Good Decision-Makers, Bad Decision-Makers, and the Courts: Perez v. Mortgage Bankers’ Association, 575 U.S. _____ (2015)

Oliver Wendell Holmes famously said, “The prophecies of what the courts will do in fact, and nothing more pretentious, are what I mean by the law” (“The Path of the Law” (1897), 10 Harvard Law Review 457, at p. 461). He adopted the perspective of the “bad man”, someone “who cares only for the material consequences which such knowledge enables him to predict, not as a good one, who finds his reasons for conduct, whether inside the law or outside of it, in the vaguer sanctions of conscience” (p. 459).

Judicial review of administrative action is concerned with bad decision-makers. There are structural and institutional reasons for this.

Structurally speaking, courts are regularly called upon to quash decisions that are bad or that were taken after a defective process; they are never asked to endorse good decision-making. No judicial review applicant has ever gone before a court, brandishing an administrative decision and smiling cheerfully as she says: “This is an exemplar of fine administrative decision-making, please uphold the decision”. For her part, the respondent need only demonstrate that a decision was good enough to survive scrutiny. Bad decisions – or, more accurately, decisions portrayed as bad decisions – are the raw materials of judicial review of administrative action. As a result, judges do not have an accurate picture of good administrative practice.

Institutionally speaking, judicial review is ill-suited to the elaboration of the “vaguer sanctions of conscience” that would lead to good decision-making. In the common law tradition, review of specialized administrative agencies is entrusted to generalist judicial bodies. Judges are not chosen on the basis of their familiarity with administrative law, still less on their ability to formulate norms of good administrative practice in the abstract. Usually, those best placed to fashion the principles of good administration are those who toil at the coalface of the administrative state, for they are familiar with its intricacies and alive to its defects. This is not to say that judges should be blind to principles of good administration in formulating the rules of administrative law, but that they are not well-equipped to devise codes of best administrative practice.

These structural and institutional considerations combine to favour the perspective of the bad decision-maker who reads administrative law decisions to determine minimum standards of conduct. Consider the formulation of the traditional grounds of judicial review of administrative action: failure to take into account relevant considerations; taking into account irrelevant considerations; use of a power for an improper purpose; acting in bad faith; taking a decision so unreasonable that no reasonable decision-maker would take it. Inevitably, the message of judicial decisions is “Here is what you should not do”; it is not “Here is what you should do”.

Where judges attempt to inspire  good decision-makers rather than to admonish bad ones, they risk creating unworkable rules of administrative law. Some recent examples? Several Canadian ones spring to mind: the invocation of “justification, transparency and intelligibility” as the hallmarks of reasonable decision-making; the requirement that decision-makers consider Charter values in exercising their functions (though I think that one may have been misunderstood); and the idea that the “common objective” of courts and decision-makers is the proper application of the principles of statutory interpretation. From the United States comes another: the so-called Paralyzed Veterans doctrine that the Supreme Court recently obliterated in Perez v. Mortgage Bankers’ Association, 575 U.S. _____ (2015).

The issue here was whether a change to an interpretive rule issued by an administrative agency is subject to the notice-and-comment requirements of the Administrative Procedure Act. It is not necessary to give notice and allow for comment prior to adopting an interpretive rule but, in a series of decisions beginning with Paralyzed Veterans, the Court of Appeals for the District of Columbia had imposed a notice and comment obligation as a condition precedent to changes in an interpretive rule. This is to be contrasted with the treatment of legislative rules, which are subject to the full rigours of the Act. Here, when the Department of Labor revised an interpretive rule relating, amongst other things, to the eligibility of mortgage loan officers for overtime pay without going through notice and comment the D.C. Circuit invalidated the new rule.

The Court reversed, stating that the Act clearly exempts interpretive rules from the notice-and-comment requirements, before and after their adoption. More broadly, Sotomayor J. recalled the settled principle that the courts may not add to the Act:

The Paralyzed Veterans doctrine creates…a judge-made procedural right: the right to notice and an opportunity to comment when an agency changes its interpretation of one of the regulations it enforces. That requirement may be wise policy. Or it may not. Regardless, imposing such an obligation is the responsibility of Congress or the administrative agencies, not the courts. We trust that Congress weighed the costs and benefits of placing more rigorous procedural restrictions on the issuance of interpretive rules (slip opinion, at p. 9).

To put it another way, the Paralyzed Veterans doctrine may be a salutary attempt to ensure good administrative decision-making, but courts lack the perspective and the wherewithal to impose standards of good decision-making on administrative agencies. Their role is the more restrained one of punishing bad decision-making. As Sotomayor J. went on to point out:

There may be times when an agency’s decision to issue an interpretive rule, rather than a legislative rule, is driven primarily by a desire to skirt notice-and-comment provisions. But regulated entities are not without recourse in such situations. Quite the opposite. The APA contains a variety of constraints on agency decisionmaking—the arbitrary and capricious standard being among the most notable. As we held in Fox Television Stations, and underscore again today, the APA requires an agency to provide more substantial justification when “its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account. It would be arbitrary and capricious to ignore such matters.” 556 U. S., at 515 (citation omitted)…” (at pp. 12-13).

One could perhaps portray the Paralyzed Veterans doctrine as a “courageous” attempt to combat bad decision-making (see Scalia J.’s concurrence at p. 4) but given the existing array of tools available to reviewing courts, fashioning another one altogether suggests that the D.C. Circuit wished to impose its own view of the requirements of good decision-making, one based perhaps on deep philosophical commitments.

This content has been updated on April 23, 2015 at 12:14.