New Bill Clarifies Standard of Review for Decisions Made by Administrative Agencies in Arizona

On April 11, 2018, Arizona Governor Doug Ducey signed into law HB 2238. The Bill clarifies the appellate landscape for individuals and businesses challenging administrative decisions made by state agencies. In our blog post from May 7, 2017, we foreshadowed the legislation:

To recap, under federal law, if a statute or statutory term is ambiguous, an agency has plenary authority to interpret and construe the term, and the courts are to defer to such interpretation. This is known as “Chevron Deference,” emanating from the seminal case Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-844 (1984), The Chevron standard has been subject of significant criticism of late. Indeed, the United States Senate tried, unsuccessfully, to repeal the doctrine through legislation of its own (see Separation of Powers Restoration Act of 2016).

Arizona courts have followed Chevron to some extent, citing the case, holding that “considerable weight should be accorded to an executive department’s construction of a statutory scheme it is entrusted to administer.” Arizona Water Co. v. Arizona Department of Water Resources, 208 Ariz. 147 at ¶ 30 (2004). However, the Arizona Supreme Court has also reiterated that the courts must review questions of law de novo (i.e., without reference to the legal conclusions made by an agency).

For its part, the Legislature had (up until April 11, 2018) mandated that a court reviewing an agency decision:

“shall affirm the agency action unless the court concludes that the agency’s action is contrary to law, is not supported by substantial evidence, is arbitrary and capricious or is an abuse of discretion.”

A.R.S. § 12-910(E). Arguably, this standard presumes that an agency’s decision is valid unless a narrow exception applies.

On April 11, 2018, the Arizona Legislature accomplished what the U.S. Senate did not, and settled any debate with respect to Arizona’s appellate review of an administrative decision. Through HB 2238, the Legislature amended A.R.S. § 12-910, to be sure that Chevron Deference is not the appellate standard in Arizona. In particular, HB 2238 amended sub-section E of the statute, quoted above. Under the amended provision, courts reviewing agency decisions:

“shall decide all questions of law, including the interpretation of a constitutional or statutory provision or a rule adopted by an agency, without deference to any previous determination that may have been made on the question by the agency.”

This rule applies to any action for judicial review of an agency decision, and the only agency exempted from this rule is the Arizona Corporation Commission, which maintains plenary authority under the Arizona Constitution. Health care appeals—e.g., an appeal challenging a denial of an insurance claim—are also excused from the new statutory mandate.

Accordingly, it appears that the Arizona legislature intended to make certain that no deference is to be shown to an agency’s interpretation of the law. All questions of law must be analyzed de novo by the reviewing court.

With this legislation, the next challenge for Arizona courts is to determine whether HB 2238 differs at all from historical jurisprudence. And, if so, whether the Bill may be applied retroactively to agency actions made before the Bill’s passage.

Under Arizona law, a statute like HB 2238, that does not mention retroactivity, is presumed not to apply retroactively. See A.R.S. § 1-244. Under Arizona jurisprudence, however, if the amendments are merely procedural, the Bill may be applied retroactively (even though the statute does not mention retroactivity). Conversely, if the Bill impacts substantive rights, the presumption against retroactivity must apply. This topic is certain to create substantial fodder for litigants and government agencies alike.