In 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