Important DC Circuit Opinion That Chevron Deference is Irrelevant if Agency Interpretation is Best Interpretation (8/9/22; 8/15/22)

In Guedes v. ATF, 45 F.4th 306 (D.C. Cir. 8/9/22), DCCir here and GS here, the Court rendered an important decision.  Although it is not a tax case, it deals with administrative law themes – APA and deference – important in the tax area.  The case involved the proper interpretation of the statutory term “machine guns” [I split the statutory word "machineguns" as is common] includes so-called “bump stocks.”  There was an earlier Circuit opinion in Guedes, Guedes v. ATF, 920 F.3d 1 (D.C. Cir. 2019), here, cert. denied cert. denied, 589 U. S. ___, 140 S.Ct. 789 (2020); see Guedes Cert Denial on Bump Stock as Machinegun, Justice Gorsuch's Cryptic Statement and My Digression (Federal Tax Procedure Blog 3/2/20; 3/5/20), here.

The Court summarized the key conclusion of the opinion in the opening (Slip Op. p. 3):

The central question on appeal is whether the Bureau had the statutory authority to interpret “machine gun” to include bump stocks. Employing the traditional tools of statutory interpretation, we find that the disputed rule is consistent with the best interpretation of “machine gun” under the governing statutes. We therefore affirm.

 The Court expounds (Slip Op. pp. 8-10)

             The threshold question is whether to treat this case as a matter of pure statutory interpretation or to apply the Chevron framework. Both parties advocate for the former. Plaintiffs argue that Chevron does not apply for a multitude of reasons: the rule is interpretive in nature; the government waived Chevron deference; the Court may not apply Chevron to a statute with criminal penalties; and the rule of lenity must supersede Chevron in the criminal context. The Bureau also characterizes the Rule as interpretive, and it likewise urges us to analyze the Rule under a statutory interpretation framework.

            The Guedes II panel employed the Chevron framework—just as the District Court had done—in denying the motion for preliminary injunction. The panel concluded that the Bump Stock Rule was a legislative rule; the Bureau explicitly relied on Chevron in crafting it; the government cannot recharacterize a rule as legislative or interpretative during litigation; and the government cannot waive Chevron. 920 F.3d at 18, 21–23.

            Ultimately, we need not wrestle with the Chevron framework here. Rather, the parties have asked us to dispense with the Chevron framework, and in this circumstance, we think it is appropriate to do so. See Am. Hosp. Ass’n v. Becerra, 142 S. Ct. 1896 (2022) (rejecting agency’s interpretation “after employing traditional tools of statutory interpretation,” rather than inquiring into the interpretation’s reasonableness under Chevron). Using a statutory interpretation lens, we decide that the Bureau offered the best construction of the statute without wading into the subsidiary questions that the Chevron analysis poses.

            This approach also comports with how the Bureau engaged in the rulemaking exercise. The Bureau repeatedly described what it was doing as seeking to arrive at the “best interpretation” of the statutory text, and it relied principally on that reasoning during the rulemaking. Bump Stock Rule, 83 Fed. Reg. at 66,514, 66,517, 66,518, 66,521. This is also the Bureau’s principal position on appeal. Appellee Br. 28. While the Bureau contended that it would reach the same result using a Chevron framework, that argument served as its fallback position. 83 Fed. Reg. at 66,527 (explaining that “this rule’s interpretations of ‘automatically’ and ‘single function of the trigger’ in the statutory definition of ‘machinegun’ accord with the plain meaning of those terms,” but that “even if those terms are ambiguous, this rule rests on a reasonable construction of them”). This jurisprudential approach thus allows us to address the issues as the parties have principally framed them for resolution. If we are able to uphold the Bureau’s definition based on its primary line of argument, there is no reason to reach its secondary one. See HollyFrontier Cheyenne Ref., LLC v. Renewable Fuels Ass’n, 141 S. Ct. 2172, 2180 (2021) (declining to consider whether Chevron deference was due where government did not invoke it).

            Finally, there is no need to decide what deference, if any, a regulation should receive where we can conclude that the agency’s interpretation of the statute is the best one. Our decision to forgo engaging with questions of Chevron’s applicability is consistent with how courts have approached agency interpretation issues in the past. As the Supreme Court explained in Edelman v. Lynchburg College, “there is no need to resolve any question of deference,” where the agency regulation is “not only a reasonable one, but the position we would adopt even if there was no formal rule and we were interpreting the statute from scratch.” 535 U.S. 106, 114 (2002). That is not to say that the agency’s rule must be the only “permissible” interpretation of the statute, but only that it must be the best construction. Id. at 114 & n.8. See also Washington Reg’l Medicorp v. Burwell, 813 F.3d 357, 362 (D.C. Cir. 2015) (finding no need to engage in deference analysis where agency’s interpretation is both reasonable and the best interpretation of the statute); Am. Hosp. Ass’n v. Becerra, 142 S. Ct. at 1896 (employing “traditional tools of statutory interpretation” to analyze an agency rule, without resort to Chevron or any other form of deference to the agency); Becerra v. Empire Health Found., 142 S. Ct. 2354, 2368 (2022) (same).

            So too here, in relying on the ordinary tools of statutory interpretation—“text, structure, purpose, and legislative history,” see Pharm. Rsch. & Mfrs. of Am. v. Thompson, 251 F.3d 219, 224 (D.C. Cir. 2001)—we find that the Bureau has provided the best reading of the statute and that the statutory definition of machine gun as articulated in 26 U.S.C. § 5845(b) extends to bump stocks.

 Thus, I will restate my definition of real Chevron deference:

Deference is a court applying a reasonable agency interpretation of ambiguous statutory text despite the court’s belief that there is a more reasonable interpretation of the ambiguous statutory text.  

In other words, a court does not give “deference” to an interpretation just because it is “reasonable” (whatever that may mean).  We must all recognize that the best interpretation is reasonable, but best interpretations do not require and should not be given Chevron deference, as the new Guedes opinion recognizes.  Rather deference applies only to those interpretations that are not the best interpretations but courts nevertheless choose to give deference.  I develop that theme in my article, John A. Townsend. The Report of the Death of the Interpretive Regulation Is an Exaggeration 70 (SSRN December 14, 2021), https://ssrn.com/abstract=3400489, but here is a summary from my Federal Tax Procedure Book (2022 Practitioner Edition) p. 83 (footnotes omitted):

       Let’s start with the concept of deference because there is considerable confusion as to what it means. Some read deference as requiring that a court apply a  reasonable agency interpretation of ambiguous statutory text without regard to whether the agency interpretation is the best interpretation. However, if the agency interpretation is the best interpretation of the ambiguous statutory text, a court does not defer to that interpretation. Deference is only outcome  determinative when a court defers to a reasonable agency interpretation that is not the best interpretation of the statute.395 Hence, unlike many scholars and courts, I define deference as a court applying a reasonable agency interpretation of ambiguous statutory text despite the court’s belief that the agency interpretation is not the best interpretation of the ambiguous statutory text. I suggest that, so defined, outcome determinative deference is rare.396

This new Guedes opinion is important by its conclusion that Chevron is irrelevant when the agency interpretation is the best interpretation.  I think I can safely say (and have said) that most agency interpretations in notice and comment regulations are the best interpretations and hence do not need Chevron deference to apply.  Whether one can quibble with my claim of frequency of agency adoption of best interpretations, one cannot I think reasonably quibble with the straight-forward conclusion that the best interpretation which an agency adopts is the law without Chevron deference.  Chevron deference thus controls only where (as I have also said often) the agency interpretation is not the best interpretation but the Court applies the “reasonable” (whatever that means) less-best agency interpretation anyway by chanting Chevron.  I have further concluded based on limited anecdotal evidence (1 year of Circuit Court opinions) that Chevron deference controls at most in a really small subset of cases (far fewer cases than one would think given the political commotion (even in judicial opinions) misunderstandings (intentional or unintentional) Chevron has generated).  See Is Chevron on Life Support; Does It Matter? (4/2/22; 4/3/23), here.

The new Guedes opinion has some other nuggets as well.  I will defer for now to turn to more pressing matters, but may add some more comment, either by additions to this blog entry or in one or more new blog entries.

JAT Further Comment (added 8/10/22 at 12:30 pm):

Upon reflection, I think the foregoing discussion of the central holding of this new Guedes opinion is so important that I should not water the discussion down with further detours.  Well, except one detour not unrelated to the central holding.

The detour is on the legislative vs. interpretive characterization of agency regulations that do no more than interpret statutory text.  I have written often on this blog and elsewhere on a difference of opinion I have with certain scholars, principally Kristin Hickman, as to whether regulations that only interpret statutory text are properly characterized under the APA as legislative or interpretive regulations.

In this new Guedes opinion, the Court noted that, for deference purposes, the prior opinion in Guedes v. ATF, 920 F.3d 1, 6 (D.C. Cir. 2019), treated the regulation as legislative and then applied Chevron framework.  In the current Guedes opinion, the court eschews the legislative characterization (except to describe the prior Guedes opinion) and applies only an interpretive analysis.  Although that does not directly address the legislative vs. interpretive question (either for deference analysis or for APA analysis), the Court’s insistence that it was an interpretive issue bespeaks, at least for APA purposes, an interpretive rule rather than a legislative rule.

As I have noted in the past, even when courts say they treat a regulation doing no more than interpreting a statute as legislative for deference purposes, they do that only on the mistaken notion that Chevron, a deference case, and perhaps Mayo, a deference case, treat such regulations as legislative as a predicate to applying the Chevron framework to test the interpretation.  In truth, as Justice Scalia noted, Chevron involved an interpretive regulation.  Chevron created the two-step framework to test the validity of the interpretation.  As I have noted, courts’ error in treating an interpretive rule as legislative in character for deference purposes is harmless error, because they then go on to apply the Chevron Framework, an interpretive framework, which produces the same analysis and result if the interpretation were properly treated as interpretive.  The erroneous characterization does not affect the outcome so long as it is limited to deference and, in a sense, except for mislabeling all is right with the world of deference.  But when courts and parties try to bleed the erroneous legislative label into the APA distinction between legislative and interpretive regulations, it can create great mischief.  For further discussion of this, see Reply to Professor Hickman's Response to My PT Article (6/17/22; 6/24/22), here, where I collect the links to the fantastic multi-blog discussion of this issue that Professors Hickman and Bryan Camp and I had on the Procedurally Taxing Blog.

Further, focusing on the core of the new Guedes case as discussed in the main body of this blog, the fact that an agency interpretation is sustained as the best interpretation means that the agency interpretation qua agency interpretation is not the law and hence cannot be a legislative rule.  The best interpretation is the law, and can be applied wholly independent of its incorporation in a regulation.  Most notably, the law can be applied retroactively to the date of the statute.  Thus, for example, despite the limitations on validity of regulation qua regulation in § 7805(b), despite incorporation of the interpretation in a Treasury regulation, the interpretation (as opposed to the regulation) can be applied fully retroactively to the date of the statute.  See Regulations Interpreting Pre-1996 Code Provisions; Fixing Hewitt (Federal Tax Procedure Blog 1/6/22; 1/7/22), here (discussing a variation of this issue).

JAT Further Comment on 8/15/22 3:30 pm:

I omitted from my original discussion the parallel Fifth Circuit opinion in Cargill v. Garland, 20 F.4th 1004 (5th Cir. 12/14/21), CA 5 here and GS here; see Fifth Circuit Affirms Agency Best Interpretation of Statute, thus Not Applying Chevron (12/20/21; 12/21/21), here.)