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The U.S. Supreme Court recently issued three major opinions that will rein in federal agencies’ ability to expand costly regulation based on an expansive reading of statutes. The first decision holds that an administrative agency tribunal cannot impose civil financial penalties on a defendant. The second decision ensures that the courts, not bureaucrats, have the final word on what a law means. The third decision gives harmed individuals more time to seek relief from unlawful regulatory burdens.
The current president or the next president, if he so chooses, can use these holdings to help rein in agencies from issuing costly overbroad rules. This should be a high priority, as economic research demonstrates that overregulation imposes enormous costs on American businesses and on American households.
Barring Agency Tribunals From Imposing Civil Penalties
In SEC v. Jarkesy, handed down June 27, the Supreme Court held that when the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment to the Constitution entitles the defendant to a jury trial. Here, the SEC brought an enforcement action against Jarkesy in its in-house tribunal. Jarkesy argued unsuccessfully in the lower courts that the matter had to be tried before a jury because fraud was a “suit at common law.” Securities fraud resembles common-law fraud, and the remedy – civil penalties – is a form of monetary relief. This principle applies generally to all federal agencies that seek civil penalties – from now on they must sue in federal court, and the defendant will be entitled to a jury trial.
Ending Judicial Deference to Agencies’ Reading of Statutes
Loper Bright Enterprises v. Raimondo, issued June 28, involved a National Marine Fisheries Service ruling that a gap or silence in a fisheries regulatory law permitted the agency to require fishermen to pay the salaries of federally required monitors aboard their vessels. The fishermen appealed to a D.C. federal appellate court, which upheld the NMFS determination. That court applied the 40-year-old “Chevron Doctrine,” under which federal courts deferred to agencies’ “reasonable” readings of ambiguous statutory language.
The Supreme Court overturned the appellate court ruling and in so doing overruled the Chevron Doctrine. The Court held that under the Administrative Procedure Act (the law that governs federal regulatory procedures), courts must exercise their independent judgment to determine the meaning of seemingly ambiguous laws. This also follows from Article III of the Constitution, which assigns responsibility to the federal judges, not bureaucrats, to decide what a law means.
Loper Bright starkly shows how “reasonable” agency interpretations often imposed major costs on regulated parties. Agencies now know that courts will cut them less interpretive slack. This should make them think twice before adopting fancifully broad readings of a law to achieve big government policy goals.
Lifting Statute of Limitations Barrier To Recovery For Regulatory Harm
In Corner Post Inc. v. Board of Governors of the Federal Reserve System, issued July 1, concerned a 2011 Federal Reserve Board regulation setting the maximum “interchange fee” a merchant must pay to a bank that issued a debit card. Corner Post, a merchant, opened for business in 2018. In 2021 the merchant joined an APA lawsuit challenging the regulation, arguing that it allows higher interchange fees than the authorizing statute permits.
The lower courts dismissed the suit on the ground that it was filed after the 6 year APA statute of limitations expired in 2017. The Supreme Court reversed, holding that an APA claim “accrues when the plaintiff has the right to assert it in court,” which is “when the plaintiff is injured by final agency action.” The plaintiff filed suit a mere 3 years after it went into business, well within the 6 year APA statute of limitations time period.
In light of Corner Post, regulators now know that rules outside the scope of the laws they oversee may be overturned well into the future. This could dissuade agencies from imposing excessive regulatory burdens in the hope that firms would not become aware of them immediately.
President Can Use These Holdings To Curb Overregulation
All told, the three recent Supreme decisions give private parties greater leeway to challenge overly expansive rules that burden them. They also incentivize agencies to pay closer attention to statutory restrictions when regulating. But litigation is costly, time consuming, and uncertain. Agencies may be reluctant to change their practices unless forced to do so.
Presidential leadership is key to ensuring that federal bureaucracies make regulatory improvement a high priority.
Article II, Section III of the Constitution requires that the president “shall take Care that the Laws be faithfully executed.” Leading scholars have written (a position also echoed by Justice Elena Kagan when she was a Harvard Law School professor) that this means the president has strong authority to oversee the decisions made by subordinate agencies. It follows that the president can order agencies to draft rules to conform with new Supreme Court guidance, or to meet a cost-benefit test (assuming specific statutory language does not bar cost-benefit analysis).
This president, or the next one, could direct the heads of federal agencies to closely review their existing regulations and major regulatory proposals to make sure that they reflect the best (not just a “reasonable”) reading of a statute. Detailed guidance could be provided by the Justice Department’s Office of Legal Counsel.
The President could also order the Office of Management and Budget (as part of its cost-benefit analysis of proposed regulations) to require that agencies present detailed legal explanations of how proposed rules meet this “best reading” requirement. This should be done through a wholesale revision of OMB Circular A-4, Regulatory Analysis. Circular A-4 should also be changed to mandate that agencies seek to minimize regulatory burdens in crafting regulations, and repeal excessively costly or dated regulations.
The Supreme Court has spoken. The time is now ripe for presidential action to begin rolling back the regulatory state. The real beneficiaries of regulatory reform will be the American people. Let’s hope that official Washington is listening.