                               No. 96-3285ND



Darvin R. Lane; Dwight Lane,          *
                                      *
           Appellants,                *
                                      *
     v.                               *   Appeal from the United States
                                      *   District Court for the
United States Department of           *   District of North Dakota
Agriculture; Daniel Glickman,         *
Secretary of the U.S. Depart-         *
ment of Agriculture; National         *
Appeals Division of the               *
USDA, also known as National          *
Appeals Staff of the USDA;            *
Norman G. Cooper, Director            *
of the National Appeals               *
Division of the U.S. Department       *
of Agriculture; Office of             *
General Counsel USDA; James           *
Gilliand, General Counsel of          *
the U.S. Department of Agricul-       *
ture Consolidated Farm Service        *
Agency; Grant Buntrock, acting        *
Adminisrator of the Consoli-          *
dated Farm Service Agency of          *
the U.S. Department of                *
Agriculture,                          *
                                      *
           Appellees.                 *



                         Submitted:   March 10, 1997

                            Filed: July 14, 1997


Before WOLLMAN and BEAM, Circuit Judges, and LAUGHREY,1 District     Judge.




     1
     The Honorable Nanette K. Laughrey, United States District
Judge for the Eastern and Western Districts of Missouri, sitting
by designation.
LAUGHREY, District Judge.


        This is an appeal from the District Court’s order that Plaintiffs,
Darvin and Dwight Lane (“Lanes”), are entitled to recover their attorney
fees from the United States Department of Agriculture (“Agency”) pursuant
to the Equal Access to Justice Act (“EAJA”), 5 U.S.C. § 504.   We affirm in
part, reverse in part, and remand for further proceedings.


        The Lanes are brothers who borrowed money through the Farmers Home
Administration (“FmHA”).      The FmHA denied them delinquent farmer loan
servicing and the Lanes appealed to the National Appeals Division (“NAD”).
The Lanes won the appeal and then sought their attorney fees under the
EAJA,    which provides that a United States agency which conducts an
adversary adjudication must pay the fees and other expenses incurred by the
prevailing party, unless the agency’s position is substantially justified
or there are special circumstances that make such an award unjust.        5
U.S.C. § 504(a)(1).     An “adversary adjudication” is defined in relevant
part as an adjudication under § 554 of the Administrative Procedure Act
(“APA”), so long as the government is represented by counsel or otherwise.
5 U.S.C. § 504(b)(1)(C).      The APA § 554 applies to all adjudications
“required by statute to be determined on the record after opportunity for
an agency hearing.”    5 U.S.C. § 554 (a).
        The NAD hearing officer denied the Lanes’ EAJA applications, finding
that NAD proceedings are not under § 554 of the APA and, therefore, the
EAJA did not apply.   The hearing officer did not consider the merits of the
application for fees because he found the EAJA inapplicable.      The Lanes
sought judicial review of the agency ruling.     The district court granted
the Lanes’ Motions for Summary Judgment, finding that NAD proceedings are
under § 554 of the APA, the EAJA did apply and the Lanes were entitled to
recover




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their fees and other expenses because the NAD hearing officer did not make
a finding that the government’s position was substantially justified.                  The
district court’s order granting summary judgment is reviewed de novo.
Donaho v. FMC Corp., 74 F.3d 894, 897 (8th Cir. 1996)(citing LeBus v.
Northwestern Mut. Life Ins. Co., 55 F.3d 1374, 1376 (8th Cir. 1995)).


       We find that the EAJA is under § 554 of the APA because all three
prerequisites for coverage have been satisfied.                NAD proceedings are:     1)
adjudications; 2)there is an opportunity for a hearing; and 3) the hearing
must be on the record.           We reject the agency’s argument that the NAD
statute   is   not   under   §   554   of   the    APA   but   rather   is   a   separate,
comprehensive statutory scheme which supersedes § 554 of the APA.                  The APA
cannot be superseded by a subsequent statute “except to the extent that it
does so expressly.”     5 U.S.C. § 559.       There is no express language in the
NAD statute modifying or superseding the APA.            Finally, on remand, the NAD
hearing officer will be permitted to consider the merits of the Lanes’
application for EAJA fees.       The agency’s failure to consider the merits of
the application was because of its finding that the EAJA did not apply to
NAD proceedings.     The absence of a finding on the agency’s justification
for its position does not automatically entitle the Lanes to recover their
attorney’s fees.


A.   APPLICABILITY OF THE EAJA TO NAD PROCEEDINGS


       For the EAJA to be applicable to NAD proceedings, the Lanes must
establish that a NAD hearing is an adjudication under § 554 of the APA “in
which the position of the United States is represented by counsel or
otherwise.”    5 U.S.C. § 504(b)(1)(C)(I). An adjudication is under the APA
if it is governed by § 554 of the APA.            Ardestani v. I.N.S., 502 U.S. 129,
135, 112 S. Ct. 515, 519, 116 L.Ed.2d 496 (1991).              See also, St. Louis Fuel
& Supply Co., Inc. v. F.E.R.C., 890 F.2d 446, 450-51 (D.C. Cir. 1989).                 The
question, then, is whether NAD proceedings are governed by § 554 of the
APA.


       The APA § 554 states that it applies to all adjudications “required
by statute to be determined on the record after            opportunity for an agency


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hearing.”   5 U.S.C. § 554(a).   An adjudication is defined as an “agency
process for the formulation of an order.”   5 U.S.C. § 551(7).    The review
of   agency determinations by NAD clearly meets the definition of an
adjudication.   There is a procedure for hearing facts in dispute, after
which the hearing officer or Director must issue a determination.   7 U.S.C.
§ 6997.   The NAD statute also meets the APA § 554 requirement that there
be an opportunity for a hearing.       Such a hearing is mandatory once
requested by a participant.   7 U.S.C. § 6997(b).      See, Smedberg Mach. &
Tool, Inc. v. Donovan, 730 F.2d 1089, 1092 (7th Cir. 1984).


      The only remaining requirement is that NAD proceedings must be on the
record.   The NAD statute does not expressly require the hearing to be on
the record; nonetheless, Congress’ intent is clear.    “Although Section 554
specifies that the governing statute must satisfy the ‘on the record’
requirement, those three magic words need not appear for a court to
determine that formal hearings are required.”   City of West Chicago, Ill.
v. U.S. Nuclear Regulatory Comm’n, 701 F.2d 632, 641 (7th Cir. 1983).
Congress need only “clearly indicate its intent to trigger the formal, on-
the-record hearing provisions of the APA.”       Id.    See also, Moore v.
Madigan, 990 F.2d 375, 378 (8th Cir. 1993), cert. denied, 510 U.S. 823
(1993).




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     The NAD statute provides that a participant who appeals an adverse
decision shall be given an evidentiary hearing.    7 U.S.C. § 6996(a).    The
evidentiary hearing consists of a procedure in which the hearing officer
has the power to administer oaths and to subpoena witnesses and evidence.
7 U.S.C. § 6997(a)(2).      The hearing officer and outside parties are
prohibited from ex parte communications.   7 U.S.C. § 6997(a)(2)(A)(B).   The
hearing officer is not bound by prior factual findings.         7 U.S.C. §
6997(c)(2). The appellant carries the burden of proving that the agency’s
decision was erroneous, 7 U.S.C. § 6997(c)(4), and the hearing officer must
leave the record open for additional information in response to new facts
and evidence presented at the hearing.       7 U.S.C. § 6997(c)(3).       The
appellant or the agency may request that the Director review the hearing
officer’s determination.    7 U.S.C. § 6998(a).   The Director’s review is
based on the case record (all material related to the adverse decision),
7 U.S.C. § 6991(4)), the record from the evidentiary hearing under 7 U.S.C.
§ 6997 and any other arguments or evidence the Director chooses to accept.
7 U.S.C. § 6998(b).   Judicial review is available upon issuance of a final
determination.   7 U.S.C. § 6999.


     The repeated references to the record in the NAD statute and its
provision for trial-type procedures make it clear that Congress intended
for NAD proceedings to be governed by § 554 of the APA.    Furthermore, the
government admits that NAD proceedings are “on the record,” stating, “We
do not dispute that . . . 7 U.S.C. §§ 6996-6998 required the hearing
officer’s decisions to be on the record.” (Gov’t. Br. at 12).
     The agency argues that even if NAD proceedings appear to meet the
coverage requirements of the APA, it is not “under” the APA but rather
supersedes it.   The agency claims that the NAD statutes are a separate,
comprehensive statutory scheme that contain express




                                    -5-
procedures for conducting hearings.       In essence, the agency is arguing that
the NAD statutes have amended by implication the provision that makes § 554
of the APA applicable to all adjudications required by statute to be
determined on the record after an opportunity for an agency hearing.


       The   primary   flaw   in   the   agency’s   argument   is   that    the   APA
specifically states that a “subsequent statute may not be held to supersede
or modify this subchapter . . . except to the extent that it does so
expressly.”    5 U.S.C. § 559.     There is nothing in the NAD statutes which
expressly states that the APA is inapplicable.       By adopting § 559, Congress
made it clear that the APA would apply unless there was some expression by
Congress that the APA was being superseded.          This is a logical approach
given the variety of issues and forums covered by the APA and the
possibility that Congress would inadvertently adopt a provision that
conflicted with the APA or repeat a provision contained in the APA.


       We find unpersuasive the agency’s reliance on Marcello v. Bonds, 349
U.S. 302, 75 S. Ct. 757, 99 L.Ed. 1107 (1955), in which the Supreme Court
held that the APA did not apply to Immigration and Naturalization Service
deportation hearings. Congress, in the Immigration and Nationality Act
(“INA”), had elaborately adapted the APA to the deportation process,
creating a complete and distinct set of procedures.       Marcello, 349 U.S. at
310.    The NAD statutes contain some variations on the APA but those
variations deal primarily with subjects not contained in the APA.            Nor are
there direct conflicts between the APA and the NAD statutes.               Compare 5
U.S.C. §§ 554-557 with 7 U.S.C. §§ 6996-6998.       There is one section of the
NAD statutes which refers to § 551 of the APA and incorporates by reference
the definition of “ex parte communication” contained in the APA.            7 U.S.C.
§ 6997(a)(2)(A).




                                         -6-
Appellant contends that this reference to the APA would not be necessary
if the NAD proceedings were under the APA.           These minor variations,
however, do not approach the major adaptions contained in the INA.    Rather,
they highlight the confusion that would occur, but for § 559 which forbids
amendment of the APA by implication.


      More importantly, the INA states that the procedures described in the
Act   “shall be the sole and exclusive procedure for determining the
deportability of an alien under this section.”    Marcello, 349 U.S. at 309.
The petitioner in Marcello argued that this was not a sufficient statement
to show that Congress intended the INA to supersede the APA, because
Congress simultaneously repealed an earlier statute which stated that the
APA did not apply to deportation hearings.      Since there was no longer an
express provision that the APA did not apply, the deportee in Marcello
argued that the APA had to be followed.       The Court acknowledged that an
exemption from the APA is not lightly presumed, but also found that: 1) the
same Congressmen who sponsored the APA had sponsored the INA; 2) there were
significant differences between the APA and the INA; and 3) Congress
probably thought it unnecessary to include a statement that the INA
superseded the APA because the INA stated that it was the “sole and
exclusive procedure for determining the deportability of an alien under
this section.”    The Court refused to require Congress “to employ magical
passwords in order to effectuate an exemption from the Administrative
Procedure Act . . ..”   Marcello, 349 U.S. at 310.   The NAD statutes do not
have a similar legislative history.    There has never been an expression by
Congress that the APA does not apply.       There is no provision in the NAD
statutes that it is the sole and exclusive procedure for conducting
hearings.     There is not an extensive adaptation of the APA, only minor
variations.    The requirements of § 559 clearly have not been met.




                                      -7-
      Ardestani      v.   I.N.S.,    502    U.S.      129    (1991),    is   similarly
distinguishable.     In that case, the Supreme Court held that the EAJA is not
applicable to INA deportation hearings because the INA is not under § 554
of the APA.     This conclusion is based on the Court’s earlier finding in
Marcello that Congress had expressly provided that INA proceedings would
not be under § 554 of the APA.       In contrast, we have found that proceedings
before the NAD are under § 554 of the APA.           The only remaining question is
whether the district judge was correct in remanding the case to NAD for the
sole purpose of determining the amount of fees owed to the Lanes.


B. ISSUE ON REMAND


      The    EAJA   states   that   “[a]n   agency    that   conducts   an   adversary
adjudication shall award, to a prevailing party other than the United
States, fees and other expenses incurred by that party in connection with
that proceeding, unless the adjudicative officer of the agency finds that
the position of the agency was substantially justified or that special
circumstances make an award unjust.”          5 U.S.C. § 504(a)(1).


      The district court interpreted this section to mean that the Lanes
were entitled to their fees because the NAD hearing officer did not make
an   affirmative finding that the agency’s position was substantially
justified.    The record is clear, however, that the Lanes’ applications for
fees were never submitted to the hearing officer for review.             Instead, the
Lanes were notified by a representative of the agency that the EAJA did not
apply to NAD hearings and for that reason their fees could not be
recovered.


      Relying on 5 U.S.C. § 706(2)(A), the district court found that the
refusal of the agency to consider the Lanes’ applications was




                                        -8-
not justified by law and, therefore, the court need not give deference to
the agency’s finding.      The only finding made by the agency, however, was
that the EAJA did not apply.       The agency’s adjudicative officer has never
reviewed the merits of the Lanes’ applications for fees.          We find that the
agency’s adjudicative officer must have an opportunity to consider the
merits of the application prior to judicial review.


     To hold otherwise would put the NAD in an untenable position.                 Once
the NAD personnel concluded that the EAJA did not apply, the adjudicative
officer lacked ostensible authority to award EAJA fees.           The law is clear
that an adjudicative officer cannot decide issues which are not properly
before the officer.      See, Fidelity Constr. Co. v. United States, 700 F.2d
1379, 1386 (Fed. Cir. 1983), cert. denied, 464 U.S. 826, 104 S. Ct. 97, 78
L.Ed.2d 103 (the board of contract appeals had no authority to award
attorney fees under the EAJA where its proceedings were not subject to 5
U.S.C. § 554).     If the adjudicative officer had rendered a decision on the
attorney   fees,    he   would   have   violated   this   principle   based   on    the
understanding of the agency at that time.            Given that the question of
jurisdiction was novel, the agency did not have an obligation to make an
advisory decision on the propriety of the Lanes’ application.


     A true copy.


            Attest:


                    CLERK, U.S. COURT OF APPEAL, EIGHTH CIRCUIT.




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