Tough Month in the Office: Agencies Face Uncertainty After Four Major Supreme Court Decisions

As the Supreme Court’s recent term drew to a close, the Court issued four opinions that promise to reshape the federal regulatory landscape: Loper Bright Enterprises v. Raimondo, Corner Post, Inc. v. Board of Governors of the Federal Reserve System, Ohio v. EPA, and SEC v. Jarkesy. These decisions both individually, and in combination, constrain the power of federal agencies and give the federal judiciary greater authority to review, restrain, and overturn federal administrative actions. These decisions make it harder for agencies to issue and enforce regulations and give opponents of the federal administrative state a host of new arguments to challenge and constrain agencies’ authority. Courts have new authority to interpret an agency’s authorizing statue rather than deferring to its expertise (Loper Bright), individuals can challenge regulations long after they have been promulgated (Corner Post), agencies must be careful to thoroughly explain their reasoning when responding to public comments (Ohio), and regulated entities have an increased right to demand a jury trial in agency enforcement actions (Jarkesy). In an ever-changing, red-taped regulatory world, the Supreme Court has shifted power away from federal agencies and towards the federal judiciary in a way that may both empower and create uncertainty for regulated entities.

LOPER BRIGHT ENTERPRISES v. RAIMONDO

The Supreme Court, on June 28, 2024, upended the longstanding precedent of Chevron v. NRDC, granting great deference to agency interpretations of statutes when challenged in court stating: “Chevron is overruled.” For the last 40 years, courts have applied the Chevron doctrine when an entity challenged an agency’s interpretation of a statute. A Chevron analysis involved two-steps. First, the court would look to whether Congress had directly spoken to the question and, if Congress’s intent was clear, a court would stop at Chevron step one and adopt the “clear” interpretation of the statute. When Congress was “silent or ambiguous,” then Chevron step two required courts to defer to the agency’s interpretation of the statute if it was “based on a permissible construction.” That analysis is over. Loper directs judges to interpret the statute in the first instance rather than giving the agency’s interpretation deference.

Loper Bright Enterprises, a family-owned herring fishing company, challenged federal fishery management plans requiring the industry to pay for fisheries monitoring. Under Loper, agency interpretations may still be considered by a court, but the court is required to evaluate the intent of Congress in enacting the relevant statute, without deferring to the agency. Loper gives courts new authority to overrule agency interpretations of federal law and provides new avenues of attack on agency actions. Additionally, agencies will no longer be able to change their interpretation of a statute to facilitate policy changes, such as when a new presidential administration enters office, or when a new product, service, or chemical emerges. Instead, the court’s interpretation of a statute will stand regardless of changes in public policy or needs, creating less flexibility for the agency to adapt its rules and regulations to fit different, and potentially unforeseen, circumstances.

Read more on Loper Bright Enterprises v. Raimondo.

CORNER POST, INC. v. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

The Supreme Court, in a 6-3 ruling, held that the Administrative Procedure Act’s (APA) six-year statute of limitations for facial challenges to agency regulations begins running when a plaintiff is injured by the final agency action, not when the agency first issues the regulation. Corner Post drastically expands the timeframe for when a regulated entity can challenge an agency regulation under the APA. Corner Post, a North Dakota truck stop, challenged a 2011 regulation arguing that it was unlawful. The lower courts barred the challenge because of the APA’s 6-year statute of limitations, holding, consistent with established precedent, that the 6-year period to challenge a regulation began running when the regulation was promulgated. Corner Post argued that the statute of limitations had not lapsed because it was not in existence when the regulation was promulgated, and, therefore, could not have challenged the regulation within six-years from promulgation. The majority agreed and held that the statute of limitations, under the APA, does not begin running until the plaintiff is injured by final agency action. The dissent vehemently disagreed with this reading of the statute, warning that now even the most well-settled agency regulations could be overturned leading to unpredictability and instability for agencies and regulated entities alike. Now, absent an explicit statute of limitations, essentially all agency regulations, even longstanding ones that have been in place for years, can be challenged if a regulated entity can prove that it was recently injured by the regulation.

Read more on Corner Post, Inc. v. Board of Governors of the Federal Reserve System.

OHIO v. EPA

The Clean Air Act directs the Environmental Protection Agency (EPA) to set standards for common air pollutants. When the EPA sets these standards, states must submit a State Implementation Plan (SIP) showing how the state will implement, maintain, and enforce those standards. If a state fails to satisfy EPA’s SIP requirements, the EPA may disapprove the SIP and issue a Federal Implementation Plan (FIP) to correct the deficiencies. In 2015, the EPA revised its air-quality standards for ozone, triggering the requirement for states to submit new SIPs. Years later, the EPA announced its intention to disapprove 23 SIPs and proposed a single FIP to regulate ozone emissions in those states. Following challenges by states whose SIPs were disapproved, the Supreme Court issued a preliminary injunction preventing EPA’s enforcement of the FIP pending resolution of the merits of the cases in the lower courts. In granting the injunction, the Supreme Court found that Petitioner states were likely to succeed on the merits of their challenges because EPA’s response to comments failed to sufficiently address concerns raised by Petitioners regarding the proposed FIP. The Court’s reasoning in Ohio emphasizes the need for agencies to provide reasoned responses to all public comments, not just the comments EPA deems significant, and address each concern raised during the comment period.

Read more on Ohio v. EPA.

SEC v. JARKESY

Prior to 2010, the Securities and Exchange Commission (SEC) could only bring enforcement actions for violations of the securities laws in court. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) which allowed the SEC to impose penalties through in-house administrative proceedings. These in-house proceedings, where an agency-employed administrative law judge (ALJ) serves as the “neutral” arbiter, are analogous to administrative enforcement proceedings used by EPA, and many other federal agencies.

Not long after the Dodd-Frank Act, the SEC charged George Jarkesy, Jr. and his firm—Patriot28—with alleged securities fraud. Jarkesy was prosecuted before a SEC ALJ, who imposed a civil penalty of $300,000. Jarkesy challenged the penalty on constitutional grounds, arguing that allowing prosecution before an agency-employed ALJ violated the Seventh Amendment of the United States Constitution. In a 6-3 ruling, the Supreme Court agreed and held that when the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial because securities fraud is similar to the common law crime of fraud, for which the Seventh Amendment requires a jury trial. The dissent warned that Jarkesy upends longstanding precedent allowing agencies to adjudicate statutory violations internally and warned that the constitutionality of hundreds of statutes that give dozens of agencies the power to impose civil penalties in administrative proceedings may now be in peril. It remains to be seen how far courts will be willing to stretch the reasoning of Jarkesy. But, if the dissent is right, this decision could mean the end of in-house agency enforcement power for a large swath of agencies including the Federal Agency Regulatory Commission and the EPA.

Read more on SEC vs. Jarkesy.

IMPLICATIONS FOR THE FUTURE

The rules of the game are changed, but the players remain the same. Moving forward, agencies will have to stay close to the letter of the law, even when their directive is unclear. Already, plaintiffs are amending their claims and briefs to include arguments created by these cases. Looking forward, we will now see a wave of regulatory challenges, a change in the way administrative agencies promulgate rules and regulations, and an empowered approach by courts when they review an agency’s interpretation of a statute. Now, businesses, advocacy groups, and others must navigate this changed landscape as administrative agencies adapt to the new constraints from these decisions. While this new judicial power and diminished agency authority are re-balanced, there is uncertainty for regulated entities. And at the same time, regulated entities, frustrated by agency regulatory practice, have a host of new arrows in their quiver to challenge agency actions. Who the winners and losers are and how this case law settles into real life remain to be seen.