The Supreme Court marked the end of its 2023-2024 term with a series of three exceptionally damaging decisions that will undermine, for years to come, the ability of regulatory agencies to protect the public from a wide range of threats to their health, safety, and financial well-being. As more agency rules succumb to judicial review under these holdings, so will the protections they provide to the American public. That means investors and financial consumers will suffer more fraud, abuse, and discrimination; banks will have more leeway to undertake predatory and systemically risky practices; and ultimately, our financial system will become less stable, fair, transparent, and accountable. Americans will suffer in real financial terms, and the next financial crisis is likely to arrive sooner and be more severe.
SUPREME COURT OVERTURNS “CHEVRON DOCTRINE,” ENABLING FEDERAL JUDGES TO SECOND-GUESS AGENGY EXPERTISE – Loper Bright Enterprises v. Raimondo, Secretary of Commerce, No. 22-451, 144 S. Ct. 2244 (June 28, 2024).
As many expected, the Supreme Court has held that federal courts may no longer defer to an agency’s interpretation of an ambiguous statutory provision. The decision expressly overruled the so-called Chevron doctrine, which since 1984 has required judges to defer to the experts at administrative agencies who are best equipped to make technical judgments and policy choices when implementing the general provisions of a regulatory framework.
Justice Kagan, joined by Justices Sotomayor and Brown, issued a scathing dissent. She explained that Chevron deference is based on the sensible presumption that Congress would want agencies to apply their expertise as they fill in statutory gaps that are inevitable and to make important policy choices, since agencies are more politically accountable than courts.
As a result of the decision, courts will be at liberty to reject the best and most informed interpretation of the law from the agency responsible for understanding, applying, and enforcing the statute. Any judges ideologically hostile to agencies and their regulations will have a much clearer path to nullifying agency actions. That ultimately means the American public will be more vulnerable to predatory and high-risk financial practices, dangerous consumer products, and a more polluted natural environment.
SUPREME COURT UNDERCUTS STATUTE OF LIMITATIONS, ALLOWING MANY COURT CHALLENGES TO AGENCY RULES IN PERPETUITY – Corner Post, Inc. v. Board of Governors of the Federal Reserve System, No. 22-1008, 144 S. Ct. 2440 (July 1, 2024).
In this case, the plaintiffs challenged a Federal Reserve rule placing limits on the amount of fees that merchants must pay when their customers use debit cards. In an opinion written by Justice Barrett, the Court allowed the rule challenge to go forward, even though the case was filed well past the six-year period allowed for such challenges. The Court held that the general statute of limitations governing civil actions against the United States does not begin to run until a claim “accrues,” and a claim does not accrue, in the Court’s view, until the plaintiff has suffered injury under the rule. Since the petitioner, Corner Post, did not exist until 2018, it did not suffer any adverse impact from the rule until then.
Justice Jackson, joined by Justices Sotomayor and Kagan, issued a strong dissent. She explained that a facial challenge to a rule, as in this case, has nothing to do with a specific plaintiff’s injuries. The “accrual” of the claim therefore arises when the rule is final, not when the challenger happens to suffer injury.
The decision in effect allows challenges to agency rules under the APA forever. Those who seek to nullify rules can simply form a new entity that is affected by the rule, thus starting the clock on the 6-year statute of limitations.
SUPREME COURT BANS ADMINISTRATIVE ENFORCEMENT ACTIONS SEEKING CIVIL PENALTIES – SEC v. Jarkesy, No. 22-859, 144 S. Ct. 2117 (June 27, 2024).
In SEC v. Jarkesy, the SEC brought an enforcement action against a hedge fund manager, Jarkesy, not in federal court but before one of the SEC’s administrative law judges (“ALJ”). The ALJ found that Jarkesy had violated the antifraud provisions of the securities laws. The Supreme Court, in an opinion from Justice Roberts, held that the Seventh Amendment to the U.S. Constitution entitles a defendant to a jury trial in court when the SEC seeks civil penalties against him for securities fraud.
Justice Sotomayor, joined by Justices Kagan and Jackson, issued a strong dissent. She explained that the majority was upsetting decades of precedent that established the public rights exception to the jury trial requirement. She said that “[t]hroughout our Nation’s history, Congress has authorized agency adjudicators to find violations of statutory obligations and award civil penalties to the Government as an injured sovereign.”
As a result of the decision, the SEC will have to scale back its reliance on administrative enforcement actions and bring claims for civil penalties solely in federal courts and before juries. That will further drain the agency’s budget, as those court actions consume considerably more time and more resources. Moreover, the decision casts a serious cloud over the authority of many other agencies to continue relying on ALJs and administrative enforcement proceedings.
