Tag: SCOTUS

Federal District Court in Florida Holds FCA’s Qui Tam Provisions Unconstitutional

In the Supreme Court’s 2022 decision in United States ex rel. Polansky v. Executive Health Resources, Inc., three justices expressed concern that the False Claims Act’s qui tam provisions violate Article II of the Constitution and called for a case presenting that question. Justice Clarence Thomas penned a dissent explaining that private relators wield significant executive authority yet are not appointed as “Officers of the United States” under Article II. Justice Brett Kavanaugh and Justice Amy Coney Barrett, concurring in the main opinion, agreed with Justice Thomas that this constitutional issue should be considered in an appropriate case.

Earlier this year, several defendants in a non-intervened qui tam lawsuit in the Middle District of Florida took up the challenge. The qui tam, styled United States ex rel. Zafirov v. Florida Medical Associates, LLC et al., involves allegations of Medicare Advantage coding fraud. After several years of litigation, the defendants moved for judgment on the pleadings, arguing the relator’s qui tam action was unconstitutional, citing Justice Thomas’s dissent in Polansky.

The defendants’ motion prompted a statement of interest from the United States and participation as amici by the U.S. Chamber of Commerce and the Anti-Fraud Coalition. The Court also asked for supplemental briefs on Founding-era historical evidence regarding federal qui tam enforcement.

On September 30, 2024, Judge Kathryn Kimball Mizelle granted the defendants’ motion, agreeing the relator was unconstitutionally appointed and dismissing her complaint. Judge Mizelle, who clerked for Justice Thomas, held a private FCA relator exercises significant authority that is constitutionally reserved to the executive branch, including the right to bring an enforcement action on behalf of the United States and recover money for the U.S. Treasury. In doing so, a relator chooses which claims to prosecute, which theories to raise, which defendants to sue, and which arguments to make on appeal, resulting in precedent that binds the United States. Yet, a relator is not appointed by the president, a department head, or a court of law under Article II, making the qui tam device unconstitutional.

Judge Mizelle distinguished historical qui tam statutes, which were largely abandoned early in our nation’s history, on the ground that few gave a relator the level of authority the FCA does. And while the FCA itself dates back to the Civil War, the statute largely remained dormant (aside from a flurry of use in the 1930s and 40s) until the 1986 amendments set off a new wave of qui tam litigation.

The ruling is significant for the future of the FCA. As Judge Mizelle’s opinion explains, most FCA actions are brought by relators as opposed to the government itself. If the decision is upheld on appeal, a number of outcomes are possible. If the FCA is to continue as a significant source of revenue generation for the government, the DOJ must devote more resources to bringing FCA actions directly. Congress may also consider amending the FCA’s qui tam provisions to limit relators’ authority to conduct FCA litigation, thereby maintaining the statute as a viable avenue for whistleblowing.

One thing is almost certain, however. FCA defendants across the country will likely raise similar arguments in light of Judge Mizelle’s ruling. Whether in Zafirov or another case, it appears the Supreme Court will get to decide the constitutionality of the FCA’s qui tam provisions sooner rather than later.

© 2024 Bradley Arant Boult Cummings LLP
For more on Qui Tam Provisions, visit the NLR Criminal Law Business Crimes section.

In Rare Summer Opinion, Supreme Court Follows Sixth Circuit’s Lead

In Department of Education v. Louisiana, the Supreme Court issued a rare August opinion to maintain two preliminary injunctions that block the Department of Education’s new rule.  That rule expands Title IX to prevent sexual-orientation and gender-identity discrimination.  State coalitions brought challenges; district courts in Louisiana and Kentucky enjoined the rule during the litigation; the Fifth and Sixth Circuits denied the government’s requests to stay the injunctions, nor would the Supreme Court intercede for the government.

All the Justices agreed that aspects of the rule warranted interim relief, most centrally the “provision that newly defines sex discrimination” to include sexual-orientation and gender-identity discrimination.  But because the district courts enjoined the entirety of the rule, the scope of relief proved divisive.  A narrow majority agreed to leave the broad injunctions in place, while four Justices in dissent argued to sever the suspect aspects of the rule and allow the remainder of the rule to take effect.  With emphasis on the “emergency posture,” the majority explained that the government had not carried its burden “on its severability argument.”

Justice Sotomayor’s dissent proposed limiting the injunctions to just the three challenged aspects of the rule.  The dissent focused on the “traditional” limits on courts’ power to fashion “equitable remedies.”  That Justice Gorsuch joined Justices Sotomayor, Kagan, and Jackson should come as no surprise.  Justice Gorsuch has harped on limiting equitable remedies to party-specific relief (e.g. Labrador v. Poe); cast doubt on severability doctrine (Barr v. AAPC (opinion concurring in part and dissenting in part)); and, of course, authored the landmark Bostock v. Clayton County decision that interpreted Title VII to protect against sex discrimination in much the same way the Department wishes to interpret Title IX.

This decision is an unreliable forecast of the Court’s view of what Title IX sex discrimination encompasses.  The Court unanimously agreed to table the debate over the Department’s new definition of sex discrimination while the lower courts proceed “with appropriate dispatch.”  The case concerned the status of the rest of the rule as that litigation continues.

A truer tell on the merits is the Sixth Circuit panel’s order denying the government’s stay request.  The panel found it “likely” “that the Rule’s definition of sex discrimination exceeds the Department’s authority.”  Preliminarily at least, the court thought it unlikely that Title IX—last amended in 1972—addresses sexual-orientation and gender-identity discrimination.  The Sixth Circuit has been reluctant “to export Title VII’s expansive meaning of sex discrimination to other settings”—and so it was here.

If “past is not always prologue,” still sometimes it is.  The Sixth Circuit panel divided on the injunction’s scope just like the Supreme Court.  Chief Judge Sutton and Judge Batchelder formed the majority, finding that the three “central provisions of the Rule . . . appear to touch every substantive provision.”  Saddling school administrators with new regulatory requirements on the eve of the new schoolyear tipped the equities toward enjoining the full rule.  Judge Mathis dissented because the injunction disturbed provisions of the rule “that Plaintiffs have not challenged.”

For now, the Department’s new rule yields to the old one.  That rule, too, is being litigated in the Sixth Circuit because guidance documents say the Department will interpret Title IX the same way Bostock interpreted Title VII.  See Tennessee v. Dep’t of Educ. and this coverage at the Notice & Comment blog.  To close out with some Supreme Court trivia—this marks its first mid-summer opinion since Alabama Association of Realtors v. DHHS in 2021, where the Court ended the Biden Administration’s Covid-era moratorium on evictions.  Before that may be the Court’s September 2012 decision Tennant v. Jefferson County Commission involving a challenge to West Virginia’s congressional districts.

© Copyright 2024 Squire Patton Boggs (US) LLP
For more news on SCOTUS Decision in Department of Education v. Louisiana, visit the NLR Public Education Services section.

Supreme Court Ruling on Affirmative Action and Impact on Companies’ DEI Programs

In June 2023, the US Supreme Court voted 6-3 in a decision that significantly changed the way colleges and universities used affirmative action in their admissions. The targets of the lawsuit were Harvard University and University of North Carolina for alleged racial discrimination in admissions.

The Ruling 

The Court ruled that race conscious college admission policies aimed at maintaining racially diverse student bodies violated the Equal Protection Clause of the Fourteenth Amendment. The court, though ruling out admissions solely based on race, did state, “Nothing in the opinion should be construed as prohibiting universities from considering an applicant’s discussion of how race affected his or her life.” It should be noted that court did not impose the same ruling on military academies because of their “distinct interest” in the benefits of a diverse officer corp. Though the ruling has caused an uproar in both academic and business communities, we need to remember the ruling does not significantly impact effect corporate America, yet.

Race Based Employment 

The affirmative action ruling only applies to colleges and universities admissions processes. Employers are subject to Title VII of the Civil Rights Act of 1964, which is a federal law that prohibits employment discrimination based on certain factors which include race, color, religion sex (including pregnancy, sexual orientation, and gender identity) and national origin. Further, Title VII applies to all aspects of employment, including, but not limited to recruiting, hiring, promoting training and discharge. Several states, like Massachusetts, have their own version of Title VII to protect both employers and employees. Despite these protections, employers are still cautious with implementing and maintaining diversity equity and inclusion (DEI) programs. This is probably true because most companies do not see the difference between the two. Though they are similar, Title VII protects the employer and employee, while DEI programs aim to enhance the workplace experience and to some extent maximize profits. Plus, most DEI programs go beyond race based concerns and tend to embrace various other aspects of people’s lives that may be subject to bias.

Attack on DEI 

Since the ruling by the Supreme Court, several state attorney generals sent letters to Fortune 500 companies stating that race-based preferences “whether under the label of diversity, equity and inclusion or otherwise” may violate federal and state antidiscrimination laws. In addition, corporations like Amazon and Comcast have had their DEI practices challenged. Several states like Florida have proposed and passed anti-DEI legislation banning certain DEI practices in state agencies. All this fervor has created the concern that the “right case” can outright destroy DEI practices and programs. Most recently, which seems like an act out of an abundance of caution, the well-known longstanding Society for Human Resources Management (SHRM) changed their focus from Inclusion, Equity and Diversity (IE&D) to Inclusion and Diversity (I&D). The concern relating to the future of DEI is palatable.

Safety Net for DEI Programs 

The DEI movement is far from defeated, we must remember DEI and Affirmative Action are not the same. DEI programs, though want to ensure that various races feel accepted in the workplace, should focus on anti-bias, inclusion of all employees from various backgrounds, allyship and the appreciation of everyone’s professional and personal life experiences. You can call your program whatever you want, but it is really the approach used by employers that will survive future legal scrutiny.

©2024 CMBG3 Law, LLC. All rights reserved.
For more on Affirmative Action, visit the NLR Civil Rights section

In Trio of Decisions, Supreme Court Resolves Circuit Splits on Arbitration

Three recent Supreme Court Decisions—Coinbase v. Suski, Smith v. Spizzirri, and Bissonnette v. LePage Bakeries—based on consumer and employment disputes have resolved significant circuit splits over arbitration. These cases were all decided by a unanimous Court, with Justices Jackson, Sotomayor, and Roberts authoring the three opinions.

Supreme Court Considers Arbitrability Based on Conflicting Contracts

In Coinbase v. Suski (May 23, 2024), the Supreme Court held that where there is a conflict between one or more contracts between same parties regarding the arbitrability of a dispute, a court alone (and not the arbitrator) must decide which contract governs. The appeal arose from a sweepstakes dispute wherein the official rules of the sweepstakes conflicted with the defendant’s user agreement.

After the plaintiff consumers brought a class action in California federal court, the defendant sought a motion to dismiss based on an arbitration provision in the user agreement. The district court denied the defendant’s motion based on the forum selection clause in a contract detailing the sweepstakes’ rules. The Ninth Circuit affirmed, agreeing that the forum selection clause, which gave sole jurisdiction over sweepstakes-related disputes to California courts, superseded the arbitration provision in the user agreement.

In a unanimous decision, the Supreme Court agreed with the Ninth Circuit that courts, not arbitrators, must decide the threshold question of whether a subsequent agreement supersedes an arbitration provision, dismissing concerns that the holding would invite challenges to delegation clauses that empower arbitrators to decide disputes concerning arbitrability.

Prior to the decision in Suski, there was no precedent in the First Circuit addressing the question of who resolves conflicting dispute resolution clauses. However, the Court’s decision accords with the approach of the First Circuit to related questions.

In Biller v. S-H OpCo Greenwich Bay Manor, LLC (2020), the First Circuit held that for parties to agree to have an arbitrator decide gateway questions of arbitrability, they must do by “clear and unmistakable evidence,” safeguarding a court’s jurisdiction to decide questions of arbitrability. Similarly, in McKenzie v. Brennan (2021), the First Circuit held that the court holds the decision-making power to decide whether parties intend to arbitrate a dispute when a new contract between the parties does not contain a broad arbitration clause, but an earlier contract does.

District Courts May Not Dismiss Cases Referred to Arbitration Upon a Request to Stay

In Smith v. Spizzirri (May 16, 2024), the Supreme Court interpreted 9 U.S.C. § 3 to mean that when a district court finds that a contract compels arbitration and a party has requested a stay of court proceedings pending arbitration, the court lacks jurisdiction to dismiss the suit. Instead, the Supreme Court determined that a lower court must stay the proceedings until the dispute is resolved in arbitration or the dispute is brought back before the court.

The decision arose from a California class action alleging delivery drivers had been misclassified as independent contractors and denied required wages and paid leave. While the Ninth Circuit affirmed the lower court’s discretion to dismiss the action referred to arbitration on a motion by the defendant, the Supreme Court unanimously reversed and remanded. Spizzirri may be understood as the complement to an earlier decision also involving Coinbase, Coinbase v. Bielski (June 23, 2023) (see our prior alert here), which held that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing.

The First Circuit (as well as the Fifth, Eighth, and Ninth Circuits) had previously held that a district court has discretion to either dismiss litigation without prejudice or stay the proceedings. Dismissal following a referral to arbitration provided plaintiffs with an opportunity to appeal that final, adverse ruling, with the Supreme Court’s decision now requiring plaintiffs to wait until the arbitration has been completed.

While the First Circuit has not yet passed a decision under following Spizzirri, a recent decision by the Rhode Island District Court may indicate how post-Spizzirri questions will be decided. In De Simone v. Citizens Bank (June 17, 2024) the court directly cited to Spizzirri to conclude that the proceedings in that case must be stayed pending arbitration. At the appellate level, the Ninth Circuit (which previously, like the First Circuit, held that courts have discretion to stay or dismiss) amended its opinion in Herrera v. Cathay Pacific Airways Ltd. (March 11, 2024; amended June, 24, 2024) to reflect the decision in Spizzirri, writing that “Spizzirri made clear that a district court does not have discretion to dismiss the action when granting a motion to compel arbitration under 9 U.S.C. § 3.”

Supreme Court Holds Workers in Any Industry May Benefit from Arbitration Exemption

In Bissonnette v. LePage Bakeries Park St. LLC (May 14, 2024), the Supreme Court unanimously held that the Federal Arbitration Act’s exemption for transportation workers at 9 U.S.C. § 1, which protects workers in foreign or interstate transportation from having their employment claims referred to mandatory arbitration, may apply to workers in any industry.

In LePage Bakeries, the defendant companies argued that baked goods delivery drivers were not protected from the exemption because they were not transportation industry employees. The district court and Second Circuit agreed, compelling arbitration of the parties’ dispute. The Supreme Court reversed, noting that the Second Circuit has created a transportation-industry requirement without any basis in the text of the statute.

The decision resolves a split among the First and Second Circuits in favor of workers seeking to bring class action claims. In two 2023 cases, Canales v. CK Sales Co. and Fraga v. Premium Retail Servs., Inc., the First Circuit explicitly rejected the Second Circuit’s reading of the Federal Arbitration Act that a worker must be employed in the transportation industry to benefit from the exemption to mandatory arbitration. Instead, the First Circuit focused on the worker’s role instead of the employer’s business, a test that the Supreme Court has now embraced. The Court’s decision follows New Prime, Inc. v. Oliveira (2019) and Southwest Airlines Co. v. Saxon (2023) wherein the Court held the exemption applies to independent contractors and airplane cargo loaders.

Recent Decisions Reflect Critical Questions on Jurisdiction Over Arbitration Disputes

The Supreme Court’s trio of unanimous arbitration decisions outline three areas in which district courts retain jurisdiction over arbitration disputes. The rulings reflect the outer limits of a multi-decade trend in which the Supreme Court has consistently issued arbitration-friendly decisions, encouraging the resolution of arbitrable matters without involving the courts.

It is likely that challenges to arbitrability based on conflicting contracts and transportation work will remain flashpoints in federal court litigation for years to come, with federal courts retaining jurisdiction over disputes referred to arbitration, hearing fewer appeals of orders compelling arbitration, and resolving matters that arise during those proceedings. The decisions serve as reminders to businesses that they should work with experienced counsel to draft and regularly review dispute resolution clauses in consumer and employment contracts to ensure that, if disputes do ultimately arise, they will be resolved via the intended procedure.

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Thank you to firm summer associate Jonathan Tucker for his contribution to this post.

©2024 Pierce Atwood LLP. All rights reserved.
For more on Arbitration, visit the NLR ADR Arbitration Mediation section.

Supreme Court Holds That the Eighth Amendment Does Not Prevent Enforcement of Local Camping Bans, Authorizing a Significant Shift in Local Policies on Homelessness

Until recently, local policies on homelessness have been guided by two controversial rulings from the Ninth Circuit Court of Appeals: Martin v. Boise (9th Cir. 2019) 920 F.3d 584 and Johnson v. City of Grants Pass (9th Cir. 2022) 50 F.4th 787.[1] However, the Supreme Court’s decision in City of Grants Pass v. Johnson(2024) 603 U.S. ____, is likely to transform local jurisdictions’ policy approaches to managing homelessness. In a 6-3 decision, the Supreme Court upheld the city’s ban on camping and parking overnight on public property.

By way of background, in Martin, the Ninth Circuit held that the Eighth Amendment’s restriction against cruel and unusual punishment barred cities from imposing criminal penalties for violations of public-camping ordinances whenever the number of homeless individuals exceeds the number of “practically available” shelter beds in a jurisdiction. In Johnson, the Ninth Circuit expanded on Martin and held that a city cannot enforce its camping ban or impose fines or civil penalties unless the city has enough shelter beds for its entire population. Since then, affected cities and states have widely criticized these two Ninth Circuit rulings, which effectively blocked the enforcement of local ordinances prohibiting or regulating camping and sleeping outdoors.

In the Supreme Court’s decision in Johnson, the Court rejected the Ninth Circuit’s rulings and held that ordinances prohibiting camping, overnight parking, or sleeping outdoors do not violate the Eighth Amendment’s protections against cruel and unusual punishment because these ordinances regulate “conduct” and “actions”, rather than “mere status.”

The Court focused on the practical implications of Martin and Johnson, finding that the Ninth Circuit created an unworkable and confusing test to evaluate public camping ordinances, based on subjective and vague determinations of who is “involuntarily” homeless. The Court also criticized judicial injunctions prohibiting the enforcement of public camping ordinances, finding that these determinations are “public policy responses” best handled by local governments and the legislature (not courts).

In doing so, the Court agreed with local jurisdictions that complained that the Ninth Circuit inappropriately limited available policymaking tools and “undermined” local efforts to address homelessness. The Court emphasized that local governments have “broad power” over the substance and enforcement of their laws and must be afforded “wide latitude” and “flexibility” to address homelessness.

Although the Court’s ruling authorizes the enforcement of public camping ordinances, it does not grant unfettered power to local jurisdictions. The Court acknowledges that public camping ordinances could still implicate other constitutional concerns, including potential violations under the Due Process Clause. The Court further notes that local governments are not required to adopt public camping ordinances, and may choose to narrow such laws by imposing relevant time, place, and manner restrictions.

Even with these limitations, the Court’s decision is likely to significantly alter the future of local policies on homelessness, especially throughout California. Local governments are now authorized to take more aggressive actions to enforce existing ordinances (or enact new ones) prohibiting or otherwise regulating overnight camping and parking on public property. Ordinances that include relevant time, place and manner restrictions (e.g., regulating when, where, and how people sleep in public) are likely to be particularly insulated from constitutional challenges.

We will continue to monitor updates to local policies on the homeless in response to this decision and provide updates as they become available.

FOOTNOTES

[1] See prior article here.

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Copyright © 2024, Sheppard Mullin Richter & Hampton LLP.

by: Alexander L. Merritt, Kathryn C. Kafka of Sheppard, Mullin, Richter & Hampton LLP

For more news on the Supreme Court’s decision in City of Grants Pass v. Johnson, visit the NLR Real Estate section.

Nine Questions, Nine Answers: The Supreme Court’s Decision Overruling ‘Chevron Deference’

On the second-to-last day of its term, the US Supreme Court issued its decisions in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Dep’t of Commerce. These decisions overruled Chevron USA. v. National Resource Defense Council, the 40-year-old precedent that established the “Chevron” doctrine, which gave federal agencies a certain amount of deference to interpret statutes they administer.

The Chevron doctrine provides that when a statute is ambiguous — that is, when it is unclear whether US Congress has spoken directly to the precise issue at hand — courts must defer to the interpretation of the relevant agency as long as the agency interpretation of the statute is reasonable.

Since 1984, the Chevron doctrine has played a foundational role in administrative law and placed federal agencies as the primary interpreters of the statutes they administered. In recent years, many scholars and policy advocates have questioned whether the Supreme Court should, or would, overrule Chevron and reassert the judiciary’s primary role in interpreting statutes.

The Loper Bright decision is available here. Understanding that for many, this decision has resulted in a deep dive into arcane issues of constitutional law and regulatory policy, below we ask and answer nine questions about the decision, its background, context, and likely impact.

What happened?

CASE BACKGROUND

Both Loper Bright and Relentless involve the Magnuson-Stevens Act, a law that empowers the US Secretary of Commerce and the National Marine Fisheries Service (NMFS) to require certain fishing vessel operators to provide space onboard their vessels for federal observers tasked with ensuring compliance with various federal regulations.

To implement the Magnuson-Stevens Act, NMFS issued a rule requiring the fishing companies, rather than the government, to pay the costs and salary of the observers (roughly $710 per day). The petitioners in Loper Bright, four family-operated herring fishing companies, argued that the Act did not authorize the agency to impose these fees and challenged the rule before the US District Court for the District of Columbia. Relentless involved a challenge to the same regulations by two New England fishing vessels brought in Rhode Island federal court.

The appellate courts reviewing Loper Bright and Relentless, the US Courts of Appeals for the DC Circuit and the First Circuit, respectively, both applied the “Chevron doctrine” and ultimately upheld the NMFS regulation.

The DC Circuit found ambiguity in the statute that justified deferring to the agency’s reasonable interpretation. The First Circuit, in turn, cited back to the DC Circuit’s opinion in Loper Bright and similarly found the NMFS regulation did not exceed “the bounds of the permissible.” The Supreme Court granted certiorari in both cases and, considering them together, addressed whether it should uphold, limit, or overturn Chevron.

THE LOPER BRIGHT DECISION

In a 6-3 decision, the Supreme Court overruled Chevron and held that courts must “exercise their independent judgment” when interpreting federal statutes and may not defer to agency interpretations simply because they determine that a statute is ambiguous.

Tracing the history of “deference” from the Federalist Papers through the New Deal, the Court explained that the judicial branch has always had the exclusive responsibility for interpreting the law. While courts should and did give “respect” to executive branch interpretations, the final decision has historically been for the courts alone.

The judicial branch’s role, explained the Court, was solidified in 1946 with the passage of the Administrative Procedure Act (APA), which provides that the courts will decide “all relevant questions of law” arising during a review of agency actions. The courts may “seek aid” from the agency interpretations, but courts still must “independently interpret the statute and effectuate the will of congress.”

The Court concluded that Chevron deference is inconsistent with this history and the text of the APA, and further noted that federal agencies (as opposed to federal judges) have no special expertise when it comes to interpreting statutes.

Why now? 

Chevron has been in the Court’s crosshairs for the better part of a decade. Justice Neil Gorsuch pointed out in a lengthy concurrence in Loper Bright that the Supreme Court has not applied the Chevron doctrine since 2016. In a separate dissenting opinion last year — discussed here — Justice Gorsuch outlined how the Chevron doctrine has been subjected to so many competing interpretations and carve-outs that it has been rendered practically unworkable and incoherent.

Further, as the majority recognized, if courts defer to agencies under Chevron, that approach is inconsistent with other interpretive doctrines, most notably the “major questions doctrine,” which the Court used to strike down the US Environmental Protection Agency’s (EPA) regulation of greenhouse gases in West Virginia v. EPAin 2022 because the Clean Air Act had not “expressly” granted EPA authority to require decarbonization of the US energy sector. (For more on this case, see here.)

Why is everyone talking about “Chevron deference”? 

Loper Bright, when read in conjunction with other decisions like West Virginia v. EPA from two terms ago or SEC v. Jarkesy, decided this term and discussed here, has been interpreted by some as the culmination of a long-term trend in which justices appointed by Republican presidents are reconfiguring US administrative law. Some view Chevron deference as a crucial safeguard to protect administrative agencies and permit them to regulate in highly technical areas based upon sometimes broad mandates from Congress without fear that a judge lacking technical knowledge or expertise would overstep. For those individuals, the end of Chevron deference represents a threat to the administrative state as we know it and raises fear that judges rather than agencies will decide the propriety of complex technical issues.

For others, Chevron deference represents a usurpation of the judiciary’s role in interpreting the law and leads to administrative agencies over-regulating and over-stepping the authority vested in them by Congress. Some groups may view Chevron deference as part and parcel of some unaccountable deep state. For these individuals, the end of Chevron deference represents a long-awaited victory against overactive agencies exerting authority beyond that granted by Congress.

For many, Chevron deference is simply an interpretive mandate that attempted to balance the judiciary’s role in statutory interpretation with some level of deference to the agency’s particular knowledge and expertise.

Any tendency to catastrophize may be exacerbated by this being a presidential election year. While the Loper Bright decision is important, the practical impact of it is debatable and not yet clear. While it is possible that Loper Bright will announce a sea change in administrative practice, it is also possible that Loper Bright’s calls for “administrative respect” but not “deference” will be modest in the near term. Further, the Court went out of its way to note that prior cases that applied Chevron to uphold an agency’s actions were still good law based on the doctrine of stare decisis and that “mere reliance on Chevron cannot constitute” a reason for “overruling such a holding[.]”

What does the decision mean for agency interpretations of their own regulations? 

It does not affect them. Kisor v. Wilkie, a 2019 Supreme Court decision, remains the key precedent governing judicial review of an agency’s interpretation of its own regulations. Significantly, Loper Bright cites Kisor favorably. Under Kisor,agency regulatory interpretations are entitled to deference if they are reasonable when viewed with traditional tools of statutory construction and courts should defer to agency interpretations that:

  • Are official positions of the agency made in some formal context.
  • Are consistent with prior formal interpretations of the agency.
  • Rest on actual agency expertise and not a litigation position.
  • Were issued with fair notice to regulated entities.

Citing the APA, the Court in Kisor stated that where a rule is ambiguous, “when a court defers to a regulatory reading, it acts consistently with [APA] Section 706.” For more on Kisor, see here.

Does the decision bar courts from considering an agency’s expert input?

It does not. The majority notes that

[d]elegating ultimate interpretive authority to agencies is simply not necessary to ensure that the resolution of statutory ambiguities is well informed by subject matter expertise. The better presumption is … that Congress expects courts to do their ordinary job of interpreting statutes, with due respect for the views of the Executive Branch. And 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.

Loper Bright acknowledges that Congress can delegate policymaking authorities and that reviewing courts should consider any such delegation in reviewing related challenges.

It also notes that “Congress expects courts to handle technical statutory questions. Many statutory cases call upon courts to interpret the mass of technical detail that is the ordinary diet of the law and courts did so without issue in agency cases before Chevron.” (Internal citation omitted.) The majority suggests that courts “do not decide such questions blindly” and that “parties” — including agencies — “and amici in such cases are steeped in the subject matter, and reviewing courts have the benefit of their perspective.”

In such circumstances, while “an agency’s interpretation of a statute ‘cannot bind a court,’ it may be especially informative ‘to the extent it rests on factual premises within’ [the agency’s] expertise.’” Accordingly, citing Skidmore v. Swift & Co., Executive Branch interpretations may still have particular “power to persuade, if lacking power to control.”

Will the decision allow regulatory challenges to be decided more quickly by courts?

Probably not. As we discussed above, nothing in Loper Bright portends that agencies now lack the ability to use technical input to justify how they have interpreted statutes they are tasked with executing. Further, the Loper Bright formulation of “respect” to agencies — with courts being empowered to make ultimate decisions about statutory interpretation — may procedurally look very much like pre-Loper Bright “deference” in terms of what sorts of briefs are filed, how technical evidence is submitted, or how courts process challenges.

Many disputes will also involve an additional layer of briefing related to the impact of the decision itself as challenges proceed through courts, particularly when there are questions about whether Congress delegated specific questions to agencies.

Will this decision result in more litigation? 

Yes. Post-Loper Bright, we can expect increase in challenges to regulations across the government, with parties evaluating what pre-Loper Bright regulations they can encourage the Court to revisit, especially in light of the Court’s decision in Corner Post v. Board of Governors, which effectively relaxes APA-related statutes of limitations in some cases. This litigation will occur even though the Loper Bright majority attempted to stem the tide by stating that agency rules which were enforceable before the decision remain good law for now. As we have discussed before, many regulatory challenges are filed in forums perceived to be hostile to regulation. Those cases will then percolate through appellate courts to flesh out what administrative litigation looks like after this decision, particularly on the issue of how courts can appropriately parse out statutory interpretation, which is in the province of the courts from decisions delegated by Congress to agencies.

The regulated community should use the Loper Bright decision as an opportunity to review key regulations that govern their operations and assess whether regulations are newly vulnerable. Our teams are ready to provide assistance in conducting this review.

Does the decision affect state law?

The Loper Bright decision binds only federal courts.

Traditionally, state courts have not uniformly adopted Chevron. Around half the states, including Illinois, New Jersey, New York, and Pennsylvania, allow for Chevron-style deference to state agencies. Others, including California and Virginia, allow some degree of deference depending on the particulars of agency decisions.

Given that Chevron deference has been controversial for some time, state legislatures in Arizona, Georgia, Idaho, Indiana, Nebraska, Ohio, and Tennessee have in recent years passed laws closely cabining deference afforded to state agencies. Florida voters amended the state constitution in 2018 to prohibit courts from deferring to state agencies. States including Arkansas, Colorado, Delaware, Michigan, Mississippi, and Utah have court decisions to the same effect. (See here for a more detailed discussion.)

What should we watch for next? 

In the coming days, many ArentFox Schiff teams will analyze how the Loper Bright decision will affect specific practice areas. Additionally, watch for our end-of-term wrap-up on administrative and environmental law.

© 2024 ArentFox Schiff LLP
For more news on Supreme Court Decision Overturning Chevron, visit the NLR Constitutional Law section.

Two Blockbuster U.S. Supreme Court Decisions May Spell End of NLRB’s Expansion of Reach of NLRA as Well as How Agency Prosecutes Cases

The U.S. Supreme Court issued two blockbuster decisions this week, both of which likely will curtail the ability of federal agencies, including the NLRB, to prosecute cases and expand the law.

In a 6-3 decision announced Thursday in Securities and Exchange Commission v. Jarkesy et al., U.S., No. 22-859 (Jun. 27, 2024), the Supreme Court ruled that when the SEC seeks civil penalties against a defendant, the defendant is entitled to a trial by jury. As reported here, this decision could affect a future ruling in Space Exploration Technologies Corp., v. NLRB, No. 24-40315 (5th Cir. 2024), a case challenging the authority of National Labor Relations Board (“NLRB”) Administrative Law Judges (“ALJs”) on the same grounds.

Perhaps more significant, a 6-2 decision announced Friday in Loper Bright Enterprises et al. v. Raimondo, Secretary of Commerce, et al., No. 22-451 (Jun. 28, 2024), eliminates the deference given to federal agencies to interpret laws by reversing the Chevron decision.

Jarkesy: Viability of Agency Administrative Law Judges Put Into Question

Jarkesy Background
In 2013, the Securities and Exchange Commission (“SEC”) initiated an enforcement action and sought civil penalties for alleged fraud against Defendants. Relying on relatively new authority conferred by the 2010 Dodd-Frank Act, the SEC opted to adjudicate the matter itself before an agency ALJ. In 2014, the SEC ALJ issued a decision levying civil penalties as well as other relief against the Defendants.

Defendants petitioned for judicial review at the Fifth Circuit, which held in 2022 that the agency’s decision to have an ALJ adjudicate the case violated the Defendants’ Seventh Amendment right to a jury trial. The Fifth Circuit also identified two further constitutional problems: (1) Congress violated the nondelegation doctrine by authorizing the SEC to choose whether to litigate this action in court or adjudicate the matter itself; and (2) the insulation of SEC ALJs from executive supervision, with two layers of for-cause removal protections, violated the separation of powers doctrine.

On March 8, 2023, the SEC appealed the Fifth Circuit’s decision to the Supreme Court. Oral argument was heard on November 29, 2023.

Jarkesy Supreme Court Decision
The Supreme Court held that the Seventh Amendment of the United States Constitution entitled Defendants to a jury trial where the SEC sought civil penalties for securities fraud. Writing for the majority, Chief Justice John Roberts reasoned that the SEC’s antifraud provisions “replicate common law fraud” claims, which must be heard by a jury. As a result, where a claim brought by an agency (1) resembles common law causes of action; and (2) seeks a remedy traditionally obtained in a court of law, a Seventh Amendment jury right attaches to the claim.

The Court recognized an exception to this general rule under a “public rights” doctrine, which permits non-Article III courts to adjudicate matters that “historically could have been determined exclusively by [the executive and legislative] branches.” However, causes of action that are “quintessentially suits at common law” and not “closely intertwined” with a public right—like the anti-fraud provisions at issue here—are unable to utilize this exception and must be heard in Article III courts.

Because the jury trial issue resolved the case, the Court declined to reach the nondelegation or removal issues. As a result, the Fifth Circuit’s decision in Jarkesy on these issues remains good law.

Sotomayor Dissent in Jarkesy
In dissent, Justice Sonia Sotomayor argued that Congress has latitude—via the Constitution as well as prior Supreme Court decisions—to assign the enforcement of civil penalties “outside the regular courts of law.” This would be the case “even if the Seventh Amendment would have required a jury where the adjudication of those rights is assigned to a federal court of law instead of an administrative agency.”

Justice Sotomayor also raised issue with the majority’s interpretation of a public rights doctrine. Notably, the dissent challenges the majority’s claim that most causes of actions that should be protected under the doctrine involve areas of the law where political branches “traditionally held exclusive power…and had exercised it.” To this end, Justice Sotomayor argues that the majority cannot distinguish between Congress’ enacting of statutes such as the National Labor Relations Act (“NLRA”) and its enacting of the Dodd-Frank Act. The dissent implies that neither labor relations nor securities were traditionally governed by political branches, thus (purportedly) refuting the majority’s reliance upon this principle.

NLRB Implications
Similar to the SEC, the NLRB utilizes ALJs to adjudicate violations of the NLRA. Contrary to the SEC, however, the NLRB ALJ scheme has been in place for decades. These judges hear and decide unfair labor practice cases in quasi-judicial hearings that affect the rights of parties to the cases. Moreover, unlike potential violations of the NLRA, the SEC is not always the exclusive forum for vindication of securities issues. The Department of Justice often prosecutes securities laws issues and private plaintiffs can bring lawsuits to vindicate civil claims. Contrast this with the NLRB, which is the exclusive forum for the vast majority of issues arising under the NLRA.

In the wake of the Fifth Circuit’s 2022 decision in Jarkesy, on January 4, 2024, Space Exploration Technologies Corp. (“SpaceX”) filed a complaint in the Southern District of Texas challenging the constitutionality of NLRB ALJs. SpaceX specifically argued that: (1) the NLRB’s structure is unconstitutional in that it limits the removal of NLRB ALJs and Board Members and permits Board Members to exercise executive, legislative, and judicial power in the same administrative proceeding; and (2) the Board’s expanded remedies constitute consequential damages, and therefore violate employers’ Seventh Amendment right to a trial-by-jury.

Because the Supreme Court in Jarkesy declined to reach the nondelegation or removal issues, the Fifth Circuit’s decision on these issues remains good law. This makes the current forum battle even more significant, as the Jarkesy Fifth Circuit opinion could provide dispositive precedent for SpaceX’s removal and nondelegation arguments. In addition, the Supreme Court’s ruling on the Seventh Amendment issue might support SpaceX’s argument that the Board’s expanded consequential damages remedies should be adjudicated in a trial by jury, depending on how the court interprets the current state of NLRB remedies.

As reported here, in Thryv, Inc., 372 NLRB No. 22 (2022), the NLRB expanded remedies under the NLRA to include “all direct or foreseeable pecuniary harms suffered as a result of the respondent’s unfair labor practice.” The Board has been committed to expanding remedies since 2021, when General Counsel Jennifer Abruzzo issued a memorandum on this subject. NLRB Regional Offices have also been aggressive in seeking these expanded remedies, which arguably are punitive rather than remedial in nature. In its Complaint, SpaceX used the Board’s position on remedies, coupled with the Jarkesy Fifth Circuit ruling, to argue that the Board has sanctioned compensatory relief that can only be issued through a trial by jury.

However, this position could be impacted by the Fifth Circuit’s ruling in Thryv, Inc. v. NLRB, No. 23-60132 (5th Cir. May 24, 2024). In this decision, the Court vacated the Board’s ruling in Thryv, Inc., 372 NLRB No. 22 (2022) on the merits, and thus did not reach the consequential damages issue. The Court did however label this remedy as “draconian” and “a novel, consequential-damages-like labor law remedy.” The Board therefore will require a new case to codify the issuing of consequential damages. It remains to be seen how this ruling would impact SpaceX’s Seventh Amendment argument concerning consequential damages, which could be a key element of its potential reliance on the Supreme Court’s ruling in Jarkesy.

Court Deference to Agency Positions Dead: Chevron Reversal
In a massive blow to agency power, the U.S. Supreme Court on Friday reversed Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), in a case involving a fishing industry rule. Under Chevron, on review of agency action, where the relevant statute was silent or ambiguous regarding a specific issue, courts were directed to defer to agencies and were not to “impose [their] own construction on the statute.” Thus, where an agency offered “a permissible construction of the statute,” courts were to defer to the agency even if the court would have reached a different conclusion. In the years since Chevron was issued, reviewing courts often remarked that they were bound to uphold an agency determination even if they disagreed with the interpretation. Justice Roberts, writing for the majority, held that Chevron could not be reconciled with the Administrative Procedures Act (“APA”), which commands “the reviewing court” to decide “all relevant questions of law” arising on review of agency action, which of course includes interpretation of the federal statute at issue. As a result, the majority determined that there should be no deference to agencies in answering legal questions, although deference is mandated for judicial review of agency policy-making and fact-finding. The majority concluded that, in deciding Chevron, the Supreme Court had required judges to “disregard their statutory duties,” which required this Court to “leave Chevron behind.”

Takeaways
These two Supreme Court decisions could substantially curtail the NLRB’s ability to bring and prosecute actions against parties (not just employers, but unions as well). While the Jarkesy Supreme Court decision is narrow, it could end the ability of the NLRB to bring certain claims in front of agency ALJs (all of whom are employed directly at the Board and who are not subject to removal). The pending SpaceX decision likely will further the development of the law, as it is a direct challenge to the NLRB adjudicatory scheme, and will also give a Circuit Court—and eventually maybe the Supreme Court—a chance to rule on additional constitutional challenges to federal agencies.

In addition, the reversal of Chevron likely will have a substantial effect on the review of NLRB cases. At time of unprecedented expansion of the reach of the NLRA—including finding non-compete agreements and confidentiality clauses unlawful—the end of Chevron deference allows a reviewing court the ability to disregard NLRB actions as not rooted in the NLRA or beyond the scope of the agency’s mandate. There is no doubt many challenges of NLRB actions will be brought as the probability of prevailing in a reviewing court has increased substantially with the end of deference.

As always, we will monitor decisions and agency actions to see how these important developments play out.

© 2024 Proskauer Rose LLP.

What Does the End of Chevron Deference Mean for Federal Health Care Programs?

On June 28, 2024, the Supreme Court rejected the doctrine of Chevron deference in the closely watched case of Loper Bright Enterprises v. Raimondo.[1] In a 6-3 decision, the Court held that Chevron’s rule that courts must defer to federal agencies’ interpretation of ambiguous statutes gave the executive branch interpretive authority that properly belonged with the courts. Moreover, the Court concluded that Chevron deference was inconsistent with the Administrative Procedure Act (APA), holding that the APA requires courts to exercise independent judgment when deciding legal issues in the review of agency action.

Loper will have significant and immediate implications for the U.S. Department of Health and Human Services (HHS), the federal agency charged with the administration of the federal health care programs, including Medicare and Medicaid. As detailed below, the Court’s decision sets a more exacting standard for courts to apply when reviewing HHS’s regulations and legal positions.

What Was Chevron Deference?

The doctrine of Chevron deference was established in 1984 by the Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.[2] In that case, the Court held when a “statute is silent or ambiguous with respect to the specific issue” raised regarding a statute that the agency administers, “the question for the court is whether the agency’s answer is based on a permissible construction of the statute.”[3]

Although scholars have debated Chevron’s rationale at length, it generally was read to require deference based upon agencies’ presumed subject matter expertise and an assumption that Congress delegated authority to agencies—rather than courts—to fill in gaps in statutory schemes. Notably, the Supreme Court had not itself invoked Chevron deference since 2016, although lower courts have continued to rely on it regularly.[4]

What Did Loper Decide?

Loper involved two New England fishing companies appealing the D.C. Circuit’s ruling that applied Chevron deference to uphold the National Marine Fisheries Service’s interpretation of the Federal Magnuson-Stevens Act (the “Act”) as requiring fishermen to pay for the use of compliance monitors on certain fishing boats, even though the federal law is silent on who must pay. Petitioners used the case as a vehicle to present a broader challenge to Chevron,arguing that the doctrine has led to excessive deference to federal agencies, resulting in overregulation, the abdication of judicial responsibility to interpret statutes, and the unwarranted imposition of regulatory enforcement costs.

The Loper majority firmly rejected Chevron and held that the APA requires courts to exercise their independent judgment in deciding legal questions that arise in reviewing agency action. As the majority held, “courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.”[5]

Importantly, however, Loper noted that deference may still be afforded agencies in certain instances. First, the Court observed that the APA expressly mandates a deferential standard of review for agency policy-making and fact-finding.[6] Second, Loper explained that some statutes are best read to “delegate[] discretionary authority to an agency,” in which case a court’s role is to merely ensure the agency “engaged in ‘reasoned decisionmaking’” within that authority.[7] Lastly, Loper reaffirmed that an agency’s “expertise” remains “one of the factors” that may make an agency’s interpretation persuasive.[8]

How Will Loper Impact Federal Health Care Programs?

Loper’s directive that courts should construe statutes independently and not defer to agencies’ positions has enormous implications for providers and suppliers that participate in federal health care programs. Much of today’s health care landscape is governed by HHS’ regulations, impacting many Americans and much of the federal budget. For example, Medicare currently covers more than 67 million beneficiaries, and Medicare spending comprised 12% of the federal budget in 2022 and 21% of national health care spending in 2021.[9]

Federal health care programs like Medicare and Medicaid are established by statutes that set forth myriad requirements regarding the coverage of items and services, and how, when, and by whom those items and services may be furnished.[10] HHS’s various components—most notably the Centers for Medicare and Medicaid Services (CMS)—have issued numerous, detailed regulations to implement these statutes. HHS’s components also include FDA, CDC, HRSA, AHRQ, OCR, NIH, and many others that intersect with health care providers and suppliers regularly.

Going forward under Loper, future challenges to agency regulations will take place upon a much different playing field. This has several important implications:

  • More Legal Challenges: We expect to see more legal challenges brought against HHS’s regulations as they are issued. Loper expressly stated that it “does not call into question prior cases that relied on the Chevron framework,” so prior decisions affirming regulations should be stable.[11] But going forward, Loper means that courts have no “thumb on the scale” in favor of HHS’s legal positions, and so litigants may view Loper as increasing their odds of success. At the same time, this may create more uncertainty for providers and suppliers who must determine how to comply with new regulations under challenge.
  • Less Ability for HHS to Create New Programs or Impose New Requirements: Especially where HHS imposes new substantive requirements that are not clearly authorized by statute, HHS’s regulations may be vulnerable. For example, the challengers to CMS’s minimum-staffing requirements for nursing homes are sure to cite Loper.[12] Likewise, when HHS creates new programs or initiatives by regulation based on broad statutory language (e.g., HHS’s recent creation of rural emergency hospital regulations[13]), the regulations may be more vulnerable to challenges. As another example, legal challenges to FDA’s new rule on Laboratory Developed Tests are pending and will likely invoke Loper.[14]
  • More Incentive to Challenge Reimbursement Rules: Legal challenges are frequently brought to CMS’s rules governing reimbursement, which often have complicated statutory formulas subject to differing interpretations. Whereas in the past, courts often deferred to CMS’s interpretations,[15] Loper now creates more potential for providers and suppliers to seek more favorable legal interpretations to enhance reimbursement.
  • Slower and More Cautious Rulemaking: As HHS promulgates new regulations, it will now have to consider the enhanced litigation risk that Loper creates. This may lead to agencies slowing and proceeding more cautiously in rulemaking as agencies seek to craft defensible regulations.
  • Inconsistent Decisions by Courts: Because Loper directs courts to exercise independent judgment rather than defer to HHS’s interpretations, we expect that courts in different areas of the country may reach differing conclusions regarding HHS regulations. This may make certain geographic locations more advantageous for provider and supplier operations or expansions.

Conclusion

Going forward, courts will be more amenable than ever to siding with challenges to HHS regulations. This creates both challenges and opportunities for providers and suppliers who should carefully assess the legal basis for all new regulations.

The authors acknowledge the contributions of Callie Ericksen, a student at the University of California Davis Law School and 2024 summer associate at Foley & Lardner LLP.

[1] Loper Bright Enterprises v. Raimondo, No. 22-451 (June 28, 2024), together with Relentless, Inc. v. Department of Commerce, No. 22-1219, available here.

[2] 467 U.S. 837 (1984).

[3] Id. at 843 (emphasis added).

[4] See Am. Hosp. Ass’n (“AHA”) v. Becerra, 142 S. Ct. 1896, 1904 (2022) (determining that HHS’s preclusion of judicial review “lacks any textual basis,” remaining silent with respect to Chevron); Becerra v. Empire Health Found., 142 S. Ct. 2354, 2362 (2022) (illustrating that HHS’s reading aligns with the statute’s “text, context, and structure” in calculating the Medicare fraction for purposes of Medicare Part A benefits, without any mention of Chevron); Vanda Pharms., Inc. v. Ctrs. for Medicare & Medicaid Servs.,98 F.4th 483 (2024) (holding that CMS’s definitions of “line-extension” and “new formulation” did not conflict with the Medicaid statute).

[5] Loper Bright Enterprises v. Raimondo, No. 22-451, slip op. 35 (June 28, 2024).

[6] Id. at slip. op. 14 (citing 5 U.S.C. §§ 706(2)(A), (E)).

[7] Id. at slip op. 18.

[8] Id. at slip op. 25 (citing Skidmore v. Swift & Co., 323 U.S. 134 (1944).

[9] See KFF, Medicare 101 (published May 28, 2024), available here.

[10] See 42 U.S.C. §§ 1395–1395lll.

[11] Loper Bright Enterprises v. Raimondo, No. 22-451, slip op. 34 (June 28, 2024).

[12] See Am. Health Care Ass’n v. Becerra, No. 24-cv-114 (N.D. Tex) (challenging the rule issued at 89 Fed. Reg. 40876 (May 10, 2024).

[13] Conditions of Participation, 42 C.F.R. §§ 485.500-485.546 (Subpart E), and Payments, §§ 419.90-419.95 (Subpart J), 87 Fed. Reg. 71748, 72292-93 (Nov. 23, 2022),

[14] 21 C.F.R. § 809, 89 Fed. Reg. 37286 (May 6, 2024).

[15] See, e.g., Baptist Mem’l Hosp. – Golden Triangle, Inc. v. Azar, 956 F.3d 689 (5th Cir. 2020) (deferring to CMS’s rule addressing “costs incurred” for calculating Medicaid Disproportionate Share Hospital payments).

© 2024 Foley & Lardner LLP
For more news on Supreme Court Health Care Decisions, visit the NLR Health Law & Managed Care section.

Supreme Court Issues Landmark Decision Upending Deference to Federal Agencies

On June 28, 2024, the Supreme Court of the United States upended the 40-year-old doctrine whereby federal courts gave deference to administrative agencies’ reasonable interpretations of federal statutes. The ruling stands to have significant implications for federal agencies’ rulemaking and enforcement of federal labor and employment laws.

Quick Hits

  • The Supreme Court held that courts must exercise their independent judgment in deciding whether an agency acted within its statutory authority and may not defer to an agency’s interpretation when a law is ambiguous.
  • The decision overruled the four-decades-old doctrine known as Chevron deference, in which courts had deferred to agencies’ reasonable interpretations of ambiguous statutes.
  • The ruling will have a major impact on federal agencies’ rulemaking authority.

The Supreme Court decision in Loper Bright Enterprises v. Raimondo held that courts must exercise independent judgment in deciding whether an agency acted within its statutory authority and may not simply defer to the agency’s interpretation of ambiguities in the law.

The decision overrules the longstanding doctrine known as Chevron deference, under which courts would defer to a federal agency’s reasonable interpretation of an ambiguous law that the agency administers. The deference had provided the rules of such administrative agencies with the force of law, but that authority will, at a minimum, be weakened, along with the corresponding power of the agencies.

In the opinion of the Court, Chief Justice John Roberts wrote that Chevron deference “defies the command of the” Administrative Procedure Act (APA) that courts “not the agency whose action it reviews … ‘decide all relevant questions of law’ and interpret … statutory provisions.” Chevron deference “requires a court to ignore, not follow, ‘the reading the court would have reached’ had it exercised its independent judgment as required by the APA,” (Emphasis in original).

The Court, in its majority, rejected the presumption that ambiguities in federal statutes are implicit delegations of authority to agencies, stating the “presumption is misguided because agencies have no special competence in resolving statutory ambiguities.”

The ruling will have significant implications for the multiple federal agencies that regulate employers, including the U.S. Department of Labor (DOL), the U.S. Equal Employment Opportunity Community Commission (EEOC), the Federal Trade Commission (FTC), the National Labor Relations Board (NLRB), Occupational Safety and Health Administration (OSHA), and the Office of Federal Contract Compliance Programs (OFCCP), among others.

Chevron Deference

Under the two-step Chevron deference framework, the court would first determine whether a statute in question was clear and unambiguous regarding an issue. If the statute was clear, then the court would give effect to it. If, however, the court found the statute was ambiguous or silent on the issue, then the court would proceed to step two. At that step, the court would determine whether the agency’s interpretation was a permissible or reasonable construction of the statute. If so, the court would uphold the agency’s interpretation.

The deference had allowed federal agencies leeway to act, allowing them interpret ambiguities and fill gaps in the laws they enforce. However, the doctrine has been criticized in recent years as unconstitutionally allowing the Executive Branch’s policy positions to be advanced by federal agencies outside the democratic process and for taking power away from federal courts to interpret laws.

Background

The issue over Chevron deference came before the Supreme Court in two cases challenging a National Marine Fisheries Service (NMFS) rule that required fishing vessels to pay the salaries of federal observers that vessels are required to “carry” under the Magnus-Stevenson Act (MSA). The MSA is silent as to whether the fishing industry is responsible for paying the costs for the observers. Given concerns about funding, the NMFS rule required the vessels carrying the observers to pay the costs despite objections from the fishing industry over its negative economic impact on the livelihoods of commercial fishermen.

In Loper Bright Enterprises, four family-owned and –operated fishing companies, argued that the NMFS cannot force vessels to pay for the observers because the MSA did not clearly give the agency power to do so. However, the D.C. Circuit Court of Appeals ruled in favor of the agency, finding that the law’s silence on the issue created an ambiguity that required deference to the agency.

Supreme Court Justice Ketanji Brown Jackson recused herself from the Loper Bright case as she had sat on the D.C. Circuit panel that had ruled in the case. The Court then added Relentless, Inc. v. Department of Commerce, in which the owner of fishing vessels raised a similar challenge to the NMFS rule. The challengers argued that since the MSA provides for observers to be paid in at least three other contexts, the NMFS did not have the authority to require fishing vessels to pay for them. But the First Circuit Court of Appeals affirmed a district court finding that “the rule is a permissible exercise of the agency’s authority and is otherwise lawful.”

At the Supreme Court, the challengers in Loper Bright Enterprises argued that the Court should “either abandon Chevron for good or at least substantially cabin its scope” because it has “proved unworkable” and has “seriously distorted how the political branches operate.” They argued that stare decisis does not bar the court from abandoning the framework since the Court would not have to change the outcome of the case in which the deference was established but merely alter the interpretative methodologies used. Similarly, the challengers in Relentless argued that the deference is unconstitutional because it “compromise[es] judges’ independence when interpreting the law,” which is a power vested in the federal courts under Article III of the U.S. Constitution.

Decision

In deciding Loper Bright, the Supreme Court stated that courts simply “do not throw up their hands because ‘Congress’s instructions have’ supposedly ‘run out.’” “Courts instead understand that such statutes, no matter how impenetrable, do—in fact, must—have a single, best meaning. … So instead of declaring a particular party’s reading ‘permissible’ in such a case, courts use every tool at their disposal to determine the best reading of the statute and resolve the ambiguity,” the Court stated.

The Supreme Court further stated that agencies do not have any special ability to interpret ambiguities, “even when an ambiguity happens to implicate a technical matter” as “Congress expects courts to handle technical statutory questions.” However, the Court stated that courts do not decide cases “blindly” and instead, rely on arguments from the parties and amici, noting that an agency’s interpretation “may be especially informative.”

“The better presumption is therefore that Congress expects courts to do their ordinary job of interpreting statutes, with due respect for the views of the Executive Branch,” the court stated. “And 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.”

However, the Court noted that the decision does “not call into question prior cases that relied on the Chevron framework,” as cases upholding specific agency actions “are still subject to statutory stare decisis despite our change in interpretative methodologies.

Justice Elena Kagan and Justice Sonia Sotomayor dissented and were joined by Justice Jackson to the extent it applied to the Relentless case. In the dissenting opinion authored by Justice Kagan, the justices argued that Chevron deference “has formed the backdrop against which Congress, courts, and agencies—as well as regulated parties and the public—all have operated for decades” and “has been applied in thousands of judicial decisions.”

They argued that Chevron deference is “right” and the “obvious choice” to resolve ambiguities because “[a]gencies have expertise” that “courts do not.” Further, agencies report to the president, “who in turn answers to the public for his policy calls; courts have no such accountability and no proper basis for making policy.” Moreover, “Congress has conferred on that expert, experienced, and politically accountable agency the authority to administer—to make rules about and otherwise implement—the statute giving rise to the ambiguity or gap,” Justice Kagan wrote.

Next Steps

The Supreme Court’s latest decision is likely to shift power dynamics by weakening agency authority to interpret ambiguous statutes and increasing judicial scrutiny. At a minimum, agencies may need to provide stronger justifications on the merits for their interpretations, and overall, they may be less likely to issue rulemaking in areas where statutory authority is not clear.

The decision is also likely to increase litigation and legal uncertainty, as it potentially opens the floodgates to a wave of legal challenges to overturn all sorts of existing agency rules that have been upheld citing Chevron deference and legal challenges to new agency rules moving forward. For example, this decision likely will have significant impact on the litigation challenging the Federal Trade Commission’s (FTC) rule purporting to ban noncompetes nationally.

© 2024, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more on Chevron, visit the NLR Litigation Trial Practice section.

SCOTUS Freezes States’ Efforts to Resolve Water Conflict

What Happened?

On June 21, 2024, the Supreme Court narrowly held that three states could not enter a consent decree to settle their interstate water dispute without the support of the intervening federal government. The ruling halts the agreement between Texas, New Mexico, and Colorado to settle Texas’s claims and reconfigure water allocation under the Rio Grande Compact going forward. The decision frustrates multi-year efforts by the states to fairly apportion shrinking water supplies and continues uncertainty for water users dependent on flows from the Rio Grande. More generally, the decision highlights the federal government’s power in cases arising under interstate compacts where federal interests are “inextricably intertwined” with the outcome.

Background

In 2013, Texas sued New Mexico and Colorado, claiming that New Mexico’s increased groundwater pumping was diminishing flows from the Rio Grande, unfairly shorting water allocated to the Lonestar state. This claim arose under the Rio Grande Compact, a 1938 allocation agreement between the three states that depend on the Rio Grande’s waters. The Supreme Court allowed the federal government, although not a party to the Compact, to intervene in the dispute in 2014, based on the federal interests in delivering water to Mexico under a 1906 treaty, in operating a Bureau of Reclamation reservoir and irrigation project closely connected to Compact compliance, and in fulfilling potential federal obligations to Indian tribes. The Supreme Court held that the federal government’s interests were “inextricably intertwined” with the case.

Since that decision, the states sought a compromise, recognizing that the 1938 Compact failed to predict severe droughts and dwindling water supplies, new circumstances that require adaptation. Despite this negotiated solution, the federal government refused to sign the agreement. The federal government claimed that the settlement undermines the Compact’s plain language, which cannot be modified without congressional approval, and that the negotiated agreement would impose new obligations on the federal reservoir and irrigation project. Based on its intervenor status, the federal government asked the Supreme Court to reject the deal in the absence of its consent.

Writing for the 5-4 majority, Justice Jackson explained that the Court’s 2018 decision to allow federal claims in the case to proceed “leads inexorably” to the federal government’s approval being necessary before a valid resolution. Justice Gorsuch, writing for the dissent, cautioned that this deference to the intervenor risks federalizing interstate water disputes and limiting the necessary discretion for states to independently manage their waters. Despite previously authoring a unanimous 2018 decision that green-lighted the federal claims, his dissent pointed back to “a century’s worth” of precedent, holding that the Reclamation Act requires the federal government to comply with state control of water resources and not to assert incompatible federal interests. The majority reasoned, by contrast, that the federal government’s interest was particular to the Compact, where compliance depends on federal action.

Analysis

The Court’s acknowledgment of the federal interest in the three states aligning Rio Grande Compact compliance with contemporary water realities is expressly tailored to the unique federal role in this situation. The problem the Court focused on was the proposed resolution’s failure to include the federal government, given its intervenor status and its integral role in managing a reservoir and irrigation project essential to the Compact. This does not authorize federal interference in all interstate water compacts, as the dissent fears, but others may be “inextricably intertwined” with federal interests. Still, the pointed dissent may signal that a significant court minority stands ready to guard state control of water resources when the federal government overreaches. The decision’s immediate impact will perpetuate uncertainty for water users in all three states as the parties are forced back to trial or the negotiating table.