Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is the FT’s US financial editor
When the US Supreme Court handed down a string of decisions in June and July that made it easier to challenge the power of federal regulators in court, conservatives and business groups celebrated. They crowed that they now had powerful new tools in their efforts to free the American economy from regulations they consider too bureaucratic.
Consumer and environmental groups, meanwhile, warned of looming legal chaos that would allow judges to substitute partisan preferences for scientific expertise, and gut the administrative state’s ability to protect ordinary people from corporate greed.
So far, it looks like both views are true, and are likely to be supercharged by Donald Trump’s second turn as president. Legal cases are proliferating across the US that call into question all kinds of regulatory decisions, including some practices and rules that have been in place for decades. And early rulings have raised fears that the courts will be flooded with contradictory decisions that will make it hard for companies to do business nationwide.
Different courts of appeals — and, sometimes, even different judicial panels on the same appeals court — have come down on opposite sides on anything from the Food and Drug Administration’s ability to ban fruit-flavoured e-cigarettes to the Securities and Exchange Commission’s power to issue informal “no action” letters that give guidance to individual companies.
“We are going to have anarchy for a good several years as a variety of cases work their way through the courts,” argues Dennis Kelleher, chief executive of investor protection group Better Markets. “It’s going to be an unending rolling mess for regulated industries.”
Here is why this has happened. The top US court has been gradually crimping the power of US regulatory agencies for years, but the effort took a big step forward in summer 2024, thanks to three big decisions made by the six-member conservative majority. The Loper Bright case held that judges do not have to give extra weight to an agency’s interpretation of its own powers, tossing out 40 years of practice known as “Chevron deference”. The Corner Post case gave newly formed companies the ability to challenge long-settled regulations. And the Jarkesy case gave defendants the right to a jury trial in a wider range of enforcement cases, rather than just an administrative hearing.
Conservative politicians and business groups have been compiling hitlists of regulations to attack now that Corner Post has opened the door to new challenges and Chevron deference is gone. The new judicial freedom has also given a boost to “venue shopping”: the existing — and, to some, legally dubious — practice of filing cases in places where the judges are presumed to be more sympathetic. The impact goes far beyond specific legal challenges, however. Lawyers across the political spectrum argue that the cases this summer will force regulators to be more cautious about bringing unusual approaches to enforcement actions.
“If you have to go to a trial in front of a real jury, you want to make sure you have your ducks in a row,” says Mark Chenoweth, president of the New Civil Liberties Alliance, a non-profit that challenges the power of the administrative state and filed amicus briefs in all three of the summer cases. “There may be less tendency to push statutes to extremes . . . trying to expand the scope of criminal liability.”
That is also true on the rulemaking side, because agencies will have to meet higher legal standards when defending their work. One recent study of legal challenges to new rules found that agencies won 77 per cent of the time when judges used Chevron deference, but in only 56 per cent of cases when the now-defunct practice was not cited. “Loper Bright is, at its core, deregulatory,” says Varu Chilakamarri, a partner at K&L Gates. “It’s going to be harder for agencies to act than not act . . . It could lead to more limited government.”
The incoming Trump administration’s promises to cut government bureaucracy may reinforce the trend towards less regulation — but there is a twist. As the Republican appointees take decisions to change existing practices, they will be subject to lawsuits from left-leaning groups — which may opt to file in front of friendly judges. Many of Trump’s most contentious decisions in his first term were slowed or stopped by similar legal challenges.
In the end, all this is going to end up back in the Supreme Court’s lap.
In January, it will hear arguments on the question of whether plaintiffs can deliberately seek out sympathetic judges. The particular case involves tobacco giant RJ Reynolds, which filed its challenge to FDA vaping rules in the famously conservative Fifth Circuit, rather than in the Fourth Circuit, which includes the state where the company is based, or the DC circuit, which usually hears FDA cases. The results will be closely watched by other business groups that have used the Fifth Circuit as a friendly venue.
The justices also recently agreed to take a case — involving the Federal Communications Commission’s oversight of an $8bn rural broadband programme — that could impose further uncertainty on the way Americans do business. The lawsuit rests on a legal theory that holds that the constitution limits how much power Congress can delegate to federal agencies. It has not held sway since the 1930s, but the Fifth Circuit used it to rule that the broadband programme was invalid.
If the Supreme Court follows suit, any confusion there is now would be minor compared with the massive restructuring of the entire federal government that would follow.
Source link