In its recent decision in State of Utah v. Su, the Fifth Circuit remanded a challenge to the Department of Labor’s (DOL) environmental, social, and governance (ESG) rule for investing in defined contribution retirement plans after the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo.  In Loper Bright, the Supreme Court overturned the 40-year-old Chevron doctrine, which required courts to defer to agency interpretation of ambiguous language in statutes within the agency’s purview. 

In Utah v. Su, 26 states along with other interested parties sued the DOL, claiming that the ESG rule conflicted with the plain language of ERISA and was invalid under the Administrative Procedure Act.  The DOL ESG rule allowed plan fiduciaries to consider ESG factors when selecting investments when competing investment options “equally serve the financial interests of the plan.”  The DOL did not argue that it was entitled to deference regarding its rulemaking but instead asserted that the ESG rule was consistent with the plain language of ERISA.   

A Texas federal district court relied on Chevron when it deferred to the DOL’s analysis in finding that the ESG rule was properly promulgated.  Plaintiffs appealed the district court’s decision to the Fifth Circuit.

The Fifth Circuit did not decide whether the DOL properly promulgated the ESG rule.  Instead, the court noted that Loper Bright “upended the legal landscape” by eliminating Chevron deference and it could not consider the merits of the case because the district court relied on Chevron in deferring to the DOL’s rulemaking process.  With the removal of the Chevron duty to defer, the Fifth Circuit held that it was required to remand the case to the district court to make an independent determination of whether the rule was within the DOL’s authority to pass.

While the district court is reviewing whether the DOL validly issued the ESG rule, the rule remains in effect.  A final decision on the validity of the ESG rule will likely not occur soon, as another appeal to the Fifth Circuit is certain to follow the district court’s decision. 

Takeaways

Utah v. Su is the first ERISA test case for review of agency rulemaking in the post-Chevron environment.  The district court will reconsider the case without any deference to the DOL’s analysis and make an independent determination based on its examination of the plain language of ERISA, which both sides previously argued supports their respective positions on appeal.