July 18, 2018 – Wisconsin courts have long deferred to administrative agencies’ interpretation of statutes and regulations under certain conditions.¹ In a recent decision, the Wisconsin Supreme Court put an end to this practice.

In Tetra Tech EC, Inc. v. Wisc. Dep’t of Revenue, 2018 WI 75 (June 26, 2018), a majority ruled that the Wisconsin Department of Revenue (DOR) could impose a tax on Tetra Tech EC Inc. for the “processing” of river sediments into reusable sand and water.

But a majority also came to another conclusion about deference to state agencies’ interpretations of law: “We have also decided to end our practice of deferring to administrative agencies’ conclusions of law,” wrote Justice Daniel Kelly.

The Tetra Tech decision marks a sea change in Wisconsin administrative law. But because the Court fractured in its reasoning and analysis, how the decision will be applied in lower courts and what it will mean in practice remains uncertain.

Factual Background

The basic dispute at the heart of the Tetra Tech litigation involved whether a sales tax applied when one company purchased environmental remediation services from another. Following a federal order to remove industrial pollutants from the Fox River, several paper companies created a LLC to carry out the work. 

That LLC hired Tetra Tech EC which, in turn, subcontracted with Stuyvesant Dredging, Inc. Stuyvesant’s job was to dredge sediment from the river bed and then, using various filters, separate water from sand from contaminated sludge.

In 2010, the DOR audited Tetra Tech and assessed a sales tax on the portion of Stuyvesant’s work that yielded relatively clean sand. As authority, the DOR cited Wis. Stat. section 77.52(2)(a)10.-11., both of which apply sales tax to services that involve “processing … tangible personal property. …”

Tetra Tech fought the tax bill all the way to the Wisconsin Supreme Court. At every step, the company lost and kept appealing. When the Supreme Court agreed to hear Tetra Tech’s case, the Justices directed the parties to address an additional question, not raised in the company’s petition for review – whether “the practice of deferring to agency interpretations of statutes comport[s] with Article VII, Section 2 of the Wisconsin Constitution.” That question, not the underlying propriety of Tetra Tech’s tax bill, became the primary focus of the Supreme Court proceedings.

Legal Background

The Supreme Court’s additional question did not come completely out of the blue. Indeed, it is part of a broader trend of questioning principles of federal and state law that some refer to as “decision avoidance” doctrines.

Chief Justice Patience Roggensack flagged this issue more than a decade ago in an article she wrote for the Marquette Law Review.² And in a concurring opinion last year, three Justices on the Supreme Court wrote “separately to question whether [the] practice of deferring to agency interpretations of statutes comports with the Wisconsin Constitution, which vests judicial power in this court – not administrative agencies.”³

On a federal level, the issue gained attention during the U.S. Supreme Court confirmation hearings of Justice Neil Gorsuch, who has expressed concern about the degree to which federal courts defer to executive agencies.⁴

Prior to Tetra Tech, Wisconsin courts developed a multi-tiered deference analysis. In some circumstances, courts applied “great weight deference,” accepting an agency’s reasonable interpretation of the law, even if the court thought that alternative interpretations were more reasonable.

The court explained that great weight deference to an agency decision on a question of law was appropriate if: 1) the statute was one the agency was charged by the legislature with administering; 2) the interpretation of the agency was one of long-standing; 3) the agency used its expertise or specialized knowledge in deciding the legal question presented; and 4) the agency’s interpretation provided uniformity in the application of the statute.⁵

Essentially, under the “great weight deference” standard, if the agency could demonstrate a plausible explanation for its position, its interpretation would stand.

“Due weight deference” applied “when the agency ha[d] some experience in an area but ha[d] not developed the expertise that necessarily place[d] it in a better position than a court to make judgments regarding the interpretation of the statute.”⁶

Under “due weight deference,” the agency had to yield to better interpretations, but if multiple interpretations were equally plausible, the tie went in the agency’s favor.⁷

Finally, when any of the following conditions was met – 1) the issue is one of first impression; 2) the agency had no experience or expertise in deciding the legal issue presented; or 3) the agency’s position on the issue had been so inconsistent as to provide no real guidance – courts would interpret statutes de novo.⁸

When a reviewing court accords an agency’s statutory interpretation no deference, “the reviewing court merely benefits from the agency’s determination and may reverse the agency’s interpretation even when an alternative statutory interpretation is equally reasonable to the interpretation of the agency.”⁹

In its briefing, Tetra Tech argued that the Wisconsin Constitution charges courts with determining the meaning of the law, such that courts cannot defer at all to agency interpretations of statutes and must instead engage in de novo interpretation in every case. DOR, represented by the Wisconsin Attorney General, largely agreed.

The State argued that great weight deference is incompatible with the Wisconsin Constitution but that due weight deference should be retained as a proper way to balance, under appropriate circumstances, independent judicial review with the specialized expertise that administrative agencies bring to bear. Only one amicus curiae (friend of the court) brief offered any argument in support of great weight deference.

A Unanimous, Yet Fractured, Decision

The Supreme Court unanimously affirmed that Tetra Tech was on the hook for the sales tax at issue. But the seven Justices’ agreement did not extend to the deference question. On that topic, the Court produced four separate opinions.

Making things more confusing, the lead opinion (by Justice Daniel Kelly) includes 15 separate sections, each attracting support from various combinations of Justices.

Some – but significantly less than half – of the lead opinion has support from a majority of the Court and thus carries the force of law. But most of it does not. And three Justices declined to join any portion of the lead opinion’s analysis. (See the table at the bottom of this post.)

Five Justices broadly agree that great-weight deference should no longer be used.¹⁰ Two Justices – Daniel Kelly and Rebecca Bradley – based that conclusion on the Wisconsin Constitution.¹¹ Three others – Patience Roggensack, Annette Ziegler, and Michael Gableman – avoid any constitutional analysis, invoking instead principles of judicial administration and the Court’s power to overrule its own prior decisions.¹² Two Justices – Ann Walsh Bradley and Shirley Abrahamson – support the continued use of great weight deference.¹³

The result of these fractured opinions is that most of the analysis in the lead opinion lacks enough support to be considered law and to provide clear guidance to agencies, private parties, and lower courts. There are four votes for this key paragraph in the lead opinion’s conclusion (in Section III):

We have also decided to end our practice of deferring to administrative agencies’ conclusions of law. However, pursuant to Wis. Stat. §227.57(10), we will give “due weight” to the experience, technical competence, and specialized knowledge of an administrative agency as we consider its arguments.¹⁴

That is, therefore, the new law. But what it means in practice, and how lower courts are to afford “due weight” remains unclear.

The lead opinion heavily criticizes the prior use of “due weight deference” and advocates for a significant change to how courts assess agencies’ legal interpretations.¹⁵

But that portion of the lead opinion (in Section II.A.5) attracted support from only two of the seven Justices.¹⁶

The lead opinion explains: “Henceforth, we will review an administrative agency’s conclusions of law under the same standard we apply to a circuit court’s conclusions of law – de novo. As with judicial opinions, we will benefit from the administrative agency’s analysis, particularly when they are supplemented by the ‘due weight’ considerations discussed above.”¹⁷

But that portion of the opinion (in Section II.A.6) also lacks the force of law as it attracted support from only three Justices (still short of a majority).¹⁸

Consequences on Prior Adjudications

Adding yet another layer of uncertainty is the concern expressed in the concurring opinions that the lead opinion fails to adequately account for the effect its analysis will have on cases decided under the pre-Tetra Tech standard.

The lead opinion asserts that the Tetra Tech decision “is incapable of reopening cases that have already been decided. If they were final upon release of this opinion, their finality will go on undisturbed by our decision today.”¹⁹

In the next paragraph, the lead opinion cites Schauer v. DeNeveu Homeowner’s Ass’n, Inc.²⁰, to support its conclusion that Wis. Stat. section 806.07 “does not authorize relief from a judgment on the ground that the law applied by the court in making its adjudication has been subsequently overruled in an unrelated proceeding.”²¹

But there are two reasons to doubt that this resolves the issue. First, like so much of the lead opinion, Section II.A.6 lacks enough support to have the force of law.²²

This means that paragraphs 89 and 90 do not provide a conclusive adjudication on the issue. Second, as the concurring opinions point out, there are colorable arguments that Schauer does not resolve the issue. Section 806.07(1) authorizes relief from a judgment on eight distinct grounds. Schauer addressed only one of those – subsection (1)(f) (“A prior judgment upon which the judgment is based has been reversed or otherwise vacated”).

The lead opinion’s conclusion that great weight deference is unconstitutional leaves open the possibility that a previously decided case could be attacked under several other subsections: (1)(a), on the basis of “mistake”; (1)(d), on the basis that “[t]he judgment is void”; or (1)(h), on the basis of “[a]ny other reasons justifying relief from the operation of the judgment.”²³

There also remains the possibility of attack under (1)(f), because Schauer did not address the consequence of a constitutional adjudication (like the one undertaken by the Tetra Tech lead opinion).

The Court’s fractured decision seems to create the opportunity to argue that the lead opinion is correct as to the constitutional basis for departing from the great weight deference standard (an issue on which there was no majority) and that, if so, there is room to interpret (1)(f), as well as the other subsections of section 806.07 noted above, as a valid basis for relief from a prior judgment based on a deference regime that is now understood to be unconstitutional.

Like the precise contours of the post-Tetra Tech deference regime, all of these tangential issues will require further clarification.

Conclusion

In time, lower courts – and perhaps additional opinions from the Supreme Court – will flesh out the extent of deference Wisconsin courts should now afford to administrative agencies’ legal conclusions and whether Tetra Tech’s changes to the standard of review of administrative decisions on issues of law have any effect on cases previously decided under the great-weight deference standard.

For now, agencies, litigants, and lower courts have the unenviable task of trying to build a roadmap from the Supreme Court’s fractured opinions in Tetra Tech.

Endnotes

¹ See Harnischfeger Corp. v. LIRC, 196 Wis. 2d 650, 659–60, 539 N.W.2d 98 (1995).

² See Patience Drake Roggensack, Elected to Decide: Is the Decision-Avoidance Doctrine of Great Weight Deference Appropriate in This Court of Last Resort?, 89 Marq. L. Rev. 541 (2006).

³ Operton v. LIRC, 2017 WI 46, ¶73, 375 Wis. 2d. 1, 894 N.W.2d 542 (R.G. Bradley, J., concurring).

⁴ See, e.g., Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1151–52 (10th Cir. 2016) (Gorsuch, J., concurring).

⁵ Harnischfeger Corp., 196 Wis. 2d at 102.

⁶ Racine Harley-Davidson, Inc. v. State Div. of Hearings and Appeals, 2006 WI 86, ¶18, 292 Wis. 2d 549, 717 N.W.2d 184.

⁷ ABKA Ltd. P’ship v. DNR, 2002 WI 106, ¶116, 255 Wis. 2d 486, 648 N.W.2d 854 (Sykes, J., dissenting) (“[T]he agency’s legal interpretation will be upheld even if there is a different, equally reasonable interpretation—in other words, a tie goes to the agency.”).

⁸ Racine Harley-Davidson, 2006 WI 86, ¶19.

⁹ Id.

¹⁰ Because the Tetra Tech case arose from an administrative proceeding under chapter 227 of the Wisconsin Statutes, it is not clear how the decision will affect the use of deference in cases outside of that context. This issue is accentuated by the Court’s express reference to section 227.57(10)—which governs only in proceedings under chapter 227—as the reason that some degree of due weight deference will continue. See Tetra Tech., ¶108.

¹¹ See Tetra Tech, 2018 WI 75, ¶¶42–84.

¹² See id., ¶¶135–142 (Ziegler, J., concurring, with Roggensack, C.J., joining in part); id., ¶¶159–170 (Gableman, J., concurring, with Roggensack, C.J., joining in full).

¹³ See id., ¶¶109–134 (A.W. Bradley, J., concurring, joined by Abrahamson, J.).

¹⁴ Id., ¶108. (The four votes were from Justices Kelly, R. Bradley, and Gableman, as well as Chief Justice Roggensack. Id., ¶3 n.4.).

¹⁵ See id., ¶¶71–81.

¹⁶ Id., ¶3 n.4.

¹⁷ Id., Id., ¶84 (internal citations omitted).

¹⁸ Id., ¶3 n.4 (“Therefore, this opinion announces the opinion of the court with respect to Sections I., II.A.1., II.A.2., II.B., and III.”).

¹⁹ Id., ¶89.

²⁰ 194 Wis. 2d 62, 75, 533 N.W.2d 470 (1995).

²¹ Tetra Tech, 2018 WI 75, ¶90.

²² Id., ¶3 n.4.

²³ Tetra Tech, 2018 WI 75, ¶139 & n.3 (Ziegler, J., concurring); accord id., ¶131 (A.W. Bradley, J., concurring).