This month, in Perez v. Mortgage Bankers Association, the US Supreme Court overturned the D.C. Circuit’s Paralyzed Veteran doctrine, rejecting nearly 20 years of precedent requiring federal agencies to abide by notice-and-comment rulemaking procedures when they substantially alter an “interpretive” rule. However, the decision also hints that even broader changes may be afoot. Writing in separate concurrences, Justices Scalia, Alito, and Thomas each argue that the Court should no longer grant judicial deference to interpretive rules, thus inviting a challenge to the Seminole Rock doctrine. This could be a game-changer for all regulated entities.
The Administrative Procedures Act (APA) establishes procedures by which rules may be issued, amended, or repealed. Legislative rules are those that bind the public and have the full force and effect of law. Before such a rule is issued, amended, or repealed, the agency must conduct notice-and-comment procedures. Alternatively, federal agencies may issue so-called “interpretive” rules without going through the notice-and-comment process. Interpretive rules are intended to advise the public and regulated entities of the agency’s interpretation of the statutes and regulations it administers. Despite the supposed non-binding nature of interpretive rules, regulated entities are often compelled to comply with such agency “guidance.” Accordingly, the D.C. Circuit held in Paralyzed Veteran that an agency must use notice-and-comment procedures when it substantially revises its previous interpretation of an interpretive rule.
In Perez, the US Supreme Court held in a unanimous decision that the Paralyzed Veteran doctrine contradicts the plain language of the APA, which unequivocally states that the notice-and-comment requirement “does not apply . . . to interpretive rules.” The Court further reasoned that Section 4 of the APA establishes “the maximum procedural requirements” that courts may impose upon agencies engaged in rulemaking. Therefore, by mandating notice-and-comment procedures when an agency revises interpretive rules, Paralyzed Veterans creates an impermissible judge-made procedural rule that is inconsistent with the text of the APA.
In the short term, the decision represents a broad victory for federal agencies because it gives regulators latitude to revise their interpretations. For example, US EPA has used interpretive rules to determine whether multiple adjacent buildings may be aggregated into one emitting source under the Clean Air Act and has recently proposed interpretive rules to carve out exemptions to the proposed jurisdictional rule for Waters of the United States under the Clean Water Act. Justice Sotomayor’s opinion acknowledges that the decision may entice federal agencies to issue interpretive rather than legislative rules in order to “skirt” lengthy and costly notice-and-comment requirements. However, the decision reasons that such concerns are alleviated by preexisting restraints on agency decisionmaking, including the arbitrary and capricious standard and safe-harbor provisions that shelter regulated entities from liability when they act in conformance with previous agency interpretations.
Perez’s greatest impact may come from its concurrences. Justices Scalia, Alito, and Thomas agree that notice-and-comment procedures are not required for interpretive rulemaking under the clear text of the APA. However, the justices argue that a system in which interpretive rules can be revised without notice, yet are also afforded judicial deference, is highly problematic. The National Mining Association’s Amicus Curiae brief provides a good example of this problem. The Association explains that:
"[T]he mining industry is heavily regulated in numerous ways by a host of federal agencies, which proscribe rules governing issues from where mining may occur; to how mining facilities must be designed, operated and constructed; to how such facilities must be closed and reclaimed at the end of their operating life. Despite their complexity, these rules are frequently beset with vagueness and ambiguity – yet the penalties for less-than-perfect compliance can be substantial. And in disputes over the meaning of an agency regulation, the agency will assert that its own interpretation prevails, and the failure to accede to agency’s interpretation will be offered as evidence of willful violation carrying more severe penalties. . . . Mining companies therefore are effectively forced to comply with agency interpretations . . . .”
These concerns are shared by industries and regulated entities across the country. Justices Scalia, Alito, and Thomas propose a solution: overturn Seminole Rock and its progeny, thereby eliminating the judicial deference afforded agency interpretive rules. If a challenge to Seminole Rock were successful, it would transform the dynamic between regulators and regulated entities – shifting power away from agencies and to the judiciary. Therefore, while Perez represents an immediate victory for regulators, it may have opened the door to more sweeping changes in administrative law.