SECTION OF
ADMINISTRATIVE LAW & REGULATORY PRACTICE
APA Project

1. Basic Principles

Informal adjudication is the name used to denote various procedures for issuing orders when formal adjudication is not required. The term "informal adjudication" does not appear in the APA. Because the APA divides all agency action into rulemaking and adjudication, (see APA § 551(4), (5), (6), (7)), and the APA appears to anticipate that some orders will be issued without formal adjudication, the term "informal adjudication" is used to describe all procedures other than formal adjudication used for issuing orders.

ii. When informal adjudication is used

Informal adjudication denotes the broad universe of procedures agencies use when they issue orders without formal adjudication. Formal adjudication is required when an agency issues an order under a statute that requires an "on the record" agency hearing. Courts have afforded Chevron deference to agency decisions about whether their particular statute allows informal adjudication or requires formal adjudication.

Illustration

A statute allows the EPA to order responsible parties to take remedial action if they spill hazardous waste into the environment. The statute states that the EPA must hold a "hearing" before issuing its final remedial order. A manufacturer spills a chemical into a wetland area, and reports the spill to the EPA. The EPA informs the manufacturer that it is formulating a remedial plan. The EPA construes the statute to require only a public open meeting-type hearing, which it holds, after notifying the general public and the manufacturer of the time and place of the hearing and the issues to be discussed. After receiving written and oral input from the manufacturer and other interested parties, the EPA issues an order requiring the manufacturer to conduct a cleanup that will cost it approximately $1 million. This procedure is permissible. Because the statute does not require an on the record agency hearing, informal adjudication is appropriate. Further, even if the statute left some doubt, the agency?s interpretation would be entitled to Chevron deference and would be upheld absent strong evidence of congressional intent to require formal adjudication.

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.

1. APA § 555

   Section 555 of the APA contains the minimal procedures applicable to informal adjudication. That section provides the following procedures, which apply to all APA proceedings, including informal adjudication:

   (1). A person compelled to appear before an agency is entitled to be represented by counsel. § 555(b).

   (2). When an agency holds an oral hearing as part of an informal adjudication, a party is entitled to appear in person, via "duly qualified representative" or by counsel in an agency proceeding. The subsection makes clear that this provision is not intended to allow (or disallow) non-lawyers to represent others before an agency. § 555(b).

   (3). If the "orderly conduct of public business permits," interested persons not party to the proceeding may also appear at an oral hearing. § 555(b). It is unclear whether this section creates a right of non-parties to participate in agency proceedings in which they have an interest: it appears that this is left to the discretion of the agency.

   (4). Agencies must conclude matters before them in a reasonable time. § 555(b).

   (5). Agencies may not issue process or engage in investigations except as legally authorized. § 555(c).

   (6). Persons compelled to submit evidence or data to agencies are entitled to a copy or transcript of their evidence or testimony, except that in non-public proceedings an agency may, for good cause, limit a witness to inspection of a transcript of his or her testimony. § 555(c).

   (7). Subpoenas authorized by law may be issued on request, and when required by rules of procedure, only on a statement or showing of "general relevance." Courts must sustain a subpoena "to the extent that it is found to be in accordance with law." Courts may use the contempt power to enforce subpoenas. § 555(d).

   (8). Agencies shall promptly give notice of the denial of an application, petition or other request made in connection with an agency proceeding. § 555(e). It is unclear whether "in connection with an 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). The denial of a petition must be accompanied by a brief statement of reasons. § 555(e). The statutory language appears to contemplate a general statement, and some decisions allow for very general reasons supporting denials. However, some courts have required a more detailed statement, apparently to facilitate judicial review under the arbitrary and capricious test. No explanation is required if the denial is self-explanatory.

2. APA § 558

   APA § 558 contains the following procedural protections that may apply in informal adjudication, mainly in the licensing area:

   (1). An agency may not issue an order or impose a sanction except as authorized by law. § 558(b).

   (2). In licensing cases, the agency shall act "with due regard for the rights and privileges of all the interested parties or adversely affected persons," shall complete any formal proceedings required by law, and shall make its decision. This provision places a mandatory duty on agencies to act on license applications.

   (3). An agency may not withdraw, suspend, revoke or annul a license without giving written notice of the reasons warranting the order and allow the licensee an opportunity to "demonstrate or achieve compliance with all lawful requirements." There are two exceptions to the notice requirement: cases involving willful violations and those involving overriding "public health, interest, or safety" concerns. § 558 (c)(1)&(2).

   Willfulness may be established by repeated violations, intentional wrongdoing or gross neglect of a known duty.

   The "public health, interest, or safety" exception contemplates an unusual or emergency circumstance; an agency cannot dispense with notice merely because it deems that "the public interest" requires revocation of a license.

   Although the APA provides no guidance as to what constitutes adequate notice a key consideration is whether the written notice is sufficient to allow the licensee a "second chance" to conform its conduct before suspension or termination.

   (4). When a timely application for renewal has been filed, a license does not expire until the agency has acted on the application. § 558(c).

3. Other statutes and rules.

Particular agency statutes and agency rules often detail the procedures that agencies must follow before issuing orders. These procedures add to those required by the APA for informal adjudication.

Illustration

A statute empowers an agency to require a permit to harvest timber on federal land. The statute provides that before granting or denying a permit, the agency must notify the applicant and the general public of the agency'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." Under this statute, as part of its informal adjudication, the agency must provide the hearing specified in the statute. Note that because the statute does not require an on the record agency hearing, formal adjudication is not required. The agency also is likely to be have significant discretion in structuring the hearings it holds.

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, loose evidentiary standards and generally a relaxation of the formalities associated with formal adjudication. There may also be no provision for confrontation of evidence and witnesses, and there may be no discovery and no 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. Application of Informal Adjudication.

1. Informal adjudication contexts

   Informal adjudication is used in a wide variety of contexts. Indeed, in virtually every case where an agency can perform a function by means of formal adjudication, there can arise an occasion to do so by informal means as well. The applicability of informal adjudication is not, however, determined by the context. Rather, informal adjudication applies when the governing statute does not require formal adjudication.

2. Typical cases in which informal adjudication is used

Even though the applicability of informal adjudication is not determined by the type of proceeding, the cases in which it is typically used can be sorted into four categories. These are: (1) licensing; (2) implementation of a congressional program where no particular party's rights are involved; (3) orders penalizing a government employee, a prison inmate, a licensee or other regulated party for statutory or rule violations; and (4) orders requiring a regulated party to remedy a statutory or rule violation.

e. 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. Some lower courts had found Vermont Yankee, which forbade courts from adding procedures not required by statute to informal rulemaking, inapplicable to informal adjudication. However, the Supreme Court has now made clear that that the rule in Vermont Yankee rule applies with full force to informal adjudication. Because the APA says very little about what procedures are required for informal adjudication, agencies are left with a great deal of discretion to shape informal adjudication procedures.

g. Judicial Review of Informal Adjudication

?i. Judicial review of final agency action in informal adjudication

Judicial review of final agency action in cases of informal adjudication is available. In some situations, APA § 555(e)'s requirement that agencies explain their reasons for denying petitions facilitates judicial review, because once an agency denies a petition, the sufficiency of the reasons given by the agency may be subject to judicial review.

Illustration

The Department of Health and Human Services approves a state?s procedure for administering certain federally funded benefits. A person who has been rejected for such benefits by the state agency petitions HHS to reverse itself regarding the legality of the state?s procedures. Under APA § 555(e), if the agency denies the petition it must give reasons. The denial is subject to judicial review and the agency must defend the denial based on the reasons given.

1. Standard of judicial review of informal adjudication

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." Agency statutory interpretation in the course of informal adjudication receives Chevron deference. The record on review comprises the material the agency considered in making its decision.

h. Informal Adjudication and Due Process

As discussed in section ___ above, due process provides certain procedural rights to parties whose life, liberty or property is affected by government action. Under the Mathews v. Eldridge balancing test, discussed in section ___, formal adjudication may be sometimes required, but more typically informal procedures are sufficient. Nevertheless agencies may be required to provide subjects of orders and other interested persons with at least a minimal right to participate in the formulation of the order. While the requirements of due process vary with the particulars of the proceeding, notice of the subjects of the agency proceeding and the opportunity to submit written comments or oral comments at a legislative-type hearing are often sufficient.

Issue 1

Is the name "informal adjudication" suitable to describe the wide variety of procedures that fall under its umbrella? If the project proposes APA revisions that include coverage of what is now considered informal adjudication, might the project propose renaming the set of procedures? Are exercises of rulemaking authority, such as the denial of a petition for the issuance or amendment of a rule, included in "informal adjudication" or should a new name be devised for such actions that involve exercise of rulemaking authority?

1. Recommendation:

Divide adjudication into "formal adjudication" and "informal process" by amending APA definitions as follows:

The issues surrounding petitions regarding rulemakings are beyond the scope of this report on informal adjudication and will not be addressed.

Issue 2

Should the APA state more clearly when formal adjudication is required and when informal process is permissible? Should the presumption be that any reference to a hearing triggers formal adjudication, or should there be a clear requirement of an "on the record" adjudication before formal adjudication is required?

1. Recommendation:

The Reporters are not in accord on this issue. The draftsman of the report and recommendation on formal adjudication recommends that Section 554 be amended to provide that in all cases involving adjudication -- as distinct from rulemaking -- there is a presumption that the APA is applicable. The draftsman of this section believes the current trigger for formal adjudication should be maintained with commentary explaining that given the prevalence of informal process, formal adjudication should be required only when there are strong indications that Congress so intended.

Issue 3

Are there some areas in which APA procedural requirements for informal process should be increased? For example, is the loose collection of procedural protections included in "informal adjudication" sufficient when an agency may deny an important license or impose a sanction or expensive remedial order on a regulated party? Does informal adjudication produce a record that is adequate for judicial review when important rights or interests are at stake?

1. Recommendation:

A provision, such as the one spelled out below should be adopted to ensure notice of the particular issues involved, an adequate opportunity to participate, and to require that the agency provide reasons for its decision. This proposal borrows elements from APA §§ 553, 555 and 558.

Issue 4

What is the meaning of the phrase "in connection with an agency proceeding" in § 555(e)? Does the submission of a petition to an agency create an "agency proceeding" so that the agency must respond to any petition, with reasons, or is there a right to an answer only if a petition is submitted in connection with a preexisting agency proceeding? Should the APA contain a requirement that agencies answer all petitions, thus creating the possibility of judicial review of the reasons for denial?

1. Recommendation:

Create a general right to petition agencies, with the understanding that most petitions can be denied with little effort.

Issue 5

The APA gives practically no guidance on how detailed and specific the statement of reasons for a denial under § 555(e) must be. Can an agency simply decline to act for very general reasons, or must an agency be, as some courts have required, relatively specific?

1. Recommendation:

Regarding petition denials, agencies should not be expected to provide detailed, specific reasons for denying every petition that a member of the public submits.

Insert the word "general" after "brief" in § 555(e).

Issue 5

In licensing cases subject to APA § 558, does § 558(c) create a right for interested persons who are not parties to participate in proceedings? If it does, should the section be re-written to clarify the rights granted?

1. Recommendation:

The procedures for informal process specified above should apply to licensing proceedings conducted under § 558.

Amend § 558(a) by adding the following. Except where formal adjudication is required by law, no order may be issued without observance of the requirements for informal process specified in section xxx of this title.