Notice & Comment

Pursuing Parrillo’s Principled Flexibility, by Kristin E. Hickman

Everyone familiar with the intertwined spheres of administrative law and regulatory practice knows that federal agencies routinely issue informal, subregulatory pronouncements, referred to collectively as “guidance,” articulating their views regarding the law’s requirements.  Agency use, and arguable abuse, of guidance to direct the behavior of regulated parties and agency employees is a perennial topic of discussion and concern among administrative law scholars, courts, legislators, and practicing attorneys.

Nick Parrillo’s article, Federal Agency Guidance and the Power to Bind: An Empirical Study of Agencies and Industries, explores the on-the-ground reality of agency guidance.  He finds that regulated parties face tremendous pressure to comply with guidance, and that agencies often exacerbate the difficulty by applying guidance inflexibly.  To remedy the difficulty for both sides, he suggests that agencies pursue an approach that he labels “principled flexibility.”  For agencies disinclined to do so on their own, a question is whether the courts could make them.

According to Parrillo, regulated parties feel compelled to follow guidance for several reasons.  One, obviously, is to avoid becoming the target of agency enforcement.  Beyond enforcement, regulated parties seeking permits, licenses, or similar forms of agency approval may delay or imperil the same by failing to comply with agency guidance or by complaining about agency inflexibility.  Additionally, regulated party interactions with agency officials often are ongoing, and the perceived need to maintain good working relationships with agency officials prompts regulated parties to comply with guidance, even where a good case may be made that guidance exceeds the agency’s authority.

In turn, agency officials are often inflexible rather than open-minded in their application of guidance.  Parrillo rejects the common conventional wisdom that agencies just want to bind regulated parties while avoiding the hard work and inconvenience of notice-and-comment procedures.  Having been privy to agency officials conceding that they addressed an issue in guidance rather than regulations so that they could change their minds more easily, I am less convinced.  Still, Parrillo’s alternative explanation also rings true – that regulated parties, Congress, the courts, and nearly everyone else demand that agencies act consistently, so agencies are leery that departures from guidance will seem ad hoc and unprincipled, and thus arbitrary and capricious.

To mitigate the concerns of both sides, Parrillo suggests that agencies pursue “principled flexibility”—departing from guidance more readily, but in doing so, offering “a written explanation that is accessible to other agency officials and to regulated parties, with the understanding that the exception thereby becomes generally acceptable to like facts going forward.”  The result, he contends, would be “a body of rationally evolving precedent that informs future decisions about departure requests.”

Parrillo’s suggestion is a sensible solution to the guidance problem.  As Parrillo acknowledges, however, his principled flexibility proposal faces its own obstacles.  For agencies, evaluating and documenting principled departures from guidance would be more time consuming and expensive than simply applying guidance inflexibly.  Moreover, agencies sometimes may be inflexible simply because they believe that the guidance in question is right.

For regulated parties unhappy with agency action, the courts historically have played a crucial role in commanding agencies toward better behavior.  At first blush, the Administrative Procedure Act (APA) and Supreme Court precedent suggest two possible obstacles to judicial imposition of Parrillo’s proposal.  The first is limitations on the justiciability of guidance, most notably in the form of finality doctrine.  The second is the Court’s admonition in Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc. that courts cannot impose procedural requirements beyond those dictated by the APA.

In general, absent a more specific statutory provision, APA §704 authorizes judicial review of “final agency action.”  In Bennett v. Spear, the Supreme Court held that agency action is considered final if (1) it represents the consummation of the agency’s decisionmaking process and (2) it determines rights or obligations or is an action from which legal consequences flow.  Guidance typically is said to lack the force of law.  Hence, many assume that the two-part Bennett test prevents judicial review of claims that guidance is arbitrary and capricious under APA §706(2)(A) for failure to demonstrate reasoned decisionmaking.  Post-Bennett finality analysis at the circuit court level is more complicated, however, with courts sometimes interpreting Bennett more flexibly.  And the Court’s own finality jurisprudence in recent years, in Sackett v. EPA and  U.S. Army Corps of Engineers v. Hawkes Co. suggests a willingness to allow judicial review for a broader range of agency actions than a strict construction of Bennett might suggest.  Perhaps not all guidance would be reviewable, but judicial review of even a small subset of agency guidance for compliance with Parrillo’s principled flexibility proposal would be enough to influence agency behavior more generally.

Assuming justiciability, courts should find adequate basis in the arbitrary and capricious standard of APA §706(2)(A) to enforce Parrillo’s principled flexibility.  Again, Vermont Yankee prevents courts from requiring agencies to utilize procedures beyond those mandated by the APA.  In Perez v. Mortgage Bankers Ass’n, the Supreme Court applied this principle to allow agencies to alter guidance through other guidance, and without notice-and-comment rulemaking procedures.  One could argue that requiring agencies to explain their departures from guidance is therefore inconsistent with Vermont Yankee and Mortgage Bankers.  Yet, in Citizens to Preserve Overton Park v. Volpe, the Court interpreted APA §706(2)(A) as requiring an agency to establish an administrative record of its decisionmaking adequate to facilitate judicial review.  In Pension Benefit Guaranty Corp. v. LTV Corp., the Court said this requirement is not inconsistent with its holding in Vermont Yankee.  Additionally, in Motor Vehicle Manufacturers Ass’n v. State Farm Mutual Automobile Insurance Co., the Court interpreted APA §706(2)(A) as requiring agencies to explain their choices contemporaneously with their actions.  The Court has applied State Farm in evaluating agency adjudications as well as rulemakings.  In essence, doctrinally, Parrillo’s principled flexibility proposal seems like an application of Overton Park and State Farm, perhaps a bit relaxed given the informality of guidance, and well within the range of APA §706(2)(A) as interpreted by the Court.

None of this is to suggest that agencies should not or will not adopt Parrillo’s principled flexibility proposal on their own, rather than waiting until the courts make them do it.  Indeed, some agencies may be quite receptive to the principled flexibility approach.  The APA imposes a floor, not a ceiling, on agency procedures.  Agencies often seek public input regarding proposed guidance, notwithstanding that the APA does not require them to do so.  Anecdotally, one agency official recounted for me an instance of her agency seeking public input on proposed guidance, and then contemplated responding to comments in finalizing the guidance to demonstrate of reasoned decisionmaking—in other words, using a sort of stripped-down model of notice and comment.  Nevertheless, a little judicial review often goes a long way, and may be worth contemplating in the name of improving the status quo with respect to agency use (and abuse) of guidance.

Kristin Hickman is the Distinguished McKnight University Professor and Harlan Albert Rogers Professor in Law at the University of Minnesota Law School.

This post is part of a symposium on federal agency guidance. The rest of the posts in this symposium can be viewed here.

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