Prospective Overruling: A Question of JudicialResponsibility, 28 HAsr. L.J. 533, 548 (1977) (discussing prospective overruling of judicial precedents, and noting that the choice between prospective and retroactive application "calls for the most sensitive balancing of competing claims to justice"). 3. A legislative rule is an agency statement that has the legal effect of a statute passed by Congress. See Administrative Procedure Act, 5 U.S.C. § 551 (1988). An interpretative rule may be granted judicial deference without formal binding effect. See id. § 553(b)(3)(a). See generally R. PIERCE, S. SHAPIRO, & P. VERKUIL, ADMINISTRATIVE LAW AND PROCESS 308 (1985). 4. See infra text accompanying notes 110-22, 265-67. Vol. 1991:106] RETR OA CTIVE R ULEMAKING During its 1988-89 Term, the Supreme Court considered, for the first time, a challenge to HHS' adoption of a retroactive legislative rule. In Bowen v. Georgetown University Hospital 5 the Court invalidated a Medicare cost-limit reimbursement standard. The standard had been adopted in 1984 to replace a prior rule that had been, invalidated for various procedural flaws. Pursuant to the new rule, the HHS had attempted to recoup reimbursement funds that health care providers had 6 received in prior years. The Bowen opinions are significant in a variety of ways. First, Bowen shifted the focus of the Court's inquiry. The Court previously had heard cases regarding retroactivity in the context of legislation and agency statements having the effect of law, but the Court generally focused on interpreting the rule at issue rather than on the statutory authority of the adopting body.7 Justice Kennedy, diverging from this pattern, articulated a new "clear statement" principle of statutory construction and held that the power to adopt legislative rules with formal retroactive effect must "as a general matter . . . be . . conveyed by Congress in express terms. ' 8 The Bowen principle thus joins an increasingly large number of "clear statement" principles allegedly followed by the Supreme Court. 9 Second, while the Kennedy opinion eschewed a discussion of the relevance of the Administrative Procedure Act (APA), Justice Scalia's concurring opinion did not. Although Justice Scalia appeared to accept a "clear statement" approach as appropriate, he attempted to demonstrate the independent relevance of the APA to the validity of the HHS rule at issue.10 During this discussion, Justice Scalia indicated his impression-apparently formed in large part on the basis of the number of citations in the Government's brief-that retroactive legislative rulemaking was infrequent. He observed that it is "evidently not a device indispensable to efficient government."" 5. 488 U.S. 204, 213-15 (1988). 6. Id. 7. See infra text accompanying notes 52-109. 8. Bowen, 488 U.S. at 208. 9. See, e.g., Skinner v. Mid-America Pipeline Co., 490 U.S. 212, 224 (1989) ("Congress must indicate clearly its intention to delegate taxing power to the Executive"); see also Note, Intent, Clear Statements, and the Common Law: Statutory Interpretationin the Supreme Court, 95 HARV. L. REV. 892, 900 (1982) ("clear-statement model of statutory interpretation redefines the judicial role by deferring to the relative competence of congressional judgment and to the legitimacy of legislative authority"). In 1989, the Court propounded a particularly demanding clear statement principle applicable to congressional waiver of eleventh amendment immunity. See Dellmuth v. Muth, 491 U.S. 223, 230 (1989) ("evidence of congressional intent must be both unequivocal and textual"). 10. Bowen, 488 U.S. at 216-20 (Scalia, J., concurring). 11. Id. at 224. DUKE LAW JOURNAL [Vol. 1991:106 The result in Bowen may be entirely defensible given the available evidence that Congress intended to deny HHS the power to adopt retroactive cost-limit rules. 12 However, it is much more difficult to understand and accept the general application of the new "clear statement" test. The "clear statement" approach to agency statutory authority may unduly restrict agency policymaking and, in the process serve, along with other recent developments,13 as one more incentive for agencies to make policy by adjudication rather than by administrative rule. The opinions in Bowen were written against a welter of conflicting Supreme Court opinions that focused on the retroactivity of statutes and agency regulations. Prior to Bowen, the Court had not clearly spoken on whether there is a presumption for or against retroactivity. Without acknowledging the confusion or seeking to explain it, Bowen seized on the cases that applied a clear statement analysis-an analysis that disfavored retroactivity-and applied this principle in a new context. 14 More could and should be expected of the Supreme Court, especially since some of the justices recently have shown increased interest in the problems of 15 legal interpretation. This (...truncated)