Prepared by the United States Department of Justice Tom C. Clark, Attorney General, 1947.

[40]

IV    SECTION 5--ADJUDICATIONS

Section 5, together with sections 7 and 8, governs the procedure in formal administrative adjudication. In addition, section a lists the types of adjudication which are exempted from the detailed procedural requirements of sections 5, 7 and 8. It is to be noted that the excepted types of adjudication are exempt from all of the provisions of section 5, as well as of sections 7 and 8. Thus, if a particular matter is "subject to a subsequent trial of the law and the facts de novo in any court", subsection (d), authorizing agencies to issue declaratory judgments, is not applicable.

"Adjudication" is defined as "agency process for the formulation of an order"; "order" is in turn defined as "the whole or any part of the final disposition (whether affirmative, negative, injunctive, or declaratory in form) of any agency in any matter other than rule making but including licensing" (section 2 (d)). Thus, investigatory proceedings, no matter how formal, which do not lead to the issuance of an order containing the element of final disposition as required by the definition, do not constitute adjudication. For example, accident investigations conducted by the Civil Aeronautics Authority pursuant to Title VII of the Civil Aeronautics Act do not result in orders, and therefore do not involve adjudication within the meaning of section 5.⁽¹⁾

After examining the definition of "rule making" in section 2 (c), it is apparent that the residual definition of "adjudication" in section 2 (d) might include many governmental functions, such as the administration of loan programs, which traditionally have never been regarded as adjudicative in nature and as a rule have never been exercised through other than business procedures. The exclusion of such functions from the formal procedural requirements of sections 5, 7 and 8 is accomplished by the introductory phrase of section 5 which limits its application (and, therefore, the application of sections 7 and 8) to cases of "adjudication required by statute to be determined on the record after op-[41]portunity for an agency hearing". It has been pointed out that "Limiting application of the sections to those cases in which statutes require a hearing is particularly significant, because thereby are excluded the great mass of administrative routine as well as pensions, claims, and a variety of similar matters in which Congress has usually intentionally or traditionally refrained from requiring an administrative hearing." Senate Comparative Print of June 1945, p. 7 (Sen. Doc. p. 22).

It will be noted that the formal procedural requirements of the Act are invoked only where agency action "on the record after opportunity for an agency hearing" is required by some other statute. The legislative history makes clear that the word "statute" was used deliberately so as to make sections 5, 7 and 8 applicable only where the Congress has otherwise specifically required a hearing to be held. Senate Hearings (1941) pp. 453, 577; Senate Comparative Print of June 1945, p. 7 (Sen. Doc. p. 22); House Hearings (1945) p. 33 (Sen. Doc. p. 79); Sen. Rep. p. 40

(Sen. Doc. p. 226); 92 Cong. Rec. 5651 (Sen. Doc. p. 359). Mere statutory authorization to hold hearings (e.g., "such hearings as may be deemed necessary") does not constitute such a requirement. In cases where a hearing is held, although not required by statute, but as a matter of due process or agency policy or practice, sections 5, 7 and 8 do not apply. Senate Hearings (1941) p. 1456.

Under section 5 of the Federal Trade Commission Act, for example, it is clear that orders to cease and desist from unfair methods of competition must be issued on the basis of the record made in the hearing which is required by that Act (15 U.S.C. 45). See also section 10 of the National Labor Relations Act (29 U.S.C. 160). Licensing proceedings constitute adjudication by definition and where they are required by statute to be "determined on the record after opportunity for an agency hearing", sections 5, 7 and 8 are applicable. Thus, under section 15 of the Securities Exchange Act (15 U.S.C. 78o), the Securities and Exchange Commission may deny an application for broker-dealer registration or revoke such registration after notice and opportunity for hearing; while the Securities Exchange Act does not expressly require orders of denial or revocation of registration to be made "on the record", such a requirement is clearly implied in the provision for judicial review of these orders in the circuit courts of appeal. Upon such review, the Commission files "a [42] transcript of the record upon which the order complained of was entered", and "The finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive." (15 U.S.C. 78y).

Other statutes authorizing agency action which is clearly adjudicatory in nature, such as the revocation of licenses, specifically require the agency to hold a hearing but contain no provision expressly requiring decision "on the record". For example, the Secretary of Agriculture may issue cease and desist orders under section 312 of the Packers and Stockyards Act, 1921 (7 U.S.C. 213), only after "notice and full hearing", and these orders are made reviewable under the Urgent Deficiencies Act. The Department of Agriculture has always assumed that these orders must be based upon the evidentiary record made in the hearing, and the courts have held that upon review the validity of an order issued under the Packers and Stockyards Act must be determined upon the administrative record. Tagg Bros. & Moorhead v. United States, 280 U.S. 420 (1930). It seems clear that administrative adjudication exercised in this context is subject to sections 5, 7 and 8.

A further group of statutes merely authorizes adjudicatory action after hearing, and contains no reference to decision "on the record" nor any specific provision for judicial review. Thus, under the United States Warehouse Act, the Secretary of Agriculture may suspend or revoke warehousemen's licenses "after opportunity for hearing" (7 U.S.C. 246). It is believed that with respect to adjudication the specific statutory requirement of a hearing, without anything more, carries with it the further requirement of decision on the basis of the evidence adduced at the hearing.⁽²⁾ With respect to rule making, it was concluded, supra, that a statutory provision that rules be issued after a hearing, without more, should not be construed as requiring agency action "on the record", but rather as merely requiring an opportunity for the expression of views. That conclusion was based on the legislative nature of rule making, from which it was inferred, unless a statute requires otherwise, that an agency hearing on proposed rules would be similar to a hearing before a legislative committee, with neither the legislature nor the agency being limited to the material adduced at the hearing. No such rationale [43] applies to administrative adjudication. In fact, it is assumed that where a statute specifically provides for administrative adjudication (such as the suspension or revocation of a license) after opportunity for an agency hearing, such specific requirement for a hearing ordinarily implies the further requirement of decision in accordance with evidence adduced at the hearing. H.R. Rep. p. 51, fn. 9 (Sen. Doc. p. 285). Of course, the foregoing discussion is inapplicable to any situation in which the legislative history or the context of the pertinent statute indicates a contrary congressional intent.

Certain licensing statutes provide that an application for a license may be granted or become effective upon lapse of time without a hearing, but that there must be an opportunity for hearing prior to the denial of the application. See Securities Exchange Act of 1934, section 15 (b), (15 U.S.C. 78o (b)) and Communications Act of 1934, section 309 (47 U.S.C. 309). Nothing in section 5 of the Administrative Procedure Act is intended to require hearings where such statutes now permit the granting of licenses without a hearing.

Exempted adjudications. Section 5 specifically exempts from its provisions (and, accordingly, from the provisions of sections 7 and 8) six types of adjudicatory functions or proceedings which are discussed hereafter. It is important to note that these exemptions extend to all of the provisions of section 5. Furthermore, the exemption is applicable even where the exempted function is required by statute to be exercised "on the record after opportunity for an agency hearing". Sen. Rep. p. 16; H.R. Rep. p. 26 (Sen. Doc. pp. 202, 260).

1. "Any matter subject to a subsequent trial of the law and the facts de novo in any court". This exemption was explained in the reports of the Senate and House Committees on the Judiciary, as follows: "Where the adjudication is subject to a judicial trial de novo [it] is included because whatever judgment the agency makes is effective only in a prima facie sense at most and the party aggrieved is entitled to complete judicial retrial and decision." Sen. Rep. p. 16; H.R. Rep. p. 26 (Sen. Doc. pp. 202, 260). Exempt under this heading are certain proceedings which lead to reparation orders awarding damages, such as are issued by the Interstate Commerce Commission (49 U.S.C. 16) and the Secretary of Agriculture (7 U.S.C. 210). Senate Hearings (1941) pp. 75, 1389, 1508. In the Senate Comparative Print of June 1945 [44] (p.8) (Sen. Doc. p. 22) the scope of the exemption was described as follows:

This exception also exempts administrative reparation orders assessing damages, such as are issued by the Interstate Commerce Commission and the Secretary of Agriculture, since such orders are subject to trial de novo in court upon attempted enforcement.

2. "The selection or tenure of an officer or employee of the United States other than examiners appointed pursuant to section 11". This exemption of adjudications involving the selection and tenure of officers other than examiners was made "because the selection and control of public personnel has been traditionally regarded as a largely discretionary function". Sen. Rep. p. 16; H.R. Rep. p. 26 (Sen. Doc. pp. 202, 260). There is excluded from this exemption the selection or tenure of "examiners appointed pursuant to section 11"; this refers to the provision of section 11 that "Examiners shall be removable by the agency in which they are employed only for good cause established and determined by the Civil Service Commission * * * after opportunity for hearing and upon the record thereof." Proceedings for the removal of such examiners must be conducted in accordance with sections 5, 7 and 8.

3. "Proceedings in which decisions rest solely on inspections, tests, or elections". The reason for the exemption is that "those methods of determination do not lend themselves to the hearing process". Sen. Rep. p. 16; H.R. Rep. p. 27 (Sen. Doc. pp. 202, 261). This exemption is applicable even though a statute requires an opportunity for an agency hearing; thus the words "rest solely" do not mean that the exemption is available only where decisions are based solely upon inspections, tests, or elections, without opportunity for hearing or other proceedings. Rather, "rest solely" appears to mean that the exemption shall apply where all the issues involved in the decision are determined mainly on the basis of an inspection, test, or election. The legislative history of the Act, commencing with the Final Report of the Attorney General's Committee on Administrative Procedure, pp. 36-38, suggests the following as examples of "proceedings in which decisions rest solely on inspections, tests, or elections":

(a) the denial of airman certificates under section 602 of the Civil Aeronautics Act (49 U.S.C. 552) (statute provides for a hearing); Senate Hearings (1941) pp. 602-3;

(b) the denial or revocation of certificates of seaworthiness by local inspectors of the Coast Guard (46 U.S.C. 391); Senate [45] Hearings (1941) pp. 833-4;

(c) locomotive inspections by the Interstate Commerce Commission (45 U.S.C. 29) (statute provides for a hearing); Senate Hearings (1941) pp. 833-4;

(d) the grading of grain under the United States Grain Standards Act (7 U.S.C. 71 et seq.); Senate Hearings (1941) pp. 833-4.

The rationale for exempting such adjudications from formal procedural requirements was well stated by the Attorney General's Committee on Administrative Procedure in the following passage:

In all these cases, as well as in others not here described, the most important element in the decision is the judgment of the man who saw ind tested the ship or grain or fruit or locomotive, or who examined the prospective airplane pilot, or seaman, or proposed periodical. Formal proceedings are not, of course, impossible. A trial examiner could be designated; the inspector could be summoned to testify, under oath, concerning his observations just as a traffic officer who gives a driving test to an applicant for a motor operator's permit could be required to describe the applicant's performance to a second officer who could, in turn, decide whether the permit should be issued. But resort to formal procedure in this type of administrative matter, although sometimes provided for as in certain of the instances noted above, is not desired or utilized by the person whose rights or privileges are being adjudicated, because it gives no added protection. The judgment of the inspector who examined the applicant or tested the article would necessarily remain the determining element in the decision, and, in any event, some immediate decision concerning the fitness of an applicant, or of in airplane, or a locomotive, or a ship, is necessary to protect the public interest. That cannot await a formal hearing. Nor would formal procedure give greater assurance of a correct decision. The surest way to ascertain what is the grade of grain is for a skilled inspector to test it; the best way to discover whether the radio equipment of a ship is in proper working order is for a radio mechanic to examine it and test it. (Final Report, p. 37)

For further legislative history relating to this exemption, see Senate Hearings (1941) pp. 590, 602, 833.

4. "The conduct of military, naval, or foreign affairs functions". Both Committee reports state that the section "exempts military, naval, and foreign affairs functions for the same reasons that they are exempted from section 4; and, in any event, rarely if ever do statutes require such functions to be exercised upon hearing." Sen. Rep. p. 16; H.R. Rep. p. 27 (Sen. Doc. pp. 202, 261). Thus, the exercise of adjudicatory functions by the War and Navy Departments or by any other agency is exempt to the extent that the conduct of military or naval affairs is involved. Senate Hearings (1941) pp. 502-3. The term "foreign affairs functions" appears to be eased in the same sense as in section 4. H.R. Rep. p. 27 (Sen. Doc. p. 261).

5. "Cases in which an agency is acting as an agent for a [46] court". This is self-explanatory. Senate Hearings (1941) pp. 422, 474, 1457.

6. "The certification of employee representatives". This exemption for "the certification of employee representatives such as the Labor Board operations under section 9 (c) of the National Labor Relations Act, is included because those determinations rest so largely upon an election or the availability of an election". Sen. Rep. p. 16; H.R. Rep. p. 27 (Sen. Doc. pp. 202, 261). And see Senate Hearings (1941) pp. 260, 271. It also exempts the certification of employee representatives by the National Mediation Board pursuant to section 2 (9) of the Railway Labor Act (45 U.S.C. 152).

The first sentence of section 5 (a) provides that "Persons entitled to notice of an agency hearing shall be timely informed of--

(1) "the time, place, and nature thereof". The subsection does not specify the period of notice of hearing to be given by an agency, other than to require "timely" notice. Whether a given period of time constitutes timely notice will depend upon the circumstances, including the urgency of the situation and the complexity of the issues involved in the proceeding. It is clear that nothing in the subsection revokes the specific provisions of other statutes as to the amount of notice which must be given in various proceedings. See generally section 8 of the Federal Register Act (44 U.S.C. 308) and specific statutory provisions such as section 5 of the Federal Trade Commission Act, requiring 30 days' notice of hearing (15 U.S.C. 45). In addition to specifying the time and place of hearing, the notice should specify the nature of the hearing, e.g., whether a cease and desist order should issue.

The last sentence of section 5 (a) provides that "In fixing the times and places for hearings, due regard shall be had for the convenience and necessity of the parties or their representatives." This simply means that consistent with the public interest and the due execution of the agency's functions, each agency shall attempt to schedule hearings at times and places which will be convenient for the parties and their representatives. Sen. Rep. p. 17 (Sen. Doc. p. 203).

(2) "the legal authority and jurisdiction under which the hearing is to be held". The notice should contain reference to the [47] agency's authority sufficient to inform the parties of the legal powers and jurisdiction which the agency is invoking in the particular case, and thus enable the parties to raise any legal issues they consider relevant.

(3) "The matters of fact and law asserted". It is not required to set forth evidentiary facts or legal argument. All that is necessary is to advise the parties of the legal and factual issues involved.

Responsive pleading. The second sentence of section 5 (a) provides that "In instances in which private persons are the moving parties, other parties to the proceeding shall give prompt notice of issues controverted in fact or law; and in other instances agencies may by rule require responsive pleading." In the Committee reports, it is stated that "The second sentence of the subsection applies in those cases where the agency does not control the matter of notice because private persons are the moving parties; and in such cases the respondent parties must give notice of the issues of law and fact which they controvert so that the moving party will be apprised of the issues he must sustain." Sen. Rep. p. 17; H.R. Rep. p. 27 (Sen. Doc. pp. 203, 261). The first clause of this sentence is mandatory. This provision for responsive pleading appears to be applicable, for example, where the moving party is applying for a license and the agency admits as parties or intervenors competitors of the applicant who are opposing the application. Under section 5 (a), the agency should require such additional parties to disclose their position promptly. While the subsection does not specify the consequences to be attached to a party's failure so to plead, it would clearly support an agency rule requiring a party to answer specifically the allegations of the moving party, or be deemed to have admitted such allegations.

The second sentence of section 5 (a) also provides that "in other instances agencies may by rule require responsive pleading". "In other instances" apparently refers to cases in which the agency, rather than a private party, is the moving party. Thus, the quoted clause authorizes an agency, in adjudicatory proceedings which it has initiated, such as for the suspension or revocation of licenses, to require the respondent to plead responsively, i.e., to "give prompt notice of issues controverted in fact or law".

Section 5 (b) provides that "The agency shall afford all interested parties opportunity for (1) the submission and considera[48]tion of facts, arguments, offers of settlement, or proposals of adjustment where time, the nature of the proceeding, and the public interest permit, and (2) to the extent that the parties are unable so to determine any controversy by consent, hearing,⁽³⁾ and decision upon notice and in conformity with section 7 and 8." The settlement of cases and issues by informal methods is nothing new in Federal administrative procedure. In its Final Report, the Attorney General's Committee on Administrative Procedure pointed out (p. 35) that "even where formal proceedings are fully available, informal procedures constitute the vast bulk of administrative adjudication and are truly the lifeblood of the administrative process".

Like section 5 generally, subsection 5 (b) applies only to cases of adjudication required by statute to be determined on the record after opportunity for an agency hearing". The purpose of this subsection is to provide, so far as practicable, for the informal settlement or adjustment of controversies in lieu of formal adjudicatory proceedings. Section 5 (b), however, does not require agencies to settle informally all cases which the parties desire to settle. Rather it requires the agencies to make available opportunities for such settlements, "where time, the nature of the proceeding, and the public interest permit".

Agencies must in some way provide opportunities for informal disposition of controversies. However, the precise manner in which such opportunities are to be afforded has been deliberately left by Congress to development by the agencies themselves. See Senate Comparative Print of June 1945, p. 9 (Sen. Doc. p. 24). The subsection apparently leaves the agencies free to provide such opportunity either before or after the initiation of a formal proceeding (e.g., the issuance of a complaint). If the opportunity is to be made available prior to the issuance of a complaint or notice, the agency must in some way advise the parties that formal proceedings are contemplated. In such a situation, the agency should advise the party at some preliminary stage (investigatory or otherwise) that it is contemplating the initiation of a formal proceeding and that it is giving him an opportunity to settle or adjust the matter. Where the opportunity is made available after the issuance of a notice or complaint, it is sufficient if the agency's published procedures [49] advise parties as to how an informal settlement or adjustment may be sought.

Whether such opportunity is provided before or after the initiation of the formal proceeding, it should enable parties to present their proposals for settlement to responsible officers or employees of the agency. Since section 5 (b) does not prescribe adjustment procedures, they may consist entirely of oral conferences or agencies may require proposals for adjustment or settlement to be submitted in writing. If proposals are submitted and they are unsatisfactory, the agency should consider the advisability of informing the parties involved of the conditions, if any, on which the agency is willing to settle the controversy or accept compliance without formal proceedings. It is clear that section 5 (b) does not require an agency to defer formal proceedings indefinitely while parties submit a series of proposals for the purpose of delay.

In the settlement of cables pursuant to section 5 (b), agencies may, as heretofore, require to enter into consent decrees or orders or stipulations to cease and desist as a part of the settlement. As Representative Walter stated: "The settlement by consent provision is extremely important because agencies ought not to engage in formal proceedings where the parties are perfectly willing to consent to judgments or adjust situations informally." [Italics supplied] 92 Cong. Rec. 5651 (Sen. Doc. p. 361). Final Report, pp. 41-42.

The requirement of section 5 (b) that agencies provide opportunity for informal settlement is limited to cases "where time, the nature of the proceeding, and the public interest permit". The quoted language is to be treated in the alternative. Where an agency is confronted with the necessity for emergency action or where a statute requires that ,t hearing be held within a limited period of time, the agency may be obliged to limit or refuse opportunity for informal settlement. The "nature of the proceeding" may be said to preclude negotiation in situations where the party has declared that he does not intend to comply with a known requirement of the agency or where statutes require that hearings be held in any event.⁽⁴⁾ Senate Hearings (1941) p. 1474. Where an agency believes that the informal settlement of an alleged violation or certain classes of violations will not insure future compliance with law, it would be justified in concluding that [50] such settlement by consent would not be in the public interest.

Each agency should make public, pursuant to section 3 (a), the manner in which it will provide interested parties an opportunity for the informal settlement or adjustment of the matters in issue. H.R. Rep. p. 27 (Sen. Doc. p. 261).

Section 5 (c) generally requires each agency, in the adjudication of cases subject to section 5, to establish an internal separation of functions between the officials who hear and decide and those who investigate or prosecute. The discussion will be simplified if the exceptions from the requirements of section 5 (c) are considered first.

Exceptions. Section 5 (c), like the rest of section 5, applies only to cases of adjudication "required by statute to be determined on the record after opportunity for an agency hearing", and if the subject matter of the proceeding is not exempted by the first paragraph of section 5. Rule making, of course, is not subject to section 5 (c). Section 5 (c), in addition, provides that the provisions of that subsection "shall not apply in determining applications for initial licenses or to proceedings involving the validity or application of rates, facilities, or practices of public utilities or carriers".

Section 5 (c) does not apply to agency proceedings to determine applications for initial licenses--regardless of whether the agency grants or denies the license. "License" is defined in section 2 (d). The phrase "initial license" must be interpreted from the context and legislative history.

The Administrative Procedure Act is based upon a broad and logical dichotomy between rule making and adjudication, i.e., between the legislative and judicial functions. See Chapter I. The legislative history of section 5 (c) reveals that "determining applications for initial licenses" was exempted from the requirements of the subsection on the ground that such proceedings are similar to rule making. In the Committee reports, it is explained that "The exemption of applications for initial licenses frees from the requirements of the section such matters as the granting of certificates of convenience and necessity, upon the theory that in most licensing cases the original application may be much like rule making. The latter, of course, is not subject to any provision of section 5." Sen. Rep. p. 17; H.R. Rep. p. [51] 30 (Sen. Doc. pp. 203, 262). The rationale for the exemption was further developed by Representative Walter on the floor of the House, as follows: "However, the subsection does not apply in determining applications for initial licenses, because it is felt that the determination of such matters is much like rule making and hence the parties will be better served if the proposed decision--later required by section 8--reflects the views of the responsible officers in the agencies whether or not they have actually taken the evidence." 92 Cong. Rec. 5651 (Sen. Doc. p. 361).

In view of the function of the exemption, the phrase "application for initial licences" must be construed to include applications by the licensee for modifications of his original license. In effect, this gives full meaning to the broad definition of "license" in section 2 (e), i.e., "the whole or part of any agency permit, certificate, approval, registration, charter, membership, statutory exemption or other form of permission". [Italics supplied] In other words, the definition clearly suggests that any agency "approval" or "permission" is a license, regardless of whether it is in addition to or related to an earlier license.⁽⁵⁾ Only by such a construction can the appropriate procedures be made applicable to those aspects of licensing which are dominated by policy making considerations and in which accusatory and disciplinary factors are absent. Senate Hearings (1941) p. 1451. In this way, the basic dichotomy of the feet between rule making and adjudication is preserved, because section 5 (c) will remain applicable to licensing proceedings involving renewal, revocation, suspension, annulment, withdrawal or the agency-initiated modification or amendment of licenses--i.e., all those phases of licensing in which the accusatory or disciplinary factors are, or are likely to be, present.

This interpretation of the scope of the exemption is consistent with the remainder of its legislative history. When the ad-[52]ministrative procedure bill (S. 7) was introduced by Senator McCarran in January 1945, the provision that was then section 5 (b) contained an exemption for "determining applications for licenses". When S. 7 was reported by the Senate Committee on the Judiciary in November 1945, section 5 (c) contained the present language exempting "determining applications for initial licenses". In the discussion of the definitions of "adjudication" and "licensing" in the Committee reports, it is stated that "Licensing is specifically included [in adjudication] to remove any question, since licenses involve a pronouncement of present rights of named parties although they may also prescribe terms and conditions for future observance. Licensing as such is later exempted from some of the provisions of sections 5, 7 and 8 relating to hearings and decisions. * * * Later provisions of the bill distinguish between initial licensing and renewals or other licensing proceedings." [Italics supplied] Sen. Rep. p. 11; H.R. Rep. p. 20 (Sen. Doc. pp. 197, 254). It is apparent from the legislative history that the word "initial" was inserted in the exception to distinguish original applications for licenses, i.e., any agency "approval" or "permission", from applications for renewals of licenses. This is entirely consistent with the underlying analogy of initial licensing to rule making, because renewal proceedings frequently involve a review of the licensee's past conduct and thus resemble adjudication rather than rule making.

The insertion of "initial" similarly distinguishes applications for licenses from modifications or limitations imposed by an agency upon an existing license. Thus, the Senate Committee Report also contains a memorandum from the Attorney General in which it is stated that "The section does apply, however, to licensing, with the exception that section 5 (c), relating to the separation of functions, does not apply in determining applications for initial licenses, i.e., original licenses as contradistinguished from renewals or amendments of existing licenses." Sen. Rep. p. 40 (Sen. Doc. p. 226). In referring to "amendments", the quoted language contemplated amendments or modifications imposed by the agency on the ground that in such proceedings, as in renewal proceedings, the issues would often relate to the licensee's past conduct.

It is concluded, therefore, that the exemption from the provisions of section 5 (c) of proceedings to determine "applications for initial licenses" extends not only to applications for original [53] licenses but also to applications by licensees, for modification of licenses.

The exception of "proceedings involving the validity or application of rates, facilities, or practices of public utilities or carriers" originally read "in determining * * * the past reasonableness of rates". See S. 7, 79th Cong. 2nd sess., as passed by the Senate on March 12, 1946. H.R. Rep. p. 52 (Sen. Doc. p. 286). The exemption was apparently created on the ground that questions as to the past reasonableness of rates are sometimes consolidated with the making of future rates--a rule making function--and that the exception would encourage such consolidation. In the House, the exemption was broadened to include the validity or application of facilities and practices on the theory that such matters also are often consolidated with rule making. H.R. Rep. pp. 30, 52 (Sen. Doc. pp. 262, 286). However, it should be noted that the Act itself does not limit the exception to cases where there is consolidation with rule making proceedings.

Hearing officers. The first sentence of section 5 (c) provides that "The same officers who preside at the reception of evidence pursuant to section 7 shall make the recommended decision or initial decision required by section 8 except where such officers become unavailable to the agency." Section 8 (a) provides that in cases in which the agency has not presided at the reception of the evidence, the officer who presided (or, in cases not subject to section 5 (c), such as initial licensing, any other officer or officers qualified to preside at hearings pursuant to section 7) shall make the initial decision or recommended decision as the case may be. Thus, apart from the exceptions referred to above, the officer who presides at the adjudicatory hearing and hears the evidence must prepare the initial or recommended decision, as the case may be, unless he becomes unavailable (as by illness or leaving the agency). Where the hearing officer becomes unavailable to the agency, the agency may itself complete the hearing or substitute another hearing officer to do so.

The second and third sentences of section 5 (c) make provision for the separation of the functions of hearing and decision from the functions of investigation and prosecution. The second sentence of section 5 (c) provides that:

Save to the extent required for the disposition of ex parte matters as authorized by law, no such officer shall consult any person or party on any fact in issue unless upon notice and opportunity for all parties to participate; nor shall such officer be responsible to or subject to the sup-[54]ervision or direction of any officer, employee, or agent engaged in the performance of investigative or prosecuting functions for any agency.

The third sentence provides:

No officer, employee, or agent engaged in the performance of investigative or prosecuting functions for any agency in any case shall, in that or a factually related case, participate or advise in the decision, recommended decision, or agency review pursuant to section 8 except as witness or counsel in public proceedings.

It is thus apparent that the second sentence applies generally to the hearing process or the making of the record; the third, to the decisional process or the making of the initial or recommended decision by the hearing officer. The broad purpose of the second sentence is to assure that hearings be conducted by hearing officers who have not received or obtained factual information outside the record and who are neither supervised nor directed in the conduct of the hearing by agency officials engaged in the performance of investigative or prosecuting functions. To achieve fairness and independence in the hearing process it is first provided that (except for ex parte matters) no hearing officer "shall consult any person or party on any fact in issue unless upon notice and opportunity for all parties to participate". That is, the officer is prohibited from obtaining or receiving evidentiary or factual information bearing on the issues unless, after notice, all parties are permitted to participate. This would apply as well to expert testimony; the officer may not informally obtain evidentiary material from such experts either during or after the hearing, any more than he may from other witnesses.

The broad purpose of the third sentence is to insure that hearing officers make initial or recommended decisions free from the participation or advice of agency personnel engaged in the performance of investigative or prosecuting functions in that or a factually related case.⁽⁶⁾

As to the decisional process it is clear that, to insure the separation of the functions of hearing [55] and decision from the functions of investigation and prosecution and to insure the independence of the hearing officer, he may not consult or receive advice from any employee of the agency who is engaged in the performance of investigative or prosecuting functions in that or a factually related case. Likewise, under fundamental principles of due process, he may not receive advice or opinions from private parties or their counsel, unless, after notice, all parties are permitted to participate.

Further, it is manifest from the third sentence of section 5 (c) that the hearing officer may obtain advice from or consult with agency personnel not engaged in investigative or prosecuting functions in that or a factually related case. The agency personnel in question may include, for example, the agency heads, the supervisors of the hearing officers, and persons assigned to assist the hearing officer in analyzing the record. Permitting the hearing officer to engage with appropriate agency personnel in an analytical discussion of the record is thoroughly consistent with the purposes of the Act. A principal purpose is that the hearing be followed by an initial or recommended decision proposed by the hearing officer which will focus the parties' attention upon the issues and conclusions of law, fact and policy which, in the hearing officer's judgment, govern the case. The availability to the hearing officer of appropriate assistance and advice will result normally in a more accurate initial or recommended decision and one that better reflects the views of the agency on questions of law and policy. Thus, the parties are better advised on the real issues that must be met in the subsequent procedure before final decision. See Senate Hearings (1941) pp. 266, 465, 646, 662, 836, 1487.

The exemption for the "disposition of ex parte matters as authorized by law" would permit the hearing examiner to act without notice on such matters as requests for adjournments, continuances, and the filing of papers. Sen. Rep. p. 17; H.R. Rep. p. 30 (Sen. Doc. pp. 203, 262). Also, it would apparently permit an examiner to act ex parte on requests for subpenas.

The independence of hearing officers is further assured by the requirement that they shall not "be responsible to or subject to the supervision or direction of any officer, employee, or agent engaged in the performance of investigative functions for any agency". As a practical matter this means that an agency's hearing examiners should be placed in an organizational unit [56] apart from those to which investigative and prosecuting personnel are assigned, and that the examiners' unit should be under the supervision only of the agency itself or of agency officers who exercise no investigative or prosecuting functions. For example, if the agency's general counsel supervises the investigation and prosecution activities of the agency, the examiners' unit should not be subject to his supervision or control. However, section 5 (c) would not prevent the trial examiners from being under the supervision of the general counsel where in fact the supervision of investigative and prosecuting functions is exercised by an associate or assistant general counsel who has no responsibility to the general counsel for such functions but is responsible therefor directly to the agency.

It is clear that nothing in the separation of functions requirements of section 5 (c) is intended to preclude agency officials, regardless of their functions, from participating in necessary administrative arrangements, such as the efficient scheduling of hearings.

The agency. The third sentence of section 5 (c) provides that "No officer, employee, or agent engaged in the performance of investigative or prosecuting functions for any agency in any case shall, in that or a factually related case, participate or advise in the decision, recommended decision, or agency review pursuant to section 8 except as witness or counsel in public proceedings." Thus, on "agency review", the agency heads, as well as the hearing examiner, will be precluded from consulting or obtaining advice from any officer or employee with respect to any case in which, or in a factually related case,⁽⁷⁾

such officer or employee has participated in the investigation or prosecution. In other words, the views of officials who investigated and prosecuted the case (or a factually related case) must be presented to hearing examiners and to agency heads in the public proceedings, i.e., hearings or oral argument, or by requested findings, exceptions, and briefs which are served upon the parties. Before discussing the scope of these requirements, it will be useful to consider some aspects of the administrative process.

The expertise of an administrative agency is not limited to the heads of the agency; it includes also the staff of specialists through whom and with whose assistance most of the agency's functions are carried on. The issues in adjudicatory cases, while [57] frequently less complex and with narrower policy implications than are often involved in rule making, present in many cases difficult questions of law and policy. The determination of whether an industry-wide trade practice violates the Federal Trade Commission Act, or whether a certain series of stock market transactions constitute unlawful manipulation, often involves important and difficult issues. In determining such issues, agency heads have consulted with their principal advisers and specialists. Indeed, it is clearly in the public interest that they continue to do so. Section 5 (c) does not purport to isolate the agency heads f rom their staffs. Rather, in the interest of fair procedure, it merely excludes from any such participation in the decision of a case those employees of the agency who have had such previous participation in an adversary capacity in that or a factually related case that they may be "disabled from bringing to its decision that dispassionate judgment which Anglo-American tradition demands of officials who decide questions". Final Report, p. 56.

An agency officer or employee may not participate or advise in the decision, recommended decision, or agency review of an examiner's initial decision if in that or a factually related case he performed investigative or prosecuting functions. For example, if the agency's general counsel or chief accountant engages in the performance of investigative or prosecuting functions in a case, he becomes unavailable to the agency for consultation on the decision of that or a factually related case. Of course, he could always present his views as witness or counsel in the public proceedings, including the filing of briefs.

Assuming that an agency will in many cases wish to consult with certain of its staff members, it may proceed in one of two ways. It may in a particular case consult with staff members who in fact have not performed investigative or prosecuting functions in that or a factually related case. In the alternative, the agency may find it feasible so to organize its staff assignments that the staff members whom it most frequently desires to consult will be free of all investigative and prosecuting functions. The latter method appears to offer two distinct advantages, particularly where the agency has a considerable volume of cases subject to section 5 (c).

First, using the agency's general counsel for an example: If [58] the investigation and prosecution of adjudicatory cases are performed by the legal division under his supervision, it could be argued that his personal consideration of the routine cases has been so limited that he should be permitted to advise the agency in the decision of such cases. Even assuming that this is permitted by section 5 (c), it would seem to be immaterial since his counsel will not be particularly needed in the routine cases. It is in the difficult and novel cases that the agency most needs his advice, and it is in these cases that he is most likely to be consulted extensively by his subordinates. Thus, he becomes unavailable to advise the agency in the very cases in which his advice would be most useful. On the other hand, if the agency so organizes its staff that the general counsel is not responsible for the investigative and prosecuting functions, he would be regularly available to the agency for consultation on the decision of cases.⁽⁸⁾

Second, if an agency thus organizes its staff and, accordingly, identifies the officers with whom it is free to consult in the decision of cases subject to section 5 (c), these matters can be spelled out in the agency's published rules of procedure. Such publication would, in effect, inform the public of the identity (by title or group) of the staff members who advise in the decision of such cases. In any litigation on the issue of compliance with section 5 (c), the published rules, embodying an organization and division of functions in the light of section 5 (c), would assist in establishing proof of compliance with the separation of functions requirements.

The last sentence of section 5 (c) sets forth certain exemptions from the requirements of the subsection. These have already been discussed, except the provision that "nor shall it be applicable in any manner to the agency or any member or members of the body comprising the agency". It was pointed out that this exemption "of the agency itself or the members of the board who comprise it is required by the very nature of administrative agencies, where the same authority is responsible for both the investigation-prosecution and the hearing and decision of cases". Sen. Rep. p. 18; H.R. Rep. p. 30 (Sen. Doc. pp. 204, 262). Thus, if a member of the Interstate Commerce Commission actively participates in or directs the investigation of an adjudicatory case, he will not be precluded from participating with his colleagues in the decision of that case. Sen. Rep. p. 41 (Sen. Doc. p. 227).

[59]

Section 5 (d) provides that "The agency is authorized in its sound discretion, with like effect as in the case of other orders, to issue a declaratory order to terminate a controversy or remove uncertainty." The purpose of section 5 (d), like that of the Declaratory Judgment Act (28 U.S.C. 400), is to develop predictability in the law by authorizing binding determinations "which dispose of legal controversies without the necessity of any party's acting at his peril upon his own view". Final Report, p. 30.

This grant of authority to the agencies to issue declaratory orders is limited by the introductory clause of section 5 so that such declaratory orders are authorized only with respect to matters which are required by statute to be determined "on the record after opportunity for an agency hearing". In addition, if the subject matter falls within one of the numbered exceptions in the introductory clause of section 5, such as a matter in which an agency is acting as an agent for a court, section 5 (d) does not apply. Sen. Rep. p. 18; H.R. Rep. p. 31 (Sen. Doc. pp. 204, 263). For example, where an agency is authorized after hearing to issue orders to cease and desist from specified illegal conduct, it may, under section 5 (d), if it otherwise has jurisdiction, issue a declaratory order declaring whether or not specified facts constitute illegal conduct. On the other hand, while the Securities and Exchange Commission has long issued informal advisory interpretations through its principal officers as to whether a proposed issue of securities would be exempt from the registration requirements of the Securities Act, there is no statutory agency hearing procedure in which this question can be determined; if securities are sold without registration and the Commission believes that registration was required, it can only institute civil or criminal proceedings. Accordingly, section 5 (d) does not authorize the Commission to issue declaratory orders as to whether particular securities must be registered under the Securities Act.⁽⁹⁾

Agencies are authorized in their "sound dis-[60]cretion" to issue declaratory orders. They are not required to issue such orders merely because request is made therefor. Sen. Rep. p. 18; H.R. Rep. p. 31 (Sen. Doc. pp. 204, 263). By "sound discretion", it is meant that agencies shall issue declaratory orders only under such circumstances that both the public interest and the interest of the party are protected. Thus, "a necessary condition of its [declaratory order] ready use is that it be employed only in situations where the critical facts can be explicitly stated, without possibility that subsequent events will alter them. This is necessary to avoid later litigation concerning the applicability of a declaratory ruling which an agency may seek to disregard because, in its opinion, the facts to which it related have changed". Final Report, p. 32. Again, since the issuance of declaratory orders is a matter of sound discretion, it is clear that an agency need not issue such orders where it appears that the questions involved will be determined in a pending administrative or judicial proceeding, or where there is available some other statutory proceeding which will be more appropriate or effective under the circumstances. More broadly, it appears that "The administrative issuance of declaratory orders would be governed by the same basic principles that govern declaratory judgments in the courts." Sen. Rep. p. 18; H.R. Rep. p. 31 (Sen. Doc. pp. 204, 263).

 1. In the Senate Comparative Print of June 1945, p. 2 (Sen. Doc. p. 13), it is stated: "It should be noted that the definition of agencies does not mean that all acts of such agencies are subject to the procedural requirements. * * * If an agency is subject to the proposal under this section, nevertheless it is subject thereto only to the extent that acts, rules, or orders are defined and not further excluded in the following sections and subsections."

 2. It in clear that nothing in the Administrative Procedure Act precludes private parties from waiving their right to a hearing. Similarly. an agency is not prevented from requiring parties to indicate within a reasonable time their desire for a hearing.

 3. The comma after "hearing" in section 5(b) is a printer's error.

 4. For example, the Civil Aeronautics Board is required to hold hearings before granting a certificate of public convenience and necessity for a new route (49 U.S.C. 481).

 5. Any other interpretation of the exemption will largely destroy it and will result in an erratic application of section 5 (c). For example. the function of the Civil Aeronautics Board with respect to certificates of public convenience and necessity increasingly relates to applications for modifications or extensions of existing routes rather than to original applications for entirely new routes. Thus, A, with a certificate for a route from New York to Chicago with a stop at Cleveland for a modification of the certificate to permit an additional stop at Pittsburgh. The considerations involved in determining such an application for modification of A's certificate are the same as those involved in his original application--traffic flow, availability of facilities effect on competing carriers, etc. The accusatory and disciplinary elements are entirely lacking. Another

example clearly illustrates the inconsistent results of such a narrow construction of the exemption for initial licensing: A has a certificate for a route from New York to St. Louis and he applies for a modification which will authorize extension of the route to Omaha; B applies for a new certificate authorizing him to operate a route between St. Louis and Omaha. Under the narrow construction of the exemption, section 5 (c)would apply to the Board's determination of A's application, but would not be applicable with respect to B's application. Similar anomalies would exist under the Federal Power Act, the Communications Act and the Natural Gas Act, particularly the latter.

 6. The limitation of the prohibition against consultation to those who performed investigative or prosecuting functions "in that or a factually related case" should be construed literally. As this provision originally appeared in H.R. 1203, 79th Cong., lst sess. (1945), it was a complete prohibition against consultation with investigative and prosecuting personnel, as follows: "No officer, employee, or agent engaged in the performance of investigative or prosecuting functions for any agency shall participate or advise in the decision, recommended decision, or agency review pursuant to section 8 except as witness or counsel in public proceedings." See Sen. Doc. p. 157.

The phrase "factually related case" connotes a situation in which a party, is faced with two different proceedings arising out of the same or a connected set of facts. For example, a particular investigation may result in the institution of a cease and desist proceeding against a party as well as a proceeding involving the revocation of his license. The employees of the agency, engaged in the investigation or prosecution of such a cease and desist proceeding would be precluded from rendering any assistance to the agency, not only in the decision of the cease and desist proceeding, but also in the decision of the revocation proceeding. However, they would not be prevented from assisting the agency in the decision of other cases (in which they had not engaged either as investigators or prosecutors) merely because the facts of these other cases may form a pattern similar to those which they had theretofore investigated or prosecuted.

 7. See discussion of "factually related case" in footnote 6.

 8. The general counsel's participation in rule making and in court litigation would be entirely compatible with his role in advising the agency in the decision of adjudicatory cases subject to section 5(c).

 9. Of course, this does not affect the Securities and Exchange Commission's advisory service described above.

Back | Next