The Two-Front War on the Administrative State: How Far Will the Supreme Court Go?

The hostility of at least a plurality of the Supreme Court to the Administrative State has become increasingly evident. This faction has been pursuing a two-front war: First, it has significantly curbed (or seems about to curb) the enforcement powers of administrative agencies. Initially, it did this by finding that administrative law judges (“ALJs”) must be appointed by someone under presidential control[1]; more recently, it granted certiorari on the issue of whether ALJs must also be subject to a corresponding presidential removal power.[2] Second, it seems intent on overruling a longstanding “implied preclusion” doctrine under which defendants in an administrative proceeding cannot challenge the constitutionality of (or other defects in) the agency’s action in federal court, but instead must wait until the issue is resolved on the merits before bringing such a challenge.[3]

Overshadowing even these developments on this first front is the possibility that administrative enforcement actions for civil damages, although dating back over a century, are unconstitutional because they violate the accused’s right to a jury trial. Eventually, the Fifth Circuit’s decision this year in Jarkesy v. SEC[4] seems destined to reach the Supreme Court, at which point the Court will also have to consider not only Jarkesy’s requirement of a jury trial, but also its second holding: that the SEC’s authority to bring enforcement actions, either in federal court or administratively, is an unconstitutional delegation of legislative power, because the Dodd-Frank Act gave the SEC no guidance on when to bring administrative versus judicial actions. Viewing that decision as legislative in character, the Fifth Circuit found that the grant of this authority violated Article I of the Constitution, which mandates that “all legislative powers” are vested in Congress, not in administrative agencies.[5] Obviously, if the Court were to accept either claim, administrative agencies would lose much of their enforcement powers, surviving as largely neutered bodies. Yes, the agency could still sue in federal court, but the higher costs of litigation in court and on the road plus the hostility of forums in “red” jurisdictions imply that fewer actions would be brought or won.

Jarkesy’s focus on Article I underlines the connection between the first and the second fronts in this war. The second front is doctrinal, not procedural: When will a legislative delegation of authority to an agency be respected? This term, the Court has limited not only agencies and the Executive branch, but also Congress – thereby allocating the real authority to decide to itself. Later, I will suggest that, next term, the Court may go even further and use the dormant Commerce Clause to limit the authority of the states where state legislation has some extraterritorial impact.[6]

First, however, a very brief tour of constitutional history is needed. When a like-minded faction of the Supreme Court wished to restrict FDR’s New Deal, that faction developed a counter-principle that broad delegations of legislative power were invalid. This attack culminated in the famous “Sick Chicken” case – A.L.A. Schechter Poultry Corp v. United States.[7] The Court, however, quickly backed down from its anti-delegation rule in Schechter, possibly because of FDR’s court-packing plan. Although the Schechter decision was seldom relied upon, it has lived on in the attic of antique constitutional rulings, experiencing only rare citations.[8] Following the New Deal, the pendulum swung in the opposite direction for the next half century, with courts ceding power to agencies. In this heyday of the Administrative State, the Court’s famous Chevron decision held that ambiguities in a statute governing an administrative agency should generally be interpreted, and any gaps filled, not by courts, but by the agency itself.[9]

As the Supreme Court has become more conservative over the past several decades, however, it has backed away from Chevron as well (again without formally overruling it). Although many have expected that Chevron would be overturned by now, and others have predicted the return of an anti-delegation rule, neither has happened – so far anyway. Instead, the major news of recent years has been the emergence of a new theory by which to curb the Administrative State: the “Major Questions” doctrine. As it originally emerged, the doctrine appeared to be only a rule of statutory construction that carved out an exception from the Chevron doctrine.[10] In Justice Scalia’s colorful words, Congress explains its major policy choices and “does not … hide elephants in mouseholes.”[11] So stated, this approach simply announced a rule of statutory construction that did not seem particularly frightening.

But this term, the doctrine has gone through a metamorphosis to resemble a disguised and slightly diluted substitute for Schechter’s anti-delegation rule. Two examples within the last year, both striking down agency actions, stand out: In Alabama Ass’n of Realtors v. United States HHS,[12] the Court overturned an eviction moratorium issued by the Centers for Disease Control and Prevention (“CDC”), and in Nat’l Fed’n of Ind. Bus. v. OSHA,[13] it invalidated a vaccine mandate-or-test order from OSHA and the Secretary of Labor applicable to large employers. In so doing, the Court went well beyond Chevron and simple gap-filling to claim broad discretionary power to reject delegations of authority to administrative agencies. Effectively, the Court was clawing back power. Previously, the Court had only used the Major Questions doctrine so that it did not need to defer to agency interpretations of ambiguous statutory provisions in major cases, but now it was proclaiming that courts (and ultimately it) held the discretionary power to determine when delegations of authority to administrative agencies were valid. Put simply, under the euphemism of “major questions,” it was reasserting power last truly claimed in Schechter, taking it back from both Congress and administrative agencies. Arguably, this was anti-democratic, and certainly it seemed standardless. No longer a modest exception to Chevron, the doctrine was becoming a source of authority by which the Court could tell the other two branches that important delegations of power to administrative agencies were up to it to decide.

West Virginia v. EPA

All this set the stage for West Virginia v. EPA.[14] Although journalists (with their usual tunnel vision) view this case as simply challenging the EPA’s authority to regulate fossil-fueled power plants, the actual facts are more complex and involve the replacement of an Obama proposal with a weaker rule adopted by the Trump Administration. The D.C. Circuit vacated this weaker rule in 2021, which the Biden Administration declined to defend. The Biden Administration indicated it was working on a revised, tougher rule, but the Supreme Court surprised many by granting certiorari to the D.C. Circuit’s decision.[15] But what exactly was the issue before the Court? The D.C. Circuit refused to grant Chevrondeference to the EPA rule adopted by the Trump Administration and rejected the EPA’s argument that the Major Questions doctrine required it to adopt a narrower reading of the statute.[16] But Chevron was not an issue that the parties discussed on appeal. Rather, West Virginia, the appellant, framed the question before the court as centered on the Major Questions doctrine. The issue, it said, was whether:

“Congress constitutionally authorize[d] the Environmental Protection Agency to issue significant rulings – including those capable of reshaping the nation’s electricity grids and unilaterally decarbonizing virtually any sector of the economy – without any limits on what the agency can require so long as it considers cost, nonair impacts, and energy requirements.”[17]

This is language asking the Court to interpret the Major Questions doctrine very broadly and in a manner that would limit Congress’ power as well as that of an agency.

The Court’s majority took this offered language like a bull by the horns and found the Major Questions doctrine applicable, rejecting the government’s claim that the case was not justiciable. Concluding that the EPA had claimed to discover “an unheralded power” to effect a “nationwide transition away from the use of coal to generate electricity,” it ruled in a 6-3 decision, authored by the Chief Justice, that:

“[I]t is not plausible that Congress gave the EPA the authority to adopt on its own such a regulatory scheme in Section 111(d)” of the Clean Air Act.[18]

Chief Justice Roberts’ decision, while greatly disappointing to environmentalists, can be read as primarily a matter of statutory interpretation. But the concurring opinion of justices Gorsuch and Alito clearly rests on a foundation supplied by the Separation of Powers clause and federalism.[19] They make clear that if the Major Questions doctrine was once an “ambiguity canon,” it is no longer simply that, but instead has become in their view the major protection against intrusion by agencies into the constitutional spheres given to Congress and the states.

In dissent, Justice Kagan, writing for herself, Justice Breyer, and Justice Sotomayor, expresses shock at the decision:

“[T]he Court today prevents congressionally authorized agency action to curb power plants’ carbon dioxide emissions. The Court appoints itself – instead of Congress or the expert agency – the decision-maker on climate policy. I cannot think of many things more frightening.”[20]

The Likely Next Step: National Pork Producers Council v. Ross and the Risk of Radical Subjectivity

Frightening as the West Virginia decision may indeed seem, things could get markedly worse very soon in terms of the judicial arrogation of power. Next year, in National Pork Producers Council v. Ross,[21] the Court will consider an attempt by the pork industry and a number of states to invalidate California legislation regulating the sale of pork products within California. In 2018, California voters passed Proposition 12, which bars the sale of most pork products in California (no matter where produced) if the sows are confined in a manner inconsistent with California standards (which basically require a minimum space for the sow of 25 square feet). The pork industry sued based on the dormant Commerce Clause. Usually, such a suit alleges discrimination against out-of-state interests, but there was no such discrimination under the California plan, which applied to all producers. However, a much less used strand of the Dormant Commerce Clause prohibits a state, even when pursuing a legitimate local interest, from imposing a burden on interstate commerce that “is clearly excessive in relation to the putative local benefits”[22] The Ninth Circuit predictably dismissed this claim, recognizing that it would invite courts to determine on an ongoing basis whether the benefits of legislation in a given state justified the costs imposed on out-of-state interests.[23]

Given that certiorari has been granted, it appears that at least four justices are sympathetic to this claim (or at least want to see its implications spelled out). But the result of such a test is to make the Court (or at least the majority of its justices) the ultimate authority on when state legislation produces benefits that outweigh its out-of-state costs. If Californians want to feel that they are treating animals humanely (a very Californian attitude), what right to object should the hard-nosed, crueler citizens of Indiana, Arkansas, or Alaska (or any of the other states that filed briefs supporting the plaintiffs) have? In principle, the California legislation governs only behavior in California, and the hogs can be segregated (both in raising and distributing the pork) so that only California citizens bear the additional cost.

More importantly, any contrary ruling under Pike v. Bruce Church threatens federalism. Although federalism is a principle that the conservative majority of the Court respects and protects, it can survive only if each state has some breathing room to pursue its own policies. Justice Brandeis famously described federalism as enabling the states to become “laboratories” of democratic experimentation, meaning that states could innovate, pursuing new and different policies.[24] Yet, if the appellants in National Pork Producers Council can convince the Court that it is entitled to balance the intangible benefits to California against the tangible costs elsewhere, these “laboratories” may over time be shut down, as out-of-state interests will predictably claim they are bearing additional costs. Even if some place a low value on being humane to animals (not me, by the way), we must recognize that the Court would be stepping onto a very slippery slope. No criteria exist for making these cost/benefit comparisons, which involve highly subjective judgments. Intangible benefits (including the benefits of non-discrimination and equality) risk being subordinated to the more easily measured financial costs to out-of-state interests.

Where then are we headed? Standing alone, West Virginia v. EPA could result in a strong status quo bias. New risks would become less easy to regulate because they require new remedies that Congress would have to specifically delegate to the agency and constantly update. Interestingly, the Court’s recent doubts about vaccination mandates as a remedy seem particularly ironic, given that vaccination dates back at least to smallpox epidemics a century or more ago. The FDA is currently seeking to eliminate (or at least greatly reduce) the nicotine content in cigarettes, but the Major Questions doctrine seems likely to represent an even greater road block, as it would affect a large industry without express congressional legislation.

Now, add to this status quo bias (and the likely slower pace of remedy implementation) the inevitable subjectivity of balancing the benefits to the citizens of one state against the costs to the citizens of other states. At this point, judges are claiming powers to review the merits of legislation that they last exercised in cases such as Lochner v. New York.[25]In that event, states can expect constant litigation. Worse yet, unelected judges are permitted to make critical value judgments overturning democratic majorities in the absence of any recognized criteria or formula, and there is no appeal (other than to amend the Constitution). This is hardly an agenda that conservatives would normally want to impose, and some might describe it as judicial tyranny. Bottom Line: the fate of the Administrative State may be linked to the future of democracy.

ENDNOTES

[1] Lucia v. SEC, 138 S. Ct. 2044 (2018).

[2] See Cochran v. SEC, 20 F.4th 194 (5th Cir 2021). Technically, Cochran only requires the Court to decide the “implied preclusion” issue discussed in the next sentence of the text, but doing only this would just leave the Court with an issue that it must inevitably face.

[3] See Axon Enter., Inc. v. FTC, 2022 U.S. LEXIS 599 (Jan. 24, 2022) (granting cert). For the facts of this case, see Axon Enter., Inc. v. FTC, 986 F.3d 1173 (9th Cir 2020); see also Cochran v. SEC, supra note 2.

[4] 34 F.4th 446 (5th Cir 2022).

[5] U.S. Const. art. I, § 1.

[6] See Nat’l Pork Producing Council v. Ross, 6 F.4th 1021 (9th Cir. 2021), certiorari granted, 2022 U.S. LEXIS 1742 (March 28, 2022).

[7] A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935).

[8] See Gundy v. United States, 139 S. Ct. 2116, 2131 (2019) (Gorsuch J., dissenting) (suggesting a new test for the nondelegation doctrine).

[9] Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984).

[10] See e.g., FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159-160 (2000).

[11] Whitman v. American Trucking Ass’ns, 531 U.S. 457, 468 (2001).

[12] 141 S. Ct. 2485 (2021).

[13] 142 S. Ct. 661 (2022).

[14] West Virginia v. EPA, 2022 U.S. LEXIS 3268 (June 30, 2022).

[15] West Virginia v. EPA, 142 S. Ct. 420 (2021).

[16] See Amer. Lung Ass’n v. EPA, 985 F.3d 914, 958-68 (D.C. Cir 2021).

[17] See Petition for Writ of Certiorari at i, West Virginia v. EPA, No. 20-1530 (April 29, 2021), 2021 WL 9439135.

[18] Majority Opinion at page 31.

[19] Concurring Opinion of Justice Gorsuch, slip opinion at page 8, note 3.

[20] Dissenting Opinion of Justice Kagan, slip opinion at page 33.

[21] 6 F.4th 1021 (9th Cir 2022), certiorari granted 2022 U.S. LEXIS 1742 (March 28, 2022).

[22] Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).

[23] Appellants argued strenuously that there was no way they could pass on the added costs of the California legislation simply to products sold in California. This seems dubious, but the Ninth Circuit accepted it because it believed that, even in that event, no cause of action was stated.

[24] See New State Ice Co. v. Liebman, 285 U.S. 262, 311 (1932). In this dissenting opinion, Justice Brandeis (joined by Justice Stone) observed that a “single courageous State may…serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”

[25] 198 U.S. 45 (1905) (holding unconstitutional a New York state statute limiting bakers to a 10 hour day because it interfered with the contractual rights of individuals).

This post comes to us from John C. Coffee, Jr., the Adolf A. Berle Professor of Law at Columbia University Law School and Director of its Center on Corporate Governance.

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