The Arizona Court of Appeals is not horsing around when it comes to agency adjudication
This week, the Arizona Court of Appeals closed the loop on the state’s recent legislative mandate for de novo review of agency decisions, officially ending substantial-evidence deference to agency-found facts. In doing so, the court followed Pacific Legal Foundation’s constitutional avoidance argument presented in our amicus brief and noted that both the United States Supreme Court and Arizona Supreme Court have suggested that reversing certain fact-finding on a cold record impacts due process.
Simms v. Simms involved two feuding brothers, Ron and Jerry, who co-own a horseracing track. Ron asked the Arizona Department of Racing to renew his longstanding racing license, but it was denied. The decision was influenced by evidence provided by Jerry in the form of “ten binders of adverse information to the Director” and input from Jerry’s counsel.
Thus, a brotherly joust ensued. Ron appealed the decision to an Administrative Law Judge (ALJ), who held a 21-day trial and ultimately agreed with Ron. The judge’s decision, however, went back to the Arizona Racing Commission, where Ron’s license renewal was denied. The Commission reversed the ALJ decision, modifying five of the latter’s factual findings and four of its legal findings. The Commission did so from a cold record—that is, without taking evidence or hearing witness testimony.
When Ron sought independent judicial review from the superior court, the court believed its hands were tied and that it was required to give broad deference to the Commission’s factual findings and consider only whether substantial evidence supported the Commission’s decision. Concluding that it did, the superior court upheld the Commission’s decision. Ron appealed, and the Commission cross-appealed.
Writing for the court of appeals’ panel, Judge Michael Catlett rejected the Commission’s argument that the Commission’s decision should be reviewed under the substantial-evidence standard. He explained that, previously, courts were “highly deferential” in reviewing agency fact-finding. Indeed, an agency’s factual determinations would be affirmed if there was “evidence which would permit a reasonable person to reach the agency’s result.”
But in 2021, the legislature wisely removed the factual deference and amended the statute to provide that in proceedings “by or against the regulated party,” a reviewing court must decide all factual questions without deference to previous conclusions by the agency.
As Judge Catlett correctly observed, this change means that reviewing courts do not determine whether a reasonable person would agree with the agency and instead merely review the decision independently.
This is great news for Arizonans (and for Ron). Without the legislature’s move to amend the statute, courts would be bound to defer to an agency head’s interpretation of its own alleged violation and the facts supporting it. Now, courts independently decide questions of law and fact in reviewing agency proceedings.
In practice, this has real-world implications—and the court here highlighted those for Ron. Had the substantial-evidence standard still applied, the court would be bound to resolve the brothers’ dispute with deference to the agency and the Commission would likely have prevailed. This, even though Jerry and his counsel provided evidence for, and helped draft, the very document denying Ron’s license, and perhaps had ex parte contact with the Commission during their proceeding that set aside the credibility determinations from the 21-day trial.
As PLF expressed in our amicus brief, Ron never received a fair shake: The initial hearing occurred in a proceeding without rules of evidence or procedure, the second hearing substituted findings the Commission preferred even though it did not hear any evidence first-hand, and the final hearing applied broad deference to the Commission’s findings.
With this first-of-its-kind decision by the Arizona court of appeals, the legislature’s prerogative of insisting that courts remain neutral arbiters was vindicated.
Factual deference to agency decisions eliminates the independent assessment of the underlying regulatory issue and infects hearings with due process concerns. Arizona has done work restoring due process to parties regulated by its dozens of agencies. Other jurisdictions should look to the Grand Canyon State for a blueprint.
