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The Death of Paralyzed Veterans

This past Monday the Supreme Court heard oral argument in (yet) another important AdLaw case, Perez v. Mortgage Bankers Association. At issue: the D.C. Circuit’s “Paralyzed Veterans doctrine,” a set of cases holding that under some circumstances, agencies seeking to change their interpretation of a regulation or law must go through notice-and-comment rulemaking even when the original interpretation was adopted informally. Along with many others, I predicted (here) that the doctrine will go by the boards, for reasons briefly rehearsed below. (That post links to a fine blog piece by Jeff Pojanowski; Point Two below picks up on his theme.) Sure enough, the argument was a train wreck for defenders of the doctrine (good summary here; argument transcript here-link is not available). Most of the time was consumed with shadow-boxing over arcane AdLaw issues that—everyone agreed—weren’t even before the Court. Even so, the case and the argument occasion three broader observations.

Point One: AdLaw and Policy

Administrative law ranges across agencies and statutes. Invariably, it will be shaped in the context of particular statutes. A lot of AdLaw problems would be a lot less pressing, and some might vanish, if the substantive statutes weren’t so stupid.

Perez was prompted by the question of whether certain employees are or aren’t “salesmen” for purposes of the Fair Labor Standards Act (“FLSA.”). It is but the latest of an endless stream of Supreme Court cases, beginning over six decades ago, over earth-shattering questions of whether certain pharma representatives get time-and-a-half for overtime; whether playing pool on night watch constitutes “work time”; and whether the “donning and doffing” of safety equipment is or isn’t compensable. Depressingly, I actually know the answers (I’ve taught the cases): what have I done with my life? And while the statutes are ancient, there’s no let-up to the litigation. This Term there is Perez, and there is another case (awaiting decision) on whether employees have to be paid for time spent in security check-outs.

If I had my druthers we’d wipe the FLSA and accompanying baubles such as the Portal to Portal Act (don’t even ask) off the U.S. Code: I cannot conceive of a problem to which these statutes might be the answer. (They do improve the labor market by keeping AdLaw profs and Supreme Court advocates in shoes. But there has to be a cheaper means to that noble end.) Repeal the statutes and let’s do AdLaw over fun stuff, like toxic chemicals.

There may be statutes (I think there are) that ooze lawlessness and stupidity to the point of exceeding the ordering capacity of any administrative law code or doctrine. Perhaps, rule-of-law-ish discontents would be better aimed at those statutes than at AdLaw per se.

Point Two: Circumvention

Here’s the basic Mortgage Bankers issue (with apologies to the profession I’ll sidestep some AdLaw niceties): agencies can issue “legislative” rules through notice and comment. Or, they can run their business through “interpretative rules” and other means, such as guidance documents or for that matter adjudication, without notice and comment—on pure say-so. Administrative Law has two rock-bottom premises in this regard. (1) The choice of procedure is the agency’s; it’s effectively unreviewable. (2) Courts can’t impose procedural requirements on agencies in excess of the APA or the agencies’ organic statutes. That’s called Vermont Yankee. But the Paralyzed Veterans doctrine demands precisely that: notice and comment, where it’s not required by statute. It will go down on Vermont Yankee grounds.

Two questions. One, the Paralyzed Veterans doctrine has been embraced without hesitation by D.C. Circuit judges across the political spectrum—despite disagreement from sister circuits, and despite the obvious Vermont Yankee issue. What do they see that no one else sees? Two, who would ever leave the choice between rulemaking and “interpretation” to any agency? Isn’t that just an invitation to circumvent rulemaking requirements and to govern by fiat? Those turn out to be the same question(s).

Here’s the standard answer to the second question: by going through “interpretation” rather than rulemaking, the agency is giving something up—the legally binding effect of its pronouncements. If that’s right, there’s no need to police the boundary through judicial doctrines. What the D.C. Circuit knows is that this is pure fantasy: agencies have endless ways to make everyone act as if their interpretations had direct legal effect. (Take any enforcement proceeding:

AGENCY: Defendant willfully ignored the agency’s interpretive determination that this chemical/work practice/gizmo might be dangerous.

DEFENDANT: But it wasn’t legally binding and had they had a rulemaking proceeding, we would have shown that this isn’t dangerous and besides, they had no legal authority to issue a rule like that.

Good luck with that defense. In that world the risk that agencies will do by “interpretation” what they could not do by regulation is all too real. That’s what the moribund Paralyzed Veterans doctrine was supposed to guard against.

(There’s a second thing that the agency ought to be giving up by going through interpretation rather than lawmaking: judicial deference. They get that deference under extant law but at least three justices want to revisit the question. It was briefed by amici in this case and rattles through the argument but it will have to wait for another day.)

Point Three: Distrust

If the Paralyzed Veterans doctrine goes poof, does that mean that the Supreme Court has proven indifferent, yet again, to the potential for government abuse? Not by a long shot. In an amazing argument, a highly respected and experienced SG attorney (Ed Kneedler) sailed through an easy case on his opening argument. During the Mortgage Bankers’ argument, the justices heard nothing that might want them save the Paralyzed Veterans doctrine. But they know the kind of abuse it’s supposed to guard against; and on rebuttal time, Mr. Kneedler suffered something like an inquisition. Are you, several justices demanded to know, going to apply your interpretations retroactively? Verbatim:

CHIEF JUSTICE ROBERTS: Mr. Kneedler, you are not going to go after employers who acted consistently with the prior interpretation between 2006 and 2010 on the ground that they didn’t know about the prior interpretative regulation, are you?

KNEEDLER: No. […]

CHIEF JUSTICE ROBERTS: Whether they knew about the regulation or not.

KNEEDLER: Right. Yes, that was–

JUSTICE SCALIA: So you’re not relying on the good faith exception [safe harbor exception in the statute], right? Just on your generosity in interpreting–

KNEEDLER: Well, no, it’s not–it’s not it’s not just generosity. […]

JUSTICE KENNEDY: So are you […] saying that you would be required to avoid retroactive application even if the safe harbor provision were not in the statute?

KNEEDLER: That’s the position we’ve taken because in this case because there is a significant change. And I think that would be the case whenever there may be special circumstances, but I think that would ordinarily be the case. But I would urge the Court not to–

JUSTICE SCALIA: We’re going to write this down.

KNEEDLER: Pardon me?

JUSTICE SCALIA: We’re going to write this down and quote you in future cases.

Clear enough? If we ever see you with a case like that in this Court, there’ll be no tomorrow.

That deep distrust may do more by way of effective judicial oversight than the rarely applied Paralyzed Veterans doctrine. Whether the government gives a rip one way or the other is a different question.

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