D.C. Circuit Review – Reviewed: A New Step for Chevron?

by Aaron Nielson — Friday, June 16, 2017@Aaron_L_Nielson

How many steps does Chevron really have? The Supreme Court says two (well, usually it says two; for a time it said one, but of late the Court has been saying two again). Two prominent law professors say Chevron only has one step; sure, they are wrong — 😉 — but they’ve said it.* Some circuit courts says it has three steps. Other smart folks think it has four steps. And no doubt, there is a five-step version floating around. Part of the reason it is so hard to count is because of “Step Zero” — which comes in more than one flavor.

Well, this week we have a new step to add to Chevron, or, at least, another species of Chevron Step Zero: Does the agency still contend that deference is warranted? If not, the D.C. Circuit will not defer.

The case is Global Tel*Link v. FCC, a 2-1 decision authored by Judge Edwards and joined by Judge Silberman, with Judge Pillard dissenting in part. This case has attracted significant media attention because of its subject matter: phone rates for prisoners. But doctrinally, this case is important because of what it says about Chevron.

In Global Tel*Link, the Court addressed the FCC’s 2015 Order imposing a cap on rates for inmate phone calls. Traditionally, the FCC has regulated interstate telephone communication services while the States have maintained significant control over intrastate services. In its 2015 Order, however, the FCC attempted to set rate caps for both interstate and intrastate services, at least in the prison context. That order was challenged in and rejected by the D.C. Circuit. Importantly, Judge Edwards recognized that the FCC’s order would normally be “subject[ed] to review pursuant to Chevron.” Yet now that a new administration is town, “the [FCC] no longer seeks deference.” Edwards thus concluded that Chevron does not apply: “In these circumstances, it would make no sense for this court to determine whether the disputed agency positions advanced in the Order warrant Chevron deference when the agency has abandoned those positions.” The Court then concluded, based on its own best reading of the statute, that the agency decision cannot stand: “The Order at issue in this case is legally infirm because it purports to cap intrastate rates based on a ‘just, reasonable and fair’ test that is not enunciated in the statute, conflates distinct grants of authority under § 201 and § 276, and misreads our judicial precedent and the FCC’s own prior orders to support capping already compensatory rates under the guise of ensuring providers are ‘fairly compensated.’” (There is more going on, but that’s the heart of it.)

Interesting. It is noteworthy that Judge Edwards cites nothing for his Chevron conclusion — presumably because this is a novel question. Is he right? Probably. But it certainly warrants some thought. For instance, should the agency be able to do this via a brief, or must it issue a new order?

Attention law students: Someone must write a student note on this.

But the case is more interesting still. Senior Judge Silberman concurred to offer a few of his own interesting thoughts on Chevron. (For what it is worth, when Silberman talks about Chevron, I listen; he has been a “big thoughts” thinker on Chevron matters for a long time.) Here is most of it:

I concur with Judge Edwards’ opinion in all respects. I especially agree that Chevron deference would be inappropriate in these unusual circumstances. I write separately to point out, as to the FCC’s claimed jurisdiction to set intrastate rate caps, that I think our result would be the same if the Chevron framework was in play, i.e., if the FCC had elected to defend this part of its regulation.

There is no question that the relevant statutory language, “fairly compensated,” is ambiguous. 47 U.S.C. 276(b)(1)(A). Even the FCC agrees. But Judge Edwards’ careful explanation of the statute’s structure and context demonstrates that the agency’s interpretation would fail at Chevron’s second step; it is an unreasonable (impermissible) interpretation of section 276.

Much of the recent expressed concern about Chevron ignores that Chevron’s second step can and should be a meaningful limitation on the ability of administrative agencies to exploit statutory ambiguities, assert farfetched interpretations, and usurp undelegated policymaking discretion. This case presents just one example of those kinds of agency tactics. There are others. …

To be sure, some have lamented that as a practical matter, under Chevron, either the case is decided at the first step or the agency prevails once it receives deference under step two. But that is not what the Chevron case called for. Chevron itself involved a phrase “stationary source” that was not at all defined and clearly could equally refer to (a) a factory complex, or (b) a specific emitter of pollution. 467 U.S. 837, 860-64 (1984). But it would have been unreasonable to refer to (c) a whole city. Yet too many times agencies have taken advantage of an ambiguity to pursue a (c), (d), or (f) interpretation that accorded with policy objectives. ….

Unfortunately, the Supreme Court for some time after Chevron contributed to the step one winner-take-all narrative by neglecting to rely on step two even when it was really called for. Take for example MCI Telecommunications Corp. v. AT&T Co., 512 U.S. 218 (1994), in which Justice Scalia—perhaps the foremost expositor of Chevron—used statutory structure and context, much like Judge Edwards does in our case, to demonstrate that the FCC’s reliance on the word “modify” was unacceptable, see, e.g., id. at 228-29. But he never conceded that the word “modify” was ambiguous, which it was. Id. at 228 (“We have not the slightest doubt that [single definition] is the meaning the statute intended.”)

Subsequently, however, in AT&T Corp. v. Iowa Utilities Board, 525 U.S. 366 (1999), Justice Scalia implicitly relied on step two. He concluded that because the agency failed to interpret the terms of the statute “in a reasonable fashion,” the rule must be vacated. Id. at 392. Then, in City of Arlington v. FCC, — U.S. —, 133 S. Ct. 1863 (2013), he admonished that “where Congress has established an ambiguous line, the agency can go no further than the ambiguity will fairly allow,” id. at 1874. And most recently in Michigan v. EPA, — U.S. —, 135 S. Ct. 2699 (2015), when invalidating agency action under step two, he was more explicit still: “Chevron allows agencies to choose among competing reasonable interpretations of a statute; it does not license interpretive gerrymanders under which an agency keeps parts of statutory context it likes while throwing away parts it does not,” id. at 2708.

We have at times been careful to apply step two review vigorously. See, e.g., Goldstein v. SEC, 451 F.3d 873 (D.C. Cir. 2006). This is just such a case where the agency’s original claim for Chevron deference—before the agency’s control switched—would have been rejected at Chevron step two; a muscular use of that analysis is a barrier to inappropriate administrative adventure.

That’s also very interesting.

Finally, Judge Pillard also chimed in: “Congress has not ‘directly spoken to the precise question at issue’ in this case, so the question for us is whether the FCC’s view when it promulgated the challenged rule—that section 276 grants authority not only to raise inadequate rates but also to reduce excessive, monopoly-driven rates—was a ‘permissible construction of the statute.’ I think it was. If the FCC under new management wished by notice and comment to change its rule, the statute gives it latitude to do so. We should uphold the rule that is on the books and leave to the agency to decide whether and how to change it.”

I’ll make a prediction: This case will be cited in the future — if not in opinions, at least in law review articles.

Next up is United Airlines, Inc. v. TSA. This opinion, authored by Judge Silberman (joined by Judges Brown and Pillard), considered TSA’s decision to deny United’s request for $1.5 million in overpaid fees and remittances based on a 2012 audit. What result? The agency lost. The panel rejected TSA’s contention that its audit process was “designed to be symmetrical to determine whether a carrier has either underpaid or overpaid during the period covered by the audit.” In the words of Judge Silberman: “TSA has never indicated to the regulated carriers that an audit had the double purpose.” And “[h]ere, the audit sought to verify that Petitioner was collecting the security fee from passengers and remitting the collected fees to TSA. Nothing about the audit suggested it also examined whether the airline was too generous in identifying tickets subject to the fee or in calculating currency exchange rates bearing on the amounts it owed. We therefore reject the notion that Petitioner’s request for a refund was a tardy effort to reopen the audit.” (Judge Silberman does not pull punches. “The government also contends that granting a refund to United would somehow prejudice other airlines. We simply do not understand this argument–at all.”)

Galvin v. United States is an interesting case about, of all things, the sovereign status of embassies. It seems that a U.S. official (and her husband) working for the State Department in Haiti brought suit against the United States arguing that “the diplomatic housing within which they suffered their injuries should not be considered part of ‘a foreign county’ for purposes of the foreign country exception” the to Federal Tort Claims Act because “their diplomatic housing . . . was controlled by the United States Embassy in Haiti.” The per curiam panel (Judges Brown, Pillard, and Silberman) dismissed that argument in a concise six-page opinion: “the State Department recognizes that, ‘[d]espite widespread popular belief, . . . [U.S. diplomatic or consular facilities] are not part of the territory of the United States.’ Rather, ‘diplomatic envoys are in reality within the territories of the receiving states.’ ‘U.S. embassies and consulates abroad,” in short, ‘remain the territory of the host state.'”

In Lee v. USAID, another per curiam panel (this one Judges Rogers, Kavanaugh, and Millett) issued a significant holding: “The only aspect of his appeal that merits extended discussion is whether 18 U.S.C. § 1001 creates a private right of action. We hold it does not.” Section 1001 is a criminal statute that bars “whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States,” from “knowingly and willfully” making false statements. Does this mean that someone who alleges that a government official made a false statement about them can sue? No. “The Supreme Court has ‘rarely implied a private right of action under a criminal statute,’ and nothing in the text of 18 U.S.C. § 1001 suggests Congress intended otherwise.” Nor does “the legislative history.”

Finally, in Montes v. Janitorial Partners, Inc., the Court (per Judge Henderson, joined by Chief Judge Garland and Judge Wilkins) addressed employment law, subject matter jurisdiction, and civil procedure: “When his employer failed to respond, Montes obtained a default judgment for himself and two fellow employees. But there was a problem: the statute he sued under required the fellow employees to formally ‘opt in’ to the lawsuit. They had not done so. Reacting to their failure, the district court vacated its default judgment as to Montes’s two fellow employees, concluding it had lacked subject matter jurisdiction to enter it. That was error. The opt-in omission did not oust the court of subject matter jurisdiction of their claims. Nevertheless, the judgment may be void for a different reason: two defendants claim they were never served with the complaint. To decide the service issue, the district court must hold an evidentiary hearing on remand.” (Who doesn’t like learning about employment law, subject matter jurisdiction, and civil procedure?)

Last week I concluded by asking, “honestly, does anyone really want to read yet another article about Chevron?” After Global Tel*Link, the answer is yes — I do!

* At least in the D.C. Circuit, and arguably in the Supreme Court, it works like this. First, step one: Is the statute unambiguous? If so, it must be followed and the analysis ends. Second, step one-and-a-half: If the statute is ambiguous, did the agency acknowledge the ambiguity? If not, then even if the agency’s interpretation would be a reasonable one had it acknowledged ambiguity, the agency’s decision cannot stand. And third, step two: Is the agency’s resolution of the ambiguity reasonable (which may be the same as arbitrary-and-capricious review)?

 

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About Aaron Nielson

Professor Nielson is an associate professor at Brigham Young University Law School, where he teaches and writes in the areas of administrative law, civil procedure, federal courts, and antitrust. He currently co-chairs the Rulemaking Committee of the American Bar Association’s Section of Administrative Law & Regulatory Practice. Previously he chaired the Section's Antitrust & Trade Regulation Committee. Before joining the academy, Professor Nielson was a partner in the Washington, D.C. office of Kirkland & Ellis LLP (where he remains of counsel). He also has served as a law clerk to Justice Samuel A. Alito, Jr. of the U.S. Supreme Court, Judge Janice Rogers Brown of the U.S. Court of Appeals for the D.C. Circuit, and Judge Jerry E. Smith of the U.S. Court of Appeals for the Fifth Circuit. Follow him on Twitter @Aaron_L_Nielson.

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