In a decision issued on Wednesday, the U.S. Supreme Court, in Kisor v. Wilkie, declined to overrule a line of cases instructing courts to defer to an agency’s interpretation of its own regulation, a doctrine sometimes referred to as “Auer deference.”  The name derives from Auer v. Robbins, a 1997 U.S. Supreme Court decision in which the Court ruled that the Department of Labor’s interpretation of its own regulation controlled unless it was plainly erroneous or inconsistent with the regulation.

James Kisor, the plaintiff in Kisor v. Wilkie, is a Vietnam War veteran who filed for benefits for post-traumatic-stress disorder.  In 2006, the Department of Veterans Affairs agreed with Mr. Kisor that he suffered from PTSD, but refused to give him benefits dating back to 1983 as he had sought.  In denying his claim, the VA relied on its interpretation of the term “relevant” in a VA regulation that addresses the VA’s reconsideration of a claim.  The regulation provides for reconsideration “if VA receives or associates with the claims file relevant official service department records that existed and had not been associated with the claims file when the VA first decided the claim.” (emphasis added).  The VA concluded that certain documents offered by Mr. Kisor in support of his claim were not “relevant” because they were not “outcome determinative.”  The VA’s decision was affirmed by the Court of Appeals for Veterans Claims.  Mr. Kisor then appealed to the U.S. Court of Appeals for the Federal Circuit, which deferred to the VA’s interpretation in affirming the lower court’s decision.

The opinion of the Court was written by Justice Kagan and joined in full by Justices Ginsburg, Breyer, and Sotomayor and joined in part by Chief Justice Roberts.  All of the Justices concurred in the judgment vacating the judgment and remanding the case.  Justice Gorsuch wrote a separate opinion joined in full by Justice Thomas and in part by Justices Kavanaugh and Alito, in which he concluded that the Court should have “abandon[ed] Auer.”  Justice Kavanaugh also wrote his own separate opinion joined by Justice Alito in which he expressed agreement with a separate opinion written by Chief Justice Roberts.  In that opinion, the Chief Justice “suggest[ed] that the distance between the majority and Justice Gorsuch is not as great as it may initially appear [because of] the prerequisites for, and the limitations on, Auer deference [established by the majority].”

It is important to note that all three of the separate opinions distinguished Auer deference from Chevron deference.  Chevron addresses the deference a court should give to an agency’s regulation.  In his separate opinion, Chief Justice Roberts, citing Chevron, stated that “issues surrounding judicial deference to agency interpretations of their own regulations are distinct from those raised in connection with judicial deference to agency interpretations of statutes enacted by Congress” and that he does not “regard the Court’s decision today to touch upon the latter question.”  Justice Kavanaugh indicated that he agreed with the Chief Justice’s statement regarding Chevron and Justice Gorsuch, in addition to distinguishing Chevron from Auer, indicated that “there are serious questions, too, about whether [Chevron deference] comports with the [Administrative Procedure Act] and the Constitution.”

In the opinion of the Court, Justice Kagan stated that a court should only apply Auer deference after a “significant analysis of the underlying regulation.”  First, deference should not be given unless a regulation is “genuinely ambiguous.”  If there is no uncertainty, there is no reason for deference and “[t]he regulation then just means what it means—and the court must give it effect, as the court would any law.”  Second, if a regulation is genuinely ambiguous, the agency’s interpretation must also be reasonable for it to be given deference, which she called “a requirement an agency can fail.”  Third, even if reasonable, to receive deference, the interpretation “must be one actually made by the agency,” meaning that “it must be the agency’s ‘authoritative’ or ‘official position,’ rather than any more ad hoc statement not reflecting the agency’s views.”  In addition, the interpretation (1) “must in some way implicate [the agency’s] substantive expertise,”  (2) “must reflect ‘fair and considered judgment’ (meaning that it is not a “merely ‘convenient litigation position’ or ‘post hoc rationalizatio[n]’ advanced’ to ‘defend past agency action against attack’”),  and (3) cannot be “a new interpretation, whether or not introduced in litigation, that creates ‘unfair surprise’ to regulated parties.”

Applying these principles, the Court concluded that “a redo is necessary” in Mr. Kisor’s case because the Federal Circuit “jumped the gun in declaring the regulation ambiguous” and “assumed too fast that Auer deference should apply in the event of genuine ambiguity.”

The issuance of guidance by an agency without use of the APA’s notice-and-comment procedures has also met with criticism.  A notable example is the CFPB’s indirect auto finance guidance which set forth the CFPB’s disparate impact theory of assignee liability for so-called auto dealer “markup” disparities.  After the Government Accountability Office determined that the guidance was a “rule” within the scope of the Congressional Review Act (CRA), Congress used the CRA to override the guidance.