In 2023, I used this blog to criticize the Supreme Court’s decision in Calcutt v. FDIC as “unnecessary, unfortunate, and unpersuasive, all at the same time.”

So I felt vindicated when, last week, in FDA v. Wages & White Lion Investments, the Court clarified that it didn’t really mean what it said in Calcutt. Along the way, the Court offered its very first extended discussion of the APA’s rule of prejudicial error. If that weren’t enough, the Court’s discussion drew on my previous work on remedial restraint in administrative law, as well as from criticism of that work from my now-colleague Chris Walker. As evidence of a scholarship-to-precedent pipeline, you could do worse! 

When it was adopted in 1946, Section 706 of the APA included an instruction that “due account shall be taken of the rule of prejudicial error.” That instruction was in some tension with the ordinary remand rule from Chenery I, which was decided prior to the APA. If a court is ordinarily supposed to set aside and remand a defective agency action so that the agency can decide whether or not to reinstate it, what business does a court have to excuse any defects as harmless?

The tension didn’t go unnoticed; Judge Friendly wrote about it in 1969. But as a stricter vision of administrative law took hold in the 1970s, the rule of prejudicial error faded into the background. The courts generally came to treat agency mistakes, even trivial ones, as structural deficiencies that triggered the rule in Chenery I.

There were a few glimmers of flexibility. The D.C. Circuit adopted the practice of remanding without vacating in a subset of cases, though the practice was (and remains) controversial. In addition, all of the courts of appeals—and this surprised me when I discovered it—had adopted a practice of excusing some agency errors as harmless, Chenery notwithstanding. As I explained in Remedial Restraint in Administrative Law:

Harmless error tends to crop up in connection with agency orders that result from relatively formal adjudicatory processes. Errors are most commonly held harmless in two circumstances: either when the agency has made a factual mistake of peripheral significance or (more controversially) when the agency’s error is serious but the evidence in the record so strongly supports the result that the court is confident the agency would reach the same decision on remand. … Perhaps unsurprisingly, then, harmless error looms largest in the immigration and disability contexts. The quality of the underlying decisions is sometimes poor and the weaknesses in the claimants’ cases are often apparent from a well-developed record.

Prior to Calcutt, the most extensive discussion of the APA’s rule of prejudicial error came in the 2009 decision Shinseki v. Sanders. There, the Court held that the APA required courts to apply “the same kind of ‘harmless-error’ rule that courts ordinarily apply in civil cases.” But “Sanders has largely been ignored,” I wrote in Remedial Restraint, “perhaps because the Court didn’t so much as cite Chenery, much less resolve the tension between its categorical rule and the harmlessness standard.”

For its part, Calcutt made the opposite error, as I pointed out in my 2023 post. The Supreme Court insisted that Chenery required remand in all but the most exceptional circumstances, without so much as mentioning the rule of prejudicial error.

What to make of all this? Credit to the Supreme Court in Wages & White Lion for grasping the problem and laying it out with admirable clarity. Credit, too, for holding that “we agree with the FDA that the Fifth Circuit read Calcutt too broadly.” (This is actually unfair to the Fifth Circuit. The lower court was just doing what Calcutt told it to do. But if blaming the Fifth Circuit is the price for confessing error, I’m totally fine with that.)

If Sanders got it wrong, and Calcutt got it wrong too, then what’s the right answer? Here, the Supreme Court offers some high-level guidance but mostly punts. It acknowledges that “a remand may not be necessary when an agency’s decision is supported by a plethora of factual findings, only one of which is unsound.” Which, great.

The Court then pooh-poohs the FDA’s argument that an agency action should be sustained unless the plaintiff can show that the error had a “substantial bearing” on the decision. In particular, “FDA has not identified any prior case in which we have held that the application of an erroneous understanding of the governing law was harmless because a subsequent agency decision shows that the agency would have reached the same result if it had applied the correct understanding of the law.”

I’m not sure what to make of this. FDA’s claim was not that the Court should excuse a mistake of law. Instead, FDA acknowledged that it should have, but did not, individually review marketing plans from e-cigarette manufacturers explaining how they would discourage minors from accessing their products. FDA had no statutory obligation to review those plans. But it had previously said that it would, and FDA acknowledged that it was arbitrary to depart from that previous commitment.

Still, the mistake was harmless, FDA said. Why? Because, when the agency reviewed a subset of those marketing plans, it found them all wanting. FDA said—quite reasonably—that there was no reason to think it would reach a different conclusion if it reviewed them all. 

What does any of this have to do with “an erroneous understanding of the governing law”?

That’s all the Supreme Court says on the matter. The Fifth Circuit is now supposed to “decide the question afresh without relying on its overly expansive reading of Calcutt.” I feel for the Fifth Circuit here. What should it do? Apply the harmless error rule, but not too hard? Embrace Chenery, but not too tightly? 

I don’t mean to grouse. That’s how law develops sometimes. The range of uncertainty around the rule of prejudicial error has narrowed and a judicial conversation has begun (finally) about what we ought to make of it. What more could I reasonably ask for?

Well, a little more. If I had a vote on the Fifth Circuit, I’d encourage it to adopt a relatively forgiving approach to prejudicial error. (Chris Walker would probably disagree!) That’s so for both straightforward textual reasons—harmless error is pretty forgiving, and that’s where the rule of prejudicial error comes from—and for sound policy reasons, as I argued in Remedial Restraint:

The claim here is not that agencies are angels. The claim, instead, is modest: that holding more agency errors harmless might not much affect agency incentives. And that’s the margin that matters. A relaxed remedial approach is not the same as the elimination of assertive judicial review. Agencies that fear judicial review will still fear it, even if the rule of prejudicial error becomes somewhat more prominent. An agency official would be foolish to put much stock in the uncertain prospect that litigators could perhaps salvage a defective rule down the line. Yes, that response might be “rational” in a narrow economic sense. But agency officials are unlikely to calculate their legal exposure with such refinement that the downstream possibility of remedial flexibility will change their behavior. Competing incentives—to do the job right while preserving agency resources, to preserve credibility, to assuage interest groups and congressional overseers, to avoid litigation if at all possible—will usually swamp the incentives created by modest adjustments to remedial doctrine.

@nicholas_bagley