Court Opinion

ID: 9431496
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:32:25.444195+00
Date Added: 2024-06-11T17:17:05.303966
License: Public Domain

Justice Scalia,
concurring.
I agree with the Court that general principles of administrative law suggest that § 223(b) of the Medicare Act, 42 U. S. C. § 1395x(v)(l)(A), does not permit retroactive application of the Secretary of Health and Human Service’s 1984 cost-limit rule. I write separately because I find it incomplete to discuss general principles of administrative law without reference to the basic structural legislation which is the embodiment of those principles, the Administative Procedure Act (APA), 5 U. S. C. §§551-552, 553-559, 701-706, 1305, 3105, 3344, 5372, 7521. I agree with the District of Columbia Circuit that the APA independently confirms the judgment we have reached.
The first part of the APA’s definition of “rule” states that a rule
“means the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency . . . .” 5 U. S. C. §551(4) (emphasis added).
The only plausible reading of the italicized phrase is that rules have legal consequences only for the future. It could not possibly mean that merely some of their legal consequences must be for the future, though they may also have legal consequences for the past, since that description would not enable rules to be distinguished from “orders,” see 5 U. S. C. §551(6), and would thus destroy the entire dichotomy upon which the most significant portions of the APA are based. (Adjudication — the process for formulating orders, see §551(7) — has future as well as past legal consequences, since the principles announced in an adjudication cannot be *217departed from in future adjudications without reason. See, e. g., Local 32, American Federation of Government Employees v. FLRA, 248 U. S. App. D. C. 198, 202, 774 F. 2d 498, 502 (1985) (McGowan, J.); Greater Boston Television Corp. v. FCC, 143 U. S. App. D. C. 383, 393, 444 F. 2d 841, 852 (1970) (Leventhal, J.), cert. denied, 403 U. S. 923 (1971)).
Nor could “future effect” in this definition mean merely “taking effect in the future,” that is, having a future effective date even though, once effective, altering the law applied in. the past. That reading, urged by the Secretary of Health and Human Services (Secretary), produces a definition of “rule” that is meaningless, since obviously all agency statements have “future effect” in the sense that they do not take effect until after they are made. (One might argue, I suppose, that “future effect” excludes agency statements that take effect immediately, as opposed to one second after promulgation. Apart from the facial silliness of making the central distinction between rulemaking and adjudication hang upon such a thread, it is incompatible with § 553(d), which makes clear that, if certain requirements are complied with, a rule can be effective immediately.) Thus this reading, like the other one, causes § 551(4) to fail in its central objective, which is to distinguish rules from orders. All orders have “future effect” in the sense that they are not effective until promulgated.
In short, there is really no alternative except the obvious meaning, that a rule is a statement that has legal consequences only for the future. If the first part of the definition left any doubt of this, however, it is surely eliminated by the second part (which the Secretary’s brief regrettably submerges in ellipsis). After the portion set forth above, the definition continues that a rule
“includes the approval or prescription for the future of rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services or allowances therefor or of valuations, costs, or account*218ing, or practices bearing on any of the foregoing.” 5 U. S. C. § 551(4) (emphasis added).
It seems to me clear that the phrase “for the future” — which even more obviously refers to future operation rather than a future effective date — is not meant to add a requirement to those contained in the earlier part of the definition, but rather to repeat, in a more particularized context, the prior requirement “of future effect.” And even if one thought otherwise it would not matter for purposes of the present case, since the HHS “cost-limit” rules governing reimbursement are a “prescription” of “practices bearing on” “allowances” for “services.”
The position the Secretary takes in this litigation is out of accord with the Government’s own most authoritative interpretation of the APA, the 1947 Attorney General’s Manual on the Administrative Procedure Act (AG’s Manual), which we have repeatedly given great weight. See, e. g., Steadman v. SEC, 450 U. S. 91, 103, n. 22 (1981); Chrysler Corp. v. Brown, 441 U. S. 281, 302, n. 31 (1979); Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U. S. 519, 546 (1978). That document was prepared by the same Office of the Assistant Solicitor General that had advised Congress in the latter stages of enacting the APA, and was originally issued “as a guide to the agencies in adjusting their procedures to the requirements of the Act.” AG’s Manual 6. Its analysis is plainly out of accord with the Secretary’s position here:
“Of particular importance is the fact that ‘rule’ includes agency statements not only of general applicability but also those of particular applicability applying either to a class or to a single person. In either case, they must be of future effect, implementing or prescribing future law.
“[T]he entire Act is based upon a dichotomy between rule making and adjudication. . . . Rule making is agency action which regulates the future conduct of either *219groups of persons or a single person; it is essentially legislative in nature, not only because it operates in the future but also because it is primarily concerned with policy considerations. . . . Conversely, adjudication is concerned with the determination of past and present rights and liabilities.” Id., at 13-14.
These statements cannot conceivably be reconciled with the Secretary’s position here that a rule has future effect merely because it is made effective in the future. Moreover, the clarity of these statements cannot be disregarded on the basis of the single sentence, elsewhere in the Manual, that “[njothing in the Act precludes the issuance of retroactive rules when otherwise legal and accompanied by the finding required by section 4(c).” Id., at 37. What that statement means (apart from the inexplicable reference to §4(c), 5 U. S. C. § 553(d), which would appear to have no application, no matter which interpretation is adopted), is clarified by the immediately following citation to the portion of the legislative history supporting it, namely, H. R. Rep. No. 1980, 79th Cong., 2d Sess., 49, n. 1 (1946). That Report states that “[t]he phrase ‘future effect’ does not preclude agencies from considering and, so far as legally authorized, dealing with past transactions in prescribing rules for the future.” Ibid. The Treasury Department might prescribe, for example, that for purposes of assessing future income tax liability, income from certain trusts that has previously been considered nontaxable will be taxable — whether those trusts were established before or after the effective date of the regulation. That is not retroactivity in the sense at issue here, i. e., in the sense of altering the past legal consequences of past actions. Rather, it is what has been characterized as “secondary” retroactivity, see McNulty, Corporations and the Intertemporal Conflict of Laws, 55 Cal. L. Rev. 12, 58-60 (1967). A rule with exclusively future effect (taxation of future trust income) can unquestionably affect past transactions (rendering the previously established trusts less desir*220able in the future), but it does not for that reason cease to be a rule under the APA. Thus, with respect to the present matter, there is no question that the Secretary could have applied her new wage-index formulas to respondents in the future, even though respondents may have been operating under long-term labor and supply contracts negotiated in reliance upon the pre-existing rule. But when the Secretary prescribed such a formula for costs reimbursable while the prior rule was in effect, she changed the law retroactively, a function not performable by rule under the APA.
A rule that has unreasonable secondary retroactivity — for example, altering future regulation in a manner that makes worthless substantial past investment incurred in reliance upon the prior rule — may for that reason be “arbitrary” or “capricious,” see 5 U. S. C. § 706, and thus invalid. In reference to such situations, there are to be found in many cases statements to the effect that “[w]here a rule has retroactive effects, it may nonetheless be sustained in spite of such retro-activity if it is reasonable.” General Telephone Co. of Southwest v. United States, 449 F. 2d 846, 863 (CA5 1971). See also National Assn. of Independent Television Producers and Distributors v. FCC, 502 F. 2d 249, 255 (CA2 1974) (“Any implication by the FCC that this court may not consider the reasonableness of the retroactive effect of a rule is clearly wrong”). It is erroneous, however, to extend this “reasonableness” inquiry to purported rules that not merely affect past transactions but change what was the law in the past. Quite simply, a rule is an agency statement “of future effect,” not “of future effect and/or reasonable past effect.”
The profound confusion characterizing the Secretary’s approach to this case is exemplified by its reliance upon our opinion in SEC v. Chenery Corp., 332 U. S. 194 (1947). Even apart from the fact that that case was not decided under the APA, it has nothing to do with the issue before us here, since it involved adjudication rather than rulemaking. Thus, though it is true that our opinion permitted the Secre*221tary, after his correction of the procedural error that caused an initial reversal, see SEC v. Chenery Corp., 318 U. S. 80 (1943), to reach the same substantive result with retroactive effect, the utterly crucial distinction is that Chenery involved that form of administrative action where retroactivity is not only permissible but standard. Adjudication deals with what the law was; rulemaking deals with what the law will be. That is why we said in Chenery:
“Since the Commission, unlike a court, does have the ability to make new law prospectively through the exercise of its rule-making powers, it has less reason to rely upon ad hoc adjudication to formulate new standards of conduct.... The function of filling in the interstices of the Act should be performed, as much as possible, through this quasi-legislative promulgation of rules to be applied in the future.” 332 U. S., at 202 (emphasis added).
And just as Chenery suggested that rulemaking was prospective, the opinions in NLRB v. Wyman-Gordon Co., 394 U. S. 759 (1969), suggested the obverse: that adjudication could not be purely prospective, since otherwise it would constitute rulemaking. Both the plurality opinion, joined by four of the Justices, and the dissenting opinions of Justices Douglas and Harlan expressed the view that a rule of law announced in an adjudication, but with exclusively prospective effect, could not be accepted as binding (without new analysis) in subsequent adjudications, since it would constitute rulemaking and as such could only be achieved by following the prescribed rulemaking procedures. See id., at 764-766 (plurality opinion); id., at 777 (Douglas, J., dissenting); id., at 780-781 (Harlan, J., dissenting). Side by side these two cases, Chenery and Wyman-Gordon, set forth quite nicely the “dichotomy between rulemaking and adjudication” upon which “the entire [APA] is based.” AG’s Manual 14.
Although the APA was enacted over 40 years ago, this Court has never directly confronted whether the statute au*222thorizes retroactive rules. This in itself casts doubt on the Secretary’s position. If so obviously useful an instrument was available to the agencies, one would expect that we would previously have had occasion to review its exercise. The only Supreme Court case the Government cites, however, is the pre-APA case of Addison v. Holly Hill Fruit Products, Inc., 322 U. S. 607 (1944). That case does not stand for a general authority to issue retroactive rules before the APA was enacted, much less for authority to do so in the face of § 551(4). Addison involved the promulgation of a definition of “area of production” by the Administrator of the Wage and Hour Division, for purposes of an exemption to the Fair Labor Standards Act of 1938, 52 Stat. 1060, as amended, 29 U. S. C. §201 et seq. We found his definition unlawful — but instead of directing the entry of judgment for the employees who were claiming higher wages, we remanded the case to the District Court “with instructions to hold it until the Administrator, by making a valid determination of the area with all deliberate speed, acts within the authority given him by Congress.” 322 U. S., at 619. It is not entirely clear that we required this determination to be made by regulation rather than by a declaratory order applicable to the case at hand. Where an interpretive rule is held invalid, and there is no pre-existing rule which it superseded, it is obviously available to the agency to “make” law retroactively through adjudication, just .as courts routinely do (and just as we indicated the Secretary of Agriculture could have done in United States v. Morgan, 307 U. S. 183, 193 (1939)). Perhaps that is all Addison stands for. Arguably, however, the Administrator was obliged to act by regulation rather than by adjudication, since the statutory exemption in question referred to “area of production (as defined by the Administrator).” See 322 U. S., at 608. If the parenthetical had the effect of requiring specification by rule (rather than through adjudication), then the Court would have been authorizing a retroactive regulation. But it would have been doing so in a sitúa*223tion where one of two legal commands had to be superseded. In these circumstances, either the Administrator had to contravene normal law by promulgating a retroactive regulation, or else the Administrator would, by his inaction, have totally eliminated the congressionally prescribed “area of production” exemption. Something had to yield. If this case involves retroactive rulemaking at all, it does not stand for the Government’s asserted principle of the general permissibility of retroactive rules so long as they are reasonable, but rather for the much narrower (and unexceptional) proposition that a particular statute may in some circumstances implicitly authorize retroactive rulemaking.
This case cannot be disposed of, as the Secretary suggests, by simply noting that retroactive rulemaking is similar to retroactive legislation, and that the latter has long been upheld against constitutional attack where reasonable. See, e. g., Pension Benefit Guaranty Corp. v. R. A. Gray & Co., 467 U. S. 717 (1984); Baltimore & Susquehanna R. Co. v. Nesbit, 10 How. 395 (1851). See generally Hochman, The Supreme Court and the Constitutionality of Retroactive Legislation, 73 Harv. L. Rev. 692 (1960). The issue here is not constitutionality, but rather whether there is any good reason to doubt that the APA means what it says. For purposes of resolving that question, it does not at all follow that, since Congress itself possesses the power retroactively to change its laws, it must have meant agencies to possess the power retroactively to change their regulations. Retroactive legislation has always been looked upon with disfavor, see Smead, The Rule Against Retroactive Legislation: A Basic Principle of Jurisprudence, 20 Minn. L. Rev. 775 (1936); 2 J. Story, Commentaries on the Constitution of the United States § 1398, p. 272 (5th ed. 1891), and even its constitutionality has been conditioned upon a rationality requirement beyond that applied to other legislation, see Pension Benefit Guaranty Corp., supra, at 730; Usery v. Turner Elkhorn Mining Co., 428 U. S. 1, 16-17 (1976). It is en*224tirely unsurprising, therefore, that even though Congress wields such a power itself, it has been unwilling to confer it upon the agencies. Given the traditional attitude towards retroactive legislation, the regime established by the APA is an entirely reasonable one: Where quasi-legislative action is required, an agency cannot act with retroactive effect without some special congressional authorization. That is what the APA says, and there is no reason to think Congress did not mean it.
The dire consequences that the Secretary predicts will ensue from reading the APA as it is written (and as the Justice Department originally interpreted it) are not credible. From the more than 40 years of jurisprudence since the APA has been in effect, the Secretary cites only one holding and one alternative holding (set forth in a footnote) sustaining retroactive regulations. See Citizens to Save Spencer County v. EPA, 195 U. S. App. D. C. 30, 600 F. 2d 844 (1979); National Helium Corp. v. FEA, 569 F. 2d 1137, 1145, n. 18 (Temp. Emerg. Ct. App. 1977). They are evidently not a device indispensable to efficient government. It is important to note that the retroactivity limitation applies only to rulemaking. Thus, where legal consequences hinge upon the interpretation of statutory requirements, and where no preexisting interpretive rule construing those requirements is in effect, nothing prevents the agency from acting retroactively through adjudication. See NLRB v. Bell Aerospace Co., 416 U. S. 267, 293-294 (1974); SEC v. Chenery Corp., 332 U. S., at 202-203. Moreover, if and when an agency believes that the extraordinary step of retroactive rulemaking is crucial, all it need do is persuade Congress of that fact to obtain the necessary ad hoc authorization. It may even be that implicit authorization of particular retroactive rulemaking can be found in existing legislation. If, for example, a statute prescribes a deadline by which particular rules must be in effect, and if the agency misses that deadline, the statute may be interpreted to authorize a reasonable retroactive rule despite *225the limitation of the APA. (Such a situation would bear some similarity to that in Addison.)
I need not discuss what other exceptions, with basis in the law, may permit an agency to issue a retroactive rule. The only exception suggested by the Secretary to cover the present case has no basis in the law. The Secretary contends that the evils generally associated with retroactivity do not apply to reasonable “curative” rulemaking — that is, the correction of a mistake in an earlier rulemaking proceeding. Because the invalidated 1981 wage-index rule furnished respondents with “ample notice” of the standard that would be applied, the Secretary asserts that it is not unfair to apply the identical 1984 rule retroactively. I shall assume that the invalidated rule provided ample notice, though that is not at all clear. It makes no difference. The issue is not whether retroactive rulemaking is fair; it undoubtedly may be, just as may prospective adjudication. The issue is whether it is a permissible form of agency action under the particular structure established by the APA. The Secretary provides nothing that can bring it -within that structure. I might add that even if I felt free to construct my own model of desirable administrative procedure, I would assüredly not sanction “curative” retroactivity. I fully agree with the District of Columbia Circuit that acceptance of the Secretary’s position would “make a mockery ... of the APA,” since “agencies would be free to violate the rulemaking requirements of the APA with impunity if, upon invalidation of a rule, they were free to ‘reissue’ that rule on a retroactive basis.” 261 U. S. App. D. C. 262, 270, 821 F. 2d 750, 758 (1987).
For these reasons in addition to those stated by the Court, I agree that the judgment of the District of Columbia Circuit must be affirmed.