May 20, 1994
The Honorable Harlan E. Boyles Chairman State Banking Commission Albemarle Building 325 North Salisbury Street Raleigh, North Carolina
Re: Advisory Opinion – Ex Parte Communications under the Administrative Procedure Act
Dear Mr. Boyles:
We reply to your request for our opinion regarding ex parte communications between the Commissioner of Banks (Commissioner) and the State Banking Commission (Commission) concerning a contested case pending before the Commission upon an appeal from a decision of the Commissioner. We apologize for the delay in responding, but because of unfortunate events and the complexity of the issues, the delay was unavoidable.
The issues that you have presented are as follows:
- (1)
- Whether ex parte communications, including matters of fact, by the Commissioner to members of the Commission relating to a contested case pending before the Commission upon an appeal from a decision of the Commissioner is prohibited by G.S. 150B-40?
- (2)
- Whether such communications violate the Commission’s Hearing Rules set out in 4 NCAC 2B .0200 et seq.?
- (3)
- If such communications are prohibited by statute or rule, what sanctions may be imposed for violating the prohibition?
The Administrative Procedure Act
Article 3A of the Administrative Procedure Act (APA), Chapter 150B of the General Statutes, is made applicable to hearings before the Commission by G.S. 150B-38(a)(2). Unless the Commission elects to refer a matter to an administrative law judge, G.S. 150B-40(b) requires a majority of the Commission to hear the matter, and subsection (d) prohibits certain ex parte communications. More specifically, the statute provides that:
Unless required for disposition of an ex parte matter authorized by law, a member of an agency assigned to make a decision or to make findings of fact and conclusions of law in a contested case under [Article 3A] shall not communicate, directly or indirectly, in connection with any issue of fact or question of law, with any person or party or his representative, except on notice and opportunity for all parties to participate. This prohibition begins at the time of the notice of hearing. An agency member may communicate with other members of the agency and may have the aid and advice of the agency staff other than the staff which has been or is engaged in investigating or prosecuting functions in connection with the case under consideration or a factually-related case. This section does not apply to an agency employee or party representative with professional training in accounting, actuarial science, economics or financial analysis insofar as the case involves financial practices or conditions. [Emphasis added.]
This general statutory prohibition applies to members of the Commission in contested case matters and begins upon notice of the hearing. While the Commissioner is not, strictly speaking, a party to the proceedings and may technically not have been involved in investigating or prosecuting the matter, it is his determinations of fact and of law, under the issue presented, which are on appeal to the Commission.
It is clear that the General Assembly, in enacting G.S. 150B-40(d), intended that agencyconducted administrative hearings should conform to due process requirements of fairness. This subject was succinctly addressed by a majority of the North Carolina Supreme Court in Crump v. Board of Education, 326 N.C. 603, 392 S.E.2d 579 (1990). There, in finding that the plaintiff was deprived of due process when one or more members of a school board which conducted an administrative hearing involving charges against the plaintiff were biased against the plaintiff prior to the hearing, the Court said:
[W]henever a government tribunal, be it a court of law or a school board, considers a case in which it may deprive a person of life, liberty or property, it is fundamental to the concept of due process that the deliberative body give that person’s case fair and open-minded consideration. ‘A fair tribunal is a basic requirement of due process.’ Id., page 613 (citing and quoting In re Murchison, 349 U.S. 133 (1955))…. ‘[I]f the administration of public affairs by administrative tribunals is to find a place within the present framework of our government it is essential that it proceed, on what may be termed its judicial side, without too violent a departure from what many generations of English-speaking people have come to regard as essential to fair play. One of these essentials is the resolution of contested questions by an impartial tribunal.’ Id., page 619, quoting Berkshire Employees Association, Etc. v. National Labor Relations Board, 121 F.2d 235 at 238-39 (3d Cir. 1941)… ‘[A] fair trial by an unbiased and non-partisan trier of the facts is the essence of the adjudicatory process as well when the judging is done in an administrative proceeding by an administrative functionary as when it is done in a court by a judge. Indeed, if there is any difference, the rigidity of the requirement that the trier be impartial and unconcerned in the result applies more strictly to an administrative adjudication where many of the safeguards which have been thrown around court proceedings have, in the interest of expedition and a supposed administrative efficiency, been relaxed.’ Id., page 622, quoting National Labor Relations Board v. Phelps, 136 F.2d 562, 563 (5th Cir. 1943).
Thus, the General Assembly, through legislation appearing in G. S. Chapter 150B, has sought to prevent bias in administrative hearings, while the Supreme Court, in Crump, has determined that a deprivation of due process by a biased tribunal can result in a compensable injury under 42
U.S.C 1983, and has affirmed a monetary award against the defendant school board. Id., pages 623-25.
Contested matters before the Commission are generally adversary in nature. It is, therefore, axiomatic that the Commission should hear matters on appeal from decisions of the Commissioner only (i) after notice and opportunity for all parties to be present, (ii) upon a complete record, and (iii) without any prior consideration or preconceived determination of the matter. Given the concern of both the legislative and judicial branches that administrative hearings be fair and impartial, it is our opinion that ex parte communications between the Commissioner, concerning an issue which he has decided, and the Commission, which is to review that decision on appeal, can raise substantial questions concerning the impartiality of the Commission with regard to its proceedings and decisions. These questions, in turn, can lead to legal challenges to the Commission’s decisions on the grounds of bias, which could result in those decisions being set aside by the courts and, possibly, in the award of monetary damages against the Commission.
It is our view, therefore, based on the foregoing, that both statutory and case law mandate against ex parte communications between the Commissioner and any member(s) of the Commission with regard to the appeal of any act or decision of the Commissioner. It is our opinion that when an act or decision of the Commissioner is appealed by the aggrieved party to the Commission for review and the final agency decision, the Commissioner and members of the Commission should refrain from discussing matters of fact or matters of law regarding the matter appealed. The Commissioner should also refrain from distributing – and the Commissioners refrain from receiving – any information on the matter except the record on appeal and any legal briefs or memoranda submitted the parties, information relating to the time and place of the hearing, and similar factual information not touching on the merits of the case.
Members of the Commission may, of course, consult with members of the staff that have not been involved in the investigation or prosecution of the matter on appeal or a factually related case. Commission members may also communicate in matters involving financial practices and conditions with agency staff or with a party representative having professional training in accounting, actuarial science, economics, and financial analysis.
State Banking Commission Hearing Rules
The next issue deals with whether ex parte communications of the type discussed above violate the Commission’s administrative rules dealing with the conduct of an administrative hearing. Those rules are to be found in Subchapter 3B of Title 4 of the North Carolina Administrative Code, beginning with section .0200. Examination reveals that these rules do not deal with the issue of ex parte communications.
We reiterate what has been referred to in previous opinions – the Commission’s administrative rules are somewhat dated and would likely benefit from a critical examination with a view toward a substantial revision. It is our view that many of the issues relating to administrative hearings before the Commission and the Commissioner can be effectively addressed by revision of the hearing rules. The Commission’s authority to promulgate administrative rules with regard to administrative hearings is set out in G.S. 53-104 and 150B-38(h).
The requisites of the administrative process to promulgate a rule are cumbersome and timeconsuming, as are subsequent proceedings to amend or repeal a rule, at least in part because they effect not only the agency but also those from outside the agency who deal with it. The timeconsuming notice of and conduct of hearings on a proposed rule satisfies due process requirements with regard to such outside parties. There is another process that, in some areas, may be as effective as a rule and much less complicated. Agency polices and procedures may satisfactorily regulate the internal functioning of the agency, although the policies could not be
effective as to persons outside the agency. They require no notice or hearings and can become
effective immediately though, of course, agency personnel should be given an opportunity to
become familiar with the policies before they become effective, since the policies will be binding
as to agency employees.
Policies can be adopted which regulate and provide internal procedures for the conduct of
administrative hearings by the agency. Such policies could specifically address the matter of ex
parte communications, could identify and regulate agency employees who are prohibited from
engaging in such communications, and could designate persons to review and approve any
agency staff communication before it was transmitted to the Commission. The policy could
require any member of the Commission who has received improper communications to withdraw
from the consideration of a matter before the Commission unless he or she could demonstrate, on
the record, that they are not biased thereby. It is our opinion that wilful violation of the
Commission’s policies would be grounds for appropriate disciplinary action against a
Commission employee and would likely constitute sufficient cause for removal of a State
official. Thus, the policy could provide that any such act on the part of any Commission
employee other than the Commissioner would be reported to the Commissioner for appropriate
disciplinary action and that such an act on the part of a Commissioner or Commission member
would be reported to the Governor.
Sanctions
There are no sanctions specifically directed toward violation of the prohibition against ex parte
communications. There are remedies, however, which may be available in certain circumstances.
The presiding officer at an administrative hearing is empowered by G.S. 150B-40(c)(6) to apply
to a judge of the superior court for an order to show cause why any person should not be held in
contempt of the agency and its processes, and the judge may impose punishment as for contempt
for acts which would constitute direct or indirect contempt if the acts occurred in an action
pending in superior court. We believe that knowing and deliberate attempts to have ex parte
communications with a Commissioner concerning a matter pending on appeal before the
Commission would be grounds to seek an order to show cause. Commissioners who engage in ex
parte communications may find their decisions attacked in a Crump-type proceeding and
themselves subject to monetary damages. Finally, wilful efforts on the part of a State official to
engage in prohibited ex parte communications may constitute good cause for removal from
office.
We trust that we have addressed your concerns, but if we may be of further assistance, please let
us know.
Andrew A. Vanore, Jr.
Chief Deputy Attorney General
Ann Reed
Senior Deputy Attorney General