Opinion ID: 1505592
Heading Depth: 1
Heading Rank: 3

Heading: Arbitrary and Capricious Standard of Review

Text: The court of appeals held that the validity of an agency's inferences of ultimate facts or its reasoning process is judged by whether such inferences are arbitrary and capricious. The court also concluded that the sole purpose of the substantial evidence rule is to measure the validity of the process by which the agency has inferred stated basic facts from the evidence and matters officially noticed. Our discussion of the substantial evidence rule discloses the erroneous nature of these conclusions. Because the court of appeals has, in effect, engaged in a substantial evidence review of the Commission's order, we also have addressed that point. We now turn to a discussion of the arbitrary and capricious standard of review. Throughout the long history of the substantial evidence rule the existence of substantial evidence has been equated with fair and reasonable conduct on the part of the agency. Conversely, agency decisions that are unsupported by substantial evidence have been deemed arbitrary and capricious. Thus, the two terms have many times been considered two sides of the same coin. See, e.g., Benson v. San Antonio Savings Association, 374 S.W.2d 423, 427 (Tex.1963); City Savings Association v. Security Savings and Loan Association of Dickinson, 560 S.W.2d 930, 932 (Tex. 1978). On the other hand, cases have arisen in which a line of demarcation was drawn between these two concepts. In Lewis v. Metropolitan Savings and Loan Association, 550 S.W.2d 11 (Tex. 1977), this Court was faced with an allegation that the agency action in question, in admitting and excluding evidence, had resulted in a denial of due process of law. The agency contended that the only issue on appeal was whether the decision was supported by substantial evidence; a denial of due process would not provide a basis for reversal so long as the agency's decision was upheld under substantial evidence scrutiny. We held that instances may arise in which the agency's action is supported by substantial evidence, but is arbitrary and capricious nonetheless. One such instance is when a denial of due process has resulted in the prejudice of substantial rights of a litigant. Another example of arbitrary action by an agency is Railroad Commission v. Alamo Express, 158 Tex. 68, 308 S.W.2d 843 (1958). Therein, this Court found that the agency had acted in an arbitrary manner when it failed totally to make findings of fact and instead based its decision on findings in another case. Arbitrary and capricious agency action also may be found when an agency improperly bases its decision on non-statutory criteria. Public Utility Commission v. South Plains Electric Cooperative, Inc., 635 S.W.2d 954, 957 (Tex.App.Austin 1982, writ ref'd n.r.e.). In enacting the APTRA, it is clear that the legislature intended to distinguish between agency action that is not supported by substantial evidence and agency action that is arbitrary and capricious. We construe section 19(e)(6) of the APTRA to be a safeguard against agency conduct that is arbitrary or constitutes an abuse of discretion although that conduct does not amount to a violation of any other provision of the APTRA or the agency's enabling act. The arbitrary and capricious standard of review historically has been construed narrowly, and we do not think that the legislature intended it to be interpreted as a broad, all-encompassing standard for reviewing the rationale of agency actions. Under the foregoing definition of the arbitrary and capricious standard of review, we hold that the Commission's orders in this case are not arbitrary nor do they constitute an abuse of discretion. We conclude that the findings of fact made by the Commission comply with section 16(b) of the APTRA. The Commission's findings, inferences, conclusions, and decisions are supported by substantial evidence and do not constitute an abuse of discretion. The judgment of the court of appeals is reversed, and the judgment of the trial court is affirmed.