Corporate America revels in Supreme Court windfall
Corrects to show that the American Clinical Laboratory Association, not AdvaMed, is suing the FDA, in paragraph 8. The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Gabriel Rubin
WASHINGTON, July 23 (Reuters Breakingviews) -The scales of justice have been tipped in favor of Corporate America. A series of recent U.S. Supreme Court opinions overturned decades of precedent, making it easier to challenge federal regulations and enforcement actions. In situations where an agency overstepped authority granted by Congress or took liberties with how it interpreted ambiguous laws, judges will now be the final arbiters. The new legal landscape portends fat dividends for companies and their shareholders for years to come.
Over the course of just a few days, the court led by Chief Justice John Roberts issued three business-related rulings that are now rippling through boardrooms across the country. First, it neutered the Securities and Exchange Commission’s proprietary system of tribunals, a warning sign for other agencies that sidestep federal courts in favor of cozier internal proceedings to handle enforcement actions and other smaller matters. Second, a decision penned by conservative jurist Clarence Thomas, gave companies additional time to legally push back against rules.
Third, and most consequentially, Loper Bright Enterprises vs. Raimondo issued a fatal blow to the doctrine known as Chevron deference, a 40-year-old precedent giving the benefit of the doubt to how government agencies decipher ambiguity in laws passed by Congress. Ironically enough, the oil titan’s case against the National Resources Defense Council was originally construed as a victory for business because it allowed the executive branch, under Republican President Ronald Reagan at the time, to draft flexible rules that environmentalists considered unduly permissive.
Since then, the perception has broadly evolved into the idea that Chevron expanded an overbearing “administrative state.” A Supreme Court reshaped by Donald Trump’s appointees gave conservative legal organizations and their corporate sponsors the ability to help tear it down.
It’s true the government rulebook has swelled since the 1984 decision, as have the accompanying costs of compliance. Although companies tend to overlook the benefits of regulation, including cleaner air and safer workers, the related expenses grew at roughly 1% a year between 2002 and 2014, according to a study published by the National Bureau of Economic Research. A separate estimate commissioned by the National Association of Manufacturers, an industry lobbying group, found they increased closer to 2% annually from 2012 to 2022. The 6-2 reversal penned by Roberts invites a massive rollback opportunity.
A gold rush already is underway. Law firms and in-house corporate attorneys scoured compliance documents for rules worth challenging. Existing litigation also was injected with uncertainty, leading some judges to issue injunctions on pending regulations and government programs. A laundry list of Washington-based trade associations, which spearhead legal initiatives for their respective industries, urged President Joe Biden’s administration to refrain from issuing new rules given the heightened chance they would be knocked down. There are about 150 under review at various agencies that would have an economic impact of at least $200 million apiece.
Early signs bode well for chief executives. A Texas judge backed a challenge to the Federal Trade Commission’s non-compete rule for workers, which the U.S. Chamber of Commerce said overstepped the agency’s authority. The business group also tried to have the injunction apply to all its members. Although a judge denied the request, having the audacity to ask suggests companies are emboldened in their cause against a rule that has been a signal initiative for FTC Chair Lina Khan.
The savings also could be significant. A group that represents medical testing companies such as Quest Diagnostics DGX.N and Labcorp LH.N is pushing back on a new Food and Drug Administration rule that might cost the industry more than $30 billion over two decades, according to agency estimates. The FDA has sought to toughen oversight by scrutinizing new types of diagnostics, as opposed to just certifying the labs that run them. The American Clinical Laboratory Association contends the decision is arbitrary, and courts are probably more inclined to agree following the Raimondo ruling.
Environmental rules and tax-code esoterica also are bound to get fresh consideration, given that Congress rarely spells out specifics in sprawling legislation like the 2017 Tax Cuts and Jobs Act or Biden’s signature 2022 Inflation Reduction Act. For example, the administration is eager to midwife a clean hydrogen industry and has written tax-credit eligibility rules that would probably prevent fossil fuel producers such as Exxon Mobil XOM.N from making hydrogen out of natural gas because of the associated carbon emissions. Big Oil has a strong case now to argue that the limitations are overly restrictive, and that it should qualify for a tax credit of $3 per kilogram of hydrogen. Separately, 3M MMM.N has cited the Chevron reversal in an appeal over whether the IRS overstepped its authority in how it taxed some of the industrial giant’s foreign income.
The transfer of power to judges from regulators was an explicit goal, Roberts wrote. And while the philosophical shift stands to benefit many companies, it also poses new questions. There will be venue shopping to find a sympathetic court. But asking judges to draw the line as to when and where to defer to an agency’s expertise and when to take matters into their own hands will not have a clear definition and thus vary from case to case. Will a judge feel confident enough to overrule how food safety is determined, but not the specifics of regulating nuclear power? Fuzzy guidelines on deference mean another mess is in the making.
Further complicating the situation is that many agencies have seen the jurisprudential writing on the wall for years. As a result, they have been meticulous about ensuring that rules make clear whence their authority comes. Market regulators like the SEC have tried not to rely on Chevron as courts chipped away at it. Without its in-house justice system, it will have to be more cautious and confident about the cases it brings.
Another consequence of the Supreme Court’s deregulatory blitz seems especially clear: with government bureaucrats second-guessing themselves to avoid losing in court, companies will be emboldened to use their own legal consiglieri and lobbying networks to shape laws from the outset. As regulatory costs go down, corporate influence in Washington is set to rise.
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CONTEXT NEWS
The U.S. Supreme Court on July 1 issued its final opinions from a term that included a landmark decision overturning a 40-year-old precedent known as “Chevron deference,” which had allowed regulators broad leeway to interpret and implement laws. That power will now shift to the courts under the 6-2 ruling in Loper Bright Enterprises vs. Raimondo.
The US corporate rulebook keeps getting longer The US corporate rulebook keeps getting longer https://reut.rs/4d5m1pU
Editing by Jeffrey Goldfarb and Pranav Kiran
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