DARBY ET AL. v. CISNEROS, SECRETARY OF HOUSING AND URBAN DEVELOPMENT, ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE FOURTH CIRCUIT
Argued March 22, 1993
Decided June 21, 1993
In a consolidated appeal from decisions by the Department of Housing and Urban Development (HUD) to initiate administrative sanctions against petitioners, an Administrative Law Judge (ALJ) concluded that petitioners should be debarred from participating in federal programs for 18 months. Under HUD regulations, an ALJ's determination "shall be final unless . . . the Secretary . . . within 30 days of receipt of a request decides as a matter of discretion to review the [ALJ's] finding. . . ." 24 CFR 24.314(c). Neither party sought further administrative review, but petitioners filed suit in the District Court, seeking an injunction and declaration that the sanctions were not in accordance with law within the meaning of the Administrative Procedure Act (APA). Respondents moved to dismiss the complaint on the ground that petitioners, by forgoing the option to seek review by the Secretary, had failed to exhaust their administrative remedies. The court denied the motion and granted summary judgment to petitioners on the merits of the case. The Court of Appeals reversed, holding that the District Court had erred in denying the motion to dismiss.
Federal courts do not have the authority to require a plaintiff to exhaust available administrative remedies before seeking judicial review under the APA, where neither the relevant statute nor agency rules specifically mandate exhaustion as a prerequisite to judicial review. The language of 10(c) of the APA is explicit that an appeal to "superior agency authority" is a prerequisite to judicial review only when "expressly required by statute" or when the agency requires an appeal "by rule and provides that the [administrative] action is . . . inoperative" pending that review. Since neither the National Housing Act nor applicable HUD regulations mandate further administrative appeals, the ALJ's decision was a "final" agency action subject to judicial review under 10(c). The lower courts were not free to require further exhaustion of administrative remedies, although the exhaustion doctrine continues to apply as a matter of judicial discretion in cases not [509 U.S. 137, 138] governed by the APA. Nothing in 10(c)'s legislative history supports a contrary reading. Pp. 6-17.
957 F.2d 145, reversed and remanded.
BLACKMUN, J., delivered the opinion for a unanimous Court with respect to Parts I, II, and IV, and the opinion of the Court with respect to Part III, in which WHITE, STEVENS, O'CONNOR, KENNEDY, and SOUTER, JJ., joined.
Steven D. Gordon argued the cause for petitioners. With him on the briefs was Michael H. Ditton.
James A. Feldman argued the cause for respondents. With him on the brief were Acting Solicitor General Bryson, Assistant Attorney General Gerson, Deputy Solicitor General Mahoney, and Anthony J. Steinmeyer.
JUSTICE BLACKMUN delivered the opinion of the Court. *
This case presents the question whether federal courts have the authority to require that a plaintiff exhaust available administrative remedies before seeking judicial review under the Administrative Procedure Act (APA), 5 U.S.C. 701 et seq., where neither the statute nor agency rules specifically mandate exhaustion as a prerequisite to judicial review. At issue is the relationship between the judicially created doctrine of exhaustion of administrative remedies and the statutory requirements of 10(c) of the APA. 1 [509 U.S. 137, 139]
Petitioner R. Gordon Darby 2 is a self-employed South Carolina real estate developer who specializes in the development and management of multifamily rental projects. In the early 1980's, he began working with Lonnie Garvin, Jr., a mortgage banker, who had developed a plan to enable multifamily developers to obtain single-family mortgage insurance from respondent Department of Housing and Urban Development (HUD). Respondent Secretary of HUD (Secretary) is authorized to provide single-family mortgage insurance under 203(b) of the National Housing Act, 48 Stat. 1249, as amended, 12 U.S.C. 1709(b). 3 Although HUD also provides mortgage insurance for multi-family projects under 207 of the National Housing Act, 12 U.S.C. 1713, the greater degree of oversight and control over such projects makes it less attractive for investors than the single-family mortgage insurance option.
The principal advantage of Garvin's plan was that it promised to avoid HUD's "Rule of Seven." This rule prevented rental properties from receiving single-family mortgage insurance if the mortgagor already had financial interests in seven or more similar rental properties in the same project [509 U.S. 137, 140] or subdivision. See 24 CFR 203.42(a) (1992). 4 Under Garvin's plan, a person seeking financing would use straw purchasers as mortgage insurance applicants. Once the loans were closed, the straw purchasers would transfer title back to the development company. Because no single purchaser at the time of purchase would own more than seven rental properties within the same project, the Rule of Seven appeared not to be violated. HUD employees in South Carolina apparently assured Garvin that his plan was lawful and that he thereby would avoid the limitation of the Rule of Seven.
Darby obtained financing for three separate multi unit projects, and, through Garvin's plan, Darby obtained single-family mortgage insurance from HUD. Although Darby successfully rented the units, a combination of low rents, falling interest rates, and a generally depressed rental market forced him into default in 1988. HUD became responsible for the payment of over $6.6 million in insurance claims.
HUD had become suspicious of Garvin's financing plan as far back as 1983. In 1986, HUD initiated an audit but concluded that neither Darby nor Garvin had done anything wrong or misled HUD personnel. Nevertheless, in June, 1989, HUD issued a limited denial of participation (LDP) that prohibited petitioners for one year from participating in any program in South Carolina administered by respondent Assistant Secretary of Housing. 5 Two months later, the Assistant Secretary notified petitioners that HUD was also proposing to debar them from further participation in all HUD [509 U.S. 137, 141] procurement contracts and in any nonprocurement transaction with any federal agency. See 24 CFR 24.200 (1992).
Petitioners' appeals of the LDP and of the proposed debarment were consolidated, and an Administrative Law Judge (ALJ) conducted a hearing on the consolidated appeals in December, 1989. The judge issued an "Initial Decision and Order" in April, 1990, finding that the financing method used by petitioners was "a sham which improperly circumvented the Rule of Seven." App. to Pet. for Cert. 69a. The ALJ concluded, however, that most of the relevant facts had been disclosed to local HUD employees, that petitioners lacked criminal intent, and that Darby himself "genuinely cooperated with HUD to try [to] work out his financial dilemma and avoid foreclosure." Id. at 88a. In light of these mitigating factors, the ALJ concluded that an indefinite debarment would be punitive, and that it would serve no legitimate purpose; 6 good cause existed, however, to debar petitioners for a period of 18 months. 7 Id. at 90a.
Under HUD regulations,
On May 31, 1990, petitioners filed suit in the United States District Court for the District of South Carolina. They sought an injunction and a declaration that the administrative sanctions were imposed for purposes of punishment, in violation of HUD's own debarment regulations, and therefore were "not in accordance with law" within the meaning of 10(e)(B)(1) of the APA, 5 U.S.C. 706(2)(A).
Respondents moved to dismiss the complaint on the ground that petitioners, by forgoing the option to seek review by the Secretary, had failed to exhaust administrative remedies. The District Court denied respondents' motion to dismiss, reasoning that the administrative remedy was inadequate, and that resort to that remedy would have been futile. App. to Pet. for Cert. 29a. In a subsequent opinion, the District Court granted petitioners' motion for summary judgment, concluding that the "imposition of debarment in this case encroached too heavily on the punitive side of the line, and, for those reasons, was an abuse of discretion and not in accordance with the law." Id. at 19a.
The Court of Appeals for the Fourth Circuit reversed. Darby v. Kemp, 957 F.2d 145 (1992). It recognized that neither the National Housing Act nor HUD regulations expressly mandate exhaustion of administrative remedies prior to filing suit. The court concluded, however, that the District Court had erred in denying respondents' motion to dismiss, because there was no evidence to suggest that further review would have been futile or that the Secretary would have abused his discretion by indefinitely extending the time limitations for review.
The court denied petitioners' petition for rehearing with suggestion for rehearing en banc. See App. to Pet. for Cert. 93a. In order to resolve the tension between this and the APA, as well as to settle a perceived conflict among the [509 U.S. 137, 143] Courts of Appeals, 8 we granted certiorari. 506 U.S. 952 (1992).
Section 10(c) of the APA bears the caption "Actions reviewable." It provides in its first two sentences that judicial review is available for "final agency action for which there is no other adequate remedy in a court," and that "preliminary, procedural, or intermediate agency action . . . is subject to review on the review of the final agency action." The last sentence of 10(c) reads:
Respondents contend that 10(c) is concerned solely with timing, that is, when agency actions become "final," and that Congress had no intention to interfere with the courts' ability to impose conditions on the timing of their exercise of jurisdiction to review final agency actions. Respondents concede that petitioners' claim is "final" under 10(c), for neither the National Housing Act nor applicable HUD regulations require that a litigant pursue further administrative appeals prior to seeking judicial review. However, even though nothing in 10(c) precludes judicial review of petitioners' claim, respondents argue that federal courts remain free under the APA to impose appropriate exhaustion requirements. 9
We have recognized that the judicial doctrine of exhaustion of administrative remedies is conceptually distinct from the doctrine of finality:
It perhaps is surprising that it has taken over 45 years since the passage of the APA for this Court definitively to address this question. Professor Davis noted in 1958 that 10(c) had been almost completely ignored in judicial opinions, see 3 K. Davis, Administrative Law Treatise 20.08, p. 101 (1958); he reiterated that observation 25 years later, noting that the "provision is relevant in hundreds of cases, and is customarily overlooked." 4 K. Davis, Administrative Law Treatise 26.12, pp. 468-469 (2d ed. 1983). Only a handful of opinions in the Courts of Appeals have considered the effect of 10(c) on the general exhaustion doctrine. See n. 8, supra.
This Court has had occasion, however, to consider 10(c) in other contexts. For example, in ICC v. Locomotive Engineers, 482 U.S. 270 (1987), we recognized that the plain language of 10(c), which provides that an agency action is final "whether or not there has been presented or determined an application" for any form of reconsideration, could be read to suggest that the agency action is final regardless whether a motion for reconsideration has been filed. We noted, however, that 10(c) "has long been construed by this and other courts merely to relieve parties from the requirement of petitioning for rehearing before seeking judicial review (unless, of course, specifically required to do so by statute - see, e.g., 15 U.S.C. 717r, 3416(a)), but not to prevent petitions for reconsideration that are actually filed from rendering the orders under reconsideration nonfinal." (Emphasis in original.) Id. at 284-285. [509 U.S. 137, 146]
In Bowen v. Massachusetts, 487 U.S. 879 (1988), we were concerned with whether relief available in the Claims Court was an "adequate remedy in a court" so as to preclude review in Federal District Court of a final agency action under the first sentence of 10(c). We concluded that, "although the primary thrust of [ 10(c)] was to codify the exhaustion requirement," id., at 903, Congress intended by that provision simply to avoid duplicating previously established special statutory procedures for review of agency actions.
While some dicta in these cases might be claimed to lend support to respondents' interpretation of 10(c), the text of the APA leaves little doubt that petitioners are correct. Under 10(a) of the APA, "[a] person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof." 5 U.S.C. 702 (emphasis added). Although 10(a) provides the general right to judicial review of agency actions under the APA, 10(c) establishes when such review is available. When an aggrieved party has exhausted all administrative remedies expressly prescribed by statute or agency rule, the agency action is "final for the purposes of this section," and therefore "subject to judicial review" under the first sentence. While federal courts may be free to apply, where appropriate, other prudential doctrines of judicial administration to limit the scope and timing of judicial review, 10(c), 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.
The last sentence of 10(c) refers explicitly 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 courts were able to impose additional exhaustion requirements [509 U.S. 137, 147] beyond those provided by Congress or the agency, the last sentence of 10(c) would make no sense. To adopt respondents' reading would transform 10(c) from a provision designed to "`remove obstacles to judicial review of agency action,'" Bowen v. Massachusetts, 487 U.S. at 904, quoting Shaughnessy v. Pedreiro, 349 U.S. 48, 51 (1955), into a trap for unwary litigants. Section 10(c) explicitly requires exhaustion of all intra-agency appeals mandated either by statute or by agency rule; it would be inconsistent with the plain language of 10(c) for courts to require litigants to exhaust optional appeals as well.
Recourse to the legislative history of 10(c) is unnecessary in light of the plain meaning of the statutory text. Nevertheless, we consider that history briefly because both sides have spent much of their time arguing about its implications. In its report on the APA, the Senate Judiciary Committee explained that the last sentence of 10(c) was "designed to implement the provisions of section 8(a)." Section 8(a), now codified, as amended, as 5 U.S.C. 557(b), provides, unless the agency requires otherwise, that an initial decision made by a hearing officer "becomes the decision of the agency without further proceedings unless there is an appeal to, or review on motion of, the agency within time provided by rule." The Judiciary Committee explained that
Seven years later, in Prendergast v. New York Telephone Co., 262 U.S. 43, 48 (1923), without even mentioning the Vandalia case, the Court stated:
Shortly before Congress adopted the APA, the Court, in Levers v. Anderson, 326 U.S. 219 (1945), held that, where a federal statute provides that a district supervisor of the Alcohol Tax Unit of the Bureau of Internal Revenue "may hear the application" for a rehearing of an order denying certain liquor permits, such an application was not a prerequisite to judicial review. Nothing "persuades us that the `may' means must, or that the Supervisors were required to hear oral argument." Id. at 223 (emphasis added). Despite the fact that the regulations permitted a stay pending the motion for reconsideration, the Court concluded that "the motion is, in its effect, so much like the normal, formal type of motion for rehearing that we cannot read into the Act an intention to make it a prerequisite to the judicial review specifically provided by Congress." Id. at 224.
Respondents in effect concede that the trend in the law prior to the enactment of the APA was to require exhaustion of motions for administrative reconsideration or rehearing only when explicitly mandated by statute. Respondents argue, however, that the law governing the exhaustion of administrative appeals prior to the APA was significantly different from 10(c) as petitioners would have us interpret it. Brief for Respondents 23. Respondents rely on United States v. Sing Tuck, 194 U.S. 161 (1904), in which the Court considered whether, under the relevant statute, an aggrieved party had to appeal an adverse decision by the Inspector of Immigration to the Secretary of Commerce and Labor before [509 U.S. 137, 151] judicial review would be available. 11 It recognized that the relevant statute "points out a mode of procedure which must be followed before there can be a resort to the courts," id. at 167, and that a party must go through "the preliminary sifting process provided by the statutes," id. at 170. Accord, Chicago, M., St. P. & P.R. Co. v. Risty, 276 U.S. 567, 574-575 (1928). 12
Nothing in this pre-APA history, however, supports respondents' argument that initial decisions that were "final" for purposes of judicial review were nonetheless unreviewable unless and until an administrative appeal was taken. The pre-APA cases concerning judicial review of federal agency action stand for the simple proposition that, until an administrative appeal was taken, the agency action was unreviewable, because it was not yet "final." This is hardly surprising, given the fact that few, if any, administrative agencies authorized hearing officers to make final agency decisions prior to the enactment of the APA. See Federal Administrative Law Developments - 1971, 1972 Duke L.J. 115, 295, n. 22 ("[P]rior to the passage of the APA, the existing agencies ordinarily lacked the authority to make binding [509 U.S. 137, 152] determinations at a level below that of the agency board or commission, so that section 10(c) would be expected to affect the exhaustion doctrine in only a very limited number of instances").
The purpose of 10(c) was to permit agencies to require an appeal to "superior agency authority" before an examiner's initial decision became final. This was necessary because, under 8(a), initial decisions could become final agency decisions in the absence of an agency appeal. See 5 U.S.C. 557(b). Agencies may avoid the finality of an initial decision, first, by adopting a rule that an agency appeal be taken before judicial review is available, and, second, by providing that the initial decision would be "inoperative" pending appeal. Otherwise, the initial decision becomes final and the aggrieved party is entitled to judicial review.
Respondents also purport to find support for their view in the text and legislative history of the 1976 amendments of the APA. After eliminating the defense of sovereign immunity in APA cases, Congress provided: "Nothing herein . . . affects other limitations on judicial review or the power or duty of the court to dismiss any action or deny relief on any other appropriate legal or equitable ground," Pub.L. 94-574, 1, 90 Stat. 2721 (codified as 5 U.S.C. 702). According to respondents, Congress intended by this proviso to ensure that the judicial doctrine of exhaustion of administrative remedies would continue to apply under the APA to permit federal courts to refuse to review agency actions that were nonetheless final under 10(c). See S.Rep. No. 94-996, p. 11 (1976) (among the limitations on judicial review that remained unaffected by the 1976 amendments was the "failure to exhaust administrative remedies"). 13 [509 U.S. 137, 153]
Putting to one side the obvious problems with relying on postenactment legislative history, see, e.g., United States v. Texas, 507 U.S. 529, 535 , Pension Benefit Guaranty Corpoation v. LTV Corp., 496 U.S. 633, 650 (1990), the proviso was added in 1976 simply to make clear that "[a]ll other than the law of sovereign immunity remain unchanged," S.Rep. No. 94-996, at 11. The elimination of the defense of sovereign immunity did not affect any other limitation on judicial review that would otherwise apply under the APA. As already discussed, the exhaustion doctrine continues to exist under the APA to the extent that it is required by statute or by agency rule as a prerequisite to judicial review. Therefore, there is nothing inconsistent between the 1976 amendments to the APA and our reading of 10(c).
We noted just last Term in a non-APA case that
The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
[ Footnote * ] THE CHIEF JUSTICE JUSTICE SCALIA, and JUSTICE THOMAS join all but Part III of this opinion.
[ Footnote 2 ] Petitioners include R. Gordon Darby and his affiliate companies: Darby Development Company; Darby Realty Company; Darby Management Company, Inc.; MD Investment; Parkbrook Acres Associates; and Parkbrook Developers.
[ Footnote 3 ] Although the primary purpose of the 203(b) insurance program was to facilitate home ownership by owner-occupants, investors were permitted in the early 1980's to obtain single-family insurance under certain conditions. Private investor-owners are no longer eligible for single-family mortgage insurance. See Department of Housing and Urban Development Reform Act of 1989, 143(b), 103 Stat. 2036.
[ Footnote 4 ] Prior to August 31, 1955, the Rule of Seven apparently had been the Rule of Eleven. See 24 CFR 203.42 (1982) and 56 Fed.Reg. 27692 (1991).
[ Footnote 5 ] An LDP precludes its recipient from participating in any HUD "program," which includes "receipt of any benefit or financial assistance through grants or contractual arrangements; benefits or assistance in the form of loan guarantees or insurance; and awards of procurement contracts, notwithstanding any quid pro quo given and whether [HUD] gives anything in return." 24 CFR 24.710(a)(2) (1992).
[ Footnote 6 ] According to HUD regulations, "[d]ebarment and suspension are serious actions which shall be used only in the public interest and for the Federal Government's protection and not for purposes of punishment." 24 CFR 24.115(b) (1992).
[ Footnote 7 ] The ALJ calculated the 18-month debarment period from June 19, 1989, the date on which the LDP was imposed. The debarment would last until December 19, 1990.
[ Footnote 8 ] The Fourth Circuit's ruling in this case appears to be consistent with Montgomery v. Rumsfeld, 572 F.2d 250, 253-254 (CA9 1978), and Missouri v. Bowen, 813 F.2d 864 (CA8 1987), but is in considerable tension with United States v. Consolidated Mines Smelting Co., 455 F.2d 432, 439-440 (CA9 1971); New England Coalition on Nuclear Pollution v. United States Nuclear Regulatory Comm'n, 582 F.2d 87, 99 (CA1 1978); and Gulf Oil Corp. v. United States Dept. of Energy, 214 U.S. App. D.C. 119, 131, and n. 73, 663 F.2d 296, 308, and n. 73 (1981).
[ Footnote 9 ] Respondents also have argued that, under HUD regulations, petitioners' debarment remains "inoperative" pending review by the Secretary. See 48 Fed.Reg. 43304 (1983). But this fact alone is insufficient under 10(c) to mandate exhaustion prior to judicial review, for the agency also must require such exhaustion by rule. Respondents concede that HUD imposes no such exhaustion requirement. Brief for Respondents 31.
[ Footnote 10 ] In his manual on the APA, prepared in 1947, to which we have given some deference, see, e.g., Steadman v. SEC, 450 U.S. 91, 103 , n. 22 (1981); Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U.S. 519, 546 (1978), Attorney General Clark reiterated the Department of Justice's view that 10(c) "embodies the doctrine of exhaustion of administrative remedies. . . . Agency action which is finally operative and decisive is reviewable." Attorney General's Manual on the Administrative Procedure Act 103 (1947). See also H.R.Rep. No. 1980, 79th Cong., 2d Sess., 55, n. 21 (1946); Leg.Hist. 289, n. 21 (describing [509 U.S. 137, 149] agency's authority to adopt rules requiring a party to take a timely appeal to the agency prior to seeking judicial review as "an application of the time-honored doctrine of exhaustion of administrative remedies").
[ Footnote 11 ] The Act of August 18, 1894, 28 Stat. 390, provided: "In every case where an alien is excluded from admission into the United States under any law or treaty now existing or hereafter made, the decision of the appropriate immigration or customs officers, if adverse to the admission of such alien, shall be final, unless reversed on appeal to the Secretary of [Commerce and Labor]."
[ Footnote 12 ] In an address to the American Bar Association in 1940, Dean Stason of the University of Michigan Law School summarized the law on exhaustion of administrative appeals: "In the event that a statute setting up an administrative tribunal also creates one or more appellate administrative tribunals, it is almost invariably held that a party who is aggrieved by action of the initial agency must first seek relief by recourse to the appellate agency or agencies. "Stason, Timing of Judicial Redress from Erroneous Administrative Action, 25 Minn.L.Rev. 560, 570 (1941). See also 4 K. Davis, Administrative Law Treatise 26.12, p. 469 (2d ed. 1983) ("The pre-1946 law was established that an appeal to higher administrative authorities was a prerequisite to judicial review").
[ Footnote 13 ] Respondents also rely on then-Assistant Attorney General Scalia's letter to the Chairman of the Senate Subcommittee on Administrative Practice and Procedure, where he wrote that the Department of Justice supported the amendment in large part because it expected that many (or most) of the cases disposed of on the basis of sovereign immunity could [509 U.S. 137, 153] have been decided the same way on other legal grounds such as the failure to exhaust administrative remedies. S.Rep. No. 9996, pp. 25-26 (1976). See also 1 Recommendations and Reports of the Administrative Conference of the United States 222 (1968-1970) (urging Congress to adopt the very language that was eventually incorporated verbatim into the 1976 amendment so that "the abolition of sovereign immunity will not result in undue judicial interference with governmental operations or a flood of burdensome litigation"). [509 U.S. 137, 155]