What's Next For The Regulatory Landscape Post-Chevron?

Highlights

• After nearly 40 years and more than 18,000 judicial opinions in which it was applied, the Chevron doctrine was overruled by the U.S. Supreme Court on June 28, 2024, in Loper Bright Enterprises v. Raimondo.
• The Supreme Court then on July 1, 2024, held that the statute of limitations to challenge an agency action under the Administrative Procedure Act (APA) does not begin to run until a plaintiff is injured by final agency action.
• This Holland & Knight alert examines how the Chevron ruling impacts a wide range of regulated industries going forward.

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. On June 28, 2024, the U.S. Supreme Court overruled that long-standing precedent in Loper Bright Enterprises v. Raimondo, Case. No. 22-451, 603 U.S. ___(2024). Following that, on July 1, 2024, the Court held that the statute of limitations to challenge an agency action under the Administrative Procedure Act (APA) does not begin to run until a plaintiff is injured by final agency action. Corner Post, Inc. v. Board of Governors of the Federal Reserve System, Case. No. 22-1008, 603 U.S. ___(2024).

Taken together, the Court's decisions in Loper and Corner Post will create a sea change in administrative law with wide-ranging implications and potential opportunities for regulated industries.

Loper Bright Enterprises v. Raimondo and Corner Post, Inc. v. Board of Governors of the Federal Reserve System

In Loper and Corner Post, the Supreme Court has created a new framework for challenges to existing and developing regulatory landscape.

First, in the 6-3 Loper decision, the Court overruled its decision in Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc.

Previously, under the Chevron doctrine, when a reviewing court determined that a statute was ambiguous or that Congress had not directly addressed the precise question at issue, the Court, rather than imposing its own interpretation of the statute, would defer to the agency's interpretation as long as the agency's interpretation was based on a permissible construction of the statute.

• In Loper, the Court concluded that Chevron deference conflicts with separation of powers principles and the command of the APA that courts, not agencies, are to "decide all relevant questions of law" and "interpret statutory provisions." Stated another way, the Court made clear that it "remains the responsibility of the court to decide whether the law means what the agency says." The Court reinforced that "courts, not agencies, will decide 'all relevant questions of law' arising on review of agency action" and prescribed "no deferential standard for courts to employ in answering those legal questions." Therefore, the Court concluded, the APA "makes clear that agency interpretations of statutes – like agency interpretations of the Constitution – are not entitled to deference." In so holding, the Court specifically rejected arguments that federal agencies, rather than courts, are better suited to determine what ambiguities in a federal law might mean, including when those ambiguities involve technical or scientific questions that fall within an agency's area of expertise. Finally, the Court noted that "to the extent that Congress and the Executive Branch may disagree with how the courts have performed that job in a particular case, they are of course always free to act by revising the statute."

Going forward, Loper means that:

• "Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority" and "may not defer to an agency interpretation of the law simply because a statute is ambiguous."
• Courts still can consider the "interpretations and opinions" of the relevant agency and should accord "due respect" for the specialized expertise and informed judgement of the agency. However, the weight of those interpretations and opinions will "depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control."
• Prior cases holding that specific agency actions are lawful "are still subject to statutory stare decisis despite [this] change in interpretive methodology" and "mere reliance on Chevron cannot constitute a 'special justification' for overruling such a holding."

Given the wide application of Chevron in administrative law over the past 40 years, it is anticipated that the full impact of Loper will play out in the courts, the legislature and administrative agencies for years to come.

Just days after Loper, the Court issued its decision in Corner Post, which, especially when viewed with Loper, has important implications for lawsuits challenging the lawfulness of federal agency action.

Corner Post addresses the statute of limitations under the APA and, specifically, when claims accrue under it. Claims arising under the APA are subject to a six-year limitations period under 28 U.S.C. § 2401(a). But prior to the Corner Post decision, the courts of appeals were divided about when this six-year period begins to run. Six circuits had held that the limitations period begins to run on the date that the agency issues a rule, while one circuit had held that it does not begin to run until the rule injures the plaintiff bringing the claim.

Under the interpretation asserted by the agency in Corner Post (that the limitations period runs from when the rule is final), a federal agency's regulation would have been insulated from review six years after its publication. The Court rejected that argument and held that a claim brought under the APA "accrues" for purposes of the statute of limitations when the regulated party is injured by final agency action.

Based on this determination, the Court held that Corner Post's 2022 challenge of a 2011 rule was timely because it was not injured before 2018.

Under this ruling, any newly created entity that is subject to the regulation or any existing entity that suffers an injury for the first time under the regulation will have an opportunity to challenge the regulation.

When considered together, Loper and Corner Post will open the door to a significant number of regulatory challenges in the coming years and offer the regulated community substantial defenses against the government.

Anticipated Challenges to Existing and New Regulations

Now that the Court has overruled Chevron and expanded the circumstances in which facial challenges to federal regulations may be brought, significant impacts 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 the Loper and Corner Post decisions, lower courts will have to interpret the decision to assess the new state of the law as applied to the specific statutory framework being decided. This may result in a rush of litigation to test the new limits of agency deference, develop new precedent and likely revisit, at least in part, existing precedent.

• Healthcare. The Supreme Court's recent ruling to upend the Chevron deference will likely have a significant impact on the healthcare industry, given the industry's highly regulated nature. Though the decision is significant, the real-world impact of the decision remains to be seen. For example, the ruling is unlikely to affect whether a manufacturer has produced adequate evidence of safety and efficacy to satisfy the U.S. Food and Drug Administration (FDA),for drug or device marketing approval, nor does it impact a Centers for Medicare & Medicaid Services (CMS) determination that evidence supporting a particular treatment is sufficient for Medicare coverage under the "medically reasonable and necessary" standard. Additionally, the scope of the Chevron decision has been modified over the years, and many courts have not rigorously applied the deference it instructs them to provide, often avoiding it by disagreeing with the premise that a statutory provision is ambiguous.

That said, the decision to overturn Chevron will likely have significant implications for several agencies, including the U.S. Department of Health and Human Services (HHS), U.S. Food and Drug Administration (FDA), HHS Office of Civil Rights (OCR) and CMS. These agencies issue guidance every year and oversee highly technical and scientific areas of the law. Consequently, there will likely be an increase in legal challenges against these agencies' regulations as they are issued.

Although Loper stated that it "does not call into question prior cases that relied on the Chevron framework," litigants may use Loper in the future to challenge unfavorable decisions. This could create uncertainty for healthcare professionals trying to comply with regulations under challenge.

• Environmental. The U.S. Environmental Protection Agency (EPA) has been under scrutiny for years regarding its interpretation of statutes and regulations. Attempts to "modernize" regulations are likely to be highly contested going forward unless greater specificity is provided by Congress regarding the legislative intent. The EPA's new greenhouse gas power plant rule is likely to be challenged on the ground that it is unsupported by statutory authority. Similarly, parameters on water quality recently adopted under Section 410 of the Clean Water Act that apply before permits or licenses can be issued for activities that would result in discharge into the waters of the United States will likely face challenge. In turn, the Phase 2 regulations under the National Environmental Policy Act (NEPA), which require the analysis of "reasonably foreseeable environmental trends, including anticipated climate-related changes to the environment," are already facing court challenge. These are contrasted with the Renewable Fuel Standard, which was created by statute; however, while the program itself is secure, Loper could alter how the program evolves over time – for example, by restricting the EPA's discretion to approve or deny participation by new types of fuels or entities. With regard to climate change actions generally, the Supreme Court's determination that greenhouse gases are air pollutants covered by the Clean Air Act still stands, but the EPA's attempts to consider climate impacts in rulemakings under a variety of different statutory authorities will be subject to increased scrutiny.
• Real Estate. The U.S. Department of Housing and Urban Development has published extensive guidance on its interpretation of the Fair Housing Act, which is an extremely broad and vague statute. That guidance and related policies are likely up for greater debate given the expansive nature of its incursion into marketing, tenant screening, fees, and design and construction issues. In addition, almost any regulation that touches brick and mortar facilities will have an impact on the real estate industry, including data privacy laws, telecommunications laws and environmental provisions.
• Education. The newly issued Title IX regulations are likely going to stand a higher level of scrutiny by the courts in the pending lawsuits filed to challenge those regulations. In addition, the U.S. Department of Education has developed numerous regulatory and guidance packages in recent months aimed at both enhancing student debt relief programs and tightening the Title IV federal student aid program requirements, all of which may come under increased attack. This includes the Department's recently effective gainful employment and financial value transparency regulations and the borrower defense to repayment rules, which have a long history of legal challenges, as well as other newly developed rules addressing debt relief for student borrowers and institutional administration of federal student loan programs.
• Financial Services. There are many federal agencies that touch on financial services institutions. Some of the most aggressive have been the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) (both discussed further below), as well as the Office of the Comptroller of the Currency (OCC), the prudential regulator for federally chartered banks. Various rules these agencies have made with respect to the Fair Lending laws, the use of consumer data and what constitutes a credit report under the Fair Credit Reporting Act, and regulations regarding deceptive, junk or recurring fees will all be subject to higher scrutiny. Additionally, the OCC has sometimes utilized its rulemaking powers to define the outer boundaries of what constitutes the "business of banking," which has historically resulted to federally chartered banks offering an expansive range of products and services. The future scope of institutions' activities may now garner greater, or at least different, review.
• Energy. Numerous interpretations under the Federal Power Act, Natural Gas Act and NEPA and Energy Policy Act of 2005 will likely be challenged. The procedures adopted by the Federal Energy Regulatory Commission (FERC) for environmental reviews and cost allocation for regional transmission grid expansions are likely to be challenged. And issues such as what the agencies consider "just and reasonable" or in the "public interest" are likely to be reviewed. FERC's enforcement authority may now be subject to challenge. The regulations adopted by the U.S. Department of Energy to phase out products as arguably illegal under the Energy Policy Act of 2005 are also likely to be challenged now by regulated companies facing enforcement. The interpretation and implementation of various federal regulations and policy pronouncements impacting oil, gas and mineral development on federal lands and waters will likely be challenged under the new standard of judicial review of agency action.
• Transportation. Both aviation and maritime are particularly expected to be impacted by this change in agency deference. As a few examples, there is an open question pending involving a conflict between the Oil Pollution Act and Comprehensive Environmental Response, Compensation, and Liability Act of 1980 that will have a significant impact for recovery resulting from an oil spill, along with the role of the U.S. Coast Guard in removal cost considerations, shipbuilding and coastwise endorsements under the Jones Act, interpretations of navigational decisions and vessel's crew conduct under the implementing rules for the international convention preventing collisions at sea, the U.S. Department of Transportation's authority to define an "unfair and deceptive practice" may be curtailed, and the National Transportation Safety Board's investigative policies following accidents may be challenged.
• Telecommunications. The Federal Communications Commission (FCC or Commission) has been under substantial legal scrutiny for some of its recent decisions and interpretations of the law. A prominent example is the FCC's recent order reviving its past "Net Neutrality" policy, decision and procedures based in part upon its interpretations of the Communications Act. Under Loper, the FCC likely will face even more stringent judicial review of the current Net Neutrality decision, which currently is before the U.S. Court of Appeals for the Sixth Circuit. Other current efforts by the Commission to expand its authority relate to outer space and foreign sponsorship identification, which also may be more likely to face stiff judicial challenge because of Loper.
• Consumer Protection. The FTC and Consumer Financial Protection Bureau (CFPB) are federal agencies tasked with protecting the public from deceptive, unfair or abusive business practices pursuant to their jurisdictional grants under Section 5 of the FTC Act and the Dodd-Frank Act. Both agencies have the power to investigate violations of the consumer protection laws and regulations, bring civil enforcement actions, engage in rulemaking, conduct audits or supervisory examinations, announce substantive policies that interpret the laws and regulations, and provide industry studies. Therefore, the Supreme Court's decision impacts the way a court would look at how the FTC or CFPB examines advertising, marketing practices or business operations, as well as when the FTC or CFPB investigates or engages in rulemaking, how they interpret what communications to consumers are "deceptive," what business practices are "unfair" and what types of conduct are "abusive." As a result, with the elimination of Chevron deference, our strategies for counseling and defending targets of investigations will change and provide more opportunities for advocacy.
• Tax. Tax is exceptional, or so the U.S. Department of the Treasury and IRS believed until the Supreme Court held in Mayo Foundation v. United States in 2010 that the APA also applies to tax regulations. Since Mayo, courts have considered several regulatory and subregulatory challenges, from Home Concrete to 3M.

After the U.S. Supreme Court's decision in Loper, what is the effect on regulatory challenges to tax regulations?

The Treasury Department and IRS publish more than 200 regulations and subregulatory guidance every fiscal year. The vast majority of this guidance is noncontroversial and provides certainty to taxpayers and IRS examiners. However, a small subset of the guidance creates controversy, and taxpayers may be willing to challenge the validity of such guidance. Sometimes, the regulations come in the form of "fighting regulations" designed to shut down a transaction or perceived abuse. Recent examples include the regulations invalidated in Liberty Global and the Section 385 regulations (debt versus equity).

Once the Treasury Department finalizes a regulation, a taxpayer generally will not be able to challenge that regulation unless the taxpayer receives an assessment or files an amended return and sues for a refund. A taxpayer generally is unable to sue the IRS in advance of an audit or payment of taxes under the tax anti-injunction act. Loper does not change this result.

However, Loper will give courts a greater ability to apply their interpretation of a statute, which could push the IRS to litigation to resolve ambiguities. Also, as taxpayers get more comfortable challenging tax regulations, Loper will make it easier to bring such challenges.

• Employment. Several federal agencies addressing the workplace may be impacted by the Court's decision, including the Equal Employment Opportunity Commission (EEOC), U.S. Department of Labor (DOL) and National Labor Relations Board (NLRB). For example, the EEOC's decision to require accommodations for medical conditions related to abortion under the Pregnant Workers Fairness Act, the DOL's rules increasing the minimum salary threshold to exempt white-collar employees from overtime, the NLRB's joint-employer rule and the FTC's rule banning employee noncompete agreements may become more vulnerable in Loper's wake.
• Land Use. Although zoning is localized and not federally regulated, the deference generally given to zoning officials, in many jurisdictions, is similar to that which has been given to federal agencies. In those jurisdictions, if a zoning decision is challenged based on the official's interpretation of the particular zoning ordinance, one may have a greater likelihood of success given the Loper and Corner Post
• Gaming. Though state regulations primarily govern the day-to-day operations of casinos and gaming establishments and activities, the decision could spark challenges to existing federal regulations. For instance, uncertainties surrounding the U.S. Department of Justice's (DOJ) interpretation of the applicability of the Wire Act and other federal statutes to lotteries, online sports betting and other interstate gaming could be clarified by the courts, potentially opening doors for wider (or tighter) online gaming. The decision could also affect tribal government gaming, particularly the National Indian Gaming Commission's interpretation of the Indian Gaming Regulatory Act and the U.S. Secretary of the Interior's interpretation of what "Indian land" is eligible for gaming under the Act, both of which have traditionally been accorded Chevron deference.

What to Expect from Legislative and Regulatory Process

Loper is also expected to have a significant impact on the legislative and regulatory process.

• Political. From a political perspective, Loper will have implications for all three branches of government. Principally, Loper reflects a shift in power and responsibility from the executive branch to the judiciary. Under Chevron, federal agencies were charged with interpreting federal statutes, but Loper commands that courts are entrusted with this task. This falls in line with the judiciary's increasing oversight over administrative agencies and the political talking points surrounding the size of the administrative state. And given the ubiquity of administrative agencies and their reliance on Chevron over the last 40 years, Loper may be a hot button issue in election cycles to come.
• Congressional Considerations. Though Loper most directly impacts administrative agencies, it holds consequences for Congress as well. Now that agency interpretations are no longer binding in the face of statutory ambiguity, effective legislative drafting will require greater clarity and specification. All parties with an interest in a statute having a certain and predictable result will want to ensure that their objectives are precisely delineated in the enacted language without possibility of ambiguity. To be sure, Congress has long been mindful of these goals in drafting, but Loper may trigger more explicit delegations to agencies or initiate further calls to outside subject-matter experts when drafting to maximize precision.
• Regulatory Response. Loper will, of course, have the most significant impact on administrative agencies, but the nature of this impact will depend on the lawsuits that will invariably follow. Once lawsuits challenging agency action are decided, certain agencies may have a better sense of the kinds of actions and interpretations courts find impermissible – and this may be jurisdiction-specific. In general, agencies are likely to be more cautious in rulemaking proceedings, decisions and statutory interpretations. There may be calls for agencies to avoid filling in legislative gaps and not to act in the absence of explicit directives from Congress. Agencies may be reticent to devote months toward certain administrative actions if there is an increased likelihood that such efforts will be struck down by courts.
• States. Chevron and Loper will apply only to federal agencies, not state agencies. But there may be downstream effects. For instance, many state court systems previously adopted Chevron-like deference in adjudicating challenges to state agency actions. It remains to be seen whether such states will retain their state Chevron counterparts or reach a Loper-like decision rejecting deference to state agencies. Additionally, as Congress and federal agencies adapt to a post-Chevron paradigm, states may seek to fill the void with increased legislative activity and enforcement actions. Furthermore, this may also put states like California and New York in more of a leadership role on national policy making as federal activity is constrained. In addition, this likely will create greater strain in the red state/blue state dichotomy in policymaking.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.