COURT OF APPEALS OF VIRGINIA 

Present: Judges Frank, Humphreys and Haley 

Argued at Salem, Virginia 

NRV REAL ESTATE, LLC 

 OPINION BY 

v. Record No. 0904-07-3 JUDGE JAMES W. HALEY, JR. 

 APRIL 15, 2008 

VIRGINIA DEPARTMENT OF HEALTH 

FROM THE CIRCUIT COURT OF ROANOKE COUNTY 

William N. Alexander, II, Judge Designate 

 Dominic P. Madigan (Thomas W. McCandlish; McCandlish Holton, 

P.C., on briefs), for appellant. 

 Matthew M. Cobb, Assistant Attorney General (Robert F. 

McDonnell, Attorney General; David E. Johnson, Deputy Attorney 

General; Jane D. Hickey, Senior Assistant Attorney General, on 

brief), for appellee. 

I. INTRODUCTION 

 NRV Real Estate, LLC (“NRV”) appeals the order of the Circuit Court of Roanoke 

County dismissing NRV’s appeal from the decision of the Department of Health (“the agency”) 

to not accept NRV’s application for a Certificate of Public Need (“COPN”) to transfer nursing 

home beds. The circuit court held the agency lacked statutory authority to permit the transfer. 

On appeal, NRV argues the agency has such statutory authority, has exercised this power in the 

past by permitting transfers, and acted arbitrarily and capriciously in this case by disregarding its 

prior precedent. We agree with NRV and reverse and remand to the circuit court with 

instructions to remand to the agency with instructions to accept the application and to reconcile 

its conflicting precedent. 
 -2-

II. FACTS 

 A succinct summary of relevant statutes is necessary to develop the continuum of facts. 

 To preclude overdevelopment of medical care facilities, an entity seeking to establish 

new medical care facilities must file an application for a COPN with the agency and demonstrate 

a public need for those facilities. Code § 32.1-102.3. After considering twenty statutory criteria, 

the agency determines if such a need exists, and, if concluding it does, issues a COPN. Id. A 

nursing home is a medical care facility. Code § 32.1-102.1.1

 The agency may not accept applications for a COPN “for any project which would result 

in an increase in the number of beds . . . in which nursing facility . . . services are provided” 

unless such application is in response to a Request for Applications (“RFA”) issued by the 

Commissioner of Health for the same. Code § 32.1-102.3:2(A) (emphasis added). No such RFA 

was outstanding in this cause. 

 Code § 32.1-102.1 includes in the definition of a “project” requiring a COPN: 

“5. Introduction into an existing medical facility of any new [here follows a list of specifically 

defined medical exploratory devices or procedures, and facilities for substance abuse or 

psychiatric treatment] . . . which the facility . . . has not provided in the previous 12 months.” 

(Emphasis added). Thus, the quoted language permits an existing medical facility to cease 

offering any of the designated services, but return to offering those services without seeking a 

new COPN, if they do so within twelve months of the cessation. The exception is generally 

referred to as the twelve-month rule. Nursing home services, including supplying nursing home 

beds, are not one of the services designated in Code § 32.1-102.1. 

 1

 For purposes of administration by the agency, the Commonwealth of Virginia is 

geographically divided into Planning Districts. The two medical facilities involved in this cause 

are both located in then Planning District Four. 
 -3-

 

 With this statutory foundation the following constitutes the relevant facts. 

 By letter dated June 28, 2004, Carilion Giles Memorial Hospital (“Giles Memorial”) 

advised the agency that effective September 24, 2004, it would cease operations as “an 

immediate care nursing home.” The letter further noted that nursing home residents had been 

advised of this cessation and that those “residents and families . . . have already begun placement 

proceeding[s] in other nursing homes.” Giles Memorial possessed twenty-one beds that had 

been certified for Medicaid reimbursement as nursing home beds, and were employed as such. 

 On September 20, 2004, Giles Memorial entered into an agreement with NRV to relocate 

the twenty-one nursing home beds from Giles Memorial to the Radford Nursing and 

Rehabilitation Center (“Radford Nursing”), owned by NRV. In accordance with the agreement, 

on September 24, 2004, Giles Memorial ceased offering nursing home beds and de-certified the 

twenty-one beds from Medicaid nursing home reimbursement. Both Giles Memorial and 

Radford Nursing are in Planning District Four. The twenty-one beds used as nursing home beds 

were included in Giles Memorial’s COPN as inventory in Planning District Four.2

 On August 1, 2005, NRV filed an application for a COPN seeking approval of the 

relocation of the twenty-one beds from Giles Memorial to Radford Nursing. By letter dated 

August 11, 2005, the Director of the Division of Certificate of Public Need replied. Citing Code 

§ 32.1-102.3:2(A), he declined to accept the application “because execution of the proposed 

project would constitute an addition to the supply of nursing home beds in PD 4” in violation of 

the statute, since there was no existing RFA for nursing home beds in the Planning District. 

Further, he wrote: 

2

 In numbered paragraph three of its demurrer to the appeal noted by NRV to the circuit 

court, the agency stated: “Carilion Giles had operated 21 nursing home beds pursuant to its 

COPN until it ceased operation of the nursing home beds on September 24, 2004.” 

 
 -4-

 

 Although your application seems to imply that Giles 

Memorial has 21 nursing home beds available to be relocated, 

Giles Memorial does not now have such beds. Giles Memorial has 

never had nursing home beds, per se, but it did have 21 hospital 

beds certified for Medicaid nursing facility (“NF”) reimbursement 

until September 24, 2004 on which date these NF beds were 

de-certified pursuant to the hospital’s request. Since September 

24, 2004, Giles Memorial has not had any beds that qualify as 

nursing home beds within the meaning of the statute governing the 

certificate of public need program. 

 Since January 1, 2005, Giles Memorial has been licensed 

for a total of 25 beds, which it identifies as 22 medical/surgical 

beds and three intensive care unit beds. Therefore, Giles Memorial 

does not have “nursing home” beds that could be relocated 

pursuant to a certificate of public need . . . . 

 . . . Unless you can show that . . . the application . . . does 

not seek to increase the supply of nursing home beds in PD 4, we 

will return . . . the application to you. 

Counsel for NRV replied, and by letter dated September 12, 2005, the Director merely reiterated 

his reliance upon Code § 32.1-102.3:2(A) and declined to receive the application.3

NVR appealed the Director’s decision to the Circuit Court of Roanoke County. Their 

petition maintained that their application would not add nursing home beds to PD 4 inventory, 

that prior agency decisions had applied the twelve-month rule to the relocation of nursing home 

beds from one medical care facility to another, and that the agency’s departure from those earlier 

decisions, without notice or explanation, was arbitrary and capricious. 

 By order entered March 20, 2007, the trial court held: (1) that because nursing homes 

and nursing home beds were not designated as one of the medical services set forth in paragraph 

five of the definition of “project” in Code § 32.1-102.1, the twelve-month rule did not apply, and 

(2) that because the application “seeks to add nursing home beds to the planning district” in the 

3

 The Director did not include in this response his earlier reference to the character or 

status of the beds contained in the Giles Memorial COPN. 
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absence of a RFA, the Director properly declined the application based upon Code 

§ 32.1-102.3:2(A). This appeal followed. 

III. ANALYSIS 

A. Standard of Review

 Under well-settled principles, the party appealing an administrative decision bears the 

burden of demonstrating error. Code § 2.2-4027; Loudoun Hosp. Ctr. v. Stroube, 50 Va. App. 

478, 490, 650 S.E.2d 879, 885 (2007). We review the agency’s factual findings only to 

determine whether substantial evidence exists to support the agency decision. Tidewater 

Psychiatric Inst., Inc. v. Buttery, 8 Va. App. 380, 386, 382 S.E.2d 288, 291 (1989). Substantial 

evidence is only “‘such relevant evidence as a reasonable mind might accept as adequate to 

support a conclusion.’” Va. Real Estate Comm’n v. Bias, 226 Va. 264, 269, 308 S.E.2d 123, 125 

(1983) (quoting Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)). This deferential 

standard provides that “the court may reject the agency’s findings of fact ‘only if, considering the 

record as a whole, a reasonable mind would necessarily come to a different conclusion.’” Id.

(quoting B. Mezines, Administrative Law § 51.01 (1981)). On the other hand, where the 

question concerns an issue of law that is “‘outside the area generally entrusted to the agency, and 

is one in which the courts have a special competence, i.e., the common law or constitutional law, 

there is little reason for the judiciary to defer to an administrative interpretation.’” JohnstonWillis, Ltd. v. Kenley, 6 Va. App. 231, 243-44, 369 S.E.2d 1, 8 (1988) (quoting Hi-Craft 

Clothing Co. v. NLRB, 660 F.2d 910, 915 (3d Cir. 1981)). Yet “where the question involves an 

interpretation which is within the specialized competence of the agency and the agency has been 

entrusted with wide discretion by the General Assembly, the agency’s decision is entitled to 

special weight in the courts.” Id. at 244, 369 S.E.2d at 8. In that case we will reverse where the 

agency takes “‘arbitrary or capricious action that constitutes a clear abuse of the delegated 
 -6-

discretion.’” Id. (quoting Va. Alcoholic Beverage Control Comm’n v. York Street Inn, Inc., 220 

Va. 310, 315, 257 S.E.2d 851, 855 (1979)). 

B. Whether the Agency Has Statutory Authority to Apply the

Twelve-Month Rule to Nursing Homes

 We first examine whether the agency has statutory authority to apply the twelve-month 

rule to nursing homes. It is well established that if the agency lacks statutory authority to apply 

the twelve-month rule, any administrative action to the contrary is invalid. General Motors 

Corp. v. Dep’t of Taxation, 268 Va. 289, 293, 602 S.E.2d 123, 125 (2004). “The question 

whether an agency decision making body acted within the scope of the authority conferred upon 

it by statute is a question of law.” Muse v. Virginia Alcoholic Beverage Control Bd., 9 Va. App. 

74, 78, 384 S.E.2d 110, 112 (1989). Thus, we do not defer to the agency’s judgment. Alliance 

to Save the Mattaponi v. Commonwealth, 270 Va. 423, 442, 621 S.E.2d 78, 88 (2005) (stating 

that “a pure question of statutory interpretation” receives de novo review in the courts). 

 “Under basic rules of statutory construction, we examine the statute in its entirety, rather 

than by isolating particular words or phrases.” Earley v. Landsidle, 257 Va. 365, 369, 514 

S.E.2d 153, 155 (1999). We discern the intention of the General Assembly “from the words 

appearing in the statute, unless a literal construction of the statute would yield an absurd result.” 

Cummings v. Fulghum, 261 Va. 73, 77, 540 S.E.2d 494, 496 (2001). When the statutory 

language is clear, “we are bound by the plain meaning of that language.” Vaughn, Inc. v. Beck, 

262 Va. 673, 677, 554 S.E.2d 88, 90 (2001). 

 The Code provides that “[n]o person shall commence any project without first obtaining a 

certificate issued by the Commissioner.” Code § 32.1-102.3(A). The Code defines a project in 

part as follows: 

 Introduction into an existing medical care facility of any 

new cardiac catheterization, computed tomographic (CT) scanning, 

gamma knife surgery, lithotripsy, magnetic resonance imaging 
 -7-

(MRI), magnetic source imaging (MSI), medical rehabilitation, 

neonatal special care, obstetrical, open heart surgery, positron 

emission tomographic (PET) scanning, psychiatric, organ or tissue 

transplant service, radiation therapy, nuclear medicine imaging, 

except for the purpose of nuclear cardiac imaging, substance abuse 

treatment, or such other specialty clinical services as may be 

designated by the Board by regulation, which the facility has never 

provided or has not provided in the previous 12 months[.] 

Code § 32.1-102.1. Thus, the Code provides that where a health care facility ceases to provide 

one of the above-enumerated services, it may resume operation of that service within one year 

from the date of discontinuance. Id. 

 Under the statutory interpretation principle of expressio unius est exclusio alterius, the 

“‘mention of a specific item in a statute implies that omitted items were not intended to be 

included within the scope of the statute.’” GEICO v. Hall, 260 Va. 349, 355, 533 S.E.2d 615, 

617 (2000) (quoting Turner v. Sheldon D. Wexler, D.P.M., P.C., 244 Va. 124, 127, 418 S.E.2d 

886, 887 (1992)). The Virginia Supreme Court has firmly established the principle in our 

jurisprudence. See, e.g., Belton v. Crudup, 273 Va. 368, 373, 641 S.E.2d 74, 77 (2007) (holding 

that where the General Assembly specifies several exceptions to a rule, no others exist); Jackson 

v. Fid. & Deposit Co., 269 Va. 303, 313, 608 S.E.2d 901, 906 (2005) (holding that “because the 

statute specifically lists exceptions . . . those exceptions are the only ones allowed by law”). 

Here, Code § 32.1-102.1 plainly lists where the twelve-month rule applies. Therefore, these 

represent the only areas where the twelve-month rule must apply. 

Nevertheless, this does not mean the Code prohibits the agency from applying the 

twelve-month rule or variations thereof to other areas by virtue of its administrative powers. 

Otherwise, a nursing home facility would need to obtain a COPN after any cessation of service 

since resumption of the activity would present a “new nursing home service” and thereby a 

project requiring a COPN. Code § 32.1-102.1. Holding that any cessation of service in nursing 

home beds necessitates a new COPN would produce an impermissibly absurd result. Cummings, 
 -8-

261 Va. at 77, 540 S.E.2d at 496. Any closure for renovation or even cleaning, however 

temporary, would require a facility to obtain a new COPN. Furthermore, Code § 32.1-102.1 

provides that “[r]elocation at the same site of 10 beds or 10 percent of the beds, whichever is 

less, from one existing physical facility to another in any two year period” does not constitute a 

project. The relocation of beds would almost certainly mean closing their active use temporarily. 

Yet the Code permits a provider to accomplish this without the need for a COPN and without 

application of the twelve-month rule. Therefore, we find that although the twelve-month rule 

does not necessarily apply to nursing homes, the Code does not prohibit its application as a 

matter of administrative discretion. 

C. Whether the Agency Acted Arbitrarily and Capriciously by

Violating Its Own Precedent

 The fact that the agency may apply a rule does not mean it must. NRV contends the 

agency used the twelve-month rule in prior administrative adjudications and contends the 

agency’s sudden decision to depart from that rule in this case constitutes impermissible arbitrary 

and capricious conduct. 

 We have held that an agency “has incidental powers which are reasonably implied as a 

necessary incident to its expressly granted powers for accomplishing [its] purposes.” Bader v. 

Norfolk Redev. & Housing Auth., 10 Va. App. 697, 702, 396 S.E.2d 141, 144 (1990). This 

includes the adoption of interpretative rules. Id. Since such rules do not undergo the same 

scrutiny as do formally promulgated regulations, they “‘do not purport to be a substitute for the 

statute.’” Davenport v. Summit Contractors, Inc., 45 Va. App. 526, 533, 612 S.E.2d 239, 243 

(2005) (quoting Jackson v. W., 14 Va. App. 391, 399, 419 S.E.2d 385, 389 (1992)); see also

Woods v. Commonwealth, 26 Va. App. 450, 457, 495 S.E.2d 505, 508 (1998). “[T]hey do not 

have the force of law.” Jackson, 14 Va. App. at 399, 419 S.E.2d at 389. In spite of this, 

interpretative rules carry persuasive effect. Bader, 10 Va. App. at 702, 396 S.E.2d at 144. We 
 -9-

give “great deference to an administrative agency’s interpretation of the regulations it is 

responsible for enforcing,” Hilliards v. Jackson, 28 Va. App. 475, 479, 506 S.E.2d 547, 550 

(1998), for “it is inappropriate for a court to second-guess the manner in which an agency 

responds to its responsibility of carrying out the Commonwealth’s policy when those means are 

not prohibited,” Jackson, 14 Va. App. at 401, 419 S.E.2d at 390. 

 The Code refers to interpretative rules of agencies as guidance documents. Code 

§ 2.2-4001 (defining a guidance document). These documents are publicly available. Code 

§ 2.2-4008. Importantly for this case, Bader, Jackson, Woods, and Davenport all involved 

written interpretative rules. Davenport, 45 Va. App. at 532, 612 S.E.2d at 243; Woods, 26 

Va. App. at 458, 495 S.E.2d at 509; Jackson, 14 Va. App. at 399, 419 S.E.2d at 389-90; Bader, 

10 Va. App. at 701, 396 S.E.2d at 143. The interpretative rule is not simply a logic consistently 

employed by an agency in administrative adjudication. 

 The reasoning of agencies in administrative adjudications receives great deference in this 

Court. We stated the standard for evaluating whether an agency erred in declining to follow its 

internal precedent in Courtesy Motors, Inc. v. Ford Motor Co., 9 Va. App. 102, 384 S.E.2d 118 

(1989). We held: 

At the outset, we note that in its ordinarily accepted meaning, the 

doctrine of stare decisis is inapplicable when applied to the 

decisions of an administrative agency. “An agency may refuse to 

follow its own precedent, but it must not act arbitrarily in doing 

so.” C. Koch, Administrative Law & Practice § 6.57 (1985). 

Thus, the issue before us is not whether this case is or is not 

consistent with prior decisions of the commission or strictly 

speaking, distinguishable from earlier cases, but whether it is a 

departure and indistinguishable from decisions of the commission, 
 - 10 -

and, if so, whether the commission acted arbitrarily in disregarding 

the precedent. 

Id. at 106, 384 S.E.2d at 120-21.4

 

 In the present case, the record contains no evidence of a formal interpretative 

twelve-month rule utilized by the agency. However, NRV submitted evidence of prior 

administrative cases it claims the agency decided on grounds opposed to those used to decide its 

case. We therefore evaluate these cases under the standards of Courtesy Motors enunciated 

above. 

 The agency declined to accept NRV’s application because under the agency’s 

interpretation of the law, transferring beds from Giles Memorial to Radford Nursing would 

represent an increase in the number of nursing home beds, which could only occur in response to 

a RFA from the agency. The parties agree that new beds may only be added after such a 

Request; the disagreement surrounds whether the transfer would result in “new” beds. The 

agency concluded that when Giles Memorial de-certified the beds to be transferred from 

Medicaid nursing facility reimbursement on September 24, 2004, the beds ceased to exist. Thus, 

when the agency received NRV’s application to transfer the beds on August 1, 2005, no beds 

existed. This logic followed a two-step process: (1) beds not covered by Medicaid do not exist, 

and (2) beds that do not exist may not be transferred. The narrow basis for the agency’s decision 

accordingly limits the relevant similarities from other cases. First Va. Bank v. Commonwealth, 

213 Va. 349, 351, 193 S.E.2d 4, 5-6 (1972) (stating that “where the Commission has reached the 

 4

 The minimal role of stare decisis in the administrative law context has been widely 

acknowledged by other courts. See, e.g., Interstate Tel. Coop., Inc. v. Pub. Utils. Comm’n, 518 

N.W.2d 749, 752 (S.D. 1994) (noting many courts have found “that administrative agencies are 

not bound by stare decisis”); Zinke & Trumbo, Ltd. v. State Corp. Comm’n, 749 P.2d 21, 29 

(Kan. 1988) (stating that stare decisis does not generally apply to administrative actions); 

Baltimore Gas & Elec. Co. v. Pub. Serv. Comm’n, 501 A.2d 1307, 1318 (Md. 1986) (noting that 

“the principle of stare decisis has limited applicability to administrative agencies”). 
 - 11 -

right result for the wrong reason, its decision, unlike that of a trial court, will not be permitted to 

stand”). 

 Prior decisions of the agency support NRV’s argument. First, in Montgomery Health 

Investors, the agency approved a proposal to transfer beds from a facility that had not 

participated in Medicaid for two years. This rebuts the agency’s holding that beds not covered 

by Medicaid do not exist.5

 Also relevant is the Albemarle Health Investors decision. There a 

company proposed to build a new nursing home and supply beds through relocation of beds from 

the recently closed Jefferson Park nursing facility. When the agency evaluated whether to 

authorize the transfer, it stated: 

Jefferson Park is a non-operational nursing home and adult 

residence facility, licensed for 173 nursing home beds . . . . Absent 

some change in the status of Jefferson Park, it will remain a 

licensed nursing home until July 19, 2001, one year from the date 

on which the Virginia Department of Health was notified that 

nursing home patient services had ceased to be provided at 

Jefferson Park. 

 Further, absent some change, such as proposed in this 

COPN application, the nursing home beds now at Jefferson Park 

will be de-licensed effective July 19, 2001, and will be removed 

from the inventory of authorized nursing home beds. However, if 

a COPN is issued for some relocation and re-use of these beds 

prior to July 19, 2001, the beds will remain part of the authorized 

inventory of nursing home beds . . . . 

The agency clearly took the position nursing homes could transfer beds one year from their date 

of closure. 

These decisions show the agency previously held a prior position directly contrary to its 

position in this case. Stated succinctly, it did not require Medicaid participation as a condition of 

nursing home status and permitted closed nursing homes to transfer beds within a year of 

 5

 The Code appears to provide nursing homes do not have to participate in Medicaid. See

Code §§ 32.1-27.1(B); 32.1-123; 32.1-325(E). Given the nature of our remand, we do not reach 

this question. 
 - 12 -

closure.6

 We now consider whether the agency acted arbitrarily in disregarding its prior 

precedent. 

Agencies act arbitrarily and capriciously when they engage in actions that “are ‘willful 

and unreasonable’ and taken ‘without consideration or in disregard of facts or law or without 

determining principle.’” Sch. Bd. of the City of Norfolk v. Wescott, 254 Va. 218, 224, 492 

S.E.2d 146, 150 (1997) (quoting Black’s Law Dictionary 105 (6th ed. 1990)). Arbitrary and 

capricious actions represent a plain abuse of discretion. Bd. of Zoning Appeals v. Glasser Bros. 

Corp., 242 Va. 197, 200, 408 S.E.2d 895, 897 (1991). 

 The United States Supreme Court has stated that “[a]djudicated cases may and do . . . 

serve as vehicles for the formulation of agency policies, which are applied and announced 

therein. They generally provide a guide to action that the agency may be expected to take in 

 6

 Other administrative cases cited by NRV also held transfers of beds permissible. These 

cases may all be distinguished within the meaning of Courtesy Motors on the ground that the 

transfers were approved before the other facility closed. Yet they do provide additional evidence 

that the agency did not consider a transfer of beds to create new beds. 

In Windsor Health Investors, a company proposed to build a new facility with ninety-four 

nursing home beds. Those beds would come from another facility. Regarding the law 

concerning whether the transfer was permissible, the agency held: 

 The project would be implemented in conjunction with a 94 

bed reduction in the licensed bed capacity of Park View Nursing 

and Rehabilitation Center . . . . (Projects which would increase the 

total number of beds in PD 20 cannot be reviewed or authorized by 

the Commissioner of Health, under current Virginia law . . . 

because the Commissioner has not issued a Request for 

Applications for new nursing home beds which targets PD 20.) 

 

 Thus, WHI is, in essence, proposing to “relocate” these 

within PD 20. 

The agency recommended approval of the transfer. Hence, after acknowledging that it 

could only approve new beds after a RFA, the agency determined transferred beds were not new. 

A very similar situation occurred in the Kings Daughters Health Investors case. In that case, a 

company proposed to replace an existing nursing home by buying the rights to its beds and 

constructing a new facility. Again, the agency issued a COPN. Beds were also relocated in the 

Woodstock Health Investors and Lexington Health Investors cases. 
 - 13 -

future cases.” NLRB v. Wyman-Gordon Co., 394 U.S. 759, 765-66 (1969) (plurality opinion) 

(citation omitted). It has further held an agency “is not precluded from announcing new 

principles in an adjudicative proceeding and that the choice between rulemaking and 

adjudication lies in the first instance within the [agency’s] discretion.” NLRB v. Bell Aerospace 

Co., 416 U.S. 267, 294 (1974). Yet the Court warned that where an agency deviates from its 

precedent there could be “adverse consequences ensuing from such reliance [that] are so 

substantial that the [agency] should be precluded from reconsidering the issue in an adjudicate 

proceeding.” Id. at 295. Such situations could result where “new liability is sought to be 

imposed on individuals for past actions which were taken in good-faith reliance on [agency] 

pronouncements.” Id.; see also Ruangswang v. INS, 591 F.2d 39, 44 (9th Cir. 1978). They 

could also occur where the agency announces a “[s]udden and unexplained change” or “does not 

take account of legitimate reliance on prior interpretation.” Smiley v. Citibank (S.D.), N.A., 517 

U.S. 735, 742 (1996); see also United States v. Deaton, 332 F.3d 698, 712 (4th Cir. 2003), cert. 

denied, 541 U.S. 972 (2004); Boyd v. People, Inc., 43 Va. App. 82, 91, 596 S.E.2d 100, 105 

(2004) (Kelsey, J., concurring). Yet “if these pitfalls are avoided, change is not invalidating,” for 

the courts “leave the discretion provided by the ambiguities of a statute with the implementing 

agency.” Smiley, 517 U.S. at 742; see also Sacco v. Dep’t of Justice, 317 F.3d 1384, 1386 (Fed. 

Cir. 2003) (stating a court should uphold an agency’s policy change where “the agency is able to 

provide a reasonable justification”). 

 In order for a court to know whether an agency has adequately considered its prior 

precedent before announcing a change, the agency must provide reasons for its decision. The 

Code provides for this requirement by mandating the agency “briefly state or recommend the 

findings, conclusions, reasons, or basis thereof upon the evidence presented by the record and 

relevant to the basic law under which the agency is operating.” Code § 2.2-4020; see also
 - 14 -

Goodyear Tire & Rubber Co. v. Pierce, 5 Va. App. 374, 384, 363 S.E.2d 433, 438 (1987). As 

the United States Supreme Court held: 

If the administrative action is to be tested by the basis upon which 

it purports to rest, that basis must be set forth with such clarity as 

to be understandable. It will not do for a court to be compelled to 

guess at the theory underlying the agency’s action; nor can a court 

be expected to chisel that which must be precise from what the 

agency has left vague and indecisive. 

SEC v. Chenery Corp., 332 U.S. 194, 196-97 (1947); see also Massachusetts v. EPA 127 S. Ct. 

1438, 1463 (2007) (holding the EPA acted arbitrarily and capriciously when it “offered no 

reasonable explanation for its refusal to decide whether greenhouse gases cause or contribute to 

climate change”); Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 48 

(1983) (noting that “[w]e have frequently reiterated that an agency must cogently explain why it 

has exercised its discretion in a given manner”). 

An agency’s unexplained change from prior decisions may render its decision arbitrary 

and capricious. Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 981 

(2005); see also Atchison, Topeka & Santa Fe Ry. Co. v. Wichita Bd. of Trade, 412 U.S. 800, 

808 (1973) (plurality opinion) (stating that an agency’s “ground for the departure from prior 

norms . . . must be clearly set forth so that the reviewing court may understand the basis of the 

agency’s action and so may judge the consistency of that action with the agency’s mandate”). 

As one lower federal court stated: 

Our review . . . is highly deferential, but agency action is arbitrary 

and capricious if it departs from agency precedent without 

explanation. Agencies are free to change course as their expertise 

and experience may suggest or require, but when they do so they 

must provide a “reasoned analysis indicating that prior policies and 

standards are being deliberately changed, not casually ignored.” 

An agency’s failure to come to grips with conflicting precedent 

constitutes “an inexcusable departure from the essential 

requirement of reasoned decision making.” 
 - 15 -

Ramaprakash v. FAA, 346 F.3d 1121, 1124-25 (D.C. Cir. 2003) (citations omitted). Another 

court noted that while “an agency is free to change course after reweighing the competing 

statutory policies . . . such a flip-flop must be accompanied by a reasoned explanation of why the 

new rule effectuates the statute as well as or better than the old rule.” N.Y. Council, Ass’n of 

Civilian Technicians v. Fed. Labor Relations Auth., 757 F.2d 502, 508 (2d Cir.), cert. denied, 

474 U.S. 846 (1985). 

 In the present case, the agency provided NRV no reasons for its departure from its prior 

practice of considering nursing homes licensed and capable of transferring beds for twelve 

months after operations cease. The agency’s first opinion simply stated that since Giles 

Memorial de-certified the beds from the Medicaid program, they no longer existed and therefore 

could not be transferred. Even after counsel for NRV wrote the agency and set forth in detail 

NRV’s position that the beds continued to exist, the agency did not provide further reasoning. 

Rather, the agency’s September 12, 2005 letter summarily confirmed the first letter. The lack of 

any reasoning explaining the departure from prior practice can only be considered arbitrary and 

capricious. Ramaprakash, 346 F.3d at 1124-25; Boyd, 43 Va. App. at 92, 596 S.E.2d at 105 

(Kelsey, J., concurring) (criticizing the Workers’ Compensation Commission for failing to 

distinguish its prior precedent and stating that “[i]t is one thing for the commission to change its 

mind, but quite another to be double-minded. The former may or may not be arbitrary . . . . The 

latter, however, almost certainly is.”); id. at 96-97, 596 S.E.2d at 107 (Benton, J., dissenting) 

(finding a decision arbitrary and capricious because it “fails to explain this deviation from its 

earlier interpretation; therefore, it demonstrates a lack of thoroughness in its consideration of the 

issues, evinces little validity in its reasoning, and lacks persuasiveness”). 

 Having found the agency’s decision in this case arbitrary and capricious, we must 

determine the remedy available to NRV. The Code provides that where an agency decision “is 
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found by the court not to be in accordance with law . . . the court shall suspend or set it aside and 

remand the matter to the agency for further proceedings, if any, as the court may permit or direct 

in accordance with law.” Code § 2.2-4029. In a recent opinion by Justice Alito, the United 

States Supreme Court stated that where a court finds agency action arbitrary and capricious due 

to internally inconsistent logic, remand for clarification of the agency’s reasoning represents the 

proper remedy. Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 127 S. Ct. 2518, 2529 

(2007); see also Fla. Light & Power Co. v. Lorion, 470 U.S. 729, 744 (1985) (holding that “if the 

agency has not considered all relevant factors, or if the reviewing court simply cannot evaluate 

the challenged agency action on the basis of the record before it, the proper course, except in rare 

circumstances, is to remand to the agency for additional . . . explanation”). Likewise, in an 

opinion by then Judge Alito, the court held that where an agency decided a case contrary to its 

prior precedent, the proper remedy was remand “so that it can reconcile the contradictory case 

law that it has developed.” Stardyne, Inc. v. NLRB, 41 F.3d 141, 153 (3d Cir. 1994). Remand 

for additional agency explanation is the settled remedy when an agency arbitrarily disregards its 

past precedent. See, e.g., Fox TV Stations, Inc. v. FCC, 489 F.3d 444, 467 (2d Cir. 2007); 

Exxon Mobil Corp. v. FERC, 315 F.3d 306, 311 (D.C. Cir. 2003); City of Fort Morgan v. FERC, 

181 F.3d 1155, 1162-63 (10th Cir. 1999); ANR Pipeline Co. v. FERC, 71 F.3d 897, 904 (D.C. 

Cir. 1995). 

Since the agency failed to explain its rationale for departing from its prior precedent, we 

remand to the circuit court with instructions to remand to the agency with instructions to accept 

the application and to “state . . . the findings, conclusions, reasons, or basis thereof . . . relevant 

to the basic law under which the agency is operating,” as required by Code § 2.2-4020. Harrison 

v. Ocean View Fishing Pier, LLC, 50 Va. App. 556, 576, 651 S.E.2d 421, 431 (2007). Upon 

remand, the agency should give a sufficient resolution of its conflicting precedent to permit 
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judicial review. Although NRV complains the agency did not give it a hearing, such a hearing 

was unnecessary, for the law “specifically contemplates judicial review on the basis of the 

agency record compiled in the course of informal agency action in which a hearing has not 

occurred.” Fla. Light & Power Co., 470 U.S. at 744. Except for ensuring an adequate record 

exists for judicial review and as otherwise constitutionally required, courts have no power to 

impose procedures on agencies not provided by law. Pension Benefit Guar. Corp. v. LTV Corp., 

496 U.S. 633, 655-56 (1990). 

 For the foregoing reasons, we reverse and remand to the circuit court with instructions to 

remand to the agency. 

Reversed and remanded.