US Supreme Court Overturns 40 Years of Judiciary Obedience to Rules | Davies Ward Phillips & Vineberg LLP

In the historical opinion in Loper Bright Enterprises v. Raimondo, Secretary of CommerceIn a ruling issued in late June, the U.S. Supreme Court overturned the “Chevron” doctrine that had long governed judicial review of U.S. federal laws. Chevronenacted in 1984, created a framework for courts to review regulations that interpreted statutes passed by Congress. In simple terms, if a statute was ambiguous, courts were generally required by law to Chevron be based on the interpretation of the regulatory body, provided that that interpretation is reasonable.

The Supreme Court eliminated the so-called compliance rule (which was no great surprise, given that the Supreme Court has overturned several other established precedents in the past few years). Instead, courts must apply their own analysis and interpretation, even if the agency’s regulatory interpretation is reasonable.¹

Less than a week after the fall ChevronThe Supreme Court reversed a federal appeals court decision and allowed the plaintiffs to challenge the regulation more than six years after it was enacted. The court found that the six-year statute of limitations under U.S. law Administrative Procedure Act “begins to run only when the plaintiff has a complete and current cause of action.” In other words, the regulation can be challenged at any time, provided the claim is filed within six years of the harm caused by the regulation.

The potential implications of these two decisions are broad and likely to harm the law from a policy perspective. They are likely to encourage more challenges to U.S. federal laws, including tax laws, because lawyers (and their clients) will be more likely to have realistic incentives to challenge the rules (and in some cases, lawyers may be ethically obligated to raise the possibility of such challenges); they may also affect ongoing cases. As a result, tax planners who rely on existing rules will need to consider the possibility of challenges to those rules and the potential impact on their tax planning. We also expect the decisions to affect the way federal agencies promulgate rules, accept or reject comments, and attempt to implement existing and future rules.

For example, these decisions will likely influence the Internal Revenue Service and the Treasury Department as to what changes to make when finalizing the excise tax regulations on stock repurchases (see our bulletin for more details). Taxpayers may also consider challenging the final regulations that implement the look-through rule for domestically controlled real estate investment trusts (see our bulletin for more details on this rule).

Both decisions will undoubtedly have far-reaching implications in both tax and non-tax contexts, including with respect to rules and regulations issued by the Securities and Exchange Commission, as well as the Federal Trade Commission’s recently announced ban on most employee non-compete clauses.

We will keep you updated on important developments and challenges to U.S. federal regulation.

¹ However, the Supreme Court has not yet overturned an older 1944 case, Skidmore v Swift & Co., which dealt with courts’ reliance on agency interpretations but did not allow those interpretations to determine the outcome. Skidmore’s opinion stated that agency interpretations, “while not controlling the courts by virtue of their authority, constitute a body of experience and informed judgment to which courts and litigants may properly appeal for guidance.”