Do General Authority Congressional Delegations of Authority to Prescribe Regulations to Carry Out the Provisions of the Statute Qualify for Loper Bright Deference? (11/12/24)

In Schaffner v. Monsanto Corp., 113 F.4th 364 (3rd Cir. 2024), CA3 here and GS here, the Court dealt with EPA pre-emption over state law labeling requirements. I won’t dive into the weeds on the substantive issue, but I focus on the Loper Bright issue of delegation of authority to the EPA to interpret—"fill up the details.” (See Slip Op. 27 n. 9, 113 F.4^th, at 381 n. 9):

Our analysis proceeds in three steps. First, in Part IV(A), we examine "EPA regulations that give content to FIFRA's misbranding standards."n9
   n9 The Supreme Court has recently overruled its decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), holding that "[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority." Loper Bright Enters. v. Raimondo, ___ U.S. ___, 144 S. Ct. 2244, 2273, 219 L.Ed.2d 832 (2024). Prior to Loper Bright, courts might have owed deference to the EPA's interpretation of the statutory term "misbranding," but no more. Nonetheless, while Loper Bright requires courts, not agencies, to determine the meaning of statutory terms such as "misbranding," we do not read the decision to undermine the EPA's authority to promulgate the regulations that implement FIFRA. As the Court explained in Loper Bright, while courts alone must ascertain a statute's meaning, "the statute's meaning may well be that the agency is authorized to exercise a degree of discretion." Id. at 2263. And one way for statutes to express that meaning is when they "empower an agency to prescribe rules to `fill up the details' of a statutory scheme." Id. (quoting Wayman v. Southard, 23 U.S. (10 Wheat.) 1, 43, 6 L.Ed. 253 (1825) ). FIFRA is such a statute: it expressly authorizes the EPA Administrator "to prescribe regulations to carry out the provisions" of the statute. 7 U.S.C. § 136w(a)(1). We therefore conclude that Loper Bright does not undermine the validity of the EPA regulations that govern pesticide labeling and that we consider in analyzing preemption under FIFRA in this opinion.

I focus on the enabling statute for Loper Bright agency authority to “fill up the details.” The statute quoted in part in the footnote excerpt above is 7 U.S.C. § 136w(a)(1), here, is in full:

(a)In general
(1)Regulations. The Administrator is authorized, in accordance with the procedure described in paragraph (2), to prescribe regulations to carry out the provisions of this subchapter. Such regulations shall take into account the difference in concept and usage between various classes of pesticides, including public health pesticides, and differences in environmental risk and the appropriate data for evaluating such risk between agricultural, nonagricultural, and public health pesticides.

 In (a)(2), the EPA-specific procedure for the regulations is in addition to the procedures in the APA for notice and comment regulations; (a)(2) is not relevant to the balance of the discussion. (For the balance of this discussion, all  references to regulations will be to notice and comment regulations.)

It strikes me that the authorization in (a)(1) is parallel to the authorization in § 7805(a), here, which I also quote and bold-face the relevant language:

(a)Authorization. Except where such authority is expressly given by this title to any person other than an officer or employee of the Treasury Department, the Secretary shall prescribe all needful rules and regulations for the enforcement of this title, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.

Perhaps the key difference is that § 7805(a) authorizes “rules and regulations” and 7 U.S.C. § 136w(a)(1) authorizes only “regulations.” In both cases, at least in terms of historical deference, regulations are required. So, the question raised—and by no means yet definitively answered—is whether § 7805(a) authorizes Treasury to “fill up the details” in the sense intended by Loper Bright. (For present purposes, I will call such authority to "fill up the details" as conferring deference entitlement to regulations issued under such authority and will call those regulations Loper Bright deference.)

Court Awards Attorneys Fees Under § 7430 Based on $1 Qualified Offer (11/6/24)

I have previously written about the saga of Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 3/3/22) and Mann Construction, Inc. v. United States, 651 F.Supp.3d 871 (E.D. Mich. 1/18/23). Sixth Circuit Invalidates Notice Identifying Listed Transaction Requiring Reporting and Potential Penalties (Federal Tax Procedure Blog 3/3/22), here, and On Remand from 6th Circuit, District Court Orders Vacatur of Listed Transaction Notice (Federal Tax Procedure Blog 1/19/23), here.

We now have perhaps the last chapter with the district court dismissing the case as moot and awarding attorneys’ fees against the Government under § 7430. Mann Construction, Inc. v. United States, ___ F.Supp.3d ___ (E.D. Mich. 1/1/24), CL here and GS here [to come]. Cutting to the chase, the court awarded Mann Construction attorneys’ fees because Mann Construction made a $1 qualified offer under § 7430(c)(4)(E)(i). In order for attorneys’ fees to be awarded under § 7430, the party seeking to recover attorneys’ fees must be the “prevailing party,” The prevailing party is defined in § 7430(c)(4) to be the party who "substantially prevailed" as to the amount and who meets certain financial requirements (in relevant party net worth of less than $7 million). Prevailing party is defined to exclude positions as to which the government was "substantially justified."  The Government was likely substantially justified in the positions it took in the litigation. But an exception to the “substantially justified” exception applies if the party has made a “qualified offer,” meaning an offer that "is equal to or less than the liability of the taxpayer which would have been so determined if the United States had accepted a qualified offer of the party under subsection (g)."  § 7430(c)(4)(E).  In this case, where the result was an up or down result, a minimal offer can meet the qualified offer standard. Mann Construction made an offer of $1, identifying the offer as a qualified offer. So the Court awarded “$220,482.50 in attorneys’ fees and $1,355.90 in costs.

The court specifically rejected a requirement that “a qualified offer to be reasonably calculated to justify serious consideration by the IRS to avoid tax-litigants gaming the qualified offer rule with nominal offers like Plaintiffs’ $1 offer.” (Slip Op. 11.) The Court said (Slip Op. 11):

The statute’s definition requires nothing else for qualified offers—not a minimum amount nor a good-faith reasonableness requirement—full stop, end of inquiry. See BASR P’ship v. United States, 130 Fed. Cl. 286, 305 (2017), aff’d, 915 F.3d 771 (Fed. Cir. 2019) (awarding attorneys’ fees under § 7430 when plaintiff made $1 qualified offer and had $0 of tax liability because “$1 is more than $0” and the statute’s definition of qualified offer “does not require any minimum amount” or good-faith reasonableness requirement); see also Tanzin v. Tanvir, 592 U.S. 43, 47 (2020) (“When a statute includes an explicit definition, [courts] must follow that definition.”).

For my discussion of the cited BASR case, see Major Attorneys Fee Award for BASR Partnership Prevailing on the Allen Issue in Federal Circuit (Federal Tax Procedure Blog 2/11/17), here.

As with the case discussed in the prior blog, the lesson is that, in a case where the ultimate result is up or down (with the court having no place to go in between), the $1 minimal qualified offer is the way to go. Of course, if the court can reach a result in between, the minimal $1 offer will fail where a more nuanced higher offer might have worked (in a manner somewhat like baseball arbitration).

Third Circuit Denies Post-Loper Bright Petition for Rehearing in Case Applying Auer/Kisor Deference (11/6/24)

In United States v. Chandler, 104 F.4th 445 (3rd Cir. 6/11/24), CA3 here and GS here, the Court sustained a sentence based in part on the application of Auer/Kisor deference to the Guidelines Commentary. (See Slip Op. 7, 17-19.) I refer to his panel decision as Chandler I. Chandler I preceded Loper Bright Enters. v. Raimondo, ___ U.S. ___, 144 S. Ct. 2244 (2024), which rejected Chevron deference (as well as, any similar deference that preceded Chevron). But Loper Bright did not address a deference subclass for agency subregulatory interpretations of legislative regulations (such as Guidelines Commentary on Guidelines). See Fourth Circuit Applies Auer/Kisor Deference to Include in Guidelines "Loss" the Commentary Inclusion of "Intended Loss" (Federal Tax Procedure Blog 8/24/24), here; and More on United States v. Boler (Federal Tax Procedure Blog 8/25/24), here.

On petition for rehearing in Chandler, the Court entered a document titled “Sur Petition for Rehearing,” denying the panel rehearing and en banc rehearing but with dissents by Judges Bibas and Matey. United States v. Chandler, 114 F.4th 240 (3rd Cir. 9/22/24), CA3 here and GS here. I refer to this denial of rehearing as Chandler II. Judge Bibas argued that, even if Auer/Kisor deference were otherwise applicable to Guidelines Commentary, deference only applied when the interpretive toolkit was otherwise empty, but that lenity was in the toolkit and applied to preempt ambiguity for Auer/Kisor deference. Judge Bibas said that applying Auer/Kisor deference without first applying lenity, “put us on the wrong side of a circuit split. At least three circuits hold that lenity trumps deference.” (Slip Op. 2-3; note the page numbers are for the pdf because the pages are not numbered.) Judge Matey dissented because he felt that the ordinary meaning of the statutory term was discernible without deference (sort of a Chevron Footnote 9 approach). Neither dissenting Judge reasoned that the Auer/Kisor deference applied in Chandler I (the pre-Loper Bright panel opinion) did not survive Loper Bright.

So, as of now, at least so far as I am aware, we still do not have a definitive ruling on whether Auer/Kisor deference survives Loper Bright, but the courts seem to be deciding cases as if it does survive Loper Bright. Most immediately, that means that the Sentencing Guidelines Commentary interpreting the Guidelines may qualify for deference at least when lenity doesn’t apply. (That sets aside the issue of whether lenity might apply to avoid getting to Auer/Kisor deference for Guidelines Commentary; and conceptually the ambiguity invoking lenity is the same as the ambiguity required for Auer/Kisor deference, lenity might always apply.)

Exxon Mobil Wins A Substantial Refund Case on Interest on Production Payments (11/5/24)

I write on Exxon Mobil Corp. v. United States (N.D. TX No. 3:22-CV-0515-N Findings of Fact and Conclusions of Law 10/31/24), CL here & GS here [to come]. For those interested, the CL docket entries are here.  Exxon Mobil (sometimes referred to as ExxonMobil in the opinion) prevails in this tax refund suit. The Court held that certain payments by an Exxon Mobil affiliate on its arrangement with an entity of the State of Qatar were interest payments by treating a production payment as a debt under § 636(a). For details of the parties’ arguments, see the Pretrial Order on CL, here. (Note that per CL docket entries, the briefs were generally sealed for some reason (I did not bother to check on the reason).)

I won’t get into the merits of the interest issue decided. On those merits, I am reminded of Justice Frankfurter’s complaint about Supreme Court review of the Tax Court’s oil and gas cases that those cases make distinctions “which hardly can be held in the mind longer than it takes to state them.” Burton-Sutton Oil Co. v. Commissioner, 328 US 25, 38 (1946) (dissenting).)

Procedural issues are:

1. Expert Witnesses. The Court says in the second paragraph (Slip op. 1-2):

          As a general matter the Court found ExxonMobil’s witnesses – both lay and expert – to be credible and helpful. The Court found Defendant United States of America’s (“United States”) expert to be credible but not helpful. That is to say, the Court believes Dr. Wright truthfully testified as to her opinions and that she is well-qualified to offer those opinions. The problem is the subject matter of her opinions – she was asked to offer opinions regarding oil and gas accounting from a business perspective, rather than opining [*2] on the correct tax treatment or the economic reality of the transaction. For that reason, the Court discounts her testimony.

Post Loper Bright Approval of Agency Best Interpretations (12/3/24)

I have previously blogged on my anecdotal analysis of large data sets of cases supposedly applying Chevron deference but really not so because the agency interpretation supposedly deferred to was the best interpretation. In other words, although those cases seemed to apply deference, they really did not. e.g., Chevron Deference: Much Ado About Not Much (Federal Tax Procedure Blog 8/15/21), here; Is Chevron on Life Support; Does It Matter? (Federal Tax Procedure Blog 4/2/22; 4/3/22), here; and Chevron Step Two Reasonableness and Agency Best Interpretations in Courts of Appeals (Federal Tax Procedure Blog 2/9/23), here. I further noted that, observing that phenomenon, a prominent appellate judge said: “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.” Jon O. Newman, On Reasonableness: The Many Meanings of Law’s Most Ubiquitous Concept, 21 J. App. Prac. & Process 1, 83 (2021), here. One of my key points in discussing the phenomena was that the demise of deference, which we now have with Loper Bright, might not produce materially different outcomes.

The post-Loper Bright opinion in Diaz-Arellano v. U.S. Attorney General, ___ F.4th ___ (11th Cir. 2024), CA11 here and GS here, illustrates. In that case, the interpretive issue involved cancellation of removal of an alien for “exceptional and extremely unusual hardship” including a child defined as “an unmarried person under twenty-one years of age.” The question was whether the child’s age status must be met at time of application or at time of the hearing (which often can take many months after application, resulting in the child aging out during the process).

The Diaz-Arrelano majority noted that, in briefing the Government argued that Chevron required differing to the agency interpretation (at hearing) and at oral argument the Government added the argument that the agency interpretation was the best interpretation requiring no deference. Briefing and oral argument preceded Loper Bright. The Diaz-Arrelano opinion was rendered after Loper Bright.  The panel majority noted the Loper Bright demise of deference requiring it to review de novo without deference, but held that the Government interpretation was the best interpretation of the statute. In other words, best interpretations neither need nor require deference to prevail, which is what Loper Bright means. The result is that many pre-Loper Bright cases appeared to apply deference were really masking approval of best interpretations, meaning that the demise of deference will not materially affect outcomes.

 The  panel majority noted (p. 8 n.5 (carrying over to p. 9)):

    n5 The only other circuits to have addressed this issue in published opinions agree that an alien’s child must be under the age of twenty-one as of the final adjudication of the alien’s application for cancellation of removal, though both relied on Chevron. See Mendez-Garcia v. Lynch, 840 F.3d 655, 663–64 (9th Cir. 2016); Rangel-Fuentes v. Garland, 99 F.4th 1191, 1194–97 (10th Cir.), vacated and panel reh’g granted, No. 23-9511, 2024 WL 3405079 (10th Cir. July 10, 2024) (reconsidering in light of Loper Bright).