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The U.S. Supreme Court building in Washington, D.C.

Regulation and Compliance > Federal Regulation

Supreme Court Ruling Set to Weaken SEC, DOL Authority

By Melanie Waddell

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What You Need to Know

  • The decision to overturn the Chevron doctrine could affect SEC rules on climate disclosures and private funds.
  • Investors will be harmed by the ruling, consumer advocates say.
  • A top Republican says the ruling helps put the role of legislating back where it belongs.

The Supreme Court’s decision Friday morning to overturn the Chevron doctrine has the potential to weaken Securities and Exchange Commission, Department of Labor and Internal Revenue Service rules.

In Loper Bright Enterprises v. Raimondo, Chief Justice John Roberts wrote: “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.”

“Effectively, what this [ruling] is going to do is change the balance of power from the agencies to the courts in terms of determining the scope of what an agency is authorized to do by statute,” Eric Purple, a partner at Stradley Ronon in Washington, told ThinkAdvisor Friday in an interview.

“With respect to any rule that is currently under challenge, the congressional authority to engage in that rulemaking will become very much a live issue if there is ambiguity around the agency’s authority,” for instance with the litigation surrounding the Labor Department’s fiduciary rule, Purple said.

“Under the Chevron doctrine, courts often allowed agencies essentially to determine the extent of their own authority by asserting statutory ambiguity, even in ways that proved inconsistent over time,” said Geoffrey Manne, president of the International Center for Law & Economics, in a statement Friday.

Impact Seen in Litigation

The Court’s opinion “requires judges to be ‘informed by’ the views of agencies like the SEC while not permitting the SEC’s views to supersede a judge’s own judgment,” Nicolas Morgan, co-founder and president of the Investors Choice Advocate Network and a former senior trial counsel at the SEC, said in an email.

“It remains to be seen how big of an impact this opinion will have once judges start applying it. At a minimum, judges will no longer need to defer to the SEC’s own opinion about its jurisdiction and the application of the federal securities laws,” Morgan said.

The impact of the Supreme Court’s ruling “will only be seen in litigation where the SEC and DOL tell a judge to defer to the agencies’ interpretation,” Morgan continued.

For instance, ”in the pending litigation challenging the SEC’s short sale rules, the court may continue to take the SEC’s view of the statutory authority for the rules, but the court will give those views less deference under this new Supreme Court opinion.”

Added Morgan: “The great irony about the Chevron doctrine is that the original case involved environmental activists not wanting courts to defer to the Reagan administrations’ EPA’s interpretation of environmental laws. How strongly one thinks courts should defer to executive branch agencies may turn in part on which executive is presiding over the agencies.”

Existing and Future Rules

“With regard to rules that have been previously interpreted by a court using Chevron deference, there won’t be any effect. The court was clear this ruling will not overturn prior cases,” Purple said.

As to future rulemakings, “the administrative agencies are going to be very mindful as to what Congress has authorized them to do and will be very careful in establishing their statutory authority to act,” Purple added.

‘Death-Knell’ for SEC Climate Rule?

The court’s decision “is very likely to be the death-knell for the SEC’s climate disclosure rules, at least in its current form,” added Michael Gold, partner and corporate practice co-chair at law firm Saul Ewing in an email.

“If the courts are not required to defer to the SEC’s reasonable interpretation of its statutes, then I would anticipate that conservative judges who have long been suspect as to the SEC’s interpretation of its own authority will conclude the SEC has over-reached in promulgating the sweeping climate change disclosure rules that it did.”

The SEC’s recent rules pertaining to private fund advisors, “which were vacated by the Fifth Circuit in early June, are also ultimately much less likely to go into effect,” Gold added.

With the Supreme Court’s Loper Bright opinion, “the task of reviewing agency authority under congressional statutes is returned to the courts, where it belongs,” added ICLE’s Manne.

Stephen Hall, legal director for Better Markets, said Friday in a statement that with the ruling, the Supreme Court “has abolished the common sense, longstanding, and legally appropriate obligation of federal judges to respect the way agencies interpret the laws they enforce.”

Judges, Hall continued, “now have the unlimited discretion to substitute their own reading of the law for what the experts say it means. That spells disaster in cases where a statute is vague, as they often are, and ideologically biased judge want to discard the agency’s interpretation to achieve what they see as a preferred outcome. In other words, judges can now shove the experts aside and make their own decisions, without a shred of the deep experience or expertise that agencies bring to their understanding and implementation of the law.”

The decision also “has the potential to return the country to the control of Wall Street banks, financiers, corporations, CEOs, and the modern-day robber barons because it will be much more difficult for the government to constrain their predatory and often illegal conduct in a timely or effective way,” Hall maintained.

Investor Harm

“Investors saving for their retirement, child’s education, and other important goals need the protections of the securities and retirement laws to ensure they have the information they need to make informed investment decisions and can hold those in the market who harm them accountable for any misconduct,” Micah Hauptman, director of investor protection for the Consumer Federation of America, added in another email.

The Supreme Court’s decision “makes it much harder for investors to receive those necessary protections and, as a consequence, investors will suffer,” Hauptman said.

A ‘Wrecking Ball’

“Today’s decision has taken a wrecking ball to the regulatory systems that have served our country for decades,” said Rep. Bobby Scott, D-Va., ranking member on the House Committee on Education and the Workforce, in a statement. “Agency interpretation of vague statutes is necessary to ensure Americans across the country can have reassurance that their food and medication is safe for consumption, workplaces are safe and secure, student borrowers are not defrauded, and so much more.”

With the decision, the Supreme Court “upended 40 years of administrative jurisprudence and limited government agencies’ ability to regulate in their areas of expertise and properly serve the American people,” Scott said.

By eliminating Chevron deference, “the Supreme Court has effectively taken steps to further politicize the courts and cripple the nation’s regulatory systems — a ruling that will no doubt have disastrous consequences for Americans,” Scott said.

Sen. Bill Cassidy, R-La., ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee, added in another statement that “For too long, Chevron deference has allowed unelected bureaucrats, insulated from political accountability, to exercise power that exceeds their authority. Such unfettered power is a perversion of the Constitution.”

The Supreme Court decision, Cassidy said, “helps return the role of legislating back to the people’s elected representatives.”  

Melanie Waddell

@Think_MelanieW

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