December 8, 2017 / 10:24 PM / a year ago

The (other) attack on Chevron deference

(Reuters) - It still amazes me that the nomination earlier this year of U.S. Supreme Court Justice Neil Gorsuch made Chevron deference front-page news. You surely remember the backstory: When he was on the 10th U.S. Circuit Court of Appeals, Gorsuch wrote powerfully about how the Supreme Court’s 1984 decision in Chevron v. Natural Resources Defense Council  may well violate constitutional separation-of-powers doctrine because it requires judges to defer to federal agencies’ interpretations of ambiguous statutes as long as those interpretations are reasonable.

Gorsuch’s concurrence in Gutierrez-Brizuela became a bone of contention for senators worried about undermining the executive branch’s ability to enforce its vision of the law.

Justice Gorsuch is not alone in skepticism about the constitutionality of the Supreme Court’s Chevron precedent. As law professors Kent Barnett of the University of Georgia and Christopher Walker of the University of Ohio observed in a forthcoming article for the Notre Dame Law Review, “an increasing number of judges, policymakers and scholars have advocated eliminating or narrowing Chevron deference.”

Both the House and the Senate have recently introduced legislation to require courts to review agency interpretations without deference, the law profs said. And prominent appellate judges including Brett Kavanaugh of the D.C. Circuit and Kent Jordan of the 3rd Circuit have questioned Chevron’s intersection with separation-of-powers doctrine – as has Supreme Court Justice Clarence Thomas in a 2015 concurrence in Michigan v. Environmental Protection Agency.

The constitutional skepticism has not yet coalesced into an actual threat to the Supreme Court’s Chevron precedent. But the last eight days have provided three distinct reminders that the Chevron test for deference already allows judges leeway to reject agency interpretations. It’s subtler than questioning the core constitutionality of decades-old Supreme Court precedent, but, at least in the short term, a more realistic way for the judiciary to execute its constitutional power to decide what’s legal.

I’m talking about the so-called Step Two of the Chevron test for deference. Under the Supreme Court’s Chevron decision, courts must first determine whether the statute at issue is ambiguous. If it is, judges move on to Step Two to determine whether the federal agency’s interpretation of the statute is reasonable.

It is “received wisdom” that agencies nearly always prevail in establishing the reasonableness of their interpretations, wrote law profs Barnett and Walker in the forthcoming Notre Dame law review article, “Chevron Step Two’s Domain,” a draft of which the profs published on Dec. 4. Despite occasional judicial calls for more vigorous Step Two inquiries, most recently, the profs wrote, in a concurring opinion by Judge Laurence Silberman of the D.C. Circuit in Global Tel v. FCC, agencies almost always win when judges reach Step Two of the Chevron analysis.

Overall, the profs found, agencies have won 77.4 percent of Chevron rulings between 2003 and 2013. But almost all of the agencies’ losses came at Step One, in judicial determinations that the statutes at issue were not ambiguous. When judges reached Step Two, the profs found, agencies had a nearly 94 percent win rate. Barnett and Walker found only 51 cases (of 1,158 Chevron decisions) in which courts invalidated agency interpretations as unreasonable.

On the same day that Barnett and Walker published their draft paper, Judge Raymond Kethledge of the 6th Circuit gave a speech at the University of Michigan Law School. Kethledge broadly criticized judicial deference and specifically criticized deference to federal agencies under Chevron.

Chevron, he said, makes judges lazy, because it’s easier to defer to agencies instead of hacking at undergrowth to reach your own conclusion. It also makes agencies sloppy, he said: “Deference brings latitude, which can bring a sense that one is less accountable, which can bring a temptation to cut corners.”

Judge Kethledge said he has not personally had a case in which he applied Chevron Step Two, but he cited three cases in which agencies litigating before him offered unreasonable justifications for their interpretations. In one case, the FCC simply published without explanation its interpretation of rules to regulate cable providers. In another, the U.S. Forest Service repeatedly relied on an admittedly unreliable estimate of snowmobilers at a park in northern Michigan. And in the third, Kethledge said, the IRS offered a “patently meritless” interpretation of its disclosure obligations, claiming to rely on one subsection of the tax code while ignoring two subsections that contradicted its position.

In such cases, the judge said, “it seems to me that the agency is not trying to answer the same question that we are,” he wrote. “The court tries to find the best objective interpretation of the statute, based on the statutory text. The agency instead asks if there is a colorable interpretation that will support the policy result that the agency wants to reach. When judges engage in that kind of analysis, we call it judicial activism. And most observers condemn judicial activism as an arrogation of legislative power to the judiciary. It is not clear to me why the result is any better when the arrogation is done by the executive.”

So, to recap, the Barnett and Walker paper shows (among many other things) that judges aren’t really taking advantage of the discretion they’re entitled to under Chevron, and Judge Kethledge’s speech suggests courts might not be so quick to defer to agencies if judges made the effort to test the foundation of their interpretations.

That brings me to oral arguments last week at the Supreme Court in Digital Realty Trust v. Somers, which presents the question of whether Dodd-Frank’s protection for whistleblowers who report suspicions to the Securities and Exchange Commission extends to employees who allege retaliation after reporting concerns to their bosses. The SEC engaged in rulemaking on Dodd-Frank’s whistleblower provisions. It interpreted the anti-retaliation protections to cover those who report to the SEC and those who report internally.

After the justices agreed to grant Digital Realty’s request for review of a 9th Circuit ruling that Dodd-Frank covers Paul Somers, an ex-employee of the real estate investment trust who claims he was fired after reporting alleged securities violations to his bosses, the SEC and Justice Department weighed in on Somers’ side.

Like the whistleblower’s lawyers at Stris & Maher, the government said that the natural reading of the word, within the larger context of the statute, shows lawmakers wanted to protect whistleblowers who report internally as well as those who report to the SEC. But Somers and the government also argued alternatively that the SEC’s interpretation of the law is entitled to Chevron deference.

The final brief by Digital Realty’s lawyers at Williams & Connolly dangled a tantalizing prospect to the justices: If the Supreme Court agreed that the SEC was entitled to Chevron deference for its interpretation of the Dodd-Frank whistleblower provisions, it “should order supplemental briefing to consider whether Chevron should be overruled.”

Digital Realty, in other words, was pitching its case to Justices Gorsuch and Thomas as a vehicle to get rid of precedent of dubious constitutionality.

But at the Nov. 28 oral argument, Justice Gorsuch seemed much more interested in Digital Realty’s arguments about flaws in the SEC’s rulemaking process. Those questions suggest that even if Chevron’s most outspoken critic accepts the proposition that Dodd-Frank is ambiguous – Step One of the Chevron test – he may balk at Step Two.

The problem, he told Somers’ lawyer, was in the SEC’s request for comment on its proposed Dodd-Frank interpretation. The SEC proposal did not extend the scope of anti-retaliation protection to internal whistleblowers and the agency did not specifically ask for comments on whether Dodd-Frank covers whistleblowers who report internally. Justice Gorsuch said he read the SEC’s request for comment to provide notice only that the agency was going to issue rules about whistleblowers who report concerns to the SEC.

“Then the rule comes out and says reporting to the Commission is not required, in an ipse dixit unreasoned opinion, one line, basically, and then we have two circuits that actually gave deference to that interpretation,” Gorsuch said to Somers’ counsel, Daniel Geyser. “Now, that seems to me to put the whole administrative process on its head because you’re providing no notice to people, no reasonable opportunity to comment, maybe a few people spot the issue, but most people don’t. The agency acts without the benefit of the notice and comment and is unable to issue a reasoned (decision), and then we’re supposed to defer to that to resolve this ambiguity? Help me out with that scheme.”

The justice returned to that theme in questions to the government’s lawyer, Christopher Michel of the SG’s office. “Would you agree, though, that a notice-and-comment rule-making that didn’t provide fair notice shouldn’t be deferred to?” he asked. “Just hypothetically, let’s say whatever your logical outgrowth test is fails to meet that, okay? No notice, no adequate procedures. Should - should courts defer to that as - as the law?” (Justice Gorsuch cut Michel off with more questions as he tried to come up with an answer.)

Digital Realty may end up being decided without consideration of Chevron deference at all, as Justice Sotomayor suggested in a question to Michel. And Digital Realty, as its lawyer Kannon Shanmugam conceded during oral arguments, has some procedural problems of its own, since it didn’t raise concerns about the SEC’s rulemaking process in the lower courts.

Nevertheless, Justice Gorsuch’s questions signal a path for judges who believe courts should act as a check on the power of the administrative state. Chevron already gives you the power to demand accountability from executive agencies. You just have to use it.

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