For more than 30 years, courts have deferred to administrative agencies’ interpretation of ambiguous statutes, unless the interpretation is unreasonable. The doctrine is called “Chevron deference” after the decision that established it, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

Recent Case Examines Chevron Deference in Relation to Government Contract Terms

Government contractors routinely face Chevron deference issues in connection with statutes and regulations governing their performance. But should Chevron deference also apply to the terms of a government contract? In other words, should courts defer to an agency’s construction of an ambiguous term in a contract to which the agency is a party? That was the question presented to the U.S. Supreme Court in Scenic America, Inc. v. Department of Transportation, No. 16-739, 583 U.S. ___ (Oct. 16, 2017).

Although the Supreme Court denied certiorari in Scenic America last week, Justice Gorsuch took the somewhat unusual step of providing a written statement on the case. Chief Justice Roberts and Justice Alito joined the statement, rendering it even more important.

Justice Gorsuch explained that courts typically “look to the tested and pretty ancient rules of contract construction” to determine the meaning of an ambiguous contract term.

Those “tested and pretty ancient rules” include, for example, that ambiguous terms are construed against the drafter.

Appeals Courts Split on Whether to Apply Chevron Deference to Government Contracts

The Circuit Courts of Appeal are split on whether these traditional contract interpretation rules are displaced by Chevron deference where a government agency is a party to the contract.

In Scenic America, the D.C. Circuit applied Chevron deference in favor of the Department of Transportation’s interpretation of its own contract. Other circuits have concluded, however, that Chevron deference has no place in contract interpretation questions. For example, Justice Breyer declined to apply Chevron deference to contract interpretation in an opinion he wrote for the First Circuit before he ascended to the Supreme Court. Meadow Green-Wildcat Corp. v. Hathaway, 936 F.2d 601, 603-05 (1st Cir. 1991).

Justice Gorsuch is Critical of Chevron Deference

Although Justice Gorsuch’s statement in Scenic America does not take an express position on the issue, he is clearly skeptical of whether Chevron deference should apply to agency interpretations of their own contracts. For example, he asks rhetorically, “what’s the case for supposing that Congress implicitly delegates to agencies the power to adjudicate their own contractual disputes . . . ?”

Justice Gorsuch’s skepticism in this context is unsurprising, given that he is a vocal opponent of Chevron deference. In an opinion he authored while sitting on the Tenth Circuit just a few months before his nomination to the Supreme Court, he stated that Chevron deference “permit[s] executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers’ design.” Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1149 (10th Cir. Aug. 23, 2016) (Gorsuch, J., concurring). He went on to call Chevron deference “a judge-made doctrine for the abdication of the judicial duty.” Id. at 1152. He concluded by asking “what would happen in a world without Chevron,” suggesting that justice may be better served and the Constitution may be better fulfilled if Chevron is overruled. Id. at 1158.

In Scenic America, Justice Gorsuch wrote that “good arguments might be presented on both sides” of the “important” government contract interpretation questions. However, he concluded that “the proper course is to deny certiorari in this particular case even though the issues lying at its core are surely worthy of consideration in a case burdened with fewer antecedent and factbound questions.”

What’s Next and How Should Government Contractors Proceed?

Based on this clear invitation from three justices, we should expect to see other litigants attempt to frame the issue more cleanly in petitions for certiorari filed in the near future. Until then, judicial review of agency contract interpretation issues likely will vary depending on the jurisdiction.

Our attorneys have a strong grasp of the circuit split on this issue and can assist government contractors with strategic analysis of how it might affect their business.