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SCOTUS to Decide Whether Rulemaking Is Required When Agencies Change Established Guidance on Statutes and Regulations

Posted in Judicial Review & Remedies, Regulatory Process

The United States Supreme Court (SCOTUS) today granted certiorari in Perez v. Mortgage Bankers Association and Nickols v. Mortgage Bankers Association and consolidated the cases for one hour of oral argument next term.  These two cases arise from the previously noted United States Court of Appeals for the District of Columbia Circuit decision in Mortgage Bankers Association v. Harris, holding that the Department of Labor (DOL) had violated the Administrative Procedure Act (APA) by reversing an established interpretation of the Fair Labor Standards Act (FLSA) (an opinion letter) without complying with notice and comment rulemaking.  The parties will brief the case over the next few months; SCOTUS could hear oral argument by the end of 2014; and SCOTUS could decide this important issue by this time next year.

Decision under Review:  The D. C. Circuit instructed the district court to vacate a 2010 DOL opinion letter in Mortgage Bankers Association v. Harris.  The 2010 Obama Administration opinion letter reversed course on a 2006 Bush Administration opinion letter.  The crux of Harris was whether DOL had adopted a definitive interpretation of its own regulations in 2006, sufficient to require that a significant change in that position later would require promulgation of a rule.  In this case, and clarifying the tests that it applies in a line of precedent, the D.C. Circuit found that DOL had committed such an error, reversed the district court decision on summary judgment, and directed the district court to vacate the 2010 opinion letter.

Grant and ConsolidationPerez, No. 13-1041 courtesy of SCOTUSblog, filed by the Solicitor General, asks:

Whether a federal agency must engage in notice-and-comment rulemaking pursuant to the Administrative Procedure Act before it can significantly alter an interpretive rule that articulates an interpretation of an agency regulation.

Nickols, No. 13-1052 courtesy of SCOTUSblog, filed by the individual mortgage company employees, asks:

Whether agencies subject to the Administrative Procedure Act are categorically prohibited from revising their interpretative rules unless such revisions are made through notice-and-comment rulemaking.

SCOTUS’s grant of review in Perez was expected for several reasons.  First, the Solicitor General limits his petitions to SCOTUS for review to those cases in which the United States believes there is a particular need for the Court to resolve a dispute – far more judicious than private parties or even States in seeking the limited resources of the Court.  Second, and as part of his judicious petitioning, Perez presents a question that not limited to the facts of the case, but presents a question of importance across the federal agency spectrum.  Third, the issue is recurring and presents a significant issue on which the courts of appeal are divided – colloquially an intercircuit conflict – questions touching the fringe of the challenged doctrine have arisen several times in recent SCOTUS Terms.

The grant in Perez is more nuanced than Nichols, leaving open the specific application to the type of FLSA opinion letter at issue (which has some statutory underpinning not present elsewhere) – it asks less than a categorical bar.

Impact:  The historical development of the problem presented by Perez is relatively straightforward:  Agencies expand on often broad language of regulatory authorizing statutes by issuing regulations under the APA’s notice and comment procedure, but those regulations do not resolve the detailed issues presented by day-to-day implementation and are often vague because the agency does not wish to be tied down.  The agency, therefore, issues more detailed guidance, policy, or “interpretive rules” interpreting the statute and regulations – here in the form of an “opinion letter.”  The guidance can both ossify private operations to comply with the statute and regulations and at the same time become subject of substantial political pressures, even campaign issues in Presidential elections.  Therefore, when the Executive Branch changes political hands, the new Administration changes the guidance and steers statutory and regulatory compliance in a different direction.  Agencies have notably avoided judicial review of guidance by arguing that it is not a final agency action and through what has been called “the tyranny of small decisions.”

Many, many agencies participate in this process, and the questions presented are not limited to DOL or the FLSA – DOL and the FLSA are mere vehicles for presenting a government-wide issue.

The grant of certiorari, and the potential for a definitive decision by SCOTUS, is tempered by the potential that DOL will be able to alter its underlying regulations through rulemaking to undercut the viability of the case.  That possibility is limited by the pervasiveness of the issue presented by the APA question.  SCOTUS has also previously cautioned that courts may not impose additional requirements on agencies that are not required by the APA.

All of these preliminary issues are likely to be fleshed out in the parties’ briefs.  This blog will follow the filings, argument, and decision.