My colleague Lisa Sokolowski recently discussed some of the cases we are watching during this year’s Supreme Court term. Let’s add another to the list: Perez v. Mortgage Bankers Association, 2014 U.S. LEXIS 4275 (U.S. June 16, 2014).  Although the dispute technically concerns a reinterpretation by the Department of Labor of an existing regulation, in practical terms SCOTUS’s ruling could impact the regulatory interpretative power of federal agencies in general, and EPA in particular.  Not surprisingly, Perez is of great interest to regulated industries.

In the underlying case, the Court of Appeals for the D.C. Circuit relied on its previous decisions, Alaska Prof ’l Hunters Ass’n v. FAA, 177 F.3d 1030 (D.C. Cir. 1999) and Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997), to hold that the Department of Labor violated the Administrative Procedure Act when it reversed its interpretation of an existing rule without Notice and Comment.  See Mortg. Bankers Ass’n v. Harris, 720 F.3d 966 (D.C. Cir. 2013).  The D.C. Circuit’s ruling highlighted a split with the First, Second, Fourth, Sixth, Seventh, and Ninth Circuits, which agree that changes in interpretations do not require notice and comment because both the original and current position constitute interpretive rules.  See id. Slip Op. at 5, n. 3; Warshauer v. Solis, 577 F.3d 1330, 1338 (11th Cir. 2009).

The question presented by the petitioners on certiorari is “Whether a federal agency must engage in notice-and-comment rulemaking before it can significantly alter an interpretive rule that articulates an interpretation of an agency regulation.” 2014 U.S. LEXIS 4275 (U.S. June 16, 2014).  In its moving brief, the United States asserts that “Congress has expressly and unqualifiedly exempted the amendment and repeal of ‘interpretative rules’ from the rulemaking requirements of the Administrative Procedure Act (APA).” Although the opposition brief of the Mortgage Bankers Association is not yet publicly available, MBA is all but certain to rely on the argument it made below that the D.C. Circuit’s decisions in Paralyzed Veterans and Alaska Professional Hunters stand for the proposition that where “an agency has given its regulations a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended its rule, something it may not accomplish without notice and comment.”  Alaska Professional Hunters, 177 F.3d at 1034.

As mentioned above, although Perez facially concerns a regulation promulgated by the Department of Labor, its import extends far beyond the Department of Labor.  In particular, Perez could dramatically impact EPA, which is in the process of developing and/or revisiting regulations on climate change and carbon regulation under the Clean Air Act, and permitting under the Clean Water Act.   But regardless of the federal agency, if SCOTUS affirms the D.C. Circuit’s interpretation of the APA then it will dramatically curtail the ability of regulators to unilaterally change their interpretation of existing rules.  This change, should it come to pass, would likely be welcomed by regulated industries because it would go a long way towards establishing regulatory certainty.