New Jersey courts will prevent regulators from enforcing requirements through guidance that have not been formally adopted through appropriate rulemaking. Just recently, the Appellate Division of the New Jersey Superior Court determined that the NJDEP wrongfully imposed penalties on a radon testing company for failing to comply with certain agency policies and guidance that had not been promulgated through the rulemaking process prescribed by the Administrative Procedure Act (“APA”). NJDEP v. Radiation Data Inc., Docket No. A-1777-17T3 (N.J. Super. Ct., App. Div. Nov. 2, 2018). This decision follows a line of cases, starting with the New Jersey Supreme Court’s seminal decision in Metromedia, Inc. v. Dir. Division of Taxation, 97 N.J. 313 (1984), wherein the courts set standards for when state administrative agencies are required to engage in formal rulemaking, which includes public notice and comment procedures, before imposing new requirements on the regulated community.
Radon is a colorless, odorless, radioactive gas that derives from the natural breakdown of uranium in soils and is recognized as the second leading cause of lung cancer in humans. Radon tests are often conducted in connection with real estate transactions, commonly as part of the home inspection process. Radiation Data Inc. (“RDI”), the defendant in this case, is the largest radon testing business in the State and has processed more than one million radon tests since its inception in 1987. The NJDEP Radon Section, which administers the State’s radon program, requires companies that test for and mitigate radon to be appropriately licensed and to use or employ certified measurement and mitigation professionals. Between 2009 and 2014, the NJDEP levied several penalties against RDI for alleged violations of the radon program’s rules.
A number of the violations alleged against RDI were related to radon tests performed by technicians that were “affiliated” with RDI, but were either self-employed or worked for home inspection businesses. RDI argued that it should not be held accountable for the actions of affiliate technicians that it does not employ, pay or control, particularly because the NJDEP had not formally adopted rules establishing and clarifying that the testing companies would be vicariously liable for the actions or noncompliance of affiliates. Additional violations alleged by NJDEP were related to RDI’s failure to comply with an agency “Guidance Document” that set forth certain, essentially mandatory requirements for quality assurance and control plans. Again, RDI argued that the requirements of the guidance were not enforceable because the Department had not engaged in formal rulemaking.
In Metromedia, the New Jersey Supreme Court set forth several factors that guide the analysis of whether formal rulemaking for a regulatory requirement is necessary, including for example, whether the requirement “prescribes a legal standard or directive that is not otherwise expressly provided by or clearly and obviously inferable from the enabling statute.” 97 N.J. at 331. Here, in Radiation Data, the Appellate Division found that the policies and guidance that the NJDEP was seeking to enforce met the Metromedia test and, therefore, agreed with RDI that the imposition of penalties was improper. The court found that the Radon Section’s “affiliate” policy is not expressed or readily inferable from the existing statutes or rules. With respect to the Guidance Document, the court found that it contained mandatory language and added regulatory requirements not found in the rules. The court “urged” the NJDEP to engage in prospective rulemaking to clarify its requirements consistent with the APA.
The use of substantive guidance in regulatory practice and by the NJDEP is rampant. The Radiation Data case demonstrates that the courts will require state regulators to adhere to the APA and will not enforce penalties for violations of regulatory requirements that were not appropriately promulgated. In light of Radiation Data, and the pervasive use of guidance in environmental programs, the regulated community should be reminded that NJDEP guidance and internal policies may not have the force of law, especially if they include requirements that should have been adopted through formal rulemaking in accordance with Metromedia and the APA.