Welcome back to your monthly recap of the Fifth Circuit’s most recent administrative-law decisions! It was another busy month, so let’s dig in.

Agencies Lose Two Additional Cases Under Loper Bright

Up first: Texas Medical Association v. HHS. Argued before the Supreme Court’s decision in Loper Bright, but decided after, Texas Medical Association involved a challenge to parallel regulations promulgated by the United States Department of Health and Human Services, the Department of Labor, and the Department of the Treasury (collectively, the Departments) to implement the No Surprises Act’s arbitration procedures.

The No Surprises Act establishes an arbitration-style process for doctors and insurance agencies to settle payment amounts for the provision of non-network emergency services. The Act provides several factors that arbitrators must consider when evaluating competing offers, including the qualifying payment amount (QPA)—typically the median rate the insurer would have to pay for comparable in-network services—and certain, enumerated “additional circumstances.” It does not, however, tell arbitrators how much weight to assign to the factors. Nor does it mandate that they consider them in any particular order.

The core issue was that the Departments’ regulations not only created the arbitration process but also directed how the arbitrators were to weigh the enumerated additional circumstances. Specifically, they directed arbitrators to first consider the QPA, then the enumerated factors, and prohibited review of additional information to the extent it is not credible, unrelated, or “already accounted for by the [QPA].” Finally, the regulations also required arbitrators relying on information beyond the QPA to explain why they concluded that the information was not already accounted for in the QPA.

Applying the Chevron framework, the district court held that the regulations violated the plain text of the statute. The Supreme Court issued Loper Bright while the case was on appeal. Applying the new Loper Bright framework, the Fifth Circuit affirmed. Because the statute already provided detailed guidance regarding how arbitrators should weigh the statutory factors and did not affirmatively grant the Departments power to supplement the Act’s provisions, the Fifth Circuit explained, the regulations exceeded the Departments’ delegated authority. In determining the limits of delegated authority, the court first looked at the Act’s statutory mandate, which provided that the Departments shall establish a single, independent dispute resolution process under which an independent arbitrator shall determine the amount for services, in accordance with the Act’s succeeding provisions.

With this delegation in mind, the court held that the regulations exceeded the scope of the Departments’ granted authority for three reasons: (1) the Act does not assign order or weight to the arbitrator’s assessment of the QPA and additional circumstances; (2) the Act, contrary to the regulations, does not differentiate consideration of the additional circumstances based on their reliability, relevance, or whether they are accounted for in the QPA; and (3) the regulations’ additional writing requirement would necessarily bias arbitrators by requiring them to place a thumb on the scale in favor of the QPA.

In support of its analysis, the court relied on a line of cases holding that “when Congress charges a decisionmaker with considering several factors without assigning them a procedural order or ‘specific weight,’ the weighing of those factors is left to the decisionmaker’s sound discretion.” The Departments, for their part, relied on Cuozzo Speed Technologies LLC v. Lee, 579 U.S. 261, 266 (2016). The statute at issue there granted the Patent Office the authority to issue regulations “establishing and governing inter partes review.” Exercising that authority, the Patent Office promulgated a regulation stating that the agency in inter partes review “shall [construe a patent claim according to] its broadest reasonable construction in light of the specification of the patent in which it appears.” Emphasizing that “neither the statutory language, its purpose, or its history suggest that Congress considered what standard the agency should apply when reviewing a patent claim in inter partes review,” the Supreme Court concluded that the statute at issue there was ambiguous and upheld the Patent Office’s regulation as a reasonable construction of it.

While the Fifth Circuit questioned “how much of Cuozzo survives Loper Bright,” it concluded that the case “does not help the Departments here.” Unlike in Cuozzo, the court explained, where Congress’s failure to provide a standard for the agency to apply in the inter partes review context” rendered the statute ambiguous, “Congress has provided a comprehensive list of factors for the arbitrators to consider in the No Surprises Act.” In other words, “[t]he No Surprises Act, like the statute at issue in Cuozzo, delegates some authority to the Departments to promulgate regulations,” but “unlike in Cuozzo, the regulations promulgated by the Departments exceeded that delegated authority.”

Judge King concurred and wrote a separate opinion. She agreed with the majority’s conclusion that “the regulations instructing arbitrators not to consider certain factors appear to conflict with the text of the No Surprises Act.” She also agreed with the majority that the “challenged regulations effectively ‘plac[ing] a thumb on the scale’ for the [QPA]” conflict with the Act, but she was “not quite convinced that the invalidity of these regulations is plainly evident from the text of the [Act] alone.” In her view, the No Surprises Act is ambiguous with respect to the Departments’ general authority to issue regulations “that may affect how arbitrators balance the QPA and additional statutory factors.” She therefore looked to the Act’s legislative history for guidance and concluded that it demonstrated that “Congress very deliberately did not intend for the QPA to serve as a ‘benchmark’ in the [arbitration] process.” Because the challenged regulations tended to undermine that intent, Judge King would have preferred to have reached the same conclusion as the majority but on narrower grounds.  

Next, Restaurant Law Center v. United States Department of Labor continued the Fifth Circuit’s exploration of agency authority under Loper Bright. Here, the court held that DOL’s most recent tip-credit regulations were both at odds with the FLSA’s text and arbitrary and capricious. But first, the facts.

In 1966, Congress amended the FLSA to permit employers to use a “tipped employee’s” tips as a credit towards meeting the minimum wage. This tip credit allows employers to pay “tipped employees” an hourly wage of $2.13—far below the general minimum wage—so long as the tips they receive balance the hourly wage out to the required minimum wage. If the employee’s tips do not make up difference, the employer pays the remainder.

In 1967, DOL issued its “dual-jobs” regulation, which addresses situations where an employee regularly engages in different occupations for the same employer. Concerned with the possibility for abuse of the tip credit under the dual-jobs provision, DOL issued what’s now referred to as its “80/20” guidance, which provided that a maximum of 20% of an employee’s time can be spent on non-tipped activities related to the tipped occupation for the employer to still claim the tip credit. The 80/20 guidance remained in place for decades until 2009, when DOL began taking different positions on it with each new Presidential administration.

Finally, in 2021, DOL codified the 80/20 standard in final rule promulgated after notice and comment. The final rule introduced three categories of work: (1) tip-producing work; (2) directly supporting work; and (3) non-tip related work. Under this scheme, an employer may take the tip credit for tip-producing work. However, if an employee spends more than 20 percent of their workweek or more than 30 minutes at a given time engaged in directly supporting work, the employer may not claim the tip credit. Finally, the employer was unable to claim the credit for non-tip related work.

The district court upheld the final rule as a permissible interpretation of the FSLA under Chevron. While the case was on appeal before the Fifth Circuit, the Supreme Court issued its opinion in Loper Bright, overruling Chevron. If you read last month’s Fifth Circuit Review–Reviewed, this constellation of facts may sound familiar. In Utah v. Su, a different Fifth Circuit panel faced an appeal of a district court decision granting Chevron to deference to an agency interpretation of a statute in a final rule. As here, the Supreme Court announced its decision overruling Chevron while the Utah v. Su appeal was pending before the Fifth Circuit. In that case, the panel declined to apply Loper Bright itself, choosing instead to remand the case for the district court to do so itself in the first instance.

In Restaurant Law Center, by contrast, the Fifth Circuit went ahead and applied Loper Bright itself in the first instance and without the benefit of the district court’s views. The panel did not address Utah v. Su or explain why it viewed dispensing with remand to be the better course in the case before it.

Applying Loper Bright’s directive, the Fifth Circuit exercised its independent judgment to determine the best interpretation of the term “engaged in a tipped occupation” in the FLSA’s definition of “tipped employee.” Relying on traditional tools of statutory interpretation, the court held that to be engaged in a tipped occupation naturally means to be performing a job, including all of its corresponding duties, that ultimately produces tips. In so holding, the court eliminated the categorical or time-based definitions DOL formerly imposed under the 80/20 guidance.

Scholars are already hard at work exploring the questions Loper Bright raises for how courts should resolve cases like these going forward. Professor Kristin Hickman, for example, has an excellent piece on SSRN right now discussing the implications Loper Bright may have for “Skidmore’s Domain.” In Anticipating A New Modern Skidmore Standard, Hickman flags several important questions that Loper Bright left unanswered regarding when and how Skidmore might apply in a post-Chevron world, including whether courts will continue to treat ambiguity as a prerequisite for entertaining the possibility of granting an agency’s interpretation “weight” or “respect.”

The Fifth Circuit’s decision in Restaurant Law Center provides one early data point on that question. After explaining its reasons for concluding that the statute’s plain language foreclosed DOL’s use of the 80/20 standard (and other aspects of DOL’s interpretation in the Final Rule), the court “pause[d] to note that, even in the absence of Chevron, courts are well-advised to consider agency ‘interpretations issued contemporaneously with the statute at issue, and which have remained consistent over time.’” (quoting Loper Bright). DOL had emphasized that the 80/20 standard was “indeed of some vintage, having been applied with brief interregna since at least 1988.” While the court acknowledged that “longstanding agency practice might have the ‘power to persuade,’” under Skidmore,“it has never had the ‘power to control.’” In this case, because the Fifth Circuit concluded that the statute’s plain text resolved the interpretive issue, it held that Skidmore-based contextual factors could not save the 80/20 standard or the Final Rule.     

Another question that Professor Hickman flags in her essay is how courts will decide whether Congress intended to give agencies policymaking discretion over a particular issue such that arbitrary and capricious review under State Farm should apply instead of Skidmore. Once again, the Fifth Circuit’s opinion in Restaurant Law Center provides one early answer. After holding that DOL’s Final Rule was contrary to law because it could not be squared with the FLSA’s plain text, the court noted that it “could stop there.” Instead, however, it went on to address the plaintiffs’ argument that the Final Rule was also arbitrary and capricious. In explaining why the arbitrary and capricious standard applied in the first place, the court emphasized that “[i]f the dual-jobs regulation is permissible under the FLSA, as the parties in large part agree, then there is at least some line drawing that must occur in identifying which duties make up any given occupation qualifying for the tip credit.” According to DOL, “the Final Rule’s focus on those duties’ tip-producing nexus, and on the time an employee spends on supporting duties, is a permissible line to draw.”

Implicit in this analysis is the idea that whenever a statute leaves such a line-drawing exercise to an agency under a statutory scheme, State Farm provides the appropriate standard for judicial review of the agency’s discretionary decision regarding where to draw the line. In the case of the Final Rule, the Fifth Circuit held that by drawing the tip-credit line based on whether the duties at issue are tip-producing instead of whether they are part of the employee’s “occupation” as statute mandates, DOL had “relied on factors which Congress ha[d] not intended it to consider,” (quoting State Farm), rendering its approach arbitrary and capricious.

Two other points may be of interest. First, the court clarified that its holding does not “bear on the validity of the dual-jobs regulation, which [wa]s not challenged here.” Second, it declined to address the plaintiffs’ invitation to apply the major questions doctrine, explaining that:

There is some uncertainty over whether we should apply this doctrine as a substantive clear-statement rule, see id. at 740 (Gorsuch, J., concurring), or as a purely linguistic canon of construction, see Biden v. Nebraska, 143 S. Ct. 2355, 2376 (2023) (Barrett, J., concurring).  We take no position on the major questions doctrine’s application here because it is not necessary to our ultimate holding. 

Appointments and Removal Challenge Remanded for District Court to Consider Jurisdictional and Ratification Issues in First Instance

Next up, we have Arnesen v. Raimondo, a case that, like Loper Bright, arose under the Magnuson-Stevens Fishery Conservation and Management Act. As the Supreme Court explained in Loper Bright, the Act creates Regional Fishery Management Councils “composed of representatives from coastal States, fishery  stakeholders, and the [National Marine Fisheries Service (NMFS)].” The Councils “develop annual catch limits for” fisheries in their geographic regions, which are then given to the NMFS Assistant Administrator, who reviews them to establish or amend fishery management plans and, after notice and comment, issue binding regulations to enact those plans.

In Arnesen, a group of commercial fishers challenged the constitutionality of the Gulf of Mexico Fishery Management Council on appointment and removal grounds. The case arose from approval, after notice and comment, of an amendment (Amendment 54) to the region’s fishery management plan recommended by the Council to reduce the greater amberjack catch limit and the Secretary of Commerce’s subsequent implementation of that catch limit through a final rule.

The plaintiffs argued that the Council members were improperly appointed under Article II, § 2, Clause 2 of the Constitution and were unconstitutionally insulated from removal. They sought a declaratory judgment as to these constitutional arguments and an injunction setting aside the final rule and prohibiting its enforcement. Some of them additionally requested that Amendment 54 itself be declared void and sought an injunction barring the Council members from further developing annual catch limits for the greater amberjack fishery.   

The district court concluded that six of the seventeen Council members were inferior officers appointed in violation of the Appointments Clause. It held, however, that the plaintiffs were nevertheless not entitled to relief because: (1) the constitutional violation was not the proximate cause of their injury as Amendment 54 was ultimately enacted as a final rule by the Secretary’s designee, the NMFS Assistant Administrator; and (2) the remaining eleven Council members, who were constitutionally appointed, constituted a quorum rendering their actions valid with respect to Amendment 54.

The Fifth Circuit remanded for the district court to determine two issues in the first instance: (1) whether federal courts have jurisdiction to grant the relief requested by some of the plaintiffs; and (2) whether the NMFS Assistant Administrator’s review and approval of the final rule functioned as a ratification of the Council’s actions. The Fifth Circuit had recently adopted this approach in a similar case, Braidwood Management v. Bacerra, justifying remand to allow the district court to consider similar ratification arguments in the first instance. This decision was to maintain the appellate court’s status as “a court of review, not first review.”

The Best of the Rest

• Aben v. Garland:  The Fifth Circuit granted a petition for review from the Board of Immigration Appeals (BIA) order on a removable alien’s asylum and withholding claims. In support, the court reasoned that the BIA did not address credible evidence supporting several of the petitioner’s arguments and therefore erred in holding that the petitioner did not face past persecution, did not establish a nexus between the harm suffered and his political affiliation, and did not have a reasonable fear of returning to his home country.

• Naem Momin v. Jaddou: Judge Higginson presented a forceful opinion here, relating to the jurisdiction of federal courts to review determinations of adjustment under 8 U.S.C. § 1255 and waivers of inadmissibility under 8 U.S.C. § 1182. Pertinently, 8 U.S.C. § 1252(a)(2)(B) states that “no court shall have jurisdiction to review—(i) any judgment regarding the granting of relief under section … 1182(i) … or 1255 of” the title. 8 U.S.C. § 1182(i)(2) further provides that “[n]o court shall have jurisdiction to review a decision or action of the Attorney General regarding a waiver under paragraph [1182(i)](1).” Ultimately, after recounting a series of mistakes on the government’s behalf that directly played into the removal decision against the petitioner, the court had no choice but to hold that it was without jurisdiction to review the claims. Quoting Niz-Chavez v. Garland, the opinion echoed the principal that “[i]f men must turn square corners when they deal with the government, it cannot be too much to expect the government to turn square corners when it deals with them.” Recognizing the injustice of the result it was bound to reach, the Fifth Circuit concluded by emphasizing its desire that the United States Customs and Immigration Service give careful attention to any future application submitted by the petitioner.

I’d like to thank Tristan Cavanaugh, an associate in my law firm’s Naples office, for his help in putting this month’s update together. If you know of any cases we’ve overlooked or come across one that should be covered, feel free to send it our way!

Shane Pennington is a partner in the Washington, D.C. office of Porter, Wright, Morris, & Arthur LLP and co-chair of the firm’s Administrative and Regulatory Law Practice Group. You can reach him at spennington@porterwright.com. Tristan Cavanaugh is is an associate in the firm’s Naples office. You can reach him at tcavanaugh@porterwright.com.