Recent SCOTUS Decisions Bring Notable Changes to the Regulatory Powers of Federal Agencies

When the United States Supreme Court closed out its October 2023 term earlier this month, it handed down several decisions critical to the role of the U.S. Environmental Protection Agency (EPA) and other federal administrative agencies and regulators. Most notably, the Supreme Court:

• • Overturned Chevron v. NRDC, a landmark administrative deference case that directed courts to defer to regulators’ interpretation of federal statutes.
  • Expanded the six-year statute of limitations under the Administrative Procedure Act (APA), allowing aggrieved parties more time to bring claims for damages arising out of final agency actions and
  • Limited regulators’ power to seek civil penalties through administrative enforcement by providing regulated entities the right to demand jury trials in federal court for such actions.

Collectively, these rulings will have significant impacts on the federal administrative agencies charged with regulating industries ranging from the environment, transportation and energy to banking, health care, and workplaces, as well as on those the agencies regulate.

Individuals and companies faced with federal administrative enforcement actions by or disputes with agencies such as EPA and the Occupational Safety and Health Administration (OSHA) will have more support for challenges claiming that an agency’s regulatory interpretation is wrong and not entitled to deference by reviewing courts. Those facing civil administrative penalties may argue that a jury should decide the propriety of such penalties – not an administrative law judge. Taken together, the decisions discussed below give individuals and companies more ways to contest agency determinations that affect their everyday lives and businesses.

Chevron’s Demise: Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce

Forty years ago, the U.S. Supreme Court issued a landmark decision in Chevron v. Natural Resources Defense Council, holding that courts reviewing administrative agencies’ interpretations of their own enabling statutes—i.e., the federal laws enacted by Congress creating the agencies and defining the scope of their authority—must uphold the agencies’ interpretations, as long as they’re reasonable. This judicial deference to an agency’s statutory interpretation is commonly referred to as Chevron deference, a doctrine that many claim is partially responsible for the modern scope of administrative agency power. 

Ever since then, Chevron deference has driven hot debate in administrative law. Advocates argue that legislators draft ambiguous statutes in an implicit delegation of power to allow agencies to address technical issues that Congress may not anticipate or understand. Because the agencies are experts in their particular fields, proponents of Chevron deference say their reasonable interpretations of such statutes should not be disturbed. Critics of the doctrine argue that Article III of the U.S. Constitution gives federal courts the exclusive power to authoritatively interpret federal statutes. They say that deferring to agencies’ interpretations regarding the scope of their own power may pave the way for regulatory overreach.

The Supreme Court’s opinion in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce (collectively, Loper) has sounded the death knell for Chevron, creating significant uncertainties for the future of many federal regulations, including those pertaining to the environment and workplace safety.

The majority held that Chevron deference impermissibly abrogated the power of federal courts by violating § 706 of the APA, which provides that courts reviewing agency actions “shall decide all relevant questions of law” and “interpret … statutory provisions.” Although the majority recognized Congress’ right to delegate authority to administrative agencies with sufficiently explicit language, Justices Clarence Thomas and Neil Gorsuch penned concurrences that took an even more aggressive position, arguing that regardless of the text of the APA, the Constitution does not grant Congress any power to delegate the judiciary’s interpretive powers to agencies.

Justice Elena Kagan’s dissent warned that unlike regulators, judges are not experts in highly technical regulated fields. She pointed out that, in the years since Chevron, Congress has enacted and reauthorized hundreds of statutes containing ambiguities and gaps, with the expectation that agencies would fill in these gaps under Chevron. Now, in light of Chevron’s demise, the scope of these agencies’ power to do so is unclear. Even well-settled regulations that agencies have administered for decades may be called into question.

Perhaps aware of the potential magnitude of its decision, the Loper majority specifically evoked the doctrine of stare decisis, explaining that the holdings of prior cases applying Chevron deference to uphold agency interpretations are still good law, despite the demise of Chevron itself. Nevertheless, as the dissent asserted, future decisions may overrule these prior cases if federal courts find that their reasoning was poor, the decision was unworkable, or the agency’s interpretation was otherwise not entitled to the deference it was originally given. 

Loper does not completely cripple federal administrative agencies.  The majority was careful to note the continuing validity of a milder form of deference the Court described in 1944 in Skidmore v. Swift & Co., now commonly referred to as Skidmore deference. Skidmore requires reviewing courts to give “respectful consideration” to agency interpretations of the statutes they administer. Federal agencies such as the EPA will still have some role to play in statutory interpretation and policymaking in Loper’s aftermath.

Keep in mind, the end of Chevron may foreshadow major changes to the scope of EPA’s power, which has historically been broadly or poorly defined by the text of the major environmental statutes. For example, the Clean Water Act grants EPA broad authority to regulate “waters of the United States,” but several Supreme Court decisions—including the 2023 majority opinion in Sackett v. EPA—have held that EPA’s interpretation of the phrase “waters of the United States” was impermissible. Indeed, the dispute underlying Chevron itself was a challenge to EPA’s interpretation of the word “source” under the Clean Air Act, albeit one the Court upheld. Without the protection of Chevron deference, many longstanding regulations enforced by EPA may be similarly jeopardized, as the judiciary takes a harder look at challenges to agency interpretations.

The decision may also affect challenges that citizen groups bring.  EPA is authorized under the Clean Air Act to issue Title V Operating Permits, which allow certain facilities to emit air pollutants within limits specified in the permit. Similarly, EPA is authorized under the Clean Water Act to issue National Pollutant Discharge Elimination System (NPDES) Permits, which allow a regulated entity to discharge pollutants through a point source into waters of the United States. Concerned citizens and regulated entities alike have the right to object to the issuance, modification or renewal of these permits, but during Chevron’s effect, it was difficult for either group to prevail against EPA on such challenges. With Chevron’s demise, it may be easier for citizen groups, which typically advocate for more stringent pollution restrictions, and regulated entities, which typically advocate for less stringent pollution restrictions, to challenge EPA’s interpretation of the law.

While the long-term effects of Loper remain murky, Chevron’s critics are hopeful that the decision will reduce agency “flip-flopping,” a name for an administration’s politically motivated adoption of various inconsistent positions before courts. The flip-flopping that results from changes in political regimes often frustrates efficient regulation because agencies abandon the prior administration’s policies and hasten to adopt and defend new regulations. Without Chevron’s automatic stamp of approval, agencies may be forced to provide more thorough and detailed explanations for these changes. Legislators will also be incentivized to take greater care in drafting bills and delegating authority, ensuring both that Congress’ intent is clear, and agencies are empowered to carry it out.

Corner Post, Inc. v. Board of Governors: Claims Against Agencies Receive a Boost

Aggrieved parties have six years in which to bring claims against administrative agencies for damages arising out of final agency actions, according to 28 U.S.C. § 2401. But the text of § 2401 does not specify whether this time limit is a statute of repose that begins to run from the date of the final agency action, or a statute of limitations that begins to run on the date that the aggrieved party was injured — a date that may not even have occurred before the agency action became final. 

The Corner Post decision resolves a circuit split over the question of when APA claims accrue, with six U.S. Federal Circuit Courts of Appeal holding that the six-year time limit to challenge an agency regulation begins to run when the regulation is promulgated, regardless of when a plaintiff was injured, and six either undecided or holding that the time limit does not begin to run until the injury occurs.

In a 6-3 majority opinion written by Chief Justice John Roberts, the Court held that an APA claim does not accrue until the plaintiff is injured by a final agency action. The dissenting minority argued that, as a matter of public policy, agencies and regulated parties benefit from a six-year cutoff that begins on the date an agency action becomes final, a date that can be determined with relative certainty before public and government reliance on the agency action has grown too great to overturn. However, the majority held that this administrative inconvenience does not “justify departing from the statute’s clear text,” adding that Congress could have explicitly provided § 2401 as a statute of repose rather than a statute of limitations, if that was the legislative intent.

As Justice Ketanji Brown Jackson’s dissent noted, the majority’s decision will effectively lengthen the time in which aggrieved parties may bring lawsuits challenging agency regulations. New commercial entities and pre-existing businesses masquerading as new entities may now bring challenges to long-existing regulations formerly believed to be settled law. Several longstanding environmental regulations may now be newly subject to challenge, unless Congress responds to the Corner Post decision by amending § 2401 to state that it is a statute of repose.

It may not yet be entirely clear how the Court’s Loper and Corner Post decisions will affect several major statutes administered by EPA moving forward, including the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, and the Toxic Substance Control Act. But it seems apparent that regulated entities will have significantly more room to challenge EPA’s authority to promulgate and enforce its regulations and additional opportunities to bring such challenges.

SEC v. Jarkesy: More Due Process Protections Extended to Regulatory Enforcement Actions

Most regulatory regimes, including those giving EPA authority over certain environmental impacts, are enforced through a quasi-judicial system of civil and criminal administrative penalties. The vast majority of regulatory enforcement actions both order regulated entities to comply with administrative regulations and impose monetary penalties for alleged violations of these regulations. These penalties can run astronomically high for particularly severe violations — for example, $5.5 billion of the record-breaking Deepwater Horizon oil spill settlement BP paid in 2015 was attributable to penalties for Clean Water Act violations alone.

Before Jarkesy, if a regulated entity challenged the imposition of these civil penalties, it was typically adjudicated before an executive-branch administrative law judge (ALJ) who specializes in the regulatory field over which he or she presides. Some critics argue that these ALJs can be beholden to or biased in favor of agencies. Proponents of the ALJ system point out that the APA guarantees their independence by ensuring that ALJs are not subject to the supervision of federal agencies, prohibiting ex parte communications between agencies and ALJs, and prohibiting agency officials from interfering with ALJ decision-making. Relying on ALJs also allows agency actions to be reviewed first by a jurist who has particular expertise in the relevant field, which some see as a benefit to regulated entities and some as a benefit to the agencies.

While a regulated entity can obtain judicial review of an ALJ’s decision in federal court once the ALJ’s decision is “final,” this review is deferential. And courts are required to treat the ALJ’s factual findings as conclusive as long as they are sufficiently supported by the record. In practice, it is rare that an ALJ’s factual findings are overturned through judicial review.

The Supreme Court had previously held that the Seventh Amendment’s guarantee of the right to a trial by jury for suits “at common law” does not apply to administrative proceedings under the public rights doctrine, which provides that when Congress creates a “public right,” it may delegate the matter for agency adjudication—including review of regulatory enforcement via ALJs—without violating the Seventh Amendment.

SEC v. Jarkesy substantially upended this doctrine. Here, the Supreme Court held that defendants subject to U.S. Securities and Exchange Commission (SEC) civil penalties for securities fraud are entitled to a jury trial under the Seventh Amendment. While the majority led by Chief Justice Roberts limited its holding to proceedings where the SEC seeks civil penalties for securities fraud, Justice Sonya Sotomayor’s dissent explained that the decision is a “massive sea change” with the potential for adverse impacts to the functioning of several agencies. The majority’s reasoning may be extended to many federal regulations, most of which are enforced through civil penalties.

Conclusion

The Supreme Court’s recently ended term could transform modern administrative law and fundamentally reshape the relationship among federal courts, administrative agencies and regulated entities. Under Loper and Corner Post, both new and longstanding regulations will be susceptible to stronger challenges that will significantly impact agencies’ operations and regulated activities. And although Jarkesy is limited to SEC enforcement actions for securities fraud, its reasoning casts general doubt on regulators’ ability to sidestep Seventh Amendment Due Process protections and previews further changes down the road. 

Individuals and businesses may feel less like they are forced to accept agency actions and interpretations that adversely impact them, and more inclined to contest such determinations now that doing so is less of an uphill climb.

Please contact Alan Harrell, David Topping, Sophie Gray, Blake Donewar or Steve Levine if you have questions or need compliance advice and guidance.