Category: administrative law
Last term SCOTUS gave the administrative state quite a thumping. Does it still have the urge to curb?
If you thought that SCOTUS’ decision in Loper Bright last term tolling the bell for the 70-year old Chevron doctrine was the end of SCOTUS’ drubbing of the administrative state, look again—you may well be sorely mistaken. (See this PubCo post.) You might remember that, at a recent Ninth Circuit judicial conference, Justice Elena Kagan, expanding on her dissent in Loper Bright in response to a question, suggested that one reason the Court abandoned stare decisis in the case was plain hubris: in her view, the Court just believed that there was too much agency regulation and thought that the courts needed to step in. (See the Sidebar in this PubCo post.) And perhaps that conclusion didn’t require a giant leap. As far back as 2013 in his dissent in City of Arlington v. FCC (2013), Chief Justice Roberts worried that “the danger posed by the growing power of the administrative state cannot be dismissed.” Is there any reason to think that the urge to curb the administrative state has suddenly abated? Or will we perhaps see a temporary pause while agencies and court watchers catch their breath? As it turns out, there certainly could be opportunities for SCOTUS to continue the onslaught this term. The nondelegation doctrine—which SCOTUS studiously avoided addressing in Jarkesy v. SEC, its looming presence in the lower court decision notwithstanding—has once again reared its head, this time in Consumers’ Research v. FCC out of the Fifth Circuit. A petition for cert has just been filed in that case. And the concept of agency independence as established in a 1935 case, Humphrey’s Executor v. United States, may also be on the chopping block, as SCOTUS considers whether to take up the petition for cert in a Fifth Circuit decision, Consumers’ Research v. Consumer Product Safety Commission, in which the panel practically begged SCOTUS to review the case.
SEC’s Investor Advisory Committee discusses tracing in §11 litigation and shareholder proposals—will they recommend SEC action?
Last week, at the SEC’s Investor Advisory Committee meeting, the Committee discussed two topics described as “pain points” for investors: tracing in §11 litigation and shareholder proposals. In the discussion of §11 and tracing issues, the presenting panel made a strong pitch for SEC intervention to facilitate tracing and restore §11 liability following Slack Technologies v. Pirani. The panel advocated that the Committee make recommendations to the SEC to solve this problem. With regard to shareholder proposals, the Committee considered whether the current regulatory framework appropriately protected investors’ ability to submit shareholder proposals or did it result in an overload of shareholder proposals? Was Exxon v. Arjuna a reflection of exasperation experienced by many companies? No clear consensus view emerged other than the desire for a balanced approach and a stable set of rules. Recommendations from SEC advisory committees often hold some sway with the staff and the commissioners, so it’s worth paying attention to the outcome here.
What’s going on with the SEC’s proxy advisor rules?
Shall we catch up on some of the recent developments regarding the SEC’s proxy advisor rules? First, let’s take a look at what’s happening with the appeal of the opinion of the D.C. Federal District Court in ISS v. SEC, which, in February of this year, vacated the SEC’s 2020 rule that advice from proxy advisory firms was a “solicitation” under the proxy rules. Both the SEC and National Association of Manufacturers had filed notices of appeal in that case, but the SEC has mysteriously dropped out of that contest. Then, with regard to the separate ongoing litigation over the 2022 amendments to the proxy advisor rules—which reversed some of the key provisions in the 2020 rules—a new decision has been rendered by a three-judge panel of the 6th circuit, U.S. Chamber of Commerce v. SEC, upholding the 2022 amendments, thus creating a split with the recent decision of the 5th Circuit, National Association of Manufacturers v. SEC, on the same issue.
New Cooley Alert: Texas Court Blocks FTC’s Noncompete Ban
In April, the Federal Trade Commission voted, three to two, to prohibit post-employment noncompete agreements with workers (discussed in this April 2024 Cooley Alert). With some exceptions, the prohibition would have banned virtually all post-employment noncompete agreements in the U.S. beginning on September 4, 2024. But, as discussed in this timely new Cooley Alert, Texas Court Blocks FTC’s Noncompete Ban, from our Labor and Employment group, on August 20, 2024, the Northern District of Texas in Ryan LLC v. Federal Trade Commission issued an order blocking the FTC rule banning all post-employment noncompete agreements from taking effect. As a result, the Alert concludes, “for the time being, employers using noncompetes may continue to utilize them, subject to applicable state laws.”
In litigation over the SEC climate disclosure rules, have petitioners created a strawman?
As soon as the SEC adopted final rules “to enhance and standardize climate-related disclosures by public companies and in public offerings” in March (see this PubCo post, this PubCo post, this PubCo post, and this PubCo post), there was a deluge of litigation—even though, in the final rules, the SEC scaled back significantly on the proposal, putting the kibosh on the controversial mandate for Scope 3 GHG emissions reporting and requiring disclosure of Scope 1 and/or Scope 2 GHG emissions on a phased-in basis only by accelerated and large accelerated filers and only when those emissions are material. Those cases were then consolidated in the Eighth Circuit (see this PubCo post) and, in April, the SEC determined to exercise its discretion to stay the final climate disclosure rules “pending the completion of judicial review of the consolidated Eighth Circuit petitions.” (See this PubCo post.) There are currently nine consolidated cases—with two of the original petitioners, the Sierra Club and the Natural Resources Defense Council, having voluntarily exited the litigation (see this PubCo post), and the National Center for Public Policy Research having filed a petition to join the litigation more recently. (See this PubCo post). In June, petitioners began to submit their briefs (see this PubCo post). Now, the SEC has filed its almost 25,000-word brief in the consolidated case, contending that petitioners have set up a “strawman—challenging reimagined rules that the Commission did not enact and criticizing a rationale that the Commission expressly disclaimed.” More specifically, the SEC’s brief defends its authority to adopt these rules and the reasonableness of its actions and process under the APA and contends that, as compelled commercial (or commercial-like) disclosure, the rules are consistent with the First Amendment.
With the demise of Chevron deference, will the courts now turn to Skidmore?
In Loper Bright v. Raimondo, which overturned the 40-year-old doctrine of Chevron deference (see this PubCo post), SCOTUS highlighted the continued relevance of the doctrine articulated in Skidmore v. Swift & Co., often described as a principle of appropriate “respect” for agency interpretations, but something less than deference—i.e., the court must still be persuaded. The doctrine of Chevron deference, as you know, mandated that, if a statute did not directly address the “precise question at issue” or if there was ambiguity in how to interpret the statute, courts had to accept an agency’s reasonable interpretation of a law unless it was arbitrary or manifestly contrary to the statute. In Loper Bright, SCOTUS made clear that, while Chevron deference might now be toast, courts could still, in exercising their independent judgment in determining the meaning of statutory provisions, “seek aid from the interpretations of those responsible for implementing particular statutes,” citing Skidmore. Will Skidmore be the new go-to doctrine for courts adjudicating agency regulations? Not so far, according to this new article from Bloomberg.
Democrats introduce bill to restore Chevron deference
Senator Elizabeth Warren and several other Democrats have just introduced a bill, the Stop Corporate Capture Act, designed to checkmate SCOTUS’s recent decision in Loper Bright v. Raimondo (see this PubCo post), which overturned 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. The doctrine of Chevron deference mandated that, if a statute did not directly address the “precise question at issue” or if there was ambiguity in how to interpret the statute, courts had to accept an agency’s “permissible” interpretation of a law unless it was arbitrary or manifestly contrary to the statute. According to Warren’s press release, the “Stop Corporate Capture Act codifies the Chevron doctrine and reforms the regulatory process to end corporations’ influence over the rulemaking process, prioritize scientific and public integrity, and reduce delays in implementation of laws.” The bill, she contended “will bring transparency and efficiency to the federal rulemaking process, and most importantly, will make sure corporate interest groups can’t substitute their preferences for the judgment of Congress and the expert agencies.” Senator Chris Van Hollen, another sponsor of the bill, observed that “[i]t’s impossible to overstate the harm that Americans could face if we don’t act. This legislation protects federal agencies’ bedrock authority to carry out the laws that Congress passes—while making the regulatory process more open, transparent, and grounded in the public interest.” A similar bill, introduced by Representative Pramila Jayapal, is pending in the House. Will the legislation succeed? Don’t bet on it. According to Reuters, the bill has “slim chances of passing in an election year in the Senate, which Democrats only narrowly control.” Still, there’s always next year—depending, of course, on the results of the election.
Are the floodgates about to open after the demise of Chevron deference?
Utah v. Julie A. Su, a new opinion from Fifth Circuit, concerns an appeal of the “weighty question”—post Chevron—of whether, as phrased by the Court, “ERISA allow[s] retirement plan managers to consider factors that are not material to financial performance when making investment decisions affecting workers’ retirement savings.” Can ERISA fiduciaries “consider ‘collateral benefits’ when making investment decisions on behalf of the pension plans they manage”? In 2021, the Department of Labor adopted a new rule that interpreted ERISA to allow retirement plan managers to consider “‘the economic effects of climate change and other environmental, social, or governance factors’ in the event that competing investment options ‘equally serve the financial interests of the plan.’” That rule had effectively reversed a “midnight regulation” adopted by the prior Administration that “forbade ERISA fiduciaries from considering ‘non-pecuniary’ factors when making investment decisions.” The new rule was immediately challenged by a group of states, companies and trade associations, claiming that the new rule was inconsistent with ERISA and arbitrary and capricious under the Administrative Procedure Act. The district court, following the mandate of Chevron, deferred to the interpretation of the current DOL and rejected the challenge. Plaintiffs appealed. And then…… SCOTUS overruled Chevron. In a new decision, a three-judge panel of the Fifth Circuit has elected not to answer that weighty question on appeal—not now at least: “Given the upended legal landscape, and our status as a court of review, not first view, we vacate and remand so that the district court can reassess the merits.” Are we about to see a slew of these types of decisions revisiting agency regulations after the demise of Chevron? Time will tell.
In Corner Post, SCOTUS takes another swipe at the administrative state
This term, SCOTUS delivered two big wallops to the administrative state in the decisions eliminating Chevron deference (Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Dept of Commerce, see this Pubco post) and the use of administrative enforcement proceedings seeking civil penalties ( SEC v. Jarkesy, see this PubCo post). But that wasn’t all. There were at least a couple of other cases this term that reflected the same kind of skepticism toward the administrative state. They might be worth your attention. One of them, Corner Post, Inc. v. Board of Governors of the Federal Reserve System, discussed below, concerned the statute of limitations under the Administrative Procedure Act. For our purposes, though, the potentially critical repercussion of Corner Post was articulated in the dissent by Justice Ketanji Brown Jackson, who argued that the case effectively decimated the limitations period for facial challenges to agency regulations, setting up the potential for a never-ending series of challenges to long-standing regulations and perhaps even, yes, gaming of the system.
In Ohio v. EPA, SCOTUS reinforces powerful role of judiciary in agency oversight
As has been widely discussed, the administrative state took quite a shellacking this last SCOTUS term. But as I noted earlier, it wasn’t just the elimination of Chevron deference in Loper Bright (see this PubCo post) or administrative enforcement proceedings seeking civil penalties in SEC v. Jarkesy (see this PubCo post). There were at least a couple of other cases this term that contributed to the drubbing. One of them, Corner Post, Inc. v. Board of Governors of the Federal Reserve System, had the effect of extending the statute of limitations under the Administrative Procedure Act (see this PubCo post). Another case, Ohio v. EPA, in which SCOTUS put a temporary hold on the “good neighbor” provision of the Clean Air Act because EPA failed to “reasonably explain” its action, might also be worth your attention. In Ohio, Justice Neil Gorsuch, writing for the majority, concluded that enforcement of EPA’s rule should be stayed because the challengers were likely to prevail on the merits. Why? Because EPA had provided an inadequate explanation for the continued application of the emission control measures in the plan in response to comments. Where have we heard this “failure-to-explain” theory recently? How about Chamber of Commerce of the USA v. SEC, vacating the SEC’s share repurchase rule for, among other things, failure to respond to petitioners’ comments (see this PubCo post) or even National Association of Manufacturers v. SEC, vacating the 2022 rescission of certain proxy advisor rules for arbitrarily and capriciously failing to provide an adequate explanation to justify its change (see this PubCo post). Justice Amy Coney Barrett dissented, joined by Justices Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson, contending that the majority opinion “risks the ‘sort of unwarranted judicial examination of perceived procedural shortcomings’ that might ‘seriously interfere with that process prescribed by Congress.’” As characterized by Professor Nicholas Bagley of the University of Michigan Law School in Michigan Law, in its “broad strokes,” the dissent asserted that “courts shouldn’t be in the business of fly-specking lengthy notice-and-comment records,” especially with the benefit of hindsight. The question, he continued, “is whether the agency has behaved arbitrarily and capriciously, and that’s a pretty demanding standard.” With this decision, SCOTUS amplifies the increasingly powerful role of the judiciary in overseeing federal agencies, adding to the decisions this term seeking to rein in the administrative state.