Notice & Comment

Chenery in the Trenches

Yesterday, in Calcutt v. FDIC, the Supreme Court summarily reversed a Sixth Circuit decision that would have affirmed an FDIC sanction against a banker, even though the agency made two substantive errors in issuing that sanction. In so doing, the Supreme Court reaffirmed the ordinary remand rule and wrote:

The Sixth Circuit, for its part, believed that remand was unnecessary because it “would result in yet another agency proceeding that amounts to ‘an idle and useless formality.’” 37 F. 4th, at 335 (quoting NLRB v. Wyman-Gordon Co., 394 U. S. 759, 766, n. 6 (1969) (plurality opinion)). It is true that remand may be unwarranted in cases where “[t]here is not the slightest uncertainty as to the outcome” of the agency’s proceedings on remand. Id., at 767, n. 6. But we have applied that exception only in narrow circumstances. Where the agency “was required” to take a particular action, we have observed, “[t]hat it provided a different rationale for the necessary result is no cause for upsetting its ruling.” Morgan Stanley Capital Group Inc. v. Public Util. Dist. No. 1 of Snohomish Cty., 554 U. S. 527, 544–545 (2008).

That exception does not apply in this case. The FDIC was not required to reach the result it did; the question whether to sanction petitioner—as well as the severity and type of any sanction that could be imposed—is a discretionary judgment. And that judgment is highly fact specific and contextual, given the number of factors relevant to petitioner’s ultimate culpability. To conclude, then, that any outcome in this case is foreordained is to deny the agency the flexibility in addressing issues in the banking sector as Congress has allowed.

In my view, the Supreme Court’s terse description of the “slightest uncertainty” exception manages to be unnecessary, unfortunate, and unpersuasive, all at the same time.

Every one of the federal courts of appeals has a practice of upholding defective agency decisions when the reviewing court is confident that the agency would reach the same decision on remand. The courts have done so, Chenery notwithstanding, to avoid the obvious waste entailed by useless remands. That practice moreover rests on a firm statutory foundation: the APA contains an instruction—not mentioned in the opinion—to take “due account … of the rule of prejudicial error.”

Lower courts most often excuse agency errors as harmless in cases involving relatively formal adjudicatory processes (like the protracted FDIC process here). In the typical case, the agency has made a factual mistake of peripheral significance. Less frequently and more controversially, lower courts will excuse a more serious mistake where the evidence in the record so strongly supports the result that the court is confident the agency would reach the same decision on remand. (You can find more details on the case law here.) Unsurprisingly, harmless errors crops up with greatest frequency in disability and immigration cases.

Maybe Calcutt v. FDIC was a bad candidate for an exercise of remedial restraint because of the “fact specific and contextual” factors that the FDIC might wish to consider on remand. If so, the Supreme Court have said that and stopped. Instead, the Court called into question the consistent remedial practice of the lower federal courts. Before doing so, it should have paused to ask why judges in the trenches haven’t read Chenery for all that it’s worth.

Yes, it’s possible that strict adherence to Chenery will improve the quality of agency decisions over time. But it also increases the cost of agency action and degrades overall agency performance. As I argued in Remedial Restraint in Administrative Law, “the challenge isn’t in identifying [the relevant] tradeoffs but in determining their magnitude. That’s hard, but courts should at least be trying—not ignoring the tradeoffs on the false assumption that Chenery commands but one approach to administrative error.”


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