Nonrule Policy and the Legislative Preference for Rulemaking
January 5, 2001
Lawrence Sellers- Tallahassee
By Lawrence E. Sellers, Jr. and Cathy M. Sellers*
Historically, Florida’s administrative agencies have developed policy in two
ways: on a case-by-case basis through adjudication (nonrule policy) or through
the use of formal rulemaking procedures that include significant opportunities
for public participation.[1] In 1991, the Florida Legislature announced its
preference for rulemaking over development and application of nonrule policy
through adjudication, by enacting a clear rulemaking mandate applicable except
in limited circumstances. However, this mandate contained loopholes that allowed
agencies to continue to avoid the rulemaking mandate with little consequence.
Accordingly, in 1996 the legislature again addressed the rulemaking mandate as
part of comprehensive revisions to the Administrative Procedure Act. This time,
the legislature further restricted the agencies’ ability to rely on nonrule
policy in adjudicatory proceedings, added new provisions under which agency
nonrule policies may be challenged, and imposed stringent penalties for an
agency’s failure to comply with the rulemaking mandate.
This article reviews the legislative and case law background leading to
enactment of the 1996 provisions addressing unadopted rules, summarizes the
unadopted rule provisions in the 1996 amendments to the APA, and examines how
courts have interpreted these provisions to date.
Legislative and Case Law Background
When the legislature amended the APA in 1974, it created a detailed rulemaking
process for state agencies.[2] 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.[3] 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.[4]
In McDonald v. Department of Banking & Finance, 346 So. 2d 569 (Fla. 1st DCA
1977), 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.[5]
In 1991, the legislature amended the APA to create F.S. §120.535. 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.”[6] That section also provided a remedy that enabled substantially
affected persons to challenge agency statements that were not formally adopted
as rules.[7] The enactment of §120.535 was a substantial step toward ensuring that
agency policies were codified as rules once they were sufficiently developed so
as to be susceptible to rulemaking. However, under §120.535 agencies were
allowed to continue to apply their nonrule policies during the pendency of
rulemaking, provided they were able to “prove up” those policies in individual
administrative adjudicatory proceedings. Furthermore, because attorneys’ fees
were available only in very limited circumstances, agencies had little incentive
to adhere to the rulemaking mandate.
Against this backdrop, in 1996 the legislature reaffirmed its preference for
rulemaking by adding teeth to the remedies that were designed to force agencies
to adopt their policies as rules. [8]
• What is a “Rule”?
These new 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 simple.
The more difficult question is whether the statement is, in fact, a “rule.” The
APA defines a “rule” as “each agency statement of general applicability that
implements, interprets, or prescribes law or policy or describes the procedure
or practice requirements of an agency.”[9] Recent cases provide
some judicial guidance as to the kinds of agency statements that do[10]
and do not[11] constitute
a “rule” that is subject to the rulemaking requirement.
Limitations on Agency Policymaking Through Adjudication: §120.57(1)(e)
In McDonald, the court held that an agency may rely on a policy that
had not been codified as a rule pursuant to the formal rulemaking requirements,
provided the agency defends and explains, or “proves up,” its policy each time
the policy is applied.[12] The 1996 amendments set forth seven criteria, all of which the
agency must demonstrate in order to “prove up” its nonrule policy for purposes
of being able to rely on and apply that policy without having first codified it
through rulemaking.[13] Six of the seven criteria are
substantially identical to those in the definition of “invalid exercise of
delegated legislative authority” that is used in challenges to formally adopted
or proposed rules.[14] Thus, an
agency essentially has the burden of proving, in part, that its nonrule policy
is not an invalid exercise of delegated legislative authority. In addition, the
seventh criterion requires an agency to have developed the nonrule policy
through procedures sufficient to place a person on notice of the policy.[15]
Moreover, §120.57(1)(e)3 significantly heightens the agency’s burden with
respect to overturning the administrative law judge’s determination by imposing
a “clearly erroneous” standard, rather than the “no competent substantial
evidence” standard that applies in other adjudicatory proceedings involving
agency action based on policies that have been codified as rules.[16] If, on
judicial review, the court finds that the agency’s rejection of the ALJ’s
determination as to whether the agency has “proved up” its nonrule policy does
not comport with the “clearly erroneous” standard, the court must set aside the
agency’s action and award reasonable attorneys’ fees and costs to the prevailing
party.[17]
As can be seen, F.S. §120.57(1)(e)3 imposes a substantial burden on agencies in
proving up their nonrule policies in adjudicatory proceedings, and it exacts a
significant penalty when an agency improperly rejects an ALJ’s determination as
to whether that burden has been met. In this fashion, the legislature has sought
to encourage agencies to adopt their policies through formal rulemaking
procedures prior to relying on them to affect others.
Challenges to Agency Statements Defined as Rules: §120.56(4)
In 1996, the legislature also enacted F.S. §120.56(4), which is a revision and
clarification of former F.S. §120.535(2).[18] Section 120.56(4) provides that any
person substantially affected by an agency statement that constitutes a “rule”
that has not been codified in accordance with the formal rulemaking requirements
may file a petition with the Division of Administrative Hearings, seeking an
administrative determination that the statement violates the rulemaking mandate
of §120.54(1)(a). That section in turn provides that rulemaking is not a matter
of agency discretion, and that each agency statement defined as a rule under
§120.52 must be adopted in accordance with the APA’s rulemaking procedures as
soon as “feasible and practicable.”[19] Feasibility and
practicability are presumed, and the burden is on the agency to prove that
rulemaking is not feasible[20] or practicable.[21]
As with other rule challenges, ALJs have final order authority in unadopted rule
challenges under §120.56(4).[22] If the ALJ determines that all
or part of an agency statement violates §120.54(1)(a), the agency must
immediately discontinue all reliance on the statement or any substantially
similar statement as a basis for agency action.[23] However, if, prior to issuance of the ALJ’s final order,
the agency publishes proposed rules addressing the statement, and proceeds
expeditiously and in good faith to adopt rules that address the statement, the
agency is permitted to rely on that statement or substantially similar
statements as a basis for agency action, provided the statement is “proved up”
in the adjudicatory context pursuant to F.S. §120.57(1)(e).[24]
And, of course, any such proposed rules would be subject to challenge.[25]
Importantly, the legislature imposed a time frame for the agency to “proceed
expeditiously and in good faith”: The agency must adopt the rules within six
months of publication of the proposed rules, or it is presumed that the agency
is not acting expeditiously and in good faith, and it must cease all reliance on
the statement or similar statements.[26]
As with proceedings involving nonrule policy in the adjudicatory context, the
legislature has enacted stringent attorneys’ fees provisions aimed at deterring
agency reliance on statements of general applicability that have not been
adopted as rules. Upon entry of a final order finding that all or part of an
agency statement violates the rulemaking mandate in §120.54(1)(a), the ALJ must
award reasonable attorneys’ fees to the petitioner, except in limited
circumstances.[27] In particular, the authorization of nondiscretionary attorneys’
fees awards under §120.595 for successful challenges to unadopted rules is a
clear signal of legislative intent that agencies are to codify their policies as
rules, except under narrowly prescribed circumstances.
Conclusion
The legislature has expressed a strong preference that agency policy be adopted
through the formal rulemaking procedures in Florida’s APA, in part because these
procedures provide significant opportunities for public participation. The
legislature, therefore, has enacted several provisions aimed at forcing agencies
to codify their policies as rules, except under very limited circumstances.
These “forcing” provisions take the form of heightened standards applicable to
nonrule policies in the adjudicatory context, presumptions in favor of the
feasibility and practicability of rulemaking, and nondiscretionary attorneys’
fees award provisions. These provisions send a clear message that the
legislature is serious about the mandate that agencies must use formal
rulemaking procedures in the development of agency policy.
____________________________________
1.For
a discussion of some of these opportunities for public participation,
see Donna
E. Blanton,
State Agency Rulemaking
Procedures and Rule Challenges, 75 Fla.
B.J. 34 (Jan. 2001); Lawrence E. Sellers, Jr.,
The Third Time’s the Charm: Florida Finally Enacts
Rulemaking Reform, 48 Fla. L. Rev. 93
(1996).
2.
This rulemaking process is codified at Fla.
Stat. §120.54.
3.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).
4.Department
of Administration v. Stephens, 344 So.
2d 290 (Fla. 1st D.C.A. 1997).
5.Dore,
supra
note 3, at 437.
6.Fla. Stat.
§120.535(1) (1991). In 1996, this section was moved to Fla. Stat. §120.54(1)(a).
7.Fla. Stat.
§120.535 (1991). In
Christo v. Department
of Banking and Finance, 649 So. 2d 318
(Fla. 1st D.C.A. 1995), the court held that §120.535 created the exclusive
remedy for challenging agency statements of general applicability that were not
adopted as rules. At least one commentator has criticized this interpretation.
Stephen T. Maher,
How the Glitch Stole
Christmas: The 1997 Amendments to the Florida Administrative Procedure Act,
25 Fla. St. U. L. Rev. 235, 252 (1998). In 1996, this provision was moved to
Fla. Stat. §120.56(4).
8.Fla. Stat.
§120.56(4) (1996). 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?, 71 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).
9.
Fla. Stat. §120.52(15) (1999).
10.Examples of
cases in which agency statements were considered rules to which the rulemaking
requirement applied include:
Matthews v.
Weinberg, 645 So. 2d 487 (Fla. 2d D.C.A.
1994) (holding that an agency’s unwritten policy prohibiting homosexual couples
from becoming licensed as foster parents was not within purview of any of the
agency’s existing rules and was statement of general applicability to which
rulemaking requirement applied);
Christo
v. Department of Banking and Finance,
649 So. 2d 318 (Fla. 1st D.C.A. 1995) (invalidating agency policy establishing
financial institution ratings indicating that the institution is unsafe or
unsound as a means of recovering costs of examination and supervision and as the
basis of taking other administrative action on the ground it was a rule for
which rulemaking was feasible and practicable);
Department of Highway Safety and Motor Vehicles v.
Schluter, 705 So. 2d 81 (Fla. 1st D.C.A.
1997) (holding that certain agency policies were rules that did not fall within
the internal memorandum exception to the rulemaking requirement because they
applied uniformly to all agency employees, were not subject to discretionary
application, and affected the employees’ rights to defend themselves against
disciplinary measures, which in turn affected the employees’ protected property
rights to continued employment);
Reiff v.
Northeast Florida State Hospital, 710
So. 2d 1030 (Fla. 1st D.C.A. 1998) (holding that state hospital bylaws
establishing privileges available to state medical employees at the hospital
were determined to be rules not within the internal memorandum exception because
they were self-executing and regulated employees’ exercise of their profession,
a protected property right under state law).
11.Examples
of cases in which agency statements were determined not to be rules subject to
the rulemaking requirement include:
Department of Highway Safety and Motor Vehicles v. Schluter,
705 So. 2d 81 (Fla. 1st D.C.A. 1997) (holding that certain agency policies were
determined not to be rules in that their application was discretionary and
therefore they were not statements of general applicability);
The Environmental Trust v. Department of
Environmental Protection, 714 So. 2d 493
(Fla. 1st D.C.A. 1998) (holding that an agency statement explaining how an
existing rule of general applicability will be applied in a particular set of
facts is not in itself a rule);
Department of Revenue v. Novoa, 745 So.
2d 378 (Fla. 1st D.C.A. 1999) (holding that a policy applicable to all agency
employees that prohibited them from preparing tax returns or filling out tax
forms during their nonworking hours for anyone other than family members fell
within the internal memorandum exception to rulemaking because it did not affect
any protected rights of the employees and did not affect any plan or procedure
important to the public).
12.McDonald,
346 So. 2d 569, 582 (Fla. 1st D.C.A. 1977).
13.
Specifically, the agency must demonstrate
that the unadopted rule is: a) within the powers, functions, and duties
delegated by the legislature or, if the agency is operating pursuant to
authority derived from the state constitution, is within that authority; b) does
not enlarge, modify, or contravene the specific provisions of law implemented;
c) is not vague, established adequate standards for agency decisions, or does
not vest unbridled discretion in the agency; d) is not arbitrary or capricious;
e) is not being applied to the substantially affected party without due notice;
f) is supported by competent substantial evidence; and g) does not impose
excessive regulatory costs on the regulated person, county or city. Fla. Stat.
§120.57(1)(e)2.
14.Fla. Stat.
§120.52(8) rule challenges are briefly described in Blanton,
supra note
1, at 36.
15.
Fla. Stat. §120.57(1)(e). For a discussion of
the “due notice” requirement and other requirements of Fla. Stat.
§120.57(1)(e)2,
see
Hopping and Wetherell,
supra note
8, at 152. Hopping and Wetherell contend that although Fla. Stat. §120.57(1)(e)
refers to “unadopted rule[s],” the legislative history and an in pari materia
reading of this provision with Fla. Stat. §120.54(1)(a) indicate that the
legislature intended this provision to apply both to agency statements of
general applicability that have not been codified through rulemaking procedures
and to “incipient” agency policy.
Id.
16.Fla. Stat.
§120.57(1)(e)3.
17.These fees and
costs are for the initial adjudicatory proceeding and for judicial review of the
agency’s rejection of the ALJ’s determination. Fla. Stat. §120.57(1)(e)3.
18.Fla. Stat.
§120.535 was repealed and numerous provisions were relocated to other sections
of the APA.
See
1996 Fla. Laws ch. 159.
19.Fla. Stat.
§120.54(1)(a). Fla. Stat. §120.54(1)(a) previously was codified at Fla. Stat.
§120.535, which was repealed in 1996. For a discussion of the “feasible and
practicable” standard, see Eric T. Olsen,
Required Rulemaking Under Florida’s APA: An
Analysis of “Feasible” and “Practicable,”
67 Fla. B.J. 62 (Aug. 1993).
20.Rulemaking
feasibility is presumed unless the agency proves that: it has not had sufficient
time to acquire the knowledge and experience reasonably necessary to address the
statement by rulemaking;
or
related matters are not sufficiently resolved to enable the agency to address
the statement by rulemaking;
or
the agency currently is expeditiously and in good faith engaged in rulemaking to
adopt the statement as a rule. Note that these defenses to presumed rulemaking
feasibility are disjunctive, so that the agency need only demonstrate one of the
defenses for rulemaking to be determined infeasible. Fla. Stat.
§120.54(1)(a)1.a–c.
21.Rulemaking
practicability is presumed unless the agency proves that: detail or precision in
the establishment of principles, criteria, or standards for agency decisions is
not reasonable under the circumstances,
or the particular questions addressed
are of such narrow scope that more specific resolution of the matter is
impracticable outside of an adjudication to determine the substantial interests
of a party based on individual circumstances. Again, these defenses to presumed
rulemaking practicability are disjunctive, so that the agency need only
demonstrate one of the defenses for rulemaking to be determined impracticable.
Fla. Stat. §120.54(1)(a)2.a–b.
22.
Fla. Stat. §120.56(4)(c).
23.
Fla. Stat. §120.56(4)(d).
24. Fla. Stat.
§120.56(4)(e). The requirements of §120.57(1)(e) are discussed above.
25.This is what
transpired in
Day Cruise Association,
Inc., v. Board of Trustees of the Internal Improvement Trust Fund,
DOAH Case No. 99-5303RP (final order entered
February 17, 2000). The association initially challenged the board’s unadopted
policy pursuant to Fla. Stat. §120.56(4), and the trustees responded by
initiating rulemaking and publishing the policy as a proposed rule. The
association then challenged the proposed rule pursuant to Fla. Stat. §120.56(2),
and the administrative law judge determined the proposed rule to be invalid. The
trustees have appealed.
Board of Trustees
of the Internal Improvement Trust Fund v. Day Cruise Association, Inc.,
Case No. 1D00-1058 (appeal filed March 16,
2000).
26. Id.
If the proposed rule is challenged, the time frame for adoption is tolled
pending entry of a final order in the proposed rule challenge.
27..Fla. Stat.
§120.595(4)(a).
*Cathy M. Sellers is a shareholder in Moyle Flanigan Katz Raymond & Sheehan, P.A.
She has been a professor at the University of Florida College of Law and the
Florida State University College of Law. Ms. Sellers graduated from the
University of Florida with a B.S. in 1976 and from Florida State University with
a J.D. in 1988 with high honors.