U.S. Supreme Court May Soon Discard or Modify Chevron Deference

For nearly 40 years and in more than 18,000 judicial opinions, federal courts have used the Chevron doctrine to defer to an agency's reasonable interpretation of an ambiguous statute. Under the doctrine, named for the 1984 U.S. Supreme Court case of Chevron v. Natural Resources Defense Council, a court faces two questions when reviewing a federal agency's interpretation of a statute that the agency administers. First, the court must assess 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, and the court must give effect to the unambiguously expressed intent of Congress. If the court determines that Congress has not directly addressed the precise question at issue, the court, rather than imposing its own interpretation of the statute, will defer to the agency's interpretation as long as that interpretation is based on a permissible construction of the statute.

The doctrine has been challenged in a pair of cases that remain pending before the U.S. Supreme Court, and a decision will likely be issued by early July 2024. The two cases – Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce – involve a rule issued by the National Marine Fisheries Service (NMFS), a federal agency within the U.S. Department of Commerce, under the purported authority of the Magnuson-Stevens Act. The Act gives the Secretary of Commerce and the NMFS the authority to "implement a comprehensive fishery management program" and further provides that fishery-management plans "may require that one or more observers be carried on board a vessel … for the purpose of collecting data necessary for the conservation and management of the fishery." Pursuant to the Act, the NMFS issued a regulation that requires the fishing industry to pay for the costs of these observers, which is typically around $710 a day. In each respective case, the U.S. Courts of Appeals for the District of Columbia Circuit and for the First Circuit upheld the regulation as a reasonable interpretation of a federal statute under Chevron.

Oral arguments in both appeals were held on Jan. 17, 2024. Three Supreme Court justices appeared poised to leave the Chevron doctrine intact: Justices Elena Kagan, Sonia Sotomayor and Ketanji Brown Jackson. Among other rationales for keeping Chevron deference, this set of justices appeared to defend the 40-year-old doctrine not only on the grounds of stare decisis, but also on the basis that a federal agency tasked with enforcing a statute is typically better situated to address statutory ambiguity than a court. At least three justices indicated hostility to the doctrine: Justices Clarence Thomas, Neil Gorsuch and Brett Kavanaugh. Among other bases for skepticism of the doctrine, these justices generally view the U.S. Constitution as charging courts, not administrative agencies, with the authority to interpret federal statutes according to their own independent judgment. This likely leaves Chevron's fate in the hands of three justices, whose views were not as clearly expressed during oral argument: Chief Justice John Roberts and Justices Samuel Alito and Amy Coney Barrett.

Potential Outcomes

When the Court issues its opinion, it will likely take one of three potential approaches. First, the Court may discard the Chevron doctrine in its entirety. Second, the Court may adopt a middle-ground approach that would limit Chevron's applicability – including, for example, by following reasoning from the Court's 2019 decision in Kisor v. Wilkie. Third, the Court may keep the Chevron doctrine intact.

1. Discarding Chevron. One option for the Court is eliminating the Chevron doctrine altogether. If the Court takes this approach, the law would likely revert to the rule set forth in the 1944 U.S. Supreme Court case of Skidmore v. Swift & Co., which credits an agency's interpretation of a statute only as the interpretation has power to persuade. This approach effectively allows a court to exercise its own independent judgment in interpreting a federal statute. A court may consider the interpretation of the statute given by the agency as one potential interpretation, but it need not extend any degree of deference to the agency's reading. As explained in further detail below, this approach could open the floodgates of litigation challenging previously issued regulations sustained under Chevron.
2. Adopting the Kisor Approach. In the 2019 case of Kisor v. Wilkie, the U.S. Supreme Court considered whether to discard Auer deference, a doctrine similar to Chevron deference that is used to defer in some instances to an agency's interpretation of its own regulations, as opposed to a federal statute it administers. Rather than discard Auer deference altogether, the Court emphasized specific requirements that must be met for Auer deference to apply. At oral argument in Relentless and Loper Bright, U.S. Solicitor General Elizabeth Prelogar suggested that the Court could consider a similar approach to Chevron deference, which could limit Chevron's reach in four different ways: First, the Court could implement a more rigorous approach to Chevron "Step One," raising the bar for what qualifies as an ambiguous statute that will allow an agency to fill in the gaps. Second, the Court could similarly strengthen Chevron "Step Two," which has historically not presented too great of a hurdle to an agency wishing to implement its interpretation of a statute. Third, the Court could limit Chevron's application to statutes in which Congress has expressly authorized an agency to speak with the force of law to fill in statutory gaps. Fourth, the Court could hold that the Chevron doctrine does not apply where there is any indication that Congress did not intend the doctrine to apply. For example, one such "indication" could be the agency's attempt to use statutory ambiguity to make extraordinarily important policy choices that are more appropriately reserved for Congress. The Court has already used the "major questions doctrine" to withhold Chevron deference in these instances.
3. Keeping Chevron Intact. Of course, it is possible that the Court will leave Chevron intact. It takes only four justices to grant certiorari at the U.S. Supreme Court, so the Court's decision to hear these cases does not mean that there were ever five votes to modify or overrule Chevron. Without a fifth vote to discard or modify Chevron, the doctrine will remain intact. It is particularly telling that Chief Justice Roberts asked at oral argument whether it is possible to read the fishery-management statute at issue as unambiguously not allowing industry-funded observers. Chief Justice Roberts has historically been a champion of a form of judicial minimalism, refraining from answering questions that need not be addressed when resolving the specific case before the Court. It is possible that he, along with any number of the remaining justices, will simply apply Chevron Step One, rule in favor of the fisheries and leave the issue of Chevron's continued viability for another day. That said, the Chief Justice also asked a question suggesting that the Court may have already "effectively" overruled Chevron, so he might think that a formal articulation of such a holding would not depart from that principle of judicial restraint.

Of these potential approaches, discarding Chevron (Potential Outcome No. 1) or adopting the Kisor approach (Potential Outcome No. 2) appear to be the most likely outcomes based on the oral arguments. Both approaches will greatly impact regulatory and legal landscapes, particularly for entities regulated by federal agencies.

Impacts on Agency-Regulated Entities

If the Court overrules or limits Chevron, significant impacts and uncertainty will be felt by regulated entities at all levels of the public and private sectors. For decades, regulated industries have relied on courts' application of Chevron deference to guide interpretations of the applicability of agency decisions on their businesses. In the wake of a decision overruling or limiting Chevron, lower courts will have to interpret the Supreme Court's decision to assess the new state of the law. This may also result in a rush of litigation to test the new limits of agency deference, develop new precedent and potentially revisit prior decisions. Specifically, prior decisions addressing agency actions under Chevron may be called into question by the Supreme Court's decision, particularly if the Court decides to overturn Chevron. Similarly, the ruling could cast doubt on underlying agency positions that have been relied upon by regulated entities to operate their businesses.

Furthermore, federal rulemaking processes may languish if the rulemakings do not provide direct support for agency deference post-publication, and particularly if there is not clear guidance from the courts on the scope of agency deference in a post- or modified-Chevron landscape. Legislative drafting may also need to be more robust to explicitly define the scope and bounds of agency authority, and there will likely be a greater emphasis on enabling language in proposed bills.

Most notably, if the Court overturns or limits Chevron, it will be easier to successfully challenge agency actions, including individual decisions such as permitting and other authorizations. The extent of these impacts will depend on a variety of factors, some of which are hard to predict and may turn on industry- and agency-specific factors. However, some studies have found that the government enjoys a 20 percent higher rate of success in cases involving Chevron deference.¹ This rate of success is likely to change to the detriment of the government as a result of the Court's decision.

How Holland & Knight Can Help

Holland & Knight's attorneys can assist regulated entities with evaluating the potential impacts to their businesses and legal and regulatory hurdles that they may face under each of the possible Chevron outcomes discussed in this alert. Impacts are likely to be felt across many areas of law and business sectors. Holland & Knight has subject matter professionals who can help navigate these impacts in each area/industry. For more information, please contact the authors.

Notes

¹ Kent Barnett and Christopher J. Walker, Chevron in the Circuit Courts, 116 Mich. L. Rev. 1 (2017).

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.