INTRODUCTION
The rise of administrative agencies at both federal and state levels after the New Deal significantly transformed the public policy decision-making process This shift moved authority away from elected legislators and executives to appointed officials within these agencies, who often lack direct accountability to the electorate.
This article is a significantly revised and expanded version of my speech delivered at the Seventh Administrative Law Conference in Tallahassee, Florida, on March 16-17, 1990 I would like to express my gratitude for the research assistance provided by Ellen Fell Baig, a 1990 graduate, and Laurie Moss, a current student at Nova University Shepard Broad Law Center, in the development of both my speech and this article.
1 E ROOT, Public Service by the Bar, in ADDRESSES ON GOVERNMENT AND CnENSHIP
2 See, e.g., J FREEDMAN, CRISIS AND LEoIIMAcy: THE ADMINISTRATIVE PROCESS AND AMERICAN GOVERNMENT (1978); R Hio s, CRISIS AND LEVIATtAN: CRITICAL EPISODES IN THE
The Federal Reserve Board has been identified by various academic and political commentators as one of the most powerful entities in American society, highlighting its significant influence on the nation's economy and governance This perspective is supported by historical analyses, such as J Wilson's examination of the bureaucratic state and the growth of American government.
FED: INSIDE TH FEDERAL RESERVE, THE SECRET POWER CENTER THAT CONTROLS TH AMERICAN
Not all administrative agencies are free from electoral accountability; for instance, the State Board of Education members are elected, and historically, members of the Public Service Commission were also elected According to the Florida Constitution and statutes, administrative agencies are theoretically accountable to the public through the oversight of elected representatives.
Administrative agencies have become powerful entities in public policy making, significantly influencing the structure of modern society As Justice Jackson observed, the emergence of these bodies represents a crucial legal trend, with their decisions impacting more values today than those of the courts The influence of administrative agencies continues to grow, showing no signs of waning in the near future.
4 Of course, not all public policy choices are made by administrative agencies Such a process would clearly be unconstitutional in Florida E.g., Askew v Cross Key Waterways, 372
Legislation is crafted by the legislature and executive to establish a general public policy, but the critical implementation details are typically handled by administrative agencies These agencies play a vital role in translating broad policy into actionable regulations, as seen in Brewster Phosphates v State Dep't of Envtl Regulation The discretion granted to these agencies can significantly influence the effectiveness and societal impact of the legislation, underscoring the importance of their role in the policy-making process.
While I focus on the role of administrative agencies, it's important to acknowledge that both public and private institutions significantly influence our society, albeit in more limited areas What distinguishes administrative agencies is their profound persuasive impact, as their discretionary powers at national, state, and local levels directly or indirectly affect the daily lives of all individuals.
The rise of the administrative state has significantly altered our legal culture, necessitating a new approach to "activist lawyering" (1984) A Berle's work, "Power" (1969), explores the dynamics of power wielded by both private and public institutions Additionally, C Sunstein's "After the " further delves into these themes, highlighting the evolving landscape of legal practice and institutional influence.
RioHTs REVOLUTION: REcoNCErVINO THE REouLATORY STATE (1990)
6 FTC v Ruberoid Co., 343 U.S 470, 487 (1952) (Jackson, J., dissenting).
7 As early as the 1930's, commentators were noting the seemingly inevitable growing reli- ance on administrative agencies in our society.
Despite facing criticism and backlash, the administrative process continues to grow rapidly Its remarkable expansion in recent years highlights the increasing reliance of the government on this process, which is reshaping the dynamics between individuals, the economy, and the state, thereby elevating its significance in contemporary governance.
Both Presidents Reagan and Carter led significant deregulation initiatives, yet these efforts had minimal effect on our reliance on administrative agencies As Professor Bonfield observed, successful deregulation has not significantly altered the increasing trend of legislative delegation of law-making authority to these agencies Despite attempts to reduce regulation in certain economic sectors, the long-term trajectory of empowering administrative agencies remains unshaken The challenges faced by the deregulation movement may inadvertently strengthen the authority of these agencies as society adapts to changing regulatory landscapes.
The significant role of administrative agencies in society highlights the ongoing concern among elected officials and academics regarding the necessity of establishing effective limits on their discretion Balancing these controls is crucial to ensure that agencies can fulfill their responsibilities without compromising their operational effectiveness.
In Florida, the Administrative Procedure Act (APA) serves as a crucial mechanism to ensure that administrative agencies operate in alignment with the intentions of the legislative and executive branches The APA imposes specific limitations on the discretion of these agencies, as highlighted in the case of McDonald v Department of Banking & Finance.
The Administrative Procedure Act (APA) significantly influences agency discretion in three key ways: first, it outlines the process for determining disputed facts; second, it mandates that agencies formalize their general policy statements as rules, requiring them to substantiate any emerging policies not codified in rules while allowing for opposing evidence and arguments; and third, it obligates agencies to justify their discretionary actions, which are then subject to judicial review This framework is particularly relevant in light of the failures experienced by financial institutions, such as banks and savings and loans, following deregulation.
Deregulation has significantly influenced various sectors, including transportation safety, as highlighted in "Transportation Safety in an Age of Deregulation" (1989, L Moses & I Savage eds.) The implications of broadcast deregulation during the Reagan era are examined in "Broadcast Deregulation: The Reagan Years and Beyond" (1988, Berger et al.), while the challenges faced by small communities due to deregulation are discussed in "The Dark Side of Deregulation" (1987, Dempsey).
8 See, e.g., Reporter's Comments on Proposed Administrative Procedure Act for the
State of Florida, reprinted in 3 A ENGLAND & L LEvINsoN, FLORIDA ADmnCarsAiTv PRACTICE
MAN AL 3-7 (1979) (appendix C) [hereinafter Reporter's Comments]; Senate Comm on Gov't Affairs, Congressional Oversight of Regulatory Agencies, S Doc No 95-26, 95th Cong., 1st
Sess (1977) (volume II); Stewart & Sunstein, Public Programs and Private Rights, 95 HARv L.
REV 1193, 1246-49 (1982); Report of the Committee with Studies of Administrative Manage- ment in the Federal Government (1937).
In his 1982 work, S Breyer explores the challenges of regulating administrative discretion, while K Davis's 1969 study, "Discretionary Justice: A Preliminary Inquiry," delves into the complexities of judicial control over administrative actions L Jaffe's 1965 analysis, "Judicial Control of Administrative Action," further examines these themes, and T Lowi's "The End of Liberalism" addresses the ideological and policy crises impacting governance.
THE THEORY OF A PREFERENCE FOR RULEMAKING
Administrative agencies primarily utilize two processes to develop legally binding public policy: rulemaking and adjudication Ideally, the rulemaking process is employed to create general public policies that are legally enforceable.
13 See Reporter's Comments, supra note 8, at 3
In Florida, every policy statement relied upon by an agency for decision-making must be codified as a rule or explicitly stated in an order, as established in Florida Cities Water Co v Florida Public Service Commission However, administrative agencies can also create legally binding public policy through alternative methods, such as declaratory statements, which do not require the rulemaking process, as noted in Department of Health and Rehabilitative Services v Barr Additionally, the use of settlement agreements to resolve disputes has been validated by the court, further expanding the avenues for establishing agency policy.
The adjudication process is intended to assess the substantial interests of parties under relevant statutes and administrative rules, with the development of legally binding public policy being a secondary outcome Typically, the results of rulemaking are reflected in administrative rules, while adjudicatory outcomes appear in agency orders The Administrative Procedure Act (APA) has blurred the lines between these two methods by introducing additional procedural protections in rulemaking, making it resemble adjudication in some instances Despite this procedural overlap, there remains a consensus that administrative agencies should favor rulemaking over adjudication for public policy development, as the former promotes greater public participation and fairness through its structured processes of notice, hearings, and publication.
The 1974 version of the Administrative Procedure Act (APA) was implemented to mitigate the issues arising from the rigid formalistic approaches previously employed by courts in assessing the distinction between rules and orders Before this change, courts often prompted parties to debate the appropriateness of their methods for seeking judicial review based on the nature of the administrative agency's actions, as illustrated in cases like De Groot v Sheffield and Bryan v Landis.
(Fla Ist DCA), cert denied, 219 So.2d 698 (Fla 1968); Harris v Goff, 151 So 2d 642, 643-44
In a notable 1963 ruling by the Florida 1st District Court of Appeal, administrative agencies argued that certain matters fell outside their quasi-legislative and quasi-judicial powers as defined by the Administrative Procedure Act (APA) They contended that these issues pertained to quasi-executive powers, thereby exempting the agencies from APA constraints, including the judicial review process established by the Act.
See, e.g., Dickinson v Judges of the Dist Ct App., First Dist., 282 So 2d 168, 168-69 (Fla. 1973); Bay Nat'l Bank & Trust Co v Dickinson, 229 So 2d 302, 306-08 (Fla 1st DCA 1969);
Carbo, Inc v Meiklejohn, 212 So 2d 328, 330 (Fla 1st DCA 1968) The courts have rejected attempts to resurrect this particular argument under the 1974 version of the APA See, e.g.,
Groves-Watkins Constructors v Department of Transp., 511 So 2d 323 (Fla 1st DCA 1987), rev on other grounds, 530 So 2d 912 (Fla 1988)
The model of responsible agency action under the Administrative Procedure Act (APA) emphasizes adherence to statutory purposes and limitations, ensuring transparency to the public through substantive rules This approach allows for refinement and adaptation to specific situations via individual case orders, as established in the Anheuser-Busch, Inc v Department of Business Regulation case.
Florida Pub Serv Comm'n v Indiantown Tel Sys., 435 So 2d 892, 895 (Fla 1st DCA 1983);
In examining the complexities of agency lawmaking, various scholars have discussed the preference for rulemaking over adjudication Notable works include A BomLD, which explores key insights on pages 114-118, and K Davis, who provides critical analysis on pages 102-103 and 221-222 Additionally, Berg's article in the 38th volume of the Administrative Law Review highlights the advantages of rulemaking, while Mayton's 1980 Duke Law Journal piece addresses the legislative resolution of the ongoing debate between rulemaking and adjudication in agency law.
The 1974 Administrative Procedure Act aimed to promote deliberate and informed rulemaking by executive agencies, encouraging them to interpret statutes with careful consideration of public and stakeholder feedback This emphasis on rulemaking over adjudication was based on the belief that it provides a more effective framework for developing logical public policy The procedural benefits of the rulemaking process were seen as increasing the likelihood that agencies would make rational policy decisions, taking into account available information, competing arguments, and relevant political factors.
THE Loss OF THE RULEMAKING PREFERENCE IN
Administrative agencies often face a significant gap between theoretical ideals and practical realities, particularly regarding public participation in the rulemaking process Many agencies view extensive public involvement as a hindrance to their rulemaking authority, perceiving it as costly and yielding minimal benefits This perspective leads them to believe that public participation primarily serves to delay the establishment of necessary regulations, as it allows stakeholders to request hearings on the substantive merits of proposed rules.
21 See Hyde, Rulemaking Redux, 12 ADm L SEC NEWSL 1 (Sept 1990); Kennedy, A
National Perspective of Administrative Law and the Florida Administrative Procedure Act, 3
FiA ST U.L REv 65 (1975); Note, Rulemaking and Adjudication Under the Florida Adminis- trative Procedure Act, 27 U FLA L Rav 755, 759-63 (1975)
22 Department of Health and Rehabilitative Servs v Framat Realty, Inc., 407 So 2d 238,
The exploration of administrative rulemaking procedures has been extensively analyzed in various legal studies, highlighting significant works such as Anheuser-Busch (393 So 2d at 1182) and Bonfield's examination of ideal state administrative rulemaking (18 FLA ST U.L REV 1-9, 1990) Diver's insights into policymaking paradigms (95 HARV L REV 393, 1981) and Robinson's review of administrative policy-making (118 U PA L REV 485, 1970) further contribute to understanding the complexities of rulemaking and adjudication Additionally, Shapiro's analysis of the choices between rulemaking and adjudication in administrative policy development (78 HARV L REV 921, 1965) underscores the evolving nature of administrative procedures.
If the intended action concerns any rule other than one relating exclusively to organi- zation, procedure, or practice, the agency shall, on the request of any affected person
668 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol 18:661
(2) hold the so called "drawout" information gathering hearing; 2 1 or
Participating in a section 120.54(4) hearing before a hearing officer can significantly delay the rulemaking process, as it addresses whether the proposed rule constitutes an invalid exercise of delegated legislative authority These hearings are often the most common and detrimental to timely rulemaking, as the administrative agency is barred from issuing the rule until the hearing officer has made a decision.
In hearings, the hearing officer's order is deemed a final agency action and is open to judicial review, which can considerably prolong the rulemaking process Additionally, similar delays may arise during a "drawout" information gathering hearing.
If the agency finds that the current rulemaking process fails to adequately safeguard individuals whose significant interests may be impacted, it will pause the proceedings and initiate a separate process in accordance with s 120.57 Affected individuals will have 21 days from the publication of the notice to present their evidence and arguments on relevant issues Additionally, if any affected person requests it, the agency will arrange a public hearing regarding the proposed rule.
See Dore, Access to Florida Administrative Proceedings, 13 FLA ST U.L REv 965, 995-1003 (1986)
According to F x STAT § 120.54(17) (1989), during a "drawout" information-gathering proceeding, parties are entitled to the protections of a section 120.57 hearing If there are no disputed material facts, the drawout hearing may proceed as an informal hearing.
120.57(2) In most cases where the "drawout" hearing request is successful there will be issues concerning material facts in dispute and a formal hearing will need to be held See id §
Professor Dore proposes that the need for a "drawout" formal hearing can be mitigated if administrative agencies implement procedural adjustments to better accommodate the interests of the involved parties This approach aims to safeguard the rights and concerns that the "drawout" hearing intends to protect.
In Co v Florida Pub Serv Comm'n, the court emphasized the need for clarity in procedural decisions, stating that any rejection of a request for a "drawout" hearing must include an explanation of how the party's interests will be sufficiently safeguarded by the existing procedures This principle was further supported in Balino v Department of Health and Rehabilitative Servs., highlighting the importance of ensuring adequate protection for parties involved in legal processes.
The legislature established the "drawout" procedure to maintain several procedural safeguards that federal courts previously sought to implement in the informal rulemaking process prior to the Vermont Yankee decision, which ultimately curtailed these advancements.
Vermont Yankee: The APA, the D.C Circuit, and the Supreme Court, 1978 Sup CT Rav 345
26 FLA STAT § 120.54(4)(a) (1989) (only a substantially affected person can request such a hearing) See generally Agrico Chem Co v Department of Envtl Reg., 365 So 2d 759 (Fla 1st
DCA 1978), cert denied, 376 So 2d 74 (Fla 1979); see Dore, supra note 24, at 1009-18
AGENCY RULEMAKING conclusion of the separate proceeding, the rulemaking proceeding shall be resumed) °
Administrative agencies often resist the rulemaking process due to the additional requirements imposed by the Administrative Procedure Act (APA), such as the necessity for an economic impact statement and review by the Joint Administrative Procedures Committee These requirements can significantly increase transaction costs for agencies, leading them to view the APA's constraints as substantial disincentives Consequently, agencies tend to avoid the rulemaking process in public policy development whenever possible Professor Levinson highlighted this potential shift in attitude shortly after the APA was enacted.
It is crucial that we do not overburden agencies' rulemaking powers, as this may lead them to rely on ad hoc adjudication rather than establishing coherent policies through rulemaking Such a shift would be unfortunate, especially when experts advocate for agencies to prioritize rulemaking as a more effective means of policy development whenever possible.
As he predicted, administrative agencies responded to the disincen- tives associated with the rulemaking process by seeking alternative methods for developing public policy which circumvented some or all
According to Id § 120.54(2), a rule was deemed invalid in the case of Department of Health and Rehabilitative Services v Framat Realty, Inc., 407 So 2d 238, 242 (Fla 1st DCA 1981) due to the lack of a sufficient economic impact statement supporting it.
Public participation in the rulemaking process is not inherently negative; instead, it highlights the reasons why administrative agencies often choose to bypass this process.
Private parties can be as resistant to the rulemaking process as administrative agencies For instance, in the case of General Telephone Company v Florida Public Service Commission, a party contended that administrative agencies should rely on adjudication to address their interests, rather than following an administrative rule related to the issue at hand.
34 Levinson, A Comparison of Florida Administrative Practice Under the Old and the
New Administrative Procedure Acts, 3 FLA ST U.L REv 72, 74 (1975)
The Administrative Procedure Act (APA) offers administrative agencies a strategic advantage in public policy development through adjudicatory processes, minimizing the disincentives of traditional rulemaking Adjudication primarily focuses on the involved parties, limiting the participation of other potentially affected individuals or entities This restricted scope results in a significantly smaller group eligible to engage in adjudicatory hearings compared to the broader participation allowed in rulemaking processes.
THE McDONALD RESOLUTION OF THE PROBLEMS POSED
The enforcement of the rule/order dichotomy has increasingly become the responsibility of the courts A pivotal case in this context is McDonald v Department of Banking & Finance, which stands as one of the most significant administrative law decisions in Florida's judicial history.
In Florida legal precedent, cases such as Comm'n v 446 So 2d 1063 (1984), Booker Creek Preservation, Inc v Southwest Fla Water Management Dist 534 So 2d 419 (1988), and Agrico Chem Co v State Dep't of Envtl Regulation 365 So 2d 759 (1978) have established significant rulings These cases highlight the ongoing legal interpretations and environmental regulations within the state, reflecting the judicial system's role in addressing environmental concerns and regulatory compliance.
Estimating the number of administrative agency orders involving adjudicatory policy-making in Florida is challenging, with an annual output ranging from 100,000 to 450,000 final orders.
S Comm on Govtl Ops., A Review of Indexing of Agency Orders Issued Pursuant to Chapter
The Administrative Procedure Act Report (1989 & Supp 1990) highlights that a significant portion of final orders, potentially up to 50%, may be based on nonrule policy, according to discussions with government officials and private attorneys This reliance on nonrule policy raises concerns, as noted by Waas in "The Nightmare of Nonrule Policy," where he warns that such practices could undermine the rulemaking provisions of the APA.
Administrative agencies continue to actively engage in the rulemaking process, as evidenced by data from the Joint Administrative Procedures Committee.
Year Number of Rules Promulgated
The Joint Administrative Procedures Committee issued a memo to Johnny C Burris, which is documented in the Florida State Law Review This memo includes data up to July 27, 1990, and references the committee's annual report covering the period from January 1, 1989, to December 31, 1989.
The McDonald decision significantly shaped the perception of the Administrative Procedure Act (APA) within the judiciary, legitimizing the use of adjudicatory policy-making via administrative orders Since this landmark ruling, courts have effectively granted administrative agencies broad discretion in deciding whether to pursue public policy development through adjudication or rulemaking.
The court in McDonald evaluated the legitimacy of the Department of Banking and Finance's decision to deny McDonald and others a charter for a bank in Port Richey The Department's order represented an interpretation of chartering criteria that had not undergone the formal rulemaking process Consequently, the court needed to clarify the circumstances under which it could compel an administrative agency to formalize its public policy through rulemaking, as opposed to allowing the agency to evolve its policy positions during adjudication.
52 Pfeiffer, When is an Agency Required to Explicate Its Policies in Rules Adopted in Accordance with Section 120.54, Florida Statutes?, 11 ADNsm L SEC NEWSL 3 (March 1990)
The case McDonald, 346 So 2d at 580-83, explores significant issues related to the 1974 Administrative Procedure Act (APA), particularly its constitutionality as applied in this instance Additionally, it examines the authority of administrative agencies to override the findings of fact made by hearing officers, raising important questions about the balance of power within administrative law.
54 See infra text accompanying notes 71-113
The Comptroller serves as the head of the Department of Banking and Finance, making final decisions on orders issued by the department While I have highlighted specific substantive decisions made by the Comptroller, I continue to refer to the order as one from the Department of Banking and Finance, which is the governing body responsible for enforcing banking laws.
STAT § 659.03 (1975); FLA ADhaN CODE ANN r 3C-20.05(5), 20.12 (1975)
The case's journey to the First District Court of Appeal is notable due to its timing during the transition from the 1961 Administrative Procedure Act (APA) to the 1974 APA Initially granted conditional approval for their application, the situation changed when the new Comptroller took office and enacted an emergency rule that revoked all conditionally approved applications.
In the case of 322 So 2d 16 (Fla 1975), the Comptroller exercised his authority to deny bank charter applications without requiring an emergency rule Following this denial, the applicants requested a formal hearing under section 120.57 of the 1974 APA, which was conducted by a hearing officer from the Division of Administrative Hearings The hearing officer found that the applicants met the criteria for a bank charter, but the Comptroller rejected several findings and the overall conclusion Ultimately, the court reversed the Comptroller's decision and remanded the case to the Department of Banking and Finance for further proceedings.
The court recognized that the interpretations of statutory criteria in the order could be considered a rule under the Administrative Procedure Act (APA) However, it opted against a strict, formalistic interpretation, concluding that the APA does not mandate that all rule-type policy statements must undergo the formal rulemaking process.
The APA encourages open policy development rather than restricting it solely to formal rulemaking processes The court identified four key reasons for advocating a balanced approach Firstly, limiting explanations outside of rulemaking could render agency orders as rigid and unreasoned, undermining the flexibility essential for the adjudicatory process Secondly, it would hinder public access to vital information regarding an agency's perspectives on unregulated matters and the intent behind existing rules Thirdly, a strict stance would stifle the gradual evolution of public policy, impeding the logical progression within the administrative framework Lastly, the court posited that public policy development through adjudication would not disadvantage the public, as all policy choices would still be systematically cataloged and accessible for review.
According to the APA, a rule is defined as any agency statement that has general applicability and serves to implement, interpret, or prescribe laws or policies It also encompasses descriptions of an agency's organization, procedures, or practice requirements, as well as any forms that impose requirements or request information not mandated by existing statutes or rules, as outlined in FLA STAT § 120.52(16) (1989).
60 See id at 582; FLA STAT § 120.68(12)(b)-(c) (1989) (requiring explanation of deviations from established rules, policies, or practices); Levinson, The Florida Administrative Procedure
Act: 1974 Revision and 1975 Amendments, 29 U MIAMI L REv 617, 650 (1975)
THE FAILURE OF THE McDoNALD VISION FOR RESOLU-
PROBLEMS POSED BY THE RULE/ORDER DICHOTOMY
Justice Holmes once noted that "the life of the law has not been logic: it has been experience." This insight reflects the reality that the ideal framework proposed by Judge Smith in his McDonald opinion regarding the APA has not materialized Our experiences following the McDonald decision have demonstrated significant deviations from this envisioned legal structure.
68 Administrative agencies will be required to defend adjudicatory policy-making positions by conventional proof methods:
In certain situations, this requirement compels agency policymakers to confront the uncomfortable truth that their policies may not be well-founded, necessitating a response to the hearing officer's critical remarks and factual conclusions.
The final order should clearly articulate the agency's rationale, addressing counterarguments presented in the record, including those from a hearing officer's recommendations or challenges raised by parties during informal proceedings It must also consider any proposed findings submitted by parties to ensure a comprehensive and transparent decision-making process.
When an administrative agency bases its decisions on a public policy position established through adjudication, it becomes subject to challenges from parties, both in public and private contexts.
Federal courts have faced challenges in enforcing the preference for the rulemaking process, as evidenced by cases such as SEC v Chenery Corp and Morton v Ruiz, compared to NLRB v Wyman-Gordon Co and NLRB v Bell Aerospace Co Notably, federal courts seldom invalidate adjudicative rules on the basis that they should have been established through legislative rulemaking.
Chenery II: A Forty- Year Retrospective, 40 ADmI L Rav 161, 163 (1988)
The post-McDonald cases reveal that the institutional checks identified in the McDonald decision have proven ineffective, as courts have not mandated administrative agencies to prioritize rulemaking over adjudication for creating legally binding public policy Consequently, many administrative agencies have generated a significant amount of obscure law This situation arises from the judiciary's failure to grasp the fundamental collapse of the McDonald vision and underscores the necessity for a renewed judicial effort to restore the balance established by the Administrative Procedure Act (APA) between public policy development through rulemaking and adjudicatory processes.
This critique of court decisions regarding the enforcement of the rule/order dichotomy does not imply that the courts have completely abandoned the restrictions on administrative agency discretion in choosing between rulemaking and adjudication, as outlined by McDonald There are three categories to consider in this context.
Early cases, decided around the same time as McDonald, demonstrated the courts' readiness to limit administrative agency discretion when institutional checks were inadequate In State Dep't of Administration v Stevens, the court ruled that the Department of Administration's directive and the Department of Health and Rehabilitative Services' guidelines were deemed void as they were not legally adopted rules Similarly, in Department of Revenue v U.S Sugar Corp., the court found that a policy statement interpreting statutory language from a tax audit was a rule that had not undergone the required rulemaking process, rejecting the Department of Revenue's claim of valid adoption through adjudicatory policy-making.
In the case of Mental Health Dist Bd II-B v Department of Health & Rehabilitative Servs., the Florida First District Court of Appeal disapproved the use of a declaratory statement instead of formal rulemaking to establish policy, as seen in 425 So 2d 160, 162 (Fla 1st DCA 1983) Additionally, earlier cases such as State v Harvey and North Miami Gen Hosp v Office of Community Medical Facilities illustrate the court's ongoing scrutiny of procedural practices in administrative law.
In several Florida District Court of Appeal cases, the use of declaratory statements instead of formal rulemaking to articulate policy has been disapproved Notable cases include Price Wise Buying Group v Nuzum, which emphasized the necessity of adhering to proper rulemaking procedures, and Florida Dep't of Offender Rehabilitation v Walsh, reinforcing the importance of established legal frameworks in policy declaration.
73 See Waas, supra note 49; Hyde, supra note 21, at 2-3
The language in certain opinions indicates a clear conclusion regarding the codification of rules, as highlighted in the case of City of Tallahassee v Florida Public Service Commission, where the court stated that while codification is ultimately desirable, it will not compel the PSC to adopt formal rules.
In the case of Barker v Board of Medical Examiners, 428 So 2d 720 (Fla 1st DCA 1983), it was noted that the Board would have benefited from clearly articulating its policy through the adoption of a new rule Furthermore, since the McDonald decision, there have been very few rulings that necessitate an administrative agency to undertake rulemaking to implement its policy decisions.
Courts have demonstrated a willingness to uphold the rule/order dichotomy in public policy decision-making, particularly in a limited series of cases These instances represent the McDonald paradigm being applied effectively as a genuine check on administrative agency discretion However, the applicability of these cases is significantly restricted due to the unique circumstances that define their specific facts.
Courts have ruled that administrative agencies cannot use adjudicatory processes to directly contradict rules established through formal rulemaking In the case of Gar-Con Development, Inc v State, the court determined that the Department of Environmental Regulation's attempt to expand its dredging rule to include pile driving was invalid The ruling emphasized that the Department could not modify existing rules through adjudicatory orders if those changes contradicted properly established regulations Any policy changes must follow the formal rulemaking process, as highlighted by the application of the McDonald paradigm in this case.
The Administrative Procedure Act aims to ensure that state administrative agencies do not implement unpromulgated and often unwritten policies that could broadly impact individuals regulated by these agencies.
THE RESOLUTION OF THE PROBLEMS POSED BY THE RULE/ORDER DICHOTOMY SUGGESTED BY ADA SMrrH
DICHOTOMY SUGGESTED BY ADAM SMITH
In Adam Smith Enterprises, Inc v Department of Environmental
Regulation" 4 the court indicated that the standard of judicial review
111 Florida Cities Water Co v Public Serv Comm'n, 384 So 2d 1280, 1281 (Fla 1980); Anheuser-Busch, Inc v Department of Business Regulation, 393 So 2d 1277, 1281 (Fla 1st
112 Anheuser-Busch, Inc., 393 So 2d at 1181
The validity of a rule is assessed based on the manner in which the issue was brought before the courts When judicial review occurs following an appeal from an agency rule established through informal rulemaking procedures, the standard applied is "arbitrary and capricious." This standard is less rigorous than the "competent substantial evidence" standard, which is used for reviewing adjudicatory decisions.
The court noted that the nature of the judicial review process is fun- damentally altered by the standard of judicial review applied.
Under the arbitrary and capricious standard, an agency is only required to demonstrate rationality in its decision-making process Courts do not assess whether an agency's empirical conclusions are backed by substantial evidence; instead, they focus on the orderliness of the rulemaking process This involves examining if the agency has considered all relevant factors, engaged in good faith consideration of those factors, and relied on reason rather than arbitrary decision-making to reach its final conclusion.
When judicial review of an administrative agency rule stems from adjudicatory proceedings during the rulemaking process, the agency's quasi-legislative rulemaking transforms into an adjudicatory process Consequently, the standard of judicial review for the factual conclusions that support the rule shifts to the competent substantial evidence standard This change occurs because the hearing officer's factual conclusions serve as the foundational record for the court's review.
In the case of Adam Smith, the court determined that the Department of Environmental Regulation's procedures warranted a judicial review standard of competent substantial evidence This conclusion arose from the appeal stemming from an adjudicatory proceeding conducted during the rule-making process.
116 Adam Smith Enterprises, Inc v Department of Environmental Regulation, 553 So 2d
120 Adam Smith, 553 So 2d at 1273-74; see FLA STAT § 120.68(10) (1989)
The court concluded that the substantial competent evidence standard for judicial review was met in this case, following a thorough examination of the record.
The court's variable standard of judicial review in the rulemaking context incentivizes administrative agencies to favor rulemaking over adjudication for public policy development The record created in formal adjudicatory proceedings resembles that of hearings during the rulemaking process, with the substantial competent evidence standard applying to factual determinations in non-rule orders Under the Adam Smith framework, agencies may prefer rulemaking since it subjects promulgated rules to a less stringent "arbitrary and capricious" review if no adjudicatory hearing occurs However, three significant issues with this approach hinder its effectiveness: agencies may be compelled into adjudicatory review by parties invoking their right to a hearing under the APA, which can diminish the incentive to use rulemaking due to external circumstances Consequently, the uncertainty surrounding the applicable judicial review standard may negate any motivation for agencies to choose rulemaking over adjudication for public policy formulation.
The two-tier approach to judicial review of factual issues can also be applicable to non-rule orders When an administrative agency conducts an adjudicatory hearing during the rulemaking process, it does not alter the nature of its decision, which remains quasi-legislative Consequently, the standard of judicial review employed by the courts should consistently uphold this classification.
122 Id at 1262, 1275; see FLA STAT § 120.54(4) (1989)
124 See infra text accompanying notes 126-39
126 See supra text accompanying notes 25-33
127 See General Tel Co of Fla v Public Serv Comm'n, 446 So 2d 1063, 1067 (Fla. 1984).
During the rulemaking process, an administrative agency conducts adjudicatory type hearings primarily for information gathering, aimed at aiding legislative-type factual judgments rather than resolving factual disputes or rights of parties However, in "drawout" hearings, which resemble quasi-judicial processes, the characteristics shift to create an adversarial record that better protects party rights Despite this change in process, the fundamental nature of rulemaking remains focused on legislative-type factual judgments, which fall within the agency's policy discretion Consequently, while a reviewing court may apply the competent substantial evidence test in certain cases, the overall judicial review standard should not shift, as the essence of rulemaking does not transform into an adjudicatory process This perspective is reinforced by the decision in Agrico Chemical.
In the case of Agrico Chemical v Department of Environmental Regulation, the court determined that conducting a hearing to challenge a rule under section 120.54(4) does not alter the fundamental nature of the administrative agency's function of creating an administrative rule Consequently, the framework for judicial review in these instances remains unchanged.
128 See Brewester Phosphates v Department of Envtl Regulation, 444 So 2d 483, 486 (Fla 1st DCA 1984) (reverse administrative agency judgments only for "flagrant abuse of dis- cretion").
129 See generally 2 K DAvis, ADMINIsTRATIVE LAW TREATISE §§ 12:3-12:8 (2d ed 1979)
(legislative and adjudicatory facts distinguished).
130 General Tel Co of Fla., 446 So 2d at 1067; Balino v Department of Health & Reha- bilitative Servs., 362 So 2d 21, 24-25 (Fla 1st DCA 1978)
131 See Groves-Watkins Constructors v Department of Transp., 511 So 2d 323, 328 (Fla.
1st DCA 1987), rev'd on other grounds, 530 So 2d 912 (Fla 1988); Burris, supra note 10, at
132 Cf Balino v Department of Health & Rehabilitative Servs., 362 So 2d 21, 25-6 (Fla.
133 365 So 2d 759, 762-66 (Fla 1st DCA 1979), cert denied, 376 So 2d 74 (Fla 1979)
Courts typically uphold the validity of administrative rules as long as the agency's discretion is reasoned, not arbitrary, and based on competent substantial evidence—defined as evidence that a reasonable person would find adequate to support a conclusion When evaluating the record for sufficient evidence, courts allow administrative agencies to resolve conflicts in evidence independently, especially when policy considerations are involved, which diminishes the weight of hearing officers' factual findings on policy matters However, if hearing officers' findings pertain to adjudicatory facts, agencies must defer to these judgments The same standard of judicial review applies whether the factual judgments relate to rulemaking or nonrule policy adjudications, as agencies are exercising quasi-legislative authority Importantly, this deferential standard of judicial review in rulemaking has been established for many years, allowing agencies to operate with a degree of autonomy.
136 McDonald v Department of Banking and Fin., 346 So 2d 569, 579 (lst DCA 1977)
137 See Bowling v Department of Ins., 394 So 2d 165, 171 & n.9 (Fla 1st DCA 1981)
138 See id at 174-75; Koltaty v Division of Gen Regulation, 374 So 2d 1386, 1391 (Fla.
Several courts, including the Florida Supreme Court, have endorsed a two-tier system of judicial review akin to that outlined in Adam Smith; however, it remains uncertain whether the Administrative Procedure Act (APA) permits such a standard The competent substantial evidence standard for factual issues, as specified in section 120.68(10), applies to both formal and informal hearings under section 120.57 The informal proceedings outlined in section 120.57(2) generate a record comparable to that of informal rulemaking processes without an adjudicatory hearing If this holds true, courts should apply the competent substantial evidence standard to informal rulemaking Nonetheless, this judicial effort to incentivize rulemaking may be flawed, as it imposes a review framework similar to the federal Administrative Procedure Act, which the APA's structure does not support.
The court's decision in Adam Smith effectively altered the judicial review process outlined in section 120.68, indicating that such matters should be addressed and resolved by the legislature instead of the judiciary.
Administrative agencies prefer the adjudicatory policymaking process over the rulemaking process, despite the benefits of a more deferential standard of judicial review However, this advantage has not led to an increased frequency of its use.
SOME POLICY REASONS FOR WHY ADMINISTRATIVE
The courts' failure to enforce the distinction between rules and orders raises concerns about the administrative process It is crucial for the judiciary and other government branches to recognize the implications of administrative agencies favoring one method of public policy development over another While agencies may prefer adjudicatory processes, relying on nonrule orders can lead to significant issues There are at least five major problems associated with granting agencies broad authority to prioritize adjudicatory policymaking, which underscores the necessity for courts to mandate the use of the rulemaking process.
Adjudicatory policymaking restricts participation in the policy-making process, which contrasts with the goals of the Administrative Procedure Act (APA) aimed at enhancing public involvement The APA was designed to make the decision-making processes of administrative agencies more transparent and accessible When administrative agencies undertake rulemaking, it is crucial to ensure that the public can engage effectively in these processes.
The approval of adjudicatory policy making by the courts has weakened the intended checks on administrative agency discretion provided by Florida Statute § 120.56 This statute allows any person significantly impacted by a rule to challenge its validity based on the argument that it constitutes an improper exercise of delegated legislative authority However, the use of adjudicatory processes by administrative agencies has effectively undermined the purpose of § 120.56, which was designed to limit the administrative rulemaking process.
The Administrative Procedure Act aims to prevent state agencies from implementing unpromulgated and unwritten policies that impact regulated individuals or those with a significant interest in the policies It also seeks to ensure that agencies do not arbitrarily change these policies without proper notice or adherence to formal rulemaking procedures.
591-92 (Fla 1st DCA 1977); see also Hyde, supra note 21.
An "affected" person has the right to request an information gathering hearing from an administrative agency and can also participate in hearings initiated by others in similar situations However, the transparency typically associated with rulemaking diminishes when agencies choose to formulate public policy through adjudication In formal adjudicatory hearings, qualifying as an intervenor is more challenging, limiting participation in proceedings that may establish nonrule policies This process places an undue burden on private parties, who must challenge the legitimacy of the agency's policy decisions made in nonrule orders.
Requiring one party to present evidence and argue against significant policy changes puts them at a considerable disadvantage, especially if they lack the financial resources needed for evidence gathering and legal representation.
An agency's decision to alter its policy based on the adjudication of a single case can significantly reduce the effectiveness of judicial review by restricting both the quantity and quality of evidence provided.
Courts should prohibit the use of nonrule orders in numerous instances, as these orders conflict with the participatory approach required by the Administrative Procedure Act (APA) when administrative agencies exercise discretion in public policy formulation.
The Administrative Procedure Act (APA) mandates that administrative agencies make their rules and orders accessible for inspection and copying, along with maintaining a subject-matter index However, nonrule orders violate both the letter and spirit of the APA, as these agencies often neglect to publish their orders or provide a comprehensive indexing system, leading to a lack of transparency and accessibility.
142 Florida Cities Water Co v Florida Pub Serv Comm'n, 384 So 2d 1280, 1282 (Fla.
The article discusses legal precedents related to the validity of regulations in Florida, referencing key cases such as Dore, Florida Medical Association v Department of Professional Regulation, and Coalition of Mental Health Professionals v Department of Professional Regulation, which highlight the intervention in challenges to rule validity.
144 Florida Cities Water Co., 384 So 2d at 1282 (Boyd, J., dissenting); see also Hyde, supra note 21, at 2 National Petroleum Refiners Ass'n v FTC, 482 F.2d 672, 681-82 (D.C Cir.
Administrative agencies in Florida have generally implemented legislative mandates for administrative rules effectively, with adequate subject-matter indexes published in the Florida Administrative Code However, this accessibility does not extend to administrative agency orders, which largely remain unrecorded and difficult to locate Most orders can only be found at the Department of State or the agency's office in Tallahassee, and even then, the lack of a subject-matter index makes it nearly impossible for individuals to access relevant orders As a result, only attorneys who frequently practice before these agencies have meaningful access to a significant body of nonrule orders This situation undermines the primary goal of the Administrative Procedure Act (APA) to enhance public access to agency precedents, suggesting a need for judicial enforcement of legislative mandates in this area.
147 See Senate Committee on Governmental Operations, A Review of Indexing of Agency Orders Issued Pursuant to Chapter 120, F.S., the Administrative Procedure Act Report (1989 &
149 See Hyde, supra note 21, at 2-3
An agency has the authority to disclose its unpromulgated policies at its discretion, often catching individuals or entities off guard These nonrule policies are inherently hidden, as they do not feature in any official index or documentation Consequently, those affected by such policies remain unaware of the expected behaviors or restrictions imposed by the agency.
Waas, supra note 49, at 194 A similar condition was noted prior to the adoption of the APA
The APA aimed to reduce the limited access to policy knowledge that currently resides with a small group of specialists and agency staff, as noted in the reporter's comments However, since 1975, there has been little change in this aspect of administrative law practice.
The term "precedents" used by the Reporter indicates that the public should have access to both formally promulgated administrative rules and administrative orders This is supported by Florida Statutes § 120.53(2)-(4) (1989) and case law, such as Gar-Con Development v Department of Environmental Regulation, 468 So 2d 413, 414 (Fla 1st DCA 1985).
AGENCY RULEMAKING nonrule orders until administrative agencies make such orders availa- ble as mandated by the APA.
The failure of administrative agencies to make their orders accessible to the public hampers the courts' ability to ensure that these agencies act rationally towards similarly situated individuals This issue hinges on the belief that administrative orders, especially nonrule orders, should adhere to a limited rule of precedent, though their precedential value is not equivalent to that of judicial opinions In Florida, this perspective is contentious, as some courts argue that administrative orders lack the precedential value associated with judicial rulings, viewing them merely as resolutions for specific disputes between involved parties Proponents of this view contend that if an agency wishes to invoke a nonrule policy in future proceedings, it must substantiate every factual premise and policy choice with supporting evidence.
WHY HAVE THE COURTS FAILED TO ADEQUATELY CON-
ADMINISTRATIVE AGENCY DISCRETION IN THE RULE/ORDER DICHOT-
The courts have applied the McDonald limitations on adjudicatory policymaking in a way that appears illusory, rather than serving as a genuine constraint on agency discretion This approach may stem from the courts' failure to adequately distinguish between rules and orders, impacting their interpretation and application of these limitations.
170 The incentive for agency rulemaking is to avoid the burden of having to "repeatedly
defend its nonrule policy decisions in each case." Barker v Board of Medical Examiners,
428 So 2d 720, 722 (Fla 1st DCA 1983) As the court noted in the recent case of Ganson v.
According to the Department of Administration, if an agency opts not to formalize its policy through established rules, it is essential that there is sufficient justification for its decision documented in the proceedings.
In administrative cases, it is essential for the agency to provide competent substantial evidence in the record to support every factual conclusion necessary to justify its policy decisions Additionally, the agency must clearly outline the legal rationale behind these policy choices, ensuring transparency and accountability in its actions.
In Florida, the burden of justification for legal decisions is significantly higher than that required for administrative agencies during rulemaking, which only need to justify their actions once This distinction is highlighted in cases such as Mitchell v School Board of Leon County, emphasizing the differing standards of accountability in legal versus administrative contexts.
171 This approach erroneously assumes that practical considerations will push agencies to- ward the rulemaking process See infra text accompanying notes 70-113
Recent judicial opinions highlight that the standard of judicial review remains consistent, regardless of whether an administrative agency employs rulemaking or adjudication to formulate its policies The primary distinction lies in the type of record available for court review, and in cases of extensive hearings during rulemaking, this difference may be negligible Judge Ervin asserts that courts should focus on whether the agency adequately justified its actions and whether those actions fall within the granted discretion, rather than classifying the agency's actions as rules or orders If an agency meets these criteria, the court should uphold its decision, even if it resembles a rule Consequently, courts cannot dismiss an agency's policy simply because it was established through adjudication instead of rulemaking, as emphasized in Public Service Commission v Indian- town Telephone Systems, Inc., where the court stated that agencies are not mandated to prefer rulemaking over adjudication.
In the case of Public Service Commission v Indiantown Telephone System, the court noted that not all judicial bodies have taken issue with administrative agencies neglecting procedural rulemaking requirements In certain instances, courts have upheld administrative policies even when they were not formally established as rules, as demonstrated in cases like Enterprise Building Corporation v School Board of Pinellas County and Hill v School Board of Leon County.
In the case of Pan Am World Airways v Public Service Commission, the Florida Supreme Court established that the standard of judicial review remains consistent, regardless of whether the Public Service Commission interprets statutes through rulemaking or adjudication This principle is supported by Gulf Court Nursing Center v Department of Health and Rehabilitative Services, which emphasizes that the same judicial review standard applies to both orders and rules concerning certificates of need Furthermore, Florida Waterworks v Public Service Commission reinforces that the standards used for reviewing the validity of administrative rules are equally applicable when challenging proposed rules under section 120.54(4) of the Florida Statutes.
In the case of Department of Revenue v United States Sugar Corp., the Florida 1st District Court of Appeal rejected the Department of Revenue's policy stance, highlighting that it failed to provide sufficient explanation or factual justification for its position.
175 Public Serv Comm'n v Central Corp., 551 So 2d 568, 573 (Fla 1st DCA 1989) (Er- vin, J., dissenting).
176 Id at 573 (quoting United States Sugar Corp., 388 So 2d at 598)
The debate surrounding the rule/order dichotomy often overlooks the significant risks associated with the APA participatory administrative process model, as some argue that concerns about abuse should not detract from assessing the validity of administrative agency actions Additionally, this perspective fails to recognize that the courts' stance on judicial review of nonrule orders has alleviated many practical pressures on agencies, leading them to shift from adjudication to rulemaking.
IX A POssIBLE JUDICLAL SOLUTION TO THE RuLE/ORDER DICHOTOMY
Addressing the rule/order dichotomy requires a significant change in the judicial branch's perspective Courts must acknowledge their responsibility to uphold this dichotomy and understand that enforcement goes beyond issuing warnings to administrative agencies about future rulemaking When the issue arises, courts should demand that these agencies provide evidence justifying their reliance on nonrule orders instead of engaging in rulemaking Additionally, in suitable cases, courts should have the authority to invalidate administrative orders that are based on nonrule actions.
179 Other participants at the Seventh Administrative Law Conference have suggested legis- lative solutions to the problem of nonrule orders See Bonfield, The Quest for an Ideal State
Administrative Rulemaking Procedure, 18 FLA ST U.L Rlv text accompanying notes -
In 1990, Professor Dore proposed a solution to improve accessibility to nonrule orders by requiring administrative agencies to file and index their orders before they are considered rendered This requirement could be enforced by the judiciary without waiting for legislative action, utilizing the provisions of § 120.53(2)-(3) to ensure that these orders are more widely available.
House Bill 1879 is set to alleviate the courts' responsibility of determining the criteria for making judgments This legislative change is expected to streamline the judicial process significantly.
The 1991 legislative session emphasized the preference for rule making when feasible, introducing specific criteria for the Department of Administrative Hearings and courts to assess whether administrative agencies appropriately utilized nonrule policy making If enacted, H.B 1879 would clarify the standards courts must apply in determining the necessity of rule making, eliminating ambiguity in the process Even if the bill does not pass, its criteria serve as a valuable foundation for courts to establish effective guidelines for enforcing the distinction between rules and orders, a process that should have been initiated years earlier.
The Florida State University Law Review emphasizes the necessity of implementing a policy through the formal rule-making process, even if it may temporarily impact public interest A crucial aspect of resolving this issue lies in the courts utilizing the judicial review process to encourage administrative agencies to favor rulemaking over adjudication in shaping public policy This approach aligns with the foundational principle of the Administrative Procedure Act (APA), which advocates for a preference for rulemaking when agencies are involved in policy development.
Judicial review of administrative rulemaking is characterized by a quasi-legislative nature, where courts must afford significant deference to the administrative agency's authority This deference aligns with the treatment of statutes passed by the legislature Courts are inclined to uphold administrative rules unless they are found to be unreasonable in relation to the enabling legislation or deemed arbitrary or capricious The standard of arbitrary or capricious review is intended to enhance the discretion of administrative agencies during the rulemaking process, as highlighted in the case of Department of Health and Rehabilitative Services v Framat Realty, Inc.