Beyond Seminole Rock — Or Why What We Think We Know About Administrative Deference May Be Wrong

by Aaron Nielson — Thursday, Aug. 11, 2016@Aaron_L_Nielson

Law students go to law school for all sorts of reasons. Some dream of practicing criminal law because they watch a lot of television. Others want to be politicians and see law school as a launching pad. Many want to work for nonprofits because they care deeply about particular issues. Others want to follow in the steps of a parent. And so on — the reasons are endless. Personally, I went to law school because I wanted to be an antitrust lawyer! What can I say? I love thinking about incentives. Why do law students have to apply for clerkships after the 1L year? Ask an antitrust lawyer. Why do airplanes seem more crowded than in the past? Ask an antitrust lawyer. Why will there never be another LeBron James? Again, ask an antitrust lawyer. Thinking like an antitrust lawyer has downsides (we aren’t popular at parties), but boy, it helps provide a framework for understanding the world.

That’s why I am pleased to post my latest article to SSRN: Beyond Seminole Rock, forthcoming in the Georgetown Law Journal. If you care about administrative law, you know that the future of Seminole Rock deference — the idea that an agency should receive deference when interpreting its own regulations — is a major topic. Many dislike Seminole Rock (or Auer) deference because, they say, it encourages “an agency to enact ‘vague rules’ and then to invoke Seminole Rock to ‘do what it pleases’ in later litigation,” thus “frustrat[ing] the notice and predictability purposes of rulemaking, and promot[ing] arbitrary government.” Others, of course, disagree with this view, and so the battle lines have been drawn.

But what if everyone is missing something important? What if overruling Seminole Rock would hurt regulated parties, not help them? The antitrust lawyer in me worries that much of what we think we know about Seminole Rock may be wrong. In particular, if the Supreme Court were to overrule Seminole Rock, what would happen? The intended consequence would be clearer regulations, as agencies would have one less reason to promulgate ambiguous rules. But isn’t there also an unintended consequence lurking in the background? Might agencies not promulgate clearer regulations, but instead promulgate fewer regulations? In particular, if Seminole Rock were gone, agencies might respond at the margins by retreating from rulemaking in favor of their power under Chenery II to enforce the statutes they administer through retroactive adjudication — no doubt coupled with a lot more guidance documents and “agency threats.” If that were to happen, regulated parties could easily find themselves worse off.

To really know what would happen, we need to know an agency’s “cross-elasticity of demand” between rulemaking and adjudication, and have a good sense for how that cross-elasticity would change if Seminole Rock (which makes rulemaking relatively more attractive) were no longer part of the equation. Without a good answer for this empirical question, the Supreme Court either needs to be wary about overruling Seminole Rock or be willing to rethink aspects of Chenery II. After all, overruling Seminole Rock without addressing the risk that agencies would substitute to Chenery II adjudications may create the worst of all worlds.

This article, I believe, makes an important contribution to the Seminole Rock literature. It also makes a broader point: “admin law” doctrines do not exist in a vacuum, but instead are inter-related — what happens to one doctrine affects other doctrines. I also like to think that it shows the power of antitrust thinking: to really understand what is going on, we need to think about incentives and substitution effects. So give Beyond Seminole Rock a read. Antitrust may not excite every lawyer, but here I think it has something important to say about administrative law.

Here is the abstract:

Seminole Rock deference—which requires courts to defer to an agency’s interpretation of its own ambiguous regulations—may be living on borrowed time. Although it might seem harmless, many worry that Seminole Rock violates the maxim that the same hands should not both make and interpret the law. Indeed, the fear is that this combination of powers may create incentives for agencies that value flexibility to promulgate ambiguous rules whose meaning they can later clarify retroactively, to the detriment of regulated parties who lack notice regarding their legal obligations. The upshot is that several Justices of the Supreme Court have called for Seminole Rock to be revisited.

What has been overlooked, however, is that overruling Seminole Rock would have unintended consequences. This is so because another case, Chenery II, enables agencies to put parties in a similar bind simply by not promulgating rules at all. Under Chenery II, an agency has discretion whether to promulgate industry-wide rules or instead to give meaning to statutes by case-by-case adjudication. Because the doctrines are substitutes for each other, albeit imperfect substitutes, if the Court were to overrule Seminole Rock, agencies that place a high value on their own future flexibility could achieve it by pivoting to Chenery II. Yet for regulated parties, this could be worse than the status quo because even an ambiguous rule generally provides more notice than an open-ended statute. Equally troublesome, because overruling Seminole Rock would discourage rulemaking, it would reduce public participation in the regulatory process.

The insight that Seminole Rock and Chenery II are interconnected—meaning what happens to one affects the other—counsels in favor of stare decisis. Importantly, however, if the Supreme Court is inclined to overrule Seminole Rock, it should also revisit aspects of Chenery II to prevent problematic substitution. For instance, the Court could begin affording Skidmore rather than Chevron deference to statutory interpretations announced in adjudications and could also bolster fair notice. Absent such revisions, overruling Seminole Rock may harm the very people the Justices hope to help.

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About Aaron Nielson

Professor Nielson is an associate professor at Brigham Young University Law School, where he teaches and writes in the areas of administrative law, civil procedure, federal courts, and antitrust. He currently serves as a public member of the Administrative Conference of the United States, a federal agency that studies the administrative process and makes recommendations on ways to improve it. He also co-chairs the Rulemaking Committee of the American Bar Association’s Section of Administrative Law & Regulatory Practice. Previously he chaired the Section's Antitrust & Trade Regulation Committee. Before joining the academy, Professor Nielson was a partner in the Washington, D.C. office of Kirkland & Ellis LLP (where he remains of counsel). He also has served as a law clerk to Justice Samuel A. Alito, Jr. of the U.S. Supreme Court, Judge Janice Rogers Brown of the U.S. Court of Appeals for the D.C. Circuit, and Judge Jerry E. Smith of the U.S. Court of Appeals for the Fifth Circuit. Follow him on Twitter @Aaron_L_Nielson.

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