NRV Real Estate, LLC v. Virginia Department of Health

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.
 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.

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 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.”

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 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.’” Johnston-

Willis, 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

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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

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 (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,

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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

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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,

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 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”).

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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.

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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.

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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

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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.”

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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.

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