Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

ON MOTION FOR REHEARING

NO. 03-98-00340-CV

Texas Natural Resource Conservation Commission; Texas Farm, Inc.; and Dean Paul

d/b/a Paul Farms/Accord Agriculture, Inc. , Appellants

v.

Accord Agriculture, Inc./Texas Natural Resource Conservation Commission;

Texas Farm, Inc.; and Dean Paul d/b/a Paul Farms , Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT

NO. 96-00159, HONORABLE MARGARET A. COOPER, JUDGE PRESIDING

We withdraw our original opinion and judgment issued June 17, 1999, and

substitute this one in its place.

Accord Agriculture, Inc. ("Accord") sued in district court for a declaratory

judgment that rules adopted by the Texas Natural Resource Conservation Commission ("TNRCC"

or the "Commission") to regulate concentrated animal feeding operations ("CAFOs") (1) are invalid

because the Commission: (1) failed to satisfy the reasoned justification requirement of the

Administrative Procedure Act ("APA") (2) and (2) lacked statutory authority to promulgate the rules.

Accord also alleged that the CAFO rules as applied result in a taking in violation of article I,

section 17 of the Texas Constitution and sought a declaratory judgment that the Right to Farm

Act (3) is unconstitutional.

The Commission (4) filed a plea to the jurisdiction alleging that Accord did not have

standing to bring either its takings claim or its challenge to the Right to Farm Act. The district

court granted the Commission's plea and struck both claims. The parties filed cross-motions for

summary judgment on the remaining claims. The district court declared the CAFO rules invalid

for failure of the Commission to state a reasoned justification but did not reach the issue of

whether the Commission had statutory authority to promulgate the rules.

The Commission appeals the judgment. Accord also appeals, challenging (1) the

order granting the Commission's plea to the jurisdiction and (2) the district court's failure to

address the issue of statutory authority. We affirm the district court judgment.

THE CONTROVERSY

An animal feeding operation is defined in the Texas Administrative Code as

A lot or facility . . . where animals have been, are, or will be stabled or confined

and fed or maintained for a total of 45 days or more in any 12-month period, and

the animal confinement areas do not sustain crops, vegetation, forage growth, or

post harvest residues in the normal growing season.

30 Tex. Admin. Code § 321.182 (1998). A CAFO is an animal feeding operation that the

Commission has designated as a "significant contributor of pollution," or any animal feeding

operation that confines animals in excess of the numbers specified in the Administrative Code.

Id.

Before the Commission adopted the rules at issue, CAFOs were required to obtain

permits authorizing the discharge of wastewater and the emission of air contaminants. See Tex.

Water Code Ann. § 26.121 (a) (West Supp. 1999); Tex. Health & Safety Code Ann. § 382.0518

(West Supp. 1999). The permitting procedures are set forth in rules adopted by the Commission

under the Water Code and the Health and Safety Code. See 30 Tex. Admin. Code §§ 116.110 -.175; 321.31-.46 (1998). The rules require CAFOs to satisfy detailed procedural and technical

requirements in order to obtain the requisite permits.

For example, to obtain an air contaminant emission permit, an applicant must

demonstrate that emissions from the proposed CAFO will comply with the intent of the Texas

Clean Air Act; that the facility will have provisions for measuring the emission of significant air

contaminants; that the facility will utilize the best available control technology ("BACT"); (5) and

that emissions from the facility will meet the requirements of applicable federal law. See id.

§§ 116.110, .111. Furthermore, an applicant must publish notice of intent to construct the facility

in a newspaper in general circulation in the municipality where the facility will be located and

provide a public comment period. Id. § 116.130, .132. Persons affected by the emission of air

contaminants from the facility are entitled to a public hearing. Id. § 116.132; see also Tex.

Health & Safety Code Ann. § 382.056 (West Supp. 1999).

To obtain a wastewater discharge permit, an applicant must demonstrate that the

proposed CAFO will not discharge any wastewater, except for overflows that result from rainfalls

greater than the 25-year, 24-hour maximum rainfall event. See 30 Tex. Admin. Code §§ 321.31 ,

.32 (1998) (defining 25-year, 24-hour rainfall event as "[t]he maximum rainfall event with a

probable recurrence interval of once in 25-years, with a duration of 24 hours, as defined by the

National Weather Service in Technical Paper Number 40, Rainfall Frequency Atlas of the United

States, May 1961, and subsequent amendments, or equivalent information developed therefrom.").

Permit applicants must also demonstrate compliance with Commission rules concerning surface

water protection (§ 321.35), ground water protection (§ 321.36), waste disposal methods

(§§ 321.37, .38), and pesticide use (§ 321.39). Persons affected by wastewater discharges from

the proposed CAFO are entitled to request a hearing in accordance with Commission rules. See

Tex. Water Code Ann. § 26.028 (West 1988).

In 1995, the Commission adopted the CAFO rules to simplify the CAFO

authorization procedure. (6) See 30 Tex. Admin. Code §§ 321.34 , .181-.198 (1998). CAFOs that

comply with the requirements of the new rules do not have to apply for or secure individual

wastewater discharge and air contaminant emission permits; instead, the Commission may issue

a unified "permit-by-rule" to qualifying CAFOs. See id. § 321.183(b), (i). By eliminating the

need for CAFOs to obtain two permits, the Commission also effectively eliminated the right of

a party adversely affected by CAFO-generated pollution to request a contested case hearing.

Pursuant to the new "permit-by-rule" procedure, Texas Farm and Paul Farms were

authorized to operate a total of six CAFOs in the upper Texas panhandle. Accord, a non-profit

Texas corporation formed to protect property owners in the panhandle from CAFO-generated

pollution, challenged the CAFO rules in district court. Accord's primary contention was that the

Commission's order adopting the CAFO rules failed to provide a reasoned justification. The trial

court agreed and invalidated the rules.

The Commission appeals the district court's declaration that the CAFO rules are

invalid, arguing that the order adopting the rules substantially complies with the rulemaking

requirements of the APA. Accord also appeals, contending that the district court erred by striking

Accord's takings claim and its challenge to the Right to Farm Act for want of jurisdiction and by

refusing to address whether the Commission had statutory authority to promulgate the rules.

DISCUSSION AND HOLDINGS

Plea to the Jurisdiction

In its amended original petition, Accord requested a jury trial to determine whether

the CAFO rules as applied amount to a taking in violation of article I, section 17 of the Texas

Constitution. Accord also sought a declaratory judgment that the Right to Farm Act is

unconstitutional. The Commission filed a plea to the jurisdiction challenging Accord's standing

to assert these claims. The district court granted the Commission's plea. Accord contends that

the district court erred because the pleadings demonstrate that Accord has standing to pursue the

claims on behalf of its members.

A plea to the jurisdiction contests the court's authority to determine the subject

matter of the cause of action. See Dolenz v. Texas State Bd. of Medical Examiners , 899 S.W.2d

809, 811 (Tex. App.--Austin 1995, no writ). Taking the plaintiff's allegations as true, the plea

raises incurable defects in jurisdiction that are shown on the face of the plaintiff's pleadings. Id. ;

see also Firemen's Ins. Co. v. Board of Regents , 909 S.W.2d 540, 542 (Tex. App.--Austin 1995,

writ denied). When reviewing a trial court order granting a plea to the jurisdiction, we must look

to the pleader's intent and construe the pleadings in the plaintiff's favor. See Texas Ass'n of

Business v. Texas Air Control Bd. , 852 S.W.2d 440, 446 (Tex. 1993).

For an organization such as Accord to maintain an action on behalf of its members,

the pleadings must show the following: (1) Accord members would otherwise have the right to

sue in their own right; (2) the interests Accord seeks to protect are germane to its organizational

purpose; and (3) neither the claim asserted nor the relief requested requires the participation of

individual members in the action. See id. at 446-48 .

The Commission does not challenge Accord's standing with respect to the first two

prongs; instead, the Commission argues that Accord's takings claim and its challenge to the Right

to Farm Act were properly struck because both require the participation of individual members.

We will first analyze Accord's takings claim.

Accord's amended original petition alleged that its members are "mostly private

property owners in the upper Texas panhandle," an area in which CAFOs authorized to operate

by the Commission allegedly present unreasonable risks to air and water resources and thus

interfere with "the quality of life and with the use and enjoyment of the properties of Accord

members." Accord requested that "[t]he Court grant Accord a jury trial on the issue of whether

the new CAFO rules, as applied in this case, result in a taking or damaging of the properties of

some of the members of Accord without their consent or adequate compensation, in violation of

Tex. Const. art. I § 17." Article I, section 17 of the Texas Constitution provides, in pertinent

part, that no "person's property shall be taken, damaged or destroyed for or applied to public use

without adequate compensation being made . . . ."

Takings can be classified as either physical or regulatory. See Mayhew v. Town

of Sunnyvale , 964 S.W.2d 922, 933 (Tex. 1998). Physical takings occur when the government

authorizes an unwarranted physical occupation of an individual's property. Id. (citing Yee v. City

of Escondido , 503 U.S. 519, 522 (1992)). Because Accord did not allege any unwarranted

physical occupation of the property of its members by the CAFOs, the pleadings must be

construed to allege a regulatory taking.

A compensable regulatory taking occurs when a governmental agency imposes

restrictions that either deny a landowner all economically viable use of his property or

unreasonably interfere with a landowner's rights to use and enjoy his property. Id. at 935 (citing

Lucas v. South Carolina Coastal Council , 505 U.S. 1003 , 1015-19 & n.8 (1992)). Determining

whether all economically viable use of a property has been denied entails an analysis of whether

value remains in the property after the government action. Id. Determining whether the

government has unreasonably interfered with a landowner's rights to use and enjoy his property

requires a consideration of two factors: (1) the economic impact of the regulation and (2) the

extent to which the regulation interferes with distinct investment-backed expectations. Id.

The first factor compares the value that has been taken from the property with the

value that remains in the property. Id. (citing Keystone Bituminous Coal Ass'n v. DeBenedictis ,

480 U.S. 470, 497 (1987)). The second factor is the investment-backed expectation of the

landowner. The existing and permitted uses of the property constitute the "primary expectation"

of the landowner that is affected by regulation. Id . (citing Penn Cent. Transp. Co. v. New York

City , 438 U.S. 104, 136 (1978)); see also Lucas , 505 U.S. at 1017 n.7 (owner's reasonable

expectations shaped by uses permitted by state law).

In Texas Workers' Compensation Commission v. Garcia , 862 S.W.2d 61 (Tex.

App.--San Antonio), rev'd on other grounds , 893 S.W.2d 504 (Tex. 1995), the Fourth Court of

Appeals held that an association of labor unions had standing to bring a suit to declare

unconstitutional the 1989 Workers' Compensation Act on behalf of its members. In explaining

that there was no reason to require the participation of the individual members of the unions, the

court stated, "Individual participation is required when there are conflicts of interest within the

organization, when there is need for specific factual information to illuminate the basis for the

decision, or when there are damage determinations to be made ." Garcia , 862 S.W.2d at 71

(citing 13 Charles A. Wright, Arthur R. Miller & Edward Cooper, Federal Practice and

Procedure § 3531.9 (1984) (emphasis added)).

Accord argues that in its amended petition, it requested a declaration that the

Commission's authorization of CAFOs under the new rules amounts to an illegal taking. We are

not convinced. No request for prospective relief with regard to Accord's takings claim appears

in the pleadings. While Accord does request a declaratory judgment that the CAFO rules are

invalid and that the Right to Farm Act is unconstitutional, the relief it seeks with regard to its

takings claim is adequate compensation as determined by a jury. Because a jury trial would

involve individualized determinations of damages, Accord does not have standing to bring a

takings claim on behalf of its members. We affirm the trial court order granting the

Commission's plea in that respect.

We will next analyze whether Accord's challenge to the Right to Farm Act was

properly dismissed by the trial court. The Right to Farm Act provides:

No nuisance action may be brought against an agricultural operation that has

lawfully been in operation for one year or more prior to the date on which the

action is brought, if the conditions or circumstances complained of as constituting

the basis for the nuisance action have existed substantially unchanged since the

established date of operation.

Tex. Agric. Code Ann. § 251.004 (a) (West 1982). Accord alleged in its amended petition that

"CAFOs present unreasonable risks to the air and water resources of the region, thereby

interfering with the quality of life and with the use and enjoyment of the properties of Accord

members." Instead of seeking injunctive relief or monetary damages based on this alleged

nuisance, Accord attacked the constitutionality of the Right to Farm Act. Accord alleged that

because the Act prohibits nuisance actions against agricultural operations that have been lawfully

in operation for one year or more, the Act "unconstitutionally shields CAFOs permitted by

TNRCC from suit for nuisance and recovery of damage by Accord members."

To have standing to challenge a statute, a plaintiff must first suffer some actual or

threatened restriction under that statute. See Garcia , 893 S.W.2d at 518 . Second, the plaintiff

must contend that the statute unconstitutionally restricts the plaintiff's rights, not somebody else's.

Id. (citing Broadrick v. Oklahoma , 413 U.S. 601, 610 (1973)). Accord's challenge to the

constitutionality of the Right to Farm Act was premature. Accord failed to allege that the CAFOs

had been in operation for a year or more prior to the date on which suit was filed. Indeed,

Accord has admitted that at the time it filed suit the CAFOs had not been in operation for more

than a year. (7) Thus, the Right to Farm Act did not foreclose Accord's ability to pursue a nuisance

claim against the CAFOs.

Because the members of Accord had not suffered any injury due to the challenged

restriction at the time Accord filed suit, no real controversy existed between the parties with

regard to the Act. See Nootsie, Ltd. v. Williamson County Appraisal Dist. , 925 S.W.2d 659, 662

(Tex. 1996); Garcia , 893 S.W.2d at 519 . Any ruling by the trial court regarding the

constitutionality of the Act would have been advisory. Because Accord lacked standing to

challenge the Right to Farm Act, the portion of the district court order striking Accord's

constitutional challenge is affirmed.

Accord's Procedural Challenge to the CAFO Rules

One of the stated purposes of the APA is to provide for public participation in the

rulemaking process. See Tex. Gov't Code Ann. § 2001.001 (West 1999). Accordingly, sections

2001.021-.034 establish a system of informal or "notice-and-comment" rulemaking. Id.

§§ 2001.021-.034; see also Unified Loans, Inc. v. Pettijohn , 955 S.W.2d 649, 651 (Tex.

App.--Austin 1997, no writ). In order to adopt a rule, an agency must provide: (1) public notice;

(2) an opportunity for and full consideration of comments; and (3) a reasoned justification for the

rule enacted. See Tex. Gov't Code Ann. §§ 2001.023 , .029, .033 (West 1999); see also McCarty

v. Texas Parks & Wildlife Dep't , 919 S.W.2d 853, 854 (Tex. App.--Austin 1996, no writ).

The parties do not join issue on whether the Commission satisfied the requirements

that it provide public notice and an opportunity for comments before adopting the CAFO rules. (8)

The controversy instead concerns whether the Commission provided a reasoned justification for

the CAFO rules. To satisfy the reasoned justification requirement, an agency's order adopting

a rule must explain how and why the agency reached the conclusion it did. See National Ass'n

of Indep. Insurers v. Texas Dep't of Ins. , 925 S.W.2d 667, 669 (Tex. 1996) (" NAII "). A

reasoned justification must include: (1) a summary of comments the agency received from

interested parties; (2) a restatement of the factual basis for the rule; and (3) the reasons why the

agency disagrees with a party's comments. See Tex. Gov't Code Ann. § 2001.033 (1) (West

1999); see also Texas Hosp. Ass'n v. Texas Workers' Compensation Comm'n , 911 S.W.2d 884,

886 (Tex. App.--Austin 1995, writ denied).

In addition to the three criteria, the agency must provide a reasoned justification

for the rule as a whole. See Texas Hosp. Ass'n , 911 S.W.2d at 886 (citing Railroad Comm'n v.

Arco Oil & Gas Co. , 876 S.W.2d 473, 492 (Tex. App.--Austin 1994, writ denied), and Chrysler

Motors Corp. v. Texas Motor Vehicle Comm'n , 846 S.W.2d 139, 143 (Tex. App.--Austin 1993,

no writ)). By requiring an agency to expressly state a reasoned justification for a rule, the

legislature apparently intended to bring the decision-making process into the open. See Arco , 876

S.W.2d at 480 ; see also NAII , 925 S.W.2d at 669 ("Requiring an agency to demonstrate a rational

connection between the facts before it and the agency's rules promotes public accountability and

facilitates judicial review.").

An agency rule not adopted in substantial compliance with the rulemaking

provisions of the APA section is invalid. See Tex. Gov't Code Ann. § 2001.035 (a) (West 1999).

The reasoned justification requirement imposed by section 2001.033 confines a reviewing court's

inquiry to the face of the order finally adopting the rule. See Arco , 876 S.W.2d at 480 (citing

Ron L. Beal, The Scope of Judicial Review of Agency Rulemaking: The Interrelationship of

Legislating and Rulemaking in Texas , 39 Baylor L. Rev. 597 , 690 (1987)); see also Methodist

Hosps. v. Industrial Accident Bd ., 798 S.W.2d 651, 659 (Tex. App.--Austin 1990, writ dism'd

w.o.j.). In Methodist Hospitals , this Court held that

the question of substantial compliance . . . is a question of law to be determined

solely from the face of the [adopting] order . . . . So much is necessarily implied

by the statute itself. Substantial compliance is not a question of fact, to be

determined by evidence adduced subsequently in a reviewing court, concerning

whether the agency had unstated factual bases for its rule or unstated reasons for

disagreeing with party submissions and proposals, and what these were in fact , or

whether any stated factual bases or reasons for disagreeing were in fact considered

and accepted by the agency on sufficient evidence .

798 S.W.2d at 659 (emphasis in original).

Therefore, to substantially comply with the reasoned justification requirement, the

four corners of the agency's final notice must present the agency's justification in a "relatively

clear, precise, and logical fashion." (9) Arco , 876 S.W.2d at 492 . Furthermore, an agency's order

must accomplish the legislative objectives underlying the reasoned justification requirement and

come fairly within the character and scope of each of the statute's requirements in specific and

unambiguous terms. See NAII , 925 S.W.2d at 669 (citing Arco , 876 S.W.2d at 491 , and

Methodist Hosps. , 798 S.W.2d at 654 ). The essential legislative objective of the reasoned

justification requirement is:

to give notice of the factual, policy, and legal basis for the rule, as adopted or

construed by the agency, in light of all the evidence gathered by the agency and

submitted by interested parties during the comment period. This overall objective

can be broken down into two fundamental goals of the reasoned justification

requirement: (1) to ensure the agency fully considered the comments submitted

and (2) to provide the factual basis and rationality of the rule as determined by the

agency.

Arco , 876 S.W.2d at 491 .

We review a challenge to the reasoned justification requirement using an "arbitrary

and capricious" standard, with no presumption that facts exist to support the agency's order. See

Texas Hosp. Ass'n , 911 S.W.2d at 887 ; see also Arco , 876 S.W.2d at 490-91 . In applying an

arbitrary and capricious test to agency rulemaking, we examine whether the agency's explanation

of the facts and policy concerns it relied on when it adopted the rule demonstrates that the agency

considered all the factors relevant to the objectives of the agency's delegated rulemaking authority

and engaged in reasoned decision making. See Arco , 876 S.W.2d at 491 . An agency acts

arbitrarily if in making a decision it commits one of the following errors: (1) omits from its

consideration a factor that the legislature intended the agency to consider in the circumstances;

(2) includes in its consideration an irrelevant factor; or (3) reaches a completely unreasonable

result after weighing only relevant factors. See Statewide Convoy Transps. Inc. v. Railroad

Comm'n , 753 S.W.2d 800, 804 (Tex. App.--Austin 1988, no writ); see also Bullock v. Hewlett-Packard Co. , 628 S.W.2d 754, 756 (Tex. 1982) (rule is arbitrary and capricious when it lacks

a legitimate reason to support it).

The Texas Supreme Court applied the foregoing standards in National Ass'n of

Independent Insurers v. Texas Department of Insurance , 925 S.W.2d 667 (Tex. 1996), to

determine the validity of rules adopted by the State Board of Insurance. The rules prohibited

insurers from (1) refusing to sell insurance to prospective purchasers because they have had an

insurance policy canceled by another insurer, or because they have been insured by a county

mutual or surplus lines insurance company, and (2) conditioning the sale of automobile insurance

on the purchase of another policy or denying an application because the applicant owns only one

car. See NAII , 925 S.W.2d at 670.

The Board justified the first rule by stating that a refusal to sell insurance based in

whole or in part on the fact that another insurer has declined to write, canceled, or nonrenewed

a policy is an anti-competitive practice that results in "the blacklisting of some consumers from

the insurance market." Id. The Board justified the second rule as an attempt to ensure the

availability and affordability of car insurance. Id.

The court held that the Board failed to provide reasoned justifications for both rules

and rendered judgment that the rules were invalid. The court held that the Board failed to explain

why the consideration of a previous denial, along with other permissible factors, was unfair or

anti-competitive. Id. Likewise, the court held that the Board failed to explain why the practices

prohibited by the second rule were unfairly discriminatory. The court stated, "Without an

explanation by the Board of its reasoning, we cannot know, and just as importantly, the public

cannot know, why the Board reached the conclusion that it did." Id.

In three cases decided before NAII , this Court employed a similar analysis of

adopting orders. In Methodist Hospitals v. Industrial Accident Board , a challenge was made to

the validity of a rule adopted by the agency to impose limitations on the amount a hospital could

charge workers' compensation patients. See Methodist Hosps. , 798 S.W.2d at 653 . We held that

the agency had failed to articulate the factual basis of the rule and the reasons it disagreed with

the submissions and proposals it received. Id. at 659 . This Court made clear that merely

"considering" and "responding" to the comments of interested parties did not satisfy the

requirement that the agency provide the reasons why it disagreed with party submissions. Id. at

658-59 .

In Railroad Commission of Texas v. Arco Oil & Gas Co. , we invalidated an oil and

gas rule adopted by the Railroad Commission to prevent waste. See Arco , 876 S.W.2d at 494 .

Despite a discussion in the adopting order of the history of the oil field, administrative hearings

affirming the waste regulations of the field, and the likelihood of increased waste if production

levels were increased, this Court concluded that the Railroad Commission failed to restate the

rule's factual basis. Id. at 492-94 . We pointed out that the mere fact that production levels

adopted by the rule had been used for many years did not provide a reasoned justification for their

adoption. Id. at 493 . We then dismissed the fear of increased waste with increased production

as merely raising that possibility with no supporting facts, concluding that, "When the wheat of

the Commission's order is separated from its chaff, virtually all that remains is the general

conclusion that the Commission believes that [the rule] is necessary to prevent waste." Id. at 494 .

Finally, in Texas Hospital Ass'n v. Texas Workers' Compensation Commission , this

Court invalidated a rule promulgated by the Workers' Compensation Commission to reimburse

health-care providers for the treatment of injured workers at a fixed per-diem rate. Texas Hosp.

Ass'n , 911 S.W.2d at 886 . Although the adopting order summarized the legislative mandate,

stated what action the Commission took, and described the data the Commission relied upon in

formulating the rule, this Court held that the Commission was required to do more; it had to

explain why it took action and why the rule was an appropriate response to the available data. Id.

at 887 . An order cannot be phrased in conclusory terms; it must explain the reasoning behind the

adoption of a new rule. Id. at 888 .

As set out in the Water Code and the Health and Safety Code, the Commission's

statutory mandate is to protect the quality of water and air in the state. See Tex. Water Code

Ann. § 5.120 (West Supp. 1999); Tex. Health & Safety Code Ann. § 382.011 (West Supp. 1999).

The legislature has delegated to the Commission the power to adopt rules pursuant to this

mandate. In particular, the Commission may regulate wastewater discharges and air contaminant

emissions by rule if certain statutory prerequisites are met. See supra note 6. Thus, within the

four corners of the Commission's order adopting the CAFO rules, the reviewing court must be

able to determine that the Commission considered and found facts to support its determination that

CAFOs may be regulated by rule rather than by individual permits.

To determine whether the Commission's order adopting the CAFO rules satisfies

the reasoned justification requirement of the APA, we will consider each of the three substantive

elements as set out in the statute. See Tex. Gov't Code Ann. § 2001.033 (West 1999); see also

Methodist Hosps. , 798 S.W.2d at 659 . The first element is "a summary of comments received

from parties interested in the rule that shows the names of interested groups or associations

offering comment on the rule and whether they were for or against its adoption." See Tex. Gov't

Code Ann. § 2001.033 (West 1999). The Commission's order sets out expressly and at some

length the information required by the first element. Accord does not complain that the summary

of comments is absent from the order; consequently, we need not consider this item further.

The crux of the parties' dispute concerns the second and third elements of the

reasoned justification requirement: "a restatement of the rule's factual basis" and "the reasons

why the agency disagrees with party submissions and proposals." Id. Accord contends that the

adopting order fails to explain why the Commission reached its conclusions concerning the

authorization of CAFOs. In particular, Accord argues that the order fails to demonstrate an

adequate consideration of the statutory prerequisites for the issuance of permits-by-rule. Accord

contends that the statements of justification in the adopting order are merely conclusory and do

not substantially comply with the reasoned justification requirement of the APA.

The Commission claims that several portions of the order adopting the CAFO rules

satisfy the reasoned justification requirement. First, the Commission points to the following:

The purpose of the rules is to streamline and consolidate the existing authorization

procedures for new CAFOs under the Texas Water Code, Chapter 26 and the

Texas Clean Air Act, while still maintaining air and water quality. Such

streamlining shall be accomplished by: allowing all new and certain existing

permitted CAFOs to be authorized by rule if certain conditions are met; making

consistent state and federal requirements; avoiding the duplication of actions of the

commission and the State Soil and Water Conservation Board; shortening the

application review period and making more explicit performance standards and best

management practices to be utilized and/or to be met; providing for both air and

water quality issues to be addressed in a simultaneous and comprehensive manner;

and focusing the agency's limited resources on those areas of the state being

designated under these rules as Dairy Outreach Program Areas.

See 20 Tex. Reg. 4719 (1995). The Commission contends that this language precisely states the

reasons why the new rules were adopted, namely that the existing permitting process for CAFOs

needed streamlining and consolidation, and lists factual "findings" on which the Commission

based its conclusion.

This language fails to provide either a restatement of the factual basis for the rules

or the reasons why the Commission adopted the rules. The first sentence is merely conclusory;

it does not describe how the Commission arrived at the conclusion that the existing permitting

process was inefficient. Such a statement provides no justification at all, much less a reasoned

one. See Texas Hosp. Ass'n , 911 S.W.2d at 887 . The second sentence describes the features of

the new authorization process without explaining either the data or the reasoning that compels the

conclusion that regulating CAFOs by rule will improve administrative efficiency while

maintaining air and water quality. The APA requires the adopting order to contain at least a

modicum of analysis; otherwise, the agency does nothing more than provide a rationale with no

substance. Id. ; see also Arco , 876 S.W.2d at 493 .

Next, the Commission argues that two paragraphs preceding the newly adopted

rules refer to general and specific rulemaking provisions of the Water Code and the Health and

Safety Code and thus demonstrate the Commission's rationale for adopting the CAFO rules. The

paragraph preceding section 321.34 states:

The new section is adopted under the Texas Water Code, §§ 5.103, 5.105, 5.120,

26.028(c), and 26.040, which provides the Commission with the authority to

promulgate rules as necessary to carry out its powers and duties under the Texas

Water Code and other laws of the state, and to establish and approve all general

policies of the Commission.

The preamble to sections 321.181-.198 states:

The new sections are adopted under the Texas Health and Safety Code, § 382.017,

which provides the Commission with the authority to adopt rules consistent with

the policies and purposes of the Texas Clean Air Act, and Texas Water Code,

§§ 5.103, 5.105, 5.120, 26.028(c), and 26.040, which provides the Commission

with the authority to promulgate rules as necessary to carry out its powers and

duties under the Texas Water Code and other laws of the state, and to establish and

approve all general policies of the Commission.

With the exception of sections 26.028(c) and 26.040 of the Water Code, the statutes

cited by these two paragraphs authorize the Commission in general terms to adopt rules.

Therefore, even if these provisions help support the Commission's decision to use the rulemaking

process for the purpose of regulating CAFOs, they do not shed any light on the rationale behind

such a decision. See Arco , 876 S.W.2d at 493 ; Texas Hosp. Ass'n , 911 S.W.2d at 887 (portion

of adopting order that merely summarizes legislative mandate does not satisfy either reasoned

justification or factual basis requirement).

As for the more specific statutory provisions, section 26.028(c) concerns the

renewal of CAFO permits issued between July 1, 1974 and December 31, 1977, and in no way

provides a reasoned justification for the adoption of the CAFO rules. Section 26.040 authorizes

the Commission to regulate wastewater discharges by rule in two situations: (1) when the

Commission determines that the " quality of water in an area is adversely affected or threatened

by the combined effects of several relatively small-quantity discharges of wastes being made for

which it is not practical to issue individual permits," or (2) when "the general nature of a

particular type of activity which produces a waste discharge is such that requiring individual

permits is unnecessarily burdensome both to the waste discharger and the commission." Tex.

Water Code Ann. § 26.040 (West 1988).

The order does not provide a reasoned justification for the application of section

26.040. The Commission fails to analyze whether CAFO discharges are small in quantity relative

to other types of discharges or to address why it is impractical to issue individual permits for

CAFOs. Furthermore, the order neglects to explain why requiring individual permits is

unnecessarily burdensome or how a scheme of permits-by-rule would reduce that burden. While

the reasoned justification requirement does not demand that an agency provide detailed findings

of fact and conclusions of law, see Chrysler Motors Corp. , 846 S.W.2d at 143 , an agency must

provide more than a general reference to statutory authority. (10) Arco , 876 S.W.2d at 494 ; see also

Beal, 45 Baylor L. Rev. at 33 ("Mere reiteration of the statutory language does not ensure that

the agency relied on and informed interested parties of the underlying factual basis for the rule,

according to the legislative objective.").

Finally, the Commission argues that its responses to arguments made by interested

parties fully explain the reasons why it concluded that the existing permitting process was

inadequate. For example, one commenter stated that there is no evidence to suggest that the

Commission has the authority pursuant to the Water Code to regulate CAFOs by rule. See 20

Tex. Reg. 4721 (1995). In response, the Commission first restates the statutory language, then

states that the new rules "prohibit the discharge of wastewater except in the cases of extraordinary

stormwater events"; thus, "to require individual [wastewater discharge] permits for these

numerous no-discharge facilities would be unreasonably burdensome to both the agency and the

regulated community." (11) The Commission's response to this comment gives a representative

flavor of its responses as a whole.

While the Commission does respond to the comments concerning the promulgation

of the CAFO rules, nothing in its order amounts to a reason for the Commission's disagreement

with the submissions or proposals it received. See Methodist Hosps. , 798 S.W.2d at 659 . Instead

of providing any reasoned justification for its conclusion that the process of individual permitting

is impractical or unduly burdensome, the Commission simply insists that the new rules, by

allowing an applicant to go through a single process to obtain an authorization to operate a CAFO

instead of two separate permitting processes, are more desirable. Without an explanation of how

or why the Commission reached the conclusion it did, such conclusory statements do not secure

the legislative objectives that underlie the reasoned justification requirement.

In the absence of a reasoned analysis, we conclude that the order adopting the

CAFO rules does not substantially comply with the rulemaking requirements of the APA. (12) We

affirm the trial court judgment that the CAFO rules are invalid.

Accord's Substantive Challenge to the CAFO Rules

Accord contends that the trial court erred by failing to reach Accord's argument

that the Commission lacks statutory authority to regulate CAFOs by rule. In its substantive

challenge to the rules, Accord argues that the Commission cannot justify the regulation of CAFOs

by rule because CAFOs do not fall within the statutory exceptions to the permitting requirements

as a matter of law.

An agency rule is invalid if the agency had no statutory authority to promulgate it,

it was not promulgated pursuant to proper procedure, or it is unconstitutional. See Arco , 876

S.W.2d at 477 (citing Helle v. Hightower , 735 S.W.2d 650, 654 (Tex. App.--Austin 1987, writ

denied)). Having already affirmed the invalidation of the CAFO rules based on the Commission's

failure to provide a reasoned justification, and finding no support for the proposition that the

consideration of a substantive challenge logically precedes that of a procedural challenge, we

decline to address Accord's statutory authority ground for declaring the rules invalid.

CONCLUSION

Because the Commission failed to provide a reasoned justification for the CAFO

rules, the district court did not err when it invalidated the rules. We affirm the district court

judgment invalidating the rules and therefore do not reach Accord's statutory authority argument.

We also conclude that because Accord does not have standing to pursue either its takings claim

or its challenge to the Right to Farm Act, the district court properly struck both claims for want

of jurisdiction.

Jan P. Patterson, Justice

Before Chief Justice Aboussie, Justices Kidd and Patterson

Affirmed

Filed: September 10, 1999

Do Not Publish

1. See 30 Tex. Admin. Code §§ 321.34 , .181-.198 (1998) ("CAFO rules").

2. See Tex. Gov't Code Ann. § 2001.033 (West 1999).

3. See Tex. Agric. Code Ann. §§ 251.001 -.006 (West 1982 & Supp. 1999) (prohibiting

nuisance actions against an agricultural operation that has been in existence lawfully for one year

or more).

4. Texas Farm, Inc. and Dean Paul d/b/a Paul Farms, both authorized by the Commission

to construct and operate CAFOs pursuant to the new rules, intervened in the lawsuit subsequent

to the trial court's ruling on the plea to the jurisdiction.

5. See 30 Tex. Admin. Code § 116.10 (1998) (defining BACT as "Best Available Control

Technology with consideration given to the technical practicability and economic reasonableness

of reducing or eliminating emissions from the facility.").

6. See Tex. Water Code Ann. § 26.040 (West 1988) ("Whenever the commission

determines that the quality of water in an area is adversely affected or threatened by the combined

effects of several relatively small-quantity discharges of wastes being made for which it is not

practical to issue individual permits or that the general nature of a particular type of activity which

produces a waste discharge is such that requiring individual permits is unnecessarily burdensome

both to the waste discharger and the commission, the commission may by rule regulate and set the

requirements and conditions for the discharges of waste .") (emphasis added); see also Tex. Health

& Safety Code Ann. § 382.051 (b)(3) (West Supp. 1999) (authorizing the Commission to issue a

"standard permit developed by rule for numerous similar sources subject to Section 382.0518.").

Water Code section 26.040 was amended in 1997, but rules adopted by the Commission as

authorized by that section before the effective date of the amendment remain in effect. See Act

of May 27, 1997, 75th Leg., R.S., ch. 1085 , § 2(b), 1997 Tex. Gen. Laws 4178 , 4179.

7. Furthermore, at the time the trial court ruled upon the plea to the jurisdiction, neither

Texas Farm nor Paul Farms had yet intervened in the lawsuit.

8. A public hearing on the proposed rules was held on January 30, 1995, in Austin. See

20 Tex. Reg. 4179 (1995). The comment period closed on February 9, 1995. Id.

The following

groups and public officials expressed support for the proposed rules: one state senator; the Texas

Agricultural Extension Service; Texas Pork Producers Association; Texas Farm Bureau; Texas

Poultry Federation; Texas Cattle Feeders Association; Associated Milk Producers, Incorporated;

and Texas Association of Dairymen. Id. The following groups and public officials were in

general disagreement with the proposed rules: two state representatives; the Sierra Club; Cross

Timbers Concerned Citizens; Sabine River Authority; Brazos River Authority; Cities of Waco,

Clifton, Meridian, Cleburne, Dallas; and concerned citizens. Both the views and arguments of

the interested parties and the Commission's responses are memorialized in detail in the Texas

Register. Id. at 4719-27 .

9. See also Beal, 39 Baylor L. Rev. at 668 ("the test of substantial compliance should not

allow an agency to 'fill in the blanks' with meaningless rhetoric and thereby frustrate the

legislative intent of reasoned decision making. The legislative intent undisputably requires a

focused analysis by the agency of all relevant factual, policy and legal issues resulting not only

in a justification, but a reasoned justification of the rule.").

10. We further note that the order does not even list the provision granting the Commission

the authority to issue permits-by-rule for air contaminant emissions, see Tex. Health & Safety

Code Ann. § 382.051 (b)(3) (West Supp. 1999), nor does it provide any reasoning justifying why

that provision authorizes or requires the adoption of the CAFO rules

.

11.

The Commission also indicates in its brief that because the new rules require all CAFOs

to address air contaminants in a similar way, the Commission may regulate CAFOs by rule

pursuant to Health and Safety Code section 382.051(b)(3).

12.

By holding that the Commission failed to provide a reasoned justification for the CAFO

rules, we do not suggest that the Commission cannot provide a reasoned justification. We merely

hold that it has not yet done so. See National Ass'n of Indep. Insurers v. Texas Dep't of Ins. , 925

S.W.2d 667, 671 (Tex. 1996) (" NAII "). The Commission and the CAFOs request that we remand

the cause to the agency, even though this is not an action that originated there, to give it an

opportunity to do so. When we decide an appeal from a declaratory judgment based on the failure

of an agency to substantially comply with the reasoned justification requirement, however, we

render judgment only that the agency rule is invalid. See NAII , 925 S.W.2d at 670-71 ; Texas

Hosp. Ass'n v. Texas Workers' Compensation Comm'n , 911 S.W.2d 884, 888 (Tex. App.--Austin

1995, writ denied) ; Railroad Comm'n v. Arco Oil & Gas Co. , 876 S.W.2d 473, 494 (Tex.

App.--Austin 1994, writ denied) . We are aware that Tex. S.B. 382, 76th Leg., R.S. (1999),

signed by the governor on June 18, 1999, and effective as of September 1, 1999, amends the

requirements of section 2001.033 of the Administrative Procedure Act and adds a new section

providing that a court may remand a rule to an agency if the court finds that the agency has not

substantially complied with the procedural requirements for rule adoption. However, the bill also

states, "The change in law made by this Act applies to all rules adopted by a state agency on or

after January 1, 1998, except that the change in law made by this Act does not apply to a

challenge to a rule in a court action that is brought before September 1, 1999." Therefore, we

must decide the instant case based on the law as it existed prior to the adoption of S.B. 382.

ent remain in effect. See Act

of May 27, 1997, 75th Leg., R.S., ch. 1085 , § 2(b), 1997 Tex. Gen. Laws 4178 , 4179.

7. Furthermore, at the time the trial court ruled upon the plea to the jurisdiction, neither

Texas Farm nor Paul Farms had yet intervened in the lawsuit.

8. A public hearing on the proposed rules was held on January 30, 1995, in Austin. See

20 Tex. Reg. 4179 (1995). The comment period closed on February 9, 1995. Id. The following

groups and public officials expressed support for the proposed rules: one state senator; the Texas

Agricultural Extension Service; Texas Pork Producers Association; Texas Farm Bureau; Texas

Poultry Federation; Texas Cattle Feeders Association; Associated Milk Producers, Incorporated;

and Texas Association of Dairymen. Id. The following groups and public officials were in

general disagreement with the proposed rules: two state representatives; the Sierra Club; Cross

Timbers Concerned Citizens; Sabine River Authority; Brazos River Authority; Cities of Waco,

Clifton, Meridian, Cleburne, Dallas; and concerned citizens. Both the views and arguments of

the interested parties and the Commission's responses are memorialized in detail in the Texas

Register. Id. at 4719-27 .

9. See also Beal, 39 Baylor L. Rev. at 668 ("the test of substantial compliance should not

allow an agency to 'fill in the blanks' with meaningless rhetoric and thereby frustrate the

legislative intent of reasoned decision making. The legislative intent undisputably requires a

focused analysis by the agency of all relevant factual, policy and legal issues resulting not only

in a justification, but a reasoned justification of the rule.").

10. We further note that the order does not even list the provision granting the Commission

the authority to issue permits-by-rule for air contaminant emissions, see Tex. Health & Safety

Code Ann. § 382.051 (b)(3) (West Supp. 1999), nor does it provide any reasoning justifying why

that provision authorizes or requires the adoption of the CAFO rules

.

11.

The Commission also indicates in its brief that because the new rules require all CAFOs

to address air contaminants in a similar way, the Commission may regulate CAFOs by rule

pursuant