Lead Opinion
On November 19, 1964, the petitioner James O. Gerst, Savings and Loan Commissioner of Texas, refused the application for a charter filed by respondents Orren L. Nixon, J. R. McDonald, Thomas I. Fet-zer, Benjamin C. Lively, J. M. Windham and Sidney R. Smith, who had been selected as members of the board of directors of a proposed savings association to be known as Livingston Savings and Loan Association and located at Livingston, Polk County, Texas.
The refusal of the application by the Commissioner was based upon his negative findings relating to Vernon’s Ann.Tex. Stats., art. 852a § 2.08(3), (4). These provisions read as follows:
“Sec. 2.08. The Commissioner shall not approve any .charter application unless he shall have affirmatively found from the data furnished with the application, the evidence adduced at such hearing and his official records that: * * *
“(3) there is a public need for the proposed association and the volume of business in the community in which the proposed association will conduct its business is such as to indicate profitable operation ;
“(4) the operation of the proposed association will not unduly harm any existing association.”
Among other holdings, the trial court concluded as a matter of law that the negative findings of the Commissioner were not reasonably supported by substantial evidence and hence his action was null and void. This judgment was affirmed by the Court of Civil Appeаls,
We granted the Commissioner’s application for writ of error which contains a sole point challenging the holdings of the courts below that the Commissioner’s negative findings were not reasonably supported by substantial evidence. We also granted the application of Southeast Texas Savings and Loan Association located at Wood-ville, Tyler County, Texas, the intervenor in the trial court, which here seeks to support the Commissioner’s order. Such in-tervenor as petitioner here, in addition to asserting that the Commissioner’s order is reasonably supported by substantial evidence, contends by 'its second and third points that the Court of Civil Appeals erred in failing to hold that аrt. 852a § 11.12 (5) (b) is unconstitutional insofar as it requires a redetermination by the trial court of the fact issues material to the validity of the Commissioner’s order upon a preponderance of the evidence basis, and that the trial court erred in receiving in evidence the record of the hearing conducted by the Commissioner. In this case, we have no question of procedural due process.
We do not understand that the Court of Civil Appeals has held that the preponderance of the evidence standard has appli-' cation to this case, but intervenor-petitioner’s second and third points raise questions of method and procedure relating to a judicial review of orders of the Savings and Loan Commissioner under section 11.12 (5) (b) of the Savings and Loan Act which calls for our determination and should be
The record in this case is unusual because of the trial judge’s doubt as to the validity of certain provisions contained in the Texas Savings and Loan Act relating to judicial review of orders entered by the administrative agency. Art. 852a § 11.12 provides in part:
"Judicial Review
“Sec. 11.12. Any person with an interest in the subject matter thereof who is dissatisfied with any act, order, ruling or decision of the Commissioner taken or made, or with any rule or regulation promulgated by the Commissioner and the Building and Loan Section of the Finance Commission in connection with the administration of this Act, may secure judicial review thereof in the following manner: * * *
“(5) Trial, (a) The review of an order issued under Section 8.141 of this Act shall be tried in the same manner as civil actions generally and the complaining party shall be entitled to a jury. The trial shall be governed by the rules of civil procedure and all fact issues material to the validity of such order shall be determined de novo on the preponderance of the evidence and the substantial evidence rule shall not apply. Any relevant and competent evidence shall be admissible for or against the order.
“(b) The review of any other аct, order, ruling or decision of the Commissioner or of any rule or regulation shall be tried by the court without a jury in the same manner as civil actions generally and all fact issues material to the validity of the Act, order, ruling, decision or rule or regulation complained of shall be redetermined in such trial on the preponderance of the competent evidence, but no evidence shall be admissible which was not adduced at the hearing on the matter before the Commissioner or officially noticed in the record of such hearing.”
The trial judge made findings on a preponderance of the evidence basis which were contrary to those made by the Commissioner, that is, the judge found that there was a public need for the proposed association, that there was a likelihood that its operations would be successful and that the operation of such proposed association would not unduly harm any existing association. Also, as above stated, the trial judge concluded as a matter of law that the Commissioner’s negative findings under art. 852a § 2.08(3), (4) were not reasonably supported by substantial evidence. It was the obvious purpose of the district judge to decide the issues upon a preponderance of the evidence basis and also in accordance with the substantial evidence rule so that an appellatе court could in all probability dispose of the case or remand the same to the Commissioner for further proceedings, art. 852a § 11.12(6), and avoid a remand to the trial court.
The provision for judicial review which purports to vest a court with the power to redetermine upon a preponderance of the evidence basis the issues set forth in art. 852a § 2.08(3), (4) is unconstitutional because it is violative of the separation of powers provision of the Texas Constitution which provides:
“The powers of the Government of the State of Texas shall be divided into three distinct departments, each of which shall be confided to a separate body of magistracy, to wit: Thоse which are Legislative to one; those which are .Executive to another, and those which are Judicial to another; and no person, or collection of persons, being of one of these departments, shall exercise any*354 power properly attached to either of the others, except in the instances herein expressly permitted.” (Art. 2 § 1, Texas Constitution, Vernon’s Ann.St.).
The granting or withholding of a permit, certificate or authority to do business in a statutorily regulated commercial endeavor is an administrative function and under the constitutional provision above quoted, such function cannot he delegated to the judiciary. The judicial inquiry in regard to such mаtters is restricted to the method employed by the administrative agency in arriving at its decision. By way of example, it is the province of the administrator to determine whether there is a public need for the proposed association. The administrator having determined that there is no public need for such association, the judicial question then arises as to whether the decision of the administrator is fraudulent,
The rule thus stated has been consistently followed. In the recent case of Gerst v. Cain,
“The discretion conferred on the Commissioner to grant or refuse charters by Arts. 881a-2 and 881a-3, Vernon’s Texas Civil Statutes, was not an unbridled discretion; his findings could not be arbitrary or capricious, but must have had support in substantial evidence. Phillips v. Brazosport Savings and Loan Ass’n, Tex.Sup.,366 S.W.2d 929 ; Gibraltar Savings and Loan Ass’n v. Falkner, Tex.Sup.,371 S.W.2d 548 ; Benson v. San Antonio Savings Ass’n, Tex.Sup.,374 S.W.2d 423 .”
In the usual judicial review of an administrative order in Texas, the issue is not whether the regulatory agency actually heard and considered sufficient evidence to reasonably support its action, but whether at the time the questioned order was entered there then existed sufficient facts to justify the agency’s order. The evidence actually heard by the agency is not material but the parties are given a full opportunity in their appearance before a judicial body “to show that at the time the order was entered there did, or did not, then exist sufficient facts to justify the entry of the same”. Cook Drilling Company v. Gulf Oil Corporation,
This rule of procedure has application to judicial review when the statute allowing such review expressly so provides; or the statute, while allowing judicial review, is'silent as to the method or when in the absence of express statutory provision, a judicial review is allowed because of constitutional considerations. See, Brazo-sport Savings & Loan Association v.
Art. 852a § 11.12 relating to judicial review of an act, order, ruling or decision of the Savings and Loan Commissioner does not provide for the application of the tests or procedures usually employed in determining the validity of an administrative order. Part of subsection (5) (b) of the section may not be applied to subsections (3) and (4) of Section 2.08 of the Act because of constitutional considerations. However, the Act contains a severability clause and hence the partial invalidity of a portion of a paragraph thereof does not necessarily render suсh paragraph void in toto.
Section 11.12, subsection (5) (b) with the invalid portion eliminated reads as follows :
“The review of any other act, order, ruling or decision of the Commissioner or of any rule or regulation shall be tried by the court without a jury in the same manner as civil actions generally,4 but no evidence shall be admissible which was not adduced at the hearing on the matter before the Commissioner or officially noticed in the records of such hearing.”
Upon the trial respondents introduced the record of the hearing held by the Commissioner and the matters officially noticed by him. Respondents’ position was stated at the beginning of the trial when the record of the Commissioner’s hearing wаs offered:
“[T]his is the first case to be heard under the Appeal Provisions of theso-called new Savings and Loan Act which became effective in January of 1964; and the Appeal Provisions provide that the record heard before the Commissioner and the matters officially noticed by him in such record are to be the basis for Courts’ re-determination of the issues which were before the Commissioner.”
The Assistant Attorney General appearing on behalf of the Commissioner stated his position as follows:
“The Defendant would take the position, and I believe, by inference, it has taken that position in its original answer that the provisions relating to a preponderance оf the evidence are unconstitutional in this Statute * * *.
“I think that the purpose of this Act is probably to insure that the Commissioner will have a full presentation of the Proponents and Opponents concerning an Application for Charter and, certainly, that he would be best informed and be able to render the best decision possible. * * *
“Also, I think, as a practical matter, it would be unnecessary (to call the witnesses who had appeared at the hearing before the Commissioner) since the testimony taken at the hearing was taken under oath and before a reporter there; and, of course, Your Honor is qualified to sift out the immaterial and incompe*356 tent evidencе that may have filtered its way into the record.”
As above noticed, the Attorney General asserts as his sole proposition that the Commissioner’s order is reasonably supported by substantial evidence. The intervenor-petitioner, Southeast Texas Savings & Loan Association, recognizes that Section 11.12 of the Act provides for an appeal, but strongly urges that subsection (5) (b) of said article must fall in its entirety and that there.is no valid statutory authority for admitting the record of the Commissioner’s hearing in evidence. It is argued that the provision in subsection (5) (b) that the review shall be tried in the same manner as civil cases generally cannot be reconciled with the provision that no evidеnce shall be admissible which was not adduced at the Commissioner’s hearing. From these premises it is concluded that Section 11.12 judicial reviews are controlled by the usual rule stated in Cook Drilling Company v. Gulf Oil Corporation,
There is force in intervenоr-pe-titioner’s argument. However, it is within the legislative prerogative to specify the kind and nature of review to be employed by the courts so long as constitutional safeguards and requirements are not transgressed. The Legislature may provide that the basis of judicial review when arbitrariness is asserted shall be the record made at the hearing before the administrative agency rather than upon evidence produced originally in open court. We do not construe the phrase, “tried by the court without a jury in the same manner as civil cases generally” as adopting in toto all procedures that are generally applicable to the ordinary judicial trial.
Sеction- 11.11 relates to hearing procedures before the Commissioner. It provides that opportunity shall be afforded any interested party to respond and present evidence and argument on all issues involved in the hearing and that, upon written request, the Commissioner shall keep a formal record of such hearing. -The judicial review section provides that after the filing of a petition in the District Court seeking a judicial review of an administrative order, the Commissioner within the time prescribed for the filing of an answer “shall certify to the District Court in which such petition is filed the record of the proceedings to which the petition refers.” Section 11.12(4).
These statutory provisions seem to contemplate that the record of the Commissioner’s hearing shall be considered by the District Court. This view is borne out by the administrative construction of the Act as evidenced by the rules applicable to the Commissioner’s hearing which provide that the Commissioner shall secure the services of a competent reporter “who shall keep a formal record of the proceedings of any hearing held under the pro
The above quoted statutory provisions, together with the rules promulgated thereunder, demonstrate that a hearing before the Savings and Loan Commissioner is a different proceeding from the informal hearing considered by this Court in Cook Drilling Co. v. Gulf Oil Corporation,
The substantial procedural change in this rule by the 1963 Act was to make the record of the Commissioner’s hearing rather than evidence produced originally in court the basis from which it must be determined if the evidence conclusively required affirmative findings relating to the matters mentioned in subsections (3) and (4) of Section 2.08. These statutory provisions require findings that: (a) there is a public need for the proposed association; (b) the volume of business in the community in which the proposed association will conduct its business is such as to indicate that the association may be profitably operated; and (3) the operation of the proposed association will not unduly harm any existing association.
We think the words “public need” as used in Section 2.08(3) have the same meaning as the words “public necessity” as used in the Texas Banking Code of 1943, 1. c. art. 342-305, Vernon’s Ann.Tex. Stats., that is, a substantial or obvious community need for the proposed association in the light of attendant circumstances, as distinguished from a mere convenience on the one hand and an absolute or indispensable need on the other.
“Competition is the lifeblood of a free enterprise economic system. It is only because savings and loan associations are*360 affected with a public interest, Brazos-port Sav. & L. Ass’n v. American Sav. & L. Ass’n, 161 Tex. S43,342 S.W.2d 747 , that they are protected from undue injury brought about by excessive competition. Southwestern Sav. & L. Ass’n of Houston v. Falkner,160 Tex. 417 ,331 S.W.2d 917 . There is no evidence here that the chartering of Metropolitan would provide excessive competition for existing associations which would result in undue injury to them. * * *
“We doubt that proof of nothing more than that chartering a new association will make it ‘more difficult’ for an existing new associаtion to increase its savings to ‘a satisfactory’ level can, under any circumstances, constitute substantial evidence to support a finding of undue injury to the association.”8
The judgments of the courts below are affirmed.
Notes
. This section relates to the removal of directors, officers and employees of sav-tags and loan associations under certain prescribed conditions.
. There is no issue of fraud in this case.
. The severability clause of the Act provides :
“If any part, Section, Subsection, paragraph, sentence, clause, phrase, or wbrd contained in this Act shall be held by the courts to be unconstitutional, such holding shall not affect the validity of the remaining portions of the Act, and the Legislature hereby declares that it would have passed such remaining portions despite such invalidity.”
. The invalid portion of the seсtion appears between the words “generally” and “but” and reads: “and sill fact issues material to the validity of the Act, (sic) order, ruling, decision or rule or regulation complained of shall be redetermined in such trial on the preponderance of the competent evidence, * *
. Respondents call our attention to the Illinois Administrative Review Act which in part provides (Ill.Rev.Stat.1965, Chapter 110, § 272):
“Pleadings and record on review.
“(a) Complaint. The complaint shall contain a statement of the decision or part thereof sought to be reviewed. It shall specify whether the transcript of evidence if any, or what portion thereof, shall he filed by the agency as part of the record. Upon motiоn of any defendant, or upon its own motion, the court may require of the plaintiff a specification of the errors relied upon for reversal.
“(b) Answer. Except as herein otherwise provided, the administrative agency shall file an answer which shall consist of the original or a certified copy of the entire record of proceedings under review, including such evidence as may have been heard by it and the findings and decisions made by it.”
Section 274 of the Act reads as follows:
“Every action to review any final administrative decision shall be heard and determined by the Court with all convenient speed. The hearing and determination shall extend to all questions of law and of fact presented by the entire record bеfore the court. No new or additional evidence in support of or in opposition to any finding, order, determination or decision of the administrative agency shall be heard by the court. The findings and conclusions of the administrative agency on questions of fact shall be held to be prima facie, true and correct.”
As to the effect of these provisions, it was said in a Survey of Illinois Law, 1951-52, 31 Chicago-Kent Law Review 1,' 85 that:
“Even the most cursory reading of that statute should, however, make it obvious that it contemplates no more than a review of the record formulated during the administrative hearing, for the statute expressly states that the record*358 is to be filed with the court and prohibits the introduction of new evidence.”
In Parker v. Department of Registration and Education, 5 I11.2d 288,
“The reviewing court is limited to a consideration of the record to determine if the findings and orders of the administrative agency are against the manifest weight of the evidence.”
. In Chimney Rock National Bank of Houston v. State Banking Board of Texas,
“[S]ince the primary function of banking facilities involves the welfare and convenience of the portion of the public concerned, it would seem reasonably to follow that ‘necessity’ as used in the controlling statute was not intended by the legislature which enacted the law to mean absolute or indispensable need. Instead, we are of the opinion that the meaning or import of ‘necessity’ as employed in the statute is a substantial or obvious need justifying the chartering of a new bank in view*359 of the disclosed relevant circumstances.”
The Moran case has also been followed by the Supreme Court of Mississippi. In Planters Bank v. Garrott,
“We agree with the statement made by the Michigan Court in its opinion in the Moran case, that the meaning or import of ‘necessity’, as the word is used in a statute such as we have here, is ‘a substantial or obvious need justifying the chartering of a new bank in view of the disclosed relevant circumstances.’ ”
. Insofar as Polk County is concerned, it appears that in 1962, Southeast Texas made only three loans aggregating $22,-000.00. In 1963, it made one $8,000.00 loan and during the first nine months of 1964, it made no loans.
. A comment relating- to judicial review of administrative decisions appearing in 115 U. of Pennsylvania LJEtev. 40 (1966) makes the following pertinent observations with reference to the Federal Administrative Procedure Act:
“In order to give a reasonable meaning to section 10(e) (of the Administrative Procedure Act, 5 U.S.O. § 1009), and in light of legislative reluctance to exclude judicial review, the most rational construction of section 10(a) would seem to be that once a question has been committed to agency discretion, the only ground for reversal would be an agency decision which is ‘arbitrary’, or in other words, an abuse of discretion.
“The question of what constitutes abuse of discretion, however, is not an easy one. Clearly the existence of discretion in an agency demands judicial deference to some agency decisions which the court would have made differently in the first instance. ‘Abuse of discretion’, then, must mean more than that the agency, after considering and weighing all the relevant facts, struck a balance different from that which the court would have reached.
On the other hand, administrative agencies are vested with discretion by Congress primarily because of their expeсted expertise in divining and effectuating congressional policy. The agency’s expertise is probably only of value so long as it weighs those considerations, and only those considerations, which Congress intended that it take into account in effectuating the legisla-five policy. Thus, if an agency were to include within its consideration irrelevant factors, or if it were to exclude a factor which Congress intended it to consider in enforcing federal policy, it would have ‘abused’ its discretion, because: 1) the agency would no longer be acting under the congressional mandate; and 2) its value as an expert body — the reason for deference by the courts and for сongressional trust— would be lost.
“A third way in which an agency might abuse its discretion would be to give unreasonable weight to one or more relevant factors. Congress presumably did not, and possibly could not, delegate authority to an agency to act arbitrarily or capriciously. Thus, if an agency reached a completely unreasonable result after weighing the relevant facts, the court should set that finding aside. Admittedly it is a delicate task for a court to decide that an agency acted arbitrarily despite the fact that it purported to have weighed all those considerations, and only those considerations, which are relevant to the congressional purpose; but the task is probably one which the courts must be willing to perform if the vast advantages of administrative agencies are not to be lost through misuse. Because the balance is so delicate, however, the courts should, and probably do, avoid striking down agency action unless they feel competent to find that the agency has clearly acted unreasonably, and thereby ‘abused its discretion’.”
Lead Opinion
ON REHEARING
Southeast Texas Savings and Loan Association asserts that the statutory and rules provisions governing hearings before the Savings and Loan Commissioner are defective as no adequate procedure for compelling the attendance of witnesses or securing testimоny by means of deposition is provided for. There is no showing that the lack of witness attendance or discovery procedures, if any there be, operated to the prejudice of said protesting association.
The motions for rehearing are overruled.