Recent Supreme Court Decision Could Change The Deference Given To Federal Agencies?

Rule Making Bombshell
Recent Supreme Court Decision Could Change The Deference Given To Federal Agencies?
Reeves & Dola, LLP
Reeves & Dola, LLP

USA –-(Ammoland.com)- On March 9, 2015, the Supreme Court reversed a long-standing doctrine requiring federal agencies to go through public notice-and-comment rulemaking each time they significantly revise a definitive interpretation of a law or regulation.

For businesses who operate in regulated industries, the public notice of proposed rulemaking is an extremely important process through which to offer input to government agencies when introducing a new rule or proposing a change to an existing rule.

Pursuant to the Court's decision in Perez v. Mortgage Bankers Association, 135 S. Ct. 1199 (2015), federal agencies who issue informal advice to regulated industry members will be able to dramatically change existing interpretations of the law without advance public notice or comment. Despite the negative implications, which we will discuss, we wonder whether this decision could in fact lead courts to reconsider the deference they give to federal agencies.

1. THE ADMINISTRATIVE PROCEDURE ACT

The Administrative Procedure Act (APA) specifies the procedures federal agencies must follow for “rule making,” defined as the process of “formulating, amending, or repealing a rule.” The statute defines “rule” to include “statement[s] of general or particular applicability and future effect” that are designed to “implement, interpret, or prescribe law or policy.”

The APA distinguishes between two types of rules: legislative rules and interpretative rules. The first, “legislative rules,” may be issued only through notice-and-comment rule making. This requires publication of a notice in the Federal Register, submission of comments from all interested parties, consideration of those comments, and issuance of the final rule. This process is the one that federal agencies, including the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and the Department of State (DOS), generally follow when amending regulations in 27 C.F.R. Parts 447, 478 and 479 and 22 C.F.R. Parts 120-130, respectively. Legislative rules issued in accordance with the APA have the force and effect of law.

By contrast, “interpretative rules” are not subject to the APA notice-and-comment rule making requirements. Interpretative (or interpretive) rules are informal rules federal agencies issue to provide general guidance to regulated industry members and the public. Some examples of interpretive rules are ATF rulings, questions and answers published on the ATF and DOS websites; the DOS Guidelines for Preparing Electronic Agreements; private letter rulings issued by ATF providing guidance to Federal Firearms Licensees on conduct of business issues under the Gun Control Act; and ATF's recent publication of the ATF Framework for Determining Whether Certain Projectiles are ‘Primarily Intended for Sporting Purposes' Within the Meaning of 18 U.S.C. 921(a)(17)(C). An agency's ability to issue informal advice quickly and efficiently is advantageous to the federal agency and, at times, the targeted audience, as notice-and-comment procedures of the APA take much longer, possibly even years. However, the convenience and speed of issuing interpretive rules comes at a price to industry members who have no advance notice and no input into the agency's policies. They also come at a price to the federal agencies, as these rules do not have the force and effect of law and are given very little deference by reviewing courts.

2. PEREZ CASE OVERVIEW

The Perez case arose out of a dispute between the Mortgage Banker's Association (MBA), a trade group representing real estate finance companies, and the U.S. Department of Labor (DOL), over whether mortgage loan officers are subject to the minimum wage and overtime requirements of a federal statute. In 2006 the DOL had issued an opinion letter stating that mortgage-loan officers are exempt from the statutory minimum wage and overtime requirements, but then in 2010, DOL reversed itself and withdrew the earlier 2006 opinion letter, finding that mortgage-loan officers are subject to the minimum wage and overtime requirements.

The MBA subsequently filed suit against the DOL in federal court, claiming among other things that the 2010 opinion letter violated the APA because the DOL significantly revised its interpretation of the statute without public notice and comment. The MBA based its argument on a doctrine established in a line of cases in the District of Columbia Circuit beginning with the 1997 case, Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 479 (D.C. Cir. 1997). Under the so-called Paralyzed Veterans doctrine, “[w]hen an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended its rule, something it may not accomplish [under the APA] without notice and comment.” Alaska Prof'l Hunters Ass'n v. FAA, 177 F.3d 1030, 1034 (D.C. Cir. 1999). Accordingly, the MBA argued that when an agency alters a prior, definitive interpretation of a regulation, it effectively amends the regulation itself, which ought to require notice-and-comment rulemaking.

The Supreme Court, in a 5-4 decision authored by Justice Sotomayor, rejected the Paralyzed Veterans doctrine (and MBA's arguments) and ruled the DOL's 2010 decision did not violate the APA's notice and comment requirement because the decision was an interpretive rule.

According to the Court, federal agencies are excused from notice-and-comment rule making when issuing interpretive rules, even if the agency's interpretation is a substantial change from or outright reversal of a previous interpretation.

The Court found the Paralyzed Veterans doctrine to impose on federal agencies a judge-made procedural right to notice and comment which Congress specifically left out, stating, “[i]mposing such an obligation is the responsibility of Congress or the administrative agencies, not the courts. We trust that Congress weighed the costs and benefits of placing more rigorous restrictions on the issuance of interpretive rules….In the end, Congress decided to adopt standards that permit agencies to promulgate freely such rules – whether or not they are consistent with earlier interpretations.” Perez at 1207 (citing Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U.S. 519, 523 (1978).

3. IMPACT OF THE PEREZ DECISION

The impact of the Perez case is significant for industries subject to federal agency regulation. ATF, DOS, and other federal agencies may reverse prior agency positions without complying with the notice and comment rulemaking provisions of the APA. There may be instances when such efficiency may benefit industry members by providing timely and meaningful direction on compliance with law. Nevertheless, we cannot ignore the potential for harm to persons and businesses who develop product lines, markets, and adopt processes and procedures in reliance on agency interpretations of the law and regulations. Further, bypassing notice-and-comment rule making may also enable the agency to adopt positions involving technical issues that would benefit from input from affected industry members, as not all technical expertise resides within the federal government.

M855 Ammunition
M855 Ammunition Ban

One recent example of agency action that could be affected by this decision is the ATF Framework relating to exemptions for projectiles that meet the definition of “armor piercing ammunition.” ATF's proposal, published on its website on February 13, 2015 (discussed in our alert of February 16, 2015), would withdraw the agency's exemption for 5.56 mm (.223) SS109 and M855 “green tip” ammunition containing a steel core. The exemption has been in place since 1986 and is well known in the firearms and ammunition industries. Prior to issuance of the Perez decision, ATF's withdrawal of the exemption might be subject to challenge under the APA pursuant to the Paralyzed Veterans doctrine. Litigants harmed by withdrawal of the exemption would claim that ATF could not rescind the exemption, granted via private letter ruling as an “interpretive rule,” without publishing a notice in the Federal Register, soliciting public comment, and then publishing a final rule.

Now that the Supreme Court has rejected Paralyzed Veterans, ATF is free to withdraw this exemption informally through issuance of another private letter ruling without notice and comment.

In Perez, the Court addressed the question of procedural fairness for interpretive rules by referencing two avenues for recourse: the first is the arbitrary and capricious standard within the APA. “The APA requires an agency to provide more substantial justification when its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account. It would be arbitrary and capricious to ignore such matters.” Perez at 1209 (citing Vermont Yankee at 515).

The second avenue is safe-harbor provisions Congress may include in statutes to protect regulated entities from liability when an agency adopts an interpretation that conflicts with its previous position. We note, however, that this requires positive action from Congress.

The bottom line is: that ATF, DOS, and other federal agencies will enjoy more freedom to change informal policies without going through burdensome and time-consuming notice-and-comment rule making. Agencies may reverse course with no advance notice or input from affected industry members. The silver lining in the Perez opinion is the invitation to reconsider the deference federal courts give to agency positions. Such deference raises constitutional issues and gives agency positions a presumption of validity that they frequently do not deserve.

The above analysis is for informational purposes only and is not intended to be construed or used as legal advice. Receipt of this alert does not establish, in and of itself, an attorney-client relationship.

Questions about this alert can be directed to:

About Reeves & Dola

Reeves & Dola is a Washington, DC law firm that specializes in helping clients navigate the highly regulated and complex world of manufacturing, sales and international trade of defense and commercial products. We have a deep understanding of the Federal regulatory process, and use our expertise in working with a variety of Federal agencies to assist our clients with their transactional and regulatory needs. www.reevesdola.com

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john
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john

What a crock of double talk and gibberish,it,s no wonder are politicians are so screwed up ,even if they read it, they can,t understand it.

TEX
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TEX

I was going to apply for my FFL but don’t really know what the hell to do right now !

Wild Bill
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Wild Bill

Under Bill Clinton the BATFE was pressuring many FFL holders to drop their FFL so that BATFE would have enough personnel to actually inspect the FFL holders. The BATFE’s argument was that if you didn’t have a store front, then you were not really a business. Never mind that you don’t have to be a business to get an FFL under the regs. Lots of FFL holders just wanted to buy directly and cut out the middle man. Now, Barry Soetoro says that if you sell more than one gun a year from your personal collection, then you are a… Read more »