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From Securities Regulation Daily, October 24, 2014

Securities and business communities urge Supreme Court to require notice and comment for agency interpretations

By Jim Hamilton, J.D., LL.M.

Emphasizing the important role that notice-and-comment rulemaking by federal regulatory agencies such as the SEC plays in the modern administrative state, the securities industry and a consortium of business organizations urged the Supreme Court to rule that a federal agency has to conduct public notice and comment before changing a regulatory interpretation that it had previously issued. In a joint amicus brief, SIFMA, the Chamber of Commerce, the Business Roundtable, and other business groups, said that the business community needs to know that it can rely upon the interpretive rules that increasingly affect its day-to-day operations. By requiring federal regulatory agencies to ask for and respond to public feedback before changing definitive, relied-upon agency interpretations, noted the brief, the Court can protect those reliance interests and foster the goal of the Administrative Procedure Act (APA) of increasing the effectiveness and legitimacy of agency decision making through notice-and-comment rulemaking.

Circuit ruling. The Court is reviewing a District of Columbia Circuit panel ruling that when an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended its rule, something it may not accomplish under the APA without notice and comment. The case is set for oral argument on December 1, 2014. Perez v. Mortgage Bankers Association, Dkt. No. 13-1041.

Amici contentions. In their brief, amici sketched a scenario that has become all too typical in which Congress passes a broadly worded statute accompanied by an authorization for a federal agency to conduct lawmaking through rulemaking. The agency then promulgates an ambiguous legislative rule that, although preceded by notice and comment, does not address many critical issues. The agency then uses an interpretation of the rules, issued without public feedback, to provide the only truly clear guidance on those issues, guidance that generally binds courts unless it substantially deviates from the text of the statute or the rule. This scenario is already problematic, noted amici, and would only be exacerbated by allowing agencies to switch their definitive interpretive positions despite substantial reliance by regulated parties, thereby undermining the basic purpose of the APA and depriving the regulated community of its substantial reliance interests.

The securities and business communities urged the Court to ameliorate this problematic scenario by holding that where an agency has definitively announced its interpretation of a regulation, and where private parties have relied on that interpretation, the agency must give notice and respond to comments before significantly shifting course. This position is consistent with the APA’s text and compelled by its purposes, argued amici, and at the same time also protects the legitimate reliance interests of the regulated community in question.

More broadly, contended amici, the APA’s notice-and-comment requirements embody the efforts of Congress to promote fair and efficient agency action. By providing the regulated community the right to know about and participate in agency decisions that will significantly impact its interests, those requirements ensure that agencies have the information and feedback needed to regulate in a factually sound and publicly accountable manner.

Agencies, taking advantage of current administrative law doctrines, already attempt to avoid meaningful public participation by promulgating vague legislative rules and then interpreting those rules to reach the potentially controversial regulatory outcomes that the agencies seek. Allowing agencies to reverse their definitive, relied-upon interpretations without notice and comment would make this situation even worse.

By giving regulated parties the right to participate in important agency decisions, said the brief, the APA’s notice-and-comment requirements reintroduce public participation and fairness to affected parties after governmental authority has been delegated to unrepresentative agencies.

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