On June 27 and 28, 2024, the Supreme Court of the United States issued three decisions seen as circumscribing agency powers. On June 27, the Supreme Court issued two decisions: one granting a stay of the implementation of U.S. Environmental Protection Agency's (EPA) federal implementation plan (FIP) under the Clean Air Act (CAA), which critics predict will lower the bar for future stay requests and disrupt the agency's ability to implement new rules; and a second decision restricting when an agency can pursue certain enforcement actions "in-house." On June 28, 2024, the Supreme Court issued its third decision, jettisoning the Chevron doctrine and overruling a 40-year-old case that has long served as the foundation for American administrative law. This last decision is the subject of a separate Alert.
Court Stays EPA's Implementation of Ozone Plan
On June 27, 2024, the Supreme Court issued a ruling in Ohio et al. v. EPA et al. granting a request by certain states to stay implementation of the EPA's FIP under the "good neighbor" provision of the CAA. The Court held that petitioners are likely to prevail on the merits of their claim, which alleges that the EPA's FIP was not reasonably explained. The dissenting opinion warned that the majority applied a lower standard and did not adequately account for the early procedural posture of the case and the numerous hurdles the petitioners still faced.
Under the CAA, the EPA sets standards for common air pollutants and states must then submit a state implementation plan (SIP) implementing those standards. Under the good neighbor provision, a state's SIP must also take into account the state's impact on downwind states. If a SIP fails to satisfy the applicable requirements, the EPA may issue a FIP for the noncompliant state.
With regard to air quality ozone standards issued in 2015, EPA had announced its intention to disapprove over 20 SIPs and issue a single FIP for those states. The FIP "rested on an assumption that all the upwind States would adopt emissions-reductions measures up to a uniform level of costs to the point of diminishing returns." But commenters questioned that assumption, pointing out "that if upwind States fell out of the planned FIP, the point at which emissions-control measures maximize cost-effective downwind air quality improvements might shift." The EPA failed to address this concern in response to comments. In the meantime, several states appealed EPA's disapproval of their SIPs and courts had stayed the SIP disapprovals in 12 of those states, "which meant EPA could not apply its FIP to those states." Given EPA's failure to address this potential shift, the Supreme Court found that petitioners are likely to prevail on their argument that the EPA's decision to apply the FIP when so many states had "dropped out" was arbitrary and capricious, i.e., the EPA's decision was not "reasonably explained."
Justice Amy Coney Barrett, joined by Justices Sonia Sotomayor, Elena Kagan and Kentanji Brown Jackson, dissented. The dissent warned that the decision sets an adverse precedent for future cases where petitioners seek stays, effectively lowering what should be a high bar for relief given the procedural posture of the case. We will continue to monitor the fate of the EPA's FIP, as well as the impact of the Court's decision in Ohio, as several of EPA's recently announced rules face similar challenges.
Court Limits Agency Power to Impose Civil Penalties Through Administrative Proceedings
Also on June 27, 2024, in Jarkesy v. Securities and Exchange Commission (SEC), the Court held that agency enforcement actions that are "akin to common-law claims," are subject to the Seventh Amendment and therefore must be decided in federal courts, thus limiting agency authority to seek civil penalties through "in-house" proceedings before the commission or an administrative law judge (ALJ).
In Jarkesy, the SEC brought an enforcement action against investment adviser George Jarkesy Jr. and his firm for alleged violations of the antifraud provisions of various federal securities laws. The SEC opted to bring the matter before an ALJ rather than filing a suit in federal court. The final order by the ALJ found that defendant had committed securities violations and levied a civil penalty of $300,000.
The Supreme Court held that "[w]hen the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial," meaning the matter cannot be decided before an ALJ. The action was found to implicate the Seventh Amendment "because the SEC's antifraud provisions replicate common law fraud" and the Seventh Amendment guarantees that in "[s]uits at common law ... the right of trial by jury shall be preserved." That right extends to "statutory claims that are 'legal in nature,'" i.e., claims that that resemble common law causes of action where the remedy is the sort traditionally obtained in a court of law. The Court held that because the SEC civil penalties were designed to punish or deter the wrongdoer, the relief was legal in nature and subject to the Seventh Amendment.
While the decision was focused on the SEC antifraud provisions, the dissenting opinion noted that Congress "has enacted more than 200 statutes authorizing dozens of agencies to impose civil penalties" and warned that the majority's decision will create uncertainty and "chaos" with respect to whether those enforcement claims can proceed "in-house" or must be brought in federal court. This ruling is also discussed in a separate Alert,
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