The scarecrow in McDonald's Farm: a fairy tale about administrative law.

Editor's Note: A state agency that relies on policy to affect the substantial interests of a person must provide adequate notice of the underlying policy in order for agency action to be enforceable. The requirement for adequate notice in Ch. 120, the Administrative Procedure Act, or APA, initially required all agency policy to be promulgated as a rule in accordance with the rulemaking provisions prescribed in [sections] 120.54. Courts later determined that the requirement to promulgate agency policy applied only to policy which satisfied the statutory definition of a rule in [sections] 120.52(15). Policy excluded from the statutory definition was nonrule policy and was not required to be promulgated as a rule.

Judge Daniel Manry sees a significant inconsistency in the way nonrule policy is defined legislatively and judicially. In Judge Manry's view, the legislature divides the whole of agency policy into two parts. Agency policy is either policy-by-rule or nonrule policy. In relevant part, the legislative definition of a rule in [sections] 120.52(15) defines policy-by-rule as that part of agency policy which satisfies the requirement of general applicability. The remainder of agency policy, that part of agency policy which is not generally applicable, is nonrule policy.

Judge Manry notes that the judicial exception to rulemaking defines nonrule policy by reference to [sections] 120.54 rather than by reference to [sections] 120.52. Nonrule policy is judicially defined as any policy not promulgated as a rule in accordance with [sections] 120.54. Section 120.54, however, defines neither policy-by-rule nor nonrule policy.

In effect, the judicial definition of nonrule policy, according to Judge Manry, includes a portion of policy-by-rule already included in the statutory definition of a rule. Policy that is generally applicable, within the meaning of [sections] 120.52(15), and not promulgated as a rule, pursuant to [sections] 120.54, is legislatively defined as an unpromulgated rule but judicially defined as nonrule policy.

Prior to recent legislative amendments to the APA, unpromulgated rules were not required to be promulgated pursuant to [sections] 120.54 in order to be enforceable in court. Courts reasoned that the requirement for an agency to repeatedly prove up its unpromulgated rules in each case provided "other incentives for rulemaking." The judicial doctrine became known as the "prove-up exception to rulemaking."

The recent amendments to the APA have not resolved the debate within the administrative law community over what agency policy must be promulgated as a rule. The debate has existed for more than 20 years. Judge Manry suggests the debate will not end before the terms of the debate, such as "unpromulgated rules" and "nonrule policy," are clearly defined.

Judge Manry questions the conventional interpretation of early cases that gave rise to the prove-up exception and offers an alternative interpretation that is consistent with legislative intent and also preserves the viability of applicable case law. The article is presented in a fictional and humorous vein that allows Judge Manry to question the logic of the prove-up exception, without criticizing specific cases, and to expose issues of due process and separation of powers inherent in the prove-up exception. The views expressed in this article are purely those of Judge Manry.

--RALPH DEMEO, Special editor

This article is a farcical tale about a time in antiquity when unpromulgated rules were disguised as nonrule policy. The disguise resembled a scarecrow sewn together from scraps of fabric called "other incentives for rulemaking." In the course of time, the scarecrow came to be known as the "prove-up exception" to rulemaking.[1]

By most accounts, and all but a few are unwritten, unpromulgated rules were first disguised as a scarecrow long ago in a land known to its inhabitants as "the kingdom of Florida administrative law." The first citing of the scarecrow, quite naturally, occurred in one of the many farms in the kingdom. The legal description of the farm, as recorded in the official records of the realm, was O. McDonald v. Department of Banking and Finance, 346 So. 2d 569 (Fla. 1st DCA 1977). Most subjects of the realm, however, just called the place McDonald.

Administrative agencies were the first creatures to cite the scarecrow. Since the first days, agencies relied on the scarecrow. An understanding of the scarecrow, therefore, requires at least a cursory understanding of agencies and how the creatures evolved.

Agencies evolved from a written constitution that divided power to rule the kingdom equally among three rulers. No ruler had more power, sought to usurp power, or was more important than another. Thus, it is impossible to discuss the rulers in any order of importance.

The first ruler had sole authority to enact laws. Tragically, the first ruler had a bicameral head that was compromised in the middle.

The second ruler was a collection of blindfolded jurists, organized into a hierarchy, with special powers to hold court and to decipher laws enacted by the first ruler. Acronymic-lettered jurists, or ALJs, held quasicourt.

The third ruler had two heads. One head was an executive and the other a cabinet. The third ruler enforced the laws enacted by the first ruler and deciphered by the second ruler

The third ruler anointed agencies to administer the laws. In turn, the first ruler enacted Ch. 120.[2] The APA, as it was called, was intended to help agencies.

Agencies fabricated the scarecrow to help themselves comply with the APA. Agencies sometimes got more help than they needed.

Agencies used the scarecrow for more than 20 years to disguise unpromulgated rules as nonrule policy. The scarecrow thoroughly complicated the common understanding of agency policy. One day, a writer of the realm observed: "The scarecrow ... has, in the course of time, become so complicated that no man alive knows what it means. The parties to it understand it least, but it has been observed that no two ... lawyers can talk about it for five minutes, without coming to a total disagreement as to all the premises?

Subjects of the realm were not deterred. They vowed to seek a common understanding of agency policy.

Loyal subjects began their quest with a common understanding of one premise that was embodied in a simple statutory truth. Agency policy either satisfied the first ruler's statutory definition of a rule[4] or it did not. Policy included in the statutory definition was policy-by-rule. Policy excluded from the statutory definition was nonrule policy.[5]

Agency action based on either type of policy was unenforceable unless the agency provided adequate notice of its policy. Adequate notice of agency action was central to administrative fairness and due process in the kingdom.[6]

The rule that excluded agency action without adequate notice of the underlying policy was not the only member of its family. A relative, the "exclusionary rule," lived in another kingdom and excluded agency action without adequate notice of a subject's Miranda rights. In both kingdoms, the family required adequate notice before an agency could enjoy the fruits of its policy-tree. The family motto was, "No notice? No nuts!"

Notice of policy-by-rule was adequate only if it was promulgated according to the rulemaking procedures prescribed by the first ruler.[7] The first ruler was adamant on this point. The requirement to promulgate was not discretionary.[8]

Administrative rulemaking was a quasi-legislative function.[9] Properly adopted and promulgated rules had the force and effect of law.[10] Like other laws, policy-by-rule had to be promulgated.

Policy-by-rule that was not promulgated was an unpromulgated rule. Unpromulgated rules, like other unpromulgated laws, were illicit and unenforceable, regardless of the wisdom of the underlying policy.[11] Unenforceability of unpromulgated rules was "the necessary effect of the APA if the prescribed rulemaking procedures are not to be atrophied by nonuse."[12]

The requirement to promulgate a thing was a pox on agencies. Promulgation was more odious to agencies than alligators were to savages when they visited the swamp not far from the magic part of the kingdom. Promulgation was expensive, lengthy, involved lawyers ... and, it was ponderous, too!

Agencies asked the second ruler for help. However, there was only so much the second ruler could do. The second ruler could not enact legislation!

The second ruler tried to comfort agencies with the good news from McDonald that the requirement to promulgate applied only to policy-by-rule. Agencies did not have to promulgate nonrule policy.[13] Adequate notice for nonrule policy was provided through adjudication of individual cases.[14]

Unpromulgated policy faced one of two fates. Policy-by-rule faced certain emasculation unless it was promulgated. Nonrule policy was enforceable but lacked the binding effect of law.

Agencies felt as though they had been impaled on the horns of a dilemma. They could rely on policy-by-rule and undertake the ponderous path of promulgation, or they could confine themselves to nonrule policy. Some choice!

Policy-by-rule was wise policy, or most of it was. Agencies yearned to rely on that policy without promulgating it. It was a prickly problem!

In an effort to save wise policy from emasculation, agencies began cloaking their unpromulgated rules in two disguises. Each disguise concealed unpromulgated rules as nonrule policy.

In one disguise, agencies construed the statutory definition of a rule narrowly so that few subjects of the realm could recognize any policy as a rule. The disguise found favor at court ... and at quasi-court. Agencies had discovered a way to circumvent the ponderous path of promulgation.[15]

The first disguise had strong appeal at court, but it frustrated the first ruler. The first ruler never intended the statutory definition of a rule to be construed narrowly. "The term `rule' was broadly defined in the [APA] to reach ... invisible policy-making...."[16]

The second disguise was carefully woven from sophistry. Sophists defined nonrule policy as agency policy not published as a rule. "Hey," cried the sophists. "If it's not promulgated as a rule, it's nonrule policy. Never mind the statutory definition of a rule."

The second disguise expanded the definition of nonrule policy to include unpromulgated rules. Unpromulgated rules could be enforced as nonrule policy if the agency proved the wisdom of the policy.

In the course of time, courtly favor for the two disguises and their use by agencies spread throughout the kingdom. Both disguises took on the strange appearance of a scarecrow. The scarecrow reached pandemic proportions and became known as the "prove-up exception" to rulemaking. A scarecrow seemed to be in every farm in the kingdom.

The ubiquitous scarecrow eventually thwarted the first ruler's requirement to promulgate policy-by-rule[17] and transformed the definition of a rule into an invisible statute. Attempts to label agency action as either a rule or nonrule policy were largely discarded in many farms in the kingdom.[18]

The Amos farm illustrated, in a left-handed way, that an unpromulgated rule could be enforced by proving the wisdom of the policy even if it was not disguised as nonrule policy. Although the policy in Amos was a rule that was unenforceable because it was unpromulgated, the second ruler said: "This is true even under the rule of McDonald ... since the agency has failed to affirmatively show the reasonableness and factual accuracy of the policy."[19]

Agencies had originally fabricated the prove-up exception from scraps of fabric called "other incentives for rulemaking." Agencies found the first scrap in a remote section of the McDonald farm. That section said that an ALJ's function of requiring an agency to explicate nonrule policy by proof creates "incentives for rulemaking, which as far as it goes displaces proof and debate of policy in 120.57 proceedings...."[20]

Subjects disloyal to the first ruler's statutory definition of a rule construed the reference to nonrule policy in McDonald to include unpromulgated rules. In their view, the requirement to repeatedly prove-up unpromulgated rules provided other incentives for rulemaking to avoid repeated proof and debate of unpromulgated rules.[21] The distinction between unpromulgated rules and nonrule policy was unimportant if the result was fair.

"Nuts!" retorted the first ruler in bicameral stereo.[22] The first ruler had never sanctioned the prove-up exception.

"A fair result," the first ruler protested, "was not the only factor to be given effect in the formula for administrative fairness. Fair results had to be achieved by fair procedures."

"If an agency figuratively hung a guilty subject and the subject deserved to be hung," the first ruler reasoned, "it could be perceived as a fair result. If the agency relied on illicit procedures, however, the result was a lynching. If the agency relied on licit procedures, the result was a legal execution."

The first ruler concluded that the procedures used to achieve results could mean the difference between a lynching and a legal execution. "Chapter 120 was not the `Administrative Results Act.' It was the Administrative Procedure Act!"

The first ruler decided to reverse the prove-up exception by enacting former [sections] 120.535. That provision became [sections] 120.56(4) and is intended to maximize the scope of the first ruler's statutory rulemaking requirements.[23] The first ruler intended to exorcise the scarecrow from the kingdom forever.[24]

The first ruler did not throw the fabric out with the scarecrow. McDonald did not define nonrule policy to include unpromulgated rules. To do so would have defined nonrule policy to include some portion of policy-by-rule already included in the statutory definition of a rule.

McDonald limited nonrule policy to incipient or emerging policy that had not yet become generally applicable. The repeated adjudication of incipient or emerging policy provided other incentives for rulemaking by encouraging agencies to develop such policy into broad principles that could be promulgated as a rule; thereby displacing proof and debate of nonrule policy.[25] By limiting nonrule policy to incipient or emerging policy, subjects of the realm could harvest crops from McDonald in a manner that served the first ruler's intent.

The McDonald farm rejected a pedantic definition of rules that required all policy to be promulgated as rules. The whole of agency policy was divided into two parts, i.e, policy-by-rule and nonrule policy. Policy-by-rule evolved from nonrule policy through adjudication of individual cases until it became generally applicable and could be promulgated as a rule. "The APA thus impels agencies to ... confine their own discretion ... by ... moving from vague standards to definite standards to broad principles to rules...."[26]

Farms began to determine whether incipient or emerging policy had ripened into a rule by the effect of the policy rather than the label ascribed to it by the agency. "Whether an agency's statement is a rule which must be adopted in accordance with statutory procedure turns on the effect of the statement and not the agency's characterization by some appellation other than `rule.'"[27]

The effect of agency policy was measured by the standards relied on by the agency rather than the results achieved. Agencies formulated policy to "structure their discretion progressively by vague standards, then definite standards, then broad principles, then rules...."[28]

Definite standards applied consistently to dissimilar facts could lead to different results. However, inconsistent results based upon similar facts, without a reasonable explanation "violate [former] Section 120.68(12)(b) ... as well as the equal protection guarantees of ... the ... Constitution.... (citation omitted)"[29]

The general applicability of agency policy was an essential element of the statutory definition of a rule, but only a threshold test. Agency policy did not ripen into a rule until it was policy of general applicability that either: implemented, interpreted, or prescribed law or policy; modified or amended an existing rule; defined a statutory term; or imposed an additional requirement not imposed by statute or existing rule.[30]

The interests of preserving wise policy and ensuring adequate notice collided at the point where policy crossed over from incipient or emerging policy into full bloom as policy-by-rule. In an attempt to balance such competing interests, the first ruler enacted former [sections] 120.57(1)(b)15, which became [sections] 120.57(1)(e), and also enacted [sections] 120.56(4)(e).

Section 120.57(1)(e) required a subject of the realm to show that agency action was based on a policy, that the policy was an unadopted rule, and that the agency had relied on the policy to affect the substantial interests of the subject. The burden of proof then shifted to the agency to show that the unadopted rule complied with the requirements of [sections] 120.57(2)a.-g.

Section 120.56(4)(e) attempted to preserve wise policy in the form of an unadopted rule if the agency could satisfy several due process requirements. The agency had to promulgate the policy as a proposed rule prior to the entry of a final order, proceed in good faith to rulemaking, and show that the policy satisfied the requirements of [sections] 120.57(1)(e).

Despite the passage of [subsections] 120.57(1)(e) and 120.56(4)(e), a common understanding of agency policy remained so complicated that lawyers rarely agreed as to its premises.[31] So, the first ruler amended the APA to include statutory definitions of "nonrule policy" and an "unpromulgated rule" ... and other more efficacious solutions. Subjects of the realm cast the scarecrow into an abyss in which no subject could ever farm, and rejoiced in their common understanding of both nonrule policy and unpromulgated rules. Older subjects of the realm ventured forth into the sunshine to exercise and to reduce the onus of health care costs and insurance premiums paid by their children. Everyone in the kingdom had strong family values and lived happily ever after. The End

[1] The "scarecrow" is adapted from a passage by Charles Dickens. The passage provided one of the themes used at the "1998 Pat Dore Administrative Law Conference; What the Dickens Is Going On?", produced by the Administrative Law Section of The Florida Bar on October 29-30, 1998, in Tallahassee.

[2] All chapter and section references are to Florida Statutes (1997) unless otherwise stated.

[3] CHARLES DICKENS, BLEAK HOUSE.

[4] FLA. STAT. [sections] 120.52(15).

[5] A whole is equal to the sum of its parts. The whole of agency policy is equal to the sum of that part which is a rule, within the meaning of FLA. STAT. [sections] 120.52(15), i.e., policy-by-rule; plus that part which is not a rule, within the meaning of FLA. STAT. [sections] 120.52(15), i.e., nonrule policy. The theory of the relation of part to whole, and kindred notions, is known as mereology. DAVID LEWIS, PARTS OF CLASSES (1991). One kindred notion of the relation of part to whole is "fusion" or "sum." Under this kindred notion, a whole is equal to the sum of its parts. Mereology is not synonymous with set theory used in mathematics. However, recent work has begun to study the relationship of mereology to set theory. See, e.g., LEWIS. For earlier works in mereology, see NELSON GOODMAN, THE STRUCTURE OF APPEARANCE, Ch. 2, [sections] 4, "The Calculus of Individuals" 33-40 (Vol. 3, 1977).

[6] Amos v. Department of Health and Rehabilitative Services, District IV,, 444 So. 2d 43, 47 (Fla. 1st D.C.A. 1983); State ex rel. Department of General Services v. Willis, 344 So. 2d 580, 590 (Fla. 1st D.C.A. 1977).

[7] FLA. STAT. [sections] 120.54.

[8] FLA. STAT. [sections] 120.54(1)(a).

[9] Booker Creek Preservation, Inc. v. Southwest Florida Water Management District, 534 So. 2d 419, 422 (Fla. 5th D.C.A. 1988).

[10] State v. Jenkins, 469 So. 2d 733, 734 (Fla. 1985); Florida Livestock Board v. Gladden, 76 So. 2d 291,293 (Fla. 1954); Canal Insurance Company v. Continental Casualty Company, 489 So. 2d 136, 137 (Fla. 2d D.C.A. 1986).

[11] In Straughn v. O'Riordan, 338 So. 2d 832, 834 n.3 (Fla. 1976), the court noted that the APA has as one of its principal goals "the abolition of `unwritten rules' by which agency employees can act with unrestrained discretion to adopt, change and enforce governmental policy...."

[12] McDonald, 346 So. 2d at 580, citing Straughn v. O'Riordan, 338 So. 2d at 834 n.3.

[13] McDonald, 346 So. 2d at 580.

[14] In McDonald, the court said: "[O]ther ... `officially stated agency policy' ... is ... recorded in agency orders ... catalogued by a subject-matter index ... [and] ... available for inspection and copying by the public.... "McDonald, 346 So. 2d at 582. See also Gessler v. Department of Business and Professional Regulation, 627 So. 2d 501,503 (Fla. 4th D.C.A. 1993) (indexing of orders is an important part of the administrative system of justice and the doctrine of stare decisis).

[15] Department of Highway and Safety and Motor Vehicles v. Florida Police Benevolent Association, 400 So. 2d 1302, 1304 (Fla. 1st D.C.A. 1981) (characterizing the proceeding as a "marginal rule challenge").

[16] Straughn, 338 So. 2d at 834 n.3.

[17] Patricia A. Dore, Florida Limits Policy Development Through Administrative Adjudication and Requires Indexing and Availability of Agency Orders, 19 FLA. ST. U. L. REV. 437, 437 (1991) ("[b]efore long ... the limited McDonald exception swallowed the rule.")

[18] Barker v. Board of Medical Examiners, 428 So. 2d 720, 722 (Fla. 1st D.C.A. 1983).

[19] Amos, 444 So. 2d at 47.

[20] McDonald, 346 So. 2d at 583. The original phrase in McDonald was "agency incentives." In Florida Police Benevolent-Association, 400 So. 2d at 1304, it became "other incentives."

[21] Barker, 428 So. 2d at 722; Florida Police Benevolent Association, 400 So. 2d at 1304. The requirement also forced the opposing party to either accept the agency's proof or incur the litigation costs associated with repeatedly "proving-down" the unpromulgated rule.

[22] Although known to grow in some farms, "Nuts" was the reply given by U.S. Army General Anthony McAuliffe to the German demand for surrender at Bastogne, Belgium on December 22, 1944. NEW YORK TIMES, December 28, 1944, p. 4.

[23] House of Representatives Committee on Governmental Operations Final Bill Analysis & Economic Impact Statement (HB 1879, 1991) at 3-4, Florida State Archives, Series 19, Box 2182.

[24] The expansive view rejected in the legislative history was enunciated in Southern Bell Telephone and Telegraph Company v. Florida Public Service Commission, 443 So. 2d 92, 97 (Fla. 1983); Florida Cities Water Company v. Florida Public Service Commission, 384 So. 2d 1280, 1282 (Fla. 1980); Florida League of Cities, Inc. v. Administration Commission, 586 So. 2d 397,406 (Fla. 1st D.C.A. 1991); Florida Power Corporation v. State of Florida Siting Board, 513 So. 2d 1341, 1343 (Fla. 1st D.C.A. 1987); Anheuser-Busch, Inc. v. Department of Business Regulation, 393 So. 2d 1177, 1181-1184 (Fla. 1st D.C.A. 1981);Hill v. School Board of Leon County, 351 So. 2d 732, 733 (Fla. 1st D.C.A. 1977).

[25] McDonald, 346 So. 2d at 580 and 583.

[26] McDonald, 346 So. 2d at 580-581. Policy-by-rule need not evolve. Agency policy can satisfy the statutory definition of a rule at its inception. See supra note 28.

[27] Amos, 444 So. 2d at 46. Compare Environmental Trust v. State, Department of Environmental Protection, 714 So. 2d 493, 501 (Fla. 1st D.C.A. June 3, 1998) (holding that reviewing courts must give "great weight" to the stated intent of the agency in determining whether a "revised rule" imposes new requirements or merely clarifies existing requirements).

[28] McDonald, 346 So. 2d at 580. Compare Amos, 444 So. 2d at 46 (holding that the policy statement was followed without discretion) with Environmental Trust, 714 So. 2d at 498 (rejecting the notion that an agency must adopt a rule for each "particular set of facts").

[29] Amos, 444 So. 2d at 47.

[30] FLA. STAT. [sections] 120.52(15). The elements discussed in the text are only some of the disjunctive requirements in the statutory definition of a rule.

[31] In Environmental Trust, 714 So. 2d at 501, the agency was facing a challenge to the alleged use of nonrule policy. The agency maintained that a new rule was not necessary. The court observed that the ALJ rejected that argument: "in favor of a finding that the Department had been applying an incipient non-rule policy." Compare Investment Corp. of Palm Beach v. Division of Pari-Mutuel Wagering, Department of Business and Professional Regulation, 714 So. 2d 589, 591 (Fla. 3d D.C.A. July 8, 1998) (holding that a declaratory statement was a rule because it was generally applicable) with Chiles v. Department of State, Division of Elections, 711 So. 2d 151, 154 (Fla. 1st D.C.A. May 12, 1998) (holding that "a declaratory statement is not transformed into a rule merely because it addresses a matter of interest to more than one person").

Daniel Manry is an administrative law judge. He received his B.S. and J.D. in 1968 and 1971, respectively, from the University of Florida and his Master of Laws in taxation from Georgetown University in 1983. He is a former assistant attorney general in the tax section of the Department of Legal Affairs; a bureau chief for the Department of Revenue; an associate with the law firm of Holland & Knight; and a Reginald Heber Smith Community Lawyer

This column is submitted on behalf of the Administrative Law Section, M. Catherine Lannon, chair, and Robert C. Downie II, editor