A Sea Change in Environmental Law: The Supreme Court Just Up-Ended Administrative Review and Enforcement As We Knew It

July 1, 2024

The Supreme Court of the United States (Supreme Court) just handed down three blockbuster rulings and granted certiorari in a fourth case to be argued next term. Collectively, these cases will have a profound impact on decades of federal administrative and environmental law. Although lawyers sometimes overstate the significance of any one opinion, when combined, the cases of SEC v. Jarkesy, Loper Bright Enterprises v. Raimondo, and Corner Post v. Federal Reserve, as well as the likely outcome of Seven County Infrastructure Coalition v. Eagle County, will radically alter administrative environmental reviews and enforcement, and greatly impact the issuance of civil penalties by all federal agencies. Additionally, those states that have adopted federal administrative law opinions will likely be required to reexamine their state precedent.

Given that the fundamental constitutionality of some administrative actions have been ruled upon and waiver is a possibility for clients who do not timely raise their arguments, clients currently going through administrative appeals should immediately consult with counsel to assess their legal positions in ALJ proceedings.

Federal Deference (Before Chevron)

Prior to Chevron, the 1944 case of Skidmore v. Swift & Co., decided just before Congress adopted the Administrative Procedure Act in 1946, governed the manner in which courts relied upon an agency interpretation of an unclear statute. In Skidmore, the Supreme Court prescribed a case-by-case analysis of sliding-scale deference for an agency's interpretation of a statute according to the agency's ability to demonstrate persuasive reasoning behind its position.

The Supreme Court outlined a short four-part test that should be applied: (1) the thoroughness of the agency's investigation; (2) the validity of its reasoning; (3) the consistency of its interpretation over time; and (4) other persuasive powers of the agency. This approach gave the last word to the courts and, with its case-by-case approach, meant little precedent could be achieved by any one decision. At that point, the case-by-case approach was largely workable, as most if not all significant legislation that led to the explosion of the administrative state was decades away from being adopted by Congress.

Federal Deference (Chevron and After)

Forty years later, in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., a unanimous Supreme Court sided with the EPA's interpretation of the ambiguous term "source" in the Clean Air Act that allowed certain physical modifications at existing facilities without completing a full new source review. In adopting the agency's interpretation, the Court prescribed a basic two-part framework for determining agency deference going forward.

First, a reviewing court determined whether Congress had directly spoken to the precise question at issue. If the intent of Congress was clear, that was the end of the matter because the court must give effect to the expressed intent of Congress. But, if the court determined that Congress had not directly addressed the question at issue or statute was ambiguous, under the second part of the framework, the court did not simply impose its own construction on the statute but determined whether the agency's answer was based on a permissible construction of the statute. Gradually, the opinion had the effect of wresting control of statutory interpretation from what was then thought to be a too-liberal judiciary and placed it back in the hands of a more conservative set of federal regulators.

Fast forward forty years, and that shoe is on the other foot. Amongst conservative scholars, the feeling is that many federal agencies have been exceeding their delegated powers for some time. Nonetheless, more recent conservative thinking has promoted the argument that the judiciary should have the power to reign in that expansion. As such, Loper Bright asked the Supreme Court to reject Chevron deference to agency statutory interpretation. Significantly, certain published studies suggest that in up to 80% of court cases granting agency deference post-Chevron, the court ultimately sided with the agency.

Loper Bright Enterprises v. Raimondo

Loper Bright involves a challenge to the National Marine Fisheries Service (NMFS)'s interpretation of the Magnuson-Stevens Fishery Conservation that forced commercial fishermen to pay for the agency's at-sea monitoring - a point not addressed in the statute itself. The petitioners argued that the NMFS overstepped its authority given the statutory silence on this point. The Court granted certiorari in Loper Bright, and in a similar companion case that the Court consolidated, on the sole question of whether Chevron should be overruled.

In a 6-3 decision penned by Chief Justice Roberts, the Court ruled that under the Constitution, it is for the courts and not agencies to interpret statutes. The Court concluded that Chevron deference violated the Administrative Procedure Act's directive that "the reviewing court shall decide all relevant questions of law, interpret constitutional provisions and statutory provisions, and determine the meaning or applicability of the terms of an agency action." Therefore, deference is improper when agencies infer expansive powers from silence or ambiguity, thereby setting a stricter standard for agency interpretations of laws. Ultimately, not even stare decisis could save Chevron, as the majority found that "Chevron has proved to be fundamentally misguided." Thus, it is now for courts, and courts alone, to interpret statutes, and no deference is owed to agency statutory interpretations.

Loper Bright does contain language limiting its scope. Chief Justice Roberts concedes that the "best" meaning of a statute will sometimes be that an agency is "authorized to exercise a degree of discretion." But those situations will likely be only where Congress has "expressly delegate[d]" such discretion to the agency. It is unlikely that most existing major environmental laws would be found to contain such language in their key operative sections. The Court does acknowledge that courts may use agency statutory interpretations as "guidance" or an "aid," but only in the context of persuasiveness under Skidmore.

And, most likely to prevent the courts from being forced to relitigate every challenge to a federal regulation filed in the last 40 years, Chief Justice Roberts also declares that "we do not call into question prior cases that relied on the Chevron framework." In other words, in theory, Loper Bright is a sweeping, albeit forward-looking only ruling. This point is arguably disingenuous in that so much administrative enforcement is repetitive (nearly identical violations and nearly identical fines) but given to different clients.

Many longstanding agency determinations can soon be called into question regardless of precedent. To that end, the Supreme Court's newest opinion, Corner Post v. Federal Reserve, already suggests as much. In Corner Post, the Supreme Court overruled a decision dismissing a truck stop's challenge of credit card swipe fees on the basis of the expiration of the statute of limitations, finding that the precedent establishing that cap had predated the truck stop's existence - meaning a new entity facing the same harm that had been historically decided could challenge the regulation anew.

Civil Enforcement Before Jarkesy

In 1977, in Atlas Roofing v. OSHA, the Supreme Court ruled that OSHA could impose civil penalties without having to bring its claims before an Article III jury. Simply stated, the decision held that the Seventh Amendment to the Constitution did not require a jury trial to enforce civil violations of a federal public rights statute. As such, violations, including civil penalties, could instead be enforced by a Congressionally created administrative agency. This roadmap-a notice of violation or other administrative order, coupled with a civil penalty that could be appealed to an ALJ if not settled-became the norm for virtually all federal agencies.

SEC v. Jarkesy

However, in Jarkesy, the Supreme Court ruled last week that administrative proceedings brought by the Securities and Exchange Commission (SEC) against a hedge fund manager violated his constitutional rights. The Supreme Court held that the SEC's use of ALJs to hear enforcement actions that likely existed in common law (such as the fraud at issue in this case) infringed on the Seventh Amendment right to a jury trial. It also ruled that this process violated the non-delegation doctrine, which restricts Congress from transferring its legislative powers to executive agencies without clear guidance. Although targeting the SEC, this decision will apply across federal agencies that rely on ALJs to adjudicate administrative disputes.

This massive change will prompt lawyers to raise new arguments in many pending or soon to be filed cases, as ALJs' authority to enforce civil penalties is curtailed. Jarkesy also highlights the potential for shifting administrative appeals to federal courts rather than administrative tribunals.

Additionally, Jarkesy will prompt legislative and regulatory changes to align a myriad of current administrative appeals processes with constitutional requirements. This will involve a complicated, extended, and lengthy interplay between the ALJs, the agencies they serve, the enforcement arms of those agencies, litigants, legislative bodies, and many other stakeholders. This exercise will almost certainly involve changes in how cases are assigned to ALJs, the role of juries in administrative proceedings, and the overall structure of enforcement actions, potentially leading to more transparent and accountable practices, but only after what is likely to be a significant period of uncertainty. Ultimately, many clients, often facing significant penalties and reputational risks in regulatory actions, may benefit from the increased emphasis on their procedural rights.

However, Jarkesy failed to explicitly overrule Atlas Roofing, at least leaving the door cracked as to whether some enforcement not linked to historical causes of action available at common law are still capable of being handled through an ALJ. As a result, questions remain. Are claims under the various statutes pursuant to which EPA can impose administrative civil penalties more like the SEC's statutes or more like OSHA's? And if they are more like OSHA's, is it still safe for a lower court to rely on Atlas Roofing in support of EPA penalty authority?

Seven County Infrastructure Coalition v. Eagle County

As if these three cases were not enough, please stayed tuned - the march of administrative and environmental cases is not over. The Supreme Court has agreed to hear a case next term that could limit the reach of the National Environmental Policy Act (NEPA), the 1970 law that requires federal agencies to analyze whether their proposed projects have environmental impacts. Businesses and industries have long complained that the reviews can take years, inflate costs and be used by community groups to block projects. In Seven County Infrastructure Coalition, which will review the D.C. Circuit's determination that a Surface Transportation Board environmental impact statement prepared for a proposed rail line in Utah was inadequate, the Court granted certiorari on the issue of whether an agency must examine environmental impacts over which it has no regulatory authority. Given the Supreme Court's prior precedent suggesting that such examination may not be required under NEPA, we expect the breadth and scope of NEPA will be curtailed.