The U.S. Supreme Court justices asked tough questions of both sides during Dec. 1 oral arguments in a case that centers on the government’s authority to issue interpretations of its own regulations without public input.
The case could have significant implications for construction employers and small businesses that face real costs to comply with federal regulations.
The case stems from an interpretive rule, issued by the Labor Dept. in 2010, that requires mortgage banks to pay loan officers overtime under the Fair Labor Standards Act.
The Mortgage Bankers Association sued, arguing that the DOL should have sought public input before significantly revising its interpretation of an earlier rule.
Under the Administrative Procedures Act (APA), agencies have the authority to issue an interpretive rule—an interpretation of an earlier law, regulation or policy—without going through a formal notice and public comment period. Interpretive rules differ from legislative rules or regulations, which have the force of law.
A recent series of cases from the U.S. Court of Appeals for the D.C. Circuit established the so-called paralyzed-veterans doctrine, which says agencies cannot revise earlier interpretative rules without public input.
According to Karen Harned, executive director of the National Federation of Independent Businesses’ Small Business Legal Center, which filed a friend-of-the-court brief in the case, the paralyzed-veterans doctrine helps to ensure that small businesses are entitled to “fair process.”
Harned says that if small businesses aren’t able to submit comments and help shape regulations or interpretations of regulations, they ultimately are put at a disadvantage: They would face increasing costs and “massive uncertainty, since any agency would be able to flip-flop on its own interpretation of a regulation,” she says.
Arguing for the government, Edwin S. Kneedler, the Justice Dept.’s deputy solicitor general, said the paralyzed-veterans doctrine should be struck down.
“Our submission here is that [the paralyzed-veterans doctrine] rests on a real misreading of the APA … an agency should not be required to abide by an interpretation it believes is erroneous going forward,” he said.
But some of the justices were skeptical. Justice Elena Kagan said part of what was motivating the Mortgage Bankers Association and other supporters in the case “is a sense that agencies, more and more, are using interpretive rules and are using guidance documents to make law … and it’s essentially an end run around the notice and comment provisions.”
Kagan added, “The government is sort of asking for it all: It’s asking for a lot of deference, always. It’s asking for the removal of the paralyzed-veterans doctrine.”
Justice Antonin Scalia said Kneedler’s distinction between interpretive and substantive rules was “nonsense.” “Whether it’s an interpretive rule or a substantive rule, it is reviewed by a court with deference, right?” he said.
The justices were equally tough on Allyson Ho, of Dallas, Texas, who argued on behalf of the Mortgage Bankers Association. She said, “The question in this case is whether the 2010 [Labor Dept. opinion letter] is, in fact, an interpretive rule.” The Mortgage Bankers Association claims that the 2010 rule was an authoritative rule and, as such, should not have been issued without public input.
But Justice Ruth Bader Ginsberg noted that the Mortgage Bankers Association did not challenge the Labor Dept. in 2006—during the George W. Bush administration—when it issued an interpretive rule without a public comment period.
“If you are trying to characterize the 2010 rule as not interpretive, I don’t see how you can say … the 2006 rule was interpretive,” she contended, adding, “It seems to me that you want it to be interpretive when it favors you.”
Justice Kagan said, “I think this entire case has been litigated with everybody accepting that this was an interpretive rule. Now maybe that was wrong. Maybe you should have come in in the first instance and said, ‘We think this is a legislative rule, and so it had to go through notice and comment.′ But you didn’t do that.”
The case is Perez v. Mortgage Bankers Association. A ruling is expected by the end of June.