Supreme Court to Reconsider Important Administrative Law Precedent

The Supreme Court granted certiorari this morning in a non-tax case that should be of considerable interest to tax litigators because of the important administrative law principle that will be decided.  In Kisor v. Shulkin, the Federal Circuit applied the government’s interpretation of the governing regulation in ruling against a veteran’s claim for disability benefits.  The court found that the regulation was ambiguous, and therefore it ruled that it should defer to the government’s interpretation under the longstanding Supreme Court precedents of Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945), and Auer v. Robbins, 519 U.S. 452 (1997).  The court denied rehearing en banc, although three judges joined an opinion dissenting from that denial.  The Supreme Court has now granted certiorari specifically to address the question “[w]hether the Court should overrule Auer and Seminole Rock.”

Auer deference has played an increasingly prominent role in tax cases since the Supreme Court’s decision in Mayo Foundation made tax cases subject to general administrative law principles.  Revenue Rulings and other lower level administrative interpretations of Treasury regulations are pervasive in the tax area and are subject to being relied upon by courts under Auer deference principles.  And the government has even argued for Auer deference to interpretations stated in its briefs, with the Second Circuit agreeing with that argument.  See, e.g., our prior coverage of the MassMutual and Union Carbide cases here and here.  If Auer is overruled, taxpayers will likely benefit in future litigation involving conflicting views of the meaning of a Treasury regulation.

In recent years, several individual Justices have expressed concern about the wisdom of Auer or Seminole Rock deference, pointing out that it potentially allows an end run around the notice-and-comment procedure for issuing regulations and arguably violates separation-of-powers principles.  Instead of noticing clear regulations that can reasonably be commented upon, Auer enables agencies to promulgate ambiguous regulations and then later to provide administrative interpretations of those regulations (outside the notice-and-comment framework) that create a rule to which courts must defer.  Justice Scalia (who ironically was the author of Auer) was the first to suggest publicly back in 2011 that the Court should reconsider the Auer deference doctrine.  See Talk Am., Inc. v. Michigan Bell Tel. Co., 564 U.S. 50 (2011) (Scalia, J., concurring). In Decker v. Northwest Envtl. Def. Center, 568 U.S. 597, 615 (2013), Chief Justice Roberts and Justice Alito remarked that Justice Scalia had raised “serious questions” about the doctrine.  More recently, in Perez v. Mortgage Bankers, 135 S. Ct. 1199 (2015), Justice Scalia stated flatly that Auer should be “abandoned,” and Justice Thomas wrote a long concurring opinion explaining his view that Auer deference was “constitutionally suspect.”  Justice Alito added that those two Justices had “offered substantial reasons why the Seminole Rock doctrine may be incorrect.”  And just this past March, Justice Gorsuch joined an opinion of Justice Thomas dissenting from the Court’s denial of certiorari in which the latter again described Auer as “constitutionally suspect.”  Garco Construction, Inc. v. Speer, No. 17-225 (Mar. 19, 2018).  Thus, even with Justice Scalia no longer on the Court, four sitting Justices have indicated great skepticism, to put it mildly, about the continuing vitality of Auer deference.  In addition, in a keynote address at a 2016 conference at the Antonin Scalia (George Mason) Law School, Justice Kavanaugh spoke approvingly of Justice Scalia’s criticism of Auer deference and predicted that Justice Scalia’s view would become the law.  Things can change when cases are fully briefed and argued in the Supreme Court, but for now the future of Auer/Seminole Rock deference looks bleak.

The petitioner’s opening brief is due January 31, and the case should be argued in the spring and decided by June 2019. 

Kisor – Petition for Certiorari