High Court Creates Litigation Openings for Regulation Challenges

Corporate legal departments have more room to challenge federal agency actions that disrupt business or otherwise cost companies money, thanks to the US Supreme Court.

A significant factor for in-house counsel weighing litigation is the court’s landmark June ruling in Loper Bright Enterprises v. Raimondo. It struck down the Chevron doctrine, which commanded judges to defer to reasonable agency interpretations of ambiguous laws.

The justices also handed down several other rulings last term curbing the administrative state. Those decisions followed a series of recent high court opinions, including West Virginia v. EPA, enhancing the major questions doctrine, narrowing agencies’ ability to regulate issues of national significance.

Companies’ newfound ability to attack older regulations may keep courts busy with industry challenges even if the incoming Trump administration’s expected de-regulatory agenda provides them with few new litigation targets. President-elect Donald Trump will likely resume filling federal courts with conservative jurists who are hostile to expansive regulations.

Trump advisers Elon Musk and Vivek Ramaswamy pointed to Loper Bright and West Virginia to support a push to identify regulations the next administration could stop enforcing and move to scrap.

Still, federal agencies impact businesses through other actions besides creating new rules. They also enforce laws, administratively adjudicate disputes, and issue orders, licenses, and permits.

Federal courts’ willingness to question agency actions is probably at its highest point since 1946, when Congress passed the Administrative Procedure Act to regulate agency decision-making, said Samantha Chaifetz, a former US Justice Department appellate attorney who practices at DLA Piper.

“This is more than a moment. This is the spirit of the current era,” said Chaifetz. “And I don’t think the winds will change anytime soon, given the makeup of the Supreme Court and the ages of the justices.”

Besides companies having fresh ammunition to push back against regulators, rulings that have given judges more latitude to countermand agency action also increase the chances for federal circuit court splits, which can create uncertainty for national companies, she added.

“We’re in a world of both opportunities and challenges,” Chaifetz said.

Post-Deference Litigation

In Loper Bright, the Supreme Court told judges to use their “independent judgment” to determine the “best meaning” of the relevant law.

Rulings in the aftermath of the Loper Bright decision suggest that the Supreme Court flipped the Chevron doctrine on its head, moving judges’ thumbs from the agency’s side of the scale to the plaintiffs’ side.

Agencies lost nearly all of almost 30 rulings on direct challenges to regulations in the two months after Loper Bright was decided, according to a Bloomberg Law review.

The Chevron rollback is more likely to impact enforcement actions that turn on technical statutory questions rather than on facts, said Sonia Nath, a Cooley LLP lawyer who worked as a US Food and Drug Administration attorney. FDA action against a product for being improperly marketed as a dietary supplement is one example, Nath said.

But enforcement actions are often driven by factual determinations, which are left to agencies even under Loper Bright, she said.

Other Adjustments

The litigation equation for in-house lawyers can be changed by “the broader milieu of the administrative state getting less deference in general,” even if the dispute at issue doesn’t depend on statutory interpretation, said Varu Chilakamarri, an attorney with K&L Gates LLP and former DOJ lawyer.

The Supreme Court’s June decision halting an Environmental Protection Agency emissions rule, for example, was based on an arbitrary-and-capricious analysis under the APA, said Chilakamarri.

The high court in 2021 and 2022 developed a strengthened major questions doctrine—which bars agencies from acting on issues of vast significance without clear statutory authorization—in opinions against the Department of Health and Human Services, the Occupational Safety and Health Administration, and the EPA.

Besides Loper Bright, the Supreme Court handed down rulings last June restricting the Securities and Exchange Commission from bringing securities fraud cases before in-house judges—which could have implications for other agencies—and raised the bar for the National Labor Relations Board to win court injunctions.

The justices changed the statute of limitations for contesting many regulations with their ruling in Corner Post, Inc. v. Board of Governors of the Federal Reserve System. The court held that the six-year statute of limitations for regulatory challenges under the APA doesn’t start ticking until a plaintiff is injured by an agency action.

That opens the door for new companies to launch facial challenges against regulations that have been on the books for years, by alleging they were injured by having to comply with the disputed regulation.

“Corner Post really comes down to giving some entities the opportunity to bring a pre-enforcement challenge that they weren’t able to before,” said Benjamin Horwich, an attorney with Munger Tolles & Olson LLP and former assistant to the US solicitor general.

Spectrum of Options

Established businesses can support new companies’ APA challenges by contributing to legal defense funds or joining ad hoc trade associations formed to fight a regulation, Horwich said.

By tracking regulatory concerns in their industries and understanding how others view those issues, in-house lawyers can better prepare their companies to take strategic action, he added.

“This is why people go to conferences,” Horwich said. “This is why good inside counsel gets to know their counterparts at their competitors.”

Keeping abreast of litigation helps companies find other ways to take advantage of federal courts’ increased skepticism of agency action, said Michelle Kallen, a Jenner & Block LLP lawyer and former Virginia solicitor general.

Businesses can weigh in on cases through amicus briefs, either in their own name or as part of a trade association, said Kallen.

Companies can also try to intervene as a plaintiff or defendant if they think a party isn’t effectively litigating a case that it has a stake in, she said.

“If a company has an interest and is looking out for litigation,” Kallen said, “there are ways to get involved and not sit on the sidelines.”