On May 1, SCOTUS granted cert in the case of Loper Bright Enterprises v. Raimondo, a case about whether the National Marine Fisheries Service has the authority to require fishing vessels to pay some of the costs for onboard federal observers who are required to monitor regulatory compliance. So why is this relevant to public companies? Because one of the questions presented to SCOTUS was whether the Court should continue the decades-long deference of courts, under Chevron U.S.A., Inc. v. Nat. Res. Def. Council, to the reasonable interpretations of statutes by agencies (such as the SEC). The doctrine of Chevron deference, articulated in that case, mandated that, if there is ambiguity in how to interpret a statute, courts must accept an agency's interpretation of a law unless it is arbitrary or manifestly contrary to the statute. The decision, expected next term, could narrow, or even completely undo, that deference. Of course, the conservative members of the Court have long signaled their desire to rein in the dreaded "administrative state." (See, for example, the dissent of Chief Justice John Roberts in City of Arlington v. FCC back in 2013, where he worried that "the danger posed by the growing power of the administrative state cannot be dismissed.") But, in recent past cases, the Court has resolved issues and avoided addressing Chevron. This case, however, may well present that long-sought opportunity. Depending on the outcome, its impact could be felt far beyond the Marine Fisheries Service at many other agencies, including the SEC.
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Does that 2013 statement portend that Roberts will take the same position 11 years later? Perhaps the Court's recent decision regarding Auer deference may be instructive. You'll recall that Auer, often viewed as complementary to Chevron, stands for the proposition that courts should defer to the reasonable interpretations by agencies of their own ambiguous regulations (in contrast to laws, as in Chevron). In his dissent in City of Arlington above, Roberts also said that "[o]verturning Auer would be a modest but important check on 'the danger posed by the growing power of the administrative state.'"
But, in 2019, in Kisor v. Wilkie, to the question of whether SCOTUS should overturn Auer deference, the Court, with Justice Kagan writing the majority opinion and Roberts as the swing vote), said no. Auer deference, she wrote, was "rooted in a presumption about congressional intent—a presumption that Congress would generally want the agency to play the primary role in resolving regulatory ambiguities." But, the key is that it doesn't always apply, and that determination requires a nuanced analysis. As Kagan summarized, the "upshot of all this goes something as follows. When it applies, Auer deference gives an agency significant leeway to say what its own rules mean....But that phrase 'when it applies' is important—because it often doesn't." As she explained, while Auer "gives agencies their due," it also obligates "courts to perform their reviewing and restraining functions." In the end, the decision took care "to reinforce the limits of Auer deference, and to emphasize the critical role courts retain in interpreting rules." Chief Justice Roberts agreed with the portions of Kagan's opinion regarding stare decisis and the limitations on Auer, thus making a majority to retain Auer. But several of the Justices made clear in concurrences that they would have been happy to bid farewell to Auer and, as Justice Gorsuch wrote, viewed Kisor as simply a "stay of execution." Justice Kavanaugh, joined by Justice Alito, in a separate concurrence, believed that Auer "should be formally retired." Roberts wrote "separately to suggest that the distance between the majority and Justice Gorsuch is not as great as it may initially appear."
So will the Court take the same middle path in Loper Bright? Hmmmm. Importantly, for this purpose, in his concurrence, Roberts took pains to distinguish Chevron, emphasizing that "[i]ssues surrounding judicial deference to agency interpretations of their own regulations are distinct from those raised in connection with judicial deference to agency interpretations of statutes enacted by Congress.... I do not regard the Court's decision today to touch upon the latter question." Kavanaugh also agreed with Roberts with respect to the inapplicability of that case to Chevron. (See this PubCo post.)
Background. The Magnuson–Stevens Fishery Conservation and Management Act, first passed in 1976, according to the agreeably-named National Oceanic and Atmospheric Administration, is the "primary law that governs marine fisheries management in U.S. federal waters," and fosters the long-term biological and economic sustainability of marine fisheries. As described in the 2022 decision of the D.C. Circuit in Loper-Bright Enterprises v. Raimondo, the MSA "authorizes the Secretary of Commerce, and the National Marine Fisheries Service ('the Service') as the Secretary's delegee, to implement a comprehensive fishery management program.... Key to the statutory scheme is the promulgation and enforcement of 'fishery management plans,'" which "are developed by regional fishery management councils."
In 2018, the New England Fishery Management Council submitted to the Service an Omnibus Amendment, which the Service approved, publishing the Final Rule in 2020. The Amendment and the Rule "set out a standardized process to implement and revise industry-funded monitoring programs in the New England fisheries." These monitoring programs cover 50% of herring trips, funded in part by the Service, and in part by the industry, "with owners of vessels selected by the Service to carry an industry-funded monitor and pay the associated costs." And there's the rub. A group of commercial fisherman filed litigation alleging "that the Act did not authorize the Service to create industry-funded monitoring requirements and that the rulemaking process was procedurally irregular." The district court granted summary judgment to the government, and the plaintiffs appealed. Under Chevron, the question was "whether Congress has spoken clearly, and if not, whether the implementing agency's interpretation is reasonable."
D.C. Circuit opinion. After distinguishing this case from West Virginia v. EPA (see this PubCo post), which recognized the new "major questions doctrine," the D.C. Circuit applied the well-worn two-step Chevron test for determining whether deference should be accorded to federal administrative agency actions interpreting a statute (as opposed to its own regulation): "At Chevron Step One, the court, 'employing traditional tools of statutory interpretation,' evaluates '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 the statute considered as a whole is ambiguous, then at Chevron Step Two the court defers to any 'permissible construction of the statute' adopted by the agency."
The court concluded that the text of the statute made clear that the Service may approve fishery management plans that mandate at-sea monitoring for a statutory purpose, but the statute was silent on requiring industry-funded monitoring. Accordingly, the court moved to Step Two.
In Step Two, the "agency's interpretation can prevail if it is a 'reasonable resolution of an ambiguity in a statute that the agency administers,'... and 'the agency has offered a reasoned explanation for why it chose that interpretation.'... Under this deferential standard, the Service's interpretation of the Act as authorizing additional industry-funded monitoring programs is reasonable." Under the statute, including several "necessary and appropriate" clauses, the Service had a reasonable basis "to infer that the practical steps to implement a monitoring program, including the choice of funding mechanism and cost-shifting determinations, are likewise 'necessary and appropriate' to implementation of the Act." In addition, the Service explained that at-sea monitors could be useful to collect "data necessary for the conservation and management of the fishery," reasonably tying "the industry-funded monitoring requirement to the Act's purposes. The Service's interpretation of the Act is therefore owed deference at Chevron Step Two."
Notably, the dissent maintained that the silence of the statute should generally be read to indicate a "lack of authority," but the majority reasoned that, under Chevron, "such silence in the context of a comprehensive statutory fishery management program for the Service to implement...is a lawful delegation.... Furthermore, the Supreme Court has instructed that a broad 'necessary and appropriate' provision, as appears in the Act, 'leaves agencies with flexibility' to act in furtherance of statutory goals."
The court affirmed the district court's grant of summary judgment to the Service and denial of summary judgment to appellants.
The petition. Appellants then submitted a petition to SCOTUS for cert. In the petition, appellants contended that the D.C. Circuit's decision below posed
"a dual threat to efforts to rein in agency overreach. One of the few practical constraints on agency overregulation is the need for sufficient congressionally appropriated funds to actually enforce the agency's regulations. One of the few legal restraints on agency overreach is sensible rules of statutory construction that recognize reasonable limits on agency authority. The decision below simultaneously eviscerates both constraints. It authorizes agencies to force the governed to quarter and pay for their regulatory overseers without clear congressional authorization. And it perceives ambiguity in statutory silence, where the logical explanation for the statutory silence is that Congress did not intend to grant the agency such a dangerous and uncabined authority. Whether by clarifying Chevron or overruling it, this Court should grant review and reverse the clear agency overreach at issue here."
This case, the Petitioners argued, has significance far beyond the fishing industry. "Courts and litigants alike have an undeniable interest in whether agencies can force them to fund enforcement efforts and on the current state of Chevron, which applies to countless statutes involving the entire alphabet soup of federal agencies. Virtually every agency has some residual 'necessary and appropriate' clause akin to the one invoked here.... This case is an ideal vehicle to resolve these issues."
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Chevron has been applied widely and, theoretically, could have application in much litigation challenging agency rulemaking, including adjudicating SEC regulations. For example, in a 2016 decision, Monica Lindeen v. SEC, the D.C. Circuit applied Chevron to uphold the SEC's rules adopted under Reg A+ against a challenge by two state securities regulators. And, as another example, the D.C. District Court applied Chevron in initially upholding the SEC's conflict minerals rules in 2013 in Nat'l Ass'n of Mfrs. v. SEC. National Association of Manufacturers v SEC, which was subsequently reversed on other grounds. (See this Cooley News Brief.) But, the big question, if it were overruled or even severely limited, is how significant that decision would be in putting the kibosh on the SEC's pending climate disclosure regulation (in addition, of course, to West Virginia v EPA.) That, of course, remains to be seen.
Respondents contended that Petitioners' request to modify or overrule Chevron "does not warrant further review. Petitioners have not carried their burden of demonstrating any special justification that could plausibly warrant such a departure from stare decisis principles, and this case would be an unsuitable vehicle for reconsidering Chevron in any event." SCOTUS has repeatedly denied cert in cases presenting similar Chevron questions, and should do the same here, Respondents argued. The judgment of the D.C. Circuit, Respondents maintained, was correct: "The Act, through a number of its provisions, authorizes NMFS to adopt a requirement that the vessel owner or operator hire a monitor to provide onboard data collection on covered trips." And the language of the statute, Respondents contended, together with the "necessary and appropriate" clause, implicitly suggests that the statute contemplated payment. In the end, the "court of appeals' bottom-line conclusion accords with the best reading of the Act and, in any event, was an unremarkable application of settled Chevron principles."
In addition, Respondents argued that, in "practice, the financial impact of the program has been limited. Petitioners have not identified, to date, a single vessel trip for which they have been required to pay for monitoring services under this rule." The agency granted numerous waivers and even "announced that any monitoring coverage that would have been required by the rule will not be assigned from April 1, 2023, onwards, because the agency lacks federal funding to pay the administrative costs of the program beyond that date," depriving "the decision below of any current practical significance." (Of course, how much of a deterrent is that? See West Virginia v EPA about a rule that the EPA said was never even in effect, that it had no intention of enforcing and that it planned to later replace with a new still-to-be-developed rule. See this PubCo post.)
Cert granted. SCOTUS granted cert on the question of "[w]hether the Court should overrule Chevron or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency." The case is expected to be argued next term.
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Chevron deference has certainly become highly politicized and has come under attack in an effort to curb the actions of the administrative state. Interestingly, this article in the WSJ suggests that, initially, Chevron "helped the Reagan administration fend off challenges from environmentalists....In a historical twist, it was the Reagan administration's Environmental Protection Agency administrator, Anne Gorsuch Burford—whose son, Neil Gorsuch, now sits on the Supreme Court—who prompted the Chevron case. Ms. Burford began an anti-regulatory push, raising the ire of environmentalists by rolling back EPA rules and curbing enforcement of pollution standards. One such effort involved altering the Carter-era EPA's definition of stationary sources of pollution under the Clean Air Act. The Natural Resources Defense Council sued, arguing the new regulation violated the Clean Air Act, and a federal appeals court agreed. Chevron U.S.A.... and other companies intervened to defend the looser standard, and prevailed in the 1984 Supreme Court decision."
As reflected in the cert petition in this case, "conservatives have soured on the Chevron doctrine." You might recall that, in 2016, the Financial Choice Act, which passed the House but not the Senate, provided that, in any action for judicial review of agency action (including action by the SEC) authorized under any provision of law, the reviewing court shall determine the meaning or applicability of the terms of an agency action and decide de novo all relevant questions of law, including the interpretation of constitutional and statutory provisions, and rules made by an agency. See this PubCo post. Similar provisions were subsequently included in other bills that passed one chamber but not the other. (See this PubCo post.)
Ironically, it is Justice Gorsuch who seems to be one of the staunchest advocates of overturning Chevron. In his concurring 10th Circuit opinion in the 2016 case, Gutierrez-Brizuela v. Lynch—he also wrote the main opinion—he said that "[t]here's an elephant in the room with us today. We have studiously attempted to work our way around it and even left it unremarked. But the fact is Chevron and Brand X permit executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers' design. Maybe the time has come to face the behemoth." And he concluded: "what would happen in a world without Chevron? If this goliath of modern administrative law were to fall? Surely Congress could and would continue to pass statutes for executive agencies to enforce. And just as surely agencies could and would continue to offer guidance on how they intend to enforce those statutes. The only difference would be that courts would then fulfill their duty to exercise their independent judgment about what the law is....Put simply, it seems to me that in a world without Chevron very little would change—except perhaps the most important things."
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