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Federal Regulations Advisor Insight and Commentary on U.S. Government Regulatory Affairs

SCOTUS Review: Administrative Law Cases in the 2012 Term

Posted in Constitutional Issues in Regulations, Judicial Process, Judicial Review & Remedies

The United States Supreme Court (SCOTUS) decides a few significant administrative law cases each Term and the Term just concluded was no exception.  Although “administrative law” decisions do not draw the interest of the more volatile constitutional cases that the general press finds so tantalizing, administrative law and related decisions profoundly affect how Americans live and interact with their Government.  With the end of the 2012 Term and the key decisions for administrative law practitioners released, the changing landscape deserves a review.  The prism through which the Court views these cases appears to be tilted more toward the Government, with small exceptions, posing new challenges when the government errs.  Five cases from the Term just concluded provide lessons for practitioners and agencies.

Deference to Agencies on JurisdictionCity of Arlington v. FCC arose over the FCC’s regulatory decision to impose a specific time limit for local agencies to act on cell phone tower site applications under a statute that provided for action within a reasonable time and the issue devolved into whether the FCC had jurisdiction to promulgate the rule.  SCOTUS, as discussed previously, eliminated the distinction between jurisdiction and programmatic provisions of an agency’s delegating statute and requires courts to apply Chevron deference to the agency’s resolution of statutory ambiguity even when that ambiguity touches on the agency’s own power to regulate.  Thus, courts must now apply the Chevron framework to an agency’s interpretation of a statutory ambiguity that concerns the scope of the agency’s statutory authority (i.e., its jurisdiction).

City of Arlington permits agencies to exercise significant additional power in defining the scope of their own regulations and makes challenging agency regulatory and other decisions increasingly difficult.  If deference was limited to the substance of the programmatic statute, rather than the scope of the agency’s jurisdiction, Congress might have more incentive to define the agency jurisdiction more carefully, but, as it is, Congress can pass the buck and let the agency figure out what Congress meant.  Unfortunately, agencies are prone to assume the broadest jurisdiction possible and infrequently discuss the limits of their jurisdiction in regulatory preambles.  Granting deference to agencies to define their jurisdiction also places more pressure on private parties to raise jurisdictional issues during the regulatory notice and comment process to try to assure that the agency addresses the contours of its jurisdictional interpretations more clearly.

Changing Regulations During LitigationDecker v. Northwest Environmental Defense Center ignored the Environmental Protection Agency (EPA)’s intervention to alter regulations during litigation to make clear(er) that the Clean Water Act does not require National Pollutant Discharge Elimination System permits before channeling logging road stormwater runoff through ditches and culverts before discharge into rivers.  After chiding the Solicitor General during argument for not informing SCOTUS of the pending rule revision, SCOTUS simply did not need to address the regulations to reverse the United States Court of Appeals for the Ninth Circuit based on the law as it existed during the litigation below – without saying so, the result would have been the same under either past or intervening regulations.

The Solicitor General’s Office took a beating during oral argument over its lack of candor with SCOTUS about the EPA’s attempts to shore up their regulations, but SCOTUS overlooked its discomfort in deciding the case.  This is not the first time SCOTUS has ultimately ignored the government’s zealous attempts to influence the outcome by changing the rules in the middle of the litigation.  While the Government may alter regulations during litigation, the issue is often whether liability for past events is affected and whether the law as changed applies to the present litigation.  Each time the Government changes rules in the middle of litigation the complexity of the problem confuses many who are not directly involved in the primary litigation or immersed in the administrative law process, thereby creating the potential for more litigation.  Moreover, the government tends to avoid discussing the litigation process during the rulemaking, thereby making it more difficult for private parties to discern the Government’s true intent.  Greater transparency is needed whenever the Government undertakes to change rules during litigation – both in the rulemaking and in the litigation – and, until that happens, private parties need to watch closely all aspects of the issues to protect their interests.

Limitations & ConsistencyGabelli v. SEC held that the general five-year statute of limitations, which governs civil fines, penalties, and forfeitures strewn throughout federal law unless another more specific statute applies, begins to run when a fraud occurs, not when the agency discovers the fraud.  The time for an agency to file a fraud case, therefore, can be greatly compressed – even to zero – if the agency’s due diligence is lacking.

Many commenters have opined that Gabelli is embarrassing to the SEC because the SEC has taken too long to bring securities fraud cases, but that notion is politically result-oriented.  The embarrassing aspect of this case is that the SEC not only doomed its own cases but doomed any case by any other agency that might fall outside SCOTUS interpretation of the general statutory time limitations.  The SEC, like other “independent” agencies litigating on their own, has no overriding legal policy management for laws of general applicability, and sometimes makes arguments that will undo the position taken by other agencies or the Department of Justice (DOJ).  In most such instances, DOJ only becomes involved late in the process because the Solicitor General represents nearly all agencies before SCOTUS – and is presented with a record and arguments before lower courts over which DOJ and the Solicitor General may have no control or little input.  Many see Gabelli as a civil procedure case, but Gabelli reflects larger administrative law realities of application of any general statute, including the Administrative Procedure Act (APA) or Regulatory Flexibility Act (RFA).

Limitations & JurisdictionSebelius v. Auburn Regional Medical Center held that (1) the governing Medicare statute’s 180-day limit for filing appeals (from the first administrative decider to the second administrative decider in a complex administrative decision tree) is not “jurisdictional,” (2) the Department of Health and Human Services (HHS) reasonably construed the statute to permit a regulation extending the time for an appeal to three years, and (3) the presumption in favor of equitable tolling does not apply to the type of administrative appeals at issue here.  After timely litigation on Medicare payment calculus methodologies compelled an internal review, HHS finally was forced to concede the error of its ways, but by then the time to appeal from the first decider under the statutory limitation had long run for most hospitals.  Bottom line:  hospitals lost tens of billions of dollars because HHS never released the underlying analysis for reimbursements that was wrong and so was not discovered until it was too late.

Although SCOTUS’ ruling may be hyper-technical to Medicare, Auburn underscores the need to press the agencies to disclose the facts and underlying analysis that the agency used for making each determination – whether regulatory or adjudication.  Late agency admissions of error will not save a potential litigant from the lateness of their claim.  The presumption that filing limitations periods are generally subject to equitable tolling – filing deadlines ordinarily are not jurisdictional, but “quintessential claim-processing rules” – must be applied piecemeal to determine whether Congress meant them to be “jurisdictional” and how the agency has treated them by regulation.  Auburn places a premium on potential parties seeking disclosure of as much information as possible, and a premium on the Administration being transparent.

Regulation of MarketingHorne v. Department of Agriculture, held that, under the Agricultural Marketing Agreement Act of 1937 and the Secretary of Agriculture (DOA)’s implementing California Raisin Marketing Order, raisin growers required to surrender without compensation a percentage of their crop to the Federal Government could raise a Fifth Amendment “taking without just compensation” affirmative defense in the district court.  At bottom the question became whether the district court or court of claims had jurisdiction – SCOTUS finding that Horne’s Fifth Amendment claim, raised as an affirmative defense to DOA’s enforcement action, was properly before the district court because the underlying statute provides a comprehensive remedial scheme that withdraws Tucker Act jurisdiction over takings claims that otherwise must be brought before the Court of Federal Claims.

Horne opens a door – albeit a small one – to defending against agency fines and penalties in complex regulatory enforcement cases.  Federal comprehensive regulatory schemes – delegated by statute – are legion and this clarification of jurisdiction many prompt others to reevaluate the risk / reward calculus of noncompliance.  The decision should also cause agencies to rethink how they establish regulatory schemes under broad delegations from Congress.