Gerst v. Nixon

• Decision Date: 30 November 1966
• Docket Number: No. A--11357,A--11357
• Citation: 411 S.W.2d 350
• Parties: James O. GERST et al., Petitioners, v. Orren L. NIXON et al., Respondents.
• Court: Texas Supreme Court

Page 350

411 S.W.2d 350

James O. GERST et al., Petitioners, v. Orren L. NIXON et al., Respondents.

No. A--11357.

Supreme Court of Texas.

Nov. 30, 1966.

Rehearing Denied Feb. 8, 1967.

Waggoner Carr, Atty. Gen., Austin, Hawthorne Phillips, T. B. Wright, Paul W. Phy, John W. Fainter, Jr., Asst. Attys. Gen., for petitioner, James O. Gerst.

Joe R. Long, Austin, for petitioner, Southeast Texas Savings & Loan Assn.

Heath & Davis, Dudley D. McCalla, with firm; Alvis & Carssow, Austin, for respondents.

NORVELL, Justice.

On November 19, 1964, the petitioner James O. Gerst, Savings and Loan Commissioner of Texas, refused the application for a charter filed by respondents Orren L. Nixon, J. R. McDonald, Thomas I. Fetzer, Benjamin C. Lively, J. M. Windham and Sidney R. Smith, who had been selected as members of the board of directors of a proposed savings association to be known as Livingston Savings and Loan Association and located at Livingston, Polk County, Texas.

The refusal of the application by the Commissioner was based upon his negative findings relating to Vernon's Ann.Tex.Stats., art. 852a § 2.08(3), (4). These provisions read as follows:

'Sec. 2.08. The Commissioner shall not approve any charter application unless he shall have affirmatively found from the data furnished with the application, the evidence adduced at such hearing and his official records that: * * *

'(3) there is a public need for the proposed association and the volume of business in the community in which the proposed association will conduct its business is such as to indicate profitable operation;

'(4) the operation of the proposed association will not unduly harm any existing association.'

Among other holdings, the trial court concluded as a matter of law that the negative findings of the Commissioner were not reasonably supported by substantial evidence and hence his action was null and void. This judgment was affirmed by the Court of Civil Appeals, 399 S.W.2d 845.

We granted the Commissioner's application for writ of error which contains a sole point challenging the holdings of the courts below that the Commissioner's negative findings were not reasonably supported by substantial evidence. We also granted the application of Southeast Texas Savings and Loan Association located at Woodville, Tyler County, Texas, the intervenor in the trial court, which here seeks to support the Commissioner's order. Such intervenor as petitioner here, in addition to asserting that the Commissioner's order is reasonably supported by substantial evidence, contends by its second and third points that the Court of Civil Appeals erred in failing to hold that art. 852a § 11.12(5)(b) is unconstitutional insofar as it requires a redetermination by the trial court of the fact issues material to the validity of the Commissioner's order upon a preponderance of the evidence basis, and that the trial court erred in receiving in evidence the record of the hearing conducted by the Commissioner. In this case, we have no question of procedural due process.

We do not understand that the Court of Civil Appeals has held that the preponderance of the evidence standard has application to this case, but intervenor-petitioner's second and third points raise questions of method and procedure relating to a judicial review of orders of the Savings and Loan Commissioner under section 11.12(5)(b) of the Savings and Loan Act which calls for our determination and should be first discussed before we consider the point raised by the Commissioner's application.

The record in this case is unusual because of the trial judge's doubt as to the validity of certain provisions contained in the Texas Savings and Loan Act relating to judicial review of orders entered by the administrative agency. Art. 852a § 11.12 provides in part:

'Judicial Review

'Sec. 11.12. Any person with an interest in the subject matter thereof who is dissatisfied with any act, order, ruling or decision of the Commissioner taken or made, or with any rule or regulation promulgated by the Commissioner and the Building and Loan Section of the Finance Commission in connection with the administration of this Act, may secure judicial review thereof in the following manner: * * *

'(5) Trial. (a) The review of an order issued under Section 8.14 ¹ of this Act shall be tried in the same manner as civil actions generally and the complaining party shall be entitled to a jury. The trial shall be governed by the rules of civil procedure and all fact issues material to the validity of such order shall be determined de novo on the preponderance of the evidence and the substantial evidence rule shall not apply. Any relevant and competent evidence shall be admissible for or against the order.

'(b) The review of any other act, order, ruling or decision of the Commissioner or of any rule or regulation shall be tried by the court without a jury in the same manner as civil actions generally and all fact issues material to the validity of the Act, order, ruling, decision or rule or regulation complained of shall be redetermined in such trial on the preponderance of the competent evidence, but no evidence shall be admissible which was not adduced at the hearing on the matter before the Commissioner or officially noticed in the record of such hearing.'

The trial judge made findings on a preponderance of the evidence basis which were contrary to those made by the Commissioner, that is, the judge found that there was a public need for the proposed association, that there was a likelihood that its operations would be successful and that the operation of such proposed association would not unduly harm any existing association. Also, as above stated, the trial judge concluded as a matter of law that the Commissioner's negative findings under art. 852a § 2.08(3), (4) were not reasonably supported by substantial evidence. It was the obvious purpose of the district judge to decide the issues upon a preponderance of the evidence basis and also in accordance with the substantial evidence rule so that an appellate court could in all probability dispose of the case or remand the same to the Commissioner for further proceedings, art. 852a § 11.12(6), and avoid a remand to the trial court.

The provision for judicial review which purports to vest a court with the power to redetermine upon a preponderance of the evidence basis the issues set forth in art. 852a § 2.08(3), (4) is unconstitutional because it is violative of the separation of powers provision of the Texas Constitution which provides:

'The powers of the Government of the State of Texas shall be divided into three distinct departments, each of which shall be confided to a separate body of magistracy, to wit: Those which are Legislative to one; those which are Executive to another, and those which are Judicial to another; and no person, or collection of persons, being of one of these departments, shall exercise any power properly attached to either of the others, except in the instances herein expressly permitted.' (Art. 2 § 1, Texas Constitution, Vernon's Ann.St.).

The granting or withholding of a permit, certificate or authority to do business in a statutorily regulated commercial endeavor is an administrative function and under the constitutional provision above quoted, such function cannot be delegated to the judiciary. The judicial inquiry in regard to such matters is restricted to the method employed by the administrative agency in arriving at its decision. By way of example, it is the province of the administrator to determine whether there is a public need for the proposed association. The administrator having determined that there is no public need for such association, the judicial question then arises as to whether the decision of the administrator is fraudulent, ² capricious or arbitrary. See, Davis v. City of Lubbock, 160 Tex. 38, 326 S.W.2d 699 (1959); Chemical Bank & Trust Co. v. Falkner, 369 S.W.2d 427 (Tex.Sup.1963). The so-called substantial evidence rule may be more accurately described as a test rather than a rule. When properly attacked, an arbitrary action cannot stand and the test generally applied by the courts in determining the issue of arbitrariness is whether or not the administrative order is reasonably supported by substantial evidence. In the Trem Carr case (Railroad Commission v. Shell Oil Company, 139 Tex. 66, 161 S.W.2d 1022, 1942), the order of a regulatory body, namely, the Railroad Commission, was likened to that of a commissioners' court or a board of school trustees and it was held that the issue was not whether the regulatory agency came to the proper fact conclusion on the basis of conflicting evidence, but 'whether followed. In the recent case of Gerst to the facts'. The court then stated that one of the tests applicable to determining the asserted arbitrary nature of the administrative act was whether or not the action of the agency in reaching the disputed conclusion was reasonably supported by substantial evidence.

The rule thus stated has been consistently followed. In the recent case of Gerst v. Cain, 388 S.W.2d 168 (Tex.Sup.1965), this court said:

'The discretion conferred on the Commissioner to grant or refuse charters by Arts. 881a--2 and 881a--3, Vernon's Texas Civil Statutes, was not an unbridled discretion; his findings could not be arbitrary or capricious, but must have had support in substantial evidence. Phillips v. Brazosport Savings and Loan Ass'n, Tex.Sup., 366 S.W.2d 929; Gibraltar Savings and Loan Ass'n v. Falkner, Tex.Sup., 371 S.W.2d 548; Benson v. San Antonio Savings Ass'n, Tex.Sup., 374 S.W.2d 423.'

In the usual judicial review of an administrative order in Texas, the issue is not whether the regulatory agency actually heard and considered sufficient evidence to reasonably support its action, but whether at the time the questioned order was entered there then existed sufficient facts to justify the agency's order. The...