On June 28, the United States Supreme Court overturned a decades-old precedent, Chevron v. Natural Resources Defense Council, Inc., 467 U. S. 837, a ruling that instructed judges about when they could defer to federal agencies' interpretations of law in rulemaking. In Loper Bright Enterprises v. Raimondo, the Court held that the Administrative Procedure Act "requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority."
Chevron had applied a two-step approach to interpreting federal statutes. First, courts had to determine whether Congress had directly spoken to the precise statutory question at issue. If the statute was silent or found to be ambiguous, Chevron directed courts to defer to the agency's reading of the statutory provision as long as that interpretation was a "permissible" construction of the language.
In rejecting Chevron, Chief Justice John Roberts held that while "careful attention to the judgment of the executive branch may help inform that inquiry," and courts must respect when a statute delegates authority to an agency consistent with constitutional limits, "courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous." As the Chief Justice noted: "Chevron's presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do."
What is the impact of the Supreme Court's decision on agency rulemaking? While it will take some time for the implications of this decision to play out, here are some initial thoughts:
- Agency Deference is Still Alive, But More Muted. Chevron has been under attack for years and the Court's Loper decision has struck the final blow. But while the doctrine has been overruled, agency deference is not dead. First, the Court emphasized that the APA mandates that "judicial review of agency policymaking and factfinding be deferential." Second, courts will still need to defer to agencies if they find a statute has a "clear" congressional delegation of authority. Finally, even when a court is engaged in statutory interpretation, it may use the agency's interpretation to "help inform that inquiry." This "persuasive" authority, called Skidmore deference, see Skidmore v. Swift & Co., 323 U.S. 134 (1944), may be where courts land. Under that approach, executive branch interpretation's may have the "power to persuade" but not the "power to control."
- Expect More Challenges to CFPB and Agency Rulemaking. We should expect more challenges to CFPB and agency rulemaking. Court's will scrutinize rulemaking and an agency's statutory mandate more independently, without deferring to the agency's judgment. This places a premium on an agency's careful articulation of its statutory interpretations and the rationale for its rules, ensuring they are firmly anchored in the statute's text and purposes.
- Look out for More Informal Rulemaking and Regulation By Enforcement. For certain regulators like the CFPB and the FTC, the Loper decision may push these agencies to abandon more traditional types of notice and comment rulemaking which we see under the Administrative Procedure Act, to more informal rulemaking such as interpretative guidance, advisory opinions, and even regulation by enforcement action. (For examples of CFPB informal rulemaking, see our discussions here, here, and here.). Relatedly, we expect enforcement activity to continue unabated.
- Federal Agencies Will Be More Measured in their Rulemaking. Federal agencies that issue rules will seek to shore up their reasoning and justifications for their policy decisions. They will be less likely to search through old statutes in an attempt to find a "creative" solution to a modern-day problem.
Putting it into Practice: The full impact of Loper will take time to sort out. Expect an initial surge in litigation challenging agency rulemaking, with lower courts grappling with how to exercise their "independent judgment." Without Chevron to even out the differences in methodologies and judicial philosophies, circuit splits will likely emerge. As such, we expect the Fifth Circuit to be the premier destination for litigants looking to challenge federal rulemaking.
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