In May 2013, Elgin Nursing and Rehabilitation Center (Elgin) ended a lengthy legal battle over an egg when the Fifth Circuit refused to defer to an agency determination of its own vague regulations. (opinion here).

The saga began in February 2010 when the Texas Department of Aging and Disability ("TDAD") investigated Elgin and "observed two breakfast plates with egg yolk 'smeared around the plate.'" The investigation "confirmed that five of Elgin's residents requested eggs served "soft cooked" and found Elgin residents in "immediate jeopardy." 

Elgin's problems got serious when the Center for Medicare and Medicaid Services ("CMS") adopted TDAD's findings and brought the full weight of its substantial enforcement muscle to bear, imposing a number of penalties, including:

  • a civil monetary fine of $5,000;
  • termination of Elgin's provider-of-care agreement;
  • denial of payment for new admissions; and
  • withdrawal of Elgin's approval to conduct nurse training.

An administrative law judge ("ALJ") affirmed the determination by the CMS, and the Department of Health and Human Services ("DHHS") upheld the ruling of ALJ.

What Deference Does It Make?

At issue was whether the Fifth Circuit should defer to agency interpretations of: (1) federal regulations (2) the CMS State Operations Manual (SOM) and (3) "dueling" cooking requirements in the SOM. The Court stated DHHS's interpretation and implementation of the statute promulgated in the CFR is given Chevron deference. (i.e. "if a statute is ambiguous, and if the implementing agency's construction is reasonable, Chevron requires a federal court to accept the agency's construction of the statute, even if the agency's reading differs from what the court believes is the best statutory interpretation." Citing Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 980 (2005)).   

In reviewing CMS's interpretation of the SOM, the Court found CMS's interpretation was entitled to Seminole Rock deference (Bowles v. Seminole Rock & Sand Co.,  325 U.S. 410 (1945).  In Seminole Rock, the Supreme Court ruled that "a court must accept an agency's interpretation of its own regulations unless it is "plainly erroneous. Thus, the degree of deference granted the agency's interpretation of its own regulation, was given greater deference. 

Limiting the Power of Federal Regulators

According to the Court, CMS went too far in asking the Court to "defer to its interpretation of its manual interpreting its interpretive regulation." The Court stated that it had "never granted such extraordinary deference to an agency, and we decline to do so now." The Court was of the view that

"[a]ccepting DHHS's request for such deference would lead to problematic outcomes. In the first place, it would make it possible for agencies not only to issue ambiguous regulations, but also to write and enforce ambiguous interpretations of them. It would also require courts to interpret not only interpretations, but also interpretations of interpretations."

The Court noted that "Several Justices have expressed concern regarding agencies' strategically drafting vague regulations to maximize agency power and beat the "cumbersome rulemaking process." The Court further observed that "where courts defer completely to agency interpretations of their own regulations, 'the incentive is to speak vaguely and broadly, so as to retain 'flexibility' that will enable 'clarification' with retroactive effect.'" Citations omitted.

The Court was further concerned that permitting unfettered deference to the decisions of governmental agencies would remove the role of the Courts and "effectively insulate agency action from judicial review. It is not within the province of the Executive Branch to determine the final meaning of a vague document interpreting a regulation..."

Fair Notice

The Court rejected the notion that an agency could interpret agency interpretations of agency regulations. The Court cautioned that such deference "would allow agencies to punish 'wrongdoers' without first giving fair notice of the wrong to be avoided."  This potential was particularly troubling to the Court considering the monetary penalties at stake and the potential repercussions of a finding of deficiency, including, in this case, losing all access to Medicare and Medicaid reimbursement.

Citing Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156 (2012), the Court observed that refusing to defer to an agency determination "creates a risk that agencies will promulgate vague and open-ended regulations that they can later interpret as they see fit." The Fifth Circuit observed:

It is one thing to expect regulated parties to conform their conduct to an agency's interpretations once the agency announces them; it is quite another to require regulated parties to divine the agency's interpretations in advance or else be held liable when the agency announces its interpretations for the first time in an enforcement proceeding and demands deference. Citing Christopher  at 2168.  

The Court further refused to "[afford[ deference to agency interpretations of ever more ambiguous regulations [that] would allow the agency to function not only as judge, jury, and executioner [and to do so while crafting new rules." Affording deference to an agency's interpretations of its own rules "encourages the agency to enact vague rules which give it the power, in future adjudications, to do what it pleases. This frustrates the notice and predictability purposes of rulemaking, and promotes arbitrary government." Citing Talk Am., Inc. v. Mich. Bell Tel. Co., 131 S. Ct. 2254, 2266 (2011) (Scalia, J., concurring).

Fifth Circuit – How to Cook an Egg

Court applied "traditional tools of textual interpretation to determine the fair meaning" of the regulations and SOM. Applying the fully power of its collective reasoning powers, the Fifth Circuit concluded "an egg must be either cooked at 145° F. for 15 seconds or cooked until the white is set and the yolk congealed." 

The Food Safety Modernization Act (FSMA) greatly increased FDA's oversight over how food is grown, processed, distributed, prepared and sold in the United States.  As the FDA marches forward implementing the sweeping changes in FSMA through new regulations, guidance, changes in procedural manuals and the Food Code, compliance becomes more complex and the penalties that can be levied more expansive. In Elgin, the Fifth Circuit, applying recent Supreme Court authority, ensured that governmental agencies are not promulgating vague and open-ended regulations and interpreting those regulations in arbitrary and unfair ways. Elgin suggests that the Courts are pulling the reins of governmental agencies, who no longer can expect unfettered power to interpret and enforce vague regulations.

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