No Deference for SEC’s “Vague and Indecisive” Interpretation of its Own Rule

On Tuesday, the D.C. Circuit in Rapoport v. SEC [pdf] cited the rule that a reviewing court defers to an agency’s interpretation of its own rules, but Chief Judge Sentelle’s unanimous opinion illustrates why this Auer deference has been called into question by the author of Auer and why, three days ago, a majority of the Supreme Court voiced the same concerns.

In Rapoport, the D.C. Circuit refused to defer to the SEC’s interpretation of SEC Rule 155(b), governing motions to set aside a default.  The Commission’s refusal to consider the movant’s defenses, on the ground that his motion was untimely, was not supported by past agency practice, and the agency had never articulated a clear timeliness standard.

Although the SEC on remand could theoretically reinstate its decision (sanctioning an unregistered foreign broker for soliciting institutional investors) if the agency were to articulate clear standards consistent with past practice, the court went on to consider the merits of the broker’s defenses to the default, and “suggest[ed] that the Commission should give careful review to the [administrative] law judge’s analysis in the Default Order,” which the court characterized as “inaccurate as well as inadequate” to support the civil penalties the agency had imposed.

Sometimes a court merely remands an unlawful agency order, sometimes it vacates and remands.  Here the court went a step further, strongly suggesting a different outcome on remand.

Rapoport v. SEC, No. 11-1082 (June 19, 2012) (Sentelle, C.J., joined by Griffith, J., & Williams, S.J.)

See also:

  • Christopher v. SmithKline Beecham Corp., No. 11-204 (S. Ct. June 18, 2012) (“Our practice of deferring to an agency’s interpretation of its own ambiguous regulations undoubtedly has important advantages, but this practice also creates a risk that agencies will promulgate vague and open-ended regulations that they can later interpret as they see fit, thereby “frustrat[ing] the notice and predictability purposes of rulemaking.” (quoting Talk America, Inc. v. Michigan Bell Telephone Co., 131 S. Ct. 2254, 2266 (2011) (Scalia, J., concurring) (slip op., at 3)).
  • Talk America, Inc. v. Michigan Bell Telephone Co., 131 S.Ct. 2254, 2266 (2011) (Scalia, J., concurring) (“Deferring to an agency’s interpretation of a statute does not encourage Congress, out of a desire to expand its power, to enact vague statutes; the vagueness effectively cedes power to the executive. By contrast, deferring to an agency’s interpretation of its own rule encourages the agency to enact vague rules which give it the power, in future adjudications, to do what it pleases.”).
  • Jonathan Adler, Auer Deference Still Up for Grabs?, Volokh Conspiracy (June 18, 2012) (“[Christopher v. SmithKline Beecham Corp.] could be read as narrowing the application of Auer (much as Mead arguably narrowed the application of Chevron), and may further signal a reconsideration of Auer is in the offing.”)
About these ads

One response to “No Deference for SEC’s “Vague and Indecisive” Interpretation of its Own Rule

  1. Pingback: Divided D.C. Circuit Rejects Airlines’ First Amendment Challenge Based on Agency’s Interpretation of its Own Rule | D.C. Circuit Review

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s