Indiana Law Review


An Update on Developments in Central Panels
AND ALJ Final Order Authority

James F. Flanagan'

I. The State of the Central Panel Movement

States are in the vanguard of a two-pronged revolution in administrative law.

The first is the creation of central panels which separate ALJs institutionally
from the agencies whose cases they hear.^ The second is a challenge to a
fundamental premise of administrative adjudication—the agency's power to
review the findings of the ALJ. Some states are providing ALJs with de jure or
de facto authority to make the final agency decision, subject only to judicial
review.^ These developments are related only in the sense that the introduction

* Oliver Ellsworth Professor of Federal Practice, University of South Carolina School of

Law. A.B., 1964, University of Notre Dame; LL.B., 1967, University of Pennsylvania. My thanks
to the ALJs throughout the country who have promptly responded to my inquiries about their
panels.

1

.

There is a substantial body of work on central panels. Malcolm C. Rich and Wayne E.

Brucer's The Central Panel SystemforAdministrative Law Judges: A Survey ofSeven States is the

original study of central panels. MALCOLM C. Rich & Wayne E. Brucar, The Central Panel
System for Administrative Law Judges: A Survey of Seven States (1983) (surveying
California, Colorado, Florida, Massachusetts, Minnesota, New Jersey, and Tennessee). See
generally Jay S. Bybee, Agency Expertise, ALJ Independence, and Administrative Courts: The

Recent Changes in Louisiana 's Administrative Procedure Act, 59 La. L. Rev. 43 1 (1999); Charles

E. Daye, Powers ofAdministrative LawJudges, Agencies, and Courts: An Analytical andEmpirical

Assessment, 79 N.C. L. REV. 1571, 1583-84 (2001); Thomas E. Ewing, Oregon 's Hearing Officer

Panel, 23 Nat'lAss'N Admin. L. JUDGES 57 (2003); Hon. John W. Hardwicke, The Central Panel

Movement: A Work in Progress, 53 ADMIN. L. REV. 419 (2001); David W. Heynderickx, Finding
Middle Ground: Oregon Experiments with a Central Hearing Panel for Contested Case

Proceedings, 36 WILLAMETTE L. Rev. 219 (2000); Allen C. Hoberg, Administrative Hearings:

State Central Panels in the 1990s, 46 ADMIN. L. REV. 75, 78-90 (1994); Allen C. Hoberg, Ten

Years Later: The Progress of State Central Panels, 21 J. Nat'L Ass'N ADMIN. L. JUDGES 235

(2001); Bruce H. Johnson, Methods of Funding Central Panels: The Fiscal, Management, and

Policy Implications, 20 J. Nat'lAss'n ADMIN. L. JUDGES 301 (2000); JeffS. Masin, New Jersey's

Office ofAdministrative Law: The Importance of Initial Choices, 23 J. NAT'L ADMIN. L. JUDGES

387 (2003); Christopher B. McNeil, The Model Act Creating a State Central Hearing Agency:

Promises, Practical Problems, anda Proposalfor Change, 53 ADMIN. L. REV. 475 (2001); William

B. Swent, South Carolina 'sAU: Central Panel, Administrative Court, or a Little ofBoth ?, 48 S.C.

L. Rev. 1 (1996); Recent Developments State Administrative Law Symposium, 53 ADMIN. L. Rev.

395 (2001) (several articles on central panels).

2. Some commentators have noted the trend toward restricting agency review. See Charles

H. Koch, Jr., Policymaking by the Administrative Judiciary, 29 ADMIN. & REG. L. News 2 (Spring
2004); Jim Rossi, Overcoming Parochialism: State Administrative Procedure and Institutional

Design, 53 ADMIN. L. Rev. 55 1, 569-72 (2001) [hereinafter Rossi, Overcoming Parochialism]; hm
Rossi, Final Orders on Appeal: Balancing Independence With Accountability, 19 J. Nat'lAss'N

Admin. L. Judges 1, 3-10 (1999) [hereinafter Rossi, Final Orders on Appeal]; F. Scott McCown



402 INDIANA LAW REVIEW [Vol. 38:401

of central panels has led to the issue of ALJ finality, while ALJ finality is neither
inherent in, nor compelled by, the concept of centralizing ALJs in an independent
agency. Central panels are an important innovation in state administrative

procedure and are an effective, efficient method of providing administrative

adjudication. The justifications for central panels, in terms of efficiency, cost
savings, encouraging ALJ education and professionalism, and promoting a
perception of fairness, however, do not address the key issue in ALJ finality:
whether the agency or the ALJ is the appropriate final decision maker. My view
is that the agency should be the final decision maker. The legislature has
delegated this authority to the agency which has the knowledge and expertise to

properly conduct agency review ofALJ decisions. In addition, I believe that ALJ
finality has significant disadvantages. In particular, it creates a loss of political

accountability for the decisions reached through administrative adjudication, and

also adversely affects the agency's ability to develop and implement a consistent

regulatory scheme.^

This is an appropriate time to review and update recent developments in

central panels. Central panels have existed for almost sixty years, with eleven

states adopting them since 1990."^ A Model Act provides framework for
implementing a central panel,^ and there is a significant body of research and

commentary on many aspects of central panels. Several broad themes can be
observed.

First, central panels have proven themselves. No state that has adopted a
central panel has returned to its previous practice. Furthermore, central panels

in most states have gained jurisdiction through legislation or agreements with

agencies. States also are taking advantage of the concept of central panels by

consolidating adjudication services though executive action, rather than

legislation.

Second, the experiences of individual states and their central panels provide

& Monica Leo, When Can an Agency Change the Findings or Conclusions ofan Administrative
Law Judge?, 50 BAYLOR L. Rev. 65, 66-67 (1998).

3. James F. Flanagan, Redefining the Role ofthe State Administrative Law Judge: Central

Panels and Their Impact on State ALJ Authority and Standards ofAgency Review, 54 ADMEN. L.

Rev. 1355 (2002). A major study of federal administrative adjudication concluded that
"[c]onferring a high degree of finality on ALJ findings of fact is virtually certain to create

interdecisional inconsistency, costly and time-consuming battles for institutional hegemony, and

policymaking cacophony." Paul R. Verkuil et al.. Reportfor Recommendation 92-7, The Federal

Administrative Judiciary, in 2 ADMIN. CONF. OF THE UNITED STATES, RECOMMENDATIONS AND

Reports 1040(1992).

4. Ala. Code § 41-22-16 (2000); Ariz. Rev. Stat. Ann. § 41-1092.08 (West 1999 & Supp.
2001); Ga. Code Ann. § 50-13-17(b) (1998); Kan. Stat. Ann. § 77-527,121 (1998 & Supp.
2001); La. Rev. Stat. Ann. § 49:991-997 (West 2001); N.D. Cent. Code §§ 28-32-13, 28-32-14

(1991); Or. Rev. Stat. § 183.470 (2001); S.C. Code Ann. § 1-23-500 (Law. Co-op. 2003); Wyo.

Stat. Ann. § 9-2-2201 (Michie 2001).

5. See McNeil, supra note 1, at 541-49 (reprinting The MODEL ACT CREATING A STATE
Central Hearing Agency (1997)).



2005] UPDATE ON CENTRAL PANELS 403

insight into many issues. For example, the Louisiana Supreme Court recently
addressed the constitutionality of two statutes that significantly affect an agency

litigating before its central panel.^ First, an ALJ has the authority to make a final
decision without any agency review.^ Second, an agency cannot appeal any

ALJ's final decision.^ The facts of the case, and the court's analysis of these
statutes in the context of claims that they violated the doctrine of separation of

powers, is important to all central panel states.

Third, the debate over ALJ finality has moved to a more sophisticated level
as experience has been gained with this issue. This Article probes some of the
arguments in favor ofALJ finality, including the need for ALJ independence, the
claims that agencies misuse their review powers, and the need to address litigant

dissatisfaction with administrative adjudication. In my opinion, neither ALJ
independence nor the central panel concept requires ALJ finality. Data from an
extensive study in North Carolina indicates that agency review is not being

abused, nor will ALJ finality cure litigant dissatisfaction.^
Finally, proposals have been advanced to address some of the adverse

consequences of ALJ finality. Some suggest that the agency should present its
policies during the contested case to ensure that ALJs act in conformity with it.*°
Professor Jim Rossi's proposal argues that enhanced standards of appellate

review may restore the agency accountability that is lost when the ALJ makes the
final decision. ^^ Arguably, neither proposal overcomes the defects of ALJ final
order authority. There are significant problems in formulating policy during a

contested case. Likewise, there are significant limits on the judiciary's ability,

on review, to guide the development of agency policy.

n. The Growing Acceptance of Central Panels

The growth of central panels has been described as the most significant
development in administrative law,^^ and the number of panels created by cities
and states in the past few years is a tribute to their success. Twenty-five states,^^

6. Wooley v. State Farm Fire & Cas. Ins. Co., 893 So. 2d 746, (La. 2005). See infra notes
62-86 and accompanying text.

7. La. Rev. Stat. Ann. § 49:992(A)(2).

8. Id. § 49:992(B)(3).

9. Daye, supra note 1.

10. The view that agencies can present policy during a contested case was rased during a

panel discussion on ALJ finality at the 2003 Central Panel Directors Conference, Savannah,

Georgia, September 19, 2003, in which the author participated. See also Hardwicke, supra note

1, at 437 (suggesting that policy be blended into the hearing process).

1 1

.

Jim Rossi, Final, But Often Fallible: Recognizing Problems withALJ Finality, 56 ADMIN.

L. Rev. 53, 64-66 (2004) [hereinafter Rossi, Problems with ALJ Finally].

12. Michael Asimow, The Fourth Reform: Introduction to the Administrative Law Review

Symposium on State Administrative Law, 53 ADMIN. L. REV. 395, 396-99 (2001).

13. Several states have central panels of ALJs as of January 1, 2002. See, e.g., Ariz. Rev.

Stat. Ann. § 41-1092.01 (West 1999) (establishing an office of administrative hearings); Cal.



404 INDIANA LAW REVIEW [Vol. 38:401

and three major cities,"^ have established central panels thus far. Several other

states have considered, but not yet adopted, central panels.'^ Once established,
they have proven popular. No state with a central panel has returned to its former

Gov't Code § 11370.2 (West 1992) (stating that office of administrative hearings is under

direction of one director appointed by governor); COLO. REV. Stat. § 24-30-1001 (2001) (creating

a division of administrative hearings in department of personnel); Fla. Stat. Ann. § 120.65 (West

2002) (creating Division ofAdministrative Hearings within Department ofManagement); Ga. Code

Ann. § 50-13-40 (1998) (creating an independent administrative hearings agency within the

executive branch); Iowa Code Ann. § 10A.801 (West 2000) (creating Division of Administrative

Hearings); Kan. Stat. Ann. § 75-37,121 (1997 & Supp. 2001) (creating office of administrative
hearings); La. Rev. Stat. Ann. § 49:991-997 (West 2002) (creating division of administrative

law); Md. CodeAnn., State Gov't § 9-1602 (1999) (establishing office of administrative hearings

as independent unit of executive branch); Mass. Gen. Laws ch. 7, § 4H (1998) (creating a division

of administrative appeals); MiCH. COMP. Laws § 445.2001 (2001) (merging Michigan Departments

of Commerce and Labor to create Department of Consumer and Industry Services, and creating a

central panel of ALJs by executive order); Minn. Stat. Ann. § 14.48 (West 1997) (creating

administrative hearings office headed by chief ALJ appointed by governor); Mo. Ann. Stat. §§
62 1.0 15-.205 (West 2000) (creating an administrative hearing commission); N.J. Stat. Ann. §§

52:14F-1-:14F-13 (West 2001) (establishing Office of Administrative Law and its duties); N.C.

Gen. Stat. § 7A-750 (2001) (creating an independent, quasi-judicial office of administrative

hearings); N.D. Cent. Code § 54-57-01 (2001) (establishing and defining office of administrative

hearings); Or. Rev. Stat. § 183.605 (2003) (establishing hearing officer panel); S.C. Code Ann.

§ 1-23-500 (Law. Co-op. Supp. 2001) (creating ALJ division); S.D. CodmedLaws § 1-26D-1
(Michie Supp. 2002) (establishing an Office of Hearing Examiners); Tenn. Code. Ann. § 4-5-

321(a)(2) (1998) (creating the administrative procedures division); Tex. Gov't Code Ann. §
2003.02 1 (Vernon 2000 & Supp. 2002) (defining state office of administrative hearings); Va. Code
Ann. § 2.2-4024 (Michie 2001 & Supp. 2002) (establishing that Executive Secretary of Supreme
Court maintains list of hearing officers to be appointed for formal hearings); Wash. Rev. Code

Ann. § 34.12.010 (West 1990) (creating an office of administrative hearings); Wis. Stat. Ann. §

227.43 (West 2001) (providing duties of administrator of division of hearings); Wyo. Stat. Ann.

§ 9-2-2201 (Michie 1995) (creating office of administrative hearings as a separate agency); State

of Alabama, Office of the Attorney General, An Overview ofDivisions in the Attorney General 5

Office, at http://www.ago.state. al.us/about_divisions.cfm (last visited Mar. 18, 2005) (describing

Administrative Hearings Division in Alabama Attorney General's Office).

14. Rg., D.C. Code Ann. §2-1831 (2001 & Supp. 2002) (enacting Office of Administrative
Hearings Establishment Act); Chicago, III., Code art. I, § 2-14-010 (2003) (establishing

Department of Administrative Hearings); NEWYORKCiTY, N.Y., CHARTERCODE ch. 45-A, § 1048
(2001) (creating Office of Administrative Trials and Hearings).

1 5

.

The legislatures ofHawaii, Illinois, Mississippi, and New York have considered a central

panel but have not enacted legislation. ^^^S.B.No. 1252, 20th Leg. (Hi. 1999); S.B.No. 561,92d

Gen. Assem. (111. 2001); H.B. No. 930, Reg. Sess., (Miss. 2000); Assem. B. No. 662, 224th Legis.

Sess. (N.Y. 2001). The Program on Law and State Government at the Indiana University School

of Law—Indianapolis recently sponsored a symposium exploring the desirability of central panels
for Indiana. See Cynthia A. Baker, Introduction: Evaluating State Government Designs of

Executive Branch Adjudication, 38 IND. L. REV. 385 (2005).



2005] UPDATE ON CENTRAL PANELS 405

practice of decentralizing ALJs.

Most recently, Oregon created a pilot program for centralizing administrative
hearings in a central panel. '^ The panel began operating on January 1, 2000,
subject to a sunset provision in June 2005.'^ The panel's operations were
reviewed by the Joint Legislative Audit Committee in 2002. The Committee's
Report recognized that the relatively brief period of operation made evaluating
the panel's effectiveness difficult. The Committee did note, however, that the
appearance of fairness had been improved, agencies indicated that their staffs

were better prepared for hearings, and some agencies found that the panel had
exceeded their expectations.^^ Acting on this favorable report, the legislature

eliminated the sunset provision, renamed the panel the Office of Administrative

Hearings, changed the adjudicator's title to Administrative Law Judge, and
provided a four-year term of office for the chief administrative law judge who
can be removed only for conduct rendering him unfit for the office. ^^ Oregon's
Chief Administrative Law Judge, Thomas E. Ewing, has further documented the
cost efficiencies that are generated by a central panel. He found that
centralization enables a panel to handle more work than agencies with in-house
ALJs. Agencies with few ALJs are inherently inefficient and costly because the
staff is fixed while caseloads vary, creating wide fluctuations in the docket so

that ALJs are alternately overburdened or underutilized.^^
Another indication of the success of central panels has been the gradual

accretion of jurisdiction in many states. Legislatures have added issues and
agencies to the panels' dockets,^ ^ and other branches have become involved as
well. In South Carolina, the state supreme court held that its central panel could

hear appeals from the final decisions of the Department of Corrections in inmate

grievance matters.^^ Most importantly, agencies have negotiated with the panels

16. Heynderickx, supra note 1, at 239-40 (discussing the creation of the central panel);

Ewing, supra note 1, at 57 (discussing the implementation of Oregon's central panel).

17. The original sunset date of January 1, 2004, was extended to June 30, 2004, to avoid

requiring affected agencies to prepare two budgets, depending upon whether the panel was

reauthorized or not. State of Oregon Joint Legislative Audit Committee, Review of the

Hearing Officer Panel, Report No. 02-4, at 1 (Dec. 2002). ChiefALJ Ewing commented on the

Legislative Audit Committee Report in Thomas E. Ewing, Oregon's Office of Administration

Hearings, A Postscript, 24 J. Nat'L ASS'N ADMIN. L. JUDGES 21 (2004).
18. State of Oregon Joint Legislative Audit Committee, supra note 17, at 6.

19. H.B. 2526, 72d Leg. (Or. 2003) (signed by the Governor on May 22, 2003).
20. Ewing, supra note 1, at 87-89.

21. Texas, for example, originally heard only cases from agencies without ALJs, but the

legislature gradually added other agencies, including the authority to arbitrate some health matters.

Texas State OfficeofAdmin. Hearings, Agency Strategic Plan forthe FiscalYears 2005-

2009 Period, at 6 and Appendix H (June 18, 2004), available at http://soah.state.tx.us/AboutUs/
strategic_plan_2005_to_ 2009.pdf. See also Sheila Bailey Taylor, The Growth and Development

ofa CentralizedAdministrative Hearing Process in Texas,llJ. Nat'lAss'nADMIN. L. JUDGES 1 1

3

(1997).

22. Al-Shabazz v. State, 527 S.E.2d 742, 754 (S.C. 2000). See also Slezak v. S.C. Dep't of



406 INDIANA LAW REVIEW [Vol. 38:401

to conduct contested case hearings.^^ This growth of panel jurisdiction reflects

the willingness of agencies, ALJs, and executives to work within the central
panel model.

Finally, state officials are gaining the benefits of centralizing ALJs without
having to statutorily create a central panel. Michigan, for example, created its

central panel by Executive Order.^'* The Attorney General of Alabama created
the Administrative Hearings Division within his office to provide senior lawyers,

experienced in administrative law, to serve as voluntary ALJs upon the request
of the agencies.^^ The Governor of Indiana consolidated three administrative
adjudicative agencies in the same location to provide interaction between ALJs
as well as some cost savings.^^ Kentucky has created a central panel of ALJs in
the Office of the Attorney General.^^ In Virginia, the Administrative Law
Advisory Committee of the Code Commission is studying a proposal for a central
panel to replace the state's existing system of independent hearing officers

supervised by the Executive Secretary of the Supreme Court.^^ These events
indicate that central panels are very successful, are perceived to be so by state

officials, and that the concept is likely to be adopted by legislation or other

appropriate methods in the future.

m. An Update ON ALJ FINALITY

Over the past ten years some states have granted central panel ALJs the
authority to enter final orders that are not subject to agency review. Louisiana

Corr., 605 S.E.2d 506, 507 (S.C. 2004) (recognizing that ALJ Division has subject matter

jurisdiction of all properly perfected inmate appeals); Wicker v. S.C. Dep't ofCorr., 602 S.E.2d 56,

58 (S.C. 2004) (recognizing ALJ Division jurisdiction over certain inmate claims of deprivation of

property interest); Sullivan v. SC. Dep't of Corr., 586 S.E.2d 124, 128 n.5 (SC. 2003)

(recognizing ALJ Divisionjurisdiction over state-created liberty interests beyond sentencing credits

and disciplinary issues).

23. Hoberg, supra note 1, at 238-39. Wyoming's central panel now conducts hearings for

the Department of Family Services by agreement. E-mail from Lynne Kranz, Office Manager,

Office of Administrative Hearings, to author (Nov. 10, 2003, 15:51:48 MT) (on file with author).

24. Mich. Comp. Laws § 445.2001 (2001) (merging Michigan Departments of Commerce

and Labor to create Department of Consumer and Industries Services, and creating a central panel

by executive order).

25. State of Alabama, Office of the Attorney General, An Overview of Divisions in the

Attorney General 's Office, at http://www.ago.state. al.us/about_divisions.cfm (last visited Mar. 1 8,

2005) (describing Administrative Hearings Division in Alabama Attorney General's Office).

26. E-mail from Jon Laramore, Counsel to Indiana Governor Joseph Keman to author (July

12, 2004) (on file with author).

27. Ky. Rev. Stat. Ann. § 15.111 (Banks-Baldwin 2004); id. § 13B.010. This has been

viewed as a proto-central panel. Richard H. Underwood, AdministrativeAdjudication in Kentucky:

Ethics and Unauthorized Practice Considerations, 29 N. Ky. L. REV. 359, 362 (2002).

28. James R. Kibler, Jr., Administrative Law, Annual Survey of Virginia Law, 38 U. RICH.

L. Rev. 39, 40 (2003).



2005] UPDATE ON CENTRAL PANELS 407

and South Carolina have adopted ALJ finality by statute,^^ and North Carolina
and Oregon have adopted procedures which retain agency review but make it
difficult for agencies to alter or amend ALJ decisions.^^ As discussed below,
South Carolina is considering extending ALJ finality to the four agencies that
review ALJ decisions so that all contested cases within the central panel's
jurisdiction will have final orders entered by the ALJ.

In addition, agencies in some states have agreed to permit the panel ALJ to
make the final agency decision without agency review. These agency decisions
seem to be driven by external considerations. For example, in Tennessee, the
Department of Health accepted a settlement agreement providing that if a

Medicaid enrollee prevails at any stage in the appeals process, including before

the state ALJ, the decision is binding on the state and its Medicaid contractors."*^

This provision was part of a comprehensive settlement agreement to end
litigation against the department.

In Washington state, the Department of Social and Health Services decided

to accept the ALJ's decision in certain benefit cases as final and not subject to

appeal to the agency's Board ofAppeals. The agency, however, retains appellate
jurisdiction of ALJ decisions involving licensing matters. Benefit eligibility
cases are fact driven and have relatively clear standards.^^ Health care licensing

decisions are not only more important to the agency mission, but create more
complex matters, making it more important, at least from the agency's
perspective, to ensure the correct result. The agency's decision to forgo appeals
in certain cases was the result of budgetary pressures that reduced the number of
judges in the agency's Board of Appeals and forced it to reserve its manpower
for more important and complex administrative decisions.^^

29. La. Rev. Stat. Ann. § 49:992(B)(2) (West Supp. 2002) (stating that agency does not

have power to override final ALJ decision); S.C. Code Ann. § 1-23-6 10(A), (B) (Law. Co-op.

Supp. 2003) (providing for limited agency review only for agencies with boards or commissions,

but not agencies with a single director). The statutes are discussed in Flanagan, supra note 3, at

1373-75.

30. N.C. Stat. § 150B-36(b) (2001) (providing that the agency must accept the ALJ's

findings of fact unless clearly contrary to the preponderance of evidence); 1999 Or. Laws ch. 849

§ 12(3) (codified at Or. Rev. Stat. § 183.650 (2003)) (providing that agency may change ALJ's

finding of fact only if not supported by a preponderance of the evidence). The statutes are

discussed in Flanagan, supra note 3, at 1377-81.

3 1

.

Order at 23, Grier v. Wadley, Comm'r Tenn. Dep't of Health, Civ. Action No. 79-3 107

(M.D.Tenn. July 31, 2000).

32. See Michael Asimow, Toward a New California Administrative Procedure Act:
Adjudication Fundamentals, 39 UCLAL. Rev. 1067, 1 109 (1992) (suggesting that agencies should
accept ALJ decisions as final when cases are fact driven and do not involve matters of policy).

33. Telephone Interview with Brian Lingren, Manager, Washington Department of Social and

Health Services Board of Appeals (Oct. 16, 2003).



408 INDIANA LAW REVIEW [Vol. 38:401

A. South Carolina 's Expansion ofAU Finality

The only pending effort to adopt full ALJ finality is in South Carolina. The
central panel in that state has been renamed the South Carolina Administrative

Law Court, and it is now a court of record within the state's executive branch.^"^
Presently, more than seventy-five percent of the panel's contested case docket
results in a final decision by an ALJ.^^ The remaining contested cases are from
four administrative agencies that, after a hearing before the Administrative Law
Court, may be appealed to the agency under the restricted standard of review
applied by the courts on appellate review.^^ Legislation was introduced in the

South Carolina House of Representatives that would expand ALJ finality to all
contested cases within the jurisdiction of the central panel. Although the bill

died at the end of 2003-04 session, it is expected to be reintroduced in the 2005

session. In addition to the expansion of ALJ final order authority, the
Administrative Law Court has appellate jurisdiction over the final decisions of
some professional and occupational licensing boards.^^ The legislation would
expand this appellatejurisdiction so that most administrative decisions by boards

or commissions initially would be appealed to the Administrative Law Court
beforejudicial review. Finally, judicial review ofadministrative decisions would

be in the court of appeals rather than in the circuit court.^^

The decision to establish ALJ finality in all contested cases heard by the
Administrative Law Court reflects the inevitable consequences of the limited
agency review standard adopted in the original ALJ statute.^^ As originally

34. 2004 S.C. Acts 202 (Apr. 26, 2004).

35. 5^^ genera//}; S.C. Admin. LawJudge Div.,AnnualReport 1999-2000, at 19-20 (May

22, 2001). The major agencies outside the jurisdiction of the Administrative Law Court are the

Workers' Compensation Commission, as well as Public Service Commission, and the Employment

Security Commission and most professional licensing boards, which hear cases as a body .

36. See S.C. CODE ANN. § l-23-610(A),(D) (Law. Co-op. Supp. 2003) (stating relevant

standard of review). The Department of Health and Environmental Control, which includes

separate boards for the Coastal Zone Management Appellate Panel and the Mining Council, and

the Department of Natural Resources are governed by boards. The South Carolina Supreme Court

recently held that the standard of review applied by these agency boards was limited only to

questions of law. Brown v. S.C. Dep't of Health & Envtl. Control, 560 S.E.2d 410, 418 (S.C.
2002).

37. Professional and occupational licensing boards within the Department of Labor,

Licensing and Regulation hear cases as a body. Final decisions are appealed to the Administrative

Law Court, which applies the same standard to board decisions as courts apply when reviewing

administrative decisions. 5e^ S.C. CODE ANN. § l-23-600(D).

38. H.B. 4792, 1 15th Gen. Assem. (S.C. 2004).

39. There is no pubHshed information explaining why the legislature adopted ALJ finality

for most agencies when South Carolina's central panel was established in 1994. The panel was part

of a major restructuring of state government in 1994. Individuals involved in drafting the provision

recalled that AU finality was an original provision in the bill. Prior to that time, the only full time
administrative adjudicators were in the Workers Compensation Commission, the Employment



2005] UPDATE ON CENTRAL PANELS 409

enacted, agencies applied the standard of review used by the courts and could

alter the ALJ's decision only for violations of the constitution or statutes, if the

order was in excess of statutory authority, made upon unlawful procedure,
affected by an error of law, or clearly erroneous, or arbitrary and capricious.'*^

The judicial standard of review was, however, inappropriate for agency review
of ALJ decisions. Courts have a limited review standard because of the
deference to agency expertise, and because of separation of powers concerns

arising from the judiciary's review of executive action."*^ These rationales for

limiting judicial review do not apply to the agencies that themselves have

expertise in the subject matter and are part of the executive branch.

Thejudicial review standard is also inconsistent with the agencies' statutory
role of developing policy in a substantive area, as it inhibits the agency from

exercising its expertise and policy functions. Under the standard, the agency may
consider only questions of law."*^ Any attempt to enforce agency policy requires
an appeal to the judiciary or a remand to the ALJ."*^ Moreover, findings of fact

by the ALJ are subject to the substantial evidence test and therefore cannot be
altered unless there is no evidence in the record to support them even if

reasonable individuals, including agency officials statutorily charged with the

duty to enforce a statute, find other conclusions more persuasive."^"^ This standard

Security Commission, and the Public Service Commission. In all other cases, the agency or board

heard the case itself, or retained a private lawyer to conduct the hearing and make the report. The

use of private lawyers as hearing officers was often criticized as expensive and prone to delay, and

there were concerns about the selection of hearing officers and alternately, whether agencies would

accept their findings. The defects of the prior system supported the creation of a panel, but not

necessarily ALJ finality. Bybee, supra note 1, at 455 (stating that the concept of a central panel

does not require ALJ finality).

40. Compare S.C. CODE Ann. § 1-23-610 (quasi-judicial and judicial review of

administrative law judge), with S.C. CODE ANN. § 1-23-380 (judicial review upon exhaustion of

administrative remedies).

41. See, e.g.. Chevron U.S.A., Inc. v. Natural Res. Def Council, Inc., 467 U.S. 837, 842-43

(1984) (stating that the judiciary must defer to the statutory construction of Congress, or agencies

delegated authority by Congress); Consolo v. Fed. Mar. Comm'n, 383 U.S. 607, 619-21 (1966)

(stating that the substantial evidence standard ofreview shows proper respect for agency expertise);

Guerard v. Whitner, 280 S.E.2d 539, 540 (S.C. 1981) (declaring that separation of powers and

expertise of agency justify limited judicial review).

42. Thejudicial standard ofreview has been criticized as depriving the agencies of any policy

role and for limiting them to purely legal decisions. See Benjamin T. Zeigler, The South Carolina

Administrative Law Judge Division and the Limits of Central Panel Decision-Making Power 48

(1997) (unpublished J.D. writing requirement. Harvard Law School) (copy on file with author).

43. Dorman v. S.C. Dep't Health & Envtl. Control, 565 S.E.2d 1 19 (S.C. Ct. App. 2002).
44. See Reg'l Med. Ctr. of Orangeburg and Calhoun Counties v. S.C. Dep't Health & Envtl.

Control, Civ. Action No. 99-CP-40-0664, at 8 (S.C. Ct. of Common Pleas, Richland County Nov.

4, 1999) (stating that the agency must accept ALJ findings of fact, although reasonable persons

could draw other inferences from the evidence); Heifetz v. Dep't of Bus. Regulation Div. of

Alcoholic Bev. & Tobacco, 475 So. 2d 1277, 1281-82 (Fla. Dist. Ct. App. 1985) (stating that an



410 INDIANA LAW REVIEW [Vol. 38:401

also prohibits the agency from reconsidering any important factual findings even

when they were strongly controverted at the hearing or involved mixed questions
of law and fact. Finally, the ALJ statute was construed to eliminate any agency
fact-finding even when the ALJ had not made any findings on the issue. Rather,
the agency was required to remand the case to the ALJ for fact-finding."^^

This form of de facto ALJ finality did not work."^^ As might be expected, a
citizen board governing the agency had problems applying the limited standard

of review for errors of law, and there was substantial litigation over the scope of
the agency's authority.'*^ The procedural tools available to the agency on review
were limited and included only a reversal and remand for failure to find a fact,
for an error of law, or for failure to enforce established agency policy."^^

Administrative adjudication was effectively turned on its head. The agency,
knowledgeable and responsible in making policy, was forbidden to do so through
adjudication. In its place, the ALJ, an expert in procedure and evidence, became
the final word. This structure also made cases more complex and lengthy, often
requiring multiple appearances before at least four tribunals, the ALJ, the

reviewing agency, the circuit court acting it its appellate capacity, and the court

of appeals or supreme court.^^ Remands to the ALJ for additional fact-finding
or consideration of agency policy were particularly burdensome. In light of this

experience, the elimination of the extremely limited, duplicative, and largely

ineffective agency review recognizes that the original statute all but adopted de

facto ALJ finality. The proposed changes make ALJ finality explicit, and the
provisions authorizing direct appeal to the court of appeals or supreme court

should significantly streamline the process by eliminating two levels of review.

IV . The Challenge to the Louisiana Central Panel

There are no significant challenges to the concept of central panels. The
Louisiana Supreme Court, however, recently faced and resolved some difficult
questions generated by two provisions in Louisiana's central panel statute.
Louisiana has ALJ finality and the agency does not review the ALJ's decision,^^
as do agencies in a few other states.^ ^ Louisiana also has a unique provision that

administrative agency cannot reject the ALJ's ultimate finding of fact unless there is no substantive

evidence from which the finding could reasonably be inferred).

45. Brown v. S.C. Dep't of Health & Envtl. Control, 560 S.E.2d 410, 418 (S.C. 2002).
46. See James F. Flanagan, Report to the Judicial Council on the Administrative Law Judge

Statute, 18 Nat'lAss'n ADMIN. L. JUDGES 371, 378-86 (1998) (addressing preliminary review of

the operation of the South Carolina ALJ statute).

47. ^eege^iera//}; Brawn, 560 S.E.2dat410-18; Marlboro Park Hosp.v. S.C. Dep't ofHealth

& Envtl. Control, 595 S.E.2d 851 (S.C. Ct. App. 2004); Dorman, 565 S.E.2d at 119.
48. See Dorman, 565 S.E.2d at 1 19.

49. The courts have commented on the multiplicity of procedural steps. See Brown, 560

S.E.2d at 413; Dorman, 565 S.E.2d at 122.

50. La. Rev. Stat. Ann. § 49.992(B)(2) (West 2004).

51. See Flanagan, supra note 3, at 1373-82.



2005] UPDATE ON CENTRAL PANELS 41

1

bars an administrative agency from appealing any ALJ decision adverse to the
agency.^^ The agency is limited to advocacy before the ALJ, without any
appellate role, regardless of the consequences of a particular decision or the

significance of the issue on appeal.

An insurer's attempt to win approval of a new form provided the vehicle for
Louisiana' s Commissioner ofInsurance to challenge the constitutionality ofboth

provisions. The Commissioner refused to approve the proposed form because he
found that the representations and warranties did not comply with the applicable

provisions of the Insurance Code.^^ The insurer appealed the denial to the state'

s

central panel, the Division of Administrative Law.^"^ After a hearing, the ALJ
ruled that the Commissioner erred in denying approval of the form "as a matter

of law" and ordered approval by the Commissioner.^^ The Commissioner
appealed that decision to the state district court, but the appeal was dismissed

because of a statute barring agencies from appealing fmal ALJ decisions. The
court of appeals upheld the dismissal, finding that the Department, as a juridical

person, did not have any greater rights than granted it by the legislature.^^ The
court of appeals also upheld the trial court's refusal to permit the Department to

amend its petition to challenge the constitutionality of the statute, but suggested
that the Commissioner had a judicial remedy through a declaratory judgment

52. When Louisiana created its central panel in 1996, the definition of "person" in its

Administrative Procedure Act did not include an agency, so an agency was not within the class of

aggrieved persons who could appeal a final decision. The right to appeal was unnecessary when

the agency reviewed the ALJ's decision and made the final agency decision, but the right to appeal

became more significant when the ALJ made the final agency decision. See Bybee, supra note 1,

at 458. In 1996, the legislature explicitly denied agencies the authority to appeal to the courts. La.

Rev. Stat. Ann. § 49.992(B)(3).

53. Commissioner's Petition for Preliminary and Permanent Injunctions and Petition for

Declaratory Judgment at 2, Wooley v. State Farm Fire & Ins. Co., No. 50,23 1 1 (La. Dist. Ct., Parish
of E. Baton Rouge n.d.), available at http://biotech.law.lsu.edu/la/briefs/LL03.pdf [hereinafter La.

Injunction Petition].

54. La. Rev. Stat. Ann. § 22. 1 35 1 (2) of the Insurance Code provides for a hearing, "upon

written demand for a hearing made by any person aggrieved by any act, threatened act, or failure

of the commissioner of insurance to act." Prior to the creation of the central panel the matter would

have been heard in the agency. However, La. Rev. Stat. Ann. § 49.992 now gives the Division

of Administrative Law exclusive authority to conduct such hearings. There is some dispute over

whether this issue should have been subject to a hearing. For example. Professor Paul R. Baier,

amicus curiae at the request of the court, maintained that the suitability of the form should not have

been subject to adjudication by the AU when there is no statutory requirement for a "trial-type
adjudication of the legal dispute between the Department and State Farm . . . [because] La. R.S.

22:1351(2) does not contemplate remitting the questions of law and policy involved in the

underlying dispute to the Division of Administrative Law and its ALJs." Post Trial BriefofAmicus

Curiae LSU Professor of Law Paul R. Baier at 2, Wooley, No. 50,2311, available at
http://biotech.law.lsu.edu/ la/briefs/AMICUS-BAIER.pdf [hereinafter Baier Amicus].

55. La. Injunction Petition, supra note 53, at 3.

56. Brown v. State Farm Fire & Cas. Co., 804 So. 2d 41, 44-46 (La. Ct. App. 2001).



412 INDIANA LAW REVIEW [Vol. 38:401

action, which soon after followed.^^

The legal positions of each party are easily sketched. The Commissioner
argued that denying the agency the right to appeal unconstitutionally violated

separation of powers because the statute vests judicial power in the executive
branch, thus divesting the judicial branch of its inherent power to decide
questions of law.^^ The Division of Administrative Law argued that it was not
exercisingjudicial power, and that the legislature has plenary power to define the
authority of state agencies unless specifically prohibited by the state constitution.

The Division further argued that the Department, as a juridical body rather than
an individual, has only the authority granted to it by the legislature, which has

specifically denied agencies the right to appeal.^^

The Commissioner also argued that the Department of Administrative Law
violates provisions in the state constitution by creating a court of non-elected

judges exercisingjudicial power, which is not constitutionally authorized. While

the action was pending, a constitutional amendment was proposed that provided
explicit constitutional authority for the central panel and the limitation on agency

appeals.^^ The proposed amendment was defeated on October 4, 2003. The trial
court ruled in favor of the Commissioner on November 13, 2004, and declared
that Acts 739 and 1332 were unconstitutional and violated the separation of

powers.^^ The matter was appealed directly to the Louisiana Supreme Court
which reversed the trial court.^^

The supreme court first reviewed the history of the office of the
Commissioner of Insurance. The 1921 constitution authorized its creation but it
was not established by the legislature until 1956. A subsequent constitutional
amendment made the commissioner an elected officer of the executive branch in
1960.^^ The Constitutional Convention of 1973 maintained it as an elected
constitutional office, but the delegates were strongly divided on whether its

57. Id. at 46-47.

58. La. Injunction Petition, supra note 53, at 6.

59. Post-Trial Memorandum of the Division of Administrative Law at 9-12, Wooley v. State

Farm Fire & Cas. Ins. Co., No. 50,2311 (La. Dist. Ct., Parish of E. Baton Rouge n.d.), available
at http://biotech.law.lsu.edu/la/briefs/LL67. pdf [hereinafter Post-Trial Memo]; see also Brief of

Amicus Curiae on Behalf of the Louisiana House of Representatives at 3, Wooley, No. 50,23 11,

available at http://biotech.law.lsu.edu/la/briefs/LL18.pdf

60. Act No. 1298-2003 provided for a constitutional amendment to add Art. XII Section 15

to create authority for the legislature to provide for a system of administrative law and the

qualifications, authority, and appointment of administrative law judges. In addition, the

constitutional amendment sought specific authority to control agency appeals. Section 15(c)

provided: "The legislature may provide by law for access to courts by a governmental agency or

public official seeking judicial review of an administrative agency determination." House Act No.

1298 (La. 2003).

61

.

Act 739 created the Division of Administrative Law in 1995, Act 1332 deprived agencies

the right to appeal.

62. Wooley v. State Farm Fire & Cas. Ins. Co., 893 So.2d 746, (La. 2005).
63. /J. at 758.



2005] UPDATE ON CENTRAL PANELS 4 1

3

duties should be defined in the constitution or by statute. They rejected
proposals that would have given the commissioner specific powers and duties.

Ultimately, the constitution did not specify the powers of the office which were

left to be established by the legislature.^ The primacy of the legislature in
defining the powers of the office was a significant factor in the court's rationale.

The court then addressed the constitutionality of Act 739 of 1995 which
created the Division of Administrative Law. The Commissioner argued that Act
739 vested judicial power in the Division and violated several constitutional
provisions.^^ The supreme court, however, found that the adjudicative and fact-
finding powers exercised by the Division were quasi-judicial, rather than judicial

powers.^^ Therefore, the Act did not vest judicial power in the executive branch,
or create a non-elected judiciary. The court also found that the Act did not divest
the district court of its original jurisdiction authorized by article V, section 16(A)

of the Louisiana Constitution.^^ The approval of insurance forms was not a
matter traditionally litigated in the original jurisdiction of that court so their

adjudication by the Division did not affect the trial court's jurisdiction.^^ The
Commissioner's claim that the creation of the Division, with final order

authority, unconstitutionally usurped his authority to regulate insurance was also
rejected. The court inferred that the Commissioner's lack of constitutionally
specified powers and duties meant that defining the scope of the office was the
legislature's prerogative. The court recognized that eliminating agency review
was a significant change but concluded that the legislature clearly had the
authority to subordinate the Commissioner's decisions to that of the ALJs.^^

The court then addressed the constitutionality of Act 1332 of 1999 which
specifically deprived agencies of the authority to appeal any ALJ decision. The
court found that the constitution protected persons, but not state agencies from

the laws passed by the legislature. Consequently, a state agency has no due

process rights, and no right of access to the courts. Lacking a constitutional right

to appeal, the agency must depend upon statutory authority, which clearly does

64. Id. at 759-61. The provision ultimately adopted provided: "Commissioner of Insurance:

Powers and Duties. There shall be a Department of Insurance, headed by the commissioner of

insurance. The department shall exercise such functions and the commissioner shall have such

powers and perform duties authorized by this constitution or provided by laws." Id. at 761. The

only duties prescribed by the constitution authorize the commissioner to dissolve or otherwise

terminate a private, nonprofit corporation established to deliver workers compensation insurance.

Id. at 767.

65. The Commissioner asserted that the Act vested judicial power in executive branch

employees, provided for non-electedjudges in the executive branch and divested thejudicial branch

of its power to decide certain questions of law, as well as violating the doctrine of separation of

powers. Id. at 762.

66. /J. at 763.

67. /t/. at 764.

68. Id.

69. Id. at 767.



414 INDIANA LAW REVIEW [Vol. 38:401

not exist in this case, and the court was unwilling to infer such authority. ''^ The
court concluded by noting that the Commissioner did have a judicial remedy.

While he could not appeal the final decision of an ALJ, he could file a
declaratory judgment action in district court seeking a determination of whether

the ALJ's decision was decided properly. The district court would not have to
defer to the decision of the ALJ and would be free to decide the issue according
to the substantive law. Thus, the Commissioner had a procedure for establishing

that the ALJs decision was not a correct statement of the law, although the
declaratory judgment was not likely to change the result of the particular case.^^

The Wooley opinion is correct on several issues. The creation of the
Administrative Law Division is presumptively constitutional and ALJs do
exercise quasi-judicial, rather than judicial power. That administrative

adjudication can be split between the agency and a central panel without

violating separation of powers is also acceptable.^^ Certainly this method has
been used in some federal agencies without controversy.^^ How the issue will be
resolved by other states is dependent upon each jurisdiction's view of the
doctrine, which can be significantly different from the federal view.^"^ Although

the issue is controversial and complex, especially when ALJ finality is involved,
the opinion is persuasive that a legislature may allocate administrative
adjudication between different entities within the executive branch without

offending the separation of powers doctrine. ^^

70. /J. at 767-70.

71. Id. at 770.

72. Several commentators have raised the separation of powers issue in the context of ALJ

finality. See Rossi, Final Orders on Appeal, supra note 2, at 10-12; Bybee, supra note 1, at 462-63

(commenting on the Louisiana statute); see also McNeil, supra note 1, at 501-06 (discussing

administrative adjudication that interferes with the prerogatives of the judicial branch). The

separation ofpowers issue was one consideration in the enactment of the North Carolina statute that

led to authorizing the courts to resolve factual disputes between the ALJ and agencies. Mary

Shuping, N.C. Gen. Assem. Research Div., Contested Cases Under Article 3 of the APA:

Background Information & Opinions on the Constitutionality of OAH Final Decision-Making
Authority, Presented to the Joint Legislative Administrative Procedure Oversight Committee 1 1 -50

(Feb. 17, 2000) (copy on file with the author). Two memoranda by officials in the Office of the

Attorney General argued that ALJ finality violated the separation of powers doctrine while a

memorandum by committee counsel argued to the contrary.

73. See infra note 121 and accompanying text.

74. For example, in South Carolina, the State Budget and Control Board has broad authority

over state employment, procurement, and fiscal matters, and is governed by a board composed of

the Governor, State Treasurer, State Comptroller General, Chair of the Senate Finance Committee,

and the Chair of the House Ways and Means Committee. The South Carolina Supreme Court has

found that the legislative participation is not a violation of the state doctrine of separation of

powers. State ex rel. McLeod v. Edwards, 236 S.E.2d 406 (S.C. 1977).

75. Rossi, Problems with ALJ Finality, supra note 1 1, at 63-66. The question is made more

complex because the executive branch does not have appointment power over AUs, rendering them

independent of direct executive influence.



2005] UPDATE ON CENTRAL PANELS 4 1

5

The court's handling of the issue of judicial review however, is
unconvincing, and a close reading of the opinion suggests that many issues
remain to be finally resolved. Three aspects of the opinion merit comment. First,

the opinion may be very narrow. The court carefully notes throughout the
opinion that the issue involves the approval of an insurance form.^^ The
constitutional and statutory history of the Office of the Commissioner of

Insurance also played a key role in the court's analysis.^^ An opinion analyzing
the approval of insurance forms, in the context of the commissioner's lack of

constitutional authority and clear subordination to the legislature for a definition

of his duties, suggests that different facts might lead to different results.

More significantly, the opinion directly addresses the separation of powers
issue only from its effect on the Commissioner, and its effect on the original

jurisdiction of the trial court. The court only obliquely faces the Commissioner'

s

argument that the statutes combine to deprive the judiciary of its right to decide

certain questions of law.^^ A substantial and important class of cases cannot be
reviewed because one party is deprived of the ability to appeal the ALJ's

decision. On this critical point the court states: "We discern no violation of the
requirement of separation of powers. Instead of viewing the Commissioner's

lack of a right to appeal the ALJ's adverse decision as a usurpation of judicial

power, we view it as a lack of procedural capacity on the part of the
Commissioner."^^ The court implicitly recognizes that it is deprived of
jurisdiction of a class of cases but chooses to attribute the loss to a technical

issue of capacity, thereby avoiding the important issue of the statutes' impact on

its power. This also explains the court's discussion of declaratory judgment as

a way for the Commissioner to seek a judicial determination of the legal
correctness of the ALJ's decision. Declaratory judgment arguably provides a

procedural way for the court to hear these legal question, although it is one with
significant limitations. As the court notes, any declaratoryjudgment is not likely
to affect the underlying result.^^ If the rights of the parties are fixed, nothing

hinges on the outcome of the declaratory judgment. The only dispute is between
the Commissioner and the ALJ on a question of law, and this may be viewed as
only an advisory opinion.^^ As Chief Justice John Marshall said, "[i]t is
emphatically the province and duty of thejudicial department to say what the law

76. Wooley, 893 So.2d at 763, 765.

77. Id. at 758-61, 766-67, 769-70.

78. Id. at 764-65. The court is aware of the larger issue because it notes that the trial court

declared Act 739 unconstitutional because it divests "the judicial branch of its inherent power to

decide matters involving questions of law." Id. at 762. Later it notes that Act 1332 "precludes

judicial control or oversight" of the ALJ and that it is "the ultimate function of the courts to

determine the legality of an ALJ's administrative decisions." Id. at 768.

79. Id. at 769.

80. Id. at 770.

81. Edwards v. Parker, 332 So.2d 175, 180-81 (La. 1976) (refusing to render advisory

opinion on issues in declaratoryjudgment); LaCodeCiv. Proc. Ann. art. 1876 (West 2003) (court

may refuse to enter declaratory judgment when it would not eliminate the controversy).



416 INDIANA LAW REVIEW [Vol. 38:401

is."^^ On some decisions rendered by the Division, however, it appears that the
Louisiana courts are not able to exercise this function.

The opinion raises as many questions as it answers. The separation of
powers issue, as it affects the judiciary, may not be resolved. The use of
declaratory judgment is problematic. The court ruled that ALJ decisions are not
entitled to res judicata effects, raising questions of their impact in related

litigation. ^^ Further, the court carefully noted that the ALJs do not enforce their
own orders, which is ajudicial function.^"^ This raises interesting questions about
how ALJ decisions are to be enforced. The First Circuit Court of Appeals in
Louisiana recently faced this problem.^^ In that case, the ALJ overruled the
Department of Insurance's decision to deny the petitioner renewal of his bail

bond agent's license. The Department refused to issue the license, and petitioner
sought mandamus to compel it to grant the license to him. The trial court granted
mandamus but the court of appeals reversed, finding mandamus an inappropriate
remedy, leaving the petitioner to an uncertain procedure and future in the trial

court, which includes intervention in the Commissioner's declaratory judgment

action.^^ The use of an independent action for declaratory judgment is a
consequence of eliminating agency review and the agency's right to appeal

adverse ALJ decisions, as well as the limited quasi-judicial power of the
Division. This suggests that deviating from the traditional model of agency

review and appellate review generates unintended consequences yet to be

resolved.

Finally, the underlying issues in the Wooley case raise significant issues in

administrative adjudication and central panels. There is the question of whether

this is the type of matter that should be adjudicated by an ALJ. The issue in
dispute concerned the language of an insurance form and whether it satisfied the

Insurance Code, which is either a pure question of law, as found by the ALJ, or

a question of policy in interpreting the statute. By any standard, the agency is in
the best position to make a decision, subject to judicial review about the
suitability of an insurance form. The ALJ has nothing to contribute to the issue
because the facts are conceded, the decision does not hinge on the credibility of

the witnesses, and the ALJ does not possess any special knowledge that provides
a superior basis for the decision. Nonetheless, under the central panel statute the

matter was heard by an ALJ.^^ At the very least, this case suggests that great care

82. Marbury v. Madison, 5 U.S. (ICranch) 137, 177 (1803).

83. Woo/^};, 893So.2dat771.

84. Id. at 764.

85. Bonvillian v. Dep't of Ins., _So. 2d_, 2005 WL 362495 (La. Ct. App. Feb. 16, 2005).
86. The Department argued that the petitioner had alternate remedies and could have

intervened in a declaratory judgment action brought by the Department, or could have sought

injunctive relief. The Department also argued that the ALJ might not have the authority to grant

the waiver required to issue the license. Id. at *2.

87. The Commissioner argued, and the Division of Administrative Law apparently agreed,

that the relevant statutes required that it be submitted to an ALJ. Louisiana statute requires the

Commissioner to provide a hearing when demanded and requires all hearings to be conducted by



2005] UPDATE ON CENTRAL PANELS 417

must be taken in developing the central panel's jurisdictional statutes to avoid

unintended consequences, effect

The dispute also illustrates that final order authority generates inconsistent
positions between the agency and the ALJs. In this case, it was a fundamental
difference about the acceptability of an insurance form. The ALJ's decision
replaces the agency's regulatory view with that of the particular ALL The ruling
against the agency undoubtedly lessens the agency's ability to negotiate and

resolve similar disputes without litigation. The pleadings and motions filed in
the case also reveal other more fundamental differences between the agency and
the ALJs. Professor Baier, as amicus, reported that the agency and ALJs differ
substantially on a major enforcement issue. The Department strictly enforces a
regulation authorizing the suspension of a license when the licensee has plead
guilty to a crime. However, the ALJs have rejected the Commissioner's position
and apply an alternative standard that considers whether the criminal conviction

affects the licensee's ability to perform as an agent,^^ and have reversed license

revocations based upon guilty pleas. ^^ Although reasons can be advanced for
either position, the ALJs and the Department differ significantly on a major
enforcement issue.

Denying an agency the right to appeal an adverse decision only exacerbates

the potential for conflicts between the agency and ALJ-created law because there

is no effective mechanism to resolve the differences and achieve a uniform
standard on any particular question.^^ Moreover, as Professor Bybee noted in the

a member of the Division ofAdministrative Law. LaRev. Stat. Ann. § 22. 135 1 (West 2004); La.

Rev. Stat. Ann. § 49.992. Professor Baier, amicus curiae appointed by the court, argued that a

hearing before the ALJ was not required. Baier Amicus, supra note 54.

88. See In re Youree Jean Anderson, Docket No. Ins 95-2170 (La. Div. Admin. Law Mar.

13, 1998) (conviction for bankruptcy fraud insufficient to suspend license); In re Homer E. Parker,

Docket No. 2000-2306-Ins. (La. Div. Admin. Law May 26, 2000) (plea of guilty to misdemeanor

involving moral turpitude is insufficient to suspend license under the facts of the case); In re Claude

D. Leger, Docket No 99-5823-INS (La. Div. Admin. Law Apr. 14, 2000) (plea to misprision of a
felony insufficient to support revocation of license).

89. Baier Amicus, supra note 54, at 1 1 (citing In re Youree Jean Anderson). I am told that

Louisiana's Insurance Department makes exceptions to its stated policy of revoking licenses for

felony convictions but does not publish its actions. Interview with R. Bryan McDaniel,

Administrative Law Judge, Louisiana Division of Administrative Law, Atlanta, Georgia (Aug. 6,

2004).

90. The legislative history suggests that the motivation for limiting judicial review for

agencies was to prevent successful litigants from being overturned by the ALJ because the agency'

s

greater resources allowed it to continually appeal the decision. Post-Trial Memo, supra note 59,

at 7 (citing minutes of the May 6, 1996 meeting of the House Committee on House and
Governmental Affairs). A comparison was made to the criminal law where the state is barred from
challenging a finding of not guilty. "[The] people who are regulated by the state should not be

treated any worse than is a person who is acquitted of a crime at a lower court level, the state should

not have a right to come back and appeal that acquittal." Id. (citing minutes of June 9, 1999

meeting of Senate committee on Senate and Governmental Affairs). This rationale is an unjustified



418 INDIANA LAW REVIEW [Vol. 38:401

first article discussing Louisiana's statute, the legislature created a structure that

strips agencies of any policy-making authority through adjudication and gives it

to ALJs "whose judgment must be so valued that the court must not even see any
competing vision offered by the agencies."^'

Louisiana's statute preventing an agency's access to the judicial process is

fatally flawed. Even if it is constitutional and does not violate separation of
powers, as a practical matter there is no justification for granting judicial

preference to the opinions of an ALJ over that of the agency legislatively charged
with the responsibility of implementing a statutory scheme. That this procedure

inevitably will generate conflicts between agencies and ALJs, and there is no

effective way to resolve them only makes the problem worse. Declaratory
judgment actions will only complicate and delay resolution of these cases. Even
with ALJ finality, the agency should have the ability to challenge the decision in
the courts. Despite these serious challenges, none are directed at the concept of

a central panel, or the advantages in efficiency, perceived fairness, and

professionalism that are associated with the panels.

V. A Review of Arguments in Favor of ALJ Finality

The agency's authority to establish policy through agency review of
administrative action is a long-standing principle of administrative law that has

continually been affirmed by the Supreme Court.^^ Given the strong history of
agency review, and its justifications, it is surprising that ALJ finality has
emerged as a trend in state administrative law. Part of the reason is that ALJ
finality is developing in the shadow of the central panel movement. The success
of central panels in providing efficient and professional fact-finding in

administrative adjudication, and addressing the perceived unfairness of having

the ALJ employed by the agency, plays a key role in the adoption ofALJ finality.
The efficiency and fairness rationales for centralizing ALJs have been
uncritically extended to give the ALJ final order authority without considering
either the evidence or the consequences of this radical change in administrative

adjudication.

This approach is wrong for two reasons. First, the issues in ALJ
centralization and final order authority are fundamentally different. The finding
of facts is not the same as making the final decision, which often depends upon

broader issues of policy, statutory construction, and consistency of the

enforcement efforts. Second, posing the issue as one of fairness or efficiency

conceals the key issues, which are who is the more appropriate decisionmaker,
and what are the consequences of replacing the agency with the ALJ?

extension of a principle of constitutional criminal law to civil law, as well as a profound distrust

of agencies, and the judiciary, and their responsibility to affirm ALJ decisions that are consistent

with the law.

91. Bybee, supra note 1, at 459.

92. See SEC v. Chenery Corp., 332 U.S. 194 (1947); NLRB v. Wyman-Gordon Co., 394 U.S.
759 (1969); Koch, supra note 2.



2005] UPDATE ON CENTRAL PANELS 4 1

9

Experience shows that agencies are the more appropriate final decisionmakers

because of their greater knowledge and expertise in the subject matters, as well

as the severe consequences ALJ finality would produce by dividing policy
development into two arms and necessarily generating inconsistencies between

the approach of the agency and the ALJs.

Nevertheless, the argument that ALJs in central panels make administrative
adjudication more fair, and that this fairness justifies final order authority, is
intuitively appealing and must be addressed in any discussion of ALJ finality.
As a preliminary matter, central panels address the perception of unfairness in
fact-finding arising from the agency's employment of the ALJs that hear their
cases.^^ To change administrative adjudication on perceptions is unjustified.
The process of developing facts by the ALJ and having the agency make the final
decision based on the record, is the central principle of modem administrative
adjudication in the federal system, and overwhelmingly in the state systems. The
key question is whether there is sufficient support for the proposition that agency

review is unfairly exercised. Any experienced administrative lawyer may be able
to cite examples, usually from lost cases, that support a person' s view that agency

review is flawed, but is there more than anecdotal support for this view?

A. The Statistics on Agency Review

The available data strongly supports the proposition that agencies are not
systematically abusing their power to find facts, nor are they acting contrary to
the law and the facts during their review of ALJ decisions. The most complete
data were collected by Professor Charles Daye of North Carolina who studied all
available administrative cases heard by North Carolina' s central panel from 1986

until 2000, when the statute was substantially amended to adopt a form of ALJ
finality.

^"^ Professor Daye's study consisted of two parts. The first examined all
ALJ decisions and determined whether the ALJ's decision was accepted or
rejected by the agency.^^ The second part of the study examined all appellate
cases deciding substantive (rather than procedural) issues and determined

whether the outcome in the North Carolina Court of Appeals and Supreme Court
was affected by whether the decision on review was one made by the ALJ and

93. Hon. Edward J. Schoenbaum, Improving Public Trust & Confidence in Administrative
Adjudication: What Administrative Law Practitioners, Judges and Academicians Can Do, 53

Admin. L. Rev. 575, 579 (2001).

94. Daye, supra note 1

.

95. M at 1615. The Office of Administrative Hearings, by statute, received the final agency
decision and compared the final decision with the agency decision to develop these statistics. Judge

Julian Mann, \[l. Administrative Justice: No LongerJust a Recommendation, 79 N.C. L. REV. 1639,

1645 (2001). The cases were categorized as to whether the ALJ's recommendation was for the

petitioner or agency and whether the agency accepted, rejected, or accepted or rejected in part, the

ALJ's recommended decision. Thus, the data reflects the rates at which the petitioner or agency

prevailed before the ALJ and after agency review.



420 INDIANA LAW REVIEW [Vol. 38:401

accepted by the agency, or whether the agency had reversed the ALJ.^^ Professor

Daye did not determine the legal accuracy of the ALJ's decision, or of any
decision by the agency to reverse the ALJ, or of the courts in reviewing any of

the final agency decisions.^^ Thus, the study identified whom the ALJ and the
agency ruled for, but not why any change was made, nor the legal and factual
sufficiency of any decision by any ALJ, agency, or court.

There are three central conclusions in Professor Daye's study.^^ First, ALJs
ruled in favor of the agencies in seventy-six percent of the cases.^^ Second,

agencies accepted eighty-two percent of the decisions rendered by ALJs.^^^ This

included almost all cases in which the ALJ found for the agency, although
agencies did reverse a few cases when the ALJ had rendered a decision favorable
to the agency. ^^^ The agencies accepted slightly more than half of the decisions
that favored the applicant and reversed the remainder. *°^ The third finding was
that the North Carolina appellate courts affirmed the same percentage of cases
when the agency adopted the ALJ's proposed order, as when the agency rejected
it.^^^ Thus whether the decision was made by the ALJ and adopted by the
agency, or the agency rejected the ALJs decision and made its own findings and
final decision, was immaterial to the outcome on appeal.

In my opinion. Professor Daye's study supports the proposition that agencies
are making reasonable decisions during agency review. In sum, ALJs and
agencies agreed, in full, in eighty-two percent of the cases, and, in part, in an

additional six percent of cases. '^"^ This suggests that the differences between

ALJs and agencies arise in few cases. Moreover, the data does not indicate why

96. Daye, supra note 1, at 1633-37.

97. /^. at 1614.

98. The conclusions that follow are my own and are a summary of a more extended analysis

in an earlier article. See Flanagan, supra note 3, at 1389-98. Additionally, readers are invited to

review Professor Daye's groundbreaking study in detail.

99. Daye, 5M/?ra note 1, at 1615 (displaying OAH Chart 1: Total Adoptions ofRecommended
Decisions with Proportion for Agency and Petitioner: Inception Through 1999).

100. M. at 1616 (displaying OAH Chart 2: Total OAH Decisions with Proportion for Agency
and Petitioner; Inception Through 1999).

101. M at 1619 (displaying OAH Chart 5: Total Agency Rejections with Proportion for
Petitioner and Agency; Inception Through 1999).

102. Id. at 1618 (displaying OAH Chart 4: Number of ALJ Recommended Decisions for
Petitioner with Agency Disposition; Inception Through 1999).

103. Id. at 1622 (displaying APA Study Chart 2B: Agency Adopted ALJ Recommendation

—

Superior Court Disposition) (Superior Court affirmed agencies adoption of ALJ decision in fifty-

eight percent of cases, and affirmed agencies rejection of ALJ decision in fifty-three percent of the

cases); id. at 1628 (displaying APA Study Chart 9: Agency Rejected ALJ Recommendation; Court
of Appeals Disposition) (affirming fifty percent of cases); id. at 1629 (displaying APA Study Chart
10: Supreme Court Disposition) (Supreme Court affirms six often cases in which agency rejects

ALJ decision).

104. /J. at 1616 (displaying OAH Chart 2: Total OAH Decisions with Proportion for Agency
and Petitioner; Inception Through 1999).



2005] UPDATE ON CENTRAL PANELS 42

1

the agency rejected the ALJ's decision, or the extent to which the ALJ and
agency were otherwise in agreement, or whether the difference was one of law

or fact. Reversals by the agency on questions of law are uncontroversial.

Likewise, accepting the factual determinations but rejecting a proposed penalty,

reflects ajudgment on enforcement which belongs to the agency. *^^ Only agency

reversals of ALJ fact-finding may be questionable and that depends on whether
the rejected facts are historical or mixed questions of law and fact which are

generally subject to de novo review. ^^^ The bare statistic that agencies did not
accept the ALJ's decision in eighteen percent ofthe cases undoubtedly overstates

the differences between ALJs and agencies during agency review.
There is no evidence of agency abuse of review powers because the study

only reported the outcomes of ALJ decisions and agency review and did not
assert that any decision was legally correct or incorrect. The indirect evidence
suggests that agency review was reasonable and that agencies are making

principled decisions during agency review. Neither the high acceptance rate of

ALJ decisions, including about one half of the decisions unfavorable to the
agency staffs position, nor the reversal of some of the ALJ decisions favorable
to the agencies, would have occurred if agencies were consistently abusing their

power of review to make agency-favorable decisions. Further support comes
from the appellate courts' review of the final agency decisions in North Carolina.

Professor Daye's study shows that the agency's action in reversing or accepting

the ALJ's proposed decision had no effect on whether the final agency decision

was affirmed or reversed by the courts. Certainly, the decisions of the courts do
not suggest that ALJ decision making has any advantage over agency decision
making.

^^^

To my knowledge there has been no systematic study of agency review that
provides evidence of an abuse of agency review powers. The argument for a
misuse of agency review is based on anecdotal evidence only and it has several

weaknesses. Such evidence applies only to the individual case and cannot

support any generalizations, particularly about the extent of the problem in other

cases. It often comes from interested sources, and is subject to equal and
opposite anecdotal evidence of abuse of ALJ authority. ^^^ In sum, the argument

105. McCown & Leo, supra note 2, at 64, 91 (sanctions are a decision for the agency).
106. The deference agencies are required to give an ALJ's findings of fact and law on review

is Hmited. Generally, state Administrative Procedure Acts provide agencies almost unlimited legal

authority to alter or amend findings of fact and law, subject to the rule in most, but not all states,

that the ALJ's credibility determinations are entitled to deference. A few states impose a higher
standard than "substantial evidence" to support agency changes in the facts. Courts accord

substantial deference to the agency's findings of fact and interpretations of law. See Flanagan,

supra note 3, at 1364-73, 1403-04.

107. Daye, supra note 1, at 1626.

108. Many central panels survey the litigants and attorneys. These surveys show that the

strong majority are satisfied, but litigants, perhaps, because of the nature of litigation, are not

always happy with the ALJ. For example, attorneys in Minnesota rated 77.8% of judges as

excellent or good at basing their decisions on the law or evidence, but 22.2% rated them as fair.



422 INDIANA LAW REVIEW [Vol. 38:401

that agencies are unfairly using their powers of review lacks support, and
provides no justification for replacing agency review with ALJ finality. The
central issue in ALJ finality remains: who is the more appropriate final
decisionmaker and what are the consequences of changing from the agency to a
central panel ALJ?

B. Litigant Dissatisfaction as a Justification for Limiting Agency Review

Litigant dissatisfaction has been cited to support limiting agency review in

North Carolina and Oregon. ^°^ Professor Daye established that the perception of
agency unfairness is due largely to the fact that agencies generally prevail in

administrative adjudication. ' ^° In North Carolina, the agency prevailed in at least

seventy-six percent of cases heard by the ALJs. Since these initial decisions are

made by the ALJs before agency review, the results must be compelled by the
substantive laws and regulations as applied by ALJs to the facts. The law is the
critical factor in the agency's success, rather than whether the final

decisionmaker is the ALJ or the agency. If litigants are frustrated in
administrative adjudication it is because the laws and regulations prohibit the

conduct under review. Moreover, a high agency success rate should be expected

in an efficient enforcement system. An agency would be derelict in its
enforcement and regulatory obligations if it routinely brought actions that failed

when tested in a trial-type hearing. A low success rate indicates either poor
preparation or an aggressive view of the law that is not supported by the facts

proven at trial. A high success rate before ALJs indicates prudent selection of
issues to litigate. Agencies do change some ALJ decisions during review, but the
vast majority of applicant losses are at the ALJ level, and the final agency
decisions are consistent with the laws or the facts, as seen by the affirmance rate

before the courts.

There are two reasons why litigants blame agencies rather than the
substantive law. First, a central panel changes the fundamental perception of

agencies, and unintentionally, fosters a negative attitude toward them. Central

panels clearly enhance the status of the ALJs as decisionmaker, and
correspondingly reduce that of the agency. Before central panels, administrative

adjudication was clearly the sole province of the agency. The contested case
took place at the agency and fact-finding by the ALJ was a preliminary step to
the agency's rendering the final decision. Neither the process nor an APA
accorded the findings of the ALJ special status, and proposed decisions by ALJs
were clearly subject to review and amendment by the agency. With central
panels, adjudication becomes a two-step process with fact-finding now taking

poor, or very poor. MINNESOTA MANAGEMENT ANALYSIS Division, Office of Administrative

Hearings, Judicial Development Program, Ofrce-wide Summary 26 (1999). Wyoming

attorneys rated 87.6% ofhearings on driver's licenses and workers compensation matters as fair and

impartial. WYOMING Ofhce OF ADMINISTRATIVE Hearings, Annual Report 4 (2000).
109. Heynderickx, supra note 1, at 242; Mann, supra note 95, at 1645-46.

110. Daye, supra note 1, at 1611.



2005] UPDATE ON CENTRAL PANELS 423

place before a trained adjudicator outside the agency who renders a preliminary
decision. Agency review follows as a separate and distinctive step in which the
case returns to the agency for another decision. From the participant's point of
view, an agency that does not adopt the ALJ's decision favoring the litigant is

biased, and if the agency affirms the ALJ's decision, its decision is irrelevant,

and the process time consuming, and expensive. The creation of the central
panel has transferred the focus of adjudication from the final agency decision to

the fact-finding by the ALJ, and enhanced the latter' s importance and status.

Missing from this picture is any understanding of the traditional role of the

agency as ultimate decisionmaker based upon the fact-finding by the ALJ, or the

agency's responsibility for consistent enforcement and application of the

statutory scheme.

Also leading to some muddling of the debate is that ALJ finality often
appears as a choice between a final decision by a biased agency versus that of an

independent ALJ. That inevitably colors the discussion and assumes its

conclusion, for who can be in favor of a biased agency when an independent ALJ
is available? Agencies certainly have a perspective on the law and regulations

because they have been charged with the enforcement of a statutory scheme, and

they have institutional knowledge and experience with the subject matter that

may be considered in the final decision. The hidden assumptions, that
independent ALJs in central panels are necessarily without views on the topic
and that those views may affect the outcome, is not justified. In fact, all
adjudicators, as humans, have their own predilections and preferences. It would
be a strange individual who reached the position of ALJ or agency head that had
not formed opinions on many issues. Lawyers exploit these aspects of the
decisionmaker through forum selection, judge shopping, and advocacy designed

to appeal to the particular judge. Rules that allow a party to seek recusal of a

judge, or replacement by a different judge are a recognition of this problem as

well as a partial solution.^ *^ Regardless of whether the decisionmaker is an ALJ
or an agency head, that person will have a perspective on the law and facts that

may differ from others.
There are three significant questions. What are the relative qualifications of

the agency and ALJ to interpret and apply the law in administrative adjudication?
What consequences flow from selecting either the agency or the ALJ? Should
the final decisionmaker be one entity, the agency, or be one or more ALJs in a
central panel who may have differing perspectives on the law and regulations?
In my opinion, the perspective of the agency is more predictable than that of each
of the ALJs on a central panel who may be assigned the case.

111. Cal. Gov't Code § 1 1425.40 (West 2001). The California Office of Administrative

Hearings has implemented the procedure through regulation. Cal. Code Regs. tit. 1 § 1034

(2002). See also OR. Rev. Stat. § 183.470 (2001). ALJs are aware of these issues. See generally

Hon. Bruce H. Johnson, Strengthening Professionalism Within an Administrative Hearing Office:

The Minnesota Experience, 53 ADMIN. L. Rev. 445 (2001); Schoenbaum, supra note 93, at 575

(discussing ways that public confidence in ALJs can be enhanced through education, training and

explanations of the administrative process).



424 INDIANA LAW REVIEW [Vol. 38:401

C. ALJ Independence and Morale

Another argument made in support of ALJ finality is that it protects ALJ
independence.^'^ ALJ finality obviously enhances ALJ independence because
the only constraint on the ALJ's decision-making is judicial review. The
argument, however, confuses the means with the end. The institutional
independence of ALJs in central panels is a tool for improving administrative
adjudication by eliminating the potential for improper agency influence. The
goal of administrative adjudication, however, is not to give ALJs final order
authority. This is true particularly when ALJ finality has significant detrimental
impacts on one of the fundamental purposes of contested case adjudication, the

ability of the agency to develop policy and enforce a consistent view of the

statutory scheme.

Moreover, experienced ALJs have noted that central panels increase the
desirability of the position because of much more tangible benefits. Central
panels enhance the prestige of the ALJ, provide more prominence and visibility,
and may lead to more uniform and perhaps enhanced pay, as well as
opportunities for professional development.

'^^ Any potential increase in the
attractiveness of the position from ALJ finality is minor in comparison with what
central panels already have achieved for ALJs.

A related argument is that ALJ finality is necessary for their morale and job
performance, because a broad scope of review by agencies, and the inevitable

rejection of some ALJ's findings and decisions, undermines the incentive to
perform complex adjudication. This argument requires an assumption about the

work ethic ofALJs that is not true for other adjudicators, and is not true of ALJs.
Review of an adjudicator's findings of fact is commonplace without any effect
on judicial performance. The trial judge' s decisions, including findings of fact,
are reviewed de novo in equity cases in some states. ^'"^ Federal magistrate
judges''^ and bankruptcy judges are subject to de novo review by a federal

district judge, but there are no reported reductions of judicial productivity in

those areas.

A useful analysis ofjudicial incentives and review is found in the appellate
treatment of decisions committed to the discretion of the trial judge. The
appellate courts accord such decisions by the trial judge substantial deference

and accept them although the appellate court may disagree with the result.
Judicial morale has been rejected as a rationale for this deference to the trial

112. Rossi, Final Orders on Appeal, supra note 2, at 6.

113. Several leading administrative lawjudges expressed this opinion at a symposium at which

I was a panelist. The Program on Law and State Government Fellowship Symposium, Maximizing

Indiana Fairness & Ejficiency: Should Indiana Consider Creating an Ojfice ofAdministrative
Hearings?, at Indiana University School of Law—Indianapolis (Oct. 1, 2004).

1 14. See e.g., OR. Rev. Stat. § 19.415(3) (1999); Townes Assocs., Ltd. v. City of Greenville,

221S.E.2d773(S.C. 1976).

115. 28 U.S.C. § 636(b)(1)(C) (2000).



2005] UPDATE ON CENTRAL PANELS 425

judge because it does not identify which, of all of the decisions a trial judge

makes, should be protected from searching review."^ In effect, arguing that the

trial judge's morale compels deference by the appellate court proves too much.

The argument always compels deference without any review of the trial judge's
decisions.

Appellate courts defer to the trial judge regarding procedural decisions in

two situations. The first involves those decisions where the issue arises in such
a variety of fact situations and involves a multifactor analysis such that guiding

principles and rules cannot be articulated. Many trial decisions, particularly
those involving the admission or exclusion of evidence, fall into this category.

The second occurs when the trial judge, by virtue of his position in the
courtroom, is in a better position to assess the facts than an appellate court

reviewing a cold record.
^^^

Neither rationale for deferring to the trier of fact

justifies the complete deference to ALJs and the elimination of agency review.
The issues before the ALJ are not the type incapable ofbeing guided by rules and
principles, and the ALJ is not in any preferred position by reason of hearing the
witnesses. Rather, the issues requiring agency review are primarily those of law,

policy, and enforcement and are best made by the agency charged with
developing policy and applying the statutory scheme.

D. AU Finality as a Mechanism ofAgency Control
The Louisiana litigation may represent another facet in the relationship

between agencies and other branches of state government. Conversations with

ALJs suggest that some agencies are seen as resisting legitimate direction by the
executive or legislative branches.^ ^^ Professor Jim Rossi explained why state
agencies may become independent power centers. He noted that state
governments have special characteristics that influence the development of state

administrative law and central panels. As compared to the federal system, state
legislative sessions are shorter, staff resources are fewer and special interests

more prominent. The state executive branch is weaker and has less power to
develop policy than the President.

^^^
In a jurisdiction with a weak governor and

a short legislative session, an agency with broadjurisdiction or important subject

matter authority may be insulated from legitimate executive or legislative
oversight by an independent political base. In this context, a central panel with

ALJ finality becomes a legislative tool to counterbalance agency independence
by transferring final adjudicative authority from the agency to the central panel

ALJ.

ALJ finality also may be proposed as an expedient remedy for litigant

116. Maurice Rosenberg, Judicial Discretion of the Trial Court, Viewed from Above, 22

Syracuse L. Rev. 635, 660-65 (1971).

117. Id.

118. This opinion was expressed by ALJs at the Central Panel Directors Conference held in

Savannah, Georgia, on September 19, 2003 which I attended as a panelist.

119. Rossi, Overcoming Parochialism, supra note 2, at 557-59, 568-72.



426 INDIANA LAW REVIEW [Vol. 38:401

frustration with agency adjudication. The Hterature discussing the adoption of
versions of ALJ finality in North Carolina and Oregon often talks about leveling
the playing field, which is another way of talking about curbing the agency's
authority in an area of high visibility—administrative adjudication.

ALJ finality as a mechanism for controlling or restricting agency power or
satisfying litigant frustration is not particularly effective and has all the

disadvantage of using a sledge hammer as a fly swatter. If adopted as a general
principle, as in Louisiana, it adversely affects all agencies regardless of their

relationship to the executive and legislative branches, and seriously weakens any

administrative enforcement mechanism. More important, ALJ finality is a
negative and indirect means of forcing a more politically responsive agency. It

reduces agency power in an unrelated area by creating an alternate power center
in the central panel. Any perceived benefit from weakening the agency comes
from the distractions created by the additional friction inherent in competing

bodies.

Similarly, ALJ finality will not significantly change litigant frustration,
which is based on the high agency success rate in contested cases. Changing the

ultimate decisionmaker will not significantly affect this rate. ALJs in North
Carolina decided in favor of the agency three quarters of the time before agency

review. Thus, only a few cases will ultimately be different with ALJ finality.
The real reason for litigant frustration is that agencies generally bring actions in
which they are most likely to prevail. Only by changing the substantive law will

litigants prevail more often in administrative adjudication. Even that is an
indirect consequence. The more likely result is a reduction of agency actions.
The agency will bring only actions that it can sustain before the central panel.

VI. Adaptations TO ALJ Finality

A. Presenting Policy in a Contested Case Before the ALJ

The major disadvantage ofALJ finality is the inevitable differences in policy
and enforcement that occur when the agency is responsible for enforcement, but
the final decision on any action is made by the ALJ.^^^ This has occurred in the
few federal agencies with split-enforcement models,

^^^
as well as the more recent

experience in Louisiana, where the ALJ makes the final agency decision without
any agency review. There are procedures for identifying important policy issues

before the hearing. ^^^ Can the problem of inconsistent decision-making be

120. Verkuil et al., supra note 3, at 1040.

121. See, e.g. , George Robert Johnson, Jr., The Split-Enforcement Model: Some Conclusions

from the OSHA and MSHA Experiences, 39 ADMIN. L. REV. 315 (1987); Sidney A. Shapiro &
Thomas O. McGarity, Reorienting OSHA: RegulatoryAlternatives andLegislative Reform, 6 YALE

J. ON Reg. 1, 59-62 (1989); Peter L. Strauss, Rules, Adjudications, and Other Sources ofLaw in

an Executive Department: Reflections on the Interior Department's Administration ofthe Mining

Law, 74 COLUM. L. Rev. 1231, 1254-64 (1974).

122. See, ^.^., TEX. Gov'T CODE ANN. § 2001.058(c) (Vernon 2001) (requiring the agency to



2005] UPDATE ON CENTRAL PANELS 427

addressed by having the agency present its poHcy during the contested case so

that the final ALJ decision will incorporate the agency's policy and enforcement
view? For several reasons, I do not believe so.

The belief that policy can be articulated in a contested case assumes that the
agency can anticipate, before trial, the policy issues to be resolved, and their

proper resolution. That may be true for repetitive, routine cases but it is not true
for many significant cases and issues for two reasons. First, it assumes that the
policy articulated by the staff in making the initial decision that led to the

contested case is the same as the policy that the leadership would apply. Second,

it assumes that the facts reviewed by the staff in making the decision are the same
facts that the ALJ will hear and determine in the contested case. Neither is
entirely accurate, and the more important the case, the more likely it is that these
assumptions are not true.

The decisions that lead to contested cases initially are made by low and mid-
level personnel who decide, in the normal course of business, to grant or deny a
license or a permit, or take other administrative action affecting legal rights. The
policy they apply at that time is based upon precedent and prior experience and

is entirely retrospective. Established policy reflects the last, bestjudgment of the

agency, but not necessarily what the leadership would apply in a new case.^^^
More difficult problems arise because information in administrative

adjudication increases over time, and the agency does not possess all of the facts

at the time of the initial decision. Obviously, the agency staff received some
information from the applicant, and perhaps the agency, at the time of the initial

decision. Prior to the final order in the contested case, however, this information

is indefinite and incomplete. The information is indefinite because the facts have
not been probed and proved in a trial-type proceeding, and are subject to

qualification or modification by that process. The facts are incomplete because
the information presented to the agency for its decision does not include all that

is available to the applicant nor does it include any information or perspective

from those, other than the applicant, who are affected by the decision and may
intervene in the contested case. In many cases, the evidence presented in the
contested case will be substantially more detailed and more recent than that
evaluated by the agency. '^"^ To the extent that there are differences between what

provide statement on applicable rules and policies); Cal. Gov't Code § 1 1425.60 (West Supp.

2000) (permitting an agency to designate precedential opinions for guidance to lawyers and ALJs).

123. Professor Daye's study of North Carolina agency review established that the agency

reversed a small, but significant number ofcases in which the agency had prevailed before the ALJ.

Daye, supra note 1, at 1619 (displaying OAH Chart 5: Total Agency Rejections with Proportion
for Petitioner and Agency; Inception Through 1999). One explanation for this action is that the

agency leadership, on review of the ALJ's decision, disagreed with the position taken by the staff

before the AU.
1 24. Rossi, Problems with AU Finality, supra note 1 1 , at 7 1 (noting that parties are reluctant

to present full case to agency); Marlboro Park Hosp. v. S.C. Dep't of Health & Envtl. Servs., 595
S.E.2d 85 1 (S.C. Ct. App. 2004) (holding that evidence presented at a contested case is not limited

to that presented to the agency for initial decision).



428 INDIANA LAW REVIEW [Vol. 38:401

was presented to the agency, and what was ultimately presented during the
contested case, and recorded by the ALJ in the proposed order, there will be
ambiguities in the policy to be applied.

Policy cannot be effectively changed in the middle of a contested case

because facts must be established to understand the ramifications of the policy

being applied. Any policy articulated before final decision is subject to alteration
by the facts that eventually are found. Even assuming that the ambiguity in the
facts can be overcome, policy is the province of the agency leadership, but

typically, it is not involved in litigation because the volume precludes their

active, in depth, participation at that time. The difficulty of matching the
schedules of the leadership with the demands of the trial calendar preclude all but
the rare occasion where the leadership can review the policy during the trial. The
development of policy also demands time and careful consideration. The middle
of a contested case, and the time pressures of a trial, make that the worst point
to consider strategic changes in policy because there is neither the time to collect

all relevant points of view, nor consider carefully their ramifications.

Moreover, policy is founded upon expertise. An understanding ofthe subject
matter is a prerequisite to an understanding of rationale for selecting one option

from among choices that otherwise appear reasonable. In the middle of the trial,
not only are the facts unclear, but also the ALJ, as finder of fact, may not accept
the testimony of the agency's experts, or may find that the applicant's views are
better presented or more persuasive. ^^^ An ALJ with final authority may adopt
his own view of the law and evidence, subject only to limited judicial review.
With ALJ finality there is substantial uncertainty whether the policy articulated
will be the policy accepted. The fundamental problem with presenting policy at
the contested case is that it puts the proverbial policy cart before the factual

horse. Requiring policy to be fully developed and articulated in the absence of

a fixed set of facts is inconsistent with the generaljurisprudential approach in our

system that rejects the use of advisory opinions.
^^^

B. Altering Judicial Standards ofReview to Restore Agency Accountability

Professor Jim Rossi has noted that ALJ finality makes the ALJ independent
but also creates a loss of agency accountability because law and policy decisions

are made by the ALJ without agency review. This splits executive authority
between the agency and the ALJ, raising constitutional concerns, although

probably not a constitutional violation. He proposes that agency accountability
can be restored by altering the judicial standards of review so that the courts give

greater weight to the agency's positions on law and policy than those reached by

the ALJ in rendering the final decision. ^^^

125. Bybee, supra note 1 , at 460 (describing potential conflicts between agencies and ALJs).

126. Among the reasons arguing against an advisory opinion is that it ignores the importance

that specific facts have on the ultimate resolution of the issue. Felix Frankfurter, A Note on

Advisory Opinions, 37 Harv. L. Rev. 1002 (1924).

127. Rossi, Problems with ALJ Finality, supra note 1 1, at 64-66.



2005] UPDATE ON CENTRAL PANELS 429

I certainly agree that a final ALJ decision is not entitled automatically to the
deference traditionally accorded a final agency decision on the facts and the law.

Judicial deference to the agency is based upon its expertise, as well as a
sensitivity to separation of power concerns when thejudiciary reviews executive
agency decisions. Neither argument applies to ALJs with final order authority.
ALJs, as generalists, often lack the expertise found in the collective knowledge

of the agency. The separation of power concerns arising from the judicial review
of executive agency action seems muted when those final decisions are made by
an ALJ independent of the agency and the executive branch, albeit still a part of
the executive branch for administrative purposes.

Jim Rossi suggests that the judicial review of facts found by the ALJ should
be governed by the substantial evidence test, or the clearly erroneous test, if it

does not introduce too much complexity. Fact-finding presents the greatest need
for an independent ALJ and has the least need for political accountability by the
agency. ^^^ I suggest an important qualification. The substantial evidence test is
very deferential to the initial fact-finder whose facts must be accepted so long as
there is any evidence in the record to support those facts, even though others

might find a different conclusion more reasonable. The clearly erroneous test is
not significantly more stringent. ^^^ Both tests are minimal standards of
accountability that only determine whether a particular fact falls within a broad

range that could be found or inferred from the record. Only facts without any

support in the record are rejected by these tests.

I would limit the judicial deference to historical or empirical facts, or those
dependent upon credibility determinations by the ALJ. The argument for
deference is strongest for these categories because they rely on the strengths of

the ALJ who is the person who heard and saw the witnesses. Oregon uses this
approach to insulate ALJ fact-finding from agency review for similar reasons. ^^°

There is substantially less justification for deference to facts found by the ALJ
that are derived from the application of expertise, the evaluation of expert

testimony, or are mixed questions of law and fact where statutory interpretation
and policy judgments play a significant role. Those facts should be subject to,

at least, de novo review by the appellate courts. Otherwise, some determinations
that can reasonably be classified as factual or credibility-dependent, such as the

weight of expert testimony, may undermine the agency's policy role.

128. Mat 66-70.
129. William R. Andersen, Judicial Review of State Administrative Action—Designing the

Statutory Framework, 44 ADMIN. L. Rev. 523, 551-53 (1992). The Supreme Court held that the

"clearly erroneous" test is less deferential to the lower court than the "substantial evidence" test,

but noted that the difference between the tests was so subtle that no other court had found that the

result would change if the other test were used. Dickinson v. Zurko, 527 U.S. 150, 152-63 (1999).

On remand, the Federal Circuit concluded that the outcome was not changed by applying the

substantial evidence test rather than the clearly erroneous test. In re Zurko, 258 F.3d. 1379, 1381

(Fed. Cir. 2001). Likewise, Professor Rossi recognizes that the differences may not be significant

in practice. Rossi, Problems with ALJ Finality, supra note 1 1, at 69-70.

130. 1999 Or. Laws ch. 849 §§ 12(2), (3) (codified at Or. Rev. Stat. § 183.650 (2003)).



430 INDIANA LAW REVIEW [Vol. 38:401

The crux of Professor Rossi's proposal is found in his treatment of policy
determinations made by the ALJ under final order authority. Here he looks to the
theoretical distinction between the substantial evidence test and the clearly

erroneous test. The former requires the reviewer to evaluate the lower tribunal's
decision on the reasoning articulated by that court. *'^' The clearly erroneous test,
however, "requires a reviewing body to consider the lower tribunal's decision on
the reviewing body's own reasoning." '^^ The change of perspective is important.
Rossi argues that when reviewing a fmal ALJ decision, the appellate court should
not accept the ALJ's reasoning framework. Rather, the court should substitute

the agency's framework for the ALJ's. The agency's framework is more
important in defining the scope of the court's inquiry into policy decisions than

the deference accorded the decision, and the agency's framework should not be

"trumped" by an ALJ or any expert. ^^^ On questions of law, Rossi argues that,
at the least, the reviewing court should give strong weight to the agency's

interpretations of law and regulations regardless of how the ALJ decided the
legal issue.

^^"^

Professor Rossi' s proposal requires the reviewing court to evaluate the ALJ'

s

final decision, including its views on law and policy, against the agency's policy

and legal framework, rather than evaluate it from the ALJ's perspective.

Presumably, the agency' s reasoning framework, broadly speaking, is the agency ' s

perspective and includes the predicates for its positions, the agency goals, its

regulatory values, and their relative weight when they conflict, as articulated in
the record and agency briefs. The court would review the ALJ's policy decision
in the context of the agency's decision framework and apply the appropriate

standard of review to determine whether the ALJ's policy decision was arbitrary

and capricious, or clearly erroneous. When the ALJ's policy decision deviated
substantially from the agency's, the court would be free to overturn it in favor of
the agency's position. Making the agency's policy the gauge in reviewing the
ALJ' s policy decisions restores the agency' s role in policy development, provides

it an incentive to carefully articulate the policy in the contested case, and

ultimately makes the agency accountable for the decisions made by the ALJ, even
though there was no formal agency review of the ALJ's decision.

Professor Rossi recognizes the emerging reality of ALJ finality, and has
sought to develop a way to counter one of the adverse consequences of ALJ
finality, the loss of agency accountability. I support his effort but I have doubts

that it will effectively accomplish its goal. Two main problems appear to me.
First, any proposal that depends uponjudicial review works only through the few
cases that reach the appellate courts. Generally, the first appeal in state

administrative law is to a trial court, and only subsequent appeals are to appellate

courts that are likely to produce widely available written opinions. ^''^ While

131. Rossi, Problems with AU Finality, supra note 1 1 , at 68-69.
132. Id. at 68 (emphasis added).

133. Mat 72-73.
134. Id. 2X1A.

135. See MODEL STATE Admin. Procedure Act § 5-104 (1981), 15 U.L.A. 5-104 (1990)



2005] UPDATE ON CENTRAL PANELS 43

1

those cases may be the more important ones, they are likely to be too few to
provide for a consistent and persistent articulation of any one agency's policy.

Professor Daye's study of North Carolina appellate court decisions from its

central panel over sixteen years reveals that there were 3470 administrative

decisions made by central panel ALJs. Only 130 cases reached the appellate
courts, of which eighty-four cases met his criteria for evaluation.

'^^
There are too

few opportunities for a particular agency to correct or modify the ALJ's views

on policy and legal issues. The appellate process, moreover, is particularly slow,
and there may be months, if not years, before the appellate courts restore the
agency's views.

At best, changing the standards of review will provide an opportunity in a

few cases to reverse a particularly egregious deviation of policy. Such cases may
stand for the general principle that agency policy should prevail, but these

appellate proclamations will be so few that they will be only guideposts, and will

not serve as an effective means of insuring that ALJs do follow the appropriate
policy. The policy established by the ALJ will be dominant simply because few
cases are appealed. Agency appeals of some cases are possible, but it is not
practical or cost efficient to do so in every appropriate case.

The second problem with the proposal is that the reviewing court intervenes
only if the ALJ's views on agency policy and law substantially deviate from that

of the agency' s reasoning framework. Again, few cases will present such a clear

choice. More likely, the differences between the ALJ and the agency will be
significant, but not so unreasonable as to compel the court to reject the ALJ's

analysis and result. The agency will be in much the same situation as with pure
ALJ finality. Certainly, different standards of review will provide the agency
with another opportunity to articulate its views on law and policy, but ultimately

the agency is dependent on the court accepting the agency's views.

Finally, there are other significant practical problems in altering standards

of review of administrative action, particularly how the change will be made.
Generally, standards ofreview ofadministrative action are established by statute,

not by case law.^^^ It is difficult to see how a legislature, having established ALJ
finality, would subsequently reintroduce a significant agency role by altering the
appellate standard ofreview. Similarly, the courts have little reason to alter their

standards of review in favor of the agency in the face of a legislative preference

(initial appeal to the trial court level). This is the procedure in North Carolina. ALJ decisions in

Oregon are appealed to the intermediate appellate court, and South Carolina may adopt the same

procedure.

136. Daye, supra note 1, at 1619. The eighty-four appellate cases in the study had four

characteristics: (1) a recommended decision by the ALJ; (2) the agency either accepted or rejected

the ALJ's decision; (3) the case was appealed to the superior court; and (4) the case was then

appealed to the court of appeals.

137. See the standards ofjudicial review in the Model State Admin. Procedure Act § 5-

104, 15 U.L.A. 5-104, which many states have adopted; see also 5 U.S.C. § 706 (2000) (federal

standards ofjudicial review).



432 INDIANA LAW REVIEW [Vol. 38:401

for ALJ finality, and a diminished agency role.'^^ Of course, this assumes that
the change in the standards will be meaningful. While subtle distinctions can be
advanced for different formulations, it is not clear that they actually produce

significant differences in the results.

In the end, the change of the standards of appellate review affects too few

cases to have any meaningful effect for a particular agency on the cumulative

impact of all of the ALJ decisions reached without that agency's review. While
the proposal provides a respectful ear at the appellate level, the agency remains

dependent on two independent actors, the ALJ and the courts, for its views on
law and policy to be enforced. This tenuous method of recognizing the agency's
position creates sufficient justification for the agency to legitimately disavow

responsibility for the law as independently articulated by the ALJ, and

infrequently reviewed, and more infrequently reversed, by the courts.

C. ALJ Finality After a Program by Program Analysis

Another option, perhaps the best one, is to consider ALJ finality in the
context of specific programs and specific contested issues. There are clear

disadvantages to ALJ finality as a general proposition of administrative
adjudication. Eliminating all agency review inevitably leads to inconsistent

decisions between the agency and the ALJs, and among ALJs who hear similar
cases, with a corresponding dissipation of the regulatory effort, and the loss of

agency expertise and political accountability.*^^ At the same time, ALJ finality
helps to allocate scarce adjudication resources. State administrative law is

characterized by a vast range of contested cases from the most complex

multiparty environmental matters to simple hunting license revocations. ALJ
finality may be appropriate for some types of cases. Recent history shows that
some states have adopted it for a few programs, and agencies have relinquished
their review authority for some matters.

The factors to be considered in making this decision are those that emphasize
the strengths of the ALJ and at the same time, eliminate or moderate the adverse
consequences of ALJ finality to the agency. The ALJ's strengths are in
providing procedural regularity, evaluating factual evidence, resolving

conflicting evidence, and determining credibility. The agency' s contributions are
its subject matter expertise, institutional experience with those regulated, and

authority to make policy. The best cases for ALJ finality are those requiring

138. Addressing this point on the context ofALJ finality, the Louisiana Supreme Court stated:

Essentially the legislature has chosen to allow the ALJs to adjudicate, and in some cases

to finally adjudicate, various matters concerning the insurance industry in this state and

to reduce the Commissioner's ability to regulate insurance by prohibiting him from

overriding the ALJ's decision or order and from seeking judicial review of an adverse

decision or order. While we recognize that one may question the wisdom of this

decision, it is within the legislature's prerogative to make this change.

Wooley V. State Farm Fire & Cas. Ins. Co., 893 So.2d 746,769-70 (La. 2005).
139. Flanagan, supra note 3, at 1399-141 1.



2005] UPDATE ON CENTRAL PANELS 433

determination of well defined issues of historical fact (but not subject matter

expertise), perhaps involving credibility determinations, where the ALJ applies
(but does not make) established policies to those facts.

"^^

Driving license cases are one example of this class of cases and some central
panels have final order authority over them. Wyoming' s ALJs have the authority
by statute,

^"^^

and Maryland's ALJs obtained it by agreement with the agency.
'"^^

Similarly, South Carolina's Administrative Court has final order authority over

appeals of hunting and fishing licence revocations, among other matters. ^"^^

These, and comparable cases, are primarily fact determinations of recurring

enforcement scenarios where policy issues have long been identified and

resolved through regulation and precedent. These cases do not have any

significant need for agency review because they are unlikely to raise or to require

the development or modification ofagency policy. Agency review provides little
additional benefits after a hearing before the ALJ and may delay any judicial
review.

Conversely, the archetypal case for agency review involves multiparty

litigation over issues dependent upon expertise that may require the development
or modification of policy to accommodate the circumstances of the case. Often
in these cases, the information improves over time. The agency staff may have
received information from the applicant. In a contested case, however,

interveners and other parties provide a different perspective or more recent or
additional information to the ALJ. When the ALJ has received more evidence
than was initially presented to the agency, review is appropriate for the agency
to consider the implications of the more expanded record.

Identification of an appropriate class of cases for ALJ finality is not the only
issue. In addition to policy development, agency review provides an opportunity

for the agency to achieve a consistent application of the law in similarly situated

cases. ALJ finality may generate inconsistent decisions when a single agency's
cases are decided by several ALJs. The Social Security Administration is an
extreme example, where some ALJs award benefits in only twenty-five percent
of cases they hear and others consistently award benefits in seventy-five percent

of their cases.
^"^"^ A system of adjudication which suggests that the outcome is

140. Asimow, supra note 32, at 1 109 (noting that agency review is costly, time consuming,

and it may be unnecessary when the issues are factual and unimportant in terms of poHcy and

impact on the regulatory program). Cf. Michael Asimow, Speed Bumps on the Road to

Administrative Law Reform in California and Pennsylvania, 8 WiDENER J. PUB. L. 229, 261-62

(1999) (noting that central panels work best in cases that are relatively nontechnical, limited to two

parties, present credibility conflicts and do not call for specialized knowledge).

141. Wyo. Stat. Ann. § 31-7-105(b) (Michie 1999) (driver's licenses). AU final authority
has existed since at least 1986 and in Hcensing cases since at least 1977.

142. E-mail from Hon. John W. Hardwicke, former Chief Administrative Law Judge of
Maryland, to author (Aug. 11, 2004, 16:22:31 EDT) (on file with author).

143. S.C. Admin. Law Judge Dfv., Annual Report 1999-2000, supra note 35, at 10.
144. Charles H. Koch, Jr. & David A. Koplow, The Fourth Bite at the Apple: A Study ofthe

Operation and Utility of the Social Security Administration's Appeals Council, 11 FLA. ST. U. L.



434 INDIANA LAW REVIEW [Vol. 38:401

dependent upon the particular trier of fact creates problems of the perception of

fairness as well as due process. Some method of addressing this issue is
necessary. A formal appellate procedure within the central panel is one solution
but creates the same concerns about the speed and efficiency of agency review.
Another approach is to attempt to achieve quality control within the panel. That,

however, is likely to be strongly resisted by ALJs as an improper interference
with their decisional independence.

Conclusion

We are at a midpoint in the evolution of central panels and ALJ finality.
Central panels have proven themselves. ALJ finality is more problematic. At
most, it can be an exception to the general rule of agency review, adopted on a

case-by-case basis for selected adjudications. Any decision to adopt it requires
a careful balancing of the advantages and disadvantages, including the

institutional considerations and the effects on the litigants and the agency.

Rev. 199,283-84(1990).