Redrawing Chevron Deference

Thursday, June 26, 2014 - 07:54

An administrative agency may only exercise the authority which Congress grants to it.  Yet, as can often be the case, the grant and scope of authority Congress gives to the executive branch can be uncertain because administrative bodies need to interpret ambiguous statutes in an attempt to effect Congress’s intent.  Recently, the courts have challenged agency interpretations and discretion, especially when they ignore specific congressional requirements.  Such decisions have arguably limited agency deference.  This is of particular importance to regulated companies, as the likelihood of success may now be greater when challenging an agency’s interpretation of a statute. 

Nearly thirty years have passed since the Supreme Court decided the seminal case Chevron, U.S.A., Inc. v. Natural Resources Defense Counsel, Inc., 467 U.S. 837 (1984).  In that decision, the Supreme Court set forth arguably one of the most, if not the most, influential principles in administrative law: the deference courts should grant to agency interpretations of statutes authorizing, in some manner, executive branch action.

Under the “Chevron two-step” test, when confronted with reviewing an agency’s construction of a statute, a court must answer two questions.  First, the court must look to the language of the statute.  If, based on the statutory language, Congress’s intent is clear, the inquiry ends – the agency (and the court) must give effect to Congress’s unambiguously expressed intent.  If, however, the court determines the statutory language is “silent or ambiguous,” the court proceeds to the second step:  whether the agency’s interpretation is based on a “permissible construction of the statute.”  If the agency’s interpretation is reasonable, rather than impose its own construction of the statute, the court must defer to the agency’s statutory interpretation. 

In the years since the Supreme Court decided Chevron, its scope has been challenged, and, as a result, narrowed, over time.  In 2001, the United States Supreme Court substantially limited deference to agency statutory interpretations in United States v. Mead Corp., 533 U.S. 218 (2001).  The Court in Mead held that an agency’s interpretation receives Chevron deference only if the “agency interpretation claiming deference was promulgated in the exercise” of its rulemaking authority.  In other words, courts must defer to agencies only when an agency’s statutory interpretation arose from a formal adjudication or notice-and-comment rulemaking, or by some other indication of comparable congressional intent.  Interpretation letters will not suffice.  Where Chevron deference does not apply, the court reviews the agency’s interpretation de novo and that interpretation is merely accorded “weight”  under Skidmore v. Swift & Co., 323 U.S. 134 (1944).  In those circumstances, the amount of weight given to the administrative interpretation depends on the “thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”  Similarly, other courts have found that policy statements, interpretive rulings, and EPA advisory circulars are not entitled to Chevron deference.

The emerging rule limits agency deference to those circumstances where there has been no specific congressional command or mandate.  And, as its 30-year anniversary approaches, it is a good time to review some of those limitations and try to discern the current scope of Chevron deference in the context of recent decisions related to challenges to various regulatory actions.

In particular, a series of recent decisions related to deference to federal agencies involving the U.S. Food and Drug Administration (“FDA”), which regulates and enforces the Federal Food, Drug, and Cosmetic Act (the “FDCA”), has shed light on a potential narrowing of regulatory deference.  FDA is the expert on enforcement of the FDCA, and as a general matter, it should be given broad discretion with which to protect the public, regulate industry, and promote commerce. These cases may signal a broader willingness by the courts to limit agency deference.

On April 22, 2013, the United States District Court for the Northern District of California found that the FDA had violated the federal Food Safety Modernization Act (“FSMA”).  In Center for Food Safety v. Hamburg (N.D. Cal. April 2013) No. C12-4529 PJH, the district court found that the FDA had violated the FSMA and the Administrative Procedures Act (“APA”) by failing to promulgate certain regulations by the statutory deadlines.  The court stated that judicial review would be appropriate if the plaintiff made a showing of “agency recalcitrance . . . in the face of clear statutory duty or . . . of such a magnitude that it amounts to an abdication of statutory responsibility.”  The court rejected FDA’s assertion that the standard should be whether it has “unreasonably delayed” issuing the regulations because Congress had expressly set forth the deadlines in the statute.  This decision limits FDA discretion related to the timing of regulatory implementation of congressional mandates and curtails the scope of Chevron deference. No longer, arguably, can agencies blame cumbersome and time-consuming rulemaking for delays.

Less than two months later, the United States District Court for the Southern District of New York again held that it would not defer to FDA’s interpretation of the FDCA.  In NRDC v. FDA, S.D.N.Y. (June 1, 2013) No. 11-civ-3562, the court found that FDA had unlawfully withheld agency action in violation of the FDCA and the APA by not initiating withdrawal proceedings related to the use of antibiotics in animal feed.  More than thirty years earlier, a subdivision of FDA found the use of certain antibiotics in livestock for growth promotion and feed efficiency not safe and issued Notices of Opportunity for Hearings.  Although the hearings were requested, they were never held, and in late December 2011 FDA rescinded the Notices.  The FDA later denied two citizen petitions requesting FDA to begin withdrawal proceedings.  The court rejected FDA’s assertion that its decision to deny the petitions and not implement withdrawal proceedings was committed to agency discretion.  The court found that it could not defer to FDA because the statute clearly required FDA to hold hearings following its conclusion that antibiotics in feed was unsafe.  This decision reflects the court’s recognition that an agency’s decision to institute formal withdrawal proceedings is more similar to informal rulemaking, which is subject to the court’s review, than enforcement actions, which are generally afforded greater discretion.  FDA cannot ignore its own congressionally mandated procedures because they are not convenient or time-consuming.

Further, last July, in Cook v. FDA, 733 F.3d 1 (D.D.C. 2013), a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit handed down a unanimous decision, affirming the district court’s decision to permanently enjoin FDA from importing a death penalty drug, sodium thiopental.  Prisoners on death row alleged that the FDA had violated the FDCA by improperly allowing shipments of this misbranded and unapproved new drug to enter the United States, contrary to the express language of the FDCA.  FDA asserted that its decision not to take action with respect to the drug was an exercise of its agency enforcement discretion and not subject to judicial review.  The district court and the D.C. Circuit rejected this argument.  The D.C. Circuit found that Chevron deference does not apply because Congress had given FDA a mandatory duty to seize unapproved drugs and prevent importation that it could not disregard under the guise of exercising its discretion.  Yet again, this decision limits the broad scope of Chevron discretion and found that a regulatory body cannot disregard a specific congressional requirement to act.

And, this past January, the United States Court of Appeals for the District of Columbia Circuit vacated a district court order dismissing appellants’ claims in light of its decision in Cook.  In its earlier decision, K-V Pharmaceutical Company v. FDA, No. 12-1105 (D.D.C. September 6, 2012), the D.C. Circuit reviewed and upheld the FDA’s exercise of its enforcement discretion.  In that decision, K-V Pharmaceutical alleged that the FDA had violated the FDCA and the APA by failing to take action to enforce the Orphan Drug Act against pharmacies to stop their unlawful competition by compounding a competitive and cheaper alternative drug.  The court held that K-V’s claims were not reviewable because the APA “precludes judicial review of final agency action, including refusals to act, when review is precluded by statute or ‘committed to agency discretion by law.’”  In January, the court vacated its prior order and remanded the case to the district court for reconsideration in light of Cook.  This decision illustrates yet again the principle that a regulatory body cannot ignore explicit congressional commands under the guise of exercising its discretionary enforcement authority.

Over the past thirty years since Chevron was decided, while that decision remains good law, the agency deference that it created has been substantially limited by courts throughout the country.  The courts appear to be attempting to create a more predictable environment in which industry can operate by requiring agencies to follow clear congressional language about how agencies implement and enforce the laws it passes.  In cases where regulated entities find themselves harmed by inappropriate agency action or inaction, courts may be more receptive to challenges to agency conduct going forward.

David Graham is a commercial trial lawyer and Kristina Kaluza specializes in business litigation. Both are resident in the firm’s Minneapolis, Minnesota office.

Please email the authors at dgraham@dykema.com or kkaluza@dykema.com with questions about this article.