Arizona Court of Appeals, Division One holds that courts must independently decide legal and factual questions when regulated parties challenge agency action.

The plaintiff applied for a horse racing license, which the Arizona Department of Racing (“the Department”) denied. After a hearing, an administrative law judge (“ALJ”) recommended granting the license, but the Arizona Racing Commission (“the Commission”) ultimately denied his application, finding that the plaintiff had made false statements to the Department and failed to meet monetary obligations related to racing operations.

The central issue on appeal was how courts should review agency action under Arizona’s recently amended judicial review statute. In 2018, the legislature amended A.R.S. § 12-910(F) to require courts to decide questions of law “without deference” to the agency’s determination in regulated-party proceedings. In 2021, the legislature extended this requirement to questions of fact. The superior court reviewed the Commission’s decision for substantial evidence and affirmed. The court of appeals reversed.

The court of appeals held that under § 12-910(F), courts must independently resolve both legal and factual questions when reviewing agency actions involving a regulated party. That standard replaces the prior deferential, substantial-evidence review, at least as to disputed questions of law and fact. When agencies modify ALJ credibility findings without hearing live testimony, reviewing courts must defer to the ALJ’s credibility findings unless clearly erroneous.

Applying this framework, the court of appeals found that the plaintiff’s alleged misstatements about the ownership of one of his companies were immaterial, and that he had not failed to meet any monetary obligation in connection with racing. Because the record did not support the Commission’s findings, the court vacated the denial of the license and ordered judgment in the plaintiff’s favor.

Judge Catlett authored the opinion, joined by Judges Paton and Morse.

Posted by: Allie Karpurk