Loper Bright and Relentless 101: What Regulated Companies Need to Know as We Enter the Post-Chevron Era | Sheppard Mullin Richter & Hampton LLP

In late June, the U.S. Supreme Court took a major step toward limiting the power of federal agencies by abandoning the “Chevron doctrine” and its requirement that federal courts defer to agency interpretations of ambiguous federal statutes. The Court’s long-awaited decision in Loper Bright enters the case. v. Raimondo, Secretary of Commerce AND Relentless Inc. v. Department of Commerce603 U.S. ___ (2024), requires federal courts to exercise independent judgment to interpret statutory language without deference to the agency charged with implementing and enforcing the law. The Court’s opinion continues the trend toward less permissive judicial review of agency decisions and is expected to encourage a wave of challenges to federal regulations and other agency actions, potentially providing some relief to regulated businesses.

This Loper Light The opinion concerns two consolidated cases challenging regulations adopted by the National Marine Fisheries Service that required commercial fishing vessels to carry observers to ensure compliance with catch limits. The court granted to certify to answer one question: should we reject or clarify the standard set 40 years ago in Chevron USA, Inc. v. Natural Resources Defense Council, Inc.., 467 U.S. 837 (1984), which provides that a reviewing court must defer to a federal agency’s interpretation of federal law unless the interpretation is clearly contrary to congressional intent with respect to the particular issue in dispute or is an unreasonable interpretation of an ambiguous provision.

In a 6-3 majority opinion written by Chief Justice Roberts, the Court rejected Chevron as contrary to the vision of the Founders and the commandment expressed in Marbury v. Madison that “(i) it is plainly the province and duty of the judicial department to decide what the law is.” 5 U.S. 137 (1803). The court also held, Chevron in direct conflict with the intent and requirements of the Administrative Procedure Act of 1946, which, according to the majority, authorizes administrative agencies to decide questions of fact but expressly provides that courts must exercise independent judgment on questions of law, without particular deference to agency interpretation. Justice Gorsuch and Justice Thomas filed concurring opinions, with Justice Thomas emphasizing that Chevron violated the alleged constitutional system of separation of powers.

Justice Kagan, joined by Justice Sotomayor and Justice Jackson, dissented, describing the enormous significance Chevron and predicting that its fall would lead to a dramatic expansion of judicial power. Indeed, it is difficult to overestimate the historical significance Chevron to the development of the administrative state that exists today. Under the open powers of Congress, federal agencies have constructed complex regulatory schemes, especially in the environmental area, that might not withstand legal scrutiny without the respect required by Chevron. However, as both the majority and the dissenters noted, the Court is moving away from a submissive Chevron standard for more rigorous judicial oversight for many years. The most significant example of this change is the “leading questions doctrine” first formulated in West Virginia vs. EPA142 S. Ct. 2587, 2608–09 (2022), under which the Court declined to defer to agency interpretations in “extraordinary cases” involving issues of great “economic and political importance.”

Although this is not an isolated case, Loper Light remains one of the most important administrative decisions in a generation. The full impact of the opinion won’t be known for years, but members of the regulated community can expect the following changes and opportunities.

• Court challenges. This Loper Light standard, along with the extended limitation period for regulatory challenges permitted by the Court’s opinion in Corner Post vs. Federal Reserve603 U.S. __ (2024), will likely lead to a flood of challenges to federal regulations and enforcement actions, particularly in federal circuits that are known for being business-friendly and skeptical of regulatory authority. Regulations that rely on ambiguous or open-ended statutory authority will be particularly vulnerable to challenge. Organizations that take a thoughtful, strategic approach will be best positioned to take advantage of these developments, bearing in mind that if the rule is struck down, a period of uncertainty will likely follow as the agency frantically seeks to replace it.
• Creating and enforcing regulations. This Loper Light opinion and other recent decisions limiting deference to administrative authority may make some agencies more cautious about adopting new regulatory requirements and taking enforcement actions, but this will vary by agency and by issue. In addition, restrictions on administrative independence may result in fewer differences across presidential administrations because agencies have less freedom to reinterpret federal law to suit policy goals. Overall, the regulatory status quo is likely to change only slowly, and businesses should not expect immediate relief from permitting, reporting, and compliance burdens.
• Legislation. Loper Light does not limit Congress’s authority to expressly delegate authority to federal agencies, and Congress could respond by enacting narrower and more specific statutory schemes, leaving less to agency discretion. But the current divisions in Washington make it unlikely that Congress will take much action to strengthen regulatory authorities or clarify its intentions. Because Loper Light implicitly requires Congress to resolve ambiguities and disagreements at the legislative stage rather than leaving them to agency interpretation, which is likely to cool Congress’s enthusiasm for significant new regulatory rules, at least in the short term.
• State responsesStates already vary widely in the extent to which they attempt to regulate economic activity outside the bounds of federal regulation. Loper Light is expected to reduce federal regulation, ultimately these state differences will become more important. States do not have card blank regulate, however. The scope of federal precedence in various areas will become more significant if federal regulation is limited.
• State court actions. If the scope of federal regulation is limited, plaintiffs and advocacy groups may direct their efforts toward claims in state courts, especially in areas such as the environment and labor and employment. For example, environmental advocacy groups may invoke the public trust doctrine and other common law claims to pressure states to establish more stringent rules or enforcement systems to conserve natural resources and protect public health and safety. Tort claims may also become more important as a way to fill regulatory gaps—for example, if federal remediation requirements are limited.

The court is on a path that will lead to profound changes in the functioning and structure of the federal government and the role and power of the states. The details will depend on how voters, legislators and lower courts respond to Loper Light and other recent decisions, but the overall trend is clearly toward a constraining pressure on the scope and severity of federal regulation. As the new contours of 21st-century governance take shape, businesses will need to remain agile and informed as they prepare for new challenges, incentives, and opportunities.