The final week of June was a big one for those who have been following what seems to be a constriction of federal agency power under Chief Justice Roberts.  A decision in Securities and Exchange Commission v. Jarkesy came on Thursday, June 27 followed by the Court’s decision in Loper Bright Enterprises v. Raimondo just the day after, on Friday, June 28.  Our biggest takeaway?  Pay attention to both.  It is clear after these—and 2022’s West Virginia v. EPA and July 1’s Corner Post v. Board of Governors of the Federal Reserve—that power is being rebalanced, by this Court, away from federal agencies.  But the second part of the takeaway?  Understand that Loper Bright is a huge development while Jarkesy was a very good outcome for the SEC. 

We tackle Jarkesy first.  You probably have seen numerous headlines commenting on the decision along the lines of “the Court strips federal agency of enforcement power,” “SEC in-house courts determined unconstitutional,” or yet more over-the-top, “critical enforcement tool snatched from SEC.”  Do not be fooled; these headlines are clickbait.  What the Court actually did in Jarkesy was to narrowly conclude that the SEC (i.e., a single, specific federal agency) must file enforcement actions in federal court when it seeks civil penalties for allegations of securities fraud.  The text provides a narrow and specific holding as to a specific type of enforcement action.  The text does not signal that the SEC’s use of its in-house courts is unconstitutional when dealing with non-fraud allegations.  Thus, in our opinion, it does not mean that the SEC has suddenly lost an essential-to-it enforcement tool, nor does it mean that the SEC now has fewer capabilities to bring actions for what it perceives to be violations of the securities laws than it did prior to Jarkesy. 

Truly, Jarkesy is unlikely to have any immediate impact on how the SEC conducts itself.  The Dodd-Frank Act gave the SEC the authority to pursue a broader set of enforcement actions in the administrative forum; that is how and why the SEC brought an enforcement action against George Jarkesy, Jr. and his advisory firm Patriot28, LLC in the administrative forum.  Nonetheless, the agency has hardly used that broader authority under Dodd-Frank.  Rather, over the past ten years, the agency has nearly exclusively used its in-house forum to decide SEC prosecutorial actions to revoke the registration of stocks and to prevent individuals from operating in the securities industry.  It has also used the forum to consider appeals by “self-regulatory organizations” like FINRA or NYSE.  Nothing in Jarkesy prevents it from continuing to use its in-house adjudicatory forum as it has in recent years.  Further, it would be unsurprising to see the SEC come to use law judges more again after the Court chose not to decide two of three constitutional issues before the Court on the Jarkesy writ of certiorari. 

Regardless of our view that Justice Roberts’s 6-3 majority opinion in Jarkesy has limited significance, we must acknowledge that others are not incorrect to posit that Jarkesy reflects that appellate jurisprudence may be moving toward embracing a position that generally reins in adjudicatory processes within federal agencies.  And we would predict that, very soon, litigants will argue that Jarkesy can and should be read to mean that any federal agency (i.e., not just the SEC) that alleges fraud or seeks civil penalties must present such claims for adjudication before a federal district judge—and not for in-house adjudication before law judges or others operating within the agency. 

And now for the actually very significant opinion: Loper Bright.  The Loper Bright opinion ends forty years of deference to administrative interpretations of federal statutes—a deference which saw “permissible” agency interpretations rubber-stamped by federal courts when those courts found no clear congressional intent in the statute at issue. 

Since the U.S. Supreme Court’s 1984 decision in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., federal courts have employed Chevron’s two-step analysis in reviewing agency action for statutory compliance. Courts first employed the ordinary rules of statutory construction to determine whether Congress gave an answer to the interpretive question at issue.  If it did, that was the end of the analysis and Congress’s answer was enforced.  If it did not, however, or if the statute were silent or ambiguous, courts ventured into Chevron’s second step, where the courts’ only concern was whether the agency’s own interpretation of the statute is “permissible.”  Indeed, in Chevron itself, the Court determined that EPA’s definition of “stationary source” of air pollutants was a “permissible” interpretation and thus gave that interpretation the force of law.

The Chevron regime was deferential to federal agencies and, as a result, was employed as the basis for upholding federal agencies’ asserted authority.  As of the time of this writing, a legal database search for references to Chevron in the federal district courts counts more than 7,300 results.  On appeals to the federal circuit courts, agency wins under Chevron were plentiful.  Congressional Research Service’s 2023 publication on Chevron in those appellate courts cites two studies with notable findings: Chevron had been applied to between 75 and 85 percent of cases that concerned agency interpretation of federal statutes between approximately 2003 to 2021; and of 1,300 such cases between 2003 and 2013, federal agencies prevailed in 77.4% of cases where Chevron was applied, but only in 38.5% of cases where the appellate court afforded no deference.

The Chevron two-step and its ultimate deference to agency interpretation have ended with Loper Bright.  Chief Justice Roberts’s opinion proclaims that the only question that matters in reviewing federal agency action is whether that action is authorized by the enabling statute.  This is a question that the federal courts can—and now must—answer without deferring to the agency’s interpretation of any silent or ambiguous statute.  Instead of deference, courts must now make their own, independent judgment as to what a statute means, and must then exercise their independent judgment to determine if an agency has acted within that statute’s authority.

The end of Chevron deference in Loper Bright does not mean the end of all agency input into the interpretation of a federal statute.  Various doctrines of deference—perhaps now following Loper Bright termed doctrines of “respect” rather than “deference”—still can be employed in giving weight to an agency’s interpretation of a given statute on a case-by-case basis.  Indeed, agencies in litigation can continue to argue their preferred interpretation, and why the agency believes it to be correct, to the reviewing court.  What ends with Loper Bright, however, is full deference to an agency interpretation of a silent or ambiguous federal statute even when a reviewing federal court would have come to a different conclusion.  What Loper Bright reinstates, then, is the final judicial branch authority to say what a statute means, and to determine whether an agency has acted within the bounds of that statute.

Where Jarkesy permits the SEC to continue largely as it had before, Loper Bright requires federal agencies to rethink how they approach the limits of their authority.  For the regulated community, these opinions may not mean upheaval in every instance of federal regulation, but they do mean greater opportunity to restrain the aggressive use of agency power.