On December 1, 2014, the Supreme Court heard oral argument in Perez v. Mortgage Bankers Association and Nickols v. Mortgage Bankers Association to address whether a federal agency must engage in notice-and-comment rulemaking pursuant to the Administrative Procedure Act before it can significantly alter a rule that articulates an interpretation of an agency regulation.

This appeal has broad ramifications for government regulation and the businesses and citizens affected by regulation. Administrative agencies regularly issue interpretations with varying levels of internal review and formality, and interpretative rules are expressly exempt from the notice-and-comment requirements that the APA imposes on formal regulations. At issue is whether every interpretation falls into this exemption or whether there are ranges of agency actions (from the most formal that undoubtedly require notice-and-comment procedures to the most informal that undoubtedly do not). If the Court provides calibrated definitions, the decision will have a major impact on the degree of deference that courts afford to the various forms of agency action.

This case involves various opinion letters issue by the Department of Labor which altered the agency's interpretation as to whether mortgage loan officers were exempt "administrative" employees under the Fair Labor Standards Act. The Department of Labor did not utilize notice-and-comment rulemaking to issue any of its conflicting interpretations, and the parties filed this action in district court to vacate and set aside the agency's most recent interpretation, arguing that the agency could not change its interpretation without first going through a notice-and-comment period required by the APA.

The D.C. Circuit agreed and found that the agency's most recent interpretation was procedurally defective because the agency failed to satisfy the APA's notice-and-comment requirement. Under its holdings in Paralyzed Veterans of America v. D.C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997) and Alaska Professional Hunters Ass'n v. FAA, 177 F.3d 1030 (D.C. Cir. 1999), the D.C. Circuit held that,"[w]hen an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended its rule, something it may not accomplish under the APA without notice and comment." The Solicitor General of the United States and the Mortgage Brokers both petitioned for certiorari, challenging the underlying proposition that notice-and-comment rulemaking was required. 

The Department of Labor argues that the judge-made procedural requirement in Paralyzed Veterans and Alaska Hunters is inconsistent with the APA and that the Supreme Court should reject that doctrine and confirm that interpretive rules do not require notice-and-comment rulemaking. The Mortgage Bankers and various amici argue that overruling Paralyzed Veterans and Alaska Hunters would lead to confusion by eliminating a helpful tool for classifying agency action and enforcing the APA’s mandate for fair, uniform agency procedures. 

Regardless of the outcome, the Supreme Court's ruling in this matter will likely have a large impact on agencies' use of and reliance on guidance documents, which is a common practice. If the Court upholds the D.C. Circuit's ruling, the use of guidance documents would be significantly curtailed, and if the Court reverses the ruling, the use of such guidance documents by agencies as interpretive rules will likely increase.