'A robber baron's dream': SCOTUS seems determined to dismantle an administrative state

'A robber baron's dream': SCOTUS seems determined to dismantle an administrative state
  • SCOTUS limited federal agencies' regulatory powers with recent rulings.

  • One legal expert said the high court is clearly "hellbent" on dismantling the administrative state.

  • Because of the rulings, the regulation of essentially all major industries will be tougher.

In two separate rulings over 48 hours last week, the conservative majority of the United States Supreme Court overturned a 40-year-old precedent that has been long attacked by the right — and has stripped out some of the Securities and Exchange Commission's financial-fraud enforcement capabilities.

The conservative majority, in another 6-3 ruling on Monday, made it easier for government regulations to be contested.

"At the end of a momentous Term, this much is clear: The tsunami of lawsuits against agencies that the Court's holdings in this case and Loper Bright have authorized has the potential to devastate the functioning of the Federal Government," Justice Ketanji Brown Jackson wrote in her dissent of the court's Monday ruling in the case of Corner Post v. Board of Governors of the Federal Reserve System.

Justice Elena Kagan, in her dissent to the Friday decision to strike down the legal precedent known as the "Chevron deference" in the case of Loper Bright Enterprises v. Raimondo, called the Friday ruling "yet another example of the Court's resolve to roll back agency authority, despite congressional direction to the contrary."

Legal experts and regulation advocates told Business Insider they largely agreed, with one law professor saying that the nation's highest court is clearly "hellbent on dismantling the entire regulatory apparatus put in place over the course of the 20th century."

"These rulings make it impossible for the agencies that Congress itself created to respond quickly and efficiently to newly emerging problems," said Robert Hockett, a Cornell University professor of law and finance.

Thanks to the recent SCOTUS rulings, the regulation of essentially all major industries, ranging from environmental protection to finance and public health, will be much tougher and could result in a more overburdened court system.

Before Friday's ruling, if the Environmental Protection Agency, for example, identified an oil company practice that unduly risked an oil spill, it would first issue a cease-and-desist letter. The oil company might then claim that the EPA has the facts wrong or lacks the regulatory authority to address the practice, Hockett said.

Then, according to Hockett, the case would be heard by an administrative court. If the oil company disagreed with that administrative judge's ruling, it could appeal and ultimately land in a court — but wouldn't do so if it couldn't point to an obvious error by the administrative law judge, Hockett said.

Now, under the ruling, the case would go right to a federal court.

"No ALJ [Administrative Law Judge]. Straight to federal court. Court with overloaded docket scheduled hearing to the year 2035. Oil spills everywhere and renders North America uninhabitable in the meantime while we wait," Hockett said, offering an extreme example.

"The upshot of this is that all of the country's largest business firms in all of its major industries will go effectively unregulated or de-facto unregulated because Congress and the courts will not be able to keep up with the pace of change in our economy," said Hockett.

The legal expert likened the matter to a "robber baron's dream."

"These two rulings largely amputate the two most important arms that our regulatory agencies use every day in overseeing our industrial economy," Hockett said, referring to the the Chevron and SEC rulings.

In overturning the Chevron doctrine in a 6-3 decision, the high court has hamstrung federal agencies' regulatory powers.

The doctrine, established in the 1984 Supreme Court case Chevron USA v. Natural Resources Defense Council, called for courts to defer to federal agencies' interpretations of ambiguous federal laws and statutes. It has been repeatedly used by the federal government in a wide range of cases.

Chief Justice John Roberts, in his opinion, wrote that the Chevron doctrine "proved to be fundamentally misguided."

"Perhaps most fundamentally, Chevron's presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do," Roberts wrote.

The chief justice continued, "Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority."

The overturning of the Chevron precedent and Thursday's SEC v. Jarkesy decision both involve cuts in the regulatory powers of federal agencies, "which means reductions in the power of the executive branch of government and an increase in the power of the judicial branch," said Jonathan Siegel, a professor of law at George Washington University.

As a result, over the long term, Siegel said, "It will be more difficult for the government to enforce many statutes, and therefore, there will be more violations."

"Particularly in terms of businesses, they decide what to do based not only on what's legal and what's illegal, but what is the likelihood that they will actually suffer a penalty if they do something illegal," he said.

Siegel explained that the decision in SEC v. Jarkesy has the "potential to affect innumerable agency proceedings."

Up until Thursday, the SEC had two ways of pursuing fraud cases. It could sue in federal court, or it could bring an "administrative proceeding" in its own in-house court, where it appoints its own judges and the cases have no juries.

Roberts wrote in the decision that the latter method violated the Seventh Amendment of the US Constitution, which protects the right to a jury trial.

"It's certainly the case that the court and some individual justices even more strongly have expressed distaste for the amount of power administrative agencies have, and several decisions that the court has come down within the last few years have the effect of reducing that power and increasing the power of courts," Siegel said.

Rachel Weintraub, the executive director of the regulation advocacy group Coalition for Sensible Safeguards, said that the common thread between the decisions "is that it is the manifestation of a conservative quest to minimize the role of the federal government."

"The public expects government to do certain things. It expects the government to ensure that roads are safe and toasters don't explode, and that the water coming from our faucet doesn't cause our families harm, and that there are protections in workplaces, and that our marketplaces are fair, and that there will be consequences if entities scam us," Weintraub said.

These factors, said Weintraub, "could be at stake if judges replace agency expertise with their own positions."

In the case of Corner Post v. Board of Governors of the Federal Reserve System, the Supreme Court ruled that a six-year statue of limitations in challenging federal agencies under the Administrative Procedure Act begins "when the plaintiff is injured by final agency action."

"The Supreme Court last week made it all but impossible for federal agencies to accept future Congressional assignments of rule-making authority by overturning its own 40-year-old Chevron decision," said Hockett.

"Today it effectively makes that retroactive, by permitting any newly formed corporation to challenge rules that have been on the books for decades," Hockett said, explaining that before Monday's decision a statute of limitations legislated by Congress "ensured that a rule that had gone unchallenged for six years was settled law."

Now, Hockett said, "every rule, no matter how long it has been in place and no matter how long corporations have been operating with a settled understanding of it, will be up for grabs."

Jesse Panuccio, who served as US acting associate attorney general in the Trump administration, was less alarmed by the recent SCOTUS decisions, saying "agencies still have vast delegations of power."

Panuccio told Business Insider he represents private parties who are in lawsuits against the government, and he believes it's important that there are three branches of government "with interdependent functions."

Panuccio said that he supported the Supreme Court decisions in Loper Bright and Jarkesy and called them "important checks on administrative power."

There is never an "even playing field" between the government and a private party — and having a ruling like this in place is the way to ensure parties are in front of a neutral judge, he said.

"And I think we have gone too far, no matter who the president is, the executive branch wields more power than I think the Constitution really envisions," he said. "And these opinions are important."

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