Challenging an Agency Rule or Regulation: Where Do You Start?

Get a glance of what to consider before making a legal challenge to an agency rule or regulation in this article written by Nevada lawyer Paul Larsen and published in the Clark County Bar journal Communiqué (April 2023).

You have discovered that an agency rule, policy, or regulation is problematic. Perhaps the rule exceeds the authority of the agency, is unconstitutional, or otherwise unlawful. You ask yourself: “do I have a way to challenge the questionable regulation?” The answer is yes in most instances.

This article is not intended to provide a guide for such substantive challenges to an agency regulation, rather this article provides a high-level outline for the process of making such a legal challenge. The terse format precludes a detailed discussion, but we can attempt to identify areas for further inquiry by the diligent attorney.

The first question one must always consider is whether the policy or rule is reviewable. In making that determination, the first question one should ask is whether the policy or rule is a “regulation.”

Guidance can be found in the Nevada Administrative Procedure Act (APA), NRS Chapter 233B. Under the APA, a “regulation” is defined as “an agency rule, standard, directive or statement of general applicability which effectuates or interprets law or policy, or describes the organization, procedure or practice requirements of any agency” as well as “the general application by an agency of a written policy, interpretation, process or procedure to determine whether a person is in compliance with a federal or state statute or regulation in order to assess a fine, monetary penalty or monetary interest.” NRS 233B.038(1). These standards define a regulation, even if the agency has not gone through the formal adoption process mandated for regulation. Indeed, in many instances courts have set aside “ad hoc” regulations where the agency in question is required by law to use only the formal adoption process. See procedures mandated by NRS Chapter 233B for enacting regulations.

Caution should be taken to apply the APA definition, however. Some agency actions are specifically excluded from the definition of “regulation,” thereby implicitly exempting the agency from the requirement of formally adopting regulations. Specific examples of agency standards of general applicability that are not “regulations” include interagency memoranda and written internal management policies. See NRS 233B.038(2) for more examples.

Equal caution should be taken in applying the APA definition to agencies that are specifically excluded from the APA (like the Nevada Gaming Control Board) or to agencies whose actions in specific instances are excluded from the APA such as the “adoption, amendment or repeal of rules governing the conduct of contests and exhibitions of unarmed combat by the Nevada Athletic Commission…” See NRS 233B.039(1)(c) and (5)(g). Interestingly, the Athletic Commission exemption arose specifically from ad hoc rulemaking by the Athletic Commission, which was set aside by a reviewing district court for failing to formally adopt the regulations according to APA procedures; the legislature later granted the agency an exemption from formal rulemaking requirements.

Odd hybrid situations also present a situation that calls for caution. For example, the Cannabis Compliance Board (which licenses and regulates cannabis business operations) is exempt from the APA, but the regulations for the taxation of cannabis are adopted and administered by the Department of Taxation under the procedures and standards mandated by the APA, so the referenced APA definition of “regulation” specifically applies to Nevada’s system of taxation of cannabis in both formal and ad hoc contexts. See NRS 233B.039(1)(n); also, compare NRS 678A.440 (enumerated powers of Cannabis Compliance Board do not include taxation regulations) to NRS 372A.050 (the Department of Taxation is charged with adoption of regulations to implement the tax on cannabis). See e.g., https://tax.nv.gov/uploadedFiles/taxnvgov/Content/Forms/0825-Tax-Fundamentals-for-Cannabis-Establishments.pdf and https://tax.nv.gov/uploadedFiles/taxnvgov/Content/Forms/NVTF-EXC-79%20Wholesale%20Cannabis%20Return%201.23%20thru%206.23.pdf.

The applicability of the APA is not a merely an academic issue. Before seeking judicial review of a “regulation” promulgated by an agency subject to the APA, an interested party arguably must first request the agency rule on the regulation. See NRS 233B.110. Specifically, the statute provides:

The validity or applicability of any regulation may be determined in a proceeding for a declaratory judgment in the district court in and for Carson City, or in and for the county where the plaintiff resides, when it is alleged that the regulation, or its proposed application, interferes with or impairs, or threatens to interfere with or impair, the legal rights or privileges of the plaintiff. A declaratory judgment may be rendered after the plaintiff has first requested the agency to pass upon the validity of the regulation in question.

NRS 233B.110(1)(emphasis added).

A cautious approach suggests the interested party wishing to challenge the regulation first request the agency rule on the issue of whether a policy is invalid (such an ad hoc standard) or exceeds the statutory authority of the agency. While the Uniform Declaratory Judgment Act (NRS 30.101 through NRS 30.160) is specifically named by NRS 233B.110 as the means by which the party seeks judicial review under the APA, it can also be universally used to challenge a formal or ad hoc regulation. However, if one has an administrative remedy such as NRS 233B.110(1)’s requirement to request the agency review of the regulation, the exhaustion doctrine might preclude judicial review if one omits that step.

This issue is important because both the APA and other statutes governing the procedure for formal adoption of regulations also requires the agency to submit to the Legislative Counsel Bureau (LCB) or Legislative Commission for formal review before the regulations take effect. See e.g., NRS 233B.064 (Legislative Commission must approve draft formal regulations); NRS 233B.067 (LCB must approve formal regulations before adoption); and 678A.460(8),(9); and (10) (Legislative Commission may review Cannabis Compliance Board regulations before adoption). A careful attorney might also seek to avail themselves of this process, despite it not being an explicit “administrative remedy” under the exhaustion doctrine.

As each agency has its own statutes and procedures, caution must always be taken to make sure one has reviewed the specific statues and regulations prior to simply filing a request to declare the rule improper, void, or unauthorized.

About this article: This article was originally published in the “Administrative Law” issue of Communiqué, the official publication of the Clark County Bar Association, (Apr. 2023). See https://clarkcountybar.org/member-benefits/communique-2023/communique-apr-2023/.

About the author
Paul Larsen

Paul E. Larsen is an administrative & regulatory attorney with the law firm of Black & Wadhams. Larsen’s experience includes serving as General Counsel to a publicly traded MSO, and more than 25’s years’ experience in regulatory practice with firms including Lionel Sawyer & Collins and Snell & Wilmer. Larsen has successfully challenged multiple government rules on procedural and substantive grounds.

© 2023 Clark County Bar Association (CCBA). All rights reserved. No reproduction of any portion of this issue is allowed without written permission from the publisher. Editorial policy available upon request.

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