This week I want to try something new. I’ve been thinking about the future of administrative law and have some thoughts for Congress. So why not write a letter?

Dear Congress:

There are “swirling rumors” that the Senate may pass the Separation of Powers Restoration Act (“SOPRA”) (the House has already passed it). If this is true, you should also think about administrative adjudication. Indeed, if you enact SOPRA without also addressing adjudication, there may be serious unintended consequences.

SOPRA requires de novo review of legal questions.* This would impact both Chevron deference (deference to agency interpretations of ambiguous statutes) and Seminole Rock deference (deference to agency interpretations of ambiguous regulations).

When it comes to Seminole Rock, the intended consequence of SOPRA would be clearer regulations. After all, without deference, the incentive for agencies to create ambiguities in regulations (or perhaps to tolerate ambiguities) would be reduced. This fear of bad incentives is one of the key reasons that some Justices are concerned about Seminole Rock.

But there can be unintended consequences too. The danger is that agencies will not promulgate clearer regulations, but instead will promulgate fewer regulations. Agencies may decide to continue to regulate, but instead of using notice-and-comment rulemaking to do it, they may opt to act by adjudication under the statute directly. Under a case called Chenery II, agencies are (generally) free to make policy through rulemaking or via direct enforcement of the statutes they administer. Thus (as in Chenery II), even if there is no regulation prohibiting a certain type of business reorganization, an agency may be able to enforce a statute against a would-be reorganizer who seeks to reorganize in a way that the regulator disagrees with. In other words, agencies do not need always regulations to create policy.

My concern is that if notice-and-comment rulemaking becomes less attractive to agencies (because there is no Seminole Rock deference), agencies may decide to forego notice-and-comment rulemaking and instead use “Chenery II” adjudication. And if you worry that Seminole Rock can be unfair to regulated parties because agencies have an “incentive … to speak vaguely and broadly, so as to retain a ‘flexibility’ that will enable ‘clarification’ with retroactive effect,” then you should also worry about some applications of Chenery II for similar reasons. Indeed, making policy through adjudication sometimes might even provide less notice to regulated parties of their duties. This is so because even an ambiguous regulation narrows the scope of the agency’s statutory authority somewhat. But when it comes to adjudication under Chenery II, the agency has the entire policy “space” under the statute before it. Thus, if agencies opt to use such adjudication more often in a post-Seminole Rock world, regulated parties may end up with even less warning of what is unlawful than under the status quo. At least that’s the worry.

I address this risk in a forthcoming article. There, I explain that uncertainty about intended versus unintended consequences counsels in favor of caution. At the same, however, I also offer ways to prevent the most problematic aspects of Chenery II without overruling the case (which would have unintended consequences of its own). One way is to reduce deference in adjudications (thus limiting the scope of what agencies can do in adjudication which would encourage greater use of rulemaking). SOPRA does that. But that isn’t a sufficient solution since, for instance, some statutes (say, those that authorize the agency to regulate “in the public interest”) don’t really present Chevron questions at all. For those type of statutes, it may make sense to make it more difficult for agencies to retroactively announce policy in adjudication. In other words, Congress should focus on retroactivity in adjudication — not just deference. The right standard for retroactivity is a tricky question, but it is one that merits close attention.

Sincerely,
Aaron Nielson

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This was a busy week in the D.C. Circuit. We have six cases:

• AT&T Corp. v. FCC: This is a very technical case that reminded me (once again) that Judge Williams is a great writer. Here is the issue: “This case arises from the ongoing transition of American telephony to the Internet. The process creates challenges to a regulatory system designed for the pre-Internet world, the familiar ‘public switched telephone network’ or ‘PSTN.’ We deal here with the fees that local exchange carriers (‘LECs’) can charge inter-exchange carriers (‘IXCs’) for certain services they provide, in coordination with providers of Voice over Internet Protocol (‘VoIP’), for the completion of ‘inter-exchange’ calls. Resolution of the dispute turns on how the disputed services are to be classified. The Federal Communications Commission says that they are end-office switching services. Petitioner AT&T says that they are tandem switching services. The prescribed rates for the latter have generally been lower; AT&T has no objection to paying them.” This sounds pretty complicated (and it is). But Williams (joined by Judges Rogers and Randolph) manages to explain it in a way that makes sense — though if you are interested, you should read the opinion. Here is the summary: “In the end, we find that the Declaratory Ruling does not disclose the Commission’s reasoning with the requisite clarity to enable us to sustain its conclusion. We therefore vacate and remand the order to the Commission for further explanation.”

• USPS v Postal Regulatory Commission: Long story short, the USPS sought review of an unreviewable decision. The Postal Service didn’t like the rule the Postal Regulatory Commission had come up with to determine when a special upward rate adjustment would end, but the Commission’s refusal to reconsider the rule was, according to Judge Henderson (joined by Judges Griffith and Williams), “unreviewable, except insofar as the request for reconsideration is based upon new evidence or changed circumstances.”

• Friedman v FAA: Eric Friedman is a pilot with Insulin Treated Diabetes Mellitus. A recent change within the FAA potentially allows pilots with this medical condition to get first-class clearance. Yet FAA had not set up standards for reviewing such applications. The FAA thus “placed Friedman in a holding pattern.” Judge Brown, joined by Judges Rogers and Pillard, determined that the FAA’s decision to “set deadlines, count[] down towards them, and then allow[] them to pass without discussion” was reviewable final action. The case was remanded.

• DeJesus v. WP Company LLC d/b/a the Washington Post: Here, DeJesus, a 59-year-old African American employee who sold ads for the Washington Post, was terminated. Judge Wilkins, joined by Judges Srinivasan and Brown, overturned the grant of summary judgment to the Washington Post, explaining that “a jury could conclude” there was discrimination.

• United States v Mack: Mack was sentenced for PCP distribution. The court determined that he had failed to preserve a “sentencing manipulation” argument by not objecting to the judge’s failure to discuss it at sentencing. Review was therefore only for plain error, which Judge Edwards, joined by Judges Brown and Ginsburg, did not find.

• NTCH, Inc. v. FCC: “In these orders, the Commission approved the transfer of radio spectrum licenses to Verizon Wireless, a national telecommunications company, granted Verizon forbearance from a statutory provision, and refused to initiate proceedings to revoke other licenses held by Verizon. Appellant NTCH, Inc., a company that provides wireless phone and internet services, challenges these orders.” Judge Edwards, joined by Judges Pillard and Randolph, rejected those challenges. The analysis is fairly hard to explain, but here is the summary: “The FCC’s decision not to initiate proceedings to revoke Verizon’s licenses is not subject to judicial review. Furthermore, any questions about the licenses Verizon obtained before the Spectrum Assignment are not properly before the court. NTCH’s challenge to the FCC’s grant of prospective forbearance is moot because no foreign entity now has any ownership of Verizon. Finally, the Commission’s determination that the Spectrum Assignment was in the public interest was reasonable and therefore survives arbitrary and capricious review.” Got it?

Each of these cases is pretty complicated — and, frankly, no doubt rather dry to non-specialists. But that’s the law.

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* Adrian Vermeule, of course, thinks that courts would still defer, at least “de facto.” Maybe so, but I would be surprised if the total amount of deference was the same.

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