SCOTUS Opens Floodgates to Regulatory Litigation?

Setting the Table

On June 28, 2024, the U.S. Supreme Court (the “Supreme Court”), in a pair of cases styled as Loper Bright Enterprises v. Raimondo, overruled its 1984 landmark decision in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The Chevron case, which was decided exactly 40 years ago, had established a foundational framework in federal administrative law regarding how federal courts and agencies should interpret federal laws that govern those agencies and the rules and regulations that they promulgate (we refer to rules and regulations as just rules in this note). Chevron was one of the most important cases in federal administrative law and has been cited by federal courts over 19,000 times.

In broad strokes, Chevron generally applied when Congress delegated authority to an agency “to make rules carrying the force of law.” For context, many federal agencies in the United States—including, for example, the Environmental Protection Agency (EPA), the Food and Drug Administration (FDA), and the Federal Communication Commission (FCC)—promulgate rules all the time. These rules carry out Congressional mandates set forth in the federal statute that governs a particular agency. But Congressional mandates are sometimes written in vague and open-ended terms, so federal agencies often have flexibility with respect to rules in order to fulfill those mandates. Stakeholders who may not like the rules—like businesses, industries, trade associations, and local governments—often challenge them in court.

So, What Exactly is Chevron?

Chevron is a Supreme Court case that established something known as the “Chevron deference doctrine,” which is a two-step framework that federal courts applied when evaluating a challenge to an agency’s rule. The first step required the reviewing court to determine whether Congress spoke to the specific issue at hand (for example, was there a clear mandate?). If the reviewing court found that Congress spoke clearly on the issue, the court was required to give effect to the legislative intent and the inquiry ended. If, however, the reviewing court found the governing statute to be silent or ambiguous on the particular issue at hand, the second step of Chevron required that the court defer to the agency’s interpretation of the statute as long as it was a “permissible construction of the statute,” even if the reviewing court would have reached a different conclusion.

This framework, understandably, is a bit academic and hard to understand in the abstract. We get it. It is therefore helpful to illustrate how this framework might work in the real world. Helpfully, the facts of these cases, styled as Loper Bright Enterprises v. Raimondo, provide a helpful, albeit esoteric example.

The Facts of These Cases Illustrate the Chevron Framework

These cases involve the legality of a rule promulgated by the National Marine Fisheries Service (“NMFS”), which administers the Magnuson-Stevens Fishery Conservation and Management Act (“MSA”). The MSA is a federal law that was enacted by Congress in 1976 to prevent overfishing off the coastlines, and it contains various directives to the NMFS in furtherance of that objective. One of the directives requires the development of “fishery management plans.” The MSA provides that certain fishery management plans may require that “one or more [human] observers be carried on board” domestic vessels “for the purpose of collecting data necessary for the conservation and management of the fishery.” See 16 U.S.C. § 1853(b)(8).

As is relevant to the dispute, the MSA also specified certain types of vessels that must pay for the costs associated with these human observers. Critically, though, the statute was silent on whether Atlantic herring fishermen were required to pay for the cost of human observers if the fishery management plan required them. The NMFS therefore adopted a rule that required vessels (including for Atlantic herring fishermen) to pay for the cost of an observer (up to $710/day) if NMFS determined that one was required by the fishery management plan and there was no government-paid observer otherwise available. Stated succinctly, we have a federal law (the MSA) that has given rule making authority to an agency (the NMFS), which made a rule (the requirement to pay for an observer) that was not otherwise expressly spelled out in the law (the MSA) that directs the agency (the NMFS) to prevent overfishing.

Different groups of family businesses and small vessel owners that fished in the Atlantic herring fishery challenged the NMFS’s rule in different federal courts. They argued that the MSA does not authorize the NMFS to issue a rule requiring them to pay for the cost of an observer. Both of the lower courts applied some version of the Chevron framework when they reviewed the rule: one federal appellate court noted that there was some ambiguity as to Congress’s intent (step one of Chevron) and concluded that the NMFS’s interpretation of the statute authorizing the rule requiring Atlantic herring fisherman to pay for the cost of the observer was reasonable (step two of Chevron); the other federal appellate court reached the same result but jumbled the Chevron two-step framework.

The Supreme Court then agreed to hear these cases for the purpose of deciding whether it should overrule Chevron altogether.

The Supreme Court’s Decision

The Majority Decision

Chief Justice John Roberts, writing for the 6-3 majority (click here for the opinion), vacated the lower court judgments and overruled Chevron in its entirety. In doing so, the majority reiterated the notion that it is for the federal courts—not agencies—to say what the law is. This was equally true after the New Deal, which created many agencies and the administrative processes, but that all ended when Chevron was decided in 1984. While an agency’s interpretation of a statute could help aid courts in deciding questions of law, especially if the agency has specialized experience in the subject matter at issue, it is ultimately for the courts to make the legal determination about what the law is.

The majority cited to the Administrative Procedures Act (the “APA”), which is a federal statute enacted by Congress in 1946 that governs many aspects of federal agencies, including judicial review of agency action, to support overruling Chevron. The majority said that while the text of the APA may instruct reviewing courts to give deference to factfindings made by agencies, the same is not true with respect to their legal conclusions. Specifically, the APA says 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.” See 5 U.S.C. § 706. The APA also requires a reviewing court to “hold unlawful and set aside agency action, findings, and conclusions found to be . . . not in accordance with law.” See 5 U.S.C. § 706(2)(A) (emphasis added).

The majority concluded that Chevron cannot be squared with the text of the APA. That is no problem, the majority says, because courts are called upon to decide statutory ambiguities all the time—that is what judges do. Agencies have no special skill in interpreting statutes, and courts should not throw up their hands and defer to the executive branch. The majority readily acknowledges that an agency’s interpretation of a statute can be persuasive to courts, particularly if the agency has expertise in the relevant subject matter, but that interpretation cannot be dispositive and binding on judges like Chevron commands. See, e.g., Skidmore v. Swift & Co., 323 U. S. 134 (1944). Finally, and perhaps most critically, the majority notes that its decision overruling Chevron does not provide a special justification under the doctrine of stare decisis for parties to re-litigate previous judicial decisions that relied on the Chevron framework.

The Dissent

By contrast, Justice Kagan authored a fiery dissent and forcefully argued that Chevron has been the law for decades and everyone—including Congress, courts, agencies, regulated entities, and the public—knows how it works and how to apply it.

The dissent starts by a highlighting a series of real-world examples to demonstrate the absurdity of the majority’s reasoning that will now place complex subject matter issues in the hands of federal judges. One example the dissent highlighted was the specific legal question of whether an alpha amino acid polymer qualifies as a “protein,” and must it have a “specific, defined sequence of amino acids,” for purposes of the Public Health Service Act, the Food and Drug Administration (FDA), which requires the FDA to regulate “biological product[s],” including “protein[s]”? See 42 U. S. C. §262(i)(1). The dissent argues that agencies have scientific expertise to answer these precise kinds of questions, yet the majority now mandates that courts make these kind of “scientific and technical judgments.” The dissent argues that overruling Chevron, which has been pervasive in federal jurisprudence for decades, puts “courts at the apex of the administrative process as to every conceivable subject.” In other words, the dissent argues, courts have been transformed into “administrative czars” that will now lead to “large-scale disruption.”

What Does This All Mean, Particularly For Investors?

The ultimate impact of the Supreme Court’s decision to overrule Chevron remains to be seen. Proponents of Chevron express concern that the decision will give federal judges—who otherwise lack subject-matter expertise and who may be politically minded—greater power to interpret statutes, which could lead to inconsistent rulings. Opponents, on the other hand, argue that the decision will allow courts to return to traditional rules of statutory interpretation that have been in place since the nation’s founding. What is clear, though, is that overruling Chevron will be perceived as a victory for the conservative legal movement and its opposition to the so-called “administrative state.” This outcome is unsurprising given the current composition of the Supreme Court, and it will certainly be the subject of ongoing debate among legal scholars for years to come.

In practical terms, for both companies and investors, many predict an increase in litigation challenging agency actions across various federal agencies. Notably, attempts to overturn cases that have already been decided based solely on their use of Chevron deference are unlikely to succeed, as the use of this framework alone does not warrant revising established precedent. But ongoing and new challenges, on the other hand, could significantly impact regulatory implementation across multiple sectors of the economy, including, but not limited to, health care, food, energy, transportation, labor, and the environment. The rationale behind such litigation is that federal courts may now be more inclined to substitute their own judgment for an agency’s interpretation of statutes, although agency interpretations will likely still hold at least some persuasive authority, especially if the agency has a high level of expertise. In the end, we believe that there is some truth to many of these predictions, and entities that may have been hesitant to challenge agency decisions might now feel emboldened to do so. But we would be surprised if this decision ultimately leads to a regulatory ‘Armageddon,’ and we think that such concerns are probably a bit overstated. However, only time will tell, but this is certainly not the end of the debate.