March 09, 2015

Supreme Court Decides Perez v. Mortgage Bankers Association

On March 9, 2015, the United States Supreme Court decided Perez v. Mortgage Bankers Association, No. 13-1041, holding that a federal administrative agency does not need to use the Administrative Procedure Act’s (APA) notice-and-comment procedures when it issues a new interpretation of a regulation that deviates significantly from the agency’s previous interpretation of that regulation.

In 1999 and 2001, the Department of Labor issued letters concluding that mortgage-loan officers did not qualify for the “administrative exemption” to the Fair Labor Standards Act of 1938 (FLSA) and thus were subject to the FLSA’s minimum-wage and overtime requirements. After the Department issued new regulations in 2004, the Mortgage Bankers Association (MBA) sought a new opinion, and in 2006, the Department concluded that mortgage-loan officers did fall within the administrative exemption under the new 2004 regulations. In 2010, the Department altered its opinion and again opined that mortgage-loan officers did not fall within the exemption and thus are subject to minimum-wage and overtime requirements.

MBA sued, challenging the 2010 interpretation. MBA argued that the 2010 interpretation was procedurally invalid under Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997), which held that a federal agency must use the APA’s notice-and-comment procedures when the agency issues a new interpretation of a regulation that differs significantly from an earlier interpretation. The district court granted summary judgment to the Department, holding that MBA failed to establish that it relied on the 2006 interpretation and that the 2004 FLSA regulations supported the 2010 interpretation. The D.C. Circuit reversed, holding that Paralyzed Veterans did not require MBA to establish reliance and that the 2010 interpretation had to be vacated because it did not follow the notice-and-comment procedures of the APA and conflicted with the 2006 interpretation.

The Supreme Court reversed. The Court began by explaining that section 4 of the APA requires a federal administrative agency to use a three-step notice-and-comment procedure when it makes rules. First, it must issue general notice of the proposed rulemaking. Second, it must give interested persons an opportunity to participate in the rulemaking by submitting written comments. Finally, when the agency promulgates the rule, it must include in the rule a concise general statement of the rule’s basis and purpose. These “legislative rules” have the force and effect of law. But the APA does not require an agency to follow the notice-and-comment procedure for “interpretive rules,” which advise the public of the agency’s construction of the statutes and rules it administers. Interpretive rules do not have the force of law.

The Supreme Court then rejected the D.C. Circuit’s interpretation of the APA in Paralyzed Veterans. The Court noted that the D.C. Circuit had conflated section 1 of the APA, which defines rulemaking, and section 4, which provides procedural requirements for rulemaking. Section 4 specifically exempts interpretive rules from the notice-and-comment requirements that apply to legislative rules. The APA denies courts authority to expand procedural requirements beyond what the APA requires, so section 4 established the maximum requirements Congress was willing to have courts impose. Any further procedural requirements are at the discretion of the agencies themselves.

The Court rejected MBA’s attempts to bolster Paralyzed Veterans. First, the Court rejected the argument that the 2010 interpretation was effectively an amendment of the 2004 regulation, noting that the argument would produce the illogical result of requiring the Department to engage in notice-and-comment before issuing the revised 2010 interpretation but not before issuing the 2006 initial interpretation. The Court also concluded that Paralyzed Veterans is not justified on practical and policy grounds, noting that regulated entities faced with changes in administrative interpretations enjoy other protections, including the arbitrary and capricious standard and legislative safe-harbor provisions.

Justice Sotomayor delivered the opinion of the Court, in which Chief Justice Roberts and Justices Kennedy, Ginsburg, Breyer, and Kagan joined, and in which Justice Alito joined except for Part III-B. Justice Alito also filed an opinion concurring in part and concurring in the judgment. Justices Scalia and Thomas filed opinions concurring in the judgment.

Download Opinion of the Court.

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