Introduction: Judicial Review of Agency Actions

To this point, we’ve learned about agencies’ procedural obligations under the APA and their authorizing statutes, and how courts review potential violations of procedural requirements. In this section, we learn about how courts review agency actions to determine whether they are substantively unlawful. You will learn how courts review agency actions where an agency’s decision is arbitrary and capricious, or where an agency misinterpreted a statute.

Judicial Review of Statutory Interpretations

We will first learn about how courts review agencies’ statutory interpretations. Because federal agencies get their authority from Congressional statutes, much of agencies’ decision-making includes interpreting statutes. Agencies interpret statutes to determine the scope of their rulemaking and adjudicatory authority, and to hammer out the details of their rules, orders, and guidance.

APA Section 706(2)(A) says that courts can hold unlawful and set aside agency actions that are “not in accordance with the law,” and APA Section 706(2)(C) says that courts can hold unlawful and set aside agency actions that are “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.”

Before 2024, Courts give agency decisions a lot of “deference.” Deference is defined as “humble submission and respect,” or “giving agencies the benefit of the doubt.” Courts give agency decisions a lot of leeway for several reasons: 

Courts are supposed to be politically neutral, while agencies are acting under authority delegated to them by elected Congresspeople and the President. Courts strive to respect the division of powers between the three branches of government.

Agencies are staffed with experts on the things they regulate: the EPA is teeming with environmental scientists and experts, and the Department of Health and Human Services (“HHS”) hires doctors and public health experts to carry out its Congressionally delegated mandates.

This was referred to as the Chevron Doctrine from Chevron v. Natural Resources Defense Council, Inc.  In Loper Bright Enterprises v. Raimondo, the courts overturned the Chevron decision which was on the books for over 40 years.

SUPREME COURT OF THE UNITED STATES

Syllabus

LOPER BRIGHT ENTERPRISES ET AL. v. RAIMONDO, SECRETARY OF COMMERCE, ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 22–451. Argued January 17, 2024—Decided June 28, 2024*

The Court granted certiorari in these cases limited to the question whether Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, should be overruled or clarified.  Under the Chevron doctrine, courts have sometimes been required to defer to “permissible” agency interpretations of the statutes those agencies administer—even when a reviewing court reads the statute differently.  Id., at 843. In each case below, the reviewing courts applied Chevron’s framework to resolve in favor of the Government challenges by petitioners to a rule promulgated by the National Marine Fisheries Service pursuant to the Magnuson-Stevens Act, 16 U. S. C. §1801 et seq., which incorporates the Administrative Procedure Act (APA), 5 U. S. C. §551 et seq.

Held: The Administrative Procedure Act requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous; Chevron is overruled.  Pp. 7–35.

(a) Article III of the Constitution assigns to the Federal Judiciary the responsibility and power to adjudicate “Cases” and “Controversies”—concrete disputes with consequences for the parties involved. The Framers appreciated that the laws judges would necessarily apply in resolving those disputes would not always be clear, but envisioned that the final “interpretation of the laws” would be “the proper and peculiar province of the courts.”  The Federalist No. 78, p. 525 (A. Hamilton). As Chief Justice Marshall declared in the foundational decision of Marbury v. Madison, “[i]t is emphatically the province and duty of the judicial department to say what the law is.”  1 Cranch 137, 177.  In the decades following Marbury, when the meaning of a statute was at issue, the judicial role was to “interpret the act of Congress, in order to ascertain the rights of the parties.” Decatur v. Paulding, 14 Pet. 497, 515. 

The Court recognized from the outset, though, that exercising independent judgment often included according due respect to Executive Branch interpretations of federal statutes.  Such respect was thought especially warranted when an Executive Branch interpretation was issued roughly contemporaneously with enactment of the statute and remained consistent over time.  The Court also gave “the most respectful consideration” to Executive Branch interpretations simply because “[t]he officers concerned [were] usually able men, and masters of the subject,” who may well have drafted the laws at issue.  United States v. Moore, 95 U. S. 760, 763.  “Respect,” though, was just that.  The views of the Executive Branch could inform the judgment of the Judiciary, but did not supersede it. “[I]n cases where [a court’s] own judgment . . . differ[ed] from that of other high functionaries,” the court was “not at liberty to surrender, or to waive it.”  United States v. Dickson, 15 Pet. 141, 162. 

During the “rapid expansion of the administrative process” that took place during the New Deal era, United States v. Morton Salt Co., 338 U. S. 632, 644, the Court often treated agency determinations of fact as binding on the courts, provided that there was “evidence to support the findings,” St. Joseph Stock Yards Co. v. United States, 298 U. S. 38, 51. But the Court did not extend similar deference to agency resolutions of questions of law. “The interpretation of the meaning of statutes, as applied to justiciable controversies,” remained “exclusively a judicial function.” United States v. American Trucking Assns., Inc., 310 U. S. 534, 544.  The Court also continued to note that the informed judgment of the Executive Branch could be entitled to “great weight.” Id., at 549. “The weight of such a judgment in a particular case,” the Court observed, would “depend upon 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.” Skidmore v. Swift & Co., 323 U. S. 134, 140.

Occasionally during this period, the Court applied deferential review after concluding that a particular statute empowered an agency to decide how a broad statutory term applied to specific facts found by the agency. See Gray v. Powell, 314 U. S. 402; NLRB v. Hearst Publications, Inc., 322 U. S. 111.  But such deferential review, which the Court was far from consistent in applying, was cabined to factbound determinations.  And the Court did not purport to refashion the longstanding judicial approach to questions of law.  It instead proclaimed that “[u]ndoubtedly questions of statutory interpretation . . . are for the courts to resolve, giving appropriate weight to the judgment of those whose special duty is to administer the questioned statute.” Id., at 130–131.  Nothing in the New Deal era or before it thus resembled the deference rule the Court would begin applying decades later to all varieties of agency interpretations of statutes under Chevron. Pp. 7–13.

(b) Congress in 1946 enacted the APA “as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices.”  Morton Salt, 338 U. S., at 644.  The APA prescribes procedures for agency action and delineates the basic contours of judicial review of such action.  And it codifies for agency cases the unremarkable, yet elemental proposition reflected by judicial practice dating back to Marbury: that courts decide legal questions by applying their own judgment.  As relevant here, the APA specifies that courts, not agencies, will decide “all relevant questions of law” arising on review of agency action, 5 U. S. C. §706 (emphasis added)—even those involving ambiguous laws.  It prescribes no deferential standard for courts to employ in answering those legal questions, despite mandating deferential judicial review of agency policymaking and factfinding. See §§706(2)(A), (E).  And by directing courts to “interpret constitutional and statutory provisions” without differentiating between the two, §706, it makes clear that agency interpretations of statutes—like agency interpretations of the Constitution—are not entitled to deference.  The APA’s history and the contemporaneous views of various respected commentators underscore the plain meaning of its text.

Courts exercising independent judgment in determining the meaning of statutory provisions, consistent with the APA, may—as they have from the start—seek aid from the interpretations of those responsible for implementing particular statutes. See Skidmore, 323 U. S., at 140.  And when the best reading of a statute is that it delegates discretionary authority to an agency, the role of the reviewing court under the APA is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits.  The court fulfills that role by recognizing constitutional delegations, fixing the boundaries of the delegated authority, and ensuring the agency has engaged in “ ‘reasoned decisionmaking’ ” within those boundaries. Michigan v. EPA, 576 U. S. 743, 750 (quoting Allentown Mack Sales & Service, Inc. v. NLRB, 522 U. S. 359, 374).  By doing so, a court upholds the traditional conception of the judicial function that the APA adopts. Pp. 13–18. 

(c) The deference that Chevron requires of courts reviewing agency action cannot be squared with the APA.  Pp. 18–29.

(1) Chevron, decided in 1984 by a bare quorum of six Justices, triggered a marked departure from the traditional judicial approach of independently examining each statute to determine its meaning. The question in the case was whether an Environmental Protection Agency (EPA) regulation was consistent with the term “stationary source” as used in the Clean Air Act.  467 U. S., at 840.  To answer that question, the Court articulated and employed a now familiar two-step approach broadly applicable to review of agency action.  The first step was to discern “whether Congress ha[d] directly spoken to the precise question at issue.” Id., at 842. The Court explained that “[i]f the intent of Congress is clear, that is the end of the matter,” ibid., and courts were therefore to “reject administrative constructions which are contrary to clear congressional intent,” id., at 843, n. 9. But in a case in which “the statute [was] silent or ambiguous with respect to the specific issue” at hand, a reviewing court could not “simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation.”  Id., at 843 (footnote omitted).  Instead, at Chevron’s second step, a court had to defer to the agency if it had offered “a permissible construction of the statute,” ibid., even if not “the reading the court would have reached if the question initially had arisen in a judicial proceeding,” ibid., n. 11.  Employing this new test, the Court concluded that Congress had not addressed the question at issue with the necessary “level of specificity” and that EPA’s interpretation was “entitled to deference.”  Id., at 865. 

Although the Court did not at first treat Chevron as the watershed decision it was fated to become, the Court and the courts of appeals were soon routinely invoking its framework as the governing standard in cases involving statutory questions of agency authority.  The Court eventually decided that Chevron rested on “a presumption that Congress, when it left ambiguity in a statute meant for implementation by an agency, understood that the ambiguity would be resolved, first and foremost, by the agency, and desired the agency (rather than the courts) to possess whatever degree of discretion the ambiguity allows.” Smiley v. Citibank (South Dakota), N. A., 517 U. S. 735, 740–741.  Pp. 18–20.

(2) Neither Chevron nor any subsequent decision of the Court attempted to reconcile its framework with the APA.  Chevron defies the command of the APA that “the reviewing court”—not the agency whose action it reviews—is to “decide all relevant questions of law” and “interpret . . . statutory provisions.”  §706 (emphasis added).  It requires a court to ignore, not follow, “the reading the court would have reached” had it exercised its independent judgment as required by the APA. Chevron, 467 U. S., at 843, n. 11. Chevron insists on more than the “respect” historically given to Executive Branch interpretations; it demands that courts mechanically afford binding deference to agency interpretations, including those that have been inconsistent over time, see id., at 863, and even when a pre-existing judicial precedent holds that an ambiguous statute means something else, National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U. S. 967, 982. That regime is the antithesis of the time honored approach the APA prescribes.

Chevron cannot be reconciled with the APA by presuming that statutory ambiguities are implicit delegations to agencies.  That presumption does not approximate reality.  A statutory ambiguity does not necessarily reflect a congressional intent that an agency, as opposed to a court, resolve the resulting interpretive question.  Many or perhaps most statutory ambiguities may be unintentional. And when courts confront statutory ambiguities in cases that do not involve agency interpretations or delegations of authority, they are not somehow relieved of their obligation to independently interpret the statutes.  Instead of declaring a particular party’s reading “permissible” in such a case, courts use every tool at their disposal to determine the best reading of the statute and resolve the ambiguity.  But in an agency case as in any other, there is a best reading all the same—“the reading the court would have reached” if no agency were involved. Chevron, 467 U. S., at 843, n. 11. It therefore makes no sense to speak of a “permissible” interpretation that is not the one the court, after applying all relevant interpretive tools, concludes is best.

Perhaps most fundamentally, Chevron’s presumption is misguided because agencies have no special competence in resolving statutory ambiguities.  Courts do.  The Framers anticipated that courts would often confront statutory ambiguities and expected that courts would resolve them by exercising independent legal judgment.  Chevron gravely erred in concluding that the inquiry is fundamentally different just because an administrative interpretation is in play.  The very point of the traditional tools of statutory construction is to resolve statutory ambiguities.  That is no less true when the ambiguity is about the scope of an agency’s own power—perhaps the occasion on which abdication in favor of the agency is least appropriate.  Pp. 21–23. 

(3) The Government responds that Congress must generally intend for agencies to resolve statutory ambiguities because agencies have subject matter expertise regarding the statutes they administer; because deferring to agencies purportedly promotes the uniform construction of federal law; and because resolving statutory ambiguities can involve policymaking best left to political actors, rather than courts.  See Brief for Respondents in No. 22–1219, pp. 16–19.  But none of these considerations justifies Chevron’s sweeping presumption of congressional intent. 

As the Court recently noted, interpretive issues arising in connection with a regulatory scheme “may fall more naturally into a judge’s bailiwick” than an agency’s. Kisor v. Wilkie, 588 U. S. 558, 578.  Under Chevron’s broad rule of deference, though, ambiguities of all stripes trigger deference, even in cases having little to do with an agency’s technical subject matter expertise. And even when an ambiguity happens to implicate a technical matter, it does not follow that Congress has taken the power to authoritatively interpret the statute from the courts and given it to the agency.  Congress expects courts to handle technical statutory questions, and courts did so without issue in agency cases before Chevron. After all, in an agency case in particular, the reviewing court will go about its task with the agency’s “body of experience and informed judgment,” among other information, at its disposal. Skidmore, 323 U. S., at 140.  An agency’s interpretation of a statute “cannot bind a court,” but may be especially informative “to the extent it rests on factual premises within [the agency’s] expertise.”  Bureau of Alcohol, Tobacco and Firearms v. FLRA, 464 U. S. 89, 98, n. 8. Delegating ultimate interpretive authority to agencies is simply not necessary to ensure that the resolution of statutory ambiguities is well informed by subject matter expertise.

Nor does a desire for the uniform construction of federal law justify Chevron. It is unclear how much the Chevron doctrine as a whole actually promotes such uniformity, and in any event, we see no reason to presume that Congress prefers uniformity for uniformity’s sake over the correct interpretation of the laws it enacts.  

Finally, the view that interpretation of ambiguous statutory provisions amounts to policymaking suited for political actors rather than courts is especially mistaken because it rests on a profound misconception of the judicial role.  Resolution of statutory ambiguities involves legal interpretation, and that task does not suddenly become policymaking just because a court has an “agency to fall back on.”  Kisor, 588 U. S., at 575. Courts interpret statutes, no matter the context, based on the traditional tools of statutory construction, not individual policy preferences. To stay out of discretionary policymaking left to the political branches, judges need only fulfill their obligations under the APA to independently identify and respect such delegations of authority, police the outer statutory boundaries of those delegations, and ensure that agencies exercise their discretion consistent with the APA. By forcing courts to instead pretend that ambiguities are necessarily delegations, Chevron prevents judges from judging.  Pp. 23–26.

(4) Because Chevron’s justifying presumption is, as Members of the Court have often recognized, a fiction, the Court has spent the better part of four decades imposing one limitation on Chevron after another.  Confronted with the byzantine set of preconditions and exceptions that has resulted, some courts have simply bypassed Chevron or failed to heed its various steps and nuances.  The Court, for its part, has not deferred to an agency interpretation under Chevron since 2016.  But because Chevron remains on the books, litigants must continue to wrestle with it, and lower courts—bound by even the Court’s crumbling precedents—understandably continue to apply it.  At best, Chevron has been a distraction from the question that matters: Does the statute authorize the challenged agency action?  And at worst, it has required courts to violate the APA by yielding to an agency the express responsibility, vested in “the reviewing court,” to “decide all relevant questions of law” and “interpret . . . statutory provisions.” §706 (emphasis added).  Pp. 26–29.

(d) Stare decisis, the doctrine governing judicial adherence to precedent, does not require the Court to persist in the Chevron project. The stare decisis considerations most relevant here—“the quality of [the precedent’s] reasoning, the workability of the rule it established, . . . and reliance on the decision,” Knick v. Township of Scott, 588 U. S. 180, 203 (quoting Janus v. State, County, and Municipal Employees, 585 U. S. 878, 917)—all weigh in favor of letting Chevron go. 

Chevron has proved to be fundamentally misguided.  It reshaped judicial review of agency action without grappling with the APA, the statute that lays out how such review works.  And its flaws were apparent from the start, prompting the Court to revise its foundations and continually limit its application.

Experience has also shown that Chevron is unworkable. The defining feature of its framework is the identification of statutory ambiguity, but the concept of ambiguity has always evaded meaningful definition. Such an impressionistic and malleable concept “cannot stand as an every-day test for allocating” interpretive authority between courts and agencies.  Swift & Co. v. Wickham, 382 U. S. 111, 125.  The Court has also been forced to clarify the doctrine again and again, only adding to Chevron’s unworkability, and the doctrine continues to spawn difficult threshold questions that promise to further complicate the inquiry should Chevron be retained. And its continuing import is far from clear, as courts have often declined to engage with the doctrine, saying it makes no difference.

Nor has Chevron fostered meaningful reliance.  Given the Court’s constant tinkering with and eventual turn away from Chevron, it is hard to see how anyone could reasonably expect a court to rely on Chevron in any particular case or expect it to produce readily foreseeable outcomes. And rather than safeguarding reliance interests, Chevron affirmatively destroys them by allowing agencies to change course even when Congress has given them no power to do so.

The only way to “ensure that the law will not merely change erratically, but will develop in a principled and intelligible fashion,” Vasquez v. Hillery, 474 U. S. 254, 265, is for the Court to leave Chevron behind. By overruling Chevron, though, the Court does not call into question prior cases that relied on the Chevron framework. The holdings of those cases that specific agency actions are lawful—including the Clean Air Act holding of Chevron itself—are still subject to statutory stare decisis despite the Court’s change in interpretive methodology. See CBOCS West, Inc. v. Humphries, 553 U. S. 442, 457.  Mere reliance on Chevron cannot constitute a “ ‘special justification’ ” for overruling such a holding. Halliburton Co. v. Erica P. John Fund, Inc., 573 U. S. 258, 266 (quoting Dickerson v. United States, 530 U. S. 428, 443).  Pp. 29–35.

No. 22–451, 45 F. 4th 359 & No. 22–1219, 62 F. 4th 621, vacated and remanded.

ROBERTS, C. J., delivered the opinion of the Court, in which THOMAS, ALITO, GORSUCH, KAVANAUGH, and BARRETT, JJ., joined.  THOMAS, J., and GORSUCH, J., filed concurring opinions. KAGAN, J., filed a dissenting opinion, in which SOTOMAYOR, J., joined, and in which JACKSON, J., joined as it applies to No. 22–1219.  JACKSON, J., took no part in the consideration or decision of the case in No. 22–451. 

Skidmore v. Swift & Co.

323 U.S. 134 (1944)

MR. JUSTICE JACKSON delivered the opinion of the Court.

Seven employees of the Swift and Company packing plant at Fort Worth, Texas, brought an action under the Fair Labor Standards Act to recover overtime. [The employees worked at the packing plant during the day and were paid weekly salaries for that work. However, the same employees also stayed at the fire hall (or “within hailing distance”) three and a half to four nights a week to answer alarms in case of a fire. For this work, employees would be paid fifty to sixty-four cents for every alarm they answered, but would not be paid hourly overtime wages. The employees seek that overtime pay.]

The trial court found [...] as a “conclusion of law” that “the time plaintiffs spent in the fire hall subject to call to answer fire alarms does not constitute hours worked, for which overtime compensation is due them under the Fair Labor Standards Act, as interpreted by the Administrator and the Courts,” and in its opinion observed, “of course we know pursuing such pleasurable occupations or performing such personal chores, does not constitute work.” The Circuit Court of Appeals affirmed.

[W]e hold that no principle of law found either in the statute or in Court decisions precludes waiting time from also being working time [...] We do not minimize the difficulty of such an inquiry where the arrangements of the parties have not contemplated the problem posed by the statute. But it does not differ in nature or in the standards to guide judgment from that which frequently confronts courts where they must find retrospectively the effect of contracts as to matters which the parties failed to anticipate or explicitly to provide for.

Congress did not utilize the services of an administrative agency to find facts and to determine in the first instance whether particular cases fall within or without the Act. Instead, it put this responsibility on the courts. But it did create the office of Administrator, impose upon him a variety of duties, endow him with powers to inform himself of conditions in industries and employments subject to the Act, and put on him the duties of bringing injunction actions to restrain violations. Pursuit of his duties has accumulated a considerable experience in the problems of ascertaining working time in employments involving periods of inactivity and a knowledge of the customs prevailing in reference to their solution. From these he is obliged to reach conclusions as to conduct without the law, so that he should seek injunctions to stop it, and that within the law, so that he has no call to interfere. He has set forth his views of the application of the Act under different circumstances in an interpretative bulletin and in informal rulings. They provide a practical guide to employers and employees as to how the office representing the public interest in its enforcement will seek to apply it. 

The Administrator thinks the problems presented by inactive duty require a flexible solution, rather than the all-in or all-out rules respectively urged by the parties in this case, and his Bulletin endeavors to suggest standards and examples to guide in particular situations. In some occupations, it says, periods of inactivity are not properly counted as working time even though the employee is subject to call. Examples are an operator of a small telephone exchange where the switchboard is in her home and she ordinarily gets several hours of uninterrupted sleep each night; or a pumper of a stripper well or watchman of a lumber camp during the off season, who may be on duty twenty-four hours a day but ordinarily “has a normal night’s sleep, has ample time in which to eat his meals, and has a certain amount of time for relaxation and entirely private pursuits.” [...] “Hours worked are not limited to the time spent in active labor but include time given by the employee to the employer. . . .”

The facts of this case do not fall within any of the specific examples given, but the conclusion of the Administrator, as expressed in the brief amicus curiae, is that the general tests which he has suggested point to the exclusion of sleeping and eating time of these employees from the workweek and the inclusion of all other on-call time: although the employees were required to remain on the premises during the entire time, the evidence shows that they were very rarely interrupted in their normal sleeping and eating time, and these are pursuits of a purely private nature which would presumably occupy the employees’ time whether they were on duty or not and which apparently could be pursued adequately and comfortably in the required circumstances; the rest of the time is different because there is nothing in the record to suggest that, even though pleasurably spent, it was spent in the ways the men would have chosen had they been free to do so.

There is no statutory provision as to what, if any, deference courts should pay to the Administrator’s conclusions. And, while we have given them notice, we have had no occasion to try to prescribe their influence. The rulings of this Administrator are not reached as a result of hearing adversary proceedings in which he finds facts from evidence and reaches conclusions of law from findings of fact. They are not, of course, conclusive, even in the cases with which they directly deal, much less in those to which they apply only by analogy. They do not constitute an interpretation of the Act or a standard for judging factual situations which binds a district court’s processes, as an authoritative pronouncement of a higher court might do. But the Administrator’s policies are made in pursuance of official duty, based upon more specialized experience and broader investigations and information than is likely to come to a judge in a particular case. They do determine the policy which will guide applications for enforcement by injunction on behalf of the Government. Good administration of the Act and good judicial administration alike require that the standards of public enforcement and those for determining private rights shall be at variance only where justified by very good reasons. The fact that the Administrator’s policies and standards are not reached by trial in adversary form does not mean that they are not entitled to respect. This Court has long given considerable and in some cases decisive weight to Treasury Decisions and to interpretative regulations of the Treasury and of other bodies that were not of adversary origin.

We consider that the rulings, interpretations and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight of such a judgment in a particular case will depend upon 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.

[In] this case, although the District Court referred to the Administrator’s Bulletin, its evaluation and inquiry were apparently restricted by its notion that waiting time may not be work, an understanding of the law which we hold to be erroneous. Accordingly, the judgment is reversed and the cause remanded for further proceedings consistent herewith.

Major Questions Doctrine

In the last few decades, the Supreme Court has placed another limitation on the Chevron Doctrine’s scope. The “major questions doctrine” holds that courts should not defer to agency statutory interpretations that concern questions of “vast economic or political significance.” The Supreme Court justifies this limitation with the non-delegation doctrine. According to the Supreme Court, courts are supposed to interpret “major” legal questions, not administrative bureaucrats. 

Some legal scholars argue that this reading of the non-delegation doctrine mistakenly takes political decisions out of the hands of agency officials appointed by elected leaders and puts the decisions into the hands of courts that lack political accountability. They argue that the major questions doctrine lets judges view statutes de novo, without deferring to agency interpretations, contradicting the Chevron principles. The major questions doctrine runs counter to the idea that important political decisions should be resolved by Congress. 

King v. Burwell is one of a constellation of cases where the Supreme Court relies on the major questions doctrine to override Chevron deference and assert its own statutory interpretation rather than respecting the agency’s interpretation. King v. Burwell, is a case about the Affordable Care Act (“ACA”), one of the most politically controversial laws (if not the most controversial) passed in the Obama era. The Supreme Court did not defer to the Internal Revenue Service (“IRS”) interpretation of the ACA when it decided whether insurance purchased on a Federal or State Exchange qualified for tax subsidies.

King v. Burwell

135 S. Ct. 475 (2015)

CHIEF JUSTICE ROBERTS, delivered the opinion of the Court.

The Patient Protection and Affordable Care Act adopts a series of interlocking reforms designed to expand coverage in the individual health insurance market. First, the Act bars insurers from taking a person’s health into account when deciding whether to sell health insurance or how much to charge. Second, the Act generally requires each person to maintain insurance coverage or make a payment to the Internal Revenue Service. And third, the Act gives tax credits to certain people to make insurance more affordable.

In addition to those reforms, the Act requires the creation of an “Exchange” in each State—basically, a marketplace that allows people to compare and purchase insurance plans. The Act gives each State the opportunity to establish its own Exchange, but provides that the Federal Government will establish the Exchange if the State does not.

This case is about whether the Act’s interlocking reforms apply equally in each State no matter who establishes the State’s Exchange. Specifically, the question presented is whether the Act’s tax credits are available in States that have a Federal Exchange.

I

The Patient Protection and Affordable Care Act grew out of a long history of failed health insurance reform. In the 1990s, several States began experimenting with ways to expand people’s access to coverage [One common State approach was to bar insurers from denying coverage or increasing premiums to people because of pre-existing health conditions.] Those requirements were designed to ensure that anyone who wanted to buy health insurance could do so.

The [requirements] had an unintended consequence: They encouraged people to wait until they got sick to buy insurance. Why buy insurance coverage when you are healthy, if you can buy the same coverage for the same price when you become ill? This consequence—known as “adverse selection”—led to a second: Insurers were forced to increase premiums to account for the fact that, more and more, it was the sick rather than the healthy who were buying insurance. And that consequence fed back into the first: As the cost of insurance rose, even more people waited until they became ill to buy it.

This led to an economic “death spiral.” As premiums rose higher and higher, and the number of people buying insurance sank lower and lower, insurers began to leave the market entirely. As a result, the number of people without insurance increased dramatically [...]

In 1996, Massachusetts adopted the [protections for people with pre-existing conditions]. But in 2006, Massachusetts added two more reforms: The Commonwealth required individuals to buy insurance or pay a penalty, and it gave tax credits to certain individuals to ensure that they could afford the insurance they were required to buy. The combination of these three reforms—insurance market regulations, a coverage mandate, and tax credits—reduced the uninsured rate in Massachusetts to 2.6 percent, by far the lowest in the Nation.

The Affordable Care Act adopts a version of the three key reforms that made the Massachusetts system successful. First, the Act adopts the guaranteed issue and community rating requirements. The Act provides that “each health insurance issuer that offers health insurance coverage in the individual . . . market in a State must accept every . . . individual in the State that applies for such coverage.” The Act also bars insurers from charging higher premiums on the basis of a person’s health. 

Second, the Act generally requires individuals to maintain health insurance coverage or make a payment to the IRS. Congress recognized that, without an incentive, “many individuals would wait to purchase health insurance until they needed care.” So Congress adopted a coverage requirement to “minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums.” In Congress’s view, that coverage requirement was “essential to creating effective health insurance markets.” Congress also provided an exemption from the coverage requirement for anyone who has to spend more than eight percent of his income on health insurance [...] 

Third, the Act seeks to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 percent and 400 percent of the federal poverty line. Individuals who meet the Act’s requirements may purchase insurance with the tax credits, which are provided in advance directly to the individual's insurer. 

These three reforms are closely intertwined. As noted, Congress found that the guaranteed issue and community rating requirements would not work without the coverage requirement. And the coverage requirement would not work without the tax credits. The reason is that, without the tax credits, the cost of buying insurance would exceed eight percent of income for a large number of individuals, which would exempt them from the coverage requirement [...] 

In addition to those three reforms, the Act requires the creation of an “Exchange” in each State where people can shop for insurance, usually online. An Exchange may be created in one of two ways. First, the Act provides that “[e]ach State shall . . . establish an American Health Benefit Exchange . . . for the State.” Second, if a State nonetheless chooses not to establish its own Exchange, the Act provides that the Secretary of Health and Human Services “shall . . . establish and operate such Exchange within the State.”

The issue in this case is whether the Act’s tax credits are available in States that have a Federal Exchange rather than a State Exchange. The Act initially provides that tax credits “shall be allowed” for any “applicable taxpayer.” 26 U.S.C. §36B(a). The Act then provides that the amount of the tax credit depends in part on whether the taxpayer has enrolled in an insurance plan through “an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act." 26 U.S.C. §§36B(b)-(c) (emphasis added).

The IRS addressed the availability of tax credits by promulgating a rule that made them available on both State and Federal Exchanges. As relevant here, the IRS Rule provides that a taxpayer is eligible for a tax credit if he enrolled in an insurance plan through “an Exchange,” which is defined as “an Exchange serving the individual market . . . regardless of whether the Exchange is established and operated by a State . . . or by HHS.” At this point, 16 States and the District of Columbia have established their own Exchanges; the other 34 States have elected to have HHS do so.

Petitioners are four individuals who live in Virginia, which has a Federal Exchange. They do not wish to purchase health insurance. In their view, Virginia’s Exchange does not qualify as “an Exchange established by the State,” so they should not receive any tax credits. That would make the cost of buying insurance more than eight percent of their income, which would exempt them from the Act’s coverage requirement. 

Under the IRS Rule, however, Virginia’s Exchange would qualify as “an Exchange established by the State,” so petitioners would receive tax credits. That would make the cost of buying insurance less than eight percent of petitioners’ income, which would subject them to the Act’s coverage requirement. The IRS Rule therefore requires petitioners to either buy health insurance they do not want, or make a payment to the IRS.

Petitioners challenged the IRS Rule in Federal District Court. The District Court dismissed the suit, holding that the Act unambiguously made tax credits available to individuals enrolled through a Federal Exchange. The Court of Appeals for the Fourth Circuit affirmed. The Fourth Circuit viewed the Act as “ambiguous and subject to at least two different interpretations.” The court therefore deferred to the IRS's interpretation under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984). 

II

[...] When analyzing an agency’s interpretation of a statute, we often apply the two-step framework announced in Chevron, 467 U. S. 837. Under that framework, we ask whether the statute is ambiguous and, if so, whether the agency’s interpretation is reasonable. This approach “is premised on the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps.” FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120, 159 (2000). “In extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation.”

This is one of those cases. The tax credits are among the Act’s key reforms, involving billions of dollars in spending each year and affecting the price of health insurance for millions of people. Whether those credits are available on Federal Exchanges is thus a question of deep “economic and political significance” that is central to this statutory scheme; had Congress wished to assign that question to an agency, it surely would have done so expressly. It is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort. This is not a case for the IRS.

It is instead our task to determine the correct reading of [ACA Section 36B]

[...] We have held that Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions.” Whitman v. American Trucking Assns., Inc., 531 U. S. 457, 468 (2001). But in petitioners’ view, Congress made the viability of the entire Affordable Care Act turn on the ultimate ancillary provision: a subsub-sub section of the Tax Code. We doubt that is what Congress meant to do. Had Congress meant to limit tax credits to State Exchanges, it likely would have done so in the definition of “applicable taxpayer” or in some other prominent manner. It would not have used such a winding path of connect-the-dots provisions about the amount of the credit.

Petitioners’ arguments about the plain meaning of Section 36B are strong. But while the meaning of the phrase "an Exchange established by the State” may seem plain “when viewed in isolation,” such a reading turns out to be “untenable in light of [the statute] as a whole.” In this instance, the context and structure of the Act compel us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.

Reliance on context and structure in statutory interpretation is a “subtle business, calling for great wariness lest what professes to be mere rendering becomes creation and attempted interpretation of legislation becomes legislation itself.” For the reasons we have given, however, such reliance is appropriate in this case, and leads us to conclude that Section 36B allows tax credits for insurance purchased on any Exchange created under the Act. Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.

In a democracy, the power to make the law rests with those chosen by the people. Our role is more confined—“to say what the law is.” Marbury v. Madison, 1 Cranch 137, 177 (1803). That is easier in some cases than in others. But in every case we must respect the role of the Legislature, and take care not to undo what it has done. A fair reading of legislation demands a fair understanding of the legislative plan.

Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.

The judgment of the United States Court of Appeals for the Fourth Circuit is Affirmed.

We know now that the courts may now get more involved in the interpretation of ambiguous statutory interpretations with the overturning of the Chevron Doctrine, but that other court rulings are still in force. Now we will learn about the standard of review courts use to evaluate all of the other decisions agencies make. That standard of review is established in the APA. APA Section 706(2)(A) says that courts can hold unlawful and set aside agency actions, findings, and conclusions that are “arbitrary and capricious.”

The arbitrary and capricious standard of review is most commonly used to assess the factual basis of agency informal, notice-and-comment, rulemaking, but it applies to all agency actions according to the APA. 

Under the “arbitrary and capricious” standard of review, courts look to see whether agencies have taken a “hard look” at the underlying questions of policy and fact upon which their decisions are based. According to the hard look doctrine, Agencies have to justify their decisions with adequate reasoning to pass muster under the arbitrary and capricious standard. We will see in Overton Park and State Farm that the courts give agencies a lot of deference under the arbitrary and capricious standard of review.

What is The Substantial Evidence Standard?

The APA sets a different standard of review when courts are reviewing formal rulemaking or adjudication procedures. Section 706(2)(E) says that reviewing courts can hold unlawful agency agency action, findings, and conclusions that are "unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute..." This "substantial evidence" standard assumes that there is a detailed record of agency decisions and rationales that was created in formal rulemaking or adjudication procedures.

In practice, courts have applied the 706(2)(E) substantial evidence standard similarly to the arbitrary and capricious standard. While the Supreme Court has said that the “substantial evidence” standard is even more deferential than the arbitrary and capricious standard of review, the standards are so similar and so deferential that they are functionally the same. In assessing both formal and informal adjudication, reviewing courts generally avoid second-guessing or revisiting agency fact-finding in formal adjudication, only doing so in rare cases when the agency decision is “clearly erroneous” or when there is definite and firm evidence that the agency acted in error. Dickinson v. Zurko, 527 U.S. 150 (1999) (describing the “substantial evidence” standard of review).

Citizens to Preserve Overton Park v. Volpe

401 U.S. 402 (1971)

Opinion of the Court by MR. JUSTICE MARSHALL, announced by MR. JUSTICE STEWART.

The growing public concern about the quality of our natural environment has prompted Congress in recent years to enact legislation designed to curb the accelerating destruction of our country’s natural beauty. We are concerned in this case with § 4(f) of the Department of Transportation Act of 1966 and § 18(a) of the Federal-Aid Highway Act of 1968. These statutes prohibit the Secretary of Transportation from authorizing the use of federal funds to finance the construction of highways through public parks if a “feasible and prudent” alternative route exists. If no such route is available, the statutes allow him to approve construction through parks only if there has been “all possible planning to minimize harm” to the park.

Petitioners, private citizens as well as local and national conservation organizations, contend that the Secretary has violated these statutes by authorizing the expenditure of federal funds for the construction of a six-lane interstate highway through a public park in Memphis, Tennessee. Their claim was rejected by the District Court, which granted the Secretary’s motion for summary judgment, and the Court of Appeals for the Sixth Circuit affirmed. After oral argument, this Court granted a stay that halted construction and, treating the application for the stay as a petition for certiorari, granted review. We now reverse the judgment below and remand for further proceedings in the District Court.

Overton Park is a 342-acre city park located near the center of Memphis. The park contains a zoo, a nine-hole municipal golf course, an outdoor theater, nature trails, a bridle path, an art academy, picnic areas, and 170 acres of forest. The proposed highway, which is to be a six-lane, high-speed, expressway, will sever the zoo from the rest of the park [...] 

In April 1968, the Secretary announced that he concurred in the judgment of local officials that I-40 should be built through the park. And in September 1969 the State acquired the right-of-way inside Overton Park from the city. Final approval for the project—the route as well as the design— was not announced until November 1969 [...] Neither announcement approving the route and design of I-40 was accompanied by a statement of the Secretary’s factual findings. He did not indicate why he believed there were no feasible and prudent alternative routes or why design changes could not be made to reduce the harm to the park.

Petitioners contend that the Secretary’s action is invalid without such formal findings and that the Secretary did not make an independent determination but merely relied on the judgment of the Memphis City Council. They also contend that it would be “feasible and prudent” to route I-40 around Overton Park either to the north or to the south. And they argue that if these alternative routes are not “feasible and prudent,” the present plan does not include “all possible” methods for reducing harm to the park. Petitioners claim that I-40 could be built under the park by using either of two possible tunneling methods [...]

[The standard of review in] § 706 of the Administrative Procedure Act provides that a “reviewing court shall . . . hold unlawful and set aside agency action, findings, and conclusions found” not to meet six separate standards. In all cases agency action must be set aside if the action was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or if the action failed to meet statutory, procedural, or constitutional requirements. In certain narrow, specifically limited situations, the agency action is to be set aside if the action was not supported by “substantial evidence.” And in other equally narrow circumstances the reviewing court is to engage in a de novo review of the action and set it aside if it was “unwarranted by the facts.”

Petitioners argue that the Secretary's approval of the construction of I-40 through Overton Park is subject to one or the other of these latter two standards of limited applicability. First, they contend that the "substantial evidence" standard of § 706(2)(E) must be applied. In the alternative, they claim that § 706(2)(F) applies and that there must be a de novo review to determine if the Secretary’s action was “unwarranted by the facts.” Neither of these standards is, however, applicable.

Review under the substantial-evidence test is authorized only when the agency action is taken pursuant to a rulemaking provision of the Administrative Procedure Act itself, 5 U.S.C. § 553, or when the agency action is based on a public adjudicatory hearing. See 5 U.S.C. §§ 556, 557. The Secretary’s decision to allow the expenditure of federal funds to build I-40 through Overton Park was plainly not an exercise of a rulemaking function. And the only hearing that is required by either the Administrative Procedure Act or the statutes regulating the distribution of federal funds for highway construction is a public hearing conducted by local officials for the purpose of informing the community about the proposed project and eliciting community views on the design and route. The hearing is nonadjudicatory, quasi-legislative in nature. It is not designed to produce a record that is to be the basis of agency action—the basic requirement for substantial-evidence review. 

Petitioners’ alternative argument also fails. De novo review of whether the Secretary’s decision was “unwarranted by the facts” is authorized by § 706(2)(F) in only two circumstances. First, such de novo review is authorized when the action is adjudicatory in nature and the agency fact finding procedures are inadequate. And, there may be independent judicial fact finding when issues that were not before the agency are raised in a proceeding to enforce nonadjudicatory agency action. Neither situation exists here.

Even though there is no de novo review in this case and the Secretary’s approval of the route of I-40 does not ultimately have to meet the substantial-evidence test, the generally applicable standards of § 706 require the reviewing court to engage in a substantial inquiry [...] 

The court is first required to decide whether the Secretary acted within the scope of his authority. This determination naturally begins with a delineation of the scope of the Secretary’s authority and discretion [...] Also involved in this initial inquiry is a determination of whether on the facts the Secretary’s decision can reasonably be said to be within that range. The reviewing court must consider whether the Secretary properly construed his authority to approve the use of parkland as limited to situations where there are no feasible alternative routes or where feasible alternative routes involve uniquely difficult problems. And the reviewing court must be able to find that the Secretary could have reasonably believed that in this case there are no feasible alternatives or that alternatives do involve unique problems.

Scrutiny of the facts does not end, however, with the determination that the Secretary has acted within the scope of his statutory authority. Section 706(2)(A) requires a finding that the actual choice made was not “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” To make this finding the court must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. Although this inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency.

The final inquiry is whether the Secretary’s action followed the necessary procedural requirements. Here the only procedural error alleged is the failure of the Secretary to make formal findings and state his reason for allowing the highway to be built through the park.

Undoubtedly, review of the Secretary’s action is hampered by his failure to make such findings, but the absence of formal findings does not necessarily require that the case be remanded to the Secretary. Neither the Department of Transportation Act nor the Federal-Aid Highway Act requires such formal findings. Moreover, the Administrative Procedure Act requirements that there be formal findings in certain rulemaking and adjudicatory proceedings do not apply to the Secretary’s action here [...] 

Moreover, there is an administrative record that allows the full, prompt review of the Secretary’s action that is sought without additional delay which would result from having a remand to the Secretary.

That administrative record is not, however, before us. The lower courts based their review on the litigation affidavits that were presented. These affidavits were merely “post hoc” rationalizations which have traditionally been found to be an inadequate basis for review. And they clearly do not constitute the “whole record” compiled by the agency: the basis for review required by § 706 of the Administrative Procedure Act. 

Thus it is necessary to remand this case to the District Court for plenary review of the Secretary’s decision. That review is to be based on the full administrative record that was before the Secretary at the time he made his decision. But since the bare record may not disclose the factors that were considered or the Secretary's construction of the evidence it may be necessary for the District Court to require some explanation in order to determine if the Secretary acted within the scope of his authority and if the Secretary's action was justifiable under the applicable standard.

The court may require the administrative officials who participated in the decision to give testimony explaining their action. Of course, such inquiry into the mental processes of administrative decisionmakers is usually to be avoided. And where there are administrative findings that were made at the same time as the decision, there must be a strong showing of bad faith or improper behavior before such inquiry may be made. But here there are no such formal findings and it may be that the only way there can be effective judicial review is by examining the decisionmakers themselves. 

The District Court is not, however, required to make such an inquiry. It may be that the Secretary can prepare formal findings [...] that will provide an adequate explanation for his action. Such an explanation will, to some extent, be a “post hoc rationalization” and thus must be viewed critically. If the District Court decides that additional explanation is necessary, that court should consider which method will prove the most expeditious so that full review may be had as soon as possible.

Reversed and remanded.