Supreme Court Signaling That Agencies May Have a Shorter Leash in the Future

16 April 2015 Dashboard Insights Blog

The automotive industry, as much as any industry operating in the United States, has a substantial federal regulatory burden, with an alphabet soup of agencies charged with regulating under the authority of an alphabet soup of statutes. Understanding whether a business is in compliance with the thicket of regulations covering the auto industry often requires considering regulatory interpretations issued by agencies — that is, not just the regulations themselves, but the agency’s additional explanations for what those regulations mean. Generally, courts called upon to enforce or interpret ambiguous regulations have deferred to those agency interpretations under so-called Auer (or Seminole Rock) deference, which says that the agency interpretation controls unless it is “plainly erroneous or inconsistent with the regulation.”

Supreme Court Getting Skeptical of Letting Regulators Interpret Their Own Regulations?

Recent Supreme Court decisions have started to call into question how much longer this deferential approach will be taken. Justice Scalia (the author of the Court’s unanimous decision in Auer), most notably, has pointed out that deference to agency interpretation of regulations creates the potential for huge concentration of power with agencies—as he put it in a separate opinion in a 2013 case, Decker v. Northwest Environmental Defense Center, “the power to write a law and the power to interpret it cannot rest in the same hands.” Justice Scalia urged an end to Auer deference in the opinion. While Justices Roberts and Alito expressed some sympathy for their colleague’s position, they concluded that the issue was not before them and had to wait for another day.

In a decision from this term, Perez v. Mortgage Bankers Association, the drumbeat to end Auer deference got a little bit louder. The decision itself turned on a relative bit of minutiae, as the Court ruled unanimously that where an agency has issued an interpretation of its rules, it need not engage in a notice-and-comment process if it later decides to change that interpretation, reversing an 18-year-old decision to the contrary from the DC Circuit Court of Appeals. Once again, Justice Scalia wrote separately with a full-throated attack on judicial deference to agency interpretations of their own regulations. This time, both Justices Thomas and Alito wrote separate opinions, expressing their own concerns about Auer and stating that such deference should be reconsidered in “an appropriate case.”

With Justices Scalia, Alito, and Thomas all on record as having either called for the demise of Auer deference or for an appropriate case to reconsider the doctrine, and Chief Justice Roberts at least suggesting openness to deciding the issue, it seems likely that the Court will be looking for an appropriate case to tackle the question head-on. Under the Rule of Four, these Justices alone are enough for the Court to decide to take a case on the matter.

What If Courts Stop Deferring to Agency Interpretations of Ambiguous Regulations?

If Auer deference is rejected in a future Supreme Court decision, the effect on regulatory enforcement could be dramatic. Agency interpretations of their own regulations, which require little in the way of prior notice, would no longer have the effect of law, as courts would not be bound to follow those interpretations when applying those regulations. This would reduce the critical importance of every jot and tittle issued by regulators, and would take some power out of regulators’ hands when they issue an ambiguous regulation (although that might create an incentive for agencies to be clearer when they engage in rulemaking in the first place). On the other hand, such ambiguities could result in a more fractured state of the law, as conflicts arise between various courts as to a regulation’s meaning without the agency itself having the power to quickly issue an interpretation clarifying the confusion (although the agency would retain the ability to amend or pass regulations through the more formal notice-and-comment process).

But more immediately for the subjects unfavorable agency interpretations of regulations, these opinions leave some daylight that agencies may not be getting a free pass on interpreting their own regulations for much longer, and it may pay to take a more aggressive approach toward litigating regulatory disputes, knowing that the foundations of Auer deference are weakening.

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