the private, its work was as if it - AALJ€¦ · business operating in a competitive field would automatically lose its mar-ket to a competitor who offered to supply the market at

ADMINISTRATIVE PROCEDURE

effort in the Commission's procedure to assure the rights, personaland property, of those appearing before tu. We are, however, con-vinced that it would defeat the very purpose of regulation and ulti-mately the protection of private rights, if such protection is carriedto the point where the public function performed by private oper-ators of utilities is jeopardized.

I ant going to illustrate that subsequently in my discussion. Inthis connectioi I want to suggest that the business of supplyingelectricity is a public business, whether performed by the Govern-melit itself, or delegated to private operators. Now, that samepoint of view applies also to the natural gas regulatory work thatthe Commission is responsible for. This is not a matter of opinion,but of law. When spokesmen of the industry speak of "privateutilities" they are misleading public opinion. The correct term is"public utilities" whether the utility in question is operated by pri-vate persons or by public officials. In either case, they must actas servants of the community.

The Supreme Court of the United States, in speaking of a publicutility many years ago, said:

Though the corporation was private, its work was public, as much as if itwere constructed by the State.

The Court also said:Such a corporation was created for public purposes. It performs a function

of the State.

I think that is a point of view essential to the problem whichfaces those who are responsible for the regulation of any of thepublic utilities in the country, because it establishes the relationshipbetween Government and the corporations subject to the Govern-ment regul Iation.

There has been a great deal written and said upon the wholematter of administrative procedure, recently, and the bulk of it hasrun to the protection of private interests and private rights asagainst some kind of arbitrary action by governmental agencies.The Federal Power Commission feels that almost enough has beensaid upon that admittedly important phase of the matter, and itdesires to present for your consideration the side of the consumingpublic, the small investor, and the country as a whole. The con-suning public and the small investors have a vital interest in theexpeditious and effective regulation of public utilities, and I thinkthat throughout the consideration of this matter before you, we feelthat this emphasis is essential. In this connection, I want to callyour attention to the last annual report of the Commission to Con-gress in which we said, and I am quoting from the annual report,and ant going to comment or elaborate somewhat upon it as Iproceed:

Aware of the necessity of speeding up the regulatory process, the Coinmis-sion during the past year has given consideration to the agitation for legisla-tion dealing with procedure before Federal administrative agencies. It isseriously concerned with the fact that efforts in thi direction seem to beproceeding on the prelnise that private interests must be further safeguardedigainst the claimed arbitrary actions of such bodies. The Commission's con-sideration of the matter has, of course, been limited to the function of utilityregulation and the relation of its functions to the requirements in that par-ticular field.

HeinOnline -- 2 Administrative Procedure Act 476 1935-1946

ADMINISTRATIVE PROCEDURE, 477

The Commission believes that sound thought on the subject must beginwith the premisb that the regulation of privately ovned public 4tilities cameinto being in large measure as a substitute for competition in a field whichhad come to be considered as adapted to "natural nonopoly." In the main itspurpose was to assure the lowest possible costs and prices for utility services.

Historietily, competition, when effective, offered a system in which peopletended to obtain .nemssary goods and services at the lowest prices. A privatebusiness operating in a competitive field would automatically lose its mar-ket to a competitor who offered to supply the market at lower prices. Infact, such a business could not insist that consumers pay it higher prices onthe grounds that its costs justified such prices. Instead it must revise itsconception of its costs to meet competition.

In that connection, I would like to call your attention to a briefdiscussion before the American Society of Civil Engineers about 3years ago, by the executive vice president of the Brookings Institu-tion, Mr. L. Everett Lyons.

I think the Brookings Institution has done pioneer work in thestudy of our business processes, and what I have just been quotingfrom, the annual report of the Federal Power Commission, is moreor less along the lines of Mr. Lyons' discussion, indicating how itcame about that the "yardstick policy" of the government, in con-nection with electric rates, came into being.

He pointed out, as we have suggested here, that probably no bettermethod has ever been devised to enable the people to obtain the mostin service and goods than competition, and by that he meant realcompetition. He pointed out very definitely that it resulted con-stantly in a reconsideration of costs and prices, because a manufac-turer, or any other man in any line of business, would lose his marketif he insisted on maintaining that his prices were justified by hiscosts, provided a competitor came into his market with lower costsand therefore was able to make lower prices.

Now, in considering this whole question of regulation, particularlyas it becomes involved in litigation, you run into a rather amusingcontrast between the activities of regulatory bodies or administrativebodies, like the Federal Power Commission, and competition.

I wonder if you can conceive of a man in a truly unregulated andcompetitive market coming in and arguing that he was being deprivedof property without due process of law because a competitor hadcome into the market who was capable of cutting prices.

Of course such an argument would help him very little. Hecouldn't go to court about it at all. He would simply have to revisehis conception of costs to meet competition, and it is that constantnecessity in the competitive field for revision of costs, includingeven the concept of the value of property, in terms of actual orpotential competition, that has enabled this country to build up thehighest standard of living in the world today. People were con-stantly able to buy more goods and services under the competitivetheory of business enterprise, and it is that theory of business enter-prise, for which some sort of substitute must be found in the utilityfield in which actual competition may result in undesirable duplica-tion of facilities. Government regulation itself must take the placeof competitive conditions in making it impossible for 'a publicutility company to charge prices higher than it could charge if anefficient, economic competitor entered the market. That is what thepeople have a right to expect. But it has even more important


478 ADMINISTRATIVE PROCEDURE

implications, because the Government, itself, has a major interestin enabling people to make the maximum possible use of theseessential services.

The history of utility regulation, however, has been in the maina story of costly and protected procedures devised by representa-tives of private companies to delay or circumvent the efforts ofregulatory bodies to achieve their objectives. The reason for thisappears obvious. Having obtained a status substantially free fromcompetitive control over costs and rates, the companies seek to regainthe arbitrary control over rates which would be theirs as unregu-lated monopolies.

I am going to call attention to an illustration in the Commission'sown activities, but first I would like to refer to certain facts thatwere developed in connection with a survey of utility regulationin New York State.

In New York, about 10 years ago, there were two utility casesin which it was quite obvious that the people were entitled to lowerrates. One was the New York Telephone case. That case, in whichregulation might have been expected to serve. as a substitute forcompetition, assuring the lowest possible rates, actually, was in andout of the courts for 9 years. The New York Telephone Co. itselfspent about $6,000,000 in connection with its effort to resist theattempt of the New York Public Service Commission to reduce tele-phone rates in the State.

The details of that case indicate the extent to which a great cor-poration may go under the present theories that involve accordingso-called private property due process, according it protection forits rights. It shows the extent to which a company may go underpresent regulatory procedure to retain in its own hands the controlof rates where there is no competition to afford the consumers auto-matic protection.

At about the same time, in New York State, there was a caseinvolving the rates charged for electric service in New York City, themetropolitan area of New York City. There again the case wenton for about 8 years without any change in rates, because everytime the Public Service Comnmission came, to a decision as to whatthe rates should be, the who]e case was taken into the courts andwas remanded back to the Commission. The situation had changedevery time it had been remanded back for further consideration,and there had been changes in the price levels, changes in the quan-tity of service sold, and so forth, and by the time the Commissionhad made a new decision, the case was again taken into the courts.

As a result, regulation in New York over a period of approxi-mately 15 years was unable to make any changes in the electric ratectructure, which was becoming increasingly out of date.

I have suggested these illustrations, as I think it important, as wedeal with the question of improving the processes of regulationthrough some legislative means or other, to recognize the fact thatthe problem is not one of making it possible for increased delays tocome into the procedure, but rather one of making it possible to giveexpeditious relief, the same kind of relief to consumers as would re-sult if competitors were to come into an area and compete with theexisting company now subject to regulation.


ADMINISTRATIVE PROCEDURE 479

Regulation, if it is to be a worthy substitute for competition, must similarlybe able continuously to make it impossible for a public-utility company tocharge prices higher than it could charge if an efficient and economical com-petitor could reasonably be expected to enter the field and capture the market.

The story of utility regulation, however, has been in the main a story ofincreasingly elaborate and protracted procedures devised by representativesof private companies to delay or circumvent the efforts of regulatory bodies toachieve these objectives. The reason for this appears obvious. Having ob-tained a status substantially free from competition, these companies now seek,by the establishment of elaborate techniques, to regain the arbitrary control ofcosts and rates which would be theirs under unregulated monopoly.

Space does not permit an extended discussion of all details inherent in thatproblem. Suffice it to. say that the complications resulting from the "fair value"theory, with its reproduction costs, its going value, its observed depreciation,etc., pose but a part of the problem which constantly confronts those chargedwith the responsibility for making regulation reasonably effective in the publicinterest.

The machinery for handling the regulatory problem cannot safely be confinedto old methods. The regulatory agency is in fact a "tribune of the people"designed to 'furnish protection to rights and obstacles to wrongdoing which,under our new social and industrial conditions, cannot be practically accom-plished by the old * * * procedures" used in dealing with adversary suitsin the law courts.

It would appear, therefore, that in rationalizing the problem of procedure foradministrative agencies, the rule laid down in Mlnn v. Illinois, 94 U. S. 113(1876), that property used to furnish utility services ceases to be private prop-erty and is subject to regulation, should be accepted as a cardinal principle indetermining essential procedures for dealing with the regulatory problem.

The Commission believes that steps should be taken to improve regulatoryand administrative procedure. But it believes that such steps should be dp-signed to speed rather than to delay the effective accomplishment of the reg,-latory purpose. The Commission has been constantly engaged in efforts inthat direction.

For example, the Commission during the past year has adopted new pre-heating procedure to expedite and accelerate the orderly conduct and disposi-tion of hearings. This new procedure provides for informal conferences toconsider the possibility of (1) simplification of the issues; (2) exchange ofexhibits proposed to be offered in evidence; (3) obtaining admissions of factand of documents which will avoid unnecessary delay in the hearings; (4)limitation of the number of expert witnesses; and (5) other matters.

This step is consistent with the Commission's policy of assuring all partiesthe "rudiments of fair play" in its proceedings.

The Commission has made it a practice for years to promulgate rules onlyafter conferences with the interested parties and publication in the OfficialRegister, to give all interested parties ample notice of its proceedings and anopportunity to present evidence, to conduct comprehensive public hearings,to permit the filing of briefs and the presentation of oral arguments, to requireindependent written reports from trial examiners, and to grant rehearings inproceedings after good cause has been shown.

The Commission, however, is convinced that the entire purpose of regula-tion will be defeated if steps are taken to afford private interests, basicallyopposed to the purposes of regulation, widened opportunity to adopt the statusof aggrieved parties, and, under the aegis of "due process," still further todelay and render futile sound regulatory efforts in protection of the public.

In the situation which prevails today, it is not the private interests who arethe aggrieved parties, subject to arbitrary action of administrative agenciesbut rather the consumers, subject to the arbitrary charges of monopoly whichis protected against the control of sound regulation by the procedural latitudewhich monopoly today enjoys. And, in a larger sense, the whole people isaggrieved because the monopolistic tendency toward high costs and high pricesIs one of the fundamental sources of economic instability. In this situationthe Commission is striving to accomplish expeditious regulatory procedureswhich fully protect the public against any semblance of arbitrary or unfairtreatment.

That ends the quotation from our report.



Now, I want to comment particularly on that last paragraph. IWant to suggest that from the point of view of those of us who be-lieve that the best way to conduct these businesses is through whatmay be termed regulated private initiative, that is, those of us whobelieve that regulation should be perpetuated as an effective instru-ment for the control of monopoly in the public interest-this effortto make regulation work and work expeditiously and make it areal statutory substitute for competition, is really in the best in-terests of the investors themselves. In fact we feel that it is neces-sary if that form of business enterprise, that social institution, is tobe perpetuated. I think I can illustrate what I mean by referenceagain to the rate situation which was involved in regulatory proc-esses in New York in 1933:

At the depth of the depression, the lowest depression year, Chair-man Maltbie of the New York Public Service Commission initiateda case for an early reduction of electric rates in New York City withthe statement that it was an emergency situation and that unlessthe companies cooperated with the Commission in securing relieffor the people in this emergency, the people would turn to alterna-tive means of getting results which they felt were justified. On thebasis of that statement, he, at the end of about three or four monthsof hearings, ordered a moderate rate reduction in the electric ratesin New York City.

The company, instead of complying, immediately took the caseinto the courts, and from 1933 to 1935, that case was subject to courtreview. About 2 years after the case had been initiated, the courthanded down a decision wherein it stated that Chairman Maltbie,of the New York Public Service Commission, had tried to be very"g, enerous with other people's money," and disallowed the rate reduc-tion which the Commission had ordered.

But, in the meantime, in 1934, the mayor of New York City, inattempting to negotiate a contract for rates charged the city for itsstreet lighting and other municipal services, had run into a refusalof the company to reduce the charges to the city which had pre-vailed over many years. As a result to meet the situation, he under-took to initiate a movement for a public plant in New York City tosupply the needs of the city itself, and he received support from theFederal Government, because the Federal Government was interestedin lower rates for the navy yard.

About the time he was starting that,, the companies came in, notonly with a refusal to accept a rate reduction, but with a request foran $11,000,000 increase in rates.

The mayor, however, within 2 months, simply by indicating thatbe intended to supply the public needs for street lighting and munici-pal services, had won a reduction of approximately 20 percent in therates charged the city for those services. He then indicated, andthat happened at about the time the court handed down a decisionsaying that the Public Service Commission's order for a reductionshould be disallowed, that he was going on with a proposal for apublic plant to get the same reductions for the general consumersof electricity in New York City, and just 1 day before he put hisproposal for a public yardstick plant before the board of estimatesin New York, the company announced, in place of the request for a$11,000,000 increase-a rate reduction of about $9,000,000.



I think that bit of history gives you a picture of what may be ex-pected to result if our regulatory processes are so involved in pro-cedure, where there is an invitation to litigation, that rates cannotbe obtained which good business judgment-sound business judgment-would indicate to be thoroughly justified.

It means that the people will turn to some alternative way of gettingthose results.

Now, the final part of that story is that within a year after NewYork Edison, that is, the Consolidated Edison System had reduced therates, and after the courts had said that they need not reduce thoserates, they discovered that they were making better gross and betternet with the lower rates than it was possible to obtain before thdrates were cut.

That indicates quite clearly that you had a situation in New Yorkwhere it was almost impossible to keep the utility from avoidingor evading the effect of regulation along the lines that competitionwould offer in the way of service to the people, and tha-t a rate reduc-tion, which was thoroughly sound from a business view, could onlybe obtained from the company through the people turning to another.form of regulation-the form that is generally referred to as "publiccompetition."

Now, I think that if we allow regulation to continue to be a mat-ter of extended procedures, rather than of precise business action-business action on the part of government, in cooperation with the.regulated utility-that we are going to face an increasing demand foran alternative to regulation in the utility field-an alternative whichtakes the form known as the "yardstick" idea of public competition.

It is with these considerations in -mind that I submit that all of thebills now before you, if enacted, will tend to a greater or less extent tohamper the Commission in the effective accomplishment of the pur-poses assigned it by Congress.

In the tirst place, with the possible exception of S. 675, these billswill invite more litigation and such litigation is the most serious threatto effective regulation.

I have listened at hearings before commissions in which the rep-resentatives of important public service commissions have, in effect.,testified that they were intimidated by the possibility of litigation andwere unwilling to order rate reductions which they felt were justified,simply because they felt such an order would result in protractedlitigation.

Senator DANAHER: I was delayed in arriving this morning, andhave just come in at this point, and I don't know whether I may havemissed some important part of your argument, or your presentation.

Have you outlined to us your understanding of the purposes as-signed to your Commission by Congress within the purview of yourreference to it?

Mr. OLDS. No, I have not. I have been trying to do this:I have been trying to establish what the Commission feels to be a

point of view which has been somewhat ovehlooked in dealing withthe whole problem of legislation to improve administrative procedure,as it has been discussed in Congress and throughout the country forthe last 2 or 3 years.

The Commission wanted very much that its point of view be madeas clear as possible-this year the Commission undertook something



a little different in its annual report to Congress when it attemptednot only to report on the activities during the year, but explainedthem rather completely in the light of the Commission's theory of itsfunction, the function assigned to it by Congress, and I would beglad to either discuss it at this time or simply call to the committee'sattention in particular the sumnary that comes in the first sectionof the Commission's report, part 1 of the Commission's report, whichtends to explain not only its activity, but the significance of theactivity in the terms of public interest.

Senator DANAHER. I was interested in the sentence quoted in thelast paragraph from which you read, which goes:And in a large sense, the whole people is aggrieved because the monopolistictendency toward high costs and high prices is one of the fundamental sourcesof economic instability.

Do you predicate your approach to this problem on that thought?I wonder if you feel, and if the Commission feels, that it is part ofits functions to attack the fundamental sources of economic in-stability?

Mr. OLDS. I think the Commission feels that its responsibility is ashare of the responsibility of government, as a whole, in the fieldwhich is assigned to it by the Congress--to deal with all aspects of thematter that tend to affect the public interest.

Senator DANAIMER. As you determine it.Mr. OLDS. No; we are dealing simply with the matter of getting

people power resources-getting them to the people in such a waythat they can use them, and we feel that the fundamental purposegiven us by Congress, as far as the field of electric power is concerned,is in doing that. We are also concerned with the wholesale aspectof the supply of natural gas to people throughout the country, andagain the objective, as we understand it, that is assigned us byCongress is to assure the people the greatest possible use, and the bestpossible use of natural gas resources. This involves, among otherthings, the elimination of price and cost barriers which would limitthe use by the people of those natural resources-and we try to elim-inate those price and cost barriers as much as possible.

Senator HATCH. Mr. Olds, while you are interrupted here, I amgoing to be compelled to leave. Senator Austin, here, will have toleave shortly, but Senator Danaher is going to stay until you andMr. Youngman have finished your statements this morning. I amsorry, but it is something that I will have to do.

Senator DANAHI. Before you leave, Senator Hatch, this subject isone that has been of particular importance and interest to us, and Iwant to explain to Mr. Olds that Senator Hatch and I attended hear-ings last year covering this very subject, I would like to hear, andwould want Senator Hatch to hear what you conceived to be the func-tions of the Commission with reference to this subject, and I think ifyou have any particular feeling you would like to express in therecord, we will be glad to have it.

Senator HATCH. I will be very glad to have you put your feel-ings on the record, and you may be sure that I will read them.

Mr. OLDS. As I understand it, you would like for me to go intothat fully.



Senator DANAHErR. If you care to, you may come to that at theend of your statement, because I do not desire to disturb your trainof thought.. Mr. OLDS. I think, perhaps, as long as we are on the subject, itmight be best to discuss it now.

Senator DANAHER. Very well.Mr. OLDS. I think your reference was to the specific sentence:

and, in a larger sense, the whole people is aggrieved because of the monopolistictendency toward high costs and high prices is one of the fundamental forcesof economic instability-

Senator DANAHE (interposing). Following that first sentence, thenext sentence continues:In this situation, the Commission is striving to accomplish expeditious regu-latory procedures which will fully protect the public against any semblanceof arbitrary or unfair treatment.

Consequently, you make the point to us, as I understand you, thatwere any of these bills to pass, that would effectually put a damperupon the accomplishment of the purpose which you conceive to beassigned to the Commission by Congress.

Mr. OLDS. I think when I was discussing the point of view of Dr.Lyons, executive director of the Brookings Institution, you had notcome into the room at that time.

Senator DANA HER. No; I had not.Mr. OLDS. Perhaps the rationale of our point of view is most

simply expressed in his terms. He points out that the broad inter-ests of the country are best served by the people making the great-est possible use of their resources. In other words, where the re-sources of the people consist of metal mines and coal mines andoil wells and streams with water power in them, they are all re-sources, and should all be made available to the people with the leastpossible obstacles to their use, and that is the essence of the highestpossible standard of living. The process of making those resourcesavailable, giving the people a fuller enjoyment of their resources,more of the goods and services produced from those resources, is inpart our function.

Here I would point out that the broad interest of the country inthe greatest possible use of the resources makes the question of pricea very important consideration in the country's social economy. Itis an important and essential factor, from the point of view of theGovernment, in the successful conduct of the country's business life.And I would point out, also, that actually no better means was everdevised for affording the people the opportunity of using their re-sources than the competitive system, because in the competitive sys-tem no man in business, whether he is in the business of distributionor the business of manufacture, can maintain a given price which ishigher than a competitor is ready to charge, simply because of hisclaimed costs. In other words, if his costs are so high that he can-not meet a price charged by a competitor, the competitor will gethis market to the extent that he may want that market, unless the.man who is in the field with higher costs revises his conception ofwhat his costs are.



* Dr. Lyons points out that the competitive situation which resultsin people getting the production of their resources at the lowest pos-sible cost-what I call the lowest possible cost barrier-that thatdesirable situation has been changed with the development ofmonopoly, because where there is a. monopoly, it is not simply aquestion of maintaining an artificially high price, but there is noincentive to lower costs, if you can also get your price. There is nopressure on you to make sure that your capital costs and your oper-ating costs are the lowest possible costs that may be obtained.

Senator DANAHER. May I interrupt a second?Mr. OLDS. Yes, surely.Senator DANAHEIR. Without disputing the philosophy you are

advancing, have you considered the effect of such measures as theMiller-Tydings Act with reference to prices, the Robinson-PatmanAct, and similar legislation having to do with price pegging, allof which may be said to reflect the policy of Congress? Now,if I understand, or follow your argument, in the light of the languagewhich you have quoted from your report, I am constrained to enquireto what language of Congress do you look as being determinative ofthe policy you there say you are attempting to achieve?

Mr. OLDs. I am looking at the whole policy that underlies the regu-lation of utilities. I think that the whole, and not any specialsection of the Federal Power Act, but the whole purpose of the Fed-eral Power Act is to assure people the greatest possible use of theirelectric power resources at the lowest possible rates. I think thatthese acts of Congress that you have cited, in general, are attemptsto protect different groups in the population, to enable them to achieveeconomic safety against a situation that has grown up out of a con-stant tendency toward monopoly and trade agreements and so forth.

As to the question of pegging the price of farm products, that isdone partially because of the fact that the ones who are handlingthe products which the farmer must buy have established a virtualmonopoly, or have fixed certain price levels, and the farmer had tobe protected in his own particular field. But I feel that ultimatelyand basically the interests of the Congress and the interests of the Gov-ernment in dealing with this problem is to assure the people the highstandard of living that we think is important, and that high standardof living means the combination of the ability to use the goods andservices that are produced from the country's resources to the maxi-mum extent possible with the lowest possible cost that is consistentwith the proper operations of the industries involved. I think it isthe essence of utility regulation in its various fields that the peopleshould be able to use a maximum of these essential services at thatlow cost.

Mr. Youngman has called my attention to two important sectionsin the Federal Power Act illustrative of the purpose of Congress.The first is section 202 (a), dealing with the question of intercon-nections and coordination of facilities, and so forth, which reads:for the purpose of assuring an abundant supply of electric energy throughoutthe United States with the greatest possible economy, and with regard to theproper utilization and conservation of natural resources, the Commission isempowered and directed * * *.



In other words, the purpose of Congress was to assure the peopleof this country the greatest possible economy in their power supply.

And similarly, in the earlier act, the 1920 act providing for thelicensing for hydroelectric development on the streams of the countrythat were navigable or where public land was involved, one of theprovisions which the Commission was compelled by Congress to makewas the provision that these licenses included the following:

SEC. 10. All licenses issued under this part shall be on the followingconditions: * * *

And includes among others-(h) That combinations, agreements, arrangements, or understandings, expressor implied, to limit the output of electrical energy, to restrain trade, or to fix,maintain, or increase prices for electrical energy or service are herebyprohlibited.

So, the Federal Power Act rests, from its very inception, on thisconception of the Commission's duty to the country to assure abun-dant use of power at the lowest cost, that is, without any artificialprice or cost barriers.

The Natural Gas Act is based on the same theory, which isexpressed as follows:

7 (c) * * * In passing on applications for certificates of convenience andnecessity, the Commission shall give due consideration to the applicant's abilityto render and maintain adequate service at rates lower than those prevailingin the territory to be served, it being the intention of Congress that naturalgases shall be sold in inlerstate commerce for resale for ultimate public con-sumption for domestic, comnlercial, industrial, or any other use, at the lowestpossible reasonable rates, consistent with the maintenance of adequate servicein the public interest. [Italics supplied.]

That last point is certainly important, and I want to bring itbefore the committee.

Senator DANAHER. I think so, too.Mr. OLDs. For this reason, it states:

Lowest possible reasonable rates consistent with the maintenance of adequateservice in the public interest.

Now, two of the most debated questions in rate regulation, andthe ones that have been the most involved in litigation, are the ques-tions of rate of return, and the question of so-called rate bases, the valueof the property to be used for rate-making. Both of those questions,it seems to me, are not so much questions of private versus publicrights, or private against public interest; they are not matters whichshould be subject to litigation, but they are matters which should bedetermined along the lines that Congress has suggested in this sec-tion, when it said:Lowest possible reasonable rates, consistent with the maintenance of adequateservice in the public interest-

The important thing for any commission regulating rates to de-termine is in terms of rate of return-what rate of return is thelowest possible rate of return that will still assure an adequate supplyof the capital that is necessary for the conduct of the business andthe maintenance of adequate service. That should be a determiningfactor.

485



Similarly, the question of what should be considered as the ratebase should be decided along the same lines.

In other words, what investment of capital is necessary for themaintenance of adequate service in the public interest? That isregulated more or less by competition, because no man can insists ona higher rate of return or a higher value for property involved in agiven service, than the comparable property.of a competitor renderingthe same service under the -same circumstances.

Senator DANAHER. Provided he can compete.Mr. OLIs. Yes; provided he can compete; but that is the essence

of competition.If a man has been in business, is an old firm in business in a par-

ticular territory where he has been free from competition, and hismode of doing business has become somewhat slovenly, and anothercompetitor comes into that territory with a lower rate, and he canoperate efficiently under that lower rate, then the first man has gotto find some way of reducing his costs in order to meet the situ-ation. That is precisely the way regulation should be brought tobear in the field of utility service, if people are to get the ampleutility service which is essential to their well-being.

Senator DANAHER. And if he doesn't find that way, you must findit for him.

Mr. OLDs. The way must be found, and if it has to be the Govern-ment which finds it for him, then the result of the Commission'swork during the last few years offers definite possibilities along thatline. I think that it should be worked out in a form of cooperationbetween the governmental agency and the business agency, and Ithink that both have the same interest, ultimately, and there is noreason why that should not be done.

There is one particularly striking example referred to in our an-nual report where a company came to us-it was one of the westernpower companies, came in to us with a request for the authorizationof a certain security issue-it is provided in the Federal Power Actthat we shall authorize those issues before they are valid-and instudying the financial structure of the company, its operating ex-penses, and so forth, in connection with that discussion, our Divisionof Finance discovered that the operating expenses of that companywere excessive, by an ordinary yardstick measure. In other words,their costs of reading meters, collecting and issuing bills, their com-mercial office expenses, general office expenses, administrative ex-penses, distribution expenses, those various elements of expense werehgh on a unit-cost basis as compared with costs we found to bepossible in similar companies that were more economically operated.

That company, when it came to us with a request for a securityoffering was not in a healthy financial condition. Its fixed chargeswere excessive, it was heavily bonded, and it could not refinance ata lower interest rate because it was heavily bonded, and because itsbusiness was not proceeding in a satisfactory manner. It wasn'tmaking enough net income to pay the cumulative dividends thatwere required by its preferred stock issue.

In an opinion, in which the Commission passed on that securityissue, in just a couple of paragraphs, it called attention to the factthat there were those elements of financial ill health in the company'sconduct, in its balance sheet.

486



As a result of that suggestion, the company has already workedout, within a little less than 2 years, economies which involved savingsof nearly half a million dollars in the operating expenses. Theyhave been so successful in doing that that the underwriting com-panies became interested in refinancing it, so that for the first timeit will obtain financing on the basis of low interest rates.

It will be able to revise its capital structure in such a way that itwill have a proper balance between bonds, preferred stocks and com-mon stocks, and the net result will be a much more satisfactory op-eration from the point of view of the investors themselves.

Now, I am suggesting that case as an illustration. That companygot into a condition where its costs were excessive because it had nocompetition to make it pay attention to its costs and expenses, and agovernmental agency, having the benefit of all the various operatingproblems facing companies of similar character-that agency wasable to give them advice and suggestions which were accepted bythe management of the company, and by the way it was an intelligentmanagement, and it took the advice and suggestions with the resultsthat I have mentioned above.

Senator DANAHER. You will understand I do not want it inferredthat I am argumentative as voicing opposition to youi purpose.

I think of the Federal Power Commission, for example, as the Con-gress itself-meaning that you are doing what we would do werewe able to do it; and it is just a question in my mind as to whetheror not. the touchstone by which you say you are testing the purposesassigned to you by Congress, could be sustained, having in mind thefact that you are opposing the adoption of any one of these bills.

I wanted your views, in full, as to the policy you follow, especiallybecause, as it seems to me, properly speaking, you are doing our jobfor us.

Mr. OLDS. I think that is precisely the right point of view.Have I put enough in the record to meet with your request?Senator DANAHER. I think so.Mr. OLDS. Well, we feel very much that that is what we are doing.

We are doing a job that was assigned to us by Congress, and we aretrying to do it as Congress would do it if it were able, if it could dealwith the technical matters that are to be assigned to commissionssuch as ours. We feel that we are dealing with these problems justas we have stated, and we feel that we are failing if we are unable togive to the country as a whole or give the people in the various re-gions, the expeditious relief that they are entitled to, as expeditiouslyas possible, with, as has been stated here, the lowest possible reason-able rate.

We feel that, if we are prevented from giving such expeditiousrelief, the methods set up by Congress are likely to be superseded byothers more direct in the application at some time in the future.

Senator DANAHER. Do you think that you are being exact in execut-ing the policy formulated by Congress and set forth in the enablinglegislation under which you are authorized to act?

Mr. OLDS. We are not formulating any policies. We are attempt-ing to take the policy Congress contemplated and carry it out to thebest of our ability, and we feel that in doing just that the variouslegislative proposals before your committee, which are designed, in

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general, to emphasize the private aspect of the matter, rather thanthe public aspect of the matter, would make for greater delays andmore litigation, and would definitely hamper the Commission in theaccomplishment of the purposes assigned by Congress. That is ourreal interest in the matter and we are anxious for everything thatcan be done to improve the regulatory procedure.

There is hardly a month that goes by that we are not taking stepsto try to improve the actual conduct of the Commission's business inrelation to various matters administered by the Commission, and weconstantly consult the parties subject to regulation before makingany important change.

Senator DANAHER. I think that gives a pretty good picture of thepoints that I wanted mentioned in the record.

Thank you.Mr. OLDS. I was discussing the broad reason why the Commission

feels that reconsideration should be given to these bills now beforethe committee.

I suggested that, in the first place, with the possible exception ofS. 675, these bills will invite more litigation and such litigation is themost serious threat to effective regulation.

In the second place, by the status given "hearing commissioners,"l hese bills would accentuate the judicial aspect of the Commission'swork, creating, in effect, two levels of decision and relegating theCommission itself to the position of an appelate body. To make thisplan effective would ultimately require duplication of the Commis-sion 's expert staff and would tend still further to delay the efficientoperation of the administrative process.

I think that calls for consideration, because if you have watchedthe development of regulatory history since it was initiated, in themain, as a State regulation, back along in the period of the first dec-ade of this century in which we live, I think you will detect a tend-ency, when it is felt that regulation is not working entirely satisfac-torily, to increase the complication of regulation, to increase theoverhead that is represented by regulation.

Now, regulation is an overhead, itself, an overhead on the country.It costs money. It would be extremely desirable if the country coulddepend upon the operation of the power systems without regulationto accomplish the public purposes. It would save money, not onlyon the part of the Government, but it would save money on the partof the utilities, themselves, that are involved.

I suggested one case in New York, the telephone case, that cost thecompany $6,000,000, and when it cost the company $6,000,000, that$6,000,000, is charged back to the consumers, and another case alongthat line was an electric case involving rates where the cost was$5,000,000, and, similarly, that was charged back to the consumers,and tended to result in higher rates.

What we do not want to see is the enactment of legislation whichwill tend to increase that overhead that rests on the people, and wefeel definitely that legislation of this kind, unless very carefullyconsidered, considered particularly with a view to certainly not goingbeyond the provisions of S. 675, and making very definite modifica-tions in that, will tend to increase the overhead, which, as I say, wouldresult in harm to the consumers.



These bills are going to cost the country money, going to cost thecountry money on the one hand by increasing the cost of regulation.As I take a look at them, I see the necessity of almost immediatelydoubling our legal staff. We have, I think, now, 42 lawyers on theCommission's staff. It is in the 40's, and I don't think it will be pos-sible to operate under any one of these bills with 42 lawyers. I thinkit would mean not only doubling our legal staff, but I think it wouldmean duplicating a great deal of our technical staff and accountingand engineering staffs in order to provide the proper advice thatwould be required, independently of the Commission's regular work,by these hearing Commissioners. It would, in a sense, set up a Com-mission within a Commission.

But I think it would cost the country money in an even more im-portant sense because if a $3,000,000 rate reduction is reasonableat this time, and the process of regulation reaching toward that ratereduction goes forward for 3 years before becoming effective, thenduring the three-year period the people who are served by the utilitiesduring those years are paying annually $3,000,000 in excess of whatthey should pay. Now, multiply that throughout the country, andtry to put some kind of figure on what it will mean if further delaysin regulation are introduced through the proposed legislation.

If anything is put forward which might even possibly result inadditional litigation, it is a cost to the Government and to theconsumer which will result in no improvement, unless the regula-tions are designed to further the competitive basis I have spoken of.These bills under consideration, however, will result in additionalreviews of procedure, and the effect of that, of course, has alreadybeen explained.

In the third place, these bills will tend to limit the flexibility andreasonable discretion without which the Commission cannot exerciseeffectively its responsibility for assuring the country ample suppliesof power and natural gas at the lowest possible rates, the intent ofCongress. In dealing with such a problem the best rules and pro-cedures are products of experience and it must not be forgotten thatthe Federal Power Commission is dealing with recognized monopolies.

I think that it should be underlined and emphasized that, amongthe various forms of regulation that are undertaken by the Gov-ernment where some of them deal with ordinary business processes,the Federal Power Commission is set up to provide the people withthe advantages which would derive from competition in a field thatis accepted as a monopolistic field. Under such circumstances, youhave got to allow the Commission performing the function sufficientlatitude and sufficient flexibility of action, so that it can meet theproblems as effectively as an organized company could meet theproblems. The Commission is, in a sense, the Government's partof the business conduct of utility enterprises. It is the Government'spartnership in the field that is represented by the Commission, anddecisions must be possible with the same expedition and precisionthat prevails in business enterprises.

Broadly speaking, these bills would further complicate an alreadycomplicated process which all efforts should be devoted to simplify-ing. For, under present conditions, without these bills on the books,it may take literally years to conclude a case designed to bringconsumers reasonable reductions in rates.



It has been said that respondent utility companies required toappear before the Commission are deprived of many of the aspectsof "procedural due process'"-in short, that these respondents do notreceive the rudiments of "fair play" from the Commission and henceare prejudiced in their rights. If "fair play" means time for arespondent utility company to prepare its case and prior advice asto contentions of the Commission's staff and opportunity to the com-pany to protect all its interests, the converse is true. For example,and these examples are all of recent origin:

In Dockets G-100, 101, 113, 127 the Hope Natural Gas Co. ratecase, the following chronology exists: On July 6, 1938, the city ofCleveland filed its complaint against the rates of the Hope Co. Thecomplaint was served and the Hope Co. had until August 18, 1938,to answer. After answer was received the Commission institutedits own investigation on October 14, 1938. The investigation soinstituted took over 2 years for the Commission's staff to complete.In October 1939 the Commission set this matter for hearing onDecember 4, 1939. On a motion and request of the Hope Co. thehearing so ordered was postponed until April 1, 1940. At requestof the company the place of hearing was set for Clarksburg, W. Va.,the company's home office. Hearings devoted to the presentation ofthe company's case alone were held in April, June, and July, 1940.The varying dates were responsive to the company's requests foradditional time in which to prepare their exhibits and testimony.After conclusion of the July 1940 hearings the next hearings wereheld in March 1941, at which time the case prepared by the staff ofthe Commission was presented. In November of 1940 the Commis-sion. heard argument on a motion by complainant, city of Cleveland,for an immediate reduction of rates based on the company's ownevidence. The case was already more than 2 years old. This mo-tion was denied by the Commission in December of 1940 on thegrounds that the record made at that time did not support the mo-tion. Hearings on the case of the Commission's staff have beenheld in March and April of 1941, and have recently been postponeduntil June of 1941 at the company's request to enable the companyto prepare for additional cross-examination.

During the course of the proceedings the Commission's staff, atthe request of the company, have held several conferences withcompany officials. The investigatory work of the staff has been per-formed for the most part in the company's offices under the eyes ofits officials. Copies of all the Commission's staff exhibits and testi-mony have been forwarded to the company's counsel substantiallyin advance of presentation to enable counsel to prepare for cross-examination. All working papers underlying Commission exhibitshave been made available to company counsel.

Three years have passed since the filing of the complaint in thiscase. Ample time has been given the company to prepare its case,cross-examine on the case of the Commission's staff, argue all mo-tions deemed by the company adverse to its interests, and no requestfor an extension of ti,1e has been denied the company.

Now, that case indicates, I think, clearly the outlines of the Com-mission's approach to according the private parties subject to its



jurisdiction the greatest possible amplitude in protecting their inter-ests and defending their rights.

I think, also, however, that it definitely suggests the necessity ofworking out new techniques in the field of regulation so that wherea city or an area is subject to rates which the consumers feel to beunreasonably high, the procedure necessary to reach a final determi-nation will not be a matter extended over a period of 2 or 3 years.

I think if we are going to make regulation effective, we ought toconfine the procedure to within a period of months, rather than aperiod of years, because that is the only way I can see that the con-sumers' interests throughout the country could be served, and that isvital to the interests of the country as a whole.

In Dockets G-109 and 112, the Natural Gas Pipeline Co. of Americarate case the following is the chronology. Complaint filed by theIllinois dommerce Commission in September 1938. Now, you willnotice that the first case was initiated by the city of Cleveland, andthis case was initiated by a State commerce commission. The com-plaint was served and the company given ample opportunity to an-swer. The Commission's own investigation was initiated after thecompany had filed its answer to the complaint. Hearings were begunin May 1939, and continued until October 1939, when the companyannounced it had concluded its case. During the period May 1939 untilOctober 1939 numerous postponements and continuances of the hear-ings then in progress were granted to enable the company to com-plete preparation of its case. On November 7, 1939, counsel for com-plainant and the Commission filed a motion for an order directing animmediate rate reduction based on the company's own evidence inall but one particular. Witnesses were presented by Commissioncounsel on this one matter and the company given ample opportunity.to cross-examine and present rebuttal material thereon. In Decem-ber 1939 this motion was argued orally before the Commission and.the company given until February 15, 1940, to file briefs in the matter.Between December 1939 and February 1940, additional hearings wereheld on the motion and the testimony of the Commission's staffthereon at the request of the company. On July 23, 1940, the Commis-sion issued its order reducing rates. The coinpany filed a petitionfor rehearing on that order which was denied in September 1940.Thereafter the company sought a review of the Commission's order inthe United States Circuit Court of Appeals for the Seventh Circuit.That court stayed the Comnission's order in September 1940, andissued its decision setting aside the order in April 1941. The court'sdecision noted that the Commission's conduct of these proceedingshad been more than consistent with all the requirements of proceduraldue process. The case will undoubtedly be appealed to the UnitedStates Supreme Court:

Nearly 3 years have passed since the filing of the complaint. Norelief has been given the complainants. The company has beenafforded every opportunity to contest any matter deemed by it ad-verse to its interests and was given ample time to prepare its owncase and cross-examination of the evidence and testimony presentedby Commission counsel.

That case, incidentally, involved the gas rates charged through-out the Chicago area. The company's own evidence, without any



effort on the part of the Commission to put in other evidence indi-cating the original cost of the properties, the company's own figuresfor what its properties were worth exclusive of so-called goingvalue, on the basis of a return of 61/2 percent which was consideredreasonable and the court in its decision, would have warranted areduction of about three and three-quarter million dollars to thepeople of Chicago.

Now, this case where such a reduction seems to be ultimately rea-sonable, is still in process and has been in process for over 3 years.Incidentally, one of the interesting questions raised by the court insetting aside the Commission's order, was the matter of allowancefor going values, so-called, and I think that there again we comeback very definitely to a consideration of the functions of the Com-mission as a means for providing for competition and protectingthe interest of those receiving services, seeing that they receive thoseservices at the.least possible cost. I doubt very much whether amanufacturing concern faced with, an active competitor could sus-tain in any way a contention that the value of his property includeda hylothetical value, such as a going-concern value. I think thatthat conception has only been introduced as a part of the more elab-orate reproduction-cost valuation theory, designed in the main t&circumvent the purposes which have been assigned by the Congressor by the State legislative bodies to regulatory commissions.

The foregoing illustrations demonstrate that this Commission, farfrom denying a respondent utility any of the aspects of proceduraldue process, in fact afforded the respondent utility far greater ad-vantages than it would enjoy under the traditional judicial pro-eeediigs of a Federal district court or United States circuit court ofappeals. The respondent is given more than ample time to prepareits case and cross-examination; the respondent is given more thanample opportunity through the filing of briefs and participation inoral argument to protect any and all of its interests, fancied or real.;the respondent receives copies of the testimony and exhibits of theCommission's staff prior to their introduction in evidence; the Com-mission is not bound by the contentions, arguments, or persuasionsof its staff but decides its cases independently. If "fair play" is to,be tested by the above standards it is apparent that respondentutilities before the Federal Power Commission receive far more thanthe mere "rudiments of fair play."

The real problem is how to achieve and award "fair play" to theindividual, unorganized consumer of these vital public-utility services.

The question has been raised as to the separation of the prosecutingand judicial functions. I do not look on any of our functions asprosecuting functions. I look on our functions as cooperative func-tions, looking to the achievement of ample utility service at the lowestpossible rates which is of joint interest to the investor and the con-sumer. It is only when the utility passes under control of meninterested in irrelevant private objectives that the proceeding appearsas a prosecution.The Commission has been working over the years and is constantlyworking to improve and simplify its procedures. In this process it

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has constantly in mind the best interests of the corporations subjectto its regulation, as well as those of the people as a whole.

As we have suggested in our annual report, what we are workingtoward in the Federal Power Commission, and hope to achieve, isthe kind of regulation which is self-regulation. I think that self-regulation not only will mean much more satisfactory businessfrom the point of view of the investor, but will also tend to re-duce the cost of that regulation. This steady improvement cango on most effectively if the Commission is not strait-jacketed byhaving its procedure frozen into rigid law. We are still young inthe administration of the broader aspects of our law. Our expandedregulatory authority dates from 1935. The regulation of interstatenatural gas pipe lines is much more recent, starting in 1938, and dealswith an industry that has been practically unaffected by regulationover the preceding years of its life. We are, you might say, in thedevelopmental stage. This stage involves the promulgation of rulesand their modification in the light of experience. Where these rulesaffect diverse interests, every precaution is taken to enable thoseaffected to have advance knowledge of their content and to expresstheir views.

We are also, in the process of making decisions, promulgatingopinions which to an increasing extent will define the Commission'sposition on important issues, clarifying in the minds of those sub-ject to Commission jurisdiction the laws of Congress to which theymust conform. Many of the problems involve close decisions whichcannot be handled properly without flexibility in dealing with indi-vidual cases.

In dealing with these problems we look, not alone to a satisfyingof the requirements of due process merely, but at the basic fairnesswithout which the essential functions over which the Commissionhas jurisdiction cannot be properly performed.

It is suggested that I should call attention to the fact that whereverI have spoken of "lowest possible rates," in connection with my testi-mony, that the word "possible" presumes the reasonableness of rates.

In other words, it might be amplified as the lowest possiblereasonable rate. Of course, as I have tried to suggest throughoutthis statement, our point of view towards regulation, and the pointwhich we feel is very important, is that it should bring the lowest ratewhich will enable people to use services in the greatest abundanceand must therefore, be high enough to include not only operatingcosts, but also all the necessary return on capital, provision fordepreciation, and so forth, which are the elements which would beprescribed in determining the reasonableness-a reasonable rate, interms of the public interest.

That rate must necessarily provide for the lowest possible costfor those services and at the same time include an adequate returnon investment and operating expenses, as I have stated before.

Senator DANAHTER. Thank you.Mr. OLDS. Now; I think that in terms of the more specific elements

of these laws, Mr. Youngman, our General Counsel, can bring to yousome of our thoughts.



STATEMENT OF WILLIAM S. YOUNGMAN, JR., GENERAL COUNSELOF THE FEDERAL POWER COMMISSION

Senator DANAHER. Will you please state your name and officialposition, for the record?

Mr. YOUNGMAN. My name is William S. Youngman, Jr., and I amGeneral Counsel of the Federal Power Commission, which positionI have held since April, 1940, a year ago.

I think that my statement may be expedited somewhat if I refrainfrom reading it in toto, and if it may be incorporated into the record,then I can go over and check some of the high points and save usall some time.

Senator DANAHER. You may follow that procedure, but you maytake as much time as you require.

Mr. YOUNGMAN. Thank you, sir.The Commission feels that S. 674 and S. 918 would be destruc-

tive of the administrative processes of the Federal Power Com-mission, and would tend to delay action, increase costs, and, in a way,would injure the purposes underlying the Federal Power and Natu-ral Gas Acts rather than help carry them out.

On the other hand, they feel that S. 675 would continue toassure due process in the judicial aspects of the Commission's work,but it does not adequately recognize the legislative and administra-tive character of many Commission proceedings, or the necessity forspeedy action in many cases to protect the public interest.

As Chairman Olds has pointed out, many, if not most, of our pro-ceedings are of a legislative character. For example, license cases,in a typical case a company might come in and apply for-or file adeclaration of intention to build a plant on the Susquehanna River,and we might, after a hearing, if the company requested one, deter-mine our jurisdiction, and that the interests of interstate commercewere affected. Then, the company would apply for a license, and inconnection with that application we would utilize our studies thathad been made pursuant to the direction of or appropriation by Con-gress, of that river basin. The Commission would have studies indi-cating where the best place for a hydro plant would be, and how itcould best be coordinated with other plants on the river, and wouldhave marketing studies, indicating where the power could be usedmost effectively. Then if it was found by the Commission to be inthe public interest, a license would be granted under the terms speci-fied in the Federal Power Act.

Naturally, we try to expedite those cases as rapidly as we can, be-cause there is a need for power in the country and we want to helpto increase our natural resources in this respect.

Our rate cases provide, as Mr. Olds pointed out-another exampleof the work of a legislative character. In such a case as that we maydetermine the original cost of the property. Frequently that isdifficult because books are sometimes missing, or vouchers are lost,and because many different methods of accounting were used bythe utilities. Recently, Congress has given us authority to prescribea uniform system of accounts for most of the utilities of the country.We are progressing gradually, but as rapidly as possible in thiswork so that ultimately our rate cases will be found more quickly



effective than they are now. When we get the rate bases deter-mined, when we find what the costs are, when the books of thecompany are kept in a uniform way so that they are readily under-standable, then we will be able to compare the costs of other com-panies, such as meter reading and other costs of service. Then,naturally, our work will be very greatly expedited.

But now, as we pointed out, in a number of cases it is the subjectof considerable study and work to get information of this sort, andit calls for the best abilities of a technical staff of accountants, engi-neers and lawyers.

I don't think it is generally realized, or generally thought of,that these delays in rate cases mean the loss of millions of dollarsto rate payers. Our determinations of rates, or future rates, do notrelate back to the time a proceeding was started, and, consequently,any delay means the loss of money to the rate payers.

Furthermore, we have this situation that the cost of fighting arate case on the part of the utilities is charged to the cost of service,charged to the very rate payers whose rates the company is tryingto hold up, and I don't think it is any exaggeration to say that that,itself, leads to delays. The lawyers are sure of getting fees. Thecompany is not particularly worried because these expenses comeout of the cost of service, which, in its turn, has to be paid by therate payers. Because of that fact there is a tendency toward dilatoryaction on the part of utilities in these cases.

The Commission feels that these accounting, rate, license, costs, andcertificate of convenience cases are quite different from the ordinaryvariety of proceeding.

They require the work of a skilled personnel, as we have pointedout. In general, the demeanor of witnesses is not of any greatimportance. Also, as I said several times, there is great desirabilityof expediting the matter as much as possible, consistent with beingfair, and consequently we feel that under all these bills this typeof case should be treated somewhat differently.

We feel that there ought not to be tiers of jurisdictional activitywithin the agency, itself, in this type of case; that the Commissionshould be able, after holding a hearing as it did in the NaturalGas Pipe Line Case, to proceed on the representations of its staffwithout having a decision of an independent hearing Commissionerwhich would just tend to delay the process; and we believe thatS. 675, if that is the bill that you finally turn to, that this particularsituation as to rate cases, cost cases, in fact all these legislative cases,should be treated in a special way.

Now, in connection with section 301 (d) of Senate 675 we were notquite clear as to the meaning of the exemption relating to-Matters concerning the conduct of Military or Naval establishments, or theselection or procurement of men or materials for the armed forces of theUnited States-

that section is not any too clear.We have a rather broad power, under the Federal Power Act, and

we have also been delegated some power by the President, by Execu-tive order, in connection with our defense matters. We may orderinterconnection of facilities, generation and transmission of power,



and after hearing, if the parties are not able to agree on what ratesshould be paid, we may fix rates.

In general, in these defense situations, we get a very high degreeof cooperation from the utilities, and frequently a conference accom-plishes the desired result.

For instance, recently the Newport, R. I., Torpedo Station neededpower, and the Newport Co. did not have the power available, andhad to get it from Fall River, but they could not seem to come to anunderstanding with Fall River about the situation. So, we held aconference and pointed out that we could order Fall River to generateand Newport to transmit, and we showed them studies of our staffwith respect to what the costs in the situation were, and the wholething was settled speedily, and the Newport Torpedo Station got itspower. But, where we run into a case where we can't settle it ina friendly fashion, we don't want to be involved in, or tied downby too many restrictions, when the results under this portion of thebill must be accomplished speedily.

Senator DANAHER. May I interrupt?Mr. YOUNGIVIAN. Yes, sir.Senator DANAHER. You are referring, now, to Senate 675?Mr. YOUNGATAN. Yes, sir.Senator DANAHER. Under 301, would sections 302 to 309, inclusive,

apply to you at all-that is, in view of the qualifications under section301?

Mr. YOUNGMAN. Well, I think it would apply to us in this case,because I don't think I made it quite clear that these conferences wereheld before the members of the staff, but possibly 301 (a) wouldapply in a case like that as a way of solving the difficulty.

Senator DANAiHiER. Wouldn't you feel that there were a great manyinstances where you would be exempted from the limitations as youconceive them to be in sections 302 to 309, inclusive, as a result ofthe exemptions provided in section 301?

Mr. YOUNGMAN. It was going to comment on the tremendous bur-den on the Commission staff at the present time. The point youraise is a very significant one.

Now, Nos. 674 and 918: We feel that they tend to provoke litigation,and we cite a number of specific examples. For instance, on page 5 ofour memorandum, we refer to section 105 of Senate 674 and section 500of Senate 918, which provide that all investigations shall be conductedin such a manner as to-disturb and disrupt the privacy or private occupancy or enterprise in the leastdegree compatible with adequate law enforcement.

I thinkdc that you can readily see that that language would give theutilities that we were investigating the opportunity to litigate thatquestion, even in cases where their claims were more or less ground-less. In that connection I call attention to our investigation of Mr.Hopson and the Associated Gas which was terribly delayed by everykind of dilatory tactic. It was very interesting to me to learn that-after the Associated Gas situation was at feast generally knownabout-the Hopson situation was allowed to continue, and it wasnot until 1939 that the various devices that Hopson had for siphon-ing money out of the companies that he was associated with werestopped.

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We were trying to stop it, but he prevented it many times largelyby procedural devices.

We have the same comments with respect to the necessity for mak-ing a reasonable showing before issuance of subpenas.

In fact, our Commission is very careful about iisuing subpenas.If it were possible for us to be brought into court in each instance, todetermine whether the Commission had been reasonable in issuinga subpena, our processes would be greatly delayed. In the summerand fall, we had an investigation of the political expenditures ofutilities in the Northwest and how they were accounting for them.We wanted to see how they were charging these expenditures underour uniform system of accounts, and whether they were chargingthe political expenditures to the rate payers instead of to the stock-holders.

Attempts were made to delay that investigation., among others,by refusing to obey subpenas, so we had to go into the courts, and itusually took 3 or 4 days to get before the Federal judge in question,and possibly we would not get the decision for 2 or 3 days after that,and the investigation was somewhat delayed because we had to liti-gate this question of subpenas.

Well, if we had to bring our evidence from Washington to theNorthwest to show the reasonable basis on which the subpenas wereissued, I think we would have had another little lawsuit in itself.

Now. coming to the rule-making procedures. particularly those oftitle II of Senate 674, our Connission, I think, has a somewhat dif-ferent point of view from that contemplated by those provisions. Wefeel that the best rules are made as a result of experience, and thatexperience in. particular cases provides the best information forpeople in the field. Apart from our own uniform system of accountswhich we did make in the case of the Power Act, using conferenceswith those concerned, and in the case of the Gas Act, using confer-ences and hearings, and all kinds of publications and that kind ofthing, apart from that situation, we think it would be a mistaketo try to rigidify rule making. Furthermore, we point to some lan-guage in the various provisions in Senate 674 and Senate 918 thattend to make it possible for the courts to review the discretion of theagency making the rules. Possibly, it was not intended to allowsuch review, but the way the statute is phrased now seems to openthe statute to that interpretation.

On the declaratory ruling point, we feel that the provisions of 675allowing such reulings in the discretion of the agency are to be pre-ferred to the mandatory provisions of 674. I think nearly every onewill agree that it is undesirable to force the Commission to issuedeclaratory rulings in cases where such rulings would not have anypractical value.

Then, there is a minor point as to 674 about notices. That attemptsto set up a straitjacket. It is that-They shall not be phrased in the words of the statute under which the agencyis proceeding, but that the words of the statute may be used in preliminaryrecitals.

We appreciate entirely the desirability of giving adequate noticeand making the notice as full and complete as possible, but it seemsundesirable, I think, to specify in the legislation that you can men-



tion a statute in a preliminary recital, but not in the main part of thenotice. I mean, that is the kind of thing that raises minor disputesthat tend to detract from the merits of a controversy.

Then, with reference to section 309 (h) of Senate 674, that requiresevidence of-materiality and probative force as recognized in Federal judicial proceedingsof an equitable nature-

We question whether that is intended to destroy the admissibility ofreliable hearsay evidence, in the kind of cases we have-for example,a recent case we had about the navigability of the Connecticut Rivermay be cited. There are a good many old histories taken from thelibraries of small towns up and down the Connecticut River, and agood many records of proceedings taken out of the courts up there.For instance, they may be lawsuits between a man who carried goodsup the Connecticut River in his boat, and somebody who had not paidhim. Hearsay evidence of that kind is very valuable, and in suchcases-it probably has a fairly high degree of reliability, and I thinkthe Commission should be in a position to consider it for what it isworth.

Now, on the question of judicial review, section 311 of Senate 674and section 805 of Senate 918 allowing review of "Administrativeaction otherwise arbitrary or capriciou, appeared to open a scope

of review not now available, the extent of which is uncertain andwhich might be used to hamstring administrative agencies seeking toprotect the public. If the requirements of due process are preservedand questons of law are reviewable, as at present, why is such a pro-,vision necessary?. And we also think that the proviso in section311 (e) stating that due weight shall be accorded "the experience,technical competence," and so forth, of the agency, as well as "the dis-cretionary authority conferred upon it" might inferentially be con-strued to open the discretion of the agency to review and obviouslyundesirable results.

In other words, there are several provisions in Senate 674 whichappear to open the discretionary authority of the agency to reviewwhile I appreciate that the draftsman of Senate 674 had the highestintentions, setting up an elaborate procedural straitjacket in ourfield does play into the hands of people who are fighting the publicinterests. I don't think it is necessary to comment more than fleet-ingly on section 708 of Senate 918, providing for appointment of localattorneys to act as examiners or hearing commissioners in these cases.

Senator DANAHER. I haven't found anybody who was in favor ofthat. [Laughter.]

Mr. YOUNGCIAN. I didn't think you would. I think that a goodmany of the local attorneys would probably be doubtful about that,too. Then, there is a point with reference to section 103 (a) of Sen-ate 674. Providing that there should be "the same opportunity forconferences or the submission of reviews or arguments" before thereviewing agency as before its subordinates may well lead to un-necessary duplication of effort. If the Commission gives adequatehearing, why is it necessary to specify that they should have thesame opportunity as they had below?

498



Then, we object to section 306 of Senate 674 and section 601 ofSenate 918, which gives persons involved in proceedings before theagency "access to the file or record of information upon which theagency proposes to act." We think that is objectionable if it is in-terpreted to require the agency to disclose all of its available in-formation and data to the respondent before the commencement ofa hearing. If it is so interpreted, every respondent will come toa hearing fully advised as to how much of the whole truth he mayconceal without being found out by fhe agency.

I may say, in this connection, that in many of our cases technicalexhibits and basic data on which we are going to proceed, aresupplied to the utility concerned in advance of the hearing. Further-more we are now working very hard to give vitality to our pre-hearing conferences.

We do even more of that now than we have in the past, but it-does seem unnecessary to disclose everything we have in our files,as long as we make sure, as we do now, that the decision is basedsolely on the record available to the respondent utility.

There is also a question to section 102 (d) of Senate 674, and titleI of Senate 918, which tends to cover the necessity for formal hear-ings and lay the basis for review. The definition of "adjudication"in Senate 674 seems unnecessarily broad. For example, we havebeen asked by the President to make recommendations to him inconnection with the facilities for export or import of electricity ornatural gas. That generally arises in connection with electric linesacross the Niagara and St. Lawrence Rivers, and sometimes acrossthe Rio Grande, land I think some gas lines across the Rio Grande:The President acts in such matters under his authority over foreigncommerce. Possibly that proceeding would be exempted under theexemptions relating to foreign affairs, but we think great careshould be exercised in defining "adjudication."

The Commission has grave doubts about the question of independ-ent hearing commissioners, and I have stated their doubts at page11 of my memorandum, and we feel this would increase the cost ofmaintaining the agency, that it would require an additional staffof assistants for the hearing commissioners and examiners in tech-nical cases like rate or accounting proceedings; that they might be-come the source of greater delays than now exist. The Commissionfeels that by making the agency, itself, a formal reviewing body,the utilities which we are regulating are afforded two appeals, onebefore the Commission, and another in the courts.

Those objections are stated generally, with the qualification thatSenate 675 is less objectionable from that standpoint, and we feelthat if Senate 675 were modified or redrafted in some way to dealwith this problem of rate cases and accounting cases and technicalcases where we act in a legislative character, it might be made atleast workable.

Senator DANAITER. If yOU have any suggestions as to proposed.amendments, you are perfectly at liberty to send them to us.

Mr. YOUNGMAN. Thank you, sir.Then, the memorandum has cited-what your committee prob-

ably has clearly in mind-the objections of the President to the



Logan-Walter bill. He has stressed the desirability of finding a. wayto expedite, simplify, and cheapen the judicial process and to pro-tect the courts from being overwhelmed with controversies growingout of regulatory or remedial statutes. He felt that the Logan-Walter bill culminated-repeated efforts by a combination of lawyers who desire to have all 1)roc-esses of government conducted through lawsuits, and of interests which desireto escape regulation.

He thought that it would "turn the clock backward" at a. timewhen the country could ill afford the luxury of increased litigation,and the Commission feels that these objections are just as true ofSenate 674 and. Senate 918 as they were of the vetoed Logan-Walterbill.

We discuss Senate 675, starting at page 12 of our memorandum,and we make some specific suggestions for improvemnent. We sug-gest amending section 107 (7) to provide an opportunity to eachagency to file with the President and the Congress a reply to thereport of the Director of the Office of the Federal AdministrativeProcedure simultaneously with the filing of the Director's report.

That is similar to the procedure that has grown up in the rela-tion between the T. V. A. and the General Accounting Office. TheGeneral Accounting Office filed a report about the conduct of theT. V. A., and T. V. A. is given a chance to reply at that time.

Section 205 of Senate 675 provides for a more extensive reportabout rules and regulations than we make now, and it seems to usto serve no useful purpose. We publish our rules now and putthem into the Federal Register, and I frankly doubt if section 205would contribute very much to the information of Congress or any-body else. I doubt that Congressmen would have very much timeto read that kind of thing, and it seems hardly necessary to addto the already great burden that all administrative agencies have,and try to live up to, of giving a full account of their activities.

Mr. Olds mentioned our twentieth annual report this year, andparticularly the summary, right in the beginning of it. I thinkthat it might be interesting to the committee, because it was aproduct of months of effort.

Senator DANAHER. I suggest that you file it for the committee'sconsideration; there is no necessity for having it printed as long aswe may have it as an exhibit.

Mr. YOUNGMAN. I will be glad to.(The decoument referred to, The Twentieth Annual Report of the

Federal Power Commission, was received into the files of the com-mittee.)

Mr. YOUNGMAN. Then for the first time, besides describing ourwork, we tried to show the type of cases before us, and we have triedto show how we are carrying out the mandate of Congress, and todescribe some of the more important cases in which we have partici-pated. The tempo of the activity of the Commission has beengreatly increasing, and I think our decisions in the past year ap-proximately equal in number our decisions for the preceding 20years, and this report provides a very full way of determiningexactly what we are doing.



I think that section 301 (b) should be amended to exempt hear-ings held jointly with State Commissions or their representativespursuant to section 209 of the Federal Power Act and section 17 ofthe Natural Gas Act. Both of those sections allow us to hold jointhearings. We frequently do hold such hearings because we havemade Herculean efforts to cooperate in every respect with the StateCommissions. Naturally, we have many related problems. If wetake rate cases, we regulate the wholesale rates, and then assum-ing that we put a reduction into effect, the State Commission maywant to go ahead and pass on the benefits to the consumers; in verymany cases they desire to sit with us, and we freely accord themthat opportunity.

Then, we suggest an amendment of section 302 (2) of 675 to pro-vide more reasonable salaries in conformity with the existing clas-sification schedules that relate to examiners. We think that prob-ably they should not all be paid exactly alike. All of the bills aretoo rigid in their requirements as to the pay of examiners.

We feel, in our next suggestion as to 302 (3) that the examinersshould not have terms longer than those of the members of theCommission, and that grounds for removing them should be broad-ened to include a refusal to follow the policy of the agency, or arefusal to discharge duties with expedition and skill. In otherwords, if you are going to have important examiners they shouldbe required by the agency to maintain a very high standard of workand accomplishmient.

Senator DANAHER. That reference should be to section 302, sub-clause 5.

Mr. YOUNGIMAN. Possibly.Senator DANATTER. That is on page 13 of 675.Mr. YOUNGMAN. Yes, sir; that should be amended to read sub-

clause 5. That should also be corrected in my memorandum.Then, in section 302 (2), we think that there need be no hear-

ing-that the clause should be broadened to include cases where thefacts are all in writing. I mean, they might not-possibly that wasintended anyway, but the facts might not be agreed to, but all ofthem might be in writing, in a written document, in which case, nohearing would seem to be absolutely necessary.

Senator DANAI-ER. I think you are covered in that respect, where itsays "if the agency tribunal otherwise directs," in lines 14 and 15, onpage 17?

Mr. YOUNGMAN. Yes; I wonder whether that would cover the factswhere they were stated in writing, even if not agreed to. I mean, youmay take a contract, the interpretation of the contract. The con-tract might be in writing, and there might be no collateral evidence.We do not know whether such a situation would be covered there ornot.

We have already stated that it is highly important, in our opinion,that S. 675 should be amended so that we may retain our present dis-cretion in handling matters of a legislative nature, such as rates, ac-counting, issuance, of license and certificates of convenience, and cost-determination proceedings. We have already made the point aboutthe national-defense activity.



In conclusion, I would like to say, as I have mentioned already, thetempo of the activity at the Federal Power Commission has increasedvery greatly. I think that we are very much understaffed. Our 40lawyers all put in several nights per week overtime, and a great manyweekends.

For example, last night there were more than 100 employees out ofabout 500 or 600 located in our main building, working after supper.

We try very hard and very sincerely to make regulation work. Inmy opinion, our processes are still much too slow, and we have gotto develop new techniques and provide more expeditious regulationthan we have. I speak now, not for the Commission, but for themembers of the staff, I hope that as long as the courts can review the

uestion of whether or not we are fair to the companies that we areealing with-I hope we will be allowed real discretion in trying to

improve our procedures.Senator DANAIHER. Does that conclude the Commission's pres-

entation?Mr. OLDS. Senator Danaher, I would like to make a short statement

clarifying one question that came up in connection with nationaldefense.

Senator DANAURER. Yes.Mr. OLDS. I think it was your suggestion that section 301 (a)

would, in effect, exempt the proceedings which Mr. Youngman hasdescribed in connection with national defense, from the provisions ofsections 302 to 309, inclusive, in this bill. That section 301 (a) pro-vides for the receiving of evidence before an agency tribunal or be-fore one or more individual members of an agency tribunal. Inconnection with national defense emergency activities of the Com-mission, partly because of the urgency of the work-in fact, almostentirely on that account, there would be very few of the activitiesthat would come under the category indicated by (a). Therefore,I call attention to section 202 (c) of the Federal Power Act, whichis one of the important elements on our part dealing with nationaldefense activities, and that subsection (c) of 202 reads:

During the continuance of any war in which the United States is engaged,or whenever the Commission determines that an emergency exists by reasonof a sudden increase in the demand for electric energy, or a shortage of electricenergy, or of facilities for the generation or transmission of electric energy,or of fuel or water for generative facilities, or other causes, the Commission-hall have authority, either upon its own motion, or upon complaint, with orwithout notice, hearing or report, to require by order such temporary connec-tions of facilities, and such generation, delivery, interchange, or transmissionof electric energy as in its judgment will best meet the emergency and serve thepublic interest.

Now, that puts the question of action, in case of an emergency, orparticularly in case of a state of war, squarely on the Commission.To exercise its broad powers for the protection of the country and theessential industries in the country, to guard against interruptionsof power service, and to meet all requirements it would be practi-cally impossible to go through processes involving hearings, and soforth, before the agency tribunal, or before any individual members.As a straight administrative matter, of an emergency character, agreat deal of the work of the Commission today is in the defense



field, and the Commission and its individual members in an admin-istrative way, are striving for protection against sabotage, and arechecking into plant facilities and line capacities in order to meetfuture needs, and it is essentially a matter of a technical staff, keyedto the expeditious action that is required by emergencies. I call thisto your attention because I think that if the act does not provide forsome exemption of this defense activity, it is rather essential thatsuch provision be made.

Senator DANAHER. My question was not limited to defense, inreference to Mr. Youngman's statement. I was pointing out thatmuch of his feeling with reference to hearing commissioners neednot concern us, as I see it, in view of the fact that the operation ofsections 302 to 309, inclusive, would not inveigh, because clause (a)exempts a very large field of hearings. But with reference to de-fense, I would say that the language in lines 20 and 21, of page 11,clearly protects you, and you need have no misapprehension for theword "or" is used in the disjunctive, following the word "establish-ment"; consequently, the provision shall not apply to (d) "mattersconcerning the conduct of the Military or Naval Establishments."

I would feel that that very case to which Mr. Youngman referredat Newport, would clearly come within such language, and that you,therefore, would be protected.

Mr.. OLDs. The language, "selection or procurement of men ormaterials", would apply to that, would it not?

Senator DANAHER. I don't think you need have any apprehensionson this score, and that the bill is sufficiently flexible to cover the point.

Mr. YOUNGMAN. I would like to have admitted to the record areference to the Attornty General's Committee on administrativeprocedure, in their finial report, pages 358 through 362, which statesthe time required on the Comnission's cases of the Federal PowerCommission, during June and July of 1940, and I would like to havethat added, to supplement our testimony, and I ask that it be incor-porated by reference only.

Senator DANAIER. You have given the pages?Mr. YOUNGMAN. Yes, sir, and I also want to say one thing which

I forgot to add:It had been our experience that in the conduct of an agency like

ours, there is considerable protection for both public and privateinterests in the fact that you have five men who naturally havedifferent views or slants on the same problems, and, in that connection,I can say that those gentlemen are very independent, as a Comnmis-sion, and on many occasions they do not follow the views of the tech-nical staff, I know they go very wholeheartedly and fully into agreat many records until they feel that they know the cases thor-oughly before deciding upon them.

Senator DANAHER. The pages you spoke of, in the Attorney Gen-eral's Committee on Administrative Procedure Report may be incor-porated by reference only.

(Off the record discussion as to time of next meeting.)Senator DANAHER. Thank you, gentlemen, for your attendance

here this morning and your information.

316412-41-pt. 2-3



There being nothing further, the committee will stand adjourneduntil Friday morning at 10 o'clock.

(Whereupon, at 12:30 p. m., the committee stood adjourned untilFriday, May 2, 1941, at 10 a. m.)

COMPLETE WRITTEN STATEMENT OF WILLIAM S. YOUNGMAN, JR.,GENERAL COUNSEL, FEDERAL POWER COMMISSION

FEDERAL POWER COMMISSION MEMORANI)UM FOR THE SEaNATE SUBCOMMITTEE ONTHE JUDICIARY RE PROPOSED ADMINISTRATIVE LAW BiuLs

(S. 674; S. 918; S. 675)

1. INTRODUCTION

S. 674 and S. 918 would be the most destructive of the administrativeprocesses of the Federal Power Commission. They would delay administrativeaction, greatly increase its cost, and would injure the purposes underlyingthe Federal Power and Natural Gas Acts, rather than help carry them out.

(a) S. 675 is not destructive of the judicial aspects of the work of theFederal Power Commission but neglects the legislative aspects of its work.-S. 675 would continue to assure due process in the judicial aspects of theCommission's work, but it does not adequately recognize the legislative andadministrative character of many Commission proceedings or the -necessityfor speedy action in many cases to protect the public interest.

(b) Legislative aspects of the Federal Power Commission's work-Licensecases provide typical examples of the activities of the Federal Power Coin-mission in carrying out the legislative functions delegated to it by Congress.When the Commission decides when, and on what terms, a private interestshall develop the public resource of water power on a stream over whichCongress has jurisdiction, it is doing for Congress what Congress does nothave time, opportunity, or facilities to do directly.

Setting rates to be charged by utilities provides another example of workof a legislative character. In arriving at a proper rate, the Commission deter-mines the original cost, proper accounting methods, and what is the returnnecessary to encourage continued investment in the business.

Public utilities are by name, definition, and history engaged in a- publicbusiness. The public may engage in the business itself, as through theTennessee Valley Authority, where the Government agency directly fixes therates for the power which it sells; or on the other hand, the public maydelegate utility operations to private interests, subject to some sort of regula-tion which must, in the public interest, be effective and prompt in its operation.

Delays in rate cases mean the loss of millions of dollars to rate palyers.-Because there is no loss to the companies, the private utilities frequentlytry to resort to dilatory tactics in such cases. In doing this, the private utilitiesare abetted by lawyers whose fees are charged not to the company's stock-holders but to cost of service to the very rate payers whose interests theyare trying to defeat. Involving rate determinations either by the TennesseeValley Authority or Federal Power Commission in elaborate .hierarphicaljudicial proceedings within an agency would defeat the speedy protection ofthe public interest, which is the purpose of regulation.

(c) Proceedings of a legislative natur6 should not be forced into a judicialstrait jacket within an agency.-Accounting, rate, license, cost ,and certificateof convenience cases require the skilled preparation and decisions of account-ants, engineers, and attorneys. The evidene in such cases does not involveconsideration of demeanor of witnesses or anything else necessitating theestablishment of a two-stage judicial proceeding within the Commission.

We are constantly devising new techniques to speed up rate regulations so thatthe public may have the benefit of any warranted rate reduction at the earliestpossible moment. For example, we have recently issued a $3,750,000 interme-diate rate reduction order against the Natural Gas Pipeline Co. of Americawhich operates in the Chicago area. This was done after the company hadconcluded its presentation of evidence, but before the Copnmission h'ad put inany evidence except as to what would constitute a fair rate of return. For the



purposes of this order the Commission accepted many of the company's figures,and still found this large reduction to be necessary and appropriate.

In rate and other similar cases the Commission should not be required towait for elaborate findings from independent judicial officers within the agency.After affording due process and opportunity to be heard to the parties con-cerned, it should be able, if it deems it necessary in the public interest, to pro-ceed on the recommendations of its staff. Above all, the Commission should befree of any judicial strait jacket within the agency itself.

In any event, discretion should be left to the Commission to achieve speedierrate, accounting, license, cost, and certificate of convenience regulation as it iscontinually trying to do. S. 675 should be revised to take care of these,situations.

If. CONSIDERATIONS OF NATIONAL DEFENSE

We question whether any of the bills adequately except the national-defenseactivities of the Federal Power Commission. Does the procurement of mate-rials, which is excepted, cover tlme procurement of power to make such materials?

The Federal Power Commission under its statute, and by delegation from thePresident, is charged with the duty of seeking to assure an adequate nationalpower supply. In carrying out these mandates it may order interconnectionsof facilities, generation and transmission of power, and, after hearing, fix rateswhere the parties have been unable to agree. It may assist in guarding againstbreak-downs and sabotage. The exemption for national-defense activities shouldcertainly be widened if that is necessary to assure nonintercourse with theexecution of th se duties.

Possibly the lack of clarity in the acts could be cured by adding an amend-ment to section 301 (d) of S. 675 exempting, in-addition to tme procurementof men or materials, such further functions relating to time national defense asthe President may deem necessary or desirable to exempt from time to time.

IU. DETAILED DISCUSSIONS OF SOME OF THE SHORTCOMINGS OF S. 674 AND S. 918

(a) Provocation of lit igation.-These hills are lrgely devoid of redeemingfeatures. Passage of either one would strike a severe blow at the adminis-trative processes of our Government. The cardinal feature of both bills is toprovide for recourse to time-consuming litigation at almost every step of theadministrative process. Litigation is fostered, not only by specifically extendingcourt review, but by providing new bases for dispute in the rhetorical phrasesand vague words employed.

"(b) Loose language.-Examine, for example, section 105, S. 674, and section500, S. 918, which' provide that all investigations shall be conducted in such amanner as to disturb and disrupt personal privacy or private occupancy orenterprise in the least degree compatible with, adequate law enforcement."One cannot readily define,- without recourse to countless court-made limitations,tile meaning of the terms and phrases italicized in the preceding quotation.

As a matter of course, every investigation undertaken by the Commissiontwould probably be challenged by the utilities, since, it nmst be remembered,delays generally mean mnoney in the utilities' pockets at the consumers' expense.This is particularly true of rate cases, where investigatory procedure is mostoften used by this Commission. The expenses of litigation in a rate case arecharged against the rate payers, so the utility often feels it has nothing torisk by invoking litigation ill such instances.

A striking example of tile facility with which delay can be achieved, evenunder present conditions, is illustrated in the recently completed investigationof the Commission into the affairs of Howard Hopson and his Associated GCas& Electric utility empire. The Commuission's investigatory process was firstinvoked in March 1936. After recourse by tile respondents to practically everytype of dilatory tactic available in the premises, including a refusal to producebooks which forced the Commission to go to the Supreme Court of the UnitedStates, the Commission was finally able to terminate the matter by its oDinionand order of September 1940.

The examiner's report, the Commission's opinion, and the present status ofHopson's system il the bankruptcy court, colstitute an eloquent testimonialto the glaring necessity for expeditious and precise inquiry into, and regulationof, public-utility enterprise. Had S. 674 and S. 918 been in effect, Hopson



would have had further opportunities to delay the retribution that finallyovertook him.

Section 107, S. 674, and section 501, S. 918, providing for issuance of subpenas upon a "reasonable" sh'owing of certain facts; as well as section 204,S. 674, providing that rules may he modified *'where no rights are abridgedor serious advantage imposed thereby upon reasonably adequate notice to" (thepersons affected), are replete with language of the character which invitesfurther unnecessary litigation.

In our recent investigation of political expenditures by the utilities in theNorthwest, under the provisions which* are proposed as to subpenas, we shouldhave been dragged into the courts by utilities seeking delay merely to preventa speedy disclosure to the public of the true facts. An effective investigationexposing large political expenditures by the utilities to purportedly disinter-ested taxpayers' associations (expenses, which in some instances were chargedto the rate payers as part of the cost of service), was delayed when we hadto go into court on two occasions to enforce obedience to subpenas. Under.9. 674 and S. 918 our investigation could and would have been much' furtherdelayed.

Investigations of this character are fought at every turn. The proposedprovisions would only add to the arsenal of weapons of those seeking to defeatthe public interest, and are not necessary to the protection of those privateInterests which are not seeking to take undue advantage of the public.

(c) Proposed rule-making procedures are stiling.-We have very serious ob-jections to the provisions of title 2, S. 674, and the more onerous provisions oftitle 3, S. 918, which seem to be based on the general formalism that underliesthe continental legal codes. English and American common law has generallygiven greater recognition to the necessity for flexibility in dealing with widelyvarying and individual situations. In general, the proposals would rigidifyprocedures, complicate rules, and foster creation of a special class of expertson rules, somewhat similar to those lawyers who specialized in the chief tech-nical feature,.of the ancient common law-its pleading.

Most of our cases (rates, certificates of convenience, etc.) are of a type to bedecided on the merits on all the facts, rather than to be forced within the rigidlimit of specific rules as suggested by section 200 (c), S. 674, and section ?00(c), S. 918. :utside of our uniform systems of accounts, there are few situa-tions where rule-making of a substitutive nature would assist public or privateinterests. Most of our cases vary greatly in their facts and the weight to beattached to the various factors of public interest involved. We feel stronglythat the best rules are formulated as the result of experience in particular cases.

Apart from the declaratory rulings usually rendered in cases relating to ques-tions of jurisdiction or the applicability of the Federal Power or Natural GasActs, it seems more desirable in our field to develop general policies by meansof specific individual cases rather than try, as suggested by section 202 (d),S. 674, and section 302 (c), S. 918, to formulate rigid policies in advance. EverySenator who has participated in drafting legislation must be readily aware howdifficult it is to foresee every one, or even many, of the specific situations thatmay later arise under the statute. In mose of the Federal Power Commis-sion's work, for example in rate cases, to adopt statements of policies or inter-pretive rules, as under the foregoing proposed provisions, would tend to com-plicate rather than assist efficient administration. In our twentieth annualreport, just issued, we have analyzed our work on a functional basis in sucha way as to give the clearest specification of our policies possible at this time.We now also fully state the reasons for our actions in our opinions which arepublished as soon after issuance as possible.

Unnecessary burdens as to further statements of internal organizations, inaddition to those already contained in the Government Manual and the Con-gressional Directory, are thrown on the Commission by sections 202 (a) and203 (d) of S. 674 and section 302 (a) of S. 918.

The provisions of section 211, S. 674, and section 400, S. 91.8, providing forjudicial review of rules and declaratory judgments relating thereto, seem veryundesirable. They would definitely provoke unnecessary litigation. The reviewof the "discretion of the agency, including the propriety of interpretative rules orthe reasonableness of rules," might allow the courts to substitute their judgmentfor that of the specially trained administrative body to which Congress has dele-gated the responsibility of dealing with the specialized questions involved.



Section 209, S. 674, and section 303, S. 918, provide a choice of several time-consuming alternatives to be utilized in the process of rule making. Exceptionmay be had from these provisions in case of "emergency." In connection withour duty to assist in assuring an adequate national power supply, particularlyour periodic orders to the industry to supply us with information as to currentpower demands and available supply, we should not like to-be in a position wherewe might be forced to litigate the meaning of the word "emergency" while takingsteps to meet one.

(d) Unnecessary litigation.-We have already pointed out how the provisionsfor judicial review of rule making, provided for in S. 674 and S. 918, provide anew and broad field for unprecedented litigation.

Section 304, S. 674, makes declaratory rulings mandatory when requested,whereas S. 675, section 401, provides that such rulings are permissive in theagency's discretion. The mandatory provision S. 674 is objectionable. It mightlead to the submission of problems, the solution of which might have no practicalvalue to the public. The courts have usually frowned on issuing declaratoryrulings in such cases. In order to prevent itself from being overburdened, theagency should have discretion as provided In S. 675 to decide in what cases declara-tory rulings should be issued.

(e) Unnecessary fo rmality.-Section 305, S. 675, and section 701, S. 918, estab-lish an unnecessary and undesirable strait jacket for notices, complaints, orders toshow cause, moving papers, etc.

Adequate notice of the issues is sufficiently assured by the requirements of dueprocess. Trying to formalize further provisions for giving notice would lead toundesirable disputes as to detail tending to detract from consideration of themerits of any problem. For example, if adequate notice as to the issues is given,why should it make any difference whether or not, or where in the notice, thewords of a statute are used in stating the issues.

The imposition of responsibility on the agency for making further suggestionsto persons whose requests are denied may also be detrimental to the public inter-est. Take for example the denial of an application for a certificate of conveniencean(d necessity to a gas company to build a pipe line. It would be highly unwiseto throw the responsibility on our agency to suggest exactly under what circum.stances such a certificate would be granted. Estoppels and alleged estoppels mightbe created that would in fact, or for psychological reasons, prevent the agencyfrom arriving at a proper conclusion on the merits in future proceedings relatingto the same gas company.

Section 309 (h), S. 674, and section 703, S. 918, in requiring evidence of a "pro-bative force as recognized in Federal judiciary proceedings" might be construedto destroy the admissibility of reliable hearsay evidence which is generally recog-nized as useful in certain administrative proceedings.

For example, a hundred-year-old history book telling about the passage ofboats up and down the Connecticut River may be extremely useful in estab-lishing the navigability of the Connecticut River. Or in another instance,testimony before the Federal Trade Commission in its inquiry into holdingcompanies and their subsidiaries, although technically not available in a sub-sequent judicial proceeding, may be of great value and importance in estab-lishing facts now difficult to establish by direct evidence.

if) Disregard of specialized administrative skill.-The provisions of section311 (e), S. 674. and section 805, S. 918, allowing review of "administrative actionotherwise arbitrary or capricious," appear to open a scope of review not nowavailable, the extent of which is uncertain and which might be used to ham-string administrative agencies seeking to protect the public. If the require-ments of due process are preserved and questions of law are reviewable, asat present, why is such a provision necessary?

The proviso in section 311 (e), stating that due weight shall be accorded"the experience, technical competence," etc. of the agency as well as "the dis-cretionary a uthority conferred upon it" might inferentially be construed toopen the discretion of the agency to review, an obviously undesirable result.

(g) New business for lawyers in disregard of public iate):est.-Section 708,S. 918, will not only impose great hardship and expense in arbitrarily imposing,in practically every case, the necessity for hearings at the situs of respondent'sbusiness or residence, but will impose the unworkable and completely irrationalcondition that the presiding officer at such hearings be a local attorney, prob-ably unskilled in the particular field in which the dispute arises.



Practically every proceeding initiated by, or in which this Commission par-ticipates, involves a petitioner or respondent who is domiciled outside theDistrict of Columbia. Thus, this agency, for all its dependence upon expertknowledge and skill peculiar to its special field, might be put, in many cases,at the mercy of a technically ignorant and politically fortunate attorney.Under such circumstances the idea of trained administrative tribunals wouldbecome largely a fiction.

(h) Duplication of arguments.-Section 103 (e), S. 674, providing that thereshould be "the same opportunity for conferences or the submission of reviewsor arguments" before the reviewing agency as before its subordinates, may welllead to unnecessary duplication of effort. As long as due process is afforded,it seems undesirable to include a provision that may be interpreted to requirethe reviewing agency to rehear lengthy arguments or again receive prolongedbriefs just because these featured a subordinate state of the proceeding.

(i) Failure to protect the integrity of confidentiat inforination.-Section 306,S. 674, and section 601, S. 918, giving persons involved in proceedings before theagency "access to the file or record of information upon which the agencyproposes to act," is objectionable if interpreted to require the agency to dis-close all of its available information and data to a respondent before the com-mnencement of the hearing. If it is so interpreted, every respondent will cometo hearing fully advised as to how much of the whole truth he may concealwithout being found out by the agency.

In another case it may be claimed that the books of a utility under investiga-tion are missing. We may be advised confidentially by an employee of theutility where the books are. In such a case why should we be forced to dis-close the source of confidential information by making our files available to theutility? In such a case, if we obtained the books, the books would be of record inthe proceeding, and the decision, as in all our cases, would be solely based onthe record developed in the formal proceeding.

(j) Failure to define adjudication satisfactorily-Neither section 102 (d), S.674, nor title I, S. 918, satisfactorily define "adjudication." When consideredin the light of section 308, S. 674, and section 802, S. 918, they appear to requireformal hearings in almost all matters which involve "a making up of the mind."There seems no reason for throwing added burdens on the agency by extendingthe requirement of formal hearings.

We should not care, for example, to be required to hold formal hearings withreference to the issuance of Presidential permits for the maintenance of facili-ties at international boundaries for the export or import of electricity or naturalgas. The authority to make recommendations in such matters has been dele-gated to us by Executive order of the President. If our recommendation is ad-verse to an application for a Presidential permit, judicial review would seem anunnecessary encroachment on the authority of the President.

(k) Views as to independent hearing Commissioners.-In the judgment of theFederal Power Commission it is a mistake to confide to a hearing Commissioneras much independent authority as would all of the bills presently before thecommittee. Of course, S. 675 is the least objectionable from that standpoint, buteven it, as it now stands, tends to create an "agency within an agency."

In setting up independent hearing Commissioners, it should be remembered that(1) they would increase the cost of maintaining the agency; (2) they wouldrequire additional staff for assistance in technical cases like rate or accountingproceedings; (3) they might become the source of greater delays than now exist;and (4) by making the agency itself a formal reviewing body, the utilities whichwe are regulating are afforded two appeals, one before the Commission, anotherin the courts.

(1) Similarity to previously vetoed bill.-S. 918 is the counterpart of the Walter-Logan, bill which was vetoed and severely criticized at the last session of Con-gress. S. 674 is similar to S. 918 in many respects. Both are inimical to thebest interests of the administrative processes and the public as a whole, for thereasons here mentioned, and for all the reasons given by the President for vetoingthe Walter-Logan bill.

The views of the President, that the Logan-Walter bill would interfere with (1)"the cheapening, expediting, and simplifying of the judicial process" and (2)"protection of the courts from being overwhelmed with masses of controversies,growing out of regulatory or remedial statutes" ; that the bill culminated "re-peated efforts by a combination of lawyers who desire to have all processes of



government conducted through lawsuits and of interests which desire to escaperegulation"; that it would "turn the clock backward" at a time when the countrycan ill afford the "luxury of increased litigation" are all just as true of S. G74and S. 918 today as of the vetoed Logan-Walter bill.

IV. DISCUSSION OF S. 675

As we have observed, S. 675, though much better than S. 674 and S. 918 (1),overemphasizes the judicial aspects and neglects the legislative aspects of ourwork and (2) misses an opportunity to achieve progress.

(a) Suggested improvements in. S. 675.-We suggest modification of S. 675 inthe following respects:

1. Amend section 107 (7) so as to provide an opportunity to each agency tofile with the President and the Congress a reply to the report of the Director ofthe Office of the Federal Administrative Procedure simultaneously with the filingof the Director's report.

2. Delete section 205 entirely. In view of the report to be made by theDirector of the Office of the Federal Administrative Procedure, and the currentpublication of all agency rules and regulations in the Federal Register, it wouldserve no useful purpose, except to occasion unnecessary expense and labor, toreassemble then in a report to Congress. Likewise, the Director of the Office ofthe Federal Administrative Procedure, can high light for Congress any data orsignificant information relative to refusals to comply with requests for reg-ulations received under section 204.

3. Amend section 301 (b) to exempt hearings held jointly with State commis-sions, or their representatives, pursuant to section 209 of the Federal PowerAct and section 17 of the Natural Gas Act.

4. Amend section 302 (2) to provide for more reasonable salary levels in con-formity with existing classification schedules. In any case, salary schedulesshould be left to arrangement between the Director of the Office of the FederalAdministrative Procedure and the affected agency. Payment of higher salarieswill not necessarily insure high caliber personnel : and some room for adjustmentshould be left so that periodic raises and promotions could be effected until amaximum is reached.

5. Amend section 302 (5) to provide a shorter term of office, about 5 years,and to broaden the grounds for removal. Such grounds should include failureor refusal to follow the policies of an agency as determined by it and reflectedin its decisions, opinions, rules, and statements of policy; or a failure orrefusal to discharge his duties with the expedition and skill, or in a manner,suited and requisite to the office.

6. Amend section 302 (2) so as to exempt from hearing, cases in whichfacts are all stated in writing, i. e., where facts may be placed in issue, butwhere no oral testimony is required.

7. We have already mentioned the highly important recommendation thatS. 675 be amended so that we may retain our present discretion in handlingmatters of a legislative nature, e. g., rate, accounting, issuance of license andcertificates of convenience, and cost-determination proceedings. If a bill likeS. 675 is to be passed, this modification is, as we have said vital to carry outthe purposes of our act. Our legislative work, particularly rate making, shouldnot be forced within the confines of seriated judicial proceedings within thisagency.

8. Another important recommendation that we repeat, as to S. 675, is thatrelating to clarification of section 301 (d) exempting matters concerning thenational defense so that the national-defense activities of the Federal Power Com-mission are clearly exempted.

V. CONCLUSION

We should point out that this Commission believes its present processesare fair. It has had little, if any complaint on that score. Every opportunityis given private interests to be heard and protect themselves from any unfairconduct on the part of the agency or its staff.

Due process and fair play to the public must also be considered. this de-mands speedy action; in many cases, more expeditious action that we now have.

The solution to the "administrative-law problem" will be found in a sym-



pathetic, enlightened, and progressive appro,ich. Administrative agencies wereprimarily designed to act in technical and specialized nonlegal fields. Thefunctions they discharge were taken away from the courts because it wasbelieved unspecialized lawyers and-judges were less capable, than a skilledtechnical expert, of handling the task competently.

The present delays and difficulties which have been encountered in theadministrative law field are largely made by selfish or shortsighted privateinterests, or their lawyers. The difficulty with S. 674 and S. 918 is that theyrepresent an attempt by such lawyers to usurp and arrogate to themselvesas much as they dare, the administrative function that should be performed byexperts.

Enactment of either S. 674 or S. 918 would seriously disrupt the properfunctioning of this agency. S. 675, if redrafted as herein suggested, will bemore constructive.



FRIDAY, MAY 2, 1941

UNITED STATES SENATE,SUBCOMMITME OF THE CO31IITTE5 ON THE JUDICIARY,

Wa.shington, D. C.The committee met, pursuant to recess, at 10 a. in., in room 312, Sen-

ate Office Building, Senator Joseph C. O'Mahoney presiding.Present: Senators O'Mahoney and Danaher.Senator DANAHER. The hearing will come to order.Mr. Latimer, please.

STATEMENT OF MURRAY W. LATIMER, CHAIRMAN, RAILROADRETIREMENT BOARD, WASHINGTON

Mr. LATINEER. Mr. Chairman, my name is Murray V. Latimer,chairman of the Railroad Retirement Board. The testimony whichwe offer has not been submitted to the Bureau of the Budget, and weare not advised of the relationship of the bills under consideration tothe program of the President.

The objective of this committee, namely, the improvement of ad-ministrative procedure, is one in which we at the Railroad RetirementBoard have a vital interest. It is also one to which we have given agreat deal of attention throughout the whole period of our existence.Naturally, our attention to tile matter has been more narrowly con-fined than that of this committee; that is to say, we have been con-cerned exclusively with the development of administrative proce-dures to be used in the administration of the Railroad RetirementActs and the Railroad Unemployment Insurance Act. In the processof development, however, we have freely drawn upon the experienceof other agencies and have proceeded by analogy and adaptation aswell as by ingenuity and experimentation. Where applicable legisla-tion permitted, procedures have been established by regulations ofthe Board; the establishment of appellate procedures under the re-tirement acts and the setting up of trial examiner proceedings for thedetermination of certain coverage cases may be cited as examples ofthis method. Where statutory authority was less clear, recommenda-tions with respect to legislation have been required; the limitation ofthe types of questions coming before district appeal boards and thesetting up of special procedures for other types of questions underthe Unemployment Insurance Act, may be cited as examples of thismethod. This was done, specifically and most important, for the de-termination of what persons are qualified to receive any benefits underthe Unemployment Insurance Act, which is primarily a question of

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coverage of employment and amount of wages, and, of course, thed'termination of whether an individual is employed in a covered em-ployment.

The approach to the subject matter of administrative proceduretaken by each of the bills now before this comimittee is in marked con-trast to the special attention we have given to devising and improvingprocedures specifically growing out of and related to the job whichwe have to do. Each of these bills, seeks to establish, within more orless limited fields, procedures to be followed by all agencies, irrespec-tive of the nature and purposes of the activities carried on by them.We are frankly skeptical of the fruitfulness of such a general approach.We are inclined to believe from our experience that such legislativeattention as administrative procedures may require can best be directedto the specific procedural problems of the, several agencies, in the lightof the specific work carried on by these agencies. In any event, it canbe stated positively that any attempt to carry out the general approachtaken by these bills will have harmful, rather than beneficial, effects,if the legislation is not framed with thorough and detailed knowledgeof the differences in the substance and objectives, as well as in theprocedural necessities, of the governmental functions being carriedout by the various agencies. To this end I wish to present to thecommittee a bird's-eye view of what it is that our agency does.

The function of our agency is to administer that part of the socialinsurance program of the Government which relates to the railroadindustry. As the Federal Security Administrator has already pointedout to the committee, social insurance is a governmental function whichdiffers markedly from other governmental functions such as regula-tion and law enforcement. It is perhaps more closely akin to privateinsurance than it is to regulation or law enforcement, but it differsfrom private insurance in numerous highly significant respects. Un-like private insurance companies, the Government does not carry outits insurance programs for the purpose of making money or for thebenefit of a limited class of policyholders in the case of mutual com-panies. A private insurer stands to gain by the defeat of any claimwhich can be defeated without impairing the confidence of policy-Prolders. From the point of view of social insurance, it is just as i'm-portant that persons entitled to payment be advised of their rightsand encouraged to make claims and be given assistance in the perfec-tion of their claims as it is that invalid claims be denied. In short,under a social-insurance program the Government does not deal atarm's length or stand in an adversary relationship to the insured. Onthe contrary, it goes in the opposite direction.

These same characteristics of social insurance differentiate it alsofrom other governmental functions, such as law enforcement or regu-lation. Social insurance is not concerned with circumscribing therights of individuals or with limiting their freedom of action. It isconcerned primarily with conferring upon individuals rights to mone-tary benefits with respect to the incidence of certain general hazardssuch as unemployment and old age. Like other types of govern-mental action, the administrative process in social insurance involvessuch operations as the administrative adjudication, and, to some ex-tent, administrative rule making, to which the several bills underconsideration by this committee are addressed. But it would be

512



startling indeed if the type of procedures appropriate to the kindof administrative adjudication and administrative rule making werenot basically affected by the objective and substance of the admin-istrative process involved. The characteristics I have been describingare, of course, not unique to social insurance as administered by us,but are common to all social insurance; and in weighing the effectto be given to such factors in the consideration of general procedurallegislation it should be borne in mind that social insurance is in itsinfancy and may be expected to develop and be extended.

Not only are the administrative procedures which are appropriateto our activities affected by the fact that it is a phase of social insur-ance which we administer, but they are further affected by the factthat this phase concerns itself with the railroad industry. I neednot dwell at length upon the unique position which the railroad in-dustry has historically occupied in Federal legislation. In this aspectof our background the Railroad Retirement Acts and the RailroadUnemployment Insurance Act are products of the same Federal pol-icy that has produced the Interstate Commerce Act and the RailwayLabor Act. This is not merely a fact of historical interest, but hasvery definite practical consequences upon appropriate administrativeprocedures. A half century of regulation under the Interstate Com-nierce Act has resulted in a high degree of uniformity of accountingpractices and record maintenance, the peculiarities of which must betaken into account in devising legislation and administrative pro-cedures for the utilization of information required in the adminis-tration of social insurance. The operations of railway-labor legis-lation have resulted in strong, nationally organized labor unions onthe one hand, and on the other hand in reasonably uniform personnelpractices and national collaboration of employers for negotiationswith employees on a national scale. The Railroad Retirement Actitself is the product of a national negotiation between employers andemployees at the suggestion of the President, as a result of which thenational representatives of both groups came to Congress and recom-mended the enactment of legislation they had agreed upon. For theadministration of this legislation they asked that a tripartite boardbe set up, of which one member was to be appointed on the recom-mendation of employers, one on the recommendation of employees,and the chairman to be appointed by the President without recom-mendation. This structure of the Board not only gives protectionto all affected interests by giving them a direct voice on the Boarditself, but has a considerable bearing upon the procedures appropriateto the carrying out of the Board's functions.

Let us explore in more detail the manner in which specific proceduresare affected by the facts that I have been outlining. Taking first thesubject of rule making, it is at once apparent that since we are notengaged in a regulatory function our regulations are not concernedwith prescribing the limits of permissible conduct or with periodicmodifications of such limits. Our regulations affect conduct only in therelatively minor and incidental area in which it is necessary in orderto carry out the functions of the Board, to prescribe the nature, form,and manner and time of filing reports, returns, and other informationwhich are required in carrying out the Board's activities. Aside fromthis type of regulation, the regulations of the Board fall into three



main categories. The first of these relates to the establishment of pro-cedures for adjudication. These prescribe the form and manner offiling applications, the nature of evidence required to support claims,the nature of appellate proceedings, the form and manner of filingappeals and the time in which they must be filed, and so forth.

Senator DANAHRM. May I interrupt you a moment?Mr. LATIMER. Certainly.Senator DANAHER. Were you last using the term "adjudication" as

you previously used it, in the technical sense, or are you using it simplyas descriptive of the determination of the controversy, the determina-tion of a claim?

Mr. LATIMER. I am using it here to describe the process by whichwe determine whether or not an individual who is claiming benefitsunder the Railroad Retirement or Railroad Unemployment InsuranceAct is entitled to that benefit, and if so, the amount to which he isentitled.

Senator DANAHER. Yes; I thought that was it. Is it not clear thatyou are not adopting, even for present purposes, any of the definitionsin the pending bills?

Mr. LATIMER. Not technically; no, sir.Senator DANAyEI. Thank you.Mr. LATIMER. These adjudicational regulations, as I was saying, pre-

scribe the form and manner of filing applications, the nature of evi-dence required to support claims, the nature of appellate proceedings,the form and manner of filing appeals and the time in which they mustbe filed, and so forth. Such regulations must be prescribed in lightof the fact that initially there were some hundred thousand immediateor almost immediate beneficiaries, and between a million and twomillion potential beneficiaries with the number constantly changingand growing rapidly; and, moreover, these persons in both groupswere composed of individuals not highly educated and not versed inthe intricacies of law and procedure. At the same time procedureshave had to be so devised as to draw upon the best source of availableevidence and to assure the proper proof of the facts upon which claimsare founded, all within the limitations of feasibility and practicabilityin the adjudication of large volumes of claims.

The second major category of regulations consists simply of thegeneralized formulations of interpretations and policies evolved inthe adjudication of specific cases. The formulation of this type ofregulation requires constant attention to consistency of interpreta-tion and the recognition of new problems. Social insurance has far-reaching consequences to the well-being of the insured individuals.It is our view that the current formulation and dissemination ofinterpretations of this kind are a necessary and vital part of theprogram.

The third major category of regulations deals with the exerciseof administrative power to solve specific problems affecting particu-lar classes of beneficiaries. As illustrative of this type of rule mak-ing I will refer to the regulations regarding the election of joint andsurvivor annuities. Shortly after the retirement act of 1937 waspassed it became apparent that many individuals were filing whatmight have been considered, and whai were intended to be consid-ered, elections of joint and survivor annuities, without being at all

514



appreciative of the legal effects attaching to an election. To avoidsubjecting individuals to unwanted consequences of ill-consideredaction, the Board exercised its authority in the promulgation ofregulations defining elections in such terms that an election couldnot be considered to have been made until the individual had beenfully advised of the nature of the transaction in which he was en-gaged, and that there was some reasonable ground for supposinghe did understand the nature of that transaction.

If you will reflect upon the several types of regulations whichhave been enumerated, I think you will agree that guaranties oftheir efficacy are not to be found in formality attending their formu-lation. For the most part the Board has had to draw upon its ownexpert knowledge and that of its staff, supplemented, of course, bythe experience gained in actual operations, for the bases of sound'and effective regulations. With respect to particular types of regu-lations, conference with affected groups is frequently helpful. Forexample, the regulations prescribing current wage and service re-ports were worked out in consultation with railroad accounting offi-cers. Certain special regulations devised for the purpose of elicitingsimilar information from other employers have been worked outwith and, in large measure, operated through the cooperation ofthe accounting officers of those other employers. Certain phases ofthe regulations establishing appellate procedures were worked outin consultation with national representatives of the employees. Onvery rare occasions when the interests of affected groups have beenapparently conflicting, it has been found useful to bring the severalaffected groups together in a hearing at which all points of viewcould be presented and thrashed out.

To summarize the effect of the various considerations which I out-lined earlier upon rule making, I pointed out that the nature of social-insurance administration is such that the administrative agency mustitself take an active and affirmative interest in formulating its regu-lations so as to safeguard and protect the rights of the beneficiaries.Further, that the nature of the railroad industry and the direct repre-sentation of affected interests on the Board itself give positiveassurance that affected interests will not be harmed through lack ofopportunity to express their views. And finally, that the nature ofthe problems presented for solution through rule making, and thestructure of the railroad industry, are such that various types ofconsultation, all supplemented by expert knowledge, must be utilizedif rule making is to be efficacious. It has been our experience thatin whatever type of consultation is employed, the Board's first jobis to educate the affected group thoroughly with respect to what theproblem is, and it is only thereafter that we are able to elicit helpfulinformation and advice. Advice offered in the absence of a detailedknowledge of precisely the problem which confronts the Board, andthat problem is quite frequently different from the way the samesituation confronts railroad management and railroad labor, has notbeen found helpful. Until we can present the problem in the specificperspective in which *the Board has to deal with it, the advice wereceive is not of much help.

It is our conviction that without the procedures I have been out-lining sound regulations cannot be formulated, and that with such



procedures it becomes an empty, time-consuming, inefficient and costlygesture to superimpose formalities. Consequently, any general legis-lation which does not include suifficient flexibility to permit utilizationof the procedures heretofore employed and which does not regardthose procedures as sufficient is harmful rather than beneficial to thepersons concerned with the administration of the Railroad Retirementand Railroad Unemployment Insurance Acts.

I come now to administrative adjudication; this is another majortopic to which the several bills before the committee are addressedand is the central function of the Railroad Retirement Board towhich most other operations of the Board are ancillary. A large partof our adjudicative work is necessarily a mass-production operationwhich of necessity, by reason of its volume, must be performed onthe basis of exclusively documentary evidence. And it is of the high-est importance to recognize that those parts of the adjudicative processwhich do not fall within this category are merely special phases of.the same process.

Perhaps I can convey some impression of the dimensions of our:adjudicative problems by advising you that since July 1, 1939, whenthe Unemployment Insurance Act went into operation, we have re-veived and processed approximately two and one-half million claimsfor benefits. The significance of that figure can be better appreci-ated if you stop to reflect that at the rate at which proceedingswere filed in all Federal courts last year, district and appellate, thetwo and one-half million claims would require 60 years for hand-ling. I may remark parenthetically that some indication of the fair-ness with which those claims have been processed may be derivedfrom the fact that only two claimants have indicated any desirefor review of the action taken; one of these was found by informalreview to be entitled to paynient and was paid, and the other merelywished to have his case called to the attention of the Board andbe sure that the law as applied in his case was the law as inter-preted by the Board itself and was not merely the formulation ofsome subordinate.

Senator DANTAHER. May I interrupt you, Mr. Latimer?Mr. LATIMER. Certainly.Senator DANAHER. That astounding total of claims presented leads

me to inquire, collaterally of course, as to what was the percentagethat you allowed.

Mr. LATIMEtR. During the fiscal year ending June 30, 1940, we -re-ceived approximately 1,420,000 claims, and we paid 1,000,400; it wasless than 1,001,000. Of those we paid there -were a. number of in-stances-I cannot give you offhand the exact figures-in which the'claim was paid but in an amount less than claimed. During thecurrent year we have paid a somewhat larger proportion. We havereceived to date about 1,000,000 claims and we have paid a somewhatlarger proportion than we paid last year, because since the end ofthe last fiscal year the act has been amended and we now pay claims,based on less unemployment than was the case before the amend.ments became effective on November 1 last.

As a matter of fact, other things being equal, unemployment is-omewhat lighter this year than it was last year, and because ofthat would, except for the amendments, be paying a smaller propor-

516



tion of claims this year than last. However that may be we havedenied a substantial number of claims in toto and disallowed manyothers in part. But the whole process has been carried on with, Ithink, such confidence in the integrity of the board's adjudicativeprocesses that men who have had their claims denied have been satis-fied without resorting to the appeal processes provided in the actitself.

I perhaps should add to that that that does not mean that we havenot had protests. Normally when a person protests a denial we, ofcourse, make an investigation of any new facts which he alleges, orif there are not new facts alleged we attempt, as frequently as wecan, by personal conversation with the applicant through one of ourfield staff to indicate the basis on which the claim was disallowedand point out to him the requirements under the law which makeone eligible or ineligible for the receipt of unemployment insurancebenefits.

Senator DANAIER. Well, this is a fair conclusion, is it not, thatas your requirements are more generally recognized and understoodnot only are the claims presented more nearly in line with the re-quirements that you have fixed, but the process or the appeal invo-cation as the result of an adverse decision will necessarily be less?

Air. LATIMER. Yes, sir; that is true, and we have gone to quiteconsiderable lengths to make sure that persons who do apply arefamiliar with the requirements and familiar with the law. We are,I think, in an unusually advantageous situation in operating in andthrough the railroad industry, to secure that widespread knowledgeand appreciation of what the requirements of the law and the regu-lations are. For example, we receive substantially all the claimsfor unemployment insurance through railroad offices. Before thereceipt of claims began under the Railroad Unemployment InsuranceAct we had, by contract with the railroads, which we have beenable to negotiate under the Unemployment Insurance Act, made ar-rangements by which each individual who is unemployed wouldnormally go back to the office where lie worked, or the shop, or thedivision, or the roundhouse, or the point out of which or from whichhe worked, and the claim would be filed with a supervisor or with aclerk to a supervisor or some other designated persons. Now wehad trained through the railroads, before the Unemployment Insur-ance Act went into effect, some 50,000 persons in the terms of the actand in the procedures which we had anticipated under it in con-nection with adjudication, so that there was substantially no pointon a railroad to which a railroad employee could go where he couldnot find out and get answers to any question he might raise aboutthe case. That has been of very great benefit, of course, in the ad-ministration of the Unemployment Insurance Act.

Senator DANAFIImI. Would I be justified, to straighten out my ownthinking, in substituting the word "disposition" for "adjudication"with reference to those claims presented and allowed or disallowed,as the case may be?

Mr. LATIMEIR. Yes; we dispose of the claims. I am myself a littlemixed up as to why you think the term "adjudication," however, isnot the correct term to apply to that process.

Senator DANAHER. It is injected into my thought because the mono-graph of the Attorney General's committee intimated that there was


518 ADMINISTRAT[VE PROCEDURE

a very real difference or disparity between whether or not it could becalled adjustment, as distinguished from adjudication, and I, on theother hand, was trying to think of the claim presented, heard, andallowed or disallowed as a disposition rather than an adjudication.

Mr. LAIInMEIR. Yes. Well, in an individual claim for unemploymentinsurance, in order for that claim to be paid, the individual must haveearned $150 in his base year as a minimum, he must be unemployed acertain number of days in which he received no remuneration, "re-muneration" being a word of art; he must file a claim; he must regis-ter; if he is in train and engine service during the 14-day period hemust not have received in wages more than 20 times his daily benefitrate, or within the 28-day period ending with the claim period, notmore than 40 times his daily benefit rate. There are all those positivequalifications, and then there are certain things that he cannot do orcannot have done and still receive benefits. It all winds up in a deter-mination that the individual is or is not entitled to certain specificmonetary allowances.

Senator DANAHm. Let me add simply that there may be no conflictin our approach, and I am sure there is none; that I have no personalpride of nomenclature that would seem to designate only my thoughtas against yours. I consider, for example, the matter of the deter-mination of the basis upon which seniority rights would be said tobe established as something which would be adjudicated as comparedto the allowance or disallowance of the claim of an individual claimant.

Mr. LATIMER. Yes. Well, now, in determining or in disposing ofa particular case we are frequently called upon to-I will describe thatprocess in a minute-determine whether, in fact, on a certain daya person did have what might be entitled a seniority standing.

Senator DANAHE. Yes.Mr. LATrIIER. That is all a subordinate process entered into solely

for the purpose of determining his ultimate right to an annuity ;' andnormally, of course, there would be only annuity payments affectedthere, or the right of survivor; but that is not the primary process,so that in our disposition of claims we do perform what we call anadjudicative process. I am just about to come to that particular point.

Senator DANAHER. Thank you.Mr. LATIMER. Unemployment insurance claims are, of course, more

numerous and simpler to adjudicate than claims under the retirementact. Under the retirement act approximately 277,000 claims have beenadjudicated. Of these about 167,000 are employee annuity applica-tions. A little over 48,000 are pensioners taken over from the privatepension plans of railroads. The remainder constitute determinationsmade upon the death of an annuitant or employee in service as towhether the spouse is entitled to a survivor annuity or a designee ornext of kin is entitled to a lump-sum death benefit or death-benefitannuity.

All adjudicative processes of the Board originate in benefit claimsunder the retirement acts or the Unemployment Insurance Act. Un-employment-insurance claims are forwarded to the regional office forthe region in which they originate, where they are processed and cer-tified for payment or denied. Claims under the retirement acts areadjudicated by a staff of adjudicators in the Division of RetirementClaims in the Washington office. Not only do all adjudicative proc-



esses originate in the processing of laims of the several classes Ihave described, but all adjudicative action finds its final expression inthe allowance, in whole or in part, or the denial, of such claims. Thatis a fact which cannot be emphasized too strongly, because it has animportant bearing upon the perspective in which certain special phasesof the adjudicative processes are viewed.

These special phases are of several types. One of these types in-cludes the appellate processes. The Retirement Act requires thatdelegation of authority to adjudicate claims must be subject to a rightof appeal to the Board, and this has been provided by setting up anAppeals Council to which,' a dissatisfied claimant may appeal fromthe decision of the Division of Retirement Claims. That AppealsCouncil is a five-man board. It is made up of a lawyer, who is chair-man, of two other persons who have experience in employee represen-tation, and two others who represent the viewpoint of railway manage-ment. At this stage in the process the appellant is afforded full oppor-tunity for supplementing the documentary record by other evidence;he may have a hearing if he wishes; he may be represented by counselor a representative; or he may appear in person; testimony of wit-nesses may be taken; there may be witnesses subject to examinationand cross-examination; and full argument is permitted. After thedecision of the appeals council an appeal to the Board itself is allowed.Under the Unemployment Insurance Act, the process is specified inthe act itself. All questions other than those which relate to whetheror not an individual is a qualified employee; that is, the questionsrelating to coverage and to earnings in the base year, are appeal-able to the district appeals boards. The composition of these appealsboards is described in the statute as one person selected on the basis ofrecommendations by representatives of employees, the other on thebasis of nominations by representatives of employers, and with thethird, the chairman, a representative of the Board itself. Questionsof coverage and earnings are subject to review through such expertexaminers as the Board may appoint thereto, with final decisionresting in the Board itself.

Another and quite distinct phase of adjudicative process-bear inmind that it is still a phase of the process of adjudicating benefitclaims-is that in which certain questions presented by a group orclass of claims can be most expeditiously adjudicated by a specializedunit. One instance of this phase of adjudication occurs in the deter-mination of the employment relation rules and practices in effect uponthe several employers on August 29, 1935. An applicant for annuityunder the 1937 act is entitled to credit for service rendered prior to1937 only if he was an employee ont August 29, 1935, the enactmentdate of the 1935 act which the 1937 act retained. An individual maybe an employee either by being in active service or by having what theact calls an employment relation to an employer. An employmentrelation consists of being on furlough or on leave of absence or absenton account of sickness or disability, all in accordance with the estab-lished rules and practices in effect on the employer. It is readily ap-parent, of course, that a whole class or group of employees may beaffected by one employment relation rule or practice, and il order thatthey may have the advantage of all the evidence that may be devel-

316412-41-pt. 2--4



oped with respect to any of them, to avoid duplication of evidence,it has been found necessary to establish an employment relation rulesunit which passes upon all questions of the existence of an employ-mnent relation rule or practice.

The process of disposing of these claims, or, perhaps, in this par-ticular case, adjudicating the existence of a seniority right-that isperhaps a somewhat loose term, what we ordinarily refer to as aseniority right-in effect on the enactment date involves two steps.First, there is to be determined whether there exists a rule or practice,,or whether such did exist on the particular date; this step may in-volve a number of subsidiary questions. First, you attempt to ascer-tain whether one or all these various relationships-that is, the threepossible relationships under which an employment relation can exist-was governed by the provisions of the schedule agreement- betWeen alabor organization and employer, and, if so, how the agreement wasinterpreted and applied. If there is no agreement, there may be someauthoritative instruction issued by the employer to the employee,and possibly to other persons who were involved in the employmentprocess, let us say. But if there is neither a schedule, rule, or an in-struction we have to go into the rather tedious process of determiningwhether there was an established practice; and that can only be de-termined by finding out all the facts surrounding it; how the em-ployees were taken into the service, how they were laid off, and howthey were recalled, or what rights they were given during periods ofsickness, and whether in fact leaves of absence were allowed with fullprotection of rights, and so on. The first part of the process, however,consists in determining whether there was this general rule or gen-eral practice under which individuals could hold rights.

The second step of the process, which is handled by still anotherunit, consists in determining whether in any individual case theperson held rights within the terms of the rule or practice which hasbeen finally established. Of course, the second part of the process isan individual disposition process; the first part of the proces*s is adetermination with respect to a whole class, as to the conditions underwhich an employment relation could exist on the date of enactment.

Now, another instance in which questions common to a class orgroup of claims are adjudicated by a special unit is found in thedetermination of coverage, that is, whether particular employmentis or is not covered by the acts. Now these questions are mixed ques-tions of fact and law. For example, the Railroad Retirement Actand Railroad Unemployment Insurance Act provide, among otherthings, that the term "employer" includes a company owned or con-trolled, directly or indirectly, by a railroad subject to part I of theInterstate Commerce Act, and is engaged in the performance ofservice in connection with the transportation of passengers or prop-erty by railroad. Obviously, you have got two questions there: First,what kind of service is this particular employing entity performing,.nd is it owned and controlled by a carrier? That is the factualpart. Secondly, does the particular function performed by the ema-ployer constitute a service in connection with the transportation ofpassengers or property by railroad? That is a question of law.Because of the very intimate relationship between the questions offact and questions of law, we have delegated to the General Counsel

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;the function of making determinations on coverage insofar as they.are precedents approved by the Board. Whenever a new type of-case comes up the General Counsel refers it to the Board for con-firmation of his opinion..

Now in the typical case an employee, or more likely several em-.ployees, will be claiming benefits on the basis of service with a par-ticular company on which no determination has been made that eitherit is or is not covered by the acts. Ordinarily the case arises by theDirector of Retirement Claims, or sometimes by the regional directorinquiring as to whether the service on the basis of which the claimis being prosecuted is creditable or noncreditable under one or the.other of the acts. That question is referred to the General Counselfor determination. To date the General Counsel has passed upon-approximately 5,700 such questions of coverage. In a very smallfragment of these cases the general counsel has rendered an opinionholding an employing unit to be covered and the employing unit feltthat the facts had been misconceived or the law misapplied. It hasbeen the policy of the Board in such cases to afford an opportunityto the employees claiming the service as creditable and to the em-ployer claiming that service was not creditable to appear before thegeneral counsel or a member of his staff who would hear the evidenceand receive oral and written arguments and make a report to theBoard thereon consisting of his findings of fact, conclusions of law,and discussion of testimony and arguments. Thereafter the partiesare afforded an opportunity to file exceptions to the report, to filebriefs in support of the exceptions, and to argue before the Board,after which the Board makes a final decision. Such hearings havebeen ordered by the Board in 17 cases out of the 5,700 coverage de-terminations which have been made. Of the determinations in process,the indications are that perhaps 10 additional cases may requirehearing.So that in relation to the total volume of the handling of this type

of question, the maximum number of hearings to total determinationswill not run more than about one-third of 1 percent, that is 1 caseout of every 300, or something less than that, almost I out of every 400.

Now there is another and somewhat different type of specializeddisposition or adjudication in connection, however, not with classesof claims but mostly with individual claims, although the class idea,that is, the idea of general classes, is quite an important. factor. Thattype involves the question of whether or not an individual is perma-nently and totally disabled for regular employment for hire, again aquestion of fact and law, both perhaps involving a larger measure ofsubjective judgment than almost any other clas's of case with whichwe deal. First of all, you have got to determine just what is thecondition of the individual physically. Now in a great many cases,of course, that is a fairly simple process. If a man has a very badheart, obviously it is impossible for him to work.

He may be blind, he may be completely deaf, he may have lostboth legs or the use of both legs. But more frequently than notthe question of whether an individual is permanently and totally dis-abled involves the summation of a larger or smaller number of im-pairments, each of which taken in itself is perhaps relatively minor.



There may be, for example, an arthritic condition in one limb which-limits motion to some extent, and which perhaps is more or lesspainful; that may be coupled with a weak heart or elevated bloodpressure; and that may again be accompanied by the partial lossof sight in one eye, or by arteriosclerosis or some at least sclerosedveins. Now, the adding together of these relatively minor factors,which occur in an enormous number of combinations, in such a wayas to secure some degree of uniformity in application is a tremen-dously difficult task. Here is one man who has this combination ofdisabilities, and another man over here who has another combinationof disabilities but none of which are precisely of the same characteror the same severity as the first one. Is either or both or neitherpermanently and fatally disabled for regular employment for hire?

We have been attempting, by setting down the decisions in eachcase, to arrive at some generalized rules which could be applied to,classes of cases. We have not found it possible to set down any-thing more than very general directions, and consequently the processof disposing of that kind of a case and the determination of the-medical condition or physical condition of the individual is a processarrived at, to a considerable degree, by consultation. That is, the-individuals who have worked for some years in the disposal of dis-ability claims, by an exhaustive discussion of all factors, arrive ata reasonable conclusion as to the condition of that individual. Thatis frequently supplemented by consultations with the doctors who-made the examination, particularly on the railroads. For example,.for most of the larger eastern railroads, the chief surgeons come-in and sit down with our medical examiners periodically and goover all of the cases in process, discuss each one in detail, and getsome general idea of the standards which we are applying. Thatprocess has had beneficial results in two directions: First, it has.given our own examiners a clearer idea of the conditions under whichrailroad men work and the specific physical conditions of individualap)licants, and, secondly, it has given to the railroad physicianswho conduct a substantial part of our examinations an idea of thestandards of disability which we are attempting to maintain on auniform, national basis with respect to the adjudication of claims.

Senator DANAIIER. Did you conclude your thought there?Mr. LATIMER. Yes.Senator DANAHIER. It comes down to this, does it not, that actually

this procedure is based on a case-by-case method of disposition?Mr. LATIMER. Pretty much, except that we must somewhere have

some general rule to which we can refer here. Even though itmay be a rather vague rule, nevertheless the most important partof this whole process is consistency and securing the confidence ofthe people with whom you deal that your adjudicative process anddisposal process is one which is conduded with complete integrity.

Senator DANAHER. But you do not have any fixed rule, for ex-ample, of definition such as applied by the Veterans' Administrationin the disposition of permanent and total disability cases?

Mr. LATIMER. Not quite, perhaps, although I think we are ap-proaching a standard that is almost as definite as that. As I un-derstand it-I cannot claim to be familiar with the details of theVeterans' Administration process-they lave a somewhant more defi-



nite standard in that they determine that a particular individualis or is not capable of doing manual labor. We do not have thatstandard; we have a statutory standard which is somewhat moreindefinite, and we must find that a person is physically unable ormentally unable to conduct or engage in any employment which issubstantially gainful employment. That includes clerical employ-ment, which of course is less exacting physically than manual labor.I think it would be a mistake to assume that even the Veterans'Administration process is one of very great exactness. I do notthink in this field it is possible to arrive at that exact standard ofmeasurement in anything which has to do with the application ofa test of whether an individual is capable of engaging in substantialgainful employment.

Now, of course, in our case, since we put it in terms of regular-employment for hire you have, in addition to the process of deter-mining the physical condition of the individual, a question as towhether he is capable of engaging in gainful employment for hire.That is a standard which is subject to some change. We have at-tempted to stabilize that definition by saying that the fact that aman is unemployed is not evidence that he is unemployable. Thatis, we attempt to differentiate between what the basic situation is andwhat the temporary situation may be. Now that is a difficult thingto do, obviously, because apart from these tempoi-ary fluctuations ofunemployment, or what we hope are temporary fluctuations, thereare basic changes in the employment of individuals based on thestandards imposed by employers.

Senator o'MAHONEY. Does the client or the applicant who appearsbefore the Board have any opportunity to judge, by any rule orregulation which the Board has laid down, whether or not his casewill come within the definition of those as to whom you already rulefavorable action?

Mr. LATIMER. I think we can say this, that he can secure from arailroad physician an expression as to his condition. The usual'first step in this process is that of being disqualified by a railroadphysician. That is the first step. Now, the railroad physician cannormally tell him, I think, today-he could not have done it 2 or 3years ago, but he can today-that his disabilities are of such severityas to make it possible for him to draw a disability annuity. How-ever, (here is a very difficult problem involved there, because thephysical standards imposed by the railroads for the men engagedin train and engine service particularly are so severe that they neces-sarily disqualify a number of men 'who are not permianienltly and-totally disabled for regular employment for hire. For example youmay find that a railroad will disqualify a locomotive encrineer forcolor blindness. Such a man obviously is not permanenty and to-tally disabled for regular employment for hire if he has no otherdisability. For the safety of the traveling public they will dis-qualify a man in engine service, say, for an elevated blood pressure,but thousands and thousands of men with that same condition areengaged in regular work every day, and it is only because of theimportance of the safety factor that the railroads have to disqualifythat particular individual. That means that in a good many casesthe men are disqualified for certain types of work because of ap-

523



parently minor disabilities. The railroad doctor, of course, does;not like to tell the fellow, "I am disqualifying you, but I know youcannot get an annuity." He prefers to pass the buck on to us.

Senator O'MAHoNiEY. Given a particular case, would you expect rail-road physicians in different parts of the country to enter the same deci-sion in that particular case if it came before them? In other words,,what degree of uniformity is there in the determination of these cases,and upon what is that uniformity, if it exists, based?

Mr. LXAIIMER. Uniformity, so far as it concerns the processes withinthe Railroad Retirement Board, has been secured by gradually build--ing up the case by case determination. Now, each person who passeson those cases has a complete record of those cases. They have been,.I might say, open to the railroad physicians. We have attempted togive generalized factors to the representatives of the labor organiza-tions. We have not, and I doubt if we could now make any moreaccurate statement than appears in our general questions and answerssuch as that a man is permanently and totally disabled for regularemployment for hire if he has lost the use of both limbs, if he has lostboth eyes, if he has lost one arm and one leg, if he has certain diseaseslike T. B. in the acute form, and so on, and any other combination of'diseases or injuries which make it impossible for him to work at anysubstantially gainful occupation. That is what we have said, and wehave some 27,000 cases in which we have specific applications. Wehave gone over this again and again, trying to work out a more de-tailed statement, but when you begin to try to do it there does not seemto be very much middle ground between that very broad general state-ment that we make and a statement in a very substantial number of"individual cases.

I think our approach of trying to get the expert men on each rail-road who normally deal with this type of case and who are familiarwith our standards to come down to us and sit down with us, go overthe cases, discuss each one in detail, is the best and possibly the onlyway in which you can get men generally familiar with the kind ofstandards which we have and make them in the form that is availableto the claimants. If we tried to do anything else, I think we wouldfind ourselves involved in so many qualifications, so many technicali-ties, that the normal applicant for disability annuity would not knowany more about it when he got through than he would before he triedto read that involved kind of explanation. I know, because I havebeen sitting in some of these conferences with the doctors and thingsgot to the point where I found it rather difficult to follow.

As I said here, the main consideration, it seems to me, is that wemanage to build up a reputation for the integrity of that process, suchthbt the typical man who comes before us thinks that we have ex-hausted every possibility of finding all the evidence that we can, orhave exercised ingenuity, and that at least we stand in no adversaryrelationship to him; and that when the annuity is turned down it isturned down for good and sufficient reasons.

Senator DANAHER. Take the case of an engineer, if you choose,who has been disqualified because of color blindness, who, in turn,is capable of employment as a gate tender. Clearly within the lan-guage that you have given us, he is not entitled to his annuity be-cause he is capable of performing a substantially gainful occupa-

524



tion and there is no total disability, even though he be pennanentlydisabled from the performance of a certain function.

Mr. LATIMER. That is correct; yes, sir.Senator DANAIIER. Is there anywhere, sir, a published rule or

regulation of the Board to which another engineer could look tosee whether or not his case does or does not come within the ruleand regulation?

Mr. LATIRIER. Yes; there is. You mean on that type of case?Senator DANAHER. Yes.Mr. LATIMER. In the outstanding kind of case, the case that is,

extreme on this side and the case that is extreme on the other side,you can get certainty, but nowhere have we been able to put down,and I do not know anybody in the world who has ever yet put downany kind of a guide which would say that a summation of various,and sundry kinds of minor disabilities, elements which in them-selves are minor, add up to permanent and total disability. Thecombinations are so diverse, the reaction of this particular character-istic of injury or disease on some other is so intricate that it is prac-tically impossible to put it down in any kind of statement which isnot itself a treatise on medicine; and sometimes it might take severaltreatises to treat with some very small aspect of it.

Senator DANSAER. So you are thrown necessarily into the field ofa case-by-case disposition?

Mr. LATIMER. We have in mind, have had in mind since the start,the working out of a standard which would be, as I say, somethingin between, that is, between the case-by-case method and somethingwhich is more detailed than this broad formulation we now usein general publicity or general explanation, but we haven't got it,although we put quite a bit of time on it. One step we are taking,which I think is going to be helpful, is the adoption of a new code,under which we will make classifications of different types of impair-ments and diseases. This code has been in conjunction with the,Census, Public Health Service, the Veterans' Administration andother agencies interested in the general health questions, thoughnot particularly from our point of view. With some experiencein the classification of different types, we may find certain repetitivecombinations of impairments or diseases whichi we encounter with suffi-cient frequency to make it possible for us to lay it down in the formof, if not a rule, but at least a general summary of this specifictype of condition which will mean permanent and total disability;,another would mean not permanent and total disability. I think itis likely to be some time, though, before we progress to the pointwhere very much that is helpful can be done in that direction.

There are two characteristics of the adjudicative process in theRailroad Retirement Board as I have described it which I want tocall particularly to your attention. The first is that in no part ofthe process does the Board, or any officer or employee of the Board,stand in an adversary relationship to any claimant, or to anyone else.All procedures and' all activities are directed toward assisting partiesin the full presentation of their claims and the establishment of theirrights, if rights exist. By and large, the problem is not the resolutionof controversies, but merely the ex parte proof of a claim, and inthose very few instances in which issues are controversial the con-

52a



troversy is not with the Board or any of its employees, but betweenparties appearing before the Board and urging opposite positions.The second characteristic is that all formal proceedings and all spe-cialized phases of adjudication, whether formally or informally con-ducted, are an integral part of the process of adj'udicating very largevolumes of benefit claims. I emphasize these characteristics becauseall of the bills pending before this committee seek in greater or lessdegree, and in broader or narrower areas, to single out that portionof the adjudicative process which involves formal hearing, or somepart of that portion, and to place important functions in connectionwith it into the hands of persons who are supposed to be independentof the agency.

Apparently the virtue of such independence derives from a feelingthat in some types of formal proceedings independence is the onlysafeguard against having persons who are in an adversary positionto some or all of the parties participate in a decision. That is nottrue, and never will be true, of the type of function which we have,that of processing, and the administration of retirement insurance-or unemployment insurance. Apparently also it is believed that suchproceedings can be treated as isolated incidents of the administrativeprocess without disrupting the process as a whole. The process, aswe conceive it, of the adjudication of a claim, from the time thatclaim is filed until final disposition by the Board itself, of necessityis a continuous process. It cannot follow any fixed rule. In one casea hearing may be necessary, in another case it is quite obviously notnecessary and not requested. In any case in which the hearing officeris not faimiliar with the processes and procedures of the Board theresults are likely to be extremely unsatisfactory.

I can think of no better illustration of that than the disposition ofclaims based on permanent and total disability. The disposition ofthose claims involves, as an appellate matter, some rather troublesomequestions. For example, the Board, the Railroad Retirement Boarditself, is composed of laymen. None of us are experts on matterspertaining to medicine. The disposition of the claims might befacilitated if the Board had attached to its own immediate offices amedical adviser. But we would hesitate to get a medical adviser, be-'cause no medical adviser, no matter how competent, what knowledgehe might have of medicine and medical processes, could give us a validopinion on the question of whether or not any individual was perma-nently and totally disabled for regular employment for hire until hehad thoroughly immersed himself in all the background of the manythousands of cases we have already disposed of, because there is awhole line of history there that is extremely important and that hassecured consistency. Now, in individual cases a medical adviser mightbe more correct as a matter of pure science and education than wehave been. But he might do irreparable damage to us despite thefact he was right in that one case if his reasoning led, as well it might,to the inconsistent handling of other cases.

Senator O'MAHONEY. I do not follow that, Mi. Latimer. If in aparticular case such a physician were right and your precedents werewrong, why would he do irreparable damage?

Mr. LATMER. Perhaps I had better explain it this way. There isnot any such thing as an absolute right or wrong in cases of this sort.



You have got to fix a line, which line may be existing only in theminds of the people who are fixing it, on one side or the other ofwhich these cases fall Now that line perhaps ought to be an area,because the line could just as consistently be drawn here [illustrating]as here, within an area that is almost boundless.

Senator O'MAHONEY. Of course, the degree of disability in any par-ticular person is likely to be altogether different from the degree ofdisability in another.

Mr. LATIMER. Oh, yes.Senator O'MAHONEY. So naturally you would have difficulty in de-

termining the differences between one and another.Mr. LATIMtER. Yes.Senator O'MWAHONEY. Except where clearly the person involved is

disabled in the degree in which you have determined it, but theremight be a great number of cases where it is difficult to determine,where the division line is very vague.

Mir. LATIMER. That is very true, because that area of doubt is so widewe could spend a great deal more time than we do on hearing appealsand disputes. Let us say on this side [illustrating] is the area, inwhich claims are unquestionably valid, and over here they are un-questionably not valid, we have an area over here [illustrating], andwe have attempted to push over so far to this side as we can the areain which claims are held to be valid, and in order to do that you havegot to be consistent down here [illustrating] with a claim over there,and in this particular case, considering it in isolation, you might saythat it is a valid claim, but by the process of reasoning which leads youto say that this is a valid claim, you go against a certain type of reasonwhich has led you in a much larger number of cases to say that thoseare valid claims. I mean it is that type of thing where, without thewhole history, you may say this particular claimant has a valid claim,but in order so to do you have to employ reasoning of a type "ihatdisqualifies other cases.

Senator O'MAIONEY. Your policy has been to give the benefit of thedoubt to the applicant?

Air. LATIMER. Yes, sir.Senator O'MAHONEY. At the same time it might be difficult to lay

down any hard and fast rules.Mr. LATIMER. As I am saying here, the imposition of any kind of

decision without that background is bound to result in an incon-sistency which is going to destroy the confidence which we labored solong and so hard to build up between ourselves and the applicants.And it is only that confidence which I think enables us to carry onwithout difficulty, without an enormous amount of squabbling, with-out constant appeals, appeals not only to us but to the courts. If webegin to have cases appealed to this court, that court and some othercourt, it is going to be completely and totally impossible to get a con-sistent definition of disability, that is, to apply it consistently through-out the country. If you cannot secure consistency the whole processesof a national system like this are bound to become chaotic and verygreat dissatisfaction will result. So the minute you start to inject anyunrelated and arbitrary factors into the kind of process that we areengaged in here I think you are traveling in a direction which is goingto lead ultimately to very unfortunate results.



Senator O'MAIIONEY. I assume the policy of your Board is prettywell laid down b the law?

Mr. LATIMER. Yes; I think so.Senator O'MAHONEY. So the Board has no policy to enforce except

the policy that is stated in the law?Mr. LATIMER. That is correct.Senator O'MAHONEY. And there is no vague area there, is there, as

to what your policy is or should be?Mr. LATIMER. NO.Senator O'MAHoNEY. No reason for any dispute between the

Board and the applicants as to what the policy of the Board shouldbe, because the policy is laid down in the law?

Mr. LATIMkER. *Well, of course, there are differences in degrees.Senator O'MAHONEY. Yes.Mr. LATIMER. We could be very rigid and lean over backward

:and say we will not pay any man on any application until adequateproof is presented to us. We might not make any effort to perfect,iny man's claim for him. I do not think there would be a Boardtoday if we had taken that attitude, because obviously the men arenot in possession of the facts with which to perfect the claim, theyare not in a position to get them, and the Board can get them muchmore easily than an individual can. So there has not been anydisagreement between anybody on the policy, but conceivably someother board could have a different kind of policy. "

With respect to the adjudication of large volumes of social in-surance claims, neither of these assumptions, that independence ofthe agency is the only safeguard against having an adversary decideone's case, and that formal hearings can be treated as isolated inci-dences of the administrative process without disrupting the processas a whole-is valid, and I urge upon you the necessity of fram-ing any general legislation so as to take account of two facts: First,thfat social insurance administration does not bring the administra-tive agency into an adversary relationship with the citizen, andsecond, that treatment of the formal phases of the adjudicativeprocess in this type of program so as to differentiate it from therest of the process of which it is an integral part, is destructive ofadministration itself.

There is one phase of our work which I have not discussed, namely,the collection of contributions under the Railroad UnemploymentInsurance Act. In this function the Board exercises the same pow-cors and duties and conducts very much the same activities that are,carried out by the Commissioner of Internal Revenue in the collec-tion of other internal revenue levies. I assume that the committeeis sufficiently familiar with those procedures to make a special de-scription unnecessary.

By way of general summary, let me point out that the bills under-consideration by this committee seek to establish equity, expedition,and public confidence in the administrative processes through pro-moting delegation of authority, opportunity to be heard, adequate,consideration of the views of affected interests in rule-making, andthe exclusion from decisional functions of interests adverse to thoseof the person whose rights are being determined. All of these, sofar as the Railroad Retirement Board is concerned, I think are being

528



-accomplished under existing regulations and under existing legisla-tion. I think we have established substantially complete confidenceon the part of the public with which we deal in the integrity ofour adminisrative process and at the same time have succeeded inmaking millions of determinations in a few years. In the two and'one-half million claims we have disposed of in unemployment in-surance, we have not yet had a single formal appeal. We have dis-posed of 277,000 cases under the Retirement Act, with a relatively:small number of appeals, less than 1 percent.

The great majority of the applicants who have appealed were,satisfied on the basis of one review. They did not wish to appealto the Board, and I! believe the great majority of them are per-fectly satisfied that the case was received and handled without anypredisposition on the part of anyone to handle them in any way ex-,cepL in absolute and strict accordance with the facts and law. Anylegislation which interjects the suggestion of administrative inter-,ests adverse to those of the individual with whom we deal, or whichseeks to place any part of the administrative process into the hands,of persons not subject to complete staff integration, or not thoroughly-experienced in the field of everyday activity, will inevitably im-pair the administrative process which has been developed, as wellas the complete public confidence in it which has been established.

I have not attempted to go into the details of the several bills,but Mr. Schoene, our general counsel, will discuss the specific effect,of the several bills on the procedures and functions of the Boardas I have outlined them in general.

Senator DANAHEE. Mr. Latimer, may I ask you to refer to onepoint in your discussion that had to do with the appeals council?I read here from the report of the Attorneys General's committee,page 140, that-section 260.02 (g) of the Bomrd's regulations provides that decisions of theappeals council "shall be taken by unanimous vote" of the five members.

Mr. LATIMER. Yes.Senator DANAHER. Now, I wish you would explain that to us, if

you please, sir.Mr. LATIMER. We felt that was desirable-I do not know that we

would need to do that today, but we felt it desirable when the ap-peals council Was set up, because we thought the confidence of thepeople with whom we were dealing would be secured better if thecase were disposed of unanimously at the appeals council level.As a matter of fact, we have had, I believe, only one appeal certifiedto the Board automatically because of a disagreement in the appeals,council. But the purpose was purely that of establishing the confi-,dence of the appellants in the processes of the Board. That is, wefelt that if there were a number of decisions made by a dividedcouncil, in the first place they would not be satisfied as long as therewas one member who did not agree, and, secondly, we felt that ifone member of the appeals council, after exhaustive consideration,,could not agree with the others there must be something about thecase which might cast some doubt on the regulations, or there mustbe something somewhere that was uncertain and needed clarifica--tion.


ADMINISTRATIVE PROCEDURE:

Senator DANAIHER. Suppos' an appellant receives an adverse rul-ing by a unanimous Board, may he thereafter appeal to the court?'

Mr. LATIEIR. Oh, yes. You mean appeal from the Board?Senator DANAHER. Yes.Mr. LATIMER. Well, of course, he may get a unanimous opinion

against him from the Appeals Council, and lie may appeal to the-Board and get a unanimous decision against him from tie Board,and then he may appeal to the court.

Senator DANAHER. If he does not get a unanimous decision againsthim, may he still pursue his appeal to the Board?Mr. LATIMER. Yes.Senator DANAHER. There is no denial of remedy as the result of'

his refusal to accept the Board's decision?Mr. LATIMER. No.Senator O'MAMO-NEY. Does he know when the Appeals Council as

such has ruled aoainst him?Mr. LATIMER. 6h, yes; he gets a copy of the decision mailed to.

him within 15 days or 10 days; normally immediately.Senator O'MAHONEY. In other words, his right to appeal to the

Board is fully protected?Mr. LATIMER. Yes. He is notified both at the time the appeal is

received in the file of what his rights are and the time he gets thedecision as to what his further rights are.

Senator O'MAHoNEY. As a matter of practice, I assume the decision'of the Appeals Council is usually accepted?

Mr. LATIMER. It is. There have been about 150 cases appealed'to the Board out of some 10 or 15 times that many that have-been decided by the Appeals Council.

Senator O'MIAIONEY. Does this rule have any tendency to affectthe decision of the members of the council?

Mr. LATIAIER. I do not think it does. I think probably it hascaused them to discuss cases a great deal more. The rule has had'the effect of delaying somewhat the decisions in order that a unani-mous point of view might be agreed upon.

Senator O'MAIIONEY. You do not think it is like the twelfth juror-who has been holding out?

Mir. LATIMER. No, sir; I do not think so.Senator DANAHER. Do the members of the Appeals Council have,

any other functions to perform?Mr. LATIMERI. No, sir; they merely pass on these appeal cases.

They might act as an appeals council from the decisions of the dis-trict appeal boards under unemployment insurance, if we had un-employment insurance appeals. We haven't had any there, but thesecond appeal would go there rather than the initial appeal.

Senator DANAIER. Is there any attempt by the Board to outline:to the Appeals Council a policy to be formulated and followed?

Mr. LATIMER. Well, we have instructed them that they are to follow"the regulations of the Board, and we do not give them authority to.make new regulations. In connection with appeals on disabilitycases, we have talked to them generally about disability standards, butother than that we do not attempt to indicate to them any action whichthey would take. In fact, we tell them we expect them to exercise theirown judgment, and if they cannot do that, they are not performingthe function that we expect the Appeals Council to perform.

530



Senator DANAHER. What kind of formal promulgation of rules:and regulations is made by the Board itself?

Mr. LATIMER. WTe have published the rules and regulations in theFederal Register. We send copies to every employer, and, uponrequest, to individuals. We reproduce rules and regulations, of

-course, in more convenient form than that of the Federal Register,and make them available. They are printed in mimeographed form.

Senator DANAHER. Is there at present any hearing required beforethe regulation is formulated by the Board?

Mr. LATIMER. As I tried to explain here, I do not think that would:be helpful, because we are not attempting to regulate conduct. As amatter of practice, where we do issue regulations we do consult theinterested parties.

Senator DANAHEII. But you do have the consultations?Mr. LATIMER. Oh, yes.Senator DANAHER. Thank you very much.Senator O'MAHONEY. Do you have any comment to make upon the

recommendation of the Attorney General's committee with respect-to field investigators, the conclusions which apparently are now in-.cluded in such a field investigator's report to be omitted in the future?

Mr. LATIMEER. I think there were two general comments there. I*do not think that would be altogether helpful, because in the field*investigation report which we now make in connection with the retire-ment act, for example, we have one of the most difficult jobs of investi-:gation which we make, and that is the investigation in connectionwith the establishment of a rule or practice under which a person mayhold an employment relation. In a great many cases that is rather,difficult to ascertain, particularly in cases where there is a smallnumber of employees in a particular class. You have got to deter-mine a conclusion there largely on the basis of how the employing'officer went about laying off and rehiring people. The objective,evidence which you are going to get is going to be confined to two,or three cases. You have got to find out mainly what the employing,officer told these people; what he had in back of his own mind whenhe laid them off; was he going to recall them or was he not? How didhe tie it in with other groups of employees? If we deprive ourselvesof the comments by the investigator, we just could not operate inthe field at all.

Senator O'MAHONEY. I think the committee meant comments thathad to do with the whole case rather than comments that had to dowith the facts or the witnesses who came under the personal observa-tion of the investigator. There was that distinction, as I recall it.I have it here on page 139. It says:

The investigator may, and often does, include in his report his conclusions In,respect of the basic facts in controversy.

Mr. LATIMER. That is the particular case here that I am speaking,of, the fact that a field investigator may form a conclusion as to the-existence of the practice, in effect, of this employer, as to whether agroup of persons can hold an employment relation. If they do not,none of them is entitled to credit for service under the act for theperiod prior to January 1, 1937. The facts are so fragmentary andso wrapped up with a large number of subjective things that unlesswe have a conclusion of that field investigator in that kind of case,I do not think we could operate.



Senator O'MAHONEY. Have you read the balance of that paragraph 9You will see that the committee apparently had two classifications irymind.

Mr. LATIMER. Let us say the question involved is one establishingthe correct date of birth, or it may be the establishment of a specificperiod of service, we do not, ordinarily, secure from the field investi-gator any comment on the case as a whole merely because he investi-gates the date of birth. In this particular case I do not know theextent to which the cases were examined, but right now -we do not,in those limited factual investigations, which are done for -the. pur-pose of clearing up that one limited area, we do not ask and do notsecure from the investigator any statement of opinion, and we havegone so far in a good many cases as to give specific instructions tothem not only not to comment but to make no comment at all to therapplicant during the time the investigation is under way.

Senaor O'MAHONEY. This was apparently more a suggestion to theBoard than it was to the committee.

Mr. LATIMEIR. Yes. We have not heard very much in that regard.The next one is one which Foes somewhat the other way, that is, it isindicated that the Veterans Administration physicians ought to makesome conclusion concerning the existence of permanent and totaldisability. I think it would be highly dangerous to do that, at ourpresent stage of the formulation of general rules about what con-stitutes permanent and total disability.

Senator O'MAIoNEY. Do you have any further comments?Mr. LATIMER. We have Mr. Schoene here.Senator O'MAHoNEY. All right, Mr. Schoene.

STATEMENT OF LESTER P. SCHOENE, GENERAL COUNSEL, RAILROADIRETIREMENT BOARD

Mr. SCHOENE. Mr. Chairman, and members of the committee, myname is Lester P. Schoene, general counsel for the Railroad Retirement.Board.

As Mr. Latimer indicated, my remarks will be directed toward anappraisal of the effect of these several bills upon the procedures whichMr. Latimer has outlined. I believe that the substance of my remarkscan perhaps be better understood and duplication avoided if I speak totopics rather than attempt to go through the bills seriatim. I shallnot undertake to discuss in detail all the problems of draftsmanshipthat are presented at various points in the.bills, but, rather, will confinemyself to the substance of the proposed legislation as it would operateupon our procedures.

Senator O'MAHONEY. May I ask whether you have formulated anopinion as to how the three bills compare in their effect upon yourfunctions?

Mr. SCHOELNE. Yes.Senator O'MAHONEY. Will you state that when you come to it?Mr. ScHioENE. Yes. I was going to say in the beginning that per-

haps my comments will have more direction if I advise you immediatelyof the general conclusion to which I have come, that is, that neitherof the three bills now pending before the comumittee cold be eiiactedin their present form without bringing about the li mrimfl Coisequei icesthat Mr. Latimer has indicated our desire to avoid. Aroiing the bills



S. 675 would be less serious than the other two in that respect. AlsoS. 675 appears to me to be more readily susceptible of amendment soas to cure the objections which I will mention as I go along.

The first topic upon which I wish to comment is the power to delegateauthority. The Railroad Retirement Act authorizes the Board spe-cifically to delegate authority to adjudicate claims subject to a rightof appeal to the Board. The Railroad Unemployment Insurance Actauthorizes the delegation of all authority vested in the Board exceptthe power to make rules and regulations. I do not believe that section103 of S. 675'adds anything of substance to the powers of delegationwhich the Board now has except perhaps with respect to some minormatters of internal management which, under general law, require theapproval of the head of an agency; that is, certain types of expendi-tures which, under the Comptroller General's decisions, cannot be madeunless the expenditures are approved by the head of the agency. Someof those might be delegable under the provisions of S. 675. In its tenorthe section appears to be intended to confer authority rather than torestrict existing powers. I believe, however, that it should be amendedso as to establish beyond doubt that the authority conferred is supple-mentary to existing power rather than in substitution for it. If thepowers granted by section 103 should be held to be in substitution forexisting powers, there is danger that it would seriously interfere withthe work of the Board. As Mr. Latimer has indicated, the volume ofclaims which must be adjudicated is very large and necessarily re-quires delegation of authority to adjudicate. The adjudication, how-ever, is always supported by a documentary record, and accordinglyquestion might be raised as to whether such adjudication is an informaldisposition within the meaning of section 103. If it were not consid-ered an informal disposition and section 103 were regarded as in substi-tution for existing powers of delegation, we might find ourselveslacking in the essential authority to delegate the power to adjudicateclaims.

Now, turning to S. 674 on this subject, I find much more doubt as towhether the power to delegate is supplementary to existing power.That is to say, I think in section 103 of S. 675 it was intended to besupplementary, but in S. 674 the corresponding section authorizes dele-gation but then expressly provides that delegation shall be "subject tothe following conditions," and it is not at all clear whether the condi-tions apply only when the authority granted by the bill is exercised orwhether the conditions are intended to restrict also the power of dele-gation under existing law, i. e., whether that constitutes a general limi-tation upon delegation of authority. If it is to be construed as a gen-eral limitation, the section would have additional serious consequencesto the work of the Board, for, as I read the section, it requires theallowance of a right of appeal in all cases of the exercise of delegatedauthority. Now, heretofore, Congress has made a deliberate distinc-tion in this respect between the retirement acts and the Railroad Unem-ployment Insurance Act in recognition of the fact that the volume ofclaims in unemployment insurance is so great that there is danger thatif the right to appeal is too freely exercised the Board may be soswamped with appeals as to be unable to discharge its functions.

As Mr. Latimer has pointed out, so far we have not had any appeals,and we have processed some two and one-half millions cases. That



may be indicative that the danger which Congress originally foresaw.is not likely to materialize. At the same time, it seems to me that itwould be a dangerous condition to have the authority to delegate sub-ject to a right of appeal which might, under future conditions, resultin so many appeals being taken that the Board could not possiblyhandle them. Under conditions of that kind the Board ought to befree to restrict the type of questions that could be brought up on appealto the type of questions to which there was really some substance.

Senator DANAEIR. But there is provision in the existing law for anappeal as to each of the two and one-half million cases, is there not?

Mr. SCHOENE. No. In the existing law, that is, in the Unemploy-ment Insurance Act, a right of appeal to all persons is guaranteed toa district appeals board; thereafter appeals may be taken only to theextent that the Board may authorize by regulations. So that underexisting law the Board has authority to restrict the type of cases whichmay be appealed to it and, for example, to institute some procedureanalagous to certiorari by which a case would be brought before theBoard or the appeal could be denied without going into the merits.

Senator DANAJHER. But the Board has not done that?Mr. SCHOENE. The Board has not done that, for the simple reason

we have not had any appeals. We just have not had occasion to beconfronted with the situation of any large volume of appeals. Nowif appeals were continued as they have in the past, why, of course, wewould never have any occasion to restrict the right of appeal.

Senator DANAHER. Let me see if I understand that, because I do notwant to mistake the force that you would ascribe to that fact, if it bea fact. There is permissible an appeal to the district appeals board?

Mr. SCHOENE. That is correct, and the Board has no authority torestrict that appeal.

Senator DANAHER. Well, there have been such appeals, have therenot?

Mr. SCHOENE. No; there have been no such appeals. Mr. Latimermentioned that there had been only two instances in which individualshave indicated a desire for review, and neither of those case was actu-ally appealed, because one of them on informal examination was foundto be entitled to payment and was paid, and the other asked not foran appeal but merely to have his case brought to the attention of theBoard itself, to make sure that the particular interpretation of lawapplied in his case was the established interpretation of the Board, andlie was advised that that was the established interpretation and pursuedit no further.

Senator DANAIER. Well, you would not claim that that justified theconclusion that everyone was satisfied with the result of the dispositionsof the claims?

Mr. SCHOENE. No, I certainly would not, but I think it is indicativeof a high degree of satisfaction with the result.

Senator DANAHER. I certainly had erroneously construed his testi-mony, for, as I understand Mr. Latimer, there was some 20 percent,roughly, of the claims in 1940 which were disallowed but as to whichno appeal was taken at any time, except in two instances, to whichyou have just made reference.

Mr. SCHOENE. That is correct. Have I indicated any other con-clusion?



Senator DANAHER. No; except I do not see the force of the mul-tiplication of satisfactory dispositions of cases if there was no appealprocedure provided.

Mr. SCHOENE. There is an appeal procedure provided, Senator.Senator DANAHER. Then I certainly misconstrued the testimony

that you just offered. You told us, as I understood you, that theBoard had entertained no appeals, had actually made no regulationsto provide for appeals.

Mr. SCHOENE. Oh, no, no.Senator DANAHER. That there can be appeals only to district boards,

but there has been no such appeal. Is not that summation correct?Mr. SCHOENE. What I said was that the Board had had no occasion

to provide for any restriction upon appeals after district appealboards, although it has authority under the act to restrict the appealprocess above the district appeal board level.

Senator O'MAHONEY. In other words, what you are saying is thatthe Board has authority to make the decision of the district appealagency, whatever it is called, final?

Mr. SCHOENE. That is correct.Senator O'MAHONEY. But you have never done that?Mr. SCHOENE. That is correct.Senator O'MAHONEY. In other words, you have kept the door open

to appeals?Mr. SCHOENE. That is correct.Senator O'MAHONEY. But there have been no appeals, as a matter

of fact.Mr. SCHOENE. That is correct. There have been no appeals even

to the district appeals boards.Senator O'MAHONEY. Now what is your criticism of S. 674? I do

not know as it is quite clear to me.Mr. SCHOENE. The thought I was getting at there, Senator O'Ma-

honey, is that if the power of delegation there stated is held to bein substitution for existing power, it would take away from the Boardthe authority which it now has to make a district appeals board'sdecision final. Now under present conditions the loss of that author-ity would be of no significance, but I do not believe that we can suf-ficiently foretell the future so as to be able to say with confidence thatit will not be necessary to do so.

Senator O'MAIONEY. Now how would it take that away?Mr. SCHOENE. Section 103 (a) starts out-Subject to its own supervision, direction, review, reconsideration, or initial

consideration in unusually important cases, every agency is authorized to dele-gate to responsible membera, officers, employees, committees, or administrativeboards all matters of internal management and routine and the informal dispo-sition of requests, complaints, applications, and other moving papers and mattersof preliminary, initial, intermediate, or ancillary formal procedures in connec-tion with the making of rules or adjudications.

That is to say, the delegation there authorized is required to be sub-ject to the Board's own supervision, direction, review, reconsideration,or init~al consideration.

Senator O'MAHONEY. Well, I assume that even in the case of thepower you now have, your delegation would not, in any sense, deprivethe Board of the right, if it so desired, to review a case?

3164 12-41-pt. 2- 5

535



Mr. SCHOENE. That is clear. However, as I read the language whichI have just quoted, a delegation under that language would be re-quired to be subject to review by the Board itself.

Senator O'MAioYEy. Of course, it does not seem to me that this 's aparticularly important point, because you say you have never closedthe door to appeals in any event.

Mr. ScHoEE. That is right; under our present experience this wouldnot be a particularly important point, but I do think when you aredealing with claims in terms of millions, that it is a risky propositionto leave that language in the bill stand as it is.

Senator O'MAIONEY. You do not come to the committee and tellthe committee that the Board desires to have the authority to shut offappeals, and does not want to be prevented from having the authorityof schutting off appeals, you do not seriously suggest that, do you?

Mr. SCHOENE. I do, if I understand your suggestion.Senator O'MAHONEY. Now let me see. Both Senator Danaher and

I are apparently having a little difficulty in understanding just exactlywhat you are driving at. The right of appeal given to any applicantis an important right.

Mr. SC-IOENE. That is correct.Senator O'MAHONEY. You tell us that your Board has never fore-

closed that right.Mr. ScHoEwE. That is correct.Senator O'MAHONEY. It has never said, "Well, in no case will we

listen to any plea after a district board has acted."Mr. SCHOENE. That is correct.Senator O'MAHONEY. Now, if I understand you correctly, you tell

us that S. 674 would deprive you of the right of saying, "We willnot hear any appeal from the district board."

Mr. SCHOENE. The authority would, of course, never be exercisedint terms of never hearing any appeal from the district board.

Senator O'MAHONEY. Then what are you complaining about whenyou say you never would exercise such authority and this takes itaway?

Mr. SCHOENE. There are distinctions in degree, Senator. Theauthority which conceivably might be exercised if the volume of ap-peals were ever to become s6 large as to interfere with the perform-ance by the board of its other functions, the authority might be ex-ercised to say, "We will hear appeals from district boards only inspecified types of cases and in other types of cases the decision ofthe district board is final, subject, of course, to judicial review atthat point."

Senator O'MAHONEY. It is perfectly obvious, of course, in order tohandle the multiplicity of cases, you might follow the policy ofsaying, "Well, now, we will just approve these decisions," but if anapplicant comes along and states a case you certainly do not wantto say to this committee that in no event do you desire to be deprivedof the right of saying, "We will not listen to such an appeal."

Mr. SCHOENE. Of course not. The next topic to which I would liketo give attention is that of the right to counsel. To date the Boardhas not found it necessary to establish any restrictions upon the typesof persons who might represent claimants in their dealings withthe Board. We have found from experience that occasionally attor-



neys and others who are not in fact authorized to represent theclaimant assume to do so, and we have consequently found it neces-sary to impose an absolute rule requiring representatives to fileformal evidence of their authority before they are recognized as therepresentatives of the claimants. Now, section 104 of S. 675 dealswith the subject merely by directing that assistance of counsel beallowed, and subsection 5 of section 107 looks toward the develop-inent of some uniformity in the admission to practice. The enact-ment of these provisions for the purposes for which they were evi-dently intended would in no way impair the functioning of theBoard. I am slightly fearful, however, that the statutory grant ofan unqualified right to the assistance of counsel may cause some ques-tion to be raised as to the power of administrative agencies there-after to prescribe the qualifications of counsel. I am quite sure thatno such effect was intended and, accordingly, if such a provision isenacted there should be no objection to making the intention clear.

Now both S. 674 and S. 918 differ substantially from S. 675 in theirprovisions with respect to admission to practice. Both of the billswould automatically qualify all attorneys for practice. I believesuch a course to be unsound and possibly productive of serious evils.I speak not from speculation but from experience when I say thatmany attorneys are not qualified adequately to represent their clientsin the very highly specialized field of social insurance. I have hadcorrespondence from attorneys on behalf of clients which indicatedthat the attorney thought the Board was some sort of cooperativeprivate enterprise established by the industry, and that the attorneywas completely unaware of the existence of the Railroad RetirementAct under which his client's rights had to be determined.

I have had other experience in which, although section 12 of theRailroad Retirement Act expressly provides that annuities, pensions,and death benefits shall not be subject to attachment, garnishment, orother legal process, attorneys have sought to attach annuities of theirclients, in direct violation of the law under which they were repre-senting the client. Now to date attorneys have not entered this fieldof practice to any great extent, and very frequently their entrance intothe field has been largely a matter of favor or accommodation to aneighbor, or friend, or something of that sort. But I think, as thefield develops, there is a danger that something of a racket may developin which attorneys who are not at all qualified to represent the inter-ests of the clients can, nevertheless, obtain benefits for them, becauseof the Government's policy to help applicants in perfecting theirrights, and such a person might readily convince his client that he haddone a substantial service and charge him a substantial fee, with theresult that the insurance benefits which the Government has intendedfor the aged and unemployed would go substantially into the pocketsof these practitioners.

Senator O'MAHONEY. IS there no provision in the law guardingagainst that?

Mr. SCHOENE. In the Unemployment Insurance Act there is author-ity in the Board to control the fee, but' not in the Retirement Act,there is no express provision to that effect.

Senator O'MAHONEY. Congress had had the habit of limiting thefees which could be collected.



Mr. SCHOENE. In veterans' cases, for example, that has been verycommon. It seems to me that if such a condition should develop theadministrative agency ought to be at least vested with authority to seethat these people have 'minimum qualifications to represent the peoplethey purport to represent. They should at least give us the citationto the Retirement Act so that we might know that they knew that therewas a Retirement Act before they came in to practice here. UnderS. 674 or S. 918 we would be required to admit all attorneys to practice.

Senator O'MAHONEY. Ordinarily the awards that you make are notof sufficient amount, as far as cash benefits are concerned, are they,to build up any substantial practice for an attorney?

Mr. SCHOENE. The retirement awards are sometimes quite substan-tial. You see, this may occur: A man who is retired from servicefiles his application, sets a beginning date, 60 days in advance of thefiling of an application; then it may develop that there are very diffi-cult problems of proof connected with that case, so it will take sometime for the case to be adjudicated, with the result that when theaward is finally made there is an accrued annuity, which sometimesruns into several thousand dollars, and it is rather tempting to an.unethical practitioner to get his fingers on it.S. 918 has a further provision in section 200 which would .permit

only lawyers to represent claimants in proceedings involving the deci-sion of questions of law or the preparation of a record which may bethe basis for judicial review. Now, all claims which are presentedto the Board involve the preparation of a record which may be thebasis for judicial review, and many of them involve decisions uponquestions of law. Every applicant has the right to judicial review ifhe is aggrieved by the decision of the Board, which will be on therecord made in the course of the adjudication of his claim. The con-sequence of the provision indicated is that only attorneys would bepermitted to represent claimants before the Board. Now, in our par-ticular activity that would be a disastrous thing to do, because, inthe first place, many of the railroads, particularly the larger ones,have long had relief departments or similar institutions which takean active interest in the welfare of the employees, and as social in-surance has developed those departments have taken an active interestin assisting their employees to obtain their social-insurance rights.Again, the railway labor organizations have had a long history inrepresenting their employees, in getting their private pensions, in see-ing to the enactment of the Retirement Act, and so forth; they havemade it a practice to represent their members in connection with theirapplications to the Board.

Senator O'MAHONEY. I fancy that that was just a casual error bythe draftsman who used the word "lawyer" meaning counsel. It wasnot intended to exclude all but lawyers. It appears only in S. 918.

Mr. SCHOENE. That is correct, it is only in that particular bill, butas it stands it seems to me it would have that effect, and of course thetwo groups that I have been describing have been the most helpfulrepresentatives.

Senator O'MAHONEY. I want to say the committee does not attachvery much importance to the word "lawyer" there, or that it wouldhave any intention of excluding from practice public accountants andothers who are qualified.



Mr. SCHOENE. I turn now to the subject of rule making. Sections201 and 202 of S. 675 appear to require approximately the procedurewhich the Board now follows, and which Mr. Latimer has outlined toyou. In making that statement I am resolving a few ambiguities inour favor.- For example, I assume that subsection 2 of section 201does not require that questionnaires directed to a particular employerand having no function, other than the solicitation of specific infor-mation from that employer be made available to the public, although,under one construction, it might have that effect.

Now section 203, requiring a delayed effective date for regulations,except when circumstances require otherwise, fits less readily into ourrequirements.

Senator O'MAHONEY. May I interrupt you to ask what constructionyou refer to in sections 201 and 202 that would have the effect ofcompelling you to make public a reply to a questionnaire?

Mr. SCHOENE. The questionnaire itself. You see, Senator, I shouldprobably explain there that in the investigation of various matters,such as employment relation rules or coverage problems, or the ques-tion of whether a particular service is contract service or employeeservice, we have frequent occasion to get up a questionnaire specifi-cally directed to a particular employer, to elicit information with re-spect to a particular state of facts, you see. Now that questionnairehas no function other than the solicitation of that specific information,but of course it is accompanied by instructions as to how it shall befilled out, and that sort of thing.

Senator O'MAHONEY. You are referring now to the language inline 14 on page 9, "prescribed forms and instructions with respect toreports or other material required to be filed, shall be made availableto the public?"

Mr. SCHOENE. That is correct.Senator O'MAHONEY. Your feeling is that a questionnaire might be

termed a prescribed form asking for a report or information to befiled?

Mr. SCHOENE. That is correct.Senator O'MAHoNEY. And your feeling is that such questionnaires

and the replies should not be made available to the public?Mr. SCHOENE. That is right. No useful purpose could be served

by making such ad hoc questionnaires available to the public.Senator O'MAHONEY. Well, I suppose it means they shall be sub-

ject to access by a proper person who is entitled to examine the file,not that the tourists who come to Washington shall have the rightto come into your office and say, "Let me see the questionnaires,"but a person who has an interest. Why should it not be public insuch a case?

Mr. SCHOENE. There is no reason whatever, Senator O'Mahoney,why it should not be public in such a case, if that is all it means.Of course, I began my remark by saying I am resolving ambiguitiesin our favor, in seeing that those provisions would not require any-thing further than what we now do.

Senator O'MAHONEY. In other words, it could be interpreted tomean that the Board or any agency should be subject to annoyanceby persons who are just hunting for things.

Mr. SCOENiE. Frankly, the problem I had with repect to it was,that it seems to me it may require something more affirmative on



the part of the Board, that is, it should undertake to publish .thesethings or give them dissemination.

Senator O'MARONEY. I see.Mr. SCHOENE. We obviously could not undertake to do that with

ad hoc questionnaires of the sort I have been describing.Senator O'MAHONEY. Of course, the positive phrase "shall be made

available to the public" might be subject to that interpretation, I cansee that.IMr: SCHOENE. Yes. Now, section 203, requiring a delayed effec-tive date for regulations, except when circumstances require other-%vise, fits less readily into our requirements. Since, as Mr. Latimerhas indicated, our regulations do not prescribe rules of conduct, itis seldom that a delayed effective date contributes anything to theequity of a regulation, and on those rare occasions when it does theBoard has, in the past, fixed a future effective date. For example,if we change our reporting form on which wage records are to bereported, naturally we have to give them a delayed effective date,in order to enable people to comply with it, but on such occasionsthe Board has always made it a practice to fix a future effective date.Now, if the provision were to be enacted as it stands, we would havea good many cases in which we would have to state that circum-stances do require an earlier effective date.

That is particularly true with respect to the kind of regulationMr. Latimer described, as the exercise of administrative authorityto solve some particular problem. You recall he made reference tothe regulations with respect to joint and survivor annuities, whichwere addressed to the problem of seeing to it that before these docu-ments which people filed as elections, were considered to be electionsthat the individuals would be fully advised as to what the legalconsequencies of their action might be.

We had a similar situation with respect to unemployment insur-ance in which a man loses his regular job but he is secretary of afraternal organization, or some such institution, and gets $5 a monthfor that work. Well, in one sense he is employed all during thatmonth, he is getting remuneration with respect to each day. We exer-cised the authority under the act to make a regulation in which westated that under those specified conditions such remuneration couldnot be attributed to any of the days in the period and -that the in-dividual should be considered to be unemployed. When you have aproblem of that kind which falls within the exercise of administra-tive authority to solve it, naturally you want to make it effectivejust as rapidly as possible. As soon as you find the solution ofthe problem it ought to go into immediate effect, and, if possible,be made retroactive. So under all such sort of circumstances wewould have to state the circumstances that made the earlier effective.date necessary.

There is another type of regulation that seems to be in a littlemore anomalous position, that .is, the interpretive regulation, thatis the regulation which merely formulates and generalizes the inter-pretations which have been worked out in a case by case application of the laws. Such an interpretation formulated in a regulation,of course, does not have a delayed effective date, and, as a matterof fact, it is effective before it is issued, because it merely embodies



an interpretation already established. At the same time, it is alittle unrealistic to say with respect to that that circumstances makeit impossible to have a delayed effective date, because, of course, itis the kind of regulation that you would not have had to formulateat all, that you formulated only for the purpose of giving generaladvice as to what the principle is that has been worked out in thesecases.

Now, I think that illustrates to some extent the degree to whichsome of these provisions have been formulated, with purely regula-tory or conduct-prescribing regulations in mind, and I suggest thatthe committee might well consider limiting that type of provisionto that type of regulation.

Senator O'MAIONEY. What would you suggest, Mr. Schoene?Mr. SCHOENE. I have not attempted to formulate specific language

which would do it.Senator O'MA11ONEY. I think it might be very helpful if you would

set forth the type of language which would exclude from the opera-tion of the statute such cases as you have not described, and whichappear to be such that they should be excluded.

Mr. SCHOEINE. I would be very happy to attempt to draft thatsort of language, Senator and submit it to the committee.

Senator O'MAHONEY. .let it be incorporated in your showing.Mr. SCHOENE. Now, when we come to the other two bills, sections

202 and 203 of S. 674, and the corresponding provisions of S. 918which are virtually identical, we find that there is an attempt toset up a pattern for rule making, evidently formulated with regu-latory rules in mind, and that seems to us to be unduly restrictive andto impair the adaptability of the rule-making processes to the objec-tives to be accomplished. It is true that the provisions are shotthrough with such phrases as "where practicable," "where necessaryor appropriate," "so far as practicable," "so far as applicable or ap-propriate," and so forth, which lend an appearance of flexibility, but,to my mind, such phrases serve merely to interject doubt and con-fusion as to what an agency must do in order to comply with thelaw and formulate regulations of unquestionable validity, becausethere may be differences of opinion as to whether it is necessary orappropriate, or whether it is applicable, and so forth.

Senator O'MAHONEY. In other words, it might require a longperiod of appeals and court decisions to interpret these phrasesto which you referred ?

Mr. SCHOENE. That is correct; and in the meantime it would bevery difficult to have any assurance that you have formulated avalid regulation.

Senator O'MAHONEY. The language is so vague that it would re-quire construction by some authoritative tribunal?

Mr. SCHOENE. That is exactly the thought I have, Senator. Now,of course, if there were a convincing showing that the process ofrudle making generally in the Federal Government is in such badshape that something of this sort is essential, why, I suppose thatone might put up with it, but I think we ought to bear in mindthat, there has been a very considerable improvement in recent yearsin the process of administrative rule making. We all know thatprior to the enactment of the Federal Register Act the situation



was *sometines pretty bad, but the Federal Register Act and thecodification procedure which goes along with it has made substantialimprovements5 and while the full effects of it have not yet beenrealized, it seems to me that there is a great deal to be gained byJetting that process develop rather than by attempting now, throughlegislation, to prescribe a pattern into which administrative rulemaking must fall. I think the attempt to prescribe that kind ofpattern has a very definite danger of restricting the utility of rulemaking. You can see from the different types of rules and regu-lations that we have found it useful to adopt that we have utilizedthe rule-making process in a lot of situations in which it would nothave been absolutely essential to make rules, in which the availabilityof that technique, however, contributed toward better administra-tion. I believe if you try to prescribe too rigid a pattern for it youare going to restrict the possibility of experimentation and the de-velopment of new uses of the rule-making power.

I want to call specific attention to only one of the provisions ofthese sections. That is the provision in subsection (c) of section203 in S. 674, which corresponds to subsection (c) of section 301in S. 918, which prohibits action upon unpublished rules, instruc-tions, or statements of policy other than staff instructions in specialor individual cases or general instructions- respecting matters ofform or internal office management or routine.

Senator O'MAHONEY. What page is that on?Mr. SCHOENE. That is on page 20 of S. 674. Now, or! its face

that seems to be a reasonable provision, if you have the proper ex-ceptions; however, it creates a particular problem for us, because,as Mr. Latimer mentioned in his testimony, all our unemployment-insurance registration and claims taking is performed not by mem-.bers of our own staff but by railroad employees throughout thecountry who function under contractual relationships between us andthe railroads. Of course, we would have to give the same kind ofinstructions to those people that you would give to a staff, yet thoseinstructions apparently woUld not fall within those exceptions asframed, and literally the section would appear to require that wepublish all instructions that we might give to individual claim takerson the way they are to carry out the Board's functions.

Senator O'MAHONEY. You will be available this afternoon?Mr. SCHOENE. Yes, sir.Senator O'MAHoNEY. The committee will now stand in recess

until 2 o'clock. We will reassemble here, and you may proceed atthat time.

'(Whereupon at the hour of 12: 30 p. in., a recess was taken until2 p. m. of the same day.)

AFTERNOON SESSION

(The hearing was resumed at 2 p. in., pursuant to recess.)

STATEMENT OF LESTER P. SCHOENE-Resumed

Senator O'MAHONEY. You may resume, sir.Mr. SCHOENE. All right, Senator, I was speaking of the subject of

rule making as applied in social insurance, and I want to call attention



to section 205 of S. 674, which also requires that each agency formulate::nd publish a regularized procedure or procedures for the making ofrules.

That provision seems to me subject to the same objection that I madeearlier, with respect to the type of rules which are appropriate tosocial insurance. That is to say, the rules are varied, the circum-stances under which the occasion for rule making arises vary, and the,objective to be attained by rule making varies.

Consequently you get a circumscription of the process, and theresult is likely to be that the utility of the rule-making process will belargely lost in this field.

Section 208 of S. 674 and the corresponding provisions of S. 918require that public notice of rule makingbe given wherein practicable.

Senator O'MAIAINEY. May I interrupt to ask whether you gave anyconsideration to the definition of rule, and whether or not some of thedefects and difficulties and uncertainties to which you testified, mightbe eliminated by a clarification of the definition.

The definition in 674 is on page 4.Mr. SCHOENE. Yes. It is quite possible, Senator, that a rephrasing

of the definition might be the technique for the elimination of thedifficulties to which I point. However, the definition as it standsseems pretty clearly to embrace the type of rules that we have, and itis my feeling that it ought not to do so.

For example, in that definition are included all types of statementsissued by any agency of general application, and designed to imple-ment, interpret, or make specific the legislation administered by the,organization.

Now, many of our regulations, as I previously pointed out, areinterpretative and would therefore seem to fall within this definition.

Senator O'MAHONEY. There is such a thing as a general interpretiverule and a specific interpretation in response to an inquiry, whichmight not be included.

Mr. ScHo NE. The latter probably would not be included within this-definition.

Now, under the rule-making conditions which Mr. Latimer hasdescribed to you, we probably could not substantiate the propositionthat public notice is generally not practicable, that is, it could be done;but I think Mr. Latimer's presentation has amply shown that it wouldbe a useless, meaningless, and wasteful formality for us to attemptto give public notice after we have exhausted the types of processeswhich we now employ.

The same is true of the requirement in subsection (d) of section 209of S. 674, that proposed findings, intermediate recommendations orreports be made and issued upon which argument before the agency isto be held, or that tentative rules be made available by publishednotice prior to argument.

Senator O'MAHONEY. Do you feel that under your procedure suffi-'cient notice is given to all persons concerned?

Mr. SCIOENE. That is right; yes. I think that is true even in acase where there might be conflicting points of view which render aformal hearing desirable.

In such case-we have had a few of them-we have asked the af-fected interests to come in to a hearing, we have explained to them



what the problem was, we have explained it in advance and askedthem to formulate their views carefully and to give us the benefit oftheir views.

Senator O'MAH0 Y. You could formulate a regulation withoutgoing through that procedure?

Mr. SCnOENE. Yes; we could and generally we do, because there isno conflicting point of view involved. Where there are conflictinginterests that may be affected by the kind of rule we issue, we dohowever get the benefit of both points of view and have it thoroughlythreshed out before definite action is taken.

After that, there is no advantage in formulating a tentative ruleand setting that forth and asking for argument upon it.

Now, section 302 (c) of S. 918 contains a further provision notfound in the other bills which puts a limit of 1 year upon the timewithin which rules under future legislation might be adopted.

Past experience has amply demonstrated that oftentimes, particu-larly with respect to interpretative ruls wrhich' ar& expitelt in-cluded in this mandate, sound administration requires that formula-tion be postponed until it can be enlightened by experience, and that1 year, or any other arbitrarily fixed period, cannot be wisely estab-lished as marking the limits within which experience can be enlight-ening.

I certainly cannot understand by what criteria Congress could nowjudge that such a period would be adequate for all future legislation.

It seems that an appropriate way to deal with that in future legis-lation, if it is deemed desirable that the implementation be carriedout within a particular period of time, that that be specified in thestatute authorizing the implementation, rather than in a generalpronouncement such as here proposed.

Further, the situation which would exist after the expiration ofthat year is very puzzling to me, because apparently the power toissue regulations would be exhausted within the year's period, butapparently revision, or rescission could still occur and just how youwould tell when revision proceeds beyond revision and becomes super-session, so you really have a new rule, is something that I can't puzzleout.

Both S. 674 and S. 918, section 211 of 674 and section 400 of 918,seek to enlarge judicial review of the rules.

Here again it is obvious that dominant attention was given to regu-latory rules of the sort which have no place in social insurance admin-istration.

I frankly entertain some doubts whether even in the case of regu-latory results it isn't desirable to require that there be administrativedecision with respect to specific cases before judicial review is invoked,and it seems to me that it ought to be possible to arrange the admin-istrative processes so that could be done without placing any unduehardship upon any citizen or individual.

Certainly, when it comes to the type of rules which we employ, thereis no advantage whatever in permitting a judicial review of a ruleas distinguished from its application in the particular case.

Suppose, for example, the retirement board were to make a rulewhich is illegal. That is, let us say, it formulates too narrow aninterpretation of the law and thereby restricts unduly the rights whichthe statute confers upon the individual.

544



Now, the individual affected by that isn't a bit better off, if he canseek a judicial review of that rule, as such, than he is under existinglaw where he has opportunity to present his claim, have it adjudi-cated, and, if his full legal rights are not allowed, to go into courtto get Judicial review of that specific application.

I think the harmful effect of permitting judicial review of the ruleas such is the fact that the question may be one which may laterbecome moot.

Let us say we were to adopt a rule which invalidly restricted rightsof a prospective annuitant and he doesn't like it. He seeks judicialreview of it. It may well be that that particular individual may diebefore he becomes eligible for an annuity, and the rule never has anyactual operation with respect to him, so it would be a useless functionto review the legality of the rule at that point.

S. 674 seems to me to be more vicious than S. 918 in that respect, be-cause it is expressly provided that a complainant, seeking judicialrelief, need not seek administrative relief first.

It is one of the oldest principles of administrative law, foundednot on 'statute but on judicial self-limitation, that the judiciary willnot intervene unless all sources of administrative relief have beenexhausted.

S. 674 would repeal that principle as applied to review of rules.S. 918, at least, requires that the provision for judicial review showthat administrative relief has been sought.

Senator O'MAHONEY. What provision gives that right?Mr. SCHOENE. That is in section 211 of S. 674.Senator O'MAHON]Y. I was just reading it as you were testifying.Mr. SCHOENE. Line 19, Senator O'Mahoney, "such judgments may be

entered without prior resort to the agency by persons seeking relief."Senator O'MAHONEY. That has to do with declaratory judgments?Mr. SCHOENE. In the courts, however.Senator OMAHONEY. Not with respect to rules?Mr. SCHoENE. It is judicial review of rules. If you go back to

lines 9 and 10-Except as otherwise specifically required or precluded by law, any rule may

be judicially reviewed upon contest of it sapplication to particular persons orsubjects, or upon proper application for declaratory judgment.

What is sought to be provided there is a declaratory judgment onthe validity of a rule.

Senator DANAHER. Subject, however, to section 304 of the sameact ?

Mr. SCHOENE. Senator, I think section 304 refers merely to declara-tory rulings by the agency, whereas this section deals with declara-tory judgments by the courts upon the validity of rules.

Senator DANAHER. Do you have the act in front of you, sir?Mr. SCHoENE. Yes.Senator DANAHER. May I invite your attention to lines 20 to 24,

inclusive, on page 26, beginning, "Provided"?Mr. SCHoENE. Yes. With respect to, "controversies as to the ap-

plicability of any rule to any person, property, or state of facts."That is, as I understand that, Senator, if there is any controversy

about whether the individual is governed by the rule, as to whetherthe rule applies to him, he cannot resort to court until it has been ad-

545



Ininistratively established that it does apply to him, but beyond that-suppose it is perfectly clear that the rule applies to him, but he com-plains of its illegality. He is not required here to tell the agencywhat he thinks is illegal about it. He is authorized expressly to gointo court and seek judicial review without ever having asked theagency to correct the rule, and I think that is a mistake. I think heshould be required to go to the agency as S. 918 would require him,and ask for administrative correction before he goes to the court andcomplains of its illegality.

I come now to the subject of administrative adjudication. I thinkit is clear, from what Mr. Latimer said this morning, that it is in thisfield that all three bills are most dangerous to effective administrationof social insurance.

S. 675 deals with only one type of administrative adjudication.That is, it sets up a type of proceeding of the kind which is gen-erally known as the "trial examiner type of proceeding." I thinkit was not intended by the proponents of that bill that that type ofpoceeding should supersede appellate procedures of the sort whichMr. Latimer described to you as being in effect in our agency, but Iam not at all sure but that it does.

Section 301 provides that-the provisions of section 302 to 309 of this title shall be applicable only to pro-ceedings wherein rights, duties, and other legal regulations are required by lawto be determined after opportunity for hearing, and if a hearing be held onlyupon the basis of a record made in the course of such hearing.

Now, under the Railroad Insurance Act, as I pointed out this morn-ing, each claimant is entitled by law to a right of appeal and hearingbefore a district appeals board.

It seems to me it might very well be said that accordingly the deter-mination there requires opportunity for hearing. Now, whether thefurther provision that if a hearing be held decision must be only uponthe basis of a record made in the course of such hearing would be metis again questionable because certainly it must be implicit in any statu-tory requirement for hearing that decision will be made upon therecord.

Now, it is true there is an underlying record that was made in theinformal administrative adjudication preceding any appellate pro-cedure, but that in our practice becomes a part of the entire recordwihen an appeal is taken.

Under the Retirement Act we have no specific reference to a require-ment for hearing, but the act does require that an appeal to the Boardbe allowed, and I certainly would not wish to undertake to say thatthat requirement could be satisfied without affording an opportunityfor hearing.

It seems to me that there is serious question as to whether title IIIof this bill does not supplant our whole appellate procedures withthis trial examiner kind of proceeding, and I don't think it was in-tended to have that effect.

The Federal Security Administrator, you may recall, was troubledby the same problem, and he suggested an amendment which wouldmake their appeals council clearly an agency tribunal and thereforecome within one of the exceptions stated in this bill.



His amendment was in substance that an agency tribunal be definedto include any tribunal whose decisions were either under statute orregulations, not reviewable in regular course, except by the courts,

That amendment would not solve our problem, because our appealscounsel is reviewable in regular course and must, as a matter of law,be reviewable in regular course by the Board itself.. Consequently, if it is to be made clear that our appellate proceduresare not displaced by the type of proceeding that is set forth in thistitle-

Senator O'MAHoNIEY. You say your appeals council under the law,must be reviewable?

Mr. SCHE0NE. That is right.Senator O'MAHONEY. By the board?Mr. ScIIOENE. By the board; in Retirement Act cases.Senator O'MAIONEY. In Retirement Act cases does the board have

the authority under the statute now to make a decision of the councilfinal?

Mr. SCHOFNE. No.Senator O'MAnoRNEY. Only in what cases?Mr. SCHOENE. In unemployment insurance cases we have authority

to make the district appeals board's decisions or any intermediate tri-bunal's decision final.

The Retirement Act specifically requires that an appeal be allowedto the board in all cases.

Senator O'MAHONEY. This discussion we have had this morningapplies solely to unemployment cases?

Mrl'. SCHOENE. That is right, sir. And incidentally, there is a verygood reason for that distinction. In the first place, retirement claimsare very valuable things. They involve very substantial rights worththousands of dollars and of course, the number is not so great, butthat they can be dealt with on appeal to the board itself.

On the other band, in unemployment insurance the individual claimhas a maximum value of only $24, and there are so many more ofthem, you see.

Now even assuming that it could be made clear, and I think itprobably could, that title III of S. 675 does not displace our appellateprocedures, I would still feel that it could not appropriately be ap-plied even to those relatilvely few cases in which we do use whatmight be called a trial examiner.

I think Mr. Latimer pointed out this morning that one of thespecial phases of claims adjudication in which a question common toa whole group of claims can be decided together is a question of cover-age. That is, whether a particular employer is a covered employeror not, and that affects the creditability service to all the employeesof that employer, and as Mr. Latimer pointed out, those questionsbeing mixed questions of law and fact, are referred to my office fordetermination and to date we have determined about 5,700 of them.

Out of that group some 17 have involved such controversy betweenthe point of view of the employer and the employees as to whether itwas covered service or not, that we felt the only way in which thecontroversy could be resolved was by affording a hearing at whichboth sides could present all their evidence and make their arguments,and get the benefit of an examiner's report, and indicate to the board

547 "



specifically what they thought was wrong with that examiner'sreport.

Now, that has been done and those proceedings have been heldeither before myself or before members of my staf. The reason forthat is very clear. It is because it is only a small part of the generaljob of coverage determihation which we do, most of which is com-pletely noncontroversial, and even in those cases where the issues arecontroversial, the controversy is not with us. The controversy is be-tween employees who claim that this service is creditable to them andemployers who assert that it is not service covered by the act.

Senator DANAHER. May I interrupt you.Mr. SCHOENE. Surely.Senator DANAHER. Do you understand that your function in the

situation that you performed as to these 5,700 cases, would be super-seded by 301, relating back to the definition of agency tribunal and adelegatin of the authority provision in section 103.

Mr. SoHO NE. I think it might very well be, Senator. If I couldI vQ complete confidence that it would not be, I would of course,

make no objection to the provision.I doubt very much that my office could be considered an agencytribunal within the definition that is stated in this bill.

Senator DANAHER. Let nme point out to you how it lies in my mind,as a result of what you testified, and then you correct me if you thinkI am in error in my application of your testimony.

Mr. ScHOENE. Slrely.Senator DANAR. would like to understand it, too, in the light

of your problem.As I read 301-turning first to that, page 11-the provisions of 302to 9 inclusive shall be applicable only-notice the word "only" inline 4-"only to the proceedings," therein referred to and sections 302to 9 specifically according to lines 7 and 8, "shall not apply to," an-other class of cases, one of which is defined in sections 9 to 12, inclu-

sive.Do you follow me so far?Lines 9 to 12, inclusive, on page 11. Consequently sections 302 to9, inclusive, do not apply to that type of hearing at all, by its expressterms, section 301 and all following to 309 inclusive just don't apply,

That is right, isn't it ?Mr. SCsOENE. To the type of proceedings described in lines 9 to 12 ?

Senator DANARra. Yes.Mr. SCHEE. That is correct. I agree with you entirely.Senator DA AHElR. Relating that fact to "agency tribunal" where

we find a definition as, "an officer or group, whose decisions are unre-viewable by the courts," we must go further to discover that in sec-tion 103, the agency tribunal is authorized to delegate to its respon-sible members, officers employe ees es or administrativeboards, power to manage its internal affairs, to dispose informally of

requests, complaints, applications, and cases.,Won't you be protected in every respect by the application of

those!Mr. SCHoENE. In the informal dispositions, yes, but you see there

is no sharp line which you can draw between the informal dispositionsand those which result in a hearing, because they all start out in-formally.



We get a claim from an individual who clainis that he is entitledto credit toward his annuity for so many years' service to the X Y Zcompany. That claim comes in to our division of retirement claims,they look at their list of employees to whom service is creditable andthey..find. that the X Y Z company. doesn't appear there and theyrefer the matter to ifiy office for a determination as to whether theX Y Z company is creditable. First there is a factual investigationincluding correspondence and investigation of Interstate CommerceCommission records, and all available sources of information. Wetry to find out just what the X Y Z company is, what it does, whatits relationship to the railroad industry is, and then proceed torender advice.

Senator DANAHER. All right.Now then, will you read lines 19 to 22, inclusive, on page 4, and

see if, in the light of what you have just now said, you are not pro-tected:

Every agency tribunal having more than a single member may delegate toone or more of its members, subject to review or reconsideration by it, thepower to decide cases after hearing or on appeal.

Mr. SCHOENE. May I inquire what you would consider the agencytribunal in our set-up?

Senator DANAHER. Of course, I consider the Board the agencytribunal.

'Mr. SCHOENE. Yes.Senator DANAHER. I am trying to relate it to your objections, you

understand, and see if you still won't be permitted to function.Mr. SOHOENE. As I read those lines 19 to 22 on page 4, considering

the Board to be the agency tribunal?Senator DANAHER. Yes.Mr. SCHOENE. That is limited to delegation to one or more of its

members?Senator DANAHER. Yes.Mr. SOHOENE. Now, I am not a member of the Board, you see.

That would authorize delegation to Mr. Latimer or to Mr. Eddyor Mr. Reed. but it would not authorize delegation to me.

Senator DANAHER. I think that is perfectly clear and you are right.That answers'my-thought in that particular.

Senator O'MAHONEY. The 5,700 cases that you passed upon wereactually passed upon by the Board itself eventually?

Mr. SCHOENE. Not entirely. What happens there is that initiallyI formulate an opinion upon all cases. If in my judgment it in-volves any principles or any interpretations, that have not thereto-fore been approved by the Board, it is submitted to the Board itself.

Now, they can be passed upon by the Board in another way.Senator O'MAHONEY. Suppose that the case referred to you in

this manner does not involve any new principles, then what?Mr. SCHOENE. Then, the Division of Retirement Claims acts upon

my opinion without its going to the Board for approval, but if the.opinioir is adverse to the claim of the individual, it can still go tothe Board through the appellate processes.

Senator O'MAHONEY. Is that a delegation of power to you?Mr. SCHOENE. Yes; it is a delegation of power to me, but it is

one which ultimately is reflected not in any concrete action of mine,



but in action of the Director of Retirement Claims, who allows- ordisallows the claim in accordance with the opinion of mine as towhether the service is creditable or not creditable.

Senator O'MAHONEY. By what authority does that Director act?Mr. SCHOENE. By delega*tion. He is authorized, to make initial

adjudications for the Board, subject, of course, to the right of appeal.Senator DANAHEIR. But the cases come to you within the language of

section 103 on line 15, don't they, where you would dispose informallyof requests, complaints, applications, and cases?

Mr. SCHOENE. That would depend, Senator Danaher.Senator O'MAHONEY. There were two kinds of delegations here.Senator DANAHER. Yes; I see it too.Mr. SCHOENE. That depends on what you consider the case. If you

consider the case to be the application of the individual for an annuity,then I do not dispose of that. That is, I enter the picture only throughthe fact that the Director of Retirement Claims is required first: to, geean opinion from me as to whether the service is creditable, in theevent there has been no previous determination as to whether thatparticular company is an employer.

Senator 0MAHONEY. That action of yours in that case is reallysimply the advice of the legal counsel to the Board or its variousagents? .

Mr. SCHOENE. I think that is it.Senator O'MAi-ioNEY. Responsibility for action is not yours, but the

responsible official acts upon your advice and the responsibility be-longs to the Board or to the employee who acts?

Mr. SCHOENE. I think that is a fair description, sir.Now you see the situation isn't changed, if there are conflicting

points of view between employer and employee, and we have to holda hearing. It is still operating within the same category and it strikesme that it would be extremely unwise to enact a provision which mightrequire that at that point, some independent hearing commissioner,who is not part of the integrated staff, didn't participate in coveragedetermination generally, should preside at that hearing and make adecision, and so on.

Senator O'MAHONEY. Well, I don't see how this bill would requirea hearings commissioner to undertake any of your functions. Do youthink it would?

Mr. SCHOENE. I think it is one of those very doubtful questions,Seamtor.

Now, my objection would be completely removed if we could makeit perfectly clear that both the appellate processes in our Board andthese hearings which grow out of coverage determinations are notcovered by this

Senator O'MAHONEY (interposing). Since you are only in an ad-visory capacity, you see, the hearings commissioner doesn't, in anyevent, take your place.

The hearings commissioner would take the )lace either of the boardor of the agency tribunal, or of the responsible officer or employee towhom the board itself delegated the powers, as I see it.

Mr. SCHOENE. Well, you see, the ambiguity-I would agree thatthat is the logical development, but the ambiguity in the situationarises i these cases in which conflicting points of vi ew are asserted as



between employer and employee, and at that point my function andthat of my staff is not entirely advigbry.

It is advisory in this sense: That we hear evidence, we get a record,we make at tentative report and findings, and so forth, which thengoes to the board and the board is the final deciding authority.

Senator O'MAHoNEY. I rather imagifie that those who drafted thesebills when they were thinking of hearings commissioners, were think-ing of hearings in adversary proceedings--

Mr. SCiOEE (interposin~g). I think that is correct.Senator O'MA1ONEY (continuing). In which this case that you

are describing now is not so important, or in cases in which somepolicy was to be determined as between the board or the agency andthe citizen.

Mr. SCROENE. I think that is absolutely correct, Senator.Senator O'MAHONEY. And your contention is that it doesn't apply

in your cases and therefore there ought to be an exception?Mr. SCHOENT. It ought to be made perfectly clear that it does not

apply. That is my whole point.' Senator DANAHER. I will tell you frankly that I feel it doesn't applyto yonr cases, but I gather that your point was that you feared thatit did apply.Mr. SCHOENE. I am afraid that it might; that is it. I certainlywouldn't cointend that it is at all clear that it would apply.

I tend to agree with you that it does not apply, but I don't think itis so clear that we ought to be compelled to rely upon interpretationor construction.

It ought to be made clear in the legislation itself.Senator DANAHER. You understand we are simply trying to relate

the bill to your problem?Mr. SCHOENE. That is right. I would just like to call particular

attention to the type of hearing commissioner which S. 918 wouldprovide if the assumption be indulged that that sort of hearing com-missioner would take over coverage determinations at those points,you can see what we would be up against.

In fact, I get some amusement out of the prospect of a local lawyer,completely inexperienced in this process, holding one of these hear-ings and then applying these 5,700 precedents and getting his reportout in the 15 days that the law would allow him.

Senator O'MAHONEY. I assume you have your difficulties.Mr. SCHOENE. I certainly do, Senator. I should dislike under-

taking to get them out in 15 days myself.There is one further point, aside from the type of hearing com-

missioner, which I think we are all pretty much agreed should notapply to our types of proceedings, but in S. 675, section 308, thehearing commissioner's decisions, if not excepted to by either ofthe parties or called up by the agency for review, becomes the finaldecision of the agency and not only enforceable, but reviewable assuch.

I have a very strong conviction that if an agency decision is to besubjected to judicial review, it is up to the parties who object tothat decision, first of all, to go to the agency itself.

If a hearing commissioner's or examiner's report is filed, theparties are allowed the opportunity to tel! the agency what they

316412-41-pt. 2-6



think is wrong with it and if they don't tell the agency that theythink there is anything with it, then it seems to me there should beno right of judicial review.

That is the general law now, but section 308 would apparentlychaige, it in that respect.

Senator O'MAnoNEn. To what language are you referring?Mr. SCHOENE. That is in S. 675, section 308, lines 13 to 18.In the absence of timely appeal to the agency tribunal, a decision of a

hearing commissioner shall without further proceedings become the final deci-sion of the agency tribunal, and as such enforceable or reviewable to the sameextent and in the same manner as though it had been duly entered by. theaigency tribunal as its decision.

Now, if you compare the provision in S. 674, you will findthat-

Senator O'MAHONEY (interposing). You object to language thatwould permit a person appearing before a hearings commissioner, tohop over the agency as it were-

Mr. SCHOENE (interposing). That is correct, sir.* SenatorO'MAHONEY (continuing). By refraining from making anappeal though he felt the appeal should be made in order to getit to the court.

Mr. SCHOENE. That is correct.Now 674 differs in that respect; 674 says "enforceable"; it doesn't

say "reviewable."*"S. 675 is confined in its adjudication provisions to be formalaspects of adjudication. Both the other bills deal also to some extentwith informal adjudication.

S. 674 in sections 304 to 307 and S. 918 in sections 600 to 700 setforth a number of requirements with respect to informal admin-istrative action.

Apparently the objective is to encourage informal administrativeaction for the expeditious disposition of matters.

Here again, I think we can find illustrations of the extent towhich the draftsmen had regulatory matters in mind, because theyrequire that formal proceedings be held unless a consent dispositionoccurs.- 'Now, as applied to our adjudications of claims, I am not sure

what a consent disposition is. If an annuity applicant has the rightto appeal from the initial decision and he doesn't appeal, evidentlyhe is satisfied with what was done, or at least nbt so dissatisfiedthat he wants to pursue an appeal, yet we have nothing whateverin the file indicating that that is a consent disposition.This fellow has made his claim and we have told him what our

disposition of it is, and it is conceivable that we might be requiredto have some consent shown in the file, if we were to consider it aconsent disposition.

Now, I think with respect to those provisions in 674 especially,if those were adopted, it should be made clear that that is satisfiedby failure to take advantage of a further appellate process.

There is another interesting point that comes up in connectionwith these requirements for informal dispositions: Section 306 ofS. 674 and section 601 of S. 918 look like-

Senator O'MAHONEY. 306?

552



Mr. SCHOENE. That is 306 of 674.Every person involved in any proceeding before, or making application to,

any agency, shall be notified of the issues, shall have access to the file orrecord of information upon which the agency proposes to act or has acted-and shall be not ied of suph -right, before the. record is closed or informalor tentative decision is madc&-and'shall have disclosed to him the names andidentity, of all persons appearing against him-

et cetera.I say that appears on its face to be a perfectly reasonable and

sensible provision setting forth merely the minimum requirementsof fair treatment. Yet, just this factor of notice being given to theapplicant before the record is closed, that he has a right to see thefile-as a matter of fact, all our applicants do have the right to seethe file, but this requires that you give him express notice of thatfact.

Just to illustrate what that would mean with respect to unemploy-ment insurance, we adjudicate these cases at the rate of a millionand a half a year.

Now a million and a half notices, single-sheet notices like this [in-dicating], stacked one on top of the other, would make a stack ashigh as the Washington Monument. And if you assume that theycould be folded and put into envelopes at the rate of 3 a minute, ittakes 9,000 man-hours of work to send out a million and a half no-tices and it would serve no purpose at all, because the record, whichwe would be advising him that he'can .see, consists of the-regional,office record of his earnings during the base year, and in addition to-that, the individual's registration and claim form, which he himselfhas participated in making up. So there is nothing in the world for.him to see that he isn't already fully acquainted with, but apparentlywe would be required by this sort of provision to send him a notice,and it could accomplish nothing except to increase our own adminis-trative cost and probably increase the deficit of the post office.

The next subject that is dealt with in S. 675 is that of declaratoryrulings. Title IV of S. 675 authorizes declaratory ruling to be madeand prescribes their effect and result if made.

So far as we are concerned, the grant of authority to make declara-tory rulings is unnecessary; but since it is permissive, it could 'do us-no harm.

The beneficiaries of the legislation which we administer, naturally,wish to know on various occasions what rights, if any, accrue to-them, and we have always followed a policy of freely advising them.

It became apparent, however, that merely advising them doesn't fillthe bill, because if a person believed that his rights were greater than-the advice indicated, of course, you can't appeal from advice andget the question settled. Or there may be other persons who are in-iterested in the same question and who entertain different points ofview, and merely by giving advice, there is no way in which you can.settle the question.

Furthermore, a person might be quite satisfied.with the advice that.he got and proceed to feel quite comfortable about it, but many yearslater, when he came actually to realize on this right, there might be-other people there adjudicating that question and they might havea different view and he might be found not to have the rights he hadibeen told he had.



With all those circumstances in mind, we have set about devisingprocedures by which we can take questions not involved in currentadjudications-that is, in current benefit claims-but which do affectthe substantial rights of the individual and subject them to adjudica-tion at hiis request, giving binding effect to an adjudication so made,making it appealable and reviewable.

We feel that we have ample authority under existing law to dothat, and that the provisions in 675 would not be of any particularadvantage to us, but as I say, since they are permissive, they would dono harm.

The same sort of provisions in S. 674, however, make declaratoryrulings mandatory, and I am afraid of that, because, again, we haveto bear in mind that there are several million people who have accruedrights under the acts which we administer and these rights are ofvarious sorts.

That is to say, a man who has been in service for a year has rights,on the basis of that, to have that year's service credited toward anannuity when he retires. He has rights under the Unemployment In-surance Act to receive unemployment insurance benefits on that service.

He has rights, if he should die, to have a designated beneficiary geta death benefit on that service. And the variety of questions whichmight come up and be required to be subjected to this declaratoryadjudication seems to me dangerously large.

I wouldn't be so 'much afraid of it if I could tell exactly when adeclaratory adjudication is mandatory and when it is not, but whatthe legislation tells us, or the proposed legislation, is that "Declaratoryrulings must be issued when necessary to terminate a controversy orto remove, a substantial uncertainty." Now, those are pretty vaguewords upon which to rest in deciding whether you are required to givea declaratory ruling or not. On the approach that we have been fol-lowing, you see, we can prescribe the kind of cases on which a declara-tory ruling is reasonably necessary and on which we are prepared togive a declaratory ruling, but I think we might get into lots of doubtand controversy if you vest a statutory right to get a declaratoryruling on such an ill-defined conception as whether it is necessary toterminate a controversy or to remove a substantial uncertainty.

Both 674 and 918 contain provisions for judicial review of adminis-trative adjudications in addition to judicial review provided by exist-ing law.

We agree with the view expressed by the Attorney General's com-mittee-that is, the majority of the Attorney General's committee-that there is no such general need for revision of the subject of judicialreview as to warrant blanket legislation.

Remember that judicial review historically is not the product ofstatute but of judicial action. That fact is significant to me, becauseit indicates that irrespective of statutory provisions the courts havealways stood ready to provide relief against arbitrary, illegal, or un-authorized administrative action.

The practice of including in statutes provisions goveining judicialreview is a comparatively recent one which has resulted, in most cases,either in the codification of review provisions already worked out byjudicial decision or the adaptation of review procedures to the re-quireinents of the particular administrative function being per-formed.

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In light of this background, it appears foolhardy to attempt tolegislate upon the general subject of judicial review of the adjudica-tive action of Federal administrative agencies. I don't contend for amoment that all existing legislation with respect to judicial reviewof adjudication is perfect. With respect to the legislation which we.administer, fairly detailed statutory provision has been made in bothacts for the review of adjudications made under those acts, and I haveyet to hear a single complaint that those provisions are not adequateto the protection of the rights of the individuals who have dealingswith us. Nevertheless, they are not perfect.

I feel that legislative attention to the judicial review provisions inour legislation is desirable, principally because, under those provisions,the same questions can be raised by different people in different courts,with possibly different results and no means of consolidating andcoordinating them. In other words, you may get different resultsdepending on who raises the question and how, and I think that isundesirable and needs legislative correction. But you can't correctthat sort of thing by blanket legislation addressed to judicial review,and it seems to me that the fundamental difficulty you are up against,when you try to legislate on the general subject of judicial review, isthat you necessarily have to treat a $15 unemployment-insurance claimas in the same category with a major rate proceeding or an industrialdispute, and you can't hope to correct the specific things that arewrong with judicial review by having to proceed in that way.

That concludes my presentation.Senator O'MAHONEY. Any questions?Senator DANAHER. Let me get one fact straightened out in my mind,

please.Do you, personally, or does some member of your staff, conduct hear-

ings in those 5,700 cases, or cases of that type?Mr. SCHOMNE. No.Senator DANAHER. The director of the division does it?Mr. SCHOENE. No. You see, hearings are not conducted in the ma-

jority of the cases. There have been only 17 out of the 5,700 in whichany such controversial point of view is developed as to require ahearing.

Now, in those 17 cases, which have been the subject of conflictingpoints of view, I, or members of my staff have sat to hear the evidenceand make the findings.

Senator DANAHER. And not the director of the division?Mr. SCHOENE. That is correct.Senator DANAHER. And you have called those hearings in situa-

tions where you felt that actual testimony and oral argument willassist you in getting the whole picture?. Mr. SCHOENE. That is correct. Just as a matter of detail, I don'tcall them myself, the Board takes action directing that they be held.We feel that that is necessary simply because the person who is goingto hold the hearing has to be vested with power to issue subpenas ifnecessary and to conduct the hearing, and so on, which we feel oughtto be specifically authorized by the Board before such power is exer-cised.

Senator DANAHER. As to any such, however-such, for example asthe 17 cases-there is no reason why hearings commissioners couldn'tconduct the hearings for you?



Mr. SCHOENE. I think there is, Senator.Senator DANAHER. What is it?Mr. SCHOENE. Because everyone of those 17 cases has involved the

specific application of principles and interpretations involved in largenumbers of the noncontroversial cases. To preside at a hearing atwhich complicated facts bearing upon complicated legislation are tobe adduced, and to make decisions and findings consistently with thosemade in the informal determinations, requires pretty thorough famili-arity with just how all these things are worked out. The men onmy staff have participated in the working out of these 5,700 cases.They see in a half dozen cases employers and employees coming intogether and saying, "We both think this service is covered, and wethink so for the following reasons," and then on another occasion,they will find the employees coming in with an identical set of factsor virtually identical set of facts, and say, "We think the service iscovered," and the employer says, "No, we don't think it is." Thatexperience seems to me to be essential training to carrying on theprocess in the most difficult and delicate circumstances, namely wherethe points of view conflict.

Senator DANAIER. Thank you very much.Senator O'MAHONEY. That amounts to a declaration that only a

specified body of men is competent to pass upon cases of that kind.Mr. SHOL1ENE. Rather, Senator, I would say that only specific ex-

perience can qualify a person to carry it out. I would undertake tosupport that proposition. Not specified classes of men, but personswith particular experience.

Senator O'MAHoN-Y. I suppose that even the members of your staffstarted out without knowing very much about it.

Mr. SCHOENE. They did, but under very rigorous supervision.Senator O'MAHONEY. You mean that their lack of knowledge was

rigorously supervised.Mr. SCHOENE. I didn't intend it that way, Senator.Senator DANAHER. That is all.Senator 0'MAHONEY. Thank you very much.(Witness excused.)Senator O'MAHONEY. Is Major Schofield here?

STATEMENT OF MAJ. LEMUEL B. SCHOFIELD, SPECIAL ASSISTANTTO THE ATTORNEY GENERAL, IN CHARGE OF THE IMMIGRATIONAND NATURALIZATION SERVICE

Senator O'MAHONEY. Very well, Major, if you will be kind enoughto give your name to the reporter.

Major ScnoFiELD. Lemuel B. Schofield, Special Assistant to theAttorney General in charge of the Immigration and NaturalizationService.

Senator O'MAIIONEY. You may proceed.Major SCHOFIELD. What I have to say will be directed to these three

bills only in respect to the manner in which they affect the proceduresof the Immigration and Naturalization Service. Before entering intoa discussion of the specific points of impact of the three bills uponthe Service's procedures, it may be helpful to the committee to briefly



outline the functions of the Service in respect to adjudication andrule making.

For the purposes of formal administrative procedure, the two mostimportant types of cases coming before the Service are those involvingadmission to or exclusion from the United States, and deportationproceedings. Admission or exclusion cases are now heard, pursuant tostatute, at appropriate points of entry by boards of special inquirycomposed of inspectors. I might interpolate to say that those boardsare comprised of three inspectors.

If an immigrant appears to be not entitled to enter, the boardingor primary inspector will hold him for hearing before the board ofspecial inquiry. That board then puts questions to the immigant andmakes its decision forthwith. If the immigrant is adversely affected,he may appeal to the Board of Immigration Appeals here in Wash-inigton. That is an administrative board set up by the AttorneyGeneral.

Senator O'MAHoNXE. How' many -of these- other boards -are there?Major SCHOFIELD. Well, there are a large number. Every port of

entry has to have a board and we have 226 ports of entry.Senator O'MAHoNEY. And there is only one board of appeal?Major SCHOFIELD. Only one Board of Appeal here in Washington.Senator O'MAHONEY. Is there any question?Major SCHOFIELD. No; but there are very frequently in the large

ports one board of inquiry in that particular port to handle the volumeof work.

Senator O'MAHONEY. But they are all coordinated.Major ScOrIz D. Yes, sir.Senator O'MAHoNEY. There is no board of appeals, for example,

in New York?Major SCHOFIELD. No. The statute gives to an alien who is ex-

cluded the right to appeal to the Attorney General. His power inmost cases is delegated to the Board of Immigration Appeals. There-fore, the alien appeals to Washington. Rather it comes to the Boardautomatically before it goes to the Attorney 6 eneral. Sometimes itgoes to the Attorney General, depending upon the decision of theBoard of Immigration Appeals. Now, so much then, for the exclu-sion cases. Deportation proceedings, on the other hand, are begunby comlaints in the nature of warrants which are served upon thealien. Hearings are promptly held before-an inspector acting.-as.atrial examiner. His findings are referred to the Attorney General,and for the Attorney General, the Board of Immigration Appealsacts.

To regard exclusion and deportation cases as the only cases com-ing before the Service would be very misleading and unfortunate.

Tens of thousands of other types of decisions must regularly bemade. These include applications for extensions of visitors' visas,for preexamination, immigration fines and penalties, applications forcertificates of derivative citizenship, cancelation of certificates ofnaturalization, applications for change of status, and many other mis-cellaneous types. These cases present questions chiefly directed to theexercise of discretion by the Service. Opportunity for persons in-volved to appear and present their views, and to consult with appro-



priate officials, is usually granted but no formal hearings are orcould appropriately be held.

In general it might be said that the purpose and objective of theService's procedures must be twofold: On the one hand it is im-perative, especially in a time like the present, for the Service's pro.cedures to be so devised that there will be the utmost in speed andflexibility. Where, as in the present emergency, it is necessary tokeep out and to get out aliens dangerous to the community andundesirable to the Government, procedures cannot, without seriouslythreatening the chief task before our Nation, be so inflexible andcumbersome as to make it impossible promptly to exclude anddeport.

But on the other hand, it is equally imperative, if confidence inthe processes of this democratic Government is not to be threatened,that the Service's actions be accepted by those affected as fair.No greater mistake could be made than to utilize the star chamberproceedings, the procedures disregarding the rudiments of fair playand human rights for which other countries have become noted.Ours is the delicate job of demonstrating in our daily activities tothe aliens that this is a democratic country different from thosewhich many of them have known. For the Service must not onlyexclude and deport; it must also assist in assimilating into thiscountry the persons who deserve and wish to become a part of thiscountry. Their loyalty cannot be assured unless the Government,through the Immigration and Naturalization Service, demonstratesa regard for the fundamental rights and duties of fair play.

It is because we have this double objective-full effectuation ofcongressional policies in order to protect this country, coupled withfairness and justice-that the Service has concluded that S. 675 isthe most clearly satisfactory of the three bills under discussion.While I shall reserve more specific comments relating to S. 675for a later point, I think it wise for me to state here that that billalone of the three in general at once permits the Service fully toenforce the laws and at the same time preserve the vital fairness.

In contrast there are inherent in the other two bills procedureswhich-and this is a conclusion which we have reached only afterthe most careful consideration-will very likely paralyze the workof the Service. At many points, what purports to be procedureimpinges so seriously on the work of the Service that the issues becomeissues of substance.

Turning to a more specific discussion of S. 674 and S. 918, Ithink it possible for me to point out the grave obstacles to our opera-tion which these two bills raise.

For example, section 103 of S. 674 relates to the power to delegate.].t is clear, of course, that a considerable degree of decentralizationis necessary for immigration procedure. Many decisions mnust bemade initially and promptly in the field, yet the national policyrequires an over-all central supervision. Under these circuimstances,a considerable degree of delegation is necessary. Section 103 ofS. 674 recognizes this. But the gains it proposes are completelycanceled out by section 103 (e), which provides as follows:

Whenever a superior authority in any agency undertakes to review and revise,or to decide in the first instance, a determination made or authorized to be made

558



by agency member, officers, or employees, the same opportunity for conferencesor the submission of reviews-

perhaps that means views-or arguments before such superior authority shall be afforded as is afforded beforesuch members or subordinates.

I have already adverted to the tens of thousands of applications andother cases coming before the Service.

Questions of bonds, of the issuance of warrants, of extensions ofvisas, of change of status, and the like pour in on us. Obviously theremust be units in the Service to give primary attention to these. Butat the same time it is necessary for "a superior authority" to keep hiseye on all these matters. The papers must often come across suchdesks, if only for a casual check. A rigid requirement, such as thatin section 103 (e), that the persons affected have the absolute right tofollow these papers from desk to desk, and to be afforded the sameopportunity for conferences or submission of views-apparently evento the minute-would be to transfer the Service into a reception roomrather than a determining agency. When it is' realized how manycases are daily pending before the Service, it can readily be understoodthat section 103 will stop the machinery of our agency.

Section 104 of S. 675 and section 200 of S. 918 both provide that-any interested person may appear before any agency or the representativethereof in person or by duly authorized representatives.

All reasonable facilities for negotiation and information must beafforded such representatives. While we have little doubt that theobjective of these sections is a wise and fair one, the wording is suchas to promise the most extraordinary operational difficulties. What isan "interested" person? Must the Service allow a second cousin orevery friend of an alien to be represented and must it afford every suchperson facilities for negotiation and informal determination?

Indeed, we may concede that the alien himself, when appearing orsummoned, shall be allowed the assistance of counsel. This is whatis properly provided by section 104 of S. 675. But the parallel sec-tions of the other two bills go so far beyond the provision of S. 675that it is impossible now to predict the full extent of the difficultieswhich it may cause.

Senator O'MAHONEY. Why should you assume that the phrase "in-terested person" would be susceptible of that interpretation?

Major SCHOFIELD. Well, because of the nature of our Service. Whois the "interested person"? That alien? In one sense, the alien andperhaps his immediate family are the only persons interested. Andyet from the very nature of a person coming to this country, un-familiar with our ways and our form of government and all the restof it, people who are his friends, people who are trying to help himare interested.

Senator O'MAHONEY. Isn't "interested" almost a phrase of art?Major SCHOFIELD. I don't know what it is when it is applied to our

Service. Who is an interested person?Senator O'MAHONEY. It is a person who would be directly affected

by our ruling.Major SCHOFIELD. Would it be, for exampleSenator O'MAHONEY (interposing). Wouldn't that be a fair defini-

tion ?



Major SCHOFIELD. I don't think so. For example, there are manyagencies in this country. Immigrant aid societies, and social-serviceagencies, all help aliens who come here. Would it be said that theywouldn't be interested persons?

Senator O'MAHONEY. Not any more than counsel for such a personwould be an "interested person" within the meaning of the law.

Major SCHOFIELD. Ofcourse, the point is that section 104 of 674provides that any "interested person" may appear before an agency.and be heard, but section 104 of 675-

Senator O'MAHONEY. May be heard in person or by duly authorizedrepresentatives.

Major SCHOFIELD. Yes. Now, that is one thing. We won't objectto that.

Senator O'MAHoNEY. Certainly. But the interpretation which youplaced upon "interested person" would mean that the cousin or theaunt of an immigrant might obtain a representative to come down.It just struck me that perhaps the argument was going a little bittoo far. I recognize,-

Major SCHOFIELD (interposing). It depends upon how it would beinterpreted. If it meant that any person who was interested directlyor indirectly-

Senator O'MAHONEY (interposing). I would conceive it to be anyperson who is interested or involved directly in the proceeding.

Major SCHOFI. What does that mean? There may be otherswhose interests would be affected one way or the other -by whetherthat immigrant is admitted or excluded.

Senator O'MAHONEY. Just the other day the Senate passed a billinvolving some oil lines out in Wyoming, and because this bill, as itwas drafted and presented to the committee, would not contain whatI conceive to be sufficient protection for some parties who had interest,I inserted an amendment that leases should issue to the claimant andshould inure to the benefit of all persons as their "interests" may ap-pear. Now, that phrase has been used over and over again.

As their interests may appear. Now, no cousin or aunt could comein under that unless showing an actual legal interest.

Major SCHOFIELD. Now, Senator it is hard to see how anybodycould have a legal interest in an alien, as contrasted to the peoplewho might have a legal interest in some lease or a piece of property.

Sejiator OMAHONEY. I just felt that the point that you werelaboring was a little bit finely drawn.

Major SCHOFIELD. Much the same objection inheres in section 108of S. 674 and section 1 (12) of S. 918 relating to matters of record,which must be made available to all interested persons. These sec-tions should be considered in conjunction with section 306 of S. 674and section 601 of S. 918. These latter two sections provide that"every person involved" in any proceeding before, or making anyapplication to, any agency shall have access to the file or record ofinformation, and shall have disclosed to him the names and identityof all persons appearing against him as well as the text or reportsof their statements.

Our objection to that is not due to the mechanical burden whichyou would impose, as was pointed out by Mr. Schoene, with respectto the notice particularly, because in our two classes of cases, of

560



course, the alien does have notice in an exclusion case and also in adeportation case, in the latter of which he must be served with awarrant.

But we have some further objection to that. That there must besome limit to the open house which the Service can conduct needsno underscoring. When these bills talk of "matters of record" itseems to be clear that the record referred to is not the record of thehearing, but all matters in the files.

The bills seem to require again .that. any -interested person shallhave access to all matters of 'record. This may mean that virtuallyanybody, simply impelled by curiosity, can ransack the Service's files.4Sections 306 and 601, although limited to "every person involved,"are open to much the same objections.

The Service probably has some 100,000 applications pending beforeit every day. These bills require that each of these 100,000 appli-cants can come in with carte blanch permission to examine the filesbefore or after any action is taken. Simply as a physical matter,this is wholly impossible, but even more important is the threat to thesuccessful effectuation of congressional policies which inheres in theseprovisions.

The Immigration and Naturalization Service today necessarily dealswith delicate and vital matters, many of them having to do withespionage and other such matters, very vital, especially in times likethese.

Senator O'MAHONEY. In the case of deportation proceedings, forexample, the issue is probably rather clear, is it not?

Major SCHOIELD. I think so.Senator O'MAHONny. Now, then, what right-under your procedure

now-has a person in such a proceeding, to go over the record and files?Major SCHOFELD. None at all.Senator O'MAHONEY. What notice does he have of the issue?Major SCHOFIELD. He is served with a warrant, just as in any

other proceeding, based upon a warrant, and the warrant must bespecific in its allegations, and he is, therefore, put on notice, and thena time is fixed for the hearing, and the witnesses must then be present,and he must be confronted with them, and he has a right to questionthem and to cross-examine them.

Now, that. same issue was recently raised in San Francisco, fromwhere I have just returned in the Bridges case.

As a matterl of fact, the alien in that proceeding made an appli-cation before the hearing opened-an application to Judge Sears, thespecial immigrant inspector, who was presiding in the case here inWashington, for permission to have access to all of our file, all of ourinvestigation, every statement made by every witness, taken eitherby the Federal Bureau of Investigation or by our Service-thus tobe put on notice in advance, not only of the nature of the chargesagainst him-Nfhich is all anybody under our system of governmentis entitled to-but, in addition to that, to all the evidence that wehad, so that, ostensibly, they could meet what they allege to beframed-up evidence.

Senator O'MAHONEY.. Was that request of Bridges denied?Major SCHOFIELD. It was refused.Senator O'MAHONEY. Then I take it to be your testimony that, if

this provision contained in section 306'of S. 674 were the law now-



Major SCHOFIELD (interposing). You would have to do it.Senator O'MAHONEY. (continuing). Mr'. Bridges would be entitled

to go into all the files of the F. B. I., and of your Bureau, the Depart-ment of Justice, to search out anything that might seem to him to havea bearing on his case?

Major SCHOFIELD. Well, Senator, I wouldn't go quite that far. Idon't think he would have the right to go through all the files tofind out what he thought pertained to him, but I do think it Wouldplace a duty upon us to supply him with information in the form ofcopies of statenents, or whatever form it could be agreed upon that itshould be done.

Senator O'MAHONEY. But this says-shall have access to the file or record of information upon which the agency hasacted-and shall be notified of such right before the record is closed or informalor tentative decision is made.

Major SCHOFIELD. Well, sir, it is bad enough, if that is interpretedmerely to mean that he shall have the right to information, but itwould be a monstrous suggestion, if you were to say that an aliencould go through all your files, physically.

Now, in the Bridges case, that same motion was renewed at thehearing itself in San Francisco.

Senator O'MAHONEY. What was the disposition of the motion then?Major SCHOFIELD. It was again refused. At that time the hearing

judge-Judge Sears-suggested, because of the precedent in the firsthearing, in which the hearing commissioner rather surprisingly hadrequested the Secretary of Labor to hand over to Mr. Bridges' counsel,and to the alien, all of their statements, and all of their records havingto do with the evidence against him, which was done; and, becauseof that precedent, Judge Sears requested me to take up with the At-torney General the request that had been made, although he himselfrefused to make any such order, but requested me to take it up to theAttorney General. I did this, and the Attorney General left it to thediscretion of the examining inspector-that is, our officer who was pros-ecuting the case-and myself, and we promptly refused the request.The request was made ostensibly to enable the alien to investigate inadvance the witnesses who were to be called against him, to check ontheir statements in an effort to bolster their contention that the evi-dence was in large respect untrustworthy and manufactured. We arepositively convinced that the real purpose was for the alien to conductfalse alibis, false testimony, and endeavor falsely and corruptly tomeet the evidence that was fairly presented against him. Now, topermit such a thing by legislative enactment, to my mind, would beruinous to any successful enforcement of the deportation statutes, andyet this provision, it seems to me, would compel it. I am only usingthat as an illustration, but it isn't only in an important case linethat-

Senator O'MAHONEY. In such a deportation proceeding does the al-leged alien against whom the proceeding is brought have a right or is,he afforded the opportunity to learn the names of the witnesses who,are to be brought against him?

Major SCHOFIELD. Not in advance.Senator O'MAHoNEY. Not until the time of the trial?Major SCHOFIELD. Yes, sir. Now that corresponds somewhat with

the orderly procedure in an indictment. There must be some names



of witnesses, I think, in all jurisdictions, as you, Senator, well know,endorsed on the back of the indictment, but the principle of law isthat every witness called needn't be on the indictment and the de-fendant needn't be put on notice in advance of every witness calledagainst him.

The prosecution has the right and, in my opinion, it is the duty ofa faithful prosecutor not to reveal in advance all of the statementsand the names of the witnesses. But this goes far beyond merely thenames of the witnesses. This would give not only their names and re-veal their identity, but reveal in advance exactly all the testimonythat they are about to give.

Now, as I say, I am including that rather important case as anillustration.

Senator O'MAHONEY. You pointed out only in response toquestions.

Major SCHOFIELD. Yes; but I mean there are other instances wherethis kind of legislation would be ruinous to our Service. We haveto depend in many instances on informers, especially along the Mexi-can borders and some points along the Canadian border, and alsoalong the Gulf in many cases in connection with the smuggling ofaliens, in Cuba and South America and Mexico and to a limitedextent in Canada.

Senator O'MAHONEY. To what extent do you have to depend oninformers?

Major SCHOFIELD. We have a system of rewards for informers whogive information in connection with systematized efforts to smugglealiens along the border.

Senator O'MAHONEY. That is similar to the system that has ap-plied for years in the Customs Bureau?

Major SCHOFIELD. Exactly. I don't know how far this goes back,but it goes as far back as our Service goes. It has proved in thepast, and continues to prove, a very effective way to combat especiallyorganized smuggling of aliens, and I needn't point out how it. wouldhamper us if we had to disclose in every case that arises throughsuch activities the source of our information.

Senator O'MAHONEY. Is 675 open to critcism in this respect,Major SCHOFIELD. No, sir. That is not in 675 at all.Much in our files is and must be confidential. We must depend

to some extent on confidential information and informers. If thesematters in our files must be exposed, the result would obviously bedisastrous. And even apart from problems of espionage, these sec-tions overlook the realities of the problems before us. For ex-ample, there are many cases arising of improper entrance over theMexican border. The only way by which the Service can success-fully deal with these cases is to depend on informers. If tlp aliensimproperly entering over the Mexican border have the right to dis--cover the names of these informers it would not only be a matterof the informers' lives, but it would end any possibility of success-fully stopping illegal Mexican border entries.

Still another difficulty is presented by these sections. As weunderstand them, they provide that, before any formnal proceedingsare begun, the alien has an absolute right to examine all the in-formation upon which the Service intends to proceed.



How difficult this will make it successfully to prosecute deportationcases can be indicated simply by reference to the situation arising inthe pending Harry Bridges case. There, as is well known, the Serviceand the Federal Bureau of Investigation made an intensive study andinvestigation. Of course, what evidence was thus gathered can be ofimportance only when it is produced in open hearing, where the alienwill have full right to cross-examine and to rebut. But in the Bridgescase a motion was made by the alien, before the actual hearing wasbegun,, to turn over to him all the material gathered by the investi-gators. This motion was denied by Judge Sears, a former judge ofthe highest court of New York. But the sections of these two billswould make such a ruling as Judge Sears' impossible.

It is difficult to conceive how the Service can successfully enforce itsdeportations laws if, before the proceedings, it must turn over its filesto the alien. For one side in the litigation to be forced to disclose itsentire case before hearing to the other side is, indeed, a novel andparalyzing concept in the law.

Perhaps the most serious difficulty we encounter in S. 674 and S. 918are the provisions relating to requirements of formal procedures.Section 308 of S. 674 states that in all cases where informal proceduresdo not result in consent dispositions of matters, formal adjudicatoryprocedure for the hearing and decision of cases shall be provided inaccordance with section 309; that is, formal hearings before hearingcommissioners. The same section makes certain exceptions to thisrequirement.

The only possible exception which .might relieve our service of therequirement is to be found on page 34, subsection (b), lines 2 to 9,where it is provided that if time or other factors indispensably re-quire, and statutes authorize, formal procedures are not necessary.But it is doubtful to us whether we would be relieved by this sub-section, since the indication is that the subsection is intended to applyonly to proceedings in the nature of injunctions pendente lite. Thereis no specific statutory authority for dispensing with formal proceed-ings nor is the meaning of the phrase "or other factors indispensablyrequire" at all clear in the light of the different views concerning themeaning of the word "indispensable," Section 602 of S. 918 is almostidentical except that it may be even broader in the light of its useof the words "controversies" and "decisions." As I read the definitionof these words in section 1 of S. 918, they apply to any making up ofthe mind and any disagreement at all in the process.

I am appending a list of the procedures of the Service which maycome within the purview of these two sections, together with the num-ber of cases arising under each procedure where statistics are availableduring the fiscal year ending June 30, 1940.

I would like to present that for the record. I won't attempt toread it all.

The decisions which our Service is compelled to make in such vastnumbers can be divided into two categories or classes.

Senator O'MWAHONEY. This is the list which is appended at the con-clusion of your statement?

Major SCHOFIELD. Yes, sir.Senator O'MAHONEY. Well, it may appear in the record in the same

manner.



Major SCHOFIELD. Now, the committee will note how many andwhat vast quantities there are of the classification of the duties re-quiring administrator decisions by our Service. There are some 33listed here.

Take, for example, petitions for preexamination; that is to say,where an alien has been admitted to the country on a temporary basisand is entitled to a quota number, so le can be admitted on a per-manent basis as an immigrant.

Senat6r O'MAHONEk. How many of these are handled by informalproceeding?

Major SCHOFIELD. All of them; every one of them.Senator O'MAHONEY. Your objection is that under 674 and 918,

where an adverse decision is made, every one of them would be openedto formal procedure, and it would be necessary where it was de-manded?

Major SCHOFIELD. Yes, sir; and we might as well close up shop. Itcouldn't be done; it would be absolutely impossible.

Senator O'MAHONEY. You mean that you couldn't enforce the im-miyration laws?

fIajor SCHOFIELD. Could not. It would be absolutely impossible.For instance, here during the course of a year, this is an estimated

number but I think it is conservative rather than exaggerated-Senator O'MAHONEY. Let me interrupt you. Section 308 begins,

"In all cases where informal procedures do not result in consentdispositions."

Major SCHOFIELD. How many of these would be adverse nobodycould estimate.

Senator O'MAHONEY. Of course, I assume that every immigrantwants to come in, and therefore no immigrant consents to a rulingexcluding him.

Major SCHOFIELD. No; never. Well, 1 wouldn't say they never con-sent.

Senator O'MAHONEY. Well, disposition is not the consent.Major SCHOFIELD. That is it.Senator O'MAHONEY. So that a provision of this kind would open

the door to every single case?Major SCHOFIELD. Yes, sir. In other words, I don't mean to -say

that every alien who is excluded appeals, or anything of that kind.Senator O'MAHONEY. I was merely trying to illuminate your state-

ment that you might just as well close shop.Major SCHOFIELD. Absolutely; yes, sir.For example, here we estimate that there will be at least 10,000

applications for preexamination. That means that, where an alienhas come into this country on some temporary status or basis, but isentitled to a quota and can comply with the law, that a personapplying at our borders, complying with the quota, shall be admitted,if the legal requirements are complied with, and he desires to leavethe country, so that-he can come back here with a quota, which isa procedure which has been criticized by members of Congress, but,in view of the present status of the law, the only way by which thestatus of an alien can be changed from a nonimmigrant to an immi-grant.

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He can only become an immigrant, admitted to this country forpermanent residence, when he applied at a port of entry with avisa, under a quota, the visa granted by an American consul.

Consequently, a man who has been here as a visitor or merchant,or whatever it may be, or even in transit, if, while he is here, hisquota number is available to him, he must go out and get it andcome back with a visa from an American consul.

Now, we have a system whereby we will examine him before heleaves, to determine whether, if and when he does appear, shortlythereafter, with the quota number, at a port of entry, he would beentitled to be admitted for permanent residence.

In other words, it is preexamination-examination before he leavesrather than at the time he comes back in.

Senator DANAIIER. Does that preexamination supplant the exam-ination customarily given by the consul?

Major SCHOFELD. No.Senator DANAHER. It does not?Major SCHOFIELD. No, indeed. The only difference is that it is

done before he leaves to go to the consul to get his quota, ratherthan, if he were out of the country already, he would do that firstand then come to our border with the quota.

Senator DANAHER. And then go through the same procedure?Major SCHOFIELD. Yes, sir.Senator DANAHER. Thank you.Major SCHOFIELD. But he must first, of course, satisfy the consul

that he is entitled to his quota, and must be assigned his quotanumber, so that all he does is merely a mechanical thing-he simplyleaves and comes back in with the quota number.

It does seem ridiculous to make him leave under those circum-stances, even, but under the present status of the law that is theonly way he can be admitted, because the law says that no personcan be admitted for permanent residence until he presents at theport of entry, a visa from an American consul.

Senator DANAHER. You used the word "ridiculous." What youmean, I assume, is there is no legal reason, no practical reason either,why we shouldn't confer the status while he remains here?

Major SCHOFIELD. AbsolutelySenator OMATIONEY. Have you ever suggested an amendment?Major SCHOFIELD. There is a bill before the house now. That is

one of the features of that bill, and it is something which ought tobe enacted.

After a person has been excluded, and after an alien has been de-ported, under some circumstances, he can reapply for adm5ssion.

He must first petition the service and the service then passesupon it.

There were 3,636 such applications determined in the fiscal yearending June 30, 1940.

I won't go down all of these, but No. 12 on the list the issuance ofreentry permits, there were 17,173 during the last fiscal year.

That means an alien who has been admitted for permanent resi-,dence into this country, who desires, for one reason or another toleave the country temporarily, 'in order for him to be able to returnhe must ask for and be granted a reentry permit.



Now, the question of extensions-here it is, No. 9. There were13,127 applications at the central office in Washington of our serviceduring the last fiscal year, for extension of temporary permits.

That is, an alien Nho has been admitted upon a temporary basis.Now, that figure, I want to point out, does not include extensions of

-stay which were granted in the various field offices.It is only those which came to Washington, because, under a regu-

lation that our service has, the field offices can only grant extensionsof 6 months, and they can only grant two of them-not any longer.

Therefore, any further extension must come from Washington, oran application for a. longer period of time.

So that figure of 13,127 doesn't represent, by any means, the num-ber of applications.

The question of bordeil crossing cards is another method wherebyaliens in this country can leave the country with the right to reenter.

Those are used prinlarily along the borders, especially in placeslike Buffalo and Detroit, and some points along the Mexican border,where people are really commuting internationally, almost day to day,or very frequently.

And so on down through this list, so that you can see the vastnumber of administrative decisions which must be made through ourservice, which, as we understand these two bills, would require, in acase where it affects the alien's right, the alien's interest, would re-quire a formal hearing.

That is the reason I say it would be impossible for us, it wouldseem to me, no matter what huge amount of money were available topay the terrifically increased personnel which we would require, I-don't think it could be done under any circumstances.

It would make it so unwieldy and impossible that, as I say, I don'tthink we could begin to enforce the laws.

As I have already noted, in exclusion and deportation cases, formalprocedures are now available, as indeed they should be, but besidethese there are literally hundreds of thousands of other "cases" ordecisions" which come before the Service annually.Matters relating to preexamination, permission to reapply for ad-

mission, contract labor status, approval of schools for immigrant:students, determination of nonquota and preference status, discre-tionary admission of excludable aliens as returning residents or non-immigrants, imposition of administrative fines, change of non-immigrant and student status, extension of temporary stay, cancella-tion or breach of bonds, amendment or endorsement of records of-entry, issuance of reentry permits, issuance of border crossing cards,authorization of removal of indigent aliens, granting and cancella-tion of certificates of registry-these and many other matters makeup the mass of detailed decisions which come before us from day today. Although wherever possible the Service affords persons af-fected opportunity to come in and discuss matters of interest to them,it would be manifestly impossible to translate all these procedures intoterms of formal adversary hearings.

The matters involved are largely ones of discretion and the de-cisions are based on whatever information can be obtained. If we-were forced to produce all the information through witnesses at

316412-41-pt. 2-7



formal hearings, the size of our staff would have to be increased ahundredfold-and that is a very low estimate-and the business ofthe Service would shortly break down.

Even apart from these difficulties, I cannot believe that these arethe sort of matters where formal hearings afford any further utilityor protection than is afforded under our existing procedures.

No, we come to section 311 of S. 674, relating to judicial re-view-the chief difficulty of the Service has been that of under-standing its precise effect. Under section 311 (a) all 'statutoryprovisions for judicial review shall remain valid and binding ex-cept as the same may be inconsistent with the provisions of thatbill. However, all statutory provisions specifically precluding judi-cial review or prescribing, a broader scope of rev'ew are to remainin effect. Judicial review of deportation, and admission cases isnow obtainable through application for writs of habeas corpus.That is the only method of review that pertains to our service.

Senator DANAHER. But even that is limited?Major SCHOFIELD. Not as to the right to the writ.Senator DANAI-IER. No.Major SCHOFIELD. You .nean as to the nature-Senator DANAHER (interposing). The grounds on which it is to

be granted.Major SCHOFIELD. In general the scope of review in such cases

seems to be the substantial evidence rule; and in addition, the courtwill scrutinize questions concerning statutory power and proceduraldue process.

Now, that is about the limit of the scope of the judicial reviewon habeas corpus?

Senator DANAHER. Actually all that amounts to is whethei or notthe warrant has been legally issued.

Major SCHOFIELD. I don't think so. There must be substantialevidence and the courts will go into the question of substantialevidence. There have been many cases of substantial evidence onwrits of habeas corpus in deportation cases.

Mr. EDWARD F. PRICHARD, JR. In the Strecker case the CircuitCourt of Appeals for the Fifth Circuit set aside the warrant onthe ground that there was no substantial evidence to support thedecision that the alien personally advocated the violent overthrowof the Government. It is in general the substantial evidence rulelike that which applies in other administrative proceedings.

In the earlier case there was some language to the effect that thecourt wouldn't look to the sufficiency of evidence at all, but as thosecases were gradually restated and modified there emerged prettymuch the same sort of judicial review that you have in any sortof administrative proceedings.

Major SCFIOFIELD. I wouldn't limit it quite as much as Mr. Prich-ard. I don't see any distinction between the scope of review in adeportaiion case and the ordinary judicial review in any admin-istrative hearing.

Mr. PRICHARD. That is right.Major SCHOFIELD. I would say it is identical.



Senator O'MAHONEY. In other words, habeas corpus, according toyour views, does give ample opportunity to the person against whomthe order was issued to have a full hearing of his case?

Major SCHOFIELD. Plenty, adequate, and full opportunity, and thathas been the effect throughout our Service in the various district courts.

Of course, I have only been there since last June, but I don't knowof a complaint that we have had as to the inadequacy of judicial reviewas to habeas corpus on deportation cases or exclusion cases. Do weever have any complaints on that?

Mr. JOSEPH SAvop.rnrI. No. We have thousands of cases.Major SCHOFIELD. That was Mr. Savoretti, who for -many years was

on Ellis Island and is now in Washington as Chief of our Field Service,and whom I asked to be here because I think he is perhaps more thanany man in our Service familiar with our rules and regulations, notonly from a seat in Washington but actually from having been in thefield, actually enforcing them.

Senator DANAHER. Since we have opened up that subject andit doesrelate to the bills, on what record does that case go to the circuit courtof appeals?

Major SCHOFIELD. It goes on the entire record in the deportationhearing, including the evidence.

Senator DANAHER. And the findings?Major SCFIOIELD. Certainly, and the findings; yes, sir.Senator DANAHER. So that the findings and decision are based on

the "substantial evidence" rule so far as the records before the courtshow it and sustain the conclusions or not?

Major Sc IEoLED. Yes, sir.Ar. SAVOREIM. I might add that in habeas corpus proceedings the

court usually rules on the record which is the certified file of the entiredepartment.

Senator DANAHER. Thank you.It is not at all certain whether the many other types of cases coming

before us are now subject to review, chiefly because, as exercises ofdiscretion, there is nothing concrete to review. Yet the statutes donot "specifically preclude" judicial review. I think it would be un-fortunate to impose a system of judicial review on this multitude ofmatters, chiefly because there must at some point, in dealing withsuch ntters, be an end to litigation. On the other hand title VIII ofS. 918 very clearly creates radical changes in the existing system ofjudicial review. No provision is made for present practices or laws.Instead any person adversely affected by any final award, order, orother decision, rendered pursuant to hearing procedure, has the rightto petition for judicial review.

As I have already pointed out, the breadth of the definition of theword "decision" will subject each of our hundreds of thousands ofcases to judicial review, in our opinion. Instead of the presenthabeas corpus method, which carries the case into the district court,section 801 of S. 918 apparently provides for the filing of a petitionwith, the appropriate circuit court. This seems to displace existingdistrict court review by circuit court review-a provision which willdoubtless overwhelm the circuit courts. It is impossible for us atthis time to predict the full impact of the judicial review provisions ofS. 918 on the Immigration and Naturalization Service.



A few other matters peculiar to S. 918 deserve comment. The firstis the requirement that any person coming before the Service can berepresented only by a lawyer where the proceeding involves a decisionof questions of law and the preparation of a record which may bethe basis for judicial review. I assume that this would include alldeportation and exclusion cases. While I believe it imperative forthe Service to have some control over persons representing aliens, so asto protect the aliens from unscrupulous persons, I think that a rigidlimitation of representation by nonlawyers would be extremely unfor.tunate and unfair.

There are a number of worthy and public-spirited organizationswhich now serve aliens. Aliens, needless to say, are often poor andunversed in the technicalities of the law. To deprive the aliens repre-sentation through these organizations or through nonlawyers, and toinsist that they be represented only by lawyers, would be to deprivethem, altogether of the right to be represented in many instances.

A second objectionable feature of S. 918 is its absolute requirementthat before the Service issues regulations implementing or interpret-ing any statute, there must be a public hearing on request.

It is not at all clear what an "implementing" regulation is; itseems to us that any regulation, whether procedural or otherwise,implements the statute. Many of our regulations are proceduralin that they inform possibly interested persons what to do andwhere to go in dealing with the Service. Few of them make sub-stantive additions to the immigration laws, such as our rules andregulations with respect to preexaminattions, aliens returning aftertemporary visits abroad in connection with section 13 (b) of the actof 1924, deportations, and even our regulations as to temporaryvisitors.

It would surely slow down our machinery if these types of ruleshad to await public hearings whenever any person, regardless ofhis interest, requested them. In addition, to aid those who dealwith us, we issue explanations and interpretations of our laws.These do not add to the laws but simply clarify them. I take itIhat it is considered highly desirable for agencies to attempt toexplain the laws which they administer so that certainty can bea~chieved. But since these add nothing of substance to the statutes,

I am not clear what purpose a public hearing would serve. Andmore important, if we were required to go through a formal hear-ing before every interpretation, it seems to me inevitable that theresult would be simply that we would not issue interpretations ofthe laws at all.

Finally, the provisions of title VII of S. 918, placing the ad-ministration of immigration laws in the hands of lawyers appointedby district courts would have a disastrous effect upon the effectua-tion of congressional policies. I have already noted the broad re-quirements of S. 918 for formal procedures. All these discretionarymatters, and all deportation and exclusion cases, would be heardnot before persons who knew the immigration and naturalizationlaws but before lawyers who, by the definition in the statute, haveno responsibility to the Immigration and Naturalization Service, andhave no knowledge of its complex laws. indeed, in deportation



cases there may be nontechnical issues of fact and the cases maynot be very different from those which are now tried before juries.In this respect, these provisions of S. 918 are less harmful to usthan they may be to other agencies dealing with more complex tech-nical matters. But there still, remains this huge body of cases forwhich outside lawyers are clearly unequipped. And, in any event,it is imperative, especially at the present time, that there be a con-sistent and forceful policy relating to immigration and naturaliza-tion. I could think of nothing more unfortunate than to place theadministration of these laws in the hands of persons probably un-familiar with, and possibly hostile to, the national policies--personsin whose selection the Immigration and Naturalization Service can-not in any way participate.

I would say, sir, that that would also be ruinous to the effectiveadministration of the naturalization laws. It is unworkable andimpractical, if not impossible of successful fulfillment.

For these reasons, the Service feels that S. 674 and S. 918 are notsuited to the proper administration of our laws and would mostseriously interfere with such administration. The two bills are, in-flexible, and lose sight of the particular problems which face us. Onthe other hand, S. 675 in general charts a. far more discriminatingcourse. It has that flexibility which the other two bills lack. Itrecognizes that there are a great number of matters coming before anagency for which formal procedures are unsuitable. Through section301, it applies its hearing-commissioner system only to cases where bylaw formal procedures are now required. In other words, as we readit, its requirements apply only to deportation and exclusion cases.

If its requirements applied to the other matters which we have todecide, we would, of course, be opposed to that, also, but assumingthat its requirements apply only to deportation and exclusion cases,then we think it is much more adaptable to our Service, much moresuitable to our Service than the other two.

Now, insofar as deportation cases and exclusion cases are concerned,we already hold hearings and base our decisions upon such hearings.Indeed, S. 675 would make considerable changes in our existing pro-cedures. Our boards of special inquiry which now hear admissioncases would be replaced by independent hearing commissioners. Theinspectors who hear deportation cases would be similarly replaced,and while in such cases, the inspector does not now make a decision,under S. 675, he would make such a decision-that is, the hearingexaminer would-which would be appealable to the Board of Immi-gration Appeals.

'We agree with the view of the majority of the Attorney General'sCommittee that it is desirable to vest the power of decision in theman who heard the case and saw the witnesses, insofar as possible. Wethink that the hearing-commissioner system would improve our pres-ent procedures to a considerable extent without stultifying the admin-istration of the laws.

Senator DANAHER. Before you open into that new field, will youtell me, please, within your view, what you believe the "agency tribu-nal" would be in your department?Major SCHOFIELD. I am coming to that answer and I will try to

answer it now, if the Senator wants me to, but if you will pernyit me,



we will come back to that in a few minutes. It is something that givesus some concern as to what that means.

Senator DANAHER. I thought this was a good place to take that up,but if you are coming to it later, that is all right.

Major SCHOFIELD. We are coming to it in just a moment.Senator DANAI ER. All right.We do, however, perceive some difficulties in some of the provisions

of S. 675. For example, section 103 (c) provides that the AttorneyGeneral may delegate any of his powers of final adjudication to oneor more agency tribunals with such membership as he may prescribe.

This has been done through the creation of the Board of Immi-gration Appeals, which was created by the Attorney General and towhich he delegated some of his powers.

However, the Attorney General has necessarily retained power toreview unusual and difficult cases where he deems it necessary. Ithink that this will be the general situation where there is suchdelegation. Yet the implication of 103 (c) may be that the head ofthe agency must delegate the power of final adjudication completelyor not at all, and we would, of course, be very definitely opposed tothat.

We suggest that some phrase be added which would permit thehead of the agency to prescribe such review or reconsideration as hemay deem wise. Provision should also be made so that even if therebe this residual power of review, the group to which there is delega-tion should still fall within the definition of "agency tribunal."

Senator DANAHER. I think the words "any protection" in line 24on page 4

Major SCHOFIELD (interposing):

He may delegate any of his powers of final adjudication to one or more agencytribunals with such membership as he may prescribe.

Our thought is that once he does delegate he delegates it all. Inother words, he delegates all or none. It ought to be cleared up.

MI'. PRICIHARD. Especially if it is taken in connection with 103 atthe top of page 4 the definition of "agency tribunal" meaning-the officer or group of officers within an agency as above defined who are notsubordinate or responsible to any other officer therein.

(b) "Agency tribunal" means the officer or group of officers within an agencywhose decisions in adjudication are unreviewable except by the courts.

Now the regulations with which the Attorney General has set upthe Board of Immigration Appeals provide that in certain cate-gories of cases the Attorney General will review those decisions-where the Board certifies after its decision that a question of diffi-culty is involved and that it would prefer to have him review it; orwhere one of the members of the Board dissents from that decision;or where after investigation the Attorney General himself decides tocall the case up for review.

Now, in the light of that limited review, we might have some fearthat the Board of Immigration Appeals wouldn't be an agency tri-bunal within the meaning of section 103 (b), and we had thoughtperhaps, that if some words like "whose decisions or adjudicationsin regular course are ordinarily unreviewable except by the courts,"or something like that were put in, it would clarify the statute

572



so that the procedure would apply to the Board of Immigration Ap-peals, which would be clearly an agency tribunal within the meaningof the statute.

Senator DANAHER. I would be glad to have you, Major, on behalfof the committee, submit to us that proposed language as a supple-ment to your comment on this very particular so we may have it forconsideration.

Major SCHOFIELD. We will do that, sir.Senator DANAHER. Naturally we hope to canvass the particular

'problems of all the agencies, and your views would be of value.Major SCHOFIELD. Thank you. We would be very glad to do it.Finally, in general, the Service is inclined to prefer the wider and

more flexible range of salaries for hearing commissioners providedfor by section 309 (c) (2) of S. 674 to the provisions of section302 (2) of S. 675. It should be noted at the outset that S. 675,through its requirement of the appointment of hearing commis-sioners, is going to increase the expense of the Service to a con-siderable extent.

May I interrupt just a minute to call the Senator's attention toa rough estimate that I have made as to what this provision as tohearing examiners will amount to if we take them at the lowerfigure which S. 675 calls for, but which it provides may in certainsituations prevail ? That is $5,000.

On page 12, subsection 2 of section 302, "The salary of a hearingcommissioner' is fixed at $7,500 per annum," but it is provided thatif the Director of Federal Administrative Procedure shall certifyupon application of an agency that certain of the cases comingbefore that agency are of an uncomplicated character, it shall bepermissible to fix the salaries of hearing commissioners assigned tosuch cases at $5,000 per annum. Not that a great many of ourcases could be described as uncomplicated in character, but assumn-ing that a $5,000 level would be applicable to our Service, whichwould be an increase-average of a little over $2,000 for all theimmigrant inspectors who now conduct hearings, this provision alonewould mean an increase of $1,150,000 for our Service alone.

Senator DANAHER. That is, assuming that all inspectors assumedthe status of hearing commissioners.

Major" SCHOFIELD. No, sir; estimating the number of new hearingcommissioners who would have to be appointed to take care of avolume of our work based on present figures.

Senator DANAHER. I see.Major SCHOFIELD. The committee must realize that an inunigrant

inspector performs many other duties in addition to conductinghearings, and his services would still be required to perform thoseother duties. Ships must be boarded, seamen must be examinedand fingerprinted, papers must be lifted, trains must be boarded,airplanes must be met and the passengers examined, and so on.

Last year, the fiscal year ending June 1940, we made at seaportsalone 1,600,890 examinations of one kind or another. People seekingto come in-that includes everybody; sailors, passengers, citizens, non-citizens, every kind.



At the land-border ports there were arrivals to the number of50,102,398.

Senator DANAHFR. That includes border crossings, doesn't it?Major SCHOFIELD. Everything. Repeated crossings. Commuters

and everybody, but they all must be examined. It includes aliens andcitizens, too, but there were that many examinations which had to bemade by our Service. So that the total for the fiscal year ending1940 was 51,703,288. Now that means that we must have an adequatestaff and force of immigrant inspectors, and so if we are by statutenow to provide for hearing commissioners in the main, not entirely,but in the main they will have to be appointed new. Additionalpersonnel in our Service.

Now when it is remembered that we have 22 districts throughoutthe United States and its insular possessions, 226 ports of entry, andan additional 153 interior offices like Pittsburgh, Cincinnati, KansasCity, Salt Lake City, Denver, and St. Louis, where deportation hear-ings must take place, and when it must be remembered that-and whenit must be recalled that we nmust have boards of special inquiry, orunder the new statute, hearing commissioners, to do the work that ourboards of special inquiry now perform, namely, to sit on the right ofaliens to enter, and determine whether they should be excluded: andthey must be available when boats arrive at ports of entry or whentrains arrive at land ports and airplanes arrive, and taking into con-sideration also that there could be some moving about, shifting ofhearing commissioners from one point to another, bearing in mindalso, however, the vast distances in some of our districts, especiallyout in the West, we have estimated that it would require 225 hearingcommissioners over and above our present personnel at an averagesalary of $5,000 per annumn, or $1,150,000. It isn't worth it. There isno purpose that can be served by the expenditure of that money. Be-cause I take it that these hearing commissioners would be confinedin their duties to the duties prescribed in the statute, and they wouldbe hearing commissioners, and that will, and that would also involveanother economic waste because while they are waiting for a hearingI don't know what they would be compelled to do. eMany of thesehearings take less than an hour and require no witnesses and no greatability to conduct or decide.

Many of them are extraordinarily simple and relate to illegal en-try, for instance, and the like, where no real complicated issue isinvolved either of law or fact.

Take for example, along the Mexican border, where a Mexicanis tired of the food in Mexico or the conditions over there, wantsto get a good meal across the border, and he walks across the RioGrande and he is apprehended by an officer.

There is no complicated issue of any kind. As a matter of fact,there are some in our service who advocate in that kind of case,there is no necessity for any kind of hearing at all.

In any case, does it require the hearing of a specially trained man,.employed at $5,000 a year to pass on a case like that?

It is an illustration of the difficulties you run into when you tryto draft a comprehensive bill, which will provide for hearing exam-iners to pass on complicated rate structures and things of that kind,



as opposed to a man who only has to decide a simple little issueas to whether a human being is an alien and whether he enteredillegally and should be sent back.

Now, if there are to be hearing examiners, we think that thesalary scale in S. 674 of $3,600 is much more desirable than thehigher salary scale and it is more fitting with the needs of ourservices than the present practice and situation.

I think I have touched upon the decentralization which must prevailto a high degree in our Service.

In general, the Service is inclined to prefer the wider and moreflexible range of salaries for hearing commissioners provided for bysection 309 (c) (2) of S. 674 to the provisions of section 302 (2) ofS. 675. It.should be noted at the outset that S. 675, through itsrequirement of the appointment of hearing commissioners, is goingto increase the expense of the Service to a considerable extent.

Now, we use inspectors to hear cases who are engaged in otheractivities when not acting as presiding officers. Both S. 675 andS. 674 would prevent this and would require a staff of hearing com-missioners devoted solely to hearing and deciding cases. This, ofcourse, would mean an enlargement of all its staff, although it istrue that by substituting one hearing commissioner for three mem-bers of the Board of Special Inquiry there is some compensation.But we do have a substantial number of extraordinary simple casesrelating to illegal entry and the like.

These hearings often take less than an hour and require no wit-nesses and no great ability to conduct or decide. It does not seemto me to be economical to put $5,000 a year or $7,500 a year men onsuch cases. It is for this reason that we find the salary scale begin-ning at $3,600 of S. 674 more desirable.

I might also observe that the Service is somewhat unusual in itsnecessarily high degree of decentralization. As cases come up inthe field, they are largely handled through the field office with littlereference to Washington in the earlier stages.

Section 305, subsection (2) (a) makes it the duty of a chief hear-ing commissioner to assign hearing commissioners to cases. Thiswill centralize the assignment of cases, and I think would not fit ourexisting organization.

I would, therefore, suggest that this provision be amended topermit the chief hearing commissioner to assign or to supervise theassignment of hearing commissioners to cases. In addition, I takeit that section 309 of S. 675 is intended to provide an absolute rightto except to a hearing commissioner's decision unless there has beendelegation of final powers to them under section 103 (c).

We have no objections to such a right and I think that the rightto appeal from the hearing commissioner's decision should be madeclear. May I add in conclusion that the Service feels that the crea-tion of an Office of Administrative Procedure to make a continu-ing study of procedures and to collaborate and coordinate suchprocedures is a happy one.

Further, the Service believes that the sections relating to rules andregulations are in general desirable and present requirements whichwe now are trying to fulfill without statute. Finally, I think thattitle IV, empowering but not requiring the Service to issue declara-

575



tory rulings in every case, is a fine suggestion which will do much toaid in achieving certainty and assisting the persons with whom we deal.Admivistrative procedures-type and quantity for fiscal year 1910 where figures

exist-Immigration and Naturalization Service

A. Determinations now ordinarily reviewable on habeas corpus:

1. Exclusion-boards of special inquiry, Board of Immigration Ap-peals, and Attorney General ------------------------- 3421

2. Deportation-warrant hearing, Board of Immigration Appeals,and Attorney General ------------------------------- 18, 708

3. Determination of amounts of admission and delivery bonds- (1)4. Determination of citizenship (sec. 503, Naturalization Act.

1940, also) ----------------------------------------- (1)B. Administrative determinations now ordinarily final:

1. Preexamination, estimated ------------------------------ 10,0002. Permission to reapply for admission ------------------------- 3, 6363. Contract labor status ----------------------------------- 1,5684. Approval of schools for immigrant students ------------------- 1135. Determination of nonquota and preference status ------------- 11,0176. Discretionary admission of excludible aliens as returning resi-

dents or nonimmigrants ------------------------------- )7. Imposition of administrative fines ------------------------ 1,9438. Change of nonimmigrant and student status ----------------- 1, 8609. Extension of temporary stay ---------------------------- 13, 127

10. Cancelation or breach of bonds------------------------- 3011. Amendment or endorsement of records of entry --------------- 1, 86012. Issuance of reentry permits -------------------------- 17, 17313. Issuance of border crossing cards, estimated ---------------- 50,00014. Authorization of removal of indigent aliens ------------------ 1, 15115. Granting and cancelation of certificate of registry ----------- 31,59516. Furnishing copies of immigration records or information ------ 2, 00017. Issuance of subpenas for witnesses ------------------------ (1)18. Stay of deportation ------------------------------------ (1)19. Permission to depart with qr without a warrant of deporta-

tion --------------------------------------------------- ()20. Discretionary suspension of deportation and report to Congress

to allow certain aliens illegally here to remain ------------- 12021. Issuance of certificate of arrival ------------------------ 135, 09622. Determination of applicability of exemptions from loss of resi-

dence --------------------------------------------- ------ 14423. Issuance of certificate of derivative citizenship ------------- 4,6S324. Issuance of special certificates of citizenship -------------- 1325. Issuance of certificates in lieu of those lost ---------------- 18, 75126. Issuance of certified copies of naturalization records ---------- 4027. Revocation of certificates issued by Commissioner of Immigra-

tion and Naturalization ------------------------------- ()28. Issuance of Chinese certificates of identity ------------------ ()29. Issuance of Chinese laborers' return certificates ------------- )30. Issuance of duplicate Chinese certificates of residence ------ (1)31. Issuance of certificate of citizenship-Hawaiian Islands or

citizens' return certificates (Form 430) ------------------- ()32. Disbarment of attorneys from practice before the Service --- - )

No figures.

Major SCHOFIELD. NOW, with the Committee's permission, in con-nection with 675, there are one or two other points which, if I may, Iwould like to discuss.

We have already touched on, in section 102, the definition of agencytribunal, and we will accept the suggestion of the Senator, and at-tempt to frame some suggestion which will meet our situation.

Now in section 104-Every person appearing or summoned in any administrative proceeding shall

be allowed the assistance of counsel.


ADMINISTRATIVE PROCEDURE,

I I want to point out to the committee that this is at variance withour present practice where we don't perimit counsel to be present withthe alien before the Board of Special Inquiry, which is the Boardthat passes on whether or not he shall be admitted-exclusion cases.

We are willing to experiment with that, and I am personally in-clined to think that there ought to be counsel there.

The danger is that it will delay and that it -will encourage appealsand not work for efficient and prompt administration of the immigra-tion law so far as the exclusion is concerned, but we don't seriouslyobject-in fact personally I would favor section 104.

Now, section 201, where it is provided on page 9 that "Every agencyshall promptly make available and currently maintain a statement ofits internal organization," its subdivisions, the pMaces of business, andSO on.

We don't have any objection to that, but it becomes a pretty com-plicated thing to republish every time, a description of functions andduties, and publish and keep, and maintain information of everychange in personnel, which apparently this section would require.

There is no objection to it, but it does seem to put a burden uponthe administration of the Service, which serves no real purpose.

Now, what does it mean by, "Every agency shall promptly makeavailable and currently maintain a statement." A statement towhom? Anybody who wants it?

Where is that statement to be kept? "Officers and types of person-nel'-does that mean that we must keep a public roster for everybodyto look at of every employee in our Service?

As to section 205, the second sentence, "The agency shall also in-clude a summary of formal requests with respect to regulations re-ceived by it pursuant to section 204," and the first sentence whichrequires the "agency to transmit all rules promulgated by it duringthe preceding twelve months to Congress"':

Our present procedure is that all of our rules and regulations arepublished in the Federal Register and I don't suppose that it is muchof an additional burden to transmit those rules annually to Congress,but it would serve no particular purpose, so far as our Service, atleast, is concerned.

Now, when we come to section 301. We think there ought tobe some clarification of the first part of that section. As it now reads,it provides that the section-that the act-the section of this title,as a. matter of fact, "shall be applicable to proceedings whereinrights, duties, or other legal regulations are required by law to bedetermined after opportunity for hearing."

We think that that ought to be made more specific and that itought to read something like this: That they shall apply "only toproceedings wherein rights, duties or other legal relations are re-quired by the constitution or statutes to be determined after oppor-tunity for formal hearing, and if such a hearing be held, only uponthe basis of a record made in the course of such hearing."

In other words, so that it would be clear that this statute wouldapply only to those matters of administrative function in our service,which are disposed of by formal hearing. This would mean exclu-sion cases and deportation cases.



We now, in many instances, grant hearings in matters where thelaw doesn't require a hearing, as for example, an alien who desiresan extension of his stay.

We will treat such an alien informally if he calls or through hiscounsel if he calls, or both together, and if he asks for it, we accordhim a hearing, which is formal in its character, and in which heis accorded the right to advance, through testimony and throughwitnesses, if he desires, his reasons in support of his applicationfor an extension of his temporary visit, but that is purely regulatory,not required by statute, and we don't think that there ought to bea necessity for such a hearing in every one of those thousands ofcases, which might be required if the wording of section 301, thefirst part of it, remains as it is now printed.

Now, section 302. This provides for a chief hearing commissioner.Just what the function in our service of a chief hearing comnis-

sioner would be, the advantage, rather is very doubtful.Coming to subsection (3) of section 302, we are definitely opposed

to the appointment of hearing examiners by the office of FederalAdministrative Procedure, even though it be done by that office uponthe recommendation of the service-the agency.

It would create a separate group of employees, personnel, respon-sible primarily to the office of Federal Administrative provisions,especially because of the provisions elsewhere in this title for removaland so on, whereas the efficient administration of immigration lawsshould be by employees of the service and its own personnel.

I understand that an amendment has been suggested whereby theentire section would not be applicable to those agencies which arenow under civil service.

Of course, if that amendment is adopted, it would eliminate theapplicability of this whole section to us, because ours has been acivil-service service for years. We are entirely under the rules andregulations of the Civil Service Commission.

I don't want to be understood, by objecting to the proposedwording of this section as it is now, that we 'are objecting to thecivil-service idea, or to securing stability of tenure, but because wedo object to the idea of having hearing commissioners who wouldbe obliged to hear cases peculiarly applicable to our service and ourlaws only, which are intricate and complex, and who would be sub-ject to the supervision of an appointed body, somebody outside theagency. We think it would be very harmful to the efficiency of ourservice.

Senator DANAHER. I question whether or not that proposed amend-ment to which you made reference, would supply an adequate answer.

Major SCHOFIELD. It would to us, so far as our service is concerned.Senator DANAHER. I understand, but it is my recollection that

after July 1, everything except T. V. A. and W. P. A. will be undercivil service.

The Ramspeck bill has blanketed everything, I think. If youhave any specific suggestions as to that section, which will state yourproblem your way, we ought to hear from you on it, so that we mayconsider your ideas with the suggestions of others.

Major SCHOFIELD. I would be very glad to do it. Now, there area few minor comments in connection with some of these other sections



that I-take section 303, which requires us in subsection 4 to servecopies of findings and conclusions in writing upon all parties ininterest.

That would require us, in an exclusion case, where an alien haswalked across the border and is here illegally, and is ordered ex-cluded, it would require us to hand him a copy of the conclusions.No particular objection to it, but it would seem almost unnecessary

in many, many cases.Section 305 allots to the chief hearing commissioner, the power to

assign hearing commissioners to cases. If that means that the chiefhearing commissioner can throw out our entire service, selecting thehearing commissioners that he desires to assign to cases, it would bedisastrous to our service.

Probably we could designate district directors, which is the officenow subordinate to Washington, which administers the affairs ofa given territorial district, of which we have 22.

Probably we could designate such a district director the chiefhearing commissioner for his particular district, and in that way, hecould assign the hearings commissioners to cases, or assign casesto the commissioner, within his own district, which would correspondto the practice which pertains at the present time.

There wouldn't be any objection to that. But if this section meansthat one hearing commissioner for the entire service could do thatwithout any supervision or direction at all from the head of theagency, it seems to me it would be entirely unworkable.

Senator DANAHER. Before you leave that point and start on a newone, I will ask you to revert to section 304 at the top of page 20. Iam talking about S. 675-

Major SCHOFIELD. Yes, sir.Senator DANAHER. To see if you wouldn't comment. Consider

again your border exclusion cases, with reference to the provisions oflines 6 to 10, inclusive-

but in any case wherein he deems it appropriate to do so, the hearing commis-sioner may announce his decision orally on the record, and shall be required tostate his findings, conclusions, and decision more fully and in written form onlyif requested to do so by a party or by the agency tribunal.

Major SCHOFIELD. Yes, that removes a good deal of the objection.That is the reason I say we don't have any serious objection to italthough it would seem unnecessary to require him to do it even ifrequested, but I think in the majority of cases, as a practical matter,that wouldn't throw much of a burden on our service.

Senator DANAHER. It wouldn't become very greatly different fromthe traffic tags that give to all a list of instances of violation. Youpark too near a fire plug or too near a corner, and the officer simplychecks it off and hands over the tag.

Major SCHOFIELD. It could be simplified; yes, sir.Now section 308. We haven't any objection to it. As a matter of

fact, it would be an improvement over our present situation, but I dowant to point out to the committee that that would affect our servicein this way-that it would make the hearing commissioner's decisionfinal in the absence of an appeal-so that he could deport, whereasunder the present practice and our regulations the Attorney General,except in a very limited number of cases, is the deporting authorityand every case must go to him or to the Board of Immigration Ap-


580 :ADMINISTRATIVE PROCEDURE

peals. The inspector who conducts the hearing in the field merelytakes the evidence, receives it, arrives at findings 'of fact and conclu-sions of law, and reports that, or passes it on to the central officer inWashington.. Now, I think it is an advantage personally, a distinct advantage,to let the field deport.

Mr. PRICHARD. If there is no contest?Major SCHOFIELD. If there is no contest. And of course, if there is

a contest, he has the right of appeal, but I mean in the routine un-contested case to permit the field to deport, it further decentralizesdeportation, helps break the log jam here in the central office, andthere is no real reason why in a clear case, which is uncontested, thefinal decision should be made by the head of the agency.

Senator DANAHER. Section 308 doesn't militate against that result,does it ?

Major SCHOFIELD. No; I say it doesn't. It creates it. I merelystated that in passing, that it appears to us to be a distinct advantage.

Senator DANAHER. Before we leave that subject, I have been mean-ing to ask some one of you experts

Major SCHOFIELD (interposing). I hope the Senator doesn't putme in that category as an expert.

Senator DANAHER. Yes; I do and anyhow you can ask Mr.Prichard.

Major SCHOFIELD. Yes, sir.Senator DANAHER. I ask you, though, what is meant by the words

"in the absence of timely appeal"?Major SCHOFIELD. We have discussed it, and I think that we would

be empowered to make reasonable regulations as to what the timely:,ppeal is.

Senator DANAHER. I just wanted to know what you thought.Major SCHOFIELD. I wouldn't want to venture a guess as to what

a timely appeal would be. That would require some further study.Of course, as a practical matter, there is a good deal of time to

appeal in deportation cases, at the present time at least., becauseof the difficulty of effecting deportation once the order is made.

Senator DANAHER. Of course, there would remain, I suppose, thehabeas corpus anyhow.

Major SCHOFIELD. Oh, always. Superimposed above this.Senator DANAHER. So that the alien would be protected surely?Major SCHOFIELD. Yes. That is all that I have in mind at the present

moment unless the Senator desires to ask any questions.Senator DANAHEIR. No; thank you, Major. I have no other ques-

tions.Major SCHOFIELD. Thank you, Senator, very much. I desire to

express my appreciation to the committee for this opportunity ofbeing permitted to come here and give our thoughts and express ourviews as to these bills.

Senator DANAHER. We thank you very much for your presentation.It has been very helpful.

We will recess now until Tuesday morning, 10 o'clock in thisroom.

(Whereupon, at 4:45 p. in., May 2, 1941, the hearing was recesseduntil 10 a. In., May 6, 1941.)



TUESDAY, MAY 6, 1941

UNITED STATES SENATE,SUBCOmmiTTEa OF THE COMMITTEE OF THE JUDICIARY,

Washington, D. C.The subcommittee met, pursuant to recess, at 10 a. in., in room 312,

Senate Office Building, Senator Carl A. Hatch, presiding.Present: Senatbrs Hatch, Austin, and Danaher.Senator HATCH. The committee will come to order.We will be pleased to hear you, Mr. Secretary.

STATEMENT OF HON. JESSE H. JONES, SECRETARY OF COMMERCE

Senator HATCH. For the record, will you state your name andyour official position?

Secretary JONES. Jesse H. Jones, Secretary of Commerce.Senator HATCH. You may proceed now in your own way.Secretary JONES. I get along better when I am answering ques-

tions, particularly when I have not studied the subject.Senator HATCH. I think'we all talk most fluently about the things

we know least. I might ask you this question: I have had hundredsand hundreds of telegrams from lawyers and people all over theNation, nonlawyers, who objected to the provisions of the bill S. 918,especially which would prohibit nonlawyers from appearing beforethe various agencies, especially as it applies to your department ofpatents. Would you like to comment on that any?

Secretary JONES. To prohibit nonlawyers?Senator HATCH. To prohibit nonlawyers from appearing before

these agencies. In other words, that they would have to be regu-larly licensed practitioners. Have you given any thought to that?

Secretary JONES. Appearing before whom? I have not studiedthis subject.

Senator HATCH. Appearing before any of the governmental agen-cies. A great many people, I understand, appear before the gov-ernmnental agencies. Is that true or not? Do you have to be a regu-larly practicing lawiyer to appear before the Patent Office?

Secretary JONES. I would not want to testify against the lawyers;too many of them in Congress.

Senator HATCH. Do you have any questions, Senator Austin?Senator AUSTIN. No.Secretary JONES. I really would not know whether you would need

technical men or whether a technical man should be permitted toappear.

Senator HATCH. Well, that is one of the points.



Secretary JONES. I do not think I would want to express a defi-nite opinion about that; I have not given enough consideration to it.

Senator HATCH. Have you considered the three different bills whichwere introduced, S. 674, S. 675, and S. 918?

Secretary JONES. I have discussed them with people in our organi-zation, and from what I gathered from those discussions, S. 675 comesnearer to serving the purpose than either of the other bills. Prob-ably that might need a little touching up here and there.

Senator HATCH. Does your Department have any serious objectionto, say, S. 675?

Secretary JONES. I do not know that they have. Some of the boys,the technical fellows, will testify, and the general counsel.

Senator HATCH. I see.Secretary JONES. They can bring out any points that they have got

in mind. I do not recall. There are just two or three things thatthey called to my attention, that might be corrected.

Senator AUSTIN. Mr. Chairman, before you leave that, I wouldlike to know what Mr. Jones thinks is the worst element in S. 674,that is, that forms the basis of choice between S. 675 and S. 674?What is the trouble, in your opinion, with S. 674?

Secretary JONES. I could not give you very much help on that,Senator. I have not carried in my mind the differences in the bills.

Senator AUSTIN. It is a, hard thing to do. It covers a vast range ofGovernment agency procedures.

Senator HATCH. The details of bills like these are certainly soramified that the Secretary of Commerce, with his innumerable du-ties, should not be expected to go into them in detail.

Senator AUSTIN. I do not expect him to. I do not know but what,from his experience and the information that has come to him, hemight help us, due to that experience, in choosing the provisions inthese bills which would be the most helpful to us in drawing up a bill.

Secretary JONES. I would be glad, if it would serve any purpose,to sit down with the boys and discuss it and submit a little rsum6of what my views are.

Senator HATCH. We would be very glad to have it.Senator AUSTIN. I think that would be helpful.Secretary JONES. I am not prepared to do it this morning, but I

would be glad to do it some time soon.Senator AUSTIN. That would be very fine.Senator HATCH. Now, you do have some men from your Depart-

ment here who will go into the details?Secretary JONES. Yes; from the Patent Office, the Bureau of Ma-

rine Inspection and Navigation, and the Civil Aeronautics Admin-istration; and then the Under Secretary, Mr. Taylor, is here. I willnot stay very long, but I will remain as) long as necessary. Theother boys are here to testify, and then I will go into it.

Senator HATCH. If you will do that, Mr. Secretary, and furnishus with the rsum6, we will have it included in the record at thispoint.

(The rsunin furnished by Secretary Jones is as follows:)

582



STATEMENT OF HON. JESSE H. JONES, RELATIVE TO S. 674, S. 675, AND S. 918,FOR THE SENATE JUDICIARY COMMITrEE

The drafting of a sound bill to provide procedures which shall be applicableto the diverse functions of the many agencies of the Government is a difficulttask. Such a bill should not only assure to the citizen whose rights areaffected by the agencies an orderly and fair determination, of those rights,but also assure that the procedures provided will not be so restrictive as tounduly interfere with the performance by the agencies of their work.

Of the three bills before the committee, S. 918 seems to be the least desirable.The Department's major objection to S. 918 is that it seeks to formalize alladministrative procedures. This bill would seem to require, despite the pro-visions of existing law, the use of formal procedures in every case not dis-posed of by consent of all interested parties. In effect, this would make im-possible the expeditious and prompt settlement of many thousands of matterswhich arise daily in connection with the protection, promotion, and safetyof our commerce upon the water and in the air. Furthermore, S. 918 wouldrequire the initial decision in all such controversies to be made not by experthearing commissioners, trained in the problems and procedure of their specialfield, as under S. 674 and S. 675, but by general practitioners appointed byUnited States district courts.

S. 674 does not go quite as far as S. 918 in the inflexibility of its pro-visions. It does, however, undertake to write into law a general code forthe administrative adjudication of controversies. Like S. 918, It would seemto require formal hearings to be held in many cases where such hearings arenot now required by law, and where the holding of formal hearings wouldnot seem to be necessary in order to safeguard private rights.

S. 675, on the other hand, does not seek to impose a rigid or inflexible codeof procedure upon the discharge of functions so diverse as the issuance of apatent and the suspension of a seaman's certificate. The bill provides aframework that will provide for both flexibility and fairness In the procedureof administrative agencies.

The Department is of the opinion that S. 918 would be unworkable; thatS. 674 could only be made workable by drastic amendment; but that S. 675,with certain minor amendments which will be suggested by representativesof the Department, will provide a proper procedural framework for the accom-plishment of the desired objectives.. An additional statement will be submitted to the committee respecting some

of the problems incident to- the provisions of these bills as they pertain tothe various agencies grouped under the Federal Loan Agency.

Senator HATCH. Which of these gentlemen would you prefer togo on first?

Mr. TRIM BLE. Captain Sweet, of the Bureau of Marine Inspectionand Navigation.

Senator HATCH. Is there anything else you want to say to us be-fore you leave?

Secretary JONES. Nothing more now, but I will submit a statement.

STATEMENT OF SOUTH TRIMBLE, JR., SOLICITOR, DEPARTMENT OFCOMMERCE

Senator HATCH. Will you state your name for the record andyour capacity?

Mr. TRIMBLE. South Trimble, Jr., Solicitor for the Departmentof Commerce.

Senator AUSTIN. South Trimble? I ought to know you well.

Mr. TRI mBLin. Senator, I have had the pleasure of meeting youbefore on several occasions.

The Department of Commerce has 10 major agencies within itsframework. Nine of those agencies are under the direct supervision

316412-41-pt. 2--8



of the Secretary of Commerce. One agency, the Civil AeronauticsBoard, is an independent agency within the Department of Com-Inerce, and the relationship of the Secretary of Commerce with thathas to do only with some of the routine office functions of the Board,commonly referred to as housekeeping functions, but in its regulatorymatters it is as independent as it was previous to the reorganization.Of the nine other agencies, the Census Bureau, Foreign and DomesticCommerce, National Bureau of Standards, the Coast and GeodeticSurvey, the Bureau of Marine Inspection and Navigation, the PatentOffice, the Civil Aeronautics Administration, the Inland WaterwaysCorporation, and the Weather Bureau, we have selected representa-tives from 3 of those bureaus to appear here this morning, andthose 3 bureaus are the ones that have considerable quasi-legisla-tive and quasi-judicial duties, such as the Marine Inspection, PatentOffice, and the Civil Aeronautics Administration. Captain Sweet,who is here to represent the Bureau of Marine Inspection and Navi-gation, is Assistant Director of that Bureau and handles most of theregulatory work for that Bureau.

Senator HATCH. Captain Sweet, are you ready to proceed?Captain SWEET. Yes, sir.

STATEMENT OF CAPT. HENRY E. SWEET, ASSISTANT DIRECTOR,BUREAU OF MARINE INSPECTION AND NAVIGATION

Senator HATCH. Will you state your name and official capacity forthe record? Then you may proceed in your own way.

Captain SWEET. Henry E. Sweet, Assistant Director, Bureau ofMarine Inspection and Navigation.

Senator AUSTiN. Are you a naval officer?Captain SWEET. No, sir.Senator AUSTIN. Where do you get the "captain"?Captain SWEET. Merchant marine service.Senator AUSTiN. Thank you.Captain SWEET. The Bureau of Marine Inspection and Navigation

administers the laws concerning construction, equipment, manning,inspection, and admeasurement of commercial vessels of the UnitedStates assigns signal letters and official numbers to those vessels;supervises the shipment, discharge, and living conditions of seamen,and administers the navigation laws of the United States, includingthe entry and clearance of vessels, the collection of tonnage taxes,and navigation fines.

The Bureau also issues registers, enrollments, and licenses to Amer-ican vessels, certificates of award of numbers to motorboats, licensesto officers, and certificates of service to seamen; enforces the lawspertaining to the equipment and operation of motorboats, and pre-pares and promulgates rules and regulations designed to afford themaximum protection to passengers, officers, and crews of Americanships consistent with modern marine practices.

It is also charged by law with the investigation by boards ofmarine casualties and the trials of officers and seamen who arealleged to have been incompetent, guilty of misbehavior, negligence,or unskillfulness, or have endangered life, or willfully violatedany provisions of the inspection laws or regulations issued there-under.

584



The Bureau administers laws relating to the inspection of vesselsthrough 45 boards of local inspectors located in the principal portsin the United States; it administers the laws relating to documenta-tion and entry and clearance of vessels, and the collection of tonliagetaxes, navigation fees, fines, and penalties through the collectorsof customs; it administers the laws relating to seamen throughshipping commissioners located in 14 ports, and through the col-lectors of customs in the other ports; and it passes upon the plansand specifications of all new or materially altered passenger vessels.It has marine casualty investigation boards in all of the principalports in the United States for the purpose of investigating marinecasualties and conducting trials of officers and seamen.

With that general statement of the functions of the Bureau, Iwill go on with, first, a discussion. Senator AUSTIN (interposing). Would you mind a question rightthere before you leave your general description of the activities ofthe Bureau of Marine Inspection and.Navigation?

Captain SWEET. Not at all. I would be glad to answer anyquestions.

Senator AUSTIN. Do you sit as a bureau in passing upon the ques-tions that come before you?

Captain SWEET. In dealing with the investigative functions of theBureau and trials, those investigations and trials are conducted inthe field, in the various ports, by the boilrds. The entire recordwhich is made before the board is submitted to the Bureau. Inthe case of trials the decision is made by the Director of theBureau on the whole record. The decisions in those cases are notmade in the field.

In the more technical work of the Bureau, that is, in the inspec-tion of vessels, questions involving consideration of safety char-acteristics and the issuance of certificates of inspection to the vesselsare passed on in the field by the local inspectors, who either issueor' refuse a certificate of inspection, or take up a certificate ofinspection after notice to the vessel owner. There is a right ofappeal from the decision of the board of local inspectors in thosematters to the supervising inspector of the district, and, in turn,from his decision to the Director, whose decision, when approvedby the Secretary of Commerce, is final. In the case of trial boardsthere is a right of appeal from the decision of the Director alsoto the Secretary.

Senator AUSTIN. Are these judicial procedures now in the statutescreating your boards?

Captain SWEET. The statutes provide for the creation of theseboards, and provide that they are to conduct the investigations andtrials, provide for the issuance of subpenas, for compelling the at-tendance of witnesses, the making of a record, and so on.

Senator AUSTIN. Does your board have through statute authorityto make rules and regulations that have the force and effect oflaws?

Captain SWEEr. The trial boards do not, sir. We have stillanother board, the Board of Supervising Inspectors, which is com-posed of the seven supervising inspectors, who are field officers, whomeet in Washington once a year and who prepare and issue regula-



tions dealing with the physical characteristics of ships and the safetylaws applicable to ships. Those regulations, before they becomeeffective, must be approved by the Secretary of Commerce.

The Bureau also prepares regulations on matters dealing withdocumentation of vessels, entry, and clearance, the certification ofseamen, and general matters of that type for the Secretary ofCommerce.

The Director of the Bureau is required to consider and approveplans and specifications for new passenger ships or materially alteredpassenger ships, and in that case he issues rules which again mustbe approved by the Secretary. In dealing with matters of tonnagetaxes, the decision of the Director is final, and there he issues therules himself.

Senator AUSTIN. Now, do you publish those rules?Captain SWEET. Those rules are all published in the Federal Regis-

ter; yes, sir.Senator AUsTiN. That is all.Senator HATCH. IS that the only place they are published? Do

not you have a compilation of them?Captain SWET. We publish the regulations in a number of differ-

ent volumes. They are not all applicable to the same type of vessel.First, I will take up S. 674, section 102 is devoted to the definition

of terms used in the bill. It is not clear whether the definition of"persons" contained in section 102 (b) includes private corporationsor not. There appears to be no question but what it is intended toinclude private corporations, but as it enumerates certain types oforganizations and associations including municipal corporations, itis at least doubtful that it could be construed to include privatecorporations.

The definitions contained in subsections (c) and (d) of section102 are very broad. Those are the definitions of rules and adjudica-tion. Standing alone, they are not objectionable. However, themajority of the Attorney General's committee on administrative pro-cedure after considering the matter at considerable length, was ap-parently of the opinion that defining the terms "rules" and "adjudi-cation" presented such great difficulties that no such definitions shouldbe included in the legislation. No similar provisions are found inS. 675. The effect of the inclusion of these two definitions in thebill, when they are read in connection with titles II and III, is un-predictable. It is, however, the view of the Bureau that unforeseendifficulties might arise in the future because of these definitions. Itis therefore recommended that they be deleted from the bill.

Section 103 provides for the delegation of authority, but not thedelegation of responsibility. It is very broad in scope and it is dif-ficult to say what the effect might be. At the present time the Di-rector of this Bureau has the statutory authority to issue certain regu-lations and to take certain actions subject to the approval of theSecretary of Commerce. In those cases, the authority vested in theDirector is accompanied by certain responsibilities. It is not clearwhether or not the bill would place the entire authority and responsi-bility in those cases in the Secretary of Commerce, who then mightredelegate the authority to the Director of the Bureau while retain-ing the entire responsibility.



Subsection (a) of section 103 permits an agency to delegate allmatters of internal management and routine, the informal dispositionof requests, and so forth, and matters of preliminary, initial, inter-mediate, or ancillary formal procedures. Subsection (b) of the samesection permits the delegation (subject to review or reconsideration)of any powers, duties, or functions. The two provisions are incon-.sistent, to say the least.

Subsection (e) of section 103 requires the head of an agency whoundertakes to review and revise a determination made within hisagency, to afford the same opportunity to interested parties for con-ferences, or the submission of views or arguments before him as isafforded before his subordinates. This would apparently require theSecretary of Commerce, in those cases- where he reviews decisionsmade in this Bureau, to give to members of the public who are in-terested, the same amount of his time as that which is afforded themin the first instances. It is doubtful that the bill intends to imposesuch burdens upon him.

The effects of the subsection on the revocation or suspension oflicenses of officers and certificates of seamen is not clear. Trials arenow held by field boards-the complete record being forwarded to theBureau in Washington. The Director is required by statute to makehis decision on that record-the interested party being given the rightto appeal from a decision to the Secretary of Commerce. It seemsthat this section might possibly be interpreted to require the Director,before making his decision, to permit the interested parties to makean entirely new record in the case. Again, it might be interpretedto require that the Secretary of Commerce, on an appeal permit theinterested parties to make a new record before him. Such a pro-cedure is unworkable and cannot be intended by the subsection. Thesubsection should either be omitted or amended to state more clearlyits purpose.

It is noted in line 6, page 7, the word "reviews" appears. Thisapparently is a typographical error and should read "views."

Section 105 provides for the practice of attorneys and agents beforethe various agencies. Section 107 (5) of S. 675 provides that the,Director of the Office of Federal Administrative Procedure shall makea study of the present practices with a view, if possible, to eventuallyprovide for proper and uniform practice. The Bureau is of the opin-ion that the latter provision is more desirable at the present timethan is section 105.

Section 107 which provides for the issuance of subpenas, as it iswritten would apparently require an investigation to be made in orderto ascertain which agency issued subpenas most freely to its repre-sentatives, and would then require that all agencies issue subpenas toprivate parties as freely. This effect was apparently not intended,and may be cured by the substitution of the word "the" for the word"any" on page 10, line 8. However, if that change be made, the sec-tion will then simply be declaratory of existing law, and would appearto be unnecessary.

Section 10 provides that any member, officer, or employee of anagency who violates the mandatory provisions of the act, shall be sub-ject to punishment, unless the violation be the result of an honestmistake. The bill does not state by whom the punishment will be



imposed nor in what manner. While it may be assumed that thenecessary disciplinary action will be taken by an agency head in caseof violations on the part of his subordinates, there does not appear tobe any provision for disciplinary action in the case of the agency headhimself. Further, it is difficult if not impossible to say which provi-sions of the bill are mandatory and which are purely advisory.

Section 111 provides that the President may, under certain condi-tions, waive the application of any particular mandatory section, sub-section, or provision of the bill in the case of any agency wheneverhe finds that that section, subsection, or. provision is unworkable orimpracticable as applied to that agency. This provision is appar-ently an admission that the bill, while intended to cover all agencies,is probably not workable, at least in the case of some. If this betrue, the Bureau is of the opinion that the bill should not be enacted,but that, instead, careful consideration should be given to the provi-sions of S. 675, which, with some amendments, appears to be of moregeneral applicability.

Section 202 goes into considerable detail as to the required typesof rules. The Bureau has been unable to determine the effect ofthe section. If retained, it is recommended that it be revised to setforth clearly the types of rules which an agency must issue.

Subsection (c) of section 203 prohibits an agency from actingupon unpublished rules. This provision when read with section102 (c) apparently prohibits an agency from acting upon any ruleuntil it has been published in the Federal Register. In dealing withvessels, it occasionally becomes necessary for this Bureau to issuerules or regulations which must be made effective immediately andprior to publication in the Federal Register. For example, rules de-signed to implement the Neutrality Act of 1939, affecting the clear-ance of vessels must at times be issued and made effective the once asto persons having actual notice. The same may be true at times ofregulations under the inspection laws affecting the safety of life orproperty at sea. It is suggested that provision should be made in thebill for making regulations of this type effective immediately as toall persons having actual notice thereof, prior to publication in theFederal Register.

Section 204 deals with the rescission of rules. It provides, ineffect, that the rescission of a. rule shall not become effective until 30days after publication of notice of its rescission in the Federal Regis-ter, except that in an emergency the rescission may take effect uponpublication or at any time thereafter specified by the agency. Forthe reasons stated in connection w ith section 203 (c), it may occasion-ally become necessary for this Bureau to rescind rules, the rescissionof which must be made effective immediately and prior to publica-tion in the Federal Register. It is therefore suggested that provisionshould be made in the bill for making rescission of regulations of thistype effective immediately as to all persons having actual noticethereof, prior to publication of notice in the Federal Register.

Sect ion 209 provides for procedures to be followed in connectionwith rule-making. Subsection (c) of the section permits informalhearings, while subsection (d) relates to formal hearings. Subsec-tion (d) apparently is in conflict with subsection (c), as the formerrequires formal hearings whenever legislation specifically requires

588



a hearing to be held. It would seem that the provision of subsec-tion (d) largely, if not entirely, voids the provisions of subsection(c) dealing with informal hearings. In addition, the provisionsof subsection (d) appear to be mandatory, while the language usedin the first paragraph of the section indicates that all of the pro-visions of the section are purely advisory and not mandatory. Thesection appears to be in hopeless confusion. The Bureau is of theopinion that informal hearings should be permitted in cases wherehearings are required by law. It has been the practice to hold in-formal public hearings both before the Board of Supervising In-spectors and before the bureau, in formulating, amending, or revisingregulations where hearings are required by law as, for instance, inthe case of the Tanker Act (sec. 4417 (a) R. S.) and the DangerousCargoes Act (sec. 4472 R. S., as amended).

Section 301 sets forth eight types of, cases in which the proce-dures contained in title III of the bill are not to be followed witha proviso that in the majority of those cases, however, the title willbe applicable where statutes require that an opportunity for hear-ing be provided. The effect of the proviso to the section is far fromclear. It apparently makes applicable the provisions of title IIIof the bill to all of the cases referred to in subsections (b) to (h),inclusive, of the section, involving the statutory rights, duties, orother legal relations of any person now required by law to be deter-mined only after opportunity for hearing. Its effect in the case ofmatters not falling within those subsections is difficult to determine.Possibly, however, it requires the procedures of title III to be fol-lowed in such cases whenever the statutory rights, duties, or otherlegal relations of any person are affected, whether hearings are nowrequired by law or not. If this interpretation be correct, it wouldappear that the administrative work of the Bureau would be seri-ously hampered and unnecessarily delayed. The Bureau if is theopinion, that the procedures outlined in title III should be mademandatory only in those cases where hearings are now required bylaw. It appears that the section might require the procedures oftitle III to be followed in the case of appeal from the decision oflocal inspectors to the supervising inspector, or from the decisionof the supervising inspector to the Director of the Bureau, in mat-ters relating to the safety of vessels. It might also require suchprocedures to be followed if a question should arise concerning theright of a vessel to obtain clearance from a port in the United States.The Bureau is of the opinion that the same procedure should befollowed in dealing with these matters in the future as in the past.

Subsection (a) of the section (sec. 301) apparenty provides anexemption from the procedures of title III in the case of applica-tions for relief from penalties incurred for violation of the navi-gation laws. In those cases, an alleged offender now has the rightto petition the Secretary of Commerce for mitigation or completeremission of the penalty. After final action by the Secretary, thealleged offender still has the right to have his case heard de novoin a district court of the United States.

Section 304 makes it mandatory upon an agency to issue a declara-tory ruling upon the petition of any interested person when neces-sary to determine a controversy, or to remove a substantial uncer-



taity as to the application of administrative statutory authorityor rules. If every application for ruling was to require the issuanceby this Bureau of a ruling of a type required by the section, theBureau would probably have little or no time for other duties. TheBureau is of the opinion that it should be permitted to refuse toissue a declaratory ruling, unless the necessity for such a ruling isshown by the applicant, and unless the latter has furnished to theBureau all facts necessary for a proper ruling.

Section 305 goes into great detail in regard to the matter of notice;;uch detail would seem to be more properly a matter for regulationsthan for legislation.

Section 306 apparently requires an informal hearing before anyi-dministrative action may be taken. It requires that the files oriecords of the agency be made available to the interested partiesbefore action is taken. It would apparently require this Bureauto furnish its files and records to any person involved in a, casewhich the Bureau proposes to refer to a United States attorney foraction in the Federal courts. Such a procedure is novel to say theleast. The Bureau perceives no necessity for it.

Section 308 sets forth cases in which formal adjudicatory procedureshall be followed, when informal procedures have not resulted inthe disposition of the matters under consideration. It provides,among other things, that "where decisions rest upon inspection ortests, reinspections or retests by superior officers shall be provided.''It is not clear what the effect of this provision might be. If itmeans that every time an inspection of a, vessel is made by a boardof local inspectors, there must be a reinspection by a supervisinginspector, the provision would appear absurd. If, however, it re-quires a reinspection by a supervising inspector, whenever there isan appeal from a decision of a board of local inspectors in connec-tion with the inspection of a vessel, the Bureau has no objection tothe provisions. It is suggested that the section should be so re-phrased as to state clearly what is intended.

The provisions of section 309 (a) are so broad that those engagedin presiding at hearings or formulating findings and decisions in thecourse of formal proceedings, are forbidden to consult or advise withany other employees in the agency. This would prevent those per-sons in this Bureau engaged in formulating findings and decisionsrelating to highly technical matters of ship construction and opera-tion from consulting with the experts on the Bureau's staff. If theprovisions of tfis subsection were violated in connection with anycase, the order of the Bureau in that case might be void. The resultwould probably be a multiplicity of suits in the courts to determinewhether or not particular orders were effective. It is easy to envisionmuch litigation of this character.

Section 309 (c) (1) provides for the appointment of hearing com-missioners upon nomination by the agency concerned. The subsec-tion, however, provides for reappointments without regard to thewishes of the agency concernled. The Bureau is of the opinion thatthe latter provision is unwise, as it appears desirable that hearingcommissioners dealing with cases arising under the laws administeredby the Bureau, should not be reappointed, if the Bureau, having



supervised their work for a period of years, is of the opinion thatthey are not competent to perform the duties assigned to them.

Section 309 (c) (3) provides that each hearing commissioner shallhold office for a period of 12 years. The Bureau is of the opinionthat this tenure of office is too long, and recommends the adoption ofthe 7-year provision contained in S. 675.

Senator HATCH. May I interrupt you right there? You think the7-year provision is preferable to the 12-year provision, but do youthink the 7-year provision itself is the right length of time, or wouldit perhaps better be five? Have you given any consideration to that?

Captain SWEET. Senator, we have not considered that, we havejust considered the preferences between the two bills.

Senator HATCH. All right.Captain SWEET. The paragraph also provides that a hearing com-

missioner against whom charges have been preferred, shall be sus-pended from office, but his salary shall continue for 5 days or untilservice of findings upon him after hearing. The Bureau sees noreason why the salary of a, hearing commissioner should be con-tinued if the Director of the Office of Federal Administrative Pro-cedure finds that there is a prima facie case for removal of the hear-ing commissioner from office. The Bureau is of the opinion that thecomparable provision of S. 675 found in section 302 of that bill ismore desirable.

Section 309 (c) (4) provides for the appointment of provisionalhearing commissioners for a period not exceeding 1 year. These pro-visional hearing commissioners' appointments may be renewed oncewith the consent of the office. The bill makes no provision for theappointment of temporary hearing commissioners. The correspond-ing provisions of S. 675 found in sections 302 (7) and (8) appearmore desirable especially in view of the fact that no provision is madein S. 674 for the removal of provisional hearing commissioners forcause.

Section 309 (h) deals with rules of evidence. While the bill pro-vides very broad rules, it would seem unwise to fix them by legis-lation. The result might well be controversy as to whether thestatutory rules have been observed, with attendant litigation. TheBureau is of the opinion that matters of this type should not bedealt with in legislation.

Section 309 (k) in certain cases requires an intermediate reportof specific, recommended, and reasoned findings of fact and con-clusions of law by the officer who presided at the taking of theevidence. The purpose of that requirement is not clear. It wouldseem that in some cases, at least, the general purposes of the billwould be better accomplished by omitting the intermediate reportand transmitting the entire record directly to the agency head.

Section 309 (m) (3) requires that all decisions shall be in writing.If parties are satisfied with an oral decision, there appears to be nogood reason. for the delay incident to the preparation and deliveryof a written decision. Questions are presented to this Bureau bytelephone every day from points throughout the United States wherean immediate decision is required in order that the commerce of theUnited States may not be delayed. To require that those decisions



be made in writing might seriously impede the free flow of water-borne commerce.

Senator HATCH. Right there, do you read that section as requiringa written decision in cases such as you have described, decisions overthe telephone? You are not holding a hearing in a case like that.

.Captain SWEET. Mr. Chairman, frankly, we are not able to deter-mine exactly what the provisions of this bill do accomplish, but wefeel it might be interpreted in that way.

Senator HATCH. I see.Captain SWEET. I do not know definitely what the interpretation

of the section would be.Senator HATCH. I doubt very much whether that section would

interfere with the hearing process. I doubt whether that is a hear-ing as contemplated by this section. Go ahead, Captain.

Ztaptain SWEET. In this connection, your attenton is invited tothe recommendations of the Attorney General's committee on ad-ministrative procedure (p. 145). In connection with the trials ofofficers and seamen, the committee recommended that in the ordinarycase involving intoxication, disorderliness, and the like, the hearingcommissioner be encouraged to announce his decision orally and im-mediately at the conclusion of the hearing. The bill would notpermit this to be done.

Subsections (1) and (in) (4) of section 309 require that as tomatters of fact, presiding officers and assistants and clerks shall con-sult no files, records, data, or materials, except briefs filed in thecase and appropriate matters of official notice, and that they shallnot discuss the case or receive advice, data, or recommendations ex-cept upon written notice and with the consent of all parties, or uponopen hearing. The Bureau is of the opinion that these provisionswould seriously hamper it in making decisions, as it is frequentlyfound necessary to consult the files or records of the Bureau, or toobtain advice from assistants or from its experts. The provisionsof the bill would apparently require the use of interrogatories toobtain the information or advice now readily available. Its onlyeffect apparently would be to delay the proceedings. It is suggestedthat it is not desirable to include such provisions in legislation.

Section 309 (0) permits an agency on its own motion to reviewthe decision of a presiding officer, but requires it in that case, tospecify with particularity the points, issues, or grounds of the review.It may well be that a particular decision of a hearing commissionerwill appear to be a departure from the general policy of the Bureauto such an extent that the director might desire to review the decisionof the commissioner. It might in such a case be difficult to specifywith particularity the ground for the review. While the subsectionpermits the agency head upon review to affirm, reverse, or set asidein whole or in part the decision of the hearing commissioner, it doesnot authorize him to change or modify the findings of the fact madeby the commissioner. Instead, it provides for remanding the pro-ceedings to the commissioner for further hearing, if the agency headis of the opinion that, a different finding- of fact is warranted. Thisprocedure would seem to be cumbersome and unnecessary, and there-fore not desirable.

Section 311 provides for judicial review. Subsection (a) of thatsection continues in force all statutory provisions specifically pre-



cluding judicial review, and apparently extends the right of judicialreview to all cases where it is not prohibited by statute. The courtsin come cases where judicial review is not mentioned in a statute,

.have held that review is unavailable. It would seem that cases fallingin the latter category might well be left to the discretion of thecourts.

Senator AusTIN. You see, there is the point which has been re-garded as quite important by the Supreme Court in cases that havecome up for review and review has been declined on the groundthat the Congress has has determined the policy, and that just becauseCongress has not permitted the review, that alone is a sufficientreason for denying the review. That is one of the points upon whichthe Congress has been asked to reconsider the work that it hasdone before. It involves a question of policy. In other words, weare confronted with the question of whether our statutes, as theyexist, give adequate rights of review. A court, of course, will notdeny a review if we in the future see fit to grant a review. Do youthink it is objectionable to grant a review in these cases as providedin section 311 of S. 674?

Captain SWEET. If it is the considered policy of the committeeand Congress that reviews should be granted in all cases where itis not now specifically provided for by law, I do not think theBureau would have any objection to it. We simply wanted to pointout the possibilities and call to the attention of the committee whatis being done under existing law.

This Bureau, for the reasons above stated, is opposed to the enact-ment of S. 674, being of the opinion that the bill is too detailed andambiguous, and that it is in many respects unworkable.S. 675: The bill in general does not deal with administrative pro-

cedure in such detail as S. 674.Section 105 (2) creates the Office of Federal Administrative Proce-

dure, composed of "The Director, a justice of the United States Courtof Appeals for the District of Columbia designated by its chief justice,and the Director of the Administrative Office of the United StatesCourts, who shall serve without extra compensation." It is not clearfrom the language of the section whether all or only certain of theofficers named are to serve without extra compensation. It is sug-gested that the bill be amended to clarify this provision.

Section 106 provides that the Director of the Office of Federal Ad-ministrative Procedure "shall designate from time to time, as occasionrequires, the administrative establishments of the United States whichare agencies within the meaning" of the bill. This provision standingalone would seem to indicate that none of the provisions of the bill, ifenacted, would be applicable to any administrative establishment untiland unless the Director of the Office of Federal Administrative Pro.cedure designated that establishment as an agency. On the other hand,as the section is entitled "Advisory Committees," and as it seems to dealonly with such committees, it is thought that it was not intended thatthe language should have the effect above indicated. Unless the sec-tion is intended to exempt all administrative establishments from allof the provisions of the bill, until such time as they may be designatedas agencies, it is suggested that subsection (1) be amended to set forthclearly its scope.



Senator AUSTIN. Do you give regard to section 102 which defines"agency" as meaning-

any department, board, commission, authority, corporation, administration, inde-pendent establishment, or other subdivision of the executive branch of the Gov-ernment of the United States which is empowered by law to determine the rights,duties, immunities-

and so forth?Captain SWEET. Yes, sir; it is because of that definition that it seems

to me that the provision of section 106 was intended to deal only withthe committees, but the language there, if read alone, I think is not,very clear.

Senator HATCH. You think the two sections are a little confusing?Captain SWEET. Yes, sir.Senator HATCH. And should be clarified?Captain SWEET. We simply recommend some clarification ; yes.Subsection 1 of section 201 would require more detailed statements of

of the internal organization of this Bureau than are now made public.Subsection (2) of the same section would require the publication of

a number of matters not now published by the Bureau. The Bureauhas no objection to these provisions, but simply desires to invite yourattention to the fact that they will involve increased expenditures onthe part of the Bureau.

Section 203 provides that no regulation promulgated after theeffective date of the bill shall take effect until 45 days after its firstpublication in the Federal Register, unless a longer time is providedby the regulation itself or by the statute under the authority ofwhich it is issued. The section then provides that in an emergencythis period may be reduced or eliminated by certification of theagency as to the reason for its reduction or elimination, to be pub-lished with the regulation in the Federal Register. While thiswould permit regulations to be made effective speedily, it appearsnevertheless that no regulation could be made effective until pub-lished in the Federal Register. There have been occasions in thepast (as, for example, upon enactment of the Neutrality Act of1939) when it became urgently necessary for regulations to be issuedand immediately made effective as to persons having actual noticeof them and before their publication in the Federal Register. Thismay be true again and especially when an emergency arises outsideof regular office hours. It is recommendett that the section beamended to permit regulations to be made effective as to all personshaving actual notice thereof in emergencies without prior publica-tion in the Federal Register..

Senator AUSTIN. May I ask you at that point what your opinionis about a change which might Ibe made on page 10 in line 1, chang-ing that word "longer" to "different," and then striking out the re-quirement of publication in the last three lines of the paragraph, soit would read:

No regu!ation hereafter promulgated by any agency shall take effect until45 days after the date of its initial publication in the Federal Register unlessthe regulation or the statute by authority of which it is promulgated prov-vides a different period; but this limitation upon the time when a regulationtakes effect may be reduced or eliminated by certification of the agency.

Ending it right there. Then you could issue an order which re-quired immediate effectiveness in conformity with the promulgation



of a different period applicable to such orders, could you not, with-out publication?

Captain SWEET. It seems to me, sir, that the amendment you sug-gest might still require a publication because of the retention inline 2 of the phrase "upon the time." The first sentence wouldapparently require publication before the regulation could be effec-tive and then the provision commencing in line 2 would just reducethe time but still require prior publication, I think.

Senator HATCH. The thought you suggest is a mere applicationof the recording law theory?

Captain SWEET. That is correct.Senator HATCH. For instance, a deed is not effective as to third

persons unless it is recorded, but as to all persons who have actualknowledge of the deed it is effective even though it is not recorded.That is the same principle as you want to apply?

Captain SWEET. That is the same principle; yes, sir.Senator HATCH. Anything more, Senator?Senator AUSTIN. No.Senator HATCH. You may proceed.Captain SwEEr. Section 301 provides that the title of the bill re-

lating to administrative adjudication-shall be applicable only to proceedings wherein rights, duties, or other legalrelations are required by law to be determined after opportunity for hearing,and, if a hearing be held, only upon the basis of a record made in the courseof such hearing.

Present statutes require that the local inspectors of this Bureauinspect vessels of certain classes and provide that no such vesselshall be navigated unless there is on board a valid unexpired certifi-cate of inspection, which is to be issued only after it is found thatthe vessel is in compliance with the applicable laws. The statutesrelating to the inspection of vessels, which are highly technical, areadministered in the field by the local inspectors of this Bureau,Statutory provision is made for an appeal from any decision ofthe local inspectors to the supervising inspector of the district inwhich the local board is located, and in turn for appeal from thedecision of the supervising inspector to the Director of the Bureau,whose decision, when approved by the Secretary of Commerce, isfinal. It is evident from the final report of the Attorney General'sCommittee on Administrative Procedure, pages 36 to 38, that therewas no intention on the part of the authors of this bill to disturbthat procedure or to require hearings in connection therewith.

Under authority of section 4450 R. S., as amended (46 U. S. C.239), boards have been created to investigate marine casualties andto conduct the trials of licensed officers and holders of certificatesof service for acts of incompetency or misconduct or violation ofthe provisions of the inspection laws. The Attorney General's Com-mittee discussed that statute on pages 381 and 382 of their report.

It appears from the statements on pages 55 to 60 of the reportthat it was the view of the authors of the bill that investigativefunctions should be clearly separated from judicial functions, fromwhich, together with a consideration of the language of section 301,it appears that it is not the intention of the bill to abolish the "A,""B," and "C" Marine Investigation Boards insofar as their func-



tions are investigative, but to retain those boards in that capacity,arid to provide for the trials of licensed officers and certificated menbefore hearing commissioners.

In order to remove any doubt as to the matter of appeals fromthe decisions of the local inspectors and as to the continuation ofthe investigative functions of the marine investigating boards, itis suggested that the section be amended to clearly state that it hasno application to either of those matters.

Section 302 (2) provides for the salaries of hearing commissioners.The Bureau is of the opinion that the salaries of hearings commis-sioners should not be fixed at the rates proposed in the bill. Instead,the Bureau favors the proposal contained in section 309 (c) (2) of S.674 which provides that those salaries may be fixed at any amountbetween $3,600 and $9,000, and further, that they may be adjustedfrom time to time. The Bureau accordingly recommends that sub-section (2) of section 302 be deleted and that a new subsection (2)identical with section 309 (c) (2) of S. 674 be inserted in lieu thereof.If section 302 (2) be amended as suggested, it is further recommendedthat section 305 be deleted, or if it is to be retained, that subsection(1) of the section be deleted and that subsection (2) of the sectionbe amended to vest the powers and duties set forth therein in theagency head, or some other appropriate officer.

The Bureau wishes to invite your attention to the fact that trialsof licensed officers and unlicensed personnel of the crews of the vesselsmust be held opportunely, and that it is desirable that those trials beheld upon the arrival of a vessel in port, when the accused and thewitnesses to an occurrence upon the ship are both present and avail-able. Under the present system, trial boards are located in all ofthe principal ports of the United States, are in the immediate vicinityof all other ports, and thus are at hand to conduct trials immediatelyupon the arrival of vessels, if necessary. It would not seem feasibleto provide for hearing commissioners for the Bureau alone in eachof the ports where trial boards are now maintained. Because of this,it may be that some difficulties will arise because of the delaysoccasioned by the necessity of sending a hearing commissioner to aparticular port from some distance. The Bureau is unable to pre-dict at this time what delays may occur nor how harmful they may be.

However, if the changes above suggested be made in the bill, theBureau has no objection to its enactment.

S. 918. The bill appears to be a combination of some of the pro-visions of S. 674 and some of the provisions of the Walter-Loganbill. It appears that S. 918 has incorporated practically all of therestrictive provisions contained in S. 674, while omitting most ofthe provisions of that bill permitting more informal administrativeprocedure. There appears to be no provision in S. 918 permittingagency heads to delegate authority. The bill neither requires norauthorizes agencies to issue declaratory rulings when necessary toterminate a controversy or remove an uncertainty.

Section 200 of the bill limits appearances to interested personsor their representatives. It does not permit an interested party tobe represented by any other agent than a lawyer, where the proceed-ing involves the decision of questions of law or the preparation of arecord which may be the basis for judicial review. Generally speak-ing, of course, all decisions made by this Bureau involve to some



extent questions of law. On1 the other hand, the Bureau deals largelywith technical matters requiring expert knowledge. The bill wouldapparently prohibit an expert in the field from appearing as therepresentative of an interested party in many cases. The Bureau per-ceives no occasion for this restrictive provision.

S3nator HATCH. I want to take the opportunity here, Captain,just merely speaking as one member of the committee-I do notknow how the other members of the committee feel-but I havereceived so many messages concerning this provision that, at leastas far as I am concerned, I do not tlhink that provision is ,goingto be included in any legislation that is finally agreed upon bythe committee. Of course, I have not discussed it with the othermembers of the committee, but there are clearly fields for expertknowledge, and it has been called to my attention that there wouldbe a gross injustice if they could not have the advantage of theirexpert representatives even though they be not actually practicinglawyers. All right, Captain, you may proceed.

Captain SWEET. Section 708 of the bill requires all formal hear-ings to be held in the vicinity of the place where an interestedparty resides or has his principal place of business, unless thelatter requests that it be held in a. different place, or unless holdingthe hearing in such a place is contrary to the public interests. Thesection also requires that the presiding officer at all hearings, whichare held outside of the District of Columbia, must be selected andappointed by the United States district judges and must be lawyerswho have had not less than 10 years' experience at the bar. Thesepresiding officers are to be paid a per diem to be fixed by the districtjudge. These provisions constitute a major departure from therecommendations of the Attorney General's Committee on Admin-istrative Procedure, and also a major departure from adininistra-tive practices developed over a long period of years. The Bureauhas found from experience that its experts and personnel trainedin the customs and usages of the sea are capable of making properfindings of fact. This would probably not be true in the case ofattorneys who have little or no technical information concerningvessels or the sea. If lawyers must be used as presiding officers,they will, of course, be seriously hampered in their work by therestrictions of the bill through which they are to be segregatedfrom the investigative and technical personnel of the Bureau. Theprovisions of this bill providing for segregation of the judicial andother functions of an agency would thus seem to defeat the pur-poses of the bill to some extent at least, as they propose to deny tothe presiding officer information necessary for a proper determina-tion of a case.

For the reasons above set forth, the Bureau is opposed to the enact-ment of S. 918, which it considers to be the least acceptable of thethree bills under consideration.

In conclusion, the Bureau has no objection to the enactment of S. 675with appropriate amendments heretofore suggested; is opposed tothe enactment of S. 674, being of the opinion that this bill may not beamended in such a way as to remove the objections without largelydestroying the bill; and is opposed to S. 918 practically in its entirety.

Senator HATCH. Any questions, Senator Austin?Senator AUSTIN. No.


ADMAINISTRATIVE PROCEDURE

Senator HATCH. Thank you, Captain. You may be excused. Now,what witnesses do you have next?

Mr. TiIBLE. Mr. Kintz for the Civil Aeronautics Administration.Senator HArCu. Mr. Kintz, will you come around, please, sir?

STATEMENT OF ELMER McD. KINTZ, CHIEF, REGULATION SECTION,CIVIL AERONAUTICS ADMINISTRATION

Senator HATCH. If you will state your name and official position forthe benefit of the record, please.

Mr. KiNTZ. Elmer McD. Kintz, Chief, Regulation Section, CivilAeronautics Administration, Department of Commerce.

Senator HATCH. Now you may proceed, Mr. Kintz, as you desire.Mr. KINTZ. We have no objection to the principles enunciated in

titles I, III, and IV of S. 675.Our only objections which go to the substance of S. 675 are with

respect to the provisions of sections 201 (2) and 203.Section 201 (2) provides, in part, that "instructions with respect

to reports or other material required to be filed, shall be made avail-able to the public."

In order that the Administration may determine the airworthinessof aircraft and aircraft engines, it is, in many cases, necessary to obtaintechnical reports and other material from the manufacturers by meansof instructions. To make such instructions available to the publicmight disclose the trade secrets of the particular manufacturer in-volved. To illustrate: A manufacturer might submit a design of awing or fuselage to be manufactured from a so-called plastic material.

Senator HATCH. Do you think the case which you are talking about.now is included within that provision of section 201 (2) ?

Mr. KINTZ. I am afraid, Senator, that it is possible to so construethe section.

Senator HATCH. Of S. 675?Mr. KINTZ. Yes, sir. In other words, Senator, in section 201 (2)

after the word "informal" is a semicolon and then it states "prescribedforms and instructions with respect to reports or other material re-quired to be filed."

Senator HATCH. That is the language I was trying to interpretmyself.

Mr. KINTZ. We do not think it was intended, but we were afraidthat it was possible of that consfruction.

Senator HATCH. I see.Mr. KINTZ. We might, through instructions, require him to file ad-

ditional reports or other technical material which prescribe in detailthe tests to be conducted.

Senator AUSTIN. Before you go on, I do not understand you asyou make your discussion. Have you an idea that the danger you seein that language could be remedied by a simple provision on the endof the paragraph, provided that any agency may withhold the ma-terial that you suggest?

Mr. KINTZ. Yes, sir; and we have so recommended with referenceto sections 104, 108, and 306, which we feel, as will be laterdisclosed-

Senator HATCH (interposing). Do you include those recommenda-tions in your statement?



Mr. KINTZ. Yes, sir.Senator AUSTIN. Very well.Mr. KINTZ. By availing themselves of the information contained in

such instructions, other manufacturers might be able to reap thebenefit of the original manufacturer's costly experiments.

We suggest that this objection might be met by the addition of thewords "of general application" after the word "instructions" andbefore the word "with" in line 15, page 9 of the bill.

Senator HATCH. That is all you think that requires?Mr. KINTZ. I do, Senator, with the later suggestion, as Senator

Austin brought out, of withholding the confidential information.Senator HATCH. All right.Mr. KINTZ. Under the provisions of the Washington National Air-

port bill (Public, 674, 76th Cong.), the Administrator of Civil Aero-nautics is authorized and empowered to issue regulations for the oper-ation of this airport at Gravelly Point. In a great many instancesit will be necessary that such regulations have immediate effect. Sec-tion 203 provides that such regulations are not to take effect until 45days after the date of their initial publication in the Federal Register,unless the Administrator by certification states the circumstanceswhich require the effective date to be advanced and such certificationis published in the Federal Register with the regulations. This maynot impose any hardship on the initial issuance of such regulations,but circumstances which would require an amendment to the regula-tions almost overnight would have to be, in a vast majority of cases,issued under such certification. Even if such a certificate is filed, theregulation could not become effective until the date of first publicationof the certificate and regulation in the Federal Register. In the eventan emergency arose on a Saturday afternoon, in most cases, publica.tion could not be made until the following Tuesday. In the mean-time, the lack of an enforceable regulation might seriously endangerthe lives of the flying public. An example would be where variousrunways or landing strips are under repair necessitating an amend-ment to the regulations prohibiting planes from landing in suchareas.

To remedy this situation, it is suggested that this section be amendedso as to permit, in cases of emergency, regulations to become effectivebefore publication as to those persons having actual knowledge of theregulation.S. 674. We have the following comments to make with respect

to S. 674:We feel that the definition of agency in section 102 (a) is so loose

that it is difficult to determine its application to our functions. Werecommend the substitution of section 102 (a) of S. 675 for section102 (a) of S. 674.

Our objections to section 102 (c) are the same as those expressedwith respect to section 201 (2) of S. 675. In addition, this section102 (c) of S. 674 goes much furtheil and defines "rules" to '_neanstandards, statements of policy, and all other types of statementsissued by any agency, of general application and designed to imple-ment, interpret, or make specific the legislation administered, and sec-tion 203 (c) provides that no agency shall act upon unpublished rules,instructions, or statements of policy. Instructions to our inspectors

316412-41-pt. 2-9

599



and the general public enunciating the statements of policy and inter-pretations of the statutes and regulations applicable to the functions.of the Administration are issued sometimes in letter, telephonic, ortelegraphic form. Under the provisions of section 203 (c), inspec-tors of the Administration could not carry out their instructions inthe performance of their duties until such instructions had been issuedin the form of rules and published in the Federal Register. Such acondition might restrict our activities, in many cases, to such an ex-tent that we would be unable to perform the functions required byour act. For instance, our investigations might, at any moment, dis-close that a certain type of aircraft was developing unairworthy char-acteristics during operation. Under such circumstances it might bedecided, in the interest of safety, to instruct immediately our inspec-tors in the field to ground all such aircraft until the particular defectwas remedied. However, under section 203 (c) such action wouldappear to be forbidden until such instructions or statements of policywere promulgated as rules and published in the Federal Register.With the safety of the lives of the public at stake, this might createa very dangerous situation.

Section 103 provides for the delegation of authority by an agencyto its subordinate officers or employees. In view of the definition of"agency" contained in section 102 (a), it is not clear whether theAdministrator, who is charged with certain statutory responsibilities.and functions, could delegate such responsibilities and functions be-cause we are unable to determine whether he comes within thedefinition of section 102 (a) as being the highest or ultimate authorityof an agency.

In view of section 103 (e), there would appear to be no incentiveto delegate authority because whenever a superior reviewed or re-vised the actions of a subordinate, it would be necessary for higher-authority to hold conferences and to hear arguments and receive thesame evidence as was presented to the subordinate, thus the delegation.permitted by section 103 appears to be meaningless and might resultin serious delays in enforcing safety in air commerce.

Senator AUSTIN. Just a moment. Would an interruption botheryou?

Mr. KINTZ. Not at all.Senator AUSTIN. That is the correction right there, "receive the.

same evidence." How would that be changed in the bill?Mr. KINTZ. We interpreted that, Senator, that the same oppor-

tunity for conferences or the submission of views or arguments-weread this "views" instead of "reviews"-before such superior shallbe afforded as was afforded before such members or subordinates.We take the narrow interpretation that at least the same evidencewould be submitted, and we were unable to determine whether or notaii entirely new case could be made before the superior.

Senator AuSTIN. You are the first who has raised that question.I have heard several witnesses criticize that language on the theorythat it might be interpreted as a rehearing.

Mr. KINTZ. Yes.Senator AUSTIN. I want to say personally I do not think that

right ought to be granted. I did believe that the statute itself in-volved it. You are the first, I believe, to put it in this very con-crete statement, "and receive the same evidence." That is the first


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