Arizona Court of Appeals Division One holds that a structure of allowing an administrative law judge to hold a hearing and collect evidence on an administrative agency’s decision to cancel a contract does not violate due process.

A third party entered an agreement with the Arizona Department of Transportation (“ADOT”) to administer certain duties such as performing vehicle registrations and conducting inspections. The third party was required to make the collected funds available to ADOT within one business day but repeatedly, and after having received written warning, failed to do so. ADOT noticed its intent to cancel the agreement and requested an administrative hearing where the third party could oppose the request. After taking evidence and confirming with ADOT that it would not consider a lesser sanction, the ALJ found that the third party had not shown cause as to why ADOT’s decision should be rejected and cancelled the agreement.

The issue was whether an agency violates due process when it, rather than an impartial hearing officer, decides the sanction to be imposed if a third party is found to have violated its agreement with the agency. The superior court vacated the ALJ’s order after it found that ADOT violated the third party’s due-process rights and the agreement by depriving it of an impartial hearing because ADOT, not the ALJ, chose what sanction would be imposed. The Court of Appeals disagreed. It relied on Arizona law and regulations outlining an agency’s role in suspending or cancelling a contract and a third party’s right to an impartial hearing. A.R.S. § 28-5108(E) requires that if an agency concludes grounds for contract cancellation exist, it must give the third party notice to appear at an administrative hearing to show cause as to why the agreement should not be cancelled. A.A.C. R17-1-501 et. seq. requires that the ALJ conduct a fair and impartial hearing and sustain an agency action supported by the record and the law. The Court of Appeals found that the procedure did not violate due process. Under Horne v. Polk, 242 Ariz. 226 (2017), an agency can investigate, prosecute, and adjudicate cases so long as the same official does not carry out all three functions. ADOT initiated the investigation, prosecuted the case, and requested cancellation. But it was the ALJ, not ADOT, that determined the third party breached the agreement. Accordingly, the third party was not deprived of a fair hearing.

Judge Catlett authored the opinion, in which Judges McMurdie and Brown joined.

Posted by: Michael Price