Chevron Ruling Poised to Boost Business for Corporate Litigators

The Supreme Court’s move to gut a decades-old precedent on agency authority is a big boost for corporate litigators, incentivizing companies and industry trade groups to challenge government regulations and stirring business for the firms that represent them.

The June 28 decision to overturn the Chevron doctrine, which empowered regulators to interpret unclear laws, also shows how a single case at the high court can send wide ripples across the legal sector.

“In the short-term, there will be more chaos, a lot of uncertainty, and a lot more litigation,” said Gordon Todd, a leader of the regulatory litigation group at Sidley Austin LLP, which launched last year to capitalize on the rise in challenges to government regulations.

Sidley is among the big corporate law firms with appellate and regulatory specialties that businesses have long enlisted for help in Washington. Many firms anchor that work with a prominent name, such as Jones Day’s Noel Francisco, US solicitor general in the Trump administration; Sullivan & Cromwell LLP’s Jeff Wall, Francisco’s former deputy; and Gibson Dunn & Crutcher’s Eugene Scalia, President Trump’s labor secretary.

The work can be lucrative. “It’s very high rates and high realization, because there’s a lot at stake” in these matters, said Bruce MacEwen, a legal industry consultant at Adam Smith Esq.

The business of challenging government rules, even with Chevron intact, had grown in recent years. The number of challenges under the Administrative Procedure Act, which dictates how federal agencies can craft regulations, tripled over the last decade, according to a Bloomberg Law analysis.

Some lawyers questioned whether the decision might prompt agencies to voluntarily curtail their attempts to regulate, and thus present fewer opportunities to challenge. But most recognized it as a significant shift.

“We consult with clients on a regular basis about their options, and part of the calculus is to decide whether to file suit,” said James Tysse, a partner in Akin Gump’s appellate practice. With Chevron gone, “the close cases where we’re deciding to bring a suit will more often result in litigation.”

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‘Abundance of Legal Challenges’

The precedent established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. required judges to defer to an agency’s interpretation of an ambiguous statute when crafting rules, so long as they are reasonable.

The Supreme Court in its 6-3 decision threw out that 40-year-old framework. Chevron was a “judicial intervention” that required judges to shirk their statutory duties, Chief Justice John Roberts wrote for the majority. “And the only way to ‘ensure that the law will not merely change erratically, but will develop in a principled and intelligible fashion,’ is for us to leave Chevron behind.”

The change “will give more force to the abundance of legal challenges we’re already seeing” while inviting a lot more unpredictability, said Lisa Heinzerling, a Georgetown University Law Center professor and former climate policy counsel at the Environmental Protection Agency.

“Whenever there’s that uncertainty, people with a lot of money at stake are encouraged to take their shot at challenging,” she added.

Two New England fisheries, one backed by a conservative group that gets funding from sources such as billionaire Charles Koch, led the cases upending Chevron. They hired Paul Clement, a solicitor general under President George W. Bush, and Roman Martinez, a Latham & Watkins LLP partner who clerked for Justices Roberts and Brett Kavanaugh.

The lawyers told the justices during oral arguments in January that Chevron undermined the duty of courts while unfairly giving an advantage to federal agencies. “There is no justification for giving the tie to the government,” said Clement, a former Kirkland & Ellis LLP partner who now runs a boutique firm.

Litigation ‘Already Active’

The overturning of the Chevron decision follows years of hostility to the administrative state, particularly as the Biden administration, in a bid to bypass a divided Congress, uses regulatory bodies to implement sweeping rules covering areas such as Wall Street and the environment.

The high court has not relied on the Chevron test since 2016, and in 2022 it said regulators must have clear authorization from Congress before instituting rules with major economic weight.

That documented skepticism of the administrative state has already influenced litigators’ tactics, said Ron Levin, a law professor at Washington University in St. Louis.

The US Chamber of Commerce, for example, is involved in challenges against 13 federal agencies, an “unprecedented” number for the business lobby, said chief counsel Daryl Joseffer.

In April, the Chamber hired Sullivan & Cromwell’s Wall to sue the Federal Trade Commission for allegedly overstepping its authority with its worker noncompete ban. A Texas judge is due to rule on the Chamber and other groups’ motion for a preliminary injunction this week.

Changes to Chevron deference will have the greatest effect on “general counsels of agencies and clients,” said Levin. “Because they are in the business of estimating the risks of various courses of action.”

Agencies taking fewer risks as they craft rules because of the lack of deference may actually engender a decrease in challenges. At the same time, the payoff from challenging an agency’s rule in court will be higher.

Chevron‘s collapse eliminates the “tiebreaker effect” that tilted to regulators, said Covington & Burling appellate partner Kevin King. “The end result is that agencies will prevail less often in disputes about the meaning of federal statutes.”

A Rise in Forum Shopping

Many litigants have already perfected a strategy of pursuing cases in judicial districts more receptive to administrative law challenges. Overturning Chevron puts an even “sharper point” on what judges across the US think with respect to an agency’s regulatory authority, said Erin Webb, a Bloomberg Law litigation analyst.

“That could heighten forum shopping,” said Webb.

At the same time, administrative law experts say the central driver for policy challenges will still take its shape from a long-used legal test: Whether an agency has statutory authority to implement the rules it is issuing.

Gibson Dunn’s Scalia used that framework to successfully fight a new Securities and Exchange Commission rule requiring that hedge funds and private equity firms detail quarterly fees and expenses to investors. The Fifth Circuit on June 5 blocked the rule because it “exceeded” the agency’s statutory authority, dealing blow to the Wall Street regulator’s agenda.

The Chevron decision appears to augment those arguments.

“It will be some time before we see the effects of this decision on the lawmaking process,” said K&L Gates’ partner Varu Chilakamarri. “But going forward, agency action will be under even greater scrutiny and there will likely be more opportunities for the regulated community to challenge agency rules and adjudications.”

The case is Loper Bright Enterprises v. Raimondo, U.S., No. 22-451, opinion 6/28/24