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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.

© 2020 Beveridge & Diamond PC


About this Author

Fred Wagner, Attorney, Beveridge and Diamond Law Firm

Fred Wagner served as Chief Counsel of the Federal Highway Administration (FHWA) from 2011 to 2014.  His practice focuses on major project and infrastructure development, including environmental reviews, permitting and approvals from a wide range of federal and state natural resources agencies, and litigation defense of project decisions and policies. He leads the Firm’s Natural Resources and Project Development Practice Group.

Mr. Wagner originally joined Beveridge & Diamond in 1991 and was named a Principal in 2000. In December 2010, he...

(202) 789-6041
Peter Schaumberg, Environmental Attorney, Beveridge and Diamond Law Firm

Peter J. Schaumberg's practice focuses on issues related to development of energy and mineral resources on Federal lands offshore and onshore.  He counsels major multinational corporations, domestic companies, and leading industry trade associations regarding development and operations on the Outer Continental Shelf and on Federally-managed lands onshore, including oil & gas, solar, wind and geothermal resources.  Mr. Schaumberg also advises mining company and trade association clients on matters related to development of hard-rock mineral resources on public lands.  He is a highly recognized authority with respect to royalty reporting and payment issues for Federal mineral leases offshore and onshore, and for Indian leases.  Mr. Schaumberg has successfully represented numerous clients in administrative proceedings before the United States Department of the Interior Board of Land Appeals.

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James M. Auslander, Environmental Law Attorney, Beveridge Diamond Law Firm

James (Jamie) Auslander’s legal practice focuses on environmental, natural resources, and administrative law and litigation.  Mr. Auslander represents numerous major and small businesses, trade associations, and state agencies in a wide range of regulatory and litigation matters, both national and local in scope.  He serves clients in all phases of a case, including internal compliance, administrative proceedings and negotiations, and litigation when necessary.

Mr. Auslander devotes a significant part of his practice to counseling and litigation...