S.Ct.: defer to agency’s interpretation of its own regs

Applying Auer deference to the Federal Communications Commission’s (FCC) interpretation of its own regulations, the Supreme Court held that incumbent local exchange carriers (LECs) must make their entrance facilities available to competitive LECs at cost-based rates when those facilities are used for interconnection. Talk America, Inc. v. Michigan Bell Telephone Co. DBA AT&T Michigan, No. 10-313, 2011 WL 2224429 (June 9, 2011). Justice Thomas wrote an opinion in which all justices joined except Justice Kagan, who did not take part. Notably, Justice Scalia wrote a concurrence questioning the validity of Auer deference.

The Telecommunications Act of 1996 requires incumbent LECs to lease “on an unbundled” basis and at cost-based rates network elements that the FCC specifies, and to provide interconnection between their networks and competitive LECs’ facilities. 47 U. S. C. §251(c)(2)-(3). The parties agreed that incumbent LECs are to comply with both legal provisions using cost-based rates. In 2003, the FCC changed its regulations so that incumbent LECs were no longer required to lease entrance facilities at a cost-based rate, stating that they are not “network elements.” After direct review by the D.C. Circuit, the FCC revised its supporting analysis, but not the regulation, stating that entrance facilities are network elements, but that “competitive LECs are not impaired without access to them.” In both instances, the FCC noted that it was not changing the rights of competitive LECs to access incumbent LECs’ interconnection facilities at cost-based rates. Entrance facilities are used for interconnection and backhauling, and the FCC in the first of its orders remarked that the practical effect would be only to allow unbundled leasing for entrance facilities used for backhauling.

The instant case arose because AT&T began charging higher rates for entrance facilities for interconnection as well as backhauling. The Sixth Circuit had requested an amicus curiae brief from the FCC but declined to defer to the agency’s interpretation that entrance facilities for interconnection must be leased at cost-based rates.

The Supreme Court reversed. The first step in the Court’s analysis was whether any statute or regulation “squarely addresses” the question. It found that no statute or regulation does this, so it proceeded to analyze the FCC’s interpretation of the relevant regulations as set forth in the government’s amicus brief.

In doing so, it relied on its ruling in Auer v. Robbins, 519 U. S. 452, 461, 462 (1997), which it reiterated most recently in Chase Bank USA, N. A. v. McCoy, 131 S.Ct. 871, 880 (2011). Under this standard, the Court will “defer to an agency’s interpretation of its regulations, even in a legal brief, unless the interpretation is plainly erroneous or inconsistent with the regulations or there is any other reason to suspect that the interpretation does not reflect the agency’s fair and considered judgment on the matter in question” (internal quotes and brackets omitted). First, proceeding through the FCC’s three-step argument for its interpretation, the Court found that it was “more than reasonable.” Second, the Court found no reason to question the agency’s judgment. It found that the FCC’s interpretation was not a “post-hoc rationalization” of its interpretive action, and that although the interpretation was novel, “novelty alone is not a reason to refuse deference.”

Justice Scalia joined in the Court’s opinion, apparently agreeing with the application of Auer, but noted in a concurrence, “I have no need to rely on Auer deference, because I believe the FCC’s interpretation is the fairest reading of the orders in question.” Instead, his concurrence expressed that he had “become increasingly doubtful of [Auer’s] validity.” Appealing to Montesquieu’s Spirit of the Laws, Scalia distinguished Auer from Chevron, noting that the former, unlike the latter, appears to contradict separation of powers because the same entity is promulgating and interpreting a rule with legal effect. In particular, Scalia expressed concern that Auer would encourage agencies to craft vague rules deliberately to increase their powers of discretion in future adjudication. (In contrast, Congress is not encouraged to draft vague statutes under Chevron because doing so means a loss of power to the executive.)

The concurrence conceded that Auer does make judicial review easier and imparts certainty after the agency has issued its interpretation, but then cited Manning, Constitutional Structure and Judicial Deference to Agency Interpretations of Agency Rules, 96 Colum. L. Rev. 612 (1996) to indicate the test’s disadvantages. In closing, Scalia remarked that the Court had not been asked to reconsider Auer deference, but that he would be willing to do so in future cases.

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