Turning Square Corners: Regents and Arbitrary-and-Capricious Review’s Distributional Stakes

abstract. A new era for the judicial review of agencies’ reversals in course has dawned.

For the past few decades, courts have tended to review most changes in agency policy deferentially, reserving careful scrutiny for cases in which agencies plan to impose liability for previously lawful conduct or otherwise upend regulated parties’ reliance interests. But after Department of Homeland Security v. Regents of the University of California, courts have intensified their scrutiny of changes in agency policy and have struck down measures that upset the expectations of regulatory beneficiaries as well as regulated parties.

This Note explains and defends this development. It begins by reviewing the D.C. Circuit’s “hard-look” review, which was animated by a belief that the agencies effecting deregulation were insufficiently responsive to regulatory beneficiaries. Courts eventually relaxed this exacting style of review, but judges did not embrace a deferential posture across the board. Instead, courts focused their attention on regulated parties, and they crafted overlapping doctrines that triggered heightened review of policy changes that upset the regulatory background against which regulated industry entered contracts and made investments. Regents blends this approach with the earlier hard-look approach. Like many of the cases that preceded it, Regents treats the upheaval of concrete interests in the administrative status quo as a trigger for heightened judicial review. At the same time, like hard-look review, Regents instructs agencies to pay greater heed to regulatory beneficiaries and their expectations of regulatory continuity. This salutary combination seems likely to incentivize agencies to modulate damaging policy whiplashes without unduly curtailing agencies’ freedom of action.

author. J.D. 2024, Yale Law School; B.A. 2019, Yale College. I am grateful to Nicholas R. Parrillo for introducing me to administrative law and for his encouragement and feedback as this project progressed. I would also like to thank Sloane Weiss, Shreya Minama Reddy, Lily Moore-Eissenberg, and the Yale Law Journal staff for significantly improving this Note.

Introduction

The question of how stringently courts ought to apply arbitrary-and-capricious review to agencies’ changes of direction has become one of the most important and contested questions in administrative law.1 The Supreme Court’s decision in Department of Homeland Security v. Regents of the University of California, striking down the Trump Administration’s rescission of the Deferred Action for Childhood Arrivals program (DACA),has only intensified the debate between those who defend executive dynamism and those who believe that the Court is right to make agencies changing course “turn square corners.”2

The crucial portion of that decision comprises two mutually reinforcing and question-provoking holdings. First, citing the Supreme Court’s seminal hard-look-review decision in Motor Vehicle Manufacturers Ass’n v. State Farm Mutual Automobile Insurance Co., Chief Justice Roberts reasoned that the Department of Homeland Security (DHS) had arbitrarily and capriciously neglected to consider a more measured alternative to rescinding DACA in toto.3 But while State Farm has a central place in administrative-law textbooks, the Court had almost never cited State Farm to second-guess an agency’s choice among policy alternatives or to strike down a reversal in an agency’s approach—that is, until Regents.4

Second, Chief Justice Roberts reasoned that DHS illegally “failed to address whether there was ‘legitimate reliance’ on the DACA memorandum,”5 and he invoked that failure as exacerbating DHS’s failure to address alternatives.6 Roberts indicated that DHS needed to recognize its disruption of DACA recipients’ lives,7 and he supported that holding with citations to a line of cases requiring an agency reversing course to address regulated parties’ reliance on the agency’s prior approach.8 In addition, in a portion of the opinion that scholars have largely overlooked, Roberts indicated that the expectations of DACA recipients’ families, employers, and communities about the program’s continuity also constituted “noteworthy” reliance-interest claims that DHS was required to acknowledge.9 These constituencies are regulatory beneficiaries: unregulated parties who benefit indirectly from agency action targeted at others—here, at the DACA recipients. Until Regents, the Supreme Court had never required an agency to acknowledge the reliance of such regulatory beneficiaries on regulatory stability. This portion of the opinion would therefore seem to mark a significant doctrinal shift.

While some scholars initially doubted that the case would have wide-ranging
impact,10 Regents has proven highly influential. Lower courts now frequently second-guess agencies’ changes in policy, insist that reliance claims require agencies to pay closer attention to incremental policy alternatives than they otherwise might,11 and do so on the basis of reliance claims made by regulatory beneficiaries.12 This pattern has emerged most prominently in the series of challenges made to the Biden Administration’s reversals of Trump-era immigration policies,13 but it has hardly been limited to the conservative Fifth Circuit or to immigration cases.14

Arbitrary-and-capricious review will likely play an even more important role in administrative law after the Supreme Court’s momentous 2024 Term. For the past several decades, courts have reviewed changes to an agency’s policy differently from changes to an agency’s interpretation of a statute, with the latter reviewed under the deferential Chevron standard.15 In Loper Bright, however, the Supreme Court did away with Chevron’s obligatory judicial deference to reasonable agency constructions of ambiguous statutes.16 In its stead, the Court instructed lower courts to apply arbitrary-and-capricious review to agency interpretations of statutes that “expressly delegate” interpretive authority to agencies and to select the “best” meaning of statutes that contain no such delegation.17 As a result, cases of express delegation that were once resolved under Chevron may now be determined under State Farm and, when the agency changes its interpretation of a statutory provision, under Regents.

Many scholars have criticized this heightening of judicial scrutiny of agencies’ changes in position, favoring narrower interpretations of the Court’s decision in Regents. Haiyun Damon-Feng, for example, argues that Regents has been read “too expansively” and warns that striking down informal agency action on the basis of reliance claims made by downstream regulatory beneficiaries “[s]wallow[s]” Regents’s “rule.”18 Daniel T. Deacon similarly presents Regents as a “straightforward” application of prior Supreme Court precedent and cautions lower courts against requiring agencies to consider modifying existing programs rather than doing away with them.19 His argument is consistent with the thrust of the recent literature on arbitrary-and-capricious review, which has generally urged greater judicial deference in the name of political accountability and policymaking dynamism.20

This Note takes a different view, arguing that Regents ushered in a new and salutary form of heightened judicial review of agencies’ changes in course. This new regime includes mutually reinforcing requirements that agencies account for regulatory beneficiaries’ reliance interests and evaluate incremental policy measures that would have a less detrimental effect on those expectations than total rescission. Influenced by a rapidly growing literature that has produced key insights into major administrative-law doctrines by studying their real-world consequences,21 this Note will defend the Regents decision—and the line of cases it has spawned—by carefully analyzing its distributional implications.

Scholars have traditionally characterized agency action as interfacing with three principal groups: (1) regulated parties, who are directly subject to regulation and liability;22 (2) benefit recipients, who directly receive agency payments or in-kind benefits like permits;23 and (3) regulatory beneficiaries, who benefit indirectly from agency action directed at another party.24 As this Note will demonstrate, courts have often invoked this framework when setting out the standard of review that they will apply in evaluating an agency’s change in course.25 However, the role of this tripartite framework in shaping judicial review has gone largely unexamined in the literature.26 This Note seeks to correct that omission. A review of more than four decades of administrative-law decisions shows that courts have long understood agencies’ obligations to consider reliance interests and to evaluate policy alternatives to be mutually constitutive. But courts have disagreed about whose reliance interests should be cognizable and should thus trigger careful judicial scrutiny along with an agency’s obligation to look for incremental policy alternatives. That disagreement has translated into considerable discontinuity in the shape of the relevant doctrine.27

Before Chevron, the D.C. Circuit—and the Supreme Court in State Farm—carefully scrutinized agencies’ changes in policy when they appeared to threaten regulatory beneficiaries’ expectations of continued regulatory protection. They did so largely on the basis of assumptions about Congress’s proregulatory intent and the need to amplify marginalized voices in the administrative policymaking process. After Chevron, courts broadly declined to second-guess agencies’ selection among reasonable policy alternatives, but the Supreme Court soon carved out exceptions to this deferential review of alternatives. In cases involving claims of investment-backed reliance by regulated parties, the Court reintroduced a heightened standard of review, but this heightened review was not available to regulatory beneficiaries. In Regents, the Supreme Court finally extended this heightened protection to regulatory beneficiaries, requiring DHS to consider more measured policy alternatives than a wholesale rescission of the program on which both regulated parties—childhood arrivals to the United States—and regulatory beneficiaries—these childhood arrivals’ communities—had relied. Regents’s expansion has, in turn, prompted lower courts to expand their consideration of regulatory beneficiaries’ reliance interests.

That is not to say the distinctions between regulated parties, benefit recipients, and regulatory beneficiaries perfectly map onto the complexities of administrative action. Critics, for instance, have pointed out that agency action often generates a “bundle of rights and obligations” rather than simply conferring benefits or imposing
restrictions.28 Take DACA. Participants in that program were both the objects of immigration regulation and the recipients of federal benefits.29 But even as many have questioned the distinction between regulated parties and benefit recipients, courts and scholars have sensibly continued to insist on a distinction between these two constituencies and those who are affected only indirectly by agency action. This Note will insist on that distinction as well.

Indeed, the 2024 Term’s Corner Post decision looked to this distinction in construing the Administrative Procedure Act (APA). That case clarified the boundary between these first two groups—regulated parties and benefit recipients—and a third group—those who are unregulated but may suffer downstream effects from agency action.30 The Court drew this line by looking to the relief available to the parties.31 Those in the first two categories—like DACA participants—may bring “as-applied” challenges to adjudications of their particular rights in targeted agency action, like a deportation or benefit determination.32 But because those in the third group—like DACA participants’ family members—are never similarly subject to direct agency action, they may only bring facial challenges to agency action.33 Regulatory beneficiaries, then, are those who indirectly benefit from agency action targeted at others and who could never themselves obtain as-applied relief from that action.

As Justice Kavanaugh illustrated in his concurrence in Corner Post, there is an expansive variety of parties who fall into this category—parties with whom administrative law must contend yet who have not been the focus of legal scholarship.34 Because the category of regulatory beneficiaries is so broad, permitting members of this diffuse class to challenge agency action raises a serious line-drawing problem.35 Instead of addressing this problem by differentiating between different types of regulatory beneficiaries, courts and agencies have tended to shut the entire constituency out of the administrative policymaking process. Beneficiaries, for instance, often have trouble establishing standing to challenge deregulation36 and convincing courts to induce agencies to act in the first place.37 A number of studies have revealed that it is far more difficult for regulatory beneficiaries to place policy options on policymakers’ radar ex ante than it is for regulated parties to do the same.38 That there is a narrower path for regulatory beneficiaries to challenge agency action ex post than for regulated parties only magnifies the impact of this ex ante imbalance.39 In short, regulatory beneficiaries have been relegated to “second-class” status in administrative law.40

This pervasive disadvantaging of regulatory beneficiaries is unfortunate. Regulatory beneficiaries—like patients seeking reproductive health care from regulated hospitals in the wake of Dobbs—often have an equally concrete stake in agency action as do regulated parties and benefit recipients.41 In addition, regulatory beneficiaries can play a vital role in spurring agencies to fulfill—and to continue fulfilling—their mandates to protect health, the environment, and human beings.42 Regulatory beneficiaries also often hold valuable information about the potential impact of regulations that can help agency officials make policy more responsibly.43 Requiring agencies to consider regulatory beneficiaries’ reliance interests before upending existing regulatory frameworks may induce agencies to pay these beneficiaries and their needs greater attention, as one scholar has already argued.44

At the same time, however, requiring agencies to attend to every claim of reliance by every downstream beneficiary would increase agencies’ explanatory burden under the APA to an intolerable degree, especially with respect to informal agency action.45 This Note does not undertake to offer a complete solution to this problem or to offer “a comprehensive typology of regulatory beneficiaries”46 and the serious reliance interests they may hold. It instead makes the more limited claim that Regents and the cases it has generated have thus far struck an appropriate balance by requiring agencies to attend to some, but not all, regulatory beneficiaries’ reliance claims, and that there accordingly exists no reason to heed scholars’ call to trim agencies’ deliberative obligations when reversing course.47 Through careful review of the Regents line of cases, this Note surfaces several implicit—if still somewhat fuzzy—limiting principles regarding the types of reliance claims made by regulatory beneficiaries that agencies must consider. By identifying these limits and undertaking a preliminary analysis of them, this Note provides lower courts essential guidance on how to operate within the Regents framework, and it offers a starting point for future scholarship to sharpen the contours of this evolving doctrine.

This Note proceeds in four Parts. Part I demonstrates that the D.C. Circuit in the 1960s to the mid-1980s, as well as the State Farm Court, intentionally wielded hard-look review to safeguard regulatory beneficiaries’ expectations of continued regulatory protection. Part II argues that after the Chevron decision, courts were initially more deferential and more balanced in their review of policy alternatives but soon carved out exceptions for heightened review of regulated parties’ reliance claims based on a due-process-like justification. Part III argues that Regents modified this paradigm by extending that heightened form of review to regulatory beneficiaries. Part IV shows that many lower courts have indeed read Regents as a call to apply heightened review in cases involving claims of reliance by some regulatory beneficiaries. Finally, Part IV describes the limiting principles that emerge from those lower-court decisions and defends these developments on distributional grounds.

One methodological note is in order. Regents—like Loper Bright and many of the lower-court decisions that this Note will review—was a politically salient decision that many have described in legal-realist terms.48 It may well be true that political influences shaped these decisions, but this Note’s analysis will put political considerations to the side. This Note will focus on the theoretical and doctrinal substance of the Court’s opinions because it is that material—and not the Justices’ motivations—that binds the agencies and lower courts handling the bulk of day-to-day administrative law. Moreover, even if one were to inquire into the Court’s motivations for ruling the way it did, one would likely find that legal argument and political considerations overlap to such a degree that it makes little sense to separate the two.49