Lewis Roca Blog

In Arizona, like in Washington, a debate is unfolding about how courts should determine “questions of law”, and whether an agency’s construction of statutes is entitled to deference by the courts.  Some refer to this deference as Chevron Deference, stemming from a 1984 U.S. Supreme Court decision. The recent confirmation proceedings of Justice Neil Gorsuch triggered a spirited debate among policy makers and opinion writers about whether an agency’s reading of its statutes should be given any weight when a court reviews questions of law of that agency’s decision on appeal.

Given that much of the regulatory authority exercised over businesses, whether in the energy or other commercial field, occurs at the administrative level, whether before the Arizona Corporation Commission, the Department of Environmental Quality, or the Department of Water Resources, attention to the deference question is an important matter, triggering a variety of questions, including:

•  How will the agency read the statute?
•  How will the courts react?
•  Will the courts make an independent judgment?

Among the leading cases cited by the Arizona courts involved a challenge brought by a water utility against the Department of Water Resources challenging DWR’s construction of a provision of Title 45. Arizona Water Co. v. Arizona Department of Water Resources, 208 Ariz. 147 at ¶30 (2004).  The Supreme Court signaled a willingness to accept an agency’s construction of a statute, but, at the same time, made clear that the court had the responsibility to resolve questions of law, including questions of statutory construction.  Specifically, the Supreme Court stated:

In circumstances like these, in which the legislature has not spoken definitively to the issue at hand, “considerable weight should be accorded to an executive department’s construction of a statutory scheme it is entrusted to administer.” Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 844, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). In such cases, “a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.” Id. ADWR has consistently interpreted the Code as allowing it to impose GPCD requirements directly on providers without also imposing conservation requirements directly on all end users, and that interpretation should be given great weight in the absence of clear statutory guidance to the contrary. See Long v. Dick, 87 Ariz. 25, 29, 347 P.2d 581, 584 (1959) (holding that although administrative interpretation of statutes is not binding on the court, the court will accept an administrative body’s interpretation when there is “[a]cquiescence in meaning over long periods of time” so long as the interpretation is not “manifestly erroneous”).

Arizona Water Co., 208 Ariz. 147 at ¶30.

Even with this declaration by the Supreme Court, Arizona courts consistently have determined that deference does not mean that courts do not exercise independent review of questions of law. The Arizona Court of Appeals recently concluded, in the context of a challenge to the Health Department’s construction and implementation of the Arizona Medical Marijuana Act, that the courts had the duty to review all questions of law de novo. Arizona Cannabis Nurses Association v. Arizona Department of Health Services, 1 CA-CV 15-0638 at ¶8 (decided March 16, 2017) (stating “This court will not re-weigh the evidence, St. Joseph’s Hosp. v. AHCCCS, 185 Ariz. 309, 312 (App. 1996), and reviews questions of law de novo, Webb v. State ex. rel. Arizona Bd. of Medical Examiners, 202 Ariz. 555, 557 ¶ 7 (App. 2002).”)

During the 2017 Arizona legislative session, lawmakers became active participants in the debate about the role the courts should take in evaluating the meaning of statutes. A measure intended to instruct the courts that they have a responsibility to construe the legality of agencies actions is currently being debated. Senate Bill 1072 proposes to change the standard of review in the Judicial Review of Administrative Decisions Act to direct that courts must address the legality of the agency’s action. At present, the key section of the law being amended by Senate Bill 1072 reads as follows:

The court may affirm, reverse, modify or vacate and remand the agency action. The court shall affirm the agency action unless after reviewing the administrative record and supplementing evidence presented at the evidentiary hearing the court concludes that the action is not supported by substantial evidence, is contrary to law, is arbitrary and capricious or is an abuse of discretion.

A.R.S. § 12-910(E).  As Senate Bill 1072 moves through the legislative process, the version of the bill approved by the house on April 27, 2017, and to be voted on by the chamber as the session draws to a close, offers the following amendment to this law:

The court may affirm, reverse, modify or vacate and remand the agency action.  The court shall affirm the agency action unless after reviewing the administrative record and supplementing evidence presented at the evidentiary hearing the court concludes that the action is not supported by substantial evidence, is contrary to law, is arbitrary and capricious or is an abuse of discretion.  The court shall reverse, modify or vacate and remand the agency action if the court determines the agency’s action was contrary to law.

House Engrossed version of SB1072, §2 (amending section 12-910(E)).

The extent of this change, and how it will be construed, remains to be seen. One commentator stated that SB1072 is important because “[t]he bill declares that state court judges must review the evidence that the agency used, and decide all legal issues anew, rubber-stamping the agency’s decision.”  However, the impact of the change to section 12-910 may lead to the conclusion that the change of this law reinforces the approach already followed by Arizona courts.  See Mary Wade/Marla Paddock v ASRS/ASRS Board, CV-16-0087-PR (decided March 23, 2017) (rejecting the invitation to defer to the interpretation proposed by the agency).  Citing its earlier decision in Arizona Water Co. (and Chevron), the Wade/Paddock Court rejected the State Retirement System’s construction of the statute at issue, and explained that:

In Arizona Water Co., no specific statutory provision addressed the issue presented, and this Court therefore gave great weight to the agency’s view as adopted in a groundwater management plan. See id. at 153 ¶ 22, 155 ¶ 31, 91 P.3d at 996, 998. Here, the legislature explicitly defined “compensation” in § 38–711(7), and we are able to ascertain legislative intent by applying interpretive principles. Cf. Chevron, 467 U.S. at 843 n.9, 104 S.Ct. 2778 (stating that “[t]he judiciary is the final authority on issues of statutory construction” and “[i]f a court, employing traditional tools of statutory construction, ascertains that Congress had an intention on the precise question at issue, that intention is the law and must be given effect”). There is no reason to defer to ASRS’sinterpretation.

Wade/Paddock at ¶21. (emphasis added).

As of this writing, the Arizona legislature is expected to conclude its work very shortly, including its work on SB1072. Whether enacted or not, the Arizona courts have long demonstrated a commitment to de novo review of questions of law.  If enacted, there will be arguments about whether the proposed change is a change or is instead a codification of the courts’ longstanding practice.