Administrative Law: Big Shifts in Administrative Law

As companies consider taking class actions to trial, a blockbuster decision from the U.S. Supreme Court instructing lower courts not to defer to federal agencies’ interpretations of the statutes Congress charged them with administering may prove useful. Companies should also be aware of a second decision holding agencies’ use of in-house judges to mete out civil penalties to be unconstitutional.

According to Dan Wolff, a partner in Crowell & Moring’s Litigation Group and leader of the firm’s Administrative Law Group, “These rulings reflect a doctrinal shift in administrative law as applicable to federal agencies.”

The Supreme Court announced the rulings on successive days in June 2024. In Loper Bright Enterprises v. Raimondo, the Court nixed the 1984 “Chevron deference” doctrine, under which courts deferred to agency interpretations of statutes they are charged with enforcing where the statute is ambiguous, so long as the agency interpretation was a reasonable one. Reversing course, in Loper Bright, the Court held that the Administrative Procedure Act of 1946 directed the courts alone to decide all questions of law—including questions of statutory interpretation.

In SEC v. Jarkesy, the Court looked at whether the SEC could use its own administrative law judges (ALJs) to adjudicate fraud claims for which it was seeking civil penalties or whether the targets of those fraud claims had a right to a jury trial under the Seventh Amendment. The Court held that such defendants have the right to a jury trial in federal court.

The implications of these decisions are significant. “Under Loper Bright, regulated parties have a more level playing field. This has ramifications for challenging agency rulemakings, but it may also factor into defense strategies and class actions where the agency’s or class’s case hinges on the meaning of a statute,” Wolff says.

As for Jarkesy, Wolff believes that parties facing civil penalties levied by agencies have an opportunity to challenge the enforcement process as unconstitutional if the first-level adjudicator is an ALJ.

Wolff sees several key takeaways from these decisions:

• Courts will no longer defer to agency interpretations of ambiguous statutes, leaving agencies to defend their interpretations on textual grounds.
• This may make it more appealing to challenge agency actions that turn on statutory interpretations. It also bolsters defenses to civil enforcement actions in which the agency position turns on the meaning of a statute.
• It is easier for class action defendants to defend themselves if plaintiffs’ claims rely on agency interpretations.
• Companies facing civil penalties adjudicated by ALJs may decide to challenge the adjudicative process on constitutional grounds, regardless of the merits of the alleged violation. 

Wolff suggests regulated entities consult with counsel to understand how these doctrinal changes alter the government-facing litigation risk calculus in their favor.

Companies, he says, should seek assistance from outside counsel steeped in administrative law, and general counsel should make sure their in-house litigators are coordinating with regulatory counsel regarding the potential to bring cases against agencies.