Seminole Rock and the separation of powers.

AuthorKovvali, Aneil

Under the longstanding precedent of Bowles v. Seminole Rock & Sand Co., (1) a court will defer to an agency's interpretation of its own regulation unless that interpretation "is plainly erroneous or inconsistent with the regulation." (2) The Supreme Court reaffirmed this principle in Auer v. Robbins, (3) and has confidently applied it ever since. (4)

But Seminole Rock deference has also faced significant criticism. In one critique, Professor John Manning argues that Seminole Rock creates perverse incentives by unifying the powers of lawmaking and law-exposition. (5) According to Manning, this characteristic distinguishes Seminole Rock deference from its more famous cousin, Chevron deference. (6) Chevron respects the basic constitutional structure by maintaining the separation between "lawmaking" and "law-exposition." (7) Under Chevron, Congress makes the laws that the executive agency interprets. (8) Under Seminole Rock, the agency itself writes the rules that the agency interprets. (9) By erasing the separation between lawmaking and law-exposition, Seminole Rock creates bad incentives: an agency can grant itself power and flexibility by promulgating vague rules. (10)

In this Note, I contend that separation of powers arguments have a limited domain: only some statutes allow an agency to unify the powers of lawmaking and law-exposition. Many statutes already lay out the substantive basis for agency action. When agencies act under such statutes--whether by rulemaking or otherwise--they are interpreting the law, not creating new obligations.

This clarification has important implications. First, separation of powers arguments have been gaining traction. Justice Scalia, the author of Auer and a once-staunch defender of Seminole Rock deference, (11) recently confessed doubts about Seminole Rock's validity in an opinion drawn from Manning and Montesquieu. (12) If proponents of this view are successful in abolishing Seminole Rock deference, interpretive authority will inevitably shift away from agencies and toward courts.

Second, the discussion sheds light on the broader methodological question of whether constitutional values or congressional intent serves as a better organizing principle for deference doctrine. Professor Manning seeks to derive values from the Constitution and to apply them in a distinctive context. Certain aspects of this program are surely beyond reproach. Judges would be well-advised to draw upon the many wise policy decisions incorporated into the Constitution; unlike academic articles or legislative history, the document is also an unquestionably legitimate external source of guidance. But the lessons of the Constitution are not always clear, and never self-applying. Correctly understood, the separation of powers argument does not support a total rejection of Seminole Rock. Instead, this argument counsels in favor of a new and more careful inquiry into the structure of the particular statutory scheme at issue. Thus, constitutional values may be a less useful organizing principle for this area of the law than a search for congressional intent.

  1. NOT ALL RULEMAKING IS "LAWMAKING"

    The process of agency adjudication is based on the executive and judicial models of decisionmaking. The notice-and-comment rulemaking process is based on a legislative model. But despite their beguiling forms, the mechanism that the agency uses to make decisions is imperfect evidence of the true nature of the power that the agency is exercising. When an agency engages in rulemaking, it is not necessarily exercising lawmaking power, in the sense of creating new substantive duties for individuals outside the agency. New rules do not always create new opportunities for regulated entities to get into trouble. Indeed, many rules actually reduce the potential for trouble by clarifying existing, vague duties imposed by statute.

    Consider the National Labor Relations Board's (NLRB's) reluctance to promulgate rules. Since 1935, the NLRB has possessed the authority to make rules under the National Labor Relations Act. (13) It failed, however, to promulgate a single significant substantive rule in the fifty years that followed. (14) Few, if any, commentators saw this period as a remarkable stretch of self-restraint or self-abnegation. Indeed, NLRB's "congenital disinclination" (15) to promulgate rules is better seen as a form of self-aggrandizement. The agency remains free to bring and adjudicate claims under the National Labor Relations Act itself, and the agency's refusal to promulgate rules under the statute has had the effect of increasing the agency's power to decide each case as it sees fit.

    At least in the case of NLRB, rulemaking would not be an assertion of "lawmaking" power. The NLRB already has plenty of law to enforce, in the form of duties imposed by the National Labor Relations Act. Rulemaking would simply commit the NLRB to a particular interpretation of those existing statutory duties. Such rules would serve the same function as the "strict rules" that Alexander Hamilton predicted the judiciary would impose on itself: "b[i]nd[ing] down" the agency to "avoid an arbitrary discretion" in the exercise of its power. (16)

    Of course, selecting an interpretation of the statute entails a policy choice. (17) But there is nothing peculiarly legislative about making such choices. The NLRB is free to implement its policy choices through adjudications alone, (18) and adjudication is clearly law-exposition, not lawmaking. (19) As a result, NLRB rulemaking is better described as "law-exposition" than "lawmaking." The outcomes that the NLRB could achieve through rulemaking are already available to the NLRB through adjudication of claims directly under the National Labor Relations Act. (20) For the NLRB, adjudication and rulemaking are merely alternative processes for making decisions. The agency's process for deciding how to wield its power can hardly alter the nature of the power being wielded.

    What is true for the processes of rulemaking and adjudication is no less true for the hybrid process that gives rise to Seminole Rock cases. In a Seminole Rock case, the agency provides some content through rulemaking and leaves the remainder for activities that are expositive in nature.

    Though this discussion may seem abstract, it has concrete consequences. Regulated entities experience uncertainty under the National Labor Relations Act--they are at some risk of having their present conduct adjudicated as a violation of the statute. Although a vague rule would not alleviate their uncertainty, it could not increase their uncertainty: The NLRB cannot achieve anything through a rule that it could not achieve under the statute itself. Of course, it is not desirable for agencies to simply "replace[] statutory ambiguity with regulatory ambiguity." (21) But the most troubling outcome that the NLRB can achieve through rulemaking is to replace statutory ambiguity with regulatory ambiguity. The NLRB cannot create ambiguity where none exists in the National Labor Relations Act.

    Sections 4 and 5 of the Securities Act of 1933 furnish a similar example of a statutory scheme under which agency rulemaking constitutes interpretation instead of lawmaking. (22) Section 5 directly forbids sales of and attempts to sell securities unless a registration statement has been filed for those securities. (23) Section 4(2) exempts "transactions by an issuer not involving any public offering," (24) a provision that the Supreme Court has given an amorphous, purposive definition. (25) To help issuers cope with this statutory uncertainty, the Securities Exchange Commission adopted Regulation D, a package of rules creating safe harbors within section 4(2). (26) Rule 506, for example, provides a safe harbor under section 4(2) to issuers that sell restricted securities to a small number of sophisticated purchasers. (27) A vague safe harbor would be useless, but it could not create liability that was not authorized by the statute. Issuers that do not qualify for a regulatory safe harbor are free to argue that they fall within the statutory exemption. (28)

    Not every statute limits the implementing agency to mere interpretation in this way. Many statutes do not provide a legislative basis for action, and instead require an agency to engage in lawmaking before the statute becomes operational. For example, section 14(b) of the Securities Exchange Act of 1934 makes it unlawful for certain persons "to give, or to refrain from giving a proxy" "in contravention of such rules and regulations as the [Securities Exchange] Commission may prescribe." (29) The statute itself does not provide a legal norm for the agency to interpret. The agency must legislate by promulgating substantive "rules and regulations" before it can subject entities to liability under this provision. (30) Such statutory schemes do indeed implicate the separation of powers concerns identified by Professor Manning.

  2. STATUTES CONTAINING PRIMARY RULES ONLY CALL FOR LAW-EXPOSITION; STATUTES CONTAINING SECONDARY RULES REQUIRE LAWMAKING

    H.L.A. Hart's work provides a useful vocabulary for describing the distinction between regulatory schemes that implicate separation of powers concerns and those that do not. In H.L.A. Hart's terminology, "primary rules" "impose duties"; under them, persons "are required to do or abstain from certain actions." (31) A statute that lays out a primary rule (a "primary statute") can be applied directly through adjudications. When an agency gives specificity to such statutory duties--whether through adjudication or rulemaking--it is simply engaged in law-exposition. The National Labor Relations Act and Sections 4 and 5 of the Securities Act of 1933 are thus primary statutes.

    By contrast, "secondary" rules "confer powers," allowing the recipient to "introduce new rules of the primary type." (32) A statute that lays out a secondary rule (a "secondary statute") requires the agency to...

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