Potential Impact of Recent Supreme Court Decisions on U.S. Companies
The U.S. Supreme Court’s recent term has culminated in three pivotal rulings that are expected to significantly influence the regulatory landscape for American businesses: Loper Bright Enterprises v. Raimondo (2024), Corner Post, Inc. v. Board of Governors, FRS (2024), and SEC v. Jarkesy (2024). These decisions collectively mark a substantial shift in the balance of power among federal agencies, Congress, and the judiciary, with far-reaching implications for various regulated sectors and the potential for business owners to more easily challenge federal regulations. With regulators forced to take a lighter touch, businesses across a wide swathe of industries may enjoy reduced compliance costs at the federal level. State laws are not directly affected by these decisions, so another effect may be, over time, a wider divergence in costs of doing business between states with entrenched regulatory regimes (such as New York and California) versus more lightly regulated states with comparatively fewer restrictions on commerce (such as Texas and Florida). However, the ultimate effect of these decisions is unpredictable, and will take time to sort out as business leaders and federal judges react to the changes.
Loper Bright Enterprises v. Raimondo: The Demise of Chevron Deference
In Loper Bright Enterprises v. Raimondo (2024) decided June 28, 2024, the Supreme Court invalidated the Chevron doctrine, a legal principle established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984). Under Chevron, courts deferred to federal agencies’ “reasonable” interpretations of ambiguous statutes—essentially, the idea was that judges should assume that agency personnel are experts on the topic and refrain from second-guessing these experts’ decisions. The Loper Bright decision, authored by Chief Justice Roberts, eliminates Chevron deference and mandates that courts must now exercise independent judgment on whether an agency has acted within its statutory authority as required by the Administrative Procedure Act, and decide cases on the “best interpretation” of the statute.
This ruling reduces the authority of federal agencies to unilaterally interpret ambiguous statutory language, thereby placing more interpretive power back in the judiciary’s hands. The implications are profound for regulated sectors such as healthcare and securities, where agencies like the Department of Health and Human Services (HHS) and the Securities and Exchange Commission (SEC) have historically relied on Chevron deference to enforce and interpret complex regulations, but will also have significant impact on American businesses generally, most of which are subject to an array of federal regulations and policies from agencies such as the Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA), the Federal Trade Commission (FTC), the Equal Employment Opportunity Commission (EEOC), and the Treasury Department, which includes agencies such as FinCEN and the IRS.
With the end of Chevron deference, agencies will likely face increased judicial scrutiny and must provide clearer justifications for their regulatory actions. This shift may lead to more frequent and successful legal challenges against agency rules, as courts no longer need to defer to agency expertise. Businesses will now have a stronger legal footing to contest perceived regulatory overreach, and Congress may need to draft more precise and detailed legislation to avoid ambiguities that, in the past, agencies would have had the right to interpret. The Loper Bright decision does not mean that federal agencies will always lose in court, but it does mean that one of their chief litigation advantages—deference to their own interpretations of a statutes—has been eliminated.
Business litigants challenging federal agency action will now have an additional arrow in their quiver and are likely to cite to Loper Bright in asking for relief from courts. Expect, in the short term, more unpredictability as it is unclear how courts will react, and note also that the impact of Loper Bright is expected to be uneven across regions, as, with deference to agency interpretations no longer a factor, different federal courts are now free to come to different interpretations.
This phenomenon has already begun. On July 23, 2024, the US District Court for the Eastern District of Pennsylvania declined to enjoin the FTC’s noncompete ban in a ruling in the matter of ATS Tree Services, LLC v. Federal Trade Commission, citing to Loper Bright, but punting on whether or not the FTC had the power to enforce the noncompete ban. Meanwhile, on August 20, 2024, in the matter of Ryan, LLC v. Federal Trade Commission, the US District Court for the Northern District of Texas came down clearly against the FTC’s noncompete ban, citing to Loper Bright, and granting summary judgment for the plaintiff against the FTC—with the effect that the noncompete ban is, for now, blocked from taking effect nationwide. (Our Firm has discussed these matters more fully in prior articles.) The contrast between these two decisions serves to highlight that courts in different federal jurisdictions, now free from Chevron, are likely to enforce agency action differently, with unpredictable effects.
In one way, however, agency actions may become more predictable. The official end of Chevron deference may dampen the significant changes in agency policy that tend to occur when a presidential administration with different political priorities takes office. Under Chevron, agencies were not bound by their own prior interpretations of statutes, allowing them the liberty to reinterpret statutes under a new administration and yield different regulatory outcomes. This sometimes resulted in agencies reaching opposite interpretations due to political considerations. See, for example, National Cable & Telecommunications v. Brand X Internet Services (2005), where the FCC was able to take inconsistent positions under different administrations and have both positions, at different times, upheld under the Chevron standard, which did not bind agencies to their prior positions. With Chevron deference discarded, the ability of federal agencies to switch positions with each new administration has been significantly undermined. If a court sides with an agency on the “best interpretation” of a statutory provision, that holding will carry stare decisis effect until overruled by a later court decision, regardless of whether the agency later wants to change its interpretation.
This change will impact regulatory affairs strategies, making lobbying for policy reversals at the agency level less effective. On the enforcement side, agencies will encounter significant challenges in carrying out regulatory programs when a federal court’s interpretation of a statute, unfavorable to the agency, does not have nationwide applicability. In response to mounting challenges across different federal jurisdictions, an agency might opt to conform to the adverse ruling to maintain national uniformity rather than contest each decision individually and risk creating a fragmented regulatory landscape. While the Supreme Court can eventually clarify interpretations for nationwide application, the interim period may see agencies grappling with enforcement and policy implementation challenges in a more fragmented legal landscape.
Corner Post, Inc. v. Board of Governors, FRS: Expanding the Statute of Limitations
In Corner Post, Inc. v. Board of Governors, FRS, decided July 1, 2024, the Court ruled that the statute of limitations for challenging federal agency action does not begin until a particular plaintiff is injured. Historically, under the Administrative Procedure Act, individuals and companies could challenge federal agencies’ actions only up to six years after a final rule was promulgated (unless another time period was explicitly specified in the underlying statute). Corner Post, Inc., a truck stop in North Dakota, opened its doors in 2018, whereas the agency rule at issue, a regulation from the Federal Reserve setting certain limits on debit card fees charged by merchants, was finalized in 2010, eight years earlier. Corner Post Inc. argued that the statute of limitations should start running only when it was actually affected by the Federal Reserve’s setting of fees, that is, when it opened for business in 2018.
The Court agreed, holding that the statute of limitations does not start running when a federal agency makes a rule but rather when an agency rule first causes a plaintiff to be “adversely affected or aggrieved.” This decision means that newly formed companies may now challenge federal agency rules that have been considered long-settled, potentially leading to significant litigation on federal rulemaking matters across a wide variety of actions.
Corner Post and Loper Bright are expected to have a cumulative effect. The Court in Loper Bright did not overturn prior rulings based on Chevron deference but has opened the door for increased challenges to existing administrative rules. Combined with Corner Post’s extension of the timeframe for bringing such actions, this broadens the range of rules that can be challenged without Chevron deference. Additionally, a new plaintiff could bypass unfavorable circuit precedent by suing in a different circuit, increasing the potential for varied interpretations. It is worth noting that not all challenges to federal agency rules are subject to this expanded timeframe—for example, challenges brought under special review statutes such as the Hobbs Act must be brought in a much shorter timeframe. This means regulated entities must carefully consider applicable legal frameworks and limitations periods. In any case, together, Loper Bright and Corner Post heighten the scrutiny of future agency actions, incentivizing agencies to adopt more defensible rules and adjudications moving forward.
Again, the ultimate impact here is unpredictable, but the broad trend is deregulatory. Old regulations businesses are used to having to comply with may potentially be struck down, and agencies will have to think twice about imposing new regulations given the greater potential for litigation and scrutiny by the courts.
SEC v. Jarkesy: The Right to a Jury Trial for Agency-Imposed Fines
In SEC v. Jarkesy, decided June 27, 2024, the Supreme Court addressed the constitutionality of the process by which federal agencies impose fines. The SEC brought an enforcement action against George Jarkesy, Jr. and Patriot28, LLC, which he managed, for significant fines associated with securities fraud.
While this action could have been brought as a civil suit (thereby automatically giving Jarkesy and Patriot28 the right to a jury trial), the SEC decided to bring the action through an administrative proceeding before an administrative law judge (an “ALJ”). ALJs, though employees of the agencies they work for, are supposed to be impartial in deciding whether a fine is warranted.
The Court held that this process was unconstitutional under the Seventh Amendment, which guarantees the right to a jury trial for significant fines. Consequently, for a federal agency to successfully impose a fine, it must now take its case before a jury in certain instances (specifically, where the cause of action is analogous to a common law claim, such as, as in Jarkesy, a claim for fraud). This ruling may make federal agencies less likely to win enforcement actions; indeed, as Justices Gorsuch and Thomas noted, concurring with the majority decision in Jarkesy, “during the period under study the SEC won about 90% of its contested in-house proceedings [before ALJs] compared to 69% of its cases in court.” With more agency enforcement actions now required to be brought in court, federal agencies may be less likely to pursue certain enforcement actions due to the increased costs and risks associated with a potential jury trial.
Summary of Implications for the Business Landscape
The combined impact of these three decisions is historic and will have major repercussions for businesses over the long-term. The rulings in Loper Bright and Corner Post lower the defenses of federal agencies, making businesses more likely to succeed in legal challenges against regulatory actions. Meanwhile, the ruling in Jarkesy lowers the federal government’s offensive capability, making it more challenging for federal agencies to enforce rules against defendants. Several potential impacts are summarized below:
- Greater Judicial Oversight and Reduced Regulatory Overreach
The rulings in Loper Bright and Corner Post place more interpretive power in the hands of the judiciary rather than federal agencies. With the end of Chevron deference, agencies now have less leeway to expand their regulatory scope through ambiguous statutory language. This constraint on agency power limits the potential for regulatory overreach.
- Extended Timeframes for Legal Challenges and Enhanced Legal Strategies
The Corner Post decision reinterprets the statute of limitations for challenging federal agency actions, allowing businesses to contest rules from the moment they experience injury rather than from the rule’s promulgation date. This extended timeframe empowers newly-formed companies to challenge long-standing rules to seek judicial review, potentially overturning burdensome regulations. Businesses challenging regulatory actions in court now have a stronger legal footing. Thanks to the combined effects of these rulings, they no longer need to overcome the hurdle of Chevron deference, making it easier to argue against agency interpretations they view as unreasonable or harmful.
- Increased Accountability and Transparency
Agencies must now provide clearer justifications for their regulations, knowing that courts will no longer defer to their interpretations by default. This increased accountability, hopefully, will lead to more transparent and well-reasoned rulemaking processes, benefitting businesses that require clear and comprehensible regulations for compliance and strategic planning.
- Potential for Lower Regulatory Compliance Costs
By curtailing regulatory overreach and increasing the likelihood of successful legal challenges against agency actions, these decisions may reduce the regulatory compliance costs for businesses over the long haul, though the short-term effect may require increased spending as businesses adjust to the new regime.
- Increased Costs for Federal Agency Enforcement
The Jarkesy decision requires federal agencies to allocate more resources to imposing fines, as they must now take their cases before a jury in certain instances. This increased cost and resource allocation may lead agencies to be more selective in pursuing enforcement actions. For businesses, this means that federal agencies may decide to focus their efforts on the most serious cases, potentially reducing the frequency of enforcement actions for less significant or marginal infractions.
- Regional Divergence
The change here is at the federal level and purely state law regulations are unlikely to be directly affected (except, perhaps, in limited cases of state law preemption by federal rules). The effect of state regulations may become more important for businesses to consider if, as expected, federal regulatory regimes are pared back. The analysis of such cases is highly industry specific and should be considered carefully by a business or regulatory attorney.
Circuit splits are more likely as, without Chevron as a guidepost, various federal courts around the country may come to different conclusions about agency actions, leading to different regimes under different federal circuits. This may lead to effectively different federal regulatory regimes in different states, unless these circuit splits are ultimately resolved by the Supreme Court in future cases. Companies doing business nationwide may be forced to navigate an array of different rules in different regions throughout the United States, potentially leading to higher compliance costs in certain areas.
- Unpredictable Outcomes
In the short term, businesses may face some unpredictability as courts and regulatory agencies adjust to these changes. Without the guidance of Chevron deference, and with the effects of potential additional challenges under Corner Post unknown, it may take some time for the legal landscape to settle and for businesses to fully understand the implications of these rulings.
Our Firm
Rossway Swan’s Corporate Law Practice Group is dedicated to assisting companies navigate the legal environment. Contact us today to learn more about how we can assist you in protecting and advancing your business interests as changes in the legal landscape occur.
Prepared by the Corporate Law Practice Group at Rossway Swan Tierney Barry & Oliver, P.L. Contact Kevin M. Barry or Ethan S. Moore for more information.
