Perez v. Mortgage Bankers Association

Whether a Federal Agency's Change in Interpretation Triggers the Notice-and-Comment Requirements of the Administrative Procedures Act

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    Background

    Question Presented

    This case asks whether an administrative agency is obligated to engage in notice-and-comment rulemaking, pursuant to the Administrative Procedure Act (APA), before it can significantly alter an interpretative rule.

    Factual Background

    In Mortgage Bankers Ass'n v. Harris, the national trade association for the real estate finance industry, the Mortgage Bankers Association, brought action for declaratory and injunctive relief against Department of Labor (DOL), alleging that the issuance of an administrator's interpretation (AI) that purported to withdraw a prior opinion letter, without the notice and comment process, was a violation of the APA.

    The prior opinion letter concluded that mortgage loan officers were bona fide administrative employees exempt from overtime pay requirements of Fair Labor Standards Act (FLSA). The AI withdrew this interpretation of the FLSA, eliminating the mortgage loan officers’ exemption.

    The United States District Court, District of Columbia held that, based on MetWest Inc. v. Secretary of Labor, 560 F.3d 506 (D.C.Cir.2009), the Mortgage Bankers Association did not substantially and justifiably rely on DOL’s original opinion letter, and therefore notice-and-comment rulemaking was not required.

    The Court of Appeals held that Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997) and Alaska Hunters Ass'n v. FAA, 177 F.3d 1030 (D.C. Cir. 1999) are controlling precedent, standing for the rule 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. It therefore limited its analysis to a single question: whether reliance on the initial interpretation changes this outcome.

    The Court held that the Mortgage Bankers Association was not required to demonstrate its reliance on the opinion letter in order to show that the opinion letter was a definitive agency interpretation subject to change only through APA's notice-and-comment procedure, rather than by AI. Instead, reliance is just one of several factors supporting the conclusion that an earlier agency interpretation was definitive.

    Legal Background

    Administrative Procedure Act

    The APA, codified at 5 U.S.C. §§ 551-559, governs internal procedures of administrative agencies, including how they interact with the public. The APA serves to police improper agency behavior, protect public safety, and secure proper entitlements. The APA governs all three main agency functions: rulemakings, adjudications, and licensing. Under the APA, either formal rulemaking, in a trial-like hearing, or informal rulemaking, through notice and comment, are required. However an exception exists for interpretive rules, general statements of policy, or rules of agency organization, procedure, or practice, which require neither formal nor informal rulemaking.

    Circuit Split

    The lower court ruled that changes to interpretative rules do not require notice-and-comment rulemaking. However, the D.C. Circuit reversed, holding that an agency must conduct a formal rulemaking prior to changing a definitive interpretation.

    The Third, Fifth, and Sixth Circuits have embraced the doctrine underlying the D.C. Circuit’s ruling, while the First, Seventh, and Ninth Circuits have rejected it. The Supreme Court granted Certiorari in June, 2014.

    EPIC's Interest in Perez v. Mortgage Bankers Association

     EPIC has extensive experience commenting on agency rulemakings. Pursuant to the APA, EPIC has submitted over 100 administrative agency comments to a variety of federal agencies, urging them to uphold individual privacy rights, implement stronger data security, and increase access to government records. EPIC seeks to ensure that agency rule changes are subject to the APA notice-and-comment rulemaking's meaningful public oversight, transparency, and accountability mechanism.

    EPIC’s Comments Have Resulted in Favorable Outcomes for U.S. Privacy Policy

    • In 2013, the Privacy and Civil Liberties Oversight Board solicited public comments on the agency’s proposed FOIA regulations. EPIC’s comments to the Board noted that as an oversight agency charged with reviewing the privacy and civil liberties practices of federal agencies, PCLOB’s FOIA regulations “must increase transparency concerning government activity affecting privacy and civil liberties.” Accordingly, EPIC’s comments objected to several PCLOB FOIA proposals because they would curtail public access to government information.  The Board adopted nearly all of EPIC’s proposals.

    Agency Failure to Incorporate Public Comments Has Resulted in Negative Outcomes for U.S. Privacy Policy

    EPIC's Comments under the Federal Trade Commission Act
    • EPIC is a frequent commenter on Federal Trade Commission consent orders. EPIC routinely urges the agency to incorporate changes that would help strengthen settlements. For instance, the Commission solicited public comments on a proposed settlement resolving charges against fourteen companies that misrepresented compliance with the EU-US Safe Harbor privacy arrangement. In response to the FTC's request for public comment, EPIC recommended that the Commission require the companies to comply with the Consumer Privacy Bill of Rights; publish the companies' consent order compliance reports as they are submitted; and strengthen the sanctions against a DNA testing firm, whose misrepresentations puts genetic information at risk. However, the FTC declined to make any changes.
    • Most recently, EPIC filed comments on the Commission's consent order with Snapchat, the publisher of a mobile app that encourages users to share intimate photos and videos. Snapchat claimed that pictures and videos would "disappear forever," but that was false. As EPIC explained, "Snapchat photos and videos remain available to others even after users are informed that the photos and videos have been deleted." EPIC recommended that the FTC require Snapchat to implement the Consumer Privacy Bill of Rights and make Snapchat's independent privacy assessments publicly available. The FTC declined to adopt those changes.
    EPIC's Comments under the Privacy Act
    • In comments to the Department of Homeland Security, EPIC objected to the agency's plan to secretly profile U.S. air travelers and remove Privacy Act safeguards. The DHS proposed to exempt TSA PreCheck from the federal privacy law. The PreCheck database contains detailed personal information, including name, birthdate, biometric information, Social Security Number, and financial information. In the proposed rule, the TSA revelaed that it planned to release applicant data to federal, state, tribal, local, territorial agencies and foreign governments. EPIC described the substantial privacy and security risks of Precheck, urged the DHS to narrow the Privacy Act exemptions, and recommended that the DHS withdraw routine use disclosures. However, the TSA failed to incorporate EPIC's comments, removing the rights of PreCheck applications concerning notification, access, and correction. The agency also keeps secret the basis for approving PreCheck applicants. 
    • In 2012, the Department of Education's Institute of Education Sciences proposed a "Study of Promising Features of Teacher Preparation Programs" to help assess teacher effectiveness. The database contained records on "approximately 5,000 students and 360 teachers." EPIC submitted comments on the proposed study, recommending the agency collect only "relevant and necessary" student information when it undertakes educational studies. EPIC urged the agency to only collect student data germane to teacher effectiveness, such as test scores, and opposed the agency's collection of detailed student information such as actual name and "disciplinary incidences." However, the final rule did not incorporate EPIC’s comments.

    Agency Failure to Solicit Public Comments At All Have Resulted in a Breakdown in the Administrative Process, Necessitating Judicial Intervention

    • The agency failure that results from eliminating the requirement for notice and comment prior to a change in interpretive rules is illustrated in Doe v. Chao, 540 U.S. 614 (2004). Chao concerned the rights of a class of coal miners whose claims against the government for black lung benefits were linked to their social security numbers and subsequently revealed to other benefits applicants. The coal miners sued under the Privacy Act and asked for the statutory minimum damages award of $1000. However, the Department of Labor had changed its interpretation of the statutory minimum for damages awards, and argued that the plaintiffs had to prove that they had suffered at least some actual damage from the privacy breach. EPIC filed an amicus brief in favor of the interpretation allowing for automatic entitlement. Had notice and comment rulemaking been required before OMB could change its longstanding interpretation of the Privacy Act, EPIC and the many organization which joined in its amicus brief would have made their point of view known and potentially have prevented the change.

    • In 2009 and 2010, EPIC petitioned the Department of Homeland Security to suspend the agency’s airport body scanner program, pending public notice and comment rulemaking. DHS denied EPIC’s petition, claiming that the agency was “not required to initiate APA rulemaking procedures each time the agency develops and implements improved passenger screening procedures." When EPIC sued DHS to enforce the petition, the D.C. Circuit Court of Appeals ruled in EPIC’s favor, finding that DHS’s decision to implement airport body scanners was not “not merely ‘interpretive’” because it “substantively affects the public to a degree sufficient to implicate the policy interests animating notice-and-comment rulemaking.” In rebutting the agency’s argument that the airport body scanner program was an interpretive rule, and therefore not subject to public notice-and-comment, the Court found

      the purpose of the APA would be disserved if an agency with a broad statutory command (here, to detect weapons) could avoid notice-and-comment rulemaking simply by promulgating a comparably broad regulations (here, requiring passengers to clear a checkpoint) and then invoking its power to interpret that statute and regulation in binding the public to a strict and specific set of obligations.

      The Department of Homeland Security eventually solicited public comments and received over 5,000 public submissions opposing the body scanner program.

    Legal Documents - Perez v. Mortgage Bankers Association

    U.S. Supreme Court

    Cert. Petition Stage

    D.C. Circuit Court of Appeals

    District Court for the District of Columbia

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