Supreme Court Observations: Interpreting “Perez v. Mortgage Bankers Association”

supreme courtIn its 1997 decision, Paralyzed Veterans of Am. v. Arena, the U.S. Court of Appeals for the D.C. Circuit created an important bulwark against federal administrative agency evasion of notice-and-comment rulemaking. Under the “Paralyzed Veterans” doctrine, an agency had to comply with formal (and time-consuming) administrative procedures even when it claimed to be doing nothing more than interpreting existing rules, if the agency was de facto reversing its existing regulations. The Supreme Court’s decision last week in Perez v. Mortgage Bankers Assoc. unanimously set aside Paralyzed Veterans. The Court held that the Administrative Procedure Act (APA) does not require a regulatory agency to adhere to notice-and-comment rulemaking when it issues a rule interpreting one of its formal regulations.

Largely ignoring the D.C. Circuit’s rationale, the Supreme Court said that it would presume that the 2010 rule was an “interpretive” rule because (supposedly) “the parties litigated this suit on [that] understanding.” The Court said that the text of the APA does not mandate notice-and-comment rulemaking for interpretive rules and that the D.C. Circuit thus erred in adopting an extra-statutory mandate. But by starting with the premise that the 2010 rule was an interpretive rule, the Supreme Court created a straw-man argument never espoused by the D.C. Circuit, which stated explicitly that its decision to strike down the 2010 rule was based on its reading of the text of the relevant APA provisions.

Moreover, the Respondent repeatedly argued before the Supreme Court that the 2010 rule was not an interpretive rule. The Supreme Court’s only response was to note that the Solicitor General premised his certiorari petition on a claim that the D.C. Circuit had mandated notice-and-comment rulemaking for an interpretive rule, and that the Respondent waived the point by failing to dispute the Solicitor General’s claim in its brief opposing the cert petition. But while that response might justify a ruling against the Respondent in this case, it provides no justification for condemning all non-parties subject to the DOL rule, let alone all applications of the Paralyzed Veterans doctrine, which (as the D.C. Circuit decision below made clear) does not assume that challenged rules are interpretive but rather provides a standard for differentiating between substantive and interpretive rules.

The decision nonetheless provides a glimmer of hope to those wishing to challenge rules adopted without adherence to notice-and-comment procedures. The Court’s ruling assumed (incorrectly, it turns out) that the Paralyzed Veterans doctrine was based on the premise that the challenged re-interpretation of existing regulation qualified as an “interpretive rule” under the APA. Thus, Perez arguably imposes no impediment on a litigant who asserts that the challenged rule is “substantive” in nature, not “interpretive.”

Substantive Rules v. Interpretive Rules. The APA requires federal agencies, before they adopt “substantive” rules (a/k/a “legislative” rules), to provide notice of the proposed rule and a meaningful opportunity for members of the public to comment on the proposal. Exempted from the APA’s notice-and-comment requirement are mere “interpretive” rules. Agencies seek to avoid notice-and-comment requirements by deeming as many rule changes as possible interpretive changes; the requirements are burdensome and can delay agency action for months or even years. Yet, despite nearly 70 years of APA litigation, the scope of exempt “interpretive” rules has never been fully pinned down.

The Paralyzed Veterans doctrine was the D.C. Circuit’s principal contribution to that debate. The appeals court held that when an agency issues a definitive interpretation of one of its formal regulations and later seeks to issue a new interpretation that squarely conflicts with the prior interpretation, the new interpretation is a “substantive” rule and thus may not be adopted unless the agency first goes through notice-and-comment rulemaking. The court sensibly reasoned that when an agency seeks to repudiate its initial interpretation, it has in effect amended its formal regulation, and that an agency should not be permitted to “reinterpret” a regulation as a means of evading the formal rulemaking requirements that (everyone agrees) apply whenever an agency amends its regulations. Continue reading

FDA’s Next Gift to the Litigation Industry: A Veritable Ban on Partially Hydrogenated Oils?

sharkIn a recent post, we lampooned the “high trans fat intake consumer” the Food and Drug Administration (FDA) invented to advance its de facto ban of partially hydrogenated oils (PHOs) as being a cross between Augustus Gloop and Homer Simpson. The ramifications of such a PHO ban for many processed food makers and their customers, however, are no laughing matter. Among other things, FDA’s final determination could expose the food industry to an avalanche of lawsuits and potentially billions of dollars in liability costs.

The Current Litigation Environment. Plaintiffs’ lawyers have been working feverishly for the past decade to turn lawsuits against “Big Food” into the next big payday. As chronicled on this blog since its inception in 2011, a small but persistent segment of the Litigation Industry has filed hundreds of class-action lawsuits alleging that everything from a perceived excess of empty space in a bag of chips to the printing of “evaporated cane juice” on a label violates state consumer protection laws.

By Litigation Industry standards, this lawsuit product line has not yet met profit expectations. But the lawsuits have successfully established, especially in California, that private litigants can enforce federal food laws and regulations. Continue reading

Federal Regulators’ Disregard for Sound Science Displayed in Four Agencies’ Actions

4th CircuitHow federal regulators use—and abuse—science in the regulatory process has a profound impact on regulated businesses and consumers who purchase their products and services.  In addition to the financial impact, every time that an agency forces science and the scientific process to serve its ideological or political agendas, rather than be guided by the neutral data, the public becomes less trusting of government pronouncements based on science. Below are some troubling recent examples of regulatory junk science. The first example demonstrates that protections against junk science do exist in the courtroom. The subsequent three examples reflect the lack of similar protections in the rulemaking and adjudication contexts.

Fourth and Sixth Circuits Slap-down EEOC. For the second time in less than a year, a federal appellate court has rebuked the Equal Employment Opportunity Commission (EEOC) for its use of junk science in accusing an employer of discrimination for conducting criminal background checks in its hiring process. EEOC’s litigation crusade against criminal background checks has faltered since its outset, with federal district court judges in Ohio and Maryland separately dismissing Title VII claims in 2013. Last April, just 20 days after hearing oral argument, the U.S. Court of Appeals for the Sixth Circuit affirmed the Ohio trial judge’s decision in EEOC v. Kaplan. The court found the EEOC’s statistical proof of disparate impact—compiled and presented by expert witness Kevin Murphy, an industrial psychologist—unreliable and “based on a homemade methodology” not generally accepted in the scientific community. A WLF Legal Opinion Letter and a WLF Legal Pulse post, both published last spring, offer more detail on the ruling. Continue reading

Five Lessons: Ninth Circuit Upholds Decision to Block Idaho Healthcare Merger

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino, Wilson Sonsini Goodrich & Rosati*

On February 10, the United States Court of Appeals for the Ninth Circuit affirmed a lower court ruling blocking the merger of St. Luke’s Health Systems, Ltd. (St. Luke’s) and Saltzer Medical Group (Saltzer), and handed the Federal Trade Commission (FTC) yet another victory in its efforts to halt consolidation in the healthcare sector.  This opinion is instructive both because of what it reveals on the macro-level about merger review today, and for what it may portend in future healthcare consolidation cases. Continue reading

New Jersey High Court Confirms Proper Test for Defining “Independent Contractor”

body_TabakmanMEGuest Commentary

by Mark E. Tabakman, Fox Rothschild LLP

A November 2014 I authored for Washington Legal Foundation, New Jersey Supreme Court Set to Rule on Definition of “Independent Contractor”, analyzed questions that had been certified to the New Jersey Supreme Court on whether an individual was an independent contractor under New Jersey wage-hour laws. My reading of the tea leaves was that the Court would adopt the test already engrafted into the New Jersey Unemployment Law. That is in fact what the Court did.

On January 14, 2015, the Court in Hargrove v Sleepy’s, LLC (“Hargrove”) (Dkt. No. A-70-12) resolved the issue of when an individual may be properly classified as an independent contractor under the New Jersey Wage Payment Act (“WPA”) and the New Jersey Wage Hour Law (“WHL”) and held that the “ABC” test governs. Under the ABC test, services performed by an individual are deemed to be employment unless the following is shown:

(a) that the individual has been and will continue to be free from control…;

(b) that the services provided are either outside the usual course of business…or performed outside of all the places of business of the enterprise…; and,

(c) that the individual is customarily engaged in an independently established trade, occupation, profession, or business.

The Court noted that both of New Jersey’s wage and hour laws neither defined “employee” or “independent contractor” nor set forth the standards to be utilized in such analyses. The Court then examined the plain language of the laws and the implementing regulations of both laws, and concluded that deference should be given to the position of the New Jersey Department of Labor and Workforce Development (“NJDOL”), as it was the Agency charged with interpreting and enforcing these laws. On that basis, the Court concluded that the same test, under both laws, should be utilized to determine whether or not an employment relationship existed.

In holding that the ABC test governs, the Court rejected the common law “right to control” test and the “economic realities” test because the “right to control” test, as the Court noted, is incompatible with the legislature’s goal of ensuring economic security and the “economic realities” test, as the Court noted, could lead to inconsistent results.

By requiring that each element be satisfied, the ABC test (which NJDOL supports and utilizes) facilitated, as the Court explained, “greater income security” for workers—the underlying purpose of both laws at issue. The ABC test presumes that an employment relationship exists and places the burden on the employer to prove differently. The last prong (i.e. independently established business), is where the issue is joined most of the time and where (often) most of the cases flounder for the putative employer. Accordingly, the Hargrove decision has decidedly and emphatically increased the coverage and protection of New Jersey’s wage and hour laws in favor of “employees.”

Businesses in New Jersey that presently utilize or are considering use of independent contractors would be well advised to work with experienced employment counsel to ensure compliance with the Court’s holding.

Seventh Circuit Sheds Light on Foreign Reach of Federal Antitrust Laws

Dugan_Brady-WEB135AlfanoFeatured Expert Contributor – Antitrust & Competition, U.S. Department of Justice

Sitting in for Featured Expert Contributor Mark J. Botti on this post are Squire Patton Boggs partner J. Brady Dugan and associate Peter C. Alfano, both in the firm’s DC office.

Whether U.S. antitrust laws reach wholly foreign conduct is a question that has been addressed by all levels of the federal court system over the past decade, including by the U.S. Supreme Court.1 Nevertheless, it is a question as to which many companies, in the U.S. and abroad, may feel there is not a clear answer. Consider, for example, a corporation that purchases a product in the U.S. that was finished or assembled overseas. If the finished product includes a component that the assembler purchased at a price that had been inflated by an overseas price-fixing conspiracy among the component manufactures, can the U.S. purchaser of the finished product sue the component seller in U.S. court for treble damages? Can the overseas assembler recover damages from the overseas component manufacturer in the U.S.? Or to put it another way, can a foreign corporation that manufactured and sold a product overseas, to an overseas assembler, be sued for price-fixing in the U.S. by a U.S. customer of the foreign assembler? It will come as no surprise that the answers to these questions are very fact-specific. But recently, a panel of the U.S. Court of Appeals for the Seventh Circuit issued a decision that helps clarify the law. Continue reading

The 2015 Dietary Guidelines: Another Federal Food Activism Vehicle?

MyPlateEvery five years, the U.S. Department of Health and Human Services (HHS) and the U.S. Department of Agriculture (USDA) jointly issue the latest iteration of the federal government’s formal guidance on healthy eating, the Nutrition Guidelines. These Guidelines not only inform as to how government feeds its millions of employees (including the military) and those who eat in a government facility (i.e. public schools, prisons), but they also influence food-related laws and regulations.

A federal advisory committee is expected to report its recommended updates for the 2015 Guideline to HHS and USDA this month. If the committee’s proceedings and its December 15, 2014 interim report are any indication, the 2015 “My Plate” will feature supersized, empty-calorie portions of activism and food-nanny nagging.  We should expect to be lectured on the need to eat “sustainably,” the imperative for mandated “added sugars” food labeling, and the importance of imposing marketing restrictions on certain foods.

The advisory committee. None of this comes as a surprise, given the makeup of the Dietary Guidelines Advisory Committee (DGAC) and the motivations of the regulators at HHS and USDA who appointed its 15 members. Every single member hails from academia, and as one assessment of the DGAC and its work published by Capital Research Center noted,

There is not a single business owner, family physician, working nutritionist, food services executive, or federal nutrition program director in the mix.

Continue reading