509 U.S. 137 (1993), 91-2045, Darby v. Cisneros

Docket Nº:No. 91-2045
Citation:509 U.S. 137, 113 S.Ct. 2539, 125 L.Ed.2d 113, 61 U.S.L.W. 4679
Party Name:DARBY et al. v. CISNEROS, SECRETARY OF HOUSING AND URBAN DEVELOPMENT, et al.
Case Date:June 21, 1993
Court:United States Supreme Court
 
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Page 137

509 U.S. 137 (1993)

113 S.Ct. 2539, 125 L.Ed.2d 113, 61 U.S.L.W. 4679

DARBY et al.

v.

CISNEROS, SECRETARY OF HOUSING AND URBAN DEVELOPMENT, et al.

No. 91-2045

United States Supreme Court

June 21, 1993

Argued March 22

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Syllabus

In a consolidated appeal from decisions by the Department of Housing and Urban Development (HUD) to initiate administrative sanctions against petitioners, an Administrative Law Judge (ALJ) concluded that petitioners should be debarred from participating in federal programs for 18 months. Under HUD regulations, an ALJ's determination be final unless. . .the Secretary. . .within 30 days of receipt of a request decides as a matter of discretion to review the [ALJ's] finding. . . ." 24 CFR § 24.314(c). Neither party sought further administrative review, but petitioners filed suit in the District Court, seeking an injunction and declaration that the sanctions were not in accordance with law within the meaning of the Administrative Procedure Act (APA). Respondents moved to dismiss the complaint on the ground that petitioners, by forgoing the option to seek review by the Secretary, had failed to exhaust their administrative remedies. The court denied the motion and granted summary judgment to petitioners on the merits of the case. The Court of Appeals reversed, holding that the District Court had erred in denying the motion to dismiss.

Held:

Federal courts do not have the authority to require a plaintiff to exhaust available administrative remedies before seeking judicial review under the APA, where neither the relevant statute nor agency rules specifically mandate exhaustion as a prerequisite to judicial review. The language of § 10(c) of the APA is explicit that an appeal to "superior agency authority" is a prerequisite to judicial review only when "expressly required by statute" or when the agency requires an appeal "by rule and provides that the [administrative] action is . . . inoperative" pending that review. Since neither the National Housing Act nor applicable HUD regulations mandate further administrative appeals, the ALJ's decision was a "final" agency action subject to judicial review under § 10(c). The lower courts were not free to require further exhaustion of administrative remedies, although the exhaustion doctrine continues to apply as a matter of judicial discretion in cases not governed

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by the APA. Nothing in § 10(c)'s legislative history supports a contrary reading. Pp. 143-154.

957 F.2d 145, reversed and remanded.

Blackmun, J., delivered the opinion for a unanimous Court with respect to Parts I, II, and IV, and the opinion of the Court with respect to Part III, in which White, Stevens, O'Connor, Kennedy, and Souter, JJ., joined.

Steven D. Gordon argued the cause for petitioners. With him on the briefs was Michael H. Ditton.

James A. Feldman argued the cause for respondents. With him on the brief were Acting Solicitor General Bryson, Assistant Attorney General Gerson, Deputy Solicitor General Mahoney, and Anthony J. Steinmeyer.

Justice Blackmun delivered the opinion of the Court.[*]

This case presents the question whether federal courts have the authority to require that a plaintiff exhaust available administrative remedies before seeking judicial review under the Administrative Procedure Act (APA), 5 U.S.C. § 701 et seq., where neither the statute nor agency rules specifically mandate exhaustion as a prerequisite to judicial review. At issue is the relationship between the judicially created doctrine of exhaustion of administrative remedies and the statutory requirements of § 10(c) of the APA.[1]

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I

Petitioner R. Gordon Darby[2 ] is a self-employed South Carolina real estate developer who specializes in the development and management of multifamily rental projects. In the early 1980's, he began working with Lonnie Garvin, Jr., a mortgage banker, who had developed a plan to enable multifamily developers to obtain single-family mortgage insurance from respondent Department of Housing and Urban Development (HUD). Respondent Secretary of HUD (Secretary) is authorized to provide single-family mortgage insurance under § 203(b) of the National Housing Act, 48 Stat. 1249, as amended, 12 U.S.C. § 1709(b).[3] Although HUD also provides mortgage insurance for multifamily projects under § 207 of the National Housing Act, 12 U.S.C. § 1713, the greater degree of oversight and control over such projects makes it less attractive for investors than the single-family mortgage insurance option.

The principal advantage of Garvin's plan was that it promised to avoid HUD's "Rule of Seven." This rule prevented rental properties from receiving single-family mortgage insurance if the mortgagor already had financial interests in seven or more similar rental properties in the same project

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or subdivision. See 24 CFR § 203.42(a) (1992).[4] Under Garvin's plan, a person seeking financing would use straw purchasers as mortgage insurance applicants. Once the loans were closed, the straw purchasers would transfer title back to the development company. Because no single purchaser at the time of purchase would own more than seven rental properties within the same project, the Rule of Seven appeared not to be violated. HUD employees in South Carolina apparently assured Garvin that his plan was lawful and that he thereby would avoid the limitation of the Rule of Seven.

Darby obtained financing for three separate multiunit projects, and, through Garvin's plan, Darby obtained single-family mortgage insurance from HUD. Although Darby successfully rented the units, a combination of low rents, falling interest rates, and a generally depressed rental market forced him into default in 1988. HUD became responsible for the payment of over $6.6 million in insurance claims.

HUD had become suspicious of Garvin's financing plan as far back as 1983. In 1986, HUD initiated an audit but concluded that neither Darby nor Garvin had done anything wrong or misled HUD personnel. Nevertheless, in June 1989, HUD issued a limited denial of participation (LDP) that prohibited petitioners for one year from participating in any program in South Carolina administered by respondent Assistant Secretary of Housing.[5] Two months later, the Assistant Secretary notified petitioners that HUD was also proposing to debar them from further participation in all HUD

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procurement contracts and in any nonprocurement transaction with any federal agency. See 24 CFR § 24.200 (1992).

Petitioners' appeals of the LDP and of the proposed debarment were consolidated, and an Administrative Law Judge (ALJ) conducted a hearing on the consolidated appeals in December 1989. The judge issued an "Initial Decision and Order" in April 1990, finding that the financing method used by petitioners was "a sham which improperly circumvented the Rule of Seven." App. to Pet. for Cert. 69a. The ALJ concluded, however, that most of the relevant facts had been disclosed to local HUD employees, that petitioners lacked criminal intent, and that Darby himself "genuinely cooperated with HUD to try [to] work out his financial dilemma and avoid foreclosure." Id., at 88a. In light of these mitigating factors, the ALJ concluded that an indefinite debarment would be punitive and that it would serve no legitimate purpose;[6] good cause existed, however, to debar petitioners for a period of 18 months.[7] Id., at 90a.

Under HUD regulations,

"The hearing officer's determination shall be final unless, pursuant to 24 CFR part 26, the Secretary or the Secretary's designee, within 30 days of receipt of a request decides as a matter of discretion to review the finding of the hearing officer. The 30 day period for deciding whether to review a determination may be extended upon written notice of such extension by the Secretary or his designee. Any party may request such a review in writing within 15 days of receipt of the hearing officer's determination." 24 CFR § 24.314(c) (1992).

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Neither petitioners nor respondents sought further administrative review of the ALJ's "Initial Decision and Order."

On May 31, 1990, petitioners filed suit in the United States District Court for the District of South Carolina. They sought an injunction and a declaration that the administrative sanctions were imposed for purposes of punishment, in violation of HUD's own debarment regulations, and therefore were "not in accordance with law" within the meaning of § 10(e)(B)(1) of the APA, 5 U.S.C. § 706(2)(A).

Respondents moved to dismiss the complaint on the ground that petitioners, by forgoing the option to seek review by the Secretary, had failed to exhaust administrative remedies. The District Court denied respondents' motion to dismiss, reasoning that the administrative remedy was inadequate and that resort to that remedy would have been futile. App. to Pet. for Cert. 29a. In a subsequent opinion, the District Court granted petitioners' motion for summary judgment, concluding that the "imposition of debarment in this case encroached too heavily on the punitive side of the line, and for those reasons was an abuse of discretion and not in accordance with the law." Id., at 19a.

The Court of Appeals for the Fourth Circuit reversed. Darby v. Kemp, 957 F.2d 145 (1992). It recognized that neither the National Housing Act nor HUD regulations expressly mandate exhaustion of administrative remedies prior to filing suit. The court concluded, however, that the District Court had erred in denying respondents' motion to dismiss, because there was no evidence to suggest that further review would have been futile or that the Secretary would have abused his discretion by indefinitely extending the time limitations for review.

The court denied petitioners' petition for rehearing with suggestion for rehearing en banc. See...

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