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Prepared for the Scope of Judicial Review portion of the ABA

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Prepared for the Scope of Judicial Review portion of the ABA

     VI. ANCILLARY ISSUES CONCERNING AGENCY EXPLANATIONS

    Prepared for the Scope of Judicial Review portion of the ABA Administrative

    Law Sections Project on the Administrative Procedure Act

    Harold J. Krent, Chicago-Kent College of Law

    Second Draft: September 2001

    In order to decide whether an agency action violates applicable standards of review, as set forth above, courts examine material portions of the agencys own proffered rationale. They

    normally will only allow an agency to defend its action on the basis of reasons articulated prior to judicial review and will not supply their own rationale for discretionary agency conduct or speculate as to the conceivable purposes underlying the action.

    (1) An explanation issued contemporaneously with an agency action is

    treated as containing the agencys actual rationale for taking the action,

    unless the party challenging the action impeaches the explanation with a

    strong showing of bad faith or improper behavior.

    The validity of any agencys exercise of discretion typically turns on the rationale used by the agency at the time of its action. The Supreme Court in SEC v. Chenery Corp., 318 U.S. 80

    (1943), held that discretionary administrative action will only be upheld on grounds articulated by the agency in the record. The Chenery rule preserves in agencies the formal authority to exercise the discretion delegated by Congress, preventing courts from substituting their own policy for that of the agency. At the same time, Chenery limits agency power to make policy outside of public

    scrutiny.

    In Chenery, the SEC conditioned its approval of a public utility holding companys

    reorganization on the officers willingness to disgorge shares of preferred stock they had

    purchased during the reorganization period. The SEC had not found any wrongdoing, but based its demand upon court cases exploring the common law duty of fiduciaries. The Supreme Court vacated the SECs decision, holding that the administrative agency had misread judicial precedents. Id. at 89. The Court refused to speculate whether any other reasons justified the agencys conclusion: The grounds upon which an administrative order must be judged are 1 Accordingly, a court those upon which the record discloses that its action was based. Id. at 87.

     1In reviewing the SECs action after remand, the Court later explained that a reviewing

    court, in dealing with a determination or judgment which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency. If those grounds are inadequate or improper, the court is powerless to affirm the administrative action by substituting what it considers to be a more adequate or proper basis.

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    must assess agency action based on the rationales forwarded by the agency itself at the time of its decision: courts may not accept appellate counsels post hoc rationalizations for agency

    action. Burlington Rock Lines v. United States, 371 U.S. 156, 168-69 (1962). The Chenery th, 217 F.3d 646, 658 n.17 (9 Cir. decision has been widely followed. See, e.g., Navas v. INSst2000); Massachusetts v. Daley, 170 F.3d 23, 31 (1 Cir. 1999).

    The Chenery doctrine has three principal interrelated benefits. First, it serves as a check on agency action, preventing agencies from making policy outside of public scrutiny; second, it prevents courts from substituting their own views of policy for those of the agency; and third, it helps senior agency officials exercise control over staff and counsel by privileging only those agency rationales proffered by the agency itself at the time of its decision.

    a. Reviewing courts will only allow agencies to defend their actions on the basis of reasons articulated prior to judicial review. As conditions or personnel change, agencies cannot substitute a different rationale without reopening proceedings. If agencies reopen the proceedings, then they must subject their new reasoning to challenge by interested parties in either a rulemaking proceeding or an adjudication. A continuity requirement prevents circumvention of the process checks that control administrative action.

    In this respect the Chenery doctrine is akin to the warrant requirement limiting

    administrative and traditional law enforcement searches. The need for a warrant constrains enforcement discretion by mandating that officials assert the purposes and aims of the search before the search takes place. By creating a record prior to the search, the warrant requirement prevents law enforcement personnel from changing the justification for, and the permissible scope of, the search once it is under way. The ex ante requirement of a particularized warrant demands continuity the search generally is limited to the purposes, places, and individuals detailed in the warrant. Like the warrant requirement, therefore, the Chenery doctrine forces agencies to

    precommit to particular rationales for agency action.

    The record requirement permits judges to check agency decisions by assessing whether the asserted rationales are sufficient. For instance, for courts to determine whether certain agency actions are arbitrary and capricious, they must first determine what the agency rationale in fact is. A rationale that is internally inconsistent or incoherent will be set aside. Motor Vehicles Mfgs. Assn v. State Farm Mutual Auto Ins. Co., 463 U.S. 29, 43 (1983) (requiring agency to show a

    rational connection between the facts found and the choice made).

    Similarly, in Atchison, Topeka & Santa Fe R. Co. v. Wichita Board of Trade, 412 U.S.

    800, 808 (1973), the Court articulated the principle that an agency action is arbitrary and capricious if it represents an unexplained departure from an agencys prior policies and

    precedents. But for the Chenery principle, such judicial control could not be exercised.

SEC v. Chenery Corp., 332 U.S. 194, 197 (1947 ) (Chenery II).

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    b. At the same time, the Chenery doctrine prevents courts from supplying their own

    rationales for prior agency conduct. In contrast to rational basis review of legislative action, courts cannot speculate as to the conceivable government purposes underlying the action.

    On the one hand, agencies would prefer rational basis review in that reviewing courts more frequently would uphold their determinations. Courts would not set aside agency action even when convinced that the agencys rationale was wanting, as long as they could conceive of

    an alternative, rational justification for the action. Congress has no quarrel with such deferential review.

    Yet, in the administrative context, the court supplied rationale might result in less authority for the administrative agency in the future, or might conflict with some other agency priority. Consider the facts of Chenery itself. Instead of remanding the reorganization petition

    back to the agency, the Court might have upheld the action on the ground that all preferred stock

    must always be disgorged before a reorganization can be approved, or on the ground that no

    stock can be acquired by directors during a reorganization period. Either hypothetical ruling would have gone far beyond what the agency in fact held on remand, and would have led to results in other cases that the agency might well have disapproved. Because review of agency action is far more stringent than review of legislation under the rational basis test, the rationales selected for upholding agency action can have a broad impact on evolution of agency policy.

    c. In addition, the Chenery doctrine reserves policymaking authority to senior agency

    officials. Only rationales reflected in the record, as opposed to ex ante or ex post justifications by staff (or counsel), will be considered. Although agencies at time would prefer that decisions be upheld on any ground even if articulated by counsel or staff the agency may not wish to be

     doctrine preserves agency bound by such justifications in the future. Thus, the Chenery

    policymaking both from courts and subordinate agency officials.

    Application of Chenery is straightforward when an explanation of the agency action is

    articulated before or at the same time it takes effect. As the Supreme Court noted in Camp v. Pitts, 411 U.S. 138, 143 (1973), where there is contemporaneous explanation of the agency

    decision . .. [t]he validity of the . . .action . . must stand or fall on the propriety of that finding.

    Only a strong showing of bad faith or improper behavior (Citizens to Preserve Overton Park v.

    Volpe, 401 U.S. 402, 420 (1971)) will prompt a court to secondguess the agencys

    contemporaneous explanation for its own action. See, e.g., San Luis Obispo Mothers for Peace v. NRC, 751 F.2d 1287, 1327-28 (D.C. Cir. 1984) (refusing to find bad faith). Note that even in informal adjudications, agencies typically compile records. Florida Power & Light Co. v.

    Lorion, 470 U.S. 729, 744 (1985).

    Post hoc rationalizations, therefore, are not generally considered. Citizens to Preserve

    Overton Park v. Volpe, 401 U.S. 402 (1971); Burlington Truck Lines v. United States, 371 U.S.

    156, 168-169 (1962). A rationale articulated by agency counsel in litigation may not reflect the

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    agencys view; may have been hastily developed with an eye only toward prevailing in the litigation; and has not been subject to the input of parties in either a rulemaking or adjudication. Cf. FLRA v. U.S. Dept of Treasury, 884 F.2d 1446, 1455 (D.C. Cir. 1989) (a position

    established only in litigation may have been developed hastily, or under special pressure, or without an adequate opportunity for presentation of conflicting views).

    Several exceptions to Chenery nevertheless have been recognized. First, if the reviewing court believes that the agency decision should be upheld on a rationale closely related to the one relied on by the agency, and it is clear that . . . the agency would have reached the same ultimate result if remanded, then no violation of Chenery is recognized. Salt River Project Agricultural Improvement & Power District v. United States, 762 F.2d 1053, 1060 n.8 (D.C. Cir. 1985). If

    the agency would have reached the same decision, then neither the courts nor agency staff have supplanted the agency from its assigned policymaking task.

    For instance, in Ward v. MSPB, 981 F.2d 521 (Fed. Cir. 1992), the MSPB had rejected the federal employees claim alleging that his failure to be promoted violated the Whistleblower Protection Act. The agency reasoned that the employees complaint about a colleagues travel

    did not allege whistleblowing because complaints about a single employees travel to

    conference could not constitute a gross waste of funds as required to come within the

    protections of the Act. Id. at 524-25. Without reaching that issue, the Federal Circuit held that, under the circumstances, there was no way that the one colleagues travel could have been

    considered a gross waste of funds. The court reasoned that its decision dealing with

    particular travel by a particular individual was safely within the framework set by the agency because it reflected a narrower application of the agencys interpretation. Id. at 527.

    Presumably, the agency would have endorsed the narrower approach on remand. Thus, the court upheld the agency without having to reach the broader question of whether one employees travel

    could in different circumstances constitute a gross waste of funds. Id. at 527-28.

    Second, the Chenery doctrine does not apply if the reviewing court concludes that the decision made should properly be based on another ground within the power of the [reviewing] court to formulate. 318 U.S. at 88. Thus, if the agencys decision did not depend upon a

    factual or policy determination that it alone was authorized to make, then Chenery need not apply.

     Shea v. Director, Office of Workers Compensation Insurance Co., 929 F.2d 736 (D.C. Cir.

    1991); Chae-Sik Lee v. Kennedy, 294 F.2d 231, 234 (D.C. Cir. 1961). Such judicial

    determinations do not interfere with the discretion Congress delegated to agencies.

    (2) Where an agency action is not accompanied by a contemporaneous

    explanation, the court may investigate the agencys rationale by receiving

    evidence. Under these circumstances there is no presumption as to whether

    the post hoc explanation tendered by the agency to the court expresses the

    agencys original rationale. In attempting to identify the agencys actual,

    though not contemporaneously articulated, rationale, courts generally avoid

    direct scrutiny of the agencys decisionmaking process and rely on the

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    representations of counsel, affidavits from relevant officials, and extrinsic

    evidence rather than depositions, interrogatories, and courtroom testimony.

    Applying Chenery to the many cases, as in informal adjudication, in which a

    contemporaneous explanation does not arise is quite problematic. In Overton Park, the Supreme

    Court suggested that agencies should provide explanations for their decisions either through the testimony of officials involved in the decisionmaking or through litigation affidavits. See, e.g., th Cir. 1996) (approving agency efforts to Bagdonas v. Dept of Treasury, 93 F.3d 422, 426-27 (7

    furnish record by providing the court with an explanation for the agencys action submitted by

    the officer who had the authority to act on the application); Lewis v. Babbitt, 998 F.2d 880, 882 th(10 Cir. 1993) (we find that the district court properly relied on the agencys affidavits by

    using them to explain the administrative record.); Sierra Club v. United States Army Corps of

    Engrs, 772 F.2d 1043, 1051-52 (2d Cir. 1985); United States v. Garner, 767 F.2d 104, 118 n.20 th(5 Cir. 1985). The record in such cases is created to facilitate judicial review, and the ex post rationalizations of agency counsel or officials are inevitable. WIFE v. USDA, 876 F.2d 994, 999 2(D.C. Cir. 1989).

    Parties could attempt to demonstrate the agencys rationale at the time of its decision

    through discovery. From both documentary evidence and depositions of agency officials, parties would then attempt to recreate the bases for the prior agency action. Courts, however, have roundly criticized such efforts to probe agency decisionmaking because of undesirable side effects.

     Forcing agencies to participate in depositions or to answer interrogatories saps their resources. Moreover, such probing of the agencys decisionmaking process is antithetical to the respect

    owed senior agency officials.

    In United States v. Morgan, 313 U.S. 409 (1941), the Supreme Court addressed the

    perplexing difficulties arising out of lack of an administrative record. The controversy in that case arose out a Secretary of Agriculture order fixing the maximum rates for buying and selling livestock at the Kansas City stockyards. Morgan alleged that the Secretary never personally heard or examined the relevant evidence and arguments presented in the case. When the case originally was heard in the Supreme Court, the Court held that the allegation, if proven, would violate the statutory right to a full hearing, and the Court interpreted the statute to require the

    decisionmaker personally to consider the evidence and arguments. 298 U.S. 468, 481 (1936). The district court on remand permitted the plaintiff to question the Secretary about his personal role in setting the prices. On appeal, the Supreme Court reversed on unrelated grounds, but observed that it was not the function of the court to probe the mental processes of the Secretary. 304 U.S. 1, 18 (1938). After a third appeal, the Secretary issued a new rate order. Morgan once again challenged the order, alleging that the Secretary was not sufficiently involved,

     2Moreover, the Supreme Court since has suggested that the preferred course when the agencys rationale is unclear is to remand for further elaboration. PBGC v. LTV, 496 U.S. 633

    (1990). See also Norinsberg v. U.S. Dept of Agriculture, 162 F.3d 1194 (D.C. Cir. 1998).

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    and deposed the Secretary to determine the extent of his involvement. The Supreme Court this time condemned the examination: the Secretary should never have been subjected to this

    examination . . . Just as a judge cannot be subjected to such a scrutiny . . . so the integrity of the administrative process must be equally respected. 313 U.S. at 422. See also Florida Power &

    Light Co. v. Lorion, 470 U.S. 729, 744 (1985).

    Instead of depositions and interrogatories, agencies can rely upon representations of counsel, affidavits of those officials involved, and other extrinsic evidence of what the agency intended. Agency officials can attempt to recreate the administrative record after the fact.

     Given the lack of indicia of reliability, however, agency efforts to supply an ex post explanation should not be afforded any presumption that such explanation in fact underlay the agency action. As the Court opined in Overton Park, such explanations will, to some extent, be

    a post hoc rationalization and thus must be viewed critically. 401 U.S. at 420. Chenery

    cannot apply when no contemporaneous record has been made.

    Furthermore, the Chenery doctrine should apply to the policy and factual bases that

    support an agency action, not to interpretations of law. Interpretations of law are addressed in ; .

    Agency interpretations of law even when articulated outside of the formal rulemaking or adjudication context receive deference under Skidmore. Thus, post hoc rationalizations from

    agency counsel as to interpretations of law are permissible. See Americas Community Bankers v.

    FDIC, 200 F.3d 822, 835-36 (D.C. Cir. 2000) (permitting new arguments supporting agencys

    statutory interpretation); FLRA v. Department of the Treasury,127 F.3d 1126 (D.C. Cir. 1997); 3 Saratoga Develop. Corp. v. United States, 21 F.3d 445 (D.C. Cir. 1994).

     3Interpretations forwarded by the Solicitor General may be different, however, because the Solicitor Generals views might not reflect those of the agency head to whom Congress has delegated authority. See Bowen v. Georgetown Univ. Hospital, 488 U.S. 204 (1988).

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