A Reminder on Chevron in Agency Adjudications (3/25/24)

With the Supreme Court poised to decide the future, if any, of Chevron deference, I hesitated to provide a discussion of a current decision on deference. Still, I thought it would be helpful to do so because the case discussed in this blog involves the application of Chevron deference to agency adjudications which differ materially from the current cases before the Supreme Court involving agency rulemaking. The context for this blog entry is retroactivity in agency adjudicative interpretation which has different features than agency rulemaking interpretation. (That is not to say that whatever the Supreme Court does will not affect appellate review of agency interpretations in adjudications.)

As an aside, I do wonder why courts, such as the Second Circuit in the case prompting this blog entry, are deciding cases on the basis of Chevron deference, rather than postponing them for decision when the current Supreme Court challenges are resolved (probably by the end of May).

As an introduction to today’s discussion, I think it helpful to state the material differences between agency rulemaking and agency adjudications as respects interpretation and retroactive application. In this introduction, I state general propositions in most cases without citations. All of the subjects are covered in my prior article, The Report of the Death of the Interpretive Regulation Is an Exaggeration (last revised 4/8/22), posted on SSRN, here.

In this discussion, I will refer to Chevron deference as the applicable benchmark, but as I have previously discussed, deference to agency interpretations with the key features of Chevron deference was applied long before Chevron. Those key features of are—(i) ambiguity in the statutory text; and (ii) reasonable agency interpretation within the scope of the ambiguity. Supreme Court opinions prior to Chevron stated deference in those terms. See The Tax Contribution to Deference and APA § 706 (December 14, 2023 SSRN 4665227), here.

Agency rulemaking

If the rule is legislative in character, the rule must be promulgated in a notice and comment regulation. The only exception is when the legislative rule is accompanied by a “good cause” statement as to why it should be immediately effective when first promulgated (called an interim final rule in general administrative law jargon and a temporary regulation in tax jargon). The general rule is that, without explicit statutory authority for retroactivity, legislative rules cannot be retroactive prior to the date of promulgation of the rule. (This parallels the general rule that legislation cannot be retroactive.) Legislative rules being the law rather than interpretations of the law are not susceptible to Chevron deference, which tests the reasonableness of an interpretation within the scope of ambiguity in the statutory text. (The statement made by many pundits and even courts that Chevron deference applies to legislative regulations or only to legislative regulations is an oxymoron; making such statements, even by pundits or courts, does not make them true.)

If the rule is interpretive in character, the general rule is that a valid interpretation can be retroactive to the date of enactment of the statute. The concept is that the interpretation merely clarifies an ambiguity in the statutory text within its reasonable scope of interpretation from the date of enactment; the application of the interpretation does not offend due process since all persons to whom the law could apply were on notice that some interpretation of the ambiguous statutory text may be forthcoming; in other words, they did not reasonably rely upon some alternative interpretation. This is the same rule that applies generally to court interpretations of statutes—retroactivity to the date of enactment of the statute.

I do not address changes in interpretations under Brand X which may introduce due process considerations in the case of reasonable reliance on prior interpretation(s); of course those same due process considerations may apply when courts change interpretations, a not uncommon phenomenon; but such changing interpretations and the due process issues they raise can be set aside for this discussion.)

Agency Adjudications

Adjudications are judicial procedures and are not rulemaking in the sense contemplated in the APA. Adjudications do not announce legislative rules—i.e., law that is not within the interpretive scope of statutory ambiguity.

The agency adjudicator, like a judge in a regular court proceeding, can only interpret to apply the law.  See Chevron and Interpreting Through Agency Adjudications (Federal Tax Procedure Blog 8/28/21; 9/3/21), here.

Now to the case that prompted this blog entry. 

In Wong v. Garland, ___ F.4^th ___ (2d Cir. 3/11/24), CA2 here and GS here, the Court affirmed a Board of Immigration Appeals (BIA) interpretation of a statute, conferring Chevron deference to the BIA’s interpretation. The key deference holding is summarized here (Slip op. 11):

For the reasons set forth below, we hold that the BIA's decision warrants Chevron deference because the term "conviction" under 8 U.S.C. § 1101(a)(48)(A) is ambiguous and the BIA's interpretation of that term is reasonable. We further hold that the BIA's retroactive application of its "minimum constitutional protections" test was appropriate. As a result, we conclude that Wong's disorderly persons offense under New Jersey law constituted a "conviction" for a "crime" for purposes of removal under 8 U.S.C. § 1227(a)(2)(A)(ii).

The more dubious part of the opinion is the discussion of the retroactivity prior to the BIA opinion adopting the interpretation in the case. In getting to the right answer of retroactivity, the Court thrashes around with--and in my view misstates--the APA issues that apply to interpretations. The Court thus seems to apply the “arbitrary or capricious” standard in APA § 706. The arbitrary or capricious standard is a procedural standard testing the procedural regularity of the promulgation of the interpretation (e.g. properly responding to significant comments); § 706’s arbitrary and capricious standard is a different test than Chevron’s reasonableness of the interpretation standard. See Distinction Between APA Arbitrary and Capricious Review and Chevron Interpretive  Reasonableness Review (Federal Tax Procedure Blog 6/19/20; 7/24/20),  here; and Oral Argument in Corner Post on Whether Procedural Challenges to Regulations Are Subject to § 2401(a)’s Six-Year Statute of Limitations (Federal Tax Procedure Blog 2/21/24), here.

I will not dive deeper into that confusion about the proper standard, because the Second Circuit gets the bottom-line holding right—applies Chevron deference based on the reasonableness of the interpretation.  I call to readers’ attention the retroactivity discussion (Slip op. 20-25). In that discussion, the Court applies a balancing test to determine whether the interpretation should be applied retroactively. The Court opens its discussion (Slip Op. 20-21) with:

          Wong argues in the alternative that even if the BIA's interpretation was not arbitrary and capricious, it should not have applied retroactively to his case. "Agencies may create new rules through adjudication, but the retroactive application of the resulting rules `must be balanced against the mischief of producing a result which is contrary to a statutory design or to legal and equitable principles.'" Obeya v. Sessions, 884 F.3d 442, 445 (2d Cir. 2018) (quoting SEC v. Chenery Corp., 332 U.S. 194, 203 (1947)). "The more an agency acts like a judge[,] applying preexisting rules of general applicability to discrete cases and controversies[,] the stronger the case may be for retroactive application of the agency's decision." Marquez v. Garland, 13 F.4th 108, 111-12 (2d Cir. 2021) (alterations and internal quotation marks omitted). But "the more an agency acts like a legislator[,] announcing new rules of general applicability[,] the stronger the case becomes for limiting application of the agency's decision to future conduct." Id.

          In determining whether to retroactively apply an agency decision, we consider the following factors:

(1) whether the case is one of first impression, (2) whether the new rule presents an abrupt departure from well-established practice or merely attempts to fill a void in an unsettled area of law, (3) the extent to which the party against whom the new rule is applied relied on the former rule, (4) the degree of the burden which a retroactive order places on a party, and (5) the statutory interest in applying a new rule despite the reliance of a party on the old standard.

Lugo v. Holder, 783 F.3d 119, 121 (2d Cir. 2015).

Suffice it to say for now that the Court approves the retroactive application of the BIA interpretation. The reason it could even consider retroactivity is that it was acting like a court in interpreting the ambiguity in the statute and was not creating new law (which agency and judicial adjudicators are not authorized to do).