Three 2024 U.S. Supreme Court decisions issued in 2024 may over time substantially constrain federal agencies’ regulatory authority. The incoming Trump Administration may wish to rely on those holdings in implementing its regulatory reform strategy.
Background
In 2024, the Supreme Court rendered 3 decisions that could have major implications in limiting the scope of federal regulatory activity. I explained in a July 2024 Forbes commentary that “the next president, if he so chooses, can use these holdings to help rein in agencies from issuing costly overbroad rules.”
First, the Court held in Loper Bright v. Raimondo that under the Administrative Procedure Act (the law that governs federal regulatory procedures), courts must exercise their independent judgment to determine the meaning of seemingly ambiguous laws. In so doing, the Court overturned a National Marine Fisheries Service ruling that silence in a fisheries regulatory law permitted the agency to require fishermen to pay the salaries of federally required monitors aboard their vessels. Previous Supreme Court doctrine had been that federal courts should defer to agencies’ “reasonable” interpretations of ambiguous statutory language. Loper Bright starkly showed how “reasonable” agency interpretations often imposed major costs on regulated parties.
Second, in Corner Post Inc. v. Board of Governors of the Federal Reserve System, the Supreme Court held that the APA’s 6-year statute of limitations for challenging federal regulations begins to run only when the plaintiff suffers injury from a regulation, rather than when it becomes final. Thus, a firm formed in 2018 was legally authorized to join a 2021 lawsuit challenging a Federal Reserve rule on bank debit card fees that was finalized in 2011 – a full decade earlier. The Supreme Court reasoned that the plaintiff filed suit a mere 3 years after it went into business, well within the 6-year APA statute of limitations time period. Corner Post means that regulators now know that rules outside the scope of the laws they oversee may be overturned well into the future. This could dissuade agencies from imposing excessive regulatory burdens in the hope that firms would not become aware of them immediately.
Third, in SEC v. Jarkesy, the Supreme Court held that when the Securities and Exchange Commission seeks civil penalties against a defendant for securities fraud, the Seventh Amendment to the Constitution entitles the defendant to a jury trial. Thus, the SEC’s enforcement action against Jarkesy in its in-house tribunal was invalid. The Jarkesy principle applies generally to all federal agencies that seek civil penalties – from now on they must sue in federal court, and the defendant will be entitled to a jury trial.
These holdings may become newly relevant to executive branch policymaking, given the recent election of Donald Trump.
Implementing Regulatory Reform
As I discussed in a July 24, 2024 Forbes commentary, multiple quantitative studies have found that overregulation has slowed American economic growth, has imposed high costs on families, and has been particularly harmful to small businesses.
President-elect Trump has made it clear that he wants to reduce federal regulatory burdens. Indeed, in a December 9 press briefing, he stated that “[a]lready, preparations are underway to slash massive numbers of job-killing regulations — eliminating 10 old regulations for every new one[.]” This proposal goes far beyond the “rescind 2 rules for every new one” policy that he pursued in his first term as president.
Blocking New Rules
Blocking excessively costly new rules could be pursued through presidential executive orders dealing with regulation and overseen by the Office of Management and Budget.
These measures might focus on:
· the institution of agency regulatory budgets (“limiting the total cost of regulations that each federal agency is allowed to impose”);
· the revision of agency cost-benefit analysis to eliminate subjective considerations (introduced in 2023);
· the extension of cost-benefit analysis to independent agencies;
· and the assessment of regulatory anticompetitive market distortions that empower certain private interests to obtain or retain artificial competitive advantages over their rivals (which I discuss in a November 2024 Forbes commentary).
The new administration might also consider enhancing the effectiveness of these measures, by providing agencies legal guidance (through OMB and the Justice Department) on compliance with the 3 Supreme Court precedents in drafting rules.
In particular, for example, guidance documents could focus on how to determine whether specific regulatory clauses involved the “best” reading of statutes, in light of Loper Bright. The potential significance of this guidance is underscored by a January 2, 2025 U.S. 6th Circuit Court of Appeals decision, striking down the FCC’s 2024 “net neutrality” rule that heavily regulated broadband internet services providers. The court specifically invoked Loper Bright as the basis for its holding.
Federal agencies could also be reminded to assess new risks in employing broad statutory readings, due to the effective demise of the APA statute of limitations under Corner Post.
Furthermore, given Jarkesy, agencies might be advised to consider limiting the application of civil penalties, given the uncertainties and added costs associated with jury trials.
The administration might also consider working with the Administrative Conference of the United States (an independent body within the executive branch that provides advice on improving administrative procedure) to develop recommendations for agencies on how to apply recent Supreme Court teachings in developing future rules.
Rescinding Old Rules
Rescinding existing federal substantive rules cannot be done at the drop of a hat.
The APA requires that agencies follow formal procedures. Courts generally apply the same scrutiny to review an agency’s rescission of a substantive rule as they do for a rule’s issuance. An agency must explain its departure from prior policy and show that its new policy adheres to the underlying statute; is supported by “good reasons”; and is better, in the agency’s belief, than the prior policy.
The administration could direct federal agencies to review existing rules for compliance with these APA mandates, in light of the recent Supreme Court precedents. Agency general counsels could be tasked with evaluating rules in place to determine whether existing rule language likely exceeded agency statutory agency or raised substantial new legal risks. Such evaluations could help agencies craft justifications to rescind legally problematic rules, consistent with APA requirements.
Some Legislative Reforms May Still Be Needed
The new administration will have powerful tools available to pare back excessive regulatory burdens arising from old rules and to avoid regulatory excesses in the development of new rules.
On a substantive level, it could invoke enhanced economic cost-benefit analysis to constrain far-reaching rulemaking.
On a legal level, it could wield recent Supreme Court jurisprudence as a powerful cudgel to prevent inappropriately broad statutory readings from being retained in old rules or inserted into new ones.
Ultimately, though, the new administration may conclude that some statutes inherently impose excessive economic costs, that cannot be cabined merely through rulemaking oversight. In those situations, administration advocacy of congressional action to rewrite or repeal the laws in question may be justified.