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1982

Administrative Equity: An Analysis of Exceptions

to Administrative Rules
Alfred C. Aman
Indiana University Maurer School of Law, [email protected]

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 ADMINISTRATIVE EQUITY: AN ANALYSIS OF
EXCEPTIONS TO ADMINISTRATIVE
RULES
ALFRED C. AMAN, JR.*

For many years courts have struggled to reconcile "life by strict

law with equity in the particular case." 1 They have tempered ostensi-
bly clear rules of law by invoking such substantive equitable principles
as estoppel, unjust enrichment, fraud, and duress.2 Courts have also
used their equitable powers to fashion broad remedial relief, particu-
larly when the legislature has abdicated its policymaking role. These
cases often involve structural injunctive relief designed to carry out the
mandates of the Constitution. 3 In exercising this kind of power, federal
courts have often used the due process and equal protection clauses of
the Constitution as broad delegations of legislative power to devise
rules and regulations to integrate schools, 4 to reform the conditions and
treatment of prisoners5 and mental patients, 6 to reapportion legislative
districts, 7 and to achieve other broad policy goals. 8
* Associate Professor of Law, Cornell Law School; A.B., University of Rochester, 1967;
J.D., University of Chicago, 1970. I would like to acknowledge my indebtedness to Professors
Greenhouse, Hanslowe, Kent, Lyons, Osgood, Polsby, and Summers, who provided helpful
comments and criticism. I would also like to thank Barry Wold and Richard Edwards, 1981
graduates of Cornell Law School, and Deborah Skakel and Hirokazu Tangiguchi, members of the
class of 1983 of Cornell Law School, for their valuable and dedicated research assistance.
1. See Summers, GeneralEquitablePrincples Under Section 1-103 ofthe Uniform Commer-
cial Code, 72 Nw. U. L. REV. 906 (1978).
2. See id.913-23.
3. See generally 0. Fiss, INJUNCTIONS 415-76 (1972).
4. See, e g., Swam v. Charlotte-Mecklenburg Bd. of Educ., 402 U.S. 1 (1971) (busing is one
of several remedies that can be used to achieve integration).
5. See e.g., Finney v. Hutto, 410 F. Supp. 251 (E.D. Ark. 1976), af'd, 548 F.2d 740 (5th Cir.
1977) (during punitive isolation of prisoners, it is unconstitutional to confine more than two pris-
oners to a single cell, deny prisoners reasonable and necessary medical care, put prisoners on a
"gruel" diet, or hold prisoners in isolation for more than 30 days).
6. See, eg., New York State Ass'n for Retarded Children, Inc. v. Carey, 393 F. Supp. 715
(E.D.N.Y. 1975) (approving the consent judgment settling the Willowbrook case, New York State
Ass'n for Retarded Children, Inc. v. Rockefeller, 357 F. Supp. 752 (E.D.N.Y. 1973), and reqtiiring
the institution to provide an individual "development plan" for patients and six hours of daily
activity related to individual objectives); Wyatt v. Stickney, 344 F. Supp. 373 (M.D. Ala. 1972),
af'dsub nom. Wyatt v. Aderholt, 503 F.2d 1305 (5th Cir. 1974) (holding that civilly committed
mentally handicapped persons have a "right to treatment" and that the Constitution requires a
minimum quality of care or treatment, even if the mentally handicapped person was confined only
because of his "need for care").
7. See, e.g., Baker v. Carr, 369 U.S. 186 (1962).
8. See, e.g., Gautreaux v. Chicago Housing Auth., 304 F. Supp. 736, 738-39 (N.D. Ill. 1969)
 DUKE LAW JOURNAL [Vol. 1982:277

The exercise of substantive and remedial equity is not confined

solely to federal and state courts, the usual domain in which it is stud-
ied, Administrative agencies have developed analogous principles and
processes to fulfill their various legislative mandates. Agencies at all
levels often seek to do equity in particular cases by entertaining re-
quests for exceptions to regulatory legislation or to agency rules. 9
There is a need for a procedural mechanism to consider individual re-
quests for exceptions to administrative rules of general applicability
even under relatively straightforward regulatory programs. Such a
mechanism is particularly necessary when the program in question in-
volves complex economic, environmental, health, and safety problems
that cut across several industries.
General rules cannot account for all possible situations. Given the
circumstances of a particular party in a particular case, a rule may de-
mand what is technologically or economically impossible, or it may re-
quire a party to incur regulatory costs that greatly outweigh the social
benefits of compliance. In some cases, compliance may actually under-
mine the purposes and goals of the rule itself. Similarly, an agency may
find that the intent of a rule can best be furthered by means that the
rule itself seemingly prohibits. 10 Usually, enabling acts or an agency's
own rules explicitly establish processes and criteria under which ad-
ministrators can do justice in individual cases." 1 Some courts have sug-

(ordering the Housing Authority to build its next 700 family units in predominately white areas
outside Chicago or in Cook County), modofed, Gautreaux v. Landrieu, 498 F. Supp. 1072 (N.D.
IUl. 1980). See generally Fiss, The Supreme Court, 1978 Term-Foreword"The FormsofJustice, 93
HARv. L. REV. 1 (1979).
9. In addition to requests for exceptions, agencies have other procedures, including interpre-
tations, rulings, and no-action letters, conforming broad regulatory rules to individual circum-
stances. For a discussion of these various procedural devices see text accompanying notes 36-49
infra.
10. See e.g. Occupational Safety and Health Act of 1970, 29 U.S.C. § 655(d) (1976), which
provides that an employer may obtain a permanent variance upon proof that "the conditions,
practices, means, methods, operations, or processes used.., by an employer will provide employ-
ment and places of employment to his employees which are as safe and healthful as those which
would prevail if he complied with the standard." See generally Morey, Mandatory Occupational
Safety and Health Standards--SomeLegalProblems, 38 LAW AND CONTEMP. PROBS. 584, 594-95
(1974).
11. Several statutes authorize an administrator to grant or deny adjustments to rules of gen-
eral applicability. Some statutes only authorize the administrator to grant exceptions to rules.
Such exceptions must be consistent with purposes of the act under which the rule was promul-
gated. See, e.g., Natural Gas Policy Act of 1978, 15 U.S.C. § 3412(c) (Supp. IV 1980). As com-
mentators have observed:
A key qualification in section 502(c) of the [Natural Gas Policy Act] is that relief
from a rule or order may be granted only if "consistent with the other purposes of this
Act. . . ." This factor is important because it clearly indicates that individual relief pro-
ceedings may not be viewed in isolation. In every case in which relief is granted, the
Vol. 1982:277] ADMINISTRd TIVE EQUITY 279

gested that the authority to grant exceptions to rules may be implied as

well.12

Commission must consider the full implications of the precedent it is setting, including
the size of the class of similarly situated persons and the policy implications of extending
relief to the entire class.
Noland & Penniman, The FERC Adjustments Process Under Section 502(c) of the Natural Gas
PolicyAct of 1978, 1 ENERGY L.. 79, 95 (1980).
Other statutes are less explicit but similarly authorize adjustments to certain rules. See, e.g.,
15 U.S.C. § 766(b) (Supp. IV 1980). Still other statutes authorize adjustments to explicit provi-
sions of the statutes itself. See, e.g., Powerplant and Industrial Fuel Use Act of 1978, 42 U.S.C.
§§ 8321, 8351 (Supp. III 1979),partialyrepealedby the Omnibus Reconciliation Act of 1981, Pub.
L. No. 97-35, 95 Stat. 357. Finally, the proposed bill to create an Energy Mobilization Board
would have established an agency whose primary responsibility would have been to waive or
exempt certain petitioners from a variety of legal requirements imposed by various federal, state,
and local statutes, rules, and regulations. See Priority Energy Project Act of 1980, S. 1308, 96th
Cong., 2d Sess., amended in conference, H. R. RaP. No. 96-119, 96th Cong., 2d Sess. (1980).
These statutes suggest equitable criteria that vary considerably. Some statutes set forth broad
criteria giving the administrator enormous discretion in applying the standards. A petitioner may
be entitled to adjustments to rules issued under statutes regulating the price and allocation of
domestic crude oil, for example, if he can show "special hardship, inequity or unfair distribution
of burdens." See Department of Energy Organization Act, 42 U.S.C. § 7194(a) (Supp. III 1979).
The Natural Gas Policy Act of 1978 uses the same standard for prices established for natural gas
both at the wellhead and at the consumer level. See 15 U.S.C. § 3412(c) (Supp. IV 1980). Other
acts specify more explicitly when adjustments should or should not be granted. See note 10 supra.
The Occupational Safety and Health Act provides that an employer may obtain a permanent
variance from a safety and health standard. The Secretary may also grant variances to allow
"reasonable variances, tolerances, and exemptions" from any provisions of the Act "as he may
find necessary and proper to avoid serious impairment of the national defense." 29 U.S.C. § 665
(1976). Finally, under OSHA, an employer may receive a temporary variance (not more than one
year, renewable twice) on proof that "he is unable to comply with a standard by its effective date
because of unavailability of professional or technical personnel or because necessary construction
or alteration of facilities cannot be completed by the effective date." Id. § 655(b)(6)(A). For a
general discussion of variance provisions within OSHA, see Currie, OSHA, 1976 AM. B. FoUND.
RESEARCH J. 1107, 1151-53.
Several other statutes also provide for exceptions, variances, modifications, or exemptions.
See, e.g., Federal Trade Traffic Safety Act, 15 U.S.C. §§ 1410, 1417 (1976); Federal Mine Safety
and Health Act of 1977, 30 U.S.C. § 81 l(c) (Supp. III 1979); Coal Mine Health and Safety Act of
1969, 30 U.S.C. §§ 811(e), 814(g) (Supp. III 1979); Federal Water Pollution Control Act Amend-
ments of 1972, 33 U.S.C. § 1342 (1976); Safe Drinking Water Act, 42 U.S.C. § 300g-4 (1976);
Nuclear Non-Proliferation Act of 1978, 42 U.S.C. § 2155a (Supp. III 1979); Clean Air Act
Amendments of 1970, 42 U.S.C. § 7410 (Supp. III 1979); Shipping Act of 1916, 46 U.S.C. §§ 814,
833a (1976); Communications Act of 1934, 47 U.S.C. §§ 203(b)(2), 214(a) (1976) (common carri-
ers) and 47 U.S.C. §§ 316, 359 (1976) (radio); Interstate Commerce Act, 49 U.S.C. § 304(a)(4a)
(1976); Federal Aviation Act of 1958, 49 U.S.C. §§ 1386(b)(1), 1421(c) (1976).
Finally, the agencies' own rules or policy statements often provide exceptions authority and
criteria. See, e.g., F.P.C. Order No. 467, discussedin Pacific Gas & Elec. Co. v. FPC, 506 F.2d 33,
52 (D.C. Cir. 1974) ("The priorities-of-deliveries set forth above will be applied to the deliveries of
all jurisdictional pipeline companies during periods of curtailment on each company's system;
except, however, that upon a finding of extraordinary circumstances... exceptions to those pri-
orities may be permitted.")
12. See, eg., WAIT Radio v. FCC, 418 F.2d 1153 (D.C. Cir. 1969), cert. denied, 409 U.S.
1027 (1972):
 DUKE LAW JOURATAL [Vol. 1982:277

This article will develop the concept of administrative equity by

showing that certain equitable forces, often thought to be outside the
law, are very much at work in the regulatory arena and that exceptions
granted to rules of general applicability are not necessarily random in
nature. Exceptions tend to fall within a number of categories and are
grounded on distinct equitable norms. This article provides a rhetori-
cal map of the equitable maxims that make up the terrain of adminis-
trative equity. These maxims do not necessarily represent principles of
justice, but they do articulate administrators' reasons-largely im-
plicit-for granting or denying exceptions. An examination of the
norms that underlie these maxims suggests an ongoing dialogue among
market, regulatory, and agency values that allows contradictions within
regulatory schemes and between regulatory schemes and market forces
to coexist. In conclusion, this article demonstrates how administrative
equity might operate within regulatory settings that rely heavily or ex-
clusively on market forces.

I. ADMINISTRATIVE EQUITY

A. The Concept and Development.

Administrative equity serves as a bridge between collectively de-
termined rules and the reality of the particular case. It refers to the
substantive principles and norms that may justify individual exceptions
to rules of general applicability. Administrative equity is thus prima-
rily concerned with the impact of a regulatory scheme on those re-
quired to bear the regulatory costs. An entity whose pollution exceeds
the maximum level allowed under a certain regulation may, for exam-
ple, seek a temporary exemption from compliance while the necessary
pollution-control equipment is installed.' 3 Similarly, an oil producer
bound by maximum pricing regulations may seek an exception to these
rules when the regulated price is so low that it is no longer profitable to
operate certain wells. 14 The principles used by regulators to grant or
[A]n application for waiver has an appropriate place in the discharge by an administra-
tive agency of its assigned responsibilities. The agency's discretion to proceed in difficult
areas through general rules is intimately linked to the existence of a safety valve proce-
dure for consideration of an application for exemption based on special circumstances.
418 F.2d at 1157 (citations omitted). The court also noted that "provision for waiver may have a
pivotal importance in sustaining the system of administration by general rule." Id. at 1158. See
also United States v. Storer Broadcasting Co., 351 U.S. 192, 204-05 (1956) (quoting National
Broadcasting Co. v. United States, 319 U.S. 190, 225 (1943)). But see FCC v. WNCN Listeners
Guild, 450 U.S. 582, 601 n.44 (1981).
13. See notes 100-107 infra and accompanying text.
14. Many of the examples of administrative equity are drawn from the defunct oil price and
allocation controls program authorized §§ by the Emergency Petroleum Allocation Act of 1973, 15
U.S.C. §§ 751-760 (1976) (amended 1974, 1975, 1976, 1980). This program was administered by
Vol. 1982".277] ADMINISTRATIVE EQUITY

deny such requests constitute administrative equity. These principles

allow the administrator "to rectify the shortcoming. . of the lawgiver
5
due to the generality of his statement."'
Administrative equity thus differs from the equitable justifications
for regulating in the first instance. 16 It may be argued, for example,
that to allow the price of United States oil to be set at the world price
would be inequitable because domestic producers would reap windfall
profits as a result of the actions of a foreign cartel. 17 Similarly, it may
be argued that governmental protection is necessary to bolster the bar-
gaining power of consumers or employees whose position is inherently
inequitable visa vis large corporate entities. 18 The concept of adminis-
trative equity does not, however, provide a rationale for instituting a
general regulatory scheme; rather, administrative equity is concerned
with "a rectification of law where law falls short by reason of its univer-
sality"l 9 -however equitable the overall purpose of the universal or
general rules involved.
The development of administrative jurisdiction over cases chal-
lenging the applicability of general rules to particular situations is
analogous to the development of jurisdiction in the English Court of
Chancery over two types of cases described by Professor Maitland.

the Federal Energy Agency, whose functions were later incorporated into the Department of En-
ergy. For a procedural history of this program, see Aman, Institutionalizingthe Energy Crisis:
Some Structural and ProceduralLessons, 65 CORNELL L. REv. 491, 526-44 (1980).
The oil price and allocation program spawned a very active exceptions process for a number
of years and developed an elaborate jurisprudence of exceptions. See, e.g., TASK FORCE ON RE-
FORM OF FEDERAL ENERGY ADMINISTRATION, FEDERAL ENERGY ADMINISTRATION REGULA-
TION 107-37 (P. MacAvoy ed. 1977).
15. ARISTOTLE, NICOMACHEAN ETHics, Book 5, at 142 (M. Ostwald trans. 1962).
16. Assessing the wisdom of congressional legislation and administrative rules themselves is
beyond the scope of this article. Professor Newman has commented on the various meanings of
the word "equity":
The relationship between law and equity in modem times has never been clearly estab-
lished, and the nature of equity remains shrouded in mystery. The search for the mean-
ing of justice which began in the corridors of the Academy of Athens is still an
unfinished story. Much of the uncertainty which surrounds the meaning of equity is due
to the fact that law must balance the interests of the individual against the interests of
society and each set of interests is differently affected by moral codes....
It is probably because of dichotomy between the goals of social order and individual
justice that the word "equity" and its various synonyms are used in two widely different
senses; in the general sense of what is fair and just which is the objective of all law, and
in the specific sense of an element of law which introduces distinctive ethical values into
the legal norms.
EQUITY INTHE WORLD'S LEGAL SYSTEMS 15 (R. Newman ed. 1977).
17. See, e.g., Windfall Profits Tax andEnergy Trst Fund-HearingsB'efore the House Comm.
on Ways and Means, 96th Cong., 1st Sess. 19 (1979) (statement of Treasury Secretary William
Blumenthal reciting this argument for a windfall profits tax).
18. See generally Breyer, Analyzing Regulatory Failure: Mismatches,Less RestrictiveAlterna-
tives, andReform, 92 HARv. L. REv. 549, 559 (1979).
19. ARISTOTLE, supra note 15, at 142.
 DUKE LAW JOURJVAL [Vol. 1982:277

One type involved petitions that sought justice in individual cases from
or against the "king":
Many of these petitions ...seek for justice not merely from the
king but against the king. If anybody is to be called the wrong doer,
it is the king himself. For example, he is in possession of land which
has been seized by his officers as an escheat while really the late ten-
ant has left an heir. Now the king can not be sued by action-no
writ will go against him; the heir if he wants justice must petition 20
for
it humbly. Such matters as these are referred to the Chancellor.
In the administrative context, the king appears in the form of a
secretary, commissioner, or administrator. The "injustices" perpe-
trated by the king usually involve the imposition of excessive or unnec-
essary regulatory costs arising from allegedly overbroad rules. In
theory, petitions challenging administrative rules of general applicabil-
ity lie against the administrative king; however, when the challenge is
that the rule as applied to a particular entity is unreasonable, the likeli-
hood of prevailing on the merits is slight. The "king" cannot be effec-
tively sued in cases in which the complaint is that the general should
not apply to the particular.
Seeking individual exceptions to administrative rules is similar to
the development of Chancery jurisdiction over a second type of case
described by Professor Maitland. In these cases, the Chancellor inter-
vened because the petitioner could not obtain an effective remedy at
common law: "Very often the petitioner requires some relief at the
expense of some other person. He complains that for some reason or
another he can not get a remedy in the ordinary course of justice and
yet he is entitled to a remedy." 2 ' Although in the administrative setting
such claims are brought against the "king" rather than against another
individual, often the relief granted is "at the expense of some other
person." If, for example, one firm is allowed to sell its oil at a price
higher than its competitors' prices, or is allowed additional time to in-

20. F. MAITLAND, EQUITY, 4 (A. Chaytor & W. Whittaker eds. rev. by J., Brunyate 1936).
21. Id. 4-5. Professor Maitland tells of the way such petitioners often described themselves:
He is poor, he is old, he is sick, his adversary is rich and powerful, will bribe or will
intimidate jurors, or has by some trick or some accident acquired an advantage of which
the ordinary courts with their formal procedure will not deprive him. The petition is
often couched in piteous terms, the king is asked to find a remedy for the love of God
and in the way of charity.
MAITLAND, supra note 20, at 4. In fact, legal historians have noted that Chancery jurisdiction did
not arise because of the piteous terms in which the petitioners described themselves and thus the
need to do equity in any general sense, but primarily from the need to address two serious defi-
ciencies in the common law: its refusal to recognize uses and the requirement of a seal. See, e.g.,
Avery, The History of the EquitableJurisdictionof Chancery before 1460, BULL. INST. HIsT. RE-
SEARCH 129, 134-35 (1969). It is in this sense that the inability of judicial review to deal effectively
with specific problems caused by valid administrative rules and statutes is analogous to the devel-
opment of Chancery jurisdiction.
Vol. 1982:277] ADMINISTR4 TVE EQUITY

stall pollution control devices, relief is in effect at the expense of those

to whom the general rules continue to apply-the petitioner's competi-
tors. Moreover, just as the inadequacy of the common law courts to
provide necessary remedies contributed to the rise of the English Court
of Chancery, 22 the inadequacy of judicial remedies for administrative
equitable claims gives rise to a similar institutional need in modem
times.
The inability of judicial review of administrative action to provide
individualized relief is attributable to established constitutional and ad-
ministrative law doctrines. Legislatures enjoy enormous discretion
when devising regulatory statutes, particularly in the area of economic
regulation. When a litigant asserts that an economic regulation is un-
constitutional, the test applied is whether there is a rational basis for
the legislature's action.2 3 The use of a rational-basis test almost ensures
that the statute will be upheld. Thus, attacks on the overall reasonable-
ness of an economic regulatory statute almost never succeed. 24 There is
usually no basis for constitutional attack when economic legislation is
classified in a plausible way, despite its unequal impact on some or its
unreasonableness as applied to a particular party. In extreme cases, a
constitutional claim of taking might lie, but the likelihood of success in
such cases is remote. 25 Generally, courts look to the26overall scope and
purpose of the statute, not to its individual impact.
Similarly, the substantive validity of rules promulgated by an
agency traditionally has been subject to a two-pronged test that
presumes the validity of the rule.27 The first question is whether the

22. See note 21 supra.

23. See Railway Express Agency v. New York, 336 U.S. 106 (1949).
24. See Williamson v. Lee Optical Co., 348 U.S. 483 (1955). Courts have seldom invoked the
doctrine of substantive due process in the context of economic regulation since the demise of
Locbner v. New York, 198 U.S. 45 (1905). See Nebbia v. New York, 291 U.S. 502 (1934).
25. See Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922). Although PennsylvaniaCoal
is still good law, "government regulation of commercial and industrial activity is today seldom, if
ever, found to constitute a taking where the regulation can rationally be related to the protection
of public health or some other substantial public welfare objective." R. STEWART & J. KRIER,
ENVIRONMENTAL LAW AND POLICY 455 (2d ed. 1978). See South Terminal Corp. v. EPA, 504
F.2d 646 (Ist Cir. 1974), where the court stated:
First, a particular use of a parcel of property may be regulated or forbidden. Second, all
uses of a parcel may be forbidden. Third, a right to use or burden property in a particu-
lar and permitted way may be transferred from the original owner to another person, or
to a governmental body. Only the second and third situations are thought of as takings
today.
Id. at 679.
26. See, e.g., Railway Express Agency v. New York, 336 U.S. 106 (1949); Mapco Inc. v.
Carter, 573 F.2d 1268 (Temp. Emer. Ct. App.), ceri. denied 437 U.S. 904 (1978).
27. See Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415-16 (1971). Over the
years, numerous bills have been submitted in Congress which, if passed, wouldremove this pre-
 DUKE LAW JOURA,TAL [Vol. 1982:277

rule is within the agency's authority, as set forth in its enabling act. If it
is, the rule is upheld unless it is "arbitrary and capricious and an abuse
of discretion. '28 A corollary of the arbitrary-and-capricious standard is
the maxim that "courts will not substitute their judgment for that of the
administrator." 29 As a result, substantive attacks on the statute author-
izing the regulation or on the rules promulgated pursuant to that stat-
ute usually have little chance of success. 30 Though the king can be
sued, it is often fruitless to try to invalidate a statute or a rule on the
ground that it affects one or a few of those who are otherwise validly
regulated in an arguably unreasonable manner.
There are, of course, other ways to challenge the validity of a rule
as applied. The interested party can engage in prohibited conduct, be
prosecuted, and then raise his peculiar circumstances as a defense. The
kinds of claims the accused may wish to make, however, are not likely
to constitute a valid substantive defense to an enforcement action, but
will be more in the nature of a plea for mercy at the sentencing stage.31
This plea for mercy is cold comfort for those who believe that economic
survival compels them to disregard or "aggressively interpret" the law
involved.

sumption of validity. See, ag., S. 111, 96th Cong., 1st Sess. (1979); S. 86 95th Cong., 1st Sess.
(1977); S. 2408, 94th Cong., 1st Sess. (1975). This proposal is commonly known as the "Bumpers
Amendment." It has stirred up a good deal of opposition for several reasons. See, e.g., Wood-
ward & Levin, In Defense of Deference: JudicialReview ofAgency Action, 31 AD. L. REv. 329
(1979). To the extent this proposal is, in fact, based on the need to "force agencies" to think
through all of the effects of a rule, including its impact on various industries and firms within
those industries, an active exceptions process may be a preferable way of ensuring the fine tuning
that any regulatory program requires. Indeed, given the inherent limitations of general rules,
however carefully conceived and crafted, providing for administrative equity would deal with
problems of overbreadth and unnecessary cost without undermining so basic a premise of the
administrative process as the presumption of validity of agency rules.
28. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 404 (1970); 5 U.S.C. § 706(2)(A)
(1976).
29. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 404, 416 (1970).
30. Although the chance of success is slight, some attacks are effective. See, e.g., Home Box
Office, Inc. v. FCC, 567 F.2d 9 (D.C. Cir.), cert. denied,434 U.S. 829 (1977). Such cases are rare.
But see S. BREYER & R. STEWART, ADMINISTRATIVE LAW AND REGULATORY POLICY 289 n.86
(1979) ("There are signs that courts in recent years have been somewhat more willing to invalidate
agency decisions as 'arbitrary and capricious' than previously, a development which may reflect
the recent tide of criticism of agency 'failure', and growing skepticism of administrative claims of
'expertise.' ").
31. See, eg., Department of Energy guidelines explaining why the retroactive relief excep-
tion should be judiciously granted: "One of the principal policy considerations underlying the
...stringent position concerning retroactive exceptions is the danger that retroactive exceptions,
by tending to ratify violations of the FEA Regulations, may diminish the incentive which firms
...have to learn the applicable law and even encourage noncompliance with the law." 41 Fed.
Reg. 50,856, 50,861-62 (1976).
VCol. 1982"277] ADMINISTR4 TIVE EQUITY

Pre-enforcement judicial review offers a solution to the obey-or-

be-prosecuted dilemma and an alternative to agency exception relief as
well. Courts have limited this type of review, however, by requiring
that litigants exhaust administrative remedies before seeking pre-en-
forcement review.3 2 Even when pre-enforcement judicial, review is
scope of the issues that may be raised usually is limited to
available, the 33
issues of law.
Finally, there is a disguised way of challenging the applicability of
a rule to a particular situation. One may raise procedural issues that
apply to rulemaking in general, but that are really the result of substan-
tive concerns. Such procedural challenges are often made to delay the
application of a rule as much as to create an opportunity for a more
favorable substantive result.34 To the extent that administrative equita-
ble processes eliminate the need for some of these claims, the regula-
tory process benefits.
In short, courts generally have not been receptive to legal argu-
ments that seek to invalidate a rule, particularly when the claim is that
the rule in question appears unreasonable when applied to one or a few
of those it regulates. Such claims seldom rise to constitutional dimen-
sions and rarely enable a court to conclude that the agency acted in an
arbitrary or capricious manner. If such a "petitioner wants justice, he
must petition for it humbly. Such matters as these are referred to the
Chancellor. ' 35 Just as equitable remedies were needed because com-
mon law remedies were often unavailable or too inflexible, administra-
tive equity of a substantive nature is necessary because individualized
judicial remedies are usually not available, pre-enforcement judicial re-
view is often too limited, and prosecution is too high a price to pay for

32. See, e.g., Abbott Laboratories v. Gardner, 387 U.S. 136 (1967). Even so, pre-enforcement
judicial review seems to be occurring with increasing frequency. See generally Allen, Thoughts on
the Jeopardy of Rules of Long Standing to ProceduralChallenge, 33 AD. L. REa. 203 (1981). In-
volving courts earlier in the oversight process demonstrates the need for administrative exceptions
procedures, just as the legislative attempts to strip rules of their presumption of validity do.
Though pre-enforcement claims often involve a procedural challenge to rulemaking, the actual
complaint usually involves the substantive impact of a rule on a particular entity:
[I]t weighs heavily on those whose interests are directly affected. In the classical case it
puts all the members of an industry in a dilemma. They must either comply with the
regulation at some substantial cost or ignore or defy it and thereby court an enforcement
proceeding; the end result of that proceeding may be monetary penalties or other serious
sanctions. No specific provision for judicial review covers the case. The companies, or
some of them, invoke the general or special federal question jurisdiction of a district
court and ask it to enjoin enforcement of the regulation and to declare it invalid.
Id. 203-04.
33. See Abbott Laboratories v. Gardner, 387 U.S. 136 (1967).
34. See, eg., Vermont Yankee Nuclear Power Corp. v. National Resources Defense Council,
Inc., 435 U.S. 519 (1978).
35. MAITLAND, supra note 20, at 4.
 DUKE LAW JOURNAL [Vol. 1982:277

noncompliance, particularly when it is unclear what may be pleaded as

a defense. Many regulatory systems provide an explicit means of seek-
ing equitable relief.

B. "The Forms of EquitableAction."

Administrative equity takes many forms. For example, the De-
partment of Energy Act confers specific power on the Secretary to
make "adjustments" to rules of general applicability. 36 The term "ad-
justment" includes exceptions, exemptions, modifications, recissions,
and intepretations. 37 Similarly, other agencies provide opportunities
for waiver,38 no-action letters, 39 variances, 40 or rulings. 41 All of these
"adjustments" provide, in lieu of enforcement proceedings, mecha-
nisms for giving special meaning to rules of general applicability in
particular cases.
Administrative adjustments fall into two broad categories. Some
are in the nature of declaratory judgments or advisory opinions. Rul-
ings or interpretations, for example, generally determine whether a par-
42
ticular regulation applies to a certain set of facts and, if so, how.
Usually, these determinations are made before any action has been
taken and apply only to the petitioner. Similarly, rescissions and modi-
fications apply to particular orders and particular petitioners.43 The

36. 42 U.S.C. § 7194(a) (Supp. III 1979).

37. Id.
38. See, eg., 47 U.S.C. §§ 203(b)(2), 316(a) (1976) (modification); 47 C.F.R. § 1.3 (1981)
(waiver procedure). See generally Anthony, Towards Simplicity and Rationality in Comparative
BroadcastLicensingProceedings,24 STAN. L. REV. 1, 90-91 (1971).
39. See, e.g., FED. SEC. L. REP. (CCH) 66,481.10, stating the request procedure for a no-
action letter under 17 C.F.R. § 200.81 (1981).
40. See, eg., 29 U.S.C. § 665 (1976).
41. [Code Vol.] FED. TAXES (P-H) 26,708 (authorization for rulings under section 7805 of
the Internal Revenue Code). For an example of a typical ruling, see 110.222 I.R.S. Letter Rulings
(CCH) LTR 8121003, January 26, 1981 (Nat'l Office Technical Advice Memorandum applying
Code Sec. 2503(b) and holding that the gift of nonvoting common stock is a gift of a present
interest that qualifies for the annual exclusion provided by section 2503(b)).
42. See note 41 supra. The Federal Energy Administration defined "interpretation" as "a
written statement... in response to a written request, that applies the regulations, rulings, and
other precedents previously issued, to the particular facts of a prospective or completed act or
transaction." 43 Fed. Reg. 14,436, 14,437 (1978).
43. See 10 C.F.R. § 205.135(b) (1981), which provides:
(b) Criteria. (1) An application for modification or rescission of an order shall be
processed only if--(i) the application demonstrates that it is based on signiflcahtly
changed circumstances; and (ii) the 30-day period within which a person may file an
appeal has lapsed or, if an appeal has been fied, a final order has been issued. (2) For
purposes of this subpart, the term "significantly changed circumstances" shall mean-(i)
the discovery of material facts that were not known or could not have been known at the
time of the proceeding and action upon which the application is based; (ii) the discovery
of a law, regulation, interpretation, ruling, order or decision on appeal or exception that
was in effect at the time of the proceeding upon which the application is based and
Vol. 1982".2771 ADMINISTRATIVE EQUITY

second category of adjustments is similar to an injunction. The peti-

tioner does not seek a clarification of how a rule applies; he seeks an
order that the rule does not apply to him at all. In effect, this adjust-
ment enjoins application of the rule to the petitioner. 4
Injunction-like adjustment processes are similar to law suits that
seek to declare a statute unconstitutional as applied. 45 A statute may
be valid on its face, but when applied it may influence activity that it
was not intended to affect. Administrative rules can fall into a similar
category. A rule may be valid on its face, and it may be properly
promulgated; however, when applied to a particular petitioner or to a
particular set of facts, it may cause "special hardship," "inequity," or
an "unfair distribution of burdens. '46 Rigid adherence to the rule may
not even advance the regulatory goals of the program. Though such
concerns rarely rise to constitutional dimensions, they do raise serious
questions within a regulatory framework. Indeed, if strict application
of the rule does irreparable harm to the petitioner and fails to accom-
plish any significant regulatory goals, the rule may well be "unconstitu-
tional" within the regulatory framework that gave rise to it.47
Like injunctive relief, adjustments such as exceptions or variances
are usually prospective. 48 Retroactive relief is relatively rare and usu-
ally occurs only when the agency's own administrative delays make
such relief appropriate. 4 9 The petitioner thus need not confront the di-
lemma of either violating the law and risking prosecution or obeying
the law and incurring the hardship that compliance may cause. An
exception allows pre-enforcement equitable relief at the administrative
level without the risk of prosecution.

which, if such had been made known to the FEA, would have been relevant to the pro-
ceeding and would have substantially altered the outcome; or (iii) there has been a sub-
stantial change in the facts or circumstances upon which an outstanding and continuing
order of the FEA affecting the applicant was issued, which change has occurred during
the interval between issuance of such order and the date of the application and was
caused by forces or circumstances beyond the control of the applicant.
44. The Department of Energy thus defined "exception," for the purpose of the defunct oil
price and allocation controls program, as "the waiver or modification of the requirements of a
regulation, ruling or generally applicable requirement under a specific set of facts." 10 C.F.R.
§ 205.2 (1981). Of course, exceptions can also function like advisory opinions, particularly when
they are denied.
45. See, e.g., Steffel v. Thompson, 415 U.S. 452 (1974) (attempted application of a criminal
trespass statute to petitioners engaged in valid, first amendment activities).
46. See, eg., 42 U.S.C. § 7194(a) (Supp. III 1979).
47. See authorities cited at note 186 infra.
48. See, eg., 41 Fed. Reg. 50,856, 50,861 (1976) (standards for granting retroactive exception
relief are very stringent).
49. Id.
 DUKE LAW JOURNTAL [Vol. 1982:277

C. The Rise in the Need ForAdministrative Equity.

Administrative-exceptions processes are not recent phenomena.
Even under the simplest regulatory programs, the difficulty of formu-
lating general rules that will properly and fairly apply to countless fac-
tual settings requires a regulatory fine-tuning capability. This
capability has long been a part of the regulatory landscape.50 When
agencies have granted such exceptions, hbwever, the relief has usually
been narrow and applicable only to the petitioner.5' A strong case can
be made for the need for a more active and more principled exceptions
process in all regulatory areas.
Much of the regulation passed during or shortly after the New
Deal is quite specific, compared to more recent regulation.5 2 The Civil
Aeronautics Board was established to regulate airlines; 53 the Federal
Communications Commission dealt with communications; 54 the Fed-
eral Power Commission, at least initially, focused on natural gas pipe-
lines and on wholesale electric utility rates;5 5 and the Securities 56
Exchange Commission focused primarily on the securities industry.
The Interstate Commerce Commission, a forerunner of these agencies,
first focused primarily on railroads and only later on trucks and oil
pipelines.57 These agencies regulate primarily on a case-by-case basis
and are directly responsible for the preservation and furtherance of
"the public interest." 58 This usually translates into a concern not only

50. The classic example of variances or exceptions in an administrative context is their use in
zoning. The generality of local zoning ordinances requires the fine-tuning capability that use and
area variances provide and helps prevent devaluation of property. See generally 3 R. ANDERSON,
AMERICAN LAW OF ZONING §§ 18.01-18.58 (2d ed. 1977); Comment, Variance Law in New York:
An Examination andProposal,44 ALB. L. REv. 781 (1980).
51. This was clearly not the case, however, with the exceptions process administered by the
Department of Energy during the era of oil price and allocation control regulation. An elaborate
jurisprudence regarding exceptions developed over time, in large part because those processes
were extremely active. Those processes became a primary policy-making device for the DOE. See
generally Departmentof Energy GasolineAllocation Program:HearingsBefore the PermanentSub-
comm. on Investigationsofthe Senate Comn on GovernmentalAffairs, 96th Cong., 2d Sess. (1980);
see also Madison, OHA's Goldstein: A BureaucraticMastermind, Legal Times of Wash., July 9,
1979, at 5, coL 1; Burdick, Obscure, Bristly Energy Official: A Power Center, Legal Times of
Wash., July 31, 1978, at 1, col. 2.
52. See generally Jones, Government PriceControls andInflation: A PrognosisBased On the
Impact of Controls in the Regulated Industries, 65 CORNELL L. REV. 303 (1980).
53. Civil Aeronautics Act of 1938, 49 U.S.C. § 1324 (1976).
54. Communications Act of 1934, 47 U.S.C. § 151 (1976).
55. Natural Gas Act of 1938, 15 U.S.C. § 717 (1976); Federal Power Act of 1920, 16 U.S.C.
§ 792 (1976).
56. Securities Exchange Act of 1934, 15 U.S.C. § 78d (1976).
57. Interstate Commerce Act of 1887, 49 U.S.C. § 11 (1976); Hepburn Act of 1906, 49 U.S.C.
§ 1 (1976); Motor Carrier Act of 1935, 49 U.S.C. § 304 (1976).
58. See Jones, supra note 52, at 313-18.
Vol. 1982".277] ADMINISTR.AIVE
v4952J EQUITY

for the welfare of consumers, but for the welfare of the regulated indus-
59
tries as well.
Recent regulatory programs are more diffuse. Problems-such as
health, safety, and the environment-are perceived not on an industry-
by-industry basis, but on a societal or even global basis. These broad
problems often elicit governmental action that cuts across industry lines
as well as state, national, and international boundaries. Although some
industries are more likely than others to create safety, health, or envi-
ronmental problems, these problems are not industry-specific. More-
over, certain economic regulation, such as the price and allocation
controls imposed on the petroleum industry for ten years and those
presently in effect in the natural gas industry, applies to so diverse a
group that attempts to establish sensible industry-wide regulation inev-
itably meets with a variety of "bad-fit" problems. Economic regulation
of this sort seeks to replace the market, not simply to solve specific
market failures. The magnitude of such regulatory tasks, in the eco-
nomic as well as in the health, safety, and environmental spheres, is
enormous. Much of this regulation has required such an elaborate sys-
tem of rules, regulations, and bureaucracy that it approaches a form of
"supergovernment."
When Congress enacts statutes and erects bureaucracies to regu-
late many industries, the responsibilities of the agencies grow broader
and more complex. Agencies face the dilemma of devising rules spe-
cific enough to be meaningful, yet general enough to fit a variety of
situations. The broader the regulatory task, the greater the likelihood
that unforeseen situations will arise and thus, the greater the need for
regulatory fine-tuning. Apart from the complexity that arises from the
diversity and breadth of the industries to which the regulations apply,
there are also enormous substantive and interpretive difficulties. Igno-
rance compounds complexity when agencies must deal with such issues
as the long-run effects of low-level radiation, cost-benefit calculations
involving the value of a human life, or the "appropriate" regulated
price for a nonrenewable fossil fuel. The complexity of these issues
creates a need to experiment on a case-by-case basis, particularly when
the agency is entrusted with a regulatory task that, in truth, no one
knows a great deal about. Adopting a general rule followed by a series
of exceptions that fine tune and shape the rule as more knowledge is
acquired may be the most sensible way to carry out an extraordinarily
60
difficult regulatory task.

59. See authorities cited at note 209 infra.

60. See, ag., 29 U.S.C. § 655(b)(5) (1976) (OSHA regulation of toxic substances). What is
and what is not carcinogenic is by no means easy to determine. See also Currie, Rulemaking
290 DUKELAWJOURATAL [Vol. 1982:277

Other reasons that increase the need for active exceptions

processes include the abandonment, in some areas, of traditional New
Deal approaches to the delegation of legislative power and a related
decline in the deference accorded agency expertise in general. The
New Deal approach to regulation usually has been characterized by
broad, often nebulous delegations of legislative power which represent
the end result of the political bargaining process. These broad delega-
tions are usually coupled with heavy congressional reliance on agency
expertise. 61 A decline in trust in the wisdom of government in general
and in the efficacy of bureaucracy in particular, as well as an overall
perception of governmental failure may, in part, account for the de-
crease in broad delegations of authority to agencies; however, there are
a number of more tangible factors that make administrative action sus-
pect. Inflation has made the cost of regulation increasingly apparent,
particularly in the 1980's, an era characterized by a "Great Inflation"
rather than a "Great Depression. ' 62 In some cases, as in controlling
the price of oil, the international dimensions of the problem make ef-
fective regulation impossible. 63 In addition, technological change may
necessitate new regulatory approaches. 4 Most importantly, there is
growing recognition that many fundamental agency decisions are not
capable of scientific precision, but are inherently political in nature.65
This realization has helped undermine the aura of expertise surround-
66
ing agency decisionmaking.

Under the Illinois PollutionLaw, 42 U. CH. L. REv. 457, 480-85 (1975). Moreover, it has taken
OSHA a remarkably long time to promulgate rules in this area. But see notes 169-75 infra and
accompanying text for the procedural problems this approach can lead to if used to excess.
61. See Stewart, The Reformation of,4merican 4dministrativeLaw, 88 HARV. L. REV. 1667,
1676-81 (1975).
62. Address by A. E. Kahn, reprinted in VIJTIENDE VLAAMS WETENSCHAPPELUK ECON.
CONG. 11, 18-21 (April 8-May 9, 1981).
63. There are no easy solutions to problems such as "cleaning up our rivers and air" because
increasingly we are dealing with problems that are international in scope and beyond any regula-
tor's power, no matter how we structure the solution. For example, oil price controls failed to fully
control the price of oil because over 40% of oil used in the United States came from beyond our
borders. The international scope of regulatory problems diminishes agency control of an issue
and, consequently, the ability of an agency to please at least some constituencies.
64. For example, the ability to transmit electricity long distances without significant loss of
energy makes for greater competition at the generation stage and raises the possibility of deregula-
tion of this aspect of the electric utility industry. See Essay, Efficiency and Competition in the
Electric-PowerIndustry, 88 YALE L.J. 1511, 1511-14 (1979).
65. See Industrial Union Dep't v. American Petroleum Inst., 448 U.S. 607, 671-88 (1980)
(Rehnquist, J., concurring); Ackerman & Hassler, Beyond the New Deal: Coal and the Clean Air
Act, 89 YALE L.J. 1466 (1980).
66. See generally, Industrial Union Dep't v. American Petroleum Inst., 448 U.S. at 721-23
(1980) (Marshall, J., dissenting); 45 Fed. Reg. 5002 (1980) (OSHA formal policy for regulating
carcinogens); R. SMITH, THE OCCUPATIONAL SAFETY AND HEALTH AcT 59-71 (1976); Aman,
supra note 14, at 526-32; Berger & Riskin, Economic and Technological Feasibilityin Regulating
Vol. 1982:277] ADMINISTR4 TIVE EQ_ UITY

As a result of perceived deficiencies in the regulatory arena, Con-

gress has recently tried to control or check bureaucracy where possible,
to abolish it where appropriate, and to reform it where necessary. One
method of congressional control over regulation is to make more spe-
cific delegations of legislative power. There is some evidence, particu-
larly in the energy and environmental fields, that Congress is adopting
a stricter approach to delegation. The Natural Gas Policy Act of
1978,67 for example, rejects the "just and reasonable" formula of gas-
rate regulation set forth in the 1938 Natural Gas Act. 68 Instead, it fa-
vors legislatively setting the maximum prices for natural gas over a
seven-year period with certain adjustments. 69 Similarly, the Natural
Gas Policy Act sets forth certain curtailment priorities for future natu-
ral gas shortages. 70 This contrasts with the 1938 Natural Gas Act that
simply directed the Federal Power Commission to set "just and reason-
able rates" and, by implication, to develop reasonable curtailment
plans if necessary. 7' The Clean Air Act Amendments of 1977 also pro-
vide for a more substantive role for Congress. 72 Such statutory provi-
sions rival in complexity and detail the rules and regulations
promulgated by the agency that carries out these regulatory tasks.
Though increased congressional involvement may represent a
more responsible legislative approach, it can create enormous imple-
mentation problems. Specific statutes as well as specific rules generate
the need for exceptions. Specific statutes make exceptions processes es-
pecially necessary because it is much more difficult to amend a statute
73
than to repeal or replace a rule.

Toxic Substances Under the OccupationalSafety andHealth Act, 7 ECOLOGY L.Q. 285; Pederson,
FormalRecordsandInformalRulemaking, 85 YALE L.J. 38 (1975); Stewart, Paradoxesof Liberty,
Integrity and Fraternity: The Collective Nature of Environmental Quality and JudicialReview of
Administrative Action, 7 ENVTL. L. 463, 469-72 (1977).
67. 15 U.S.C. §§ 3301-3432 (Supp. IV 1980).
68. 15 U.S.C. §§ 717c-717d (1976).
69. The Natural Gas Policy Act of 1978 has much more detailed pricing provisions than does
the 1938 Natural Gas Act. See 15 U.S.C. §§ 3311-3320 (Supp. IV 1980).
70. See 15 U.S.C. §§ 3391-3392 (Supp. IV 1980).
71. See generally FPC v. Louisiana Power & Light Co., 406 U.S. 621 (1972).
72. See Clean Air Act Amendments of 1977, 42 U.S.C. §§ 7401-7626 (Supp. III 1979) (con-
taining provisions such as section 7409(a)(1)(A) which directs the Administrator to "publish pro-
posed regulations proscribing a national primary ambient air quality standard and a national
secondary ambient air quality standard for each air pollutant for which air quality criteria have
been issued prior to such date"). See generally Ackerman & Hassler, supra note 65.
73. For example, the Powerplant and Industrial Fuel Use Act of 1978, 42 U.S.C. §§ 8301-
8483 (Supp. III 1979),partiallyrepealedby Omnibus Budget Reconciliation Act of 1981, Pub. L.
No. 97-35, 95 Stat. 357, provides for exceptions to its mandate that powerplants shift from gas or
oil to coal. Sections 8321-8322 (exemptions for new facilities) and 8351-8352 (exemptions for
existing facilities) of this statute are very explicit. These sections allow an exemption to the statu-
tory requirement that powerplants use coal rather than natural gas or petroleum if:
 DUKE L4WJOURiV4L [Vol. 1982:277

Another aspect of recent regulation creates an increased need for

administrative equity. Though the need for administrative equity is
not confined to what has been described above as "supergovernment,"
such regulatory regimes, in particular, require the flexibility that excep-
tions processes provide. Even a carefully drafted rule can suddenly be-
come obsolete or appear unnecessarily harsh if the conditions that gave
rise to it significantly change. Gas allocation rules promulgated at a
time of acute shortage may not be appropriate at a time of relative
abundance. Even when a wholesale change in the rules or outright de-
regulation may be in order, exceptions processes permit a less drastic,
yet effective, short-run regulatory response. For broad regulation to
work effectively, it must often adopt not only substantive market-ori-
ented approaches, but certain procedural aspects of the market as well,
including the ability to shift gears quickly as circumstances demand.
74
Some may argue that certain areas of the common law are dead,
but the need for common law case-by-case decisionmaking lives on.
However, if exceptions to rules are freely and easily granted, with little
or no regard for principle, the "inner morality of law" may be jeopard-
ized.75 Exceptions may not only swallow rules but may leave little or
no coherent policy or common law rule in their place. In extreme
cases, such processes may result in a patternless collection of cases that
grant or deny privileges on an arbitrary basis. Ironically, an arbitrary
exceptions regime would be characterized not by too much law, but by
no law at all.76 Thus, it is important to explore the scope of administra-
tive exceptions processes to determine whether that scope is limited by
definable equitable principles or norms.

despite diligent good faith efforts:

(1) it is likely that an adequate and reliable supply of coal or other alternate fuel of
the quality necessary to conform with design and operational requirements for use as a
primary energy source, will not-be available to such powerplant or installation at a cost
(taking into account associated facilities for the transportation and use of such fuel)
which, based upon the best practicable estimates, does not substiantially exceed the cost,
as determined by rule by the Secretary, of using imported petroleum as a primary energy
source;
(2) one or more site limitations exist which would [not] permit the operation of such
a powerplant or installation using coal or any other alternate fuel as a primary energy
source; or
(3) the prohibitions of sections 8311 or 8312 of this title could not be satisfied with-
out violating applicable environmental requirements.
Id. § 8321(a); see id § 8351(a).
74. As Professor Gilmore observed, "we are told that Contract, like God, is dead. And so it
is. Indeed the point is hardly worth arguing anymore." G. GILMORE, THE DEATH OF CONTRACT
3 (1974).
75. L. FULLER, THE MORALITY OF LAW 38-40 (rev. ed. 1969).
76. Id.
Vol. 1982:277] l DMINISTRA TIVE EQUITY

II. THE EXCEPTIONS PROCESS

Exceptions to administrative rules need not be granted or denied
on a random basis, nor is the scope of exceptions processes necessarily
without limits. For the most part, exceptions are limited not only by
the usually vague statutes that authorize them, 77 but also by certain
definable equitable principles and the norms that underlie those princi-
ples. The purposes of this section are: (1) to identify various categories
of exceptions; (2) to discuss the equitable maxims and norms that un-
derlie these categories; and (3) to suggest the contours of these excep-
tions by assessing their containability and their fundamental goals.

A. General Categories f Exceptions.

Three broad categories of exceptions relief emerge. These are
hardship exceptions, fairness exceptions, and policy exceptions. Hard-
ship exceptions focus primarily on the individual characteristics of the
particular petitioner and, to a large extent, most decisions to grant or
deny such exception requests turn on facts peculiar to the petitioner.
Fairness exceptions also focus on the peculiar plight of the individual
petitioner, but particularly on the petitioner's relationship to the regu-
latory goals of the program and on the comparative impact that pro-
gram has on similarly situated regulated entities. The fairness and
reasonableness that determine the fairness exceptions infuse the regula-
tory system with an unwritten "constitution." Policy exceptions, on the
other hand, are less concerned with the plight of the individual peti-
tioner and focus primarily on the overall goals of the regulatory pro-
gram. The petitioner's regulatory burden is neither unique nor
particularly severe compared to other regulated entities. Policy excep-
tions often allow the agency to implement a new or refined policy on an
experimental basis.
Policy exceptions are not based primarily on the need to modify a
general rule in light of particular circumstances. They are not, there-
fore, truly equitable exceptions. Nevertheless, all three categories of
exceptions often overlap and should be examined together. Even
purely equitable exceptions, for example, have policy ramifications.
Moreover, a weak equitable case is often buttressed by a favorable pol-
icy result. Conversely, an unacceptable policy result may undermine a
particularly strong equitable case. The overall goals and purposes of a
regulatory program are a policy backdrop to virtually every exception
decision, whether the decision is purely equitable, purely policy, or
somewhere in between. In short, these general categories of exceptions

77. For a discussion of exception-creating statutes, see note 11 supra.

 DUKE LAW JOURNJAL [Vol. 1982:277

are not necessarily mutually exclusive. In many cases various catego-

ries of exceptions may properly be invoked.

B. Hardsho Exceptions
Exceptions may be granted because compliance with the rule in
question would create a substantial hardship. There are four types of
hardship exceptions: economic, technological, legal, and medical.
1. Economic Hardshp.
Maxim: Equity will not allow the application of a particular regula-
tion to force a firm out of business or to render a piece of
property valueless unless the social benefits of compliance
with that regulation outweigh the severe costs to the
petitioner.
Economic-hardship exceptions' are usually generated by such stat-
utory criteria as "serious hardship," "special hardship," or similar
terms. 71 Such exceptions are not available, however, merely on an alle-
gation that the costs of individual compliance are "severe' or "unrea-
sonable." To establish a prima facie case for this exception, the
petitioner must allege that the costs are so great that the economic via-
bility of the firm or the value of a piece of property is in grave jeopardy.
The petitioner must also show that the threatened shutdown or eco-
nomic loss is caused by the regulation in question and that his circum-
stances are unique. 79
Zoning use variances provide the classic example of this kind of
equitable exception. Courts have long required that before a use vari-
ance be granted, the record must show:
(1)[that] the land in question cannot yield a reasonable return if used
only for a purpose allowed in that zone; (2) that the plight of the
owner is due to unique circumstances and not the general conditions
in the neighborhood which may reflect the unreasonableness of the
zoning ordinance itself; and (3) that the use to be authorized 0by the
variance will not alter the essential character of the locality.
Similar formulations of the standards necessary to obtain an ex-
ception or variance are found in complex environmental and energy
legislation. Rather than the value of a piece of property, however, the
economic viability of a firm is in question. The economic plight of the
firm must be unique and, just as zoning cases require that a variance
78. See note 84 infra.
79. In extreme cases, a taking claim based on the 14th amendment might also lie. See note 25
su.Pra.
80. 3 R. ANDERSON, supra note 50, § 18:15 at 172, cliing Otto v. Steinhilber, 282 N.Y. 71, 76,
24 N.E.2d 851-53, 16 N.Y.S.2d 71, 76 (1939).
Vol. 1982:277] ADMINISTA TIVE EQUITY

not seriously affect the overall character of the neighborhood, the pro-
posed exception must not undercut the underlying policy goals of an
environmental or energy statute. The costs of forcing a firm to shut
down must exceed the overall regulatory benefits that compliance with
the regulation would provide.
The Federal Water Pollution Control Act"1 thus provides for vari-
ances from effluent limitations with respect to individual point sources
on a showing that "such modified requirements (1) will represent the
maximum use of technology within the economic capability of the owner
or operator; and (2) will result in reasonable further progress toward
elimination of the discharge of pollutants."8 2 Similarly, the Natural
Gas Policy Act of 1978 (NGPA)8 3 requires the Federal Energy Regula-
tory Commission (FERC) and other agencies that help implement nat-
ural gas price controls to establish procedures "for the making of such
adjustments, consistent with the other purposes of this chapter as may
be necessary to prevent special hardship, inequity, or an unfair distri-
'8 4
bution of burdens."
In administering the NGPA, the FERC has entertained several ad-
justment requests, including exceptions based on economic hardship.
In the Penn-Dixie Steel Corp.85 application, for example, the petitioner
sought interim and permanent exception relief from the incremental
86
pricing regulations published pursuant to Title II of the NGPA.
These regulations required Penn-Dixie to pay a premium price for the
natural gas it used under its boilers. In granting interim exception re-
lief to Penn-Dixie pending a full review of the merits, the commission's
order noted:
On April 7, 1980, Penn-Dixie Steel and its parent company,
Penn-Dixie Industries, each ified petitions for reorganization under

81. 33 U.S.C. §§ 1251-1376 (1976 & Supp. Il 1979).

82. Id. § 1311(a)-(c). The extent to which variances are authorized was argued in EPA v.
National Crushed Stone Ass'n, 449 U.S. 64 (1980) ("best practicable control technology currently
available" variance based on economic capability was not allowed under the Federal Water Pollu-
tion Control Act Amendments of 1972).
83. 15 U.S.C. §§ 3301-3432 (Supp. IV 1980).
84. Id. § 3412(c). Cf. Federal Energy Administration Guidelines, 41 Fed. Reg. 50,856 (1976)
(establishing "serious hardship criteria" for granting exceptions).
85. No. SA81-12-000, 14 F.E.R.C. f 62,098 (F.E.R.C. Jan. 30, 1981) (available April 2, 1982,
on LEXIS, Genfed library, Energy file) (hereinafter cited No. SA81-12-000).
86. See 15 U.S.C. § 3341 (Supp. IV 1980). Incremental pricing is an attempt to assign the
cost of higher-priced new gas to particular users who Congress believes should be discouraged
from using natural gas. Rather than rolling in the cost of the more expensive gas and charging
everyone a slightly higher average price, incremental pricing fixes the fuel cost of new or imported
natural gas on certain classes of users. For a general discussion of this approach, see Aman &
Howard, NaturalGas and Utility Rate Refomr Taxation Through Ratemaking?, 28 HASTINGs L.
Rav. 1085, 1127-39 (1977).
 DUKE LAW JOURNL [Vol. 1982:277

Chapter XI of the Federal Bankrupcy Code. . . . Penn-Dixie Steel

states that anticipated incremental pricing surcharges of approxi-
mately $400,000 in 1981 will jeopardize both 87
its planned return to
profitability and its plans for reorganization.
In Vertac Chemical Corp.,8 the applicant was scheduled to be in
bankrupcy proceedings when the incremental pricing provisions of the
NGPA were to take effect. As the hearing examiner noted:
Vertac estimates that its monthly gas costs will increase by $141,800
due to incremental pricing. It asserts that this obligation, when cou-
pled with certain environmental costs it claims must be incurred, will
cause the type of hardship requisite for relief. It claims that, due to
competition from both foreign and domestic fertilizer manufacturers,
it will be forced to absorb these increased costs rather than being able
to pass them on to its customers .... 89

The hearing examiner concluded that:

[I]n view of the extreme financial distress that currently befalls
Vertac, the existence of an ongoing Order of Discharge in Ban-
krupcy, and the level of incremental surcharges that the Commission
Staff estimates might be incurred without relief, the Commission
finds that a special hardship may result to Vertac without exemptive
relief.9 0
A regulation may have an adverse impact on a particular firm be-
cause of the regulation's favorable impact on competitors of that firm.
This adverse impact may also produce economic hardship. In New
EnglandPetroleumCorp,9 l (NEPCO), for example, the petitioner fied
for exception relief from the Federal Energy Administration, a prede-
cessor agency of the Department of Energy. 92 NEPCO alleged that the

87. No. SA81-12-000, supra note 85. But see Alabama Gas Corp., No. SA80-37, 10 F.E.R.C.
62,109 (F.E.R.C. Feb. 8, 1980) (available April 2, 1982, on LEXIS, Genfed library, Energy file)
(petitioner unsuccessfully argued that incremental pricing regulations would allow underbidding
by alternative fuel suppliers, resulting in economic hardship. The presiding officer denied the
exception request, noting that the harm was speculative, not actual).
88. No. SA80-62, 12 F.E.R.C. 61,234 (F.E.R.C. Aug. 29, 1980) (available April 2, 1982, on
LEXIS, Genfed Library, Energy file).
89. Id LEXIS at 5-6.
90. Id See also American Petrofina Co., No. SA 80-90, 13 F.E.R.C. 62,151 (F.E.R.C. Nov.
10, 1980) (available April 2, 1982, on LEXIS, Genfed library, Energy file) (at Americana's current
contract price the installation of compression and dehydration facilities would have resulted in
special hardship to Americana. Consequently, the hearing examiner granted Americana's request
for an exemption from the rules mandating a maximum price level for the kind of contractual
arrangement Americana had).
91. [1975-1976 Transfer Binder] ENERGY MOMT. (CCH) (3 FEA) 83,015 (Nov. 17, 1975).
92. The Federal Energy Administration was created in 1974 and had exclusive control of the
oil price and allocation program authorized by Congress in 1973 in the Emergency Petroleum
Allocation Act. See 15 U.S.C. §§ 761-786 (1976). When the Department of Energy was created,
FEA was absorbed into it. Exceptions and other adjustment requests were handled by the Office
of Hearings and Appeals, a part of the Department of Energy. For a complete discussion of the
creation of these agencies, see Aman, supra note 14, at 491.
Vol. 1982".277] ADMINISTR4 TIVE EQUITY

implementation of the crude oil entitlements program 93 was much

more beneficial to one of its competitors than to it. NEPCO proved
that it faced serious economic difficulties and could not effectively com-
pete without exception relief. Its refinery operations had become un-
profitable, and a strong possibility existed that it would be forced to
terminate its activities in the residual fuel oil market if the exception
relief sought were not granted.94 Specifically, NEPCO asked for addi-
tional entitlements on its imports of residual fuel oil so that it could
remain a viable competitor in this market. The Administrator granted
the requested relief, reasoning that:
NEPCO has played an important role in the highly concentrated
East Coast residual fuel oil market and has been a strong, independ-
ent competitor in that market for some time. The elimination of
NEPCO from its historic position would certainly have a significant
adverse impact on the structure of the residual fuel oil market in the
eastern United States and would tend to frustrate the Congressional
objectives relating to competition in the petroleum industry set forth
in the Emergency Petroleum Allocation95
Act of 1973 and the Federal
Energy Administration Act of 1974.
Thus, exception relief not only kept NEPCO solvent, but was in
accord with the more general regulatory goals of the program-to en-
courage a diverse and competitive market structure. 96 Noting the diffi-
culty of ascertaining the future of the regulatory program, the

93. The entitlements program was developed pursuant to the Emergency Petroleum Alloca-
tion Act of 1973, see note 14 supra. The program was extremely complicated, but its overall goal
was simple: to ensure that all refiners incurred the same average crude oil cost. The program
provided for entitlements allotted to refiners on a monthly basis. The entitlements were to be
determined as follows:
[E]ach [refiner] receives a number of entitlements equal to the number of barrels of price
controlled oil it would run if the percentage of controlled oil in its total crude oil input
were the same as the national average. If the percentage of controlled oil exceeds the
national average, the refiner must purchase additional entitlements from some other re-
finer which was given more entitlements than needed for the amount of controlled oil in
its refinery runs.
SENATE COMM. ON GOV'T AFF., 95TH CONG., 2D SESS., STUDY ON FEDERAL REGULATION 733,
753 (Comm. Print .1978).
94. [1975-1976 Transfer Binder] ENERGY MGMT. (CCH) (3 FEA) 83,015 at 83,052-53. Spe-
cifically, NEPCO alleged that:
[Blecause its refinery operations have become extremely unprofitable, it has increased its
purchase of residual fuel oil on the spot market in order to fulfill its customers' need for
the product and maintain its position in the market. However, this departure from the
firm's normal business pattern has exacerbated the firm's cash flow difficulties since
purchases of refined products are typically made on 15 or 30 day credit terms, while
NEPCO's purchases of crude oil are generally made on 60 or 90 day credit terms.
The cash flow data which NEPCO has provided indicates that NEPCO's cash obli-
gations will substantially exceed its anticipated cash receipts in the immediate future and
the firm will have accrued a cash deficit of $XXXX by inid-November.
Id at 83,052.
95. Id
96. See note 93 supra.
 DUKELAW JOURN4L [Vol. 1982:277

Commissioner added that the firm should not be sacrificed for what
97
could be a temporary regulatory program.
2. TechnologicalHardshp.
Maxim: Equity will not require a firm to shut down when failure to
comply with a regulation arises from technological incapa-
bility, and the costs of a shutdown outweigh the social ben-
efits that would otherwise result.
Exceptions that arise because the regulatory goal is beyond the
technological capability of the firm, regardless of cost, constitute tech-
nological-hardship exceptions. They can be generated by statutes and
criteria similar to those authorizing economic-hardship exceptions. 98
Some statutes deal specifically, however, with technological capabil-
ity. 99 Actions that are technologically impossible because they are be-
yond the economic means of a particular firm may be treated as

97. [1975-1976 Transfer Binder] ENERGY MGMT. (CCH) (3 FEA) 1 83,015, at 83, 052-53
(Nov. 17, 1975). President Reagan lifted all controls on January 28, 1981. See Exec. Order No.
12,287, 44 Fed. Reg. 9909 (1981). President Carter had begun to phase out the controls on a
gradual basis beginning June 1, 1979. See, e.g., Exec. Order No. 12,153, 44 Fed. Reg. 48,949
(1979) (decontrol of heavy oil).
98. See, eg., ILL. ANN. STAT. ch. 1111, § 1035 (Smith-Hurd West Supp. 1981-82), which
provides:
To the extent consistent with applicable provisions of the Federal Water Pollution Con-
trol Act Amendments [and other federal law] the Board may grant individual variances
...whenever it is found, upon presentation ofadequate proof that compliance with any
rule or regulation, requirement or order of the Board would impose an arbitraryor un-
reasonablehardsho.
Id. (emphasis added). As the discussion of the Lindgren case, text accompanying notes 91-96
infra, indicates, this general hardship statute can apply to both technological and economic
impossibility.
99. See, e.g., Clean Air Act Amendments of 1970, 42 U.S.C. § 7521(b)(5)(c) (Supp. III 1979).
Four requirements are set forth:
(i) such waiver is essential to the public interest..., (ii) all good-faith efforts have been
made to meet the standards. . ., (iii) the applicant has established that. . . technology
[is] not available. . ., and (iv) studies and investigations of the National Academy of
Sciences, . . . have not indicated that technology, processes, or other alternatives are
available ... to meet such standards.
Id.
Of course, some standards are "technology-forcing" standards-they are not now technologi-
cally feasible, but they set future goals. Companies that are ultimately able to meet these goals are
considered capable of complying with these standards. See Union Elec. Co. v. EPA, 427 U.S. 246,
266-68 (1976) (claim of economic or technological hardship cannot be used to reject state imple-
mentation plans that are more stringent than federal law because, in part, there are opportunities
in the regulatory process to consider such problems, such as requests for variances or for delayed
compliance); Henderson & Pearson, Implementing FederalEnvironmentalPolicies: The Limits of
Aspirational Commands, 78 CoLuM. L. REV. 1429, 1445-53 (1978). As one commentator has
noted, however, a provision allowing exceptions based on technological incapability alone:
provides an absolute entitlement to a variance to anyone who needs more time, without
regard to the extent of his loss if required to shut down or to the extent of harm being
caused to his employees. It is entirely conceivable that in some cases the loss may be so
small and the hazard so great that interim shutdown should be required. Variances
Vol. 1982:277] ADMINISTR4 TIVE EQ UITY

economic-hardship exceptions. These two types of hardship exceptions

are closely related.
In EPA v. Lindgren Foundry Co.100 the Lindgren Company re-
quested a variance to emit pollution in excess of that allowable by state
regulations for seven months while the company installed the equip-
ment necessary to deal with the problem. 10 1 If the foundry had com-
plied with the regulations during the seven-month period, it would
have gone out of business, and, as undisputed evidence showed, never
reopened. 10 2 Thus, along with a claim of technological hardship, the
company advanced a derivative claim of economic hardship.
The evidence showed that if the plant were to close permanently,
not only would the owners lose their investment, but nearly one hun-
dred employees might have to seek new jobs. 0 3 At the same time, the
pollution was manifestly causing injury in the community. Comments
from the public included:
"It tracks in on my carpet. It is all over the window sills. It is the
type of dirt that you cannot clean unless you get a cleaner on a
cloth.... . "I washed out a white blouse and hung it out on the line
...and when I went out to get it, it was completely covered.. .."
"I could not sit out in my back lawn when this smoke would come
across .... You would be sitting there, and all of a sudden, you
would look down, and you are covered with soot. . . ." 104
The Illinois Pollution Board denied the variance because the own-
ers had not overcome the heavy presumption against granting vari-
ances and had not presented hard evidence of economic injury. The
board reasoned:
The hardships to the creditors and to Lindgren's former employees
are substantial and regrettable, but they are not so great as to make it
arbitrary to insist that Lindgren refrain from making miserable
everyone in its vicinity .... The benefit from compliance will be
very substantial, and it is by no means dwarfed by the concomitant
105
cost.

should depend, as they commonly do in pollution statutes, upon a showing that immedi-
ate compliance wold result in unreasonable hardship.
Currie, OSH4, 1976 AM. B. FoUND. RESEARCH J. 1107, 1152 (1976).
P.C.B. 11 (1970), discussedin Currie, Enforcement Under the Illinois Pollution Law,
100. 1 Ill.
70 Nw. U.L. Rav. 389, 412-15 (1975).
101. See Currie, supra note 100, at 413. In this sense, a request for a temporary variance is
also a request for delayed compliance. The injunction is not intended to be permanent, but while
in existence it is intended to exonerate the petitioner from any sanctions for violation of the rule.
102. See id.
103. Id.
104. Id. 413-14 (quoting EPA v. Lindgren Foundry Co., 1 IlM.P.C.B. at 21).
105. Id. 414 (quoting EPA v. Lindgren Foundry Co., 1 l. P.C.B. at 22).
 DUKE LAW JOUR18AL [Vol. 1982:277

Professor Currie has surmised that the board may have been
predisposed against the foundry because the owners had reason to
know when they purchased the foundry that the board would require
them to follow the regulation or obtain a variance. 10 6 A dissenter
agreed that a variance requires the petitioner's injury to be significantly
greater than the benefits to the community but found this standard met
in the present case:
There is no question that the community surrounding Lindgren will
suffer some degree of harm ... for seven months .... [But this
period coincides with] the colder season when outdoor recreational
enjoyment would not be as severely affected. Weighed against the
hardships imposed upon the present owners of Lindgren, the em-
ployees of Lindgren, the creditors of Lindgren, and the community at
large, such harm seems small indeed. 10 7

3. Legal Hardship.
Maxim: Equity does not require compliance with a rule or regula-
tion when such compliance necessitates breaking another
valid rule or regulation.
Given the complicated maze of safety, environmental, health, and
economic regulations, it is entirely conceivable that actions required by
one agency are prohibited by the regulations of another.10 8 Forcing a
firm to break the law of one agency to comply with a particular rule of
that or another agency gives rise to a legal-hardship exception.
In Schenley Distillers,Inc.,109 for example, Schenley sought an ad-
justment from section 401 of the Natural Gas Policy Act, which prohib-
ited Schenley, in the event of a natural gas shortage, from using natural
gas as a boiler fuel if it had the technological capacity to use coal in-
stead. Schenley sought this adjustment because "its Lawrenceburg
plant was not legally authorized to burn coal in place of natural gas,
despite the intermittent ability to do so during the years 1975 through
1978."110 The Commission granted the exception:

106. Id.
107. Id. 414 (quoting EPA v. Lindgren Foundry Co., 1 III. P.C.B. at 28). For a case in which
this kind of variance was granted, see Ozark-Mahoning Co. v. EPA., 1 11. P.C.B. 121 (1970), cited
and discussed in Currie, supra note 100, at 414-15.
108. See, ag., Complaint at 1, Sears, Roebuck & Co. v. Attorney General, 19 Fair Empl. Prac.
Cas. (BNA) 916 (D.D.C. 1979) (complaint on file at Duke University Law Library). The com-
plaint alleged, interala, that "Sears and the plaintiff class are faced with conflicting compliance
requirements which result in discrimination against all employees, are subjected to loss of prop-
erty, and are denied a diverse workforee...."
109. No. $A80-75, 12 F.E.R.C. 62,172 (F.E.R.C. Aug. 27, 1980) (available April 2, 1982, on
LEXIS, Genfed library, Energy file).
110. Id., LEXIS at 2.
Vol. 1982".2771 ADMINISTR4 TIVE EQ UITY
Because Schenley's use of the coal-fired boilers is so circumscribed
by the Pollution Control Board, Schenley cannot be considered to
have the installed capability to burn coal lawfully, within the mean-
ing of § 273 of the Energy Security Act. For the same reason, Schen-
ley cannot be considered to have the ability to use coal as an
alternative fuel, within the meaning of Commission Order Nos. 55
and 55-B. It would be inequitable to deny the essential agricultural
priority to Schenley's Lawrenceburg plant when other essential agri-
cultural users without alternative fuel capability have been accorded
that priority .... The exemption will be conditioned, however,
such that the exemption will not be available during those times
when Schenley is lawfully permitted to burn coal . 111

4. Medical Hardsh#p.
Maxim: Equity does not require compliance with a rule or regula-
tion when such compliance would seriously affect the
health of the complying petitioner.
There are very few instances in which a specific rule creates a per-
sonal danger for the regulated; however, a number of such examples
have arisen from energy regulation. The mandate that the temperature
must be kept at certain maximum levels in the summer and minimum
levels in the winter in federal buildings 1 2 spawned several health-re-
lated exceptions. The Department of Energy granted an exception to
the maximum-temperature regulation to a petitioner who showed that
failure to keep his office between sixty-eight and seventy degrees
Farenheit would exacerbate his optic neuritis, thus creating temporary
loss of vision.11 3 The order noted:

I11. Id., LEXIS at 6-7 (footnote omitted).

112. 10 C.F.R. § 490 (1981).
113. Joseph F. Troy [1979 Transfer Binder] ENERGY MoMr. (CCH) (4 DOE) %81,125 (Sept.
7, 1979). See also Commodities Exchange Center, Inc., [1980 Transfer Binder] ENERGY MGMT.
(CCH) (5 DOE) 81,315 (May 9, 1980) (exception denied to company that provides facilities for
trading of commodity futures because no specific medical conditions detailed that would be
caused or aggravated by 78°F. temperature--"evidence of headaches alone [does not] constitute
the type of serious health risk which would warrant the approval of exception relief"); Washing-
ton Univ. [1980 Transfer Binder] ENERGY MGMr. (CCH) (5 DOE) 81,084 (Feb. 20, 1980) (ex-
ception to winter restrictions denied because no health risk to nude models shown-personal
discomfort alone not sufficient to warrant exception); Larry Flint Publications, Inc. [1979 Transfer
Binder] ENERGY MGmT. (CCH) (4 DOE) 81,243 (Dec. 18, 1979) (exception to temperature
maximum because "Larry Flint, the chief executive of Flint, is partially paralyzed and must oper-
ate out of a wheel chair"); Community Interfaith Services, Inc. [1979 Transfer Binder] ENERGY
MGMT. (CCH) (4 DOE) 81,228 (Dec. 12, 1979) (exception denied even though petitioner
claimed the maximum temperature requirements made it impossible to continue its instruction in
"altered states of consciousness"); Hammermill Paper Co. [1979 Transfer Binder] ENERGY MGMT.
(CCH) (4 DOE) 81,165 (Oct. 23, 1979) (exception denied to lower temperature in "unoccupied"
buildings at night because no health problem or inordinate increase in difficulty of completing
work shown in night maintenance workers); Disabled American Veterans, [1979 Transfer Binder]
ENERGY MGMT. (CCH) (4 DOE) 181,116 (Aug. 16, 1979) (exception granted to Disabled Ameri-
 DUKE LAW JOURAAL [Vol. 1982:277

Many of the exception requests . . .received in this area are

based on an applicant's allegations that as a result of his medical
condition, he will experience serious medical consequences unless
the DOE modifies the temperature levels at which his working envi-
roniment may be maintained. . . .[A] panel of physicians on the
staffs of the National Institutes of Health has been formed. These
physicians advise the Office of Hearings and Appeals whether the
temperature level ... could reasonably be expected to exacerbate
the particular
11 4
medical condition set forth in the petitioneres
submission.

5. Analysis of HardshipExcefptions.
As noted above, 115 the random, unprincipled granting of excep-
tions could easily undermine a regulatory scheme. An examination of
hardship exceptions, however, reveals that they are "containable," that
is, capable of rational application to a reasonably defined set of cases,
and that they serve the underlying purposes of the regulatory regime to
which they apply. Moreover, underlying a regulatory system's need for
hardship exceptions are two fundamental norms: economic survival,
often expressed as a desire for stability and competition within an in-
dustry; and the philosophical proposition that for a rule to be legiti-
16
mate, "ought implies can."'
Economic extinction sets the outermost limit on the imposition of
individual regulatory costs to achieve general policy goals. Though
Congress may have decided that industries should internalize certain
environmental costs or remit windfall profits, Congress's broad legisla-
tive objectives do not automatically outweigh the continued survival of
regulated firms. The regulatory cures for environmental pollution or
exorbitant prices should not necessarily cripple the industries to which

can Veterans in order to relieve amputees of severe discomfort they experience at 781F.). Com-
munity Interfaith Services, Inc., [1979 Transfer Binder] ENERGY MGMT (CCH) (4 DOE) 81,228
(Dec. 12, 1979) (exception denied even though petitioner claimed the maximum temperature re-
quirements made it impossible to continue its instruction in "altered states of consciousness").
In Comunity Interfaith, the petitioner argued that compliance would result in financial diffi-
culties. Moreover, a leading doctor stated "inordinate heat or cold or even a draft would interfere
with or prevent the hypnosis process." Nevertheless, exception relief was denied. The order dis-
tinguished the case from other medical-hardship cases, noting that the relief was requested for
healthy individuals in non-work-related activity. Petitioner failed to show that the affected indi-
viduals' discomfort or reduced level of participation would be any greater than that of thousands
of other participants in social, cultural, and recreational activities throughout the nation. The
cases discussed above also have an economic hardship aspect-impaired business resulting from
temperature restrictions.
114. Joseph F. Troy, [1979 Transfer Binder] ENERGY MGMT. (CCH) (4 DOE) 81,125, at
83,018 (Sept. 7, 1979).
115. See text accompanying note 75 supra.
116. See R.M. HARE, FREEDOM AND REASON 51-66 (1963).
Vol 1982".2771 ADMINISTATIVE EQUITY

they apply. Stability and preservation of economic order go hand in

hand with environmental or economic reforms. The regulatory prefer-
ence for individual firm survival does not necessarily mean that shut-
downs must always be avoided, but such extreme consequences should
be the result of a considered process, not the unintended or uncon-
117
scious fallout of an overbroad statute or rule.
Closely related to the norm of economic survival is the proposition
that "ought implies can." Enforcing legal rules against those who can-
not comply creates the risk of undermining the legitimacy of a regula-
tory program as well as the "inner morality of the law."' 1 8 Thus, if a
regulated entity undertakes good-faith efforts to minimize the impact of
alleged violations of a rule that it cannot comply with, failure to con-
sider an exception may raise questions of program legitimacy, unneces-
sary harshness, or gratuitous regulatory costs.
Similarly, the norm that there are some costs that a rule cannot
exact, even if those costs can be paid, underlies legal- and medical-
hardship exceptions. Violating the law or doing serious medical harm
to oneself is beyond the demands of a legitimate system of law. The
former undermines the rule of law; the latter violates one's physical
integrity. Solutions for social problems should not exact such extreme
individual costs. Given the fundamental norms of economic survival-
that the law should mandate only what is possible and should respect
physical human limitations-an active and principled equitable process
is an essential part of any regulatory scheme.
The problem of containing the decisions that equitable processes
generate does not necessarily undercut the usefulness and importance
of such processes; hardship exceptions need not swallow the rules that
necessitate them. Given the extreme nature of the prima facie case that
must be alleged before one is eligible for a hardship exception, such
relief can be confined to a relatively small class of cases." 9 Hardship
exceptions claims are susceptible to reasonably objective criteria-bal-
ance sheets that show serious cash-flow problems, a record that indi-
cates the lack of a particular technology, conflicting legal rules, or
documented medical problems. The inherent problem of determining
the primary cause of a firm's financial troubles in economic-hardship
cases, and the complexity of balancing extreme individual costs with

117. Economic regulation often results in serious economic harm, yet challengers of such regu-
lation will rarely be able to state a constitutional taking claim. Economic hardship exceptions are
particularly relevant to this subconstitutional strata of cases. See note 25 supra.
118. See L. FULLER, supra note 75, at 70-79.
119. See note 84 supra. See generally Comment, VarianceLaw in New Yorlc An Examination
andProposal,44 ALB. L. Rav. 781 (1981).
 DUKE LAW JOU14L [Vol. 1982:277

anticipated social benefits, however, can make these decisions very

difficult.
Determining causation in hardship cases is the most serious diffi-
culty. Causation in administrative equity cases is similar to the concept
of standing. Before the administrator can consider the relief sought by
the petitioner, the petitioner must demonstrate that his "plight" is
caused by the particular regulations from which he seeks an excep-
tion.' 20 Granting exception relief without careful scrutiny of the real
causes of a firm's difficulties can easily result in an economic welfare
program for the inefficient and unimaginative.' 2' To the extent that
causation is treated lightly in exceptions cases, the scope of the excep-
tions process expands proportionately. If, on the other hand, proof of
causation is rigorously demanded, the actual differences among firms
in their ability to absorb the costs of regulatiola are maintained.' 22 The
end result is a much narrower exceptions process.1 23

120. See, e.g., the Federal Energy Administration's guidelines on causation, 41 Fed. Reg.
50,856-57 (1976):
The exceptions process is not intended as a panacea for every conceivable type of
financial problem encountered by any firm doing business in the petroleum industry.
Rather, exception relief is designed to alleviate specific operating difficulties which have
arisen as a direct result of the application to a firm of a particular regulatory requirement
from which relief is sought.
Id.
121. Some commentators have suggested that the distributional consequences of regulations
vary within and among industries. Some firms are better able to absorb regulatory costs than
others and thus might not strenuously oppose regulation. Indeed, the costs imposed may be much
more difficult for such a firm's less efficient competitors to internalize, thereby giving them an
added competitive edge. See generally R. LEONE & J. JACKSON, The PollticalEconomyofFederal
Regulatory Activity: 7he Case of Water Pollution Controls in STUDIES IN PUBLIC REGULATION
231-68 (Gary Fromm ed. 1981).
122. Policy exceptions are often of great importance to large, efficient firms that are the victims
of unreasonably applied rules, and that are too stable to claim economic hardship. See text ac-
companying notes 156-95 infra.
123. Marathon Oil Co. v. DOE, 482 F. Supp. 651 (D.D.C. 1979) (sometimes referred to as the
"Ashland Oil case"--Ashland Oil being an intervenor) illustrates the substantive impact that an
expansive approach to causation can have. The relief Ashland Oil sought from the agency - an
increase in its domestic supplies of oil to offset its loss arising from the Iranian cutoff-had to be
provided by Ashland's own competitors. These competitors, including Marathon Oil Co., viewed
Ashland's predicament differently. Apart from the evidence concerning Ashland's financial con-
dition and the impact the Iranian embargo had on it, Marathon Oil Co. and the other plaintiffs
argued that this was not the kind of problem that DOE regulations were intended to correct. They
contended that "the real cause of Ashland's problems-and that of its customers-is that com-
pany's discretionary business decision not to maintain worldwide crude oil operations, that is, to
fail to develop secure sources of supply, but to rely instead upon the crude oil supplies of Iran."
Id. at 655 (emphasis added). In short, the plaintiffs argued that "Ashland, not its competitors,
must bear the consequences"' and that such circumstances did not warrant exception relief. Id.
The court rejected these arguments, finding that the presidential proclamation barring oil
importation from Iran was part of the regulatory program involved and thus the cause of Ash-
land's plight. Id. at 654-55. The court also noted that "[tihe chaotic events of the last few weeks
Vol. 1982:277] ADMINISTRA TIVE E9Q UITY

Balancing the costs of a shutdown with the social benefits likely to

result from compliance is by no means an easy task. 124 How this bal-
ance is struck depends, in part, on the nature of the regulatory pro-
gram. Concerning health, safety, and environmental regulation, a
shutdown, however costly, tends to further the primary policy goals of
the regulatory scheme; a variance results in more pollution and argua-
bly less safety than might otherwise exist. In economic regulations
such as natural gas or oil price and allocation controls, however, a shut-
down is more likely to undercut some regulatory goals while bolstering
others. For example, oil price controls sought not only to deprive pro-
ducers of windfall profits on "old" oil, but also to encourage greater
production of "new" oil, thereby decreasing our dependence on foreign
oil.125 The goal of reducing foreign imports of oil is clearly undercut if
a well has to be closed because it can no longer profitably produce
"old" oil at the controlled price. An exception that allows a higher
price to be charged so that the well can remain in production furthers

... were apparently not foreseen by anyone, including the government of the United States." Id.
at 655. See text at notes 197-207 infra.
The ambiguity inherent in designating the precise causal link between the problem com-
plained of and the regulation that consequently needs to be altered can, as the approach in Mara-
thon indicates, greatly enhance the power of the administrative chancellor. The liberal approach
to causation taken by the DOE and affirmed by the court resulted in the imposition of agency
power, and, in effect, regulatory power, in an area in which it arguably should not have been
extended. This approach can easily transform the exceptions process into a means for passing ad
hoc legislation to deal with new problems, rather than allowing administrative equitable relief
from rules already in existence. As such, the relief it offers is similar to the Chrysler Corporation's
petitioning the President to alleviate its economic woes. Though a strong argument can be made
that Chrysler's problem is self-imposed, its economic plight may be connected to the variety of
regulatory programs that impose costs on the corporation. Chrysler thus sought government sup-
port and supervision as affirmative relief. Equitable concerns dictated such support and supervi-
sion as the solution to Chrysler's problems. This solution, however, is a substitute for market
remedies; neither the Chrysler nor the Ashland case is an instance of equitable processes at work
within a predefined regulatory framework. An equitable approach to the scope and purpose of an
exceptions process cannot be justified on the ground that the present rules should not apply in
certain cases; rather, it is justified on the ground that the rules should apply and should actually be
expanded or amended to take into account an entirely new situation.
Thus, an agency's approach to causation in the context of exception relief can have a
profound substantive impact on both the beneficiaries of the exception orders and the regulated
entities that are consequently aggrieved by such relief. A broad approach to causation can signifi-
cantly expand an agency's regulatory jurisdiction and can radically change the agency's focus
without benefit of a formal amendment to the rules involved and without benefit of rule-making
processes.
124. See, eg., EPA v. Lindgren Foundry Co., I Mll.P.C.B. 11 (1970), discusedin Currie, supra
note 100, at 412-15.
125. Oil price controls distinguished between "old" and "new" oil. Old oil was oil discovered
prior to the Arab embargo of 1973 and was to be sold at the relatively low price it sold for at that
time. New oil was newly discovered oil. To encourage discovery, this oil could be priced substan-
tially higher than old oil. For a summary of the oil price and allocation program, see TASK
FORCE, supra note 14.
 DUKE LAW JOUArAL [Vol. 1982:277

the goal of greater domestic production, but undercuts the goal of equi-
table prices for consumers. Nevertheless, exception relief is more likely
in price-control cases than in health or environmental cases. The im-
perceptible rise in the overall cost of oil to consumers that would result
from an exception is likely to be less harmful to that program's overall
goals than the health and safety problems that could arise if more pol-
lution were produced or less safety attained.
Despite the importance of hardship exceptions, they should be
granted sparingly, particularly when health or environmental regula-
tion is involved. To do otherwise could, as the Illinois Pollution Con-
trol Board noted in one case, "destroy the force of the regulations and
encourage excessive litigation. Moreover, if the costs and benefits are
anywhere near equal, simple fairness dictates that the burden should be
borne by those who profit from the polluting operation rather than by
the innocent neighbors."1 26 The Board defined the words "unreasona-
ble" and "arbitrary" in the Illinois pollution statute to create a strong
presumption in favor of compliance: "A variance is to be granted only
in those extraordinary situations in which the cost of compliance is
wholly disproportionate to the benefits; doubts are to be resolved in
favor of denial."127 Such an approach ensures that the norms of eco-
nomic survival and of "ought implies can" are explicitly considered,
but it does so by maximizing the broad policy goals of the regulatory
program.

C. FairnessExceptions.
Fairness exceptions may be granted even when compliance is tech-
nologically, economically, legally, and medically possible. 128 There are
three primary bases for such exceptions: (1) the comparative regulatory
costs borne by a particular firm are disproportionately higher than
those borne by other similarly situated firms; (2) the regulation unin-
tentionally penalizes a firm's recent good-faith activities; and (3) the
regulatory costs imposed on a firm by a particular rule, though not nec-
essarily requiring a shutdown, simply are not worth the minimal social
benefits that compliance would produce. In other words, though the
costs involved do not jeopardize the economic viability of the firm, and

126. EPA v. Lindgren Foundry Co., 1 IIM.PCB 11, 16-17 (1970), quoted in Currie,supra note
91, at 412.
127. Id., quoted in Currie, supra note 100, at 413.
128. Requests for fairness exceptions often include economic hardship claims. Such requests
may be granted even if the stronger criteria of an economic hardship claim cannot be met. In
effect, fairness exceptions allow an administrator to "do equity" in borderline economic hardship
cases where relief nonetheless seems appropriate. See notes 130 and 141 infra.
Vol. 1982:277] .ADMINISTR,4TIVE EQUITY 307

therefore do not justify an economic-hardship exception, the rule as

applied to the petitioner is nevertheless unreasonable.
Two of these types of exceptions have constitutional analogues.
The first type of exception, comparative fairness, is a form of regulatory
equal protection; the second type is a form of regulatory estoppel; and
the third type is a form of regulatory substantive due process.

1. EqualProtection Exceptions.

Maxim: Equity does not allow a regulatory program to impose a

disproportionate share of the regulatory burden on only
one or a few entities.
Equal protection or comparative fairness exceptions may be al-
lowed when a disproportionate share of the regulatory costs of a partic-
ular program falls on one or a few of the affected individuals or
entities. Statutes permitting relief from an "unfair distribution of bur-
129
dens" often provide the authority to grant comparative exceptions.
These statutory provisions function like regulatory equal protection
clauses. They authorize exceptions for those firms able to show that
their regulatory costs are disproportionately higher than those borne by
others. Disproportionate costs or unequal burdens alone, however, are
not sufficient for relief. As the Department of Energy guidelines have
indicated:
exception relief has been approved where a showing is made by a
firm that in addition to experiencing a greater adverse impact as a
result of a regulatory provision as compared to other firms, the na-
ture or extent of the adverse impact on the firm significantly impedes
its operations. . ., frustrates one of the policy objectives [of the stat-
ute]. . ., or places it in a substantially different position from other
similarly situated firms ....130
Thus, for example, in the early days of the oil price and allocation
program International Aviation Industries sought exception relief from
a price ceiling imposed on aviation fuel. 3 1 Although controls allowed

129. See, e.g., Energy Policy and Conservation Act, 42 U.S.C. § 6393(a)(4) (1976).
130. 41 Fed. Reg. 50,856, at 50,858 (1976). Requests for equal protection exceptions are often
combined with economic-hardship claims. In one sense, an economic hardship claim is the same
as an equal protection claim. It is an "unfair distribution of burdens" if a particular regulation,
though costly to all regulated firms, actually forces some firms out of business. An equal protec-
tion exception, however, may also be appropriate where a firm's compliance with a rule will not
necessarily force the firm out of business, but the costs of compliance are greatly disproportionate
to those borne by similarly situated firms. An equal protection rationale provides an additional
basis for granting and justifying exception relief, particularly in cases where the hardship claim is
relatively weak.
131. International Aviation Indus., Inc., [1975 Transfer Binder] ENERGY MGMT. (CCH) (2
FEA) 180,562 (March 26, 1975).
 DUKE LAW JOURNWL [Vol. 1982:277

only one cent per gallon to be passed on to consumers, Aviation sought

an increase of four cents per gallon to reflect certain non-product cost
increases it had incurred since the price-control program became effec-
tive. 132 The Administrator found that "Aviation's total non-product
costs had increased by 29.73%,. . . an increase far in excess of the 1
cent per gallon that the company by regulation was permitted to pass
on. 133 The Administrator granted most of the exception relief re-
quested, noting that strict compliance with the applicable regulations
would result in an unfair distribution of burdens on the firm.1 34 In
other words, the one-cent maximum was much harder on Aviation
than on its competitors, whose own product costs had not risen as
greatly or as quickly.
Marathon Oil v. DOE 35 involved stronger comparative fairness
claim. Ashland Oil Co. depended heavily on Iran for its supply of
crude oil. The government's decision to terminate relations with Iran
resulted in a substantial loss of supply to the Ashland refinery. 136 Ash-
land petitioned for exception relief to require other refineries to furnish
it with approximately 80,000 to 100,000 more barrels of oil per day.
The Administrator granted the relief, noting that Ashland was being
asked to bear a disproportionate share of the mandatory allocation pro-
gram.137 In upholding this order, the district court chided Marathon
Oil and Ashland's other competitors, stating: "It is unfortunate that, at
a time of national distress. . . an apparently equitable burden-sharing
program should be resisted on the theory that those who relied on Iran
for their oil supplies should be left to shift for themselves."'' 38 In short,
both the Department of Energy (DOE) and the the reviewing court
agreed that Ashland should not be asked to bear alone the conse-
quences of the Iranian embargo. In granting Ashland's exception, the
DOE ordered nine refineries to provide a total of 80,000 barrels of

132. As DOE guidelines point out:

[p]rice increases in excess of base prices - which are based solely on the cost of crude oil
and petroleum product costs - are allowed if they can be justified on the basis of in-
creased non-oil costs. Categories of increased non-oil costs that refiners may pass
through as price increases include the costs of refinery fuels, labor, additives, marketing,
utilities, pollution control equipment, containers and interest.
Non-product Cost Increases, 1 ENERGY MGMT. (CCH) 3108.
133. International Aviation Indus., Inc., [1975 Transfer Binder] ENERGY MGMT. (CCH) (2
FEA) 1 80,562, at 80,704 (March 26, 1975).
134. Id. The Administrator found, however, that a price increase of 2.27 cents per gallon
rather than the four cents requested would be sufficient to meet the company's problems. Id.
135. 482 F. Supp. 651 (D.D.C. 1979). For a discussion of this case, see note 123 supra.
136. Ashland alleged that more than 25% of its supply came from Iran. 482 F. Supp. at 652.
137. Id.
138. Id. at 655.
Vol. 1982.277] ADMINISTRA TIVE EQUITY

crude oil per day to Ashland. 139

The principle underlying the equal protection exception is equal-
ity. If regulatory costs are to be imposed, they should be spread as
equally as possible. Phrased negatively, administrative equity should
discourage regulatory free riders. Such exceptions generally are not al-
lowed if the unequal impact arises from a firm's own weakness or poor
management skills. Assuming, however, that the inequality results
from the disproportionate effect of a specific regulation, exception relief
may be granted.
The equal protection or comparative exception infuses a kind of
"bill of rights" into the unwritten "regulatory constitution." Though
one may not expect Congress to equalize the impact of its programs,
one expects a fair administrator to try to do so. An important part of
the legitimacy and perceived fairness of any regulatory program is its
acceptability to the regulated industries concerned. Because the regu-
lated may not initially support regulation, basic fairness within a regu-
latory regime is a sine qua non for acceptability and legitimacy.
Comparative exceptions are relatively confined; like economic-hard-
ship exceptions, however, causation can be problematic. 140 Once cau-
sation is established, however, the extent of the disproportionate
regulatory burden and its effect on a particular company or entity can
usually be determined.' 4 ' The standard of comparison--other compet-
ing firms-is relatively unambiguous, and the financial burden in-
curred by the petitioner is usually quantifiable.

2. Estoppel Exceptions.
Maxim: Equity may allow an exception to a rule that penalizes a
firm for good-faith action taken prior to the rule's
existence.
Exceptions can be granted based on the good-faith actions of a
petitioner taken prior to the promulgation of the particular rule. Under
the broad statutory criterion of "inequity," the DOE has, for example,
granted exceptions to firms which had increased their capital invest-
ment in facilities for the retail sale of gasoline at a time when they had
reason to expect that they could earn a fair return on their investment.
In Leo Anger, Inc. ,142 for example, the petitioner bought a bulk plant
and three retail service stations in Victoria, Texas from Texaco, Inc. on

139. Id. at 653.

140. See notes 78-107 supra and accompanying text.
141. In Marathon Oil the court could specifically point to the differential impact the Iranian
embargo had on Ashland Oil as compared to its competitors. 482 F. Supp. at 652 & n.2.
142. [1979 Transfer Binder] ENERGY MGMT. (CCH)(4 DOE) %81,037 (June 18, 1979).
 DUKE LAW JOUR[o8AL [Vol. 1982:277

October 1, 1978. A bank lent Anger the money to purchase the facili-
ties in part because of a provision of the sales agreement with Texaco in
which Texaco assigned to Anger the 1972 adjusted base-period alloca-
tion of gasoline for these facilities. 143 Based on this allocation, Anger
expected to realize "substantial profits from the sale of motor gasoline
in volumes substantially greater than those sold by the previous
owner."144
When the DOE later implemented its Standby Allocation Regula-
tions, 14 5 Anger was to "receive only the volumes of gasoline which his
predecessor purchased" during certain months of 1978, which would
amount to only 74% of the 1972 adjusted base-period volume. 146 Anger
argued that if it reduced its supplies to this degree, "the firm will run
out of gasoline during March 1979, and as a consequence it will not
receive sufficient revenue to meet its March operating costs. 1' 47 The
DOE granted Anger's petition, noting that it would tend to grant this
type of exception when the petitioner could show, in part that:
a substantial capital investment was made by a firm with the expecta-
tion that the investment would enable the applicant to increase its
sales of motor gasoline and thereby realize an economic benefit from
the investment; [and] in the absence of an exception increasing its
allocation of gasoline, the firm will not be able to realize the intended
benefits of the capital
148
investment and will be adversely affected to a
significant degree.
The norm underlying this exception is reliance. When acting in
good faith and in the ordinary course of business, a firm should be able
to rely on the law then in existence. Thus, a firm's decision to expand
its retail gasoline operations should not automatically be held against it

143. Id. at 82,652. Once price has been rejected as the primary means of allocating a scarce
good, there must be a legally imposed allocation system. In the oil price control programs, as in
the natural-gas control programs, a base period allocation refers to the amount of fuel sold by a
particular supplier or retailer during a particular time period. The agency enacts regulations that
focus on a firm's operations as of a certain date. The time period chosen may not be fully repre-
sentative of the firm's normal operations and, in any event, cannot take into account changes that
occur after the base period has been established. SENATE COMM. ON GOV'T AFF., supra note 93,
at 761-65.
144. [1979 Transfer Binder] ENERGY MGMT., (CCH) (4 DOE) 81,037, at 82,652. In addition
to the purchase price, Anger invested $79,000 to remodel the facilities and to purchase additional
equipment. Id
145. Id. at 82,652.
146. Id. at 82,652-53.
147. Id. at 82,653. Anger's claim thus had an economic hardship aspect. The Administrator
emphasized the petitioner's inability to realize a return on its investment as a ground for relief.
Id. Under the facts ofAnger, an economic hardship exception would not be appropriate, however,
because it was not alleged that the rule change would cause an actual shutdown.
148. [1979 Transfer Binder] ENERGY MOMT. (CCH) (4 DOE) 81,037, at 82,651 (June 18,
1974).
Vol. 1982:277] ADMINISTR TIVE EQUITY

because it failed to anticipate new legal circumstances.1 49

Estoppel exceptions prevent the inadvertent application of ex post
facto rules to petitioners' good-faith actions and allow the administra-
tor to apply the specific rule as if it contained a grandfather clause.
These implied exceptions infuse market values, such as firm growth
and progress, into the regulatory setting and recognize the coexistence
of market and regulatory values within a regulatory framework. These
values need not be mutually exclusive; regulation should not gratui-
tously penalize legitimate market behavior.
The containability of estoppel exceptions, however, can present a
problem if reliance is given undue importance. Change is and always
will be a part of the legal landscape. Granting exceptions simply be-
cause change is unforeseen would undermine the effectiveness of any
regulatory scheme. Estoppel exceptions should be limited to situations
in which the underlying goals and policies of the rule suggest that, in
the case in question, compliance was not intended in the first place.
The administrator, in granting estoppel exception relief, should correct
obvious oversights in the rule in question and "grandfather forward"
legitimate behavior.

3. ReasonablenessExceptions.
Maxim: Equity may allow an exception when compliance with a
rule either does not further the goals of the statute or mini-
mally advances those goals at a cost to the petitioner whol-
ly disproportionate to the benefits produced.
Reasonableness exceptions challenge the substantive validity of a
regulation as applied to a particular situation. These exceptions are
often authorized by statutory provisions allowing adjustments in the
event that application of a rule results in "inequity" or "gross ineq-
uity.' 50 Exceptions based on a broad notion of inequity are akin to
constitution substantive due process claims.151 The gist of reasonable-
ness claims is that the regulation as applied to the petitioner is unrea-
sonable because either no significant benefits accrue from compliance
or compliance in fact has a negative effect on the regulatory pro-

149. In Anger, the company's investment of capital with the expectation that the volume of
gasoline allocated under the former base period would remain constant constituted reliance.
150. See, e.g., Policy and Conservation Energy Act, 42 U.S.C. § 6393(a)(4) (1976). For an
application of the "gross inequity" criteria, see Pruet & Hughes Co., [1975 Transfer Binder] EN-
ERGY MGMT. (CCH)(2 FEA) 83,270 (Aug. 25, 1975).
151. The courts have rejected such claims in the area of economic regulation the demise of
Lochner v. New York, 198 U.S. 45 (1905), but the rationale of the substantive due process cases
remains viable for administrative exceptions processes.
 DUKE LAW JOURMAL [Vol. 1982:277

gram.152 For example, in administering oil price and allocation con-

trols, the Federal Energy Administration (FEA) established the
practice of granting exception relief from "lower tier" crude oil pricing
restrictions when significantly increased production costs left firms with
little or no economic incentive to produce crude oil from existing wells
on a developed property.15 3 Though the firms often could not demon-
strate serious economic hardship, the exceptions were granted because
it was not reasonable to shut off a source of domestic oil during a time
of acute shortages.
Reasonableness exceptions in the energy context reflect the DOE
rule that economic hardship be assessed firmwide.154 Under this ap-
proach, large integrated firms usually have great difficulty meeting the
economic-hardship standard. When exception criteria allow the ad-
ministrator to rely heavily on policy goals rather than on economic
hardship in individual cases exception relief is possible for a wider class
of petitioners. In cases of this kind, reasonableness exception relief en-

152. Viewed broadly, reasonableness exceptions supplement recent administrative reforms re-
quiring agencies to perform cost-benefit studies before issuing new rules. See Exec. Order No.
12,291, 46 Fed. Reg. 13,193, reprinted in 5 U.S.C. § 601 app., at 124 (Supp. IV 1980) (establishing
procedures for analyzing the impact of proposed and existing regulations on small businesses).
Cost-benefit analyses generally assess, however, class-wide costs and class-wide benefits. Reasona-
bleness exceptions allow for a more individualized cost-benefit approach.
The Department of Energy promulgated guidelines setting forth some of the requirements for
a showing of "gross inequity":
In evaluating requests for exception relief which are based upon a claim of gross ineq-
uity, the FEA has established a number of general standards that reflect a range of crite-
ria which is considerably broader than that applied to claims of serious hardship. The
FEA has found a gross inequity to exist, for example, where the application of a specific
regulatory provision to a particular factual setting significantly frustrates the realization
of a major national energy objective.
.... The FEA has also approved exception relief on grounds of gross inequity
where a person is adversely affected in a significant manner as a result of the application
of a regulatory provision whose purpose has been seriously distorted by anomalous cir-
cumstances.
41 Fed. Reg. 50,856 at 50,857-58 (1976).
153. See, eg., Pruet & Hughes Co., [1975 Transfer Binder] ENEROY MoMT. (CCH)(2 FEA)
83,270 (Aug. 25, 1975), in which the petitioner argued for an exception from the ceiling-price
rule of the FEA, because, although compliance would not drive the petitioner out of business, it
would nonetheless necessitate petitioner's abandonment of certain wells. In alleging gross ineq-
uity, the firm argued that application of the rule would undercut an important policy goal. The
FEA determined that the decline in production levels and the increase in operating expenses
under the applicable rule eliminate any economic incentive to continue production at certain
wells. The FEA found further that it was unlikely any other firm would operate these wells and
that the nation would thus be deprived of approximately 10,000 barrels of crude oil. The FEA
granted exception relief.
For similar oil-pricing cases, see Braden-Deem, Inc., [1975-76 Transfer Binder] ENERGY
MGTr. (CCH) (3 FEA) 183,072 (Jan. 15, 1976); Energy Dev. Corp, [1975 Transfer Binder] EN-
ERGY MGMT. (CCH)(2 FEA) 83,309 (Oct. 3, 1975).
154. See, eg., 41 Fed. Reg. 50,856 (1976) (Federal Energy Administration guidelines for ex-
ceptions and appeals).
Vol. 1982.277] ADMINISTR TIVE EQUITY

ables the consequences of partial economic hardship to become worthy

of relief.
The basic proposition that individual regulatory costs should be
borne for a purpose underlies reasonableness exceptions. Useless or
counterproductive regulatory costs resulting in unnecessary individual
harm should not be imposed. Regulatory costs that exceed the benefits
produced should not be imposed. Similarly, costs should not be im-
posed if they undermine a statute's goal and produce minimal benefits.
Reasonableness exceptions thus serve as ultimate rationality
checks. If such exceptions are granted only if compliance yields nega-
tive or zero social benefits, they are at least capable of containment;
however, to the extent reasonableness exceptions become primarily a
means of weighing costs and benefits, they could open the door to end- 55
less litigation, delay, and frustration of the agency's regulatory task.1
Moreover, the more these exceptions rely on policy, without regard to
the peculiar circumstances of the petitioner, the more they resemble the
policy exceptions outlined below. Given the broad and often conflict-
ing goals of most regulatory statutes, the boundaries of policy excep-
tions are often limited only by the authority that Congress delegates to
the administrator. In practice this limitation on administrative discre-
tion is not very meaningful and it can raise some serious procedural
issues.

D. Policy Exceptions.
Policy exceptions focus less on the individual characteristics of the
petitioner and more on overall policy goals. Such exceptions are sel-
dom equitable. They are concerned with using the particular to affect
the general, rather than with conforming the general to the particular.
In this respect, they resemble an administrative version of Regents of
the University of California v. Bakke' 56-an adjudicatory dispute be-
tween two parties that ultimately became a rulemaking proceeding,
with broad and significant policy implications. Yet, policy exceptions
can affect the outcome of borderline equitable cases and serve as157 a
means of granting what would otherwise be equitable exceptions.
Policy exceptions are important to this analysis for other reasons as

155. The Illinois Pollution Commission has noted the dangers of construing economic-hard-
ship criteria, too liberally. See text accompanying note 126 supra. Liberal construction of reason-
ableness criteria involves the same dangers.
156. 438 U.S. 265 (1978). The Supreme Court often acts like an administrative agency, partic-
ularly when it promulgates broad policy rules. The Bakke case, for example resembled an admin-
istrative rulemaking proceeding. The amicus briefs fied in Bakke numbered well over one
hundred and represented interest groups throughout the country.
157. See text accompanying notes 184-95 infra.
314 DUKE LAW JOURMA.L [Vol. 1982:277

well. For example, they provide an opportunity to explore various

nonequitable purposes of exceptions processes such as the promulga-
tion of policy without adherance to formal or complex hybrid rulemak-
ing procedures. Four types of policy exceptions emerge: means
exceptions, third-party exceptions, national-security exceptions, and
public-interest exceptions.

1. Means Exceptions.
Maxim: Equity may allow an exception to a rule if its desired re-
suits can be or have been achieved by other means.
This exception focuses on the means of compliance with a rule.
The Occupational Safety and Health Act (OSHA), 158 for example, au-
thorizes the Secretary of Labor to promulgate rules and regulations
that require employers to take certain specific worker-safety precau-
tions.159 If, however, a firm fulfills the basic policy of ensuring safe
working conditions by a means at odds with the technical requirements
of a safety rule, an exception can be and usually is granted.1 60 Even
though the desired results are achieved by alternative means, the policy
6
of the rule is carried out.' '
The norm underlying the means exception is that substantive re-
sults should take precedence over form and over the means by which
one achieves results. Presumably, regulation is imposed for a purpose.
If that purpose can be achieved more efficiently by ways that do not
undercut the rule or jeopardize the results the rule seeks to achieve, an
exception may be granted. Containability of this kind of exception is
seldom a problem as long as the goals of the rule are clear and the
proceeding focuses only on how those goals will be achieved.

2. Third-pary or Benefciary Exceptions.

Maxim: Equity may grant an exception to aid third parties who
would otherwise be adversely affected by strict application
of the rule to the petitioner.
Exceptions may be granted if the petitioner can show that third-
party beneficiaries of a regulatory program would be better off if the
rule in question were not applied rigorously to the petitioner. Such

158. 29 U.S.C. §§ 651-678 (1976).

159. Id. § 655(a).
160. See, e.g., id. § 655(d) and the variances granted by OSHA in Brand Hosiery Co., 39 Fed.
Reg. 13,216 (1974) and in Chemico Metals Corp., 39 Fed. Reg. 16,198 (1974).
161. De minimis exceptions can also be included in this category. The basic purpose of the
rule is met, though an insignificant exception is necessary to avert a technical violation.
Vol. 1982:277] ADMINISTRATIVE EQUITY

exceptions place little emphasis on the individual plight of the peti-

tioner and focus on the plight of the purported beneficiaries of a rule.
In James Tidwell Chevron,162 for example, the Department of En-
ergy granted an exception to a rule that limited the amount of gasoline
Tidwell was entitled to. Tidwell sought an increase in this amount be-
cause of his inability to serve his customers. Tidwell's Chevron station
had been one of four stations in Nipomo, California. Two stations
closed, leaving only Tidwell's station and one other to serve a town of
nine thousand people. The Administrator granted the exception re-
quest, noting that the citizens of the town, as third parties, would be
greatly inconvenienced by the closing of Tidwell's station at a time of
short gasoline supply. The Administrator stated: "The citizens of Ni-
pomo are clearly bearing a disproportionate portion of the burdens
which result from the nation's energy problems. Under the circum-
stances set forth above, a gross inequity therefore exists which warrants
'1 63
the approval of exception relief.
A beneficiary exception incorporates many of the principles al-
ready discussed, but applies them to third parties who may not have
standing to seek exception relief. The Tidwell case, for example, repre-
sents both a reasonableness or substantive due process exception and a
comparative-fairness or equal-protection exception. It is not reason-
able or fair to require the residents of Nipomo to drive an extra twenty
miles for their gasoline. The norms of equality and efficiency bolster
the reasons for granting this exception. 64

162. [1980 Transfer Binder] ENERGY MGMT. (CCH)(5 DOE) 81,262 (June 8, 1979).
163. Id. at 83,198.
164. Id. For a similar third-party case, see Energy Co-op., Inc. [1980 Transfer Binder] EN-
ERGY MrMT.(CCH)(6 DOE) 81,023 (June 13, 1980).
Aspects of the third-party exceptions are, like many other exceptions, often a part requests
such as hardship and fairness exceptions. For example, in Marathon Oil v. DOE, 482 F. Supp.
651 (D.D.C. 1979), an Iranian embargo case, Ashland Oil claimed economic hardship and an
unfair distribution of burdens. In addition, the court noted that:
If Ashland is granted no relief, several independent gasoline customers of Ashlan d in the
Midwest will have to close their stations and lay off many of their employees. It may
likewise be expected that industries and small businesses will have to be closed in the
Appalachian region, and supplies of heat to homes in that area will have to be curtailed
or ended. Northwest Airlines, which receives over 43 per cent of its fuel requirements at
Minneapolis-St. Paul from Ashland, will be forced to curtail service by approximately 17
per cent, and Midway Airlines, which receives 100 per cent of its fuel from Ashland, will
be forced to ground one-third of its fleet. The Chessie System Railroad, which receives
approximately 25 per cent of its fuel from Ashland, will be forced to disrupt its freight
schedules with resulting curtailment of coal production in Appalachia. According to the
Director of the West Virginia Energy and Fuel Office, if Asfhiand receives an allocation
of only 62 per cent, "there is no way that our coal industry is going to be able to survive."
Ashland supplies around one-quarter of West Virginia's heating oil, kerosene, and gaso-
line with potentially disasterous consequences this winter in the event of an oil cut-off.
Somewhat similar consequences may be expected in Minnesota.
482 F. Supp. at 658-59.
 DUKE LAWJOUR[o8AL [Vol. 1982:277

The claims of third parties may be similar to any of those claims

already reviewed. The containability of third-party exceptions thus
turns on the peculiar facts of each case. In theory, the only requisite for
beneficiary exceptions is that the alleged injury must contravene the
intended benefits of the regulatory program.
Of course, this category of exceptions provides another line of at-
tack for a petitioner who is attempting to change the rules for his own
benefit. Often, the third-party effects of a failure to grant an exception
are combined with other alleged bases for an exception, such as eco-
nomic hardship, unfair distribution of burdens, or technological impos-
sibility. The deprivation of regulatory benefits to third parties should
be, however, significant before the petitioner obtains relief in what is
otherwise a weak case.

3. NationalSecurity Exceptions.
Maxim: Equity may allow an exception to a rule to preserve or fur-
ther national security.
Section 665 of the Occupational Safety and Health Act authorizes
the Secretary of Labor to allow "reasonable variances, tolerances, and
exemptions" from any provisions of the Act "as he may find necessary
and proper to avoid serious impairment of the national defense. ' ' 165
What constitutes "serious impairment of national defense" is unclear.
There is precedent for such an exception, however, in first amendment
cases in which constitutional rights have been balanced against na-
tional security concerns. In Greer v. Spock,1 66 for example, the
Supreme Court upheld the government's ban of political speech on
military bases. The ban was a content-based restriction of a funda-
mental first amendment right that probably would have been flatly im- 168
permissible in a civilian context. 167 Similarly, in Brown v. Glines,
the Court upheld Air Force regulations imposing a prior restraint on
the first amendment right to petition. The regulations were intended to
ensure military discipline and morale.169
Although the allegedly protected speech in both of these first
amendment cases had a direct affect on military matters, OSHA safety

165. 29 U.S.C. § 665 (1976).

166. 424 U.S. 828 (1976).
167. See id. at 842, 845 (Powell, J., concurring).
168. 444 U.S. 348 (1980).
169. See id. See also Snepp v. United States, 444 U.S. 507, 509 n.3 (1980) (condoning prior
restrictions on publication in the interest of national security "that in other contexts might be
protected by the First Amendment"); United States v. Macintosh, 283 U.S. 605, 622 (1931)
(breadth of war powers permits Congress to take a variety of actions that would be constitution-
ally prohibited in nondefense contexts).
Vol. 1982".277] ADMINISTR TIVE EQUITY

regulations are not likely to affect military morale or discipline so di-

rectly. Safety regulations, however, are more likely to affect the effi-
ciency with which certain tasks, useful to the military, are
accomplished. To the extent, for example, that certain safety regula-
tions delay the production of needed weapons or parts for weapons, a
national-security exception may be appropriate. Unless these excep-
tions are limited to times of war, there is little to contain them.
4. Public-interestPolicy Exceptions.
Maxim: Equity may grant an exception to enable an agency to pur-
sue policy goals that are in the public interest and that are
not inconsistent with the regulatory goals of the program.
Public-interest policy exceptions can be authorized by a variety of
statutory terms. The Powerplant and Industrial Fuel Use Act of 1978
(PIFUA),170 for example, prohibits certain newly constructed utilities
from using natural gas or oil as fuel for producing electricity. 171 Before
its repeal, the Act also required that certain presently existing utilities
convert from oil and gas to coal by 1990.172 In the interim, there were
strict limitations on the amount of natural gas and oil that plants could
use, if such plants had alternative-fuel capability.173 Section 311 of the
Act provided, however, that the administrator could grant "temporary
exemptions" for a period of at least six months, renewable only once, if
he determined the exception to be in "the public interest" and consis-
tent with the purposes of the Act. 174 Pursuant to this provision, the

170. 42 U.S.C. §§ 8301-8483 (Supp. I1 1979).

171. Id. § 8311.
172. Id. §§ 8341-8343.
173. On August 13, 1981, President Reagan signed into law the Omnibus Budget Reconcilia-
tion Act of 1981, Pub. L. No. 97-35, 95 Stat. 357. This Act included various amendments to the
Powerplant and Industrial Fuel Use Act. Of particular importance was the repeal of those por-
tions of the PIFUA that prohibited existing powerplants from using natural gas after 1990 as well
as using natural gas in excess of certain base-year quantities. See Omnibus Budget Reconciliation
Act of 1981, Pub. L. No. 97-35, § 1021, 95 Stat. 614 (repealing Powerplant and Industrial Fuel Use
Act of 1978, Pub. L. No. 95-620, § 301, 92 Stat. 3305). As a result, existing powerplants are no
longer subject to any restrictions on burning natural gas. See id.
174. See 42 U.S.C. § 8321(c) (Supp. I1 1979). In contrast to the open-end approach of this
exception, section 8321(c) also allows essentially a hardship exemption to the statutory require-
ment that powerplants use coal rather than natural gas or petroleum if,
despite diligent good faith efforts -
(1) it is likely that an adequate and reliable supply of coal or other alternate fuel of
the quality necessary to conform with design and operational requirements for use as a
primary energy source will not be available to such powerplant or installation at a cost
(taking into account associated facilities for the transportation and use of such fuel)
which, based upon the best practicable estimates, does not substantially exceed the costs,
as determined by rule by the Secretary, of using imported petroleum as a primary energy
source;
(2) one or more site limitations exist which would not permit the operation of such a
powerplant or any other alternate fuel as a primary energy source; or
 DUKE LAW JOURIKAL [Vol. 1982:277

administrator had allowed a number of exemptions permitting utilities

to burn natural gas rather than coal. One proposed Department of En-
ergy order stated that as a matter of national energy policy, "to the
extent that the near-term choice for fuels for certain existing power-
plants is limited to petroleum
175
or natural gas, the use of natural gas is
preferred over petroleum."
The Federal Aviation Act 176 contains a statutory authorization
similar to that contained in the PIFUA. The Aviation Act authorizes
the administrator to "grant exemptions from the requirements of any
rule or regulation prescribed under this subchapter if he finds that such
action would be in the public interest."' 77 As one court has noted, this
standard does not require that an exception be granted if the individual
petitioner appears entitled to it for hardship or other personal reasons:
"'public interest' language of the statute authorizing exemptions would
seem to direct a primary emphasis on the elimination of anomalies and
inequities8 ...rather than on the alleviation of personal hardship
7
cases."'1
Public-interest exceptions are also generated by criteria such as
"inequity" or "special hardships."' 179 Though they also generate rea-
sonableness exceptions, 80 these criteria generate policy exceptions
when the focus shifts from the reasonableness of a rule as applied to a
particular entity to the policy goals to be achieved by the exception.
InAmericanAgri-FuelsCorp. ,181 for example, the petitioner sought
a new supplier and an allocation of unleaded motor gasoline. 82 The
petitioner did not seek the request because of any unique hardship or
peculiar circumstances other than his willingness to use this allocation
to make gasohol. The administrator granted the relief, noting:
In previous cases, the DOE has approved exception relief on gross
inequity grounds upon a showing that these important national en-

(3) the prohibitions of sections 8311 or 8312 of this title could not be satisfied with-
out violating applicable environmental requirements.
175. 45 Fed. Reg. 18,429 (1980). To further its national energy policy, the DOE proposed to
issue hundreds of temporary public-interest exemptions from the prohibitions of section 301 of the
PIFUA to facilitate the use of natural gas instead of petroleum in existing electric powerplants.
Section 301 of the PIFUA has since been replaced by a new section 301 set forth in the Omnibus
Budget Reconciliation Act of 1981. See note 173 supra.
176. 49 U.S.C. §§ 1421-1432 (1976).
177. Id. § 1421(c).
178. Starr v. FAA, 589 F.2d 307, 312 (7th Cir. 1978).
179. See 42 U.S.C. § 7194(a) (Supp. III 1979).
180. See text accompanying notes 150-55 supra.
181. [1979 Transfer Binder] ENERGY MGMT. (CCH)(4 DOE) 81,139 (Feb. 16, 1979), at'd,
Amoco v. DOE, 490 F. Supp. 1016 (D.D.C. 1980).
182. For a similar exception based primarily on broad policy grounds, see Bonnaffons v.
DOE, 492 F. Supp. 1276 (D.D.C. 1980).
Vol. 1982".277] ADMINISTRA TIVE EQUITY

ergy objectives would be significantly frustrated by the DOE

Regulations....
In the particular circumstances presented in this case, we find
that the operation of the allocation regulations results in a gross ineq-
uity by preventing a new independent marketer, AAF, from entering
the petroleum industry. In the absence of exception relief assigning
AAF a supplier of motor gasoline, the firm will be unable to locate
an assured supply of that product and will therefore be unable to
conduct the business for which it was formed ...
Furthermore, we have concluded that the application of the al-
location regulations to the circumstances presented by AAF will im-
pede the development of alternative domestic energy sources. Since
the shortage in petroleum products resulting from the OPEC Em-
bargo in October 1973, it has been the consistent policy of the United
States to encourage a diversity of energy sources in order to meet the
nation's energy needs .... 183
In short, exception relief was granted because of the value to national
energy policy of the petitioner's willingness to produce an alternative
energy source, not because of the peculiar plight of the petitioner.

5. Analysis of Policy Exceptions.

The principles underlying public-interest exceptions vary consid-
erably depending on the regulatory goals of the program. In the con-
text of economic regulation, such exceptions often infuse market values
into a regulatory scheme that substantially rejects market results. Of
fundamental importance to the grant of the exception inAmericanAgri-
Fuels, Inc. was the need for "entry of new firms," the need for "new
energy sources," and the need for the exception to allow the firm to
carry out its purpose for going into business. The exception reflects a
concern for competition and innovation. Similarly, the public-interest
exceptions to the PIFUA allow utilities to act in accordance with mar-
ket conditions by using less expensive natural gas rather than switching
to coal.
Policy exceptions thus provide an important means of tempering
excessively rigid regulatory schemes. Moreover, because such excep-
tions are usually granted on a case-by-case basis, they provide agencies
with opportunities to experiment with new approaches before embark-
ing on wholesale revisions of their rules. But such exceptions can be
over-used because their containability is usually restricted only by the
broad regulatory goals of the statutes themselves.
Used to excess, policy exceptions can have a profound substantive
and procedural impact on any regulatory program. Policy exceptions

183. ENERGY MGMT., supra note 181, 81,139, at 83,068 (citations omitted).
 DUKE LAW JOUR4L [Vol. 1982:277

that emphasize the need to encourage oil production, for example, can
result in substantial decontrol of crude oil prices despite the absence of
any amendments to the price-control rules presumably in effect.
Though changes in the rules or experimentation on a case-by-case basis
can be useful, overreliance on exceptions as a means of initiating new
policy can seriously undermine the rules "on the books."184 The net
result may be one set of rules for public consumption and another set
consisting of a variety of case-by-case exceptions for the benefit of the
more sophisticated, that is, the regulated. This may place reality at
5
odds with the apparent law. 18
Policy exceptions can infuse a regulatory scheme with new ap-
proaches, experimental techniques, and a healthy dose of market real-
ity. But rapid changes in a regulatory program can cause disruption,
higher regulatory costs, 186 and, in extreme cases, a regulatory repeal of

184. See Madison, OHA's Goldstein: A BureaucraticMastermind,Legal Times of Wash., July

9, 1979, at 5, col. 1; Burdick, Obscure,Bristl Energy Oficial"A Power Center, Legal Times of
Wash., July 31, 1978, at 1, col 2.
185. Cf. Anderson, The Roller-CoasterIncome Tax, PuB. INTEREST Q., Winter 1978, at 17
(discussing how the many exemptions in the Internal Revenue Code create a system at odds with
the goals of progressive taxation).
186. See Mayton, The Legislative Resolution ofthe Rulemaking Versus AdjudicationProblem in
Agency Lawmaking, 1980 DuKE L.J. 103. See also Consumers Power Co. v. FEA, [1974-1978
Transfer Binder] ENERGY MGMT. (CCH)(Court Decisions) 1 26,078 (D.D.C. July 8, 1977)
(residual-fuel entitlements program upheld; "the hearing procedures of the Administrative Proce-
dure Act are satisfied if the notice of proposed rulemaking contains a description of the subjects
and issues involved, which the FEA notice did, notwithstanding the fact that the exact terms the
agency adopted were not included in the initial proposal," id 126,078, at 26,607; Shell v. FEA,
[1974-1978 Transfer Binder] ENERGY MGMT. (CCH) (Court Decisions) 926,083 (D. Del. Sept. 8,
1976) (unleaded gasoline price regulations issued by the FEA struck down as violating the
rulemaking procedures of the FEA Act, which require a ten day comment period on the proposal
and an opportunity for oral presentations if the proposal is likely to have a substantial impact on
the industry); DOE GasolineAllocation Program: HearingsBefore the Permanent Subcomm. on
Investigationsof the Senate Comm, on GovernmentalAffairs,96th Cong., 2d Sess. 148-49 (1980)(re-
marks of Jack Blum, General Counsel to Independent Gasoline Marketer's Council):
the entire process by which regulations are promulgated in the federal administrative law
system has been stood on its head. Instead of using hearings, public participation and
careful draftsmanship to prevent problems and insure compliance, DOE counts on the
delegation of vast powers to a "Mr. Fix-It" for solutions. All decisions in a way become
arbitrary and capricious because not all cases can be handled in a timely fashion and the
results follow no predictable standard.

The office [of Hearings and Appeals] was given an extraordinarily broad delegation
of power from the Secretary of Energy and, in effect, gave Mr. [Melvin] Goldstein the
opportunity to take policy initiatives as he crafted acceptable relief for people who had
been injured or were about to be injured by the regulations of the Economic Regulatory
Administration. He also has showed himself willing, and at times eager, to take on pol-
icy issues which the Economic Regulatory Administration had ignored.
Id. (footnotes omitted).
During these hearings, Professor Mayton stated:
Problems develop.., when the exceptions device is employed to a different end, that of
formulating law or policy to be applied to the industry. The OHA exceptions process,
Vol. 1982".277] ADMINISTRA4
7 TIVE EQ UITY

the statute that originally spawned the exceptions. 187

Policy exceptions have procedural as well as substantive ramifica-
tions. Most agencies grant or deny exceptions by using either formal or
informal adjudicatory procedures. To the extent that granting excep-
tions through adjudication becomes a major policymaking tool, one of
the major administrative reforms in recent years-the movement away
from adjudicatory procedures toward rulemaking procedures to make
policyl 8 8-may be undermined.
There are a number of reasons why policy exceptions may under-
mine this reform. First, broad delegations of legislative power to agen-
cies tend to produce general rules that fail adequately to resolve
significant policy conflicts. 189 The inherent difficulty of legislating for
the future and of formulating rules in areas of scientific uncertainty 90
militate in favor of general prohibitions that can be more carefully de-
fined at a later date through an exceptions process. Given the ambi-
tious and difficult nature of some regulatory programs, the use of
exceptions to adjust such programs may be a wise way to proceed; how-
ever, overreliance on exceptions as a backup to generalized rulemaking
may encourage incomplete and careless rulemaking. The temptation to

then, can be, and is, used to make new law, or rules, rather than merely providing excep-
tions to existing rules.... [Texaco, Inc. v. DOE, 460 F. Supp. 339 (D.D.C. 1978)]. The
problems occasioned by developing industry-wide policy, or rules, by an exceptions pro-
cess rather than the rule making process are not just procedural oddities. Rather, when
the rule making process is subverted by ad hoc agency decisions, certain serious institu-
tional problems start to emerge.
DOE Gasoline Allocation ProgramHearings, supra, at 153-54.
Professor Mayton concluded that broad exception processes present a host of problems:
1. Undermining the congressional goal of establishing a secure set of published
standards to provide guidance to the regulated industry ... . When standards are not
secure-when the exception becomes the rule-industry incurs increased risks which re-
sult in increased costs, which are eventually passed on to the public.
2. [C]reation of a certain litigious state within an industry-a condition which
eventually imposes, in economic terms, serious "transaction costs." If the standard is
rendered infirm by an exceptions process, then business will predicate its judgment on
the exceptions it can procure. Hence, the case load subject to the exception process in-
creases - dramatically.
3. mhe exception process itself may (1) change the status quo and (2) operate as a
prejudgment when the exceptions process rather than rule making is resorted to initially
to develop policy.
4. The exception process [may not provide] the broad data base that Congress re-
quires by the rule making process.
Id. at 154.
187. Regulatory repeal may very well be the case with the public-interest exceptions granted
pursuant to the Powerplant Industrial Fuel Use Act, 42 U.S.C. §§ 8301-8483 (Supp. I 1979). As
noted above, this Act has been significantly amended by the Omnibus Budget Reconciliation Act
of 1981, Pub. L. No. 97-35, 95 Stat. 357.
188. See 1 K. DAvis, ADMINISTRATIVE LAW TREATISE § 1.9 (2d ed. 1970).
189. See Stewart, The Reformation ofAmerican Administrati'e Law, 88 HARv. L. Rav. 1669,
1673-1702 (1975).
190. See Pedersen, Formal Records and Informal Rulemaking, 85 YALE L.J. 38, 58 (1975).
 DUKE LAW JOURNVAL [Vol. 1982:277

provide a rough-and-ready rule and use the exceptions process to com-

plete the task on an individualized basis may be too great to avoid.
Increased procedural complexity, particularly for agencies that
must use complicated hybrid procedures, also encourages agencies to
bypass rulemaking procedures. Promulgating rules pursuant to new
hybrid approaches can be a tedious process. 191 For example, using a
substantial-evidence standard to test the validity of rules and allowing
cross-examination before formulating them can render the entire
rulemaking process exceedingly cumbersome.1 92 It took a number of 93
years to promulgate just a few rules dealing with toxic substances.1
And the Magnuson-Moss Act, which establishes hybrid rulemaking
procedures for the FTC, has been an administrative nightmare. 94 The
use of an exceptions process to develop policy avoids the complexity
and the time-consuming aspects of general rulemaking under these new
approaches. It also shields the policymaking process and its ultimate
results from the public at large.
Nevertheless, to the extent that exceptions become the cutting edge
for policymaking, 95 two procedural requirements should be a part of
any exceptions process. First, policy exceptions that are granted to a
class or to a large number of applicants for more than an experimental
period of time (for example, six months) should automatically trigger a
rulemaking proceeding. The continued validity of exceptions granted
prior to the conclusion of that proceeding should be contingent on the
amendment of the relevant rules. Second, individual equitable pro-
ceedings that do not result in major policy changes should nevertheless
be summarized and assessed on a regular basis. These summaries
should then be published and, to the extent the incremental changes
have produced a significant amendment of a rule, a rulemaking process
should be convened to update the rule. The law expressed in an
agency's rules should represent reality rather than past regulatory ap-
proaches no longer in effect for those with the means and ability to
request an exception.

191. B. Boyer, Phase II Report on the Trade Regulation Rulemaking Procedures of the Fed-
eral Trade Commission 51-87 (June 1980) (Report to Administrative Conference of the U.S., on
file at Duke University Law Library).
192. Seegeneraly S. BREYER & R. STEWART, ADMINISTRATIVE LAW ANID REGULATORY POL-
ICy 499-530 (1979); McGarrity, Substantive andProceduralDiscretionin Administrative Resolution
ofScience Policy Questions: Regulating Carcinogensin EPA and OSHA, 67 GEo. L. J. 729 (1979).
193. See generally, McGarrity, note 192 supra.
194. See generally Boyer, supra note 191, at 51-87.
195. See note 186 supra.
Vol. 1982:277] ADMINISTRA TIVE EQUITY

III. EXCEPTIONS PROCESSES, THE REGULATORY DIALOGUE, AND

AGENCY CAPTURE

Exceptions processes provide a ready mechanism for reconciling

market, regulatory, and agency values inherent in any regulatory
scheme. In effect, exceptions processes create an ongoing interplay be-
tween the market and the agencies charged with regulating the market.
When regulated entities are granted exceptions to rules of general ap-
plicability, questions of agency capture may arise. 196 This section ex-
aines the nature of the regulatory dialogue inherent in exceptions
processes and the relationship between a lively exceptions process and
the possibility of agency capture.

A. Administrative Equiy andthe Regulatory Dialogue.

Individual exceptions cases often present agencies with ambiguous
factual patterns that call into play the rationales for various types of
exceptions. The application of these exception types provides an op-
portunity for the agency, the litigants, and reviewing courts to consider
and manipulate the principles that underlie each type of exception.
The end result is a process best described as a "regulatory dialogue"-
the interplay that occurs among market, regulatory, and agency values
in the resolution of a particular case. The Ashland Oil case, 197 dis-
cussed above, provides a good illustration of this dialogue.
Ashland Oil applied for exception relief to minimize the impact of
the United States' refusal to purchase Iranian oil. Ashland relied on
Iran for twenty-five percent of its supply. It argued that the presiden-
tial proclamation requiring the refusal was part of the overall regula-
tory program and, as such, represented an unfair distribution of
regulatory burdens, created an economic hardship for the company
whose economic extinction threatened to undermine the competitive
structure of the oil-refining industry, and constituted gross inequity.' 98

196. See note 209 infra.

197. Marathon Oil Co. v. DOE, 482 F. Supp. 651 (D.D.C. 1979). The Marathon Oil or Ash-
land case is discussed in note 123 supra.
198. See 482 F. Supp. at 657-60. In denying the plaintif' motion for an injunction against
Ashland's exceptions, the court stressed the need for Ashland to survive:
mT]he public interest, as expressed on congressional enactments, favors an equitable shar-
ing of the burdens resulting from the world-wide and national oil shortage. Congress
has also indicated that it favors the effective survival of the so-called independent, along-
side the huge, multinational integrated oil companies, as one means for maintaining a
measure of competition in the oil industry. All of these interests are incompatible with an
injunction that would allow these plaintiffs to escape sharing the burdens flowing from
the ban on imports from Iran and would thrust these burdens instead on a company
which, in good faith, and in reliance on U.S. government policy decided to procure its
crude oil from that country.
Id at 660.
 DUKE LAWJOURATAL [V/ol. 1982:277

Ashland thus invoked the regulatory values that the oil-allocation pro-
gram intended to foster-the protection of industries from sudden, un-
foreseeable change; the need to impose a sharing arrangement among
competitors when unforeseen calamity strikes; and the need to main-
tain the competitive market structure by helping an otherwise strong
company through a particularly trying, albeit short, time period. Un-
derlying Ashland's economic arguments was the fundamental claim
that it is not only unfair, but also unwise, to allow an unforeseen event
to put a viable company out of business. Ashland based its arguments
on a strong appeal for stability and for the preservation of the competi-
tive status quo. 199 Survival of the fittest may be an appropriate long-
term standard; in the short run, however, administrative equity should
not allow the unpredictable action of an unstable country to destroy an
otherwise competitive firm and to affect adversely an entire industry.
Marathon Oil and Ashland's other competitors opposed exception
relief because it was their oil that Ashland sought to share. The com-
petitors' arguments strongly reflected market values, particularly free-
dom of choice and a willingness to allow the consequences of
unforeseen events to run their natural course. 2°0 Ashland's decision to
deal with Iran, they argued, was a voluntary business judgment from
which it was entitled to reap any resulting rewards or suffer any result-
20 1
ing harms.
Agency values usually parallel the values of the regulatory pro-
gram the agency administers. Agency values include the agency's need
to establish, maintain, and enhance its own legitimacy, power, and ef-
fectiveness. Though the agency must work within the ambit of its en-
abling statutes, it usually has broad discretion. A politically sensitive
agency will seek to strike an acceptable balance between market and
regulatory values to enhance its credibility with Congress, the benefi-
ciaries or constituents of the programs it administers, and the regulated
industries or individuals. This delicate balance 'produces a mix of mar-
ket and regulatory values.
In the Ashland case, the agency could have easily denied Ash-
land's request by finding that there was no causal connection between

199. Id.
200. See id. at 655.
201. Id. As the Marathon court noted:
Plaintiffs finally contend on this aspect of their motion that the real cause of Ash-
land's problems-and that of its customers-is that company's discretionary business
decision not to maintain worldwide crude oil operations, that is, to fail to develop secure
sources of supply, but to rely instead upon the crude oil supplies of Iran. With respect to
that decision, plaintiffs state that, "Ashland, not its competitors, must bear the conse-
quences.. .," and exception relief is therefore not appropriate.
Vol. 1982.277] ADMINISTRATIVE EQUITY

the regulatory program and the relief sought. The agency needed,
however, to prove its usefulness at a time when its price and allocation
controls were under intense criticism. 20 2 The agency also wanted to
avoid disruptive economic affects on the beneficiaries of the oil-alloca-
tion program. 20 3 The agency prevented disruption to third-party bene-
ficiaries by spreading out the effects of a sudden shortage at the expense
of Ashland's competitors.
The Ashland Oil case illustrates both positive and negative aspects
of an active exceptions process. The case shows how a process that
facilitates the interplay of values can produce a healthy flexibility by
infusing with a sense of reality what could otherwise have become a
rigid regulatory regime. Exceptions processes enable an agency to as-
sess straight-forwardly the perceived unreasonableness of the individ-
ual costs that rules impose on particular regulated entities. By using
exceptions processes to individualize the effects of rigid rules, agencies
can decrease the number of frivolous or weak challenges to the proce-
dural or constitutional validity of rules, appropriately limit the scope of
pre-enforcement judicial review to questions of law, and render unnec-
essary some of the more radical attempts to amend the Administrative
Procedure Act, such as the elimination of the presumption of validity
that agency rules now enjoy. 2° 4 Finally, an exceptions process that en-
courages individualization can also reduce the need for costly enforce-
ment proceedings as a means of rule interpretation and agency
policymaking.

202. See, ag., Erickson, Peters, Spann & Tese, The PoliticalEconomyof Crude OlPriceCon-
trols, 18 NAT. RESOURCES J. 787 (1978). Critics had persistently argued that controls decreased
domestic production of oil, increased American dependency on foreign oil, and gave false pricing
signals to consumers. See, ag., Bartlett, There Is No FuelLike Enough Fuel,25 INST. ON OIL &
GAs L. & TAX'N 247 (1974).
203. 482 F. Supp. at 658-59. The agency sought to avoid other third-party effects as well. As
the court noted in affirming the administrator's decision in Ashland:
[T]he record before OHA shows immediate and substantial injury to many of Ashland's
customers. If Ashland is granted no relief, several independent gasoline customers of
Ashland in the Midwest will have to close their stations and lay off many of their em-
ployees. It may likewise be expected that industries and small businesses will have to be
closed in the Appalachian region, and supplies of heat to homes in that area will have to
be curtailed or ended.
482 F. Supp. at 658-59.
204. See, e.g., the "Bumper's Amendment," first introduced in the Senate as S. 2408, 94th
Cong., Ist Sess. (1975). For a general discussion of the problems of eliminating the presumption
of validity that attaches to agency rules, see R. Levin, JuacialReview and the Bumpers Amend-
ment, in CURRENT ISSUES IN REGULATORY REFORM 264 (M. Rosenberg & B. McGovern, eds.
1980).
The Administrative Conference of the United States opposed the elimination of the presump-
tion of validity. See Rec. 79-6, Elimination of the Presumption of Validity of Agency Rules and
Regulations in Judicial Review, as Exemplified by the Bumpers Amendment, 54 Fed. Reg. 2308
(1980).
 DUKE L,4W JOURNAL [Vol. 1982:277

As the Ashland Oil case also illustrates, exceptions processes can

have potentially negative effects as well. Procedural problems may
arise particularly when exceptions are used to formulate policy and to
substantially amend a regulatory scheme. 20 5 There are also problems
with balancing individual costs and benefits 20 6 and with determining
causation. 20 7 It may also be argued that exceptions processes en-
courage the undesirable capture of the agency by the regulated. But
even if we accept the premises of the agency capture doctrine, 20 8 it need
not occur, particularly if there is an active and principled exceptions
process.

B. Exceptions and the Capture Doctrine.

The capture doctrine posits an agency ultimately dominated by the
industry it sets out to regulate.20 9 The beneficiaries of the regulation-

205. See text accompanying notes 188-95 supra.

206. See notes 98-107 supra and accompanying text.
207. See note 123 supra.
208. Capture theories are vulnerable in many ways. See, e.g., the authorities cited in note 209
infra.
209. Marvin Bernstein describes this process as "clientalism," "[t]he repeated identification of
the public interest with a particular private interest" caused by "the dependence of an agency on
the support and consent of the regulated." M. BERNSTEIN, REGULATING BUSINESS By INDEPEND-
ENT COMMISSION 270 (1955). Emmette Redford holds that a "mature" regulatory agency loses
both political and public support, "becomes part of the status quo and thinks in terms of the
protection of its own system and its own existence and power against substantial change." E.
REDFORD, ADMINISTRATION OF NATIONAL ECONOMIC CONTROL 386 (1952). Bernstein notes:
In the period of maturity,. . . [t]he commission becomes more concerned with the gen-
eral health of the industry and tries to prevent changes which adversely affect it. Cut off
from the mainstream of political life, the commission's standards of regulation are deter-
mined in the light of the desires of the industry affected. It is unlikely that the commis-
sion, in this period, will be able to extend regulation beyond the limits acceptable to the
regulated groups.

The close of the period of maturity is marked by the commission's surrender to the
regulated. Politically isolated, licking a firm basis of public support, lethargic in attitude
and approach, bowed down by precedent and backlogs, unsupported in its demands for
more staff and money, the commission finally becomes a captive of the regulated groups.
M. BERNSTEIN, supra at 87-90. James Landis referred to this capture process as "industry
orientation":
It arises primarily from the fact that of necessity contacts with the industry are frequent
and generally productive of intelligent ideas. Contacts with the public, however, are rare
and generally unproductive of any g except complaint ...
Irrespective of the absence of social contacts and the acceptance of undue hospital-
ity, it is the daily machine-gun-like impact on both agency and its staff of industry repre-
sentation that makes for industry orientation on the part of many honest and capable
agency members as well as agency staffs.
CHAIRMAN OF SUBCOMM. ON ADMINISTRATIVE PRACTICE AND PROCEDURE OF THE SENATE
COMM. ON THE JUDICIARY, 86TH CONG., 2D SEss., REPORT ON REGULATORY AGENCIES TO THE
PRESIDENT-ELECT 71 (Comm. Print 1960) (J. Landis).
Many commentators who have written on the subject of capture go further and assert that the
regulatory process is necessarily ineffective, except when the agency is part of the executive branch
Vol. 1982:277] ADMINISTR TIVE EQUITY

consumers, for example-are short-changed because the agency even-

tually puts the interests of the regulated ahead of the interests of those
whom the agency was established to protect.2 10 The capture doctrine is
inapposite, however, when the regulations involved cut across several
industries.21 ' Diversity among an agency's regulatory constituency

of goverunent. The thesis of these writers is that regulated interests readily capture the independ-
ent regulatory agency, that independence takes the agency out of politics, and that the only way a
regulatory agency can resist the pressures of the regulated is through strong political support from
the executive branch. See, e.g., P. APPELBY, POLICY AND ADMINISTRATION 161-64 (1949); M.
BERNSTEIN, supra, at 155-63; J. FESLER, THE INDEPENDENCE OF STATE REGULATORY AGENCIES
64 (1942); R. NOLL, REFORMING REGULATION 100 (1971); J. PFIFFNER & R. PRESTHUS, PUBLIC
ADMINISTRATION 480 (3d ed. 1953); E. REDFORD, supra, at 289; D. TRUMAN, THE GOVERNMEN-
TAL PROCESS 416-21 (1955); Cutler & Johnson, Regulation andthe PoiticalProcess,84 YALE L.J.
1395, 1397-1402 (1975).
Professor Kenneth Davis disagrees with this theory of exedutive protection for two reasons:
(1) only a portion of the statutes administered by the regulatory agencies are designed primarily to
contravene the interest-and even then the purposes of those statutes are often mixed or unclear,
(2) executive policies vary widely, much of the time adding up to indifference to the regulatory
programs. Davis suggests that "the key to effective administrative resistance to pressures of regu-
lated groups is not presidential supervision of the regulators but is continued congressional and
presidential support for administrative aggressiveness." 1 K. DAVIS, ADMINISTRATIVE LAW
TREATISE § 1:03, at 22-23 (1958).
Richard Posner, on the other hand, finds the capture theory unsatisfactory because it lacks
any theoretical foundation:
No reason is suggested for characterizing the interaction between the regulatory agency
and the regulated firm by a metaphor of conquest, and surely the reulatory process is
better viewed as the outcome of implicit (sometimes explicit) bargaining between the
agency and the regulated firms. No reason is suggested as to why the regulated industry
should be the only interest group able to influence an agency. Customers of the regulat-
ed firm have an obvious interest in the outcome of the regulatory process-why may they
not be able to "capture" the agency as effectively as the regulated firms, or more so? No
reason is suggested as to why industries are able to capture only existing agencies-never
to procure the creation of an agency that will promote their interests-or why an indus-
try strong enough to capture an agency set up to tame it could not prevent the creation of
the agency in the first place.
Posner, Theories of Economaic Regulation, 5 BELL J. OF ECON. & MGMT SCI. 335, 342 (1974).
Posner also contends that the "theory" is contradicted by three bodies of evidence.
First, not every agency is characterized by a pristine virtue; often there is no occa-
sion for conquest....
Second, the theory has no predictive or explanatory power at all when a single
agency regulates separate industries having conflicting interests ....
Third, the capture theory ignores a good deal of evidence that the interests pro-
moted by regulatory agencies are frequently those of customer groups rather than those
of the regulated firms themselves.
Id. at 342.
Finally there has been sharp criticism of Marvin Bernstein's much-quoted and widely read
attack on the regulatory agencies. Commentators have charged that Bernstein does not thoroughly
analyze any commission or agency, but instead Bernstein bases his comments on findings of
others. See I K. DAVIS, ADMINISTRATIVE LAW TREATISE § 2:9, at 94 (2d ed. 1978).
210. See BERNSTEIN, supra note 209, at 90.
211. This outcome suggests that capture theories explain very little of what actually occurs at
the agency level. As Barke and Ricker have pointed out:
The deepest problem with the capture theory is that it does not imply an inconsistent
public policy. On the contrary, it suggests that ultimately policy makes sense in terms of
 DUKE LAW JOUR[AL [Vol. 1982:277

makes it more difficult for the agency to be "captured" by any one

particular industry. Capture theories imply a certain consistency and
,even rigidity in agency policy. One of the likely results of an active
exceptions process, however, is the systematic undermining of any
2 12
purely monolithic view of agency policy.
On the other hand, however, if the agency is less likely to be cap-
tured, it may consequently exhibit less care in assessing the costs and
benefits of its proposed regulations. For example, if Consolidated
Edison Gas and Electric Company were to go bankrupt, it would not
be difficult to blame the public service commissioners who denied its
latest rate increase request. But if a firm or an industry experiences
difficulty because of numerous agency regulations, general economic
conditions, increased international competition, outdated technology,
and low productivity, it is difficult to hold any one agency accountable.
Rather than furthering agency capture, the exceptions process encour-
ages responsible regulation by forcing agencies to accept responsibility,
on a case-by-case basis, for the effects of their rules. In short, allowing
exceptions on a case-by-case basis implies neither an abandonment of
principle nor agency capture, but rather provides a systematic approach
for ensuring the flexibility that a fair regulatory program should
possess.

IV. CONCLUSION

We live in an age of regulatory reform. Debate on regulation fo-

cuses more and more on the wisdom and efficacy of traditional govern-
mental approaches to regulatory problems. Two roads diverge in this
debate. One leads to supergovernment, with its broad and pervasive
regulatory approaches, and the other leads to outright deregulation or,
where this is not feasible, to regulation that is as inobtrusive and as
market-oriented as possible.213

a single goal or interest .... The capture theory implies consistency of policy which is
neither observed nor intellectually defensible in a democratic polity.
R. Barke and W. Ricker, A Political Theory of Regulation with some Observations on Railway
Abandonments 34 (March 1981) (Johns-Manville Studies on Regulation, Discussion Paper No.
8008, on file at Duke University Law Library).
212. See notes 196-209 supra and accompanying text.
213. See, e.g., ABA COMM. ON LAW AND THE ECONOMY, FEDERAL REGULATION: ROADS TO
REFoRM 35 (Aug. 1978 Draft). Recommendation I states:
In lieu of governmental intervention in the economy, reliance should be placed when
feasible upon the competitive market as regulator suppored by antitrst laws. If govern-
mental regulation is required, consideration should be given to disclosure or to incentive-
based modes of regulation before turning to the classical command and control modes.
Id. at 35. See also Maloney & Yandle, Bubbles andEfficiency: CleanerAir at Lower Cost, REOu-
LATION, May-June 1980, at 49.
Vol. 1982:277] ADMINISTRA TIVE EQUITY

This article has dealt with exceptions that arise from traditional
regulatory programs characterized by command-control standards and
specific rules. 214 It has derived certain administrative equitable max-
ims by examining the fundamental norms that underlie administrative
exceptions. As the market mechanism becomes an increasingly attrac-
tive regulatory tool,2 15questions arise concerning the future role of ad-
ministrative equity.
Arguably, the validity and effectiveness of market-oriented rules
will not depend on legal exceptions processes. The market is presuma-
bly capable of making its own adjustments. The application of market-
oriented rules to particular situations, however, will not always ad-
vance a program's regulatory goals and in some cases may undercut
those goals. 216 Certain individuals or entities may experience hardship

214. See note IIsupra.

215. In FCC v. WNCNListeners Guild, 450 U.S. 582 (1981), the Supreme Court considered the
validity of a Federal Communications Commission (FCC) policy statement that concluded that
"the public interest was best served by promoting diversity in entertainment programming by
relying exclusively on market forces and competition among broadcasters. ...Id. at 585. The
Commission, therefore took the view that any change in entertainment programming was not a
material factor to be considered in ruling on an application for license renewal or transfer.
Though the Commission recognized that reliance "on the marketplace would not achieve a perfect
correlation between listener preferences and available entertainment programming, it, neverthe-
less, concluded that "the marketplace alone could best accommodate the varied and changing
tastes of the listening public." d at 596. The Supreme Court found that such an approach was
fully in accord with the public interest standard of the Communications Act, and that predictions
concerning the viability of a market approach were "within the institutional competence of the
Commission." Id
In dissent Justices Marshall and Brennan argued that the FCC's deregulation of radio format
and reliance upon market forces to ensure diversity in radio programming ignored the need for
exceptions. Id. at 608-09. The dissenting Justices stated that the FCC's deregulation policy lack-
ed the flexibility usually required under general regulations, and that "an agency's discretion to
proceed in complex areas through general rules is intimately connected to the existence of a 'safety
valve' procedure that allows the agency to consider applications for exemptions based on special
circumstances." .d. at 609. The failure to provide for an exception procedure, therefore, was
sufficient grounds to declare the FCC's market-oriented deregulation policy defective as a matter
of law.
The majority explicitly rejected the minority's argument, stating that though the Court had
considered the validity of FCC rules in light of the need for flexibility, the Court had never held
that the FCC may never adopt a rule that lacks an exception provision. Id. at 601, n.44.
216. For example, as the dissent in FCC v. WNCN Listeners Guild noted with regard to the
FCC's market approach to programming:
The Policy Statement coipletely forecloses any possibility that the Commission will re-
examine the validity of its general policy on format changes as it applies to particular
situations. Thus, even when it can be conclusively demonstrated that a particular radio
market does not function in the manner predicted by the Commission, the Policy State-
ment indicates that the Commission will blindly assume that the proposed format change
is in the "public interest." This result would occur even where reliance on the market to
ensure format diversity is shown to be misplaced, and where it thus appears that action
by the Commission is necessary to promote the public interest in diversity.
450 U.S. at 609.
 DUKE LAW JOUA1AL [Vol. 1982:277

or (more likely) fail to realize fully the intended benefits of a regulatory

scheme. A consequent need to conform the general to the particular is
likely to arise.
The most likely petitioners for such exceptions will be the pur-
ported beneficiaries of the rules, not those being regulated. 217 The re-
lief sought will resemble a structural injunction or, in effect, a "mini-
rule" that imposes regulation that is more stringent than the market
approach. Relief will be granted when, in the opinion of the adminis-
trator, application of the general market-oriented approach fails to ad-
vance the basic goals of the rule. Such exceptions will be policy-
oriented and akin to the third party beneficiary exceptions discussed
above. Rather than argue that the rule in question imposes undue reg-
ulatory costs, petitioners will argue that they experience hardship due
to the failure of the rule to achieve its goals.
Despite such differences, explicit statutory authorization for such
exceptions should be encouraged. This new exceptions process will
spark the regulatory dialogue by helping to infuse a market-oriented
regime with equitable, rather than purely market-oriented, values. It
will encourage the evolution of a regulatory scheme that rejects the
overinclusive regulatory approach of traditional command-control reg-
ulation. In the place of traditional command-control regulation will
arise a regulatory scheme that relies heavily on the market, with excep-
tions tailored to. situations that demand more stringent regulation than
218
the market provides.
On whatever end of the regulatory spectrum we begin-the free
market or a complete rejection of the market-an examination of ad-
ministrative equity suggests that an ongoing interplay of various mar-
ket and regulatory values will occur and temper the dominant
tendencies of whatever regulatory scheme is in effect. A regulatory re-
gime based primarily on market principles will not be a static one. The

217. For example, the respondents in FCC v. WNCNListeners Guild, who had petitioned for
review of ihe FCC's policy statement in the United States Court of Appeals for the District of
Columbia Circuit, were a number of citizens groups purportedly interested in "fostering and pre-
serving particular entertainment formats." 450 U.S. at 585.
218. For example, rather than command-control standards to ensure safety in the workplace, a
regulatory scheme may rely primarily on injury taxes - an employer would be taxed according to
the safety record of the firm. Strict reporting requirements would be necessary, but such an ap-
proach would eliminate the necessity on the part of the regulator of knowing details of every firm.
The maximum injury tax did not significantly alleviate chronic safety problems, an exception or
mini-rule could focus on the peculiar situation causing these problems. A least common denomi-
nator or "bad apple" approach would be avoided. Rather than treating all firms as incapable of
solving their own problems, stringent regulation would be reserved for a selected few. Such ex-
ceptions would begin to resemble the kinds of federal court decrees noted earlier. See text accom-
panying notes 4-8 supra.
Vol. 1982:277] ADMINISTPTIAVE EQUZTY 331

regulatory dialogue will continue and, given the basic values that per-
vade any regulatory scheme, the underlying structure of these new ap-
proaches will remain very much the same.