The Environmental Trust: Will The Exception Swallow The "Rule?"
March 1, 1999
Lawrence Sellers- Tallahassee
In The Environmental Trust v. Department of
Environmental Protection [1], the court affirmed a
final order dismissing a challenge to agency memos as unadopted rules, and it
held that an agency statement explaining how an existing rule of general
applicability will be applied in a particular set of facts is not itself a rule.
[2] In so holding, did the court establish the exception that
"swallows the rule" or otherwise do great damage to the Legislature's repeated
efforts to require agencies to adopt their policies as rules?
Background
When the Legislature amended the Florida Administrative
Procedure Act (APA) in 1974, it created a detailed rulemaking process for state
agencies. [3] It did not, however, expressly require agencies
to use the rulemaking process to formalize policy positions into rules before
applying these policies in specific cases. The initial judicial reaction was to
force rulemaking by permitting a person against whom an unadopted policy was
being applied to challenge the validity of the policy in a rule challenge
proceeding. [4] If the policy was found to be a "rule" as that
term was defined in the APA, and if the policy had not been adopted as a rule
following the prescribed rulemaking procedures, then the policy was invalidated
and could not be used as a basis for agency action until it was properly
adopted. [5]
In McDonald v. Department of Banking & Finance,
[6] the court created an exception to the general rule that
the formal rulemaking process must be used when an agency seeks to implement
delegated authority. In McDonald, the court held that state agencies are
not required to adopt all of their emerging or "incipient" policies as rules.
The court reasoned that agencies may choose not to adopt those policies as rules
and instead may explain, support, and defend such policies in each case in which
the policies are applied.
However, as the late Professor Pat Dore observed, the
limited McDonald exception soon "swallowed the rule" because the courts
allowed the agencies themselves to determine whether and when they were ready to
proceed to rulemaking. [7]
The Legislature Expresses a Clear Preference For Rulemaking
In 1991, the Legislature amended the APA to create
Section 120.535, Florida Statutes. That section provided that rulemaking is not
a matter of agency discretion, and it required agencies to adopt their policies
through rulemaking as soon as "feasible and practicable." [8]
That section also provided a remedy that permits substantially affected persons
to attack agency statements that have not been adopted as rules.
[19] In 1996, the Legislature reaffirmed its preference for rulemaking, by
adding teeth to those remedies designed to force agencies to adopt their
policies as rules. [10]
What is a "Rule"?
These remedies require the petitioner to show that the
challenged policy is both "unadopted" and a "rule." Determining whether the
statement has been "adopted" in accordance with the rulemaking requirements of
the APA is relatively simple. The more difficult question is whether the
statement is, in fact, a "rule." The APA defines a "rule" as "each statement of
general applicability that implements, interprets, or prescribes law or
policy or describes the procedure or practice requirements of an agency."
[11]
The Environmental Trust
The Environmental Trust and Sarasota Investors submitted
45 applications for reimbursement for site rehabilitation work. The cost of the
work was financed in each case by a "factoring" agreement. In at least 30 of the
projects, the site rehabilitation work was completed by a subcontractor
under an agreement with a general contractor. The general contractor had
no substantial involvement with the project until the work was completed. At
that point, the general contractor performed a site inspection for which it
claimed a 15% "markup."
The Department of Environmental Protection (DEP) had in
place a rule concerning the necessary qualification for reimbursement, but the
rule did not expressly address the "factoring" or "markup" expenses. In two
intra-agency memoranda, DEP stated its position on factoring discounts and
markups by a general contractor. Applying the policy expressed in these memos,
DEP denied the claims for reimbursement of these factoring and markup expenses.
The ALJ's Ruling
The Environmental Trust and Sarasota Investors filed
petitions for an administrative hearing under Section 120.57 to contest the
denial of their claims. They also filed petitions in each case under Section
120.535 for a determination that the agency memoranda regarding the factoring
and markup policies had the effect of unadopted rules. The cases were
consolidated.
Administrative Law Judge (ALJ) Suzanne Hood entered two
orders. The first was a recommended order in the Section 120.57
proceeding, determining that the applications were properly denied. The
recommended order was adopted by DEP [12], and the
petitioners appealed. The second order was a final order in the Section
120.535 proceeding. In that order, the ALJ held that DEP policies had the effect
of unadopted rules. However, the order dismissed the petitions based on a
finding that DEP had initiated rulemaking to adopt rules as soon as practicable
or feasible. [13] The Environmental Trust and Sarasota
Investors appealed. DEP cross-appealed, arguing that the memos did not have the
effect of unadopted rules.
The Appellate Court's Holding
With respect to the challenge to non-rule policy, the
appellate court affirmed ALJ Hood's ruling dismissing the petition
challenging the memos as unadopted rules. However, the majority opinion by Judge
Padovano rejected ALJ Hood's conclusion that the challenged statements of policy
were unadopted "rules." Significantly, the majority held that "[a]n agency
statement explaining how an existing rule of general applicability will
be applied in a particular set of facts is not itself a rule."
714 So. 2d at 498 (emphasis added). Judge Benton concurred in
the result, but dissented in part. He would have affirmed ALJ Hood's ruling, as
he was persuaded that the challenged memoranda should be treated as
unpromulgated rules. [14]
Will the Exception Swallow the Rule?
Does the majority ruling do great damage to the
Legislature's repeated efforts to force agencies to codify their policies as
rules? In other words, may an agency now defend a challenge to policy
statements, by simply arguing that the unadopted policy is not a "rule" because
it is merely an "explanation" of how an existing rule of general applicability
applies in a particular set of facts? Will the majority ruling become the
exception that "swallows the rule," as Professor Dore said about the decision in
McDonald? [15]
The majority ruling in The Environmental Trust
seems relatively simple to follow in most cases that involve the mere
"explanation" of a very clear application of an existing, adopted rule to very
specific facts. Of course, these easy cases are not the ones that typically
generate challenges to unadopted rules.
But what about cases where an agency is implementing a
very broadly written rule, the application of which is not clear and
unambiguous? For example, what about a rule that requires that a project be
"clearly in the public interest" or that an activity not "adversely affect the
public health safety or welfare."? Aren't agency statements of general
applicability "explaining" these rules more likely to be "interpretations" of
law that fall within the definition of a "rule?"
And what about cases where an agency announces its
"interpretation" of a rule in a broadly distributed statement that clearly is
intended to have very general application to a broad class of facts? We've all
seen these kinds of statement; they often take the form of "industry bulletins"
or "technical bulletins" or the like. Aren't these statements clearly intended
to interpret or prescribe law, and don't they therefore fall within the
definition of a "rule?"
Conclusion.
If the holding in The Environmental Trust is
limited to those narrow circumstances where the agency truly is "explaining" a
fairly straightforward application of a rule to a specific set of facts, then
the holding probably does not become the exception that swallows the "rule" or
otherwise do great damage to the Legislature's efforts to require agencies to
adopt their policies as rules. [16] If, however, the holding
in The Environmental Trust is applied expansively by other courts and
ALJs -- and if it does in fact become the exception that swallows the "rule" --
then look for the Legislature to give serious consideration to the passage of
corrective legislation. [17]
1. 714 So. 2d 493 (Fla. 1st DCA 1998).
2. Id. at 498.
3. This rulemaking process is codified at Section 120.54, Florida Statutes.
4. See Patricia A. Dore, Florida Limits Policy Development Through
Administrative Adjudication and Requires Indexing and Availability of Agency
Orders, 19 Fla. St. L. Rev. 437 (1991).
5. Department of Administration v. Stevens, 344 So. 2d 290 (Fla. 1st
DCA 1977).
6. 346 So. 2d 569 (Fla. 1st DCA 1977).
7. Dore, supra note 5, at 437.
8. Section 120.535(1), Florida Statutes (1991). In 1996, this section was
moved to Section 120.54(1)(a).
9. Section 120.535. In 1996, this provision was moved to Section 120.56(4).
10. In 1996, the Legislature revised this provision to provide additional
"incentives" for forcing agencies to adopt their policies as rules. These new
incentives take two forms. First, the law now provides that when an
administrative law judge (ALJ) enters a final order that all or part of an
agency's statement violates the rulemaking requirement, the agency shall
immediately discontinue all reliance upon the statement or any substantially
similar statement as a basis for agency action. Section 120.54(4)(d), Florida
Statutes. (The agency may avoid this result by publishing proposed rules
prior to the entry of a final order. Section 120.56(4)(e), Florida
Statutes.) Second, following the entry of such a final order, the ALJ is
required to award reasonable costs and reasonable attorney's fees to the
petitioner. Section 120.595(4), Florida Statutes. For an overview of the changes
adopted in 1996, see Wade L. Hopping, Lawrence E. Sellers, Jr., and Kent
Wetherell, Rulemaking Reforms and Nonrule Policies: A "Catch-22" for State
Agencies?, 21 Fla. B. J. 20 (March 1997); Wade L. Hopping and Kent Wetherell,
The Legislature Tweaks McDonald (Again): The New Restrictions on the
Use of "Unadopted Rules" and "Incipient Policies" by Agencies in Florida's
Administrative Procedure Act, 48 Fla. L. Rev. (1996).
11. Section 120.52(8), Florida Statutes (emphasis added).
12. 97 ER FALR 43 (DEP 1997).
13 96 ER FALR 165 (DOAH 1996).
14. 714 So. 2d at 501.
15. See supra note 5.
16. In The Environmental Trust case, the challenges to non-rule policy
were filed before the 1996 amendments to the APA became effective
(although ALJ's Hood order was entered shortly after the October 1, 1996,
effective date). As such, it appears that the court did not apply the
1996 amendments in this case. The 1996 amendments may have an effect on whether
other courts and ALJs apply the ruling in The Environmental Trust to
future cases. Newly-created Section 120.57(1)(e) requires the agency to
essentially "prove up" its policy when the application of that policy is
challenged in a Section 120.57 proceeding. Among other things, the agency is now
required to show that the unadopted rule is not being applied to the
substantially affected party "without due notice." If the agency's "explanation"
(or "interpretation") of an existing rule or statute is not sufficiently obvious
that all substantially affected parties are implicitly on notice of the policy,
then courts and ALJs likely will be unwilling to apply the holding in The
Environmental Trust to conclude that the challenged policy is not a
"rule."
17. Indeed, as this article was submitted for publication, the Legislature
was considering legislation designed to "correct" another holding in The
Environmental Trust. See Amendment 11 to § 3, HB 107 (1998) (amending s.
120.54(1)(f) to expressly provide that "an agency may not adopt retroactive
rules, including retroactive rules intended to clarify existing law, unless that
power is expressly authorized by statute").