a. Rulemaking versus adjudication in federal courts

The instant case began as a formal adjudication before the MPSC. At the federal level, agencies may announce policy through adjudication rather than through rulemaking. The federal courts now generally accept this as a proper method for an agency to formulate policy, but historically, they have not universally accepted it.

In NLRB v Bell Aerospace Co Division of Textron Inc, 416 US 267 (1974), the Supreme Court was faced with the question of whether administrative agencies, in that case the NLRB, must proceed by rulemaking when announcing new policy, or whether they can also choose to announce their policies through formal adjudication. The Supreme Court indicated that such a decision was largely within an agency's discretion:

[T]he Board is not precluded from announcing new principles in an adjudicative proceeding and that the choice between rulemaking and adjudication lies in the first instance within the Board's discretion. Although there may be situations where the Board's reliance on adjudication would amount to an abuse of discretion or a violation of the Act, nothing in the present case would justify such a conclusion. . . . It is doubtful whether any generalized standard could be framed which would have more than marginal utility. The Board thus has reason to proceed with caution, developing its standards in a case-by-case manner . . . . The Board's judgment that adjudication best serves this purpose is entitled to great weight.

Id. at 294.

The Supreme Court rejected the contention that a rulemaking would allow a more broad determination of a proper standard:

    It is true, of course, that rulemaking would provide the Board with a forum for soliciting the informed views of those affected . . . before embarking on a new course. But surely the Board has discretion to decide that the adjudicative procedures in this case may also produce the relevant information necessary to mature and fair consideration of the issues. Those most immediately affected, the [entities] in the particular case, are accorded a full opportunity to be heard before the Board makes its determination.


But Bell Aerospace Co was not the only case in which the Supreme Court had considered the propriety of using formal adjudication to set rules. In NLRB v Wyman-Gordon Co, 394 US 759 (1969), this issue was discussed at length. Wyman-Gordon was a plurality opinion. In Wyman-Gordon, the NLRB was seeking to apply a "rule" from a prior adjudication. Justice Fortas' four-member opinion chastised the NLRB for announcing the rule in that previous adjudication and then not enforcing it in that same case, while the NLRB was seeking to apply the "rule" from the prior adjudication in Wyman-Gordon. Justice Fortas indicated that if the NLRB wanted to create a rule, it must follow the notice-and-comment procedures found in the federal Administrative Procedures Act: "The rule-making provisions of that Act, which the Board would avoid, were designed to assure fairness and mature consideration of rules of general application. They may not be avoided by the process of making rules in the course of an administrative procedure." Id. at 764.

But Justice Fortas then set forth an exception that swallowed his rule: So long as the Board entered an order against a party in the adjudicatory proceeding, the Board could enforce that order. Id. at 766. Thus, the only thing the NLRB really did wrong in the prior adjudication was not to enforce its new "rule" in that prior adjudication.

Justice Black, who wrote for himself and two others, indicated that agencies could choose either adjudication or rulemaking: "If the agency decision reached under the adjudicatory power becomes a precedent, it guides future conduct in much the same way as though it were a new rule promulgated under the rule-making power." Id. at 771 (Black, J., concurring).

In dissent, Justice Douglas would not have allowed a new "rule" to be created via adjudication:

    The rule-making procedure performs important functions. It gives notice to an entire segment of society of those controls or regimentation that is forthcoming. It gives an opportunity for persons affected to be heard. . . .

    [In rulemakings, a]gencies discover that they are not always repositories of ultimate wisdom; they learn from the suggestions of outsiders and often benefit from that advice.

    This is a healthy process that helps make a society viable. The multiplication of agencies and their growing power make them more and more remote from the people affected by what they do and make more likely the arbitrary exercise of their powers. Public airing of problems through rule making makes the bureaucracy more responsive to public needs and is an important brake on the growth of absolutism in the regime that now governs all of us.

    . . .

    . . . [W]hen we are lax and allow federal agencies to play fast and loose with rule making, we set a precedent with dangerous repercussions.

    . . .

    Rule making is no cure-all; but it does force important issues into full public display and in that sense makes for more responsible administrative action.

Id. at 777-79 (Douglas, J., dissenting). Justice Harlan also indicated that he would require that significant changes in policy come from rulemaking, as opposed to formal adjudication. Id. at 781.

Professor Pierce contends that there is "near unanimity" between judges and academics in "extolling the virtues of the rulemaking process over the process of making ‘rules' through case-by-case adjudication." 1 Pierce, Administrative Law Treatise (4th ed 2002) § 6.8, p 368. Some of the reasons Pierce identifies include: (1) rulemaking often leads to higher-quality rules, since the agency receives more input than in an adjudication against one party; (2) enhanced political oversight, since the notice period allows potentially affected parties to notify politicians, while adjudications often provide no warning about the "rules" being set forth until after the fact; (3) rulemaking is less costly than case-by-case adjudication; (4) rules are more clear than agency opinions; (5) adjudication focuses all the costs of an adverse decision on one actor in the field, while others learn of the outcome at no cost to themselves; and (6) adjudication leads to more disparate action by the regulators, who can pick and choose targets. Id. at 368-73.

One point is worth further development. As noted above, Chevron is based in part on there being some political accountability in the chief executive to the public. With rulemaking, political appeals can be made to representatives and senators, who can apply indirect pressure on the agency, thereby increasing the potential for a decision that weighs all societal interests. If the sole politically accountable entity is the chief executive, then the people have lost some of their ability to effectuate quick change. As stated in Federalist 52, the House was made to have "an immediate dependence on, and an intimate sympathy with, the people." The Federalist No 52 at 324 (James Madison) (Clinton Rossiber ed, Signet Classics 1999). Thus, there were to be biennial elections. If the people's ability to influence executive agencies is limited to presidential election years, then a large part of their control over their government's administrative apparatus is lost, and they have fewer avenues to express their frustration with government policy.