This past week was monumental for those subject to regulation by Federal administrative agencies. Over the course of 24 hours, the Supreme Court issued two rulings that have extensive implications for administrative agency power to issue rules and initiate enforcement actions.
In Jarkesy v. SEC, the Supreme Court held that regulated persons and entities charged by the SEC with alleged fraud subject to civil penalties have a Constitutional right to a jury trial pursuant to the Seventh Amendment. In recent years, the SEC has increasingly used its internal administrative proceedings (which are adjudicated before SEC-appointed administrative law judges) to pursue its aggressive enforcement policies. The ruling in Jarkesy certainly throws a wrench into those efforts and likely will result in many more SEC enforcement actions being filed in Federal courts.
On the heels of that decision, just one day after the Jarkesy opinion, on June 28 the Supreme Court drove a stake into the heart of the Chevron doctrine, which had mandated judicial deference to Federal administrative agency actions and policy decisions. We wrote about the potential implications of this in a client alert earlier this year, shortly after the Supreme Court heard oral arguments in Relentless v. Department of Commerce and Loper Bright Enterprises v. Raimondo.
In Loper Bright, the Supreme Court ruled that statutory ambiguities do not constitute implicit delegations of authority to agencies by Congress. This decision reverses the Supreme Court’s seminal 1984 decision in Chevron USA Inc. v. The Natural Resources Defense Council, Inc., a decision followed by and adhered to by courts and relied upon by Federal agencies for the past 40 years. In Loper Bright Enterprises, the Court left the question in no doubt:
“Chevron is overruled. Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires.”
Essentially, the Supreme Court simply reimposed and emphasized the requirement of judicial oversight of administrative agencies as required by the Administrative Procedure Act. But the shockwaves from these decisions will resonate for years.
Viewed together, these two decisions signal a sea change for the administrative state virtually overnight. One can expect additional challenges to agency actions and rulemaking. In addition, more than 20 federal agencies that have internal administrative law courts similar to the SEC’s ALJ framework may well faces judicial challenges modeled on Jarkesy.
Future Implications
These two actions have ushered in a new era of judicial scrutiny over administrative actions. We anticipate that going forward, more parties aggrieved by overbroad, arbitrary, and capricious administrative rules, regulations, and enforcement actions aggressively will pursue judicial challenges. For our clients, the key takeaway is that there has never been a better time in four decades to challenge a potentially overbroad or otherwise invalid Federal agency action. While any judicial challenge against a Federal agency can be time consuming and expensive, that investment of effort and treasure makes more sense now than at any time in recent memory. And importantly, the Supreme Court is not done with its overhaul of the administrative state as there are other cases working their way through the judicial system that likely will further define this new post-Chevron era.
The Chevron shakeup also coincides with the U.S. Environmental Protection Agency promulgation of new regulations related to Per- and polyfluoroalkyl substances (PFAS). Lathrop GPM’s environmental team, a leader in the PFAS space, is working on an article that dissects the timing and impact of these two monumental events.
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