Incorporating Alternative Dispute Resolution into State Administrative Agencies: In a Race to the Top, Which State Will Get There First?

By Amanda McNeil

I.  Introduction

           States are benefiting from the use of mediation programs in state court,[6] and the federal system has uniformly incorporated Alternative Dispute Resolution (ADR) into the federal agency system.[7]  Thus, logically, it should only be a matter of time before states begin to realize the value and efficiency of creating state-wide mediation protocols for their agencies.
States that have adopted the Uniform Mediation Act (UMA) and have central panel systems for their administrative agencies are in the ideal position to follow the example set by the federal government by instituting state-wide ADR protocols for administrative agencies.[8]  The UMA will help mediators understand their duties and obligations.  Having a central panel system will provide the agencies with a reliable pool of mediators, free of those conflicts of interest that arise because of association with the agency.  Part II of this Note explains the administrative agency system, which creates the need for this sort of reform.  Part III addresses the two criteria that states should meet before attempting to create a state-wide ADR protocol for their agencies, and part IV outlines the bare minimum requirements for such a protocol.    Part V suggests the way that states should implement the protocol of their choice. 

II.  The Administrative Agency System at the State Level and the Reasons for Creating State-Wide ADR Protocols in State Agencies

A.  Background on Administrative Agencies and Central Panel Systems

            The administrative process is sometimes called the “hidden” branch of government because it is so well concealed from the public.[9]  Some members of the public are not even aware that the person conducting the hearing is an Administrative Law Judge (ALJ), who is part of the executive branch of government and is not a judge in the judicial branch.[10]  The administrative hearing process is based on “a curious blend of executive, legislative, and judicial decision-making power,” which does not offer as many procedural safeguards as the courts, but does relieve court dockets considerably.[11]  The administrative agencies themselves are actually a part of the executive branch, and because they both create and enforce policy, there are serious concerns about potential conflicts of interest.[12]  Many different sorts of disputes are handled by administrative agencies:  “ALJs often resolve scientifically and legally complex disputes among and between agencies, the regulated community, and the public in such diverse areas as commerce, communication, environment, health and safety, and social security.”[13]  Administrative hearings also deal with less complex issues, particularly the licensing of anyone from drivers to nurses to veterinarians.[14]  Licensure is important to the public because it is a means of protection from unqualified and incompetent practitioners.[15]  The breadth of the cases covered by administrative agencies make it so the average person is more likely to be involved in an administrative agency hearing than in litigation.[16]

            There are two basic ways that states may set up their administrative agency hearings:  1) they can use a central panel of ALJs, who are overseen by some sort of regulatory body; or 2) they can leave it up to the individual agencies to hire their own ALJs in a non-central panel system.[17]  A central panel of ALJs has been described as a “cadre of professional adjudicators who are administratively independent of the agencies whose cases they hear, and thus, they are removed from agency influence.”[18]  In a central panel system, the AJL is still part of the executive branch, but he or she is not part of the individual agency.[19]   In contrast, in non-central panel systems, the agency actually employs the ALJs who hear cases involving the agency.[20]  Regardless of the actual fairness of the process, it seems at least awkward that the agency to which an ALJ is providing reports and decisions is also the source of paychecks or pink slips.[21] 
The differences in these systems have prompted studies of whether one system is fairer, or perceived to be fairer by the participants, than the other.[22]  Increasingly, states have been opting to create central panels of ALJs for their administrative agencies.”[23]  The main goals of creating central panels are improving fairness, efficiency, effectiveness, and independence.[24]  To date, twenty-five states have instituted central panels.[25] 

B.  The Current Systems at the State Level Lack Uniformity and Transparency

            Two problems with the current administrative agency system are a lack of uniformity of process and lack of transparency.[26]  The process must be more transparent for all attorneys and easier to understand for pro se litigants.[27]  The process is often seen as unfair, particularly when the licensee needs more information then he or she is able to access without the assistance of an attorney who is experienced with administrative hearings.[28]  While many cases before an
agency do settle, only some agencies “routinely pursue the settlement of cases using ADR,”
while “other agencies seem to resist the use of ADR.”[29]  “Informal, nonadversary procedures may be more appropriate in those situations where objective decisions are difficult, where an answer cannot be reached by simply applying a specific rule, and where many of the issues are subjective, value-laden, and best left to the judgment of knowledgeable and responsible officials.”[30]  The current system simply is not user-friendly to a pro se party wishing to mediate his or her dispute with an administrative agency[31] nor to the novice administrative law attorney.  A state-wide protocol using mediation in administrative agencies would help solve this accessibility issue facing pro se parties and novice attorneys alike.
In light of the transparency and accessibility problems facing parties before administrative agencies, there are four main goals of a state-wide protocol for ADR.  The first goal is to increase fairness and user-friendliness to those who represent clients or themselves pro se in front of administrative agencies.  The second goal is efficiency in terms of time and money.  The third goal is more of a necessity than a goal, especially in the current economic situation:  the protocol must be completely cost-neutral, or even cost-saving, to get and retain public and state support.  The last goal of the protocol is to increase satisfaction of those using the system—the state, the agencies, the parties, and their attorneys.[32]

C.  All Stakeholders Would Benefit From a State-Wide Protocol of Using Mediation in State Agencies.

            By using mediation state administrative agencies can expect mediated agreements that are “faster, cheaper, more accurate or otherwise more acceptable, and less contentious” than the decisions written after formal administrative hearings.[33]  The beneficiaries of a state-wide mediation protocol include administrative agencies, the public, pro se parties, and administrative lawyers.  The agencies would benefit from dramatic cost savings if they were to institute a mediation program as part of the hearing process.[34]  Additionally, the use of ADR can benefit administrative agencies by helping to reduce escalating administrative litigation dockets.[35]

            The public would benefit from mediation being part of the administrative hearing process because of the increased exposure to, and comfort with, mediation as a process.[36]  The public is generally unaware of mediation as a process and its benefits,[37] and given the wide range of situations in which mediation can be used, the goal of educating the public is a worthy one.[38] In the context of agencies that regulate licenses, another benefit to the public is that mediation could help the licensee to understand the evidence against him or her and to figure out what he or she did wrong.[39]  At the mediation, the party could present mitigating evidence in an informal setting.  Mediation can help licensees recover from the problems that caused them to be summoned by the agency, so the public will benefit by being protected from repeat mistakes by the licensee.[40]

            Pro se parties would benefit from a standard procedure of referral to mediation because it is a less formal process, and they would not need the assistance of an administrative law attorney to navigate the current informal, hidden settlement process with an agency.  This is especially true if the information is available via a written procedure for cases going to mediation prior to hearing, which could be available in hard copy and online. 

           Attorneys are likely to be the hardest to win over to this idea because of the “concern that mediation may lessen the need for traditional fee-generating work.”[41]  Additionally, if the mediation program were set up perfectly, there would be no role for defense counsel.[42]  The counter arguments to this include the idea that agencies are not in place to create revenue for lawyers; they are there to protect the public, establish policies, and regulate licensees.[43]  Even if the mediation system were to be easy to access and transparent, there would still be clients who wanted to have their hands held throughout the process, and the people who can afford lawyers are likely to continue paying them.  It is the people who cannot pay who must be considered and accommodated.

III.  The Importance of a Central Panel System and Adoption of the UMA

A.  Central Panels of Administrative Hearing Officers

            States with central panels of ALJs are in a better position to make the transition to state-wide mediation programs for agencies because they already have systems in place that should be perceived to be fairer.[44]  Additionally, in a state with a central panel, there should be a pool of potential mediators with fewer conflicts of interest.[45]  The ALJs would already be independent from the agency, so they could all be trained in mediation and serve as mediators for any agency.[46] 
In a state that has yet to implement a central panel system, the ALJs would likely have to be excluded as mediators for the agencies for which they normally work.[47]  There are three reasons to exclude ALJs from being mediators for their own agency:  1) a mediator must be perceived to be neutral,[48] and that would be hard if the mediator worked for the agency that would hold the hearing if the mediation failed; 2) a mediator must also be free of real conflicts of interest, and this would be more difficult in a situation in which the mediator is employed by one of the parties to the mediation, because of the chance of the mediator having a personal or financial income in the outcome; and 3) there would be a concern that a mediator working for the agency might be more tempted to breach confidentiality of the mediation when a co-worker will be the decision maker if the mediation fails. 

B.  The Uniform Mediation Act

           In 2001, the National Conference of Commissioners on Uniform State Laws approved and recommended the Uniform Mediation Act (UMA),[49] which is a uniform way to protect mediation communications.[50]  The goal of the uniform act is to promote predictability and simplicity, which would in turn encourage greater use of mediation.[51]   The states that have adopted the UMA are in a better position to create a state-wide mediation protocol for their administrative agencies because of this necessary protection of the state’s citizens involved in mediation.  The benefit of the UMA to administrative agencies looking to create a mediation protocol is that the UMA is a reasoned, uniform approach to protecting the confidentiality of mediation communications.  The UMA well help ensure that the parties to administrative agency mediation and the confidential information that they disclose are protected. 

C.  States That Have Both Adopted the UMA and Have Central Panels of ALJs.

            There are only three states so far that have central panels of ALJs and that have adopted the UMA:  Iowa, New Jersey, and Washington.  Additionally, Massachusetts is a central panel state that is considering adopting the UMA, and Ohio is a UMA state that is considering creating a central panel system. These three—maybe five—states are in a good position to go forward with this initiative, but other factors such as academic support, governmental and agency interest, and public sentiment are also important.  If these factors are stronger in a state that is able to move faster, this really could be a race to the top.  With states looking to save money in any way possible, there should be an incentive to institute state-wide mediation programs for a state’s administrative agencies.

IV.  What an ADR Protocol for Administrative Agencies Should Include

A.  Learning from the Federal System

            It is clear that mediation is not just a passing phase at the agency level.[52]  Some aspects of federal law such as statutes, executive orders, and regulations (which are not present at the state level) could explain the degree of success of mediation programs in administrative agencies at the federal level.

            One of the most important federal statues that has had an impact on administrative agencies is the Administrative Dispute Resolution Act of 1996 (ADRA).[53]  It “is the federal act mandating the promotion and use of ADR by all federal administrative agencies. The mandates of the act have been implemented in different ways by the different agencies, but the law's requirements apply to all agencies of the Federal Government.”[54]  The ADRA amends the Administrative Procedure Act to authorize flexibility in using consensual dispute resolution techniques rather than more adversarial methods[55] and to “promote[s] educating agency staff in methods of alternative dispute resolution.”[56]  The language of the current ADRA mandates that each federal administrative agency shall: 1) “adopt a policy that addresses the use of alternative means of dispute resolution and case management,” 2) “designate a senior official to be the dispute resolution specialist of the agency,” and 3) “provide for training on a regular basis for the dispute resolution specialist of the agency and other employees involved in implementing the policy of the agency.”[57] 
There is not a statute equivalent to the ADRA that applies to the states.  The lack of a similar statute for states could help explain why mediation has been integrated into federal agencies on such large scale, without similar growth in state agencies that have mediation programs.  The ADRA can be mimicked to create a mediation protocol for state agencies.[58]  The important features of the ADRA that should be carried over into such state legislation include the establishment of a reporting system, enumerated exceptions, and checks and balances.[59]

B.  Proposal

            The following protocol takes into consideration a range of ideas from a number of sources including an ALJ,[60] an administrative lawyer,[61] a private mediator,[62] and a timely book, Toward a Protocol for Administrative Agency Mediation in Ohio.[63] There are six basic components to this protocol:  1) necessary mediator qualifications; 2) amount of mediator training; 3) preventing bias; 4) program funding and payment to mediators; 5) mediation logistics and enforcement of mediated agreements; and 6) case selection.

1. Necessary mediator qualifications:

            Taking from the recommendation of the Administrative Conference of the United States, the goals of establishing mediator qualifications are  “[i]nsuring that neutrals have adequate skills, technical expertise, experience or other competence necessary to promote settlement, while avoiding being too exclusive in the selection process.”[64]  The recommendations go on to caution agencies against “unduly limiting the pool of acceptable individuals though the use of overly restrictive qualification requirements.”[65]  The first consideration must be whether the mediator must be a lawyer.  This is a hotly contested issue because there are many professional mediators who are not lawyers, and thus some mediation associations and mediators are very opposed to the idea of requiring mediators to be lawyers.[66]  Setting such a requirement to mediate agency disputes would exclude effective, non-lawyer, mediators.[67]  The complexity of the administrative process, however, cuts against the argument.  ALJs are well aware of the complex administrative system and would be in an ideal position to serve as mediators for administrative agencies.[68]  While administrative process training could catch non-lawyer mediators up to speed, training programs are not cheap, and the success of any protocol introduced in the current economic climate is dependent on cost neutrality.
 
           If there were not enough ALJs interested in being cross trained as mediators, or if a particular party would prefer a non-ALJ be the mediator, then the system could also use lawyers with administrative law backgrounds as mediators.  A way to increase the chances that there will be attorneys who fit this description could be to require six hours of continuing legal education (CLE) in alternative dispute resolution.[69]  Presently there are not that many opportunities after law school for attorneys to learn about the benefits of ADR, so creating this requirement could be beneficial, because it would cause more groups to offer CLE courses, and the legal community would thus be better informed about mediation.[70]
To give the state agencies the most about of flexibility, the bulk of the decision-making about the necessary qualifications of mediators in their programs should be left up to the agencies as they draft their ADR plans.

2.  Amount of mediator training

            Similar to the way that the federal system cross-trains ALJs in mediation on a massive scale, training could be sustainable at the state level as well.[71]  Many states already have ADR advise-giving bodies; some are housed in universities and some are free-standing.  Once agencies are required to develop a plan to incorporate mediation into their programs, these groups will get the opportunity to be utilized to their full potential.   The agency designing a mediation program should consult with this sort of advisory body when determining the necessary amount of mediator training.

3.  Preventing bias

            It is not necessary for an agency to insist upon "absolute neutrality," defined as “no prior affiliation with either the agency or the private industry involved,” because this would “unduly restrict the pool of available neutrals, particularly when the neutral neither renders a decision nor gives formal advice as to the outcome.”[72]  However, as discussed above, the average mediation party is going to be skeptical of the neutrality of a mediator who is an employee of the opposing party.  This is where the importance of a central panels of ALJs comes in, because in states that are set up with central panels, the ALJ is not an employee of the agency.  By having an ALJ who is either part of a central panel, or who is at least not employed by the agency with which the mediation is being held, the appearance of neutrality will be preserved.  The State of Ohio Board of Tax Appeals’ mediation process can be mimicked in a mediation program to ensure a  firewall between mediator ALJs and the ALJ that will hold the hearing if the mediation is not successful. 

4.  Program funding and payment to mediators

            Another contested aspect of any possible protocol is how the change will be paid for.  There is no point in trying to institute an expensive change that a state simply cannot fund or will not be able to maintain.  By using ALJs who are already paid by the state, a program could remain cost neutral.[73]  Human nature and the legal profession being what they are, it would be understandable if private mediators felt threatened or upset by the expansion of mediation programs from which they are excluded or only permitted to participate in on a volunteer basis.  Private mediators who make their living by charging for their services realistically could be upset by not having an opportunity to expand their practice by being hired for agency mediations.[74]  These concerns are real in the present financial situation, but for the same reasons, the protocol, above all, must be cost neutral; there is no other way that support for the program can be ensured.  In time, the state may see the success of the program and decide that the program could be funded in part by the state; at that point it might be possible to pay for private mediators.  Until the success of the program is proven, state funding would be unlikely.

5.  Mediation Logistics and Enforcement of Mediated Agreements

            One possibility is that agencies should be able to choose between a proposed default set of procedures for their mediation program or a plan of their own creation that is consistent with the principles of the default procedure.[75]  A default plan is a good way to show the agencies plans that are well thought out in general, and the option to diverge from the default allows the agency to adapt the plan to the agencies’ specific needs.  The flexibility of mediation as a process
is a strong advantage, which must not be counteracted by a desire for one set, uniform process.[76] 
As with mediation agreements entered into between small claims disputants, if the agency were to approve the agreement reached, it would become binding on the parties.  A major goal of mediation is to settle cases, which is only useful if agencies are committed to enforcing the agreements.[77]  Another advantage that UMA states have over those yet to adopt it is that the UMA deals with the enforcement of mediated agreements.[78]

6.  Case selection

            An important aspect of the federal mediation system for administrative agencies is the ability of the agency to have some ability to opt out of mediation in some situations.  The same should apply to the states.  There are some cases in which the state’s authority to settle is nothing less than the permanent surrender of the license of the other party; it would be nearly futile to attempt to mediate this sort of case.[79]  Funneling cases like this into the mediation program could sour the public’s perception of mediation, because there simply are some cases not suited for mediation.  Thus, agencies should have the discretion to ensure that certain types of cases are not sent to mediation prior to hearing.

V.  How a State Should Implement a State-Wide ADR Protocol for Administrative Agencies

           Before a protocol is implemented across an entire state, there should be a trial period in which the protocol is tested out in a variety of agencies.[80] The pilot agencies could either volunteer or be chosen by an Administrative Committee designated by the Governor, so the program could be tested out and adjusted before each of the agencies would have to implement the program.  A state could successfully implement a state-wide ADR protocol by way of an executive order.  An executive order is simpler than getting the legislature involved in the process and is also likely to take less time.  By implementing a state-wide ADR protocol via an executive order, there will not be the same sort of fight over the exact wording that generally happens in our partisan system.[81]  Massachusetts is one state that successfully did this via Executive Order 416--  Integrating Dispute Resolution into State Government, which was barely three pages[82] and modeled after the federal ADR Executive Order.[83] An executive order could mandate that the administrative agencies within the state consult with an advising commission or body and then report to the Governor with plans for incorporating dispute resolution into their hearing process.

            In Alabama, the Governor signed an executive order that encouraged state agencies “to study, develop and implement appropriate mediation procedures within their agencies” in 1998.[84]  While this is a step in the right direction, it leaves too much discretion up to the agency.  Just being told you ought to think about something is much different than being told that, within this time frame, you need to take these steps to institute a mediation protocol.[85]  The first state that does this will have the hardest fight; once it has been done in one state, the others will be able to reference the success of the pioneer state that won the race to the top.

VI.  Conclusion

            There are enough examples of the success of agency dispute resolution to justify a state reallocating resources to create a state-wide ADR protocol for its administrative agencies.  A central panel would create an ideal environment for this, because it not only provides what seems to be a more fair administrative hearing process but also a pool of potential neutrals for mediation.  By adopting the UMA, a state has made an important step toward making mediations more uniform across the state.  The next step is to extend the option of mediation to those who have hearings in front of administrative agencies.   By adopting a mediation protocol for the administrative agencies, a state will benefit the agencies and the public.