Southwestern Paint & Varnish Co. v. Arizona Department of Environmental Quality ( 1999 )

McGREGOR, Justice,

dissenting:

¶23 Today the majority rejects a longstanding judicial interpretation of the statutes that control this action. While I disagree with much of the majority’s analysis, my greater concern lies with the impact of the decision upon the Administrative Procedure Act (APA),¹ recently adopted and amended by the Arizona legislature, and eon-current amendments to the Administrative Review Act (ARA).² Through the adoption and amendments, discussed below, the legislature attempted to clarify the circumstances under which a party to an administrative proceeding must file a petition for rehearing as a prerequisite to obtaining judicial review. As a result of the amendments, today’s decision will not change the outcome of actions involving agencies such as the Department of Environmental Quality. Unfortunately, because the majority does not consider the interaction between its holding and the recent statutory changes, the effect of the holding is to negate, in part, the legislative intent evidenced by the statutes. I therefore respectfully dissent.

¶24 For more than two decades, Arizona’s courts construed the statutes governing judicial review of administrative agency decisions as requiring that a party seeking judicial review first exhaust all administrative remedies, including petitioning for a rehearing if the agency involved made that procedure available. In 1975, after considering relevant portions of the ARA, the Court of Appeals concluded that a conjunctive reading of A.R.S. §§ 12-901.2 and 12-902.B manifested the legislature’s clear intent that “[i]f a rehearing procedure is provided, either by statute or rule, a party aggrieved by an administrative decision must avail himself of such administrative review remedy as a condition precedent to judicial review.” Herzberg v. David, 27 Ariz.App. 418, 419, 555 P.2d 677, 678 (1976). Until today’s decision, every appellate decision to address that holding reaffirmed the approach taken in Herzberg. See, e.g., Arizona Law Enforcement Merit System v. Dann, 133 Ariz. 429, 432, 652 P.2d 168, 171 (App.1982) (failing to timely file a motion for rehearing or review bars judicial review and renders the agency’s decision final); Oliver v. Arizona Dep’t of Racing, 147 Ariz. 83, 86, 708 P.2d 764, 767 (App.1985) (where an agency is authorized under a statute or rule to rehear or review its decision, “an aggrieved party must avail himself of it before seeking judicial review”); Rosen v. Board of Med. Examiners, 185 Ariz. 139, 143, 912 P.2d 1368, 1372 (App.1995) (interpreting the use of the word “may” as giving the party an option “not to pursue any further review,” but requiring a rehearing if judicial review is ultimately desired); Oliver v. State Land Dep’t, 143 Ariz. 126, 130, 692 P.2d 305, 309 (App.1984) (construing agency’s rule which used word “may” as requiring a party to file a motion for rehearing before judicial review is permitted). The rehearing requirement described in Herzberg, and the justification for it, were clearly understood and guided the proceedings before Arizona’s administrative agencies. Indeed, to understand how firmly the Herzberg rule was established, one need look no further than to the majority’s opinion, which can reach its conclusion only by expressly disapproving five prior appellate decisions.³

¶ 25 The legislature long acquiesced in the Herzberg rule. Because responsibility for defining the circumstances under which a party can obtain judicial review of an agency decision lies with the legislature, see County of Pima v. Department of Revenue, 114 Ariz. 275, 560 P.2d 793 (1977); RCJ Corp. v. Department of Revenue, Maricopa County, 168 Ariz. 328, 812 P.2d 1146 (Tax 1991), the legislature could have amended the statutes if it believed the courts had misconstrued the legislature’s intent. From 1975 to 1996, however, the legislature did not modify the rule announced in Herzberg. The legislature’s failure to modify a judicially-interpreted statute, while not conclusive of its intent, provides some indication that the legislature agrees with the judicial interpretation. See Lowing v. Allstate Ins. Co., 176 Ariz. 101, 106, 859 P.2d 724, 729 (1993); State v. Aro, 188 Ariz. 521, 524, 937 P.2d 711, 714 (App.1997). In addition, state agencies, including the Arizona Department of Environmental Quality, enacted regulations that the agencies interpreted as requiring a party to move for rehearing as a prerequisite to judicial review.⁴ Although agency interpretations of their own rules do not bind this Court, we regard them as highly persuasive. See Capitol Castings v. Arizona Dep’t of Economic Sec., 171 Ariz. 57, 60, 828 P.2d 781, 784 (App.1992); Baca v. Arizona Dep’t of Economic Sec., 191 Ariz. 43, 45-46, 951 P.2d 1235, 1237-38 (App.1998).

¶ 26 The Herzberg rule, aided by agency rules enacted in reliance on that decision, controlled judicial review of agency decisions until statutory changes became effective in 1996. After completing a comprehensive review of the statutes governing appeals from administrative decisions, the legislature enacted significant changes to the statutes governing judicial review of administrative decisions.⁵ The APA now expressly provides that, as to many administrative agencies, “a party is not required to file a motion for rehearing or review of the decision in order to exhaust the party’s administrative remedies.” A.R.S. § 41-1092.09.A.3.

¶ 27 We presume that, when the legislature amends the law, it intends to effect a change in the law. See State v. Garza Rodriguez, 164 Ariz. 107, 111, 791 P.2d 633, 637 (1990). There can be little doubt that the legislature intended to change the Herzberg rehearing rule when it adopted the APA. Indeed, the legislative history reveals that the legislature revised the Herzberg rule because it concluded that the rehearing requirement had come to effectively deprive some parties, particularly those not represented by attorneys, of the opportunity for judicial review.⁶ The legislative history therefore supports the conclusion that the legislature, like the administrative agencies, understood that the pre-1996 statutes permitted judicial review only after an administrative agency ruled on a party’s motion for rehearing.

¶ 28 Because the Department of Environmental Quality is one of the agencies that now falls within the APA’s “no rehearing” provision, a party in Southwest’s position in the future will not be required to file a petition for rehearing to obtain judicial review of a final administrative decision. If today’s holding did no more than affirm, as a matter of judicial construction, the principle that the legislature clearly expressed by adopting the APA, today’s opinion could be regarded as an unnecessary but harmless academic exercise. However, the opinion does more: it undermines the legislative intent underlying other portions of the APA and the amended ARA.

¶ 29 In revising the APA to identify those instances in which a party need not file a rehearing request to obtain judicial review, the legislature also clearly instructed that two groups of agencies fall outside the “no-rehearing” provision. First, the legislature required parties seeking judicial review of a decision by one of the twenty-nine self-supporting regulatory boards listed in A.R.S. § 41-1092.7 to first file a motion for rehearing. See A.R.S. § 41-1092.09.B. Today’s decision does not affect that legislative direction, because the majority’s decision applies only when a statute does not state to the contrary. Thus, no conflict exists here between the Court’s opinion and the statutes: a motion for rehearing still is required to obtain review of the final decision of a self-supporting regulatory board.-

¶ 30 The second legislative exception from the “no-rehearing” rule, however, does result in an inconsistency between the majority’s holding and the legislative scheme. Because the APA does not apply to those agencies listed in A.R.S. § 41-1092.02,⁷ the new statutory “no-rehearing” rule does not reach those agencies. Given that the legislature did not change the Herzberg rule as to these agencies, the legislative intent as to exempt agencies seems apparent: the legislature must have intended that the rule established in Herzberg should remain in effect.⁸ As to those agencies, then, the legislature intended to require a party seeking judicial review to first file a motion for rehearing.⁹

¶ 31 The majority decision, however, must be read as holding that no motion for rehearing is required, even when the administrative decision is handed down by an exempt agency, because no statute expressly requires the rehearing process. The opinion does not explain why this Court should unravel the legislature’s apparently careful distinction among those agencies whose decision is not final until a motion for rehearing is resolved and those agencies whose decisions are final without such a motion. I would defer to the judgment of the legislature in this area.

¶ 32 For the foregoing reasons, I would vacate the decision of the court of appeals and affirm the judgment of the trial court.

CHARLES E. JONES, Vice Chief Justice, concurs.

1 . Arizona Revised Statutes (A.R.S.) §§ 41-1092 to 41-1092.12.

2 . A.R.S. §§ 12-901 to 12-914.

3 . Although the majority expressly disapproves those five decisions, many other decisions include statements inconsistent with today's holding. See, e.g., Hamilton v. State, 186 Ariz. 590, 593, 925 P.2d 731, 734 (App.1996) ("failure to exhaust administrative remedies deprives the superior court of authority to hear the party's claim”); Estate of Bohn v. Waddell, 174 Ariz. 239, 245-46, 848 P.2d 324, 330-31 (App.1992) (even when the word "may” in the administrative appeal statute is used, judicial relief is not available until a party has "fully utilized” and exhausted all administrative remedies); Gilbert v. Board of Med. Examiners, 155 Ariz. 169, 174, 745 P.2d 617, 622 (App.1987) ("[fjailure to appeal a final administrative decision makes that decision final and res judicata ”); Minor v. Cochise County, 125 Ariz. 170, 172, 608 P.2d 309, 311 (1980) (where agency considers claim in the first instance, exhaustion of administrative remedies applies); Campbell v. Mountain States Tel. & Tel. Co., 120 Ariz. 426, 429, 586 P.2d 987, 990 (App.1978) (once an agency is given original jurisdiction over a claim, exhaustion of remedies applies and rehearing before that agency must be sought before judicial review occurs); Univar Corp. v. City of Phoenix, 122 Ariz. 220, 223, 594 P.2d 86, 89 (1979) (recognizing that exhaustion of administrative remedies is a "firmly entrenched” doctrine in Arizona); State ex rel. Dandoy v. City of Phoenix, 133 Ariz. 334, 337, 651 P.2d 862, 865 (App.1982) (judicial review of legal or factual challenges to an agency decision are precluded unless timely review is sought in the manner provided by the ARA); City of Tucson v. Superior Court, 127 Ariz. 205, 209, 619 P.2d 33, 37 (App.1980) ("failure to exhaust administrative remedies bars” filing of judicial lawsuit); Medina v. Arizona Dep't of Transp., 185 Ariz. 414, 418, 916 P.2d 1130, 1134 (App.1995) ("exhaustion of remedies is generally a prerequisite to judicial relief’); Kerr v. Waddell, 185 Ariz. 457, 916 P.2d 1173 (App.1996) (administrative remedies must be exhausted before a claim may be judicially reviewed); Estate of Bohn v. Scott, 185 Ariz. 284, 915 P.2d 1239, 1246 (App.1996) (matters properly the subject of an administrative process are barred from judicial relief for failure to "exhaust administrative remedies"); Southwest Ambulance v. Superior Court, 187 Ariz. 290, 293-94, 928 P.2d 714, 717-18 (App.1996) (a trial court may not exercise jurisdiction over a claim that is subject to administrative proceedings unless the parly has first exhausted its administrative remedies); United Association of Journeymen v. Marchese, 81 Ariz. 162, 302 P.2d 930 (1956) (recognizing the general principle that where the agency has primary jurisdiction judicial relief is unavailable until administrative remedies have been exhausted); Zeigler v. Kirschner, 162 Ariz. 77, 85, 781 P.2d 54, 62 (App.1989) (generally, failure to exhaust an administrative agency's hearing and review process prevents later judicial review); Sanchez-O’Brien Minerals Corp. v. State, 149 Ariz. 258, 261, 717 P.2d 937, 940 (App.1986) (recognizing that judicial review is precluded by a failure to utilize and exhaust administrative review procedures); Owens v. City of Phoenix, 180 Ariz. 402, 409, 884 P.2d 1100, 1107 (App.1994) (claimants usually must exhaust administrative remedies "before seeking judicial relief’); Wammack v. Industrial Comm’n of Arizona, 83 Ariz. 321, 327, 320 P.2d 950, 954 (1958) (an agency must be given an opportunity to correct errors through a rehearing procedure before judicial review is permitted); Ross v. Industrial Comm'n of Arizona, 82 Ariz. 9, 307 P.2d 612 (1957) (claimants must first seek and procure the agency's decision on rehearing before review by the court is permitted); Cochise County v. Kirschner, 171 Ariz. 258, 830 P.2d 470 (App.1992) (when claims properly arise under the jurisdiction of an agency, exhaustion of remedies must occur before a lawsuit will be entertained); Third & Catalina v. City of Phoenix, 182 Ariz. 203, 207, 895 P.2d 115, 119 (App.1994) (failure to exhaust administrative remedies bars judicial review); Brown v. Industrial Comm’n of Arizona, 168 Ariz. 287, 812 P.2d 1105 (App.1991) (unless a party satisfies the doctrine of exhaustion of administrative remedies by filing a motion for review, a court will not consider the issue); St. Mary’s Hosp. and Health Center v. State, 150 Ariz. 8, 721 P.2d 666 (App.1986) (judicial review is unavailable until claimants exhaust their administrative remedies, which includes review of their claims); Schmitz v. Arizona State Bd. of Dental Exam., 141 Ariz. 37, 684 P.2d 918 (App.1984) (exhaustion of remedies is required prior to judicial review in order to permit the agency to correct its errors); Flannery v. Industrial Comm’n of Arizona, 3 Ariz.App. 122, 412 P.2d 297 (1966) (seeking a rehearing of an agency's decision is a condition precedent to obtaining judicial review and satisfying the exhaustion of remedies doctrine); Pima Mining Co. v. Industrial Comm’n of Arizona, 11 Ariz.App. 480, 466 P.2d 31 (1970) (exhaustion of remedies requires a party to permit an agency to reconsider its decision by seeking a rehearing before pursuing judicial review); Stevens v. Industrial Comm’n of Arizona, 104 Ariz. 293, 451 P.2d 874 (1969) (a party must exhaust its administrative remedies by petitioning for a rehearing from an agency’s initial decision prior to seeking judicial review); State v. Arizona Corp. Comm’n, 94 Ariz. 107, 382 P.2d 222 (1963) (a party may seek judicial review only after it has petitioned the agency for a rehearing of the administrative decision); Ross v. Industrial Comm’n of Arizona, 20 Ariz.App. 353, 513 P.2d 143 (1973) (a party must request a rehearing by the agency before petitioning for judicial review); Fernandez v. Industrial Comm’n of Arizona, 4 Ariz.App. 445, 421 P.2d 341 (1966), vacated on other grounds, 102 Ariz. 50, 424 P.2d 451 (1967) (petitions for rehearing are necessary predicates to seeking judicial review of administrative decisions).

4 . The Department of Environmental Quality asserted in this action that it interpreted Arizona Administrative Code (AAC) R18-1-218 as requiring a party to seek rehearing as a prerequisite to judicial review.

5 . See A.R.S. § 41-1092, amended by Laws 1996, Ch. 102, § 44, effective July 20, 1996, Laws 1997, Ch. 221, § 184, effective July 21, 1997, and Laws 1998, Ch. 57, § 58, effective August 21, 1998; A.R.S. § 41-1092.01, amended by Laws 1996, Ch. 102, § 45, effective July 20, 1996, Laws 1997, Ch. 221, § 185, effective July 21, 1997, and Laws 1998, Ch. 57, § 59, effective August 21, 1998; A.R.S. § 41-1092.02, amended by Laws 1996, Ch. 102, § 46, effective July 20, 1996, Laws 1996, Ch. 324, § 9, effective July 20, 1996, Laws 1997, Ch. 221, § 186, effective July 21, 1997, Laws 1997, Ch. 224, § 3, effective January 1, 1998, Laws 1998, Ch. 276, § 42, effective August 21, 1998 until January 1, 1999, Laws 1998, Ch. 214, § 17, effective August 21, 1998 until January 1, 1999, Laws 1998, Ch. 1, § 118, effective January 1, 1999, Laws 1998, Ch. 57, § 60, effective August 21, 1998, Laws 1998, Ch. 214, § 18, effective January 1, 1999 until July 1, 1999, and Laws 1998, Ch. 214, § 19, effective July 1, 1999, and repealed by Laws 1998, Ch. 214, § 20, effective January 1, 1999 as to amendments by Laws 1997, Ch. 221, § 186, Laws 1997, Ch. 224, § 3 and Laws 1998, Ch. 214, § 17; A.R.S. § 41-1092.03, amended by Laws 1997, Ch. 221, § 187, effective July 21, 1997; A.R.S. § 41-1092.04, added by Laws 1996, Ch. 102, § 47, effective July 20, 1996; A.R.S. § 41-1092.05, amended by Laws 1997, Ch. 221, § 188, effective July 21, 1997 and Laws 1998, Ch. 57, § 61, effective August 21, 1998; A.R.S. § 41-1092.06, amended by Laws 1997, Ch. 129, § 1, effective July 21, 1997; A.R.S. § 41-1092.07, amended by Laws 1996, Ch. 102, § 76, effective July 20, 1996; A.R.S. § 41-1092.08, amended by Laws 1997, Ch. 221, § 189, effective July 21, 1997 and Laws 1998, Ch. 57, § 63, effective August 21, 1998; A.R.S. § 41-1092.09, amended by Laws 1997, Ch. 221, § 190, effective July 21, 1997 and Laws 1998, Ch. 57, § 64, effective August 21, 1998; A.R.S. § 41-1092.10, added by Laws 1998, Ch. 57, § 66, effective August 21, 1998; A.R.S. § 41-1092.11, amended by Laws 1996, Ch. 102, § 76, effective July 20, 1996, and repealed by Laws 1998, Ch. 57, § 65, effective August 21, 1998 as to amending Laws 1996, Ch. 102, § 47; and A.R.S. § 41-1092.12, added by Laws 1998, Ch. 85, § 1, effective August 21, 1998. Because those amendments became effective after this action began, they do not apply here.

6 . See Ariz. State Senate, 42nd Leg., 2d Reg. Sess., Minutes of Committee on Government Reform, January 30, 1996.

7 . The APA does not apply to the following agencies: State Department of Corrections; Board of Executive Clemency; Industrial Commission of Arizona; Arizona Corporation Commission; Arizona Board of Regents and institutions under its jurisdiction; State Personnel Board; Department of Juvenile Corrections; Department of Transportation; Arizona Health Care Cost Containment System; Department of Economic Security except as provided in A.R.S. §§ 8-506.01 and 8-811; Department of Revenue regarding income tax, withholding tax or estate tax or any tax issue related to information associated with the reporting of income tax, withholding tax or estate tax; Board of Tax Appeals; or the State Board of Equalization.

8 . It is worth noting that a number of the exempt agencies have adopted rules substantially similar to that relied upon by the Department of Environmental Quality to require a motion for rehearing or review before seeking judicial review. E.g., Industrial Comm’n of Arizona, AAC R20-5313.E, R20-5-314.A and E, R20-5-737, and R20-5-738; Department of Revenue, AAC R157-621.A and R15-7-622; Department of Transp., AAC R17-4-912.A and J; and Department of Health Services, AAC R9-21-407.D and R9-21408.

9 . The scope of the legislative distinction between exempt and non-exempt agencies is exemplified by A.R.S. § 12-910, which permits a trial de novo as part of the judicial review of final decisions of exempt agencies, but does not provide that proceeding in cases involving non-exempt agencies.