As lawyers, we are used to citing earlier decisions as precedent.  Thus, we might expect that the Department of Corporations is free to rely on its earlier administrative decisions as precedent.  Surprisingly, this is not the case.  In fact, the Administrative Procedure Act prohibits a state agency from expressly relying on a decision as precedent unless the agency has designated that decision as precedential.  Cal. Govt. Code § 11425.60(a).  This statute is part of the APA’s Administrative Adjudication Bill of Rights.

To qualify as a precedential decision, a decision must contain a significant legal or policy determination of general application that is likely to recur.  Cal. Govt. Code § 11425.60(b).  Importantly, the designation of a decision as precedential does not constitute rule making and thus it is not subject to the notice and comment procedures of the APA.  If you unhappy with the designation of a decision, you are largely out of luck because the legislature has provided that agency designations are not subject to judicial review.

The Department of Corporations has designated only a handful of decisions as precedential.  These can be found here.

In my administrative law class, I teach my students that agencies can establish policy in a variety of ways: rule making, enforcement, and adjudication.  California’s APA imposes strict procedures on rule making in order to ensure that the public receives notice and has an opportunity to comment on new rules and rule changes.  Agencies are tempted to ignore these APA requirements because they often involve a great deal of time and effort.  The APA, however, forbids attempts to enforce, or attempt to enforce any guideline, criterion, bulletin, manual, instruction, order, standard of general application, or other rule, that is a “regulation” under the APA unless it has been adopted as a regulation and filed with the Secretary of State pursuant to the APA.  Cal. Govt. Code § 11340.5(a).

Given these constraints, agencies may turn to adjudication as a means of setting policy without having to engage in rule making.  The APA recognizes adjudication as a legitimate means of setting policy, but requires that agencies make it clear and public that this is what they are doing.  25 Cal. L. Rev. Comm’n Reports 55, 163 (1995).  However, agencies are not permitted to use precedential decisions to revise or amend an existing regulation or adopt a rule that has no adequate legislative basis.  Id.