Today, SCOTUS decided Kisor v. Wilkie, an important case that raised the question of whether to overrule the decades-long deference of courts to the reasonable interpretations by agencies (such as the SEC) of their own ambiguous regulations, often referred to as Auer deference (or Seminole Rock deference, referring to Auer’s antecedent). SCOTUS, with Justice Kagan writing the majority opinion (with Chief Justice Roberts as the swing vote), said no. Justice Gorsuch (and three other Justices) would overturn Auer. According to Gorsuch, the majority’s decision was “more a stay of execution than a pardon.”
Although the doctrine was not overruled, the Court took pains to “reinforce its limits. Auer deference, said Kagan, “is sometimes appropriate and sometimes not. Whether to apply it depends on a range of considerations that we have noted now and again, but compile and further develop today. The deference doctrine we describe is potent in its place, but cabined in its scope.” In his concurring opinion (one of several by the Justices), Gorsuch maintained that the “Court’s failure to be done with Auer, and its decision to adorn Auer with so many new and ambiguous limitations, all but guarantees we will have to pass this way again.” The case was remanded to the lower court to decide whether Auer deference should be applied to the agency interpretation at issue. Interestingly, although the Justices were certainly very divided on the key issue of whether to overrule Auer deference, the decision to remand was 9-0.
In Auer v. Robbins, Justice Scalia, analyzing whether certain employees were exempt from overtime pay requirements under the Secretary of Labor’s regulations, held that “[b]ecause the [particular test in question] is a creature of the Secretary’s own regulations, his interpretation of it is, under our jurisprudence, controlling unless ‘plainly erroneous or inconsistent with the regulation’ Robertson v. Methow Valley Citizens Council, quoting Bowles v. Seminole Rock Sand Co.).”
In Kisor, a Vietnam vet, suffering from service-related PTSD, sought retroactive disability benefits from the VA. Interpreting the meaning of the term “relevant” as used in one of its own regs, the Department of Veteran’s Affairs denied his claim for retroactive benefits. Applying Auer, the Federal Circuit Court in Kisor found that both the petitioner and the VA offered reasonable interpretations of the term in question, concluding as a result that the regulation was ambiguous and applying Auer to defer to the VA’s interpretation. Cert was granted on this question: “Whether the Court should overrule Auer and Seminole Rock.”
The effort to overturn Auer represents yet another example of concentrated (and highly politicized) efforts to dismantle or severely limit the administrative state—or the “deep state,” depending on your point of view. As explained in the opening of the amicus brief of the Cato Institute, quoting Chief Justice Roberts in dissent, “[o]verturning Auer would be a modest but important check on the ‘the danger posed by the growing power of the administrative state.’ City of Arlington, Tex. v. F.C.C.” What’s more, in his cert. petition, Kisor argued that “‘[r]evisiting Auer deference [would be] an appropriate place to begin’ a more complete ‘reconsideration’ of ‘existing doctrines of agency deference,’ including under Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc.” (quoted from the amicus brief of a group of Professors of Administrative Law and Federal Regulation in support of neither party). [citations omitted throughout.] (See this PubCo post for excerpts from briefs submitted by other amici.) But see the concurring opinions of Roberts and Kavanaugh in this case, discussed below, regarding Chevron.
Kagan begins with a tutorial on Auer: when a regulation is genuinely ambiguous, whether because of careless drafting or “well-known limits of expression or knowledge,” to apply the rule in a given case, a court must choose among more than one reasonable reading. In making that choice, Kagan contends, a court should defer to the agency’s interpretation of its own regulations, citing cases going back to the 19th century. Auer deference, she wrote, was “rooted in a presumption about congressional intent—a presumption that Congress would generally want the agency to play the primary role in resolving regulatory ambiguities.” The presumption offered the benefit of uniformity of interpretation and reflected the view that the rulemaker was considered better positioned to “’reconstruct its original meaning.” Moreover, a decision interpreting agency rules often required getting into the weeds of policy issues that demanded agency expertise.
At oral argument, Justice Breyer illustrated the need, in his view, for deferring to agency expertise:
“I mean, there are hundreds of thousands, possibly millions of interpretive regulations. I mean, they give an example, one of them, where the Court deferred to the understanding of the FDA that a particular compound should be treated as a single new active moiety, which consists of a previously approved moiety, joined by a non-ester covalent bond to a lysine group. Do you know how much I know about that? …. But what you’re doing is saying, instead of paying attention to people who know about that, but rejecting it if it’s unreasonable, the judges should decide. I mean, I want to parody it, but, I mean, this sounds like the greatest judicial power grab since Marbury versus Madison, which I would say was correctly decided.”
Judges have a lot of power under Auer, he observed,
“to reject unreasonable rules, inappropriately considered rules, they didn’t think about it, rules that change position, rules that are not clear, all these interpretations, you don’t have to take Auer literally, and later cases have not. And so do you—what is your real objection to taking those later cases and saying, of course, judges are in control; of course, they reject what is unreasonable; of course, they reject what is inadequately considered; of course, they reject things that are just changed without explanation, but, in general, recognize that the FDA knows more about moieties than you do, Judge, and there are 800 judges, and they all think moiety means something different.” (See this PubCo post. )
And Kagan’s opinion takes up precisely the SideBar’s example: “Or finally, take the more technical ‘moiety’ example…. Or maybe, don’t. If you are a judge, you probably have no idea of what the FDA’s rule means, or whether its policy is implicated when a previously approved moiety is connected to lysine through a non-ester covalent bond.” What’s more, different judges would likely come up with different interpretations: “Is there anything to be said for courts all over the country trying to figure out what makes for a new active moiety?”
However, as the majority explains, Auer deference is not always appropriate: while Auer “gives agencies their due,” it also obligates “courts to perform their reviewing and restraining functions”:
- The regulation must be “genuinely ambiguous, even after a court has resorted to all the standard tools of interpretation.” That effort involves careful consideration by the court of “the text, structure, history, and purpose of a regulation, in all the ways it would if it had no agency to fall back on.” If the rule is genuinely ambiguous, then “sometimes the law runs out, and policy-laden choice is what is left over.”
- The agency’s reading must be “reasonable”: “it must come within the zone of ambiguity the court has identified after employing all its interpretive tools.” “And” Kagan emphasizes, “let there be no mistake: That is a requirement an agency can fail.”
- The “court must make an independent inquiry into whether the character and context of the agency interpretation entitles it to controlling weight.” What does that entail?
- The “interpretation must be one actually made by the agency. In other words, it must be the agency’s ‘authoritative’ or ‘official position,’ rather than any more ad hoc statement not reflecting the agency’s view.” But Kagan acknowledges the nuance that could be implicated here: “Of course, the requirement of ‘authoritative’ action must recognize a reality of bureaucratic life: Not everything the agency does comes from, or is even in the name of, the Secretary or his chief advisers,” citing a case in which the Court declined “to ‘draw a radical distinction between’ agency heads and staff for Auer deference).” However, she adds, “there are limits. The interpretation must at the least emanate from those actors, using those vehicles, understood to make authoritative policy in the relevant context.”
- The “agency’s interpretation must in some way implicate its substantive expertise,” which could extend beyond just technical expertise to include also policy expertise. However, some “interpretive issues may fall more naturally into a judge’s bailiwick.”
- The “agency’s reading of a rule must reflect ‘fair and considered judgment.” It should not just reflect “a merely ‘convenient litigating position’” or create “‘unfair surprise’ to regulated parties” by, e.g., substituting “one view of a rule for another.”
As Kagan summarizes, the “upshot of all this goes something as follows. When it applies, Auer deference gives an agency significant leeway to say what its own rules mean….But that phrase ‘when it applies’ is important—because it often doesn’t.”
The nuanced analysis required to determine whether the interpretation is authoritative could have implications for various forms of agency guidance, sometimes referred to by critics as “regulatory dark matter.” As discussed in this article from Compliance Week, guidance has been “one of the more contentious debates in compliance and legislative circles.” Critics argue that “over time ‘guidance’ has taken on a life of its own and either supplanted rulemaking or wedged resulting rules into previously unintended and unexpected matters.” In this recent speech, SEC Commissioner Hester Peirce expressed her concern for SEC staff guidance and interpretation that she seems to view as sometimes runaway or out-of-control and, sometimes, too much under the radar. In addition, the Acting Director of the Office of Management and Budget joined in shortly after, distributing a memo designed to limit rules and guidance that federal agencies issue, particularly outside of the notice-and-comment process. In September last year, SEC Chair Jay Clayton issued a statement intended to make clear his view of the distinction between SEC rules and regulations—which are adopted in accordance with the APA, have the effect of law and are enforceable by the SEC—and staff guidance, such as the CDIs and various letters and speeches, which is nonbinding and not enforceable by the SEC or others. He also indicated that Corp Fin and other Divisions “have been and will continue to review whether prior staff statements and staff documents should be modified, rescinded or supplemented in light of market or other developments. I believe that public engagement on staff statements and staff documents is important and will assist the Commission in developing rules and regulations that most effectively achieve the SEC’s mission. I encourage such engagement, with the recognition that it is the Commission and only the Commission that adopts rules and regulations that have the force and effect of law.” (See this PubCo post and this PubCo post.) How will these positions play in light of the new decision?
Kagan did not find that any of Kisor’s arguments provided “good reason to doubt Auer deference.” She did not agree, in light of all the ways that courts still “exercise independent review” (as discussed in the bullets above), that Auer deference was “inconsistent with the judicial review provision of the Administrative Procedure Act. She also disagreed that Auer circumvents the APA’s notice-and-comment procedures for legislative rules because “interpretive rules, even when given Auer deference, do not have the force of law.” In addition, courts still interpret the rule and determine whether to apply Auer at all, taking into account a number of similar procedural values. To Kisor’s claim that Auer “encourages agencies to issue vague and open-ended regulations,” she noted the absence of evidence in support of that claim. To the argument that Auer deference violates the constitutional “separation of powers,” Kagan asserted again the role of the courts in interpretations, as discussed above.
Finally, and perhaps most significantly, there was stare decisis. Kisor did offer any “special justification” to merit overturning the long line of precedents that Auer deference represented, and abandoning it “would cast doubt on many settled constructions of rules,” allowing relitigation of any decision based on Auer. Finally, even if the Court were wrong, Congress was certainly free to correct the error.
Ultimately, Kagan concurred “with Kisor that administrative law doctrines must take account of the far-reaching influence of agencies and the opportunities such power carries for abuse. That is one reason we have taken care today to reinforce the limits of Auer deference, and to emphasize the critical role courts retain in interpreting rules.”
In applying these principles to the case at hand, the Court held that a “redo” was necessary: “First, the Federal Circuit jumped the gun in declaring the regulation ambiguous….[T]he court must make a conscientious effort to determine, based on indicia like text, structure, history, and purpose, whether the regulation really has more than one reasonable meaning.” Second, the Circuit Court was too quick to assume that Auer deference should apply and should have more carefully assessed “whether the interpretation is of the sort that Congress would want to receive deference.”
As noted above, there were lots of concurring opinions. It comes as no surprise that Justice Gorsuch is not exactly a fan of Auer deference and would overturn it. (See this PubCo post.) His concurrence, which was longer than the majority opinion, was joined by Justice Thomas and joined in part by Justices Alito and Kavanaugh. “It should have been easy for the Court to say goodbye” to Auer, he opened. Auer deference
“creates a ‘systematic judicial bias in favor of the federal government, the most powerful of parties, and against everyone else.’” The Court has the power to correct this error, Gorsuch argued, and legions of academics, judges and other practitioners have begged the Court to “abandon Auer. Yet today a bare majority flinches, and Auer lives on. Still, today’s decision is more a stay of execution than a pardon. The Court cannot muster even five votes to say that Auer is lawful or wise. Instead, a majority retains Auer only because of stare decisis. And yet, far from standing by that precedent, the majority proceeds to impose so many new and nebulous qualifications and limitations on Auer that the Chief Justice claims to see little practical difference between keeping it on life support in this way and overruling it entirely. So the doctrine emerges maimed and enfeebled—in truth, zombified….The Court’s failure to be done with Auer, and its decision to adorn Auer with so many new and ambiguous limitations, all but guarantees we will have to pass this way again. When that day comes, I hope this Court will find the nerve it lacks today and inter Auer at last. Until then, I hope that our judicial colleagues on other courts will take courage from today’s ruling and realize that it has transformed Auer into a paper tiger.”
Auer, Gorsuch said “is really little more than an accident.” He holds up as the better model the approach in Skidmore v. Swift, in which the rule was that an agency’s interpretation was entitled only to “respectful consideration” and no more: “an agency’s views about the law may persuade a court but can never control its judgment.”
Gorsuch then proceeds to address each of Kagan’s arguments. In Gorsuch’s view, Kagan’s portrait of Auer is a fantasy, “asking us to imagine it riding to the rescue only in cases where the scales of justice are evenly balanced between two equally persuasive readings….In the real world the judge uses his traditional interpretive toolkit, full of canons and tiebreaking rules, to reach a decision about the best and fairest reading of the law….Yet when it comes to interpreting federal regulations, Auer displaces this process and requires judges instead to treat the agency’s interpretation as controlling even when it is ‘not . . . the best one.’”
In addition, he does not believe that Auer is consistent with the APA, including its notice-and-comment requirements. (“For all practical purposes, ‘the new interpretation might as well be a new regulation.’”) In addition, it is a threat to the separation-of-powers doctrine: although the Constitution charges federal judges with interpreting, “Auer tells the judge that he must interpret these binding laws to mean not what he thinks they mean, but what an executive agency says they mean.” With regard to stare decisis, Gorsuch characterizes the majority’s argument as no more than
“we’re stuck with [Auer] because of the respect due precedent…. But notice: While pretending to bow to stare decisis, the majority goes about reshaping our precedent in new and experimental ways….The only certainty in all this is that the majority isn’t really much moved by stare decisis; everyone recognizes, to one degree or another, that Auer cannot stand. And between our remaining choices—continuing to make up new deference rules, or returning to the text of the APA and the approach to judicial review that prevailed for most of our history—the answer should have been easy.”
Not only is Auer “unworkable,” what’s more, things have changed: “the explosive growth of the administrative state over the last half-century has exacerbated Auer’s potential for mischief.”
In the end, however, Gorsuch finds a “silver lining: The majority leaves Auer so riddled with holes that, when all is said and done, courts may find that it does not constrain their independent judgment any more than Skidmore. As reengineered, Auer requires courts to ‘exhaust all the ‘traditional tools’ of construction’ before they even consider deferring to an agency….And if they do, they will now have to conduct a further inquiry that includes so few firm guides and so many cryptic ‘markers’ that they will rarely, if ever, have to defer to an agency regulatory interpretation that differs from what they believe is the best and fairest reading.”
Roberts and Kavanaugh Concurrences
In his concurrence, Chief Justice Roberts agreed with the portions of Kagan’s opinion regarding stare decisis and the limitations on Auer, thus making a majority to retain Auer. Justice Kavanaugh, joined by Justice Alito, in a separate concurrence, believed that Auer “should be formally retired.”
However, both of these concurrences echoed to some extent the theme of Gorsuch’s silver lining. Roberts wrote “separately to suggest that the distance between the majority and Justice Gorsuch is not as great as it may initially appear.” The majority’s prerequisites for and limitations on Auer deference, he suggested, may not be that different from the factors that might persuade a court, in Gorsuch’s view, to adopt an agency interpretation. He made clear that he was not equating Auer deference with the power of persuasion discussed in Skidmore; “there is a difference between holding that a court ought to be persuaded by an agency’s interpretation and holding that it should defer to that interpretation under certain conditions. But it is to say that the cases in which Auer deference is warranted largely overlap with the cases in which it would be unreasonable for a court not to be persuaded by an agency’s interpretation of its own regulation.”
On that point, Kavanaugh’s concurrence lined up with Roberts: “If a reviewing court employs all of the traditional tools of construction, the court will almost always reach a conclusion about the best interpretation of the regulation at issue. After doing so, the court then will have no need to adopt or defer to an agency’s contrary interpretation….In short, after today’s decision, a judge should engage in appropriately rigorous scrutiny of an agency’s interpretation of a regulation, and can simultaneously be appropriately deferential to an agency’s reasonable policy choices within the discretion allowed by a regulation.”
Citing Chevron, Roberts also emphasized that “[i]ssues surrounding judicial deference to agency interpretations of their own regulations are distinct from those raised in connection with judicial deference to agency interpretations of statutes enacted by Congress…. I do not regard the Court’s decision today to touch upon the latter question.” Kavanaugh also agreed with Roberts with respect to the inapplicability of this case to Chevron.
As Roberts indicated, Auer deference should not be confused with the similar concept referred to as “Chevron deference.” “Chevron deference” refers to the well-worn two-step test for determining whether deference should be accorded to federal administrative agency actions interpreting a statute (as opposed to its own regulation), first articulated by SCOTUS in 1984 in Chevron v. Natural Resources Defense Council. Generally, the doctrine established in that case mandated that, if there is ambiguity in how to interpret a statute, courts must accept an agency’s interpretation of a law unless it is arbitrary or manifestly contrary to the statute. For example, in a 2016 decision, Monica Lindeen v. SEC, the D.C. Circuit applied Chevron to uphold the SEC’s rules adopted under Reg A+ against a challenge by two state securities regulators. And, as another example, the D.C. District Court applied Chevron in initially upholding the SEC’s conflict minerals rules in 2013 in Nat’l Ass’n of Mfrs. v. SEC. National Association of Manufacturers v SEC, which was subsequently reversed on other grounds. (See this Cooley News Brief.)
Like Auer deference, Chevron deference has also been highly politicized and come under attack in an effort to restrict the actions of the administrative state. You might recall that, in 2016, the Financial Choice Act, which passed the House but not the Senate, provided that, in any action for judicial review of agency action (including action by the SEC) authorized under any provision of law, the reviewing court shall determine the meaning or applicability of the terms of an agency action and decide de novo all relevant questions of law, including the interpretation of constitutional and statutory provisions, and rules made by an agency. See this PubCo post. (Note, however, that in the Financial Choice Act Version 2.0, the repeal of the “Chevron deference” doctrine would have been delayed for two years. See this PubCo post.) Similar provisions were included in quite a number of bills that passed the House but not the Senate in 2017. (See this PubCo post.)