Supreme Court Hears Oral Argument in Agency Interpretive Rule Case: Perez v. Mortgage Bankers Association
Commentary by Bob Zwirb
The U.S. Supreme Court heard oral arguments in a case involving the Department of Labor ("DOL") altering the interpretation of a rule without undertaking formal notice-and-comment rulemaking procedure under the Administrative Procedure Act ("APA").
The Court is reviewing a U.S. Court of Appeals for the District of Columbia Circuit ruling which held that, when an agency has given one of its regulations a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended the regulation, something it may not accomplish under the APA without public notice and comment.
The matter concerns an action by the DOL, which revised the Bush Administration's guidance to suggest that the Fair Labor Standards Act overtime provisions did not apply to mortgage brokers. The Mortgage Bankers Association ("MBA") sued the DOL in a federal district court and argued that the agency could not change its interpretation without first going through the notice-and-comment period required by the APA. The District Court denied MBA's motion for summary judgment. The D.C. Circuit Court reversed and remanded the case with instructions to vacate the DOL's 2010 interpretation. The DOL then asked the Supreme Court to overturn the D.C. Circuit Court's requirement that an agency engage in formal rulemaking procedures before it significantly changes an interpretative rule.
At issue here is whether a federal agency must engage in a notice-and-comment procedure before it can significantly alter the interpretation of a rule of agency regulation. MBA argues that when an agency significantly revises a previous interpretation, the agency has in effect amended its rule, which it may not do under the APA without notice and comment. The DOL, represented by the Justice Department's Deputy Solicitor General, counters by arguing that an agency's amendment or repeal of an interpretative rule, just like the initial issuance, is exempt from notice-and-comment rulemaking.
See: Audio of Arguments.
Related news: Amicus Curiae Brief Regarding APA Rulemaking Process (with Zwirb Comment and Lofchie YouTube Selection) (October 21, 2014); D.C. District Court Issues Opinion on SIFMA v. CFTC Cross-Border Guidance Case (with Lofchie and Zwirb Comments) (September 16, 2014).
Commentary
If the Supreme Court upholds the decision of the D.C. Circuit Court and requires notice-and-comment procedures for certain interpretive rules, such an outcome would seem to call into question the logic of the District Court's holding in SIFMA v. CFTC, Civil Action No. 13-1916 (PLF) (D.D.C. 2014), where the court held that the CFTC's cross-border guidance is not subject to APA rulemaking procedures. By contrast, such a ruling would likely not affect the decision in Inv. Co. Institute v. CFTC, 720 F.3d 370 (D.C. Cir. 2013), which upheld the CFTC's amendments to re-impose de minimis trading and no-marketing restrictions upon SEC-registered investment companies reversing the regulatory policy adopted a decade earlier, since there the CFTC effected its change in policy through formal rulemaking.
What is striking about the oral argument here is the degree to which the justices appear to be troubled by the increasing use of interpretive rules and guidance to make binding policy and bypass APA rulemaking requirements. Justice Kagan expressed concern with "agencies more and more . . . using interpretative rules and . . . guidance documents to make law and that . . . it's essentially an end run around the notice and comment provisions." Justice Sotomayor asked the government to "address the fundamental concern . . . that agencies are bypassing the notice and public comment by using interpretative rules when they should be using legislative rules."
Those concerns were at the heart of what troubled many with respect to the CFTC's issuance of cross-border guidance. Although the factual circumstances and procedural posture of the two matters are not the same, with the Perez case involving an interpretation of a prior agency interpretation whose classification as an interpretive rule is not in dispute (while the CFTC matter involved an interpretation of the statute with the legal character of the guidance in dispute). That said, the implications of the CFTC's rulemaking in the cross-border case are of a scope that on its face is far greater than what was at dispute in this case.