Agency Interpretative Changes Don't Require Rulemaking, Unanimous Supreme Court Says

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By Jay-Anne Casuga and Peyton M. Sturges

March 10 — In a decision that could impact the heavily regulated health-care industry significantly, the U.S. Supreme Court March 9 ruled that the Administrative Procedure Act expressly exempts federal agencies from formal notice-and-comment rulemaking requirements when they make changes to their interpretative rules.

Attorneys told Bloomberg BNA that the decision isn't helpful for health-care organizations, which in the past have been adversely affected by interpretative rule changes made without following APA requirements, because it allows federal agencies to change rules that have the force of law without offering regulated entities a notice-and-comment opportunity. The ruling also could encourage the Centers for Medicare & Medicaid Services to make substantive regulatory revisions without complying with the APA, one attorney said.

Attorneys also said that the court appeared to have lingering concerns about the issuance of conflicting regulatory interpretations without notice and comment because these rules bind regulated entities and because courts generally must defer to the agency interpretations under existing Supreme Court precedent. Three concurring opinions, however, suggested the court ultimately could decide that interpretative rules aren't entitled to any judicial deference, they noted.

The high court reversed a ruling of the U.S. Court of Appeals for the District of Columbia Circuit that the Department of Labor erred in not giving notice and obtaining comment before issuing a reinterpretation of a 2006 DOL opinion letter involving the classification of mortgage loan officers under the Fair Labor Standards Act.

Interpretative Rules Exempt 

Writing for the court, Justice Sonia Sotomayor found that the D.C. Circuit's doctrine from Paralyzed Veterans of America v. D.C. Arena, 117 F.3d 579 (D.C. Cir. 1997)—which states that an agency cannot significantly modify a previously issued definitive interpretation of a rule without public notice and comment—is “contrary to the clear text of the APA's rulemaking provisions.”

Sotomayor said the APA's “categorical exemption of interpretive rules from the notice-and-comment process is fatal to the Paralyzed Veterans doctrine,” which “improperly imposes on agencies an obligation beyond the APA's maximum procedural requirements.”

Justices Samuel Alito, Antonin Scalia and Clarence Thomas wrote separate concurring opinions to call into question high court precedent requiring deference to an agency's administrative interpretations of its own regulations.

At the time two petitions challenging the D.C. Circuit's opinion were filed, health-care attorneys predicted the Supreme Court could grant review and that a decision would affect health-care providers because of the number of agencies and rules that govern health-care organizations. They also noted that the D.C. Circuit is the federal forum in which many, if not most, regulatory challenges are brought.

The court agreed to review the case in June 2014.

Decision Not Helpful 

“On first blush, today’s decision is not helpful to members of the health-care industry because it permits agencies to alter definitive interpretations of their regulations without having to go through notice-and-comment rulemaking,” James F. Segroves, with Hooper, Lundy & Bookman PC, Washington, said. “However, the concurring opinions of Justices Scalia, Thomas, and Alito should not go unnoticed as they indicate that at least three members of the Supreme Court are interested in reevaluating whether agencies should receive any judicial deference when the agencies are interpreting their own regulations,” he said.

“While, by tradition, it takes the votes of four justices to grant certiorari, members of the health-care industry would be well advised to consider preserving the deference issue for potential Supreme Court review,” Segroves said.

Kenneth Marcus, with Honigman Miller Schwartz and Cohn, Detroit, agreed that the concurring opinions, especially that of Thomas, “calls into serious question the Supreme Court's long-standing doctrine of deferring to agency interpretation of regulations.”

“Although this analysis qualifies as dicta, it may signal that the Supreme Court in a future decision may limit the deference doctrine,” he said. “Parties challenging agency regulations would welcome a tightening of the deference doctrine.”

To contact the reporters on this story: Jay-Anne Casuga in Washington at jcasuga@bna.com and Peyton M. Sturges in Washington at psturges@bna.com

To contact the editor responsible for this story: Fabia Mahoney at fmahoney@bna.com

Text of the opinion is available at http://www.bloomberglaw.com/public/document/Perez_v_Mortgage_Bankers_Assn_No_131041_and_131052_US_Mar_09_2015.