Darby v. Cisneros: APA Exhaustion Rule and Its Limits

In Darby v. Cisneros, 509 U.S. 137 (1993), the Supreme Court held that federal courts cannot force a plaintiff to exhaust an optional agency appeal before seeking judicial review under the Administrative Procedure Act. Exhaustion is required only when a statute expressly demands it, or when an agency rule both requires the appeal and makes the challenged action inoperative while that appeal is pending.¹ Justice Harry Blackmun delivered the opinion on June 21, 1993, and the Court was unanimous on the core holding.

The Rule the Court Set

The decision reads Section 10(c) of the APA, codified at 5 U.S.C. § 704, as the exclusive source of exhaustion requirements for APA cases. That provision says an “agency action otherwise final is final for the purposes of this section whether or not there has been presented or determined an application for a declaratory order, for any form of reconsideration, or, unless the agency otherwise requires by rule and provides that the action meanwhile is inoperative, for an appeal to superior agency authority.”²

The Court distilled this into a two-part test. An intra-agency appeal is a prerequisite to suit only if:

a statute expressly requires the appeal, or
an agency rule requires the appeal and provides that the underlying action is inoperative while the appeal is pending.³

If neither condition is met, the initial agency action is final, and the plaintiff can go straight to court. Judges have no residual discretion under the APA to add exhaustion requirements Congress and the agency did not.

How the Case Arose

R. Gordon Darby was a South Carolina real estate developer who used a financing plan built around HUD’s single-family mortgage insurance program under Section 203(b) of the National Housing Act. HUD’s “Rule of Seven” barred single-family insurance where an owner already held interests in seven or more similar rental properties in the same project. Darby’s plan used straw purchasers to apply for the insurance, with title transferred back to his development company after closing.¹

After Darby defaulted in 1988 and HUD paid out more than $6.6 million in insurance claims, the agency issued a Limited Denial of Participation and then moved to debar Darby and several affiliated companies from all federal procurement and nonprocurement transactions.⁴ After a consolidated hearing, an Administrative Law Judge found in April 1990 that the financing method was a “sham” but that Darby lacked criminal intent, and imposed an 18-month debarment rather than an indefinite one.¹

Darby did not seek discretionary review from the HUD Secretary. He filed suit in federal district court instead, arguing the sanctions violated the APA. HUD moved to dismiss for failure to exhaust. The district court denied the motion and ruled for Darby on the merits. The Fourth Circuit reversed, holding the case should have been dismissed because Darby did not pursue the Secretary’s review.⁵ The Supreme Court granted review to resolve a split among the circuits over whether the APA displaced the judge-made exhaustion doctrine.

The Regulation That Failed the Test

Everything turned on 24 CFR § 24.314(c). Under that rule, the ALJ’s decision was “final unless… the Secretary or the Secretary’s designee, within 30 days of receipt of a request decides as a matter of discretion to review the finding.” A party could ask for review within 15 days, but the Secretary’s decision to take it up was entirely discretionary.⁴

Applied to the two-part test, the regulation failed on both counts. It did not require an appeal to the Secretary; it merely permitted a request for one. And it did not make the ALJ’s debarment inoperative during any review. So the ALJ’s order was final agency action the moment it issued, and Darby could sue.¹

Why the Court Ruled This Way

The Court grounded the decision in the text of Section 10(c). The government had argued the provision addressed only finality and left courts free to add their own exhaustion rules. Justice Blackmun rejected that reading directly: “if courts were able to impose additional exhaustion requirements beyond those provided by Congress or the agency, the last sentence of § 10(c) would make no sense.”³ It would also be “inconsistent with the plain language of § 10(c) for courts to require litigants to exhaust optional appeals.”¹

The Court also pointed to the practical logic behind the inoperative requirement. Forcing a litigant to keep working through the agency while the sanction is already in effect creates what the opinion called a “fundamental inconsistency,” and the statute was designed to prevent Section 10(c) from becoming a “trap for unwary litigants” who lose their day in court by skipping a step nobody told them was mandatory.⁴

Only one part of the opinion drew any daylight. Part III walked through the legislative history of Section 10(c), which Blackmun conceded was “unnecessary in light of the plain meaning of the statutory text.” Chief Justice Rehnquist and Justices Scalia and Thomas joined the rest of the opinion but declined to join that section. There were no formal concurrences or dissents.¹

What Stays Outside the Rule

Two boundaries matter for anyone trying to apply Darby.

First, the decision governs APA cases. The Court was explicit that the traditional, judge-made exhaustion doctrine still applies as a matter of judicial discretion in cases that do not arise under the APA.³ The framework laid out a year earlier in McCarthy v. Madigan continues to control non-APA claims such as Bivens actions.⁶

Darby addressed what scholars call “remedy exhaustion,” the question of whether a party must complete every stage of agency review before suing. It did not decide “issue exhaustion,” which asks whether a party who did complete the agency process can raise specific issues in court that it never raised inside the agency. The Court took up that distinct question in Sims v. Apfel (2000), holding issue-exhaustion requirements are “largely creatures of statute” in the Social Security context.⁶

Why It Still Matters

More than three decades on, Darby v. Cisneros is still the controlling authority on administrative exhaustion under the APA. Its practical effect is the same for both sides of the courthouse door. For a party sanctioned by a federal agency, the question is not whether some further internal appeal exists but whether a statute or a rule actually requires it and pauses the sanction while it runs. If not, the initial decision is final, and the courts are open. For an agency that wants exhaustion enforced, the path is spelled out: write a rule that requires the appeal, and write into that rule that the challenged action is inoperative in the meantime. Anything less, and the agency’s action is reviewable the moment it issues.⁷

1
Justia. Darby v. Cisneros, 509 U.S. 137 (1993)
2
Office of the Law Revision Counsel. 5 U.S.C. § 704
3
Cornell Law Institute. Darby v. Cisneros (Opinion)
4
Library of Congress. Darby v. Cisneros, 509 U.S. 137 (Full Opinion)
5
Cornell Law Institute. Darby v. Cisneros (Syllabus)
6
Administrative Law Review. Administrative Law Review Article on Exhaustion
7
Administrative Conference of the United States. Judicial Review of Agency Action