Abstract. Although the United States Supreme Court instructs that a court reviewing agency decisions is required to consider any reliance interests that have been engendered, the high court has not always followed its own instruction. When the Supreme Court has considered reliance interests, it has done so without a clear framework or guiding principles. By insufficiently explaining the role of reliance interests, the Supreme Court has failed to ensure that administrative rulemakings adequately consider societal welfare and are not arbitrary and capricious.
The hyper-regulatory nature of modern government requires constant adaptation on the part of private parties. When regulations change too frequently or without a basis in societal welfare-maximization, those private parties bear the needlessly immense costs of the change. Reliance interests contemplate the capital investments made by private parties in reliance on legal regimes. These interests are important because their preservation promotes stability in the law. When regulations change erratically and without consideration of reliance interests, regulatory regimes end without ever incurring the benefits they were enacted—or repealed—to produce. This Article promotes recovery of these lost benefits through a fundamental analysis of America’s largely undertheorized reliance interest jurisprudence.
Accordingly, the Supreme Court, administrative agencies, and private actors must all play their respective parts in stabilizing the regulatory environment. The Supreme Court must clarify its reliance interest jurisprudence by more clearly defining the term and establishing some workable rule for its consistent application. Administrative agencies must issue comprehensible intra-agency guidance and more effectively accommodate reliance interests in their cost-benefit analyses. Private actors must build administrative records that emphasize the importance and effect of reliance interests. Perhaps, taken together, these efforts will facilitate a reduction in lost societal welfare and will ensure maximum benefit from each new regulatory regime.
Scholars estimate the cost of regulation in the United States to be as high as $2 trillion per year, which equates to nearly twelve percent of the country’s gross domestic product.1W. Mark Crain & Nicole V. Crain, Nat’l Ass’n of Mfrs., The Cost of Federal Regulation to the U.S. Economy, Manufacturing and Small Business 1 (2014). However, this number does not account for the indirect costs resulting from uncertainty in how regulations are created and enforced.2Charles Calorimis, Harry Mamaysky & Ruoke Yang, Measuring the Cost of Regulation: A Text-Based Approach 1–2 (Nat’l Bureau of Econ. Rsch., Working Paper No. 26856, 2020). Among the most destabilizing activities in administrative law is “regulatory see-sawing,” a practice in which recently elected presidential administrations delay, reverse, or otherwise substantially alter the previous administration’s regulations to better accommodate a new, preferred regulatory regime.3See, e.g., Ross A. Stansberry, The APA as an Environmental Law, 49 Envtl. L. 805, 807 (2019) (discussing the George W. Bush Administration’s attempt to implement its deregulatory agenda when taking office after the Clinton Administration). Many regulations require private companies to make up-front investments in infrastructure, such as “cleaner” technological processes or more stringent safety precautions, but the societal gains from these regulations are not expected to materialize until sometime in the future.4See James Q. Wilson, Bureaucracy: What Government Agencies Do and Why They Do It 329–31 (1989) (noting the exercise of discretion by regulatory agencies to reflect then-approved policy). Regulatory change thus often means that private companies and citizens will never experience the gains expected from these investments, despite bearing their costs.5See id. In this regard, deregulation can be just as needlessly expensive as regulation.
Climate change, along with the body of environmental law that ought to curtail it, has been and will likely continue to be a salient example of this regulatory see-sawing trend.6See Nadja Popovich, Livia Albeck-Ripka & Kendra Pierre-Louis, The Trump Administration Is Reversing Nearly 100 Environmental Rules. Here’s the Full List., N.Y. Times (Oct. 15, 2020), https://perma.cc/62V5-K59E. The practice was on full display during the transition of power from President Barack Obama to President Donald Trump.7See id. Before his election, President Trump promised voters he would modify or repeal myriad environmental and energy regulations enacted under President Obama.8See Press Release, Donald J. Trump, Donald Trump’s Contract with the American Voter (Oct. 22, 2016), https://perma.cc/2MWJ-2K3J. Keeping true to his campaign pledge, President Trump took steps to reverse approximately one hundred Obama-era environmental rules, including the Clean Power Plan,9Env’t Prot. Agency, EPA-452/R-15-003, Regulatory Impact Analysis for the Clean Power Plan Final Rule (2015) (submitted as a 343-page technical analysis of the Clean Power Plan); see also Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, 80 Fed. Reg. 64,662 (Oct. 23, 2015) (to be codified at 40 C.F.R. pt. 60). and succeeded in fully repealing the vast majority of them.10See Nadja Popovich et al., supra note 6. According to cost-benefit analyses (“CBA”),11For a brief overview of cost-benefit analysis, see infra notes 51–58 and accompanying text. at the time of their enactment, President Obama’s regulations were projected to create nearly $23 billion worth of net health and safety benefits annually.12Caroline Cecot, Deregulatory Cost-Benefit Analysis and Regulatory Stability, 68 Duke L.J. 1593, 1595 (2019). In repealing them, President Trump’s administration projected significantly less potential losses.13Id. at 1596–97. Regardless of which administration made the correct assumptions in their CBA, immense federal resources were wasted to enact these rules, as they were then repealed without Americans having recovered any of the rules’ expected benefits.14Env’t Prot. Agency, supra note 9.
Regulatory change is both lawful and necessary. Different administrations have different priorities.15See Cecot, supra note 12, at 1595–96 (comparing the Obama Administration’s focus on environmental regulation versus the Trump Administration’s focus on rescinding environmental regulations). However, hyperactive regulatory change, in which federal agencies continuously reverse policy in an issue area, effectively eliminates a policy’s prospects of enhancing public welfare.16See Wilson, supra note 4, at 329–31. Accordingly, many regulatory changes are challenged in court by affected parties.17See, e.g., Motor Vehicle Mfr.’s Ass’n v. State Farm Auto Mut. Ins. Co., 463 U.S. 29, 43 (1983) (stating that a court should not substitute its own judgment for that of an agency). The Administrative Procedure Act (“APA”) sets forth the procedures by which federal agencies are accountable to the public, including the standards for judicial review of regulatory change.18Administrative Procedure Act of 1946, Pub. L. 79-404, 60 Stat. 237 (codified as amended in scattered sections of 5 U.S.C.). The Supreme Court has held numerous times that courts reviewing regulatory activity under the APA must consider, among other things, if the changing policy has engendered reliance interests.19E.g., Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2126 (2016); FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515–16 (2009); Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 742 (1996).
Consideration of reliance interests is an accountability-promoting measure, akin to other often-required practices, such as CBA.20Every president since President Ronald Reagan has—by executive order—required agencies to undertake CBA or some aswhgwelfare-maximizing analysis in the promulgation of rulemakings. See Cecot, supra note 12, at 1601, 1601 n.31. Although a court reviewing agency decisions is required to consider reliance interests when they have been engendered, the Supreme Court has not always followed its own instructions.21See discussion infra Part I. When the Court has considered reliance interests, it has done so without a clear framework or guiding principles.22See discussion infra Section II.A. In historically failing to explain or demonstrate the role of reliance interests, the Supreme Court has failed to ensure that administrative rulemakings are welfare-maximizing and are not arbitrary and capricious.23Arbitrary and capricious review is often referred to as “hard look” review and requires a “satisfactory explanation” of an agency’s decision, Dep’t of Homeland Sec. v. Regents of the Univ. of Cal., 140 S. Ct. 1891, 1927 (2020) (Thomas, J., concurring in part, dissenting in part) (quoting State Farm 463 U.S. at 43), such that the agency engaged in “consideration of the relevant factors” and addressed “important aspect[s] of the problem [at hand].” Id. at 1905, 1912–13 (majority opinion) (first quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971); and then quoting State Farm, 463 U.S. at 43).
This Comment examines the Supreme Court’s approach to reliance interests in judicial review and advocates for a more consistent and cogent analysis of reliance in regulatory change. The APA provides adequate support for judicial review of reliance interests, and the Supreme Court’s jurisprudence to date forms a foundation for its importance. This Comment proposes a framework that creates consistency and transparency in judicial review of reliance interests, while also carefully limiting judicial overreach. Commitment to this framework will reduce waste, mitigate the unrecognized costs of regulatory reversals, and create greater stability for industry operators.
This Comment proceeds as follows. Part I describes the foundational precedent for hard-look review of legislative rulemakings under the APA and introduces fundamental CBA concepts. Part II examines existing scholarship on reliance interests and describes how the Supreme Court’s reliance-interest jurisprudence has evolved in recent decades. Parts III and IV describe why reliance interests are important and when they should be considered. Part III suggests various solutions that will stabilize the regulatory environment. Part IV addresses counterarguments and applies the discussion of reliance interests to a test case.
I. Understanding Judicial Review of Agency Decision-Making
Judicial review of agency actions draws its authority from the APA, which sets the broad standards by which a court reviews agency behavior.24While judicial review draws its modern authority from the APA, judicial review as a concept dates back to the founding of the United States, when the practice was viewed by many as a basis for legitimizing the constitution and the laws enacted from it. See The Federalist No. 78 (Alexander Hamilton). The circumstances under which federal courts review government agency actions thus involve questions of statutory and constitutional law, which place an agency’s constitutional role in the law well beyond simple explanation. Fox, 556 U.S. at 536–37 (Kennedy, J., concurring in part and concurring in the judgment). Agencies “possess substantial legislative and interpretive powers” that, despite the disagreement they cause, have been repeatedly legitimized by the legal system. Randy J. Kozel & Jeffrey A. Pojanowski, Administrative Change, 59 UCLA L. Rev. 112, 121 (2011). While judges have decried the administrative state as an illegitimate “fourth branch of the Government,” both the Judiciary and Congress have tolerated, if not encouraged, “expansion of the administrative state.” Id. (quoting FTC v. Ruberoid Co., 343 U.S. 470, 487 (1952) (Jackson, J., dissenting); see also, e.g., Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 472–76 (2001) (finding that a legally contentious portion of the Clean Air Act does not violate the non-delegation doctrine); Ruberoid, 343 U.S. at 487 (Jackson, J., dissenting in part). As such, this Comment will not address the constitutional questions that rightfully loom over administrative agencies and their rulemakings. The APA provides that “final agency action for which there is no other adequate remedy in a court [is] subject to judicial review.”255 U.S.C. § 704; accord id. § 702. The APA permits judicial review where a plaintiff is “adversely affected or aggrieved by any [final] agency action within the meaning of the . . . [governing] statute. ” Id. § 702; Todd Garvey, Cong. Rsch. Serv., R41546, A Brief Overview of Rulemaking and Judicial Review 13 n.119 (2017). Specifically, the APA’s most relevant part states:
[T]he reviewing court shall . . . hold unlawful and set aside agency action, findings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or otherwise no in accordance with law[.]
. . . .
In making the foregoing determinations, the court shall review the whole record or those parts of it cited by a party, and due account shall be taken of the rule of prejudicial error.265 U.S.C. § 706(2).
With regard to review of most legislative rulemakings,27“Rules that carry the force and effect of law are legislative rules.” Garvey, supra note 25, at 1 n.5. “arbitrary and capricious” is the catch-all standard against which courts review the legitimacy of agency action.28See Ass’n of Data Processing Serv. Orgs., Inc. v. Bd. of Governors of the Fed. Rsrv. Sys., 745 F.2d 677, 684–85 (D.C. Cir. 1984); Garvey, supra note 25, at 14–15. “[T]o amend or repeal an existing . . . rule, an agency generally must [use] the same notice-and-comment” process that created the original regulation.29Garvey, supra note 25, at 10; cf. Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016) (“Agencies are free to change their existing policies as long as they provide a reasoned explanation for the change.”). Consequently, amended or repealed regulations are subject to the same level of judicial review as the original rulemaking, and will be assessed against an arbitrary and capricious standard.30Garvey, supra note 25, at 10; see also 5 U.S.C. § 551(5). Whether an agency’s final action is arbitrary and capricious is necessarily a fact-intensive, case-specific inquiry.31Garvey, supra note 25, at 14 n.128. (citing Troy Corp. v. Browner, 120 F.3d 277, 284 (D.C. Cir. 1997) (“As always, of course, the question of sufficiency of an agency’s stated reasons under the arbitrary and capricious review of the APA is fact-specific and record-specific.”). This fact-intensive judicial inquiry is the manifestation of hard-look review: to determine if an agency has established a rationale sufficient to satisfy the requirements of “reasoned decision-making.”32See, e.g., Sidney A. Shapiro & Richard W. Murphy, Arbitrariness Review Made Reasonable: Structural and Conceptual Reform of the “Hard Look”, 92 Notre Dame L. Rev. 331, 333–34, 334 n.15 (2016) (discussing how State Farm approves hard-look style of review for legislative rules).
Modern hard-look review of regulatory change finds its origins in the seminal case of Motor Vehicle Manufacturers Association v. State Farm Auto Mutual Insurance Co.33463 U.S. 29 (1983). While State Farm represents the foundation of modern hard-look review, the contours of the APA’s “arbitrary and capricious” review were discussed in the earlier case of Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971). The Court in Overton Park affirmed that judicial review under APA is proper, and the “agency discretion” limitation is a narrow one. Id. at 410. For a discussion of Overton Park, see generally Peter L. Strauss, Revisiting Overton Park: Political and Judicial Controls over Administrative Actions Affecting the Community, 39 UCLA L. Rev. 1251 (1992). State Farm concerned a regulatory reversal under the authority of the National Traffic and Motor Vehicle Safety Act of 1966.34State Farm, 463 U.S. at 33–34. The Court was asked to determine whether the Secretary of Transportation acted arbitrarily and capriciously by rescinding Modified Motor Vehicle Safety Standard 208, which required vehicles produced after 1982 to “be equipped with passive restraints,” such as airbags or automatic seatbelts.35Id. at 34. The Court in State Farm acknowledged that “[r]egulatory agencies do not establish rules of conduct to last forever,”36Id. at 42 (quoting Am. Trucking Ass’ns v. Atchison, Topeka & Santa Fe Ry. Co., 387 U.S. 397, 416 (1967)). and that “an agency must be given ample latitude to ‘adapt their rules . . . [to] changing circumstances.’”37Id. (quoting Permian Basin Area Rate Cases, 390 U.S. 747, 784 (1968)). In a partial dissent, then-Justice Rehnquist attributed the policy change to “the election of a new President of a different political party.” Id. at 59 (Rehnquist, J., concurring in part and dissenting in part). In doing so, Justice Rehnquist acknowledged the political realities of administrative change, and stated that “[a] change in administration brought about by the people casting their votes is a perfectly reasonable basis for an executive agency’s reappraisal of the costs and benefits of its programs and regulations.” Id. The arbitrary and capricious review is a narrow standard, “and a court [may] not . . . substitute its judgment for that of [an] agency.”38Id. at 43. Nevertheless, an agency “must examine the relevant data and articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choices made.’”39Id. (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). Specifically, the Court “consider[ed] whether the decision was based on a consideration of the relevant factors and whether there [was] a clear error of judgment.”40State Farm, 463 U.S. at 43 (quoting Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974)). The Supreme Court rejected the rescission on the grounds that it was arbitrary and capricious.41Id. at 46. In doing so, the Court noted that if Congress established a presumption from which judicial review should start, that presumption is “against changes in current policy that are not justified by the rulemaking record.”42Id. at 42. The National Highway Traffic Safety Administration (“NHTSA”) failed to justify its action because, in rescinding all passive restraint requirements, the agency did not provide adequate analysis for rescinding half of those requirements.43Id. at 46–57. That is, NHTSA rescinded two requirements—automatic seatbelts and airbags—and in that rescission failed to adequately address why the airbag requirement was no longer effective.44Id. at 46-51. Notably, the Court reinforced that rescission of a rule should be reviewed under the same arbitrary and capricious test, because these actions often entail the same level of policy change as the promulgation of a rule.45Id. at 41.
By endorsing hard-look review for rule rescissions and declining to uphold the agency’s rationale, the Court in State Farm set fairly clear standards and reaffirmed the great legal force of judicial review.46See State Farm, 463 U.S. at 41. It is no coincidence that the 1980s spawned many criticisms of judicial review and its various forms.47See Erwin Chemerinsky, In Defense of Judicial Review: The Perils of Popular Constitutionalism, 2004 U. Ill. L. Rev. 673, 674. Regardless of whatever notions one may hold about the consequences of the judicial review process, judicial review of agency actions has generally proven to have some “bite,”48Cecot, supra note 12, at 1623–24. such that “inadequate explanation [of agency rationale] is one of the most common grounds for judicial reversal and remand.”49Id. (first citing Peter H. Schuck & E. Donald Elliott, To the Chevron Station: An Empirical Study of Federal Administrative Law, 1990 Duke L.J. 984, 1035 tbl.6 (showing that approximately twenty percent of remands in 1985 were based on an inadequate agency rationale); and then citing Richard J. Pierce, Jr., Judicial Review of Agency Actions in a Period of Diminishing Agency Resources, 49 Admin. L. Rev. 61, 72 (1997)). The Court’s opinion in State Farm lives on today and forms the basis of extensive case law describing the nuances and scope of judicial review.50See discussion infra Sections II.B, II.C.
Much of judicial review’s effect on regulatory activity traces to enforcement of the strict procedural guidelines that agencies must follow. CBA is one such consideration and is critical to understanding the role that factors like reliance interests play in judicial review. “Cost-benefit analysis (CBA) in the federal rulemaking process is the systematic examination, estimation, and comparison of the potential economic costs and benefits resulting from the promulgation of a new rule.”51David W. Perkins & Maeve P. Carey, Cong. Rsch Serv., R44813, Cost-Benefit Analysis and Financial Regulator Rulemaking Summary (2017). CBA finds its origins in welfare economics and operates on an assumption that the government should advance social welfare.52See Jonathan S. Masur & Eric A. Posner, Cost-Benefit Analysis and the Judicial Role, 85 U. Chi. L. Rev. 935, 943 (2018). Put simply, CBA requirements compel agencies to provide “an assessment of anticipated costs and benefits” for a proposed rule—or rule change or rescission—as well as “an assessment of the costs and benefits of ‘reasonably feasible alternatives’ to the rule.”53Perkins & Carey, supra note 51, at 3 (quoting Exec. Order No. 12,866, 58 Fed. Reg. 51,735, 51,741 (Oct. 4, 1993). In theory, when a rule is “net beneficial,” meaning that its benefits outweigh its costs, the rule ought to be issued.54Id. at 2. Conversely, when “a regulation will [not] generate net benefits,” then, the agency “should usually not issue the regulation.”55See Masur & Posner, supra note 52, at 945. “Since 1981, . . . all federal executive agencies have conducted CBA,”56Cecot, supra note 12, at 1603. though the longstanding authority requiring agencies to calculate estimates of costs and benefits was issued by President Clinton.57Exec. Order 12,866, 58 Fed. Reg. at 51,741. Presidents George W. Bush, Obama, and Trump have all maintained and supplemented this requirement through various orders of their own.58See Exec. Order No. 13,777, 82 Fed. Reg. 12,285, 12,285 (Mar. 1, 2017); Exec. Order No. 13,563, 76 Fed. Reg. 3821, 3821 (Jan. 21, 2011); Exec. Order No. 13,422, 72 Fed. Reg. 2763, 2763–64 (Jan. 23, 2007) (revoked by Exec. Order No. 13,497, 74 Fed. Reg. 6113, 6113 (Feb. 4, 2009)).
In judicial review, CBA can function either procedurally or substantively, though the former is more common.59See Masur & Posner, supra note 52, at 949. Where CBA is required, a court will review procedure to “verif[y] that the regulator has quantified . . . the costs and benefits,” and translated them appropriately.60See id. If the regulator failed to meet its procedural CBA mandate, then a court may find the rule arbitrary and capricious on procedural grounds.61See 5 U.S.C. § 706(2)(A); Masur & Posner, supra note 52, at 962. Further, if the regulator failed to apply proper valuations to a rule or made substantive errors in calculations, then a court may find the rule arbitrary and capricious on substantive grounds.62See 5 U.S.C. § 706(2)(A); Masur & Posner, supra note 52, at 962–63. As will be discussed in the forthcoming Parts, reliance interests, like CBA, are a dynamic, subjective factor that speak to the economic impact of a rule. Accordingly, understanding how courts treat CBA in judicial review is fundamental to understanding the potential importance of reliance interests.
In sum, judicial review of agency action legitimizes agency behavior by ensuring accountability to defined processes and constraining uneconomical regulatory activity.63See Masur & Posner, supra note 52, at 949–50; Shapiro & Murphy, supra note 32, at 333. The Court in State Farm established a fairly clear standard for what constitutes an “arbitrary and capricious” action, such that an agency “must examine the relevant data and articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made.’”64Motor Vehicle Mfr.’s Ass’n v. State Farm Auto Mut. Ins. Co., 463 U.S. 29, 42–43 (1983) (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). Moreover, this standard applies not only to agency rulemakings but also to the rescission of a rule.65Id. at 41. In determining the rationality of an agency choice, courts will often look to measurement devices, such as CBA, to determine the sustainability of an agency action.66See Perkins & Carey, supra note 51, at 3; Masur & Posner, supra note 52, at 937–38. These devices can play a critical role in ensuring the legitimacy and objectivity of judicial review.
II. The Emerging But Under-Theorized Role of Reliance Interests
From the 1990s to present day, reliance interests have grown in importance and earned their place in hard look judicial review of agency decision-making.67See infra Sections II.A, II.B. While scholars have noted the importance of reliance interests in judicial precedent and in review of long-standing agency interpretations, none have traced the evolution of reliance interests in Supreme Court jurisprudence.68See infra Section II.A. Accordingly, this Part examines the treatment of reliance interests in landmark cases, and observes that a series of small doctrinal shifts, taken together, have elevated reliance interests to the fore.
A. Reliance Interests, Historically
While scholars have examined in-depth the importance and effect of reliance as it relates to precedent and the concept of stare decisis,69E.g., Randy J. Kozel, Precedent and Reliance, 62 Emory L.J. 1459, 1460 (2013) (“[V]irtues of following precedent continue to draw widespread support. Among those virtues is the protection of reliance expectations.”); Anita S. Krishnakumar, Longstanding Agency Interpretations, 83 Fordham L. Rev. 1823, 1854 (2015) (“Another significant justification underlying strict adherence to judicial precedent in general, and statutory stare decisis in particular, is that adherence to precedent promotes stability and predictability in the law and protects . . . reliance interests.”). no modern analysis traces reliance interests in the context of judicial review and regulatory change.70Cf. Merrick B. Garland, Deregulation and Judicial Review, 98 Harv. L. Rev. 505, 518 n.70 (1985) (“[A]lthough the earlier regulatory reversal cases did express concern for the protection of justifiable reliance, the deregulation cases have generally not mentioned the issue.”). Notably, Professor Cass Sunstein examined expectation and reliance in the very early regulatory reversal cases. See Cass R. Sunstein, Deregulation and the Hard-Look Doctrine, 1983 Sup. Ct. Rev. 177, 204. An account of scholarship on reliance interests suggests that reliance interests are not only reasonable for courts to consider but are entitled to judicial respect.71See Kozel, supra note 69, at 1465–68. Offering judicial endorsement of this notion, Justice Scalia once wrote that reliance on “unabandoned” precedent “is always justifiable reliance.”72Quill Corp. v. North Dakota, 504 U.S. 298, 321 (1992) (Scalia, J., concurring in part and concurring in the judgment); accord Kozel, supra note 69, at 1460. Notably, Professor Anita Krishnakumar has observed that the overruling of a long-standing agency interpretation “implicates all of the same private reliance concerns as an overruling of one of the Court’s own statutory precedents.”73Krishnakumar, supra note 69, at 1855. Accordingly, while scholars have acknowledged the potential for reliance interests to play a larger role in judicial review of agency behavior, they consider reliance interests only secondarily and have not observed the evolution of reliance interests over a period of time.74See, e.g., id. at 1856–57, 1863.
The Supreme Court has historically been mum as to the virtues and application of reliance interests, but this neglect of reliance interests has diminished over time.75See Garvey, supra note 25, at 14–17. The Supreme Court’s contemporary opinions pointedly addressed the engenderment of reliance interests in administrative change since as early as 1973, ten years before the Court’s decision in State Farm.76E.g., United States v. Penn. Indus. Chem. Corp., 411 U.S. 655, 673–75 (1973) (discussing the reliance on the consistent, longstanding administrative interpretation of a regulation). Mentions of reliance interests in landmark decisions have grown considerably more prominent over time.77Compare id. at 674–75 (deciding an administrative challenge using themes of reliance, estoppel, and fair notice), with Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2126 (2016) (stating that unexplained inconsistency in the face of engendered reliance interests is cause for holding a change arbitrary and capricious, and that Chevron deference may not apply in these cases). This trend indicates a natural evolution in administrative law and highlights the possibility for reliance interests to play an outsize role in future judicial review. Early cases implicating reliance interests either turned on issues of official representations, thus involving estoppel concerns, or they failed to convince the Court of anything.78See NLRB v. Bell Aerospace Co., 416 U.S. 267, 295 (1974); Penn. Indus. Chem. Corp., 411 U.S. at 674–75. When the Court laid down its State Farm decision in 1983, which can be categorized as a watershed moment in administrative law jurisprudence, it failed to discuss reliance interests whatsoever.79See Motor Vehicle Mfr.’s Ass’n v. State Farm Auto Mut. Ins. Co., 463 U.S. 29, 52 (1983) (finding the NHTSA’s rescission of a rule arbitrary and capricious because the agency’s decision was not a “product of reasoned decision[-]making”). In fact, the word “reliance” does not appear in the decision one time.80Id. at 32–57. It was not until the Supreme Court’s 1996 decision in Smiley v. Citibank (S.D.), N.A.81517 U.S. 735 (1996). that the Court enhanced its focus on reliance interests.82See id. at 742.
The petitioner in Smiley alleged that a fee charged to him by the respondent-bank was impermissible because the Comptroller of Currency regulation that authorized the fee departed from prior agency policy.83See id. at 738–40, 742. Here, citing State Farm, the Court held that “[s]udden and explained change, or change that does not take account of legitimate reliance on prior interpretation[s], may be ‘arbitrary, capricious [or] an abuse of discretion.’”84Id. at 742 (citations omitted) (quoting 5 U.S.C. § 706(2)(A)). The Court continued, however, concluding its analysis in Smiley to say that “if these pitfalls are avoided, change is not invalidating . . . .”85Id. at 742. Ultimately, the Court declined to accept that an official change had even taken place and upheld the agency interpretation.86See id. at 742, 747. Though reliance interests made no discernable difference in the outcome of Smiley, the Smiley opinion formed a bridge between the Court’s older and newer cases, which helped to establish the first somewhat clear understanding of the reliance-interest application.87See Smiley, 517 U.S. at 742. Synthesizing the piecemeal reliance jurisprudence it alluded to in Smiley, the Court later established its axiomatic rule of reliance in FCC v. Fox Television Stations, Inc.88556 U.S. 502 (2009).:
[T]he agency need not always provide a more detailed justification than what would suffice for a new policy created on a blank slate. Sometimes [an agency] must—when, for example . . . its prior policy has engendered serious reliance interests that must be taken into account. It would be arbitrary and capricious to ignore such matters. In such cases it is not that further justification is demanded by the mere fact of policy change; but that a reasoned explanation is needed for disregarding facts and circumstances that underlay or were engendered by the prior policy.89Id. at 515–16 (citing Smiley, 517 U.S. at 742).
B. Fox’s Placeholder on Reliance Interests
Fox, for the purposes of this Comment, represents a reaffirmation and expansion of the State Farm standards and the Court’s post-millennium revival of reliance interests in judicial review.90See 5 U.S.C. § 706(2); Fox, 556 U.S. at 515–16. Although the facts and holding in Fox may be somewhat ordinary, the case exposed a divide in how the incumbent justices viewed judicial review of agency decision-making.91See Fox, 556 U.S. at 535–39 (Kennedy, J., concurring in part and concurring in the judgment); id. at 39–41 (Stevens, J., dissenting). While there is great merit to the idea that technical experts (e.g., agencies) should have autonomy over technical programs and decisions, there has long been concerns about how much autonomy these non-elected decisionmakers should enjoy.92See, e.g., New York v. United States, 342 U.S. 882, 884 (1951) (Douglas, J., dissenting) (“Unless we make the requirements for administrative action strict and demanding, expertise, the strength of modern government, can become a monster which rules with no practical limits on its discretion. Absolute discretion, like corruption, marks the beginning of the end of liberty.”). These concerns materialized in Fox, in the form of an unlikely, five-justice coalition favoring more rigorous judicial review.93See Kozel & Pojanowski, supra note 24, at 129.
In Fox, the Court was asked to determine whether the FCC provided adequate reasoning for its change in position on the use of isolated expletives in broadcasting.94See Fox, 556 U.S. at 503. The Court held that the FCC had met the standards of judicial review as laid out in State Farm, which required only that the FCC “examine the relevant data and articulate a satisfactory explanation for its action.”95Id. at 513–14, 517 (quoting Motor Vehicle Mfr.’s Ass’n v. State Farm Auto Mut. Ins. Co., 463 U.S. 29, 30 (1983)); see also Jerome A. Barron, FCC v. Fox Television Stations and the FCC’s New Fleeting Expletive Policy, 62 Fed. Commc’ns L.J. 567, 574 (2010). The majority’s opinion further emphasized the deference that reviewing courts ought to exercise, stating the reasons for a change in administrative policy do not need to be better than previous policy.96Fox, 556 U.S at 515. The effect of the Court’s opinion in Fox was a somewhat more detailed test for arbitrary and capricious review, which can be summarized as follows: “(1) The agency must explicitly acknowledge its change in policy; and (2) [t]he agency must give good reasons to support its change, which turns on whether (A) [t]he change is in accordance with the agency’s organic statute; and (B) [t]he agency believes it to be better than the prior approach.”97Charles Christopher Davis, The Supreme Court Makes It Harder to Contest Administrative Agency Policy Shifts in FCC v. Fox Television Stations, Inc., 62 Admin. L. Rev. 603, 609–10 (2010); see also Fox, 556 U.S. at 515 (“[An agency] need not demonstrate to a court’s satisfaction that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and the agency believes it to be better.” (emphasis omitted)).
Interestingly, and often overlooked, the majority in Fox did acknowledge that an agency changing course must provide a “more detailed justification than what would suffice for a new policy” when the “prior policy has engendered serious reliance interests that must be taken into account.”98Fox, 556 U.S. at 515 (citing Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 742 (1996)). This consideration, however, did not factor into the majority’s decision.99See id. at 517–18. Justice Kennedy joined operative parts of the majority opinion in Fox but wrote separately to suggest that these reviews are more nuanced than the majority admits.100See id. at 535–37 (Kennedy, J., concurring in part and concurring in the judgment); Kozel & Pojanowski, supra note 24, at 130–31. Though concurring in the judgment, Justice Kennedy wrote, “[t]he question [of] whether a change in policy requires an agency to provide a more reasoned explanation than when the original policy was first announced is not susceptible . . . to an answer that applies in all cases.”101Fox, 556 U.S. at 535 (Kennedy, J., concurring in part and concurring in the judgment). He went on to underscore that “[r]eliance interests in the prior policy may also have weight in the analysis.”102Id. at 536. Justice Breyer’s dissent, which was joined by Justices Stevens, Souter, and Ginsburg, shared Justice Kennedy’s concerns.103See id. at 549–50 (Breyer, J., dissenting). Justice Breyer believed that an agency reversing its position should be required to address not just “why the new policy [was] a good one,” but why the change was occurring in the first place.104Id. at 549–51. In his reasoning, Justice Breyer stated that the FCC’s explanation for the new policy discussed several factors that were well known to the agency the first time around, which itself provides no justification for a change of policy.105Id. at 562–65. To this end, in Justice Breyer’s view, an agency seeking to justify change may always do so by simply saying it’s the policy they prefer.106See id. at 551. The dissents in Fox can be summarized by a question Justice Breyer posited: “Where does, and why would, the APA grant agencies the freedom to change major policies on the basis of nothing more than political considerations or even personal whim?”107Fox, 556 U.S. at 552 (Breyer, J., dissenting).
Fox, like State Farm, concerned an agency departure from an established policy.108Id. at 505–10 (majority opinion). While State Farm clearly stated that hard look review should apply to rule rescissions, Fox went one step further to state that hard look review also applies to changing rules and that more explanation is not required for a changing rule than is required for a newly promulgated rule.109See id. at 514–15. However, a more careful analysis of Fox reveals that for many justices, a more detailed showing should be required by the agency when that agency appears to be disregarding its prior factual findings or significant reliance interests.110See id. at 546–51 (Breyer, J., dissenting). To this end, the majority wrote that “[i]t would be arbitrary or capricious to ignore such matters.”111Id. at 515 (majority opinion). While the majority found no basis to pursue such an inquiry,112See id. at 515, 517–18. the concurring and dissenting justices raised multiple forms of reliance-based concerns.113Fox, 556 U.S. at 536 (Kennedy, J., concurring in part and concurring in the judgment); id. at 541 (Stevens, J., dissenting). Justice Kennedy emphasized in his partial concurrence that reliance interests may weigh into these considerations.114Id. at 535–36 (Kennedy, J., concurring in part and concurring in the judgment). Justice Breyer, joined in dissent by Justices Stevens, Souter, and Ginsburg, discussed the importance of capital compliance costs and reliance on technological investments.115See id. at 556–58 (Breyer, J., dissenting). Justice Breyer notes that all the FCC needed to do was “consider [these issues] and either grant . . . exemption[s] or explain why it [would] not grant [them].”116Id. at 561.
The Supreme Court’s Fox decision made a meaningful contribution to reliance-interest jurisprudence by acting as a placeholder for the doctrine to mature. By reaffirming State Farm, but importing key reliance-interest concepts into the discussion, Fox essentially cemented reliance interests as an—albeit minor—piece of hard look judicial review. While the Court may have done this unknowingly, it is reasonable to believe that the themes of reliance that appear throughout the Fox decision represent an intentional effort to encourage agency due diligence and restrain hyperactive regulatory change. Read in this way, Fox planted seeds for future use of reliance interests as an accountability-promoting measure.
C. Recent Decisions Elevating Reliance Interests
The principles on display in Fox remained the undisputed guiding authority on judicial review of administrative change until 2016,117See Garvey, supra note 25, at 16. when the Supreme Court decided Encino Motorcars, LLC v. Navarro.118136 S. Ct. 2117 (2016). Encino addressed “whether a federal statute require[d] payment of increased compensation to certain automobile dealership employees for overtime work.”119Id. at 2121. In 1987, the Department of Labor “amend[ed] its Field Operations Handbook to clarify that service advisors should be treated as exempt” pursuant to a 1978 formal opinion letter.120Id. at 2123; U.S. Dep’t of Labor, Wage & Hour Div., Opinion Letter (July 28, 1978). The opinion letter, as an interpretive document, did not carry the force of law.121Encino, 136 S. Ct. at 2122. Twenty-one years later, in 2008, the Department of Labor “issued a notice of proposed rulemaking,” stating its intent to align its regulations “with existing practice by interpreting the exemption . . . to cover service advisors.”122Id. at 2123. Then, in 2011, the Department of Labor changed course again, and instead of proceeding with its proposed rule, completed its 2008 notice-and-comment rulemaking by issuing a final rule that took the opposite position from the proposed rule—service advisors were no longer exempt under the Fair Labor Standards Act (“FLSA”).123Id. at 2123–24. The Supreme Court held that the policy change failed to consider serious reliance interests, and an agency action inadequately explained is arbitrary and capricious.124Id. at 2127.
In Encino, the Supreme Court’s first step was to determine what sort of deference was owed to the agency’s interpretation.125Id. at 2124–25. The majority opinion explained that because administrative rulemakings must be lawful, they may not be procedurally defective.126See id. at 2125. Thus, deference cannot apply where a regulation is procedurally defective, in that the agency did not follow the correct procedures in promulgating the rule.127Encino, 136 S. Ct. at 2125. After walking through the basic principles set forth in Fox, Smiley, and other cases,128As one might imagine, the Supreme Court has decided innumerable cases concerning the principles of administrative change, which do not add substantively to this analysis. See, e.g., Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 983 (2005) (referring to an agency as “the authoritative interpreter (within the limits of reason) of [ambiguous] statutes”). the Court stated it was an “unavoidable conclusion . . . that the 2011 regulation was issued without the reasoned explanation that was required in light of the Department’s change in position and the significant reliance interests involved.”129Encino, 136 S. Ct. at 2126. Continuing on this point, the Court specified that while “[a] summary discussion may suffice in [some] circumstances,” it is particularly inadequate in this case, where the affected industry relied on the previous long-standing regulation.130Id. The Department of Labor explained that it “carefully considered all of the comments, analyses, and arguments made for and against the proposed changes,”131Updating Regulations Issued Under the Fair Labor Standards Act, 76 Fed. Reg. 18,832, 18,832 (Apr. 5, 2011) (to be codified at scattered parts of 29 C.F.R.). and alleged that the new approach would be more consistent with statutory language.132Encino, 136 S. Ct. at 2127. The balance of Justice Kennedy’s opinion is another display of the Court’s noncommittal relationship with reliance interests, as it does not—in any clear way explain—when reliance interests were given the weight on display in Encino.133See id. at 2126–27. However, the Court does state that dealerships not in compliance with the new regulation could face serious liability under the FLSA, and taken in that context, the conclusory statements and lack of analysis provided by the agency do not suffice to justify departure from the existing policy.134Id. In sum, Encino stands as what some may consider the Court’s most prominent application of reliance interests, as the case essentially incorporates consideration of reliance interests as a procedural requirement incumbent on agencies.135Id. at 2127.
Four years later, in June of 2020, the Supreme Court decided Department of Homeland Security v. Regents of the University of California.136140 S. Ct. 1891 (2020). This case is known popularly as “The DACA Decision.. The case revolved around a controversial immigrant naturalization pathway program known as the Deferred Action for Childhood Arrivals (“DACA”).137Id. at 1901. The DACA program, adopted in 2012 by the U.S. Department of Homeland Security (“DHS”), postpones the deportation of undocumented immigrants who came to the United States as children, allowing them the opportunity to integrate into American society.138Id. In 2017, the newly elected Trump Administration began phasing out DACA, and the legality of this rescission was the focus of Regents.139Id. As part of the DACA phase-out, the Attorney General advised the Acting Secretary of Homeland Security that the DACA program embodied serious legal flaws and should be rescinded.140Id. at 1903. In reliance on that advisory, the Acting Secretary decided to terminate the program.141Id.
Put simply, the DACA program had two operative elements: benefits eligibility and forbearance.142Regents, 140 S. Ct. at 1902. The Court found that, “[i]n short, the Attorney General neither addressed the forbearance policy at the heart of DACA nor compelled DHS to abandon that policy.”143Id. at 1912. If this sounds familiar, it’s because the agency reasoning repeats the error the Court identified in State Farm.144Id. In Regents, the Acting Secretary similarly rescinded the whole DACA program without addressing the rationale for rescission of the forbearance component.145Id. As a result, the Court found the rescission arbitrary and capricious.146Id.
While the Acting Secretary’s inadequate explanation forms the strongest legal basis for the Court’s conclusion, Justice Roberts also asserted that the Acting Secretary failed to address whether there was “legitimate reliance” on the DACA memorandum and program.147Id. at 1913 (quoting Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 742 (1996)). He continued, citing Encino, stating “[w]hen an agency changes course, as DHS did here, it must ‘be cognizant that longstanding policies may have engendered serious reliance interests that must be taken into account.’”148Regents, 140 S. Ct. at 1913 (internal quotation marks omitted) (quoting Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2126 (2016)). To ignore such matters would be arbitrary and capricious, and that is what the Acting Secretary did.149Id. The government contended in Regents that the Acting Secretary was not required to consider reliance interests, because the DACA program “conferred no substantive rights.”150Id. Justice Roberts dismissed this argument summarily, stating that no legal authority establishes the preclusion of reliance interests, and while these disclaimers may be pertinent in considering the strength of reliance interests, the consideration must be undertaken by the agency in the first instance.151Id. at 1913–14. Respondents in Regents gave many examples of the alleged reliance interests at play, including enrollment in degree programs, embarkment on careers, starting of businesses, purchasing of homes, marriage, and family investment.152Id. at 1914. Justice Roberts deemed these reliance interests “certainly noteworthy concerns, but . . . not necessarily dispositive.”153Id. The Court’s final position on these reliance interests was that, even if DHS determined the value of the new policy outweighed the reliance interests, the agency was still required to consider them.154See Regents, 140 S. Ct. at 1914.
Regents is a natural evolution from Encino and represents a meaningful expansion of the Supreme Court’s reliance interest jurisprudence, as it can be read to substantively expand the scope of reliance-interest application.155See id. at 1913–15. Foremost, the invoking of reliance interests is not dependent on a rulemaking’s conferral of substantive rights.156See id. at 1913. This is important because it precludes a defense against reliance-interest consideration on purely procedural grounds. Moreover, the Court demonstrated that reliance interests go beyond the simple query of how long the regulation has stood;157See id. at 1913–14. reliance interests are topical, case-specific inquiries that agencies are required to assess, regardless of their effect on the final decision.158See id. at 1914–15. As illustrated in this Part, the Supreme Court’s treatment of reliance interests has evolved considerably, particularly over the last two decades. The doctrine has evolved from general notions of fairness and estoppel159See supra notes 75–78 and accompanying text. to explicit mention in Smiley,160Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 742 (1996). to mentions by the majority, concurring, and dissenting justices in Fox,161FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009); id. at 536 (Kennedy, J., concurring in part and concurring in the judgment); see also id. at 549–50 (Breyer, J., dissenting). to full-on application in Encino,162Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2127 (2016). to proliferation in Regents.163Dep’t of Homeland Sec. v. Regents of the Univ. of Cal., 140 S. Ct. 1891, 1913–15 (2020). Despite the Supreme Court’s long history of lip service on the need for reliance-interest considerations, reliance interests are finally positioned to serve as a meaningful element of hard-look judicial review.
III. A Path Forward for Reliance Interests in Judicial Review
The Supreme Court’s hard-look review precedents lay the groundwork for a meaningful shift toward greater accountability and transparency in regulatory activity. To accomplish this, the Supreme Court must address the issue of reliance pointedly, going as far as to declare triggering circumstances in which reliance interests will be afforded weight. In doing so, the Court will hold agencies accountable to their regulated parties and end the decades-long obscurity surrounding reliance interests. Further, agencies should commit to welfare-maximization in regulatory actions by issuing intra-agency guidance in support of reliance considerations. Finally, private actors building an administrative record should consider the complementary effect of reliance interests in CBA and seek to emphasize reliance interests in first-impression CBA. Taken together, these paths forward for the Court, administrative agencies, and private actors will ensure that reliance interests are given consistent consideration in regulatory change.
A. Defining Reliance Interests, and Why They Matter
Reliance interests cannot be described as a neat set of criteria that are easily identified. Due to their nuance and often-backward-looking nature, reliance interests regularly go unconsidered. However, reliance interests play a rather large role in stabilizing other legal functions and can play a similar role in stabilizing regulatory judicial review. For instance, reliance interests are a well-understood element of “stare decisis,” the legal concept that a court “should adhere to [the] rules [of] its prior decisions.”164Brandon J. Murrill, Cong. Rsch. Serv., R45319, The Supreme Court’s Overruling of Constitutional Precedent 2 (2018). See generally Ramos v. Louisiana, 140 S. Ct. 1390 (2020) (discussing the effect of reliance interests in making stare decisis analyses). Reliance interests embody the idea that “[p]rivate parties may . . . shape their behavior around [regulatory and] judicial precedent such that sudden or significant change in . . . applicable legal rule[s] [may] be costly [or] unfair.”165See Krishnakumar, supra note 69, at 1854. This Comment does not endorse the notion that fairness is a legitimate basis upon which to make normative legal assertions; rather, that the justice system ought to eliminate unfairness where it is clearly present and can be lawfully eliminated. While it would be reasonable to say that a private actor should expect regulations to change, it is not reasonable that the change should happen under wildly erratic or frequently recurring conditions.166See id. at 1855. Accordingly, reliance interests should be understood to protect against changes in rulemakings that, due to their irregular or sudden nature, implicate the unrealized investments of private parties in that regulation.
Perhaps the foremost argument for consideration of reliance interests is that considering the impact of a regulatory action on real stakeholders promotes stability in the law. Individuals and institutions operate around and build upon official representations of the law. That is, “[p]rivate parties can and do shape their behavior around administrative regulations and adjudicative orders.”167See id. Generally, private stakeholders are incapable of managing the risk of legal change in a rational and effective manner, as they are unable to inoculate themselves against unforeseeable, broad swings in policy.168See Kozel, supra note 69, at 1475–76. This is particularly true in a hyperactive regulatory environment, where regulated entities expect that they will at least have the opportunity to comply with a regulation, let alone benefit from it over time. Stability in regulation promotes efficiency, transparency, and ensures accountability upon departure from the status quo.169See id. at 1503. Judicial consideration of reliance interests thus functions to protect private stakeholders against those regulations that are both sudden and drastically alter the status quo.170Cf. id. (noting the Judiciary’s structural arrangement as a means to promote stability in the face of shifting political tides). While there may be a time and place for sudden or drastic regulations, regulatory procedures, such as data publishing requirements and the notice-and-comment rulemaking processes, indicate that this sort of agency action ought not be the norm. Regulation, when necessary, should be deliberate and inclusive.
Private actors are not the only stakeholders who rely on legal consistency for efficiency in operational planning. Congress regularly builds upon the legal rules established by judicial interpretations and agency actions,171See Krishnakumar, supra note 69, at 1855. such that administrative law can fairly be characterized as a tangled web. This practice is so commonplace that “[o]verruling an established judicial interpretation could, therefore, ‘unsettle a vast cluster of public and private expectations.’”172See id. (first citing William N. Eskridge, Jr., Overruling Statutory Precedents, 76 Geo. L.J. 1361, 1367 (1988); and then citing Edward H. Levi, An Introduction to Legal Reasoning, 15 U. Chi. L. Rev. 501, 523–40 (1948)). This argument applies with equal vigor to hyperactive regulatory change. As more regulations are prematurely altered or rescinded, operating costs and mid-to-long-term planning become more unpredictable, and thus costly.173See id. at 1854. Consideration of reliance interests in judicial review of regulatory change would provide important protections against regulations that fail to consider their practical impact on stakeholders and thus contribute to the stability of the regulatory sphere.
Without a common understanding of reliance interests, it will be difficult for courts and agencies to strike an appropriate balance in the application of reliance-interest considerations. This Comment recommends the following definition of reliance interests as it relates to regulatory change: Interests established or entered into by private parties for the purposes of adherence to a rulemaking or attendant requirement, or with an understanding that the rulemaking or attendant requirement would remain law for a period sufficient to justify investment by private parties.174In this definition, “private parties” should not be construed to include a state or several states, or government employees or officers acting in official capacity. To do so would alter the balance of federalism in an untenable way. The interest must have been established in reliance on the rule in question.
This definition of reliance interests accounts for both physical and non-physical investment in dependence on a rule. Understating that reliance-interest review is not dispositive, but rather a reliance interest will be weighted according to its role in a case, it is similarly important to be as inclusive as possible here. Any rule contemplating reliance interests must account for both physical and circumstantial investment. For example, an agency’s assessment should account for the physical investment that must be made by private actors in energy, infrastructure, and in other sectors that are largely capital-intensive. These industries largely involve fixed assets, which must be altered, or their processes adapted, when regulations change.175See, e.g., Laura Noonan, Regulatory Changes Force Investment Banks into ‘Capital Light’ Activities, Fin. Times (Dec. 13, 2015), https://perma.cc/753K-MQVV (discussing how “[t]he wave of regulation [following a] financial crisis” caused European banks to move their investments away from capital-intensive industries). Similarly, a reliance-interest definition must capture investment similar to that sustained in Regents.176Respondents in Regents claimed various forms of reliance interests, including enrollment in degree programs, embarkment on careers, starting of businesses, purchasing of homes, marriage, and family investment. Dep’t of Homeland Sec. v. Regents of the Univ. of Cal., 140 S. Ct. 1891, 1914 (2020). Where a regulation has encouraged individuals to invest in a certain way, or has incentivized certain economic behavior, it is reasonable that those individuals should expect to receive the returns on those investments. Accordingly, any reliance-interest assessment must capture these individuals’ reliance interests for consideration by a reviewing court. In sum, a proper understanding of reliance interests considers both the industrial and individual, and the economic and the personal; these are the areas of life most susceptible to a loss of welfare due to hyper-regulatory activity.
B. The Supreme Court and Administrative Agencies Must Demystify Reliance Interests
The issue of unconsidered reliance may be addressed through clear statements from the Supreme Court and dedicated efforts by administrative agencies. This Comment suggests that Courts should establish triggers for consideration of reliance interests, and that agencies should establish commitments to and procedures for accounting for reliance in rulemaking. Further, dedicating CBA resources to reliance considerations will not only enhance the staying power of reliance interests generally but will enhance the usefulness of CBA.
1. The Court Should Establish Triggers for Reliance Consideration
Most importantly, the Court ought to designate triggering circumstances which would require the assessment of reliance interests in judicial review. When the Supreme Court says that it will give weight to reliance interests in cases where rules have engendered them, it should do exactly that. Rather, the Court has eschewed reliance interests at nearly every opportunity, creating a patchwork of decisions which offer little-to-no clarity on how reliance interests will be assessed.177See id. at 1914–15; Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2127 (2016); FCC v. Fox Television Stations, Inc., 556 U.S. 502. 515 (2009); id. at 536 (Kennedy, J., concurring in part and concurring in the judgment); Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 742 (1996). As such, this Comment proposes that a court should examine, and an agency be required to address, reliance interests in the following cases:
(1) Where reliance interests are raised as a primary basis for a challenge to a rule or adjudication; or
(2) Where an agency repeals or reverses a “major” regulation that requires a substantial capital investment or licensing scheme; or
(3) Where a rule changes or reverses a regulation that has been in effect for less than two years or more than ten years.
This Comment suggests that, in general, reliance interests will most likely be substantial when they are expressly claimed, when a rule requires substantial investment by regulated parties, or when a rule abruptly changes an otherwise longstanding or short-lived status quo. If this rule seems over-inclusive at first glance, it is because its goal is to create consistency and protect legitimate reliance interests from a sort of avoidance practice; thus, intentional inclusivity at the triggering stage is appropriate. Further, an under-inclusive rule would fail to maximize welfare and create stability and would thereby serve no value in accounting for reliance on a rule.
In application, any regulation which falls into the above triggers would be subject to reliance-interest assessment. Accordingly, the Court would require agencies to address prospective reliance interests with some specificity. As a threshold matter, the agency should only be required to show that they have considered the reliance interests and accounted for them in the costs of the program. Accordingly, many first-instance rulemakings will be given deference with regard to reliance interests, just as they are with CBA.178See Caroline Cecot & W. Kip Viscusi, Judicial Review of Agency Benefit-Cost Analysis, 22 Geo. Mason L. Rev. 575, 592 (2015). However, a triggering rule will require the courts to look more critically at reliance-interest assessments when rules change or are rescinded, as hyperactive change to regulations poses the greatest threat to regulatory stability over time. As with CBA and other accountability-promoting measures, any agency implicating reliance interests should show that the welfare-creation of the regulatory action outweighs the welfare-loss sustained by reliance interests. To this end, agencies should also demonstrate that they have considered alternatives to the regulation which would engender less reliance from private parties. Applied this way, the Court is not exceeding its statutory prerogatives under the APA, but rather giving substance to the oft-repeated concept that, in hard look review, “reliance interests . . . may . . . have some weight in the analysis.”179Fox, 556 U.S. at 536 (Kennedy, J., concurring in part and concurring in the judgment).
For the purposes of establishing the above reliance-interest triggers, a “major” regulation is as defined by the Congressional Review Act, as a rule that has resulted in, or is likely to result in:
(A) an annual effect on the economy of [$100 million] or more;
(B) a major increase in costs or prices for consumers, individual industries, . . . government agencies, or geographic regions; or
(C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises . . . .1805 U.S.C. § 804(2).
Some limiting principle is necessary to ensure resource preservation and that judicial consideration of reliance interests does not burden a court when it is not necessary. The definition of a “major” regulation for reliance interest purposes could differ textually and offer similar protections in application. However, relying on the same definition as that used by Congress is virtuous because it sufficiently accounts for both the economic and practical effects of an agency action. Any limiting principle applied to this second trigger must recognize that large-scale regulatory changes require an assessment of reliance interests, as it would be impractical to assume large-scale change occurs without implicating private reliance.
The third trigger, which considers the length of time a regulation has been in place, may be criticized as arbitrary. To some extent, this is correct, as these numbers speculate how much time is necessary to redeem the benefits of a hypothetical rule, and how much time is necessary for a regulatory scheme to become so engrained that parties rely heavily on it. However, for parties to enjoy the due weight of reliance-interest considerations, a time-oriented line must be drawn, or the whole goal of recovering a regulation’s intended benefits becomes moot. The idea is that regulated parties must have the opportunity to come into compliance with a rule, such that society may begin to benefit from it before the rule is changed. A rule that substantively changes before compliance with it can be achieved accomplishes presumably no welfare growth for society and operates as a barrier to government efficiency.
Any time-oriented trigger needs to be based on careful examination of regulatory compliance timelines attendant to pertinent regulations. The converse of this notion is that regulations that have been in place for a longer period of time, such as ten years, require careful consideration before being changed, as continuity over time is a generally favored proposition, both in application and normative theory.181Professor Krishnakumar suggests that a regulation which “has been in effect for more than ten years . . . should be entitled to a presumption of correctness,” subject to a new interpretation only after a majority of a three-judge panel deems the regulation “clearly erroneous.” Krishnakumar, supra note 69, at 1864. Accordingly, while this Comment proposes two- and ten-year triggers on mandatory reliance-interest reviews, limits set by the Court must be representative of the best timeline for welfare-maximization and long-term stability. The establishment of these triggering circumstances would demonstrate the Court’s commitment to its own requirements, establishing consistency in judicial review where it has otherwise been erratic and unpredictable. With consistency comes stability, and with stability comes greater opportunities for welfare-maximization and cost-efficiency.182See Cecot, supra note 12, at 1637, 1640.
2. Agencies Should Commit to Reliance-Oriented Accountability
Administrative agencies can improve accountability and demonstrate a commitment to transparency by issuing guidance that requires the consideration of reliance interests in certain rulemakings. Agencies frequently use non-legislative means to set regulatory policy and bind agency staff to various practices.183See Jared P. Cole & Todd Garvey, Cong. Rsch. Serv., R44468, General Policy Statements: Legal Overview 2–3 (2016). While legislative rules carry the force of law, guidance documents and “rules on rulemakings” are less cumbersome, as they can be issued more quickly and without notice-and-comment procedures.184Id.; Memorandum from Todd Rubin to Members of the U.S. Comm. on Regul. (November 25, 2020) (on file with Administrative Conference of the United States). Agencies that use guidance documents or rules on rulemakings can enhance government accountability for reliance interests by ensuring that the public, the agency personnel, and the courts are all abreast of the agency’s procedural commitment to consider reliance interests in regulation.
In application, a reliance-interest guidance document or rule on rulemakings would direct an agency when to consider reliance interests in regulatory change. For instance, the guidance should provide how reliance interests apply to capital-intensive industries that have invested in conformity with a rule, as well as more naturally qualitative interests like those at issue in Regents. As a simplistic example, the Environmental Protection Agency (“EPA”) could issue guidance requiring the consideration of reliance interests in any rulemakings or rule changes that result in the increase of permit wait times by more than fifty percent. Thus, in seeking to increase the time that a private actor must wait to be permitted for an activity, the EPA would need to examine the reliance private actors have already put into the existing wait times. In finding that these actors would need to significantly adjust construction or production schedules, at prohibitive costs, the EPA would then be required to address these interests in its proposed rulemaking. This simple example demonstrates that an agency can impose transparency—and accountability-promoting measures on itself, by simply committing to doing so.185There is disagreement among scholars and courts as to the finality of guidance documents and rules on rulemakings, such that many are not considered binding on agencies in judicial review. See Cole & Garvey, supra note 183, at 7. However, by voluntarily committing to the inclusion of reliance-interest assessments in administrative records, agencies can ensure that reliance interests are included in, and thus reviewed as part of, general APA hard-look review. That the Supreme Court is trending toward the inclusion of reliance-interest considerations in agency rule changes should be adequate rationale for administrative agencies to make this change.
The benefits of a reliance-focused guidance document or rule on rulemakings would be significant. First, this would promote efficiency by removing any confusion or ambiguity around the consideration of reliance interests.186Admin. Conf. of the U.S., Administrative Conference Recommendation 2020-1, Rules on Rulemakings 2 (2020). Second, these documents promote predictability, and would thus further the ultimate goal of stability in regulation.187Id. Third, guidance documents and rules on rulemakings can promote transparency in agency rulemaking processes.188Id. Guidance documents or rules on rulemakings could reduce the overall likelihood that a private party will detrimentally rely on a regulation, as agency guidance would lower the barrier for understanding regulatory processes and agendas. By committing to addressing reliance interests from the start, administrative agencies can lessen the overall burden of reliance.
3. Reliance in CBA
The emphasis of reliance-interest considerations shares a common goal with the well-established practice of CBA. When regulators have a well-delineated framework against which they must justify their actions, they may streamline processes to that end. In this way, reliance interests and CBA are linked; a CBA will always be more accurate when it accounts for the true costs and benefits accrued due to reliance on a particular rule, as opposed to when it does not.189While some CBAs may account for reliance interests under a different name, this Comment assumes that the effect of reliance-interest considerations will be more pronounced where reliance interests are considered explicitly in CBA. Use of the above triggers will help to mitigate the import of partisan perceptions, which underpin much regulatory behavior, as greater emphasis on reliance interests encourages a welfare-based approach to regulation. As a decision-making procedure with origins in welfare economics, CBA helps understand policies by converting the values and costs of the policy into a monetary scale.190Cecot, supra note 12, at 1603. Although the Reagan Administration began the requirement of CBAs through executive order, in hopes that the CBAs would help further a deregulatory agenda,191Id. CBA has become a hindrance to deregulatory activity for presidential administrations who may otherwise see it as a deregulatory tool.192Jonathan S. Masur & Eric A. Posner, Chevronizing Around Cost-Benefit Analysis, 70 Duke L.J. 1109, 1112–13 (2021). While CBA has historically be caricatured as necessarily anti-regulatory,193Id. at 1112. many deregulations proposed by President Trump’s administration have encountered challenges because the regulations “sought to [be] repeal[ed]” were supported “by plausible . . . [CBAs].”194Id. at 1113. It is in this way that reliance interests and CBA share a common goal: they both aim to protect the stability of the regulatory state and the welfare of its subjects.
The relationship between CBA and reliance interests is important because it emphasizes a natural area of cooperation. Put simply, where reliance interests have been raised in a case, the Court should actively seek to identify those reliance interests in the attendant CBA. The CBA requirement exacted on agencies presents a remarkable opportunity for advocates of certain issues to use reliance interests in later defending their rulemakings. Again, consider environmental law as a salient example of where this tactic may be effective. Agencies that wish to take lasting environmental regulatory actions must base their decisions in robust factual records, such that latter administrations must overcome these extensive findings and rationales to enact a change.195See Stansberry, supra note 3, at 831–32. Many failings of the George W. Bush and Trump administrations deregulatory agendas can be attributed to inadequately addressing prior factual findings. Id. Developing these findings to an extent that they are difficult to rebut makes regulatory change more challenging, albeit not insurmountable. See id. Some have suggested that agencies seeking to combat climate change through regulation should include climate-change specific findings in the administrative record when promulgating the original rule, requiring any change to address the change’s impact on climate.196See id. at 832. Similarly, when developing these records, regulating agencies should look to explicitly incorporate expected reliance interests. Understanding that many of these regulations are likely to be repealed before their benefits can be realized, these records may be enhanced further by including expected benefits and reliance interests over term periods, such as two years, five years, and so on. Doing so accounts for the reality of hyperactive regulatory change and allows a court comparing CBAs to examine reliance interests over a term of years with greater specificity. While some reliance interests are already captured in cost-benefit analysis, in the form of compliance costs for those capital-intensive industries,197Cecot, supra note 12, at 1607. they should be given greater weight, labeled as reliance interests, and discussed in-depth, to ensure proper consideration at the comparative CBA stage.198When a regulation is challenged as arbitrary and capricious, the court will review the CBA of the initial rule in comparison to the CBA from the new rule. See Cecot, supra note 12, at 1597. For a clear and instructive discussion of CBA’s role in deregulation, see generally Cecot, supra note 12.
This approach to reliance-oriented administrative record development is not exclusive to issues that are inherently capital-intensive, such as environmental and energy regulation. Professor Peter Margulies, stating that the Supreme Court rightly decided Regents, has suggested that the Court has read reliance interests into immigration law.199See Peter Margulies, The DACA Case: Agencies’ “Square Corners” and Reliance Interests in Immigration Law, 2019–2020 Cato Sup. Ct. Rev., 127, 151. In doing so, he emphasizes the importance of equitable balancing in administrative change, as well as the synergy between expectations and the public interest.200See id. at 149. As such, the Court should consider more qualitative reliance interests, such as those at stake in Regents, because regulations substantially alter the balance of hardships placed on individuals and have a general impact on public decision-making.201See id. at 151. Interestingly, because consideration of these factors is a procedural issue, agencies can potentially evade being struck down on reliance grounds by accounting for the reliance proactively.202See id. at 149. This may embody a tactic, such as establishing a longer wind-down period for a regulation.203See id. This demonstrates that explicit inclusion of reliance interests in CBA may also require agencies changing a regulation to account for those reliance interests in their procedural tactics, which further benefits welfare-maximization in the regulatory process.
In sum, reliance-interest considerations are at the zenith of their strength when they are included in CBA, which serves as the formal accounting of reliance interests in a case. “[I]ncreased reliance on CBA not only promotes rational agency decision[-]making,” but it “improves regulatory policy over time.”204Cecot, supra note 12, at 1612. So, too, reliance interests focus judicial review on the welfare of regulated entities and the general public interest. Together, when properly considered with their due weight, reliance interest and CBA work together to increase the welfare that regulated entities may expect from a potential rulemaking. By including reliance interests as a primary and formal component of administrative record-building, agencies and advocates better position their regulation for longevity and welfare-maximization. By self-requiring these considerations to be a routine part of agency rulemaking, agencies can help develop a uniform and stability-focused approach to reliance-interest consideration.
IV. Addressing Counter Arguments and Testing the Theory
This theory of reliance interests may be unpopular with those who favor deregulation as divorced from the notion of welfare-maximization. Put another way, the suggestions in this Comment may offend those who favor deregulatory agendas for the singular reason that they embolden free market activity, as opposed to those who favor deregulatory agendas because they are net-beneficial to society. Of course, these views are not mutually exclusive, but their juxtaposition is meant to show that motive for deregulation will influence whether an individual would support a greater emphasis on reliance-interest considerations. This Part will address these themes and counter arguments. Further, this Part will show that reliance-interest considerations can have a meaningful effect on judicial review, without jeopardizing the autonomy of administrations to carry out their policy preferences.
A. Counters and Concerns
A primary argument against assigning greater force to judicial review is that doing so empowers the Judiciary to replace its judgment with that of Congress or the agency, and is thus paternalistic and aggrandizing.205See, e.g., Richard A. Posner, The Federal Courts: Challenge and Reform 304, 318 (1996) (describing the notions of “judicial self-restraint” and judicial activism). However, emphasis on reliance interests does not “empower” judicial review; it works to narrow the scope of judicial review by establishing with specificity what must be reviewed and when. Further, it is not paternalistic to hold the government accountable to the promises and conditions it sets forth in rulemakings. Increasing emphasis on reliance interests will infrequently have a dispositive effect on the outcome of a judicial review case, but this should not be interpreted as a flaw in the suggestion that they be considered with more consistency. Under the triggers proposed in this Comment, consideration of reliance interests is a process rule and will likely only be dispositive in extreme cases of reliance neglect or actual procedural failure by the agency.
Further, one may argue that reliance interests inhibit deregulation, and deregulation relieves regulatory burdens and generally results in lowers operating costs for regulated entities.206See Vance Ginn & Yash Raghuwansi, Americans Prosper from Less Government Regulation, Tex. Pub. Pol’y Found. (Aug. 6, 2018), https://perma.cc/M7FX-WSHV. However, this argument assumes that the extent of regulatory burdens is a sufficient basis for determining the efficacy of a rule. In reality, the extent of regulatory burdens is just one piece of a complicated CBA, which can be offset by equally or greater value in benefits produced by a rule.207See discussion of CBA, supra Part I. Opposing reliance-interest considerations on the grounds that they upset deregulatory policy distorts the purpose of policy in the first place, which is to create welfare gains for the general public. This may seem like an ideological line, and perhaps it is, but to accept enhanced reliance-interest considerations, one must first accept the reality that regulations with staying power can produce net gains for society, particularly in those instances where the regulations are given time to mature in fulfillment of their purposes.
Another forceful argument against reliance-interest considerations may be that they bind future administrations to the actions of previous administrations.208See, e.g., William W. Buzbee, The Tethered President: Consistency and Contingency in Administrative Law, 98 B.U. L. Rev. 1357, 1358–60 (2018) (discussing general procedural and substantive hurdles to administrative autonomy as it relates to rulemakings). Presidents have the right and power to reverse decisions made by previous administrations, and this is understood by most as a primary purpose of popular elections.209See id. at 1359–60. However, finding a regulation procedurally defective because the agency failed to consider reliance interests, or deeming a regulation is substantively defective because it unduly offends reliance interests, does not prevent a future administration from changing the rule. Rather, it forces that administration to adjust its policies in ways that comport with the welfare of the general public. That administrations should have to constrain their rulemaking to generally welfare-producing rules should not be a disagreeable proposition, less the government become an organization devoted to fulfilling the hopes and dreams of rent-seekers.210“Rent-seeking” is the idea that private actors will expend resources seeking or opposing favorable policies; actors “are said to seek rents when they try to obtain benefits for themselves through the political arena,” which exceed the value of resource costs. See David R. Henderson, Rent Seeking, The Libr. of Econ. & Liberty, https://perma.cc/9NX5-ELKH. For further discussion on rent seeking, see generally Anne O. Krueger, The Political Economy of the Rent-Seeking Society, 64 Am. Econ. Rev. 291, 291–303 (1974). Presidents may change regulations, provided they are able to do so within the confines of the law. This Comment simply suggests that those confines be more clearly articulated and adhered to with rigor. Accordingly, consideration of reliance interests would not prevent future administrations from changing regulations in a welfare-maximizing way.
Some may challenge reliance-interest consideration as backward-looking, not forward-looking, which minimizes the welfare impact of reliance-interest considerations. This Comment’s reliance-interest triggers rest on the premise that regulations ought to be valued for their actual effects, not just their aspirations. Regulations should be forward-looking to the extent that they can be, in that they should account for future states of affairs and regulate accordingly. Reliance interests consider the present reality for those affected by a regulation. A regulation should not account for the future state of affairs without first considering the present state of affairs. Consequently, considering reliance interests helps agencies and reviewing courts determine a current and baseline state of affairs against which to judge forward-looking regulations. Because forward-looking regulations cannot ignore the reality of the present, they must account for reliance interests, which represent the current state of affairs.
Finally, critics may argue that, in practical application, reliance-interest considerations are generally moot, since regulated entities tend not to favor the status quo and prefer deregulation. As an initial matter, this is not categorically true, as many entities do or would benefit from the protections and stability of measured regulatory activity.211See, e.g., Mike Isaac, Mark Zuckerberg’s Call to Regulate Facebook, Explained, N.Y. Times (Mar. 30, 2019), https://perma.cc/SE6C-U9SL (discussing how Facebook has, at times, encountered difficulty making decisions about what to do, including with regard to so-called harmful content). However, even if there is some truth to this proposition, it exposes a welcome, self-enforcing limit on consideration of reliance interests. Regulated entities may support an agency’s administrative record with their own evidence that reliance considerations should not inhibit a regulatory change. Accordingly, this criticism of reliance interests functions as a self-imposed limit, which should allay concerns that reliance interests will monopolize deregulatory efforts. Reliance-interest considerations can give regulated parties more control over the establishment of socially optimal regulatory schemes, as well as greater influence over judicial review outcomes.
B. A Test Case: Applying Reliance-Interest Considerations to Michigan v. EPA
Consideration of reliance interests can transform a holding under circumstances that warrant it. This Section will consider reliance-interest review under the facts and aftermath of Michigan v. EPA.212576 U.S. 743 (2015). In 1990, Congress amended the Clean Air Act to require the EPA to regulate power plants if it found that such regulation was “appropriate and necessary.”213Clean Air Act Amendments of 1990, Pub. L. No. 101-549, § 301, 104 Stat. 2399, 2558; Michigan, 576 U.S. at 747. In 2000, the EPA issued a notice that, because mercury emissions from power plants were a threat to public health, regulation of power plants was appropriate and necessary.214Michigan, 576 U.S. at 749. In 2005, the EPA revised its findings and determined it was not appropriate and necessary to regulate fossil-fuel power plants, but this determination was struck down as unlawful.215National Emission Standards for Hazardous Air Pollutants: Reconsideration and Supplemental Finding, 85 Fed. Reg. 31,286, 31,288 (May 22, 2020). In 2012, the EPA finally confirmed that power plant regulation was necessary and promulgated the requisite emissions standards.216Michigan, 576 U.S. at 749. These standards are known as mercury and air toxics standards, or “MATS.”217Press Release, Env’t Protection Agency, EPA Finalizes MATS Supplemental Cost Finding and “Risk and Technology Review” (Apr. 16, 2020), https://perma.cc/6ZPZ-6QM9. In making this determination, the EPA chose not to consider the costs of the regulation to industry operators.218Michigan, 576 U.S. at 750–51. The EPA’s final rule was reviewed in Michigan, when a coalition of states and industry operators challenged the EPA’s interpretation of “appropriate and necessary.”219Id. at 743.
In considering whether the EPA’s interpretation of “appropriate and necessary” could stand, the Court explained the familiar concept that agencies must engage in “reasoned decision[-]making” based “on a consideration of relevant factors.”220Id. at 750 (first quoting Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359, 374 (1998); and then quoting Motor Vehicle Mfr.’s Ass’n v. State Farm Auto Mut. Ins. Co., 463 U.S. 29, 43 (1983)). By failing to consider cost when deciding whether to regulate, the Court reasoned that the EPA failed to consider all relevant factors.221Id. at 759. Although the EPA did eventually consider costs and benefits of regulation, the Court in Michigan reinforced that it can and should only review “the grounds that the agency invoked when it took . . . action”; and the EPA said that cost was irrelevant to the decision to regulate.222Id. at 758 (citing SEC v. Chenery Corp., 318 U.S. 80, 87 (1943)). The Court remanded the case for further proceedings, the agency reassessed costs in several ways, issued supplemental findings about MATs and costs,223Supplemental Finding That It Is Appropriate and Necessary To Regulate Hazardous Air Pollutants From Coal- and Oil-Fired Electricity Utility Steam Generating Units, 80 Fed. Reg. 75,025, 75,025 (Dec. 1, 2015). and the MATS, as established in 2012, survived further review.224White Stallion Energy Ctr., LLC v. EPA, No. 12-1100, 2015 WL 11051103, at *1 (D.C. Cir. 2015).
In 2018, the Trump Administration sought to revise the EPA’s cost findings for MATS, and industry quickly responded.225See Mark Jaffe, Utility Industry Urges EPA to Keep Mercury Emissions Rule in Place and Speed Reviews, EUCI: Energize Wkly. (July 18, 2018), https://perma.cc/4W73-ABYH. The electric power industry, which led legal challenges against the 2012 rule, did not want the EPA to significantly revise or eliminate the MATS.226Id. A letter from major industry participants to the EPA stated that all covered plants had implemented the regulation and pollution controls required by the MATS, and that industry operators had spent more than $18 billion to comply with the MATS.227Id. Per the industry, given the scale of the investment, regulatory certainty is “critical.”228Id. A representative from Duke Energy succinctly summarized the issue: “We want to be able to plan our investments for the future, but if they change the rules, that becomes difficult.”229Coral Davenport & Lisa Friedman, The EPA’s Review of Mercury Rules Could Remake Its Methods for Valuing Human Life and Health, N.Y. Times News Serv. (Sept. 7, 2018) (quoting Shannon Brushe, Duke Energy spokeswoman) (internal quotation marks omitted), https://perma.cc/3DJ5-YLJW.
Michigan and its subsequent events make a strong case study because they demonstrate that reliance interests are effective when considered consistently under the proper circumstances, but do not monopolize judicial review when they ought not be considered. Under the framework proposed by this Comment, the Court in Michigan would have been required to examine reliance interests engendered by the EPA’s MATS only if the petitioners raised them as a primary basis for the challenge. This would be the only basis for the Court to require reliance-interest assessment in Michigan, because the EPA rule did not change or repeal a regulation, and because the rule had not been in place for less than two or more than ten years. Because the petitioners had not relied on any regulatory representations, and because industry was at the time incentivized to oppose the EPA’s MATS, the self-enforcing limitation on the pleading of reliance interests would come into effect. Because the petitioners would not plead reliance interests, these interests would not complicate the review or waste resources. However, if the agency had already committed to including reliance-interest considerations as a basis for its decision to regulate, as is suggested by this Comment, it may have evaded the Court’s criticisms that it did not consider cost. This is because any agency-committed reliance-interest consideration necessarily accounts for costs and benefits of a program on industry participants. Among the reliance-interest considerations, the EPA could have addressed the health benefits of the program, sunk costs by operators, and other relevant factors that could have satisfied the Court’s need for cost consideration. It is not clear whether this would have changed the outcome in Michigan, but it would have given the EPA a greater chance of success in a close decision.
Had Michigan been decided just a few years later, when the Trump Administration considered changing the rule, the outcome could have been fundamentally different. If, in 2018, a coalition of states and industry operators, or states and labor groups, challenged the EPA’s decision to regulate, or the stringency of its MATS standards, the Court may have been required to consider reliance interests. The Court would need to consider reliance interests in this scenario because at least some power producers would choose to plead reliance interests as a reason to maintain the regulation. The Court would also be required to consider reliance interests if the challenge was to a change in the EPA rule. In assessing reliance interests, the industry operators would demonstrate the considerable capital investment made in reliance on the regulatory scheme. As described above, by 2018, many power producers had already sunk considerable investment into the technology required to comply with the regulation, which, by 2018, had resulted in a seventy percent reduction in mercury emissions.230See id. This does not suggest that the consideration of reliance interests in a 2018 version of the Michigan case would be dispositive, but that these reliance considerations would fundamentally change the analysis of what constitutes “relevant factors.”
Justice Scalia, writing for the majority in Michigan, wrote, “One would not say that it is even rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.”231Michigan, 576 U.S. at 752. In a way, this sentiment is a crux of this Comment. Too often are regulations allowed to change or expire without having fulfilled their purpose, and those changes are often permitted regardless of their practical effects. Requiring courts to consider the reliance interests of industry operators, the personal reliance engendered by individual citizens, and the public health benefits attendant to regulations, would help judges to more justly administer their duty under the APA. Had the Court considered this in Michigan, and had the EPA presented any reliance-interest considerations with earnest, regulated electric power operators could have been spared a decade of costly regulatory instability.
Hasty regulatory change challenges stability in administrative law, and thus threaten the integrity of the whole enterprise. While elections should have consequences, those consequences should not be the politicization of American public welfare. Deregulation serves important ends and should be encouraged but not at the expense of thorough and well-reasoned long-term policy plans. Courts should eschew judicial activism, but welcome the opportunity to hold administrative actors accountable, by requiring a harder look at the elements of regulation that affect real people the most: reliance interests. Although a court reviewing agency decisions is required to consider accountability promoting measures, such as reliance interests, the Supreme Court itself has consistently failed to do so. In historically declining to place adequate weight on reliance interests, the Supreme Court has failed to ensure that administrative rulemakings are not arbitrary and capricious.
Reliance interests have long been considered relevant in judicial review of administrative change, but have not, until the late-twentieth century, received treatment commensurate with their potential effect. Where hyperactive regulatory regimes detrimentally affect the ability of industry operators and reliant citizens to reap the intended benefits of regulations, reliance interests can serve an important function. Greater emphasis on reliance interests in judicial review of regulatory change can reduce the cost of regulatory implementation for industry operators over a longer time period. The Court should define reliance interests definitively and seek to review for them with consistently. Further, Courts ought to be required to consider reliance interests when they have been pleaded as such, when a “major” regulation is changed, or when time-constraints warrant it. Moreover, reliance interests should be normalized as a primary component of CBA and used to trace reliance over time. Agencies and advocates building administrative records for regulations should seek to solidify those records with reliance-interest considerations and explicitly identify them and their effects. Under this framework, the Court need not substitute its judgment for that of the agency; rather, the court need only hold the agency accountable to well-reasoned decision-making.
The effects of this theory are evidenced in the test case discussed above. Specific reliance considerations would have changed the analysis in Michigan, because reliance interests could have, at least perfunctorily, demonstrated agency consideration of costs. Had Michigan been decided just three years later, reliance interests would have been a primary component of the analysis, showing that reliance may fundamentally alter the political and legal environments in which a case is decided. Regulations are not law in the abstract; their practical effects are underappreciated. By treating regulations for what they are—massive spending programs that substantively affect the legal rights and obligations of hundreds of millions of individuals—courts can better mitigate the negative effects of wasteful regulatory change.