Will the New Era of ADR in Federal Administrative Agencies Occur at the Expense of Public Accountability.doc

Copyright (c) 1997 Ohio State Journal on Dispute ResolutionOhio State Journal on Dispute Resolution199713 Ohio St. J. on Disp. Resol. 167LENGTH: 15224 wordsNote & Comment: The Administrative Dispute Resolution Act of 1996: Will the New Era of ADR in Federal Administrative Agencies Occur at the Expense of Public Accountability?NAME: Jonathan D. MesterSUMMARY:  . The head of any agency that is a party to an arbitration proceeding conducted under this subchapter is authorized to terminate the arbitration proceeding or vacate any award issued pursuant to the proceeding before the award becomes final by serving on all other parties a written notice to that effect, in which case the award shall be null and void. .  TEXT: *167 "No man is good enough to govern another man without that other's consent."-Abraham Lincoln 1I. IntroductionOn October 19, 1996, President Clinton signed into law the Administrative Dispute Resolution Act of 1996. 2 The Act provided for permanent reauthorization of the Administrative Dispute Resolution Act of 1990, 3 which sunset on October 1, 1995 4 pursuant to its original enactment period of six years. 5 Senator Carl Levin, sponsor of the bill, lauded the new Act as a further way for agencies to "listen, find creative solutions and avoid the sometimes unnecessary big bills and bad blood that come with courtroom battles," and to "save both time and money and increase citizen satisfaction with government." 6 Given the tremendous proliferation of federal cases in which the government is a party, reauthorization of the ADR Act is certainly a welcome continuation of ADR in an area in need of more expedient adjudication methods. 7  *168 While maintaining many of the same provisions of the 1990 Act, the new law enacts two major changes designed to further agency use of ADR in suits with private parties. 8 Section 8 permits the use of binding arbitration, removing the thirty-day "opt-out" provision in the 1990 Act, which allowed agencies to unilaterally vacate an arbitration award if the agency found the arbitrator's decision to be disadvantageous to the government. 9 Section 3 broadens the confidentiality of ADR proceedings by exempting any dispute resolution communication between a party and a neutral from the disclosure requirements of the Freedom of Information Act (FOIA). 10 Together, these provisions greatly enhance the incentives for parties involved in agency adjudications to utilize ADR.This Note asserts that although each of the new provisions of the 1996 Act should attain their intended effect of increasing the use of ADR in agency adjudications, this progress is likely to occur at the expense of public accountability. The use of binding arbitration will result in private arbitrators adjudicating public policy issues, a result which, albeit constitutional, 11 raises serious questions regarding the ability of a private arbitrator to properly make such determinations in accord with our nation's basic values. 12 Additionally, the exemption of all ADR communications between the neutral and the parties conflicts with the purpose and intent of FOIA to provide public disclosure of all government documents except as  *169  specifically provided in nine exemptions to FOIA. 13 While these changes will undoubtedly lead to a new era of ADR use in the federal government, this Note posits that the 1996 Act may have gone too far due to its potentially devastating effects on public accountability.Section II of this Note presents a brief overview of past use of ADR in federal agencies, including its use and limitations under the 1990 Act. Section III explores the effect that the binding arbitration provision will have on agency use of ADR and demonstrates that, despite the Act's attempt to exempt public policy issues from the purview of the arbitrator, such issues will inevitably be decided by private neutrals with undesirable results. Section IV focuses on the new FOIA exemption by examining recent FOIA cases which exemplify the willingness of courts to include ADR communications within FOIA's disclosure exemptions, thus rendering the new Act's FOIA exemption superfluous and susceptible to abuse.II. The Use of ADR in Federal Agencies to DateThe use of ADR methods in agency adjudications commenced even before the 1990 Act. Numerous agencies subscribed to the ADR movement of the 1980s by experimenting with ADR programs such as nonbinding arbitration, mediation, mini-trials and negotiated rulemaking. 14 Success stories include the Federal Deposit Insurance Corporation (FDIC), which used ADR techniques to solve disputes regarding creditors, valuation and liability, 15 as well as the Army Corps of Engineers, which used mini-trials to settle various contract claims. 16The 1990 Act resulted in further use of ADR in agency adjudications. Mediation became especially prevalent in the 1990s, particularly in equal employment opportunity claims against the federal government. The use of mediation by the Air Force Civilian Appellate Review Agency resulted in the settlement of more than half of its equal employment opportunity  *170  complaints. 17 The Federal Aviation Administration also implemented mediation for use in equal employment opportunity claims. 18 Nonbinding arbitration was also utilized by several agencies, particularly in environmental disputes 19 and in claims faced by the Army Corps of Engineers. 20 These and other success stories 21 convinced Congress as well as the Bush and Clinton administrations that permanent statutory reauthorization of ADR mechanisms was essential to the ongoing effort to streamline government. 22Despite these achievements, however, there were several perceived shortcomings in the 1990 Act that limited the use of ADR in agency adjudications. The biggest impediment was the nonbinding arbitration clause, which granted agencies thirty days to vacate an arbitrator's decision. This "trap door" provision of the 1990 Act was inserted during the hearing stage in order to allay concerns that the establishment of a binding arbitration award by a private party would raise constitutional issues over the adjudication of public disputes by unelected, unappointed private arbitrators. 23 Under the Bush Administration in 1989, the Department of Justice (DOJ) opined that binding arbitration of agency  *171  disputes potentially violated the Constitution in several ways. 24 First, binding arbitration violated Article II under the Appointment Clause, because arbitrators often are not federal employees, and thus are not authorized to make such policy determinations. Moreover, binding arbitration was thought to violate separation of powers, since the Act in effect permitted Congress to legislate the use of private parties in potentially executive roles. 25 DOJ also found binding arbitration to be contrary to Article III in that adjudicative powers were conveyed to persons outside the judicial branch. Finally, DOJ indicated a potential due process problem because of the higher due process protection generally accorded private parties subject to a federal suit brought by the federal government. 26In 1995, however, DOJ changed its position concerning the constitutionality of binding arbitration of agency disputes. 27 In its revised opinion, the Department reasoned that binding arbitration by private parties is permissible as long as the parties consent, the arbitration agreement sufficiently details the nature of the remedies available to the arbitrator and preserves the review of constitutional issues and an Article III court is accorded review of the arbitrator's findings for fraud, misconduct or misrepresentation. This saving interpretation by DOJ permitted Congress to include binding arbitration as part of the 1996 Act. 28  *172 A second perceived problem with the 1990 Act was the lack of an express FOIA exemption. Under the 1990 Act, ADR communications were not expressly confidential. Instead, a communication was deemed confidential only if it fell within one of the nine disclosure exemptions of FOIA. Among the most notable of these FOIA exemptions are any "inter-agency or intra-agency" communication, 29 and any "trade secrets and commercial or financial information." 30 According to critics of the 1990 Act, the lack of an express exemption from FOIA created a "chilling effect" on the use of ADR in agency adjudications because private parties and agencies alike were reluctant to use ADR for fear of unwanted public disclosure. 31As a result of these shortcomings, the use of ADR has met much resistance and made a limited impact to date on dispute resolution in federal agencies. 32 While the parties have moved beyond the traditional manifest distrust of neutrals, 33 the 1990 Act was largely ineffectual. As a result, many agencies have implemented only cursory ADR programs, and have indicated no intent to implement these programs further. 34 Even the  *173  Department of Justice, whose endorsementof the constitutionality of binding arbitration led in part to the expansion of ADR programs under the new Act, 35 has evinced a reluctance to implement widespread ADR programs by utilizing ADR in only three of its divisions since passage of the 1990 Act. 36The 1996 Act was therefore enacted with far stronger language than its predecessor. The binding arbitration and FOIA exemption provisions are indicative of Congress's desire to overcome this reluctance to use ADR in agency adjudications. 37 Parties to an ADR proceeding may now freely utilize arbitration without fear of an eventual reversal of the decision by the government. 38 Private parties also need no longer fear disclosure of confidential information via the Freedom of Information Act. 39 Certainly, there appears to be little question that these provisions will lead to increased use of ADR. The remaining analysis of this Note addresses these new provisions of the 1996 Act and examines whether their enactment was truly advisable in light of the negative effect on public accountability that is likely to arise.III. The Likely Effects of Binding Arbitration on Agency AdjudicationsA. Despite the Act's Exceptions, Policy Issues Inevitably Will be Resolved by the ArbitratorThe arbitration provision contained in the 1990 Act was unquestionably ineffectual. Section 590(c) of the Act stated:The head of any agency that is a party to an arbitration proceeding conducted under this subchapter is authorized to terminate the arbitration proceeding or vacate any award issued pursuant to the proceeding before the award becomes final by serving on all other parties a written notice to  *174  that effect, in which case the award shall be null and void. 40Thus, if an agency chose to vacate the arbitration award, the case would simply revert back to an administrative proceeding, effectively wiping the record clean between the parties as if the arbitration process had never taken place. The obvious defect in this statute is that it provides a private party with absolutely no incentive to engage in an arbitration proceeding with the federal government. With the government vested with this no-lose scenario of either winning the arbitration or simply vacating the decision if it lost, "why would anyone be foolish enough to want to go through negotiation and go through the expense of a negotiation which would be nothing more than giving the Government a chance to say I don't like the award and forcing you all the way back through an administrative proceeding." 41 The thirty-day opt-out provision was the creation of a compromise between the Department of Justice and the American Bar Association, 42 and was primarily intended to pacify the Justice Department's concern over the constitutionality of binding arbitration. 43 The result of such a one-sided provision was not surprising; there were no cases submitted for arbitration over the course of the 1990 Act. 44The 1996 Act obviates this problem by removing the thirty-day opt-out provision from the Act, thus permitting unfettered binding arbitration to occur in agency disputes. 45 Congress continued to recognize, however, that arbitration should not be implemented in all situations and therefore  *175  maintained many of the 1990 Act's restrictions on the use of arbitration. 46 Perhaps the most important of these restrictions is contained in § 572(b)(2), which bars the use of ADR proceedings in policy-related controversies. Section 572(b)(2) states:An agency shall not consider using a dispute resolution proceeding if- (2) the matter involves or may bear upon significant questions of Government policy that require additional procedures before a final resolution may be made, and such a proceeding would not likely serve to develop a recommended policy for the agency. 47While this provision may seem sufficiently definitive in prohibiting agencies from engaging in arbitration of policy-laden disputes, circumvention of this section is likely to occur for several reasons, including: (1) political pressure to implement arbitration in agency adjudications as a means of "streamlining government" 48 (2) the existence of predispute arbitration clauses that are phrased excessively broadly to include policy matters, and which compel its signatories to participate; 49 (3) the natural tendency of parties to seek arbitration in order to gain reconciliation and finality in their dispute, resulting in unintentional (or perhaps intentional) disregard of public policy issues; 50 and (4) the tremendous difficulty in distinguishing claims involving public policy issues from merely private issues. 51 As a result of these factors, § 572(b)(2) is destined to be often ignored, with the end result being the undesirable intrusion of private arbitrators into matters of public policy.  *176 The first factor that is likely to lead to binding arbitration of disputes containing public policy issues is the inherent political pressure to utilize binding arbitration in agency disputes. As stated above, the arbitration provision in the 1990 Act was never actually used due to the apparent chilling effect that the thirty-day opt-out had on private parties. 52 In order to provide any hope that arbitration would ever be conducted in agency disputes, the Justice Department had to provide a saving interpretation of the constitutionality of binding arbitration of government disputes, leaving itself open to criticism and, more significantly, eventual judicial review of the provision. 53 While the Department's interpretation has subsequently been upheld in a lower court, 54 the new position is contrary to that held for over 150 years by the judiciary and the executive, and is therefore likely to be controversial at the very least. 55 A statement by the Justice Department's Senior Counsel for Alternative Dispute Resolution before the House Judiciary Committee made it emphatically