Supreme Court Update: Perez v. Mortgage Bankers Ass'n (13-1041), Dep't of Transportation v. Ass'n of American Railroads (13-1080) and Order List

March 12, 2015 Supreme Court Update

Greetings, Court fans!

It's been a great week for admin-law junkies; maybe not so much for the D.C. Circuit, which suffered two unanimous reversals in Perez v. Mortgage Bankers Ass'n (13-1041) and Dep't of Transportation v. Ass'n of American Railroads (13-1080). Today we bring you summaries of these two decisions and the most recent cert grants, as we work backwards through a five-case backlog.

In Perez v. Mortgage Bankers Association (13-1041), the Court pulled the plug on the Paralyzed Veterans doctrine, a rule of administrative law invented by the D.C. Circuit, which holds that an agency must employ the full notice-and-and comment rulemaking procedures of the Administrative Procedures Act ("APA") every time it issues a new interpretation of a regulation that is significantly different than one previously adopted. In this case, the Department of Labor ("DOL") had issued a series of inconsistent interpretations of the Fair Labor ­Standards Act's wage and hour protections, which contain an "administrative exception" for "employees employed in a bona fide executive, administrative, or professional capacity." In 1999 and 2001, President Clinton's DOL interpreted the administrative exception so as not to apply to mortgage and loan officers, meaning they were entitled to minimum wage and overtime protections. In 2004, the DOL (now populated primarily by Bush appointees) issued new regulations on the administrative exception and proceeded in 2006 to conclude that mortgage and loan officers fell within the administrative exception under the new regulations. But, with a new President came a new interpretation: In 2010, Obama's DOL flip-flopped once again, and mortgage and loan officers rejoiced. Notably, as the DOL see-sawed back and forth on this issue, it did not issue its interpretations through the notice-and-comment procedure. The Mortgage Bankers Association challenged the DOL's 2010 interpretation on this ground, and the D.C. Circuit held that the interpretation was invalid under its Paralyzed Veterans doctrine.

The Supreme Court reversed, in an opinion drafted by Justice Sotomayor, and joined in full by the Chief, Kennedy, Ginsburg, Breyer, and Kagan. The Court held that the Paralyzed Veterans doctrine has no basis in the APA, which explicitly states that its notice-and-comment rule making process does not apply to interpretative rules, as opposed to legislative or substantive rules, which have the "force and effect" of law. Notwithstanding the plain language of the APA, the D.C. Circuit had held that a new interpretative rule that differs dramatically from an old one is really not an interpretative rule at all, but rather a "rule making," subject to notice-and-comment requirements. But Sotomayor countered that an interpretative rule is an interpretative rule, no matter what the interpretation is and whether it is consistent with the agency's prior interpretations. It was not the province of the Court to determine whether this was a wise policy, Sotomayor noted. That was Congress's job, and Congress expressly exempted interpretive rules from the APA's notice-and-comment requirements.

Justice Alito filed joined most of Sotomayor's opinion, but filed a one-paragraph concurrence noting that the Paralyzed Veterans may have grown out of an understandable concern about the "aggrandizement of the power of administrative agencies." He sympathized with the D.C. Circuit's diagnosis of a disease, but said Paralyzed Veterans was not a "viable cure." Justices Scalia and Thomas filed separate concurrences. (It appears Scalia didn't care to join Volume I of Thomas's treatise on the historical and constitutional underpinnings of the administrative state; see Ass'n of American Railroads for Volume II.) Both Scalia and Thomas decried the expansive—and in their view unwarranted—powers given to administrative agencies, and were particularly troubled by the fact that the Court defers to agencies' interpretations of their own regulations, which significantly lessens their accountability. In their separate concurrences, therefore, Thomas and Scalia laid out the welcome mat for a future case challenging the so-called Auer doctrine. But that issue wasn't squarely presented in Perez.

The agency-bashing (and D.C. Circuit reversing) continued in Dep't of Transportation v. Ass'n of American Railroads (13-1080), where all nine Justices agreed that Amtrak is a government entity, and Alito and Thomas went further to question, respectively, the constitutionality of Amtrak's "structure" and of the administrative state as a whole.

In 1970, Congress created the National Railroad Passenger Corporation, better known as Amtrak. Amtrak mainly uses tracks owned by private freight rail carriers, and by statute Congress gives it certain preferential rights to use these tracks over private freight operators. Unhappy with Amtrak's reliability (vel non), in 2008 Congress enacted the Passenger Rail Investment and Improvement Act ("PRIIA"), which directs Amtrak and the Federal Railroad Administration ("FRA") to jointly create "metrics and standards" for on-time performance. The PRIIA also imposes certain penalties on private freight rail carriers if Amtrak can't meet these metrics and standards because of freight rail activity. An association of freight rail carriers challenged the statute, and the D.C. Circuit found the PRIIA unconstitutional because it delegated rulemaking authority to Amtrak, which the court concluded was a private (rather than governmental) entity. This, according to the D.C. Circuit, violated the so-called private-nondelegation doctrine.

Justice Kennedy, writing for a unanimous court, easily reversed, holding that in fact Amtrak is a government entity. The D.C. Circuit based its decision almost exclusively on two statutory provisions, which provide that Amtrak "is not a department, agency, or instrumentality" of the U.S. government and that it "shall be operated and managed as a for profit corporation." But it's facts, not words, that determine whether an entity is private or public, and the facts are pretty clear. Amtrak was created by Congress, its board of directors is (mostly) appointed by the President and confirmed by Congress, it's subject to numerous congressional mandates (it must maintain a route between Louisiana and Florida, for example), and it receives more than a billion dollars a year of federal subsidies. And if that wasn't enough, the Supreme Court already held that Amtrak was a public entity in 1995, when it concluded that Amtrak was a state actor for First Amendment purposes. All told, this "practical reality of federal control and supervision" prevailed over any congressional disclaimer of governmental status. The Court therefore remanded to the D.C. Circuit to consider whether the PRIIA was invalid for any other reasons, which the parties may (or may not) have preserved.

Justice Alito, writing only for himself, wanted to get into those other reasons for invalidating the PRIIA. For example, Amtrak's board members may not swear an oath to uphold the Constitution: Not cool, says Article VI of the Constitution . The eight board members appointed by the President and confirmed by Congress elect a ninth board member, who serves as President of Amtrak and who is not subject to congressional approval: Say what? Doesn't that violate the Appointments Clause? And the PRIIA relied heavily on the threat of binding arbitration if the parties couldn't agree to the relevant metrics, which itself might violate nondelegation principles and/or the Appointments Clause, since the arbitrator—who could be a private person or, in any event, not appointed by the President—would effectively be wielding governmental power. In short, though he didn't quite come out and say it, you can put Alito's vote in the "no" column, when the question of Amtrak's structure is constitutional comes back before the court, as it inevitably will.

In Justice Thomas's eyes, it's not just Amtrak that's unconstitutional, but every administrative agency that exercises a modicum of legislative power. So he opined in Volume II of his treatise on the questionable historical and constitutional underpinnings of the administrative state, a solo concurrence that ran about as long as the other two opinions combined. While the Court's precedent has long allowed the delegation of rulemaking authority to the executive branch, so long as Congress establishes some "intelligible principle" for the Executive to follow, Justice Thomas called for the Court to return to the Constitution's original meaning. Article I, §1 provides that "All legislative Powers herein granted shall be vested in a Congress," meaning that none can be vested in the Executive or Judicial branches (or a private entity, for that matter). Going all the way back to the Magna Carta (and touching on almost every development in administrative law since), Justice Thomas concluded that the drafters of the Constitution were particularly concerned with maintaining a strict separation between legislative and executive power and that the "formulation of generally applicable rules of private conduct" is exclusively a legislative power. Here, the metrics and standards that Amtrak was tasked with formulating along with the FRA amount to rules of private conduct because the private freight operators sharing the tracks with Amtrak must essentially assist Amtrak in meeting them, or else face a penalty under the PRIIA. But under Justice Thomas's view of the separation of powers, it's not just Amtrak that has been unconstitutionally delegated legislative power, but every administrative agency that formulates generally applicable rules of conduct.

So, even though Amtrak is a governmental entity (the actual, 9-0 holding of this case), it might also be run by a disloyal, illegally appointed Board and, along with the rest of the administrative state, its very existence may be unconstitutional. And it still doesn't run on time.

Speaking of tardiness, we owe you summaries of NC Board of Dental Examiners v. FTC (13-534), on whether a state regulatory board loses antitrust immunity if its members are participants in the market it regulates (yep); Direct Marketing Ass'n v. Brohl (13-1032) on whether the Tax Injunction Act bars a federal court from enjoining enforcement of a state law requiring retailers to report online purchases to tax authorities (nope); and Alabama Dep't of Revenue v. CSX Transportation (13-553), on what constitutes tax discrimination under the so-called 4-R Act (more than what the Eleventh Circuit thought). Bear with us! In the meantime, here are the latest cert grants:

Hurst v. Florida (14-7505) asks "Whether Florida's death sentencing scheme violates the Sixth Amendment or the Eighth Amendment in light of this Court's decision in Ring v. Arizona, 536 U.S. 584 (2002)," which held that the Sixth amendment requires a jury to find the aggravating factors necessary to impose the death penalty.

Ocasio v. United States (14-361) asks whether a conspiracy to commit extortion under the Hobbs Act requires that conspirators agree to obtain property from someone outside the conspiracy.

Hawkins v. Cmmty. Bank of Raymore (14-520) asks (1) whether "primarily and unconditionally liable" spousal guarantors are unambiguously excluded from being "applicants" under the Equal Credit Opportunity Act because they are not integrally part of "any aspect of the transaction" and (2) whether the Federal Reserve Board has authority under the ECOA to include by regulation spousal guarantors as "applicants" to further the purposes of eliminating discrimination against married women.

The Court also called for the SG's views on RJR Pension Investment v. Tatum (14-656), which asks (1) whether the plaintiff bears the burden of proving loss causation in a breach-of-fiduciary duty claim under ERISA, or whether it can shift that burden on to the defendant by carrying its burden on other elements and (2) whether an ERISA fiduciary with a duty of prudence can be held liable even when its ultimate investment decision was objectively prudent.