2/08/02
CHAPTER 9: INFORMAL ADJUDICATION
Black letter
A. Basic Principles
Informal adjudication is the name used to denote various procedures for issuing orders when formal adjudication is not required. As discussed in Chapter 3, formal adjudication is required when an agency issues an order under a statute that requires an "on the record" agency hearing.
B. Informal Adjudication Procedures
Informal adjudication comprises a wide variety of agency procedures, some resembling what is traditionally thought of as adjudication and others not resembling adjudication at all. The APA contains little in the way of procedural requirements specifically targeted to informal adjudication. However, Sections 555 and 558 prescribe a number of general procedural requirements that are pertinent to informal and formal adjudication. Section 555 governs the mechanics of agency process, including the issuance of administrative subpoenas, the rights of representation to be afforded before an agency, an agency's obligations to provide transcripts, notices of denial, and statements of reasons. Section 558 imposes certain minimal requirements on licensing proceedings and requires that all agency orders and sanctions be authorized by law. More detailed procedures for informal adjudication are typically found in particular agency statutes and agency rules and may also be required by due process.
C. Departures from Formal Proceedings.
Informal adjudication procedures depart from the formal adjudicatory model in many respects. Subject to possible constraints imposed by due process, informal adjudication may include informal conferences, ex parte contacts, active involvement by the decisionmaker in the investigation and prosecution of the agency's case, lack of representation by counsel if there are no hearings before the agency, limited evidentiary requirements and generally a relaxation of the formalities associated with formal adjudication. There also may be no provision for confrontation of evidence and witnesses, and there may be no discovery or transcript of the proceedings. Some informal adjudications employ procedures similar to those used in notice and comment rulemaking, for example by giving interested parties notice of the agency's proposed order and allowing written or oral comments but not conducting formal adjudicatory procedures.
Although notice and comment procedures have been required by some courts so that an agency will produce a record adequate to withstand judicial review, it is doubtful these decisions survive the Supreme Court's application of the Vermont Yankee rule to informal adjudication. Comments may be accepted from interested persons not party to the proceedings. If the agency chooses (or is required by statute or regulation) to hold public hearings, these may actually be open meetings at which all interested persons can express their views on the matter without cross examination or formal consideration of evidence.
D. The Vermont Yankee Rule in Informal Adjudication
Absent constitutional concerns, federal courts may not require agencies engaged in informal adjudication to add to the procedures required by applicable statutes and rules such as APA §§555 and 558.
E. Judicial Review of Informal Adjudication
Judicial review of final agency action in cases of informal adjudication generally is available. Unless a statute or the Constitution requires otherwise, the standard of review of orders issued after informal adjudication is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."
9.01 Summary of informal adjudication procedures
The term "informal adjudication" describes the process for issuing orders[1] when the formal adjudication provisions of the APA are not applicable.[2] (¶9.02) Informal adjudication comprises a wide variety of agency procedures, some resembling what is traditionally thought of as adjudication and others not resembling adjudication at all.[3] Perhaps 90% of federal agency adjudication is informal rather than formal.[4] (¶9.03) With the exception of a few provisions set forth in APA sections 555 and 558 (¶¶9.04, 9.05, 9.06) the APA does not spell out the procedures that an agency must follow when engaging in informal adjudication.[5]
9.02 Informal adjudication contexts
Informal adjudication is used in a wide variety of contexts.[6]
Some of the types of cases subject to informal adjudication include:
- grants, benefits, loans, and subsidies;
- licensing and accrediting;[7]
- inspections, grading, and auditing
- planning, policymaking, economic development, and public works;[8]
- orders penalizing a non-tenured government employee, a prison inmate, or other regulated party;[9]
- orders occurring in connection with the regulation of labor relations;[10]
- orders requiring a regulated party to remedy a statutory or rule violation.[11]
9.03 Procedures in informal adjudication
9.031 Departures from formal adjudication
Informal adjudication procedures depart from the formal adjudicatory model in many respects.[12] Subject to constraints imposed by due process,[13] or by particular statutes or procedural regulations, an agency is free to provide any procedure (or no procedure) in conducting informal adjudication. Thus, informal adjudication may include decisions by informal conferences or based exclusively on an exchange of written documents, ex parte contacts,[14] active involvement by the decisionmaker in the investigation and prosecution of the agency's case,[15] loose evidentiary standards and generally a relaxation of the formalities associated with formal adjudication.[16] Particular informal adjudication processes may make no provision for confrontation of evidence or oral presentation of evidence through witnesses; there may be no discovery and no transcript of the proceedings.[17] Some informal adjudications employ procedures similar to those used in notice and comment rulemaking, for example by giving interested parties notice of the agency's proposed order and allowing written or oral comments but not conducting formal adjudicatory procedures.[18] If the agency chooses (or is required by statute or regulation) to hold public hearings, these may actually be open meetings at which all interested persons can express their views on the matter without cross examination or formal consideration of evidence.[19]
9.032 Informal adjudication: particular statutes or rules
Particular agency statutes often detail the procedures that agencies must follow before issuing orders. Courts sometimes interpret these statutes broadly to provide procedural protections for the parties or to facilitate judicial review.[20] In addition, agency procedural rules often provide for obligatory procedures that would not otherwise be required by statute. The agency must follow these procedural rules if adopted for the protection of the public rather than the convenience of the agency.[21]
Illustration
1. By statute, no person can harvest timber on federal land without first obtaining a permit from Agency C. The statute gives C substantial discretion in deciding whether to issue a permit and in prescribing permit terms. The statute also provides that before granting or denying a permit, C must notify the applicant and the general public of C's initial decision and hold "an oral hearing at which the applicant and other interested persons are afforded an opportunity to present evidence, data and views regarding the application." P applies for a permit which C proposes to grant. Members of the public protest. C grants the application without any further process. A court may set aside the grant of the application and require C to hold a public hearing before granting the application.
2. Assume the same facts as Illustration 1 except C holds an oral hearing before granting the application. It allows members of the public to present oral statements and to submit written briefs, but it refuses to allow members of the public to cross-examine the expert witnesses who offered testimony on behalf of P. Neither the APA nor due process requires a hearing.[22] A court will probably uphold Agency's discretionary decision to deny cross- examination.
9.033 The Vermont Yankee Rule in Informal Adjudication
Absent constraints imposed by due process or agency-specific statutes or procedural rules, federal courts may not require agencies engaged in either rulemaking[23] or adjudication[24] to provide procedural protections that the agency decides not to provide. Some cases decided before Vermont Yankee mandated additional procedures for agencies to follow in informal adjudication, in order to assure a fair decision and facilitate judicial review, but these cases must now be considered of doubtful validity.[25]
9.04 Procedures set forth in APA Section 555
APA section 555 contains the minimal procedures applicable to informal adjudication.[26] The provisions set forth in section 555 apply both to formal and informal adjudication.
9.041 Right to counsel
A person compelled to appear before an agency is entitled to be represented by counsel.[27] In addition, a party is entitled to appear in person or by or with counsel.[28] These provisions are discussed in ¶5.06.
9.042 Right to appear
If the "orderly conduct of public business permits," interested persons not party to the proceeding may "appear" for the presentation and determination of various controversies.[29] This provision is discussed in ¶4.051.
9.043 Conclusion of matter in reasonable time
Agencies are to conclude matters within a reasonable time.[30] A court might require an agency to decide a matter if it appears to be stalling or unduly procrastinating.[31]
9.044 Legal authorization for investigations
Agencies may not engage in investigations except as legally authorized to do so.[32]
9.045 Copy of transcript
Persons compelled to submit testimony are ordinarily entitled to a transcript.[33]
9.046 Subpoenas
Section 555(d) provides for subpoenas and judicial enforcement thereof. This provision is discussed in ¶4.04.
9.047 Prompt notice of denial of applications
Agencies must give prompt notice of the denial of an application in connection with any agency proceeding.[34] An "agency proceeding" refers to adjudication, rulemaking, or licensing.[35] The prompt notice may be given in writing or orally.[36] It is unclear whether "in connection with any agency proceeding" refers to a preexisting agency proceeding or whether filing a petition with an agency initiates a proceeding so that the agency must respond to the petition.
9.028 Statement of reasons for denial
The denial of a petition must be accompanied by a brief statement of reasons.[37] The statutory language appears to contemplate a general statement,[38] and some decisions allow for very general reasons supporting denials.[39] However, some courts have required a more detailed statement, apparently to facilitate judicial review under the arbitrary and capricious test.[40] No explanation is required if the denial is self-explanatory.[41]
9.05 Source of agency authority
APA section 558(b) provides that an agency may not act or impose a sanction (or issue a substantive rule or order) except as prescribed by law.[42] The term "sanction" is broadly defined by the APA.[43] Section 558(b) applies whether the sanction is punitive or remedial.[44] However, an agency is empowered to impose a sanction not expressly authorized by statute that is designed to protect the integrity of its own processes.[45]
Section 558(b) states an obvious and well accepted principle of administrative law--an agency is a creature of limited power. It can take action only pursuant to authority granted by some superior source. Normally, the authority is derived from a statute,[46] but in many cases the authority of the agency to impose a sanction or take other action is implied rather than expressed in the governing statute.[47]
9.06 Licensing procedures
APA section 558 contains a number of procedural protections that concern licensing. Under the APA, the definition of licensing is quite broad;[48] it covers any form of administrative permission.[49] The licensing provisions in section 558 apply both to formal and informal adjudications. Historically, reliance upon Section 558 has been relatively rare.[50]
The section 558 licensing provisions cover covers three separate and mutually exclusive[51] phases:
- Applications
- Withdrawals
- Renewals
9.061 Applications
Section 558(c) requires that applications for licenses required by law[52] be disposed of within a reasonable time.[53] Applications for licenses are determined by an agency either through the formal process of sections 556 and 557, when the APA's formal adjudication provisions apply,[54] or through informal adjudication when formal adjudication provisions do not apply. Thus §558(c) does not in itself compel formal procedure with respect to an application.[55]
The requirement in section 558(c) that an application be acted upon promptly appears to have little practical effect.[56] It is conceivable, however, that a court could require that an agency take action on a license application if the agency appeared to be stalling.[57] Section 558(c) also requires that in license application proceedings the agency shall act "with due regard for the rights and privileges of all the interested parties or adversely affected persons." This provision also appears to have little practical effect.
Illustration:
1. C Co. seeks approval for a recapitalization from Agency D which is required to determine the request "after an opportunity for a public hearing." D must dispose of the application within a reasonable time but it is unlikely that D will be compelled to follow the APA's formal adjudication provisions.[58]
9.062 Withdrawal
APA section 558(c) provides for notice and a second chance before institution of proceedings for the withdrawal, suspension, revocation or annulment (collectively referred to as "withdrawal" of a license).[59] This provision is applicable whether the agency proceedings that follow the notice and second chance will be formal or informal adjudication. This portion of section 558(c) applies only to agency action withdrawing a license prior to its expiration, not to the expiration of a license according to its terms.[60]
9.0621 Notice of facts warranting withdrawal
Section 558(c)(1) requires an agency to notify a party of the facts or conduct that would warrant withdrawal of the license before the agency institutes withdrawal proceedings. This notice must be in writing, but need not take any special form. In general, a notice is sufficient if it "warns the licensee of the parameters of acceptable conduct and thereby prevents unfair surprise."[61] In assessing the adequacy of a warning, the key consideration is whether it is sufficient to allow the licensee to remediate the problem and achieve compliance so as to avoid withdrawal.[62] For example, the notice requirements for a license suspension were met where an agency employee prepared a report detailing the violations and discussed that report with the licensee.[63] But a warning that occurred ten years before the current problems arose would not satisfy the notice requirements.[64]
9.0622 Opportunity to demonstrate or achieve compliance
Section 558(c)(2) requires that the licensee have an opportunity to demonstrate or achieve compliance with all lawful licensing requirements after the warning notice. This is the so-called "second chance" provision. It requires some sort of opportunity (not necessarily a hearing) whereby the licensee can demonstrate that it has remediated the problem to which the warning had alerted it. If the violations are not corrected before a second inspection, the agency can institute withdrawal proceedings without further warnings.[65] This provision does not apply to the agency's denial of an application for an initial license, even if the ground for the denial is that the applicant committed misconduct under a previous license.[66]
9.0623 Exceptions: willfulness or public health, interest or safety
Under section 558(c), the agency need not furnish a licensee with a warning and a second chance when the party’s conduct is willful or when the public health, interest or safety is at stake.
Willfulness is established by repeated violations, intentional wrongdoing or gross neglect of a known duty, but not by simple negligence.[67] To take advantage of the willfulness exception to the "warning" and "second chance" requirements, the agency must make a finding at the time it institutes proceedings that a violation was willful;[68] in addition, its finding of willfulness must be supported by substantial evidence.[69]
The "public health, interest, or safety" exception contemplates an unusual or emergency circumstance.[70] An agency cannot dispense with notice merely because it deems that "the public interest" requires revocation of a license since that would obviously be true in every case in which an agency seeks to withdraw a license.[71]
Illustration:
2. Agency I threatens to withdraw School F’s status as an approved school for immigrant alien students because F negligently failed to comply with I’s requirements that F report any students who failed to attend classes. I may not institute proceedings for the withdrawal of F’s license without first giving F reasonable notice of the violation and an opportunity to achieve compliance with the requirements of the governing statute and regulations.[72]
3. G Co. intentionally manipulates the market price of wheat futures on the Chicago Board of Trade. Agency H regulates trading in commodity futures. The procedural requirements of 558(c) are not applicable, so H may institute proceedings for the suspension of G's license without a prior warning or opportunity for a second chance.[73]
9.063 Renewal
The APA provides that a license does not expire until a timely and sufficient renewal application is acted on by the agency.[74] The rationale of this provision is that "it is only fair where a licensee has filed his application for a renewal or a new license in ample time prior to the expiration of his license, and where the application itself is sufficient, that his license should not expire until his application shall have been determined by the agency.”[75]
Generally, this provision applies to a license for activity of a continuing nature (such as a broadcasting or common carrier license) rather than a permit to build a particular project.[76] It applies mainly in the situation in which an agency fails to process a renewal application before the license expires due to delays in agency proceedings or the agency's resource constraints.[77] It also requires that a renewal application be "sufficient," meaning that it must contain all necessary consents.[78]
Illustrations:
5. By statute Agency K may grant "temporary authority" to a common carrier by water to institute service for which there is an urgent need, but such authority is valid only for 180 days. The statute contemplates that during the 180 day period, K will conduct hearings to determine whether the temporary authority should be made permanent. K granted W Corp. temporary authority to operate between cities A and B and began proceedings to determine whether to make the authority permanent. It did not complete those proceedings during the 180 day period so it extended W's authority until it completed the proceedings. R, which competes with W, believes that W's authority must lapse after 180 days and could not be temporarily extended. A court will hold that K is authorized to extend the temporary authority.[79]
6. In order to dredge and fill a lake, J Co. required a permit from Agency L. The permit was granted on the condition that if the work were not completed by December 31, the permit would be forfeited. The work was not completed by December 31. K applied for an extension of the permit. L was not required to allow continuation of the work covered by the expired permit pending its decision on the extension application.[80]