Supreme Court Considers Reducing Regulatory Agency Power

(Bloomberg) -- The U.S. Supreme Court’s conservative justices expressed doubts about a precedent that business groups and the Trump administration say gives federal agencies too much power to change regulations without notice.

In an hour-long argument in Washington on Wednesday, the court signaled it will divide along ideological lines in the case, which centers on a 1997 ruling that requires judges generally to defer to federal agencies’ interpretations of their own regulations. The clash is one of the top business cases of the court’s nine-month term.

Conservative Justice Neil Gorsuch said overturning that ruling, known as Auer v. Robbins, would prevent people from being "sideswiped" by shifting rules issued by bureaucrats. Liberal Justice Stephen Breyer said that step would amount to "the greatest judicial power grab since Marbury v. Madison," the 1803 ruling that established the Supreme Court’s power to review federal statutes.

A ruling overturning Auer could give home builders, manufacturers and miners more confidence they won’t be exposed to penalties when a change in administrations leads to a shift in agency thinking. Courts have deferred to new federal agency interpretations on animal habitat, drugmaker exclusivity and workers’ wages, among other issues.

Chief Justice John Roberts and Justices Gorsuch, Clarence Thomas, Samuel Alito and Brett Kavanaugh have all questioned the Auer ruling in the past. Thomas has twice written that Auer deference was “on its last gasp.”

Gorsuch, Alito and Kavanaugh all seemed willing to overturn Auer, while Roberts was more equivocal in his questions. Thomas, as is his usual practice, asked no questions.

The high court debate was an unusually lopsided one in which neither lawyer gave a full-throated defense of the 1997 ruling. Solicitor General Noel Francisco, whose office normally defends the authority of administrative agencies, urged the court to limit use of the Auer ruling without tossing it out altogether.

Scalia’s Regrets

The Auer ruling was written by the late Justice Antonin Scalia, a conservative icon who later came to regret the decision.

Justice Sonia Sotomayor said U.S. courts have been deferring to expert administrators since the early 1800s. She said deference gives the public confidence that an agency’s interpretation is the governing standard.

"Regulated parties need to have a starting point of understanding how their conduct will be viewed," she said.

Justice Elena Kagan said the "underpinning" of the Auer decision was a recognition that federal agencies are experts in their subject areas.

"Its underpinning is an idea that judges are far less suited to make these kind of minute decisions of agency policy than agency decision-makers are," she said.

But Gorsuch said there was value in having an "independent judge" decide what the law is. “That seems to me a significant promise, especially to the least and most vulnerable among us," he said.

The case before the justices involves James Kisor, a Vietnam War veteran who says he suffers from post-traumatic stress syndrome and is seeking retroactive benefits.

Veteran’s Benefits

Kisor says the U.S. Department of Veterans Affairs should reconsider its denial of his 1982 claim for benefits because it didn’t consider important evidence about his combat service. The case turns on a VA regulation that requires reconsideration if “relevant” service records come to the department’s attention.

Kisor’s lawyer, Paul Hughes, said agencies that change the meaning of their regulations should be required to go through a formal notice-and-comment process, as set out in the 1946 Administrative Procedure Act.

The Auer ruling involved a Labor Department regulation on overtime pay. The court said administrative agencies are entitled to deference unless their interpretations of their regulations are clearly wrong.

It extended a 1945 ruling, known as Bowles v. Seminole Rock, that deferred to a World War II price-control board in its interpretation of a regulation that governed building materials.

Overturning Auer might hurt some business interests in the short term, undermining efforts by President Donald Trump’s administration to roll back rules governing pollution, drilling and the workforce. Critics say the long-run benefits of restraining agencies are worth the short-term disruption.

A victory could embolden agency critics to turn their attention to a better-known legal doctrine, known as Chevron deference, which requires courts to yield to agencies on the interpretation of federal statutes.

The court will rule by the end of June. The case is Kisor v. Wilkie, 18-15.

To contact the reporters on this story: Greg Stohr in Washington at gstohr@bloomberg.net;Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Laurie Asséo, Anna Edgerton

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