Lawyers blast bias in ALJ system; urge technical adjudicators remain

Lawyers who practice before Indiana administrative law judges painted a picture Wednesday of a rigged, onerous system that overwhelmingly favors the government when parties appeal state agency actions.

Meanwhile, attorneys who argue highly technical utility and environmental administrative matters urged the same legislative panel to retain systems of review they say require hearing officers who have particular subject matter expertise.

The testimony came in a General Assembly study committee that’s considering proposals for Indiana to follow the lead of 30 other states by replacing the current ALJ system with independent panels deemed less beholden to the agencies that employ them.

Quarles & Brady LLP partner Randall R. Fearnow represents health care providers before various state agencies. He told the committee that in 25 years of practice, he could count on one hand the number of times his client prevailed before an Indiana ALJ. He said he routinely advises clients to prepare to try their case before the ALJ, lose, and then be prepared retry the case in court. He said this structure means only clients who can afford to finance an appeal of an adverse agency decision do so.

Fearnow called Indiana’s current ALJ structure an “expensive, cumbersome, and ultimately futile system.”

In some cases, he said a Department of Health employee who represented a state agency in one matter later appeared as an administrative law judge in another involving his clients. Such a system produces arbitrary results at best, he said, and “breeds disrespect for the rule of law. … There is no way this process can be made to appear fair.”

The Interim Study Committee on Corrections and Criminal Code was referred proposals for reform after Sen. Brent Steele, R-Bedford, introduced legislation this year that would have created central panels to hear a range of government disputes.

Steele said he pursued reforms because of perceptions that appellants can’t get a fair, unbiased hearing from ALJs or hearing officers employed by the agencies whose actions are being challenged.

“There is an appearance of bias, and I would venture to say there is actual bias,” said solo attorney Linda B. Klain, who like Fearnow has represented parties in appeals of health agency rulings, and has served as an ALJ. She said ALJs in some agencies feel an expectation of how they should apply the law from the same department heads who evaluate them. She cited this as a reason why she quit serving as a contracted ALJ.

Klain also said creating central panels of ALJs removed from agency oversight would improve efficiency, enhance independence and allow ALJs to share best practices, experience and expertise.

The way Indiana agencies use ALJs varies, and some refer to them as hearing officers rather than ALJs. Legislative Services Agency senior fiscal analyst Mark Goodpaster shared results of a survey of agencies that showed 36 use an adjudicative process of some kind, mostly ALJs. Several use deputy attorneys general to resolve disputes, including several agencies that reported fewer than 10 cases annually.

Goodpaster said there are 104 ALJs, 74 of whom are employees of state agencies. Steele suggested the state could “save this state of Indiana a ton just in salaries alone” by switching to administrative panels to hear these cases.

Sen. Karen Tallian, D-Portage, urged that panel to proceed cautiously, noting that 85 percent of the cases heard by ALJs involve benefits eligibility determinations of some kind from a handful of agencies. These include workers’ compensation and assistance to families in need among others.

Lawyers who represent clients before the Indiana Utility Regulatory Commission and before panels that hear appeals of decisions made by agencies under the Department of Natural Resources and Department of Environmental Management urged the panel to exempt these ALJs from any proposed central panel structure.

Bose McKinney & Evans LLP partner Daniel McInerny said agency reviews of these actions were enacted because trial courts lacked the expertise, particularly in IDEM matters, and environmental lawyers favor keeping the current system. “If this is to be considered,” he said, “We think the idea of expertise needs to be preserved.

“In the area of environmental law, we like the way it’s working right now,” McInerny said.

Likewise, Bose partner Nikki Shoultz said the more than 200 utility lawyers in the Indiana State Bar unanimously favor excluding IURC from proposed ALJ panels. For most, the sentiment is, “If it ain’t broke, don’t fix it.”

The rate-setting agency reviews combine elements of engineering, accounting and finance, she said, and even after years practicing in this area, she’s always learning something new. “For me, it’s close to rocket science,” she said.

Steele and others on the panel were skeptical of a survey of agencies that found ALJs are unbiased. Steele said he’d prefer to see surveys of those who appeared before the panels. Assistant attorney general David Miller said just 81 percent of cases heard by the office’s ALJs resulted in a win for the state, citing this as an example of fairness. Sen. Greg Taylor, D-Indianapolis, wasn’t swayed.

“Anyone who’s successful 81 percent of the time is usually in the hall of fame,” Taylor quipped.    

The study committee will further discuss ALJ reform at its next meeting at 1:30 p.m. Sept. 28 at the Statehouse.