Howard and Karen Baldwin v. U.S.

CASE SUMMARY

Howard and Karen Baldwin are Hollywood movie producers of the critically acclaimed movie Ray (2004) based on the life of Ray Charles. But even these talented producers could not have imagined a more sinister plot than the one that the Internal Revenue has conjured up against them.

Like most Americans, Howard and Karen put their tax refund claim in the mailbox. In fact, they mailed it four months before the October 15th filing deadline. But the IRS claimed they never received it and refused to pay the couple. The Baldwins decided to take their case to court to recover approximately $168,000 in overpaid taxes.

There was an easy way to prove—and they did so at trial—that they had in fact mailed the claim on June 21, 2011, four full months before the deadline. Current law, Ninth Circuit precedent and the centuries-old common-law mailbox rule, clearly allowed the Baldwins to prove the postmark date, which is deemed the date of delivery, by using extrinsic evidence such as witness testimony.  The district court sided with the Baldwins and entered judgment against IRS. 

But on appeal, the Ninth Circuit Court concluded that a new interpretation of the rules issued by the IRS in August 2011, trumps all that under Brand X (the worst deference doctrine you’ve probably never heard of).

You heard right—the IRS’s new interpretation of the law did not allow use of extrinsic evidence to prove the postmark date of a tax document sent by regular U.S. mail. 

Thanks to Brand X, the court had now reversed the favorable outcome the Baldwins had obtained after full trial, consequently depriving them of a tax refund of about $168,000, plus statutory interest and attorneys’ fees. 

Now, Howard and Karen Baldwin are taking their case to the highest court in the land asking the Supreme Court to overrule the Brand X doctrine, or determine whether Brand X permits an agency to uproot the common law and plug the hole with its own rule. 

In essence, Brand X allows agencies to undercut predictability, stability, fair notice to parties like the Baldwins, reasonable reliance, and settled expectations. The doctrine also violates due process. 

The government’s backwards idea that it should be able to ignore federal court decisions it does not like under Brand X has made the doctrine a game-changer in favor of government litigants since the Supreme Court created it in 2005. 

Join the new civil liberties movement. Protect Americans from the Administrative State!

CASE STATUS:
United States Supreme Court denied certiorari; Justice Clarence Thomas dissented from denial

CASE START DATE:
September 23, 2019

DECIDING COURT:
The Supreme Court of the United States

ORIGINAL COURT:
The United States Court of Appeals for the Ninth Circuit
The United States District Court for the Central District of California

 

CASE DOCUMENTS

February 24, 2020 | Supreme Court Order: The Petition for a Writ of Certiorari is Denied with Justice Clarence Thomas authoring a Dissent from Denial
December 20, 2019 | Petitioner’s Reply Brief - Baldwin v. US
October 25, 2019 | Brief of Amicus Curiae - New England Legal Foundation in Support of Petitioners
October 25, 2019 | Brief of the Cato Institute and NFIB Small Business Legal Center as Amici Curiae Supporting Petitioners
October 25 2019 | Brief of the National Right to Work Legal Defense Foundation, Inc. as Amicus Curiae Supporting Petitioners
October 24, 2019 | Brief for Amici Curiae Americans for Prosperity and Cause of Action Institute in Support of Petitioners
October 24, 2019 | Brief of Amicus Curiae - Center for Constitutional Jurisprudence in Support of Petitioners
October 23, 2019 | Brief Amicus Curiae - Goldwater Institute in Support of Petitioners
September 23, 2019 | Petition for Writ of Certiorari – Baldwin v. US

Howard and Karen Baldwin, who produced the critically acclaimed movie Ray (2004) based on Ray Charles’ life, had filed a claim fo rate refund of their 2005 income tax. Four months before the deadline to claim a refund, they mailed a refund claim to the Internal Revenue Service (IRS) to recover $167,663 in overpaid taxes by regular United States mail.

IRS claimed it never received their refund claim and refused to pay them. The Baldwins sued IRS to get their money back. There was an easy way to prove– and they did so at trial– that they had in fact mailed the claim on June 21, 2011, four months before the October 15 refund deadline…

Read complete Petition for Writ of Certiorari

PRESS RELEASES

February 24, 2020 | Justice Thomas Repudiates Brand X Decision He Authored, but High Court Denies Cert

WASHINGTON, DC, February 24, 2020 – Howard and Karen Baldwin got their day in court—and won—but then the Brand X doctrine took it all away. The New Civil Liberties Alliance commends Supreme Court Justice Clarence Thomas for dissenting from the Court’s denial of a writ of certiorari this morning sought by NCLA’s clients in their case against the Internal Revenue Service (IRS).

The Baldwin v. U.S. case had asked the court to reconsider the Brand X doctrine. Under the Court’s 2005 case, National Cable & Telecommunications Ass’n v. Brand X Internet Services, federal courts must defer to federal agencies’ reasonable statutory interpretations even when those interpretations contradict a previous court ruling interpreting the same statute and even when those agencies’ regulations were written subsequent to the court’s interpretation. This absurd rule takes away the civil liberties of citizens like the Baldwins on a regular basis.

Justice Thomas agreed with several arguments NCLA made in its Petition and reply brief regarding the Brand X doctrine, and the due process havoc it wreaks. As Justice Thomas explained, “Brand X appears to be inconsistent with the Constitution, The Administrative Procedure Act (APA), and traditional tools of statutory interpretation.” His “skepticism” of Brand X, he added, “begins at its foundation—Chevron deference,” but he noted that Brand X is even more inconsistent with the Constitution than is Chevron, and he lamented that the doctrine “has taken this Court to the precipice of administrative absolutism.”

Although Justice Thomas himself authored the original decision in Brand X, he would “revisit” the doctrine, writing that “it is never too late to ‘surrende[r] former views to a better considered position.’”

NCLA released the following statements:

“The Supreme Court had an excellent opportunity to uphold the Constitution. Instead, it left the deeply flawed Brand X doctrine in place. Their decision not to take the Baldwins’ case and not to reconsider the Brand X doctrine will negatively affect judicial independence for years to come. Brand X will now continue to dilute the legitimacy and finality of lower court decisions, turning their interpretations of federal statutes into mere advisory opinions whenever they go against the agency. NCLA will look to bring this issue back up in a different case.”

—Adi Dynar, NCLA Litigation Counsel

“NCLA hopes that today’s denial of cert will nonetheless shed new light and attention on the grotesque Brand X decision so that the Court will reconsider the doctrine in a future case. Meanwhile, Brand X remains a disaster for citizens like Howard and Karen Baldwin, who do not know whether they can rely on federal court decisions interpreting federal statutes. And Brand X remains a disaster for lower courts, whose decisions adverse to agency interpretations will continue to be treated as merely advisory. Finally, Brand X will continue to serve as a silver bullet for federal agencies, who are freed to buck adverse decisions from lower federal courts. Any time there is ambiguity, these agencies can simply issue new regulations to avoid future application of decisions they dislike. Such a rule creates incredible in terrorem leverage for federal agencies like the IRS to use to violate the civil liberties of regulated parties like the Baldwins—and to intimidate lower federal courts.”
—Mark Chenoweth, NCLA Executive Director and General Counsel

CASE BACKGROUND

The Baldwins are producers of films including the Academy Award-winner, Ray (2004), about the life of singer Ray Charles. But they are also law-abiding Americans who had overpaid their 2005 income taxes. Four months before the October 15, 2011 deadline for refiling, they mailed their refund claim for $167,663 in overpaid taxes to the Internal Revenue Service by regular United States mail. But the IRS alleges it never received their refund claim and refused to pay. The IRS also argued that a new regulation the agency issued in August 2011—after the Baldwins had mailed in their claim—ended the common-law mailbox rule for refund claims.

The Baldwins were forced to sue the IRS to get their money back, and they won at trial in the U.S. District Court for the Central District of California, which upheld the common law mailbox rule relying on a 1992 U.S. Court of Appeals for the Ninth Circuit interpretation of the identical statutory provision in question here. On appeal, however, the Ninth Circuit, invoking the Brand X doctrine, decided that it had to defer to the IRS’s new regulation over the court’s own prior precedent. The IRS’s new regulation did not allow use of extrinsic evidence to prove the Baldwins mailed their tax return on time. The court gave Chevron deference to IRS’s interpretation and reversed the favorable outcome the Baldwins had obtained after trial in district court.

See full case summary page here.

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights. For more information visit us online at: NCLAlegal.org.

Click here to download

December 23, 2019 | NCLA Reply Brief Calls on U.S. Supreme Court to Overrule Brand X Judicial Deference Doctrine

WASHINGTON, DC, December 23, 2019 – The New Civil Liberties Alliance today filed a reply brief on behalf of clients, Howard and Karen Baldwin in their case against the Internal Revenue Service. NCLA’s brief criticizes the government’s backwards idea that it should be able to ignore federal court decisions it does not like under Brand X, a judicial deference doctrine that has become a game-changer in favor of government litigants since the Supreme Court created it in 2005. 

The Baldwins were forced to sue the IRS after the agency said it never received their tax refund claim. The Hollywood couple, who produced the Academy Award winning movie, Ray (2004) about the life of singer Ray Charles, won at trial in federal District Court. On appeal, however, the Ninth Circuit, invoking the Brand X doctrine, deferred to the IRS’s new regulation over the court’s own precedent. That regulation, put in place two months after the Baldwins filed their claim, did not allow testimony to be introduced at trial. Thus, Brand X single-handedly reversed the favorable – and just- outcome the Baldwins had obtained. 

This case offers the Supreme Court a golden opportunity to put an end to the damage and injustice Brand X is doing to people like the Baldwins. When federal agencies get to ignore federal court decisions, it puts citizens and judges in an impossible bind. Citizens cannot figure out when law applies to them, and they cannot get a fair trial from an impartial judge. At the same time judges who must defer to the government litigant before them on an interpretation of the law cannot do their job to say what the law is or uphold their oaths to “administer justice without respect to persons” and “impartially discharge…[their] duties. Granting certiorari is imperative in this case. Brand X is unworkable, unconstitutional, and a direct assault on judicial authority.

    NCLA release the following statements:

    The IRS appears willing to sacrifice the Constitution by asserting its authority to overturn court decisions it dislikes. This case presents a historic opportunity for the Court to confront and correct Brand X. Otherwise, good, independent judicial analysis will be routinely overturned by sloppy, self-interested, outcome-driven agency regulations.Adi Dynar, NCLA Litigation Counsel 

    “I doubt these talented movie producers have ever come across a more sinister storyline than the one the IRS has conjured up against them. The Administrative State is truly the villain here. No government agency should have the power to ignore federal court interpretations of statues. The Supreme Court is ultimately going to have to choose between upholding Brand X and upholding the Constitution.”Mark Chenoweth, NCLA Executive Director and General Counsel 

NCLA is asking the Court to revisit Brand X and either abolish the doctrine or say that it does not apply when a previous court ruling interpreted the same statute using traditional tools of statutory interpretation. NCLA expects to learn whether the court will grant certiorari in January or February. Read full case summary here.

ABOUT NCLA 

NCLA is a nonprofit civil rights organization founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights. For more information visit us online: NCLAlegal.org

Click here to download

October 31, 2019 | Eight Amici Join NCLA’s Cert. Petition With the Supreme Court to Nix Brand X Deference

WASHINGTON, DC, October 31, 2019 – The New Civil Liberties Alliance is grateful for the
overwhelming support our Petition for a Writ of Certiorari with the U.S. Supreme Court has
received. The petition seeks to overturn the so-called Brand X doctrine. Amici curiae, or friends
of the Court, submitted briefs urging the Court to hear NCLA’s case representing Howard and
Karen Baldwin against the Internal Revenue Service. NCLA’s petition seeks review of the Ninth
Circuit’s decision in Baldwin v. United States. The two questions presented before the Court are:

1) Should Brand X be overruled? and (2) What, if any, deference should a federal agency’s
statutory construction receive when it contradicts a court’s precedent and disregards traditional
tools of statutory interpretation, such as the common-law presumption canon? See full case
summary here.

“The Constitution is meant to protect the people’s liberties from intrusion by the government,
not vice versa. Yet Brand X protects government litigants from the people by instructing federal
judges to side with the government. The Court should heed the clarion call of these amici curiae
and grant certiorari in this case.” – Adi Dynar, NCLA Litigation Counsel
Excerpts from Amici Curiae submitted in support of NCLA’s Petition for a Writ of
Certiorari:

• Administrative agencies are “weaponizing Brand X” to undermine the people’s liberties.
“Congressional legislation responding to judicial precedent interpreting statutes reflects healthy
operation of the separation of powers,” which “is a central feature of our system of checks and
balances.” – Americans for Prosperity and Cause of Action Institute

• Brand X deference “occasion[s] a disconcerting disruption of the constitutional balance between the
separated powers.” The IRS’s “transparently superficial exercise,” “should not be rewarded” with
deference merely because IRS went “through the motions of a Chevron-begging rulemaking.”—Cato
Institute and NFIB Small Business Legal Center

• “Brand X is contrary to the plan of the Administrative Procedure Act which vests judicial review of
legal questions in the courts. The Court’s decision in Brand X abdicates the judiciary’s duty under
section 706 of the … Act … to rule on questions of law and to invalidate agency actions that are
contrary to statute.” – Claremont Institute’s Center for Constitutional Jurisprudence

• Brand X “enables federal administrative agencies to effectively rewrite state laws,” and “allows federal
executive bureaucracies”—despite the Court’s “presumption against preemption in the absence of a
‘clear statement’”—to also “override state court jurisprudence.” – Goldwater Institute

• Brand X deference is a “ubiquitous problem in administrative law,” and “a liberty destroying cocktail.”
The Court should “begin to crawl back from the abyss by reasserting Article III power and
abandoning Brand X.” – The National Right to Work Legal Defense Foundation, Inc.

• It is important that courts do not give “reflexive deference” to agency interpretations of Congressional
silence, especially “when the silence signals that the common law tacitly supplies a legal presumption.”
– The New England Legal Foundation

ABOUT NCLA
NCLA is a nonprofit civil rights organization founded by prominent legal scholar Philip
Hamburger to protect constitutional freedoms from violations by the Administrative State.
NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power
of state and federal agencies and to foster a new civil liberties movement that will help restore
Americans’ fundamental rights. For more information visit us online: NCLAlegal.org.

Click to read here

September 23, 2019 | NCLA Files Petition with the U.S. Supreme Court Seeking to Abolish Brand X Deference

WASHINGTON, DC, — The New Civil Liberties Alliance today filed a Petition for
a Writ of Certiorari with the U.S. Supreme Court seeking to overturn the so-called Brand X doctrine. Under the
Court’s 2005 case, National Cable & Telecommunications Ass’n v. Brand X Internet Services, federal courts
are supposed to defer to federal agencies’ reasonable statutory interpretations even when those interpretations
contradict a previous court ruling interpreting the same statute. Lower federal courts have found this rule to be
unworkable, and federal agencies have taken advantage of Brand X deference in ways that deny due process and fair
notice to people like Howard and Karen Baldwin.

NCLA’s petition seeks review of the United States Court of Appeals for the Ninth Circuit’s decision in Baldwin v.
United States. The two questions presented before the Court are the following: 1) Should Brand X be overruled? and
(2) What, if any, deference should a federal agency’s statutory construction receive when it contradicts a court’s
precedent and disregards traditional tools of statutory interpretation?

The Baldwins are producers of multiple films including the Academy Award-winner, Ray (2004), about the life of
singer Ray Charles. But they are also law-abiding Americans who had overpaid their 2005 income taxes. Four
months before the October 15, 2011 deadline for refiling, they mailed their refund claim for $167,663 in overpaid
taxes to the Internal Revenue Service by regular United States mail. But the IRS alleges it never received their
refund claim and refused to pay. The IRS also argued that a new regulation the agency issued in August 2011 ended
the common-law mailbox rule for refund claims.

The Baldwins were forced to sue the IRS to get their money back, and they won at trial in the U.S. District Court for
the Central District of California, which upheld the common law mailbox rule under a 1992 court of appeals
precedent. On appeal, however, the Ninth Circuit, invoking the Brand X doctrine, decided that it had to defer to the
IRS’s new regulation over the court’s own precedent. The IRS’s regulation did not allow the use of extrinsic
evidence to prove the Baldwins mailed their tax return on time. The court gave Chevron deference to IRS’s
interpretation and reversed the favorable outcome the Baldwins had obtained after trial in district court.

NCLA is asking the Court to grant certiorari to revisit Brand X in order to abolish the doctrine or say that it does not
apply when a previous court ruling interpreted the same statute using traditional tools of statutory interpretation.

“The Brand X doctrine gives litigants like the Baldwins a Hobson’s Choice—follow court precedent and thereby
violate federal regulations or follow the federal regulations and thereby violate court-set precedent. Brand X is
incompatible with the Constitution. The Supreme Court should take the Baldwins’ case and recommit the Nation to
the rule of law.” – Adi Dynar, NCLA Litigation Counsel

“This is the case opponents of Brand X deference have been waiting for. You would be hard-pressed to find the
injustice at the heart of Brand X illustrated more clearly or set up for reconsideration more cleanly. A world where
federal agencies can overrule the prior statutory interpretations of the federal courts has proven to be totally
unworkable, and this case provides the U.S. Supreme Court a golden opportunity to correct course.” – Mark
Chenoweth, NCLA Executive Director and General Counsel
See the full case summary here.

ABOUT NCLA
NCLA is a nonprofit civil rights organization founded by prominent legal scholar Philip Hamburger to protect
constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro
bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties
movement that will help restore Americans’ fundamental rights.
For more information visit us online: NCLAlegal.org

Click to read here

OPINION

March 5, 2020 | Brand X deference advances ‘administrative absolutism’

​When Justice Clarence Thomas dissented from the denial of certiorari last week in Howard and Karen Baldwin v. U.S., he lamented that “Brand X has taken this Court to the precipice of administrative absolutism.” Given that Thomas himself authored NCTA v. Brand X Internet Services in 2005, the case that launched the Brand X judicial deference doctrine, this turnabout is worth examining more closely.

Brand X deference is a species of Chevron deference, the Supreme Court invented rule that federal judges “generally must adopt an agency’s interpretation of an ambiguous statute if that interpretation is ‘reasonable.’” But Brand X takes deference a step further by applying even when a federal court has already interpreted the ambiguous statute in question. Under its rule, “a court must abandon its previous interpretation in favor of the agency’s interpretation unless the prior court decision holds that the statute is unambiguous.”

At first blush it may not be readily apparent why this rule of interpretation treads ever closer to the edge of unlimited administrative power. But Justice Thomas points out that Brand X: (1) violates a judge’s duty under Article III of the Constitution; (2) is contrary to the Administrative Procedure Act; and (3) deviates from traditional approaches to statutory interpretation. Since Brand X dispenses with these three checks on executive power, it enables administrative absolutism.

Thomas begins by noting that Brand X violates Article III because it “compels judges to abdicate the judicial power without constitutional sanction.” The Constitution vests judicial power in the courts and fiercely protects judicial independence so that judges can apply their independent judgment to legal questions, including to resolve ambiguities in legal texts. But Brand X prevents judges from using — indeed compels them to violate their duty to use — their own independent judgment.

The judge’s role in the checks-and-balances system is to ensure that the law as passed by the legislature prevails. Otherwise, the executive makes law outside constitutionally prescribed channels. Upholding the statutory interpretation most in line with what the people’s representatives passed is how judges ensure legislative supremacy (and retain a democratic pedigree). If judges instead bow to an agency’s plausible (but inferior) construction of the statute, they give effect to the unelected administrative agency’s will over the elected legislature’s law.

As Justice Thomas puts it, Brand X “exacerbates” the “constitutional deficiencies of Chevron” and wreaks “heightened constitutional harms.” It forces judges to “surrender their independent judgment … despite a controlling precedent.” It thus “gives agencies the power to effectively overrule judicial precedents.” Brand X even “gives the Executive the ability to neutralize a previously exercised check by the Judiciary.” It thus enforces judicial acquiescence to the Executive’s disregard for judicial precedent.

Thomas next argues that Brand X deference contradicts the APA. Passed in 1946, the APA provides specific directions to the judiciary about the role the legislature expects judges to fill in interpreting statutes. For example, it instructs that “the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions and determine the meaning or applicability of the terms of an agency action.” 5 U.S.C. Section 706. That text is a far cry from asking judges to defer to agency interpretations. Yet Chevron ignored the APA and created a deference regime “rest[ing] on the fiction that silent or ambiguous statutes are an implicit delegation from Congress to agencies.”

Thomas further points out that Brand X runs counter to traditional methods of statutory interpretation. Federal courts have historically given weight to longstanding executive interpretations that date from a statute’s passage and stay consistent. But Brand X “mandates deference to an executive interpretation that is neither contemporaneous nor settled.” In fact, if the discarded precedent was long settled or else adopted a long-settled understanding, then Brand X gives federal agencies vast license to unsettle statutory meanings that had been fixed — stare decisis be damned.

Under Brand X, “agencies are free to invent new (purported) interpretations of statutes and then require courts to reject their own prior interpretations.” So not only does judicial review itself no longer rein in wayward interpretations, but the absence of any threat of meaningful judicial review empowers agencies to adopt venturesome interpretations.

Thomas’s dissent makes a strong case that Brand X runs contrary to Article III, the APA, and traditional methods of statutory interpretation. But does that really mean that administrative absolutism is in the offing? Well, these constitutional and statutory safeguards against an overreaching executive have been historically effective. Taking them away may not guarantee that administrative tyranny will ensue, but it does put in place the preconditions.

One could just trust that an agency, or an administration, will not abuse unchecked power that Brand X puts at its disposal. But that was not the Founders’ mindset. As James Madison wrote: “In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. … experience has taught mankind the necessity of auxiliary precautions.” Federalist No. 51.

Sweeping away Madison’s “auxiliary precautions” is risky. Forcing judges to favor administrative interpretations over their own has pernicious consequences for citizens like the Baldwins. With a level playing field in federal trial court, their (better) statutory interpretation prevailed, the trial judge found their witnesses credible, and they prevailed. Then, after the IRS invoked Brand X on appeal at the 9th U.S. Circuit Court of Appeals, the Baldwins lost.

The IRS won when it should not have, which bespeaks an arbitrariness and oppressiveness consistent with absolutism. The circuit judges failed in their duty to exercise independent judgment and deferred to the legal interpretation of one of the parties before the court — the IRS. When deference does that it denies due process of law and a fair trial to the other side. As this case makes unmistakably clear then, not only has Brand X brought the court to the brink of administrative absolutism, but the edge has already crumbled under the Baldwins’ feet.


Originally published in the Daily Journal on March 5, 2019

November 6, 2019 | The Worst Doctrine Few Have Heard of: Brand X

Federal administrators must love Darth Vader’s iconic –and ominous– line, “I’m altering the deal. Pray I don’t alter it any further.” That’s because the Brand X deference doctrine lets them.

Deference doctrines require judges to abdicate their duty of independent judgment and instead be biased in favor of government litigants and against non-government litigants. The 2005 Supreme Court case of National Cable & Telecommunications Association v. Brand X Internet Services spawned a brand-new deference doctrine that has come to be known as “Brand X deference.” You might have heard of deference doctrines like Chevron, Auer or Kisor. But Brand X is the worst deference doctrine few have heard of. It empowers agencies to overrule federal-court decisions by unilaterally altering the meaning of statutes the courts have already interpreted. The late Justice Antonin Scalia said it best in a 2012 case: Brand X in a “poof” expands or abridges executive power, enables or disables “administrative contradiction of the federal courts,” and penalizes individuals for following court precedent in ordering their lives and civic duties.

That is exactly what happened to California couple, Howard and Karen Baldwin, who sent their tax refund claim to the IRS in June 2011. Two months later, the IRS changed its interpretation of a statute that Congress has not amended since the 1954 codification of federal income tax laws. Based on its one-sided change, the agency refused to issue a refund to the Baldwins. The Baldwins sued the IRS and luckily the district court saw through IRS’s after-the-fact deal switch and declined to defer to IRS’s interpretation. But in a strange turn of events, the 9th U.S. Circuit Court of Appeals reversed the district court’s decision, deferring to IRS’s statutory interpretation under Brand X. The IRS’s changed 2011 interpretation contradicted a 1992 decision of the 9th Circuit, decisions from several other circuits, and a centuries-old common-law rule. None of that mattered to the 9th Circuit, however. Under the Brand X doctrine, the court deferred to the IRS’s decision to overrule federal-court decisions and excise a well-settled common-law rule.

Typically, circuit-court cases decided by three-judge panels (as almost all cases are) can be overruled only an an en banc court of appeals (i.e., an 11-judge panel in the 9th Circuit), by the Supreme Court, or –in terms of their future effect on other parties– by a properly enacted statute. Brand X is an exception to that rule. It incentivizes agencies to target court decisions they do not like, reach an opposite conclusion via regulation, and then demand –and receive– an approving pat on the back from the courts.

Fortified by Brand X, the IRS put the Baldwins in a no-win predicament — follow court precedent and thereby violate federal regulations or follow federal regulations that did not exist at the time they mailed in their tax-refund claim and thereby violate court-set precedent. When longstanding legal principles established by the courts get in the way, agencies can switch them off at will with impunity. Enabling agencies to willfully disregard the rule of law –while everyone else is required to obey– is the central feature of the Brand X doctrine.

Courts usually do not overturn previous court decisions without compelling reasons for doing so. Brand X, however, federal agencies can overrule court decisions for cursory reasons. More importantly, Brand X requires federal judges to be biased in favor of the federal-agency litigant. And it divests the federal judiciary –and Congress– from performing functions that the Constitution separately vests in them. It is the judiciary’s duty and province to say what the law is, and it is Congress’ job to make the laws. Article II agencies, thanks to Brand X, however, sit as a super court of appeals with authority to overrule decisions of Article III courts, and a super legislature to rewrite laws written by the Article I Legislature. Brand X thus lobs a grenade into the due-process, judicial-independence, and separation-of-powers guarantees that infuse the Constitution.

Several jurists –including Brand X’s author Justice Clarence Thomas– have called upon the Supreme Court to nix Brand X. And there is an ever-louder chorus of frustration rising from the appellate courts urging the high court to do the same. The Supreme Court should take the Baldwins’ case and recommit the nation to adhering to the rule of law. There is much more at stake in Baldwin v. U.S. than the amount of the Baldwins’ rejected tax refund.


Originally published in the Daily Journal on November 6, 2019