On June 28, 2024, the Supreme Court of the United States (SCOTUS) issued its 6-3 decision in Loper Bright Enterprises, et al. v. Raimondo, Secretary of Commerce, et al., No. 22-451, overturning the long-standing doctrine of Chevron deference.
Background
In Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), SCOTUS held that in the event a statute was unclear, the courts would generally accept the agency’s interpretation of the statute, so long as it was reasonable. In short, the courts would defer to the agencies’ interpretation of ambiguous statutes.
Chevron deference empowered government agencies like the Securities and Exchange Commission (SEC) with the ability to interpret financial statutes and enforce its interpretations of regulations, including those promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Notably, the SEC has the authority to create rules and regulations pursuant to securities laws passed by Congress, including Dodd-Frank. This includes the implementation of Regulation Best Interest (Reg BI), which redefined the standard of care of registered representatives when providing recommendations for securities or investment strategies.
Following the introduction of Reg BI in June 2020, the SEC has steadily increased its regulatory enforcement actions year after year. The SEC’s increase in enforcement actions highlights the unchecked power of the commission and its ability to regulate the securities industry without adequate oversight. This concentration of power in the hands of a single agency has drawn criticism due to concerns regarding inconsistent enforcement practices, an absence of transparency, and the difficulty in ensuring accountability in the face of potential enforcement errors.
The Case
Loper Bright began as a challenge to the National Marine Fisheries Service’s (NMFS) interpretation of the Magnuson-Stevens Act. The Magnuson-Stevens Act requires certain commercial fishing boats to allow federal agents, also known as observers, to join the vessel’s fishing expeditions to collect data, including data related to the prevention of overfishing. By way of Chevron deference, the NMFS interpreted the statute to require certain fishing vessels to subsidize the salary of these observers. The NMFS interpretation of the Magnuson-Stevens Act was challenged, and the case ultimately found its way to SCOTUS.
SCOTUS used this case as an opportunity to reconsider the Chevron doctrine. In a 6-3 decision, the court held that the Chevron doctrine was inconsistent with the Administrative Procedure Act (APA), which governs judicial review of agency actions. The APA requires courts to decide all relevant questions of law, and SCOTUS held courts must exercise their own independent judgment when interpreting statutes, even if they are ambiguous.
New Precedent
The court’s decision to overturn Chevron is a pivotal change for the future of administrative law, which will have significant impact on how courts will review the actions of agencies in the future, including the actions of the SEC.
Prior to Loper Bright, there had been challenges to the SEC’s implementation of Reg BI. However, these challenges have failed given the broad authority granted to the SEC to commence rulemaking as it saw as necessary or appropriate. Now, without the ability to rely on Chevron to defend their interpretations of ambiguous statutes, if challenged, agencies like the SEC will need to be prepared to defend their interpretations pursuant to the Federal Rules of Civil Procedure, the Federal Rules of Evidence, and before a federal court judge and a jury of one’s peers.
The future of Reg BI and the SEC’s enforcement of new and existing rules remains unclear; however, in the aftermath of Loper Bright, it has become evident that the overturning of Chevron will bring monumental changes to the landscape of administrative law and a power balance among the branches of government is expected.
This article originally appeared on Freeman Mathis & Gary, LLP.
About the Authors:
Chad E. Weaver is a partner at Freeman Mathis & Gary, LLP. cweaver@fmglaw.com
David Shinder is an associate at Freeman Mathis & Gary, LLP. david.shinder@fmglaw.com