The Supreme Court and the Future of Commercial Regulation by the Administrative State

On January 17, the Supreme Court heard arguments in what are potentially the most significant commercial law cases of the last decade.  In the companion Loper Bright and Relentless cases, the court considered the possibility of overturning Chevron v. Natural Defense Resource Council,[1] an outcome that would signal a major change to the administrative state. Agency action has become an increasingly prevalent form of regulation, and Chevron deference contributes to its utility in serving the policy goals of presidential administrations. I want to suggest, though, that, while overturning Chevron would indeed be a matter of seismic legal importance, it might not be for the reasons most commonly mentioned.

There is the initial question of just how central Chevron deference is to the administrative state. Agencies are likely to receive other forms of deference, from Skidmore (deference based on a decision’s  persuasive strength,[2] which is not much deference at all) to Beth Israel (agency decisions must be consistent with the statute and rational,[3] which isn’t far from the deference Congress gets when exercising its own constitutional power[4]). People talk of Chevron deference as though it were binary (deference or no deference), but in practice it is not so monolithic. Numerous studies show that Chevron deference is currently the exception rather than the rule, and since 2001’s United States v. Mead Corp.[5] decision, different degrees of deference have been accorded to different types of utterances, even ones by a single agency.   Indeed, Justice Scalia dissented in Mead because he thought the court’s deference framework had become too flexible.[6] He also, it should be noted, considered Mead itself to have “replaced” Chevron[7] – over 20 years ago – and yet the administrative state seems to be doing just fine.

Instead, I think it’s helpful to focus on two aspects of the Court’s Chevron oeuvre when considering the dispute in Loper Bright and Relentless.

The first is the role of agency reversals. With each change in administration, there are an increasing number of agency actions seeking to do little more than reverse the agency actions of the previous administration. For those who follow Internet regulation, reversals have become the norm. In 2001, during the Bush administration, the FCC elected to classify broadband Internet access (at least that provided by a cable company) to be an “information service,” subject to Title I of the Federal Communications Act, a decision the Supreme Court upheld under Chevron in 2005.[8] After Barak Obama was elected in 2008, the FCC changed course, and after a series of attempts to apply a sub-species of common-carrier regulation to broadband access, the FCC reversed its decision, reclassifying broadband Internet access as a “communications service” subject to Title II, a decision the U.S. Court of Appeals for the D.C. Circuit upheld under Chevron in 2016.[9] Then, in 2017 (under the Trump administration), the FCC reclassified broadband Internet access as an information service, a decision also upheld by the D.C. Circuit under Chevron.[10] The FCC, under the Biden administration, has voted to reclassify Internet broadband access as a communications service, subject to Title II.[11]

All of this is possible under Chevron, which, as the D.C. Circuit wrote in 2016, allows just such shifts in agency interpretation.[12] Indeed, Chevron itself was just such a reversal. The reversals at issue in Brand X (which are sure to be litigated again soon) featured prominently in the Loper Bright and Relentless oral arguments.

Whether agencies receive deference to resolve ambiguity in inconsistent ways over time, though, raises a host of questions, such as: What is the basis for providing agencies deference? Is it because courts think the agencies are correct, or is it because the courts defer to agencies in order to give them room to make policy? The two approaches have very different implications for how agencies are viewed by courts. As a doctrinal matter, Skidmore specifically pointed to agency consistency as one basis for granting deference, but the problems might go beyond the law of statutory interpretation. Justice Scalia, who was at one point an ardent supporter of Chevron deference, thought that judicial deference to agency interpretations that had been rejected by courts was “probably unconstitutional;”[13] it’s not clear why the answer would be different for changes to agency interpretations that had been ratified by courts.

In any case, given the wide swings we’ve seen in administrations, and their increasing reliance on the administrative state to fulfill their policy objectives, reversals are going to be a big part of administrative law, especially given the focus they’ve received in Loper Bright and Relentless, regardless of the outcome in those cases.

The second aspect is the constitutional dimensions of Chevron. In Chevron, the Supreme Court cited separation of powers as an argument for deference to agency interpretation. As the court explained,

When a challenge to an agency construction of a statutory provision, fairly conceptualized, really centers on the wisdom of the agency’s policy, rather than whether it is a reasonable choice within a gap left open by Congress, the challenge must fail. In such a case, federal judges – who have no constituency – have a duty to respect legitimate policy choices made by those who do. The responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones: Our Constitution vests such responsibilities in the political branches.[14]

But in 2022, in subjecting an EPA rule on carbon dioxide to the “major questions doctrine” that limits Chevron deference in cases involving major questions,[15] the Supreme Court cited constitutional separations of powers as a reason to limit deference.

The court is clearly interested in the relative role of courts and agencies in interpreting the law, and the petitioners in Loper Bright and Relentless have argued that Chevron should be overturned on constitutional grounds. That seems unlikely, but it doesn’t mean there isn’t anything there. Although a comprehensive treatment of the constitutional “nondelegation doctrine” is beyond the scope of this (or really, any) blog post, the law has been clear since 1928 that Congress must provide an “intelligible principle” to support agency action.[16] Chevron represents a practice of court deference to agencies in line with constitutional principles, and the pressure on Chevron might better be viewed as a symptom of a shift in that practice than as something specific to the Administrative Procedure Act, which is the statutory basis for Chevron.

Meanwhile, as the Supreme Court is leaning in a constitutionally skeptical direction regarding the administrative state, the Federal Trade Commission is pushing hard in the opposite direction. In 2022, it issued a policy statement[17] suggesting a major change in how it interprets the content of the Federal Trade Commission Act (“FTCA”), including a massive expansion in both the coverage of the FTCA and the FTC’s power to interpret it. The operative language in the FTCA outlaws “unfair methods of competition,” and the FTC has historically interpreted the scope of that language (as related to competition law) as coterminous with the reach of sections 1 and 2 of the Sherman Act.[18] The 2022 policy statement argues not only that the FTC’s authority under Section 5 goes beyond the Sherman Act, but that the FTCA was designed specifically to divest courts of authority over antitrust and to shift that authority to the FTC.[19]

Broad language has always been a problem for U.S. antitrust law. Section 1 of the Sherman Act, for instance, outlaws “restraint[s] of trade,” but as the Supreme Court has repeatedly pointed out, every contract restrains trade. The court has read onto this broad language a common-law understanding of that term in order to provide it some meaningful limiting principle. The FTC, on the other hand, argues that the language of “unfair methods of competition” lacks such a settled definition, which might be, when combined with the assertion of deference to the FTC, an argument that Congress has not provided any “intelligible principle” to the FTC.[20]

 

It has been a long time since commercial issues have been at the forefront of constitutional law, but recent developments are evidence that the court is again interested in the constitutional dimensions of those issues. There are any number of avenues for the court to pursue that interest, and although the justices might reduce the constitutional tension between broad deference to agencies and separation of powers by limiting Chevron deference, commercial lawyers would be wise to keep an eye on the constitutional principles underlying the Supreme Court’s separation-of-powers cases and what those principles mean for the relationship between the administrative state and commercial regulation in American law.

ENDNOTES

[1] 467 US 837 (1984).

[2] Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944) (“The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”).

[3] Beth Israel Hosp. v. NLRB, 437 U.S. 483, 501 (1978) (“The rule which the Board adopts is judicially reviewable for consistency with the Act, and for rationality, but if it satisfies those criteria, the Board’s application of the rule, if supported by substantial evidence on the record as a whole, must be enforced.”).

[4] See United States v. Lopez, 514 US 549, 557 (1995) (summarizing the test for exercise of the Commerce Clause as “whether a rational basis existed for concluding that a regulated activity sufficiently affected interstate commerce”).

[5] 533 U.S. 218 (2001).

[6] Id. at 239 (Scalia, J., dissenting) (“henceforth the court must supposedly give the agency view some indeterminate amount of so-called Skidmore deference”)

[7] Id.

[8] National Cable & Telecommunications Ass’n v. Brand X Internet Services, 545 U.S. 967 (2005).

[9] U.S. Telecom Assoc. v. FCC, 825 F.3d 674 (D.C. Cir. 2016).

[10] Mozilla Corp. v. FCC, 940 F.3d 1 (D.C. Cir. 2019) (per curiam).

[11] Safeguarding and Securing the Open Internet 88 Fed. Reg. 76048 (proposed Nov. 3, 2023).

[12] U.S. Telecom Assoc., 825 F.3d at 707.

[13] Brand X, 545 U.S. at 1017.

[14] Chevron, 467 U.S. at 866 (internal quotation omitted).

[15] F.D.A. v. Brown & Williamston Tobacco Corp., 259 U.S. 120, 159 (2000).

[16] J.W. Hampton, Jr., & Co., v. United States, 276 U.S. 394, 409 (1928).

[17] Federal Trade Commission, Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act 2 (Nov. 10, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyStatement.pdf [hereinafter FTC 2022 Policy Statement].

[18] See Federal Trade Commission, Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of The FTC Act (Aug. 13, 2015), https://www.ftc.gov/system/files/documents/public_statements/735201/150813section5enforcement.pdf

[19] See FTC 2022 Policy Statement at 2 (“Congress passed the FTC Act to push back against the judiciary’s adoption and use of the open-ended rule of reason for analyzing Sherman Act claims”); id. at 7 (“Congress intended for the FTC to be entitled to deference from the courts as an independent, expert agency.”).

[20] For a more comprehensive version of this argument, see Thomas B. Nachbar, Politically Dynamic Competition, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4641289.

This post comes to us from Thomas Nachbar, the F.D.G. Ribble Professor of Law at the  University of Virginia School of Law.

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