Many politically charged issues are likely to steal the headlines during the confirmation hearings for President Trump’s nominee for the U.S. Supreme Court, D.C. Circuit Court of Appeals Judge Brett Kavanaugh.  However, one issue unlikely to make headlines is the impact that Judge Kavanaugh’s confirmation may have on the doctrine that gives “controlling weight” to the way government agencies interpret their own regulations — known as the Auer Deference doctrine.

Given the composition of the Supreme Court, recent Judicial attempts to re-examine the doctrine, and Judge Kavanaugh’s previous statements, Judge Kavanaugh’s confirmation signals the probability of the Supreme Court’s eventual overturning of the Auer Doctrine  — which would be good news for government contractors.

What is Auer Deference?

Auer deference (also referred to as Seminole Rock deference) is a principle of administrative law that requires courts to give “controlling weight” to the way government agencies interpret their own regulations, even where the agency’s interpretation is not “the best” reading of the text in question. Developed from the U.S. Supreme Court’s holdings in Auer v. Robbins, 519 U. S. 452 (1997) and Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945), the doctrine mandates that courts credit the agency’s interpretation as controlling as long as it is not “plainly erroneous or inconsistent with the regulation.”

This obviously puts a thumb on the scale for agencies in the context of contract disputes or bid protests tied to certain regulatory interpretations. It can be particularly harmful to contractors when the agency has altered its interpretation during the performance or procurement of a contract, or worse, during the course of litigation. Unlike agencies whose procurements rely on interpretation of the FAR, agencies that draft and enforce their own regulations (such as the Small Business Administration) are sometimes empowered under Aeur to alter their interpretation to suit the agencies’ needs on a case-to-case basis.

Examples of how Auer Deference Negatively Impacts Government Contractors

A good example of how government agencies have used the Aeur deference doctrine to the detriment of government contractors was recently displayed at the U.S. Court of Federal Claims in SKC, LLC v. United States, 136 Fed. Cl. 605 (2018). That case involved a bid protest where SKC challenged the Small Business Administration’s (SBA) acceptance of a Defense Intelligence Agency’s (DIA) procurement (where the work had previously been performed by SKC as a small business set-aside) into SBA’s Section 8(a) program, and DIA’s resulting sole-source award of the work to another contractor. SKC argued that the work constituted a “new requirement,” and therefore moving the work to the 8(a) program without first performing an adverse impact analysis violated SBA regulations. SBA, on the other hand, argued the work did not meet the definition of a “new requirement” under its regulations.

During the case, SKC pointed out that SBA had taken inconsistent positions during the course of the procurement as to whether the work constituted a “new requirement,” that in past bid protests SBA had taken positions that contradicted the interpretation of “new requirement” it was advocating in the present case, and that SBA’s interpretation of  “new requirement” was only developed in response to SKC’s bid protest.  Even though the court seemingly agreed with SKC on all of these points, it nevertheless concluded it was compelled by Auer to defer to the interpretation of “new requirement” argued by SBA during the protest:

The record in this case paints a concerning picture of the agency’s deliberative process as it relates to determining whether an adverse impact analysis was required before the logistics requirement at issue here could be accepted into the Section 8(a) Program. As the parties acknowledged … the first articulation in this procurement of the agency’s interpretation of the regulation as it pertains to using bridge contracts as comparators came in SBA’s comments [in response to the bid protest]. Moreover, in the circumstances surrounding the May 31, 2017 conference call, it is difficult to accept the government’s hypothesis that “it was concluded that the correct ‘existing requirement’ was SKC’s 2011 contract, not its [B]ridge [C]ontract.” …..

The shortcomings in the administrative record notwithstanding, the Supreme Court’s instructions in Auer are explicit: an agency’s interpretation of its own regulations—even, as in Auer itself, interpretations articulated for the first time in post hoc argument in legal briefs—are entitled to controlling weight unless the court can conclude that it is “plainly erroneous or inconsistent with the regulation.” Auer, 519 U.S. at 461, 117 S.Ct. 905. Here, as in Auer, the agency interpretation is attacked as being “a ‘post hoc rationalizatio[n]’ advanced by an agency seeking to defend past agency action against attack.” Id. at 462, 117 S.Ct. 905 (citing Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988) ) (alteration in original). Nonetheless, SKC has failed to show any “reason to suspect that the interpretation does not reflect the agency’s fair and considered judgment” on when and whether to employ bridge contracts in determining if a Section 8(a) procurement is a new requirement. See Auer 519 U.S. at 462, 117 S.Ct. 905. The agency’s decision is of “less than ideal clarity,” but its path “may reasonably be discerned.” See State Farm, 463 U.S. at 43, 103 S.Ct. 2856 (internal quotations and citations omitted).

Even though the interpretation of the term “new requirement” advocated by SBA in this bid protest was inconsistent with SBA past interpretations of the same regulation (both in the current procurement and in past protest), and appeared to be developed in defense of the protest, because the SBA’s interpretation was not plainly erroneous or inconsistent with the regulation, and because SBA was interpreting its own regulation, the court concluded it was compelled defer to SBA’s interpretation of “new requirement.”

The application of Auer deference against government contractors is not confined to bid protests.  The doctrine has also been used by the government to defeat contractor’s CDA claims, such as recently in Garco Constr., Inc. v. Sec’y of Army, 856 F.3d 938 (Fed. Cir. 2017).  In that case, Garco Construction had a contract with the Army to build housing units on an Air Force base.  As part of its contract, Garco agreed to comply with all base access policies.  After construction began, the base denied access to certain employees of Garco’s subcontractor. Although the text of the base’s access policy required only a “wants and warrants” check, the base clarified that the policy also required background checks and excluded many individuals with criminal histories—even if those individuals did not have any wants or warrants. Garco’s request for an equitable adjustment of the contract was denied, and the Armed Services Board of Contract Appeals denied Garco’s appeal, and the Federal Circuit affirmed.  Despite acknowledging “some merit” to Garco’s argument that “ ‘wants and warrants’ ” means only wants and warrants, the Federal Circuit deferred to the base’s interpretation of its access policy (an agency regulation) under Auer.

Clearly, contractors can be severely disadvantaged in a procurement environment where an agency can re-interpret its own rules or regulations, creating a moving target. This opinion has long been shared by certain conservative members of the Supreme Court, which would acquire a crucial additional vote if Judge Kavanaugh joins their ranks.

Kavanaugh has Advocated for Auer Being Overturned

During a 2016 speech at George Mason University entitled “Justice Scalia and Deference,” Judge Kavanaugh made his view on Auer clear — he predicted that Auer would eventually be overruled, and agreed with a 2013 dissent written by Justice Scalia calling Auer unconstitutional.  As Judge Kavanaugh explained:

I believe that Justice Scalia’s dissent in Decker v. Northwest Environmental will one day be the law of the land.  In that case Justice Scalia eviscerated the concept of Auer deference. …  Although Justice Scalia had written Auer in 1997, he had come to see its flaws by 2013 in Decker.  As he explained, ‘Auer violates a fundamental principle of separation of powers.’  That ‘the power to write a law and the power to interpret it cannot rest in the same hands.’  Justice Scalia pointedly noted that Auer was ‘a dangerous permission slip for the arrogation of power.’ ….  I predict that some day Auer will be overruled, and that Justice Scalia’s dissent in Decker will be the law of the land.

 

The Views of the Current Justices on Auer Deference

Earlier this year, the Supreme Court declined to hear a challenge to Auer deference in Garco Construction. However, Justice Thomas issued a strong dissent from that decision to deny cert, which was joined by Justice Gorsuch.  From the dissent, it is pretty clear that Justices Thomas and Gorsuch believe that the Auer (aka Seminole Rock) doctrine should be overturned:

Seminole Rock deference is constitutionally suspect. …. It transfers “the judge’s exercise of interpretive judgment to the agency,” which is “not properly constituted to exercise the judicial power.” …. It also undermines “the judicial ‘check’ on the political branches” by ceding the courts’ authority to independently interpret and apply legal texts. … And it results in an “accumulation of governmental powers” by allowing the same agency that promulgated a regulation to “change the meaning” of that regulation “at [its] discretion.” …. This Court has never “put forward a persuasive justification” for Seminole Rock deference.

By all accounts, Seminole Rock deference is “on its last gasp.”

The positions of Chief Justice Roberts and Justice Alito are less clear, however both Justices have taken issue with Auer, and would be open to reconsidering whether that doctrine should stand.  For instance, in Decker v. Northwest Environmental Defense Center, 568 U. S. 597, 613 (2013), Chief Justice Roberts wrote the following in a concurrence, joined by Justice Alito:

The opinion concurring in part and dissenting in part raises serious questions about the principle set forth in Bowles v. Seminole Rock & Sand Co., 325 U. S. 410 (1945), and Auer v. Robbins, 519 U. S. 452 (1997). It may be appropriate to reconsider that principle in an appropriate case. But this is not that case. ….  The issue is a basic one going to the heart of administrative law. Questions of Seminole Rock and Auer deference arise as a matter of course on a regular basis. The bar is now aware that there is some interest in reconsidering those cases, and has available to it a concise statement of the arguments on one side of the issue. I would await a case in which the issue is properly raised and argued. The present cases should be decided as they have been briefed and argued, under existing precedent.

Thus it appears that as the Court is currently composed, at least four Justices would like re-examine Auer deference, and all four appear somewhat inclined to overturn the doctrine if the right case arose.  Given Judge Kavanaugh’s previously expressed opposition to Auer deference, and the position previously expressed by the four conservative justices, the Senate’s confirmation of Judge Kavanaugh likely results in the Supreme Court’s eventual overturning of the Auer Deference doctrine.