Amicus Curiae Brief — Soundboard Association, Petitioner v. Federal Trade Commission

Supreme Court briefJan 2, 2019

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No. 18-722

IN THE

___________

SOUNDBOARD ASSOCIATION,

FEDERAL TRADE COMMISSION,

Petitioner,

Respondent.

___________

On Petition for a Writ of Certiorari

to the U.S. Court of Appeals for the D.C. Circuit

__________

BRIEF FOR THE CATO INSTITUTE

AND SOUTHEASTERN LEGAL FOUNDATION

AS AMICI CURIAE

IN SUPPORT OF PETITIONER

__________

Kimberly S. Hermann

SOUTHEASTERN LEGAL

FOUNDATION

560 W. Crossville Rd.,

Suite 104

Roswell, GA 30075

(770) 977-2131

khermann@southeasternlegal.org

January 2, 2019

Ilya Shapiro

Counsel of Record

Evan Schrage

CATO INSTITUTE

1000 Mass. Ave. N.W.

Washington, D.C. 20001

(202) 842-0200

ishapiro@cato.org

QUESTION PRESENTED

Despite an administrative agency’s self-serving intent to evade judicial review, do petitioners have a

right to Administrative Procedure Act review of a staff

advisory opinion that effectively creates a new rule,

chills protected speech, and shutters an industry—and

which was procedurally and substantively invalid?

TABLE OF CONTENTS

QUESTION PRESENTED .......................................... i

TABLE OF AUTHORITIES ...................................... iii

INTEREST OF THE AMICI CURIAE ....................... 1

INTRODUCTION AND SUMMARY OF

ARGUMENT.......................................................... 2

ARGUMENT ............................................................... 3

I. This Court Should Clarify that Courts Must

Assess the Legal Consequences of Agency

Actions When Determining Their Finality .......... 3

II. Regardless of Whether the Staff Letter Here Is

a Legislative or Interpretive Rule, It Carries

the Force of Law and Should Be Subject to

Judicial Review...................................................... 6

III.A Plain Reading of the APA Makes Clear that

the 2016 Letter Is Final Agency Action................ 8

IV. If an Agency or Its Staff Cannot Guarantee

the Effectiveness of Its Advice, It Shouldn’t Be

Giving Advice......................................................... 9

CONCLUSION ......................................................... 10

iii

TABLE OF AUTHORITIES

Page(s)

Cases

Abbott Labs v. Gardner, 387 U.S. 136 (1967) ............. 4

Air Brake Sys. v. Mineta,

357 F.3d 632 (6th Cir. 2004) .................................... 4

Ass’n of Flight Attendants v. Huerta,

785 F.3d 710 (D.C. Cir. 2015) .................................. 5

Auer v. Robbins, 519 U.S. 452 (1997).......................... 6

Bennett v. Spear, 520 U.S. 154 (1997)................. 2, 3, 7

Bowles v. Seminole Rock & Sand Co.,

325 U.S. 410 (1945) .................................................. 6

Ciba-Geigy Corp. v. EPA,

801 F.2d 430 (D.C. Cir. 1986) .............................. 3, 6

FTC v. Standard Oil of California,

449 U.S. 232 (1980) .................................................. 6

Impact Energy Res., LLC v. Salazar,

693 F.3d 1239 (10th Cir. 2012) ................................ 4

Nat’l Ass’n of Mfrs v. Dep’t of Def.,

138 S. Ct. 617 (2018) ................................................ 1

Nat’l Automatic Laundry & Cleaning Council

v. Shultz, 443 F.2d 689 (D.C. Cir. 1971) ................. 3

Perez v. Mortgage Bankers Ass’n,

135 S. Ct. 1199 (2015) .......................................... 5, 6

Soundboard Ass’n v. FTC,

251 F. Supp 3d 55 (D.D.C. 2017) ............................. 9

Soundboard Ass’n. v. FTC,

888 F.3d 1261 (D.C. Cir. 2018) ...................... passim

Southwest Airlines v. Dep’t of Transp.,

832 F.3d 270 (D.C. Cir. 2016) .................................. 7

U.S. Army Corps of Engineers v. Hawkes Co.,

136 S. Ct. 1807 (2016) .............................................. 5

Util. Air Reg. Grp. v. EPA, 134 S. Ct. 2427 (2014) ..... 1

Statutes and Regulations

5 U.S.C. § 551(4) .......................................................... 9

5 U.S.C. § 701(b)(1) ...................................................... 9

5 U.S.C. § 701(b)(2) ...................................................... 3

5 U.S.C. § 704............................................................... 3

Telemarketing Sales Rule of 1995,

16 C.F.R. § 310.4 ...................................................... 6

Other Authorities

Animal House (Universal Pictures 1978) ................... 8

Letter from Lois C. Greisman, Assoc. Dir., Div.

Mktg. Practices, to Michael Bills (Nov. 10, 2016),

https://bit.ly/2EC69PO ............................................. 8

Stephen Lindsay, Note, Timing Judicial Review of

Agency Interpretations in Chevron’s Shadow,

127 Yale L.J. 2448 (2018) ........................................ 6

INTEREST OF THE AMICI CURIAE1

The Cato Institute is a nonpartisan public-policy

research foundation established in 1977 and dedicated

to advancing the principles of individual liberty, free

markets, and limited government. Cato’s Robert A.

Levy Center for Constitutional Studies was established in 1989 to help restore the principles of limited

constitutional government that are the foundation of

liberty. Toward those ends, Cato publishes books and

studies, conducts conferences, produces the annual

Cato Supreme Court Review, and files amicus briefs in

this and other courts.

Southeastern Legal Foundation is a national nonprofit, public-interest law firm and policy center that

advocates individual liberty, limited government, and

free enterprise. In particular, SLF advocates for the

protection of individual rights and the framework set

forth to protect such rights in the Constitution. This

advocacy is reflected in the regular representation of

those challenging overreaching governmental and

other actions in violation of the constitutional framework. See, e.g., Util. Air Reg. Grp. v. EPA, 134 S. Ct.

2427 (2014), and Nat’l Ass’n of Mfrs. v. Dep’t of Def.,

138 S. Ct. 617 (2018). SLF also regularly files amicus

curiae briefs with this Court about issues of agency

overreach and deference.

This case concerns amici because of the importance

of judicial review in an expansive regulatory state as a

means of protecting constitutional liberty.

1 Rule 37 statement: All parties received timely notice of intent to

file this brief and gave consent. Further, no counsel for any party

authored this brief in whole or in part and no person or entity

other than amici funded its preparation or submission.

INTRODUCTION AND

SUMMARY OF ARGUMENT

When determining whether an agency’s action is final for the purposes of judicial review, courts apply

this Court’s test in Bennett v. Spear, 520 U.S. 154

(1997). Under Bennett, an action will be considered final if it (1) marks the consummation of the agency’s

decision-making process, and (2) if it determines rights

or obligations from which legal consequences will flow.

Id. at 177-78. Unfortunately, courts are unsure how to

apply these tests, and the confusion only grows the

more informal agencies’ actions become.

The court below, for example, applied the Bennett

test in a way that ignores the substance of the agency’s

actions. But if pragmatism is to guide a court in evaluating the finality of agency action, then an assessment of that action’s legal consequences is required.

Here, regardless of whether the letter is a legislative

or interpretive rule, it carries the force of law and

should be subject to judicial review. Moreover, a plain

reading of the APA makes clear that the 2016 Letter

is final agency action—with very real and immediate

legal consequences. Indeed, if an agency or its staff

cannot guarantee the effectiveness of the advice it

gives, it shouldn’t be giving advice in the first place.

The Court should thus grant the petition to resolve

the issues surrounding the finality of agency actions.

The Court should also determine the extent to which

informal rules are subject to judicial review. A proper

understanding of the Bennett test will resolve these issues, giving clear direction to agency officials and credence to any guidance they issue.

ARGUMENT

I. This Court Should Clarify that Courts Must

Assess the Legal Consequences of Agency Actions When Determining Their Finality

The Administrative Procedure Act (“APA”) permits

judicial review of a “final agency action.” 5 U.S.C. §

704. The term “agency action” includes the whole or a

part of an agency rule, order, license, sanction, relief,

or the equivalent or denial thereof, or failure to act. 5

U.S.C. § 701(b)(2) (citing 5 U.S.C. § 551(13)). An

agency “acts” when it implements, interprets, or prescribes law or policy. Ciba-Geigy Corp. v. EPA, 801

F.2d 430, 435 (D.C. Cir. 1986) (citing Nat’l Automatic

Laundry & Cleaning Council v. Shultz, 443 F.2d 689,

698 (D.C. Cir. 1971)). The APA does not define “final”

agency action that is subject to judicial review, but this

Court in Bennett v. Spear, 520 U.S. 154 (1997), provided the test lower courts should apply when confronted with this question of finality.

Under Bennett, an action will be considered final if

it (1) marks the consummation of the agency’s decision-making process, and (2) if it determines rights or

obligations from which legal consequences will flow.

Id. at 177-78. In that case, the Court held as final action an opinion letter that “altered the legal regime”

under which the Interior Department’s Bureau of Reclamation operated. Id. at 169, 178. While the Bureau

was free to reject the advice in the letter, the Court

said, “it does so at its own peril (and that of its employees),” citing the heavy fines and lengthy prison sentences an employee could be subjected to if he or she

violated agency regulations. Id.

Bennett’s acceptance of an informal action as a final

action appears to depart from an earlier test outlined

in Abbott Labs v. Gardner, 387 U.S. 136 (1967). There,

the Court found that a Food & Drug Administration

rule requiring pharmaceutical companies to relabel

their products was final agency action subject to preenforcement judicial review. The Court took a “flexible” approach to finality. Id. at 150. “There is no hint

that this regulation is informal, or only the ruling of a

subordinate official, or tentative. It was made effective

upon publication, and . . . compliance was expected.”

Id. at 151 (internal citations omitted). The rule, promulgated after a period of notice and comment, “purport[ed] to give an authoritative interpretation of a

statutory provision that [had] a direct effect on the day

to day business of [the regulated industry].” Id. at 152.

Thus, “where a regulation requires an immediate and

significant change in the plaintiffs’ conduct of their affairs with serious penalties attached to noncompliance, access to the courts under the Administrative

Procedure Act . . . must be permitted.” Id. at 153.

Although Abbott Labs concerned a legislative rule,

it is easy to see that the Court carefully considered the

extent to which the challenged action would affect the

regulated industry if implemented. While the Court in

Bennett did not include the informality and subordinate-official factors mentioned in Abbott Labs (indeed,

the Bennett Court did not cite Abbott Labs at all), lower

courts continue to refer to these factors in their analyses. See, e.g., Soundboard Ass’n. v. FTC, 888 F.3d

1261, 1267 (D.C. Cir. 2018); Air Brake Sys. v. Mineta,

357 F.3d 632, 640 (6th Cir. 2004); Impact Energy Res.,

LLC v. Salazar, 693 F.3d 1239, 1256 (10th Cir. 2012)

(Seymour, J., concurring). Yet this Court does not

show signs of abandoning either prong of the Bennett

test and continues to prefer a pragmatic approach to

finality. See U.S. Army Corps of Engineers v. Hawkes

Co., 136 S. Ct. 1807, 1813-1814 (2016).

While some lower courts have expressed a desire to

maintain Abbott Labs’ flexibility and pragmatism as it

applies to Bennett’s first prong, the same cannot be

said for the second prong. The D.C. Circuit’s finality

jurisprudence since Bennett has taken a dramatic turn

away from an analysis of the action’s legal consequences for regulated parties and towards a view of finality “from the agency’s perspective.” Soundboard

Ass’n, 888 F.3d at 1271. Such an exclusive view of finality unfairly prejudices regulated parties like the petitioners in this case, who face losing thousands of

workers to layoffs if they comply with the agency’s

rules, and millions in financial penalties if they do not.

Id. at 1280-1281. (Millet, J., dissenting) (citation omitted). The D.C. Circuit has also held, for example, that

interpretive rules and statements of policy are not subject to review. See Ass’n of Flight Attendants v. Huerta,

785 F.3d 710, 717 (D.C. Cir. 2015) (holding that neither internal guidance documents nor interpretive

rules carry the force of law).

Interpretive rules traditionally were not binding on

a reviewing court and thus did not have the force of

law. Perez v. Mortgage Bankers Ass’n, 135 S. Ct. 1199,

1211 (2015) (Scalia, J., concurring in judgment). That

may have been true at the time of the APA’s adoption,

but the Court has since “developed an elaborate law of

deference to agencies’ interpretations of statutes and

regulations.” Id. “[If] an interpretive rule gets deference, the people are bound to obey it on pain of sanction, no less surely than they are bound to obey substantive rules, which are accorded similar deference.

Interpretive rules that command deference do have

the force of law.” Id. at 1212 (emphasis in original).

If such rules are to continue to receive deference,

they must be considered final agency action. This view

is consistent with the purpose of the APA, where legal

consequences were widely considered the “central determinant for whether a given agency action was judicially reviewable.” Stephen Lindsay, Note, Timing Judicial Review of Agency Interpretations in Chevron’s

Shadow, 127 Yale L.J. 2448 (2018).

II. Regardless of Whether the Staff Letter Here

Is a Legislative or Interpretive Rule, It Carries the Force of Law and Should Be Subject

to Judicial Review

Amici take no position on whether the rule promulgated in the 2016 Letter is a legislative or interpretive

rule, but that characterization is irrelevant to the

question of finality.

If the letter is an interpretive rule, what it’s interpreting is the Telemarketing Sales Rule of 1995

(“TSR”), 16 C.F.R. § 310.4. That would entitle the letter to Auer deference, which means it has the force of

law and bears legal consequences. See Auer v. Robbins,

519 U.S. 452, 461 (1997); Bowles v. Seminole Rock &

Sand Co., 325 U.S. 410, 414 (1945).

If, on the other hand, the letter is a legislative rule,

“the agency’s position is definitive and [it] has a direct

and immediate . . . effect on the day-to-day business of

the parties challenging the action.” Ciba-Geigy Corp.,

801 F.2d at 435-36 (D.C. Cir. 1986) (citing FTC v.

Standard Oil of California, 449 U.S. 232, 239 (1980)).

“These indicia of finality are ordinarily controlling because they are highly probative of whether the agency's position is merely tentative or, on the other hand,

whether the agency views its deliberative process as

sufficiently final to demand compliance with its announced position.” Id.

That is, either way the letter has immediate and

significant legal consequences—which Bennett should

tell us is the key determinant for finality. This is not

to say that the identity of the actor is unimportant, but

the suggestion that the actions of subordinate officials

do not produce legal consequences for regulated business is a bureaucratic fiction belied by the cold light of

reality. See Soundboard Ass’n, 888 F.3d at 1274 (Millet, J., dissenting).

The court below determined that the 2016 Letter

failed to satisfy the first part of the Bennett test. Id. at

1268. “Because each prong of Bennett must be satisfied

independently for agency action to be final, deficiency

in either is sufficient to deprive SBA of a cause of action under the APA.” Id. (citing Southwest Airlines v.

Dep’t of Transp., 832 F.3d 270, 275 (D.C. Cir. 2016)).

Under the majority’s view, the 2016 Letter did not

mark the consummation of the decision-making process because “it explicitly and repeatedly states that it

expresses the views of ‘staff,’ and it explains that such

views do not bind the Commission.” Id. at 1268.

But a closer examination of the letter’s language

suggests that FTC staff are “keenly aware of the virtually determinative effect” of their opinions. Bennett,

520 U.S. at 170. The letter demands compliance with

the staff’s advice. It also makes clear that regulation

under the TSR will continue indefinitely. “[S]oundboard technology, when used properly, may one day

approach [virtual indistinguishability from live calls].

If and when such advances occur . . . parties could seek

further amendment of the TSR or exemptions from the

prerecorded message provisions.” Letter from Lois C.

Greisman, Assoc. Dir., Div. Mktg. Practices, to Michael Bills (Nov. 10, 2016), https://bit.ly/2EC69PO

(emphasis added). The letter concludes:

In order to give industry sufficient time to

make any necessary changes to bring

themselves into compliance, the revocation

of the September 2009 letter will be effective six months from today, on May 12,

2017. As of that date, the September 11,

2009 letter will no longer represent the

opinions of FTC staff and cannot be used,

relied upon, or cited for any purpose.

Id. (emphasis added).

The lower court’s opinion highlights the problem of

reviewing agency actions exclusively from the agency’s

perspective. Soundboard Ass’n, 888 F.3d at 1271. Under this reasoning, no agency action is final unless the

agency says that it is—a John “Bluto” Blutarksy view

of finality, if you will. Animal House (Universal Pictures 1978) (“Nothing is over until we decide it is!”).

Such a stance makes the regulated parties’ perspective

irrelevant and ignores the Court’s call for pragmatism

in Abbott Labs.

III. A Plain Reading of the APA Makes Clear

that the 2016 Letter Is Final Agency Action

Even if the Court were to decline to review the 2016

Letter from the perspective of the regulated party, the

Letter constitutes final agency action under the plain

meaning of the APA. First, the 2016 Letter is a “rule”

under 5 U.S.C. § 551(4) because it is a statement of

particular applicability and future effect designed to

implement or interpret law or policy. See also Soundboard Ass’n v. FTC, 251 F. Supp. 3d 55, 69 (D.D.C.

2017) (vacated on other grounds). Second, the Federal

Trade Commission is an “agency” within the meaning

of 5 U.S.C. § 701(b)(1). Third, as noted supra, the letter

demands compliance and instructs that it will be enforced for an indefinite period of time. Petitioner elaborates on these points in section III of the Petition.

IV. If an Agency or Its Staff Cannot Guarantee

the Effectiveness of Its Advice, It Shouldn’t

Be Giving Advice

The lower court’s focus on the identity of the Letter’s author, an agency staff member, relies too heavily

on the agency’s interpretation of its own regulations.

The lower court insisted that the FTC does not have

an obligation to investigate facts presented to it in a

request for guidance, and that the advice is only as

good as the facts on which it is based. Soundboard

Ass’n, 888 F.3d at 1272 n.5. Yet businesses undoubtedly rely on the advice the regulating agency gives

them, regardless of whose name is at the bottom of the

guidance given. And if the agency permits its staff to

issue guidance, that guidance must necessarily be

given some binding meaning. Otherwise, the guidance

can hardly be worth the paper it is printed on.

The majority below was critical of this approach,

hypothesizing that bad advice from a paralegal could

throw the regulatory world into chaos. Id. at 12721273. But the easiest way for an agency to prevent the

public from receiving bad advice from a paralegal is to

prohibit paralegals from issuing advice, not beginning

every bit of guidance with a disclaimer that the

agency’s words are not its bond.

CONCLUSION

For the above reasons, and those stated by the petitioner, the petition should be granted.

Respectfully submitted,