Government Agencies Cannot Amend Their Rules Through Litigation Settlements

A federal appellate court recently ruled that government agencies cannot change agency rules through litigation settlements, thereby avoiding notice and comment rulemaking. The court's decision, if followed by other courts, will limit government agencies' flexibility in settling legal challenges to their rules and regulations and limit the ability of challengers to achieve such changes through litigation.

The United States Court of Appeals for the Ninth Circuit in Conservation Northwest v. Sherman, No. 11-35729 (9th Cir. Apr. 25, 2013) overturned the trial court's entry of a consent decree resolving litigation over changes to the Survey and Manage Standard of the Northwest Forest Plan issued by the Bureau of Land Management, the Forest Service, and the Fish and Wildlife Service. The settlement modified the Survey and Manage Standard. An intervening defendant that had not agreed with the settlement challenged it. The challenger asserted that the settlement was an illegal amendment of the Standard because it was not adopted in compliance with the statutory procedures controlling changes to the standard. The government argued that the consent decree was a "judicial act" and therefore exempt from the procedural requirements. The Court of Appeals rejected the government's argument. The Court held that "a district court abuses its discretion when it enters a consent decree that permanently and substantially amends an agency rule that would have otherwise been subject to statutory rulemaking procedures." Op. at 12. Presumably, a settlement agreement that sought to accomplish a rule change would similarly be improper.

Because most agency rules can only be amended through notice and comment rulemaking, this decision will have a significant effect on legal challenges to agency rules.