The New Frontier of Guidance Reviewability

Tomás Rios* December, 2024

In the administrative context, agency actions must be “final” to trigger judicial review. The Supreme Court’s opinions in Sackett v. Environmental Protection Agency and U.S. Army Corps of Engineers v. Hawkes Co. marked an important shift in finality doctrine by emphasizing that the calculus of whether agency guidance is “final” may turn on its practical effects. For decades, agency guidance rarely warranted judicial review because it is not legally binding and, thus, not final. But the advent of the Sackett-Hawkes pragmatic analysis has changed the landscape, raising particular concerns for agencies relying on promulgating guidance documents to “softly” regulate. This presents a puzzle: guidance varies in form and purpose, so what guidance is final? This Note makes two contributions. First, it offers a taxonomy of how circuit courts have developed the Sackett-Hawkes finality test into different doctrinal strands. Second, it evaluates a recent case in the Fifth Circuit, Clarke v. CFTC, to explain why no-action letters should remain insulated from judicial review. Unlike other guidance documents, no-action letters are “committed to agency discretion” because they are a species of prosecutorial discretion. Conflating the reviewability of no-action letters with general guidance risks doctrinal, constitutional, and policy consequences.

Introduction

In 2014, the Commodity Futures Trading Commission (CFTC)—an independent federal agency tasked with regulating the futures trading industry—issued a no-action letter to PredictIt, a platform that offers “trading” based on future political events, like election outcomes.¹ A no-action letter is a form of regulatory guidance.² Guidance allows agencies to explain their policies or interpret the gray areas of formally binding regulations. Companies like PredictIt can request no-action letters when they wish to know whether they have crossed a regulatory line.³ An agency enforcement staff member then evaluates the requestor’s given facts and, if the company passes regulatory muster, the officer drafts a written statement declaring that enforcement will not be recommended to the agency commission, like the CFTC.⁴ There are two reasons why this agency action falls short of a promise of future abstention. First, no-action letters are often conditioned on the company’s continued compliance with certain guidelines. If they run afoul of the letter’s conditions, the letter’s recommendation is revoked.⁵ Second, these letters do not bind agency heads—although as a practical matter, issuing agencies usually honor them.⁶ Here, the letter to PredictIt explained enforcement would not be recommended for PredictIt’s potential regulatory violation so long as PredictIt abided by the letter’s conditions.⁷ The letter could be withdrawn at any time, although rescission is admittedly rare.

Eight years later, the CFTC rescinded its 2014 no-action letter for PredictIt’s failure to comply with the letter’s conditions and subsequently ordered PredictIt to liquidate all contracts and open positions,⁸ which would have momentarily shut down PredictIt’s non-profit operation. Affiliates of PredictIt sued in response, prompting the U.S. Court of Appeals for the Fifth Circuit, in Clarke v. CFTC, to decide whether the withdrawal of the no-action letter was judicially reviewable.⁹ Under the Administrative Procedure Act (APA)—the statute that governs the processes by which federal agencies take regulatory actions—judicial review only applies to final agency actions.¹⁰ In the past, Clarke would have been an open-and-shut case; the issuance or withdrawal of no-action letters had never been subjected to judicial review.¹¹ But amidst a shift in finality jurisprudence, more and more administrative decisions are being reviewed by the federal courts.¹² And Clarke was no exception: the Fifth Circuit determined that the withdrawal was “final” and therefore reviewable.¹³

In Bennett v. Spear, the U.S. Supreme Court provided a two-part test for “finality.”¹⁴ To be “final,” and thus reviewable, an agency action must “mark the ‘consummation’ of the agency’s decisionmaking process,” and it must be one “by which ‘rights or obligations have been determined,’ or from which ‘legal consequences will flow.’”¹⁵ Agency guidance, such as no-action letters, have historically not been considered final by courts because they do not formally bind the party¹⁶ or the agency.¹⁷ But, as evidenced by the Clarke court’s eagerness to review the recission of a no-action letter, that view is changing.

Behind this shift is the Supreme Court’s recent emphasis in a pair of cases—Sackett v. EPA and U.S. Army Corps of Engineers v. Hawkes Co.—that Bennett’s inquiry must be “pragmatic,” thereby expanding the scope of what can be reviewed. The federal courts of appeals have consequently adopted varying approaches to assessing finality, effectively creating a spectrum of guidance reviewability whereby the ability to review guidance now depends on the circuit in which the issue is litigated. The majority trend, post-Sackett-Hawkes, has been towards liberalizing finality—classifying more agency guidance as reviewable. But this trend has gone too far: The Fifth Circuit, in Clarke, extended reviewability to the CFTC’s no-action letter. That should not have been the case.

This Note proposes that unlike other forms of guidance, the issuance and withdrawal of no-action letters should remain insulated from judicial review. This analysis operates from two baseline premises. First, while some kinds of agency guidance may properly constitute a “final agency action,” the nature of no-action letters precludes them from being construed as “final” under the Supreme Court’s finality jurisprudence even under the new, liberalizing Sackett-Hawkes regime. Second, because no-action letters are a regulatory analogue of prosecutorial discretion, they are best understood as being within an agency’s discretion and are thus shielded from judicial review under the APA.¹⁸

This Note proceeds in three parts. Part I explores what constitutes agency “guidance” and discusses how Bennett and its progeny have affected the reviewability of that guidance. Part II examines how the lower courts have applied the Sackett-Hawkes “practical effects” formulation to render guidance reviewable.¹⁹ Finally, Part III analyzes Clarke, concluding that it not only misconstrues the applicable case law, but it also dangerously expands finality doctrine.

I. An Overview of Agency Regulations and Finality Doctrine

Federal agencies use a variety of approaches to regulate, but only some of those approaches are reviewable by courts. Section I.A discusses the different types of tools employed by agencies and how agency guidance differs from other regulatory approaches. Section I.B analyzes how the Supreme Court’s finality analysis has evolved to increase reviewability of this non-binding guidance.

Agency Regulations—Rules and Guidance

Agencies deploy different tools for different occasions. Each year, federal agencies publish between 3,000 and 4,500 legislative rules in the Federal Register.²⁰ These agency-promulgated rules are the administrative analogue of public laws passed by Congress. Just as public laws must pass both chambers of Congress, legislative rules must pass through notice-and-comment procedures as prescribed by the APA.²¹ Since legislative rules may bind the public, the public is entitled to respond with “data, views, or arguments” to an agency’s notice of proposed rulemaking prior to that rule becoming final.²² Essentially, legislative rules, once promulgated, function like statutes in that they apply generally and are legally binding.²³ But solely focusing on legislative rules fails to capture all of administrative law.

As compared to formal rulemaking, agencies use—an estimated 200 times more often—a different, under-discussed tool for policymaking: guidance.²⁴ Inevitably, legislative rules cannot account for every circumstance. To fill these regulatory gaps, agencies provide guidance. Guidance documents are a wide range of regulatory materials including “advisories, circulars, bulletins, memos, interpretive letters . . . fact sheets, FAQs, highlights,” and no-action letters.²⁵ At a broad level, these documents are “agency statement[s] of general applicability and future effect, other than a regulatory action . . . that set[] forth a policy on a statutory, regulatory, or technical issue or an interpretation of a statutory or regulatory issue.”²⁶ For example, a regulated party may not understand how an agency’s rule or an underlying statute applies to its situation, prompting the agency to issue clarifying guidance.

Unlike other guidance, however, no-action letters are a species of prosecutorial discretion. These letters are issued by lower-level agency officials to inform regulated parties that the official will not recommend enforcement action against them to the agency at large.²⁷ They do not legally bind the agency against bringing charges, nor do they entitle the regulated party to any legal benefits.²⁸ They merely represent the officer’s opinion that enforcement may not be necessary.

Despite these differences, no-action letters share key advantages with other forms of guidance. Unlike legislative rules, all guidance documents—including no-action letters—are exempt from the APA’s processes²⁹ and can thus be issued and altered at large volumes at the drop of a hat. Guidance’s versatility has made it a staple of administrative law. Regulators agree: One EPA lawyer called guidance essential to the practice,³⁰ and an FDA official remarked that they “cannot imagine a world without guidance.”³¹ This is not mere rhetoric. One study shows these officials’ anecdotal remarks play out empirically, given that certain gray areas of administrative law are almost exclusively interpreted through agency guidance.³²

A common justification for these differences between guidance and formal rulemaking is that guidance is not legally binding on the agency or the public.³³ As Professor Nicholas Parrillo remarks, guidance “is only a suggestion—a mere tentative announcement of the agency’s current thinking about what to do.”³⁴ Or so we are told.

Modern finality doctrine has grown suspicious of this story. Traditional tools of regulation, like legislative rules, are always judicially reviewable because, like public laws, they are legally binding by default.³⁵ Guidance, on the other hand, often leaves would-be plaintiffs without judicial recourse despite encouraging reliance on its terms.³⁶ In no-action letters specifically, agencies are encouraged to disclaim guarantees, but as a practical matter “the agency ‘winks;’ that is, it lets it be understood that [parties] can rely on the policy statement and avoid enforcement if [they] act in conformance with the policy statement.”³⁷ This creates an asymmetry wherein the regulated party treats guidance as a legal north star despite receiving no cause of action in exchange, should the guidance be withdrawn.³⁸ And even where review of guidance is available, courts defer to an agency’s interpretation “unless ‘plainly erroneous or inconsistent with the regulation.’”³⁹ Guidance thus provides an often insulated and difficult-to-challenge tool. The effect is “regulation by compliance,” ⁴⁰ since parties are not legally required to conform to the guidance but comply anyway.

Scholars have largely argued in favor of greater judicial review of guidance.⁴¹ These arguments come in two primary strands. First, some have argued that more judicial review is preferable because guidance is subject to fewer procedural safeguards and results in greater empowerment of agencies in a manner that is incompatible with rule-of-law values.⁴² Professor Nicholas Bagley has noted that proponents of that view may argue that “if notice and comment reflects a commitment to legalism, [agency guidance] looks like a rejection of . . . legalism.”⁴³ Judicial review may be the necessary remedy for that rejection. Second, a related but distinct theory is that nonreviewable guidance threatens administrative legitimacy because it’s under-proceduralized and, thus, not sufficiently democratic.⁴⁴ This skepticism of guidance has ultimately filtered its way into the Supreme Court, which has adapted finality analysis to expand judicial reviewability of guidance through a more pragmatic finality test.

Finality in the Supreme Court: Bennett & the Sackett-Hawkes Formulation

For decades following the passage of the APA in 1946, the dominant approach to finality focused on a single question: whether an agency action was formally binding.⁴⁵ This approach historically excluded guidance documents from judicial review. But times are changing. In recent years, the Supreme Court’s finality jurisprudence has shifted towards a pragmatic inquiry, indicating to lower courts that countless agency actions that were once unreviewable may now be brought to federal court.

At first, courts struggled to determine what constituted finality. Without a formal test, courts evaluated cases individually, which created two lines of case law. One line of cases looked at whether the action would be legally binding.⁴⁶ The other asked whether an agency action had an immediate impact on the plaintiff.⁴⁷ In those cases, the immediate impact derived from some legal consequence created by the agency action. Bennett v. Spear resolved this split by creating a unified test that is contingent on an action’s legal consequences while still offering some pragmatic flexibility.

In Bennett, the Fish and Wildlife Service tried to preserve a particular species of fish by issuing a guidance document that effectively required the maintenance of minimum water levels in certain reservoirs.⁴⁸ The Court held that the guidance was final because—in effect—it prescribed new legal guidelines for other agencies by limiting the conditions under which they could harm or collect an endangered species.⁴⁹ In doing so, the Court forged a new, dual-pronged finality test: For an agency action such as guidance to be final, it must (1) “mark the ‘consummation’ of the agency’s decisionmaking process” and (2) be an action “by which ‘. . . obligations have been determined,’ or from which ‘legal consequences will flow.’”⁵⁰ Bennett accomplished two things. First, it established that where an agency action creates new legal guidelines that add completely original legal conditions, that action is final. Second, the new test created an analysis for courts to apply uniformly, which changed the landscape of reviewability by departing from the inconsistency of earlier cases. But it did not answer every important question. Since Bennett, courts have struggled to figure out what types of agency actions fit within the test.⁵¹ The most troubling agency action to analyze has been guidance.

Guidance documents have generally failed to meet the “legal consequences” prong because they are not formally binding. But guidance documents still have teeth—and regulated parties feel pressure to comply.⁵² External pressures such as bad publicity⁵³ and material harm to stock prices⁵⁴ incentivize compliance. In one survey, for example, a company officer described the company–regulator relationship as reminiscent of “a child to its parents, right down to the point that parents can often get their children to change behavior by informal means (‘raising an eyebrow’ rather than ‘spelling out rules’).”⁵⁵ Despite guidance being non-binding, compliance is incentivized because a well-liked company—like a favorite child—may face less scrutiny in the long run.⁵⁶

Although the Bennett test has since been applied flexibly to some guidance documents, it has not covered many other non-formally binding guidance types, even though they have had similar practical effects. The Bennett regime, thus, created an entire class of “regulated” parties without legal recourse to challenge agency “regulation” in federal court. This dynamic has been acutely devastating in immigration cases, where those harmed are individuals who lack the institutional leverage and access to change policies through the political process, unlike public companies, which are the often-imagined examples of regulated entities.⁵⁷

Seeking to address this remaining disparity, the Supreme Court used two similar cases to put a gloss on the Bennett finality standards. In both Sackett and Hawkes, the plaintiffs were landowners who wanted to develop their land but faced regulatory red tape.⁵⁸ The Environmental Protection Agency (EPA) in Sackett and the U.S. Army Corps of Engineers in Hawkes each sent the plaintiffs a guidance document claiming that the relevant lands were “navigable waters” under the Clean Water Act,⁵⁹ which could not be altered without agency-issued permits.⁶⁰ The plaintiffs disputed the agencies’ contentions, and the agencies countered by claiming that their statements did not merit judicial review because the issued guidance documents were not final agency actions under the APA.⁶¹ The guidance documents were both ultimately found to be final agency actions and subject to judicial review.⁶²

In Sackett, the Court applied the Bennett test, which emphasized whether an agency action “determined rights or obligations.”⁶³ The Court found that the guidance order satisfied Bennett’s first prong because it was not subject to further review by the EPA.⁶⁴ Further, the guidance order satisfied Bennett’s second prong because it imposed a legal obligation on the plaintiffs by requiring them to adhere to an agency-approved development plan.⁶⁵ The guidance order contained two relevant provisions that created potential legal detriments from which consequences could flow⁶⁶: The plaintiffs had to provide the EPA access to their property and any records related to the property.⁶⁷ And they were also subject to increased penalties in future enforcement proceedings should they violate the document’s terms.⁶⁸

Sackett applied the Bennett test to a guidance document that directly imposed legal obligations to the plaintiffs, but Hawkes concerned the issuance of a “Jurisdictional Determination” (JD). Unlike the Sackett guidance, the JD’s terms did not impose obligations and, thus, did not prohibit or require the plaintiffs to do anything. The JD was merely a determination of whether the plaintiffs’ property fell under the Clean Water Act’s (CWA) jurisdiction—and that determination was not formally binding.⁶⁹ Nevertheless, the Court held that the JD could still determine the plaintiffs’ rights or future legal consequences.⁷⁰

In applying Bennett’s second prong, Chief Justice Roberts’s majority opinion considered a counterfactual JD. If the JD had stated that the plaintiff’s property did not contain jurisdictional waters (a “negative” JD), then under the Corps’s internal rules, agencies could not assert jurisdiction over the land for at least the next five years.⁷¹ The “negative” JD thus limited a landowner’s potential liability for developing their land without a permit. That was, the Court held, a legal consequence.⁷² The Court reasoned that the opposite, then, must also be true. An affirmative JD, like the one issued here, “represent[ed] the denial of the safe harbor that negative JDs afford.”⁷³ That, too, bore legal consequences.

With its finding that both Bennett prongs were satisfied, the Court could have stopped. Instead, it doubled down on expanding Sackett, stating that Hawkes “track[ed] the ‘pragmatic’ approach . . . long taken to finality” before Bennett’s dual-prong approach.⁷⁴ Turning to Frozen Food Express v. United States,⁷⁵ the Hawkes Court analyzed how finality worked before the Bennett test. Frozen Food Express concerned the Interstate Commerce Act’s permit exemption for motor carriers carrying agricultural commodities.⁷⁶ The Interstate Commerce Commission (ICC) published guidance announcing the exemption to mean that some agricultural commodities did not qualify, leaving many motor carriers in need of permits.⁷⁷ The publication was held reviewable because the ICC’s determination that some agricultural commodities did not fit under the exemption had “immediate and practical impact[s]” on carriers transporting the commodities.⁷⁸ The Chief Justice, in Hawkes, noted that both Frozen Food Express and the instant case featured agency actions that warned plaintiffs they could risk penalties if they did not acquire a permit before conducting regulated actions.⁷⁹

Between both analyses, Hawkes made it clear that Bennett’s “legal consequences” prong must include the practical effects of agency actions.⁸⁰ Sackett and Hawkes, together, outline the modern approach to finality. Where Bennett’s test suggested the value of pragmatism in prong two’s “legal requirements” inquiry, Sackett-Hawkes applied the test to informal guidance.

As recognized by Professor William Funk, these cases infused the Bennett test with pragmatism but left a big question open:⁸¹ Must final agency actions have legal consequences, or can they just have a direct and immediate impact on the plaintiff to be final? This is a thin but important distinction. In most cases, both legal consequences and immediate impacts flow from an agency action. An agency action imposing legal obligations likely immediately impacts the plaintiff. But that is not guaranteed. Some agency guidance does not have any binding legal consequences.⁸² In her concurrence in Hawkes, Justice Kagan stated that finality requires a binding legal effect.⁸³ This excludes guidance such as interpretive rules, which merely give advisory readings of regulations without binding the agency to that view. Justice Ginsburg, in contrast, believed that guidance with an immediate effect on the plaintiff mandates a finding of finality.⁸⁴ This view could sweep in some interpretive rules or other guidance so long as the plaintiff can show it had a direct and immediate impact on them.

Justice Kagan’s view tracks the way the Bennett test’s “legal obligations” prong was applied in Sackett and Hawkes. But Hawkes’s own comparison to Frozen Food Express, and its focus on real-world reliance, places her view on uneven footing. Either way, Sackett-Hawkes liberalized finality and clarified what types of practical consequences a plaintiff could cite to establish finality when challenging agency actions. While both cases ultimately found legal obligations, Hawkes’ use of pragmatic language set the stage for the lower courts to determine how pragmatic each circuit would be in its finality inquiries.

II. A Review of the Major Circuit Differences

Lower courts are divided on how to implement the Sackett-Hawkes approach. Their analyses generally split into two groups: Some courts have found that the practical effects of some types of guidance documents make them legally binding,⁸⁵ while others have interpreted Sackett-Hawkes to imply a pragmatic approach, asking whether the affected party has been “reasonably led to believe that failure to conform will bring adverse consequences.”⁸⁶ The former test necessarily excludes from review many guidance types that do not impart legal effects, whereas the latter test sweeps in a great deal of guidance that is not legally binding. Section II.A analyzes the “formal” approaches adopted by the D.C. and Sixth Circuits. Section II.B then looks at the pragmatic approaches used by the Ninth and Fifth Circuits.

The “Objective” Approach—Narrow Expansions in the D.C. and Sixth Circuits

The D.C. Circuit has remained the most steadfast in avoiding reviewability; that is, it has adhered closest to Justice Kagan’s formulation of the Bennett standard by applying the Sackett-Hawkes pragmatism inquiry narrowly. In California Communities Against Toxics v. EPA, the court read Hawkes to “affirm[] that the two-prong test in [Bennett] remains finality’s touchstone.”⁸⁷ The court further explained that, despite the Hawkes Court characterizing the inquiry as pragmatic, the D.C. Circuit “do[es] not take the Court to be encouraging some sort of common-sense approach.” ⁸⁸ The question for the D.C. Circuit was whether a given agency action generates “concrete [legal] consequences.”⁸⁹ California Communities concerned two EPA memos. In 1995, the EPA issued a memorandum interpreting the Clean Air Act’s toxic-emissions source provision. The document explained that any toxic-emissions source classified as a “major source” could not be reclassified to an “area source,” which faced more lenient emissions caps.⁹⁰ In 2018, the EPA released a new memorandum superseding the 1995 memo, declaring that any major source could be reclassified as an area source if it sufficiently lowered emissions.⁹¹ The citizens of California sought review of the memo. The EPA, in turn, argued the memo was a guidance document which was not authoritative in legal proceedings.⁹² Had the court looked for non-legal “concrete consequences” it probably could have found some; for instance, by changing emissions standards, the number of toxic chemicals in the air may increase. Instead, the court held that despite lowering a source’s regulatory burden, the document did “not have a single direct and appreciable legal consequence” and was thus unreviewable.⁹³

Although the D.C. Circuit gave a nod to the Supreme Court’s “pragmatic” language, the court ostensibly went back to applying a pre-Hawkes formalistic inquiry. Since the guidance imposed no direct penalties or liabilities and was not formally final, the D.C. Circuit declined to review the guidance document.⁹⁴ In essence, the court held that agency actions that fail to shape legal realities on the ground for regulators or regulated entities are not final agency actions. And agency actions lacking independent legal authority to impose civil penalties or similar legal consequences may struggle to meet that standard.⁹⁵

Like the D.C. Circuit, the Sixth Circuit has also adapted its finality jurisprudence to be more pragmatic, albeit in a limited fashion. In Berry v. U.S. Department of Labor, the court held that to meet the “legal consequences” prong for finality, a challenged agency action “must have a ‘sufficiently direct and immediate’ impact on the aggrieved party and a ‘direct effect on [its] day-to-day business.’”⁹⁶ At first blush, the Sixth Circuit’s focus on “effect[s] on the day-to-day business” could seemingly reflect the “soft” restraints that companies face when complying with guidance documents.⁹⁷ But the test was applied more narrowly in Berry. There, a Department of Labor decision was determined to impart legal consequences on the plaintiff because it found that he was not eligible for compensation given to agency employees who developed illnesses from hazardous exposure.⁹⁸ This straightforward legal consequences application of Sackett-Hawkes is uncontroversial, although it’s noteworthy that the court included the “immediate impact” language similar to Frozen Food Express’s use of immediate effect in the opinion.⁹⁹

The court cabined this seemingly pragmatic approach just one year later in Parsons v. DOJ.¹⁰⁰ The Sixth Circuit, in Parsons, clarified that legal consequences fulfilling prong two of Bennett must be “direct and appreciable.”¹⁰¹ Cutting against a pragmatic reading of Sackett-Hawkes, Parsons clarified which types of agency guidance do not create legal ramifications. The court explained that the “practical results of an agency’s action that lack similar immediate and significant effects are not legal consequences.”¹⁰² For example, harms caused by agency decisions are not final if they “stem from independent actions taken by third parties.”¹⁰³ For the Sixth Circuit to find guidance reviewable, the legal consequences must flow directly from the guidance document itself.¹⁰⁴ Ultimately, like the D.C. Circuit, the Sixth Circuit looks at whether guidance documents generate direct legal consequences. These circuits permit judicial review for more cases than under Bennett because they capitalize on Sackett-Hawkes’s expansion of the types of legal obligations that satisfy finality, but they include fewer guidance cases than the pragmatic analyses used by the Fifth and Ninth Circuits.

Broad-Strokes Reviewability—The Fifth and Ninth Circuits

The Fifth and Ninth Circuits have taken the most liberal approach, finding finality—and thus reviewability—more often than the other circuits. These circuits ask (1) whether agency actions could produce legal effects despite being “objectively” nonbinding and (2) whether regulated parties have been reasonably led to believe that failure to conform may result in legal consequences.

In its current finality analysis, the Ninth Circuit focuses on the “practical and legal effects of the agency action” and interprets finality in a “pragmatic and flexible manner.”¹⁰⁵ That flexibility translates into asking whether the agency action could present “direct and immediate effect[s] on the day-to-day operations of the party seeking review” or if “immediate compliance [with the action’s terms] is expected.”¹⁰⁶ In practice, the Ninth Circuit has once held an interpretive rule was final,¹⁰⁷ but has not held policy statements, another commonly used form of guidance, as final.

Pre-Hawkes, the Ninth Circuit already interpreted Bennett broadly. In Oregon v. Ashcroft, the U.S. Attorney General issued guidance explaining that, in his view, physician-assisted suicide would violate the Controlled Substances Act.¹⁰⁸ The court held that this guidance was final with minimal explanation. In Judge Wallace’s dissenting opinion, where he agreed with the majority that the guidance was final, he clarified that the guidance ought to be viewed as final since it “significantly and immediately alter[ed] the legal landscape for Oregon physicians” by creating possible consequences for doctors who intended to continue the regulated practice.¹⁰⁹ This logic was taken a step further in Oregon Natural Desert Association v. U.S. Forest Service, which concerned the finality of the United States Forest Service’s operating instructions for “permittees” who “graze livestock on national forest land.”¹¹⁰ Grazing permits allow livestock to live and feed off regulated forest land.¹¹¹ The operating instructions are issued to permittees before each grazing season and they instruct permittees on how their permits will be affected by unanticipated conditions like droughts.¹¹² The court concluded that the issuance of the instructions was a final agency action. In doing so, it reasoned that the second prong of the Bennett test allowed for judicial review of any actions that “impose an obligation, deny a right, or fix some legal relationship as a consummation of the administrative process.”¹¹³ The court held that practical effects or “substantial impact” on regulated parties are sufficient to constitute the fixing of a “legal relationship.”¹¹⁴

Once the Sackett-Hawkes regime took effect, the Ninth Circuit further broadened its Oregon Natural Desert Association test. In Gill v. DOJ, the court held that agency actions could be final if they created legal consequences despite not being “objectively” binding.¹¹⁵ The case concerned the Functional Standard, a standardized system of information sharing among agencies regarding terrorism activities.¹¹⁶ The court first held that the Functional Standard was a guidance document.¹¹⁷ It then decided that the Standard was final based on two arguments. First, the administering agency could “kick out” of the relevant program participating agencies for failure to comply with the Functional Standard.¹¹⁸ Thus, the practical consequences of noncompliance held some legal value by depriving a regulated entity of a benefit. Second, the court couched its analysis in the fact that, when agencies opted in to the program, “there was the immediate understanding that its analysts would conform to the Functional Standard.”¹¹⁹ In other words, the participating agencies reasonably conformed their behavior to the Functional Standard because they believed legal consequences could follow. This rationale sets the Ninth Circuit apart from the D.C. and Sixth Circuits because it permits a finding of finality, and therefore reviewability, where there is a presumption that regulated parties will rely on the guidance document.

The Fifth Circuit has adopted a similarly far-reaching test. The court uses several approaches to determine finality depending on the circumstances. The first approach looks for binding language in the guidance’s text and next looks to whether it is applied “in a way that indicates it is binding.”¹²⁰ This approach is in line with the Ninth Circuit’s inquiry into practical and legal effects. But the Fifth Circuit has also relied on another, more pragmatic approach. When a guidance document cuts off future agency discretion to adopt a different view of the law, the Fifth Circuit treats that guidance as per se binding action.¹²¹ The Fifth Circuit also views guidance creating safe harbors that protect private parties from adverse legal action as final.¹²² Thus, the Fifth Circuit’s approach takes the broadest analysis of any circuit. So long as private parties can “shape their actions” by reasonably relying on the guidance, then the Fifth Circuit is likely to find it “binding as a practical matter.”¹²³

In Texas v. EEOC, the Fifth Circuit analyzed whether the EEOC was bound by a guidance document it had prepared on how Title VII, an antidiscrimination-in-employment statute, affected employers’ refusal to hire due to applicants’ criminal records.¹²⁴ The guidance provided that “[a]n employer’s evidence of a racially balanced workforce” was not sufficient to disprove a Title VII violation.¹²⁵ Instead, employers needed to “show that [their criminal-record hiring] policy operate[d] to effectively link specific criminal conduct, and its dangers, with the risks inherent in the duties of a particular position.”¹²⁶ The EEOC conceded it was bound by the guidance but nonetheless insisted the document was not final because legal consequences did not flow from it.¹²⁷ The court disagreed, holding that by committing the Agency to a view of the law “that . . . force[d] the plaintiff either to alter its conduct, or expose itself to potential liability,” the document created potential legal consequences and engendered reasonable reliance on it so as to avoid those consequences.¹²⁸

The Fifth Circuit’s doctrinal step in Texas v. EEOC was one that not even the Ninth Circuit took, although both Circuits have developed expansive finality tests. The Ninth Circuit permits finality where legal consequences flow from guidance, and where the agency presumes the party will conform their actions in response. The Fifth Circuit differs slightly, finding finality if private parties can shape their actions through reasonable reliance on the guidance. The difference in perspective means that each Circuit’s test may find reviewability more in different circumstances. But by focusing on the regulated party, which we know empirically may conform to guidance, the Fifth Circuit has the arguably broader approach. This focus, however, is also the basis of the Fifth Circuit’s most recent finality case: Clarke v. CFTC, which has taken the doctrine a step too far.

III. Clarke v. CFTC and Its Potential Impact

In Clarke, the Fifth Circuit extended the Texas v. EEOC test to hold that no-action letters and their recission are reviewable because those letters, and the recissions thereof, are final agency actions. But in so holding, the Fifth Circuit misunderstood how no-action letters differ from other types of guidance. This Part therefore analyzes the Clarke opinion; discusses why no-action letters are not final and why, even if they were, they would be presumptively unreviewable; and notes Clarke’s repercussions.

A. Clarke v. CFTC

The newest variation of the Fifth Circuit’s push for reviewability is Clarke v. CFTC. ¹²⁹ There, the court found that the withdrawal of a no-action letter was a final agency action and therefore reviewable.¹³⁰

Whereas the various guidance documents discussed in Part II intentionally or inadvertently created legal consequences, the no-action letter to PredictIt in Clarke merely stated that the CFTC’s Division of Market Oversight (DMO) would “not recommend enforcement action to the [CFTC] for failure to comply” with the Agency’s registration requirements for proposed event contract markets.¹³¹ It did not prevent the CFTC from changing course in the future and choosing to enforce against noncompliance. Rather, only the DMO, which cannot itself launch enforcement actions, was bound by its terms, and only the beneficiary of the letter was permitted to rely on it.¹³² The letter even stated that it “represent[ed] the views of DMO only, and d[id] not necessarily represent the positions or views of the Commission.”¹³³

In finding finality, the Fifth Circuit emphasized that the CFTC’s own rules governing no-action letters state that recipients may “rely” on letters issued pursuant to the rules.¹³⁴ The court used the “reliance” language to characterize the letter as a “form of permission” that is generally reviewable.¹³⁵

This characterization is important because it provided the panel two bases of justification. First, because under Heckler v. Chaney, agencies enjoy prosecutorial discretion for individual non-enforcement decisions,¹³⁶ the Clarke court’s characterization of the letter as “permission”¹³⁷—as opposed to mere non-enforcement—opened the door to review. Whether no-action letters fall under the umbrella of prosecutorial discretion is a threshold question that, if true, would have made the letter presumptively unreviewable.¹³⁸ But the court maintained that this presumption does not apply where the letter provides the beneficiary permission to rely on it. Once the court established no-action letters were not precluded from review, they then characterized the letter as “permission.” This allowed the court to argue that the CFTC had “withdrawn its discretion to bring enforcement proceedings . . . , which undermine[d] the contention that the CFTC [wa]s in no way bound through no-action letters.”¹³⁹ If the Fifth Circuit was right that the CFTC was barred from any enforcement of PredictIt, then finality would follow. The Fifth Circuit then applied its interpretation of Hawkes’s second prong by asking whether the issuance of the no-action letter would have reasonably led one to believe that they and the CFTC were bound. Since the court established that the CFTC’s own rules said the letter could be relied on, the court held it was likely that the no-action letter’s issuance and withdrawal were final agency actions subject to review.¹⁴⁰

Judge Ho in concurrence admitted that the court’s application of Hawkes to no-action letters was novel. He explained that, prior to Clarke, “no circuit ha[d] held that a no-action letter or its withdrawal [wa]s sufficient to constitute ‘final agency action’ under the Administrative Procedure Act. And some ha[d] held the opposite.”¹⁴¹ Clarke thus stretched Texas v. EEOC’s reliance test to an area of guidance that has been consistently protected by the courts. For the reasons that follow, the nature of no-action letters makes this extension doctrinally and constitutionally suspect.

B. Clarke’s Doctrinal Missteps

Clarke commits two fundamental errors. First, the no-action letter should not have constituted a final agency action, even under the Fifth Circuit’s expansive definition of finality. Second, even if the letter and its withdrawal were final, no-action letters should be protected from judicial review as a form of enforcement discretion.

The Issuance and Withdrawal of No-Action Letters Are Not Final Agency Actions

Neither the issuance nor the withdrawal of a no-action letter constitutes a “final agency action” in any circuit.¹⁴² For an agency action to be final it must fulfill both prongs of the Bennett test, yet the CFTC’s no-action letter fulfilled neither prong. First, neither the issuance nor the withdrawal of a no-action letter signals the “consummation”¹⁴³ of the agency’s decisionmaking process.¹⁴⁴ When a CFTC staff member reviews a no-action request, they may issue a letter recommending “[no] enforcement action to the Commission.”¹⁴⁵ The statement “binds only the issuing Division”—in this case the DMO—and not the Commission itself.¹⁴⁶ Thus, because these letters are advisory and cannot prevent the Commission from bringing enforcement, they do not mark the “‘consummation’ of the agency’s decisionmaking process.”¹⁴⁷ Indeed, the Agency itself has not made a decision at all—only the DMO.

The issuances and withdrawals of no-action letters similarly fail Bennett’s second prong, even under the Fifth Circuit’s broad interpretation. The court gave two arguments to the contrary. First, they suggested that the letter bound the Agency and, therefore, granted PredictIt the right to rely on a promise of non-enforcement.¹⁴⁸ But the CFTC no-action letter did not bind the Agency. Clarke’s reading that the CFTC was bound by the letter based on the CFR’s “reliance” provision cuts against a plain-text reading of the antecedent provision, which explicitly states that “only” the DMO is bound by the letter.¹⁴⁹ To that extent, the Fifth Circuit’s attempt to analogize Clarke to Texas v. EEOC fails because the letter’s language, as well as the Commission’s regulations, note the Agency is not and cannot be bound by it.¹⁵⁰ The CFTC’s no-action letter, therefore, did not bind the Commission in any way and could not prevent enforcement. It thus could not have granted PredictIt any rights or determine relevant obligations.

Second, the Clarke court argued that PredictIt’s reliance could be asserted independently because the letter constituted “a form of permission.”¹⁵¹ That is incorrect. On its face, the letter merely explained the DMO’s intention to “not recommend that the Commission take any enforcement action in connection with the operation of [the] proposed market.”¹⁵² The DMO’s recommendation could still be overridden by the Commission.¹⁵³ Unlike in Texas v. EEOC, it is not reasonable to think that the letter could never be withdrawn, given that the DMO reserved the right to do exactly that. Moreover, it is similarly unreasonable to think the letter precludes enforcement forever. The absence of a prosecution recommendation, after all, does not constitute the CFTC’s consent towards the regulated entity’s behavior.¹⁵⁴

The court also held that the letter functioned as a “form of permission” because the CFTC’s rules state that “a beneficiary ‘may rely’ on the . . . no-action letter.”¹⁵⁵ The court cited Data Marketing Partnership, a case in which a different type of guidance document signed expressly on behalf of the Department of Labor was held final because it explicitly said that requestors could “rely” on it.¹⁵⁶ Data Marketing Partnership does not support the court’s conclusion. Unlike the letter in Data Marketing Partnership,¹⁵⁷ which was signed on behalf of the Department of Labor, the DMO did not have the delegated authority to speak for the CFTC. As discussed above, this means that the letter could not have bound the Agency and engendered PredictIt’s reasonable reliance.

But perhaps more simply, the reliance clauses in Data Marketing and Clarke are different. The reliance clause in Data Marketing’s guidance document explicitly granted requestors “the right to ‘rely’ in certain circumstances on the opinion” because it entailed legal consequences.¹⁵⁸ The reliance provision in Clarke was patently different. First, any plausible reliance is on a mere promise to recommend non-enforcement. But that is not the same as a reliance on non-enforcement itself, since the Division cannot make that determination. Second, the Clarke court omitted that the relevant sentence of the CFTC regulations in full read, “[o]nly the Beneficiary may rely on the no-action letter.”¹⁵⁹ The placement of “only” indicates that any promise of an internal non-prosecution recommendation applied “only” to PredictIt. No-action letters are individual assessments, and the simplest reading is that the provision clarified that other regulated entities with parallel facts could not reasonably assume that the same recommendation would apply to them by default.¹⁶⁰ This reading aligns better with existing case law and scholarship.¹⁶¹ No-action letters do not grant legal permission.

One may reasonably disagree as to whether the “reliance” language in the CFR could induce reasonable reliance. I maintain that it should not be read that way, but even if one did think the letter engendered reasonable reliance, the letter should still be protected from review for reasons explained in the next section. And it is telling that while other circuits have expanded finality to include some guidance documents, no other court has held that no-action letters are reviewable, because no-action letters are traditionally non-binding suggestions.¹⁶²

Clarke ignored the weight of the case law cutting against it, opting instead for reviewability where it should not exist. The decision also did no favors to itself by quickly dismissing whether the letter was presumptively unreviewable under Chaney. A correct reading of the law would have maintained that even if the court was right that no-action letters were final agency actions, they would still be presumptively unreviewable as acts of prosecutorial discretion.

No-Action Letters Should Be Unreviewable Under Heckler v. Chaney

The CFTC’s no-action letter should have been unreviewable because it was a textbook application of enforcement discretion. Courts have maintained that enforcement decisions do not constitute a final agency action “unless and until the agency completes its investigation, files an administrative complaint, and enters a formal adjudicative finding of noncompliance.”¹⁶³ In Heckler v. Chaney, the Court determined that an agency’s decision to not pursue an enforcement action is presumptively not subject to judicial review. Heckler v. Chaney provided several reasons¹⁶⁴ for which agency enforcement discretion is protected from review.¹⁶⁵ All are true for no-action letters, too.¹⁶⁶

First, the Chaney Court noted that limited administrative resources require agencies to evaluate a wide range of factors in setting enforcement priorities.¹⁶⁷ Analysis predicated on an agency’s expertise and resource allocation preferences are simply not suited for courts. This theory has been one of the most popular Chaney bases cited by courts,¹⁶⁸ and has been adopted by the Seventh Circuit as its basis for holding that SEC no-action decisions are unreviewable.¹⁶⁹ In the case of Clarke, the decision to issue a no-action letter was a non-binding memorialization of a resource concern. If the CFTC had wanted to bring an enforcement action against PredictIt, it could have—but for the time being, it had chosen not to. The CFTC’s subsequent withdrawal of the letter represented the other side of the coin, in which the CFTC had then decided it might bring charges and wanted PredictIt to be aware that resources would no longer constrain the agency.

Second, the Chaney Court noted that an agency’s refusal to act does not exercise coercive power over an individual’s liberty or property rights and thus does not infringe upon areas that courts are called upon to protect.¹⁷⁰ This is because no-action letters do not materially affect the regulated entities. A recommendation of non-prosecution that does not bind the agency is merely advisory; therefore, if final non-enforcement decisions cannot impact one’s rights or liberties, that justification is even stronger as to no-action letters.

So too, the withdrawal of no-action letters is not coercive. To illustrate why, look at how no-action letters differ from the agency action at issue in Robbins v. Reagan. There, the D.C. Circuit held reviewable a decision by the Department of Health & Human Services to shut down a homeless shelter.¹⁷¹ That was a coercive exercise of agency power because the rights of the people using the shelter were instantly changed by the Agency’s action. The court explained that some “rescissions of commitments . . . exert much more direct influence on the individuals or entities to whom the repudiated commitments were made” than no-action decisions.¹⁷² But the no-action letter’s withdrawal cannot rescind rights, since the letter’s issuance could not grant them. Unlike the Agency’s initial decision to open a homeless shelter in Robbins, which committed the Agency to housing unhoused people, the issuance of a no-action letter is not a commitment. It is a recommendation. It is true that no-action letters are frequently honored by the Commission, but because the letters cannot bind the Agency, they merely memorialize that a staff member will recommend non-enforcement. That is not a guarantee of non-enforcement.¹⁷³ If reliance exists at all, it is reliance on the fact that recommendations are often persuasive to the agency. But the reliance could not be for non-enforcement altogether.

Even if the issuance of the letter were a commitment, the withdrawal would still fail to be coercive. Under Robbins’s own terms, the relevant recission must “exert . . . direct influence” on the regulated party.¹⁷⁴ But in Clarke, the withdrawal of the letter did not exert more or less direct influence on PredictIt than the initial no-action recommendation. Withdrawal may make a regulated individual wary of forthcoming enforcement, but because the no-action letter is merely a recommendation to begin with, the Commission could disagree regardless of whether it has withdrawn its letter.¹⁷⁵ Regulated parties are told this explicitly. Therefore, the letter’s withdrawal cannot be said to exert more influence than the initial no-action determination.¹⁷⁶ No-action letters are therefore not coercive, satisfying Chaney’s second rationale.

The final justification for Chaney’s holding is one of the most popular. As a member of the executive branch, “an agency’s refusal to institute proceedings shares to some extent the characteristics of the decision of a prosecutor in the Executive Branch not to indict.”¹⁷⁷ Prosecutorial discretion has traditionally been thought to insulate the decisions of criminal prosecutors from judicial review.¹⁷⁸ Understandably, its anomalous position in our scheme of limited government has been thoroughly critiqued.¹⁷⁹ Indeed, many of those who support unreviewability over matters of prosecutorial discretion have acknowledged it is a remarkably powerful grant of immunity.¹⁸⁰

Chaney officially imported the expansive power of prosecutorial discretion to the administrative state with its enforcement action capabilities.¹⁸¹ This has since been borne out in the subsequent case law, for courts have begun to invoke theories of prosecutorial discretion to insulate agency no-action decisions.¹⁸² Indeed, analogies to criminal prosecutorial discretion have been applied both positively and negatively to identify which actions are within an agency’s enforcement discretion.¹⁸³ No-action letters, which are fundamentally decisions of enforcement discretion, should not be treated like other guidance. They, instead, merit a similar presumption of insulation from judicial review.

The Fifth Circuit and others may understandably be concerned about granting such great power to agencies. But administrative enforcement does face limiting principles. It’s important to note that the reality of agency discretionary power is more nuanced than many conventional critiques may care to admit. Just as line prosecutors must advance the policies set by their lead prosecutor,¹⁸⁴ individual regulators are ultimately limited by the directives of their agency heads and the agency’s structure.¹⁸⁵ For example, regulators have limits on their ability to engage in categorical non-enforcement. Where Congress has explicitly created statutory jurisdiction, Chaney does not apply, and plaintiffs may bring their non-enforcement claims to court.¹⁸⁶ But that is not the case for individual no-action letters. An agency acting contrary to a statutory mandate to enforce is constitutionally distinguishable from agencies refusing to enforce their own regulations. Separation-of-powers concerns counsel judicial review where an agency’s failure to act violates their executive duties. But as Professor Sunstein has explained,

[T]he fact that a regulation indicates that certain private conduct is unlawful does not, in and of itself, impose on the agency any duty of enforcement. Such a regulation does not purport to require the agency to act but only sets out standards to guide regulated class members and regulatory beneficiaries. A failure to enforce such a regulation should not be grounds for judicial intervention.¹⁸⁷

It follows, then, that no-action letters may be issued or withdrawn without review, but actual enforcement must be an agency-wide decision to move forward subject to judicial remedies.

Another way of considering this dichotomy is that no-action letters reflect the regulatory analogue of a criminal prosecutor’s internal recommendation not to prosecute or to not prosecute yet. Much like when prosecutors refuse to bring forth a case, judicial review is not merited because there is no affirmative duty to enforce in any given instance.¹⁸⁸ Those decisions are subject to case-by-case analysis by the prosecutor. Review of non-enforcement would thus fail to advance the judicial goal of “checking” executive failure in a meaningful way.

Of course, an agency’s decision to enforce is subject to judicial review, just as a prosecutor’s decision to charge could be questioned, in a court, as prosecutorial misconduct. Indeed, there have been times where courts have appropriately rebuked agencies for categorically failing to enforce certain policies;¹⁸⁹ however, isolated non-enforcement recommendations have never been struck down by a court.¹⁹⁰

Ultimately, courts have construed no-action letters as explicitly protected by Chaney as actions “committed to agency discretion.”¹⁹¹ Chaney’s logic thus permits no-action letters to be presumptively non-reviewable by extending basic principles of enforcement discretion.¹⁹²

C. Clarke Creates Constitutional & Policy Concerns

Rendering no-action letters reviewable presents unique and harmful consequences. The extension of Clarke’s “reasonable reliance” rationale to all no-action letters would significantly limit agencies.¹⁹³ Such a rationale suggests no-action letters would function as a “one-way ratchet” of regulation, simultaneously allowing agency staff to easily publish binding policy that liberalizes regulation while making it difficult for the agency itself to undo that policy.¹⁹⁴ This outcome is both constitutionally suspect and practically undesirable. This Section raises the potential constitutional risks attached to Clarke’s vision of no-action letter reviewability and then delineates the important policy issues that are likely to arise should Clarke’s rationale become popular.

Clarke’s Rationale Creates Constitutional Risks

Clarke creates a new model of no-action letter issuance that raises constitutional risks. The court in Clarke made two assumptions. First, it assumed that no-action letters are not a form of prosecutorial discretion.¹⁹⁵ Second, it assumed that the no-action letter’s “reliance” language legally bound the issuer’s agency.¹⁹⁶ If both assumptions are true, the court’s model seemingly permits the issuing officer to promulgate a binding (albeit, informal) policy decision on behalf of the agency. This falls uneasily into the puzzle of presidential power that has been the source of recent constitutional dispute.¹⁹⁷

The Supreme Court has repeatedly invalidated as unconstitutional the internal structures of administrative agencies in the name of political accountability to the President.¹⁹⁸ In so doing, the Court has stressed that Article II vests “the entire”¹⁹⁹ executive power in the President of the United States of America.²⁰⁰ This understanding has cemented the undergirding principle of the Court’s recent administrative structure cases: The President must maintain control and responsibility over administrative policymaking,²⁰¹ directly or indirectly.²⁰² Whether this structural understanding accords with history or is pragmatically optimal is hotly debated.²⁰³ Nevertheless, it has shaped—and continues to shape—modern administrative law.²⁰⁴

United States v. Arthrex extended this logic.²⁰⁵ In Arthrex, the Court considered the constitutionality of administrative patent judges (APJs).²⁰⁶ Not only could these agency actors be removed by the President only for cause, but their decisions were also not reviewable by the agency head despite binding the agency at large. Thus, the President could not remove APJs at will, while their decisions went internally unchecked: this model was therefore found unconstitutional because the APJs were not sufficiently accountable to the President.²⁰⁷ The Court cured the violation by mandating review of APJ decisions by the head of the agency.²⁰⁸ The Court’s rule was clear—for the President to fulfill their constitutional duty of sufficiently overseeing agency decisionmaking, final power must lie with the agency head.²⁰⁹

Clarke puts agencies on the wrong side of this principle and is thus discordant with modern presidential-power jurisprudence. If no-action letters are not tools of enforcement discretion, but rather are binding final agency actions, then they effectively become quasi-legislative rules promulgated by lower-level officials.²¹⁰ This generates constitutional tension. Under Arthrex, inferior officers are not vested with final decision-making authority. Yet, under Clarke’s model, an inferior officer’s no-action letter would bind the agency without agency-head review, as if it were promulgated by the head of the Commission themself.²¹¹ Like in Arthrex, then, the lack of at-will removal of the inferior officers tasked with issuing and withdrawing no-action letters combined with the lack of agency oversight of their decisions may flout the Constitution.²¹²

There are, admittedly, important differences between the two contexts. Clarke’s potential saving grace is that the Arthrex Court cabined its holding to the adjudicative context—meaning, its holding is only formally required for administrative law judges.²¹³ But Arthrex also suggested that agency-head control over adjudications is important precisely because agency adjudications may implicate policy concerns.²¹⁴ This argument therefore maps tightly onto no-action letters, which under Clarke’s assumptions are likely policy decisions about what to—and not to—enforce. After all, if no-action letters are binding on the agency, then there exist countless instances of SEC or CFTC policy falling outside the discretion of the agency heads. By extension, that formal policy would be outside the hands of the President.

Regardless of these distinctions, constitutional caution is warranted. In her dissent in Collins v. Yellen, Justice Sotomayor lamented that “[t]he Court has proved far too eager in recent years to insert itself into questions of agency structure best left to Congress.”²¹⁵ With the Court’s fervor for invalidating agency structures in the background,²¹⁶ the Fifth Circuit has unnecessarily invited constitutional challenges.²¹⁷ When a decision generates problems of constitutional scale, that decision should be viewed with some skepticism.²¹⁸ But this case does more than just raise questions: if the new structure were challenged, it may add to the influx of opinions valuing political control of agency action over agency independence.²¹⁹ If that line is pushed much further, we may worry that promises of neutrality in agency enforcement become merely fictional.²²⁰

2. Clarke Would Hamstring Agencies and Hurt Regulated Parties

Clarke also raises important policy concerns. By creating a “one-way” ratchet, it lowers the transaction costs for deregulatory actions even further.²²¹ When a deregulatory presidential administration is in place, under Clarke, it could use staff letters to deregulate at no cost, but the withdrawal of that letter would be costly.²²² This is in line with the courts’ recent trend of making deregulation much easier than regulation.²²³ For a pro-regulation administration, this could pose a real problem,²²⁴ and the potential responses to Clarke that agencies have available to them are not much better.

First, agencies could ensure that their own rules make clear that no-action letters are not to be relied on. This gets past the “characterization” problem from Clarke because the letter could not plausibly be read to be “permission.” But it might still be susceptible to Clarke’s broad analysis under the second prong of the Sackett-Hawkes test; a party could still “reasonably” rely on the letter based on how often they are honored. Even with an agency’s clear statement of non-reliability, legal consequences could still be inferred as flowing from the letter should the recipient break the conditions of the letter. If so, no-action letters would be effective regulatory tools in the D.C. Circuit and Sixth Circuit because any legal consequences are only speculative. But in the more pragmatic Fifth and Ninth Circuits, the utility of no-action letters may falter under Clarke.

Second, agencies could decrease their use of no-action letters as a regulatory tool. After all, if no-action letters are subjected to judicial review, agencies will face mountains of unprecedented litigation costs, which would outweigh the costs of simply formalizing the decision.²²⁵ In lieu of agencies’ current reliance on non-binding “regulation,” we might see more formal rulemaking or enforcement “crackdowns” instead. ²²⁶ That may appeal to some, but this approach would hinder the ability of agencies to rely on the flexibility of no-action letters as alternatives to these more exacting determinations.²²⁷

Third, agencies may be more hesitant to enforce similar issues. For example, one month before the decision, the CFTC was investigating event contracts certified by a financial exchange and prediction market.²²⁸ The agency issued an order “disapproving” of the event contracts.²²⁹ One commissioner abstained from the decision to issue the order because she believed Clarke “may [have] prevent[ed] the Commission from taking action” against the company.²³⁰

The first two responses are not necessarily a “win” for regulated parties. One may think that decreasing agencies’ regulatory tools would make it easier for parties to avoid enforcement. But that is not necessarily the case. If no-action letters become obsolete, agencies may shift to using harsher tools, like more severe penalties, that may have negative downstream effects on consumers.²³¹ Just as nonreviewable agency discretion applies to underenforcement, it also applies to overenforcement.²³² In some instances—such as after a financial crisis—we may think of “crackdowns” as good, but caution is warranted. Resistance against softer agency efforts has also spurred crackdowns in immigration removal.²³³ While no-action letters are primarily tools of financial regulators, we may not want to incentivize widespread crackdowns. If no-action letters are deemed reviewable, it seems unclear what guidance would not be. This could lead down a path of increased enforcement across the whole swath of agencies, including in the immigration realm where regulated parties are largely individuals, instead of resourced corporations.

The outcome of a substantial decrease in no-action letters is also less regulatory clarity. Companies and individuals rely on the letters to better understand how the agency thinks about enforcement of its rules.²³⁴ For many companies, analyzing risk in the absence of no-action letters may become more costly because agencies would likely rely more on actual enforcement where they lack the ability to easily “wave the finger” at suspect actors.²³⁵ Indeed, a similar situation has already played out, confirming these costs to regulated entities.²³⁶ In 2016, the Consumer Financial Protection Bureau created a narrow no-action-letter program.²³⁷ After altering the program to permit reliance on the letters,²³⁸ the program was later scrapped.²³⁹ Regulated parties have since spoken out asking for a return to the guidance scheme.²⁴⁰ One coalition of community banks has campaigned for a return to the original narrow no-action letter program because it “provided a framework that fostered innovation while supporting consistent regulatory oversight.”²⁴¹ No-action letters may not be perfect, but they enable “transparent dialogue and support regulatory clarity,”²⁴² which is invaluable for an entity looking to avoid harsh enforcement. Without no-action letters, parties are left to wade regulatory waters in the dark, fearful that they may cross a non-obvious legal line.

The third response—hesitance—could bring mixed consequences. It may be a positive if hesitation results in careful analysis that weeds out “improper” cases. But financial enforcement hesitation could also hurt the American public if agencies feel unable to quickly regulate harmful financial developments. As Professor Chris Walker has put it, “agency decisions not to enforce . . . often harm those who would have benefitted from the enforcement action—the consumers, investors, employees, and so forth, whose rights and interests go unprotected because of the regulator’s decision not to enforce the laws.”²⁴³ PredictIt’s violations may not live up to the severity of the 2008 recession, but there will be other harmful financial conduct in the future.²⁴⁴ When it happens, we will want agencies to act.²⁴⁵

Conclusion

Following Sackett and Hawkes, courts have diverged on whether different types of guidance documents are reviewable. The Fifth Circuit’s “reasonable reliance” analysis in Clarke is the broadest of any circuit. But if Clarke’s rationale is adopted widely, the federal judiciary will have unwisely opened Pandora’s box. Courts, therefore, ought to distinguish between non-enforcement guidance documents writ large and no-action letters, specifically. It may be that some review of guidance, generally, is a good thing that will give more regulated parties their day in court. But if courts apply that logic to no-action letters, they risk depriving agencies of the enforcement discretion that is necessary for careful and independent decisionmaking. The Fifth Circuit is the only court that has analyzed no-action letters like they analyze other guidance documents; for many doctrinal and policy reasons, future courts should not follow its lead.

Regardless of how courts will decide to review these letters, what stands clear is that a new era of judicial review for guidance documents has emerged. As guidance becomes more reviewable, agencies may be forced to themselves comply with a different vision of the administrative state. The next regime may well shift toward increased proceduralization and a rollback of informal decisionmaking.

*J.D. Candidate, May 2025, University of Michigan Law School. Thank you to Professors Christopher Walker and Daniel Deacon for their feedback and encouragement throughout the writing process. Thanks also to Joshua Florence for inspiring this Note and to Sophia Montgomery whose unpublished piece on civil rights guidance spurred some of my research. I am further grateful to the Michigan Law Review Volume 123 Notes Editors—Alex Izbiky, Kavitha Babu, Lulu Qian, Jeesae Kim, Salvatore Guido, and especially Sara Shapiro—whose thoughtful edits improved this Note. I would also like to thank Arthur Etter and Jeb Taylor for their invaluable suggestions, and lastly thank you to my parents and to Liliam for their endless support. All mistakes are my own.