California Optometric Assn. v. Lackner

• Decision Date: 26 July 1976
• Citation: 60 Cal.App.3d 500,131 Cal.Rptr. 744
• Parties: CALIFORNIA OPTOMETRIC ASSOCIATION, a California Corporation, Plaintiff and Respondent, v. Jerome A. LACKNER, M.D., Director of Health, Department of Health, State of California, Defendant and Appellant. Civ. 15240.
• Court: California Court of Appeals Court of Appeals

Page 744

131 Cal.Rptr. 744

60 Cal.App.3d 500

CALIFORNIA OPTOMETRIC ASSOCIATION, a California Corporation, Plaintiff and Respondent, v. Jerome A. LACKNER, M.D., Director of Health, Department of Health, State of California, Defendant and Appellant.

Civ. 15240.

Court of Appeal, Third District, California.

July 26, 1976.

Rehearing Denied Aug. 12, 1976.

Wilke, Fleury, Sapunor & Hoffelt by Thomas G. Redmon, Sacramento, Rosenthal & Leff, San Francisco, for plaintiff and respondent.

Evelle J. Younger, Atty. Gen. by John E. Fourt, Deputy Atty. Gen., Sacramento, for defendant and appellant.

FRIEDMAN, Associate Justice.

The Director of the State Department of Public Health is required to adhere to the Administrative Procedure Act (specifically Government Code sections 11420--11427) in adopting rules and regulations establishing the rates which the state will pay for health care supplied to Medi-Cal patients. (Welf. & Inst.Code, §§ 10553.1, 10554, 10554.1, 14105, 14124.5; California Assn. of Nursing Homes etc., Inc. v. Williams (1970) 4 Cal.App.3d 800, 84 Cal.Rptr. 590, 85 Cal.Rptr. 735.)

The present appeal stems from a declaratory relief action filed by the California Optometric Association ('Association') challenging the procedure utilized in adopting a regulation fixing rates for optometric services and eye appliances. The trial court entered a declaratory judgment in favor of the Association and against the Director of Health ('Director') invaliding the regulation and, in Paragraph 2, setting forth a declaration of the Director's duties in the future promulgation of such regulations. The Director appeals only from Paragraph 2 of the judgment. That paragraph is quoted in the margin. ¹ We have italicized the phraseology forming the particular targets for the Director's attack on appeal.

This is the third appeal in this court challenging the Medi-Cal agency for failure to comply with the rule-adoption provisions of the California Administrative Procedure Act ('APA'). ² In 1970 we nullified a regulation fixing nursing home rates, declaring that 'the adoption and repeated amendment of the regulation are characterized by serious procedural vices which prevent meaningful judicial review and frustrate any attempt to pass upon its substantive compliance . . ..' (California Assn. of Nursing Homes, Inc. v. Williams, supra, 4 Cal.App.3d at p. 810, 84 Cal.Rptr. at p. 596.) In 1973 we filed an unpublished opinion invalidating a pharmaceutical rate regulation for noncompliance with the APA. (Pharmaceutical Manufacturers Assn. v. Brian, 3 Civ. 13962.) In this appeal the Director does not challenge the trial court's invalidation of his predecessor's optometric regulation. He does attack the declaratory judgment's delineation of his future rule adoption procedure, arguing that its demands are more restrictive than those of the APA itself.

The Association points out that the challenged declaratory judgment is identical to judgments which the superior court entered after remand in California Association of Nursing Homes, Inc. v. Williams, supra, and Pharmaceutical Manufacturers Assn. v. Brian, supra. It contends that the rule of collateral estoppel prevents the incumbent Director from challenging a judgment identical to that imposed upon his predecessors in office.

The rule of collateral estoppel is a manifestation of the principle of res judicata. (Clark v. Lesher (1956) 46 Cal.2d 874, 880--881, 299 P.2d 865.) The courts will not apply that principle to foreclose the relitigation of an issue of law covering a public agency's ongoing obligation to administer a statute enacted for the public benefit and affecting members of the public not before the court. (Chern v. Bank of America (1973) 15 Cal.3d 866, 872, 127 Cal.Rptr. 110, 544 P.2d 1310; Louis Stores Inc. v. Dept. of Alcoholic Beverage Control, 57 Cal.2d 749, 758, 22 Cal.Rptr. 14, 371 P.2d 758; 2 Davis, Administrative Law Treatise (1958) § 18.03, pp. 558--559.) The Director of Health is not estopped by the prior judgments.

In adopting regulations establishing rates or prices the Medi-Cal agency exercises a quasi-legislative function; there is no constitutional requirement for any hearing in a quasi-legislative proceeding; hence, the promulgation proceeding is statutory and does not arouse the demands of procedural due process. (Pitts v. Perluss (1962) 58 Cal.2d 824, 832--835, 27 Cal.Rptr. 19, 377 P.2d 83; Franchise Tax Bd. v. Superior Court (1950) 36 Cal.2d 538, 548--549, 225 P.2d 905; Rivera v. Division of Industrial Welfare (1968) 265 Cal.App.2d 576, 587, 71 Cal.Rptr. 739.) The APA is expressly designed to establish 'basic minimum procedural requirements' governing the rulemaking process. (Gov.Code, § 11420.) ³ It calls upon the adopting agency to provide notice of its proposal, including a statement of the time, place and nature of proceedings for the proposal's adoption. (§ 11424.) It gives interested parties an opportunity to present statements and arguments at the time and place specified in the notice and calls upon the agency to consider all relevant matter presented to it. (§ 11425.) ⁴ Finally, it provides that any interested person may obtain a judicial declaration as to the validity of any regulation by bringing an action for declaratory relief in the superior court. (§ 11440.)

One objective of the APA is assurance of meaningful public participation in the adoption of administrative regulations by state agencies; another is creation of an administrative record assuring effective judicial review. (California Assn. of Nursing Homes v. Williams, supra, 4 Cal.App.3d at pp. 810--812, 84 Cal.Rptr. 590.)

Contrary to assumptions that the APA embodies a 'notice and hearing' requirement, the Attorney General points out that it does not expressly demand a public hearing; that Government Code section 11425 (fn. 4, supra) permits written statements from interested parties 'with or without opportunity to present the same orally.' He reasons that the act demands of the agency only that it fix a time and place for the reception of written statements; that the agency may then close the public portion of the proceeding; that it may consult evidence not incorporated in a hearing record and made available to interested parties; that even when an oral hearing takes place, the agency need not permit cross-examination and rebuttal.

The assertion that a public hearing is optional has not been considered by the California courts. As the Attorney General observes, the APA does not in terms demand a public hearing in the sense of an oral convocation. In prior decisions construing the Administrative Procedure Act, this court has referred to the 'hearing' process but without really inquiring whether the act guarantees interested parties the right to appear in person and to address the agency orally. (Schenley Affiliated Brands Corp. v. Kirby (1971) 21 Cal.App.3d 177, 193, 98 Cal.Rptr. 609; California Assn. of Nursing Homes v. Williams, supra, 4 Cal.App.3d at pp. 810--812, 84 Cal.Rptr. 590.)

Administrative law concepts draw a distinction 'between proceedings for the purpose of promulgating policy-type rules or standards, on the one hand, and proceedings designed to adjudicate disputed facts in particular cases on the other.' (United States v. Florida East Coast Ry. Co. (1973) 410 U.S. 224, 244--246, 93 S.Ct. 810, 821, 35 L.Ed.2d 223.) There is also a distinction between evidence of 'private facts' whose incorporation in a hearing record is an indispensable condition of fairness and evidence of 'public conditions' available to anyone who cares to investigate. (Schenley Affiliated Brands Corp. v. Kirby, supra, 21 Cal.App.3d at p. 198, 98 Cal.Rptr. 609; Rivera v. Division of Industrial Welfare, supra, 265 Cal.App.2d at pp. 589--590, 71 Cal.Rptr. 739.) A related distinction is that between adjudicative facts ('roughly the kind of facts that go to a jury') and legislative facts ('general facts which help the tribunal decide questions of law and policy and discretion'). (1 Davis, Op. cit., § 7:02, p. 413; Id. §§ 7.04--7.07, pp. 420--437.)

The declaratory judgment errs by making a fixed demand for trial-like hearings in Medi-Cal rate adoption proceedings. That demand is inconsistent with section 11425, which invests the agency with discretion to proceed without supplying an opportunity for oral presentation. Section 11425 permits a purely documentary proceeding yet, in its last paragraph, refers to the proceeding as a 'hearing.' Thus, contrary to superficial assumptions, it does not necessarily demand a hearing characterized by oral testimony and oral argument. The section was part of the rulemaking procedure added to the California APA in 1947. The California proposal was modeled after cognate provisions of the federal Administrative Procedure Act. (Kleps, The California Administrative Procedure Act 1947) 22 Cal.State Bar J. 391; Report, State Bar Committee on Administrative Agencies and Tribunals (1945--1946) 21 Cal.State Bar J. 161.) The federal act embodies no fixed demand for an oral evidentiary hearing; it authorizes the agency to permit only written statements and presentations. (5 U.S.C. § 553; California Citizens Band Assn. v. United States (9th Cir. 1967) 375 F.2d 43, 50, cert. den. 389 U.S. 844, 88 S.Ct. 96, 19 L.Ed.2d 112.) In related federal legislation, the word 'hearing' does not by its own force require the agency to hear oral testimony or argument or to permit cross-examination. (United States v. Florida East Coast R. Co., supra, 410 U.S. at pp. 235--236, 241, 93 S.Ct. 810.) In section 11425, the California act permits a choice of oral advocacy, written presentations or a combination of both.

The trial court's fixed directions for cross-examination and rebuttal are also erroneous. No statutory or decisional doctrine establishes ineluctable rights of cross-examination and rebuttal at quasi-legislative hearings. Absorbing courtroom analogies, the judgment would...