Of Interest

Commentary from Professor Hickman, as it occurs to her

Will the Supreme Court Tackle Interim-Final Rules and Post-Promulgation Procedures?

It’s always of interest when the Supreme Court takes up an issue on which one has expended substantial scholarly ink. Such is the case for me with Trump v. Pennsylvania and its companion, Little Sisters of the Poor v. Pennsylvania. The Court in this case granted certiorari to address three separate and distinct questions. As a result, for some, this case is about the Affordable Care Act and its associated contraceptive coverage mandate, whether cast as a question of reproductive rights or religious freedom. For others, this case is about nationwide injunctions and represents an opportunity for the Court to provide some much-needed guidance regarding their use by the lower courts. Both are important questions, but I have little to contribute to the debate over those issues. For me, this is a case about interim-final rulemaking — specifically, whether an agency can issue an interim-final rule without notice and comment based on an inadequate claim of good cause, and then go on to “cure” that procedurally-invalid interim-final rule by accepting and taking into account comments on a post-promulgation basis in finalizing the rule.

In this case, a Third Circuit panel considered the validity of interim-final rules that broadened exemptions to the requirement that group health insurance plans cover contraceptive services, as well as whether post-promulgation notice and comment procedures used in finalizing those rules cured the interim-final rules’ procedural deficiencies. The agencies issuing the interim-final rules asserted the APA’s good cause exception on three grounds: “(1) the urgent need to alleviate harm to those with religious objections to the [preexisting] regulations; (2) the need to address ‘continued uncertainty, inconsistency, and cost’ arising from ‘litigation challenging the previous rules’; and (3) the fact that the [a]gencies had already collected comments on” the preexisting regulations. The Third Circuit panel found none of those justifications sufficient to constitute good cause for foregoing notice and comment prior to the issuance of the interim-final rules. Recognized that the issuing agencies had used post-promulgation notice and comment in subsequently finalizing the interim-final rules, the panel noted circuit precedent holding that “post-promulgation notice and comment procedures cannot cure the failure to provide such procedures prior to the promulgation of the rule at issue.” The panel additionally accused the government of lacking “the ‘flexible and open-minded attitude’ the notice-and-comment process requires,” and said that the near-identical content of the interim-final rules and the final regulations “suggest[s] that the opportunity for comment was not a ‘meaningful one’ in the way the APA requires.” Thus, according to the panel, the procedural defects of the interim-final rules rendered the final regulations procedurally invalid as well.

My interest in interim-final rulemaking and post-promulgation procedures stems partly from a longstanding and frequent Treasury Department practice of issuing what it labels as “temporary” tax regulations with only post-promulgation notice and comment and without a valid, contemporaneous assertion of the APA’s good cause exception. I have written at length criticizing this practice as contrary to the Administrative Procedure Act. I am pleased to say that Treasury announced last year that it would no longer issue temporary regulations without also claiming good cause, although the one instance of Treasury issuing temporary regulations and asserting good cause since then has its own issues. Regardless, whenever Treasury puts out a temporary regulation without notice and comment, it is required by statute also to issue a notice of proposed rulemaking and finalize the regulations within three years, taking into account the comments it receives in that post-promulgation procedure. Hence, the question has arisen: if temporary Treasury regulations historically have violated the APA’s procedural requirements, then do Treasury’s post-promulgation notice and comment procedures fix the problem? This was a background issue in the litigation culminating in the Supreme Court’s decision in United States v. Home Concrete & Supply, LLC, which was resolved in 2012 on other grounds, with the circuits below disagreeing over how to handle the procedural problem.

The issue of interim-final rules with post-promulgation procedures is not limited to the tax context. According to a 2012 GAO study and report, a significant plurality of agency regulations from 2003 to 2010 (35% of major rules and 44% of nonmajor rules) were issued without notice and comment, and most of those regulations (77% of major rules and and 61% of nonmajor rules) relied on the good cause exception when doing so. There is no reason to believe that agencies have changed that practice since then. Consistent with a 1995 ACUS recommendation regarding agency use of interim-final rulemaking, the GAO observed that agencies more often than not used post-promulgation notice and comment when finalizing regulations issued initially as interim-final or temporary rules. When an agency validly asserts good cause for foregoing notice and comment when issuing interim-final or temporary rules, post-promulgation notice and comment procedures are not required by the APA. But an agency that voluntarily pursues those procedures demonstrates good faith and good governance. The circuit courts have struggled, however, with what to do with final regulations promulgated in this way when the issuing agency’s good cause claim is later found to be inadequate.

A few years ago, Mark Thomson and I published an article in Cornell Law Review identifying four main approaches adopted by circuit courts regarding the implications of post-promulgation notice and comment procedures for the validity of final rules originating as procedurally-invalid interim-final or temporary rules:

  • Rejecting post-promulgation notice and comment procedures categorically as an adequate substitute for pre-promulgation notice and comment, meaning that final rules based on procedurally-invalid interim-final or temporary rules are themselves categorically tainted;
  • Treating post-promulgation notice and comment categorically as curing or mooting procedural defects in interim-final rules;
  • Evaluating final rules adopted in this way case by case and upholding such rules when the court is convinced that the agency kept an “open mind” with respect to comments it received during the post-promulgation comment period; and
  • Acknowledging that post-promulgation notice and comment is an inadequate substitute for pre-promulgation procedures, but applying harmless error analysis, including requiring the challenging party to demonstrate prejudice, in deciding whether to give the agency a pass and uphold the final rule anyway.

All of these approaches have their pros and cons. Categorically invalidating all such rules fails to take into account the murkiness of the good cause exception and risks wasting government resources and discouraging good faith efforts of agency officials. Categorically allowing post-promulgation notice and comment to cure agency procedural failures gives agencies free rein to ignore the APA and upend pre-promulgation notice and comment procedures altogether. The open mind standard and particularly harmless error analysis, as applied to date, ask little of the agency at fault and overly burden challengers seeking to effectuate their procedural rights. In our article, Mark and I advocated a different, middle-of-the-road approach that would not categorically reject all rules of this ilk but that nevertheless would embrace a stronger presumption of invalidity and force the agency to bear the burden of demonstrating the harmlessness of its error based on a set of factors, including its responsiveness to post-promulgation comments received and its motives in foregoing pre-promulgation procedures and asserting the good cause exception in the first instance.

Unfortunately, the Supreme Court may never get around to resolving this issue in Trump v. Pennsylvania. It could decide instead that the Affordable Care Act did not give the issuing agencies the authority to expand the conscience exemption to the contraceptive coverage mandate. Alternatively, and substantially more likely, the Court could decide that the statute specifically authorized the use of interim-final rulemaking with only post-promulgation notice and comment and without a simultaneous assertion of the good cause exception. Indeed, the Affordable Care Act expressly authorized “interim final rules as the Secretary determines are appropriate.” The Third Circuit panel found that statutory language insufficiently explicit to excuse compliance with APA notice and comment requirements. But although agencies occasionally will use an alternative term like temporary regulations, “interim-final rule” is practically an administrative law term of art, used across the regulatory state to describe rules issued with only post-promulgation procedures. Since agencies already have the authority under the APA to adopt interim-final rules with good cause, the language in the Affordable Care Act would be redundant unless it meant something else–e.g., the authority to adopt such rules without asserting good cause. Reading the Affordable Care Act as authorizing interim-final rules without a good cause claim would allow the Supreme Court to find the contraceptive coverage regulations at issue here to be procedurally valid without resolving the current jurisprudential mess regarding interim-final rules and post-promulgation notice and comment. Still, one can hope that the Court will take the opportunity to offer at least a little guidance regarding this extremely consequential — if perhaps a little dry when compared to reproductive rights, religious freedom, and nationwide injunctions — procedural question.

Cross-posted at Yale Journal on Regulation’s Notice & Comment Blog.

Justice Gorsuch and Waiving Chevron

The Supreme Court has denied certiorari in Guedes v. Bureau of Alcohol, Tobacco, Firearms & Explosives, also known as the bumpstocks case. The D.C. Circuit relied on Chevron deference in upholding the regulations banning bumpstocks. In a statement respecting the denial of certiorari, Justice Gorsuch objected to the D.C. Circuit’s reliance on Chevron deference.

One of Justice Gorsuch’s reasons for objecting to Chevron deference in Guedes is well known to Chevron observers. Specifically, the interpretation of the relevant statute contained in the regulation could lead to criminal penalties in the future. I wrote about this concern many years ago. Since then, Judge Jeffrey Sutton of the Sixth Circuit has written eloquently about this issue, first in Carter v. Welles-Bowen Realty, and subsequently in Esquivel-Quintana v. Lynch, arguing that the rule of lenity should take precedence over Chevron deference. The Supreme Court dodged that issue in Esquivel-Quintana by concluding that the statute in that case was otherwise clear. Oddly, although Justice Gorsuch in his Guedes statement cited Judge Sutton’s opinion in Esquivel-Quintana, Justice Gorsuch did not mention the rule of lenity by name. The Supreme Court’s statements regarding Chevron, civil cases, and the rule of lenity have been mixed over the years. In 2014, in a statement regarding the Supreme Court’s denial of certiorari in Whitman v. United States, Justice Scalia called upon the Court in future to consider whether courts “owe deference to an executive agency’s interpretation of a law that contemplates both criminal and administrative enforcement,” also citing Judge Sutton. Although Esquivel-Quintana did not yield such consideration, perhaps Justice Gorsuch’s statement in Guedes will prompt litigants to try again regarding the relationship between Chevron and lenity.

Justice Gorsuch’s other point, however, was that the government had waived Chevron deference. He emphasized the government’s statement to the D.C. Circuit that, if the only way that court would sustain the regulation was by extending Chevron deference, then the government would rather the court reject the rule. He then claimed that the Supreme Court “has often declined to apply Chevron deference when the government fails to invoke it.” Well, maybe sort of, but perhaps not exactly.

On numerous occasions, the Supreme Court has ignored or failed to speak of Chevron deference when the Court arguably could have invoked it. Such judicial silence was the case in BNSF Railway Co. v. Loos, which Justice Gorsuch cited, and in which he dissented. Sometimes, even when the Court finds a statute to be clear, it nevertheless will mention that it is viewing the case through the prism of Chevron. But if the Court finds the statute to be clear using traditional tools of statutory interpretation, Chevron has no role to play, so even if the Court would have deferred under Chevron had it found the statute to be ambiguous, the Court need not say so expressly, or even to mention Chevron at all. Judicial silence regarding a doctrine is not precisely the same as expressly declining to apply it. Moreover, judicial silence typically lacks the stare decisis effect of an express statement. To my knowledge, the Court has never expressly declined to apply Chevron deference merely because the government has failed to argue for it. I do not believe that either of the academic articles that Justice Gorsuch cited suggests otherwise.

Nevertheless, beyond Guedes, the issue of Chevron waiver has been sweeping the circuit courts of appeals. Justice Gorsuch’s short statement in Guedes notwithstanding, whether the government actually can waive Chevron deference remains an open question. Richard Pierce and I have been tracking this issue in our bi-annual supplements to the Administrative Law Treatise. As David Hahn and I observe in a forthcoming article entitled Categorizing Chevron, 81 Ohio St. L.J. (to be published in 2020, but unfortunately not quite ready to be posted on SSRN), how one contemplates that question depends largely on whether one thinks of Chevron as rule of decision, a standard of review, or a canon of construction. We believe the bulk of the doctrinal evidence supports categorizing Chevron as a standard of review, and we argue that standards of review cannot be waived, but rather are to be determined by the reviewing court irrespective of the arguments, or the silence, of the litigants. Regardless, as Justice Gorsuch’s statement in Guedes makes obvious, Chevron waiver is yet another issue regarding Chevron‘s scope to watch.

Cross-posted at Yale Journal on Regulation’s Notice & Comment Blog.

Deferenders* to the Rescue

Last week, Aaron Nielson and I posted on SSRN our forthcoming article, Narrowing Chevron‘s Domain, 70 Duke L.J. (forthcoming 2021). Skeptical that the Supreme Court actually will overturn Chevron deference (its rhetoric notwithstanding), we wanted to think carefully about how the Court might curtail Chevron‘s scope to mitigate some of the doctrine’s excesses. Our proposal is for the Court to remove most if not all agency adjudications from Chevron‘s domain. Chevron is a doctrine adopted for and oriented toward agency rulemaking. Extending Chevron deference to adjudications raises a host of problems that are nowhere near so present when applying it to rulemaking. The article is available on SSRN here, and the full abstract is as follows:

Chevron deference has become increasingly controversial. Some Justices on the Supreme Court have stated that they would overrule Chevron, and others have urged that it be curtailed. Unfortunately, neither the Court nor the academy has offered a clear idea of what a modified Chevron would look like. This Article fills the void, arguing that the time has come to narrow Chevron‘s domain by limiting Chevron deference to interpretations announced in rulemaking and not those announced in adjudication.

Under the classic formulation of Chevron, a court should defer to an agency’s reasonable interpretation of ambiguous statutory language. The basis for that formulation comes from the notion that Congress contemplates such deference, at least implicitly, when it delegates broad policymaking discretion as part of charging agencies with implementing and administering statutes. In United States v. Mead Corp., the Supreme Court began defining what has come to be known as Chevron‘s domain — holding that Congress did not intend courts to defer to every agency resolution of statutory ambiguity, but rather only to those articulated in agency actions that carry legal force, thereby reflecting the exercise of congressionally-delegated power. As a consequence of the Mead Court’s analysis, courts typically defer under the Chevron standard to interpretations offered in notice-and-comment rulemakings and in formal adjudications, and apply the less deferential Skidmore standard in reviewing those advanced through less formal formats like interpretative rules and policy statements. Meanwhile, interpretations announced via informal adjudications represent a gray area for Mead‘s analysis.

Mead is right in principle, but particularly with the benefit of hindsight, it did not go far enough in curtailing Chevron‘s reach. Applying Chevron to interpretations announced through adjudication has proven problematic in practice and has fueled a great deal of the anti-Chevron criticism. Meanwhile, Chevron‘s claim to stare decisis in the context of adjudications is surprisingly weak. For all of its rhetoric, the Supreme Court actually has applied Chevron only rarely in evaluating agency adjudications. Chevron is a doctrine concerned most obviously with agency rulemakings, with its applicability to agency adjudications an undertheorized and infrequent afterthought. If Chevron is limited to notice-and-comment rulemaking, Chevron‘s opponents will have much less reason to seek its wholesale abandonment. Accordingly, the soundest way to revisit Chevron is by narrowing its domain.

*In posting the article, Aaron and I inadvertently coined a new term: deferender — combining deference and defender. My friend and co-author on another project, Nick Bednar, really liked the term as representing a defender of judicial deference. So, no doubt coming soon to the Marvel Cinematic Universe and a theater near you: “The Deferenders” starring Anne Hathaway and Jason Bateman, with Bill Murray as Chevron and Maggie Smith as Justice Ruth Bader Ginsburg.

Justice Thomas, Brand X, and Baldwin

The Internet and academia are abuzz about Justice Thomas’s dissent from the Supreme Court’s denial of certiorari in Baldwin v. United States. Specifically, Justice Thomas called upon the Supreme Court to reconsider its 2005 decision in National Cable & Telecommunications Ass’n v. Brand X Internet Services. The Court in Brand X held that an administering agency acting with the force of law — e.g., through notice-and-comment rulemaking — may adopt an interpretation of a statute it administers that is contrary to a pre-existing circuit court decision advancing a different interpretation, and reviewing courts must in such circumstances extend Chevron deference to the agency’s reasonable, contrary interpretation, irrespective of stare decisis. The opinion for the Court in Brand X was written by none other than Justice Thomas. In his dissent from the denial of cert in Baldwin, he said, “Although I authored Brand X, it is never too late to surrender former views to a better considered position” (internal quotation marks and brackets omitted).

From what I have read in the past 36 or so hours, and the reporters with whom I have spoken, some of the reactions to Justice Thomas’s Baldwin dissent have been mixed. Much of the media coverage is behind paywalls (e.g., Bloomberg Tax), unfortunately, though not all of it is. (See, e.g., Taxprof blog.) Ultimately, your reaction to Justice Thomas’s dissent may depend upon whether or not you see Justice Thomas’s opinion as A BIG DEAL. Some people do, others do not. Please put me in the “not” camp.

On the one hand, one should pay attention any time a Justice suggests reconsidering a decision, and most especially one that the Justice in question wrote in the first place. For another example, consider Justice Scalia and Auer deference. Many years after Justice Scalia wrote the opinion for the Court in Auer v. Robbins, he raised questions about and argued for reconsideration of Auer deference in the Talk America and Decker cases, ultimately leading to the Court’s narrowing of Auer deference first in 2012 in Christopher v. SmithKline Beecham Corp. and then last term in Kisor v. Wilkie.

Justice Thomas has previously raised doubts about the constitutionality of a particular conception of Chevron, for example in Michigan v. EPA, so his corresponding questions about Brand X should not be surprising. It is no great secret that other Justices (e.g., Justice Gorsuch and Justice Kavanaugh) have expressed concerns regarding Chevron, particularly in cases exhibiting the doctrine’s excesses. As Dick Pierce and I document in the Administrative Law Treatise, a growing chorus of judicial voices questions Chevron‘s premises. Justice Thomas’s Baldwin dissent certainly adds to that chorus. Commentators and litigants would be foolish to ignore the Justices’ criticism of Chevron.

On the other hand, the Court in Kisor only narrowed and did not repudiate Auer altogether. The Court has done a much better job of providing theoretical justifications for Chevron deference, and the Court has relied on Chevron substantially more frequently than it ever did Auer. I have expressed elsewhere my sincere doubts that will ever completely repudiate Chevron deference, and I still stand by my prior arguments. As regards Brand X, as others have observed, no one else joined Justice Thomas’s dissent in Baldwin.

As I had occasion to experience personally recently, a contingent of lawyers and law students exists that is absolutely, positively convinced that the Court is poised to overturn Chevron — lock, stock, and barrel. To my mind, however, the smart money is on the Court finding ways to carve back Chevron without repudiating it entirely. Overturning Brand X would do that in a sense, but I question whether repudiating Brand X altogether is the best route, given the breadth of some of the interpretive questions that Congress has declined to resolve itself. Consider the circumstances of Brand X, which not only involved notice-and-comment rulemaking but also the kind of statutory question that judges simply may not be so good at resolving using traditional tools of statutory interpretation (i.e., whether new technology fell within an old, under-defined statutory term). Justice Thomas in his Baldwin dissent raised the specter of such delegations violating the nondelegation doctrine, yet it is not at all clear the statutory question in Brand X (or for that matter the mailbox rule at stake in Baldwin) would violate the nondelegation doctrine even under the proposed alternative test described by Justice Gorsuch in Gundy v. United States.

My immediate skepticism regarding the merits of overturning Brand X outright notwithstanding, it is clear that the Justices, and likewise commentators, should think more thoroughly about Chevron‘s future if the Court decides not to overturn it. With that thought, I will close by noting that Aaron Nielson and I have an article, Narrowing Chevron‘s Domain, that is forthcoming in Duke Law Journal (and even sooner on SSRN) in which we address one way the Court might further limit Chevron‘s scope, with particular emphasis on agency adjudications. We will be helping Duke Law Journal to organize a symposium in 2021 on the same topic.

Cross-posted at Yale Journal on Regulation’s Notice & Comment Blog

Amicus Brief Filed in CIC Services

Today I filed an amicus brief supporting the cert petition in CIC Services, LLC v. Internal Revenue Service, No. 19-930. I was not the only one. A variety of voices also filed brief supporting cert in this case, including Harvard Law School’s Low Income Taxpayer Clinic, the Chamber of Commerce, the Cato Institute, and the American College of Tax Counsel (of which I am a member, though I was not involved at all in their brief). (All of the briefs can be found here.)

The case concerns the proper interpretation of the Internal Revenue Code’s Anti-Injunction Act and whether it cuts off pre-enforcement judicial review of APA challenges against Treasury and IRS rules and regulations — specifically in this case IRS Notice 2016-16. I have long advocated in favor of pre-enforcement review, at greatest length in a 2017 Virginia Law Review article co-authored with Jerry Kerska. A divided Sixth Circuit panel rejected this position last May, and then an even more sharply divided en banc Sixth Circuit denied rehearing, with Judge Amul Thapar on behalf of seven judges dissenting from the denial, and Judge Jeff Sutton concurring in the denial but largely on the basis that existing judicial opinions gave the Supreme Court all the perspective it needed to resolve the issue.

As the brief makes clear, I think the Sixth Circuit got this issue spectacularly wrong. In fact, the Sixth Circuit largely followed the D.C. Circuit’s 2015 opinion in Florida Bankers Ass’n v. U.S. Dep’t of the Treasury, which I argued at the time was wrong as well. The following paraphrases closely the introduction and summary of the argument from my amicus brief, albeit with fewer citations and more hyperlinks.

The Anti-Injunction Act (AIA) provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.” By comparison, since Abbott Labs v. Gardner in 1967, the Supreme Court has maintained that the Administrative Procedure Act (APA) “embodies a basic presumption” of pre-enforcement review of agency regulatory actions that courts should disregard “only upon a showing of ‘clear and convincing evidence’ of a contrary legislative intent.”

In this case, with no regard for the APA or Abbott Labs, the Sixth Circuit adopted an expansive interpretation of the AIA that would preclude not just the Petitioner’s claims but virtually any pre-enforcement APA challenge to Treasury and IRS rules and regulations. The Sixth Circuit also disregarded entirely the AIA’s origins, its textual context, and its role in the larger scheme of tax administration, from the AIA’s adoption in 1867 as part of the Civil War income tax to today.

The Supreme Court has never addressed the interaction of the AIA and the APA, and the Court’s past interpretations of the AIA fail to offer a clear path for resolving the AIA’s relationship with the APA. But the Court has embraced a doctrine of administrative law uniformity and rejected tax exceptionalism from general administrative law doctrines, requirements, and norms absent clear justification. In Direct Marketing Ass’n v. Brohl, the Court adopted an interpretation of the almost-identically-worded Tax Injunction Act (TIA) that, if extended to the AIA, would go a long way toward harmonizing the AIA and the APA. And the Court has emphasized interpreting the AIA and the TIA consistently, as the latter was modeled on the former. The Sixth Circuit either cursorily dismissed or outright ignored most of this guidance.

The implications for tax administration are substantial. Treasury and the IRS have a poor track record of complying with APA procedural and process requirements. Those requirements, and pre-enforcement judicial review of agency actions to enforce agency compliance therewith, ensure that agencies act reasonably and that the public perceives agency actions as fair and legitimate. By precluding pre-enforcement judicial review of Treasury and IRS rules and regulations so sweepingly, the Sixth Circuit’s interpretation of the AIA threatens to undermine the public’s faith in the integrity of federal tax administration, and thus to discourage compliance with the tax laws.

The full brief can be found here. Since I filed my brief in support of cert in Florida Bankers back in 2016, the amount of judicial and scholarly attention paid to the question of the AIA and pre-enforcement judicial review under the APA has grown substantially. Even if the Supreme Court is disinclined to take this case, given that lower court judges continue to disagree over how to interpret the AIA in relation to the APA, I expect the Supreme Court will be unable to avoid the issue indefinitely. I hope they recognize that fact and grant cert sooner (e.g., in this case) rather than later.

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