The U.S. Supreme Court overruled a doctrine that has been a precedence for judicial interpretation for the last 40 years. Chevron U.S.A., Inc. v. NRDC was overruled in an opinion penned by Chief Justice John Roberts in a 6-3 court decision.
“The Administrative Procedure Act [APA] requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous; Chevron is overruled,” the holding stated.
For the October 2023 term, the setting for several administrative law challenges, the Supreme Court granted writ of certiorari for two cases on the matter: Loper Bright Enterprises v. Raimondo, No. 22-451 and Relentless, Inc. v. Department of Commerce, No. 22-1219. RESPA News and October Research’s Chief Knowledge Officer Mary Schuster attended the oral arguments heard in January.
Proponents for doing away with the interpretive rule argued Chevron deference resulted in a violation of the Separation of Powers doctrine, allowing Congress to delegate too much of its authority to agencies with as small of a phrase as “necessary and appropriate.” While Chevron had its place in its youth, those looking to replace it contended lower courts have given ambiguous phrases too broad a meaning, allowing agencies to expand their reach in a way not intended by the Constitution.
Those who wished the court to uphold Chevron pointed to its importance in providing stability and uniformity in administrative law. Weakening or constraining deference to agencies in the judicial system could risk this stability and could result in judges replacing the interpretation done by a knowledgeable agency (in accordance with the APA) with their own policy preferences.
Garris Horn LLP Managing Partner Richard Horn, former senior counsel for the Consumer Financial Protection Bureau (CFPB), told RESPA News via email: “In a nutshell, the [Supreme Court]’s decision is that it’s the court’s role to interpret statutes, that the APA’s section 706 requires courts to decide all questions of law in agency cases, and Chevron doesn’t square with that.
“The court says it’s the judiciary’s role to interpret statutes and it can’t automatically defer to the agency’s interpretation of ambiguous provisions,” he continued. “The [Supreme Court] does acknowledge that courts can be informed by an agency’s expertise, though, as under Skidmore. Essentially, courts will have to do the heavy lifting of statutory interpretation now and can no longer just punt to agencies.”
Horn added this will impact agency enforcement going forward, especially for the CFPB. He highlighted a case the bureau has been pursuing since 2020, when it filed a complaint alleging Townstone, a small mortgage company based in Chicago, and its owner Barry Sturner, violated the Equal Credit Opportunity Act and the Consumer Financial Protection Act.
In the opinion dismissing the action, Federal Judge Franklin Valderrama of the U.S. District Court for the Northern District of Illinois, Eastern Division, relied on Chevron, using the threshold question of whether Congress’ intent was ambiguous when it came to who the statute protected. Valderrama determined the legislature’s intent was clearly in favor of Sturner and his company and dismissed the complaint. The CFPB appealed, and the Seventh Circuit Court of Appeals heard arguments in December.
“Like in the Townstone case, where our statutory authority defense was based on the plain language scope of the statute, the loss of the CFPB’s ability to argue Chevron step two, or to try and sidestep statutory interpretation altogether, will seriously hinder its typical MO [modus operandi] of aggressive legal theories like its modern-day redlining theory, which is found nowhere in the statute,” Horn said.
“This will also affect rulemaking, because the CFPB will be less likely to engage in aggressive rulemaking that will be challenged without the benefit of Chevron deference,” he added. “They often use broad regulatory authority to essentially create new law or expand the scope of statutes, and they’ll have to think twice about that now. Unfortunately, with the aggressiveness of the CFPB, this could lead to a lot more regulation by enforcement, or I should say regulation by settlement, because most companies, unlike Townstone, settle with the CFPB.”
Jonathan Masur, University of Chicago law school professor and director of the Wachtell, Lipton, Rosen & Katz program in behavioral law, finance and economics, also weighed in on the impact this ruling may have.
“This case will certainly be seen as an earthquake in administrative law, and in some ways it is,” he said. “Chevron has been a bedrock principle for four decades and has been cited more by the lower courts than any other Supreme Court case of any type.”
However, Masur said the practical implications of this case will be quite limited, based on what Roberts wrote about the remedy.
“He makes clear that the hundreds of cases decided under Chevron over the past four decades are probably safe: ‘By doing so, however, we do not call into question prior cases that relied on the Chevron framework. The holdings of those cases that specific agency actions are lawful – including the Clean Air Act holding of Chevron itself – are still subject to statutory stare decisis despite our change in interpretive methodology.’
“Going forward, pro-regulatory presidents won’t have quite as much flexibility,” he explained. “But anti-regulatory presidents won’t either[.] During his first term, President [Donald] Trump demonstrated a willingness to use Chevron creatively to undo Obama-era regulations. If he wins a second term, Trump won’t have the same options with respect to Biden-era regulations.”
David Friend, former senior counsel at the CFPB, commented on how the ruling will affect financial service regulations. He said the certainty and reliability of the regulation text and commentary is going to be less than in the past.
“Often, there are debates completely centered on the language in the text and commentary,” he explained. “After Loper Bright, I think there will need to be much more work done to tie them to the statutory requirements underpinning them – for both regulatory agencies such as the CFPB and industry in court cases.
“I don’t think the industry can count on completely relying on regulation text and commentary to establish the legal requirements as before, as now it will be up to judges to determine what the law requires. Given the variability we see in how decisions are being made in the U.S. District Courts, there is much more room for judges to make decisions on the policy calls baked into the regulations.”
RESPA News will be continuing to follow this case and its impacts on market experiencing significant shifts. Check back soon for additional details. Have thoughts on how this opinion will impact your business? Email us at [email protected].
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