The contrasting perspectives of the stakes in Perez v. Mortgage Bankers Ass’n, an administrative law case that the U.S. Supreme Court will hear on Monday, December 1, could not be starker. Law professors are allegedly unanimous that the Court should reverse the U.S. Court of Appeals for the D.C. Circuit doctrine at issue, a doctrine that, in their view, severely hampers the ability of federal administrative agencies to respond to changing conditions. On the other hand, lawyers representing regulated entities have rallied to the defense of the D.C. Circuit’s doctrine; they view it as an essential check on arbitrary agency rulemaking. What explains these contrasting visions? The explanation could lie in the ongoing battle over how much deference courts should accord to agencies’ interpretations of their own rules. At time when courts are increasingly deferential to agencies, regulated entities will forcefully act to preserve other tools—such as the D.C. Circuit doctrine at issue in Perez—to keep federal agencies in check.
Perez concerns the scope of notice-and-comment rulemaking. The Administrative Procedure Act (APA) requires federal agencies, before they adopt a “substantive” or “legislative” rule, 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 “interpretive” rules. Agencies seek to avoid notice-and-comment requirements where possible; it is a burdensome process that can delay rulemaking for months and even years. Yet, despite nearly 70 years of APA litigation, the meaning of exempt “interpretive” rules has never been fully pinned down.
The D.C. Circuit’s principal contribution to that debate is the “Paralyzed Veterans doctrine,” which it adopted in 1997. 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 first 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 reasoned that when an agency seeks to repudiate the initial interpretation, it has in effect amended its formal regulation. It further held that agencies should not be permitted to use a purported “reinterpretation” of a regulation as a means of evading the formal rulemaking requirements applicable when rules are amended.
The Department of Labor (DOL) promulgated the rule at issue in Perez in 2010. DOL concluded, based on a re-interpretation of its own 2004 regulations governing overtime pay, that mortgage companies are required to pay overtime to loan officers who work more than 40 hours per week. However, the 2010 rule was a 180-degree reversal from an earlier DOL rule, issued soon after the 2004 regulations were finalized, holding that loan officers were exempt from overtime requirements. Applying the Paralyzed Veterans doctrine, the D.C. Circuit held that the 2010 rule reversing DOL’s previous interpretation was a “substantive” rule subject to the APA’s notice-and-comment requirements, and thus struck it down.
A Supreme Court amicus brief in support of DOL, filed by a group of 73 administrative law professors, asserted that “all scholars” are critical of the Paralyzed Veterans doctrine because it inhibits rapid agency response to changing circumstances and unnecessarily discourages them “from making public interpretations of their rules until they apply them in a particular case.” Academia is so disdainful of the doctrine, the authors asserted, that “we are not aware of a single scholar who agrees with the doctrine. Indeed when counsel for amici circulated a draft of this brief, not a single scholar declined to join it on the ground that the position of the D.C. Circuit below was correct.” The supposed unanimity among law professors is likely quite overstated. Conspicuously absent from the list are a number of highly respected law professors who teach administrative law, including Harvard Law School Deputy Dean John Manning or Professor James T. O’Reilly at the University of Cincinnati College of Law. The alleged monolithic view of the academy here may be much like “picking out one’s friends in the crowd at a cocktail party.”
Those who do not share the “all scholars” view, including actually regulated businesses, are just as strongly committed to the opposing view that the Paralyzed Veterans doctrine provides invaluable protections for the public=s right to participate in the rulemaking process. A broad array of groups, ranging from the American Hospital Association to the Washington Legal Foundation to a coalition of nine state and local government associations, filed a total of 10 amicus briefs urging the Supreme Court to retain the doctrine. They were unanimous in viewing Paralyzed Veterans as a minimally intrusive doctrine without which agencies would be able to exercise virtually unbridled discretion in interpreting their formal regulations.
While the views of academics and practicing attorneys on issues of law frequently diverge, the disagreements here are unusually sharp, particularly when one considers that the question before the Court is an arcane issue of administrative law that might not at first blush seem capable of arousing strong passions. The explanation for the sharp division may, at the end of the day, have less to do with the finer points of notice-and-comment rulemaking and more to do with the degree of deference owed by courts to the pronouncements of an administrative agency. The regulated community is especially protective of Paralyzed Veterans in large measure because increasing demands for judicial deference to the views of administrative agencies make it more difficult for businesses to prevail in substantive challenges to agency policies.
The Supreme Court’s 1984 Chevron decision held that a federal agency is entitled to substantial deference in its interpretations of a federal statute when Congress has delegated to the agency the task of implementing the statute. It later held, in 1997’s Auer v. Robbins, that agencies are also entitled to deference when interpreting their own formal regulations. The latter ruling has proven to be particularly controversial; it grants agencies significantly increased leeway in interpreting their regulations. For example, while DOL’s 2010 rule declaring that loan officers are no longer exempt from overtime pay requirements was based on a somewhat novel and strained interpretation of the agency’s formal regulation, Auer deference makes it very difficult to challenge the substance of that interpretation. Indeed, in a recent opinion, Justice Antonin Scalia stated that he regretted his vote with the Auer majority and urged that the decision be overturned. He now concludes that judicial deference to agencies’ interpretations of their own regulations violates separation-of-powers principles by placing both the power to write a law and the power to interpret it in the same hands.
So long as Auer remains good law, the regulated community will cling to the procedural protections of Paralyzed Veterans as its most effective weapon in combating arbitrary assertions of power by federal agencies. But the Paralyzed Veterans protections only go so far; they cannot, for example, stop an administrative agency determined to do whatever is required to reverse an existing policy, including devoting the time and resources necessary to complete notice-and-comment rulemaking. Hence, if the Court is serious about imposing reasonable restraints on arbitrary agency decision-making, not only should it uphold the D.C. Circuit’s Perez ruling, but it should also reconsider Auer deference.
Also published by Forbes.com on WLF’s contributor page