US Business Regulations Upended with Back-to-Back Rulings (1)

The Supreme Court delivered a one-two punch to federal regulators by eliminating a legal doctrine that gave them the upper hand in court and then allowing rules to be challenged long after they’re finalized.

In an opinion that split along ideological lines, the court on Monday held the six-year statute of limitations for regulatory challenges doesn’t start ticking until a plaintiff is injured by the agency action. That ruling, combined with the court’s June 28 decision that tossed out the Chevron doctrine, will destabilize the country’s regulatory regime, legal scholars and attorneys say.

In combination, the decisions “unquestionably will lead to more litigation challenges to federal agency actions and more successful challenges,” said Daniel Jarcho, a partner in Alston & Bird’s litigation and trial practice group, who served as a trial attorney in the Justice Department during the George H. W. Bush administration.

“They go hand-in-hand,” he said.

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Agencies Under Fire

Monday’s decision in Corner Post Inc. v. Board of Governors came after the court overturned Chevron in Loper Bright Enterprises v. Raimondo three days earlier. The legal doctrine it threw out directed courts in regulatory disputes to defer to an agency’s reasonable interpretation when the statutory language is ambiguous. In leaving Chevron behind, Chief Justice John Roberts said the majority wasn’t overturning all the cases that had relied on it.

But the Corner Post decision now allows a new business to challenge an old regulation that was formerly upheld under that framework, said Sambhav Sankar, senior vice president of programs at Earthjustice, a nonprofit public interest environmental law organization.

With its rulings, Justice Ketanji Brown Jackson warned the court was authorizing a “tsunami of lawsuits against agencies” that could devastate the functioning of the federal government with its rulings.

“I hope she’s wrong, but I fear she’s right,” Sankar said. “These two cases, along with the Supreme Court’s overall approach to administrative law, are a full-on frontal assault against the administrative state and the entire enterprise of federal regulation of corporations.”

The justices this term also limited the Securities and Exchange Commission’s ability to use in-house judges to adjudicate claims of securities fraud in a decision that could more broadly impact other agencies that impose penalties through administrative proceedings. The court in SEC v. Jarkesy again showed its skepticism of broad assertions of administrative and executive power.

Not everyone believes the decisions are as big of a blow to agency power as some have suggested.

In each decision, the justices are saying courts are open and there’s going to be a level playing field for those who want to challenge agency exercises of power, said Jesse Panuccio, who served as acting associate attorney general at the Justice Department during the Trump administration.

“The notion that regulators don’t continue to have tremendous power over the citizens of this country and the businesses in this country I think is way overblown,” he said.

Panuccio, who is now a partner at Boies Schiller Flexner, noted the court backed the Biden administration last week in a case that alleged it pressured social media companies to censor speech online, a practice known as “jawboning.”

“Agencies exercise power in all kinds of ways and even the threat of prosecution can force regulated actors to change their behavior,” he said.

Stare Decisis

The universe of old regulations that are now subject to legal challenge under Corner Post is also limited. The decision applies to a subset of cases brought under the Administrative Procedure Act, rather than all federal regulations, said Kara Rollins, litigation counsel for the New Civil Liberties Alliance, a right-leaning legal advocacy group.

A section of the US Code provides the default six-year limitations period for challenging a rule via the APA, but many laws have different deadlines for suing to invalidate regulations, she said.

The Supreme Court noted the Hobbs Act, for example, requires plaintiffs challenging rules from the Federal Communications Commission, Department of Agriculture, and Department of Transportation to file their lawsuits within 60 days after the regulation in question is issued.

Nevertheless, the Corner Post decision means that regulations that have their limitations periods set by the APA are, in effect, indefinitely susceptible to lawsuits seeking to wipe them off the books, said Aaron Saiger, an administrative law professor at Fordham University.

The Supreme Court opened the door to suing to invalidate old regulations at the same time it raised the bar on what agencies need to defend those rules by overturning the Chevron doctrine, he said.

The Loper Bright opinion attempted to limit the amount of litigation against old rules that were upheld under Chevron by saying those decisions retain a special binding power known as “statutory stare decisis.”

But those earlier decisions turned on whether the court found that the regulation in question was reasonable, not that it was valid, Saiger said. Without Chevron, being reasonable isn’t enough.

Moreover, that proviso about statutory stare decisis came in a non-binding passage of commentary, rather than the binding holding of the ruling, he said.

Lower courts—and perhaps the justices themselves—will have to work that out in litigation, along with other important questions raised in Corner Post, Loper Bright, and Jarkesy, said Renée Landers, an administrative law professor at Suffolk University.

Until those issues are clarified, everyone will have to deal with uncertainty about many federal regulations, she said.

“Regardless of whether you like a particular rule or not, knowing what the rule is has value,” Landers said. “If the rules are constantly subject to challenge regardless of how much time has passed, it seems like it would be very destabilizing to any reasonable regulatory regime.”