Several federal agencies—including most notably the U.S. Department of Commerce, U.S. Customs and Border Protection, the U.S. International Trade Commission and the U.S. Trade Representative—administer an ever-expanding body of regulatory law that addresses a broad range of issues arising in U.S. administration of various statutes governing international trade.
What happens when a dispute arises between an agency and a private party over the meaning of a regulation’s terms? Since the late nineteenth century, the Supreme Court of the United States has issued a series of opinions holding that courts should generally defer to an agency’s interpretation of its own ambiguous regulation. That principle is known today as “Auer deference.”
Over time, concerns arose over whether Auer afforded too much power to federal agencies to interpret and declare the meaning of regulatory law. The Supreme Court’s recent decision in Kisor v. Wilkie establishes firm limits to Auer’s reach that will require federal courts to more scrupulously review a federal agency’s interpretation of international trade regulation.
Writing for the majority in Kisor, Justice Kagan’s opinion provides a roadmap for the federal courts to follow. The reviewing court must first determine whether the regulation at issue “is genuinely ambiguous.” In assessing whether the regulation contains a genuine ambiguity, the court must “exhaust all the ‘traditional rules’ of construction.” The court may defer to the agency “only when that legal toolkit is empty and the interpretive question still has no single right answer.” In this exercise, the court must also examine the “text, structure, history, and purpose” of the regulation.
If the regulation contains a genuine ambiguity, then the court must defer only if the agency has offered a “reasonable” interpretation of that ambiguous regulation. Here too the court must assess the reasonableness of that interpretation against the regulation’s text, structure, history and purpose.
Even if the agency provides a reasonable interpretation of its ambiguous regulation, that does not guarantee deference. Courts “must make an independent inquiry into whether the character and context of the agency interpretation entitles it to controlling weight.” Courts should afford controlling weight only if the interpretation reflects the agency’s “authoritative” or “official position.” Courts owe no deference to an interpretation that does not implicate the agency’s “substantive expertise.” And the agency’s interpretation “must reflect ‘fair and considered judgment,’” such that courts should not defer to an interpretation that the agency developed for the first time in litigation or that otherwise did not give parties “fair warning.”
Bottom Line: Kisor sends a clear message to the federal courts, including the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit. These courts must conduct a searching review of an agency’s interpretation of its own regulation. Federal agencies operating in the international trade arena likewise will need to more fully explain their reasons for interpreting a regulation in a particular way. These agencies may no longer assert ambiguity based on the regulation’s terms and expect deference from the courts. Expect an increase in the number of challenges filed contesting an agency’s interpretation of its own regulations.