Category: Energy Law

In its frequent attempts to enforce the separation of powers that the Constitution’s framers devised as a system of checks and balances among the executive, legislative, and judicial branches of the federal government, it is often the so-called “Fourth Branch”—that includes the varied administrative agencies—that is at the heart of things.[1]

These agencies possess a level of technical and scientific expertise that the federal courts generally lack. And, without reference to expertise, Congress often leaves it to agencies and the courts to interpret and apply statutes left intentionally vague or ambiguous as the product of the legislative compromise required to gain passage. This phenomenon begs the question of the extent to which the federal courts may defer to administrative agencies in interpreting such statutes, or whether such deference abnegates the judicial prerogative of saying what the law is. Having passed on several opportunities to revisit this question, the Supreme Court of the United States has finally done so.

In what potentially will lead to a decision that might substantially change the face of federal administrative law generally while voiding an untold number of agency regulations, the Supreme Court, on January 17, 2024, heard oral argument in a pair of appeals, Loper Bright Enterprises, et al., v. Raimondo, No. 22-451, and Relentless, Inc., et al. v. Department of Commerce, No. 22-1219, focusing on whether the Court should overrule or limit its seminal decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

Almost 40 years ago, the Chevron decision articulated the doctrine commonly known as “Chevron deference,” which involves a two-part test for determining when a judicial determination must be deferential to the interpretation of a statute. The first element requires determining what Congress has spoken directly to the specific issue in question, and the second is “whether the agency’s answer is based on a permissible construction of the statute.”

Among the most cited Supreme Court cases, Chevron has become increasingly controversial, especially within the conservative wing of the Court, with several Justices having suggested that the doctrine has led to the usurpation of the essential function of the judiciary.

Chevron deference affects a wide range of federal regulations, and the Court’s ruling, whether or not Chevron is retained in some form, is likely to result in significant changes to how agencies may implement statutes and how parties affected by regulations may seek relief from the impact of those regulations. Interestingly, commentators on the recent oral argument in the case are widely divided in their predictions as to the outcome—some suggesting that the conservative majority of the Court will overrule Chevron outright, others suggesting that the Court has no intention at all to do so.

Based on remarks made during the oral arguments by Justice Gorsuch, and by Justices Amy Coney Barrett and Elena Kagan, as well as Justice Kagan’s fashioning of a majority that clarified a related interpretive rule in an earlier case focusing on agencies’ authority to interpret their own regulations, we suggest that there is a substantial possibility that the Court will take a moderate path by strengthening judicial scrutiny at the “Step One” level while recognizing that there are technical and scientific matters as to which courts have no expertise. At the same time, the Court may make it clear that, essentially, legal issues are within its prerogatives and are not subject to agency interpretation.

We examine how the Court might find a path to a better balancing of agency and judicial functions that is consistent with and builds upon other recent rulings involving the review of actions taken by administrative agencies. Whatever the outcome, the Court’s ruling in these cases will have a profound impact on individuals and entities that are regulated by federal agencies or that depend on participation in government programs, such as Medicare and Social Security.

A Chevron Refresher

Most law students and lawyers have some familiarity with the touchstone for judicial review of agency rules that was articulated in Chevron, a case that dealt with regulations published by the Environmental Protection Agency to implement a part of the Clean Air Act.[2] The Supreme Court explained that judicial review of an agency’s final rule should be based on the two-part inquiry that we mentioned earlier. First, the reviewing court should determine whether Congress made its intent unambiguously clear in the text of the statute; if so, the inquiry ends, and both the agency and the reviewing court must give effect to Congress’s intent. This has become known by the shorthand phrase “Step One.”

If Congress’s intent is not clear, either because it did not address a specific point or used ambiguous language, then the court should defer to the agency’s construction if it is based on a permissible reading of the underlying statute. This has become known as “Step Two.”

In applying Step Two, a reviewing court should determine if the gap left by Congress was explicit or implicit. If the ambiguity is explicit, then the agency’s regulations should be upheld unless they are arbitrary, capricious, or contrary to the statute.[3] If the ambiguity is implicit, then the “court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.”[4]

Chevron deference is not a blank slate for courts to find ambiguity. It recognized that the judiciary “is the final authority on issues of statutory construction” and instructed that in applying Step One, judges are expected to apply the “traditional tools of statutory construction.”[5] It also recognized that any deference analysis should fit within the balance among the branches of government. The Supreme Court explained that while Congress sets an overall policy, it may not reach specific details in explaining how that policy is to be executed in particular contexts. In these situations, the executive branch may have the necessary technical expertise to fill in the details, as it is charged with administering the policy enacted into law. The Court noted that the judiciary was not the ideal entity to fill in any gaps left in legislation because “[j]udges are not experts in the field” and that courts are not political entities. As a result, agencies with expertise are better suited to carry out those policies. Moreover, even if agencies are not accountable to the public, they are part of the executive branch headed by the President, who (unlike judges with life tenure) is directly accountable to the electorate.[6]

Nevertheless, during the recent oral arguments, the Chief Justice stated that the Court had not in recent years employed Chevron itself in its analysis of agency action. The reason why the issue of whether Chevron unduly intrudes upon the judicial function, and whether it should be overruled or modified, relates to the fact that it is widely used in lower court review of administrative actions. Its reconsideration also relates to increasing jurisprudential conservatism on the Supreme Court and the application of originalism and, more widely, textualism.

The Chevron concept of deference to agency regulations exists alongside a line of cases in which courts have deferred to an agency’s interpretations of its own regulations. In both Bowles v. Seminole Rock & Sand Co.[7] and Auer v. Robbins,[8] the Supreme Court developed the principle that courts are not supposed to substitute their preference for how a regulation should be interpreted; instead, a court should give “controlling weight” to that interpretation unless it is “plainly erroneous or inconsistent with the regulation.”[9] Nevertheless, the Court has refused to extend that form of deference to subregulatory guidelines and manuals where there is little or no evidence of a formal process intended to implement Congress’s expressed intent.[10]

The Chevron framework has generated criticism, including statements by several current Justices. Their position relies on an argument that Chevron distorts the balance of authority in favor of the executive and strips courts of their proper role. In a recent dissent from a denial of certiorari, Justice Gorsuch complained that Chevron creates a bias in favor of the federal government and that instead of having a neutral judge determine rights and responsibilities, “we outsource our interpretive responsibilities. Rather than say what the law is, we tell those who come before us to go ask a bureaucrat.”^[11] Justice Thomas has written that the Administrative Procedure Act does not require deference to agency determinations and raises constitutional concerns because it undercuts the “obligation to provide a judicial check on the other branches, and it subjects regulated parties to precisely the abuses that the Framers sought to prevent.”[12]

Chevron and the Herring Fishermen

The dispute that has brought Chevron deference to the Supreme Court in 2024 starts with the business of commercial fishing for herring. The National Marine Fisheries Service (NMFS) published a regulation in 2020 that requires operators of certain fishing vessels to pay the cost of observers who work on board those vessels to ensure compliance with that agency’s rules under the Magnuson-Stevens Fishery Conservation and Management Act of 1976 (“Act”). Several commercial fishing operators challenged the regulations, which led to two decisions by the U.S. Courts of Appeals for the District of Columbia Circuit and the First Circuit. Both courts upheld the regulations, but on slightly different grounds. In the first decision, Loper Bright Enterprises, Inc. v. Raimondo,[13] the District of Columbia Circuit followed the traditional Chevron analysis and concluded that the Act did not expressly address who would bear the cost of the monitors. The NMFS’s interpretation of the statute in the regulation was found to be reasonable under Step Two of Chevron based on the finding that the agency was acting within the scope of a broad delegation of authority to the agency to further the Act’s conservation and management goals, and on the established precedent concluding that the cost of compliance with a regulation is typically borne by the regulated party.

The second decision by the First Circuit, Relentless, Inc. v. United States Department of Commerce,[14] took a slightly different approach. That court focused on the text of the Act and concluded that the agency’s interpretation was permissible. It did not anchor its decision in a Chevron analysis and stated that “[w]e need not decide whether we classify this conclusion as a product of Chevron step one or step two.”[15] The First Circuit also emphasized that the operators’ arguments did not overcome the presumption that regulated entities must bear the cost of compliance with a relevant statute or regulation.

The parties have staked out starkly different views of Chevron’s legitimacy and whether it is compatible with the separation of powers in the U.S. Constitution. The fishermen petitioners argue that Chevron is not entitled to respect as precedent because the two-part test was only an interpretive methodology and not the holding construing the Clean Air Act. Their core argument is that Chevron improperly and unconstitutionally shifts power to the executive branch by giving more weight to the agencies in rulemaking and in resolving disputes where the agency is a party and shifts power away from the judiciary’s role under Article III to interpret laws and Congress’s legislative authority power under Article I. Taking this one step further, the petitioners argue that this shift violates the due process rights of regulated parties. They also argue that Chevron is unworkable in practice, citing instances where the Supreme Court itself has declined to apply the two-part test and the lack of a consensus as to when a statute is clear or ambiguous, making the application of Chevron inconsistent. Put another way, according to the petitioners, the problem with Chevron is that there is no clear rule spelling out how much ambiguity is needed to trigger deference to an agency’s rule. Next, they argue that Chevron cannot be applied when an underlying statute is silent because this allows agencies to legislate when there is a doubt as to whether Congress delegated that power to the agency at all and that it would run counter to accepted principles of construction that silence can be construed to be a grant of power to an agency. Finally, they contend that Chevron deference to agencies conflicts with Section 706 of the Administrative Procedure Act, where Congress authorized courts to “decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.”[16]

The Secretary of Commerce argues that there are multiple reasons to preserve Chevron deference. First, the Secretary argues that Chevron fits within the balance of power between the branches of the federal government. In the Secretary’s view, Chevron deference is consistent with the separation of powers doctrine, as it respects (1) Congress’s authority to legislate and to delegate authority to an administrative agency, (2) the agency’s application of its expertise in areas that may be complex, and (3) the judiciary’s authority to resolve disputed questions of law. Therefore, the Chevron framework avoids situations where courts may function like super-legislatures in deciding how a statute should be implemented or administered and second-guess policy decisions.

According to the Secretary, courts know how to apply the traditional tools of statutory interpretation, and if an ambiguity exists after that exercise is complete, it is appropriate to defer to an administrative agency that has technical or scientific experience with the subject matter being regulated. In addition, the Secretary contends that Chevron promotes consistency in the administration of statutes and avoids a patchwork of court rulings that may make it difficult or impossible to administer a nationwide program, such as Social Security or Medicare. Third, the Secretary notes that Chevron is a doctrine that has been workable for 40 years and that over those decades, Congress has not altered or overridden its holding, even as it has enacted thousands of statutes since 1984 that either require rulemaking or have gaps that have been filled by rulemaking. As a result, the Secretary argues that there are settled interpretations that agencies and regulated parties rely on, and overruling Chevron would lead to instability and relitigating settled cases. Finally, the Secretary argues that Chevron deference cannot be limited to interpretations of ambiguous language alone, as there are no accepted criteria for distinguishing ambiguous statutory language from statutory silence.

The Oral Argument

The Supreme Court heard arguments in both cases on January 17, 2024. Over more than three hours of argument, the Justices focused on several questions. Justices Kagan, Sotomayor, and Jackson expressed concerns that abandoning the Chevron framework would put courts in the position of making policy rather than just ruling on questions of law. In their view, courts lack the skills and expertise to craft policy and should not act as super-legislators. They also stressed that there are situations in which the tools of statutory construction do not yield a single answer or that Congress has not addressed the question either because it left some matters unresolved in the statute or through other subsequent changes not contemplated by Congress, such as the adoption of new technologies. In these cases, the Justices wanted to know why deference to an agency was not appropriate and did not see any clear indication that Congress intended that courts, not agencies, should make determinations when the statutory language is ambiguous or silent. They also questioned why the Supreme Court should overrule Chevron when Congress has been fully aware of the decision for 40 years and has not enacted legislation to eliminate the ability of a court to defer to an agency’s determinations.

The members of the more conservative wing of the Supreme Court questioned counsel about weaknesses in the Chevron framework. Justice Gorsuch returned to his earlier criticism of Chevron and asked the parties to define what constitutes enough ambiguity to allow a court to move from Step One to Step Two. He further questioned whether there was sufficient evidence that Congress ever intended to give the government the benefit of the doubt when an individual or regulated entity challenges agency action. Justice Gorsuch, along with Justices Thomas and Kavanaugh, asked whether Chevron actually resulted in greater instability and whether it was appropriate to abandon Chevron in favor of the lesser form of deference articulated in Skidmore v. Swift & Co., where deference is not a default outcome and a court is supposed to exercise its independent judgment to give weight to agency determinations based on factors including the thoroughness of the agency’s analysis, the consistency and validity of the agency’s position, and the agency’s “consistency with earlier and later pronouncements, and all those factors which give it power to persuade.”[17] The follow-up questions asked whether it was correct to accord deference to agency regulations when the agency’s policy can shift from administration to administration.

Where Is the Conservative Court Likely to Go?

The length of the argument and the alacrity of questioning do not mean that the Supreme Court is going to overrule the 40-year-old, highly influential Chevron doctrine. It is, however, quite likely that the doctrine will be narrowed and clarified. To say nothing of the recent oral argument, several recent decisions evidence a reluctance to abandon deference altogether. In a pair of decisions issued in 2022 involving Medicare reimbursement to hospitals, the Court resolved deference questions by relying on the statutory text alone.

Those decisions involved challenges to a Medicare regulation governing hospital reimbursement, and a published interpretation of a section of the Medicare statute governing reimbursement for outpatient drugs. Although the Court ruled in the government’s favor in the former case and against the government in the latter case, neither decision relies on Chevron—even though in one case, the petitioner’s counsel expressly asked the Court to overrule Chevron during the oral argument.[18] Yet, by relying on the text of each statute to resolve a regulatory dispute, the Court’s reasoning in both decisions is consistent with Step One of the Chevron test and demonstrates that it is workable in practice and need not result in a dilution of judicial review. In addition, the Court has developed another limit to agency action in its decisions, finding that when a regulatory issue presents a “major question,” deference is irrelevant unless the agency can show that Congress expressed a clear intent that the agency exercise its regulatory authority. This concept remains a work in progress because the Court has not defined criteria that make an issue a major question.[19]

These cases provide a useful background to an increasingly jurisprudentially conservative, textually oriented Court. Two cases that were specifically discussed during oral argument are particularly significant in plotting the Court’s landing place with regard to Chevron. Justice Gorsuch made multiple references to Skidmore, which sets forth the principle that a federal agency’s determination is entitled to judicial respect if the determination is authorized by statute and made based on the agency’s experience and informed judgment. Unlike the Chevron standard, the Skidmore standard considers an agency’s consistency in interpreting a law it administers.

The second, and more recent, precedent that is even more likely to guide the narrowing of Chevron is Kisor v. Wilkie.[20] There, a 5-4 divided Court adopted a multi-stage regime for reviewing an agency’s reliance upon arguably ambiguous regulations that is roughly analogous to Chevron’s two-stage analytical modality. In doing so, it modified, but did not overrule, Auer v. Robbins, 519 U.S. 452 (1997), and its doctrinal predecessor, Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945), which permit a court to defer to an agency’s interpretation of its own ambiguous regulation, so long as that interpretation is reasonable, even if the court believes another reasonable reading of the regulation is the better reading.

Kisor saw a mixed bag of Justices joining, or dissenting from, various parts of the Kagan opinion. What made the majority as to its operative section was the Chief Justice’s joining Justice Ginsburg, Breyer, and Sotomayor. With Justice Ginsburg having been succeeded by Justice Barrett, and Justice Breyer having been succeeded by Justice Jackson, one might hypothesize that there now would be a conservative 5-4 majority that would have overruled Auer. However, it was Justice Barrett who raised the possibility of “Kisorizing” Chevron, a suggestion quickly adopted by Justice Kagan. Justice Gorsuch, a longtime opponent of Chevron, is likely amenable to a Skidmore-oriented result.

The Kagan opinion cabins and arguably lowers the level of deference an agency’s interpretation of a rule should receive. Thus, with a strong nod to the Court’s jurisprudential drift to the right, Justice Kagan begins with the truism that whatever discretion an agency might claim, the Court’s analysis must proceed under the proposition that an unambiguous rule must be applied precisely as its text is written. It is not unlikely that, if the Court narrows Chevron (as we predict it shall), it also will begin with a more robust requirement to apply the statutory text in Step One and re-emphasize the need to exhaust all of the tools of statutory construction; in other words, there is no need for deference unless there is genuine ambiguity. If an agency’s determination is to become relevant, it only becomes so after ambiguity is established.[21]

In short, if the law gives a definitive answer on its face, there is nothing to which a court should defer, even if the agency argues that there is an interpretation that produces a better, more reasonable result. This is a textual determination that addresses the criticism of the so-called Administrative State’s acting as a quasi-legislature to which the Court yields its own power to say what the law is.

However, even a reasonable agency interpretation, the Kagan opinion notes, might not be dispositive. The opinion must be the agency’s official position, not one ginned up for litigation purposes, and it must reflect the agency’s particular expertise.

­Conclusion

In its 40-year life, Chevron deference has been at the heart of the application of federal administrative law. No case among all of the many governmental functions that the Supreme Court considers has been more widely cited, and no administrative law case has been more controversial, especially among jurisprudential conservatives. While asked by various parties to do so, the Court has declined, and the Chevron structure has been applied, often inconsistently, by federal courts. Perhaps reflecting the increasingly conservative direction of the Court, we have reached a point where the Court will consider retiring this long-standing precedent or, alternatively, refreshing it based on the experience of courts and agencies since 1984.

Justice Kagan’s analytic method in Kisor v. Wilkie could also apply to tightening Chevron. In her decisions, she has exhibited great fidelity to reading text literally, avoiding the perils of legislation from the bench. As she wrote in Kisor:

[B]efore concluding that a rule is genuinely ambiguous, a court must exhaust all the traditional tools of construction. . . . For again, only when that legal toolkit is empty and the interpretive question still has no single right answer can a judge conclude that it is more one of policy than of law. That means a court cannot wave the ambiguity flag just because it found the regulation impenetrable on first read. Agency regulations can sometimes make the eyes glaze over. But hard interpretive conundrums, even relating to complex rules, can often be solved. A regulation is not ambiguous merely because discerning the only possible interpretation requires a taxing inquiry. To make that effort, a court must carefully consider the text, structure, history, and purpose of a regulation, in all the ways it would if it had no agency to fall back on. . . . Doing so will resolve many seeming ambiguities out of the box, without resort to . . . deference” (citations and internal punctuation omitted).[22]

Text alone might not provide the answer in every case, as Justice Kagan recognizes as she outlines four additional steps that might lead to judicial deference to agency statutory interpretations. However, to the extent that a majority of the Court elects to retain Chevron, though narrowing it, her approach in the analogous setting reflected in Kisor would be effective in resolving the two cases now at bar—recognizing agency expertise in technical and scientific matters beyond the competency of the judiciary while preserving the function of the courts to determine what the legislature actually wrote, not to write it themselves.

* * * *

ENDNOTES

[1] Besides the administrative bureaucracy, various jurists and commentators have, under this rubric, included the press, the people acting through grand juries, and interest or pressure groups. Those institutions represent the arguable influence of extra-governmental sources. We are focused here on the level of judicial deference afforded to federal administrative agencies.

[2] 467 U.S. at 842-43.

[3] 5 U.S.C. § 706(2)(A).

[4] Id. at 844.

[5] Id. at 843, fn.9.

[6] Id. at 865-66.

[7] 325 U.S. 410, 414 (1945).

[8] 519 U.S. 452, 461 (1997).

[9] Id.

[10] United States v. Mead Corp., 533 U.S. 218, 229 (2001); Christensen v. Harris County, 529 U.S. 576 (2000).

[11] Buffington v. McDonough, No. 21-972 (Gorsuch, J., dissenting at 9) (2022).

[12] Perez v. Mortgage Bankers Ass’n, 135 S.Ct. 1199,1213 (2015) (Thomas, J., concurring in the judgment).

[13] 45 F.4th 359 (D.C. Cir. 2022).

[14] 62 F.4th 621 (1st Cir. 2023).

[15] Id. at 634.

[16] 5 U.S.C. § 706.

[17] 323 U.S. 134, 140 (1944).

[18] Becerra v. Empire Health Foundation, 142 S.Ct. 2354 (2022), and American Hospital Ass’n v. Becerra, 142 S.Ct. 1896 (2022). The request to overrule Chevron appears in the transcript of the American Hospital Ass’n oral argument, at 30.

[19] West Virginia v. EPA, 142 S.Ct. 2587 (2022); Utility Air Regulatory Group v. EPA, 573 U.S. 302, 324 (2014).

[20] 139 S. Ct. 2400 (2019).

[21] Kisor predicated deference, if at all, upon five preliminary stages. First, as noted, the reviewing court should determine that a genuine ambiguity exists after applying all of the tools of statutory construction. This is consistent with Step One of Chevron, but Justice Kagan makes it clear that this is a heightened textual barrier. Second, the agency’s construction of the regulation must be “reasonable”; this is a restatement of Step Two of Chevron. The Court cautioned that an agency can fail at this step. Third, the agency’s construction must be “the agency’s ‘authoritative’ or ‘official position,’” which was explained as an interpretation that is authorized by the agency’s head or those in a position to formulate authoritative policy. Fourth, the regulatory interpretation must implicate the agency’s “substantive expertise.” Finally, the regulatory interpretation must reflect the agency’s “fair and considered judgment” and that a court should decline to defer to a merely “convenient litigating position” or “post hoc rationalizatio[n] advanced” to “defend past agency action against attack.”

[22] 139 S.Ct. at 2415.