Justice Alito warns judges not to flyspeck executive decisions too closely.
Justice Alito warns judges not to flyspeck executive decisions too closely.
T wo Supreme Court decisions this morning saw setbacks for the e-cigarette industry and for a medical marijuana company. But the issues were quite different, and only the e-cigarette case centered closely on the nature of the product. The 5–4 decision in Medical Marijuana, Inc. v. Horn revived a lawsuit by a truck driver over the loss of his job allegedly due to a falsely advertised product that caused him to fail a drug test. It involved a narrow statutory question of what sort of injuries to “business or property” can be recovered under the Racketeer Influenced and Corrupt Organizations Act (RICO). The Court emphasized that RICO claims cannot be brought for personal injuries: The statute “implicitly excludes recovery for harm to one’s person,” so “if the owner of a gas station is beaten in a robbery, he cannot recover for his pain and suffering. But if his injuries force him to shut his doors, he can recover for the loss of his business . . . regardless of whether the loss resulted from a personal injury.” The decision may not amount to much; Justice Amy Coney Barrett’s opinion noted that only “direct” causation of injury supports a RICO claim, which is hard to show in connecting advertising about ingredients to a lost job. Justice Clarence Thomas argued that the circuitous and disputed chain of causation should have persuaded the Court to steer clear of the case entirely.
By contrast, the Court’s unanimous decision in the e-cigarette case, FDA v. Wages and White Lion Investments LLC, not only has major implications for the industry; it also sends a message to lower courts in other areas to give executive agencies more space to change their policies without judicial micromanagement. District judges hearing the wave of anti-Trump lawsuits should read Justice Samuel Alito’s opinion as a warning.
Who Decides
Under Section 706 of the Administrative Procedure Act, which was passed in 1946 to manage judicial review of the newly enlarged New Deal administrative state, a court “shall compel agency action unlawfully withheld or unreasonably delayed; and hold unlawful and set aside agency action” if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” (Emphasis added.)
This is the most frequently litigated basis to strike down agency action, and the statutory command to “set aside” agency actions is why it’s unavoidable that injunctions against agency rules and other nationwide agency policies under the APA wind up applying nationwide. The APA offers five other grounds under Section 706. Two are strictly legal: if the agency action is “contrary to constitutional right, power, privilege, or immunity” or “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” One is procedural, if the agency acted “without observance of procedure required by law.” The other two grounds are evidentiary: if the agency action was “unsupported by substantial evidence” in a particular class of cases, or “unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.” The last two grounds, however, are aimed more at quasi-judicial agency actions rather than the general run of regulations.
Last spring, the Court corrected a long-running error by ruling that courts decide the questions of law in APA cases and need not defer to how the agencies read the law. It did so consistent with the APA itself, which declares that “the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.” But just as the law is the job of the courts, agency policy is the job of the executive branch. So long as the agency colors inside the lines set by Congress, judges are not supposed to be super-regulators telling them how to do their jobs. Unfortunately, too many judges have tended to take the “arbitrary and capricious” standard as a license to strike down any executive action that conflicts with their own ideological policy framework.
Up in Smoke
What happened in Wages and White Lion is that the Food and Drug Administration (FDA), in 2021, rejected the petitions of 320 manufacturers to market 1.2 million different flavored e- cigarette products. The FDA’s action stemmed from a 2009 statute that denied the FDA power to regulate cigarettes and other existing tobacco products (which the agency had been fighting for two decades to regulate, despite a lack of authorization from Congress and a long-standing agency position that it had no such authority). The statute, however, allowed the agency to regulate new “tobacco products,” and it concluded in 2016 that this gave it the power to require e-cigarettes to get FDA preapproval. In 2019, the FDA proposed a rule with guidelines for such approval, but due to litigation that dictated its timeline, the agency mass-denied the e-cigarette makers’ applications in 2021 before the rule was finalized. (The Court declined to wade into any procedural questions about the rulemaking process.)
Given the press of time, the FDA abandoned its original plan to review every manufacturer’s marketing plan, after reviewing what it considered an adequate sample to conclude that none of them could overcome the agency’s concerns about the safety of the product. It took other stances as well that frustrated the manufacturers by deviating from what prior guidance documents had suggested would be the bases for approval decisions. Lurking in the background of those shifts is the fact that the manufacturers went from dealing with guidance from Donald Trump’s FDA to having decisions made by Joe Biden’s FDA. The en banc Fifth Circuit concluded that the FDA was arbitrary and capricious in changing some of its positions.
Room to Maneuver
Alito emphasized that arbitrary-and-capricious review isn’t supposed to put judges in charge of executive agencies:
Our well-worn arbitrary-and-capricious standard ensures that an administrative agency examined the relevant data and articulated a satisfactory explanation for its action including a rational connection between the facts found and the choice made. . . . The scope of this review is narrow, and reviewing courts must exercise appropriate deference to agency decisionmaking and not substitute their own judgment for that of the agency. [Quotations and citations omitted.]
Prior cases have developed a “change-in-position doctrine” to limit unexplained agency flip-flops, but
agencies are free to change their existing policies as long as they provide a reasoned explanation for the change, display awareness that they are changing position, and consider serious reliance interests. . . . The agency does not need to show that the reasons for the new policy are better than the reasons for the old one. . . . Nor must it provide a more detailed justification than what would suffice for a new policy created on a blank slate. [Quotations and citations omitted; italics in original.]
The Court declined to consider a half-baked theory that changes of agency position might violate due process of law, and assumed — without deciding — that the change-in-position doctrine applies even when the shift is from an informal agency guidance document.
Ultimately, the Court concluded that one of the centerpieces of the manufacturers’ case — that the FDA had changed its tune on how much scientific rigor it would demand in support of applications — had not really shifted enough from previous “largely noncommittal guidance” to qualify as a “change of position” rather than an unexpected specificity in applying a stated position.
The manufacturers argued that a private FDA memo showed the agency taking what Alito characterized as “a much harder stance than was implied by the FDA’s public statements,” but the agency “represents that these internal memoranda played no role in its review of applications.” This prompted Alito to warn against the judicial habit, much used against the Trump administration, of questioning the motivations of executive action rather than whether it is within the powers granted by law:
For us to peel back the curtain on that representation would have required respondents to make a strong showing of bad faith or improper behavior, [because] judicial inquiry into executive motivation represents a substantial intrusion into the workings of another branch of Government and should normally be avoided. Respondents have not surmounted the high standard that must be met to warrant such a substantial intrusion into the Executive’s functioning. [Quotations and citations omitted.]
The Court also warned that “reliance interests” to be set against “revised enforcement priorities” must be something more substantial than “a belief about how an agency is likely to exercise its enforcement discretion,” however much the challengers may have acted in the hope that non-enforcement would continue. Alito noted that this was harder to establish with regard to relatively recent policies: “Respondents could not have built up decades of reliance because they were part of the very first wave of marketing denials under the FDA’s newly minted jurisdiction over tobacco products.”
Remand Rules
There was one about-face that the FDA admitted to be a change of position, and that was the reversal of the promise to consider every manufacturer’s marketing plan, which gave way to the agency deciding “based on its experience” that marketing restrictions would be “categorically insufficient to sustain an otherwise inadequate application.” That led the Court into another thicket: the so-called “remand rule” that if an agency hasn’t adequately justified its decision but comes up with a better argument in litigation, the courts have to send the decision back to the agency process rather than uphold it on the basis of a new litigating position. Is that true in every case, or is there a “harmless error” exception to that rule where the agency would have reached the same decision anyway? The Court concluded that the exceptions to the remand rule haven’t been fully fleshed out but were read too narrowly by the Fifth Circuit — and so it remanded the case to the appeals court.
With the Court having sided unanimously with the FDA on every issue except the marketing plans, and having sent the Fifth Circuit back to the drawing board on that question, the case isn’t over, but it doesn’t look promising for the e-cigarette makers. (Justice Sonia Sotomayor, ever a defender of the public health agencies, wrote a short concurring opinion quibbling with Alito for suggesting that the FDA had been at all vague toward the manufacturers.)
But this opinion should also be read as a shot across the bow at district judges who are overzealous in applying the arbitrary-and-capricious test to shifts in enforcement or changes of policy.