United States: Developments In Judicial Deference Of Administrative Agency Actions

Last Updated: April 24 2015
Article by Thomas S. Crane

In my post of April 2, Divided Supreme Court Restricts Provider Challenges to State Medicaid Rates, I wrote about the March 31st Supreme Court decision that providers may not sue in federal court over the adequacy of state Medicaid rates (See Armstrong v. Exceptional Child Ctr., Inc. ("Exceptional Child Center"). In that post I commented that Justice Breyer, in a concurring opinion, saw the case through the lens of administrative law principles, citing to the deference principles in Chevron U.S.A. Inc. v. Natural Resources Defense Council ("Chevron"). I promised to follow-up, which I do today, to discuss a March 9th Supreme Court decision, Perez v. Mortgage Bankers Association, ("Perez"), in which three conservative Justices (Scalia, Thomas and Alito) filed separate concurring opinions revisiting various principles of judicial deference under the Administrative Procedures Act ("APA"). These concurring opinions provide important clues to the direction in which each of these Justices may wish to move the full Court in reconsidering bedrock deference principles, and perhaps even laying the groundwork ultimately to reconsider Chevron.

Chevron holds that, where Congress has "not directly spoken to the precise question at issue," i.e., where a statute is ambiguous (the so-called first prong), courts are to uphold an agency's reasonable or "permissible constructions of [a] statute" (the so-called second prong). The application of Chevron, and which prong will be determinative, is one of the main legal issues at play in King v. Burwell, the case addressing whether, under the Affordable Care Act ("ACA"), tax subsidies are available to consumers who buy health insurance through federally established exchanges. The Perez case encompassed the issue of deference to an agency's interpretation of its own rules, not the underlying statute. But the approaches to this aspect of deference taken by the three Justices in their concurring opinions in Perez may provide some hint as to what their positions will be on Chevron in King v. Burwell later this Term.

Judicial deference is based on judge-made rules to determine how courts decide whether administrative regulations and interpretations properly follow authorizing legislation. The issue before the Court in Perez was whether the Department of Labor was required to proceed by notice-and-comment rulemaking under the APA when it reversed its own interpretation of its regulations in 2010 and decided that mortgage loan officers were subject to the Department's overtime pay regulations.

The Mortgage Bankers Association ("MBA") brought suit, and, on appeal, the United States Circuit Court for the District of Columbia sided with the MBA based on its 1997 decision in Paralyzed Veterans of Am. v. D.C. Arena. That case held that, when federal agencies change their interpretations of their own regulations, they must implement such changes through notice-and-comment rulemaking. The Department of Labor appealed, and a unanimous Supreme Court reversed, holding that requiring notice-and-comment rulemaking in reversing an interpretation of a regulation is inconsistent with the plain language of the APA, which exempts "interpretive rules" from the formal notice-and-comment rulemaking requirements of other parts of the APA. (Inexplicably, it was not until MBA's brief to the Supreme Court that it borrowed a tactic from many health care provider challenges to interpretive rules, and argued that the interpretation at its core was substantively not an interpretative rule, but rather a legally binding legislative rule. The Supreme Court found that the MBA waived this argument.)

Writing for the Court, Justice Sotomayor found that a long line of cases hold that interpretive rules do not bind parties and therefore do not have the force and effect of law as do formal or "legislative" rules. Notably, the Court, citing to earlier precedent, also found that interpretive rules "are not accorded that weight in the adjudicatory process."

In their concurring opinions, while agreeing with the holding, each of Justices Scalia, Thomas and Alito employed approaches to the analysis of deference to be given to the administrative agencies' interpretation of their own regulations that took aim at traditional principles of deference. Those "traditional" principles derived from a 1945 Supreme Court decision, which predated the enactment of the APA, Bowles v. Seminole Rock & Sand Co., ("Seminole Rock"), and the Court's 1997 decision in Auer v. Robbins. These cases are discussed in the context of the concurring opinions below.

A third approach, the Skidmore Deference, is not directly cited in Justice Sotomayor's opinion, but is of importance to understand the outcome. Skidmore v. Swift, a 1944 Supreme Court decision, held that interpretations and opinions of a department are not controlling. The Court set out the factors to be afforded the agency in giving weight or deference in such circumstances: "the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control." As Skidmore deference has been interpreted over the years by other courts, the reality in practice is that interpretive guidance gets little or no deference at all, and so it is not surprising that the Court in Perez simply announced that agencies' interpretive rules are typically not afforded any deference.

Justice Scalia and Auer Deference. Justice Scalia, elaborating on his concern that the Court has "developed an elaborate law of deference to agencies' interpretations of statutes and regulations," focused his opinion on the reality that courts, in his view, give agencies' interpretive rules the force-and-effect of law and do bind regulated parties to such rules. Of concern to Scalia was the Court's 1997 decision in Auer v. Robbins, from which derives the "Auer deference" principle that an agency's interpretation of its own regulations is "controlling unless plainly erroneous or inconsistent with the regulation." In concluding his Perez concurrence — and without mentioning he authored the unanimous opinion in Auer — Scaliaargues for the abandonment of Auer and simply "applying [statutes] as written." An agency, he continues, "is free to interpret its own regulations — with or without notice and comment rulemaking, but courts will decide — with no deference to the agency — whether that interpretation is correct." Or as he put it in Exceptional Child Center, courts should avoid a rule of construction "that denies statutory text its fairest reading."

Justice Thomas and Seminole Rock Deference.Thomas's Perez concurrence took direct aim at Seminole Rock. In a scholarly, provocative 23 page opinion, nearly twice as long as Justice Sotomayor's opinion for the Court, he relied on English 17th Century sources and the Constitution's founding documents, such as the Federalist Papers, to make two fundamental constitutional challenges: Seminole Rock deference "represents a transfer of judicial power to the Executive Branch, and amounts to an erosion of the judicial obligation to serve as a 'check' on the political branches."

In Thomas's mind, the doctrine of judicial deference "has taken on a life of its own." A case of particular concern to him was a 1994 5-4 decision in Thomas Jefferson Univ. v. Shalala ("TJU"), in which Justice Kennedy, writing for the majority, was joined by Chief Justice Rehnquist and Justices Blackmun, Scalia and Souter, with Justice Thomas writing in dissent, joined by Justices Stevens, O'Connor and Ginsburg — clearly a non-ideologically based coalition.

TJU, although now over 20 years old, provides helpful insights into the real-world consequences for health care providers when faced with too much judicial deference. In brief, the case involves graduate medical education ("GME") reimbursement requests for direct salary costs under Medicare's GME regulation from TJU's affiliate, Thomas Jefferson University Hospital. After incurring GME salary costs for several years, either directly or through the medical school, in 1974 the Hospital first sought Medicare reimbursement on its cost report. The intermediary denied the expenses as violating the GME regulation's "anti-redistribution" and "community support" principles. The Provider Reimbursement Review board reinstated the reimbursement, but the Secretary reversed, a decision upheld by the District Court, Appeals Court and the Supreme Court.

Among the reasons supporting the majority opinion in TJU was the view that deference to an agency's interpretation of its own regulations was particularly important in areas requiring "significant expertise" of the agency. But the minority, led by Thomas, dug a bit deeper into the record without deference to HHS's interpretation of its own regulation and came to a very different view. First, the minority found the section of the GME regulation in question to be "cast in vague aspirational terms... [that] appears to be nothing more than a precatory statement of purpose that imposes no substantive restrictions" such that it may be used to deny reimbursement. Second, the minority found that HHS for the first twenty years of the Medicare program never gave substantive effect to the provision by denying reimbursement to any provider under the "anti-redistribution" and "community support" principles. Finally, the minority found it fundamentally unfair to deny GME reimbursement in this case, when the Hospital had previously incurred these costs but voluntarily declined to seek Medicare reimbursement until after a few years had passed.

Thomas's minority opinion in Perez carried forward and reframed his conclusion in TJU in reaching the constitutional conclusions regarding deference, described above, regarding the relationship between the judiciary and the executive branches.

Justice Alito: Justice Alito wrote a brief opinion largely supporting the concurring opinions of Justices Scalia and Thomas. Of special significance, he noted that one of his concerns was "the exploitation by agencies of the uncertain boundary between legislative and interpretative rules." This is an understandable concern. I have found often that the distinction that courts draw between these two types of rules is results-driven. In particular, it has often been unclear in a close reading of the facts of these cases how interpretive rules don't bind parties. This confusion becomes more apparent in the handful of court decisions that have held that False Claims Act ("FCA") liability can attach to providers' knowing violations of sub-regulatory "interpretive" guidance from the Department of Health and Human Services ("HHS"), for example, agency manuals. It is hard to understand how a party could not be more bound legally than to face enormous fines and penalties under the FCA.

Future Implications

So where do we think Justice's Alito, Scalia and Thomas are seeking to take their deference concerns, given they each fully recognized that Mortgage Bankers was not the case that presented these issues for resolution? First, there can be little doubt that Justices Scalia and Thomas are looking over the horizon for opportunities to reconsider Chevron deference to reasonable agency interpretations of ambiguous statutes that authorize the issuance of regulations. Thomas's reasoning in Mortgage Bankers, which addresses the somewhat separate question of judicial deference to an agency's interpretations of its own regulations, largely applies to Chevron deference as well. It is precisely because, in Thomas's view, agency interpretative rules in effect have the force of law that they should be subject to full judicial review. Thomas does not directly say that this is the same question courts face in interpreting the validity of regulations themselves. Justice Scalia was more forthcoming, however, stating: "The problem is bad enough, and perhaps insoluble if Chevron is not to be uprooted, with respect to interpretative rules setting forth agency interpretation of statutes."1

I leave for another day any comments as to whether adjustments to Chevron are warranted. I only note here that for health care providers it is almost axiomatic that once a court has decided that HHS should be afforded deference, HHS has won the case.

But one's desire for deference can cut both ways. For example, how Chevron deference plays out will be critical in the upcoming Court decision in King v. Burwell, in which the Court will decide whether tax subsidies are available to consumers who buy health insurance through federally established exchanges.2 Although the Court will likely focus on the so-called first prong of Chevron — whether the ACA is clear on its face (i.e., statutory text that appears to suggest that tax subsidies are only available for state established exchanges) — I suspect that, as with the experience of health care providers, if the Court gets past this first prong and applies the second prong, using Chevron deference grounds, the agency, in this case the IRS, will win.

I close with a modest suggestion for providers and counsel to pursue — one that is reinforced in Mortgage Bankers and consistent with other precedent. As emphasized by Justice Sotomayor, it is because interpretative rules are not seen as binding regulated parties that they do not have the force and effect of law, and therefore do not require formal notice and comment rulemaking. But that is not necessarily reality, as is borne out regularly by the experience of health care providers challenging interpretative rules, or more recently facing FCA liability: all too often rules that are characterized as "interpretive" in reality do bind the parties. The choices should be, then, that rules that bind parties should be treated like legislative rules requiring formal notice and comment rulemaking, among other protections; or they should be subject to judicial challenge in which, following the Alito/Scalia/Thomas line of reasoning in Perez, they should be given no deference whatsoever.

Footnotes

1 To digress from the deference discussion, it is noteworthy that on the same day as Mortgage Bankers was issued, the Court on March 9th issued a unanimous opinion that Amtrak is a public agency (see Department Of Transportation v. Association of American Railroads) in which Justice Thomas filed a concurring opinion largely citing to his Mortgage Bankers concurrence. In his Ass'n of American Railroads concurrence, he argued that the Separation of Powers clause does not authorize Congress to delegate to Executive agencies the power to "formulate generally applicable rules of private conduct," suggesting that agencies are not authorized to issue binding legislative rules – a theory that Harvard Law School Professor Cass R. Sunstein dismissed in a March 16th Bloomberg article as "eccentric" and "radical stuff."

2 It is possible that the case may not turn on Chevron after all, but on an issue raised by Justice Kennedy in oral argument that there are constitutional equal protection issues in denying tax subsidies to residents of states that did not implement their own state exchanges.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Cleary Gottlieb Steen & Hamilton LLP
Ogletree, Deakins, Nash, Smoak & Stewart
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Cleary Gottlieb Steen & Hamilton LLP
Ogletree, Deakins, Nash, Smoak & Stewart
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions