On Monday, the Supreme Court released another decision for the government in Perez v. Mortgage Bankers Association, which concerned how to tell the difference between an administrative interpretive rule and a substantive rule under the Administrative Procedures Act. Under the APA, an interpretive rule need not be subjected to notice-and-comment, but a substantive rule must. Agencies have several ways to use interpretive rules as a substitute for substantive rules, so naturally, the question becomes: how do we tell the difference?
In 1997, D.C. Circuit judge Laurence Silberman (who also taught Administrative Law at Georgetown) wrote an important decision in a case called Paralyzed Veterans of America v. D.C. Arena L.P. In it, Judge Silberman explained that “[t]o allow an agency to make a fundamental change in its interpretation of a substantive regulation without notice and comment obviously would undermine” the APA’s requirements of notice and comment for all repeals or amendments of substantive rules. To tell when an interpretive rule is actually substantive, then, it depends on whether the interpretation “really provides all the guidance,” filling in the content of a “very general” rule. If so, then changing such an “interpretive” rule without notice and comment would violate the APA.
Although the Court’s judgment was 9-0 for the government, the opinions split four ways. The majority opinion stuck to the narrow statutory ruling described below. Justice Alito concurred with most of the Court’s opinion, but wrote separately to endorse Justices Scalia and Thomas’s critiques of deference to agencies. Justice Scalia agreed only with the majority’s reasoning that that the D.C. Circuit’s approach was inconsistent with the APA and wrote separately to criticize deference as a more general matter. Justice Thomas, too, agreed with the Court’s holding under the APA, but wrote separately to outline a broader set of separation-of-powers questions raised by agency deference.
The Court’s opinion, written by Justice Sotomayor, overturned the functional analysis used in Paralyzed Veterans in favor of a highly formalistic analysis that seems to essentially take the agency’s word for it when determining whether a rule is interpretive or not. Waving away in a footnote the argument that interpretive rules have some force of law, the Court’s opinion glosses over the possibility that the agencies might mischaracterize the APA’s formal categories in their efforts to avoid its substantive requirements. The Court would have done well to note the originalist arguments about the APA made in an amicus brief filed on behalf of the Judicial Education Project, the Cato Institute, and the Competitive Enterprise Institute.
Only Justices Alito, Scalia, and Thomas seemed to have qualms about the Court’s conclusion. Justice Alito’s concurring opinion (concurring in part and in the judgment) refers readers to the opinions of Justices Scalia and Thomas but notes that the Paralyzed Veterans doctrine is based on the “aggrandizement of the power of administrative agencies as a result of the combined effect of (1) the effective delegation to agencies by Congress of huge swaths of lawmaking authority, (2) the exploitation by agencies of the uncertain boundary between legislative and interpretive rules, and (3) this Court’s cases holding that courts must ordinarily defer to an agency’s interpretation of its own ambiguous regulations.”
Justice Scalia concurred in the judgment, but points out that the balance of power has shifted between administrative agencies and the public (all citations removed):
For despite exempting interpretive rules from notice and comment, the Act provides that “the reviewing court shall . . . interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.” The Act thus contemplates that courts, not agencies, will authoritatively resolve ambiguities in statutes and regulations. In such a regime, the exemption for interpretive rules does not add much to agency power. An agency may use interpretive rules to advise the public by explaining its interpretation of the law. But an agency may not use interpretive rules to bind the public by making law, because it remains the responsibility of the court to decide whether the law means what the agency says it means.
The problem, however, is that the Supreme Court has also developed numerous doctrines requiring deference to agency interpretations, thus undermining the assumption that administrative agencies can resolve ambiguities. The effect:
By supplementing the APA with judge-made doctrines of deference, we have revolutionized the import of interpretive rules’ exemption from notice-and-comment rule-making. Agencies may now use these rules not just to advise the public, but also to bind them. After all, if an interpretive rule gets deference, the people are bound to obey it on pain of sanction, no less surely than they are bound to obey substantive rules, which are accorded similar deference. Interpretive rules that command deference do have the force of law.
Justice Scalia then criticizes deference to agency regulations under Auer v. Robbins (1997) and Bowles v. Seminole Rock & Sand Co. (1945):
The Court’s reasons for resisting this obvious point would not withstand a gentle breeze. Even when an agency’s interpretation gets deference, the Court argues, “it is the court that ultimately decides whether [the text] means what the agency says.” That is not quite so. So long as the agency does not stray beyond the ambiguity in the text being interpreted, deference compels the reviewing court to “decide” that the text means what the agency says. The Court continues that “deference is not an inexorable command in all cases,” because (for example) it does not apply to plainly erroneous interpretations. True, but beside the point. Saying all interpretive rules lack force of law because plainly erroneous interpretations do not bind courts is like saying all substantive rules lack force of law because arbitrary and capricious rules do not bind courts. Of course an interpretive rule must meet certain conditions before it gets deference—the interpretation must, for instance, be reasonable—but once it does so it is every bit as binding as a substantive rule. So the point stands: By deferring to interpretive rules, we have allowed agencies to make binding rules unhampered by notice-and-comment procedures.
I’m just going to keep quoting:
The problem is bad enough, and perhaps insoluble if Chevron is not to be uprooted, with respect to interpretive rules setting forth agency interpretation of statutes. But an agency’s interpretation of its own regulations is another matter. By giving that category of interpretive rules Auer deference, we do more than allow the agency to make binding regulations without notice and comment. Because the agency (not Congress) drafts the substantive rules that are the object of those interpretations, giving them deference allows the agency to control the extent of its notice-and-comment-free domain. To expand this domain, the agency need only write substantive rules more broadly and vaguely, leaving plenty of gaps to be filled in later, using interpretive rules unchecked by notice and comment. The APA does not remotely contemplate this regime.
Last but certainly not least, Justice Thomas’s opinion makes a devastating separation-of-powers critique of deference to agency interpretations of their own regulations. He argues:
That line of precedents, beginning with Bowles v. Seminole Rock & Sand Co., requires judges to defer to agency interpretations of regulations, thus, as happened in these cases, giving legal effect to the interpretations rather than the regulations themselves. Because this doctrine effects a transfer of the judicial power to an executive agency, it raises constitutional concerns. This line of precedents undermines our obligation to provide a judicial check on the other branches, and it subjects regulated parties to precisely the abuses that the Framers sought to prevent.
I’ve already used up my weekly quota of blockquotes so I won’t go into more detail about the non-majority opinions, but they’re powerful stuff. Anyone challenging an agency’s interpretation of its own regulations and in need of serious constitutional analysis on that point will find much useful material in these opinions.
One final note: legal historian and scholar Philip Hamburger can also take satisfaction that his 2014 book, Is Administrative Law Unlawful?, was cited in two different concurring opinions on the same day (both written by Justice Thomas).