Nonrule Policy and the Legislative Preference for Rulemaking
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. 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. 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.
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.
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.” That section also provided a remedy that enabled substantially affected persons to challenge agency statements that were not formally adopted as rules. 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. 
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.” Recent cases provide some judicial guidance as to the kinds of agency statements that do and do not 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. 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. 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. 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.
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. 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.
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). 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.” Feasibility and practicability are presumed, and the burden is on the agency to prove that rulemaking is not feasible or practicable.
As with other rule challenges, ALJs have final order authority in unadopted rule challenges under §120.56(4). 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. 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). And, of course, any such proposed rules would be subject to challenge. 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.
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. 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.
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.