CHAPTER 5 EXHAUSTION OF ADMINISTRATIVE REMEDIES — NEW DIMENSIONS SINCE DARBY

• Jurisdiction: United States

Natural Resources & Environmental Administrative Law and Procedure
(Nov 1999)
CHAPTER 5
EXHAUSTION OF ADMINISTRATIVE REMEDIES — NEW DIMENSIONS SINCE DARBY
William F. Funk
Lewis and Clark Law School
Portland, Oregon

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The Traditional Rule

In a nutshell, the doctrine of exhaustion of administrative remedies is the rule that before you may obtain judicial review of agency action, you must first exhaust any administrative avenues of possible relief.

This doctrine has its origin in common law, or more accurately federal equity jurisdiction, the source of judicial review of federal agency action.¹ It is an analogy to the general rule that equity provides relief only when the plaintiff lacks an adequate remedy at law—a requirement that even today is reflected in Section 704's limitation that review under the APA is available only for final agency action "for which there is no adequate remedy in court."² Exhaustion, however, implicates policies beyond merely staying one court's hand in favor of another's, or one legal regime's forms of relief for another's. The doctrine of exhaustion also implicates the different spheres of judicial and executive action, involving separation of powers concerns on the one hand and relative competence and expertise on the other. Moreover, exhaustion is efficient from a judicial perspective.

In the leading Supreme Court case on the subject, McCarthy v. Madigan,³ the Court elaborated on these themes. Exhaustion, it said, is grounded in the notion that because Congress has delegated the decision authority to an agency, the agency, not the courts, ought to have the primary responsibility. This is particularly so "when the action under review involves exercise of the agency's discretionary power"⁴ or when the statute allows the agency to apply its special expertise.⁵ In addition, the doctrine allows an agency to correct its own mistakes and avoids providing incentives to disregard agency procedures.⁶ Finally, requiring exhaustion fosters judicial efficiency in two ways. First, if the agency has the opportunity to correct its own errors, the case may be mooted so that it will never reach the courts.⁷ Second, even if the case reaches a court, requiring exhaustion may produce a better record for judicial review.⁸

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At the same time, there are other interests that might lead a court to permit an exception to the exhaustion doctrine. As the Court has said:

administrative remedies need not be pursued if the litigant's interests in immediate judicial review outweigh the government's interests in the efficiency or administrative autonomy that the exhaustion doctrine is designed to further.⁹

The Court has identified three general circumstances where the interests of the individual are particularly strong. One involves the situation where requiring exhaustion may actually prejudice subsequent court action.¹⁰ This could occur when the administrative procedure would delay resolution for an unreasonable period. Another involves the situation where the agency cannot grant effective relief, making exhaustion a futile endeavor.¹¹ An example would be where the person's claim is that the agency's statute is unconstitutional. A third situation is where the agency procedure or decision maker is shown to be unfair or prejudiced.¹²

Despite the identification of these general situations, the Court has recognized that the balancing of interests is extremely case-specific, because it turns on "the nature of the claim presented and the characteristics of the particular administrative procedure provided."¹³ The effect of such case-specific balancing has been a general indeterminacy of outcome of traditional exhaustion cases. In a notable 1985 law review article, Professor Marcia Gelpe exhaustively researched the application of the exhaustion doctrine and concluded:

Presently, the law governing exhaustion of administrative remedies is complex and confusing and fosters needless litigation: litigation that is burdensome to the courts and costly to defendants, that adversely affects agency decision making, and that by its very existence, wrongly influences courts to dispense with the exhaustion requirement. Exhaustion remains troublesome to the courts; many of the decisions are confusing and poorly reasoned.¹⁴

Her article is an excellent attempt to summarize the state of the law at the time. In addition, she called upon the courts to simplify and regularize the exemptions to the exhaustion doctrine, both to further its goals and to clarify the law. Like most law review articles, however, its effect on the courts was indiscernible.

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The Darby Revolution

This traditional doctrine of exhaustion of administrative remedies, however, was in large part overruled by the Supreme Court's decision in 1993 in Darby v. Cisneros.¹⁵ In that case, the an Administrative Law Judge of the Department of Housing and Urban Development had debarred Darby from further participation in HUD procurement contracts. HUD's regulations provided that the ALJ's decision would be final unless the Secretary, within 30 days of receipt of a request, decides as a matter of discretion to review the finding of the hearing officer. A party was allowed to request such a review within 15 days of receipt of the ALJ's decision. Darby did not seek administrative review, but instead sued in district court under the Administrative Procedure Act alleging that the ALJ's decision was not in accordance with law. The government moved to dismiss on the ground that Darby had failed to exhaust his administrative remedies. The district court denied the motion, applying traditional exhaustion doctrine and finding that exhaustion would be futile and that available administrative remedies would be insufficient.¹⁶ The court of appeals reversed, also applying traditional exhaustion doctrine but finding that Darby had failed to satisfy his burden of showing that he was entitled to one of the exceptions to the traditional rule.¹⁷

The Supreme Court, however, did not apply the traditional doctrine. Instead, the Court looked to section 704 of the APA.¹⁸ That section provides:

Except as otherwise expressly required by statute, agency action otherwise final is final for the purposes of this section whether or not there has been presented or determined an application for a declaratory order, for any form of reconsideration, or, unless the agency otherwise requires by rule and provides that the action meanwhile is inoperative, for an appeal to superior agency authority.

By its terms, this language declares agency action to be "final" agency action (if it is otherwise final) without regard to whether a person has sought any form of reconsideration or made an appeal to superior agency authority, unless a statute expressly provides otherwise or the agency has by rule required the person to appeal to superior agency authority and has provided that the agency action is inoperative during the appeal. In Darby it was conceded that no statute required persons to exhaust their HUD administrative remedies. Moreover, the HUD regulation was not phrased in terms of requiring persons to invoke the appeals process as a pre-condition of seeking judicial review. It provided that a person "may request" review. Even then, whether the review would be entertained was discretionary with the Secretary. Finally, the HUD regulation did not provide for automatically staying the effect of the debarment action pending agency review. Accordingly, the Court found that the ALJ's decision was "final" agency action.

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This by itself was not a surprising conclusion. The government did not contest that the agency's action was final within the meaning of the APA; its argument was that notwithstanding the fact that it was final agency action, the court should not review it because Darby had not exhausted his administrative remedies.¹⁹ The Supreme Court acknowledged that "the judicial doctrine of exhaustion of administrative remedies is conceptually distinct from the doctrine of finality."²⁰ Nevertheless, the Court also noted that, even in McCarthy v. Madigan, the Court had recognized that the availability of an exhaustion requirement depended upon congressional intent.²¹ Because the doctrine of exhaustion is a judicially derived doctrine, statutory language could amend or repeal it. Consequently, the Court turned to the first sentence of Section 704, which states that "final agency action for which there is no other adequate remedy in a court [is] subject to judicial review."²² Having decided that HUD's action was "final agency action," the Court found this language precluded judicial imposition of an exhaustion requirement, because the language mandated without exception that "final agency action" be subject to judicial review.²³

This conclusion was surprising. First, as even the Court observed, it was surprising that it took over 45 years for anyone to discover this meaning of section 704.²⁴ Second, the Court also admitted that over this period there was "some dicta" in some of its cases that tended to support the government's interpretation that section 704 only addressed the timing of review, not the question of exhaustion.²⁵ Nonetheless, the Court believed that "the text of the APA leaves little doubt" that when an agency action is "final for the purposes of [section 704]," it is then "subject to judicial review."²⁶ Section 704, "by its very terms, has limited the availability of the doctrine of exhaustion of administrative remedies to that which the statute or rule clearly mandates."²⁷ In the last sentence of section 704, with its explicit reference to "any form of reconsideration" and "an appeal to superior agency authority,"

Congress clearly was concerned with making the exhaustion requirement unambiguous so that aggrieved parties would know precisely what administrative steps were required before judicial review would be available. If...