The decline of deference: Is the Supreme Court pruning back the Chevron doctrine?

Vol. 47 No. 1

Thomas Lorenzen is a partner at Crowell & Moring, LLP, in Washington, DC. He is a member of the firm’s Environmental & Natural Resources, Appellate, Government Affairs, and Administrative Law & Regulatory groups, and focuses on the development and judicial review of EPA’s regulations and policies. As an assistant chief at the U.S. Department of Justice from 2004 to 2013, Mr. Lorenzen oversaw the federal government’s defense of EPA’s regulations for much of the past decade. Sharmistha Das is an associate at Crowell & Moring, LLP, in Washington, DC. She is a member of the Environment & Natural Resources and Government Contracts groups and participates in the firm’s Administrative Law & Regulatory Practice working group.

Judicial deference to agency interpretations of ambiguous statutory terms—a doctrine established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)—is one of the fundamental underpinnings of the modern administrative state. It has been particularly critical to the development of environmental regulations. Chevron deference has allowed Congress to paint its environmental goals in broad terms, in statutes like the Clean Air Act and the Clean Water Act, while leaving to the U.S. Environmental Protection Agency (EPA) the task of both determining what precisely Congress intended in those statutes and how exactly to achieve what the agency perceives to have been Congress’s goals. It has also allowed successive administrations considerable leeway to change course in environmental policy, simply by proffering and rationally explaining new interpretations of ambiguous statutory provisions.

Recent Supreme Court decisions suggest that a number of the Justices are concerned about—and, in the case of Justice Thomas, openly hostile to—Chevron deference. These decisions include Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427 (2014), Perez v. Mortgage Bankers Association, 135 S. Ct. 1199 (2015), and most recently King v. Burwell,—S. Ct.—(2015), and Michigan v. EPA,—S. Ct.—(2015). In each, the opinions of the Court’s conservative Justices reflect their concerns over potential agency overreach or over possible violations of the separation-of-powers doctrine. At the same time, in decisions like EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584 (2014), a differently constituted majority continues “to accord dispositive effect to an agency’s reasonable interpretation of ambiguous statutory language.”

How should one read the tea leaves presented by these cases? As discussed below, Chevron deference is likely to remain a vibrant doctrine for the foreseeable future, giving federal agencies necessary room to fill the interstices inevitably left by Congress when it legislates. At the same time, the Court has begun to prune the doctrine to head off potential overreach and to prevent EPA and other federal agencies from essentially legislating in areas of “deep economic or political significance,” as the Chief Justice put it in King v. Burwell, absent clear congressional delegation.

The origins and evolution of Chevron deference

Judicial deference is a judge-created doctrine used to determine whether agency regulations and interpretive guidance properly follow the federal statutes that authorize them. Under traditional Chevron analysis, where the statutory language is clear after applying regular rules of statutory construction, that language governs. There is simply no room for interpretation by the agency. This is known as “Step One” of the Chevron analysis. On the other hand, where the statutory language is ambiguous on “the precise question at issue,” the courts must defer to any reasonable interpretation of the statute offered in a regulation promulgated by the agency charged by Congress with implementing that statute. This is Chevron Step Two.

Two glosses: Auer deference and Chevron Step Zero

The courts have created two glosses on Chevron. First, in Auer v. Robbins, 519 U.S. 452 (1997), the Supreme Court confirmed that deference extends to agency interpretations not just of statutes, but of the agency’s own regulations. In such cases, the agency’s interpretation is not tested for “reasonableness” as under Chevron, but is “controlling unless plainly erroneous or inconsistent with the regulation.”

Second, many now agree that there is a Chevron Step Zero, and the Court’s recent decision in Burwell appears to embrace that refinement to Chevron. In this step of the analysis—really, the first step of any Chevron analysis—the reviewing court asks whether the statute clearly evinces congressional intent to delegate interpretive authority to the agency. If not, as the Court concluded in Burwell, or if the agency offering an interpretation is not an expert on the question at issue, the court itself will resolve what the statute means.

The pruning of Chevron

All the Court’s recent decisions speak in terms of Chevron deference and whether it is appropriate to grant such deference with respect to the statutory language in question. They thus proceed from a common starting point: that Chevron is still the governing doctrine and that agencies will receive deference to their reasonable constructions of ambiguous statutory provisions. Yet in each there is, either in the majority opinion or in the concurrences or dissents, a hint of discomfort with the implications of Chevron and with the potential for agency overreach if Chevron continues to be applied as it has been in the past. Justice Thomas, in contrast to the others on the Court, sees the doctrine as a violation of the separation of powers embodied in the Constitution and would do away with it altogether.

Utility Air Regulatory Group v. EPA (2014)

The Supreme Court’s decision in UARG, involving EPA’s authority to regulate greenhouse gases under the Clean Air Act, is illustrative. Just seven years earlier, in Massachusetts v. EPA, 127 S. Ct. 1438 (2007), the Court had held, citing Chevron, that the term “pollutant” unambiguously includes “all airborne compounds of whatever stripe” and that greenhouse gases “are without a doubt” encompassed within that term. The Court thus held that EPA was required to regulate new motor vehicle greenhouse gas emissions if the agency found those emissions posed a threat of endangerment to public health or welfare.

In UARG, the Court reached essentially the opposite conclusion, holding that for purposes of the Clean Air Act’s prevention-of-significant-deterioration (PSD) and Title V permitting programs, both of which apply to “pollutants” whose emissions are regulated under the Clean Air Act, the term unambiguously did not include greenhouse gases. The majority, led by Justice Scalia, first dismissed Massachusetts’ Chevron Step One holding by reasoning that the word “pollutant” “must be read in [its] context and with a view to [its] place in the overall statutory scheme.” The Court then found that, in the specific context of the PSD and Title V provisions, “there is no insuperable barrier” to giving the term a narrower meaning that makes it consonant with other aspects of those provisions. Thus, the Court concluded, the term “pollutant” is ambiguous within the context of the Clean Air Act’s PSD and Title V provisions even though it remains unambiguous generally.

Once the Court had reasoned that far—placing “pollutant” within the confines of Chevron Step Two analysis—an important Chevron Step Two principle came into play: that “[e]ven under Chevron’s deferential framework, agencies must operate within the bounds of reasonable interpretations.” From that base, the Court determined that EPA’s reading of the PSD and Title V provisions as covering greenhouse gases was unreasonable in light of the vast number of sources that would be drawn into the permitting program.

Limiting deference when the agency decision is one of “vast economic importance,” as Justice Scalia put it in UARG, suggests one possible new limitation on Chevron. In fact, Justice Scalia’s reasoning forms an important part of the basis for the Court’s subsequent decision in Burwell, discussed below.

Perez v. Mortgage Bankers (2015)

Until the Court’s issuance of its decisions in Burwell and Michigan, Perez appeared to be the most significant Chevron case of the past term, principally for its concurring opinions by Justices Scalia and Thomas. Perez involved the D.C. Circuit’s Paralyzed Veterans doctrine, which while recognizing Auer deference to an agency’s interpretation of its own ambiguous regulation, required agencies to undertake notice-and-comment rulemaking before revising an earlier interpretation of a regulation. The majority found this notice-and-comment requirement to be an impermissible encumbrance on an agency’s authority to revisit and revise its prior interpretations.

In his concurrence, however, Justice Scalia expressed grave doubts about the wisdom of this holding. According agency interpretations of their own regulations heightened Auer deference, in his view, essentially makes those interpretive rules binding on the public and thus tantamount to laws. Justice Thomas echoed this in his own concurrence, noting that the problems Justice Scalia discussed “call into question the legitimacy of our precedents requiring deference to administrative interpretations of regulations.” Like Justice Scalia, Justice Thomas viewed Auer deference as creating separation-of-powers problems.

Though framed in terms of doubts about the constitutionality of Auer deference, these concurrences have implications for Chevron deference as well, because there too the courts are essentially ceding to the executive branch the authority to say definitively what the law means.

King v. Burwell (2015)

Burwell was the Supreme Court’s second visit with the Affordable Care Act. This time, the question was whether a health care exchange “established by the State” could include an exchange established by the federal government after a state failed to establish its own. Here, the United States argued that the Internal Revenue Service (IRS) acted permissibly in interpreting that term to include such federally established exchanges. Though the majority in Burwell, led by Chief Justice Roberts, ultimately concluded that the statute could only reasonably be read as the IRS had read it, it very conspicuously did not defer under Chevron to the agency’s reading.

The Court acknowledged Chevron and noted that, “When analyzing an agency’s interpretation of a statute, we often apply the two-step framework announced [there.]” Citing an earlier decision, however, it held that this was an “extraordinary case” in which “there may be reason to hesitate before concluding that Congress has intended such an implicit delegation.” Reaching back to Justice Scalia’s reasoning in UARG, the Court held that where the question is one of “deep economic and political significance that is central to [the] statutory scheme,” the reviewing court must look for an express delegation of interpretive authority from Congress. Having found no such delegatory intent, the Court determined that it was the proper entity to interpret the statute.

This principle—that on certain questions of deep economic and political significance the reviewing courts may determine not to defer to the agency’s interpretation of an ambiguous statutory term—could resonate significantly in future cases, such as in the coming challenges to EPA’s carbon dioxide emission standards for existing power plants, through which EPA proposes a major restructuring of the nation’s energy markets.

Michigan v. EPA (2015)

Finally, Michigan v. EPA involved review of a Clean Air Act provision commanding EPA to determine whether it is “appropriate and necessary” to regulate certain pollutants before proceeding to regulate them. In the D.C. Circuit, a deeply divided panel had held that the word “appropriate” was ambiguous and did not clearly command that EPA consider the cost of regulation when determining whether to regulate. Thus, under Chevron Step Two, EPA’s decision not to consider costs at that stage was reasonable and entitled to deference.

The Supreme Court, in another opinion by Justice Scalia, reversed. Though the Court did not apply a Chevron Step 1 analysis in Michigan, it nonetheless concluded that EPA acted unreasonably by failing to read the word “appropriate” to require at least some consideration of costs. Looking to the text of the statute, the Court determined that the term “appropriate” is “capacious” and “all-encompassing” and therefore requires “at least some attention to cost.” The Court also grounded its conclusion in a foundational precept of administrative law: that an agency engaged in rulemaking may not “entirely fail to consider an important aspect of the problem.”

In his concurring opinion, Justice Thomas took further the line of reasoning he espoused in Perez, arguing that Chevron deference, like Auer deference, must go. Both, in his view, run afoul of the separation-of-powers doctrine, ceding too much authority to the executive branch at the expense of the other two. Notably, no other Justice joined his opinion.

Chevron’s future

Chevron remains, and likely will remain, the standard by which agency interpretations of statutes will be judged. In most instances where the text of the statute is ambiguous and the agency has attempted to give it a reasonable meaning, the agency’s interpretation will control. The recent cases, however, are more notable for the exceptions to Chevron that they appear to announce: that deference will not be given on questions of deep economic or political significance absent clear congressional statements of delegatory intent and that—even where Chevron applies—the courts will remain the ultimate arbiter of what interpretations are reasonable.

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