PHILADELPHIA CITIZENS IN ACTION v. SCHWEIKER

Rehearing and Rehearing In Banc Denied February 10, 1982.

OPINION OF THE COURT

ADAMS, Circuit Judge.

President Reagan signed into law the Omnibus Budget Reconciliation Act (OBRA), Pub.L.No.97-35, 95 Stat. 357, on August 13, 1981. OBRA was the product of a major, highly publicized, and vigorously debated effort by Congress and the President to reverse the growth of federal spending by systematically reducing the level of expenditures in a wide range of federal programs. In one of its many provisions, OBRA mandated major revisions in the Aid to Families with Dependent Children (AFDC) program, reducing or eliminating federal funding for state-administered AFDC benefits to many persons who until then were eligible to receive those benefits. Congress set October 1, 1981, as the date on which the changes were to take effect.

The Department of Health and Human Services (HHS), which is charged with administering the AFDC program at the federal level, issued rules on September 21, 1981, to implement the revisions in AFDC policy. 46 Fed.Reg. 46750-73. The Secretary of HHS declared these rules to be "interim rules" for a 60-day period, during which time the Department would entertain comments on them. The Department proposed to issue final rules at the end of that period, on November 20, 1981. The Pennsylvania Department of Public Welfare (DPW) promulgated state regulations implementing the provisions of OBRA on November 7, 1981, to be effective November 9, 1981. 11 Pa.Bull. 3954-82 (Nov. 7, 1981).

Philadelphia Citizens in Action (PCIA) and the Philadelphia Welfare Rights Organization (PWRO), two associations comprising recipients of various types of welfare benefits, filed suit in the Eastern District of Pennsylvania on October 30, 1981, alleging that the federal rules had not been promulgated in conformity with the Administrative Procedure Act (APA), 5 U.S.C. § 553. The organizations sought injunctive and declaratory relief against HHS and DPW to prevent them from taking any action based on the federal AFDC rules or any conforming state regulations. After a hearing, the district court issued an order on November 20, 1981, invalidating the rules adopted by HHS and enjoining the Commonwealth of Pennsylvania from "reducing and/or terminating AFDC benefits in reliance on either the invalidated federal regulations or the Pennsylvania regulations published November 7, 1981...." The effect of this order was to forestall implementation of the statutorily-mandated changes in AFDC policy and to subject Pennsylvania to the risk that its payment of benefits at the existing higher level would not be reimbursed by the federal government. The state and federal agencies applied to this Court for a stay of the district court's order. We declined to grant that request at that time, and instead ordered an expedited hearing schedule. On December 2, 1981, we heard oral argument on the merits of the appeal and at the conclusion of the argument issued a stay of the district court's order. We now decide that the district court erred in declaring the federal rules invalid and in enjoining the Pennsylvania rules. Accordingly, we reverse the order of the district court.

I.

Congress created the AFDC program in 1935, and established it in Title IV, Part A of the Social Security Act, 49 Stat. 627, codified at 42 U.S.C. §§ 601-676. The program is intended to promote the care of needy dependent children in their own homes or in those of relatives and to assist the parents or relatives with whom they live to attain self-sufficiency. See 42 U.S.C. § 601. Under the statutory program, benefits are paid and administered by those states that wish to participate in the program. A state that desires to participate must first obtain from HHS approval for its state plan, which must conform with the statutory requirements of Title IV and the HHS implementing rules. States that receive approval can obtain reimbursement from the federal government for more than half of the benefits paid and administrative expenses incurred under their plan. See 42 U.S.C. § 603.

The primary purpose of the OBRA amendments to the AFDC program is to reduce or eliminate welfare benefits for those considered by Congress to be less needy than those completely without resources — persons or households that have available other sources of income or resources with which to support themselves. The amendments are intended to accomplish this by a number of means: limits on the amount of a potential recipient's earned income to be disregarded in determining eligibility and grant size, Pub.L.No.97-35, § 2301; redefinition of a potential recipient's income and resources, § 2302; lower income limits on eligibility, § 2303; new treatment of lump-sum payments and earned income advances, §§ 2304, 2305; and several other approaches, §§ 2306-2320.

Under the Social Security Act, HHS is required to promulgate rules and regulations to effectuate the AFDC programs and provide guidance to states so that they may comply with federal requirements. 42 U.S.C. § 639. Following enactment of OBRA, HHS was obliged to issue new rules to meet the new requirements of the OBRA amendments. Aware before the Act was set in final form that OBRA would contain amendments to the AFDC program, HHS began taking steps towards the eventual promulgation of new rules as early as May 1981, when a study group was created to formulate plans for drafting new rules. In order to give the public and interested groups as much opportunity to provide input, on July 2, 1981, and again on July 21, HHS sent out requests for comments and ideas as to possible regulations to individuals and organizations including PWRO, one of the appellees in this case. Representatives of HHS met with representatives of the American Public Welfare Association (APWA) on July 13 and August 3, 1981, and worked out a rough preliminary draft of proposed rules that was sent to the states through the APWA on August 13, 1981.

On the same date, OBRA was enacted into law. HHS at that point had 49 days until October 1, 1981, the date by which the Act was to go into effect, to implement rules interpreting and applying the OBRA amendments, unless of course HHS was to postpone the effective date of the legislature beyond the date that Congress had mandated. Proposed rules were approved by the Secretary on September 3, 1981, twenty-one days after passage of the Act. Conferences were held by HHS for state administrators to discuss the statutory amendments and accompanying proposed rules on September 13 and 15, 1981. On September 21, 1981, the federal rules were published, 46 Fed.Reg. 46570, as interim rules for a 60-day notice and comment period. The rules took effect on October 1, 1981, the effective date of the statute. To a considerable extent the rules merely reiterated the statutory requirements and resolved relatively minor matters committed to the Department's discretion. During the 60-day period few comments on the rules were received by HHS. Indeed, no comment was received from the appellee organizations until November 19, 1981.

II.

A.

Appellees contend, and the district court held, that the Secretary's promulgation of its rules did not comply with the requirements of the APA, 5 U.S.C. § 553.1 Section 553 sets out the procedures that an agency must follow in promulgating rules, requiring that notice of proposed rules be published in the Federal Register and that a period of time be provided in which the public can comment on the proposed rules and suggest changes to the promulgating agencies before the proposed rules become effective.2 The asserted violation of this procedural requirement of the APA in the promulgation of the new federal AFDC regulations served as the basis for the district court's issuance of injunctive relief invalidating the federal rules as well as barring Pennsylvania from implementing its own regulations effecting the benefit cuts. The federal and state agencies do not contend that the procedures set out in section 553 for notice and comment were followed. Instead, they assert that because of a specific provision in the APA, HHS was not required in the circumstances present here to adhere to notice and comment procedures in this instance.

The APA provisions reflect a judgment by Congress that the public interest is served by a careful and open review of proposed administrative rules and regulations. The salutary effect of the APA has been widely noted. See, e.g., 1 K. Davis, Administrative Law § 6:1 (2d ed. 1978). Yet surely one of the more attractive features of this procedural innovation is that lengthy administrative procedures are not required inexorably or inflexibly in situations where they are unnecessary or even counter-productive. Instead, Congress has seen fit to craft a number of exemptions from and qualifications to the rulemaking procedures required under section 553. And while one might question, as does Professor Davis, the appropriate contours for any exceptions to APA requirements, see id. at §§ 6:30-6:33, the explicit judgment of Congress as to when administrative agencies may dispense with formal rulemaking procedures must be respected.

Initially, we note that Congress did not require that APA procedures be employed for implementation of the regulations in question here; instead, these procedures are implicated in this case by a policy of HHS itself. Section 553(a)(2) exempts from the statutory mandate of section 553 matters "relating to ... loans, grants, benefits, or contracts." This exemption specifically applies to rules and regulations, such as those in question here, that concern benefits under the AFDC program. See Rodriguez v. Swank, 318 F.Supp. 289, 295-96 (N.D.Ill.1970), aff'd, 403 U.S. 901, 91 S.Ct. 2202, 29 L.Ed.2d 677 (1971). However, the Secretary of HHS issued in 1971 a statement of policy that the Department would apply APA procedures in its rulemaking even when the exception for grants and benefits would make it clear that APA procedures were not required by statute. 36 Fed.Reg. 2532 (1971).3

B.

The appellants assert that under both the APA and the Secretary's policy they are exempted from notice and comment requirements in the situation here because there exists good cause for avoiding these procedures. In this respect they rely on § 553(b)(B), which provides that notice and comment procedures are not required:

In the regulations published on September 21, 1981, the Secretary made a specific finding that congressional concern with reducing government spending immediately and the short time Congress provided for implementation of the amendments — from August 13 to October 1 — made a full notice and comment procedure prior to implementation of the rules impracticable.4 In reliance on this statement and the rationale it incorporates, the Secretary argued before the district court and reiterates here that he had good cause to dispense with notice and comment procedures. The district court concluded that the Secretary's principal asserted rationale for good cause — that time did not permit a more extensive procedure — was insufficient as a matter of law to justify dispensing with the rule making procedures prescribed in section 553. We disagree.

This Court has twice considered the "good cause" exception to the APA. In American Iron & Steel Institute v. EPA, 568 F.2d 284 (3d Cir. 1977), we held that the Environmental Protection Agency (EPA) was not excused from compliance with the APA in promulgating regulations governing iron and steel manufacturing processes, even though the EPA asserted that a court order had imposed time constraints on the agency. We stated in that case that the good cause exception should be construed narrowly, and noted the legislative intent that "`"[i]mpracticable" means a situation in which the due and required execution of the agency functions would be unavoidably prevented by its undertaking public rulemaking proceedings.'" 568 F.2d at 292 (quoting S.Rep.No.752, 79th Cong., 1st Sess. 16 (1945)). Similarly, in Sharon Steel Corp. v. EPA, 597 F.2d 377 (3d Cir. 1979), this Court held that the EPA lacked good cause to circumvent notice and comment procedures in issuing air quality standards for four areas of Pennsylvania, even though the EPA asserted that Congress had imposed severe time constraints on the agency.5

The district court apparently inferred from these cases that, as a matter of law, shortness of time can never constitute good cause for invoking the section 553(b)(B) exemption. 527 F.Supp. at 188-190. We read the two cases more cautiously. In neither situation did we suggest that a lack of time would in every case fail to constitute good cause. At its extreme such a principle would make little sense. Indeed, such reasoning would eliminate the express provision which Congress has inserted in the APA. If Congress on October 1 ordered HHS to promulgate regulations by October 2, it is manifest that HHS would have good cause to do so without a notice and comment procedure. To rule otherwise would defeat a clear mandate of Congress because of procedural requirements that Congress undoubtedly did not mean to apply. The present case is somewhat less dire; Congress provided HHS with 49 days rather than one, and required promulgation of rules within that time only by implication rather than explicitly. Yet, if the present case differs from the suggested example, it is also quite different from the setting of Sharon Steel and American Iron and Steel.

In both of those cases, we concluded that the agencies that had waived notice and comment procedures could reasonably have fulfilled their statutory duties while carrying out those procedures. American Iron and Steel involved regulations that the EPA had been under order to promulgate from 1973 until 1976, a three year period, when the interim final rules were promulgated. No equivalent delay by HHS has been shown in the case before us.6 In Sharon Steel the EPA faced a somewhat constricted schedule set by Congress for promulgating rules based on state-submitted plans for implementation of the Clean Air Act, 42 U.S.C. § 7401-7626. Under the Act, the states were required to submit plans to the EPA by December 5, 1977, the Administrator of EPA had to review those plans by February 3, 1978, and the states had to implement the approved plans by January 1, 1979 — more than a year after the plans were submitted to the agency. The EPA argued that the time between the agency's receipt of the state plan and the completion of review by the agency did not permit notice and comment procedures to be followed in that review. We noted, however, that the agency could at least have published the state-submitted plans themselves, if not the agency's revision of those plans, within days of receiving the state-submitted plan, and thereby could have complied with the section 553 requirement that "either the terms or substance of the proposed rule or a description of the subjects and issues involved" be disclosed. The EPA could then have reviewed comments received on those proposed plans and issued final plans early enough so that the states would still have had ample time to implement them. 597 F.2d at 380.

HHS maintains that no such approach was available here. Even if HHS had been ready to publish a proposed set of rules on August 13 — an accomplishment difficult to imagine —7 the steps to be carried out before October 1 under the APA would have been virtually impossible: approval by the Secretary, publication in the Federal Register, receipt of, consideration of, and response to the proposed regulations by interested parties from all over the nation, receipt of comments by HHS, review of comments, modification of rules, final approval by the Secretary, clearance by the Office of Management and Budget, and final publication in the Federal Register. Yet if HHS — a department with responsibilities that go well beyond the promulgation of these particular rules — had failed to complete these tasks substantially in advance of October 1, so that all 50 states in turn could implement their own regulations with authoritative guidance from the federal government as the statute clearly requires, the October 1 effective date of the OBRA amendments would have been rendered ineffectual.

The appellees allege that Congress, in setting an October 1 effective date for the OBRA amendments, did not mandate that the AFDC rules actually be promulgated by that date. Although the district court did not expressly find that the states could have implemented their own AFDC plans without federal guidance, see 527 F.Supp. at 193, we are persuaded by the arguments of the appellants that at least nine of the interim rules invalidated by the district court involved matters of substantial HHS discretion that the states could not have resolved in the absence of federal regulations, see 527 F.Supp. at 196-199. The statute does require that the states be able to implement the OBRA amendments on October 1 unless special circumstances of a particular state warrant a waiver of that deadline. See Pub.L.No.97-35, § 2321(b). Consequently, the legislation must be construed as requiring HHS to provide states with reliable guidance at least on those discretionary issues in time for the states to implement the changes on October 1. Indeed, in light of the great attention Congress and the President gave to OBRA and the apparent urgency which they attributed to its implementation, it is clear that Congress meant for HHS to furnish the states with swift and reliable guidance in implementing the entirety of the OBRA amendments. We do not consider unreasonable the judgment of the Secretary that the states would be unable to rely with sufficient assurance on draft regulations or proposed rules while a notice and comment procedure was under way, and that they would require at least interim rules upon which they could rely.

Neither Sharon Steel nor American Iron and Steel — nor for that matter, any other decision brought to our attention — has held that good cause is lacking as a matter of law when an agency has been under congressionally-set time limits as stringent as those involved here.8 We believe that Congress, by setting an effective date so close to the date of enactment, expressed its belief that implementation of the amendments to the AFDC program was urgent. We cannot say that HHS, by paying heed to that congressional concern in its determination that it had good cause to promulgate interim final rules without full notice and comment, erred as a matter of law.9

We observe an additional distinction between this case and those involving the EPA: the source of the procedural requirement involved. In Sharon Steel, we noted that if an act of Congress presented totally foreseeable impediments to compliance with the mandate of the APA, Congress could be expected to state explicitly when the conflicting procedures can be disregarded. 597 F.2d at 380. In the absence of such a statement, it may often reasonably be inferred that Congress does not consider the burdens it has placed upon an administrative agency to constitute "good cause" for disregard of the notice and comment requirement. But in this case, as discussed above, the effective date of OBRA does not create a conflict with the APA itself, but with the policy of HHS waiving the benefit and grant exemption of § 553(a)(2). This is so since Congress specifically does not require notice and comment where grants or benefits are involved, and it is only the policy statement of HHS — itself containing a good cause exception — that presents any possible conflict with the mandate of OBRA. Congress surely is not obliged to state explicitly that statutes it enacts fit within exceptions to regulations or policies formulated solely by an administrative agency. Thus, congressional silence in this instance in no way reveals an intent on its part that the good cause exception not apply.

In short, if the appellees and the dissent are correct, and the HHS notice and comment policy did override the OBRA effective date, then these procedures would serve to postpone nationwide a major piece of legislation which Congress, after full public debate, had decided should be in place by October 1. Neither Sharon Steel nor American Iron and Steel involved procedural requirements that would forestall implementation nationwide of rules with little substantive effect beyond that of the statutory requirements they adhere to, on a date explicitly and recently set by Congress, relating to a comprehensive federal program.

C.

The district court held not only that HHS was legally in error in determining that good cause existed to dispense with notice and comment procedures, but also that the Department's determination of impracticability was erroneous and therefore "both arbitrary and an abuse of discretion." 527 F.Supp. at 190. In reaching this result, the district court recognized that the Department's determination was entitled to considerable deference by a reviewing court. As this Court stated in American Iron and Steel Institute v. EPA, 526 F.2d 1027, 1047 (3d Cir. 1975), "we must not substitute our judgment for that of the agency, but must determine whether the Administrator's actions were `arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.'" To make such a determination, a court "must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823-24, 28 L.Ed.2d 136 (1971).

The record does not support the district court's conclusion that the Department's determination of impracticability was so unsupported by evidence as to be "arbitrary" or otherwise improper under the above standard. The district court was of the opinion that a notice and comment procedure would have been feasible within the time allotted to HHS. It is perhaps arguable that the procedures suggested by the district court — publication of draft regulations on August 13, review of comments while final approval of the Secretary was obtained and other requisite steps were followed — might have been completed with adequate speed. But whether or not the district court's observation in this respect was "clearly erroneous," its after-the-fact suggestion of an alternate procedure which might have been successful is insufficient in this case to overcome the substantial evidence supporting HHS' judgment.10 And there is ample support on the record to justify the Department's determination in August — or in May — that procedures such as those later suggested by the district court were impracticable under the circumstances. Given the extremely short period available to the Department, the need for time carefully to review comments if the procedure is to be effective, and the period of 39 days in fact required by HHS to promulgate its rules even without a notice and comment procedure, we conclude that the determination of impracticability by HHS was completely reasonable, and hardly arbitrary. Because, for the reasons discussed above, we also have concluded that the determination by HHS was not incorrect as a matter of law, we hold that the district court erred in declaring the HHS rules invalid.11

III.

In its order, the district court went beyond a declaration that the federal rules were invalid; it also enjoined the Commonwealth of Pennsylvania from implementing its own state AFDC regulations reflecting the OBRA amendments. The only asserted ground for enjoining implementation of the Pennsylvania regulations was that those regulations were based on, and thus were "pervasively tainted" by, the purportedly invalid federal rules. 527 F.Supp. at 193-194. Pennsylvania challenges the injunction against it as unwarranted even if we were to agree that the HHS rules were procedurally defective, and raises several contentions in support of its challenge. It asserts that an injunction against implementation of its regulations works a severe hardship on the Commonwealth and its citizens, in that Pennsylvania is thereby forced to continue paying benefits at a higher level than that for which the federal government is authorized to reimburse it, even though Pennsylvania's conduct has been conceded by all to be proper.12 Pennsylvania also argues that even in the absence of valid HHS rules it was obliged, or at the very least authorized, to implement regulations of its own reflecting the OBRA amendments; it maintains that as long as its own regulations were promulgated in conformity with state procedural requirements, as it is conceded that they were, there exists no basis for an injunction.13 Finally, it contends that even if some of its regulations were correctly held to be so "tainted" by the HHS rules that the Pennsylvania regulations must fall with the federal rules, the district court could at most have invalidated only those particular state regulations that were demonstrably based on invalid federal rules and not the entire body of state regulations.

We are considerably troubled by the issues Pennsylvania raises. Even if we were to accept the analysis of the district court with respect to the HHS rules, we would find it difficult to explain why Pennsylvania, a party that has satisfied all procedural requirements in promulgating its own regulations, is the sole target of the district court's injunction and must bear the financial burden imposed by the court. Our concern is heightened by the claim that any state benefits paid now, in excess of the amount provided for by Congress, will deplete a fixed pool of money available for later benefits — in most cases to persons in a status of greater need than those losing benefits under the amendments at issue here.

We find it unnecessary, however, to decide whether the district court's rationale for enjoining enforcement of the Pennsylvania regulations was correct. Having decided that the federal rules are valid, it necessarily follows that nothing in those rules could "taint" and thereby invalidate the Pennsylvania regulations. We therefore hold that the district court's injunction must be withdrawn.

IV.

The consequences of the OBRA amendments for AFDC recipients are considerable. Many will lose their benefits altogether; many others will receive substantially smaller sums. Although it is the judgment of Congress that the affected families are less needy than those who remain eligible, it can hardly be denied that the termination of benefits will work a hardship on families already pressed by financial exigency. This is certainly a matter of public concern, and we respect the perseverance and dedication with which the appellee organizations have sought to protect the interests of their members in challenging these reductions in benefits.

Yet it bears emphasis, because the point is easily missed amid the concern over the reduction in benefits, that the validity of the benefit cuts is in no way before this Court. The reduction in benefits involved here is plainly required by OBRA — a fully debated act of Congress — and not by the implementing rules of HHS. To the extent that the appellees wish to comment on the desirability of benefit cuts, the time for such comments passed with the enactment of OBRA. At issue now are simply the rules of HHS implementing the clear statutory directive. HHS may not undo what Congress and the President have done; its discretion with respect to reducing benefits is quite narrowly defined. In judging the validity of the procedure by which its rules were promulgated, we must not be swayed by our views of the desirability of the underlying statutory policy that HHS is bound to implement.

We hold that the AFDC rules published on September 21, 1981, were necessary to comply with the mandate of Congress that the statute take effect on October 1, 1981, and that the Secretary had good cause, within the meaning of the APA and the HHS policy extending the APA to the rules in question, to dispense with a notice and comment procedure in order to promulgate the rules with the swiftness called for by Congress. We further hold that the district court erred in enjoining Pennsylvania from acting in reliance on its own state AFDC regulations. Accordingly, the order of the district court will be reversed.

A. LEON HIGGINBOTHAM, Jr., Circuit Judge, dissenting.

This case comes to us on appeal from an Order of Chief Judge Lord, dated November 20, 1981, which enjoins the state defendant, Secretary O'Bannon, from implementing state regulations passed pursuant to the Omnibus Budget Reconciliation Act (OBRA). Among other things, OBRA amended the Aid to Families with Dependent Children (AFDC) program to reduce or eliminate federal funding for a number of categories of previously eligible recipients under the state-administered AFDC program. Secretary Schweiker, alleging good cause under the Administrative Procedure Act (APA), dispensed with the notice and comment provisions of the APA. The gravamen of Chief Judge Lord's opinion is that good cause did not exist, either in law or in fact, and, consequently, the regulations promulgated by Secretary Schweiker were invalid. Further, because the state regulations promulgated by Secretary O'Bannon were virtually identical to the invalid federal regulations and looked in substantial part to an exercise of discretion by Secretary Schweiker for their substantive content, the federal defendant's violation of the APA could only be remedied by enjoining the state defendant whose role it is to administer the AFDC program.

The majority opinion concludes that Chief Judge Lord "erred in declaring the federal rules invalid and in enjoining the Pennsylvania rules." Majority Opinion, at 888. Because I believe that Chief Judge Lord's opinion was legally correct and not clearly erroneous on the issue of a federal violation, I dissent from the majority's reversal on this ground.

I.

The majority's recitation of the history of the AFDC program is sufficient and does not need to be repeated. What does bear repeating is the chronology of events regarding the promulgation of the federal regulations.

Congress enacted OBRA into law on August 13, 1981. In anticipation of the passage of OBRA, the Department of Health and Human Services (HHS) formed a study group in May of 1981. The group included federal and state officials and was charged with the duty of formulating a timetable to ensure timely promulgation of any necessary regulations. It was at this point, "almost six months before the actual effective date of OBRA, [that] HHS decided to avoid the usual notice and comment procedures mandated by the Administrative Procedure Act (APA), 5 U.S.C. §§ 500-576, and instead to issue interim final regulations implementing OBRA." District Court Opinion, at 185.

The effective date of OBRA was October 1, 1981. On July 22, 1981, HHS wrote to 32 interested organizations informing them that Congress had under consideration legislation which would affect AFDC. The letter solicited suggestions for regulations but did not contain any draft regulations. The letter requested written comments by August 7, 1981. Not surprisingly, only one of the 32 organizations responded and it complained of the short period of time and the proposed use of interim final regulations. The federal defendant made no effort to recontact any of the organizations after the draft regulations were developed.

HHS conducted conferences on September 13 and 15, 1981. Participation in these conferences was limited to state administrators. On September 3, 1981, Secretary Schweiker approved a proposed set of regulations which were then published in the Federal Register on September 21, 1981. The regulations were to take effect October 1, 1981 leaving only nine days for comment prior to OBRA's and the regulations' effective date.

The majority observes that "few comments on the rules were received by HHS. Indeed, no comment was received from the appellee organizations until November 19, 1981." Majority Opinion, at 880. Yet, as Chief Judge Lord wrote, "the uncontroverted testimony of Ms. Betty Van Dyke, a board member of the Philadelphia Citizens in Action, one of the plaintiffs here [revealed] that her organization did not comment during the post-publication comment period because of its view that the agency [HHS] had already made up its mind." District Court Opinion, at 192.

Pennsylvania, after reviewing the regulations in the Federal Register, promulgated regulations on November 7, 1981 with an effective date of November 9, 1981. Although based on the federal regulations, it is Pennsylvania's November 7, 1981 regulations which result in the complete cutoff of AFDC benefits to 17,840 households comprising 53,520 persons. An additional 23,950 households composed of 57,050 persons will have their AFDC benefits reduced an average $133.49.

II.

It is the appellees' contention that the federal defendant violated the APA when he elected to dispense with prior notice and comment.1 The relevant section of the APA states as follows:

Except when notice or hearing is required by statute, this subsection does not apply —

5 U.S.C. § 553(b). The appellants concede that § 553(b) is applicable to this case. Thus, the only issue presented under these facts regarding the APA is whether the federal defendant had good cause under § 553(b)(B) to dispense with notice and comment.

Chief Judge Lord concluded, after closely examining our decisions in Sharon Steel Corp. v. EPA, 597 F.2d 377 (3d Cir. 1979) and American Iron and Steel Institute v. EPA, 568 F.2d 284 (3d Cir. 1977), that, as a matter of law, the federal defendant lacked good cause. He reasoned as follows:

District Court Opinion, at 189-190.

The majority rejects Chief Judge Lord's conclusion by "read[ing] the two cases more cautiously." Majority Opinion, at 883. Their caution involves constructing a hypothetical case whereby "Congress on October 1 order[s] HHS to promulgate regulations by October 2." Id. They then conclude that, "it is manifest that HHS would have good cause to do so without a notice and comment procedure." Id. The critical flaw in the majority's hypothetical is the word "ordered." Of course, Chief Judge Lord recognized that if OBRA contained an express statutory override of the APA good cause would exist. The emphasis he added to the excerpt from Sharon Steel regarding an "express indication" demonstrates Chief Judge Lord's awareness of the majority's proposition. However, the fact remains that OBRA does not contain an "express indication" of such an intent by Congress.

The majority's attempt to narrow and distinguish Sharon Steel from the present case is also unpersuasive. In Sharon Steel, the EPA argued that the shortness of the period from December 5, 1977, when the states were required to submit Clean Air Act implementation plans, to February 3, 1978, when the EPA had to complete their review of the plans, necessitated dispensing with notice and comment. We rejected the EPA's argument because the EPA could have published the state-submitted plans upon receipt and this would have constituted sufficient notice of "either the terms or substance of the proposed rule or a description of the subjects and issues involved." 5 U.S.C. § 553.

In the present case, Chief Judge Lord found that "HHS made its decision to dispense with normal notice and comment procedures in May 1981, almost six months before the actual effective date of the statute." The majority does not assert that this finding is clearly erroneous. The facts here are less compelling for a finding of good cause than Sharon Steel. If a two month time period is not sufficient to overcome the narrowly construed good cause exception, I do not understand how an agency with six months can claim good cause. Similarly, there is no evidence to indicate that "`the agency functions would be unavoidably prevented by its undertaking public rule-making proceedings.'" American Iron and Steel, 568 F.2d at 292 quoting Senate Rep.No.752, 79th Cong., 1st Sess. 16 (1945) (emphasis in original).

The absence of any need to dispense with notice and comment is further demonstrated by Chief Judge Lord's independent factual findings. He found as follows:

District Court Opinion, at 191.

The standard of review for these findings is of course the familiar clearly erroneous standard. Krasnov v. Dinan, 465 F.2d 1298 (3d Cir. 1972). The majority does not contend that these findings of fact are clearly erroneous. Instead, they apply the abuse of discretion standard in an effort to skirt otherwise iron-clad factual findings. The majority's reliance on Universal Minerals, Inc. v. C. A. Hughes & Co., 669 F.2d 98 (3d Cir. 1981) for the proposition that the district court's findings are not subject to the clearly erroneous standard of review is misplaced. The Universal Minerals case concerned an appeal to our court "from an appellate decision of the district court, which reversed the judgment of a bankruptcy court in an adversary proceeding...." At 100. Because the district court was not sitting as a fact finder but rather was reviewing the bankruptcy court's findings of fact made after a full hearing, the rationale for applying the clearly erroneous standard, i.e., to give deference to the judge who has heard testimony and has made findings based on demeanor and credibility which are not apparent from a cold appellate record, did not exist. When the district court sits as an appellate court to review an administrative adjudicatory proceeding, "we are in as good a position as the district court to review the findings...." Universal Minerals, at 102. The present case, however, is very different from Universal Minerals. The district court was sitting as the initial trier of fact and did hear live testimony from HHS officials and from the plaintiffs. There was no adjudicatory proceeding below and the entire factual record was developed in the district court. HHS was rulemaking and not conducting an adversarial hearing which would then be subject to appellate review in the district court. It is axiomatic that the district court's findings of fact made after hearing the witnesses and observing the credibility of HHS officials cannot be reversed on appeal unless clearly erroneous. Fed.R.Civ.P. 52(a).

In my view, Chief Judge Lord was correct in following the dictates of our Sharon Steel and American Iron and Steel cases. His legal conclusions are sound and his factual findings not clearly erroneous. Consequently, I dissent from the majority's view that HHS had good cause under the APA to dispense with the procedural rights of notice and comment.

III.

The remedial aspect of Chief Judge Lord's opinion is a closer issue and raises a question of the district court's inherent power to fashion an effective remedy capable of making the injured party as nearly whole as possible.2 However, since the majority opinion declines to reach this issue, I will not address it.

The majority concludes that "... it can hardly be denied that the termination of benefits will work a hardship on families already pressed by financial exigency." Majority Opinion, at 888. To call cuts in a life sustaining benefits program a mere "hardship" is an understatement. Others have characterized the cuts as "The War Against the Poor." Although "Governors and Mayors understand the cuts; poor people feel them ... For poor people the issue is not an abstract matter of ideology...." N.Y.Times, Dec. 27, 1981, § E at 14. I agree with the majority that "[i]n judging the validity of the procedure by which its rules were promulgated, we must not be swayed by our views of the desirability of the underlying statutory policy that HHS is bound to implement." Id. at 888. I differ with the majority in that I do not believe that HHS was "bound to implement the policy" without proper notice or an opportunity to comment. In Sharon Steel we held that the steel companies which were polluting the air by their manufacturing process had a right to continue polluting the environment until they received from the federal government agency the procedural rights they were due under the APA. Similarly, I believe that 41,790 indigent families and 110,570 poor people have as much a right to the same type of procedural protection under the APA as the two steel companies did in Sharon Steel.