How a battle over the independence of administrative law judges is tying HUD in knots.
Jeremiah Mahoney and Alexander Fernández are the only two administrative law judges at the Department of Housing and Urban Development. Their job is to rule on housing matters involving the people and entities HUD regulates. But at the same time, the judges also are involved in lawsuits of their own against the agency, raising questions about possible conflicts of interest and the structural flaws of this type of justice system.
Last year, Fernández filed two complaints against HUD in federal court, and Mahoney filed a separate one of his own. The judges allege that David Anderson, director of the department's Office of Hearings and Appeals, improperly decided which cases the judges should preside over and interfered with their dockets. Court documents, internal memos and emails show that the lawsuits have led to a bitter face-off over questions of judicial independence and fairness for the people HUD rules on. The impasse has brought cases to a crawl.
Mahoney and Fernández say that given their own legal battles with HUD, they have an ethical duty to offer to disqualify themselves from cases involving the department. Anderson objects, and the department says it simply can't afford to find other agencies to decide its cases. The dispute puts the spotlight on whether sufficient safeguards are in place to ensure that the ALJ system-which processes thousands of cases every year across government-can assure people of fair and timely trials.
A small, minority-owned West Philadelphia developer is one of the parties caught in the middle of HUD's legal wrangling. The department sued the developer in January, charging he had not properly submitted auditing records related to a low-income housing project. The case, originally assigned to Mahoney, took an erratic course. The judge issued a notice disqualifying himself from deciding it. Then the Office of Hearings and Appeals contracted the case out to the Environmental Protection Agency.
But in April, HUD-seeking to trim costs amid the threat of budget cuts-abruptly issued a stop-work order on the judicial outsourcing. The case was sent back to Mahoney, who promptly issued another notice disqualifying himself.
As the two sides argued back-and-forth, the case was orphaned. "There is no judge to hear and decide our motions," Harold Berk, the then-attorney for the developer in the case, said three months after it was filed. "It's like being in a twilight zone." Berk even wrote to President Obama about the situation, complaining that the "tragicomedy" had deprived his client of his Fifth Amendment right to due process of law, calling the situation "a bureaucratic disgrace and waste of taxpayers' dollars." The case was sent back to HUD a third time and Berk threatened to sue the department for deprivation of his client's due process rights. Finally, HUD agreed to allow the case be heard by a judge outside the department.
Oversight and Influence
Federal administrative law judges preside over disputes involving parties affected by agency decisions. They take on cases that would otherwise cause docket congestion and cost more time and money if passed through federal district courts. They can mete out penalties against those who violate federal regulations and decide if requests for government benefits-such as Social Security disability payments-should be granted or denied. Their decisions could involve millions of dollars.
At HUD, administrative law judges can decide whether landlords have unlawfully discriminated against tenants, and whether developers who have received grants to provide affordable housing have misused funds. They also resolve disputes involving loan companies that grant government-backed mortgages-a politically explosive issue after the recent housing crash.
The 1946 Administrative Procedure Act protects ALJs from improper influence on their decisions. Administrative law judges can't receive performance evaluations from the agency under which they conduct hearings. They don't receive bonuses based on their performance. They can't be disciplined or fired except through an independent hearing conducted by the Merit System Protections Board. As a practical matter, this usually means they have appointments for life.
ALJs are usually managed by a chief judge in their agency, who also hears cases and is shielded by the same protections. But HUD's Office of Hearings and Appeals is supervised by Anderson, who is a member of the Senior Executive Service, not an administrative law judge. SES members do receive performance appraisals from their agencies and are eligible for bonuses and other awards.
Anderson says this kind of administrative structure was in operation at other agencies, including the Interior Department, for years before it was instituted at HUD in 2007. ALJs say it fosters mistrust.
"When administrative law judges work in an office directed by a non-administrative law judge, there are countless ways the agency can supervise the judge without directly telling him or her how to decide a particular case," says Thomas Heinz, a former administrative law judge who left HUD weeks after Anderson took office in the newly created Office of Hearings and Appeals. The three other ALJs at HUD at the time also left within a year. Directors of ALJ operations can reward or punish judges through "case assignments, allocation of office space, support staff, continuing legal education opportunities-the list could go on and on," Heinz says.
Goldilocks Dilemma In their lawsuits, Mahoney and Fernández charge that Anderson made deliberate choices about which cases each judge should preside over.
According to court documents, Fernández said he was told he wasn't "sophisticated" enough to adjudicate civil money penalty cases of alleged violations of housing-related laws, because they involve the recovery of money for the general treasury. He also said he was taken off cases involving Native American housing because he was told he lacked "sensitivity to political considerations faced by the [HUD] secretary."
In an affidavit for an internal investigation, Anderson responded that he "assigned a greater number of complex and politically sensitive cases" to Mahoney because he had more experience. Mahoney was a longtime military judge before serving at HUD.
HUD's administrative law judges allege Anderson dismissed their concerns that the office had provided the Justice Department notice of fair housing cases that were going to be tried in court before respondents knew of the cases. In his affidavit, Anderson said his actions didn't require the consent of a judge.
Anderson added in the affidavit, "I am extremely sensitive to, and knowledgeable of, the need for a separation of management from the adjudicatory process." He declined to comment further on issues pertaining to pending litigation.
Mahoney and Fernández say that their lawsuits have put them in a position where their fairness as judges could be called into question. "People should be able to believe that an administrative law judge will make a decision that is independent of political influence or budgetary constraints within the agency, regardless of the dollar values involved in a case," said Mahoney. "Once that faith is gone, so is the credibility of an agency."
The judges say they were required to disclose the reasons why they were suing HUD and to issue notices disqualifying themselves from hearing cases, while allowing parties to decide to waive the disqualification if they chose. In the absence of an officially mandated judicial code of ethics for federal administrative law judges, they found guidance in the code of conduct for federal judges, which requires judges to disqualify themselves if they could appear biased.
Attorneys involved in cases against HUD expressed unease about having their cases heard by the ALJs at the department. A "Goldilocks dilemma" would arise if Judge Fernández had to conduct proceedings, Lisa Tunick, an attorney representing a realty management company sued by HUD, argued in a court document.
If the judge ruled in favor of the agency and imposed a large penalty on her client, "he would be characterized as being 'too hard' based on a desire to curry favor with the department in an attempt to resolve his dispute with it," Tunick wrote. "If, on the other hand, Judge Fernández only called for a modest or zero penalty, he would be characterized as being 'too soft.'
"Judge Fernández could never reach a result in a case that's 'just right,' " she added.
Appearance Issue But ideal justice comes with a price tag. As the judges disqualified themselves from dozens of hearings, HUD was billed $165,620 for cases sent out to EPA during the last two fiscal years, according to figures provided by the department in May. That's a little more than the annual salaries paid to each of its judges, the maximum in their pay scale and locality.
The judges say they want to hear as many cases as possible. But as they disqualified themselves from cases, HUD's dockets thinned out. While the judges handled more than 200 cases last fiscal year, with nearly three quarters of this fiscal year completed, only 30 cases had been filed for the ALJs to act on.
HUD officials say they can't just outsource the caseload to agencies like EPA. "HUD, like every other agency, is currently facing budget cuts that force us to make tough decisions," says Jereon Brown, an agency spokesman. The office terminated its agreement with EPA at the end of March and moved to prevent a further flight of cases from its dockets.
An appearance of bias simply isn't valid grounds for a judge to disqualify himself from a case, Anderson wrote in a memo to Mahoney and Fernández in March. He noted that HUD's Office of General Counsel-which defends the department in cases heard by ALJs-said judges had to prove "actual bias or partiality" and not just "an appearance or possibility" of it to be disqualified from a case. If judges applied the appearance standard, "they would be forced to recuse themselves in every case, as they are employed by the agency whose actions they review," the general counsel said.
The Office of Government Ethics concurred with Anderson in an opinion issued in April, saying an "agency designee" can authorize a judge's participation in a case after deciding that "the interest of the government in the employee's participation outweighs the concern that a reasonable person may question the integrity of the agency's programs and operations." The agency designee also can overrule a judge's own determination of an appearance problem, OGE added.
This is a clear signal, says Mahoney, that "administrative law judges are agency employees, first and foremost," rather than independent judges. The judges complied with Anderson's instructions, but attached his memo in notices to parties in cases they were assigned to and explained why they had sued HUD.
In May, Anderson issued another memo to the judges, calling on them to stop disclosing the reasons they were suing HUD. He said they had violated his instructions by opening up avenues for parties in proceedings to comment on their ability to rule fairly in cases.
"Further actions contravening or evading the instructions previously received and contained herein harm the public purse and the public interest by delaying adjudication and burdening HUD with the costs of contracting for ALJ services with another agency," wrote Anderson.
Failure to comply with his order, Anderson warned Mahoney and Fernández, could "give rise to the commencement of an adverse personnel action against you."
After Fernández received the memo, he abruptly canceled a previously scheduled May hearing in which Anderson and the parties in a particular case were scheduled to testify on whether he should be disqualified.
In a court filing, the attorney for a party sued by HUD wrote that the agency had adopted "the most narrow point of view in defining conflict of interest" and had made "a direct threat to the judge to force him to make the determination that HUD sought."
In June, Fernández reversed course, deciding to suspend all proceedings in the case until the HUD secretary's office decided whether the judges should be disqualified. In a final twist, Anderson told his staff that he would retire as of Aug. 3, according to sources. The agency would not confirm his move. "Retirement for me is a very personal decision whose reasons will remain confidential," Anderson said in an email.
Dawn Lim, a journalist in New York, is a former intern for Government Executive.
Standards & Practices
"Problems like those at HUD arise when agency desires and adjudication considerations conflict," says Peter Davenport, chief administrative law judge at the Agriculture Department and past president of the Federal Administrative Law Judges Conference.
ALJs need a code of professional conduct to clarify ethical standards, he argues.
Although the Merit Systems Protection Board has applied the code of ethics of the American Bar Association to evaluate administrative law judges, the Office of Personnel Management has not given that approach its official stamp of approval.
"OPM believes that the standards of ethical conduct for employees of the executive branch, which apply to ALJs as federal employees, and agencies' existing authority to supervise ALJs and pursue actions against them in appropriate circumstances are sufficient to ensure that ALJs are held to a high standard of conduct," said a spokesperson.
Attempts to deal with ethical issues by removing administrative law judges from the payroll of individual agencies and placing them under the control of an independent entity also have stalled on Capitol Hill. One concern is that such an approach would open the judges to interference from lawmakers who would control their purse strings. Another is that it "would create a whole new bureaucracy," says HUD ALJ Jeremiah Mahoney.
A less ambitious bill that would keep administrative law judges under separate agencies but create an organization of judges that would oversee hiring and mediate conflicts also has failed to gain support.