Deference to Agency Deference

Companies challenging FDA in court typically face a steep uphill battle given the long-standing doctrine known as Auer deference, which (in simplified terms) requires courts to defer to FDA’s interpretation of its own regulations if they are ambiguous.  The recent Supreme Court ruling in Kisor v. Wilkie did not overturn Auer deference, as many predicted given the change in Court composition, but even in deferring to deference, the Court significantly cabined the scope and application of it.  Under this revised framework, courts first must pressure test whether a challenged regulation is genuinely ambiguous – exhausting tools of construction – and if so, courts then must make an independent inquiry of the regulation to determine whether it is entitled to Auer deference.

The majority opinion spends considerable time describing the background facts of the case and the history of Auer deference.   Of note to our blog readers, even though the underlying action is not even peripherally related to FDA regulation (Kisor challenges a decision by the Department of Veterans Affairs), the Court references FDA and its regulations in discussing when deference would be appropriate.  As an example, the Court points to an earlier challenge to an FDA regulation that grants exclusivity for drugs if they contain no “active moiety” that has been approved by FDA for any other drug.  The D.C. Circuit was asked to determine whether a company created a new active moiety “by joining a previously approved moiety to lysine through a non-ester covalent bond.”  This type of question, for the last 20 or so years, would have been entitled to Auer deference, and as related to the definition of “active moiety” specifically, the D.C. Circuit did defer to the Agency’s construction of its own regulation.  In Kisor, the Court specifically recognized the importance of preserving FDA’s ability to interpret its regulations using its expertise and policymaking function.

Nevertheless, the Court limits the situations in which Auer deference applies and sets forth the following step-wise analysis.

• The first step in a court’s analysis is to determine whether the regulation is genuinely ambiguous. To do this, a court must carefully consider the text, structure, history, and purpose of a regulation, “exhausting” all the traditional tools of construction.
• If there is genuine ambiguity, a court must then determine whether the agency’s reading of the regulation is “within the bounds of reasonable”
• And even then, Auer deference is not automatic. Rather, a court must make an independent inquiry into whether the “character and context of the agency interpretation entitles it to controlling weight.”  This inquiry requires a review of:

1. 1. Whether the regulatory interpretation is consistent with the agency’s authoritative or official position;
   2. Whether the agency’s interpretation implicates the agency’s substantive expertise; and
   3. Whether the agency’s interpretation reflects its “fair and considered judgment.”

From the Court’s perspective, this approach maintains the spirit of Auer deference, but avoids its application when the agency takes a position that is a “convenient litigation position” or that creates “unfair surprise” to regulated parties.

Even though it has not even been two months since the Kisor decision, this case already has been cited by litigants at least 16 times.  It will be interesting whether the number of challenges to FDA’s interpretations increases as companies are more optimistic about their chances of having a court freshly review rather than defer to FDA.

Note that none of this discussion of Auer or Kisor relates to an agency’s interpretation of a statute it enforces, which remains governed by the well-known Chevron test.  Perhaps the Kisor decision reflects a baby step toward the demise of Chevron, which also has been criticized.  Or a more cynical view could be that all the discussion of “deference” is merely a judicial cover to achieve a predetermined result in favor of the agency.