When does an agency’s action carry the force of law and bind both the agency and the public? The federal courts have frequently sought to clarify what can be a murky—but significant—distinction.[1] The Michigan Supreme Court recently addressed this issue in a state administrative law case. In Michigan Farm Bureau v. Department of Environment, Great Lakes, and Energy, the court explained how to distinguish between legally binding rules and informal policy statements.[2]

The case concerned a challenge by a farmers’ association to state restrictions on where livestock farmers can dispose of animal waste.[3] The Michigan agency responsible for environmental regulations—the Department of Environment, Great Lakes, and Energy (EGLE)—administers within the state the National Pollutant Discharge Elimination System (NPDES), which was created by the federal Clean Water Act.[4] EGLE is authorized to issue waste discharge permits that are conditioned on compliance with the restrictions required by federal regulations and any additional conditions that EGLE deems “necessary to achieve applicable water quality standards” by preventing runoff into waterways.[5]

After following its administrative procedures, EGLE promulgated a rule allowing it to issue a “general permit” for animal waste disposal, which individual farms could apply to be covered under.[6] The general permit required compliance with both the mandatory conditions required by federal law and the discretionary conditions that EGLE deemed necessary to protect waterways.[7] If EGLE decided that the general permit’s conditions were appropriate for an applicant, then the applicant could be granted permission to discharge waste in compliance with those mandatory and discretionary conditions.[8] 

The farmers’ association argued that the discretionary conditions contained in the general permit were “rules” that had to be promulgated in compliance with Michigan’s Administrative Procedures Act (APA) and that imposing them through the general permit exceeded EGLE’s authority.[9] The association sought a declaratory judgment from the Michigan Court of Claims invalidating the discretionary conditions.[10] The Court of Claims dismissed the case for lack of subject matter jurisdiction, concluding that the association had failed to exhaust its administrative remedies and that the discretionary conditions were not “rules” as required by the Michigan statute permitting declaratory relief.[11] The Michigan Court of Appeals found that the discretionary conditions were rules, but it affirmed because of a lack of administrative exhaustion.[12]

On appeal, the Michigan Supreme Court had to decide whether it possessed subject matter jurisdiction to hear the case under the Michigan statute authorizing declaratory-judgment review of agency “rules.”[13] The court, therefore, needed to resolve whether the discretionary conditions contained in the general permits were “rules” or informal policy statements.[14] In a 5–2 decision, the majority held that they were the latter.[15]

The opinion, written by Chief Justice Elizabeth Clement, recalled that Michigan administrative law—just like the federal Administrative Procedure Act—“distinguishes between legislative rules (which have the force and effect of law) and interpretive rules and general statements of policy (which do not).”[16] The court laid out a four-part test to determine whether an agency action is a “rule.”[17] An action is a “rule” if it 1) is issued by an agency, 2) “is of general applicability,” 3) “implements or applies law” administered by the agency or sets procedures for doing so, and 4) “in itself, has the force and effect of law.”[18] The court quickly determined that the discretionary conditions satisfied the first three criteria.[19] The fourth—whether the discretionary permits have the force and effect of law—proved more challenging.

To have this legally-binding status, the court explained, an agency’s statement must “itself alter[] rights or impose obligations” with a “present, binding effect on regulated entities, the agency, and the courts.”[20] In contrast, when a statement “merely explains what the agency believes” an ambiguous statute or rule means or “explains what factors” the agency will consider in exercising a discretionary power, it generally lacks a binding effect, according to the majority.[21] If the Michigan Legislature did not delegate to an agency the power to make rules on a subject, any agency statement on that subject “cannot alter rights, impose obligations, or have a present binding effect” on individuals, the agency, or a review court.[22]

The court then applied these principles to EGLE’s general permits and their discretionary conditions. The court noted that the relevant title of Michigan’s environmental law delegates to EGLE the power to issue rules only concerning oceangoing vessels that go to port in Michigan.[23] As a result, EGLE had no authorization—and thus no power—to issue legally binding rules governing waste-discharge permits.[24] “[I]f the Legislature has not delegated to an agency the power to make rules,” the court held, “a statement of general applicability issued by the agency cannot be considered a ‘rule’” under Michigan’s APA.[25] Because no statute allowed EGLE to issue rules on this subject, the statement could not be a rule.[26] And any such statement necessarily lacked the force and effect of law.[27]

Consequently, the general permits and the discretionary conditions contained in them were merely interpretive rules or statements of policy. The majority concluded that “EGLE is not empowered to issue rules concerning the subject matter that the general permit and discretionary conditions cover.”[28], EGLE “cannot give any statement of general applicability related to” the waste discharge permits “the force and effect of law, even if EGLE intends to do so or else follows the APA’s rulemaking procedures before issuing them.”[29]

This labeling affects more than just the court’s ability to review the conditions in a declaratory-judgment posture. Because they are not “rules,” administrative law judges and courts cannot “treat the general permit and discretionary conditions as though they restrict EGLE’s permitting discretion.”[30] And “EGLE must carry its burden to prove” that the discretionary conditions are “necessary” in the administrative adjudication for each individual permit.[31] EGLE could treat the general permit’s discretionary conditions only as advice about what restrictions it usually finds important. Because EGLE cannot rely on the general permit as a rule carrying the force of law, it “must genuinely evaluate whether the discretionary conditions are necessary as applied to” each applicant for a waste discharge permit.[32]

Justice Elizabeth Welch concurred, but she would not have reached the question of whether the general permits at issue were “rules.”[33] Justice Welch would have dismissed the case under a provision that prohibited declaratory judgments when an “exclusive procedure or remedy is provided by a statute governing the agency.”[34] Because Michigan law provides exclusive procedures for challenging EGLE’s decisions on whether to grant pollutant discharge permits, she concluded, the plaintiffs could not seek a declaratory judgment regardless of whether the permits were rules.[35]

Justice David Viviano dissented, joined by Justice Brian Zahra. Justice Viviano argued that the conditions in the general permit were “rules” which had to be issued in conformity with the APA.[36] He contended that the conditions have the force of law.[37] He cited Michigan Supreme Court precedent holding that the primary distinction between rules and interpretive statements is the agency’s intent to “exercise delegated power to make rules having force of law,” and that the best evidence of that intent is contemporary agency statements.[38] Because the general permit was written “in express terms of mandatory directives and prohibitions,” Justice Viviano concluded that the conditions it imposed were rules.[39]

Justice Viviano also argued that EGLE treated the conditions as having legal effect and led the regulated entities to believe that the conditions were binding.[40] Next, he appealed to Michigan precedent establishing that an interpretive statement cannot be inconsistent with or go beyond the scope of the rule it allegedly expounds, arguing that the conditions here go beyond the scope of the rule the majority said they merely implement.[41] Finally, he noted that interpretive rules must be “merely explanatory” rather than create “new substantive standards” and that Ninth Circuit and D.C. Circuit case law supports his approach.[42] He concluded that “confusion and contradictions” would result from the “new legal regime created by the majority opinion” because, for example, agencies will no longer be able to rely on general permitting policies and will have to create a full record specific to each permit.[43]

 

[1] See, e.g., Pac. Gas & Elec. Co. v. Fed. Power Comm’n, 506 F.2d 33, 38 (D.C. Cir. 1974); Nat’l Mining Ass’n v. McCarthy, 758 F.3d 243, 251-52 (D.C. Cir. 2014); Sec. Indus. & Fin. Markets Ass’n v. U.S. Commodity Futures Trading Comm’n, 67 F. Supp. 3d 373, 416 (D.D.C. 2014).

[2] Michigan Farm Bureau v. Dep’t of Env’t, Great Lakes, and Energy, 2024 WL 3610196, at *13-20 (Mich. 2024).

[3] Id. at *1.

[4] Id.; 33 U.S.C. §§ 1251–1387.

[5] Mich. Farm Bureau, 2024 WL 3610196, at *13 n.3 (citing 40 C.F.R. § 122.44(d)(1) (2023)).

[6] Id. at *5.

[7] Id.

[8] Id.

[9] Id. at *7.

[10] Id. at *8.

[11] Mich. Farm Bureau v. Dep’t of Env’t, Great Lakes, & Energy, No. 20-000148-MZ, 2020 WL 8465996 (Mich. Ct. Cl. Dec. 30, 2020).

[12] Mich. Farm Bureau v. Dep’t of Env’t, Great Lakes, & Energy, 997 N.W.2d 467 (Mich. Ct. App. 2022).

[13] Mich. Farm Bureau, 2024 WL 3610196, at *9–10.

[14] Id. at *13–14.

[15] Id. at *12.

[16] Id. at *11.

[17] Id. at *12.

[18] Id.

[19] Id.

[20] Id. at *15.

[21] Id.

[22] Id. at *20.

[23] Id. at *12.

[24] Id.

[25] Id.

[26] Id.

[27] Id.

[28] Id. at *13.

[29] Id.

[30] Id. at *17.

[31] Id.

[32] Id. at *16.

[33] Id. at *21 (Welch, J., concurring in part and concurring in the judgment).

[34] Id. (quoting Mich. Comp. Laws § 24.264 (2024)).

[35] Id. at *31.

[36] Id. (Viviano, J., dissenting).

[37] Id.

[38] Id. at *34 (quoting Mich. Farm Bureau v. Bureau of Workmen’s Comp., 289 N.W.2d 699, 702 (Mich. 1980)).

[39] Id.

[40] Id. at *35–36.

[41] Id. at *39.

[42] Id. at *40.

[43] Id. at *46.

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