I previously included in another blog an introduction to Corner Post v. Board of Governors of the Federal Reserve System (Sup. Ct. Case No. 22-1008), here, See Update on Supreme Court Deference Case (with Speculation) and New Supreme Court case on General 6-year Statute for Challenging Regulations Interpretations (Without Speculation) (Federal Tax Procedure Blog 10/1/23), here. The question presented in Corner Post is addressed to § 2401(a)’s general fallback statute of limitations of six years :
Does a plaintiffs APA claim "first accrue[]" under 28 U.S.C. §2401(a) when an agency issues a rule-regardless of whether that rule injures the plaintiff on that date (as the Eighth Circuit and five other circuits have held)-or when the rule first causes a plaintiff to "suffer[] legal wrong" or be "adversely affected or aggrieved" (as the Sixth Circuit has held)?
The Solicitor General (“SG”) worded the question presented
slightly differently (appellate fans will understand the subtle difference):
Whether the court of appeals correctly held that petitioner’s freestanding challenge to a rule adopted by the Board of Governors of the Federal Reserve System in 2011 was untimely under the six-year statute of limitations in 28 U.S.C. 2401(a) because petitioner had brought that challenge more than six years after the rule was adopted.
I noted that the resolution of Corner Post could affect many cases, including tax cases. E.g., Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), GS here (where the Court invalidated an interpretive tax regulation promulgated in the 1980s for procedural irregularity (failing to consider and respond to meaningful comments during the notice and comment process).
Oral argument in Corner Post was held Tuesday, February 20, 2024. See the transcript here and the recording here. I won’t cover oral argument except as it might affect an issue I have discussed before—the difference between arbitrary and capricious procedural review and interpretation review through Chevron deference. The context for the following excerpts is whether procedural challenges (such as failure to consider and respond to comments in the notice and comment process) are subject to § 2401(a)’s six-year statute of limitations. Other nonprocedural challenges, referred to as substantive but, I think, meaning interpretive challenges of whether the regulation properly interprets the statute may be made on an as-applied basis during enforcement many years after the regulation was promulgated. [Added 4/6/24 1pm - see * at end of this blog entry] I quote the entire portions of the transcript (Tr. 33-24; & 73-74; note that Mr. Weir is counsel for Corner Post. and Mr. Snyder is Assistant Solicitor General, counsel for the Government):
JUSTICE BARRETT: I just have one [*34] question and it's about your point about procedural challenges not being the kind of challenges that you could bring or, and you say, I think, that that's part of the explanation for why the government's parade of horribles on page 39 of its brief is not so horrible.
The procedural challenges are out, am I right?
MR. WEIR: That's -- that's what we think is the -- is the best reading of -- of how injury occurs in that context. It doesn't need -- the Court doesn't need to reach it in this --
JUSTICE BARRETT: Are --
MR. WEIR: -- case because we don't have procedural challenges.
JUSTICE BARRETT: So are arbitrary and capricious challenges procedural or not?
MR. WEIR: Those are substantive. And -- and you --
JUSTICE BARRETT: So those would be substantive in your view?
MR. WEIR: That's correct. And -- and -- and you can raise those in as-applied enforcement contexts as well.
JUSTICE BARRETT: Thank you.
[*73]
JUSTICE SOTOMAYOR: And, number two, opposing counsel, in answering Justice Barrett, said that procedural challenges would not happen. But in your brief, you suggested they would. Could you tell me why their concession is not convincing to you?
MR. SNYDER: Well, I mean, we said our brief -- we said it in our brief before they had made that concession. They -- they hadn't said that until the reply brief. And their complaint includes procedural challenges. If you look at paragraphs 93 and 95 of their complaint, they include arguments that the agency failed to provide a reasoned explanation of Regulation II and that the record before the agency wasn't [*74] sufficient to support it.
So I -- I'm glad that they're willing to give up procedural challenges, but we hadn't anticipated that before.
Second, petitioner is wrong to equate the scope of review that courts provide in timely facial challenges with the review that is available during enforcement proceedings. Under existing practice, “a party against whom a rule is applied may, at the time of application, pursue substantive objections to the rule, including claims that an agency lacked the statutory authority to adopt the rule.” Independent Community Bankers of [*41] America v. Board of Governors of the Federal Reserve System, 195 F.3d 28, 34 (D.C. Cir. 1999) (emphasis added). “By contrast, * * * procedural attacks on a rule’s adoption are barred even when it is applied.” Ibid.; see, e.g., Coal River Energy, 751 F.3d at 664 (“[W]hen the government actually applies its regulation against a party * * * , [the party] can mount a substantive rather than a ‘procedural’ defense against the regulation.”); Dunn-McCampbell Royalty Interest, Inc. v. National Park Service, 112 F.3d 1283, 1287 (5th Cir. 1997) (similar); Wind River Mining Corp. v. United States, 946 F.2d 710, 715-716 (9th Cir. 1991) (similar); see also PDR Network, 139 S. Ct. at 2060 (Kavanaugh, J., concurring in the judgment) (“[A] party traditionally has been able to raise an as-applied challenge to an agency’s interpretation of a statute in an enforcement proceeding.”) (emphasis added). n11
n11 While not directly at issue here, that contrasting treatment appropriately reflects the different nature of substantive and procedural objections. Where a court is reviewing an agency enforcement order that applies a regulation adopted more than six years earlier, the only “final agency action” properly before the court is the enforcement order itself. 5 U.S.C. 704. If the underlying regulation reflected an unreasonable interpretation of the governing statute, however, the order will ordinarily be “not in accordance with law” because it, too, will conflict with the statute. 5 U.S.C. 706(2)(A). Unless Congress has provided otherwise, therefore, the reviewing court appropriately evaluates a challenger’s substantive objections to the regulation in the course of reaching a judgment about the lawfulness of the enforcement order before it. The same is not true for procedural objections to an underlying regulation. In the ordinary course, an agency does not act “arbitrar[ily]” or “capricious[ly]” by enforcing an extant regulation, ibid., even if a challenger could have raised procedural objections to the regulation when it was originally adopted. Arguments about the procedural invalidity of the underlying regulation therefore provide no basis for setting aside an enforcement order that was itself the product of proper agency procedures.
This is consistent with my understanding that arbitrary and capricious review is different from Chevron interpretation review. Much confusion in this regard comes from the misreading of Justice Kagan’s footnote in Judulang v. Holder, 565 U.S. 42, 53 n.7 (2011). In fact, Justice Kagan said that “arbitrary or capricious review under the APA,” rather than Chevron, is “the more apt analytical framework” when agency’s decision “is not an interpretation of any statutory language”). See Distinction Between APA Arbitrary and Capricious Review and Chevron Interpretive Reasonableness Review (Federal Tax Procedure Blog 6/19/20; 7/24/20), here, discussing the misreading of Judulang and referring to my larger SSRN article discussing the matter.
Finally, note that the Government in the quote above says that interpretation review is under the “not in accordance with law” standard in § 706. I boldfaced the standard in the SG Merits Brief excerpted above because that is the APA standard for statutory interpretation of agency authority. I recently posted an article on SSRN about that specific text being likely an APA adoption of the precise statutory review text interpreted in Dobson to require deference. Dobson v. Commissioner, 320 U.S. 489 (1943), reh. den. 321 U.S. 231 (1944). Dobson articulated deference under the "not in accordance with law" statutory standard in key respects like Chevron deference—ambiguity and reasonable interpretation. The “not in accordance” language was not in the text of the APA when introduced in 1945 but was in the text of § 10(e) [now § 706] when enacted. I could not find when, by whom, or why the "not in accordance with law" text was added in the legislative process (my hunch (and that's all it is) is Carl McFarland who worked with Congress in enacting the statute initiated it). I don’t know how the major discussions of § 706 have missed this point. But I am confident that the major players knew precisely what those words meant because Dobson had definitively interpreted them.
For the article I mentioned in the last paragraph see
For blogs on various aspects of points in the article, see
• Article on The Tax Contribution to Deference and APA § 706 Posted on SSRN (Federal Tax Procedure Blog 12/14/23), here;
• Scholar Doubles Down on Erroneous Claim that APA § 706 Precludes Deference (Federal Tax Procedure Blog 1/23/24; 1/24/24), here;
• Musings on Proposed § 6751(b) Regulations and the Potential Demise of Chevron Deference (Federal Tax Procedure Blog 1/8/24; 1/15/24), here; and
• Key Points in Oral Arguments on 1/17/24 in the Supreme Court Cases Considering the Future of Deference (Federal Tax Procedure Blog 1/18/24), here.
Added 4/6/24 1pm: I said above that procedural challenges were like those in Hewitt as to improper procedure in the promulgation of the rule (in Hewitt, failure to address meaningful comments), with procedural challenges being susceptible to the 6-year statute of limitations. I contrasted procedural challenges with substantive challenges and reasoned that such substantive challenges would involve whether the regulation was within the fair interpretive scope of the statutory text under what is now called Chevron deference. Extending that reasoning, even if Chevron deference is eliminated or scaled back substantially, the substantive issue is whether the regulation can stand given the statutory text interpreted.
In Valley Park Ranch, LLC v. Commissioner, 162 T.C. ___, No. 6 (slip op. 16 n. 12) (3/24/24), GS temp link here, the Court seemed to agree with that differentiation between procedural and substantive:
n12 As best we understand Mr. Oppenheimer’s motion papers, he is challenging only the procedural validity of Treasury Regulation § 1.170A-14(g)(6)(ii). Nonetheless, we acknowledge his passing reference to the regulation’s purported substantive invalidity under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984). However, this reference was raised for the first time in his response to our Order, see Pet’r’s Resp. to Order (No. 35); Order (No. 28), and is beyond the scope of the briefing requested through that Order. Oakbrook I also held that Treasury Regulation § 1.170A-14(g)(6) was substantively valid under Chevron. See Oakbrook I, 154 T.C. at 195–200. The Eleventh Circuit’s opinion in Hewitt did not reach the regulation’s substantive validity under Chevron. See Hewitt v. Commissioner, 21 F.4th at 1339 n.1. Consequently, Mr. Oppenheimer’s passing reference to the regulation’s purported substantive invalidity does not alter our disposition of the Motions.
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