Iowa Supreme Court Upholds Water Regulations Passed by Commission Comprising Paid Lobbyist and Montana Voter

Overview

In a split opinion, the Iowa Supreme Court upheld water quality (“antidegradation”) regulations developed by the Iowa Environmental Protection Commission (EPC), even though the EPC, at the time the rules were developed, was not constituted in accordance with state law. “At first blush,” the Iowa Supreme Court stated, “the idea of an individual serving as both an advocate and a decision-maker seems contrary to our general governmental approach.” Upon “deeper inquiry,” however, the Court ruled that such a dual role is not a problem. In a 4-3 July 11, 2014, decision, the Court upheld an environmental rule passed by the EPC which, at the time, contained a voting member who was a lobbyist paid to advocate for the rule’s passage. The Court also declined to invalidate the EPC’s rule, even though another of the EPC’s commissioners was rendered legally unqualified to serve on the EPC at the time of the rule’s passage because she was no longer an Iowa voter.

The Environmental Protection Commission

The EPC is a nine-member board legislatively tasked with establishing policy and adopting rules implementing Iowa’s environmental protection laws. The EPC also hears appeals in contested cases, approves or disapproves of the issuance of hazardous waste disposal site licenses, and reviews Iowa Department of Natural Resources (IDNR) budget requests.

At issue in this case were Iowa regulations designed to implement the antidegradation program of the United States Environmental Protection Agency’s (EPA) Clean Water Act. The Iowa antidegradation standards included rules and procedures designed to maintain and protect certain existing uses of Iowa waterways. In December 2009, after a three-year negotiation process, the EPC approved Iowa’s final antidegradation rules and procedures by a vote of 6 to 2. One member of the EPC abstained.  The EPA approved the Iowa antidegradation rules in September of 2010.

Iowa law requires that members of the EPC, who serve staggered four-year terms, must be “electors of Iowa” (eligible to vote in Iowa) and all members must have “knowledge of the subjects embraced” under the governing laws. Three members of the EPC must be actively engaged in livestock and grain farming, one member must be an active manager of a manufacturing company, and one member must actively work in finance or commerce. The remaining four members are not required to hold any specific type of employment. All members are political appointees of the Governor and must be confirmed by the Senate.

Susan Heathcote and Carrie La Seur were two of the six EPC commissioners voting in favor of the antidegradation rules. Heathcote was appointed to the EPC by Governor Culver in March of 2007. La Seur received her appointment from Governor Culver in May of 2009. In October of 2010, one month after the EPA approved the Iowa antidegradation rules, the Iowa Farm Bureau Federation and two other associations (the petitioners) filed a petition for judicial review, seeking to invalidate the Iowa Antidegradation Standards and Implementation Procedures on the grounds that Heathcote and La Seur were not qualified to vote on the measure at the time of its passage. The assertions regarding each commissioner are set forth in turn.

Susan Heathcote

At the time of her appointment to the EPC and at the time of the vote at issue, Heathcote was the full-time, salaried Water Program Director for the Iowa Environmental Council (Council), an organization for which Heathcote had worked since 1996.  According to its mission statement, the Council is an Iowa nonprofit organization “actively work[ing] in public policy to provide a safe, healthy environment for all Iowans.” As the Council’s Water Program Director, Heathcote’s job duties included advocating for more stringent water quality standards and antidegradation rules. She was instrumental in drafting a petition for rulemaking that the Council (in conjunction with other environmental groups) submitted to the Iowa Department of Natural Resources (IDNR). The proposed rules and procedures the IDNR eventually submitted to the EPC for approval were substantially similar to those included in the Council’s petition. The approved rules and procedures differed substantially from those included in a separate petition for rulemaking submitted to the IDNR by the Iowa Farm Bureau Federation and other agribusiness and industrial interests.

In its lawsuit, the petitioners alleged that Heathcote’s role as a paid advocate for the Council created an improper conflict of interest with her duties to the public in her role as a member of the EPC. As such, the petitioners argued, the rule should be invalidated on the grounds that a conflict of interest rendered Heathcote disqualified to vote on the rule. Specifically, the petitioners alleged that the conflict of interest rendered Heathcote “motivated by an improper purpose,” and “subject to disqualification” under Iowa Code § 17A.19(10)(e). Additionally, the petitioners alleged that her actions violated Iowa Code § 68B.2A(1)(a)-(b), which restricted outside employment and activities by a person employed by or otherwise serving the state. In support of their contentions, the petitioners asserted that IDNR staff viewed Heathcote as the lead person and coordinator of the issue for the coalition of environmental groups working on the rule. The lawsuit also asserted that Heathcote worked extensively to generate public comments in favor of the rule, lobbied IDNR and other commissioners to support the rule, and attended public stakeholder, IDNR, and legislative meetings in a confusing dual role, signing-in sometimes as an EPC commissioner, sometimes as the Council’s Water Program Director, and sometimes as both.

The EPC and the IDNR (as respondents in the action) did not dispute Heathcote’s instrumental role in advocating for the antidegradation rules. Rather, they argued that the adopted rules were significantly less burdensome than the Council’s proposed rules. They also asserted that the enabling legislation “effectively requires that rulemaking be conducted before such a commission with ‘built-in’ potential conflicts of interest by virtue of the requirements that the commissioners have ‘experience and expertise’ in the field.”  They alleged that Heathcote had consulted with legal counsel and had been advised that recusal would not be required unless the Council had a contract or other financial arrangement with the IDNR or unless there was a legal matter between the Council and the IDNR that came before the EPC.

Carrie La Seur

In July of 2009, two months after her appointment to the EPC, La Seur moved with her husband to Montana, where she obtained a Montana drivers’ license and registered to vote in Montana. Consequently, when she voted for the antidegradation rules five months later, La Seur was no longer an Iowa elector. Her husband accepted permanent employment in Montana in January of 2010, and La Seur continues to live in Montana.

In the judicial review action, the petitioners alleged that the EPC’s action taken in December of 2009 was also invalid because, at the time, La Seur was no longer eligible to vote in Iowa, which was a statutorily required qualification for serving as a commissioner. Specifically, the lawsuit alleged that La Seur’s  failure to maintain her status as an Iowa elector left her subject to disqualification and rendered the EPC an “improperly constituted decision-making body…subject to disqualification” under Iowa Code § 17A.19(10)(e). Because they alleged that they were prejudiced by the rule passed by the improperly constituted EPC, the petitioners sought invalidation of the rule under the Iowa Administrative Procedure Act (IAPA). 

The respondents did not dispute the fact that at the time she cast her vote in favor of the rule, La Seur was not a legally qualified EPC commissioner. Rather, they claimed that, despite her lack of actual legal authority to act, the “de facto officer doctrine” affirmed her action. The “defacto officer doctrine” is utilized to immunize the acts of public officials whose legal authority is defective.  However, it is merely a doctrine of convenience and can be ignored when there are significant reasons (such as conflict of interest or violation of a statute) to do so. Specifically the respondents asserted that the Iowa legislature’s 1998 insertion of the “improperly constituted decision-making body” phrase into Iowa Code § 17A.19(10)(e) did not nullify the “de facto officer doctrine” because the legislature did not specifically state that it did. They characterized La Seur’s elector status as a “technical infirmity” that should not serve to invalidate the rule even though the statute at issue clearly required that a commissioner be a voting elector of Iowa.

District Court Ruling

In April of 2011, the respondents filed a motion for summary judgment on the petition for judicial review. The petitioners sought to compel discovery from the Council, which had intervened as a party.  The District Court for Polk County denied the discovery request, and ultimately granted summary judgment to the respondents. The petitioners appealed, arguing (1 ) that the court improperly denied them the opportunity to discover evidence showing the extent of Heathcote’s alleged conflicts of interest; (2) that genuine issues of material fact existed as to whether Heathcote acted improperly by serving as a paid advocate for Council’s antidegradation policies pending before the EPC; and (3) that summary judgment should have been granted to the petitioners as to their claim that La Seur’s ineligibility to serve as a commissioner rendered the EPC an improperly constituted decision-making body.

Iowa Supreme Court Decision and Analysis

Heathcote Decision

The Iowa Supreme Court affirmed, first finding that it was within the district court’s discretion to deny discovery to the petitioners because their “claims squarely centered on a very open and visible dual role that Heathcote performed as an advocate and ultimate adjudicator.” Specifically, the Court stated that Heathcote “unquestionably played an active role in urging the IDNR to move forward with antidegradation rules and procedures and she actively participated in filing and promoting a petition for rulemaking with the IDNR. She also advocated on behalf of her employer for the stringent rules proposed by the advocacy groups responsible for filing the petition and was engaged in the process established by the IDNR to address both petitions for rulemaking. Heathcote advocated that the IDNR propose stringent antidegradation rules and procedures to the [Council], upon which she served for approval.”  In essence, the Court determined that because Heathcote had such an open and obvious conflict of interest there was no need for further discovery as to the extent of the conflict.  But, the Court reasoned, whether a commissioner had a conflict of interest was not the issue.    

Despite its agreement with petitioners that Heathcote was a paid lobbyist for the very rules she was adjudicating, the Court found that she was not subject to disqualification from the vote at issue because there was not “clear and convincing evidence that [Heathcote] ha[d] undertaken the agency action with an ‘unalterably closed mind,’ thereby making [the] action ‘motivated by an improper purpose.’” “This showing,” the Court stated, “should focus on the agency member’s prejudgment, if any, rather than a failure to weigh the issues fairly.” Because it simultaneously ruled that petitioners had no right to further discovery on the issue, the Court apparently found that no set of facts could give rise to such a showing.  Thus, as the Court framed it, the issue was not whether Heathcote had a conflict of interest, but whether she had an "unalterably closed mind."

In arriving at this legal standard, the Court began by rejecting the petitioners’ argument that Heathcote’s actions violated the conflict-of-interest statute restricting outside employment and activities by a person employed by or otherwise serving the state (Iowa Code § 68B.2A(1)(a)- (b)), thereby rendering Heathcote disqualified to vote. The Court did not analyze whether Heathcote violated such provisions. Instead, it found that the statute did not support disqualification of officials having the conflicts of interest alleged by the petitioners. “Instead, it merely requires the official to cease the employment or activity.” The Court went on to construe Iowa Code chapter 68B’s ban on lobbying activities by various state actors, finding that its provisions did not apply to members of boards or commissions. Although the petitioners did not advance arguments under these provisions, the Court stated that it could not “ignore the more specific statute on point that [did] not prohibit lobbying by members of boards or commissions” in construing the conflict of interest statutes.

Finally, the Court acknowledged that the conflict of interest statutes did not displace common law conflict of interest principles and that such principles demanded “complete loyalty to the public and seek to avoid subjecting a public servant to the difficult, and often insoluble, task of deciding between public duty and private advantage.” Nonetheless, the court determined that the differences between contested cases and rulemaking called for different rules. The Court stated, “A neutral and detached adjudicator is simply an inapposite role model for an administrator who must translate board statutory commands into concrete social policies. Due process in a rulemaking does not ‘impose judicial roles upon administrators when they perform functions very different from those of judges.’”

The Court ultimately relied on a 1979 federal case, Ass’n of Nat’l Advertiser, Inc. v. FTS, 627 F.2d 1151 (D.C. Cir. 1979), to determine that the proper standard for disqualifying a commissioner for a conflict of interest is “only when there has been a clear and convincing showing that the agency member has an unalterably closed mind on matters critical to the disposition of the proceeding.” The Court compared Heathcote’s situation to that in which an EPA administrator had formerly worked for the Natural Resources Defense Council (NRDC) as an attorney seeking to compel the EPA to list lead as a hazardous pollutant under the Clean Air Act. After lead was listed as a pollutant, the attorney left the NRDC and participated in EPA rulemaking (as the administrator) listing lead as a pollutant and prescribing the maximum amounts of acceptable lead pollution in the atmosphere. After a legal challenge to the rules on the grounds of the administrator’s policy bias, the D.C. Circuit Court upheld the rulemaking, determining that the executive was not expected to be a neutral party from a policy standpoint. 

The Iowa Supreme Court found this case determinative, despite the crucial distinction that Heathcote—unlike the EPA administrator in the federal case—was, at the time she voted on the rule at issue, an active paid lobbyist for policies dictated by the rule.  Without further factual discussion, the Court concluded that “the Commission contains built-in policy conflicts of interest” and that “Susan Heathcote’s years of experience and continued employment as Water Policy Director for the [Council] are the source of indispensable qualifications, not the source of disqualifying bias.”

Heathcote Analysis

In so holding, the Court shuts the door to conflict of interest charges against any state commissioner or board member engaged in rulemaking where the Court determines that the conflict of interest is proper because the person involved did not have an “unalterably closed mind.” However, that’s an amorphous standard that lets the Court decide whether a conflict of interest exists in any particular situation on a case-by-case basis according to what a majority of the Court believes at that time.  Indeed, it is difficult to find a more compelling set of facts for disqualification on the grounds of bias than those in the present case. Advocates paid to advance a particular set of rules are poised to possess “an unalterably closed mind” to comments and feedback contrary to the proffered rules because their measure of success and reward can flow solely from the actual passage of the rules, rather than from the indirect benefit or burden to the public resulting from their implementation. As such, the weighing of policy arguments in favor of or against a proposed rule can easily become unnecessary to advocates focused on implementing rules proposed by their employers. The advocate’s employment success or failure stems from whether the legislation or regulations they advance are passed, not from whether they benefit the public. Although most lobbyists surely possess a genuine belief in what they’re advocating, the door to potential corruption is too easily cracked when the decision-maker serves in the simultaneous role of paid advocate, standing to benefit not from the substance of the rule he advances, but from its passage.  

In contrast, a farmer may be predisposed to vote for a particular set of rules because he believes that those rules will (when implemented) most benefit his operation. This belief (although perhaps grounded in self-interest) is nonetheless based upon a policy judgment about what rules will best serve farmers. This type of predisposition is contemplated by the statute and even prescribed, given that the statute requires that certain constituencies be represented on the commission (farming, manufacturing, finance, or commerce).  This type of predisposition toward a policy judgment, however, is wholly different from that possible when the decision maker is simultaneously acting as paid advocate. As suggested by the Court but then discounted, “the idea of an individual serving as both an advocate and a decision-maker” is “contrary to our general governmental approach.”  Allowing this dual role invites improper influence and corruption.

Given the Court’s ruling that Iowa commissioners and board members can simultaneously serve as paid lobbyists for the very rules, policies, and regulations they promulgate, it will now take legislative action to protect the public from the dangers inherent under such a system.

La Seur Decision and Analysis

The Court then analyzed the petitioners’ allegations that the rules should be invalidated because La Seur was not an elector of Iowa and was thus not legally serving on the EPC at the time of the rules’ passage. The Court affirmed the summary judgment in favor of the respondents on this issue as well, although three justices dissented.

All parties conceded that La Seur was not an eligible Iowa elector when she voted to adopt the antidegradation policy. Nonetheless, the Court found that the “de facto officer doctrine” applied to validate her unauthorized action.

The de facto officer doctrine validates official action taken without legal authority by giving “authority to an official who lacks de jure authority to take official action.”  An ancient common law doctrine, it is frequently applies to overlook “technical infirmities” that might otherwise invalidate qualified officials. For example, under the de facto officer doctrine, otherwise valid school board decisions will not be invalidated because otherwise qualified board members were improperly sworn into office. Key to the application of the doctrine is that it cannot be applied when the particular disqualification at issue undermines the integrity and confidence demanded in the action taken or the decisions made by government.

In applying the doctrine, the Court stated, “In this case, it is difficult to discern with precision the underlying objective or policy the legislature had in mind in imposing the requirement for commissioners to be electors.” Finding La Seur’s electorate status to be a “minor or technical” defect, the Court ruled that public policy required validation of her vote.  The Court stated that La Seur’s defect was comparable to that of an elected official who failed to properly take the oath of office, finding that the defect neither undermined the administration of government or an individual’s rights.  The Court reached this conclusion in spite of the obvious outcome of its conclusion – overruling the legislature’s directive that only Iowans can take part in state policy decisions impacting only Iowans.   The Court concluded that it did not undermine the integrity and confidence in the process followed by the EPC or in the EPC’s decision. When La Seur lost her status as an elector, the Court stated, “the loss did not render her unqualified to do her job.”  

The dissent disagreed, finding that the important purposes served by residency requirements had been noted in many court decisions. The dissent stated, “Common sense tells us that a public official will have a greater interest in the rules he or she is voting on, will possess a greater understanding of the issues in question, and will lend more credibility and confidence to the proceeding if he or she is a resident—or specifically in this case an elector—of the jurisdiction affected by the actions of that public official.” The majority opinion, argued the dissent, “thwarts the legislature’s goal of ensuring the EPC regulations are promulgated exclusively by Iowans who live under those regulations, a policy designed to insure a rudimentary understanding of local conditions and that officials sincerely represent the residents of a particular district.”

But the fundamental problem the dissent had with the majority’s opinion was that it conflicted with the Iowa Administrative Procedure Act (IAPA).  The majority specifically ruled that the de facto officer doctrine was not abrogated by 1998 amendments to the IAPA specifically requiring a court to reverse, modify, or grant other relief [when a rule was the product of] “decision making undertaken by persons who were improperly constituted as a decision-making body…or were subject to disqualification” if the court determines that the infirmity “prejudiced” the “substantial rights” of the person seeking judicial relief. Iowa Code §17A.19(10(e).

The Court ruled that the de facto officer doctrine was not incompatible with this provision because the legislature evidenced no intent to abrogate the doctrine when it passed the amendment. Furthermore, the Court ruled that because the statute granted relief to parties only when substantial rights were prejudiced, it was entirely consistent with the standard governing the de facto officer doctrine.

Again, the dissent disagreed, arguing that the majority’s opinion rendered meaningless the requirement that commissioners be Iowa electors.  The dissent found that prejudice was easily established since the Court had long held that a vote is invalid when one member of a voting body should have been disqualified from voting, even when the tainted member’s vote is not decisive.  The dissent argued that the petitioner’s challenge was the exact situation contemplated by the IAPA provisions at issue. There was no question, alleged the dissent, that La Seur, at the time of the action in question, was subject to disqualification because of her elector status. As such, the decision-making body was improperly constituted, the petitioners’ rights were prejudiced, and the antidegradation rules should have been invalidated. 

As the dissent pointed out, the majority gave little credence to the elector requirement prescribed by the Iowa legislature. As with the conflict of interest ruling, only clarification from the legislature can prevent a similar interpretation in future cases.

Conclusion

This decision suggests that Iowans must closely monitor the composition of the appointed boards and commissions creating the rules under which they live. This case demonstrates that little or no recourse exists once rules or regulations have been made. A direct challenge to remove a disqualified board member or commissioner (apart from challenging an implemented rule) could perhaps meet with more success. The fact that this was an ad hoc challenge to a set of promulgated rules places this case in a difficult procedural posture. Nonetheless, it is jarring to realize that rules passed by a board comprising a paid lobbyist and an unqualified member remain untainted. To quote the Court, it just “seems contrary to our general governmental approach.” There’s probably a reason for that. It remains to be seen how the Court will apply its conflict of interest rationale in future cases.