In two decisions last month, the U.S. Supreme Court threw out long-standing legal doctrines governing federal agencies’ application of laws that protect the environment, public health, consumers, workers, investors, and financial stability. The decisions—Loper Bright Enterprises v. Raimondo and Corner Post v. Federal Reserve—were milestones in a decades-long campaign by fossil fuel companies and their allies to dismantle what they call the “administrative state.” These ostensibly “pro-business” decisions actually made business prospects less certain and thereby hampered innovative capitalism. Business leaders and investors must now recognize that core elements of our nation’s legal framework and institutions are in serious jeopardy. Unlocking the enormous economic opportunities of the transition to a decarbonized economy, and minimizing the financial risks of a failed transition, requires action to preserve them.
The recent Supreme Court ruling must be seen in the context of a broader campaign to dismantle … [+]
Demolition
This “Dismantling” campaign (my term) has been well documented by Jane Mayer in Dark Money and many other researchers. Its leaders claim that they are acting in the nation’s interest in preserving entrepreneurial freedom. However, the latest Supreme Court ruling shows why this campaign is not entirely conservative.
Regulation is critical to enabling businesses to compete on a level playing field and protecting the environmental services and financial stability on which the economy depends. Business regulation has made the U.S. the most attractive capital market in the world. Stopping the Demolition will be key to preserving the environment that supports these businesses.
Loper Bright: Lowering the Standards for Overturning Agency Decisions
In Loper Bright , the Court threw out Chevron deference, a 40-year-old judicial restraint doctrine that holds that when resolving statutory ambiguities, courts will defer to the agency’s reasonable interpretation. In its 6-3 decision, the Court revived a challenge to the agency’s rule requiring fishing fleet owners to pay for third-party monitors to help prevent overfishing. That challenge will now continue, even though vessel monitoring ends in 2023 and, while the program is in effect, the government has reimbursed fleet owners for the costs of the monitors.
Bleaching coral in the Pacific Ocean. By reducing over-fishing regulations, Loper Bright … [+]
Loper Bright explains in stark terms what the Court is getting at in its recent decisions: Lifelong judges, who are not accountable to the voters, will now be on the front lines of deciding countless complex technical issues that Congress left unanswered when it enacted the law, rather than the federal agency experts who have long been trusted to do so.
The dangerous consequences of this hostility to agency expertise were made clear in another case this semester, Ohio v. Environmental Protection Agency , when Justice Gorsuch confused nitrous oxide (a pollutant) with nitrous oxide (laughing gas) in his consideration of the Court’s controversial suspension of air pollution rules. By flippantly ignoring the EPA’s analysis, the Court’s 5-4 majority left us with a much worse case for pollution and sent a message to agencies that nearly any aspect of their voluminous decision documents can be challenged by unqualified judges.
Oil refineries and chemical plants in an area of Louisiana known as Cancer Alley. Supreme Court … [+]
Under Loper Bright, agency experts are no longer entitled to deference from the courts. This means that in cases brought before judges who are skeptical of government action, regulated interests will have a greater chance of success. In cases before judges who are sympathetic to stricter rules, rules favored by regulated interests will be more likely to be struck down. The distribution of outcomes is unknowable. What is known: thanks to Loper Bright’s disregard for judicial restraint, businesses will be forced to reckon with a highly challenging regulatory uncertainty.
Corner Writing: Opening the Gates of Litigation
Corner Post v. Federal Reserve reinterprets the six-year federal statute of limitations, which has long been understood to allow for immediate challenges to an agency’s decisions within six years of the decision. Under the Court’s new approach—adopted by the same supermajority as in Loper Bright—a lawsuit to overturn a decision can be filed within six years of the regulated business first being affected.
As a result, a convenience store and truck stop known as the Corner Post, which was founded in 2018, will be allowed to challenge a Federal Reserve ruling on financial institution debit card fees set in 2011. The lawsuit will continue even though a decade ago, other businesses and trade associations sued over the same Federal Reserve ruling and lost.
Corner Post opens the floodgates for litigation by those seeking to dismantle the US’s mainstream legal system … [+]
Corner Post essentially opens the floodgates to nearly limitless litigation. All it takes to file a lawsuit under the Administrative Procedure Act against thousands of government decisions made over the past century is to create a new business that would be affected by those decisions. Armed with the “no deference” ruling in the Loper Bright case, dismantling advocates are no doubt gearing up. The agencies’ ability to perform the core functions assigned to them by Congress could soon be in jeopardy.
Preventing Another Global Financial Crisis
Businesses and investors must act on this growing threat, but they should be prepared for significant pushback. In recent years, Dismantling advocates have launched a large-scale advocacy effort to undermine businesses and investors who seek to address Environmental, Social, and Governance risks. As reported by the Center for Media and Democracy, their arguments center on the claim that climate change and other ESG risks are “political” and beyond the financial management mandate of businesses and investors.
The duties of companies and investors in financial management include ensuring that there are no detrimental events. … [+]
This claim is wrong on many levels. Perhaps the most obvious is that preventing businesses and investors from engaging with regulators on climate change and other systemic risks is a recipe for another global financial crisis. The 2008 Global Financial Crisis, which the Center for American Progress estimates wiped out 7.6 million jobs between 2008 and 2009 and 9.5 percent of GDP per capita from 2007 to 2013, flowed directly from financial industry deregulation. Businesses and investors must now prevent broader deregulation and ensure that federal agencies are equipped to address climate change, pandemics, and a host of other threats to financial sustainability and stability.
How Businesses and Investors Can Help
Many business leaders and investors may already be aware that the legal framework that makes our country strong is under threat, but are unsure how to address the threat. Here are four suggestions.
First, companies and investors should convey to Congress the importance of legislation that prevents regulated interests from unfairly undermining the work of institutions, while preserving core principles of judicial review. Legislation that offers a constructive approach has been introduced by Representatives Nadler (D-NY) and Correa (D-CA).
Second, businesses and investors should offer technical support to institutions and commit to defending them against litigation claims if a reasoned approach is taken to complex questions of statutory interpretation.
Third, they should engage in the vigorous debates about business regulation that are already taking place in the courts. While federal agencies defend their own regulatory decisions, and citizen groups and states sometimes support agencies’ defenses, business and investor groups are often absent. The next few years of court decisions will determine the extent of the damage done by Loper Bright and Corner Post. Business and investors can play a major role in minimizing this damage by articulating the case for reasonable protections. As Harvard Law researcher JS Nelson has pointed out, leading businesses have begun filing amicus briefs and intervening in cases in support of agency decisions in response to the recent wave of volatile legal challenges; this work needs to be expanded significantly.
Finally, public companies’ annual reports and shareholder meetings should include robust discussions of the company’s policy engagement on climate change and other systemic risks. If management supports Dismantling with their own advocacy or funding of trade associations and advocacy groups, or if they remain silent, investors should pressure management and directors to make changes.
New Generation of Security
This kind of policy engagement will require persistence and creativity. Few have tried to defend the current set of regulations that govern U.S. business activity; for example, it is too difficult to build affordable housing, public transportation, the electric grid, and other critical infrastructure. A new generation of protections and incentives is needed to transition to a carbon-free, climate-resilient economy that redresses long-standing racial and economic inequities. Fortunately, institutions have begun working in this direction, thanks to the Reduction in Inflation Act, the Bipartisan Infrastructure Act, and the Chips and Science Act, signed into law by President Biden in 2021 and 2022. To build on this momentum, businesses and investors must work with federal agencies and civil society to remove arbitrary administrative hurdles and help ensure that important agency decisions pass safely through the judicial system.
