“Arbitrary, Capricious, or Unreasonable” Test Applies to Judicial Review of Administrative Agency Actions, Whether “Quasi-Judicial” or “Quasi-Legislative”

In re Proposed Quest Academy Charter School, 216 N.J. 370 (2013).  In this unanimous opinion, fittingly written by Justice LaVecchia given her Office of Administrative Law background, the Supreme Court addressed the question of what standard of review applies to a decision of the Commissioner of Education to deny an application by a proposed charter school (“Quest”) for a charter.  There was much controversy as to whether that type of decision is “quasi-legislative” or “quasi-judicial.”  Ultimately, that distinction did not matter for purposes of the standard of review.  The “arbitrary, capricious, or unreasonable” standard applied, and there was no arbitrariness in the Commissioner’s denial of Quest’s application.

“The labels of ‘quasi-judicial’ and ‘quasi-legislative’ typically are used to determine whether the agency is obligated to provide an administrative adjudicative hearing, regardless of whether the matter would merit the designation of a ‘contested case'” under the Administrative Procedure Act, N.J.S.A. 52:14B-1 to -15.  But those “labels do not result in a meaningful difference in the role played by judicial review of administrative determinations.  The core value of judicial review of administrative action is the furtherance of accountability.”  That review is to proceed using the “arbitrary, capricious, or unreasonable” standard, regardless of whether the decisions being challenged are quasi-judicial or quasi-legislative.

Justice LaVecchia amplified the key issues underlying the “arbitrary, capricious, or unreasonable” test.  The judicial role “is generally restricted to three inquiries: (1) whether the agency’s action violates express or implied legislative policies, that is, did the agency follow the law; (2) whether the record contains substantial evidence to support the findings on which the agency based its action; and (3) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors.”  Applying the test to Quest’s application, Justice LaVecchia found that “the Commissioner’s decision was amply supported by the record before her.”  The denial of a charter was thus upheld on the merits.

But there was another wrinkle.  Originally, the Commissioner’s decision was embodied only in a “brief and rather form-like letter” that referred to “deficiencies in your application” but did not contain detail as to those deficiencies.  The letter did, however, invite Quest to meet with Department of Education to discuss issues further.  When Quest appealed the Commissioner’s decision to the Appellate Division, the Commissioner then supplemented her letter with more detailed reasons, invoking Rule 2:5-1(b), which allows precisely that procedure.

Quest complained that the Commissioner had not provided adequate reasons for her decision initially.  But Justice LaVecchia concluded that the combination of the Rule 2:5-1(b) amplification and the invitation in the original denial letter to have a face-to-face meeting with staff “to review in detail the shortcomings of the application” was sufficient.  “In reviewing as complex a proposal as that required for a newly proposed charter school, there is a benefit to offering a discussion, instead of a written cataloging, of mistakes or deficiencies in the application that has been rejected.  We do not fault the Commissioner for choosing a dialogue involving constructive criticism as her preferred approach for producing approvable applications when resubmitted.”

This is an unusual deviation from the normal requirement that a decisionmaker provide detailed reasons for a decision, but one that, at least in this charter school context, has been unanimously endorsed by the Supreme Court.  Does this portend similar outcomes in other “complex” situations, such as rulings on environmental approvals, or is this a “one-off,” resulting from the unique nature of charter school proposals?  Time will tell.