U.S. Supreme Court Impact: Judicial Power at Work, Industry Self-Regulation in Play

Sep 23, 2024 by Eric D. Reicin, President & CEO, BBB National Programs

While the presidential debate in June set in motion a series of unprecedented political events, there was a U.S. Supreme Court decision the following day, June 28, that will have a far-reaching impact when it comes to the legal and regulatory environment for businesses and nonprofits across the United States, no matter who is elected president in November. 

That case, Loper Bright Enterprises v. Raimondo – reported on in stories such as this CNBC piece – marked a pivotal shift in administrative law by overturning the Chevron deference doctrine. Previously, courts deferred to agency interpretations of ambiguous statutes. Now, courts are more likely to scrutinize agency rules, leading to increased legal challenges and regulatory uncertainty, providing a greater opening for soft law solutions such as independent industry self-regulation.

Loper is a follow-on to a 2022 Supreme Court decision, West Virginia v. Environmental Protection Agency, that significantly curtailed the EPA's authority to regulate greenhouse gas emissions from power plants, emphasizing the need for clear congressional authorization for such sweeping regulations under the major questions doctrine.

So while there has been recent political tumult, both of these Supreme Court decisions will have broad – and lasting – implications for federal agency rulemaking across sectors. Business and nonprofit leaders should keep that in mind as important context for what otherwise might be seen as a binary choice between a Trump Administration undoing Biden-era regulations and executive orders, and a Harris Administration aiming to expand upon current Administration priorities.

Indeed, while nearly every Supreme Court term includes decisions impacting businesses and nonprofits, the recent term was momentous, with multiple rulings that are expected to reshape the legal landscape.

For instance, in SEC v. Jarkesy, the Supreme Court “knock[ed] down the Wall Street regulator’s in-house courts,” ruling that the SEC cannot rely on in-house administrative courts when it brings securities fraud claims for civil penalties under its current structure. This decision is also expected to affect other agencies and organizations that rely on in-house adjudicative enforcement proceedings that are “legal in nature,” and I would expect courts to find certain enforcement proceedings need restructuring. 

But it was the Loper decision on Chevron deference that will have the biggest long-term impact, both in its tilt toward increasing the power of the judiciary and in opening the door of opportunity for industry self-regulation. The ruling presents a unique opportunity for industries to fill regulatory gaps in a manner that enhances consumer trust. 

The Court's decision came in a case involving a long-standing law that required trained, professional observers on regulated fishing vessels. The plaintiffs did not dispute whether the observers were required; they questioned why they, as ship owners, had to pay for the observers' presence.

The question before the Court was: If Congress has not specifically addressed who pays, should the court defer to the agency's view that Congress expected the fishing vessel owners to pay? The court answered that without specific congressional authorization, the agency had no power to order the fishermen to pay for their onboard observers.

The decision displays a fundamental governmental tension — the balance between legislative intent and administrative discretion in crafting regulatory frameworks. The decision strongly encouraged clear congressional intent and reaffirmed the courts' authority to interpret under the Administrative Procedure Act.

The Court's decision has profound implications for businesses and nonprofits across various industries because it “reshapes the regulatory landscape.” Businesses should expect “more challenges to agency power,” and companies may be more inclined to challenge rules they believe overstep statutory boundaries or otherwise tie them up in long court proceedings. In turn, this could create regulatory uncertainty as agencies may be less willing to interpret statutes broadly, fearing legal repercussions. The result is a shift to the judiciary, “curtailing [the] power of federal agencies.” Of course, Congress could be more prescriptive in future legislation, but with a divided Congress, it may be rare.

Not every federal agency will avoid a fight. For instance, FCC Chair Jessica Rosenworcel has pledged to appeal a Fifth Circuit ruling on July 24, 2024, that struck down its Universal Service Fund as unconstitutional and is litigating in the Sixth Circuit an August 2024 stay of FCC net neutrality rules. FTC officials are so far projecting confidence that their work will not be affected, claiming much of it is called for by the FTC Act.  

Certainly, the effects may vary by industry. Industries subject to EPA regulations, such as oil, gas, manufacturing, and agriculture, could see more challenges to environmental rules such as cutting greenhouse gas emissions. And the healthcare industry, regulated by agencies like the FDA and CMS, may face increased scrutiny of drug approvals, reimbursement rates, and other regulations. Financial institutions could see challenges to regulations issued by relevant agencies such as the SEC, FDIC, Comptroller, and CFPB. And I would expect continued challenges to policies implemented by labor agencies such as the U.S. Department of Labor. 

It is into this breach where industry self-regulation can step in. Utilizing this form of “soft law,” businesses that share common challenges can develop standards and share best practices for the benefit of themselves and consumers they serve. Meanwhile, an independent third party can monitor their compliance and provide other accountability and dispute resolution measures. 

Alexis de Tocqueville, the French political scientist and author of Democracy in America, once said: “I am unaware that any nation of the globe has organized a judicial power in the same manner as the Americans. A more imposing judicial power was never constituted by any people." His message from more than two centuries ago, presaged by Alexander Hamilton’s words in Federalist 78, is reinforced by the actions taken in the recent Supreme Court term. Judicial power is back on center stage and businesses and nonprofits should take note and consider their options.

Originally published on Forbes.

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