The Administrative Procedure Act1×1. Pub. L. No. 79-404, 60 Stat. 237 (1946) (codified as amended in scattered sections of 5 U.S.C.). (APA) requires an agency to post notice and solicit comments when issuing regulations that have the force of law,2×2. See 5 U.S.C. § 553 (2012). but does not require an agency to use notice-and-comment procedures to publicize its interpretation — which does not carry the force of law — of a statute or regulation.3×3. See id. § 553(b)(3)(A). Beginning with 1997’s Paralyzed Veterans of America v. D.C. Arena L.P.,4×4. 117 F.3d 579 (D.C. Cir. 1997). out of concern that agencies would abuse the “interpretive rule” exemption from notice-and-comment procedures to change their regulations without the APA’s procedural safeguards, the D.C. Circuit required agencies to go through notice-and-comment rulemaking when they changed their interpretations.5×5. Id. at 586. Last Term, in Perez v. Mortgage Bankers Ass’n,6×6. 135 S. Ct. 1199 (2015). the Supreme Court overturned the D.C. Circuit’s Paralyzed Veterans doctrine, ruling that because the APA does not require agencies to go through notice-and-comment rulemaking to issue an interpretive rule in the first place, agencies also do not need to go through notice-and-comment rulemaking to change an interpretive rule.7×7. Id. at 1206; see also Vt. Yankee Nuclear Power Corp. v. Nat. Res. Def. Council, 435 U.S. 519, 524 (1978) (“[The APA] established the maximum procedural requirements which Congress was willing to have the courts impose upon agencies in conducting rulemaking procedures. Agencies are free to grant additional procedural rights in the exercise of their discretion, but reviewing courts are generally not free to impose them . . . .” (footnote omitted)). Although the Mortgage Bankers Court unanimously rejected the D.C. Circuit’s attempt to impose additional procedures on top of the APA, three separate concurrences shared the D.C. Circuit’s concern that interpretive rules pose a risk of agency self-dealing. In particular, the concurrences took issue with another line of administrative law doctrine that had first spurred the D.C. Circuit to adopt additional procedures against agency overreaching in Paralyzed Veterans. That other doctrine, solidified in Auer v. Robbins,8×8. 519 U.S. 452 (1997). holds that even though interpretive rules lack the force of law, courts should defer to agency interpretations of their own regulations.9×9. See id. at 461; see also Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945). After Mortgage Bankers, four Justices have expressed interest in revisiting Auer.10×10. See, e.g., Mortg. Bankers, 135 S. Ct. at 1210 (Alito, J., concurring in part and concurring in the judgment); id. at 1213 (Scalia, J., concurring in the judgment); id. (Thomas, J., concurring in the judgment); Decker v. Nw. Envtl. Def. Ctr., 133 S. Ct. 1326, 1339 (2013) (Roberts, C.J., concurring) (“The bar is now aware that there is some interest in reconsidering [Auer], and has available to it a concise statement of the arguments on one side of the issue.”). While it remains to be seen whether a majority of the Court might eventually overturn Auer, in the meantime, the Mortgage Bankers majority’s analysis leaves the door open to policing agency misconduct not by imposing additional procedure or eroding deference to agencies, but with a third tool: courts’ existing APA authority to invalidate agency actions that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”11×11. 5 U.S.C. § 706(2)(A) (2012). Under this approach, litigants will be required to show what is substantively wrong with an agency’s interpretation — for example, that it upsets reliance interests, is unlawful, or is overly vague. When challengers can show that an agency’s interpretation is substantively objectionable, the APA gives courts authority to intervene.
Mortgage Bankers arose out of a controversy over whether mortgage-loan officers must be paid overtime under the Fair Labor Standards Act of 193812×12. Pub. L. No. 75-718, 52 Stat. 1060 (codified as amended in scattered sections of 29 U.S.C.). (FLSA).13×13. Mortg. Bankers, 135 S. Ct. at 1204. The FLSA’s minimum wage and overtime provisions do not apply to those “employed in a bona fide executive, administrative, or professional capacity . . . or in the capacity of outside salesman.”14×14. Id. (omission in original) (quoting 29 U.S.C. § 213(a)(1) (2012)). The FLSA delegates to the Secretary of Labor the task of “defin[ing] and delimit[ing]” the employees who fall under the administrative exemption from minimum wage and overtime requirements.15×15. 29 U.S.C. § 213(a)(1). In 1999 and 2001, the Department of Labor (DOL) issued letters (without going through notice-and-comment procedures) interpreting its regulations to require that mortgage-loan officers be paid overtime.16×16. See Mortg. Bankers, 135 S. Ct. at 1204. In 2004, DOL updated its FLSA regulations through a notice-and-comment rulemaking; the new regulations, among other things, included “[e]mployees in the financial services industry” (depending on their day-to-day activities) as an example of employees that would generally fall under the administrative exemption.17×17. Id. (alteration in original) (quoting 29 C.F.R. § 541.203(b) (2014)). In 2006, responding to a request from the Mortgage Bankers Association to revisit the status of mortgage-loan officers in light of the revised regulations, DOL issued an opinion letter finding that mortgage-loan officers were not subject to minimum wage and overtime requirements.18×18. See id. at 1205. As the Mortgage Bankers district court noted, the D.C. Circuit has held that DOL opinion letters are final agency actions subject to judicial review. Mortg. Bankers Ass’n v. Solis, 864 F. Supp. 2d 193, 197 (D.D.C. 2012) (citing Complaint for Declaratory & Injunctive Relief ¶ 16, Mortg. Bankers, 864 F. Supp. 2d 193 (No. 1:11-cv-0073)); see also Nat’l Automatic Laundry & Cleaning Council v. Shultz, 443 F.2d 689, 701–02 (D.C. Cir. 1971). That letter did not go through notice-and-comment procedures.19×19. Mortg. Bankers, 135 S. Ct. at 1205. In 2010, DOL changed its mind and issued an Administrator’s Interpretation (Interpretation), again without notice and comment, concluding that the 2004 regulations require mortgage-loan officers to be paid overtime.20×20. Id. The 2010 Interpretation withdrew the 2006 opinion letter “[b]ecause of its misleading assumption[s] and selective and narrow analysis” of the 2004 regulations.21×21. Mortg. Bankers, 864 F. Supp. 2d at 201 (first alteration in original).
The Mortgage Bankers Association sued for declaratory and injunctive relief to invalidate the 2010 Interpretation.22×22. Id. at 195. In particular, the Mortgage Bankers Association asked the court to invalidate the Interpretation for being issued without notice and comment as required by the D.C. Circuit’s Paralyzed Veterans doctrine.23×23. Id. at 201. The Mortgage Bankers Association also argued that the Interpretation was “arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law” because it conflicted with existing DOL regulations. Id. In Paralyzed Veterans, the D.C. Circuit concluded that a change to an interpretation of a regulation is in fact an amendment of the underlying regulation; because the APA requires rulemakings — including those that amend rules — to go through notice and comment, an agency may not later change an interpretation of its own rule without notice and comment.24×24. Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579, 586 (D.C. Cir. 1997). The D.C. Circuit read section 1 of the APA, which defines rulemaking to include both “repealing” and “amending” existing rules, 5 U.S.C. § 551(5) (2012), alongside section 4 of the APA, which requires rulemaking to go through notice-and-comment procedures, see id. § 553; Mortg. Bankers, 135 S. Ct. at 1206.
The district court, while acknowledging that it was bound by Paralyzed Veterans,25×25. Mortg. Bankers, 864 F. Supp. 2d at 204. upheld the Interpretation.26×26. Id. at 195. The district court read precedent to require that the Mortgage Bankers Association show “substantial and justifiable reliance” in order to trigger Paralyzed Veterans’ notice-and-comment requirements.27×27. Id. at 208 (quoting MetWest Inc. v. Sec’y of Labor, 560 F.3d 506, 511 (D.C. Cir. 2009)). The district judge noted in particular that the mortgage industry’s “reliance was short lived given the many years that the parties had previously relied upon the interpretation that mortgage loan officers were not covered by the administrative exemption.”28×28. Id. The district court also found that the Interpretation was permissible under the 2004 regulations it interpreted and therefore was not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. Id. at 209–10.
The D.C. Circuit reversed.29×29. Mortg. Bankers Ass’n v. Harris, 720 F.3d 966, 972 (D.C. Cir. 2013). Writing for the panel, Judge Brown30×30. Judge Brown was joined by Judges Sentelle and Tatel. rejected the district court’s analysis that Paralyzed Veterans required that a party have relied on the agency’s prior interpretation to trigger notice and comment.31×31. Mortg. Bankers, 720 F.3d at 968. Instead, the D.C. Circuit held that “[r]eliance is just one part” of determining whether an agency’s prior interpretation was definitive and therefore, under Paralyzed Veterans, the interpretation could be changed only after notice and comment.32×32. Id. Because the government conceded that the 2010 Interpretation conflicted with the definitive 2006 interpretation, the D.C. Circuit reversed and remanded with instructions to vacate the 2010 Interpretation.33×33. Id.
The Supreme Court reversed. Writing for the Court, Justice Sotomayor34×34. Justice Sotomayor was joined by Chief Justice Roberts and Justices Kennedy, Ginsburg, Breyer, and Kagan. Justice Alito joined the majority opinion except as to Part III-B, where the majority noted that the practical and policy justifications for Paralyzed Veterans are already addressed by safeguards such as arbitrary and capricious review and statutory safe-harbor provisions. See Mortg. Bankers, 135 S. Ct. at 1209. held that the Paralyzed Veterans doctrine was inconsistent with the APA.35×35. Id. at 1206–07. The D.C. Circuit erred, Justice Sotomayor explained, in focusing its attention on section 1 of the APA, which “defines ‘rule making’ to include not only the initial issuance of new rules, but also ‘repeal[s]’ or ‘amend[ments]’ of existing rules.”36×36. Id. at 1206 (alterations in original) (quoting 5 U.S.C. § 551(5) (2012)). But section 1 says nothing about “what procedures an agency must use when it engages in rulemaking.”37×37. Id. Instead, “[t]hat is the purpose of § 4,”38×38. Id. which categorically exempts interpretive rules from the notice-and-comment process.39×39. Id. Thus, because an agency does not have to go through notice and comment to issue an interpretive rule, it also does not have to go through notice and comment to amend or repeal that interpretive rule.40×40. Id. (“[T]he APA ‘make[s] no distinction . . . between initial agency action and subsequent agency action undoing or revising that action.’” (second alteration and omission in original) (quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009))). Because Paralyzed Veterans is inconsistent with the APA, it is unlawful: the Court had long ago, in Vermont Yankee,41×41. Vt. Yankee Nuclear Power Corp. v. Nat. Res. Def. Council, Inc., 435 U.S. 519, 524 (1978). held that the APA specifies the “maximum procedural requirements” for agencies.42×42. Mortg. Bankers, 135 S. Ct. at 1207 (quoting Vt. Yankee, 435 U.S. at 524). The Vermont Yankee analysis guided the Mortgage Bankers majority, which concluded that the APA is a political compromise that “weighed the costs and benefits of placing more rigorous procedural restrictions” on agencies, and it is up to Congress, not the courts, to “str[i]k[e] the balance.”43×43. Id.
Justice Sotomayor dismissed the Mortgage Bankers Association’s legal and policy arguments in support of the Paralyzed Veterans doctrine. In a footnote, Justice Sotomayor rejected the argument that Auer deference to agency interpretations of their own regulations gives those interpretations the force of law, because “it is the court that ultimately decides whether a given regulation means what the agency says. . . . [D]eference is not an inexorable command in all cases.”44×44. Id. at 1208 n.4. Justice Sotomayor also explained that the existing APA framework, including arbitrary and capricious review, offers tools to address the Paralyzed Veterans concern with “agencies . . . unilaterally and unexpectedly altering their interpretation of important regulations.”45×45. Id. at 1209. For example, it would be arbitrary and capricious to fail to justify a new policy when it “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.”46×46. Id. (quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)). Similarly, Congress can create safe-harbor provisions that “shelter regulated entities from liability when they act in conformance with previous agency interpretations”;47×47. Id. in fact, the FLSA has such a provision that could apply to the mortgage-loan officers’ employers.48×48. See id. (citing 29 U.S.C. § 259(a), (b)(1) (2012)).
Justice Alito concurred in part and concurred in the judgment.49×49. Id. at 1210 (Alito, J., concurring in part and concurring in the judgment). While agreeing with the majority that the Paralyzed Veterans rule is “incompatible” with the APA, Justice Alito noted that the rule “may have been prompted by an understandable concern about the aggrandizement of the power of administrative agencies” resulting from increasing congressional delegation of lawmaking authority to agencies, increasing “exploitation” by agencies of interpretive rulemaking, and Auer deference to agency interpretations of their own “ambiguous regulations.”50×50. Id. Justice Alito called for “a case in which the validity of [Auer] may be explored through full briefing and argument.”51×51. Id. at 1210–11.
Justice Scalia concurred in the judgment.52×52. Id. at 1211 (Scalia, J., concurring in the judgment). Although also agreeing with the majority that Paralyzed Veterans is incompatible with the APA, he took issue with “the Court’s portrayal of the result it produces as a vindication of the balance Congress struck when it” passed the APA.53×53. Id. For Justice Scalia, that balance was long upset by Auer deference’s shifting of interpretative power from courts to agencies,54×54. Id. (citing 5 U.S.C. § 706 (2012)). which empowered agencies to use interpretive rules “not just to advise the public, but also to bind them.”55×55. Id. at 1212. Thus, for Justice Scalia, because an agency writes the underlying regulation that it later interprets, Auer deference “allows the agency to control the extent of its notice-and-comment-free domain” by “writ[ing] substantive rules more broadly and vaguely.”56×56. Id. Calling the Paralyzed Veterans doctrine “a courageous (indeed, brazen) attempt to limit the mischief by requiring an interpretive rule to go through notice and comment,”57×57. Id. Justice Scalia would instead abandon Auer deference.58×58. Id. at 1212–13.
Justice Thomas also concurred in the judgment.59×59. Id. at 1213 (Thomas, J., concurring in the judgment). He agreed with the majority that the Paralyzed Veterans doctrine was inconsistent with the APA.60×60. Id. Like Justice Scalia, Justice Thomas would have also revisited and overturned Auer.61×61. See id. For Justice Thomas, the core issue with Auer deference is not just its inconsistency with the APA, but also its unconstitutional “transfer of the judicial power to an executive agency.”62×62. Id. Similarly, Justice Scalia had previously raised constitutional questions about deference to agencies’ interpretations of their own regulations. See Talk Am., Inc. v. Mich. Bell Tel. Co., 131 S. Ct. 2254, 2266 (2011) (Scalia, J., concurring). The Constitution requires nothing less of a judge than that she make her own “independent judgment”63×63. Mortg. Bankers, 135 S. Ct. at 1217 (Thomas, J., concurring in the judgment). as to the meaning of an ambiguous regulation; the “narrow exception [to Auer deference] for interpretations that are plainly erroneous or inconsistent” is insufficient to preserve the constitutional check of a separate judicial power.64×64. Id. at 1219. After outlining his interpretation of a constitutional imperative that judges, not agencies, interpret ambiguous regulations, Justice Thomas considered and rejected four arguments for Auer: agencies’ expertise in technical statutory schemes,65×65. Id. at 1222. Justice Thomas argued that the tools of statutory construction are well within judges’ area of expertise, and even if they were not, this policy argument cannot change the constitutional requirement that judges, not agencies, must interpret the law. Id. at 1222–23. agencies’ ability to define the original intent behind their regulations,66×66. Id. at 1223. Justice Thomas noted that agencies are awarded deference even where, as in Mortgage Bankers, the interpreting agency officials did not draft the original regulation, and he argued that the Court’s textual approach to interpreting legislation, which ignores postenactment expressions of legislative intent, should also apply to postadoption expressions of regulatory intent. Id. at 1223–24. congressional delegation of interpretive power to agencies,67×67. Id. at 1224. Justice Thomas argued that Congress lacks the constitutional authority to delegate the judicial power of interpretation to executive agencies. Id. and fears about undermining the judicial branch’s reputation and independence.68×68. Id. at 1224–25. Justice Thomas viewed this as “a policy judgment of questionable validity [that] cannot vitiate the constitutional allocation of powers.” Id. at 1225.
The Mortgage Bankers concurrences demonstrate that at least some Justices share the D.C. Circuit’s concern that administrative agencies might abuse their power to change interpretations of regulations. While the entire Court rejected Paralyzed Veterans as a solution, the concurrences each called for the Court to reconsider Auer deference as another way to mitigate the risk that Paralyzed Veterans identified.69×69. For an analysis of why the concurrences’ constitutional and textual objections to Auer deference are unpersuasive, see Cass R. Sunstein & Adrian Vermeule, The New Coke: On the Plural Aims of Administrative Law, 2016 Sup. Ct. Rev. (forthcoming) (manuscript at 18–27), http://ssrn.com/abstract=2631873 [http://perma.cc/L4DT-CCUA]. The majority showed little interest in revisiting Auer, but the Court’s opinion leaves the door open to strengthening substantive arbitrary and capricious review as a safeguard against agency misconduct.70×70. See Mortg. Bankers, 135 S. Ct. at 1209. As a result of Mortgage Bankers, litigants will have to show how an agency’s changed interpretation is substantively, rather than procedurally, objectionable.71×71. That relaxing procedural requirements incentivizes strengthening substantive review is a common intuition. Cf. Mark Seidenfeld, Substituting Substantive for Procedural Review of Guidance Documents, 90 Tex. L. Rev. 331 (2011) (calling for courts to review agencies’ informal guidance documents under a substantive arbitrary and capricious standard rather than passing new procedural requirements). Historically, modern “hard look” review, which the Supreme Court ratified in Motor Vehicle Manufacturers Ass’n of the United States, Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29 (1983), emerged in the wake of Vermont Yankee’s 1978 rejection of additional procedural requirements on top of the APA. Precedent shows that, even with Auer deference, when challengers have shown that an agency’s interpretation upset their reliance interests,72×72. See, e.g., Decker v. Nw. Envtl. Def. Ctr., 133 S. Ct. 1326 (2013). was unlawful,73×73. See, e.g., Dir., Office of Workers’ Comp. Programs, Dep’t of Labor v. Greenwich Collieries, 512 U.S. 267, 270–71 (1994) (invalidating an agency’s interpretation of its regulation as incompatible with the underlying statute); Jicarilla Apache Tribe v. Fed. Energy Regulatory Comm’n, 578 F.2d 289, 292 (10th Cir. 1978) (invalidating an agency rule that was “without legal foundation”). or was overly vague,74×74. See, e.g., Ky. Ret. Sys. v. EEOC, 554 U.S. 135, 149 (2008) (holding that agency interpretations that merely parrot the text of the statute are not owed deference); Fed. Express Corp. v. Holowecki, 552 U.S. 389, 399 (2008) (endorsing the antiparroting canon); Gonzales v. Oregon, 546 U.S. 243, 256–57 (2006). Whether Auer deference actually incentivizes agencies to write overly vague regulations is disputed. Compare Mortg. Bankers, 135 S. Ct. at 1212 (Scalia, J., concurring) (arguing that Auer encourages agencies to write vague regulations), and John F. Manning, Constitutional Structure and Judicial Deference to Agency Interpretations of Agency Rules, 96 Colum. L. Rev. 612, 655–60 (1996) (arguing the same), with Sunstein & Vermeule, supra note 69 (manuscript at 24 n.142) (“In nearly four years in the federal government, [Professor Cass Sunstein] dealt with over two thousand rules, and he never heard even a single person suggest, or come close to suggesting, that a regulation should be written vaguely or ambiguously in light of Auer, or so that the agency should later interpret it as it saw fit.”). courts have intervened. Mortgage Bankers leaves those tools of review intact, and litigants and courts that are concerned with abuses of agency power will likely call to strengthen substantive review now that Paralyzed Veterans has been invalidated but Auer endures.
Protecting reliance interests is one value that motivated both the Paralyzed Veterans doctrine75×75. See, e.g., MetWest Inc. v. Sec’y of Labor, 560 F.3d 506, 511–12 (D.C. Cir. 2009) (upholding agency’s interpretation because it had never previously “established an authoritative interpretation of its regulation on which MetWest justifiably relied to its detriment,” id. at 511); Alaska Prof’l Hunters Ass’n v. FAA, 177 F.3d 1030, 1034 (D.C. Cir. 1999) (invalidating agency interpretation that upset thirty years of Alaskans’ reliance on contradictory advice from local FAA officials); Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579, 587 (D.C. Cir. 1997) (holding that the Department of Justice had not previously issued a contradictory interpretation and challengers had not “reasonably relied to their detriment” on that previous interpretation). and the Mortgage Bankers concurrences’ criticisms of Auer deference.76×76. See, e.g., Mortg. Bankers, 135 S. Ct. at 1211 (Scalia, J., concurring in the judgment) (“The [APA is] . . . a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices.” (quoting United States v. Morton Salt Co., 338 U.S. 632, 644 (1950))); id. at 1222 (Thomas, J., concurring in the judgment) (arguing that, under Auer, “[r]egulations provide notice to regulated parties in only a limited sense because their meaning will ultimately be determined by agencies rather than by . . . ‘strict rules and precedents’” (quoting The Federalist No. 78, at 471 (Alexander Hamilton) (Clinton Rossiter ed., 1961))). Still, there are precedents in which, under its APA § 706 power to review agency actions, the Supreme Court denied Auer deference or took into account an agency’s procedural choices in order to protect reliance interests. In Christopher v. SmithKline Beecham Corp.,77×77. 132 S. Ct. 2156 (2012). the Court declined to defer to DOL’s interpretation that pharmaceutical representatives did not qualify for the “outside salesmen” exemption from the minimum wage and overtime requirements of the FLSA, in part because the “agency’s announcement of its interpretation [was] preceded by a very lengthy period of conspicuous inaction” during which the pharmaceutical industry treated its sales representatives as exempt from FLSA requirements.78×78. Id. at 2168. In Decker v. Northwest Environmental Defense Center,79×79. 133 S. Ct. 1326 (2013). the Court reiterated its view that interpretations that upset reliance interests lose their deferential weight under Auer: the challenged agency was accorded deference because it had been “consistent” in its interpretation and others had relied on that interpretation.80×80. Id. at 1338; see also id. at 1337–38. Although courts defer even to an agency interpretation issued in a legal brief, that interpretation will not receive deference if it does “not reflect the agency’s fair and considered judgment.”81×81. Auer v. Robbins, 519 U.S. 452, 462 (1997) (citing Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212 (1988)); see also Chase Bank USA, N.A. v. McCoy, 131 S. Ct. 871, 881–82 (2011). Even if the categorical rule of Paralyzed Veterans is dead, the Court has credited an agency’s prophylactic decision to go through notice-and-comment rulemaking as evidence that no reasonable reliance interests were arbitrarily and capriciously upset.82×82. See Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 170–71 (2007). And, as the Mortgage Bankers majority noted, the Court has declared that it would invalidate as arbitrary and capricious an agency’s change in policy that “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.”83×83. Mortg. Bankers, 135 S. Ct. at 1209 (quoting FCC v. Fox Television Stations, 556 U.S. 502, 515 (2009)). Rather than the Paralyzed Veterans rule, the APA gives courts a textual hook from which to protect reliance interests — the § 706 restriction against agency actions that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”84×84. 5 U.S.C. § 706(2)(A) (2012). These cases and § 706 are available to litigants who can show that an agency has arbitrarily and capriciously upset their reliance interests, and they may become more important after the fall of Paralyzed Veterans. That textual hook could also shield agencies if there are good reasons to upset reliance interests (in which case upsetting reliance is not arbitrary or capricious).
By contrast, in Mortgage Bankers, both the district court and the Supreme Court emphasized the lack of reliance interests at stake. The district court noted that the mortgage-loan officers’ employers had for “many years . . . previously relied upon the interpretation that mortgage loan officers were not covered by the administrative exemption.”85×85. Mortg. Bankers Ass’n v. Solis, 864 F. Supp. 2d 193, 208 (D.D.C. 2012). The district court believed that demonstrating “substantial and justifiable reliance” was necessary to trigger the Paralyzed Veterans notice-and-comment requirements. Id. at 210. The D.C. Circuit disagreed that showing reliance was necessary to trigger heightened procedural requirements, see Mortg. Bankers Ass’n v. Harris, 720 F.3d 966, 968 (D.C. Cir. 2013). Instead, interpreting Paralyzed Veterans to include reliance as merely evidence of a previous interpretation’s definitiveness, id. at 970, the D.C. Circuit concluded that definitiveness had already been established notwithstanding the Mortgage Bankers Association’s difficulty proving its reliance, id. at 971. The Supreme Court noted that DOL’s new interpretation was unlikely to apply retroactively because of the FLSA’s safe harbor provision (and that even without a statutory safe harbor provision, principles of retroactivity could limit “an agency’s ability to pursue enforcement actions against regulated entities for conduct in conformance with prior agency interpretations”).86×86. Mortg. Bankers, 135 S. Ct. at 1209 n.5; see also id. at 1209 (citing 29 U.S.C. § 259(a), (b)(1) (2012)). Thus, the majority carefully considered the reliance interests at stake notwithstanding the Court’s unanimous decision that Paralyzed Veterans is incompatible with the APA. This discussion of reliance on an agency’s earlier pronouncements, despite not being necessary to decide the case, might signal the Court’s commitment to protecting reliance interests even in the shadow of Auer deference and the overruling of Paralyzed Veterans.
As concerns about agency interpretations of their own regulations move into substantive review, they will run into broader concerns about “hard look” arbitrary and capricious review, including concerns that such review “ossifies” the outdated policies of the status quo87×87. See, e.g., William S. Jordan, III, Ossification Revisited: Does Arbitrary and Capricious Review Significantly Interfere with Agency Ability to Achieve Regulatory Goals Through Informal Rulemaking?, 94 Nw. U. L. Rev. 393, 395 (2000) (noting the objection that “hard look review results in excessive data gathering, analysis, and long-winded explanations, often of marginal points, all of which imposes unnecessary costs and delays upon the agencies’ regulatory programs”). But see Jason Webb Yackee & Susan Webb Yackee, Testing the Ossification Thesis: An Empirical Examination of Federal Regulatory Volume and Speed, 1950–1990, 80 Geo. Wash. L. Rev. 1414, 1421–22 (2012) (finding that empirical “evidence that ossification is either a serious or widespread problem is mixed and relatively weak”). or permits courts to impose their own ideological and policy preferences on agencies.88×88. See, e.g., Thomas J. Miles & Cass R. Sunstein, The Real World of Arbitrariness Review, 75 U. Chi. L. Rev. 761, 767 (2008) (finding that party affiliation correlates with whether a judge will uphold or invalidate a liberal or conservative regulation); Sidney A. Shapiro & Richard E. Levy, Heightened Scrutiny of the Fourth Branch: Separation of Powers and the Requirement of Adequate Reasons for Agency Decisions, 1987 Duke L.J. 387, 433; see also SEC v. Chenery Corp. (Chenery I), 318 U.S. 80, 99 (1943) (Black, J., dissenting) (“Hypercritical exactions as to findings can provide a handy but an almost invisible glideway enabling courts to pass ‘from the narrow confines of law into the more spacious domain of policy.’” (quoting Phelps Dodge Corp. v. NLRB, 313 U.S. 177, 194 (1941))). Of course, such interpretations were always going to run into those questions, because even interpretations that satisfied the old Paralyzed Veterans procedural requirement were still subject to § 706 substantive review. Still, without the additional procedural safeguard of Paralyzed Veterans, courts may be more tempted to apply substantive review of agency interpretations of regulations in ways that ossify the status quo or impose their own policy preferences.
Mortgage Bankers joins a line of recent cases in which sitting Justices have called for reconsideration of judicial deference to agency interpretations of their own regulations.89×89. See, e.g., Decker v. Nw. Envtl. Def. Ctr., 133 S. Ct. 1326, 1339 (2013) (Roberts, C.J., concurring) (“The bar is now aware that there is some interest in reconsidering [Auer] . . . .”); id. (Scalia, J., concurring in part and dissenting in part); Talk Am., Inc. v. Mich. Bell Tel. Co., 131 S. Ct. 2254, 2265–66 (2011) (Scalia, J., concurring); Fed. Express Corp. v. Holowecki, 552 U.S. 389, 408 (2008) (Thomas, J., dissenting). While none of those dissents and concurrences have yet gained a majority, agencies should beware that courts will continue to closely scrutinize vague regulations or interpretations that undermine reliance interests even after Mortgage Bankers. Given that Mortgage Bankers closed off one avenue for challenging agency action on procedural grounds, and given that Auer deference remains the law, litigators and courts seeking to challenge administrative action might come to focus more on substantive arbitrary and capricious challenges.