On certification to the Office of Administrative Law.
For affirmance in part and reversal in part -- Chief Justice Wilentz and Justices Pashman, Clifford, Schreiber, Handler and Pollock. Opposed -- None. The opinion of the Court was delivered by Handler, J.
This case raises important questions concerning the relationship between State administrative agencies and the Office of Administrative Law (OAL) in the conduct and adjudication of contested cases. These questions are raised in the context of a challenge to a number of rules promulgated by the OAL to govern the manner in which administrative hearings are conducted.
The Office of Administrative Law adopted these regulations pursuant to its statutory authority to promulgate rules "to regulate the conduct of contested cases and the rendering of administrative adjudications." N.J.S.A. 52:14F-5(e). See also
N.J.S.A. 52:14F-5(f). On August 20, 1980, appellant Burlington Environmental Management Services, Inc. filed the present action, challenging the validity of approximately twenty different provisions in the rules on grounds that they are either ultra vires or impermissibly vague.*fn1 We directly certified the case. 87 N.J. 370 (1981).
Since the filing of this action, several of the challenged rules have been modified in a manner that addresses appellant's concerns, thereby obviating the need for further review.*fn2 The rules still subject to review include: N.J.A.C. 1:1-1.5 (The nature of a contested case); -1.6 (The characteristics of contested cases); -1.7 (The characteristics of matters which are not contested cases); -3.2(c) (Expedition . . . special time requirements);
-3.5 (Sanctions); -9.6 (Motions for emergency relief); -9.7 (Orders on motion; review by agency head; when permitted; when not permitted); -11.6 (Sanctions for discovery abuses); -12.6 (Participation; standards for participation; no agency review); -13.1 to -13.4 (Summary decision); and -16.4 (Exceptions).
The Attorney General declined to provide representation for the OAL in this case but was granted leave to appear as amicus curiae. The Attorney General opposes only those rules limiting agency review of ALJ procedural rulings, N.J.A.C. 1:1-9.7(e) and (f).
In addressing appellant's broad attack on these rules, we must first consider the guidelines appropriate for determining the validity of rules promulgated by the OAL. This analysis entails an examination of the general responsibilities of administrative agencies in administrative regulation, the use of administrative adjudications to accomplish regulatory aims, and the statutory authority of the OAL in conducting administrative hearings in contested cases. We must then consider the application of these guidelines to the particular rules that are the subject of this appeal. We will direct our attention initially to the rules most sharply attacked by both the appellant and the Attorney General, namely, N.J.A.C. 1:1-9.7(e) and (f), which bar agency review of all ALJ orders classified as "procedural." We will then deal with the validity of the remaining rules challenged by appellant.
Our first task is to identify and define the relevant principles to be applied in determining the validity of rules promulgated by the OAL. These principles emerge from an understanding of the purpose and background of the legislation that established this unique government office.
Prior to 1978, most contested cases before State agencies were initially heard by hearing examiners, many of whom were employees of the very agencies responsible for deciding the
controversies. The use of agency employees to conduct hearings and determine the evidential record in contested cases involving claims against the agency fostered an institutional bias in favor of the agency that undermined the fairness and impartiality of administrative adjudications. See N.J. Civil Service Ass'n v. State of New Jersey, 88 N.J. 605, 609 (1982); Unemployed-Employed Council of N.J. v. Horn, 85 N.J. 646, 650 (1981); Mazza v. Cavicchia, 15 N.J. 498, 536 (1954) (Jacobs, J., dissenting).
In response to these problems, the Legislature created the Office of Administrative Law by amending the Administrative Procedure Act in 1978. N.J.S.A. 52:14F-1 et seq. The signal improvement made by this change has been the replacement of former agency examiners with a corps of independent hearing officers known as "administrative law judges" (ALJs). N.J.S.A. 52:14F-3, -4, -5. Administrative law judges now conduct the hearings and recommend the factual findings and determinations necessary for the agency head to decide contested cases.
The primary reason for establishing the Office of Administrative Law was "to bring impartiality and objectivity to agency hearings and ultimately to achieve higher levels of fairness in administrative adjudications." Horn, 85 N.J. at 650, quoted in N.J. Civil Service, 88 N.J. at 609. Through the OAL, the Legislature intended to provide "a new system of administrative adjudication, promoting justice through uniformity and independence." Hayes v. Gulli, 175 N.J. Super. 294, 299 (Ch.Div.1980). See Horn, 85 N.J. at 649-50; City of Hackensack v. Winner, 82 N.J. 1, 36-37 (1980); In re Orange Savings Bank, 172 N.J. Super. 275, 280 (App.Div.1980), appeal dismissed, 84 N.J. 433 (1980). See generally State Government, Federal and Interstate Relations and Veteran Affairs Committee Statement to Senate No.-766- L. 1978, c. 67; Sponsors' Statement to Senate No. 766 (Senators Yates and Weiss); Press Release from the Governor's Office (July 6, 1978). See also Kestin, "Reform of the Administrative Process," 92 N.J.L.yer 35 (1980); Aronsohn, "Unique Remedy for Traditional Problems," 92 N.J.L.yer 38 (1980). Thus, the legislative goal in creating this new governmental
office was to promote uniformity, efficiency, consistency, fairness, competence, and, most importantly, independence in the conduct of administrative hearings before State agencies.
While the Legislature established the OAL to improve the overall quality of administrative adjudication, it never intended to alter the basic regulatory authority of the various State agencies. Administrative adjudication continues to be the agency's responsibility, although it is still usually effectuated through a bifurcated process in which the hearing and decisional phases are handled separately. See Horn, 85 N.J. at 650, 655. Having replaced the former hearing examiners, administrative law judges now perform the functions previously assumed by such examiners in administrative adjudications. Hence, the ALJ primarily conducts hearings only in contested cases. N.J.S.A. 52:14F-6. See Committee Statement, supra (ALJs have "the sole function of conducting administrative hearings"). The agency head retains the exclusive right to decide these cases. The Administrative Procedure Act gives the agency head the power to "adopt, reject or modify the recommended report and decision [of the administrative law judge]."*fn3 N.J.S.A. 52:14B-10(c). The sponsors of the OAL Act emphasized that: "As under existing law, . . . the head of an agency will himself exercise the ultimate options of adopting, rejecting or modifying" the recommendation of an administrative law judge. Sponsors' Statement, supra. Moreover, the OAL Act specifically provides that: "Nothing in this amendatory and supplementary act shall be construed to deprive the head of any agency of the authority to determine whether a case is contested or to adopt, reject or modify the findings of fact and conclusions of law of any administrative law judge." N.J.S.A. 52:14F-7.
The reservation of decisional authority in administrative agencies was purposeful on the Legislature's part. Its significance is
related to the fact that administrative adjudication is an integral aspect of agency regulation generally. Administrative agencies are empowered to effectuate their regulatory responsibilities through either rulemaking or adjudication. See Texter v. Department of Human Services, 88 N.J. 376, 383-85 (1982); Bally Mfg. Corp. v. N.J. Casino Control Comm'n, 85 N.J. 325, 335-41 (1981) (Handler, J., concurring). See generally Shapiro, "The Choice of Rulemaking or Adjudication in the Development of Administrative Policy," 78 Harv.L.Rev. 921, 923 (1965). Administrative agencies necessarily possess great flexibility and discretion in selecting the form of proceeding best suited to achieving their regulatory aims. Texter, 88 N.J. at 383; Bally, 85 N.J. at 338-39. As the Supreme Court has explained:
The function of filling in the interstices of [an enabling act] should be performed, as much as possible, through th[e] quasi-legislative promulgation of rules to be applied in the future. But any rigid requirement to that effect would make the administrative process inflexible and incapable of dealing with many of the specialized problems which arise. * * * Not every principle essential to the effective administration of a statute can or should be cast immediately into the mold of a general rule. Some principles must await their own development, while others must be adjusted to meet particular, unforeseeable situations. In performing its important functions in these respects, therefore, an administrative agency must be equipped to act either by general rule or by individual order. [ Securities and Exchange Comm'n v. Chenery Corp., 332 U.S. 194, 201-202, 67 S. Ct. 1575, 1580, 91 L. Ed. 1995, 2002 (1947)]
See also American Airlines, Inc. v. Civil Aeronautics Board, 359 F.2d 624, 630 n.16 (D.C.Cir.1966) (Leventhal, J.).
The regulatory power exercised by administrative agencies has legislative and executive as well as judicial attributes. When it takes the form of adjudication in contested cases, it is characterized as "quasi-judicial." See, e.g., Morgan v. United States (Morgan II), 304 U.S. 1, 22, 58 S. Ct. 773, 778, 82 L. Ed. 2d 1129, 1134 (1937); Mazza, 15 N.J. at 524. See also 2 Davis, Administrative Law § 10:5 at 322-23 (2d ed. 1979); 1 Davis, Administrative Law, § 2.4 at 70-72, § 2.5 at 72-75 (2d ed. 1978). However, administrative agencies are not judicial tribunals. An agency, even in its adjudicatory ...