News from the States

by Michael Asimow⁽¹⁾

Michigan Law Review Commission Contemplates Recommended New Administrative Procedure Act⁽²⁾

The Michigan Law Revision Commission is now two years into the process of reviewing Michigan's Administrative Procedure Act of 1969. In upcoming months, the commission is likely to recommend to the Michigan legislature a new administrative procedure act. The new Michigan Administrative Procedure Act of 1998, still under the Commission's consideration, will almost certainly differ from the current Act in many ways. Organizationally, the draft new Act contains five chapters and thirty-one sections, compared with the current Act's eight chapters and seventy-seven sections. Beyond this, the draft Act clarifies and refines state agencies' rulemaking processes. Under current law, for example, agencies have sometimes been able to avoid rulemaking processes by defining their decisions as something other than "rules." The draft new Act would address this problem by, for example, replacing the concept of "guidelines" with the concept of "interpretive rules." In addition to interpretive rules, the new Act would introduce "procedural" and "housekeeping" rules which it would distinguish from "substantive rules" for which more rigorous, and clarified, decision-making processes are required.

On the adjudication side, the new Act would replace the old concept of "contested cases" with the concept of "adjudication." The new Act would further distinguish among different types of agency adjudication, "formal" and "informal," and specify different procedures for each. For instance, license compliance determinations would be housed in the new section on informal adjudications. The draft Act also provides for explicit rules governing intervention in formal adjudication, clarifying the burdens of proof and persuasion, and clarifying the evidentiary rules that an adjudicating agency shall employ. It also specifies the processes according to which agencies could issue "high-volume formal orders."

Finally, but not least of all, the new Act will also address the perennial problem in Michigan administrative law of a lack of promulgation of agencies' decisions. It will thus require the Michigan Register to be published at least once each month. It will also require periodic compilation and publication of the Michigan Administrative Code, as well as an annual supplement to Michigan Administrative Code. In a similar spirit, the new Act prods agencies to make available on-line proposed decisions, as well as final decisions.

Passage of a new administrative procedure act may depend upon whether new legislation is mistakenly viewed as part of an ongoing fight between the governor's office and the state legislature. That fight concerns the role that the legislature plays in overseeing agency decision-making generally, and rulemaking in particular. Recently, the Michigan Court of Appeals held unconstitutional the legislature's "Joint Committee on Administrative Rulemaking," an institution created by the current Administrative Procedure Act, and the main vehicle through which the legislature exercised formal agency oversight. The new Act recognizes legislative power to issue "current resolutions of disapproval" expressing legislative intent about the propriety of an agency rule. It also provides for legislative "bills of rejection," which stay the effective date of a final rule for sixty days. The new Act also incorporates a "legislative corrections week," modeled on similar initiatives in the U.S. House of Representatives, again to provide the legislature an opportunity for focused and expedited consideration of bills to repeal, amend, or otherwise modify agency rules with which the legislature disagrees. Notwithstanding these tools, the legislature may mistake the Commission's reform efforts as support for greater gubernatorial control at legislative expense.

The Michigan Law Revision Commission last visited the subject of Michigan administrative procedure in 1989. At that time, however, there was insufficient interest in the legislature for the passage of an act that would overhaul and streamline Michigan's often-archaic agency decision-making template. Now, as regulatory reform is in the air, not only on a national level but also across several states, there appears to be a reasonable chance that the legislature will enact comprehensive change next year. To date, the Commission has received input on its draft new Act from various interests within the state, including the administrative law section of the state bar, the office of regulatory reform within the governor's office, numerous state agency personnel, as well as the public. Whether the breadth of support for a much-needed new act will be sufficient, however, only time will tell.

California Supreme Court Holds Insurance Does not Cover Cost of Informally Resisting Agency Cleanup Order⁽³⁾

In administrative disputes, the most important practical concern on the defense side may not be the substantive legal issues, but whether its legal fees and other costs will be covered by liability insurance. The California Supreme Court's 4-3 decision in Foster-Gardner, Inc. v. National Union Fire Ins. Co., 77 Cal.Rptr.2d 107 (1998), dramatically reduces insurance coverage in environmental disputes. The issue has been frequently litigated in other states with conflicting results.

In Foster-Gardner, California's EPA ordered the company to undertake a costly cleanup of its site which was contaminated by DDT and other toxics. Years of monitoring, investigation and negotiation about the scope of the pollution problem and extent of the company's cleanup obligation preceded this order. Naturally, the company incurred heavy legal and other costs in the informal process of resisting and attempting to limit the scope of the cleanup order.

The agency's cleanup order created a binding legal obligation. It was reviewable in court, but only on a deferential basis and on the administrative record. Foster had no opportunity for a formal agency hearing. The federal EPA under CERCLA and environmental agencies in numerous other states are empowered to issue similar orders. An earlier decision by the California Supreme Court established that the out-of-pocket costs incurred in actually cleaning up the mess are "damages" covered by liability insurance. AIU Ins. Co. v. Superior Court, 799 P.2d 1253 (1990). But AIU left unclear whether the insurer was obligated to pay for the insured's costs incurred in resisting the issuance of a cleanup order.

Foster's insurance policy obligated the insurer to defend against any "suit" filed against the insured. The issue was whether the agency action taken in issuing a cleanup order was a "suit." The court held the issuance of the binding cleanup order was only a "claim," not a "suit," so that the insurer owed no obligation to defend. Dictum in the decision at least implies that a "suit" is limited to an action filed in court, and does not even include formal adjudication before an agency.

Taken together, AIU and Foster-Gardner seem inconsistent--the insurance company should be required to defend a proceeding that could saddle the insured with an obligation to pay costs that are themselves covered by insurance. In states that follow Foster-Gardner, business may be motivated to settle with the agency quickly (since insurance may cover part of the remediation cost), rather than resist the order. And smaller businesses may be disadvantaged relative to larger ones that are better able to pay the cost of the informal administrative process out of their own pocket. Moreover, respondents may be motivated to ignore the cleanup orders and force the agency to file an enforcement action, since the costs of defending such actions would be covered by insurance.

North Dakota Proposal for an ALJ Ethics Code

The North Dakota State Advisory Council for Administrative Hearings recently asked the Office of Administrative Hearings to draft an Ethics Code for Central Panel ALJs only, which would be used only for internal disciplinary measures by OAH. OAH was also asked to explore the possibility of establishing a special committee or commission to review complaints against OAH

ALJs and to make recommendations to OAH's director in regard to violations of the code.

Oregon Initiative for Petitions to Require Legislative Approval of State Regulations

Voters in Oregon will find a constitutional initiative on their ballot this fall that would enable persons to petition the legislature to review rules adopted by state agencies. Under the terms of the measure, if a petition for review of a rule is filed with the Secretary of State containing signatures at least equal to two percent of the number of voters in the last gubernatorial election (about 25,000), the legislature must either affirmatively pass a bill approving that rule, or the rule goes out of existence at the end of the legislative term. Because the Oregon legislature only meets once every two years, there may be a substantial period of time between a petition being filed and the end of a legislative session, during which time the future of the regulation is likely to be under a cloud. A regulatory review petition can identify any number of rules to be subject to the approval requirement, so one petition could put the entire Oregon Administrative Rules compilation at risk.

Sponsors of the measure, a property rights interest group, argue that the measure would make the legislature more accountable for state policy. Opponents argue that the measure would enable special interests to play havoc with the state government.

State Administrative Law Articles

Henderson, John T. and Peter D. Kovach, Administrative agency oversight of notarial practice, 31 J. Marshall L. Rev. 857 (1998).

1. Professor of Law, UCLA Law School; Co-chair, State Administrative Law Committee.

2. This information is submitted by Professor Steven Croley, University of Michigan Law School.

3. This information is submitted by Professor Michael Asimow, UCLA Law School; Co-chair, State Administrative Law Committee.

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