More on Agency Interpretations of Regulations: Taking Deference Seriously

by Jeff Pojanowski — Wednesday, Oct. 8, 2014

Last week I posted about the Supreme Court’s upcoming cases addressing whether agencies must go through notice-and-comment rulemaking to change previous interpretations of their own regulations. The D.C. Circuit, in its Paralyzed Veterans line of cases, holds that an agency must, reasoning that the agency’s change modifies legal obligations. The bulk of circuit courts, and many academic commentators, object that because these “interpretative rules” are not legislative rules with the force of law, requiring notice-and-comment for modification violates the Administrative Procedure Act, unlawfully imposes additional procedural requirements, and hamstrings regulatory flexibility.

I observed that this the doctrinal objection is tension with the conventional wisdom underpinningChevron deference, namely that the line between interpretation and lawmaking is blurry in unclear cases, leaving agencies best-suited to make such law-creating policy choices. Championing this rationale for Chevron deference sits uncomfortably with the objection that agency modifications of interpretative rules are never legislative in character. Yet many critics of the D.C. Circuit’s rule inParalyzed Veterans stake out both positions. This does not mean the D.C. Circuit is right, but it complicates the standard case against it. Indeed, one could argue (and Professor John Duffy has) thatChevron is a creature of judicial common law in tension with the formal text and structure of the APA’s provisions governing judicial review. A consistent defense of Paralyzed Veterans might claim that the doctrine supplements and flows from the more foundational administrative common law that is Chevron and its conception of interpretation.

As a normative matter, I would not be inclined to mount that defense; the conception of interpretive uncertainty attributed to Chevron strikes me as too blunt, and I am not sure more administrative common law is better than less. But if that’s our game, I remain a bit puzzled by the apparent formalism of Paralyzed Veterans’ otherwise-functionalist critics. Perhaps they think, contra Duffy, that Chevron is more consistent with the APA than Paralyzed Veterans. That is plausible, but it does not allay the tension between their embrace of Chevron’s theory of interpretation and their claim that interpretative rules are never exercises of lawmaking power.

A recent paper on SSRN further underlines this tension and offers an elegant take on Paralyzed Veterans’ broader doctrinal context. Patrick J. Smith, a partner at the tax boutique firm Ivins, Phillips & Barker, just posted “Changes in Agencies’ Interpretations of Their Own Regulations and AuerDeference.” Judging by Smith’s substantial publishing history, I would bet that this paper finds a home in the prestigious Tax Notes, but it is written for a broader administrative law audience. The short paper, which Smith summarizes here, draws a connection between Paralyzed Veterans and the Supreme Court’s doctrine of Auer deference, in which agencies receive deference for interpretation of their own regulations.

As Smith recognizes, Auer deference’s justification is undertheorized, though there are recent,thoughtful attempts to identify its underpinnings. Smith argues that Auer is best understood as analogous to Chevron: deference is a creature of delegated lawmaking authority. Agencies, the argument goes, have been implicitly delegated authority to make law in the interstices of their own regulations by resolving uncertainties. Smith’s take is a mainstream one; indeed, worries about such subdelegation are at the root of recent criticism of Auer by some Supreme Court justices and scholars.

With this premise, Smith argues that whenever an agency must rely on Auer deference, Paralyzed Veterans is justified. When an agency is resolving interpretive uncertainty (for which they would enjoy deference), it is engaging in a lawmaking act. When it is engaging in lawmaking, it is promulgating rules with the force of law, and to do so, agencies have to go through notice and comment. Paralyzed Veterans simply enforces this requirement and, Smith argues, is consistent with the APA: the doctrine, when paired with Auer, identifies which rules are in fact substantive legislative rules subject to notice and comment, even when they bear the label “interpretative” rules.

As Smith notes, the logic of this argument suggests that Paralyzed Veterans is too narrow. The doctrine currently only applies to changes to preexisting interpretations, not the agency’s first cut at interpretation. Initial interpretative rules that implicate Auer deference, Smith explains, are just as much lawmaking exercises as departures from those initial interpretations. In that case, agencies should get no bites at the lawmaking apple, not one. It’s possible that in some cases Paralyzed Veterans would be too broad, I might add: if an initial interpretation was wrong and the subsequent interpretation enforced the reasonably clear meaning of the regulation, it seems strange to require notice and comment to correct a previous, ultra vires interpretation of an unambiguous regulation.

Now, Auer deference is under siege, and Smith’s claim does not address the anomaly that an agency could still get around Paralyzed Veterans through more formal adjudication. But Smith’s argument nevertheless highlights Paralyzed Veterans’ consilience with more general doctrines of interpretation in administrative law while confronting the challenge of inconsistency with the APA. The doctrine, for better or worse, may be no more unjustified than Chevron or Auer. This is an argument that critics and defenders of Paralyzed Veterans should take seriously.

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