NFIB Legal Center Tells the California Supreme Court: Don’t Let Foxes Guard the Hen House

Date: April 19, 2016

A recurring issue in many regulatory cases of importance to the small business community is the question of agency deference. When is deference appropriate, and to what extent should a court defer to an assertion of regulatory power when the statutory text is silent, or where the agency seeks to contort a general authorization to enforce a statutory regime into an open-ended authority to regulate as it might like? In instances like this, we consistently argue against deference as we did last week in a brief filed in California Insurance Association v. Jones.

The case asked whether the California Insurance Commissioner had authority to promulgate regulations defining unfair and deceptive insurance practices where the Legislature had already defined a list of prohibited unfair and deceptive practices—implicitly excluding other practices from that list. Here the Commissioner argued that he had broad “gap-filling” authority to promulgate regulation however he might like as long as it was not inconsistent with the text of the statute. And as argued by a law professor, as amicus in this case, the “Legislature must specifically say so if it wants to limit the scope of rulemaking power…”

We argued, that turns first principles on their head. It is important to remember that administrative agencies are creatures of statute and have no power to act except as authorized by the Legislature. It is therefore vital to identify a textual basis for any inferred statutory authorization to promulgate regulation. Moreover it is inappropriate to defer to an agency on the scope of its own powers. That last point would seem obvious. One would think agency deference to be especially inappropriate on questions as to the scope of the agency’s very jurisdiction. But at least on the federal level courts do in fact defer to an agency’s interpretation of its own powers. Perhaps this may explain, to some extent, why we’ve seen such a radical expansion of the administrative state in recent years.

But the rule in California, and in other states, is that an agency is not entitled to deference. We think that is the better rule. Courts should review jurisdictional language and decide upon the best interpretation—not simply default to the position advocated by the government.

Deference on questions of an agency’s jurisdiction encourages self-aggrandizement of administrative powers. And, as we’ve argued in the past, such deference is strange because one would not expect that a party limited by the law should be allowed to determine the scope of that limitation. Indeed, that would be to let foxes guard the henhouse. Moreover, administrative agencies have no institutional advantage in determining the scope of their jurisdiction—setting aside whatever technical expertise they may have over the subject matter of the contested regulation. 

For all of these reasons, it is vital that state courts continue to critically examine statutory text when considering the legality of potentially ultra vires regulations. That is certainly what we’ve advocated for in California, and will continue to push for in other jurisdictions. As a matter of first principles, a reviewing court must always begin with the understanding that agencies have only those powers that have been affirmatively conferred upon them; no agency, neither at the state or federal level, has a free-wielding mandate to do whatever it thinks best. If ever there was such an open-ended conferral of power, it would violate the non-delegation doctrine. Suffice it to say, we still believe in the principles of limited government.

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