## Facts

- R. Gordon Darby, a real-estate developer, participated in HUD-insured financing for rental properties structured to use single-family mortgage insurance rather than the multifamily program.
- HUD regulations included a “Rule of Seven” limiting single-family mortgage insurance for mortgagors with interests in multiple similar rental properties in the same project or subdivision.
- The financing plan allegedly used straw purchasers who obtained insured loans and later transferred title to the development company.
- The projects later defaulted, resulting in HUD paying more than $6.6 million in insurance claims.
- HUD initiated debarment proceedings; an ALJ ordered Darby and related entities debarred for 18 months.
- Under HUD regulations, the ALJ’s determination “shall be final unless” the Secretary, within 30 days and as a matter of discretion, decides to review; neither party sought Secretary review.
- Darby filed an APA suit challenging the debarment as not in accordance with law; HUD argued the suit was barred for failure to exhaust discretionary Secretary review.

## Issues

1. Whether federal courts may require exhaustion of intra-agency review before APA judicial review when neither a statute nor agency rules make such review a prerequisite.
2. Whether an ALJ decision designated “final unless” the agency head elects discretionary review is “final agency action” reviewable under the APA without further administrative appeal.

## Decision

- The Supreme Court reversed the Fourth Circuit and remanded.
- The Court held that federal courts lack authority to impose an exhaustion requirement in an APA suit when neither the governing statute nor valid agency rules require an appeal as a prerequisite to judicial review.
- The Court concluded the ALJ’s debarment decision was final agency action reviewable under the APA because further review by the Secretary was discretionary and the action remained operative.

## Legal Principles

- Under APA § 704, an appeal to superior agency authority is a prerequisite to judicial review only when:
  - a statute expressly requires it; or
  - an agency rule requires it and makes the challenged action inoperative pending that appeal.
- When neither condition is satisfied, courts may not add a judicial exhaustion requirement to delay APA review.
- An agency action is “final” for APA purposes when agency rules render it operative and binding unless the agency, in its discretion, chooses to undertake further review.

## Conclusion

The Court held that, in APA cases governed by § 704, courts cannot require exhaustion of discretionary intra-agency appeals unless exhaustion is mandated by statute or by an agency rule that also stays the challenged action pending review; because HUD’s rules did neither, the ALJ’s debarment order was reviewable as final agency action.


Darby v. Cisneros, 509 U.S. 137 (1993)