Potential Impact of 3 Supreme Court Cases on Administrative State

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With the Supreme Court‘s 2023-2024 term just three weeks away, there are three cases before the nation’s highest court that two legal fellows write “could shake up the administrative state.”

The three cases are Loper Bright Enterprises v. Raimondo; Securities and Exchange Commission v. Jarkesy; and Consumer Financial Protection Bureau v. Community Financial Services Association of America.

GianCarlo Canaparo and Jack Fitzhenry, both legal fellows in the Edwin Meese III Center for Legal and Judicial Studies at The Heritage Foundation, join today’s episode of “The Daily Signal Podcast” to discuss each of these cases; how the cases might be decided, given the 6-3 conservative-liberal makeup of the Supreme Court; and the “SCOTUS 101” podcast, which Canaparo co-hosts. (The Daily Signal is the news outlet of The Heritage Foundation.)

Listen to the podcast below or read the lightly edited transcript:

Samantha Aschieris: Joining us in studio is GianCarlo Canaparo and Jack Fitzhenry, both legal fellows here at The Heritage Foundation. Thank you both for joining us today.

GianCarlo Canaparo: Thanks for having us.

Aschieris: Of course. Now, the Supreme Court will be back in session for its 2023-2024 term next month, and there are three cases that you say in a recent Daily Signal piece “could shake up the administrative state.” The first of those cases is Loper Bright Enterprises v. Raimondo. Can you both start by just breaking down this case for us?

Jack Fitzhenry: Sure. So, some of the basic background facts in a case always require actual parties and not just legal issues. So the plaintiffs in this case are actually a bunch of fishermen from the North Atlantic, I think most of them from New Jersey. They’re subject to regulation by the federal government, specifically the National Marine Fisheries [Service].

The Fisheries Service is empowered by a statute known as the Magnuson-Stevens Act, an old statute enacted by Congress, of course. And this empowers the agency to regulate the nation’s fisheries, which are divided by region.

What the marine fishery service has lately discovered the power to do, supposedly in the Magnuson-Stevens Act, is to require fishermen to pay the salaries of federal monitors who have to ride aboard their boats and make sure that the fishermen comply with restrictions on fishing methods, on catch requirements, things like that.

Now, the Magnuson-Stevens Act is quite clear that these federal monitors are allowed aboard, that’s not in dispute, but the question of who pays for them is very much in dispute. The statute does not directly speak to the subject, all parties to the case agree about that fact, but they draw two very different conclusions from it.

The fishermen say that since Congress didn’t put that authority in the statute, the National Marine Fisheries Service doesn’t have it. The fishery service says, “Well, Congress was quiet about it, so that gives us discretion to decide when we’re going to invoke this power.” And that’s sort of the core controversy in this case.

The reason that may sound absurd to anyone who’s not familiar with a doctrine known as the Chevron deference—the Chevron deference stems from a 1984 Supreme Court decision by Justice [John Paul] Stevens. The basic premise of that decision is that courts owe deference to agencies when they’re interpreting a statute that they administer, the statute is either silent or ambiguous on a particular subject, and the agency’s interpretation is “reasonable.”

And so that’s why you can actually have this controversy where an agency looks at a statute, sees nothing there, and yet can kind of hallucinates this power that is enormously consequential and enormously burdensome.

Canaparo: And of course, the reason that the case is big is not just for the fishermen, but because Chevron deference is the vehicle through which agencies typically and aggressively expand their power in all sorts of fields.

So this case challenges Chevron deference directly, so you could see the Supreme Court say, “We’re not going to defer to your interpretations anymore. You are limited to the specific terms of your grant of power from Congress,” which could have enormous effects in reigning in an increasingly runaway administrative state across all sorts of agencies.

Aschieris: And just to transition to the second one, it’s SEC v. Jarkesy. The same idea here, what is this case about?

Canaparo: Yeah, sure. So, if Chevron deals with fighting agencies in courts and how courts interpret statutes, Jarkesy involves the sort of related problem of, what if you don’t get into court at all?

So a lot of administrative agencies, in this case, the Securities and Exchange Commission, which regulates certain financial industries, they have their own in-house courts of a sort. They’re not really courts, but they operate like courts. And the agency has the choice to either fight disputes with you or the people it regulates in federal courts, or it can choose to bring these cases in its in-house courts where its own in-house employees decide the case.

Now, unsurprisingly, these in-house employees who are called administrative law judges tend to side for their employer 90% of the time. And there’s all sorts of challenges, if you have constitutional challenges to the agency, do you have to bring them in that court? Recently, the Supreme Court said, “No, you can take those straight to district courts.” But you can get caught up inside an administrative tribunal for a decade before you ever get a real court hearing.

So, [George] Jarkesy is a man who the SEC went after for alleged fraud, and it brought that case inside its in-house tribunal. Now he raises an interesting Seventh Amendment defense. The Seventh Amendment to the Constitution says that in any suits at common law, is the turn of phrase, you have the right to a jury trial.

Well, one of the suits at common law is fraud. So he says, “The SEC can’t bring this suit against me for fraud in its in-house court. I have a right to a jury, which means I get to go to federal court.”

So that’s the nuts and bolts of the case.

The implications for the administrative state are, of course, again, bigger. A lot of administrative agencies have in-house courts. So if Mr. Jarkesy wins, the extent to which in-house courts are—to be sure, suits at common law, those historical cases can’t be brought in them. But there’ll be a lot of other questions about the extent to which other agency tribunals are acceptable going forward.

One of the other questions in the case, in addition to the Seventh Amendment one, and again with agency discretion, Congress didn’t give a really clear guidance to the agencies in when they should bring cases in-house or when they should bring them to federal courts.

There’s a doctrine called the nondelegation doctrine. It’s sort of a derelict doctrine that hasn’t been used for decades, but it says that if the courts are going to give an agency discretion, there needs to be some sort of intelligible principle. There doesn’t seem to be one here, and if the court agrees with Mr. Jarkesy that there isn’t one, it could really throw doubt on the availability of agency tribunals much larger than just those suits that come along.

Aschieris: Jack, anything to add?

Fitzhenry No, I think GianCarlo got that one pretty well covered.

Aschieris: Yes, I agree, I agree. Third and final case that you both write about is the Consumer Financial Protection Bureau v. Community Financial Services Association of America. The same idea here as the past two cases. Tell us a little bit more about it, break it down for us.

Fitzhenry: Sure. So, if Loper Bright and Jarkesy are about the kind of decisions that agencies make once they’re formed, the CFPB case, the Consumer Financial Protection Bureau case, is about the kind of decisions that Congress makes when it’s constructing these agencies.

Folks might know that the CFPB is a relatively recent entrant into the kind of vast bureaucratic archipelago. It was created by the Dodd-Frank Act. So within all of our lifetimes, it’s come to existence. So it’s much newer than agencies like the Environmental Protection Agency or Federal Trade Commission, which have 20th-century roots.

The CFPB is not just newer, it’s constructed in a bunch of unusual ways. It has a single member director. Lots of similar regulatory agencies have multimember boards. There are requirements that the board be composed of so many Democrats, so many Republicans.

And then more salient in this case is the fact that all of its funding is derived outside the regular annual congressional appropriations process. So most agencies that we could come up with offhand have to go every year to Congress and say, “This is our budget. This is what we need. Please give us this money.” Why? Because only Congress has access to the federal Treasury, only Congress can draw public funds or can allow for agencies to draw public funds.

What Congress did with the CFPB instead is they said, “You are going to have power in perpetuity to draw a certain large sum of money annually from the Federal Reserve.” The Federal Reserve also happens to get its funds outside the annual appropriations process. The reason for this, they made it quite clear, was that they wanted the CFPB to be permanently independent of congressional politics. They wanted it to be insulated. They did not want a future Congress with a different composition to interfere with the agency’s mission.

And the question now presented in this case is whether that arrangement is constitutional or not. Can you just spin off agencies into the ether equipped fully with quasi-legislative powers to write rules, equipped with the power to bring enforcement actions to adjudicate them in-house, and then also have this funding mechanism that doesn’t touch on Congress either? So entirely self-sufficient little globules of government power that exist outside of our normal constitutional structure.

And the Supreme Court is going to have to tell us, is this a permissible innovation somehow within the constitutional structure or does it, as the plaintiffs in this case contend, violate the Constitution, particularly the appropriations clause in Article One, which basically says, “No money shall be drawn from the public treasury except in consequence of an appropriation made by law.”

Aschieris: Anything to add?

Canaparo: No, that’s about it.

Aschieris: Now, in addition to those three cases, are there any other cases that you are watching getting ready for this term?

Canaparo: And on a different topic, you’ll remember we just got the decision in the Harvard and [University of North Carolina] cases where the Supreme Court said that you can’t use race in college admissions anymore. There are a couple cases down the pipeline, they’re not at the Supreme Court yet, but which may very well end up there in where the court will have an opportunity to further articulate what that decision means both in the context of schools and outside of them.

So you’re probably familiar, Thomas Jefferson High School—just over the river in Northern Virginia—did something very similar to what Harvard did in discriminating against Asians, but in a more technically sophisticated manner than Harvard did.

Harvard, if you recall, just said, “Look, we don’t really want Asians here, so we’re going to categorically give them bad personality scores and raise the standards of test scores, etc., for Asians.”

But what Thomas Jefferson did instead is it targeted, among other things, geographically targeted applicants. So it would reduce the number of people it took from neighborhoods where it knew that there were statistically a lot of Asians and it would boost admissions from neighborhoods where it knew that there were a lot of blacks and Hispanics.

The question is, does that discriminatory means also violate the Supreme Court’s prohibition on discriminatory ends? It seems that it would, my reading of the Harvard case suggests that that would also be inappropriate, but that’s somewhat of an open question. The school won in the court of appeal below, so that’s on petition to the Supreme Court now. I wouldn’t be surprised if they take it.

And then another recent case out of Tennessee called Ultima Services involved a challenge to a preference in government contracting given to businesses that are owned by non-whites. And the district court there looked at students of fair admissions and said, “Oh, well, look, what the Supreme Court there is concerned about, among other things, is how arbitrary these categories we use are.”

We all sort of assume without thinking that we know what it means to be black or Asian or white, but if you really break into those categories, you realize very quickly that they make almost no sense. So Asian includes 60% of the world’s population. What does somebody from, say, Pakistan have in common with somebody from Japan, that matters legally?

And he said the preference given to certain categories of non-white business owners in government contracting are wildly arbitrary if you break it down. And so he struck down this automatic preference.

So that one is probably going to be fast-tracked through the courts of appeal. That one I could also see getting to the Supreme Court because not only is government preferences outside of the educational context, sort of the next front in the fight over the use of race, but also, the Supreme Court has in the past said that the government preferences in contracting and other sorts of things are typically not appropriate, but they exist anyway.

There are just all sorts of ways around the Supreme Court opinions that have tried to reign them in. So the Supreme Court might decide, “We’d like to be taken seriously now,” and this is a good vehicle through which they could do that.

Aschieris: Just one other question that popped into my head regarding the three cases that you wrote about that we were talking about earlier. Given the makeup of the court, do you have any idea or is there any indication or clue of how these cases might be decided in terms of—we obviously haven’t heard the arguments yet, but what you’re kind of expecting?

Canaparo: Yeah. Well, very briefly, on Loper Bright and Chevron deference, I think that at different points in time, a majority of the current members of the court have expressed skepticism about Chevron deference. Am I right about that, Jack?

Fitzhenry: I wouldn’t swear it’s a majority, but certainly a majority of the conservative wing has.

Canaparo: Fair enough. So there’s a healthy skepticism on the court about Chevron deference. There’s not, obviously, a clearer consensus about what they should do with it.

Now, on the CFPB funding case, the CFPB has already been up to the Supreme Court a couple times and had its other parts of it, which Congress created other ways of keeping it independent. So for instance, the independent director, its solo director, couldn’t be fired by the president. The Supreme Court said that’s unconstitutional.

So the Supreme Court is definitely skeptical of the CFPB’s unique unaccountability to the democratic branches. But whether it goes this next step, I couldn’t tell you.

Fitzhenry: I think part of the problem with trying to forecast and answer in advance is that in each case there’s a spectrum of answers and solutions available to the court. It’s not simply, “We rule against the CFPB,” “We rule against National Marine Fisheries Service.” It matters immensely how they do that, if they do choose to rule against these agencies. And of course, it’s not entirely obvious that they will in any case or in all three.

We mentioned in our Daily Signal piece, with respect to the CFPB, and I alluded to it in my earlier answer to your question, that the CFPB is kind of a unicorn in the way it’s constructed, but individual features are shared with longer-standing agencies.

I mentioned the fact that the Fed is funded in its own way outside of annual congressional appropriations. Now, it’s not strictly speaking proper for the court to think about things in a purely pragmatican sense and say, “Oh, well, we don’t care about the CFPB, but we really care about the Fed. And so, to make sure we save the Fed, we’re going to save the CFPB.” That’s not how they’re going to think about it.

But they’re also aware of the kind of practical implications of certain decisions they make. It may incentivize them to choose a route that has the least amount of collateral damage.

So I agree with GianCarlo that with respect to Chevron, it’s probably clearest that we have a lot of skepticism. Even there, it’s not entirely clear how far they’ll go in addressing the doctrine.

The petitioners, the fishermen have asked the court to overrule the decision, but they’ve also given the court a less extreme out and said, “You can also clarify that deference is not owed to agencies when the matter is simply a statutory silence.” Ambiguity we can reserve for another day, but silence is not a delegation of interpretive authority.

So it’s entirely possible that the court could rule against National Marine Fisheries Service in this case, but leaves some vestige of Chevron alive. It’s not at all clear that they will get rid of the doctrine wholesale.

Even if they choose to overrule Chevron, it’s not clear that we’ll live in a world without agency deference. They may try to revert to an earlier, less dramatic form of deference. They may try to fashion something new.

But this is the inherent difficulty in trying to forecast specific results because … it’s not a sports competition. It’s not one team wins and the other loses. It matters immensely what remedy they choose and how they choose to reach it.

Aschieris: Now, just before we go, I wanted to give you a chance to talk about another podcast that you co-host, “SCOTUS 101.” Break it down for us. I know you’re gearing up for another season, so tell us a little bit about it.

Canaparo: Sure. I and Zack Smith, another one of our colleagues in the Meese Center, run a podcast called “SCOTUS 101,” where we have an episode pretty much every week that the Supreme Court is in session. And we just give you the news, the rundowns, the oral arguments. If we’ve got opinions, we dissect those. And we feature an interview every week with either a federal judge or a Supreme Court advocate or a law professor to break down some of these issues and how judges go about doing what they do.

Aschieris: Awesome. Well, thank you both so much for joining us. I appreciate it. I’m sure we’ll have you back on the show in the future as we get fully back into the Supreme Court’s term. So thank you both so much for joining us.

Canaparo: Thanks for having us.

Fitzhenry: Thank you, Samantha.

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