April 13, 2020
By Timothy Sandefur

It would probably surprise the authors of Arizona’s Constitution to learn that the courts have called the state’s Corporation Commission a “fourth branch” of government. It doesn’t say so in the Constitution or any of our statutes. But that’s what justices said in a 1914 case that has caused no end of confusion since. 

Arizona’s Corporation Commission is a powerful regulatory agency with power to control the buying and selling of everything from the water to securities. Want to incorporate a small business? You need permission from the Corporation Commission. Want to raise money by selling stock? You need permission from the Corporation Commission.

And the Commission’s power is accentuated by judge made rules of “deference” that say courts must not dispute the Commission’s findings in most situations. The idea behind this deference rule is that the Commission addresses complex issues that require technical expertise and training—which judges typically lack. Fair enough—but what about cases in which the Commission makes a legal decision? In those cases, courts ought to refuse to defer, since courts, not agencies, are the experts on legal issues. 

What’s more, we’ve learned more about how agencies work in the century since the Commission was created. Thanks to economic discoveries such as “public choice” and the “knowledge problem,” we now know that there are real dangers in giving agencies like the Commission too much leeway. And over the years, Arizona courts—and the Arizona legislature—have limited the amount of free rein these agencies enjoy—in order to better ensure that  the Commission is accountable to the people. 

That’s why the Arizona Court of Appeals’ recent decision in Sun City Home Owners Association v. Arizona Corporation Commission was so shocking. Reversing a hundred years of progress in curbing the Commission’s power, it decided to give the Commission an even greater degree of autonomy by not only giving deference to its legal claims—which it’s not supposed to do—but by creating those legal claims to begin with. Today, we filed a brief with the Arizona Supreme Court asking it to take up the case and reverse the startlingly extreme conclusion the Court of Appeals reached.

The case involves a decision to combine a group of water agencies in a way that some citizens believe is “arbitrary and discriminatory,” in violation of the Constitution. These citizens objected, but the Commission never ended up addressing the question of whether it had acted in an arbitrary and discriminatory fashion. That alone was reason to overrule the Commission’s actions—yet when the case reached the Court of Appeals, the judges used a rule of “presumption” to simply pretend that the Commission had addressed that question. They first “presumed” that the Commission had decided its actions were not arbitrary or discriminatory, and then deferred to this conclusion—a conclusion they had just made up.

If courts can do this—first pretend an agency has made a decision, and then defer to that imaginary decision—then it’s hard to see what could possibly exceed the power of any agency. But when pushed on this point, the judges in the Sun City case defended their position on the grounds that the Commission is a “fourth branch of government” entitled to legal deference.

It isn’t. As we argue in our brief, agencies are not the equivalent of the state legislature or the state judiciary. The Constitution subordinates them to the checks and balances system that was designed to protect our freedoms. Our judiciary needs to enforce that system rigorously, not find new ways to expand agency power. You can read more about the case here.

Timothy Sandefur is the Vice President for Litigation at the Goldwater Institute.

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