A New Age of Agency Rulemaking and Enforcement

As we prepare for the next Supreme Court term, we’d like to look back at some of the most significant opinions from the last session and their potential impact on corporate regulation. Of the dozens of opinions issued by the United States Supreme Court in the 2023-2024 term, a set of four cases is notable for their collective reworking of administrative law. Read in isolation, each of the opinions in SEC v. Jarkesy, Ohio v. EPA, Loper Bright v. Raimondo, and Corner Post v. Board of Governors of the Federal Reserve represent significant modifications to existing administrative law. Read together, they represent a sweeping change to the regulatory landscape and the scope of agency authority over the businesses and industries they regulate. These opinions combine to reform nearly every aspect of agency rulemaking and enforcement from how and when regulations can be challenged, to how agencies may interpret or enforce congressional statutes. What follows is a high-level overview of the expected effects these opinions will have on agencies and the entities they regulate.

• Opinions affect every sector of business. Almost every business is regulated by at least one federal agency, and in some cases, several. These recent opinions will affect those in almost every field of business, including:
  • Healthcare and Life Sciences 
  • Finance
  • Immigration
  • Environmental 
  • Energy
  • Telecommunications 
• Agency decisions are harder to rely on. Where regulated entities once relied on and conducted themselves in accordance with agency rules and procedures, companies may now be less confident in relying upon agency regulations going forward. Through these opinions, the Supreme Court has all but invited challenges to agency interpretations and decisions, calling into question the validity of decades of agency regulation and decision making.
• Increased incentive to participate in rulemaking. These opinions clearly signal increased scrutiny on the rulemaking process going forward, and that an agency’s failure to adequately address concerns raised during rulemaking may more easily render the resulting rule unenforceable. Agencies must now do more than simply acknowledge the comments received during rulemaking; they must provide a reasoned response for accepting or rejecting the comment offered.
• Decreased administrative efficiency. Between the uncertainty sowed by calling into question the validity of administrative decision making, and the Court’s overhaul of administrative enforcement proceedings, agency action may become less efficient, and agency resources more stressed, than ever before. Agencies will be called upon to further substantiate their deliberative processes in rulemaking to help insulate the resulting rules from challenge and will be pressured to seek enforcement in the federal courts instead of through internal administrative processes. These additional burdens, with little prospect of additional Congressional funding, present unique challenges that will require agencies to rethink how and when to regulate. 
• Increased cost of litigating. The Supreme Court not only altered agency enforcement by requiring many such cases to now be brought in federal court, but it also called into question the very authority under which agencies operate. This could result in higher costs for litigants (and agencies) because federal court proceedings are inherently more expensive than administrative proceedings, as well as slower case resolutions because federal litigation proceeds more slowly than internal administrative tribunals. 

Summary of Last Term’s Administrative Opinions

The following overview describes the recent cases in brief, and will be the subject of ongoing analysis addressing specific industry impact:

SEC v. Jarkesy

The Court in Jarkesy held that when an agency seeks to enforce civil monetary penalties for violations of federal law, the defendant is entitled to a trial by jury, meaning the case must proceed in federal court instead of in an agency’s in-house administrative tribunal. When the SEC imposed civil penalties after finding the defendant committed securities fraud, the Court considered whether the SEC’s imposition of civil monetary fines through the use of an in-house judicial forum was constitutional. Although the SEC has operated under this practice for years (although less so in recent years), the Court held that imposition of civil penalties for securities fraud implicated the defendant’s Seventh Amendment right to a trial by jury and invalidated the penalties levied against him. This holding may well bar all future administrative proceedings seeking civil monetary penalties against defendants, requiring agencies to either forego that relief or to proceed in federal court.

• Actions seeking to punish or deter will go to courts. Although the Court did not specify every action that must be brought in federal court, it made clear that those for common law offenses such as fraud, and those that seek monetary relief for injury, demand a trial by jury under the Seventh Amendment.
• Slower pace of enforcement. The costs and time associated with litigating enforcement actions in federal court often far outweigh the costs of administrative proceedings. Following Jarkesy, agencies will be forced to resort to federal actions more frequently, which will result in a slower pace of enforcement and require agencies to balance their resources more effectively.

Ohio v. EPA

The Court in Ohio v. EPA allowed an emergency stay of the EPA’s rule requiring certain states to adhere to a pollution reduction plan in line with the EPA’s Good Neighbor Policy, finding that the decision to enforce the plan was likely arbitrary and capricious.  When originally devised, the EPA plan was to apply to more than twenty states, but by the time of the final rule, it applied to only eleven. During Notice and Comment, one submitted comment asked the EPA whether the plan was devised assuming that all of the original states would participate and how non-participation of several states might affect its efficacy. Although the EPA did not respond to this comment directly, it did include a severability clause stating that regardless of the number of states, the plan was still enforceable. When the final rule was passed, and over half the original states were no longer required to comply, the remaining states, including Ohio, sued to stop enforcement of the plan because continuing to enforce it on the remaining states only was arbitrary and capricious. The Court’s decision to grant an emergency stay, and its holding that the EPA’s decision was likely arbitrary and capricious, represents a sea change in how the courts will review agencies’ rulemaking procedures.

• Arbitrary and capricious standard evolving. The arbitrary and capricious standard has long been a low bar that agencies expected to clear easily. In rulemaking, a decision has traditionally been found arbitrary only where an agency “entirely failed to consider an important aspect of the problem.” Now, agencies may be required to provide a more reasoned and full-throated response to each comment received in the rulemaking process.
• Stays of agency actions may be given more freely. The Supreme Court rarely issues emergency stays of agency rules developed through formal rulemaking and its standard for doing so is relatively unclear. Ohio v. EPA showed that the Court may now be more willing to stay enforcement of any agency rule or regulation while the validity and legality of the decision is litigated in the lower courts.
• More incentive to participate in rulemaking. Although the regulated community has always been encouraged to participate in the rulemaking process, companies now have a greater incentive to do so because the Court has signaled it will increase scrutiny on agencies’ responses to comments. Participating in the process ensures your worries or suggestions are heard and is another tool by which the regulated community can shape regulations.

Loper Bright

The most publicized case from the Supreme Court’s recent overhaul of administrative law, Loper Bright, overturned the Chevron doctrine and held that court cannot defer to an agency’s interpretation of an ambiguous statute, but must come to its own conclusion of what the “best reading” is. Chevron, decided forty years ago, held that where an agency is given authority to enforce a statute, and that statute contains any ambiguity as to how to implement it, courts were to defer to the agency’s interpretation of the statute if its interpretation was reasonable. The practical effect of this now-overturned doctrine was that an agency’s interpretation of a statute was upheld in a majority of cases; this was true even where an agency sought to interpret a statute in a way counter to how it had interpreted it in the past. The Chevron doctrine was so powerful that even where a court may have come to a different conclusion, it was required to defer to the agency if the agency’s reading was a reasonable one. Now, it is the courts that must decide the meaning of statutes being interpreted or implemented by agencies, regardless of the field in which that agency operates. Although the Court explained that lower courts may continue to look at agency interpretations for “guidance,” it urged that such guidance should only be taken where the field is highly technical, or the interpretation has been long-standing.

• Courts cannot defer to agency decisions. Agencies have long operated under the assumption that so long as their interpretation of an ambiguous statute was reasonable, their interpretation would prevail, regardless of what conclusion a court would have reached on the question absent agency opinion. In practice, this opinion takes decision making power away from the experts and technical advisors employed by agencies and instead gives that power to the courts. This in turn makes it more difficult for regulated entities to rely on administrative pronouncements; while before regulated entities could assume agency policies and interpretations would be consistent, now those decisions will fall to the courts, which may be less predictable.
• Slower agency rulemaking. Agencies will likely be more meticulous and deliberate in the rulemaking process as they aim to ensure that their reading of the statute is “the best reading.” This likely will add time to the already long rulemaking process as agency officials attempt to grapple with this new landscape.
• Increased litigation. Challenging agency decisions under Loper Bright will be far easier than under the Chevron doctrine. Where challengers once faced a high bar to invalidate agency decisions under the Chevron doctrine, now challengers are empowered to bring their own interpretation of ambiguous statutes in hopes that the court will find their reading is the “best reading.” 
• Future refinement. The Court offered little guidance on how courts should operate in a post-Chevron world and questions will continue to develop as lower courts attempt to navigate it. Just as with Chevron’s initial passing, Loper Bright will likely require several decisions to refine its focus and effect and will likely look much different ten or twenty years from now.

Corner Post

Finally, the Court in Corner Post held that the six-year statute of limitations to challenge certain agency actions in the Administrative Procedure Act begins running not at the time of the agency decision but at the time a party is harmed by final agency decision. In 2011, the Federal Reserve Board passed regulations limiting the fees that credit processors could charge. Corner Post Inc. challenged the regulation in 2021 – four years after the statute of limitation for actions under the APA had run – claiming that because it had been founded in 2018, it was entitled to challenge the regulation because the statute of limitation had not yet run out. The Court ruled that the six-year limit on challenges to agency rulemaking begins to accrue only when a regulated entity is “harmed by final agency action.” In other words, only once a regulated entity comes into being and is regulated by the regulation at issue does the time to challenge that regulation begin to run.

• Undefined but certainly expanded statute of limitations. The statute of limitations under the APA has long been understood to run from the date of an agency decision. Under this widely held understanding of the statute of limitations, six years after an agency promulgated a rule, it could no longer be challenged on its face for its validity. Under Corner Post, any agency decision or rule can be challenged by a company that was formed less than six years ago, as long as that company is regulated by the agency.
• Increased challenges to long-passed regulations. In Corner Post, the Court allowed a facial challenge of a rule that was promulgated a decade prior and had been widely accepted as a valid regulation. Although the Court implied in Loper Bright that the longevity of a rule or interpretation should be taken to consideration, Corner Post may prove to burst the floodgates of litigation, allowing challenges to rules never contemplated before.
  • Notably, however, the Court distinguished the time for challenging agency actions governed by the Hobbs Act, 28 U.S.C. § 2342, which is worded as a “statute of repose.” Corner Post did not open the same possibility for appeal by newly created entities for agency appeals governed by the Hobbs Act, most notably the FCC.

Looking forward, the Supreme Court has already granted certiorari to hear additional administrative law cases for the 2024-2025 term, including San Francisco v. EPA and FDA v. Wages and White Lion Investments. With the magnitude of changes from this past term, we may expect the decisions in these cases to attempt to provide further clarity and perhaps ongoing refinements to the administrative state. 

Mintz remains diligent in our coverage of these cases, and their implications on businesses operating in heavily regulated industries. For more insight into how the Clean Energy and Telecommunications Sectors have been impacted, please listen to our recent webinars. 

Navigating the Post-Chevron Landscape at FERC: What Clean Energy Companies Really Need to Know

The Telecom Industry Post Chevron- What It Means for your Business

Subscribe To Viewpoints