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DOL Wins High Court Battle Over Agency Rule-Making

Monday, March 09, 2015

The U.S. Supreme Court ruled Monday that federal agencies don't have to go through formal rule-making to make significant changes to rules interpreting regulations, siding with the U.S. Department of Labor and overturning a D.C. Circuit ruling that nixed a reclassification of mortgage loan officers as overtime-eligible.  In an opinion written by Justice Sonia Sotomayor, the high court struck down a July 2013 appeals court decision vacating a 2010 “administrator interpretation” that flipped the DOL's position on mortgage loan officers overtime status and said the agency must conduct notice-and-comment rule-making. The appeals court’s reliance on the Paralyzed Veterans doctrine to come to its conclusion was improper, according to the opinion.  “The Paralyzed Veterans doctrine is contrary to the clear text of the APA’s rule-making provisions, and it improperly imposes on agencies an obligation beyond the ‘maximum procedural requirements’ specified in the APA,” the opinion said.  The DOL argued in an August Supreme Court brief that the D.C. Circuit's stance undermined the flexibility Congress wanted agencies to have. The appeals court's “judge-made procedural requirement” that agencies must utilize notice-and-comment rule-making before making a significant change to a rule that interprets a regulation was out of step with the Administrative Procedure Act and Supreme Court precedent, it said.

“In short, the court of appeals’ Paralyzed Veterans doctrine finds no support in the APA's test, that statute's purposes or this court’s precedents,” the department said. “This court should therefore reject that doctrine and confirm that Congress meant what it said in the APA: Interpretive rules do not require notice-and-comment rule-making.”  But the Mortgage Bankers Association, the real estate finance industry group that brought the legal challenge to the administrator interpretation, argued that the D.C. Circuit's approach prevented “unseemly flip-flopping” by federal agencies.  The D.C. Circuit said, pursuant to its 1997 Paralyzed Veterans decision, that the DOL's 2010 interpretive changes could only take place after a formal rule-making process complete with a notice-and-comment period. The MBA said that nothing in the text of the Administrative Procedures Act or Supreme Court precedent compels a different result.  The Paralyzed Veterans doctrine's “insistence on APA notice-and-comment procedures prevents agencies from unseemly flip-flopping once they have definitively interpreted their own regulations. Otherwise, an agency could exclude the regulated community entirely from its deliberations and undermine both reliance interests and the APA’s mandate for procedural fairness in agency dealings,” the MBA said in an Oct. 9 brief.  The high court agreed to tackle the case in June, granting two petitions for review, one from Labor Secretary Thomas E. Perez and one from three former Quicken Loans Inc. loan officers, both of which assailed the D.C. Circuit ruling. The ex-loan officers also attacked the Paralyzed Veterans doctrine.

In the high court’s Monday opinion, the justices said the text of the APA “clearly” says that unless a notice or hearing is required by statute, the law’s notice-and-comment requirement does not apply to interpretative rules.  “This exemption of interpretive rules from the notice-and-comment process is categorical, and it is fatal to the rule announced in Paralyzed Veterans,” the opinion said.  Beyond the APA’s minimum requirements, courts lack the authority to impose on an agency which procedures are “best” or most likely to further some “vague, undefined public good,” the opinion said, citing the high court’s 1978 decision in Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, in which it held that a court can’t impose rule-making on a federal government agency.  (click on link to read full story) 

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