Caseflicks

Supreme Court of the United States • 2015

Perez v. Mortgage Bankers Assn.

575 U.S. 92 | 135 S. Ct. 1199 | 191 L. Ed. 2d 186 | 2015 U.S. LEXIS 1740 | 25 Fla. L. Weekly Fed. S 127 | 83 U.S.L.W. 4160

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Takeaway

In short, this case invalidated the Paralyzed Veterans doctrine: agencies may change interpretive rules without notice and comment, though their reversals remain subject to ordinary APA review and other legal constraints.

Background

The Fair Labor Standards Act requires minimum wages and overtime pay but exempts employees working in a bona fide administrative capacity. In 2004, following notice-and-comment rulemaking, the Department of Labor adopted regulations explaining that financial-services employees may qualify for the administrative exemption, but employees whose primary duty is selling financial products do not.

The Department had long issued conflicting informal interpretations concerning mortgage-loan officers. In 2006, it concluded that they qualified for the administrative exemption. In a 2010 Administrator’s Interpretation, issued without notice and comment, the Department reversed course, withdrew its 2006 opinion letter, and concluded that mortgage-loan officers primarily make sales and therefore are not exempt.

The Mortgage Bankers Association challenged the 2010 interpretation. The District Court treated it as an interpretive rule and upheld it, concluding that the D.C. Circuit’s Paralyzed Veterans doctrine did not apply because the Association had not shown reliance on the 2006 interpretation. The D.C. Circuit reversed. Bound by Paralyzed Veterans, it held that an agency must use notice and comment before significantly changing a definitive interpretation of its own regulation, and that reliance was not required. The Supreme Court granted review and reversed.

Issues

Issue #1

Whether the APA requires an agency to use notice-and-comment procedures when it significantly revises a prior definitive interpretation of one of its regulations.

Holding

No. The APA categorically exempts interpretive rules from notice-and-comment requirements unless another statute requires those procedures, so an agency may amend or repeal an interpretive rule without notice and comment.

Reasoning

The APA defines rulemaking broadly to include formulating, amending, and repealing rules. But the provision that defines rulemaking, 5 U.S.C. § 551(5), does not itself specify the procedures an agency must follow. Those procedures appear in § 553, which expressly states that notice and comment do not apply to interpretive rules unless another statute provides otherwise.

The D.C. Circuit correctly recognized that agencies ordinarily must use the same procedures to amend or repeal a rule as they used to issue it. But that principle defeats, rather than supports, the Paralyzed Veterans doctrine: because an agency need not use notice and comment to issue an initial interpretive rule, it likewise need not use those procedures to revise or withdraw that interpretation.

A revised interpretation is not itself an amendment of the regulation being interpreted. To amend ordinarily means to alter the wording or legal text of a rule; to interpret means to explain the meaning of existing text. Interpretive rules do not have the force and effect of law, so a changed interpretation does not formally alter the underlying regulation.

The Court also rejected the argument that practical fairness concerns justified the D.C. Circuit’s rule. Under Vermont Yankee, the APA establishes the maximum procedural requirements courts may impose on agencies. Courts may not create an additional, judge-made right to notice and comment merely because they think it would be sound policy.

Regulated parties retain protections against arbitrary agency reversals. Under FCC v. Fox Television Stations, an agency must adequately justify a new policy when it contradicts prior factual findings or disregards serious reliance interests. Congress may also enact safe harbors, as it did in the FLSA, to protect employers who in good faith relied on a written agency interpretation later modified or rescinded.

Issue #2

Whether the Court should affirm on the alternative ground that the Department’s 2010 Administrator’s Interpretation was actually a legislative rule requiring notice and comment.

Holding

No. The Court declined to consider that argument because MBA had treated the interpretation as an interpretive rule throughout the lower-court litigation and did not preserve the contrary argument before the Supreme Court.

Reasoning

The parties and both lower courts proceeded on the shared premise that the 2010 document was an interpretive rule. Indeed, MBA invoked the Paralyzed Veterans doctrine, which by its terms applied to changed interpretations rather than legislative rules.

MBA did not dispute in its opposition to certiorari the petitioners’ characterization of the Administrator’s Interpretation as interpretive. The Court therefore held that, even if the argument had not been waived below, it was waived in the Supreme Court under the Court’s ordinary preservation rules.

Concurrences

Justice Alito

Reasoning

Justice Alito joined the Court’s opinion except for Part III-B, which discussed policy protections available to regulated parties. He agreed that Paralyzed Veterans conflicts with the APA and cannot stand.

He acknowledged the real concern that agencies may expand their power through broad delegations, an uncertain line between legislative and interpretive rules, and judicial deference to agencies’ interpretations of their own regulations. But he concluded that Paralyzed Veterans was not a legally valid solution. He suggested that a future case should directly reconsider Seminole Rock, or Auer, deference.

Justice Scalia

Reasoning

Justice Scalia agreed that the APA’s text foreclosed the Paralyzed Veterans doctrine. But he rejected the majority’s suggestion that the result faithfully preserved the balance Congress chose when it exempted interpretive rules from notice and comment.

In his view, the APA originally assumed that courts would independently determine the meaning of statutes and regulations. An interpretive rule could therefore advise the public but could not itself bind regulated parties. Modern deference doctrines, especially Auer deference to an agency’s interpretation of its own ambiguous regulation, changed that arrangement by allowing some interpretive rules to function as binding law.

That combination creates a serious incentive for agencies to draft vague regulations and later fill the gaps through interpretations issued without notice and comment. Although Justice Scalia agreed that courts could not repair this problem by inventing the Paralyzed Veterans procedural rule, he argued that the proper remedy was to abandon Auer deference and require courts to interpret agency regulations independently.

Justice Thomas

Reasoning

Justice Thomas agreed that a substantial change in an agency’s interpretation does not amount to an amendment of the regulation under the APA. He wrote separately to question the constitutional legitimacy of Seminole Rock and Auer deference.

In his view, judicial power includes the duty to exercise independent judgment about the meaning of legal texts. Requiring courts to give controlling weight to an executive agency’s interpretation of its own regulation transfers that interpretive judgment from Article III courts to the Executive Branch and weakens the separation of powers.

Justice Thomas reasoned that this deference also undermines fair notice. If an agency may receive controlling deference for successive and conflicting interpretations of the same regulatory text, regulated parties effectively face changing legal commands without a change in the regulation itself or the procedural safeguards of rulemaking.

He found the usual rationales for deference unpersuasive. Agency expertise may inform policy, but interpreting a binding legal text is a traditional judicial task; an agency’s later statement of its intent cannot displace the promulgated text; and Congress cannot delegate to an executive agency the judiciary’s authority to issue binding interpretations in cases before courts. He therefore urged reconsideration of the Seminole Rock line in an appropriate future case.