Second Circuit Sides with CFPB in ILSFDA Case While Applying Auer Deference

CFPB HUD

On May 6, the U.S. Court of Appeals for the Second Circuit agreed with the CFPB in holding that a single-story unit in a multi-story condominium is a “lot,” as that term is used in the Interstate Land Sales Full Disclosure Act.  Berlin v. Renaissance Rental Partners, No. 12-2213, slip op. (2d Cir. May 6, 2013).  The CFPB and HUD, the predecessor regulator under the ILSFDA, had previously issued regulations stating that a property could only qualify as a “lot” if it involved the “exclusive use of … land.”  The Second Circuit determined that the definition of the term “land” was ambiguous and deferred to the agencies’ interpretation, which equated “land” with “realty.” The case is notable primarily because the dissenting opinion reflects an increasingly unfriendly attitude in the courts towards so-called Auer deference. That deference generally requires courts to defer to any plausible interpretation from an agency of its own regulations.  In a 15-page dissent in Berlin, Chief Judge Dennis Jacobs questioned the utility of that deference doctrine in this case, arguing that the agency’s reading was “unnatural” and should not be given effect.  Chief Judge Jacobs also disagreed with the majority’s emphasis on the fact that the HUD/CFPB position was consistent.  Indeed, Chief Judge Jacobs felt that the CFPB’s “gravity-defying” “misunderstanding” was “not improved by consistency,” particularly given that the agencies’ interpretations rested on guidelines that were “semi-literate.”  Interestingly, Chief Judge Jacobs twice cited to Justice Scalia’s recent dissent in Decker v. Northwest Environmental Defense Center, which questions the continuing basis for Auer.  (A previous InfoByte discussed the opinions in Decker.)  Because Auer may prove relevant in many administrative law cases—including those involving banking and financial regulators—this unfriendly attitude may prove significant for participants throughout the financial industry.