Jerrel v. State, Department of Natural Resources

999 P.2d 138, 2000 Alas. LEXIS 27, 2000 WL 309266

• Court: Alaska Supreme Court
• Decided: March 24, 2000
• Docket: S-8436
• Status: Published

Opinions

OPINION

FABE, Justice.

I. INTRODUCTION

State regulations require that holders of state grazing leases mark their livestock. When neighbors complained about the horses on Dan and Viola Jerrel’s grazing leases, the Department of Natural Resources terminated the leases on the ground that the Jerrels had failed to brand their horses. Yet neithpr Alaska statutes nor relevant regulations require that horses be marked with a brand so that these marks may be .visible at twenty feet. Because DNR’s ad hoc interpretation of the livestock marking requirement is a regulation that was not adopted in accordance with the Administrative Procedure Act, we reverse.

II. FACTS AND PROCEEDINGS

Dan and Viola Jerrel have ranched horses in Alaska since 1963. In that year, the Jer-rels entered into a lease with the State for use of ranch land in the Ohlson Mountain area northwest of Homer.¹ During the next eleven years, the Jerrels signed three other leases for land in the same area.² Each lease obligates the Jerrels to abide by state land use regulations.

In 1987 Ohlson Mountain area landowners complained to authorities about loose horses causing property damage and posing a safety hazard on their lands. They alleged that these horses belonged to the Jerrels, but the horses could not be identified definitively because they were not marked.

In January 1988 three. DNR officials met with the Jerrels and the complaining landowners to discuss various problems, including identification of the horses. In March DNR notified the Jerrels of the complaints and recommended that they deal with the roaming horses, perhaps by fencing. In April and June DNR officials met with the Jerrels to discuss land conditions and compliance with the lease terms, but they did not discuss marking of the Jerrels’ horses.

In November 1989 a neighboring landowner, Ed Bailey, threatened to sue the State for failure to hold the Jerrels responsible for their horses. In December Bailey complained to the State’s ombudsman investigator. Bailey also complained to DNR that the Jerrels had not complied with an Alaska regulation requiring that livestock on state grazing leases be marked or branded. In reply DNR informed Bailey that it did not enforce the marking requirements because of the lack of personnel and funding:

You referred to the requirement under regulations [sic] 11 AAC [Alaska Administrative Code] 60.070 to properly identify animals on grazing leases. This regulation has been in effect since 4/16/70 but due to lack of personnel and funding has never been enforced. Statewide enforcement of this regulation would affect reindeer herds as well as conventional grazing, requiring a significant increase in staffing and funding to administer.

In February and March 1990 Bailey wrote to DNR’s commissioner requesting that it take action against the Jerrels. On May 14, DNR officials met with Bailey and other area residents to “discuss their concerns.”

As a result of its investigation, the state ombudsman chastised DNR for inefficient enforcement of the Jerrels’ lease requirements. The ombudsman recommended that DNR review the lease files for violations, and, “[i]f remedial action as stipulated in the lease agreements (30 days after notification) is not taken by the Jerrels, termination proceedings should begin and be followed through diligently.”

Prior to receiving the ombudsman’s final report, DNR sent notice to the Jerrels on June 28, requiring them to comply with 11 AAC 60.070³ by marking their horses and registering the mark with the State Division of Agriculture. The letter further elaborated that the marks must be visible from a distance of twenty feet:

The Division of Land and Water Management requires (regardless of the method used) that [the] mark must be plainly distinguishable from a distance of 20 feet. Failure to comply within 30 calendar days after service of this written notice shall result in appropriate action including, but not limited to, forfeiture of your leases.

The Jerrels received the letter on July 13.

Shortly after receiving DNR’s letter, David Jerrel, the son of Dan and Viola, met with a DNR official to discuss tagging the horses. David proposed a marking system consisting of large plastic tags attached to the horses’ manes with monofilament fishing line. The DNR official believed that David Jerrel was acting in good faith to comply with the regulations, and the hearing officer later agreed that “David Jerrel appears to have put a lot of effort into developing this means of marking and it seems like a feasible method.”

But on August 10, in response to the ombudsman’s report, DNR informed the ombudsman that if the Jerrels did not register a brand, it would terminate their leases. And just two weeks later, on August 24, the agency informed the Jerrels that it had terminated the Jerrels’ leases because they had not marked their horses. The termination letter informed the Jerrels that they could request reconsideration if they registered a mark with the Division of Agriculture and proved that their animals were marked.

In September the Jerrels requested an agency hearing and notified DNR that they had marked their horses and registered the mark with the Division of Agriculture. But the Division of Agriculture rejected the Jer-rels’ method of marking — plastic tags — as impermanent and informed them that they would have to brand or tattoo their horses instead. The director of the Division of Agriculture specified use of a hot brand “that must be burned into the hide of the animal,” but added that if the Jerrels were opposed to branding, “the animals may be permanently tattooed, which satisfies the requirement.” In response, the Jerrels then proposed an ear tattoo to satisfy the marking requirement. But after writing to inform the neighboring landowners of this proposal and expressing “hope [that] you find this acceptable,” the Division of Agriculture rejected the tattoo proposal. It cited concerns of the neighboring landowners that an ear tattoo was unacceptable because it was not clearly visible from a "distance.

After a tworday hearing, Hearing Officer Timothy Middleton issued a decision suggesting that DNR give the Jerrels two months to brand or mark their horses. If they failed to do so, he recommended forfeiture of the leases. The decision discussed the merits of a number of marking and branding methods, including hot branding, “freeze dry” branding, ear and lip tattooing, and tagging. The hearing officer acknowledged testimony presented by the Jerrels that branding decreased the value of show horses. Hearing Officer Middleton proposed that DNR require the Jerrels to hot brand the bulk of their horses but permit them to mark up to eight horses with a plastic tag and a lip tattoo. He also invalidated DNR’s requirement that all marks be visible from twenty feet, noting that DNR had never validly promulgated this distance visibility requirement as a regulation.

In November 1993 the Jerrels informed DNR that they had marked the horses. But they failed to provide proof of these markings and eventually said that they had moved the horses to Montana. They offered no verification of the move, and state investigations indicated that the horses probably remained in Alaska.

On November 23, 1994, the commissioner of DNR rejected a number of Hearing Officer Middleton’s findings and conclusions and terminated the Jerrels’ leases. After they requested reconsideration and their request was denied, the Jerrels appealed the ruling to the superior court. Superior Court Judge Peter A. Michalski affirmed the commissioner’s decision. The Jerrels appeal.

III. DISCUSSION

A. Standard ofRevieiv

In this case we review whether DNR was required to comply with the procedures prescribed in Alaska’s Administrative Procedure Act (APA).⁴ This inquiry requires us to examine the meaning of the term “regulation” as defined by the APA in AS 44.62.640(a)(3).⁵ Statutory interpretation is a question of law to which we apply our independent judgment.⁶ “The standard is appropriate where the knowledge and experience of the agency is of little guidance to the court or where the case concerns ‘statutory interpretation or other analysis of .legal relationships about which courts have specialized knowledge and experience.’ ”⁷

The dissent argues for the application of the deferential standard of review that is appropriate when we review an agency’s interpretation of its own regulation.⁸ But the threshold question in this case is whether the APA applies to DNR’s action. Because we must decide' whether DNR’s twenty-foot visibility requirement is a regulation, we do not defer to the agency’s interpretation.⁹

B. Principles of Estoppel Do Not Bar DNR from Enforcing Marking Requirements.

The Jerrels first argue that DNR’s failure to enforce the marking regulation for twenty years estops DNR from enforcing it now. DNR responds that it cannot be es-topped from enforcing the regulation merely because of its previous inaction. We agree with DNR on this point.

First, the statutory terms of the grazing leases bar the Jerrels’ estoppel claims. Each of the leases includes a clause providing that “[n]o failure on the part of Lessor to enforce any covenant or provision herein contained ... shall discharge or invalidate such terms or covenants or affect the right of the Lessor to enforce the same in the event of any subsequent breach or default.”

Second, Alaska law does not support the Jerrels’ claim that DNR is foreclosed from enforcing the marking provisions. To prove a claim of equitable estoppel, a plaintiff must show: “(1) assertion of a position by conduct or word, (2) reasonable reliance thereon, and (3) resulting prejudice.”¹⁰ The Jerrels fail to meet the first requirement. Although DNR stated several times that it had not enforced the marking requirement in the past, it never affirmatively asserted by word or conduct that it would never enforce the marking requirement. In fact, DNR notified the Jerrels several times that it was currently enforcing the requirements and that they should mark their horses. Consequently, there was no basis for the Jerrels’ reliance on DNR’s past nonenforcement.

Finally, the superior court correctly noted that the policy implications of allowing the Jerrels’ estoppel claim to proceed would be disturbing: “[I]t would be a dangerous precedent to rule that because a statute or regulation went unenforced in the past, for whatever reason, present and future violations could not be sanctioned.” Accordingly, we hold that DNR’s failure to enforce the regulation in the past did not estop it from enforcing the marking regulations.

C. DNR Did Not Promulgate the Twenty-Foot Visibility Requirement in Accordance with the APA.

The Jerrels entered into four grazing leases with the State of Alaska and concede that the marking requirements of 11 AAC 60.070 apply to the three most recent leases. We must consider whether DNR acted within its authority in its interpretation and enforcement of the marking requirements.¹¹

DNR relied on 11 AAC 60.070 in requiring the Jerrels to mark their horses. That regulation requires that holders of state grazing leases mark their animal in accordance with AS 03.40.010-03.40.270 and allows DNR to require that the holders mark the livestock through tagging, dyeing, or another marking method:

All livestock permitted on a state grazing lease shall be properly identified and such identification registered in accordance with AS 03.40.010-03.40.270. In addition, the director may require that the livestock be tagged, dyed, or otherwise marked as a control on numbers permitted on a lease in accordance with the annual operating plan.

In turn, AS 03.40.020 deals generally with marking of livestock and sets out procedures for recording a unique brand or mark with the State. If an owner wishes to establish a record of ownership, “[t]he owner may brand or mark an animal on either side with the owner’s brand or mark. The animal shall be branded or marked so that the brand or mark shows distinctly.”¹²

The regulation contains neither a requirement of minimum visibility nor a mandate of permanence. Yet, in its June 28, 1990 letter to the Jerrels, DNR stated that the Jerrels must use a mark “plainly distinguishable from a distance of twenty feet.” When the Jerrels responded by proposing plastic mane tags, which would have been -visible from twenty feet, they were informed by DNR that the tags were insufficiently permanent. At the point that it informed the Jerrels of this permanence requirement, however, DNR retreated from its twenty-foot visibility requirement, informing the Jerrels that if they opposed branding, permanent tattoos would be an acceptable substitute. Yet when the Jerrels proposed ear tattoos, DNR again reversed its position in response to complaints from the neighboring landowners and insisted on brands that would meet the twenty-foot visibility requirement.

The Jerrels contend that in creating the twenty-foot visibility rule, DNR did not interpret its existing marking regulations but rather “established new ones without following the proper procedures.”¹³ DNR responds that 'its expertise allows it the power to make policy rules interpreting regulations. We agree with the Jerrels.

Administrative agencies must comply with the APA guidelines when issuing regulations pursuant to delegated statutory authority.¹⁴ The label an agency places on a policy or practice does not determine whether that rule falls under the APA;¹⁵ the legislature intended for the term “regulation” to encompass a variety of statements made by agencies.¹⁶ Rather, we look to the character and use of the policy or rule. In determining which policies fall under the APA, one of the statutory “indicia of a regulation is that it implements, interprets or makes specific the law enforced or administered by the state agency.”¹⁷ A regulation also “affects the public or is used by the agency in dealing with the public.”¹⁸ Under these standards, we believe that the twenty-foot visibility requirement is a regulation.

DNR concedes that it did not promulgate the twenty-foot visibility requirement in accordance with the APA. It claims that it Bid not need to comply with the APA because the twenty-foot visibility requirement is an informal “policy rule” rather than a regulation. But the requirement includes both core characteristics of a regulation. First, DNR developed the visibility requirement precisely in order to interpret, make specific, and implement the statutory requirement that a mark or brand “show[] distinctly.”¹⁹ Second, the agency used this requirement hot as an internal guideline²⁰ but rather as a tool in dealing with the public. It actually based its decision to terminate the Jerrels’ leases upon the fact that the Jerrels did not comply with its “policy.” Since the twenty-foot visibility regulation did not satisfy the procedural standards of the APA, it is invalid.²¹

The dissent appears to draw comfort from the fact that DNR’s response was “tailored to the Jerrels’ livestock,”²² and thus did not affect the public. But it is the fact that DNR has singled out the Jerrels that concerns us in this case. An agency should not have unfettered discretion to vary the requirements of its regulations at whim. The APA accordingly requires state agencies to follow a rule-making procedure before they may alter or amend the substance of their regulations. “The courts have usually rejected arguments that ... discretion to proceed by ad hoc orders rather than by rules is necessary to permit an agency to make decisions finely tuned to the facts and circumstances of an individual case.”²³ When an agency is freed from the requirement of having to make general rules, this invites the possibility that state actions may be motivated by animosity, favoritism, or other improper influences.²⁴

The dissent also argues that because DNR had already issued a marking regulation, its adoption of the twenty-foot visibility requirement “did not alter the substance of what the Jerrels were already required to do” but merely “specified how they were to comply with the regulation.”²⁵ But the APA does not recognize the dissent’s proposed distinction between promulgating new regulations and supplementing or making more specific existing ones. Indeed, the statute defines regulations subject to the act as including “the amendment, supplement, or revision” of a rule or regulation in order to “make specific” the law enforced.²⁶ Because the twenty-foot requirement “supplemented,” “revised,” and “made specific” the marking requirements of 11 AAC 60.070, DNR was required to follow APA procedures.²⁷

DNR argues in the alternative that even if the twenty-foot visibility requirement is invalid, it acted within its authority in terminating the Jerrels’ leases because they did not mark their horses at all. But DNR’s shifting interpretations of the meaning of the marking requirements hampered the Jerrels’ attempts at compliance. And although the dissent argues that the Jerrels’ failure “to follow any reasonable, effective alternative”²⁸ to branding justified DNR’s cancellation of the leases, this statement ignores the finding of the hearing officer. Hearing Officer Middleton found that the tagging method proposed by the Jerrels “seem[ed] like a feasible method.”²⁹ Indeed, until August of 1990, DNR believed that the Jerrels had worked in good faith with DNR to come up with a feasible marking method. Moreover, the Director of Agriculture offered the Jerrels the option of tattoos in lieu of brands in October 1990 and withdrew that offer only after learning that it would be unacceptable to the neighboring landowners. As Greek Taylor, Natural Resource Manager with the State Division of Lands, testified at the June 1992 hearing:

Q: At any time during the course of your dealing with David [Jerrel], over the course of that summer, did he seem less than cooperative?

A: Absolutely not.

Q: Did he seem like he was sincerely working toward fulfilling the requirements concerning marking the livestock?

A: Yes.

Thus, the evidence does not support the dissent's* view that the Jerrels failed to make a good faith attempt to comply with the regulation.

IV. CONCLUSION

We hold that DNR was not estopped from enforcing the marking requirement. But because DNR’s requirement that the Jerrels brand their horses so that the marks may be visible at twenty feet was not promulgated under the APA, we REVERSE the decision of the superior court to terminate the Jer-rels’ leases for noncompliance with that requirement.³⁰

1 . Lease 19581 is dated November 18, 1963. It covers 1,015 acres and extends until November 2018.

2 . Lease 21412 is dated January 3, 1964. It covers 440 acres and extends until July 2001. Lease 52922 is dated October 28, 1970. It covers 290 acres and extended until April 1998. Lease 59221 is dated January 12, 1974. It covers 2,040 acres and extends until July 2001.

3 . 11 AAC 60.070 (1997) requires that:

All livestock permitted on a state grazing lease shall be properly identified and such identification registered in accordance with AS 03.40.010 — 03.40.270. In addition, the director may require that the livestock be tagged, dyed, or otherwise marked as a control on numbers permitted on a lease in accordance with the annual operating plan.

4 . AS 44.62.

5 . See Matanuska-Susitna Borough v. Hammond, 726 P.2d 166, 182 (Alaska 1986).

6 . See Payton v. State, 938 P.2d 1036, 1041 (Alaska 1997) ("[I]nsofar as our review [of an agency's regulation] requires us to determine the meaning of [a statute], we exercise our independent judgment.”).

7 . Madison v. Alaska Dep't of Fish & Game, 696 P.2d 168, 173 (Alaska 1985) (quoting Earth Resources Co. v. State, Dep’t of Revenue, 665 P.2d 960, 965 (Alaska 1983)).

8 . Dissent at 145-146 (citing Board of Trade, Inc. v. State, Dep’t of Labor, Wage & Hour Admin., 968 P.2d 86, 89 (Alaska 1998)).

9 . See Kelly v. Zamarello, 486 P.2d 906, 911 (Alaska 1971). In Kelly, we set out a procedure for the interpretation of administrative regulations. That procedure calls for the deferential standard of review only after a determination that "an administrative regulation has been adopted in accordance with the procedures set forth in the Administrative Procedure Act.” Id.

10 . Municipality of Anchorage v. Schneider, 685 P.2d 94, 97 (Alaska 1984).

11 . The Jerrels contest the regulations’ applicability to the first lease, Lease 19581. We need not reach the merits of this question, however, because we ultimately conclude that DNR was without authority to require the Jerrels to brand their horses as a requirement of any of their leases.

12 .AS 03.40.020.

13 . The Jerrels also argue that an employee — and not the director — of DNR made the 20-foot visibility requirement, making the decision invalid. But the Jerrels did not raise this issue in their opening brief. Under Alaska Rule of Appellate Procedure 212(c)(3), the reply brief*"may raise no contentions not previously raised in .either the appellant's or appellee’s briefs.” We accordingly find that the Jerrels have waived this employee-director argument.

14 . AS 44.62.640 defines “regulation” as:

[E]very rule, regulation, order, or standard of general application or the amendment, supplement, or revision of a rule, regulation, order, or standard adopted by a state agency to implement, interpret, or make specific the law enforced or administered by it, or to govern its procedure, except one that relates only to the internal management of a state agency; ... “regulation” includes “manuals,” "policies,” “instructions,” "guides to enforcement,” "interpretative bulletins,” "interpretations,” and the like, that have the effect of rules, orders, regulations, or standards of general application, and this and similar phraseology may not be used to avoid or circumvent this chapter; whether a regulation, regardless of name, is covered by this chapter depends in part on whether it affects the public or is used by the agency in dealing with the public.

See also Kenai Peninsula Fisherman’s Coop. Ass’n, Inc. v. State, 628 P.2d 897, 904 (Alaska 1981).

15 . See, e.g., Gilbert v. State, Dep’t of Fish & Game, 803 P.2d 391, 396-97 (Alaska 1990) (rejecting agency's argument that its mixed stocks regulation management was a "policy” and instead classifying it as a regulation subject to the APA because it contained indicia of regulations).

16 . See Messerli v. Department of Natural Resources, 768 P.2d 1112, 1117 (Alaska 1989) (noting that Alaska law takes an "expansive view” of the term "regulation”), overruled on other grounds by Olson v. State, Dep't of Natural Resources, 799 P.2d 289 (Alaska 1990); see also Kenai Peninsula, 628 P.2d at 905.

17 . Kenai Peninsula, 628 P.2d at 905; see also AS 44.62.640(a)(3); Gilbert, 803 P.2d at 396.

18 . AS 44.62.640(a)(3); see also Gilbert, 803 P.2d at 396; Kenai Peninsula, 628 P.2d at 905.

19 . AS 03.40.020.

20 . See Messerli, 768 P.2d at 1118 (acknowledging the internal management exception to the requirements of APA).

21 . See Wickersham v. State Commercial Fisheries Entry Comm’n, 680 P.2d 1135, 1140 (Alaska 1984) (“When a policy is invalidly promulgated under the APA, generally the appropriate remedy is to invalidate the offending policy until the procedures required by the APA are observed.”).

22 . Dissent at 147.

23 . Alfred C. Aman, Jr. & William T. Mayton, Administrative Law § 3.2, at 78 (1993).

24 . See Alfred C. Aman, Jr. & William T. Mayton, Administrative Law § 3.1, at 73 (1993) (quoting Yick Wo v. Hopkins, 118 U.S. 356, 373, 6 S.Ct. 1064, 30 L.Ed. 220 (1886)).

25 . Dissent at 148.

26 . AS 44.62.640.

27 . See AS 44.62.640; Gilbert, 803 P.2d at 396-97 (When "the Board policy makes more specific the law enforced or administered and the policy affects the public, ... we conclude that the policy in question falls squarely within the definition of a ‘regulation’ contained in AS 44.62.640(a)(3) and, therefore, it is required to be implemented pursuant to the APA.”) (internal punctuation omitted).

28 . Dissent at 149.

29 . Although the hearing officer required branding of some horses, he recognized the decrease in value that branding causes and recommended that the Jerrels be allowed to mark up to eight potential show horses with plastic tags and lip tattoos.

30 . Our conclusion that DNR did not comply with the APA makes it unnecessary to reach the Jer-rels’ claims that the branding requirement conflicted with applicable statutes, that termination of their leases violated their due process rights under both the Alaska and Federal Constitutions, or that the May 14 meeting with neighboring landowners violated the Open Meetings Act.