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

• Decision Date: 09 March 1987
• Docket Number: No. 82-2427,82-2427
• Citation: 401 N.W.2d 805,136 Wis.2d 368
• Parties: LIBERTY HOMES, INC., Moduline International, Inc. and Commodore Home Systems, Inc., Plaintiffs-Appellants and Cross-Petitioners, v. DEPARTMENT OF INDUSTRY, LABOR AND HUMAN RELATIONS, Defendant-Respondent.
• Court: Wisconsin Supreme Court

Page 805

401 N.W.2d 805

136 Wis.2d 368

LIBERTY HOMES, INC., Moduline International, Inc. and Commodore Home Systems, Inc. Plaintiffs-Appellants and Cross-Petitioners, v. DEPARTMENT OF INDUSTRY, LABOR AND HUMAN RELATIONS Defendant-Respondent.

No. 82-2427.

Supreme Court of Wisconsin.

Argued Sept. 4, 1986.

Opinion filed March 9, 1987.

Edward F. Canfield, Mark S. Weiss and Casey, Scott & Canfield, P.C., Washington, D.C., and Norman C. Anderson (argued), and Wheeler, Van Sickle, Anderson, Norman & Harvey, S.C., Madison, for plaintiffs-appellants and cross-petitioners.

Bruce A. Olsen, Asst. Atty. Gen., with whom on brief was Bronson C. La Follette, Atty. Gen., for defendant-respondent.

BABLITCH, Justice.

Liberty Homes, Inc., Moduline International, Inc. and Commodore Home Systems, Inc. (Mobile Home Builders) seek review of a decision of the court of appeals, which upheld the validity of Wis.Adm.Code, Sec.Ind. 14.03 ^1... The circuit court had reached an identical conclusion. The Mobile Home Builders also challenge the methodology employed by the circuit court and court of appeals to determine whether the rule adopted by the agency was factually supported by the record. They urge this court not only to invalidate Sec.Ind. 14.03 but to reject the lower courts method of review and to articulate a different methodology for reviewing the factual basis of agency rules.

As fully explained below, the validity of the rule in this case is challenged on constitutional grounds. We adhere to the standard of review utilized by this court in prior constitutional due process challenges to agency rules. Hence, where there is a constitutional challenge to the factual basis of an administrative rule the court must decide whether the regulation adopted by the agency is reasonably related to a legitimate governmental objective. ² E.g., Josam Mfg. Co. v. State Board of Health, 26 Wis.2d 587, 603, 133 N.W.2d 301 (1965). To find that an agency rule is reasonably related to a legitimate governmental objective there must be facts of record which demonstrate a reasonable basis for the agency's rule. The court must undertake a thorough study of the record in order to determine whether the agency could reasonably have concluded that the rule chosen would effectuate the governmental objective it sought to implement. Applying this standard to the present case we conclude that Sec.Ind. 14.03 is valid.

Wisconsin Adm.Code Sec.Ind. 14.03 was adopted pursuant to secs. 101.92(1) and 101.94(2), Stats. 1981-82, which authorize the Department of Industry, Labor and Human Relations (DILHR) to "adopt, administer and enforce rules for the safe and sanitary design and construction of mobile homes ..." and to "establish, by rule, standards for the safe and sanitary design and construction of mobile homes...."

Section Ind. 14.03 provides that "[a]ll new mobile homes designed and constructed on or after the effective date of this rule and offered for retail sale in Wisconsin shall not exceed the chemical concentration in the ambient indoor air ..." of .4 parts per million (ppm) after sixty days from the date of manufacture. Section Ind. 14.03(1).

Section Ind. 14.03 provides that all tests performed by DILHR to determine the presence and concentration of formaldehyde shall be conducted in accordance with a prescribed test (hereinafter the NIOSH P & CAM 125 Test). Section Ind. 14.03(3). If DILHR determines by using the foregoing test that the formaldehyde level in the air of a mobile home, at any time up to two years after sale and occupancy, exceeds .4 ppm, the manufacturer is required, within 30 days, to lower the concentration to .4 ppm or less. Failure to take such corrective action subjects the manufacturer to potential criminal penalties. Section Ind. 14.03(1)(b), (7), (8), (9).

The Mobile Home Builders commenced this action pursuant to sec. 227.05(1), Stats., ^3.. seeking a declaratory judgment holding the rule invalid. Section 227.05(1) authorizes judicial review of the validity of administrative rules exclusively by actions for declaratory judgment. The court must declare a rule invalid under three circumstances: 1) if it finds it violates constitutional provisions; 2) exceeds the statutory authority of the agency; or 3) was adopted without compliance with statutory rulemaking procedures. Section 227.05(4).

At the onset we must clarify two points which have been blurred in this litigation. They are: 1) whether this factual basis challenge is on constitutional or exceeding statutory authority grounds; and 2) whether the parties challenge the standard of review employed by the lower courts or the method the courts used to implement that standard of review.

This court has searched the original complaint, the petition for review and all the briefs for a clear articulation of the grounds for this challenge to the factual basis of Sec.Ind. 14.03. We have also reviewed the opinions of the courts below in this case to try and determine whether this is a constitutional attack, statutory authority challenge or both. Though neither the circuit court nor the court of appeals explicitly address the issue, it appears they considered the attack on the rule's factual basis a constitutional due process challenge. ^4.. In addition, there is language in the Mobile Home Builders' second amended complaint which suggests that in asserting the rule lacks adequate factual support, they intend a constitutional challenge to the rule. ^5..

Thus, based on our review of the pleadings, briefs and lower court opinions we conclude the Mobile Home Builders' challenge that the rule lacks sufficient factual support is a constitutional substantive due process challenge. ^6. E.g., Nebbia v. New York, 291 U.S. 502, 525, 54 S.Ct. 505, 510, 78 L.Ed. 940 (1934) ("[T]he guaranty of due process ... demands only that the law shall not be unreasonable, arbitrary or capricious, and that the means selected shall have a real and substantial relation to the object sought to be attained."); Josam, 26 Wis.2d at 605, 133 N.W.2d 301, Borden Co. v. McDowell, 8 Wis.2d 246, 259-63, 99 N.W.2d 146 (1959). The standard of review in such cases is clear. The court must determine whether the rule bears a reasonable relation to a legitimate governmental objective. Josam, 26 Wis.2d at 596-97, 602-04, 133 N.W.2d 301.

This brings us to the second point of concern in this litigation. That is whether the parties are requesting this court to announce a specific standard of review to be used in constitutional challenges to the factual basis of administrative rules or a method for implementing the appropriate standard of review. The parties appear to have confused the standard of review, e.g., "reasonableness" in constitutional due process challenges, with the methodology for implementing the review.

For example in their petition for review the Mobile Home Builders repeatedly refer to the "hard look doctrine" standard of judicial review, yet they acknowledge that the "reasonable relationship" test has been followed by this court for some years. Cross-petition and Appendix of Plaintiffs-Appellants for review of a decision of the court of appeals p. 14 (September 17, 1985). The State also refers to "hard look" as a standard of review. Supreme court brief of the Department of Industry, Labor and Human Relations p. 14 (January 29, 1986).

The Mobile Home Builders did note the difference between standard and methodology in their reply brief filed in this court.

"The 'hard look' regimen is not in itself a 'standard' of judicial review. 'Hard look' review does not provide the court with a test or threshold limit for the proper quantum of evidence needed to support a rule. The 'hard look' regimen, rather is a judicially evolved methodology of review, which may be used in conjunction with any standard of review, whether the 'arbitrary and capricious' test, the 'rational basis' test, or the 'substantial evidence' test. The methodology of review, however, is critical, particularly where rules affecting major social, health and technical issues are concerned, because as courts and commentators have recognized, the various 'standards' of review tend to converge in actual practice into a general concept of 'reasonableness.' " " Reply Brief of Cross-Petitioners p. 4 (February 7, 1986). (Emphasis in original.)

We believe this passage states the proper analytical framework for determining the proper role of the courts in administrative rule challenges. Thus, this opinion will focus on the methodology for courts to use in resolving constitutional challenges to the factual bases of administrative rules.

The record in this case, as well as the continued growth and complexity of administrative rulemaking, leads us to conclude that trial courts should insist that parties challenging administrative rules clearly state which type of challenge under sec. 227.05, Stats., is being made, 1) constitutional, 2) exceeding statutory authority or 3) failure to comply with statutory regulatory procedures. The trial court should also require that the precise basis for each challenge is clearly enunciated, e.g., it is a constitutional due process challenge because the facts do not show that the rule is reasonably related to a legitimate governmental purpose. Finally, the parties should also be required to state the applicable standard of review the circuit court should apply in resolving the case.

These requirements will force litigants to clarify their theory of the case at the point when it should be clarified--before the action for declaratory judgment is filed. In addition, requiring a clear articulation of the basis for a rule challenge will discourage a shotgun approach to administrative rule challenges. If these pleading requirements are enforced, review by the courts will be facilitated. We turn now to the challenge in this case.

The Mobile Home Builders contend that because the .4 ppm standard and the test method...