Chevron Analysis: When Does It Apply In Administrative Law?

Chevron deference is a doctrine of judicial deference that compelled federal courts, in reviewing a federal government agency's action, to defer to the agency’s construction of a statute that Congress directed the agency to administer. The Supreme Court ruled on June 28, 2024, in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce to overturn the Chevron deference doctrine, holding that federal courts may not defer to an agency’s interpretation of an ambiguous statute.

Chevron deference was established in the 1984 U.S. Supreme Court case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. which concerned disagreement over a change in the Environmental Protection Agency's interpretation of a permitting provision of the Clean Air Act of 1977. The case established a two-step review approach used by courts to analyze an agency's legal interpretations. Under the review process, courts considered (1) Congress' clear intent in passing a law and (2) (if the court found ambiguities in the law) whether an agency's rule was reasonably construed and not arbitrary, capricious, or manifestly contrary to the statute.

The Chevron doctrine and its two-step test

The Chevron doctrine, or Chevron deference, is a principle of administrative law that compelled federal courts to defer to a federal agency's interpretation of an ambiguous or unclear statute that Congress delegated to the agency to administer. The doctrine was established by the 1984 Supreme Court decision Chevron U.S.A., Inc. v. Natural Resources Defense Council.

The Chevron doctrine consists of a two-step test:

Step One

The reviewing court applies the "traditional tools of statutory construction" to determine if "Congress has directly spoken to the precise question at issue". If the meaning is clear from the language of the statute, then the court must effectuate Congress's intent.

Step Two

If the statute is silent or ambiguous with respect to the particular issue, the court proceeds to step two. Here, the court will uphold the agency's interpretation so long as it is based on a "permissible construction of the statute", even if the court disagrees with that interpretation.

The Chevron doctrine was overturned in June 2024 in the case of Loper Bright Enterprises v. Raimondo.

The Supreme Court's Chevron ruling in 1984

In 1984, the US Supreme Court ruled in favour of Chevron in the case of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. The case concerned a dispute over the Environmental Protection Agency's (EPA) interpretation of a provision in the Clean Air Act Amendments of 1977.

The EPA's interpretation of the act allowed states to treat all of the pollution-emitting devices within a plant as though they were encased within a single "bubble". This meant that an existing plant with several pollution-emitting devices could install or modify one piece of equipment without meeting the permit conditions, as long as the alteration did not increase the total emissions from the plant.

The Supreme Court held that the EPA's "bubble" definition was a permissible interpretation of the term "stationary source", reasoning that agencies with scientific and technical expertise are best positioned to interpret ambiguous statutes to advance federally directed policy goals.

The Supreme Court established a two-step test in its decision, which dictates when judges must grant significant deference to agency interpretations when challenged in court. At step one, the reviewing court must apply the "traditional tools of statutory construction" to determine if "Congress has directly spoken to the precise question at issue". If the meaning is clear from the language of the statute, then the court must effectuate Congress's intent. However, if the statute is silent or ambiguous with respect to the particular issue, the court proceeds to step two. At step two, the court will uphold the agency's interpretation as long as it is based on a "permissible construction of the statute", regardless of whether the court agrees with that interpretation.

The Chevron ruling was a cornerstone of regulatory authority and administrative law for decades, but it was overturned by the Supreme Court in 2024.

The Supreme Court's overturning of Chevron in 2024

Background

Chevron deference, or Chevron doctrine, is an administrative law principle that compelled federal courts to defer to a federal agency's interpretation of an ambiguous or unclear statute that Congress delegated to the agency to administer. The principle derived its name from the 1984 U.S. Supreme Court case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., which concerned a disagreement over a change in the Environmental Protection Agency's interpretation of a permitting provision of the Clean Air Act of 1977.

The Overturning

In June of 2024, the U.S. Supreme Court overturned the Chevron doctrine in Loper Bright Enterprises v. Raimondo, stating:

> The Administrative Procedure Act requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous; Chevron is overruled.

The Supreme Court's ruling was based on the finding that the Chevron doctrine is incompatible with the Administrative Procedure Act (APA). The Court held that the APA requires courts to determine whether agencies acted within their statutory authority, and that the Chevron doctrine's command that a court should yield to an agency's "permissible construction" of an ambiguous statute could not be reconciled with this.

Implications

The overturning of Chevron will have far-reaching consequences. While the Court emphasised that stare decisis still applies to prior cases that relied on the Chevron framework, a spike in litigation following this decision is expected. Interested parties who previously declined to bring suit based on Chevron deference may now re-evaluate their odds of successfully challenging agency interpretations. This will likely lead to an increase in litigation among lower court judges now unconstrained by Chevron, resulting in a patchwork regulatory landscape affecting wide swathes of the regulated community.

Over time, federal agencies will adjust to operating in a higher-risk legal environment by taking less aggressive stances in their enforcement and rulemaking capacities. This may slow the pace of regulation and the expansion of regulatory authority as agencies can no longer "gap-fill" where they identify ambiguities in the law. Future regulatory interpretations that are codified by statute or embraced by the courts may be viewed by the regulated community as more legitimate and less susceptible to legal challenge or lobbying activities.

Reactions

The overturning of Chevron was applauded by some as a "major step to preserve the separation of powers and shut down unlawful agency overreach". However, others decried the ruling, arguing that it gives individual judges the power to decide the best reading of a statute, which is a "recipe for chaos" as judges lack the expertise of agency personnel and are certain to reach inconsistent results on the meaning of federal laws as applied to complex, technical issues.

The implications of overturning Chevron

The overturning of Chevron will have far-reaching consequences. The doctrine has been a cornerstone of regulatory authority and administrative law for decades, and its reversal will significantly impact the respective roles of courts and executive agencies in interpreting and implementing federal law.

In the short term, there will likely be an increase in litigation as interested parties who previously avoided legal action due to Chevron deference may now challenge agency interpretations. This will result in a patchwork regulatory landscape, particularly in the contested enforcement context, where defendants in the regulated community are incentivized to defend themselves.

Over time, federal agencies will adjust to the new legal environment by adopting less aggressive stances in their enforcement and rule-making capacities, potentially slowing down the expansion of regulatory authority. Future regulatory interpretations that are codified by statute or embraced by the courts may be viewed as more legitimate and less susceptible to legal challenges or lobbying activities.

The overturning of Chevron also presents both opportunities and risks for regulated industries. While it opens up new avenues for these industries to challenge their regulators, it also creates uncertainty as agencies adjust to the shift in power dynamics.

Additionally, the decision will impact all stages of the public policy lifecycle, including legislation, regulation, and litigation. Congress will now be required to draft more precise and specific instructions for federal agencies, addressing ambiguities in statutes that were previously left to agencies to interpret. This may prove challenging, especially in emerging areas like cryptocurrency and artificial intelligence regulation, where the issues are complex and rapidly evolving.

The full implications of overturning Chevron remain to be seen, but it is clear that the decision will have a significant impact on the way Congress operates and interacts with federal agencies.

The future of administrative law without Chevron

The overturning of the Chevron doctrine in June 2024 has had a significant impact on administrative law, shifting power away from federal agencies and towards the judiciary. This change has important implications for the interpretation of ambiguous statutes, the role of regulatory agencies, and the scope of judicial review. While the full effects of this shift remain to be seen, several key consequences and potential challenges have emerged.

Impact on Statutory Interpretation

One of the most significant consequences of the end of Chevron deference is the increased role of the judiciary in interpreting ambiguous statutes. Previously, under Chevron, courts would defer to the reasonable interpretation of the implementing agency when a federal statute was silent or ambiguous. Now, judges are responsible for resolving statutory ambiguities, using their own judgement and traditional tools of statutory construction. This shift has been justified as a return to the proper role of the judiciary in interpreting the law and ensuring that regulatory interpretations align with congressional intent.

Regulatory Agencies' Adjustments

Federal agencies are likely to adjust their approaches in a post-Chevron era. They may take a more cautious and risk-averse approach to rulemaking and enforcement, anticipating increased judicial scrutiny and a higher burden of proof to defend their interpretations. This could slow down the pace of regulation and expansion of regulatory authority, as agencies can no longer easily "`gap fill`" ambiguities in statutes. Agencies may also seek to codify their interpretations through statutes or embrace court-approved interpretations to increase the legitimacy of their actions and reduce legal challenges.

Litigation and Uncertainty

The overturning of Chevron has already led to an influx of litigation as stakeholders in regulated industries challenge agency statutory interpretations. This trend is expected to continue, particularly in the contested enforcement context, as parties seek to test the boundaries of agency authority. The initial spike in litigation may lead to a patchwork regulatory landscape, with lower court judges issuing potentially conflicting rulings. Over time, a more consistent body of case law is likely to emerge, providing greater clarity and predictability.

Skidmore Deference and Agency Expertise

While Chevron deference has ended, other forms of deference, such as Skidmore deference, remain in place. Under Skidmore, courts grant a modicum of deference to an agency's interpretation if it is persuasive in light of the agency's expertise, thoroughness, and consistency. This means that agencies can still exert influence over statutory interpretation, particularly in areas of significant technical or scientific expertise. However, the weight given to agency interpretations under Skidmore is more limited compared to Chevron, and courts retain the final interpretive authority.

Challenges and Potential Disruptions

The end of Chevron deference has the potential to disrupt longstanding rules and interpretations, particularly those premised on statutory ambiguity. Regulated entities may bring far-reaching challenges to existing regulations, and courts now have more leeway to interpret statutes contrary to agency interpretations. Additionally, the erosion of agency power may continue with ongoing challenges to the lawfulness of administrative structures and appointments.

The Future of the Administrative State

Despite predictions of its demise, the administrative state remains alive and kicking. The Loper Bright decision explicitly upheld the validity of prior decisions that relied on Chevron deference, preventing immediate reversals. Additionally, Congress's ability to expressly delegate authority to agencies remains intact, and explicit statutory delegations may insulate certain agency rules and interpretations from successful challenges. However, the reduced deference to agencies and increased judicial scrutiny have shifted the balance of power, and the future of the administrative state under this new dynamic remains to be seen.

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