‘Chevron Is Overturned’ Supreme Court Decision Upends Era of Agency Rule

“Chevron is overturned. The courts must exercise their independent judgment in deciding whether the agency acted within its statutory authority.” –Chief Justice John Roberts

The ruling of the United States Supreme Court in the case Chevron doctrine in Loper Bright Enterprises v. Raimondo (Drifter), will have a profound impact on many industries regulated by federal agencies that have become accustomed to being the final arbiter of ambiguous language in existing laws, rules, and regulations. Those days are over—courts no longer need to defer to federal agencies to resolve such ambiguities.

Originally decided in 1984. Chevron became a landmark ruling in which courts applied a two-part test as the standard of interpretation when a statute is ambiguous or unclear, deferring to a reasonable interpretation of the statutory language by an administrative body. Chevron USA vs. Natural Resources Defense Council467 US 837 (1984). In recent years, the Court has moved away from using Chevron when examining the admissibility of executive action. In a 6-3 decision authored by Chief Justice Roberts, the majority opinion in Drifter refers to the statement that “This Court has not referred to the agency’s interpretation under Chevron since 2016″ Before DrifterHowever, lower courts continued to defer to the agency’s interpretation, and thus this ruling is relevant when plaintiffs in regulated industries challenge perceived regulatory overreach before those lower courts.

Fall Chevron will lead to a new era in which courts will serve as the final arbiters of statutory interpretation, as Chief Justice Roberts and the majority of the Court believe the Administrative Procedure Act (APA) is intended to do. Decades of deference to federal regulatory authorities that inform the ability of federal agencies to interpret statutes, promulgate binding rules, and issue subregulatory guidance will be challenged and will limit the ability of federal agencies to act when Congress fails to address unpredictable and unknown complexities in the statutory scheme.

While Drifter case specifically invalidates environmental regulations, its impact will be felt across a range of regulated industries, including health care and securities. For more than 40 years, when courts have had to interpret ambiguous agency statutes, they have looked to “Chevron deference” to decide how much weight to give to the executive branch’s interpretations. Historically, courts have deferred to “reasonable” agency interpretations because of their expertise, experience, and political accountability in resolving statutory ambiguities.

In the area of health care regulation, several key statutes give federal agencies the authority to create and implement regulations. These statutes include the Food, Drug, and Cosmetic Act, the Public Health Service Act, the statutes establishing Medicare and Medicaid, the Medicare Modernization Act, the Affordable Care Act, the 21st Century Cures Act, and the No Surprises Act. Congress has delegated the implementation of these statutes to the U.S. Department of Health and Human Services (HHS) and agencies within HHS, such as the Centers for Medicare and Medicaid Services, the Food and Drug Administration, and the Centers for Disease Control and Prevention. These agencies have decades of extensive technical experience administering the statutes and programs contained in statutes written and enacted by the U.S. Congress.

In securities regulation, federal laws, including the Exchange Act, the Securities Act, the Advisers Act and the Investment Company Act, authorize the U.S. Securities and Exchange Commission (SEC) to promulgate regulations affecting a significant portion of the financial markets, including publicly traded companies, broker-dealers, investment advisers and investment funds.

Chevron AND Auer respect for the agency

Legal challenges to the agency’s interpretation required arguing in the context of precedent law that would apply to Chevron analysis of respect to this day. The first step in Chevron The purpose of the analysis is to “discover whether Congress has spoken directly on the particular issue at issue.” ID at 842. If the intent of Congress is clear, that is the end of the matter. But if the statute is silent or ambiguous, the court cannot simply impose its own interpretation, but rather defer to the governing body.

When an agency interprets its own regulations, courts defer to the agency’s informal guidance under the “Auer respect.” Auer v Robbins, 519 U.S. 452 (1997). In contrast to Chevron respect, Auer deference requires courts to consider certain limitations, including (1) whether the rule is genuinely ambiguous and the interpretation is reasonable, (2) whether the rule is an official position of the agency expressed by someone speaking on its behalf, (3) whether the question at issue implies agency expertise, and (4) whether the interpretation is fair and thoughtful and not merely ad hoc reasoning. Kisor against Wilkie, 588 U.S. 558 (2019).

Loper’s influence on the executive power

Drifter to hold

To quote Marbury v. Madison that “(i) it is clearly the province and duty of the judicial branch to pronounce on the law,” the majority opinion held that “courts must exercise their independent judgment in deciding whether an agency acted within its statutory authority as required by the APA.” In addition, the majority of the Court addresses the conflict between Chevron and the APA, stating that “courts need not, and under the APA may not, defer to an agency’s interpretation of the law simply because the statute is ambiguous.” Writing for the majority opinion, Chief Justice Roberts further states that “at best Chevron distracted from the important question: Does the statute authorize the agency’s challenged action?”

In its ruling, the Court held that while Congress may continue to grant agencies discretion, such authority is subject to judicial oversight. Finally, the Court determined that while courts may rely on an agency interpretation as informative, they are not bound to follow it, especially when the agency interpretation is issued at about the same time as the underlying statute. Writing for the majority, Chief Justice Roberts rejected the government’s argument that the agency’s specialized knowledge justifies deference:

Chevron’s presumption is flawed because agencies have no special authority to resolve statutory ambiguities. Courts do. The Framers, as noted, anticipated that courts would frequently be faced with statutory ambiguities and expected courts to exercise independent legal judgment in resolving them.

In her dissenting opinion, Justice Elena Kagan described the implications of the Court’s opinion as “likely to cause large-scale disruption.” She further announced that “[i]n one fell swoop, the majority now arrogates to itself exclusive authority over every open question—no matter how expert-based or policy-laden—involving the meaning of regulatory law.”

Potentially conflicting interpretations in different jurisdictions

The theory behind the respect shown to agencies in Chevron is that experts working in federal agencies are often more attuned to the impact of new laws and how they are implemented in the context of specific industry practices, policies, and trends. For example, Judge Friendly once noted that Medicaid law is “almost incomprehensible to the uninitiated.” For heavily regulated industries like health care and securities, faced with Drifterjudges across the United States, many of whom are unfamiliar with the complexities of the relevant regulatory schemes, may offer potentially conflicting interpretations of the same statute, rule, or regulation, thereby creating challenges for industry participants who must do business across the country. Of course, the theory underlying Chevron has its limitations because regulators’ views can change over time. After all, the heads of the federal agencies that promulgate and enforce their rules and regulations are political appointees and are not necessarily constrained by the agency’s past practices.

Increase in litigation against agency regulations

Drifter will certainly give reassurance to potential plaintiffs who believe various federal agencies are acting outside the bounds of their statutory authority.

In his amicus curiae letter in the case DrifterThe American Cancer Society has mentioned the possibility of “post-Chevron tsunami of litigation.” Most of the Drifter stated that previous cases involving Chevron deference may continue to be based on these decisions as judicial precedents “despite the Court’s change in interpretive methodology.” Health care organizations currently challenging misinterpretations of statutes in the regulations are well-positioned to comply with the new standard of review. Courts will now have greater latitude to exercise their judgment under the APA without the constraints of meeting the standard of deference set forth in ChevronThis change may be beneficial in the event of an agency exceeding its authority.

In addition, laws that have been challenged in court could still face another round of litigation as the parties test the reach Drifter. Some of the provisions already under consideration that could be at risk include, for example, Medicare Part A regulations, the No Surprises Act implementing regulations, the long-term care facility arbitration rule, the price transparency rule, facility neutrality, and others. Congress will need to be more transparent and generally more prescriptive in the legislation to avoid later scrutiny by the Executive Branch’s attempts to interpret loopholes in the act or otherwise ambiguous provisions.

In the securities space, the SEC has already suffered numerous losses in lawsuits with plaintiffs challenging various regulations. The SEC’s long-awaited and much-debated climate risk disclosure regulations, which received thousands of submissions during the public comment process, are the subject of pending litigation. Similarly, plaintiffs recently won a victory in invalidating the Private Fund Adviser Rule in National Association of Private Fund Managers v. SECNo. 23-60471, 2024 U.S. App. LEXIS 13645 (5th Cir. June 5, 2024). Chevroncourts are even more likely to scrutinize the agency’s interpretations of broad antifraud laws. The fall Chevron may cause the SEC and other agencies to take more cautious action in situations where the source of their purported authority is not clear.

If you have any questions regarding Drifter If you would like to make a decision and find out how it will affect your work, please contact us.

Special thanks to our contributor, Abel Chacko (Houston), for his help in preparing this content.