Sentencing Guidelines under the Loper Bright Non-Deference Regime (8/7/24; 10/15/24)

Three leading authorities on federal sentencing have co-authored an article that might be of interest to those interested in the confluence of federal sentencing and the demise of deference in Loper Bright Enterprises v. Raimondo, 603 U. S. ____, 144 S. Ct. 2244 (2024), SC Slip Op. here & GS here. The article is Mark Allenbaugh, Doug Passon, and Alan Ellis, Post-Chevron, Good Riddance To The Sentencing Guidelines (Law 360 7/15/24), here. I learned from the article and made appropriate changes to the federal crimes section of the 2025 working draft of my Federal Tax Procedure book.

The authors engage Loper Bright over the Sentencing Guidelines. The authors note that there are two key categories within the Guidelines.

• The Guidelines which “are the equivalent of legislative rules adopted by federal agencies,” quoting Stinson v. United States, 508 U.S. 36. 41, 45 (1993). The Guidelines are thus like, in the Treasury context, the consolidated return regulations under § 1502 which contain many rules (including interpretations of the rules). They are the law if within the legislative rulemaking authority conferred by Congress.
• What I call Sub-Guideline Rules which are Policy Statements and Commentary (including Application notes). Sub-Guidelines rules are not legislative rule-equivalents but more like interpretations of the regulations-equivalent Guidelines. Since they are not law but interpretations, they can be tested for validity of the interpretation.

As I said, legislative rules are the law if within the scope of the authority delegated and thus are not tested as to whether “reasonable” (under Chevron) or “best” (under Loper Bright). They are the law if within the scope of the legislative rulemaking authority granted. While an unreasonable definition in a legislative rule would likely be rejected as arbitrary and capricious (which could overlap but was never the same as the reasonableness test under Chevron), so long as the interpretation in a legislative rule is reasonable, it should be the law, just as interpretations and definitions in the consolidated return regulations under § 1502 are the law. (I know, this sounds like smuggling in Chevron deference, but I am just applying the traditional distinction between legislative rules and interpretive rules which Loper Bright did not reject.)

Loper Bright clearly establishes the demise of deference to Guidelines interpretations of statutory text. But that was never really an issue since the Guidelines are legislative rules. The article goes further and suggests that Loper Bright may signal the demise of deference to sub-Guidelines rules interpreting the Guidelines. The analogy is to subregulatory interpretation of regulations that, prior to Loper Bright, might qualify for Auer/Kisor deference. It is not clear what remains of Auer/Kisor deference after Loper Bright, but I suspect that some type of Skidmore-equivalent respect (not deference) might be used. If that is right then equivalent respect for sub-Guidelines rules may apply.

Let’s focus on the example the authors use—the definition of “loss.” Prior to the 2024 Guidelines effective 11/1/24, the definition of loss was in sub-Guidelines rules (Commentary). Loss is a key component of the calculation of the Guidelines range. By including the definition in sub-Guidelines Commentary, the definition was treated as an interpretive rule that could be tested for deference under Auer/Kisor. As the authors note, the courts disagreed as to whether the sub-Guidelines’ definition of loss applied. However, effective 11/1/24, the definition has been moved into the Guidelines which means, under the holding of Stinson, that the agency made the definition a legislative rule that is tested as a legislative rule (the arbitrary and capricious standard) rather than the rejected Chevron standard of reasonableness of the interpretation. The authors wrongly, in my view, treat the Guidelines as being interpretive for testing under Loper Bright.

If legislative rule is the right paradigm, then I think the Guidelines definition of loss easily avoids characterization as “arbitrary and capricious.” (That may be my version of know it when I see it.)

One question is whether an agency can change the judicial review standard by incorporating a definition in a legislative rule. Of course, if the legislative rule definition is defining a term in the legislative rule itself (rather than in the statute), then the answer has to be yes—the agency can change the review regime. For example, Treasury could incorporate a key definition in the consolidated return regulations or in subregulatory guidance (e.g., a Revenue Ruling). If incorporated in the regulations, it would be tested as a legislative regulation; but if incorporated in a Revenue Ruling, it is tested as to whether it is the best interpretation of the regulation under an extension of Loper Bright (as opposed to a reasonable interpretation under Chevron deference).

Related Blog Entry:

The Supreme Court Pronounces the Demise of Deference (Federal Tax Procedure Blog 6/29/24; 7/26/24), here.

Added 8/9/24 12:00pm:

In United States v. Ponle, ___ F.4th ___ (7th Cir. 8/5/24), CA7 here and GS here, the Court addressed the “loss” issue discussed above. For the year of sentencing, The loss was addressed in the application note rather than the Guidelines. Key points as they might affect the discussion in the original blog entry above:

1. The Court (Slip Op. 5-6) says (footnote omitted):

In Stinson, the Supreme Court considered the role of the commentary to the Guidelines. In a nutshell, it found that the commentary "is authoritative unless it violates the Constitution or a federal statute, or is inconsistent with, or a plainly erroneous reading of, that guideline." 508 U.S. at 38. Along the way, the Court remarked that the Guidelines "are the equivalent of legislative rules adopted by federal agencies." Id. at 45. And, while it recognized that the "analogy is not precise," the Court described the commentary as "akin to an agency's interpretation of its own legislative rules." Id.

The Supreme Court's use of this "analogy" has prompted some to believe that the Court overruled Stinson when deciding Kisor. In Kisor, the Court considered the validity of prior cases that had mandated judicial deference to "agencies' reasonable readings of genuinely ambiguous regulations." 588 U.S. at 563.[3] And, although it did not outright abandon Auer [*6] deference, it used Kisor as an opportunity to "restate, and somewhat expand on" the principles articulated in Auer and its progeny. 588 U.S. at 574. In short, Kisor confirmed that a court should only defer to an agency interpretation of its regulations if, after applying "all traditional methods of interpretation," the regulation in question is "genuinely susceptible to multiple reasonable meanings and the agency's interpretation lines up with one of them." Id. at 581.

Ponle's argument then goes like this. In Stinson, the Supreme Court likened the Guidelines to agency regulations, and the Commission's commentary to an agency's interpretation of its own regulations. Then, in Kisor, the Court held that only when a regulation is genuinely ambiguous can a court defer to an agency's interpretation of it. In § 2B1.1(b), Ponle asserts, the word "loss" is not ambiguous and has a clearly ascertainable meaning. Thus, he reasons, the district court erred by relying on Application Note 3 to § 2B1.1 in violation of the Supreme Court's holding in Kisor. This reasoning has found traction in some circuits. See, e.g., [Case list omitted] But not in others. See, e.g., [Case list omitted].

2. The Court states (Slip Op. pp. 7-8) that its holding in United States v. White, 97 F.4th 532 (7th Cir. 2024) held that Kisor did not modify Stinson.

3. The Court notes (Slip Op. 8 and 7 n. 4) that Guidelines commentary unlike subregulatory guidance such as involved in Kisor is subject to notice and comment process whereas subregulatory guidance is not, stating (Slip Op. 9-10):

The fact that the advisory note at issue underwent the public notice and comment process and Congressional review distinguishes it from an executive agency's internal interpretation of its own regulations that animated the Supreme [*10] Court's concern in Kisor. See Kisor, 588 U.S. at 607-08 (Gorsuch, J., dissenting) (criticizing Auer deference because it allows an agency to promulgate a binding interpretation without affording the public a chance to weigh in).

Turning back to this case, it is undisputed that Ponle intended to defraud his victims of $51,310,561.32. And, consistent with Advisory Note 3 to § 2B1.1(b), the district court correctly utilized "the greater of the actual loss or intended loss" to calculate Ponle's offense level as Stinson requires.

Added 10/15/24 3:30pm: The parties in United States v. Lucidonio (3^rd Cir. No. 24-1285 ) have briefed the effect of Loper Bright on the Guidelines. The briefs are dated 10/11/24 and are provided on Tax Notes free (sponsored by Deloitte) “Court Documents” website. Lucidonio’s letter brief is here; the United States brief is here.