Like undoing abortion and affirmative action, reining in federal regulators — what Trump adviser Stephen K. Bannon described as the “deconstruction of the administrative state” — has long been a goal of the conservative legal movement. It notched a significant victory two terms ago in West Virginia v. EPA.
That ruling not only constrained environmental regulators’ ability to limit greenhouse gas emissions — it also imposed a new test that will hobble agencies’ ability to adopt new rules across the landscape of federal regulation. Under this new “major questions” doctrine, in “highly consequential” cases that raise issues of “economic and political significance,” the court held, agencies must point to “clear congressional authorization” before stepping in.
Now the court is weighing a trio of cases involving the funding of administrative agencies, their operations and, most important, the degree of deference that courts should give to agencies when weighing challenges to regulations. This is a conservative court, with a majority particularly inclined to be skeptical of government regulation and sympathetic to corporate claims of bureaucratic overreach, so there is ample reason to worry about the additional mischief the justices could do in this area.
But there is also some basis for optimism that the eventual outcome might not be so dire. There were some cracks visible last term in the six-justice conservative majority court and some indications that the court was put off by over-aggressive positions taken by advocates and lower courts, particularly the ultraconservative U.S. Court of Appeals for the 5th Circuit, which covers Louisiana, Mississippi and Texas.
Two of the three administrative cases the high court is now hearing involve government appeals after defeats in the 5th Circuit. The first, argued Tuesday, concerns a challenge to the funding mechanism of the Consumer Financial Protection Bureau, the agency set up in the aftermath of the 2008 financial crisis. In seeking to assure the independence of the CFPB, Congress decided not to subject the agency to the vagaries of annual appropriations bills. Instead, it directed the agency would receive its money from the Federal Reserve, which is funded through assessments on banks, not to exceed about $600 million, adjusted for inflation.
Lenders challenging the CFPB’s regulations on payday loans argue this funding mechanism is a violation of the constitution’s appropriations clause, which provides that “no Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Any number of federal entities — the Federal Reserve, the U.S. Mint, the Comptroller of the Currency and the Postal Service, among others — are funded through fees and assessments, and have been since the start of the republic.
That didn’t stop the 5th Circuit, with a panel of three Trump appointees, from declaring that the CFPB’s funding mechanism “cannot be reconciled with the Appropriations Clause” and thereby declaring the payday lending rule invalid. This is a separation of powers argument with an ironic twist, claiming that the funding arrangement that Congress chose must be invalidated to preserve the congressional power of the purse.
But the justices, including several conservatives, sounded skeptical when they took up the case last week. By the end of the oral argument in CFPB v. Community Financial Services Association, even Justice Clarence Thomas was pressing the lenders’ lawyer to clarify his argument. “I’d like you to complete this sentence,” Thomas told former Trump solicitor general Noel Francisco. “Funding of the CFPB violates the appropriations clause because?” For those hoping to rein in the CFPB, this is not a good sign.
The second case from the 5th Circuit, Securities and Exchange Commission v. Jarkesy, poses an even more fundamental assault on agency operations. The case challenges agencies’ use of in-house administrative law judges to oversee civil enforcement actions against those accused of wrongdoing; those found liable can appeal an adverse finding in federal court.
George Jarkesy, a hedge fund manager, was accused of violating federal securities law by misleading investors. He and an investment adviser were found liable by an administrative law judge in a ruling upheld by the SEC commissioners and ordered to pay nearly $1 million in fines and disgorgement of profits.
But the 5th Circuit overturned that result, invoking an aggressive grab bag of supposed constitutional violations. It found that the administrative law judge arrangement violated the right to a jury trial; that granting the SEC power to choose between assigning cases of administrative law judges and bringing them in federal court amounted to an unconstitutional delegation of legislative power; and that the restriction on removing administrative law judges — they can only be fired for cause — represented an unconstitutional limitation on executive authority.
Assigning cases to administrative law judges is a common arrangement among federal regulatory agencies. A decision upholding the 5th Circuit’s ruling in Jarkesy could have staggering implications for the operations of an alphabet soup of agencies, imperiling their ability to go after wrongdoers and inundating the federal courts with often complex disputes. Maybe the conservative majority is willing to take this leap — but a few of the conservative justices may be leery of such a destabilizing move.
The most watched case, though, is a direct assault on agencies’ leeway in interpreting the laws they are entrusted with implementing — in particular, the degree of respect that courts should show to regulators with expertise in the area. The court is considering whether to overturn a longtime target of conservative ire: Chevron v. Natural Resources Defense Council, a 1984 case in which the justices said that, in situations where the underlying law is ambiguous, courts should defer to the agency’s interpretation so long as it is reasonable.
Overruling Chevron, the Biden administration maintains in its brief to the court, “would be a convulsive shock to the legal system” — a move that “would threaten settled expectations in virtually every area of conduct regulated by federal law.”
There are multiple ironies embedded in the conservative assault on what’s come to be known as “Chevron deference.” In Chevron itself, the winner was the oil company — defending a regulation promulgated by the Reagan administration — and the loser was an environmental group challenging the rule. In other words, the Chevron deference is a tool that can be used to defend regulations promulgated by Republican administrations as well as Democratic ones. (Irony piled on irony: the Environmental Protection Agency head at the time the regulation was adopted was none other than Anne Gorsuch, whose son, Neil, is now one of Chevron’s leading antagonists on the high court.)
In addition, conservatives who complain about activist judges imposing their own policy views ought to be defending Chevron, not attacking it — and, indeed, that used to be the dominant conservative position. Among its chief defenders, at least until his later years, was Justice Antonin Scalia, who argued in a 1989 law review article that “broad delegation to the Executive is a hallmark of the modern administrative state.”
It’s easy to imagine Chevron on the chopping block. Several justices have expressed various degrees of unhappiness with it, and the court, in taking the pending case, Loper Bright Enterprises v. Raimondo, specifically limited its review to the question of whether the 1984 decision should be junked or severely restricted.
Then again, it’s possible the court will balk at taking that step. In a 2019 case, Kisor v. Wilkie, it toyed with overruling a related doctrine, called “Auer deference,” but veered away on stare decisis grounds. On the other hand, when that case was decided, by a bare five-justice majority, Justice Ruth Bader Ginsburg was still on the court. (Chief Justice John G. Roberts Jr. joined the court’s liberals, though he took pains to emphasize that the two forms of deference were different.)
And this brings up a practical point: It’s possible that overruling Chevron might not be optimal for those bent on dismantling the administrative state. In recent years, the Supreme Court hasn’t been relying much on Chevron in any event. And with the major questions doctrine in place, liberals who want to use agencies to adopt far-reaching new regulations when a Democratic president is in power will find themselves significantly hemmed in.
So, keeping Chevron on the books might be of more real-world benefit to conservatives. They’re not going to butt up against the major questions doctrine because they’re not trying to regulate anything major. Meantime, though, agencies under conservative control would continue to enjoy deference from courts for their more lax stance toward regulating.
“After the major questions doctrine, it’s sort of ironic that Chevron’s biggest practical effect is making it easier to deregulate,” Jones Day lawyer Hashim Mooppan, a former Scalia clerk, said at a Georgetown Supreme Court preview of the new term last month. “Chevron right now, in the real world practically, has more effect in safeguarding deregulatory actions. … If the conservatives think about it actually, they might realize that Chevron isn’t something they should dislike as much as they sometimes do.”
This term poses another set of fateful choices for the court, in particular for the chief justice and justices Brett M. Kavanaugh and Amy Coney Barrett, the more moderate members of the court’s conservative bloc. Will the six-justice supermajority produce a series of hard-right rulings, as happened in the 2021 term? Or will the court, while continuing its march to the right, expose internal divisions within the conservative majority similar to those that emerged last term — and, in doing so, proceed in a more measured fashion than the most conservative justices would prefer?
How the court handles this important trio of regulatory cases will tell us much about its inclinations, whether to high-octane aggressiveness or relative restraint, and, equally, about the future of the conservative project to rein in the administrative state.
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