RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 13a0333p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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X
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ERICK C. CARTER; WHITNEY A.
Plaintiffs-Appellants, --
HAYES-CARTER; JOSHUA J. GRZECKI,
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No. 10-3922
,
>
Intervenor, -
UNITED STATES OF AMERICA,
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v.
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WELLES-BOWEN REALTY, INC.; WELLES
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BOWEN TITLE AGENCY, LLC; WELLES
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BOWEN INVESTORS, LLC; WELLES BOWEN
MORTGAGE, INC.; THE DANBERRY CO.; -
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MICHIGAN, LTD; CHICAGO TITLE INSURANCE -
INTEGRITY TITLE AGENCY OF OHIO &
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COMPANY; DANBERRY TITLE, LLC,
Defendants-Appellees. N
Appeal from the United States District Court
for the Northern District of Ohio at Toledo.
Nos.: 3:05-cv-07427; 3:09-00400—Jack Zouhary, District Judge.
Argued: October 16, 2013
Decided and Filed: November 27, 2013
Before: BATCHELDER, Chief Judge; SUTTON, Circuit Judge; BARZILAY, Judge.*
_________________
COUNSEL
ARGUED: John T. Murray, MURRAY & MURRAY CO., L.P.A., Sandusky, Ohio, for
Appellants. Christine N. Kohl, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Intervenor. ON BRIEF: John T. Murray, MURRAY &
MURRAY CO., L.P.A., Sandusky, Ohio, for Appellants. Christine N. Kohl, Michael
Jay Singer, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
Intervenor. Richard H. Carr, Maumee, Ohio, for Welles-Bowen Appellees. Robert J.
*
The Honorable Judith M. Barzilay, Judge for the United States Court of International Trade,
sitting by designation.
1
No. 10-3922 Carter v. Welles-Bowen Realty, Inc. Page 2
Fogarty, Steven A. Goldfarb, Derek E. Diaz, Justin M. Croniser, HAHN LOESER &
PARKS LLP, Cleveland, Ohio , for Chicago Title Appellee. Jay N. Varon, Jennifer
Keas, FOLEY & LARDNER LLP, Washington, D.C., Michael D. Leffel, FOLEY &
LARDNER LLP, Madison, Wisconsin, Gregory W. Happ, Medina, Ohio, Robert A.
Franco, Mansfield, Ohio, Tara Twomey, NATIONAL CONSUMER LAW CENTER,
Boston, Massachusetts, for Amici Curiae.
SUTTON, J., delivered the opinion of the court, in which BATCHELDER, C. J.,
and BARZILAY, J., joined. SUTTON, J. (pp. 11–21), also delivered a separate
concurring opinion.
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OPINION
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SUTTON, Circuit Judge. Under the Real Estate Settlement Procedures Act, a
title services company may not pay a real estate agent a fee in exchange for a referral.
12 U.S.C. § 2607(a). Exempted from this prohibition are “affiliated business
arrangements.” Id. § 2607(c)(4). The statute establishes three prerequisites for this safe
harbor, and everyone agrees that the defendants in this case (several realty companies
and title companies) satisfied them. The plaintiffs (three home buyers) claim that the
defendants nevertheless fall outside the safe harbor’s coverage because they failed to
satisfy a fourth condition announced by the Department of Housing and Urban
Development through a policy statement. As that policy statement is not binding on the
Department or anyone else and as it is not otherwise entitled to deference, it does not
supplement the Act’s existing safe-harbor conditions. We affirm.
I.
Welles-Bowen is a real estate agency. It helps people buy homes. WB Title and
Chicago Title are title services companies. They help people confirm the true ownership
of a house before they buy it.
Welles-Bowen, WB and Chicago are related to one another along two
dimensions—their ownership and their business. As for ownership: The people who
own Welles-Bowen also own a holding company that in turn owns about half of WB.
No. 10-3922 Carter v. Welles-Bowen Realty, Inc. Page 3
Chicago owns the other half of WB. As for business: Welles-Bowen often refers
prospective buyers to WB for title services. WB in turn contracts some of the referred
work out to Chicago. In the main Chicago gathers evidence relating to the title, and WB
evaluates this evidence to determine the title’s validity.
When Erick and Whitney Carter bought a home in 2005, they used Welles-
Bowen as their real estate agent. Like other Welles-Bowen clients, they received a
referral to WB. And like other WB customers, they saw much of their title work
contracted out to Chicago. The Carters did not like this arrangement. To their way of
thinking, WB was a shell corporation that funneled referral fees between Chicago and
Welles-Bowen. They sued all of the companies under the Real Estate Settlement
Procedures Act. Joining the Carters in the lawsuit was Joshua Grzecki, a buyer who
raised similar claims against a similar set of companies. The companies responded that
they satisfied the Act’s safe-harbor requirements and that a policy statement issued by
the Department of Housing and Urban Development could not impose a new
requirement on them.
The district court sided with the companies, holding the policy statement invalid.
After the buyers appealed, the United States intervened to defend the validity of the
policy statement.
II.
A.
Buying a home involves more than looking at the house, negotiating a price and
signing the contract. Before closing the deal, a prudent buyer asks a title agency to
check the title for its validity, a pest control company to check the house for termites, an
attorney to check the contract for legal errors, and so forth. All of these tasks go by the
name of “settlement services.” 12 U.S.C. § 2602(3).
The Real Estate Settlement Procedures Act regulates settlement services. Its
leading provision prohibits giving or receiving “any fee . . . pursuant to any agreement
or understanding . . . that business incident to . . . a real estate settlement service . . . shall
No. 10-3922 Carter v. Welles-Bowen Realty, Inc. Page 4
be referred.” Id. § 2607(a). Anyone who violates the provision commits a crime
punishable with up to a year in prison. Id. § 2607(d)(1). A violator also faces civil
liability through private-enforcement actions as well as through public-enforcement
actions. Id. § 2607(d)(2), (4). The Department of Housing and Urban Development
once administered the enforcement provisions, but legislation passed after this case
began transferred this task to the new Consumer Financial Protection Bureau. Id.
§ 2617.
As enacted in 1974, the Act produced uncertainty about its application to
referrals between affiliated companies. Suppose a real estate agent refers a client to a
title company that the agent owns in part. Consistent with the Act, the agent does not
receive a separate fee for making the referral. But the referral gives the title company
more business, which in turn increases the title company’s profits, which in turn
increases the dividends paid to the real estate agent. Does this indirect benefit to the
agent constitute a prohibited referral fee?
Congress gave one answer to this question in 1983 when it added a safe harbor
for “affiliated business arrangements.” Id. § 2607(c)(4). The provision covers
arrangements in which the person making the referral “has either an affiliate relationship
with or a direct or beneficial ownership interest of more than 1 percent in” the
settlement-service provider receiving the referral. Id. § 2602(7). An arrangement
qualifies for the safe harbor if it meets three conditions: (1) The person making the
referral must disclose the arrangement to the client; (2) the client must remain free to
reject the referral; and (3) the person making the referral cannot receive any “thing of
value from the arrangement” other than “a return on the ownership interest or franchise
relationship.” Id. § 2607(c)(4). Each of these requirements, but most especially the
third, see 24 C.F.R. § 3500.15(b)(3)(iii), restricts the use of sham affiliated business
arrangements to circumvent the prohibition on referral fees.
No. 10-3922 Carter v. Welles-Bowen Realty, Inc. Page 5
B.
The buyers claim that the profits earned by the owners of Welles-Bowen and WB
constitute prohibited referral fees due to their relationship with WB. There is an easy
way to look at this claim and a more complicated way to look at it.
The easy way turns on the safe harbor provisions spelled out in § 2607(c)(4).
Welles-Bowen’s relationship with WB qualifies as an “affiliated business arrangement.”
The buyers agree that Welles-Bowen had an “affiliate relationship” with WB, that
Welles-Bowen made referrals to WB, and that WB in turn provided settlement services.
12 U.S.C. § 2602(7). This relationship also satisfied the three safe-harbor conditions.
Welles-Bowen disclosed the arrangement to the buyers, Welles-Bowen allowed them to
reject the referrals, and neither Welles-Bowen nor its owners received anything of value
from the arrangement apart from a return on their ownership interests. Id. § 2607(c)(4).
Welles-Bowen and WB in short did everything the Act asked of them. They thus qualify
for the affiliated business arrangement exemption.
The more complicated way of looking at the claim must account for the policy
statement issued by the Department of Housing and Urban Development in 1996. See
Statement of Policy 1996-2 Regarding Sham Controlled Business Arrangements, 61 Fed.
Reg. 29,258 (1996). The statement announced that, despite the three safeguards already
contained in § 2607(c)(4), affiliated business arrangements must satisfy a fourth
requirement: “[T]he entity receiving the referrals of settlement service business must
be a . . . bona fide provider of settlement services.” Id. at 29,262. In addition, the
statement continues, “[t]he Department will consider” a series of factors “and will weigh
them in light of the specific facts” when separating bona fide providers from shams. Id.
The ten factors include whether the provider has “sufficient initial capital and net
worth,” whether it has “its own employees,” and whether it is “located at the same
business address as one of the parent providers.” Id. Claiming that the various
companies do not satisfy this ten-factor test, the buyers argue that the statutory safe
harbor for an affiliated business arrangement does not apply to them.
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The short answer to this claim is that a statutory safe harbor is not very safe if a
federal agency may add a new requirement to it through a policy statement. The long
answer is that the policy statement is not entitled to Chevron deference or Skidmore
consideration, and as a result compliance with the three conditions set out in the statute
suffices to obtain the exemption.
Deference under Chevron v. Natural Resources Defense Council comes into play
only when an agency offers a binding interpretation of a statute that it administers.
467 U.S. 837 (1984). As the government concedes, the policy statement’s ten-factor test
is not a binding interpretation of the Act. The statement instead informs the public that
the Department plans to “consider” these factors when separating bona fide providers
from shams. That is another way of saying the statement offers non-binding advice
about the agency’s enforcement agenda, not a controlling interpretation of the statute.
Agency recommendations of this sort, even when cast as policy considerations or
preferences, do not bind courts tasked with interpreting a statute.
The government tries to address this problem by claiming that the policy
statement contains two parts. The first half, it claims, announces the Department’s
binding view that only bona fide providers of settlement services qualify for the safe
harbor, and the second half presents non-binding advice about how to separate genuine
providers from shams. The government claims that the first half of the statement
deserves deference even if the second does not.
This theory faces several obstacles. The first is that the statute already contains
three conditions that protect buyers against affiliated business arrangements involving
sham providers. The bare statement that the safe harbor excludes shams, shorn of the
ten-factor test for separating the genuine from the fake, adds nothing to the statute’s text.
Put another way, why not say that a provider qualifies as “bona fide” under the first half
of the policy statement so long as it provides some settlement services, and so long as
the arrangement to which it belongs satisfies the criteria laid out in § 2607(c)(4)? That
of course is what the statute already does, and the defendants already met these criteria.
No. 10-3922 Carter v. Welles-Bowen Realty, Inc. Page 7
But suppose for argument’s sake that the first half of the policy statement
requires courts to conduct a freestanding inquiry into the provider’s genuineness, and
that this inquiry has nothing to do with the requirements detailed in § 2607(c)(4). If the
ten-factor test does not guide the courts’ performance of this task, what does? The
government does not say, leaving us to figure out the answer for ourselves. That reality
counts against deferring to the policy statement—even just the first half of the policy
statement. The point of Chevron is to encourage agencies to resolve statutory
ambiguities, not to create new uncertainties.
Even if the government could overcome this impediment, it would face another
obstacle. United States v. Mead Corp. holds that an agency interpretation receives
Chevron deference only if “Congress delegated authority to the agency generally to
make rules carrying the force of law, and . . . the agency interpretation claiming
deference was promulgated in the exercise of that authority.” 533 U.S. 218, 226–27
(2001). Because a policy statement does not speak “with the force of law,” the Supreme
Court has concluded that “interpretations contained in policy statements . . . do not
warrant Chevron-style deference.” Christensen v. Harris County, 529 U.S. 576, 587
(2000). Even if this is just a norm and not an “absolute rule,” Barnhart v. Walton, 535
U.S. 212, 222 (2002), the buyers and the government offer no persuasive reason to
depart from this norm.
The criminal penalties included in the statute reinforce this application of Mead.
See id. at 222 (characterizing one of the Mead totality-of-the-circumstances factors as
“the nature of the question at issue”). A single statute with civil and criminal
applications receives a single interpretation. See Leocal v. Ashcroft, 543 U.S. 1, 11 n.8
(2004); United States v. Thompson/Center Arms Co., 504 U.S. 505, 518 n.10 (1992)
(plurality opinion). A bedrock principle of American law requires the government to
give the people fair notice of what conduct it has made a crime. See McBoyle v. United
States, 283 U.S. 25, 27 (1931). Even if we assume that a regulation that authoritatively
interprets a statute with criminal applications provides fair warning, see Babbitt v. Sweet
Home Chapter of Communities for a Great Oregon, 515 U.S. 687, 704 n.18 (1995), it
No. 10-3922 Carter v. Welles-Bowen Realty, Inc. Page 8
is difficult to see how a mere policy statement or opinion letter or agency manual could
be up to the task. The government’s duty of fair notice precludes us from supplementing
the safeguards expressed on the face of the statute with a multi-factor blend that the
statute nowhere mentions.
Unable to get help from Chevron, the buyers seek refuge in Skidmore v. Swift &
Co., 323 U.S. 134 (1944), which entitles an agency’s position to weight in proportion
to its persuasiveness. Our main reason for denying Chevron deference applies equally
to Skidmore: The policy statement does not present its multifactor test as the agency’s
interpretation of the Act but only as guidelines that the agency intends to consider.
The government’s attempt to divide the policy statement into two halves helps
even less here than it did under Chevron. Taken by itself, the first half of the statement
provides no guidance about how to apply the requirement it seeks to import into the
statute. Nor does this part of the statement explain how this imprecision is compatible
with the imperative to provide fair warning in the criminal context. These omissions rob
the policy statement of persuasive force.
According to the buyers’ final and most far reaching argument, the statute, quite
apart from any deference owed to the agency’s views, implicitly contains the
requirement mentioned in the policy statement. The buyers find a textual hook for this
argument hidden in a dependent relative clause in the Act’s definition section:
[T]he term “affiliated business arrangement” means an arrangement in
which (A) a person who is in a position to refer business incident to or
part of a real estate settlement service involving a federally related
mortgage loan, or an associate of such person, has either an affiliate
relationship with or a direct or beneficial ownership of more than
1 percent in a provider of settlement services; and (B) either of such
persons directly or indirectly refers such business to that provider or
affirmatively influences the selection of that provider.
12 U.S.C. § 2602(7) (emphasis added). According to the buyers, the italicized phrase
“provider of settlement services” means “bona fide provider of settlement services,” and
No. 10-3922 Carter v. Welles-Bowen Realty, Inc. Page 9
whether a provider qualifies as bona fide turns on the factors identified in the policy
statement.
We cannot agree. The most natural interpretation of “provider of settlement
services” is . . . one who provides settlement services. And the buyers concede that WB
provides settlement services.
The structure of the safe harbor supports this interpretation. The Act requires
affiliated business arrangements to satisfy three requirements in order to obtain an
exemption from the ban on referral fees, id. § 2607(c)(4), and proceeds to spell out the
requirements in painstaking detail. For example, when the Act requires the person
making the referral to disclose the arrangement to the client, it specifies the disclosure’s
content, timing and mode of delivery, establishing separate rules for face-to-face
referrals, referrals in writing, referrals by email and referrals by telephone. Id.
§ 2607(c)(4)(A). The express inclusion of these precise requirements counsels against
discovering an additional requirement in the implications of a phrase tucked away in a
dependent relative clause elsewhere in the statute. See Bruesewitz v. Wyeth LLC, 131
S. Ct. 1068, 1076 (2011).
Statutory context fortifies this conclusion. The Act establishes other safe harbors
from its ban on referral fees, distinct from the safe harbor for affiliated business
arrangements. One of these exceptions protects “the payment to any person of a bona
fide salary or compensation or other payment for goods or facilities actually furnished
or for services actually performed.” 12 U.S.C. § 2607(c)(2). The Act thus uses “bona
fide” in the salary-or-compensation exception but omits the phrase in the affiliated-
business-arrangement exception. This disparity confirms that the latter exception does
not call upon courts to conduct a freestanding inquiry into a provider’s bona fides
unconnected to the safe-harbor test already baked into the statute. See Russello v. United
States, 464 U.S. 16, 23 (1983).
The buyers respond by claiming that our interpretation frustrates the Act’s
purpose of prohibiting referral fees. But elastic notions of statutory purpose have
diminished value in interpreting a statute as precise and reticulated as the Real Estate
No. 10-3922 Carter v. Welles-Bowen Realty, Inc. Page 10
Settlement Procedures Act. The best evidence of legislative purpose usually comes from
the four corners of the statute, and that text provides more than adequate evidence of
statutory purpose here.
Purpose at any rate is a two-edged sword, and in this instance it furthers our
interpretation. Consider the purpose of the safe harbor. As the policy statement itself
explains, the statute as first enacted created legal uncertainty about profiting from
referrals to affiliated companies. Congress created the affiliated-business-arrangement
safe harbor to eliminate this uncertainty. The statute’s precision in defining the
boundaries of this exception reflects this objective. A multi-factor inquiry that seeks to
distinguish bona fide providers from shams in new ways would reintroduce much of the
uncertainty the safe harbor meant to eliminate.
In the last analysis, Welles-Bowen’s arrangement with WB (and for similar
reasons the arrangement between the companies sued by Grzecki) qualifies for the
affiliated-business-arrangement exception, as the district court rightly held. Because we
have ruled for the defendants on the merits, we need not consider the plaintiffs’
challenge to the district court’s denial of class certification.
III.
For these reasons, we affirm.
No. 10-3922 Carter v. Welles-Bowen Realty, Inc. Page 11
___________________________
CONCURRENCE
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SUTTON, J., concurring. Anyone who violates the Real Estate Settlement
Procedures Act’s ban on referral fees commits a crime. See 12 U.S.C. § 2607(d)(1). The
rule of lenity tells all interpreters to resolve uncertainties in laws with criminal
applications in favor of the defendant. But the Department of Housing and Urban
Development has resolved an ambiguity in the law against the defendant, and the
government insists that we must defer to this understanding. The doctrine of Chevron
deference, the government explains, leaves us no choice. This theory would allow one
administration to criminalize conduct within the scope of the ambiguity, the next
administration to decriminalize it, and the third to recriminalize it, all without any
direction from Congress. I am skeptical.
The court does not go into detail in exploring how the rule of lenity interacts with
Chevron because the issue does not drive the outcome of this case. But because this
question will return sooner or later, I write to offer some thoughts on how to address it
when it does.
The rule of lenity tells courts to interpret ambiguous criminal laws in favor of
criminal defendants. United States v. Wiltberger, 5 Wheat. 76, 95 (1820). This principle
rests on concerns about notice (the state ought to provide fair warning of what violates
the criminal laws) and separation of powers (Congress, not agencies or courts, defines
crimes). United States v. Bass, 404 U.S. 336, 348 (1971). The Chevron doctrine tells
courts to defer to an administrative agency’s reasonable interpretation of an ambiguous
statute. Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837
(1984). This principle rests on the presumption that, when Congress leaves a statutory
gap, it means for the agency rather than the court to fill it. Id. at 843–44.
The two rules normally operate comfortably in their own spheres. The rule of
lenity has no role to play in interpreting humdrum regulatory statutes, which contemplate
civil rather than criminal enforcement. And Chevron has no role to play in interpreting
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ordinary criminal statutes, which are “not administered by any agency but by the courts.”
Crandon v. United States, 494 U.S. 152, 177 (1990) (Scalia, J., concurring in the
judgment); see Gonzales v. Oregon, 546 U.S. 243, 264 (2006).
What happens with a hybrid statute? Today’s Act imposes civil and criminal
penalties for violating the provision at issue. See 12 U.S.C. § 2607(d). And it empowers
an executive agency to administer the provision by making rules and holding hearings.
See id. § 2617. As between the rule of lenity and the agency’s interpretation, which one
resolves statutory doubt?
One possibility is to apply the rule of lenity in criminal prosecutions and to defer
to the agency’s position in civil actions. But a statute is not a chameleon. Its meaning
does not change from case to case. A single law should have one meaning, and the
“lowest common denominator, as it were, must govern” all of its applications. Clark v.
Martinez, 543 U.S. 371, 380 (2005).
United States v. Thompson/Center Arms Co. illustrates the point. The Court had
to interpret a law that included a civil tax penalty and a criminal penalty. Even though
Thompson/Center Arms was a tax case, the Court applied the rule of lenity. 504 U.S.
505, 518 n.10 (1992) (plurality opinion); id. at 519 (Scalia, J., concurring in the
judgment). “The rule of lenity,” the lead opinion explained, “is a rule of statutory
construction[,] . . . not a rule of administration calling for courts to refrain in criminal
cases from applying statutory language that would have been held to apply if challenged
in civil litigation.” Id. at 518 n.10 (plurality opinion). Recent cases reaffirm the point.
See, e.g., Maracich v. Spears, 133 S. Ct. 2191, 2209 (2013); Kasten v. Saint-Gobain
Performance Plastics Corp., 131 S. Ct. 1325, 1336 (2011); Leocal v. Ashcroft, 543 U.S.
1, 11 n.8 (2004); Scheidler v. Nat’l Org. for Women, 537 U.S. 393, 408–09 (2003).
Case law thus makes clear that either the rule of lenity prevails across the board
or the agency’s interpretation does. But which one? The better approach, it seems to
me, is that a court should not defer to an agency’s anti-defendant interpretation of a law
backed by criminal penalties.
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First, the rule of lenity forbids deference to the executive branch’s interpretation
of a crime-creating law. If an ordinary criminal law contains an uncertainty, every court
would agree that it must resolve the uncertainty in the defendant’s favor. No judge
would think of deferring to the Department of Justice. Allowing prosecutors to fill gaps
in criminal laws would “turn the normal construction of criminal statutes upside down,
replacing the doctrine of lenity with a doctrine of severity.” Crandon, 494 U.S. at 178
(Scalia, J., concurring in the judgment).
If the rule of lenity forecloses deference to the Justice Department’s
interpretation of a crime-creating law in Title 18, does it not follow that it forecloses
deference to the Housing Department’s interpretation of a crime-creating law in Title
12? Or the immigration authorities’ interpretation of a crime-creating law in Title 8?
Or the IRS’s interpretation of a crime-creating law in Title 26? No principled distinction
separates these settings. Allowing housing inspectors and immigration officers and tax
collectors to fill gaps in hybrid criminal laws, no less than allowing prosecutors to fill
them in pure criminal laws, offends the rule of lenity.
Second, looking at the question within the framework of Chevron leads to the
same answer. An agency’s interpretation of a statute does not prevail whenever the face
of the statute contains an ambiguity. Deference comes into play only if a statutory
ambiguity lingers after deployment of all pertinent interpretive principles. If you believe
that Chevron has two steps, you would say that the relevant interpretive rule—the rule
of lenity—operates during step one. Once the rule resolves an uncertainty at this step,
“there [remains], for Chevron purposes, no ambiguity . . . for an agency to resolve.” INS
v. St. Cyr, 533 U.S. 289, 320 n.45 (2001). If you believe that Chevron has only one step,
you would say that Chevron requires courts “to accept only those agency interpretations
that are reasonable in light of the principles of construction courts normally employ.”
EEOC v. Arabian American Oil Co., 499 U.S. 244, 260 (1991) (Scalia, J., concurring in
part and concurring in the judgment). If an interpretive principle resolves a statutory
doubt in one direction, an agency may not reasonably resolve it in the opposite direction.
Id. But the broader point, the critical one, transcends debates about the mechanics of
No. 10-3922 Carter v. Welles-Bowen Realty, Inc. Page 14
Chevron: Rules of interpretation bind all interpreters, administrative agencies included.
That means an agency, no less than a court, must interpret a doubtful criminal statute in
favor of the defendant.
Precedents in related areas confirm this conclusion. All manner of presumptions,
substantive canons and clear-statement rules take precedence over conflicting agency
views. See Wyeth v. Levine, 555 U.S. 555, 576 (2009) (presumption against
preemption); St. Cyr, 533 U.S. at 320 (presumption against retroactivity); id.
(interpretation of doubtful deportation statutes in favor of immigrants); Alexander v.
Sandoval, 532 U.S. 275, 288–91 (2001) (presumption against implied causes of action);
SWANCC v. U.S. Army Corps of Eng’rs, 531 U.S. 159, 173 (2001) (federalism canon);
Edward J. DeBartolo Corp. v. Florida Gulf Coast Bldg. & Constr. Trades Council, 485
U.S. 568, 575 (1988) (avoidance of constitutional doubt). Why treat the rule of lenity,
the most venerable and venerated of interpretive principles, differently?
Third, the policies that drive lenity and Chevron show how to harmonize the two
principles. Start with lenity. Making something a crime is serious business. It visits the
moral condemnation of the community upon the citizen who engages in the forbidden
conduct, and it allows the government to take away his liberty and property. The rule
of lenity carries into effect the principle that only the legislature, the most democratic
and accountable branch of government, should decide what conduct triggers these
consequences. Bass, 404 U.S. at 348. By giving unelected commissioners and directors
and administrators carte blanche to decide when an ambiguous statute justifies sending
people to prison, the government’s theory diminishes this ideal.
The rule of lenity also compels the state to give the citizen fair warning, ideally
on the face of the statute, of what the criminal law forbids. McBoyle v. United States,
283 U.S. 25, 27 (1931). There are no crimes by implication just as no one is killed by
implication. Yet if agencies are free to ignore the rule of lenity, the state could make an
act a crime in a remote statement issued by an administrative agency. The agency’s
pronouncement need not even come in a notice-and-comment rule. All kinds of
administrative documents, ranging from manuals to opinion letters, sometimes receive
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Chevron deference. See, e.g., Barnhart v. Walton, 535 U.S. 212, 221–22 (2002). Nor
is this a figment. In this case, the government has tried to expand a federal criminal law
through a policy statement, a theory that runs headlong into “the instinctive distastes
against men languishing in prison unless the lawmaker has clearly said they should.”
Henry Friendly, “Mr. Justice Frankfurter and the Reading of Statutes,” in Benchmarks
196, 209 (1967).
So much for the purpose of lenity; what of the purpose of Chevron? There may
be as many accounts of Chevron as there are professors of administrative law. But what
matters most, Chevron’s account of itself, shows that Chevron accommodates rather than
trumps the lenity principle. Filling a statutory gap, the Supreme Court explained,
requires making a policy choice. 467 U.S. at 864–65. But courts should avoid making
policy choices, as they enjoy neither expertise in the relevant area nor a democratically
accountable pedigree. Id. at 865–66. Forced to a choice between the two, the Court
concluded that administrators are better equipped than judges to fill the gaps. Id. at 866.
This account of Chevron says nothing about the present case. When a court
applies the rule of lenity, it does not snatch a policy decision from the political branches.
It instead insists that the choice to make the conduct criminal be made by the first
political branch rather than the second. Put another way, Chevron describes how judges
and administrators divide power. But power to define crimes is not theirs to divide. The
accommodation then becomes straightforward: Allowing agencies to fill gaps in
criminal statutes would impair the rule of lenity’s purposes, and interpreting these
statutes leniently would respect Chevron’s aims.
Fourth, uninvited oddities arise if courts but not agencies must adhere to the rule
of lenity. United States v. Mead Corp., 533 U.S. 218 (2001), and its follow-on cases
hold that an agency interpretation’s eligibility for Chevron deference depends on the
procedure that preceded the interpretation’s adoption as well as on factors like “the
interstitial nature of the legal question, the related expertise of the Agency, the
importance of the question to the administration of the statute, the complexity of that
administration, and the careful consideration the Agency has given the question over a
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long period of time.” Walton, 535 U.S. at 222. Where the governing statute creates only
civil liability, a multi-factor test may be the best one can hope for. See Mead, 533 U.S.
at 236–37. But it is a bit strange to say that, if Welles-Bowen wants to know whether
it commits a crime by falling afoul of a policy statement, it must first endure the “open-
ended rough-and-tumble of factors.” Medellin v. Texas, 552 U.S. 491, 514 (2008).
Auer v. Robbins, 519 U.S. 452 (1997), adds another complication. It says that,
when a regulation interpreting an ambiguous statute itself contains an ambiguity, the
agency’s interpretation of the regulation receives essentially complete deference. See
id. at 461; Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945). Unless the
rule of lenity applies to agencies, Auer would give each agency two ways of construing
criminal laws against the defendant—by resolving ambiguities in the criminal statute and
by resolving ambiguities in any regulation. What’s more, the range of documents
eligible for deference under Auer is broader than under Chevron. Even an interpretation
contained in a brief may receive deference. Auer, 519 U.S. at 462. One head-turning
upshot of permitting Chevron to silence the rule of lenity is this: Any government
lawyer with a laptop could create a new federal crime by adding a footnote to a friend-
of-the-court brief. That is not likely.
The retroactivity of Chevron deference adds another paradox. An agency’s
authoritative interpretation of a statute attracts deference even in cases about transactions
that occurred before the issuance of the interpretation. Smiley v. Citibank (South
Dakota), N.A., 517 U.S. 735, 744 n.3 (1996). But how would this rule work in a criminal
setting given the Ex Post Facto Clause? See U.S. Const. art. I, § 9, cl. 3. So long as the
one-statute, one-interpretation rule stands, a court cannot dignify the one principle
without slighting the other.
The government, both in this case and in similar cases before other courts, offers
several lines of argument in response to this approach. None is convincing.
The government points out that several cases show that Congress’s authority to
define crimes is not exclusive. Although the Constitution as a general matter vests
power to define crimes in Congress alone, the modern nondelegation doctrine, it is true,
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occasionally allows Congress to transfer some responsibility for defining crimes to the
executive branch. Hence United States v. Grimaud, 220 U.S. 506 (1911), held that
Congress could make it a crime to violate regulations issued by the Secretary of
Agriculture. Touby v. United States, 500 U.S. 160 (1991), held that Congress could
direct the Attorney General on an emergency basis to figure out which drugs to classify
as controlled substances. And United States v. O’Hagan, 521 U.S. 642 (1997), saw
nothing objectionable in a law authorizing the Securities and Exchange Commission to
make rules combating securities fraud and to make violations of these rules crimes. If
the Court allowed Congress to assign responsibility for defining crimes to the executive
in those cases, what makes today’s case different?
The argument overlooks the reality that, if Congress wants to assign the
executive branch discretion to define criminal conduct, it must speak “distinctly.”
Grimaud, 220 U.S. at 519; United States v. Eaton, 144 U.S. 677, 688 (1892). This clear-
statement rule reinforces horizontal separation of powers in the same way that Gregory
v. Ashcroft, 501 U.S. 452 (1991), reinforces vertical separation of powers. It compels
Congress to legislate deliberately and explicitly before departing from the Constitution’s
traditional distribution of authority. Cases like Grimaud, Touby and O’Hagan respected
this express-statement requirement, but the government’s theory flouts it. Under the
government’s approach, courts could presume a congressional delegation of authority
to create crimes whenever a criminal statute contains a gap. A presumption does not a
clear statement make.
A related analogy to the Court’s federalism precedents fortifies the point. The
Constitution sometimes allows Congress to upset federalism norms provided it legislates
clearly. See Gregory, 501 U.S. at 460. But it does not follow that Chevron allows
agencies to upset federalism norms when Congress legislates ambiguously. See
SWANCC, 531 U.S. at 172–73. In the same way, Congress may sometimes depart from
separation-of-powers principles so long as it legislates clearly. But it does not follow
that agencies may depart from separation-of-powers principles when Congress legislates
ambiguously.
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Quite apart from the clear-statement rule, the Constitution may well also require
Congress to state more than an “intelligible principle” when leaving the definition of
crime to the executive. The Supreme Court has suggested that “greater congressional
specificity [may be] required in the criminal context.” Touby, 500 U.S. at 166; see Yakus
v. United States, 321 U.S. 414, 423–27 (1944). The laws at issue in Grimaud, Touby and
O’Hagan honored this principle. But under the government’s approach, an agency could
fill a gap in a criminal statute even where Congress provides no specific guidance about
how to fill it.
The government separately relies heavily on a footnote in Babbitt v. Sweet Home
Chapter of Communities for a Great Oregon. 515 U.S. 687, 704 n.18 (1995). Sweet
Home arose under the Endangered Species Act, which made it an offense (subject to
civil and criminal penalties) to “take” any endangered species. 16 U.S.C. § 1538(a)(1).
The Interior Department issued a regulation interpreting this provision to prohibit
“significant habitat modification or degradation” that kills or injures protected wildlife.
50 C.F.R. § 17.3 (1994). Before the agency could enforce this regulation, landowners
challenged it on its face, claiming that it outstripped the agency’s statutory authority.
Citing Chevron, the Court gave the interpretation contained in the regulation
“some degree of deference.” Sweet Home, 515 U.S. at 703. The Court then dropped this
footnote:
Respondents also argue that the rule of lenity should foreclose any
deference to the Secretary’s interpretation . . . because the statute
includes criminal penalties. . . . We have applied the rule of lenity in a
case raising a narrow question concerning the application of a statute that
contains criminal sanctions to a specific factual dispute . . . where no
regulation was present. See United States v. Thompson/Center Arms Co.,
504 U.S. 505, 517–18 & n. 9 (1992). We have never suggested that the
rule of lenity should provide the standard for reviewing facial challenges
to administrative regulations whenever the governing statute authorizes
criminal enforcement. Even if there exist regulations whose
interpretations of statutory criminal penalties provide such inadequate
notice of potential liability as to offend the rule of lenity, the [present]
regulation, which has existed for two decades and gives a fair warning
of its consequences, cannot be one of them.
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Id. at 704 n.18. As the government reads it, this passage definitively holds that Chevron
deference defeats the rule of lenity.
That is a lot to ask of a footnote, more it seems to me than these four sentences
can reasonably demand. Note first of all that the government’s reading eclipses the just-
mentioned Grimaud/Eaton line of cases, which hold that, if Congress wants to assign
responsibility for crime definition to the executive, it must speak clearly. No one thinks
that Chevron-triggering ambiguity satisfies a clear-statement requirement. Did the Court
mean to overrule these precedents in a footnote that does not even mention them? Not
likely. And a case decided after Sweet Home expressly declines—in a footnote, no
less—to decide how the rule of lenity and Chevron interact. See SWANCC, 531 U.S. at
174 n.8. Why did the Court express reluctance to decide a question if, as the government
claims, it had already decided it?
The answer is that Sweet Home’s footnote 18 lends itself to a narrower reading,
one that preserves the clear-statement rule applicable in this setting and one that
preserves the obligation of courts and agencies to respect the rule of lenity. The footnote
merely acknowledges the possibility of a pre-enforcement facial challenge to an
agency’s regulation—because the agency had no interpretive authority in the first place,
because the agency failed to follow the procedures for promulgating the regulation or
because the statute plainly forecloses the agency’s interpretation. Yet not one of these
challenges depends on, or demands consideration of, the rule of lenity. Why else would
the Court distinguish cases involving “specific factual dispute[s]” from cases “reviewing
facial challenges”? What purpose could this distinction serve unless the Court meant to
create a rule for facial challenges? Although the footnote mentions that the Interior
Department’s two-decade-old regulation comports with one of the rule of lenity’s
objectives (promoting fair notice), it says nothing about other regulations or the rule
lenity’s separation-of-powers objective (reinforcing that Congress, not courts or
agencies, define crimes). Before accepting the government’s broad reading of the
footnote, one would have expected the Court to say more before allowing agencies to
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trump a doctrine Chief Justice Marshall described as “perhaps not much less old than
construction itself.” 5 Wheat. at 95.
Not only does the age of the rule counsel against sweeping it aside sotto voce in
a footnote, but so does its growing significance in interpretive disputes about the
meaning of criminal laws. The Court has all but abandoned the practice of interpreting
criminal laws against defendants on the basis of legislative history. Compare, e.g.,
United States v. Santos, 553 U.S. 507, 513 n.3 (2008) (plurality opinion), with, e.g.,
Dixson v. United States, 465 U.S. 482, 491 (1984); see United States v. R.L.C., 503 U.S.
291, 307–11 (Scalia, J., concurring in the judgment). And it has found lenity-triggering
ambiguity in criminal laws more readily of late than it did in the past. Compare, e.g.,
Santos, 553 U.S. at 513–14, with, e.g., Moskal v. United States, 498 U.S. 103, 108
(1990). Meanwhile, deference has shrunk in reach. The Court has cabined the range of
materials entitled to Chevron deference. See, e.g., Mead, 533 U.S. at 231. And it has
confirmed that Chevron does not permit an agency to trump other rules of interpretation.
See, e.g., St. Cyr, 533 U.S. at 320 n.45. Lenity and Chevron thus look different now than
they did when Sweet Home inscrutably footnoted their interaction.
If accepted, moreover, the government’s theory would mean that, in many of the
Court’s criminal cases, criminal defendants were one agency interpretation away from
being incarcerated. It would mean that ambiguity in the Fair Labor Standards Act would
have allowed the Secretary of Labor to decide that an employer commits a new crime
not just when he sets an employee’s salary too low but each week he underpays the
employee. But see United States v. Universal C.I.T. Credit Corp., 344 U.S. 218 (1952).
It would mean that ambiguity in the National Firearms Act would have allowed the
Secretary of the Treasury to decide that a gun manufacturer commits a crime when it
packages a pistol with a carbine-conversion kit. But see United States v.
Thompson/Center Arms Co., 504 U.S. 505 (1992). It would mean that ambiguity in the
Immigration and Nationality Act would have allowed the Attorney General to decide that
drunk driving is a crime of violence. But see Leocal v. Ashcroft, 543 U.S. 1 (2004). And
it would mean that ambiguity in the Immigration and Nationality Act would have
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allowed the Attorney General to decide that first-time drug possession and social sharing
of marijuana are drug-trafficking crimes. But see Carachuri-Rosendo v. Holder, 560
U.S. 563 (2010); Moncrieffe v. Holder, 133 S. Ct. 1678 (2013).
In the final analysis, the government’s theory gives the executive branch an
implied share of the legislature’s power to define crimes. That is no small matter given
“the growing power of the administrative state,” City of Arlington v. FCC, 133 S. Ct.
1863, 1879 (2013) (Roberts, C.J., dissenting), and it is no small matter given the reality
that Congress continues to “put[] forth an ever-increasing volume . . . of criminal laws,”
Sykes v. United States, 131 S. Ct. 2267, 2288 (2011) (Scalia, J., dissenting). None of the
Supreme Court’s decisions requires us to accept this theory; many stand in its way.
Agencies, no less than courts, must honor the rule of lenity.