The Nickel Report

In June 2019, the Supreme Court issued its decision in Kisor v. Wilkie, 139 S. Ct. 2400 (2019), which addressed the question of whether the Court should overrule the Auer doctrine, named after the 1997 Supreme Court case Auer v. Robbins. The Auer doctrine rests on the premise that agencies are in a better position than courts to interpret their own regulations. Under the doctrine, courts generally defer to an agency’s reasonable readings of its own “genuinely ambiguous” regulations. In a 5-4 decision, the Court declined to abandon the Auer doctrine on grounds of stare decisis but outlined important restrictions on the scope and applicability of the doctrine. See, e.g., Devon Energy Prod. Co., L.P. v. Gould, No. 16-CV-00161-ABJ, 2019 WL 6257793 (D. Wyo. Sept. 11, 2019) (“The Court [in Kisor] chose to restrict the Auer doctrine rather than abolish it.”); Johnson v. Starbucks Corp., No. 2:18-cv-02956, 2019 U.S. Dist. LEXIS 145900, *8 (E.D. Cal. Aug. 26, 2019) (“Kisor did not overrule Auer,” but “limited the deference afforded to an agency’s interpretation”).

Justice Kagan authored the opinion that, in part, garnered the support of a majority of the Court. In those portions that commanded a majority, the Court held the “special justification” required to overcome the principle of stare decisis is not present with the Auer doctrine. But in defining what Auer entails, the Court highlighted important limitations on the doctrine, including the rule that deference to an agency’s interpretation of an ambiguous regulation is not appropriate if the interpretation does not reflect the “fair and considered judgment” of the agency. This means that deference may not be appropriate if the interpretation creates “unfair surprise,” such as when the agency’s interpretation conflicts with a prior interpretation or upends a regulated party’s reliance on established practices. Kisor, 139 S. Ct. at 2417-18. While this rule has been applied in some prior cases (see, e.g., Christopher v. SmithKline Beecham Corp., 567 U.S. 142 (2012)), its express inclusion in Kisor’s new, multi-factor deference inquiry confirms its applicability.

Indeed, Kisor’s instruction not to defer to agency interpretations that do not reflect “fair and considered judgment” of the agency has already received the attention of appellate courts. In Romero v. Barr, 937 F.3d 282, 296 (4th Cir. 2019), for example, the Fourth Circuit found that the Attorney General’s interpretation of regulations governing immigration proceedings did not merit deference because the interpretation broke with decades of prior practice, frustrating the “mechanisms for predictability that are supposed to be baked into the administrative process.” According to the Fourth Circuit, the Attorneys General’s interpretation amounted to “unfair surprise,” and did not give “fair warning” to the regulated parties. Id. at 295. In United Steel & Fasteners, Inc. v. United States, 947 F.3d 794, 802 (Fed. Cir. 2020), the Federal Circuit likewise refused to defer to a Department of Commerce interpretation that was “counter to [the agency’s] prior position evidenced in the regulatory history.” Finally, in Amazon.com v. Comm’r, 934 F.3d 976, 992-993 (9th Cir. 2019), the Ninth Circuit did not find a “genuine ambiguity” in the regulations but noted that Amazon did not have “fair warning” of the Internal Revenue Service’s interpretation because it was inconsistent with the agency’s “contemporaneous explanations.” As a result, even if the Ninth Circuit found ambiguity in the regulation, it would not have deferred to the agency’s interpretation.

At least some district courts have seemed equally reluctant to defer to agency interpretations following Kisor. In Spencer v. Macado’s, Inc., 399 F. Supp. 3d 545, 553 (W.D. Va. July 8, 2019), the court refused to defer to a Department of Labor’s interpretation where there were “significant signs” that the interpretation did not reflect the agency’s “fair and considered judgment,” including the fact that the interpretation “reverse[d] 30-year old agency policy.” In O’Neal v. Denn-Ohio, LLC, No. 3:19-cv-280, 2020 U.S. Dist. LEXIS 5721, *22 (Jan. 14, 2020), the court refused to defer to that same Department of Labor interpretation, noting that Kisor “does not give the [agency] free reign to reimagine the meaning of a regulation it wrote into law decades ago.” And in New York v. United States HHS, 414 F. Supp. 3d 475, 534 (S.D.N.Y. 2019), the court found the regulation unambiguous, but determined that the agency’s “mid-litigation construction” of the regulation would not merit deference because it did not reflect “the agency’s fair and considered judgment.”

While the long-term impact of the Court’s decision in Kisor remains to be seen and should continue to be monitored by regulated parties, these recent decisions suggest that courts may be “more circumspect about applying Auer going forward,”[1] even after emptying their “legal toolkit[s]” and finding a regulation truly ambiguous, Kisor at 2416.

[1] Michael Herz, Symposium: In Gundy II, Auer survives by a vote of 4.6 to 4.4, available at: https://www.scotusblog.com/2019/06/symposium-in-gundy-ii-auer-survives-by-a-vote-of-4-6-to-4-4/