On May 1, SCOTUS granted cert in the case of Loper Bright Enterprises v. Raimondo, a case about whether the National Marine Fisheries Service has the authority to require fishing vessels to pay some of the costs for onboard federal observers who are required to monitor regulatory compliance. So why is this relevant to public companies? Because one of the questions presented to SCOTUS was whether the Court should continue the decades-long deference of courts, under Chevron U.S.A., Inc. v. Nat. Res. Def. Council, to the reasonable interpretations of statutes by agencies (such as the SEC). The doctrine of Chevron deference, articulated in that case, mandated that, if there is ambiguity in how to interpret a statute, courts must accept an agency’s interpretation of a law unless it is arbitrary or manifestly contrary to the statute. The decision, expected next term, could narrow, or even completely undo, that deference. Of course, the  conservative members of the Court have long signaled their desire to rein in the dreaded “administrative state.”  (See, for example, the dissent of Chief Justice John Roberts in City of Arlington v. FCC  back in 2013, where he worried that “the danger posed by the growing power of the administrative state cannot be dismissed.”) But, in recent past cases, the Court has resolved issues and avoided addressing Chevron. This case, however, may well present that long-sought opportunity. Depending on the outcome, its impact could be felt far beyond the Marine Fisheries Service at many other agencies, including the SEC.

Background. The Magnuson–Stevens Fishery Conservation and Management Act, first passed in 1976, according to the agreeably-named National Oceanic and Atmospheric Administration, is the “primary law that governs marine fisheries management in U.S. federal waters,” and fosters the long-term biological and economic sustainability of marine fisheries. As described in  the 2022 decision of the D.C. Circuit in Loper-Bright Enterprises v. Raimondo, the MSA “authorizes the Secretary of Commerce, and the National Marine Fisheries Service (‘the Service’) as the Secretary’s delegee, to implement a comprehensive fishery management program…. Key to the statutory scheme is the promulgation and enforcement of ‘fishery management plans,’” which “are developed by regional fishery management councils.”

In 2018, the New England Fishery Management Council submitted to the Service an Omnibus Amendment, which the Service approved, publishing the Final Rule in 2020.  The Amendment and the Rule “set out a standardized process to implement and revise industry-funded monitoring programs in the New England fisheries.” These monitoring programs cover 50% of herring trips, funded in part by the Service, and in part by the industry, “with owners of vessels selected by the Service to carry an industry-funded monitor and pay the associated costs.” And there’s the rub.  A group of commercial fisherman filed litigation alleging “that the Act did not authorize the Service to create industry-funded monitoring requirements and that the rulemaking process was procedurally irregular.”  The district court granted summary judgment to the government, and the plaintiffs appealed. Under Chevron, the question was “whether Congress has spoken clearly, and if not, whether the implementing agency’s interpretation is reasonable.”

D.C. Circuit opinion. After distinguishing this case from West Virginia v. EPA (see this PubCo post), which recognized the new “major questions doctrine,” the D.C. Circuit applied the well-worn two-step Chevron test for determining whether deference should be accorded to federal administrative agency actions interpreting a statute (as opposed to its own regulation):  “At Chevron Step One, the court, ‘employing traditional tools of statutory interpretation,’ evaluates ‘whether Congress has directly spoken to the precise question at issue….If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.’…. If the statute considered as a whole is ambiguous, then at Chevron Step Two the court defers to any ‘permissible construction of the statute’ adopted by the agency.”

The court concluded that the text of the statute made clear that the Service may approve fishery management plans that mandate at-sea monitoring for a statutory purpose, but the statute was silent on requiring industry-funded monitoring. Accordingly, the court moved to Step Two.

In Step Two, the “agency’s interpretation can prevail if it is a ‘reasonable resolution of an ambiguity in a statute that the agency administers,’… and ‘the agency has offered a reasoned explanation for why it chose that interpretation.’… Under this deferential standard, the Service’s interpretation of the Act as authorizing additional industry-funded monitoring programs is reasonable.”  Under the statute, including several “necessary and appropriate” clauses, the Service had a reasonable basis “to infer that the practical steps to implement a monitoring program, including the choice of funding mechanism and cost-shifting determinations, are likewise ‘necessary and appropriate’ to implementation of the Act.” In addition, the Service explained that at-sea monitors could be useful to  collect “data necessary for the conservation and management of the fishery,” reasonably tying “the industry-funded monitoring requirement to the Act’s purposes.  The Service’s interpretation of the Act is therefore owed deference at Chevron Step Two.”

Notably, the dissent maintained that the silence of the statute should generally be read to indicate a “lack of authority,” but the majority reasoned that, under Chevron, “such silence in the context of a comprehensive statutory fishery management program for the Service to implement…is a lawful delegation….  Furthermore, the Supreme Court has instructed that a broad ‘necessary and appropriate’ provision, as appears in the Act, ‘leaves agencies with flexibility’ to act in furtherance of statutory goals.”

The court affirmed the district court’s grant of summary judgment to the Service and denial of summary judgment to appellants. 

The petition. Appellants then submitted a petition to SCOTUS for cert. In the petition, appellants contended that the D.C. Circuit’s decision below posed

“a dual threat to efforts to rein in agency overreach.  One of the few practical constraints on agency overregulation is the need for sufficient congressionally appropriated funds to actually enforce the agency’s regulations.  One of the few legal restraints on agency overreach is sensible rules of statutory construction that recognize reasonable limits on agency authority.  The decision below simultaneously eviscerates both constraints.  It authorizes agencies to force the governed to quarter and pay for their regulatory overseers without clear congressional authorization.  And it perceives ambiguity in statutory silence, where the logical explanation for the statutory silence is that Congress did not intend to grant the agency such a dangerous and uncabined authority.  Whether by clarifying Chevron or overruling it, this Court should grant review and reverse the clear agency overreach at issue here.”  

This case, the Petitioners argued, has significance far beyond the fishing industry.  “Courts and litigants alike have an undeniable interest in whether agencies can force them to fund enforcement efforts and on the current state of Chevron, which applies to countless statutes involving the entire alphabet soup of federal agencies.  Virtually every agency has some residual ‘necessary and appropriate’ clause akin to the one invoked here….  This case is an ideal vehicle to resolve these issues.”

Respondents contended that Petitioners’ request to modify or overrule Chevron “does not warrant further review.  Petitioners have not carried their burden of demonstrating any special justification that could plausibly warrant such a departure from stare decisis principles, and this case would be an unsuitable vehicle for reconsidering Chevron in any event.” SCOTUS has repeatedly denied cert in cases presenting similar Chevron questions, and should do the same here, Respondents argued. The judgment of the D.C. Circuit, Respondents maintained, was correct: “The Act, through a number of its provisions, authorizes NMFS to adopt a requirement that the vessel owner or operator hire a monitor to provide onboard data collection on covered trips.” And the language of the statute, Respondents contended, together with the “necessary and appropriate” clause, implicitly suggests that the statute contemplated payment. In the end, the “court of appeals’ bottom-line conclusion accords with the best reading of the Act and, in any event, was an unremarkable application of settled Chevron principles.”

In addition, Respondents argued that, in “practice, the financial impact of the program has been limited.  Petitioners have not identified, to date, a single vessel trip for which they have been required to pay for monitoring services under this rule.”  The agency granted numerous waivers and even “announced that any monitoring coverage that would have been required by the rule will not be assigned from April 1, 2023, onwards, because the agency lacks federal funding to pay the administrative costs of the program beyond that date,” depriving “the decision below of any current practical significance.”  (Of course, how much of a deterrent is that? See West Virginia v EPA about a rule that the EPA said was never even in effect, that it had no intention of enforcing and that it planned to later replace with a new still-to-be-developed rule. See this PubCo post.)

Cert granted. SCOTUS granted cert on the question of “[w]hether the Court should overrule Chevron or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.” The case is expected to be argued next term.

Posted by Cydney Posner