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BUSINESS LAW HOMEWORK NUMBER 4
ADMINISTRATIVE REGULATIONS
4-1. Rulemaking Procedures.
The Atomic Energy Commission (AEC) was engaged in rulemaking proceedings for nuclear
reactor safety. An environmental group sued the commission, arguing that its proceedings were
inadequate. The commission had carefully complied with all requirements of the Administrative
Procedure Act. The environmentalists argued, however, that the very hazardous and technical
nature of the reactor safety issue required elaborate procedures above and beyond those set forth
in the act. A federal court of appeals agreed and overturned the AEC rules. The commission
appealed the case to the United States Supreme Court. How should the Court rule? Discuss.
Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U.S. 519,
98 S. Ct. 1197, 55 L.Ed.2d 460 (1978)
4.2. Agency Investigations.
A state statute required vehicle dismantlers—persons whose business includes dismantling
automobiles and selling the parts—to be licensed and to keep records regarding the vehicles and
parts in their possession. The statute also authorized warrantless administrative inspections; that
is, without first obtaining a warrant, agents of the state department of motor vehicles or police
officers could inspect a vehicle dismantler's license and records, as well as vehicles on the
premises. Pursuant to this statute, police officers entered an automobile junkyard and asked to see
the owner's license and records. The owner replied that he did not have the documents. The officers
inspected the premises and discovered stolen vehicles and parts. Charged with possession of stolen
property and unregistered operation as a vehicle dismantler, the junkyard owner argued that the
warrantless inspection statute was unconstitutional under the Fourth Amendment. The trial court
disagreed, reasoning that the junkyard business was a highly regulated industry. On appeal, the
highest state court concluded that the statute had no true administrative purpose and impermissibly
authorized searches whose only purpose was to discover stolen property. The state appealed to the
United States Supreme Court. Should the Court uphold the statute? Discuss.
New York v. Burger, 482 U.S. 691, 107 S.Ct. 2636, 96 L.Ed.2d 601 (1987)]
4.3 Arbitrary and Capricious Test.
In 1977, the Department of Transportation (DOT) adopted a passive-restraint standard (known as
Standard 208) that required new cars to have either air bags or automatic seat belts. By 1981, it
had become clear that all of the major auto manufacturers would install automatic seat belts to
comply with this rule. The DOT determined that most purchasers of cars would detach their
automatic seat belts, rendering them ineffective. Consequently, the department repealed the
regulation. State Farm Mutual Automobile Insurance Co. and other insurance companies sued in
the District of Columbia Circuit Court of Appeals for a review of the DOT's repeal of the
regulation. That court held that the repeal was arbitrary and capricious because the DOT had
reversed its rule without sufficient support. The motor vehicle manufacturers, which initially had
wanted to avoid the costs associated with implementing Standard 208, then appealed this decision
to the United States Supreme Court. What will result?
Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Insurance Co., 463
U.S. 29, 103 S. Ct. 2856, 77 L.Ed.2d 443 (1983)
4.4 Judicial Review. American Message Centers (AMC) provides answering services to retailers.
Calls are automatically forwarded to AMC, which pays for the calls. AMC obtains telephone
service at a discount from major carriers, including Sprint. Sprint's tariff (a public document setting
out rates and rules relating to Sprint's services) states that the "subscriber shall be responsible for
the payment of all charges for service." When AMC learned that computer hackers had obtained
the access code for its lines and had made nearly $160,000 worth of long-distance calls, it asked
Sprint to absorb the cost. Sprint refused. AMC filed a complaint with the Federal Communications
Commission (FCC), claiming in part that Sprint's tariff was vague and ambiguous, in violation of
the Communications Act of 1934 and FCC rules. These laws require that a carrier's tariff "clearly
and definitely" specify any "exceptions or conditions which in any way affect the rates named in
the tariff." The FCC rejected AMC's complaint. AMC appealed the FCC's decision to a federal
appellate court, claiming that the FCC's decision to reject AMC's complaint was arbitrary and
capricious. What should the court decide? Discuss fully.
American Message Centers v. Federal Communications Commission, 50 F.3d 35 (D.C. Cir. 1995)