In Perez v. Mortgage Bankers, the Supreme Court struck down a rule of administrative common law on the grounds that it was inconsistent with the Administrative Procedure Act (APA). But instead of simply respecting Congress’s deliberate choices, the Court continues to weigh policy considerations. The Court shows no sign of relinquishing its self-appointed position as arbiter of what is good and bad, wise and unwise in administrative law.

This Essay argues that the Court should take a step back and recognize the overarching problems with administrative common law: its lack of connection to public deliberation; its heightened separation of powers and public accountability concerns; and its lack of foresight about the practical implications of common law doctrine. In Mortgage Bankers, the Court should have taken the opportunity to admonish the lower courts to focus their interpretation of the APA on the public deliberation inherent in the Act itself and to avoid creating rules of administrative common law that exceed the boundaries of the APA. Instead, the Court implicitly reaffirmed that it takes a functional approach to interpreting the APA; it addressed on the merits a deference doctrine that may not comport with the APA without even acknowledging that tension; and it invited the lower courts to continue to use administrative common law as a sort of constitutional avoidance doctrine unmoored from the public deliberation inherent in the APA itself.

Introduction

In the National Portrait Gallery in Washington, D.C., hangs a painting by Chuck Close. When standing near the painting, all one sees are countless, abstract squares of color. But as one moves farther away, the individual squares merge into a portrait of President Clinton.1

In Perez v. Mortgage Bankers Association,2 the Supreme Court struck down a judge-made rule from the D.C. Circuit as inconsistent with the plain text of the Administrative Procedure Act (APA).3 The case arose after the Department of Labor reversed its interpretation of one of its own regulations. A previous opinion letter had concluded that, under the regulation, mortgage loan officers are not entitled to overtime pay. But the “Administrator’s Interpretation” at issue in Mortgage Bankers reached the opposite conclusion.4 The D.C. Circuit vacated the new interpretation because the agency issued it without going through notice-and-comment rulemaking procedure.5 The APA, however, exempts an agency’s interpretation from the notice-and-comment requirements that apply when an agency engages in rulemaking.6 Nonetheless, the D.C. Circuit held—in accordance with its decision in Paralyzed Veterans of America v. D.C. Arena L.P.7—that changing the agency’s “definitive interpretation” of a regulation is tantamount to changing the regulation itself, and thus requires notice and comment.8 The Supreme Court reversed unanimously, holding that the D.C. Circuit’s Paralyzed Veterans doctrine “is contrary to the clear text of the APA’s rulemaking provisions.”9

The Court reached the right result, but its opinion was flawed. Instead of simply noting the conflict between the D.C. Circuit’s decision and the APA, it went on to analyze policy considerations. That analysis reveals that the Court is still amenable to administrative common law that exceeds the boundaries of the APA. The Court has yet to acknowledge the fundamental problem with such judge-made law: its lack of connection to public deliberation.10 The Court’s myopic focus on each individual case prevents it from seeing how its policy-oriented reasoning leaves the door open for common law doctrines that contradict the APA. The Court is standing too close to the canvas of administrative law to see the whole picture. Had it backed away from the canvas, the Court would have reversed the D.C. Circuit simply because Paralyzed Veterans doctrine contradicts the APA. Perhaps the Court would have gone on to admonish the lower courts to respect the public deliberation reflected in the APA itself and to avoid creating administrative common law doctrines that conflict with the statute. But in saying less, the Court would have accomplished more.

In this Essay, I begin by explaining what sets the APA apart from ordinary statutes and how its special status should affect its interpretation. I then analyze how the Court departed from that prescription in Mortgage Bankers and how it should have decided the case.

I. interpreting the apa

Although the APA needs revising as it nears its seventieth birthday, it is not like other statutes that the courts may legitimately keep up to date.11 The APA is a superstatute. William Eskridge and John Ferejohn conceived of superstatutes as statutes that emerge from a lengthy public debate and take on great normative weight.12 The APA meets Eskridge and Ferejohn’s criteria for superstatute status: it was born of deep public deliberation, has stood the test of time, taken on normative gravity, and become firmly entrenched in our law.13

Congress spent significant time in the 1930s and 1940s debating how to control the administrative state before settling on the formula of the APA in 1946. The debate involved federal agencies, the American Bar Association, and many other groups.14 Conservatives in Congress wanted to impose strict new controls on federal agencies. New Deal liberals wanted to maintain agency discretion.15 The APA of 1946 represents a monumental compromise between those two camps. Since 1946, Congress has made major amendments to the APA, and has given serious consideration to other changes right up to the present.16 The APA is therefore the product of deep public deliberation.17

Over the years, the APA has amassed normative gravity, in terms of both its own weight and its pull on other laws. For example, the idea of providing public notice and comment before issuing binding rules is firmly entrenched in administrative law,18 and the arbitrary or capricious standard is replicated throughout the U.S. Code.19

One of William Eskridge and John Ferejohn’s central insights in their work on superstatutes is that statutory interpretation should focus on deliberation—not judges deliberating behind closed doors while reading briefs submitted by the parties to a case, but public deliberation.20 If the law is to evolve, as it must to answer new questions that arise, it should evolve in a way that reflects the public’s will. For most statutes, agencies are at the center of that deliberative process. For example, the Environmental Protection Agency interprets the Clean Water Act in a regulatory process that involves agency staff, the public, the White House, Congress, and ultimately the courts.21 But the APA is different. No single agency is tasked with interpreting the APA; all agencies interpret the APA, and no one agency’s interpretation is binding on the others.22 Because no agency has control over the APA, the public deliberation that has shaped the law has taken place in Congress.

These characteristics affect how courts should interpret the APA. First, Eskridge and Ferejohn argue that superstatutes should be allowed to evolve over time, even to the point of exceeding the enacting Congress’s expectations.23 That assertion, however, is premised on a single agency forming the center of an interpretive web intertwined with the other branches of government and the public.24 But the APA is not a typical superstatute because no single agency centers the interpretive process. When interpreting the APA, therefore, courts should stay within the boundaries of the text that Congress enacted.25 Some words leave wiggle room for interpretation, like “arbitrary, capricious, or contrary to law.”26 Other terms are more definite, like section 704, which requires exhaustion of administrative remedies “only” in certain circumstances.27 No clear line divides statutory interpretation from administrative common law.28 But administrative common law “exceeds the boundaries of any permissible interpretation” of the text.29 When that common law also contradicts or ignores the APA, it must be avoided.30

Second, courts must give effect to the compromises encoded in the Act. Some provisions were wins for the conservative minority, others wins for the liberal majority. One cannot tell which is which, and thus cannot really understand the text if one does not also look at the full context and history of the Act leading up to 1946.

Third, courts must respect ongoing public deliberation about the Act. This deliberation includes not just amendments that have been enacted, but also amendments that get defeated after significant debate.31 When the Court invalidated a Department of Labor burden-shifting rule in Director, Office of Workers’ Compensation Programs v. Greenwich Collieries,32 for example, it did not consider post-1946 statutes and regulations.33

Finally, if the APA needs to be amended to respond to new circumstances, the courts should not take on that task themselves, but should prod Congress to do its job.34 Judicial deliberation is not a “second best” alternative to public deliberation.35

Judge-made rules that exceed the boundaries of the APA’s text defy those core interpretive tenets.36 The primary problem of administrative common law is its lack of connection to public deliberation.37 Another problem relates to separation of powers and political accountability. Thomas Merrill argued that lawmaking by federal judges represents “a major shift in policymaking power away from Congress and toward the federal judiciary” and “a potential erosion of the principle of electoral accountability.”38 Those objections may overreach insofar as they would invalidate all federal common law.39 The years of intensive public deliberation over the APA, however, raises the stakes on those concerns.40

Moreover, courts cannot foresee the implications of the administrative common law rules they create, as they typically hear from only one agency in a given case.41 For example, the D.C. Circuit has imposed common-law requirements on agency rulemaking, including requiring that a final rule be a “logical outgrowth” of the proposed rule and that agencies provide public notice of the information considered in drafting the rule.42 Those common law requirements, among others, may have pushed agencies to use non-binding means, such as interpretive rules and policy statements, to communicate their policy positions, as the Department of Labor did in Mortgage Bankers.43 The Court should not eliminate the availability of such subregulatory forms until it lifts the common law cloud on rulemaking.44

II. the court’s pixelated view

The Supreme Court does not hear many cases that present such a stark conflict between a doctrine of administrative common law and the APA. Thus, Mortgage Bankers presented a rare opportunity to caution the lower courts against creating administrative common law doctrines that conflict with the statute. Although the Court in Mortgage Bankers reached the right result, it missed that opportunity.

The Court recognized that “[t]he text of the APA answers the question presented” in that it expressly exempts “interpretative rules” from the Act’s rulemaking requirements.45 The Court purported to leave to Congress the task of “weigh[ing] the costs and benefits of placing more rigorous procedural restrictions on the issuance of interpretive rules.”46 And the Court explained that it is not in the position to decide whether Paralyzed Veterans doctrine is “wise policy” or not.47

If the Court had recognized the problems with administrative common law, it would have ended its opinion there. The Court could have disposed of the case simply by noting that the arguments the Mortgage Bankers Association (MBA) raised in support of Paralyzed Veterans doctrine could not overcome the doctrine’s conflict with the APA. Standing so close to the canvas, however, the Court did not see the entire picture. The Court was so focused on the case before it that when it went on to address MBA’s arguments, it left the door ajar for administrative common law that contradicts or ignores the APA. In saying less, the Court would have accomplished more.

Several aspects of the Court’s opinion reveal that it is still amenable to administrative common law that exceeds the terms of the APA. The Court implicitly reaffirmed that it takes a functional approach to interpreting the APA; it addressed on the merits a deference doctrine that may not comport with the APA without even acknowledging that tension; and it invited the lower courts to continue to use administrative common law as a sort of constitutional avoidance doctrine unmoored from the public deliberation inherent in the APA itself.

First, the Court did not disagree with MBA’s contention that the Court takes a “‘functional’ approach to interpreting the APA.”48 Instead of accepting an agency’s characterization of its action at face value, MBA argued, the Court analyzes the function of the agency’s pronouncement.49 It was just such a functional approach that led the D.C. Circuit to craft the Paralyzed Veterans doctrine. Instead of accepting the APA at face value, the D.C. Circuit interpreted the exception for interpretive rules to serve what the court saw as its proper function.50 In Mortgage Bankers,rather than eschewing that approach, the Supreme Court simply distinguished the cases upon which MBA relied to defend the Paralyzed Veterans doctrine.51 The Court reached the right result. Its mistake was in focusing on the function of administrative law doctrines instead of the public deliberation that shaped the APA.52

Similarly, instead of simply rejecting MBA’s “practical and policy” arguments as irrelevant in light of Congress’s clear expression of intent in the APA, the Court answered those policy questions on their merits.53 Of course, it is not unusual for the Court to address a party’s arguments in an opinion. But it was this sort of “practical and policy” consideration that led the D.C. Circuit to create Paralyzed Veterans doctrine. By addressing those arguments on their merits, the Supreme Court indicated that they provide a valid means of interpreting the APA. The Court should have simply reiterated its statement that just because the Court might “have struck the balance differently does not permit [it] to overturn Congress’s contrary judgment.”54

Second, the Court’s treatment of the Auer doctrine further demonstrates its continued comfort with administrative common law. Under Auer v. Robbins, agency interpretations of their own rules receive deference.55 MBA argued that because interpretive rules get Auer deference, they have the force of law.56 The Court need not have addressed Auer at all, since MBA waived the argument by not raising it in its brief in opposition.57 Nonetheless, the Court rejected MBA’s contention because, even where Auer applies, “it is the Court that ultimately decides whether a given regulation means what the agency says.”58

What is notable, though, is not the Court’s response, but rather that, having addressed Auer, the majority opinion ignored the elephant in the room. Several justices have raised the question in recent years of whether the Auer doctrine should be eliminated, practically inviting petitions for certiorari on the issue.59 Yet the majority in Mortgage Bankers did not even acknowledge that question.

Although the Auer doctrine may not conflict with the express terms of the APA like the Paralyzed Veterans doctrine, giving deference to an agency’s interpretation of its own regulations is at least in some tension with Act’s requirement that courts “decide all relevant questions of law” and “interpret constitutional and statutory provisions.”60 Again, the Court could have held simply that the Paralyzed Veterans doctrine conflicts with the APA. Instead, the Court addressed a doctrine that was not at issue in the case and that might itself contradict the APA. To be sure, the majority did not endorse Auer doctrine, but it missed an opportunity to say that one common law doctrine cannot justify another common law doctrine that conflicts with the APA. The majority essentially gave the lower courts the go-ahead to continue to develop administrative law without considering how their doctrines comport with the APA.

Finally, MBA argued that the Paralyzed Veterans doctrine prevents agencies from undermining reliance interests by “unilaterally and unexpectedly altering their interpretation of important regulations.”61 The Court did not need to address retroactivity in Mortgage Bankers because the FLSA contains a safe-harbor provision that insulates employers from liability where they acted in conformity with the then-current Department of Labor interpretation of the Act.62 Nonetheless, the Court noted that principles of retroactivity might limit an agency’s ability to enforce a new interpretation against a regulated party that relied on an earlier interpretation.63 While this retroactivity principle probably reflects Due Process Clause concerns,64 unless the Court grounds its decision more directly in the Constitution this concern devolves into administrative common law.65 The Court avoids confronting constitutional tensions using administrative common law “as a constitutional avoidance doctrine.”66 By not positioning its discussion of retroactivity in the context of the Due Process Clause, however, the Court left its discussion of retroactivity unmoored, thus implying that courts may continue to develop common law out of whole cloth instead of focusing their analysis on the public deliberation inherent in the APA.

Justice Scalia addressed some of these issues in his concurrence. He came closer to the mark of recognizing the problems with administrative common law by pointing out that, to restore the balance Congress struck when it enacted the APA in 1946, the Court must not examine Paralyzed Veterans doctrine in isolation, but must also consider “judge-made doctrines of deference.”67 Yet even Justice Scalia failed to recognize that it might be the common law of rulemaking that has driven agencies to rely on subregulatory forms of policy communication.68 Justice Scalia went on to say that, if the D.C. Circuit were to purport to overrule a Supreme Court decision, that act would be a “greater fault” than ignoring a congressional enactment.69 Whether correct or not, that statement fails to recognize the danger inherent in any rule of administrative common law that contradicts the APA, and fails to recognize the need for courts to respect public deliberation.70

The Court’s pixelated analysis of administrative common law is nothing new. The Court is often so focused on the minutia of an individual case that it does not recognize the overarching problem with administrative common law that contradicts the APA. In Vermont Yankee Nuclear Power Corp. v. NRDC, for example, the Court held that the D.C. Circuit erred in imposing procedural requirements that exceeded the terms of section 553 of the APA for informal rulemaking. The Court invalidated a rule of administrative common law.71 But the Court seemed to speak out of both sides of its mouth. It urged the lower courts not to exceed the boundaries of section 553, essentially cautioning them against creating administrative common law.72 Yet, instead of centering its own analysis on section 553, the Court focused on its prior decisions, only one of which mentioned the APA, and then only in footnotes.73 Indeed, the Court seemed to go well beyond the APA itself by invoking “the very basic tenet of administrative law that agencies should be free to fashion their own rules of procedure.”74 When put so broadly, that statement contradicts the very purpose of the APA: “to settle and regulate the field of Federal administrative law and procedure.”75

By the same token, the Court stuck close to the APA’s text when it invalidated common law exhaustion doctrine in Darby v. Cisneros.76 But even there, it expressly permitted courts “to apply, where appropriate, other prudential doctrines of judicial administration to limit the scope and timing of judicial review.”77 In Vermont Yankee, Darby, and again in Mortgage Bankers, the Supreme Courtmissed an opportunity to caution the lower courts against creating administrative common law doctrines that conflict with the APA.

Conclusion

The Court pixelates intentionally: it decides cases narrowly based on the facts presented.78 But in so doing, the Court sometimes misses the bigger picture. It is so focused on individual dots that it does not notice how they cohere into a unified image. This is one of the primary problems with administrative common law. As Nicholas Bagley has explained, courts see only “case-by-case snapshots” of agencies and “have only a dim sense of how judicial oversight will affect how agencies go about their business.”79 Although courts are deeply deliberative, they lack the necessary foresight, and they lack the connection to the public that renders lawmaking valid in our system of government.80

The Court should take a step back from the canvas of administrative law to see the whole picture. If it had taken a step back in Mortgage Bankers, it would have explained why Paralyzed Veterans doctrine conflicts with the APA and ended its opinion there. Perhaps it would have gone on to admonish the lower courts to focus their interpretation of the APA on the public deliberation inherent in the Act itself and cautioned them against creating administrative common law doctrines that conflict with the APA. If the Court takes a step back, the pixels of each individual case will merge into a picture in which administrative common law is something to be approached with skepticism instead of open arms.

Kathryn E. Kovacs is an Associate Professor at Rutgers School of Law. She thanks Emily Hammond, Richard Murphy, and the editors of the Yale Law Journal for their helpful comments on drafts of this Essay.

Preferred Citation: Kathryn E. Kovacs, Pixelating Administrative Common Law in Perez v. Mortgage Bankers Association, 125 Yale L.J. F. 31 (2015), http://www.yalelawjournal.org/forum/pixelating-administrative-common-law-in-perez-v-mortgage-bankers-association.