TetraTech

Oral arguments over agency deference

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On December 1st, the Wisconsin Supreme Court heard oral arguments in TetraTech v. DOR, Appeal No. 2015AP2019, DWD v. LIRC (Beres), Appeal No. 2016AP1365, and Wisconsin Bell, Inc. v. LIRC, Appeal No. 2016AP355.

Here is a rundown of what happened.

Tetratech

For a description of the issues in this case, see TetraTech: Agency discretion and “process”.

The company began with agency deference, taking advantage of the Revenue Department’s concession that great weigh deference was no longer valid and that even due weight deference was not provided for under ch.227 except when the agency’s technical expertise was in play.

There was some general discussion of the facts in the case: which company did what task as part of the clean-up. TetraTech’s main point here was that in practical terms there was no real consumer good being sold, and so the sales tax in question lacked the basic requirement of a consumer good to be valid. Likewise, the cleanup of the polluted river silt did not lead to any new product that could be sold on a market of some kind.

The solicitor general disputed these points, claiming that the tax in question was valid because of: (1) the company’s role in processing the polluted silt or (2) its role as a consumer of the silt and water after cleaning by a sub-contractor.

The justices’ main concern was with how broadly the Revenue Department was interpreting the “processing” at issue in this case. Several justices indicated that the statutory term in this case — “processing” — was incredibly broad and could be applied to almost anything a company did. Accordingly, on several occasions they asked for guidance from counsel on how to narrow a reading of the term in some structured way. The Revenue Department advocated for a broad reading of “processing” based on the dictionary definition. TetraTech, on the other hand, sought to limit “processing” to a physical change in the raw materials rather than just the separation of materials into distinct parts or the enhancement of personal property in a way that creates commercial value.

In regards to agency deference, the Department of Revenue contended that agency deference only meant that a court could take account of the agency viewpoint and be persuaded by that viewpoint. In light of the amicus brief from the Wisconsin Utilities Association, the solicitor general indicated that courts could acknowledge the technical expertise of utilities when reviewing the rates set by those utilities.

Justice Gableman, however, apparently would go further in limiting court deference to state agencies. He asked specifically whether less deference was due to a state agency that was a party to the case than a neutral party that produces learned treatises (and most likely amicus briefs as well). This concern mirrored what Wisconsin Manufacturers & Commerce raised in its amicus brief in this case.

Beres

For the legislative history, see Beres/absenteeism at the Wisconsin Supreme Court, Part 1. For the facts and legal issues, see Beres: Agency discretion to undo a statutory scheme.

Counsel for the Department of Workforce Development began by proclaiming that great weight deference was invalid and even due weight deference was problematic. Prior to the current deference scheme, the solicitor general remarked, early court decisions had usually questioned and doubted the views of administrative agencies. In the current deference scheme, on the other hand, courts had ceded this caution and instead uncritically accepted the viewpoints of state agencies as valid simply because a state agency was behind that viewpoint. By failing to come up with its own interpretation and accepting the proffered rationale of an administrative agency, the Department explained, courts had improperly ceded their own authority and responsibility to determine for themselves what a law should mean.

NOTE: The solicitor general cited Boynton Cab v. Neubeck, 237 Wis. 249 (1941) as an example of the hard work of interpretation a court should always be doing. The problem with this claim is that the court in Boynton Cab relied heavily on and followed numerous reports and decisions of British and federal administrative agencies to determine what the term “misconduct” should mean for unemployment purposes.

As in TetraTech, the solicitor general would only concede that the limited deference due a state agency was the deference due a party for its persuasiveness (similar to the deference a higher court gives to a lower court that provides a persuasive analysis of an issue).

Furthermore, Borgnis was NOT on point, the Department responded when pushed, because the court review then was extremely limited to a jurisdictional question and did not inquire into whether an administrative agency had improperly usurped court authority.

As for the absenteeism provision itself, the Department argued that a plain reading of this statute allowed the employer to set its own misconduct disqualification, and the Commission’s arguments to the contrary were neither grammatically sound or in sync with the unemployment statute as a whole.

The Commission’s oral argument started with the strange question from Justice Abrahamson about why the Commission could not get along with the Department and somehow resolve these disputes prior to court action. Given that the Commission has statutory responsibility to decide how unemployment law should be interpreted and that the Commissioners themselves are independent of the governor (they have set terms and can only be removed for cause), this question made no sense. If the Department has a valid and strongly held dispute with the Commission over a Commission decision, then the only way to get that dispute resolved is through litigation. In no way should the Commission ever be responsible for getting disputes with the Department resolved through some kind of backroom deal. Such action would call into question the very independence that is condicio sine qua non to the Commission.

To keep matters off kilter, Justice Gableman repeated his concern from TetraTech about a state agency being a party to a dispute and so possibly biased in some improper way whereas a neutral law firm could provide unbiased guidance regarding the legal questions at issue. The response from the Commission about the legislature designating that administrative agency as having shared authority with courts for reviewing administrative law decisions did not seem to convince the justice that his concern over alleged agency bias was statutorily suspect.

Justice Gableman also pushed the Commission to explain what was wrong with the kind of persuasive deference lower courts could have on appellate courts under de novo review. The Commission’s response: the Commission is statutorily charged with deciding the legal disputes that come its way and by far most of those decisions are never appealed to court. See, for instance, the Commission’s statistics page. To do otherwise would scuttle the precedent Commission decisions provide employees and employers.

For the Commission, the holding in Borgnis was directly on point and reflected the simply reasonable notion that a court defer to a state agency when offering up a reasonable interpretation of the law. Some justices seemed to accept this point, others in addition to Justice Gableman seemed to reject it, and some (notably Chief Justice Roggansack) seemed to be on the fence.

The justices also seemed split on the absenteeism provision and whether the more than two absences in 120 days provision in the first part was a floor that no employer could lower or a default for when the employer lacked its own absenteeism policy. The Commission posited that this provision was a floor, and so the employee in Beres was not disqualified because her absence was not her fault and only a single absence. If this provision was just an option for an employer, then an employer would be free to set its own disqualification standard no matter how severe to its employees.

Wisconsin Bell

For a summary of this case, see Making factual findings subject to never-ending review: Wisconsin Bell.

The focus on agency deference in the first two cases allowed the oral argument here to focus almost entirely on the substance of discrimination law. The ensuring discussion, however, was hardly about the intersection of discrimination and disability law. Rather, the questions and answers almost entirely concerned the factual record in this case. As one of the attorneys observed after oral argument was over, it seemed like a motion for summary judgment was being heard. At one point, Justice Abrahamson even asked rhetorically where the discussion of the inference method had gone.

So, the factual record was immediately in play in this matter. Justice Gableman and Chief Justice Roggansack wanted to know what evidence the employer had to support its claims that the employee’s disability was illegitimate and nothing more than the shirking of job duties. The employer’s theory of the case, however, did not turn on the court re-assessing the credibility of the evidence presented. As a result, Wisconsin Bell could not point to evidence in the record to counter the employee’s claims in large part because the employer had never presented such counter evidence at the administrative hearing. Indeed, Chief Justice Roggansack along with Justice Bradley challenged the employer about whether specific findings of fact in the record were clearly erroneous, and Wisconsin Bell had to admit that there WAS evidence in the record to support those findings.

NOTE: Only Justice Kelly seemed ready to agree that court review of the factual record was needed anew when reviewing the case. For him, a new look at the factual record could verify the employer’s concerns about the employee’s alleged shirking. Justice Gableman also seemed ready for some additional court review of the facts if a reason for such review was presented to him. At several points, he voiced concerns about the employee working disability law to his advantage. In other words, Justice Gableman thought it improper in some way for an employee to exercise his rights in an astute manner.

Rather, the conceit of the employer’s case turned on a change in discrimination law that would make the employer’s decisions unassailable unless there was a some kind of admission by it of an illicit intent. It did not seem that the justices were ready to adopt that legal position, however (it barely came up at all). Only Justice R. Bradley indicated that she was willing to alter the law in a substantial way when she cited a statutory exception to Wisconsin’s discrimination law — Wis. Stat. § 111.34(2)(a) — as allowing any employer to discharge its employees who fail to do their assigned job duties regardless of their disabilities. This provision, however, is simply an affirmative defense available to employers to allow them to discharge permanently disabled employees who can no longer perform necessary job duties — like firefighters having their employment terminated should they become blind — and has nothing to do with employees who have temporary disabilities or illnesses that occasionally limit how they perform their jobs. So, it is unclear how this provision could be transformed in the way J. Bradley indicated.

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A quick note on the agency deference briefs

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TetraTech v. DOR, Appeal No. 2015AP2019, DWD v. LIRC (Beres), Appeal No. 2016AP1365, and Wisconsin Bell, Inc. v. LIRC, Appeal No. 2016AP355, have attracted numerous briefs, including several amicus briefs (somewhat unusual for the Wisconsin Supreme Court). Some of the briefs are excellent; others contain outright laughers. Given the importance of these cases, some comment on the briefing on which Wisconsin administrative law may be revolutionized is vital.

TetraTech

The Department of Justice’s newly-created solicitor general’s office represents both the Department of Revenue and the Department of Workforce Development in these cases. For both clients, the solicitor general’s briefing is little more than a big, sloppy kiss to the three-justice concurrence in Operton that first challenged the status of agency-deference. Indeed, the Department of Revenue brief in TetraTech does little more than shadow-dance with the arguments and claims made in the Operton concurrence. In this brief, “great weight” deference is statutorily and constitutionally suspect, and only consideration of an agency’s technical, long-standing decisions that do not carry political or economic import is allowable. At one point, this brief even cites a federal court dissent to the denial of en banc review as support for claims that courts cannot defer at all to administrative agencies over economic or politically significant questions. See TetraTech’s Respondent’s Brief at 38-9. There is hardly any detailed discussion by the solicitor general of how the administrative deference case law has developed in Wisconsin or how these new claims against deference recall attacks against state agencies from a century before that were rejected at the time.

Instead, the solicitor general makes the unhistorical and inaccurate argument that court review was much broader and less deferential in bygone days and urges the court to return to this less deferential review.

NOTE: This argument is true to the extent that “review” of a century ago led judges to apply their own economic and policy preferences under Lochnerism, but the solicitor general leaves this legal history completely out of its briefing.

This argument runs counter to the conclusion of Kenneth K. Luce, “The Wisconsin Idea in Administrative Law,” 34 Marq. L. Rev. 1 (1950) about how Wisconsin’s then new administrative review law considerably expanded judicial review of administrative agencies:

The Administrative Procedure Act has broadened the scope of review beyond certiorari and other forms formerly available, and the Court has stated that “few if any statutes have come under our observation which prescribe broader or even as broad a scope of review as that prescribed by Ch. 227, Stats.” Clearly the circuit courts today have broader review powers in most cases than under previous statutes and decisions.

Luce, “The Wisconsin Idea in Administrative Law,” 34 Marq. L. Rev. at 14-15 (footnotes omitted). Where Luce is discussing much broader judicial review being put into place, the Department of Justice is positing that same review becoming narrow and more limited under ch.227 or ch.102/108. The hundreds of cases and issues in Luce’s short law review article simply do NOT appear with any detail in the Department of Justice briefs advocating that deference to state agencies statutorily and constitutionally runs afoul of independent court review.

NOTE: Also at issue in Luce’s law review examination is the replacement of limited certiorari review and mandamus actions with ch.227 review. Hence, there have been both major procedural as well as substantive expansions in court review of state agencies that appear haphazardly at best in the solicitor general’s briefing in these cases.

Beres

The Department of Justice repeats these claims in Beres, but the Justice Department also has to contend with some excellent points by the Commission in its brief about how many of the same questions over agency deference were previously argued and decided by the Wisconsin Supreme Court. For instance, the Commission explains that the constitutional questions of agency deference raised in Beres were previously decided in Borgnis v. Falk Co., 147 Wis. 327, 358-61, 133 N.W. 209, 219 (1911):

There are many such administrative bodies or commissions, and with the increasing complexity of modern government they seem likely to increase rather than diminish. Examples may be easily thought of. Town boards, boards of health, boards of review, boards of equalization, railroad rate commissions, and public utility commissions all come within this class. They perform very important duties in our scheme of government, but they are not Legislatures or courts. The legislative branch of the government by statute determines the rights, duties, and liabilities of persons and corporations under certain conditions of fact, and varying as the facts and conditions change. Manifestly the Legislature cannot remain in session and pass a new act upon every change of conditions; but it may and does commit to an administrative board the duty of ascertaining when the facts exist which call into activity certain provisions of the law, and when conditions have changed so as to call into activity other provisions. The law is made by the Legislature; the facts upon which its operation is dependent are ascertained by the administrative board. While acting within the scope of its duty, or its jurisdiction, as it is sometimes called, such a board may lawfully be endowed with very broad powers, and its conclusions may be given great dignity and force, so that courts may not reverse them unless the proof be clear and satisfactory that they are wrong.

Borgnis, 147 Wis. at 359, 133 N.W. at 219.

NOTE: Despite being squarely on point about the constitutionality of agency deference, Borgnis only appears in the solicitor general’s opening brief as a passing reference. According to the Justice Department, Borgnis concerns the limited court review of agency actions to determine whether the agency has acted in “excess of its powers.” Respondent’s Brief at 22-3 in Beres. Only in its reply brief does the solicitor general begin to deal with the central holding in Borgnis.

The solicitor general’s response is simply to exclaim that Borgnis only concerned the ability of a state agency to find facts and apply established law to those facts and did not deal in the least with the ability of an administrative agency to render its own legal interpretations. The above quotation belies that argument, however. The application of law to facts in Borgnis is framed in the same way that a court might apply the law to facts. Indeed, the solicitor general’s quotation from Borgnis in support of this claim for limited agency discretion is woefully incomplete.

The next important contention is that the law is unconstitutional because it vests judicial power in a body which is not a court and is not composed of men elected by the people, in violation of those clauses of the state Constitution which vest the judicial power in certain courts and provide for the election of judges by the people, as well as in violation of the constitutional guaranties of due process of law.

* * *

It is an administrative body or arm of the government, which in the course of its administration of a law is empowered to ascertain some questions of fact and apply the existing law thereto, and in so doing acts quasi judicially[.]

Borgnis, 133 N.W. at 218-19 (emphasis indicates the quoted language in the Solicitor General’s Reply Brief at 4 for Beres).

NOTE: The Commission’s brief is also worth reading for pointing out how the solicitor general’s crabbed view of executive, legislative, and judicial functions having to be isolated and distinct from each other does not match what the founding fathers believed, what federal courts historically have held, and what Wisconsin courts have maintained.

And, in regards to the substance of the absenteeism provision at issue in Beres, the Commission explains (1) the risk the Department’s position has for employers should the U.S. Department of Labor conclude that the state is no longer in compliance with federal requirements for how unemployment disqualifications should function and (2) how employers could use this expanded disqualification to not only cut off unemployment benefits to claimants but also deny employees their workers’ compensation benefits. The response of the solicitor general to these points, respectively: (1) No response; and (2) Agreed, because such harsh results on the unemployed and in favor of employers are what was intended by the new absenteeism disqualification.

Amicus briefs in TetraTech and Beres

Wisconsin Manufacturers & Commerce along with other industry groups has an amicus brief in TetraTech that presents some whoppers of legal argument. For instance:

When the government as a party is systematically given predisposed deference, the other litigants are systematically disadvantaged. It is invariably a zero-sum game to the detriment of Wisconsin Employers.

TetraTech WMC amicus Brief at 7. There is also:

If there has been an interpretation of a statute by the agency, any respectful consideration of such interpretation should consider both the agency bias and limited qualifications for agencies to interpret the law. Notably, and we are in complete agreement, the Solicitor General concludes “in every case, the court must ultimately interpret the law for itself.” Id. at 31 (Emphasis theirs).

TetraTech WMC amicus Brief at 13.

WMC has drawn nationwide attention for its cozy relationship with and support of some of the Wisconsin Supreme Court’s current justices. So, these claims about being discriminated against by state agencies is akin to a deer hunter bemoaning an unsuccessful hunt because the deer did not cooperate and demanding that the deer be rounded up and caged so as to make all future hunts “fair.”

This WMC brief also indicates some of the ideological goals of this attack on agency deference:

Even so, subject matter expertise is frequently not relevant when the court is charged, and is seeking assistance, with reading the law. Judges have relevant education, training, and most importantly, the experience to discern what the law is (underscoring their unique constitutional duty), whereas agency bureaucrats generally have no training on or knowledge of the legal methods of statutory interpretation.

TetraTech WMC amicus Brief at 10. In this framework, judicial reasoning bests the scientific or professional expertise of the administrative agency. Indeed, the more professional or technically competent the administrative agency, the more doubt a court should have for the agency’s proffered legal reasoning. Id. at 8-9 (citing Gorsuch concurrence in Guitierrez-Brizuela, 834 F.3d at 1158).

The Wisconsin Institute for Law & Liberty filed amicus briefs in both TetraTech and Beres. Both briefs emphasize the importance of judicial authority over the executive authority of administrative agencies and how the separation of powers preserves and protects the liberty interests of Wisconsin citizens. As such, these briefs demonstrate the connection this attack on agency deference has to the liberty interests that fueled the Lochnerism of old.

Finally, the Wisconsin Utilities Association has an amicus brief in TetraTech in favor of agency deference. The utilities association explains:

when a plaintiff challenges a utility rate as “unreasonable,” this implicates “statutory interpretation” by the agency only in the loosest sense of the term. What is really at issue is reasonableness, and courts understand the Commission is best able to balance the multitude of technical, equitable and policy considerations that underlie a “reasonable” rate.

Moreover, WUA’s members have come to rely on this level of deference to the Commission’s rate-setting decisions. It deters what would otherwise be prolonged legal challenges to new rates, terms and conditions of public utility service, while at the same time guaranteeing any challenges that do arise do not devolve into judicial scrutiny of highly technical policy choices by an expert agency. In a world without great weight deference, it is difficult to see what would prevent a reviewing court from substituting its own view of how utility costs should be apportioned among various customer classes or what level of carrying costs should be authorized on a particular escrow account-all because, on some level, these issues go to the Commission’s “interpretation” of the statutory directive to set “reasonable” rates.

WUA amicus Brief at 10 in TetraTech (emphasis in original). This brief states exactly what is at stake in these cases: whether judges will substitute their preferences about the scope and impact of regulations for the judgments of the state agency by subjecting the decisions of those agencies to heightened scrutiny.

Wisconsin Bell

The briefing in this case was done on a tight time frame, as the court granted the petition for review on Sept. 12th and then set oral argument for December 1st.

Like the solicitor general, Wisconsin Bell contends that the viewpoint of an agency be simply a factor for consideration by a reviewing court and that any weight given to that factor depends on the agency’s specifically demonstrated expertise, technical competence, and specialized knowledge. Wisconsin Bell Brief at 21.

As to the substance of the alleged discrimination, Wisconsin Bell contends that the Commission is essentially making itself into the personnel office of the employer. This usurping of the employer’s own prerogatives over its employees, according to Wisconsin Bell, is legally suspect.

The Commission’s and the employee’s briefs dispute these claims, showing how the employer’s arguments do not apply to the facts of this case and why prior court and Commission precedent support the employee’s claim of discrimination.

As these briefs demonstrate, the dispute with Wisconsin Bell essentially turns on whether the employer had a reasonable basis for concluding the employee’s disability claims were illegitimate in some way.

Three amicus briefs were filed in this matter. The WMC amicus brief presents additional argument for why the employer’s decision to discharge the employee should be considered to be non-discriminatory. Amicus briefs from the Wisconsin Employment Lawyers Association and from Disability Rights Wisconsin and Survival Coalition Wisconsin, on the other hand, aver that: (1) the current system of agency deference is constitutional and promotes efficiency and predictability in the judicial system, (2) the legal issues in this case involve long-accepted methods of establishing disability discrimination, and (3) there is little to anything that is controversial in the Commission’s reasoning and conclusions that Wisconsin Bell had discriminated against one of its employees because of his disability.

NOTE: I drafted an amicus brief for the Wisconsin Employment Lawyers Association in the unemployment case, Operton v. LIRC.

The briefing in this case describes exclusive world views of the law. The briefs in support of the employer contend that the Commission’s legal reasoning is highly suspect and lacking factual support. For such a misapplication of the law, these parties argue that no deference is due the Commission. In contrast, the parties supporting the Commission and the employee find nothing unusual or suspect in the Commission’s legal reasoning, question mightily leaps in logic in the opposing briefs, and point to copious examples in the record that support the Commission’s contentions and findings.

Given these differences, one side of this dispute is far afield in its claims, and the employer side seems to be the one that lacks a solid foundation. Wisconsin Bell is basically asserting that it should be believed even though it never presented much evidence to substantiate its alleged doubts about the employee’s disability claims. For the employer, its decision to discharge an employee should be presumed correct unless the employee can reveal an admission of some kind by the employer revealing its illicit motive. Such a requirement upends discrimination law in this state and allow all but the most obvious and crude discrimination to go unchecked. At a time when the nation is finally waking up to the widespread nature of sexual harassment, no court should pretend that workplace discrimination is no longer a problem and assert that employers are as innocent as new-born babes.

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TetraTech: Agency discretion and “process”

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The alleged problems with regulation and administrative agencies is exemplified in the TetraTech case. In this tax matter, the dispute concerns how expansive for tax purposes a statutory reference to “process” should be read. A company, TetraTech, was responsible for “processing” contaminated water as part of an effort to clean the Fox River of pollutants. Wis. Stat. § 77.52(2)(a)11 (emphasis supplied) provides that “[t]he producing, fabricating, processing, printing, or imprinting of tangible personal property or items, property, or goods” for materials either directly or indirectly provided to consumers shall be taxed.

As obvious, “processing” is an incredibly broad term. Writing a brief can be considered a process that transforms the paper on which the brief is printed, for instance. So, the main question presented in this case is how broadly or narrowly the court should understand “processing.” Since the revenue statutes in question do not define “processing” and the term itself is extremely broad, this kind of case calls for the kind of court intervention to clarify exactly how “processing” should be understood.

That is, this kind of case contains a bread-and-butter question courts typically address whenever reviewing how a statute should be understood. There is nothing here that indicates that a substantial change in agency deference is needed in order to resolve this dispute. The Wisconsin Supreme Court could hold that the Department of Revenue has the correct, broad interpretation of “processing” and decide to defer to it or even not defer to it but support it in any case. Or, the court could conclude that the current agency interpretation is NOT a reasonable application of the law and overturn that finding. Or, the court could do any number of things in between these two outcomes. A company like TetraTech certainly would want the interpretation of “processing” adopted by the Department of Revenue to get no deference. But, whether there is deference or not does not automatically lead to TetraTech getting the outcome it desires, especially when this case presents a very typical scenario of an extremely broad statutory term that requires clarification. Only if there already had been a similar case with similar facts to this one would the court even consider deferring to the administrative agency. But, the briefs indicate that this case presents a unique situation — processing of river silt to remove the contaminants as part of an environmental clean-up effort — that does not appear to have ever been contemplated by the agency of the legislature.

So, the question of agency deference does not really add anything to this case other than to provide an opportunity to expound on the separation of powers between administrative agencies and courts. The interpretation of the statutory term itself presents the kind of statutory construction work courts have to confront day-in and day-out. While the court of appeals decision granted great weight deference to the Department of Revenue, the appeals court still conducted a full analysis of the statutory terms and arguments to determine that the agency’s proffered interpretation was reasonable. The Wisconsin Supreme Court could easily disagree with any of the conclusions reach by the court of appeals and consequently issue a decision in favor of TetraTech.

But, this kind of point-by-point review is exactly what is at stake here. The attack on agency deference is about a court coming up with its OWN interpretation of the law without first considering whatsoever the interpretation of the state agency. Only after the court has its own interpretation is the court supposed to examine the agency’s proffered interpretation.

In this light, a non-deference court is subjecting state agencies to heightened scrutiny of some kind, as the court gets to decide what the statute means and the agency’s interpretation must then match up with what the court considers correct more so than what the opposing side posits. The court is no longer just deciding a legal dispute between parties. Instead, the court is exercising policy-making discretion to determine how administrative agencies should develop their administrative rules and decisions.

And, as noted already, the justices pushing this agenda are adding an additional concern for “liberty interests” that are NOT part of the statutory language but which were part and parcel of the court attack against regulation under modern Lochnerism. Under this modern version of Lochnerism, any regulation of commercial activity is automatically suspect because of how it infringes on the liberty interests of commercial enterprise.

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UPDATE (12 Dec. 2017): Added links for all the posts in this series.