Does Corner Post Permit § 2401(a)’s 6-year Statute of Limitation to Apply from Date of Regulation for Procedural Challenges? (7/10/24; 8/17/24)

Added 7/11/24 4:00 pm: Caveat: My blog post below was an attempt to hammer Corner Post into the interpretive system as I understood it. Within that parameter, I think I got it right. But, since posting the blog below (after this update in red), I went back to basics to try to understand what this all means in the real world. So, here is another way to think about the interpretive regime we now have as a result of the confluence of Loper Bright (deference gone) and Corner Post. Here are the key bullet points:

• Loper Bright teaches that the best interpretation of the statute controls. The best interpretation gains or loses nothing (i) by being adopted in an agency regulation or (ii) whether the regulation is procedurally valid. 
•  The best interpretation issue is substantive and can be raised at any time (i.e., upon application or enforcement to the particular person).
• Ergo, Corner Post is the proverbial tempest in a teapot.

To extend the analysis:

• The best interpretation (whether or not in a regulation) is the interpretation applicable from the effective date of the interpreted statute. That means that the § 7805(b) constraints on retroactivity are meaningless if the IRS includes the best interpretation in a regulation.
• The adoption of the best interpretation in a regulation adds nothing of interpretive value to the regulation. However, perhaps at the theoretical margins, a procedurally regular notice and comment regulation interpretation might add some Skidmore oomph (whatever that is) to the persuasive value of the agency interpretation in the regulation.

If that makes sense and—dare I say—is persuasive to readers, there is no need to read the older portion of this blog below (but I think if one were to wallow around in the concepts presented below (as have I), one might get to the same point).

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In Corner Post, Inc. v. Board of Governors, FRS, 603 U. S. ____ (2024), SC here and GS here, the Court (Justice Barrett) held that cause of action “accrues” for purposes of the fallback 6-year statute of limitations in 28 U. S. C. § 2401(a), here, when the particular plaintiff first suffered injury from an agency action. The agency action was a regulation promulgated well before the 6-year period prescribed by § 2401(a). Corner Post, a new entity, suffered injury once it was created, thus its judicial challenge to the Regulation was timely under § 2401(a).

The gravamen of the Court’s holding is its focus on § 2401(a)’s text starting the statute of limitations when “the right of action first accrues.” That requires that the Court determine “the right of action” in the context.

The majority held that Corner Post’s claim was that the agency acted without statutory authority, an ultra vires claim. A party is injured and can challenge an invalid interpretation when the agency action applies to that party. This permitted the challenge by Corner Post, an entity created within the 6-year period before filing the challenge.

But, there is another type of APA challenge, a procedural challenge, that can be asserted to invalidate a regulation. The procedural challenges arise upon promulgation regardless of whether the regulation is otherwise substantively valid. Procedural challenges include the claim that notice and comment regulations have been promulgated without the agency having engaged in the APA procedural requirements of considering and responding to material comments. In such a procedural foot-fault case, the regulation can be within the authority conferred (e.g., offer the best interpretation of the statute) but might be invalid qua regulation solely for an alleged procedural defect. In such a case, of course, the interpretation (as opposed to the regulation) can still be valid and still be applied in a judicial proceeding despite the procedural invalidity of the regulation.

An aside: Prior to Chevron’s demise, the only effect of a procedurally invalid regulation was that the interpretation did not qualify for Chevron deference, so the court could still apply the best interpretation. See Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), CA6 here and GS here (rejecting Hewitt’s procedural invalidity holding but in any event holding that the agency interpretation was the best interpretation thus valid even without Chevron deference); see also Sixth Circuit Creates Circuit Conflict with Eleventh Circuit on Conservation Easement Regulations (Federal Tax Procedure Blog 3/15/22), here.

Did Justice Barrett's Corner Post Court majority opinion mean for its holding to apply only to substantive APA challenges? Specifically, did the majority mean to carve out procedural challenges to have § 2401(a)’s six-year statute of limitations apply from the date of the regulation’s promulgation? If so, then this holding would effectively overrule cases such as Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), here, a case brought over 30 years after the regulation was promulgated, holding the Treasury Regulation procedurally invalid for failure to discuss and respond to a material comment. See 11th Cir. Invalidates Proportionate Sharing Regulations As Procedurally Arbitrary and Capricious for Failing to Address a Significant Comment (Federal Tax Procedure Blog 12/30/21; 12/31/21), here; see also Regulations Interpreting Pre-1996 Code Provisions; Fixing Hewitt (Federal Tax Procedure Blog 1/6/22; 5/12/23), here.

As I previously noted, at oral argument in Corner Post, Justice Barrett, author of the majority opinion, engaged counsel for the parties about the effect on § 2401(a) of the distinction between procedural challenges and substantive challenges to regulations. 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; 4/6/24), here. The discussion assumed that, for applying § 2401(a)’s limitations period:

• the statute for substantive regulations begins running when the party is affected by the regulation.
• the statute for procedural regulations begins running when the regulation becomes final.

Justice Barrett’s majority opinion in Corner Post is not as clear as it could be that the substantive/procedural distinction is viable for purposes of applying § 2401(a). I read footnote 8 of Justice Barrett's majority opinion (on p. 21, here) as so indicating. I think it is worth quoting the footnote in full:

    n8 It also may be that some injuries can only be suffered by entities that existed at the time of the challenged action. Corner Post suggests that only parties that existed during the rulemaking process can claim to have been injured by a “procedural” shortcoming, like a deficient notice of proposed rulemaking. Reply Brief 18–19. We need not resolve that issue here because there is no dispute that Corner Post proffered  an injury that does not depend on its having existed when the Board promulgated Regulation II: the rule’s alleged conflict with the Durbin Amendment. The dissent’s observation that “the claims in this case are procedural,” post, at 18, is confused. Even if some of Corner Post’s claims might be procedural, its central claim—that the regulation violates the statute—is a prototypical substantive challenge.

I read that footnote as

• recognizing the procedural/substantive distinction in the § 2401(a) context, and
• at least holding open the possibility of earlier accrual for a procedural challenge.

I spent some time discussing this issue with colleagues, most of whom have more gravitas in administrative law and the APA than I do. Suffice it to say that some agree and some do not. The latter camp tend to focus (and futz over) the terms bandied about elsewhere in the opinions, such as “accrues,” “facial,” “as applied,” etc. I believe those terms can be used and misused in various ways (I have used and misused them). Indeed, for example, I think some of the Justices do not agree on the use of the “facial” term.

My interpretation of footnote 8 is affected mostly by the practical effect of allowing procedural challenges to linger on long after they can be challenged and corrected in a rational society concerned with proper workings of administrative agencies and their contributions to democracy. Procedural challenges can and should be brought relatively quickly after a regulation is promulgated so that the procedural footfault can be corrected if indeed the procedure needs correcting. Substantive challenges—acting outside the authority in the substantive statute—can be brought as applied to a particular affected party. That may not be crisp analytical thinking, but it is a practical concern and the procedural/substantive distinction makes a good rule (provided that courts can make the distinction in particular cases).

But, assuming that I am wrong and that procedural challenges can be made at any time within the 6-year period by creating a new regulated party, there is no permanent bar in § 2401(a) for procedural challenges. Since, as in Hewitt and even in Corner Post, the issue can come up for interpretations in regulations (dare I say interpretive regulations) only with respect to the interpretations. As I note above, the only effect of a regulations interpretation under Chevron was to confer deference if validly promulgated. Now, under Loper Bright, courts must apply the best interpretation of the statutory text anyway, whether or not the regulations interpretation was procedurally valid does not make a difference as to the interpretation the court must apply. (This latter assumes that the regulations authority is not mandatory in requiring a regulation.)

Which finally brings us—at least brings me—to the continuing viability of the interpretive/legislative regulations distinction much commoted over during the age of Chevron deference. (As readers of this blog will know, I was a common offender in this commotion.) In my mind, the linchpin for this commotion was the notion that Chevron (and earlier pre-Chevron Chevron deference) could attract deference which could be viewed as making the interpretation law-making rather than law-interpreting, thus making the deference-entitled interpretations legislative in character. That notion is now gone (it was always a distraction). Interpretations in regulations and subregulatory guidance are just interpretations that are now tested for the best interpretations. Regulations doing no more than interpreting can be described for what they are—interpretive regulations.

And, also finally, this leads to a related issue that Loper Bight's rejection of Chevron deference also moots. The general rule is that interpretations (whether in regulations or subregulatory guidance and whether proffered by courts or agencies) apply retroactively to the effective date of the interpreted statute. The general rule for legislative regulations is that they must apply prospectively from 30 days of the date of finalizing or, at the earliest, from promulgating an interim final rule (like Treasury’s Temporary Regulations). The notion is that a legislative regulation creates a new duty or obligation not within the fair interpretive scope of the statutory text, whereas an interpretive regulation does not create a new duty or obligation within the fair interpretive scope of the statutory text. There is some commotion about whether § 7805(a) authorizes both interpretive and legislative regulations (or whether it authorizes only regulations in either category). In any event § 7805(b) limits retroactive effect for 7805(a) regulations (however characterized). But, as I said before, that only affects the Chevron deference the regulation would have conferred on the interpretation and does not affect the interpretation itself. So, if the agency interpretation is valid qua the interpretation (just as a court interpretation), it can be effective back to the effective date of the statute even if outside the limitations of § 7805(b). That means that the agency interpretation adopted in a notice and comment regulation meet the Loper Bright requirement of the best interpretation and, if it does so, the best interpretation will apply from the effective date of the statute without any interpretive value added by the fact that the interpretation is adopted in a regulation.

Items in red were added on 8/17/24 at 9:45 am.