The relief plaintiffs request on their motion for preliminary injunction is more expansive. Plaintiffs seek an order enjoining defendants from (1) giving any further force or effect to HUD's Coinsuring Lender Letters Nos. 89-12, 90-1 and 90-2, or HUD News Release No. 90-09, (2) taking any further action which impairs plaintiffs' authority as approved coinsured lenders, or (3) issuing any further legislative rules or regulations under the coinsurance program other than by the notice and comment procedures of section 4 of the Administrative Procedure Act ("APA"), 5 U.S.C. § 553, and the procedures described in section 7 of the Department of Housing and Urban Development Act, 42 U.S.C. § 3535(o). See Motion for Preliminary Injunction. As explained below, plaintiffs are entitled to the preliminary injunctive relief they seek.
Plaintiffs have moved for preliminary injunctive relief only with respect to Counts I, II, and III of their complaint. Defendants have simultaneously opposed plaintiffs' motion for a preliminary injunction and moved to dismiss Counts IV and V of the complaint. Before turning to defendants' motion, the Court shall first address whether plaintiffs are entitled to a preliminary injunction.
A preliminary injunction may be granted only when the plaintiff demonstrates (1) a substantial likelihood of success on the merits; (2) that irreparable injury will result in the absence of the requested relief; (3) that no other parties will be harmed if temporary relief is granted; and (4) that the public interest favors entry of a temporary restraining order. Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., 182 U.S. App. D.C. 220, 559 F.2d 841, 843 (D.C. Cir. 1977); accord, Virginia Petroleum Jobbers Ass'n v. Federal Power Commission, 259 F.2d 921, 925 (D.C. Cir. 1958). This test is not a wooden one, for as our court of appeals has noted, relief may be granted "with either a high probability of success and some injury, or vice versa." Cuomo v. United States Nuclear Regulatory Commission, 772 F.2d 972, 974 (D.C. Cir. 1985) (per curiam) (emphasis in original). See also Holiday Tours, 559 F.2d at 843.
A. Likelihood of Success on the Merits
1. Notice and Comment Rulemaking
Counts I and II of plaintiffs' complaint, which form the core of their claims, allege that Coinsuring Lender Letters Nos. 89-12, 90-1 and 90-2 constitute substantive rules requiring notice and comment rulemaking pursuant to 5 U.S.C. § 553 and 42 U.S.C. § 3535(o). The Court agrees.
The Interim Rule, attached to Norris' declaration, states that "without conceding that rule making is legally required, and in the interest of extreme caution, HUD is issuing this Interim Rule to minimize the severity of any financial losses that HUD might suffer if the court were to preliminarily enjoin the Lender Letters for lack of rule making." Norris Decl., Attachment, p. 3.
In light of this action, the Court inquired at the hearing on March 7, 1990 as to whether a live case or controversy still existed sufficient to invoke federal jurisdiction. All parties agreed that a case or controversy did exist, as HUD intended to continue to give force and effect to Coinsuring Lender Letters Nos. 89-12, 90-1, and 90-2 until such time as the Interim Rule became effective. Furthermore, it was not known if or when Congress would grant the waivers; nor was it known when the interim rule would become effective.
Since the briefing on plaintiffs' motion for preliminary injunction and defendants' motion to dismiss was completed, the Court has been advised that HUD published the Interim Rule in the Federal Register on March 27, 1990 with the effective date fixed as April 26, 1990. 55 Fed. Reg. 11,342. This Interim Rule is now the subject of plaintiffs' second motion for a temporary restraining order and preliminary injunction, which is discussed, infra.
5 U.S.C. § 553 requires agencies to afford notice of a proposed rulemaking and an opportunity for public comment prior to a rule's promulgation, amendment, modification, or repeal. However, Congress created several exceptions to these requirements. Relevant to the instant case is the exception for "interpretive rules, general statements of policy, or rules of agency organization, practice or procedure." 5 U.S.C. § 553(b)(A). Defendants argue that the Coinsuring Lender Letters at issue here constitute rules of "procedure" and are thus exempt from the normal notice and comment requirements.
The Court's analysis begins
with the recognition that the purposes of the notice and comment requirements are dual: "to reintroduce public participation and fairness to affected parties after governmental authority has been delegated to unrepresentative agencies," Batterton v. Marshall, 208 U.S. App. D.C. 321, 648 F.2d 694, 703 (D.C. Cir. 1980), and to "assure that the agency will have before it the facts and information relevant to a particular administrative problem, as well as suggestions for alternative solutions." Guardian Federal Savings & Loan Ass'n v. Federal Savings & Loan Insurance Corp., 191 U.S. App. D.C. 135, 589 F.2d 658, 662 (D.C. Cir. 1978). Stated differently, "the purpose of § 553 is 'to enable the agency promulgating the rule to educate itself before establishing . . . procedures which have a substantial impact on those regulated.'" National Tour Brokers Ass'n v. United States, 192 U.S. App. D.C. 287, 591 F.2d 896, 902 (D.C. Cir. 1978) (footnotes omitted).
Accordingly, our circuit has repeatedly recognized that the exceptions to the notice and comment requirements of § 553 are to be construed narrowly. See American Hospital Association v. Bowen, 266 U.S. App. D.C. 190, 834 F.2d 1037, 1044 (D.C. Cir. 1987) ("Congress intended the exceptions to § 553's notice and comment requirements to be narrow ones"); Alcaraz v. Block, 746 F.2d 593, 612 (D.C. Cir. 1984) ("The exceptions to section 553 will be 'narrowly construed and only reluctantly countenanced'") (citation omitted); National Association of Home Health Agencies v. Schweiker, 22 3 U.S. App. D.C. 209, 690 F.2d 932, 949 (D.C. Cir. 1982), cert. denied, 459 U.S. 1205, 75 L. Ed. 2d 438, 103 S. Ct. 1193 (1983) (exceptions to the notice and comment provisions of § 553 are to be recognized "only reluctantly," so as not to defeat the "salutary purposes behind the provisions").
Agency actions or statements falling within the three exemptions in § 553(b)(A)
are not determinative of issues or rights addressed. They express the agency's intended course of action, its tentative view of the meaning of a particular statutory term, or internal house-keeping measures organizing agency activities. They do not, however, foreclose alternative courses of action or conclusively affect rights of private parties. Although an agency empowered to enact legislative rules may choose to issue non-legislative statements, an agency without legislative rulemaking authority may issue only non-binding statements. Unlike legislative rules, non-binding policy statements carry no more weight on judicial review than their inherent persuasiveness commands.
Batterton, 648 F.2d at 702 (footnotes omitted).
At issue here is the third of the three exemptions contained within § 553(b)(A) for "rules of agency organization, procedure, or practice." The purpose of this exemption is to ensure "that agencies retain latitude in organizing their internal operations." Batterton, 648 F.2d at 707.
A useful articulation of the exemption's critical feature is that it covers agency actions that do not themselves alter the rights or interests of parties, although it may alter the manner in which parties present themselves or their viewpoints to the agency.