Top Five Points of Error, The - TDL

THE TOP FIVE POINTS OF ERROR

by J Bruce Bennett*

I. INTRODUCTION ......................................... 55II. WHAT ARE THE GROUNDS FOR APPEAL? ..................... 56III. WHAT STANDARD OF REVIEW WILL THE REVIEWING COURT

APPLY.? .............................................. 56A. Substantial Evidence ................................ 56B. Question of Law .................................... 57

IV. WHAT ARE THE TOP FIVE POINTS OF ERROR ON APPEAL? ....... 58A. Lack of Jurisdiction ................................. 58B. Lack of Statutory Authority ........................... 59C. Violation of the APA or Other Law ..................... 61D. Failure to Consider Relevant Statutory Factors or Improper

Consideration of Irrelevant Factors .................... 63E. Constitutional Violations ............................. 64

V. A NEW CONTENDER: LACK OF REASONED EXPLANATION WHENAN AGENCY DEPARTS FROM PRIOR POLICY .................. 65

VI. WHAT ABOUT SUBSTANTIAL EVIDENCE? . ... .. . .. .. .. .. . . .. . 67VII. CONCLUSION .......................................... 68

I. INTRODUCTION

Imagine this situation. Your client is licensed by a Texas stateadministrative agency or is subject to regulation by such an agency. After acontested case hearing, the agency rules against your client and renders a finalorder. An administrative appeal of this order may be sought based upon §2001.171 of the Texas Administrative Procedure Act (APA) that entitles "[a]person who has exhausted all administrative remedies available within a stateagency and who is aggrieved by a final decision in a contested case [to file apetition for] judicial review .... ."' If your client has authorized you to pursuean administrative appeal to the Travis County District Court, you are nowconfronted with the question of which points of error to assert in your brief.The aim of this article is to identify and discuss the points of error that havethe best chance for success on appeal.

* Mr. Bennett is a partner with Cardwell, Hart & Bennett, L.L.P. in Austin, Texas. He receivedhis B.B.A. in 1976 from the University of Texas and graduated summa cum laude in 1979 from SouthTexas College of Law, where he served as Ass't Lead Articles Editor of the South Texas Law Journal andwas a member of the Order of the Lytae. Mr. Bennett has been board certified in Civil Appellate Law bythe Texas Board of Legal Specialization since 1989.

1. TEx. Gov'T CODE ANN. § 2001.171 (Vernon 2000).

56 TEXAS TECH JOURNAL OF TEXASADMINISTRATIVE LAW [Vol. 4:55

II. WHAT ARE THE GROUNDS FOR APPEAL?

Section 2001.174 of the APA provides that a reviewing court:

shall reverse or remand the [administrative] case for further proceedings if[the appellant's substantial rights] have been prejudiced because the[agency's] findings, inferences, conclusions, or decisions are:

(A) in violation of a constitutional or statutory provision;(B) in excess of the agency's statutory authority;(C) made through unlawful procedure;(D) affected by other error of law;(E) not reasonably supported by substantial evidence consideringthe reliable and probative evidence in the record as a whole; or(F) arbitrary or capricious or characterized by abuse of discretionor clearly unwarranted exercise of discretion.2

You must base your points on one or more of these grounds for reversalThe question is which ground has the best chance of success. The answer tothis question will depend largely on the standard of review applicable to thepoint of error and on your ability to pierce the presumptions that guard theagency's decision on appeal.

III. WHAT STANDARD OF REVIEW WILL THE REVIEWING COURT APPLY?

In evaluating your client's chances for success on appeal, you must firstconsider the standard of review that will be applied to the point of error thatyou are asserting as well as any presumptions that you must overcome inorder to obtain a reversal and remand. 4

A. Substantial Evidence

The toughest standard of review for challenging an agency's decision is,by far, the substantial evidence test. In Nobles v. Employees' RetirementSystem of Texas,5 the Third Court of Appeals summarized the standards thatgovern a substantial evidence challenge:

2. TEx. Gov'T CODE ANN. § 2001.174 (Vernon 2000).3. See Id.4. See generally 2 TEX. JURL 3D Administrative Law §§ 158-222 (1995) (summarizing rules of

judicial review of agency orders in Texas).5. 53 S.W.3d 483 (Tex. App.-Austin 2001, no pet).


The agency's "findings, inferences, conclusions, and decisions ... arepresumed to be supported by substantial evidence," and the appellant mustshow otherwise.6

1. The reviewing court may not substitute "its judgment for that ofthe agency [concerning] the weight of the evidence of questionscommitted to the agency discretion."7

2. "Substantial evidence is more than a scintilla, but the evidencein the record may [actually] preponderate against the decision of theagency and nonetheless amount to substantial evidence."'3. "The true test is not whether the agency reached the correctconclusion, but whether some reasonable basis exists in the recordfor the action taken by the agency.""4. "The agency's action will be sustained if the evidence is suchthat reasonable minds could have reached the conclusion that theagency must have reached in order to justify its action."'0

B. Question of Law

The standard for reviewing an issue that is based on a question of law ismuch more lenient than the substantial evidence test. Unlike its fact findings,the agency's legal determinations have no presumption of validity and arereviewed de novo, even when the appeal is governed by the substantialevidence rule." Bear in mind, however, that reviewing courts tend to deferto the agency's interpretation of the statute or rule from which the question oflaw arises. 2 Also, if the reviewing court determines that the agencycommitted an error of law, you still must overcome a harmless error analysisin order to obtain a reversal and remand." In other words, you must

6. Id. at 490 (citing City of League City v. Tex. Water Comm'n, 777 S.W.2d 802, 805 (Tex.App.-Austin 1989, no writ)); see also Tex. Health Facilities Comm'n v. Charter Med.-Dallas, Inc., 665S.W.2d 446, 452 (Tex. 1984) (authorizing a "reviewing court to test an agency's findings, inferences,conclusions, and decisions to determine whether they are reasonably supported by substantial evidencein view of the reliable and probative evidence in the record as a whole.").

7. Nobles, 53 S.W.3d at 490-91.8. Id. at491.9. Id.

10. Id.11. Firemen's Pension Comm'n v. Jones, 939 S.W.2d 730, 735 (Tex. App.-Austin 1997, no writ);

Sonic Drive-In of Raymondville, Tex., Inc. v. Hernandez, 797 S.W.2d 254, 255-56 (Tex. App.-CorpusChristi 1990, writ denied).

12. See Gene Hanon Ford, Inc. v. David McDavid Nissan, 997 S.W.2d 298, 305 (Tex.App.-Austin 1999, pet. denied).

13. See Nobles, 53 S.W.3d at 489-90 (holding that even though the agency misplaced the burdenof proof in a contested case proceeding, the error was harmless); see also TEX. R. Civ. P. 44.1 (stating thatharmless error does not merit reversal).

2003]

58 TEXAS TECH JOURNVAL OF TEXAS ADMINISTRATIVE LAW [Vol.4:55

demonstrate injury to the substantial rights of your client before the reviewingcourt will grant a reversal and remand.' 4

IV. WHAT ARE THE TOP FIVE POINTS OF ERROR ON APPEAL?

The following are my own candidates for inclusion on a top five list.While it is difficult to rank these points in order of precedence, I have usedmy experience to rank them from most likely to least likely to succeed. If youare able to show the presence of any one of them in your case, the likelihoodof a reversal is high, despite the presence of substantial evidence in theadministrative record.

A. Lack of Jurisdiction

'An agency is not allowed to waive jurisdictional requirements." 5 Ifjurisdiction is lacking, or the agency's jurisdiction was not properly invoked,then a reversal is almost certain to follow.'6 Therefore, in examining the casefor appeal, you should determine (1) whether the agency had subject matterjurisdiction over the controversy involving your client, and if so, (2) whetherthe agency properly invoked its jurisdiction.

A recent example of the failure to invoke an agency's jurisdictionoccurred in American Honda Motor Co. v. Texas Department ofTransportation-Motor Vehicle Division." In this case, Honda, an automobilemanufacturer, refused to allow Dupriest, the dealer, to sell its Acuradealership. 8 Dupriest filed a complaint accusing Honda of violating §5.02(b)(8) of the Texas Motor Vehicle Commission Code (Code). 9 Thissection of the Code makes it unlawful for a manufacturer to fail to give effectto or attempt to prevent the sale or transfer of a dealership unless theprospective transferee is unqualified." But before Dupriest filed its complaintin September 1997, the Texas Legislature, with House Bill 1595, effectiveJune 11, 1997, amended § 5.02(b)(8) and established that a protest by a dealerwas the procedural mechanism for challenging a manufacturer's refusal toallow a dealer to sell or transfer its dealership.2 The Texas Motor Vehicle

14. Nobles, 53 S.W.3d at 489-90; see also TEx. GOV'T CODE ANN. § 2001.174(2) (Vernon 2002)(*[A court] shall reverse or remand the case for further proceedings if substantial rights of the appellanthave been prejudiced .... *).

15. Testoni v. Blue Cross & Blue Shield of Tex., Inc., 861 S.W.2d 387, 391 (Tex. App.-Austin1992, no writ), overruled on other grounds, Montgomery v. Blue Cross & Blue Shield of Tex., Inc., 923S.W.2d 147 (Tex. App.-Austin 1996, writ denied).

16. See id. (reversing district court and dismissing cause for lack ofjurisdiction).17. 47 S.W.3d 614 (Tex. App.-Austin 2001, pet. denied).18. Id. at 617.19. Id.20. TEx. REV. Civ. STAT. ANN. art. 4413(36). § 5.02(b)(8) (Vernon Supp. 2003).21. Am. Honda Motor Co., 47 S.W.3d at 619 (referring to the procedural method set forth in


Board (Board) considered Dupriest's complaint and assessed a penalty of$10,000.00 against Honda for violating § 5.02(b)(8)." The Third Court ofAppeals reversed, holding that House Bill 1595 had rescinded the dealer'sright to challenge the manufacturer's refusal to approve a transfer by filing acomplaint." The Court of Appeals ruled that Dupriest's complaint thus didnot invoke the Board's jurisdiction to hear Dupriest's challenge to Honda'srefusal to approve the sale or transfer of the dealership.24

Remember that ajurisdictional challenge can be made even if your clientdid not assert it in the motion for rehearing filed with the agency.2" This canbe asserted because a lack of subject matter jurisdiction is fundamental errorand may be raised at any time.26

B. Lack of Statutory Authority

Closely associated with lack of jurisdiction is a lack of statutoryauthority. An agency may have jurisdiction over a controversy, but still lackthe statutory authority to order particular relief or to promulgate a particularrule."

An agency's lack of authority is often a fruitful source of error. This isso because administrative agencies, as creatures of statute, have no inherentauthority.' State agencies may therefore exercise only those specific powersthat the law confers in uclear and unmistakable language."29 An "agency maynot, on a theory of necessary implication from a specific power, function, orduty expressly delegated, erect and exercise a new or additional power or apower that contradicts the statute. "" Also, the courts have rejected the notionthat an agency can exercise a new power solely for administrative purposes

§ 5.02(b)(8) of the Texas Motor Vehicle Commission Code).22. Id. at 618.23. Id. at 626.24. Id.25. Id. ([Wlhen the Board's jurisdiction is predicated entirely on a claim presented by a private

party, that party must be able to properly invoke the Board's jurisdiction.').26. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440,445 (Tex. 1993).27. See Pub. Util. Comm'n v. GTE Southwest, Inc., 901 S.W.2d 401,404-08 (rex. 1995).28. id. at 406; Sexton v. Mount Olivet Cemetery Ass'n, 720 S.W.2d 129, 137 (Tex. App.-Austin

1986, writ refd n.r.e.).29. Pub. Util. Comm'n v. City Pub. Serv. Bd. of San Antonio, 53 S.W.3d 310,315-16 (Tex. 2001);

Kawasaki Motors Corp. United States v. Tex. Motor Vehicle Comm'n, 855 S.W.2d 792, 797 (Tex.App.-Austin 1993, no writ).

30. Am. Honda Motor Co. v. Tex. Dep't of Transp.-Motor Vehicle Div., 47 S.W.3d 614, 624(Tex. App.-Austin 2001, pet. denied); see also City Pub. Serv. Bd of San Antonio, 53 S.W.3d at 316(holding that an *agency may not, however, exercise what is effectively a new power, or a powercontradictory to the statute, on the theory that such a power is expedient for administrative purposes.').

2003]

60 TEXAS TECH JOURNAL OF TEXAS ADMINISTRATIVE LAW [Vol.4:55

of expediency." This is especially true of an agency's enforcement powers,which generally cannot be implied. 2

There are numerous examples of recent cases in which agenciesexceeded their statutory authority. In Sportscoach Corp. ofAmerica v. EastexCamper Sales, Inc.," the Third Court of Appeals ruled that the Texas MotorVehicle Board (Board) had exceeded its statutory authority by awardingdamages to a terminated recreational vehicle (RV) dealer against the RVmanufacturer. 4 The Board's award arose out of the manufacturer's violationof the Texas Motor Vehicle Commission Code (Code). 5 The Court ofAppeals ruled that the Code empowered the Board to impose civil penaltiesand to issue cease and desist orders, but did not give the Board the authorityto order the payment of damages to a private party.36

In Employees'Retirement System v. Jones,37 the Third Court of Appealsruled that the Employees' Retirement System (ERS) had exceeded itsauthority in promulgating a rule which denied insurance coverage to adisabled dependent child if the child was not enrolled in the Uniform GroupInsurance Plan before the child's twenty-fifth birthday.38 The court held thatthe agency rule conflicted with the Texas Employees Uniform GroupInsurance Benefits Act.39 Although courts give deference to an agency'sconstruction or interpretation of a statute that it administers," the courts arenot bound by the agency's interpretation or construction of a statute.4 ' TheThird Court of Appeals enforced the rule that an agency's construction mustnot contradict the plain language of the statute and held that the ERS's ruledid so."2

In Bexar County Civil Service Commission v. Casals,43 the Fourth Courtof Appeals affirmed a district court's ruling that the Bexar County CivilService Commission (Commission) had rendered an order in excess of itsstatutory authority when it violated its own rule which required an adverseaction against an employee be dismissed if the department head was unableto attend a hearing on the complaint against the employee.44 Despite the

31. Sexton, 720 SW.2d at 138.32. Kawasaki, 855 S.W.2d at 798.33. 31 S.W.3d 730 (Tex. App.-Austin 2000, no pet.).34. Jd. at 736.35. Id.36. Id.37. 58 S.W.3d 148 (Tex. App.-Austin 2001, no pet.).38. Id. at 153.39. Id. at 153-54.40. Pub. Util. Comm'n v. Gulf States Utils. Co., 809 S.W.2d 201,207 (Tex. 1991).41. Brown Exp., Inc. v. R.R. Comm'n, 415 S.W.2d 394, 397 (Tex. 1967).42. Jones, 58 S.W.3d at 153.43. 63 S.W.3d 57 (rex. App.-San Antonio 2001, no pet.).44. Id. at62.


department head's failure to appear, the Commission proceeded with thehearing and took adverse action against the employee.45

In Public Utility Commission v. City Public Service Board of SanAntonio,' the Texas Supreme Court ruled that the Public Utility Commissionhad exceeded its statutory authority in establishing wholesale transmissionrates for municipally owned utilities.47 The Court reaffirmed "the basic rulethat a state administrative agency has only those powers that the legislatureexpressly confers upon it."4" The Court acknowledged that an agency mayhave implied powers, but ruled that such powers exist only to the extent whichthey are ureasonably necessary to carry out the express responsibilities givento [the agency] by the legislature."49

Although an excess of statutory authority point is subject to a de novoreview,' keep in mind that the reviewing court will give serious considerationto the agency's interpretation of any ambiguities in its enabling statute and ofthe statutes it administers and enforces, especially if these statutes involvecomplex subject matter.' If an ambiguous portion of such a statute can bereasonably read as the agency has interpreted it, and that reading is inharmony with the rest of the statute, then the Third Court of Appeals has ruledthat reviewing courts are bound to accept the agency's interpretation even ifother reasonable interpretations exist.5 2

C. Violation of the APA or Other Law

Besides their enabling statutes and the statutes they administer andenforce, most state administrative agencies and their actions are subject to theAPA."3 When the legislature has created a statutory procedure which isapplicable to a state agency, that procedure ordinarily excludes all others andmust be followed by the agency. 4 Therefore, if you are satisfied that theagency had subject matter jurisdiction over your client's case and that theagency did not exceed its statutory authority, you should examine the

45. Id.46. 53 S.W.3d 310 (Tex. 2001).47. Id. at 315-16.48. Id. at 315.49. Id.50. Whether an agency exceeded its statutory authority is a question of law. 2 TEX. JUR. 3D

Adninistrative Law § 184 (1995). Questions of law are reviewed de novo. See discussion supra Part III.B.51. See Steering Comms. for Cities Served by TXU Elec. v. Pub. Util. Comm'n, 42 S.W.3d 296,

300 (Tex. App.-Austin 2001, no pet.); Berry v. State Farm Mut. Auto Ins. Co., 9 S.W.3d 884, 890 (Tex.App.-Austin 2000, no pet.).

52. Berry, 9 S.W.3d at 893.53. 2TEx.JuR. 3D§§ 1,4.54. Balios v. Tex. Dept. of Pub. Safety, 733 S.W.2d 308, 311 (rex. App.-Amarillo 1987, writ

ref'd) (reversing a license suspension because agency failed to provide licensee the hearing mandated bystatute).

2003]

62 TEXAS TECH JOURNAL OF TEXASADMINISTRATIVE LAW [Vol. 4:55

agency's decision for compliance with the APA, s and any other applicablestatute, such as the Open Meetings Act.'

The APA contains several requirements that reviewing courts have beenwilling to enforce by reversing the agency's decision. A recent exampleincludes an agency's failure to comply with § 2001.058(e) of the APA, whichapplies to cases assigned to an administrative law judge (ALJ) employed bythe State Office of Administrative Hearings (SOAH)." Subsection (e)provides that "[a] state agency may change a finding of fact or conclusion oflaw made by the administrative law judge ... only for reasons of policy. Theagency shall state in writing the specific reason and legal basis for a changemade under this subsection. ""

In Employees' Retirement System v. McKillip,5' the Third Court ofAppeals affirmed the district court's reversal of an order from the Employees'Retirement System (ERS) order denying disability benefits.' The ERS hadrejected certain findings of fact and conclusions of law made by a SOAHjudge." The ERS sought to satisfy the requirements of § 2001.58(e) with ageneral statement of its reason for rejecting the AL's findings andconclusions,'2 namely, the AL's failure to correctly apply the burden of proofto the facts.'3 The Third Court of Appeals found this statement insufficientand held that § 2001.058(e) required the ERS to state in its final order thefollowing:

1. The agency's construction of the policy exclusion (if that wasthe policy provision intended) and a rational connection betweenthat construction and the changes the agency made in the findingsof fact and conclusions of law;" and2. A rational connection between the agency's placing the burdenof proof upon McKillip and the changes the agency made in thefindings of fact and conclusions of law, especially in light of thefact that the AU's proposal for decision indicates that she placedupon McKillip the burden of proof throughout.'

55. TEx. Gov'T CODE ANN. §§ 2001.001-.902 (Vernon 2000 & Supp. 2003).56. TEx. Gov'TCoDE ANN. § 551.001 (Vernon 2000 and Supp. 2003).57. See Employees' Ret. Sys. v. McKillip, 956 S.W.2d 795 (Tex. App.-Austin 1997, no pet.),

overruled inpart by Tex. Natural Res. Conservation Comm'n v. Sierra Club, 70 S.W.3d 809 (Tex. 2002).58. Id. at 800 (citing TEX. GOV'T CODE ANN. § 2001.058(e) (Vernon 2000) (emphasis added)).59. 956 S.W.2d 795 (rex. App.-Austin 1997, no pet.), overruled in part by Tex. Natural Res.

Conservation Comm'n v. Sierra Club, 70 S.W.3d 809 (Tex. 2002).60. Id. at 801.61. Id.62. Id.63. Id.64. Id.65. Id. at 801-02.


Relying on its McKillip decision, the Third Court of Appeals, in Levy v.Texas State Board of Medical Examiners,' reversed a final order of the TexasMedical Board, holding that the Board had failed to articulate its reasons forrejecting portions of the SOAH judge's proposal for decision:

[S]ection 2001.058(e) and our decision in McKillip require the Board tospecify the reasons why each of the ALJ's finding of fact and conclusion oflaw is against the weight of the evidence, based on unsound medicalprinciples, and/or not sufficient to protect the public interest. Here, theBoard has generically stated in a single conclusion of law multiple reasonsfor all of the changes made to the ALJ's proposal for decision. We made itclear in McKillip that the Board is required to articulate specifically itsreasons for each individual change made.'

Besides being subject to the APA, most state agencies are subject to theOpen Meetings Act." In Acker v. Texas Water Commission,"9 the TexasSupreme Court ruled that an agency's proven failure to comply with the OpenMeetings Act would result in a reversal and remand of the agency's decision.7"

D. Failure to Consider Relevant Statutory Factors or ImproperConsideration of Irrelevant Factors

You should carefully examine the agency's final order for error. Areviewing court will likely conclude that the agency's decision is arbitrary andcapricious if the final order embodying the agency's decision shows that theagency "(1) failed to consider a factor the legislature [sic] directs it toconsider; (2) [relied upon] an irrelevant factor [or factors]; or (3) weigh[ed]only relevant factors that the legislature [sic] directs it to consider but stillreache[d] a completely unreasonable result."7" You should keep in mind thatin disposing of an arbitrary and capricious point, the reviewing court willconsider all relevant factors and may not substitute its judgment for that of theagency.7

A good example of an arbitrary and capricious decision occurred inPublic Utility Commission v. South Plains Electric Co-Op.n There, the ThirdCourt of Appeals reversed a decision of the Public Utility Commission(Commission) because it was not based on any criterion or standard found in

66. 966 S.W.2d 813, 816 (Tex. App.-Austin 1998, no pet.).67. Id.68. TEx. GOVT CODE ANN. § 551.001 (Vernon Supp. 2003).69. 790 S.W.2d 299 (rex. 1990).70. Id. at 302.71. City of El Paso v. Pub. Util. Comm'n, 883 S.W.2d 179, 184 (rex. 1994).72. Pub. Util. Comrn'n. v. Gulf States Utils. Co., 809 S.W.2d 201,202 (rex. 1991).73. 635 S.W.2d 954, 958 (Tex. App.-Austin 1982, writ ref'd n.r.e.).

2003]

64 TEXAS TECH JOURNAL OF TEXASADMINISTRATIVELAW [Vol. 4:55

the relevant statute or in any Commission rule or regulation. 4 Also, inConsumers Water, Inc. v. Public Utility Commission," the Third Court heldthat the agency's consideration of relevant statutory factors must be reflectedby proper findings and conclusions."

In short, your arbitrary and capricious point will have a good chance ofbeing sustained if you can show that the agency's order fails to provide arational connection among the facts, the statutory factors, and the agency'sdecision."

E. Constitutional Violations

Another arbitrary and capricious point that will likely succeed is one thatis based on an agency's denial of due process." For example, in Texas StateBoard of Pharmacy v. Seely,79 the Third Court of Appeals affirmed thereversal of an agency order for failure to give a licensee proper notice of thecharges against him:

We believe . . . that Seely [the licensee] was unquestionably entitled tonotice, before the hearing, of the legal norms or standard that would beapplied to the undisputed factual grounds upon which the Boardcontemplated revoking Seely's license .... More than a quotation from thecontrolling statute may be required, by way of 'notice,' under thecircumstances of a particular contested case, if the licensee is to receive both'reasonable notice' and 'due process of law as guaranteed by the State andFederal Constitutions." °

The Third Court of Appeals already had emphasized the importance ofdue process in agency proceedings in Madden v. Texas Board of ChiropracticExaminers.8' There, the district court affirmed an agency order that denied theappellant permission to take a licensing examination." The Third Court ofAppeals reversed, holding that the agency had not ultimately settled on the

74. Id.75. 774 S.W.2d 719 (rex. App.-Austin 1989, no writ).76. Id. at 721-22.77. Cf Starr County v. Star Indus. Sers., Inc., 584 S.W.2d 352, 356 (Tex. Civ. App.-Austin

1979, writ ref d n.r.e.) (invalidating agency order where there was lack of a rational connection betweenthe facts and the agency decision).

78. See Lewis v. Metro. Sav. & Loan Ass'n, 550 S.W.2d 11, 16 (rex. 1977); Kawasaki MotorsCorp. United States v. Tex. Motor Vehicle Comm'n, 855 S.W.2d 792, 795 (Tex. App.-Austin 1993, nowrit).

79. 764 S.W.2d 806 (Tex. App.-Austin 1988, writ denied).80. Id. at 814.81. 663 S.W.2d 622 (Tex. App.-Austin 1983, writ refd n.r.e.).82. Id.

THE TOP FIVE POIN7S OF ERROR

controlling definition of a key statutory terr-"bona fide reputablechiropractic school"-until it rendered its final order:

To be meaningful, "notice" and "hearing" require previous notice and ahearing relative to the issues of fact and law which will control the result tobe reached by the administrative tribunal .... Madden [the licenseapplicant] was entitled, at minimum, to notice and an opportunity to directevidence and argument at whatever narrower issues of reliability, validity,and reputability were encompassed within [a "bona fide chiropractic school"]

83

In Flores v. Employees'Retirement System,u the Third Court of Appealsrelied on Seely and Madden to hold that the ERS was required to giveprehearing notice of its intention to depart from its previous decisions andapply a new policy to a claim for occupational disability benefits."

Texas Appellate Courts also have ruled that a denial of the right to crossexamination, which is secured by § 2001.087 of the APA, constitutes a dueprocess violation." In Rector v. Texas Alcoholic Beverage Commission,' theTexas Supreme Court reversed the denial of a liquor license because theapplicant had been denied the right of cross examination."' The Court ruledthat the agency failed to provide the applicant "due process because he wasdenied these basic and traditional tools for searching out the truth." 9

A statute or rule that forms the basis for an adverse decision against yourclient may be unconstitutional and attacked in the reviewing court.'o

V. A NEW CONTENDER: LACK OF REASONED EXPLANATION WHEN ANAGENCY DEPARTS FROM PRIOR POLICY

The Third Court of Appeals seems to have breathed new life into thedoctrine that an administrative agency must provide the parties to a contested

83. Id. at 626-27.84. 74 S.W.3d 532 (Tex. App.-Austin 2002, pet. filed).85. Id. at 545.86. Rector v. Tex. Alcoholic Beverage Comm'n, 599 S.W.2d 800, 801 (Tex. 1980); J.B. Adver.,

Inc., v. Sign Bd. of Appeals, 883 S.W.2d 443,449 (rex. App.-Eastland 1994, writ denied).87. 599 S.W.2d 800 (Tex. 1980).88. Id. at 800.89. Id. at 801; see also Richardson v. CityofPasadena, 513 S.W.2d 1, 4 (Tex. 1974) ("'The right

to cross examine adverse witnesses and to examine and rebut all evidence is not confined to court trials,but applies also to administrative hearings.') (citing I DAvis, ADIMnsTRiATIVE LAW TREATISE § 7.02, at412 (1958)); JB. Adver., Inc., 883 S.W.2d at 449 (holding that the appellants' right to due course of lawunder Texas Constitution was denied by a requirement that their attorney direct cross examinationquestions to the chair of the agency who then referred the questions to the witness).

90. See Cent. Power & Light Co. v. Sharp, 960 S.W.2d 617, 618 (Tex. 1997) (holding that thedistrict court properly exercised jurisdiction over plaintiffs claim that the statute underlying thechallenged agency order was unconstitutional).

2003]

66 TEXAS TECH JOURNAL OF TEXAS ADMINISTRATIVE LAW [Vol.4:55

case proceeding with a reasoned explanation when the agency materiallydeparts from prior policy or when there exists an apparent inconsistency in theagency's decisions.9' In Flores v. Employees'Retirement System,92 the ThirdCourt of Appeals ruled that the ERS had acted arbitrarily and capriciously infailing to adequately explain the reasoning behind its departure from agencyprecedent in denying Flores's claim for occupational disability benefits.93

Federal courts, in particular, have enforced this doctrine on the groundthat an administrative agency must apply the same basic rules of decision toall similarly situated persons who come before it." Fairness demands that theagency apply its policies, rules, and statutes evenhandedly." Although anagency retains the freedom to overrule its prior policies or decisions in thelight of changed circumstances or in the public interest, the agency should notapply significantly inconsistent policies that spawn "conflicting lines ofprecedent governing the identical situation."' Improperly implementedchanges in an agency's policies or precedents "can do a great deal of violenceto members of the regulated industry and will go a long way towardsundermining public confidence in government institutions."'97 Indeed, publicconfidence in the fairness of agency adjudication is seriously eroded when anagency gives the appearance of flitting "serendipitously from case to case, likea bee buzzing from flower to flower, making up the rules as it goes along.""5

Or, as the First and Fifth Circuits have declared, "[t]here may not be a rule forMonday, another for Tuesday ....

To maintain public confidence, an agency must supply a reasonedexplanation when it treats similarly situated persons or transactionsdissimilarly."° Imposing a reasoned explanation requirement prevents theagency from changing its policies or departing from its precedents "withoutconscious awareness of, and consideration of the need for, change."' 0'

91. UAW v. NLRB, 802 F.2d 969,974 (7th Cir. 1986) ("[Aln administrative agency is not allowedto change direction without some explanation of what it is doing and why.').

92. 74 S.W.3d 532 (Tex. App.-Austin 2002, pet. filed).93. Id. at 544-45.94. Kelly v. United States, 34 F. Supp. 2d 8, 15 (D.C. Cir. 1998); see also Petroleum

Communications, Inc. v. FCC, 22 F.3d 1164, 1172 (D.C. Cir. 1994); New Orleans Channel 20, Inc. v.FCC, 830 F.2d 361,366 (D.C. Cir. 1987).

95. See Kelly, 34 F. Supp. 2d at 15.96. Shaw's Supermarkets, Inc., v. NLRB, 884 F.2d 34, 37 (st Cir. 1989) (quoting NLRB v. Int'i

Union of Operating Eng'rs Local 925, 460 F.2d 589, 604 (5th Cir. 1972)).97. WILLIAM F. Fox, UNDERSTANDING ADMINISTRATIVE LAw 348 (4th ed. 2000).98. Henry v. INS, 74 F.3d 1, 6 (1st Cir. 1996).99. nt!l Union of Operating Eng'rs Local 925, 460 F.2d at 604 (quoting Mary Carter Paint Co.

v. FFC, 333 F.2d 654, 660 (5th Cit. 1964), revd on other grounds, 382 U.S. 46 (1965)).100. Baltimore Gas & Elec. Co. v. Heintz, 760 F.2d 1408, 1418 (4th Cir. 1985); see also 2 K.

DAVIS, ADMINISTRATIVE LAW TREATISE § 8:9, at 198 (1978) ('he dominant law clearly is that an agencymust either follow its own precedents or explain why it departs from them.').

101. Puerto Rican Cement Co. v. EPA, 889 F.2d 292, 299 (1st Cir. 1989).


Must the reasoned explanation be set forth in the agency's decision? Theanswer appears to be yes.12 Federal courts have ruled that an agency's reasonfor departing from prior precedent cannot make its first appearance in judicialreview proceedings. 3

So, when a Texas state agency, without explanation, departs significantlyfrom its precedents in deciding an issue that adversely affects the losingparty's substantial rights, that party may now be in a positioAI to seek reversalof the agency order on the ground that it is arbitrary and capricious. If thereviewing court sustains this point, then the court should remand the case tothe agency so that the agency can attempt to reconcile its current decision withits precedents or supply a reasoned justification for its refusal to follow thoseprecedents in the instant case.)°

Whether a point of error based on this doctrine can break into the "TopFive" will depend on the willingness of the Texas courts to follow Flores andgive it a meaningful application.

VI. WHAT ABOUT SUBSTANTIAL EVIDENCE?

You are probably wondering about points of error that assert the lack ofsubstantial evidence to support a key finding made by the agency. In thiswriter's experience, substantial evidence points rarely succeed. The purposeof the substantial evidence rule is to let the agencies, rather than the courts,administer regulatory statutes."°5 To carry out this purpose, the courts haveerected a very deferential standard of review for substantial evidence points."°

As discussed earlier, in applying the substantial evidence test, thereviewing court presumes that the agency's "findings, inferences, conclusions,and decisions.. are ... supported by substantial evidence. " "°7 The appellantmust defeat this presumption.""8 Whether the agency reached a correctconclusion is irrelevant as long as the reviewing court can find somereasonable basis in the record for the agency's action.I When the evidence

102. see CHARLES H. KOCH, JR., ADMINISTRATIVE LAW AND PRACTICE § 5.67 (2d ed. 1997).103. Citizens Awareness Network, Inc. v. NRC, 59 F.3d 284, 291 (1st Cir. 1995) ('Courts should

not attempt to supply a reasoned basis for the action that the agency itself has not given."); Int ' Union ofOperating Eng'rs Local 925, 460 F.2d at 604 ('Explanations proffered in briefs at the appellate level arenot an adequate substitute for a reasoned explanation of the result reached in the decision itself').

104. See WLOS TV, Inc. v. FCC, 932 F.2d 993, 998 (D.C. Cir. 1991) (vacating FCC order andremanding case where FCC's reasoning was inconsistent with its reasoning both in prior and subsequentcases involving other parties); Frozen Food Exp., Inc. v. United States, 535 F.2d 877, 880 (5th Cir. 1976)(vacating ICC order and remanding case because of ICC's lack of evenhanded treatment of parties).

105. Lewis v. Metro. Say. & Loan Ass'n, 550 S.W.2d 11, 13 (Tex. 1977).106. Tex. R.R. Comn'n v. Torch Operating Co., 912 S.W.2d 790, 792 (Tex. 1995).107. Stratton v. Austin Indep..Sch. Dist., 8 S.W.3d 26, 30 (Tex. App.-Austin 1999, no pet.).108. See id.109. City of El Paso v. Pub. Util. Comm'n, 883 S.W.2d 179, 185 (Tex. 1994).

2003]

68 TEXAS TECH JOURNAL OF TEXAS ADMINISTRATIVE LAW [Vol. 4:55

is contradictory, the reviewing court resolves the conflict in the agency'sfavor.1

0

For these reasons, asserting a substantial evidence point will generallybe a waste of your client's money and the court's time. You should resist thetemptation to assert such a point unless (1) there truly is no evidence tosupport a key agency finding, (2) you have asserted a legal challenge that, ifsuccessful, will wipe out the only evidence supporting a key finding, or (3)you have asserted a legal challenge that, if successful, will create or exposea gap in the proof."'

For example, suppose that the only evidence supporting a statutorilyrequired finding is the testimony of an expert. The ALJ and the agencyrejected your Daubert/Robinson"2 challenge to the qualifications of thisexpert or to the reliability of his or her opinion. If, however, the reviewingcourt concludes that the agency abused its discretion in refusing to excludethis testimony, then a substantial evidence attack on the finding shouldsucceed. A similar result can occur if an agency's misunderstanding of thelaw results in the failure to prove an essential element of the contested case.

In reviewing the agency record, you must keep in mind that the agency'saexpertise is not a substitute for proof.""' A "valid exercise of agencyexpertise, like other agency action, must find ultimate support upon evidencetaken at the hearing or upon facts officially noticed by the hearing officer inthe record of such hearing.""' Also, substantial evidence does not includetestimony that is inadmissible." 5

VII. CONCLUSION

A party seeking to overturn a state agency's decision on appeal facesformidable obstacles. However, state agencies do commit error, and if theerror is clear and has been preserved, the reviewing court will in most casesreverse and remand the case for further agency proceedings.

110. Lone Star RV Sales, Inc. v. Motor Vehicle Bd., 49 S.W.3d 492, 501 (rex. App.-Austin 2001,no pet); see Torch Operating Co., 912 S.W.2d at 792-93. The court also will resolve any ambiguity inthe evidence in the agency's favor. Firemen's & Policemen's Civil Serv. Comm'n v. Brinkmeycr, 662S.W.2d 953, 956 (Tex. 1984).

111. See, e. g., Tex. R.R Comm'n v. Lone Star Gas Co., 611 S.W.2d 911, 913 (rex. Civ.App.-Austin 1981, writ refd n.r.e.); Tex. Real Estate Comm'n v. Hinde, 627 S.W.2d 537, 538-39 (Tex.App.-Fort Worth 1982, no writ).

112. See Daubert v. Merrell Dow Pharm, Inc., 509 U.S. 579 (1993); E.i. du Pont de Nemours & Co.v. Robinson, 923 S.W.2d 549 (Tex. 1995).

113. LoneStarGasCo.,611S.W.2dat913.114. Id.115. See Brlnlneyer, 662 S.W.2d at 956 (Tex. 1984); Dienst V. Tex. Alcoholic Beverage Comm'n,

536 S.W.2d 667, 669 (Tex. Civ. App.--Corpus Christi 1976, no writ) (explaining that parties may submitonly relevant legal testimony at trial court on an appeal from a permit application denial).

Documents

Top Five Points of Error, The - TDL