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SCOTUS Review – 2015 Term Ramifications for Regulatory Practice

Posted in Judicial Process, Judicial Review & Remedies, Regulatory Process

USSC SealThe United States Supreme Court (SCOTUS) declined or was unable to resolve several regulatory issues in the Term just ended, but its few substantive decisions set in motion significant changes in the regulatory process.  Three cases made key points:

  • Congress may not expand the scope of injury necessary to sue in federal court.
  • While agencies may define the finality of their processes, finality may also be attributed to them.
  • Agency process failure will result in judicial interpretation not deference to agency interpretation.

In a fourth case, SCOTUS said nothing and left the most profound regulatory practice issues for another day, another case, another Term.

Standing’s Particularity and Concrete Injury:  SCOTUS held, in Spokeo, Inc. v. Robins, that a Constitutional “injury in fact” must be both concrete and particularized, clarifying and enforcing a pleading standard.  The United States Court of Appeals for the Ninth Circuit focused on particularity of the plaintiff’s allegations of harm from Spokeo’s publication of inaccurate information about his employment status, but did not sufficiently analyze the concreteness of plaintiff’s injury.  SCOTUS vacated the decision below and remanded for the Ninth Circuit to consider both aspects of the injury in fact requirement.  On the statutory grounds, SCOTUS did not reject the Ninth Circuit’s “usually sufficient” leaning, but found that the record had not substantiated a concrete injury.  Spokeo’s core statement was the reminder that “Congress cannot erase Article III’s standing requirements by statutorily granting the right to sue to a plaintiff who would not otherwise have standing.”

Spokeo’s most obvious consequences may lie in consumer (and class action) litigation from whence it came, but it also limits the utility of a number of environmental and other statutory “citizen suit” provisions that have been utilized by advocates to challenge agency regulations.  In effect, SCOTUS’s remand invites the Ninth Circuit to retreat from its notion that a statutory right “usually sufficient” to create a converse injury of that right.  Whether the Ninth Circuit will answer Spokeo with a clear de marche that a statute can create a sufficient right and injury to create Article III standing, or another circuit rejects a pure “citizen suit,” the question is now more focused on whether a plaintiff has suffered a concrete injury, rather than a speculative or de minimis injury.  Spokeo may also cause some revisitation of the limits of concepts often used in regulatory litigation such as informational standing, associational standing, and representational standing.

Spokeo’s increased vigilance for “concreteness” of an injury does not affect the objects of regulation – as objects their standing is clear – but the advocates of regulating the objects have a much less clear injury and may need to be more explicit.  On the other side of the aisle, the agencies and the Department of Justice (DOJ) face a heightened (though not binary) problem of character – an atavistic standing “fight” defense or support for statutory causes.  At some point an intercircuit conflict is likely to arise and provide SCOTUS with the opportunity to clarify the issues it left on the table.

Finality and the Cost of Process:  SCOTUS unanimously held in United States Army Corps of Engineers v. Hawkes Co., Inc. that the Engineers’ approved jurisdictional determination asserting Clean Water Act (CWA) jurisdiction over a parcel of land was a final agency action subject to judicial review under the Administrative Procedure Act (APA).  Part of SCOTUS’s reasoning rests on the costliness and uncertainty, but part rests on interagency memoranda of agreement and agency guidance that may quickly be changed.  SCOTUS applied its longstanding definition, finding that the Engineers’ decision marked the consummation of the agency’s decisionmaking process, and determined rights or obligations or legal consequences flowed from the decision.  An affirmative assertion of jurisdiction would cost the property owner substantial time and money to apply for a permit or abandon a usage, while a negative determination limited the agency’s authority for an announced period of time.

In settling an intercircuit conflict between the Eighth Circuit and the Fifth Circuit, Hawkes immediately expanded potential litigation over determinations of CWA jurisdiction and heighten the ramifications of regulatory litigation over the propriety of the Environmental Protection Agency (EPA) and Engineers’ final rule redefinition of the “waters of the United States” (WOTUS) in the consolidated litigation under the Sixth Circuit caption of Murray Energy Corp. v. Army Corps of EngineersMurray Energy, in some form, will undoubtedly reach SCOTUS, but the Administrative Procedure Act (APA) and CWA issues are so manifold as to defy speculation on which will be prominent and asserted by which side.

SCOTUS’s view that the definitive nature of the Engineers’ decision giving rise to “direct and appreciable legal consequences” can be applied more broadly.  Both imposition on private parties and binding agency discretion occur in many different agency actions that have been considered procedural and non-final.  Hawkes opens the door to reexamining those actions – both by the agency and by private parties.  Agencies may need to reconsider their processes to avoid piecemeal litigation while private parties may seek earlier and more cost-efficient (to them) judicial review.

At some point, the cost of process will arise again and SCOTUS will have the opportunity to define when the cost is sufficiently high that judicial review must be had before the agency may invoke that process.

Process Faults Null Deference:  SCOTUS decided also, in Encino Motorcars, LLC v. Navarro, that a court should not defer to an agency interpretation of statute under Chevron if that agency fails to adequately explain its change in position.  Chevron deference is, albeit of relative youth for precedent, a core administrative law principle if Congress delegates authority to an agency regulatory authority to fill in the gaps and resolve ambiguities in its programmatic statute.  In this instance, SCOTUS found that the Department of Labor (DOL) failed to adequately explain its 2011 regulations (reversing prior direction) and, therefore, those regulations were not entitled to Chevron deference.  The flip-flop here revolved on whether auto dealer service advisors were salesmen and exempt from Fair Labor Standards Act (FLSA) overtime requirements.  Encino Motorcars now returns to the Ninth Circuit for a judicial interpretation of the FLSA.

Encino Motorcars might be unique in the paucity of DOL’s explanation, but it presents a common problem and exacerbates agency failings to comply with regulatory requirements (in this case precedent – the adequate explanation requirement comes from State Farm).   The commonality here is that agencies routinely change positions with each change in Administration – State Farm is one of many such examples.

The exacerbation lies in the effect of denial of deference.  If, as Encino Motorcars commands, a court must decide a case on the merits without deferring to an agency’s interpretation of the statute (and giving that interpretation only the weight of its persuasiveness under Skidmore?), then the court must decide its own interpretation.  Any subsequent agency action must take into account – and adequately explain – its difference from that interpretation.  The agency’s burden thus increases and its ability to interpret statutory provisions decreases.  Thus, DOL’s unexplained inconsistency in policy was not only “a reason for holding an interpretation to be an arbitrary and capricious change from agency practice,” a court’s interpretation of the statute in light of a lack of deference could become a fetter on the agency’s future ability to alter the interpretation.  Agencies must take care to avoid an Encino Motorcars trap.

Non-Decision on When a Rule is Required:  Finally, the summary affirmance of United States v. Texas “by an equally divided Court” left in place a preliminary injunction against the Department of Homeland Security (DHS) memorandum establishing a program of granting employment authorization to a class of aliens.  A district court and the Fifth Circuit had held that granting employment authorization to a class of individuals in two specific programs required regulations, not merely a policy memorandum.  While much political noise was wasted on the substantive merits of the policy, the legal questions were much more precise:  did Texas have standing based on the costs imposed by the new class of drivers’ license applicants, and did granting benefits to a class of individuals require advance notice and an opportunity for public comment regulations under the APA.

Although the summary affirmance by an equally divided Court has no precedential value, and the Fifth Circuit’s decision serves as precedent only in the Fifth Circuit, the preliminary injunction is nationwide in effect.  The case now returns to the Fifth Circuit, and thence to the district court, presumably for cross-motions for summary judgment.  Presumably because the challenge is to a failure of the agency to act in accord with the APA and the courts are not bound by a judicial review-limiting administrative record.

As a distinguished panel of the District of Columbia Circuit succinctly put it nearly thirty years ago, “The distinction between legislative rules and interpretative rules or policy statements has been described at various times as ‘tenuous,’ …, ‘fuzzy,’ …, ‘blurred,’ …, and, perhaps most picturesquely, ‘enshrouded in considerable smog.’”  SCOTUS has provided no clarification.  In the meantime, learned counsel must decipher this and many other complex regulatory issues.