Mortage Investors Corp. v. Gober

• Citation: 220 F.3d 1375
• Parties: (Fed. Cir. 2000) MORTGAGE INVESTORS CORPORATION OF OHIO, Petitioner, v. Hershel W. Gober, ACTING SECRETARY OF VETERANS AFFAIRS, Respondent. 99-7109 DECIDED:
• Decision Date: 11 August 2000
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 1375

220 F.3d 1375 (Fed. Cir. 2000)

MORTGAGE INVESTORS CORPORATION OF OHIO, Petitioner, v. Hershel W. Gober, ACTING SECRETARY OF VETERANS AFFAIRS, Respondent.

99-7109

United States Court of Appeals for the Federal Circuit

DECIDED: August 11, 2000

Appealed from: Department of Veterans Affairs

Steven C. Dupre', Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., of St. Petersburg, Florida, argued for petitioner. With him on the brief was Jill H. Bowman.

Gerald M. Alexander, Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for respondent. With him on the brief were David W. Ogden, Assistant Attorney General; David M. Cohen, Director; andMark A. Melnick, Assistant Director.

Before NEWMAN, RADER, and LINN, Circuit Judges.

RADER, Circuit Judge.

Mortgage Investors Corporation of Ohio (MIC), a private corporation which specializes in refinancing government-secured Federal Housing Administration (FHA) or Veterans Administration {VA} loans, petitions this court for direct review of a modification of a Department of Veterans Affairs (DVA) rule, Loan Guaranty: Requirements for Interest Rate Reduction Refinancing Loans, RIN 2900-A192, 64 Fed. Reg. 19906 et seq., (Apr. 23, 1999). This court has original subject matter jurisdiction to review this rule under 38 U.S.C. § 502 (1994). The rule governs some aspects of DVA's Interest Rate Reduction Refinancing Loan (IRRRL) Program, 38 U.S.C. § 3710 (1994). MIC challenges the new rule's sufficiency under the Administrative Procedure Act (APA), 5 U.S.C. § 553 (1994). This court finds the new rule to be neither arbitrary nor capricious, and DVA to have followed the APA's procedural requirements.

I.

Under 38 U.S.C. § 3703 (1994), DVA can guarantee a percentage of a veteran's private mortgage loan. The IRRRL program continues that guarantee when the veteran refinances the loan to obtain a lower interest rate. Before the rule change, no DVA review or approval was required for refinancing if the original loan was not more than three monthly payments past due.

On October 8, 1997, DVA announced a change in the three-payment rule by publishing an "interim final rule." The "interim final rule" stated that DVA approval was not required for an IRRRL refinancing if the loan was "current," i.e., not "delinquent." Further, except in certain circumstances, the rule required that the refinancing had to reduce the veteran's new loan payment. The "interim final rule" did not define the terms "current" and "delinquent." Nonetheless, the rule made clear that the veteran could not skip any monthly loan payments before the refinancing, and effectively converted the three-payment grace period into a one-payment grace period.

DVA sought to change the rule because "a small number of lenders ha[d] been urging veterans to apply for loans under conditions that increase[d] the risk of loss to both the veteran and the Government." 62 Fed. Reg. 52503 (Oct. 8, 1997). DVA asserted that in some cases refinancers had added "exorbitant costs" to loans, while the borrowers benefited by only a very small interest rate reduction. See id. at 52503-04. DVA determined that lenders had encouraged veterans to skip payments on the old loan and use the savings to pay the costs of the new loan, or for some other purpose. See id. As a result of these practices, some veterans had experienced an increase in their monthly payment notwithstanding the new loan's lower interest rate. See id.

As published, the new rule was to be effective upon publication, but DVA solicited public comment until December 8, 1997. MIC filed a petition for judicial review and injunctive relief in this court on November 20, 1997. DVA rescinded the interim final rule on December 1, 1997, making MIC's petition moot.

On June 3, 1998, DVA published a "proposed rule," which was similar to its earlier interim final rule. Again the proposed new rule reduced the three-month grace period to one month. This proposed rule set no effective date and solicited comments from interested parties until August 3, 1998. DVA also noted that it would take account of comments it had already received on the interim final rule in its consideration of the new proposed rule. This proposed rule defined a "delinquent" loan as any loan whose scheduled monthly payment was more than thirty days past due. See 63 Fed. Reg. 30163 (June 3, 1998).

On April 23, 1999, DVA published a "final rule," with an effective date of May 24, 1999, in the Federal Register. In this publication, DVA discussed at length the public comments and alternative proposals it had received. See 64 Fed. Reg. 19906-09 (April 23, 1999). For technical reasons, DVA delayed the final rule's effective date until June 7, 1999. In May 1999, MIC filed a petition in this court requesting a stay, pending review, of the interim final rule, partially on the ground that DVA had not complied with the APA. MIC's petition was denied. See Mortgage Investors Corp. of Ohio v. West, 220 F.3d 1375 (Fed. Cir. June 7, 1999).

In the petition that is the subject of this appeal, MIC argues that DVA violated the APA. Specifically, MIC charges that the final rule is arbitrary and capricious. Further, MIC complains of procedural illegalities, asserting that the DVA did not provide a fair opportunity for public comment before adoption of the rule, did not provide an opportunity for the public to obtain and refute certain materials that "served as the impetus of the rule," was not genuinely responsive to the public comments, and kept no accurate record of the rule-making process.

II.

This court's authority to review the proposed rule derives from 38 U.S.C. § 502 (1994): "An action of the Secretary [of Veterans Affairs] to which § 552(a)(1) or 553 ["rulemaking"] of title 5 (or both) refers . . . is subject to judicial review . . . in the United States Court of Appeals for the Federal Circuit." Thus, this court "may directly review rules promulgated by [DVA], including substantive rules of general applicability, statements of general policy and interpretations of general applicability." LeFevre v. Department of Veterans Affairs, 66 F.3d 1191, 1196 (Fed. Cir. 1995). Section 502 provides that this court's review "shall be in accordance with chapter 7 of title 5" of the United States Code. Accordingly, this court reviews the agency's action to determine whether it was arbitrary, capricious, an abuse of discretion, or otherwise contrary to the law. 5 U.S.C. § 706(2)(A); seeLeFevre, 66 F.3d at 1199.

The APA sets forth the following procedure for agency rule making:

(b) General notice of proposed rule making shall be published in the Federal Register . . . . The notice shall include--

(1) a statement of the time, place, and nature of public rule making proceedings;

(2) reference to the legal authority under which the rule is proposed; and

(3) either the terms or substance of the proposed rule or a description of the subjects and issues involved.

Except when notice or hearing is required by statute, this subsection does not apply--

(A) to interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice; or

(B) when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.

(c) After notice required by this section, the agency shall give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments with or without opportunity for oral presentation. After consideration of the relevant matter presented, the agency shall incorporate in the rules adopted a concise general statement of their basis and purpose. When rules are required by statute to be made on the record after opportunity for an agency hearing, sections 556 and 557 of this title apply instead of this subsection.

5 U.S.C. § 553. In brief, the APA requires publication of notice of proposed rulemaking in the Federal Register and an opportunity for interested persons to participate in the process through appropriate submissions. The agency must then consider "the record so made" in adopting a rule. See United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, 758 (1972).

Under the section of the APA quoted above, agency decisions are entitled to considerable deference, and with respect to fact-finding, substantial evidence in the record is sufficient to support an agency's finding, even if a preponderance of the evidence may show otherwise. See Federal-Mogul Corp. v. United States, 63 F.3d 1572, 1579 (Fed. Cir. 1995); 5 U.S.C. § 706 (1994).

To determine whether an agency action was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," this court examines whether the agency considered relevant factors or clearly erred in its judgment; this court will not, however, substitute its own judgment for the agency's. See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971), overruled on unrelated grounds by Califano v. Sanders, 430 U.S. 99, 105 (1977). In informal rule-making cases such as this, courts often consider three questions: "(1) whether the rulemaking record supports whatever factual conclusions underlie the rule; (2) whether the policy determinations behind the rule are rational; and (3) whether the agency has adequately explained the basis for its conclusion." SeeMcGregor Printing Corp. v. Kemp 20 F.3d 1188, 1193-94 (D.C. Cir. 1994).

III.

MIC argues that the DVA "demonstrably closed its mind to public comment" by promulgating a final rule that was virtually identical to the interim final rule, even after comment had been received.

The APA does not expressly require agencies to keep an "open" mind, whatever such a subjective term might mean. Rather, § 553(c) requires...