In yesterday’s post, I mentioned the very recent decision by the U.S. Supreme Court in U.S. v. Home Concrete & Supply, LLC (April 25, 2012). The underlying fight was about a tax deficiency, but the legal question was whether the Internal Revenue Service could adopt a regulation that effectively overruled a prior U.S. Supreme Court decision (Colony, Inc. v. Commissioner, 357 U.S. 28 (1958). While some might assume that an agency’s interpretation of a statute can’t trump a judicial interpretation, it turns out to be a close question.
It’s a close question because the Supreme Court in Chevron, U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) held that courts should defer to an agency’s construction of a statute that it administers. In a later case, the Supreme Court clarified that a “court’s prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute.” National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U.S. 967, 982 (2005) (emphasis added).
The problem for the court in Home Concrete & Supply was that in Colony it had said that the statutory language at issue was not unambiguous. Thus, the IRS argued that the Supreme Court’s prior judicial construction of the statute did not preclude Chevron deference to the IRS’ statutory interpretation embodied in the regulation. Although a majority of the court (Breyer, Roberts, Thomas, Alito and Scalia) agreed that the IRS couldn’t overturn the Supreme Court’s holding, only four of those justices could agree on Part IV-C of the opinion explaining why. Justice Scalia, dissenting from this majority on this part of the opinion, urged the Court to jettison Brand X altogether. For more analysis of the case, see Alan Horowitz’ excellent post on SCOTUSblog.
California’s Administrative Procedure Act directly addresses the question of whether an agency can adopt a rule that conflicts with a prior court decision. When an agency proposes to adopt a rule, the Office of Administrative Law is required to review the proposed rule in light of six statutory standards. Cal. Govt. Code § 11349.1(a). One of these is the standard “adored by little statesmen and philosophers and divines” – consistency. To meet the consistency standard, a rule must be “in harmony with, and not in conflict with or contradictory to, existing statutes, court decisions, or other provisions of law.” Cal. Govt. Code § 11349 (d) (emphasis added). The APA further provides that a court may declare a rule invalid invalid for a substantial failure to comply with the APA. This would seem to to include failure to comply with any of the six substantive standards (including consistency) applicable to the OAL’s review of proposed rules.
Thus, it is a bit of a mystery why the legislature omitted a reference to consistency with judicial decisions in another APA statute:
Whenever by the express or implied terms of any statute a state agency has authority to adopt regulations to implement, interpret, make specific or otherwise carry out the provisions of the statute, no regulation adopted is valid or effective unless consistent and not in conflict with the statute and reasonably necessary to effectuate the purpose of the statute.
Cal. Govt. Code § 11342.2.