Unbeknownst to most Americans, federal regulatory agencies have their own court system for adjudicating disputes that businesses and citizens have with regulators. These agencies rely on special courts headed by administrative law judges (ALJs). One big problem with this system is that it operates independently of legitimate Article III courts. Another problem is that agency-housed tribunals have a strong tendency to favor regulators over the regulated. And yet another problem is how these judges (which I call “transitory”) get loaned out between agencies. Inter-agency borrowing of ALJs may not immediately stand out to the average citizen as problematic, but it raises serious questions about constitutionality, executive transparency, and bureaucratic oversight.
In a new report for the Pacific Legal Foundation (PLF), I offer a systematic review of how federal agencies exchange their judges, analyzing a sample of 960 ALJs across forty-two federal agencies. In fact, agencies have likely lent and borrowed ALJs over the past ninety years, predating the 1946 Administrative Procedure Act (APA).
The APA is considered the constitution for the administrative state. It outlines important procedures for agencies to adhere to when conducting rulemaking, rendering adjudication, and issuing statements of public policy. The APA requires select agencies containing statutory permission to conduct formal adjudication on the record (and often in public) under the oversight of an ALJ. Yet, the phenomenon of interagency borrowing of ALJs was born entirely outside of the APA’s requirements.
How did this controversial practice come to be? Several agencies managed pre-APA tribunals to adjudicate their legal matters. The Federal Trade Commission (FTC) has one of the oldest recorded instances of adjudicating public hearings within the federal government. The 1914 FTC Act enabled agency hearing officers (ALJs) to resolve disputes over unfair or deceptive acts and anti-competitive business transactions.
While ALJ borrowing formally began in the 1960s with the first documented instance at the NLRB, it may have begun decades earlier with the FTC in 1914 and the US Civil Service Commission in 1871. The Civil Service Commission is the predecessor to both the Merit Systems Protection Board (MSPB) and the Office of Personnel Management (OPM).
My report cites a 2014 case, Berlin v. Department of Labor, in which the MSPB borrowed a Coast Guard ALJ to conduct a two-day hearing for the Department of Labor. MSPB also borrows judges from the FTC through a special interagency system, adjudicating cases arising from other agencies. MSPB likely derived this power from the Civil Service Commission, which formally authorized ALJ borrowing at the National Labor Relations Board (NRLB) in the 1960s. While the NRLB’s historical report documents its internally hired or “stationary” ALJs, it keeps the identity of the agencies that lend ALJs hidden. This lack of transparency is concerning.
In addition to the above, the Department of Labor has a documented history of using pre-APA hearing examiners in the early 1900s. Examiners adjudicated public contracts for the manufacture and supply of materials under the Walsh-Healey Public Contracts Act (1936). In response to concerns over ex parte communications between Labor Department attorneys and examiners, its Division of Public Contracts kept them separated when traveling for work. Other agencies, like the Securities and Exchange Commission and NLRB, also took early steps to insulate their examiners from prosecutorial influence during the 1930s and 1940s. Most agencies today provide some degree of insulation for their judges after Congress amended the US Code in 1989 to provide ALJs with two layers of statutory removal protection.
Despite the above, Joanna Grisinger cites widespread concern over adjudicatory misconduct from a 1941 study by the Attorney General’s Committee on Administrative Procedure. According to the report, “parties confronted administrative officials not in formal courtrooms but in the agencies’ own offices, in space borrowed from other agencies, or in the field.” It is also very likely that agencies borrowed hearing examiners to conduct cases at these offices as well.
This early twentieth-century practice of agencies borrowing office space for hearings resembles a similar practice mentioned in my PLF report. My report reveals how the Surface Transportation Board borrows conference rooms at the Federal Energy Regulatory Commission to conduct its hearings. Not only that, but the Surface Transportation Board continually borrows most of its ALJs from FERC to this day.
In my report, I argue that ALJ borrowing is constitutionally suspect, however convenient for the agencies themselves, circumventing normal constitutional removal and appropriations processes.
Specifically, ALJ sharing can undermine the president’s Article II power to remove inferior officers for cause. If the ALJ is being lent to another agency, this process prevents the head of the appointing agency from removing that ALJ for work conducted at the borrowing agency. Such a predicament creates a legal gray area for the transitory ALJ to operate without being under the control of the appointing agency, lending agency, or the president. In reality, ALJs are federal officials who should always remain politically accountable to their superiors. Interagency sharing of ALJs undermines this accountability.
External agency officials cannot re-appoint ALJs to work at a separate agency without violating the Constitution.
Another constitutional concern with ALJ sharing is that agencies have obscured the source of funding for borrowed judges. My research has found that no borrowing agency provides a paper trail or budgetary justification for how they are paying their judges. The only agency that provides some financial detail is the Nuclear Regulatory Commission, listing the terms of its agreement and the stipend for borrowing ALJs from the Department of Energy.
Despite this, the Nuclear Regulatory Commission, like all other participating agencies, fails to justify where the money is coming from. Is it being siphoned from the budget reserved for hearings and appeals? Or perhaps ALJs are secretly paid from their enforcement fees, akin to the National Oceanic and Atmospheric Administration’s (NOAA) procedure? In either case, Congress did not authorize such a circuitous funding process. These black-box methods fly in the face of the Article I Appropriations Clause. Agencies should be limited to spending only the money appropriated to them for their hired ALJs and staff, not for borrowing another agency’s judges.
Beyond the constitutional conflicts, ALJ borrowing circumvents the APA itself. We see this in APA § 556, where it requires an ALJ appointed by the president or the presiding agency head to be present during the taking of evidence. According to APA § 3105, ALJs are to be appointed by the agency employing them. This Appointment Clause requirement was later upheld in the Supreme Court’s decision in Lucia v. SEC (2018).
While an agency can hire and appoint as many ALJs as it wants under the APA, it cannot accept ALJ appointments made from separate agencies. In other words, external agency officials cannot re-appoint ALJs to work at a separate agency without violating the Constitution. The ALJ Loan Program supersedes the Appointments Clause by empowering OPM to authorize temporary ALJ appointments (loans). However, OPM is constitutionally precluded from acting in place of the agency head or the president when authorizing such ALJ loans. Courts reviewing challenges to agency adjudication should properly treat ALJ loans as duplicative appointments that are unauthorized under the Constitution and the Supreme Court’s Lucia opinion.
The only exception the APA recognizes for this in § 556 is those “specified classes of proceedings” that are “specially provided for by or designated under statute.” While the OPM’s 2007 rule—“ALJ Loan Program”—relies on a legislative amendment to the APA, the statute doesn’t provide for any specified or special proceedings that borrowed ALJs must oversee. There is no distinction between the cases that transitory ALJs and stationary ALJs review.
Another issue with the ALJ Loan Program is that some forms of ALJ borrowing violate this statute. According to the 1978 amendment, only agencies that are “occasionally or temporarily” short-staffed with ALJs may petition OPM to borrow another agency’s judge. However, as my PLF report demonstrates, several agencies like the Internal Revenue Service IRS, NOAA, Surface Transportation Board, Consumer Product Safety Commission (CPSC) and for a time, the Consumer Financial Protection Bureau (CFPB) each lacked any office of hearings. This means they did not employ any of their own ALJs during the time they borrowed from other agencies, contrary to statute.
The CPSC employed only one chief ALJ from 1975–80 and has since not hired any other judges internally. And while the CFPB appointed its first ALJ in 2016, it relied entirely on borrowed judges from its conception in 2011. This presents a major statutory breach to the 1978 amendment in 5 U.S.C. § 334, which does not permit agencies without their own office of ALJs to borrow from other agencies. The text of OPM’s ALJ Loan program also confirms this.
In addition to the above, section §557 of the APA requires each agency’s ALJ to conduct formal adjudication on the record in accordance with the organic statute of the agency. It, however, does not permit one agency to transfer quasi-judicial power to another.
Only agencies that are statutorily qualified to hear cases “on the record” can conduct formal adjudication under the APA. If the agency’s organic statute does not recognize such a function, an agency cannot inherit this power from a peer agency through an ALJ loan.
Section § 554 of the APA is quite clear in stating that agencies can only conduct evidentiary proceedings when “required by statute to be determined on the record after opportunity for an agency hearing.” This point is reiterated by Law Professor Kristin E. Hickman in her text, Understanding Administrative Law. Agencies are free to establish an internal tribunal to conduct such formal adjudication so long as their organic statute or enabling act permits this. Agencies like the IRS, CPSC, and NOAA fail to adhere to this requirement.
Agencies borrow and lend ALJs for two major reasons. First, some agencies are ALJ-deficient. They either have no ALJs or have limited judges relative to their annual docket of cases. The NLRB, for example, has a storied history of lending its ALJs during times of low-to-normal caseloads and borrowing ALJs when it experiences a surge in cases.
Second, agencies lend ALJs to peers who lack funding. Many of the borrowing agencies suffered lapses in funding for ALJs or never appropriated funding for an office of hearings and appeals in the first place. As previously discussed, at least five agencies without an internal office of judges have conducted adjudication entirely through borrowed judges.
This interagency exchange of ALJs and its inherent problems are widespread. Large agencies like the Department of Labor, Health and Human Services, and the Social Security Administration are among the top lenders of personnel. By contrast, some of the biggest borrowers of transitory ALJs vary in size, like the small Surface Transportation Board and mid-sized Small Business Administration. Interestingly, independent agencies occupy the most transitory ALJs relative to total agency headcount, while transportation policy was the largest domain for transitory ALJs.
The way this secret system works is that some judges move from agency to agency on a long-term basis (transfer), rather than on a short-term basis (loans). Most agencies tend to engage in a mix of ALJ borrowing, lending, and long-term transfers.
All told, agency adjudication remains an important, entrenched exercise of administrative power. Yet, such a privilege has been abused by the pervasive process of ALJ sharing. Congress and the executive office of the president should launch investigations into this problematic practice and consider reforms that restore power and accountability to constitutionally authorized institutions. Reforming this unaccountable practice would be one way to curtail the runaway power wielded by the administrative state.