Supreme Court Allows Agencies to Re-Interpret Their Regulations Without Rulemaking

On March 9, 2015, the Supreme Court wiped away a longstanding judicial doctrine that had placed greater procedural requirements on a federal agency when it changes its prior interpretation of a federal regulation. The Court’s unanimous opinion in Perez v. Mortgage Bankers Association, 575 U.S. ___ (2015) held that federal agencies need not engage in public notice-and-comment rulemaking in this instance, because a new regulatory interpretation does not amount to an amendment of the regulation itself. 

The Perez ruling removes a favorite argument from the toolbox for federal regulatory challenges. A line of appellate cases developed by the D.C. Circuit beginning in 1997 had sought to constrain federal agencies’ ability to suddenly reverse course on established interpretations on which the regulated community had come to rely. Those cases had held that, while agencies may announce an interpretation of a regulation without triggering rulemaking procedures, any significant alteration of that interpretation in the future would require advance public notice and comment as if a new rule had been enacted. In the Supreme Court’s view, that principle conflicts with the Administrative Procedure Act (APA), which specifically exempts “interpretative rules” from the notice-and-comment requirement for “legislative rules.” While “legislative rules” and actual amendments thereto have the force of law and require notice-and-comment, interpretations of those rules are not legally binding and do not trigger the same procedural safeguards. As the Court held, “[b]ecause an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures when it amends or repeals that interpretive rule.” 

This new case likely will embolden agencies to increase their use of informal guidance in lieu of rulemaking in a variety of contexts, even where doing so will upset settled expectations. While the case distinguished an “interpretive rule,” its reasoning likely extends to changes to any other announced agency guidance as well. Indeed, Perez involved an “opinion letter” as opposed to a rule published in the Federal Register, and the APA also exempts “general statements of policy, or rules of agency organization, procedure, or practice” from notice-and-comment procedures. 5 U.S.C. § 553(b)(A). Moreover, the practical reality that a new interpretation may operate as a new binding regulation proved irrelevant to the Court’s analysis.

That is not to say that agencies may flip-flop with impunity. The Perez majority opinion reiterated that substantive challenges to agency pronouncements may stand a greater chance of success, and the agency may deserve less deference when the interpretation conflicts with the agency’s prior expressed views. The Court also reminded that the new interpretation must, of course, be “consistent with the underlying regulations,” and be no less substantiated than the original interpretation. That is, “the APA requires an agency to provide more substantial justification when its new policy 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. It would be arbitrary and capricious to ignore such matters.” Though such statements are somewhat reassuring, courts still have overwhelmingly deferred to agencies’ interpretation of their own regulations, regardless of their history or reliance interests. For this reason, the three concurring opinions in Perez highlight the merits of the Supreme Court in the near future reexamining its own precedent traditionally deferring to such agency rules, whether legislative or interpretive, in the first instance.