Agencies retained the ability to revise interpretations of their own ambiguous regulations after a March 9 ruling of the U.S. Supreme Court (Perez v. Mortg. Bankers Ass'n, 2015 BL 61684, U.S., No. 13-1041, 3/9/15).

The ruling overturned the doctrine of Paralyzed Veterans of Am. v. D.C. Arena, LP, 117 F.3d 579 (D.C. Cir.1997), which had held that definitive interpretations of agency regulations may only be changed using the notice-and-comment rulemaking procedures in the Administrative Procedure Act (APA), 5 U.S.C. §551, et seq.

“The Paralyzed Veterans doctrine is contrary to the clear text of the APA's rulemaking provisions,” Justice Sonia Sotomayor wrote for the court.

The court's decision was unanimous but came with three concurrences, each of which urged the court to reconsider fundamental administrative law doctrines.

Sotomayor's relatively brief opinion was “straightforward,” with “no surprises,” said Brian Netter, a partner at Mayer Brown LLP who has followed the case closely but was not directly involved.

William Buzbee, a professor of administrative law at Georgetown University Law Center, called the decision a “clear rejection” of the Paralyzed Veterans doctrine, and said that the case came out as most observers thought it would.

John Martin, a shareholder at Ogletree, Deakins, Nash, Smoak & Stewart, P.C. agreed that the result wasn't unexpected, but criticized the opinion for not addressing the logic of Paralyzed Veterans.

The decision leaves alive, for now, the deference that federal courts have given to agency interpretations of their own regulations. Buzbee called this the “life's blood” of agencies, giving them the ability to shift policies with administrations.

Shifting Interpretations

In 2004, the Department of Labor revised regulations regarding when certain employees are exempt from minimum wage and maximum hour requirements of the Fair Labor Standards Act. Interpretations of the previous regulation, issued in 1999 and 2001, opined that mortgage loan officers were not exempt.

Although the language of the regulation did not significantly change, the Mortgage Bankers Association requested a new opinion based on the new regulation. In 2006, the Department issued an opinion saying they were exempt.

In 2010, it reversed course again and withdrew the 2006 letter. None of the interpretations were subject to notice-and-comment rulemaking.

MBA sued, arguing that under Paralyzed Veterans, such a change had to undergo the lengthier notice-and-comment process.

Fatal Language

The D.C. Circuit agreed, but the Supreme Court did not.

The notice-and-comment requirement in the APA does not apply, by its own terms, to interpretive rules. This exemption “is categorical, and it is fatal to the rule announced in Paralyzed Veterans,” the court said.

The Paralyzed Veterans doctrine also ran afoul of “foundational principles” of administrative law, and in particular the rule of Vermont Yankee Nuclear Power Corp. v. Natural Res. Def. Council, Inc. (435 U.S. 519 (1978)), that courts can't impose procedural requirements on agencies in excess of what is required by the APA or the agency itself, the court said.

Calls for Change

The concurrences came from the three justices considered the most conservative on the court. All agreed that Paralyzed Veterans was inconsistent with the APA, but all three made it clear that they were interested in making major changes in administrative law.

Justice Clarence Thomas wrote separately to question the constitutionality of the “transfer of the judicial power to an executive agency” implied by deference to agency interpretations of regulations.

Justice Antonin Scalia argued that all judicial deference doctrines contravene the APA, and would abandon them to apply “the Act as written,” leaving it to the courts to decide whether an agency's interpretation of a regulation is correct.

Justice Samuel A. Alito Jr. joined all but one section of the majority opinion. He agreed that Thomas and Scalia offered “substantial reasons” why deference may be inappropriate, but preferred to wait for full briefing and argument on the matter.

Netter and Martin agreed that the concurrences signal that at least the conservative wing of the court is willing to work what Martin said would be a “huge change” in administrative law.

Netter also believed that Chief Justice John G. Roberts Jr. would be willing to go along with such a change, based on his concurrence in Decker v. Nw. Envtl. Def. Fund (81 U.S.L.W. 4190, 2013 BL 75128 (U.S.2013)), which was similar to Alito's here.

Martin said, however, that he had “no idea” if there was a fifth vote on the bench to undo the deference precedents.

Stepping Back?

Buzbee suggested that even the majority here might be stepping back from a strongly deferential position. He said that, in a footnote, the court highlighted the role that courts must play, even under the most deferential standards.

He said he would be “extremely surprised” if he didn't see the language in the footnote used to argue for a decreased amount of deference in future litigation.

Although it is clear that at least some on the bench would like to see a fundamental change in agency law, he said that such a ruling was “not imminent.”

Even so, “there are always other checks on agency power,” Netter said. Such checks include political power, such as legislation, and the judicial ability to review agency action for arbitrariness and capriciousness.

This case “expands agency authority, but only on the margins, and is not a fundamental restructuring of government,” he said.

Reproduced with permission from The United States Law Week, 83 USLW 1293 (March 10, 2015). Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033)