Regulations Under Loper Bright

Overturning Chevron does not prevent Congress from directing an agency to issue regulations. For example, many tax provisions, such as Section 409A(e) of the Internal Revenue Code of 1986, as amended (“Code”), give the Secretary of the Treasury broad powers to issue implementing regulations. After providing notice and an opportunity for the public to comment on proposed regulations, final IRS regulations elucidate the mechanics and applications of the law.

Instead of deferring to such legislative regulations, a federal court can now find that a federal agency misinterpreted the statute and void or modify the regulations’ meaning. Legislative regulations that otherwise would have had the force of law can now be overturned. The courts’ review of legislative regulations opens the door to conflicting interpretations among the circuits, complicating operations for actors operating in many jurisdictions.

Corner Post

The Supreme Court also extended the statute of limitations on challenging regulations, adding to the uncertainties Loper brings to regulations. Under Corner Post, Inc. v. Board of Governors, FRS (2024), the Supreme Court held that the 6-year statute of limitations begins running when the plaintiff suffers injury under the final regulations. The Court’s holding resolved a split among the Circuits in which some had held that the 6-year statute begins to run once a final agency action is published.

The new rule now allows those newly suffering injury under long-standing regulations to challenge those regulations in court. The extended statute of limitations and the overturning of Chevron allow the federal courts to second-guess the agencies’ regulations.

Interpreting Law

Since the courts may now override certain regulations, it is appropriate to consider how federal courts interpret the meaning of a statute.

The conservative majority on the Supreme Court are originalists who commonly discern meaning by examining a law’s text and the history and tradition surrounding it. In reviewing history, finding a “historical twin” to a current problem is not required. Rather, some historical analog to the modern problem is sufficient. For example, the majority in United States v. Rahimi found that, at the time of the adoption of the Second Amendment, legal restrictions impinging on the right to bear arms (but not actually disarming an individual) were sufficient to uphold a modern regulation that required Rahimi to forfeit his gun after becoming subject to a restraining order for domestic abuse. However, Justice Thomas, applying a similar analysis, dissented from the majority opinion because no founding era law required gun forfeiture in cases of domestic abuse. Accordingly, he concluded that a modern law requiring a domestic abuser to forfeit his gun temporarily violated the abuser’s Second Amendment right.

In her concurring opinion in Vidal v. Elster, Justice Barrett rejected the view that common law tradition and historical analogs should resolve a trademark case. The issue before the Court was whether prohibiting the use of Donald Trump’s name without his permission to market goods violates the First Amendment. Noting that there was no body of federal trademark law at the founding, Justice Barrett advocated for the articulation of a court-made standard based on judicial precedent, not a historical review to decide the case.

Even though the Supreme Court’s conservative majority hews closely to the text of a statute in interpreting the law, its approach to historical analogs is less predictable. The application of historical analysis by non-historian judges opens the door to judicial confirmation bias in choosing what historical precedents to consider, as illustrated in United States v. Rahimi, and is a problematic approach if there is no applicable historical U.S. precedent, as Justice Barrett points out in Vidal v. Elster. Nevertheless, regulations otherwise having the force of law now can be superseded by a contravening judicial interpretation using originalist and historical interpretations of meaning.

Cases to Watch

It is unclear how overturning the Chevron doctrine will impact legislative regulations. Because courts, and not agencies, will be the final arbiters of the law’s meaning, there may be somewhat more continuity in regulations when administrations change. Still, any division among the circuits regarding a law’s meaning will add uncertainty.

ESG Investing

Plaintiffs have already challenged a U.S. Department of regulation relating to retirement plan investments. In Utah v. Walsh, a group of 24 states sued the U.S. Department of Labor to enjoin the application of a Biden administration rule that permits environmental, social, and governance (“ESG”) investments in retirement plans if ESG factors serve as a tiebreaker between competing investment choices with the same risk and reward profiles over the same time horizon.

In 2023, the federal District Court of Texas dismissed the case, ruling in favor of the U.S. Department of Labor. It found that the 2022 ESG regulations reasonably interpreted ERISA. The court rejected the idea that considering ESG factors in investment decisions is a per se fiduciary violation, noting that ESG factors themselves may have a direct relationship to economic value. The decision is now on appeal at the Fifth Circuit to re-examine the rule without Chevron deference to the agency’s regulations.

The appeal in Utah v. Walsh may follow the path of the state court that heard Wong v. New York City Employees’ Retirement System in which plaintiffs challenged ESG investing by the New York City pension plans. Because the City pension plans are not governed by any federal law or regulation,  Chevron deference never applied to how the court analyzed the case. Instead, the court  ruled  directly on the substantive legal issues. The court rejected the employees’ claim to standing because they had not suffered any harm. The employees had argued that they had standing because the City’s divided loyalties between its climate change policy and the employees’ financial well-being was a per se breach of fiduciary duty. In dismissing the case, the state court found no fiduciary breach, and the employees’ alleged harms were purely speculative, as any investment risk of loss in a defined benefit plan falls on the City, not the employees. An appeal is expected in Wong.

Fiduciary Rule

Another case to watch is American Council of Life Insurers v. U.S. Department of Labor, in which plaintiffs challenge the 5-part 2024 ERISA regulation defining an investment advice fiduciary. The investment industry complains that the agency’s broader definition of “fiduciary” exceeded the agency’s authority by going beyond the statutory and common law definitions of a fiduciary, which is unconstitutional, arbitrary, and capricious. In addition, the regulation would curtail the advice given to customers with small retirement accounts, hurting the public with higher costs of complying with the regulations. Without Chevron deference, the courts will have freer rein to set aside the regulations if a finding is made that the agency misinterpreted the statute.

Use of Forfeitures

Another issue undergoing court proceedings is whether it is a breach of fiduciary duty or a violation of anti-inurement under ERISA for a plan administrator to use forfeitures to pay recordkeeping expenses of a retirement plan or whether it must allocate forfeitures to plan participants. Overturning Chevron may affect the courts’ analyses in these cases if they find that regulations permitting such use of forfeitures are improper under the statute.  

Healthcare Regulations

The nondiscrimination regulations under Section 1557 of the Affordable Care Act (“ACA”) have recently been the subject of legal controversy concerning gender-affirming care. Self-insured medical plans, regulated by ERISA, not state insurance rules, are subject to federal nondiscrimination requirements under Section 1557. The Department of Health and Human Services has interpreted Section 1557 as requiring gender-affirming medical care if the health care provider receives federal assistance such as Medicare reimbursements.

Conclusion

Federal legislative regulations’ ongoing validity and meaning are now subject to challenge after Loper Bright overturned Chevron. Nevertheless, until the courts settle any challenges, the regulations still apply for compliance and planning, as they speak to how the agencies will enforce the law.