Judicial Review

Judicial review of administrative acts is an important aspect of the U.S. checks and balances system – it prevents administrative overreaching by providing protection from final agency actions for which there is no other adequate remedy. As we discussed above (background), judicial review of agency actions and decisions was an important compromise during negotiations for the Administrative Procedure Act (APA) and was needed to gain the support of conservatives who were otherwise opposed to many of President Roosevelt’s New Deal programs.

The APA states that if a person suffers a legal wrong or is otherwise adversely affected or aggrieved as the result of an agency’s actions, they are entitled to judicial review. In such case a claim may be filed with “The United States” named as defendant.

Scope of judicial review

An agency’s actions may be set aside by a reviewing court if they are found to be improper. 5 U.S. Code § 706 sets forth six situations in which an agency’s actions, findings, or conclusions shall be deemed unlawful and set aside by a court:

  1. Where the agency’s actions or findings were arbitrary or capricious, constituted an abuse of discretion, or were otherwise not made in accordance with the law;
  2. Where the actions or findings were contrary to a constitutional right, power, privilege, or immunity;
  3. Where the agency acted in excess of its statutory jurisdiction, authority, or limitations, or were made short of a statutory right;
  4. Where procedures required under the law were not observed;
  5. Where the agency’s findings or conclusions were unsupported by substantial evidence in accordance with the procedures for formal rulemaking or adjudication set forth in sections 556 and 557 of the statute; or
  6. Where the agency’s findings were unwarranted by the facts to the extent that the facts are subject to new trial.

The standard of review applicable in a given case depends on whether or not the case requires formal rulemaking or adjudication. As noted, with few exceptions, formal proceedings are either (1) required by statute, (2) utilized if an agency’s rule involves facts specific to individual rights, or (3) utilized where a rule includes facts that are controlling on a question of law.

The “substantial evidence” standard of review is applied for formal rulemaking and adjudication. In brief, if an agency’s final decision on a rule that is being challenged is deemed reasonable by the Court, or if the Court finds that the record of the agency’s decision contains evidence that a reasonable person would find adequate to support its conclusion, the Court must uphold the rule.

The “arbitrary and capricious” standard of review generally applies to informal rulemakings. Here, the Court will look for a clear error of judgment on the part of the agency and for a rational connection between the facts and the agency’s judgment.

If a court is reviewing an agency’s interpretation of a statute, there is a two-step “statutory interpretation” standard of review that must be applied. First, per the landmark Chevron, U.S.A. Inc. v. NRDC case, the court must determine whether Congress has addressed the precise question at issue. If it hasn’t, then the court determines whether or not the agency’s actions were based on a “permissible construction of the statute.” The reviewing court should defer to an agency’s reasonable construction of a statute, even if it is under the impression that there is a different and more appropriate interpretation.

Timing and forum

Our tax litigation attorneys always give careful consideration to timing and choice of forum when contesting an IRS decision.

Timing. The APA stipulates that a plaintiff seeking judicial review of an administrative agency action must demonstrate that: (1) the action is final; (2) all administrative remedies required under the law have been exhausted; and (3) that the action is ripe for review. Note that judicial review may be sought sooner if a delay poses a danger of serious injury to the plaintiff.

Court. The APA specifies that these cases may be brought in any “court of competent jurisdiction,” meaning, federal district court. Note that some challenges to agency actions must be brought to the Court of Appeals, and there are other exceptions as well.

Venue. A lawsuit against an administrative agency, officer, or the United States may be brought in a judicial district where the defendant resides, the cause of action arose, real property in the action is located, or the plaintiff resides (if no real property is involved).