Thursday, March 28, 2013

Is the Traditional Formulation of Seminole Rock and Auer Deference in Play? (3/28/13)

The Supreme Court's decision in Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984) has been the most important administrative decision in modern times.  Through deference, it cedes to an administrative agency -- the IRS included -- great power, through regulation, to control how courts must apply the statutes the agency administers.  In effect, the agency can determine what the law is, so long as the statute has some ambiguity requiring interpretation and the agency's interpretation in the regulation is not unreasonable (i.e. arbitrary, capricious and manifestly contrary to the statute's text (and presumably intent)).  But the regulation itself may have some ambiguity requiring further interpretation.  When the ambiguity is recognized, the agency can amend the regulation to make the clarification.  But, the agency will often attempt the clarification by some lesser form of agency pronouncement (in the case of the IRS, by such a pronouncement as a Revenue Ruling or Notice).  Indeed, the IRS may attempt to state its interpretation of the regulation in a brief in litigation.  The question is what authority such interpretations of the regulations should be accorded.  This is obviously a hot-button issue in the tax law and well as in other areas of the law administered by federal agencies.

The standard holding of the Supreme Court has been that such interpretations are entitled to deference.  Justice Kennedy states the standard holding in the majority opinion in Decker v. Northwest Environmental Defense Center, ___ U.S. ___, 2013 U.S. LEXIS 2373 (3/20/13), here, a nontax case, as follows:
It is well established that an agency’s interpretation need not be the only possible reading of a regulation—or even the best one—to prevail. When an agency interprets its own regulation, the Court, as a general rule, defers to it “unless that interpretation is ‘plainly erroneous or inconsistent with the regulation.’” 
This deference is commonly referred to as "Seminole Rock" or "Auer" deference." See Bowles v. Seminole Rock & Sand Co., 325 U. S. 410 (1945); and Auer v. Robbins, 519 U. S. 452 (1997).

This broad deference to agency interpretations is not without its critics, even on the Supreme Court.  In Decker, the issue surfaced again.  Justice Scalia took the opportunity to swipe at it in detail in a dissent, and Chief Justice Roberts, with Justice Alito joining, in a concurring opinion, suggested that the issue might be reconsidered in another case.  I first cover Chief Justice Roberts' short discussion and then cover Justice Scalia's full-throated -- is there any of way with Justice Scalia? -- criticism.
Justice Roberts' concurrence in full is:
The opinion concurring in part and dissenting in part raises serious questions about the principle set forth in Bowles v. Seminole Rock & Sand Co., 325 U. S. 410, 65 S. Ct. 1215, 89 L. Ed. 1700 (1945), and Auer v. Robbins, 519 U. S. 452, 117 S. Ct. 905, 137 L. Ed. 2d 79 (1997). It may be appropriate to reconsider that principle in an appropriate case. But this is not that case. 
Respondent suggested reconsidering Auer, in one sentence in a footnote, with no argument. See Brief for Respondent 42, n. 12. Petitioners said don’t do it, again in a footnote. See Reply Brief for Petitioners in No. 11-338, p. 4, n. 1; see also Turner Broadcasting System, Inc. v. FCC, 520 U. S. 180, 223-224, 117 S. Ct. 1174, 137 L. Ed. 2d 369 (1997) (declining to decide question that received only “scant argumentation”). Out of 22 amicus briefs, only two—filed by dueling groups of law professors—addressed the issue on the merits. See Brief for Law Professors as Amici Curiae on the Propriety of Administrative Deference in Support of Respondent; Brief for Law Professors as Amici Curiae in Support of Petitioners; see also FTC v. Phoebe Putney Health System, Inc., 568 U. S. ___, ___, n. 4, 133 S. Ct. 1003, 185 L. Ed. 2d 43, 54, n. 4 (2013)) (declining to consider argument raised only by amicus). 
The issue is a basic one going to the heart of administrative law. Questions of Seminole Rock and Auer deference arise as a matter of course on a regular basis. The bar is now aware that there is some interest in reconsidering those cases, and has available to it a concise statement of the arguments on one side of the issue. 
I would await a case in which the issue is properly raised and argued. The present cases should be decided as they have been briefed and argued, under existing precedent.
Justice Scalia's dissent offers a full-throated attack on the concept.  (Does Justice Scalia offer any discourse that is not full-throated?)  I won't quote Justice Scalia's dissent  in full, but will give key excerpts that present his criticism:
I do not join Part III. The Court there gives effect to a reading of EPA’s regulations that is not the most natural one, simply because EPA says that it believes the unnatural reading is right. It does this, moreover, even though the agency has vividly illustrated that it can write a rule saying precisely what it means—by doing just that while these cases were being briefed. 
Enough is enough. 
For decades, and for no good reason, we have been giving agencies the authority to say what their rules mean, under the harmless-sounding banner of “defer[ring] to an agency’s interpretation of its own regulations.” Talk America, Inc. v. Michigan Bell Telephone Co., 564 U. S. ___, ___, 131 S. Ct. 2254, 180 L. Ed. 2d 96, 112 (2011) (SCALIA , J., concurring). This is generally called Seminole Rock or Auer deference. See Bowles v. Seminole Rock & Sand Co., 325 U. S. 410, 65 S. Ct. 1215, 89 L. Ed. 1700 (1945); Auer v. Robbins, 519 U. S. 452, 117 S. Ct. 905, 137 L. Ed. 2d 79 (1997). 
Two Terms ago, in my separate concurrence in Talk America, I expressed doubts about the validity of this practice. In that case, however, the agency’s interpretation of the rule was also the fairest one, and no party had asked us to reconsider Auer. Today, however, the Court’s deference to the agency makes the difference (note the Court’s defensive insistence that the agency’s interpretation need not be “the best one,” ante, at 14). And respondent has asked us, if necessary, to “‘reconsider Auer.’” I believe that it is time to do so. See Brief for Respondent 42, n. 12; see also Brief for Law Professors on the Propriety of Administrative Deference as Amici Curiae. This is especially true because the circumstances of these cases illustrate Auer’s flaws in a particularly vivid way. 
The canonical formulation of Auer deference is that we will enforce an agency’s interpretation of its own rules unless that interpretation is “plainly erroneous or inconsistent with the regulation.” Seminole Rock, supra, at 414, 65 S. Ct. 1215, 89 L. Ed. 1700. But of course whenever the agency’s interpretation of the regulation is different from the fairest reading, it is in that sense “inconsistent” with the regulation. Obviously, that is not enough, or there would be nothing for Auer to do. In practice, Auer deference is Chevron deference applied to regulations rather than statutes. See Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984). The agency’s interpretation will be accepted if, though not the fairest reading of the regulation, it is a plausible reading—within the scope of the ambiguity that the regulation contains. 
Our cases have not put forward a persuasive justification for Auer deference. The first case to apply it, Seminole Rock, offered no justification whatever—just the ipse dixit that “the administrative interpretation . . . becomes of controlling weight unless it is plainly erroneous or inconsistent with the regulation.” 325 U. S., at 414, 65 S. Ct. 1215, 89 L. Ed. 1700. Our later cases provide two principal explanations, neither of which has much to be said for it. See generally Stephenson & Pogoriler, Seminole Rock’s Domain, 79 Geo. Wash. L. Rev. 1449, 1454-1458 (2011). First, some cases say that the agency, as the drafter of the rule, will have some special insight into its intent when enacting it. E.g., Martin v. Occupational Safety and Health Review Comm’n, 499 U. S. 144, 150-153, 111 S. Ct. 1171, 113 L. Ed. 2d 117 (1991). The implied premise of this argument—that what we are looking for is the agency’s intent in adopting the rule—is false. There is true of regulations what is true of statutes. As Justice Holmes put it: “[w]e do not inquire what the legislature meant; we ask only what the statute means.” The Theory of Legal Interpretation, 12 Harv. L. Rev. 417, 419 (1899). Whether governing rules are made by the national legislature or an administrative agency, we are bound by what they say, not by the unexpressed intention of those who made them. 
The other rationale our cases provide is that the agency possesses special expertise in administering its “‘complex and highly technical regulatory program.’” See, e.g., Thomas Jefferson Univ. v. Shalala, 512 U. S. 504, 512, 114 S. Ct. 2381, 129 L. Ed. 2d 405 (1994). That is true enough, and it leads to the conclusion that agencies and not courts should make regulations. But it has nothing to do with who should interpret regulations—unless one believes that the purpose of interpretation is to make the regulatory program work in a fashion that the current leadership of the agency deems effective. Making regulatory programs effective is the purpose of rule-making, in which the agency uses its “special expertise” to formulate the best rule. But the purpose of interpretation is to determine the fair meaning of the rule—to “say what the law is,” Marbury v. Madison, 5 U.S. 137, 1 Cranch 137, 177, 2 L. Ed. 60 (1803). Not to make policy, but to determine what policy has been made and promulgated by the agency, to which the public owes obedience. Indeed, since the leadership of agencies (and hence the policy preferences of agencies) changes with Presidential administrations, an agency head can only be sure that the application of his “special expertise” to the issue addressed by a regulation will be given effect if we adhere to predictable principles of textual interpretation rather than defer to the “special expertise” of his successors. If we take agency enactments as written, the Executive has a stable background against which to write its rules and achieve the policy ends it thinks best. 
Another conceivable justification for Auer deference, though not one that is to be found in our cases, is this: If it is reasonable to defer to agencies regarding the meaning of statutes that Congress enacted, as we do per Chevron, it is a fortiori reasonable to defer to them regarding the meaning of regulations that they themselves crafted. To give an agency less control over the meaning of its own regulations than it has over the meaning of a congressionally enacted statute seems quite odd. 
But it is not odd at all. The theory of Chevron (take it or leave it) is that when Congress gives an agency authority to administer a statute, including authority to issue interpretive regulations, it implicitly accords the agency a degree of discretion, which the courts must respect, regarding the meaning of the statute. See Smiley v. Citibank (South Dakota), N. A., 517 U. S. 735, 740-741, 116 S. Ct. 1730, 135 L. Ed. 2d 25 (1996). While the implication of an agency power to clarify the statute is reasonable enough, there is surely no congressional implication that the agency can resolve ambiguities in its own regulations. For that would violate a fundamental principle of separation of powers—that the power to write a law and the power to interpret it cannot rest in the same hands. “When the legislative and executive powers are united in the same person . . . there can be no liberty; because apprehensions may arise, lest the same monarch or senate should enact tyrannical laws, to execute them in a tyrannical manner.” Montesquieu, Spirit of the Laws bk. XI, ch. 6, pp. 151-152 (O. Piest ed., T. Nugent transl. 1949). Congress cannot enlarge its own power through Chevron—whatever it leaves vague in the statute will be worked out by someone else. Chevron represents a presumption about who, as between the Executive and the Judiciary, that someone else will be. (The Executive, by the way—the competing political branch—is the less congenial repository of the power as far as Congress is concerned.) So Congress’s incentive is to speak as clearly as possible on the matters it regards as important. 
But when an agency interprets its own rules—that is something else. Then the power to prescribe is augmented by the power to interpret; and the incentive is to speak vaguely and broadly, so as to retain a “flexibility” that will enable “clarification” with retroactive effect. “It is perfectly understandable” for an agency to “issue vague regulations” if doing so will “maximiz[e] agency power.” Thomas Jefferson Univ., supra, at 525, 114 S. Ct. 2381, 129 L. Ed. 2d 405 (THOMAS , J., dissenting). Combining the power to prescribe with the power to interpret is not a new evil: Blackstone condemned the practice of resolving doubts about “the construction of the Roman laws” by “stat[ing] the case to the emperor in writing, and tak[ing] his opinion upon it.” 1 W. Blackstone, Commentaries on the Laws of England 58 (1765). And our Constitution did not mirror the British practice of using the House of Lords as a court of last resort,  [*38] due in part to the fear that he who has “agency in passing bad laws” might operate in the “same spirit” in their interpretation. The Federalist No. 81, pp. 543-544 (J. Cooke ed. 1961). Auer deference encourages agencies to be “vague in framing regulations, with the plan of issuing ‘interpretations’ to create the intended new law without observance of notice and comment procedures.” Anthony, The Supreme Court and the APA: Sometimes They Just Don’t Get It, 10 Admin. L. J. Am. U. 1, 11-12 (1996). Auer is not a logical corollary to Chevron but a dangerous permission slip for the arrogation of power. See Talk America, 564 U. S., at ___, 131 S. Ct. 2254, 180 L. Ed. 2d 96 (slip op., at 2-3) (SCALIA , J., concurring); Manning, Constitutional Structure and Judicial Deference to Agency Interpretations of Agency Rules, 96 Colum. L. Rev. 612 (1996). 
It is true enough that Auer deference has the same beneficial pragmatic effect as Chevron deference: The country need not endure the uncertainty produced by divergent views of numerous district courts and courts of appeals as to what is the fairest reading of the regulation, until a definitive answer is finally provided, years later, by this Court. The agency’s view can be relied upon, unless it is, so to speak, beyond the pale. But the duration of the uncertainty produced by a vague regulation need not be as long as the uncertainty produced by a vague statute. For as soon as an interpretation uncongenial to the agency is pronounced by a district court, the agency can begin the process of amending the regulation to make its meaning entirely clear. The circumstances of this case demonstrate the point. While these cases were being briefed before us, EPA issued a rule designed to respond to the Court of Appeals judgment we are reviewing. See 77 Fed. Reg. 72974 (2012) (to be codified in 40 CFR pt. 122, sub pt. B). It did so (by the standards of such things) relatively quickly: The decision below was handed down in May 2011, and in December 2012 the EPA published an amended rule setting forth in unmistakable terms the position it argues here. And there is another respect in which a lack of Chevron-type deference has less severe pragmatic consequences for rules than for statutes. In many cases, when an agency believes that its rule permits conduct that the text arguably forbids, it can simply exercise its discretion not to prosecute. That is not possible, of course, when, as here, a party harmed by the violation has standing to compel enforcement. 
In any case, however great may be the efficiency gains derived from Auer deference, beneficial effect cannot justify a rule that not only has no principled basis but contravenes one of the great rules of separation of powers: He who writes a law must not adjudge its violation.
I suppose one could read into these concurring and dissenting opinions some considerable interest in at least revisiting Seminole Rock and Auer.

And, as to Justice Scalia, I think he has a first rate ability to reason when he is not off on a tear on non-legal issues.

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