Legal Update

The most recent Supreme Court term ushered in a new era of federal environmental regulation with two blockbuster administrative law decisions - Loper Bright Enterprises vs. Raimondo and Corner Post vs. Board of Governors of the Federal Reserve System.

For 40 years before Loper Bright, federal courts had invoked Chevron deference when reviewing challenges to a federal agency's reasonable interpretation of a federal statute. Chevron deference generally gave federal agencies the upper hand when their rules were challenged. This prior agency deference led to a rise of federal environmental rules impacting the real estate industry, including regulations touching everything from wetlands to site cleanups to climate change. The Loper Bright opinion, however, struck down Chevron deference and, by doing so, reigned in the ability of federal agencies to adopt regulations beyond Congress' explicit statutory mandate. With federal agencies no longer having the advantage, they may struggle to push through new environmental rules and have challenges implementing existing rules and regulations.

The Loper Bright opinion is also expected to lead to a rise in legal challenges to prior and future federal environmental rules. These legal challenges got a shot in the arm from the Supreme Court's Corner Post opinion, which held that a six-year statute of limitations to challenge a federal rule does not begin to run until the rule causes harm. This opens the door for legal challenges long after federal rules become effective and puts nearly every rule "on the chopping block." It remains to be seen how challenges in the aftermath of Loper Bright and Corner Post could fundamentally alter the environmental regulatory landscape.

While the Loper Bright and Corner Post opinions will undoubtedly impact many industries, these opinions could have significant impacts on the following four (4) issues important to the real estate industry:

1. Per- and polyfluoroalkyl substances (PFAS): The federal Environmental Protection Agency (EPA) recently designated two PFAS as hazardous substances under the federal Superfund law for the first time. This new designation will have broad implications for the real estate industry, including requiring that every Phase I environmental site assessment evaluate PFOA and PFOS (the two specific PFAS now regulated under the Superfund law) and potentially exposing property owners to new liability and cleanup costs. This exposure could include properties that already had prior regulatory closure. However, there is already significant pressure to overturn this new rule, as the US Chamber of Commerce and certain trade groups have already filed a petition to challenge it. The prospects of that challenge have significantly improved after Loper Bright eliminated Chevron deference and evened the playing field for rule challenges.
   
2. Wetlands Permitting: The Supreme Court's decision last year in Sackett v. EPA significantly limited which wetlands are subject to federal regulation under the Clean Water Act. Following this decision, many wetlands that were previously subject to federal permitting are no longer under federal jurisdiction. In response, EPA and the Army Corps of Engineers issued an updated wetland rule and guidance to field personnel, which many consider inconsistent with the Sackett decision because they more broadly assert jurisdiction over wetlands adjacent to other regulated waters. Twenty-seven states have challenged the new rule, and following the Supreme Court's elimination of Chevron deference, the states likely have increased odds of success now that courts will no longer defer to EPA's and the Corps' interpretation of the Clean Water Act as applied to wetland regulation.
   
3. National Environmental Policy Act: Next term, the Supreme Court will consider Seven County Infrastructure Coalition v. Eagle County. This case could curtail the reach of the National Environmental Policy Act (NEPA). NEPA mandates that federal agencies analyze environmental impacts from their actions, including permit applications (for example, wetlands permits) often required for real estate developments. The Supreme Court will review the scope of environmental impacts that federal agencies must consider. After ending Chevron deference in Loper Bright, many expect the Supreme Court to narrow the scope of NEPA reviews, which could greatly streamline the NEPA process.
   
4. ESG & Climate Disclosure Rules: The Loper Bright decision could significantly impact the future of environmental, social, and governance (ESG) and climate disclosure-related issues, creating new hurdles for agency rulemaking around these emerging issues and calling into question current administrative actions. For instance, the Loper Bright decision will likely play a key role in the case Chamber of Commerce v. SEC pending before the US Court of Appeals for the Eighth Circuit, which will consider a challenge to the Securities and Exchange Commission's recent climate disclosure rules that have broad implications for publicly traded REITs.

If you have any questions about this legal update, please contact a member of the Environmental group.