News From the States

by Michael Asimow ¹

Judicial Review Shortcuts: Another California Case

In the Spring, 1998 issue, I noted Landau v. Superior Court, 71 Cal.Rptr.2d 54 (1998). That case upheld a statute which provided for judicial review of administrative disciplinary actions against physicians by extraordinary writ instead of by appeal. The goal was to shorten the discipline process, because appellate courts can dispose of writ petitions summarily. However, a second case has invalidated the same statute as violative of the right to appeal under the California constitution. Leone v. Division of Medical Quality, 67 Cal.Rptr.2d 689 (1997). The California Supreme Court has granted a hearing in Leone, so the issue remains completely unresolved.

The Private Due Process Train Is Leaving The Station

The state action doctrine is a pillar of administrative law. Government must provide due process; the private sector need not do so. Courts review arbitrary governmental action, but not arbitrary private action. Government, but not private actors, must respect free speech. See Lebron v. National RR Passenger Corp., 513 U.S. 374 (1995) (Amtrak required to recognize free speech, even though statute provides it is not a government agency, because it is controlled by federal government and carries out government function).

As we move in the direction of government downsizing and devolution of functions to government corporations and to private and semi-private institutions, what happens to administrative law norms? Can government shed its duties of fair procedure as it privatizes its functions? I suggest that this question will be a prominent feature of administrative law agendas in the years to come. See generally Michael Taggart (ed.), The Province of Administrative Law (1997), a series of provocative essays addressing this problem in Canada, the U.S., Australia, United Kingdom, and New Zealand.

One approach to this problem is to imply administrative law rules into private contracts. For example, private universities often provide the same due process as public universities in cases of student discipline or discharge of tenured faculty members. The private schools feel that state courts may well imply due process principles into their contracts with students or faculty.

In this light, the recent decision of the California Supreme Court in Cotran v. Rollins Hudig Hall International, Inc., 69 Cal.Rptr.2d 900, 910 (1998), is exceptionally interesting. Cotran was protected by his employment contract from discharge without cause. He was fired because his employer believed that he had sexually harassed a female co-worker. But it was a he-said-she-said situation. Cotran denied that he did it and sued for wrongful termination.

The court held that the issue for the jury was not whether Cotran was guilty of harassment. Instead, the issue was whether the employer reasonably believed, after an appropriate investigation, that he was guilty. But what is an appropriate investigation?

The court explicitly held that Cotran was entitled to a fair opportunity to respond to the charges against him. The court relied on an English case articulating the requirements of natural justice, Board of Education v. Rice [1911] A.C. 179. The rule of natural justice, which is prevalent throughout the commonwealth, closely parallels American due process. In addition, the court also relied on an earlier California case which imposed due process-like requirements on a orthodontic society that refused to admit a new member, Pinsker v. Pacific Coast Society of Orthodontists, 526 P.2d 253 (Cal. Sup. Ct. 1974). This case held that the decision of the Society to exclude or expel a member could not be "arbitrary" and that the Society had to allow an affected individual a meaningful opportunity to respond to the charges against him. These requirements were imposed purely as a matter of common law, not constitutional law, and arose out of the importance of membership in the Society to the practice of orthodontics. Other similar California cases involve exclusion of physicians from private hospital medical staffs. See generally Jack Beermann, "The Reach of Private Law in the United States," in Taggart, supra at 171, 184-191. Finally, the court also relied on Judge Friendly's famous article on due process, Henry Friendly, "Some Kind of Hearing", 123 U. Pa. L. Rev. 1267 (1975).

A rule that infuses due process requirements into private contractual relationships would have profound implications. While it would provide procedural protections for underdogs such as employees, students, patients, club members, and countless others, such a rule would threaten to bureaucratize relatively informal relationships. Transactional lawyers would have to insert no-due-process terms into contracts -- which would then create interesting public policy and unconscionablity disputes.

But look out -- the private-sector due process train is leaving the station.

Regulatory Reform in the Other Washington²

The so-called "regulatory reform" beat goes on in Washington State, with a 22 page set of amendments to the state APA passing both houses of the legislature. [Engrossed Second Substitute House Bill 2345, 55th Washington Legislature, 1998.] As has been the case in previous regulatory reform efforts in Washington State, the Governor was not in sympathy with the bill and principal parts of the measure were vetoed on April 2, 1998. Vetoed parts of the bill include sections which:

• --required that regulated parties be given more notice of and technical assistance about compliance with rules, interpretive and policy statements, guidelines, etc. (The Governor's veto message found these provisions would mandate additional notifications, meetings and other "bureaucratic red tape" which would be costly and complex, inviting more litigation and, on the whole, not warranted by the evidence presented on their behalf.)

• --set up a statutory rules review process, using criteria largely taken from an Executive Order addressed to the same subject, but providing additional sanctions. (The veto message found these sections duplicated work now being done effectively under the Executive Order.)

• --provided some exemptions from the requirement of using independent ALJs in formal adjudications. (The Governor said he found no evidence which would justify relieving some agencies from the ALJ requirement.)

The Governor's veto message repeated his deep commitment to "meaningful regulatory improvement" and reported that actions taken under his recent Executive Order (EO 97-02) have resulted in "the elimination of nearly 2000 rules and rewriting of hundreds" of others.

North Carolina Mulls Standard for Agency Review of Central Panel ALJ Decisions

Since the 1993 Session of the North Carolina General Assembly, the issue of the finality of North Carolina central panel decisions has been the subject of debate in the legislature. Last Session, Senator Fletcher Hartsell of Cabarrus County, amended an environmental bill to strengthen the decisionmaking authority of the Office of Administrative Hearings. This amendment passed the Senate unanimously but was unsuccessful in the House.

Under North Carolina's present APA (G.S. 150B-36(b)) and interpretive decisions of the North Carolina appellate courts, the final decision maker is free to substitute its own findings of fact for that of the administrative law judge. The only requirement for making changes is that the agency set out the reasons why it did not adopt the recommended decision.

It is in the types of reversals of the ALJ decisions that some need for the standard of review for the findings of fact becomes apparent. In 1995, according to statistics kept by the Office of Administrative Hearings, 52 out of 54 decisions which were reversed by the final decision makers, were reversed to reinstate the agency's initial position, resulting in a 98% reversal rate when the ALJ had ruled in favor of the citizen-petitioner.

The Administrative Procedures Legislative Oversight Committee, a Standing Committee of the General Assembly, has again taken up the Hartsell Amendment as part of its APA oversight responsibilities. If favorable action is taken by this committee by the end of March, the General Assembly will likely reconsider the Hartsell Amendment in the 1998 Short Session.

Although the bill makes several other technical changes, primarily, it requires the agencies to accept the central panel's findings of fact in an administrative proceeding if the findings of fact are supported by substantial evidence in the record. Presently, there is no standard of review between the final decision maker and the central panel's recommended decision. The bill would place a standard of review between these two decision makers and would add an additional ground for a reversal on appeal if the agency decision maker does not adhere to this new standard.

Kansas Court Interprets Model Act Provisions

Recently a Kansas appellate court interpreted several provisions of the 1981 Model State Administrative Procedure Act. In Citizens' Utility Ratepayer Board v. State Corporation Commission, 941 P.2d 424 (Kan. App. 1997), the court reversed a Kansas Corporation Commission (KCC) order that had precluded an intervening party from access to confidential cost studies of Southwestern Bell, finding the KCC order unreasonable, arbitrary and capricious.

The underlying action was a generic proceeding designed to examine Southwestern Bell's costs for the purpose of determining rates it could charge under the Federal Communications Act of 1996 for interconnection arrangements with other carriers. The KCC allowed the Citizens' Utility Ratepayer Board (CURB), a board created by statute to represent consumer interests in KCC proceedings, to intervene, but ruled that it would not be given access to Southwestern Bell's cost data. That information was, by KCC order, made available only to carriers who had requested negotiations with Southwestern Bell for the purposes of entering into interconnection contracts.

The KCC sought to justify its order in part based upon Model Act section 4-209, which allows the presiding officer to "impose conditions on the intervener's participation in the proceedings," including "limiting the intervener's use of discovery … so as to promote the orderly and prompt conduct of the proceedings." The court quoted comments to the Model Act noting that limitations on discovery might be appropriate to prevent "unreasonably burdensome or repetitious presentations by intervenors." The court held that there was no indication that allowing access to the cost data would be unduly burdensome and that there was no showing that precluding CURB access to the cost data would "serve[] the purpose of prompt and orderly proceedings."

The standard of review was framed by Model Act section 5-116, which provides that agency action is invalid when arbitrary, capricious or otherwise unreasonable. (The "otherwise unreasonable" standard is optional in the Model Act, but has been adopted in Kansas.) Under these circumstances, the court found that the KCC order was unreasonable, arbitrary and capricious. The court dismissed the KCC argument that "CURB may participate but will not know the exact numbers." As the court concluded: "Such 'participation' in a proceeding to investigate cost studies and determine prices can hardly be viewed as meaningful."

The court also interpreted Model Act sections 5-102 and 5-103 concerning when agency action may be reviewed. Section 5-102 generally provides that only final agency actions are subject to review. Section 5-103 provides a limited exception when "postponement of judicial review would result in an inadequate remedy or irreparable harm disproportionate to the public benefit derived from postponement." The court held that the KCC order precluding CURB access to cost data during the agency proceeding was itself a final order, reasoning that the order presented a legal issue which had a direct effect on CURB, and that the resolution of the issue at this time would "not disrupt the orderly process of adjudication in the administrative proceeding." In the alternative, the court held that even if the order was not a final order, the exception of section 5-103 was applicable. The court noted that the KCC protective order precluding CURB access to the cost data would effectively be unreviewable after the KCC proceeding had been completed because "CURB will be placed in the untenable position of trying to show how its examination of witnesses and arguments would have differed had it been allowed to review the proprietary cost data."

Practitioners in other states that have adopted Model Act provisions should note that Kansas has adopted major portions of the 1981 Model Act, including those listed above. Unfortunately, Kansas is not listed in the Uniform Laws Annotated as one of the adopting jurisdictions. In fact, in 1984 Kansas adopted with only minor revisions article four (governing adjudicative proceedings), see Kan. Stat. Ann. §§ 77-501 et seq., and article five (governing judicial review and enforcement), see Kan. Stat. Ann. §§ 77-601 et seq. Accordingly, you may be able to find useful authorities under the Model Act by reviewing Kansas case law over the past 15 years.

North Dakota Updates Its Uniform Administrative Rules³

North Dakota recently adopted changes to its Uniform Rules of Administrative Practice and Procedure. N.D. Admin. C. §98-02. The most significant changes concern discovery, subpoenas, withdrawal of attorneys, exhibits, and final orders and decisons on appeal. These changes responded to 1997 legislative changes in the Administrative Agencies Practices Act, N.D.C.C. ch. 28-32.

Changes to the Uniform Rules are reviewed both by the Advisory Council for Administrative Hearings, an advisory council to the Office of Administrative Hearings (the state's central panel), and by the Administrative Law Committee of the State Bar Association. They are then submitted for publication after public hearing and comment and after an opinion is obtained from the Attorney General.

These rules (effective April 1998) apply to all N.D. administrative agencies that do not have their own rules of practice and procedure. Most N.D. agencies do not have their own practice rules and rely on the uniform rules.

Indiana Promulgates Procedural Rules for the Office of Environmental Adjudication

The Office of Environmental Adjudication has recently promulgated procedural rules. The Office has jurisdiction to hear cases in approximately sixty different areas, and its Environmental Law Judges have ultimate authority over all of the decisions of the Commissioner of the Indiana Department of Environmental Management. Currently, the office operates with a Director/Chief Administrative Law Judge, an Environmental Law Judge, and an Administrative Assistant. In addition, the office is working toward becoming "user friendly" by contracting with the State Internet commission, Access Indiana Information Network, to provide on-line electronic access for all of the Office's non-confidential, public data records. A full copy of the rules, published in title 315 of the Indiana Administrative Code will be likewise placed on-line. Questions regarding the rules should be directed to Wayne E. Penrod, Director and Chief Administrative Law Judge, Office of Environmental Adjudication, 150 West Market Street, Suite 618, Indianapolis, IN 46204, 317/232-8591.

1. Professor of Law, UCLA Law School; Co-chair, State Administrative Law Committee.

2. This information is submitted by Professor William R. Andersen, University of Washington School of Law.

3. This information is submitted by Alan Hoberg, Chief Judge, North Dakota Office of Administrative Hearings.