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).

Under the Contract Disputes Act, the vast majority of contract disputes involving the government must be brought in the Court of Federal Claims or a board of contract appeals. Appeals from both tribunals go to the U.S. Court of Appeals for the Federal Circuit.

The Federal Circuit has not expressly decided whether Chevron deference applies to an agency’s interpretation of an ambiguous contract, although it has strongly suggested that it does not. For example, the Federal Circuit has explained that “[c]ontracts between the government and private contractors are subject to the general law of contracts.” Turner Constr. Co. v. U.S., 367 F.3d 1319, 1321 (Fed. Cir. 2004). “When a dispute arises as to the interpretation of a contract and the contractor’s interpretation of the contract is reasonable, we apply the rule of contra proferentem, which requires that ambiguous or unclear terms that are subject to more than one reasonable interpretation be construed against the party who drafted the contract.” Id.

Nonetheless, district courts and regional circuit courts of appeal still have occasion to consider federal agencies’ interpretations of their own contracts where the dispute is not between the contracting parties or the contract is ancillary to the claims. For example, the Scenic America case involved a non-profit organization’s challenge to the Federal Highway Administration’s interpretation of certain federal-state agreements relating to billboards along interstate highways. See also Alabama Power Co. v. U.S. Dept. of Energy, 307 F.3d 1300, 1312-13 (11th Cir. 2002) (power companies challenged a settlement agreement between one utility and the Department of Energy); Ambur v. United States, 206 F. Supp. 2d 1021 (D.S.D. 2002) (declining to give Chevron deference to the IRS’s interpretation of tolling agreements with taxpayers in an action those taxpayers brought to recover overpayments).

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. For more information, please contact the authors or any member of the Government Contracts practice at Bass, Berry & Sims.