American Medical Ass'n v. Reno

• Decision Date: 27 June 1995
• Docket Number: No. 94-5232,94-5232
• Citation: 57 F.3d 1129
• Parties: AMERICAN MEDICAL ASSOCIATION, et al., Appellants, v. Janet RENO, Attorney General, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1129

57 F.3d 1129

313 U.S.App.D.C. 44

AMERICAN MEDICAL ASSOCIATION, et al., Appellants, v. Janet RENO, Attorney General, et al., Appellees.

No. 94-5232.

United States Court of Appeals District of Columbia Circuit.

Argued May 15, 1995.

Decided June 27, 1995.

Appeal from the United States District Court for the District of Columbia (No. 93cv01189).

Mark E. Haddad argued the cause, Washington, DC, for appellants. With him on the briefs were Carter G. Phillips, Jonathan E. Nuechterlein and Jack R. Bierig.

Irene M. Solet, Atty., U.S. Dept. of Justice, argued the cause, Washington, DC, for appellees. With her on the brief were Frank W. Hunger, Asst. Atty. Gen., Eric H. Holder, Jr., U.S. Atty., and Michael J. Singer, Asst. Director, Appellate Staff, U.S. Dept. of Justice. Vincent M. Garvey and Sylvia T. Kaser, Counsel, U.S. Dept. of Justice, entered appearances.

Before: WALD, ROGERS and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge WALD.

WALD, Circuit Judge:

The American Medical Association, six other professional and trade organizations representing individuals and businesses subject to registration fees under the Controlled Substances Act, and two individuals who pay such fees (collectively, "the AMA") challenge the Drug Enforcement Agency's ("DEA" or "agency") increase of controlled substance registration fees on the grounds that the underlying rulemaking failed to provide adequate notice or explanation of the costs and scope of the diversion control program to be funded through those fees. We hold that the rulemaking was inadequate and that the rule must be remanded to the DEA for further proceedings in which the DEA provides both an opportunity for meaningful notice and comment on, and an explanation of, the components of the diversion control program.

I. BACKGROUND

A. Statutory Background

The Controlled Substances Act identifies five categories of "controlled substances"--drugs with a potential for abuse--and establishes a registration system for doctors, pharmacists, manufacturers, importers, and exporters who handle them. Under the Act, the DEA ¹ is authorized to register the handlers of controlled substances and to collect from them "reasonable fees relating to the registration and control of the manufacture, distribution, and dispensing of controlled substances." 21 U.S.C. Sec. 821 (Supp. V 1993). ² Pursuant to this authority, the DEA established what has become known as the diversion control program, carried out by its Office of Diversion Control.

Near the end of fiscal year 1993, Congress made the diversion control program self-financing. The Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act of 1993, Pub.L. No. 102-395, 106 Stat. 1828 (1992) ("1993 Appropriations Act") directed the DEA to set fees "at a level that ensures the recovery of the full costs of operating the various aspects of [the diversion control] program." 21 U.S.C. Sec. 886a(3) (Supp. V 1993). These fees are to be deposited in a separate "Diversion Control Fee Account" and refunded to the DEA "in accordance with estimates made in the budget request of the Attorney General for" each fiscal year. 21 U.S.C. Sec. 886a(4) (Supp. V 1993).

B. The DEA's Rulemaking

In order to implement the mandate of the 1993 Appropriations Act, the DEA issued a notice of proposed rulemaking indicating its intention to quadruple the fees assessed from each category of controlled substance handlers in order to fund the diversion control program. See 57 Fed.Reg. 60,148 (1992). The DEA did not explain in this notice how it had arrived at the total diversion control program budget to be recovered from fees. It simply asserted that "[t]he [overall] amount to be recovered is established by the Congressional appropriations process." 57 Fed.Reg. 60,148.

Several of the appellants in this case submitted a comment letter objecting to, among other things, the DEA's failure to enumerate the components of the diversion control program and to explain how it determined that a particular cost was properly attributed to that program. Letter to DEA Administrator at 1, 6 reprinted in Joint Appendix ("J.A.") at 55, 60. The notice, they charged, provided "no accounting of how the agency arrived at the proposed figures"; it failed to indicate the "specific activities" supported by the diversion control budget or "how the overall budget for the diversion control program was set or even who set it." Id. at 6, reprinted in J.A. at 60. The commenters further urged that certain items, if included, could not properly be charged to the handlers of controlled substances. They noted that the DEA's Office of Diversion Control carries out at least one function completely independent of the Controlled Substances Act--enforcement of the Chemical Diversion and Trafficking Act of 1988--and questioned the validity of recovering these costs through fees on controlled substance handlers. Id. at 4, reprinted in J.A. at 58.

In its final rule, the DEA again declined to identify in any detail the components of the diversion control program or its basis for attributing costs to that program. It provided only a generic and summary breakdown of the costs: "[t]he activities contained in the program which give rise to the fees consist of Diversion Investigators, analysts, technicians, and clerical personnel salaries and expenses; and travel, rent, utilities, supplies, equipment and services associated with these positions for the registration and control of the manufacture, distribution and dispensing of controlled substances." 58 Fed.Reg. 15,273 (1992). In response to the charge that it had inadequately explained how it arrived at the increased fee figures, the DEA pointed to the Attorney General's budget request: "[t]he legislation specifically mandates that the amount to be recovered shall be in accordance with estimates made in the budget request of the Attorney General. Within that budget request, the budget category 'Diversion Control Program' is clearly delineated." Id. The DEA did not, however, provide a copy of that budget request or direct the public to a copy. Indeed, the budget request remained confidential and thus unavailable for several weeks after the final rule was promulgated.

Moreover, although it asserted that the Attorney General's "Diversion Control Program" budget request offered a "clear delineat[ion]" of the diversion control program, the DEA simultaneously concluded that that request did not provide the accurate or final word on costs properly attributed to the fee-funded diversion control program. Id. at 15,273. To the contrary, the DEA, on the basis of a "re-review[ ]" prompted by appellants' comments, determined that the Attorney General's "Diversion Control Program" budget request included costs for chemical control efforts that were not properly included in the fee-funded diversion control program. The DEA agreed with commenters that Congress did not intend controlled substance handlers to be responsible for the cost of enforcement activities under the Chemical Diversion and Trafficking Act and thus reduced the Attorney General's "Diversion Control Program" request by the cost of the chemical control efforts in order to arrive at the total amount to be collected through fees. See id.

The AMA brought suit in district court challenging the validity of the fee-raising rule for, inter alia, failure to comply with the Administrative Procedure Act's ("APA") requirements of notice and reasoned explanation. The district court concluded that the notice and explanation were adequate, see American Medical Ass'n v. Reno, 857 F.Supp. 80 (D.D.C.1994), and the AMA appealed. On appeal, the AMA argues that the DEA was obliged to provide (1) a breakdown of the components of the diversion control program and (2) an explanation of the grounds on which it concluded that each component is properly deemed part of the diversion control program. With respect to the first element of its requested explanation, the AMA argues that the Attorney General's budget, even if it had been available on time, would not have been adequate, because it is inconsistent with the DEA's explanation in the final rule and because it fails to explain material facts--such as, for example, whether control of LSD, a drug with no approved medical use, is included within the program. ³

In response, and for the first time on appeal, the DEA argues that it had no obligation to identify the components of the diversion control program or its basis for attributing costs to that program in either its notice or its final explanation of the rule because the program's budget is "committed to agency discretion by law," 5 U.S.C. Sec. 701(a)(2) (1988), and need not conform to the APA's rulemaking requirements.

II. ANALYSIS

The APA requires an agency to provide notice of a proposed rule, an opportunity for comment, and a statement of the basis and purpose of the final rule adopted. 5 U.S.C. Sec. 553(b)-(c) (1998). These requirements, which serve important purposes of agency accountability and reasoned decisionmaking, impose a significant duty on the agency. Notice of a proposed rule must include sufficient detail on its content and basis in law and evidence to allow for meaningful and informed comment: "the Administrative Procedure Act requires the agency to make available to the public, in a form that allows for meaningful comment, the data the agency used to develop the proposed rule." Engine Mfrs. Ass'n v. EPA, 20 F.3d 1177, 1181 (D.C.Cir.1994); see also Connecticut Light & Power Co. v. NRC, 673 F.2d 525, 530-31 (D.C.Cir.) ("An agency commits serious procedural error when it fails to reveal portions of the technical basis for a proposed rule in time to allow for meaningful commentary."), cert. denied, 459 U.S. 835, 103 S.Ct. 79, 74 L.Ed.2d 76 (1982); Home Box Office, Inc. v. FCC, 567 F.2d 9, 55 (D.C.Cir.) (proposed rule must provide...