Opinion ID: 359862
Heading Depth: 2
Heading Rank: 3

Heading: The Hearing Requirement and Ex Parte Contacts

Text: 40 Under the Administrative Procedure Act a reviewing court, in addition to examining whether the final agency decision reflects consideration of all relevant factors, must also determine whether the agency complied with applicable procedural requirements in reaching its conclusion. 5 U.S.C. § 706 (1976); See Overton Park, supra, 401 U.S. at 416, 91 S.Ct. 814. In this case it is argued that the FMC failed to conduct the hearing required by statute prior to its approval of Agreement 9902-3 and its Pendente lite authorization of Agreement 9902-5. 41
42 The Shipping Act does not itself specify the type of hearing required prior to approval under Section 15; it states only that the Commission decision is to be made after notice and hearing. 46 U.S.C. § 814 (1970). Petitioner has argued that the hearing provided by the FMC must comply with the procedural requirements of Sections 556 and 557 of the Administrative Procedure Act governing formal agency hearings. These provisions apply, by the terms of the APA, when a hearing on the record is required by statute. 5 U.S.C. §§ 553(c), 554(c)(2) (1976). While the exact phrase on the record is not an absolute prerequisite to application of the formal hearing requirements, the Supreme Court has made clear that these provisions do not apply unless Congress has clearly indicated that the hearing required by statute must be a trial-type hearing on the record. See United States v. Florida East Coast R. Co., 410 U.S. 224, 234-238, 93 S.Ct. 810, 35 L.Ed.2d 223 (1973); United States v. Allegheny-Ludlum Steel Co., 406 U.S. 742, 756-758, 92 S.Ct. 1941, 32 L.Ed.2d 453 (1972). 43 In this case the Shipping Act itself does not provide for a hearing on the record, and nothing in the terms of the statute or its legislative history indicates that a trial-type hearing, complete with all of the procedures specified in Sections 556 and 557, was intended in all Section 15 cases. 50 Indeed, we have held before that there is room for agency flexibility in structuring Section 15 hearings in light of the circumstances of the case and the nature of the issues involved. The requirement of a hearing in a proceeding before an administrative agency may be satisfied by something less time-consuming than courtroom drama. Marine Space Enclosures, Inc. v. FMC, supra, 137 U.S.App.D.C. at 21, 420 F.2d at 589. Such flexibility is particularly important where, as is the case with Agreement 9902-5, the Commission sets certain issues for further investigation and trial-type hearing while granting approval of the agreement Pendente lite. Clearly, if such approval could not be granted by the Commission on the basis of something less than a full trial-type hearing, the Pendente lite authority would effectively be paralyzed. 44 We conclude, therefore, that Section 15 hearings are not required by statute to be conducted in accordance with Sections 556 and 557 of the APA. The Commission thus enjoys substantial flexibility to structure the hearings it must provide depending on the nature of the case and the issues requiring resolution. But that freedom is not absolute. The Shipping Act does require that there be a hearing, and that statutory requirement, like the requirement of comment in notice and comment rulemaking, 51 imposes certain minimum constraints on the procedure followed by the agency. One of these constraints, we think, was clearly violated by the FMC's recourse to secret Ex parte contacts prior to its approval of Agreement 9902-3.
45 As noted earlier, 52 as of August 26, 1976 the Commission had received comments from USL and the Euro-Pacific parties as to the proposed agreements. There was nothing secret about these comments: they were provided in each instance to the opposing parties, and were available to other members of the public. At its regular meeting on August 26th the Commission decided that ICT Should not be permitted to enter the conference at that time, but that instead the issue should be set down for further investigation and hearing. The Commission then directed that an order to this effect be issued. 53 The order was not issued, however, for reasons which are unexplained. And at its September 29th meeting the Commission squarely reversed its position on admission of ICT, which is the critical antitrust question raised by 9902-3. On that day, without notice to USL or to the public, the Commission reconsidered its earlier decision and determined that ICT could immediately become a party to the Euro-Pacific agreement without any further hearing or investigation. An order to that effect was signed on the same day. 54 46 The Ex parte communications at issue here took place between August 26th and September 28th; indeed, they appear to be the only comments received by the Commission and its staff during this critical period. We do not know exactly how many contacts there were, or exactly what was said, or what the Commission staff conveyed to the Commission as to the substance of the communications in which it engaged. Our only indication as to the nature of these contacts is found in an excerpt from a September 28th staff memorandum to the Commission, included in the joint appendix in this action, which served at least in part as the basis of the Commission's September 29th decision to permit ICT to join the conference. The memorandum was to provide additional information to the Commission in the event it wishes to reconsider its decision not to approve the addition of ICT to Euro-Pacific. JA 72. The joint appendix in this case at page 72 describes notices received from the German and French governments through their Washington embassies that they strongly support ICT's participation in the joint service and urge the Commission to approve its admission. It also details the position of the Euro-Pacific parties that it is imperative to have the financial support of ICT in order to finalize any plans for future buildings and to produce and maintain the frequency and quality of service that will be necessary for them to survive in this trade. Id. Finally, it relates that the Euro-Pacific parties, 47 through their attorney, have urged the staff to convey to the Commission their concept of ICT as the direct substitute for HAL in this trade and in the joint service. Therefore, since the Commission determined that there was economic and commercial justification for HAL's participation in the joint service, they view this as a precedent for ICT's participation in the joint service as well. They feel that the Commission, like USL, may have misconceived ICT as a totally New service and a New participant in the trade and its inclusion in the joint service as creating a New and far reaching 'consortium' with a New partner. ((emphasis) added) However, they see it differently. They do not consider ICT to be a new service or new participant in the trade but rather a return to the trade of an old and long standing service and participant, HAL, with the only change being in the name and the owners. Instead of creating a new . . . 'consortium' with a new partner, the parties conceive of ICT's joining the joint service as an act of rejoining and of recreating a relationship which previously existed and which the Commission sanctioned. 48 JA 72-73. 49 Even this brief outline of the Ex parte communications in this case makes clear that secret Ex parte contacts were employed both to introduce new arguments and positions and to respond to and rebut the arguments which protestant USL made in its public filings. Although the notices from the French and German governments were in no way classified, it appears that they were never mentioned or made available to the parties or to the public; USL, in particular, was completely unaware of the active support of Agreement 9902-3 by foreign governments. Similarly, the argument that addition of ICT was financially imperative to Euro-Pacific's continued survival appears nowhere in Euro-Pacific comments; it emerged for the first time in these Ex parte communications. Finally, the argument that ICT should be permitted to join the service as the successor to HAL albeit with a different name and different owners was clearly intended to respond to the argument publicly made by USL that addition of a third party which is itself a potential competitor and which is controlled by a dominant carrier raises serious antitrust questions requiring a hearing for their resolution. Euro-Pacific had noted in its filed response to USL's comments that HAL, the former third party in the Euro-Pacific service, had been reorganized under new control as ICT. 55 But the Euro-Pacific parties did not make in their public response the more specific and legalistic argument that the Commission's prior approval of HAL's participation in the joint service served as a precedent justifying, on economic and commercial grounds, ICT's proposed participation. 50 USL was unaware of all these contacts. Nor is it reasonable to assume that any other member of the public knew or could have known of their existence, let alone their substance. Indeed, it was not until preparation of the joint appendix to this review action that USL first learned of the existence of Ex parte contacts prior to the Commission's decision. 51 It is, of course, impossible to determine the precise influence of these Ex parte contacts on the Commission's final decision. The fact that the Commission reversed its judgment on the participation of ICT in the conference after being informed of the substance of these contacts, however, raises the spectre of a substantial influence on the approval decision; indeed, it provides at least one explanation of what the Commission was referring to when it cited reliable data reposing in the Commission's files as support for its decision. 56 But whether or not this refers to the Ex parte communications at issue, the fact remains that these communications are inconsistent with both the hearing provided by statute and the requirements of judicial review under the Administrative Procedure Act. 52
53 Under the Shipping Act notice and a hearing are required prior to Commission approval of any agreement subject to Section 15. The Commission is charged by statute with enforcing the public interest, and it recognizes the right of the public be it carrier, exporters, or interested consumers to participate in the required hearing. 57 The public right to participate in a hearing, however, is effectively nullified when the agency decision is based not on the submissions and information known and available to all, but rather on the private conversations and secret points and arguments to which the public and the participating parties have no access. In such cases the exercise of permitting public comment and response by interested parties the hearing is nothing more than a sham. 54 The inconsistency of secret Ex parte contacts with the notion of a fair hearing and with the principles of fairness implicit in due process has long been recognized. In Morgan v. United States, 304 U.S. 1, 18, 58 S.Ct. 773, 776, 82 L.Ed. 1129 (1938), the Supreme Court stated: The right to a hearing embraces not only the right to present evidence but also a reasonable opportunity to know the claims of the opposing party and to meet them. The right to submit argument implies that opportunity; otherwise the right may be but a barren one. And in Sangamon Valley Television Corp. v. United States, 106 U.S.App.D.C. 30, 33, 269 F.2d 221, 224 (1959), we held that basic fairness required that a rulemaking proceeding to allocate television channels among communities be carried on in the open, without Ex parte contacts. Most recently, in Home Box Office, Inc. v. FCC, supra, we set aside FCC regulations relating to cable and subscription television in part because of prohibited Ex parte communications between industry leaders and the Commission during the rulemaking proceeding. In that case we noted that this is a time when all branches of government have taken steps 'designed to better assure fairness and to avoid suspicions of impropriety,'    and consequently we have no hesitation in concluding with Sangamon that due process requires us to set aside the Commission's rules here. 185 U.S.App.D.C. at 190, 567 F.2d at 57, Quoting White House Fact Sheet on Executive Order 11920 (June 10, 1976). 55 The instant case is not identical in all respects with either Sangamon Valley or Home Box Office. Sangamon Valley involved resolution of conflicting private claims to a valuable privilege, 106 U.S.App.D.C. at 33, 269 F.2d at 224, a description which is not entirely applicable to this case. For although this case involves a privilege in the sense of exemption from the antitrust laws, it is not one to which there are competing claims which must be resolved in favor of one applicant or another. Nor does this case, like Home Box Office, deal with notice and comment rulemaking governed by Section 553 of the APA. Rather, what is involved here appears quasi-adjudicatory in nature: the agency is required to adjudicate the rights of certain named parties to an exemption from the antitrust laws. But in doing so the FMC, like the FCC in Sangamon Valley and Home Box Office, is charged with enforcing and guarding the public interest, with the impact of its decision extending well beyond the immediate parties involved. Moreover, however we label the proceedings involved here and in our earlier cases, the common theme remains: that Ex parte communications and agency secrecy as to their substance and existence serve effectively to deprive the public of the right to participate meaningfully in the decisionmaking process. 58 56 Our earlier decisions dealing with Ex parte contacts, as well as prior cases requiring an agency to provide initial notices of proposed action, to disclose internal reports, and to state its reasons for acting as it did, 59 all rest on the fundamental proposition that the right to comment or the opportunity to be heard on questions relating to the public interest is of little or no significance when one is not apprised of the issues and positions to which argument is relevant. Only when the public is adequately informed can there be any exchange of views and any real dialogue as to the final decision. 60 And without such dialogue any notion of real public participation is necessarily an illusion. This basic principle, embodied in this case in the requirement of a hearing, was violated by the Commission's resort to Ex parte comments. 57 That the proceedings in this case did not, because of the Ex parte contacts, amount to the hearing guaranteed by statute is patently clear. While the Commission enjoys substantial flexibility in structuring its hearings in light of the issues involved, 61 the requirement of a hearing to determine the public interest means, at a very minimum, that an opportunity must be afforded for meaningful public participation. In this case there was no such opportunity. To be sure, USL and any other members of the public were free to submit arguments as to their positions on the agreement in question. But there was no opportunity for a real dialogue or exchange of views. USL was not informed of, let alone given the opportunity to respond to, the new arguments of Euro-Pacific or of the French and German governments as to the proposed agreement. Nor did USL know of or have the opportunity to respond to the arguments which Euro-Pacific conveyed secretly to the Commission in response to USL's protest. And it was after consideration of these Ex parte arguments and responses, with no opportunity for further rebuttal, that the Commission reversed its position on participation of ICT. 62 58 What we are confronted with, then, is an agency procedure denying meaningful participation to the public and an agency decision appearing to rest, at least in significant part, on communications never revealed to the protesting party or to the public. For a court to uphold this decision as satisfying the hearing required by statute would be to do violence not only to Section 15 but to the basic fairness concept of due process as well.
59 Ex parte contacts, in addition to being inconsistent with the  hearing required by the Shipping Act, also foreclose effective judicial review of the agency's final decision according to the arbitrary and capricious standard of the Administrative Procedure Act. Under this standard the reviewing court must test the actions of the FMC for arbitrariness or inconsistency with delegated authority against the full administrative record that was before the (agency official) at the time he made his decision. Overton Park, supra,401 U.S. at 420, 91 S.Ct. at 825. But as we recognized in Home Box Office, Inc. v. FCC, supra: 60 (H)ere agency secrecy stands between us and fulfillment of our obligation. As a practical matter, Overton Park's mandate means that the public record must reflect what representations were made to an agency so that relevant information supporting or refuting those representations may be brought to the attention of the reviewing courts by persons participating in agency proceedings. This course is obviously foreclosed if communications are made to the agency in secret and the agency itself does not disclose the information presented.    61 185 U.S.App.D.C. at 187, 567 F.2d at 54. 62 The agency's secrecy as to Ex parte communications is particularly troublesome in this case. For what we do know about the course of the agency's decisionmaking suggests that these communications were vital to the agency decision. This necessarily calls into question whether the justifications put forth by the agency in its decision were in fact its motivating force. As we noted in Home Box Office: 63 (W)here, as here, an agency justifies its actions by reference only to information in the public file while failing to disclose the substance of other relevant information that has been presented to it, a reviewing court cannot presume that the agency has acted properly, Citizens to Preserve Overton Park, Inc. v. Volpe, supra, 401 U.S. at 415, 419-420 (91 S.Ct. 814); See K. Davis, Administrative Law of the Seventies § 11.00 at 317 (1976), but must treat the agency's justifications as a fictional account of the actual decisionmaking process and must perforce find its actions arbitrary. See Rupert v. Washington, 366 F.Supp. 686, 690 (D.D.C.1973), Aff'd by order, (177 U.S.App.D.C. 270, 543 F.2d 417) D.C. Cir. No. 73-1985 (Oct. 26, 1976). 64 185 U.S.App.D.C. at 187-188, 567 F.2d at 54-55. 65 To be sure, while we do not know the precise content of the agency communications or what was revealed of them to the Commission by its staff, we have some idea of the substance of the communications from the memorandum excerpted in the joint appendix. This memorandum, however, hardly provides a substitute sufficient to allow for the searching and careful judicial inquiry required by Overton Park. Moreover, even if the detailed contents of the Ex parte contacts were revealed by the agency on judicial review, we would still be deprived of the benefit of an adversarial discussion among the parties. Our cases, discussed earlier with respect to blind references, make clear the critical role of adversarial comment in ensuring proper functioning of agency decisionmaking and effective judicial review. Such comment serves not only to clarify the issues and positions being considered at the agency level, but also to ensure that factual questions underlying the agency's decision are not raised, by necessity, for the first time on judicial review. And adversarial comment is particularly critical where, as here, Ex parte communications are made by a party interested in securing the Commission approval necessary for the legality of its contracts; clearly, the potential for bias in Euro-Pacific's presentation is as great as that posed in rulemaking proceedings which resolve conflicting private claims to a valuable privilege, Sangamon Valley Television Corp. v. United States, supra, 106 U.S.App.D.C. at 33, 269 F.2d at 224, and is indeed greater than in those cases where we have reversed agencies for failure to disclose internal studies. See Home Box Office, Inc. v. FCC, supra, 185 U.S.App.D.C. at 188, 567 F.2d at 55.
66 The statutory requirement of a hearing in Section 15 proceedings as well as the governing standards for judicial review make clear that Ex parte contacts should not have been allowed in these proceedings. 63 It is the obligation of the agency, consistent with its duty to afford a hearing and its responsibility to provide a record for judicial review, to guard against such contacts. And where they do unforeseeably occur, the agency must, as is the case with blind references, at least disclose the substance of these comments publicly and afford an opportunity for public response. Fairness requires no less.