KEVIN JACOBY | APRIL 05, 2024
Oregon’s cannabis industry continues to face an incredibly challenging regulatory environment, with the most recent example being the Oregon Liquor and Cannabis Commission’s (“OLCC”) continued delays of important reforms to the plant tagging rule. In a previous post, I discussed challenges that industry players face in seeking tort remedies from state agencies and their employees. The conclusion from that post was that the best avenue industry players have in combating damage-inducing policy decisions is to utilize the tools available under Oregon’s Administrative Procedures Act (“APA”) and the body of administrative law that arises from it to stop policy or enforcement decisions before they cause damage. In this post, I will survey some of the legal tools available to persons or businesses adversely affected by OLCC decisions as it relates to promulgation of administrative rules.
What is “Administrative Law”?
Broadly stated, administrative law refers to the law that governs how agencies of the executive branch conduct their operations, and in particular, how they are to express policy and enforce that policy. For every form of government in our system, there is generally a separate body of administrative law that governs. For federal executive agencies, the primary source of law is the federal Administrative Procedures Act. For Oregon’s executive agencies, we have our own Administrative Procedures Act, codified as ORS Chapter 183, that borrows some concepts from the federal law, but also departs from it in many different respects. In our federalist system, the law that governs the federal government doesn’t generally apply to state governments. For purposes of Oregon’s cannabis industry, Oregon’s APA is the primary source of law that governs how the state’s cannabis regulatory agencies function, the primary of which is OLCC.
The APA is a general law that applies to all executive agencies of Oregon’s state government, with some minor exceptions. In addition to the APA, there are a host of other statutes that outline the duties and responsibilities of individual agencies. In the realm of cannabis regulatory agencies, ORS Chapter 475C contains a host of substantive and procedural requirements that apply in addition to the APA. In other words, Oregon’s cannabis regulatory agencies must adhere both to the APA and to ORS Chapter 475C.
The APA in its mostly-current iteration has been around since 1971, and applies to administrative agencies of the state government (but not city or county governments) that have authority delegated to them by the legislature to make rules applicable to persons or entities that are not themselves governments or issue orders or decisions on administrative matters that apply to those persons or entities. Under the APA, broad policy statements that are generally applicable (that is, not directed at a particular person, but which affect the affairs of all or a particular class of persons or business) are categorized as “rules,” while “orders” are the product of an agency’s exercise of its quasi-judicial function that results in determinations that are applicable to a particular person or business or a relatively small group of individuals or businesses.
Administrative Rules – Procedural Requirements
The APA defines “rule” to be “any agency directive, standard, regulation or statement of general applicability that implements, interprets or prescribes law or policy, or describes the procedure or practice requirements of any agency.” ORS 183.310(9). The APA further clarifies what is not a “rule”: (1) an agency’s “internal management directives, regulations or statements” within an agency or between agencies that do not substantially affect the interests of the public; (2) actions by agencies directed to other agencies that do not substantially affect the interests of the public; (3) declaratory rulings under ORS 183.410; (4) intra-agency memoranda; (5) executive orders of the Governor; or (6) certain rules of conduct for prisoners. Case law from the Oregon Supreme Court and Oregon Court of Appeals has clarified that if an agency decision meets the definition of a “rule” and is not otherwise subject to these six exceptions, it is a “rule” for purposes of the APA. It does not matter in what form the “rule” is expressed, although if the rule is not properly promulgated as such, it can affect whether the rule can be enforced.
Generally, the APA sets up a procedure for the promulgation of rules, which are then compiled as the Oregon Administrative Rules by the Oregon Secretary of State. The APA contains several provisions that govern the procedure for promulgating rules, found at ORS 183.335-183.355 and ORS 183.530-183.540. There are two types of rules: permanent rules and temporary rules. Permanent rules are those that don’t have an expiration date—they are intended to govern until the agency amends or repeals the rule with subsequent rulemaking procedures. Temporary rules are reserved for situations where an agency perceives a need to promulgate a rule quickly, and by statute may only be effective for no more than 180 days.
For permanent rules, the APA requires agencies to “seek public input to the maximum extent possible before giving notice of intent to adopt, amend or repeal a rule.” ORS 183.333(1). One method that the APA allows agencies to meet this requirement is the appointment of a rules advisory committee (“RAC”) composed of those who may be subject to the rule to solicit their input. OLCC regularly forms RACs when considering proposals to adopt or amend rules applicable to the cannabis industry. However, forming a RAC is not strictly required by the APA, and there is no requirement that an agency follow the recommendations of a RAC. That being said, agencies will frequently adopt recommendations from a RAC when they otherwise align with the agency’s policy goals. In the cannabis regulatory context, OLCC is often responsive to proposals from RAC participants to tinker around the edges of a rule that they plan on adopting (such as, providing for later implementation to allow the industry to adjust, or adding limited exceptions to the application of the rule). In other words, if you can get on a RAC, your proposals or concepts may not carry the day, but they can influence the final wording of a rule greatly. If you receive an invitation to serve on a RAC, do it and take it seriously!
Once a RAC or other less formal means of public input is received, the agency is required to publish a notice of proposed rulemaking with the Secretary of State, which are published at this website in a searchable database. The notice must include the text of the rule or rule amendment that the agency intends to promulgate, and often helpfully shows the changes being proposed in something akin to track changes in Microsoft Word. The notice must also include a summary of the intended action and the purpose of the rule’s the agency intends to adopt, and a host of other impact statements. The intent of this requirement is to give the public sufficient notice that their interests may be affected. The notice will also include an invitation for public comment and instructions on how to submit those comments, typically to an email or at a public hearing (or both). The rulemaking notice generally must be published at least 28 days before the intended effective date of the rule.
If at least 10 persons or an association representing at least 10 persons, the APA requires a public hearing be scheduled on at least 14 days notice, which can effectively delay the implementation of a rule. The purpose of the public hearing is to solicit comments on the proposed rule orally, and the record of the hearing is made part of the administrative record of the rule. While the agency is mandated to consider all public comments, those submitted in writing and those made at a public hearing, agencies are not required to follow any particular recommendations made in the public comments. Following the public comment period, the agency will then publish a notice of final rulemaking, which may differ in some respects from the rule it originally proposed based on public comments.
For temporary rules, agencies are allowed to promulgate rules on shorter notice or no notice at all, but they are required to at a minimum “take appropriate measures to make temporary rules known to the persons who may be affected by them.” ORS 183.355(2)(b). Generally, the APA requires notices of temporary rulemaking to be more robust than those for permanent rules, primarily because the public participation element of permanent rulemaking has been circumvented. For temporary rules, the agency’s notice must include findings that “its failure to act promptly will result in serious prejudice to the public interest or the interest of the parties concerned and the specific reasons for its findings of prejudice.” ORS 183.335(5)(a). As noted above, temporary rules can be effective for no more than 180 days, and are typically followed by permanent rulemaking procedures to make the rule permanent.
Judicial Review of Administrative Rules
The APA provides that administrative rules can be judicially reviewed upon the petition of any person, regardless of whether the rule will have any effect on the petitioner. ORS 183.400. Petitions for judicial review of administrative rules are made to the Oregon Court of Appeals, who reviews the rule in the first instance, and who’s decision may be further appealed to the Oregon Supreme Court.
However, if a person who is affected by the rule is a party to a civil proceeding in a trial court where the validity of the rule has some application to the outcome of the case, the validity of the rule can be challenged directly in that court. Similarly, if a person is a party to administrative contested case where the rule has some bearing on the outcome of the agency’s order, that person can also challenge the rule in the contested case proceeding. That said, a person who does not have an immediate route to challenge a rule’s validity in an existing trial court or administrative case, judicial review must be to the Court of Appeals.
Generally, the Court of Appeals’ jurisdiction for judicial review is limited to whether the rule was validly adopted according to substantially compliant APA procedures or whether the rule is substantively valid – that is, it does not conflict with a statute, the state or federal constitutions, or some other source of law. On the latter point, substantive challenges to the validity of rules is whether the rule in all of its possible applications is compliant with another identified source of law. As-applied challenges (which are, in essence, arguments that the rule when applied to certain facts is unconstitutional or incompatible with a statute) cannot be heard in a judicial review proceeding to the Court of Appeals – those types of challenges can only be brought in proceedings to enforce or apply the rule to the particular facts.
Importantly, there is no statute of limitations applicable to a petition for judicial review of the validity of a rule – one can be brought any time while the rule is on the books. However, if petition is filed more than two years after the rule was promulgated, the Court may not review whether the agency properly complied with the APA’s rulemaking procedures. In other words, if you want to challenge a rule that has been on the books for more than two years, your argument will be limited to whether the rule is substantively invalid.
When the validity of a rule is challenged by a person or business who will be subject to the rule, and the petitioner establishes that enforcement of the rule will cause them irreparable harm and that they have a likelihood of establishing that the rule is procedurally or substantively flawed, the Court of Appeals has ruled that it has the authority to stay enforcement of the rule while the challenge is being considered. In the cannabis regulatory context, this particular procedure has been used twice to stay enforcement of OLCC’s flavored vape ban in 2019 and more recently to stay enforcement of OHA’s Aspergillus testing rule in 2023.
Stay tuned for a future post where I discuss procedures and remedies as it relates to administrative orders, including orders suspending or revoking a license or imposing a civil penalty.
You can contact Kevin Jacoby at [email protected] or schedule a consultation by calling (503) 208-4470.
