Liberty Homes, Inc. v. Department of Industry, Labor and Human Relations

• Decision Date: 18 July 1985
• Docket Number: No. 82-2427,82-2427
• Citation: 374 N.W.2d 142,125 Wis.2d 492
• Parties: LIBERTY HOMES, INC., Moduline International, Inc., and Commodore Home Systems, Inc., Plaintiffs-Appellants, v. DEPARTMENT OF INDUSTRY, LABOR AND HUMAN RELATIONS, Defendants-Respondents. *
• Court: Wisconsin Court of Appeals

Page 142

374 N.W.2d 142

125 Wis.2d 492

LIBERTY HOMES, INC., Moduline International, Inc., and Commodore Home Systems, Inc., Plaintiffs-Appellants, v. DEPARTMENT OF INDUSTRY, LABOR AND HUMAN RELATIONS Defendants-Respondents. ^* No. 82-2427.

Court of Appeals of Wisconsin.

Submitted on Briefs April 16, 1984.

Opinion Released July 18, 1985.

Opinion Filed July 18, 1985.

Edward F. Canfield, John R. Gerstein and Casey, Scott & Canfield, P.C., Washington, D.C., and Norman C. Anderson, Stuart G. Mondschein and Wheeler, Van Sickle, Anderson, Norman & Harvey, S.C., Madison, for plaintiffs-appellants.

Bronson C. La Follette, Atty. Gen., and Bruce A. Olsen, Asst. Atty. Gen., for defendant-respondent.

Before GARTZKE, P.J., DYKMAN, J., and RUDOLPH T. RANDA, Reserve Judge.

GARTZKE, Presiding Judge.

Liberty Homes, Inc., Moduline International, Inc., and Commodore Home Systems, Inc., brought this action against the Department of Industry, Labor and Human Relations, for a judgment declaring that Wis.Adm.Code sec. Ind 14.03 is invalid. ¹ This rule establishes a .4 parts per million maximum permissible formaldehyde concentration in the ambient indoor air of new mobile homes offered for retail sale in Wisconsin. ² The trial court dismissed the complaint.

The issues are whether the rule is within the scope of DILHR's rulemaking authority, whether the record supports the factual basis for Wis.Adm.Code sec. Ind 14.03, whether it is possible to comply with an ambient air standard, whether the rule violates the commerce clause, U.S. Const. art. I, sec. 8, cl. 3, and whether the rule is preempted by a federal regulation adopted after the Wisconsin regulation. We hold that adoption of the rule is within DILHR's authority, that the record supports sec. Ind 14.03, that it does not burden interstate commerce, and that federal regulation preempts the rule from and after the effective date of the federal regulation, February 11, 1985. We therefore hold that mobile homes "designed and constructed" between October 1, 1981 and February 11, 1985 only are subject to sec. Ind 14.03, and we modify the judgment accordingly.

I. HISTORY OF THE CASE

A. State Regulation

In response to consumer complaints, DILHR prepared a draft standard on the level of formaldehyde molecules in the indoor air of mobile homes. DILHR held public hearings on the matter in February 1980. ³ It submitted a proposed draft to a legislative standing committee, and following hearings before two such committees in November 1980, it published the standard as a rule in the March 1980 administrative review, to take effect October 1, 1981. In September 1981 appellants brought this action to challenge the rule. The trial court "enjoined [DILHR] from enforcing Ind 14.03." DILHR then proposed to amend the rule, and after another public hearing, DILHR submitted a revision to the legislature for comment. DILHR adopted the rule amendments April 2, 1982, effective May 1, 1982. Appellants continued their challenge. The trial court took testimony and rendered a written opinion, followed by factual findings and conclusions.

The trial court said it based its review on Westring v. James, 71 Wis.2d 462, 238 N.W.2d 695 (1976), Josam Mfg. Co. v. State Board of Health, 26 Wis.2d 587, 133 N.W.2d 301 (1965), and Wis. Tel. Assn. v. Public Service Comm., 105 Wis.2d 601, 314 N.W.2d 873 (Ct.App.1981). After concluding that DILHR may adopt the rule, the court said that whether DILHR could find .4 parts per million of formaldehyde is enough to cause a health problem is to be reviewed as a quasi-legislative decision and that DILHR's medical evidence supports a lower standard. The court said that because the .4 ppm standard exceeds a level which the facts could support, it is not unreasonable. Because manufacturers can produce materials which meet the standard, the court rejected an argument that it cannot be met. It rejected an attack on the specified test for formaldehyde. It concluded that the facts were such that they may be reasonably conceived to sustain the regulation and dismissed the complaint.

B. Federal Regulation

After the briefs were filed, DILHR brought to our attention regulations, 49 Fed.Reg. 31996 et seq. (1984) (to be codified at 24 CFR pt. 3280) adopted by the U.S. Department of Housing and Urban Development, pursuant to the Manufactured Housing Construction and Safety Standards Act of 1974, 42 U.S.C. Secs. 5401 et seq. 1983, effective February 11, 1985. The new HUD regulations deal with formaldehyde in the indoor ambient air of "manufactured homes." The federal definition of a "manufactured home" includes a "mobile home" under Wisconsin law. ⁴ HUD's standards not having been adopted when the trial court rendered its judgment declaring Wis.Adm.Code sec. Ind 14.03 valid, we requested additional briefs on the preemption issue.

The federal act authorizes HUD's secretary to establish manufactured home construction and safety standards. In June 1979 HUD began a rulemaking procedure to that end. In August 1981 HUD published notice of proposed rulemaking, directed solely to the issue of formaldehyde emissions in manufactured homes. The history of that proceeding, the standards finally adopted and the reasons for it are set forth in 49 Fed.Reg. 31996 et seq. (1984). The pertinent federal standard is 24 CFR sec. 3280.308(a), effective February 11, 1985, which provides:

Formaldehyde emission levels. All plywood and particleboard materials bonded with a resin system or coated with a surface finish containing formaldehyde shall not exceed the following formaldehyde emission levels when installed in manufactured homes;

(1) Plywood materials shall not emit formaldehyde in excess of 0.2 parts per million (ppm) as measured by the air chamber test method specified in § 3280.406.

(2) Particleboard materials shall not emit formaldehyde in excess of 0.3 ppm as measured by the air chamber test specified in sec. 3280.406.

When adopting its standards, HUD stated, "It is HUD's intention that these standards preempt State and local formaldehyde standards in accordance with the Act (42 U.S.C. sec. 5403(d))." 49 Fed.Reg. at 31997 col. 2.

II. STATUTORY AUTHORITY

Appellants argue that DILHR lacks statutory authority to adopt Wis.Adm.Code sec. Ind 14.03 because it is not a "design and construction" standard. We disagree.

Sections 101.92(1) and 101.94(2), Stats. 1981-82, authorized DILHR to adopt rules for the "safe and sanitary design and construction of mobile homes." Wis.Adm.Code sec. Ind 14.03(1) is a design and construction standard. It effectively requires manufacturers to use low formaldehyde-emitting materials when designing and constructing mobile homes offered for sale in Wisconsin. We conclude that DILHR did not exceed its statutory authority.

III. FACTUAL BASIS FOR RULE

A. Scope of Review

We must first establish how we will review the sufficiency of the factual basis for an administrative rule. Westring v. James, supra, did not involve the validity of an administrative rule. In Wis. Tel. Ass'n v. Public Service Comm., 105 Wis.2d at 611, 314 N.W.2d at 877-78, we said that if we could reasonably conceive that facts exist to justify an administrative rule, we would presume their existence. We relied on Pacific States Box & Basket Co. v. White, 296 U.S. 176, 185, 56 S.Ct. 159, 163, 82 L.Ed. 138 (1935). We also cited Josam Mfg. Co. v. State Board of Health, 26 Wis.2d at 603, 133 N.W.2d at 310, to the effect that a rule's challenger must show by proof beyond a reasonable doubt that the rule does not bear a reasonable relationship to its purpose.

Appellants urge us to abandon our precedent. They ask for a "hard look" to see if the underpinnings for the rule are supported by substantial evidence. They note that Professor Davis has said, "The law has clearly moved away from the 1935 answer, in Pacific States Box & Basket Co. v. White, 296 U.S. 176, 186 [56 S.Ct. 159, 163, 82 L.Ed. 138] (1935), that a court will presume the existence of facts justifying rules." 1 K. Davis, Administrative Law sec. 6: 16 at 508 (2d ed. 1978). Professor Davis continues in his analysis of the federal law:

The present law is quite different.... The judicial movement toward requiring factual support in rulemaking records is so strong that today's lawyers and judges usually seem to take the requirement for granted, even though the Supreme Court has taken no position on the question since the surge of rulemaking during the 1970s.

Id. at 524. Appellants cite federal cases which have indeed moved away from the 1935 answer; see Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971) (reviewing court should engage in a substantial inquiry); Portland Cement Association v. Ruckelshaus, 486 F.2d 375, 402 (D.C.Cir.1973), cert. denied, 417 U.S. 921, 94 S.Ct. 2628, 41 L.Ed.2d 226 (1974) (court must determine whether the agency has exercised reasoned discretion); Ethyl Corp. v. Environmental Protection Agency, 541 F.2d 1, 34 (D.C.Cir.) (en banc), cert. denied, 426 U.S. 941, 96 S.Ct. 2662, 49 L.Ed.2d 394 (1976) (courts must not rubberstamp agency action).

DILHR argues that regardless of the scope of review the trial court said it applied, the court actually determined that the purported facts on which the rule rests have a substantial basis in the record. Thus, DILHR acquiesces in appellants' position that the substantial evidence test should be applied.

The express or implied agreement of the parties on questions of law does not, of course, bind us. Swift & Co. v. Hocking Valley R. Co., 243 U.S. 281, 289, 37 S.Ct. 287, 289, 61 L.Ed. 722 (1917). This is particularly true when the question is a difficult one involving the scope of judicial review. We encourage the parties to an appeal to acknowledge the correctness of each other's views. For us to abide by their agreement in this appeal, however, could affect future judicial review of administrative rules. We will not...