Context-Specific Seminole Rock Reform, by Aneil Kovvali

by Guest Blogger — Monday, May 21, 2018

Applying deference under Bowles v. Seminole Rock, 325 U.S. 410 (1945), courts have deferred to agency interpretations of agency rules for decades. But a recent concern that the doctrine permits agencies to combine the powers of lawmaking and law interpretation has prompted Congress and the courts to consider reform.

In a new Essay, forthcoming in the Florida State University Law Review and posted on SSRN, I urge that any reform should be tailored. Instead of adopting a one-size-fits-all rule compelling one particular deference regime (or lack thereof) for all agencies and regulations, any reform by Congress should grant or deny deference to particular agencies acting under particular authorities, based on the unique considerations that apply in each context. Similarly, courts determined to reform the doctrine without congressional action should evaluate each organic statute giving rise to each regulatory scheme.

A close look at the variety of organic statutes shows that there are useful guideposts to consider. For example:

  • Primary versus secondary statutes: Congress has taken different approaches to empowering agencies. Some organic statutes adopt a “primary rule” and directly “impose duties” on regulated entities; such statutes provide that regulated entities “are required to do or abstain from certain actions.”   An agency does not need to adopt a legislative rule before enforcing such duties through civil actions and adjudications. For example, the National Labor Relations Act directly imposes a duty not to engage in various unfair labor practices, and the National Labor Relations Board is free to enforce that duty through adjudications alone. Other organic statutes adopt a “secondary” rule that confers powers on an agency, allowing the agency to “introduce new rules of the primary type.”   Until an agency exercises this power and adopts a legislative rule through the rulemaking process, there are no duties binding regulated entities and there is nothing for the agency to enforce through civil actions or adjudications. The distinction between primary and secondary statutes has important implications for the application of Seminole Rock deference. The separation of powers criticism of Seminole Rock is not applicable to agency action under a primary statute. Rulemaking under a primary statute is not an exercise of legislative power—the statute itself creates duties that the agency is empowered to enforce through actions and adjudications. Instead, rulemaking under a primary statute is merely interpretation of the statutory duties, which affords greater clarity to regulated entities. As a result, agency interpretations of agency rules under primary statutes do not combine legislative power with interpretive power. It’s interpretation all the way down. By contrast, secondary statutes represent a congressional command that the agency must engage in legislative rulemaking to create new duties before it can enforce them. Action under secondary statutes does represent a combination of legislative and interpretive power, and deference is less appropriate.
  • Statutory constraints on rulemaking: Certain agencies are also subject to additional statutory constraints on rulemaking. For example, the SEC is under a special obligation to consider effects on “efficiency, competition, and capital formation” in making certain rules.   When Congress insists that agencies do additional work to put content through the rulemaking process, it is reasonable to infer that Congress does not want similar content put into force outside the rulemaking process.
  • Denial of enforcement discretion: Some organic statutes only allow agencies to bring enforcement actions, while other statutes allow private plaintiffs to bring suit. If an agency has a monopoly on enforcement, it can decide that a rule will not be enforced in a particular circumstance. When the agency has this type of discretion, it suggests that deference is appropriate. If an agency with this type of discretion intends to achieve a particular result but wants flexibility regarding the details, it could announce a rule that is far more stringent than the desired outcome. The agency could then use its enforcement discretion to limit the effect of the rule to any desired circumstances by declining to bring any actions outside those circumstances. This approach would allow the agency to achieve flexibility even if it is denied access to Seminole Rock deference—indeed, limiting Seminole Rock deference might cause agencies to pursue this suboptimal strategy.   By contrast, if other parties could enforce the agency rule, the agency would be denied access to this strategy. Any overly-stringent rule would be applied according to its terms by other parties. As a result, a regulatory regime that allows legal questions to be resolved in different contexts, such as through private suits, suggests that deference is less appropriate.

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Basing decisions about the applicability of deference on statutory guideposts would help limit the decisions to particular regulatory regimes, thus implementing the APA’s call for judicial minimalism and avoiding sweeping pronouncements that could have unintended consequences. This approach would also allow for judicial decisions that have a plausible grounding in congressional intent. While the general APA is open-textured and does not clearly support a particular level of judicial scrutiny, particular regulatory statutes such as the Securities Exchange Act of 1934 are a rich source of statutory clues. And the statutory approach would limit opportunities for gamesmanship, by reducing each agency’s certainty that it will receive deference and creating the potential for remedies targeted at particularly recalcitrant agencies.

This context-specific approach draws its inspiration from United States v. Mead, 533 U.S. 218 (2001), a case in which the Supreme Court limited the related doctrine of Chevron deference by holding that it only applies when features of the statutory scheme supported its application. While many have drawn inspiration from Mead in proposing reforms for Seminole Rock, the typical approach is to impose limitations on Seminole Rock by looking either to features of the regulation being interpreted or to the interpretation itself.

But there are problems with basing the level of deference on characteristics of the regulation or interpretation. Unlike inferences from statutory text and structure, they cannot claim to be grounded in congressional intent, except in the most attenuated and fictive sense. And they do not lend themselves to modesty—they would change Seminole Rock across the board along with the incentives created for all rulemaking administrative agencies, instead of calibrating its application to particular regulatory regimes. Drawing inferences from the text and structure of the organic statutes would avoid these pitfalls.

Regulatory statutes provide a rich source of clues about the appropriate level of deference. Instead of seeking to remake Seminole Rock in a sweeping fashion, reformers should adopt an approach that recognizes the salient features of the organic statutes that create particular regulatory regimes. Consulting guideposts in each organic statute will lead to a better and more tailored understanding of whether deference should be accorded.

Aneil Kovvali is an Associate at Wachtell, Lipton, Rosen & Katz. The views expressed in this post are his own, and do not necessarily reflect the views of the firm or its clients.

Cite As: Author Name, Title, 36 Yale J. on Reg.: Notice & Comment (date), URL.

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