Chevron Deference Running on Fumes?

Recently, the U.S. Supreme Court agreed to revisit one of its most significant rulings affecting administrative rules and regulations by granting cert in the matter Loper Bright Enterprises v. Raimondo. The court's decision in Loper Bright will likely determine the fate of the court's landmark ruling in Chevron v. Natural Resources Defense Council, a nearly 40-year-old decision that serves as the seminal opinion on the level of deference federal courts afford to interpretations of certain statutes by executive branch administrative agencies. Supporters of "Chevron deference" argue that it reflects Congress' intent to delegate interpretive authority to agencies that have greater expertise in complex administrative matters. Opponents have sharply criticized the level of deference it affords administrative agencies, arguing it is an unconstitutional limit on judicial oversight and perpetuates the "administrative state."

In this post, we explore Chevron and some potential implications if the Supreme Court overturns it.

Chevron Background

Chevron is a bedrock 1984 Supreme Court decision that established the test for judicial deference to government agencies' interpretations of certain agency-related statutes. The question ultimately considered by the Supreme Court nearly four decades ago was how to assess statutory interpretations by agencies when Congress left a gap concerning rulemaking.

In Chevron, the Clean Air Act (Act) required states below certain air quality standards to create a permitting program that regulated sources of air pollution such as industrial plants.¹ However, the U.S. Environmental Protection Agency (EPA) passed a regulation that allowed states to treat all pollution-emitting devices at an entire facility as a "bubble," concluding any modifications to a single piece of equipment at the plant did not need a permit so long as the total emissions did not increase.² Several environmental groups sued, challenging the bubble provision as contrary to the Act, and the U.S. Court of Appeals for the District of Columbia Circuit agreed, setting aside the EPA regulation and finding it was inappropriate under the Act, which was enacted to improve air quality.³ The Supreme Court granted review and unanimously reversed,⁴ reasoning that the EPA's policy choice was reasonable and the agency was better suited to decide than Congress, which "did not have a specific intention on the applicability of the bubble concept in these cases, . . . [therefore,] the EPA's use of that concept here is a reasonable policy choice for the agency to make."⁵ The so-called "Chevron deference" was born.

Since the court's decision in Chevron, federal courts across the country have used the opinion as the guidepost to determine if an agency's interpretation of a statute ought to be upheld. As summarized in Chevron:

When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions.

First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.

If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.⁶

In situations where Congress has not directly addressed the precise questions, as long as the agency's interpretation is reasonable, its interpretation should receive deference from federal courts.

Chevron Deference Debate and Impact

To Chevron's allies, Chevron deference is fundamentally adhering to the will of Congress, which delegated the interpretive burden on the agencies, not the courts.⁷ Importantly, they believe the agencies have the appropriate level of expertise to address any ambiguities in Congressional rulemaking.⁸ Ironically, although anti-Chevron sentiment is now firmly coded as an originalist jurisprudential position, for many years, one of the most ardent defenders of Chevron was none other than Supreme Court Justice Antonin Scalia.⁹ In a speech at Duke University School of Law, Justice Scalia explained that in his view, Congress either "intended a particular result, but was not clear about it," which is a "question of law, properly to be resolved by the courts," or "Congress had no particular intent … but meant to leave its resolution to the agency," in which case the courts' only function is to determine "whether the agency has acted within the scope of its discretion."¹⁰

To Chevron's critics, however, Chevron deference is more akin to judicial abdication. Famously, legal scholar and Harvard Law School Professor Cass Sunstein described the decision as a "counter-Marbury" – that is, it improperly relieves courts of what is "emphatically the province and duty of the judicial department to say what the law is."¹¹ Two additional critics currently sit on the Supreme Court. In a 2015 Supreme Court case, Justice Clarence Thomas wrote in a concurrence that Chevron presents "serious separation-of-powers questions" because Chevron deference "wrests from Courts the ultimate interpretative authority to 'say what the law is,' and hands it over to the Executive."¹² While sitting on the U.S. Court of Appeals for the Tenth Circuit in 2016, then-Judge Neil Gorsuch expressed a similar view in a concurrence, writing that "under Chevron … courts are not fulfilling their duty to interpret the law[,]" a duty "likely compelled by the Constitution itself."¹³

Formalism aside, the exact impact of Chevron is hard to quantify. Multiple studies have attempted to quantify the impact by assessing hundreds of decisions across all levels of federal courts. Not surprisingly, forum matters. Although the impact at the Supreme Court appears muted, likely due in part to the implicit filtering that occurs through discretionary grants and denials of writs of certiorari, the more pronounced impact appears to be at the district and circuit court levels. A study of 1,327 relevant decisions over an 11-year period (2003-2013) revealed that administrative agencies prevailed nearly 25 percent more often when Chevron deference is applied (77 percent) compared to when it is not (54 percent).¹⁴ The SEC, in particular, has been even more successful, prevailing approximately 81 percent of the time when Chevron deference is applied. ¹⁵

Loper Bright Enterprises v. Raimondo: The District Court's Decision

In Loper Bright v. Raimondo, a group of Atlantic commercial fishing companies alleged that the secretary of the U.S. Department of Commerce exceeded congressional authority by improperly promulgating rules requiring fishing vessels to carry NOAA contractors (at-sea fishing monitors) and pay the associated costs in violation of, inter alia, the Magnuson-Stevens Act.¹⁶ The plaintiffs argued that: 1) even if the Magnuson-Stevens Act allowed the placement of at-sea monitors, it was silent whether the government can require the plaintiffs to pay for them; 2) canons of statutory interpretation demonstrate that the government exceeded its authority; and 3) there is no evidence of congressional recognition of an implied authority to impose monitoring costs on the fishing industry.¹⁷

The defendants contended that "Congress has spoken directly to the precise question at issue by including multiple provisions in the [Magnuson-Stevens Act] that presuppose" industry funding. Alternatively, even if Congress had not spoken directly on the issue, the agency's interpretation was reasonable.¹⁸

On June 15, 2021, the court, applying Chevron deference, sided with the Secretary of Commerce and granted summary judgment in favor of the defendants. The court found that the clear statutory text and legislative history rebutted the plaintiffs' arguments and that the government "acted within the bounds of [its] statutory authority" in promulgating the rule.¹⁹ Notably, the court also found that "[e]ven if [p]laintiffs' arguments were enough to raise an ambiguity in the statutory text," the court held that it would conclude that the defendants' interpretation is a reasonable reading of the statute under Chevron.²⁰

On July 19, 2021, the plaintiffs appealed to the D.C. Circuit.

Court of Appeals Upholds Lower Court's Decision

On Aug. 12, 2022, a three-judge panel on the D.C. Circuit ruled 2-1 in favor of the Secretary of Commerce and affirmed the district court's opinion.²¹

In the majority opinion, the appellate court sided with the lower court but on slightly different grounds, finding that the Magnuson-Stevens Act was silent on who must pay for the monitors and, thus, applying Chevron deference, held that the agency's interpretation was reasonable. Specifically, the court reasoned that because the statute unambiguously places regulatory requirements on fisheries, and "regulated parties generally bear the costs of complying" with regulations, the government has the implied power to impose costs on the fisheries.²² In short, the court found that wages are an incidental cost of compliance, which is a normal burden of regulation, and that the agency provided a "reasoned explanation" of the rule.²³

Interestingly, the dissenting judge agreed that Chevron applied but disagreed that the court should reach step two of the test.²⁴ Rather, he asserted that "if it's clear that the text does not authorize the agency's action, the analysis ends, and the agency loses."²⁵ However, "if the statute is ambiguous, and only if Congress either explicitly or implicitly delegated authority to cure that ambiguity," does the court proceed to Chevron's second step and defer to the agency's reasonable interpretation of the ambiguity.²⁶ Put another way, the dissent concluded that the burden of demonstrating implicit authority from Congress to act rests with the government – and in this case it failed to present any evidence that the Magnuson-Stevens Act authorized the requirement for fishing companies to pay for the monitors.²⁷

On Nov. 10, 2022, the fishing companies appealed to the Supreme Court.

Supreme Court Agrees to Hear the Case

On May 1, 2023, the Supreme Court granted Loper Bright's petition for a writ of certiorari. The writ asked two questions:

1. Whether, under a proper application of Chevron, the [Magnuson-Stevens Act] implicitly grants [National Marine Fisheries Service] the power to force domestic vessels to pay the salaries of the monitors they must carry.
2. Whether the Court should overrule Chevron or at least clarify that silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.²⁸

The Supreme Court granted cert only as to question two, which is expected to be heard next term, making a ruling not likely until 2024.²⁹

Takeaways

Although arguments are likely a year away, it is not too early to assess the potential impact of the Supreme Court's ruling in this matter. It is telling that the court chose the second – and broader – question to assess. The implication is that at least four of the court's nine justices are more interested in the broader application of Chevron deference than in the specific application to the facts in this case.

Importantly, at least several members of the court's conservative majority are outspoken critics of Chevron deference and will be amplified in this matter. Justice Ketanji Brown Jackson took no part in the consideration of cert and has recused herself from the case because she heard oral arguments on Loper Bright at the D.C. Circuit but left after her nomination to the Supreme Court.³⁰ Her recusal further limits Chevron deference support on the court.

If the Supreme Court overrules, or significantly narrows, Chevron, the possible impact on the SEC cannot be overstated. As noted above, the SEC has enjoyed great success when Chevron deference is applied, prevailing more than 80 percent of the time at the district and circuit court levels. Given the SEC's recent rulemaking binge, where much of the agency's stated authority for such rules rests on more generalized rulemaking statutes, an overturn of Chevron deference could provide a significant toehold for legal challengers. For example, several commenters to recent SEC rule proposals, such as the SEC's proposed climate change rule and four related market structure rules have questioned the SEC's authority to promulgate such rules. As part of the likely constitutional challenges such rules will face, such proposals could also elicit legal challenges if and when the rules are finalized, with proponents arguing that even if the agency's policy is reasonable, Congress did not in fact delegate such rulemaking authority to the SEC.

Although critics of Chevron deference would cheer such a result, it could make further promulgation of securities-related regulations more challenging. Congress would likely need to step in and provide direct, clear and unambiguous delegation of authority to reflect congressional intent. Regardless of which side of the aisle an administration stands, a limiting or overturn of the court's landmark opinion could have a significant trickle-down effect on federal securities rulemaking going forward.

The SECond Opinions Blog continues to analyze these issues and will provide further observations when appropriate. If you need additional information on this topic, please contact the authors or another member of Holland & Knight's Securities Enforcement Defense Team.

Notes

¹ Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 840 (1984).

² Id.

³ Id. at 841.

⁴ Chief Justice Rehnquist and Justices Marshall and O'Connor did not participate, leaving the opinion 6-0.

⁵ Chevron, 467 U.S. at 845.

⁶ Id. at 842-3 (footnotes omitted).

⁷ See Chevron, 467 U.S. at 843-44.

⁸ See id. at 865-66.

⁹ See, e.g., Thomas W. Merrill & Kristin E. Hickman, Chevron's Domain, 89 Geo. L.J. 833, 859–60 (2001) ("Justice Scalia has consistently argued for the broadest possible conception of the scope of the Chevron doctrine, urging, for example, that it applies to agencies that lack the power to render binding legal rulings and to interpretations by agencies issued in opinion letters or in briefs." (emphasis added)).

¹⁰ Antonin Scalia, Judicial Deference to Administrative Interpretations of Law, Vol. 3 Duke L.J. 511, 516 (1989).

¹¹ Cass R. Sunstein, Beyond Marbury: The Executive's Power to Say What the Law Is, 115 Yale L.J. 2580, 2589 (2006); Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803).

¹² Michigan v. Envtl. Prot. Agency, 576 U.S. 743, 761 (2015) (Thomas, J., concurring) (citation removed).

¹³ Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1153 (10th Cir. 2016) (Gorsuch, J., concurring).

¹⁴ Kent Barnett & Christopher J. Walker, Chevron in the Circuit Courts, 116 Mich. L. Rev. 1, 6 (2017) (emphasis added).

¹⁵ Id. at 54.

¹⁶ 544 F. Supp. 3d 82, 93 (D.D.C. 2021).

¹⁷ Id. at 104-07.

¹⁸ Id. at 103.

¹⁹ Id. at 107.

²⁰ Id.

²¹ Loper Bright Enters. v. Raimondo, 45 F.4th 359 (D.C. Cir. 2022).

²² Id. at 366 (Roger, J.) (citing Michigan v. Envtl. Prot. Agency, 576 U.S. 743 (2015)).

²³ Id. at 369.

²⁴ Id. at 372 (Walker, J., dissenting).

²⁵ Id. at 374.

²⁶ Id. (quotations removed).

²⁷ Id. at 375.

²⁸ Petition for Writ of Certiorari, Loper Bright, 45 F.4d 359 (No. 22-451).

²⁹ Id. ("The petition for a Writ of Certiorari is granted limited to Question 2 presented by the petition.").

³⁰ Loper Bright Enters. v. Raimondo, 45 F.4th 359 at n.* (D.C. Cir. 2022) ("Chief Judge Srinivasan was drawn to replace Judge Jackson, now Justice Jackson, who heard argument and did not participate in this opinion.").