Securities Regulation Daily Agency deference here to stay, but with constraints
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Wednesday, June 26, 2019

Agency deference here to stay, but with constraints

By Anne Sherry, J.D.

The Supreme Court stopped short of overturning the Auer doctrine of agency deference, but "cabined" it to the extent that the conservative bench feels it is effectively gutted.

The Supreme Court unanimously decided not to overrule its Auer precedent concerning judicial deference to an agency’s interpretation of its own regulation, but it added clarifications and requirements that some justices hope will accomplish the same thing. Borrowing from another deference doctrine, Chevron, the Court clarified that courts must exhaust all the tools of interpretation before concluding that a regulation is ambiguous. Having failed to do so, the circuit court below must again consider whether deference is appropriate in this case (Kisor v. Wilkie, June 26, 2019, Kagan, E.).

History and posture. In 1982 the petitioner, James Kisor, filed a claim for disability benefits with the Department of Veterans Affairs. The VA denied the claim, and in 2006 the petitioner sought review of this denial, identifying materials that existed at the time of the denial but had not been associated with his file. A judge of the Board of Veterans’ Appeals declined to apply benefits retroactively on the basis that the materials the petitioner had identified did not qualify as "relevant" within the meaning of the applicable regulation.

The Federal Circuit concluded that both parties offered reasonable constructions of the term "relevant," indicating that the VA’s regulation was ambiguous on its face. Therefore, it applied deference under Auer v. Robbins (U.S. 1997) and affirmed the VA judge’s application of the regulation because that interpretation was not "plainly erroneous or inconsistent" with the agency’s regulatory framework.

The Supreme Court granted certiorari limited to the question whether to overrule Auer and its predecessor, Bowles v. Seminole Rock & Sand Co.

Majority and concurring opinions. The majority opinion, authored by Justice Kagan, is accompanied by a web of concurrences as to various parts, but everyone joined in holding that Auer is not overruled. The most forceful concurrence is by Justice Gorsuch, who emphasized, "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." Chief Justice Roberts and Justice Kavanaugh also wrote separately to opine that, in fact, Justices Kagan and Gorsuch aren’t all that far apart.

New qualifications on the Auer doctrine. In putting the Auer doctrine in context, Justice Kagan emphasized the long tradition of agency deference as well as common sense. "Consider that if you don’t know what some text (say, a memo or an e-mail) means, you would probably want to ask the person who wrote it," she wrote, adding that agencies, rather than judges, have special expertise in the areas they regulate.

The Court allowed, however, that it has at times applied the doctrine without significant analysis of the underlying regulation or careful attention to the nature and context of the agency’s interpretation. With that in mind, it used the opportunity to "restate, and somewhat expand on," the principles behind agency deference and to "clear up some mixed messages we have sent."

First, a court should not afford Auer deference unless it determines, after exhausting all the traditional tools of construction, that the regulation is genuinely ambiguous. The principle that courts must exhaust their interpretive toolbox comes from a footnote in Chevron, the chief case addressing agency interpretations of a statute. In his concurrence, Justice Kavanaugh states approvingly that rigorously applying this requirement will effectively amount to the same thing as formally overturning Auer, because a court that employs all the tools of construction will almost always reach a conclusion about how to interpret the rule and will not need to defer to the agency.

Next, if there is a genuine ambiguity in the rule, the agency’s reading must still be reasonable—that is, within the zone of ambiguity the court identified after applying the interpretive tools. Even in the case of truly ambiguous rules, then, the tools of construction are still useful in that they establish the outer bounds of permissible interpretation. The Court added that, counter to some courts’ impressions, agency constructions of rules do not receive greater deference than agency constructions of statutes; under both Auer and Chevron, the agency’s reading must fall "within the bounds of reasonable interpretation." In their concurrences, however, Chief Justice Roberts and Justice Kavanaugh expressed their understanding that issues surrounding deference in the contexts of rules and statutes are, and remain, distinct.

Finally, to apply deference under Auer, the court must make an independent inquiry into whether the character and context of the agency interpretation entitles it to controlling weight. This means that the regulatory interpretation must be one actually made by the agency and not, for example, an ad hoc statement that does not reflect the agency’s views. The statement need not be approved by the agency head; an interpretation such as an official staff memorandum qualifies as long as it actually emanates from the actors understood to make authoritative policy in the relevant context. Furthermore, the interpretation must implicate the agency’s substantive expertise. Lastly, the agency’s reading must reflect its "fair and considered judgment" and may not create an unfair surprise, for example by substituting one view of a rule for another or imposing retroactive liability for conduct the agency had never addressed before.

Stare decisis saves Auer. The Court next turned to the question whether to overturn Auer entirely. Justice Kagan first concluded that Kisor had failed to convince the Court that Auer deference is wrong. This is in Part III-A of the opinion, in which only Justices Ginsburg, Breyer, and Sotomayor joined. The entire Court joined in Part III-B, where Justice Kagan explained that Kisor had not offered the special justification required to overcome stare decisis.

In Part III-A, Justice Kagan rejected Kisor’s argument that courts have abdicated their responsibility, under Section 706 of the Administrative Procedure Act, to "determine the meaning or applicability of the terms of an agency action." Kisor further argued that Auer circumvents the APA’s rulemaking requirements by giving an interpretive rule, which did not go through notice and comment, the force and effect of law. In Perez v. Mortgage Bankers Association (U.S. 2015), however, the Court specifically rejected the argument that rules take on the force of law by receiving Auer deference.

Kisor also argued that Auer encourages agencies to issue vague and open-ended regulations knowing they can later interpret those rules however they wish. But Justice Kagan saw weaknesses in this claim, which first appeared in a law review article and was later cited favorably by Justice Scalia. Not only does the theory lack an empirical basis, its logic is undercut by stronger incentives going in the opposite direction. Finally, she rejected Kisor’s argument that Auer deference violated the principles of separation of powers, reasoning that courts retain a firm grip on their function as interpreters.

In Part III-B, the Court unanimously held that stare decisis cut against overruling Auer. Departing from the doctrine of stare decisis requires special justification, and Kisor faced a particularly tall order by asking the Court to overrule not just one case but a 75-year-old line of precedents, each reaffirming the rest. To abandon Auer deference would cast doubt on many settled constructions of agency rules and, as Kisor conceded at oral argument, allow relitigation of any decision based on Auer. Finally, Auer is not a constitutional case, so Congress is free to alter the doctrine if it disagrees with the Court. Yet Congress has let the doctrine stand, even after the Court made clear that its decisions reflect a presumption about congressional intent and Justice Scalia and others began to raise questions about the doctrine. Kisor’s arguments against these points rested on variants of his merits claims and did not raise a "special justification" for departing with precedent.

Case remanded in light of the Court’s clarifications. Kisor will at least have another chance at obtaining retroactive disability benefits, as the Federal Circuit below "jumped the gun" in declaring the regulation ambiguous without bringing all interpretive tools to bear. The appeals court also assumed too quickly that Auer deference should apply in any event of general ambiguity. A court’s analysis does not end with the determination on ambiguity; it must also assess whether the interpretation is the kind Congress would want to receive deference. At oral argument, the Solicitor General suggested that the answer here might be no, explaining that the members of the VA Board act as individuals and that their many decisions have no precedential value. Accordingly, the Court vacated the appeals court’s opinion and remanded for consideration in light of the Court’s clarifications.

Justice Gorsuch’s concurrence. Justice Gorsuch’s concurring opinion, joined by Justice Thomas and in part by Justices Kavanaugh and Alito, posits that the overturning of Auer is inevitable based on its shaky coexistence with the APA and the Constitution, along with a long list of its other demerits. He calls out the Court for lacking the courage to outright overturn Auerand instead impose "new and nebulous qualifications and limitations" that leave it "maimed and enfeebled—in truth, zombified." While he hopes the Chief Justice is correct that Kisor will have the same practical effect as if it had overruled Auerdirectly, Justice Gorsuch believes that the means to this end matter for the sake of judges in the lower courts and, in turn, the litigants in front of them.

The case is No. 18-15.

Attorneys: Paul Whitfield Hughes (Mayer Brown) for James L. Kisor. Noel J. Francisco, U.S. Department of Justice, for Robert Wilkie.

MainStory: TopStory SupremeCtNews

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