Winter 1999, Vol 24 No2

News from the States

An important state administrative law issue concerns the scope of judicial review of an agency's legal interpretation. Should the state follow the federal "strong deference" rule and uphold any reasonable interpretation of an ambiguous statute? Chevron v. NRDC, 467 U.S. 837 (1984). Or should the state follow the earlier "weak deference" approach by retaining independent judgment but giving appropriate deference to the agency's interpretation? Skidmore v. Swift, 323 U.S. 134 (1944).

In Yamaha Corp. of America v. State Bd. of Equalization, 960 P.2d 1031 (1998), an opinion of four of the seven justices of the California Supreme Court opted for the Skidmore approach. The issue concerned the deference to be given to a staff opinion by the Board of Equalization (California's sales tax collecting agency). Such staff opinions are among the very few interpretive rules that can be adopted in California without prior notice and comment A lower court opinion had held that the court must give the same deference to the staff opinion as it would give to a legislative rule--essentially upholding the interpretation unless it was irrational.

The Supreme Court 's opinion distinguished sharply between the scope of review of an interpretation adopted under delegated legislative power (a legislative rule) and an interpretation adopted without exercising such power (an interpretive rule). In the case of an interpretive rule, the court should exercise independent judgment. However, it should also accord deference to the agency's view that is appropriate under the circumstances.

In determining what level of deference (if any) is appropriate, the court should consider both a) the factors suggesting that the agency has a comparative interpretive advantage over the court and b) the factors indicating whether the interpretation is or is not probably correct.

The factors indicating whether the agency has a comparative advantage include the agency's expertise and whether the text to be interpreted is technical, complex, open-ended, or entwined with issues of discretion. The factors indicating whether an agency is or isn't probably correct include whether the agency has maintained the interpretation consistently, how much care was paid to preparing the interpretation, whether it was adopted at the highest agency level, and whether it was adopted following notice and comment.

A 3-judge concurring opinion in Yamaha would take an intermediate position between Chevron and Skidmore by automatically giving "great weight" to an agency's interpretation. It would give particularly great weight to tax opinions of the Board's staff.

Must Rules be Specifically Authorized by Statute? A Florida Appellate Court Says No. ^**

In St. Johns River Water Management District v. Consolidated-Tomoka, 717 So.2d 72 (Fla. 1st DCA 1998), a Florida appeals court upheld an agency's authority to promulgate rules without detailed legislative authorization. The decision, anxiously awaited by administrative lawyers in the state, is significant because it interprets a new restriction on agency rulemaking authority recently added to Florida's APA.

In 1996, Florida's Legislature amended the state APA, adding a variety of new restrictions on agency rulemaking. One of the new restrictions is section 120.536(1), which states:

A grant of rulemaking authority is necessary but not sufficient to allow an agency to grant a rule; a specific law to be implemented is also required. An agency may adopt only rules that implement, interpret or make specific the particular powers and duties granted by the enabling statute. No agency shall have authority to adopt a rule only because it is reasonably related to the purpose of the enabling legislation and is not arbitrary and capricious, nor shall an agency have the authority to implement statutory provisions setting forth general legislative intent or policy. Statutory language granting rulemaking authority or generally describing the powers and functions of an agency shall be construed to extend no further than the particular powers and duties conferred by the statute.

The new standard limiting agency authority to promulgate rules overruled Florida cases that held that a rule is valid if it is reasonably related to the enabling statute and not arbitrary and capricious. Failure to comply with this standard can be challenged before an ALJ.

The Consolidated-Tomoka case began with a challenge to rules promulgated by a Water Management District. The rules established two new hydrologic basins in the District's region and established new standards pertaining to runoff, recharge, stormwater systems, and riparian wildlife. The ALJ determined that the rules were invalid because they were not within the "particular powers and duties" granted by the enabling statutes, as required by new standard in Florida's APA. Although statutory language directed the agency to "not allow harm to water resources," to "delineate areas within the district wherein permits may be required," and to "require such permits and impose reasonable conditions" to comply with state law, the ALJ determined that this statutory authorization was inadequate under the new rulemaking standard.

Consolidated-Tomoka unanimously reversed the ALJ's decision. It disagreed with the ALJ's interpretation that "particular powers and duties" required a minimum level of detail in the statute. Instead, the court held that section 120.536 "restricts rulemaking authority to subjects that are directly within the class of powers and duties identified in the enabling statute." The new standard, the court observed, "is a functional test based on the nature of the power or duty at issue and not in the level of detail in the language of the applicable statute."

The court noted two concerns with the ALJ's interpretation of the "particular powers and duties" standard. First, the court reasoned, the ALJ's standard, which requires a statute describing in detail the subject matter of each rule proposed, "would be difficult to define and even more difficult to apply." As the court wrote, "[a]n argument could be made in nearly any case that the enabling statute is not specific enough to support the precise subject of a rule, not mater how detailed the Legislature tried to be in describing the power delegated to the agency." Second, the court observed, the ALJ's interpretation, which is more restrictive of agency authority than the court's, would conflict with another section of the Florida APA, which states that "rulemaking is not a matter of agency discretion." By implication, the court reasoned, agencies must have the authority to adopt rules within the class of powers conferred by the applicable enabling statute, and must not be limited to adopting rules only where a statute describes in detail the subject of each potential rule.

Kansas Adopts a Central Panel ^*

The State of Kansas established an Office of Administrative Hearings (OAH) on July 1, 1998 per K.S.A. 75-37,121. The OAH is currently charged with the responsibility of conducting all adjudicative hearings for the state's large umbrella human service agency. SRS programs include various welfare programs as well as mental health, vocational rehabilitation, adult and child abuse. The OAH is also authorized to conduct adjudicative hearings for other governmental entities on a voluntary basis. The OAH currently is providing ALJ services to the Kansas Insurance Department, the Department on Aging, the Kansas Animal Health Department and the Kansas Dental Board.

The OAH was initially staffed by transferring all the SRS Administrative Hearings staff to OAH. That staff consists of ten employees: the Director, Carol Foreman, four attorneys functioning as Administrative Law Judges, and five support staff.

The Kansas Legislature asked the Kansas Judicial Council, a group comprised of appellate judges, legislators, trial judges, and practicing attorneys, to make recommendations to the Legislature on whether the jurisdiction of the OAH should be expanded. At this time the Council has tentatively approved a plan that would expand the jurisdiction of the OAH over five years. Each year one or two cabinet level agencies would be added to the office. In addition to the cabinet level agency, small groups of boards or commissions would be also added each year. The board/commissions would be grouped together according to similar subjects(i.e., agriculture, labor, health care, finance).

The future of OAH in Kansas depends upon the recommendation of the Judicial Council to the Legislature, legislative action and the governor's signature or veto on legislation.

Recently, in Avatar Development Corp. v. State, 23 Fla. L. Weekly S552 (October 22, 1998), the Florida Supreme Court ruled on the constitutionality of a state statute providing criminal penalties for willful violations of an administrative rule or a permit condition. Under the Florida constitution, no branch of government may delegate any of its functions to another branch, and in 1994 that court had found a state statute unconstitutional because it had created a crime defined as violating a yet to be determined administrative rule. See B.H. v. State, 645 So.2d 987 (Fla.1994). The Court distinguished the statute in that case, because it did not constrain the delegation of the administrative agency in any way. Here, however, the statute did not impermissibly delegate to the state environmental agency the power to decide what acts constituted a crime. While the statute gave the agency the authority to determine the conditions on which permits might be issued, that authority was limited to those conditions necessary to effectuate the legislature's policy. The fact that the statute also included criminal sanctions was not important when it is the legislature, not the agency, that has declared such acts to be unlawful.

What happens if an agency notifies a licensee that it proposes to take disciplinary

action--and the licensee does not respond by the due date? Does due process require an agency to provide any procedure before it takes action against the defaulting licensee? Chances are, the agency will take summary action against the licensee based on the notice and its investigatory file.

In Ohio, this practice changed when a court ruled in 1996 that state and federal due process required something more. In Goldman v. State Medical Board, 110 Ohio

App.3d 124, 673 N.E.2d 677 (10th Dist. Ct. App. 1996), the court held that the agency must provide "some sort of reliable evidentiary review, including the sworn testimony of the investigator," to fulfill the state APA's requirement for a hearing.

Across the state "Goldman" hearings sprouted on an agency-by-agency basis, each intending to provide "some sort of evidentiary review" short of full adversarial proceedings.

Typically, the licensee or permit holder will be present, with counsel, yet will not be permitted to

participate in the proceedings. As might be expected, this has spawned its own body of challenges, and in late October, 1998, the same court of appeals revisited the matter in Goldman II,. where once again the licensee challenged the procedures used by the State Medical Board. This time, the agency prevailed.

Goldman II noted that the licensee had waived his due process right to a hearing. Goldman v. State Medical Board of Ohio, 1998 WL 733817 (10^th Dist. Ct. App. October 20, 1998). Under these circumstances, due process does not require the Board to permit the licensee to make an opening statement, to present evidence, to cross-examine witnesses, or to

make a closing statement. The court noted that upon remand, the Board appointed a hearing examiner who took the sworn testimony of its investigator and who considered evidence supporting the allegations appearing in the investigator's report. The hearing produced a thirty-page transcript, and the hearing examiner produced a fifteen-page report which included findings of fact, conclusions of law, and a recommendation for the Board. The Court held that due process was satisfied by this procedure.

On October 21, in a call-in CLE program on the subject of how lawyers can prepare for administrative proceedings, presented by Warren Belmar and a panel, the issue of the independence of ALJs arose. While the program addressed many issues, the matter of the independence of the decision-making of ALJs seemed to provoke the liveliest discussion. Having been unable to get through to the proper switchboard to offer a comment, I would like to offer my comment here, in this appeal to readers of the Administrative and Regulatory Law News.

The Judicial Division Conference of Administrative Law Judges Judicial Independence Committee, newly appointed this year, has as its primary goal this year the production of a report on What Judicial Independence Means for ALJs, and How to Promote and Protect It. As has been noted elsewhere, what judicial independence means for ALJs includes issues common to all judges, and also issues that probably arise more frequently with ALJs. The latter include behind-the-scenes influences that may never become public unless the ALJs who are subject to such influences disclose them to parties.

Other issues relating to ALJ independence and impartiality in decision-making include what sorts of administrative and other oversight of ALJs are appropriate; how to assure the public that they will receive fair and impartial hearings before ALJs; and how to structure the job of the ALJ and ALJ offices, to assure such fairness and impartiality.

The NCALJ Judicial Independence Committee seeks input from all who may have input to offer on these subjects, especially those who have particular knowledge of administrative law and adjudication. Your input will help us to broaden our perspective and avoid being insular in our approach. Despite impressions among some to the contrary, our interest is not so much in obtaining independence for ourselves in order to enhance our positions, but in assuring fairness and impartiality in the proceedings we conduct.

Please send your input to: NCALJ Judicial Independence Committee Chair Ann M. Young, P. O. Box 198254, Nashville, TN 37219-8254.

Kingsepp, Jon H. and Patrick M. McCarthy, Administrative Law (in Annual Survey of Michigan Law, June 1996 - May 31, 1997), 44 Wayne L. Rev. 395 (1998).

McGonagle, Edward, Administrative Law (in 1996-97 Survey of New York law), 48 Syracuse L. Rev. 371 (1998).

Wallace, Rep. Ted, A Dark Cloud Cast upon Michigan's Sunshine Act: A Review of the Recent Changes to the Michigan Freedom of Information Act, 1997 Det. C.L. Mich. St. U. L. Rev. 793.

At the Section of Administrative Law & Regulatory Practice we are always looking for new and better ways to serve our members, the bar and the public. If you have any comments, ideas or features you would like us to incorporate, or if you have difficulties with any of the links in these pages, please contact the Section's Webmaster.