March 20, 2018 9:34AM

Supreme Court, Over Thomas/​Gorsuch Dissent, Passes Up Chance to Rein in Administrative State

By Ilya Shapiro and Matthew Larosiere

More than seven decades ago, litigation over the Emergency Price Control Act of 1942 left courts with an embarrassing black eye that would affect decisions for decades. In Bowles v. Seminole Rock & Sand Co. (1945), the Supreme Court decided to give controlling deference to administrative agencies’ interpretations of their own regulations. In Auer v. Robbins (1997), the Court unanimously doubled down on Seminole Rock. As the late Justice Antonin Scalia noted in a 2013 case when it seems he began having a change of heart, “[f]or decades, and for no good reason, [courts] have been giving agencies the authority to say what their rules mean.”

These “interpretations,” for which there are no standardized processes, can come in informal contexts, as was the case in Garco Construction v. Speer, where the government’s deferred to “interpretation” that didn’t come around until litigation was well underway. This year, the Supreme Court had a golden opportunity to finally do away or at least curb this problematic doctrine, but alas it was an opportunity it failed to seize, today denying Garco’s petition for review (which Cato had supported with an amicus brief).

There are a multitude of arguments for overturning Seminole Rock and Auer. Even when the cases were decided, the Court gave little justification for the doctrine beyond administrative and judicial convenient. To the contrary, giving agencies the authority to interpret (and reinterpret) their own rules violates principles of separation of powers, as well as the Administrative Procedure Act. As Justice Clarence Thomas pointed out in 2015, the doctrine combines “the power to prescribe with the power to interpret,” and the separation of those two powers was one of the primary goals of the Founders. Justices John Roberts, Scalia, Sam Alito, Thomas, and Neil Gorsuch have all written opinions questioning — or outright rejecting — the doctrine’s scope on that ground alone.

Further, the APA provides that it is for the reviewing court to “determine the meaning or applicability of the terms of an agency action,” and that all legislative rulemaking go through public notice‐​and‐​comment procedures. With Seminole Rock/​Auer, however, agencies have been enabled to get around these requirements by simply “promulgat[ing] vague and open‐​ended regulations that they can later interpret as they see fit.” Even where regulations are not so vague, though, this doctrine rears its ugly head. In Duquesne Light Holdings v. Commissioner of Internal Revenue, in which Cato just today filed an amicus brief, a regulated entity followed controlling regulations to the letter, but was nonetheless penalized tens of millions of dollars after the Third Circuit deferred to the IRS’s countertextual reading of its own regulations.

It seemed that Garco Construction was a great vehicle for adjusting Seminole Rock/Auer deference. Garco Construction won a contract to build housing on an Air Force Base in Montana. The contract, and its prior contracts, allowed Garco to use employees who had criminal records. Base regulations, however, allowed officials to refuse entry to any workers who had any outstanding “wants and warrants.” After Garco began work on its contract, base officials suddenly began running full background checks on all workers, and refusing those with any criminal record, not just those with an outstanding want or warrant (whom Garco didn’t employ). This change forced the contractors to hire, train, and transport new workers who could pass the suddenly tightened rule. The contractors requested reimbursement of these costs, but were denied by the government.

Garco was never given a reason for the sudden change — until litigation seven years later, when base officials justified the denials by testifying that they interpreted “wants and warrants” to mean, as Justice Thomas pointed out in his dissent from denial of certiorari, “wants or warrants, sex offenders, violent offenders, those who are on probation, and those who are in a pre‐​release program.”

Justice Thomas, who was joined by Justice Gorsuch, is right. Garco Construction would have been a good case to reconsider Seminole Rock, “as it illustrates the problems that the doctrine creates … an agency was able to unilaterally modify a contract by issuing a new ‘clarification’ with retroactive effect.” “This type of conduct ‘frustrates the notice and predictability purposes of rulemaking, and promotes arbitrary government.’” In declining to hear the case, the Court has “passed up another opportunity to remedy ‘precisely the accumulation of governmental powers that the Framers warned against.’”

Perhaps the other justices shied away because Garco involved the military, which generally gets more deference than other governmental institutions. But regardless, this issue isn’t going away and, as Justice Thomas put it, “Seminole Rock deference is constitutionally suspect.”