Chevron Step Two Reasonableness and Agency Best Interpretations in Courts of Appeals (2/9/23)

Many observers have noted that the Supreme Court has avoided Chevron deference in recent years. E.g., Isaiah McKinney, The Chevron Ball Ended at Midnight, but the Circuits are Still Two-Stepping by Themselves (Notice & Comment 12/18/22), here. The Supreme Court has affirmed so-called Auer deference for agency subregulatory interpretations of ambiguous regulations. Kisor v. Wilkie, 588 U.S. ___, 139 S.Ct. 2400 (2019). (Auer deference is now sometimes called Auer/Kisor deference.) But the Supreme Court has not deployed core Chevron deference recently, although one prominent scholar has said that Kisor was an affirmation of Chevron deference. Cass R. Sunstein, Zombie Chevron: A Celebration, 82 Ohio St. L.J. 565, 570-571 (2021) (“If Kisor was right, it would be easy to conclude that Chevron was also right, and for exactly the reasons given by the Court in that case.”) Still, I suspect that the Supreme Court’s Chevron avoidance is to avoid reflexive deference and more rigorously apply the tools of construction to find no ambiguity at Chevron Step One (without mentioning Chevron).  See e.g., Isaiah McKinney, At the Supreme Court, Chevron Deference Has Morphed into the Application of the Tools of Construction (Notice & Comment 2/9/23), here.

Not all Justices avoid Chevron. Justice Gorsuch has lamented Chevron in dissenting opinions. E.g., Buffington v. McDonough, 143 S. Ct. 14 (2022), here, discussed at Justice Gorsuch's Newest Rant on Chevron and the Administrative State (Federal Tax Procedure Blog 11/7/22; 11/8/22), here. This ranting is just a continuation of his famous claim on the 10^th Circuit that Chevron was the “elephant in the room * * * [permitting] executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers' design.” Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1153 (10th Cir. 2016) (concurring to his own majority opinion apparently because he could not get the other judges on the panel to join his rant).

With Chevron falling  into desuetude on the Supreme Court, others have noted that the Chevron action is in the lower courts, noting particularly the Courts of Appeals. Chevron is Supreme Court authority that has not been overruled; logically, Chevron should be used by Courts of Appeals in appropriate cases.

I recently tested a one-year dataset of possible Chevron applications in the Courts of Appeals. Is Chevron on Life Support; Does It Matter? (Federal Tax Procedure Blog 4/2/22; 4/3/22), here. That data set included no Court of Appeals opinion where the Court said it was deferring to a less persuasive agency interpretation. In each instance where a Court of Appeals invoked Chevron in outcome determinative way, it simply declared the agency interpretation reasonable at Chevron Step Two. Of course, agency interpretations that are the best interpretations are reasonable. So, when a court stops at merely declaring the agency interpretation reasonable, it has not determined that the agency interpretation was not the best interpretation and was deferring anyway.

I think a fair inference can be drawn that many, perhaps most, cases where the Courts of Appeals stop at determining reasonableness of the interpretation are applying the agency best interpretation. Consider this from 2d Circuit Judge Newman, one of the more astute observers of the legal scene (from Jon O. Newman, On Reasonableness: The Many Meanings of Law’s Most Ubiquitous Concept, 21 J. App. Prac. & Process 1, 83 (2021) (emphasis supplied)):

It is difficult to know how the Supreme Court or other federal courts determine whether an agency’s interpretation of an ambiguous statute is “reasonable.” No weighing process appears to be involved. It would probably be too cynical to suggest that the courts are just accepting agency interpretations with which they agree and rejecting those they disfavor, but in some cases that almost seems to be what is happening. Clearly there is no one meaning of “reasonable” in the context of Chevron deference. Perhaps this is simply a context where there is a narrow range of acceptable agency interpretations, on either side of the disputed issue, that courts are willing to uphold, but they are ready to assert the power to reject others that, for stated, or more often unstated, reasons, they deem beyond an amorphous notion of “reasonable.”

As I read this, by saying that the judges are applying under the mask of reasonable the interpretations with which they agree, Judge Newman is saying that the judges are applying their own best interpretations—i.e., the interpretation they would apply without any deference to the agency interpretation. If that is right (I think it is), there is much less to Chevron than imagined by those (such as Justice Gorsuch) who see evil in Chevron. (Conversely, if Chevron (or any similar deference) were eliminated, there would not be many changes in outcome.)

I said all this in my prior blog linked above. The occasion for today’s post (perhaps rant) is analysis of another data set. The data set is from a submission by the Cato Institute and Liberty Justice Center’s amicus brief in support of the petition for writ of certiorari in Loper Bright Enterprises v. Raimondo. The data set, here, used and linked in the Isaiah McKinney article above, is explained:

Cases from January 1, 2020 through December 31, 2021 were compiled by Cato Legal Associate, Isaiah McKinney. Cases were limited to those that mentioned Chevron at least 4 times, discussed it in the majority, and analyzed whether to apply Chevron. The data excludes cases that applied Auer/Kisor deference rather than Chevron and cases that were decided without addressing whether Chevron applied. The data is also limited to reported cases. Each case was only counted once, even if it contained multiple statutory interpretations. Controlling weight for this study was given to the interpretation where the court deferred to the agency.

The data set was presented in a spreadsheet pdf format. I have converted the pdf to an Excel spreadsheet and have used Excel’s table tools feature to permit sorting and filtering by criteria in the columns. I offer that spreadsheet here (converted to Google Sheets) or here (zip file with Excel file). (Note that this spreadsheet is password protected to prevent changing the cell information; for those with an interest in making changes (including using the sorting and filtering features), please email me at jack@tjtaxlaw.com.) As presented, this spreadsheet filters the entire set to show only agency wins applying the agency interpretation at Chevron Step Two, which is the only Step where deference could apply.

The key categories for Chevron deference (see my prior post) are presented below and results of the analysis of only agency wins at Chevron Step Two. I do not include applications of Skidmore because Skidmore is not deference but just a tool or guide for considering the agency interpretation in determining the best or most persuasive interpretation.  See Really, Skidmore "Deference?" (Federal Tax Procedure Blog 5/31/20; 2/14/21), here.

 The key Categories 5 and 6, with Category 5 being real deference at Step Two and Category 6 being reasonable which is inconclusive as to deference at Step Two. The results in those categories (with a description of the categories) are:

Stats below are for IRS Wins at Chevron Step Two (per columns D&E of Loper-App Spreadsheet)
Category 0 - Cannot characterize but no deference; some could be like Chevron Step 0. this Category was not in the Postscript	1
Category 1 - Statute unambiguous because no interpretive space for agency interpretation; no deference. Could be Chevron Step One.	0
Category 2 - Statute ambiguous; no agency interpretation; court interprets; no deference	0
Category 3 - Court determines agency interpretation is best interpretation and applies it; no deference	9
Category 4 - Court determines agency interpretation unreasonable & applies the court's better interpretation; no deference (could be Chevron Step Two or even Step One)	0
Category 5 - Court determines agency interpretation is reasonable but not best interpretation and defers to the agency interpretation anyway; deference (This is only category where it is clear that a court actually deferred to a less reasonable agency interpretation) (Conceptually Chevron Step Two)	0
Category 6 - Court determines agency interpretation is reasonable but makes no determination of best interpretation; applies agency interpretation; possible deference but inconclusive (Conceptually Chevron Step Two)	45
Category 7 - Court determines agency interpretation is reasonable but there is at least one other reasonable interpretation and court is in equipoise as to the best interpretation; court applies agency interpretation; no deference (because the court does not defer to a less persuasive agency interpretation) (Conceptually Chevron Step Two without deference)	0
Total	55
Total Wins & Step2	55

These results are consistent with the results in the earlier data set.

The key point is that when, as is usually the case, Courts stop at determining reasonable at Step Two, it is inconclusive as to whether they are really deferring to a less persuasive agency interpretation. Judge Newman’s insight (as noted above) is that most of the time they are not deferring to a lesser agency interpretation but are applying the interpretation they like (i.e., would apply in the absence of an agency interpretation).  And to extend that thought, as noted above, not many outcomes would change if Chevron or any vestige of deference to agency interpretations were eliminated.