Chenery II Poses No Threat to Liberty, by Richard J. Pierce Jr.
On November 24, Aaron Nielson wrote a blog in which he quoted White House Counsel Don McGahn as saying that the Supreme Court’s opinion in SEC v. Chenery, 332 U.S. 194 (1947) (Chenery II) announces “a doctrine that has empowered agencies . . . to announce new rules during enforcement actions without any fair notice.” Nielson goes on to agree with McGahn while saying that he has “never heard Chenery II discussed” and that “most people have never even heard of Chenery II.”
McGahn and Nielson are mistaken. Chenery II is one of the foundational cases in administrative law. I have read about it, taught it, and written about it for over forty years. It is important to understand both what it empowers an agency to do and what the limits are on the powers it confers on agencies. Chenery II empowers an agency to attempt to defend an action on alternative grounds on remand after a court has rejected the original basis for the agency action.
Scores of cases have held that an agency cannot rely on a new interpretation of a statute or rule as the basis to impose a penalty in an enforcement proceeding, whether after a remand or otherwise, unless the agency provided adequate notice of the interpretation prior to the time the regulated firm engaged in the conduct that was the basis for the penalty. That result is sometimes explained as a result of application of due process principles and sometimes as a result of application of the arbitrary and capricious test to agency enforcement actions. Kristin Hickman and I explain that principle and discuss some of the many cases that apply it in sections 6.11 and 11.5 of our Treatise on Administrative Law. The Court reminded us of that longstanding and important limit on agency discretion most recently in Christopher v. Smithkline Beacham Corp., 567 U.S. 142, 155-58 (2012).
Thus, the threat to liberty McGahn and Nielson ascribe to Chenery II does not exist and never has existed.
Richard J. Pierce, Jr. is the Lyle T. Alverson Professor of Law at George Washington University Law School.