Showdown in the Supreme Court over Administrative Interpretation of Regulations

by Jeff Pojanowski — Wednesday, Oct. 1, 2014

On the first of October, a young professor’s fancy turns to the Supreme Court, which will be opening its new term the following week. In that spirit, I want to comment briefly on one of the most important grants of the October 2014 Term in regulatory law: Perez v. Mortgage Bankers Association, which, paired with Nickols v. Mortgage Bankers Association, will be argued in December.

These cases present a High Noon of sorts in admin law circles. At one end of the street stands the formidable D.C. Circuit alongside the Fifth Circuit; at the other end stand six other circuits and a large posse of administrative law scholars, 72 of whom have filed an amicus brief against the desperados on the D.C. Circuit. The subject of the showdown: whether, as the D.C. Circuits holds, an agency has to go through notice-and-comment rulemaking before modifying an interpretation of its own rules.

That may sound drier than tumbleweed blowing along a dusty, Western boulevard, but it is an important and, I submit, fascinating question. Agencies have the power to make legally binding, “legislative,” rules through the cumbersome notice-and-comment procedure. They also can announce, without notice-and-comment, their interpretations of those substantive legislative rules. These so-called “interpretative” rules are a species of what are known as “nonlegislative rules,” in that they do not have the independent force of law.

In 1997, the D.C. Circuit began to limit agencies’ use of interpretative rules in the following way: an agency is free to announce an interpretative rule with respect to a substantive regulation, but if it wants to later modify that interpretation, it must to go through notice and comment proceedings, rather than simply issue another interpretative rule. This “Paralyzed Veterans” doctrine, named after the case that launched it, is justified on the ground that an agency’s change of interpretation alters legal obligations without the required notice-and-comment process for modifying such substantive rules with the force of law.

I don’t have a settled view on the matter, but there are a host of objections to this doctrine, such as that it violates the Administrative Procedure Act, flouts the Supreme Court’s rule in Vermont Yankee prohibiting courts from imposing novel procedural requirements on agencies, that it ossifies the regulatory process, etc. I’m interested in the following jurisprudential objection: that Paralyzed Veterans is premised on the error that an interpretative rule changes legal obligations. Interpretative rules, the doctrine teaches, lack the force of law and, more importantly, do not make law, but rather identify or clarify the existing law—the legislative rule the agency is interpreting. One could say that an interpretative rule “finds” the law already “in” a regulation. Accordingly, it makes no sense to require notice-and-comment, since legal obligations have not changed.

This is persuasive as far as it goes, but it is also an ironic objection. A major premise governing contemporary judicial review of agency interpretations is that the line between interpretation and lawmaking is often illusory. That, much administrative law and scholarship tells us, is why we haveChevron deference when statutes are unclear: an interpreter makes law in statutory gaps and agencies should make these policy choices, not courts. It is no coincidence that the author of Paralyzed Veterans—Judge Laurence Silberman—was an early exponent of this defense of deference in his article “Chevron—The Intersection of Law and Policy.” In this light, the distinction between statements that merely interpret existing regulations and those that modify their substance is exceedingly slippery. To say that interpretative rules merely “find” the law immanent in a regulation, one might object, is the administrative equivalent the old fashion declaratory theory of the law.

That many critics of Paralyzed Veterans, moreover, also embrace this legal realist theory of interpretation and justification of Chevron deference makes their assault on the D.C. Circuit’s rule awkward, or at least more complicated. It may be that the Silberman Gang is rightly following the courage of their jurisprudential convictions (and those of their critics). Or, if the D.C. Circuit is wrong, and if the APA precludes notice-and-comment for modification of interpretative rules, that could be because the APA assumes an understanding of interpretation that is quite less policy-laden than the conventional wisdom in administrative law and scholarship assumes.

Jeff Pojanowski

Leave a Reply

Your email address will not be published. Required fields are marked *