On July 1, 2024, the Supreme Court issued its opinion in Corner Post, Inc. v Board of Governors of the Federal Reserve System in which the Court determined when a Section 702 claim under the Administrative Procedure Act (APA) to challenge a final agency action first accrues. In a 6-3 Opinion, the Supreme Court sided with Corner Post in holding that a right of action first accrues when the plaintiff has the right to assert it in court—and in the case of the APA, that is when the plaintiff is injured by final agency action. This ruling could open the litigation floodgates for industry newcomers to challenge longstanding agency rules. These APA challenges will be further aided by the Supreme Court’s recent overruling of Chevron deference, giving the courts the power to interpret statutes without deferring to the agency’s interpretation.
This case involves a convenience store merchant, Corner Post, Inc., that opened its truck stop business in 2018. In 2021, Corner Post sued the Federal Reserve Board seeking to invalidate Regulation II, which the FRB enacted 10 years before to cap interchange fees charged by debit card issuers. Without reaching the merits of the complaint, the district court dismissed the case as time-barred and ruled that the six-year statute of limitations for bringing facial APA claims (28 U.S.C. § 2401(a)) begins to run when a final rule is issued. This meant that the limitations period had run well before Corner Post had opened its doors for business. The applicable statute of limitations states: “[E]very civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues.” The Eighth Circuit followed holdings from the Fourth, Fifth, Ninth, D.C. and Federal Circuits and affirmed the district court’s decision. Only the Sixth Circuit had ruled that the clock for an APA challenge starts to run when the alleged injury arises from an agency action. To resolve the circuit split, the Supreme Court granted certiorari and heard oral arguments on February 20, 2024.
Corner Post argued that the six-year statute of limitations for an action against the Federal Reserve Board challenging the validity of Regulation II starts to run when the alleged injury arises from the Federal Reserve Board’s action. The FRB argued that the statute of limitations began to run from when Regulation II became final and that Section 2401 should be treated as a statute of repose (which sets a limit based on the last act of the defendant, not the time the plaintiff is injured). The Supreme Court followed the plain language of the statute and held that “[a]n APA plaintiff does not have a complete and present cause of action until she suffers an injury from final agency action, so the statute of limitations does not begin to run until she is injured.” The Court rejected the FRB’s arguments that different meanings should be applied to the same statutory text in different contexts or that congressional intent required a different interpretation.
In response to the FRB’s policy concerns about the significant burdens an agency may face dealing with challenges several years after rules are issued and the uncertainty such challenges have on the industry operating under those rules, the Court indicated that administrative inconvenience does not justify a departure from the clear text of the statute. Congress could have created a general statute of repose for agencies or chosen different words, but here Congress did not do so, the Court said. The Court further noted that agency action was also subject to “as applied” challenges during enforcement long after the promulgation of a rule (in addition to facial challenges) and petitions for amendment or repeal under 5 U.S.C. § 553(e). The Court stated:
Regulated parties “may always assail a regulation as exceeding the agency’s statutory authority in enforcement proceedings against them” or “petition an agency to reconsider a longstanding rule and then appeal the denial of that petition.” Herr, 803 F. 3d, at 821– 822. So even on the Board’s preferred interpretation, “[a] federal regulation that makes it six years without being contested does not enter a promised land free from legal challenge.” Id., at 821. Likewise, the dissent imagines an alternative reality of total finality that simply does not exist. See post, at 21–23.
Moreover, the opportunity to challenge agency action does not mean that new plaintiffs will always win or that courts and agencies will need to expend significant resources to address each new suit. Given that major regulations are typically challenged immediately, courts entertaining later challenges often will be able to rely on binding Supreme Court or circuit precedent. If neither this Court nor the relevant court of appeals has weighed in, a court may be able to look to other circuits for persuasive authority. And if no other authority upholding the agency action is persuasive, the court may have more work to do, but there is all the more reason for it to consider the merits of the newcomer’s challenge.
A denial in the petition process referenced by the Court is subject to judicial review under Section 706(2) of the APA and the court may set aside final agency action that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Courts frequently just remand the petitions back to the agency for reconsideration.
The Court reversed and remanded the case to the Eighth Circuit because Corner Post filed the claim within six years of its injury. In responding to what it characterized as Justice Jackson’s “baffling—indeed, bizarre” public policy claims in the dissent that the opinion will “devastate the functioning of the Federal Government” the Court retorted:
Perhaps the dissent believes that the Code of Federal Regulations is full of substantively illegal regulations vulnerable to meritorious challenges; or perhaps it believes that meritless challenges will flood federal courts that are too incompetent to reject them. We have more confidence in both the Executive Branch and the Judiciary. But we do agree with the dissent on one point: “‘[T]he ball is in Congress’ court.’” Post, at 24 (quoting Ledbetter v. Goodyear Tire & Rubber Co., 550 U. S. 618, 661 (2007) (Ginsburg, J., dissenting)). Section 2401(a) is 75 years old. If it is a poor fit for modern APA litigation, the solution is for Congress to enact a distinct statute of limitations for the APA.
Whether Congress will do so remains to be seen.
Since the Supreme Court reversed the dismissal and remanded the case to the district court, the FRB ultimately may need to defend Regulation II on the merits. If Corner Post’s challenge to the rule is successful, the FRB may be required to engage in a new rulemaking to change the calculation of debit card interchange. FRB amendments to Regulation II since the complaint was filed in 2021 may also be in jeopardy. In October 2022, the FRB expanded Regulation II to require two unaffiliated networks on card not present transactions, which provided merchants the ability to reduce the costs of processing debit card transactions. Proposed amendments may be at risk as well. In October 2023, the Federal Reserve Board issued a proposed rulemaking to lower the maximum interchange fee that a large debit card issuer can receive for a debit card transaction. Under the proposed rulemaking, the base component would decrease from 21 cents to 14.4 cents, the ad valorem component would decrease from 5.0 basis points (multiplied by the value of the transaction) to 4.0 basis points (multiplied by the value of the transaction), and the fraud-prevention adjustment would increase from 1.0 cents to 1.3 cents for debit card transactions subject to the interchange fee cap. It is unclear if the FRB’s proposed rulemaking will satisfy Corner Post as it argues that that the Durbin Amendment requires a case-by-case approach to determine whether an interchange fee is reasonable and proportional, not a single standard as the FRB adopted or is currently proposing in the current rulemaking.
[View source.]
