On June 26, 2019, the U.S. Supreme Court (the Court) announced its decision in Kisor v. Wilkie, placing limits on when federal agencies will be given deference in interpreting their own regulations. To understand the significance of Kisor requires an understanding of the so-called “Auer deference.” Under Auer v. Robbins, 519 U.S. 452 (1997), and its predecessor Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945), courts deferred to an agency’s interpretation of its own regulations, especially if a regulation was ambiguous and the agency’s interpretation was reasonable.1
Kisor involved the interpretation of a Department of Veterans Affairs’ (VA) regulation about granting benefits retroactively. Mr. Kisor is a Vietnam veteran. Although Mr. Kisor applied for VA benefits in 1982, it was not until 2006 that he was diagnosed with PTSD. After receiving that diagnosis, Mr. Kisor sought benefits for the period between 1982 and 2006. The VA regulation at the heart of this case only allowed for retroactive benefits if new “relevant official service department records” had not been considered in the initial denial of benefits.2 The VA determined the new records presented by Mr. Kisor regarding his PTSD diagnosis were not relevant and the Court of Appeals for Veterans Claims agreed. Mr. Kisor appealed his case to the Court of Appeals for the Federal Circuit (Federal Circuit).
The Federal Circuit, relying on the Auer deference, affirmed the VA’s decision. It held that, because the regulation in question was ambiguous and neither the VA nor Mr. Kisor’s interpretation was unreasonable, the agency’s interpretation of its own regulation governed. Mr. Kisor appealed to the Court.
The Court explained that lower courts should defer to an agency’s interpretation of its rules under the Court’s controlling precedents, Auer v. Robbins, 519 U.S. 452 (1997) and Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945). Doing so provides stability because an agency’s interpretation of its rules provides nationwide guidance as to their application, rather than having them interpreted “piecemeal by litigation.”3 However, before doing so, the Court explained, lower courts should consider a five-part analysis to determine whether giving Auer deference made sense. The five steps are:
- Is the regulation genuinely ambiguous? If there is no ambiguity, the plain language of the regulation should apply. Just because a regulation is difficult to understand, that does not mean it is ambiguous.4
- Is the agency’s reading of the regulation reasonable? This is determined by whether the agency’s reading falls within the bounds of reasonable interpretation.5
- Is the character of the agency interpretation such that it is entitled to controlling weight? Agencies include many individuals at all levels of authority, therefore not all interpretations or pronouncements of policy are “authoritative” or an “official position” of the agency.6 If it comes from someone who can make authoritative policy in the relevant context, deference would be appropriate.7
- Does the agency’s interpretation implicate its substantive expertise? The foundation of the presumption of deference to an agency’s interpretation of its rules rests on its expertise. However, this presumption is rebuttable and has limitations. If an agency has no comparative expertise in resolving a regulatory ambiguity, or the interpretative task would fall more naturally into a judge’s area of interest, deference is not appropriate.8
- Does the agency’s reading of the rule “reflect ‘fair and considered judgment?’"9 If it does not, the interpretation should not receive deference. A court should decline to defer to a merely “convenient litigating position,” a “post hoc rationalization” advanced to defend past agency action against attack or a new interpretation that creates “unfair surprise” to regulated parties.10 When an interpretation by an agency will impose retroactive liability on parties for conduct not previously addressed or substitutes one interpretation for another, courts should decline to grant Auer deference.
Using this five-step analysis, the Court found the Federal Circuit had applied Auer deference improperly in this case, because it did not properly analyze the regulation for ambiguity.11 For that reason, the lower court’s decision was vacated and remanded.
Going forward, any challenge to an agency interpretation will require the Kisor five-step analysis before automatically upholding an agency’s interpretation of its own regulations under the Auer deference.
In government contracts, contractors frequently disagree with an agency’s interpretation of its own regulations. The Boards of Contract Appeals and the Court of Federal Claims routinely give deference to the agency’s interpretation of its own rules and regulations – the Auer deference. Now, thanks to Kisor, contractors will have the opportunity to demonstrate, under the five-step analysis, that such deference may no longer be appropriate.