PDR on Remand to 4th Circuit with Further Confusion of the APA's Legislative / Interpretive Rule Distinction (12/9/20)

In Carlton & Harris Chiropractic Inc. v. PDR Network, LLC, 2020 U.S. App. LEXIS 38073 (4th Cir. 2020), here, the Fourth Circuit punted to the district court the important and potentially contentious issues on remand from PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., 139 S. Ct. 2051 (2019).  I wrote on the Supreme Court’s opinions in PDR previously.  Supreme Court Again Weighs In At the Edges on Legislative and Interpretive Rules (6/23/19; 7/2/19), here.

The Fourth Circuit held, as I reasoned in the blog, that the rule in issue (an FCC Order) was interpretive rather than legislative.  If it were a legislative rule, it would have been required to be promulgated as a regulation with notice and comment and, since it was not so promulgated, the Rule does not fail for that reason.  As an interpretive rule, however, the interpretation in the rule would be subject to Chevron analysis and potential deference if Chevron applied to such subregulatory guidance (Chevron does not) and to potential Skidmore analysis if not Chevron-eligible.

I do note that the Fourth Circuit muddles the analysis of the difference between legislative rules (which must be notice and comment regulations) and interpretive rules (which may, but need not be and usually are not, notice and comment regulations).  As I have noted often in this blog and in an article which I cite and link below, there are two relevant categories of interpretive rules – interpretive rules with notice and comment and interpretive rules without notice and comment.  The latter, in IRS lingo (and much administrative law lingo), are referred to as subregulatory interpretive rules.  Interpretive rules in notice and comment regulations are subject to the Chevron interpretive regime testing whether the interpretation is a reasonable interpretation and, usually, requiring Chevron deference if the interpretation is reasonable.  Although the Supreme Court has suggested that some subregulatory interpretations might be entitled to Chevron deference, I am not aware of any instance in which the Supreme Court or any other court has given Chevron deference to subregulatory interpretations.

Now, I quibble with the following paragraph of the Fourth Circuit’s opinion:

The convenience of having to jump through fewer procedural hoops to issue agency guidance, however, "comes at a price: Interpretive rules 'do not have the force and effect of law and are not accorded that weight in the adjudicatory process.'" Perez, 575 U.S. at 97 (quoting Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87, 99, 115 S. Ct. 1232, 131 L. Ed. 2d 106 (1995)); see also Batterton v. Francis, 432 U.S. 416, 425 n.9, 97 S. Ct. 2399, 53 L. Ed. 2d 448 (1977) ("[A] court is not required to give effect to an interpretative regulation."). The 2006 FCC Rule is interpretive, and so the district court wasn't bound by it. 

Focus on the statement above that I highlight by red font.  That is rock solid because only legislative regulations have the force and effect of law; interpretive rules do not have the force and effect of law whether they are in regulations or in subregulatory guidance. The second statement, from Batterton, highlighted in blue says the same thing.  Chevron simply requires a court to defer to an agency interpretation in a regulation if it is reasonable.  In Batterton, the Court was considering a legislative rule.  Michael Asimow, Public Participation in the Adoption of Temporary Tax Regulations, 44 Tax Lawyer 343, 353 (1991) (citing Batterton in which the Court “correctly treated the rule as legislative” where the statute used the term “unemployment (as determined in accordance with standards prescribed by the Secretary).”  

The Fourth Circuit later says (cleaned up to eliminate parallel cites):  

The Supreme Court has held that Chevron deference applies only when a court interprets a rule issued pursuant to an agency's authority to "make rules carrying the force of law," Gonzales v. Oregon, 546 U.S. 243, 255 (2006). When the agency's interpretation doesn't create law, courts must decide whether to afford that interpretation Skidmore deference. Id. (citing Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).

That is the troubling statement that the Supreme Court itself confuses because an interpretation of statutory text is not a legislative rule which, by definition, creates new rules beyond what the statute commands.  If, however, the rule (whether by regulation or otherwise), the interpretation is tested not as a legislative rule but as an interpretive rule under Chevron and Skidmore, if appropriate.

Perhaps the key to this confusion is the erroneous notion that, if a court defers to an agency interpretation, the agency is creating law.  That is not the case.  Rather, the agency is simply doing the same thing courts do with ambiguous statutory text to interpret the law rather than create the law. At least as traditionally conceived, courts do not create new law interpreting statutes.  Similarly, agencies do not  either.  And, in this regard, Chevron itself was an interpretive regulation rather than a legislative regulation.   

I have developed my ideas at length in Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration  (August 23, 2020). Available at SSRN: https://ssrn.com/abstract=3400489.  For support of the last proposition that Chevron involved an interpretive regulation, see particularly the article p. 78 n. 323 (which I cut and paste here).

Christensen v. Harris County, 529 U.S. 576, 589-90 (2000) (Scalia, concurring in part and concurring in the judgment) (“Chevron in fact involved an interpretive regulation”); Hospital Corp. of America v. Commissioner, 348 F.3d 136, 140 (6th Cir. 2003) (“This court has applied the Chevron analysis to interpretive  Treasury  regulations. [citation omitted] And indeed, Chevron itself involved deference to an agency interpretation of a  statutory term.”); and Thomas W. Merrill & Kathryn Tongue Watts, Agency Rules with the Force of Law: The Original Convention, 116 Harv. L. Rev. 467, 587-590 (2002). However, evidencing the confusion in the area, other scholars call the Chevron regulation legislative rather than interpretive. Robert A. Anthony, Interpretive Rules, Policy Statements, Guidances, Manuals and the Like-Should Federal Agencies Use Them to Bind the Public?, 41 Duke L.J. 1311, 1325 n. 64 (1992) (citing Chevron as “A classic case of statutory interpretation by means of a legislative rule.”); and Cass Sunstein, Law and Administration after Chevron, 90 Colum. L. Rev. 2071, 2093 (1990) (“Chevron involved a ‘legislative rule,’ that is a rule issued by an agency pursuant to a congressional grant of power to promulgate regulations”; but Professor Sunstein immediately then moved into the presumption of interpretive power from ambiguous statutory text and says “Chevron applies only when an agency is exercising the power to make rules or otherwise carrying out legislatively delegated interpretive authority.”; so it is not clear exactly that he really means the opening statement as he gives it.); and, finally, Professor Sunstein states in a later article (Cass R. Sunstein, Chevron as Law, 107 Geo. L.J. 1613, 1657 (2019) “the current consensus, which is that Chevron rests on an implied delegation of interpretive authority” Emphasis supplied).

JAT further comments (12/9/20 8:00pm):

I have been emailing with a colleague about the CIC Services case.  See CIC Servs., LLC v. IRS, 925 F.3d 247 (6th Cir. 2019), reh., en banc, denied 936 F.3d 501 (2019), cert. granted 140 S. Ct. 2737 (2020).  See e.g., my most recent blog last week, CIC Services Supreme Court Oral Argument (Federal Tax Procedure Blog 12/3/20), here, linking to the oral argument recording and transcript.  CIC and PDR have core issues as to the consequences of the APA distinction between legislative rules and interpretive rules.

The distinction comes up in CIC because CIC claims that it is entitled to pre-enforcement review to challenge whether the IRS Notice imposing the obligation to report and potential penalty for failure to do so is a legislative rule required to be promulgated only by notice and comment regulation (with some possibility that it could be promulgated by Temporary Regulation with a good cause statement for immediate effect (interim-final rule)).  Thus, in the CIC oral argument transcript (pp. 46-57) the following key argument is made:

[*46]

[MR. BOND, U.S. COUNSEL]

Petitioner's argument at bottom is that it is not required to provide this information because the statute only requires it [*47] to submit information covered by regulations.

  And, here, the IRS has not issued a valid regulation.

They say that the guidance is not a regulation and only regulations can require them to supply information. That is their –

This is not as crisp as I would have preferred but I think it captures the point.  If there is to be pre-enforcement review, then there must be a procedure that gets around the AIA (§ 7421) to do so and only then can the court reach the merits of the challenge (whether notice and comment regulation is required).  The Supreme Court could, I suppose, reach the issue of whether notice and comment is required if it permits pre-enforcement review, but as in PDR, it might want to remand to the lower courts to weigh in (further) on that issue, because I don't think the record and briefing in the Supreme Court really fully engage that issue.