Southwestern Paint & Varnish Co. v. Arizona Department of Environmental Quality

976 P.2d 872, 194 Ariz. 22, 292 Ariz. Adv. Rep. 3, 1999 Ariz. LEXIS 29
Arizona Supreme Court·Decided March 16, 1999·No. CV-98-0118-PR.·Published·Cited by 41 cases

Opinions

OPINION

MARTONE, Justice.

¶ 1 We are asked to decide whether a party aggrieved by final agency action must seek rehearing before that agency as a prerequisite to judicial review. We hold that, unless a statute specifically directs otherwise, one need not seek rehearing before an agency in order to seek judicial review.

I.

¶ 2 In September 1995, Southwestern Paint and Varnish Company (Southwestern) sought reimbursement for environmental clean-up costs from the state. In March 1996, the Arizona Department of Environmental Quality (Department) denied the claim. Southwestern appealed under a Department rule and, after an evidentiary hearing, an administrative law judge recommended that the Department affirm the original denial. The director of the Department issued a final decision that adopted the administrative law judge’s findings of fact and conclusions of law.

[23] ¶ 3 Under the Department’s rules, Arizona Administrative Code R18-1-218, Southwestern could have sought rehearing before the Department. Instead, in October 1996, it filed an action in the Superior Court of Arizona in Pima County seeking judicial review of the Department’s final decision. The superior court dismissed the complaint because Southwestern failed to file a motion for rehearing from the Department’s final decision.

¶4 The court of appeals reversed and held that the relevant statutes and rule do not require a party to seek rehearing before the agency in order to seek further judicial review. Southwestern Paint & Varnish Co. v. Arizona Dep’t of Envtl. Quality, 191 Ariz. 40, 951 P.2d 1232 (App.1997). Because of conflicting decisions in the court of appeals, we granted review. Ariz. R. Civ.App. P. 23(c)(3).

II.

A. The Conflict

¶ 5 In Herzberg v. David, 27 Ariz.App. 418, 555 P.2d 677 (1976), judges of Division Two sitting in a Division One case held that a party aggrieved by an administrative decision must use a rehearing procedure as a condition precedent to judicial review. Drawing upon A.R.S. § 12-901(2)(1992)1 and A.R.S. § 12-902(B)(1992),2 the court concluded that an application for rehearing was an “application for administrative review” within the meaning of § 12-902(B), and therefore judicial review was foreclosed for the failure to file a motion for rehearing. Id. at 419, 555 P.2d at 678.

¶ 6 In Arizona Law Enforcement Merit System Council v. Damn, 133 Ariz. 429, 652 P.2d 168 (App.1982), Division One of the Court of Appeals agreed with Herzberg, which it characterized as a Division Two case. Id. at 432, 652 P.2d at 171. As recently as Rosen v. Board of Medical Examiners, 185 Ariz. 139, 143, 912 P.2d 1368, 1372 (App. 1995), Division One followed Dann to hold that a motion for rehearing was within the scope of A.R.S. § 12-902(B) such that the failure to file a motion for rehearing precludes judicial review. We granted review in Rosen, but ultimately dismissed the case because it had become moot. Rosen v. Board of Med. Exam’rs, 186 Ariz. 517, 924 P.2d 1036 (1996).

¶ 7 While Herzberg was governed by the court’s understanding of the Administrative Review Act, A.R.S. §§ 12-901 to -914 (1992), see Foremost Life Insurance Co. v. Trimble, 119 Ariz. 222, 224, 580 P.2d 360, 362 (App.1978), a 1976 amendment to the Administrative Procedure Act, A.R.S. § 41-1062(B)(1992), as amended by Laws 1976, ch. 104, § 4, produced similar outcomes.3 See Oliver v. Arizona Dep’t of Racing, 147 Ariz. 83, 86, 708 P.2d 764, 767 (App.1985); Oliver v. State Land Dep’t, 143 Ariz. 126, 128, 692 P.2d 305, 307 (App.1984).

¶8 Against this historic backdrop, Division Two of the Court of Appeals in the instant case decided that the failure to seek rehearing was not a bar to judicial review. Southwestern Paint & Varnish Co. v. Arizona Dep’t of Envtl. Quality, 191 Ariz. 40, [24] 951 P.2d 1232 (App.1997). Relying upon our opinion in Campbell v. Chatwin, 102 Ariz. 251, 257, 428 P.2d 108, 114 (1967), the court noted that the doctrine of exhaustion of administrative remedies does not apply where the remedy is permissive. Southwestern Paint, 191 Ariz. at 42, 951 P.2d at 1233. It then rejected Herzberg’s reading of A.R.S. § 12-901(2) and § 12-902(B). Id. at 43, 951 P.2d at 1234. The court held that the delayed finality of § 12-901(2) applies only when “an application for a rehearing or review is made,” and thus the remedy is permissive. The court did not address Herzberg ’s characterization of a rehearing as an “application for administrative review” within the meaning of § 12-902(B), but instead characterized that section as simply a timing provision. Id. The court then turned to A.A.C. R18-1-218(A)4 and concluded that the agency rule was unambiguous in stating that rehearing is permissive. Id.

B. Resolution

¶ 9 Although the court of appeals has grappled with this issue since its decision in Herzberg in 1976, this is an issue of first impression for us.

¶ 10 The linchpin of the Herzberg decision is its equation of a rehearing with an “application for administrative review” within the meaning of A.R.S. § 12-902(B). Herzberg, 27 Ariz.App. at 419, 555 P.2d at 678. But a request for rehearing is not an application for administrative review. The application for administrative review precedes the administrative decision from which any rehearing might be sought. We read § 12-902(B) as encompassing the traditional doctrine of exhaustion of administrative remedies and the words “petition for rehearing” or “request for rehearing” are notably absent from the administrative mechanisms listed there. Thus, § 12-902(B) does not answer the question raised in Herzberg.

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Southwestern Paint & Varnish Co. v. Arizona Department of Environmental Quality, 976 P.2d 872, 194 Ariz. 22, 292 Ariz. Adv. Rep. 3, 1999 Ariz. LEXIS 29 (Ark. 1999).

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