Thin rationality review.

• Author: Gersen, Jacob
• Position: Abstract through II. Prescription: Thin Rationality Review A. Negative Prescriptions c. Current Law, p. 1355-1383

Under the Administrative Procedure Act, courts review and set aside agency action that is "arbitrary [and] capricious." In a common formulation of rationality review, courts must either take a "hard look" at the rationality of agency decisionmaking, or at least ensure that agencies themselves have taken a hard look. We will propose a much less demanding and intrusive interpretation of rationality review--a thin version. Under a robust range of conditions, rational agencies have good reason to decide in a manner that is inaccurate, nonrational, or arbitrary. Although this claim is seemingly paradoxical or internally inconsistent, it simply rests on an appreciation of the limits of reason, especially in administrative policymaking. Agency decisionmaking is nonideal decisionmaking; what would be rational under ideal conditions is rarely a relevant question for agencies. Rather, agencies make decisions under constraints of scarce time, information, and resources. Those constraints imply that agencies will frequently have excellent reasons to depart from idealized first-order conceptions of administrative rationality.

Thin rationality review describes the law in action. Administrative law textbooks typically suggest that the State Farm decision in 1983 inaugurated an era of stringent judicial review of agency decisionmaking for rationality. That is flatly wrong at the level of the Supreme Court, where agencies have won no less than 92 percent of the sixty-four arbitrariness challenges decided on the merits since the 1982 Term. The Court's precedent embodies an approach to rationality review that is highly tolerant of the inescapable limits of agency rationality when making decisions under uncertainty. State Farm is not representative of the law; beloved of law professors, and frequently cited in rote fashion by judges, State Farm nonetheless lies well outside the mainstream of the Supreme Court's precedent. To encapsulate the Court's approach to rationality review, the best choice would be the powerfully deferential opinion in Baltimore Gas, decided in the same Term as State Farm. Plausibly, rather than living in the era of hard look review or the State Farm era, we live in the era of Baltimore Gas.

INTRODUCTION

Under Section 706(2)(A) of the Administrative Procedure Act (APA), courts "shall" set aside agency action that is "arbitrary [and] capricious." (1) The conventional antonym of "arbitrary and capricious" is rational; as the D.C. Circuit puts it, "[t]he 'arbitrary and capricious' standard deems the agency action presumptively valid provided the action meets a minimum rationality standard." (2) Hence, courts applying the arbitrary and capricious test review the rationality of agency decisions.

The traditional and highly deferential approach, under the constitutional law of due process, equated rationality review of agency decisionmaking with rational-basis review of legislation. (3) Starting with Citizens to Preserve Overton Park, Inc. v. Volpe (4) in 1971, however, a vast and baroque caselaw elaborated the requirements of rational agency decisionmaking under the APA. And in 1983, the Court in Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Insurance Co. (State Farm) (5) specifically held that rationality review of agencies under 706(2)(A) should be more demanding than rational-basis review. (6) In a common formulation of rationality review, courts must either take a "hard look" at the rationality of agency decisionmaking, or at least ensure that agencies themselves have taken a hard look at the relevant problems. Hard look review is taken to encompass multiple quasi-procedural obligations that, taken together, ensure agency rationality. (7)

We will propose a much less demanding and intrusive interpretation of the "arbitrary and capricious" standard in section 706(2)(A). The argument has both prescriptive and descriptive components. Prescriptively, we urge that rationality is a much thinner notion than some commentators seem to think, and that rational decisionmaking requires far less from agencies than lawyers tend to realize. (8) Courts have sometimes adopted an excessively intrusive approach because, acting in the best of faith, they have misunderstood what rationality requires. In particular, they have failed to grasp a crucial twist: under a robust range of conditions, rational agencies may have good reason to decide in a manner that is inaccurate, nonrational, or arbitrary. (9)

Although this claim is seemingly paradoxical or internally inconsistent, it simply rests on an appreciation of the limits of reason, especially in administrative policymaking. Agency decisionmaking is nonideal decisionmaking; what would be rational under ideal conditions is rarely a relevant question for agencies. Rather, agencies make decisions under constraints of scarce time, information, and resources. Those constraints imply that agencies will frequently have excellent reasons to depart from idealized first-order conceptions of administrative rationality. We will thus examine a series of limitations to agency rationality and to the communication of reasons by agencies, and argue for an approach to rationality review that takes these limitations seriously--thin rationality review.

In a simplistic and idealized conception of administrative rationality, which is rarely articulated in explicit terms but which implicitly underlies many judicial decisions, rational agencies should (1) attempt to choose the best policy among the feasible options, after considering all relevant statutory factors and policy variables, and then (2) explain to interested parties and to the court the agency's reasons for thinking that the chosen policy is best, as compared to the alternatives. (10) This conception turns out to be riddled with legal mistakes, conceptual slips, and institutional problems.

As to (1), under the best reading of the arbitrary and capricious test, agencies have no legal obligation to consider all policy variables that strike judges as arguably relevant. Agencies often have good reason to choose policies that do not necessarily represent the best feasible option. Agencies may choose policies that the agency has not compared to other feasible options. And agencies may choose policies that do not even produce net benefits in the case at hand. The critical issue here is uncertainty, which sometimes gives agencies good second-order reasons to depart from the simplistic first-order conception of rationality under conditions we will identify.

As to (2), agencies may find it difficult to explain their reasons to generalist judges on reviewing courts, even, or especially, when those reasons are valid. This is the problem of tacit expertise--tacit knowledge held by experts, which is costly to transmit to nonexperts, and which is always distorted in the transmission. We do not suggest that agencies should never be obliged to communicate reasons to courts, only that rationality review should calibrate that obligation with sensitivity to the risk that genuine reasons are sometimes incommunicable between experts and generalists, or at least costly to communicate. One of the main reasons agencies exist at all is specialization, and specialization creates information asymmetries. Asymmetric information implies, in turn, that the knowledge agencies possess cannot always be effectively evaluated by reviewing courts or other generalist institutions, and sometimes it cannot even be effectively conveyed to those institutions. (11)

All this is negative critique, but our positive conception is straightforward. In contrast to thick rationality review, the thin version posits that agencies are (merely) obliged to make decisions on the basis of reasons. Second-or-higher order reasons may, in appropriate cases, satisfy that obligation. What is excluded by the arbitrary and capricious standard is genuinely ungrounded agency decisionmaking, in the sense that the agency cannot justify its action even as a response to the limits of reason. While truly capricious decisionmaking in this sense is no doubt uncommon, it does exist; the caselaw contains examples. (12) For purposes of interpreting section 706(2) (A), "arbitrary and capricious" action is unreasoned agency action.

So much for prescription. Descriptively, our approach fits some but not all of the caselaw; it neither justifies all extant decisions, nor condemns them all. (13) Current law is actually a mixed bag--far more so than one might think from reading administrative law textbooks, which typically suggest that State Farm inaugurated an era of stringent judicial review of agency decisionmaking for rationality. As we will see, that suggestion is flatly wrong at the level of the Supreme Court. At that level, agencies almost never lose. Indeed, the facts show that State Farm itself is an outlier. Starting in October Term 1982, when State Farm was decided, the Court has passed on the merits of arbitrariness challenges sixty-four times. (14) Of those, agencies have lost arbitrary and capricious challenges only five times--a remarkable win-rate of 92 percent. (15)

At the level of doctrine and announced principles, many of the modern cases feature strong rebukes of lower courts for excessive interference, or specifically disavow idealized conceptions of rationality review developed by lower courts. Over against State Farm there stands a long line of decidedly deferential decisions running from Baltimore Gas & Electric Co. v. Natural Resources Defense Council, Inc. (16) in 1983 to FCC v. Fox Television Stations, Inc. (17) and EPA v. EME Homer City Generation, L.P.'S in recent years. (The exceptions like Judulang v. Holder (19) stand out, and are more easily recalled, precisely because they are rare.) This line of precedent embodies an approach to rationality review that is more aware of, and tolerant of, the inescapable limits of rationality when agencies make...