Big Business Take Note: Rule by Judiciary Isn’t the Boon You May Think It Is

The press has largely reported the Supreme Court’s two recent decisions unravelling Chevron deference to administrative agency interpretations of law and extending the time for parties to challenge agency actions as big wins for big businesses — the culmination of the conservative project that the late Justice Lewis Powell sparked more than a half century ago when he wrote his famous memo urging the corporate sector to bring the fight to government.

Note to big business: Be careful what you wish for.

The two decisions, in Loper Bright v. Raimondo and Corner Post v. Board of Governors of the Federal Reserve System, make federal judges rather than presidentially appointed financial regulators the deciders on technical issues of all sorts.  History shows that judicial supremacy can be a two-edged sword for business.

The Loper Bright decision overruling the Chevron paradigm for limited judicial review of administrative interpretations of statutes under the Administrative Procedure Act may mean that no significant regulatory rule will become final without years of federal court challenges and judicial rulings at multiple levels, perhaps culminating in a trip to the Supreme Court. The Corner Post decision (which is perhaps even more significant than Loper Bright) allows individuals and businesses to challenge any final rule, no matter how many years or decades it has been in effect, for six years after they suffer an alleged injury from it.

In this new world of administrative law, it could take five years or longer for regulatory actions to wend their way through the overburdened court system before they become technically final and binding.  If interested parties can find or create a new plaintiff in the years after that, the “final” rule can still be challenged under Corner Post on different grounds. It doesn’t matter what the subject matter is — environmental law, securities law, internet rules, labor law, consumer protection, banking law — it’s conceivable that some administrative rules will never have the force of settled law. The rulemaking work of regulatory agencies may effectively become a Sisyphean exercise.

There’s a serious  practical problem with this. In many respects, knowing what the rules are is more important for successful business planning than the content of any particular rule.

Businesses need to think ahead and make decisions based on reliable assessments of the likely future legal and regulatory environment in which they will compete. Strategic and operating plans need to be put into place with financial support and management incentives designed to support desired outcomes. Businesses rely on, and benefit from, predictability. Prolonged uncertainty is the worst, potentially a business killer in a fast-changing world.

These uncertainty problems become more acute when the ultimate decision makers are judges who are unfamiliar with the complexities of regulated industries and new technologies and may rule in surprising ways.  The increased polarization of the judiciary along partisan lines means that forum shopping may become even more common, creating ever more uncertain outcomes as plaintiffs choose where to file based on the ideology of the likely district judge or appeals court.  Justice Stevens wisely warned in the original Chevron decision in 1984 that “]j]udges are not experts in the field, and are not part of either political branch of the Government. Courts must, in some cases, reconcile competing political interests, but not on the basis of the judges’ personal policy preferences.”  It is unfortunate that the current court disagrees.

For reasons that are hard to fathom, lobbyists and others opposing the so-called “administrative state” and regulatory overreach don’t appear concerned about what the new rulemaking model will mean for them when the political worm turns and agencies start issuing regulations that businesses actually like. They seem to forget that competitors and public interest groups will have the same power to delay through litigation and to prevent any “good for me” regulation from becoming reliably final.

Not for the first time, business interests seem to be demonstrating a short-term bias. Politics and the judiciary can change fast. The original Chevron case involved a challenge by environmentalists to a Republican-appointed EPA administrator’s conservative and business-protective interpretation of air pollution law. The lower court had rejected the EPA’s interpretation and substituted a harsher standard. Chevron appealed and won the case when the Supreme Court ruled that the lower court erred by substituting its judgment for the EPA’s because the agency’s statutory interpretation was “a reasonable policy choice for the agency to make.”

At some point companies will notice that throwing sand into the gears of regulatory rulemaking will end up hurting as much as helping. Here’s a prediction: Within a decade, corporate America will be begging for the return of Chevron deference or something like it. It won’t take long for CEOs to figure out that five or more years of uncertainty about the validity of anything the SEC, FTC, FCC, CFPB, OCC, EPA, NLRB, HHS or any other agency does makes corporate strategic and investment decisions incredibly challenging.

This post comes to us from Todd H. Baker, a senior fellow at the Richard Paul Richman Center for Business, Law and Public Policy at Columbia Business School and Columbia Law School and a former chief corporate strategy and development officer at three large banks.

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