When Devising Your Litigation Strategy, Keep These Trends in Mind (The National Law Journal)

Donald F. McGahn II, leader of Jones Day’s Government Regulation Practice, and Brett A. Shumate, a partner in the same practice, explain how the exercise of judicial review is underscoring the changing nature of regulatory litigation.

Recent trends in how federal district courts exercise their power of judicial review underscore the changing nature of regulatory litigation. These trends start with the rise in multidistrict litigation, as groups of plaintiffs file complaints in multiple district courts to maximize their chances of blocking a federal policy. For their part, courts considering these challenges are exercising their power by authorizing discovery, refusing to defer to the executive branch, and applying a rigorous standard of judicial review. Yet nothing exhibits judicial power more than the trend of nationwide injunctions. Individuals and businesses impacted by federal regulation should take these trends into consideration as they devise litigation strategies.

Multidistrict Litigation is Booming

The days when only a single judge would review a federal policy seem to be over with the explosion of multidistrict litigation.

Today, the government routinely faces multiple lawsuits across the country—from San Francisco to New York—as groups of plaintiffs file multiple challenges to federal policies. As but one example, district courts in California, New York, Washington, D.C., and Maryland each reviewed the Trump Administration's rescission of the Obama Administration policy known as Deferred Action for Childhood Arrivals, or DACA.

For plaintiffs, multidistrict litigation provides multiple bites at the apple, increasing the likelihood that a court will enjoin the federal policy. By contrast, multidistrict litigation forces the government to run the table. And when a court enjoins a federal policy, the government must often seek extraordinary remedies—including from the U.S. Supreme Court—to defend the policy.

Expect this trend of multidistrict litigation to continue because the government often cannot channel multiple challenges into a single court.

Discovery is Becoming the New Norm

Although discovery used to be rare in regulatory litigation, discovery is now increasingly common in challenges to government policies.

In regulatory litigation, courts typically review the agency's decision based exclusively on a record compiled by the agency. But the Supreme Court has allowed lower courts to look beyond the administrative record if there is a "strong showing of bad faith or improper behavior."

Until now, district courts rarely invoked this exception to allow plaintiffs to obtain discovery of the executive branch. But today, discovery orders (and related orders to supplement the administrative record) are increasingly common in high-profile cases. In the DACA cases, for example, the government sought mandamus from the Supreme Court to block extraordinary discovery orders.

The most recent example of discovery came in the census litigation involving the addition of a citizenship question. In Department of Commerce v. New York, the district court allowed extensive discovery and ordered the secretary of commerce to be deposed. Although the Supreme Court blocked the deposition, the Court upheld the district court's use of extra-record evidence.

Discovery often forces the government to take extraordinary steps to block discovery orders that risk disclosing privileged information. And those extraordinary efforts often force appellate courts to prejudge the merits of the case. Unless the Supreme Court provides definitive guidance, district courts seem inclined to continue ordering discovery in regulatory litigation, and the government will continue to seek extraordinary relief.

Deference is on the Decline

Courts are less likely to defer to the executive branch in two ways. First, courts have not been receptive to the government's argument that certain decisions are committed to the executive branch's discretion—and thus not reviewable by courts. And second, courts have resisted deferring to executive branch policies on the merits.

There is a long tradition that certain decisions are committed to the executive branch and thus beyond review by courts. This tradition is reflected in the Administrative Procedure Act, which says that matters "committed to agency discretion by law" are not reviewable. The Supreme Court has held that certain types of decisions—like the exercise of enforcement discretion—cannot be reviewed.

Yet courts have been more likely to apply a presumption in favor of judicial review in challenges to Trump Administration policies. In Trump v. Hawaii, for example, the Supreme Court refused to accept the government's argument that the Court had no role to play in reviewing the president's proclamation. And in the census case, the Supreme Court rejected the government's argument that it could not review the decision to add a citizenship question. The DACA cases, which the Court agreed to hear this Term, will again test the government's argument that matters of enforcement discretion are committed to the executive branch.

Just as courts are resisting nonreviewability arguments, courts are also resisting requests to defer to the executive branch on the merits. Doctrines of judicial deference to the merits of executive branch policymaking—Chevron deference to interpretations of statutory ambiguities and Auer deference to interpretations of regulatory ambiguities—have long been debated and now seem to rest on shaky legal footing.

The Supreme Court entered this debate in Kisor v. Wilkie. Although a divided Court declined to overrule Auer deference, four Justices would have done so. For his part, the Chief Justice wrote separately to emphasize Auer's limitations, and he signaled that the Court's decision in Kisor had no bearing on issues surrounding Chevron deference.

Although the Court has not considered the validity of that doctrine since City of Arlington v. FCC, the Court has considered Chevron's underpinnings: Congress's delegation of lawmaking power to the executive branch through statutory silence and ambiguity.

Gundy v. United States was the Supreme Court's latest attempt to grapple with a broad delegation of lawmaking power to the executive branch. Although a plurality upheld the statute at issue, four Justices (excluding Justice Kavanaugh, who did not participate) were willing to reconsider the nondelegation doctrine. Look for the Supreme Court to be called upon again soon to decide whether other laws are impermissible delegations of lawmaking power to the executive branch.

These recent trends have altered the course of regulatory litigation. Federal district courts are now exercising their power of judicial review by considering multiple challenges to executive branch policies, ordering discovery, and avoiding deference. Each of these trends should be taken into account before engaging in regulatory litigation.

The Administrative Procedure Act has Teeth

On the merits, courts are rigorously enforcing the Administrative Procedure Act's mandate to set aside agency decisions that are arbitrary and capricious or contrary to law.

First, courts are carefully scrutinizing agency explanations to ensure there is a rational connection between the facts and the agency's decision. It has not sufficed for an agency to provide a conceivable rationale for its decision. Courts are insisting that the agency's explanation be persuasive, supported by facts in the record, and consistent with the statutory scheme.

Second, courts are willing to review claims that the agency offered pretextual reasons that conceal the agency's true motivation. In the census case, the Supreme Court held that the secretary of commerce's stated rationale for reinstating a citizenship question seemed to be "contrived" based on the record in that case. Now that the Supreme Court has blessed this type of claim, expect plaintiffs to continue alleging that the government offered pretextual reasons for its policy decisions.

Third, courts are insisting that agencies carefully weigh reliance interests when they reverse a prior administration's policy. The Supreme Court ruled in Federal Communications Commission v. Fox Television Stations that an agency may need to provide a more detailed justification for reversing course if its prior "policy has engendered serious reliance interests." The Court later struck down an Obama-era regulation in Encino Motorcars v. Navarro because the agency failed to account for "decades of industry reliance on the department's prior policy." These precedents have recently had bite, as lower courts have faulted the Trump Administration for failing adequately to weigh reliance upon policies adopted by the Obama Administration. Expect plaintiffs in future cases to continue alleging the government failed to consider reliance interests.

Nationwide Injunctions are on the Rise, but so is Judicial Skepticism

In an earlier era, the remedy for unlawful agency action was an injunction against the policy—or vacatur of the rule—as applied to the specific plaintiffs in that case. But that modest approach has yielded to the trend of nationwide injunctions blocking the government from enforcing a policy against anyone in the country.

Having faced dozens of nationwide injunctions, the Trump Administration has been vocal about this practice. Not only does a nationwide injunction prevent the government from enforcing a new policy, but it also forces the government to seek extraordinary remedies from appellate courts—including the Supreme Court—to obtain complete relief. 

The explosion of nationwide injunctions has also been met with skepticism. Justice Clarence Thomas wrote in Trump v. Hawaii that "universal injunctions are legally and historically dubious." Even the U.S. Court of Appeals for the Ninth Circuit has cut back on some nationwide injunctions that extended beyond the specific parties in the case. Look for the Supreme Court to weigh in on this trend if presented with the right vehicle.

These recent trends have altered the course of regulatory litigation. Federal district courts are now exercising their power of judicial review by considering multiple challenges to executive branch policies, ordering discovery, avoiding deference, applying a rigorous standard of review, and entering broad injunctive relief. Each of these trends should be taken into account before engaging in regulatory litigation.