Panelists Tackle Major Questions About the Future of Administrative Law

The Federalist Society held its 2022 National Lawyers Convention on November 10 through November 12. The Convention panel videos are now available online, including one titled "Major Questions Doctrine: West Virginia v. EPA?" The panel, moderated by Judge Edith Jones of the Fifth Circuit Court of Appeals, features Professors Jennifer Mascott and Thomas Merrill, as well as top-notch litigators Ian Gershengorn and Yaakov Roth. Like other events featuring commentary and analysis of the Supreme Court's 2020 decision in West Virginia v. EPA, the panelists discussed the case as a matter of textual interpretation and interpretative canons, in light of the non-delegation doctrine, in view of Chevron doctrine, and also in connection with the court's application of Chevron deference to agency determinations about the scope of their own jurisdiction in its 2013 decision in City of Arlington v. FCC.  

One interesting point made by Mr. Gershengorn about 51-52 minutes into the panel and again at about the 1 hour 21 minute mark was that net neutrality regulation constitutes "the easiest major doctrines case you're going to see" because then-Judge Brett Kavanaugh decided that net neutrality is a major question in the D.C. Circuit in U.S. Telecom v. FCC. 

 

FSF President Randolph May addressed the implications of West Virginia v. EPA for net neturality regulation in his July 2022 Perspectives from FSF Scholars, "A Major Ruling on Major Questions." And he pointed out that the court's opinion in West Virginina v. EPA actually quoted then-Judge Kavanaugh's 2017 opinion dissenting from denial of en banc review in U.S. Telecom v. FCC. 

Amazon Should Not Receive Government Handouts

Last week, Amazon announced that it will build its highly sought-after second "headquarters" (HQ2) in two separate locations, agreeing to move to Arlington, VA, and Queens, NY. Taxpayers in Maryland and Montgomery County should be pleased that they will not have to pay the $8.5 billion offered to Amazon to induce it to build HQ2 in Montgomery County.

Without having to pay a dime, Montgomery County, which like Arlington borders Washington, DC, still should experience positive spillover economic benefits.

Amazon likely will use HQ2’s close proximity to Washington, DC, in part, to continue lobbying the federal government for various regulatory changes – some good and some bad. As one of the two largest companies in the United States, with a market cap that exceeded $1 trillion in early September, Amazon does not need and should not receive government handouts or special regulatory advantages. Instead, governments at all levels should reduce tax and regulatory barriers that stifle competition and reduce investment and innovation.

After receiving bids from 238 cities across the United States and effectively creating a bidding war, Amazon decided last week that it would locate HQ2 in Arlington, VA, and Queens, NY, with more than 25,000 employees in each location. Maryland offered $6.5 billion in tax incentives and Montgomery County threw in an additional $2 billion. But had Amazon agreed to place HQ2 in Maryland, taxpayers in Maryland and particularly in Montgomery County would have paid for Amazon’s new headquarters.

While perhaps you can't fault the company for attempting to get as many government handouts as possible, Maryland’s government should do what is best for the residents, not what is best for Amazon.

The argument in favor of offering tax incentives to Amazon is that HQ2 would stimulate the local economy and create more than $8.5 billion in long-term economic benefits. Sage Policy Group performed an economic impact study which found that HQ2 would create more than $17 billion in annual economic activity in Maryland. At the time this study was performed, it was assumed that Amazon would deploy one HQ2 with 50,000 jobs, as opposed to two headquarters, each with 25,000 jobs. But even assuming HQ2 would have created 50,000 new jobs in Montgomery County, one of the touted benefits in the study is that Amazon would contribute $280 million in annual county taxes and $483 million in annual state taxes. If Amazon accepted the $8.5 billion handout, it would have taken Amazon more than seven years to create a net positive tax contribution to Montgomery County and more than thirteen years to create a net positive tax contribution to Maryland.

Of course, had Amazon accepted the deal, it would have been under no obligation to pay back the tax incentives. What would have stopped Amazon from moving HQ2 to a new location after a few years? Taxpayers would bear all the costs with little benefits, particularly Maryland taxpayers who live far from Montgomery County who would not experience any of the increased economic activity created by HQ2.

Montgomery County and Maryland officials now have a combined $8.5 billion that can be allocated to services that will directly impact the state and local residents. Whether this means more funding for schools, roads, or tax breaks for the current residents, Maryland is likely much better off using this money in other ways.

Importantly, because Arlington, VA, a suburb of Washington, DC, will become the location of one of Amazon’s second headquarters, Montgomery County’s local economy will experience spillover economic benefits. Amazon’s move to the DC area will bring 25,000 new jobs and those new employees will spend their money on housing, food, and entertainment throughout the area. Sage’s study states that an HQ2 located in Montgomery County would positively impact DC, and Northern Virginia, as well as Maryland’s Anne Arundel County, Baltimore City, Baltimore County, Frederick County, Howard County, and Prince George’s County. So under the same locale-related assumption, an Arlington-based HQ2 should positively impact Montgomery County and other Maryland jurisdictions. Spillover effects do not stop at state borders, so Maryland should experience some of the indirect economic benefits of Amazon moving to the DC area without having to spend $8.5 billion in taxpayer money. Moreover, additional companies may consider the Washington, DC, area as a good home for their headquarters, and Maryland can use this opportunity as a way to reinvent its sales pitch to prospective companies – by lowering tax rates and eliminating costly regulations that stifle entrepreneurial and economic activity.

Despite a whopping $8.5 billion left on the table, I am not claiming that Amazon chose Virginia over Maryland due to its tax and regulatory policies. I don't have evidence for that. But that does not mean that Maryland’s improving but still sub-par business climate does not deter other companies from setting up shop within the state. (See these blogs here, here and here.) Instead of attempting to persuade companies – including one of the world's largest firms – to move to Maryland with promises of government handouts, the state and localities should remove, or at least reduce, barriers to entry. This will induce businesses across many industries to locate their headquarters in Maryland.

Chevron Deference and Regulatory Reform

There may be disagreement among scholars concerning the soundness of the Supreme Court's reasoning in its May 20 City of Arlington v. FCC opinion. Nevertheless, many agree that the Court's decision likely will give federal agencies somewhat more leeway in exercising administrative authority because courts are likely to accord the agencies' actions a broader scope of deference upon judicial review.

For my purposes here, the specifics of the City of Arlington case concerning the FCC's authority to set time limits for localities to act on tower siting applications are not important. What is important is that Justice Scalia, writing for the majority, held that so-called Chevron deference applies to agency interpretations of ambiguous statutory provisions concerning the scope of the agency's authority (or, as some put it, the agency's jurisdiction). According to Justice Scalia, the question "is always whether the agency has gone beyond what Congress has permitted it to do, [and] there is no principled basis for carving out some arbitrary subset of such claims as 'jurisdictional.'"

My own sympathies lie with the view espoused by Chief Justice Roberts in his dissent. According to the Chief Justice, "[a]n agency cannot exercise interpretative authority until it has it; the question whether an agency enjoys that authority must be decided by a court without deference to the agency." In other words, "[a] court should not defer to an agency until the court decides, on its own, that the agency is entitled to deference."

As tempted as I am to provide an explanation of why my sympathies, as a matter of law, lie with the Chief Justice, I resist the urge here. What I want to emphasize is that, putting aside the impact on the outcome of any one particular case, the Chief Justice is almost surely correct that the practical impact of City of Arlington will be to expand the power of the federal agencies. This is because when Chevron deference applies, the agency's interpretation of its statutory authority is entitled by the reviewing to "controlling weight." Unless the court finds the agency's interpretation "unreasonable," it must affirm.

Thus, Chief Justice Roberts has a good point when he declares that City of Arlington must be viewed against the backdrop "whether the authority of the administrative agencies should be augmented even further…."

With regard to the FCC, the agency whose authority was actually at issue in the Arlington case, the worry about "even further" augmentation of agency power is real. To support his expansive articulation of Chevron's domain, Justice Scalia relied heavily on the Communications Act's broad grant of general rulemaking authority to the FCC to "prescribe such rules and regulations as may be necessary in the public interest" to carry out the statute's provisions. You may rest assured that the Commission, and its lawyers, now will rely even more heavily than in the past on this general grant of rulemaking authority as they routinely invoke Chevron deference.

So, what, if anything, reasonably can be done, to serve as a check on such augmentation of agency power resulting from City of Arlington?

The answer lies, I think, in sensible regulatory reform measures. Indeed, such reform measures make sense even absent the potential impact of City of Arlington. This is especially so for the FCC which, despite the dramatic changes that have occurred in the past quarter century with the development of competition in most market segments, too often still is governed by an ingrained pro-regulatory disposition that distrusts the marketplace.

With regard to the FCC, here are some regulatory reform measures that could be adopted. None of these would alter the Communications Act's substantive statutory criteria, such as protecting consumers or the public interest, which govern the Commission's decisions. Rather, they are in the nature of process reforms that would have the effect of altering the Commission's decisionmaking framework in a way that makes it less likely that the agency will regulate absent evidence of market failure or consumer harm.

• Congress could enact legislation along the lines of the "Federal Communications Commission Process Reform Act of 2012," which passed the House in March 2012, but which subsequently died in the Senate. The House bill had many good process reform features, and in testimony at a House hearing in June 2011, I urged adoption of many of the reforms included in the bill that ultimately passed the House. In my view, the most important provisions were the requirements that the Commission analyze any claimed market failure and consumer harm and employ cost-benefit analysis before adopting any new rules. While other measures in the House bill, such as "shot clock" and transparency requirements, were meritorious too, these analytical requirements would force the FCC to engage in a more rigorous economic analysis than it routinely presently does.

• Congress could revise the forbearance and periodic regulatory review requirements added to the Communications Act by the Telecommunications Act of 1996 so that, in effect, the evidentiary burden is shifted to the Commission to deny regulatory relief. As I proposed in an April 2011 Perspectives paper entitled "A Modest Proposal for Regulatory Reform," this shifting of burden through a deregulatory evidentiary presumption could be accomplished with a modest revision to Sections 10 ["Competition in the Provision of Telecommunications Service"] and 11 ["Regulatory Reform"] of the Communications Act.

For example, the following sentence, or a similar one, could be added to the Section 10 forbearance relief provision: "In making the foregoing determinations, absent clear and convincing evidence to the contrary, the Commission shall presume that enforcement of such regulation or provision is not necessary to ensure that a telecommunications carrier's charges or practices are not unreasonable or unreasonably discriminatory or necessary for the protection of consumers and is consistent with the public interest."

Similarly, a sentence could be added to the Section 11 periodic regulatory review provision which says: "In making the foregoing determination, absent clear and convincing evidence to the contrary, the Commission shall presume that such regulation is no longer necessary in the public interest as a result of meaningful competition between providers of such service."

In neither instance would the substantive criteria set forth for considering regulatory relief be changed. Instead, as explained in my "A Modest Proposal for Regulatory Reform Paper," the revisions would simply establish a rebuttable presumption favoring regulatory relief absent clear and convincing evidence to the contrary. And, as I have made clear, regulatory relief under the forbearance and periodic regulatory review provisions should be available to all entities regulated by the Commission.

• Congress could also amend the Communications Act's provision granting the Commission general rulemaking authority that was relied on so heavily by Justice Scalia in City of Arlington. Section 201(b) provides that the Commission "may prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions of this Act." [Query whether this sentence was ever intended to grant the FCC general rulemaking authority beyond Title II ["Common Carriers"] because it is located in a particular section of Title II rather than Title I's general provisions.] In any event, a proviso could be added at the provision's end to the effect that, before adopting a rule, the "the Commission must determine, based on a showing of clear and convincing evidence presented in the rulemaking proceeding, that marketplace competition is not sufficient adequately to protect consumer welfare." This would simply require the Commission to meet a higher evidentiary burden before adopting a new regulation.

• Congress could add a general sunset provision to the Communications Act that provides that all rules will expire automatically after five [or X] years absent a showing by the Commission, based on clear and convincing evidence compiled after public notice, that it is necessary for such rule to remain in effect to accomplish its original objective or objectives.

• Congress could adopt legislation specifying that the independent regulatory agencies, such as the FCC, are not entitled to Chevron deference upon judicial review of their action because they are not politically accountable in the same way as the executive branch agencies, such as the EPA. Chevron itself involved review of an EPA interpretation of the Clean Air Act, and in its decision announcing the Chevron deference doctrine, the Court relied heavily on the fact that EPA, an executive branch agency, was politically accountable to the President. In two separate law review articles published in the Administrative Law Review, I have suggested that the actions of the independent agencies not receive the same degree of deference on review as those of the executive agencies. The articles are here and here.

Again, these are process-oriented regulatory reform measures that should be considered in any event with respect to FCC reform. But the Supreme Court's City of Arlington decision ought to provide an impetus for Congress to take up the reform mantle in a serious way, at least with process-oriented reforms such as those suggested here.

You might say it's too bad Congress needs such an impetus to act. But given one, it should move forward with some urgency.

Chevron Deference and Independent Agencies

Tomorrow (January 16) the Supreme Court will hear oral argument in City of Arlington v. FCC. As we have observed previously, City of Arlington is likely to be one of the most important administrative law decisions of the last quarter century, impacting not only the FCC but most other federal agencies as well.

The question before the Court is whether courts, upon judicial review, should give Chevron deference to an agency’s determination of its own jurisdictional boundaries. When Chevron deference applies, courts give what the Court called "controlling weight" to an agency's statutory interpretations. While, at times, an agency's statutory interpretation may not prevail even if Chevron deference is held to apply, this is rare.

In my December 27 Washington Times opinion piece and in FSF Academic Board Member Jonathan Adler's November 26 Perspectives from FSF Scholars, we explained why the Supreme Court should hold that deference should not apply to agency determinations concerning the bounds of an agency's own jurisdiction. As Professor Adler concluded: "There are good reasons for [the Supreme Court] to make clear that agencies should only receive Chevron deference when they are exercising that authority Congress has delegated, and they should not receive deference when facing the question of whether the agency has authority at all."

And, as I explained in my Washington Times commentary:

"The very separation of powers principles upon which the Chevron deference doctrine primarily rests should mean that such deference doesn’t apply to agencies’ interpretations regarding the bounds of their own authority….If agencies themselves are allowed, by virtue of receiving extraordinary judicial deference, to presumptively resolve statutory ambiguities over the outer bounds of their own power, then it is far easier for legislators to avoid political accountability for decisions Congress makes regarding the expansive reach of the regulatory state. Finally, if agencies’ decisions about the scope of their own jurisdictions are given 'controlling weight' under the Chevron doctrine, the bureaucratic imperative naturally will be for officials to continue enlarging the limits of their regulatory authority."

Before Wednesday's argument, I want to call your attention to another point, one not addressed directly either in my piece or Professor Adler's. For a long time, I have suggested that independent agencies should not receive Chevron deference in the same way that Executive Branch agencies do. In other words, I have argued there ought to be a difference in application of the deference standard depending on whether the agency is an Executive Branch agency – like EPA, the agency whose ruling was at issue in Chevron itself – or an independent agency like the FCC, whose ruling is before the Court in City of Arlington.

The principal reason I have advocated this difference in judicial review deference standards has to do with constitutional separation of powers principles. In Chevron, the Court grounded the deference doctrine primarily (but not exclusively) in notions of political accountability inherent in separation of powers principles. In this regard, the Court explained that when congressional intent regarding delegated authority is not clear:

"[A]n agency to which Congress has delegated policymaking responsibilities may, within the limits of that delegation, properly rely upon the incumbent administration's views of wise policy to inform its judgments. While agencies are not directly accountable to the people, the Chief Executive is, and it is entirely appropriate for this political branch of the Government to make such policy choices -- resolving the competing interests which Congress itself either inadvertently did not resolve, or intentionally left to be resolved by the agency charged with the administration of the statute in light of everyday realities."

Simply put, because independent agencies such as the FCC are, as a matter of our current understanding of the law and of historical practice, mostly free from executive branch political control, Chevron’s political accountability rationale should imply that independent agencies' statutory interpretations receive less judicial deference because such agencies, including the FCC, are less politically accountable.

I have published two articles in the Administrative Law Review articulating my position at some length and won't elaborate further here. The first, published in 2006, is titled, Defining Deference Down: Independent Agencies and Chevron Deference, and the second, published in 2010, Defining Deference Down, Again: Independent Agencies, Chevron Deference, and Fox. You may find these law review articles interesting if you are following the City of Arlington case.

A final intriguing note: Then Harvard Law School Dean Elena Kagan – now Justice Kagan – took essentially the same position that I have advocated regarding the judicial deference owed independent agencies in her widely-praised 2001 Presidential Administration law review article. And she based her view on the same rationale that I have suggested – that independent agencies are not as politically accountable as Executive Branch agencies because the President cannot control the independent agencies to the same degree. We'll see whether in City of Arlington Justice Kagan, or any other Justice, finds the differences between executive and independent agencies relevant for Chevron purposes.