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Wednesday, January 19, 2005

Ind. Courts - Court of Appeals posts one new ruling today

Indiana-Kentucky Electric Corporation v. Commissioner, Indiana Department of Environmental Management (1/19/05 IndCtApp) [Administrative Law; Rulemaking]
Robb, Judge

Indiana-Kentucky Electric Corp. (IKEC) appeals the Office of Environmental Adjudication’s (OEA) order granting the Indiana Department of Environmental Management’s (IDEM) motion for summary judgment. We reverse and remand. * * *

On May 31, 2001, IKEC filed a petition for administrative review with the OEA of IDEM’s denial of its request for a waiver. Both IKEC and IDEM filed motions for summary judgment. Chief Environmental Law Judge Wayne Penrod granted IDEM’s motion for summary judgment on August 2, 2002. On that same day, IKEC filed a motion to reconsider and vacate the order granting IDEM’s motion for summary judgment, and this motion was granted on August 15, 2002. Before he could rule on the parties’ motions for summary judgment, Chief Judge Penrod retired, and Annette Biesecker was named the acting Chief Environmental Law Judge. Judge Biesecker, without conducting an evidentiary hearing, granted IDEM’s motion for summary judgment on May 8, 2003. * * *

II. IDEM and OEA’s Interpretation of the Rule

IKEC argues that both IDEM and OEA have misconstrued the waiver provision of the Rule [326 IAC 7-3-2(d)], and, because of that, OEA’s order granting IDEM’s motion for summary judgment is arbitrary and capricious. * * *

In their motions for summary judgment filed with the OEA, both IKEC and IDEM offered their own interpretations of the waiver provision of the Rule. * * *

Based upon the record before us, we cannot ascertain whether there are other ways, besides ambient monitoring, to determine if IKEC is continuing to maintain the sulfur dioxide ambient air quality standards. However, at the very least, we believe that this would constitute a genuine issue of material fact, and thus would preclude the granting of summary judgment in IDEM’s favor.

Nevertheless, we believe that both IDEM and the OEA have misconstrued the Rule. Although the Rule provides that a source owner or operator may obtain a waiver of all of his or her monitoring requirements under the Rule, IDEM’s interpretation of the Rule makes this virtually impossible. IDEM believes that ambient monitoring is the only way to determine whether a source, like Clifty Creek, is continuing to maintain the sulfur dioxide ambient air quality standards. But if ambient monitoring is the only way to determine continued maintenance of the standards, then IKEC will never be able to make the requisite showing that ambient monitoring is unnecessary to determine continued maintenance of the standard, and, thus, it could never obtain a waiver of all of its monitoring requirements. * * * IKEC’s interpretation of the Rule, though, is also not altogether accurate.

We therefore conclude that both IDEM and the OEA misconstrued the Rule, and thus the OEA’s granting of IDEM’s motion for summary judgment was arbitrary and capricious.

III. Invalid Rule

IKEC next argues that the OEA’s order granting IDEM’s motion for summary judgment is not in accordance with the law because it subjects IKEC to the requirements of an unpublished and invalid IDEM rule. The unpublished rule in question is found in an affidavit given by Dick Zeiler, an employee of IDEM who is a branch chief of the Air Monitoring Branch in the Office of Air Quality. Zeiler states that “IDEM requires ambient monitoring for purposes of 326 IAC 7-3 to be located no more than 10 kilometers from the source of the [sulfur dioxide] emissions.” The OEA accepted this statement as IDEM policy and applied this policy against IKEC when it concluded that IDEM had properly denied IKEC a waiver of its monitoring requirements under the Rule because there was no other entity within ten kilometers of Clifty Creek that was conducting ambient monitoring.

Our supreme court has previously stated that “administrative agencies may make reasonable rules and regulations to apply and enforce legislative enactments.” Indiana Dep’t of Envtl. Mgmt. v. Twin Eagle LLC, 798 N.E.2d 839, 847 (Ind. 2003). However, IDEM may only regulate by a new rule if the proper rulemaking procedures have been followed. Id. Thus, in establishing new rules, an administrative agency must comply with Indiana’s Administrative Orders and Procedures Act (AOPA), Indiana Code chapter 4-22-2, which includes provisions for public hearings and review by executive branch officials. Id. at 847-48. “By contrast, agency actions that result in resolutions or directives that relate to internal policy, procedure, or organization, and do not have the effect of law, are not subject to the same requirements.” Id. at 848.

An administrative agency must comply with the rulemaking procedures outlined in the AOPA only if they are promulgating a rule. Therefore, we must first determine whether IDEM’s “ten kilometers” policy enunciated in Dick Zeiler’s affidavit is a rule. * * *

IDEM’s “ten kilometers” policy is a rule because it is an agency statement of general applicability that is designed to have the effect of law and implements or interprets the Rule. The “ten kilometers” policy does not relate solely to IDEM’s internal policies, procedures, or organization. In adopting the “ten kilometers” rule, IDEM was required to follow the rulemaking procedures provided in the AOPA. IKEC correctly argues that there is no evidence that IDEM followed the rulemaking procedures of the AOPA when it promulgated the “ten kilometers” rule. Therefore, pursuant to Indiana Code section 4-22-2-44, the “ten kilometers” rule does not have the effect of law, and the OEA erred in applying this rule against IKEC.

Furthermore, Indiana Code section 13-14-1-11.5 also indicates that the OEA’s use of IDEM’s “ten kilometers” policy was erroneous. Indiana Code section 13-14-1-11.5(a)(2) provides that if a department proposes to utilize a policy that has not been adopted in compliance with the AOPA, the proposed policy may not be put into effect until the requirements of Indiana Code section 13-14-1-11.5(b) have been met. * * *

However, IDEM argues that, in fact, it did not create the “ten kilometers” rule. IDEM contends that the “ten kilometers” rule was created by the federal Environmental Protection Agency in 40 CFR 58, Appendix D. 40 CFR 58, Appendix D, sets out guidelines for the proper siting distances of monitoring stations. 40 CFR 58, Appendix D, does not create or even mention a “ten kilometers” rule. The “ten kilometers” rule is IDEM’s creation and should have been promulgated pursuant to the AOPA’s established guidelines.

We therefore conclude that IDEM’s “ten kilometers” rule should have been promulgated pursuant to the rulemaking procedures outlined in the AOPA, and, because it was not, this rule does not have the effect of law. OEA’s application of the “ten kilometers” rule against IKEC was not in accord with the law, and requires the reversal of the OEA’s order granting IDEM’s motion for summary judgment.

IV. Improper Standard of Review

IKEC also argues that we should reverse the OEA’s order granting IDEM’s motion for summary judgment because the OEA applied an improper standard of review. * * * Pursuant to Indiana Code section 4-21.5-3-27(a) and (b), an ALJ serves as the trier of fact in an administrative hearing. Thus, an ALJ “performs a duty similar to that of a trial judge sitting without a jury.” United Refuse, 615 N.E.2d at 104. In such a situation, a de novo standard of review is proper. Therefore, because the ALJ did not apply a de novo standard of review, the OEA’s order granting IDEM’s motion for summary judgment was not in accordance with the procedure required by law and IKEC is entitled to a new hearing.

Conclusion

We conclude that the OEA’s order granting IDEM’s motion for summary judgment must be reversed because the OEA misconstrued the Rule, applied an invalid unpromulgated rule against IKEC, and used an inappropriate standard of review. The OEA’s order granting IDEM’s motion for summary judgment is therefore reversed and we remand for further proceedings consistent with this opinion. Reversed and remanded.

KIRSCH, C.J., and BAKER, J., concur.

[My take on this ruling] This is a very significant decision. My only question relates to the Court's discussion of IC 13-14-1-11.5 in Part III. Just previously the Court said that the "ten kilometers" policy is a rule that is invalid because it was not properly promulgated:
IDEM’s “ten kilometers” policy is a rule because it is an agency statement of general applicability that is designed to have the effect of law and implements or interprets the Rule. The “ten kilometers” policy does not relate solely to IDEM’s internal policies, procedures, or organization. In adopting the “ten kilometers” rule, IDEM was required to follow the rulemaking procedures provided in the AOPA.
That being the case, IC 13-14-1-11.5 (relating to "nonrule policy documents") also would not be applicable, because by its terms this law relating to nonrule policy documents does not apply to "a department or statement" that "is intended by the department to have the effect of law." See IC 13-14-1-11(a)(3). This does not seem to be as clear as I would like it to be in the otherwise excellent opinion.

Posted by Marcia Oddi on January 19, 2005 08:13 PM
Posted to Ind. App.Ct. Decisions