Environmental law practitioners are required to be familiar with a wide range of administrative actions by federal, state and local environmental agencies. These actions span what one court called a "sometimes murky spectrum" from formal agency adjudications and rulemaking, to purely informal advice and input provided by individual agency employees such as case managers overseeing a site undergoing remediation.

While formal rulemaking follows well-established procedures, companies or individuals faced with informal agency action can be put in an awkward situation — unsure of whether, or even how to, challenge an agency position they feel is wrong. In this regard, the line between agency rulemaking and informal agency interpretations or guidance becomes an important one that can determine both the validity of an agency’s action and the availability of judicial review for parties affected by the action.

Rulemaking is typically done at the federal and state levels under the applicable Administrative Procedure Act (APA). The process conducted under the APA is also referred to as "notice-and-comment rulemaking" as it requires the agency in question to put the public on notice of an intended action, receive comment on its proposal, and respond to the input received. This notice-and-comment process is time-consuming. While the APA does not mandate a specific time period, 30- to 60-day comment periods are commonplace, and can extend for much longer periods depending on the complexity of a proposal and the level of public interest.

The APA process is also labor-intensive for the agency involved. High-profile rules can garner tens of thousands of comments, and agencies frequently host lengthy public hearings in multiple locations to further facilitate public input. Responding to comments and hearing testimony imposes a significant burden and can take months to complete.

Perhaps most importantly, the APA provides for judicial review of the final rule produced by the rulemaking process, and authorizes courts to hold unlawful and set aside agency actions, findings and conclusions found to fall short of the standards set out in the APA.

Notably, only new "legislative" rules are required to be created through the notice-and-comment process, and "interpretive rules" and "general statements of policy" are exempt under the APA from the procedural requirements applicable to rulemaking. To avoid the morass that can result from notice-and-comment rulemaking, agencies frequently frame their positions not as legislative rules, but as "guidance" or "interpretations." Employing such informal actions can yield many benefits to a regulating agency. They enable the agency to put out a new position more quickly than it could through rulemaking, and at far less cost. Informal positions also allow an agency a greater degree of flexibility as "guidance" can be amended much more easily than a promulgated rule. Finally, agencies frequently claim that courts have no jurisdiction to review informal actions, arguing that judicial review would have a chilling effect on the informal channels of communication between agencies and regulated entities.

In light of these benefits, it is no surprise that the U.S. Environmental Protection Agency and state environmental agencies have increasingly issued "guidance" in lieu of formal rules to add detail to their statutory and regulatory frameworks. For example, the EPA’s Resource Conservation and Recovery Act online website (http://1.usa.gov/Yx9OBR) contains numerous EPA letters, memoranda, questions and answers, and other materials covering the management of waste regulated by the RCRA. EPA’s air program has a similar database housing hundreds of letters and memoranda issued by the agency on Clean Air Act applicability or monitoring issues (epa.gov/oecaerth/monitoring/programs/caa/adi.html).

Courts have distinguished between legislative rulemaking and informal action by noting that where interpretative (informal) rules simply state what the administrative agency thinks a statute means, and only "remind" affected parties of existing duties, a legislative rule imposes new rights or obligations. The threshold question is whether an action substantively amends the contours of a pre-existing rule, or whether it simply interprets what is already there. The former requires notice and comment, while the latter typically does not.

Two recent rulings highlight both the growing importance of the distinction between formal and informal agency actions, as well as the analysis employed by the courts to determine in which category a given action fits. First, in Iowa League of Cities v. EPA, No. 11-3412, the U.S. Court of Appeals for the Eighth Circuit considered a challenge to two letters issued by the EPA dealing with activities of wastewater treatment facilities. On behalf of a number of cities that own such facilities, U.S. Senator Charles Grassley, R-Iowa, submitted inquiries to the EPA seeking clarification on the ability of those facilities to use "mixing zones" and "blending" to meet state water quality standards pursuant to the Clean Water Act. The two EPA letters came in response to Grassley’s inquiries. While the EPA contended that the letters were merely guidance letters discussing existing regulatory requirements, the Iowa League of Cities disagreed and argued that the letters contradicted the Clean Water Act and the EPA’s prior, lawfully-promulgated regulations.

The Eighth Circuit analyzed the EPA letters using a three-prong test detailed in a 1999 D.C. Circuit ruling, Molycorp v. EPA, 197 F.3d 543 (1999). The Molycorp test looks to (1) the agency’s characterization of the action; (2) whether the action was published in the Federal Register; and (3) whether the action has binding effects on private parties or on the agency. Of the three factors, the "ultimate focus" of the test is on the third factor. Applying the test to the EPA wastewater treatment facility letters, the court found that both letters reflected binding policy and effectively set forth new regulatory requirements with respect to water treatment processes at municipally owned sewer systems, thereby modifying the EPA’s existing legislative rules. Rejecting the EPA’s argument that the letters were not judicially reviewable, the court vacated both letters under the APA because they had been promulgated without meeting the procedural requirements of the statute.

At the same time that the Eighth Circuit was considering the League of Cities challenge, the New Jersey Superior Court’s Appellate Division reviewed a challenge to a rule promulgated by the state’s Department of Environmental Protection in a matter captioned In re N.J.A.C. 7:1B-1.1 et seq. The rule at issue was designed to allow the department to waive its own regulations in certain limited circumstances and was referred to as the "waiver rule." Twenty-eight environmental and labor organizations united to appeal the waiver rule, arguing that the department had exceeded its legislative authority, and that the rule was invalid due to a lack of adequate standards to guide the agency. While the focus of the appeal was on the validity of the waiver rule, the appellants also challenged various guidance documents posted on the department’s website in support of the rule.

The Appellate Division issued a strong opinion upholding the waiver rule, finding that the department had acted within its authority and that the rule contained adequate standards. However, looking at the guidance documents, the court agreed with the appellants that the materials posted on the department’s website constituted de facto rulemaking rather than guidance, and violated the state APA. The postings detailed the department’s requirements for submissions made in pursuit of a waiver, as well as the analysis to be applied to such applications. The court found that the materials went beyond facilitation of the administrative implementation of the waiver rule, and actually announced new substantive requirements, necessitating compliance with the APA.

In reviewing the guidance documents, the New Jersey court used a six-prong test originally set out in the 1984 New Jersey Supreme Court case Metromedia v. Director of the Division of Taxation, which looks to factors including whether the action was intended to be generally applicable to all similarly situated persons, and whether the action prescribes a new legal standard or directive not found in the enabling statute or previously expressed by the agency. The court concluded that the guidance in question did more than simply implement the waiver rule, but rather established the rules of the game, and was therefore subject to the rulemaking requirements of the New Jersey APA.

The Appellate Division’s rejection of the waiver rule guidance documents is particularly noteworthy in light of the significant proliferation of guidance documents in New Jersey intended by the NJDEP for use by licensed site remediation professionals in the state operating under the state’s Site Remediation Reform Act. In many instances, these site remediation guidance documents go much farther than the waiver rule materials in adding substance to their respective regulatory frameworks. While it is important to note that the Site Remediation Reform Act expressly authorizes the use of guidance, the waiver rule decision may nonetheless call into question the validity of some of the site remediation guidance, creating a potentially broad regulatory ripple effect.

In light of the rising tide of informal agency guidance documents, the Iowa League of Cities and waiver rule cases represent noteworthy reminders of the limits on agencies’ ability to bypass APA procedural requirements. As the Eighth Circuit noted, "As agencies expand on the often broad language of their enabling statutes by issuing layer upon layer of guidance documents and interpretative memoranda, formerly flexible strata may ossify into rule-like rigidity. Any agency potentially can avoid judicial review through the tyranny of small decisions." As a practitioner, knowing the distinction between truly informal agency action and legislative rulemaking can be the key to helping your client avoid such a tyrannical trap and obtaining appropriate judicial review.

Christopher D. Ball is a partner with the environmental, energy and land use law and litigation firm of Manko, Gold, Katcher & Fox. He can be reached at 484-430-2358 or cball@mgkflaw.com.