Possible Prescriptive Recommendations

POSSIBLE PRESCRIPTIVE RECOMMENDATIONS: ADJUDICATION

Revised Draft

April 15, 2003

Submitted by Michael Asimow

This memo contains prescriptive recommendations arising out of the adjudication portion of the Section's APA project. They are revised in light of the discussion at the Winter, 2003 meeting and input I've received since that meeting, particularly from Ann Young and Bill Funk. Please discard all drafts dated prior to April 15, 2003. They will serve as the basis for discussion at a meeting of the Adjudication Committee at the San Juan meeting and for a Council discussion. .

Please note that this draft contains a quite important (and undoubtedly controversial) proposal for extending certain APA provisions to a range of adjudicatory decisions conducted by administrative judges (AJs) that are presently not covered by the statute. (Part A).

The assumption is that these recommendations will be submitted to the ABA House of Delegates for approval. This will require a more detailed statement of reasons for each recommendation as well as a preamble. The HOD document should state that it repeals previous HOD action that is inconsistent with these recommendations (the reference here is to a set of recommendations for APA revision that were approved by our Section and the HOD in 1970 and which are inconsistent with these recommendations in important respects).

A. Informal adjudication. In response to suggestions by Ann Young and Bill Funk, I suggest a radical departure from existing law (which basically provides no protections for private parties except in the narrow band of cases in which ALJs preside). . The APA would be amended to provide for three tiers of adjudication.

Tier 1 is the existing statute in which ALJs conduct formal hearings (also including those few situations in which Congress requires the existing APA adjudication provisions to be followed even though ALJs are not employed) . Tier 1 applies when a statute requires a "hearing on the record." Under the new default provision discussed in B.2., Tier 1 will also apply to adjudicatory hearings called for in future statutes (even if not "on the record") unless Congress provides the contrary. Other than those changes described in B. and C. below, Tier 1 would not change from its existing form.

Tier 2 will apply to all evidentiary adjudicatory hearings required by statute that are not covered by Tier 1. The word "hearing" is intended to exclude such things as public, rulemaking-type hearings or informal inquiries, but to include those hearings in which a neutral decisionmaker is required to decide the case based on the evidence submitted at the hearing.

Included are a large number of statutory schemes including immigration and naturalization, civil penalties, license modifications, government contracts, veterans' benefits, and many others. Hearing officers who are often referred to as administrative judges (AJs) preside in these hearings (AJs may be full-time decisionmakers or may be agency staff members who do judging part-time).

Under the proposal, certain provisions of the existing APA will apply to all Tier 2 hearings unless Congress otherwise provides. The provisions that will apply are separation of functions, prohibition on ex parte contacts, requirement of impartiality, requirement of notice, the requirement that a party have an opportunity to present its case by oral or documentary evidence and to conduct cross examination, and the requirement of a written decision.

We might also provide that agencies subject to both Tier 1 and Tier 2 must adopt a code of ethics for their judges. A comment could refer agencies to the 2001 ABA resolution calling for adoption of ethics codes adapted from the ABA Model Code of judicial conduct in light of the unique characteristics of the administrative judiciary and the particular agency.

Tier 3 applies to all other adjudicatory decisions (that is, those in which no evidentiary hearing is required by statute. Tier 3 applies to millions of informal interactions between federal government officials and private parties in which the official is empowered to make a final decision. Some of these decisions are quite important to the people involved, some would be considered trivial.

Just to name a few, Tier 3 includes decisions:

about prisoners (such as removal to a different prison),
by consular officials denying a visa to a foreign national,
by banking officials denying an application to open a new bank
by a postal clerk about the amount of postage a customer must pay for
by an official of a service academy over who will conduct the band
concerning hiring and other employment decisions not otherwise controlled by statute
concerning government contracting when not otherwise controlled by statute
by a forest ranger about who gets a campsite.

Proposed statute:

APA §551(7.5): Tier 1 adjudication means agency process for the formulation of an order where §554 applies under the standards of §554(a) [that is, where statute calls for a hearing on the record or where the new default provision in B.2. applies]

§551(7.6): Tier 2 adjudication means agency process for the formulation of an order when a statute requires an evidentiary hearing but §551(7.5) does not apply [that is, where the statute calls for a hearing but not a hearing "on the record" or where Congress has specified that the APA shall not apply]

551 (7.7): Tier 3 adjudication means agency process for the formulation of an order where neither §551(7.5) or §551(7.6) do not apply [that is, all other instances of adjudication]

§560: In cases of Tier 2 adjudication, as defined in §551(7.6), the following provisions will apply: [here listing the APA's provisions on separation of functions; ex parte contacts; impartiality; right to notice, present evidence, and cross examine; written decision; transcripts]. Agencies shall adopt regulations setting forth a code of ethics for judges in Tier 2 adjudications.

§561: Tier 3 adjudication:

(a) This section applies when §551(7.7) applies and neither §551(7.5) nor §551(7.6) apply.

(b) A party subject to a proposed agency order shall be

afforded either notice of the terms of the proposed order

or notice of the subjects or issues involved in the

informal proceeding. When an order will not be

addressed to a particular party, notice shall be published

or given in a manner calculated to reach interested

persons. A party subject to a proposed order shall be entitled to

inspect the agency file applicable to the party's case (if such file

exists).

and other interested persons shall be allowed to

participate in the informal process through submissions

in writing or orally, at the agency's option.

(d) The decisionmaker in the case shall be impartial and shall not be an

"adversary" (as defined in the discussion of separation of functions).

(e) The agency's order, or decision not to issue an order,

shall be accompanied by a brief oral or written statement of reasons

and basis for the order, if any. If the decision is adverse to a private

party, the decision shall inform the party of any opportunity for agency

reconsideration of the decision.

Rationale: At present, informal adjudication is the black hole of administrative law. The term "informal adjudication" covers proceedings that in fact involve quite formal hearings (as in government contract or deportation cases) but others that involve little more than an agency letter denying an application or that involve relatively trivial interactions between government and private parties.

This proposal breaks informal adjudication into two parts: relatively formal evidentiary hearings to which the existing APA does not apply (Tier 2) and informal encounters between government and private party in which no hearing is provided (Tier 3). Certain important protective provisions of the existing APA (Tier 1) will be applied to Tier 2 but not to Tier 3 cases.

The idea of Tier 2 is that federal agency adjudication has spread far beyond the APA provisions which require ALJs to conduct hearings. There are no provisions assuring fair procedure in this vast area (other than due process). It is not politically feasible to extend the existing APA (and its requirement that hearings be conducted by ALJs) to all those other hearing schemes. Therefore, it would be worthwhile to expand the APA to provide basic procedural protections in these agency proceedings not covered by the existing APA. This would be a truly dramatic expansion of the APA and would, for the first time, give it the same kind of universal coverage in the world of adjudication that it already has in the world of rulemaking, judicial review, and access to information.

I caution this three-tier system is complex and difficult to explain to people. It will also be difficult to draft statutory language to establish Tier 2, to distinguish Tier 2 cases from Tier 3 cases, and to provide a set of procedures that would work across the rather vast universe of Tier 2 cases without causing undue problems.

Many agencies would plead for exemptions from Tier 2 restrictions and there will be a huge legislative fight on this subject that could bog down the whole bill. (Recall the way in which the INS, after Wong Yang Sung, got itself exempted from the APA because it objected to separation of functions). An important issue is whether Tier 2 should apply to hearings required by due process but not by statute (also whether it should apply to hearings required by regulations but not by statute).

As a possible indication of what the statute might look like, consider the provisions in the new California APA. The CA statute preserved a Tier 1, which was the existing APA adjudication statute. Tier 1 applies mostly to professional licensing and uses a corps of central panel ALJs. (Thus it is parallel to the proposed federal Tier 1 in which ALJs are used although they are not in a central panel).

The CA statute then provides for Tier 2--which is all other adjudicatory proceedings in which a hearing is legally required--and provides for basic procedural protections in Tier 2). Here is the way it is drafted: CA Gov't Code §§11,410.10: "This chapter applies to a decision by an agency if, under the federal or state Constitution or a federal or state statute, an evidentiary hearing for determination of facts is required for formulation and issuance of the decision." §11,425.10 then sets forth an "administrative adjudication bill of rights" applicable to all adjudications as defined in §11,410.10.

The proposals for Tier 3 are designed to provide basic protections in cases of adjudication where no hearing is legally required. Tier 3 apply to situations--many (but by no means all) quite trivial--in which an agency denies a benefit, makes a decision about licensing, employment, education, land use, or contracting, or imposes some sort of fee, penalty or other detriment. The intention is to provide only rudimentary requirements that would not result in formalizing existing procedures or increasing agency costs. These provisions set forth the basic minima for a civilized interaction between a government official and a private person.[1] Of course, where due process calls for greater procedural formality than provided by this section, the due process norms would apply.

The requirements of Tier 2 and 3 apply only to adjudication, not to rulemaking. Under the revised definition of adjudication discussed in B.3., adjudication means a final disposition of an agency in a matter that is of particular, rather than general, applicability. The statute should make clear that decisions under informal process are not subject to the various statutes and executive orders imposing procedural requirements on rulemaking.

B. Application of the APA Adjudication Provisions

1. When Congress sets up a new program involving adjudications with opportunity for hearing, it should consider and explicitly determine whether the new program will be subject to APA formal adjudication provisions.

Congress should consider the following factors:

a. Whether the adjudication is likely to involve substantial impact on personal liberties or freedom, orders that carry with them a finding of criminal-like culpability, imposition of sanctions with substantial economic effect, or determination of discrimination under civil rights or analogous laws.

b. Whether the adjudication would be similar to, or the functional equivalent of, a current type of adjudication in which an administrative law judge presides.

c. Whether the adjudication would be one in which adjudicators ought to be lawyers. (Judicial Division previously resolution adopted by the HOD)

2. Congress should amend the APA to provide prospectively that absent a statutory requirement to the contrary, in any future legislation that creates opportunity for hearing in an adjudication, such hearing shall be subject to the APA's formal adjudication provisions (§§554, 556, 557). (Judicial Division resolution adopted by the HOD.

Reasons for 1. and 2: The APA adjudication provisions now apply only when a statute other than the APA calls for a "hearing on the record." Where a statute calls for an adjudicatory hearing but does not use the magic words "on the record," it has been difficult to decide whether the APA applies. The case law is conflicting. This resolution (already adopted by the HOD) calls for Congress to carefully consider this issue when it adopts a new program calling for hearings. It also provides a prospective-only default rule that the APA applies whenever Congress fails to provide the contrary.

This resolution makes sense. Congress should consider this issue carefully when it adopts a new adjudication provision; and there should be a clear default rule that applies when Congress fails to consider it. The default provided here will nudge the federal administrative system in the direction of more comprehensive APA coverage and away from further atomization of administrative adjudication. Generally agencies are well aware of legislation that affects them and the burden should be on them to inform Congress if they think APA adjudication is inappropriate.

Several members have expressed concern with the default rule since it could extend the APA and the system of ALJ decisionmaking to inappropriate cases because of Congressional oversight in drafting new legislation. At the very least, the comment should make clear that the default is not triggered by amendment of an existing statute, only by enactment of an entirely new statute calling for a new regulatory scheme. Others urge that we change this recommendation so that it would not apply in cases "where it would be clearly inappropriate."

If the recommendation relating to Tier 2 adjudication (D. below) is adopted, this recommendation must be altered so that it makes clear that it affects whether a particular adjudicatory scheme is subject to Tier 1 or Tier 2 provisions.

3. Delete the words "or particular" from APA §551(4). Also delete "and includes the approval or prescription for the future of rates, wages, corporate or financial structure or reorganizations thereof, prices, facilities, appliances, services or allowances therefore or of valuations, costs, or accounting, or practices bearing on any of the foregoing."

Rationale: At present, the APA definitions of adjudication and rulemaking are defective. Rulemaking is the process for formulating a "rule." A "rule" is a "statement of general or particular applicability and future effect designed to implement, interpret or prescribe law or policy…" Adjudication is the process for formulating an "order" and an "order" means a "final disposition . . . in a matter other than rule making but including licensing."

The proposed change will make clear that agency action of general applicability is a rule and agency application of particular applicability is adjudication. Under the existing definitions, for example, an FTC cease and desist order would be rulemaking (since it is agency action of particular applicability and future effect), but everyone treats such orders as adjudication. (From APA Recommendations approved in 1970 by our section and the HOD). As under existing law, a rule that in practice would apply to only a single person is still a rule (rather than an adjudication) as long as it is stated in general terms and it is theoretically possible that it could apply to additional persons. An agency's grant of exemption from a rule to a particular person would be an adjudication.

4. No oral APA hearing (involving the presentation of witnesses and cross examination) is required unless the party requesting one can demonstrate the existence of a disputed issue of material fact that it is necessary to resolve.

Rationale: This provision would codify existing case law and affirm that agencies can use summary judgment procedure to resolve cases in which there is no disputed issue of material fact. An APA oral hearing could be required if there is a disputed issue of material fact arising out of the agency's exercise of discretion (such as setting a sanction).

Agencies should adopt procedural rules to explain how their system of summary judgment will function and how they will determine whether there is a disputed issue of material fact.

C. Separation of functions.

APA §554(d), stating the general requirement of internal separation of functions, should be clarified in the following respects. The existing statute is poorly drafted and has not been clarified by case law. As a result there is a good deal of uncertainty over the meaning of the existing statute.

Probably the provision on separation of functions should be moved to a separate APA provision rather than being part of the section that defines when the formal adjudication provisions apply. (It would be applied to Tier 2 cases if that idea is adopted--see A above).

These recommendations are designed to clarify the statute in a way that will make a broader range of advice available to upper-level agency adjudicators such as agency heads. It should be noted that these recommendations do not touch on or suggest changes to APA §554(d)(1). This provision relates to ALJs (as opposed to other agency adjudicatory decisionmakers) and provides that ALJs cannot "consult a person or party on a fact in issue, unless on notice and opportunity for all parties to participate." Thus it is not intended to alter the existing strict requirements of separation of functions at the ALJ level.

1. Separation of functions applies only if the proceeding is prosecutorial or accusatory in nature. With respect to government benefits (such as loans or grants), separation of functions should apply only in cases of termination or reduction of such benefits.

Rationale: There is a long-standing and unsettled issue of whether §554(d) applies to matters that do not involve sanctions. As discussed below, §554(d) is explicitly inapplicable to initial licensing and ratemaking or other proceedings involving public utilities or carriers. But it is unclear whether it applies to such proceedings as the modification of a water pollution permit or a nuclear power plant license. Many such proceedings are polycentric in nature, are quite complex and technical, and involve high economic stakes. Agency decisionmakers need all the help they can get in deciding such matters, which suggests separation of functions may do more harm than good.