The calls to rethink Chevron deference haven’t ceased, with the primary focus being on whether to eliminate the doctrine entirely or how to narrow it further on Chevron Step Zero (think: major questions doctrine). I’ve captured those developments and arguments in an essay forthcoming in the Georgetown Journal of Law and Public Policy entitled Attacking Auer and Chevron Deference: A Literature Review.  Even Chevron Step One has gotten attention, most recently in a speech by Sixth Circuit Judge Kethledge that David Lat highlighted at Above the Law. In that speech, which was subsequently published in the online companion to the Vanderbilt Law Review, Judge Kethledge explained that in nearly eleven years on the bench he had never found a statute ambiguous under the Chevron framework.

Little attention, however, has been paid to rethinking Chevron Step Two. Enter Cathy Sharkey with an important new paper forthcoming in the Fordham Law Review. Professor Sharkey has also blogged about the paper at the Harvard Law Review‘s new blog here and here. Here is a summary of her argument from the SSRN abstract:

This Article aims to address an all-too familiar scenario: a federal agency, under the guise of supposed legal interpretation of a statute, earns automatic judicial deference for what is, in reality, its policy-based interpretation—a scenario that, I argue, is translating into courts’ insufficient oversight over agency action. Where an agency effectively uses Chevron Step One legal statutory interpretation arguments to justify its implicitly policy-based interpretation at Step Two, judicial oversight at Step Two is weakened, if not annulled.

This Article advocates incorporation of State Farm into the Chevron framework. Put simply, State Farm’s demand for “reasoned decision-making” from agencies mitigates Chevron’s mandate for deference to agency statutory interpretations. The Chevron-State Farm model highlights the agency expertise rationale that infuses the implied delegation rationale for agency deference, particularly at Step Two. As a practical matter, the model expands the domain of State Farm, widening the scope of agency rules subject to hard look review, and, further, aims to increase the stringency of re-view. Perhaps most significantly, where the Chevron interpretive issue arises between private parties when the agency is not a party and litigants accordingly have no recourse to direct State Farm challenge to the rulemaking, the model would open the door to an indirect State Farm challenge.

The Article explores how this new doctrinal approach, one of hard look review at Chevron Step Two, will affect courts and, most of all, affect agency decisionmaking. Moreover, this particular form of Chevron retreat—widening the space for the application of State Farm—is fundamentally distinct from, and preferable to, setting Chevron aside. Whereas knocking down the Chevron pillar deals a blow to over-exuberant regulators and promises to stem the tide of over-regulation of the economy and health and safety, heightened judicial scrutiny of the Chevron-State Farm variety will force the agency’s hand in the context of deregulation as well.

Sharkey is not alone in calling for Step Two to incorporate a form of arbitrary-and-capricious review similar to that required under the Administrative Procedure Act. Indeed, in a symposium essay forthcoming in the Notre Dame Law Review, Kent Barnett and I summarize the prior literature and caselaw on Step Two, including the numerous calls for arbitrary and capricious review. We also draw on our eleven-year Chevron in the Circuit Courts study to show how circuit courts approach Step Two. Here’s the summary figure:

We further explain how courts apply arbitrary and capricious review at Step Two (footnotes omitted):

When courts apply the arbitrary-and-capricious approach at Chevron step two, they usually focus on the quality of (or lack thereof) the agency’s reasoning, with heightened scrutiny when an agency has changed its interpretation or advanced conflicting interpretations. The Third Circuit’s approach in Castillo v. Attorney General is illustrative: “The [Board of Immigration Appeals], to date, has offered no attempt to reconcile, reject, or otherwise explain its inconsistent decisions. In fact, it has not even recognized that there may be a problem with its own decisions in the present context.” Sometimes, however, the courts take a hard look at the agency’s reasoning and fault the agency for failing to take into account certain factors. Sometimes, moreover, the courts fault the agency for failing to provide a reasoned decision at all.

Sharkey’s argument definitely finds support from our findings, but her paper takes the argument a step further by focusing more on State Farm‘s hard-look approach and by encouraging Chevron‘s narrowing to occur at Step Two instead of Step Zero. Definitely go read the current draft of her paper here.

One final note: In Kent and my Notre Dame Law Review essay, we call on the Supreme Court to provide further (and clearer) guidance on Chevron Step Two’s domain, in light of the divergent approaches taken by the circuit courts. But Supreme Court guidance would not just be helpful for the lower courts. It would also be extremely helpful for federal agencies when they interpret statutes and draft regulations. When I surveyed agency officials several years ago about how they interpret statutes and draft regulations, I asked the agency rule drafters about which Chevron steps did they apply seventeen interpretive tools. I didn’t publish those findings in my original study because the results were a complete mess. But we did publish a representative sample in Kent and my essay to demonstrate the confusion. Here’s the relevant figure:

Chevron Step Two definitely merits further attention at the Supreme Court, and Cathy Skarkey’s new paper should be on the Court’s reading list.

This post is part of the Administrative Law Bridge Series, which highlights terrific scholarship in administrative law and regulation to help bridge the gap between theory and practice in the regulatory state. The Series is further explained here, and all posts in the Series can be found here.