Chevron and Interpreting Through Agency Adjudications (8/28/21; 9/3/21)

I am updating an article I wrote earlier and realize that the working draft has some digressions in the footnotes are best eliminated from that article.  However, some of those digressions are, I think, worthy of being recorded somewhere, so I will post them as blog entries.

 The context for the digression was the statement in the body of the draft update to the article that, beyond interpreting in rulemaking, agencies interpret in adjudicatory proceedings.  The interpretation process in agency rulemaking is much the same as for adjudicatory proceedings.  They both can involve interpretation of ambiguous statutory text within the scope of the ambiguity.  Courts test those interpretations in either context for reasonableness and overturn them if the interpretations are not reasonable.  In the agency rulemaking process, that review is under the Chevron Framework.  So too, courts test reasonableness in agency adjudicatory proceedings under the Chevron framework.  Thus, in both types of interpretation—rulemaking and adjudication—the same test applies as Chevron is currently applied.

In Kristin E. Hickman and Aaron Nielson, Narrowing Chevron's Domain, 70 Duke L. J. 931 (2021), the authors argue for constricting Chevron to apply only in rulemaking and not in adjudication.  A key component of the argument is that through agency adjudicatory interpretations, agencies are legislating rather than interpreting.  Professor Hickman makes the same argument for interpretations in regulations (such as Temporary and Final Treasury Regulations) which may have an effective date before the Final Regulations after Notice and Comment are issued.  My article critiques the latter claim.  But I want to address the claim in the adjudication context because, in my opinion, agencies do not engage in legislative rulemaking in adjudications.  That is a point I address in text and footnotes that I have deleted from the article.

So here is my digression now deleted from the article.  I attach a pdf of the article with the footnotes here.

            One other predicate matter.  Besides interpreting ambiguous statutory text by rulemaking, agencies can interpret ambiguous statutory text in adjudicatory proceedings.n1  For example, the Board of Immigration Appeals ("BIA"), a Department of Justice adjudicatory body, is "the highest administrative body for interpreting and applying immigration laws." n2  By delegation from the Attorney General, n3 the BIA resolves "appeals from certain decisions rendered by Immigration Judges and by district directors of the Department of Homeland Security (DHS) in a wide variety of proceedings in which the Government of the United States is one party and the other party is an alien, a citizen, or a business firm." n4

             This adjudicatory administrative process functions like a court proceeding, resolving disputes between parties by interpreting and applying the law.n5 Although not rulemaking, adjudicating presents the legislative/interpretive distinction; if, in adjudications, agencies were to attempt to create law outside the interpretive space allowed by the ambiguous text, the agency would be improperly legislating which requires legislative rulemaking with Notice and Comment and Prospectivity.n6  I recognize that some authorities assert that adjudications interpretations can be legislative in character and on that basis question retroactive effect.n7 I disagree, but need not address the issue because this article deals with legislative rulemaking via the Notice and Comment process as to which the law is relatively clear.

Footnotes:

n1          SEC v. Chenery Corp., 332 U.S. 194, 201-03 (1947) (often referred to as Chenery II).   The APA provides key definitions: "adjudication" is "agency process for the formulation of an order" (5 U.S.C. § 551(7)); "order" is "the whole or a part of a final disposition, whether affirmative, negative, injunctive, or declaratory in form, of an agency in a matter other than rule making but including licensing" (5 U.S.C. § 551(6)); "rule making" is "agency process for formulating, amending, or repealing a rule" (5 U.S.C. § 551(5)); and "rule" is "the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency" (5 U.S.C. § 551(4)).

            Agency adjudicatory interpretations are conceptually the same as agency interpretations in rulemaking.  Both interpret ambiguous statutory text.  Adjudicative interpretation is, however, not rulemaking in the APA sense.  The APA defines rulemaking by including the definition of "rule" which, as noted above in this footnote, requires future effect; adjudication involves past effect–applying interpretations of law to past conduct.  The authoritative Attorney General's Manual on the Administrative Procedure Act 14-15 (1947) (emphasis supplied) said that the "entire Act" is based on a dichotomy between rulemaking and adjudication; with legislative rulemaking operating in the future, whereas "adjudication is concerned with the determination of past and present rights and liabilities." See also, Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 219 (1988) (Scalia, J., concurring) (quoting the Attorney General's Manual on this point); Kenneth Culp Davis, Administrative Rules - Interpretative, Legislative, and Retroactive, 57 Yale L.J. 919, 920 (1948) ("A rule is the product of rulemaking, and rulemaking is the part of the administrative process that resembles a legislature's enactment of a statute. Adjudication is the part of the administrative process that resembles a court's decision of a case."); NLRB v. Wyman-Gordon, 394 U.S. 759, 764-766 (1969) (noting that agencies, through adjudication,  cannot avoid the rulemaking procedures such as notice and comment, "designed to assure fairness and mature consideration of rules of general application," and that adjudication, although creating precedent for future guidance, is not rulemaking under the APA); Goodman v. FCC, 182 F.3d 987, 994 (D.C. Cir. 1999) (noting retroactivity and citing NLRB v. Wyman-Gordon Co., 394 U.S. 759, 765–66 (1969)); and ; Kristin E. Hickman and Aaron Nielson, Narrowing Chevron's Domain, 70 Duke L. J. 931, 943 (2021) ("[T]he key distinction [between rulemaking and adjudication] is that—unless Congress specifies otherwise—rulemaking is of 'future' effect, while adjudication is directed toward establishing the legal consequences of events that have already happened.”)

n2       See DOJ website titled "Board of Immigration Appeals" https://www.justice.gov/eoir/board-of-immigration-appeals (Updated 12/7/20 and viewed 4/15/21).

n3       INS v. Aguirre-Aguirre, 526 U.S. 415, 425 (1999)

n4       DOJ website titled "Board of Immigration Appeals."

n5       2 Charles H. Koch, Jr. & Richard Murphy, Administrative Law & Practice § 5:1 (3d ed. 2019) ("Adjudication in administrative processes focuses on the resolution of individual disputes, the kinds of decisions that the judicial process makes through trial-like procedures."); see also the discussion above in fn.   on p. . [references omitted]

            The IRS does not have such an internal adjudicatory body.  The Tax Court is an Article I court independent of the executive.  § 7441.

n6       See Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 221 (1988) (Scalia, J., concurring); and Beneli v. Nat’l Labor Relations Bd., 873 F.3d 1094, 1103 (9th Cir. 2017) (Fletcher, J., concurring) (citing Wyman-Gordon for proposition that "The Administrative Procedure Act allows an agency to declare interpretive rules in adjudication, but requires notice-and-comment procedure for the promulgation of legislative rules. An agency does not have the authority to declare prospective-only legislative rules through adjudication, for such rules avoid the required notice-and-comment rulemaking procedure.”); but see SEC v. Chenery Corp., 332 U.S. 194 (1947) (Chenery II) has some confusing language that might suggest that adjudicatory bodies could make legislative rules and apply the legislative rules retroactively to the conduct in the case at hand, despite the APA's clear command that legislative rulemaking proceed by Notice and Comment regulation and cannot be retroactive.  I think that Chenery II could be considered an interpretive exercise because the statutory standard in issue was "‘detrimental to the public interest or the interest of investors or consumers’ or ‘fair or equitable’ within the meaning of §§ 7 and 11 of the Public Utility Holding Company Act of 1935.”  All the SEC did was to hold in the adjudication that, for prophylactic reasons, trading in preferred stock while undergoing a reorganization was not consistent with that general standard.  That exercise was not inconsistent with the way courts and juries apply general standards–e.g., tort negligence standard--to facts to determine an outcome, without in any way legislating new law. Notably, Justice Scalia, an administrative law scholar, later noted the deficiencies in that suggestion as follows: (i) Chenery II “was not decided under the APA”; (ii) Chenery II “involved that form of administrative action [interpretation] where retroactivity is not only permissible but standard. Adjudication deals with what the law was; rulemaking deals with what the law will be;” (iii) “NLRB v. Wyman-Gordon Co., 394 U.S. 759 (1969), suggested the obverse: that adjudication could not be purely prospective, since otherwise it would constitute rulemaking.” and (iv) “Side by side these two cases, Chenery and Wyman-Gordon, set forth quite nicely the ‘dichotomy between rulemaking and adjudication’ upon which "the entire [APA] is based.’”  Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 221 (1988) (Scalia, J., concurring).  Without legislative rulemaking authority, it follows that the agency adjudicatory body could only interpret the statute.  Cf.  Cooper Techs. Co. v. Dudas, 536 F.3d 1330, 1336-1337 (Fed. Cir. 2008) (holding that an agency without rulemaking authority can only issue interpretive rules which do not require Notice and Comment; by extrapolation, if the agency adjudicatory body has no legislative rulemaking authority, it can only issue interpretations).

n7       Kristin E. Hickman and Aaron Nielson, Narrowing Chevron’s Domain. 70 Duke L. J. 931, 948-49, 971-977 (2021) (although the authors note, correctly, that the “key dividing line” between adjudication and legislative rulemaking is retroactivity for interpretations and Prospectivity for legislative regulations, which I think is an implicit recognition that agency adjudications (just as court adjudications) can only interpret and not make law in the APA sense requiring legislative rulemaking); and Kristin E. Hickman & Richard J. Pierce, Jr., Administrative Law Treatise § 4.7, p. 498 (Walters Kluwer 6th ed. 2019) (the authors claim (p. 502): “The Supreme Court in Georgetown University Hospital explicitly acknowledged that agencies remain free to issue legal rules with retroactive effect, through the adjudicatory process.  After Georgetown University Hospital, agencies that want to act retroactively have no choice but to act solely through the process of adjudication.”) As I develop in this article, agencies can adopt interpretive rules (including regulations) with retroactive effect just as interpretations in adjudications have retroactive effect.  Moreover, there are methods for dealing with significant unfairness issues for retroactive application of interpretations whether by courts or by agencies without having to make the nonsensical claims (i) that interpretations are legislative in character and thus require prospective effect only and (ii) that adjudicatory interpretations are an end run around legislative rulemaking.

Added 9/3/21 4:30pm

For an example of the confusion in distinguishing between the legislative-interpretive rulemaking in adjudications, readers should consider Afanador v. Garland, 11 F.4th 985 (9th Cir. Aug. 27, 2021), CA 9 here and GS here.  The question was whether a California conviction was for a crime of moral turpitude.  Immigration law made a lawful permanent resident removable if the alien was “convicted of two crimes involving moral turpitude not arising out of a single scheme of criminal misconduct.”  In 2010, the Ninth Circuit held that conviction under the California statute was not a crime of moral turpitude “because the full range of prohibited conduct was not morally turpitudinous.”  In 2013, the BIA issued a precedential decision that the California statute was a crime of moral turpitude.  In 2019, the Ninth Circuit held that the BIA’s 2013 interpretation was reasonable and superseded even the Ninth Circuit contrary holding under Chevron and Brand X.  The question was whether the BIA 2013 interpretation was retroactive.

In Afanador, the issue was one of interpretation.  What does “moral turpitude” under the immigration law mean, and does the California crime meet that meaning?  The BIA 2013 interpretation did not change the immigration statute – the term in the statute was moral turpitude.  Rather, it interpreted the existing statutory term to apply to the California crime.  In the jargon of the legislative/interpretive distinction, the interpretation did not change the law; rather it interpreted the law.  In terms of retroactivity, interpretations generally (but not always) can be retroactive, whereas creating new law generally cannot.

The panel majority goes on a temporary detour by somehow introducing legislative rulemaking into the discussion.  The Court ultimately gets it right at the end by holding (cleaned up; emphasis supplied by JAT):

 Whether an agency announces a new interpretation of an ambiguous statute through formal rulemaking or through adjudication, a court must defer to the agency's decision so long as it is reasonable. Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984); see also INS v. Aguirre-Aguirre, 526 U.S. 415, 424 (1999) (holding that the court should have applied Chevron deference to the BIA's "construction of the statute which it administers" in an adjudicatory proceeding). This is true even if the agency's interpretation overrides a court's prior judicial construction of the statute. See Brand X, 545 U.S. at 982. And such a rule may even apply retroactively, if the rule has a permissible retroactive effect in a particular case.

That is a correct statement, so that it is  appropriate that the Afanador panel opinion ends with it as the deciding factor.

But the Afanador panel muddles in getting to the correct result.  As I discuss in the draft article, in some of the key cases where the opinions muddle around on the distinction between legislative and interpretive rules, the courts get it right in the end but create great mischief in getting there.  This is true particularly in the adjudicatory setting because the APA clearly commands that legislative rulemaking must be done by Notice and Comment rulemaking (legislative regulation).

In the draft article, I go into the sloppy thinking about the legislative / interpretive distinction generally for regulations rather than adjudications.  Here is some of that sloppy thinking from this new Afanador opinion (cleaned up with bold-face supplied by JAT):

            An agency may also exercise its congressionally delegated legislative authority through adjudicatory proceedings, where new administrative policy is announced and implemented through adjudication. When an agency issues new rules of general applicability through adjudication, such rules are analogous to legislation, because the agency's interpretation of a statute is not a once-and-for-always definition of what the statute means, but an act of interpretation in light of its policymaking responsibilities that may be reconsidered on a continuing basis. But while rules promulgated through legislation or formal rulemaking generally apply prospectively (unless Congress has sanctioned retroactive application), adjudicatory rules may have a permissible retroactive effect, even without authorization from Congress, in some circumstances.

My point:  Congress has not delegated agencies authority to make legislative rules through adjudications.  Adjudications are trial-like procedures where, as in this case, agencies (like courts) apply existing law to past conduct or status.  (Stated otherwise, agencies in adjudications like courts in adjudications have no authority to  create new law and are limited to applying existing law; interpretations may change but the law doesn't.)  The courts and agencies in Afanador and the predicate cases did nothing more than interpret the statute; they did not create new law, the hallmark of a legislative rule.  But in this excerpt, although noising about legislative delegations, the Ninth Circuit panel clearly indicates that it is dealing with interpreting (see the bold-face) rather than creating new law.  All the noisings about legislative rules was a waste of time, was dicta at best, and was erroneous dicta.

Added 11/7/21 2:00 pm:

Further to my main point that agency adjudications are interpretive in nature and are not legislative and, being interpretive, are susceptible to Chevron analysis:

In INS v. Aguirre-Aguirre, 526 US 415, 425 (1999), the Court said (bold-face supplied):

The Attorney General, while retaining ultimate authority, has vested the BIA with power to exercise the "discretion and authority conferred upon the Attorney General by law" in the course of "considering and determining cases before it." 8 CFR § 3.1(d)(1) (1998). Based on this allocation of authority, we recognized in Cardoza-Fonseca, supra, that the BIA should be accorded Chevron deference as it gives ambiguous statutory terms "concrete meaning through a process of case-by-case adjudication" (though we ultimately concluded that the agency's interpretation in that case was not sustainable). 480 U. S., at 448-449. In the case before us, by failing to follow Chevron principles in its review of the BIA, the Court of Appeals erred.