McKinney v. McDonald, 2015 U.S. App. LEXIS 14007

Background

Congress enacted the Veterans Benefits Act of 2003 to provide benefits tied to herbicide exposure for certain Korean DMZ service, defining the covered period through August 31, 1971 to account for residual exposure.
VA’s VBA Manual (2003, revised 2004) conceded herbicide exposure only for veterans who served in identified units between April 1, 1968 and July 31, 1969 (the manual rule).
In 2009 VA proposed a regulation to create a presumption of herbicide exposure for veterans who served April 1, 1968–July 31, 1969 in identified units, and to treat other service in the 1967–1971 window as requiring proof of actual exposure.
In the final rule (issued Jan. 25, 2011), VA extended the presumption window to April 1, 1968–August 31, 1971, and made the regulation effective Feb. 24, 2011 (applicable to claims received or pending on/after that date).
Petitioners (veterans’ organizations and Michael McKinney) requested VA to make the 2011 regulation retroactive to Nov. 1, 2004 (the 2004 manual revision date) for timely-filed claims; VA denied the rulemaking petition, explaining retroactivity is disfavored, § 5110(g) limits, administrative burdens, and its standard practice of prospective effective dates.
Petitioners sought judicial review under 38 U.S.C. § 502; the Federal Circuit reviewed whether VA’s choice of a prospective effective date was arbitrary, capricious, or contrary to law.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether VA acted arbitrarily or contrary to law in assigning a prospective effective date to 38 C.F.R. § 3.307(a)(6)(iv)	VA must assign an earlier/retroactive effective date (back to 2004) so veterans obtain mandatory benefits under § 1110 for pre-2011 periods	Retroactivity is disfavored; VA lacked express statutory authority to make retroactive rules; § 5110(g) and agency practice support prospective date to avoid administrative confusion	Denied — VA’s decision to use a prospective effective date was not arbitrary, capricious, or contrary to law
Whether prospective effective date irrationally creates conflicting evidentiary standards within a single claim	The Feb. 24, 2011 date creates two standards (pre-2011 require proof; post-2011 presumption) and thus is irrational and unfair	Applying intervening legal changes to different time periods is permissible; § 5110(g) contemplates nonretroactive liberalizing rules; administrative concerns justify prospective application	Denied — different standards across time periods are not inherently arbitrary or unlawful
Whether VA’s denial of petition for rulemaking violated agency rulemaking norms	VA should have used its rulemaking power to correct inequity and grant retroactivity to similarly situated pending claims	VA followed standard practice, explained reasons (legal and practical), and identified no statutory mandate for retroactivity	Denied — VA adequately explained and justified its denial of rulemaking request
Whether VA’s action violated veterans’ Fifth Amendment rights	(Argued) Denial of retroactivity deprives veterans of property without due process	(VA) No separate constitutional injury shown beyond APA challenge; action rational and lawful	Denied — constitutional claim not separately persuasive once APA review resolved against Petitioners

Key Cases Cited

Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (standard for arbitrary and capricious review)
Bowen v. Georgetown Univ. Hosp., 488 U.S. 204 (retroactivity disfavored; agency rulemaking lacks retroactive force absent clear congressional intent)
Bernklau v. Principi, 291 F.3d 795 (Fed. Cir.) (demanding standard for finding congressional authorization of retroactive rulemaking)
Liesegang v. Sec'y of Veterans Affairs, 312 F.3d 1368 (Fed. Cir.) (refusing retroactive effect for a VA presumption absent clear statutory authority)
Disabled Am. Veterans v. Gober, 234 F.3d 682 (Fed. Cir.) (VA rules/revision review under 38 U.S.C. § 502 and APA)