The U.S. Supreme Court recently issued a major announcement that may impose significant changes to agency statutory interpretation. The Court has agreed to hear a case this Fall that could put an end to the Chevron doctrine of judicial deference. Chevron is a legal doctrine that the Court has relied upon for decades since its seminal decision in Chevron U.S.A. v. Natural Resources Defense Council (1984). It enables federal courts to use a two-step analysis when determining whether to defer to an agency’s interpretation of a congressional statue. The law in question must carry ambiguity behind its meaning, enabling agencies to determine the law’s meaning. The doctrine applies to lawsuits brought by private citizens against government agencies.
The first step questions whether Congress has “directly spoken to the precise question at issue,” which determines if the statue contains ambiguity or is clearly definable. The second step questions whether the agency’s action is “permissible” or justified in relation to existing law.
Such a requirement “puts citizens at an unfair disadvantage in challenging regulations that harm their lives and livelihoods,” according to Competitive Enterprise Institute attorney Devin Watkins. Even when a new president is elected, and new administrative staff are appointed, “the courts still must defer to the agencies,” he says. This, according to Watkins, is destabilizing to the law, as courts must continue to defer to emerging interpretations by new agency officials, which breeds inconsistency.
If Chevron is neutralized, this will significantly weaken the leverage that federal agencies possess when construing the meaning of statues in their favor. This outcome will be particularly depowering for major financial regulators like the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), and the Federal Deposit Insurance Corporation (FDIC) that consistently engage in formal and informal rulemaking in absence of clear congressional intent.
The fate of Chevron rests upon the imminent case of Loper Bright Enterprises v. Raimondo, which sees a group of New Jersey fishermen being forced to pay for costs of regulatory monitors of their boats planted by the National Oceanic and Atmospheric Administration (NOAA). While the government originally paid for the fishing monitors, NOAA has shifted the cost burden on to the fishermen themselves. The fishermen challenged not only this cost, but the Chevron doctrine that enables agencies to reinterpret statutes to their benefit and at the expense of private citizens.
In Chevron’s 6-0 ruling, the Court upheld an air quality regulation that allowed the Environmental Protection Agency (EPA) to define the phrase “statutory source.” Under the agency’s interpretation, the regulation would pertain only to whole industrial plants. This gave license for plants to build or transform units existing within their facilities without needing a permit under the Clean Air Act. For the Reagan Administration, this was hailed as a major victory for industrial deregulation and administrative autonomy.
Many conservative jurists, including the late Justice Antonin Scalia, originally endorsed Chevron as a necessary safeguard to agency activity. In a Duke Law Journal article, Scalia argued that “broad delegation to the Executive is a hallmark of the modern administrative state,” believing that Congress intended for federal agencies, not the courts, to exercise discretion when determining the interpretative meaning of a statue.
Agencies were granted a heightened level of deference by federal courts to interpret statues as they deemed fit. Federal judges rarely challenged an agency’s interpretative stance on ambiguous sections in statutes for nearly 40 years after Chevron.
This has often worked to the advantage of financial regulators, who have relied upon Chevron deference to define ambiguous sections of their founding charters and related public laws. This in turn has reinforced the gravitas of their interpretative authority. This was evident in the Supreme Court’s decision in National Cable & Telecommunications Association v. Brand X Internet Services (2005), where it invoked Chevron to uphold a legal interpretation of the Communications Act by the Federal Communications Commission (FCC). However, in select cases, the Supreme Court has actually cast aside Chevron to render decisions against the SEC’s longstanding interpretation of a statute.
This can be seen 10 years after Chevron in the Supreme Court’s decision of Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A. (1994). Here a conservative-led 5-4 ruling overturned an extended history of court decisions and SEC enforcement actions. The Court ruled that the SEC could no longer hold “aiders and abettors” (i.e., banks, trustees, and accountants) legally accountable for facilitating misstatements or omissions on the sale of securities. The Court rejected the SEC’s interpretation of Rule 10b-5, determining that “private civil liability does not extend to those who do not engage in a manipulative or deceptive practice, but who aid and abet such a violation of 10(b).” This, based on their previous ruling in Herman & MacLean v. Huddleston (1983).
The Court has even denied Chevron deference to Congress itself in the case of Plaut v. Spendthrift Farm, Inc. (1995). It did so when striking down a portion of the Securities Act of 1934 that was modified by section 476 of the Federal Deposit Insurance Corporation Improvement Act of 1991. This FDIC Act enabled litigants to revive settled cases and reinstate lawsuits that were dismissed under the Supreme Court’s decision in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson (1991).
In Plaut, a 7-2 Court led by Justice Scalia ruled that Congress could not violate the principle of separation of powers by forcing federal courts to reopen settled cases as part of the FDIC Improvement Act. Here, Congress’ misguided interpretation of the Securities Act was unconstitutional since it overlooked how section 476 of the Act stripped judicial authority away from Article III courts and unjustly empowered the legislative branch.
The Court essentially denied a congressional interpretation that expanded administrative authority in securities cases. The Court, by extension, denied financial regulators like the SEC from using Chevron as a vehicle to retroactively reopen settled securities cases.
Beyond these cases, the Supreme Court has issued three sweeping decisions that have narrowed the scope of administrative agency procedures warranting Chevron review. These decisions have ensured that Chevron deference can only apply to administrative actions that carry the force and effect of law under the Administrative Procedure Act (APA). Those cases which imposed this “force of law” standard are Christensen v. Harris County (2000), Barnhart v. Walton (2002), and United States v. Mead Corp (2001).
Since agencies consistently produce administrative edicts that carry the force of law, some legal scholars have speculated whether this modified doctrine undermines the original two-step requirement. For instance, legal scholar Cass Sunstein has referred to this bundle of cases as “Chevron Step Zero,” which requires agencies to first point to a conferral of rulemaking authority in the administrative issuance at question, before the two-step analysis can even be considered.
Sunstein surmised that the Supreme Court of the 2000s was split between two applications of Chevron. One view, championed by Justice Scalia, requires that Chevron’s traditional application holds when agencies issue mandates that carry the force of law. Justice Breyer’s view took a more constrained approach by denying law-interpreting power to agencies whenever it seems impossible to infer congressional intent.
With the SEC, Chevron Step Zero impaired the agency’s access to judicial deference. Many of the SEC’s administrative actions often lack a guiding principle tethered to the force of law. This was seen in the case of Christensen v. Harris County (2000), where the Supreme Court ruled that under section 553 of the APA, a regulation providing for a “notice and comment” period is likely to receive Chevron deference, whereas a simple letter—deemed by the Court as a “no action letter”—issued by the SEC will not. Such informal documents will face a more difficult road to qualification. As a result, agencies like the SEC will typically seek deference under the older Skidmore review scheme, which for nearly 80 years, has granted deference to informal administrative rulemaking.
If the Court decides to terminate Chevron in the upcoming Loper Bright Enterprises case, federal regulators like the SEC will be among the hardest hit. An end to Chevron will spark a diminishment of autonomy enjoyed by agencies that produce a large number of formal and informal rulemaking. This will make the SEC more susceptible to suits by private litigants if they can successfully point to areas where the agency misconstrued statutory interpretation. Federal courts will be required to exercise judicial review and determine whether the administrative action properly squares with congressional intent. If the answer is “no,” then the SEC may see many of its most controversial edicts struck down as a result.
The SEC doesn’t have a good track-record for interpreting statutory intent even when relying on Chevron deference. Without Chevron, the agency will be at an even greater disadvantage.