Adverse Publicity by Administrative Agencies in the Internet Era

This is a guest post by Nathan Cortez, Associate Dean for Research and Associate Professor of Law at SMU Dedman School of Law. This post is the result of the author’s independent research and does not necessarily represent the views of the Administrative Conference or its Members, or the United States.

The Administrative Conference’s Recommendation 73-1, Adverse Agency Publicity examines statements made by an agency or its personnel which invite public attention to an agency’s action and which may adversely affect persons identified therein. This recommendation was produced in an era where adverse publicity was used as a primary method of enforcement by some agencies. The supporting report, written by Professor Ernest Gellhorn and published in the Harvard Law Review, surveyed agency applications of adverse publicity.[1] At the time, agencies rarely established procedures or standards for the use of agency adverse publicity, and it was almost never subject to effective judicial review. In Recommendation 73-1, the Conference urged each agency to state in published rules the procedures and policies to be followed in publicizing agency action or policy and encouraged all agencies to make only factual, accurate, non-disparaging statements therein.

Thanks to ACUS for featuring my article, Adverse Publicity by Administrative Agencies in the Internet Era, published in the BYU Law Review a few years ago. I began this research to study how (and indeed whether) federal agencies implemented any parts of the Conference’s Recommendation 73-1, particularly in light of technological and other societal developments over the last forty years.[2] What interested me was federal agencies’ increasing use of press releases, web site announcements, and social media services like Twitter, Facebook, and the like. I was also intrigued by how quickly the trade press and financial markets accounted for negative announcements by federal agencies, and the damage control efforts that companies used to counter these announcements (including in many instances pretty unfruitful litigation).

My article found that some agencies adopted standards as called for by the Administrative Conference (most notably the FDA and FTC). But most did not. And neither the courts nor Congress ever intervened to impose limits or standards on agency practices. Courts, in particular, have remained very reluctant to allow judicial review of these types of agency actions--viewing adverse publicity mostly as highly discretionary and highly intermediate actions that would not qualify as a “final agency action” that courts typically review.

I found that federal agencies continue to use countless forms of publicity. Sometimes, the publicity is used to lean on alleged regulatory violators, or even to amplify the agency’s enforcement powers. The problem is that these “actions” typically do not afford the companies or individuals due process or other procedural safeguards that agencies must use when pursuing more formal actions. There is not much that private parties can do to fight an adverse announcement, other than issue their own public explanation (and risk further souring their relationship with the agency).

My article thus renews the call for standards given four developments since 1973:

• First, agencies now have even more incentives to issue adverse publicity and eschew more formal statutory enforcement actions, in an era of declining or stagnant budgets.
• Second, new media give agencies more ways to issue adverse publicity, for example, by making announcements via their websites, Facebook, or Twitter.
• Third, new media make it easier for audiences to misread or mischaracterize an agency's message, due to their short length and informality.
• Finally, hyper-responsive capital markets now process adverse publicity more swiftly and hastily, multiplying the potential or damage. Company stock prices can take a huge dive after agencies make negative announcements, including even announcements of preliminary agency investigations that have yet to uncover any wrongdoing.

I reviewed modern agency practices in light of these developments. I also reviewed what agencies have done since 1973, when the Administrative Conference first published its recommendations. Finally, I looked at over two dozen cases in which parties tried to challenge agency practices in court.

Given my findings, I call for agencies to constrain themselves by publishing standards governing their use of adverse publicity. I also call for Congress to recognize that publicity used as a sanction is "final agency action," and for courts to review adverse publicity for an "abuse of discretion" under the Administrative Procedure Act (APA).

Agencies should certainly retain wide discretion to communicate with the public, but should be held accountable if they abuse that discretion. To counterbalance this restraint on agencies, Congress should enhance agencies’ statutory enforcement powers and resources if need be, so that agencies do not need to rely on extrastatutory tactics like adverse publicity.