Retroactivity Analysis After Brand X

Yale Journal on Regulation Volume 31 Issue 1 Yale Journal on Regulation Article 6 2014 Retroactivity Analysis After Brand X James Dawson Follow this and additional works at: http://digitalcommons.law.yale.edu/yjreg Part of the Law Commons Recommended Citation James Dawson, Retroactivity Analysis After Brand X, 31 Yale J. on Reg. (2014). Available at: http://digitalcommons.law.yale.edu/yjreg/vol31/iss1/6 This Article is brought to you for free and open access by Yale Law School Legal Scholarship Repository. It has been accepted for inclusion in Yale Journal on Regulation by an authorized administrator of Yale Law School Legal Scholarship Repository. For more information, please contact . Note Retroactivity Analysis After Brand X James Dawsont Under Brand X, federal courts must reverse their own priorprecedent in deference to an intervening agency decision if that agency decision is based on a reasonableinterpretationof the statute. Thus, if the first-in-time court sets the law at A, and if a second-in-time agency later finds that B is a superior interpretation of the statute, then the third-in-time court must defer to the agency and move the law from A to B. But can law B be retroactively applied to a litigant who reasonably relied on the first-in-time court's opinion that the law was A? The answer to that question depends on which retroactivity standard applies to the Brand X problem, which in turn depends on the answers to two threshold legal questions. First,does the decision to move the law from A to B "change" the law, or does it merely "clarify" what the law has always been? Second, if the law has been changed, should that change be attributed to the second-in-time agency, which offered the "authoritative" interpretation of the statute, or to the third-in-time court, which decided whether to ratify that interpretation?Recent decisions have created circuit splits on both questions, and the Supreme Court has offered little guidance. This Note argues that a move from A to B does "change" the law, and that the third-in-time court, rather than the agency, is legally responsible for the change. In hopes of protecting reasonable litigants from the specter of retroactivity, this Note then proposes and defends a default rule for federal courtsfaced with the Brand X problem. In effect, this proposal would establish a rebuttable presumption that a small subset of administrativerules-all those which overrule first-in-time court precedents-shouldnot become operational unless and until they are ratified by third-in-timefederal courts. ............................................... Introduction ................... I. Existing Retroactivity Jurisprudence A. The JudicialRetroactivity Cases..................... 220 ......... 225 225 t Yale Law School, J.D., expected 2014. Many thanks to Matt Adams, Conor Clarke, Samir Deger-Sen, E. Donald Elliott, Jonah Gelbach, Abbe Gluck, Eli Keene, Jerry Mashaw, Judith Resnik, and Andrew Tutt. I am also grateful for helpful suggestions from Yousef AbuGharbieh and the editors of the Yale Journal on Regulation. All errors are mine. 219 Yale Journal on Regulation Vol. 31, 2014 B. The Agency Retroactivity Cases........... ................. 231 ................ 1. Retroactivity of Rulemakings 2. Retroactivity of Adjudications ...................... II. Two Approaches to the BrandX Problem .......... A. The Ninth CircuitApproach B. The Third CircuitApproach ..... 231 233 ......... 234 .................................. 234 ................... ......... 237 III. Threshold Questions............................... A. The Erie Connection ......................... B. Did the Law "Change"? ......................... C. Who Changedthe Law? ............................... IV. Defending Pure Prospectivity ..... 238 ......... 238 ...... 241 246 ........................ ..... 248 A. Understandingthe Equities ................... .......... 249 B. Why Brand X Is Different. .............................. 251 V. A Default Rule for the BrandX Problem ...............................254 VI. Conclusion ................................................ 257 Introduction In the eight years since it was decided, National Cable & Telecommunications Ass'n v. Brand X Internet Services' has created a legal quagmire scarcely rivaled by any Supreme Court case from recent memory. Although Justice Scalia's dissent correctly predicted that BrandX would create "a wonderful new world ... full of promise for administrative-law professors in need of tenure articles,"2 lower court judges and regulated parties have been less than thrilled with the decision. The Brand X saga began in the summer of 2003, when the Ninth Circuit construed the term "telecommunications service," as used in the Communications Act of 1934, to include a modem service.3 Two years later, the Federal Communications Commission (FCC) disagreed, finding that modem service was not a telecommunications service.4 When the issue returned to the Ninth Circuit following the FCC's ruling, the panel held that the court of appeals' original construction of the statute would trump the FCC's contrary opinion.5 The Supreme Court reversed, holding that "[a] court's prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its 1. 545 U.S. 967 (2005). 2. Id. at 1019 (Scalia, J., dissenting). 3. AT&T Corp. v. City of Portland, 216 F.3d 871, 876-77 (9th Cir. 2000). 4. Declaratory Ruling and Notice of Proposed Rulernaking In Re Inquiry Concerning High-Speed Access to the Internet over Cable and Other Facilities, 17 FCC Rcd. 4798, 4831-32 (2002). 5. Brand X Internet Servs. v. FCC, 345 F.3d 1120, 1130 (9th Cir. 2003). 220 BrandX construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion." One of the most confusing issues raised by Brand X is the interplay between the court's previous precedent on one hand and the agency's intervening construction of the statute on the other. Writing for the Court, Justice Thomas attempted to resolve this tension by noting that the agency, and not the court, is the "authoritative interpreter" of ambiguous statutes. 7 The agency's power to render an authoritative interpretation, however, does not mean that the first-in-time court's holding was "legally wrong." Indeed, these original interpretations may have been both perfectly reasonable and legally correct. But if the agency prefers a different construction that is also reasonable, then that construction must ultimately become the law. In so holding, Brand X obliterated the usual rule of "super-strong" stare decisis for statutory precedent and "entered some nether world of impermanence hitherto unknown to our jurisprudence." 10 This "nether world" creates what I call the BrandXproblem. Suppose that a court makes the law A at T I and that the agency later offers interpretatio (...truncated)