Argument preview: The Administrative Procedure Act, notice-and-comment rule making, and “interpretive” rules

Brian Wolfman is the Edwin A. Heafey, Jr. Visiting Professor at the Stanford Law School Supreme Court Litigation Clinic. Bradley Girard graduated from Georgetown Law in 2014.

On December 1, in Perez v. Mortgage Bankers Association (consolidated with Nickols v. Mortgage Bankers Association), the Court will consider an important question of administrative law: 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.

Legal background

The Administrative Procedure Act (APA) authorizes federal agencies to promulgate rules. The APA defines a “rule” as “an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy.” Let’s take a look at two kinds of rules: legislative and interpretive, neither of which is expressly defined by the APA.

The Supreme Court has said that a legislative or “substantive” rule – commonly referred to as a “regulation” – “binds” the public, and, like a statute, has the “force and effect” of law. The APA generally requires that, to become effective, a legislative rule must go through what is known as notice-and-comment rulemaking – a lengthy process in which the public is given an opportunity to comment on a proposed version of the rule and the agency responds to the comments. The public-comment process sometimes significantly influences the content of legislative rules.

Interpretive rules are treated differently. The APA provides that the notice-and-comment requirement “does not apply” to interpretive rules, and, thus, agencies may issue interpretive rules without any public input. It is often said that an interpretive rule differs from a legislative rule because it does not bind the public or have the force and effect of law, but only states the agency’s interpretation of its governing law or regulations. Interpretive rules include many agency pronouncements, issued with varying indicia of formality, such as guidance documents and interpretive bulletins and memos. Federal agencies operate under thousands of interpretative rules that do not go through notice-and-comment rulemaking.

Discerning the difference between a legislative rule and an interpretive rule is not always easy. More on that later.

As noted, the APA expressly exempts interpretive rules from its notice-and-comment requirement, and, therefore, it is common ground in the case before the Court that an interpretive rule need not go through the notice-and-comment process when it is first issued. Nonetheless, the D.C. Circuit has held, in a series of cases that has become known as the Paralyzed Veterans doctrine, that an agency may not significantly revise an existing interpretative rule without taking the revision through notice-and-comment rulemaking. This case now asks the Supreme Court to decide whether the Paralyzed Veterans doctrine squares with the APA.

Factual and procedural background

The Fair Labor Standards Act (FLSA) requires that employees be paid overtime for working more than forty hours per week, but it exempts “any employee employed in a bona fide executive, administrative, or professional capacity.” In 2004, the Department of Labor (DOL), through notice-and-comment rulemaking, revised its regulations to require overtime pay for any “employee whose primary duty is selling financial products.”

In 2006, claiming to interpret the agency’s regulation, DOL issued an interpretive rule stating that the “primary duty” of mortgage-loan officers is not selling financial products and that, therefore, mortgage-loan officers are exempt from the FLSA’s overtime requirement. In 2010, however, claiming to interpret the same regulation, DOL withdrew its 2006 interpretation and issued a new interpretation stating that mortgage-loan officers are not exempt and so are entitled to overtime pay.

The Mortgage Bankers Association (MBA) sued DOL, arguing that the 2010 re-interpretation is invalid because it did not go through notice-and-comment rulemaking. The D.C. Circuit agreed with MBA, relying on the Paralyzed Veterans doctrine. The Supreme Court granted review.

The Supreme Court briefs

The Solicitor General’s brief on behalf of DOL is as textualist as you’ll find. Under the APA’s express terms, the SG explains, a legislative rule requires notice and comment, and an interpretive rule does not. And, because the APA defines “rule making” as the process “for formulating, amending, or repealing a rule,” any amendment to an interpretive rule should be treated the same as an initial interpretive rule. Case closed. The SG then turns to the APA’s policy. Interpretive rules are meant to reflect only the agency’s own views, and, “unlike binding legislative rules,” “do not have the force and effect of law.” According to the government, Congress wanted to maximize agencies’ opportunities to inform the public of their views without going through the cumbersome notice-and-comment process. Application of the Paralyzed Veterans rule, the SG suggests, may cause agencies to clam up rather than to incur the costs and delay of notice and comment, resulting in a less informed public. The government’s brief also points to law professors’ unanimous disdain for Paralyzed Veterans, quoting a cert.-stage amicus brief submitted by seventy-three administrative-law experts who were “not aware of a single scholar who agrees with the doctrine.”

MBA’s brief is conspicuous for what it does not do: it makes no effort to rebut DOL’s textual argument. Rather, MBA’s central argument is that the Paralyzed Veterans doctrine comports with the APA’s “procedural fairness” goals. The APA, MBA says, gives agencies the power to make law only when they are checked by procedural safeguards, such as the notice-and-comment requirement, that provide the public a say in agency law making. Otherwise, the meaning of agency law could change on the spot whenever the party in power at 1600 Pennsylvania changes. This case, MBA says, is a perfect example – in 2006, DOL said mortgage-loan officers are exempt from the overtime-pay requirement; in 2010, with a different administration in place, DOL said the exact opposite. MBA also tries to blur the difficult line between legislative and interpretive rules, noting that DOL has called its 2010 interpretive rule a “substantive change” entitled to “controlling deference.” Thus, MBA says, DOL’s overtime-pay pronouncement is a “legislative rule in interpretive clothing” and should have been subjected to the APA’s notice-and-comment requirement.

Analysis

Whether the 2010 DOL rule is really a legislative rule may be an interesting question, but, unfortunately for MBA, the question before the Court assumes that the 2010 rule is interpretive and then asks whether notice and comment was required. If the Court reviews the question presented on its own terms, Paralyzed Veterans is likely in for rough treatment for the textual reasons provided by the SG.

But a bit more is going on here. As noted, MBA’s brief reminds the Court that DOL has claimed its 2010 interpretative rule is “substantive” and entitled to deference. That sounds like a rule intended to bind the public. More generally, federal agencies repeatedly have sought and received judicial deference for their regulatory interpretations. Indeed, in cases such as Auer v. Robbins and Chase Bank v. McCoy, the Court has deferred even to agency interpretations expressed for the first time in an agency amicus brief, so long as the interpretation is not “plainly erroneous.” That kind of judicial deference seems like giving an interpretative rule the force and effect of law without requiring it to go through notice-and-comment rulemaking.

But things are in flux. Some of the Justices have begun to question the propriety of judicial deference to an agency’s interpretation of its own regulations. Indeed, based on separation-of-power concerns beyond the scope of this preview, Justice Scalia has now said such deference is inappropriate. But justifying the Paralyzed Veterans doctrine based on its claimed usefulness in taming the deference problem doesn’t add up. After all, everyone agrees that a brand-new interpretive rule, like a revised interpretative rule, is a candidate for judicial deference, and yet it is unaffected by the Paralyzed Veterans doctrine – that is, it need not go through notice-and-comment rulemaking.

So, will this case become a stalking horse for airing the deference problem? Will the Court wade into the difficult task of distinguishing interpretation from legislation? We think not. More likely, the Court will stick with the question presented, perhaps acknowledging the broader issues, but leaving them for another day.